Small Business: Access to Capital and Job Creation

. Small Business: Access to Capital and Job Creation Robert Jay Dilger Senior Specialist in American National Government Oscar R. Gonzales Analyst in Economic Development Policy September 1, 2010January 13, 2011 Congressional Research Service 7-5700 www.crs.gov R40985 CRS Report for Congress Prepared for Members and Committees of Congress c11173008 . Small Business: Access to Capital and Job Creation Summary The Small Business Administration’s (SBA) authorization is due to expire on September 30, 2010. The SBA administers several programs to support small businesses, including loan guarantees to help small businesses gain access to capital. This report addresses a core issue facing Congress during the SBA’s reauthorization process: what, if any, additional action should the federal government take to enhance small business access to capital? Historically, small businesses (firms with less than 500 employees) have experienced greater job loss during economic recessions than larger businesses. Conversely, small businesses have led job creation during recent economic recoveries. As a result, many federal policymakers look to small businesses to lead the nation’s recovery from its current economic difficulties. Some, including the chairs of the House and Senate Committees on Small Business and President Obama, have argued that current economic conditions make it imperative that the SBA be provided additional resources to assist small businesses in acquiring capital necessary to start, continue, or expand operations and create jobs. Others worry about the long-term adverse economic effects of spending programs that increase the federal deficit. They advocate business tax reduction, reform of financial credit market regulation, and federal fiscal restraint as the best means to assist small business economic growth and job creation. This report examines the pros and cons of federal intervention in the marketplace to enhance small business access to capital. It assesses recent federal credit market interventions, including the creation of the Troubled Asset Relief Program (TARP) and Term Asset-Backed Securities Loan Facility (TALF); modifications to the SBA’s loan guarantee programs and other small business provisions under the American Recovery and Reinvestment Act of 2009 (ARRA); empirical evidence concerning small business lending and borrowing, including the number and amount of small business loans guaranteed by the SBA; the efficacy of the SBA’s programs designed to enhance small business access to capital; and two bills introduced in the 111th Congress, H.R. 3854, the Small Business Financing and Investment Act of 2009, and S. 2869, the Small Business Job Creation and Access to Capital Act of 2009, which are designed to enhance small business access to capital. This report also examines legislation to extend SBA loan modifications and fee subsidies that expired on May 31, 2010, including S.Amdt. 4594, an amendment in the nature of a substitute to H.R. 5297, the Small Business Jobs and Credit Act of 2010. It would extend those loan modifications and subsidies through December 31, 2010. It also examines President Obama’s State of the Union proposals—the “Small Business Jobs and Wages Tax Cut” to encourage small business job creation and wage increases and a $30 billion set-aside of TARP funds to encourage community banks to provide small business loans; the House-passed version of H.R. 5297, the Small Business Jobs and Credit Act of 2010, which would authorize a $30 billion Small Business Lending Fund to encourage community banks to provide small business loans, a $2 billion State Small Business Credit Initiative to provide funding to participating states with small business capital access programs, a $1 billion Small Business Early-Stage Investment Program to provide venture capital funding for startup companies, and about $3.8 billion in tax relief for small businesses; and S.Amdt. 4594, which would authorize a $30 billion Small Business Lending Fund similar to the House-passed version, a $1.5 billion State Small Business Credit Initiative, a number of changes to the SBA’s loan guaranty programs, export promotion programs, contracting programs, and small business eligibility size standards, and about $12 billion in tax relief for small businesses guaranty programs to enhance small business access to capital; contracting programs to increase small business opportunities in federal contracting; direct loan programs for businesses, homeowners, and renters to assist their recovery from natural disasters; and small business management and technical assistance training programs to assist business formation and expansion. Congressional interest in these programs has increased in recent years, primarily because assisting small business is viewed as a means to enhance economic growth. Some, including President Obama, have argued that current economic conditions make it imperative that the SBA be provided additional resources to assist small businesses in acquiring capital necessary to start, continue, or expand operations and create jobs. Others worry about the long-term adverse economic effects of spending programs that increase the federal deficit. They advocate business tax reduction, reform of financial credit market regulation, and federal fiscal restraint as the best means to assist small business economic growth and job creation. Several laws were enacted during the 111th Congress to enhance small business access to capital. For example, P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA), provided the SBA an additional $730 million, including funding to temporarily subsidize SBA fees and increase the 7(a) loan guaranty program’s maximum loan guaranty percentage to 90%. P.L. 111-240, the Small Business Jobs Act of 2010, authorizes the Secretary of the Treasury to establish a $30 billion Small Business Lending Fund (SBLF) to encourage community banks to provide small business loans, a $1.5 billion State Small Business Credit Initiative to provide funding to participating states with small business capital access programs, numerous changes to the SBA’s loan guaranty and contracting programs, funding to continue the SBA’s fee subsidies and the 7(a) program’s 90% maximum loan guaranty percentage through December 31, 2010, and about $12 billion in tax relief for small businesses. P.L. 111-322, the Continuing Appropriations and Surface Transportation Extensions Act, 2011, authorizes the SBA to continue its fee subsidies and the 7(a) program’s 90% maximum loan guaranty percentage through March 4, 2011. This report addresses a core issue facing Congress during the 112th Congress: what, if any, additional action should the federal government take to enhance small business access to capital? After briefly discussing the role of small business in job creation and retention, this report provides an assessment of the supply and demand for small business loans. It also examines selected laws enacted during the 110th and 111th Congresses that were designed to enhance small business access to capital by increasing the supply of small business loans and/or the demand for small business loans. This report also includes empirical evidence concerning small business lending and borrowing, including the number and amount of small business loans guaranteed by the SBA. Congressional Research Service . Small Business: Access to Capital and Job Creation Contents Small Business Access to Capital ................................................................................................1 Access to Capital and Job Creation........................................................................................1 The Supply and Demand for The Supply and Demand for Private Sector Small Business Loans ...............................................................2 The Federal Response in 2008 and Early 2009 ............................................................................7 The Troubled Asset Relief Program.......................................................................................7 The Term Asset-Backed Securities Loan Facility...................................................................8 Federal Guarantees................................................................................................................8 The American Recovery and Reinvestment Act of 2009 ........................................................9 ARRA’s SBA Funding Provisions ...................................................................................9 ARRA’s Business Tax Provisions .................................................................................. 11 ARRA’s Credit Market Provisions...............................................3 The Supply and Demand for SBA Loans .....................................................................................4 Recent Laws Designed to Enhance the Supply of Small Business Loans......................................8 Recent Laws Designed to Enhance the Demand for Small Business Loans ................................ 11 Discussion ................................................................................. 12 TARP, TALF, and ARRA’s Impact....................................................................................... 13 Disagreement Over Next Steps............................................................................................ 13 Current Administration Proposals and Congressional Bills ........................................................ 15 Obama Administration Proposals ........................................................................................ 15 SBA Capital Access Programs....................................................................................... 15 Utilizing the Community Development Financial Institutions Fund ............................... 16 Small Business Tax Incentives and Utilizing TARP Funds ............................................. 17 Congressional Bills ............................................................................................................. 19 Increases in the SBA’s Loan Guarantee Limits .............................................................. 21 Extension of ARRA’s SBA Provisions ........................................................................... 22 Proposed Modifications to the SBA Microloan Program................................................ 24 SBA Direct Lending Programs ...................................................................................... 25 Concluding Observations .......................................................................................................... 27 Figures Figure 1. Small Business Lending Environment, 1999-2010........................................................2 Tables Table 1. Selected Small Business Administration Financial Statistics, FY2000-FY2010...............4 14 Concluding Observations .......................................................................................................... 16 Figures Figure 1. Small Business Lending Environment, 2000-2010........................................................4 Tables Table 1. Selected Small Business Administration Financial Statistics, FY2000-FY2010...............5 Table A-1. Selected Provisions, the Small Business Jobs Act of 2010 ........................................ 18 Appendixes Appendix. Selected Provisions in the Small Business Jobs Act of 2010 ..................................... 18 Contacts Author Contact Information ...................................................................................................... 2820 Congressional Research Service . Small Business: Access to Capital and Job Creation Small Business Access to Capital The Small Business Administration (SBA) administers several programs to support small businesses, including loan guarantees to lenders to encourage them to provide loans to small businesses “that might not otherwise obtain financing on reasonable terms and conditions.”1 Historically, one of the justifications presented for funding the SBA’s loan guarantee programs has been that small businesses can be at a disadvantage, compared with other businesses, when trying to obtain access to sufficient capital and credit.2 As an economist explained: Growing firms need resources, but many small firms may have a hard time obtaining loans because they are young and have little credit history. Lenders may also be reluctant to lend to small firms with innovative products because it might be difficult to collect enough reliable information to correctly estimate the risk for such products. If it’s true that the lending process leaves worthy projects unfunded, some suggest that it would be good to fix this “market failure” with government programs aimed at improving small businesses’ access to credit.3 Congressional interest in small business access to capital has increased in recent years because, as discussed in the following section, lending institutions have tightened small business lending standards, largely in reaction to rising loan default rates and increased numbers of noncurrent (past due) loans during the economic downturn. In addition, disruptions in business credit markets during 2008 and early 2009 reduced lenders’ liquidity, making it more difficult for lenders to supply loans to small business. The credit market disruptions’ adverse impact on lending was particularly evident early in 2009, and remains a congressional concern. Access to Capital and Job Creation Small business has led job formation during previous economic recoveries.4 The tightening of lending standards and disruption of business credit markets in 2008 and early 2009 has led to increased concern in Congress that small businesses might be prevented from accessing sufficient capital to enable them to take on that role during the current recovery. As the SBA indicated in its FY2010 congressional budget justification report: Over the last decade, small businesses across this country have been responsible for the majority of new private sector jobs, leaving little doubt that they are a vital engine for the nation’s economic growth. However, with the United States facing the most severe economic In recent years, advocates of providing federal assistance to small businesses have focused increased attention on the role small businesses have in job creation and retention.4 They note that small businesses have led job formation during previous economic recoveries. 5 Economists generally do not view job creation as a justification for providing federal assistance to small businesses. They argue that in the long term such assistance will likely reallocate jobs within the economy, not increase them. In their view, jobs arise primarily from the size of the labor force, which depends largely on population, demographics, and factors that affect the choice of home versus market production (e.g., the entry of women in the workforce). However, economic theory does suggest that increased federal spending may result in additional jobs in the short term. For example, the SBA reported in September 2010, that ARRA funding for small businesses created or retained 785,955 jobs.6 1 U.S. Small Business Administration, Fiscal Year 2010 Congressional Budget Justification (Washington, DC: GPO, 2009), p. 30. 2 Proponents of providing federal funding for the SBA’s loan guarantee programs also argue that small business can promote competitive markets. See, P.L. 83-163, § 2(a), as amended; and 15 U.S.C. § 631a. 3 Veronique de Rugy, Why the Small Business Administration’s Loan Programs Should Be Abolished, American Enterprise Institute for Public Policy Research, AEI Working Paper #126, April 13, 2006, http://www.aei.org/docLib/ 20060414_wp126.pdf. Also, see U.S. Government Accountability Office, Small Business Administration: 7(a) Loan Program Needs Additional Performance Measures, GAO-08-226T, November 1, 2007, pp. 3, 9-11, http://www.gao.gov/new.items/d08226t.pdf. 4 For example, see The White House, “Remarks by the President on Job Creation and Economic Growth,” December 8, 2009, http://www.whitehouse.gov/the-press-office/remarks-president-job-creation-and-economic-growth. For further analysis concerning the role of small business in job creation see CRS Report R41392, Small Business and the Expiration of the 2001 Tax Rate Reductions: Economic Issues, by Jane G. Gravelle and CRS Report R41523, Small Business Administration and Job Creation, by Robert Jay Dilger. 5 U.S. Small Business Administration, Office of Advocacy, Small Business Economic Indicators for 2003, August 2004, p. 3, http://www.sba.gov/advo/stats/sbei03.pdfWashington, DC, August 2004, p. 3; and Brian Headd, “Small Businesses Most Likely to Lead Economic Recovery,” The Small Business Advocate, vol. 28, no. 6 (July 2009), pp. 1, 2. 6 U.S. Small Business Administration, “FY2009/2010 Final – Recovery Program Performance Report, September 2010,” Washington, DC, September, 2010, http://archive, http://www.sba.gov/advo/ july_09idc/groups/public/documents/sba_homepage/ perform_report_9_2010.pdf. Congressional Research Service 1 . Small Business: Access to Capital and Job Creation crisis in more than 70 years, small businesses are confronted with a frozen lending market and limited access to the capital they need to survive and grow at this critical time.5 The Supply and Demand for Small As will be discussed, the tightening of private sector lending standards and the disruption of credit markets in 2008 and 2009, led to increased concern in Congress that small businesses might be prevented from accessing sufficient capital to start, continue, or expand their operations—actions which were expected to lead to higher levels of employment. As the SBA indicated in its FY2010 congressional budget justification report: Over the last decade, small businesses across this country have been responsible for the majority of new private sector jobs, leaving little doubt that they are a vital engine for the nation’s economic growth. However, with the United States facing the most severe economic crisis in more than 70 years, small businesses are confronted with a frozen lending market and limited access to the capital they need to survive and grow at this critical time.7 Some, including President Obama, have argued that economic conditions make it imperative that the SBA be provided additional resources to assist small businesses in acquiring capital necessary to start, continue, or expand operations. For example, the SBA has argued that “improving access to credit by small businesses is a crucial step in supporting economic recovery and job creation.”8 Others worry about the long-term adverse economic effects of spending programs that increase the federal deficit. They advocate business tax reduction, reform of financial credit market regulation, and federal fiscal restraint as the best means to assist small businesses, generate economic growth and create jobs. Several laws were enacted during the 110th and 111th Congresses to enhance small business access to capital, including P.L. 111-240, the Small Business Jobs Act of 2010 (see the Appendix for a list of its key provisions). Some of these laws were designed primarily to enhance the supply of small business loans, others were designed primarily to enhance the demand for small business loans, and some, including P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA), and the Small Business Jobs Act of 2010, included provisions designed to enhance both the supply and demand for small business loans.9 This report addresses a core issue facing Congress during the 112th Congress: what, if any, additional action should the federal government take to enhance small business access to capital? It opens with an assessment of the supply and demand for small business loans. It also examines selected laws enacted during the 110th and 111th Congresses that were designed to enhance small business access to capital, either by increasing the supply of small business loans or increasing the demand for small business loans. This report also includes empirical evidence concerning small business lending and borrowing, including the number and amount of small business loans guaranteed by the SBA. 7 U.S. Small Business Administration, Fiscal Year 2010 Congressional Budget Justification (Washington, DC: GPO, 2009), p. 1. 