Small Business, Investors Could Benefit From New Bill

Small business owners may soon benefit from an increased business loan pool if Senator Olympia Snowe (R-Maine) has her way. Last week, Senator Snowe introduced a bill to OK a pilot program for the Small Business Administration to securitize small business loans, similar to the manner in which mortgages are securitized.

The move would make it easier for banks to offer long term loans to small businesses, and would also bring private investors into the small business loan pool.

"This bill seeks to increase capital available to small businesses, without creating additional risk for the government at a time when we need to support the recovery of the small business community the most," Snowe said. "It offers a truly innovative and low-risk strategy to fuel long-term lending to the very wellspring of job growth in our economy -- small business."

The bill is supported by the Board of Governors of the Federal Reserve system, who indicates that securitization of small business loans could "substantially influence the availability of credit" to small businesses.

Details of the bill include:

  • Financial firms which are licensed by the SBA would create pools of loans and then offer securities based on returns produced by those loans.

  • The financial firm would offer a partial "first-loss" guarantee to investors, and the SBA would offer additional "second loss" guarantees to investors.

  • Fees from the loan pools woul fund the SBA guarantees.

  • Loan pools would not exceed $350 million in FY 2004.

Click here for additional information and to track progress of the "Small Business Credit Liquidity Act of 2003" (S.1713).

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