[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[H.R. 7175 Introduced in House (IH)]







110th CONGRESS
  2d Session
                                H. R. 7175

  To amend the Small Business Act to improve the section 7(a) lending 
                    program, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           September 27, 2008

 Ms. Velazquez (for herself, Mr. Chabot, Mr. David Davis of Tennessee, 
 Ms. Clarke, and Mr. Cuellar) introduced the following bill; which was 
              referred to the Committee on Small Business

_______________________________________________________________________

                                 A BILL


 
  To amend the Small Business Act to improve the section 7(a) lending 
                    program, and for other purposes.

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

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Small Business 
Financing Improvements Act of 2008''.
    (b) Table of Contents.--

Sec. 1. Short title; table of contents.
                       TITLE I--7(a) LOAN PROGRAM

Sec. 101. Loan pooling.
Sec. 102. Alternative size standard.
                       TITLE II--504 CDC PROGRAM

Sec. 201. Definitions.
Sec. 202. Eligibility of development companies to be designated as 
                            certified development companies.
Sec. 203. Definition of rural areas.
Sec. 204. Businesses in low-income areas.
Sec. 205. Combinations of certain goals.
Sec. 206. Refinancing.
Sec. 207. Additional equity injections.
Sec. 208. Loan liquidations.
Sec. 209. Closing costs.
Sec. 210. Uniform leasing policy.
          TITLE III--SMALL BUSINESS INVESTMENT COMPANY PROGRAM

Sec. 301. Simplified maximum leverage limits.
Sec. 302. Simplified aggregate investment limitations.

                       TITLE I--7(a) LOAN PROGRAM

SEC. 101. LOAN POOLING.

    Section 5(g)(1) of the Small Business Act (15 U.S.C. 634(g)(1)) is 
amended--
            (1) by inserting ``(A)'' before ``The Administration'';
            (2) by striking the colon and all that follows and 
        inserting a period; and
            (3) by adding at the end the following:
    ``(B) A trust certificate issued under subparagraph (A) shall be 
based on, and backed by, a trust or pool approved by the Administrator 
and composed solely of the guaranteed portion of such loans.
    ``(C) The interest rate on a trust certificate issued under 
subparagraph (A) shall be either--
            ``(i) the lowest interest rate on any individual loan in 
        the pool; or
            ``(ii) the weighted average interest rate of all loans in 
        the pool, subject to such limited variations in loan 
        characteristics as the Administrator determines appropriate to 
        enhance marketability of the pool certificates.''.

SEC. 102. ALTERNATIVE SIZE STANDARD.

    Section 3(a) of the Small Business Act (15 U.S.C. 632(a)) is 
amended by adding at the end the following:
            ``(5) Optional size standard.--
                    ``(A) In general.--The Administrator shall 
                establish an optional size standard for business loan 
                applicants under section 7(a) and development company 
                loan applicants under title V of the Small Business 
                Investment Act of 1958, which uses maximum tangible net 
                worth and average net income as an alternative to the 
                use of industry standards.
                    ``(B) Interim rule.--Until the date on which the 
                optional size standards established under subparagraph 
                (A) are in effect, the alternative size standard in 
                section 121.301(b) of title 13, Code of Federal 
                Regulations, or any successor thereto, may be used by 
                business loan applicants under section 7(a) and 
                development company loan applicants under title V of 
                the Small Business Investment Act of 1958.''.

                       TITLE II--504 CDC PROGRAM

SEC. 201. DEFINITIONS.

    Section 103(6) of the Small Business Investment Act of 1958 (15 
U.S.C. 662(6)) is amended to read as follows:
            ``(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 
        Administration, and the term `certified development company' 
        means a development company which the Administration has 
        determined meets the criteria of section 506;''.

SEC. 202. ELIGIBILITY OF DEVELOPMENT COMPANIES TO BE DESIGNATED AS 
              CERTIFIED DEVELOPMENT COMPANIES.

