[House Report 111-315]
[From the U.S. Government Publishing Office]
111th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 111-315
======================================================================
SMALL BUSINESS FINANCING AND INVESTMENT ACT OF 2009
_______
October 26, 2009.--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. 3854]
[Including cost estimate of the Congressional Budget Office]
The Committee on Small Business, to whom was referred the
bill (H.R. 3854) to amend the Small Business Act and the Small
Business Investment Act of 1958 to improve programs providing
access to capital under such Acts, and for other purposes,
having considered the same, report favorably thereon without
amendment and recommend that the bill do pass.
CONTENTS
Page
I. Purpose of the Bill and Summary..................................1
II. Background and Need for Legislation..............................5
III. Hearings........................................................20
IV. Committee Consideration.........................................22
V. Committee Votes.................................................22
VI. Section-by-Section Analysis of H.R. 3854........................22
VII. Congressional Budget Office Cost Estimate.......................51
VIII.Committee Estimate of Costs.....................................51
IX. Oversight Findings..............................................52
X. Statement of Constitutional Authority...........................52
XI. Compliance With Public Law 104-4................................52
XII. Congressional Accountability Act................................52
XIII.Federal Advisory Committee Statement............................52
XIV. Statement of No Earmarks........................................53
XV. Performance Goals and Objectives................................53
XVI. Changes in Existing Law Made by the Bill, as Reported...........53
I. Purpose of the Bill and Summary
The Small Business Financing and Investment of 2009 extends
through fiscal year 2011 the federal government's primary small
business lending and investment programs. In doing so, the
legislation makes key reforms to these programs that are
intended to improve the flow of capital to small firms amidst
one of the worst economic downturns in decades. The legislation
also establishes two new programs that are intended to fill the
gaps in the SBA's existing array of capital access programs,
particularly in the provision of capital to early-stage small
businesses in capital-intensive industries and for small firms
whose access to capital is limited by the cost of financing.
A result of the collapse in housing prices and resulting
recession in 2008 has been a broad-based tightening of credit
for small businesses of all types and sizes. This has severely
curtailed the ability of small businesses to access credit and
investment capital. Additionally, these conditions have
continued unabated despite numerous efforts to stabilize the
housing sector and restart lending through federal spending.
This legislation has as its primary objective the improvement
of the flow of capital to small firms in an economic climate
that has made capital and credit more constrained than at any
time in the history of the SBA's capital access mission.
The legislation will increase the maximum gross size of
7(a) loans by 50 percent--from the current level of $2 million
to $3 million. This increase in the maximum loan size will help
provide small firms with larger amounts of capital under the
program without increasing the SBA's level of risk exposure
with larger guarantee amounts on larger loans. This change will
also ensure that the program remains focused on startup and
early-stage small firms, businesses that have historically
encountered the greatest difficulties in accessing credit. It
also avoids making small borrowers carry a disproportionate
share of the risk associated with larger loans. The maximum
size of CDC financings will also be significantly increased--
from the current limit of $10 million to $25 million--and
existing statutory limits that prohibit borrowers from securing
CDC loans and 7(a) loans for the maximum combined amounts will
be eliminated.
The bill also extends authority for supplemental lending
initiatives originally passed under P.L. 111-5, the American
Recovery and Reinvestment Act of 2009 (ARRA), which
significantly freed the flow of capital to small businesses.
This includes an increase in the guaranty on SBA 7(a) loans to
90 percent and waives fees on 7(a) and CDC loans. The Business
Stabilization Loans (i.e. the ARC loan program) established
under ARRA will also see improvements in the way of reduced
documentation requirements, expanded eligibility for the use of
ARC loan proceeds, and an increase in maximum ARC loan amounts
from $35,000 to $50,000. Perhaps most importantly, however, the
bill establishes a Capital Backstop Program under which the SBA
will provide assistance to lenders in the application,
processing, and underwriting functions for 7(a) loans, thus
acting as a conduit to match lenders who are willing to make
loans with borrowers in need of capital. Under this program,
the SBA would also act as a lender of last resort for
creditworthy borrowers in times of credit shortage or when
private lenders withdraw from lending in an effort to hoard
capital--as was widely seen in the recent credit crunch.
The bill will establish permanent authority within the SBA
to administer programs aimed at providing stability to the
secondary markets for 7(a) and the CDC loan programs. These
programs were originally enacted under for limited timeframes,
but the significant time lag in the SBA's implementation of
these programs combined with the ongoing weakness in SBA
lending necessitates their continued operation, particularly in
light of the possibility for future downturns. Together with
the increase in 7(a) and CDC loan size and the enhanced loan
incentives from ARRA, the extension of these initiatives in
H.R. 3854 will significantly improve the credit conditions for
small businesses, add stability to the small business lending
markets, and improve the availability of capital for small
firms.
As a secondary objective, the bill seeks to fill gaps in
the SBA's array of capital access programs. With the
elimination of the SBIC Participating Securities program, the
SBA no longer provides any form of patient equity investment to
small businesses in need of capital. As a result, the agency
has become completely reliant on debt-based programs, which are
more suited to providing later-stage, expansion capital to
cash-flow-positive businesses. This has particularly hampered
investment in early-stage and capital-intensive small
businesses, which lack the resources to service debt capital.
These inherent limitations have only been aggravated by the
economic downturn and the near-collapse in the U.S. capital
markets. Venture capital financing and investments in early-
stage businesses has stagnated since the last quarter of 2008.
As a result, the gap for investment in early-stage and capital-
intensive small businesses has grown wider, and this critical
component of the small business community has continued to be
underserved by existing government programs.
At the same time, creditworthy small businesses have
continued to struggle with issues stemming from the high cost
of capital. Nowhere is this more pronounced than in the
healthcare field, where the adoption of health information
technology (HIT) has been slowed by the high cost of the
technology and an inability of small health providers to
finance this asset in a cost-effective manner. Despite the fact
that small health providers are small businesses, most do not
qualify for participation in existing Small Business
Administration (SBA) capital access programs (such as the 7(a)
or 504 loan programs) because they typically have access to
conventional sources of credit. Additionally, these programs
are ill-suited to overcoming the financial barrier that exists
in the context of HIT. This is because the SBA's existing
lending programs were originally designed to overcome a gap in
the availability of capital. By contrast, the barrier to HIT
for small medical practices is fundamentally a gap in the
affordability of capital. For this reason, the SBA's existing
lending programs are inadequate to drive wider adoption of HIT
for small practices.
The Small Business Financing and Investment of 2009 would
fill these gaps in the SBA's capital access mission by
establishing two new programs--the Small Business Early Stage
Investment (SBESI) program and a Small Business Health
Information Technology (HIT) Financing program--that will
provide small businesses with access to equity investing and
affordable credit. Under the SBESI program, the SBA will
provide matching grant funding to act as co-investment in
highly qualified investment companies that will focus on
investing in small businesses, with particular emphasis on
investing in early-stage small businesses in targeted capital-
intensive industries. Similarly, the HIT Financing program will
complement the agency's existing array of business loan
programs by making reduced cost capital available to small
health practices for the purpose of purchasing HIT.
Finally, the Small Business Financing and Investment of
2009 will update and streamline the SBA's existing lending and
investment programs. The bill incorporates several initiatives
aimed at encouraging more lenders to participate in the capital
access programs and make more loans available to small firms.
First, the 7(a) lending process is simplified and streamlined,
particularly among community banks and lenders who do not
currently participate in the program. A Small Bank Outreach
program will be established with the specific mission of
identifying and supporting small banks, credit unions, and
community lenders to participate in the program. The
legislation also establishes a Rural Lender Outreach program to
reduce the paperwork burden associated with 7(a) loans.
This legislation also addresses several deficiencies that
discourage existing lenders from fully utilizing the programs.
The legislation will put an end to improper denials and long
waiting periods when lenders apply for the SBA to honor its
guarantees by requiring the SBA to make prompt and proper
payment on guaranty repurchase applications. A National Lender
Training Program will be established to train new and
participating lenders on SBA's lending systems, policies, and
procedures, and to help reduce incidents of improper loan
underwriting and documentation in the program.
Perhaps equally important, the bill will seek to halt the
continued flight of SBICs that participate in the program by
establishing an expedited licensing process to keep successful
SBICs that are in good standing involved in the program. The
bill will also revise the SBIC leverage limitations to create
an incentive for successful, well-run SBICs to remain in the
program by permitting SBICs that are managed by the same team
to access the increased leverage limits available for a family
of SBIC funds. Additionally, the bill inserts mandatory
language in the Small Business Investment Act of 1958,
directing the SBA Administrator to actively engage in
affirmative actions to expand the number of investment
companies in the New Markets Venture Capital (NMVC) and
Renewable Energy Capital Investment (RECI) programs and ensure
that both programs have a broad nationwide distribution.
To ensure that the SBA's private sector lenders receive
fair and expeditious resolution of their complaints, an
independent and objective Ombudsman's office will be created to
resolve lenders' appeals separately from the SBA's program
administration offices. This measure will enhance participation
in the lending programs by ensuring that program participants
can make informal inquiries or file formal appeals to an
independent, disinterested party in the strictest confidence
and without fear or retaliation. The Ombudsman and independent
review process, however, would not be a binding determination
and would not affect other existing administrative procedures
or judicial remedies.
The existing capital access programs will also see an
increased emphasis on specific public policy objectives. A
Rural Lender Outreach program is established in the 7(a)
program to focus on making loans with increased guarantees and
reduced paperwork burdens for entrepreneurs in rural
communities. The SBIC program will provide businesses with
greater investment under the provisions of the bill that expand
the Energy Saving Debenture program and increase the amounts of
leverage available to invest in veteran-owned businesses.
Socially and economically disadvantaged businesses will also
benefit from permanent authority for the Community Express Loan
program and the Increased Veteran Participation Loan programs.
Both the NMVC and RECI programs will have an increased emphasis
on increasing capital investments for small businesses engaged
in manufacturing. The legislation will also expand access to
7(a) loans for businesses that are organized as cooperative
enterprises and will prohibit the SBA from applying disparate
treatment to loans that are used to finance goodwill when a
business is bought or sold.
Ongoing deficiencies in the Small Business Administration's
(SBA) disaster assistance program will also be addressed. The
SBA will have additional financial assistance tools in the way
of grant assistance programs that are intended to better fit
the various needs of small businesses following severe
disasters. The SBA will also be able to be more responsive to
the needs of individual disaster victims with improvements to
the way in which disaster assistance is approved, disbursed,
and repaid. The SBA's disaster planning and preparedness will
also be enhanced through the creation of Regional Disaster
Working Groups.
The Small Business Financing and Investment Act of 2009 is
comprehensive legislation that will significantly improve
access to credit and capital for businesses at each stage of
growth and in any economic climate. By filling the gaps in the
SBA's capital access mission and addressing deficiencies in the
SBA's lending and investment programs, the agency will be
significantly more adept at meeting the needs of small firms.
Taken together, the provisions contained in the Small Business
Financing and Investment Act will address the widespread
difficulties that small firms have encountered in accessing
credit and capital during the recent recession and will ensure
that the small business community has ample credit and
investment capital to create jobs and expand operations as the
economy recovers.
II. Background and Need for Legislation
The SBA operates an array of financing programs that are
intended to bridge the gap in the conventional markets that
small businesses encounter in trying to secure access to
affordable capital. In the 7(a) and 504 programs, entrepreneurs
are provided with greater access to capital through the
extension of federal guarantees on long-term loans. In the
Microloan program, entrepreneurs receive SBA-subsidized small
dollar loans in conjunction with basic managerial and technical
assistance in operating their business.
The SBA also administers programs aimed at providing
investment in small businesses similar to what would be
provided through the private equity markets. In the SBIC
program, the SBA provides funding to specially licensed Small
Business Investment Companies, which then use their own funds,
plus resources borrowed with an SBA guaranty or ``leverage,''
to invest in small businesses. In the NMVC program, the SBA
also provides specialized investment companies with leverage to
invest in small businesses, but focuses this investment
exclusively on small businesses located in low income (``LI'')
areas and couples this investment with matching grant
assistance to provide marketing, management and other
operational assistance to the businesses in which it invests.
In these investment programs, the SBA shares the risk of loss
with private-sector investors, thereby enabling these lenders
to provide small businesses with greater access to capital than
they could otherwise obtain in the conventional market.
7(a) Loan Program
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 program
relies on private-sector lenders to provide loans that are, in
turn, guaranteed by the SBA. The SBA has authority to guaranty
up to 85 percent of loans of $150,000 and less, and up to 75
percent of loans above $150,000. Under provisions passed in the
American Recovery and Reinvestment Act (ARRA), however, the SBA
will provide up to a 90 percent guaranty on most loans made
under the 7(a) program through the end of fiscal year 2010.
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. Because SBA loans are generally intended to encourage
longer-term small business financing, actual loan maturities
are based on the borrower's ability to repay, the purpose of
the loan proceeds, and the useful life of the assets financed.
However, maximum loan maturities have been established at
twenty-five (25) years for real estate and equipment and seven
(7) years for working capital.
Interest rates on 7(a) loans may be fixed or variable, and
are negotiated between the borrower and the lender, subject to
SBA maximums. Interest rate caps vary depending on loan size
and maturity, but for most fixed rate 7(a) loans (i.e. loans of
$50,000 or more), the interest rate must not exceed Prime plus
2.25 percent if the maturity is less than seven years, and
Prime plus 2.75 percent if the maturity is seven years or more.
Variable rate loans may be pegged to either the lowest prime
rate or an SBA-determined optional peg rate. The lender and the
borrower negotiate the amount of the spread which will be added
to the base peg rate. The borrower and lender also negotiate
the adjustment period for variable rate loans, which cannot
adjust more often than once per month and must be consistent
(e.g., monthly, quarterly, semiannually, annually or any other
defined, consistent period).
To offset the costs of 7(a) loans to the taxpayer, the
Agency charges borrowers and lenders a guaranty fee and
servicing fee for each loan approved and disbursed. The amount
of these fees is determined by the size of the guaranteed
portion of the loan. The lender will usually charge the full
amount of upfront guaranty fee to the borrower. The lender's
annual service fee, however, cannot be charged to the borrower.
Under provisions passed in the American Recovery and
Reinvestment Act (ARRA), however, the upfront guaranty fee paid
by borrowers will be waived for loans made under the 7(a)
program through the end of fiscal year 2010.
The SBA also administers several subprograms and pilot
programs under the 7(a) marquee--these are the SBA Express,
Community Express, Patriot Express, and Rural Lender Advantage
programs. While the programs have their own distinguishing
eligibility terms and distinct benefits, they are all operated
under the framework of the 7(a) program.
SBA Express Program
As a subset of the 7(a) program, SBA Express provides a 50
percent loan guaranty on loan amounts up to $350,000. To
account for this lower guaranty, however, lenders are allowed
to perform their own loan analysis and procedures and receive
SBA approval with a 36-hour maximum turnaround time.
Community Express Program
Community Express is a pilot SBA loan program that operates
under the framework of the 7(a) loan program. Community Express
was developed in May of 1999 in collaboration with the National
Community Reinvestment Coalition (NCRC) and its member
organizations and was designed to increase lending to
designated geographic areas comprising low- and moderate-income
areas and to women, minorities, and veterans.
The Community Express Program generally conforms to the SBA
Express Loan Program policies and procedures. Community Express
participants are 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, participants must
continue to follow their 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 markets, 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 percent
on loans up to $150,000 and a maximum of 75 percent on loans
over $150,000.
Patriot Express Initiative
In the spring of 2007, the SBA announced the establishment
of a new 7(a) lending initiative for veterans known as the
``Patriot Express Pilot Loan Initiative.'' Under this program,
the SBA provides 7(a) loans for veterans and members of the
military community wanting to establish or expand small
businesses.
It is important to note, however, that the Patriot Express
initiative does not provide small businesses with any material
benefits beyond existing standard 7(a) loans. As with any other
7(a) loan, Patriot Express loans can be used for virtually any
business purpose and are offered through the SBA's network of
participating private-sector lenders. Guaranty approval for
these loans are among the SBA's fastest, and carry the same
guaranty levels as other 7(a) loans, which is up to 85 percent
of loan amounts of $150,000 or less and up to 75 percent for
loans over $150,000 up to $500,000. For loans above $350,000,
however, lenders are required to take all available collateral.
Interest on Patriot Express loans are also identical to that of
other 7(a) loans, which is generally 2.25 percent to 4.75
percent over prime depending upon the size and maturity of the
loan.
Rural Lender Advantage Initiative
In January of 2008, the SBA introduced a new initiative
under the framework of the 7(a) loan program known as ``Rural
Lender Advantage'' (RLA). This initiative is part of a broader
SBA effort to promote the economic development of local
communities, particularly in those facing the challenges of
population loss, economic dislocation, and high unemployment.
The Rural Lender Advantage program was intended to accommodate
the loan processing needs of small community/rural-based
lenders that make few or no 7(a) loans by simplifying and
streamlining the Agency's application process and procedures,
particularly for smaller SBA loans.
Lenders participating in the Rural Lender Advantage program
receive support from a 7(a) facility designed exclusively for
new or small SBA loan volume lenders submitting loan requests
through a non-delegated lender process. Lenders also receive
training and counseling assistance on the Agency's 7(a) loan
policies and procedures from personnel in SBA field offices.
Loans made under the RLA program have a simplified 7(a)
loan application and loan processing procedure for loans of
$50,000 or less. Loans are capped, however, at a maximum loan
limit of $350,000. The SBA applies standard guaranty rate, at
85 percent for loans of $150,000 or less, and 75 percent for
loans above $150,000, and works to expedite processing of RLA
loans in a target timeframe of five days or less.
The program underwent a phased rollout to each of the
agency's ten regions through FY 2008. Since inception, the RLA
program has made 650 loans in a total amount of $99.7 million.
This represents far less than one percent of all 7(a) loans
made under the program. Somewhat more notably, however, the RLA
program has had the participation of over 567 lenders. Like
Patriot Express loans, however, RLA loans do not carry any
material benefits for small businesses over standard 7(a)
loans. In this sense, both Patriot Express and RLA are
primarily enhanced delivery mechanisms with aggressive
marketing campaigns.
Business Stabilization Loans
Under Section 506 of P.L. 111-5, the American Recovery and
Reinvestment Act (signed Feb. 17, 2009), Congress provided $255
million in funds for the SBA to carry out a Business
Stabilization Loan program, also known as America's Recovery
Capital (ARC) loans. ARC loans were established to provide
viable small businesses with subsidized, small-dollar loans to
make payments of principal and interest, in full or in part, on
one or more existing, qualifying small business loans for up to
six months. In this manner, ARC loans provide an immediate
infusion of capital to small businesses to assist with making
payments of principal and interest on existing debt. These
loans allow borrowers to redirect cash flow from making loan
payments to investing in their businesses, to help sustain the
business and retain jobs.
ARC loans are interest-free to the borrower, carry a 100-
percent guaranty from the SBA to the lender, and require no
fees paid to SBA. Loan proceeds are provided over a six-month
period and repayment of the ARC loan principal is deferred for
12 months after the last disbursement of the proceeds. The
repayment period, however, can extend up to five years.
In order to receive an ARC loan, a business must be viable,
but experiencing immediate financial hardship. The best
candidates for ARC loans are small businesses that in the past
were profitable but that are currently struggling. In most
cases, these businesses have been making loan payments or are
just beginning to miss loan payments due to financial hardship.
ARC loans are made by commercial lenders who are SBA
participants. The SBA pays these banks a monthly interest rate
throughout the term of the loan. ARC loans will be offered by
participating SBA lenders for as long as funding is available
or until September 30, 2010, whichever comes first.
7(a) Secondary Market and Secondary Market Guaranty Programs
The SBA was also provided with authority under ARRA to
address the severe dislocations in the SBA loan secondary
markets with the establishment of two programs to provide loans
and guarantees to broker and dealers that purchase small
business loans. Under Section 503 of ARRA, the SBA was directed
to establish a SBA Secondary Market Guaranty Authority to
provide a federal guaranty for pools of first lien loans made
in CDC program financings that are sold to third-party
investors. Section 509 of ARRA established a Secondary Market
Lending Authority to make loans to systemically important SBA
secondary market broker-dealers in 7(a) loans. These loans
would be fully secured by the borrowers' existing portfolio of
SBA-backed loans and the proceeds from these loans could only
be used to purchase small business loans from banks. These
loans would then be held or pooled and sold to investors to
fund additional purchases of SBA loans. In this manner, the SBA
Secondary Market Lending and Secondary Market Guaranty programs
would provide funding and guarantees to the broker and dealer
community to ensure the uninterrupted working of the secondary
market for small business loans.
ARRA contained emergency rulemaking authority for the SBA
to waive the notice and comment requirements of the
Administrative Procedures Act and implement the program in 15
days. To date, however, the SBA has not implemented the 7(a)
Secondary Market Lending or Secondary Market Guaranty
initiatives contained in Act. Furthermore, the agency has
expressed its intention of implementing this program with
interest rates dating back to the last quarter of FY 2008.
These rates are significantly higher than what could be
available today in the open market and will likely make the
program cost-prohibitive and unworkable for the vast majority
of broker-dealers who the program was originally intended to
help.
504 Certified Development Company Program
The CDC 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 CDC
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 ten percent
equity from the small business being helped.
The CDC 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.
7(m) Microloan Program
The Microloan Program provides very small loans to start-
up, newly established, or growing small business concerns.
Under this program, the SBA makes funds available to nonprofit
community based lenders (also known as ``micro-
intermediaries'') at a discount of up to two percent from the
cost of a five-year Treasury bond rate. These intermediaries,
in turn, make loans to eligible borrowers in amounts up to a
maximum of $35,000. The average loan size is about $13,000.
Applications are submitted to the local intermediary and
all credit decisions are made on the local level. Loan
repayment periods are up to individual intermediary lenders,
but cannot exceed six years. Other loan terms vary depending
upon the size of the loan, the planned use of funds, the
requirements of the intermediary lender, and the needs of the
small business borrower. Interest rates vary, depending upon
the intermediary lender and costs to the intermediary from the
U.S. Treasury. Generally these rates will be between eight and
13 percent.
What distinguishes Microloans from other forms of SBA loan
assistance is the addition of technical assistance for
borrowers. Each intermediary is required to provide business-
based training and technical assistance to its borrowers. This
assistance is often critical to the success of borrowers in
early-stage or startup businesses.
Small Business Investment Company Program
The Small Business Investment Company (SBIC) program was
established in 1958 as part of the Small Business Investment
Act. The program was originally created to stimulate and
supplement the flow of private equity capital and long-term
loans to small business concerns, thereby bridging the gap
between traditional debt-based financing sources and
entrepreneurs' needs for long-term equitable financing.
Like many of the SBA's financing programs, the SBIC program
operates as a public-private partnership. SBICs are state-
chartered entities organized solely for the purpose of
providing a source of equity capital for small business
concerns. After organizing their funds and receiving SBA
approval, SBICs use their own funds, plus resources borrowed
with an SBA guaranty or ``leverage,'' to invest in small
businesses. Although subject to SBA regulation, SBICs remain
privately owned and managed and make their own decisions about
which small businesses investments to make.
The SBA provides leverage to SBICs in two forms--
``debentures'' and ``participating securities.'' To obtain
leverage, SBICs issue debentures or participating securities,
which are guaranteed by the SBA. Separate pools of either SBA-
guaranteed debentures or participating securities are formed
and sold to investors through periodic securities offerings. An
SBIC's business plan and investment strategy are the primary
factors in determining the type of leverage used by the SBIC.
Debenture leverage has a term of ten years, with semi-
annual interest payments and a lump sum payment of principal at
maturity. The ten-year debenture carries prepayment penalties
during the first five years, but no prepayment penalty
thereafter. The interest rate on the debenture is determined by
market conditions at the time of the pooling. Debenture
leverage operates on a zero-subsidy basis, being funded by fees
charged to the SBIC as well as by annual fees based on a
subsidy rate determined at the time of commitment.
Participating securities function similar to debentures,
but the SBA advances interest (known as ``prioritized
payments'') to the participating security pool investors and is
repaid these prioritized payments only out of profits of the
fund. This makes participating securities unique among the
SBA's programs. The SBA shares in the profits of the SBIC.
Regardless of whether the SBIC earns profits, however, the full
principal amount is due at ten-year maturity. Like SBIC
debentures, participating securities leverage operates on a
zero-subsidy basis, being funded by fixed commitment and
drawdown fees as well as by annual fees paid out of profit
distributions.
By their nature, debenture SBICs focus on companies that
are mature enough to make current interest payments on the
investment so that the SBIC can meet its interest obligations
to SBA. Thus, debenture financing will generally be best suited
if the SBIC plans to invest in portfolio companies with the
ability to service debt. By contrast, participating securities
SBICs are able to invest equity capital in earlier stage
businesses because interest is accrued on their obligation to
the SBA. Thus, participating securities are generally best
suited for SBICs investing in either seed and early-stage
businesses or businesses that do not have established cash
flows.
Like the 504 and 7(a) programs, the SBIC program operates
entirely from fees--meaning that no appropriation is required
for the program. In 2004, however, the participating securities
program ceased issuing new leverage commitments. This was
largely the result of the Administration's decision to move the
program to zero-subsidy in 2001, which was fundamentally
unsuited to a program that functioned on patient equity
investment in long-term assets. As a result, the program was
essentially rendered insolvent by 2005 when the administration
requested no program funding for the participating securities
portion of the SBIC program in its annual budget request. The
participating securities program has not been authorized for
additional leverage since.
New Markets Venture Capital Program
Congress created the New Markets Venture Capital (NMVC)
program in December of 2000 to address the unmet equity needs
of low-income communities. The NMVC program was administered
under the purview of the SBA and was modeled after the SBA's
Small Business Investment Company (SBIC) program. A crucial
difference between NMVC and SBIC, however, was that the NMVC
program was established with the specific purpose of providing
economic development in low-income (LI) areas. NMVCCs are also
required to make all of their investments in ``smaller
enterprises,'' which are small business concerns with less than
$6 million in net financial worth and that have not received
more than $2 million in average net income the prior two years.
Like the SBIC debenture program, the NMVC program operates
as a public-private partnership between the SBA and licensed
New Markets Venture Capital Companies (NMVCCs). The SBA does
not make direct investments in small business concerns through
the NMVC program. Instead, the SBA provides funding to NMVCCs,
which then use their own funds, plus leverage borrowed with an
SBA guaranty, to make investments in smaller enterprises
defined by SBA regulations that are located in LI geographic
areas.
Although subject to SBA regulation, NMVCCs remain privately
owned and managed and make their own decisions about which
small businesses investments to make, within the constraints of
NMVC statute, SBA regulations, and the terms of the NMVCC's
participation agreement and Operational Assistance Grant award.
In this sense, the SBA's role is essentially the same as with
the SBIC program. The Agency selects participants for the NMVC
program, provides funding for their investments and operational
assistance activities, and regulates their operations to ensure
that public policy objectives are being met. The SBA requires
NMVCCs to provide regular performance reports and have annual
financial examinations by SBA.
The SBA arranges funding for the debentures under
procedures similar to those utilized in the SBIC program. The
SBA supplements NMVCC's available capital through guarantees of
debentures issued by the company in a face amount of up to 1.5
times its capital. The debentures have a term of up to ten
years from the date of draw-down and are issued at a discount.
Interest in the first five years is paid up front in the form
of the discount, and is only payable for years six through ten.
Principal is due at the end of year 10. The debentures are
priced at a current market rate for comparable U.S. Government
Treasury securities plus a small premium. The debentures are
pre-payable without penalty after one year, and there are no
SBA fees associated with the debenture.
One crucial advantage that the NMVCCs enjoy over SBICs is
the addition of SBA administered operational assistance grants
(OA). The SBA also will match the resources that the NMVCC has
raised for operational assistance (whether in cash or in-kind)
with an equivalent grant. The NMVCC must use the grant funds
and matching resources to provide marketing, management and
other operational assistance to the businesses in which it
invests or intends to invest. In principle, the program was
intended to permit NMVC companies to use capital raised with
New Markets Tax Credit allocations to meet the NMVC private
capital match. In practice, however, this was not possible
because the first NMTC allocations were made after NMVC private
capital matches were due (e.g. after September 14, 2001).
Renewable Fuels Capital Investment Company Program
A Renewable Fuel Capital Investment (RFCI) program was
created in December of 2007 under PL 110-140. This program
authorized the creation of specialized Renewable Fuel Capital
Investment Companies (RFCIC) to issue SBA-guaranteed debentures
to invest in small businesses engaged in researching,
manufacturing, developing, and bringing to market renewable
energy sources. This includes the development of biodiesel,
ethanol, and related research concerning other biomass fuels
such as cellulosic ethanol. It also includes investment in
wind-, solar-, hydro-, and geothermal-related energy projects.
The RFCI program also provides grants to RFCICs to be used to
provide operational assistance to entrepreneurs in management,
marketing, and other technical assistance to increase the
success of the small businesses.
RFCI program debentures are available in amounts up to 1.5
times the private investment capital of the RFCIC. The
debentures will have a term of up to ten years from the date of
draw-down and will be issued at a discount. Interest in the
first five years will be paid up front in the form of the
discount, and is only payable for years six through ten.
Principal is due at the end of year 10. The administration may
charge fees on RFCIC debentures sufficient to reduce the
program's cost to zero, but also has the authority to make
contributions to reduce the burden associated with those fees
if and when an appropriation is made available for that
purpose.
To date, the SBA has taken no action to implement the RFCI
program. Under the existing statutory framework of the program,
no appropriation is necessary to implement the RFCIC program,
but the legislation does contain authority for the SBA to make
contributions for the purpose of reducing or eliminating fees
associated with debentures issued under the program.
THE NEED TO REAUTHORIZE AND MODERNIZE THE SBA CAPITAL ACCESS PROGRAMS
Recession and Credit Contractions
The U.S. economy has been in a state of recession since
December 2007. These economic conditions grew from the rapid
and widespread boom in credit fueled primarily by a bubble in
real estate prices, followed by their subsequent collapse. A
corollary to the boom and bust cycle, however, was a broad-
based tightening of credit for small businesses of all types
and sizes. This has severely curtailed the ability of small
businesses to fuel economic growth and remain solvent through
the ensuing recession.
In large part, these declines in small business lending
were the result of the near-standstill in domestic lending that
occurred after the collapse of Lehman Brothers in September of
2008. According to the January 2009 Federal Reserve Senior Loan
Officer Opinion Survey on Bank Lending Practices, approximately
70 percent of banks surveyed reported tighter lending standards
on small business loans. Additionally, in the last year, the
delinquency rates of commercial and industrial loans, as
reported by the Federal Reserve, reached their highest levels
since the fourth quarter of 2004.
The SBA's lending and investment programs are intended to
bridge the gap in financing that occurs when the private
markets contract. Conventional wisdom would suggest that these
programs would expand when the gap in private credit grows
during times of economic stress. Unfortunately, that has not
been the case in this economic downturn. A growing number of
businesses have struggled to secure loans and other forms of
capital through the SBA's lending and investment programs.
Despite moderate improvements that can be attributed to the
small business lending initiatives contained in ARRA, the
conditions for small business credit have been slow to improve.
While conditions are better today, the July 2009 Senior
Loan Officer Opinion Survey showed that 36 percent of banks
reported tightening credit standards for small firms in the
last three months, while only two percent reported standards
easing somewhat. Furthermore, many lenders who historically
have been leaders in SBA lending remain hesitant to make small
business loans. CIT, the top lender in 2008, has curtailed its
small business lending activity significantly in the last year
and is at high risk of exiting this sector entirely.
If the declines in small business lending is to be halted,
inherent deficiencies in the SBA's capital access programs must
be addressed. The agency must have additional lending programs
that are better suited to operate under conditions where
lenders are under increased capital constraints and extremely
sensitive to risk. Additionally, these programs must provide
significant tangible benefits to small business borrowers that
are struggling with lower revenues and greater uncertainty in
the near-term. While the SBA's existing programs cannot meet
these criteria, the changes implemented under H.R. 3854 will
address these needs.
Dislocations in Secondary Market Activity
The secondary market provides lenders with liquidity for
loan-making by enabling them to sell the guaranteed portion of
SBA loans to private brokers and investors. In recent years,
lenders to the small business community have become
increasingly dependent upon the secondary market as a source of
liquidity to make new loans. In the wake of the collapse of
lending markets that occurred in the last quarter of 2008,
however, the secondary market for small business loans was
brought to a standstill as investors pulled back and stopped
buying these loans. Monthly settlements of SBA loans fell
precipitously and premiums on guaranteed SBA paper fell to
unprecedented lows. As a result, banks had less capital to lend
to small firms. This was a significant contributing factor to
the precipitous decline in lending that occurred through FY
2009.
Stable and properly function secondary markets are
essential to small business lending. As the small business loan
secondary markets seized-up in September 2008, however, the SBA
left entirely impotent. This was because the agency was
unprepared to respond to a serious decline in secondary market
activity and lacked tools to restore confidence to investors in
SBA loans. Without functioning secondary markets, however,
other efforts to stimulate small business lending were
significantly hampered.
The Administration has undertaken two efforts to stabilize
and improve the deficiencies in SBA loan secondary markets.
Neither effort has proven very successful. The Term Asset
Backed Securities Loan Facility (TALF) administered by the
Federal Reserve began in March of 2008 and allowed secondary-
market investors to take out loans from the Federal Reserve on
a non-recourse basis backed by high-quality debt instruments,
such as the guaranteed portion of SBA loans. In this fashion,
TALF is intended to provide additional liquidity for investors
in debt that can be backed by the TALF. This program has proven
of limited utility for stimulating the small business loan
secondary market, however, as only 1.7 percent of all deals
settled by the TALF since March have been for SBA-backed loans.
In March of 2009, the Treasury announced an additional
proposal that was intended to restart stagnant secondary
markets for SBA loans. Under this program, Treasury would use
as much as $15 billion in funds appropriated by Congress under
the Emergency Economic Stabilization Act of 2008 (EESA) and the
Troubled Asset Relief Program (TARP) to make direct purchases
of SBA loans from lenders. Since the announcement, however, not
a single purchase has been made. Loan purchasers have been
reluctant to take part because of concerns associated with
TARP-related oversight and executive-compensation limits.
Congress took action in the American Recovery and
Reinvestment Act to address this issue by providing the SBA
with authority to provide loans to broker/dealers that purchase
7(a) small business loans. These loans would be fully secured
by the borrowers' existing portfolio of SBA-backed loans and
the proceeds from these loans could only be used to purchase
small business loans from banks. Brokers/dealers in SBA loans
would either hold the loans or pool them and sell them to
investors. Congress also authorized the SBA to guaranty pools
of first-lien loans made in conjunction with CDC financings.
ARRA provided the agency with emergency rulemaking
authority to waive notice and comment requirements of the
Administrative Procedures Act and implement the secondary
market programs within 15 days of enactment. In the nine months
since the enactment of ARRA, however, the SBA has not
implemented the 7(a) Secondary Market Lending initiative or CDC
Secondary Market Guaranty programs contained in the ARRA.
Furthermore, the agency has expressed its intent to implement
this program with interest rates dating back to the last
quarter of FY 2008. These rates are significantly higher than
what could be available today in the open market and will
likely make the program cost-prohibitive and unworkable for the
vast majority of broker-dealers the program was originally
intended to help. These actions by the Agency are entirely
counterproductive to the original intent of the secondary
market initiatives and serve only to further frustrate efforts
to improve small business lending.
Declines in SBA Lending
A growing number of businesses have struggled to secure
loans through the SBA's flagship lending programs--the 7(a)
program and the CDC program. Although both programs experienced
modest declines beginning in 2002, when the program was first
moved to zero-subsidy, the program's decline accelerated
significantly in response to the collapse in the U.S. financial
markets.\1\ In FY 2008, volume in the 7(a) program declined by
over 38 percent compared to the previous year. The total number
of 7(a) loans made in FY 2008 fell by over 30,000 loans
compared to the previous year, while over 2,000 fewer projects
received CDC financing. These trends continued unabated in FY
2009, as the number of loans in both programs declined by over
35 percent compared to FY 2008, and total funds loaned fell by
over $4.8 billion. This represented the largest two-year
decline in the history of the program, with over 50,000 fewer
loans being made and nearly $7.5 billion less in lending--a
level not seen in nearly a decade.
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\1\In FY 2006, lending volume declined by three percent from volume
from FY 2005. This was the first time in over a decade that loan volume
decreased from one fiscal year to the next. This trend continued
unabated in FY 2007, with loan volume falling 2.4 percent below its FY
2005 level.
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The decline in SBA lending has been led in large part by an
over-reliance and subsequent collapse in the SBA Express Loan
subprogram. Since FY 2005, SBA lending has grown increasingly
reliant upon activity in the SBA Express program for overall
lending in the program. In FY 2008, 39,877 loans were processed
through SBA Express in a total amount of $2.23 billion. This
represented 57 percent of the total number of loans made under
the 7(a) program, but only 18 percent of the total amount of
money made available under the 7(a) program. Over the past
year, however, there has been a significant increase in
defaults on SBA Express loans. Increasing costs stemming from
the rising defaults have been the single largest driver of
costs for the 7(a) program, and are expected to push the
program to a positive subsidy rate in FY 2010.
These trends are unsurprising given the structure of the
SBA Express program. Because SBA Express loans provide a lower
guaranty amount, these loans will entail more credit risk to
lenders compared to conventional 7(a) loans. As a result,
lenders making SBA Express loans may forego lending to less
creditworthy borrowers and instead lend only to borrowers with
the best credit. This is particularly true as economic
conditions have worsened and lenders have had to contract
credit standards significantly. As a result, the SBA Express
program may be leading the 7(a) program short of its goal to
make capital available to borrowers who may not otherwise
qualify for funding in the conventional market.
Additionally, because SBA Express loans are capped at
$350,000, an increase in the number of these loans may result
in less capital actually being made available to businesses.
This is problematic because small businesses must achieve a
critical mass of capital in order to capitalize effectively. By
falling short of necessary capital levels (i.e. at levels under
$350,000) a business may actually be hampered.
The problems inherent to the SBA Express program, combined
with the program's increasing defaults and projected positive
subsidy rate, were the decisive factors why stimulus funds
appropriated under ARRA were not used to support increased
guarantees or fee reduction subsidies in this program.
Rising Costs Are Unsustainable
With the enactment of H.R. 4818 in FY 2005, the
Consolidated Appropriations Act, the cost of 7(a) loans
increased significantly for both small business borrowers and
lenders. The stringent zero-subsidy framework of this
legislation caused borrower fees to double, with some
businesses having to pay as much as $50,000 in upfront fees for
a loan. Despite these fee hikes, program costs have continued
to escalate. For fiscal year 2010, the 7(a) loan program will
be unable to operate without a subsidy, with a projected
subsidy rate of 0.46. This will require an appropriation of
approximately $80 million to meet the requirements of the
Federal Credit Reform Act of 1990. This flies in the face of
what was originally promised with the program's shift to zero-
subsidy in FY 2002, which was supposed to eliminate the need
for further appropriations and provide authority for indefinite
lending.
The CDC program is also facing significant rising costs in
the near-term. Some of these costs stem from the current
economic climate and the program's heavy concentration on
lending for real estate projects, which are likely to see
continued losses before the economy recovers. In order to keep
CDC program fees acceptably low, substantial efforts must be
made by SBA to minimize the actual loss, or charge-off,
attributed to each defaulted loan. The SBA has a CDC loan
portfolio of approximately $30 billion, but maintains a loan
liquidation staff in its two servicing centers of fewer than 15
individuals. Additionally, this staff has no ability to travel
to the locations where loan collateral is located in order to
track borrowers, guarantors, or collateral. The SBA has not
taken steps in the past year to delegate additional authority
to the individual CDCs that make these loans (and which are
located in the towns and cities in which the collateral is
located) to perform workouts, liquidations, and recoveries on
defaulted loans. Under such an arrangement, however, it would
be imperative that the costs for liquidations be paid promptly
by the SBA, a task that the Agency has had difficulty
performing recently.
