A bill to clarify the collateral requirement for certain loans under section 7(d) of the Small Business Act, and for other purposes.

Mr. President, I come to the floor today to speak on an issue that is of great importance to my home State of Louisiana: Federal disaster assistance. As you know, along the Gulf Coast we keep an eye trained on the Gulf of Mexico during hurricane season. This is following the devastating one-two punch of Hurricanes Katrina and Rita of 2005 as well as Hurricanes Gustav and Ike in 2008. Unfortunately, our region also has had to deal with the economic and environmental damage from the Deepwater Horizon disaster in 2010 and more recently Hurricane Isaac. Due to this history, as Chair of the Senate Committee on Small Business and Entrepreneurship, ensuring Federal disaster programs are effective and responsive to disaster victims is one of my top priorities. While the Gulf Coast is prone to hurricanes, other parts of the country are no strangers to disaster. The Midwest has tornadoes, California experiences earthquakes and wildfires, and the Northeast sees crippling snowstorms. So no part of our country is spared from disasters--disasters which can and will strike at any moment. This certainly hit home when the northeast was struck by Hurricane Sandy in October of this year. With this in mind, we must ensure that the Federal government is better prepared and has the tools necessary to respond quickly and effectively following a disaster.

In order to give the U.S. Small Business Administration, SBA, better tools to respond after a future disaster, I am proud to have filed S. 3672, legislation that will make a small but important improvement to SBA's disaster assistance programs for impacted businesses. This provision builds off of SBA disaster reforms enacted in 2008 and ensures that SBA is responsive to the needs of small businesses seeking smaller amounts of disaster assistance. These are the businesses that are burdened the most by liens on their primary personal residential homes when they could conceivably provide sufficient business assets as collateral for the loan. In particular, the bill I am filing today would clarify that, for SBA disaster business loans less than $200,000, SBA is required to utilize assets other than the primary residence if those assets are available to use as collateral towards the loan. The bill is very clear though that these assets should be of equal or greater value than the amount of the loan. Also, to ensure that this is a targeted improvement, the bill includes additional language that this bill in no way requires SBA to reduce the amount or quality of collateral it seeks on these types of loans.

I note that this provision is similar to Section 204 of S. 2731, the Small Business Administration Disaster Recovery and Reform Act of 2009 that Senator Bill Nelson and I introduced last Congress. A similar provision also passed the House of Representatives twice last Congress. H.R. 3854, which included a modified collateral requirement under Section 801, passed the House on October 29, 2009, by a vote of 389-32. The provision also passed the House again on November 6, 2009, by a voice vote as Section 2 of H.R. 3743. So this provision has a history of bipartisan Congressional support. I want to especially thank Ranking Member Olympia Snowe for working with me to improve upon this previous legislation. The legislation that I am filing today is a result of discussions with both her and other stakeholders. I believe that this bill is better because of improvements that came out these productive discussions.

This bill addresses a key issue that is serving as a roadblock to business owners interested in applying for smaller SBA disaster loans. After the multiple disasters that hit the Gulf Coast, I and my staff have consistently heard from business owners, discouraged from applying for SBA disaster loans. When we have inquired further on the main reasons behind this hesitation, the top concern related to SBA requiring business owners to put up their personal home as collateral for smaller SBA business disaster loans. This requirement is understandable for large loans

between $750,000 and $2 million. However, business owners complained about this requirement being instituted for loans of $200,000 or less. I can understand their frustration. Business owners, in many cases who have just lost everything, are applying to SBA for a $150,000 loan for their business. SBA then responds by asking them to put up their $400,000 personal home as collateral when the business may have sufficient business assets available to collateralize the loan. While I also understand the need for SBA to secure the loans, make the program cost effective, and minimize risk to the taxpayer, SBA has at its disposal multiple ways to secure loans.