8 U.S. Small Business Administration, “President Obama Announces New Efforts to Improve Access to Credit for Small Businesses,” Washington, DC, 2009, http://www.whitehouse.gov/assets/documents/small_business_final.pdf. 9 For further analysis of ARRA’s small business provisions see CRS Report R40241, Overview and Analysis of Small Business Provisions in the American Recovery and Reinvestment Act of 2009, by Oscar R. Gonzales and N. Eric Weiss. For further analysis of ARRA’s small business provisions and P.L. 111-240 see CRS Report R41385, Small Business Legislation During the 111th Congress, by Robert Jay Dilger, Oscar R. Gonzales, and Gary Guenther. Congressional Research Service 2 . Small Business: Access to Capital and Job Creation The Supply and Demand for Private Sector Small Business Loans Each quarter, the Federal Reserve Board surveys senior loan officers concerning their bank’s lending practices. The survey includes a question concerning their bank’s credit standards for small business loans: “Over the past three months, how have your bank’s credit standards for approving applications for C&I [commercial and industrial] loans or credit lines—other than those to be used to finance mergers and acquisitions—for small firms (annual sales of less than $50 million) changed?” The senior loan officers are asked to indicate if their bank’s credit standards have “Tightened considerably,” “Tightened somewhat,” “Remained basically unchanged,” “Eased somewhat,” or “Eased considerably.” Subtracting the percentage of respondents reporting “Eased somewhat” and “Eased considerably” from the percentage of respondents reporting “Tightened considerably” and “Tightened somewhat” provides an indication of the market’s supply of small business loans. As shown in Figure 1, senior loan officers reported that they tightened small business loan credit standards during the early part of this decade, loosened those credit standards mid-decade, and tightened them in 2008 and 2009. Figure 1. Small Business Lending Environment, 1999-2010 (senior loan officers’ survey responses) Source: Federal Reserve Board, “Senior Loan Officer Opinion Survey on Bank Lending Practices,” Washington, DC, http://www.federalreserve.gov/boarddocs/SnLoanSurvey/; and Brian Headd, “Forum Seeks Solutions To Thaw Frozen Small Business Credit,” The Small Business Advocate, vol. 28, no. 10 (December 2009), p. 3, http://www.sba.gov/advo/dec09.pdf. 5 U.S. Small Business Administration, Fiscal Year 2010 Congressional Budget Justification (Washington, DC: GPO, 2009), p. 1. Congressional Research Service 2 . Small Business: Access to Capital and Job Creation Since 2009, business credit markets have improved, and most senior loan officers report that they are no longer tightening their small business lending standards. However, the Federal Reserve Board notes that those lending standards “remain quite stringent following the prolonged and widespread tightening that took place over the past few years.”10 The survey also includes a question concerning the demand for small business loans: “Apart from normal seasonal variation, how has demand for C&I loans changed over the past three months for small firms (annual sales of less than $50 million)?” Senior loan officers are asked to indicate if demand was “Substantially stronger,” “Moderately stronger,” “About the same,” “Moderately weaker,” or “Substantially weaker.” Subtracting the percentage of respondents reporting “Moderately weaker” and “Substantially weaker” from the percentage of respondents reporting “Substantially stronger” and “Moderately stronger” provides an indication of the market’s demand for small business loans. AlsoAs shown in Figure 1, senior loan officers reported that the demand for small business loans declined during the early part of this decade, increased mid-decade, and declined in 2008 and 2009declined somewhat in 2007 and 2008, declined significantly in 2009, began to level off (at a relatively reduced level) during the first half of 2010, and declined somewhat more during the second half of 2010. The combination of decreased supply and demand for small business loans in 2008 and 2009 causedover the past three years led to a decline in the total amount of outstanding small business debt outstanding to decline as well. Since peaking at $780.9 billion in the second quarter of 2008, small business total debt outstanding declined to $760.5 billion in the third quarter of 2009.6 Table 1 providesthe total amount of outstanding small business debt declined to $700.4 billion in the third quarter of 2010.11 10 Federal Reserve Board, “The April 2010 Senior Loan Officer Opinion Survey on Bank Lending Practices,” Washington, DC, http://www.federalreserve.gov/boarddocs/SnLoanSurvey/201005/default.htm. 11 Federal Deposit Insurance Corporation, “Statistics on Depository Institutions,” Washington, DC, http://www2.fdic.gov/SDI/main.asp. Congressional Research Service 3 . Small Business: Access to Capital and Job Creation Figure 1. Small Business Lending Environment, 2000-2010 (senior loan officers’ survey responses) 80 60 Tightening Standards Increasing Demand 40 20 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 -20 Loosening Standards -40 -60 Decreasing Demand -80 Bank Lending Standards Small Businesses Demand for Loans Source: Federal Reserve Board, “Senior Loan Officer Opinion Survey on Bank Lending Practices,” Washington, DC, http://www.federalreserve.gov/boarddocs/SnLoanSurvey/; and Brian Headd, “Forum Seeks Solutions To Thaw Frozen Small Business Credit,” The Small Business Advocate, vol. 28, no. 10 (December 2009), p. 3, http://www.sba.gov/sites/default/files/The%20Small%20Business%20Advocate%20-%20December%202009.pdf. The Supply and Demand for SBA Loans Table 1 shows selected financial statistics for the SBA from FY2000 to FY2010. It provides an overview of the extent of the SBA’s various programs designed to enhance small business access to capital. The first two columns report the amount and number of non-disaster small business loans loans guaranteed by the SBA from FY2000 to FY2009 and an estimate for FY2010. The figures for FY2000 through FY2009FY2010. The figures reflect loans that were actually made disbursed and are less than the amount and number of loans approved by the SBA. Each year, about 15% of 7% to 10% of the loans approved by the SBA are subsequently cancelled for a variety of reasons, typically by the borrower. The third column reports the volume of the SBA’s surety bond guarantees from FY2000 to FY2009 and an estimate fornumber of bid bonds and final bonds guaranteed under the SBA’s surety bond guarantee program from FY2000 to FY2010. A surety bond is a three-party instrument between a surety (someone who agrees to be responsible for the debt or obligation of another), a contractor, and a project owner. The agreement binds the contractor to comply with the terms and conditions of a contract. If the contractor is unable to successfully perform the contract, the surety assumes the contractor’s responsibilities and ensures that the project is completed. It is designed to reduce the risk of contracting with small businesses that may not Congressional Research Service 4 . Small Business: Access to Capital and Job Creation have the credit history or prior experience of larger businesses. The SBA does not issue surety bonds. Instead, it provides and manages surety bond guarantees for qualified small and emerging businesses through its Surety Bond Guarantee (SBG) Program. The SBA reimburses a participating surety (within specified limits) for the losses incurred as a result of a contractor’s default on a bond.7 12 The fourth column reports the volume offunding for the SBA’s secondary market guarantees, which areguarantee program, which is discussed later in this report. The final column reports the SBA’s end-of-year outstanding principal balance of loans for FY2000-FY2009FY2010 that have not been charged off as of the end of the fiscal year. It provides a measure of the SBA’s scope of lending. 6 7 Federal Deposit Insurance Corporation, “Statistics on Depository Institutions,” http://www2.fdic.gov/SDI/main.asp. U.S. Small Business Administration, “Bonding Program,” http://www.sba.gov/financialassistance/borrowers/surety/. Congressional Research Service 3 . Small Business: Access to Capital and Job Creation Table 1. Selected Small Business Administration Financial Statistics, FY2000-FY2010 ($ in millions) Small Business Loans Guarantee Fiscal Year Amount Number Surety Bond Guarantee Volume Secondary Market Guarantees Unpaid Principal Balance 2010 est. $15,480 48,250 $1,000 $12,000 $91,536 2009 12,752 45,548 430 2,381 90,451 2008 18,168 78,916 531 4,138 88,244 2007 20,525 108,152 547 3,678 84,523 2006 19,954 105,680 508 3,633 78,117 2005 19,661 102,893 484 10,000 71,495 2004 21,308 83,611 595 3,572 64,362 2003 15,358 71,973 594 - 59,181 2002 15,281 53,585 1,672 - 56,219 2001 14,019 50,278 261 - 53,116 2000 13,180 NA 1,672 - 52,227 SBA Business Loan Guarantees Surety Bond Guarantees Number Secondary Market Guarantee Funding 54,800 (est.) 8,348 $3,379 $93,340 Number DisbursedError! Unpaid Principal Loan Balance Fiscal Year Amount Disburseda 2010 $15,060 2009 12,728 45,548 6,135 2,381 90,441 2008 18,152 78,916 6,055 4,138 88,244 2007 20,525 108,152 5,809 3,678 84,523 2006 19,954 105,680 5,214 3,633 78,117 2005 19,661 102,893 5,678 10,000 71,495 2004 21,308 83,611 7,803 3,572 64,362 2003 15,358 71,973 8,974 - 59,181 2002 15,281 53,585 7,372 - 56,219 2001 14,019 50,278 6,320 - 53,116 2000 13,180 NA 7,034 - 52,227 Reference source not found. Sources: U.S. Small Business Administration, FY 2002 Budget Request and Performance Plan (Washington, DC: GPO, 2001), pp. 14, 28, 31, 34; U.S. Small Business Administration, SBA Budget Request and Performance Plan: FY 2003 Congressional Submission (Washington, DC: GPO, 2002), pp. 17, 57, 58, 62; U.S. Small Business Administration, FY 2004 Budget Request and Performance Plan (Washington, DC: GPO, 2003), pp. 3, 4, 113; U.S. Small Business Administration, FY 2005 Congressional Performance Budget Request (Washington, DC: GPO, 2004), pp. 9, 15, 20, 82; U.S. Small Business Administration, Congressional Submission Fiscal Year 2006 (Washington, DC: GPO, 2005), pp. 13, 19, 25; U.S. Small Business Administration, FY 2007 Budget Request and Performance Plan (Washington, DC: GPO, 2006), pp. 14, 20, 23, 51, 63; U.S. Small Business Administration, Congressional Submission Fiscal Year 2008 (Washington, DC: GPO, 2007), pp. 17, 23, 26; 49, 52, 53, 55; U.S. Small Business Administration, Fiscal Year 2009 Congressional Submission and Fiscal Year 2007 Annual Performance Report (Washington, DC: GPO, 2008), pp. 17, 25, 28, 127, 128; U.S. Small Business Administration, Fiscal Year 2010 Congressional Budget Justification (Washington, DC: GPO, 2009), pp. 11, 17, 21, 34, 38, 43; U.S. Small Business Administration, “Recovery Act Changes to SBA Loan Programs Sparked Major Mid-Year Turn-Around in Volume,” Press Release, Washington, DC, October 1, 2009; U.S. Small Business Administration, Number of Approved Loans by Program, FY 2009, Washington, DC, http://www.sba.gov/idc/groups/public/documents/ sba_homepage/serv_bud_lperf_approvalcount.pdf; U.S. Small Business Administration, Unpaid Principal Balance By Program, Washington, DC, http://www.sba.gov/idc/groups/public/documents/sba_homepage/ serv_bud_lperf_upbreport.pdf; U.S. Small Business Administration, Agency Financial Report, 2009 Fiscal Year (Washington, DC: GPO, 2009), p. 68; and U.S. Small Business Administration, Fiscal Year 2011 Congressional Number of Approved Loans by Program, Washington, DC; U.S. Small Business Administration, Unpaid Principal Balance By Program, Washington, DC; U.S. Small Business Administration, Agency Financial Report, 12 U.S. Small Business Administration, “Surety Bonds,” Washington, DC, http://www.sba.gov/category/navigationstructure/loans-grants/bonds/surety-bonds. Congressional Research Service 5 . Small Business: Access to Capital and Job Creation 2009 Fiscal Year (Washington, DC: GPO, 2009), p. 68; U.S. Small Business Administration, Fiscal Year 2011 Congressional Budget Justification and FY 2009 Annual Performance Report (Washington, DC: GPO, 2010) pp. 19, 36, 39, 41, 48, http://www.sba.gov/idc/groups/public/documents/sba_homepage/fy_2011_cbj_09_apr.pdf. Notes: The number of loans funded for FY2009 was estimated using the historical average of 85% of the number of loans approved in FY2009 39, 41, 48, and U.S. Small Business Administration, Agency Financial Report, Fiscal Year 2010 (Washington, DC: GPO, 2010), pp. 7, 65. Notes: a. The amount disbursed is the amount given to the borrower. In recent years, the SBA has guaranteed 84% to 87% of the amount disbursed. b. The SBA no longer publishes the number of loans disbursed. The number of general business loans disbursed for FY2010 was estimated by assuming that 92% of the loans approved in FY2010 (59,572) were disbursed. The SBA also provides disaster loans: $8.8 billion in FY2006, $1.6 billion in FY2007, $861 million in FY2008, and $725 million in FY2009, and $387 million in FY2010. See U.S. Small Business Administration, Congressional Submission Fiscal Year 2008 (Washington, DC: GPO, 2007), p. 23; and U.S. Small Business Administration, Fiscal Year 2009 Congressional Submission and Fiscal Year 2007 Annual Performance Report (Washington, DC: GPO, 2008), p. 25. FY2009 disaster loan data provided to the author by the; U.S. Small Business Administration, Office of Legislative Affairs. As indicated in Table 1, the amount and number of non-disaster small business loans guaranteed by the SBA declined in FY2008 and FY2009. In FY2007, the SBA guaranteed 108,152 small business loans worth more than $20.5 billion. In FY2008, the SBA guaranteed 78,916 small Congressional Research Service 4 . Small Business: Access to Capital and Job Creation business loans worth about $18.2 billion. In FY2009, it guaranteed an estimated 45,548 small business loans worth approximately $12.8 billion. In 2009, the amount of small business loans guaranteed by the SBA declined sharply early in the year, followed by modest increases during the second and third quarters, and surpassed prerecession levels in the fourth quarter as small business owners took advantage of SBA loan subsidies that were about to end. For example, during 2008, the SBA guaranteed about $348 million in small business loans per week. During the first seven weeks of 2009, the SBA guaranteed about $165 million in small business loans per week. The amount of small business loans guaranteed by the SBA increased modestly during the second and third quarters, averaging about $275 million per week, increased to $1.1 billion in the third week of November as borrowers hurried to take advantage of temporary SBA loan subsidies that were exhausted on November 23, 2009, and then fell below pre-recession levels.8 Business Administration, Fiscal Year 2011 Congressional Budget Justification and FY 2009 Annual Performance Report (Washington, DC: GPO, 2010) p. 48, and U.S. Small Business Administration, Agency Financial Report, Fiscal Year 2010 (Washington, DC: GPO, 2010), pp. 7, 65. As shown in Table 1, the amount and number of non-disaster small business loans guaranteed by the SBA declined in FY2008 and FY2009, and then increased, but remained below pre-recession levels, in FY2010. The decline in the amount and number of small business loans guaranteed by the SBA during 2008 and 2009 was, at least in part, due to three interrelated factors. First, many lending institutions experienced significant economic difficulties during the recession. In 2007, before the recession, three lending institutions failed. In 2008, 26 failed. During 2009, 140 lending institutions failed. 913 Included in the list of failed lending institutions in 2009 was CIT Group, Inc., the nation’s largest lender to small businesses. It failed on November 1, 2009.1014 Over the course of the year, 702 (of 8,012) banks, with $403 billion in assets, were on the Federal Deposit Insurance Corporation’s (FDIC’s) watch list for heightened risk of failure.11 15 Deterioration in the quality of loans and securities in the portfolios of financial institutions, combined with rapidly rising loan defaults, also took a toll on the industry’s earnings in 2008 and 2009. In 2007, FDIC-insuredFDICinsured lending institutions had $101.6 billion in net profits. In 2008, they lost $12.9 billion, including a $37.8 billion loss in the fourth quarter, which more than erased $24.9 billion in profits during the previous three quarters. In 2009, FDIC-insured lending institutions had a net profit of $4.2 billion. 1216 In terms of individual lending institutions, more than one in four (29.5%) reported a net loss for the year.1317 When lending institutions anticipate difficulty in making a profit, are losing money, or have diminished expectations of future profits, they tend to become more risk averse and the supply of business loans, including small business loans, tends to decline. 8 U.S. Small Business Administration, “Recovery Act Changes to SBA Loan Programs Sparked Major Mid-Year TurnAround in Volume,” October 1, 2009, http://www.sba.gov/idc/groups/public/documents/sba_homepage/ news_release_09-67.pdf; Nancy Waitz, “U.S. stimulus funds run out for lower SBA loan fees,” Reuters News, November 24, 2009, http://www.reuters.com/article/companyNewsAndPR/idUSN2431964620091125; and Senator Mary Landrieu, “Statements on Introduced Bills and Joint Resolutions,” remarks in the Senate, Congressional Record, daily edition, vol. 155, no. 185 (December 10, 2009), p. S12910. 9 loans, tends to decline. 13 Federal Deposit Insurance Corporation, “Failed Bank List,” Washington, DC, http://www.fdic.gov/bank/individual/ failed/banklist.html. For further analysis, see CRS Report RL32542, The Condition of the Banking Industry, by Walter W. Eubanks. 1014 Patrice Hill, “Lender to small business bankrupt,” The Washington Post, November 2, 2009, pp. A1, A10. 1115 Federal Deposit Insurance Corporation, “Quarterly Banking Profile: Fourth Quarter 2009, Table 1-A. Selected Indicators, FDIC-Insured Institutions,” Washington, DC, http://www2.fdic.gov/qbp/2009dec/all1a.html. 1216 Federal Deposit Insurance Corporation, “Quarterly Banking Profile: Quarterly Net Income,” Washington, DC, http://www2.fdic.gov/ qbp/2009dec/chart1.htm. 1317 Federal Deposit Insurance Corporation, “Quarterly Banking Profile: Fourth Quarter 2009, Table 1-A. Selected Indicators, FDIC-Insured Institutions,” Washington, DC, http://www2.fdic.gov/qbp/2009dec/all1a.html. For further analysis, analysis see CRS Report RL32542, The Condition of the Banking Industry, by Walter W. Eubanks. Congressional Research Service 56 . Small Business: Access to Capital and Job Creation Second, the secondary market for small business loans, as with other secondary markets, began to contract in October 2008, reached its nadir in January 2009, and then began a relatively prolonged recovery.18 In a secondary market, loans are pooled together and packaged as securities for sale to investors. This practice makes more capital available by allowing lending institutions to remove existing loans from their balance sheets, freeing them to make new loans.1419 When secondary credit markets constrict, lenders tend to become both less willing and less able to supply small business loans. For example, the secondary market volume for SBA 7(a) loans averaged $328 million a month from January 2008 through September 2008, and then fell each succeeding month, declining to under $100 million in January 2009.1520 The SBA estimates that about half of the lenders that make SBA guaranteed loans resell them to obtain additional capital to make additional loans. Third, many small businesses experienced severe economic difficulties during the recession. The SBA estimated that about 60% of the jobs lost in 2008 through the second quarter of 2009 were lost in small firms. 1621 Monthly business surveys conducted by Automatic Data Processing, Inc. (ADP) suggest that about 81% of the 7.5 million jobs lost during the recession (from December 2007 through September 2009) were in firms with less than 500 employees.1722 When business is slow, or when expectations of business sales growth are diminished, business owners (and entrepreneurs considering starting a new small business) tend to become more risk averse and the demand for small business loans tends to decline. As will be shown in the discussion that follows, Congress has addressed all three of these factors. For example, Congress authorized the U.S. Department of the Treasury to assist banks and other lending institutions by purchasing or insuring up to $700 billion of troubled assets, targeting real estate-related loans and securities that have lost value, are difficult to price and sell to others in secondary markets, and, therefore, constrain the financial institution’s profits and ability to lend.18 It authorized interventions in secondary credit markets in an attempt to increase lending. It also approved ARRA (P.L. 111-5), which was anticipated to provide $787 billion in increased spending and tax reductions to stimulate the economy, including an additional $730 million for SBA programs and several tax provisions designed to benefit small business.19 In January 2010, the Congressional Budget Office (CBO) estimated that ARRA would cost $862 billion, primarily 14 U.S. Small Business Administration, Office of Advocacy, An Exploration of a Secondary Market for Small Business Loans, April 2003, p. 1, http://www.sba.gov/advo/research/rs227.pdf. 15 U.S. Small Business Administration, “Six-Month Recovery Act Report Card,” August 2009, http://www.sba.gov/idc/ groups/public/documents/sba_homepage/six-mnth_recov_act_rep_08_2009.pdf. 16 Brian Headd, U.S. Small Business Administration, Office of Advocacy, “An Analysis of Small Business and Jobs,” March 2010, p. 14, http://www.sba.gov/advo/research/rs359tot.pdf. 17 In 2009, the number and amount of small business loans guaranteed by the SBA declined sharply early in the year, followed by modest increases during the second and third quarters, and briefly surpassed pre-recession levels in the fourth quarter as small business owners took advantage of ARRA funded fee subsidies for the SBA’s 7(a) and 504/CDC loan guaranty programs and increase in the 7(a) program’s maximum loan guaranty percentage to 90% which were expected to end by the end of the year.23 18 The Federal Reserve Bank of New York, utilizing authority provided under section 13(3) of the Federal Reserve Act, created the Term Asset-Backed Securities Loan Facility (TALF) on March 3, 2009 to stabilize secondary credit markets by lending up to $200 billion to eligible owners of certain AAA-rated asset backed securities (ABS) backed by newly and recently originated auto loans, credit card loans, student loans, and SBA-guaranteed small business loans. The initial TALF subscription took place on March 19, 2009 and the last one took place in June 2010. There were 23 monthly ABS and Commercial Mortgage Backed Securities (CMBS) subscriptions. TALF supported about $58 billion of ABS and $12 billion of CMBS. See Federal Reserve Bank of New York, “Term Asset-Backed Securities Loan Facility: Terms and Conditions,” New York, NY, http://www.newyorkfed.org/markets/talf_terms.html; Federal Reserve Bank of New York, “New York Fed releases revised TALF Master Loan and Security Agreement and appendices,” press release, New York, NY, http://www.federalreserve.gov/newsevents/press/monetary/20090303a.htm; and U.S. Department of the Treasury, “Secretary of the Treasury Timothy F. Geithner, Written Testimony Congressional Oversight Panel,” Press Release, Washington, DC, June 22, 2010, http://cop.senate.gov/documents/ testimony-062210-geithner.pdf. 19 U.S. Small Business Administration, Office of Advocacy, An Exploration of a Secondary Market for Small Business Loans, Washington, DC, April 2003, p. 1, http://archive.sba.gov/advo/research/rs227_tot.pdf. 20 U.S. Small Business Administration, “Six-Month Recovery Act Report Card,” Washington, DC, August 2009. 