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Bill Would Encourage Packaging Small Business Loans Like Stock

September 9, 1993

WASHINGTON (AP) _ Proposed legislation to package small business loans into securities that could be traded like stocks and bonds, won the support of federal banking and stock market regulators Thursday.

Treasury and Securities and Exchange Commission officials told the Senate Banking Committee that the bill could encourage more bank loans to small businesses, which account for half of the country’s the non-farm, non- financial sector jobs.

The bill, introduced by Sen. Alfonse D’Amato, R-N.Y., would remove legal, tax and accounting impediments to securitizing small and medium-sized business loans, similar to what is now done with mortgages.

It would create a government-sponsored enterprise for small business loans similar to the Federal National Mortgage Association, or Fannie Mae, which purchases mortgages from lenders and resells them to investors.

″Congress has eradicated the credit crunch for home buyers. We should do the same thing for small businesses,″ D’Amato said at the hearing’s opening.

SEC Commissioner Carter Beese, Treasury Undersecretary Frank Newman and Federal Reserve Board Governor John LaWare all lauded the bill’s intent, to encourage a trading market for securitized small business loans.

That in turn would encourage banks to make more loans and sell them. It could spur institutional investors like pension funds to buy securitized small business loans.

″Small and medium-sized business borrowers pay higher interest rates for credit, in part, because their loans are illiquid,″ Newman said.

But if a market for such loans existed and trading was frequent, banks might be more likely to make such loans, and at lower interest rates, he said.

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