Collapse to view only § 5702. Federal funds allocated to States
- § 5701. Definitions
- § 5702. Federal funds allocated to States
- § 5703. Approving States for participation
- § 5704. Approving State capital access programs
- § 5705. Approving collateral support and other innovative credit access and guarantee initiatives for small businesses and manufacturers
- § 5706. Reports
- § 5707. Remedies for State program termination or failures
- § 5708. Implementation and administration
- § 5709. Regulations
- § 5710. Oversight and audits
§ 5701. DefinitionsIn this chapter, the following definitions shall apply:
(1) Appropriate committees of CongressThe term “appropriate committees of Congress” means—
(A) the Committee on Small Business and Entrepreneurship, the Committee on Agriculture, Nutrition, and Forestry, the Committee on Banking, Housing, and Urban Affairs, the Committee on Finance, the Committee on the Budget, and the Committee on Appropriations of the Senate; and
(B) the Committee on Small Business, the Committee on Agriculture, the Committee on Financial Services, the Committee on Ways and Means, the Committee on the Budget, and the Committee on Appropriations of the House of Representatives.
(2) Appropriate Federal banking agencyThe term “appropriate Federal banking agency”—
(A) has the same meaning as in section 1813(q) of this title; and
(B) includes the National Credit Union Administration Board in the case of any credit union the deposits of which are insured in accordance with the Federal Credit Union Act [12 U.S.C. 1751 et seq.].
(3) Enrolled loan
(4) Federal contribution
(5) Financial institution
(6) Participating State
(7) Program
(8) Qualifying loan or swap funding facilityThe term “qualifying loan or swap funding facility” means a contractual arrangement between a participating State and a private financial entity under which—
(A) the participating State delivers funds to the entity as collateral;
(B) the entity provides funding from the arrangement back to the participating State; and
(C) the full amount of resulting funding from the arrangement, less any fees and other costs of the arrangement, is contributed to, or for the account of, an approved State program.
(9) Reserve fundThe term “reserve fund” means a fund, established by a participating State, dedicated to a particular financial institution lender, for the purposes of—
(A) depositing all required premium charges paid by the financial institution lender and by each borrower receiving a loan under an approved State program from that financial institution lender;
(B) depositing contributions made by the participating State, including State contributions made with Federal contributions; and
(C) covering losses on enrolled loans by disbursing accumulated funds.
(10) StateThe term “State” means—
(A) a State of the United States;
(B) the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of Northern Mariana Islands, Guam, American Samoa, and the United States Virgin Islands;
(C) when designated by a State of the United States, a political subdivision of that State that the Secretary determines has the capacity to participate in the Program;
(D) under the circumstances described in section 5703(d) of this title, a municipality of a State of the United States to which the Secretary has given a special permission under section 5703(d) of this title; and
(E) a Tribal government, or a group of Tribal governments that jointly apply for an allocation.
(11) State capital access programThe term “State capital access program” means a program of a State that—
(A) uses public resources to promote private access to credit; and
(B) meets the eligibility criteria in section 5704(c) of this title.
(12) State other credit support programThe term “State other credit support program”—
(A) means a program of a State that—
(i) uses public resources to promote private access to credit;
(ii) is not a State capital access program; and
(iii) meets the eligibility criteria in section 5705(c) of this title; and
(B) includes, collateral support programs, loan participation programs, State-run venture capital fund programs, and credit guarantee programs.
(13) State program
(14) Secretary
(15) Business enterprise owned and controlled by socially and economically disadvantaged individualsThe term “business enterprise owned and controlled by socially and economically disadvantaged individuals” means a business that—
(A) if privately owned, 51 percent is owned by one or more socially and economically disadvantaged individuals;
(B) if publicly owned, 51 percent of the stock is owned by one or more socially and economically disadvantaged individuals; and
(C) in the case of a mutual institution, a majority of the Board of Directors, account holders, and the community which the institution services is predominantly comprised of socially and economically disadvantaged individuals.
(16) Community development financial institution
(17) Minority depository institution
(18) Socially and economically disadvantaged individual
(19) Tribal government
(Pub. L. 111–240, title III, § 3002, Sept. 27, 2010, 124 Stat. 2568; Pub. L. 117–2, title III, § 3301(e), (f), Mar. 11, 2021, 135 Stat. 71.)
