House Committee Urges SBA to Fully Implement Main Street EO Act
On June 28, 2022, the House introduced HR 8254, which provides funding for a variety of government agencies, including the Small Business Administration (SBA). In a report accompanying the bill, the House Appropriations Committee urged the SBA to fully implement the Main Street Employee Ownership Act (MSEOA), which was passed in 2018 but has seen only limited use because the SBA-issued standard operating procedures directly undermine the intent of the Act. The report does not have legislative force, but such reports, coming from the committee that appropriates funds for the agency, are usually taken seriously. The report states:
Employee Ownership. — The Committee recognizes that employee-owned businesses are uniquely structured and provide wide-ranging benefits for businesses, workers, and the local economy. The Committee notes that the Main Street Employee Ownership Act, which Congress enacted in section 862 of Public Law 115-232, requires SBA to make structural changes in SBA lending programs to ease the challenges faced by employee-owned businesses in accessing financing. This legislation also requires SBA to use Small Business Development Centers (SBDCs) to establish an employee-owned business promotion program to provide assistance on structure, business succession, and planning. SBA is directed to fully implement these requirements. The Committee further directs SBA to work with the Departments of Agriculture, Labor, and Commerce to provide education and outreach to businesses, employees and financial institutions about employee-ownership, including cooperatives and employee stock ownership plans; provide technical assistance to assist employees' efforts to become businesses; and assist in accessing capital sources.
The MSEOA was intended to make it easier for companies to get SBA-backed loans through qualifying SBA lenders (the so-called 7(a) loans) for ESOP transitions. The loans could be for up to $5 million. But the SBA required provisions that made implementation onerous, including:
- Requiring personal or entity guarantees on 7(a) loans to cooperatives.
- Requiring loans go through the SBA, not through the 7(a) lenders.
- Requiring an IRS determination letter before loan disbursal.
- Failing to set up the congressionally mandated outreach program and to issue a report on the progress under the Act.
- Requiring that, in addition to the valuation for the ESOP trustee, the company provide a separate additional valuation for the SBA.
A previous post examined the impact of these provisions in greater depth. House Small Business Committee staff are considering potential legislative language to mandate the resolution of these issues. A similar bill went through congress last year to little or no impact on actual implementation of the Act.