1.Short title; table of
contents; definitions
(a)This Act may be cited
as the 504 Loan Program Modernization
Act of 2006
.
(b)The table of
contents for this Act is as follows:
Sec. 1. Short title;
table of contents; definitions.
Sec. 2. Findings and purposes.
Sec. 3. Authorizations for 504 Loan Program.
Sec. 4. Certified development company economic
development.
Sec. 5. Definitions.
Sec. 6. Eligibility of development companies to be designated
as certified development companies; authority to issue debentures; providing an
area of operational authority, funding restrictions, and ethical
requirements.
Sec. 7. Conforming amendments.
Sec. 8. Definition of rural areas.
Sec. 9. Businesses in low-income areas.
Sec. 10. Combinations of certain goals.
Sec. 11. Repeal of sunset on reserve requirements for premier
certified lenders.
Sec. 12. Refinancing.
Sec. 13. Fees.
Sec. 14. Additional equity injections.
Sec. 15. Loan liquidations.
Sec. 16. Closing costs.
Sec. 17. Maximum 504 and 7(a) loan eligibility.
Sec. 18. Technical correction.
Sec. 19. Premier Certified Lenders Program report.
Sec. 20. Regulations.
(c)In this Act—
(1)the terms Administration and
Administrator means the Small Business Administration and the
Administrator thereof, respectively;
(2)the term Premier Certified Lenders
Program means the program established under section 508(a) of the Small
Business Investment Act of 1958 (15 U.S.C. 697e(a)); and
(3)the term 504 Loan Program
means the program to provide financing to small business concerns by guarantees
of loans under title V of the Small Business Investment Act of 1958 (15 U.S.C.
695 et seq.), which are funded by debentures guaranteed by the
Administrator.
2.
(a)Congress finds that—
(1)in pursuing its mission of aiding small
businesses, the Administration provides small businesses with access to credit,
primarily by guaranteeing loans through its 7(a) and 504 Loan Programs;
(2)the 504 Loan Program provides long-term,
fixed-rate financing to growing small businesses for expansion or
modernization, primarily of real estate and large equipment;
(3)the 504 financing is delivered through
certified development companies (in this section referred to as
CDCs
), about 270 typically preexisting nonprofit corporations,
established to contribute to the economic development of their
communities;
(4)during the 5 years preceding the date of
enactment of this Act, 504 loans have slightly increased to Hispanics and
Asians, but have been flat-level funded to African Americans, with 2 percent of
the loans, and have decreased in loans to women, from 19 percent to 15
percent;
(5)the CDC industry and the 504 Loan Program
have experienced unprecedented structural changes, such as the shift of all 504
loan processing, loan servicing and liquidation from 70 Administration district
offices to 1 or 2 centers in the country;
(6)in 2004, the Administration adopted
regulations that allowed for Statewide and multistate CDC operations, resulting
in increased competition and program growth in many areas of the country, with
limited accountability measures to ensure that CDCs are investing in local
economic development activities in each State as they expand; and
(7)such changes require Congress to examine
the 504 Loan Program and the industry and set a statutory course that ensures
that the intent and the mission of CDCs and the 504 Loan Program for the future
are clearly established as local economic development.
(b)The purpose and intent of this Act
are—
(1)to make a clear distinction between
nonprofit and for-profit lending practices through the preservation of the CDCs
as non-profit economic development intermediaries that are an essential element
in Congress’ and the Administration’s mission to assist small businesses to
foster local economic development through job creation and investment in all
our communities;
(2)to reconfirm the statutory intent of CDCs
as originally established in 1958 to provide small business programs, services,
and assistance that for-profit lenders do not provide;
(3)to direct the Administration within 90 days
of the date of enactment of this Act to report to the Committee on Small
Business and Entrepreneurship of the Senate and the Committee on Small Business
of the House of Representatives on how the Administration could implement 1
closing, rather than 2 in the 504 Loan Program, and potentially save the
borrower thousands in funds and retain outstanding participation of private
lenders;
(4)to direct the Administration to report on
the utilization of the Premier Certified Lender Program over the past 3 years,
specifically outlining how many 504 loans have been processed through the
program, what difficulties have been encountered in making these loans, and how
the number of loans in the program could be increased or streamlined;
(5)to establish the expansion of business in
low-income communities as a separate public policy goal to highlight the need
for CDCs to include such goal as a primary objective in future projects and
outreach to underserved populations;
(6)to ensure accountability as CDC operations
expand into contiguous States through timely authorizations by the
Administrator to operate in multistates and require that CDCs use excess funds
for local economic development projects in the area of operations where such
funds were generated and submit an annual report to the Administrator of such
projects in each State of operation;
(7)to provide small businesses which need both
long-term fixed asset financing through the 504 Loan Program and shorter term
working capital and equipment financing through the 7(a) loan program the
option of utilizing both Administration loan guaranty programs to their maximum
amount;
(8)to direct the Administration to require
that 504 defaulted loan liquidations and recoveries be processed by CDCs or
their designated third-party contractors, and that CDCs be compensated for the
cost of such liquidation activities; and
(9)to direct the Administration to establish
an incentive program directed to CDCs that foreclose and liquidate defaulted
loans.