§ 5702. Federal funds allocated to States
(a) Program established; purpose
(b) Allocation formula
(1) In general
(2) 2021 allocation formula
(A) In general
(B) Minimum allocation
(C)1
1 So in original. Two subpars. (C) have been enacted.
2020 State employment decline definedIn this paragraph and with respect to a State, the term “2020 State employment decline” means the excess (if any) of—(i) the number of individuals employed in such State determined for December 2019; over
(ii) the number of individuals employed in such State determined for December 2020.
(C)1 Separate allocation for Tribal governments
(i) In general
(ii) Notice of intent; timing of allocationWith respect to allocations to States that are Tribal governments, the Secretary may—(I) require Tribal governments that individually or jointly wish to participate in the Program to file a notice of intent with the Secretary not later than 30 days after March 11, 2021; and(II) notwithstanding paragraph (1), allocate Federal funds to participating Tribal governments not later than 60 days after March 11, 2021.
(D) Employment data
(c) Availability of allocated amountThe amount allocated by the Secretary to each participating State under subsection (b) shall be made available to the State as follows:
(1) Allocated amount generally to be available to State in one-thirds
(A) In generalThe Secretary shall—
(i) apportion the participating State’s allocated amount into thirds;
(ii) transfer to the participating State the first ⅓ when the Secretary approves the State for participation under section 5703 of this title; and
(iii) transfer to the participating State each successive ⅓ when the State has certified to the Secretary that it has expended, transferred, or obligated 80 percent of the last transferred ⅓ for Federal contributions to, or for the account of, State programs that have delivered loans or investments to eligible businesses.
(B) Authority to withhold pending audit
(C) Inspector General audits
(i) In general
(ii) Recoupment of misused transferred funds required
(iii) Penalty for misstatement
(iv) Municipalities
(D) Exception
(2) Transferred amounts
(3) Use of transferred fundsEach participating State may use funds transferred to it under this section only—
(A) for making Federal contributions to, or for the account of, an approved State program;
(B) as collateral for a qualifying loan or swap funding facility;
(C) in the case of the first ⅓ transferred, for paying administrative costs incurred by the State in implementing an approved State program in an amount not to exceed 5 percent of that first ⅓; or
(D) in the case of each successive ⅓ transferred, for paying administrative costs incurred by the State in implementing an approved State program in an amount not to exceed 3 percent of that successive ⅓.
(4) Termination of availability of amounts not transferred
(A) In generalAny portion of a participating State’s allocated amount that has not been transferred to the State under this section may be deemed by the Secretary to be no longer allocated to the State and no longer available to the State and shall be returned to the general fund of the Treasury or reallocated as described under subparagraph (B), if—
(i) the second ⅓ of a State’s allocated amount has not been transferred to the State before the end of the end of the 3-year period beginning on the date that the Secretary approves the State for participation; or
(ii) the last ⅓ of a State’s allocated amount has not been transferred to the State before the end of the end of the 6-year period beginning on the date that the Secretary approves the State for participation.
(B) Reallocation
(5) Transferred amounts not assistance
(6) DefinitionsIn this section—
(A) the term “allocated amount” means the total amount of Federal funds allocated by the Secretary under subsection (b) to the participating State; and
(B) the term “⅓” means—
(i) in the case of the first ⅓ and second ⅓, an amount equal to 33 percent of a participating State’s allocated amount; and
(ii) in the case of the last ⅓, an amount equal to 34 percent of a participating State’s allocated amount.
(d) Additional allocations to support business enterprises owned and controlled by socially and economically disadvantaged individualsOf the amounts appropriated for fiscal year 2021 to carry out the Program, the Secretary shall—
(1) allocate $1,500,000,000 to States from funds allocated under this section and, by regulation or other guidance, prescribe Program requirements that the funds be expended for business enterprises owned and controlled by socially and economically disadvantaged individuals; and
(2) allocate such amounts to States based on the needs of business enterprises owned and controlled by socially and economically disadvantaged individuals, as determined by the Secretary, in each State, and not subject to the allocation formula described under subsection (b).
(e) Incentive allocations to support business enterprises owned and controlled by socially and economically disadvantaged individuals
(f) Additional allocations to support very small businesses
(1) In general
(2) Very small business definedIn this subsection, the term “very small business”—
(A) means a business with fewer than 10 employees; and
(B) may include independent contractors and sole proprietors.
(Pub. L. 111–240, title III, § 3003, Sept. 27, 2010, 124 Stat. 2570; Pub. L. 117–2, title III, § 3301(a)(1)(A), (b), (c), Mar. 11, 2021, 135 Stat. 67, 69, 70.)