Furthermore, SBA has repeatedly said publicly and in testimony before my committee that it will not decline a borrower for a lack of collateral. According to a July 14, 2010 correspondence between SBA and my office, the agency notes that ``SBA is an aggressive lender and its credit thresholds are well below traditional bank standards. . . . SBA does not decline loans for insufficient collateral.'' SBA's current practice of making loans is based upon an individual/business demonstrating the ability to repay and income. The agency declines borrowers for an inability to repay the loan. In regards to collateral, SBA follows traditional lending practices that seek the ``best available collateral.'' Collateral is required for physical loans over $14,000 and Economic Injury Disaster Loans, EIDL, loans over $5,000. SBA takes real estate as collateral when it is available, but as I stated, the agency will not decline a loan for lack of collateral. Instead it requires borrowers to pledge what is available. However, in practice, SBA is requiring borrowers to put up a personal residence worth $300,000 or $400,000 for a business loan of $200,000 or less when there are other assets available for SBA.

While I do not want to see SBA tie up too much of a business' collateral, I also believe that if a business is willing and able to put up business assets towards its disaster loan, SBA should consider that first before attempting to bring in personal residences. It is unreasonable for SBA to ask business owners operating in very different business environments post-disaster to jeopardize not just their business but also their home. Loans of $200,000 or less are also the loans most likely to be repaid by the business so personal homes should be collateral of last resort in instances where a business can demonstrate the ability to repay the loan and that it has other assets.

In closing, I believe that this commonsense fix will greatly benefit businesses impacted by future disasters. This provision does not substantively change SBA's current lending practices and it will not have a significant cost. I believe that this legislation would not trigger direct spending nor would it have a significant impact on the subsidy rate for SBA disaster loans. Currently for every $1 loaned out, it costs approximately 10 cents on the dollar. Most importantly, this bill will greatly improve the SBA disaster loan programs for businesses ahead of future disasters. If a business comes to the SBA for a loan of less than $200,000 to make immediate repairs or secure working capital, they can be assured that they will not have to put up their personal home if SBA determines that the business has other assets to go towards the loan. However, if businesses seek larger loans than $200,000, then the current requirements will still apply. This ensures that very small businesses and businesses seeking smaller amounts of recovery loans are able to secure these loans without significant burdens on their personal property. For the business owners we have spoken to, this provides some badly needed clarity to one of the Federal Government's primary tools for responding to disasters.

Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.

Mr. President, I come to the floor today to speak on an issue that is of great importance to my home State of Louisiana: Federal disaster assistance. As you know, along the Gulf Coast we keep an eye trained on the Gulf of Mexico during hurricane season. This is following the devastating one-two punch of Hurricanes Katrina and Rita of 2005 as well as Hurricanes Gustav and Ike in 2008. Unfortunately, our region also has had to deal with the economic and environmental damage from the Deepwater Horizon disaster in 2010 and more recently Hurricane Isaac. Due to this history, as Chair of the Senate Committee on Small Business and Entrepreneurship, ensuring Federal disaster programs are effective and responsive to disaster victims is one of my top priorities. While the Gulf Coast is prone to hurricanes, other parts of the country are no strangers to disaster. The Midwest has tornadoes, California experiences earthquakes and wildfires, and the Northeast sees crippling snowstorms. So no part of our country is spared from disasters--disasters which can and will strike at any moment. This certainly hit home when the northeast was struck by Hurricane Sandy in October of this year. With this in mind, we must ensure that the Federal government is better prepared and has the tools necessary to respond quickly and effectively following a disaster.

In order to give the U.S. Small Business Administration, SBA, better tools to respond after a future disaster, I am proud to have filed S. 3672, legislation that will make a small but important improvement to SBA's disaster assistance programs for impacted businesses. This provision builds off of SBA disaster reforms enacted in 2008 and ensures that SBA is responsive to the needs of small businesses seeking smaller amounts of disaster assistance. These are the businesses that are burdened the most by liens on their primary personal residential homes when they could conceivably provide sufficient business assets as collateral for the loan. In particular, the bill I am filing today would clarify that, for SBA disaster business loans less than $200,000, SBA is required to utilize assets other than the primary residence if those assets are available to use as collateral towards the loan. The bill is very clear though that these assets should be of equal or greater value than the amount of the loan. Also, to ensure that this is a targeted improvement, the bill includes additional language that this bill in no way requires SBA to reduce the amount or quality of collateral it seeks on these types of loans.

