[Senate Report 115-438]
[From the U.S. Government Publishing Office]


                                                      Calendar No. 634
115th Congress     }                                    {       Report
                                 SENATE
 2d Session        }                                    {      115-438

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       SMALL BUSINESS ACCESS TO CAPITAL AND EFFICIENCY (ACE) ACT

                                _______
                                

               December 19, 2018.--Ordered to be printed

                                _______
                                

 Mr. Risch, from the Committee on Small Business and Entrepreneurship, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 3553]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Small Business and Entrepreneurship, to 
which was referred the bill (S. 3553) to amend the Small 
Business Investment Act to align the real estate appraisal 
thresholds under the section 504 program of the Small Business 
Administration with the threshold used by the Federal banking 
regulators, and for other purposes, having considered the same, 
reports favorably thereon without amendment and recommends that 
the bill do pass.

                            I. INTRODUCTION

    The Small Business Access to Capital and Efficiency (ACE) 
Act was introduced by Chairman James E. Risch on October 5, 
2018.
    The bill amends the Small Business Investment Act of 1958 
to align the appraisal threshold amount for SBA's 504 loan 
guaranty program to the Federal banking regulators' threshold 
amount for commercial real estate transactions, or the lesser 
amount of the three Federal banking regulators' (Federal 
Reserve System, Federal Deposit Insurance Corporation and 
Comptroller of the Currency) threshold for commercial real 
estate transactions, if there is a discrepancy. The bill was 
approved unanimously by a roll call vote as part of a six-bill 
manager's package.

              II. HISTORY (PURPOSE & NEED FOR LEGISLATION)

    The Small Business Administration (SBA) administers a 
number of loan programs to provide access to capital to fit the 
needs of entrepreneurs and small businesses who are unable to 
obtain conventional credit. One of these programs, the 504/
Certified Development Company (CDC) Loan Program, provides 
long-term, fixed rate financing that is used to acquire fixed 
assets for expansion or modernization. These loans are made 
available through Certified Development Companies (CDCs), which 
serve as SBA's community based partners for providing 504 
loans. 504 loans are structured with a third-party lender 
providing 50 percent of the financing (taking the first lien 
position), the CDC providing up to 40 percent of the financing 
through a SBA guaranteed debenture (taking the second lien 
position), and the applicant providing at least 10 percent of 
the financing.\1\
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    \1\Dilger, Robert Jay. Updated November 7, 2018. Small Business 
Administration 504/CDC Loan Guaranty Program. Retrieved from: http://
www.crs.gov/Reports/R41184.
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    The 504/CDC loan guaranty program is unique amongst SBA's 
loan products in part due to its requirements with regard to 
economic development. A business must create or retain one job 
for every $65,000 guaranteed by the SBA, while small 
manufacturers must create or retain a ratio of one job for 
every $100,000 guaranteed. As an alternative to the job 
creation requirement, a business may qualify if it meets a 
community development or public policy goal and the CDC lender 
maintains its portfolio job average requirement. Community 
development goals include: improving, diversifying or 
stabilizing the local economy; stimulating other business 
development; bringing new income into the community; assisting 
manufacturing firms; or assisting businesses in Labor Surplus 
Areas. Conversely, public policy goals that qualify include: 
revitalizing a business district of a community with a written 
revitalization or redevelopment plan; expanding exports; 
expanding small businesses owned and controlled by women; 
expanding small businesses owned and controlled by veterans; 
expanding minority business development; aiding rural 
development; and increasing productivity and competitiveness.
    The 504/CDC loan guaranty program provides an important 
option for borrowers seeking financing for major fixed assets 
such as land, buildings, equipment, and machinery, while 
providing an economic benefit to the community. In FY 2018, the 
SBA approved 5,874 504 loans amounting to nearly $4.8 
billion.\2\
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    \2\Id.
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    Because of the long-term, fixed-rate terms associated with 
the 504/CDC loan guaranty program and its focus on fixed 
assets, the program is often used to secure real estate for 
small businesses. Since 2000, the SBA loan programs have 
required appraisals for commercial real estate transactions 
consistent with the appraisal threshold level set by the 
Federal banking regulators for conventional commercial real 
estate loans in 1994.\3\ While the threshold level for 
conventional commercial real estate loans is set by regulation, 
the threshold level for 504 commercial real estate loans is set 
by statute under the Small Business Investment Act of 1958.
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    \3\OCC: 12 CFR 34.42(d); Federal Reserve: 12 CFR 225.62(d); and 
FDIC: 12 CFR 323.2(d).
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    On April 9, 2018, after a year of dialogue with industry 
stakeholders, the Board of Governors of the Federal Reserve 
(Federal Reserve), the Federal Deposit Insurance Corporation 
(FDIC), and the Office of the Comptroller of the Currency (OCC) 
together issued a final rule increasing the appraisal threshold 
for commercial real estate loans from $250,000 to $500,000.\4\ 
Part of the impetus for this change stems from the increase in 
commercial property values since the threshold was established 
in 1994; due to these increased values, financial institutions 
were required to get formal appraisals on a larger proportion 
of transactions than when the standard was originally set. 
Additionally, through the rulemaking process, regulators 
determined that the increase in the number of appraisals 
required may contribute to a higher burden and cost to 
financial institutions. Regulators concluded that increasing 
this threshold would reduce the burden for both rural and non-
rural institutions while posing no threat to the safety and 
soundness of financial institutions.
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    \4\83 FR 15019.
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    Because the threshold for SBA's 504/CDC loan guaranty 
program is set at $250,000 in statute, legislation is required 
to harmonize and modernize SBA's loan program requirements with 
the threshold set by Federal banking regulators.