3.Authorizations for 504
Loan ProgramSection 20 of the
Small Business Act (20 U.S.C. 631 note) is amended by adding at the end the
following:
(f)For the program
authorized under section 7(a)(13) and the 504 Loan Program, the Administrator
is authorized to make $8,500,000,000 in financings, and there are authorized to
be appropriated to the Administrator such sums as are necessary to carry out
such programs.
(g)For the program
authorized under section 7(a)(13) and the 504 Loan Program, the Administrator
is authorized to make $9,500,000,000 in financings, and there are authorized to
be appropriated to the Administrator such sums as are necessary to carry out
such programs.
(h)For the program authorized under section
7(a)(13) and the 504 Loan Program, the Administrator is authorized to make
$10,500,000,000 in financings, and there are authorized to be appropriated to
the Administrator such sums as are necessary to carry out such
programs.
.
4.Certified development
company economic developmentSection 504 of the Small Business Investment
Act of 1958 (15 U.S.C. 697a) is amended—
(1)by striking the section heading and
inserting the following: Private Debenture Sales and Program
Name
;
(2)by redesignating subsections (a) and (b) as
subsections (b) and (c), respectively; and
(3)by inserting before subsection (b) the
following:
(a)The program to provide
financing to small business concerns by guarantees of loans under this title,
which are funded by debentures guaranteed by the Administrator shall be known
as the Certified Development Company Economic Development Loan
Program
or the 504 Loan
Program
.
.
5.Section 103 of the Small Business Investment
Act of 1958 (15 U.S.C. 662) is amended—
(1)by striking paragraph (6) and inserting the
following:
(6)the term development company
means an entity incorporated under State law with the authority to promote and
assist the growth and development of small business concerns in the areas in
which it is authorized to operate by the
Administrator;
;
(2)in paragraph (16), by striking
and
at the end;
(3)in paragraph (17), by striking the period
at the end and inserting ; and
; and
(4)by adding at the end the following:
(18)the term certified development
company means a development company which the Administrator has
determined meets the criteria of section
506.
.
6.Eligibility of
development companies to be designated as certified development companies;
authority to issue debentures; providing an area of operational authority,
funding restrictions, and ethical requirementsSection 506 of the Small Business Investment
Act of 1958 (15 U.S.C. 697c) is amended to read as follows:
506.Certified
development companies
(a)Authority to
issue debenturesA
development company may issue debentures under this title if the Administrator
certifies that the company meets the following criteria:
(1)
(A)Except as provided in
subparagraph (B), the development company shall be a small business concern
with fewer than 500 employees, and shall not be under the control of any entity
that does not meet the size standards established by the Administrator for a
small business concern.
(B)Any development company that was certified
by the Administrator prior to December 31, 2005, may continue to issue
debentures under this title.
(2)A primary purpose of the development
company shall be to benefit the community by fostering economic development to
create and preserve jobs and stimulate private investment.
(3)A primary function
of the development company shall be to accomplish its purpose by providing long
term financing to small business concerns under the 504 Loan Program. The
development company may also provide or support other local economic
development activities to assist the community.
(4)
(A)Except as provided in
subparagraph (B), the development company shall be a nonprofit
corporation.
