[Congressional Record Volume 145, Number 111 (Monday, August 2, 1999)]
[House]
[Pages H6789-H6792]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




     CERTIFIED DEVELOPMENT COMPANY PROGRAM IMPROVEMENTS ACT OF 1999

  Mrs. KELLY. Mr. Speaker, I move to suspend the rules and pass the 
bill (H.R. 2614) to amend the Small Business Investment Act to make 
improvements to the certified development company program, and for 
other purposes.
  The Clerk read as follows:

                               H.R. 2614

       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 ``Certified Development 
     Company Program Improvements Act of 1999''.

     SEC. 2. WOMEN-OWNED BUSINESSES.

       Section 501(d)(3)(C) of the Small Business Investment Act 
     (15 U.S.C. 695(d)(3)(C)) is amended by inserting before the 
     comma ``or women-owned business development''.

     SEC. 3. MAXIMUM DEBENTURE SIZE.

       Section 502(2) of the Small Business Investment Act of 1958 
     (15 U.S.C. 696(2)) is amended to read as follows:
       ``(2) Loans made by the Administration under this section 
     shall be limited to $1,000,000 for each such identifiable 
     small business concern, except loans meeting the criteria 
     specified in section 501(d)(3), which shall be limited to 
     $1,300,000 for each such identifiable small business 
     concern.''.

     SEC. 4. FEES.

       Section 503(f) of the Small Business Investment Act of 1958 
     (15 U.S.C. 697(f)) is amended to read as follows:
       ``(f) Effective Date.--The fees authorized by subsections 
     (b) and (d) shall apply to financings approved by the 
     Administration on or after October 1, 1996, but shall not 
     apply to financings approved by the Administration on or 
     after October 1, 2003.''.

     SEC. 5. PREMIER CERTIFIED LENDERS PROGRAM.

       Section 217(b) of the Small Business Reauthorization and 
     Amendments Act of 1994 (relating to section 508 of the Small 
     Business Investment Act) is repealed.

     SEC. 6. SALE OF CERTAIN DEFAULTED LOANS.

       Section 508 of the Small Business Investment Act of 1958 
     (15 U.S.C. 697e) is amended--
       (1) in subsection (a), by striking ``On a pilot program 
     basis, the'' and inserting ``The'';
       (2) by redesignating subsections (d) though (i) as 
     subsections (e) though (j), respectively;
       (3) in subsection (f) (as redesignated by paragraph (2)), 
     by striking ``subsection (f)'' and inserting ``subsection 
     (g)'';
       (4) in subsection (h) (as redesignated by paragraph (2)), 
     by striking ``subsection (f)'' and inserting ``subsection 
     (g)''; and

[[Page H6790]]

       (5) by inserting after subsection (c) the following:
       ``(d) Sale of Certain Defaulted Loans.--
       ``(1) Notice.--If, upon default in repayment, the 
     Administration acquires a loan guaranteed under this section 
     and identifies such loan for inclusion in a bulk asset sale 
     of defaulted or repurchased loans or other financings, it 
     shall give prior notice thereof to any certified development 
     company which has a contingent liability under this section. 
     The notice shall be given to the company as soon as possible 
     after the financing is identified, but not less than 90 days 
     before the date the Administration first makes any records on 
     such financing available for examination by prospective 
     purchasers prior to its offering in a package of loans for 
     bulk sale.
       ``(2) Limitations.--The Administration shall not offer any 
     loan described in paragraph (1) as part of a bulk sale unless 
     it--
       ``(A) provides prospective purchasers with the opportunity 
     to examine the Administration's records with respect to such 
     loan; and
       ``(B) provides the notice required by paragraph (1).''.

     SEC. 7. LOAN LIQUIDATION.

       (a) Liquidation and Foreclosure.--Title V of the Small 
     Business Investment Act of 1958 (15 U.S.C. 695 et seq.) is 
     amended by adding at the end the following:

     ``SEC. 510. FORECLOSURE AND LIQUIDATION OF LOANS.