                        III. DESCRIPTION OF BILL

    The bill amends the Small Business Investment Act of 1958 
to align the appraisal threshold amount for SBA's 504 loan 
guaranty program to the Federal banking regulators' threshold 
amount for commercial real estate transactions, or the lesser 
amount of the three Federal banking regulators' (Federal 
Reserve System, Federal Deposit Insurance Corporation and 
Comptroller of the Currency) threshold for commercial real 
estate transactions, if there is a discrepancy. This change 
ensures that the 504 loan guaranty program's appraisal 
threshold is always in harmony with the Federal banking 
threshold for conventional loans.

                           IV. COMMITTEE VOTE

    In compliance with rule XXVI (7)(b) of the Standing Rules 
of the Senate, the following vote was recorded on October 11, 
2018.
    A motion to adopt the Small Business Access to Capital and 
Efficiency (ACE) Act, a bill to amend the Small Business 
Investment Act of 1958 to align the real estate appraisal 
thresholds under the section 504 loan guaranty program of the 
Small Business Administration to bring those thresholds into 
line with the thresholds used by the Federal banking 
regulators, and for other purposes, was approved unanimously, 
by a roll call vote of 19-0, as part of a six-bill manager's 
package.\5\ Senators Risch, Cardin, Rubio, Paul, Scott, Ernst, 
Inhofe, Young, Enzi, Rounds, Kennedy, Cantwell, Shaheen, 
Heitkamp, Markey, Booker, Coons, Hirono, and Duckworth voted 
for the bill.
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    \5\The manager's package included: the substitute amendment for S. 
2679, the Veterans Small Business Enhancement Act; S. 3552, the 7(a) 
Real Estate Appraisal Harmonization Act; S. 3553, the Small Business 
Access to Capital and Efficiency Act; S. 3554, a bill to extend 
effective date for the sunset for collateral requirements for Small 
Business Administration disaster loans; S. 3561, the National Guard and 
Reserve Entrepreneurship Support Act; and S. 3562, the Small Business 
Runway Extension Act of 2018.
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                            V. COST ESTIMATE

    In compliance with rule XXVI (11)(a)(1) of the Standing 
Rules of the Senate, the Committee estimates the cost of the 
legislation will be equal to the amounts discussed in the 
following letter from the Congressional Budget Office:

                                     U.S. Congress,
                               Congressional Budget Office,
                                  Washington, DC, October 15, 2018.
Hon. James E. Risch,
Chairman, Committee on Small Business and Entrepreneurship,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 3553, the Small 
Business ACE Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Stephen 
Rabent.
            Sincerely,
                                                Keith Hall,
                                                          Director.
    Enclosure.

