Kerry Calls for Action to Help Small Businesses Facing Credit Crunch; $212 Million Would Boost SBA Loan Programs

A report just released by the Federal Reserve found that more than half of America’s banks have tightened lending standards to small businesses. Yesterday, Sen. John Kerry [D-Mass.], chairman of the U.S. Senate Committee on Small Business and Entrepreneurship, called for the passage of his legislation to increase lending to small firms by reducing fees.

"The credit crunch has gotten even worse," said Kerry. "Over half of our banks have tightened their lending standards, making it harder for small businesses to expand their payrolls and invest in new equipment. The Bush administration and Republicans in Congress have bailed out Wall Street, and done nothing to help small businesses on Main Street.

"Today’s Fed report just underscores the need to pass my legislation to lower fees and stimulate lending for the largest source of new jobs: America’s small businesses."

The Fed’s quarterly survey can be viewed at: http://www.federalreserve.gov/boarddocs/snloansurvey/200805/fullreport.pdf.

In February, Kerry introduced the Small Business Lending Stimulus Act [S. 2612] to temporarily reduce fees on government-backed loans to small businesses. At a hearing before the Committee on Small Business and Entrepreneurship last month, bankers and small businesses testified that reducing loan fees would be a big help in increasing loans to entrepreneurs.

Kerry’s bill would provide nearly $200 million to cut borrower and lender fees in the Small Business Administration’s 7[a] loan program for working capital, and the 504 loan program for financing fixed assets. It would also provide $12 million for the microloan program and allow small firms to refinance business debts using the 504 loan program.

SOURCES: Federal Reserve, GovTrack.us, U.S. Senate Committee on Small Business and Entrepreneurship [photo]
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Kerry Proposes Economic Help for Small Businesses

Sen. John Kerry [D-Mass.] will introduce legislation this week to provide much-needed assistance and an economic stimulus for small businesses facing tightening credit markets. His bill would provide targeted tax incentives to small businesses to encourage new investments, reduce fees on loans, and double funding for microloans. Kerry will work with his colleagues on the Committee on Finance to try and include the small-business tax provisions in the committee’s stimulus package.

"We need to look at ways to create jobs, and providing help to small businesses through targeted tax incentives and increased access to capital is one of the best steps Washington can take," said Kerry, chairman of the Committee on Small Business and Entrepreneurship. "Small businesses already employ more than half of our country’s workforce, so we need to make sure that entrepreneurs have money in their pockets to continue to grow their businesses."

Sen. Kerry’s bill will increase from $125,000 to $200,000 the amount small businesses can write off their taxes for new investments for 2008 in order to encourage new investments this year. The bill increases the net operating carryback period for losses arising in taxable years ending in 2007 and 2008 from two years to five years. This will help struggling businesses with their cash flow.

In addition, Kerry’s legislation will reduce fees on borrowers and lenders to make credit more affordable, and provide incentive for lenders to make small-business loans. The bill will provide additional funding to leverage nearly $20 million in microloans, which proportionally benefit underserved communities, including women and minorities, more than traditional loan programs.

With banks and lenders becoming more risk-averse, the federally backed loans -- which provide guarantees of anywhere from 50 to 85 percent -- will be increasingly important to spurring economic lending in the small-business sector, so that entrepreneurs aren’t forced to finance their businesses with high-interest credit cards.

According to the National Association of Government Guaranteed Lenders, loans are down 12 percent from this time last year in the largest government-backed small-business loan program, known as 7[a]. The Small Business Administration's 7[a] lending program is the largest source of long-term capital to small businesses in this country. SBAExpress loans — which are approved in weeks, not months, and therefore reflect current economic conditions more accurately — are down 23 percent.

SOURCES: Peace Corps Online [file photo], U.S. Senate Committee on Small Business and Entrepreneurship
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Kerry Pushes for Increased Lender Oversight in Wake of $76 Million Loan Fraud Scheme

Today, Sen. John Kerry [D-Mass.] pushed for more aggressive oversight of small-business lenders, and called on the Bush administration to strengthen its commitment to preventing future fraud. The hearing was prompted by $76 million in fraudulent loans originated by Business Loan Center LLC [BLX], one of the Small Business Administration’s [SBA] largest lenders. Kerry raised concerns that the SBA’s oversight had been ineffective or nonexistent due to staffing shortages, insufficient funding and a lack of other necessary resources.

“Government-backed small-business loans for minorities, women and veterans are more important than ever as we brace for the full fallout from the subprime mortgage loan crisis,” said Sen. Kerry, chairman of the Committee on Small Business and Entrepreneurship. “The Bush administration’s lax oversight of these important loan programs ultimately costs the taxpayers money. It’s crucial that the agency fixes these problems in the light of day and works to make sure that these failures don’t happen again.”

Last month, the SBA Office of Inspector General publicly released a report summarizing its audit of the SBA’s oversight of BLX. The SBA requested a large amount of the report to be redacted, including many of the Inspector General’s recommendations and the agency’s plans to respond to those recommendations. Kerry pressed SBA Administrator Steven Preston to increase transparency and make changes to the agency’s lender oversight procedures publicly.

Inspector General Eric Thorson testified that, “Whether SBA has effective safeguards, and a means of overseeing lenders that facilitates the prevention and detection of fraud, has been an area of concern and focus for my office for a number of years.

“Our audits and investigations have identified significant weaknesses in the agency’s oversight of its lenders and, since 2000, we have identified lender oversight, guaranty purchase reviews, and loan agent fraud as major management challenges facing the agency. SBA has been slow to develop its lender oversight program and, only in recent years, has the agency made progress in addressing longstanding weaknesses.”

Sens. Olympia Snowe [R-Maine] and Kerry recently introduced legislation to measure the economic outcomes and improve the oversight of SBA’s 7[a] [working capital] and 504 [fixed assets] lending programs. The Small Business Lending Oversight and Program Performance Improvements Act [S. 2288] will ensure that the SBA fully assesses the quality and performance of lender portfolios so that these loan programs remain strong and benefit small businesses to the greatest extent possible.

The National Association of Government Guaranteed Lenders and the National Association of Development Companies – trade associations for the 7[a] and 504 programs, respectively – both support the bill.

GoodBiz113's take: Once again, Sen. Kerry and his colleagues are moving federal agencies -- in this case, SBA, supposedly our nation's small-biz watchdog -- closer to full accountability and transparency. Small-business owners and all U.S. citizens deserve nothing less.

SOURCES: GovTrack.us, Library of Congress, U.S. Senate Committee on Small Business and Entrepreneurship
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