[House Report 110-104]
[From the U.S. Government Publishing Office]



110th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    110-104

======================================================================



 
            SMALL BUSINESS LENDING IMPROVEMENTS ACT OF 2007

                                _______
                                

 April 20, 2007.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

  Ms. Velazquez, from the Committee on Small Business, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 1332]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Small Business, to whom was referred the 
bill (H.R. 1332) to improve the access to capital programs of 
the Small Business Administration, and for other purposes, 
having considered the same, report favorably thereon with an 
amendment and recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
   I. Amendment.......................................................1
  II. Purpose of the Bill and Summary.................................8
 III. Background and Need for Legislation.............................9
  IV. Hearings.......................................................12
   V. Committee Consideration........................................12
  VI. Committee Votes................................................12
 VII. Section-by-Section Analysis of H.R. 1332.......................12
VIII. Congressional Budget Office Cost Estimate......................19
  IX. Committee Estimate of Costs....................................21
   X. Oversight Findings.............................................22
  XI. Statement of Constitutional Authority..........................22
 XII. Compliance With Public Law 104-4...............................22
XIII. Congressional Accountability Act...............................22
 XIV. Federal Advisory Committee Statement...........................22
  XV. Statement of No Earmarks.......................................22
 XVI. Performance Goals and Objectives...............................22
XVII. Changes in Existing Law Made by the Bill, as Reported..........22

                       I. Amendment to H.R. 1332

    The Amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

  (a) Short Title.--This Act may be cited as the ``Small Business 
Lending Improvements Act of 2007''.
  (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; table of contents.

                         TITLE I--7(A) PROGRAM

Sec. 101. Authority for fee contributions.
Sec. 102. Rural Lending Outreach Program.
Sec. 103. Community Express program made permanent.
Sec. 104. Medical Professionals in Designated Shortage Areas Program.
Sec. 105. Increased Veteran Participation Program.
Sec. 106. Alternative size standard.
Sec. 107. Support to regional offices.

   TITLE II--CERTIFIED DEVELOPMENT COMPANY ECONOMIC DEVELOPMENT LOAN 
                                PROGRAM

Sec. 201. Certified Development Company Economic Development Loan 
Program.
Sec. 202. Definitions.
Sec. 203. Eligibility of development companies to be designated as 
certified development companies.
Sec. 204. Definition of rural areas.
Sec. 205. Businesses in low-income areas.
Sec. 206. Combinations of certain goals.
Sec. 207. Refinancing.
Sec. 208. Additional equity injections.
Sec. 209. Loan liquidations.
Sec. 210. Closing costs.
Sec. 211. Maximum Certified Development Company and 7(a) loan 
eligibility.
Sec. 212. Eligibility for energy efficiency projects.
Sec. 213. Loans for plant projects used for energy-efficient purposes.
Sec. 214. Extension of period during which loss reserves of premier 
certified lenders determined on the basis of outstanding balance of 
debentures.
Sec. 215. Extension of alternative loss reserve pilot program for 
certain premier certified lenders.

                         TITLE I--7(A) PROGRAM

SEC. 101. AUTHORITY FOR FEE CONTRIBUTIONS.

  Section 7(a) of the Small Business Act (15 U.S.C. 636(a)) is 
amended--
          (1) in paragraph (18)(A) by striking ``shall collect'' and 
        inserting ``shall assess and collect'';
          (2) in paragraph (18) by adding at the end the following:
                  ``(C) Offset.--The Administrator may, as provided in 
                paragraph (32), offset fees assessed and collected 
                under subparagraph (A).'';
          (3) in paragraph (23) by striking subparagraph (C) and adding 
        at the end the following:
                  ``(C) Offset.--The Administrator may, as provided in 
                paragraph (32), offset fees assessed and collected 
                under subparagraph (A).''; and
          (4) by adding at the end the following:
          ``(32) Fee contributions.--
                  ``(A) In general.--To the extent that amounts are 
                made available to the Administrator for the purpose of 
                fee contributions, the Administrator shall--
                          ``(i) first consider contributing to fees 
                        paid by small business borrowers under clauses 
                        (i) through (iii) of paragraph (18)(A), to the 
                        maximum extent possible; and
                          ``(ii) then consider contributing to fees 
                        paid by small business lenders under paragraph 
                        (23)(A).
                  ``(B) Quarterly adjustment.--Each fee contribution 
                under subparagraph (A) shall be effective for one 
                fiscal quarter and shall be adjusted as necessary for 
                each fiscal quarter thereafter to ensure that the 
                amounts under subparagraph (A) are fully used. The fee 
                contribution for a fiscal quarter shall be based on the 
                loans that the Administrator projects will be made 
                during that fiscal quarter, given the program level 
                authorized by law for that fiscal year and any other 
                factors that the Administrator considers 
                appropriate.''.

SEC. 102. RURAL LENDING OUTREACH PROGRAM.

  Section 7(a) of the Small Business Act (15 U.S.C. 636(a)) is 
amended--
          (1) by striking paragraph (25)(C); and
          (2) by adding at the end the following:
          ``(33) Rural lending outreach program.--The Administrator 
        shall carry out a rural lending outreach program to provide up 
        to an 85 percent guaranty for loans of $250,000 or less. The 
        program shall be carried out only through lenders located in 
        rural areas (as `rural' is defined in section 501(f) of the 
        Small Business Investment Act of 1958). For a loan made through 
        the program, the following shall apply:
                  ``(A) The Administrator shall approve or disapprove 
                the loan within 36 hours.
                  ``(B) The program shall use abbreviated application 
                and documentation requirements.
                  ``(C) Minimum credit standards, as the Administrator 
                considers necessary to limit the rate of default on 
                loans made under the program, shall apply.''.

SEC. 103. COMMUNITY EXPRESS PROGRAM MADE PERMANENT.

  (a) In General.--Section 7(a) of the Small Business Act (15 U.S.C. 
636(a)) is amended by adding at the end the following:
          ``(34) Community express program.--The Administrator shall 
        carry out a Community Express Program for loans of $250,000 or 
        less. For a loan made under this paragraph, the following shall 
        apply:
                  ``(A) The loan shall be made to a business concern--
                          ``(i) the majority ownership interest of 
                        which is directly held by individuals who are 
                        women, socially or economically disadvantaged 
                        individuals (as defined by the Administrator), 
                        or veterans of the Armed Forces; or
                          ``(ii) that is located in a low- or moderate-
                        income area, as defined by the Administrator.
                  ``(B) The loan shall comply with the collateral 
                policy of the Administration, except that, if the 
                amount of the loan is less than or equal to $25,000, 
                the Administration shall not require the lender to take 
                collateral.
                  ``(C) The loan shall include terms requiring the 
                lender to ensure that technical assistance is provided 
                to the borrower, through the lender or a third-party 
                provider.
                  ``(D) The Administration shall approve or disapprove 
                the loan within 36 hours.''.
  (b) Notice and Comment.--The program required by section 7(a)(34) of 
the Small Business Act, as added by subsection (a), shall be 
established after the opportunity for notice and comment and not later 
than 180 days after the date of the enactment of this Act.

SEC. 104. MEDICAL PROFESSIONALS IN DESIGNATED SHORTAGE AREAS PROGRAM.

  (a) In General.--Section 7(a) of the Small Business Act (15 U.S.C. 
636(a)) is amended by adding at the end the following:
          ``(35) Medical professionals in designated shortage areas 
        program.--The Administrator shall carry out a Medical 
        Professionals in Designated Shortage Areas Program. For a loan 
        made under this paragraph, the following shall apply:
                  ``(A) The loan shall be made to a business concern 
                that provides properly licensed medical, dental, or 
                psychiatric services to the public.
                  ``(B) The loan shall be for the purpose of opening a 
                business concern in a health professional shortage area 
                (as defined in section 332 of the Public Health Service 
                Act (42 U.S.C. 254e)).
                  ``(C) The loan shall include the participation by the 
                Administration equal to 90 percent of the balance of 
                the financing outstanding at the time of disbursement.
                  ``(D) The fees on the loan under paragraphs (18) and 
                (23) shall be reduced by half.''.
  (b) Notice and Comment.--The program required by section 7(a)(35) of 
the Small Business Act, as added by subsection (a), shall be 
established after the opportunity for notice and comment and not later 
than 180 days after the date of the enactment of this Act.

