[DOCID: f:hr313.110]
From the House Reports Online via GPO Access
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110th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 110-313
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MICROLOAN AMENDMENTS AND MODERNIZATION ACT
_______
September 4, 2007.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Ms. Velazquez, from the Committee on Small Business, submitted the
following
R E P O R T
[To accompany H.R. 3020]
[Including cost estimate of the Congressional Budget Office]
The Committee on Small Business, to whom was referred the
bill (H.R. 3020) to amend the Small Business Act to improve the
Microloan program, and for other purposes, having considered
the same, report favorably thereon with an amendment and
recommend that the bill as amended do pass.
CONTENTS
Page
I. Amendment.......................................................1
II. Purpose of the Bill and Summary.................................5
III. Background and Need for Legislation.............................7
IV. Hearings.......................................................11
V. Committee Consideration........................................12
VI. Committee Votes................................................12
VII. Section-by-Section Analysis of H.R. 3020.......................13
VIII. Congressional Budget Office Cost Estimate......................15
IX. Committee Estimate of Costs....................................16
X. Oversight Findings.............................................17
XI. Statement of Constitutional Authority..........................17
XII. Compliance With Public Law 104-4...............................17
XIII. Congressional Accountability Act...............................17
XIV. Federal Advisory Committee Statement...........................17
XV. Statement of No Earmarks.......................................17
XVI. Performance Goals and Objectives...............................17
XVII. Changes in Existing Law Made by the Bill, as Reported..........17
Amendment
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Microloan Amendments
and Modernization Act''.
(b) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; table of contents.
TITLE I--MICROLOAN
Sec. 101. Transmission of credit reporting information.
Sec. 102. Flexible credit.
Sec. 103. Intermediary eligibility requirements.
Sec. 104. Average loan size.
Sec. 105. Technical assistance.
Sec. 106. Entrepreneurs with disabilities.
TITLE II--PRIME
Sec. 201. Short title.
Sec. 202. PRIME.
Sec. 203. Conforming repeal.
TITLE I--MICROLOAN
SEC. 101. TRANSMISSION OF CREDIT REPORTING INFORMATION.
Section 7(m) of the Small Business Act (15 U.S.C. 636(m)) is amended
by adding at the end the following:
``(14) Credit reporting information.--The Administrator shall
establish a process, for use by a lender making a loan to a
borrower under this subsection, under which the lender provides
to the major credit reporting agencies the information about
the borrower that is relevant to credit reporting, such as the
payment activity of the borrower on the loan.''.
SEC. 102. FLEXIBLE CREDIT.
Section 7(m) of the Small Business Act (15 U.S.C. 636(m)) is amended,
in each of paragraphs (1)(B)(i) and (11)(B), by striking ``short-
term,''.
SEC. 103. INTERMEDIARY ELIGIBILITY REQUIREMENTS.
Section 7(m)(2) of the Small Business Act (15 U.S.C. 636(m)(2)) is
amended--
(1) in subparagraph (A) by striking ``paragraph (10)'' and
inserting ``paragraph (11)''; and
(2) by amending subparagraph (B) to read as follows:
``(B) has--
``(i) at least--
``(I) 1 year of experience making
microloans to startup, newly
established, or growing small business
concerns; or
``(II) 1 full-time employee who has
not less than 3 years experience making
microloans to startup, newly
established, or growing small business
concerns; and
``(ii) at least 1 year of experience
providing, as an integral part of its microloan
program, intensive marketing, management, and
technical assistance to its borrowers.''.
SEC. 104. AVERAGE LOAN SIZE.
Section 7(m) of the Small Business Act (15 U.S.C. 636(m)) is amended
by striking ``$7,500'' and inserting ``$10,000'' in each of the
following places: paragraph (3)(F)(iii), paragraph (6)(C)(i), and
paragraph (6)(C)(ii).
SEC. 105. TECHNICAL ASSISTANCE.
Section 7(m)(4)(E) of the Small Business Act (15 U.S.C. 636(m)(4)(E))
is amended as follows:
(1) Pre-loan.--Clause (i) is amended by striking ``25
percent'' and inserting ``35 percent''.
(2) Third party contracts.--Clause (ii) is amended by
striking ``25 percent'' and inserting ``35 percent''.
SEC. 106. ENTREPRENEURS WITH DISABILITIES.
Section 7(m)(1)(A)(i) of the Small Business Act (15 U.S.C.
636(m)(1)(A)(i)) is amended by inserting ``disabled,'' before ``and
minority entrepreneurs''.
TITLE II--PRIME
SEC. 201. SHORT TITLE.
This title may be cited as the ``Program for Investment in
Microentrepreneurs Act'' or the ``PRIME Act''.
SEC. 202. PRIME.
The Small Business Act is amended--
(1) by redesignating section 37 as 99; and
(2) by inserting after section 36 the following:
``SEC. 37. PRIME PROGRAM.
``(a) Definitions.--For purposes of this section, the following
definitions shall apply:
``(1) Capacity building services.--The term `capacity
building services' means services provided to an organization
that is, or that is in the process of becoming, a
microenterprise development organization or program, for the
purpose of enhancing its ability to provide training and
services to disadvantaged entrepreneurs.
``(2) Disadvantaged entrepreneur.--The term `disadvantaged
entrepreneur' means a microentrepreneur that is--
``(A) a very low-income person;
``(B) a low-income person; or
``(C) an entrepreneur that lacks adequate access to
capital or other resources essential for business
success, or is economically disadvantaged, as
determined by the Administrator.
``(3) Collaborative.--The term `collaborative' means 2 or
more nonprofit entities that agree to act jointly as a
qualified organization under this section.
``(4) Indian tribe.--The term `Indian tribe' means any Indian
tribe, band, pueblo, nation, or other organized group or
community, including any Alaska Native village or regional or
village corporation, as defined in or established pursuant to
the Alaska Native Claims Settlement Act, which is recognized as
eligible for the special programs and services provided by the
United States to Indians because of their status as Indians.
``(5) Intermediary.--The term `intermediary' means a private,
nonprofit entity that seeks to serve microenterprise
development organizations and programs as authorized under
subsection (d).
``(6) Low-income person.--The term `low-income person' means
a person having an income, adjusted for family size, of not
more than--
``(A) for metropolitan areas, 80 percent of the area
median income; and
``(B) for nonmetropolitan areas, the greater of--
``(i) 80 percent of the area median income;
or
``(ii) 80 percent of the statewide
nonmetropolitan area median income.
``(7) Microentrepreneur.--The term `microentrepreneur' means
the owner or developer of a microenterprise.
``(8) Microenterprise.--The term `microenterprise' means a
sole proprietorship, partnership, or corporation that--
``(A) has fewer than 5 employees; and
``(B) generally lacks access to conventional loans,
equity, or other banking services.
``(9) Microenterprise development organization or program.--
The term `microenterprise development organization or program'
means a nonprofit entity, or a program administered by such an
entity, including community development corporations or other
nonprofit development organizations and social service
organizations, that provides services to disadvantaged
entrepreneurs.
``(10) Poverty line.--The term `poverty line' means the
official poverty line defined by the Office of Management and
Budget based on the most recent data available from the Bureau
of the Census. The Administrator shall revise annually (or at
any shorter interval the Administrator determines to be
feasible and desirable) the poverty line. The required revision
shall be accomplished by multiplying the official poverty line
by the percentage change in the Consumer Price Index for All
Urban Consumers during the annual or other interval immediately
preceding the time at which the revision is made.
``(11) Training and technical assistance.--The term `training
and technical assistance' means services and support provided
to disadvantaged entrepreneurs, such as assistance for the
purpose of enhancing business planning, marketing, management,
financial management skills, and assistance for the purpose of
accessing financial services.
``(12) Very low-income person.--The term `very low-income
person' means having an income, adjusted for family size, of
not more than 150 percent of the poverty line.
``(b) Establishment of Program.--The Administrator shall establish a
microenterprise technical assistance and capacity building grant
program to provide assistance from the Administration in the form of
grants to qualified organizations in accordance with this section.
