[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[S. 396 Introduced in Senate (IS)]

103d CONGRESS
  1st Session
                                 S. 396

 To establish the Small Business Capital Access Program to enhance the 
         availability of financing for small business concerns.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

             February 18 (legislative day, January 5), 1993

 Mr. Lieberman (for himself, Mr. Stevens, and Mr. Dodd) introduced the 
 following bill; which was read twice and referred to the Committee on 
                             Small Business

_______________________________________________________________________

                                 A BILL


 
 To establish the Small Business Capital Access Program to enhance the 
         availability of financing for small business concerns.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Small Business Capital Access 
Program Act of 1993''.

SEC. 2. FINDINGS AND PURPOSE.

    (a) Findings.--The Congress finds that--
            (1) small business concerns remain a thriving and vital 
        part of the economy, accounting for the majority of new jobs, 
        new products, and new services created in the United States;
            (2) adequate access to capital is a critical component of 
        small business formation and success;
            (3) small business concerns, which in many cases represent 
        inherently higher degrees of risk in financial markets than do 
        large businesses, are having an increasingly difficult time 
        securing sufficient long-term debt financing;
            (4) recent concerns over the safety and soundness of 
        commercial financial institutions and changing capital 
        standards have lead to a more conservative review of loan 
        applications, particularly those from small business concerns;
            (5) the start-up cycle for a small business concern is 
        typically 5 to 7 years, yet only 12 percent of recent 
        commercial loans were made for terms of 7 years or longer;
            (6) price deregulation, which removed ceilings from savings 
        accounts and enabled financial institutions to pay market rates 
        of interest, effectively raised returns to depositors and costs 
        to borrowers, resulting in increased costs of debt capital for 
        smaller businesses;
            (7) commercial banks are the most important supplier of 
        debt capital and financial services to small business concerns 
        in the United States, and according to surveys of small 
        business financing, nearly all small business concerns use some 
        financial services from commercial banks;
            (8) the new risk-based capital requirements will have an 
        unclear impact on the availability of capital financing for 
        small business concerns;
            (9) other sources of small business financing such as 
        venture capital markets, public markets, and institutional 
        investors (pension funds or insurance companies) are not viable 
        alternatives for many small business concerns; and
            (10) innovative developmental finance and small business 
        lending programs at the State level have proven to be 
        particularly effective in promoting the growth and development 
        of small business concerns.
    (b) Purpose.--It is the purpose of this Act to promote economic 
growth, create jobs, and spur innovation by enhancing the availability 
of financing for small business concerns, that might not otherwise be 
available.

SEC. 3. DEFINITIONS.

    For purposes of this Act--
            (1) the terms ``Administration'' and ``Administrator'' mean 
        the Small Business Administration and the Administrator of the 
        Small Business Administration, respectively;
            (2) the term ``appropriate Federal banking agency'' has the 
        same meaning as in section 3 of the Federal Deposit Insurance 
        Act;
            (3) the term ``Board'' means the Small Business Capital 
        Access Board established under section 4;
            (4) the term ``early loan'' means a loan enrolled at a time 
        when the aggregate dollar amount of previously enrolled loans 
        in particular reserve fund is less than $5,000,000;
            (5) the term ``enrolled loan'' means a loan made to a small 
        business concern by a participating financial institution 
        located in a participating State and subsequently enrolled in 
        the Program in accordance with section 7;
            (6) the term ``participating financial institution'' means 
        any Federal- or State-chartered commercial bank, savings 
        association, mutual savings bank, or credit union that--
                    (A) has met all applicable requirements of the 
                Administration and a participating State for 
                participation in the Program;
                    (B) is actually participating in the Program; and
                    (C) has or is in the process of establishing a 
                reserve fund in accordance with this Act;
            (7) the term ``participating State'' means any State that 
        has met the requirements of this Act and is designated for 
        participation in the Program;
            (8) the term ``passive real estate ownership'' means 
        ownership of real estate for the purpose of deriving income 
        from speculation, trade, or rental, except that such term shall 
        not include--
                    (A) the ownership of that portion of real estate 
                being used or intended to be used for the operation of 
                the business of the owner of the real estate; or
                    (B) the ownership of real estate for the purpose of 
                construction or renovation, until the completion of the 
                construction or renovation phase;
            (9) the term ``Program'' means the Small Business Capital 
        Access Program established under this Act;
            (10) the term ``reserve fund'' means a fund, established by 
        a participating State, in the name of a participating financial 
        institution, for the purpose of--
                    (A) depositing all required premium charges, paid 
                by the participating financial institution and the 
                borrower;
                    (B) depositing contributions made by participating 
                States and the Administration; and
                    (C) covering losses on enrolled loans by disbursing 
                funds accumulated in the reserve fund in accordance 
                with section 10; and
            (11) the term ``small business concern'' has the same 
        meaning as in section 3 of the Small Business Act.