SEC. 105. INCREASED VETERAN PARTICIPATION PROGRAM.

  (a) In General.--Section 7(a) of the Small Business Act (15 U.S.C. 
636(a)) is amended by adding at the end the following:
          ``(36) Increased veteran participation program.--The 
        Administrator shall carry out an Increased Veteran 
        Participation Program. For a loan made under this paragraph, 
        the following shall apply:
                  ``(A) The loan shall be made to a business concern 
                the majority ownership interest of which is directly 
                held by individuals who are veterans of the Armed 
                Forces.
                  ``(B) The loan shall include the participation by the 
                Administration equal to 90 percent of the balance of 
                the financing outstanding at the time of disbursement.
                  ``(C) The fees on the loan under paragraphs (18) and 
                (23) shall not apply.''.
  (b) Notice and Comment.--The program required by section 7(a)(36) of 
the Small Business Act, as added by subsection (a), shall be 
established after the opportunity for notice and comment and not later 
than 180 days after the date of the enactment of this Act.

SEC. 106. ALTERNATIVE SIZE STANDARD.

  (a) In General.--Section 3(a) of the Small Business Act (15 U.S.C. 
632(a)) is amended by adding at the end the following:
          ``(5) In addition to any other size standard under this 
        subsection, the Administrator shall establish, and permit a 
        lender making a loan under section 7(a) and a lender making a 
        loan under the development company loan program to use, an 
        alternative size standard. The alternative size standard shall 
        be based on factors including maximum tangible net worth and 
        average net income.''.
  (b) Applicability.--Until the Administrator establishes, under 
section 3(a)(5) of the Small Business Act (as added by subsection (a)), 
an alternative size standard in the case of a lender making a loan 
under section 7(a) of that Act, the alternative size standard in 
section 121.301(b) of title 13, Code of Federal Regulations, shall 
apply to such a case.

SEC. 107. SUPPORT TO REGIONAL OFFICES.

  Section 7(a) of the Small Business Act (15 U.S.C. 636(a)) is amended 
by adding at the end the following:
          ``(37) Support to regional offices.--The Administrator shall 
        carry out a program, within an element of the Administration 
        already in existence as of the date of the enactment of the 
        Small Business Lending Improvements Act of 2007, to provide 
        support to regional offices of the Administration in assisting 
        small lenders who do not participate in the preferred lender 
        program to participate in the 7(a) program.''.

   TITLE II--CERTIFIED DEVELOPMENT COMPANY ECONOMIC DEVELOPMENT LOAN 
                                PROGRAM

SEC. 201. CERTIFIED DEVELOPMENT COMPANY ECONOMIC DEVELOPMENT LOAN 
                    PROGRAM.

  Section 504 of the Small Business Investment Act of 1958 (15 U.S.C. 
697a) is amended--
          (1) by redesignating subsections (a) and (b) as subsections 
        (b) and (c); and
          (2) by inserting before subsection (b) (as so redesignated) 
        the following:
  ``(a) The program to provide financing to small businesses by 
guarantees of loans under this Act which are funded by debentures 
guaranteed by the Administration may be known as the ``Certified 
Development Company Economic Development Loan Program''.''.

SEC. 202. 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. 203. 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 has at least 25 
        members (or stockholders if the corporation is a for-profit 
        entity), none of whom may own or control more than 10 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) represents at least three of the four groups 
                enumerated in subsection (a)(6) and 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 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 second 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 
        first lien on the same property. 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. 204. 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. 205. 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. 206. 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. 207. 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, any amount of existing indebtedness that does not 
        exceed one-half of the project cost of the expansion 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. 208. 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. 209. 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 and the terms 
        and conditions of liquidation activities.
          ``(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. 210. 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. 211. MAXIMUM CERTIFIED DEVELOPMENT COMPANY AND 7(A) LOAN 
                    ELIGIBILITY.

  Section 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) Combination financing.--Financing under this 
                title may be provided to a borrower in the maximum 
                amount provided in this subsection, plus a loan 
                guarantee under section 7(a) of the Small Business Act 
                may also be provided to the same borrower in the 
                maximum provided in section 7(a)(3)(A) of such Act.''.

SEC. 212. ELIGIBILITY FOR ENERGY EFFICIENCY PROJECTS.

  Section 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 inserting after subparagraph (H) the following:
                  ``(I) reduction of energy consumption by at least 10 
                percent.''.

SEC. 213. LOANS FOR PLANT PROJECTS USED FOR ENERGY-EFFICIENT PURPOSES.

  Section 502(2)(A) of the Small Business Investment Act of 1958 (15 
U.S.C. 696(2)(A)) is amended--
          (1) in clause (ii) by striking ``and'' at the end;
          (2) in clause (iii) by striking the period at the end and 
        inserting ``; and''; and
          (3) by adding at the end the following:
                          ``(iv) $4,000,000 for each project that 
                        reduces the borrower's energy consumption by at 
                        least 10 percent.''.

SEC. 214. EXTENSION OF PERIOD DURING WHICH LOSS RESERVES OF PREMIER 
                    CERTIFIED LENDERS DETERMINED ON THE BASIS OF 
                    OUTSTANDING BALANCE OF DEBENTURES.

  Section 508(c)(6)(B) of the Small Business Investment Act of 1958 (15 
U.S.C. 697e(c)(6)(B)) is amended by striking ``during the 2-year period 
beginning on the date that is 90 days after the date of the enactment 
of this subparagraph,'' and inserting ``through the end of fiscal year 
2008,''.

SEC. 215. EXTENSION OF ALTERNATIVE LOSS RESERVE PILOT PROGRAM FOR 
                    CERTAIN PREMIER CERTIFIED LENDERS.

  Section 508(c)(7)(J) of the Small Business Investment Act of 1958 (15 
U.S.C. 697e(c)(7)(J)) is amended by striking ``means'' and all that 
follows through the period at the end and inserting ``means each 
calendar quarter through the end of fiscal year 2008.''

                        II. Purpose and Summary

    The Small Business Lending Improvements Act of 2007 will 
update and streamline the SBA's two largest small business 
finance programs, the 7(a) and 504 programs. The bill will make 
the 7(a) program more affordable to borrowers and lenders by 
providing the SBA with authority to contribute funds for the 
purpose of reducing the burden associated with borrower and 
lender fees on 7(a) loans without disturbing the stability that 
the program currently enjoys under a zero-subsidy policy. The 
bill will also encourage increased lender participation in the 
7(a) program by establishing programs within the 7(a) framework 
that simplify and streamline the lending process. A rural 
lender outreach program will reduce the paperwork burden 
associated with 7(a) loans for lenders located in rural areas.
    H.R. 1332 will also make the Community Express Program 
permanent, providing the SBA with a dedicated program to 
increase the access to capital for socially and economically 
disadvantaged small business owners. The bill also adapts the 
7(a) program to achieve specific public policy objectives 
through improved access to the program for medical 
professionals located in federally designated Health 
Professional Shortage Areas (HPSAs). The bill will also provide 
U.S. military veterans with the increased access to capital 
that they need for their small businesses, which is 
particularly important as more veterans return from active 
deployment in Iraq and Afghanistan.
    H.R. 1332 will establish a Small Bank Outreach division 
within the SBA to provide community banks with direct support 
in their efforts to participate in the 7(a) program and will 
authorize the SBA to develop a simplified size standard for 
7(a) loans modeled on the successful alternative size standard 
that the agency currently maintains for the 504 program.
    The Small Business Lending Improvements Act of 2007 will 
also make an array of technical changes to the 504 program by 
modernizing and improving the program by addressing two of the 
program's most evident problems. The bill will improve the 
program's ability to liquidate defaulted loans by permitting 
CDCs to either foreclose and liquidate defaulted loans or to 
contract with a qualified third party to do so. The bill will 
also enhance the ties between CDCs and the communities that 
they serve by requiring CDCs to include community members from 
their designated areas of operation on their board of 
directors.