I note that this provision is similar to Section 204 of S. 2731, the Small Business Administration Disaster Recovery and Reform Act of 2009 that Senator Bill Nelson and I introduced last Congress. A similar provision also passed the House of Representatives twice last Congress. H.R. 3854, which included a modified collateral requirement under Section 801, passed the House on October 29, 2009, by a vote of 389-32. The provision also passed the House again on November 6, 2009, by a voice vote as Section 2 of H.R. 3743. So this provision has a history of bipartisan Congressional support. I want to especially thank Ranking Member Olympia Snowe for working with me to improve upon this previous legislation. The legislation that I am filing today is a result of discussions with both her and other stakeholders. I believe that this bill is better because of improvements that came out these productive discussions.

This bill addresses a key issue that is serving as a roadblock to business owners interested in applying for smaller SBA disaster loans. After the multiple disasters that hit the Gulf Coast, I and my staff have consistently heard from business owners, discouraged from applying for SBA disaster loans. When we have inquired further on the main reasons behind this hesitation, the top concern related to SBA requiring business owners to put up their personal home as collateral for smaller SBA business disaster loans. This requirement is understandable for large loans

between $750,000 and $2 million. However, business owners complained about this requirement being instituted for loans of $200,000 or less. I can understand their frustration. Business owners, in many cases who have just lost everything, are applying to SBA for a $150,000 loan for their business. SBA then responds by asking them to put up their $400,000 personal home as collateral when the business may have sufficient business assets available to collateralize the loan. While I also understand the need for SBA to secure the loans, make the program cost effective, and minimize risk to the taxpayer, SBA has at its disposal multiple ways to secure loans.

Furthermore, SBA has repeatedly said publicly and in testimony before my committee that it will not decline a borrower for a lack of collateral. According to a July 14, 2010 correspondence between SBA and my office, the agency notes that ``SBA is an aggressive lender and its credit thresholds are well below traditional bank standards. . . . SBA does not decline loans for insufficient collateral.'' SBA's current practice of making loans is based upon an individual/business demonstrating the ability to repay and income. The agency declines borrowers for an inability to repay the loan. In regards to collateral, SBA follows traditional lending practices that seek the ``best available collateral.'' Collateral is required for physical loans over $14,000 and Economic Injury Disaster Loans, EIDL, loans over $5,000. SBA takes real estate as collateral when it is available, but as I stated, the agency will not decline a loan for lack of collateral. Instead it requires borrowers to pledge what is available. However, in practice, SBA is requiring borrowers to put up a personal residence worth $300,000 or $400,000 for a business loan of $200,000 or less when there are other assets available for SBA.

While I do not want to see SBA tie up too much of a business' collateral, I also believe that if a business is willing and able to put up business assets towards its disaster loan, SBA should consider that first before attempting to bring in personal residences. It is unreasonable for SBA to ask business owners operating in very different business environments post-disaster to jeopardize not just their business but also their home. Loans of $200,000 or less are also the loans most likely to be repaid by the business so personal homes should be collateral of last resort in instances where a business can demonstrate the ability to repay the loan and that it has other assets.

In closing, I believe that this commonsense fix will greatly benefit businesses impacted by future disasters. This provision does not substantively change SBA's current lending practices and it will not have a significant cost. I believe that this legislation would not trigger direct spending nor would it have a significant impact on the subsidy rate for SBA disaster loans. Currently for every $1 loaned out, it costs approximately 10 cents on the dollar. Most importantly, this bill will greatly improve the SBA disaster loan programs for businesses ahead of future disasters. If a business comes to the SBA for a loan of less than $200,000 to make immediate repairs or secure working capital, they can be assured that they will not have to put up their personal home if SBA determines that the business has other assets to go towards the loan. However, if businesses seek larger loans than $200,000, then the current requirements will still apply. This ensures that very small businesses and businesses seeking smaller amounts of recovery loans are able to secure these loans without significant burdens on their personal property. For the business owners we have spoken to, this provides some badly needed clarity to one of the Federal Government's primary tools for responding to disasters.

Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.