       ``(a) Delegation of Authority.--In accordance with this 
     section, the Administration shall delegate to any qualified 
     State or local development company (as defined in section 
     503(e)) that meets the eligibility requirements of subsection 
     (b)(1) the authority to foreclose and liquidate, or to 
     otherwise treat in accordance with this section, defaulted 
     loans in its portfolio that are funded with the proceeds of 
     debentures guaranteed by the Administration under section 
     503.
       ``(b) Eligibility for Delegation.--
       ``(1) Requirements.--A qualified State or local development 
     company shall be eligible for a delegation of authority under 
     subsection (a) if--
       ``(A) the company--
       ``(i) has participated in the loan liquidation pilot 
     program established by the Small Business Programs 
     Improvement Act of 1996 (15 U.S.C. 695 note), as in effect on 
     the day before promulgation of final regulations by the 
     Administration implementing this section;
       ``(ii) is participating in the Premier Certified Lenders 
     Program under section 508; or
       ``(iii) during the 3 fiscal years immediately prior to 
     seeking such a delegation, has made an average of not less 
     than 10 loans per year that are funded with the proceeds of 
     debentures guaranteed under section 503; and
       ``(B) the company--
       ``(i) has 1 or more employees--

       ``(I) with not less than 2 years of substantive, decision-
     making experience in administering the liquidation and 
     workout of problem loans secured in a manner substantially 
     similar to loans funded with the proceeds of debentures 
     guaranteed under section 503; and
       ``(II) who have completed a training program on loan 
     liquidation developed by the Administration in conjunction 
     with qualified State and local development companies that 
     meet the requirements of this paragraph; or

       ``(ii) submits to the Administration documentation 
     demonstrating that the company has contracted with a 
     qualified third-party to perform any liquidation activities 
     and secures the approval of the contract by the 
     Administration with respect to the qualifications of the 
     contractor and the terms and conditions of liquidation 
     activities.
       ``(2) Confirmation.--On request the Administration shall 
     examine the qualifications of any company described in 
     subsection (a) to determine if such company is eligible for 
     the delegation of authority under this section. If the 
     Administration determines that a company is not eligible, the 
     Administration shall provide the company with the reasons for 
     such ineligibility.
       ``(c) Scope of Delegated Authority.--
       ``(1) In general.--Each qualified State or local 
     development company to which the Administration delegates 
     authority under section (a) may with respect to any loan 
     described in subsection (a)--
       ``(A) perform all liquidation and foreclosure functions, 
     including the purchase in accordance with this subsection of 
     any other indebtedness secured by the property securing the 
     loan, in a reasonable and sound manner according to 
     commercially accepted practices, pursuant to a liquidation 
     plan approved in advance by the Administration under 
     paragraph (2)(A);
       ``(B) litigate any matter relating to the performance of 
     the functions described in subparagraph (A), except that the 
     Administration may--
       ``(i) defend or bring any claim if--

       ``(I) the outcome of the litigation may adversely affect 
     the Administration's management of the loan program 
     established under section 502; or
       ``(II) the Administration is entitled to legal remedies not 
     available to a qualified State or local development company 
     and such remedies will benefit either the Administration or 
     the qualified State or local development company; or

       ``(ii) oversee the conduct of any such litigation; and
       ``(C) take other appropriate actions to mitigate loan 
     losses in lieu of total liquidation or foreclosures, 
     including the restructuring of a loan in accordance with 
     prudent loan servicing practices and pursuant to a workout 
     plan approved in advance by the Administration under 
     paragraph (2)(C).
       ``(2) Administration approval.--
       ``(A) Liquidation plan.--
       ``(i) In general.--Before carrying out functions described 
     in paragraph (1)(A), a qualified State or local development 
     company shall submit to the Administration a proposed 
     liquidation plan.
       ``(ii) Administration action on plan.--

       ``(I) Timing.--Not later than 15 business days after a 
     liquidation plan is received by the Administration under 
     clause (i), the Administration shall approve or reject the 
     plan.
       ``(II) Notice of no decision.--With respect to any plan 
     that cannot be approved or denied within the 15-day period 
     required by subclause (I), the Administration shall within 
     such period provide in accordance with subparagraph (E) 
     notice to the company that submitted the plan.

       ``(iii) Routine actions.--In carrying out functions 
     described in paragraph (1)(A), a qualified State or local 
     development company may undertake routine actions not 
     addressed in a liquidation plan without obtaining additional 
     approval from the Administration.
       ``(B) Purchase of indebtedness.--
       ``(i) In general.--In carrying out functions described in 
     paragraph (1)(A), a qualified State or local development 
     company shall submit to the Administration a request for 
     written approval before committing the Administration to the 
     purchase of any other indebtedness secured by the property 
     securing a defaulted loan.
       ``(ii) Administration action on request.--

       ``(I) Timing.--Not later than 15 business days after 
     receiving a request under clause (i), the Administration 
     shall approve or deny the request.
       ``(II) Notice of no decision.--With respect to any request 
     that cannot be approved or denied within the 15-day period 
     required by subclause (I), the Administration shall within 
     such period provide in accordance with subparagraph (E) 
     notice to the company that submitted the request.