The rising costs of both the 7(a) and CDC programs have
become particularly problematic in the current economic climate
where credit availability has been pushed past historic lows.
Congress made considerable efforts to restart lending through
both programs by appropriating $375 million in P.L. 111-5--the
American Recovery and Reinvestment Act of 2009--for the purpose
of reducing fees on and increasing guarantees on 7(a) loans
through FY 2010. Nonetheless, activity in both programs remains
anemic, as reflected by the significant declines in lending
activity in both 7(a) and CDC for FY 2009. If these programs
remain correlated to wider conditions in the lending markets,
the SBA will be unable to achieve its mission of making credit
available to small businesses that are finding themselves shut
out from traditional sources of capital.
Fewer Participants for SBA Programs
The SBA also continues to lose ground in attracting new
lenders to participate in its lending and investment programs.
In FY 2007, only 2,374 lenders participated in the 7(a)
program. This represented a 16 percent decline in the number of
lenders from FY 2003, when 2,840 lenders participated in the
program. While a good deal of this decline may be attributable
to the discontinuation of streamlined lending initiatives in FY
2005, much of the cause may stem from the challenges that small
lenders have in entering the program. Much of this is due to
compliance costs associated with SBA's loan regulations and the
technical expertise needed to make an SBA loan.
The SBA's investing programs have also suffered from
declines in participants over the past decade. In FY 2002 the
SBA licensed 41 new SBIC funds, more than half of which were
for early-stage investment. By contrast, in FY 2008 the SBA
issued licenses for only six SBIC funds, only one of which was
for a new fund (the other five being license renewals), and
none of which were for investment in early-stage businesses. As
a result, the SBA has been unable to expand the breadth and
reach of the program, limiting the availability of equity
financing to entrepreneurs that the program has traditionally
served.
SBA has also been unable to bring new investment companies
into NMVC and RFCI programs, limiting the availability of
equity financing to entrepreneurs located in low-income areas
or those that could contribute to the nation's renewable energy
effort. To date, only six companies are participating in the
NMVC program and the FY 2010 budget allocates no resources to
bring more companies into the program. Additionally, the SBA
has taken no action to date to implement the RFCI program.
Agency support is crucial to ensuring that the NMVC and RFCI
programs meet their full potential. These programs have
significant potential to improve economic development in low-
income communities and fuel small business innovation in the
area of renewable energy, particularly since businesses in
these sectors have experienced a loss of their small
manufacturing and industrial economic base. Administrative
mismanagement and protracted delays in their implementation,
however, have squandered much of this potential.
Difficulty Reaching Underserved Businesses
In the spring of 2007, the SBA announced the establishment
of a new 7(a) lending initiative for veterans known as the
``Patriot Express (PE) Pilot Loan Initiative.'' Under this
program, the SBA provides 7(a) loans for veterans and members
of the military community wanting to establish or expand small
businesses. In FY 2008, SBA made only 912 PE loans, accounting
for less than two percent of all 7(a), and less than one
percent of all dollars loaned. In addition to its lackluster
performance, the continued reliance on Patriot Express has come
at the expense of other programs that are aimed at increased
access to capital for veteran-owned small businesses. The
Increased Veteran Participation program was established by
Congress in 2008 by P.L. 110-186, the Veteran Small Business
Reauthorization and Opportunity Act of 2008. The Increased
Veteran Participation program can function within the existing
zero-subsidy policy of the 7(a) program, but carries
significantly greater guarantees, loan sizes, and reduced fees
for veteran borrowers. While no appropriation is necessary to
implement this program, the SBA has yet to take action to
implement the Increased Veteran Participation program.
Small businesses in rural areas have also continued to
struggle with access to the SBA's lending programs. In January
of 2008, the SBA introduced a new initiative under the
framework of the 7(a) loan program known as ``Rural Lender
Advantage.'' This initiative was intended to accommodate the
loan processing needs of small community/rural-based lenders
that make few or no 7(a) loans by simplifying and streamlining
the Agency's application process and procedures, particularly
for smaller SBA loans. Like Patriot Express loans, however, RLA
loans do not carry any material benefits for small businesses
over standard 7(a) loans. In this sense, both Patriot Express
and RLA are primarily enhanced delivery mechanisms with
aggressive marketing campaigns which are unlikely to
significantly improve lending businesses in these target
groups.
SBA's ability to provide capital for socially and
economically disadvantaged small business owners will likely be
affected by recent changes to the Community Express program--a
pilot program of the 7(a) loan loans. Because Community Express
is a pilot program, it is subject to statutory limitations that
prohibit the SBA from making more than ten percent of 7(a)
loans through a pilot program. In FY 2009, however, the SBA
altered the Community Express program by targeting the program
to underserved geographies (e.g., low-income or underserved
locations), as opposed to its prior focus on demographic groups
(e.g., minorities, women, and veterans). This policy, however,
is inconsistent with the program's original intent of serving
individuals who have faced more difficulty in securing credit
through the conventional markets. By focusing on geographic
areas, the SBA has expanded the pool of eligible borrowers
beyond the intended target groups of women, minorities, and
veterans while leaving statutory ten percent limit on the
program's volume undisturbed. This will likely result in fewer
7(a) loans going to the program's initial target groups and
will likely affect the 7(a) program's overall success in
lending to these individuals.
In addition to reaching target demographics through its
lending programs, the SBA has also struggled to provide capital
investment for minority entrepreneurs. In FY 2008 only 3.4
percent of all financings in the SBIC program went to small
businesses that were majority black-owned. Only 1.22 percent of
all SBIC investments went to small businesses that were
Hispanic-owned and only 2.49 percent of SBIC investments went
to women-owned businesses. Veteran-owned small businesses fared
the worst, receiving only 0.12 percent of all SBIC financings.
These figures represent a troubling performance for a program
that was intended to focus on providing these groups with
investment capital.
Legislation is also necessary to address the
Administration's failure to leverage the program's inherent
ability to provide investment capital to industries that have
particular difficulty in acquiring equity capital. The
additional investment capital provided by the SBA in the SBIC
and NMVC programs facilitates smaller transactions that are
more suitable to investments in smaller businesses and has the
added benefit of making SBIC and NMVCCs less reliant on public
market sentiment compared to the investments made by
traditional venture capital firms. This is particularly
important to facilitating investment in small businesses in
struggling industries and low income areas that have difficulty
attracting private capital.
Inability To Support Early-Stage Businesses
In 2004, the participating securities program ceased
issuing new leverage commitments. This was largely the result
of a decision to move the program to zero-subsidy in 2001,
which was fundamentally unsuited to a program that functioned
on patient equity investment in long-term assets. As a result,
the program was essentially rendered insolvent by 2005 when the
administration requested no program funding for the
participating securities portion of the SBIC program in its
annual budget. This policy was continued through the FY 2010
budget.
By eliminating the participating securities program,
however, the SBA has become completely reliant on debt-based
programs, which are more suited to providing later stage,
expansion capital to cash-flow-positive businesses. This has
particularly hampered investment in early-stage and capital-
intensive small businesses, which lack the resources to service
heavy debt investment. According to SBA studies, the total
unmet need for early-stage equity financing for small
businesses is about $60 billion annually.
Beginning in the last quarter of 2008, investments in early
stage businesses plunged to $5.4 billion, a drop of 26.4
percent from the prior quarter and 33.2 percent from the fourth
quarter a year earlier. Several factors have contributed to
this downturn, particularly the frozen markets for initial
public offerings--there were only six nationally in the last
year. The end result of these trends has been a significant
decline in funding for small businesses and early stage
companies. This is particularly troubling since these are
precisely the types of businesses that have historically driven
innovation and growth in the U.S. They are a keystone of U.S.
competitiveness and will be integral to creating new jobs and
driving growth as the economy exits this recession.
In the current economic environment, however, many
entrepreneurs have been unwilling to take on new business
enterprises, reasoning that opportunities for capital are
scarce. Today, the SBA is entirely reliant on debt-based
programs to overcome the difficulties that small firms
encounter when seeking capital. These debt-based programs,
however, are more suited to providing later stage, expansion
capital to businesses with positive cash-flow that can be used
to make regular payments on debt. As a result, the gap for
investment in early-stage and capital-intensive small
businesses, which lack the resources to service heavy debt
investment, has grown wider, and this critical component of the
small business community has continued to be underserved by
existing government programs.
III. Hearings
In the 111th Congress, the Committee on Small Business held
six hearings to examine the issue of small business access to
capital, the SBA's capital access programs, and related
legislation.
On March 26, 2009, the Small Business Committee,
Subcommittee on Oversight and Investigations held a hearing to
examine issues related to investment in small businesses, with
particular emphasis on how prevailing economic conditions have
affected investment in small firms. Witnesses in this hearing
explained how the current recession has aggravated the need for
investment funds, particularly for equity investing in small
firms, and how new federal initiatives could allay those needs.
Additionally, this hearing explored numerous setbacks to the
SBA's investment programs that have dramatically reduced the
amount of investment in early stage and startup businesses and
have inhibited the flow of venture capital to small businesses
in general.
The full Committee subsequently held a hearing on June
10th, 2009, to examine the challenges facing the full array of
the SBA's capital access programs. The Committee received
testimony on issues facing the 7(a), Certified Development
Company (CDC), Small Business Investment Company (SBIC), New
Markets Venture Capital (NMVC), 7(m)/Microloan, and Renewable
Fuels Capital Investment (RFCI) Company programs. Witnesses at
this hearing discussed various deficiencies affecting the
efficacy of these programs and proposed steps that could be
taken to better meet the SBA's capital access mission.
The Small Business Committee, Subcommittee on Regulations
and Healthcare held a hearing on June 22, 2009 to discuss the
financial challenges that solo and small group health practices
face in adopting health information technology (HIT). In
particular, witnesses provided testimony on the dislocations
between capital costs and returns on investment that discourage
greater uptake of HIT assets by small health providers.
On Thursday, July 23, 2009 the Small Business Committee,
Subcommittee on Finance and Tax held a hearing to examine
proposed legislative initiatives to address deficiencies in the
SBA's lending and investment programs that had been identified
by previous hearings before the Committee. Witnesses at this
hearing discussed several legislative proposals that would make
a number of important reforms to the SBA's existing programs
and establish new programs that will help close the gap for
equity investment that was left when the SBA's investing
programs were curtailed.
On Thursday, October 8, 2009, the Small Business Committee,
Subcommittee on Finance and Tax held a markup of legislation
affecting the SBA's capital access programs, including the
7(a), CDC, Microloan, SBIC, NMVC, and Disaster loan
programs.\2\ These bills would also establish a new lending
program to provide reduced cost capital to small medical
practices that purchase health information technology and new
equity investing program under the SBA. These bills were
reported to the full Committee by voice vote with no
amendments.
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\2\This included H.R. 3723, The Small Business Credit Expansion and
Loan Markets Stabilization Act of 2009, which was introduced by Rep.
Halvorson (IL) to make improvements to the 7(a) loan program; H.R.
3739: The Job Creation and Economic Development Through CDC
Modernization Act of 2009, which was introduced by Rep. Buchanan (FL)
to update the CDC program; H.R. 3737: The Small Business Microlending
Expansion Act of 2009, which was introduced by Rep. Ellsworth (IN) to
improve the Microloan program; H.R. 3740: The Small Business Investment
Company Modernization and Improvement Act of 2009, introduced by Rep.
Leutkemeyer (MO) to streamline and expand the SBIC program; H.R. 3722:
The Enhanced New Markets and Expanded Investment in Renewable Energy
for Small Manufacturers Act of 2009, introduced by Rep. Kirkpatrick
(AZ) to expand the NMVC and RECI programs; H.R. 3014: The Small
Business Health Information Technology Financing Act of 2009,
introduced by Rep. Dahlkemper (PA) to create a new lending program to
make capital available for small health practices to purchase health
information technology; H.R. 3738: The Small Business Early Stage
Investment Act of 2009, introduced by Rep. Nye (VA) to create a new
equity investment program at the SBA; and H.R. 3743: The Small Business
Disaster Readiness and Reform Act of 2009, introduced by Rep. Griffith
(AL) to make necessary improvements to the SBA's Disaster assistance
program.
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The full Committee subsequently held a hearing on October
14th, 2009, to review proposed legislation to address
deficiencies in the SBA's lending and investment programs that
had been identified by previous hearings before the Committee.
Witnesses at this hearing expressed their support for several
legislative proposals to reform the SBA's existing programs and
establish new programs that will help close the gap for equity
investment. These proposals ultimately became the basis for
H.R. 3854.
IV. Committee Consideration
The Committee on Small Business met in open session on
October 21, 2009 and ordered H.R. 3854 reported to the House by
voice vote. No amendments were offered during the markup.
V. Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto. As
noted in the comprehensive description of the markup above, no
recorded votes were conducted. A motion by Ms. Velazquez to
report the bill to the House with a favorable recommendation
was AGREED to by a voice vote at 10:41 a.m.
VI. Section-by-Section Analysis of H.R. 3854
Section 1. Short title; table of contents
This provision sets a short title for the Act as ``Small
Business Financing and Investment Act of 2009''
TITLE I--SMALL BUSINESS LENDING ENHANCEMENTS
Section 101. The small lender 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,
particularly community banks and lenders located in rural
areas.
Section 102. The rural lender outreach program
This provision would establish an SBA lending program
focused on lending to small businesses located in rural areas.
The program would be administered by the Small Bank Outreach
Division established under this bill. The RLO program would
improve upon conventional 7(a) loans to encourage increased
lender participation in the 7(a) program, reducing application
burdens for borrowers and lenders in rural areas, by expediting
the lending process, and enhancing loans made under this
program by increasing the guarantee to 90 percent 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
participation. 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.
Section 103. Community Express program made permanent
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, or U.S. military veterans without regard to their
geographic location.
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.
Over the past five years, the SBA has relied on the
Community Express pilot program as a key mechanism for making
loans to these businesses. 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 2007 to FY 2008, the number of 7(a) loans made
to minority-owned businesses declined by over 33 percent, while
the number of loans made to women-owned businesses declined by
29 percent. During the same time period, the number of 7(a)
loans to veteran-owned businesses declined by more than 22
percent.
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.
Section 104. Increased Veteran Participation Loan Program
made permanent
This provision would amend the Increased Veteran
Participation Program (IVPP) under section 7(a)(32) of the
Small Business Act to permanently establish this initiative as
a sub-program of the 7(a) Loan Program. This section will also
provide permanent authority to reduce fees on IVPP loans by
half 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.
Because this program does not displace the zero subsidy
policy governing the 7(a) program, the Committee intends for it
to be fully implemented irrespective of whether an
appropriation is made available to the program. In the event
that the 7(a) program reaches positive subsidy, however, the
Committee expects the SBA to identify and eliminate non-
permanent loan programs before exercising discretion of not
operating the IVPP. Additionally, it is the Committee's
expectation that the permanent establishment of the IVPP
program would eliminate the need for the superfluous Patriot
Express pilot program and that this program would be
discontinued.
Section 105. Leasing policy
This section will clarify permissible uses of 7(a)
financings for facilities that will subsequently be leased by
the small business concern. Under this provision, a 7(a)
program loan may be used to acquire or construct a facility, so
long as the small business concern receiving the loan
permanently occupies no less than 50 percent of the project
property and may temporarily lease no more than 50 percent of
the project property
Section 106. National lender training program
This section would require the SBA's ten regional offices
to carry out a lender training program to train new and
participating lenders on SBA's lending systems, policies, and
procedures. Costs for this program can be covered by fees, and
the program cannot be contracted out to non-governmental
entities.
The Committee believes that the role of program training
and lender education is properly the purview of the SBA and
that lenders should not seek private training courses or
seminars to train employees on SBA program policies and
procedures. At a minimum, the Committee would expect every
lender participating in an SBA lending program to have at least
one employee complete SBA training and that continuing
education for SBA participants be available on an annual basis.
This section also reiterates existing laws which limit
participation in the SBA's capital access programs to entities
that engage solely in lending, investment, or entrepreneurial
development or in activities incidental to the business of
lending, investing, or small business entrepreneurial
development. The Committee does not intend for this language to
make any material change to the entities that currently
participate in these programs.
Section 107. Applications for repurchase of loans
This section shall require the SBA to make prompt payment
on repurchase applications, and to make a final determination
to approve or deny a complete repurchase application within 45
days of receipt. Applications not receiving a final
determination within 45 days shall be deemed approved.
The Committee does not intend for this provision to require
the SBA to pay fraudulent or improperly issued guarantees. The
Committee intends for this provision to eliminate the practice
of partial guaranty payments or complete guaranty denials that
are based upon immaterial or technical deficiencies in the loan
application, approval, or servicing process. Additionally, the
Committee believes that partial or complete denials should be
exceedingly rare in instances where the SBA has had an
opportunity to review and approve a guaranty prior to its
issuance. This provision is intended to ensure that the SBA
provides greater certainty for the guarantees that lenders rely
upon when making 7(a) loans. In recent years, untimely payments
and denials on guaranty purchases have all but eliminated the
meager margins that lenders relied upon to economically justify
participation in the 7(a) program.
Section 108. Alternative size standards
This provision will provide a simplified and
straightforward standard for determining small business loan
eligibility. 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, however, the
Committee intends for the SBA to use the size standard that
currently exists for the 504 program.
Section 109. Pilot program authority
This section would limit the maximum number, term, and
dollar amount of SBA pilot programs, and would require that any
new pilot programs, or any changes to an existing pilot
program, be made pursuant to the notice and comment rulemaking
provisions of Section 553(b) of Title V of the United States
Code.
The Committee believes that no material changes to the
SBA's lending and investment programs should be made without
the notice and comment rulemaking procedures established under
the Administrative Procedures Act. This includes changes to
informal program guidance or SBA standard operating procedures
that would affect the way in which SBA loans are applied for,
approved, or processed. Additionally, the Committee intends for
this provision to curtail the SBA's ability to establish new
programs or delivery mechanisms for SBA loan programs without
explicit statutory authority, particularly when Congressionally
mandated programs remain unimplemented.
Section 110. Loans to cooperatives
This section will simplify the eligibility requirements for
cooperatives to receive 7(a) loans by permitting any
cooperative that is not organized as a tax exempt entity, which
is engaged in a business activity, that offers its goods or
services to the public, and that obtains financial benefits for
itself as an entity as well as for its members.
The Committee intends for this language to eliminate the
SBA's current distinctions between ``consumer,'' ``marketing,''
and ``producer'' cooperatives. The Committee also believes that
the SBA's practice of looking primarily at an entity's tax
filing status to determine eligibility for SBA loans should be
discontinued, as this factor is not dispositive in determining
whether an entity is a business or not. The language in this
provision is intended to expand eligibility for SBA loans to
small businesses that are organized as cooperatives. The
Committee believes that the SBA's treatment of cooperative
businesses should be no different than the treatment given
other businesses. The cooperative must still be deemed eligible
under the SBA's size standards, and if any of its members are
business entities, they must also meet the SBA's size
standards.
Section 111. Capital Backstop program
Under this section, the SBA would be required to establish
a process by which potential borrowers submit loan applications
directly to the agency. The SBA would then be authorized to
engage in application processing and preliminary underwriting
of these applications before forwarding the applications to
private sector SBA lenders within 100 miles of the principal
office of the potential borrower. If no such lenders approve
these loan applications and undertake the loans, the SBA is
required to provide such applications to preferred SBA lenders
nationwide. If after 60 days no private sector lender approves
these loans, the SBA is authorized underwrite, close, and fund
the loan.
The SBA would then be required to offer closed and funded
loans to the private sector through asset sales convened semi-
annually. The SBA is authorized to contract with private sector
vendors for due diligence, asset valuation, and other services
related to the asset sales. The SBA would be prohibited from
selling loans for less than 90 percent of the net present
value, as determined and certified by a qualified third-party
entity, of such assets through the asset sales. For loans that
were unable to be sold through the asset sales, the SBA would
be required to maintain and service such loans.
This program will be subject to the Federal Credit Reform
Act of 1990, meaning that it will carry sufficient fees to
reduce the cost to zero and that the program level for lending
would be indefinite. The program would also only take effect in
the event that the Bureau of Economic Analysis has determined
the U.S. gross domestic product has declined for three
consecutive quarters and that the annual program level volume
in the SBA's 7(a) loan program has declined by 30 percent or
more compared to the same time in the previous fiscal year.
It should also be noted, however, that the SBA would be
required to apply the existing eligibility and credit
underwriting criteria that are used for 7(a) loans, thus
avoiding any adverse selection for SBA loan-making. In fact,
the SBA backstop portfolio should carry no more risk than that
of a 7(a) private sector lender. Additionally, total program
level in the Capital Backstop program would be identical to the
annual program level of the 7(a) program, meaning that the
program would not entail any increased exposure beyond levels
already contemplated in the annual 7(a) program level
authorization. Finally, to avoid any undue burden on the SBA's
other programs, the Capital Backstop program would be carried
out using a reserve cadre that is skilled and trained to make
loans.
Section 112. Loans to finance goodwill
Under this provision, the SBA would be prohibited from
applying disparate application, processing, or approval
standards on loans used to finance goodwill.
Section 113. Appellate process and ombudsman
This section would establish an Office of the Agency
Ombudsman within the SBA. The Agency Ombudsman would be
organized around the principle of dispute resolution within the
SBA's various lending and investment programs. This office
would be established to ensure that the private sector partners
that administer the SBA's programs receive fair and expeditious
resolution of their complaints. The Ombudsman would report
directly to the Administrator and would serve as an objective
arbiter to resolve appeals independently of the SBA's program
administration offices through a separate appeals process. This
process is designed to provide participants with an
independent, fair, and confidential means of settling
disagreements that can arise from the SBA's oversight or
decision making functions. This would enable program
participants to make informal inquiries or file formal appeals
in the strictest confidence without fear of retaliation.
Section 114. Extension of recovery and relief loan benefits
This section would extend the increased guarantees and
eliminated borrower fee provisions that were established under
Sections 501 and 502 of the American Recovery and Reinvestment
Act of 2009 through the end of fiscal year 2011, providing
small businesses and lenders with continued support to make
capital available as the economy recovers. The Committee
intends for this to serve solely as a prospective extension of
authority to continue these benefits through September 30, 2011
and should not be considered as having any effect on the
existing operation of the program.
It is the Committee's intent that borrowers remain the
primary beneficiaries of the fee reduction and that funds
appropriated for fee reduction first be used to the maximum
extent practicable to reduce fees for borrowers before being
used to reduce fees paid by lenders. If there are insufficient
funds to eliminate borrower fees entirely throughout the
authorization period, the agency should adjust the borrower
fees upward to conserve funds and effect a fee reduction
through the end of the stimulus period for borrowers only. This
is the only approach intended by the Committee to give full
effect to the language which provides small business borrowers
with priority over lenders in receiving this vital relief.
Additionally, the Committee intends for the increased guaranty
to be applied uniformly for all loans made under Section 7(a)
regardless of the size of the loan, purpose of the loan
proceeds, or size of the institution making the loan. The sole
exception for these benefits should be for loans made under SBA
Express, which should not carry either the increased guaranty
or the reduced fees.
Section 115. Reduced documentation for Business
Stabilization loans
This provision will streamline and improve the application
process for Business Stabilization loans established under the
American Recovery and Reinvestment Act (ARRA) by requiring the
SBA to develop a single page application for these loans and
reduced documentation requirements by permitting lenders to
apply documentation and processing procedures that the
institution uses for loans of similar size and purpose. The
Committee intends for this provision to significantly reduce
the burden on borrowers seeking ARC loans following the
enactment of this provision. The new application process and
revised documentation standards should not affect existing or
pending loan applications, but should only be prospectively
applied for new loans. Additionally, the Committee does not
intend for the reduced documentation requirements to result in
significantly 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.
Section 116. Expanded eligibility for Business
Stabilization loans
This provision will expand the Business Stabilization loans
established under the American Recovery and Reinvestment Act
(ARRA) to permit loan funds to be used for the purpose of
making payments of principal and interest on loans that are
guaranteed by the Federal government. This would include the
payment of principal and interest on any preexisting SBA
guaranteed loan. The Committee does not intend for the expanded
uses of loan proceeds to affect existing or pending loan
applications, but should only be prospectively applied for new
loans approved or made after the date of enactment.
Section 117. Increased amount for Business Stabilization
loans
This provision will increase the maximum loan size for the
Business Stabilization loans established under the American
Recovery and Reinvestment Act (ARRA) from the current level of
$35,000 to $50,000. The Committee does not intend for these
larger loan amounts to affect existing or pending loan
applications, but should only be prospectively applied for new
loans approved or made after the date of enactment.
Section 118. Extension of Business Stabilization loans
This provision will extend the Business Stabilization loans
established under the American Recovery and Reinvestment Act
(ARRA) through the end of fiscal year 2011. The Committee
intends for this extension to serve solely as a prospective
extension of authority to continue this program through
September 30, 2011 and should not be considered as having any
effect on the existing operation of the program.
Section 119. Secondary Market Lending Authority made
permanent
This section would make the Secondary Market Lending
Authority established under Section 509 of the American
Recovery and Reinvestment Act of 2009 permanent, providing the
SBA with permanent authority to make liquidity available to
brokers and dealers who purchase and sell SBA 7(a) loans, thus
stabilizing this vital component of the small business lending
market.
Section 120. SBA Secondary Market Lending Authority
expanded
This section would amend the Secondary Market Lending
Authority established under Section 509 of the American
Recovery and Reinvestment Act of 2009 to permit any 7(a) lender
to apply for and receive loans authorized by this section.
Additionally, the Secondary Market Lending Authority is amended
to provide the SBA with authority to use appropriated funds for
the purpose of reducing the cost of loans made under this
program.
Section 121. Increased loan limits
This provision will increase the maximum gross loan amount
for 7(a) loans from the current level of $2 million to $3
million. The Committee does not intend for there to be any
increase in the total amount of these loans that the SBA
guarantees.
Section 122. Real estate appraisals
This section would require an appraisal by a licensed or
certified appraiser for any 7(a) financing secured by
commercial real estate with an estimated value in excess of
$400,000. The Committee does not, however, intend for these
increased limitations on real estate appraisals to result in
lower underwriting standards. The Committee intends for loans
to remain consistent with prudent banking practices and for
lenders to continue to follow established and proven internal
credit review and analysis procedures for loans of similar size
and type.
Section 123. Additional support for express loan program
This provision will permit the SBA to retain a 25 basis
point fee that is currently charged and retained by lenders on
all 7(a) loans. The Committee intends that lenders making SBA
Express loans should remit this portion of the fee to the SBA
and that the SBA use this additional fee to bring the 7(a)
program within zero subsidy. The Committee does not intend for
the SBA to retain this fee in any other type of loan made under
Section 7(a).
Section 124. Authorization of appropriations
This section would authorize a program level of $17.5
billion in the 7(a) loan program through fiscal year 2011.
TITLE II--CDC ECONOMIC DEVELOPMENT LOAN PROGRAM
Subtitle A--General provisions
Section 201. Program levels
This section will authorize the 504/Certified Development
Company Program levels at $9 billion in financings in fiscal
year 2010 and $10 billion in financings in fiscal year 2011.
These levels should be adequate given current and projected
levels of program activity.
Section 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.
Subtitle B--Certified Development companies
Section 211. Certified Development companies
This provision specifies criteria that a development
company must meet in order to issue debentures. A CDC must have
fewer than 200 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 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. It also 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.
Section 213. Accredited lenders program
This provision codifies the existing accredited lenders
program, which CDCs that meet the accreditation criteria must
follow in order to participate in the ACL program, which
permits skilled, experienced, and well staffed CDCs in good-
standing to make loans with accelerated approval and closing
times.
Section 214. Premier Certified Development Program
This provision codifies the existing Premier Certified
Development Program (PCL) by which accredited lenders can make
completely delegated loan decisions.
Section 215. Multi state operations
This provision establishes criteria for subsequent
development company expansion which requires that each
additional State be contiguous to the State of incorporation,
and requires 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.
Section 216. Guaranty of debentures
This provision codifies the existing authority for the SBA
to issue guarantees for the full amount of CDC debentures
issued under the program as well as the fee structure which
sets the program subsidy at zero. It would also change the
existing law to provide borrowers in the 504 program with 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.
Section 217. Economic development through debentures
This section codifies the economic development mission that
is central to the CDC program. Among these objectives, 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.
This provision also 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.
This effort would also permit 504/CDC project financings to
be used to acquire the stock of a corporation, so long as the
amount of the financing used to acquire stock does not exceed
the fixed asset value attributable to such assets.
Section 218. Project funding requirements
This section would increase the maximum loan sizes for 504/
CDC financings from $3.75 million for conventional projects and
$5 million for projects that meet the public policy goals in
the Small Business Investment Act to $7 and $10 million
respectively. These increases are commensurate with the rate of
inflation since the maximum loan sizes were last established.
This provision would also increase the maximum loan sizes
for financings for projects that improve energy efficiency,
produce renewable energy, or fund small manufacturing to $20
million. Businesses located in New Markets (i.e. low income)
areas could receive a maximum financing of $12.5 million, and
the provision would also create new financing of up to $25
million for small businesses that constitute a major source of
employment.
This provision will also 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.
This section will clarify permissible uses of 504
financings for facilities that will subsequently be leased by
the small business concern. Under this provision, a 504/CDC
program loan may be used to acquire or construct a facility so
long as the small business concern receiving the loan
permanently occupies no less than 50 percent of the project
property and may temporarily lease no more than 50 percent of
the project property.
A CDC borrower will also be able 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. This provision will provide entrepreneurs with
increased access to affordable capital in amounts necessary to
support capital intensive small businesses. This is consistent
with the express purpose of the 7(a) and 504 programs,
particularly since no existing SBA program can adequately
fulfill this role by itself.
This section makes a conforming amendment to make the
uniform leasing policy contained within the Small Business
Investment Act consistent with the policy established by this
act within the Small Business Act. This would require an
appraisal by a licensed or certified appraiser for any 504/CDC
financing secured by commercial real estate with an estimated
value in excess of $400,000.
Section 219. Private debenture sales and pooling of
debentures
This provision codifies the existing authority by which the
SBA pools and sells debentures issued under the program with
full guarantees on trust certificates issued from the pools.
Section 220. Foreclosure and liquidation of loans
Because the CDC program operates as a zero subsidy program,
it is essential that defaulted loans be liquidated and
recovered in an effective and timely manner. This provision
will require a CDC to either 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.
This section will strengthen the CDC program by permitting CDCs
to play an active role in ensuring that defaulted CDC loans are
liquidated in an efficient manner.
This provision would also provide continuing delegated
authority for the central servicing agent to continue to
collect and disburse funds or payments received on defaulted
loans.
Section 221. Reports and regulations
This provision will require the SBA to complete annual
reports on the PCL program, the liquidation efforts of the
agency, and the number of CDC project financings made in
combination with 7(a) loans.
This provision would also require the SBA to comply with
the notice and comment rulemaking provisions of the
Administrative Procedures Act before amending any regulation
affecting the CDC program.
Section 222. Program name
This provision would establish the official title of the
program as the CDC Economic Development Loan Program and
require the SBA to modify all references to the program to
conform to this change. 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.
Subtitle C--Miscellaneous
Section 231. Report on standard operating procedures
This provision would require the SBA to prepare a report
with 180 days of enactment of the Act that identifies the
regulatory authority for which each standard operating
procedure affecting the CDC program has been issued.
Section 232. Alternative size standard
This provision would require the SBA to conduct a report
and study on the efficacy of the current alternative size
standards of the CDC program.
TITLE III--MICROLOAN PROGRAM
Section 301. Microloan credit building initiative
Under this section, the SBA will require Intermediaries to
transmit credit reporting information on Microloan program
borrowers to one of the major credit reporting agencies. These
credit bureaus are Experian, Equifax, and Transunion. The
Committee intends that the SBA help Intermediaries in the
program to devise a method of providing and recording such
records with the credit agencies. The SBA will have discretion
to determine whether to aggregate and report the data itself,
or to negotiate agreements for the intermediaries to collect
the necessary information and report directly.
The Committee believes that the inability of micro-
intermediaries to provide borrower information to credit
reporting agencies limits the potential of many low-income
borrowers to improve and strengthen their credit history, which
further limits their access to affordable capital and their
future success. Because most micro-intermediaries have small
portfolios of loans and only brief repayment records, the cost
of reporting microloan histories to major credit bureaus is
often impractical. The Committee intends for the SBA to
undertake to overcome this barrier and help borrowers in the
Microloan program establish credit with the loans they receive
under the program.
Section 302. Flexible credit terms
This provision would remove existing requirements that all
microloans be ``short-term.'' The Committee intends for this
provision to provide lenders with authority to offer more
flexible loan instruments to entrepreneurs, particularly with
longer-term loans or revolving lines of credit. These
potentially longer term loans would allow lenders to adjust the
term to the specific needs and sophistication of the borrower
enhancing participation in the program, particularly among
seasonal businesses or borrowers that rely upon revolving
credit. With greater flexibility in repayment terms, borrowers
have greater control to manage their debt obligations, which
can potentially enhance their profitability and success.
Section 303. Increased program participation
This provision would broaden the eligibility requirements
for micro-intermediaries to help expand access to the Microloan
program. This section would permit participation from micro-
intermediaries that have at least 1 year of experience making
microloans to startup, newly established, or growing small
business concerns, or that have a full-time employee who has
not less than 3 years experience in managing a portfolio of
loans to startup, newly established, or growing small business
concerns and who also has at least 1 year experience providing,
as an integral part of its microloan program, intensive
marketing, management, and technical assistance to its
borrowers. Microlending experience should include, but is not
limited to, management or oversight of a loan fund.
Microlending experience may also include requirements as per
the discretion of SBA.
The Committee intends for this provision to increase the
number of intermediaries that can qualify for the program with
no reduction in the quality and experience of participating
Intermediaries. If an aspiring intermediary (generally a non-
profit organization) has no direct experience in microlending
and technical assistance, then it can hire trained employees
with considerable, equivalent experience and still qualify to
participate in the program.
Section 304. Increased limit on intermediary borrowing
Under this section, the maximum obligation for
participating intermediaries to the SBA may not exceed a total
of $7 million, an increase from the current statutory limit of
$3.5 million. In appropriate cases, the Administrator will have
discretion to increase the limit to $10 million for qualified
and experienced intermediaries (i.e. those that have been in
existence for more than a year), and first-year Intermediaries,
will have their maximum cap increased from $750,000 to $1
million.
The Committee is aware that the tightening credit market
has significantly multiplied the need for access to capital--
particularly among entrepreneurs whose credit scores may have
been hurt by job loss or foreclosure. Currently, however, large
Intermediaries have increased demand for Microloans, but have
had their lending capacity constrained by existing program
limits. The Committee intends for this provision to provide
these intermediaries with additional borrowing power under the
program to increase the number and size of microloans that they
make available to small businesses.
Section 305. Expanded borrower education assistance
This provision would increase the percentage of the
technical assistance grant that a micro-intermediary can spend
on providing information and technical assistance to small
business concerns that are prospective borrowers. The
limitation is currently 25 percent. This provision would
increase that amount to 35 percent. This section also increases
the percentage of the technical assistance grant that a micro-
intermediary can use for the provision of technical assistance
through third-party providers--from 25 percent to 35 percent.
The Committee intends that these provisions, taken
together, will greatly increase the amount that micro-
intermediaries use to provide borrowers with training,
financial education, and guidance. This ultimately reduces the
risk of loss in the program and helps micro-intermediaries
serve more borrowers while tailoring their service to the
borrower's specific needs.
Section 306. Interest rates and loan size
This section would increase the required average loan size
that Intermediaries must meet to qualify for subsidized
interest rates under the program from the current level of
$7,500 to $10,000. The Committee intends for this provision to
result in larger loan amounts flowing to small businesses that
borrow under the program.
Section 307. Reporting requirement
This section will require the SBA to make an annual report
to the House Committee on Small Business and the Senate
Committee on Small Business and Entrepreneurship that contains
information on the Microloan program. At a minimum, this report
should contain information regarding the number and dollar
amount of loans made under the program, the number of jobs
created or retained under the program and a break-down program
performance by number and dollar amount of loans made to women,
veterans of the U.S. military, and minority-owned businesses.
These statistics should be further broken down state-by-state
as well as by each intermediary that participates in the
program. This report should also contain information on the
number of business enterprises that received a microloan and
that subsequently achieved success.
Currently, very little information is available on the
Microloan Program. This dearth of data makes it difficult for
the microenterprise field to focus on areas of improvement and
efficiency.
Section 308. Surplus interest rate subsidy for businesses
Under this section, the Administrator will be authorized to
use surplus funds for the purpose of reducing the interest
rates paid by entrepreneurs who borrow from Intermediaries if,
at the beginning of the third quarter of a fiscal year, the
Administrator determines that any portion of any amount made
available to carry out the 7(m) program, whether for loan
making or technical assistance, is unlikely to be used during
that fiscal year. While the SBA has discretion to determine the
timing and structure of this supplemental subsidy for
borrowers, the Committee believes that this can either be done
by using the funds in a single interest rate buy down, or by
applying the funds to subsidize the interest payments of
borrowers. The SBA will also have discretion to determine
whether this benefit will be available for all borrows, or only
some.
The Committee intends that this provision enable the SBA to
fully utilize all funds that are appropriated for the Microloan
program. Through this authority, the Committee does not expect
Microloan funds to go unspent in any fiscal year.
Section 309. Authorization of appropriations
This section would authorize the SBA to make $110 million
in loans under the Microloan program and provide $80 million in
technical assistance grants for each of fiscal years 2010 and
2011.
TITLE IV--SMALL BUSINESS INVESTMENT COMPANY PROGRAM
Section 401. Increased investments from states
This section would raise the current cap on the amount that
state funds can invest in SBICs from 33 percent to 40 percent.
This is particularly important given the current economic
climate and the demand from state entities for safe and sound
investment vehicles. This would also have the added benefit of
increasing the amount of capital available for SBIC investment
in small businesses.
Section 402. Expedited licensing for experienced applicants
The existing licensing process is perhaps the single-
greatest impairment to the SBIC program. The licensing and
relicensing process has become so cumbersome that many
successful SBICs leave the program rather than deal with the
arduous and lengthy task of SBA licensing. In FY 2008, only 6
SBICs were licensed, marking a more than 90 percent decrease in
the number of licensees from the peak of the 1990's. Only one
of these was for a new SBIC fund. The remaining five were
license renewals for successful funds already participating in
the program, and several of these renewals took over a year to
complete.
This section will create an expedited licensing process as
an incentive to keep successful SBICs investing in domestic
small businesses. Under this framework, an existing licensed
SBIC in good-standing with the SBA would be granted a new
license by the Administrator if two-thirds of the management
team will remain in place, no additional licenses have been
granted to the fund in the last 3 years and the full management
team clears a criminal background check. The new fund would
still need to raise the requisite capital from the private
sector and follow an SBA-approved investment plan.
Section 403. Revised leverage limitations for successful
SBICs
This section will revise the SBIC leverage limitations to
create an incentive for successful, well-managed SBICs to
remain in the program. Under this section, SBA approved SBICs
will be authorized to access the maximum leverage limits for
any ``family'' of SBIC funds--those that are controlled by the
same management team. The limits would also be increased for
existing SBICs and for SBICs under control of a Business
Development Company, with an additional provision for regular
inflationary adjustments.
In order to access these increased limits, all SBIC funds
under management must be in good standing with the SBA and any
increased leverage would be subject to SBA approval.