``(c) Uses of Assistance.--A qualified organization shall use grants
made under this section--
``(1) to provide training and technical assistance to
disadvantaged entrepreneurs;
``(2) to provide training and capacity building services to
microenterprise development organizations and programs and
groups of such organizations to assist such organizations and
programs in developing microenterprise training and services;
``(3) to aid in researching and developing the best practices
in the field of microenterprise and technical assistance
programs for disadvantaged entrepreneurs; and
``(4) for such other activities as the Administrator
determines are consistent with the purposes of this section.
``(d) Qualified Organizations.--For purposes of eligibility for
assistance under this section, a qualified organization shall be--
``(1) a nonprofit microenterprise development organization or
program (or a group or collaborative thereof) that has a
demonstrated record of delivering microenterprise services to
disadvantaged entrepreneurs;
``(2) an intermediary;
``(3) a microenterprise development organization or program
that is accountable to a local community, working in
conjunction with a State or local government or Indian tribe;
or
``(4) an Indian tribe acting on its own, if the Indian tribe
can certify that no private organization or program referred to
in this paragraph exists within its jurisdiction.
``(e) Allocation of Assistance; Subgrants.--
``(1) Allocation of assistance.--
``(A) In general.--The Administrator shall allocate
assistance from the Administration under this section
to ensure that--
``(i) activities described in subsection
(c)(1) are funded using not less than 75
percent of amounts made available for such
assistance; and
``(ii) activities described in subsection
(c)(2) are funded using not less than 15
percent of amounts made available for such
assistance.
``(B) Limit on individual assistance.--No single
person may receive more than 10 percent of the total
funds appropriated under this section in a single
fiscal year.
``(2) Targeted assistance.--The Administrator shall ensure
that not less than 50 percent of the grants made under this
section are used to benefit very low-income persons, including
those residing on Indian reservations.
``(3) Subgrants authorized.--
``(A) In general.--A qualified organization receiving
assistance under this section may provide grants using
that assistance to qualified small and emerging
microenterprise organizations and programs, subject to
such rules and regulations as the Administrator
determines to be appropriate.
``(B) Limit on administrative expenses.--Not more
than 7.5 percent of assistance received by a qualified
organization under this section may be used for
administrative expenses in connection with the making
of subgrants under subparagraph (A).
``(4) Diversity.--In making grants under this section, the
Administrator shall ensure that grant recipients include both
large and small microenterprise organizations, serving urban,
rural, and Indian tribal communities serving diverse
populations.
``(5) Prohibition on preferential consideration of certain
sba program participants.--In making grants under this section,
the Administrator shall ensure that any application made by a
qualified organization that is a participant in the program
established under section 7(m) does not receive preferential
consideration over applications from other qualified
organizations that are not participants in such program.
``(f) Matching Requirements.--
``(1) In general.--Financial assistance under this section
shall be matched with funds from sources other than the Federal
Government on the basis of not less than 50 percent of each
dollar provided by the Administration.
``(2) Sources of matching funds.--Fees, grants, gifts, funds
from loan sources, and in-kind resources of a grant recipient
from public or private sources may be used to comply with the
matching requirement in paragraph (1).
``(3) Exception.--
``(A) In general.--In the case of an applicant for
assistance under this section with severe constraints
on available sources of matching funds, the
Administrator may reduce or eliminate the matching
requirement in paragraph (1).
``(B) Limitation.--Not more than 10 percent of the
total funds made available from the Administration in
any fiscal year to carry out this section may be
excepted from the matching requirement in paragraph
(1), as authorized by subparagraph (A).
``(g) Applications for Assistance.--An application for assistance
under this section shall be submitted in such form and in accordance
with such procedures as the Administrator shall establish.
``(h) Recordkeeping.--
``(1) In general.--A qualified organization receiving
assistance from the Administration under this section shall
keep such records, for such periods as may be prescribed by the
Administrator and necessary to disclose the manner in which any
assistance under this section is used and to demonstrate
compliance with the requirements of this section.
``(2) User profile information.--The Administrator shall
require each qualified organization receiving assistance from
the Administration under this section to compile such data, as
is determined to be appropriate by the Administrator, on the
gender, race, ethnicity, national origin, or other pertinent
information concerning individuals that utilize the services of
the assisted organization to ensure that targeted populations
and low-income residents of investment areas are adequately
served.
``(3) Access to records.--The Administrator shall have access
on demand, for the purpose of determining compliance with this
section, to any records of a qualified organization that
receives assistance from the Administration under this section.
``(4) Review.--Not less than annually, the Administrator
shall review the progress of each assisted organization in
carrying out its strategic plan, meeting its performance goals,
and satisfying the terms and conditions of its assistance
agreement.
``(5) Reporting.--
``(A) Annual reports.--The Administrator shall
require each qualified organization receiving
assistance from the Administration under this section
to submit an annual report to the Administrator on its
activities, its financial condition, and its success in
meeting performance goals, in satisfying the terms and
conditions of its assistance agreement, and in
complying with other requirements of this section, in
such form and manner as the Administrator shall
specify.
``(B) Availability of reports.--The Administrator,
after deleting or redacting any material as appropriate
to protect privacy or proprietary interests, shall make
such reports submitted under subparagraph (A) available
for public inspection.
``(i) Implementation.--The Administrator shall, by regulation,
establish such requirements as may be necessary to carry out this
section.''.
SEC. 203. CONFORMING REPEAL.
Subtitle C (15 U.S.C. 6901 et seq.) of title I of the Riegle
Community Development and Regulatory Improvement Act of 1994 is
repealed.
II. Purpose and Summary
The purpose of H.R. 3020, The Microloan Amendments and
Modernization Act (MAMA) is to encourage participation in the
microloan program by qualified intermediaries (technical
assistance providers and lenders) and aspiring entrepreneurs.
The bill must provide new tools while modernizing old ones so
that the program is better able to inform, educate and assist
early stage small businesses to start up, grow, and create
jobs. H.R. 3020 amends the program for the first time in eight
years and responds to observations about barriers to
participation indicated to the Committee by intermediaries/
lenders, business participants and academics who have studied
the program. The Small Business Administration (SBA), which
operates the program, is directed to help in this effort and to
work with the intermediaries to find a way to report the
repayment records of borrowers to major credit agencies and
expand their capital access options. In addition, the Committee
wants to move the Program for Investment in MicroEnterprise
(PRIME) into the Small Business Act merging the program's
authorization with most of the other programs run by the SBA.
To accomplish these purposes, H.R. 3020 encourages
increased borrower participation in a number of ways that help
aspiring entrepreneurs who might not qualify for credit under
other programs by allowing them greater benefit from the unique
microloan process. Also, it helps them by modernizing some of
microloan's provisions to reflect the realities of lending to
early stage small businesses in today's economy. First, the
bill would make changes to the terms that can be offered on
loans to allow more flexibility. The current statute requires
intermediary lenders to offer only ``short-term'' loans.
However, longer-term loans or revolving credit allowed by the
bill would permit microbusiness participants to have greater
latitude in managing their debt obligations, potentially
increasing their profitability. The taxpayers' interests are
still protected because the lender takes the first loss if the
loan fails. In addition, disabled borrowers will be
specifically identified as an intended beneficiary of
microloans in the ``purpose'' section of the statute, in the
same manner as current law recognizes women business owners,
minority business owners and other deserving groups. Finally,
SBA is directed to help ensure that repayment histories of the
program's borrowers are duly reported. Creating a reporting
mechanism, with the help of the SBA as directed by this bill,
would enhance the credit score of microloan participants,
permitting them to broaden their access to low-cost financing
thus spurring the opportunity for continued growth using
traditional capital sources.
H.R. 3020 promotes greater intermediary participation. It
modernizes the statutory ceiling on the ``average loan size''
so more intermediaries can qualify for the most favorable
interest rate (2 percent below federal borrowing rate on 5-year
Treasury notes) raising it to $10,000, the first raise since
the program's inception. The bill also will help to increase
the number of intermediaries that can meet the qualifications
to participate in the microloan program. H.R. 3020 sets out the
kind of equivalent lending and counseling experience that would
allow a well-trained employee to help a new non-profit
participant qualify as an intermediary.