                III. Background and Need for Legislation

    The 7(a) loan program is the SBA's primary business loan 
program. It is the agency's largest and most important in terms 
of number of loans and program level supported. The 7(a) 
program provides loan guarantees to eligible small businesses 
that have been unable to obtain financing through the private 
sector because commercial lenders cannot provide these loans 
for the purpose, in the amount, or on terms that small business 
borrowers require.
    The program relies on private-sector lenders to provide 
loans that are, in turn, guaranteed by the SBA. The proceeds 
from a 7(a) loan may be used for virtually any business purpose 
including: working capital; acquisition of furniture, fixtures, 
machinery and equipment, purchase of inventory; construction, 
renovation, and purchase of real estate. In this manner, the 
program seeks to make capital more available and more 
affordable for small business entrepreneurs.
    Legislation is required to address several problems in the 
7(a) loan program. Steadily increasing borrower and lender fees 
have made capital less affordable and less accessible for many 
entrepreneurs. This has been accompanied by a trend of 
decreased lender participation in the program, particularly 
among small and rural lenders. If the 7(a) program is to 
fulfill its mission of making capital affordable and accessible 
to small businesses, legislation will be necessary to reduce 
borrower and lender fees, increase lender participation, and 
open the program to a larger number of individuals.
    Since FY 2005, the 7(a) program's costs have been funded 
through fees levied on the program's borrowers and lenders. 
Currently, for smaller loans (less than $150,000) guarantee 
fees are 2 percent of the guaranteed loan amount. For loans 
between $150,000 and $700,000, 7(a) guarantee fees are 3 
percent of the guaranteed loan amount, and for loan amounts 
greater than $700,000, guarantee fees are 3.5 percent of the 
guaranteed loan amount. These fees are upfront costs that 
borrowers pay to acquire the loan. Over the past two years, 
these borrower fees have doubled for smaller loans and have 
increased as much as 20 percent for larger loans.
    Lender fees have also increased under the 7(a) program. In 
October 2006, the annual on-going servicing fee for 7(a) loans 
increased from 0.545 to the statutory maximum of 0.55 percent 
of the outstanding guaranteed amount of the loan. These fees 
are ongoing annual fees that lenders pay to the SBA for loan 
servicing. Although the SBA has proposed lowering the lender 
fee to 0.494 basis points FY 2008, this fee level is still just 
short of double the lender fee only four years earlier.
    The increase in borrower and lender fees correlates with 
negative trends in lending volume, average loan size, and 
program participation among specific groups. For FY 2006, the 
7(a) program provided 97,294 7(a) loans in a total amount of 
$14.5 billion. This represented a 3 percent decline in loan 
volume from FY 2005. In FY 2006, the average size of a 7(a) 
loan was $149,300. This represented a 37 percent decline in 
average loan size from FY 2002 levels when the average size of 
a 7(a) loan was $236,280. During the same period, the total 
number loans made under the 7(a) program has more than doubled 
from 51,610 to 97,294. SBA statistics demonstrate a similar 
trend in Veteran participation over this same period. From FY 
2005 to FY 2006, at a time when more veterans have been 
returning from active deployment in Iraq and Afghanistan, 
veteran participation in the 7(a) program has declined by over 
three hundred loans and $170 million.
    The total number of lenders in the 7(a) program has also 
been steadily declining as the agency has eliminated programs 
that reduce the application paperwork and loan processing 
burdens associated with 7(a) loans. The decline in lender 
participation correlates with a trend of increased lending 
concentration among a few large lenders. In FY 2006, only 2,267 
lenders participated in the 7(a) program. This represented an 
18 percent decline from FY 2005 and a 21 percent decline in the 
number of lenders from FY 2002.
    Additionally, 72 percent of the lenders in the 7(a) program 
made fewer than ten 7(a) loans in FY 2006. By contrast, only 16 
lenders--less than one percent of lenders in the program--made 
more than 1,000 loans. This is consistent with a continuing 
trend in lending activity concentration. In FY 2005, one lender 
accounted for nearly 20 percent of all 7(a) loans. By contrast, 
0.2 percent of the lenders account for almost 70 percent of the 
entire 7(a) program's lending in FY 2005.
    In September of 2005, the SBA discontinued the LowDoc 
program. This has left the 7(a) program without a program 
focused on reducing the documentation burdens associated with 
7(a) lending and encourage greater program participation among 
smaller lenders. Additionally, the SBA's FY 2008 budget 
proposal lacks specifics as to how the agency will broaden 
lender participation in the Community Express program, which 
serves individuals in low- and moderate-income areas. This 
program currently exists as a pilot program, and it is unclear 
if the administration has any intention of making this program 
permanent.
    The 504 Program provides permanent, fixed-rate financing 
for businesses to acquire industrial or commercial buildings or 
heavy equipment and machinery. The program is delivered by 
local Certified Development Companies (CDCs) working in 
partnership with private lenders and the SBA. Typically, a 504 
project includes a loan secured with a senior lien from a 
private-sector lender covering up to 50 percent of the project 
cost, a loan secured with a junior lien from the CDC (backed by 
a 100 percent SBA-guaranteed debenture) covering up to 40 
percent of the cost, and a contribution of at least 10 percent 
equity from the small business being helped.
    The 504 program differs from the 7(a) loan program, which 
provides variable rate, shorter term financing for general 
business needs. Additionally, unlike 7(a) loans, which are 
delivered by financial institutions, 504 loans are delivered 
through CDCs and must satisfy certain economic development 
criteria.
    Although the 504 program suffers from fewer problems 
compared to the 7(a) program, legislation is nonetheless 
necessary to address two problems in the program. Legislation 
is required to reinforce the program's traditional principles 
of economic development and local reinvestment, which have been 
goals of the program since its inception. In addition, 
legislation is required to improve the liquidation of defaulted 
504 loans, which is essential to minimize the program's costs.
    Under current SBA regulations, many CDCs have been able to 
expand their lending operations into other states or other 
CDCs' ``areas of operation.'' While this has created more 
competition in the 504 program between CDCs, it has also 
undercut the traditional ties between CDCs and the local 
communities that they were intended to serve. Additionally, 
this geographic expansion undermines CDC reinvestment in their 
local communities, which has been at the foundation of the 504 
since its inception. Neither of these trends is well monitored 
by the SBA.
    Because 504 functions as a zero-subsidy program, effective 
liquidation of defaulted loans remain an important 
consideration. Under a zero-subsidy structure, fees paid by 
borrowers, lenders, and by CDCs must cover all projected loan 
losses. The SBA's success in minimizing losses on defaulted 
loans is vital to keeping fees low. The SBA has centralized the 
liquidation function for defaulted 504 loans and it is unclear 
whether SBA district offices have the remaining expertise or 
staff necessary to perform liquidations on defaulted loans. If 
fee increases are to be avoided, the SBA must be able to 
streamline and improve the 504 program's liquidation capacity.

                              IV. Hearings

    In the 110th Congress, the Committee on Small Business held 
a hearing on the SBA's 7(a) and 504 financing programs on March 
1, 2007. The Committee subsequently held a hearing on H.R. 
1332, the Small Business Lending Improvements Act of 2007 on 
March 8, 2007.

                       V. Committee Consideration

    The Committee on Small Business met in open session on 
March 15, 2007, and ordered H.R. 1332 reported to the House, as 
amended, by a voice vote.

                          VI. Committee Votes

    A motion by Ms. Velazquez to report the bill, as amended, 
to the House with a favorable recommendation was AGREED to by a 
voice vote.
    The following amendment was considered and disposed of by 
voice vote:
    A manager's amendment by Ms. Velazquez, No. 021, was AGREED 
TO by a voice vote.
    The following amendment was offered and withdrawn:
    An amendment by Ms. Fallin, No. 002, on a Special Rule for 
Affiliation of Small Business Concerns, was OFFERED and 
WITHDRAWN.

