Bills
| 3.23.22

Does the SBA's Microloan Program Need More Flexibility Between Borrowers and Lenders? (H.R. 2056)

Do you support or oppose this bill?

What is H.R. 2056?

(Updated April 9, 2021)

This bill would reform the Small Business Administration’s (SBA) microloan program by giving the SBA the power to grant waivers to financial intermediaries that make loans under this program. 

The microloan program offers small businesses up to $50,000 to help their growth and expansion — though on average, loans are usually only around $13,000. Intermediary lenders are connected with businesses through the program and help eligible borrowers.

The waivers this bill outlines would apply to the 25/75 rule that requires microlenders to spend:

  • At least 75 percent of their grant funding on actual microloan borrowers.
  • No more than 25 percent of grant money on up-front technical assistance and training. This can include anything from guidance on business plan development, basic accounting and record-keeping, to help with license or permit applications etc. 

This bill would also increase the aggregate lending limit (i.e. the total amount of loans disbursed) for microloan intermediaries from $5 million to $6 million. The SBA would be prohibited from limiting loan repayment terms — with two exceptions: 

  • Loans of $10,000 or less must not have repayment terms exceeding six years,
  • Loans greater than $10,000 must have a repayment period of 10 years or less. 

The SBA would be authorized to extend short-term lines of credit for small businesses.

Within 120 days of this bill’s enactment, the Government Accountability Office (GAO) would have to report to the House Small Business Committee describing intermediaries who chose to participate and those who chose not to. This would include reasons why some intermediaries choose not to participate, and recommendations for boosting participation while decreasing costs for those involved in the program.

Also within 120 days of this bill’s enactment, the Chief Counsel for Advocacy of the SBA would report to the House Small Business Committee on the economic impact of a savings requirement on businesses eligible to participate in the microloan program. This report would include a cost-benefit analysis of the requirement, and recommendations on its implementation.

Argument in favor

These changes will help give small businesses and entrepreneur expanded access to the capital they need to grow when banks normally wouldn’t provide such loans.

Argument opposed

The microloan program requirements (like the 25/75 rule) were put in place for a reason — this bill is too flexible with financial intermediaries.

Impact

Small business owners and entrepreneurs participating in the Microloan program, their customers, the SBA, GAO, and Congress.

Cost of H.R. 2056

A CBO cost estimate is unavailable.

Additional Info

In-Depth: In its budget request for fiscal year 2016, the SBA requested that Congress eliminate the 25/75 rule, as more developed microlenders provide assistance both pre and post-loan technical assistance.

The lead sponsor of this legislation, Rep. Stephanie Murphy (D-FL), believes that this bill would help entrepreneurs and small business owners: 

"I am proud that my bipartisan microloan bill has moved forward in the legislative process. If enacted, this bill will help more entrepreneurs and small business owners obtain the capital they need to start, grow, and thrive. As the Ranking Member of the Contracting and Workforce Subcommittee, I am also proud to make bipartisan commonsense reforms to the federal contracting process so that small firms can more easily navigate the bureaucratic process, create jobs, and strengthen the economy.”

This bill was passed by the House Small Business Committee on a 19-0 vote, and has the bipartisan support of three Democratic and two Republican cosponsors. This legislation passed the House on a voice vote during the last session of Congress, but wasn't considered in the Senate before the 114th Congress adjourned.


Media:

Summary by Eric Revell
(Photo Credit: Flickr user USDAgov)