In addition, existing restrictions on the use of technical
assistance funds are burdensome and can hurt an intermediary's
ability to deliver appropriate services to potential borrowers.
The bill raises the amount of the technical assistance grant
that can be used for this ``pre-loan'' assistance to 35 percent
from its current level of 25 percent. Similarly in certain
cases for start up businesses, outside training is absolutely
necessary to ensure that the borrower is completely prepared to
open a business. To cover this kind of contingency, the bill
raises the amount of the technical assistance grant used for
contracted assistance to 35 percent from 25 percent.
Finally, H.R. 3020 moves the entire PRIME initiative into
the Small Business Act. The move should have no direct impact
on the operation of the program which is already administered
by the SBA, but it does clarify that the SBA has authority to
administer the PRIME program. Consolidating the elements of
microenterprise assistance programs in one place and makes it
easier for the Committee to oversee these initiatives in the
future.
III. Background and Need for Legislation
The SBA makes available small loans and technical
assistance to very small, low-income businesses through the
SBA's microloan program and technical assistance grants\1\ and
the PRIME. These initiatives form a significant portion of the
lending and assistance available to such businesses from any
source in the United States though private sources for
microlending are available.\2\ The microloan program targets
loans to underserved low-income entrepreneurs using non-profit
intermediaries who also provide the technical assistance.
Overall, the program has experienced very few defaults from
intermediary lenders and few defaults from borrowers. This kind
of lending is necessary because of a gap in affordable capital
that is available to very small, unproven businesses. Banks do
not provide credit to individuals unless they have sufficient
assets to protect the lender's assets. Even SBA's guaranteed
loan program requires adequate amounts of collateral and a
reasonable credit score. Other starters of small businesses use
expensive credit card borrowing to start their businesses. But
this alternative is not available to certain classes of
entrepreneurs. For those budding entrepreneurs, the only
available alternative is frequently a microloan--a small loan
provided by non-profit institutions. Microlending and technical
assistance for these businesses has received strong support
over the years from the business community and Congress which
has continued to fund the programs despite administration
proposals to scale back or eliminate them. In fact, as a
background to the consideration of this bill, the Executive
Branch has proposed significant changes to the microloan
program and has once again proposed eliminating the PRIME
program for FY 2008. Citing redundancy and the cost of
providing assistance with each loan, the administration
proposal would fund microloans by increasing the interest paid
by the intermediaries on federal funds and ultimately paid by
the small business borrowers. Technical assistance funds would
be eliminated from both microloan Program and PRIME but
borrowers or potential borrowers could seek assistance from
existing economic development partners, as in fact they can
now, including the Small Business Development Centers (SBDCs),
Women's Business Centers (WBCs), and SCORE.
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\1\ Sec. 7(m) of the Small Business Act; 15 U.S.C. Sec. 636(m)
\2\ Elaine Edgecomb of the FIELD program at the Aspen Institute
says there are about 554 microfinance programs in the U.S. of which 230
are lenders. Directory of U.S. Micro-Enterprise Programs (Field 2002).
---------------------------------------------------------------------------
Microloan program----
Congress created a microloan program in 1991 by adding
Sec. 7(m) to the Small Business Act.\3\ The program makes funds
available to nonprofit, community-based lenders who in turn
make very small loans to eligible borrowers--mainly higher-
risk, fledgling entrepreneurs, whose businesses generally serve
their local communities. While the overall set of
microenterprises numbers in the millions, and one in six
employees in the United States works for a microenterprise,\4\
businesses using the microloan program are different because
they can not access affordable credit. These borrowers may be
unable to get a traditional loan due to poor credit scores, no
credit history, or a lack of business experience. As
structured, the program reaches various important demographic
groups that have not traditionally been well-served by the
private sector lends or even the SBA's 7(a) program. For
example, microloans have been a source of capital for low-
income women business owners (who receive about 44 percent of
the loans) and minority borrowers (who receive over 50 percent
of the loans.) Also, the loans tend to be geographically
diverse. In the United States, roughly one-third of the
microloans are made in rural areas.
---------------------------------------------------------------------------
\3\ P.L. 102-140, approved October 28, 1991 as a Demonstration
Program. The designation ``demonstration'' was removed by P.L. 105-135
approved Dec. 2, 1997.
\4\ See the table compiled by the Office of Advocacy, SBA--http://
www.sba.gov/advo/research/us88_04.pdf. The amount is the total
employees in firms with fewer than 5 employees plus all firms with 0
employees.
---------------------------------------------------------------------------
The mechanics of the program are straightforward. SBA makes
10-year loans of up to $750,000 to intermediaries who, in turn,
make very small loans of less than $35,000 for less than 6
years. If a loan is needed (in some cases a loan may be
inadvisable) interest rates to the borrower can vary from 8
percent to 13 percent in the current market. The alternative
for many businesses at this level is significantly higher
credit card interest rates, or personal loan rates which
decrease the chance for survival and growth. The average loan
for the program is about $13,000 and the funds can be used for
any business purpose though, due to the small amount, the
proceeds generally go to the essentials. Most times, additional
funds are contingent upon the repayment of the previous loan,
helping a new business to move along one step at a time. Some
lenders use peer-review with groups of entrepreneurs working
together to help businesses; others use trained staff even
supplemented by third parties to help with strategy and
business planning. Over 98 percent of the loans have been
repaid, a similar percentage to most commercial institutions
which lend to businesses with much higher credit scores.\5\ The
United States microloan intermediaries have loaned to 26,000
small business owners over the years and created more than
64,000 jobs since the program started. In 2006, SBA reports
that micro-loans created or retained about 10,000 jobs and
leveraged roughly $30 million in loans when the funds
intermediaries obtain from other sources are included.\6\
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\5\ Testimony of Elaine Edgecomb, FIELD Project, The Aspen
Institute, before the Committee on Small Business, U.S. House of
Representatives, Washington, DC, June 14, 2007.
\6\ Testimony of Friends of the SBA Microloan Program, submitted
for the record to the Committee on Small Business, U.S. House of
Representatives, Washington, DC, June 14, 2007, p. 1.
---------------------------------------------------------------------------
Congress and private financial institutions recognized the
value of this program long ago and its adaptation to our
economy to help low income communities and borrowers has been a
strong success. The federal government has supported the
concept of micro-lending abroad and it contributes millions of
dollars in foreign aid that is used in international
microlending programs.\7\ Indeed, in one of its earliest acts
after the fall of Saddam Hussein, the Coalition Provisional
Authority set up a $17 million direct micro-loan fund
specifically available to Iraqi entrepreneurs.\8\
---------------------------------------------------------------------------
\7\ Debate Stirs Over Tiny Loans for World's Poorest, Cecelia
Dugger, New York Times, April 29, 2004, pg. 1, ``Over $2 billion
appropriated by Congress for micro credit programs since 1988''.
\8\ See Coalition Provision Authority Statement of Services and
Programs for Economic Development; http://www.cpa_iraq.org/economy/
priv_sect_dvlpt.html.
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Program for investment in Micro-Entrepreneurs (PRIME)
The PRIME allows SBA to award grants to non-profit,
microenterprise development organizations, programs,
collaborators, or intermediaries. These funds can be used by an
organization to provide much-needed training and technical
assistance to low-income and disadvantaged entrepreneurs
interested in starting or expanding their own businesses. They
also can be used to engage in capacity building activities
targeted to micro-enterprise development organizations that
serve low-income and disadvantaged entrepreneurs. PRIME is
distinguished from other technical assistance support programs
because it is not tied to a loan. In solely providing
entrepreneurial development training programs, PRIME often is
able to assist low-income small business owners with managing
their capital needs without taking on unnecessary burdens. This
function--while often overlooked--is essential to the growth of
entrepreneurs in low-income communities. By providing marketing
assistance or business structure and operation advice that
helps plug the entrepreneur into the community an extended
source of supporters and advisors are tapped that are available
to help the business over the long haul.
Addressing the problems in the Microloan program
H.R. 3020 amends the SBA's microloan program in section
7(m) to address and correct problems that the Committee has
identified as creating barriers to the participation of
borrowers, potential borrowers and intermediaries. In addition,
it modernizes some of its provisions to reflect what the
Committee found were the realities of lending to early stage
small businesses in today's economy. It also moves the PRIME
program into the Small Business Act to allow for stronger,
direct administration.