Section 404. Consistency for cost control
This section would correct inconsistencies between the
SBA's regulations and the Small Business Investment Act to
clarify the terms of a ``default'' on an SBIC loan. Although
the SBA's current regulations permit SBICs to charge a default
interest rate (13 C.F.R. 107.885), the terms of a default are
not consistent with market terms. This places SBIC funds at a
competitive disadvantage with non-SBA regulated investment
funds and makes it more difficult for SBICs to recover on
defaulted loans, which, in turn, increases costs to the
program.
Section 405. Investments in veteran-owned small businesses
This section would provide SBICs that invest in veteran-
owned small businesses to receive the same increased leverage
limitations that are currently available to SBICs that invest
in businesses located in Low and Moderate Income areas (LMI).
This is intended to promote investment in veteran-owned
businesses, a demographic that the program has had significant
difficulty in reaching.
Section 406. Limitations on prepayment
Voluntary prepayments are often common and necessary for
proper loan administration and servicing. Currently, SBIC
investments are authorized to be prepaid by the businesses that
receive these loans. Under the SBA's regulations, however, all
prepayments have been conditioned upon SBA pre-approval of
minimum prepayment amounts and minimum notice periods.
This section would clarify that no prior approval is
necessary for customary minimum prepayment amounts and would
establish a de minimis amount (the lesser of $50,000 or 5
percent of the principal amount) for other prepayment amounts
that would not require written pre-approval or advance notice.
Section 407. Investment with certain passive entities
This provision would permit SBICs to make investments using
wholly-owned passive entities whose sole purpose is to make
investments in small businesses.
Section 408. Investment in smaller enterprises
This provision would obviate any requirement that SBICs
make more than 25 percent of the aggregate dollar amount of its
investments in a smaller enterprise if such investments would
result in a net cost to the SBIC.
Section 409. Capital impairment
This provision will provide SBICs that have received
earmarked assets with 6 years following licensing to remedy any
condition of capital impairment that does not exceed 85 percent
of the total leverage commitment received from the SBA.
Section 410. Tangible net worth
This provision will establish a consistent manner of
determining the tangible net worth for both small business
concerns and smaller enterprises under the Small Business
Investment Act that uses Generally Accepted Accounting
Principles and a measurement of total new worth and
intangibles.
Section 411. Development of agency record
This provision would require the Associate Administrator
for Capital Access to develop and keep a written evidentiary
record pertaining to each application for a license by an SBIC.
This record would serve as the basis for appeals in the
application process.
Section 412. Program levels
This provision would authorize the SBA to make $5 billion
each, in purchases of SBIC Participating Securities and
debenture leverage for fiscal years 2010 and 2011.
TITLE V--NEW MARKETS VENTURE CAPITAL AND RENEWABLE ENERGY CAPITAL
INVESTMENT PROGRAMS
Subtitle A--Enhanced New Markets Venture Capital program
Section 501. Expansion of New Markets Venture Capital
program
To date, only six NMVC companies are participating in the
New Markets program and the SBA's current budget allocates no
resources to bring more companies into the program. The
Committee intends for this provision to mandate that the SBA
Administrator to actively engage in affirmative actions to
expand the number of NMVC companies and increase the number of
investments made by current and new NMVC companies. At a
minimum, the Committee intends that the SBA's budget reflect
efforts to operate the program.
This section would also require the Administrator to
perform a study on their success in expanding the NMVC program
and report his progress in expanding the program no later than
one year after the enactment of this provision.
Section 502. Improved nationwide distribution
This section would direct the SBA Administrator to ensure
that there is a uniform geographic distribution of NMVC
companies in connection with the agency's efforts to expand the
program. In licensing new NMVC companies, this provision would
require the Administrator to avoid allocating limited program
resources to license new NMVC companies where existing NMVC
companies already exist and can meet the demand for small
business investment in low income areas. Currently, small
business investment is concentrated in only a handful of
geographic areas, which are primarily located along the East
and West coasts of the U.S.
Section 503. Increased investment in small business
concerns engaged primarily in manufacturing
This section will amend the NMVC program to place an
increased focus on small businesses engaged in manufacturing.
The program's current limitation to ``smaller enterprises''
will be expanded to permit investment in small business
concerns engaged primarily in manufacturing that are located in
low income areas. Additionally, the private capital
requirements for NMVC companies that investment in small
manufacturers are lowered, thus making it easier for these
companies to secure final approval from the SBA. The Committee
intends for the SBA to facilitate the licensing of these NMVC
companies, particularly in communities that have lost a
significant portion of their manufacturing industry.
Many low income communities throughout the nation have
suffered as a result of a loss of their small manufacturing and
industrial economic base. The Committee believes that the NMVC
program has an inherent strength at providing investment
capital to these communities because the additional investment
capital provided by the SBA facilitates smaller transactions
that are more suitable to investments in low income communities
and makes NMVC companies less reliant on public market
sentiment compared to the investments made by traditional
venture capital firms. Consequently, NMVC investments can flow
to industries like small manufacturing, which have recently
suffered particular difficulty in attracting private venture
capital.
Section 504. Expanded uses for operational assistance in
manufacturing
This section will amend the NMVC program to expand the
permissible uses of operational assistance grants to include
assistance for small manufacturing businesses in LI areas to
retool, update, or replace machinery or equipment.
The Committee believes that the addition of OA grants
provides the NMVC program with a significant crucial advantage
over the SBIC program. By enabling NMVC companies to use these
funds to retool, update, or replace machinery or equipment in
small manufacturing businesses they invest in, the Committee
believes that NMVC companies will be more likely to make these
investments, thus enabling the program to better reach this
crucial sector of the small business community.
Section 505. Updating definition of low-income geographic
area
This section would amend the current definition of ``low-
income geographic area'' by simply referring the definition
directly to the definition of a ``low-income community'' in the
Internal Revenue Code.
The Committee believes that the NMVC program's current
definition of ``low-income geographic area'' creates a
significant barrier to the program's success. As long as the
definitions between the NMVC program and the NMTC program are
different, NMVC companies will have difficulty in operating in
low-income communities. This result is inconsistent with the
program's original intent.
This section is intended to establish parity between the
definitions of the eligible NMVC investments and NMTC
allocations, thereby bringing these two programs into
alignment. This change will help the program operate as it was
originally intended and will permit investment firms to use
capital raised with New Markets Tax Credit allocations to meet
the program's requirements for matching private capital.
Additionally, this approach ensures that the two definitions
will remain aligned even in the event that eligibility
conditions for tax credit allocations are changed at a future
date.
Section 506. Expanding operational assistance to
conditionally approved companies
This section will permit New Markets Venture Capital
Companies that have received conditional approval from the SBA
under Section 354 to receive early grant assistance up to
$50,000 at the point of initial designation. In the event that
a conditionally approved NMVC company fails to win final
approval, however, the grant must be repaid to the SBA. If the
company wins final approval, however, the amount of early grant
assistance will be deducted from the total amount of
operational grant assistance the company receives.
Additionally, this section provides NMVC companies with two
full years to raise private capital and matching funds for
operational assistance. Currently, these companies have up to
two years under current law.
These changes are intended to remedy two longstanding
problems in the NMVC program. Under existing statutes, NMVC
companies could not receive operational assistance grants until
after they received final approval. This restriction severely
limited the ability of NMVC companies to provide this
assistance to their investment concerns, which is often vital
to ensuring the success of these businesses and the security of
their investment. This change is intended to provide very
limited OA grants prior to final approval.
The Committee intends for these changes to remedy the
problem that many NMVC companies experienced in reaching final
approval. For many NMVC companies, raising the private capital
and matching OA funds was the greatest barrier to winning final
approval. By extending the timeframe for matching funds to two
full years, these companies should have adequate time to raise
private capital that is integral to the NMVC program.
Section 507. Limitation on time for final approval
This section provides NMVC companies with two full years to
raise private capital and matching funds for operational
assistance. Currently, these companies have ``up to'' two years
under current law. The Committee intends for this change to
remedy the problem that many NMVC companies experienced in
reaching final approval. For many NMVC companies, raising the
private capital and matching OA funds was the greatest barrier
to winning final approval. Many NMVCCs were not given a
definite timeframe of two full years to raise their matching OA
funds. By extending the timeframe for matching funds to two
full years, these companies should have greater certainty in
the licensing process and adequate time to raise private
capital that is integral to the NMVC program.
Section 508. Streamlined application for New Markets
Venture Capital program
This section will require the SBA to develop a set of
documents that reduce the cost and burden for New Markets
Venture Capital companies applying for final approval under the
program. These documents must be created within 60 days after
the enactment of the bill.
This section is intended to simplify the application
process for new NMVC companies, enabling the SBA to license
more companies and expand the program. This section is also
intended to operate in conjunction with the expansion and
nationwide distribution initiatives established by this
legislation.
Section 509. Elimination of matching requirement
This section will eliminate the minimum amount of matching
commitments for operational assistance that an NMVC company
must raise before receiving final approval. Currently, this
minimum is set at not less than 30 percent of the total amount
of private capital or binding capital commitments the NMVC
company has raised.
The requirement for matching OA commitments has proven to
be the greatest barrier to licensing new NMVC companies. The
required matching commitments were simply too high for many
NMVC companies to meet, particularly given the economic
conditions in the communities in which they operate. By
eliminating this requirement, this section is intended to
enable many more NMVC companies to participate in the program
and should streamline the process to winning final approval
from the SBA.
Section 510. Simplified formula for operational assistance
grants
This section will revise the amount of operational
assistance grants a NMVC company may receive. The new amounts
will be equal to either 10 percent of the private resources the
company has raised for operational assistance, or $1 million,
whichever is less.
This section is intended to significantly simplify the
formula for determining the amount of OA grants a NMVC company
may receive, enabling companies to receive their OA allocations
more quickly than they currently do and providing these
companies with greater certainty as to the amount of OA
resources that they will have. OA grants have been an integral
part of the NMVC program since its inception, providing
critical support for businesses that receive NMVC investment.
The combination of OA funds in conjunction with NMVC investment
greatly increases the potential for successful business
operations and ultimately serves to protect the underlying
investment while simultaneously helping achieve the public
policy goals of the program.
Section 511. Authorization of appropriations and enhanced
allocation for small manufacturing
This section reauthorizes appropriations in a total amount
of $100 million to fund debenture guarantees and $20 million
for operational assistance grants for fiscal years 2010 and
2011. Additionally, this section requires that at least half of
these authorized funds be used for the purpose of entering into
participation agreements and providing operational assistance
to NMVC companies that invest primarily in small business
concerns that are engaged in manufacturing.
This section is intended to reestablish funding for the
NMVC companies and, in conjunction with the program expansion
and licensing initiatives of this legislation would require the
SBA to resume licensing new NMVC companies and providing
additional leverage commitments to existing NMVC companies. The
initiative for small manufacturing is specifically intended to
increase the number of NMVC companies that primarily invest in
small manufacturers. This section should not, however, present
an additional barrier for NMVC companies that wish to invest in
low income areas or that do not wish to invest in small
manufacturers.
Subtitle B--Expanded investment in small business renewable energy
Section 521. Expanded investment in renewable energy
This section reconfigures the Renewable Fuels Capital
Investment (RFCI) Program in the Small Business Investment Act
of 1958 to highlight the program's existing focus on investment
in all types of renewable energy, not just renewable fuels.
Section 522. Renewable Energy Capital Investment (RECI)
program made permanent
This section will provide standing authority for the SBA to
carry out the RECI program as a permanent part of the agency's
investment mission.
Section 523. Expanded eligibility for small businesses
This section would eliminate the program's current
limitation to ``smaller enterprises,'' and will instead permit
investment in all businesses that qualify as small business
concerns under the Small Business Act.
Section 524. Expanded uses for operational assistance in
manufacturing and small businesses
Like the NMVC program, the RECI program is bolstered by the
addition of SBA administered operational assistance grants (OA)
that provide matching grant assistance for resources that are
provided to assist small businesses that receive investment
capital with marketing, management, and other operational
assistance. This section will amend the RECI program to expand
the permissible uses of operational assistance to include
assistance for all small businesses to take steps to reduce
their energy consumption and for small manufacturing businesses
to retool, update, or replace machinery or equipment.
Section 525. Expansion of Renewable Energy Capital
Investment program
This section would establish mandatory language in the
Small Business Investment Act of 1958 directing the SBA
Administrator to actively engage in affirmative actions to
expand the number of RECI companies. Despite the program's
enactment in December of 2007, the Administrator has yet to
implement the program and the SBA's most recent budget
allocates no resources to facilitate implementation.
This section would also require the Administrator to
perform a study on their success in expanding the RECI program
and report this progress in expanding the program no later than
one year after the enactment of this provision.
Section 526. Simplified fee structure to expedite
implementation
This section will simplify the existing fee structure of
the RECI program to authorize the Administrator to charge fees
only for the purpose of offsetting the cost of RECI guarantees.
Operational assistance grants would continue to be subsidized
by appropriated funds. This will effectively expedite the
implementation of the RECI program by enabling the SBA to
implement the investment and leverage portion of the program
independent of the operational grants.
Section 527. Increased operational assistance grants
This provision would double the existing authorization for
operational assistance grants in the RECI program from its
current level of $15 million a year to $30 million for each
fiscal year through 2011. OA grants have been an integral part
of the RECI program since its inception, providing critical
support for businesses that receive RECI investment. The
combination of OA funds in conjunction with investment capital
greatly increases the potential for successful business
operations and ultimately serves to protect the underlying
investment, while simultaneously helping achieve the public
policy goals of the program.
Section 528. Authorizations of appropriations
This section authorizes a program level of $1 billion in
debenture guarantees.
TITLE VI--SMALL BUSINESS HEALTH INFORMATION TECHNOLOGY (HIT) FINANCING
PROGRAM
Section 601. Amendment of Small Business Act
This section amends the Small Business Act to create a new
loan guarantee program separate from other SBA programs that is
solely available to certain healthcare providers to purchase
health information technology. The HIT Loan Program will rely
on private-sector lenders to provide loans that are, in turn,
guaranteed by the SBA. The proceeds from a HIT loan may be used
for qualifying HIT purpose including the acquisition,
maintenance, or training for HIT systems and equipment.
The Committee intends for the SBA to establish a separate
subsidy model for this program taking into account the limited
eligibility and general creditworthy attributes of borrowers in
the program.
Subsection (a) Definitions
This section provides that the definition for health
information technology (for purposes of the guarantee loan
program) will be consistent with the ``meaningful EHR use''
requirements set forth in the Social Security Act. Loan
proceeds shall be used exclusively for Health IT purposes.
Participation in the program is limited to physicians as
defined in section 1861(r) of the Social Security Act,
practitioner as described in section 1842(b)(18)(C) of that Act
(such as MDs, Osteopaths, Dentists, Podiatrists, Optometrists,
Chiropractors, Physician Assistants, Nurse Practitioners,
Clinical Nurse Specialists, Certified Registered Nurse
Anesthetist, Certified Nurse-midwifes, Clinical Social Workers,
Clinical Psychologists, Registered Dietitian or Nutrition
Professionals), and Physical or Occupational Therapists, Speech
Language Pathologists, Audiologists, pharmacists, medical
transcriptionists, and providers of durable medical equipment,
prosthetics, orthotics, or supplies. The practices that are
eligible must also be a ``small business concern'' as defined
using the small business size standards.
Subsection (b) Loan guarantees for qualified eligible
professionals
This provision establishes a loan guarantee program for
eligible professionals, which provides a 90 percent guarantee
and loan amounts up to $350,000 for any single individual/
professional and $2,000,000 for any group.
Subsection (c) Fees
The fees imposed by the SBA on borrowers shall be no more
than 2 percent of the guaranteed portion of the loan. The
annual lender servicing fees imposed by SBA are limited to no
more than 50 basis points. Additional fees may not be assessed
against the borrower by a lender. The committee intends for
these provisions to encourage borrowers and lenders to
participate in the program.
Subsection (d) Deferral period
This provision permits a professional who has borrowed
through the program to defer payment on his or her loan for at
least one year and up to three years and provides authority for
the SBA to subsidize the interest costs associated with the
deferral. The Committee intends for these deferral periods to
be an integral part of any HIT loan that should conform to the
general timeframe in which HIT will begin to generate tangible
financial benefits for the business.
Subsection (e) Effective date
This section provides that the SBA loan guarantee program
may not take effect until the Secretary of HHS has established
``meaningful EHR use requirements'' as set forth in the Social
Security Act.
Subsection (f) Sunset
SBA may not extend loan guarantees 5 years after the
Secretary of HHS has established ``meaningful EHR use
requirements'' as set forth in the Social Security Act.
Subsection (g) Authorization of appropriation
Authorizes $10 billion in loan authority.
TITLE VII--SMALL BUSINESS EARLY-STAGE INVESTMENT PROGRAM
Section 701. Small Business Early Stage Investment program
This provision directs the SBA to establish and carry out a
new program focused on making patient equity investment in
small businesses with specific emphasis on early-stage small
businesses in targeted industries.
Section 399A. Establishment of program
The program is established as a stand alone program in the
Small Business Investment Act of 1958.
Section 399B. Administration of program
The program should be administered by the Investment
Division established under Title II of the Small Business
Investment Act of 1958.
Section 399C. Applications
The Committee intends for the program to be open to all
manner of private investment companies, both those organized
under relevant State or Federal laws, as well as small business
investment companies (SBICs) licensed under Title III of the
Small Business Investment Act. Irrespective of the entity's
organization, however, all applicants must make a new
application to the SBA to participate in the program.
The Administrator must establish a new application process
to select investment companies to participate in the program.
The Committee intends for this process to be similar to the
process that the agency currently uses to select participants
for its other investment programs, and should include
requirements for (1) a business plan describing how the company
intends to make successful venture capital investments in early
stage small businesses in targeted industries; (2) information
regarding the relevant venture capital qualifications and
personal background of the managers of the company applying to
participate in the program; and (3) a description of the extent
to which the applicant meets other selection criteria that are
also established under this part.
Because SBICs have already submitted an application along
these lines, the Committee intends for the Administrator to
establish an abbreviated application process for SBICs that
have already received an SBIC license who wish to participate
in the SBESI program. To the maximum extent practicable, the
abbreviated application process must avoid duplication of
information or materials previously submitted in the SBIC
licensing process. Additionally, in taking applications from
SBICs, the Administrator shall incorporate a presumption that
SBICs satisfy selection criteria related to character and
fitness under Section 399D(b)(3). SBICs shall also be presumed
to satisfy the criteria requiring the fund to focus on
investment in early stage small businesses in targeted
industries under Section 399D(b)(5). Beyond these presumptions,
however, SBICs should be judged by the merits of their
application and should compete on equal footing with other
applicants for selection to participate in the program
Section 399D. Selection of participating investment
companies
Within 90 days after receiving an application, the
Administrator must make a determination to approve an
application for issuance of a grant commitment to the applicant
or disapprove the application and should transmit this decision
to the applicant.
In deciding to approve or disapprove an application, the
Administrator should consider selection criteria similar to
those specified in the agency's other investing programs. These
criteria are: (1) the likelihood that the company will meet the
goals specified in its business plan; (2) the likelihood that
the investments of the company will create or preserve jobs,
both through direct hiring in the company and the small
businesses in which it invests and through indirect effects in
businesses outside the company and its investment businesses;
(3) the character and fitness of the company's management team;
(4) the previous experience of the company's management team
making investments similar to those described in the
application; (5) the extent to which the company will
concentrate its investment activities on early stage small
businesses in targeted industries; (6) the likelihood that the
company will achieve profitability; (7) the management team's
track record at managing profitable investment vehicles.
The Committee intends for the SBA to select participants
solely by these criteria and should place its highest emphasis
on the likelihood that the company will achieve profitability
and protect the SBA grant interest.
Section 399E. Grants
For those companies selected to participate in the program,
the Administrator shall provide grants in amounts of up to $100
million. In order to receive these grants, however, the company
must have raised an amount of private capital equal to or
greater than the amount of the SBA grant, thus establishing a
minimum 1:1 ratio of SBA grant capital to private capital. The
total aggregate amount of all grants the SBA makes to any one
participating company cannot exceed $100 million. The Committee
contemplates the potential for multiple grants to be awarded to
investment companies that participate in the program, but the
SBA may also choose to make a single grant commitment that is
adequate to meet the investment strategy of the company. At a
minimum, however, grant commitments by the SBA should be
adequate to fund initial and follow-on investments and should
protect the SBA's pro rata interests in the investment company.
Grant funds can only be drawn-down by the investment company at
the same time and in the same proportions as the private
capital is paid into the investment fund and should be paid
promptly by the SBA when called by the investment company
manager.
Grant commitments from the SBA should be available to
selected investment companies for the purpose of making first-
round investments in new small businesses for a five-year
period after the grant commitment is first drawn upon. After
the initial five-year period, the investment company will not
be able to make new-named investments, however, and will be
limited to drawing upon the SBA grant commitment for the
purpose of making follow-on investments in small businesses
that have already received an initial investment. This period
for follow-on investments should remain open for ten years
after the grant commitment is first drawn upon, with an
additional two one-year periods available at the discretion of
the Administrator. SBA will audit participating investment
companies when half of the grant commitment funds have been
drawn-down to ensure that the grant is being invested in a
fashion consistent with the law.
Section 399F. Investments in early stage small businesses
As a condition of receiving an SBA grant, a participating
investment company must make all of its investments in small
businesses, as determined on the date when the first investment
is made in the business. Additionally, at least 50 percent of
an investment company's investments must be made in early-stage
small businesses in targeted industries, as those terms are
defined in the act. It is possible that some investment
companies would voluntarily choose to make more of its
investments in early-stage businesses in targeted industries,
and the Committee believes that these investment companies
should be favorably considered by the Administrator.
Section 399G. Pro rata investment shares
All investments made by a participating investment company
must include a grant funds in an amount that is equal to the
overall proportions of grant funds and private capital in the
investment fund.
Section 399H. Grant interest
In exchange for receiving SBESI funds, participating
investment funds must convey a ``grant interest'' to the SBA.
The grant interest shall carry all the rights and attributes of
other investors, but shall not denote control or voting rights
to the SBA. The grant interest shall entitle the SBA to a pro
rata portion of any distributions made by the fund, equal to
the overall percentage of capital in the investment company
that the grant comprises. In this sense, the Committee intends
that the SBA's grant interest be akin to that of a limited
partner interest in a limited partnership or limited liability
company. The Administrator shall receive distributions from the
licensed company at the same times and in the same amounts as
other investors in the company, without regard to a specific
repayment date or deadline. The investment company shall make
allocations of income, gain, loss, deduction and credit to the
Administrator with respect to the grant interest as if the
Administrator were an investor.
The manager's profits interest shall not exceed twenty
percent of the firm's profits, exclusive of any profits that
may accrue as a result of the manager's individual capital
contributions to the investment company. Any excess of this
amount, less deemed taxes thereon, shall be returned by the
manager and paid to the investors and the SBA in proportion to
their capital contributions and grants paid in. No manager's
profits interest shall be paid prior to the payment to the
investors and the Administration of all contributed capital and
grants made, other than a tax distribution.
Additionally, as a condition of receiving a grant, a
participating investment company must make all distributions to
all investors in cash and must make distributions within a
reasonable time after exiting investments.
Section 399I. Fund
Ongoing funding for the program will be provided through a
separate fund created with the program which shall be available
to the Administrator, subject to annual appropriations, as a
revolving fund for the purposes of the program. All amounts
received by the Administrator, including any moneys, property,
or assets derived by him from his operations in connection with
this part, shall be deposited in the fund. All expenses and
payments, excluding administrative expenses, pursuant to the
operations of the Administrator under this part shall be paid
from the fund.
The Committee intends for this revolving fund to enable the
program to become self-sustaining.
Section 399J. Application of other sections
This provision incorporates SBA oversight and enforcement
authority, including authorities to take action in cases of
fraud, waste, and abuse by investment companies, its officers
and agents, from its existing investment programs into the
SBESI program. Additionally, the Committee intends for these
provisions to provide the SBA with authority to take any
actions that are already taken under the SBA's SBIC program to
enforce agency regulations and polices against program
participants and protect taxpayer funds. This includes the
conduct of regular examinations and investigations of
participating investment companies and the issuance of removal,
prohibition, suspension, and cease and desist actions orders
for malfeasance in the program It also contemplates the pursuit
of more rigorous remedies at law for fraud or breaches of
fiduciary duties with civil and criminal penalties
Section 399K. Definitions
``Targeted Industries'' are predominately involved in
researching, developing, manufacturing, producing, or bringing
to market goods, products, or services for the agricultural
technology, energy technology, environmental technology, life
science, information technology, digital media or clean
technology sectors.
An ``Early Stage Small Business'' is a small business
concern as defined in section 3 of the Small Business Act that
is located in the United States (or its territories), and that
has not generated gross annual sales revenues exceeding $15
million in any of the previous three years.
The Committee intends for these businesses to all share
attributes of being highly capital-intensive enterprises whose
business models are generally not amenable to financing through
lending programs.
Section 399L. Authorization
This section will authorize the SBESI program to make a
total of $200 million in grants.
TITLE VIII--DISASTER RELIEF PROGRAMS
Section 801. Revised collateral requirements
This provision will revise the collateral requirements so
that business owners are not required to pledge their homes for
business loans less than $250,000. The Committee believes that
this provision will encourage more small businesses to seek
disaster loans without apprehension that their home will be
placed at risk as they attempt to rebuild their businesses
following a disaster. Additionally, the Committee believes that
this provision is consistent with the SBA's current practice of
making loans based upon an individual's ability to repay and
income.
Section 802. Increased limits
This provision will increase the legislative limit on
disaster loans from $1.5 million to $3 million for homeowner
loans and from $2 to $3 million for business loans.
Section 803. Revised repayment terms
This provision requires the SBA to impose a minimum
deferment period of twelve months and mandates that the
repayment period begin from the date that the final loan
disbursement is made. Additionally, this provision requires
that repayment amounts be based solely on funds that have
actually been disbursed.
The Committee intends for this provision to provide
disaster victims with more equitable repayment terms that are
more responsive to their needs immediately following a
disaster. Additionally, because the interest continues to
accrue during the mandatory twelve month deferment period, the
Committee believes that this provision will have little or no
cost. The Committee does not intend for the increased deferment
period or revised repayment policy to affect existing or
pending disaster loan applications, but should only be
prospectively applied for new loans approved or made after the
date of enactment.
Section 804. Revised disbursement process
This provision will require that approved funds for SBA
disaster loans be disbursed upon a schedule with increased
minimum disbursement levels to better meet the needs of
disaster victims. The Committee believes that this provision
will enable the SBA to remedy problems in disbursing approved
loan amounts in adequate amounts to meet disaster victim's
needs in a timely manner. The Committee does not intend for
this provision to preclude the SBA from making full
disbursements in situations where it feels full disbursements
are appropriate. The Committee only intends that this provision
set minimum amounts that must be disbursed at each stage. The
Committee also does not intend that the minimum disbursement
amounts should be absolute in situations where the borrower
actually desires that a lesser amount be disbursed in each
stage.
The Committee believes that by maintaining a disbursement
schedule with stages and by leaving the disbursement schedule
for loans in excess of $500,000 at the discretion of the SBA,
the risk of increased losses will be limited
Section 805. Grant program
This provision will provide the SBA with authority to offer
grants of up to $100,000 for the businesses most severely
affected by a catastrophic disaster for which the Administrator
has declared eligibility for additional disaster assistance
(pursuant to 7(b)(9) of the Small Business Act). The Committee
believes that this program will fill the need for financial
assistance for small businesses that is currently not being met
by any federally administered assistance program, particularly
under circumstances where a disaster is of such scale or
severity that disaster victims are unlikely to seek out loan
assistance.
To limit the costs associated with this program, the
Committee has limited the scope of the program by imposing very
strict eligibility requirements. Only small businesses actually
located in an area affected by the applicable disaster will be
eligible for grant assistance. The Committee intends for this
limitation to restrict the availability of grant assistance to
only those communities that were severely impacted by the
physical damage of a catastrophic disaster. Additionally, a
small business must also certify that it will reestablish its
business in the same county in which it was originally located.
A small business must also have been in existence for at least
two years prior to the disaster and must have applied for and
been rejected for a conventional SBA disaster loan. The
Committee also intends for grant assistance to go to small
businesses that are economically viable, as determined by the
Administrator. The Committee believes that these criteria will
be sufficiently stringent to ensure that only a small number of
businesses will meet all of these requirements to qualify for a
grant. Additionally, the Committee only intends for grant
assistance to be provided in situations where the Administrator
feels it is appropriate, and has thus provided the
Administrator with discretion over whether the grant program
will be implemented.
The grant funding provided under this provision is intended
to complement the existing purpose of the SBA disaster
assistance lending program by serving as a tool to deliver
capital to small businesses in a form that the existing loan
program cannot (i.e. under circumstances where a disaster is of
such scale or severity that disaster victims are unlikely to
seek out loan assistance). In this manner, the program will
serve the same public policy goals of the SBA disaster
assistance mission.
Section 806. Regional disaster working groups
This provision shall require the Administrator to establish
and carry out a new program whereby the Regional Administrator
in each of the SBA's regional offices must develop region-
specific disaster preparedness and response plans that are
based upon the comprehensive disaster response plan required by
Sec. 40 of the Small Business Act and that is developed in
cooperation with city, state, and federal emergency response
authorities as well as with representatives from businesses
located within the region. At a minimum, the disaster
preparedness and recovery subplan must identify and plan for
three disaster scenarios, either natural or manmade, that are
likely to occur in the region.
The regional disaster working groups are intended to
enhance the SBA's ability to respond on a local level and
fulfill the disaster assistance mission of providing small
firms with vital access to capital to rebuild following a
disaster. In this manner, the program will serve the same
public policy goals of the SBA disaster assistance mission.
Section 807. Outreach grants for loan applicant assistance
This section will direct the Administrator to use funds
authorized for administrative expenses in the Disaster Loan
program to make grants to Women's Business Centers, Veterans'
Business Outreach Centers, Small Business Development Centers,
and local chambers of commerce located in an area of a declared
disaster for the purpose of providing disaster loan applicants
with assistance in preparing applications for disaster
assistance. The Committee intends for this grant program to be
carried out using funds authorized for administrative expenses
in the disaster loan program.
The grant funding provided under this provision is intended
to complement the existing purpose of the SBA disaster
assistance lending program by serving as a tool to deliver
capital to small businesses in circumstances where a disaster
is of such scale or severity that the SBA's existing loan
program outreach and loan application efforts are likely to be
overwhelmed. In this manner the program will serve the same
public policy goals of the SBA disaster assistance mission.
TITLE IX--REGULATIONS
Section 901. Regulations
Pursuant to this section, the SBA must promulgate
regulations to carry out the provisions contained in the Act
within 180 days following enactment.
VII. Congressional Budget Office Cost Estimate
The legislation is currently under review by CBO and when
it is final will be made part of the Congressional Record.
VIII. 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. 3854. Based on estimates provided by CBO for H.R. 1332,
H.R. 1361, H.R. 3020, H.R. 3567, and H.R. 3866, as reported by
the Committee on Small Business or by the House during the
110th Congress and further analysis by Committee staff, the
Committee estimates that the bill will cost $1,459,985,000
($1.46 billion) over the two-year authorization period. The
Committee notes several changes regarding previous CBO cost
estimates. First, H.R. 3854 does not contain an authorization
for the Small Business Investment Company (SBIC) participating
securities program, which would have been scored on a dollar-
for-dollar basis. Second, H.R. 3854 does not authorize an angel
investment or surety bond program, as were contained in H.R.
3567.
In determining the costs of H.R. 3854, the Committee also
notes that the extension of the ARC loan program in section 118
and the ARRA-related fee reductions in section 114 are for one
year only and do not carry over through the duration of the
authorization. The Capital Backstop program authorized in
section 111 is subject to the same underwriting and loan
origination regulations as the 7(a) loan program; as a result,
this program in not expected to incur subsidy costs in excess
of those for the 7(a) loan program prior to the ARRA-related
changes to fees and guarantees. The national lender training
program established in section 106 will be fully paid for
through fees levied on program participants and has no cost.
The Microloan interest rate reduction contained in section 308
has no line item cost, as funds are taken from monies provided
through program authorizations that have been accounted for in
the Committee's estimate. Committee staff used subsidy rates
and loan portfolio assumptions in the calculation of subsidy
costs for the loan guarantee and direct loan programs contained
in this cost estimate. These subsidy rate and loan portfolio
assumptions are from the FY 2010 Federal Credit Supplement, as
prepared by the Office of Management and Budget that was
submitted with the President's FY 2010 budget proposal.
Committee staff used internal forecasts for loan volume and
program demand, which reflect both historical usage and
forecasts regarding of economic conditions.
Finally, the committee estimates the cost of H.R. 3854
would be $2,719,462,500 ($2.72 billion) over the 2010-2014
periods, subject to appropriation of the specified and
necessary amounts.
IX. 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. 3854 are incorporated
into the descriptive portions of this report.
X. 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.
XI. Compliance With Public Law 104-4
H.R. 3854 contains no unfunded mandates.
XII. Congressional Accountability Act
H.R. 3854 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.
XIII. Federal Advisory Committee Statement
This legislation does not establish or authorize the
establishment of any new advisory committees.
XIV. Statement of No Earmarks
Pursuant to clause 9 of rule XXI, H.R. 3854 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.
XV. 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. 3854 includes a number of provisions designed to
modernize and make more effective the SBA 7(a), CDC, SBIC,
NMVC, RECI, and Disaster Assistance programs.
XVI. 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) to use an alternative
size standard. The alternative size standard shall be based on
factors including the maximum tangible net worth and average
net income of a business concern.
* * * * * * *
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) * * *
(2) Level of participation in guaranteed loans.--
(A) In general.--Except as provided in
subparagraph (B), in an agreement to
participate in a loan on a deferred basis under
this subsection (including a loan made under
the Preferred Lenders Program), such
participation by the Administration shall be
equal to--
(i) 75 percent of the balance of the
financing outstanding at the time of
disbursement of the loan, if such
balance exceeds $150,000 and is less
than or equal to $2,000,000; [or]
(ii) 85 percent of the balance of the
financing outstanding at the time of
disbursement of the loan, if such
balance is less than or equal to
$150,000[.]; or
(iii) 50 percent of the balance of
the financing outstanding at the time
of disbursement of the loan, if such
balance exceeds $2,000,000.
* * * * * * *
(3) No loan shall be made under this subsection--
(A) if the total amount outstanding and
committed (by participation or otherwise) to
the borrower from the business loan and
investment fund established by this Act would
exceed $1,500,000 (or if the gross loan amount
would exceed [$2,000,000] $3,000,000), except
as provided in subparagraph (B);
* * * * * * *
(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 a guarantee fee,
which shall be payable by the participating
lender, and may be charged to the borrower, as
follows:
(i) * * *
* * * * * * *
(B) Retention of certain fees.--Lenders
participating in the programs established under
this subsection may retain not more than 25
percent of a fee collected under subparagraph
(A)(i), except that a lender making a loan
under paragraph (31) may not retain any
percentage of a fee collected under such
subparagraph.
* * * * * * *
[(25) Limitation on conducting pilot projects.--
[(A) In general.--Not more than 10 percent of
the total number of loans guaranteed in any
fiscal year under this subsection may be
awarded as part of a pilot program which is
commenced by the Administrator on or after
October 1, 1996.
[(B) Pilot program defined.--In this
paragraph, the term ``pilot program'' means any
lending program initiative, project,
innovation, or other activity not specifically
authorized by law.
[(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.]
(25) Limitation on conducting pilot projects.--
(A) Limitation on number.--Not more than 10
percent of the total number of loans guaranteed
in any fiscal year under this subsection may be
awarded as part of a pilot program.
(B) Dollar limitations.--
(i) In general.--With respect to any
pilot program under this subsection
established on or after the date of the
enactment of the Small Business
Financing and Investment Act of 2009,
no loan shall be made under such
program if such loan would result in
the total amount of loans made during a
fiscal year under all such programs to
be in excess of 5 percent of the total
amount of loans guaranteed in such
fiscal year under this subsection.
(ii) Certain pre-existing programs.--
With respect to any pilot program under
this subsection established before the
date of the enactment of the Small
Business Financing and Investment Act
of 2009, no loan shall be made under
such program if such loan would result
in the total amount of loans made
during a fiscal year under all such
programs to be in excess of 10 percent
of the total amount of loans guaranteed
in such fiscal year under this
subsection.
(C) Expiration.--
(i) In general.--Except as provided
in clause (iii), the duration of any
pilot program under this subsection may
not exceed 3 years.
(ii) Designation as new program.--For
purposes of this subparagraph, a pilot
program shall not be treated as a new
pilot program solely on the basis of a
modification or change in the pilot
program, including the change of its
name.
(iii) Existing programs.--With
respect to any pilot program in
existence on the date of the enactment
of the Small Business Financing and
Investment Act of 2009, such program
may continue in effect for a period not
exceeding 3 years after such date
without regard to the duration of such
program before such date.
(D) Regulations.--
(i) In general.--With respect to each
pilot program under this subsection,
including each pilot program in
existence on the date of the enactment
of the Small Business Financing and
Investment Act of 2009, the
Administrator shall--
(I) issue regulations for
such program after providing
notice in the Federal Register
and an opportunity for comment;
and
(II) ensure that such
regulations are published in
the Code of Federal
Regulations.
(ii) Pilot programs established after
date of enactment.--With respect to any
pilot program established after the
date of the enactment of the Small
Business Financing and Investment Act
of 2009, such program shall not take
effect until the requirements under
this subparagraph are satisfied.
(E) Repeal of authority to waive certain
rules.--
(i) In general.--Notwithstanding
section 120.3 of title 13, Code of
Federal Regulations, the Administrator
may not from time to time suspend,
modify, or waive rules for a limited
period of time to test new programs or
ideas with respect to this subsection,
unless such suspension, modification,
or waiver is explicitly authorized by
Act of Congress.
(ii) Existing pilot programs.--
Nothing under clause (i) may be
construed to affect a pilot program in
existence on the date of the enactment
of the Small Business Financing and
Investment Act of 2009.
(F) Pilot program.--For purposes of this
paragraph, the term ``pilot program'' means any
lending program initiative, project,
innovation, or other activity not specifically
authorized by Act of Congress.
* * * * * * *
[(28) Leasing.--In addition to such other lease
arrangements as may be authorized by the
Administration, a borrower may permanently lease to one
or more tenants not more than 20 percent of any
property constructed with the proceeds of a loan
guaranteed under this subsection, if the borrower
permanently occupies and uses not less than 60 percent
of the total business space in the property.]
(28) Leasing.--If a loan under this subsection is
used to acquire or construct a facility, the assisted
small business concern--
(A) shall permanently occupy and use not less
than 50 percent of the space in such facility;
and
(B) may, on a temporary or permanent basis,
lease to others not more than 50 percent of the
space in such facility.
(29) Real estate appraisals.--With respect to a loan
under this subsection that is secured by commercial
real property, an appraisal of such property by [a
State licensed or certified appraiser] an appraiser
licensed or certified by the State in which such
property is located--
(A) shall be required by the Administration
in connection with any such loan for more than
[$250,000] $400,000; or
(B) may be required by the Administration or
the lender in connection with any such loan for
[$250,000] $400,000 or less, if such appraisal
is necessary for appropriate evaluation of
creditworthiness.
* * * * * * *
[(32)] (33) Increased veteran participation
program.--
(A) Definitions.--In this paragraph--
(i) * * *
(ii) the term ``[pilot] program''
means the [pilot] program established
under subparagraph (B); and
* * * * * * *
(B) Establishment.--The Administrator shall
establish and carry out a [pilot] program under
which the Administrator shall reduce the fees
for veteran participation loans.
[(C) Duration.--The pilot program shall
terminate at the end of the second full fiscal
year after the date that the Administrator
establishes the pilot program.]
[(D)] (C) Maximum participation.--A veteran
participation loan shall include the maximum
participation levels by the Administrator
permitted for loans made under this subsection.
