H.R. 3854: Small Business Financing and Investment Act of 2009

H.R. 3854

Small Business Financing and Investment Act of 2009

Rep. Nydia M. Velazquez

October 29, 2009 (111th Congress, 1st Session)

Staff Contact

Floor Situation

H.R. 3854 is expected to be considered under a structured rule, making 16 amendments in order. The rule also provides suspension authority for unemployment compensation legislation to be considered through October 30, 2009. The legislation was introduced by Rep. Kurt Schrader (D-OR) on July 9, 2009. H.R. 3854 was approved by the Committee on Small Business by voice vote on October 21, 2009.

Bill Summary

H.R. 3854 is an omnibus small business package, comprised of eight individual bills dealing with small business loan programs of the Small Business Administration (SBA).  The legislation also establishes two new small business programs.

SBA 7(a) Loans:  SBA 7(a) loans are long-term loans for business startups or expansions delivered through commercial lending institutions and guaranteed by the SBA.  The "stimulus" bill passed earlier this year created two new pilot loan programs.

H.R. 3854 authorizes such sums as necessary to guarantee $20 billion in 7(a) loans in each of the Fiscal Years 2010 and 2011.  The bill also extends a business stabilization loan program to provide up to $50,000 to small businesses to make payments on existing loans through September 30, 2011.  This program was created by the "stimulus" and its authorization expired on September 30, 2009.

The bill would codify an existing rural lending outreach program to provide 7(a) loans of up to $250,000 to rural businesses.  The loans would be provided by rural lenders and guaranteed by the SBA.

H.R. 3854 provides permanent authorization for the Community Express program and the increased veteran participation program.  These are currently pilot programs.  Community Express is a program under which approved SBA lenders are authorized to adopt SBA's most streamlined and expedited loan procedures to provide a unique combination of financial and technical assistance to borrowers located in the nation's underserved communities.  The veterans participation program eliminates borrower and lender fees and guarantees 90 percent of loans to veteran-owned small businesses.

The legislation would establish a lender training program to educate new and existing lenders about the SBA's lending system, policies, and procedures.  SBA would charge a fee to offset the program's cost.

Finally, the bill would create a capital backstop program at SBA to operate during a recession or when SBA lending falls by 30 percent compared to the previous fiscal year.  Under this program, the SBA would accept applications from businesses if they are unable to find a lender in their area.  The SBA would attempt to find a bank nationally to make the loan.  If the SBA cannot find a lender, the SBA would be authorized to make the loan.  Members may be concerned that the SBA has not done direct lending in the 7(a) program since the enactment of the Federal Credit Reform Act.  Small Business Committee Republicans have raised concerns over SBA providing direct loans, especially if no U.S. bank is willing to make it, and the degree to which taxpayers would be exposed to losses.

CDC Economic Development Loans:  The bill authorizes SBA to guarantee $9 billion in Community Development Company (CDC) loans in Fiscal Year 2010 and $10 billion in 2011 and doubles the debenture sizes that CDCs can issue.  CDCs are private nonprofit corporations which contribute to the economic development of a community, working with the SBA and private lenders to finance small businesses which will create or retain jobs.  The bill also improves the capacity of CDCs to liquidate their own loan portfolios by authorizing SBA to delegate to certain CDCs the ability to foreclose and liquidate defaulted loans that are guaranteed by the agency.

SBA Microloans:  H.R. 3854 authorizes such sums as necessary to make $80 million in technical assistance grants and $110 million in direct loans in Fiscal Year 2010 and 2011 under the SBA Microloan program.  This program provides short-term loans of up to $35,000 for working capital and the purchase of supplies, inventory, and equipment.  The bill also increases loan limits for intermediary lenders to $1 million for the first year of participation and $7 million in the remaining years.  Finally, the bill expands the eligibility for intermediary lenders so that lenders with no experience making microloans would be eligible to participate if one of its employees has at least three years of experience.