Credit Reporting.--The SBA is directed to help ensure that
repayment histories are duly reported. Under the current
system, if a borrower successfully repays an SBA microloan, as
the vast majority do, repayment information is oftentimes not
conveyed to credit reporting agencies. Intermediary lenders
have too small a volume of loans to qualify for reporting with
the major reporters. Creating a reporting mechanism, with the
help of the SBA as directed by this bill, would enhance the
credit score of microbusiness owners, broadening their access
to low-cost financing thus spurring continued growth through
traditional capital sources.
More Flexible Lending Terms.--H.R. 3020 encourages borrower
participation by increasing benefits from the unique microloan
process. The bill makes changes to the terms that can be
offered on loans to allow more flexibility. Intermediary
lenders must offer ``short-term'' loans under the current
program structure, even though more flexibility for longer
terms or revolving credit loans might better reflect the needs
of the borrowers and enhance the suitability of their loans.
Longer-term loans would permit microloan recipients to have
greater latitude in managing their debt obligations,
potentially increasing their profitability. Lenders play a
larger role in adjusting the terms to meet the specific needs
of the borrower. The taxpayers' interests are still protected
because the lender will take the first loss if the loan fails.
Experienced Intermediaries.--To increase the number of
intermediaries that can demonstrate the expertise necessary to
participate in the microloan program the bill adjusts
eligibility requirements. Current requirements to qualify as a
microloan intermediary are too restrictive and can bar suitable
participants who have significant, equivalent microlending
experience. Some areas that could use this kind of program do
not have qualified intermediaries that know the local markets
denying businesses the opportunity to participate. In some
cases, communities that want the program must wait until a non-
profit group can accumulate the experience necessary to
qualify. The Microloan Amendments and Modernization Act sets
out the kind of equivalent experience that would allow a well-
trained employee with significant expertise to help a new
intermediary qualify for the microloan program. Microloan
programs will be able to start lending more quickly while still
ensuring that the technical advisers are well-trained.
Average Loan Size.--One criticism that has been leveled at
the program is that it is unsustainable. Ultimately, such a
structure might discourage non-profit groups who would have
liked to participate because they are simply required to
struggle too much to keep the program going. For example some
of the thresholds provided in the law that apply to the money
the intermediaries get and lend have not been raised since the
program's inception. Congress set $7500 as the average loan
size and if an intermediary's average loan was below that
amount, it could qualify for funds at the most favorable rate
(currently 2% under the 5 year Treasury Bill rate). Raising
these thresholds to $10,000 helps keep the cost of borrowing
low for intermediaries and provides a level that encourages
greater intermediary (lender) participation. The program is
more reasonable and useful to them. The higher threshold
reflects inflation as well as the growing capital needs of even
low income microbusinesses, and answers a common complaint from
the microlending community.
Expanded Use for Technical Assistance Grants.--Existing
restrictions on the use of technical assistance funds are
burdensome and can hurt an intermediary's ability to deliver
appropriate services to potential borrowers. For example,
intermediaries are not allowed to use as much of the funds as
they need to work with potential borrowers who may ultimately
be advised that they do not need a loan. In some circumstances
only one loan is made for every 10 aspiring business owners who
receive counseling. Such assistance is still considered
valuable to ensure that an entrepreneur is not encouraged to
take on debt that is unnecessary. The bill raises the amount of
the technical assistance grant that can be used for this ``pre-
loan'' assistance to 35 percent. Similarly, the limits on grant
funds used to hire third party contractors that provide
specialized technical assistance to borrowers have also proved
too restrictive. There are cases where outside training is
absolutely necessary to ensure that the borrower is completely
prepared to open a business; this can include licensing
requirements or information about local environment or zoning
restrictions. To cover this kind of contingency, the bill
raises the amount of the technical assistance grant that can be
used for contracted assistance to 35 percent. Setting these
percentages at a reasonable level encourages participation of
good intermediaries and ensures that businesses get the advice
they need.
Entrepreneurs With Disabilities.--Current law lists a host
of purposes for the microloan program. Though it is not an
exclusive list it does guide the operation of the program. The
list includes women, low-income, veteran and minority business
owners specifically. H.R. 3020 adds disabled entrepreneurs to
this category. The program's participants have identified the
disabled as a group that can use more of this type of
assistance and the microloan system is one tool that can
provide them with self-employment as an option for their
financial independence.
PRIME Incorporated Into the Small Business Act.--Finally,
Title II of the Microloan Amendments and Modernization Act
moves the entire PRIME into the Small Business Act. This simply
removes the PRIME from its current location isolated in the
United States Code as an adjunct to the Riegle Community
Development and Regulatory Improvement Act of 1994\9\ and adds
it as an amendment to the Small Business Act to include its
provisions. The move should have no direct impact on the
operation of the program which is already administered by the
SBA, but it does clarify that the SBA has authority to
administer the PRIME program. The move consolidates the
elements of microenterprise assistance programs in one place
and makes it easier for the Committee to oversee these
initiatives in the future. The moving of the PRIME Act was done
in consultation with the Financial Services Committee.
---------------------------------------------------------------------------
\9\ 15 U.S.C. Section 6901 et seq.
---------------------------------------------------------------------------
CONCLUSION
The Microloan Improvements and Modernization Act provides
solid improvements to an already strong program for underserved
but deserving and determined entrepreneurs. It builds on the
strengths of the existing programs and removes some of the
small but frustrating barriers that have prevented small
businesses from fully utilizing these SBA programs.
Entrepreneurs are given the tools they need to succeed without
unduly burdening taxpayers.
IV. Hearings
In the 110th Congress, the full Committee on Small Business
held a hearing on June 14th, 2007 on the challenges facing the
microloan program. Janet Tasker, the Deputy Associate
Administrator of the SBA for Capital Access, provided the
administration's plans for the future of the program and facts
and data on the program's accomplishments. SBA strongly
supported the capital access mission of the program but
outlined plans to reduce the government investment by raising
the cost of borrowing and eliminating technical assistance
grants moving the counseling to the SBDC, WBC and SCORE
programs. Also appearing was Ms. Lisa J. Servon--Associate
Professor, The New School, New York. She testified that the
microloan concept is worthy of government support but suggested
that for its long term sustainability, Congress should be
thinking of innovative ways to strengthen the program. Daniel
Betancourt, CEO of Community First Fund in Lancaster, PA and
Chairman of the Association for Enterprise Opportunity spoke
about the changes intermediaries want and the differences
between the 7(a) program and microloan program for lenders (his
company does both). A borrower testifying was Edward ``Champ''
Hall, owner of Champ Hall's Barber Shop and Barber College,
Lancaster City, PA. After not being able to find any other loan
funds to start a business, Mr. Hall used microloans to renovate
and open a barber shop. He received technical assistance under
the program and was successful enough to open a barber school
(with a new loan) and employ six people. Finally Elaine
Edgcomb, Director of the FIELD Study of the Aspen Institute
testified that the microloan program when analyzed for its
economic value to the community (rather than just its cost) is
very reasonable. She argued that the government has a role to
play in this kind of lending and that job creation, community
support, and intense technical assistance that trains a good
business must be taken into account to offset some program
costs. Testimony was also submitted by the ``Friends of the SBA
Microloan Program'' in strong support of amending and
reauthorizing the program.
On July 12, 2007 the full Committee held a hearing on H.R.
3020, the Microloan Amendments and Modernization Act, which was
attended by the Associate Administrator of the SBA for Capital
Access, Dr. Michael Hager, who provided the administration's
views on H.R. 3020. In addition, three witnesses were invited
to speak directly to the impact of the legislation on the
microloan program. Kristie Darien, the Executive Director of
the National Association of the Self Employed explained that
her association is made up of very tiny businesses and their
main complaint is that they have a very difficult time
obtaining affordable capital. NASE strongly supports
modernizing (and reauthorizing) the microloan program. Mr.
Kevin Kelly of the Association of Enterprise Organizations
testified that his members fully supported the amendments that
raised the thresholds to recognize the impact of inflation and
reduced the barriers for finding qualified intermediaries.
