[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[S. 478 Introduced in Senate (IS)]

103d CONGRESS
  1st Session
                                 S. 478

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


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

               March 2 (legislative day, January 5), 1993

 Mr. Riegle (for himself, Mr. Lieberman, and Mr. Dodd) introduced the 
 following bill; which was read twice and referred to the Committee on 
                  Banking, Housing, and Urban Affairs

_______________________________________________________________________

                                 A BILL


 
To establish the Small Business Capital Enhancement 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 Enhancement 
Act of 1993''.

SEC. 2. FINDINGS AND PURPOSE.

    (a) Findings.--The Congress finds that--
            (1) small business concerns are a 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 debt capital is a critical component 
        for small business development, productivity, expansion, and 
        success in the United States;
            (3) commercial banks are the most important suppliers of 
        debt capital to small business concerns in the United States;
            (4) commercial banks and other depository institutions have 
        various incentives to minimize their risk in financing small 
        business concerns;
            (5) as a result of such incentives, many small business 
        concerns with economically sound financing needs are unable to 
        obtain access to needed debt capital;
            (6) the small business capital access programs implemented 
        by certain States are a flexible and efficient tool to assist 
        financial institutions in providing access to needed debt 
        capital for many small business concerns in a manner consistent 
        with safety and soundness regulations;
            (7) a small business capital access program would 
        complement other programs which assist small business concerns 
        in obtaining access to capital; and
            (8) Federal policy can stimulate and accelerate efforts by 
        States to implement small business capital access programs by 
        providing an incentive to States, while leaving the 
        administration of such programs to each participating State.
    (b) Purpose.--The purposes of this Act are--
            (1) to promote economic opportunity and growth;
            (2) to create jobs;
            (3) to promote economic efficiency;
            (4) to enhance productivity; and
            (5) to spur innovation;
by encouraging States to implement efficient capital access programs 
that encourage commercial banks and other depository institutions to 
provide access to debt capital for a broad portfolio of small business 
concerns, and thereby promote a more efficient and effective debt 
market.

SEC. 3. DEFINITIONS.

    For purposes of this Act--
            (1) the term ``Secretary'' means the Secretary of Housing 
        and Urban Development;
            (2) the term ``appropriate Federal banking agency''--
                    (A) has the same meaning as in section 3 of the 
                Federal Deposit Insurance Act; and
                    (B) includes the National Credit Union 
                Administration Board in the case of any credit union 
                the deposits of which are insured in accordance with 
                the Federal Credit Union Act;
            (3) the term ``early loan'' means a loan enrolled at a time 
        when the aggregate dollar amount of previously enrolled loans 
        covered under the Program by a particular participating 
        financial institution is less than $5,000,000;
            (4) the term ``enrolled loan'' means a loan made by a 
        participating financial institution that is enrolled by a 
        participating State in accordance with this Act;
            (5) the term ``financial institution'' means any federally 
        or State-chartered commercial bank, savings association, mutual 
        savings bank, or credit union;
            (6) the term ``participating financial institution'' means 
        any financial institution that has entered into a participation 
        agreement with a participating State in accordance with section 
        5;
            (7) the term ``participating State'' means any State that 
        has been approved for participation in the Program in 
        accordance with section 4;
            (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 (other 
                than the business of passive ownership of 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 
        Enhancement Program established under this Act;
            (10) the term ``reserve fund'' means a fund, established by 
        a participating State, earmarked for a particular participating 
        financial institution, for the purposes of--
                    (A) depositing all required premium charges paid by 
                the participating financial institution and by each 
                borrower receiving a loan under the Program from a 
                participating financial institution;
                    (B) depositing contributions made by the 
                participating State; and
                    (C) covering losses on enrolled loans by disbursing 
                accumulated funds; and
            (11) the term ``State'' means the States of the United 
        States and the District of Columbia.

SEC. 4. APPROVING STATES FOR PARTICIPATION.