21 Brian Headd, U.S. Small Business Administration, Office of Advocacy, “An Analysis of Small Business and Jobs,” Washington, DC, March 2010, p. 14, http://www.sba.gov/sites/default/files/files/ an%20analysis%20of%20small%20business%20and%20jobs(1).pdf. 22 Automatic Data Processing, Inc. (ADP), “National Employment Report, December 2007,” Roseland, NJ, p. 2, http://www.adpemploymentreport.com/pdf/FINAL_Report_DEC_07.pdf; and ADP, “National Employment Report, September 2009,” Roseland, NJ, p. 2, http://www.adpemploymentreport.com/PDF/FINAL_Report_September_09.pdf. 18 U.S. Congress, House Committee on Financial Services, Oversight Concerns Regarding Treasury Department Conduct of The Troubled Assets Relief Program, 110th Cong., 2nd sess., December 10, 2008 (Washington: GPO, 2009), pp. 15, 16, 23, 27, 46, 51, 59, 63, 75, 76, 79, 91, 137, 211, 213; and David Cho, “Treasury Kicks Off Toxic-Asset Program: After Long Delay, Plan Is Scaled Back,” The Washington Post, October 1, 2009, http://www.washingtonpost.com/wp-dyn/content/article/2009/09/30/AR2009093003874.html. 19 For further analysis, see CRS Report R40241, Overview and Analysis of Small Business Provisions in the American Recovery and Reinvestment Act of 2009, by Oscar R. Gonzales and N. Eric Weiss. Congressional Research Service 6 . Small Business: Access to Capital and Job Creation due to unanticipated outlays for food stamps, unemployment compensation, and the Build America Bond program. 20 The Federal Response in 2008 and Early 2009 The Troubled Asset Relief Program In an effort to spur the economy and assist businesses of all sizes, Congress adopted the Emergency Economic Stabilization Act of 2008, which became law on October 3, 2008 (P.L. 110-343). The act created the Troubled Asset Relief Program (TARP), which authorizes the U.S. Department of the Treasury to purchase or insure up to $700 billion in troubled assets from banks and other financial institutions. The law’s intent is “to restore liquidity and stability to the financial system of the United States.”21 The definition of troubled assets, defined as illiquid, difficult-to-value real estate related assets in the original proposal circulated by the George W. Bush Administration, was expanded to include any asset the Department of Treasury, in consultation with the Federal Reserve, believes would contribute to financial instability. 22 P.L. 111-203, the Dodd-Frank Wall Street Reform and Consumer Protection Act, reduced total TARP purchase authority from $700 billion to $475 billion. As of July 31, 2010, the Department of the Treasury had approximately $475 billion planned for TARP programs. For example, it has used $205 billion in TARP funds to purchase stock in 707 banks and other financial institutions. TARP has also provided General Motors, Chrysler, and their respective financing arms $82 billion in loans and equity investments.23 On March 16, 2009, President Barack Obama announced that the Department of the Treasury would use TARP funds to purchase up to $15 billion of SBA-guaranteed loans. The purchases were intended to “immediately unfreeze the secondary market for SBA loans and increase the liquidity of community banks.”24 The plan was deferred after it met resistance from lenders. Some lenders objected to TARP’s requirement that participating lenders comply with executive compensation limits and issue warrants to the federal government. Smaller, community banks 20 U.S. Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2010 to 2020 (Washington, DC: GPO, January 2010), p. 95, http://www.cbo.gov/ftpdocs/108xx/doc10871/01-26-Outlook.pdf. Note: The Build America Bond program pays state and local governments 35% of their interest costs on taxable government bonds issued in 2009 and 2010 to finance capital spending. Participation in the program exceeded expectations. For further analysis, see CRS Report R40523, Tax Credit Bonds: Overview and Analysis, by Steven Maguire. 21 P.L. 110-343. 22 For further analysis, see CRS Report RL34730, Troubled Asset Relief Program: Legislation and Treasury Implementation, by Baird Webel and Edward V. Murphy. 23 U.S. Department of the Treasury, Troubled Assets Relief Program Monthly 105(a) Report – July 2010, August 10, 2010, pp. 5, 6, 9, http://www.financialstability.gov/docs/105CongressionalReports/ July%202010%20105(a)%20Report_Final.pdf; and U.S. Department of the Treasury, Troubled Assets Relief Program Monthly 105(a) Report – January 2010, February 16, 2010, pp. 4, 9, http://www.financialstability.gov/docs/ 105CongressionalReports/January%20105(a)_2-16-10.pdf. 24 The White House, “Remarks by the President to Small Business Owners, Community Leaders, and Members of Congress,” March 16, 2009, http://www.whitehouse.gov/the_press_office/Remarks-by-the-President-to-small-businessowners/. Congressional Research Service 7 . Small Business: Access to Capital and Job Creation objected to the program’s paperwork requirements, such as the provision of a small-business lending plan and quarterly reports.25 The Term Asset-Backed Securities Loan Facility On November 25, 2008, the Federal Reserve Bank of New York, utilizing authority provided under section 13(3) of the Federal Reserve Act, announced that it would create the Term AssetBacked Securities Loan Facility (TALF) to “support economic activity by facilitating renewed issuance of consumer and business ABS [asset-backed securities].”26 TALF, which became operative on March 3, 2009, was designed to help market participants meet the credit needs of households and small businesses by lending up to $200 billion to eligible owners of certain AAArated ABS backed by newly and recently originated auto loans, credit card loans, student loans, and SBA-guaranteed small business loans.27 In August 2009, the Department of the Treasury and the Federal Reserve Bank of New York announced the extension of TALF for newly issued ABS and legacy commercial mortgage-backed securities (CMBS) through March 31, 2010 and for loans against newly issued CMBS through June 30, 2010.28 The initial TALF subscription took place on March 19, 2009. There were 23 monthly ABS and CMBS subscriptions. TALF supported about $58 billion of ABS and $12 billion of CMBS.29 Federal Guarantees In an effort to promote financial stability and, as a result, access to capital for businesses of all sizes, the federal government has used TARP, TALF, and the FDIC to expand its role as a guarantor of financial institution’s assets and transactions. For example, Congress temporarily raised the maximum guaranteed value of FDIC-insured accounts from $100,000 to $250,000 per account (P.L. 110-343, P.L. 111-22), and the FDIC also established the Debt Guarantee Program (DGP), which guarantees the debt lending institutions issue to raise funds that they use to lend to customers.30 To reassure anxious investors, Treasury has guaranteed that money market funds would not fall below $1.00 per share, and Treasury, the FDIC, and the Federal Reserve Board jointly negotiated to secure $300 billion in assets belonging to Citigroup and Bank of America. 25 Emily Flitter, “Fix for SBA Snagged by Tarp’s Exec Comp Limits,” American Banker, vol. 174, no. 61 (March 31, 2009), p. 1. 26 Federal Reserve Bank of New York, “Creation of the Term Asset-Backed Securities Loan Facility (TALF),” press release, November 25, 2008, http://www.federalreserve.gov/newsevents/press/monetary/20081125a.htm. 27 Federal Reserve Bank of New York, “Term Asset-Backed Securities Loan Facility: Terms and Conditions,” http://www.newyorkfed.org/markets/talf_terms.html; and Federal Reserve Bank of New York, “New York Fed releases revised TALF Master Loan and Security Agreement and appendices,” press release, http://www.federalreserve.gov/ newsevents/press/monetary/20090303a.htm. 28 U.S. Department of the Treasury, Troubled Assets Relief Program Monthly 105(a) Report – March 2010, April 12, 2010, p. 16, http://www.financialstability.gov/docs/105CongressionalReports/ March%202010%20105(a)%20monthly%20report_final.pdf. 29 Ibid; and U.S. Department of the Treasury, “Secretary of the Treasury Timothy F. Geithner, Written Testimony Congressional Oversight Panel,” Press Release, June 22, 2010, http://www.financialstability.gov/latest/ tg_06222010.html. 30 P.L. 110-343 increased the deposit insurance limit to $250,000 until December 31, 2009. P.L. 111-22 made the increase in deposit insurance effective until December 31, 2013. For further analysis, see CRS Report R40843, Bank Failures and the Federal Deposit Insurance Corporation, by Darryl E. Getter. Congressional Research Service 8 . Small Business: Access to Capital and Job Creation Altogether, at the height of the recession in mid-2009, the federal government was guaranteeing or insuring more than $4.5 trillion in the face value of financial assets.31 The American Recovery and Reinvestment Act of 2009 ARRA’s SBA Funding Provisions In an effort to help small businesses during the economic downturn Congress approved, and, on February 17, 2009, President Obama signed into law, the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5). ARRA temporarily increased funding and modified several SBA loan guarantee programs to make them more attractive to small business owners. Specifically, over a two-year period, or until funding is exhausted, ARRA • provides an additional $630 million for SBA loans and loan guarantees divided into two categories: $375 million is set aside for reimbursements, loan subsidies and loan modifications related to certain loans, and $255 million for loans of $35,000 or less in a new small business stabilization program, later named the America’s Recovery Capital (ARC) Loan program; • provides an additional $69 million for SBA salaries and expenses, including $24 million for microloan technical assistance, and $20 million to improve lender oversight; • provides an additional $6 million for SBA direct loan subsidies for the microloan program; • provides an additional $15 million for the SBA’s surety bond program and increases the amount of the maximum bond; • eliminates (or reduces as much as possible) fees in the SBA’s 7(a) and 504/CDC (Certified Development Company) business loan programs;32 • increases the loan guaranty limit for the SBA’s 7(a) program from 85% for loans up to $150,000 and 75% for loans over $150,000 to 90% for all loans; • allows the SBA to guarantee certain loans that, in part, refinance existing business loans; • authorizes the SBA to guarantee pools of first lien 504/CDC loans sold to third party investors; • increases the funds (“leverage”) available to SBA-licensed Small Business Investment Companies (SBICs); 31 Congressional Oversight Panel, “Guarantees and Contingent Payments in TARP and Related Programs,” Washington, DC, November 6, 2009, pp. 2-3, http://cop.senate.gov/documents/cop-110609-report.pdf. 32 The SBA guarantees certain loans made to American small businesses by commercial lenders. It is named after Section 7(a) of the Small Business Act of 1953 (P.L. 83-163, as amended). The 504/CDC loan program is named after Section 504 of the Small Business Investment Act of 1958 (P.L. 85-669), as amended, which authorized the program Congressional Research Service 9 . Small Business: Access to Capital and Job Creation • requires SBICs to invest at least 50% of their venture capital in low-income areas as defined by the New Market Venture Capital program; and • requires SBICs to make 25% of their investments in “smaller” companies.33 For comparative purposes, in FY2008, the SBA had $786 million in non-disaster loan new budget authority, so ARRA nearly doubled the amount of funding for FY2009. The SBA estimated that ARRA funding would support $8.7 billion in 7(a) loans, $3.6 billion in 504/CDC loans, $336 million in ARC loans, and $46 million in loans to microlenders. ARRA’s funding for the 7(a) program was exhausted on November 23, 2009. In addition, ARRA’s funding for the 504/CDC program was about to be exhausted in late-December 2009 when Congress acted to provide additional funds to extend the fee reductions and loan modifications. ARRA’s funding for ARC and microlenders is expected to last until late 2010.34 Congress has provided $305 million in additional funding to extend ARRA’s fee reductions for the SBA’s 7(a) and 504/CDC programs and 90% loan guarantee limit for the SBA’s 7(a) program. The latest extension expired on May 31, 2010.35 Both the House and the Senate have adopted legislation that would extend the fee reductions and 90% loan guarantee limit through December 31, 2010, but those provisions were not enacted into law. 36 S.Amdt. 4594, an amendment in the nature of a substitute to H.R. 5297, the Small Business Jobs and Credit Act of 2010, is the latest effort to extend the fee reductions and 90% loan guarantee limit through December 31, 2010. It was introduced on August 5, 2010, by Senator Harry Reid for Senators Max Baucus and Mary Landrieu.37 33 For further analysis, see CRS Report R40241, Overview and Analysis of Small Business Provisions in the American Recovery and Reinvestment Act of 2009, by Oscar R. Gonzales and N. Eric Weiss; and CRS Report R40728, Small Business Tax Benefits and the American Recovery and Reinvestment Act of 2009, by Gary Guenther. 34 Catherine Clifford, “Stimulus cash runs out for small business loans,” CNNMoney.com, November 23, 2009; and U.S. Small Business Administration, Recovery Act Program Performance Report, November 2009, http://www.sba.gov/idc/groups/public/documents/sba_homepage/recov_perform_reports_11_2009.pdf. 35 P.L. 111-118, the Department of Defense Appropriations Act, 2010, enacted on December 19, 2009, provided $125 million to extend ARRA’s “fee reductions and eliminations” for the SBA’s 7(a) and 504/CDC programs and 90% loan guarantee limit for the SBA’s 7(a) program through February 28, 2010. P.L. 111-144, the Temporary Extension Act of 2010, enacted on March 2, 2010, provided $60 million to extend those fee reductions and loan modifications through March 28, 2010. P.L. 111-150, an act to extend the Small Business Loan Guarantee Program, enacted on March 26, 2010, authorized the use of $40 million in SBA appropriated funds to extend those fee reductions and loan modifications through April 30, 2010. P.L. 111-157, the Continuing Extension Act of 2010, enacted on April 15, 2010, provided $80 million to extend those fee reductions and loan modifications through May 31, 2010. 36 The Senate adopted H.R. 4213, the American Workers, State, and Business Relief Act of 2010, on March 10, 2010, by a 62-36 vote. It would have provided $560 million to extend the fee reductions and 90% loan guarantee limit through December 31, 2010. The House approved an amended version of the bill, renamed the American Jobs and Closing Tax Loopholes Act of 2010, on May 28, 2010, by a 245-171 vote. It would have provided $505 million to extend the fee reductions and 90% loan guarantee limit through December 31, 2010. The extension provision was subsequently removed from the bill, which became P.L. 111-205, the Unemployment Compensation Extension Act of 2010. 37 Senator Harry Reid, “Text of Amendments: SA 4594,” Congressional Record, vol. 156, no. 118 (August 5, 2010), pp. S6934-S6961. H.R. 5297, the Small Business Jobs and Credit Act of 2010, which the House passed on June 17, 2010, by a vote of 241-182, does not include this provision. Congressional Research Service 10 . Small Business: Access to Capital and Job Creation ARRA’s Business Tax Provisions ARRA also includes 11 tax provisions that have the potential to benefit small businesses in a broad range of industries. The first five provisions listed are targeted at small businesses whereas the others are available to businesses of all sizes: • Extends the five-year carryback of net operating losses, which allows businesses with $15 million or less in average annual gross receipts in the past three years to carry back net operating losses from 2008 for up to five years instead of two years; • Extends through 2009 the enhanced expensing allowance, which allows businesses to deduct up to $250,000 of the cost of eligible assets placed in service in 2009, within certain limits;38 • Increases the exclusion of the gain on the sale of small business stock to 75% (instead of 50%) of any gain realized on the sale of eligible small business stock acquired between February 18, 2009, and December 31, 2010; • Reduces the recognition period from 10 years to seven years for corporate tax on sale of appreciated assets in 2009 or 2010 by S corporations that once were organized as C corporations; • Allows individuals who had an adjusted gross income in 2008 of less than $500,000 and can prove that over half their income came from a small business to base their estimated tax payments for 2009 on 90% of their tax liability for 2008; • Temporarily extends the work opportunity credit, which permits businesses of all sizes to claim the credit for unemployed veterans and disconnected youth in 2009 and 2010; • Allows businesses of all sizes that buy back or exchange their own debt at a discounted price in 2009 and 2010 to defer their discharge-of-indebtedness income; • Provides a credit to businesses of all sizes against employment tax payments for employer COBRA subsidies; • Allows businesses of all sizes that could claim a bonus depreciation allowance in 2009 to claim instead as refundable credit a portion of their unused research and Alternative Minimum Tax (AMT) credits from tax years before 2006; and • Increases the AMT exemption amount for joint filers to $70,950 and for single filers to $46,700 in 2009 and extends through 2009 a rule that allows individuals to use non-refundable personal credits to the full extent possible against the AMT and regular income tax.39 38 While there is no size limit on the firms that can benefit from the allowance, its design effectively confines its use to smaller business firms. 39 For further analysis, see CRS Report R40728, Small Business Tax Benefits and the American Recovery and Reinvestment Act of 2009, by Gary Guenther. Congressional Research Service 11 . Small Business: Access to Capital and Job Creation According to the Joint Committee on Taxation, the five tax provisions targeted at small businesses are expected to reduce small business taxes by $5.7 billion in FY2009. The six other tax provisions that could benefit many small businesses are expected to reduce business taxes by $52.0 billion in FY2009.40 ARRA’s Credit Market Provisions ARRA directs the SBA to work with the Federal Reserve and Department of the Treasury to open up the secondary credit market for small businesses. It authorizes the SBA to use emergency rulemaking authority to issue regulations by March 19, 2009, to make below market interest rate direct loans to SBA-designated “Systemically Important Secondary Market (SISM) BrokerDealers.” These broker-dealers would use the loan funds to purchase SBA-guaranteed loans from commercial lenders, assemble them into pools, and sell them to investors in the secondary loan market. ARRA also directs the SBA to create a secondary market guarantee authority for the SBA’s 504/CDC program. The 504/CDC program provides small businesses credit for the purchase of real estate and other fixed assets. Financing under the program includes three components: (1) a first mortgage or lien, which is made by a private commercial lender for 50% of the total project and does not come with a government guarantee; (2) a second mortgage or lien, which is made by a CDC for 40% of the total project and guaranteed fully by the SBA; and (3) borrower equity for the remaining 10% of the total project. The SBA experienced unanticipated delays in implementing these programs due to “limited staff resources and the need to sort out other issues related to these programs, including contracting and Recovery Act recipient reporting requirements.”41 The SBA issued regulations for making below market interest rate direct loans to SBA-designated SISM broker-dealers on November 19, 2009.42 The SBA published regulations to create a secondary market guarantee program for the “first mortgage” portion of small business financing made through the 504/CDC program on October 28, 2009: Under the new program, portions of eligible 504 first mortgages pooled by originators or broker dealers could be sold with an SBA guarantee to third-party investors in the secondary market. Lenders will retain at least 15 percent of each individual loan, pool originators will assume 5 percent of the risk, and the SBA will guarantee the remaining 80 percent. To be eligible to be included in a pool, the first mortgage must be associated with a 504 loan disbursed on or after Feb. 17, 2009. The program will be in place until Feb. 16, 2011, or until $3 billion in new pools are created, whichever occurs first.43 40 U.S. Congress, Joint Committee on Taxation, Estimated Budget Effects of the Revenue Provisions Contained in the Conference Agreement for H.R. 1, the “American Recovery and Reinvestment Act of 2009,” JCX-19-09, February 12, 2009 (Washington, DC). 