A new bill introduced in the Senate aims to protect small businesses from volatile commodity prices by allowing them to lock in a set price, with gas and diesel prices explicitly included in the proposed legislation.
On Tuesday, Sept. 17, Sens. Jeanne Shaheen, D-N.H., and Bill Cassidy, R-La., introduced the Helping Small Businesses to Hedge Risk and Insure against Volatile Expenses (Helping Small Businesses THRIVE) Act. As the title suggests, the bill aims to establish a program that may reduce small-business owners’ exposure to price volatility of certain commodities, including diesel prices.
Through a new program offered by the Small Business Administration, the Helping Small Businesses THRIVE Act, or S5063, would create an opportunity for small businesses to lock in prices of certain commodities. According to the bill’s text, gasoline and diesel are the only commodities guaranteed to be included in the program. The SBA would have discretion over what other commodities to include.
The program would include two options for small businesses. A “futures purchase agreement” would allow the SBA to establish and maintain the direct cost of a commodity. More relevant to small-business trucking companies, a “call option purchase agreement” would protect a business when the price of the commodity increases by more than 10%.
Take diesel prices as an example. Diesel prices have been dropping lately, averaging about $3.50 per gallon nationwide, which is more than $1 cheaper than a year ago. However, that could change at the flip of a switch, leaving uncertainty in future cost-planning for a business owner.
The Helping Small Businesses THRIVE Act would allow a small-business owner to pay the current rate of $3.50 per gallon if circumstances send diesel prices skyrocketing again.
Here’s a hypothetical showing how that works: A small business enters into an agreement with the government to lock in $3.50 per gallon for 1,000 gallons six months from the agreement. Essentially, the business locks in its diesel expense over that time period at $3,500.
If diesel prices were to soar to $5 per gallon, the company still would pay $5 at the pump, or $5,000 for 1,000 gallons. However, per the agreement, the company would receive a $1,500 payment to offset the $1.50 increase. Thus through this arrangement, the company could plan ahead with certainty – knowing that its diesel expense would be $3,500 under the agreed-upon conditions, regardless of diesel price volatility.
Shaheen claimed the Helping Small Businesses THRIVE Act would give small businesses the same hedging tools for mitigating inflation currently available only to larger companies. The bill is backed by the National Small Business Association, the Small Business Majority and the Center for American Entrepreneurship.
“This bill is a tremendous first step toward leveling the playing field for small companies across the country, enabling them to responsibly hedge commodity market risks – something historically only available to their largest competitors,” National Small Business Association President Todd McCracken said in a statement.
According to the bill text, small businesses could enter into agreements ranging from 60 days to three years, with the majority running at least 120 days. The program would first lock in gasoline and diesel prices and up to three more commodities, with special attention given to standard utilities like natural gas or electricity. Additional commodities and utilities could be added based on stakeholder surveys and feedback. LL
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