Summary of the Snowe-Kerry-Vitter-Landrieu Small Business Hurricane Katrina Disaster Relief Amendment (S.Amdt. 1717)
Changes to original Kerry-Landrieu proposal in parentheses
Deferred Payments on SBA Disaster Loans: Disaster loan borrowers –homeowners or businesses — would have a one-year period after receiving a disaster loan before they would need to begin making interest and principal payments on the loan — as we did for 9-11 victims. (Reduced from two-year period)
Refinancing of Existing Disaster Loans and Business Debt: Many small businesses in the Hurricane Katrina disaster zone are paying off existing disaster loans or other business debt. This provision would allow these debts to be refinanced under the disaster loan program to help businesses consolidate and reduce debt with low-interest loans.
Extension of Application Deadlines and Prohibition to Sell Disaster Loans: This amendment extends the application deadline from nine months to one year for economic injury disaster loans, and from three months to one year for physical disaster loans. The amendment also prohibits the SBA from selling disaster loans made to Katrina victims to protect borrowers from past abuses by financial institutions that bought the loans.
Increased Disaster Loan Cap: Because the damage to business in the Hurricane Katrina disaster zone is so severe, the amendment increases the disaster loan cap from $1.5 million to $10 million — as we did for 9-11 victims.
Increased Disaster Loan Program: Increase the program level for SBA Disaster Loans — Physical and Economic Injury — by approximately $600 million, requiring an appropriation of approximately $86 million. The Committee is concerned there will not be enough funding for disaster loans available to meet the scope of this disaster. This increases from $3.4 billion to $4 billion the amount of disaster loans that the SBA can make. (Reduced from $117 million in appropriations and $800 million in program level)
Assumption of Payments and Interest on 504 Loans: The federal government backs small business loans through its 504 lending programs. Many impacted small businesses in the disaster areas adversely impacted by Katrina will need relief from making payments and interest on 504 loans they had before Katrina hit. This provision gives the SBA discretion, for one year, to defer 504 payments it is owed or to assume the payments for borrowers owed to banks. Reduces fees on 504 loans. (Reduced from two-year to one-year, and makes assumption of payments discretionary rather than mandatory; requires the SBA to lower fees).
Supplemental 7(a) Program Business Loans: Similar to the Supplementary Terrorist Activity Relief (STAR) loans enacted by Congress after 9-11, these loans would lower fees for small businesses located outside the disaster zones but indirectly impacted by Hurricane Katrina. And it lowers fees for lenders as an incentive to lend to these businesses. The amendment adds in protections to mitigate recent reports of past misdirection of loans to non-disaster victims. The protections include requiring lenders to inform borrowers that they are getting Katrina relief loans, requiring lenders to document for the SBA how the borrower was adversely affected by Hurricane Katrina, and for the SBA to collect the explanations and report to the Senate Committee on Small Business and Entrepreneurship and the House Committee on Small Business every six months, verifying loans are being used for the intended purposes. $75 million is appropriated for one year.
Lower Lender and Borrower Fees on 7(a) Loans: This amendment proposes lowering fees for the 7(a) program to make borrowing more affordable for small businesses outside the disaster area, many of whom have been impacted by the disaster, and also struggle to cover higher costs in health care, energy, and rising interest rates.
Increased Small Business Lending Caps: Recognizing the increased demand that this disaster will place on all small business lending programs, the amendment proposes increasing the 7(a) lending program from a program level of $17 billion to $20 billion, and the 504 lending program from a program level of $7.5 billion to $10 billion. Both the 504 and 7(a) lending programs are funded entirely through fees, so the increases require no appropriation.
Protection to Separate Katrina Disaster Lending Provisions from the Regular Programs: The amendment includes a provision requiring the SBA to treat these special provisions as separate from the regular programs so as not to drive up the future subsidy rates, and therefore the costs, on borrowers who rely on those programs. This same protection was provided for emergency 7(a) loans after 9-11 and for the special disaster loans for 9-11.
State Bridge Loans: The amendment authorizes and appropriates $400 million to the affected state governments of Louisiana, Mississippi, Alabama, Florida, and Texas to provide emergency bridge loans or grants to small businesses in the disaster areas that have been adversely impacted by Hurricane Katrina and need immediate access to capital until they can get other loans or financial assistance. The goal is to disburse the funds within seven days. This is based on a successful program that helped victims of the hurricanes in Florida. (Florida and Texas added)
Small Business and Farm Energy Assistance: Given the recent and projected significant increases in the cost of gas and heating oil, the amendment includes a four-year pilot to give small businesses and farms access to very low interest disaster loans to cope with the market volatility. This provision has passed the Senate three times.
Small Business Counseling: This amendment authorizes increased funding for the SBA’s counseling and training resources to help small businesses directly and indirectly affected by Hurricane Katrina to recover. The total amount proposed is $33.75 million: $21 million for the Small Business Development Centers; $5 million for Microloan technical assistance; $4.5 million for the Women’s Business Centers; $2 million for SCORE; and $1.25 million for the Veterans Business Outreach Centers. (Also, waives $100K cap on portability grants to SBDCs).
Small Business Prime Contracting Goal of 30 Percent, Subcontracting Goal of 40 Percent: With the cost of Katrina relief and rebuilding estimated at over $100 billion, small businesses, particularly those located in the disaster area and that employ individuals in the affected areas, should receive their fair share of federal contracting dollars. By setting contracting goals, this amendment seeks to ensure that at least 30 percent of prime contract dollars and 40 percent of subcontracting dollars allocated through emergency funds to rebuild the affected areas will be directed to small businesses in the affected regions.
The compromise directs the SBA and the directors of Small and Disadvantaged Business Utilization to create a contracting outreach program for small businesses located or willing to relocate in the Katrina disaster area. (Added in compromise).
HUBZone Status Extension: To help small businesses in the disaster zone compete for federal contracts, the amendment would make the declared disaster areas an Historically Underutilized Business Zone (HUBZone). This would give a preference to small businesses in the disaster zone when they bid on federal contracts.
Increased Bonding Thresholds: Construction and rebuilding contracts being awarded are likely to be larger than the current $2 million threshold currently applied to the SBA Surety Bond Program which helps small construction firms gain access to contracts. This amendment increases the guarantee against loss for small business contracts up to $10 million. (Threshold increased from $5 million to $10 million)
Removed Entirely in Compromise
Assumption of Payments and Interest on 7(a) Loans: The federal government backs small business loans through its 7(a) lending program. Many impacted small businesses in the disaster areas adversely impacted by Katrina will need relief from making payments and interest on 7(a) loans they had before Katrina hit. This provision allowed the SBA to cover the payments and interest on 7(a) loans for two years.
Lower Lender and Borrower Fees on 7(a) Loans: This amendment appropriates $80 million to low fees for the 7(a) program to make borrowing more affordable for small businesses outside the disaster areas, many of whom have been impacted by the disaster, and also struggle to cover higher costs in health care and energy, and rising interest rates.
Thursday, September 15, 2005