41 U.S. Government Accountability Office, Recovery Act: Project Selection and Starts Are Influenced by Certain Federal Requirements and Other Factors, GAO-10-383, February 10, 2010, p. 23, http://www.gao.gov/new.items/ d10383.pdf. 42 U.S. Government Accountability Office, Status of the Small Business Administration’s Implementation of Administrative Provisions in the American Recovery and Reinvestment Act of 2009, GAO-10-298R, January 19, 2010, pp. 6, 7, http://www.gao.gov/new.items/d10298r.pdf. 43 U.S. Small Business Administration, SBA Creates Secondary Market Guarantee Program for 504 First Mortgage Loan Pools, October 28, 2009, http://www.sba.gov/idc/groups/public/documents/sba_homepage/news_release_09(continued...) Congressional Research Service 12 . Small Business: Access to Capital and Job Creation TARP, TALF, and ARRA’s Impact Following the federal government’s interventions in business credit markets and ARRA’s enactment, the weekly number and amount of small business loans guaranteed by the SBA began to increase. For example, when ARRA was enacted on February 17, 2009, the SBA was averaging about $165 million in small business loan guarantees per week. That amount rose to about $275 million per week during the second and third quarters of 2009. In addition, after ARRA, the percentage of lending institutions tightening small business credit standards began to fall and the decline in demand for business loans began to moderate (see Figure 1). Although the Federal Reserve Board’s quarterly surveys of senior loan officers continued to indicate a relatively tight credit market for small business, the trends of easing credit standards and increased demand for small business loans during the latter half of 2009 were viewed by the SBA as a sign that the “credit crunch may have eased somewhat” and that the market for small business loans may be “poised for a healthier lending environment.”44 Disagreement Over Next Steps The Obama Administration has argued that TARP, TALF, and ARRA’s additional funding for the SBA’s loan guarantee programs have helped to improve the small business lending environment, but additional federal action is warranted to provide small business the access to capital necessary for increased levels of job creation.45 For example, it has proposed increasing loan guarantee limits for the SBA’s 7(a), 504/CDC loan, and microloan programs and providing small business greater access to credit by utilizing the Treasury Department’s Community Development Financial Institutions (CDFI) fund and remaining TARP funds. 46 As discussed in the following section, Congress is also considering bills that include provisions to improve small business access to capital. If enacted, these bills would increase loan guarantee limits for the SBA’s 7(a) and 504/CDC programs, but in ways different than those proposed by the Administration and extend ARRA’s funding for SBA programs. One of the bills would also establish a temporary SBA direct lending program, which would continue in operation or restart should specified adverse economic conditions persist; streamline the SBA’s loan application process; and create new lending guarantee programs targeted at specific industries. The SBA’s critics argue, as a general principle, that increasing funding for the SBA’s loan guarantee programs is ill-advised. In their view, the SBA has a relatively limited impact on small business economic prospects. They argue that, in a typical year, no more than 1% of small businesses receive an SBA-guaranteed loan, and those loans account for less than 3% of the total (...continued) 76.pdf. 44 Brian Headd, “Forum Seeks Solutions To Thaw Frozen Small Business Credit,” The Small Business Advocate, vol. 28, no. 10 (December 2009), pp. 3, http://www.sba.gov/advo/dec09.pdf. 45 U.S. Small Business Administration, Recovery Act Changes to SBA Loan Programs Sparked Major Mid-Year TurnAround in Volume, October 1, 2009, http://www.sba.gov/idc/groups/public/documents/sba_homepage/ news_release_09-67.pdf; and U.S. Small Business Administration, President Obama Announces New Efforts to Improve Access to Credit for Small Businesses, 2009, http://www.sba.gov/idc/groups/public/documents/sba_homepage/ sba_rcvry_new_effort_credit_sb.pdf. 46 The White House, “Remarks by the President on Job Creation and Economic Growth,” December 8, 2009, http://www.whitehouse.gov/the-press-office/remarks-president-job-creation-and-economic-growth. Congressional Research Service 13 . Small Business: Access to Capital and Job Creation amount loaned to small businesses.47 They assert that “these numbers show that the private banking system finances most loans and that the SBA is therefore largely irrelevant in the capital market.”48 As further evidence, they point to an October 2009 survey of owners of small businesses employing five or fewer employees by Discover Financial Services. The survey found that 90% of respondents reported that they have never applied for an SBA loan. When presented with a list of several reasons why not, 48% said that they did not need an SBA loan, 15% said they are unfamiliar with the SBA’s programs, 14% said they received funding from another source, 9% said it takes too much time, 9% said they would rather use their personal assets, and 6% said they have some other reason or are not sure.49 They also point to surveys of small business firms conducted by the National Federation of Independent Business (NFIB), which indicate that small business owners have consistently placed financing issues near the bottom of their most pressing concerns. 50 Instead of increasing federal funding for the SBA, they advocate small business tax reduction, reform of financial credit market regulation, and federal fiscal restraint as the best means to assist small business economic growth and job creation.51 Still others share the view of the ranking minority member on the House Committee on Small Business, who stated at a congressional hearing on small business access to capital, held on October 14, 2009, that he supported additional federal support for SBA programs, but tempered expectations concerning the impact of such support. He argued that other programs have a greater impact on small business economic prospects: With 25 million small businesses in this country, improving the capital access program of the SBA will not cure the credit and capital access ills through which the economy is suffering. We must recognize that overly restrictive regulatory policies must be corrected in order to swing the pendulum back to an appropriate middle ground for the country’s capital and credit markets. Congress also must not adopt policies that sap confidence of small business owners to invest in the growth of their enterprises. Imposition of additional costs, whether it is through cap and trade legislation or increased taxes to reform health care, will reduce confidence in small businesses to take the economic risks needed to grow their enterprises. If Congress takes an approach that improves access to capital in SBA programs on one hand, and then takes away 47 Raymond J. Keating, “Keating: Obama’s policies will hurt, not help,” Long Island Business News, The Debate Room, October 30, 2009, http://libn.com/thedebateroom/2009/10/30/keating-obama%e2%80%99s-policies-will-hurtnot-help/. 48 U.S. Congress, Senate Committee on Homeland Security and Governmental Affairs, Subcommittee on Federal Financial Management, Government Information, Federal Services, and International Security, The Effectiveness of the Small Business Administration, 109th Cong., 2nd sess., April 6, 2006, S.Hrg. 109-492 (Washington: GPO, 2006), p. 92. 49 Discover Financial Services, “Discover® Small Business WatchSM: Small Business Economic Outlook Remains Cautious,” Riverwoods, IL, October 26, 2009, http://investorrelations.discoverfinancial.com/phoenix.zhtml?c= 204177&p=irol-newsArticle&ID=1346088&highlight=. 50 Bruce D. Phillips and Holly Wade, Small Business Problems and Priorities (Washington, DC: NFIB Research Foundation, June 2008), p. 5, http://www.nfib.com/Portals/0/ProblemsAndPriorities08.pdf. Note: The survey was conducted from mid-January to March of 2008 across a randomly drawn sample of the NFIB’s 20,000 members. Useable questionnaires were returned by 3,530 small business owners, a 17.7% response rate. 51 Susan Eckerly, “NFIB Responds to President’s Small Business Lending Initiatives,” Washington, DC, October 21, 2009, http://www.nfib.com/newsroom/newsroom-item/cmsid/50080/; and NFIB, “Government Spending,” Washington, DC, http://www.nfib.com/issues-elections/issues-elections-item/cmsid/49051/. Congressional Research Service 14 . Small Business: Access to Capital and Job Creation through increasing operating costs of small businesses on the other, Congress will not have accomplished anything.52 Current Administration Proposals and Congressional Bills Obama Administration Proposals On October 21, 2009, President Obama announced that the Administration’s efforts (through ARRA and TARP) to improve small business access to capital had “made a real difference for small businesses across America” noting that “the Recovery Act has supported over 33,000 loans to small businesses that have already helped save or create nearly tens of thousands of jobs— nearly $13 billion in new lending.... And more than 1,200 banks and credit unions that had stopped issuing SBA loans when the financial crisis hit are lending again today.”53 He also asserted that because there is “still too little credit flowing to our small businesses” and there are “still too many entrepreneurs who can’t get the loans they need to open up their doors and start hiring” new steps were needed “to support more lending to America’s small businesses.”54 The President announced that “the first thing we need to do is increase the maximum size of various SBA loans.”55 SBA Capital Access Programs On October 21, 2009, President Obama called for legislation that would increase the loan limits for the SBA’s 7(a) and 504/CDC loan guarantee programs. The 7(a) loan limits would be increased from $2 million to $5 million to “help more small business owners and franchisees grow” and the SBA’s 504/CDC loan limits would be increased from $2 million to $5 million for standard borrowers (supporting a total project of $12.5 million) and from $4 million to $5.5 million for manufacturers (supporting a total project of $13.75 million). 56 The Administration argued that these increases would “allow small businesses to undertake larger projects.”57 In addition, the Administration recommended that the SBA’s microloan loan limit be increased from $35,000 to $50,000.58 52 Representative Sam Graves, Opening Statement for Hearing on Increasing Access to Capital for Small Business, October 15, 2009, http://republicans.smbiz.house.gov/News/DocumentSingle.aspx?DocumentID=150611. 53 The White House, “Remarks by the President On Small Business Initiatives,” October 21, 2009, http://www.whitehouse.gov/the-press-office/remarks-president-small-business-initiatives-landover-md. 54 Ibid. 55 Ibid. 56 Ibid; and U.S. Small Business Administration, President Obama Announces New Efforts to Improve Access to Credit for Small Businesses, October 2009, http://www.sba.gov/idc/groups/public/documents/sba_homepage/ sba_rcvry_new_effort_credit_sb.pdf. 57 U.S. Small Business Administration, President Obama Announces New Efforts to Improve Access to Credit for Small Businesses, October 2009, http://www.sba.gov/idc/groups/public/documents/sba_homepage/ sba_rcvry_new_effort_credit_sb.pdf. 58 Ibid. Congressional Research Service 15 . Small Business: Access to Capital and Job Creation On February 1, 2010, the Administration included these recommendations, and an increase in the maximum outstanding loan amount for lenders in their first year of participation in the SBA’s Microloan program from $750,000 to $1 million and from $3.5 million to $5 million in the subsequent years, in its Small Business Administration FY2011 budget request to Congress.59 On February 5, 2010, the Administration proposed a temporary increase in the cap on SBA Express loans from $350,000 to $1 million to “expand the program’s ability to help a broad range of small businesses through a streamlined approval process” and allow the refinancing of owneroccupied commercial real estate loans under the SBA’s 504/CDC program for “businesses with a loan maturing in the next year who are current on all loan payments.”60 Both proposals would be financed through fees and would not require additional appropriations. Utilizing the Community Development Financial Institutions Fund President Obama announced on October 21, 2009, that his Administration would make “more credit available to the smaller banks and community financial institutions that [small] businesses depend on” by using the Community Development Financial Institutions (CDFI) fund to provide low-cost capital loans, subsidized by the Treasury Department at below-market rates (an initial interest rate of 3% for up to five years and then increasing to 9% to encourage timely repayment), for community banks with under $1 billion in assets.61 Banks that choose to participate in the program will be required to submit a small business lending plan that explains “how the capital will allow them to increase lending to small businesses.”62 Participants will also be required to submit quarterly reports detailing their small business lending activities. President Obama also announced on October 21, 2009, that the Treasury Department would create an initiative to provide even lower-cost capital loans (an initial interest rate of 2% for up to eight years and then increasing to 9% to encourage timely repayment) to certified CDFIs that document that more than 60% of their small business lending and other economic development activities target low-income communities or underserved populations. 63 In addition, he announced that the Treasury Department would work with community banks and the small business community to finalize program terms “to best support small business lending” and that Treasury Secretary Timothy Geithner and SBA Administrator Karen Mills would convene a conference “to 59 U.S. Office of Management and Budget, The Budget of the United States Government, Fiscal Year 2011: The Appendix (Washington, DC: GPO, 2010), p. 1200, http://www.whitehouse.gov/omb/budget/fy2011/assets/sba.pdf. 60 The White House, “President Obama Outlines Latest in a Series of New Small Business Proposals,” February 5, 2010, http://www.whitehouse.gov/the-press-office/president-obama-outlines-latest-a-series-new-small-businessproposals. 61 U.S. Small Business Administration, President Obama Announces New Efforts to Improve Access to Credit for Small Businesses, October 2009, http://www.sba.gov/idc/groups/public/documents/sba_homepage/ sba_rcvry_new_effort_credit_sb.pdf; and The White House, “Remarks by the President On Small Business Initiatives,” October 21, 2009, http://www.whitehouse.gov/the-press-office/remarks-president-small-business-initiatives-landovermd. Note: The CDFI Fund was created to promote economic revitalization and community development through investment in and assistance to CDFIs. It was established by the Riegle Community Development and Regulatory Improvement Act of 1994. Its FY2009 budget was $107 million. See CDFI, “About the CDFI Fund,” http://www.cdfifund.gov/who_we_are/about_us.asp. 62 U.S. Small Business Administration, President Obama Announces New Efforts to Improve Access to Credit for Small Businesses, October 2009, http://www.sba.gov/idc/groups/public/documents/sba_homepage/ sba_rcvry_new_effort_credit_sb.pdf. 63 Ibid. Congressional Research Service 16 . Small Business: Access to Capital and Job Creation bring together regulators, Congressional leaders, lenders and small businesses to discuss additional efforts that can be taken to improve the availability of credit to small businesses.”64 The conference was held on November 18, 2009.65 Small Business Tax Incentives and Utilizing TARP Funds On December 8, 2009, President Obama proposed several tax reduction measures designed to assist small business, including the elimination of capital gains taxes on new equity investments in small businesses for one year (these are 75%-excluded now), a new short-term tax credit to encourage small businesses to hire and retain employees in 2010, and an extension of ARRA’s provision to allow businesses to deduct up to $250,000 in capital investments to 2010.66 He also announced, without providing details, that, in addition to his CDFI initiative, he was directing “my Treasury Secretary to continue mobilizing the remaining TARP funds to facilitate lending to small businesses.”67 In his State of the Union Address on January 27, 2010, President Obama renewed his call for small business tax incentives, proposing a tax credit for “over one million small businesses who hire workers or raise wages,” the elimination of “all capital gains taxes on small business investment,” and “a tax incentive for all large businesses and all small businesses to invest in new plants and equipment.”68 The Administration’s proposed $33 billion Small Business Jobs and Wages Tax Credit would provide businesses of all sizes a $5,000 tax credit against their payroll taxes for every net new employee hired in 2010 who earns at least $7,000. Business start-ups would be eligible for half of the tax credit. Businesses would also receive a bonus 6.2% tax credit on aggregate wages in excess of inflation for reimbursement of the Social Security payroll taxes they pay on those payroll increases. The wage bonus would be calculated off the firm’s Social Security payroll tax base. As a result, firms would not receive a tax credit for increasing wages for employees making more than Social Security’s current taxable maximum of $106,800. The maximum tax credit would be limited to $500,000 per business to target the incentives to small business. To address concerns that businesses may “seek to game the system, by, for example, replacing full-time employees with part-time employees,” the proposal would limit “the maximum jobs tax credit 64 Ibid. U.S. Small Business Administration, Treasury, SBA Host Small Business Financing Forum, November 18, 2009, http://www.sba.gov/idc/groups/public/documents/sba_homepage/news_release_09-80.pdf; and David Lawder, “Geithner: Tight small business credit hurts recovery,” The Washington Post, November 18, 2009. 66 The White House, “Remarks by the President on Job Creation and Economic Growth,” December 8, 2009, http://www.whitehouse.gov/the-press-office/remarks-president-job-creation-and-economic-growth. 65 67 Ibid. Note: several congressional proposals concerning the use of TARP funds for small businesses preceded President Obama’s announcement. For example, on March 30, 2009, Senators Mary Landrieu and Olympia Snowe wrote to Treasury Secretary Tim Geithner asking him “to consider a program that would allow the federal government to use TARP funds to guarantee lines of credit for qualifying small businesses” and, on October 15, 2009, Senator Mark Warner proposed combining resources from TARP, the Federal Reserve, and community-based banks to create a $50 billion pool of money that could be used to lend to small businesses. See U.S. Senate Committee on Small Business and Entrepreneurship, “Landrieu, Snowe call on Geithner to Stabilize Small Business Credit Lines,” press release, March 30, 2009; and Senator Mark Warner, “A plan to expand help for small businesses,” press release, October 15, 2009. 68 The White House, “Remarks by the President in State of the Union Address,” January 27, 2010, http://www.whitehouse.gov/the-press-office/remarks-president-state-union-address. Congressional Research Service 17 . Small Business: Access to Capital and Job Creation amount to 25% of the increase in a firm’s Social Security payroll wage base” and “prevent businesses from renaming themselves or merging in order to claim the credit.”69 Employers would have the option of receiving the tax credit on a quarterly estimated basis to “get money in the hands of employers earlier in the year” and to “provide an early incentive to hire.”70 President Obama also proposed during his State of the Union Address to “take $30 billion of the money Wall Street banks have repaid [to TARP] and use it to help community banks give small businesses the credit they need to stay afloat.”71 The Administration released a “potential design” for the program on February 2, 2010. Under the proposal, banks with less than $1 billion in assets would be eligible to borrow up to 5% of their risk-weighted assets from the fund, and banks with $1 billion to $10 billion in assets would be eligible to borrow up to 3% of their risk-weighted assets from the fund. The banks would be charged a 5% dividend on the loan, but they could receive a 1% point decrease in their dividend rate for every 2.5% increase in incremental business lending they achieve over a two-year period, down to a minimum dividend rate of 1%. After five years, the dividend rate would be increased to encourage timely repayment.72 As mentioned previously, the Administration proposed in March 2009 to encourage community banks lending to small businesses by purchasing up to $15 billion of SBA-guaranteed loans with TARP funds. The proposal was designed to “unfreeze” the SBA-secondary loan market and increase community banks’ liquidity. 