             VII. Section-by-Section Analysis of H.R. 1332


                                Title I


Sec. 101  Authority for fee contributions

    This provision would permit the SBA to contribute funds for 
the purpose of reducing the burden associated with borrower and 
lender fees on loans in the 7(a) program. Fee contributions 
would be commensurate with an appropriation, if made available, 
and a specified program level. To ensure that any amounts made 
available for the purpose of fee contributions are fully used 
during the fiscal year, contribution amounts should be adjusted 
quarterly. Although the precise allocation between lender and 
borrower fees will be within the discretion of the 
Administrator, the Committee expects that priority will be 
given to reducing borrower fees if funds are made available for 
the purpose of fee reductions.
    The Committee intends for this provision to make the 7(a) 
program more affordable to borrowers and lenders by providing 
the SBA with authority to contribute funds for the purpose of 
reducing the burden associated with borrower and lender fees on 
7(a) loans. The Committee does not believe that the stability 
that the program currently enjoys under a zero-subsidy policy 
will be disturbed. The administration will continue to assess 
and collect the fees necessary to operate the program without 
an appropriation and subsidy and will continue to calculate the 
budget estimates and assumptions for the fiscal year just as it 
currently does to operate the 7(a) program under a zero subsidy 
framework. The Committee foresees no circumstance in which the 
program would cease operation or be short of necessary program 
level to operate at full capacity.
    H.R. 1332 simply provides the administration with the 
authority to contribute funds to reduce the fee burden 
associated with 7(a) loans if and when an appropriation is made 
available. In years when no appropriation is made available, 
the Committee expects the program to function with the 
stability that the zero-subsidy policy currently provides. In 
years when a subsidy is made available, borrowers and lenders 
will enjoy the benefits of reduced fee burdens.
    The Committee does not believe that Section 101 is 
inconsistent with the Federal Credit Reform Act, nor does it 
believe that it requires the SBA to revise the loan type mix 
and performance estimates on a quarterly basis. The Federal 
Credit Reform Act does not require a one-time estimation of 
loan program costs and assumptions, only that such estimates 
and assumptions be initially calculated for the current fiscal 
year. Further, the Federal Credit Reform Act does not prevent 
subsequent estimates and revisions to assumptions based on 
changes to the program during the current fiscal year. 
Consequently, the Committee does not believe that this 
provision conflicts with provisions of the Federal Credit 
Reform Act.

Sec. 102  The Rural Lender Outreach Program

    This provision would establish a program to encourage 
increased lender participation in the 7(a) program by reducing 
application burdens for borrowers and lenders in rural areas to 
streamline and expedite the lending process on loans with an 
85% guarantee on amounts up to $250,000. Loans made under this 
program would use abbreviated application and documentation 
requirements and require the SBA to approve or decline the loan 
within 36 hours.
    The Committee believes that this program will help 
alleviate the trend of declining lender participation in the 
7(a) program, particularly among lenders in rural areas. The 
Committee anticipates that this program can increase lender 
efficiency and reduce the cost of processing 7(a) loans for the 
SBA, lenders, and borrowers, thereby encouraging greater lender 
participation in the 7(a) loan program. The Committee does not, 
however, believe that abbreviated application and documentation 
requirements should result in lower underwriting standards. The 
Committee intends for loans made under this program to remain 
consistent with prudent banking practices and that lenders 
should continue to follow established and proven internal 
credit review and analysis procedures for loans of similar size 
and type. To ensure that this occurs, the Committee intends for 
the SBA to establish minimum credit standards as it feels 
necessary to limit the rate of default on loans made under this 
program.

Sec. 103  Make permanent the Community Express program

    This provision would make the Community Express pilot 
program permanent. The program will provide loans to businesses 
majority owned by women, socially or economically disadvantaged 
individuals, U.S. military veterans, or businesses located 
designated in low- and moderate-income areas. Over the past 
five years, the SBA has relied on the Community Express pilot 
program as the primary mechanism for making loans to these 
groups. The Committee believes that this program must be 
maintained given the decline in both the number and dollar 
amount of loans that the SBA has made to these groups. From FY 
2005 to FY 2006 alone, the number of 7(a) loans made to women-
owned businesses declined 10 percent. During the same time 
period, the number of 7(a) loans to veteran-owned businesses 
declined 4 percent.
    The Committee believes that lenders participating in the 
program should be allowed to use, to the maximum extent 
possible, their own loan analyses, loan procedures and loan 
documentation. This includes their own application forms, 
internal credit memoranda, notes, collateral documents, 
servicing documentation and liquidation documentation. However, 
in using their documents and procedures, the Committee intends 
for lenders to continue to follow established and proven 
internal credit review and analysis procedures for loans of 
similar size and type.
    Under the Community Express program, borrowers must receive 
technical and management assistance (``T.A.'') prior to and 
following loan closing from a local non-profit provider or from 
the participating lender. The technical assistance must be 
coordinated, arranged, and when necessary, paid for by the 
lender. To encourage participating lenders to aggressively 
address the targeted businesses, and to offset some of the 
additional costs associated with the technical assistance 
component, SBA's loan guaranty under the pilot program is the 
same as under the regular 7(a) program--a maximum of 85% on 
loans up to $250,000.
    The Committee intends for the Community Express program to 
follow collateral standards that the SBA promulgated under the 
existing pilot program. For this reason, the SBA shall not 
require lenders to take collateral for loans less than $25,000. 
This provision does not, however, require that loans under 
$25,000 be uncollateralized. To the contrary, a lender may 
require collateral on loans of $25,000 or less if they feel a 
particular loan so warrants. This provision will simply 
preclude the SBA from setting collateral requirements on loans 
of $25,000 or less. This provision is intended to streamline 
the lending process, particularly in situations when collateral 
may be unnecessary.

Sec. 104  Medical professionals in designated shortage areas program

    This provision would establish a program to reduce borrower 
and lender fees by half and increase the guaranty to 90 percent 
for loans made to doctors and dentists located in Federally 
designated Health Professional Shortage Areas (HPSAs). The 
Committee believes that this program, in combination with 
existing federal assistance programs, will encourage more 
health professionals to establish their small businesses in 
HPSAs.
    Additionally, this program could be utilized by health 
professionals located in HPSAs to purchase health information 
technology (IT) for their small businesses.

Sec. 105  Increased veteran participation program

    This provision would establish a program to eliminate 
borrower and lender fees and increase the guarantee to 90 
percent for loans made to veteran-owned small businesses. The 
Committee believes that this program will significantly 
ameliorate the declining numbers of military veterans 
participating in the 7(a) program, particularly at a time when 
more veterans are returning from active deployments in Iraq and 
Afghanistan and are seeking capital for their small businesses.

Sec. 106  Alternative size standard

    This provision will provide a simplified and 
straightforward standard for determining small business loan 
eligibility, thereby. The Committee believes that this 
provision will encourage greater lender participation in the 
7(a) program. At a minimum, the standard must include 
businesses' maximum tangible net worth and average net income 
as factors upon which the size determination is based.
    The Committee intends for the simplified size standard to 
be set by the SBA, thereby giving the SBA the opportunity to 
ensure that this standard addresses any of the concerns it 
feels necessary. Until that standard is adopted by the SBA, 
however, the Committee intends for the SBA to use the size 
standard that currently exists for the 504 program.

Sec. 107  The small bank outreach division

    This provision will direct the Administrator to establish a 
program within an existing office to support regional SBA 
offices in assisting small lenders who do not participate in 
the preferred lenders program (PLP) to make 7(a) loans. The 
Committee intends for this program to be established in an 
existing element of SBA and does not intend for a new division 
to be created for this purpose.
    The Committee believes that this program will encourage 
more non-PLP lenders to participate in the 7(a) program.