(B)A development company certified by the
Administrator prior to January 1, 1987, may continue to issue debentures under
this title and retain its status as a for-profit enterprise.
(5)The development
company shall be in compliance with all laws, including taxation requirements,
in the State in which such company is incorporated and in any other State in
which it conducts business.
(6)Membership of
development companyThere
shall—
(A)be not fewer than 25 members of the
development company (or owners or stockholders, if the corporation is a
for-profit entity)—
(i)none of whom may own or control more than
10 percent of the voting membership of the company; and
(ii)all of whom shall be residents of the area
of operations of the development company, as specified by the Administrator
under subsection (b); and
(B)be at least 1 member of the development
company from each of—
(i)government organizations that are
responsible for economic development;
(ii)financial institutions that provide
commercial long term fixed asset financing;
(iii)community organizations that are dedicated
to economic development; and
(iv)businesses.
(7)
(A)The development
company shall have a board of directors.
(B)Each member of the
board of directors of the development company shall be—
(i)a member of the development company;
(ii)elected by the members of the development
company; and
(iii)a resident of the area of operations of the
development company, as specified by the Administrator under subsection
(b).
(C)Representation
of organizations and institutionsThere shall be at least 1 member of the
board of directors from not fewer than 3 of the 4 organizations and
institutions described in paragraph (6)(B), none of whom is in a position to
control the development company.
(D)The board of directors of the development
company shall meet on a regular basis to make policy decisions for such
company.
(8)Professional
management and staff
(A)The development
company shall have full-time professional management, including a chief
executive officer to manage daily operations, and a full-time professional
staff qualified to market the 504 Loan Program and handle all aspects of loan
approval and servicing, including liquidation, if appropriate.
(B)Except as provided in subparagraph (C), the
development company shall be independently managed and operated to pursue the
economic development mission of the company and shall employ its chief
executive officer directly.
(C)
(i)A development company may be an affiliate
of another local nonprofit service corporation (other than a development
company) whose mission is to support economic development in the area in which
the development company operates.
(ii)A development company
and a local nonprofit service corporation with which it is affiliated may have
in common some, but not all, members of their respective boards of
directors.
(iii)Except as provided in clause (iv), a
development company may satisfy the requirement for full-time professional
staff under subparagraph (A) by contracting for the required staffing with an
entity with which the development company is affiliated, including—
(I)a local nonprofit service
corporation;
(II)a nonprofit affiliate of a local nonprofit
service corporation;
(III)an entity wholly or partially operated by a
governmental agency; or
(IV)another entity approved by the
Administrator.
(iv)A development company
located in a rural area, as defined in section 501(f), may satisfy the
requirements of a full-time professional staff and professional management
ability under subparagraph (A) by contracting with another certified
development company that has such staff and management ability and is located
in the same general area in which the development company is located.
(v)A development
company that was certified by the Administrator prior to January 1, 2006, and
that has contracted with a for-profit company to provide professional staff as
of such date may continue to contract for staffing with a for-profit
company.
(b)
(1)The Administrator
shall specify the area in which an applicant is certified to provide assistance
to small business concerns under this title.
(2)The Administrator shall
not authorize an applicant to provide assistance under paragraph (1) outside of
the State of incorporation of the development company when first authorizing an
applicant to provide assistance under this title, unless it proposes to operate
in a local economic area under subsection (c).
(c)Local economic
area requirement and exemption
(1)In this subsection, the term local
economic area means an area, as determined by the Administrator,
that—
(A)is in a State other than the State in which
a development company is incorporated;
(B)shares a border with the area of operations
of the development company; and
(C)is a part of a local trade area (including
a city that is bisected by a State line and a metropolitan statistical area
that is bisected by a State line) that is contiguous to the area of operations
of the development company.
(2)An applicant operating in a local economic
area shall not be deemed to be operating in a multistate area, and shall not be
required to comply with the requirements of multistate operation.
