Microloan Program Reform Gains Traction, But Misses Key Changes

Thanks to AEO for this update.

The SBA’s Microloan Program certainly caught the eye of the 114th Congress. Advocacy efforts to reform the program, spearheaded by AEO, raised the much-needed issues of modernization and expansion to Members of Congress.

This month, the House passed legislation that would address some, but not all of the concerns of the microlending community. The bill, the Microloan Modernization Act (H.R. 2670), would:

  • Increase the microloan intermediary lending limit to $6 million.
  • Permit an SBA waiver of the 25/75 rule.
  • Extend the repayment terms for loans above $10,000 to a 10-year maximum.
  • Provide an additional ability to offer lines of credit.
  • Requires a GAO study that looks at the program and why so few intermediaries enroll and an SBA Office of Advocacy study into the impact of mandatory retirement savings  for microenterprises.

Notably, the House Small Business Committee, chaired by Representative Chabot (R-OH), did not pass amendments to the legislation that would have removed the third-party contractor technical assistance restrictions or the 1/55th rule.  Instead of allowing intermediaries to decide when technical assistance is necessary by doing away with the 25 percent pre-loan and 75 percent post-loan requirement, the House Committee granted a waiver.  To us, that seems like a whole lot of paperwork instead of a common sense solution.

On Wednesday, July 29th, the Senate Small Business Committee passed the House-passed legislation, sending the bill to the whole Senate for consideration. Nebraska Senator Deb Fischer led on the legislation.  Since the bills are not identical, a “conference” would be held – where differences are hammered out and a final bill emerges.  That happens after the Senate passes its version of the bill.

AEO would have preferred the provisions of another bill introduced by Senator Fischer, the Microloan Act of 2015 (S. 1445). It would remove the 25/75 requirement, the 1/55th rule and 3rd party restrictions all together. Congresswoman Chu offered a package of amendments to the House bill that would have reflected these changes but unfortunately, the House Small Business Committee rejected them.  S. 1445 is yet to be considered by the Senate Small Business Committee.

AEO will continue to advocate for the needed modernizations and expansions to be added to any Microloan Program modernization.  Our members largely feel like the bill passed by the House and Senate Small Business Committees are at best mediocre and at worst more paperwork and more rules for a program that badly needs more flexibility, not less.