News From Congresswoman
Nydia M. Velázquez
Representing New York's 12th Congressional District - Brooklyn, Manhattan, Queens
Ranking Democratic Member, House Small Business Committee

For Immediate Release
April 27, 2005

CONTACT: Kate Davis, Allyson Ivins, (202) 225-4038

Legislation to Put Capital Back into the Hands of America's Small Businesses
Small Business Access to Capital Act lowers cost to small firms; gives lenders new tools

WASHINGTON - As this country observes National Small Business Week, Congresswoman Nydia M. Velázquez (D-N.Y.), Ranking Democrat on the House Small Business Committee, today introduced H.R. 1868, the Small Business Access to Capital Act, and was joined by several small businesses and lenders from across the country. H.R. 1868 will lower the cost of capital to small businesses, while providing new lending tools for banks.

"Even though small businesses are the country's economic drivers and job creators, accessing the capital they need to successfully grow a business is always challenging, even in the best of times," Congresswoman Velázquez said. "In the past it has been SBA's 7(a) loan program that served a vital role in providing capital. However, since the Bush administration pushed a fee increase on small businesses and banks - causing upfront fees to double anywhere from $1500 to $3000 - less and less capital is going toward our nation's small businesses. The Small Business Access to Capital Act will make it more affordable for both entrepreneurs and lenders to use the program."

Several small business owners and lenders spoke out during the event on their challenges in using the program since the fee increase. Loretta Hickman, owner of Business Management, Inc. in Rockville, MD, highlighted the challenges her business has faced in accessing capital through SBA's 7(a) loan since the fee increase.

"The SBA loan guarantee is an essential component of accessing capital for small businesses. The new additional costs associated with securing an SBA backed loan through the 7(a) program has delayed our ability to access the funds we need at this important time," Ms. Hickman said. "After two years of hard work and expenses I simply do not have the additional funds to pay these new significant upfront costs."

Since the fee increase was implemented on the Small Business Administration's (SBA) 7(a) loan program, there has been a steady decline in the amount of loans made each quarter. For the last quarter of FY 2004 before fees were raised, the program provided $3.94 billion in loans. The most recent figures show the obvious decline -only $3.42 billion in loans was made in the second quarter of FY 2005 - a decline of $520 million. The latest figures are also down from the first quarter of FY 2005 when the program did $3.56 billion.

The Small Business Access to Capital Act reverses the fee increase by lowering the cost to small businesses and lenders that participate in the 7(a) lending program. The legislation includes several provisions that will provide necessary tools to lenders and enable them to increase their ability make loans. The bill restores the combination financing option, also known as "piggybacking," that makes it easier for small businesses to secure larger financing packages by combining a 7(a) loan with a conventional bank loan.

The act also makes it easier for small firms to secure larger amounts of capital, by increasing the maximum size of the loan to $3 million - up from $2 million - and raises the maximum guarantee on loans to $2 million - up from $1.5 million. This is especially useful in the high tech and manufacturing industries that require large investments.

"As we celebrate our nation's small businesses this week - we need to make sure they have the ability to access capital, spur economic development and create employment opportunities all year long," Congresswoman Velázquez said. "As this nation's main job creators, our 23 million small businesses deserve our full support. But in order for this to happen, we must remain committed to putting capital where it belongs - back into the hands of our nation's small businesses and the U.S. economy."

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