Finally, Dr. Cordero-Guzman of Baruch College, CUNY, presented
the highlights of his recent study that found that microlending
can be a very valuable tool for starting small businesses. He
also found that such programs are not economically sustainable
as of yet in the United States without grants or contributions.
Therefore, the government has a role to play in organizing and
keeping the program going because of its benefits.
V. Committee Consideration
The Committee on Small Business met in open session on July
19, 2007 to consider H.R. 3020 and any amendments.
VI. Committee Votes
The bill, H.R. 3020, the Microloan Amendments and
Modernization Act was marked up by the Committee on Small
Business on July 19, 2007. The Committee accepted an amendment
in the nature of a substitute offered by Chairwoman Velazquez
by voice vote at 10:23 a.m. No further amendments were offered.
The bill was ordered reported as amended to the House of
Representatives by a voice vote at 10:25 a.m.
VII. Section-by-Section Analysis of the Small Energy Efficient Business
Act--H.R. 3020
Section 1
This section entitles the bill the Microloan Amendments and
Modernization Act and sets out a table of contents.
TITLE I--MICROLOAN PROGRAM
Section 101. Transmission of credit scores
The SBA must facilitate the transmission of credit
reporting information by establishing a process so that
intermediaries can provide information about borrowers' payment
records to major credit reporting agencies. Successful
borrowers should benefit from their good repayment records and
thus, through market forces, expand their access to affordable
capital. However, it is clear that most intermediaries conduct
too few credit transactions to qualify for such reporting. To
overcome this, the SBA will need to help the intermediaries in
the program devise a method of providing and recording such
records with the credit agencies. Whether this can best be
accomplished by the SBA aggregating such data for reporting or
by negotiating agreements for the intermediaries to collect the
necessary information and report directly with credit agencies
is left to the discretion of the SBA.
Section 102. Flexible credit
The words ``short-term'' are removed from description of
loans in Sec. 7(m) of the Small Business Act. The intermediary
and the borrower should be able to tailor the appropriate terms
for the loan that meet the specific needs and sophistication of
the borrower. Greater flexibility ultimately allows the
borrower greater control in managing debt obligations and
possibly enhanced profitability. The federal interest is
protected because the intermediary is also at risk and
therefore has a strong interest is agreeing to terms that are
best for the borrower (to ensure full repayment) and the
intermediary/lender (who would be the first to absorb any
loss).
Section 103. Intermediary eligibility requirements
The eligibility requirements for intermediaries are
broadened to include consideration of equivalent experience of
employees in the determination of program eligibility. This
section adds that an intermediary can qualify for the program
if it has a full time employee who has 3 years of microlending
experience and 1 year of providing technical assistance
including marketing and management. This is an alternative to
the intermediary organization itself having direct experience,
the current statutory requirement. The intent of this provision
is to increase the number of intermediaries that can qualify
for the program with no reduction in the quality and
experience. If an aspiring intermediary (generally a non-profit
organization) has no direct experience in microlending and
technical assistance then it can hire trained employees with
considerable, equivalent experience and still qualify.
Section 104. Average loan size
This section makes changes to three provisions of the
microloan program increasing the threshold size for certain
benefits and requirements. It raises the threshold for average
loan size on loans made by an intermediary from $7,500 to
$10,000. Under this new threshold, if the intermediary's
average loan size is below $10,000 it can receive the most
favorable interest rate available on funds from the federal
government (2 percent below the 5 year Treasury Bill rate).
This section also raises the threshold for loans on which
intermediaries can charge a higher rate up to $10,000 from
$7,500. These thresholds, which have been frozen at the $7,500
level for a decade, are being raised to reflect inflation and
the realities of operating the microloan program.
Section 105. Technical assistance
Pre-loan.--The bill proposes to increase the amount of
assistance that micro-intermediaries can provide to would-be
entrepreneurs using funds from their federal technical
assistance grants. Oftentimes microentrepreneurs need training,
financial education and guidance before they can become good
borrowers and many who are counseled in this way ultimately do
not apply for or obtain loans. It is important to continue to
support this pre-loan advice that has a substantial value to
low-income entrepreneurs. Raising the amount of the grant money
that can be used for this purpose to 35% will facilitate this
specialized counseling.
Third party contract.--Also, this section of the bill
increases the percentage of the technical assistance grant that
can be spent on third party contractors that provide
appropriate counseling and other services. As an integral part
of starting a business, an entrepreneur may need some
specialized training, financial education or counseling in
preparation for receiving a loan. For example, the borrower may
need the benefit of expertise on licensing requirements or
local permitting and regulations that a general counselor
cannot provide. It is intended that up to 35% of the funds from
the technical assistance grant can be used by the intermediary
to procure the services of third party contractors to meet the
specialized needs of the borrower.
Section 106. Entrepreneurs with disabilities
The word ``disabled'' is added to the list of types of
entrepreneurs in the Act's ``purposes'' section that the
microloan intermediaries should try to help. While it is not
intended to be an exclusive list, it will be beneficial to the
operation of the program to state specifically that
intermediaries should give full consideration to disabled loan
applicants that might benefit from starting a small,
independent business they can operate themselves. The microloan
program provides them another important option for their
financial future. Though the current law does not prohibit such
consideration, the microloan program can fill a particular need
in this case and therefore it warrants a specific statutory
enumeration alongside other deserving categories already
listed.
TITLE 2--PROGRAM FOR INVESTMENT IN MICRO-ENTREPRENEURS (PRIME)
Title 2 removes the PRIME from its current location,
isolated in the U.S. Code as an adjunct to the Riegle Community
Development and Regulatory Improvement Act of 1994 (15 U.S.C.
6901 et seq.), and amends the Small Business Act to include its
provisions. PRIME has been operated for a decade by the
Administrator and the SBA as required by law. It is important
that its provisions be put into the Small Business Act, which
contains other laws, programs and Congressional directions for
the SBA, and thus avoid confusion about PRIME's purposes and
intended beneficiaries. The Committee also believes that the
move facilitates the oversight of the program by the Committee
and its review as part of the SBA's regular reauthorization
process.
VIII. Congressional Budget Office Cost Estimate
July 26, 2007.
Hon. Nydia M. Velazquez,
Chairwoman, Committee on Small Business, House of Representatives,
Washington, DC.
Dear Madam Chairwoman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 3020, the
Microloan Amendments and Modernization Act.
If you wish further details on this estimate, we will be
pleased to provide them.
The CBO staff contact is Susan Willie, who can be reached
at 226-2860.
Sincerely,
Peter R. Orszag.
Enclosure.
H.R. 3020--Microloan Amendments and Modernization Act
Summary: H.R. 3020 would reauthorize the Program for
Investment in Microentrepreneurs (PRIME) under the Small
Business Act and make several changes to the Small Business
Administration's (SBA's) microloan program. CBO estimates that
implementing H.R. 3020 would cost less than $500,000 in 2008
and $7 million over the 2008-2012 period, assuming
appropriation of the necessary amounts. Enacting H.R. 3020
would not affect direct spending or revenues.
H.R. 3020 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA)
and would benefit tribal governments.
Estimated cost to the Federal Government: The estimated
budgetary impact of H.R. 3020 is shown in the following table.
The costs of this legislation fall within budget function 370
(commerce and housing credit).
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-----------------------------------------------
2007 2008 2009 2010 2011 2012
----------------------------------------------------------------------------------------------------------------
SPENDING SUBJECT TO APPROPRIATION
Spending Under Current Law:
Budget Authority \1\........................................ 2 0 0 0 0 0
Estimated Outlays........................................... 1 2 1 0 0 0
Proposed Changes:
Estimated Authorization Level............................... 0 2 2 2 2 2
Estimated Outlays........................................... 0 * 1 2 2 2
Spending Under H.R. 3020:
Estimated Authorization Level \1\........................... 2 2 2 2 2 2
Estimated Outlays........................................... 1 2 2 2 2 2
----------------------------------------------------------------------------------------------------------------
\1\ The 2007 level is the amount appropriated for technical assistance grants under the PRIME program.
Note.--* = less than $500,000.