73 That proposal was deferred after it met resistance from lenders. Some lenders objected to TARP’s requirement that participating lenders comply with executive compensation limits and issue warrants to the federal government. Smaller, community banks objected to the program’s paperwork requirements, such as the provision of a smallbusiness lending plan and quarterly reports.74 To address these concerns, the Obama Administration proposes to transfer $30 billion in TARP funds, through legislation, to a new program that would be distinct from TARP. As a result, banks would not face TARP restrictions, such as those placing limitations on executive pay. Also, by “rebranding” the program, banks would not face the stigma of taking TARP money. 75 69 The White House, “President Obama to Propose New Small Business Jobs and Wages Tax Cut, Fact Sheet,” January 28, 2010, http://www.whitehouse.gov/the-press-office/president-obama-propose-new-small-business-jobs-and-wagestax-cut. 70 Ibid. 71 The White House, “Remarks by the President in State of the Union Address,” January 27, 2010, http://www.whitehouse.gov/the-press-office/remarks-president-state-union-address. 72 The White House, “Administration Announces New $30 Billion Small Business Lending Fund,” February 2, 2010, http://www.whitehouse.gov/sites/default/files/FACT_SHEET_Small_Business_Lending_Fund.pdf; and Damian Paletta, “White House Plans to Lend $30 billion to Small Banks,” The Wall Street Journal, January 27, 2010. Note: Risk-weighted assets are a bank’s assets weighted according to credit risk. Some assets, such as debentures, are assigned a higher risk than others, such as cash or government securities/bonds. 73 The White House, “Remarks by the President to Small Business Owners, Community Leaders, and Members of Congress,” March 16, 2009, http://www.whitehouse.gov/the_press_office/Remarks-by-the-President-to-small-businessowners/. 74 Emily Flitter, “Fix for SBA Snagged by Tarp’s Exec Comp Limits,” American Banker, vol. 174, no. 61 (March 31, 2009), p. 1. 75 Damian Paletta, “White House Plans to Lend $30 billion to Small Banks,” The Wall Street Journal, January 27, 2010; Ylan Q. Mui and David Cho, “Small Business Leery of Obama’s jobs plan,” The Washington Post, January 29, 2010, p. A14; and The White House, “President Obama to Outline New Small Business Lending Fund,” February 2, 2010, http://www.whitehouse.gov/the-press-office/president-obama-outline-new-small-business-lending-fund. Congressional Research Service 18 . Small Business: Access to Capital and Job Creation Congressional Bills H.R. 5297, the Small Business Jobs and Credit Act of 2010, introduced on May 13, 2010, and passed by the House on June 17, 2010, 241-182, would authorize the Secretary of the Treasury to establish a $30 billion Small Business Lending Fund “to make capital investments” in eligible community banks with assets less than $10 billion. 76 Participating banks would be charged dividends or interest of 5% per annum initially, with reduced rates available if the bank increases its small business lending. For example, during any calendar quarter in the initial two years of the capital investments under the program, the bank’s rate may be lowered if it has increased its small business lending compared to the average small business lending it made in the four previous quarters. A 2.5% to 5% increase in small business lending would lower the rate to 4%; a 5% to 7.5% increase would lower the rate to 3%; a 7.5% to 10% increase would lower the rate to 2%; and an increase greater than 10% would lower the rate to 1%. The bill specifies that the Small Business Lending Fund Program “is established as separate and distinct from the Troubled Asset Relief Program established by the Emergency Economic Stabilization Act of 2008. An institution shall not, by virtue of a capital investment under the Small Business Lending Fund Program, be considered a recipient of the Troubled Asset Relief Program.”77 The bill would also create a $2 billion State Small Business Credit Initiative Program to be administered by the Department of the Treasury. The proposed program would provide funding to state Capital Access Programs and other state small business lending programs, such as loan participation programs, loan guarantee programs, and collateral support programs. It would also create a $1 billion Small Business Early-Stage Investment Program administered by the SBA. The proposed program would provide equity investment financing of up to $100 million in matching funds to each participating investment company. The bill would require those companies to invest at least 50% of the financing in early-stage small businesses, defined as not having “gross annual sales revenues exceeding $15 million in any of the previous three years.”78 The bill also includes several provisions to provide about $3.8 billion in tax relief to small businesses. For example, it would increase the capital gains exclusion on investments in small business stock to 100% for qualifying stock acquired after March 15, 2010, and before January 1, 2012, and alleviate certain tax penalties on small businesses. 79 S.Amdt. 4594, an amendment in the nature of a substitute to H.R. 5297, the Small Business Jobs and Credit Act of 2010, was introduced on August 5, 2010.80 It would rename the proposed act 76 H.R. 5486, to amend the Internal Revenue Code of 1986 to provide tax incentives for small business job creation, was merged into the bill. Among other provisions, it would temporarily increase from 50% to 100% the exclusion from gross income of the gain from the sale or exchange of qualified small business stock acquired after March 15, 2010, and before January 1, 2012. For further analysis of the exclusion of the gain from qualified small business stock see CRS Report RL32254, Small Business Tax Benefits: Overview of Current Law and Economic Justification, by Gary Guenther. 77 H.R. 5297, the Small Business Jobs and Credit Act of 2010. 78 Ibid. The bill would require the SBA Administrator to follow specific criteria when selecting investment companies to participate in the Small Business Early-Stage Investment Program. For example, preference is to be provided to investment companies that concentrate their investment activities on small business concerns in the following sectors: agricultural technology, energy technology, environmental technology, life science, information technology, digital media, clean technology, defense technology, and photonics technology. 79 Ibid. The statutory rate is 50% which was temporarily increased to 75% under P.L. 111-5, the American Recovery and Reinvestment Act. 80 H.R. 5297, the Small Business Jobs and Credit Act of 2010, was placed on the Senate calendar on June 18, 2010. On (continued...) Congressional Research Service 19 . Small Business: Access to Capital and Job Creation “the Small Business Jobs Act of 2010” and would authorize changes to the SBA’s loan guaranty programs, export promotion programs, contracting programs, small business eligibility size standards, and small business tax policy. S.Amdt. 4594 would also authorize the Secretary of the Treasury to establish a $30 billion Small Business Lending Fund to make capital investments in eligible community banks with total assets equal to or less than $1 billion or $10 billion. The Senate-proposed Small Business Lending Fund is similar, but not identical, to the House’s proposed Small Business Lending Fund.81 S.Amdt. 4594 would create a State Small Business Credit Initiative Program that is identical to the House-passed version, but would fund it at $1.5 billion as opposed to the House’s $2 billion.82 It would not create a $1 billion Small Business Early-Stage Investment Program administered by the SBA. Instead, it would authorize a three-year Intermediary Lending Pilot program to allow the SBA to make direct loans to not more than 20 eligible nonprofit lending intermediaries each year totaling not more than $20 million and $1 million per intermediary. The intermediaries, in turn, would be allowed to make loans to new or growing small businesses, not to exceed $200,000 per business.83 S.Amdt. 4594 also includes several provisions related to the SBA’s loan programs, including provisions originally in S. 2869, the Small Business Job Creation and Access to Capital Act of 2009, which will be discussed later in this report. It also includes several provisions designed to enhance the SBA’s export promotion programs, to encourage federal contracting with small businesses (e.g., provisions address contract bundling and would provide parity among small business set-aside programs), and to temporarily waive the non-federal share matching requirement for the SBA’s Microloan program and for several small business education and training programs. 84 In addition, as mentioned previously, it would also extend the SBA’s 7(a) and 504/CDC programs’ fee reductions and the 7(a) program’s 90% loan guarantee limit through December 31, 2010. (...continued) June 29, 2010, the Senate invoked cloture on the bill, by a vote of 66-33, and Senator Harry Reid made a motion to commit to the Senate Committee on Finance, with instructions to report back forthwith, S.Amdt. 4407, an amendment in the nature of a substitute for H.R. 5297, the Small Business Jobs and Credit Act of 2010. On July 21, 2010, that motion was withdrawn and motions to invoke cloture on S.Amdt. 4500 (Small Business Lending Fund) and S.Amdt. 4499 (the remaining provisions in S.Amdt. 4407) were introduced by Senator Harry Reid (for Senators George LeMieux and Max Baucus, respectively). On July 22, 2010, the Senate invoked cloture on S.Amdt. 4500, by a vote of 60-37. On July 27, 2010, S.Amdt. 4500 was withdrawn and S.Amdt. 4519 (merging S.Amdt. 4499 and S.Amdt. 4500, and adding several new provisions) was introduced by Senator Harry Reid for Senator Max Baucus. On July 29, 2010, a motion to invoke cloture on S.Amdt. 4519 failed, by a vote of 58-42. Senator Harry Reid voted nay in order to reserve the right to bring the motion up for reconsideration at another time. On August 5, 2010, Senator Harry Reid introduced for Senators Max Baucus and Mary Landrieu S.Amdt. 4594. A vote on the amendment is expected in the Senate in mid-September 2010. 81 For example S.Amdt. 4594’s proposed Small Business Lending Fund program does not include legislative language providing eligibility to small business lending companies, or include, as the House-passed version does, nonowneroccupied commercial real estate and construction, land development and other land loans as small business loans in its definition of small business lending. Senator Harry Reid, “Text of Amendments: SA 4594,” Congressional Record, vol. 156, no. 118 (August 5, 2010), p. S6955. 82 Ibid., p. S6954. 83 Ibid., p. S6936. 84 Several of the export promotion provisions were originally in S. 2862, the Small Business Export Enhancement and International Trade Act of 2009. Several of the small business contract provisions were originally in S. 2989, the Small Business Contracting Revitalization Act of 2010. Several of the waiver provisions were originally in S. 3165, the Small Business Community Partner Relief Act of 2010. Congressional Research Service 20 . Small Business: Access to Capital and Job Creation S.Amdt. 4594 also includes several provisions to provide about $12 billion in tax relief to small businesses. For example, it would temporarily increase the capital gains exclusion on investments in small business stock to 100% for qualifying stock acquired after the bill’s enactment through December 31, 2010, provide increased business expensing limitations for 2010 and 2011, and increase the amount allowed as a deduction for startup expenditures in 2010.85 It also includes several revenue-raising provisions to offset the amendment’s cost. For example, the amendment would allow 401(k), 403(b), and governmental 457(b) retirement plans to permit participants to roll their pre-tax account balances into a Roth retirement account. The amount of the rollover would be includible in taxable income except to the extent it is the return of after-tax contributions. The provision is expected to raise an estimated $5.1 billion over 10 years.86 H.R. 3854, the Small Business Financing and Investment Act of 2009, was introduced in the House on October 20, 2009. It combined language from eight bills and was referred to the House Committee on Small Business, which reported it, by voice vote, on October 21, 2009.87 The House passed it, 389-32, on October 29, 2009. S. 2869, the Small Business Job Creation and Access to Capital Act of 2009, introduced by Senator Mary Landrieu, was reported out of the Senate Committee on Small Business and Entrepreneurship on December 17, 2009. Both bills would increase loan limits for the SBA’s 7(a) and 504/CDC loan guarantee programs, but in different amounts, and contain provisions designed to increase small business’s access to capital. Increases in the SBA’s Loan Guarantee Limits H.R. 3854 would increase the SBA’s loan guarantee limits for 7(a) loans from $2 million to $3 million. It would also increase the SBA’s loan guarantee limits for 504/CDC loans from $2 million to $3 million for standard borrowers, from $2 million to $4 million for projects located in a low-income community, from $4 million to $8 million for manufacturers, and for up to $10 million for projects that constitute “a major source of employment” as determined by the Administration. 88 S. 2869, similar to the Administration’s proposal, would increase the SBA’s loan guarantee limits for 7(a) loans from $2 million to $5 million, for the SBA’s 504/CDC loans from $2 million to $5 million for standard borrowers, and from $4 million to $5.5 million for manufacturers.89 It would also authorize the SBA to establish an alternative size standard for the SBA’s 7(a) and 504/CDC programs that uses maximum tangible net worth and average net income as an alternative to the use of industry standards to “help more small businesses meet the SBA’s requirements to access 85 Senator Harry Reid, “Text of Amendments: SA 4594,” Congressional Record, vol. 156, no. 118 (August 5, 2010), pp. S6947-S6949. 86 Ibid., pp. S6950, S6951. 87 The eight bills merged into H.R. 3854, the Small Business Financing and Investment Act of 2009, are H.R. 3723, the Small Business Credit Expansion and Loan Markets Stabilization Act of 2009; H.R. 3739, the Job Creation and Economic Development Through CDC Modernization Act of 2009; H.R. 3737, the Small Business Microlending Expansion Act of 2009; H.R. 3740, the Small Business Investment Company Modernization and Improvement Act of 2009; H.R. 3722, the Enhanced New Markets and Expanded Investment in Renewable Energy for Small Manufacturers Act of 2009; H.R. 3014, the Small Business Health Information Technology Financing Act; H.R. 3738, the Small Business Early Stage Investment Act of 2009; and H.R. 3743, the Small Business Disaster Readiness and Reform Act of 2009. 88 H.R. 3854, the Small Business Financing and Investment Act of 2009. 89 S. 2869, the Small Business Job Creation and Access to Capital Act of 2009. Congressional Research Service 21 . Small Business: Access to Capital and Job Creation SBA-backed loans.”90 These provisions are also included in S.Amdt. 4594, an amendment in the nature of a substitute, to H.R. 5297, the Small Business Jobs and Credit Act of 2010. Proponents argue that increasing the SBA’s loan guarantee limits may lead to greater lending to small businesses and, as a result, create jobs and enhance economic growth.91 Critics contend that increasing the SBA’s loan guarantee limits is not as important to small businesses, as a group, as are the SBA’s upfront loan costs and interest rates, the condition of the local regional economy, taxes, or health care costs. They also note that increasing the loan guarantee limits may reduce the total number of loans that might be available to a larger number of small businesses if the current loan limits were retained. They also assert that increasing the SBA’s loan guarantee limits may lead to higher loan defaults for the SBA.92 Extension of ARRA’s SBA Provisions Congress has approved legislation providing $680 million to temporarily subsidize fees for the SBA’s 7(a) and 504/CDC programs and increase the SBA’s 7(a) program’s loan guarantee to 90% ($375 million in ARRA funds and $305 million in additional funds). The latest extension was authorized by P.L. 111-157, the Continuing Extension Act of 2010. It provided $80 million to extend those fee reductions and loan modifications through May 31, 2010. As mentioned previously, both the House and the Senate have adopted legislation that would extend the fee reductions and 90% loan guarantee limit through December 31, 2010, but those provisions were not enacted into law. S.Amdt. 4594, an amendment in the nature of a substitute to H.R. 5297, the Small Business Jobs and Credit Act of 2010, is the latest attempt to extend the fee reductions and 90 Ibid; and Senator Olympia Snowe, “Statements on Introduced Bills and Joint Resolutions,” remarks in the Senate, Congressional Record, daily edition, vol. 155, no. 185 (December 10, 2009), p. S12913. Note: S. 2869 would set, as an interim rule upon enactment, the maximum tangible net worth of the applicant to be “not more than $15 million” and the average net income after federal taxes for the two full fiscal years before the date of the application to be “not more than $5 million.” For additional analysis, see CRS Report R40860, Defining Small Business: An Historical Analysis of Contemporary Issues, by Robert Jay Dilger. 91 U.S. Small Business Administration, President Obama Announces New Efforts to Improve Access to Credit for Small Businesses,” October 2009, http://www.sba.gov/idc/groups/public/documents/sba_homepage/ sba_rcvry_new_effort_credit_sb.pdf; U.S. Small Business Administration, Treasury, SBA Host Small Business Financing Forum, November 18, 2009, http://www.sba.gov/idc/groups/public/documents/sba_homepage/ news_release_09-80.pdf; Senator Mary Landrieu, “Increasing Loan Limits,” remarks in the Senate, Congressional Record, vol. 155, no. 154, October 22, 2009, p. S10696; U.S. Congress, House Committee on Small Business, Small Business Financing and Investment Act of 2009, committee print, 111th Cong., 1st sess., October 26, 2009, H.Rept. 111315 (Washington: GPO, 2009), pp. 2, 13-20, 29, 31; Representative Chellie Pingree, “Providing for Consideration of H.R. 3854, Small Business Financing and Investment Act of 2009,” House debate, Congressional Record, daily edition, vol. 155, no. 159 (October 29, 2009), p. H12070; Representative Nydia Velázquez, “Small Business Financing and Investment Act of 2009,” House debate, Congressional Record, daily edition, vol. 155, no. 159 (October 29, 2009), pp. H12074, H12075; and Representative Kurt Schrader, “Small Business Financing and Investment Act of 2009,” House debate, Congressional Record, daily edition, vol. 155, no. 159 (October 29, 2009), pp. H12075, H12076. 92 Dyan Machan, “For Small Business, Borrowing Is Not So Dire,” The Wall Street Journal, September 2, 2009; Susan Eckerly, “NFIB Responds to President’s Small Business Lending Initiatives,” October 21, 2009, http://www.nfib.com/ newsroom/newsroom-item/cmsid/50080/; Joseph J. Schatz, “As Small-Business Programs Draw Fresh Attention, Some Questions Linger,” CQToday, October 23, 2009; Mark Zandi, “Help Small Businesses Hire Again,” The New York Times, November 3, 2009; and Representative Pete Sessions, “Providing for Consideration of H.R. 3854, Small Business Financing and Investment Act of 2009,” House debate, Congressional Record, daily edition, vol. 155, no. 159 (October 29, 2009), pp. H12070, H12071. Congressional Research Service 22 . Small Business: Access to Capital and Job Creation 90% loan guarantee limit through December 31, 2010. It was introduced by Senator Harry Reid for Senators Max Baucus and Mary Landrieu on August 5, 2010.93 H.R. 3854 would extend ARRA’s SBA loan guarantee percentage increases and fee reductions through the end of FY2011. It would also extend ARC, with modifications, through the end of FY2011. Under the bill, ARC’s loan guarantee limit would be increased from $35,000 to $50,000, and to $75,000 in areas of high unemployment; the SBA is directed to establish a one-page application for ARC loans and to study the program’s implementation to address any impediments to lender and borrower participation in the program; and borrowers may use ARC loans to refinance existing SBA loan debt. 94 The bill would also provide 100% loan guarantees for small business concerns owned and controlled by veterans, and expand and make permanent the SBA’s secondary market lending authority.95 S. 2869 would extend the authorization to provide 90% guarantees on 7(a) loans and eliminate fees for 7(a) and 504/CDC loans through December 31, 2010. It also would allow 504/CDC loans to be used to refinance up to $4 billion in short-term commercial real estate debt each year for two years after enactment into long-term fixed rate loans. It does not address the ARC loan program. 