    Section 506 of the Small Business Investment Act of 1958 (15 U.S.C. 
697c) is amended to read as follows:

``SEC. 506. CERTIFIED DEVELOPMENT COMPANIES.

    ``(a) Authority To Issue Debentures.--A development company may 
issue debentures pursuant to this Act if the Administration certifies 
that the company meets the following criteria:
            ``(1) Size.--The development company is required to be a 
        small concern with fewer than 500 employees and not under the 
        control of any entity which does not meet the Administration's 
        size standards as a small business, except that any development 
        company which was certified by the Administration prior to 
        December 31, 2005 may continue to issue debentures.
            ``(2) Purpose.--The primary purpose of the development 
        company is to benefit the community by fostering economic 
        development to create and preserve jobs and stimulate private 
        investment.
            ``(3) Primary function.--The primary function of the 
        development company is to accomplish its purpose by providing 
        long-term financing to small businesses by the utilization of 
        the Certified Development Company Economic Development Loan 
        Program. It may also provide or support such other local 
        economic development activities to assist the community.
            ``(4) Non-profit status.--The development company is a non-
        profit corporation, except that a development company certified 
        by the Administration prior to January 1, 1987, may retain its 
        status as a for-profit corporation.
            ``(5) Good standing.--The development company is in good 
        standing in its State of incorporation and in any other State 
        in which it conducts business, and is in compliance with all 
        laws, including taxation requirements, in its State of 
        incorporation and in any other State in which it conducts 
        business.
            ``(6) Membership.--The development company should have at 
        least 25 members (or stockholders if the corporation is a for-
        profit entity), none of whom may own or control more than 20 
        percent of the company's voting membership, consisting of 
        representation from each of the following groups (none of which 
        are in a position to control the development company):
                    ``(A) Government organizations that are responsible 
                for economic development.
                    ``(B) Financial institutions that provide 
                commercial long-term fixed asset financing.
                    ``(C) Community organizations that are dedicated to 
                economic development.
                    ``(D) Businesses.
            ``(7) Board of directors.--The development company has a 
        board of directors that--
                    ``(A) is elected from the membership by the 
                members;
                    ``(B) should represent at least 3 of the 4 groups 
                enumerated in subsection (a)(6) with no group is in a 
                position to control the company; and
                    ``(C) meets on a regular basis to make policy 
                decisions for such company.
            ``(8) Professional management and staff.--The development 
        company has full-time professional management, including a 
        chief executive officer to manage daily operations, and a full-
        time professional staff qualified to market the Certified 
        Development Company Economic Development Loan Program and 
        handle all aspects of loan approval and servicing, including 
        liquidation, if appropriate. The development company is 
        required to be independently managed and operated to pursue its 
        economic development mission and to employ its chief executive 
        officer directly, with the following exceptions:
                    ``(A) A development company may be an affiliate of 
                another local non-profit service corporation 
                (specifically excluding another development company) 
                whose mission is to support economic development in the 
                area in which the development company operates. In such 
                a case:
                            ``(i) The development company may satisfy 
                        the requirement for full-time professional 
                        staff by contracting with a local non-profit 
                        service corporation (or one of its non-profit 
                        affiliates), or a governmental or quasi-
                        governmental agency, to provide the required 
                        staffing.
                            ``(ii) The development company and the 
                        local non-profit service corporation may have 
                        partially common boards of directors.
                    ``(B) A development company in a rural area (as 
                defined in section 501(f)) shall be deemed to have 
                satisfied the requirements of a full-time professional 
                staff and professional management ability if it 
                contracts with another certified development company 
                which has such staff and management ability and which 
                is located in the same general area to provide such 
                services.
