59–010 

Calendar No. 352 

110TH CONGRESS REPORT " ! SENATE 1st Session 110–154 

SMALL BUSINESS LENDING REAUTHORIZATION AND 

IMPROVEMENTS ACT OF 2007 

SEPTEMBER 12, 2007.—Ordered to be printed 

Mr. KERRY, from the Committee on Small Business and 

Entrepreneurship, submitted the following 

R E P O R T 

[To accompany S. 1256] 

The Committee on Small Business and Entrepreneurship, to 

which was referred the bill (S. 1256) to amend the Small Business 

Act to reauthorize loan programs under that Act, and for other purposes having considered the same, reports favorably thereon with 

an amendment in the nature of a substitute and recommends that 

the bill (as amended) do pass. 

I. INTRODUCTION

The Small Business Lending Reauthorization and Improvements 

Act of 2007 (S. 1256) was introduced by Senator John F. Kerry, for 

himself and Senators Snowe and Levin, on May 1, 2007. The bill 

reauthorizes the SBA’s microloan programs, the 7(a) Loan Guaranty program, and the 504 Loan Guaranty program for Fiscal 

Years 2007, 2008, 2009, and 2010. In addition to making significant improvements to the SBA’s lending programs, the bill also authorizes two new pilot program initiatives. 

During markup of the bill, the Committee unanimously adopted 

by voice vote, a bipartisan managers’ substitute amendment, offered by Chairman Kerry for himself and Ranking Member Snowe, 

which incorporated modified versions of amendments filed by Senators Isakson, Bond, and Enzi regarding the reduction of 7(a) loan 

fees, the Child Care Lending Pilot Act, and the Microloan program. 

The bill was subsequently adopted as amended by a roll call vote 

of 19–0. 

The Small Business Lending Reauthorization and Improvements 

Act of 2007, S. 1256, is the product of a series of hearings, meetVerDate Aug 31 2005 00:38 Sep 14, 2007 Jkt 059010 PO 00000 Frm 00001 Fmt 6659 Sfmt 6602 E:\HR\OC\SR154.XXX SR154

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ings and roundtables held in 2006 and 2007 that examined the capital needs of small businesses and sought to determine whether the 

SBA’s loan programs were serving their purpose and whether legislative changes were needed. The bill incorporates virtually all of 

the lending provisions that were unanimously adopted by the Committee in the 109th Congress as part of the ‘‘Small Business Reauthorization and Improvements Act of 2006,’’ S. 3778, a comprehensive reauthorization bill developed under Senator Snowe, then the 

chair of the Committee. S. 1256 builds on the Committee’s work of 

the 109th Congress, making significant changes to the SBA’s 7(a) 

Loan Guaranty program, the Agency’s largest small-business loan 

program. The bill also institutes a rural outreach lending program 

designed to increase lending in rural areas, modifies the 504 Loan 

Guaranty program to provide incentives to increase business development in low-income communities, adopts versions of proposals by 

the Administration to make uniform the real estate appraisal requirements for 7(a) and 504 loans, and establishes a semi-annual 

schedule for payment of principal and interest on 504 debentures. 

II. HEARINGS AND ROUNDTABLES

In the 109th Congress, under Senator Snowe, then chair of the 

Committee: On March 9, 2006, the Committee held a hearing to examine the SBA’s Fiscal Year 2007 budget and the SBA’s proposed 

legislative package for reauthorization. SBA Administrator Hector 

Barreto provided testimony on the SBA’s achievements and its 

budgetary and programmatic proposals for Fiscal Year 2007. The 

Administration proposed a funding level of $624 million for the 

SBA, of which only $425 million was dedicated to the SBA’s core 

programs, and continued the trend of SBA budget cuts. In context, 

since 2001, the FY 2007 budget request reduced the SBA’s budget 

by 37 percent. During the hearing, the Committee questioned the 

rationale for the SBA’s budget cuts and proposals for essential programs, such as elimination of all three microloan programs and the 

Administration’s proposal to impose administrative fees on the 

small business participants through programs authorized in Section 7(a) of the Small Business Act, and Section 504 of Title III of 

the Small Business Investment Act regarding Small Business Investment Companies (SBIC). These proposals were controversial 

and were not adopted by the Committee. 

On April 26, 2006, the Committee held a hearing entitled, ‘‘Reauthorization of SBA Financing and Economic Development Programs.’’ The Committee heard from lenders, small business stakeholders, and SBA representatives on the benefits of SBA’s credit 

programs and evaluated reauthorization proposals to improve the 

broad range of finance programs which play a vital role in assisting 

America’s entrepreneurs in obtaining operating and equity capital. 

In the 110th Congress, under the Chairmanship of Senator 

Kerry: On February 28, 2007, the Committee held a hearing to review the SBA’s Fiscal Year 2008 budget. Stephen Preston, the new 

SBA Administrator, testified. He presented the Administration’s 

budget request of $464 million for the Agency. Of concern to many 

on the Committee was the proposal to move the SBA’s Microloan 

program to zero subsidy and to eliminate the technical assistance 

grants for counseling the borrowers. Since 2005, the Administration had proposed the elimination of the Microloan program, and 


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moving to a subsidy model with no technical assistance was considered tantamount to elimination because many intermediaries considered the combination unworkable and therefore would have quit 

participating in the program. Consequently, the proposal was not 

well-received by most members of the Committee. The budget did 

propose fee reductions for SBIC debenture deals and 504 and 7(a) 

loans, but there was concern that the fee reduction for 7(a) loans 

would only benefit the lenders and not the borrowers. Also of concern was a recycled proposal to impose a new fee on 7(a) loans sold 

in the secondary market. The request is controversial because it is 

viewed as duplicative and premature given that the need is based 

on an estimate that the payments could run short in ten years, by 

2017. 

On May 2, 2007, the Committee held a roundtable entitled, ‘‘SBA 

Reauthorization: Small Business Loan Programs.’’ The purpose of 

the roundtable was to get feedback on the provisions in S. 3778, 

and to give members an opportunity to get feedback from the SBA, 

lending experts, and small business advocates concerning the bill. 

The roundtable expanded on the public record built as part of the 

capital reauthorization hearing held in 2006, but focused only on 

SBA microloans, 7(a) loans, 504 loans, and two pilot programs. Of 

particular concern was the SBA’s proposal to make the Microloan 

program zero-subsidy by raising the interest rate on lenders, to 

eliminate the Microloan technical assistance program, and to require the SBA’s other counseling partners—Small Business Development Centers, Women’s Business Centers, and SCORE—to serve 

microloan borrowers. For the 7(a) Loan Guaranty program, the debate centered on fees, specifically the authority to reduce fees when 

there are excess funds to cover the cost of the program, and the implementation of an oversight fee that was authorized as part of the 

2005 Omnibus Appropriations Act. The fee reduction language generated debate because the Administration succeeded in making the 

7(a) loan program zero subsidy in FY 2005, and the SBA, and certain members of the Committee, oppose any language that would 

make it possible for the 7(a) loan program to receive appropriations 

again. There was opposition to the Administration’s implementation of the oversight fee because the industry felt that the fees 

were excessive and duplicative. There was also concern among 

Committee staff because the law and final rule went beyond what 

the Committee had intended and adopted when it considered a 

similar provision in 2005 as part of S. 1375, the ’’Small Business 

Administration 50th Anniversary Reauthorization Act of 2003.’’ For 

the 504 loan program, the trade association for 504 lenders/Certified Development Companies seconded the 7(a) industry’s strong 

opposition to the imposition of new oversight fees. They also voiced 

absolute opposition to the SBA’s proposal to move from a bi-annual 

to a monthly debenture payment schedule out of fear of scaring off 

investors. Last, the 504 loan representatives argued for raising the 

real estate appraisal requirement from $250,000 to $750,000. In 

spite of the SBA’s past opposition to Senator Levin’s Intermediary 

Lending Pilot program and Senator Kerry’s Child Care Lending 

Pilot program, the roundtable generated positive discussion of the 

initiatives. There was also discussion of and support for the creation of an Office of Minority Small Business Development at the 

SBA to provide leadership within the agency to increase lending, 


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venture capital, counseling, and contracting assistance from the 

SBA’s programs to minority business owners. 

On May 22, 2007, the Committee held a hearing entitled, ‘‘Minority Entrepreneurship: Assessing the Effectiveness of SBA’s Programs for the Minority Business Community.’’ As part of reauthorization, the Committee has tried to address complaints from minority business owners, and organizations representing minorities, 

that SBA’s programs do not effectively meet the needs of these entrepreneurs, and that we need to use these economic development 

tools to help close the wealth gap between whites and minorities. 

The Committee discussed the need to increase the share of loans 

to minorities, which has remained largely stagnant since 2001, to 

increase the SBIC investments in firms owned by minorities, and 

to increase the licenses of SBIC funds to minorities. 

III. DESCRIPTION OF BILL

Authorization of programs 

The Small Business Lending Reauthorization and Improvements 

Act of 2007, S. 1256, reauthorizes the SBA’s non-disaster loan programs for Fiscal Years 2007, 2008, 2009, and 2010, establishing 

maximum financing levels. 

The Microloan programs. The direct Microloan program is reauthorized to leverage $110 million in loans for each of FY 2007, FY 

2008, FY 2009, and FY 2010. The guaranty Microloan program is 

reauthorized to leverage $50 million for each of FY 2007, FY 2008, 

FY 2009, and FY 2010. Microloan Technical Assistance grants to 

microloan intermediaries are authorized at the level of $80 million 

for each of FY 2007, FY 2008, FY 2009, and FY 2010. The Program 

for Investment in Microentrepreneurs (PRIME) is reauthorized for 

$15 million for each of FY 2007, FY 2008, FY 2009, and FY 2010. 