(d)After a development
company has demonstrated its ability to provide financial assistance in its
area of operations, it may request the Administrator to authorize the
development company to operate as a multistate certified development company
and to finance small business concerns under this title in a State other than
the State in which the development company is incorporated, if —
(1)such State is contiguous to the State in
which the development company is incorporated, except that the States of Alaska
and Hawaii shall be deemed to be contiguous to any State abutting the Pacific
ocean;
(2)the development company demonstrates its
proficiency in making and servicing loans under the 504 Loan Program by—
(A)requesting and receiving designation as an
accredited lender under section 507 or a premier certified lender under section
508; and
(B)meeting or exceeding performance standards
established by the Administrator;
(3)the development company adds additional
members of the development company from such State that—
(A)meet the requirements of subsection (a)(6);
and
(B)are residents of such State;
(4)the development company adds at least 1
member to its board of directors from such State; and
(5)the development company meets such other
criteria or comply with such conditions as the Administrator may
require.
(e)Processing of
expansion applicationsNot
later than 30 days after the date of receipt of an application under subsection
(d), the Administrator shall determine whether the development company meets
the requirements of subsection (d) and accept or reject the request of a
development company for approval as a multistate company in writing.
(f)Any funds generated by
a development company from making 504 loans which remain after payment of
staff, operating and overhead expenses shall be retained by the development
company as a reserve for—
(1)future operations;
(2)expanding the area in which the certified
development company operates or proposes to operate as a multistate development
company under subsection (d); or
(3)investment in other local community or
economic development activity in the State from which such funds were generated
or in a local economic area which includes part of the State of
incorporation.
(g)
(1)In this subsection—
(A)the term close relative means
a spouse, parent, child, sibling, or the spouse of a parent, child, or sibling;
and
(B)the term position of control
means an officer, member of the board of directors, manager, chief executive
officer, agent involved in the loan process, key employee or similar management
position of a certified development company and, if the development company is
a for-profit entity, a holder of 20 percent or more of the value of the stock
of the certified development.
(2)A certified
development company, and the officers, employees, and other staff of a
certified development company, shall at all times act ethically and avoid
activities which constitute a conflict of interest or appear to constitute a
conflict of interest.
(3)Control of
multiple companies
(A)No person, either
directly or indirectly, may hold a position of control on more than 1 certified
development company.
(B)No close relative of an individual who
holds a position of control in a certified development company may hold a
position of control in a certified development company, except for the
certified development company in which the individual serves.
(4)Prohibited
conflict in project loans
(A)Except as provided in
subparagraph (B), no certified development company may—
(i)recommend or approve a guarantee of a
debenture by the Administrator as part of a project under the 504 Loan Program
that is collateralized by a second lien position on the property being
constructed or acquired; and
(ii)provide, or be affiliated with a
corporation or other entity which directly or indirectly provides financing
collateralized by a first lien on the same property.
(B)A business development company that was
participating as a first mortgage lender under the 504 Loan Program in fiscal
year 2004 or 2005, either directly or through an affiliate, may continue to do
so.
(5)Other economic
development Activities
(A)Operation of
multiple programs to assist small business concerns in order for a certified
development company to carry out its economic development mission shall not be
deemed a conflict of interest for purposes of this section.
(B)
(i)Except as provided in
clause (ii), and notwithstanding any other provision of law, no certified
development company may accept funding from any source, including any
department or agency of the Federal Government—
(I)if such funding includes any conditions,
priorities or restrictions upon the types of small business concerns to which
the certified development company may provide financial assistance under this
title; or
(II)if such funding includes any conditions or
imposes any requirements, directly or indirectly, upon any recipient of
assistance under this title.
(ii)Clause (i) shall not apply if the source of
funding described in clause (i) provides all of the financial assistance to be
delivered by the certified development company to the small business concern
and such conditions, priorities, or restrictions are limited solely to the
financial assistance so provided.
(h)A certified development company shall
submit an annual report to the Administration regarding—
(1)the use of excess funds by the company
under subsection (f); and
(2)the involvement of the company with local
economic development activities in every State in which the certified
development company
operates.
.
7.Section 503 of the
Small Business Investment Act of 1958 (15 U.S.C. 697) is amended—
(1)in subsection (a)(1), by striking
qualified State or local development company
and inserting
certified development company
; and
(2)by striking subsection (e) and inserting
the following:
(e)Notwithstanding any other provision of law,
a certified development company is authorized to prepare applications for
deferred participation loans under section 7(a) of the Small Business Act, to
service such loans, and to charge a reasonable fee for servicing such
loans.
.