    (a) Application.--Any State may apply to the Secretary for approval 
to be a participating State under the Program and to be eligible for 
reimbursement by the Secretary pursuant to section 8.
    (b) Approval Criteria.--The Secretary shall approve a State to be a 
participating State, if--
            (1) a specific department or agency of the State has been 
        designated to implement the Program;
            (2) all legal actions necessary to enable such designated 
        department or agency to implement the Program have been 
        accomplished;
            (3) funds in the amount of at least $1 for every 2 people 
        residing in the State (as of the last decennial census for 
        which data have been released) are available and have been 
        legally committed to contributions by the State to the reserve 
        fund, with such funds being available without time limit and 
        without requiring additional legal action, except that such 
        requirements shall not be construed to limit the authority of 
        the State to take action at a later time that results in the 
        termination of its obligation to enroll loans and make 
        contributions to the reserve fund;
            (4) the State has prescribed a form of participation 
        agreement to be entered into between it and each participating 
        financial institution that is consistent with the requirements 
        and purposes of the Program; and
            (5) the State and the Secretary have executed a 
        reimbursement agreement that conforms to the requirements of 
        this Act.
    (c) Existing State Programs.--
            (1) In general.--A State that is not a participating State, 
        but that has its own capital access program providing portfolio 
        insurance for business loans (based on a separate loss reserve 
        fund for each financial institution), may apply at any time to 
        the Secretary to be approved to be a participating State. The 
        Secretary shall approve such State to be a participating State, 
        and to be eligible for reimbursements by the Secretary pursuant 
        to section 8, if the State--
                    (A) satisfies the requirements of subsection (a); 
                and
                    (B) certifies that each affected financial 
                institution has satisfied the requirements of section 
                5.
            (2) Applicable terms of participation.--
                    (A) Status of institutions.--If a State is approved 
                for participation under paragraph (1), each financial 
                institution with a participation agreement in effect 
                with the participating State shall immediately be 
                considered a participating financial institution. 
                Reimbursements may be made under section 8 in 
                connection with all contributions made to the reserve 
                fund by the State in connection with lending that 
                occurs on or after the date on which the Secretary 
                approves the State for participation.
                    (B) Effective date of participation.--If an amended 
                participation agreement that conforms with section 6 is 
                required in order to secure participation approval by 
                the Secretary, contributions subject to reimbursement 
                under section 8 shall include only those contributions 
                made to a reserve fund with respect to loans enrolled 
                on or after the date that an amended participation 
                agreement between the participating State and the 
                participating financial institution becomes effective.
                    (C) Use of accumulated reserve funds.--A State that 
                is approved for participation in accordance with this 
                subsection may continue to implement the program 
                utilizing the reserve funds accumulated under the State 
                program.
    (d) Prior Appropriations Requirement.--The Secretary shall not 
approve a State for participation in the Program until at least 
$50,000,000 has been appropriated to the Secretary (subject to an 
appropriations Act), without fiscal year limitation, for the purpose of 
making reimbursements pursuant to section 8.
    (e) Amendments to Agreements.--If a State that has been approved to 
be a participating State wishes to amend its form of participation 
agreement and continue to be a participating State, such State shall 
submit such amendment for review by the Secretary in accordance with 
subsection (b)(4). Any such amendment shall become effective only after 
it has been approved by the Secretary.

SEC. 5. PARTICIPATION AGREEMENTS.

    (a) In General.--A participating State may enter into a 
participation agreement with any financial institution determined by 
the participating State, after consultation with the appropriate 
Federal banking agency, to have sufficient commercial lending 
experience and financial and managerial capacity to participate in the 
Program. The determination by the State shall not be reviewable by the 
Secretary.
    (b) Participating Financial Institutions.--Upon entering into the 
participation agreement with the participating State, the financial 
institution shall become a participating financial institution eligible 
to enroll loans under the Program.

SEC. 6. TERMS OF PARTICIPATION AGREEMENTS.