The 7(a) Loan Guaranty program is reauthorized at levels of $18 

billion for FY 2007, $19 billion for FY 2008, $20 billion for FY 

2009, and $21 billion for FY 2010. 

The 504 Loan Guaranty program is reauthorized at levels of $8 

billion for FY 2007, $8.5 billion for FY 2008, $9 billion for FY 2009, 

and $9.5 billion for FY 2010. 

Title I—Microloan programs 

The SBA has three programs to support micro-entrepreneurs: the 

Microloan program, its partner Microloan Technical Assistance program, and the Program for Investment in Microentrepreneurs 

(PRIME). Under the Microloan program, the SBA makes loans and 

grants to intermediaries, who then re-loan their loan funds to small 

businesses, at a maximum $35,000. The lending intermediaries 

also receive grants from the SBA to provide both pre-loan and postloan technical assistance to the small businesses and entrepreneurs 

they serve. This program has proven very effective at serving the 

needs of minority and women business owners and business owners 

in rural areas. For example, in FY 2006, the share of microloans 

to businesses owned by African Americans was 28 percent; by Hispanics was 19 percent; by women was 46 percent; and in rural 

areas was 33 percent. By comparison, the share of other SBA loans 

to businesses owned by African Americans ranged from 2 to 7 percent; by Hispanics ranged from 8 to 11 percent; by women ranged 


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from 16 to 23 percent; and in rural areas ranged from 21 to 28 percent. 

Further, this program has an excellent track record. Since the 

first SBA microloan was made in 1992, there has only been one 

loss to the government. In spite of these facts, the Administration 

opposes these programs and has proposed eliminating them since 

FY 2005. The proposals have been rejected each year by Congress. 

In this year’s budget and legislative package, the President modified his proposal. Instead of completely eliminating the Microloan 

program, he proposed making it zero subsidy by raising the interest rate paid by intermediaries. Specifically, the SBA’s proposal 

sought to increase the interest rate it charges to a microlender for 

an SBA loan from 2 percent below the five-year Treasury rate to 

1.06 percent above the five-year Treasury rate (which would be 

5.99 percent in FY 2008). This would increase the interest rate 

charged to microentrepreneurs to approximately 12–13 percent for 

a loan from the current rate of approximately 10 percent. As such, 

many intermediaries reported that they would not be able to participate in the program because while the increase appeared modest, in practice it would be too expensive for the clients they serve. 

Further, because the five-year Treasury rate fluctuates, if it increased, so would the cost on the intermediaries and the borrowers, 

making the program even more expensive and therefore even less 

likely to work. 

The SBA also proposed eliminating the microloan technical assistance component and shifting the counseling of borrowers to 

SBA’s other counseling partners, such as the Small Business Development Centers, the Women’s Business Centers, and SCORE. The 

proposal was widely criticized at the SBA’s budget hearing on February 28, 2007, and at the roundtable on May 2, 2007, on reauthorization of the SBA’s loan programs. Participating in the roundtable 

were intermediaries from Massachusetts, Maine, and South Carolina. They carry out the program on a day-to-day basis and explained that the proposal was unworkable. They already work with 

very thin margins, and increased interest rates would make it impossible for many of their clients to afford the loans. They added 

that they would not make SBA microloans if they were not provided with the funding to provide technical assistance. The technical assistance to the borrower helps them succeed and therefore 

repay their loan to the intermediary, which makes it possible for 

the intermediary to repay the SBA. To protect against losses, the 

program requires each intermediary to put up to 15 percent of their 

loan funds in a loan loss reserve. It is not reasonable for the Administration to expect the intermediaries to put money into a reserve account and be on the hook for those loans if they are not 

providing the counseling to their borrowers. Further, the Administration’s proposal was considered unreasonable because it would require the SBA’s other partners to provide the counseling to the 

SBA microloan borrowers without providing them with extra funding; the SBA’s FY 2008 budget provided no funding to compensate 

for the extra clientele, and even cut those programs. 

Three members of the Committee, Senators Isakson, Enzi, and 

Bond, opposed the microloan provisions in S. 1256 as introduced 

because it did not make the SBA Microloan program zero subsidy. 

While they acknowledged the need for the technical assistance to 


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be provided by the intermediary making the loan, and supported 

continuing that component of the program, they felt the interest 

rate increase was modest. Consequently, they filed an amendment 

to the Chairman’s mark, proposing a study by SBA of the 

Microloan program. However, there was concern about putting SBA 

in charge of a study to assess the program’s effectiveness. Some 

feared that it would be biased given that the Agency had been trying to eliminate the program for the past four years. As a compromise, Chairman Kerry and Senators Isakson, Enzi, and Bond 

agreed to include in the Chairman’s mark a modification of the 

amendment, requiring the study to be done by the Government Accountability Office (GAO) instead of the SBA. 

In addition to reauthorizing the Microloan program for three 

years, and rejecting the proposal to make it zero subsidy, the bill 

includes several provisions that had been adopted by the Committee in the 108th and 109th Congresses. The bill makes a conforming amendment to the Small Business Act to provide 

microloan intermediaries that have a microloan portfolio with an 

average loan size of not more than $10,000 the ability to receive 

a lower interest rate compared to the normal rate extended by the 

SBA to intermediaries. The statute originally provided that an 

intermediary had to have an average loan size of not more than 

$7,500 to receive a reduced interest rate. This bill updates the average and conforms the sections of law that were not raised and 

should have been. 

The bill modifies the eligibility requirements so that an intermediary can qualify to participate in the program if it has an employee with at least three years of making microloans and at least 

one year of providing intensive marketing, management, and technical assistance providers. Currently, to be licensed as an intermediary, an entity must have at least one year of institutional experience in providing loans to small businesses and at least one 

year of institutional experience in providing technical assistance to 

small businesses. As stated when the provision was adopted as 

part of S. 1375 by the Committee in the 108th Congress, the provision is not intended to lower standards of quality of the entities but 

rather to permit access for entities that are new to the program 

and have employees with demonstrated ability and experience, 

thereby expanding access to the microloan program across the nation. 

The bill increases from 25 percent to 30 percent the amount of 

a technical assistance grant that a microloan intermediary can use 

to contract out technical assistance to a third party. One incentive 

that intermediaries have to perform their technical assistance functions well is that the intermediaries must repay their loans to the 

SBA. The quality of the technical assistance the intermediaries 

provide to a small business correlates to the success of the business, and a business’s ability to repay their loan to an intermediary. Third-party technical assistance providers do not have 

this concern, as they do not receive direct loans from the SBA and 

therefore do not put up money in a loan loss reserve to cover losses 

to the government if a loan goes bad. In the 108th Congress, when 

the Committee last adopted this provision, there was concern that 

removing any ceiling on the percent of grant funds that an intermediary could contract out to a third-party provider could harm the 


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program. Those concerned feared that quality of assistance would 

go down, and with it repayment rates by borrowers and intermediaries. However, the Committee recognized, and continues to 

recognize, that there is a need for certain technical assistance, like 

advice on legal, accounting or tax matters, or for specialized industries, which intermediaries are not able to provide directly. Accordingly, this bill provides additional flexibility for intermediaries to 

contract with third parties. 

The bill increases from 25 percent to 30 percent the amount of 

technical assistance grant funds that an SBA microloan intermediary can use to counsel potential borrowers, instead of actual 

borrowers. This gives the intermediaries more flexibility in allocating their technical assistance funds, while addressing previous 

concerns from the Committee that completely eliminating the limit 

could diminish assistance for those who have taken loans, started 

businesses, and need the on-going counseling to succeed. 

Last, the bill adds persons with disabilities as part of the target 

population being served by federal microenterprise programs. The 

Committee has received concerns from participants that although 

people with disabilities are not being excluded from microenterprise programs, neither are they being specifically targeted or explicitly mentioned as being eligible for receiving assistance. To 

date, there is no microloan intermediary, PRIME grantee, or Women’s Business Center which specifically includes individuals with 

disabilities. This situation is the result of an unintentional oversight, and not one of purposeful exclusion. This section would raise 

awareness of this need among microenterprise programs and increase accessibility to such entrepreneurs, while not creating any 

new programs. 

PRIME reauthorization 

The Program for Investment in Microentrepreneurs (PRIME) was 

created in 1999 when the PRIME Act was incorporated and amended in the Gramm-Leach-Bliley Act as part of the U.S. Department 

of the Treasury’s Community Development Financial Institutions 

Program. At that time, the conferees chose to have the program administered by the SBA. However, the statutory provisions were 

never moved to the Small Business Act. 

The bill reauthorizes PRIME and transfers the statutory language for PRIME to the Small Business Act. PRIME is a program 

to provide grants to intermediaries that use the funds to: (1) train 

other intermediaries to develop microenterprise training and services programs; (2) research microenterprise practices; or (3) provide 

training and technical assistance to disadvantaged entrepreneurs. 

This section adds a data collection provision and reauthorizes the 

program at $15 million for Fiscal Years 2007, 2008, 2009, and 

2010. 

Most of the provisions in this Title originated in the SBA Microenterprise Improvements Act (S. 138), introduced by Senator Kerry 

on January 24, 2005, and cosponsored by Senators Bingaman and 

Lieberman. The provisions were included in S. 1375 in the 108th 

Congress as passed by the Senate, and in S. 3778 in the 109th Congress, as adopted by the Committee. 


