![](media/image1.jpeg){width="6.489583333333333in"
height="1.15625in"}**Legislative
Bulletin...........................................April 25, 2007**

> **Contents:**
>
> **H.R. 1332** --- Small Business Lending Improvements Act of 2007

H.R. 1332 --- Small Business Lending Improvements Act of 2007\
(*Bean, D-IL*)

**[Order of Business]{.underline}:** The bill is scheduled for
consideration on Wednesday, April 25, 2007, subject to a structured rule
([H.Res.
330](http://www.rules.house.gov/SpecialRules_details.aspx?NewsID=2614)),
which allows for four amendments.

**[Summary]{.underline}:** H.R. 1332 would expand the two largest
business finance programs conducted by the Small Business Administration
(SBA), the 7(a) and 504 loan programs. The 7(a) program provides loan
guarantees to approved banks and other lenders, and the CDC/504 loan
program provides long-term, fixed-rate financing for major fixed assets
for the purpose of encouraging economic development with a community.
The specific provisions of the bill are as follows:

-   Authorizes the SBA to offset borrower and lender fees collected on
    7(a) loan programs. The committee report states the purpose is to
    reduce the "burden associated with borrower and lender fees" and
    make these loans "more affordable." The contribution (offset) would
    be commensurate with an appropriation, if made available, it must be
    fully used during the fiscal year, and adjusted quarterly. The
    provision provides the SBA broad discretion in determining the
    recipient and amount of the offset, and as such, it is unclear which
    borrowers would be provided this government offset on their
    government loan.

-   **Creates a new rural lending outreach program**, which would
    provide up to an 85 percent guaranty for loans up to \$250,000.
    Requires that the program only be carried out through rural area
    lenders, and sets certain requirements on approving and processing
    the loans.

-   **Creates a new Community Express Program** under the SBA's 7(a)
    program for loans up to \$250,000. Loans may be provided under this
    program only under the following conditions:

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-   loans are provided to businesses that are majority owned by woman,
    socially disadvantaged individuals (as defined by the SBA), or
    military veterans;

-   loans are provided to businesses that are located in low or moderate
    income areas;

-   for loans of \$25,000 or less, no collateral will be required; and

-   the SBA must approve or disapprove the loan within 36 hours.

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-   **Creates a new SBA loan program** termed the Medical Professionals
    in Designated Shortage Areas Program, and applies the following
    restrictions to loans under this program:

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-   must be made to a business that provides properly licensed medical,
    dental, or psychiatric services to the public;

-   must be provided for the purpose of opening a business in a health
    professional shortage area (as defined in 42 USC 254e);

-   requires the SBA to provide 90 percent of the outstanding financing
    balance at the time of loan disbursement; and

-   reduces the associated fees by half for this program otherwise
    required by law.

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-   **Creates a new SBA loan program** termed the Increased Veteran
    Participation Program, and applies the following restrictions to
    loans under this program:

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-   must be made to businesses that are majority owned by U.S. military
    veterans;

-   requires the SBA to provide 90 percent of the outstanding financing
    balance at the time of loan disbursement; and

-   eliminates the associated fees for this program otherwise required
    by law

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-   Applies the same standard for determining small business loan
    eligibility under the 7(a) program for alternative size standard
    loans as the SBA currently applies for other loans (as described in
    section 121.301(b) of title 13, Code of Federal Regulations). Per
    the committee report, the stated purpose of this provision is to
    simply toe standard in determining loan eligibility.

-   Requires the SBA to administer a program to provide support to
    regional offices of the SBA in recruiting small lenders currently
    not participating in the 7(a) program to begin participating in this
    program.

-   Defines "certified development company" to mean an entity
    incorporated under state law with the authority to promote and
    assist small business growth and development in certain areas
    determined and authorized by the SBA.

