Yesterday, the U.S. House of Representatives passed the Small Business Lending Fund Act of 2010, H.R. 5297, by a vote of 241-182. The legislation will aid small businesses in securing capital through new community bank incentives, support for state lending initiatives, and by opening venture-capital markets to small businesses.
"Today, under the leadership of Speaker Pelosi, Majority Leader Hoyer, Chairman Frank, Chairman Levin and Chairwoman Velázquez, the House of Representatives took strong action to help continue moving our nation's economic recovery forward," declared U.S. Treasury Secretary Tim Geithner. "At a time when too many small businesses are struggling to find access to the credit they need to hire and expand, this legislation will help ensure that Main Street entrepreneurs are better positioned to create new jobs and invest in their local communities."
The legislation passed by the House includes two key lending initiatives put forward by the Administration:
1] A Small Business Lending Fund that will provide small banks with capital and incentives to extend more credit; and
2] A State Small Business Credit Initiative to support innovative state small business programs -- many of which have been threatened by budget shortfalls.
"The lending initiatives passed today, along with the elimination of capital-gains taxes on small business investments approved by the House earlier this week, will help make certain that small businesses can play a critical role in building and sustaining our nation's economic recovery," Geithner added. "The Administration urges the Senate to take swift action on a package of measures to support small businesses, and looks forward to working closely with Congress as they move to finalize this legislation."
Rep. Nydia M. Velázquez [D-N.Y., pictured], chairwoman of the House Committee on Small Business, was pleased by yesterday's development. "As our most prolific job creators, small businesses will be central to the recovery of the U.S. economy," she said. "However, for entrepreneurs to expand and create jobs, they need access to financing. The measure we approved will make both credit and equity capital available for small firms."
While the legislation would establish a new $30 billion lending fund for community banks -- which proponents say would provide $300 billion in lending to entrepreneurs -- key changes were made during debate of the bill to ensure Main Street businesses benefit from the legislation:
* Rep. Glenn Nye [D-Va.] authored safeguards in the bill that will require banks to substantially boost their small-business lending to qualify for funds; and
* To further assist small firms, language prepared by Rep. Kurt Schrader [D-Ore.] would establish a new borrower assistance program, providing additional funds to small businesses who take out loans. The funds can be used at the entrepreneur's discretion to reduce their interest rates, defer their loan or cover monthly payments.
"Since the onset of the financial crisis, much has been done to shore up our nation's banks, but entrepreneurs' needs have gone unmet," Velázquez said. "These amendments will make sure that small businesses benefit from the current proposal, and I thank Mr. Nye and Mr. Schrader for offering them."
With the capital markets evolving, small businesses are increasingly looking beyond debt financing to equity capital to meet their financing needs. While entrepreneurs have traditionally used assets like real estate to secure loans, more and more business owners today seek financing based on their strengths; e.g., scientific expertise, research technologies, and potential for commercialization. For these firms, investment capital is a better financing solution.
To account for these economic changes, the legislation contains provisions aimed at reinvigorating investment in small start-ups. By establishing a new Small Business Early-Stage Investment Program, funds from the SBA will be paired with private capital to invest in small start-ups.
"In a world where revolutionary new products are conceived in dorm rooms and companies are born in garages, we need new ways of meeting businesses' capital needs," Velázquez noted. "The Small Business Early-Stage Investment Program recognizes this fundamental shift, taking steps to meet the capital needs of new businesses and helping them create jobs."
This critical legislation is just the stimulus that U.S. small businesses need in order expand and create even more jobs for our nation's economic recovery. Kudos to Rep. Velázquez and her colleagues for propelling such far-reaching policy.
SOURCES: Community Development Venture Capital Alliance [CDVCA], Library of Congress, OpenCongress, U.S. Department of the Treasury, U.S. House Committee on Small Business, The White House
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