                                Title II


Sec. 201  Certified development company economic development loan 
        program

    This Section provides that the financing program authorized 
under Title IV of the Small Business Investment Act of 1958 
shall be known as the ``Certified Development Company Economic 
Development Loan Program.'' The Committee believes that this 
change will clarify that loans made under section 504 of the 
Small Business Investment Act of 1958 may be used for the 
purpose of stimulating community economic development.

Sec. 202  Definitions

    This provision codifies the definition of a Certified 
Development Company (CDC) as a company which the SBA has 
determined meets the criteria of the new section 506 of the 
Small Business Investment Act of 1958 (SBIA). The Committee 
believes that this change is necessary because the SBIA does 
not define CDCs in general terms.

Sec. 203  Eligibility of development companies to be designated as 
        certified development companies

    This provision specifies criteria that a development 
company must meet in order to issue debentures. A CDC must have 
fewer than 500 employees and must serve its local community by 
fostering economic development, creating and preserving jobs, 
and stimulating private community investment. Except for CDCs 
certified prior to January 1, 1987, CDCs must operate as not-
for-profit entities and must maintain in good standing with all 
laws, including taxation requirements, in their state of 
incorporation. This provision will also establish requirements 
for CDC membership and will require that CDCs be professionally 
managed and maintain a board of directors that represents its 
membership.
    This provision will require CDCs to maintain a directorate 
with ties to the states in which it operates and imposes 
ethical requirements on CDCs and their employees including a 
prohibition on persons serving as an officer, director or chief 
executive officer of more than one certified development 
company. This provision also provides that initially the 
development company may seek approval only in its State of 
incorporation and/or a local economic area which may include 
part of several States. Criteria for subsequent development 
company expansion require that each additional State be 
contiguous to the State of incorporation, and require the CDC 
to add to its membership in the State of incorporation at least 
25 members from each additional State, and must add to its 
board in the State of incorporation at least one member from 
each additional State.
    The Committee intends for these requirements to reinforce 
CDCs' traditional role in community development and local 
reinvestment. The Committee believes that many of these 
requirements are already established by SBA policies and 
procedures for the 504 program and that most CDCs currently in 
operation will already meet these standards.

Sec. 204  Definition of rural areas

    This provision updates the definition of a rural area to 
any area except a city or town with a population greater than 
50,000 inhabitants or the urbanized area contiguous and 
adjacent to any such a city or town. The Committee believes 
that this change is necessary to make the SBA's definition of 
rural areas consistent with the definition recently enacted in 
loan programs administered by the U.S. Department of 
Agriculture.

Sec. 205  Businesses in low-income areas

    This provision designates financings in areas eligible for 
investment under the New Markets Tax Credit Program as a public 
policy goal under the 504 program, thus making these financings 
eligible for a larger maximum debenture limit. The Committee 
believes that this change is consistent with the 504 program's 
existing purpose of fostering community development and 
economic investment.

Sec. 206  Combination of certain goals

    This provision will allow the ownership interest of two or 
more owners to be combined to determine whether the small 
business is at least 51 percent owned by minorities, women or 
veterans in order to qualify for assistance as a public policy 
goal. The Committee believes that this change is consistent 
with the 504 program's existing provision which permits small 
businesses to qualify as a public policy goal for 504 program 
financing by majority ownership of a single woman, minority, or 
veteran.

Sec. 207  Refinancing

    This provision will permit a borrower to refinance a 
limited amount of existing indebtedness secured by a current 
mortgage on the property being expanded by the 504 project. The 
amount which could be refinanced would be limited to an amount 
not to exceed 50 percent of the expansion project and would be 
limited to situations where the 504 financing will provide 
better terms or interest rates than currently exists on the 
debt.
    The Committee does not intend for this provision to permit 
the refinancing of poorly performing debt into the 504 program. 
Consequently Section 207 expressly requires that the borrower 
be current on all payments due on the existing debt for at 
least a year preceding the refinancing. Additionally, the 
Committee believes that refinancing should be limited solely to 
amounts that a private sector lender would be unlikely to 
refinance on a stand alone basis. For this reason, Section 207 
is limited to situations where the 504 financing will provide 
better terms or interest rates than currently existing on the 
debt.

Sec. 208  Additional equity injections

    This provision will enable borrowers to provide more than 
the required minimum amount of equity and to use the excess 
equity to reduce the amount of the first mortgage loan, as long 
as the amount of the first mortgage loan would not be reduced 
to less than the amount of the SBA guaranteed portion of the 
loan. The Committee intends for this change to enable high-risk 
borrowers or start-up businesses to lower the costs associated 
with 504 financings. Additionally, the Committee believes that 
this provision will permit more borrowers to qualify for 
financing in the 504 program.

Sec. 209  Loan liquidations

    This provision will require a CDC either to foreclose and 
liquidate defaulted loans which it made or to contract with a 
qualified third-party to do so. This provision also imposes a 
requirement that SBA reimburse a CDC for all expenses incurred 
by the CDC if the expenses were approved by SBA in advance or 
were reasonable. The requirement will not be effective, 
however, until the SBA adopts and implements a program to 
compensate and reimburse the CDC for expenses associated with 
foreclosure and liquidation.
    Because the 504 program operates as a zero subsidy program, 
the Committee believes it is essential that defaulted loans be 
liquidated and recovered in an effectively and timely manner. 
The Committee intends for Section 209 to strengthen the 504 
program by permitting CDCs to play an active role in ensuring 
that defaulted 504 loans are liquidated in an efficient manner.

Sec. 210  Closing costs

    This provision will provide borrowers in the 504 program 
the option to include loan and debenture closing costs, other 
than borrower's attorney fees, in the debenture. The Committee 
believes that this provision will improve efficiency and 
convenience in the 504 program and result in increased 
participation in the program.

Sec. 211  Maximum 504 and 7(A) loan eligibility

    This provision will permit a 504 borrower to obtain 
financing in the maximum amount permitted under the 504 program 
and also to obtain a 7(a) loan in the maximum amount permitted 
under that program.
    The Committee believes that this provision will provide 
entrepreneurs with increased access to affordable capital in 
amounts necessary to support capital intensive small 
businesses. The Committee believes that this is consistent with 
the express purpose of the 7(a) and 504 programs and that no 
existing SBA program can adequately fulfill this role by 
itself.

Sec. 212  Eligibility for energy efficiency projects

    This provision permits energy efficiency projects that 
reduce the borrower's energy consumption by at least 10 
percent, to qualify as a public policy goal under the 504 
program. The Committee believes that encouraging energy 
efficiency is consistent with the purpose of the 504 program.

Sec. 213  Loans for plant projects used for energy-efficient purposes

    This provision permits energy efficient projects that 
reduce a borrower's energy consumption by 10 percent to be 
eligible for the $4,000,000 debenture. The Committee believes 
that encouraging energy efficiency is consistent with the 
purpose of the 504 program.

Sec. 214  Extension of period during which loss reserves of premier 
        certified lenders determined on the basis of outstanding 
        balance of debentures

    This provision will extend through fiscal year 2008 current 
law that permits CDCs to base their loan loss reserves on the 
outstanding balance of debentures.

Sec. 215  Extension of alternative loss reserve pilot program for 
        certain premier certified lenders

    This provision will extend current law through fiscal year 
2008 that permits CDCs to use an alternative risk-based 
methodology to calculate their loan loss reserves. In PL 108-
232, the SBA was required to conduct a study and report to 
Congress on the extent that statutory requirements have caused 
an overcapitalization in loan loss reserve requirements and to 
evaluate alternative loan loss reserve methodologies, similar 
to those extended in Sections 214 and 215 of this Act. The 
Committee is concerned that the SBA has not submitted the study 
and report as required by PL 108-232.

            VIII. Congressional Budget Office Cost Estimate

                                                    April 20, 2007.
Hon. Nydia M. Velazquez,
Chairwoman, Committee on Small Business,
House of Representatives, Washington, DC.
    Dear Madam Chairwoman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1332, the Small 
Business Lending Improvements Act of 2007.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Susan Willie.
            Sincerely,
                                                   Peter R. Orszag.
    Enclosure.