§ 5703. Approving States for participation
(a) Application
(b) General approval criteriaThe Secretary shall approve a State to be a participating State, if—
(1) a specific department, agency, or political subdivision of the State has been designated to implement a State program and participate in the Program;
(2) all legal actions necessary to enable such designated department, agency, or political subdivision to implement a State program and participate in the Program have been accomplished;
(3) the State has filed an application with the Secretary for approval of a State capital access program under section 5704 of this title or approval as a State other credit support program under section 5705 of this title, in each case within the time period provided in the respective section; and
(4) the State and the Secretary have executed an allocation agreement that—
(A) conforms to the requirements of this chapter;
(B) ensures that the State program complies with such national standards as are established by the Secretary under section 5708(a)(2) of this title;
(C) sets forth internal control, compliance, and reporting requirements as established by the Secretary, and such other terms and conditions necessary to carry out the purposes of this chapter, including an agreement by the State to allow the Secretary to audit State programs;
(D) requires that the State program be fully positioned, within 90 days of the State’s execution of the allocation agreement with the Secretary, to act on providing the kind of credit support that the State program was established to provide; and
(E) includes an agreement by the State to deliver to the Secretary, and update annually, a schedule describing how the State intends to apportion among its State programs the Federal funds allocated to the State.
(c) Contractual arrangements for implementation of State programsA State may be approved to be a participating State, and be eligible for an allocation of Federal funds under the Program, if the State has contractual arrangements for the implementation and administration of its State program with—
(1) an existing, approved State program administered by another State; or
(2) an authorized agent of, or entity supervised by, the State, including for-profit and not-for-profit entities.
(d) Special permission
(1) Circumstances when a municipality may apply directly
(2) Timing requirements applicable to municipalities applying directly
(3) Notices of intent and applications from more than 1 municipality
(4) Approval criteria
(5) Allocation to municipalities
(A) If more than 3
(B) If 3 or fewer
(6) Apportionment of allocated amount among participating municipalities
(7) Approving State programs for municipalities
(Pub. L. 111–240, title III, § 3004, Sept. 27, 2010, 124 Stat. 2573; Pub. L. 117–2, title III, § 3301(a)(1)(B), Mar. 11, 2021, 135 Stat. 69.)
§ 5704. Approving State capital access programs
(a) Application
(b) ApprovalThe Secretary shall approve such State capital access program as eligible for Federal contributions to the reserve fund if—
(1) within 60 days after March 11, 2021, the State has filed with the Secretary a notice of intent to apply for approval by the Secretary of a State capital access program;
(2) within 9 months after March 11, 2021, the State has filed with the Secretary a complete application for approval by the Secretary of a capital access program;
(3) the State satisfies the requirements of subsections (a) and (b) of section 5703 of this title; and
(4) the State capital access program meets the eligibility criteria in subsection (c).
(c) Eligibility criteria for State capital access programsFor a State capital access program to be approved under this section, that program shall be required to be a program of the State that—
(1) provides portfolio insurance for business loans based on a separate loan-loss reserve fund for each financial institution;
(2) requires insurance premiums to be paid by the financial institution lenders and by the business borrowers to the reserve fund to have their loans enrolled in the reserve fund;
(3) provides for contributions to be made by the State to the reserve fund in amounts at least equal to the sum of the amount of the insurance premium charges paid by the borrower and the financial institution to the reserve fund for any newly enrolled loan; and
(4) provides its portfolio insurance solely for loans that meet both the following requirements:
(A) The borrower has 500 employees or less at the time that the loan is enrolled in the Program.
(B) The loan amount does not exceed $5,000,000.
(d) Federal contributions to approved State capital access programs
(e) Minimum program requirements for State capital access programsThe Secretary shall, by regulation or other guidance, prescribe Program requirements that meet the following minimum requirements:
(1) Experience and capacity
(2) Investment authority
(3) Loan terms and conditions to be determined by agreement
(4) Lender capital at-risk
(5) Premium charges minimum and maximum amounts
(6) State contributions
(7) Loan purpose
(A) Particular loan purpose requirements and prohibitionsIn connection with the filing of a loan for enrollment in an approved State capital access program, the financial institution lender—
(i) shall obtain an assurance from each borrower that—(I) the proceeds of the loan will be used for a business purpose;(II) the loan will not be used to finance such business activities as the Secretary, by regulation, may proscribe as prohibited loan purposes for enrollment in an approved State capital access program; and(III) the borrower is not—(aa) an executive officer, director, or principal shareholder of the financial institution lender;(bb) a member of the immediate family of an executive officer, director, or principal shareholder of the financial institution lender; or(cc) a related interest of any such executive officer, director, principal shareholder, or member of the immediate family;
(ii) shall provide assurances to the participating State that the loan has not been made in order to place under the protection of the approved State capital access program prior debt that is not covered under the approved State capital access program and that is or was owed by the borrower to the financial institution lender or to an affiliate of the financial institution lender;
(iii) shall not allow the enrollment of a loan to a borrower that is a refinancing of a loan previously made to that borrower by the financial institution lender or an affiliate of the financial institution lender; and
(iv) may include additional restrictions on the eligibility of loans or borrowers that are not inconsistent with the provisions and purposes of this chapter, including compliance with all applicable Federal and State laws, regulations, ordinances, and Executive orders.