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Title II—Small Business Intermediary Lending Pilot Program 

The Committee included in the bill a proposal from Senator 

Levin to authorize a new three-year pilot program in which the 

SBA may make loans to local non-profit lending intermediaries, 

and the intermediaries can then re-loan the funds to small businesses. The program seeks to address the capital needs of start-up 

and expanding small businesses that require flexible capital but 

may not be eligible for private or public venture capital. The pilot 

program is aimed at businesses that desire larger loans than can 

be provided under the SBA’s Microloan program and that, for a variety of reasons, including insufficient collateral, are unable to secure the credit with practicable terms through conventional lenders, even with the assistance of the 7(a) or 504 loan programs. 

Through this pilot program, the SBA is authorized to make 

loans, on a competitive basis, to up to 20 non-profit lending intermediaries around the country. The loans will carry an interest rate 

of 1 percent, have terms of 20 years, and be capped at a maximum 

amount of $1 million. Intermediaries will not pay any fees or provide any collateral for their loans. Each 20-year loan will capitalize 

a revolving loan fund through which the intermediary will make 

loans of between $35,000 and $200,000 to small businesses. These 

subordinated-debt loans will be more flexible in collateral and general underwriting requirements than the SBA’s other lending programs. In addition, intermediaries will assist their borrowers in 

leveraging the SBA funds to obtain additional capital from other 

sources. The pilot will test the impact of this program on job creation in rural and urban areas, especially among under-employed 

individuals. 

Unlike the SBA Microloan Program, the intermediaries will receive no technical assistance grants. All administrative costs or 

technical support provided to small business borrowers will be covered by the interest-rate spread between the lending intermediary’s 

1 percent loan from the SBA and the interest rate on loans made 

to the small business borrowers, the rate for which will be set by 

the intermediary. 

The Small Business Intermediary Lending Pilot Program is modeled after a successful program administered by the U.S. Department of Agriculture (USDA) that has provided loans to non-profit 

lending intermediaries since 1985. Under that program, no intermediaries have defaulted on their loans from the USDA, which are 

made at interest rates of 1 percent and have terms of 30 years, and 

only 2 percent of the intermediaries are currently delinquent on 

their loans. Unlike the USDA’s program, which is limited to rural 

areas, this pilot will serve both urban and rural regions. 

This pilot is designed to reach small businesses that 7(a) lenders 

will not reach due to the perceived higher risk of these businesses. 

Many states are fortunate to have a healthy network of community 

based, non-profit intermediary lenders that are experienced and 

successful in meeting the needs of small businesses. This pilot program will give them additional tools to stimulate the economy by 

creating jobs, including jobs for low-income individuals, and facilitate new lending and investing in businesses. 

This pilot was originally offered by Senator Levin in the 108th 

Congress as an amendment to S. 1375. It was accepted by voice 

vote and passed by the full Senate. In the 109th Congress, it was 


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introduced by Senator Levin as a free-standing bill, S. 416, and 

then adopted by the Committee as part of S. 3778. In the 110th 

Congress, it was introduced as S. 985, and then adopted by the 

Committee as part of S. 1256. 

Title III—7(a) loan program 

In assessing the 7(a) loan program for reauthorization, the Committee found the program is working well, but there were certain 

changes that could be adopted which would build on the Committee’s reauthorization work of the 109th Congress. Therefore, this 

bill not only includes the provisions adopted as part of S. 3778, but 

adds several others. From the last Congress, the bill includes an 

expanded set of provisions for establishing a national ‘‘Preferred 

Lender Program (PLP),’’ rather than leaving it to the Administration to develop. The purpose of a national PLP program is to 

streamline the application process, thereby saving time and money 

for the SBA and lenders. The PLP program delegates the authority 

to process, approve, and liquidate loans to lenders that have knowledge of and proficiency in the 7(a) loan program. Currently, to operate nationwide, a lender must apply for PLP status in each of the 

SBA’s 71 districts. Moreover, they must re-apply each year in each 

district. This is extremely inefficient and wasteful, and creates 

enormous unnecessary administrative costs. 

This provision would drastically reduce administrative costs and 

standardize the operation of the PLP program, thus eliminating the 

inefficiencies and costs associated with applying for PLP status in 

each district. Additionally, the Committee believes that these measures will improve small businesses’ access to capital. While the 

Committee approves of streamlining the application process, it encourages the SBA to continue seeking input from the district directors as part of the approval process in order to try and improve 

lender oversight. Early in 2007, one of the SBA’s largest 7(a) lenders was found by the U.S. Department of Justice to be involved in 

$76 million in fraudulent SBA loans, with $28 million in loan repurchases out of one district, all linked to one business development officer. By only looking at the lender’s national performance, 

the Agency was unaware that the lender had high repurchases 

coming out of one district, and therefore was unable to mitigate 

losses. The Committee does not intend for one district director to 

have the power to deny or approve the national status, merely to 

be consulted in an effort to improve lender oversight. The legislative language creating the national PLP was originally included in 

S.1375, the ‘‘Small Business Administration 50th Anniversary Reauthorization Act of 2003,’’ introduced in the 108th Congress by 

Senator Snowe and Senator Kerry, approved unanimously by the 

Senate in 2003. It was also adopted by the Committee as part of 

S. 3778 in the 109th Congress. 

The bill increases the maximum size of a 7(a) loan to $3 million 

from the current $2 million, and increases the maximum size of the 

accompanying guarantee to $2.25 million from the current $1.5 

million. This would maintain the maximum current guarantee rate 

of 75 percent. With the escalating costs of real estate and new 

equipment, the Committee believes it is appropriate to respond to 

small businesses’ financing needs by offering larger loans. Further, 

the Committee expects the SBA to make adjustments to the proVerDate Aug 31 2005 00:38 Sep 14, 2007 Jkt 059010 PO 00000 Frm 00009 Fmt 6659 Sfmt 6602 E:\HR\OC\SR154.XXX SR154

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gram’s subsidy rate model to reflect the changes because these 

modifications should help reduce the cost of the program and therefore reduce fees on lenders and borrowers. 

To ensure that small firms have adequate capital for working 

capital purposes, as well as for financing fixed-assets, such as 

buildings and equipment, the bill allows businesses to receive both 

the maximum 7(a) and 504 loans. Due to concerns about the risk 

of allowing maximum loans in both programs to one company, the 

bill requires the SBA to report annually on volume of loans and to 

track their specific performance, giving the Committee a tool to assess the effectiveness of the new authority. 

To increase interest in the 7(a) loan program of investors who 

buy loan guarantees sold on the secondary market, the bill gives 

the SBA flexibility when pooling the loans. Currently, the Agency 

must pool loans with similar interest rates. This provision will 

allow the Agency to pool the loans based on a weighted average. 

The bill requires the SBA to implement an ‘‘alternative size 

standard’’ for the 7(a) program, in addition to the program’s current standard. The alternative size standard for the 7(a) program 

would be similar to the standard for the 504 program, which considers a business’s net worth and income. The 7(a) program currently determines a small business’s eligibility to receive a loan by 

reference to a complex, multi-page chart that includes different size 

standards for every industry and focuses on the number of employees. The Committee believes this is cumbersome, especially for 

small lenders which do not make many 7(a) loans. In the 504 Program, however, lenders can use either the industry-specific standards or an ‘‘alternative size standard’’ the SBA created, which simply says a small business is eligible for a loan if it has gross income 

of less than $7 million or net worth of less than $2 million. The 

Committee believes that allowing 7(a) lenders to use this alternative standard, as an option to the industry-specific size standard, 

would simplify the 7(a) lending process and provide small businesses with a streamlined procedure for determining loan eligibility. Therefore, this would conform the standards used by the 7(a) 

and 504 programs and would make the program far more accessible to small businesses and small lenders. This provision was included in S. 1375 during the 108th Congress and S. 3778 during 

the 109th Congress. 

To try and achieve the lowest possible interest rate for borrowers, the bill allows the SBA to identify at least one other nationally recognized interest rate to determine the base interest rate 

for a borrower. Currently, the rates are prescribed as PRIME plus 

an interest rate of up to 6.5 percent for 7(a) loans. With PRIME 

up to 8.25 percent, which means an SBA 7(a) loan could have an 

interest rate as high as 14.75 percent, the Committee encourages 

the SBA and lenders to identify other market rates which may be 

more affordable and attractive to small business borrowers. 

The bill also creates an Office of Minority Small Business Development to increase the share of small business loans to minorities. 

The Committee is concerned that African Americans, Hispanics, 

Asians, and women are receiving far fewer small business loans 

relative to their share of the population and that there has been 

no statistically significant improvement since FY 2001. The Office 

of Minority Small Business Development at the SBA will be similar 


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to offices devoted to business development of veterans and women. 

In charge of the office will be the Assistant Administrator for Minority Small Business and Capital Ownership Development, under 

the new title of Associate Administrator for Minority Small Business Development, with expanded authority and an annual budget 

to carry out its mission. Currently, this position is limited to carrying out the policies and programs of the SBA’s contracting programs under Sections 7(j) and 8(a) of the Small Business Act. To 

ensure that minorities receive a greater share of loan dollars, venture capital investments, counseling, and contracting, this bill expands the Office’s authority and duties to work with and monitor 

the outcomes for programs under Capital Access, Entrepreneurial 

Development, and Government Contracting. S. 1256 also requires 

the head of the Office to work with SBA’s partners, trade associations, and business groups to identify more effective ways to market to minority business owners, and to work with the head of the 

Office of Field Operations to ensure that the SBA’s district offices 

have the requisite staff and resources to market to minorities. 