SEC. 4. SMALL BUSINESS CAPITAL ACCESS BOARD.

    (a) Establishment.--There is established within the Administration, 
a Small Business Capital Access Board which shall be chaired by the 
Administrator and shall consist of the following additional members, to 
be appointed by the Administrator:
            (1) Small business representatives.--Two members shall be 
        appointed from the private sector representing small business 
        concerns.
            (2) Financial services representatives.--Two members shall 
        be appointed from the private sector representing the financial 
        services industry.
            (3) State government representatives.--Two members 
        representing State government shall be appointed.
    (b) Duties.--The Board shall--
            (1) designate States to participate in the Program, as 
        provided in section 5; and
            (2) prepare annual reports to the Congress that shall 
        include--
                    (A) data on the number, types, amounts, and average 
                amounts of loans made pursuant to the Program;
                    (B) an analysis of the types of firms financed as 
                part of the Program;
                    (C) an analysis of the terms, fees, and interest 
                rates of Program loans;
                    (D) the types and sizes of financial institutions 
                participating in the Program; and
                    (E) an accounting of active reserve funds 
                established as part of the Program in participating 
                States, including the amounts and the number of covered 
                loans.
    (c) Terms and Compensation.--
            (1) Period of appointment.--Each member of the Board 
        referred to in subsection (a) shall be appointed for the life 
        of the Board.
            (2) Vacancies.--Vacancies on the Board shall be filled in 
        the same manner in which the original appointment was made.
            (3) Compensation and expenses.--Each member of the Board 
        referred to in paragraphs (1) and (2) of subsection (a) shall 
        be paid at a rate equivalent to the maximum rate payable for a 
        position classified above GS-15 of the General Schedule for 
        each day during which such member is engaged in the duties of 
        the Board. Each member shall receive travel expenses, including 
        per diem in lieu of subsistence, in accordance with sections 
        5702 and 5703 of title 5, United States Code.

SEC. 5. DESIGNATION OF STATES FOR PARTICIPATION.

    (a) In General.--The Board shall designate States to participate in 
the Program in accordance with this Act.
    (b) State Commitment Required.--A State that has fulfilled, or is 
in the process of fulfilling, the State commitments required under 
section 6 may be designated for participation in the Program.

SEC. 6. PROGRAM SPECIFICATIONS.

    (a) Federal Contributions.--The Administration is authorized to 
contribute, on an immediate or deferred basis, not more than $8,000,000 
for fiscal years 1994 through 1999 to each participating State. Such 
contributions shall to be credited to the reserve funds established in 
connection with loans made to small business concerns by participating 
financial institutions under the Program.
    (b) Participation Limits.--Contributions made by the Administration 
pursuant to subsection (a)--
            (1) shall be not less than 1.5 percent and not more than 
        3.5 percent of the amount of the loan; and
            (2) shall match on a one-to-one basis the amounts 
        contributed by the participating State.
    (c) State Commitments.--
            (1) Statutory authority and appropriations.--Not more than 
        12 months after the date on which a State is designated for 
        participation in the Program under section 5(c), such State 
        shall--
                    (A) establish all necessary statutory authority to 
                carry out the Program;
                    (B) appropriate all necessary funds to cover 
                immediate or deferred premiums required by the State on 
                enrolled loans; and
                    (C) establish an administrative mechanism to carry 
                out--
                            (i) the establishment, management, and 
                        accounting of reserve funds;
                            (ii) the enrollment of loans in accordance 
                        with section 7(c);
                            (iii) the payment of claims under this Act; 
                        and
                            (iv) the designation of participating 
                        financial institutions under this Act.
            (2) Termination of participation.--A State that fails to 
        meet the requirements of paragraph (1) within the 12-month 
        period referred to in that paragraph shall forego participation 
        in the Program. Upon the request of a State, the Board, by a 
        majority vote, may extend such 12-month period for not more 
        than 12 months.
            (3) Reapplication for participation.--A State for which 
        participation in the Program has been terminated under 
        paragraph (2) may reapply to the Board for participation in the 
        program at any time after the requirements of paragraph (1) 
        have been met by the State.
    (d) Establishment of Reserve Funds.--Each participating State shall 
establish reserve funds in the name of each participating financial 
institution for the purposes of--
            (1) depositing all required premium charges to be paid by 
        the participating financial institution and the borrower;
            (2) accounting for immediate or deferred contributions made 
        by participating States and the Administration; and
            (3) disbursing funds accumulated in accordance with the 
        Program to cover losses sustained by the participating 
        financial institution in connection with loans made under the 
        Program.
    (e) Additional Requirements.--
            (1) Borrowers.--The Administration may only make 
        contributions under this Act in connection with a loan made to 
        a borrower--
                    (A) that is--
                            (i) a small business concern; and
                            (ii) a corporation, partnership, joint 
                        venture, sole proprietorship, cooperative, or 
                        other entity (whether such entity is a 
                        nonprofit entity or an entity established for 
                        profit), that is authorized to conduct business 
                        in the participating State; and
                    (B) that has its primary business location within 
                the boundaries of a participating State.
            (2) Loan use restriction.--A loan made under this Act may 
        not be used to finance passive real estate ownership.
            (3) Written assurances.--Prior to receiving a loan under 
        this Act, each borrower shall sign a written representation to 
        the participating financial institution that the borrower has 
        no legal, beneficial, or equitable interest in the 
        nonrefundable premium charges or any other funds credited to 
        the reserve fund established by a participating State.