[(E)] (D) Fees.--
(i) In general.-- * * *
* * * * * * *
(iv) No increase of fees.--The
Administrator shall not increase the
fees under paragraph (18) on loans made
under this subsection that are not
veteran participation loans as a direct
result of the [pilot] program.
[(F) GAO report.--
[(i) In general.--Not later than 1
year after the date that the pilot
program terminates, the Comptroller
General of the United States shall
submit to the Committee on Small
Business of the House of
Representatives and the Committee on
Small Business and Entrepreneurship of
the Senate a report on the pilot
program.
[(ii) Contents.--The report submitted
under clause (i) shall include--
[(I) the number of veteran
participation loans for which
fees were reduced under the
pilot program;
[(II) a description of the
impact of the pilot program on
the program under this
subsection;
[(III) an evaluation of the
efficacy and potential fraud
and abuse of the pilot program;
and
[(IV) recommendations for
improving the pilot program.]
(34) Small lender outreach program.--The
Administrator shall establish and carry out a program
to provide support to regional, district, and branch
offices of the Administration to assist small lenders,
who do not participate in the Preferred Lenders
Program, to participate in the programs under this
subsection.
(35) Rural lending outreach program.--
(A) In general.--The Administrator shall
establish and carry out a rural lending
outreach program (hereinafter referred to in
this paragraph as the ``program'') to provide
loans under this subsection in accordance with
this paragraph.
(B) Maximum participation.--A loan under the
program shall include the maximum participation
levels by the Administrator permitted for loans
made under this subsection.
(C) Maximum loan amount.--The maximum amount
of a loan under the program shall be $250,000.
(D) Use of rural lenders.--The program shall
be carried out through lenders located in a
rural area (as such term is defined under
subsection (m)(11)(C)) or, if a small business
concern located in a rural area does not have a
lender located within 30 miles of the principal
place of business of such concern, through any
lender chosen by such concern that provides
loans under this subsection.
(E) Time for approval.--The Administrator
shall approve or disapprove a loan under the
program within 36 hours.
(F) Documentation.--The program shall use
abbreviated application and documentation
requirements.
(G) Credit standards.--Minimum credit
standards, as the Administrator considers
necessary to limit the rate of default on loans
made under the program, shall apply.
(36) Community express program.--
(A) In general.--The Administrator shall
carry out a Community Express Program to
provide loans under this subsection in
accordance with this paragraph.
(B) Requirements.--For a loan made under the
Community Express Program, the following shall
apply:
(i) The loan shall be in an amount
not exceeding $250,000.
(ii) The loan shall be made to a
small business concern the majority
ownership interest of which is directly
held by individuals the Administrator
determines are, without regard to the
geographic location of such
individuals, women, members of
qualified Indian tribes, socially or
economically disadvantaged individuals,
veterans, or members of the reserve
components of the Armed Forces.
(iii) The loan shall comply with the
collateral policy of the
Administration.
(iv) The loan shall include terms
requiring the lender to provide, at the
expense of the lender, technical
assistance to the borrower through the
lender or a third-party provider.
(v) The Administrator shall approve
or disapprove the loan within 36 hours.
(37) National lender training program.--
(A) In general.--The Administrator shall
establish and carry out, through the regional
offices of the Administration, a lender
training program for new and existing lenders
under this subsection with respect to the
lending systems, policies, and procedures of
the Administration.
(B) Fees.--The Administrator shall charge a
fee for the program established under
subparagraph (A) to reduce the cost of such
program to zero.
(C) Limitation.--The program established
under subparagraph (A) may not be carried out
by contract with a nongovernmental entity.
(38) Applications for repurchase of loans.--
(A) In general.--Not later than 45 days after
the date of the receipt of a claim from a
lender for proper payment of the guaranteed
portion of a loan under this subsection due to
default, the Administrator shall make a final
determination with respect to the approval or
denial of such claim.
(B) Late determinations.--If the
Administrator does not make a final
determination under subparagraph (A) in the
time period specified in such subparagraph, the
claim shall be approved and paid promptly.
(39) Cooperatives.--The Administration may provide
loans under this subsection to any cooperative that--
(A) is not organized as a tax-exempt entity;
(B) is engaged in a legal business activity;
(C) obtains financial benefits for the
cooperative and for the members of such
cooperative; and
(D) is eligible under applicable size
standards of the Administration, including that
any business entity that is a member of such
cooperative is eligible under applicable size
standards of the Administration.
(40) Capital backstop program.--
(A) In general.--The Administrator shall
establish a process under which a small
business concern may submit an application to
the Administrator for the purpose of securing a
loan under this subsection. With respect to
such application, the Administrator shall
collect all information necessary to determine
the creditworthiness and repayment ability of
an applicant and shall determine if such
application meets basic eligibility and credit
standards for a loan under this subsection.
(B) Participation of lenders.--
(i) In general.--The Administrator
shall establish a process under which
the Administrator makes available to
lenders each loan application submitted
and determined to meet basic
eligibility and credit standards under
subparagraph (A) for the purpose of
such lenders originating, underwriting,
closing, and servicing the loan for
which the applicant applied.
(ii) Eligibility.--Lenders are
eligible to receive a loan application
described in clause (i) if they
participate in the programs established
under this subsection.
(iii) Local lenders.--The
Administrator shall first make
available a loan application described
in clause (i) to lenders within 100
miles of the principal office of the
loan applicant.
(iv) Preferred lenders.--If a lender
described in clause (iii) does not
agree to originate, underwrite, close,
and service the loan applied for within
5 business days of receiving a loan
application described in clause (i),
the Administrator shall subsequently
make available such loan application to
lenders in the Preferred Lenders
Program under paragraph (2)(C)(ii) of
this subsection.
(v) Authority of administration to
lend.--If a lender described in clauses
(iii) or (iv) does not agree to
originate, underwrite, close, and
service the loan applied for within 10
business days of receiving a loan
application described in clause (i),
the Administrator shall originate,
underwrite, close, and service such
loan.
(C) Asset sales.--The Administrator shall
offer to sell loans made by the Administrator
under this paragraph. Such sales shall be made
through the semi-annual public solicitation (in
the Federal Register and in other media) of
offers to purchase. The Administrator may
contract with vendors for due diligence, asset
valuation, and other services related to such
sales. The Administrator may not sell any loan
under this subparagraph for less than 90
percent of the net present value of the loan,
as determined and certified by a qualified
third party.
(D) Loans not sold.--The Administrator shall
maintain and service loans made by the
Administrator under this paragraph that are not
sold through the asset sales under this
paragraph.
(E) Effective dates.--This paragraph shall
have effect on a date if--
(i) such date occurs during a period
that--
(I) begins on the date the
Bureau of Economic Analysis, or
any successor organization,
makes a determination that the
gross domestic product of the
United States has decreased for
three consecutive quarters; and
(II) ends on the date the
Bureau of Economic Analysis, or
any successor organization,
makes a determination that the
gross domestic product of the
United States has increased for
two consecutive quarters; and
(ii) the number of loans provided
under this subsection prior to such
date in the fiscal year including such
date is at least 30 percent less than
the number of such loans provided prior
to the same point in the previous
fiscal year.
(F) Implementation.--The Administrator shall
establish a group of at least 250 individuals
available to carry out activities under this
paragraph on any date on which this paragraph
has effect under subparagraph (E). The
Administrator shall provide to such group the
training necessary to carry out activities
under this paragraph.
(G) Application of other law.--Nothing in
this paragraph shall be construed to exempt any
activity of the Administrator under this
paragraph from the Federal Credit Reform Act of
1990 (2 U.S.C. 661 et seq.).
(H) Authorization of appropriations.--
(i) Program levels.--The
Administrator is authorized to make
loans under this paragraph in an amount
that is equal to half the amount
authorized for loans under this
subsection other than loans under this
paragraph.
(ii) Authorization of
appropriations.--In addition to amounts
made available to carry out this
subsection, there are authorized to be
appropriated such sums as may be
necessary to carry out this paragraph.
(41) Goodwill.--The Administrator may not apply an
application, processing, or approval standard to a loan
for the purpose of financing goodwill under this
subsection, unless such standard applies to all loans
under this subsection.
* * * * * * *
(b) Except as to agricultural enterprises as defined in
section 18(b)(1) of this Act, the Administration also is
empowered to the extent and in such amounts as provided in
advance in appropriation Acts--
(1) * * *
* * * * * * *
(3)(A) * * *
* * * * * * *
(E) No loan may be made under this paragraph, either
directly or in cooperation with banks or other lending
institutions through agreements to participate on an
immediate or deferred basis, if the total amount
outstanding and committed to the borrower under this
subsection would exceed [$1,500,000] $3,000,000, unless
such applicant constitutes, or have become due to
changed economic circumstances, a major source of
employment in its surrounding area, as determined by
the Administration, in which case the Administration,
in its discretion, may waive the [$1,500,000]
$3,000,000 limitation.
* * * * * * *
(8) Increased loan caps.--
(A) Aggregate loan amounts.--Except as
provided in subparagraph (B), and
notwithstanding any other provision of law, the
aggregate loan amount outstanding and committed
to a borrower under this subsection may not
exceed [$2,000,000] $3,000,000.
* * * * * * *
(10) Grants to disaster-affected small businesses.--
(A) In general.--If the Administrator
declares eligibility for additional disaster
assistance under paragraph (9), the
Administrator may make a grant, in an amount
not exceeding $100,000, to a small business
concern that--
(i) is located in an area affected by
the applicable major disaster;
(ii) submits to the Administrator a
certification by the owner of the
concern that such owner intends to
reestablish the concern in the same
county in which the concern was
originally located;
(iii) has applied for, and was
rejected for, a conventional disaster
assistance loan under this subsection;
and
(iv) was in existence for at least 2
years before the date on which the
applicable disaster declaration was
made.
(B) Priority.--In making grants under this
paragraph, the Administrator shall give
priority to a small business concern that the
Administrator determines is economically viable
but unable to meet short-term financial
obligations.
(C) Program level and authorization of
appropriations.--
(i) Program level.--The Administrator
is authorized to make $100,000,000 in
grants under this paragraph for each of
fiscal years 2010 and 2011.
(ii) Authorization of
appropriations.--There are authorized
to be appropriated to the Administrator
such sums as may be necessary to carry
out this paragraph.
(11) Outreach grants for loan applicant assistance.--
(A) In general.--From amounts made available
for administrative expenses relating to
activities under this subsection, the
Administrator is authorized to make grants to
the following:
(i) A women's business center in an
area affected by a disaster.
(ii) A small business development
center in an area affected by a
disaster.
(iii) A Veteran Business Outreach
Center in an area affected by a
disaster.
(iv) A chamber of commerce in an area
affected by a disaster.
(B) Use of grant.--An entity specified under
subparagraph (A) shall use a grant received
under this paragraph to provide application
preparation assistance to applicants for a loan
under this subsection.
(C) Program level.--The Administrator is
authorized to make $50,000,000 in grants under
this paragraph for each of fiscal years 2010
and 2011.
* * * * * * *
(f) Additional Requirements for 7(b) Loans.--
(1) * * *
(2) Revised collateral requirements.--In making a
loan with respect to a business under subsection (b),
if the total approved amount of such loan is less than
or equal to $250,000, the Administrator may not require
the borrower to use the borrower's home as collateral.
(3) Revised repayment terms.--In making loans under
subsection (b), the Administrator--
(A) may not require repayment to begin until
the date that is 12 months after the date on
which the final disbursement of approved
amounts is made; and
(B) shall calculate the amount of repayment
based solely on the amounts disbursed.
(4) Revised disbursement process.--In making a loan
under subsection (b), the Administrator shall disburse
loan amounts in accordance with the following:
(A) If the total amount approved with respect
to such loan is less than or equal to
$150,000--
(i) the first disbursement with
respect to such loan shall consist of
40 percent of the total loan amount, or
a lesser percentage of the total loan
amount if the Administrator and the
borrower agree on such a lesser
percentage;
(ii) the second disbursement shall
consist of 50 percent of the loan
amounts that remain after the first
disbursement, and shall be made when
the borrower has produced satisfactory
receipts to demonstrate the proper use
of 50 percent of the first
disbursement; and
(iii) the third disbursement shall
consist of the loan amounts that remain
after the preceding disbursements, and
shall be made when the borrower has
produced satisfactory receipts to
demonstrate the proper use of the first
disbursement and 50 percent of the
second disbursement.
(B) If the total amount approved with respect
to such loan is more than $150,000 but less
than or equal to $500,000--
(i) the first disbursement with
respect to such loan shall consist of
20 percent of the total loan amount, or
a lesser percentage of the total loan
amount if the Administrator and the
borrower agree on such a lesser
percentage;
(ii) the second disbursement shall
consist of 30 percent of the loan
amounts that remain after the first
disbursement, and shall be made when
the borrower has produced satisfactory
receipts to demonstrate the proper use
of 50 percent of the first
disbursement;
(iii) the third disbursement shall
consist of 25 percent of the loan
amounts that remain after the first and
second disbursements, and shall be made
when the borrower has produced
satisfactory receipts to demonstrate
the proper use of the first
disbursement and 50 percent of the
second disbursement; and
(iv) the fourth disbursement shall
consist of the loan amounts that remain
after the preceding disbursements, and
shall be made when the borrower has
produced satisfactory receipts to
demonstrate the proper use of the first
and second disbursements and 50 percent
of the third disbursement.
(C) If the total amount approved with respect
to such loan is more than $500,000--
(i) the first disbursement with
respect to such loan shall consist of
at least $100,000, or a lesser amount
if the Administrator and the borrower
agree on such a lesser amount; and
(ii) the number of disbursements
after the first, and the amount of each
such disbursement, shall be in the
discretion of the Administrator, but
the amount of each such disbursement
shall be at least $100,000.
* * * * * * *
[(e) [RESERVED].
[(f) [RESERVED].]
* * * * * * *
(m) Microloan Program.--
(1)(A) * * *
(B) Establishment.--There is established a microloan
program, under which the Administration may--
(i) make direct loans to eligible
intermediaries, as provided under paragraph
(3), for the purpose of making [short-term,]
fixed interest rate microloans to startup,
newly established, and growing small business
concerns under paragraph (6);
* * * * * * *
(2) Eligibility for participation.--An intermediary
shall be eligible to receive loans and grants under
subparagraphs (B)(i) and (B)(ii) of paragraph (1) if
it--
(A) meets the definition in [paragraph (10)]
paragraph (11); and
[(B) has at least 1 year of experience making
microloans to startup, newly established, or
growing small business concerns and providing,
as an integral part of its microloan program,
intensive marketing, management, and technical
assistance to its borrowers.]
(B) has--
(i) at least--
(I) 1 year of experience
making microloans to startup,
newly established, or growing
small business concerns; or
(II) 1 full-time employee who
has not less than 3 years of
experience making microloans to
startup, newly established, or
growing small business
concerns; and
(ii) at least--
(I) 1 year of experience
providing, as an integral part
of its microloan program,
intensive marketing,
management, and technical
assistance to its borrowers; or
(II) 1 full-time employee who
has not less than 1 year of
experience providing intensive
marketing, management, and
technical assistance to
borrowers.
(3) Loans to intermediaries.--
(A) * * *
* * * * * * *
(C) Loan limits.--Notwithstanding subsection
(a)(3), no loan shall be made under this
subsection if the total amount outstanding and
committed to one intermediary (excluding
outstanding grants) from the business loan and
investment fund established by this Act would,
as a result of such loan, exceed [$750,000]
$1,000,000 in the first year of such
intermediary's participation in the program,
and [$3,500,000] $7,000,000 in the remaining
years of the intermediary's participation in
the program. The Administrator may treat the
amount of $7,000,000 in this subparagraph as if
such amount is $10,000,000 if the Administrator
determines, with respect to an intermediary,
that such treatment is appropriate.
* * * * * * *
(F) Loan duration; interest rates.--
(i) * * *
* * * * * * *
(iii) Rates applicable to certain
small loans.--Loans made by the
Administration to an intermediary that
makes loans to small business concerns
and entrepreneurs averaging not more
than [$7,500] $10,000, shall bear an
interest rate that is 2 percentage
points below the rate determined by the
Secretary of the Treasury for
obligations of the United States with a
period of maturity of 5 years, adjusted
to the nearest one-eighth of 1 percent.
* * * * * * *
(4) Marketing, management and technical assistance
grants to intermediaries.--Grants made in accordance
with subparagraph (B)(ii) of paragraph (1) shall be
subject to the following requirements:
(A) * * *
* * * * * * *
(E) Assistance to certain small business
concerns.--
(i) In general.--Each intermediary
may expend an amount not to exceed [25
percent] 35 percent of the grant funds
received under paragraph (1)(B)(ii) to
provide information and technical
assistance to small business concerns
that are prospective borrowers under
this subsection.
(ii) Technical assistance.--An
intermediary may expend not more than
[25 percent] 35 percent of the funds
received under paragraph (1)(B)(ii) to
enter into third party contracts for
the provision of technical assistance.
* * * * * * *
(6) Loans to small business concerns from eligible
intermediaries.--
(A) In general.--An eligible intermediary
shall make [short-term,] fixed rate loans to
startup, newly established, and growing small
business concerns from the funds made available
to it under subparagraph (B)(i) of paragraph
(1) for working capital and the acquisition of
materials, supplies, furniture, fixtures, and
equipment.
* * * * * * *
(C) Interest limit.--Notwithstanding any
provision of the laws of any State or the
constitution of any State pertaining to the
rate or amount of interest that may be charged,
taken, received, or reserved on a loan, the
maximum rate of interest to be charged on a
microloan funded under this subsection shall
not exceed the rate of interest applicable to a
loan made to an intermediary by the
Administration--
(i) in the case of a loan of more
than [$7,500] $10,000 made by the
intermediary to a small business
concern or entrepreneur by more than
7.75 percentage points; and
(ii) in the case of a loan of not
more than [$7,500] $10,000 made by the
intermediary to a small business
concern or entrepreneur by more than
8.5 percentage points.
* * * * * * *
(11) Definitions.--For purposes of this subsection--
(A) * * *
(B) the term ``microloan'' means a [short-
term,] fixed rate loan of not more than
$35,000, made by an intermediary to a startup,
newly established, or growing small business
concern;
* * * * * * *
(14) Credit reporting information.--The Administrator
shall establish a process, for use by an intermediary
making a loan to a borrower under this subsection,
under which the intermediary shall provide to the major
credit reporting agencies the information about the
borrower, both positive and negative, that is relevant
to credit reporting, such as the payment activity of
the borrower on the loan. Such process shall allow an
intermediary the option of providing information to the
major credit reporting agencies through the
Administration or independently.
(15) Reporting requirement.--Not later than 90 days
after the end of each fiscal year, the Administrator
shall submit to the Committee on Small Business of the
House of Representatives and the Committee on Small
Business and Entrepreneurship of the Senate a report
that includes, with respect to such fiscal year of the
microloan program, the following:
(A) The names and locations of each
intermediary that received funds to make
microloans or provide marketing, management,
and technical assistance.
(B) The amounts of each loan and each grant
provided to each such intermediary in such
fiscal year and in prior fiscal years.
(C) A description of the contributions from
non-Federal sources of each such intermediary.
(D) The number and amounts of microloans made
by each such intermediary to all borrowers and
to each of the following:
(i) Women entrepreneurs and business
owners.
(ii) Low-income entrepreneurs and
business owners.
(iii) Veteran entrepreneurs and
business owners.
(iv) Disabled entrepreneurs and
business owners.
(v) Minority entrepreneurs and
business owners.
(E) A description of the marketing,
management, and technical assistance provided
by each such intermediary to all borrowers and
to each of the following:
(i) Women entrepreneurs and business
owners.
(ii) Low-income entrepreneurs and
business owners.
(iii) Veteran entrepreneurs and
business owners.
(iv) Disabled entrepreneurs and
business owners.
(v) Minority entrepreneurs and
business owners.
(F) The number of jobs created and retained
as a result of microloans and marketing,
management, and technical assistance provided
by each such intermediary.
(G) The repayment history of each such
intermediary.
(H) The number of businesses that achieved
success after receipt of a microloan.
(16) Interest assistance.--
(A) In general.--The Administrator is
authorized to use amounts determined unlikely
to be expended under subparagraph (B) to assist
borrowers that receive a microloan under this
subsection to reduce the interest paid with
respect to such microloan.
(B) Amounts unlikely to be expended.--Not
later than April 1 of each fiscal year, the
Administrator shall determine if any amounts
made available to carry out this subsection for
such fiscal year are unlikely to be expended
for activities under this subsection other than
activities under this paragraph.
* * * * * * *
Sec. 20. (a) * * *
* * * * * * *
(f) Fiscal Years 2010 and 2011 With Respect to Section
7(a).--
(1) Program levels.--For the programs authorized by
this Act, in each of fiscal years 2010 and 2011
commitments for general business loans authorized under
section 7(a) may not exceed $20,000,000,000.
(2) Authorization of appropriations.--There are
authorized to be appropriated such sums as may be
necessary to carry out paragraph (1).
(g) Program Levels With Respect to CDC Economic Development
Loan Program.--
(1) Fiscal year 2010.--For financings authorized by
section 7(a)(13) of this Act and title V of the Small
Business Investment Act of 1958, the Administrator is
authorized to make $9,000,000,000 in guarantees of
debentures for fiscal year 2010.
(2) Fiscal year 2011.--For financings authorized by
section 7(a)(13) of this Act and title V of the Small
Business Investment Act of 1958, the Administrator is
authorized to make $10,000,000,000 in guarantees of
debentures for fiscal year 2011.
(h) Fiscal Years 2010 and 2011 With Respect to Section
7(m).--
(1) Program levels.--For the programs authorized by
this Act, the Administration is authorized to make
during each of fiscal years 2010 and 2011--
(A) $80,000,000 in technical assistance
grants, as provided in section 7(m); and
(B) $110,000,000 in direct loans, as provided
in section 7(m).
(2) Authorization of appropriations.--There is
authorized to be appropriated such sums as may be
necessary to carry out paragraph (1).
(i) Part A of Title III of the Small Business Investment Act
of 1958.--
(1) Program levels 2010.--For fiscal year 2010, in
carrying out the program authorized by part A of title
III of the Small Business Investment Act of 1958, the
Administrator is authorized to make $5,000,000,000 in
guarantees of debentures.
(2) Program levels 2011.--For fiscal year 2011, in
carrying out the program authorized by part A of title
III of the Small Business Investment Act of 1958, the
Administrator is authorized to make $5,5000,000,000 in
guarantees of debentures.
(j) Fiscal Years 2010 and 2011 With Respect to Section
7(b).--There is authorized to be appropriated such sums as may
be necessary for administrative expenses and loans under
section 7(b).
[(j)] (k) Fiscal Year 2004 Purchase and Guarantee Authority
Under Title III of Small Business Investment Act of 1958.--For
fiscal year 2004, for the programs authorized by title III of
the Small Business Investment Act of 1958 (15 U.S.C. 681 et
seq.), the Administration is authorized to make--
(1) * * *
* * * * * * *
SEC. 40. COMPREHENSIVE DISASTER RESPONSE PLAN.
(a) Plan Required.--The Administrator shall develop,
implement, [or] and maintain a comprehensive written disaster
response plan. The plan shall include the following:
(1) * * *
* * * * * * *
(d) Regional Disaster Working Groups.--In carrying out
subsection (a), the Administrator, acting through the regional
administrators of the regional offices of the Administration,
shall develop a disaster preparedness and response plan for
each region of the Administration. Each such plan shall be
developed in cooperation with Federal, State, and local
emergency response authorities and representatives of
businesses located in the region to which such plan applies.
Each such plan shall identify and include a plan relating to
the 3 disasters, natural or manmade, most likely to occur in
the region to which such plan applies.
[(d)] (e) Report.--The Administrator shall include a report
on the plan whenever the Administration submits the report
required by section 43.
* * * * * * *
SEC. 44. APPELLATE PROCESS AND OMBUDSMAN.
(a) Appellate Process.--
(1) In general.--Not later than 270 days after the
date of the enactment of the Small Business Financing
and Investment Act of 2009, the Administrator shall
establish an independent appellate process within the
Administration. The process shall be available to
review material determinations made by the
Administration that affect a lender or investment
company that participates or is applying to participate
in a program administered by the Administration.
(2) Review process.--In establishing the independent
appellate process under paragraph (1), the
Administrator shall ensure that--
(A) any appeal of a material determination by
the Administration is heard and resulting
recommendations are provided expeditiously; and
(B) appropriate safeguards exist for
protecting the appellant from retaliation by
Administration employees.
(3) Comment period.--Not later than 180 days after
the date of the enactment of the Small Business
Financing and Investment Act of 2009, the Administrator
shall provide an opportunity for notice and comment on
proposed guidelines for the establishment of an
independent appellate process under this section.
(b) Agency Ombudsman.--
(1) Establishment.--Not later than 180 days after the
date of the enactment of the Small Business Financing
and Investment Act of 2009, the Administrator shall
appoint an ombudsman.
(2) Duties.--The ombudsman appointed in accordance
with paragraph (1) shall--
(A) act as a liaison between the
Administration and any lender or investment
company that participates or is applying to
participate in a program administered by the
Administration with respect to a problem such
entity may have in dealing with the
Administration resulting from a material
determination made by the Administration; and
(B) ensure that safeguards exist to encourage
complainants to come forward and preserve
confidentiality.
(c) Other Authority.--An individual carrying out the
independent appellate process established under subsection (a)
or the position of ombudsman established under subsection (b)
is authorized to--
(1) examine records and documents relating to a
matter under review pursuant to such subsections; and
(2) initiate the review of a matter under such
subsections if such individual believes that
Administration procedures have not been followed as
intended with respect to such matter, without regard to
whether an appeal or complaint has been made.
(d) Limitations.--
(1) In general.--An individual carrying out the
independent appellate process established under
subsection (a) or the position of ombudsman established
under subsection (b) may not, as a result of the
authority provided under this section--
(A) make, change, or set aside a law, policy,
or administrative decision;
(B) make binding decisions or determine
rights;
(C) directly compel an entity to implement
the recommendations of such individual; or
(D) accept jurisdiction over an issue that is
pending in a legal forum.
(2) Rule of construction.--Activities carried out
under this section may not be construed--
(A) as a formal investigation, formal
hearing, or binding decision;
(B) as limiting any remedy or right of
appeal;
(C) as affecting any procedure concerning
grievances, appeals, or administrative matters
under law; or
(D) as a substitute for an administrative or
judicial proceeding.
(e) Report.--Not later than one year after the date of the
enactment of the Small Business Financing and Investment Act of
2009 and annually thereafter, the Administrator shall submit to
the Committee on Small Business of the House of Representatives
and the Committee on Small Business and Entrepreneurship of the
Senate a report describing and providing the status of appeals
made under subsection (a) and complaints made under subsection
(b).
(f) Definitions.--In this section, the following apply:
(1) Material determination.--The term ``material
determination'' includes determinations relating to--
(A) applications for payment relating to a
loan guarantee; and
(B) the ability of an entity to participate
in an Administration loan or investing program.
(2) Independent appellate process.--The term
``independent appellate process'' means a review by an
Administration official who does not directly or
indirectly report to the Administration official who
made the material determination under review.
SEC. 45. LOAN GUARANTEES FOR HEALTH INFORMATION TECHNOLOGY.
(a) Definitions.--As used in this section:
(1) The term ``health information technology'' means
computer hardware, software, and related technology
that supports the meaningful EHR use requirements set
forth in section 1848(o)(2)(A) of the Social Security
Act (42 U.S.C. 1395w-4(o)(2)(A)) and is purchased by an
eligible professional to aid in the provision of health
care in a health care setting, including, but not
limited to, electronic medical records, and that
provides for--
(A) enhancement of continuity of care for
patients through electronic storage,
transmission, and exchange of relevant personal
health data and information, such that this
information is accessible at the times and
places where clinical decisions will be or are
likely to be made;
(B) enhancement of communication between
patients and health care providers;
(C) improvement of quality measurement by
eligible professionals enabling them to
collect, store, measure, and report on the
processes and outcomes of individual and
population performance and quality of care;
(D) improvement of evidence-based decision
support; or
(E) enhancement of consumer and patient
empowerment.
Such term shall not include information technology
whose sole use is financial management, maintenance of
inventory of basic supplies, or appointment scheduling.
(2) The term ``eligible professional'' means any of
the following:
(A) A physician (as defined in section
1861(r) of the Social Security Act (42 U.S.C.
1395x(r)).
(B) A practitioner described in section
1842(b)(18)(C) of that Act.
(C) A physical or occupational therapist or a
qualified speech-language pathologist.
(D) A qualified audiologist (as defined in
section 1861(ll)(3)(B)) of that Act.
(E) A qualified medical transcriptionist who
is either certified by or registered with the
Association for Healthcare Documentation
Integrity, or a successor association thereto.
(F) A State-licensed pharmacist.
(G) A State-licensed supplier of durable
medical equipment, prosthetics, orthotics, or
supplies.
(3) The term ``qualified eligible professional''
means an eligible professional whose office can be
classified as a small business concern by the
Administrator for purposes of this Act under size
standards established under section 3 of this Act.
(4) The term ``qualified medical transcriptionist''
means a specialist in medical language and the
healthcare documentation process who interprets and
transcribes dictation by physicians and other
healthcare professionals to ensure accurate, complete,
and consistent documentation of healthcare encounters.
(b) Loan Guarantees for Qualified Eligible Professionals.--
(1) In general.--Subject to paragraph (2), the
Administrator may guarantee up to 90 percent of the
amount of a loan made to a qualified eligible
professional to be used for the acquisition of health
information technology for use in such eligible
professional's medical practice and for the costs
associated with the installation of such technology.
Except as otherwise provided in this section, the terms
and conditions that apply to loans made under section
7(a) of this Act shall apply to loan guarantees made
under this section.
(2) Limitations on guarantee amounts.--The maximum
amount of loan principal guaranteed under this
subsection may not exceed--
(A) $350,000 with respect to any single
qualified eligible professional; and
(B) $2,000,000 with respect to a single group
of affiliated qualified eligible professionals.
(c) Fees.--(1) The Administrator may impose a guarantee fee
on the borrower for the purpose of reducing the cost (as
defined in section 502(5) of the Federal Credit Reform Act of
1990) of the guarantee to zero in an amount not to exceed 2
percent of the total guaranteed portion of any loan guaranteed
under this section. The Administrator may also impose annual
servicing fees on lenders not to exceed 0.5 percent of the
outstanding balance of the guarantees on lenders' books.
(2) No service fees, processing fees, origination fees,
application fees, points, brokerage fees, bonus points, or
other fees may be charged to a loan applicant or recipient by a
lender in the case of a loan guaranteed under this section.
(d) Deferral Period.--Loans guaranteed under this section
shall carry a deferral period of not less than 1 year and not
more than 3 years. The Administrator shall have the authority
to subsidize interest during the deferral period.
(e) Effective Date.--No loan may be guaranteed under this
section until the meaningful EHR use requirements have been
determined by the Secretary of Health and Human Services.
(f) Sunset.--No loan may be guaranteed under this section
after the date that is 5 years after meaningful EHR use
requirements have been determined by the Secretary of Health
and Human Services.
(g) Authorization of Appropriations.--There are authorized to
be appropriated such sums as are necessary for the cost (as
defined in section 502(5) of the Federal Credit Reform Act of
1990) of guaranteeing $10,000,000,000 in loans under this
section. The Administrator shall determine such program cost
separately and distinctly from other programs operated by the
Administrator.
Sec. [44.] 46. All laws and parts of laws inconsistent with
this Act are hereby repealed to the extent of such
inconsistency.
----------
AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009
* * * * * * *
DIVISION A--APPROPRIATIONS PROVISIONS
* * * * * * *
TITLE V--FINANCIAL SERVICES AND GENERAL GOVERNMENT
* * * * * * *
Small Business Administration
* * * * * * *
Administrative Provisions--Small Business Administration
Sec. 501. Fee Reductions. (a) Administrative Provisions Small
Business Administration.--Until [September 30, 2010] September
30, 2011, and to the extent that the cost of such elimination
or reduction of fees is offset by appropriations, with respect
to each loan guaranteed under section 7(a) of the Small
Business Act (15 U.S.C. 636(a)) and section 502 of this title,
for which the application is approved on or after the date of
enactment of this Act, the Administrator shall--
(1) * * *
* * * * * * *
(c) Application of Fee Eliminations.--
(1) * * *
[(2) The Administrator shall eliminate fees under
subsections (a) and (b) until the amount provided for
such purposes, as applicable, under the heading
``Business Loans Program Account'' under the heading
``Small Business Administration'' under this Act are
expended.]
Sec. 502. Economic Stimulus Lending Program for Small
Businesses. (a) * * *
* * * * * * *
(f) Sunset.--Loan guarantees may not be issued under this
section after [the date 12 months after the date of enactment
of this Act] September 30, 2011.
* * * * * * *
Sec. 506. Business Stabilization Program. (a) In General.--
Subject to the availability of appropriations, the
Administrator of the Small Business Administration shall carry
out a program to provide loans on a deferred basis to viable
(as such term is determined pursuant to regulation by the
Administrator of the Small Business Administration) small
business concerns that have a qualifying small business loan
and are experiencing immediate financial hardship. In carrying
out such program, the Administrator shall establish and utilize
a one-page application for loans under this section and shall
authorize lenders to utilize the same documentation and
procedural requirements for loans under this section as such
lenders utilize for other loans of a similar size and type.
* * * * * * *
(c) Qualifying Small Business Loan.--A loan made to a small
business concern that meets the eligibility standards in
section 7(a) of the Small Business Act (15 U.S.C. 636(a)) [but
shall not include loans guarantees (or loan guarantee
commitments made) by the Administrator prior to the date of
enactment of this Act].
(d) Loan Size.--Loans guaranteed under this section may not
exceed [$35,000] $50,000.
* * * * * * *
(j) Sunset.--The Administrator of the Small Business
Administration shall not issue loan guarantees under this
section after [September 30, 2010] September 30, 2011.
* * * * * * *
Sec. 509. Establishment of SBA Secondary Market Lending
Authority.
(a) * * *
* * * * * * *
(c) Responsibilities, Authorities, Organization, and
Limitations.--
(1) Designation of systemically important sba
secondary market broker-dealers.--The Administrator
shall establish a process to designate, in consultation
with the Board of Governors of the Federal Reserve and
the Secretary of the Treasury, Systemically Important
Secondary Market Broker-Dealers. Such process shall
include the designation of each lender participating in
a program under section 7(a) of the Small Business Act
as a Systematically Important Secondary Market Broker-
Dealer for purposes of this section.
* * * * * * *
[(e) Duration.--The authority of this section shall remain in
effect for a period of 2 years after the date of enactment of
this section.]
[(f)] (e) Fees.--The Administrator shall charge fees, up
front, annual, or both at a specified percentage of the loan
amount that is at such a rate that the cost of the program
under the Federal Credit Reform Act of 1990 ((title V of the
Congressional Budget and Impoundment Control Act of 1974; 2
U.S.C. 661) shall be equal to zero. To the extent that the cost
of an elimination or reduction of fees is offset by
appropriations, the Administrator shall in lieu of the fee
otherwise applicable under this subsection collect no fee or
reduce fees to the maximum extent possible.
[(h)] (f) Budget Treatment.--Nothing in this section shall be
construed to exempt any activity of the Administrator under
this section from the Federal Credit Reform Act of 1990 (title
V of the Congressional Budget and Im poundment Control Act of
1974; 2 U.S.C. 661 and following).
[(i)] (g) Emergency Rulemaking Authority.--The Administrator
shall promulgate regulations under this section within 30 days
after the date of enactment of enactment of this section. In
promulgating these regulations,the Administrator the notice
requirements of section 553(b) of title 5 of the United States
Code shall not apply.
* * * * * * *
----------
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 any
corporation organized in order to promote economic
development and the growth of small business concerns
and includes companies chartered under a special State
law authorizing them to operate on a statewide basis;
* * * * * * *
(13) the term ``qualified nonprivate funds'' means
any--
(A) * * *
* * * * * * *
(C) funds invested in any applicant or
licensee by one or more State or local
government entities (including any guarantee
extended by those entities) in an aggregate
amount that does not exceed [33 percent] 45
percent of the private capital of the applicant
or licensee;
* * * * * * *
(18) the term ``Energy Saving debenture'' means a
deferred interest debenture that--
(A) * * *
* * * * * * *
(E) is issued at no cost (as defined in
section 502 of the Credit Reform Act of 1990)
with respect to purchasing and guaranteeing the
debenture; [and]
(19) the term ``Energy Saving qualified investment''
means investment in a small business concern that is
primarily engaged in researching, manufacturing,
developing, or providing products, goods, or services
that reduce the use or consumption of non-renewable
energy resources [.];
(20) the term ``certified development company'' means
a development company that the Administrator has
determined meets the criteria set forth in section 501;
(21) the term ``local governmental entity'' means--
(A) a State or a political subdivision of a
State; or
(B) a combination of political subdivisions
which--
(i) has been formed to promote
economic or community development;
(ii) is composed of representatives
of the State or a political subdivision
acting in their official capacity; and
(iii) includes an area in an adjacent
State if it is part of a local economic
area, a rural area, or has a population
determined by the Administrator to be
insufficient to support the formation
of a separate development company;
such term includes entities meeting the
requirements of clauses (i) through (iii), such
as, but not limited to, a council of
governments, regional development corporation,
regional planning commission, or economic
development district;
(22) the term ``member'' means any person authorized
to vote for a director of a corporation or the
dissolution or merger of a company (for purposes of
this definition, a shareholder of a for-profit
corporation shall be considered a member);
(23) the terms ``rural'' and ``rural area'' shall
have the same meaning as those terms are given in
section 1991(a)(13)(A) of title 7, United States Code;
(24) the term ``small manufacturer'' means a small
business concern--
(A) the primary business of which is
classified in sector 31, 32, or 33 of the North
American Industrial Classification System; and
(B) all of the production facilities of which
are located in the United States; and
(25) for purposes of the terms ``small-business
concern'' in paragraph (5) and ``smaller enterprise''
in paragraph (12), tangible net worth shall, to the
extent used, mean the total net worth of the small
business, in accordance with General Accepted
Accounting Principles, minus all intangibles in
accordance with General Accepted Accounting Principles.
* * * * * * *
TITLE III--INVESTMENT DIVISION PROGRAMS
Part A--Small Business Investment Companies
ORGANIZATION OF SMALL BUSINESS INVESTMENT COMPANIES
Sec. 301. (a) * * *
* * * * * * *
(d) Licenses for Experienced Applicants.--
(1) In general.--Notwithstanding any other provision
of this section, not later than 60 days after the
initial receipt by the Administrator of any request
(which shall be deemed to be the application) for a
license to operate as a small business investment
company under this Act, the Administrator shall approve
the request and issue such license if each of the
following requirements is satisfied:
(A) At least 50 percent of the principal
managers of the applicant consist of at least
two-thirds of the principal managers of a small
business investment company that has been
licensed under this Act.
(B) The licensed small business investment
company specified under subparagraph (A) has
operated under such license for at least 3
years prior to the receipt of the request
specified in this paragraph.
(C) The licensed small business investment
company specified under subparagraph (A)--
(i) either has invested at least 70
percent of its private capital and
drawn at least 50 percent of its
projected leverage at the time of the
receipt of the request specified in
this paragraph or reserved for
investment and expenses or some
combination of both at least 70 percent
of its private capital in the one-year
period prior to the date on which the
application referred to in this
paragraph was received by the
Administrator;
(ii) has maintained 6 consecutive
quarters of profitable net investment
income; and
(iii) has made at least 3 exits from
investments in small businesses that
have realized profits from those
respective investments.
(D) The applicant submits to the
Administrator, in writing, an application
consisting of all of the following:
(i) A certification, in the form
prescribed by the Administrator, that
such applicant satisfies the
requirements of this subsection and
that all information contained in the
application is true and complete.