96 Proponents argue that extending ARRA’s SBA’s fee reductions and loan guarantee percentage for the 7(a) program may lead to greater lending to small businesses and, as a result, create jobs and enhance economic growth.97 Critics contend that the Administration’s proposal to use the Treasury Department’s CDFI fund to provide low-cost capital loans, subsidized at below-market rates, to community banks with under $1 billion in assets and the Treasury Department’s initiative to provide low-cost capital loans to certified CDFIs that document that more than 60% of their small business lending and other economic development activities benefit low-income communities or underserved populations is a more targeted approach that will cost less and achieve similar results.98 Others argue that extending SBA’s fee reductions and loan guarantee percentage for the 7(a) program is not as important to small businesses, as a group, as are the condition of the local regional economy, taxes, or health care costs.99 93 Senator Harry Reid, “Text of Amendments: SA 4594,” Congressional Record, vol. 156, no. 118 (August 5, 2010), pp. S6934-S6961. H.R. 5297, the Small Business Jobs and Credit Act of 2010, which the House passed on June 17, 2010, by a vote of 241-182, does not include this provision. 94 Note: The ARC loan program has come under some criticism, primarily for having a projected default rate in excess of 50% and for implementation issues related to the SBA’s paperwork requirements. On November 16, 2009, Senator Olympia Snowe introduced legislation (S. 2777) to repeal the program and return any unobligated funds to the Treasury. 95 H.R. 3854, the Small Business Financing and Investment Act of 2009. 96 S. 2869, the Small Business Job Creation and Access to Capital Act of 2009. 97 U.S. Congress, House Committee on Small Business, Small Business Financing and Investment Act of 2009, committee print, 111th Cong., 1st sess., October 26, 2009, H.Rept. 111-315 (Washington: GPO, 2009), pp. 2, 13-20, 27, 28; Representative Ron Kind, “Providing for Consideration of H.R. 3854, Small Business Financing and Investment Act of 2009,” House debate, Congressional Record, daily edition, vol. 155, no. 159 (October 29, 2009), p. H12073; and Representative Kurt Schrader, “Small Business Financing and Investment Act of 2009,” House debate, Congressional Record, daily edition, vol. 155, no. 159 (October 29, 2009), pp. H12075, H12076. 98 The White House, “Remarks by the President On Small Business Initiatives,” October 21, 2009, http://www.whitehouse.gov/the-press-office/remarks-president-small-business-initiatives-landover-md; and U.S. Small Business Administration, President Obama Announces New Efforts to Improve Access to Credit for Small Businesses, 2009, http://www.sba.gov/idc/groups/public/documents/sba_homepage/sba_rcvry_new_effort_credit_sb.pdf. 99 Dyan Machan, “For Small Business, Borrowing Is Not So Dire,” The Wall Street Journal, September 2, 2009; Susan (continued...) Congressional Research Service 23 . Small Business: Access to Capital and Job Creation Proposed Modifications to the SBA Microloan Program H.R. 3854 would increase the loan limits for intermediaries participating in the SBA’s microloan program from $750,000 to $1 million in the first year of the intermediary’s participation in the program, and from $3.5 million to $7 million in the remaining years of their participation in the program. In addition, the SBA Administrator would be provided authority to increase the intermediary’s loan limit up to $10 million, “if the Administrator determines, with respect to an intermediary, that such treatment is appropriate.”100 H.R. 3854 would also modify intermediary eligibility requirements in an effort to increase intermediary participation in the program and modify the microloan subsidy recoupment fee exemptions to allow more small businesses to prepay their microloans without penalty. 101 It would also allow intermediaries that make loans to small businesses averaging not more than $10,000, as opposed to the current $7,500, to provide loans that “bear an interest rate that is 2 percentage points below the rate determined by the Secretary of the Treasury for obligations of the United States with a period of maturity of 5 years, adjusted to the nearest one-eighth of 1 percent.”102 S. 2869 would increase the SBA’s microloan limits for borrowers from $35,000 to $50,000 and increase the maximum loan made to microlender intermediaries after their first year in the program from $3.5 million to $5 million.103 These provisions are also included in S.Amdt. 4594, an amendment in the nature of a substitute, to H.R. 5297, the Small Business Jobs and Credit Act of 2010.104 Proponents argue that increasing the SBA’s microloan limits for intermediaries and microloan limits for borrowers may lead to greater lending to small businesses and, as a result, create jobs and enhance economic growth.105 Critics contend that increasing the SBA’s microloan limits for intermediaries and microloan limits for borrowers is not as important to small businesses, as a group, as are the condition of the local regional economy, taxes, or health care costs.106 (...continued) Eckerly, “NFIB Responds to President’s Small Business Lending Initiatives,” October 21, 2009, http://www.nfib.com/ newsroom/newsroom-item/cmsid/50080/; Joseph J. Schatz, “As Small-Business Programs Draw Fresh Attention, Some Questions Linger,” CQToday, October 23, 2009; Mark Zandi, “Help Small Businesses Hire Again,” The New York Times, November 3, 2009; and Representative Pete Sessions, “Providing for Consideration of H.R. 3854, Small Business Financing and Investment Act of 2009,” House debate, Congressional Record, daily edition, vol. 155, no. 159 (October 29, 2009), pp. H12070, H12071. 100 H.R. 3854, the Small Business Financing and Investment Act of 2009. 101 Ibid. 102 15 U.S.C. § 636(m). 103 S. 2869, the Small Business Job Creation and Access to Capital Act of 2009. 104 S.Amdt. 4594 would also temporarily allow the SBA to waive, in whole or in part, for successive fiscal years, the non-federal share requirement for loans to the SBA’s Microloan program’s intermediaries and for grants made to Microloan intermediaries for small business marketing, management, and technical assistance under specified circumstances (e.g., the economic conditions affecting the intermediary). See Senator Harry Reid, “Text of Amendments: SA 4594,” Congressional Record, vol. 156, no. 118 (August 5, 2010), pp. S6945, S6946. 105 U.S. Congress, House Committee on Small Business, Small Business Financing and Investment Act of 2009, committee print, 111th Cong., 1st sess., October 26, 2009, H.Rept. 111-315 (Washington: GPO, 2009), pp. 2, 10, 13-20, 33, 34; and Senator Mary Landrieu, “Increasing Loan Limits,” remarks in the Senate, Congressional Record, vol. 155, no. 154, October 22, 2009, p. S10696. 106 Dyan Machan, “For Small Business, Borrowing Is Not So Dire,” The Wall Street Journal, September 2, 2009; Susan (continued...) Congressional Research Service 24 . Small Business: Access to Capital and Job Creation SBA Direct Lending Programs The SBA currently has authority to make direct loans to small businesses, but, with the exception of disaster loans, has not exercised that authority since 1994.107 Prior to 1995, the SBA made direct loans through its general business loan program. It provided loans of up to $150,000 to small businesses that could demonstrate an ability to repay the loans and document that they were denied guaranteed financing from a lender, and in cities of more than 200,000 residents, from at least two lenders. Prior to 1986, the SBA made direct loans to eligible small businesses subject to the availability of funds. From 1986 through 1994, it made a more limited number of direct loans under special loan programs “targeted to the needs of particular groups or types of businesses, such as handicapped individuals and/or minority businesses.”108 H.R. 3854 would create a new, direct lending Capital Backstop program that directs the SBA to “establish a process under which a small business concern may submit an application to the Administrator for the purpose of securing a loan under this subsection.”109 If the Administrator determines that the loan application meets “basic eligibility and credit standards,” the Administrator is to make the loan available to lenders within 100 miles of the loan applicant’s principal office and, subsequently, to lenders in the Preferred Lenders Program. If a lender does not agree to “originate, underwrite, close, and service the loan” the Administrator shall do so.110 The Capital Backstop program would become operational effective on the date of enactment to September 30, 2011, and on any date afterwards if the Bureau of Economic Analysis, or successor organization, determines that U.S. gross domestic product (GDP) has decreased for three consecutive quarters. The program would then end when the Bureau of Economic Analysis, or successor organization, determines that U.S. GDP has increased for two consecutive quarters. The program would remain operative, even if U.S. GDP had increased for two consecutive quarters, if the number of loans provided under the Capital Backstop program is at least 30% less than provided prior to the same point in the previous fiscal year.111 S. 2869 and H.R. 5297 do not address SBA direct lending authority. Proponents of SBA direct lending argue that the failure of several major financial firms during 2008 and the subsequent freezing of credit markets and secondary markets for securitization of loans, tightening of lending standards, and decline in economic activity resulting in historically high unemployment levels signal the need to create an SBA direct lending program.112 They also (...continued) Eckerly, “NFIB Responds to President’s Small Business Lending Initiatives,” October 21, 2009, http://www.nfib.com/ newsroom/newsroom-item/cmsid/50080/; Joseph J. Schatz, “As Small-Business Programs Draw Fresh Attention, Some Questions Linger,” CQToday, October 23, 2009; and Mark Zandi, “Help Small Businesses Hire Again,” The New York Times, November 3, 2009. 107 U.S. Congress, Senate Committee on Small Business, Hearing on the Proposed Fiscal Year 1995 Budget for the Small Business Administration, 103rd Cong., 2nd sess., February 22, 1994, S. Hrg. 103-583 (Washington: GPO, 1994), p. 20. 108 U.S. General Accounting Office, Small Business: Financial Condition of SBA’s Business Loan Portfolio Is Improving, GAO/RCED-92-49, December 1991, pp. 14, 15, 30-34, 57-62, http://archive.gao.gov/d31t10/145560.pdf. 109 H.R. 3854, the Small Business Financing and Investment Act of 2009. 110 Ibid. 111 Ibid. 112 U.S. Congress, House Committee on Small Business, Small Business Financing and Investment Act of 2009, (continued...) Congressional Research Service 25 . Small Business: Access to Capital and Job Creation contend that a direct lending program would provide “rapid access to much-needed capital without having to face the administrative delays posed by the current Small Business Administration (SBA) lending process.”113 Proponents also argue that a temporary SBA direct lending program during periods of economic difficulty is necessary because In prosperous times, small businesses are able to shop around to different lenders to find the best available terms and conditions for a loan. But in times of economic downturns, those same lenders aren’t as willing to lend to small businesses. More than ever during these times, it’s the government’s responsibility to step in to help small businesses access the loans they need to keep their businesses running and workers employed.114 Critics contend that the SBA’s mission is to augment the private sector by guaranteeing loans, not competing with it by providing direct loans to small businesses. Although the Capital Backstop program requires the SBA to first offer the loan to the private sector, critics worry that any program with a direct lending component could be a precursor to the SBA competing directly with the private sector.115 They also argue that these loans hold greater risk than most, otherwise the private sector would accept them. They assert that SBA defaults may increase, resulting in added expense, either to taxpayers in the form of additional appropriations or to other small business borrowers in the form of higher fees, to cover the defaults.116 The SBA stopped offering direct loans in 1995, primarily because the subsidy rate was “10 to 15 times higher than that of our guaranty programs.”117 Also, a Government Accountability Office (GAO) study of the SBA’s direct lending program in 1991 found “the default percentage for guaranteed loans was only half as great (5.3 percent) as the default percentage for direct loans (10.5 percent).”118 Since its inception through FY2008, the SBA’s default rate is 20.4% for direct (non-disaster) loans to small businesses and 5.0% for guaranteed loans.119 Critics also assert that providing direct loans to small businesses might invite corruption. They note that the Reconstruction Finance Corporation (RFC), the SBA’s predecessor, made direct (...continued) committee print, 111th Cong., 1st sess., October 26, 2009, H.Rept. 111-315 (Washington: GPO, 2009), pp. 2, 13-20, 26, 27. 113 Dan Gerstein, “Big Stimulus For Small Business, A new direct lending program would benefit millions,” Forbes.com, January 14, 2009; Sharon McLoone, “Landrieu: Small Business to Benefit from Economic Plan,” The Washington Post, February 6, 2009; George Dooley, “ASTA Renews Call For SBA Direct Lending Program,” American Society of Travel Agents, February 18, 2009; and Anne Kim, Ryan McConaghy, and Tess Stovall, “Federal Direct Loans to Small Businesses,” Third Way Idea Brief, April 2009. 114 Anne Kim, Ryan McConaghy, and Tess Stovall, “Federal Direct Loans to Small Businesses,” Third Way Idea Brief, April 2009. 115 Sue Malone, Myth: The SBA will make direct loans under the stimulus bill, Strategies For Small Business, March 12, 2009. 116 Representative Jeff Flake, “Providing for Consideration of H.R. 3854, Small Business Financing and Investment Act of 2009,” House debate, Congressional Record, daily edition, vol. 155, no. 159 (October 29, 2009), pp. H12070, H12072. 117 U.S. Congress, Senate Committee on Small Business, Hearing on the Proposed Fiscal Year 1995 Budget for the Small Business Administration, 103rd Cong., 2nd sess., February 22, 1994, S. Hrg. 103-583 (Washington: GPO, 1994), p. 20. 118 U.S. General Accounting Office, Small Business: Financial Condition of SBA’s Business Loan Portfolio Is Improving, GAO/RCED-92-49, December 1991, p. 44, http://archive.gao.gov/d31t10/145560.pdf. 119 U.S. Small Business Administration, FY2008 Small Business Administration Loss Report, p. 11, http://www.sba.gov/idc/groups/public/documents/sba_program_office/cfo_2008_loss_report.pdf. Congressional Research Service 26 . Small Business: Access to Capital and Job Creation loans to business and was accused of awarding loans based on the applicant’s political connections or personal ties with RFC loan officers.120 Critics also argue that the SBA does not have the human, physical, and technical resources to make direct loans. H.R. 3854 requires the SBA’s Administrator to “establish a group of at least 250 individuals” to implement the Capital Backstop program, provide them “the training necessary to carry out” the program’s activities, and ensure that “each individual in such group with loan application evaluation and underwriting responsibilities has at least 2 years experience with respect to such responsibilities.”121 Critics assert that establishing a new office within the SBA to administer a direct lending program is not as efficient or as cost-effective as relying on the private sector to make lending decisions. Concluding Observations Historically, small businesses (firms with less than 500 employees), especially those in the retail and construction sectors, have experienced greater job loss during economic recessions than larger businesses. Conversely, small businesses have led job creation during recent economic recoveries. 122 As a result, many federal policymakers look to small businesses to lead the nation’s recovery from its current economic difficulties. As the chair of the House Committee on Small Business stated at a 2008 congressional hearing: There are a lot of different takes on the current financial crisis and even more opinions on how we should dig our way out of it. But regardless of your thoughts on the matter, one thing is very clear: Small businesses will be the key to economic turnaround. Whether it is by expanding the SBA role or providing targeted tax relief, entrepreneurs must have access to all the tools they need. They have powered this country out of other recessions, and they can do it again today. While current circumstances may be different from those in the past, the blueprint for recovery remains the same: more jobs and greater economic growth. That is the formula we need, and that is the formula small businesses can provide.123 The question currently being debated is not whether the federal government should act, but which federal policies will most likely result in small business creating the most jobs. Some, including the chairs of the House and Senate Committees on Small Business and President Obama, have agued that current economic conditions make it imperative that the SBA be provided additional resources to assist small businesses in acquiring capital necessary to start, continue, or expand operations and create jobs. 124 Others worry about the long-term adverse economic effects of spending programs that increase the federal deficit. They advocate business tax reduction, reform 120 Representative Jeff Flake, “Providing for Consideration of H.R. 3854, Small Business Financing and Investment Act of 2009,” House debate, Congressional Record, daily edition, vol. 155, no. 159 (October 29, 2009), pp. H12070, H12072. 121 H.R. 3854, the Small Business Financing and Investment Act of 2009. 122 U.S. Small Business Administration, Small Business Economic Indicators for 2003, August 2004, pp. 3, 4, http://www.sba.gov/advo/stats/sbei03.pdf. 123 U.S. Congress, House Committee on Small Business, Creating Opportunities for Small Businesses in an Economic Recovery, 110th Cong., 2nd sess., October 28, 2008, H. Hrg. 110-116 (Washington: GPO, 2008), p. 2. 124 Representative Nydia Velázquez, “Small Business Financing and Investment Act of 2009,” House debate, Congressional Record, daily edition, vol. 155, no. 159 (October 29, 2009), pp. H12074, H12075; Senator Mary Landrieu, “Statements on Introduced Bills and Joint Resolutions,” remarks in the Senate, Congressional Record, daily edition, vol. 155, no. 185 (December 10, 2009), p. S12910; and The White House, “Remarks by the President on Job Creation and Economic Growth,” December 8, 2009, http://www.whitehouse.gov/the-press-office/remarks-presidentjob-creation-and-economic-growth. Congressional Research Service 27 . Small Business: Access to Capital and Job Creation of financial credit market regulation, and federal fiscal restraint as the best means to assist small business economic growth and job creation.125 Still others argue that congressional action on the SBA is largely symbolic because the SBA’s guaranteed loan programs account for a relatively small fraction of small business lending.126 However, it also could be argued that the SBA’s loan guarantee programs purposively account for a relatively small fraction of total small business lending because the SBA’s mission is to augment, not supplant, the private market for small business loans. Moreover, as TARP, TALF, and ARRA demonstrate, the authorization and oversight of the SBA’s programs is just one of several ways Congress can influence the market for small business loans. According to this argument, congressional action concerning the SBA should be viewed not in isolation, but as an important part of a larger effort to enhance small business access to capital and job creation. Author Contact Information Robert Jay Dilger Senior Specialist in American National Government rdilger@crs.loc.gov, 7-3110 Oscar R. Gonzales Analyst in Economic Development Policy ogonzales@crs.loc.gov, 7-0764 125 National Federation of Independent Business, “Payroll Tax Holiday,” http://www.nfib.com/issues-elections/issueselections-item/cmsid/49039/; and NFIB, “Government Spending,” http://www.nfib.com/issues-elections/issueselections-item/cmsid/49051/. 126 U.S. Congress, Senate Committee on Homeland Security and Governmental Affairs, Subcommittee on Federal Financial Management, Government Information, Federal Services, and International Security, The Effectiveness of the Small Business Administration, 109th Cong., 2nd sess., April 6, 2006, S. Hrg. 109-492 (Washington: GPO, 2006), p. 92; and Discover Financial Services, “Discover® Small Business WatchSM: Small Business Economic Outlook Remains Cautious,” Riverwoods, IL, October 26, 2009, http://investorrelations.discoverfinancial.com/phoenix.zhtml?c= 204177&p=irol-newsArticle&ID=1346088&highlight=. Congressional Research Service 2823 U.S. Small Business Administration, “Recovery Act Changes to SBA Loan Programs Sparked Major Mid-Year Turn-Around in Volume,” Washington, DC, October 1, 2009; and Nancy Waitz, “U.S. stimulus funds run out for lower (continued...) Congressional Research Service 7 . Small Business: Access to Capital and Job Creation The SBA argued that the increase in the number and amount of small business loans it guaranteed during FY2010 was primarily due to fee subsidies and loan enhancements first put in place under ARRA and later extended by law to cover most of the fiscal year.24 The SBA noted that its average weekly loan volume for FY2010 ($333 million) was 29% higher than its average weekly loan volume for FY2009 ($258 million).25 Another likely factor contributing to the higher loan volume was a general improvement in the economy as the recession ended (officially in June 2009) and the economic recovery began, albeit slowly in many parts of the nation. The demand for SBA loans increased significantly during the first quarter of FY2011 (OctoberDecember 2010), as borrowers took advantage of SBA fee subsidies that were expected to expire at the end of the calendar year. The SBA announced, on January 3, 2011, that “during the quarter, the SBA approved nearly 22,000 small business loans for $10.47 billion, supporting a total of $12.16 billion in lending” which “was the highest volume in a fiscal year’s first quarter than at any time in the agency’s history.”26 Recent Laws Designed to Enhance the Supply of Small Business Loans As mentioned previously, several laws were enacted during the 110th and 111th Congresses to enhance small business access to capital. The following laws were enacted largely in response to the contraction of financial credit markets which started in 2008, and reached its nadir in early 2009. P.L. 110-343, the Emergency Economic Stabilization Act of 2008, was designed to enhance the supply of loans to businesses of all sizes. The act authorized the Troubled Asset Relief Program (TARP) to “restore liquidity and stability to the financial system of the United States” by purchasing or insuring up to $700 billion in troubled assets from banks and other financial institutions.27 TARP’s purchase authority was later reduced from $700 billion to $475 billion by P.L. 111-203, the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Department of the Treasury has disbursed $389 billion in TARP funds, including $337 million to purchase SBA 7(a) loan guaranty program securities. 