Small Business Investment Company (SBIC):  H.R. 3854 authorizes $5 billion in loans for Fiscal Year 2010 and $5.5 billion in 2011 for the SBA's SBIC program.  The bill would additionally increase the maximum leverage and ratio of loans to money on hand for SBICs.  H.R. 3854 provides for a streamlined process for successful operators of SBICs to get new licenses.

The mission of the Small Business Investment Company (SBIC) program is to improve and stimulate small businesses by supplementing the flow of private equity capital and long term loan funds for the sound financing, growth, expansion and modernization of small business operations.  SBICs are privately owned and managed investment funds, licensed and regulated by SBA, that use their own capital plus funds borrowed with an SBA guarantee to make equity and debt investments in qualifying small businesses.

New Market Venture Capital and Renewable Energy Capital Investment Programs:  The New Markets Venture Capital Program is a developmental venture capital program designed to promote economic development and the creation of jobs in low-income geographic areas.  H.R. 3854 authorizes $100 million in Fiscal Years 2010 and 2011 for the New Markets Venture Capital program.  50 percent of this amount would used for loan guarantees for venture capital companies developing and investing in small business concerns in low-income or manufacturing areas.  The bill further authorizes $20 million in Fiscal Years 2010 and 2011 for grants, of which 50 percent would be for such companies.  Companies receiving such assistance would have to raise at least $3 million in private capital, as opposed to $5 million under current law.  The bill expands the number of areas in which these companies can operate to coincide with all the areas designated as eligible for New Market tax credits. 

H.R. 3854 authorizes $30 million in operational assistance grants and $1 billion in loan guarantees for each of Fiscal Years 2010 and 2011 for the Renewable Energy Capital Investment Program.  This program would be made permanent under the bill; it is currently a pilot program created by the 2007 energy bill that allows Small Business Investment Companies to invest in small businesses involved in renewable fuel production.

Small Business Health IT Financing Program:   H.R. 3854 amends the Small Business Act to establish a new small business health information technology financing program.  The SBA Administrator would be authorized to guarantee up to 90 percent of the amount of a loan made to a medical practitioner for the acquisition of health information technology for use in medical practice and for the costs associated with the installation of the technology.  The maximum amount of loan principal guaranteed could not exceed $350,000 for a single medical professional or $2 million for a group of associated professionals.

The Administrator may impose a guarantee fee on the borrower for the purpose of reducing the cost of the guarantee to zero.  The Administrator may also impose annual servicing fees on lenders not to exceed 0.5 percent of the outstanding balance of the guarantees on lenders' books.  Loans guaranteed would have a deferral period of one to three years.

The bill authorizes such sums as are necessary for the cost of guaranteeing $10 billion in health IT loans.

Small Business Early-Stage Investment:  The bill also establishes a new grant program for venture capital funds to invest in early-stage small businesses in targeted industries.  Targeted industries include manufacturing, energy, agriculture, IT, digital media, and defense.  H.R. 3854 authorizes $200 million for the first full fiscal year beginning after the date of the enactment.  Grants could not exceed $100 million for any company.  A grant made to a participating investment company may not be in an amount that exceeds the amount of the company's non-federal capital.

Disaster Loans:  H.R. 3854 amends the SBA disaster loan program to enable SBA to better respond to major disasters.  Specifically, the bill authorizes such sums as necessary in Fiscal Years 2010 and 2011 to administer the program and increases the limit for disaster loans to $3 million (from $1.5 million) and increases the aggregate loan limit amount for a borrower to $3 million (from $2 million). 

The bill further allows SBA to issue grants of up to $100,000 for small businesses affected by a disaster.  Such sums as may be necessary are authorized for $100 million in such grants in each of Fiscal Years 2010 and 2011.  H.R. 3854 authorizes $50 million in loan applicant assistance grants for each of Fiscal Years 2010 and 2011.  These grants would go to women's business centers, small business development centers, Veteran Business Outreach Centers, and chambers of commerce in an area affected by a disaster.

Regulations:  The bill requires SBA to promulgate regulations to carry out its provisions within 180 days of enactment.