    (a) In General.--The participation agreement to be entered into by 
a participating State and a participating financial institution shall 
include all provisions required by this section, and shall not include 
any provisions inconsistent with the provisions of this section.
    (b) Establishment of Separate Reserve Funds.--A separate reserve 
fund shall be established by the participating State for each 
participating financial institution. All funds credited to a reserve 
fund shall be the exclusive property of the participating State. Each 
reserve fund shall be an administrative account for the purposes of--
            (1) receiving all required premium charges to be paid by 
        the borrower and participating financial institution and 
        contributions by the participating State; and
            (2) disbursing funds, either to cover losses sustained by 
        the participating financial institution in connection with 
        loans made under the Program, or as contemplated by subsections 
        (d) and (r).
    (c) Investment Authority.--Subject to applicable State law, the 
participating State may invest funds held in a reserve fund by 
establishing a deposit account at the participating financial 
institution in the name of the participating State. In the event that 
funds in the reserve fund are not deposited in such an account, such 
funds shall be invested in a form that the participating State 
determines is safe and liquid.
    (d) Earned Income and Interest.--Interest or income earned on the 
funds credited to a reserve fund shall be deemed to be part of the 
reserve fund, except that a participating State may, as specified in 
the participation agreement, provide authority for the participating 
State to withdraw some or all of such interest or income earned.
    (e) Loan Terms and Conditions.--
            (1) In general.--A loan to be filed for enrollment under 
        the Program may be made with such interest rate, fees, and 
        other terms and conditions as agreed upon by the participating 
        financial institution and the borrower, consistent with 
        applicable law.
            (2) Lines of credit.--If a loan to be filed for enrollment 
        is in the form of a line of credit, the amount of the loan 
        shall be considered to be the maximum amount that can be drawn 
        by the borrower against the line of credit.
    (f) Enrollment Process.--
            (1) Filing.--
                    (A) In general.--A participating financial 
                institution shall file for enrollment of each loan made 
                under the Program by completing and submitting to the 
                participating State a form prescribed by the 
                participating State.
                    (B) Form.--The form referred to in subparagraph (A) 
                shall include a representation by the participating 
                financial institution that it has complied with the 
                participation agreement in enrolling the loan with the 
                State.
                    (C) Premium charges.--Accompanying the completed 
                form shall be the nonrefundable premium charges paid by 
                the borrower and the participating financial 
                institution, or evidence that such premium charges have 
                been deposited into the deposit account containing the 
                reserve fund, if applicable.
                    (D) Submission.--The participation agreement shall 
                require that the items required by this subsection 
                shall be submitted to the participating State by the 
                participating financial institutions not later than 10 
                calendar days after a loan is made.
            (2) Enrollment by state.--Upon receipt by the participating 
        State of the filing submitted in accordance with paragraph (1), 
        the participating State shall promptly enroll the loan and make 
        a matching contribution to the reserve fund in accordance with 
        subsection (j), unless the information submitted indicates that 
        the participating financial institution has not complied with 
        the participation agreement in enrolling the loan.
    (g) Coverage Amount.--In filing a loan for enrollment under the 
Program, the participating financial institution may specify an amount 
to be covered under the Program that is less than the full amount of 
the loan.
    (h) Premium Charges.--
            (1) Minimum and maximum amounts.--The premium charges 
        payable to the reserve fund by the borrower and the 
        participating financial institution shall be prescribed by the 
        participating financial institution, within minimum and maximum 
        limits set forth in the participation agreement. The 
        participation agreement shall establish minimum and maximum 
        limits whereby the sum of the premium charges paid in 
        connection with a loan by the borrower and the participating 
        financial institution is not less than 3 percent nor more than 
        7 percent of the amount of the loan covered under the Program.
            (2) Allocation of premium charges.--The participation 
        agreement shall specify terms for allocating premium charges 
        between the borrower and the participating financial 
        institution. However, if the participating financial 
        institution is required to pay any of the premium charges, the 
        participation agreement shall authorize the participating 
        financial institution to recover from the borrower the cost of 
        the participating financial institution's payment, in any 
        manner on which the participating financial institution and the 
        borrower agree.
    (i) Restrictions.--
            (1) Actions prohibited.--Except as provided in subsection 
        (h) and paragraph (2) of this subsection, the participating 
        State may not--
                    (A) impose any restrictions or requirements, 
                relating to the interest rate, fees, collateral, or 
                other business terms and conditions of the loan; or
                    (B) condition enrollment of a loan in the Program 
                on the State's review of the risk or creditworthiness 
                of a loan.
            (2) Effect on other law.--Nothing in this Act shall affect 
        the applicability of any other law to the conduct by a 
        participating financial institution of its business.
    (j) State Contributions.--In enrolling a loan under the Program, 
the participating State shall contribute to the reserve fund an amount, 
as provided for in the participation agreement, which shall not be less 
than the sum of the amount of premium charges paid by the borrower and 
the participating financial institution.
    (k) Claims by Financial Institutions.--
            (1) Filing.--If a participating financial institution 
        charges off all or part of an enrolled loan, such participating 
        financial institution may file a claim for reimbursement with 
        the participating State by submitting a form that--
                    (A) includes the participating financial 
                institution's representation that it is filing the 
                claim in accordance with the terms of the applicable 
                participation agreement; and
                    (B) contains such other information as may be 