                    ``(C) A development company that has been certified 
                by the Administration as of December 31, 2005, and that 
                has contracted with a for-profit company to provide 
                services as of such date may continue to do so.
    ``(b) Area of Operations.--The Administration shall specify the 
area in which an applicant is certified to provide assistance to small 
businesses under this title, which may not initially exceed its State 
of incorporation unless it proposes to operate in a local economic area 
which is required to include part of its State of incorporation and may 
include adjacent areas within several States. After a development 
company has demonstrated its ability to provide assistance in its area 
of operations, it may request the Administration to be allowed to 
operate in one or more additional States as a multi-State certified 
development company if it satisfies the following criteria:
            ``(1) Each additional State is contiguous to the State of 
        incorporation, except the States of Alaska and Hawaii shall be 
        deemed to be contiguous to any State abutting the Pacific 
        ocean.
            ``(2) It demonstrates its proficiency in making and 
        servicing loans under the Certified Development Company 
        Economic Development 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 Administration.
            ``(3) The development company adds to the membership of its 
        State of incorporation additional membership from each 
        additional State and the added membership meets the 
        requirements of subsection (a)(6).
            ``(4) The development company adds at least one member to 
        its board of directors in the State of incorporation, providing 
        that added member was selected by the membership of the 
        development company.
            ``(5) The company meets such other criteria or complies 
        with such conditions as the Administration deems appropriate.
    ``(c) Processing of Expansion Applications.--The Administration 
shall respond to the request of a certified development company for 
certification as a multi-State company on an expedited basis within 30 
days of receipt of a completed application if the application 
demonstrates that the development company meets the requirements of 
subsection (b)(1) through (b)(4).
    ``(d) Use of Funds Limited to State Where Generated.--Any funds 
generated by a not-for-profit development company from making loans 
under the Certified Development Company Economic Development Loan 
Program which remain after payment of staff, operating and overhead 
expenses shall be retained by the development company as a reserve for 
future operations, for expanding its area of operations in a local 
economic area as authorized by the Administration, or for investment in 
other local economic development activity in the State from which the 
funds were generated.
    ``(e) Ethical Requirements.--
            ``(1) In general.--Certified development companies, their 
        officers, employees and other staff, shall at all times act 
        ethically and avoid activities which constitute a conflict of 
        interest or appear to constitute a conflict of interest. No one 
        may serve as an officer, director or chief executive officer of 
        more than one certified development company.
            ``(2) Prohibited conflict in project loans.--As part of a 
        project under the Certified Development Company Economic 
        Development Loan Program, no certified development company may 
        recommend or approve a guarantee of a debenture by the 
        Administration that is collateralized by a subordinated lien 
        position on the property being constructed or acquired and also 
        provide, or be affiliated with a corporation or other entity, 
        for-profit or non-profit, which provides, financing 
        collateralized by a prior lien on the same property. Upon 
        approval by the Administrator, a business development company 
        that was participating as a first mortgage lender, either 
        directly or through an affiliate, for the Certified Development 
        Company Economic Development Loan Program in either fiscal 
        years 2004 or 2005 may continue to do so.
            ``(3) Other economic development activities.--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, 
        but notwithstanding any other provision of law, no development 
        company may accept funding from any source, including but not 
        limited to any department or agency of the United States 
        Government--
                    ``(A) if such funding includes any conditions, 
                priorities or restrictions upon the types of small 
                businesses to which they may provide financial 
                assistance under this title; or
                    ``(B) if it includes any conditions or imposes any 
                requirements, directly or indirectly, upon any 
                recipient of assistance under this title unless the 
                department or agency also provides all of the financial 
                assistance to be delivered by the development company 
                to the small business and such conditions, priorities 
                or restrictions are limited solely to the financial 
                assistance so provided.''.