SEC. 7. LOAN TERMS AND CONDITIONS.

    (a) Designation of Financial Institutions.--A financial institution 
located in a participating State shall be considered a participating 
financial institution and may enroll loans in accordance with this Act 
if--
            (1) the institution has agreed to all terms and conditions 
        set forth in this Act and any terms and conditions set forth by 
        the participating State;
            (2) the appropriate Federal banking agency for the 
        financial institution has approved the institution for 
        participation in the Program, after consideration of the safety 
        and soundness, the applicable capitalization requirements, and 
        the overall financial health of the institution; and
            (3) the participating State has agreed to establish, or has 
        established, a reserve fund in the name of the institution.
    (b) Negotiated Loan Terms.--Loans made under the Program may be 
made with such interest rates, fees, and other terms and conditions as 
agreed upon by the participating financial institution and the 
borrower.
    (c) Enrollment of Loans.--
            (1) Process.--A participating financial institution shall 
        file each loan made under the Program for enrollment--
                    (A) by notifying the Administration and the State 
                administrative agency or office responsible for the 
                reserve funds of--
                            (i) the disbursement of the loan;
                            (ii) the dollar amount of the loan 
                        enrolled;
                            (iii) the interest rate applicable to and 
                        the term of the loan; and
                            (iv) the amount of the agreed upon premium; 
                        and
                    (B) by transmitting the nonrefundable premium 
                charges of the participating financial institution and 
                the borrower as provided in section 8.
            (2) Specification of program coverage amount.--When filing 
        a loan for enrollment under this section, the participating 
        financial institution may specify an amount to be covered under 
        the Program that is less than the total amount of the loan.
            (3) Lines of credit.--A loan may be made under this Act in 
        the form of a line of credit, in which case the amount of the 
        loan enrolled shall be considered to be the maximum amount that 
        can be drawn against the line of credit.
            (4) Time limitation.--The participating financial 
        institution shall file the loan for enrollment not later than 
        10 days after the date on which the loan is made.

SEC. 8. REQUIRED PAYMENTS AND TRANSFERS TO THE RESERVE FUND.

    (a) Borrower and Lender Premium Payments.--
            (1) Borrower payments.--The premium charges payable to the 
        reserve fund by the participating financial institution and the 
        borrower in connection with a loan made under the Program shall 
        be prescribed by the institution. The premium amount paid by 
        the borrower shall be not less than 1.5 percent and not more 
        than 3.5 percent of the amount of the loan, as agreed upon by 
        the institution and the borrower.
            (2) Lender payments.--The premium amount paid by the 
        participating financial institution, in connection with a loan 
        made under the Program, shall be equal to the premium amount 
        paid by the borrower.
            (3) Recovery of costs.--The participating financial 
        institution may recover from the borrower the cost of its 
        payments to the fund through the financing of the loan, upon 
        the agreement of the institution and the borrower.
    (b) Required Federal and State Contributions.--The Administration 
and each participating State shall each deposit into the reserve fund, 
on an immediate or deferred basis, one-half of--
            (1) an amount equal to 150 percent of the combined amounts 
        paid into the reserve fund by the borrower and the 
        participating financial institution for each enrolled loan, if 
        the amount of any loan, plus the amount of loans previously 
        enrolled under the Program from a participating financial 
        institution, is less than $2,000,000;
            (2) an amount equal to the combined amounts paid into the 
        reserve fund by the borrower and the participating financial 
        institution for each enrolled loan if, prior to the enrollment 
        of the loan, the amount of loans previously enrolled under the 
        Program is not less than $2,000,000; or
            (3) an amount equal to a percentage of the combined amount 
        paid by the participating financial institution and the 
        borrower, determined--
                    (A) by multiplying by 150 that portion of the loan 
                which, when added to the amount of all previously 
                enrolled loans, equals $2,000,000;
                    (B) by multiplying the balance of the loan by 100; 
                and
                    (C) by adding together the products of such 
                computations and dividing the sum by the total amount 
                of the loan, if the amount of loans previously enrolled 
                under the Program is less than $2,000,000, but the 
                enrollment of a loan will cause the aggregate amount of 
                all enrolled loans to exceed $2,000,000.
    (c) Maximum Payment.--The combined amount to be deposited by the 
participating financial institution into any individual reserve fund 
over the 3-year period, in connection with any single borrower or any 
group of borrowers among which a common enterprise exists, shall be not 
more than $150,000.