                required by the participating State.
            (2) Timing.--Any claim filed under paragraph (1) shall be 
        filed contemporaneously with the action of the participating 
        financial institution to charge off all or part of an enrolled 
        loan. The participating financial institution shall determine 
        when and how much to charge off on an enrolled loan, in a 
        manner consistent with its usual method for making such 
        determinations on business loans that are not enrolled loans 
        under this Act.
    (l) Claims for Other Expenses.--A claim filed by a participating 
financial institution may include the amount of principal charged off, 
not to exceed the covered amount of the loan. Such claim may also 
include accrued interest and expenses, as provided for under the 
participation agreement.
    (m) Payment of Claims.--
            (1) In general.--Except as provided in subsection (n) and 
        paragraph (2) of this subsection, upon receipt of a claim filed 
        in accordance with this section and the participation 
        agreement, the participating State shall promptly pay to the 
        participating financial institution, from funds in the reserve 
        fund, the full amount of the claim as submitted.
            (2) Insufficient reserve funds.--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 participating financial institution an 
        amount equal to the current balance in the reserve fund. If the 
        enrolled loan for which the claim has been filed--
                    (A) is not an early loan, such payment shall be 
                deemed to fully satisfy the claim, and the 
                participating financial institution shall have no other 
                or further right to receive any amount from the reserve 
                fund with respect to such claim; or
                    (B) is an early loan, such partial payment shall 
                not be deemed to fully satisfy the participating 
                financial institution's claim, and at such time as the 
                remaining balance of the claim does not exceed 75 
                percent of the balance in the reserve fund, the 
                participating State shall, upon the request of the 
                participating financial institution, pay any remaining 
                amount of the claim.
    (n) Denial of Claims.--A participating State may deny a claim if a 
representation or warranty made by the participating financial 
institution to the participating State at the time that the loan was 
filed for enrollment or at the time that the claim was submitted was 
known by the participating financial institution to be false.
    (o) Subsequent Recovery of Claim Amount.--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 participating financial institution shall 
promptly pay to the participating State for deposit into the reserve 
fund the amount recovered, less any expenses incurred by the 
institution in collection of such amount.
    (p) Participation Agreement Terms.--
            (1) In general.--In connection with the filing of a loan 
        for enrollment in the Program, the participation agreement--
                    (A) shall require the participating financial 
                institution to obtain an assurance from each borrower 
                that--
                            (i) the proceeds of the loan will be used 
                        for a business purpose;
                            (ii) the loan will not be used to finance 
                        passive real estate ownership; and
                            (iii) the borrower is not--
                                    (I) an executive officer, director, 
                                or principal shareholder of the 
                                participating financial institution;
                                    (II) a member of the immediate 
                                family of an executive officer, 
                                director, or principal shareholder of 
                                the participating financial 
                                institution; or
                                    (III) a related interest of any 
                                such executive officer, director, 
                                principal shareholder, or member of the 
                                immediate family;
                    (B) shall require the participating financial 
                institution to provide assurances to the participating 
                State that the loan has not been made in order to place 
                under the protection of the Program prior debt that is 
                not covered under the Program and that is or was owed 
                by the borrower to the participating financial 
                institution or to an affiliate of the participating 
                financial institution;
                    (C) may provide that if--
                            (i) a participating financial institution 
                        makes a loan to a borrower that is a 
                        refinancing of a loan previously made to the 
                        borrower by the participating financial 
                        institution or an affiliate of the 
                        participating financial institution;
                            (ii) such prior loan was not enrolled in 
                        the Program; and
                            (iii) additional or new financing is 
                        extended by the participating financial 
                        institution as part of the refinancing,
                the participating financial institution may file the 
                loan for enrollment, with the amount to be covered 
                under the Program not to exceed the amount of any 
                additional or new financing; and
                    (D) may include additional restrictions on the 
                eligibility of loans or borrowers that are not 
                inconsistent with the provisions and purposes of this 
                Act.
            (2) Definitions.--For purposes of this subsection, the 
        terms ``executive officer'', ``director'', ``principal 
        shareholder'', ``immediate family'', and ``related interest'' 
        refer to the same relationship to a participating financial 
        institution as the relationship described in part 215 of title 
        12 of the Code of Federal Regulations, or any successor to such 
        part.
    (q) Termination Clause.--In each participation agreement, the 
participating State shall reserve for itself the ability to terminate 
its obligation to enroll loans under the Program. Any such termination 
shall be prospective only, and shall not apply to amounts of loans 
enrolled under the Program prior to such termination.
    (r) Allowable Withdrawals From Fund.--The participation agreement 
may provide that, if, for any consecutive period of not less than 24 
months, the aggregate outstanding balance of all enrolled loans for a 
participating financial institution is continually less than the 
outstanding balance in the reserve fund for that participating 
financial institution, the participating State, in its discretion, may 
withdraw an amount from the reserve fund to bring the balance in the 
reserve fund down to the outstanding balance of all such enrolled 
loans.