Basis of estimate: For this estimate, CBO assumes that the
bill will be enacted near the start of fiscal year 2008, the
necessary amounts will be appropriated for each year, and that
spending will follow historical patterns.
The PRIME program provides grants to nonprofit
organizations to provide technical assistance to low-income
owners of very small businesses (five employees or less).
Although no specific amounts are authorized in the bill, CBO
expects that annual appropriations for the PRIME program would
continue over the 2008-2012 period equal to the amount
appropriated in 2007, adjusted for inflation. The Congress
appropriated $2 million for technical assistance grants under
the PRIME program in 2007. Assuming appropriation of the
necessary amounts, CBO estimates that this provision would cost
less than $500,000 in 2008 and $7 million over the 2008-2012
period.
Under current law, nonprofit lending organizations that
make loans that average $7,500 or less under SBA's microloan
program are eligible to receive an interest rate reduction of
75 basis points below the interest rate charged to
intermediaries making higher value loans.
H.R. 3020 would increase the maximum loan amount eligible
for the interest rate reduction to $10,000. Because more loans
could receive a lower interest rate under the bill, CBO expects
that this provision would lead to a minor increase in the
subsidy rate for the microloan program. Because of the small
volume of such loans, however, we estimate that the increased
cost of this provision would be less than $500,000 a year.
Intergovernmental and private-sector impact: H.R. 3020
contains no intergovernmental or private-sector mandates as
defined in UMRA. The bill would authorize grants to tribal
governments for microenterprise development. Any costs that
those entities would incur would result from complying with
conditions of federal assistance.
Estimate prepared by: Federal Costs: Susan Willie; Impact
on State, Local, and Tribal Governments: Elizabeth Cove; Impact
on the Private Sector: Jacob Kuipers.
Estimate approved by: Peter H. Fontaine, Deputy Assistant
Director for Budget Analysis.
IX. Committee Estimate of Costs
Clause 3(d)(2) of rule XIII of the Rules of the House of
Representatives requires an estimate and a comparison by the
Committee of the costs that would be incurred in carrying out
H.R. 2389. However, clause 3(d)(3)(B) of that rule provides
that this requirement does not apply when the Committee has
included in its report a timely submitted cost estimate of the
bill prepared by the Director of the Congressional Budget
Office under section 402 of the Congressional Budget Act.
X. Oversight Findings
In accordance with clause (2)(b)(1) of rule X of the Rules
of the House of Representatives, the oversight findings and
recommendations of the Committee on Small Business with respect
to the subject matter contained in H.R. 3020 are incorporated
into the descriptive portions of this report.
XI. Statement of Constitutional Authority
Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee finds the authority for
this legislation in Article I, Section 8, clause 18, of the
Constitution of the United States.
XII. Compliance With Public Law 104-4
H.R. 3020 contains no unfunded mandates.
XIII. Congressional Accountability Act
H.R. 3020 does not relate to the terms and conditions of
employment or access to public services or accommodations with
the meaning of section 102(b)(3) of P.L. 104-1.
XIV. Federal Advisory Committee Statement
H.R. 3020 does not establish or authorize the establishment
of any new advisory committees.
XV. Statement of No Earmarks
Pursuant to clause 9 of rule XXI, H.R. 3020 does not
contain any congressional earmarks, limited tax benefits, or
limited tariff benefits as defined in clause 9(d), 9(e), or
9(f) of rule XXI.
XVI. Performance Goals and Objectives
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, the Committee establishes the
following performance related goals and objectives for this
legislation:
H.R. 3020 includes a number of provisions designed to
update and to improve the Small Business Administration's
microloan lending and technical assistance programs which
specializes in the delivery of such assistance to very small,
fledgling businesses. It incorporates the existing PRIME
initiative into the Small Business Act, but makes no changes to
the program which is also currently operated by the SBA.
XVII. Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
SMALL BUSINESS ACT
* * * * * * *
Sec. 7.(a) * * *
* * * * * * *
(m) Microloan Program.--
(1)(A) Purposes.--The purposes of the Microloan
Program are--
(i) to assist women, low-income, veteran
(within the meaning of such term under section
3(q)), disabled, and minority entrepreneurs and
business owners and other individuals
possessing the capability to operate successful
business concerns;
* * * * * * *
(B) Establishment.--There is established a microloan
program, under which the Administration may--
(i) make direct loans to eligible
intermediaries, as provided under paragraph
(3), for the purpose of making [short-term,]
fixed interest rate microloans to startup,
newly established, and growing small business
concerns under paragraph (6);
* * * * * * *
(2) Eligibility for participation.--An intermediary
shall be eligible to receive loans and grants under
subparagraphs (B)(i) and (B)(ii) of paragraph (1) if
it--
(A) meets the definition in [paragraph (10)]
paragraph (11); and
[(B) has at least 1 year of experience making
microloans to startup, newly established, or
growing small business concerns and providing,
as an integral part of its microloan program,
intensive marketing, management, and technical
assistance to its borrowers.]
(B) has--
(i) at least--
(I) 1 year of experience
making microloans to startup,
newly established, or growing
small business concerns; or
(II) 1 full-time employee who
has not less than 3 years
experience making microloans to
startup, newly established, or
growing small business
concerns; and
(ii) at least 1 year of experience
providing, as an integral part of its
microloan program, intensive marketing,
management, and technical assistance to
its borrowers.
(3) Loans to intermediaries.--
(A) * * *
* * * * * * *
(F) Loan duration; interest rates.--
(i) * * *
* * * * * * *
(iii) Rates applicable to certain
small loans.--Loans made by the
Administration to an intermediary that
makes loans to small business concerns
and entrepreneurs averaging not more
than [$7,500] $10,000, shall bear an
interest rate that is 2 percentage
points below the rate determined by the
Secretary of the Treasury for
obligations of the United States with a
period of maturity of 5 years, adjusted
to the nearest one-eighth of 1 percent.
* * * * * * *
(4) Marketing, management and technical assistance
grants to intermediaries.--Grants made in accordance
with subparagraph (B)(ii) of paragraph (1) shall be
subject to the following requirements:
(A) * * *
* * * * * * *
(E) Assistance to certain small business
concerns.--
(i) In general.--Each intermediary
may expend an amount not to exceed [25
percent] 35 percent of the grant funds
received under paragraph (1)(B)(ii) to
provide information and technical
assistance to small business concerns
that are prospective borrowers under
this subsection.
(ii) Technical assistance.--An
intermediary may expend not more than
[25 percent] 35 percent of the funds
received under paragraph (1)(B)(ii) to
enter into third party contracts for
the provision of technical assistance.
* * * * * * *
(6) Loans to small business concerns from eligible
intermediaries.--
(A) * * *
* * * * * * *
(C) Interest limit.--Notwithstanding any
provision of the laws of any State or the
constitution of any State pertaining to the
rate or amount of interest that may be charged,
taken, received, or reserved on a loan, the
maximum rate of interest to be charged on a
microloan funded under this subsection shall
not exceed the rate of interest applicable to a
loan made to an intermediary by the
Administration--
(i) in the case of a loan of more
than [$7,500] $10,000 made by the
intermediary to a small business
concern or entrepreneur by more than
7.75 percentage points; and
(ii) in the case of a loan of not
more than [$7,500] $10,000 made by the
intermediary to a small business
concern or entrepreneur by more than
8.5 percentage points.
* * * * * * *
(11) Definitions.--For purposes of this subsection--
(A) * * *
(B) the term ``microloan'' means a [short-
term,] fixed rate loan of not more than
$35,000, made by an intermediary to a startup,
newly established, or growing small business
concern;
* * * * * * *
(14) Credit reporting information.--The Administrator
shall establish a process, for use by a lender making a
loan to a borrower under this subsection, under which
the lender provides to the major credit reporting
agencies the information about the borrower that is
relevant to credit reporting, such as the payment
activity of the borrower on the loan.
* * * * * * *
SEC. 37. PRIME PROGRAM.
(a) Definitions.--For purposes of this section, the following
definitions shall apply:
(1) Capacity building services.--The term ``capacity
building services'' means services provided to an
organization that is, or that is in the process of
becoming, a microenterprise development organization or
program, for the purpose of enhancing its ability to
provide training and services to disadvantaged
entrepreneurs.