(ii) A copy of the organizational
documents of the applicant.
(iii) A copy of the operating plan of
the applicant demonstrating that at
least 50 percent of the amount of the
planned investments of the applicant
will be in the same or substantially
similar investment stage and use the
same or substantially similar type of
investment instruments as the
investments of the licensed small
business investment company specified
under subparagraph (A).
(iv) A certification, in a form
prescribed by the Administrator, that
the applicant satisfies the
requirements of subsections (a) and (c)
of section 302 of this Act.
(E) The applicant is in good standing as set
forth in paragraph (2).
(F) The applicant pays all fees prescribed by
the Administrator under subsection (e).
(2) Good standing.--For purposes of this subsection,
an applicant is in good standing if--
(A) a licensed leveraged debentured or non-
leveraged small business investment company
specified under paragraph (1)(A) is actively
operating under this Act on the date of the
initial receipt of the application by the
Administrator to which this subsection applies;
(B) no principal manager of the applicant has
been found liable in a civil action for fraud
if the Administrator makes a reasonable
determination based on evidence in the agency
record that such liability has a material
adverse effect on the ability of the applicant
to perform obligations required by a license
issued pursuant to this Act; and
(C) no principal manager is under
investigation by a governmental agency or
authority for, is under indictment for, or has
been convicted of a felony for a violation of
Federal or State securities laws, fraud, or
another criminal violation if such
investigation, indictment, or conviction has a
material adverse effect on the ability of the
applicant to perform obligations under a
license issued under this Act.
(3) Limitation.--
(A) In general.--The Administrator may remove
an application from the approval process under
this subsection if the Administrator determines
based on evidence in the agency record that the
approval of the license would present an
unacceptable risk to the Federal Government.
(B) In writing.--Such determination shall be
made in writing and provided to the applicant
no later than 10 calendar days after such
determination is made. Failure to provide this
determination to the applicant shall be deemed
to be a permanent waiver of the Administrator's
authority to remove an application pursuant to
this subsection.
(C) Non-delegability.--The Administrator may
rely on agency personnel to collect data or
other material relevant to establishing a
record, but the decision to remove the
application may not be delegated by the
Administrator to any subordinate personnel in
the agency.
(4) Notice and opportunity to cure non-conformance.--
(A) Notice of non-conformance.--Except for a
determination made pursuant to paragraph (3),
the Administrator shall provide an applicant
described in paragraph (1) within 60 days after
receipt of the application a written notice and
description of any nonconformance with any
requirement of this subsection based on
evidence in the agency record.
(B) Opportunity to cure.--The applicant shall
have 30 days following the receipt of notice of
nonconformance or the receipt of removal as set
forth in paragraph (3) to cure such
nonconformance.
(C) Failure to provide notice.--Failure to
provide the notice within the time limit set
forth in subparagraph (A) shall be deemed to be
acceptance by the Administrator of the
applicant's conformance with the requirements
of this subsection.
(5) Background reviews.--The Administrator shall
ensure that a timely background check of the principal
managers of each applicant is completed with respect to
paragraphs (2)(B) and (2)(C).
(6) Fees.--The Administrator may charge an applicant
additional fees for carrying out the background reviews
mandated by paragraph (5). Such fees shall not exceed
$10,000.
(7) Effect of non-qualification.--The failure of an
applicant to qualify for expedited licensure under this
subsection shall have no effect on an existing license
or the ability for the applicant or any of its
individual managers to apply for or receive a license
to operate a small business investment company under
the procedures established elsewhere in this Act or its
implementing regulations.
(8) Regulations.--The Administrator shall develop
forms and promulgate regulations to implement this
subsection after providing an opportunity for notice
and comment. Regulations promulgated pursuant to this
paragraph shall be published in the Code of Federal
Regulations.
* * * * * * *
BORROWING POWER
Sec. 303. (a) * * *
(b) To encourage the formation and growth of small business
investment companies the Administration is authorized when
authorized in appropriation Acts, to purchase, or to guarantee
the timely payment of all principal and interest as scheduled
on, debentures or participating securities issued by such
companies. Such purchases or guarantees may be made by the
Administration on such terms and conditions as it deems
appropriate, pursuant to regulations issued by the
Administration. The full faith and credit of the United States
is pledged to the payment of all amounts which may be required
to be paid under any guarantee under this subsection.
Debentures purchased or guaranteed by the Administration under
this subsection shall be subordinate to any other debenture
bonds, promissory notes, or other debts and obligations of such
companies, unless the Administration in its exercise of
reasonable investment prudence and in considering the financial
soundness of such company determines otherwise. Such debentures
may be issued for a term of not to exceed fifteen years and
shall bear interest at a rate not less than a rate determined
by the Secretary of the Treasury taking into consideration the
current average market yield on outstanding marketable
obligations of the United States with remaining periods to
maturity comparable to the average maturities on such
debentures, adjusted to the nearest one-eighth of 1 per centum,
plus, for debentures obligated after September 30, 2001, an
additional charge, in an amount established annually by the
Administration, as necessary to reduce to zero the cost (as
defined in section 502 of the Federal Credit Reform Act of 1990
(2 U.S.C. 661a)) to the Administration of purchasing and
guaranteeing debentures under this Act, which amount may not
exceed 1.38 percent per year, and which shall be paid to and
retained by the Administration. The debentures or participating
securities shall also contain such other terms as the
Administration may fix, and shall be subject to the following
restrictions and limitations:
(1) * * *
[(2) Maximum leverage.--
[(A) In general.--The maximum amount of
outstanding leverage made available to any one
company licensed under section 301(c) of this
Act may not exceed the lesser of--
[(i) 300 percent of such company's
private capital; or
[(ii) $150,000,000.
[(B) Multiple licenses under common
control.--The maximum amount of outstanding
leverage made available to two or more
companies licensed under section 301(c) of this
Act that are commonly controlled (as determined
by the Administrator) and not under capital
impairment may not exceed $225,000,000.]
(2) Maximum leverage.--
(A) In general.--(i) The maximum amount of
outstanding leverage made available to any one
company licensed under section 301(c) of this
Act may not exceed the lesser of--
(I) 300 percent of such company's
private capital; or
(II) $150,000,000.
(ii) In applying clause (i)(I) in the case of
a debenture licensee which is in good standing
without the imposition of additional regulatory
standards and whose financings at cost are
comprised of at least 50 percent of loans and
debt securities, such licensee may be leveraged
as follows:
(I) The first one-third of private
capital to 300 percent.
(II) The second one-third of private
capital to 200 percent.
(III) The last third of private
capital to 100 percent.
(iii) Notwithstanding clause (i), in the case
of any company operating as a business
development company (as such term is defined
under section 2(a)(48) of the Investment
Company Act of 1940) or a majority-owned
subsidiary of such a company that is in good
standing without the imposition of additional
regulatory requirements, the maximum amount of
outstanding leverage made available to such
company shall be $250,000,000.
(B) Multiple licensees under common
control.--The maximum amount of outstanding
leverage made available to two or more
debenture companies licensed under section
301(c) of this Act that are commonly controlled
(as determined by the Administrator) and not
under capital impairment may not exceed
$350,000,000.
(C) Investments in low-income geographic
areas and veterans.--(i) In calculating the
outstanding leverage of a company for the
purposes of subparagraph (A), the Administrator
shall not include the amount of the cost basis
of any equity investment made by the company in
a smaller enterprise located in a low-income
geographic area (as defined in section 351) or
in a small business concern owned and
controlled by veterans (as such term is defined
in section 3(q)(3) of the Small Business Act),
to the extent that the total of such amounts
does not exceed 50 percent of the company's
private capital.
(ii) The maximum amount of outstanding
leverage made available to--
(I) * * *
(II) 2 or more companies described in
clause (iii) that are under common
control (as determined by the
Administrator) may not exceed
[$250,000,000] $400,000,000.
(iii) A company described in this clause is a
company licensed under section 301(c) in the
first fiscal year after the date of enactment
of this clause or any fiscal year thereafter
that certifies in writing that not less than 50
percent of the dollar amount of investments of
that company shall be made in companies that
are located in a low-income geographic area (as
that term is defined in section 351) or in
small business concerns owned and controlled by
veterans (as such term is defined in section
3(q)(3) of the Small Business Act).
* * * * * * *
(E) Regulations.--The Administrator shall
promulgate regulations, after notice and
opportunity for comment, establishing
quantifiable objective criteria under which a
licensee's private capital in its entirety may
be leveraged up to 300 percent. Such
regulations shall be published in the Code of
Federal Regulations.
* * * * * * *
(d) Investments in Smaller Enterprises.--The Administrator
shall require each licensee, as a condition of approval of an
application for leverage, to certify in writing that not less
than 25 percent of the aggregate dollar amount of financings of
that licensee shall be provided to smaller enterprises. A
licensee shall not be required to achieve any percentage of
such financings (at cost) which is higher than 25 percent which
may result from the application of prior statutory or
regulatory requirements to all or any portion of the licensee's
portfolio.
(e) Capital Impairment.--Before approving any application for
leverage submitted by a licensee under this Act, the
Administrator--
(1) * * *
* * * * * * *
A licensee with Earmarked Assets (as that term is defined by
the Administrator) will not be in capital impairment during the
first 72 months after its date of licensure, if its impairment
does not exceed 85 percent.
* * * * * * *
LONG-TERM LOANS TO SMALL-BUSINESS CONCERNS
Sec. 305. (a) * * *
* * * * * * *
(c) The maximum rate of interest for the company's share of
any loan made under this section shall be determined by the
Administration: Provided, That the Administration also shall
permit those companies which have issued debentures pursuant to
this Act to charge a maximum rate of interest based upon the
coupon rate of interest on the outstanding debentures,
determined on an annual basis, plus such other expenses of the
company as may be approved by the Administration. In addition
to the foregoing, with respect to a loan made, or debt with
equity features acquired, under this section, the minimum
coupon rate of interest (cost of money ceiling) imposed by the
Administrator shall not be less than 19 percent per annum for a
loan or a debt security, except that nothing herein shall alter
or affect provisions permitting higher coupon rates of interest
(cost of money ceilings) and a company may charge up to an
additional 7 percent more than the interest rate set forth in
the loan or debt security in the event of a default. For
purposes of this subsection a default means the occurrence of
any of the following:
(1) Failure to pay an amount when due.
(2) Failure to provide in a timely manner material
information required under the applicable financing
documents.
(3) Failure to observe any material term, covenant,
or other agreement contained in the applicable
financing documents.
(4) A representation, warranty, certification, or
statement of fact made by or on behalf of a borrower in
any applicable financing document or in any document
delivered in connection therewith, that was materially
incorrect or misleading when made.
(5) Any material event of default specified in the
applicable financing documents.
* * * * * * *
(g) A company may require a small business concern to accept
reasonable and customary minimum prepayment amounts, terms, and
notice requirements.
(h) The private capital of a licensee may include funds
transferred to an account of the Telecommunications Development
Fund created pursuant to section 714 of the Communications Act
of 1934 (47 U.S.C. 614) and which are described in section
309(j)(8)(C)(iii) of the Communications Act of 1934 (47 U.S.C.
309(j)(8)(C)(iii)).
(i) The authorization to make loans under subsection (a)
includes the authority to engage in venture leasing, equipment
leasing, real estate sale leasebacks, and similar arrangements
with small business concerns, so long as such arrangements have
an economic purpose similar to traditional loans. Any
transaction covered by this subsection involving real property
shall require the occupancy of at least 50 percent of the real
property by the small business concern.
* * * * * * *
SEC. 321. INVESTMENT WITH CERTAIN PASSIVE ENTITIES.
A licensee may provide financing to a passive business as
defined under section 107.720(b)(1) of title 13, Code of
Federal Regulations, as in effect on January 1, 2009, which is
a corporation or limited liability company wholly-owned by the
licensee and the sole purpose of which is to provide financing
by the licensee to such concerns would cause investors in the
licensee to incur with respect to regulated investment
companies, income not qualifying under section 851(b)(2)(A) of
the Internal Revenue Code of 1986. Nothing in this section
shall affect the validity of regulations permitting financings
of passive businesses previously duly promulgated by the
Administrator.
SEC. 322. AGENCY RECORD FOR LICENSING OF SMALL BUSINESS INVESTMENT
COMPANIES.
(a) Record.--The Associate Administrator for Investment shall
establish an agency record of evidence referring or relating to
each application for a license to become a small business
investment company.
(b) Written Notification.--The Administrator shall provide a
written explanation of any denial of a license application
based upon evidence in the agency record. Absent an order by a
Federal or State court of general jurisdiction, access to
applications and the agency record shall be limited to the
applicant and to the Administrator and subordinate personnel of
the Administrator.
Part B--New Markets Venture Capital Program
SEC. 351. DEFINITIONS.
In this part, the following definitions apply:
(1) Developmental venture capital.--The term
``developmental venture capital'' means capital in the
form of equity capital investments in businesses made
with a primary objective of fostering economic
development in low-income geographic areas or
encouraging the growth or continuation of small
business concerns located in low-income geographic
areas and engaged primarily in manufacturing. For the
purposes of this paragraph, the term ``equity capital''
has the same meaning given such term in section
303(g)(4).
[(2) Low-income individual.--The term ``low-income
individual'' means an individual whose income (adjusted
for family size) does not exceed--
[(A) for metropolitan areas, 80 percent of
the area median income; and
[(B) for nonmetropolitan areas, the greater
of--
[(i) 80 percent of the area median
income; or
[(ii) 80 percent of the statewide
nonmetropolitan area median income.
[(3) Low-income geographic area.--the term ``low-
income geographic area'' means--
[(A) any population census tract (or in the
case of an area that is not tracted for
population census tracts, the equivalent county
division, as defined by the Bureau of the
Census of the Department of Commerce for
purposes of defining poverty areas), if--
[(i) the poverty rate for that census
tract is not less than 20 percent;
[(ii) in the case of a tract--
[(I) that is located within a
metropolitan area, 50 percent
or more of the households in
that census tract have an
income equal to less than 60
percent of the area median
gross income; or
[(II) that is not located
within a metropolitan area, the
median household income for
such tract does not exceed 80
percent of the statewide median
household income; or
[(iii) as determined by the
Administrator based on objective
criteria, a substantial population of
low-income individuals reside, an
inadequate access to investment capital
exists, or other indications of
economic distress exist in that census
tract; or
[(B) any area located within--
[(i) a HUBZone (as defined in section
3(p) of the Small Business Act and the
implementing regulations issued under
that section);
[(ii) an urban empowerment zone or
urban enterprise community (as
designated by the Secretary of Housing
and Urban Development); or
[(iii) a rural empowerment zone or
rural enterprise community (as
designated by the Secretary of
Agriculture).]
(2) Low-income geographic area.--The term ``low-
income geographic area'' has the meaning given the term
``low-income community'' in section 45D(e) of the
Internal Revenue Code of 1986.
* * * * * * *
[(4)] (3) New markets venture capital company.--The
term ``New Markets Venture Capital company'' means a
company that--
(A) * * *
* * * * * * *
[(5)] (4) Operational assistance.--The term
``operational assistance'' means management, marketing,
and other technical assistance that assists a small
business concern with business development or
assistance that assists a small business concern
located in a low-income geographic area and engaged
primarily in manufacturing with retooling, updating, or
replacing machinery or equipment.
[(6)] (5) Participation agreement.--The term
``participation agreement'' means an agreement, between
the Administrator and a company granted final approval
under section 354(e), that--
(A) * * *
(B) requires the company to make investments
in smaller enterprises at least 80 percent of
which are located in low-income geographic
areas or in small business concerns located in
low-income geographic areas at least 80 percent
of which are engaged primarily in
manufacturing.
[(7)] (6) Specialized small business investment
company.--The term ``specialized small business
investment company'' means any small business
investment company that--
(A) * * *
* * * * * * *
[(8)] (7) State.--The term ``State'' means such of
the several States, the District of Columbia, the
Commonwealth of Puerto Rico, the Virgin Islands, Guam,
American Samoa, the Commonwealth of the Northern
Mariana Islands, and any other commonwealth, territory,
or possession of the United States.
SEC. 352. PURPOSES.
The purposes of the New Markets Venture Capital Program
established under this part are--
(1) * * *
(2) to establish a developmental venture capital
program, with the mission of addressing the unmet
equity investment needs of small enterprises located in
low-income geographic areas and small business concerns
located in low-income geographic areas and engaged
primarily in manufacturing, to be administered by the
Administrator--
(A) * * *
(B) to guarantee debentures of New Markets
Venture Capital companies to enable each such
company to make developmental venture capital
investments in smaller enterprises in low-
income geographic areas or in small business
concerns located in low-income geographic areas
and engaged primarily in manufacturing; and
(C) to make grants to New Markets Venture
Capital companies, and to other entities, for
the purpose of providing operational assistance
to smaller enterprises and small business
concerns financed, or expected to be financed,
by such companies.
SEC. 353. ESTABLISHMENT.
In accordance with this part, the Administrator shall
establish a New Markets Venture Capital Program, [under which
the Administrator may] under which the Administrator shall--
(1) * * *
* * * * * * *
SEC. 354. SELECTION OF NEW MARKETS VENTURE CAPITAL COMPANIES.
(a) Eligibility.--A company shall be eligible to apply to
participate, as a New Markets Venture Capital company, in the
program established under this part if--
(1) * * *
* * * * * * *
(3) the company has a primary objective of economic
development of low-income geographic areas or investing
in small business concerns located in low-income
geographic areas and engaged primarily in
manufacturing.
(b) Application.--To participate, as a New Markets Venture
Capital company, in the program established under this part a
company meeting the eligibility requirements set forth in
subsection (a) shall submit an application to the Administrator
that includes--
(1) a business plan describing how the company
intends to make successful developmental venture
capital investments in identified low-income geographic
areas or in small business concerns located in low-
income geographic areas and engaged primarily in
manufacturing;
* * * * * * *
(4) a proposal describing how the company intends to
use the grant funds provided under this part to provide
operational assistance to smaller enterprises or small
business concerns financed by the company, including
information regarding whether the company intends to
use licensed professionals, when necessary, on the
company's staff or from an outside entity;
* * * * * * *
(d) Requirements To Be Met for Final Approval.--The
Administrator shall grant each conditionally approved company
[a period of time, not to exceed 2 years,] 2 years to satisfy
the following requirements:
(1) Capital requirement.--[Each]
(A) In general.--Except as provided in
subparagraph (B), each conditionally approved
company shall raise not less than $5,000,000 of
private capital or binding capital commitments
from one or more investors (other than agencies
or departments of the Federal Government) who
met criteria established by the Administrator.
(B) Small business concerns engaged primarily
in manufacturing.--Each conditionally approved
company engaged primarily in development of and
investment in small business concerns located
in low-income geographic areas and engaged
primarily in manufacturing shall raise not less
than $3,000,000 of private capital or binding
capital commitments from one or more investors
(other than agencies or departments of the
Federal Government) who met criteria
established by the Administrator.
(2) Nonadministration resources for operational
assistance.--
(A) In general.--In order to provide
operational assistance to smaller enterprises
or small business concerns expected to be
financed by the company, each conditionally
approved company--
(i) shall have binding commitments
(for contribution in cash or in kind)--
(I) from any sources other
than the Small Business
Administration that meet
criteria established by the
Administrator; and
(II) payable or available
over a multiyear period
acceptable to the Administrator
(not to exceed 10 years); [and]
[(III) in an amount not less
than 30 percent of the total
amount of capital and
commitments raised under
paragraph (1);]
* * * * * * *
(f) Geographic Expansion.--From among companies submitting
applications under subsection (b), the Administrator shall
consider the selection criteria and promotion of nationwide
distribution under subsection (c) and shall, to the extent
practicable, approve at least one company from each geographic
region of the Small Business Administration.
* * * * * * *
SEC. 358. OPERATIONAL ASSISTANCE GRANTS.
(a) In General.--
(1) Authority.--In accordance with this section, the
Administrator may make grants to New Markets Venture
Capital companies and to other entities, as authorized
by this part, to provide operational assistance to
smaller enterprises and small business concerns
financed, or expected to be financed, by such companies
or other entities.
* * * * * * *
(4) Grant amount.--
(A) New markets venture capital companies.--
The amount of a grant made under this
subsection to a New Markets Venture Capital
company [shall be equal to the resources (in
cash or in kind) raised by the company under
section 354(d)(2).] shall be equal to the
lesser of--
(i) 10 percent of the resources (in
cash or in-kind) raised by the company
under section 354(d)(2); or
(ii) $1,000,000.
* * * * * * *
(6) Grants to conditionally approved companies.--
(A) In general.--Subject to the provisions of
this paragraph, upon the request of a company
conditionally approved under section 354(c),
the Administrator shall make a grant to the
company under this subsection.
(B) Repayment by companies not approved.--If
a company receives a grant under this paragraph
and does not receive final approval under
section 354(e), the company shall repay the
amount of the grant to the Administrator.
(C) Deduction from grant to approved
company.--If a company receives a grant under
this paragraph and receives final approval
under section 354(e), the Administrator shall
deduct the amount of such grant from the amount
of any immediately succeeding grant the company
receives for operational assistance.
(D) Amount of grant.--No company may receive
a grant of more than $50,000 under this
paragraph.
(b) Supplemental Grants.--
(1) In general.--The Administrator may make
supplemental grants to New Markets Venture Capital
companies and to other entities, as authorized by this
part under such terms as the Administrator may require,
to provide additional operational assistance to smaller
enterprises and small business concerns financed, or
expected to be financed, by the companies.
* * * * * * *
SEC. 368. AUTHORIZATIONS OF APPROPRIATIONS.
(a) In General.--There are authorized to be appropriated for
[fiscal years 2001 through 2006] fiscal years 2010 and 2011, to
remain available until expended, the following sums:
(1) Such subsidy budget authority as may be necessary
to guarantee [$150,000,000] $100,000,000 of debentures
under this part, of which not less than 50 percent
shall be used to guarantee debentures of companies
engaged primarily in development of and investment in
small business concerns located in low-income
geographic areas and engaged primarily in
manufacturing.
(2) [$30,000,000] $20,000,000 to make grants under
this part, of which not less than 50 percent shall be
used to make grants to companies engaged primarily in
development of and investment in small business
concerns located in low-income geographic areas and
engaged primarily in manufacturing.
* * * * * * *
PART C--[RENEWABLE FUEL CAPITAL INVESTMENT PILOT] RENEWABLE ENERGY
CAPITAL INVESTMENT PROGRAM
SEC. 381. DEFINITIONS.
In this part:
(1) Operational assistance.--The term ``operational
assistance'' means management, marketing, and other
technical assistance that assists a small business
concern with business development, assistance that
assists a small business concern to reduce energy
consumption, or assistance that assists a small
business concern engaged primarily in manufacturing
with retooling, updating, or replacing machinery or
equipment.
(2) Participation agreement.--The term
``participation agreement'' means an agreement, between
the Administrator and a company granted final approval
under section 384(e), that--
(A) * * *
(B) requires the company to make investments
in [smaller enterprises] small business
concerns primarily engaged in researching,
manufacturing, developing, producing, or
bringing to market goods, products, or services
that generate or support the production of
renewable energy.
* * * * * * *
(4) [Renewable fuel capital investment] Renewable
energy capital investment company.--The term
``[Renewable Fuel Capital Investment] Renewable Energy
Capital Investment company'' means a company--
(A) * * *
* * * * * * *
SEC. 382. PURPOSES.
The purposes of the [Renewable Fuel Capital Investment]
Renewable Energy Capital Investment Program established under
this part are--
(1) to promote the research, development,
manufacture, production, and bringing to market of
goods, products, or services that generate or support
the production of renewable energy by encouraging
venture capital investments in [smaller enterprises]
small business concerns primarily engaged such
activities; and
(2) to establish a venture capital program, with the
mission of addressing the unmet equity investment needs
of [smaller enterprises] small business concerns
engaged in researching, developing, manufacturing,
producing, and bringing to market goods, products, or
services that generate or support the production of
renewable energy, to be administered by the
Administrator--
(A) to enter into participation agreements
with [Renewable Fuel Capital Investment]
Renewable Energy Capital Investment companies;
(B) to guarantee debentures of [Renewable
Fuel Capital Investment] Renewable Energy
Capital Investment companies to enable each
such company to make venture capital
investments in [smaller enterprises] small
business concerns engaged in the research,
development, manufacture, production, and
bringing to market of goods, products, or
services that generate or support the
production of renewable energy; and
(C) to make grants to Renewable Fuel
Investment Capital companies, and to other
entities, for the purpose of providing
operational assistance to [smaller enterprises]
small business concerns financed, or expected
to be financed, by such companies.
SEC. 383. ESTABLISHMENT.
The Administrator shall establish a [Renewable Fuel Capital
Investment] Renewable Energy Capital Investment Program, [under
which the Administrator may] under which the Administrator
shall--
(1) * * *
(2) guarantee the debentures issued by [Renewable
Fuel Capital Investment] Renewable Energy Capital
Investment companies as provided in section 385.
SEC. 384. SELECTION OF [RENEWABLE FUEL CAPITAL INVESTMENT] RENEWABLE
ENERGY CAPITAL INVESTMENT COMPANIES.
(a) Eligibility.--A company is eligible to apply to be
designated as a [Renewable Fuel Capital Investment] Renewable
Energy Capital Investment company if the company--
(1) * * *
* * * * * * *
(3) has a primary objective of investment in [smaller
enterprises] small business concerns that research,
manufacture, develop, produce, or bring to market
goods, products, or services that generate or support
the production of renewable energy.
(b) Application.--A company desiring to be designated as a
[Renewable Fuel Capital Investment] Renewable Energy Capital
Investment company shall submit an application to the
Administrator that includes--
(1) a business plan describing how the company
intends to make successful venture capital investments
in [smaller enterprises] small business concerns
primarily engaged in the research, manufacture,
development, production, or bringing to market of
goods, products, or services that generate or support
the production of renewable energy;
* * * * * * *
(3) a description of how the company intends to seek
to address the unmet capital needs of the [smaller
enterprises] small business concerns served;
(4) a proposal describing how the company intends to
use the grant funds provided under this part to provide
operational assistance to [smaller enterprises] small
business concerns financed by the company, including
information regarding whether the company has employees
with appropriate professional licenses or will contract
with another entity when the services of such an
individual are necessary;
* * * * * * *
(c) Conditional Approval.--
(1) In general.--From among companies submitting
applications under subsection (b), the Administrator
shall conditionally approve companies to operate as
[Renewable Fuel Capital Investment] Renewable Energy
Capital Investment companies.
* * * * * * *
(d) Requirements To Be Met for Final Approval.--
(1) * * *
* * * * * * *
(3) Nonadministration resources for operational
assistance.--
(A) In general.--In order to provide
operational assistance to [smaller enterprises]
small business concerns expected to be financed
by the company, each conditionally approved
company shall have binding commitments (for
contribution in cash or in-kind)--
(i) * * *
* * * * * * *
(e) Final Approval; Designation.--The Administrator shall,
with respect to each applicant conditionally approved under
subsection (c)--
(1) grant final approval to the applicant to operate
as a [Renewable Fuel Capital Investment] Renewable
Energy Capital Investment company under this part and
designate the applicant as such a company, if the
applicant--
(A) * * *
* * * * * * *
SEC. 385. DEBENTURES.
(a) In General.--The Administrator may guarantee the timely
payment of principal and interest, as scheduled, on debentures
issued by any [Renewable Fuel Capital Investment] Renewable
Energy Capital Investment company.
* * * * * * *
(d) Maximum Guarantee.--
(1) In general.--Under this section, the
Administrator may guarantee the debentures issued by a
[Renewable Fuel Capital Investment] Renewable Energy
Capital Investment company only to the extent that the
total face amount of outstanding guaranteed debentures
of such company does not exceed 150 percent of the
private capital of the company, as determined by the
Administrator.
* * * * * * *
SEC. 386. ISSUANCE AND GUARANTEE OF TRUST CERTIFICATES.
(a) Issuance.--The Administrator may issue trust certificates
representing ownership of all or a fractional part of
debentures issued by a [Renewable Fuel Capital Investment]
Renewable Energy Capital Investment company and guaranteed by
the Administrator under this part, if such certificates are
based on and backed by a trust or pool approved by the
Administrator and composed solely of guaranteed debentures.
* * * * * * *
SEC. 387. FEES.
(a) In General.--Except as provided in section 386(d), the
Administrator may charge such fees as it determines appropriate
with respect to any guarantee [or grant] issued under this
part, in an amount established annually by the Administrator,
as necessary to reduce to zero the cost (as defined in section
502 of the Federal Credit Reform Act of 1990) to the
Administration of purchasing and guaranteeing debentures under
this part, which amounts shall be paid to and retained by the
Administration.
* * * * * * *
SEC. 388. FEE CONTRIBUTION.
(a) In General.--To the extent that amounts are made
available to the Administrator for the purpose of fee
contributions, the Administrator shall contribute to fees paid
by the [Renewable Fuel Capital Investment] Renewable Energy
Capital Investment companies under section 387.
* * * * * * *
SEC. 389. OPERATIONAL ASSISTANCE GRANTS.
(a) In General.--
(1) Authority.--The Administrator may make grants to
[Renewable Fuel Capital Investment] Renewable Energy
Capital Investment companies to provide operational
assistance to [smaller enterprises] small business
concerns financed, or expected to be financed, by such
companies or other entities.
* * * * * * *
(3) Grant amount.--The amount of a grant made under
this subsection to a [Renewable Fuel Capital
Investment] Renewable Energy Capital Investment company
shall be equal to the lesser of--
(A) * * *
* * * * * * *
(b) Supplemental Grants.--
(1) In general.--The Administrator may make
supplemental grants to [Renewable Fuel Capital
Investment] Renewable Energy Capital Investment
companies and to other entities, as authorized by this
part, under such terms as the Administrator may
require, to provide additional operational assistance
to [smaller enterprises] small business concerns
financed, or expected to be financed, by the companies.
* * * * * * *
(c) Limitation.--None of the assistance made available under
this section may be used for any overhead or general and
administrative expense of a [Renewable Fuel Capital Investment]
Renewable Energy Capital Investment company.
SEC. 390. BANK PARTICIPATION.
(a) In General.--Except as provided in subsection (b), any
national bank, any member bank of the Federal Reserve System,
and (to the extent permitted under applicable State law) any
insured bank that is not a member of such system, may invest in
any [Renewable Fuel Capital Investment] Renewable Energy
Capital Investment company, or in any entity established to
invest solely in [Renewable Fuel Capital Investment] Renewable
Energy Capital Investment companies.
* * * * * * *
SEC. 391. FEDERAL FINANCING BANK.
Notwithstanding section 318, the Federal Financing Bank may
acquire a debenture issued by a [Renewable Fuel Capital
Investment] Renewable Energy Capital Investment company under
this part.
SEC. 392. REPORTING REQUIREMENT.
Each [Renewable Fuel Capital Investment] Renewable Energy
Capital Investment company that participates in the program
established under this part shall provide to the Administrator
such information as the Administrator may require, including--
(1) * * *
* * * * * * *
SEC. 393. EXAMINATIONS.
(a) In General.--Each [Renewable Fuel Capital Investment]
Renewable Energy Capital Investment company that participates
in the program established under this part shall be subject to
examinations made at the direction of the Investment Division
of the Administration in accordance with this section.
* * * * * * *
SEC. 394. MISCELLANEOUS.
To the extent such procedures are not inconsistent with the
requirements of this part, the Administrator may take such
action as set forth in sections 309, 311, 312, and 314 and an
officer, director, employee, agent, or other participant in the
management or conduct of the affairs of a [Renewable Fuel
Capital Investment] Renewable Energy Capital Investment company
shall be subject to the requirements of such sections.
SEC. 395. REMOVAL OR SUSPENSION OF DIRECTORS OR OFFICERS.
Using the procedures for removing or suspending a director or
an officer of a licensee set forth in section 313 (to the
extent such procedures are not inconsistent with the
requirements of this part), the Administrator may remove or
suspend any director or officer of any [Renewable Fuel Capital
Investment] Renewable Energy Capital Investment company.
* * * * * * *
SEC. 397. AUTHORIZATIONS OF APPROPRIATIONS AND PROGRAM LEVELS.
(a) In General.--Subject to the availability of
appropriations, the Administrator is authorized to make
$15,000,000 in operational assistance grants under section 389
for each of fiscal years 2008 and 2009 and $30,000,000 in such
grants for each of fiscal years 2010 and 2011.
* * * * * * *
(c) Program Levels.--For the programs authorized by this
part, the Administration is authorized to make $1,000,000,000
in guarantees of debentures for each of fiscal years 2010 and
2011.
[SEC. 398. TERMINATION.
[The program under this part shall terminate at the end of
the second full fiscal year after the date that the
Administrator establishes the program under this part.]
PART D--SMALL BUSINESS EARLY-STAGE INVESTMENT PROGRAM
SEC. 399A. ESTABLISHMENT OF PROGRAM.
The Administrator shall establish and carry out an early-
stage investment program (hereinafter referred to in this part
as the ``program'') to provide equity investment financing to
support early-stage small businesses in targeted industries in
accordance with this part.
SEC. 399B. ADMINISTRATION OF PROGRAM.
The program shall be administered by the Administrator acting
through the Associate Administrator described under section
201.
SEC. 399C. APPLICATIONS.
(a) In General.--Any incorporated body, limited liability
company, or limited partnership organized and chartered or
otherwise existing under Federal or State law for the purpose
of performing the functions and conducting the activities
contemplated under the program and any small business
investment company may submit to the Administrator an
application to participate in the program.
(b) Requirements for Application.--An application to
participate in the program shall include the following:
(1) A business plan describing how the applicant
intends to make successful venture capital investments
in early-stage small businesses in targeted industries.
(2) Information regarding the relevant venture
capital investment qualifications and backgrounds of
the individuals responsible for the management of the
applicant.
(3) A description of the extent to which the
applicant meets the selection criteria under section
399D.
(c) Applications From Small Business Investment Companies.--
The Administrator shall establish an abbreviated application
process for small business investment companies that have
received a license under section 301 and that are applying to
participate in the program. Such abbreviated process shall
incorporate a presumption that such small business investment
companies satisfactorily meet the selection criteria under
paragraphs (3) and (5) of section 399D(b).
SEC. 399D. SELECTION OF PARTICIPATING INVESTMENT COMPANIES.
(a) In General.--Not later than 90 days after the date on
which the Administrator receives an application from an
applicant under section 399C, the Administrator shall make a
final determination to approve or disapprove such applicant to
participate in the program and shall transmit such
determination to the applicant in writing.
(b) Selection Criteria.--In making a determination under
subsection (a), the Administrator shall consider each of the
following:
(1) The likelihood that the applicant will meet the
goals specified in the business plan of the applicant.
(2) The likelihood that the investments of the
applicant will create or preserve jobs, both directly
and indirectly.
(3) The character and fitness of the management of
the applicant.
(4) The experience and background of the management
of the applicant.
(5) The extent to which the applicant will
concentrate investment activities on early-stage small
businesses in targeted industries.
(6) The likelihood that the applicant will achieve
profitability.
(7) The experience of the management of the applicant
with respect to establishing a profitable investment
track record.
SEC. 399E. GRANTS.
(a) In General.--The Administrator may make one or more
grants to a participating investment company.
(b) Grant Amounts.--
(1) Non-federal capital.--A grant made to a
participating investment company under the program may
not be in an amount that exceeds the amount of the
capital of such company that is not from a Federal
source and that is available for investment on or
before the date on which a grant is drawn upon. Such
capital may include legally binding commitments with
respect to capital for investment.
(2) Limitation on aggregate amount.--The aggregate
amount of all grants made to a participating investment
company under the program may not exceed $100,000,000.
(c) Grant Process.--In making a grant under the program, the
Administrator shall commit a grant amount to a participating
investment company and the amount of each such commitment shall
remain available to be drawn upon by such company--
(1) for new-named investments during the 5-year
period beginning on the date on which each such
commitment is first drawn upon; and
(2) for follow-on investments and management fees
during the 10-year period beginning on the date on
which each such commitment is first drawn upon, with
not more than 2 additional 1-year periods available at
the discretion of the Administrator.
SEC. 399F. INVESTMENTS IN EARLY-STAGE SMALL BUSINESSES IN TARGETED
INDUSTRIES.
(a) In General.--As a condition of receiving a grant under
the program, a participating investment company shall make all
of the investments of such company in small business concerns,
of which at least 50 percent shall be early-stage small
businesses in targeted industries.
(b) Evaluation of Compliance.--With respect to a grant amount
committed to a participating investment company under section
399E, the Administrator shall evaluate the compliance of such
company with the requirements under this section if such
company has drawn upon 50 percent of such commitment.
SEC. 399G. PRO RATA INVESTMENT SHARES.
Each investment made by a participating investment company
under the program shall be treated as comprised of capital from
grants under the program according to the ratio that capital
from grants under the program bears to all capital available to
such company for investment.
SEC. 399H. GRANT INTEREST.
(a) Grant Interest.--
(1) In general.--As a condition of receiving a grant
under the program, a participating investment company
shall convey a grant interest to the Administrator in
accordance with paragraph (2).
(2) Effect of conveyance.--The grant interest
conveyed under paragraph (1) shall have all the rights
and attributes of other investors attributable to their
interests in the participating investment company, but
shall not denote control or voting rights to the
Administrator. The grant interest shall entitle the
Administrator to a pro rata portion of any
distributions made by the participating investment
company equal to the percentage of capital in the
participating investment company that the grant
comprises. The Administrator shall receive
distributions from the participating investment company
at the same times and in the same amounts as any other
investor in the company with a similar interest. The
investment company shall make allocations of income,
gain, loss, deduction, and credit to the Administrator
with respect to the grant interest as if the
Administrator were an investor.
(b) Manager Profits.--As a condition of receiving a grant
under the program, the manager profits interest payable to the
managers of a participating investment company under the
program shall not exceed 20 percent of profits, exclusive of
any profits that may accrue as a result of the capital
contributions of any such managers with respect to such
company. Any excess of this amount, less taxes payable thereon,
shall be returned by the managers and paid to the investors and
the Administrator in proportion to the capital contributions
and grants paid in. No manager profits interest (other than a
tax distribution) shall be paid prior to the repayment to the
investors and the Administrator of all contributed capital and
grants made.
(c) Distribution Requirements.--As a condition of receiving a
grant under the program, a participating investment company
shall make all distributions to all investors in cash and shall
make distributions within a reasonable time after exiting
investments, including following a public offering or market
sale of underlying investments.
SEC. 399I. FUND.
There is hereby created within the Treasury a separate fund
for grants which shall be available to the Administrator
subject to annual appropriations as a revolving fund to be used
for the purposes of the program. All amounts received by the
Administrator, including any moneys, property, or assets
derived by the Administrator from operations in connection with
the program, shall be deposited in the fund. All expenses and
payments, excluding administrative expenses, pursuant to the
operations of the Administrator under the program shall be paid
from the fund.
SEC. 399J. APPLICATION OF OTHER SECTIONS.
To the extent not inconsistent with requirements under this
part, the Administrator may apply sections 309, 311, 312, 313,
and 314 to activities under this part and an officer, director,
employee, agent, or other participant in a participating
investment company shall be subject to the requirements under
such sections.
SEC. 399K. DEFINITIONS.
In this part, the following definitions apply:
(1) Early-stage small business in a targeted
industry.--The term ``early-stage small business in a
targeted industry'' means a small business concern
that--
(A) is domiciled in a State;
(B) has not generated gross annual sales
revenues exceeding $15,000,000 in any of the
previous 3 years; and
(C) is engaged primarily in researching,
developing, manufacturing, producing, or
bringing to market goods, products, or services
with respect to any of the following business
sectors:
(i) Agricultural technology.
(ii) Energy technology.
(iii) Environmental technology.
(iv) Life science.
(v) Information technology.
(vi) Digital media.
(vii) Clean technology.
