There were big differences between the House and Senate approaches to supporting small business financing. The Senate largely proposed temporarily eliminating loan fees, which might improve demand for credit but does little to prod banks to lend. The House hoped to encourage lending with a variety of new Small Business Administration programs. Happily, the conference liked both approaches. The conference report will likely pass the Senate tonight. Since it passed the House today (with no Republican support), it'll become law this weekend. Here's what's in store for small business lending:
No fees: The new bill will temporarily waive borrower and lender fees for the SBA's 7(a) and 504 loan programs, while supplies last. That supply (of money) totals $375 million, about $240 million less than the Senate proposed.
General Business Loans: The bill creates, for one year, a modified 7(a) loan with a guaranty up 90 percent, compared to the present cap of 75 percent for loans over $150,000. (The House proposed a 95 percent guaranty.) And because the secondary market for pooled 7(a) loans, which many banks rely on to make new loans, is largely frozen, the bill establishes a new "Secondary Market Lending Authority" within the SBA. This office would make loans of unlimited size to industry brokers, who would use the proceeds to buy more 7(a) loans. Finally, the bill allows the SBA to guarantee small loans to small firms through September 30, 2010, in order to pay down existing non-SBA loans. Interest on these "bridge" loans is fully subsidized, the principal (limited to $35,000) fully guaranteed, and repayment is due within five years. These particulars were not in either the House or Senate bill. The conference appropriates $255 million for these loans
Microloans: The final bill provides an additional $6 million in direct microloans, plus another $24 million to provide counseling to borrowers and administer the program.
Fixed Asset Financing: The conference bill establishes a new SBA guaranty for the portion of the 504 loan that's made by a commercial bank. The SBA can guarantee up to $3 billion under this program. It also creates a new provision allowing 504 loans in cases where the project includes debt refinancing. Finally, it revises the 504's job creation goals by allowing the SBA to guarantee $65,000 in debt for every job created or retained, up from $50,000.
Small Business Investment: The bill expands the SBA's Small Business Investment Company Program by increasing the maximum amount of leverage available in most cases from $75 million to $150 million ($175 million for funds that invest in poor areas). It requires every fund seeking new leverage to direct more investment to "smaller" companies, and increases the maximum investment an SBIC can make in one of its portfolio companies.
Construction Surety Bonds: The bill provides $15 million in additional capital for the SBA's Surety Bond Guarantees Revolving Fund. It also temporarily (until October 2010) raises the maximum project size eligible for SBA protection from $2 million to $5 million, and applies the federal size standards for the program to state contracts funded by the stimulus bill.
The Bureaucracy: The bill appropriates an additional $55 million to the SBA to manage these and other programs, including $10 million for the Inspector General's office and $20 million for "improving, streamlining, and automating information technology systems related to lender processes and lender oversight."
The Senate has been voting for the last three hours on the bill. Actually, the voting is finished but for one senator: Democrat Sherrod Brown. He's been at home in Ohio, hosting a memorial service for his mother, who died earlier this month. The White House has dispatched a plane to bring him to the capital (and the Capitol). Brown is expected to cast the deciding vote at about 10:30 pm.