Findings

Congress finds the following: (1)Small and emerging businesses, particularly startups and businesses that lack sufficient or conventional collateral, continue to face barriers accessing midsized loans in amounts between $35,000 and $200,000, with affordable terms and conditions. (2)Consolidation in the banking industry has resulted in a decrease in the number of small, locally controlled banks with not more than $100,000,000 in assets and has changed the method by which banks make small business credit decisions with— (A)credit scoring techniques replacing relationship-based lending, which often works to the disadvantage of small or startup businesses that do not conform with a banks standardized credit formulas; and (B)less flexible terms and conditions, which are often necessary for small and emerging businesses. (3)In the environment described in paragraphs (1) and (2), nonprofit intermediary lenders, including community development corporations, provide financial resources that supplement the small business lending and investments of a bank by— (A)providing riskier, up front, or subordinated capital; (B)offering flexible terms and underwriting procedures; and (C)providing technical assistance to businesses in order to reduce the transaction costs and risk exposure of banks. (4)Several Federal programs, including the Microloan Program under section 7(m) of the Small Business Act (15 U.S.C. 636(m)) and the Intermediary Relending Program of the Department of Agriculture, have demonstrated the effectiveness of working through nonprofit intermediaries to address the needs of small business concerns that are unable to access capital through conventional sources. (5)More than 1,000 nonprofit intermediary lenders in the United States are— (A)successfully providing financial and technical assistance to small and emerging businesses; (B)working with banks and other lenders to leverage additional capital for their business borrowers; and (C)creating employment opportunities for low income individuals through their lending and business development activities.

Small business intermediary lending pilot program

(a)

In general

Section 7 of the Small Business Act (15 U.S.C. 636) is amended by inserting after subsection (k) the following new subsection:

(l)

Small business intermediary lending program

(1)

Definitions

For purposes of this subsection— (A)the term intermediary means a private, nonprofit entity that seeks to borrow, or has borrowed, funds from the Administration to provide midsize loans to small business concerns under this subsection, including— (i)a private, nonprofit community development corporation; (ii)a consortium of private, nonprofit organizations or nonprofit community development corporations; (iii)a quasi-governmental economic development entity (such as a planning and development district), other than a State, county, or municipal government; and (iv)an agency of or nonprofit entity established by a Native American Tribal Government; and (B)the term midsize loan means a fixed rate loan of not less than $35,000 and not more than $200,000, made by an intermediary to a startup, newly established, or growing small business concern. (2)

Establishment

There is established a 3-year small business intermediary lending pilot program (referred to in this section as the Program), under which the Administration may provide direct loans to eligible intermediaries, for the purpose of making fixed interest rate midsize loans to startup, newly established, and growing small business concerns. (3)

Purposes

The purposes of the small business intermediary lender pilot program are— (A)to assist small business concerns in those areas suffering from a lack of credit due to poor economic conditions; (B)to create employment opportunities for low income individuals; (C)to establish a midsize loan program to be administered by the Administration to provide loans to eligible intermediaries to enable such intermediaries to provide small scale loans, particularly loans in amounts averaging not more than $150,000, to startup, newly established, or growing small business concerns for working capital or the acquisition of materials, supplies, or equipment; (D)to test the effectiveness of nonprofit intermediaries— (i)as a delivery system for a midsize loan program; and (ii)in addressing the credit needs of small businesses and leveraging other sources of credit; and (E)to determine the advisability and feasibility of implementing a midsize loan program nationwide. (4)

Eligibility for participation

An intermediary shall be eligible to receive loans under the Program if the intermediary has at least 1 year of experience making loans to startup, newly established, or growing small business concerns. (5)

Loans to intermediaries

(A)

Application

Each intermediary desiring a loan under this subsection shall submit an application to the Administration that describes— (i)the type of small business concerns to be assisted; (ii)the size and range of loans to be made; (iii)the geographic area to be served and its economic, poverty, and unemployment characteristics; (iv)the status of small business concerns in the area to be served and an analysis of the availability of credit; and (v)the qualifications of the applicant to carry out this subsection. (B)

Loan limits

Notwithstanding subsection (a)(3), no loan may be made to an intermediary under this subsection if the total amount outstanding and committed to the intermediary from the business loan and investment fund established by this Act would, as a result of such loan, exceed $1,000,000 during the participation of the intermediary in the Program. (C)

Loan duration

Loans made by the Administration under this subsection shall be for a maximum term of 20 years. (D)

Applicable interest rates

Loans made by the Administration to an intermediary under the Program shall bear an annual interest rate equal to 1.00 percent. (E)

Fees; collateral

The Administration may not charge any fees or require collateral with respect to any loan made to an intermediary under this subsection. (F)

Leverage

Any loan to a small business concern under this subsection shall not exceed 75 percent of the total cost of the project funded by such loan, with the remaining funds being leveraged from other sources, including— (i)banks or credit unions; (ii)community development financial institutions; and (iii)other sources with funds available to the intermediary lender. (G)

Delayed payments

The Administration shall not require the repayment of principal or interest on a loan made to an intermediary under the Program during the first 2 years of the loan. (6)

Program funding for midsize loans

(A)

Number of participants

Under the Program, the Administration may provide loans, on a competitive basis, to not more than 20 intermediaries. (B)

Equitable distribution of intermediaries

The Administration shall select and provide funding under the Program to such intermediaries as will ensure geographic diversity and representation of urban and rural communities. (7)

Report to congress

(A)

Initial report

Not later than 30 months after the date of enactment of the Small Business Intermediary Lending Pilot Program Act of 2005, the Administration shall submit a report containing an evaluation of the effectiveness of the Program to— (i)the Committee on Small Business and Entrepreneurship of the Senate; and (ii)the Committee on Small Business of the House of Representatives. (B)

Annual report

Not later than 12 months after the date of enactment of the Small Business Intermediary Lending Pilot Program Act of 2005, and annually thereafter, the Administration shall submit a report containing an evaluation of the effectiveness of the Program to the Committees described in subparagraph (A). (C)

Contents

The reports submitted under subparagraphs (A) and (B) shall include— (i)the numbers and locations of the intermediaries receiving funds to provide midsize loans; (ii)the amounts of each loan to an intermediary; (iii)the numbers and amounts of midsize loans made by intermediaries to small business concerns; (iv)the repayment history of each intermediary; (v)a description of the loan portfolio of each intermediary, including the extent to which it provides midsize loans to small business concerns in rural and economically depressed areas; (vi)an estimate of the number of low income individuals who have been employed as a direct result of the Program; and (vii)any recommendations for legislative changes that would improve the operation of the Program.

(b)

Rulemaking authority

Not later than 180 days after the date of enactment of this Act, the Administrator shall issue regulations to carry out section 7(l) of the Small Business Act, as added by subsection (a). (c)

Authorization of appropriations

(1)

In general

There is authorized to be appropriated to the Small Business Administration such sums as may be necessary for each of fiscal years 2006 through 2008 to provide $20,000,000 in loans under section 7(l) of the Small Business Act, as added by subsection (a). (2)

Availability

Any amounts appropriated pursuant to paragraph (1) shall remain available until expended.