SEC. 203. DEFINITION OF RURAL AREAS.

    Section 501 of the Small Business Investment Act of 1958 (15 U.S.C. 
695) is amended by adding at the end the following new subsection:
    ``(f) As used in subsection (d)(3)(D), the term `rural' shall 
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.''.

SEC. 204. BUSINESSES IN LOW-INCOME AREAS.

    Section 501(d)(3) of the Small Business Investment Act of 1958 (15 
U.S.C. 695(d)(3)) is amended by inserting after ``business district 
revitalization'' the following: ``or expansion of businesses in low-
income communities that would be eligible for new market tax credit 
investments under section 45D of the Internal Revenue Code of 1986 (26 
U.S.C. 45D)''.

SEC. 205. COMBINATIONS OF CERTAIN GOALS.

    Section 501(e) of the Small Business Investment Act of 1958 (15 
U.S.C. 695(e)) is amended by adding at the end the following:
            ``(7) A small business concern that is unconditionally 
        owned by more than one individual, or a corporation whose stock 
        is owned by more than one individual, is deemed to achieve a 
        public policy goal under subsection (d)(3) if a combined 
        ownership share of at least 51 percent is held by individuals 
        who are in one of the groups listed as public policy goals 
        specified in subsection (d)(3)(C) or (d)(3)(E).''.

SEC. 206. REFINANCING.

    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.--Any financing approved 
        under this title may also include a limited amount of debt 
        refinancing for debt that was not previously guaranteed by the 
        Administration. If the project involves expansion of a small 
        business which has existing indebtedness collateralized by 
        fixed assets, a limited amount may be refinanced and added to 
        the expansion cost, providing--
                    ``(A) the proceeds of the indebtedness were used to 
                acquire land, including a building situated thereon, to 
                construct a building thereon or to purchase equipment;
                    ``(B) the borrower has been current on all payments 
                due on the existing debt for at least the past year; 
                and
                    ``(C) the financing under the Certified Development 
                Company Economic Development Loan Program will provide 
                better terms or rate of interest than now exists on the 
                debt.''.

SEC. 207. ADDITIONAL EQUITY INJECTIONS.

    Clause (ii) of section 502(3)(B) of the Small Business Investment 
Act of 1958 (15 U.S.C. 696(3)(B)) is amended to read as follows:
                            ``(ii) Funding from institutions.--
                                    ``(I) If a small business concern 
                                provides the minimum contribution 
                                required under paragraph (C), not less 
                                than 50 percent of the total cost of 
                                any project financed pursuant to 
                                clauses (i), (ii), or (iii) of 
                                subparagraph (C) shall come from the 
                                institutions described in subclauses 
                                (I), (II), and (III) of clause (i).
                                    ``(II) If a small business concern 
                                provides more than the minimum 
                                contribution required under paragraph 
                                (C), any excess contribution may be 
                                used to reduce the amount required from 
                                the institutions described in 
                                subclauses (I), (II), and (III) of 
                                clause (i) except that the amount from 
                                such institutions may not be reduced to 
                                an amount less than the amount of the 
                                loan made by the Administration.''.

SEC. 208. LOAN LIQUIDATIONS.

    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) Participation.--
            ``(1) Mandatory.--Any certified development company which 
        elects not to apply for authority to foreclose and liquidate 
        defaulted loans under this section or which the Administration 
        determines to be ineligible for such authority shall contract 
        with a qualified third-party to perform foreclosure and 
        liquidation of defaulted loans in its portfolio. The contract 
        shall be contingent upon approval by the Administration with 
        respect to the qualifications of the contractor, the terms and 
        conditions of liquidation activities, and the ability to 
        reimburse such contractor.
            ``(2) Commencement.--The provisions of this subsection 
        shall not require any development company to liquidate 
        defaulted loans until the Administration has adopted and 
        implemented a program to compensate and reimburse development 
        companies as provided under subsection (f).
    ``(f) Compensation and Reimbursement.--
            ``(1) Reimbursement of expenses.--The Administration shall 
        reimburse each certified development company for all expenses 
        paid by such company as part of the foreclosure and liquidation 
        activities if the expenses--
                    ``(A) were approved in advance by the 
                Administration either specifically or generally; or
                    ``(B) were incurred by the company on an emergency 
                basis without Administration prior approval but which 
                were reasonable and appropriate.
            ``(2) Compensation for results.--The Administration shall 
        develop a schedule to compensate and provide an incentive to 
        qualified State or local development companies which foreclose 
        and liquidate defaulted loans. The schedule shall be based on a 
        percentage of the net amount recovered but shall not exceed a 
        maximum amount. The schedule shall not apply to any foreclosure 
        which is conducted pursuant to a contract between a development 
        company and a qualified third-party to perform the foreclosure 
        and liquidation.''.

