Congress Begins to Move on Microloan Program

Congress Begins to Move on Microloan Program

On the heels of AEO’s 2015 Leadership Forum, a top priority for AEO’s policy team is within our grasp. For years, AEO members have reported that restrictions on both lending and counseling services have hampered the ability to help entrepreneurs. With the introduction of bipartisan legislation to improve the Small Business Administration’s (SBA) Microloan Program, AEO can mark an important victory in efforts to remedy the situation. 


The bill, S. 1445, would modernize the program in three key ways: 1) remove the 25/75 requirement; 2) allow for increased use of contractors; and 3) remove the 1/55th rule. Senators Deb Fischer (R-NE) and Maria Cantwell (D-WA) introduced the legislation. Both sit on the Senate Small Business Committee, which has jurisdiction over SBA. Their bipartisan support and positions on the authorizing Committee are important in driving the bill’s success.


AEO members have told us that striking the 25/75 requirement gives intermediaries more flexibility to design support services that address the specific needs of their borrowers and help get more borrowers loan ready. Allowing lending organizations to decide when to use third-party contractors similarly increases flexibility to decide on the most effective way to use assistance funding. Lastly, the 1/55th rule has constrained SBA’s ability to disburse funds to high-volume lenders in the past because the formula requires SBA to reserve minimum amounts for each state, even when demand varies. The change would hopefully balance geographic diversity with market need and a lender’s historical performance. 


These three issues are at the top of the list for reforms to the SBA Microloan Program. Additional changes, including an increase in lending capacity for lenders and extending the time period to repay loans, will hopefully be included in future legislation.


The House also turned its attention to the program, though is yet to have legislation of its own. House Democrats on the Small Business Committee are taking the lead. AEO is hopeful the House will act on the requested changes to the Microloan Program after hearing about the need for reform from AEO member, the Valley Economic Development Center (VEDC). Testifying on the importance of the Microloan Program and the need for improvements before the House Small Business Subcommittee on Economic Growth, Tax and Capital Access, Brandon Napoli (VEDC) stressed the importance of micro lending in Los Angeles and nationwide.


Keep an eye on AEO’s policy corner for updates on the Senate legislation, and possible activity in the House. It could be a big summer for the SBA Microloan Program.


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