(2) Disadvantaged entrepreneur.--The term
``disadvantaged entrepreneur'' means a
microentrepreneur that is--
(A) a very low-income person;
(B) a low-income person; or
(C) an entrepreneur that lacks adequate
access to capital or other resources essential
for business success, or is economically
disadvantaged, as determined by the
Administrator.
(3) Collaborative.--The term ``collaborative'' means
2 or more nonprofit entities that agree to act jointly
as a qualified organization under this section.
(4) Indian tribe.--The term ``Indian tribe'' means
any Indian tribe, band, pueblo, nation, or other
organized group or community, including any Alaska
Native village or regional or village corporation, as
defined in or established pursuant to the Alaska Native
Claims Settlement Act, which is recognized as eligible
for the special programs and services provided by the
United States to Indians because of their status as
Indians.
(5) Intermediary.--The term ``intermediary'' means a
private, nonprofit entity that seeks to serve
microenterprise development organizations and programs
as authorized under subsection (d).
(6) Low-income person.--The term ``low-income
person'' means a person having an income, adjusted for
family size, of not more than--
(A) for metropolitan areas, 80 percent of the
area median income; and
(B) for nonmetropolitan areas, the greater
of--
(i) 80 percent of the area median
income; or
(ii) 80 percent of the statewide
nonmetropolitan area median income.
(7) Microentrepreneur.--The term
``microentrepreneur'' means the owner or developer of a
microenterprise.
(8) Microenterprise.--The term ``microenterprise''
means a sole proprietorship, partnership, or
corporation that--
(A) has fewer than 5 employees; and
(B) generally lacks access to conventional
loans, equity, or other banking services.
(9) Microenterprise development organization or
program.--The term ``microenterprise development
organization or program'' means a nonprofit entity, or
a program administered by such an entity, including
community development corporations or other nonprofit
development organizations and social service
organizations, that provides services to disadvantaged
entrepreneurs.
(10) Poverty line.--The term ``poverty line'' means
the official poverty line defined by the Office of
Management and Budget based on the most recent data
available from the Bureau of the Census. The
Administrator shall revise annually (or at any shorter
interval the Administrator determines to be feasible
and desirable) the poverty line. The required revision
shall be accomplished by multiplying the official
poverty line by the percentage change in the Consumer
Price Index for All Urban Consumers during the annual
or other interval immediately preceding the time at
which the revision is made.
(11) Training and technical assistance.--The term
``training and technical assistance'' means services
and support provided to disadvantaged entrepreneurs,
such as assistance for the purpose of enhancing
business planning, marketing, management, financial
management skills, and assistance for the purpose of
accessing financial services.
(12) Very low-income person.--The term ``very low-
income person'' means having an income, adjusted for
family size, of not more than 150 percent of the
poverty line.
(b) Establishment of Program.--The Administrator shall
establish a microenterprise technical assistance and capacity
building grant program to provide assistance from the
Administration in the form of grants to qualified organizations
in accordance with this section.
(c) Uses of Assistance.--A qualified organization shall use
grants made under this section--
(1) to provide training and technical assistance to
disadvantaged entrepreneurs;
(2) to provide training and capacity building
services to microenterprise development organizations
and programs and groups of such organizations to assist
such organizations and programs in developing
microenterprise training and services;
(3) to aid in researching and developing the best
practices in the field of microenterprise and technical
assistance programs for disadvantaged entrepreneurs;
and
(4) for such other activities as the Administrator
determines are consistent with the purposes of this
section.
(d) Qualified Organizations.--For purposes of eligibility for
assistance under this section, a qualified organization shall
be--
(1) a nonprofit microenterprise development
organization or program (or a group or collaborative
thereof) that has a demonstrated record of delivering
microenterprise services to disadvantaged
entrepreneurs;
(2) an intermediary;
(3) a microenterprise development organization or
program that is accountable to a local community,
working in conjunction with a State or local government
or Indian tribe; or
(4) an Indian tribe acting on its own, if the Indian
tribe can certify that no private organization or
program referred to in this paragraph exists within its
jurisdiction.
(e) Allocation of Assistance; Subgrants.--
(1) Allocation of assistance.--
(A) In general.--The Administrator shall
allocate assistance from the Administration
under this section to ensure that--
(i) activities described in
subsection (c)(1) are funded using not
less than 75 percent of amounts made
available for such assistance; and
(ii) activities described in
subsection (c)(2) are funded using not
less than 15 percent of amounts made
available for such assistance.
(B) Limit on individual assistance.--No
single person may receive more than 10 percent
of the total funds appropriated under this
section in a single fiscal year.
(2) Targeted assistance.--The Administrator shall
ensure that not less than 50 percent of the grants made
under this section are used to benefit very low-income
persons, including those residing on Indian
reservations.
(3) Subgrants authorized.--
(A) In general.--A qualified organization
receiving assistance under this section may
provide grants using that assistance to
qualified small and emerging microenterprise
organizations and programs, subject to such
rules and regulations as the Administrator
determines to be appropriate.
(B) Limit on administrative expenses.--Not
more than 7.5 percent of assistance received by
a qualified organization under this section may
be used for administrative expenses in
connection with the making of subgrants under
subparagraph (A).
(4) Diversity.--In making grants under this section,
the Administrator shall ensure that grant recipients
include both large and small microenterprise
organizations, serving urban, rural, and Indian tribal
communities serving diverse populations.
(5) Prohibition on preferential consideration of
certain sba program participants.--In making grants
under this section, the Administrator shall ensure that
any application made by a qualified organization that
is a participant in the program established under
section 7(m) does not receive preferential
consideration over applications from other qualified
organizations that are not participants in such
program.
(f) Matching Requirements.--
(1) In general.--Financial assistance under this
section shall be matched with funds from sources other
than the Federal Government on the basis of not less
than 50 percent of each dollar provided by the
Administration.
(2) Sources of matching funds.--Fees, grants, gifts,
funds from loan sources, and in-kind resources of a
grant recipient from public or private sources may be
used to comply with the matching requirement in
paragraph (1).
(3) Exception.--
(A) In general.--In the case of an applicant
for assistance under this section with severe
constraints on available sources of matching
funds, the Administrator may reduce or
eliminate the matching requirement in paragraph
(1).
(B) Limitation.--Not more than 10 percent of
the total funds made available from the
Administration in any fiscal year to carry out
this section may be excepted from the matching
requirement in paragraph (1), as authorized by
subparagraph (A).
(g) Applications for Assistance.--An application for
assistance under this section shall be submitted in such form
and in accordance with such procedures as the Administrator
shall establish.
(h) Recordkeeping.--
(1) In general.--A qualified organization receiving
assistance from the Administration under this section
shall keep such records, for such periods as may be
prescribed by the Administrator and necessary to
disclose the manner in which any assistance under this
section is used and to demonstrate compliance with the
requirements of this section.
(2) User profile information.--The Administrator
shall require each qualified organization receiving
assistance from the Administration under this section
to compile such data, as is determined to be
appropriate by the Administrator, on the gender, race,
ethnicity, national origin, or other pertinent
information concerning individuals that utilize the
services of the assisted organization to ensure that
targeted populations and low-income residents of
investment areas are adequately served.
(3) Access to records.--The Administrator shall have
access on demand, for the purpose of determining
compliance with this section, to any records of a
qualified organization that receives assistance from
the Administration under this section.
(4) Review.--Not less than annually, the
Administrator shall review the progress of each
assisted organization in carrying out its strategic
plan, meeting its performance goals, and satisfying the
terms and conditions of its assistance agreement.
(5) Reporting.--
(A) Annual reports.--The Administrator shall
require each qualified organization receiving
assistance from the Administration under this
section to submit an annual report to the
Administrator on its activities, its financial
condition, and its success in meeting
performance goals, in satisfying the terms and
conditions of its assistance agreement, and in
complying with other requirements of this
section, in such form and manner as the
Administrator shall specify.
(B) Availability of reports.--The
Administrator, after deleting or redacting any
material as appropriate to protect privacy or
proprietary interests, shall make such reports
submitted under subparagraph (A) available for
public inspection.