-   Allows a development company (CDC) to issue debentures (a long-term
    debt instrument that is not secured by a specific asset) so long as
    it meets the following criteria:

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-   CDCs must be a small concern with less than 500 employees and not
    under the control of another entity which does not meet the SBA's
    size standards for a small business (except for those companies that
    were certified by the SBA prior to December 31, 2005, which may
    continue to issue debentures);

-   CDCs primary purpose must be to benefit the community by fostering
    economic development to create and preserve jobs and stimulate
    private investment;

-   CDCs must be a non-profit corporation (except for those development
    companies that were certified by the SBA prior to January 1, 1987);

-   CDCs must be in good standing within its state of incorporation (and
    other states in which it does business), and in compliance with all
    applicable laws;

-   CDCs must have at least 25 members, none of whom may own or control
    more than 10 percent of the company's voting membership, *consisting
    of representation from each of the following groups*: government
    organizations involved in economic development, financial
    institutions that provide commercial long-term fixed asset
    financing, community organizations involved in economic development,
    and businesses;

-   CDCs must have a board of directors that a) is elected from the
    membership by the members, b) represents at least three of the four
    groups listed above, and c) meets on a regular basis to make policy
    decisions; and

-   CDCs must have full-time professional management staff qualified to
    market the Certified Development Company Economic Development Loan
    Program, among several other requirements and restrictions.

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-   Amends the definition of a "rural area" to include any area other
    than a) a city or town that has a population greater than 50,000
    inhabitants, and b) the urbanized area contiguous and adjacent to
    any such city or town.

-   Modifies the SBA's 504 loan program to designate financing in areas
    eligible for investment under the New Markets Tax Credit Program as
    a public policy goal under the 504 program.

-   Modifies the current terms under which SBA determines whether or not
    a business is minority owned. Specifically, this provision states
    that a business (or company's stock) owned by more than one
    individual is qualified to receive loan assistance (by being deemed
    a public policy goal under current regulations) if the combined
    ownership share of at least 51 percent is held by individuals who
    are minorities, women or veterans.

-   Permits SBA borrowers to refinance a limited amount of existing debt
    secured by a current mortgage on the property being expanded by the
    504 project, with certain other restrictions.

-   Requires CDCs to either foreclose and liquidate defaulted loans that
    it made or to contract with a qualified third-party to do so. SBA
    must reimburse a CDC for all incurred expenses by that CDC, so long
    as the expenses were approved by the SBA in advance or were
    "reasonable and appropriate."

-   Allows the SBA to provide financing to borrowers under the 504
    program to borrow the maximum amount provided for, in addition to
    obtaining a loan guarantee under the 7(a) program to the maximum
    amount provided for.

-   Allows energy efficiency projects that reduce the borrower's energy
    consumption by at least 10 percent to qualify as a public policy
    goal under the 504 program (which secures loan eligibility under
    this program) and to qualify the entity for the \$4 million
    debenture.

-   Extends through FY 2008 current law that permits a) CDCs to base
    their loan loss reserves on the outstanding balance of debentures,
    and b) CDCs to use an alternative risk-based methodology to
    calculate their loan loss reserves.

**[Additional Background]{.underline}:** The SBA was originally
established in 1953, and has been subsequently expanded and reauthorized
numerous times in the last four decades, most recently within the 2005
Consolidated Appropriations Act (H.R. 4818; P.L. 108-447) in the 108^th^
Congress. For additional information about the creation and history of
the Small Business Administration, please visit the [SBA
website](http://www.sba.gov/aboutsba/history/index.html). For additional
information that is critical of the current role and usefulness of the
SBA loan program, please visit the [American Enterprise Institute
website](http://www.aei.org/publications/pubID.24224/pub_detail.asp).