8.Definition of rural
areasSection 501 of the Small
Business Investment Act of 1958 (15 U.S.C. 695) is amended by adding at the end
the following:
(f)As used in this section, the terms
rural and rural area include any area other
than—
(1)a city or town that has a population
greater than 50,000 inhabitants; and
(2)the urbanized area contiguous and adjacent
to such a city or
town.
.
9.Businesses in
low-income areasSection
501(d)(3) of the Small Business Investment Act of 1958 (15 U.S.C. 695(d)(3)) is
amended—
(1)in subparagraph (G), by striking
or
at the end;
(2)in subparagraph (H), by striking the period
at the end and inserting , or
; and
(3)by adding at the end the following:
(I)expansion of businesses in low-income
communities (defined as any area which would be eligible for new markets tax
credits under section 45D(a) of the Internal Revenue Code of 1986, or
regulations issued
thereunder).
.
10.Combinations of
certain goalsSection 501(d)
of the Small Business Investment Act of 1958 (15 U.S.C. 695(d)) is amended by
inserting before the undesignated matter at the end the following:
(4)A small business concern which is owned by
more than 1 individual, or a corporation whose stock is owned by more than 1
individual, shall be deemed to have achieved a public policy goal under
paragraph (3) if not less than 51 percent of the small business concern is
owned by individuals who are in 1 or a combination of the groups described as
public policy goals in subparagraph (C) and (E) of paragraph
(3).
.
11.Repeal of sunset on
reserve requirements for premier certified lendersSection
508(c)(6)(B) of the Small Business Investment Act of 1958 (15 U.S.C.
697e(c)(6)(B)) is amended—
(1)in the subparagraph heading, by striking
Temporary
reduction
and inserting Reduction
; and
(2)by striking Notwithstanding
subparagraph (A), during the 2-year period beginning on the date that is 90
days after the date of the enactment of this subparagraph, the
and
inserting The
.
12.Section 502 of the Small Business Investment
Act of 1958 (15 U.S.C. 696) is amended by adding at the end the
following:
(7)Permissible
debt refinancing
(A)Any financing
approved under this title may also include a limited amount of debt
refinancing, as described in subparagraph (B).
(B)If the project for which a financing under
this title is sought involves the expansion of a small business concern which
has existing indebtedness collateralized by fixed assets, any amount of
existing indebtedness that does not exceed 1/2 of the
project cost of the expansion may be refinanced and added to the expansion
cost, if—
(i)the existing indebtedness was not financed
under the 504 Loan Program or under section 7(a) of the Small Business
Act;
(ii)the proceeds of the indebtedness were used
to acquire land, including a building situated thereon, to construct a building
thereon or to purchase equipment;
(iii)the borrower has been current on all
payments due on the existing debt for the 1-year period prior to the date on
which the application is submitted; and
(iv)the financing under the 504 Loan Program
will provide better terms or rate of interest than exists on the existing
debt.
.
13.
(a)Section 503(d) of the
Small Business Investment Act of l958 (15 U.S.C. 697(d)) is amended—
(1)by striking paragraph (2);
(2)by redesignating paragraph (3) as paragraph
(2); and
(3)in paragraph (2), as so redesignated, by
striking “0.125 percent” and inserting 0.155 percent
.
(b)Not later than 2 years after the effective
date under subsection (c), the Administrator shall submit to the Committee on
Small Business and Entrepreneurship of the Senate and the Committee on Small
Business of the House of Representatives a report assessing the impact of the
change in fees under subsection (a)(3) in fostering economic
development.
(c)The amendments made by
subsection (a) shall take effect and apply to loans approved under the 504 Loan
Program, on or after the date that is 30 days after the date of enactment of
this Act.
(d)Notwithstanding any other provision of law,
the Administrator shall recalculate the amount of the fee to be paid by a
borrower under section 503(b)(7) of the Small Business Investment Act of 1958
(15 U.S.C. 697(b)(7)) such that the cost of making guarantees under the 504
Loan Program is zero after the effective date under subsection (c).
14.Additional equity
injectionsSection
502(3)(B)(ii) of the Small Business Investment Act of 1958 (15 U.S.C.