H.R. 1332--Small Business Lending Improvements Act of 2007

    Summary: H.R. 1332 would make a number of amendments to 
loan programs administered by the Small Business Administration 
(SBA). The bill would specifically authorize SBA to use 
appropriated funds in lieu of charging borrower and lender fees 
to cover the cost of 7(a) loan guarantees, to the extent that 
such funds are made available. The bill also would ease 
financial requirements for individuals in targeted groups to 
participate in the 7(a) loan guarantee program and expand 
eligibility for loans under the 504 loan program, which 
guarantees debentures issued by intermediaries to provide 
funding for major fixed assets.
    Assuming appropriation of the necessary amounts, CBO 
estimates that implementing H.R. 1332 would cost $316 million 
in 2008 and $2.3 billion over the 2008-2012 period. CBO 
estimates that enacting the bill would not affect revenues and 
would have no significant effect on direct spending.
    H.R. 1332 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would impose no costs on state, local, or tribal 
governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 1332 is shown in the following table. 
The costs of this legislation fall within budget function 370 
(commerce and housing credit).

----------------------------------------------------------------------------------------------------------------
                                                                       By fiscal year, in millions of dollars--
                                                                    --------------------------------------------
                                                                       2008     2009     2010     2011     2012
----------------------------------------------------------------------------------------------------------------
                                        SPENDING SUBJECT TO APPROPRIATION

Elimination of 7(a) Loan Fees:
    Estimated Authorization level..................................      470      480      500      510      520
    Estimated Outlays..............................................      305      460      490      500      510
Easing Requirements for 7(a) Loans:
    Estimated Authorization level..................................        9        9       10       10       10
    Estimated Outlays..............................................        6        9        9       10       10
Easing Requirements for 7(a) Loans for Veterans:
    Estimated Authorization level..................................        7        7        7        8        8
    Estimated Outlays..............................................        5        7        7        7        8
Total:
    Estimated Authorization level..................................      486      496      517      528      538
    Estimated Outlays..............................................      316      476      506      517      528
----------------------------------------------------------------------------------------------------------------

    Basis of estimate: For this estimate, CBO assumes that the 
bill will be enacted in 2007 and that the necessary amounts 
will be appropriated near the start of each year.
    The budgetary accounting for SBA's loan guarantee programs 
is governed by the Federal Credit Reform Act (FCRA) of 1990, 
which requires an appropriation of subsidy and administrative 
costs associated with loan guarantees and loan operations. The 
subsidy cost is the estimated long-term cost to the government 
of a loan guarantee, calculated on a net-present-value basis, 
excluding administrative costs. Administrative costs, recorded 
on a cash basis, include activities related to making, 
servicing, and liquidating loans, as well as overseeing the 
performance of lenders.
    The budgetary impact of the changes H.R. 1332 would make to 
SBA's business loan programs is measured in terms of projected 
subsidy costs. The bill does not specify an authorization level 
for either the subsidy or administrative costs, if any, that 
could be incurred as a result of implementing the amendments in 
the bill. CBO has estimated those amounts based on information 
from the SBA regarding the historical demand for and costs of 
the agency's business loan programs.

Spending subject to appropriation

    Section 101 would authorize SBA to use appropriated funds 
rather than charging certain fees on loans guaranteed under the 
7(a) program to cover the program's cost. Under current law, 
SBA must adjust fees charged to both borrowers and lenders to 
produce an estimated subsidy rate of zero at the time the loans 
are guaranteed.
    Based on historical demand for 7(a) loans and assuming a 
small increase in demand as a result of the lower cost to 
borrowers, CBO estimates loan volume for fiscal year 2008 would 
be about $14 billion. The projected subsidy rate on the 7(a) 
program for 2008, in the absence of fee collections, would be 
about 3.4 percent of the loan principle guaranteed. Assuming 
that loan volume would grow with inflation in subsequent years 
and that the necessary sums would be appropriated each year, 
additional outlays would total $305 million in 2008 and $2.3 
billion over the 2008-2012 period, CBO estimates.
    Title I also would ease the financial requirements for 
individuals in certain groups to receive loan guarantees under 
the 7(a) program. Those affected would include borrowers in 
rural and low- and moderate-income areas, certain medical 
professionals, and veterans. Under the bill, the targeted 
groups would receive higher loan guarantees from SBA, pay lower 
fees, or both.
    Based on information from SBA, CBO estimates that creating 
programs targeted at medical professionals and veterans within 
the 7(a) program would increase the overall subsidy rate by 
about five basis points, each with the elimination of the fees 
discussed above. The programs proposed for rural and low- and 
moderate-income borrowers would not affect the subsidy rate. 
CBO estimates that the new targeted programs would cost $11 
million in 2008 and $77 million over the 2008-2012 period.
    Title II would make changes to SBA's 504 program, renamed 
the community development corporation economic development loan 
program under the bill. That program guarantees debentures 
issued by community development corporations (CDCs) to provide 
funding for investments in major fixed assets, including land, 
structures, machinery, and equipment. H.R. 1332 would expand 
the number of CDCs eligible to issue debentures, broaden the 
purposes for which loan proceeds may be used, and allow CDCs to 
contract with third parties to foreclose and liquidate 
defaulted loans.
    As for the 7(a) program, SBA must set an annual fee on such 
loans to produce an estimated subsidy rate of zero at the time 
the loans are guaranteed. Based on information from SBA, CBO 
estimates that the amendments to the 504 loan program in H.R. 
1332 would not affect the subsidy rate, and therefore would 
have no cost.

Direct spending

    SBA's Premier Certified Lenders Program gives a CDC 
participating in the 504 program the authority to review and 
approve loan requests and to foreclose, litigate, and liquidate 
loans made under the program. Under current law, CDCs can 
qualify as Premier Certified Lenders (PCLs) if, among other 
requirements, they agree to pay 10 percent of SBA's potential 
loss on a defaulted 504 loan. A PCL must hold 10 percent of 
this potential loss (i.e., 1 percent of the total loan) in a 
reserve for the life of the loan.
    H.R. 1332 would reinstate a program that allows PCLs to 
maintain a lower loss reserve equal to 1 percent of the total 
loan outstanding. PCLs would be allowed to withdraw any funds 
from their loss reserve in excess of this amount. In addition, 
the bill would reinstate the option for certain PCLs to 
maintain an alternate loss reserve level based on risk rather 
than a fixed percentage. The amount of the reserve would be 
determined by an independent, SBA-approved auditor. Under the 
program, if a PCL chooses this option, it must pay 15 percent 
of SBA's total loss on defaulted CDC loans. Both loss reserve 
programs expired in 2006; under the bill, these provisions 
would be extended through the end of fiscal year 2008.
    Enacting these provisions of H.R. 1332 could affect the 
subsidy rates for previous cohorts of CDC loans. Decreasing the 
loss reserve requirement for PCLs would cause SBA to collect a 
smaller amount of recoveries if a small business defaults on a 
loan and a PCL is unable to pay its portion of SBA's total 
loss. However, increasing the required loss coverage to 15 
percent for PCLs that opt to maintain a loss reserve level 
based on risk would increase SBA's recoveries on defaulted CDC 
loans. CBO estimates that those two effects would not have a 
significant net impact on the subsidy cost of outstanding 
loans.
    Intergovernmental and private-sector impact: H.R. 1332 
contains no intergovernmental or private-sector mandates as 
defined in UMRA and would impose no costs on state, local, or 
tribal governments.
    Estimate prepared by: Federal Costs: Susan Willie. Impact 
on State, Local, and Tribal Governments: Theresa Gullo. Impact 
on the Private Sector: Craig Cammarata.
    Estimate approved by: Robert A. Sunshine, Assistant 
Director for Budget Analysis.

                    IX. Committee Estimate of Costs

    Clause 3(d)(2) of rule XIII of the Rules of the House of 
Representatives requires an estimate and a comparison by the 
Committee of the costs that would be incurred in carrying out 
H.R. 1332. However, clause 3(d)(3)(B) of that rule provides 
that this requirement does not apply when the Committee has 
included in its report a timely submitted cost estimate of the 
bill prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act.