(B) Definitions
(8) Capital access for small businesses in underserved communities
(Pub. L. 111–240, title III, § 3005, Sept. 27, 2010, 124 Stat. 2574; Pub. L. 117–2, title III, § 3301(a)(1)(C), Mar. 11, 2021, 135 Stat. 69.)
§ 5705. Approving collateral support and other innovative credit access and guarantee initiatives for small businesses and manufacturers
(a) Application
(b) ApprovalThe Secretary shall approve such State other credit support program as eligible for Federal contributions to, or for the account of, the program if—
(1) the Secretary determines that the State satisfies the requirements of paragraphs (1) through (3) of section 5704(b) of this title;
(2) the Secretary determines that the State other credit support program meets the eligibility criteria in subsection (c);
(3) the Secretary determines the State other credit support program to be eligible based on the additional considerations in subsection (d); and
(4) within 9 months after March 11, 2021, the State has filed with Treasury a complete application for Treasury approval.
(c) Eligibility criteria for State other credit support programsFor a State other credit support program to be approved under this section, that program shall be required to be a program of the State that—
(1) can demonstrate that, at a minimum, $1 of public investment by the State program will cause and result in $1 of new private credit;
(2) can demonstrate a reasonable expectation that, when considered with all other State programs of the State, such State programs together have the ability to use amounts of new Federal contributions to, or for the account of, all such programs in the State to cause and result in amounts of new small business lending at least 10 times the new Federal contribution amount;
(3) for those State other credit support programs that provide their credit support through 1 or more financial institution lenders, requires the financial institution lenders to have a meaningful amount of their own capital resources at risk in their small business lending; and
(4) uses Federal funds allocated under this chapter to extend credit support that—
(A) targets an average borrower size of 500 employees or less;
(B) does not extend credit support to borrowers that have more than 750 employees;
(C) targets support towards loans with an average principal amount of $5,000,000 or less; and
(D) does not extend credit support to loans that exceed a principal amount of $20,000,000.
(d) Additional considerationsIn making a determination that a State other credit support program is eligible for Federal contributions to, or for the account of, the State program, the Secretary shall take into account the following additional considerations:
(1) The anticipated benefits to the State, its businesses, and its residents to be derived from the Federal contributions to, or for the account of, the approved State other credit support program, including the extent to which resulting small business lending will expand economic opportunities.
(2) The operational capacity, skills, and experience of the management team of the State other credit support program.
(3) The capacity of the State other credit support program to manage increases in the volume of its small business lending.
(4) The internal accounting and administrative controls systems of the State other credit support program, and the extent to which they can provide reasonable assurance that funds of the State program are safeguarded against waste, loss, unauthorized use, or misappropriation.
(5) The soundness of the program design and implementation plan of the State other credit support program.
(e) Federal contributions to approved State other credit support programs
(f) Minimum Program Requirements for State other credit support programs
(1) Fund 1
1 So in original. Probably should be “Secretary”.
to prescribe(2) Considerations for fund
(Pub. L. 111–240, title III, § 3006, Sept. 27, 2010, 124 Stat. 2577; Pub. L. 117–2, title III, § 3301(a)(1)(D), Mar. 11, 2021, 135 Stat. 69.)
§ 5706. Reports
(a) Quarterly use-of-funds report
(1) In general
(2) Report contentsEach report under this subsection shall—
(A) indicate the total amount of Federal funding used by the participating State; and
(B) include a certification by the participating State that—
(i) the information provided in accordance with subparagraph (A) is accurate;
(ii) funds continue to be available and legally committed to contributions by the State to, or for the account of, approved State programs, less any amount that has been contributed by the State to, or for the account of, approved State programs subsequent to the State being approved for participation in the Program; and
(iii) the participating State is implementing its approved State program or programs in accordance with this chapter and regulations issued under section 5709 of this title.