The Committee believes it is essential that small exporters nationwide have access to export financing. The bill would improve 

the current statute that inadvertently has the maximum loan guaranty amount and maximum loan amount working at cross purposes. To help small businesses trade internationally, and provide 

lenders with a little more incentive than regular SBA 7(a) loans, 

the bill expands financing to small business exporters by increasing 

the maximum 7(a) trade loan guarantee amount from $1.75 million 

to $2.75 million and specifies that the loan cap is $3.67 million. 

Working capital would also be permitted as an eligible use of loan 

proceeds. The bill also makes international trade loans consistent 

with regular SBA 7(a) loans by allowing the same collateral and refinancing terms. This provision originated in the 109th Congress 

from S. 3663, the ‘‘Small Business International Trade Enhancements Act of 2006,’’ introduced by Senator Landrieu on July 14, 

2006 and co-sponsored by Senators Bayh, Kerry, and Pryor. 

To address on-going complaints to the Committee regarding the 

Administration’s elimination of the 7(a) Low-Doc program, and its 

harmful impact on lending in rural areas, the bill establishes the 

Rural Lending Outreach program. This section creates a new 7(a) 

loan to increase lending in rural areas. The maximum loan is 

$250,000 and provides incentives for lenders to participate, with an 

85 percent guarantee and a requirement of the SBA to process 

loans within 36 hours. It streamlines 7(a) lending by requiring a 

short application and minimum documentation, and makes the eligibility requirements on the borrower more flexible. The provision 

replaces a study that was adopted by the Committee in the 109th 

Congress to assess whether the elimination of the Low-Doc program was reducing access to capital in rural areas. The Committee 

concluded that there is a need for an initiative to expand lending 

in rural areas. 

Finally, S. 1256 includes a provision to lower fees on 7(a) borrowers and lenders. The language was the most controversial aspect of this bill, despite the fact that a similar provision passed the 

full Senate as an amendment to the FY 2006 Commerce, Justice, 

Science appropriations bill and passed the Committee in July 2006 

as part of S. 3778. The provision was intended to address on-going 


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1GAO Report: ‘‘Small Business Administration Section 7(a) General Business Loans Credit 

Subsidy Estimates,’’ GAO–01–1095R, published August 21, 2001. 2 ‘‘Table 8.—LOAN GUARANTEES: SUBSIDY REESTIMATES,’’ Page 58, Budget of the 

United States Government, FY 2008, Federal Credit Supplement. 

complaints about the Administration taking the program to zero 

subsidy in FY 2005, which shifted the cost to borrowers and lenders by imposing on them higher fees. The Administration justifies 

imposing higher fees as a ‘‘savings’’ to taxpayers, while the small 

business community considers the increase a ‘‘tax.’’ The small business community argued that this increase was unfair and unjustified given that the government had continually over-estimated the 

cost of the program, overcharging borrowers and lenders approximately $900 million since 1992.1 In fact, since 1992 the government overcharged borrowers and lenders 13 out of 15 years.2 See 

chart. For this reason, many in Congress, on both sides of the aisle, 

opposed the elimination of funding for the program. The bill seeks 

to address overpayments by requiring the SBA to lower fees if borrowers and lenders pay more than is necessary to cover the program costs or if the Congress appropriates funds, which when combined with collected fees, are in excess of the funding necessary to 

cover the cost of the program. 


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This language makes it possible to reduce fees for borrowers and 

lenders and corrects a drafting error. The original language adopted in the FY 2005 Omnibus Appropriations Act is deficient because 

it requires the fees to always be set at a level for zero subsidy. 

Even if Congress restored appropriations to the 7(a) loan program 

these funds could not be applied towards reducing the fees. This 

provision corrects this error. The language in S. 1256 is somewhat 

changed from the version adopted in the 109th Congress; it includes a limitation on the amount of appropriations that can be 

used to reduce the fees—to not more than the average of the overestimates of the three most recent years. This provision was added 

as a compromise between Chairman Kerry and Senators Isakson, 

Enzi, and Bond. Senators Isakson, Enzi, and Bond had filed an 

amendment to the chairman’s mark that eliminated the reference 

to appropriations because they oppose any attempt to open the program back up to appropriations. Nevertheless, they agreed that it 

was important to try and reduce program fees when the government overcharges participants, as has happened routinely since 

1992. The bill adopts a modified version of their amendment with 

that limitation. 

Many of the provisions in this Title were adopted as part of S. 

3778 in the 109th Congress. They originated in the Small Business 

Lending Improvement Act (S. 1603), introduced by Senator Snowe 

in July 2005 and cosponsored by Senator Stevens, and in the 7(a) 

Loan Program Reauthorization Act of 2006 (S. 2594), introduced by 

Senator Kerry in April 2006 and cosponsored by Senators Landrieu 

and Pryor. 

Title IV—Certified development companies; 504 Loan program 

The purpose behind most of the 504 Loan Guaranty program 

changes was to address concerns that some certified development 

companies (CDCs) have started to act more like banks than nonprofits, seeking to expand wherever they see a deal without reinvesting the residual income from 504 loans back into the development of the relevant local community and economy. 

To more accurately reflect the purposes of the SBA’s 504 Loan 

Guaranty program, the bill changes the name of the program to the 

Local Development Business Loan Program (LDB Program). Materials already prepared using the name ‘‘504 Program’’ can continue 

to be used, so as to save money for the SBA and program participants. 

To provide more flexibility to the program, the bill provides that 

a CDC is not required to foreclose or liquidate its own defaulted 

loans, and may contract with a third party to process its foreclosures and liquidations. CDCs may also receive reimbursement 

from the SBA for foreclosure expenses that the SBA authorizes. 

To reduce costs on growing small businesses, the bill allows certain borrowers (start-ups or those using the proceeds for single purpose buildings) to contribute more equity/down-payments to a 

project. This change makes it possible for the borrower to use their 

excess investment to reduce the amount of the private bank loan, 

thereby reducing their costs because the bank portion of a loan 

typically carries less favorable terms than the CDC portion of the 

loan. 


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To make SBA’s two largest loan programs more user friendly, the 

bill makes uniform the leasing policy for projects financed by 7(a) 

and 504 loans. 

To encourage businesses to locate in low-income areas, the bill 

adds several incentives to the 504 loan program. It provides that 

businesses in communities that would qualify for a New Markets 

Tax Credit can qualify as ‘‘public policy goal’’ loans in the 504 loan 

program are therefore eligible for larger loan guarantees of $4 million instead of the $2 million guarantee that is available for nonpublic policy goal loans. This would be similar to the special incentive for manufacturers, which allows for a maximum 504 loan of $4 

million maximum. As another incentive, this section would increase 

the SBA size standards issued by regulation to determine eligibility 

for a 504 loan in such areas. The amount of the proposed increase 

would be 25 percent and would apply to all standards, whether 

based upon the business’ number of employees or annual sales. It 

would also apply to an alternative size standard for CDC financing, 

which is based upon the net income and net worth of the business. 

This change is similar to the special incentive used by the Department of Labor to encourage businesses in Labor Surplus Areas that 

increases size standards by 25 percent. Last, the section would increase the amount of personal liquidity or assets which an owner 

of a business may retain before being required to inject additional 

capital into a 504 project in order to reduce the amount needed 

from SBA. The exemption would be increased by 25 percent for 

loans in areas eligible for New Market Tax Credits. 

For the purposes of qualifying as a public policy goal loan, this 

bill allows businesses to qualify as ‘‘minority owned’’ if a majority 

of the business’s ownership interests belong to one or more individuals who are minorities. Currently, the SBA interprets this rule 

such that two or more minorities cannot aggregate their interests 

(for example, two out of three owners) to qualify the business as 

minority owned. 

The bill permits a borrower to refinance a limited amount, based 

upon a formula, of the business’s pre-existing debt, if that debt is 

already secured by a mortgage on the property being expanded by 

the new loan. 

The bill corrects a technical drafting error made in legislation enacted in 2004. That drafting error had inadvertently changed the 

meaning of the pre-existing Small Business Investment Act of 

1958, which governs the 504 loan program. 

The repeal of the sunset provisions regarding reserve requirements for Premier Certified Lenders would make permanent a temporary statute that would otherwise have expired in the summer 

of 2006. This statute, enacted by Congress on a trial basis in 2004, 

allows CDCs qualified by the SBA as ‘‘Premier Certified Lenders’’

to amortize their reserve requirements and withdraw from the reserves the amount attributable to debentures as the debentures are 

re-paid. CDCs that choose to employ this new ability are thus able 

to make a greater number of loans in the program, rather than 

having needlessly large reserve accounts. 

The current Small Business Investment Act of 1958 (SBIA), 

which provides the legislative authority for the program, does not 

define a CDC; it is defined only in the SBA’s regulations. To adVerDate Aug 31 2005 00:38 Sep 14, 2007 Jkt 059010 PO 00000 Frm 00015 Fmt 6602 Sfmt 6602 E:\HR\OC\SR154.XXX SR154

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dress that, the bill provides definitions of a ‘‘development company’’

and a ‘‘certified development company.’’ It also provides a number 

of criteria to identify the types of entities that can qualify as CDCs 

and thus participate in the LDB Program. The standards in this 

Act are consistent with current regulations. In addition, the bill 

also imposes ethical requirements on CDCs, their employees, and 

banks participating in the program. It provides minimum requirements for CDCs regarding members, boards of directors, staffing 

and management expertise, and use of proceeds. The bill details requirements CDC loan review committees must meet in order to ensure that CDCs pursue local development goals, and allows CDCs 

operating in multiple states to elect to maintain their accounting 

on an aggregate basis. 