                         X. Oversight Findings

    In accordance with clause (2)(b)(1) of rule X of the Rules 
of the House of Representatives, the oversight findings and 
recommendations of the Committee on Small Business with respect 
to the subject matter contained in H.R. 1332 are incorporated 
into the descriptive portions of this report.

               XI. Statement of Constitutional Authority

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds the authority for 
this legislation in Article I, Section 8, clause 18, of the 
Constitution of the United States.

                 XII. Compliance With Public Law 104-4

    H.R. 1332 contains no unfunded mandates.

                 XIII. Congressional Accountability Act

    H.R. 1332 does not relate to the terms and conditions of 
employment or access to public services or accommodations with 
the meaning of section 102(b)(3) of P.L. 104-1.

               XIV. Federal Advisory Committee Statement

    This legislation does not establish or authorize the 
establishment of any new advisory committees.

                      XV. Statement of No Earmarks

    Pursuant to clause 9 of rule XXI, H.R. 1332 does not 
contain any congressional earmarks, limited tax benefits, or 
limited tariff benefits as defined in clause 9(d), 9(e), or 
9(f) of rule XXI.

                 XVI. Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee establishes the 
following performance related goals and objectives for this 
legislation:
    H.R. 1332 includes a number of provisions designed to 
update and improve the Small Business Administration's 7(a) and 
504 programs.

      XVII. Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

SMALL BUSINESS ACT

           *       *       *       *       *       *       *


  Sec. 3.(a)(1) * * *

           *       *       *       *       *       *       *

  (5) In addition to any other size standard under this 
subsection, the Administrator shall establish, and permit a 
lender making a loan under section 7(a) and a lender making a 
loan under the development company loan program to use, an 
alternative size standard. The alternative size standard shall 
be based on factors including maximum tangible net worth and 
average net income.

           *       *       *       *       *       *       *

  Sec. 7. (a) Loans to Small Business Concerns; Allowable 
Purposes; Qualified Business; Restrictions and Limitations.--
The Administration is empowered to the extent and in such 
amounts as provided in advance in appropriation Acts to make 
loans for plant acquisition, construction, conversion, or 
expansion, including the acquisition of land, material, 
supplies, equipment, and working capital, and to make loans to 
any qualified small business concern, including those owned by 
qualified Indian tribes, for purposes of this Act. Such 
financings may be made either directly or in cooperation with 
banks or other financial institutions through agreements to 
participate on an immediate or deferred (guaranteed) basis. 
These powers shall be subject, however, to the following 
restrictions, limitations, and provisions:
          (1) * * *

           *       *       *       *       *       *       *

          (18) Guarantee fees.--
                  (A) In general.--With respect to each loan 
                guaranteed under this subsection (other than a 
                loan that is repayable in 1 year or less), the 
                Administration [shall collect] shall assess and 
                collect a guarantee fee, which shall be payable 
                by the participating lender, and may be charged 
                to the borrower, as follows:
                          (i) * * *

           *       *       *       *       *       *       *

                  (C) Offset.--The Administrator may, as 
                provided in paragraph (32), offset fees 
                assessed and collected under subparagraph (A).

           *       *       *       *       *       *       *

          (23) Yearly fee.--
                  (A) * * *

           *       *       *       *       *       *       *

                  [(C) Lowering of borrower fees.--If the 
                Administration determines that fees paid by 
                lenders and by small business borrowers for 
                guarantees under this subsection may be 
                reduced, consistent with reducing to zero the 
                cost to the Administration of making such 
                guarantees--
                          [(i) the Administration shall first 
                        consider reducing fees paid by small 
                        business borrowers under clauses (i) 
                        through (iii) of paragraph (18)(A), to 
                        the maximum extent possible; and
                          [(ii) fees paid by small business 
                        borrowers shall not be increased above 
                        the levels in effect on the date of 
                        enactment of this subparagraph.]
                  (C) Offset.--The Administrator may, as 
                provided in paragraph (32), offset fees 
                assessed and collected under subparagraph (A).

           *       *       *       *       *       *       *

          (25) Limitation on conducting pilot projects.--
                  (A) * * *

           *       *       *       *       *       *       *

                  [(C) Low documentation loan program.--The 
                Administrator may carry out the low 
                documentation loan program for loans of 
                $100,000 or less only through lenders with 
                significant experience in making small business 
                loans. Not later than 90 days after the date of 
                enactment of this subsection, the Administrator 
                shall promulgate regulations defining the 
                experience necessary for participation as a 
                lender in the low documentation loan program.]

           *       *       *       *       *       *       *

          (32) Fee contributions.--
                  (A) In general.--To the extent that amounts 
                are made available to the Administrator for the 
                purpose of fee contributions, the Administrator 
                shall--
                          (i) first consider contributing to 
                        fees paid by small business borrowers 
                        under clauses (i) through (iii) of 
                        paragraph (18)(A), to the maximum 
                        extent possible; and
                          (ii) then consider contributing to 
                        fees paid by small business lenders 
                        under paragraph (23)(A).
                  (B) Quarterly adjustment.--Each fee 
                contribution under subparagraph (A) shall be 
                effective for one fiscal quarter and shall be 
                adjusted as necessary for each fiscal quarter 
                thereafter to ensure that the amounts under 
                subparagraph (A) are fully used. The fee 
                contribution for a fiscal quarter shall be 
                based on the loans that the Administrator 
                projects will be made during that fiscal 
                quarter, given the program level authorized by 
                law for that fiscal year and any other factors 
                that the Administrator considers appropriate.
          (33) Rural lending outreach program.--The 
        Administrator shall carry out a rural lending outreach 
        program to provide up to an 85 percent guaranty for 
        loans of $250,000 or less. The program shall be carried 
        out only through lenders located in rural areas (as 
        ``rural'' is defined in section 501(f) of the Small 
        Business Investment Act of 1958). For a loan made 
        through the program, the following shall apply:
                  (A) The Administrator shall approve or 
                disapprove the loan within 36 hours.
                  (B) The program shall use abbreviated 
                application and documentation requirements.
                  (C) Minimum credit standards, as the 
                Administrator considers necessary to limit the 
                rate of default on loans made under the 
                program, shall apply.
          (34) Community express program.--The Administrator 
        shall carry out a Community Express Program for loans 
        of $250,000 or less. For a loan made under this 
        paragraph, the following shall apply:
                  (A) The loan shall be made to a business 
                concern--
                          (i) the majority ownership interest 
                        of which is directly held by 
                        individuals who are women, socially or 
                        economically disadvantaged individuals 
                        (as defined by the Administrator), or 
                        veterans of the Armed Forces; or
                          (ii) that is located in a low- or 
                        moderate-income area, as defined by the 
                        Administrator.
                  (B) The loan shall comply with the collateral 
                policy of the Administration, except that, if 
                the amount of the loan is less than or equal to 
                $25,000, the Administration shall not require 
                the lender to take collateral.
                  (C) The loan shall include terms requiring 
                the lender to ensure that technical assistance 
                is provided to the borrower, through the lender 
                or a third-party provider.
                  (D) The Administration shall approve or 
                disapprove the loan within 36 hours.
          (35) Medical professionals in designated shortage 
        areas program.--The Administrator shall carry out a 
        Medical Professionals in Designated Shortage Areas 
        Program. For a loan made under this paragraph, the 
        following shall apply:
                  (A) The loan shall be made to a business 
                concern that provides properly licensed 
                medical, dental, or psychiatric services to the 
                public.
                  (B) The loan shall be for the purpose of 
                opening a business concern in a health 
                professional shortage area (as defined in 
                section 332 of the Public Health Service Act 
                (42 U.S.C. 254e)).
                  (C) The loan shall include the participation 
                by the Administration equal to 90 percent of 
                the balance of the financing outstanding at the 
                time of disbursement.
                  (D) The fees on the loan under paragraphs 
                (18) and (23) shall be reduced by half.
          (36) Increased veteran participation program.--The 
        Administrator shall carry out an Increased Veteran 
        Participation Program. For a loan made under this 
        paragraph, the following shall apply:
                  (A) The loan shall be made to a business 
                concern the majority ownership interest of 
                which is directly held by individuals who are 
                veterans of the Armed Forces.
                  (B) The loan shall include the participation 
                by the Administration equal to 90 percent of 
                the balance of the financing outstanding at the 
                time of disbursement.
                  (C) The fees on the loan under paragraphs 
                (18) and (23) shall not apply.
          (37) Support to regional offices.--The Administrator 
        shall carry out a program, within an element of the 
        Administration already in existence as of the date of 
        the enactment of the Small Business Lending 
        Improvements Act of 2007, to provide support to 
        regional offices of the Administration in assisting 
        small lenders who do not participate in the preferred 
        lender program to participate in the 7(a) program.

