**Statement of the Hon. John T. Doolittle**

**Introduction of the Premier Certified Lenders Program Improvement Act
of 2002**

July 24, 2002

Mr. Speaker, I rise today to introduce the Premier Certified Lenders
Program Improvement Act of 2002. This legislation makes a small but very
significant change in the Premier Certified Lenders Program (PCLP) that
will benefit hundreds of small businesses around the country without
imposing any new burden on the Federal Government or U.S. Treasury.

As my colleagues no doubt recognize, small businesses are the backbone
of our nation. Indeed, Dr. Lloyd Blanchard of the Small Business
Administration (SBA) testified recently before Congress, "Today, almost
a quarter of American households are either starting a business, own a
business, or investing in someone else's business." The United States
economy depends on entrepreneurs whose spirit results in the creation of
both new businesses and new jobs.

To continue the economic growth we are experiencing today, the
Government should encourage small business development both by providing
incentives for entrepreneurs and by removing regulatory hurdles. One
successful example of Government encouragement of small business is the
Premier Certified Lenders Program (PCLP). The PCLP, established in 1997,
allows a participating Certified Development Company (CDC) the expanded
authority to review and approve SBA 504 Loan requests and to foreclose,
litigate, and liquidate SBA 504 Loans made under the Program. By taking
on this authority, the private sector is able to stretch limited federal
resources in order to help more small businesses.

To participate in the PCLP, however, a CDC is required to deposit one
percent of each SBA 504 Debenture issued under the PCLP into a loss
reserve account. This deposit remains in the loss reserve account until
the PCLP Debenture is fully paid or until the SBA suffers a loss. The
loss reserve account is designed to cover ten percent of any loss
incurred by SBA as a result of a default.

The loss reserve account was made a part of the PCLP legislation to
address the concern that a participating CDC would not have any
perceived "risk" associated with its expanded authority under the
Program. However, the percentages used in figuring the loss reserve
accounts -- the ten percent to cover any loss and the one percent of
every Debenture as contribution \-- were determined arbitrarily and are
not based on any historical loss record or risk analysis. The one
percent contribution is the most egregious; the full deposit must remain
in the loss reserve account even as the loan is paid down over its
twenty year term and there is no accounting for the historical reduction
of risk as a loan matures.

As a result of these arbitrary requirements of the PCLP, many CDCs have
decided not to participate. As for those who are participating, some
companies have accumulated large loss reserve accounts which are far in
excess of any amounts that would ever be realistically used to insure
payment of their loss obligation to SBA. The long term retention of
these excess reserve funds hinders participating CDCs from reaching
their full potential to foster economic development, create job
opportunities, and stimulate growth, expansion, and modernization of
small businesses.

The legislation I am introducing today will improve the Premier
Certified Lenders Program by giving participating CDCs greater
flexibility. Specifically, my legislation amends the Premier Certified
Lenders Program to allow willing CDCs to establish "risk-based" loss
reserve accounts that are sufficient to protect the Government and
taxpayers from default, but that do not contain excessive amounts of
capital that would be better dedicated to helping additional small
businesses.

Mr. Speaker, maintaining a risk-based reserve is just common sense.
Other industries, such as the banking industry, have already moved from
a "loan-by-loan" reserve to a "pool" reserve to cover their exposure.

Under my legislation, a participating CDC will be able to establish a
risk-based reserve only if it: (1) proves itself to be an established
PCL (minimum of \$25,000 in its loss reserve account); (2) freely elects
to develop such a reserve; (3) obtains quarterly approval from a
third-party auditor that its loss reserve is sufficient to cover its
risk of default; and (4) receives annual approval from the SBA. These
requirements will ensure that participating CDCs are accountable and
that U.S. taxpayers are protected.

I hope my colleagues will take an opportunity to review this legislation
to improve the Premier Certified Lenders Program. I look forward to
working with them and the Small Business Committee, chaired by my
friend, Don Manzullo, to encourage the creation and expansion of more
small businesses across our nation.