(i) Implementation.--The Administrator shall, by regulation,
establish such requirements as may be necessary to carry out
this section.
Sec. [37] 99. All laws and parts of laws inconsistent with
this Act are hereby repealed to the extent of such
inconsistency.
----------
SUBTITLE C OF TITLE I OF THE RIEGLE COMMUNITY DEVELOPMENT AND
REGULATORY IMPROVEMENT ACT OF 1994
[Subtitle C--Microenterprise Technical Assistance and Capacity Building
Program
[SEC. 171. SHORT TITLE.
[This subtitle may be cited as the ``Program for Investment
in Microentrepreneurs Act of 1999'', also referred to as the
``PRIME Act''.
[SEC. 172. DEFINITIONS.
[For purposes of this subtitle, the following definitions
shall apply:
[(1) Administration.--The term ``Administration''
means the Small Business Administration.
[(2) Administrator.--The term ``Administrator'' means
the Administrator of the Small Business Administration.
[(3) Capacity building services.--The term ``capacity
building services'' means services provided to an
organization that is, or that is in the process of
becoming, a microenterprise development organization or
program, for the purpose of enhancing its ability to
provide training and services to disadvantaged
entrepreneurs.
[(4) Collaborative.--The term ``collaborative'' means
2 or more nonprofit entities that agree to act jointly
as a qualified organization under this subtitle.
[(5) Disadvantaged entrepreneur.--The term
``disadvantaged entrepreneur'' means a
microentrepreneur that is--
[(A) a low-income person;
[(B) a very low-income person; or
[(C) an entrepreneur that lacks adequate
access to capital or other resources essential
for business success, or is economically
disadvantaged, as determined by the
Administrator.
[(6) Indian tribe.--The term ``Indian tribe'' has the
meaning given the term in section 103.
[(7) Intermediary.--The term ``intermediary'' means a
private, nonprofit entity that seeks to serve
microenterprise development organizations and programs
as authorized under section 175.
[(8) Low-income person.--The term ``low-income
person'' has the meaning given the term in section 103.
[(9) Microentrepreneur.--The term
``microentrepreneur'' means the owner or developer of a
microenterprise.
[(10) Microenterprise.--The term ``microenterprise''
means a sole proprietorship, partnership, or
corporation that--
[(A) has fewer than 5 employees; and
[(B) generally lacks access to conventional
loans, equity, or other banking services.
[(11) Microenterprise development organization or
program.--The term ``microenterprise development
organization or program'' means a nonprofit entity, or
a program administered by such an entity, including
community development corporations or other nonprofit
development organizations and social service
organizations, that provides services to disadvantaged
entrepreneurs.
[(12) Training and technical assistance.--The term
``training and technical assistance'' means services
and support provided to disadvantaged entrepreneurs,
such as assistance for the purpose of enhancing
business planning, marketing, management, financial
management skills, and assistance for the purpose of
accessing financial services.
[(13) Very low-income person.--The term ``very low-
income person'' means having an income, adjusted for
family size, of not more than 150 percent of the
poverty line (as defined in section 673(2) of the
Community Services Block Grant Act (42 U.S.C. 9902(2)),
including any revision required by that section).
[SEC. 173. ESTABLISHMENT OF PROGRAM.
[The Administrator shall establish a microenterprise
technical assistance and capacity building grant program to
provide assistance from the Administration in the form of
grants to qualified organizations in accordance with this
subtitle.
[SEC. 174. USES OF ASSISTANCE.
[A qualified organization shall use grants made under this
subtitle--
[(1) to provide training and technical assistance to
disadvantaged entrepreneurs;
[(2) to provide training and capacity building
services to microenterprise development organizations
and programs and groups of such organizations to assist
such organizations and programs in developing
microenterprise training and services;
[(3) to aid in researching and developing the best
practices in the field of microenterprise and technical
assistance programs for disadvantaged entrepreneurs;
and
[(4) for such other activities as the Administrator
determines are consistent with the purposes of this
subtitle.
[SEC. 175. QUALIFIED ORGANIZATIONS.
[For purposes of eligibility for assistance under this
subtitle, a qualified organization shall be--
[(1) a nonprofit microenterprise development
organization or program (or a group or collaborative
thereof) that has a demonstrated record of delivering
microenterprise services to disadvantaged
entrepreneurs;
[(2) an intermediary;
[(3) a microenterprise development organization or
program that is accountable to a local community,
working in conjunction with a State or local government
or Indian tribe; or
[(4) an Indian tribe acting on its own, if the Indian
tribe can certify that no private organization or
program referred to in this paragraph exists within its
jurisdiction.
[SEC. 176. ALLOCATION OF ASSISTANCE; SUBGRANTS.
[(a) Allocation of Assistance.--
[(1) In general.--The Administrator shall allocate
assistance from the Administration under this subtitle
to ensure that--
[(A) activities described in section 174(1)
are funded using not less than 75 percent of
amounts made available for such assistance; and
[(B) activities described in section 174(2)
are funded using not less than 15 percent of
amounts made available for such assistance.
[(2) Limit on individual assistance.--No single
person may receive more than 10 percent of the total
funds appropriated under this subtitle in a single
fiscal year.
[(b) Targeted Assistance.--The Administrator shall ensure
that not less than 50 percent of the grants made under this
subtitle are used to benefit very low-income persons, including
those residing on Indian reservations.
[(c) Subgrants Authorized.--
[(1) In general.--A qualified organization receiving
assistance under this subtitle may provide grants using
that assistance to qualified small and emerging
microenterprise organizations and programs, subject to
such rules and regulations as the Administrator
determines to be appropriate.
[(2) Limit on administrative expenses.--Not more than
7.5 percent of assistance received by a qualified
organization under this subtitle may be used for
administrative expenses in connection with the making
of subgrants under paragraph (1).
[(d) Diversity.--In making grants under this subtitle, the
Administrator shall ensure that grant recipients include both
large and small microenterprise organizations, serving urban,
rural, and Indian tribal communities serving diverse
populations.
[(e) Prohibition on Preferential Consideration of Certain SBA
Program Participants.--In making grants under this subtitle,
the Administrator shall ensure that any application made by a
qualified organization that is a participant in the program
established under section 7(m) of the Small Business Act does
not receive preferential consideration over applications from
other qualified organizations that are not participants in such
program.
[SEC. 177. MATCHING REQUIREMENTS.
[(a) In General.--Financial assistance under this subtitle
shall be matched with funds from sources other than the Federal
Government on the basis of not less than 50 percent of each
dollar provided by the Administration.
[(b) Sources of Matching Funds.--Fees, grants, gifts, funds
from loan sources, and in-kind resources of a grant recipient
from public or private sources may be used to comply with the
matching requirement in subsection (a).
[(c) Exception.--
[(1) In general.--In the case of an applicant for
assistance under this subtitle with severe constraints
on available sources of matching funds, the
Administrator may reduce or eliminate the matching
requirements of subsection (a).
[(2) Limitation.--Not more than 10 percent of the
total funds made available from the Administration in
any fiscal year to carry out this subtitle may be
excepted from the matching requirements of subsection
(a), as authorized by paragraph (1) of this subsection.
[SEC. 178. APPLICATIONS FOR ASSISTANCE.
[An application for assistance under this subtitle shall be
submitted in such form and in accordance with such procedures
as the Administrator shall establish.
[SEC. 179. RECORDKEEPING.
[The requirements of section 115 shall apply to a qualified
organization receiving assistance from the Administration under
this subtitle as if it were a community development financial
institution receiving assistance from the Fund under subtitle
A.
[SEC. 180. AUTHORIZATION.
[In addition to funds otherwise authorized to be appropriated
to the Fund to carry out this title, there are authorized to be
appropriated to the Administrator to carry out this subtitle--
[(1) $15,000,000 for fiscal year 2000;
[(2) $15,000,000 for fiscal year 2001;
[(3) $15,000,000 for fiscal year 2002; and
[(4) $15,000,000 for fiscal year 2003.
[SEC. 181. IMPLEMENTATION.
[The Administrator shall, by regulation, establish such
requirements as may be necessary to carry out this subtitle.]
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