           *       *       *       *       *       *       *

                              ----------                              


                 SMALL BUSINESS INVESTMENT ACT OF 1958

TITLE I--SHORT TITLE, STATEMENT OF POLICY, AND DEFINITIONS

           *       *       *       *       *       *       *


                              DEFINITIONS

Sec. 103. As used in this Act--
          (1) * * *

           *       *       *       *       *       *       *

          [(6) the term ``development companies'' means 
        enterprises incorporated under State law with the 
        authority to promote and assist the growth and 
        development of small-business concerns in the areas 
        covered by their operations;]
          (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;

           *       *       *       *       *       *       *


        TITLE V--LOANS TO STATE AND LOCAL DEVELOPMENT COMPANIES

                      STATE DEVELOPMENT COMPANIES

Sec. 501. (a) * * *

           *       *       *       *       *       *       *

  (d) In order to qualify for assistance under this title, the 
development company must demonstrate that the project to be 
funded is directed toward at least one of the following 
economic development objectives--
          (1) * * *

           *       *       *       *       *       *       *

          (3) the achievement of one or more of the following 
        public policy goals:
                  (A) business district revitalization 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),

           *       *       *       *       *       *       *

                  (G) changes necessitated by Federal budget 
                cutbacks, including defense related industries, 
                [or]
                  (H) business restructuring arising from 
                Federally mandated standards or policies 
                affecting the environment or the safety and 
                health of employees[.], or
                  (I) reduction of energy consumption by at 
                least 10 percent.
If eligibility is based upon the criteria set forth in 
paragraph (2) or (3), the project need not meet the job 
creation or job preservation criteria developed by the 
Administration if the overall portfolio of the development 
company meets or exceeds such job creation or retention 
criteria.
  (e)(1) * * *

           *       *       *       *       *       *       *

  (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).
  (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.

  LOANS FOR PLANT ACQUISITION, CONSTRUCTION, CONVERSION, AND EXPANSION

Sec. 502. The Administration may, in addition to its authority 
under section 501, make loans for plant acquisition, 
construction, conversion or expansion, including the 
acquisition of land, to State and local development companies, 
and such loans may be made or effected either directly or in 
cooperation with banks or other lending institutions through 
agreements to participate on an immediate or deferred basis: 
Provided, however, That the foregoing powers shall be subject 
to the following restrictions and limitations:
          (1) * * *
          (2) Maximum amount.--
                  (A) In general.--Loans made by the 
                Administration under this section shall be 
                limited to--
                          (i) * * *
                          (ii) $2,000,000 for each small 
                        business concern if the loan proceeds 
                        will be directed toward 1 or more of 
                        the public policy goals described under 
                        section 501(d)(3); [and]
                          (iii) $4,000,000 for each project of 
                        a small manufacturer[.]; and
                          (iv) $4,000,000 for each project that 
                        reduces the borrower's energy 
                        consumption by at least 10 percent.

           *       *       *       *       *       *       *

                  (C) Combination financing.--Financing under 
                this title may be provided to a borrower in the 
                maximum amount provided in this subsection, 
                plus a loan guarantee under section 7(a) of the 
                Small Business Act may also be provided to the 
                same borrower in the maximum provided in 
                section 7(a)(3)(A) of such Act.
          (3) Criteria for assistance.--
                  (A) * * *
                  (B) Community injection funds.--
                          (i) * * *
                          [(ii) Funding from institutions.--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) 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.

           *       *       *       *       *       *       *

          (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, any amount of existing indebtedness that does 
        not exceed one-half of the project cost of the 
        expansion 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.

                     DEVELOPMENT COMPANY DEBENTURES

Sec. 503. (a) * * *
  (b) No guarantee may be made with respect to any debenture 
under subsection (a) unless--
          (1) * * *

           *       *       *       *       *       *       *

          [(4) the aggregate amount of such debenture does not 
        exceed the amount of loans to be made from the proceeds 
        of such debenture (other than any excess attributable 
        to the administrative costs of such loans);]
          (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;

           *       *       *       *       *       *       *


                        PRIVATE DEBENTURE SALES

Sec. 504. (a) The program to provide financing to small 
businesses by guarantees of loans under this Act which are 
funded by debentures guaranteed by the Administration may be 
known as the ``Certified Development Company Economic 
Development Loan Program''.
  [(a)] (b) Notwithstanding any other law, rule, or regulation, 
the Administration shall sell to investors, either publicly or 
by private placement, debentures pursuant to section 503 of 
this title as follows:
  (1) * * *

           *       *       *       *       *       *       *

  [(b)] (c) Nothing in any provision of law shall be construed 
to authorize the Federal Financing Bank to acquire--
          (1) * * *

           *       *       *       *       *       *       *


            [RESTRICTIONS ON DEVELOPMENT COMPANY ASSISTANCE

[Sec. 506. Notwithstanding any other provisions of law: (1) on 
or after May 1, 1991, no development company may accept funding 
from any source, including but not limited to any department or 
agency of the United States Government, 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 if it includes any conditions or 
imposes any requirements, directly or indirectly, upon any 
recipient of assistance under this title; and (2) before such 
date, no department or agency of the United States Government 
which provides funding to any development company shall impose 
any condition, priority or restriction upon the type of small 
business which receives financing under this title nor shall it 
include any condition or impose any requirement, directly or 
indirectly upon any recipient of assistance under this title: 
Provided, That the foregoing shall not affect any such 
conditions, priorities or restrictions if 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. 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 has at least 25 
members (or stockholders if the corporation is a for-profit 
entity), none of whom may own or control more than 10 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) represents at least three of the four 
                groups enumerated in subsection (a)(6) and 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 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 second 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 first lien on the same 
        property. 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. 508. PREMIER CERTIFIED LENDERS PROGRAM.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Loss Reserve.--
          (1) * * *

           *       *       *       *       *       *       *

          (6) Disbursements.--
                  (A) * * *
                  (B) Temporary reduction based on outstanding 
                balance.--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,] through the end of 
                fiscal year 2008, the Administration shall 
                allow the certified development company to 
                withdraw from the loss reserve such amounts as 
                are in excess of 1 percent of the aggregate 
                outstanding balances of debentures to which 
                such loss reserve relates. The preceding 
                sentence shall not apply with respect to any 
                debenture before 100 percent of the 
                contribution described in paragraph (4) with 
                respect to such debenture has been made.
          (7) Alternative loss reserve.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (J) Eligible calendar quarter.--For purposes 
                of this paragraph, the term ``eligible calendar 
                quarter'' [means--
                          [(i) the first calendar quarter that 
                        begins after the end of the 90-day 
                        period beginning with the date of the 
                        enactment of this paragraph; and
                          [(ii) the 7 succeeding calendar 
                        quarters.] means each calendar quarter 
                        through the end of fiscal year 2008.

           *       *       *       *       *       *       *


SEC. 510. FORECLOSURE AND LIQUIDATION OF LOANS.

  (a) * * *

           *       *       *       *       *       *       *

  (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 and the 
        terms and conditions of liquidation activities.
          (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.
  [(e)] (g) Report.--
          (1) * * *

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