(b) Annual reportNot later than March 31 of each year, beginning March 31, 2022, each participating State shall submit to the Secretary an annual report that shall include the following information:
(1) The number of borrowers that received new loans originated under the approved State program or programs after the State program was approved as eligible for Federal contributions.
(2) The total amount of such new loans.
(3) Breakdowns by industry type, loan size, annual sales, and number of employees of the borrowers that received such new loans.
(4) The zip code of each borrower that received such a new loan.
(5) Such other data as the Secretary, in the Secretary’s sole discretion, may require to carry out the purposes of the Program.
(c) Form
(d) Termination of reporting requirements
(Pub. L. 111–240, title III, § 3007, Sept. 27, 2010, 124 Stat. 2579;
§ 5707. Remedies for State program termination or failures
(a) Remedies
(1) In general
If any of the events listed in paragraph (2) occur, the Secretary, in the Secretary’s discretion, may—
(A) reduce the amount of Federal funds allocated to the State under the Program; or
(B) terminate any further transfers of allocated amounts that have not yet been transferred to the State.
(2) Causal events
The events referred to in paragraph (1) are—
(A) termination by a participating State of its participation in the Program;
(B) failure on the part of a participating State to submit complete reports under section 5706 of this title on a timely basis; or
(C) noncompliance by the State with the terms of the allocation agreement between the Secretary and the State.
(b) Deallocated amounts to be reallocated
(Pub. L. 111–240, title III, § 3008, Sept. 27, 2010, 124 Stat. 2580.)
§ 5708. Implementation and administration
(a) General authorities and dutiesThe Secretary shall—
(1) consult with the Administrator of the Small Business Administration and the appropriate Federal banking agencies on the administration of the Program;
(2) establish minimum national standards for approved State programs;
(3) provide technical assistance to States for starting State programs and generally disseminate best practices;
(4) manage, administer, and perform necessary program integrity functions for the Program; and
(5) ensure adequate oversight of the approved State programs, including oversight of the cash flows, performance, and compliance of each approved State program.
(b) Appropriations
(c) Termination of Secretary’s Program administration functions
(d) Expedited contracting
(e) Technical assistanceOf the amounts appropriated for fiscal year 2021 to carry out the Program, $500,000,000 may be used by the Secretary to—
(1) provide funds to States to carry out a technical assistance plan under which a State will provide legal, accounting, and financial advisory services, either directly or contracted with legal, accounting, and financial advisory firms, with priority given to business enterprises owned and controlled by socially and economically disadvantaged individuals, to very small businesses and business enterprises owned and controlled by socially and economically disadvantaged individuals applying for—
(A) State programs under the Program; and
(B) other State or Federal programs that support small businesses;
(2) transfer amounts to the Minority Business Development Agency, so that the Agency may use such amounts in a manner the Agency determines appropriate, including through contracting with third parties, to provide technical assistance to business enterprises owned and controlled by socially and economically disadvantaged individuals applying to—
(A) State programs under the Program; and
(B) other State or Federal programs that support small businesses; and
(3) contract with legal, accounting, and financial advisory firms (with priority given to business enterprises owned and controlled by socially and economically disadvantaged individuals), to provide technical assistance to business enterprises owned and controlled by socially and economically disadvantaged individuals applying to—
(A) State programs under the Program; and
(B) other State or Federal programs that support small businesses.
(Pub. L. 111–240, title III, § 3009, Sept. 27, 2010, 124 Stat. 2580; Pub. L. 117–2, title III, § 3301(a)(1)(F), (d), Mar. 11, 2021, 135 Stat. 69, 70.)
§ 5709. Regulations
The Secretary, in consultation with the Administrator of the Small Business Administration, shall issue such regulations and other guidance as the Secretary determines necessary or appropriate to implement this chapter including to define terms, to establish compliance and reporting requirements, and such other terms and conditions necessary to carry out the purposes of this chapter.
(Pub. L. 111–240, title III, § 3010, Sept. 27, 2010, 124 Stat. 2581.)
§ 5710. Oversight and audits
(a) Inspector General oversight
(b) Required certification
(1) Financial institutions certification
(2) Sex offense certification
(c) Prohibition on pornography
(Pub. L. 111–240, title III, § 3011, Sept. 27, 2010, 124 Stat. 2581; Pub. L. 113–188, title IX, § 901(d), Nov. 26, 2014, 128 Stat. 2020; Pub. L. 117–2, title III, § 3301(a)(1)(G), Mar. 11, 2021, 135 Stat. 69.)