(viii) Defense technology.
(2) Participating investment company.--The term
``participating investment company'' means an applicant
approved under section 399D to participate in the
program.
(3) Small business concern.--The term ``small
business concern'' has the same meaning given such term
under section 3(a) of the Small Business Act (15 U.S.C.
632(a)).
SEC. 399L. AUTHORIZATION OF APPROPRIATIONS.
There is authorized to be appropriated to carry out the
program $200,000,000 for the first full fiscal year beginning
after the date of the enactment of this part.
* * * * * * *
TITLE V--LOANS TO STATE AND LOCAL DEVELOPMENT COMPANIES
[STATE DEVELOPMENT COMPANIES
[Sec. 501. (a) The Congress hereby finds and declares that
the purpose of this title is to foster economic development and
to create or preserve job opportunities in both urban and rural
areas by providing long-term financing for small business
concerns through the development company program authorized by
this title.
[(b) The Administration is authorized to make loans to State
development companies to assist in carrying out the purposes of
this Act. Any funds advanced under this subsection shall be in
exchange for obligations of the development company which bear
interest at such rate, and contain such other terms, as the
Administration may fix, and funds may be so advanced without
regard to the use and investment by the development company of
funds secured by it from other sources.
[(c) The total amount of obligations purchased and
outstanding at any one time by the Administration under this
section from any one State development company shall not exceed
the total amount borrowed by it from all other sources. Funds
advanced to a State development company under this section
shall be treated on an equal basis with those funds borrowed by
such company after the date of the enactment of this Act,
regardless of source, which have the highest priority, except
when this requirement is waived by the Administrator.
[(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) the creation of job opportunities within two
years of the completion of the project or the
preservation or retention of jobs attributable to the
project;
[(2) improving the economy of the locality, such as
stimulating other business development in the
community, bringing new income into the area, or
assisting the community in diversifying and stabilizing
its economy; or
[(3) the achievement of one or more of the following
public policy goals:
[(A) business district revitalization,
[(B) expansion of exports,
[(C) expansion of minority business
development or women-owned business
development,
[(D) rural development,
[(E) expansion of small business concerns
owned and controlled by veterans, as defined in
section 3(q) of the Small Business Act (15
U.S.C. 632(q)), especially service-disabled
veterans, as defined in such section 3(q),
[(F) enhanced economic competition, including
the advancement of technology, plan retooling,
conversion to robotics, or competition with
imports,
[(G) changes necessitated by Federal budget
cutbacks, including defense related industries,
[(H) business restructuring arising from
Federally mandated standards or policies
affecting the environment or the safety and
health of employees,
[(I) reduction of energy consumption by at
least 10 percent,
[(J) increased use of sustainable design,
including designs that reduce the use of
greenhouse gas emitting fossil fuels, or low-
impact design to produce buildings that reduce
the use of non-renewable resources and minimize
environmental impact, or
[(K) plant, equipment and process upgrades of
renewable energy sources such as the small-
scale production of energy for individual
buildings or communities consumption, commonly
known as micropower, or renewable fuels
producers including biodiesel and ethanol
producers.
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. In subparagraphs (J) and (K), terms have the meanings
given those terms under the Leadership in Energy and
Environmental Design (LEED) standard for green building
certification, as determined by the Administrator.
[(e)(1) A project meets the objective set forth in subsection
(d)(1) if the project creates or retains one job for every
$65,000 guaranteed by the Administration, except that the
amount is $100,000 in the case of a project of a small
manufacturer.
[(2) Paragraph (1) does not apply to a project for which
eligibility is based on the objectives set forth in paragraph
(2) or (3) of subsection (d), if the development company's
portfolio of outstanding debentures creates or retains one job
for every $65,000 guaranteed by the Administration.
[(3) For projects in Alaska, Hawaii, State-designated
enterprise zones, empowerment zones and enterprise communities,
labor surplus areas, as determined by the Secretary of Labor,
and for other areas designated by the Administrator, the
development company's portfolio may average not more than
$75,000 per job created or retained.
[(4) Loans for projects of small manufacturers shall be
excluded from calculations under paragraph (2) or (3).
[(5) Under regulations prescribed by the Administrator, the
Administrator may waive, on a case-by-case basis or by
regulation, any requirement of this subsection (other than
paragraph (4)). With respect to any waiver the Administrator is
prohibited from adopting a dollar amount that is lower than the
amounts set forth in paragraphs (1), (2), and (3).
[(6) As used in this subsection, the term ``small
manufacturer'' means a small business concern--
[(A) the primary business of which is classified in
sector 31, 32, or 33 of the North American Industrial
Classification System; and
[(B) all of the production facilities of which are
located in the United States.
[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) Use of proceeds.--The proceeds of any such loan
shall be used solely by the borrower to assist 1 or
more identifiable small business concerns and for a
sound business purpose approved by the Administration.
[(2) Maximum amount.--
[(A) In general.--Loans made by the
Administration under this section shall be
limited to--
[(i) $1,500,000 for each small
business concern if the loan proceeds
will not be directed toward a goal or
project described in subparagraph (B)
or (C);
[(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);
[(iii) $4,000,000 for each project of
a small manufacturer;
[(iv) $4,000,000 for each project
that reduces the borrower's energy
consumption by at least 10 percent; and
[(v) $4,000,000 for each project that
generates renewable energy or renewable
fuels, such as biodiesel or ethanol
production.
[(B) Definition.--As used in this paragraph,
the term ``small manufacturer'' means a small
business concern--
[(i) the primary business of which is
classified in sector 31, 32, or 33 of
the North American Industrial
Classification System; and
[(ii) all of the production
facilities of which are located in the
United States.
[(3) Criteria for assistance.--
[(A) In general.--Any development company
assisted under this section or section 503 of
this title must meet the criteria established
by the Administration, including the extent of
participation to be required or amount of paid-
in capital to be used in each instance as is
determined to be reasonable by the
Administration.
[(B) Community injection funds.--
[(i) Sources of funds.--Community
injection funds may be derived, in
whole or in part, from--
[(I) State or local
governments;
[(II) banks or other
financial institutions;
[(III) foundations or other
not-for-profit institutions; or
[(IV) the small business
concern (or its owners,
stockholders, or affiliates)
receiving assistance through a
body authorized by this title.
[(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).
[(C) Funding from a small business concern.--
The small business concern (or its owners,
stockholders, or affiliates) receiving
assistance through a body authorized by this
title shall provide--
[(i) at least 15 percent of the total
cost of the project financed, if the
small business concern has been in
operation for a period of 2 years or
less;
[(ii) at least 15 percent of the
total cost of the project financed if
the project involves the construction
of a limited or single purpose building
or structure;
[(iii) at least 20 percent of the
total cost of the project financed if
the project involves both of the
conditions set forth in clauses (i) and
(ii); or
[(iv) at least 10 percent of the
total cost of the project financed, in
all other circumstances, at the
discretion of the development company.
[(D) Seller financing.--Seller-provided
financing may be used to meet the requirements
of subparagraph (B), if the seller subordinates
the interest of the seller in the property to
the debenture guaranteed by the Administration.
[(E) Collateralization.--
[(i) In general.--The collateral
provided by the small business concern
shall generally include a subordinate
lien position on the property being
financed under this title, and is only
1 of the factors to be evaluated in the
credit determination. Additional
collateral shall be required only if
the Administration determines, on a
case-by-case basis, that additional
security is necessary to protect the
interest of the Government.
[(ii) Appraisals.--With respect to
commercial real property provided by
the small business concern as
collateral, an appraisal of the
property by a State licensed or
certified appraiser--
[(I) shall be required by the
Administration before
disbursement of the loan if the
estimated value of that
property is more than $250,000;
or
[(II) may be required by the
Administration or the lender
before disbursement of the loan
if the estimated value of that
property is $250,000 or less,
and such appraisal is necessary
for appropriate evaluation of
creditworthiness.
[(4) If the project is to construct a new facility,
up to 33 per centum of the total project may be leased,
if reasonable projections of growth demonstrate that
the assisted small business concern will need
additional space within three years and will fully
utilize such additional space within ten years.
[(5) Limitation on leasing.--In addition to any
portion of the project permitted to be leased under
paragraph (4), not to exceed 20 percent of the project
may be leased by the assisted small business to 1 or
more other tenants, if the assisted small business
occupies permanently and uses not less than a total of
60 percent of the space in the project after the
execution of any leases authorized under this section.
[(6) Ownership requirements.--Ownership requirements
to determine the eligibility of a small business
concern that applies for assistance under any credit
program under this title shall be determined without
regard to any ownership interest of a spouse arising
solely from the application of the community property
laws of a State for purposes of determining marital
interests.
[(7) Permissible debt refinancing.--
[(A) In general.--Any financing approved
under this title may include a limited amount
of debt refinancing.
[(B) Expansions.--If the project involves
expansion of a small business concern, any
amount of existing indebtedness that does not
exceed 50 percent of the project cost of the
expansion may be refinanced and added to the
expansion cost, if--
[(i) the proceeds of the indebtedness
were used to acquire land, including a
building situated thereon, to construct
a building thereon, or to purchase
equipment;
[(ii) the existing indebtedness is
collateralized by fixed assets;
[(iii) the existing indebtedness was
incurred for the benefit of the small
business concern;
[(iv) the financing under this title
will be used only for refinancing
existing indebtedness or costs relating
to the project financed under this
title;
[(v) the financing under this title
will provide a substantial benefit to
the borrower when prepayment penalties,
financing fees, and other financing
costs are accounted for;
[(vi) the borrower has been current
on all payments due on the existing
debt for not less than 1 year preceding
the date of refinancing; and
[(vii) the financing under section
504 will provide better terms or rate
of interest than the existing
indebtedness at the time of
refinancing.
[DEVELOPMENT COMPANY DEBENTURES
[Sec. 503. (a)(1) Except as provided in subsection (b), the
Administration may guarantee the timely payment of all
principal and interest as scheduled on any debenture issued by
any qualified State or local development company.
[(2) Such guarantees may be made on such terms and conditions
as the Administration may by regulation determine to be
appropriate: Provided, That the Administration shall not
decline to issue such guarantee when the ownership interests of
the small business concern and the ownership interests of the
property to be financed with the proceeds of a loan made
pursuant to subsection (b)(1) are not identical because one or
more of the following classes of relatives have an ownership
interest in either the small business concern or the property:
father, mother, son, daughter, wife, husband, brother, or
sister: Provided further, That the Administrator or his
designee has determined on a case-by-case basis that such
ownership interest, such guarantee, and the proceeds of such
loan, will substantially benefit the small business concern.
[(3) The full faith and credit of the United States is
pledged to the payment of all amounts guaranteed under this
subsection.
[(4) Any debenture issued by any State or local development
company with respect to which a guarantee is made under this
subsection, may be subordinated by the Administration to any
other debenture, promissory note, or other debt or obligation
of such company.
[(b) No guarantee may be made with respect to any debenture
under subsection (a) unless--
[(1) such debenture is issued for the purpose of
making one or more loans to small business concerns,
the proceeds of which shall be used by such concern for
the purposes set forth in section 502;
[(2) necessary funds for making such loans are not
available to such company from private sources on
reasonable terms;
[(3) the interest rate on such debentures is not less
than the rate of interest determined by the Secretary
of the Treasury for purposes of section 303(b);
[(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);
[(5) the amount of any loan to be made from such
proceeds does not exceed an amount equal to 50 percent
of the cost of the project with respect to which such
loan is made;
[(6) the Administration approves each loan to be made
from such proceeds; and
[(7) with respect to each loan made from the proceeds
of such debenture, the Administration--
[(A) assesses and collects a fee, which shall
be payable by the borrower, in an amount
established annually by the Administration,
which amount shall not exceed--
[(i) the lesser of --
[(I) 0.9375 percent per year
of the outstanding balance of
the loan; and
[(II) the minimum amount
necessary to reduce the cost
(as defined in section 502 of
the Federal Credit Reform Act
of 1990) to the Administration
of purchasing and guaranteeing
debentures under this Act to
zero; and
[(ii) 50 percent of the amount
established under clause (i) in the
case of a loan made during the 2-year
period beginning on October 1, 2002,
for the life of the loan; and
[(B) uses the proceeds of such fee to offset
the cost (as such term is defined in section
502 of the Federal Credit Reform Act of 1990)
to the Administration of making guarantees
under subsection (a).
[(c)(1) The purpose of this subsection is to facilitate the
orderly and necessary flow of long-term loans from certified
development companies to small business concerns.
[(2) Notwithstanding the provisions of the constitution or
laws of any State limiting the rate or amount of interest which
may be charged, taken, received, or reserved, the maximum legal
rate of interest on any commercial loan which funds any portion
of the cost of the project financed pursuant to this section or
section 504 which is not funded by a debenture guaranteed under
this section shall be a rate which is established by the
Administrator of the Small Business Administration under the
authority of this section.
[(3) The Administrator is authorized and directed to
establish and publish quarterly a maximum legal interest rate
for any commercial loan which funds any portion of the cost of
the project financed pursuant to this section or section 504
which is not funded by a debenture guaranteed under this
section.
[(d) Charges for Administration Expenses.--
[(1) Level of charges.--The Administration may impose
an additional charge for administrative expenses with
respect to each debenture for which payment of
principal and interest is guaranteed under subsection
(a).
[(2) Participation fee.--The Administration shall
collect a one-time fee in an amount equal to 50 basis
points on the total participation in any project of any
institution described in subclause (I), (II), or (III)
of section 502(3)(B)(i). Such fee shall be imposed only
when the participation of the institution will occupy a
senior credit position to that of the development
company. All proceeds of the fee shall be used to
offset the cost (as that term is defined in section 502
of the Credit Reform Act of 1990) to the Administration
of making guarantees under subsection (a).
[(3) Development company fee.--The Administration
shall collect annually from each development company a
fee of 0.125 percent of the outstanding principal
balance of any guaranteed debenture authorized by the
Administration after September 30, 1996. Such fee shall
be derived from the servicing fees collected by the
development company pursuant to regulation, and shall
not be derived from any additional fees imposed on
small business concerns. All proceeds of the fee shall
be used to offset the cost (as that term is defined in
section 502 of the Credit Reform Act of 1990) to the
Administration of making guarantees under subsection
(a).
[(e)(1) For purposes of this section, the term ``qualified
State or local development company'' means any State or local
development company which, as determined by the Administration,
has--
[(A) a full-time professional staff;
[(B) professional management ability (including
adequate accounting, legal, and business-servicing
abilities); and
[(C) a board of directors, or membership, which meets
on a regular basis to make management decisions for
such company, including decisions relating to the
making and servicing of loans by such company.
[(2) A company in a rural area 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.
[Sec. 503 (e)(3). Notwithstanding any other
provision of law, qualified State or local
development companies shall be authorized to
prepare applications for deferred participation
loans under Section 7(a) of the Small Business
Act, to service such loans and to charge a
reasonable fee for servicing such loans.
[(f) Effective Date.--The fees authorized by subsections (b)
and (d) shall apply to financings approved by the
Administration on or after October 1, 1996.
[(g) Calculation of Subsidy Rate.--All fees, interest, and
profits received and retained by the Administration under this
section shall be included in the calculations made by the
Director of the Office of Management and Budget to offset the
cost (as that term is defined in section 502 of the Federal
Credit Reform Act of 1990) to the Administration of purchasing
and guaranteeing debentures under this Act.
[(h) Required Actions Upon Default.--
[(1) Initial actions.--Not later than the 45th day
after the date on which a payment on a loan funded
through a debenture guaranteed under this section is
due and not received, the Administration shall--
[(A) take all necessary steps to bring such a
loan current; or
[(B) implement a formal written deferral
agreement.
[(2) Purchase or acceleration of debenture.--Not
later than the 65th day after the date on which a
payment on a loan described in paragraph (1) is due and
not received, and absent a formal written deferral
agreement, the administration shall take all necessary
steps to purchase or accelerate the debenture.
[(3) Prepayment penalties.--With respect to the
portion of any project derived from funds set forth in
section 502(3), the Administration--
[(A) shall negotiate the elimination of any
prepayment penalties or late fees on defaulted
loans made prior to September 30, 1996;
[(B) shall not pay any prepayment penalty or
late fee on the default based purchase of loans
issued after September 30, 1996; and
[(C) for any project financed after September
30, 1996, shall not pay any default interest
rate higher than the interest rate on the note
prior to the date of default.
[(i) Two-Year Waiver of Fees.--The Administration may not
assess or collect any up front guarantee fee with respect to
loans made under this title during the 2-year period beginning
on October 1, 2002.
[PRIVATE DEBENTURE SALES
[Sec. 504. (a) 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) Of the program levels otherwise authorized by
law for fiscal year 1986, an amount not to exceed
$200,000,000.
[(2) Of the program levels otherwise authorized by
law for fiscal years 1987 and 1988, an amount not to
exceed $425,000,000.
[(3) All of the program levels authorized for fiscal
year 1989 and subsequent fiscal years.
[(b) Nothing in any provision of law shall be construed to
authorize the Federal Financing Bank to acquire--
[(1) any obligation the payment of principal or
interest on which at any time has been guaranteed in
whole or in part under section 503 of this title and
which is being sold pursuant to the provisions of the
program authorized in this section;
[(2) any obligation which is an interest in any
obligation described in paragraph (1); or
[(3) any obligation which is secured by, or
substantially all of the value of which is attributable
to, any obligation described in paragraph (1) or (2).
[POOLING OF DEBENTURES
[Sec. 505. (a) The Administration is authorized to issue
trust certificates representing ownership of all or a
fractional part of debentures issued by State or local
development companies and guaranteed by the Administration
under this Act: Provided, That such trust certificates shall be
based on and backed by a trust or pool approved by the
Administration and composed solely of guaranteed debentures.
[(b) The Administration is authorized, upon such terms and
conditions as are deemed appropriate, to guarantee the timely
payment of the principal of and interest on trust certificates
issued by the Administration or its agent for purposes of this
section. Such guarantee shall be limited to the extent of
principal and interest on the guaranteed debentures which
compose the trust or pool. In the event that a debenture in
such trust or pool is prepaid, either voluntarily or in the
event of default, the guarantee of timely payment of principal
and interest on the trust certificates shall be reduced in
proportion to the amount of principal and interest such prepaid
debenture represents in the trust or pool. Interest on prepaid
or defaulted debentures shall accrue and be guaranteed by the
Administration only through the date of payment on the
guarantee. During the term of the trust certificate, it may be
called for redemption due to prepayment or default of all
debentures constituting the pool.
[(c) The full faith and credit of the United States is
pledged to the payment of all amounts which may be required to
be paid under any guarantee of such trust certificates issued
by the Administration or its agent pursuant to this section.
[(d) The Administration shall not collect any fee for any
guarantee under this section: Provided, That nothing herein
shall preclude any agent of the Administration from collecting
a fee approved by the Administration for the functions
described in subsection (f)(2) of this section.
[(e)(1) In the event the Administration pays a claim under a
guarantee issued under this section, it shall be subrogated
fully to the rights satisfied by such payment.
[(2) No State or local law, and no Federal law, shall
preclude or limit the exercise by the Administration of its
ownership rights in the debentures constituting the trust or
pool against which the trust certificates are issued.
[(f)(1) The Administration shall--
[(A) provide for a central registration of all trust
certificates sold pursuant to this section;
[(B) contract with an agent to carry out on behalf of
the Administration the central registration functions
of this section and the issuance of trust certificates
to facilitate poolings; such agent shall provide a
fidelity bond or insurance in such amounts as the
Administration determines to be necessary to fully
protect the interests of the Government;
[(C) prior to any sale, require the seller to
disclose to a purchaser of a trust certificate issued
pursuant to this section, information on the terms,
conditions, and yield of such instrument; and
[(D) have the authority to regulate brokers and
dealers in trust certificates sold pursuant to this
section.
[(2) Nothing in this subsection shall prohibit the
utilization of a book-entry or other electronic form of
registration for trust certificates.
[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. 507. ACCREDITED LENDERS PROGRAM.
[(a) Establishment.--The Administration is authorized to
establish an Accredited Lenders Program for qualified State and
local development companies that meet the requirements of
subsection (b).
[(b) Requirements.--The Administration may designate a
qualified State or local development company as an accredited
lender if such company--
[(1) has been an active participant in the
Development Company Program authorized by sections 502,
503, and 504 for not less than the preceding 12 months;
[(2) has well-trained, qualified personnel who are
knowledgeable in the Administration's lending policies
and procedures for such Development Company Program;
[(3) has the ability to process, close, and service
financing for plant and equipment under such
Development Company Program;
[(4) has a loss rate on the company's debentures that
is reasonable and acceptable to the Administration;
[(5) has a history of submitting to the
Administration complete and accurate debenture guaranty
application packages; and
[(6) has demonstrated the ability to serve small
business credit needs for financing plant and equipment
through the Development Company Program.
[(c) Expedited Processing of Loan Applications.--The
Administration shall develop an expedited procedure for
processing a loan application or servicing action submitted by
a qualified State or local development company that has been
designated as an accredited lender in accordance with
subsection (b).
[(d) Suspension or Revocation of Designation.--
[(1) In general.--The designation of a qualified
State or local development company as an accredited
lender may be suspended or revoked if the
Administration determines that--
[(A) the development company has not
continued to meet the criteria for eligibility
under subsection (b); or
[(B) the development company has failed to
adhere to the Administration's rules and
regulations or is violating any other
applicable provision of law.
[(2) Effect.--A suspension or revocation under
paragraph (1) shall not affect any outstanding
debenture guarantee.
[(e) Definition.--For purposes of this section, the term
``qualified State or local development company'' has the same
meaning as in section 503(e).
[SEC. 508. PREMIER CERTIFIED LENDERS PROGRAM.
[(a) Establishment.--The Administration may establish a
Premier Certified Lenders Program for certified development
companies that meet the requirements of subsection (b).
[(b) Requirements.--
[(1) Application.--To be eligible to participate in
the Premier Certified Lenders Program established under
subsection (a), a certified development company shall
prepare and submit to the Administration an application
at such time, in such manner, and containing such
information as the Administration may require.
[(2) Designation.--The Administration may designate a
certified development company as a premier certified
lender--
[(A) if the company is an active certified
development company in good standing and has
been an active participant in the accredited
lenders program during the entire 12-month
period preceding the date on which the company
submits an application under paragraph (1),
except that the Administration may waive this
requirement if the company is qualified to
participate in the accredited lenders program;
[(B) if the company has a history of--
[(i) submitting to the Administration
adequately analyzed debenture guarantee
application packages; and
[(ii) of properly closing section 504
loans and servicing its loan portfolio;
[(C) if the company agrees to assume and to
reimburse the Administration for 10 percent of
any loss sustained by the Administration as a
result of default by the company in the payment
of principal or interest on a debenture issued
by such company and guaranteed by the
Administration under this section (15 percent
in the case of any such loss attributable to a
debenture issued by the company during any
period for which an election is in effect under
subsection (c)(7) for such company); and
[(D) the Administrator determines, with
respect to the company, that the loss reserve
established in accordance with subsection (c)
is sufficient for the company to meet its
obligations to protect the Federal Government
from risk of loss.
[(3) Applicability of criteria after designation.--
The Administrator may revoke the designation of a
certified development company as a premier certified
lender under this section at any time, if the
Administrator determines that the certified development
company does not meet any requirement described in
subparagraphs (A) through (D) of paragraph (2).
[(c) Loss Reserve.--
[(1) Establishment.--A company designated as a
premier certified lender shall establish a loss reserve
for financing approved pursuant to this section.
[(2) Amount.--The amount of each loss reserve
established under paragraph (1) shall be 10 percent of
the amount of the company's exposure, as determined
under subsection (b)(2)(C).
[(3) Assets.--Each loss reserve established under
paragraph (1) shall be comprised of--
[(A) segregated funds on deposit in an
account or accounts with a federally insured
depository institution or institutions selected
by the company, subject to a collateral
assignment in favor of, and in a format
acceptable to, the Administration;
[(B) irrevocable letter or letters of credit,
with a collateral assignment in favor of, and a
commercially reasonable format acceptable to,
the Administration; or
[(C) any combination of the assets described
in subparagraphs (A) and (B).
[(4) Contributions.--The company shall make
contributions to the loss reserve, either cash or
letters of credit as provided above, in the following
amounts and at the following intervals:
[(A) 50 percent when a debenture is closed.
[(B) 25 percent additional not later than 1
year after a debenture is closed.
[(C) 25 percent additional not later than 2
years after a debenture is closed.
[(5) Replenishment.--If a loss has been sustained by
the Administration, any portion of the loss reserve,
and other funds provided by the premier company as
necessary, may be used to reimburse the Administration
for the premier company's share of the loss as provided
in subsection (b)(2)(C). If the company utilizes the
reserve, within 30 days it shall replace an equivalent
amount of funds.
[(6) Disbursements.--
[(A) In general.--The Administration shall
allow the certified development company to
withdraw from the loss reserve amounts
attributable to any debenture that has been
repaid.
[(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, 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) Election.--With respect to any eligible
calendar quarter, any qualified high loss
reserve PCL may elect to have the requirements
of this paragraph apply in lieu of the
requirements of paragraphs (2) and (4) for such
quarter.
[(B) Contributions.--
[(i) Ordinary rules inapplicable.--
Except as provided under clause (ii)
and paragraph (5), a qualified high
loss reserve PCL that makes the
election described in subparagraph (A)
with respect to a calendar quarter
shall not be required to make
contributions to its loss reserve
during such quarter.
[(ii) Based on loss.--A qualified
high loss reserve PCL that makes the
election described in subparagraph (A)
with respect to any calendar quarter
shall, before the last day of such
quarter, make such contributions to its
loss reserve as are necessary to ensure
that the amount of the loss reserve of
the PCL is--
[(I) not less than $100,000;
and
[(II) sufficient, as
determined by a qualified
independent auditor, for the
PCL to meet its obligations to
protect the Federal Government
from risk of loss.
[(iii) Certification.--Before the end
of any calendar quarter for which an
election is in effect under
subparagraph (A), the head of the PCL
shall submit to the Administrator a
certification that the loss reserve of
the PCL is sufficient to meet such
PCL's obligation to protect the Federal
Government from risk of loss. Such
certification shall be in such form and
submitted in such manner as the
Administrator may require and shall be
signed by the head of such PCL and the
auditor making the determination under
clause (ii)(II).
[(C) Disbursements.--
[(i) Ordinary rule inapplicable.--
Paragraph (6) shall not apply with
respect to any qualified high loss
reserve PCL for any calendar quarter
for which an election is in effect
under subparagraph (A).
[(ii) Excess funds.--At the end of
each calendar quarter for which an
election is in effect under
subparagraph (A), the Administration
shall allow the qualified high loss
reserve PCL to withdraw from its loss
reserve the excess of--
[(I) the amount of the loss
reserve, over
[(II) the greater of $100,000
or the amount which is
determined under subparagraph
(B)(ii) to be sufficient to
meet the PCL's obligation to
protect the Federal Government
from risk of loss.
[(D) Recontribution.--If the requirements of
this paragraph apply to a qualified high loss
reserve PCL for any calendar quarter and cease
to apply to such PCL for any subsequent
calendar quarter, such PCL shall make a
contribution to its loss reserve in such amount
as the Administrator may determine provided
that such amount does not exceed the amount
which would result in the total amount in the
loss reserve being equal to the amount which
would have been in such loss reserve had this
paragraph never applied to such PCL. The
Administrator may require that such payment be
made as a single payment or as a series of
payments.
[(E) Risk management.--If a qualified high
loss reserve PCL fails to meet the requirement
of subparagraph (F)(iii) during any period for
which an election is in effect under
subparagraph (A) and such failure continues for
180 days, the requirements of paragraphs (2),
(4), and (6) shall apply to such PCL as of the
end of such 180-day period and such PCL shall
make the contribution to its loss reserve
described in subparagraph (D). The
Administrator may waive the requirements of
this subparagraph.
[(F) Qualified high loss reserve pcl.--The
term ``qualified high loss reserve PCL'' means,
with respect to any calendar year, any premier
certified lender designated by the
Administrator as a qualified high loss reserve
PCL for such year. The Administrator shall not
designate a company under the preceding
sentence unless the Administrator determines
that--
[(i) the amount of the loss reserve
of the company is not less than
$100,000;
[(ii) the company has established and
is utilizing an appropriate and
effective process for analyzing the
risk of loss associated with its
portfolio of PCLP loans and for grading
each PCLP loan made by the company on
the basis of the risk of loss
associated with such loan; and
[(iii) the company meets or exceeds 4
or more of the specified risk
management benchmarks as of the most
recent assessment by the Administration
or the Administration has issued a
waiver with respect to the requirement
of this clause.
[(G) Specified risk management benchmarks.--
For purposes of this paragraph, the term
``specified risk management benchmarks'' means
the following rates, as determined by the
Administrator:
[(i) Currency rate.
[(ii) Delinquency rate.
[(iii) Default rate.
[(iv) Liquidation rate.
[(v) Loss rate.
[(H) Qualified independent auditor.--For
purposes of this paragraph, the term
``qualified independent auditor'' means any
auditor who--
[(i) is compensated by the qualified
high loss reserve PCL;
[(ii) is independent of such PCL; and
[(iii) has been approved by the
Administrator during the preceding
year.
[(I) PCLP loan.--For purposes of this
paragraph, the term ``PCLP loan'' means any
loan guaranteed under this section.
[(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.
[(K) Calendar quarter.--For purposes of this
paragraph, the term ``calendar quarter''
means--
[(i) the period which begins on
January 1 and ends on March 31 of each
year;
[(ii) the period which begins on
April 1 and ends on June 30 of each
year;
[(iii) the period which begins on
July 1 and ends on September 30 of each
year; and
[(iv) the period which begins on
October 1 and ends on December 31 of
each year.
[(L) Regulations.--Not later than 45 days
after the date of the enactment of this
paragraph, the Administrator shall publish in
the Federal Register and transmit to the
Congress regulations to carry out this
paragraph. Such regulations shall include
provisions relating to--
[(i) the approval of auditors under
subparagraph (H); and
[(ii) the designation of qualified
high loss reserve PCLs under
subparagraph (F), including the
determination of whether a process for
analyzing risk of loss is appropriate
and effective for purposes of
subparagraph (F)(ii).
[(8) Bureau of pclp oversight.--
[(A) Establishment.--There is hereby
established in the Small Business
Administration a bureau to be known as the
Bureau of PCLP Oversight.
[(B) Purpose.--The Bureau of PCLP Oversight
shall carry out such functions of the
Administration under this subsection as the
Administrator may designate.
[(C) Deadline.--Not later than 90 days after
the date of the enactment of this Act--
[(i) the Administrator shall ensure
that the Bureau of PCLP Oversight is
prepared to carry out any functions
designated under subparagraph (B), and
[(ii) the Office of the Inspector
General of the Administration shall
report to the Congress on the
preparedness of the Bureau of PCLP
Oversight to carry out such functions.
[(d) Sale of Certain Defaulted Loans.--
[(1) Notice.--If, upon default in repayment, the
Administration acquires a loan guaranteed under this
section and identifies such loan for inclusion in a
bulk asset sale of defaulted or repurchased loans or
other financings, it shall give prior notice thereof to
any certified development company which has a
contingent liability under this section. The notice
shall be given to the company as soon as possible after
the financing is identified, but not less than 90 days
before the date the Administration first makes any
records on such financing available for examination by
prospective purchasers prior to its offering in a
package of loans for bulk sale.
[(2) Limitations.--The Administration shall not offer
any loan described in paragraph (1) as part of a bulk
sale unless it--
[(A) provides prospective purchasers with the
opportunity to examine the Administration's
records with respect to such loan; and
[(B) provides the notice required by
paragraph (1).
[(e) Loan Approval Authority.--
[(1) In general.--Notwithstanding section 503(b)(6),
and subject to such terms and conditions as the
Administration may establish, the Administration may
permit a company designated as a premier certified
lender under this section to approve, authorize, close,
service, foreclose, litigate (except that the
Administration may monitor the conduct of any such
litigation to which a premier certified lender is a
party), and liquidate loans that are funded with the
proceeds of a debenture issued by such company and may
authorize the guarantee of such debenture.
[(2) Scope of review.--The approval of a loan by a
premier certified lender shall be subject to final
approval as to eligibility of any guarantee by the
Administration pursuant to section 503(a), but such
final approval shall not include review of decisions by
the lender involving creditworthiness, loan closing, or
compliance with legal requirements imposed by law or
regulation.
[(f) Review.--After the issuance and sale of debentures under
this section, the Administration, at intervals not greater than
12 months, shall review the financings made by each premier
certified lender. The review shall include the lender's credit
decisions and general compliance with the eligibility
requirements for each financing approved under the program
authorized under this section. The Administration shall
consider the findings of the review in carrying out its
responsibilities under subsection (g), but such review shall
not affect any outstanding debenture guarantee.
[(g) Suspension or Revocation.--The designation of a
certified development company as a premier certified lender may
be suspended or revoked if the Administration determines that
the company--
[(1) has not continued to meet the criteria for
eligibility under subsection (b);
[(2) has not established or maintained the loss
reserve required under subsection (c);
[(3) is failing to adhere to the Administration's
rules and regulations; or
[(4) is violating any other applicable provision of
law.
[(h) Effect of Suspension or Revocation.--A suspension or
revocation under subsection (g) shall not affect any
outstanding debenture guarantee.
[(i) Program Goals.--Each certified development company
participating in the program under this section shall establish
a goal of processing a minimum of not less than 50 percent of
the loan applications for assistance under section 504 pursuant
to the program authorized under this section.
[(j) Report.--Not later than 1 year after the date of
enactment of this Act, and annually thereafter, the
Administration shall report to the Committees on Small Business
of the Senate and the House of Representatives on the
implementation of this section. Each report shall include--
[(1) the number of certified development companies
designated as premier certified lenders;
[(2) the debenture guarantee volume of such
companies;
[(3) a comparison of the loss rate for premier
certified lenders to the loss rate for accredited and
other lenders, specifically comparing default rates and
recovery rates on liquidations; and
[(4) such other information as the Administration
deems appropriate.
[SEC. 509. PREPAYMENT OF DEVELOPMENT COMPANY DEBENTURES.
[(a) In General.--
[(1) Prepayment authorized.--Subject to the
requirements set forth in subsection (b), an issuer of
a debenture purchased by the Federal Financing Bank and
guaranteed by the Administration under this Act may, at
the election of the borrower (in the case of a loan
under section 503) or the issuer (in the case of a
small business investment company) and with the
approval of the Administration, prepay such debenture
in accordance with the provisions of this section.
[(2) Procedure.--
[(A) In general.--In making a prepayment
under paragraph (1)--
[(i) the borrower (in the case of a
loan under section 503) or the issuer
(in the case of a small business
investment company) shall pay to the
Federal Financing Bank an amount that
is equal to the sum of the unpaid
principal balance due on the debenture
as of the date of the prepayment (plus
accrued interest at the coupon rate on
the debenture) and the amount of the
repurchase premium described in
subparagraph (B); and
[(ii) the Administration shall pay to
the Federal Financing Bank the
difference between the repurchase
premium paid by the borrower under this
subsection and the repurchase premium
that the Federal Financing Bank would
otherwise have received.
[(B) Repurchase premium.--
[(i) In general.--For purposes of
subparagraph (A)(i), the repurchase
premium is the amount equal to the
product of--
[(I) the unpaid principal
balance due on the debenture on
the date of prepayment; and
[(II) the applicable
percentage rate, as determined
in accordance with clauses (ii)
and (iii).
[(ii) Applicable percentage rate.--
For purposes of clause (i)(II), the
applicable percentage rate means--
[(I) with respect to a 10-
year term loan, 8.5 percent;
[(II) with respect to a 15-
year term loan, 9.5 percent;
[(III) with respect to a 20-
year term loan, 10.5 percent;
and
[(IV) with respect to a 25-
year term loan, 11.5 percent.
[(iii) Adjustments to applicable
percentage rate.--The percentage rates
described in clause (ii) shall be
increased or decreased by the
Administration by a factor not to
exceed one-third, if the same factor is
applied in each case and if the
Administration determines that an
adjustment is necessary, based on the
number of borrowers having given notice
of their intent to participate, in
order to make the program (including
the amounts appropriated for this
purpose under Public Law 103-317)
result in no substantial net gain or
loss of revenue to the Federal
Financing Bank or to the
Administration. Amounts collected in
excess of the amount necessary to
ensure revenue neutrality shall be
refunded to the borrowers.
[(b) Requirements.--For purposes of subsection (a), the
requirements of this subsection are that--
[(1) the debenture is outstanding and neither the
loan that secures the debenture, if any, nor the
debenture is in default on the date on which the
prepayment is made;
[(2) State, local, or personal funds, or the proceeds
of a refinancing in accordance with subsection (d) of
this section under the programs authorized by this
title, are used to prepay or roll over the debenture;
and
[(3) with respect to a debenture issued under section
503, the issuer certifies that the benefits, net of
fees and expenses authorized herein, associated with
prepayment of the debenture are entirely passed through
to the borrower.
[(c) No Prepayment Fees or Penalties.--No fees or penalties
other than those specified in this section may be imposed on
the issuer, the borrower, the Administration, or any fund or
account administered by the Administration as the result of a
prepayment under this section.
[(d) Refinancing Limitations.--
[(1) In general.--The refinancing of a debenture
under sections 504 and 505, in accordance with
subsection (b)(2)--
[(A) shall not exceed the amount necessary to
prepay existing debentures, including all costs
associated with the refinancing and any
applicable prepayment penalty or repurchase
premium; and
[(B) except as provided in paragraphs (2) and
(3), shall be subject to the provisions of
sections 504 and 505 and the rules and
regulations promulgated thereunder, including
rules and regulations governing payment of
authorized expenses, commissions, fees, and
discounts to brokers and dealers in trust
certificates issued pursuant to section 505.
[(2) Job creation.--An applicant for refinancing
under section 504 of a loan made pursuant to section
503 shall not be required to demonstrate that a
requisite number of jobs will be created with the
proceeds of a refinancing.
[(3) Loan processing fee.--To cover the cost of loan
packaging, processing, and other administrative
functions, a development company that provides
refinancing under subsection (b)(2) may impose a one-
time loan processing fee, not to exceed 0.5 percent of
the principal amount of the loan.
[(4) New debentures.--Issuers of debentures under
title III may issue new debentures in accordance with
such title in order to prepay existing debentures as
authorized in this section.
[(5) Preliminary notice.--
[(A) In general.--The Administration shall
use certified mail and other reasonable means
to notify each eligible borrower of the
prepayment program provided in this title. Each
preliminary notice shall specify the range and
dollar amount of repurchase premiums which
could be required of that borrower in order to
participate in the program. In carrying out
this program, the Administration shall provide
a period of not less than 45 days following the
receipt of such notice by the borrower during
which the borrower must notify the
Administration of the borrower's intent to
participate in the program. The Administration
shall require that a borrower who gives notice
of its intent to participate to make an earnest
money deposit of $1,000 which shall not be
refundable but which shall be credited toward
the final repurchase premium.
[(B) Definition.--For purposes of this
paragraph, the term ``borrower'', in the case
of a small business investment company or a
specialized small business investment company,
means ''issuer''.
[(6) Final notice.--Based upon the response to the
preliminary notice under paragraph (5), the
Administration shall make a final computation of the
necessary prepayment premiums and shall notify each
qualified respondent of the results of such
computation. Each qualified respondent shall be
afforded not less than 4 months to complete the
prepayment.
[(e) Definitions.--For purposes of this section--
[(1) the term ``issuer'' means--
[(A) the qualified State or local development
company that issued a debenture pursuant to
section 503, which has been purchased by the
Federal Financing Bank; and
[(B) a small business investment company
licensed pursuant to section 301; or
[(2) the term ``borrower'' means a small business
concern whose loan secures a debenture issued pursuant
to section 503.