SEC. 209. CLOSING COSTS.

    Paragraph (4) of section 503(b) of the Small Business Investment 
Act of 1958 (15 U.S.C. 697(b)) is amended to read as follows:
            ``(4) the aggregate amount of such debenture does not 
        exceed the amount of loans to be made from the proceeds of such 
        debenture plus, at the election of the borrower under the 
        Certified Development Company Economic Development Loan 
        Program, other amounts attributable to the administrative and 
        closing costs of such loans, except for the borrower's attorney 
        fees;''.

SEC. 210. UNIFORM LEASING POLICY.

    (a) In General.--Section 502 of the Small Business Investment Act 
of 1958 (15 U.S.C. 696) is amended--
            (1) by striking paragraphs (4) and (5) and inserting the 
        following:
            ``(4) Limitation on leasing.--If the use of a loan under 
        this section includes the acquisition of a facility or the 
        construction of a new facility, the small business concern 
        assisted--
                    ``(A) shall permanently occupy and use not less 
                than a total of 50 percent of the space in the 
                facility; and
                    ``(B) may, on a temporary or permanent basis, lease 
                to others not more than 50 percent of the space in the 
                facility.''; and
            (2) by redesignating paragraph (6) as paragraph (5).
    (b) Policy for 7(a) Loans.--Section 7(a)(28) of the Small Business 
Act (15 U.S.C. 636(a)(28)) is amended to read as follows:
            ``(28) Limitation on leasing.--If the use of a loan under 
        this subsection includes the acquisition of a facility or the 
        construction of a new facility, the small business concern 
        assisted--
                    ``(A) shall permanently occupy and use not less 
                than a total of 50 percent of the space in the 
                facility; and
                    ``(B) may, on a temporary or permanent basis, lease 
                to others not more than 50 percent of the space in the 
                facility.''.

          TITLE III--SMALL BUSINESS INVESTMENT COMPANY PROGRAM

SEC. 301. SIMPLIFIED MAXIMUM LEVERAGE LIMITS.

    Section 303(b) of the Small Business Investment Act of 1958 (15 
U.S.C. 683(b)) is amended--
            (1) by striking paragraph (2) and inserting the following:
            ``(2) Maximum leverage.--
                    ``(A) In general.--The maximum amount of 
                outstanding leverage made available to any one company 
                licensed under section 301(c) of this Act may not 
                exceed the lesser of--
                            ``(i) 300 percent of such company's private 
                        capital; or
                            ``(ii) $150,000,000.
                    ``(B) Multiple licenses under common control.--The 
                maximum amount of outstanding leverage made available 
                to two or more companies licensed under section 301(c) 
                of this Act that are commonly controlled (as determined 
                by the Administrator) and not under capital impairment 
                may not exceed $225,000,000.''; and
            (2) by striking paragraph (4).

SEC. 302. SIMPLIFIED AGGREGATE INVESTMENT LIMITATIONS.

    Section 306(a) of the Small Business Investment Act of 1958 (15 
U.S.C. 686(a)) is amended to read as follows:
    ``(a) Percentage Limitation on Private Capital.--If any small 
business investment company has obtained financing from the 
Administration and such financing remains outstanding, the aggregate 
amount of securities acquired and for which commitments may be issued 
by such company under the provisions of this title for any single 
enterprise shall not, without the approval of the Administration, 
exceed 10 percent of the sum of--
            ``(1) the private capital of such company; and
            ``(2) the total amount of leverage projected by the company 
        in the company's business plan that was approved by the 
        Administration at the time of the grant of the company's 
        license.''.
                                 <all>