AT SHAHEEN’S URGING, SBA MAKES CREDIT AVAILABLE TO MORE SMALL BUSINESSES BY EXPANDING LOAN SIZE STANDARDS
Shaheen led bipartisan group of 32 Senate colleagues in urging Obama and the SBA to increase small business access to loans by expanding 7(a) loan eligibility
(Washington, D.C.) – For two months, U.S. Senator Jeanne Shaheen has led an effort urging the U.S. Small Business Administration (SBA) and the Obama Administration to make credit available to more small businesses. As a direct result of her efforts, today the SBA announced a temporary change to the size standard of the 7(a) loan program. The change will open 7(a) loans to more auto dealers and other small businesses in New Hampshire and across the nation, giving them greater access to much-needed capital.
“Ensuring that more New Hampshire auto dealers and small businesses can access credit so they can make payroll, grow their business, and stimulate our local economy is key to our nation’s economic recovery,” said Shaheen. “I’ve met with small business owners across the state who have excellent credit histories but can’t access much-needed credit because of the economic crisis. I’m pleased the SBA has followed our recommendation to expand their loan program and open this loan program to more small businesses. I look forward to working with the Obama Administration, the SBA and my colleagues in the Senate to make sure we put small businesses first in our economic recovery efforts.”
In a meeting at the White House in March, Shaheen urged President Obama to expedite implementing provisions authorized by the American Recovery and Reinvestment Act to make credit more available and less expensive to small businesses, such as a reduction in loan fees. During the April 1 confirmation hearing for SBA Administrator Karen Mills, Shaheen again raised the issue and requested that the SBA move quickly to increase access to credit. And on April 7, Shaheen led a bipartisan group of 32 Senators in sending a letter to President Obama urging him to make changes to SBA regulations that would make credit more accessible for more auto dealers and other small businesses.
Today’s announcement that the SBA will expand the size standard of the 7(a) loan program was among the group’s recommendations to ease the credit crisis squeezing small businesses. Shaheen is continuing to urge the SBA to make the other changes she and her colleagues recommended in the letter that would make auto dealer floor plan financing eligible for the SBA program as well.
According to the SBA, the expansion of the 7(a) loan program will go into effect early next week, making an additional 70,000 small businesses or more eligible to apply for an SBA 7(a) loan. The new temporary 7(a) loan size standard will parallel the standard for the agency’s 504 Certified Development Company loan and will allow businesses to qualify based on net worth and average income. For a small business to qualify under the new size standard, the company’s net worth cannot exceed $8.5 million, and its average net income after federal income taxes (excluding any carry-over losses) for the preceding two completed fiscal years cannot exceed $3 million. The temporary expansion of 7(a) loans also means that more small businesses can benefit from the American Recovery and Reinvestment Act, which authorized an increase on SBA guarantees for 7(a) loans to 90 percent and reduced fees for borrowers.
The April 7 letter authored by Shaheen and co-signed by 31 of her Senate colleagues is below, followed by today’s SBA press release announcing this change:
April 7, 2009
The President
The White House
1600 Pennsylvania Avenue, NW
Washington, DC 20500
Dear Mr. President:
The undersigned members of the United States Senate are writing to urge you to address the worsening credit crisis that is adversely affecting the entire automotive retailing industry in America. The restoration of all types of credit – retail loans, working capital loans, and wholesale inventory (or “floorplan”) loans – is essential for the nation’s automobile dealers. We urge you to implement the two policies outlined below as soon as possible.
The franchised dealer network is an extraordinarily powerful economic force on Main Streets throughout the United States. Together, the country’s 19,000 new car and truck dealerships employ approximately 1 million people and account for upwards of 20 percent of the nation’s retail spending. Individually, each of these dealerships generates direct economic investment in real estate and improvements, significant employee payroll/benefits, and substantial tax revenue for local and state governments. This stream of economic activity is based in large part on the dealer’s willingness and ability to buy inventory from the automaker. Despite the entrepreneurial spirit of the dealer body, the viability of this model is stressed. More than 1000 dealerships have closed in the past year, at a cost of more than 50,000 jobs, and even more are facing a similar fate this year.
Credit is the lifeblood of the franchised dealer’s economic model. Since more than 94 percent of vehicle deliveries are financed, adequate retail credit is essential. Additionally dealers, like many other businesses, need sufficient working capital to maintain cash flow. Finally and most critically, floorplan credit – the financing dealers use to buy vehicle inventory – is essential. A dealer losing access to floorplanning will close within a matter of days.
The degradation of the floorplan lending market is alarming. Within the past six months, the number of floorplan lenders has declined and the lenders still in the market are insisting upon terms and conditions that are not affordable for many dealers. This contraction of floorplan availability is threatening the future of many dealers. This problem is not limited to dealers with domestic nameplates and is not limited to any one region of the country.
