Expanding Access to Capital for Business Owners

By Congressman Henry Cuellar

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Washington, September 27, 2007 | comments
Washington, DC- As a member of the House Committee on Small Business, I am pleased to help create and shape the legislative policies that govern the Small Business Administration (SBA). The private business sector in the United States is composed of businesses of all shapes, sizes, and models. Easy access to capital is often a problem for many business concerns, and it is for this reason that the SBA offers many programs to address this need.

It is consistently more difficult for a new business to enter the marketplace without access to the startup capital needed to firmly establish consistent commerce. Furthermore, access to capital is important to any business owner trying to adapt a business to compete and grow within a changing marketplace. Unfortunately, not all entrepreneurs can rely on large commercial lenders for financial support.

An entrepreneur who has a less than perfect credit history may have a difficult time finding lenders willing to invest in a new venture. This is also true for the business owner who is looking for money to expand his or her business. In an effort to encourage lending to borrowers that do not have access to capital through conventional lending services, the Federal Government has worked to support local lenders through the “Microloan” Programs offered by the Small Business Administration.

Created by Congress in 1991, the Microloan Program makes funds available to nonprofit, community-based lenders who in turn make small loans to eligible borrowers. Most of the borrowers who benefit from this program are higher risk, fledgling entrepreneurs whose businesses provide intrinsic services to the local community. Recent reports show that 50% of the loans made possible through the SBA’s Microloan Program have gone to minority-owned businesses. Furthermore, approximately one-third of all microloans made through this program are administered to rural areas.

The Microloan Program has made a significant impact since its inception in 1991. Records report that 98% of the loans that have been administered through this program have been repaid, a statistic that parallels the repayment rate at most commercial institutions who lend to businesses with much higher credit scores.

 As it is the responsibility of the House Committee on Small Business to create and improve programs administered by the SBA, I wanted to take this opportunity to discuss a piece of legislation that was passed out of the Small Business Committee, and has been favorably voted through the U.S. House of Representatives. H.R. 3020, the Microloan Amendments Modernization Act, was introduced in response to the evolving needs of entrepreneurs, and will update SBA’s current micro-lending activities.

 H.R. 3020 will create more resources for lenders who participate in the Microloan Program thereby benefiting those that borrow from participating lenders. Specifically, H.R. 3020 will provide extra leeway for intermediaries to establish their programs and tailor technical assistance to an individual borrower. This bill also provides more latitude to the borrower as they consider the way in which their Microloan should be structured. Finally, H.R. 3020 will allow the borrower’s credit history to be improved by the payment history established by repaying the Microloan. This payment history is currently not conveyed to credit reporting agencies.

 The successes of Microloan Programs are not just isolated to disadvantaged businesses in the United States. Muhammad Yunus was awarded the 2006 Nobel Peace Prize for the Microloan Program that he has facilitated through his bank in Bangladesh. While Mr. Yunus’ bank is in a different part of the world, operating in a completely different economy, the success of his micro-lending program reemphasizes one consistent theme: providing struggling entrepreneurs with sufficient access to capital can create jobs, increase domestic product, and energize an economy. I am proud to have contributed to the improvement of our nation’s micro-lending programs, and look forward to the positive impact these programs will have on entrepreneurs in South Texas.


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