696(3)(B)(ii)) is amended to read as follows:
(ii)Funding from
institutionsIf a small
business concern that is required to provide a contribution under clause (i),
(ii) or (iii) of subparagraph (C)—
(I)provides the minimum amount required under
such subparagraph, not less than 50 percent of the total cost of the project
shall come from financing provided by an institution described in subclause
(I), (II), or (III) of clause (i) of this subparagraph; or
(II)provides more than the minimum amount
required under such subparagraph, any contribution in excess of such minimum
amount may be used to reduce the amount required from an institution described
in subclause (I), (II), or (III) of clause (i) of this subparagraph, except
that the amount from such institution may not be reduced to an amount equal to
or less than the amount of the loan made by the
Administrator.
.
15.Section 510 of
the Small Business Investment Act of 1958 (15 U.S.C. 697g) is amended—
(1)by redesignating subsection (e) as
subsection (g); and
(2)by inserting after subsection (d) the
following::
(e)
(1)
(A)Any certified
development company that elects not to apply for authority to foreclose and
liquidate defaulted loans under this section, or that the Administrator
determines to be ineligible for such authority, shall contract with a
third-party to perform foreclosure and liquidation of defaulted loans in its
portfolio.
(B)Approval of
qualifications and termsA
contract under subparagraph (A) shall be contingent upon approval by the
Administrator of the qualifications of the contractor and the terms and
conditions of liquidation activities.
(2)This subsection shall not require any
certified development company to liquidate defaulted loans until after the date
on which the Administrator implements a program to compensate and reimburse
certified development companies under subsection (f).
(f)Compensation
and reimbursement
(1)Reimbursement
of expensesThe Administrator
shall reimburse each certified development company for all expenses paid by
such company as part of foreclosure and liquidation activities if the
expenses—
(A)were approved in advance by the
Administrator, either specifically or generally; or
(B)were incurred by the certified development
company on an emergency basis without prior approval from the Administrator, if
the Administrator determines that the expenses were reasonable and
appropriate.
(2)The Administrator
shall develop a schedule to compensate and provide an incentive to certified
development companies that foreclose and liquidate defaulted loans, which
schedule shall—
(A)be based on a percentage of the net amount
recovered;
(B)not exceed a maximum amount; and
(C)not apply to any foreclosure which is
conducted under a contract between a development company and a qualified
third-party to perform the foreclosure and
liquidation.
.
16.Section 503(b)(4) of the
Small Business Investment Act of 1958 (15 U.S.C. 697(b)(4)) is amended to read
as follows:
(4)the aggregate amount of such debenture does
not exceed the amount of the loans to be made from the proceeds of such
debenture plus, at the election of the borrower, other amounts attributable to
the administrative and closing costs of such loans, except for the attorney
fees of the
borrower;
.
17.Maximum 504 and 7(a)
loan eligibilitySection
502(2) of the Small Business Investment Act of 1958 (15 U.S.C. 696(2)) is
amended by adding at the end the following:
(C)Financing under the
504 Loan Program may be provided to a borrower in the maximum amount provided
in this subsection, and a loan guarantee under section 7(a) of the Small
Business Act may be provided to the same borrower, up to the maximum amount
provided in section 7(a)(3)(A) of such
Act.
.
18.Section 501(e)(2)
of the Small Business Investment Act of 1958 (15 U.S.C. 695(e)(2)) is amended
by striking outstanding
.
19.Premier Certified
Lenders Program report
(a)Not later than 90
days after the date of enactment of this Act, the Administrator shall submit to
the Committee on Small Business and Entrepreneurship of the Senate and the
Committee on Small Business of the House of Representatives a report regarding
the operation of the Premier Certified Lenders Program, during the 3-year
period ending on the date of enactment of this Act.
(b)The report submitted under subsection (a)
shall—
(1)include the number of loans made under the
Premier Certified Lenders Program;
(2)describe any difficulties encountered in
making such loans; and
(3)make recommendations, if any, regarding how
to increase the number of loans made under the Premier Certified Lenders
Program or streamline such program.
20.The Administrator shall—
(1)publish proposed regulations to implement
this Act and the amendments made by this Act not later than 120 days after the
date of enactment of this Act; and
(2)publish such regulations in final form not
later than 120 days after the date on which proposed regulations are published
under paragraph (1).