In light of these circumstances, we urge your Administration to take prompt action to avoid further erosion of sales and employment in the auto retailing network. The following actions would restore access to credit in auto retailing, thereby stabilizing employment and economic activity in a sector essential to the overall health of the American economy:
1. Expand access to Small Business Administration (SBA) lending capacity for automobile dealers. In 1980, President Carter directed SBA to provide liquidity to the dealers to meet a similar credit crisis. The Administration has the statutory authority to expand the SBA size standard that today excludes many dealers. Also, the Administration has the statutory authority to allow SBA’s guarantee to be used for floorplan loans that currently are ineligible under the program. An emergency directive implementing these two changes would increase access to credit for small business dealers all across the country.
2. Restore liquidity for auto floorplan lenders. The Federal Reserve should take appropriate steps to ensure that the Term Asset-Backed Securities Loan Facility (TALF) provides a workable program for financing floorplan loans. Although TALF presently covers securities backed by floorplan loans, TALF has yet to finance the purchase of any such securities since the program’s inception.
In closing, we wish to emphasize the importance of this issue in communities throughout the nation. Your prompt action will provide positive economic results on Main Street.
Sincerely,
U.S. Senators
Jeanne Shaheen (D-NH) Richard Shelby (R-AL) Chris Dodd (D-CT)
Olympia Snow (R-ME) Mary Landrieu (D-LA) Bob Corker (R-TN)
Jeff Bingaman (D-NM) Lamar Alexander (R-TN) Barbara Mikulski (D-MD)
Sam Brownback (R-KS) Chuck Schumer (D-NY) Kay Bailey Hutchison (R-TX)
Jim Webb (D-VA) Orrin Hatch (R-UT) Debbie Stabenow (D-MI)
John Cornyn (R-TX) Jon Tester (D-MT) Ron Wyden (D-OR)
Bill Nelson (D-FL) Kay Hagan (D-NC) John Kerry (D-MA)
Russ Feingold (D-WI) Bob Casey (D-PA) Tom Udall (D-NM)
Carl Levin (D-MI) Sheldon Whitehouse (D-RI) Evan Bayh (D-IN)
Sherrod Brown (D-OH) Jack Reed (D-RI) Max Baucus (D-MT)
Mark Pryor (D-AR) Ted Kennedy (D-MA)
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News Release
PRESS OFFICE
Release Date: May 1, 2009
Contact: Tiffani Clements (202) 401¬0035
SBA Expands Eligibility for 7(a) Loans
To Spur Recovery Opportunities for Small Businesses
WASHINGTON – More small businesses will be eligible for U.S. Small Business Administration-backed loans, meaning greater access to much-needed capital in this tough economy, as a result of a temporary alternate size standard for the agency's largest lending program.
SBA’s alternate size standard for its 7(a) loan program will go into effect early next week through Sept. 30, 2010. As a result of the temporary change, more than 70,000 additional small businesses – including auto and RV dealerships, auto industry suppliers and others – could be eligible to apply for SBA 7(a) loan.
“This is just one more step we are taking to make sure small businesses have access to capital to keep their doors open and employees working during these tough economic times,” SBA Administrator Karen Mills said. “We have seen signs that small businesses that are just outside the traditional 7(a) size standard are being shut out of the conventional lending market. This temporary change will help those businesses weather these tough times and help move our nation closer to economic recovery.”
The temporary 7(a) loan size standard will parallel the standard for the agency’s 504 Certified Development Company loan, and will allow businesses to qualify based on net worth and average income. The net worth for the company and its affiliates can’t be in excess of $8.5 million and average net income after federal income taxes (excluding any carry-over losses) for the preceding two completed fiscal years can’t be more than $3 million. The alternate size standard is available at the offices of The Federal Register today and will be published as an interim final rule early next week.
The temporary change to the 7(a) loan size standard is not unprecedented. SBA took similar actions in 1993, as a result of the recession of the early 1990s, and again in 2005 as part of a program aimed at helping small businesses in the wake of hurricanes Katrina and Rita.
This change also means more small businesses can take advantage of benefits made possible through the Recovery Act. On March 16, the SBA implemented two key provisions of the Recovery Act that raised the guarantee on 7(a) loans to 90 percent and reduced fees for borrowers. Since then, the agency has seen average weekly 7(a) loan volume increase by more than 25 percent and new SBA loans made by nearly 450 lenders who had not made loans since October 2008.
For more information about SBA’s revisions to its small business size standards, visit http://www.sba.gov/size/indexwhatsnew.html and click on “What’s New about Small Business Size Standards.”
