Lawmakers Aim to Boost Small Business
Congressional proposals would make federal loans more a part of the small-business world
SMALL business advocates on Capitol Hill, who cheered last month when President Clinton announced plans to make credit more accessible to entrepreneurs, are now proposing a host of measures to ensure its availability.
They have been lobbied by a cross-section of the commercial sector - from the American Cement Alliance to the United States Chamber of Commerce - to enact laws that eliminate obstacles to increased lending.
The uneven economic recovery has made small business a focal point for policymakers, who are eager to buttress this important sector. Small businesses employ two-thirds of the nation's workers and show the greatest promise for job generation.
Government regulations on lenders, low interest rates, and financing risks have discouraged banks from helping to develop start-up firms and small businesses.
Sen. Dale Bumpers (D) of Arkansas, chairman of the Senate Small Business Committee, says the pent-up demand from entrepreneurs "can not be met by the Small Business Administration [that offers a federally backed credit program], which is making loans in record numbers."
Congressional hearings are exploring two proposed bills and a separate 12-step program for aiding these enterprises.
The House Committee on Small Business recently heard from Federal Reserve Board Chairman Alan Greenspan that "any assessment of the the outlook for the economy as a whole - especially employment - has to focus on the health of our small business sector - including its ability to finance." While he welcomed the president's regulatory changes, he stressed that "legislative action is still required."
For the past decade, the committee's chairman, Rep. John LaFalce (D) of New York, has been pushing to legislate the creation of a federally chartered corporation to help make long-term, fixed-rate loans to small businesses. He wants to help develop the nation's roughly 18 million small businesses that are "the most dynamic" part of the economy, yet are the most limited in their ability to secure financing.
While he has tirelessly reintroduced the bill 10 congressional sessions in a row, Mr. LaFalce believes that he is closer than ever to realizing his goal. He says he has found favor with the Clinton administration, which is now reviewing the plan.
If it is finally passed, LaFalce's bill would establish a private corporation - a so-called government sponsored enterprise (GSE) - that would sell stock to raise private capital, similar to other GSE's such as Fannie Mae [Federal National Mortgages Association], which supports loans for home ownership. Under the plan, financial institutions would make loans to small businesses, which would sell 80 percent of the loan to the GSE and retain 20 percent. The GSE would then resell the loans to private invest ors, creating a secondary market. "We can establish a mechanism to match up the investing community with small businesses which need financial assistance," LaFalce says.
Just as with Fannie Mae, LaFalce's legislation would have the federal government kick off the program with an infusion of capital to create a market.
Offering a variation on this theme, Sen. Christopher Dodd (D) of Connecticut - who chairs the Senate Subcommittee on Securities - recently introduced the "Small Business Incentive Act of 1993," which would also help provide access to capital markets for entrepreneurs.
David Bizer, deputy chief economist at the Securities and Exchange Commission, shares the lawmakers' concerns that small business needs greater access to capital. He notes that commercial and industrial lending dropped a full 8 percent - $53 billion - from December 1989 to August 1992.
But Mr. Bizer questions the soundness of injecting government into the financing process, as envisioned by LaFalce. "I'm worried about the expansion of authority that places more liability on the taxpayer [for loan defaults]."
"Government doesn't have to be a direct player [and guarantor] in the market," he says, "it should be a facilitator by removing undue interference in lending decisions by bank regulators and eliminating other impediments to the lending process."
The distinction between LaFalce's bill and the Dodd bill, Bizer says, is that the latter is determined by market forces.
While other legislators are fine-tuning competing proposals, Rep. Jan Meyers (R) of Kansas says passage of a 12-step program to assist small enterprises "will be the most expedient way "to strengthen the country's economic backbone."
Among the Meyers proposals: making women-owned businesses eligible for participation in federal procurement programs; restoring the small business exemption to minimum wage laws; making the research and development tax credit permanent for small firms; prohibiting retroactive applications of Internal Revenue Service rulings and regulations; and increasing to 100 percent the health-care deduction for the self-employed.