Responding to concerns that the changes which have allowed 

CDCs to expand operations into multiple states have had a significant impact on the 504 program, the Committee included provisions to preserve the local community and economic development 

intent and mission of the program and to provide increased accountability. There has been a growing demand for 504 loans and 

many CDC operations have been expanding in response to this 

growth. The 504 program was not created for CDCs to merely generate revenue from one state to another. CDCs are more than lenders and should not act like for-profit banks. In order to further responsible CDC expansion, program growth, and increased access to 

capital for small business, while requiring that local communities 

continue to be the main focus of the program, the bill requires that 

the 25 members of the CDC board be residents of the area of operations. It also allows an individual to serve on the Board of Directors of two or more CDCs (but not serve as an officer of multiple 

CDCs), and removes regulatory barriers that have constrained 

CDC multi-state expansion. The bill allows borrowers the option to 

include loan and debenture closing costs in their loans. 

To simplify use of the 504 program and encourage CDCs to make 

loans to businesses in rural areas, the bill amends the definition 

of ‘‘rural’’ in the Small Business Investment Act of 1958 to match 

the definition used by the U.S. Department of Agriculture. Specifically, it is defined as an area other than a city or town with a population greater than 50,000 inhabitants, or the urbanized area contiguous and adjacent to such a city or town, would qualify. This 

will benefit the small businesses because development in a rural 

area qualifies as one of the public policy goals of the 504 program 

and allows such businesses to qualify for larger loans of $2 million, 

instead of $1.5 million. 

The bill includes a provision to lock in place the payment schedule for debentures at twice a year rather than monthly. The SBA 

proposed a monthly schedule at the roundtable on May 2, 2007, 

and it received sharp criticism from the National Association of Development Companies. They feared it would scare off investors and 

drive up the cost of the program. 

The bill includes a provision to increase from $250,000 to 

$400,000 the trigger for mandating a real estate appraisal. The industry requested the cap be increased to $750,000, but the Administration thought this level would expose too much risk. 


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The provisions in this subtitle originated in the Local Development Loan Program Act (S. 2162), introduced by Senator Snowe in 

December 2005, and in the 504 Loan Program Modernization Act 

of 2006 (S. 2595), introduced by Senator Kerry in April 2006, and 

co-sponsored by Senator Pryor. Most were adopted by the Committee as part of S. 3778 in the 109th Congress. 

Child Care Lending Pilot Program 

Title IV includes the creation of the Child Care Lending Pilot 

program to allow small non-profit child-care providers to receive 

504 loans. This initiative is the product of work from the 107th, 

108th, and 109th Congresses, including roundtables on May 1, 

2003 and May 2, 2007. 

This pilot program responds to the shortage of affordable child 

care and the need for financing to expand and upgrade facilities by 

enabling lenders to make 504 loans to qualifying non-profit childcare providers. Currently, 504 loans can be made to for-profit childcare providers. The pilot program would be available through Fiscal Year 2010. 

During the roundtable on On May 1, 2003, Ms. Julie Cripe, 

President and CEO of Omnibank in Texas, and Ms. Ardith 

Wieworka, Commissioner of the Massachusetts Office of Child Care 

Services, explained why as a lending expert and as an expert on 

child care facilities, the Congress should allow non-profit child care 

providers to be eligible for 504/CDC loans. It was noted that there 

is a shortage of affordable child care in the United States, with an 

estimated six million children left at home on a regular basis, according to the Census Bureau. During the roundtable on May 2, 

2007, Ms. Joan Wasser Gish, Principal of Policy Progress in Massachusetts, presented the conclusions of a year-long Child Care Small 

Business Initiative lead by the office of Senator Kerry. The initiative included a statewide advisory committee, with a cross-section 

of stakeholders from the early education and child care industry, 

as well as, among others, representatives from the U.S. Small Business Administration’s Massachusetts District, the Massachusetts 

Small Business Development Centers, SBA 504 lenders, the Center 

for Women and Enterprise, and SBA microlenders. The committee 

found that there is a ‘‘dearth of lending and other financial resources available to nonprofit child care centers,’’ and that the lack 

of child care had broader economic ramifications of ‘‘inhibiting economic growth and productivity, community development, and work 

availability and productivity.’’ Wasser Gish noted that the child 

care industry plays a vital role in supporting private enterprise and 

free competition: ‘‘There are 5.8 million small business that hire 

employees, and many of those hires are parents who are unable to 

work [because] of the availability of child care. . . . It is estimated 

that child care breakdowns leading to employee absences cost the 

United States businesses in excess of $3 billion annually.’’ She also 

cited a 2006 study from the State of Maine that found ‘‘an urgent 

need’’ for improving the quality of child care facilities, with more 

than 70 percent of the centers in Maine barred from getting accreditation because of their facilities. Wasser Gish emphasized the need 

for 504 loans to help these centers finance upgrades and expansion 


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because child care providers are prohibited from using their child 

care development block grant funding for capital expenditures. 

While most of SBA’s loan programs are not designed to serve 

non-profit entities, making SBA loans to non-profits is not unprecedented and many members of the Committee believe that non-profit child-care providers warrant special consideration because the 

shortage is so severe in many states and the industry is unique. 

For example, in order to qualify for certain types of Federal assistance for low income families, such as meal assistance, a child-care 

provider may be required to organize as a non-profit, rather than 

a for-profit, entity, which can have a negative impact on the entity’s ability to obtain necessary capital. Whereas most service industries are made up of for-profit businesses, in many states a significant portion of child care is delivered through non-profits, and in 

the neediest communities non-profits are often the only child-care 

providers. Further, entrepreneurs and employees, particularly 

women, often cite a lack of child care for their children as a substantial obstacle to their ability to be more actively involved in the 

small business sector of the economy. 

As referenced earlier, permitting non-profit child-care providers 

to participate in the 504 program is not completely unprecedented. 

The SBA’s Microloan program has permitted loans to be made to 

non-profit child-care providers since 1997, and the SBA’s physical 

disaster loan program makes loans to non-profits, such as religious 

entities. Further, as part of the SBA’s FY 2008 legislative package, 

the Administration proposed expanding lending to non-profits by 

seeking authority to make economic injury disaster loans to nonprofits. 

The Committee stresses, however, that it does not intend to expand the SBA’s loan programs to other types of non-profit entities 

in the future. The fundamental purpose of the SBA is to foster 

profitable small businesses and the entrepreneurs who start them. 

In order to ensure that this pilot program does not impede the ability of for-profit businesses to access capital through the 504 loan 

program, the bill limits the pilot program to 7 percent of the number of 504 loans guaranteed in any year. Currently, less than 2 percent of 504 loans are made to for-profit child-care providers. 

As another protection, the bill requires collateral provided for a 

loan be owned directly by the child-care provider. This provision 

addresses a fear that, in some circumstances, 504 loans to certain 

non-profit child-care providers could be based on collateral that 

may be difficult for the lender to access. Going a step further, the 

bill requires the loan to be personally guaranteed and requires the 

borrower to have sufficient cash flow from its normal operations to 

both make its loan payments and pay for customary operating expenses. As an oversight protection, the bill directs the GAO to provide to Congress a comprehensive report analyzing the pilot program, as the program nears the end of its three-year pilot period. 

During the Committee’s consideration of S. 1256, Senators 

Isakson, Enzi, and Bond filed an amendment to the Chairman’s 

mark to eliminate the pilot and to instead mandate a study on the 

state of child care from the GAO. However, studies in Massachusetts and Maine, as noted earlier in this section, have already demonstrated a need for expanded and upgraded child care facilities 


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and the lack of capital to help them finance the projects language. 

As a compromise, Chairman Kerry and Senators Isakson, Enzi, and 

Bond modified the amendment and agreed to limit the pilot to only 

19 states, those of the members of the Committee. The amended 

pilot passed the Committee unanimously as part of the entire bill. 

The Child Care Lending pilot program was adopted by the Committee in the 108th and 109th Congresses and was voted out of the 

full Senate in the 108th. The pilot has many supporters, including 

the National Black Chamber of Commerce, the National Association of Development Companies, and representatives of child development in Maine and in Massachusetts. 

IV. COMMITTEE VOTE

In compliance with rule XXVI(7)(b) of the Standing Rules of the 

Senate, the following votes were recorded on May 16, 2007. 

A motion by Senator Kerry to adopt the managers’ substitute 

amendment was passed by voice vote. The amendment included 

modified versions of three amendments filed by Senators Isakson, 

Enzi, and Bond regarding the reduction of 7(a) loan fees, the Child 

Care Lending Pilot program, and the Microloan program. 

A motion by the Chair to adopt the Small Business Lending Reauthorization and Improvements Act of 2007 as amended, to reauthorize the small business loan programs of the Small Business Administration and for other purposes, was approved by a unanimous 

19–0 recorded vote with the following Senators voting in the affirmative: Kerry, Levin, Harkin, Lieberman, Landrieu, Cantwell, 

Bayh, Pryor, Cardin, Tester, Snowe, Bond, Coleman, Vitter, Dole, 

Thune, Corker, Enzi, and Isakson. 

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. 

SEPTEMBER 10, 2007. 

Hon. JOHN F. KERRY, 

Chair, Committee on Small Business and Entrepreneurship, 

U.S. Senate, Washington, DC. 

DEAR MR. CHAIR: The Congressional Budget Office has prepared 

the enclosed cost estimate for S. 1256, the Small Business Lending 

Reauthorization and Improvement Act of 2007. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Susan Willie. 

Sincerely, 

PETER R. ORSZAG. 

Enclosure. 

