House OK’s Biz Finance Bills

July 26, 2017

On July 24, the House passed three bipartisan House Small Business Committee Member bills to increase access to capital and improve the lending environment for our nation’s small businesses. All three bills were introduced by Members of the House Committee on Small Business and now move to the Senate for consideration.

Below are the three bills that were passed by the House:

H.R. 2333, the Small Business Investment Opportunity Act, introduced by Contracting and Workforce Subcommittee Chairman Steve Knight (R-Calif.), to increase the individual leverage limit within the Small Business Investment Company (SBIC) program.

H.R. 2333 amends the Small Business Investment Act of 1958 by increasing the Individual Leverage Limit from $150 million to $175 million. The Small Business Administration (SBA) offers the SBIC program, which focuses on increasing the availability of venture and private equity capital. The Individual Leverage Limit stipulates how much capital can be deployed to a small business by an SBIC that has only one fund under management. It was last increased in 2009 with the limit increasing from $137 million to the present day limit of $150 million.

H.R. 2056, the Microloan Modernization Act, introduced by Contracting and Workforce Subcommittee Ranking Member Rep. Stephanie Murphy (D-Fl.), to update and modernize the Microloan program to ensure it is running efficiently and appropriately for small businesses.

H.R. 2056 modernizes the Small Business Administration’s (SBA) Microloan program, which offers small businesses microloans of $50,000 or less through nonprofit lending intermediaries. In addition to providing lending services, the intermediary is also required to provide technical assistance and training to their borrowers and prospective borrowers. H.R. 2056 raises the total limit on outstanding loans held by microloan intermediaries from $5 million to $6 million.

Additionally, the legislation provides flexibility to the 25/75 Rule, which limits a microloan intermediary to using 25 percent of their SBA technical assistance grants on pre-loan assistance or on third-party contracts. The new ratio is 50/50. By giving micro lender intermediaries more latitude with pre-loan assistance, small business startups will receive more comprehensive assistance during their infancy. To gain a better understanding of the program’s utilization, H.R. 2056 directs the SBA to conduct a study on the usage of the program. Finally, the legislation requires a Government Accountability Office (GAO) study to examine SBA’s oversight functions of the program.

In the 114th Congress, similar legislation, H.R. 2670, was passed on July 13, 2015 by a voice vote.

H.R. 2364, the Investing in Main Street Act, introduced by House Small Business Committee Member Judy Chu (D-Calif.) to increase the amount that financial institutions may invest in small business investment companies (SBICs). Currently, the Small Business Investment Act of 1958 limits the amount of capital and surplus that a financial institution or federal savings association may invest in an SBIC to 5 percent.

H.R. 2364 increases the amount of capital and surplus that a financial institution and federal savings association can invest in a SBIC from 5 percent to 15 percent in order to assist small businesses in obtaining venture capital and private equity.

Capital is the lifeblood of any small business, and according to NSBA’s 2016 Mid-Year Economic Report, there was a drop in bank lending to smaller firms, which has real-world implications: 41 percent said lack of capital is hindering their ability to grow their business or expand operations, and 20 percent said they had to reduce the number of employees as a result of tight credit.

Small-business owners face unique challenges when trying to obtain financing. Start-up and expanding small businesses frequently do not have the assets necessary for a traditional bank loan, and smaller loans generally are less-profitable for banks. NSBA is pleased the House has passed these three measures as they will help improve and enhance the availability of credit, capital and equity financing to small businesses, and strengthen SBA’s successful SBIC lending programs.