       ``(C) Workout plan.--
       ``(i) In general.--In carrying out functions described in 
     paragraph (1)(C), a qualified State or local development 
     company shall submit to the Administration a proposed workout 
     plan.
       ``(ii) Administration action on plan.--

       ``(I) Timing.--Not later than 15 business days after a 
     workout plan is received by the Administration under clause 
     (i), the Administration shall approve or reject the plan.
       ``(II) Notice of no decision.--With respect to any workout 
     plan that cannot be approved or denied within the 15-day 
     period required by subclause (I), the Administration shall 
     within such period provide in accordance with subparagraph 
     (E) notice to the company that submitted the plan.

       ``(D) Compromise of indebtedness.--In carrying out 
     functions described in paragraph (1)(A), a qualified State or 
     local development company may--
       ``(i) consider an offer made by an obligor to compromise 
     the debt for less than the full amount owing; and
       ``(ii) pursuant to such an offer, release any obligor or 
     other party contingently liable, if the company secures the 
     written approval of the Administration.
       ``(E) Contents of notice of no decision.--Any notice 
     provided by the Administration under subparagraphs 
     (A)(ii)(II), (B)(ii)(II), or (C)(ii)(II)--
       ``(i) shall be in writing;
       ``(ii) shall state the specific reason for the 
     Administration's inability to act on a plan or request;
       ``(iii) shall include an estimate of the additional time 
     required by the Administration to act on the plan or request; 
     and
       ``(iv) if the Administration cannot act because 
     insufficient information or documentation was provided by the 
     company submitting the plan or request, shall specify the 
     nature of such additional information or documentation.
       ``(3) Conflict of interest.--In carrying out functions 
     described in paragraph (1), a qualified State or local 
     development company shall take no action that would result in 
     an actual or apparent conflict of interest between the 
     company (or any employee of the company) and any third party 
     lender, associate of a third party lender, or any other 
     person participating in a liquidation, foreclosure, or loss 
     mitigation action.
       ``(d) Suspension or Revocation of Authority.--The 
     Administration may revoke or suspend a delegation of 
     authority under this section to any qualified State or local 
     development company, if the Administration determines that 
     the company--
       ``(1) does not meet the requirements of subsection (b)(1);
       ``(2) has violated any applicable rule or regulation of the 
     Administration or any other applicable law; or
       ``(3) fails to comply with any reporting requirement that 
     may be established by the Administration relating to carrying 
     out of functions described in paragraph (1).
       ``(e) Report.--
       ``(1) In general.--Based on information provided by 
     qualified State and local development companies and the 
     Administration, the Administration shall annually submit to 
     the Committees on Small Business of the House of 
     Representatives and of the Senate a report on the results of 
     delegation of authority under this section.
       ``(2) Contents.--Each report submitted under paragraph (1) 
     shall include the following information:

[[Page H6791]]

       ``(A) With respect to each loan foreclosed or liquidated by 
     a qualified State or local development company under this 
     section, or for which losses were otherwise mitigated by the 
     company pursuant to a workout plan under this section--
       ``(i) the total cost of the project financed with the loan;
       ``(ii) the total original dollar amount guaranteed by the 
     Administration;
       ``(iii) the total dollar amount of the loan at the time of 
     liquidation, foreclosure, or mitigation of loss;
       ``(iv) the total dollar losses resulting from the 
     liquidation, foreclosure, or mitigation of loss; and
       ``(v) the total recoveries resulting from the liquidation, 
     foreclosure, or mitigation of loss, both as a percentage of 
     the amount guaranteed and the total cost of the project 
     financed.
       ``(B) With respect to each qualified State or local 
     development company to which authority is delegated under 
     this section, the totals of each of the amounts described in 
     clauses (i) through (v) of subparagraph (A).
       ``(C) With respect to all loans subject to foreclosure, 
     liquidation, or mitigation under this section, the totals of 
     each of the amounts described in clauses (i) through (v) of 
     subparagraph (A).
       ``(D) A comparison between--
       ``(i) the information provided under subparagraph (C) with 
     respect to the 12-month period preceding the date on which 
     the report is submitted; and
       ``(ii) the same information with respect to loans 
     foreclosed and liquidated, or otherwise treated, by the 
     Administration during the same period.
       ``(E) The number of times that the Administration has 
     failed to approve or reject a liquidation plan in accordance 
     with subparagraph (A)(i), a workout plan in accordance with 
     subparagraph (C)(i), or to approve or deny a request for 
     purchase of indebtedness under subparagraph (B)(i), including 
     specific information regarding the reasons for the 
     Administration's failure and any delays that resulted.''.
       (b) Regulations.--
       (1) In general.--Not later than 150 days after the date of 
     enactment of this Act, the Administrator shall issue such 
     regulations as may be necessary to carry out section 510 of 
     the Small Business Investment Act of 1958, as added by 
     subsection (a) of this section.
       (2) Termination of pilot program.--Beginning on the date 
     which the final regulations are issued under paragraph (1), 
     section 204 of the Small Business Programs Improvement Act of 
     1996 (15 U.S.C. 695 note) shall cease to have effect.