S. 1256—Small Business Lending Reauthorization and Improvements Act of 2007 

Summary: S. 1256 would reauthorize the business and disaster 

loan programs of the Small Business Administration (SBA) through 

2010. The bill also would make technical changes to the SBA’s 

business loan programs, authorize two pilot loan programs, and reVerDate Aug 31 2005 00:38 Sep 14, 2007 Jkt 059010 PO 00000 Frm 00019 Fmt 6602 Sfmt 6602 E:\HR\OC\SR154.XXX SR154

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authorize a grant program to support minority entrepreneurs. Finally, the bill would authorize SBA to use appropriated funds, with 

limits, in lieu of charging fees to cover the cost of 7(a) loan guarantees. 

Assuming appropriation of the necessary amounts, CBO esti- mates that implementing S. 1256 would cost $487 million in 2008 

and $3.4 billion over the 2008–2012 period. About $1.8 billion of 

this amount is the estimated subsidy and administrative cost of 

continuing SBA’s credit programs, and about $1.6 billion would be 

for SBA’s noncredit programs and other activities authorized in the 

bill. CBO estimates that enacting the bill would not affect revenues 

and would have no significant effect on direct spending. 

S. 1256 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act (UMRA). 

The bill would authorize grant funds that could benefit tribal governments. Any costs they might incur would result from complying 

with conditions of federal assistance. 

Major provisions: Title I would make technical changes to the 

microloan program, which provides funding to companies whose 

capital needs are too small to qualify for the larger SBA business 

loan programs. Title I also would reauthorize the Program for Investment in Microentrepreneurs (PRIME). 

Title II would create an Intermediary Lending Pilot Program, 

modeled after the microloan program, to provide midsize loans to 

small businesses. Under the pilot program, loans made to small 

businesses would range between $35,000 and $200,000. 

Title III would make a number of changes to the 7(a) loan guarantee program, including: creating a preferred lenders program, 

which would authorize certain lenders to make and service loans; 

increasing certain loan limits for 7(a) guarantees; and establishing 

a program to increase loans available in rural areas. This title also 

would authorize SBA to lower fees charged to borrowers and lenders for 7(a) loan guarantees under certain conditions and establish 

an Office of Minority Small Business Development. 

Title IV would make changes to SBA’s 504 loan program, which 

provides loans through Certified Development Companies (CDCs) 

for investments in major fixed assets. S. 1256 would change the 

name of the program to the Local Development Business Loan Program, allow CDCs to contract with third parties to foreclose and 

liquidate defaulted loans, and adjust eligibility requirements to encourage investment in low-income areas. This title also would establish a pilot program that would authorize CDCs to make loans 

to nonprofit child care businesses in a limited number of states. 

S. 1256 also would set the maximum amount of loans and loan 

guarantees that could be funded by SBA for fiscal years 2008, 

2009, and 2010. In addition, it would provide specific authorizations of appropriations for the PRIME program and technical assistance grants for microloan recipients. Finally, the bill would authorize appropriations of such sums as may be necessary for salaries and expenses of the SBA, administrative expenses and loan 

capital for the disaster loan program, and administrative expenses 

and subsidy costs to carry out the Small Business Investment Act. 

Estimated cost to the Federal Government: The estimated budgetary impact of S. 1256 is shown in the following table. The costs 


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of this legislation fall within budget functions 370 (commerce and 

housing credit) and 450 (community and regional development). 

TABLE 1.—ESTIMATED BUDGETARY IMPACT OF S. 1256 

By fiscal year, in millions of dollars— 

2007 2008 2009 2010 2011 2012 

SPENDING SUBJECT TO APPROPRIATION 

SBA spending under current law: 

Budget authority 1 ............................................................... 492 0 0 0 0 0 

Estimated outlays ................................................................ 357 95 23 5 0 0 

Proposed changes: 

Loan programs: 

Estimated authorization level .................................... 0 434 435 441 268 275 

Estimated outlays ....................................................... 0 277 400 430 349 283 

Noncredit programs: 

Estimated authorization level .................................... 0 386 394 402 310 318 

Estimated outlays ....................................................... 0 210 310 368 382 365 

Total: 

Estimated authorization level .................................... 0 820 829 843 578 593 

Estimated outlays ....................................................... 0 487 710 798 731 648 

SBA spending under S. 1256: 

Estimated authorization level 1 ........................................... 492 820 829 843 578 593 

Estimated outlays ................................................................ 357 582 733 803 731 648 

1 The 2007 level is the amount appropriated for that year. 

Basis of estimate: For this estimate, CBO assumes that the bill 

will be enacted near the end of fiscal year 2007 and that the necessary amounts will be appropriated near the start of each year. 

We assume that spending will follow historical patterns for the various SBA loan and business assistance programs. 

The budgetary accounting for SBA’s direct loan and loan guarantee programs is governed by the Federal Credit Reform Act 

(FCRA) of 1990, which requires an appropriation of subsidy and administrative costs associated with loan guarantees and loan operations. The subsidy cost is the estimated long-term cost to the government of a loan or loan guarantee, calculated on a net-presentvalue basis, excluding administrative costs. Administrative costs, 

recorded on a cash basis, include activities related to making, servicing, and liquidating loans as well as overseeing the performance 

of lenders. 

The effect of the changes S. 1256 would make to SBA’s business 

and disaster loan programs is measured in terms of projected subsidy costs. The bill does not specify an authorization level for either 

the subsidy or administrative costs, if any, that could be incurred 

as a result of implementing the amendments in the bill. CBO has 

estimated those amounts based on information from SBA regarding 

the historical demand for and costs of the agency’s business and 

disaster loan programs. We assume that administrative activities 

related to those loans would continue beyond the 2008–2010 period. 

Spending subject to appropriation 

S. 1256 would authorize SBA to continue its direct loan and loan 

guarantee programs as well as various technical assistance and 

support programs for fiscal years 2008 through 2010. Based on information from SBA and historical spending patterns for the agency’s programs, CBO estimates that implementing those provisions 


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would cost $3.4 billion over the 2008–2012 period, assuming appropriation of the necessary amounts. 

Table 2 shows the loan levels that would be authorized by the 

bill, the estimated subsidy and administrative costs for those loans, 

and the cost to continue certain grant programs and other activities authorized by the bill. 

Guaranteed and Direct Business Loan Programs. The following 

loan programs would be authorized by S. 1256: • The 7(a) program, which provides limited guarantees on loans 

made by certain lending institutions to small businesses. • The certified development company program (also known as 

section 504 loans), which provides guarantees on debentures issued 

by CDCs to provide funding to small businesses for major fixed assets such as land, structures, machinery, and equipment. • The microloan program, which provides direct loans to nonprofit lenders which then offer loans to small businesses just starting up, whose capital needs are too small to qualify for the 7(a) 

program. • The Small Business Investment Company (SBIC) debenture 

program, which provides funding to privately owned companies 

that provide venture capital to small businesses. 

TABLE 2.—ESTIMATED SUBSIDY, ADMINISTRATIVE, AND OTHER NONCREDIT COSTS UNDER S. 1256 

By fiscal year, in millions of dollars—

2008 2009 2010 2011 2012 

Guaranteed and direct business loan subsidy and administration 

costs: 

Subsidy costs: 

Estimated authorization level ............................................... 13 13 13 0 0 

Estimated outlays ................................................................. 7 12 12 6 0 

Administration costs: 

Estimated authorization level ............................................... 127 131 135 138 142 

Estimated outlays ................................................................. 90 121 129 134 138 

Lower 7(a) fees: 

Subsidy costs: 

Estimated authorization level ............................................... 8 2 0 0 0 

Estimated outlays ................................................................. 5 4 1 0 0 

Small business intermediary lending program: 

Estimated authorization level ........................................................ 3 3 3 0 0 

Estimated outlays .......................................................................... 1 3 3 1 0 

Disaster loan subsidy and administration costs: 

Subsidy costs: 

Estimated authorization level ............................................... 163 163 163 0 0 

Estimated outlays ................................................................. 82 146 163 82 16 

Administration costs: 

Estimated authorization level ............................................... 120 123 127 130 133 

Estimated outlays ................................................................. 92 114 122 126 129 

Noncredit programs and costs PRIME program: 

Estimated authorization level ........................................................ 17 17 17 0 0 

Estimated outlays .......................................................................... 1 6 13 15 10 

Other noncredit programs and costs: 

Estimated authorization level ........................................................ 369 377 385 309 318 

Estimated outlays .......................................................................... 209 304 355 367 355 

Memorandum: 

Authorized loan levels: 

Guaranteed and direct business loans ......................................... 31,167 32,667 34,167 0 0 

Disaster loans ................................................................................ 1,000 1,000 1,000 0 0 

The bill would authorize SBA to guarantee loans and to make direct loans to small businesses, with a total loan value up to $31 


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billion in 2008, $33 billion in 2009, and $34 billion in 2010. By 

comparison, the authorized loan level for 2007 is about $28 billion. 

In 2006, the agency’s authorized loan level was about $28 billion, 

and it funded direct and guaranteed loans worth about $20 billion 

in that year. 

The estimated subsidy rates for the business loan programs offered by SBA range from zero for 7(a) and section 504 programs to 

about 10 percent for the microloan program. Incorporating the program amendments in the bill and using historical demand and default rates for those loan programs, CBO estimates that the subsidy costs for the authorized levels of guaranteed and direct business loans would be $7 million in 2008 and about $37 million over 

the 2008–2012 period. 

As specified in FCRA, subsidy rates do not reflect the administrative costs to service loan programs. CBO estimates the administrative costs for the business loans authorized in the bill would be 

$90 million in fiscal year 2008 and $612 million over the 2008– 2012 period. 