SEC. 7. REPORTS.

    (a) Reserve Funds Report.--On or before the last day of each 
calendar quarter, a participating State shall submit to the Secretary a 
report relating to contributions to reserve funds made by the 
participating State during the previous quarter. If the participating 
State has made contributions to one or more reserve funds during the 
previous quarter, the report shall--
            (1) indicate the total amount of such contributions;
            (2) indicate the amount of contributions which is subject 
        to reimbursement, which shall be equal to the total amount of 
        contributions, unless one of the limitations contained in 
        section 8 is applicable;
            (3) if one of the limitations in section 8 is applicable, 
        provide documentation of the applicability of such limitation 
        for each loan for which the limitation applies; and
            (4) include a certification by the participating State 
        that--
                    (A) the information provided in accordance with 
                paragraphs (1), (2), and (3) is accurate;
                    (B) funds in an amount meeting the minimum 
                requirements of section 4(b)(3) continue to be legally 
                committed to the reserve funds, less any amount that 
                has been contributed by the State to the reserve funds 
                subsequent to the State being approved for 
                participation in the Program;
                    (C) there has been no unapproved amendment to any 
                participation agreement or the form of participation 
                agreements; and
                    (D) the participating State is otherwise 
                implementing the Program in accordance with this Act 
                and regulations issued pursuant to section 10.
    (b) Annual Data.--Not later than March 31 of each year, each 
participating State shall submit to the Secretary data for the prior 
year indicating the number of borrowers financed under the Program, the 
total amount of covered loans, and breakdowns by industry type, loan 
size, annual sales, and number of employees of the borrowers financed.
    (c) Form.--The reports filed pursuant to subsections (a) and (b) 
shall be in such form as the Secretary may require.