    Under current law, small businesses that receive loans 
under the Small Business Administration's (SBA's) 504/Certified 
Development Company Loan program are required to receive an 
appraisal on commercial real property used as collateral in 
securing those loans if the estimated value of the property is 
$250,000 or greater. S. 3553 would raise that threshold to the 
lowest of the thresholds used by the Board of Governors of the 
Federal Reserve System, the Comptroller of the Currency, and 
the Federal Deposit Insurance Corporation to determine when a 
commercial real estate transaction requires an appraisal. The 
threshold for all three agencies is currently $500,000.
    Using information from the SBA on the costs of similar 
activities, CBO estimates that implementing the bill would cost 
less than $500,000 for the agency to update its program rules; 
such spending would be subject to the availability of 
appropriated funds. CBO also estimates that any change in the 
subsidy cost of SBA loans, which is subject to appropriation, 
would also be insignificant.
    Enacting S. 3553 would not affect direct spending or 
revenues; therefore, pay-as-you-go procedures do not apply.
    CBO estimates that enacting S. 3553 would not increase net 
direct spending or on-budget deficits in any of the four 
consecutive 10-year periods beginning in 2029. S. 3553 contains 
no intergovernmental or private-sector mandates as defined in 
the Unfunded Mandates Reform Act.
    On August 13, 2018, CBO transmitted a cost estimate for 
H.R. 6348, the Small Business ACE Act, as ordered reported by 
the House Committee on Small Business on July 18, 2018. The two 
pieces of legislation are similar and CBO's estimates of their 
budgetary effects is the same.
    The CBO staff contact for this estimate is Stephen Rabent. 
The estimate was reviewed by H. Samuel Papenfuss, Deputy 
Assistant Director for Budget Analysis.

                  VI. EVALUATION OF REGULATORY IMPACT

    In compliance with rule XXVI (11)(b) of the Standing Rules 
of the Senate, it is the opinion of the Committee that no 
significant additional regulatory impact will be incurred in 
carrying out the provisions of this legislation.

                    VII. SECTION-BY-SECTION ANALYSIS

Section 1: Short title

    This section provides the short title for the Act, the 
``Small Business Access to Capital and Efficiency Act'' or the 
``Small Business ACE Act.''

Section 2: Appraisal thresholds

    This section amends section 502(3)(E)(ii) of the Small 
Business Investment Act of 1958 (15 U.S.C. 696(3)(E)(ii)) by 
updating the SBA's 504/CDC loan guaranty program's commercial 
real estate threshold to parallel the threshold set by Federal 
banking regulators for conventional commercial real estate 
loans.
    This section does not specify a dollar amount for 504 
commercial real estate loans, but rather modernizes the statute 
to match the 504 appraisal threshold to the lowest level set by 
the Federal banking regulators, should they differ. Currently, 
the regulators have together set this level at $500,000 as of 
April 9, 2018. This language is important to ensure lenders who 
provide SBA products along with their conventional products--
most of whom are federally regulated--do not have an added 
layer of complexity managing two different appraisal 
thresholds, while guaranteeing small business borrowers who 
cannot obtain credit elsewhere are not required to get an 
appraisal on loans that conventional borrowers do not have to 
obtain. This language also provides long-term clarity and 
certainty to lenders and borrowers by unifying the 504 
program's appraisal threshold with the Federal banking 
regulators threshold moving forward.

                                  [all]