  The SPEAKER pro tempore. Pursuant to the rule, the gentlewoman from 
New York (Mrs. Kelly) and the gentlewoman from New York (Ms. Velazquez) 
each will control 20 minutes.
  The Chair recognizes the gentlewoman from New York (Mrs. Kelly).
  Mrs. KELLY. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I rise in strong support of H.R. 2614, which amends the 
Small Business Investment Act to make changes in the Section 504 loan 
program administered by the Small Business Administration. The 504 loan 
program guarantees small business loans for construction and renovation 
and provides nearly $3 billion of financial assistance every year. Mr. 
Speaker, let me briefly describe the provisions of H.R. 2614.
  H.R. 2614, will increase the maximum debenture size for Section 504 
loans from $750,000 to $1 million, and the size of public policy 
debenture backed loans from $1 million to $1,300,000. It has been 10 
years since the committee acted to increase the maximum guarantee 
amount in the 504 program. To keep pace with inflation, the maximum 
guarantee amount should be increased to approximately $1.25 million; 
however, the committee believes that a simple increase to $1 million is 
probably sufficient.
  This increase is especially needed in the 504 program because it is 
primarily a real estate-based program and the cost of commercial real 
estate has increased markedly in the last several years.
  H.R. 2614 also adds women-owned businesses to the current list of 
businesses eligible for the larger public policy loans of up to $1.3 
million. This continues our efforts to increase assistance to women-
owned businesses.

                              {time}  1600

  The Committee on Small Business recognizes the important role women-
owned businesses play in the economy and believes this change is needed 
to ensure the expansion of this sector of our economy.
  H.R. 2614 will reauthorize also the fees currently levied on the 
borrower, the Certified Development Company, and the participating 
bank. The 504 program now operates with a zero subsidy rate based on 
calculations estimating the net present value of a year's loans plus 
fees and recoveries from defaulted loans minus losses.
  The fees in the 504 program cover all these costs, resulting in a 
program that operates at no cost to the taxpayer. The fees sunset on 
October 1, 2000 and H.R. 2614 will continue them through October 1, 
2003.
  Additionally, 2614 will grant permanent status to the Preferred 
Certified Lender Program before it sunsets at the end of fiscal year 
2000. This program enables experienced CDCs to use streamlined 
procedures for loan making and liquidation, resulting in improved 
service to the small business borrower and reduced losses and 
liquidation costs.
  Finally, to address the problem of low recovery rates on defaulting 
504 loans, H.R. 2614 makes the Loan Liquidation Pilot Program a 
permanent program. This gives qualified and experienced CDCs the 
ability to handle the liquidation of loans with only minimal 
involvement of the SBA, resulting in savings to the program, and a 
corresponding reduction in the fees charged to the borrowers and the 
lenders.
  Mr. Speaker, I again want to urge my colleagues to support H.R. 2614. 
It will mean a significant improvement in services to their small 
business constituents, and a reduction in the cost of providing those 
services.
  Mr. Speaker, I reserve the balance of my time.
  Ms. VELAZQUEZ. Mr. Speaker, I yield myself such time as I may 
consume.
  Mr. Speaker, I rise in strong support of H.R. 2614, legislation that 
will update and improve the Certified Development Company, also known 
as the 504 program. The proposed changes to this program are thoughtful 
changes that will help more businesses gain access to the capital they 
need.
  The 504 program is one of the most important small business loan 
programs administered by the Small Business Administration. It 
represents access to capital for countless entrepreneurs who might 
otherwise not have a chance to turn their dreams into reality. Since 
1980, over 25,000 businesses have received more than $20 billion in 
fixed asset financing through the 504 program.
  I believe that the proposed changes to the 504 program are reasonable 
and designed to update the program. By increasing the debenture size, 
granting the Premier Certified Lenders Program permanent status, adding 
women-owned businesses to the policy goals, and making the loan 
liquidation program permanent, we will be strengthening an already 
exemplary program. These steps also continue the committee's commitment 
to improve and update the program by making it more responsive to the 
needs of lenders and small businesses alike. This is a model program 
and I strongly support this legislation.
  There is a lot of talk today about economic development and providing 
opportunity for all Americans. This comes from a realization that, 
despite the recent economic growth, many of our communities lag behind. 
There are still too many neighborhoods that are not enjoying the 
economic growth felt by many in our communities. We need to not only 
provide jobs, but jobs with a living wage, so that families can pull 
themselves out of poverty. Small businesses represent the engine of our 
economy and they have the ability to provide these jobs.
  I have seen firsthand what effect the 504 program can have on a 
community. Recently I visited Les Fres Ford, a recipient of a 504 loan 
in my district. This business will use the 504 loan to build a new 
service center which will allow them to better serve their customers 
and expand their business. It will also bring up to 50 new jobs to the 
community. These are good-paying jobs that will help families in the 
communities I represent.
  The changes made by H.R. 2614 will allow this program to continue 
assisting entrepreneurs in one of the most critical areas in business 
expansion, finance assistance for building and equipment purchases. 
These are critical ingredients for business growth, and the 504 
programs make sure that small businesses continue to grow. When a 
business is able to expand, everyone benefits.