[]{.mark}

**[Possible Conservative Concerns]{.underline}:** As described above,
the bill significantly expands SBA loan programs, creates several new
programs, and makes some temporary programs permanent. Some
conservatives may be concerned by the scope of these expansions and
additions which further engage the federal government in lending to the
private sector. The very nature of many SBA loan programs is to target
(by setting preconditions for qualifying for certain loans) certain
groups for preferential loan packages and options, thus picking "winners
and losers" in the private market, instead of allowing market forces
(i.e. -- the most qualified candidates based on their business plan,
market, and needs) to determine the most appropriate beneficiary of
limited resources and funds. Further, some conservatives argue that the
current SBA loan programs are duplicative of private-sector efforts and
opportunities and are counterproductive to fostering competitiveness,
growth, and ingenuity in U.S. small businesses.

**[Amendments]{.underline}:** Below are the summaries of the four
amendments made in order under the rule ([H.Res.
330](http://www.rules.house.gov/SpecialRules_details.aspx?NewsID=2614)).
The rule provides for one hour of debate and waives all points of order
against the bill (except for clauses 9 and 10 of Rule XXI: for PAYGO and
earmarks/limited tax benefits). [Note]{.underline}: Summaries are based
on RSC staff's review of actual amendment text.

**1. *Matheson (D-UT)*.** Adds "members of reserve components of the
armed forces" as eligible to receive loans under the Community Express
Program and the Increased Veteran Participation Program. (Debatable for
10 minutes)

**2. *Matheson (D-UT)*.** Adds "members of qualified Indian tribes" as
eligible to participate in the Community Express Program. (10 minutes)

**3. *Cuellar (D-TX)*.** Allows rural small business owners, who do not
have a rural lender located within 30 miles of their principal place of
business, to be eligible for the Rural Lending Outreach Program loans
issued by any lender enrolled in the 7(a) loan program. (10 minutes)

**4. *Inslee (D-WA)*.** Adds an additional public policy goal to the
Small Business Lending program (section 504) to increase the use of
sustainable design or low-impact design to produce buildings that reduce
carbon-emissions and environmental impact. (10 minutes)

**[Committee Action]{.underline}:** H.R. 1332 was introduced on March 6,
2007, and referred to the Committee on Small Business, which considered
and reported (amended) to the House by (voice vote / unanimous consent)
on April 20^th^ (House Report
[110-104](http://www.congress.gov/cgi-lis/cpquery/R?cp110:FLD010:@1(hr104):)).

**[Administration Policy]{.underline}:** According to the Statement of
Administration Policy (SAP) released for H.R. 1332, the Administration
does not support this bill in its current form. The SAP stated, in part,
that: "The Administration therefore cannot support House passage of H.R.
1332 unless it is amended to delete provisions that would increase these
subsidies and the need for appropriations and/or increased fees on other
loan applicants. ***H.R. 1332 could potentially reverse \[recent SBA
successes\] by reintroducing or increasing taxpayer-funded subsidies for
small business loan programs***." (emphasis added)

**[Cost to Taxpayers]{.underline}:** According to CBO, H.R. 1332 will
authorize \$486 millon in FY08, and \$2.565 billion over the FY08-FY12
period.

**[Does the Bill Expand the Size and Scope of the Federal
Government?]{.underline}:** Yes, as noted above, the bill expands
several programs administered by the SBA and creates several new
programs and positions.

**[Does the Bill Contain Any New State-Government, Local-Government, or
Private-Sector Mandates?]{.underline}:** No.

**[Constitutional Authority]{.underline}:** The 1332 Committee, in House
Report
[110-104](http://www.congress.gov/cgi-lis/cpquery/R?cp110:FLD010:@1(hr104):),
cites constitutional authority in Article I, Section 8, Clause 18 (the
congressional power to make all laws necessary and proper for carrying
into execution the foregoing powers listed in the Constitution), but
fails to cite a foregoing power of authority.

House Rule XIII, Section 3(d)(1), requires that all committee reports
contain "a statement citing the *specific* powers granted to Congress in
the Constitution to enact the law proposed by the bill or joint
resolution." *\[emphasis added\]*

**[RSC Staff Contact]{.underline}:** Derek V. Baker;
[derek.baker@mail.house.gov](mailto:Derek.baker@mail.house.gov);
202-226-8585

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