[(f) Regulations.--Not later than 30 days after the date of
enactment of this section, the Administration shall promulgate
such regulations as may be necessary to carry out this section.
[(g) Authorization.--There are authorized to be appropriated
$30,000,000 to carry out the provisions of The Small Business
Prepayment Penalty Relief Act of 1994.
[SEC. 510. FORECLOSURE AND LIQUIDATION OF LOANS.
[(a) Delegation of Authority.--In accordance with this
section, the Administration shall delegate to any qualified
State or local development company (as defined in section
503(e)) that meets the eligibility requirements of subsection
(b)(1) the authority to foreclose and liquidate, or to
otherwise treat in accordance with this section, defaulted
loans in its portfolio that are funded with the proceeds of
debentures guaranteed by the Administration under section 503.
[(b) Eligibility for Delegation.--
[(1) Requirements.--A qualified State or local
development company shall be eligible for a delegation
of authority under subsection (a) if--
[(A) the company--
[(i) has participated in the loan
liquidation pilot program established
by the Small Business Programs
Improvement Act of 1996 (15 U.S.C. 695
note), as in effect on the day before
promulgation of final regulations by
the Administration implementing this
section;
[(ii) is participating in the Premier
Certified Lenders Program under section
508; or
[(iii) during the 3 fiscal years
immediately prior to seeking such a
delegation, has made an average of not
less than 10 loans per year that are
funded with the proceeds of debentures
guaranteed under section 503; and
[(B) the company--
[(i) has one or more employees--
[(I) with not less than 2
years of substantive, decision-
making experience in
administering the liquidation
and workout of problem loans
secured in a manner
substantially similar to loans
funded with the proceeds of
debentures guaranteed under
section 503; and
[(II) who have completed a
training program on loan
liquidation developed by the
Administration in conjunction
with qualified State and local
development companies that meet
the requirements of this
paragraph; or
[(ii) submits to the Administration
documentation demonstrating that the
company has contracted with a qualified
third-party to perform any liquidation
activities and secures the approval of
the contract by the Administration with
respect to the qualifications of the
contractor and the terms and conditions
of liquidation activities.
[(2) Confirmation.--On request the Administration
shall examine the qualifications of any company
described in subsection (a) to determine if such
company is eligible for the delegation of authority
under this section. If the Administration determines
that a company is not eligible, the Administration
shall provide the company with the reasons for such
ineligibility.
[(c) Scope of Delegated Authority.--
[(1) In general.--Each qualified State or local
development company to which the Administration
delegates authority under section (a) may with respect
to any loan described in subsection (a)--
[(A) perform all liquidation and foreclosure
functions, including the purchase in accordance
with this subsection of any other indebtedness
secured by the property securing the loan, in a
reasonable and sound manner according to
commercially accepted practices, pursuant to a
liquidation plan approved in advance by the
Administration under paragraph (2)(A);
[(B) litigate any matter relating to the
performance of the functions described in
subparagraph (A), except that the
Administration may--
[(i) defend or bring any claim if--
[(I) the outcome of the
litigation may adversely affect
the Administration's management
of the loan program established
under section 502; or
[(II) the Administration is
entitled to legal remedies not
available to a qualified State
or local development company
and such remedies will benefit
either the Administration or
the qualified State or local
development company; or
[(ii) oversee the conduct of any such
litigation; and
[(C) take other appropriate actions to
mitigate loan losses in lieu of total
liquidation or foreclosures, including the
restructuring of a loan in accordance with
prudent loan servicing practices and pursuant
to a workout plan approved in advance by the
Administration under paragraph (2)(C).
[(2) Administration approval.--
[(A) Liquidation plan.--
[(i) In general.--Before carrying out
functions described in paragraph
(1)(A), a qualified State or local
development company shall submit to the
Administration a proposed liquidation
plan.
[(ii) Administration action on
plan.--
[(I) Timing.--Not later than
15 business days after a
liquidation plan is received by
the Administration under clause
(i), the Administration shall
approve or reject the plan.
[(II) Notice of no
decision.--With respect to any
plan that cannot be approved or
denied within the 15-day period
required by subclause (I), the
Administration shall within
such period provide in
accordance with subparagraph
(E) notice to the company that
submitted the plan.
[(iii) Routine actions.--In carrying
out functions described in paragraph
(1)(A), a qualified State or local
development company may undertake
routine actions not addressed in a
liquidation plan without obtaining
additional approval from the
Administration.
[(B) Purchase of indebtedness.--
[(i) In general.--In carrying out
functions described in paragraph
(1)(A), a qualified State or local
development company shall submit to the
Administration a request for written
approval before committing the
Administration to the purchase of any
other indebtedness secured by the
property securing a defaulted loan.
[(ii) Administration action on
request.--
[(I) Timing.--Not later than
15 business days after
receiving a request under
clause (i), the Administration
shall approve or deny the
request.
[(II) Notice of no
decision.--With respect to any
request that cannot be approved
or denied within the 15-day
period required by subclause
(I), the Administration shall
within such period provide in
accordance with subparagraph
(E) notice to the company that
submitted the request.
[(C) Workout plan.--
[(i) In general.--In carrying out
functions described in paragraph
(1)(C), a qualified State or local
development company shall submit to the
Administration a proposed workout plan.
[(ii) Administration action on
plan.--
[(I) Timing.--Not later than
15 business days after a
workout plan is received by the
Administration under clause
(i), the Administration shall
approve or reject the plan.
[(II) Notice of no
decision.--With respect to any
workout plan that cannot be
approved or denied within the
15-day period required by
subclause (I), the
Administration shall within
such period provide in
accordance with subparagraph
(E) notice to the company that
submitted the plan.
[(D) Compromise of indebtedness.--In carrying
out functions described in paragraph (1)(A), a
qualified State or local development company
may--
[(i) consider an offer made by an
obligor to compromise the debt for less
than the full amount owing; and
[(ii) pursuant to such an offer,
release any obligor or other party
contingently liable, if the company
secures the written approval of the
Administration.
[(E) Contents of notice of no decision.--Any
notice provided by the Administration under
subparagraph (A)(ii)(II), (B)(ii)(II), or
(C)(ii)(II)--
[(i) shall be in writing;
[(ii) shall state the specific reason
for the Administration's inability to
act on a plan or request;
[(iii) shall include an estimate of
the additional time required by the
Administration to act on the plan or
request; and
[(iv) if the Administration cannot
act because insufficient information or
documentation was provided by the
company submitting the plan or request,
shall specify the nature of such
additional information or
documentation.
[(3) Conflict of interest.--In carrying out functions
described in paragraph (1), a qualified State or local
development company shall take no action that would
result in an actual or apparent conflict of interest
between the company (or any employee of the company)
and any third party lender, associate of a third party
lender, or any other person participating in a
liquidation, foreclosure, or loss mitigation action.
[(d) Suspension or Revocation of Authority.--The
Administration may revoke or suspend a delegation of authority
under this section to any qualified State or local development
company, if the Administration determines that the company--
[(1) does not meet the requirements of subsection
(b)(1);
[(2) has violated any applicable rule or regulation
of the Administration or any other applicable law; or
[(3) fails to comply with any reporting requirement
that may be established by the Administration relating
to carrying out of functions described in paragraph
(1).
[(e) Report.--
[(1) In general.--Based on information provided by
qualified State and local development companies and the
Administration, the Administration shall annually
submit to the Committees on Small Business of the House
of Representatives and of the Senate a report on the
results of delegation of authority under this section.
[(2) Contents.--Each report submitted under paragraph
(1) shall include the following information:
[(A) With respect to each loan foreclosed or
liquidated by a qualified State or local
development company under this section, or for
which losses were otherwise mitigated by the
company pursuant to a workout plan under this
section--
[(i) the total cost of the project
financed with the loan;
[(ii) the total original dollar
amount guaranteed by the
Administration;
[(iii) the total dollar amount of the
loan at the time of liquidation,
foreclosure, or mitigation of loss;
[(iv) the total dollar losses
resulting from the liquidation,
foreclosure, or mitigation of loss; and
[(v) the total recoveries resulting
from the liquidation, foreclosure, or
mitigation of loss, both as a
percentage of the amount guaranteed and
the total cost of the project financed.
[(B) With respect to each qualified State or
local development company to which authority is
delegated under this section, the totals of
each of the amounts described in clauses (i)
through (v) of subparagraph (A).
[(C) With respect to all loans subject to
foreclosure, liquidation, or mitigation under
this section, the totals of each of the amounts
described in clauses (i) through (v) of
subparagraph (A).
[(D) A comparison between--
[(i) the information provided under
subparagraph (C) with respect to the
12-month period preceding the date on
which the report is submitted; and
[(ii) the same information with
respect to loans foreclosed and
liquidated, or otherwise treated, by
the Administration during the same
period.
[(E) The number of times that the
Administration has failed to approve or reject
a liquidation plan in accordance with
subparagraph (A)(i), a workout plan in
accordance with subparagraph (C)(i), or to
approve or deny a request for purchase of
indebtedness under subparagraph (B)(i),
including specific information regarding the
reasons for the Administration's failure and
any delays that resulted.]
SEC. 501. CERTIFIED DEVELOPMENT COMPANIES.
(a) Certified Development Company Debenture Authority.--Only
development companies certified by the Administrator shall have
the authority to issue debentures under this Act.
(b) Certification Standards.--A development company shall be
certified for the purposes of issuing debentures if the
Administrator determines that it meets each of the following
criteria:
(1) Small concern.--
(A) In general.--Except as provided in
subparagraph (C) of paragraph (2), the company,
including its affiliates, shall have no more
than 200 employees.
(B) Control.--Except as provided in paragraph
(2) (B) or (C) the company shall not be under
the control of any other concern.
(C) Not for profit.--The development company
is organized as a not-for-profit corporation.
(2) Exceptions.--
(A) For profit status.--If a development
company was chartered as a for-profit
corporation and issued debentures prior to
January 1, 1987, the company shall not be
required to change its status to not-for-profit
in order to be certified.
(B) Affiliation grandfather.--Any company
that was authorized by the Administrator to
issue debentures before December 31, 2005,
shall be eligible for certification without
regard to its status as part of, or its
affiliation with, any other not-for-profit
corporation or local governmental entity unless
that not-for-profit corporation or local
governmental entity is another entity that
issues debentures under this title.
(C) Affiliation with local governmental
entities.--Any company that was organized after
the date of enactment of the Small Business
Financing and Investment Act of 2009 shall be
eligible for certification without regard to
its status as part of or affiliation with any
local governmental entity.
(3) Good standing.--A development company shall be in
good standing and comply with all laws, in every State
in which it is incorporated or authorized to conduct
business.
(4) Membership.--
(A) In general.--The development company
shall have at least 25 members.
(B) Voting rights.--No member shall control
more than 10 percent of the total voting power
in the development company.
(C) Residence.--Members must be residents of
the State in which the development company is
chartered or authorized to do business.
(D) Diversity.--The development company must
have at least one member from each of the
following:
(i) A local governmental entity.
(ii) A financial institution subject
to regulation by a Federal organization
belonging to the Federal Financial
Institutions Examination Council and
that provides long-term fixed asset
financing in the commercial market.
(iii) A not-for-profit organization,
other than a development company, that
is dedicated to promoting economic
growth.
(iv) A for-profit business, other
than a financial institution described
in clause (ii).
(E) Employment status.--Membership in a
development company shall not be predicated on
employment status and an individual who retired
from or was terminated (for reasons other than
fraud or the commission of a crime) from an
entity described in subparagraph (D) shall be
deemed to be from the organization described in
that subparagraph.
(5) Board of directors.--
(A) In general.--The development company's
board consists of members and each director
receives a majority vote of the members unless
the development company is a for-profit
corporation in which case the board need not
consist entirely of members.
(B) Board representation.--There shall be at
least one director from not fewer than 3 of the
4 types of organizations specified in paragraph
(4)(D) but no single type of organization shall
have more than 50 percent representation on the
board of the development company. If the
development company is a for-profit
corporation, financial institution
representatives may make up more than 50
percent of the board.
(C) Affiliated entity representation
restrictions.--A development company that is
described in paragraph (1)(C) may have any or
all of its board members appointed by entities
affiliated with the company and may include
common members who also serve on the
affiliate's board of directors if the
appointment of board members was exercised by
an affiliate prior to December 31, 2005.
(D) Special rule for certain development
companies.--The board of directors for any
development company issuing debentures before
December 31, 2005, and incorporated under a
State law requiring, or which is interpreted by
the State's legal department as imposing
specific requirements on, the number and
selection of members, board members, or both,
and the rights and privileges conferred by such
State law, may adhere to such provisions.
(6) Professional management and staff.--
(A) In general.--The development company
shall have full-time independent professional
management, including a chief executive officer
to manage the daily operations and a full-time
professional staff qualified to carry out the
functions authorized under this title.
(B) Utilization of staff from affiliated
entities.--A development company shall not be
denied certification under this section if its
chief executive or full-time professional staff
is from an affiliated entity as described in
paragraph (1)(C).
(C) Staff under contract.--The Administrator
shall not deny certification to a development
company that contracts for its full time staff
if one of the following conditions is met:
(i) The development company is
located in a rural area, obtains its
staff through contract from another
development company that is certified
by the Administrator and that
development company operates in the
same or a contiguous State.
(ii) The development company had
issued debentures under this title
prior to December 31, 2005, and had
contracted with a for-profit business
concern to provide staffing and
management services.
(c) Applications.--
(1) Development companies issuing debentures before
september 30, 2009.--
(A) Short form application.--(i) For any
development company that issued debentures
pursuant to this title before September 30,
2009, the Administrator shall develop, after an
opportunity for notice and comment, no later
than 90 days after the date of enactment of the
Small Business Financing and Investment Act of
2009, a short-form application that contains
sufficient information for the Administrator to
determine that the development company
currently meets the standards set forth in
subsection (b). In developing such application,
the Administrator shall be required to limit
the amount of paperwork necessary to determine
whether the development company meets the
standards for certification and may limit the
application to the filing of reports previously
submitted to the Administrator.
(ii) For those companies that obtain staff
through contracts, the application shall
include a copy of the contract.
(B) Certification decision.--(i) The
Administrator shall certify the development
company if the application demonstrates that
the applicant meets the standards in subsection
(b). The decision to certify or not approve the
request for certification shall be made within
7 business days from the date the initial
submission of the application is received by
the Administrator. If the Administrator takes
no action to approve or disapprove within 7
business days, the application for
certification is deemed approved and no further
action is required by the Administrator or the
development company to obtain certification. If
the Administrator disapproves the application,
the Administrator shall provide in writing
within 3 business days the reasons for the
disapproval. If such document is not provided
within the time specified, the application is
deemed approved and no further action is
required by the Administrator or the
development company to obtain certification.
(ii) For those development companies that
submit contracts under subparagraph (A)(ii),
the Administrator is limited in rejecting the
application only if the Administrator finds
that the entity servicing the applicant is no
longer able to provide the employees or
services needed by the applicant to perform the
functions that would be authorized under this
title.
(C) Application resubmittal.--If the
Administrator disapproves the application for
certification and provides a written statement
as set forth in subparagraph (B), the
development company may file a new application
limited solely to addressing the concerns of
the Administrator and the certification
procedures set forth in subparagraph (B) shall
recommence.
(D) Appeals.--If the Administrator
disapproves an application in accordance with
the procedures of subparagraphs (B) or (C), the
applicant may, within 10 calendar days after
receipt of the disapproval, appeal such
disapproval. The Administrator shall conduct a
hearing to determine such appeal pursuant to
sections 554, 556, and 557 of title 5, United
States Code, and shall issue a decision not
later than 45 days after the appeal is filed.
The decision on appeal shall constitute final
agency action for purposes of chapter 7 of
title 5, United States Code.
(E) Grandfathering.--
(i) In general.--For the period 2
years after date of enactment of the
Small Business Financing and Investment
Act of 2009, any development company
that was issuing debentures on or
before the date set forth in this
clause (i) shall be deemed to be a
certified development company.
(ii) Completion of application
process.--The procedures set forth in
this paragraph for determining
certification shall apply to any
development company meeting the
qualifications of clause (i).
(iii) Effect of denial.--The denial
or rejection of an application for
certification as set forth in this
subsection shall have no effect on the
ability of a development company
meeting the qualifications in clause
(i) from continuing to issue debentures
during the entire two-year period
established in that clause.
(iv) Failure to obtain
certification.--Any development company
that fails to obtain certification in
accordance with the procedures set
forth in this paragraph during the
period set forth in clause (i) shall be
considered to be a new development
company and the procedures of paragraph
(2) shall apply. The authority to issue
debentures shall cease for any
development company covered by this
subparagraph that has failed to obtain
certification from the Administrator
during the time period set forth in
clause (i).
(F) Automatic qualification provision.--If
the Administrator fails to implement the
certification process set forth in this
paragraph, any development company that was
issuing debentures before September 30, 2009,
pursuant to this title shall be considered
certified until such time as the Administrator
develops the certification procedures set forth
in this paragraph.
(G) Savings clause.--Any action taken by a
development company or the Administrator
pursuant to this paragraph shall have no impact
on any guarantee of a debenture issued prior to
the date of enactment of the Small Business
Financing and Investment Act of 2009.
(2) Application process for new development
companies.--
(A) In general.--For any development company
that has not issued debentures prior to
September 30, 2009, the Administrator shall
develop no later than 180 days after the date
of enactment of the Small Business Financing
and Investment Act of 2009, after an
opportunity for notice and comment, an
application form for certification that
provides the Administrator with sufficient
information to insure that the applicant meets
the standards set forth in subsection (b). The
Administrator shall certify such development
company or reject the application within 60
calendar days from the date the initial
submission was received by the Administrator.
If the Administrator rejects the application,
the Administrator shall provide in writing
within 7 business days after the decision, the
reason for rejecting the application.
(B) Appeals.--A development company shall be
able to appeal the disapproval of an
application under the procedures set forth in
paragraph (1)(D).
SEC. 502. OPERATIONAL REQUIREMENTS FOR CERTIFIED DEVELOPMENT COMPANIES.
(a) Maintenance of Standards for Certification.--Any company
certified pursuant to section 501 shall continue to comply with
the requirements of that section to remain certified. The
Administrator shall develop a reporting form, which to the
extent possible, incorporates other documents and reports
already kept by certified development companies, demonstrating
their continued compliance. The form shall be developed in a
manner that the estimated time for completion shall take no
more than 2 hours.
(b) Ethics and Conflict of Interests.--
(1) In general.--A certified development company, its
officers, employees, and contractors shall act
ethically and avoid activities which constitute a
conflict of interest or appear to constitute a conflict
of interest. For purposes of this subsection, conduct
that is unethical includes, but is not limited to, the
actions specified in section 120.140 of title 13, Code
of Federal Regulations, as in effect on January 1,
2009.
(2) By associates.--An associate may not be an
officer, director, or manager of more than 1 certified
development company. The term ``associate'' shall have
the same meaning given the term ``Associate of a CDC''
in section 120.10 of title 13, Code of Federal
Regulations, as in effect on January 1, 2009. For the
purposes of this subsection, 10 percent shall be
substituted wherever section 120.10 of title 13, Code
of Federal Regulation uses 20 percent.
(3) By entities.--Except as provided in sections
501(b)(5) and 501(b)(6), no person, sole
proprietorship, partnership, or corporation shall
control or have managerial control of more than one
certified development company. Control means any of the
following:
(A) The ability to appoint or remove a member
of the company or member of its board of
directors.
(B) The ability to modify or approve rate or
fee changes affecting revenues of the certified
development company.
(C) The ability to veto, overrule, or modify
decisions of the certified development
company's body.
(D) The ability, either directly or
contractually, to appoint, hire, reassign, or
dismiss those managers and employees
responsible for the daily operations of the
certified development company.
(E) The ability to access the certified
development company's resources or amend its
budget.
(F) The ability to control another certified
development company pursuant to provisions in a
contract.
(c) Meetings.--The board of directors of the certified
development company shall meet on a regular basis to make
policy decisions for the company.
(d) Loan Committees.--The board of directors of a certified
development company may use a loan committee to process loans
in the State in which it operates as well as adjacent local
economic areas. Members of the loan committee shall be
residents of the certified development company's State of
operation or the adjacent local economic area. Such loan
committees shall meet on a periodic basis as set forth by the
board of directors.
(e) Prohibited Conflict in Project Loans.--
(1) In general.--Certified development companies
shall not recommend or approve a guarantee of a
debenture that will be collateralized by property being
constructed or acquired on which an institution, as
provided in section 508(c)(1)(A), will have a first
lien position.
(2) Exception.--The prohibition in paragraph (1)
shall not apply to any certified development company
that was affiliated with or part of any entity that
took a first lien position between October 1, 2003, and
September 30, 2005.
(f) Affiliation With Lenders Operating Under Section 7 of the
Small Business Act.--
(1) Prohibition.--No certified development company
may invest in, or be an affiliate of, a lender who
participates in the loan programs authorized in
sections 7(a) and 7(c) of the Small Business Act (15
U.S.C. 636(a) and (c)).
(2) Exception.--The prohibition in paragraph (1)
shall not apply to any certified development company
that is affiliated with an entity authorized by the
Administrator to operate under section 7(a) of the
Small Business Act if such affiliation occurred on or
before November 6, 2003.
(3) Credit union affiliation.--A certified
development company shall not lose its status due to an
affiliation with an institution regulated by the
National Credit Union Administration if the development
company was affiliated with such an institution prior
to January 1, 2007.
(g) Servicing and Packaging Guaranteed Loans.--A certified
development company is authorized to prepare applications for
loans under sections 7(a) or 7(c) of the Small Business Act (15
U.S.C. 636(a) or (c)), to service such loans, and to charge a
reasonable fee for servicing such loans.
(h) Use of Excess Funds.--Any funds generated by a certified
development company from the issuance of debentures under this
title, the sale of debentures in the private secondary market,
or fees described in subsection (g) that remain unexpended
after payment of staff, operating, and overhead expenses shall
be used by the certified development company for--
(1) operating reserves;
(2) expanding the area in which the certified
development company operates through the methods
authorized in section 505 (relating to multi-State
operation);
(3) investment in other community and local economic
development activity or community development primarily
in the State from which such funds were generated; or
(4) investment in small business investment companies
subject to the limitations in subsection (i).
(i) Limitations With Respect to Small Business Investment
Companies.--A certified development company shall not--
(1) invest excess funds in a small business
investment company that the Administrator determines to
be capitally impaired as set forth in section 107.1830
of title 13, Code of Federal Regulations, as in effect
on January 1, 2009, or any successor regulation to that
regulation, but may maintain its investment in such
company if such investment was made prior to the
determination of capital impairment; and
(2) provide a debenture under this title to a small
business concern that has financing with a small
business investment company in which the certified
development company has invested excess funds.
(j) Economic Development Activities.--A company certified
pursuant to this section shall carry out each of the following
economic development activities that create or preserve jobs in
urban and rural areas:
(1) The company shall provide long-term financing to
small business concerns through debentures described in
section 506.
(2) The company shall operate any other program to
assist small business concerns or communities that
promote local economic development and job creation or
preservation.
(k) Restrictions on Assistance.--
(1) In general.--After the date of enactment of the
Small Business Financing and Investment Act of 2009, no
certified development company may accept funding from
any source, including any Federal agency (as that term
is defined in section 551 of title 5, United States
Code) if the source imposes--
(A) conditions on the types of small business
concerns that a certified development company
may provide assistance to under this title; or
(B) conditions or requirements, directly or
indirectly, upon any small business concern
receiving assistance under this title.
(2) Exception.--The conditions of subparagraphs (A)
and (B) of paragraph (1) shall not apply if the source
provides all of the financing that will be provided by
the certified development company to the small business
concern, provided further that any conditions or
restrictions are limited solely to the financing
provided by the source of funding.
(l) Revocation and Suspension.--The Administrator may suspend
or revoke a certified development company's status if the
Administrator determines, after a hearing on the record as set
forth in sections 554, 556, and 557 of title 5, United States
Code, that the certified development company no longer--
(1) meets the eligibility criteria established under
section 501 of this title;
(2) satisfies the operational standards in this
section; or
(3) complies with the Administrator's rules,
regulations, or provisions of law.
(m) Effect of Suspension or Revocation.--A suspension or
revocation under subsection (l) shall not affect any
outstanding debenture guarantee.
SEC. 503. ACCREDITED LENDERS PROGRAM.
(a) Establishment.--
(1) In general.--A certified development company may
apply for status to become an accredited certified
development company if it meets the operational
standards of section 502 and the criteria in subsection
(b).
(2) Application.--The Administrator shall, after
opportunity for notice and comment, develop an
application for certified development companies seeking
to become accredited certified development companies.
(3) Processing of application.--The Administrator
shall make a determination within 30 days after a
complete application has been filed by the certified
development company.
(4) Reapplication.--If the Administrator rejects the
application, the Administrator shall provide in writing
the reasons for the rejection. Any certified
development company may reapply which will recommence
the processing time limits set forth in paragraph (3),
and such reapplication shall be limited to addressing
the reasons for rejection. If the Administrator rejects
a second application, that shall be considered final
agency action for purposes of chapter 7 of title 5,
United States Code.
(b) Standards for Accredited Certified Development Company
Program.--The Administrator shall designate a certified
development company as accredited if it meets the following
standards:
(1) Has been a certified development company for not
less than the preceding 12 months and has issued
debentures as authorized under this title during that
time period.
(2) Has well-trained, qualified personnel who are
knowledgeable in the lending policies and procedures
for certified development companies.
(3) Has the ability to process, close, and service
the loan issued under this title.
(4) Has a loss rate on the company's debentures that
is reasonable and acceptable to the Administrator.
(5) Has a history of submitting to the Administrator
complete and accurate debenture guaranty application
packages.
(6) Has the ability to serve small business credit
needs for financing plant and equipment as a certified
development company.
(c) Expedited Processing of Guarantee Applications.--The
Administrator shall develop an expedited procedure for
processing a guarantee application or servicing action
submitted by an accredited certified development company. For
purposes of this subsection, an expedited procedure is one that
takes at least two business days less than the processing
performed for certified development companies that have not
been accredited.
(d) Suspension or Revocation of Accredited Status.--The
Administrator may suspend or revoke a certified development
company's accredited status if the Administrator determines,
after a hearing on the record as set forth in sections 554,
556, and 557 of title 5, United States Code, that the certified
development company no longer meets the eligibility criteria
established under this section (which shall not include a time
limit on the term of the certified development company's
accredited status) or failed to adhere to the Administrator's
rules, regulations, or is violating some other provision of
law. Such suspension or revocation shall have no effect on the
development company's status as certified.
(e) Effect of Suspension or Revocation on Existing
Guarantees.--A suspension or revocation of accredited status
shall not affect any outstanding debenture guarantee.
(f) Grandfather Provision.--Any certified development company
that was accredited by the date of enactment of the Small
Business Financing and Investment Act of 2009 shall remain
accredited for 24 months after that date. If the certified
development company does not have an application for
accreditation approved by the Administrator within the 24
months, its accreditation standard shall lapse.
(g) Automatic Qualification.--
(1) In general.--Until the Administrator develops
procedures for granting accredited status, any
certified development company that was accredited as of
the date of enactment of the Small Business Financing
and Investment Act of 2009 shall be deemed to be
accredited.
(2) Applications.--Any certified development company
that satisfies the provision of paragraph (1) shall
have 24 months in which to submit the application
established by this section for accredited status.
(3) Effect while application pending.--The denial or
rejection of an application for accredited status as
set forth in this section shall have no effect on the
ability of a development company that meets the
standard set forth in paragraph (1) from maintaining
its status during the 24 months specified in this
subsection.
(h) Promulgation of Accrediting Standards.--The Administrator
shall develop standards for accrediting, suspension, and
revocation under the program established by this section only
after notice and an opportunity for comment as set forth in
section 553(b) of title 5, United States Code. After the
development of such standards, the Administrator shall publish
such standards in the Code of Federal Regulations.
(i) Rule of Construction.--Any reference to the term
``accredited lender'' in any provision of law enacted, or any
regulation adopted, prior to the enactment of the Small
Business Financing and Investment Act of 2009 shall be deemed
to be a reference to the term ``accredited certified
development company''.
SEC. 504. PREMIER CERTIFIED LENDER PROGRAM.
(a) Establishment.--
(1) In general.--A certified development company
accredited under section 503 may apply for status to
become a premier certified development company.
(2) Application.--The Administrator shall, after
opportunity for notice and comment, develop an
application for accredited certified development
companies seeking to become premier certified
development companies.
(3) Processing of application.--The Administrator
shall make a determination within 60 days after a
complete application has been filed by an accredited
certified development company.
(4) Reapplication.--If the Administrator rejects the
application, the Administrator shall provide in writing
the reasons for the rejection. Any accredited certified
development company may reapply which will recommence
the processing time limits set forth in paragraph (3),
and such reapplication shall be limited to addressing
the reasons for rejection. If the Administrator rejects
a second application, that shall be considered final
agency action for purposes of chapter 7 of title 5,
United States Code.
(b) Standards for Obtaining Premier Certified Development
Company Status.--The Administrator shall designate an
accredited certified development company as a premier certified
development company if the application submitted pursuant to
subsection (a) demonstrates that the accredited certified
development company meets the following standards:
(1) Has been an accredited certified development
company for at least 12 months.
(2) Has submitted to the Administrator adequately
analyzed debenture guarantee applications.
(3) Has closed, in a proper manner following the
Administrator regulations, loans under this title.
(4) Has serviced its loan portfolio in accordance
with the standards set by the Administrator.
(5) Has established a loan loss reserve established
in accordance with this section that the Administrator
determines is sufficient to meet its obligations to
protect the Federal Government from the risk of loss on
each debenture guaranteed under this section.
(6) Has agreed, as part of the application and in
order to protect the Federal Government against the
risk of loss, to the following--
(A) on account of a debenture, the proceeds
of which were used to fund a loan approved
prior to the date of enactment of the Small
Business Financing and Investment Act of 2009,
agrees to reimburse the Administrator for 10
percent of any loss sustained by the
Administrator as a result of a default by the
company in the payment of principal or interest
on a debenture issued by such company and
guaranteed by the Administrator;
(B) on account of a debenture, the proceeds
of which were used to fund a loan approved
prior to the date of enactment of the Small
Business Financing and Investment Act of 2009
and which were issued during the period in
which the company had made a selection pursuant
to section 508(c)(7) of the Small Business
Investment Act of 1958, as in effect on the day
before such date of enactment, agrees to
reimburse the Administrator for 15 percent of
any loss sustained by the Administrator as a
result of a default by the company in the
payment of principal or interest on a debenture
issued by such company and guaranteed by the
Administrator; or
(C) on account of a debenture, the proceeds
of which are used to fund a loan approved on or
after the date of enactment of the Small
Business Financing and Investment Act of 2009,
upon closing, pay to the Administrator a one-
time participation fee in the amount equal to
the higher of the following:
(i) 0.25 percent of the amount of the
debenture.
(ii) A percent of the amount of the
debenture equal to 10 percent of the
amount of the company's historic loss
rate on debentures guaranteed under
this section as determined by the
Administrator. The rate specified by
this clause shall be determined
annually based upon the company's loan
losses as of close of business on June
30 and notice of the determination
shall be provided to each company not
later than August 31. Such rate shall
be applicable to loans approved during
the fiscal year commencing after the
determination is made and shall expire
and have no further application after
the end of such fiscal year. If no
timely determination has been made
prior to the commencement of a fiscal
year, including the year of enactment
of the Small Business Financing and
Investment Act of 2009, one may be made
after the commencement and it shall be
applicable to loans approved during the
balance of such fiscal year commencing
30 days after notification to the
development company involved.
(c) Suspension or Revocation of Premier Status.--The
Administrator may suspend or revoke an accredited certified
development company's premier status if the Administrator
determines, after a hearing on the record as set forth in
sections 554, 556, and 557 of title 5, United States Code, that
the accredited certified development company no longer meets
the eligibility criteria for premier status as established
under this section or failed to adhere to the Administrator's
rules, regulations, or is violating some other provision of
law. Such revocation or suspension shall have no effect on its
status as an accredited certified development company.
(d) Loan Loss Reserve.--
(1) Assets.--Each loan loss reserve maintained by the
premier certified development company for loans made
pursuant to the authority in subsection (g)(1) shall be
comprised of--
(A) segregated funds on deposit in an account
or accounts with a federally insured depository
institution or institutions selected by the
company, subject to a collateral assignment in
favor of, and in a format acceptable to, the
Administrator that shall amount to 10 percent
of the company's exposure as determined
pursuant to subsection (b)(6);
(B) irrevocable letter or letters of credit,
with a collateral assignment in favor of, and a
commercially reasonable format acceptable to,
the Administrator; or
(C) any combination of the assets described
in subparagraphs (A) and (B).
(2) Contributions.--The company shall make
contributions to the loss reserve, either cash or
letters of credit as provided above, in the following
amounts and at the following intervals:
(A) 50 percent when a debenture is closed.
(B) 25 percent additional not later than 1
year after a debenture is closed.
(C) 25 percent additional not later than 2
years after a debenture is closed.
(3) Replenishment.--If a loss has been sustained by
the Administrator, any portion of the loss reserve, and
other funds provided by the premier certified
development company as necessary, may be used to
reimburse the Administrator for the premier certified
development company's share of the loss as provided for
in subsection (b)(6). If the premier certified
development company utilizes the reserve, it shall,
within 30 calendar days, replace an equivalent amount
of funds.
(4) Disbursements.--
(A) In general.--The Administrator shall
allow the premier certified development company
to withdraw from the loss reserve amounts
attributable to any debenture that has been
repaid.
(B) Reduction.--The Administrator shall allow
the premier 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 reduction
authorized by this subparagraph shall not apply
with respect to any debenture before 100
percent of the contribution described in
paragraph (2) with respect to such debenture
has been made.
(C) Rule of construction.--The provision
contained in subparagraph (B) shall be read as
if enacted prior to a date 2 years and 90 days
after the date of enactment of the Small
Business Financing and Investment Act of 2009.
(e) Bureau of Premier Certified Development Company Lender
Oversight.--
(1) In general.--There is hereby established a Bureau
of Premier Certified Development Company Lender
Oversight in the Office of Lender Oversight at the
Administration which shall have responsibility and
capability for carrying out oversight of premier
certified development companies and such other
responsibilities as the Administrator designates.
(2) Annual review.--The Bureau established in
paragraph (1) annually shall review the financing made
by each premier certified development company. Such
review shall include the premier certified development
company's credit decisions and general compliance with
the eligibility requirements for each financing
approved as a result of its status as a premier
certified development company.
(3) Random audits.--The Bureau shall develop and
implement a method for sampling the debentures issued
by premier certified development companies. Such
sampling shall be similar to the random file audits of
development companies that utilize the Abridged
Submission Method described in chapter 4 of subpart C
of Standard Operating Procedure 50 10 (5)(A) as was in
effect on March 2, 2009.
(4) Review of lenders providing senior financing.--
(A) Calculation of loan loss rate.--The
Bureau shall periodically calculate the loss
rate of all debentures approved under this
section and shall calculate a loss rate on the
basis of the total debentures attributable to
projects approved by premier certified
development companies in which each lender is a
participating lender.
(B) Notification.--If the Bureau determines
that the loss rate on debentures involving an
individual lender exceeds the average for all
debentures approved under this section, it
shall advise the Administrator.
(5) Use of reviews and audits.--The Administrator
shall consider the findings under paragraphs (2), (3),
and (4) in carrying out the responsibilities under
subsection (h).
(f) Sale of Certain Defaulted Loans.--
(1) Notice.--If, upon default in repayment, the
Administrator acquires a debenture issued by a premier
certified development company and identifies such loan
for inclusion in a bulk asset sale of defaulted or
repurchased loans or other financing, the Administrator
shall give prior notice thereof to any premier
certified development company which has a contingent
liability under this section. The notice shall be given
to the premier certified development company as soon as
possible after the financing is identified, but not
less than 90 days before the date the Administrator
first makes any records on such financing available for
examination by prospective purchasers prior to its
offering in a package of loans for bulk sale.
(2) Limitations.--The Administrator shall not offer
any loan described in paragraph (1) as part of a bulk
sale unless the Administrator--
(A) provides prospective purchasers with the
opportunity to examine the Administration's
records with respect to such loan; and
(B) provides the notice required by paragraph
(1).
(g) Loan Approval Authority.--
(1) In general.--A premier certified development
company may, under conditions determined by the
Administrator in regulations published in the Code of
Federal Regulations, issue guarantees on debentures,
approve, authorize, close, service, foreclose, litigate
(except that the Administrator may monitor conduct of
any such litigation), and liquidate loans that are
funded with proceeds of a debenture issued by a premier
certified development company unless the Administrator
advises the company that loans involving a specific
institutional lender are to be submitted to the
Administrator for further consideration, and approval
by the Administrator.
(2) Program goals.--Each premier certified
development company shall establish a goal of
processing no less than 50 percent of the applications
for assistance under this title that the premier
certified development company receives. Failure to meet
this goal shall have no affect on the company's status
as a premier certified development company under this
section.
(3) Scope of review.--The approval of a loan and
guarantee of a debenture by a premier certified
development company shall be subject to final approval
as to the eligibility of any guarantee by the
Administrator as set forth in section 506, but such
final approval shall not include review of decisions by
the premier certified development company involving
creditworthiness, loan closing, or compliance with
legal requirements imposed by law or regulation.
(h) Suspension or Revocation.--The Administrator may suspend
or revoke an accredited certified development company's premier
status if the Administrator determines, after a hearing on the
record as set forth in sections 554, 556, and 557 of title 5,
United States Code, that the accredited certified development
company no longer meets the eligibility criteria established
under this section, fails to maintain adequate loan loss
reserves mandated in this section even if it meets the other
eligibility requirements for premier status, or violates the
Administrator's rules, regulations, or some other provision of
law. The Administrator shall consider the review of the premier
certified development company conducted pursuant to subsection
(e) in determining whether to suspend or revoke an accredited
development company's premier status. Such suspension or
revocation shall have no effect on the development company's
status as an accredited certified development company.
(i) Effect of Suspension or Revocation.--A suspension or
revocation of premier status shall not affect any outstanding
debenture guarantee.
(j) Rule of Construction.--Any reference to the term
``premier certified lender'' or ``PCL'' in legislation enacted,
or regulations adopted, prior to the enactment of the Small
Business Financing and Investment Act of 2009 shall be deemed
to be a reference to the term ``premier certified development
company''.
SEC. 505. MULTI-STATE OPERATIONS.
(a) Authorization.--The Administrator shall permit an
accredited or premier certified development company to make
loans or issue debentures in any State that is contiguous to
the State of incorporation of that company only if the
company--
(1) has members, from each of the States in which it
operates with not fewer than 25 members who reside in
such States;
(2) has a board of directors that contains not fewer
than 2 members from each State in which the company
makes loans and issues debentures and are residents of
that State;
(3) maintains a separate loan committee to process
loans in each expansion State and the members of the
loan committee are solely residents of the expansion
State; and
(4) files an application developed by the
Administrator which provides--
(A) notice of the intention to make loans in
multiple States;
(B) a specification of the States in which
the company intends to make loans;
(C) a list of members in each expansion
State; and
(D) a detailed statement on how the company
will comply with the requirements of this
subsection.
(b) Loan Committees.--The requirements of paragraph (3) of
subsection (a) shall not require a development company to
establish a loan committee in its State of incorporation or in
a local economic area outside the State of incorporation unless
such area is part of an expansion State.
(c) Review.--
(1) In general.--The Administrator shall review each
application for expansion under subsection (a), but
such review shall be limited to that information needed
to determine whether the company will comply with the
requirements of subsection (a).
(2) Deadline for decision.--The Administrator shall
make a decision on each application under subsection
(a) within 15 calendar days after the receipt of the
application. If no such decision is granted, the
application is deemed to be approved and no further
action is required by the applicant or the
Administrator for the company to expand into the States
specified in the application.