H.R. 3854 is a combination of eight bills that would extend some "stimulus" programs and allow SBA to increase loans, provide capital to low-income areas and renewable-energy industries, and make loan guarantees to small health care firms purchasing health information technology. The SBA, created in 1953, has a loan portfolio of about 220,000 loans worth over $50 billion. The SBA operates several financing programs that are intended to bridge the gap in the conventional markets that small businesses encounter in trying to secure access to capital.


The Congressional Budget Office (CBO) has not yet produced a cost estimate for H.R. 3854. The Committee on Small Business estimates that the bill would cost $1.47 billion over two years.


1)    Rep. Velazquez (D-NY):  The Manager's Amendment would make technical changes and require reports on the business stabilization program, existing loan size limits, and the state of private sector lending for small businesses.  The amendment would also enable SBA to provide loans for the purchase of unoccupied manufacturing centers of equipment.  The health IT financing program would also be expanded to provide eligibility for home health care providers.

2)    Rep. Schock (R-IL):  Require SBA to pay the claim of a lender who demonstrates it followed the requirements of the National Lender Training Program, unless SBA has clear evidence that the lender failed to comply.

3)    Rep. Schock (R-IL):  Requires quarterly reports on the Administrator's progress towards the expansion of the Renewable Energy Capital Investment Program; and requires the Administrator to establish regulations necessary to carry out the program within 180 days after enactment.

4)    Rep. Bright (D-AL):  Requires each SBA district office that contains a rural area to establish a marketing plan for rural businesses regarding financing and investment alternatives, designate an employer as a Rural Business Outreach Specialist, and host at least one annual outreach seminar.

5)    Rep. Flake (R-AZ):  Prohibits the earmarking of grants made available through the Small Business Early-Stage Investment program.

6)    Rep. Kosmas (D-FL):  Adds "photonics technology" to the list of targeted business sectors qualified to receive grants under the Small Business Early-Stage Investment Program.  Photonics is technology that uses light, often from a laser.

7)    Rep. Gingrey (R-GA):  Increases from five years to seven years the period to participate in the Small Business Health Information Technology Financing Program.

8)    Rep. Kratovil (D-MD):  Provides SBA with authority under the 7(a) program to guarantee 100 percent of loans made to veteran owned small businesses, up to $3 million.

9)    Rep. Paulsen (R-MN):  Requires a study and a report to Congress to determine the feasibility of a program to increase investment in the research, development and commercialization of medical technology by small businesses.

10)  Rep. Massa (D-NY):  Creates a Young Entrepreneur program in the SBA to assist the development of new businesses by young people who remain in their local area.  Repayment on such loans would be deferred for six months.

11)  Rep. Foxx (R-NC):  Sunsets all programs established or extended in the bill at the end of their authorizations or after five years, whichever is earlier.  The Administrator would maintain the authority to carry out responsibilities regarding all outstanding loans, grants, and other outstanding commitments made before the authorization expiration.

12)  Rep. Kissell (D-NC):  Allows for repayment of SBA 7(A) loans (granted to small businesses after enactment of this bill) to be deferred for a maximum of 12 months from receipt of final loan disbursement if that small business concern is classified in sector 23 of the North American Industry Classification System (construction).

13)  Rep. Peters (D-MI):  Increases the maximum amount of stabilization loans in high unemployment areas to $75,000 and delays repayment of stabilization loans in high unemployment areas to 18 months for new loans made after enactment of the Act.  Would give the Administrator the ability to designate high unemployment areas eligible for operating assistance grants under the New Market Venture Capital program.

14)  Rep. Brown-Waite (R-FL):  Requires individuals directly engaged in loan application analysis and/or underwriting under the new Capital Backstop program to have at least two years of experience in those activities.

15)  Rep. Brown-Waite (R-FL):  Clarifies that the Capital Backstop Program is authorized to start immediately upon enactment through September 30, 2011.

16)  Reps. Nye (D-VA) and Buchanan (R-FL):  Allows the Administrator to make loans to homeowners to be used for the repair or replacement of toxic drywall manufactured in China.