Lowering 7(a) fees. S. 1256 would authorize SBA to use appropriated funds, if available and within limits, to lower certain fees 

charged to cover the estimated cost of loans guaranteed through 

the 7(a) program. The maximum annual fee reduction set by the 

bill would equal the average amount, over the previous three fiscal 

years, that fee collections have exceeded the cost of the underlying 

loan guarantees. 

Under current law, SBA develops a schedule of fees to be charged 

to both borrowers and lenders each fiscal year to produce an estimated subsidy rate of zero when the loans are guaranteed. In other 

words, each year SBA sets fees at the rate, in its estimation, that 

will generate collections equal to the estimated lifetime cost of providing the loan guarantees. Each year, SBA guarantees a growing 

number of 7(a) loans (over 90,000 in 2006); the net cost of those 

guarantees cannot be calculated until all the loans are closed out. 

At that point, SBA can determine if the fees charged were sufficient to cover the long-term cost of the guarantees—it is not until 

the loans are closed out that SBA can know whether fee collections 

were too high or too low. 

The projected subsidy cost for the 7(a) program in 2008, in the 

absence of fees, would be about 3.4 percent of the loan principal 

guaranteed, or about $305 million. Over the 2004–2006 period, 

SBA reduced its estimate of the cost of 7(a) loan guarantees, indicating that in the early years of the loans, the cost of providing the 

guarantees was lower than SBA originally estimated. As those 

loans age, however, the guarantees could become more costly. 

Assuming appropriation of the maximum amount authorized by 

S. 1256 for reducing fees on the 7(a) program, CBO estimates that 

implementing this provision would cost $5 million in 2008. That estimate is the average amount of fees collected above the amounts 

SBA estimates would be necessary to fully offset the cost of guarantees over the fiscal year 2005–2006 period. We assume that SBA 

will set fees in subsequent years equal to the program’s costs, 

thereby lowering the maximum amount available to reduce fees in 

each year. We estimate that this provision would cost $10 million 

over the 2008–2012 period. 


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Small Business Intermediary Lending Program. The bill would 

authorize a three-year program to provide up to $20 million in 

loans, ranging in size from $35,000 to $200,000, to nonprofit lenders over the 2008–2010 period. The Small Business Intermediary 

Lending Pilot Program would make direct loans to nonprofit intermediaries that would, in turn, make loans to eligible small businesses. The program, modeled after the microloan program, would 

feature a 20-year loan term, an interest rate of 1 percent, and a 

two-year grace period before principal and interest payments would 

be first due. Based on information from the SBA, CBO estimates 

that the subsidy rate for the program would be about 38 percent, 

largely due to the difference between the government’s borrowing 

rate and the rate SBA would charge the borrowers. We estimate 

that the subsidy cost for the authorized loan amounts would be $8 

million over the 2008–2012 period. 

Disaster Loan Program. S. 1256 would reauthorize SBA’s disaster loan program through 2010. This program provides direct 

loans to businesses and households in areas affected by a disaster 

for the costs of economic injury and repair. CBO expects that the 

demand for SBA disaster loans over the next several years would 

average about $1 billion per year. This assumption is based on the 

historical average of approved disaster loans over the 2000–2005 

period, including an additional amount reflecting the probability 

that a catastrophe similar to Hurricane Katrina could strike in a 

given year. 

Based on historical experience, SBA estimates that the subsidy 

rate for those loans would be about 16 percent. Using that rate and 

assuming the appropriation of the necessary funds, CBO estimates 

that reauthorizing the disaster loan program through 2010 would 

cost $174 million in 2008 and about $1.1 billion over the 2008–2012 

period. This estimate includes $489 million over the five-year period for the cost of subsidizing those loans and $583 million over 

the same period for loan service and administration. 

PRIME reauthorization. S. 1256 would authorize the Program for 

Investment in Microentrepreneurs (PRIME) through 2010. This 

program disburses grants to certain development organizations to 

provide very small businesses (microenterprises) with technical assistance, training, and capacity building services. Assuming appropriation of the specified amounts, CBO estimates that this provision would cost $45 million over the 2008–2012 period. 

Other noncredit activities. S. 1256 would authorize specific 

amounts or such sums as necessary for the salaries and expenses 

of SBA and several programs to support certain types of small 

businesses. Based on information from SBA, CBO estimates that 

implementing those provisions of S. 1256 would cost $209 million 

in 2008 and about $1.6 billion over the 2008–2012 period, assuming 

appropriation of the specified or necessary amounts. 

Specifically, the bill would authorize grants to nonprofit lenders 

participating in the microloan program to provide technical assistance to borrowers who receive loans under the program. Assuming 

appropriation of the specified amounts, CBO estimates this provision would cost $4 million in 2008 and $207 million over the 2008–

2012 period. 


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The bill also would authorize $5 million per year over the 2008–

2010 period to establish the Office of Minority Small Business Development to increase the proportion of SBA loans, investments, 

training, and contracting opportunities directed toward minorities. 

Assuming appropriation of the specified amounts, CBO estimates 

this provision would cost $15 million over the 2008–2012 period. 

Salaries and expenses for SBA employees, other than those involved in the administration of direct loans and loan guarantees, 

make up the balance of the cost. CBO estimates that the cost to 

support grant administration, advocacy, and entrepreneurial programs would be about $200 million in 2008 and $1.4 billion over 

the 2008–2012 period. 

Direct spending 

SBA’s Premier Certified Lenders Program gives a CDC participating in the 504 program the authority to review and approve 

loan requests and to foreclose, litigate, and liquidate loans made 

under the program. Under current law, CDCs can qualify as Premier Certified Lenders (PCLs) if, among other requirements, they 

agree to pay 10 percent of SBA’s potential loss on a defaulted 504 

loan. A PCL must hold 10 percent of this potential loss (that is, 1 

percent of the total loan) in a reserve for the life of the loan. 

S. 1256 would reinstate a program that allows PCLs to maintain 

a lower loss reserve equal to 1 percent of the total loan outstanding. PCLs would be allowed to withdraw any funds from their 

loss reserve in excess of this amount. This lower loss reserve option 

was previously authorized for two years; it expired in 2006. S. 1256 

would reinstate the option permanently, which could affect the subsidy rate for previous cohorts of CDC loans. Decreasing the loss reserve requirement for PCLs would cause SBA to collect a smaller 

amount of recoveries if a small business defaults on a loan and a 

PCL is unable to pay its portion of SBA’s total loss. Based on information from SBA, CBO estimates that this provision would not 

have a significant effect on the subsidy cost of outstanding loans. 

Intergovernmental and private-sector impact: S. 1256 contains no 

intergovernmental or private-sector mandates as defined in UMRA. 

The bill would authorize grant funds that could benefit tribal governments. Any costs they might incur would result from complying 

with conditions of federal assistance. 

Previous CBO estimate: On April 19, 2007, CBO transmitted a 

cost estimate for H.R. 1332, the Small Business Lending Improvements Act of 2007, as ordered reported by the House Committee on 

Small Business on March 15, 2007. That bill contained many of the 

same technical changes to SBA’s 7(a) and 504 programs but did not 

provide maximum loan levels for the various business loan programs. H.R. 1332 also would authorize SBA to use appropriated 

funds rather than charging certain fees on loans guaranteed under 

the 7(a) program to cover the program’s cost. CBO provided an estimate of the cost—$2.3 billion over the 2008–2012 period—to fully 

replace such fees with appropriated funds. 

Estimate prepared by: Federal Costs: Susan Willie and Daniel 

Hoople; Impact on State, Local, and Tribal Governments: Elizabeth 

Cove; Impact on the Private Sector: Jacob Kuipers. 


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Estimate approved by: Peter H. Fontaine, 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. There will be no additional impact on the 

personal privacy of companies or individuals who utilize the services provided. 

VII. SECTION-BY-SECTION ANALYSIS

Title I—Microloan Programs 

Sec. 101. Conforming technical change in average smaller loan size 

This section increases the average loan size from $7,500 to 

$10,000 in places in the Small Business Act where the size should 

have been changed as part of PL 106–554 but was not. Microloan 

intermediaries can receive additional technical assistance grants 

from the SBA for making microloans of smaller average sizes, loans 

that typically require more counseling and therefore are more expensive to service. 

Sec. 102. Inclusion of persons with disabilities 

This section adds individuals with disabilities to the statutorily 

enumerated ‘‘purposes’’ of the program, clarifying that microloans 

can be made to such individuals. It does not change the implementation of the program. 

Sec. 103. Microloan program improvements 

(a) Intermediary eligibility requirements. This subsection modifies 

the eligibility requirements so that an intermediary can qualify to 

participate if it has an employee with at least three years of experience making microloans and at least one year of experience providing intensive marketing, management and technical assistance 

to borrowers. 

(b) Limitation on third party technical assistance. This subsection 

increases from 25 to 30 percent the amount of technical assistance 

funds an intermediary may use to pay for hiring outside expertise 

to counsel borrowers, such as with taxes or specialists in a particular industry. 

(c) Increased flexibility for providing technical assistance to potential borrowers. This subsection increases from 25 to 30 percent the 

amount of technical assistance that intermediaries can provide to 

potential borrowers, versus those that get loans and need on-going 

counseling. 

Sec. 104. PRIME reauthorization and transfer to the Small Business Act 

This subsection transfers the authorization of this program from 

the Riegle Act to the Small Business Act, clarifying that the program should be administered by the SBA, as defined in the original 

legislation that created the program. Of the money designated for 


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this program, which provides technical assistance to micro-entrepreneurs, the section authorizes additional funds to serve Native 

Americans. 