(3) Application resubmittal.--If the Administrator
rejects the application for expansion, the
Administrator shall provide in writing the reasons for
denial within 10 calendar days of the decision. The
applicant then may resubmit the application but the
review of such resubmitted applications will be limited
only to the areas in which the Administrator found the
original application deficient. The deadlines in
paragraph (2) shall apply to resubmitted applications.
(4) Appeal.--If a resubmitted application is denied,
the applicant may, within 10 calendar days after
receipt of the disapproval, appeal such disapproval.
The Administrator shall conduct a hearing to determine
such appeal pursuant to sections 554, 556, and 557 of
title 5, United States Code, and shall issue a decision
not later than 45 days after the appeal is filed. The
decision on appeal shall constitute final agency action
for purposes of chapter 7 of title 5, United States
Code.
(d) Failure To Develop Application.--If the Administrator
fails to develop an application as required in subsection
(a)(4) within 60 days of the enactment of the Small Business
Financing and Investment Act of 2009, an accredited or premier
certified development company only need submit the information
required in subsection (a) to the Administrator to be deemed
eligible to commence operations authorized by this section.
Such eligibility shall not be terminated if the Administrator
develops an application after the 60-day period set forth in
this subsection.
(e) Aggregate Accounting.--An accredited or premier certified
development company authorized to operate in multiple States
pursuant to this section may maintain an aggregate accounting
of all revenue and expenses of the company for purposes of this
title.
(f) Local Job Creation Requirements.--
(1) In general.--Any company making loans in multiple
States as authorized in this section shall not count
jobs created or retained in one State towards any
applicable job creation or retention requirements
mandated by this title in another State.
(2) Applicability.--Any company operating under the
authority of this section shall be required to meet any
job creation or retention requirement of this title on
the date that is 2 years after the certified
development company closed its first loan in its new
State of operation.
(g) Contiguous States.--For the purposes of this section, the
States of Alaska and Hawaii shall be deemed to be contiguous to
any State abutting the Pacific Ocean. Territories of the United
States located in the Pacific Ocean shall be deemed to be
contiguous to any State abutting the Pacific Ocean, including
Alaska and Hawaii, and territories of the United States located
in the Caribbean Sea shall be deemed contiguous to any State
abutting the Gulf of Mexico.
(h) Exemption for Local Economic Areas.--Except as provided
in subsection (a)(3) with respect to loan committees, any
certified, accredited, or premier development company or
applicant operating in a local economic development area that
crosses the border of another State shall not be considered to
be operating under the provisions of this section and shall not
be required to comply with the requirements of this section for
multi-State operation.
SEC. 506. GUARANTY OF DEBENTURES.
(a) Authority To Guarantee.--Except as provided in subsection
(c), the Administrator may guarantee the timely payment of all
principal and interest as scheduled on any debenture issued by
a certified development company.
(b) Terms and Conditions of the Guarantee.--Such guarantees
may be made on such terms and conditions as the Administrator
may by regulation, published in the Code of Federal
Regulations, determine to be appropriate, except that the
Administrator shall not decline to issue such guarantee when
the ownership interests of the small business concern and the
ownership interests of the property to be financed with the
proceeds of the loan made pursuant to subsection (e)(1) are not
identical because one or more of the following classes of
relatives have an ownership interest in either the small
business concern or the property: father, mother, son,
daughter, wife, husband, brother, or sister, if the
Administrator or his designee has determined on a case-by-case
basis that such ownership interest, such guarantee, and the
proceeds of such loan, will substantially benefit the small
business concern.
(c) Full Faith and Credit.--The full faith and credit of the
United States is pledged to the payment of all amounts
guaranteed under this section.
(d) Subordination.--Any debenture issued by a certified
development company with respect to which a guarantee is made
under this section may be subordinated by the Administrator to
any other debenture, promissory note, or other debt or
obligation of such company.
(e) Standards for Administrator Guarantees.--No guarantee may
be made with respect to any debenture under this section
unless--
(1) the debenture is issued for the purpose of making
one or more loans to small business concerns the
proceeds of which shall be used for the purposes set
forth in section 507;
(2) the interest rate on such debentures is not less
than the rate of interest determined by the Secretary
of the Treasury for purposes of section 303(b);
(3) the aggregate amount of such debenture does not
exceed the amount of the loans to be made from the
proceeds of such debenture plus, at the election of the
borrower, other amounts attributable to the
administrative and closing costs of such loans, except
for the attorney fees of the borrower;
(4) the amount of any loan to be made from such
proceeds does not exceed an amount equal to 50 percent
of the cost of the project with respect to which such
loan is made;
(5) the Administrator, except to the extent provided
in section 504 with respect to premier certified
development companies, approves each loan to be made
from such proceeds; and
(6) with respect to each loan made from the proceeds
of such debenture, the Administrator--
(A) assesses and collects a fee, which shall
be payable by the borrower, in an amount
established annually by the Administration,
which amount shall not exceed--
(i) the lesser of--
(I) 0.9375 percent per year
of the outstanding balance of
the loan; or
(II) the minimum amount
necessary to reduce the cost
(as defined in section 502 of
the Federal Credit Reform Act
of 1990) to the Administrator
of purchasing and guaranteeing
debentures under this title to
zero; and
(ii) 50 percent of the amount
established under clause (i) in the
case of a loan made during the 2-year
period beginning on October 1, 2002,
for the life of the loan; and
(B) uses the proceeds of such fee to offset
the cost (as such term is defined in section
502 of the Federal Credit Reform Act of 1990)
to the Administrator of making guarantees under
this section.
(f) Interest Rates on Commercial Loans.--Notwithstanding the
provisions of the constitution or laws of any State limiting
the rate or amount of interest which may be charged, taken,
received, or reserved, the maximum legal rate of interest on
any commercial loan which funds any portion of the cost of the
project financed pursuant to this title which is not funded by
a debenture guaranteed under this section shall be a rate which
is established by the Administrator who shall publish such rate
quarterly in, at a minimum, the Federal Register and on the
Administration's website.
(g) Debenture Repayment.--Any debenture that is issued under
this section shall provide for the payment of principal and
interest on a semiannual basis.
(h) Charges for Administrator's Expenses.--The Administrator
may impose an additional charge for administrative expenses
with respect to each debenture for which payment of principal
and interest is guaranteed under this section. Such
administrative expenses may include--
(1) development company fees for processing, closing,
servicing, late payment, or loan assumption;
(2) agent or trustee fees for central servicing,
underwriters, or debenture funding; and
(3) fees charged by the Administrator for the
debenture guaranty and from the certified development
company to reduce the subsidy cost.
(i) Participation Fee.--The Administrator shall collect a
one-time fee in an amount equal to 50 basis points on the total
participation in any project of any State or local government,
bank, other financial institution, or foundation or not-for-
profit institution. Such fee shall be imposed only when the
participation of the entity described in the previous sentence
will occupy a senior credit position to that of the development
company. All proceeds of the fee shall be used to offset the
cost (as that term is defined in section 502 of the Credit
Reform Act of 1990) to the Administrator of making guarantees
under this section.
(j) Certified Development Company Fee.--The Administrator
shall collect annually from each development company a fee of
0.125 percent of the outstanding principal balance of any
guaranteed debenture authorized by the Administrator after
September 30, 1996. Such fee shall be derived from the
servicing fees collected by the certified development company
pursuant to regulation, and shall not be derived from any
additional fees imposed on small business concerns. All
proceeds of the fee shall be used to offset the cost (as that
term is defined in section 502 of the Credit Reform Act of
1990) to the Administrator of making guarantees under this
section.
(k) Effective Date.--The fees authorized by this section
shall apply to any financing approved under this title on or
after October 1, 1996.
(l) Calculation of Subsidy Rate.--All fees, interest, and
profits received and retained by the Administrator under this
section shall be included in the calculations made by the
Director of the Office of Management and Budget to offset the
cost (as that term is defined in section 502 of the Federal
Credit Reform Act of 1990) to the Administrator of purchasing
and guaranteeing debentures under this title.
(m) Actions Upon Default.--
(1) Initial actions.--Not later than the 45th day
after the date on which a payment on a loan funded
through a debenture guaranteed under this section is
due and not received, the Administrator shall--
(A) take all necessary steps to bring such
loan current; or
(B) implement a formal written deferral
agreement.
(2) Purchase or acceleration of debenture.--Not later
than the 65th day after the date on which a payment on
a loan described in paragraph (1) is due and not
received, and absent a formal written deferral
agreement, the Administrator shall take all necessary
steps to purchase or accelerate the debenture.
(3) Prepayment penalties.--With respect to the
portion of any project derived from funds not provided
by a debenture issued by a certified development
company or borrower, the Administrator--
(A) shall negotiate the elimination of any
prepayment penalties or late fees on defaulted
loans made prior to September 30, 1996;
(B) shall not pay any prepayment penalty or
late fee on the default based purchase of loans
issued after September 30, 1996; and
(C) shall not pay a default interest rate
higher than the interest rate on the note prior
to the date of default for any project financed
after September 30, 1996.
(4) Collection and servicing.--
(A) In general.--In the event of the default
of any loan and the repurchase of a debenture
guaranteed by the Administrator under this
title, the Administrator shall continue to
delegate to the central servicing agent that
was contracted for that service as of January
1, 2009, or successor contractor the authority
to collect and disburse all funds or payments
received on such defaulted loans, including
payments from guarantors or on notes in
compromise of the original note. The central
servicing agent shall continue to provide an
accounting of income and expenses for any such
loan on the same basis it does for any other
loan issued under this title. The central
servicing agent shall make the accounting of
income and expenses and reports thereon
available as requested by the certified
development company that issued the debenture
or the Administrator.
(B) Effective date.--The requirements of
subparagraph (A) shall become effective 180
days after the date of enactment of the Small
Business Financing and Investment Act of 2009.
SEC. 507. ECONOMIC DEVELOPMENT AND DEBENTURES.
(a) In General.--A certified development company shall be
prohibited from issuing a debenture under this title unless the
project funded with the debenture meets one of the following
economic development objectives:
(1) The creation of job opportunities within two
years of the completion of the project or the
preservation or retention of jobs attributable to the
project.
(2) Improving the economy of the locality, such as
stimulating other business development in the
community, bringing new income into the area, or
assisting the community in diversifying and stabilizing
its economy.
(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 which would be eligible for a new
markets tax credit under section 45D(a) of the
Internal Revenue Code of 1986, or implementing
regulations issued under that section.
(B) Expansion of exports.
(C) Expansion of minority business
development or women-owned business
development.
(D) Rural development.
(E) Expansion of small business concerns
owned and controlled by veterans, as defined in
section 3(q) of the Small Business Act (15
U.S.C. 632(q)), especially service-disabled
veterans, as defined in such section.
(F) Enhanced economic competition, including
the advancement of technology, plan retooling,
conversion to robotics, or competition with
imports.
(G) Changes necessitated by Federal budget
cutbacks, including defense related industries.
(H) Business restructuring arising from
federally mandated standards or policies
affecting the environment or the safety and
health of employees.
(I) Reduction of energy consumption by at
least 10 percent.
(J) Increased use of sustainable design,
including designs that reduce the use of
greenhouse gas emitting fossil fuels, or low-
impact design to produce buildings that reduce
the use of nonrenewable resources and minimize
environmental impact.
(K) Plant, equipment, and process upgrades of
renewable energy sources such as the small-
scale production of energy for individual
buildings or communities consumption, commonly
known as micropower, or renewable fuels
producers including biodiesel and ethanol
producers.
(4) Debt refinancing to the extent permitted by
subsection (d).
(b) Job Creation and Retention Requirements.--
(1) In general.--A project meets the job creation or
retention objective set forth in subsection (a)(1) if
the project creates or retains one job for every
$65,000 guaranteed by the Administrator, except that
the amount shall be $100,000 in the case of a project
of a small manufacturer.
(2) Exceptions.--
(A) Paragraph (1) shall not apply to a
project for which eligibility is based on the
objectives set forth in subsection (a)(2) or
(a)(3) if the certified development company's
portfolio of outstanding debentures creates or
retains one job for every $65,000 guaranteed by
the Administrator.
(B) For projects in Alaska, Hawaii, State-
designated enterprise zones, empowerment zones,
enterprise communities, or labor surplus areas
designated by the Administrator, the certified
development company's portfolio may average not
more than $75,000 per job created or retained.
(C) Loans for projects of small manufacturers
shall be excluded from the calculations in
subparagraphs (A) and (B).
(c) Combination of Certain Goals.--A small business concern
that is unconditionally owned by more than 1 individual, or a
corporation, the stock of which is owned by more than 1
individual, shall be deemed to have achieved a goal under
subsection (a)(3) if a combined ownership share of not less
than 51 percent is held by individuals who are in 1 of, or a
combination of, the groups described in subparagraphs (C) or
(E) of subsection (a)(1).
(d) Composition of the Project.--
(1) In general.--The projects described in this
section shall include, but not be limited to, plant
acquisition, construction, conversion, expansion
(including the acquisition of land), equipment and
related project costs, or to acquire the stock of a
corporation (as long as the value of the loan for the
acquisition of the stock does not exceed the fixed
asset value attributable to such assets as would be
eligible for financing under subsection (a)).
(2) Debt refinancing.--Any financing approved under
this title may include a limited amount of debt
refinancing if the project involves the expansion of a
small business concern.
(3) Limitation.--The amount of the existing
indebtedness may be refinanced and added to the
expansion cost if--
(A) the existing indebtedness does not exceed
50 percent of the project cost of the
expansion;
(B) the proceeds of the indebtedness were
used to acquire land, including a building
situated thereon, to construct a building
thereon, or to purchase equipment;
(C) the existing indebtedness is
collateralized by fixed assets;
(D) the existing indebtedness was incurred
for the benefit of the small business concern;
(E) the financing under this title will be
used only for refinancing existing indebtedness
or costs relating to the project financed under
this title;
(F) the financing under this title will
provide a substantial benefit to the borrower
when prepayment penalties, financing fees, and
other financing costs are accounted for;
(G) the borrower has been current on all
payments due on the existing debt for not less
than 1 year preceding the date of refinancing;
and
(H) the financing under this title will
provide better terms or rate of interest than
the existing indebtedness at the time of
refinancing.
(e) Definition.--For purposes of subparagraphs (J) and (K) of
subsection (a)(3), the terms included have the meanings given
those terms under the Leadership in Energy and Environmental
Design (more generally referred to as LEED) standard for green
building certification, as determined by the Administrator
through regulation to be published in the Code of Federal
Regulations.
SEC. 508. PROJECT FUNDING REQUIREMENTS.
(a) In General.--Any project described in section 507 must
meet the funding standards set forth in this section.
(b) Size of Debenture.--The Administrator shall only be
permitted to guarantee debenture issued by a certified
development company up to the following amounts:
(1) $3,000,000 for any project of a small business
concern.
(2) $4,000,000 for any project that meets the public
policy goals set forth in section 507(a)(3).
(3) $4,000,000 for any project to be located in a
low-income community as that term is described in
section 507(a)(3)(A).
(4) $8,000,000 for each project of a small
manufacturer.
(5) $8,000,000 for each project that reduces the
borrower's energy consumption by at least 10 percent.
(6) $8,000,000 for each project that generates
renewable energy or renewable fuels, such as, but not
limited to, biodiesel or ethanol production.
(7) $10,000,000 for each project for a small business
concern that constitutes a major source of employment
as that term is used in section 7(b)(3)(E) of the Small
Business Act (15 U.S.C. 636(b)(3)(E)).
(c) Funding From Sources Other Than Debentures Issued by
Certified Development Companies.--
(1) In general.--Any project financed pursuant to
this title must have the following contributions from
parties other than the debenture issued by the
certified development company:
(A) Funding from institutions.--
(i) If a small business concern
provides--
(I) the minimum contribution
required by subparagraph (B),
not less than 50 percent of the
total cost of any project
financed shall come from State
or local governments, banks or
other financial institutions,
or foundations or other not-
for-profit institutions; and
(II) more than the minimum
contribution required under
subparagraph (B), any excess
contribution may be used to
reduce the amount required from
institutions described in
subclause (I), except that the
amount provided by such
institution may not be reduced
to an amount that is less than
the amount of the loan made by
the Administrator.
(B) Funding from small business concerns.--
The small business concern (or its owners,
stockholders, or affiliates) that will have a
project financed pursuant to this title shall
provide--
(i) at least 15 percent of the total
cost of the project financed if the
small business concern has been in
operation for a period of 2 years or
less;
(ii) at least 15 percent of the total
cost of the project financed if the
project involves construction of a
limited or single purposed building or
structure;
(iii) at least 20 percent of the
total cost of the project financed if
the project involves both of the
conditions in clauses (i) and (ii); or
(iv) at least 10 percent of the total
cost of the project financed and not
covered by clauses (i), (ii), or (iii),
at the discretion of the certified
development company.
(2) Seller financing.--Seller-provided financing may
be used to meet the requirements of paragraph (1)(B),
if the seller subordinates the interest of the seller
in the property to the debenture guaranteed by the
Administrator.
(3) Collateralization.--
(A) In general.--The collateral provided by
the small business concern shall generally
include a subordinate lien position on the
property being financed under this title, and
is only one of the factors to be evaluated in
the credit determination. Additional collateral
shall be required only if the Administrator
determines, on a case-by-case basis, that
additional security is necessary to protect the
interest of the Government.
(B) Appraisals.--With respect to commercial
real property provided by the small business
concern as collateral, an appraisal of the
property by a State licensed or certified
appraiser--
(i) shall be required by the
Administrator before disbursement of
the loan if the estimated value of that
property is more than $400,000; or
(ii) may be required by the
Administrator or the lender before
disbursement of the loan if the
estimated value of that property is
$400,000 or less, and such appraisal is
necessary for appropriate evaluation of
creditworthiness.
(C) Adjustment.--The Administrator shall
periodically adjust the amount under
subparagraph (B) to account for the effects of
inflation, provided that no such adjustment
shall be less than $50,000.
(4) Limitation on leasing.--
(A) If the project funded under this section
includes the acquisition of a facility or the
construction of a new facility, the small
business concern--
(i) shall permanently occupy and use
not less than 50 percent of the project
property; and
(ii) may, on a temporary or permanent
basis, lease to others not more than 50
percent of the project property.
(B) For purposes of this paragraph, the term
``project property'' means--
(i) the building and any exterior
areas used in connection with the
building or a part thereof and includes
all of the parcels of real property
included in the project in the
aggregate; and
(ii) occupancy and use of the project
property by the operating company shall
be deemed to be occupancy and use by
the small business concern that
received funding under this section.
(d) Regulations.--(1) The Administrator shall promulgate
regulations, after notice and comment, to implement the
provisions of this section within 60 days after enactment of
the Small Business Financing and Investment Act of 2009. The
Administrator may limit the comment period to 15 days to meet
this deadline.
(2) If the Administrator fails to promulgate the regulations
as provided in paragraph (1), all leases entered into, absent
clear and convincing evidence of fraud, shall be deemed to be
in compliance with the limitations on leasing in this
subparagraph for purposes of honoring the guarantee on the
debenture issued by the certified development company.
(3) Any regulation of the Administrator or interpretation of
any regulation by the Administrator or the Office of Hearings
and Appeals that restricts the use of proceeds for leased
projects that was in effect on the date of enactment of the
Small Business Financing and Investment Act of 2009 shall
hereby cease to apply.
(4) Any interpretation of the leasing provisions issued by
the Administrator prior to the issuance of regulations required
by paragraph (1) shall be considered null and void and may be
not be used in any court of competent jurisdiction, be it
Federal or State court, to dishonor any guarantee of a
debenture issued by a certified development company for a
project funded pursuant to this section.
(e) Ownership Calculation.--Ownership requirements to
determine the eligibility of a small business concern that
applies for funding under this title shall be determined
without regard to any ownership interest of a spouse arising
solely from the application of the community property laws of a
State for purposes of determining marital interests.
(f) Combination Financing.--Financing under this title may be
provided to a borrower in the maximum amount provided in this
section, and a loan guarantee under section 7(a) of the Small
Business Act (15 U.S.C. 636(a)) may be provided to the same
borrower in the maximum amount provided in section 7(a)(3)(A)
of such Act, to the extent that the borrower otherwise
qualifies for such assistance.
(g) Rules for Debentures Funding Projects in Low-Income
Areas.--
(1) Size standards.--For purposes of determining the
size of a small business concern seeking funds for a
project described in subsection (b)(3), the size
standard promulgated by the Administrator in section
121.201 of title 13, Code of Federal Regulations, as in
effect on January, 1, 2009, or any successor
regulation, shall be increased by 25 percent.
(2) Personal liquidity.--
(A) In general.--The amount of personal
resources of an owner for a project described
in subsection (b)(3) that are excluded from the
amount required to reduce the portion of the
project funded by the Administrator shall be
not less than 25 percent more than that
required for funding of any other project
described in subsection (b).
(B) Definition.--For purposes of subparagraph
(A), the term ``owner'' means any person that
owns not less than 20 percent of the equity or
has not less than 20 percent of the voting
rights (in the case of a small business
organized as a partnership) of a small business
concern seeking funds under this section.
(h) Applicability of Credit Elsewhere and Personal Resources
Regulations.--Except as provided in subsection (c)(1)(B) with
respect to project funding, the Administrator shall be
prohibited from applying the regulations set forth in sections
120.101 and 120.102 of title 13, Code of Federal Regulations,
as in effect on January 1, 2009, or any successor regulation
that applies a credit elsewhere or personal resources test to
any application for a loan under this title pending or filed
after the date of enactment of the Small Business Financing and
Investment Act of 2009.
SEC. 509. PRIVATE DEBENTURE SALES AND POOLING OF DEBENTURES.
(a) Private Debenture Sales.--Notwithstanding any other law,
rule, or regulation, the Administrator shall sell to investors,
either publicly or by private placement, debentures issued by
certified development companies pursuant to this title for the
full amount of the program levels authorized in each fiscal
year and if there is not authorization of a level, the amount
of debentures actually issued.
(b) Federal Financing Bank.--Nothing in any provision of law
shall be construed to authorize the Federal Financing Bank to
acquire--
(1) any obligation the payment of principal or
interest on which at any time has been guaranteed in
whole or in part under this title and which is being
sold pursuant to the provisions of this section;
(2) any obligation which is an interest in any
obligation which is an interest in any obligation
described in paragraph (1); or
(3) any obligation which is secured by, or
substantially all of the value of which is attributable
to, any obligation described in paragraph (1) or (2).
(c) Pooling of Debentures.--
(1) In general.--The Administrator is authorized to
issue trust certificates representing ownership of all
or a fractional part of debentures issued by certified
development companies and guaranteed under this title
if such trust certificates are based on and backed by a
trust or pool approved by the Administrator and
composed solely of guaranteed debentures.
(2) Guarantee of trust certificates.--The
Administrator is authorized, upon such terms and
conditions as are deemed appropriate, to guarantee the
timely payment of the principal of and interest on
trust certificates issued by the Administrator or its
agent for purposes of this section. Such guarantee
shall be limited to the extent of principal and
interest on the guaranteed debentures which compose the
trust or pool. In the event that a debenture in such
trust or pool is prepaid, either voluntarily or in the
event of default, the guarantee of timely payment of
principal and interest on the trust certificates shall
be reduced in proportion to the amount of principal and
interest such prepaid debenture represents in the trust
or pool. Interest on prepaid or defaulted debentures
shall accrue and be guaranteed by the Administrator
only through the date of payment on the guarantee.
During the term of the trust certificate, it may be
called for redemption due to prepayment or default of
all debentures constituting the pool.
(3) Full faith and credit.--The full faith and credit
of the United States is pledged to the payment of all
amounts which may be required to be paid under any
guarantee of such trust certificates issued by the
Administrator or its agent pursuant to this section.
(4) Prohibition on guarantee fee for pools.--The
Administrator shall not collect any fee for any
guarantee under this section, provided that nothing
herein shall preclude any agent of the Administrator
from collecting a fee approved by the Administrator for
the functions performed in paragraph (6)(F).
(5) Subrogation.--
(A) In general.--In the event the
Administrator pays a claim under a guarantee
issued under this section, it shall be
subrogated fully to the rights satisfied by
such payment.
(B) Administrator exercise of rights.--No
Federal, State, or local law shall preclude or
limit the exercise by the Administrator of its
ownership rights in the debentures constituting
the trust or pool against which the trust
certificates are issued.
(6) Central registration.--
(A) In general.--The Administrator shall
provide for a central registration of all trust
certificates sold pursuant to this section.
(B) Contract.--The Administrator shall
contract with an agent to carry out on behalf
of the Administrator the central registration
functions of this section and the issuance of
trust certificates to facilitate pooling.
(C) Bond.--The Administrator shall require
the contractor to provide a fidelity bond or
insurance in such amounts as is deemed
necessary to fully protect the interests of the
Government.
(D) Disclosure requirements.--The
Administrator shall, prior to any sale, require
the seller to disclose to a purchaser of a
trust certificate issued pursuant to this
section, information on terms, conditions, and
yield of such instruments.
(E) Authority to regulate.--The Administrator
shall have the authority to regulate brokers
and dealers in trust certificates sold pursuant
to this section.
(F) Book entry permitted.--Nothing in this
paragraph shall prohibit the utilization of a
book-entry or other electronic form of
registration for trust certificates.
SEC. 510. FORECLOSURE AND LIQUIDATION OF LOANS.
(a) Delegation of Authority.--In accordance with this
section, the Administrator shall delegate to any certified
development company that meets the eligibility requirements of
subsection (b)(1), the authority to foreclose and liquidate, or
to otherwise treat in accordance with this section, defaulted
loans in its portfolio that are funded with the proceeds of
debentures guaranteed by the Administrator pursuant to this
title.
(b) Eligibility for Delegation.--
(1) Requirements.--A certified development company
shall be eligible for a delegation of authority under
subsection (a) if--
(A) the certified development company--
(i) has participated in the loan
liquidation pilot program established
by the Small Business Programs
Improvement Act of 1996 (15 U.S.C. 695
note), before the enactment of the
Small Business Financing and Investment
Act of 2009;
(ii) is an accredited or premier
certified development company; or
(iii) during the 3 fiscal years
immediately prior to seeking such a
delegation, has made an average of not
less than 10 loans per year that are
funded with the proceeds of debentures
guaranteed under this title; and
(B) the certified development company--
(i) has one or more employees--
(I) with not less than 2
years of substantive,
decisionmaking experience in
administering the liquidation
and workout of problem loans
secured in a manner
substantially similar to loans
funded with the proceeds of
debentures guaranteed under
this title; and
(II) who have completed a
training program on loan
liquidation developed by the
Administrator in conjunction
with a certified development
company that meet the
requirements of this paragraph;
or
(ii) submits to the Administrator
documentation demonstrating that the
company has contracted with a qualified
third party to perform any liquidation
activities and secures the approval of
the contract by the Administrator with
respect to the qualifications of the
contractor and the terms and conditions
of liquidation activities.
(2) Confirmation.--On the request, the Administrator
shall examine the qualifications of any certified
development company described in subsection (a) to
determine if such company is eligible for the
delegation of authority under this section. If the
Administrator determines that a company is not
eligible, the Administrator shall provide the company,
in writing, with the reasons for such ineligibility.
The certified development company shall be entitled to
request delegated authority and the Administrator shall
review the request only to address whether the
certified development company has rectified the reasons
for the Administrator's original determination of
ineligibility.
(c) Scope of Delegated Authority.--
(1) In general.--Each certified development company
to which the Administrator delegates authority under
subsection (a) may with respect to any loan described
in subsection (a)--
(A) perform all liquidation and foreclosure
functions, including the purchase in accordance
with this subsection of any other indebtedness
secured by the property securing the loan, in a
reasonable and sound manner according to
commercially accepted practices, pursuant to a
liquidation plan approved in advance by the
Administrator under paragraph (2)(A);
(B) litigate any matter relating to the
performance of the functions described in
subparagraph (A), except that the Administrator
may--
(i) defend or bring any claim if--
(I) the outcome of the
litigation may adversely affect
the Administrator's management
of the program established
under this title; or
(II) the Administrator is
entitled to legal remedies not
available to a certified
development company and such
remedies will benefit either
the Administrator or the
certified development company;
and
(ii) oversee the conduct of any such
litigation; and
(C) take other appropriate actions to
mitigate loan losses in lieu of total
liquidation or foreclosures, including the
restructuring of a loan in accordance with
prudent loan servicing practices and pursuant
to a workout plan approved in advance by the
Administrator under paragraph (2).
(2) Administrator approval of plans.--
(A) Certified development company submission
of plans.--Before carrying out functions
described in paragraph (1)(A) or (1)(C), the
certified development company shall submit to
the Administrator a proposed liquidation plan,
any proposal for the Administrator to the
purchase of any other indebtedness secured by
the property securing a defaulted loan, or a
workout plan or any combination thereof.
(B) Administrator approval procedures.--
(i) Timing.--Not later than 15
business days after the plans described
in subparagraph (A) are received by the
Administrator, the Administrator shall
approve or reject the plan.
(ii) Notice of no decision.--With
respect to any plan that cannot be
approved or denied within the 15-day
period required by clause (i), the
Administrator shall within such period
provide in accordance with subparagraph
(E) notice to the company that
submitted the plan.
(C) Routine actions.--In carrying out the
functions described in paragraph (1)(A), a
certified development company may undertake
routine actions not addressed in a liquidation
or workout plan without obtaining additional
approval from the Administrator.
(D) Compromise of indebtedness.--In carrying
out functions described in paragraph (1)(A), a
certified development company may--
(i) consider an offer made by an
obligor to compromise the debt for less
than the full amount owing; and
(ii) pursuant to such offer, release
any obligor or other party contingently
liable, if the company secures the
written approval of the Administrator.
(E) Contents of notice of no decision.--Any
notice provided by the Administrator pursuant
to subparagraph (B)(ii) shall--
(i) be in writing stating the
specific reasons for which the
Administrator was unable to act on the
request submitted pursuant to
subparagraph (A);
(ii) provide an estimate of the
additional time needed for the
Administrator to reach a decision on
the request; and
(iii) specify any additional
information or documentation that the
Administrator needs to make a decision
but was not provided in the plan
submitted by the certified development
company.
(3) Conflict of interest.--In carrying out functions
described in paragraph (1), a certified development
company shall take no action that would result in an
actual or apparent conflict of interest between the
company (or any employee of the company) and any third-
party lender, associate of a third-party lender, or any
other person participating in a liquidation,
foreclosure, or loss mitigation action.
(d) Suspension or Revocation of Authority.--
(1) In general.--The Administrator may revoke or
suspend a delegation of authority under this section to
a certified development company if the Administrator
determines that the company--
(A) does not meet the requirements of
subsection (b)(1);
(B) violated any applicable law or rule or
regulation of the Administrator that in the
estimation of the Administrator requires
revocation; or
(C) fails to comply with any reporting that
may be established by the Administrator
relating to the establishment of eligibility in
subsection (b)(1) or carrying out the functions
described in subsection (c)(1).
(2) Written notice.--The Administrator shall provide
in writing detailed reason why the delegation of
authority was suspended or revoked.
(e) Participation in Liquidation.--
(1) In general.--
(A) Contract with qualified third party.--A
certified development company which elects not
to apply for authority to foreclose and
liquidate defaulted loans under this section,
or which the Administrator 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.
(B) Contract approval.--The contract entered
into by the certified development company
specified in subparagraph (A) shall be
contingent upon approval by the Administrator
with respect to the qualifications of the
contractor and the terms and conditions of
liquidation activities. The Administrator shall
not unreasonably withhold such approval.
(C) Notification of rejection.--If the
Administrator rejects the contract, the
Administrator shall provide a notice to the
certified development company, in writing,
explaining the reasons for such rejection
within ten business days after submission of
the contract.
(D) Resubmittal.--The certified development
company shall be permitted to resubmit the
contract and the Administrator's review of any
such resubmittal shall be limited to
insufficiencies described in the notification
of rejection.
(E) Regulations.--The Administrator shall
promulgate regulations, after notice and
opportunity for comment, adopting standards for
the approval of qualified third-party
contractors within 90 days after the date of
enactment of the Small Business Financing and
Investment Act of 2009.
(F) Failure to promulgate regulations.--If
the Administrator fails to promulgate such
regulations, any contract for liquidation
entered into by a certified development company
under this subsection shall be considered valid
for the purposes of this subsection and
subsection (f).
(G) Effect of administrator's promulgation of
regulations.--If the Administrator promulgates
regulations after the deadline specified in
subparagraph (E), those regulations shall not
have any retroactive application with respect
to contracts that are described in subparagraph
(F).
(2) Commencement.--This subsection shall not require
any certified development company to liquidate
defaulted loans until the Administrator implements a
system to compensate and reimburse certified
development companies for liquidation of any defaulted
loans.
(f) Compensation and Reimbursement.--
(1) Reimbursement of expenses.--The Administrator
shall reimburse each certified development company for
all expenses paid by such company as part of the
foreclosure and liquidation activities taken to carry
out this section, if the expenses--
(A) were--
(i) approved in advance by the
Administrator, either specifically in a
plan submitted pursuant to subsection
(c) or generally, such as, but not
limited to, actions approved by the
Administrator in regulations or other
interpretative issuances; or
(ii) incurred by the development
company on an emergency basis without
prior approval from the Administrator,
if the Administrator determines that
the expenses were reasonable and
appropriate; and
(B) are submitted by the certified
development company to the Administrator not
later than 3 years after the date the expense
was incurred or the bill therefore is submitted
to the certified development company, whichever
is later.
(2) Alternative reimbursement.--As an alternative to
the procedure in paragraph (1), a certified development
company may elect to obtain reimbursement for all such
expenses from the proceeds of any collateral provided
by the borrower that was liquidated by the certified
development company if the expenses comply with the
requirements of paragraph (1). Within 6 months of the
reimbursement, the certified development company shall
provide the Administrator with the same information and
documentation it would be required to submit to obtain
payment from the Administrator.
(3) Regulations.--The Administrator shall promulgate
regulations, after notice and comment to carry out the
provisions of paragraphs (1) and (2). If the
Administrator does not promulgate such regulations
within one year, certified development companies shall
be authorized, notwithstanding the requirements of
subsection (e)(2), to liquidate defaulted loans and
such costs and expenses incurred, absent clear and
convincing evidence of fraud, shall be deemed to be
approved.
(4) Compensation for results.--
(A) Development.--In regulations promulgated
pursuant to paragraph (3), the Administrator
also shall develop a schedule of compensation
that provides monetary incentives for certified
development companies in order to increase
recoveries on defaulted loans.
(B) Criteria.--The schedule shall--
(i) be based on a percentage of the
net amount recovered, but shall not
exceed a maximum amount; and
(ii) not apply to any foreclosure
which is conducted under a contract
between a certified development company
and a qualified third party to perform
the foreclosure and liquidation.
(C) Payment.--The Administrator shall
transmit the compensation provided herein to
the development company from the proceeds of
liquidated collateral, unless the Administrator
utilizes another source for funds, within 30
days from the date when the liquidation case
has been closed and documentation received.
SEC. 511. REPORTS.
(a) Premier Certified Development Companies.--The
Administrator shall report annually to the Committee on Small
Business of the House of Representatives and the Committee on
Small Business and Entrepreneurship of the Senate on the
implementation of section 504. Each report shall include--
(1) the number of premier certified development
companies;
(2) the debenture volume of each premier certified
development company;
(3) a comparison of the loss rate for premier
certified development companies to the loss rate for
accredited or certified development companies; and
(4) such other information as the Administrator deems
appropriate.
(b) Reports on Liquidation and Foreclosures.--
(1) In general.--Based on information provided by
certified development companies and the Administrator,
the Administrator shall submit annually to the
Committee on Small Business and Entrepreneurship of the
Senate and the Committee on Small Business of the House
of Representatives a report on the results of
delegation of authority under section 510.
(2) Contents.--Each report submitted under paragraph
(1) shall include the following information:
(A) With respect to each loan foreclosed or
liquidated by a certified development company,
or for which losses were otherwise mitigated by
pursuant to a workout plan--
(i) the total cost of the project
financed with the loan;
(ii) the total original dollar amount
guaranteed by the Administration;
(iii) the total dollar amount of the
loan at the time of liquidation,
foreclosure, or mitigation of loss;
(iv) the total dollar losses
resulting from the liquidation,
foreclosure, or mitigation of loss; and
(v) the total recoveries resulting
from the liquidation, foreclosure, or
mitigation of loss, both as a
percentage of the amount guaranteed and
the total cost of the project financed.
(B) With respect to each certified
development company to which authority is
delegated under section 510, the totals of each
of the amounts described in clauses (i) through
(v) of subparagraph (A).
(C) With respect to each certified
development company that contracts with a
qualified third-party contractor pursuant to
section 510(e), the total of each of the
amounts described in clauses (i) through (v) of
subparagraph (A).
(D) With respect to all loans subject to
foreclosure, liquidation, or mitigation under
section 510, the totals of each of the amounts
described in clauses (i) through (v) of
subparagraph (A).
(E) A comparison between--
(i) the information provided under
subparagraph (D) with respect to the
12-month period preceding the date on
which the report is submitted; and
(ii) the same information with
respect to loans foreclosed and
liquidated, or otherwise treated, by
the Administrator during the same
period.
(F) The number of times that the
Administrator has failed to approve or reject a
liquidation plan, workout plan, request to
purchase indebtedness, or failed to approve a
third-party contractor under section 510,
including specific information regarding the
reasons for the Administrator's failure and any
delays that resulted.
(c) Reports on Combination Financing.--
(1) Reporting requirement.--Not later than 90 days
after the date of enactment of the Small Business
Financing and Investment Act of 2009, and annually
thereafter, the Administrator shall submit a report to
the Committee on Small Business and Entrepreneurship of
the Senate and the Committee on Small Business of the
House of Representatives that--
(A) includes the number of small business
concerns that have financing under both section
7(a) of the Small Business Act (15 U.S.C.
636(a)) and title V of the Small Business
Investment Act of 1958 (15 U.S.C. 695 et seq.)
during the year before the year of that report;
and
(B) describes the total amount and general
performance of the financing described in
subparagraph (A).
(d) Report on Other Economic Development Activity.--The
Administrator shall compile and submit to the Committee on
Small Business of the House of Representatives and the
Committee on Small Business and Entrepreneurship of the Senate
on an annual basis, commencing in the year that the Small
Business Financing and Investment Act of 2009 is enacted, a
report that describes the economic and community development
activities, other than loan making under this title, of each
certified development company during the prior fiscal year. The
Administrator may contract with another party, including non-
governmental entities, to collect information or otherwise
assist in the preparation of the report required by this
subsection.
SEC. 512. PROMULGATION OF REGULATIONS UNDER THIS TITLE.
(a) Deadlines for Implementing Regulations.--Except as
expressly provided elsewhere in the Small Business Financing
and Investment Act of 2009, the Administrator shall promulgate
regulations under this title, after providing notice and the
opportunity for comment, within 180 days after the date of
enactment of that Act.
(b) Notice and Comment Requirements in General.--Except as
otherwise provided elsewhere in this title, the Administrator
shall provide, after the date of enactment of the Small
Business Financing and Investment Act of 2009, notice of any
proposed change to a regulation implementing this title
(whether in existence on the date of enactment of the Small
Business Financing and Investment Act of 2009 or subsequently
adopted), publish such notification in the Federal Register,
and provide a comment period of not less than 60 days.
SEC. 513. PROGRAM NAME.
(a) In General.--The program created by this title shall be
referred to as the CDC Economic Development Loan Program.
(b) Modification of Materials Used.--Not later than 60 days
after the date of enactment of the Small Business Financing and
Investment Act of 2009, the Administrator shall modify all
documents and websites to conform to the name change made by
this section.
* * * * * * *