[[Page H6792]]

  Mr. Speaker, I urge the adoption of this legislation.
  Mr. Speaker, I reserve the balance of my time.
  Mrs. KELLY. Mr. Speaker, I yield myself such time as I may consume 
and strongly urge passage of H.R. 2614.
  Ms. MILLENDER-McDONALD. Mr. Speaker, I would like to rise in support 
of H.R. 2614, the Certified Development Company Loan Program.
  This bill will ensure a greater access to capital for potential 
business owners. By providing this access, this will allow our economy 
to continue to grow and ensure future prosperity for the country. H.R. 
2614 makes a number of necessary changes to the Small Business 
Administration's (SBA) 504 loan program.
  H.R. 2614 allows more businesses to have access to loans. It is clear 
that access to loans gives business owners access to opportunities. In 
addition, by increasing the debenture size, we will allow Certified 
Development Companies (CDCs) to make more loans.
  H.R. 2614 increases opportunities for business owned by women. Based 
on statistics, women-owned businesses contribute more than $2.38 
Trillion annually in revenues to the economy, which is more than the 
gross domestic product of most countries. Women owned businesses also 
employ one out of every five workers in the United States, which is a 
total of 18.5 million employees. Based on these facts, women must have 
adequate access to capital through loans.
  Mr. Speaker, we must ensure that the 504 loan program remains 
solvent. The 504 program is a self-sufficient program which is driven 
by the market. Through the reauthorization of fees, we can ensure the 
solvency of the program. We also have a responsibility to make the 504 
program more efficient. Under the Premier Certified Lender Program, 
specific experienced CDC's are granted the authority to approve 
debentures without SBA involvement. In return, the lenders agree to 
reimburse the SBA 10% of any loss on a debenture guaranteed by the SBA. 
By making the Premier Certified Lender Program permanent, the 504 
program will be more efficient.
  The 504 loan program must properly serve the borrower. The current 
loan liquidation program has been successful in ensuring that the 504 
program works for borrowers. Loan liquidation is the most expensive 
portion of the 504 program. Through the involvement of the CDC, which 
has resulted in a higher response rate, the overall costs are lowered 
for the program. By lowering the cost of the program, businesses will 
have access to reduced rates on loans, which will lower expenses to 
small businesses.
  H.R. 2614 is good for borrowers and small businesses and is therefore 
good for our economy. We should vote in favor of H.R. 2614 and expand 
opportunities for small business owners.
  Mrs. KELLY. Mr. Speaker, I have no further requests for time, and I 
yield back the balance of my time.
  Ms. VELAZQUEZ. Mr. Speaker, I have no further requests for time, and 
I yield back the balance of my time.
  The SPEAKER pro tempore (Mr. Miller of Florida). The question is on 
the motion offered by the gentlewoman from New York (Mrs. Kelly) that 
the House suspend the rules and pass the bill, H.R. 2614.
  The question was taken; and (two-thirds having voted in favor 
thereof) the rules were suspended and the bill was passed.
  A motion to reconsider was laid on the table.

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