SEC. 9. OWNERSHIP, CONTROL, AND INVESTMENT OF RESERVE FUND.

    (a) Ownership.--All payments to the reserve fund in a participating 
State shall be the exclusive property of and solely controlled by that 
State.
    (b) Withdrawal Restriction.--The participating State may not 
withdraw amounts from the reserve fund except as specifically provided 
for in this Act.
    (c) Investment Authority.--In the case of reserve fund payments 
that are not deposited by the participating State in an account held by 
the participating financial institution, such payments shall be 
invested or reinvested by the participating State--
            (1) in direct obligations of the Federal Government or the 
        participating State; or
            (2) in obligations the principal and interest of which are 
        unconditionally guaranteed by the Federal Government or the 
        participating State.
    (d) Income of the Fund.--
            (1) In general.--Interest or income earned on the funds 
        credited to the reserve fund shall be deemed to be part of the 
        reserve fund.
            (2) Withdrawal of fund income.--A participating State may 
        withdraw at any time from the reserve fund not more than 50 
        percent of all interest or other income that has been credited 
        to the reserve fund, except that subsequent to the first such 
        withdrawal, the participating State may not withdraw more than 
        50 percent of all interest or other income that has been 
        credited to the reserve fund since the time of the last such 
        withdrawal. Any withdrawal made under this paragraph may be 
        made prior to paying any claim under section 8, and shall be 
        used for the sole purposes of offsetting administrative costs 
        associated with carrying out this Act.

SEC. 10. CLAIMS, DISBURSEMENTS, RECOVERY, AND SUBROGATION.

    (a) Claims.--
            (1) In general.--A participating financial institution that 
        charges off all or part of an enrolled loan to the reserve fund 
        may file a claim with the participating State--
                    (A) if the claim occurs contemporaneously with the 
                action of the institution to charge off all or part of 
                the loan; and
                    (B) if the charge off on an enrolled loan is made 
                in a manner that is consistent with the institution's 
                usual method for making such determinations on business 
                loans that are not enrolled loans.
            (2) Claim amounts.--The participating financial 
        institution's claim may include, in addition to the amount of 
        principal charged off plus accrued interest, an amount that 
        represents its reasonable out-of-pocket expenses incurred in 
        pursuing its collection efforts, including preservation of 
        collateral, but only if proper documentation of such expenses 
        if presented at the time of the claim.
            (3) Multiple claims.--If a participating financial 
        institution files 2 or more claims contemporaneously, and there 
        are insufficient funds in the reserve fund at that time to 
        cover the entire amount of such claims, the institution may 
        designate the order of priority in which the claims shall be 
        paid.
    (b) Disbursements.--
            (1) In general.--Each participating State shall disburse 
        funds from the reserve fund in connection with claims made in 
        accordance with this section.
            (2) Partial payment of claims.--If there are insufficient 
        funds in the reserve fund to cover the entire amount of a 
        participating financial institution's claim, the participating 
        State shall pay to the institution an amount equal to the 
        current balance in the reserve fund, and--
                    (A) if the enrolled loan for which the claim has 
                been filed is not an early loan, such payment shall be 
                deemed to fully satisfy the claim and the institution 
                shall have no other or further right to receive any 
                amount from the reserve fund with respect to such 
                claim; or
                    (B) if the enrolled loan is an early loan, such 
                partial payment shall not be deemed to satisfy the 
                institution's claim, and at such time as the remaining 
                balance of the claim is not greater than 75 percent of 
                the balance in the reserve fund at that time, the 
                participating State shall, upon the request of the 
                institution, pay any remaining balance of the claim.
    (c) Recovery.--If, subsequent to payment of a claim by the 
participating State, a participating financial institution recovers 
from a borrower any amount for which payment of the claim was made, the 
institution shall promptly pay to the participating State for deposit 
into the reserve fund the amount recovered, less any reasonable out-of-
pocket expenses incurred in collection of such amount.
    (d) Assignment of Rights.--In any case in which the payment of a 
claim under this section has fully covered a participating financial 
institution's loss on an enrolled loan, the participating financial 
institution shall assign to the participating State and the 
Administration any right, title, or interest to any collateral, 
security, or other right of recovery in connection with a loan made 
under the Program.

SEC. 11. REGULATIONS.

    The Administrator, in consultation with the Board, shall promulgate 
appropriate regulations to implement this Act.

SEC. 12. AUTHORIZATION OF APPROPRIATIONS.

    There are authorized to be appropriated to the Administration such 
sums as may be necessary to carry out this Act.

                                 <all>

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