SEC. 8. REIMBURSEMENT BY THE SECRETARY.

    (a) Reimbursements.--Not later than 30 calendar days after 
receiving a report filed in compliance with section 7, the Secretary 
shall reimburse the participating State in an amount equal to 50 
percent of the amount of contributions by the participating State to 
the reserve funds that are subject to reimbursement by the Secretary 
pursuant to section 7 and this section. The Secretary shall reimburse 
participating States, as it receives reports pursuant to section 7(a), 
until available funds are expended.
    (b) Size of Assisted Borrower.--The Secretary shall not provide any 
reimbursement to a participating State with respect to an enrolled loan 
made to a borrower that has 500 or more employees at the time that the 
loan is enrolled in the Program.
    (c) Three-Year Maximum.--The amount of reimbursement to be provided 
by the Secretary to a participating State over any 3-year period in 
connection with loans made to any single borrower or any group of 
borrowers among which a common enterprise exists shall not exceed 
$75,000. For purposes of this subsection, ``common enterprise'' shall 
have the same meaning as in part 32 of title 12 of the Code of Federal 
Regulations, or any successor to that part.
    (d) Loans Totaling Less Than $2,000,000.--In connection with a loan 
in which the covered amount of the loan plus the covered amount of all 
previous loans enrolled by a participating financial institution does 
not exceed $2,000,000, the amount of reimbursement by the Secretary to 
the participating State shall not exceed the lesser of--
            (1) 75 percent of the sum of the premium charges paid to 
        the reserve fund by the borrower and the participating 
        financial institution; or
            (2) 5.25 percent of the covered amount of the loan.
    (e) Loans Totaling More Than $2,000,000.--In connection with a loan 
in which the sum of the covered amounts of all previous loans enrolled 
by the participating financial institution in the Program equals or 
exceeds $2,000,000, the amount of reimbursement to be provided by the 
Secretary to the participating State shall not exceed the lesser of--
            (1) 50 percent of the sum of the premium charges paid by 
        the borrower and the participating financial institution; or
            (2) 3.5 percent of the covered amount of the loan.
    (f) Other Amounts.--In connection with the enrollment of a loan 
that will cause the aggregate amount of all enrolled loans to exceed 
$2,000,000, the amount of reimbursement by the Secretary to the 
participating State shall be determined--
            (1) by applying subsection (d) to the portion of the loan, 
        which when added to the amount of all previously enrolled loans 
        equals $2,000,000; and
            (2) by applying subsection (e) to the balance of the loan.

SEC. 9. REIMBURSEMENT TO THE SECRETARY.

    (a) In General.--If a participating State withdraws funds from a 
reserve fund pursuant to terms of the participation agreement permitted 
by subsection (d) or (r) of section 6, such participating State shall, 
not later than 15 calendar days after such withdrawal, submit to the 
Secretary an amount computed by multiplying the amount withdrawn by the 
appropriate factor, as determined under subsection (b).
    (b) Factor.--The appropriate factor shall be obtained by dividing 
the total amount of contributions that have been made by the 
participating State to all reserve funds which were subject to 
reimbursement--
            (1) by 2; and
            (2) by the total amount of contributions made by the 
        participating State to all reserve funds, including if 
        applicable, contributions that have been made by the State 
        prior to becoming a participating State if the State continued 
        its own capital access program in accordance with section 4(b).

SEC. 10. REGULATIONS.

    The Secretary shall promulgate appropriate regulations to implement 
this Act.

SEC. 11. AUTHORIZATION OF APPROPRIATIONS.

    There are authorized to be appropriated to the Secretary 
$50,000,000 to carry out this Act.

                                 <all>

S 478 IS----2