H.R. 5236, Main Street Employee Ownership Act of 2018

Floor Situation

On Tuesday, May 8, 2018, the House will consider H.R. 5236, the Main Street Employee Ownership Act of 2018, under suspension of the rules. This bill was introduced on March 8, 2018 by Rep. Nydia Velazquez (D-NY) and was referred to the House Committee on Small Business, which ordered the bill reported by voice vote on March 14, 2018.

Summary              

H.R. 5236 expands the universe of the allowable use of 7(a) loans to certain small businesses by amending the Small Business Administration’s rules pertaining to employee-owned small business concerns.  

Background

The ownership structures of American small businesses vary widely. Many companies operate employee stock ownership plan (ESOP) which allow employees to hold direct investments in the company they are working for. There are approximately 7,000 ESOPs in place in the U.S., covering nearly 11 million employees. These businesses often face uncertainty with federal rules and regulations.

The Small Business Administration (SBA) administers several programs to support small businesses, including loan guaranty programs designed to encourage lenders to provide loans to small businesses "that might not otherwise obtain financing on reasonable terms and conditions." The SBA's 7(a) loan guaranty program is considered the agency's flagship loan program. Its name is derived from Section 7(a) of the Small Business Act of 1953 (P.L. 83-163, as amended), which authorizes the SBA to provide loan guaranties to American small businesses who do not have adequate access to credit in the marketplace. In FY2017, the SBA approved 62,430 7(a) loans totaling more than $25.4 billion. The average approved 7(a) loan amount was $407,616.

Under current regulations, Section 7(a) loans cannot be used for certain practices that are common at ESOP companies. To address the uneven treatment of employee-owned small businesses by the Small Business Administration, the bill aims to provide reforms to ensure the continued success of employee-owned firms. Specifically, H.R. 5236 increases access to the 7(a) program. The bill also outlines ownership transition plans to ensure greater success during changeovers and creates employee-owned business outreach plans for the Small Business Investment Company (SBIC) program, the Microloan program, and for the Small Business Development Centers (SBDC) program. Additionally, H.R. 5236 requires an interagency working group for federal agencies to share best practices.[1]

Cost

A Congressional Budget Office (CBO) estimate is not currently available.

Staff Contact

For questions or further information please contact Ryan Hofmann with the House Republican Policy Committee by email or at 2-6674.