Title II—Intermediary Lending Pilot Program 

Sec. 201. Findings 

Sec. 202. Small business intermediary lending pilot program 

This section creates a pilot program for the SBA to provide loans 

to intermediaries, which would then re-loan these funds to small 

businesses in loan amounts between $35,000 and $200,000. They 

would have terms of 20 years, at 1 percent interest rate. The intermediaries would not have to start paying back the loan for the first 

two years. The purpose of the pilot is to assist small businesses 

that need loans larger than those available through the Microloan 

program, but, for a variety of reasons, such as a lack of sufficient 

collateral, are unable to secure financing through conventional 

lenders, even with the assistance of the 7(a) Loan and 504 Loan 

Guaranty programs. 

Title III—7(a) Loan Program 

Sec. 301. Preferred lenders program 

This section establishes a program for proficient 7(a) lenders that 

delegates to them the authority to approve and liquidate 7(a) loans. 

This section also establishes a streamlined national preferred lender program, which allows lenders with a good track record to operate nationwide without having to seek approval from each of the 

SBA’s district offices. 

Sec. 302. Maximum loan amount 

This section increases the maximum loan to $3 million from $2 

million, and increases the maximum accompanying guarantee from 

$1.5 million to $2.25 million. 

Sec. 303. Maximum 504 and 7(a) loan eligibility 

This section permits a small business to obtain financing in the 

maximum amount permitted under the 504 program and also to 

obtain a 7(a) loan in the maximum amount permitted under that 

program. 

Sec. 304. Loan pooling 

This section allows the SBA to pool loans with various interest 

rates, with the range determined by SBA. The interest rate on the 

certificates representing shares in the pool would be the weighted 

average rate. Currently SBA pools loans with the same interest 

rates to sell on the secondary market. 

Sec. 305. Alternative size standard 

This section requires SBA to establish an optional size standard 

which is applicable to both 7(a) borrowers and 504 borrowers, utilizing net worth and net income in lieu of industry standards, 

which are considered confusing and burdensome. In addition, it 

provides that until the Administrator does so, the alternative 


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standard in the Code of Federal Regulations for 504s (maximum 

net income of $7 million and maximum net worth of $2.5 million) 

shall also apply to 7(a). 

Sec. 306. Alternative variable interest rate 

This section directs the SBA to give lenders at least one alternative interest rate to the Wall Street prime rate. The provision is 

intended to reduce the variable interest rate charged on 7(a) loans 

to borrowers. 

Sec. 307. Minority small business development 

This section creates an Office of Minority Business Development 

within the SBA. This provision expands the Office’s authority and 

duties to work with and monitor the outcomes for programs under 

the SBA’s Capital Access, Entrepreneurial Development, and Government Contracting programs. It also requires the head of the Office to work with SBA’s partners, trade associations, and business 

groups to identify more effective ways to market to minority business owners, and to work with the head of Field Operations to ensure that district offices have staff and resources to market to minorities. 

Sec. 308. Lowering of fees 

This section revises the current statute so that, if SBA receives 

appropriations for the 7(a) Loan Guaranty program, or the government overcharges borrowers and lenders and there is excess funding to run the program, the Administration will lower fees on borrowers and lenders. The current statute only allows fees to be lowered on borrowers. The section also limits the amount of appropriations that can be applied to reducing fees—the average of the three 

most recent years for which there were re-estimates. 

Sec. 309. International trade loans 

This section increases the maximum loan guarantee amount to 

$2.75 million and specifies that the loan cap for International 

Trade Loans is $3.67 million, as well as sets out that working capital is an eligible use for loan proceeds. The bill also makes international trade loans consistent with regular SBA 7(a) loans in 

terms of allowing the same collateral and refinancing terms as with 

regular 7(a) loans. 

Sec. 310. Rural Lending Outreach Program 

This section creates a new 7(a) loan to increase lending in rural 

areas. The maximum loan is $250,000 and provides incentives to 

lenders to participate, with an 85 percent guarantee and a requirement of the SBA to process loans within 36 hours. It streamlines 

7(a) lending by requiring a short application and minimum documentation, and makes the eligibility requirements on the borrower 

more flexible. 


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Title IV—Certified Development Companies; 504 Loan Program 

Sec. 401. Development company loan programs 

This section renames the 504 Loan program as the Local Development Business Loan Program (LDB program) 

Sec. 402. Loan liquidations 

This section provides that a certified development company 

(CDC) can elect not to foreclose or liquidate its own defaulted 

loans, and can instead contract with a third party to carry out the 

foreclosures and liquidations. CDCs can receive reimbursement 

from the SBA for foreclosure expenses that the SBA authorizes. 

Sec. 403. Additional equity injections 

This section makes it possible for any equity provided by the borrower, beyond the minimum injection (down-payment) required, to 

be used to reduce the contribution amounts from the non-CDC portion of the loan deal. The purpose of the section is to help the borrower save money by buying down the other portions of the loan 

which often have less favorable terms or interest rates than the 

CDC portion of the loan. 

Sec. 404. Uniform leasing policy 

This section makes uniform the leasing policy between 7(a) and 

504 loans, by setting a common standard that allows 50 percent of 

a facility to be leased on a new or existing building. This eliminates 

the current distinction between new and existing construction. 

Sec. 405. Businesses in low-income communities 

This section provides incentives for businesses to locate in lowincome communities. It allows for businesses in low-income communities that would qualify for a New Markets Tax Credit to qualify as ‘‘public policy goal’’ loans in the 504 loan program. It Increases the loan limit from $2 million to $4 million. It also adds 

two incentives, including a provision to increase the size standard 

limitation on a business by 25 percent, and another provision to decrease the additional personal liquidity down payment of a business owner by 25 percent. 

Sec. 406. Combinations of certain goals 

This section allows businesses to qualify as ‘‘minority owned’’ for 

purposes of qualifying as a public policy goal loan if a majority of 

the business’s ownership interests belong to one or more individuals who are minorities. 

Sec. 407. Refinancing under the local development business loan 

program 

This section permits a borrower to refinance a limited amount, 

based on a formula, of the business’s pre-existing debt, if that debt 

is already secured by a mortgage on the property being expanded 

by the new loan. 


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Sec. 408. Technical correction 

This section corrects a technical drafting error made in legislation enacted in 2004, specifically to Section 501(e)(2) of the Small 

Business Investment Act of 1958. 

Sec. 409. Definitions for the Small Business Investment Act of 1958 

This section defines a development company and a certified development company. 

Sec. 410. Repeal of sunset on reserve requirements for premier certified lenders 

This section would make permanent a temporary statute that allows CDCs qualified by the SBA as ‘‘Premier Certified Lenders’’ to 

amortize their reserve requirements and withdraw from the reserves the amount attributable to debentures as the debentures are 

repaid. The statute was set to expire in the summer of 2006 but 

has been temporarily extended until a three-year reauthorization 

bill can be enacted. 

Sec. 411. Certified development companies 

This section provides criteria to identify the types of entities that 

can qualify as certified development companies (CDCs) and thus 

participate in the 504 Loan program. The provision also imposes 

ethical requirements on CDCs, their employees, and banks participating in the program. This section provides minimum requirements for CDCs regarding members, boards of directors, staffing 

and management expertise, and use of proceeds. The section details 

requirements CDC loan review committees must meet in order to 

ensure that CDCs pursue local development goals, and allows 

CDCs operating in multiple states to elect to maintain their accounting on an aggregate basis. This section also allows CDC board 

members to assist other CDCs by serving on one other CDC Board. 

Sec. 412. Conforming amendments 

Sec. 413. Closing costs 

This section provides borrowers with the option to include loan 

and debenture closing costs in their loans. 

Sec. 414. Definition of rural 

This section conforms the SBA’s definition of a ‘rural area’ in the 

504 program, for the purposes of eligibility for a larger loan supporting a ‘public policy’ goal, to the definition used by the Department of Agriculture. 

Sec. 415. Regulations and effective date 

This section authorizes and directs the SBA to publish proposed 

regulations to implement this Act within 120 days of the date of 

enactment and to publish final regulations within an additional 

120 days. 

Sec. 416. Limitation on time for final approval of companies 

This section establishes a limitation of two years for final approval of companies. 


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Sec. 417. Child Care Lending Pilot Program 

This section creates a three-year pilot, allowing 504 loans to be 

made to non-profit child care businesses. Currently, only for-profit 

child care businesses are eligible for 504 loans. The bill requires 

the same underwriting standards for for-profits as non-profits, with 

added protections to address the difference between a for-profit 

with owners and a non-profit without owners. It prohibits more 

than 7 percent of the total number of 504 loans in any fiscal year 

to be made for these purposes. The pilot is limited to the 19 states 

of Committee members. 

Sec. 418. Debenture repayment 

This section would require that any debenture (or long term 

bond) issued to provide capital for a development company loan 

guaranteed by SBA shall provide for the payment of principal and 

interest on a semiannual basis. 

Sec. 419. Real estate appraisals 

This section would increase the value of commercial real property 

given as collateral for a 7(a) or 504 loan on which an appraisal is 

required. On property valued at more than $400,000, an appraisal 

would be required (now required on property valued at more than 

$250,000); and on property valued at less than $400,000 (now 

$250,000) an appraisal may be required if SBA determines that an 

appraisal is necessary for the determination of creditworthiness of 

the borrower. Elimination of unneeded appraisals would reduce 

loan costs to borrowers by possibly $3,000 to $5,000. 

Æ 


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