28 The authority to make new TARP commitments expired on October 3, 2010. (...continued) SBA loan fees,” Reuters News, November 24, 2009, http://www.reuters.com/article/companyNewsAndPR/ idUSN2431964620091125. 24 U.S. Small Business Administration, “Recovery Loan Incentives Spurred Continued Rebound in SBA Lending in FY2010,” Washington, DC, October 4, 2010, http://archive.sba.gov/idc/groups/public/documents/sba_homepage/ news_release_10-54.pdf. 25 Ibid. 26 U.S. Small Business Administration, “Jobs Act Supported More Than $12 Billion in SBA Lending to Small Businesses in Just Three Months,” Washington, DC, January 3, 2011, http://www.sba.gov/content/jobs-act-supportedmore-12-billion-sba-lending-small-businesses-just-three-months. 27 For further analysis see CRS Report R41427, Troubled Asset Relief Program (TARP): Implementation and Status, by Baird Webel. 28 U.S. Department of the Treasury, Troubled Assets Relief Program Monthly 105(a) Report – November 2010, Washington, DC, December 10, 2010, pp. 2-4, http://www.financialstability.gov/docs/ November%20105(a)%20FINAL.pdf. On March 16, 2009, President Obama announced that the Department of the (continued...) Congressional Research Service 8 . Small Business: Access to Capital and Job Creation P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA), included several provisions to enhance the supply of loans to small businesses. 29 ARRA • authorized the SBA to establish a temporary secondary market guarantee authority to provide a federal guarantee for pools of first lien 504/CDC program loans that are to be sold to third-party investors. The SBA was granted emergency rulemaking authority to issue regulations for the program within 15 days after enactment (by March 4, 2009). After experiencing unanticipated delays in implementing the program due to “limited staff resources” and determining how to meet ARRA reporting requirements, the SBA issued regulations for its 504/CDC First Mortgage Loan Pooling program on October 30, 2009, and it became operational in June 2010.30 The program was scheduled to end on February 16, 2011, or until $3 billion in new pools are created, whichever occurred first. As will be discussed, the Small Business Jobs Act of 2010 extended the program.31 • authorized the SBA to use emergency rulemaking authority to issue regulations within 30 days after enactment (by March 19, 2009), to make below market interest rate direct loans to SBA-designated “Systemically Important Secondary Market (SISM) Broker-Dealers.” These broker-dealers would use the loan funds to purchase SBA-guaranteed loans from commercial lenders, assemble them into pools, and sell them to investors in the secondary loan market. The SBA experienced unanticipated delays in implementing the program primarily due to the need to determine “the extent to which broker-dealers, and perhaps small business lenders, would be required to share in the potential losses associated with extending the guarantee in the 504 loan program.”32 The SBA issued (...continued) Treasury would use TARP funds to purchase up to $15 billion of SBA-guaranteed loans to “immediately unfreeze the secondary market for SBA loans and increase the liquidity of community banks.” The plan was deferred after it met resistance from lenders. Some lenders objected to TARP’s requirement that participating lenders comply with executive compensation limits and issue warrants to the federal government. Smaller, community banks objected to the program’s paperwork requirements, such as the provision of a small-business lending plan and quarterly reports. See The White House, “Remarks by the President to Small Business Owners, Community Leaders, and Members of Congress,” Washington, DC, March 16, 2009, http://www.whitehouse.gov/the_press_office/Remarks-by-the-Presidentto-small-business-owners/. 29 For further analysis see CRS Report R40241, Overview and Analysis of Small Business Provisions in the American Recovery and Reinvestment Act of 2009, by Oscar R. Gonzales and N. Eric Weiss; CRS Report R40728, Small Business Tax Benefits and the American Recovery and Reinvestment Act of 2009, by Gary Guenther; and CRS Report R41385, Small Business Legislation During the 111th Congress, by Robert Jay Dilger, Oscar R. Gonzales, and Gary Guenther. 30 U.S. Small Business Administration, “SBA Creates Secondary Market Guarantee Program for 504 First Mortgage Loan Pools,” Washington, DC, October 28, 2009; U.S. Government Accountability Office, Recovery Act: Project Selection and Starts Are Influenced by Certain Federal Requirements and Other Factors, GAO-10-383, February 10, 2010, p. 23, http://www.gao.gov/new.items/d10383.pdf; and U.S. Small Business Administration, “New First Mortgage Loan Poolers Will Jump-Start Secondary Market for SBA 504 Loans, Make Credit More Available,” Washington, DC, June 24, 2010, http://www.sba.gov/about-sba-services/7367/5728. 31 U.S. Small Business Administration, “The American Recovery and Reinvestment Act of 2009: Secondary Market First Lien Position 504 Loan Pool Guarantee,” 74 Federal Register 56087, October 30, 2009; and U.S. Small Business Administration, “New First Mortgage Loan Poolers Will Jump-Start Secondary Market for SBA 504 Loans, Make Credit More Available, Washington, DC, June 24, 2010, http://www.sba.gov/about-sba-services/7367/5728. 32 U.S. Government Accountability Office, Status of the Small Business Administration’s Implementation of Administrative Provisions in the American Recovery and Reinvestment Act of 2009, GAO-10-298R, January 19, 2010, p. 7, http://www.gao.gov/new.items/d10298r.pdf. Congressional Research Service 9 . Small Business: Access to Capital and Job Creation regulations to establish the Direct Loan Program for Systemically Important Secondary Market Broker-Dealers on November 19, 2009.33 • provided $255 million for a temporary, two-year small business stabilization program to guarantee loans of $35,000 or less to small businesses for qualified debt consolidation, later named the America’s Recovery Capital (ARC) Loan program (the program ceased issuing new loan guarantees on September 30, 2010); $15 million for the SBA’s surety bond program, and temporarily increased the maximum bond amount from $2 million to $5 million, and up to $10 million under certain conditions (the higher maximum bond amounts ended on September 30, 2010); $6 million for the SBA’s Microloan program’s lending program and $24 million for the Microloan program’s technical assistance program; and increased the funds (“leverage”) available to SBA-licensed Small Business Investment Companies (SBICs) to no more than 300% of the company’s private capital or $150,000,000, whichever is less. • authorized the SBA to guarantee 504/CDC loans used to refinance business expansion projects as long as the existing indebtedness did not exceed 50% of the project cost of the expansion and the borrower met specified requirements. P.L. 111-240, the Small Business Jobs Act of 2010, was enacted after the financial credit markets had stabilized. It includes several provisions designed to enhance the supply of loans to small businesses. For example, the act • authorizes the Secretary of the Treasury to establish a $30 billion Small Business Lending Fund (SBLF) to encourage community banks to provide small business loans and a $1.5 billion State Small Business Credit Initiative to provide funding to participating states with small business capital access programs.34 The Department of the Treasury issued guidance for both of these programs, including how to apply for assistance, in December 2010.35 • extends the SBA’s secondary market guarantee authority from two years after the date of ARRA’s enactment to two years after the date of the program’s first sale of a pool of first lien position 504/CDC loans to a third-party investor (which took place on September 24, 2010).36 • authorizes $22.5 million for a temporary, three-year Small Business Intermediary Lending Pilot Program. It is designed to provide direct loans to intermediaries which provide loans to small business startups, newly established small businesses, and growing small businesses. 33 U.S. Small Business Administration, “American Recovery and Reinvestment Act: Loan Program for Systemically Important SBA Secondary Market Broker-Dealers,” 74 Federal Register 59891, November 19, 2009. 34 For further analysis see CRS Report R41385, Small Business Legislation During the 111th Congress, by Robert Jay Dilger, Oscar R. Gonzales, and Gary Guenther. 35 U.S. Department of the Treasury, “Resource Center ─ Small Business Lending Program,” Washington, DC, http://www.treasury.gov/resource-center/sb-programs/Pages/Small-Business-Lending-Fund.aspx; and U.S. Department of the Treasury, “Resource Center ─ State Small Business Credit Initiative (SSBCI),” Washington, DC, http://www.treasury.gov/resource-center/sb-programs/Pages/ssbci.aspx. 36 U.S. Small Business Administration, Office of Congressional and Legislative Affairs, correspondence with the author, Washington, DC, January 4, 2010. Congressional Research Service 10 . Small Business: Access to Capital and Job Creation • authorizes $15 million in additional funding for the SBA’s 7(a) loan guaranty program. • increases the loan guarantee limits for the SBA’s 7(a) program from $2 million to $5 million, and for the 504/CDC program from $1.5 million to $5 million for “regular” borrowers, from $2 million to $5 million if the loan proceeds are directed toward one or more specified public policy goals, and from $4 million to $5.5 million for manufacturers. • increases the SBA’s Microloan program’s loan limit for borrowers from $35,000 to $50,000 and for microlender intermediaries after their first year in the program from $3.5 million to $5 million.37 • temporarily increases for one year the SBA 7(a) Express Program’s loan limit from $350,000 to $1 million. • requires the SBA to establish an on-line lending platform listing all SBA lenders and information concerning their loan rates. • authorizes the SBA to temporarily guarantee for two years, under specified circumstances, 504/CDC loans that refinance existing business debt even if the project does not involve the expansion of the business. For additional details concerning provisions in the Small Business JoTable A-1bs Act of 2010, see Table A-1 in the Appendix. Recent Laws Designed to Enhance the Demand for Small Business Loans ARRA provided the SBA $375 million to subsidize fees for the SBA’s 7(a) and 504/CDC loan guaranty programs and to increase the 7(a) program’s maximum loan guaranty percentage from up to 85% of loans of $150,000 or less and up to 75% of loans exceeding $150,000 to 90% for all regular 7(a) loans through September 30, 2010, or when appropriated funding for the subsidies and loan modification was exhausted. The fee subsidies were designed to increase the demand for SBA loans by reducing loan costs. ARRA’s funding for the fee subsidies and 90% maximum loan guaranty percentage was about to be exhausted in November 2009, when Congress passed the first of six laws to extend the loan subsidies and 90% maximum loan guaranty percentage: • P.L. 111-118, the Department of Defense Appropriations Act, 2010, provided the SBA $125 million to continue the fee subsides and 90% maximum loan guaranty percentage through February 28, 2010. 37 The act also temporarily allows the SBA to waive, in whole or in part, for successive fiscal years, the non-federal share requirement for loans to the Microloan program’s intermediaries and for grants made to Microloan intermediaries for small business marketing, management, and technical assistance under specified circumstances (e.g., the economic conditions affecting the intermediary). See P.L. 111-240, the Small Business Jobs Act of 2010, Sec. 1401. Matching Requirements Under Small Business Programs. Congressional Research Service 11 . Small Business: Access to Capital and Job Creation • P.L. 111-144, the Temporary Extension Act of 2010, provided the SBA $60 million to continue the fee subsides and 90% maximum loan guaranty percentage through March 28, 2010. • P.L. 111-150, an act to extend the Small Business Loan Guarantee Program, and for other purposes, provided the SBA $40 million to continue the fee subsides and 90% maximum loan guaranty percentage through April 30, 2010. • P.L. 111-157, the Continuing Extension Act of 2010, provided the SBA $80 million to continue the SBA’s fee subsides and 90% maximum loan guaranty percentage through May 31, 2010. • P.L. 111-240, the Small Business Jobs Act of 2010, provided $505 million (plus an additional $5 million for administrative expenses) to continue the SBA’s fee subsides and 90% maximum loan guaranty percentage from the act’s date of enactment (September 27, 2010) through December 31, 2010. • P.L. 111-322, the Continuing Appropriations and Surface Transportation Extensions Act, 2011, authorizes the SBA to use funds provided under the Small Business Jobs Act of 2010 to continue the SBA’s fee subsides and 90% maximum loan guaranty percentage through March 4, 2011. On January 3, 2011, the SBA announced that funding for the fee subsidies and 90% maximum loan guaranty percentage had been exhausted and that it had formed a SBA Loan Queue for loan applicants should any funding with the enhancements should come available from loan cancellations.38 Typically, 10% to 15% of previously approved SBA loans are later cancelled by the borrower or lender and are not disbursed for a variety of reasons. ARRA also included 11 tax relief provisions that have the potential to benefit small businesses in a broad range of industries.39 By reducing costs, it could be argued that providing tax relief for small businesses may lead to increased demand for small business loans because small business owners have additional resources available to invest in their business. The following five ARRA tax provisions provided about $5.7 billion in tax relief and were targeted at small businesses, whereas the other ARRA tax provisions were available to businesses of all sizes: • allows businesses with $15 million or less in average annual gross receipts in the past three years to carry back net operating losses from 2008 for up to five years instead of two years. • extended through 2009 the enhanced expensing allowance, which allows businesses to deduct up to $250,000 of the cost of eligible assets placed in service in 2009, within certain limits. • increased the exclusion of the gain on the sale of small business stock to 75% (instead of 50%) of any gain realized on the sale of eligible small business stock acquired between February 18, 2009, and December 31, 2010. 38 U.S. Small Business Administration, “Jobs Act Supported More Than $12 Billion in SBA Lending to Small Businesses in Just Three Months,” Washington, DC, January 3, 2011, http://www.sba.gov/content/jobs-act-supportedmore-12-billion-sba-lending-small-businesses-just-three-months. 39 For further analysis see CRS Report R40728, Small Business Tax Benefits and the American Recovery and Reinvestment Act of 2009, by Gary Guenther. Congressional Research Service 12 . Small Business: Access to Capital and Job Creation • reduced the recognition period from 10 years to seven years for corporate tax on sale of appreciated assets in 2009 or 2010 by S corporations that once were organized as C corporations. • allowed individuals who had an adjusted gross income in 2008 of less than $500,000 and can prove that over half their income came from a small business to base their estimated tax payments for 2009 on 90% of their tax liability for 2008. As mentioned previously, the Small Business Jobs Act of 2010 provided $510 million to extend the SBA’s fee subsidies and 7(a) program’s 90% maximum loan guaranty percentage through December 31, 2010 (later extended to March 4, 2011). This provision is designed to enhance the demand for SBA loans by subsidizing their cost. The act also requires the SBA to establish an alternative size standard for the SBA’s 7(a) and 504/CDC loan guaranty programs that uses maximum net worth and average net income as an alternative to the use of industry standards. The act also establishes the following interim alternative size standard for both the 7(a) and 504/CDC programs: the business qualifies as small if it does not have a tangible net worth in excess of $15 million and does not have an average net income after federal taxes (excluding any carry-over losses) in excess of $5 million for two full fiscal years before the date of application. These changes are designed to increase the demand for small business loans by increasing the number of small businesses that are eligible for SBA assistance. 40 The Small Business Jobs Act of 2010 also provides small businesses with about $12 billion in tax relief. The act • raises the exclusion of gains on the sale or exchange of qualified small business stock from the federal income tax to 100%, with the full exclusion applying only to stock acquired the day after the date of enactment through the end of 2010. • increases the deduction for qualified start-up expenditures from $5,000 to $10,000 in 2010, and raises the phaseout threshold from $50,000 to $60,000 for 2010. • places limitations on the penalty for failure to disclose reportable transactions based on resulting tax benefits. • allows general business credits of eligible small businesses for 2010 to be carried back five years. • exempts general business credits of eligible small businesses in 2010 from the alternative minimum tax. • allows a temporary reduction in the recognition period for built-in gains tax. • increases expensing limitations for 2010 and 2011 and allows certain real property to be treated as section 179 property. • allows additional first-year depreciation for 50% of the basis of certain qualified property. 40 For further analysis see CRS Report R40860, Defining Small Business: An Historical Analysis of Contemporary Issues, by Robert Jay Dilger. Congressional Research Service 13 . Small Business: Access to Capital and Job Creation • removes cellular telephones and similar telecommunications equipment from listed property so their cost can be deducted or depreciated like other business property. 41 Discussion Historically, small businesses (firms with less than 500 employees), especially those in the retail and construction sectors, have experienced greater job loss during economic recessions than larger businesses. Conversely, small businesses have led job creation during recent economic recoveries. 42 As a result, many federal policymakers look to small businesses to lead the nation’s recovery from its current economic difficulties. 43 During the 111th Congress, the question debated in Congress was not whether the federal government should act to enhance small business access to capital, but which federal policies would provide the most effective means to increase the capital available to small businesses and result in higher levels of employment. As mentioned earlier, some, including President Obama, agued that economic conditions made it imperative that the SBA be provided additional resources to assist small businesses in acquiring capital necessary to start, continue, or expand operations and create jobs.44 Others worried about the long-term adverse economic effects of spending programs that increase the federal deficit. They also pointed to surveys of small business firms conducted by the National Federation of Independent Business (NFIB), which indicated that small business owners consistently placed financing issues near the bottom of their most pressing concerns. 45 Instead of increasing federal funding for the SBA, they advocated small business tax reduction, reform of financial credit market regulation, and federal fiscal restraint as the best means to assist small business and foster increased levels of economic growth and job creation.46 41 For further analysis of the Small Business Jobs Act of 2010’s, tax provisions see CRS Report R41385, Small Business Legislation During the 111th Congress, by Robert Jay Dilger, Oscar R. Gonzales, and Gary Guenther. 42 U.S. Small Business Administration, Small Business Economic Indicators for 2003, Washington, DC, August 2004, pp. 3, 4. 43 U.S. Congress, House Committee on Small Business, Creating Opportunities for Small Businesses in an Economic Recovery, 110th Cong., 2nd sess., October 28, 2008, H. Hrg. 110-116 (Washington: GPO, 2008), p. 2. 44 Representative Nydia Velázquez, “Small Business Financing and Investment Act of 2009,” House debate, Congressional Record, daily edition, vol. 155, no. 159 (October 29, 2009), pp. H12074, H12075; Senator Mary Landrieu, “Statements on Introduced Bills and Joint Resolutions,” remarks in the Senate, Congressional Record, daily edition, vol. 155, no. 185 (December 10, 2009), p. S12910; and The White House, “Remarks by the President on Job Creation and Economic Growth,” Washington, DC, December 8, 2009, http://www.whitehouse.gov/the-press-office/ remarks-president-job-creation-and-economic-growth. 45 Bruce D. Phillips and Holly Wade, Small Business Problems and Priorities (Washington, DC: NFIB Research Foundation, June 2008), p. 5, http://www.nfib.com/Portals/0/ProblemsAndPriorities08.pdf. The survey was conducted from mid-January to March of 2008 across a randomly drawn sample of the NFIB’s 20,000 members. Useable questionnaires were returned by 3,530 small business owners, a 17.7% response rate. 46 Susan Eckerly, “NFIB Responds to President’s Small Business Lending Initiatives,” Washington, DC, October 21, 2009, http://www.nfib.com/newsroom/newsroom-item/cmsid/50080/; NFIB, “Government Spending,” Washington, DC, http://www.nfib.com/issues-elections/issues-elections-item/cmsid/49051/; and National Federation of Independent Business, “Payroll Tax Holiday,” http://www.nfib.com/issues-elections/issues-elections-item/cmsid/49039/. Congressional Research Service 14 . Small Business: Access to Capital and Job Creation Some advocates of providing additional resources to the SBA also argued that the federal government needed to enhance small business access to capital by creating a direct lending program for small businesses.47 H.R. 3854, the Small Business Financing and Investment Act of 2009, which was passed by the House on October 29, 2009, by a vote of 389–32, would have authorized a SBA direct lending program.48 The SBA currently has authority to make direct loans to small businesses, but, with the exception of disaster loans, has not exercised that authority since 1994.49 Advocates for a small business direct lending program argued that such a program would provide “rapid access to much-needed capital without having to face the administrative delays posed by the current Small Business Administration lending process.”50 They also argued that a temporary SBA direct lending program during periods of economic difficulty was necessary because In prosperous times, small businesses are able to shop around to different lenders to find the best available terms and conditions for a loan. But in times of economic downturns, those same lenders aren’t as willing to lend to small businesses. More than ever during these times, it’s the government’s responsibility to step in to help small businesses access the loans they need to keep their businesses running and workers employed.51 Opponents of a small business direct lending program argued that the SBA’s mission is to augment the private sector by guaranteeing loans, not compete with it by providing direct loans to small businesses. 52 They also argued that these loans hold greater risk than most, otherwise the private sector would accept them. They asserted that SBA defaults may increase, resulting in added expense, either to taxpayers in the form of additional appropriations or to other small business borrowers in the form of higher fees, to cover the defaults.53 They argued that the SBA stopped offering direct loans in 1995, primarily because the subsidy rate was “10 to 15 times higher than that of our guaranty programs.”54 They also asserted that providing direct loans to small businesses might invite corruption. They noted that the Reconstruction Finance Corporation (RFC), the SBA’s predecessor, made direct loans to business and was accused of awarding loans 47 U.S. Congress, House Committee on Small Business, Small Business Financing and Investment Act of 2009, committee print, 111th Cong., 1st sess., October 26, 2009, H.Rept. 111-315 (Washington: GPO, 2009), pp. 13-20, 26, 27. 48 H.R. 3854, the Small Business Financing and Investment Act of 2009, Sec. 111. Capital Backstop Program. 49 U.S. Congress, Senate Committee on Small Business, Hearing on the Proposed Fiscal Year 1995 Budget for the Small Business Administration, 103rd Cong., 2nd sess., February 22, 1994, S. Hrg. 103-583 (Washington: GPO, 1994), p. 20. 50 Dan Gerstein, “Big Stimulus For Small Business, A new direct lending program would benefit millions,” Forbes.com, January 14, 2009; Sharon McLoone, “Landrieu: Small Business to Benefit from Economic Plan,” The Washington Post, February 6, 2009; George Dooley, “ASTA Renews Call For SBA Direct Lending Program,” American Society of Travel Agents, Washington, DC, February 18, 2009; and Anne Kim, Ryan McConaghy, and Tess Stovall, “Federal Direct Loans to Small Businesses,” Third Way Idea Brief, Washington, DC, April 2009. 51 Anne Kim, Ryan McConaghy, and Tess Stovall, “Federal Direct Loans to Small Businesses,” Third Way Idea Brief, Washington, DC, April 2009. 52 Sue Malone, Myth: The SBA will make direct loans under the stimulus bill, Strategies For Small Business, Danville, CA, March 12, 2009. 53 Representative Jeff Flake, “Providing for Consideration of H.R. 3854, Small Business Financing and Investment Act of 2009,” House debate, Congressional Record, daily edition, vol. 155, no. 159 (October 29, 2009), pp. H12070, H12072. 54 U.S. Congress, Senate Committee on Small Business, Hearing on the Proposed Fiscal Year 1995 Budget for the Small Business Administration, 103rd Cong., 2nd sess., February 22, 1994, S. Hrg. 103-583 (Washington: GPO, 1994), p. 20. Congressional Research Service 15 . Small Business: Access to Capital and Job Creation based on the applicant’s political connections or personal ties with RFC loan officers.55 Opponents also argued that the SBA does not have the human, physical, and technical resources to make direct loans. Still others argued that providing additional funding for SBA programs is largely a symbolic gesture because the SBA’s guaranteed loan programs account for a relatively small fraction of small business lending.56 They argued that, in a typical year, no more than 1% of small businesses receive an SBA-guaranteed loan, and those loans account for less than 3% of the total amount loaned to small businesses.57 They asserted that “these numbers show that the private banking system finances most loans and that the SBA is therefore largely irrelevant in the capital market.”58 Concluding Observations Congress approved many changes during the 111th Congress to enhance small business access to capital. For example, P.L. 111-240, the Small Business Jobs Act of 2010, authorizes the Secretary of the Treasury to establish a $30 billion Small Business Lending Fund (SBLF) to make capital investments in eligible community banks with total assets equal to or less than $1 billion or $10 billion.59 It authorizes a $1.5 billion State Small Business Credit Initiative Program to be administered by the Department of the Treasury.60 It made numerous changes to SBA programs in an attempt to make them more accessible to small businesses, such as increasing maximum loan amounts, creating an alternative size standard so more businesses can qualify for assistance, waiving some matching requirements, and expanding refinancing options under the 504/CDC program. It provided funding to extend SBA fee subsidies and the 7(a) program’s 90% maximum loan guaranty percentage, made several changes to federal contracting law to increase small business opportunities in federal contracting, and provided about $12 billion in tax relief for small businesses. In addition, P.L. 111-312, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, temporarily reduces for calendar year 2011 payroll taxes by two percentage points for workers (including small business owners) who pay into Social Security. 55 Representative Jeff Flake, “Providing for Consideration of H.R. 3854, Small Business Financing and Investment Act of 2009,” House debate, Congressional Record, daily edition, vol. 155, no. 159 (October 29, 2009), pp. H12070, H12072. 56 U.S. Congress, Senate Committee on Homeland Security and Governmental Affairs, Subcommittee on Federal Financial Management, Government Information, Federal Services, and International Security, The Effectiveness of the Small Business Administration, 109th Cong., 2nd sess., April 6, 2006, S. Hrg. 109-492 (Washington: GPO, 2006), p. 92; and Discover Financial Services, “Discover® Small Business WatchSM: Small Business Economic Outlook Remains Cautious,” Riverwoods, IL, October 26, 2009, http://investorrelations.discoverfinancial.com/phoenix.zhtml?c= 204177&p=irol-newsArticle&ID=1346088&highlight=. 57 Raymond J. Keating, “Keating: Obama’s policies will hurt, not help,” Long Island Business News, The Debate Room, October 30, 2009, http://libn.com/thedebateroom/2009/10/30/keating-obama%e2%80%99s-policies-will-hurtnot-help/. 58 U.S. Congress, Senate Committee on Homeland Security and Governmental Affairs, Subcommittee on Federal Financial Management, Government Information, Federal Services, and International Security, The Effectiveness of the Small Business Administration, 109th Cong., 2nd sess., April 6, 2006, S.Hrg. 109-492 (Washington: GPO, 2006), p. 92. 59 P.L. 111-240, the Small Business Jobs Act of 2010, Sec. 4103. Small Business Lending Fund. 60 For further analysis see CRS Report R41385, Small Business Legislation During the 111th Congress, by Robert Jay Dilger, Oscar R. Gonzales, and Gary Guenther. Congressional Research Service 16 . Small Business: Access to Capital and Job Creation The NFIB has long advocated a reduction of federal payroll taxes as a means to reduce small business expenses. 61 Because Congress approved many changes during the 111th Congress to enhance small business access to capital, the question before the 112th Congress is what, if any, additional action should the federal government take to enhance small business access to capital? Should Congress decide to take further action, three not necessarily mutually exclusive options are readily apparent. First, Congress could consider additional changes to the SBA’s programs in an effort to enhance small business access to capital, such as considering a direct lending program, providing additional funding for SBA fee subsidies and loan modifications, or increasing funding for SBA programs. For example, S. 3967, the Small Business Investment and Innovation Act of 2010, was introduced on November 18, 2010. It would authorize funding increases for the SBA’s training and technical assistance programs, establish a Rural Small Business Technology Pilot Program, increase maximum loan limits for the SBA’s home and business disaster loan programs, increase surety bond limits, and expand eligibility for the SBA’s State Trade and Export Promotion Grant Program to cities and other major metropolitan areas. Advocates of this approach could argue that small business access to capital improved during 2010, but, as the Federal Reserve has asserted, “remain quite stringent following the prolonged and widespread tightening that took place over the past few years.”62 Second, Congress could adopt a wait-and-see strategy that focuses on congressional oversight of the Small Business Jobs Act of 2010, and the impact of the SBA’s programs on small business access to capital. Advocates of this approach could argue that because small business access to capital improved during 2010, and SBA lending surpassed pre-recession levels during the first quarter of FY2011, the impact of the Small Business Jobs Act of 2010 on small business access to capital should be evaluated to determine if any further action is necessary. Third, Congress could consider the repeal of portions of the Small Business Jobs Act of 2010, or other SBA programs. For example, opponents of the Small Business Jobs Act of 2010 focused their opposition on the SBLF, arguing that it would not enhance small business access to capital or create jobs. They argued that the SBLF was modeled on the TARP, which in their view was a failed initiative. They also asserted that the SBLF lacked sufficient oversight for effectively monitoring the program, noted that it encouraged, and did not require, additional lending to small businesses, and worried that it would increase the federal deficit.63 Advocates of this option could argue that instead of increasing federal funding for the SBA, the federal government should focus on small business tax reduction and federal fiscal restraint as the best means to assist small business and foster increased levels of economic growth and job creation.64 61 National Federation of Independent Business, “Payroll Tax Holiday,” Washington, DC, http://www.nfib.com/issueselections/issues-elections-item/cmsid/49039/; and National Federation of Independent Business, “Tax Package Compromise Represents a Big Victory for Small Business,” Washington, DC, http://www.nfib.com/issues-elections/ issues-elections-item?cmsid=55506. 62 Federal Reserve Board, “The April 2010 Senior Loan Officer Opinion Survey on Bank Lending Practices,” Washington, DC, http://www.federalreserve.gov/boarddocs/SnLoanSurvey/201005/default.htm. 63 H.Rept. 111-499, to create a Small Business Lending Fund Program, p. 37; Representative Randy Neugebauer, “Consideration of the Small Business Jobs and Credit Act of 2010,” House debate, Congressional Record, daily edition, vol. 156, no. 90 (June 16, 2010), p. H4515; and Senator Olympia Snowe, “Small Business Lending,” remarks in the Senate, Congressional Record, daily edition, vol. 156, no. 108 (July 22, 2010), pp. S6156 - S6158. 64 Susan Eckerly, “NFIB Responds to President’s Small Business Lending Initiatives,” Washington, DC, October 21, (continued...) Congressional Research Service 17 . Small Business: Access to Capital and Job Creation Appendix. Selected Provisions in the Small Business Jobs Act of 2010 Table A-1. Selected Provisions, the Small Business Jobs Act of 2010 Issue/Program The Small Business Jobs Act of 2010 SBA 7(a) Program increases the 7(a) Program’s loan limit from $2 million to $5 million. SBA 504 Program increases the 504/CDC Program’s loan limits from $1.5 million to $5 million for “regular” borrowers, from $2 million to $5 million if the loan proceeds are directed toward one or more specified public policy goals, and from $4 million to $5.5 million for manufacturers; and temporarily expands for two years the eligibility for lowinterest refinancing under the SBA’s 504/CDC program for qualified debt. SBA Express Program temporarily increases for one year the Express Program’s loan limit from $350,000 to $1 million. SBA Microloan Program increases the Microloan Program’s loan limit for borrowers from $35,000 to $50,000; and increases the loan limits for Microloan intermediaries after their first year in the program from $3.5 million to $5 million. Temporary SBA fee subsidies and loan modifications temporarily increases the SBA’s guaranty on 7(a) loans to 90% and provide for the elimination of selected fees on the SBA’s 7(a) and 504 loans through December 31, 2010. SBA secondary market extends the SBA’s secondary market lending authority under ARRA from 2 years from enactment to 2 years from the first sale of a pool of first lien position 504 loans guaranteed under this authority. SBA size standards authorizes the SBA to establish an alternative size standard for the SBA’s 7(a) and 504 programs that would use maximum tangible net worth and average net income; and to establish an interim alternative size standard of not more than $15 million in tangible net worth and not more than $2 million in average net income for the two full fiscal years before the date of the application. SBA International Trade Finance Program increases the International Trade Finance Program’s loan limit from $1.75 million, of which not more then $1.25 million may be used for working capital, supplies, or financings, to $4.5 million. State Trade and Export Promotion Grant Program establishes an associate administrator for the SBA’s Office of International Trade and a state trade and export promotion grant program. (...continued) 2009, http://www.nfib.com/newsroom/newsroom-item/cmsid/50080/; NFIB, “Government Spending,” Washington, DC, http://www.nfib.com/issues-elections/issues-elections-item/cmsid/49051/; and National Federation of Independent Business, “Payroll Tax Holiday,” http://www.nfib.com/issues-elections/issues-elections-item/cmsid/49039/. Congressional Research Service 18 . Small Business: Access to Capital and Job Creation Issue/Program Federal contracting The Small Business Jobs Act of 2010 imposes contract bundling accountability measures directing federal agencies to include in each solicitation for any contract award above the agency’s substantial bundling threshold a provision soliciting bids by small business teams and joint ventures; requires federal agencies to publish on its website its policy on contract bundling and consolidation, as well as a rationale for any bundled contract solicited or awarded; repeals the small business competitiveness demonstration program; and provides parity among the small business contracting programs (including striking “shall” and inserting “may” in 15 U.S.C. 657a(b)(2)(B), which refers to the agency’s discretion to provide contracting preference to HUBZone small businesses). Small Business Lending Fund authorizes the U.S. Treasury to make up to $30 billion of capital investments; CBO estimates the program would raise $1.1 billion over 10 years. State Small Business Credit Initiative Program authorizes $1.5 billion for the State Small Business Credit Initiative Program. SBA Intermediary Lending Pilot Program authorizes a three-year Intermediary Lending Pilot Program to allow the SBA to make direct loans to not more than 20 eligible nonprofit lending intermediaries each year totaling not more than $20 million. The intermediaries, in turn, would be allowed to make loans to new or growing small businesses, not to exceed $200,000 per business. Capital gains taxation temporarily raises to 100% the exclusion of gains on certain small business stock from enactment to end of calendar year. Limitation on penalties for failure to disclose reportable transactions places limitations on the penalty for failure to disclose reportable transactions based on resulting tax benefits. Deduction for start-up expenditures increases the deduction for qualified start-up expenditures from $5,000 to $10,000 in 2010, and the phaseout threshold from $50,000 to $60,000 for 2010. Business carry back allows general business credits of eligible small businesses for 2010 to be carried back 5 years. Alternative Minimum Tax Exempts general business credits of eligible small businesses in 2010 from the alternative minimum tax. Recognition period for built-In gains tax allows a temporary reduction in the recognition period for built-in gains tax. Expensing and Section 179 property increases expensing limitations for 2010 and 2011; and allows certain real property to be treated as section 179 property. Depreciation allows additional first-year depreciation for 50% of the basis of certain qualified property. Deduction for health insurance costs allows the deduction for health insurance costs in computing self-employment taxes in 2010. Congressional Research Service 19 . Small Business: Access to Capital and Job Creation Issue/Program The Small Business Jobs Act of 2010 Deduction for cellular telephones removes cellular telephones and similar telecommunications equipment from listed property so their cost can be deducted or depreciated like other business property. Crude tall oil makes crude tall oil ineligible for the cellulosic biofuel producer credit. Section 561 of the Hiring Incentives to Restore Employment Act increases the percentage under section 561 of the Hiring Incentives to Restore Employment Act by 36 percentage points. Rental income reporting requires taxpayers that receive rental income from leasing real property to file information returns to the IRS and to service providers that report receiving payments of $600 or more during the tax year for rental property expenses. Penalties for failing to file information returns to the IRS increases the penalties for failing to file information returns to the IRS and to payees in a timely manner. Treasury Department authority to apply a continuous levy on federal contractors expands the Treasury Department’s authority to apply a continuous levy to government payments to federal contractors that owe the IRS for unpaid taxes to include payments for property such as a new office building. Current law allows the levy to be applied to payments for goods and services only. Predictive modeling to identify Medicaid waste, fraud, and abuse authorizes the use of predictive modeling to identify and prevent waste, fraud, and abuse in the Medicare fee-forservice program. Roth Retirement Accounts allows participants in government section 457 plans to treat elective deferrals as Roth contributions; and allows rollovers from elective deferral plans to designated Roth accounts. Nonqualified annuities allows holders of nonqualified annuities (i.e., annuity contracts held outside of a tax-qualified retirement plan or IRA) to elect to receive a portion of the contract in the form of a stream of annuity contracts, leaving the remainder of the contract to accumulate income on a tax-deferred basis. Source: the Small Business Jobs Act of 2010. Author Contact Information Robert Jay Dilger Senior Specialist in American National Government rdilger@crs.loc.gov, 7-3110 Congressional Research Service Oscar R. Gonzales Analyst in Economic Development Policy ogonzales@crs.loc.gov, 7-0764 20