15 USC 697 - Development company debentures

Collapse to view only § 697. Development company debentures

§ 695. State development companies
§ 696. Loans for plant acquisition, construction, conversion and expansion
§ 697. Development company debentures
§ 697a. Private debenture sales
§ 697b. Pooling of debentures
§ 697c. Restrictions on development company assistance
§ 697d. Accredited Lenders Program
§ 697e. Premier Certified Lenders Program
§ 697f. Prepayment of development company debentures
§ 697g. Foreclosure and liquidation of loans

§ 695. State development companies

(a) Congressional finding and declaration of purpose

(b) Loans; obligations of development companies

(d) Eligibility for assistanceIn order to qualify for assistance under this subchapter, 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,

(D) rural development,

(E) expansion of small business concerns owned and controlled by veterans, as defined in section 632(q) of this title, especially service-disabled veterans, as defined in such section 632(q) of this title,

(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,

(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, or

(L) reduction of rates of unemployment in labor surplus areas, as such areas are determined by the Secretary of Labor.

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.

If eligibility is based upon the criteria set forth in paragraph (2) or (3), the project need not meet the job creation or job preservation criteria developed by the Administration if the overall portfolio of the development company meets or exceeds such job creation or retention criteria.

(e) Creation or retention of jobs

(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.

(Pub. L. 85–699, title V, § 501, Aug. 21, 1958, 72 Stat. 696; Pub. L. 100–590, title I, § 115(a), (b)(1), Nov. 3, 1988, 102 Stat. 2997; Pub. L. 101–574, title II, § 214(a), (b), Nov. 15, 1990, 104 Stat. 2821; Pub. L. 106–50, title IV, § 405, Aug. 17, 1999, 113 Stat. 246; Pub. L. 106–554, § 1(a)(9) [title III, § 302], Dec. 21, 2000, 114 Stat. 2763, 2763A–684; Pub. L. 108–447, div. K, title I, § 105, Dec. 8, 2004, 118 Stat. 3444; Pub. L. 110–140, title XII, § 1204(a), Dec. 19, 2007, 121 Stat. 1772; Pub. L. 111–5, div. A, title V, § 504(b), Feb. 17, 2009, 123 Stat. 156; Pub. L. 111–240, title I, § 1132, Sept. 27, 2010, 124 Stat. 2514.)

§ 696. Loans for plant acquisition, construction, conversion and expansionThe Administration may, in addition to its authority under section 695 of this title, 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) $5,000,000 for each small business concern if the loan proceeds will not be directed toward a goal or project described in clause (ii), (iii), (iv), or (v);

(ii) $5,000,000 for each small business concern if the loan proceeds will be directed toward 1 or more of the public policy goals described under section 695(d)(3) of this title;

(iii) $5,500,000 for each project of a small manufacturer;

(iv) $5,500,000 for each project that reduces the borrower’s energy consumption by at least 10 percent; and

(v) $5,500,000 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 697 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 subchapter.

(ii)Funding from institutions.—Not less than 50 percent of the total cost of any project financed pursuant to clauses 1

1 So in original. Probably should be “clause”.

(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 subchapter 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 subchapter, 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.—(I) In general.—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—(aa) shall be required by the Administration before disbursement of the loan if the estimated value of that property is more than the Federal banking regulator appraisal threshold; or(bb) may be required by the Administration or the lender before disbursement of the loan if the estimated value of that property is equal to or less than the Federal banking regulator appraisal threshold, and such appraisal is necessary for appropriate evaluation of creditworthiness.(II) Federal banking regulator appraisal threshold defined.—For purposes of this clause, the term “Federal banking regulator appraisal threshold” means the lesser of the threshold amounts set by the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, and the Federal Deposit Insurance Corporation for when a federally related transaction that is a commercial real estate transaction requires an appraisal prepared by a State licensed or certified appraiser.

(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 subchapter 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 subchapter 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 100 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 subchapter will be used only for refinancing existing indebtedness or costs relating to the project financed under this subchapter;

(v) the financing under this subchapter 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 697a of this title will provide better terms or rate of interest than the existing indebtedness at the time of refinancing.

(C)Refinancing not involving expansions.—

(i)Definitions.—In this subparagraph—(I) the term “borrower” means a small business concern that submits an application to a development company for financing under this subparagraph;(II) the term “eligible fixed asset” means tangible property relating to which the Administrator may provide financing under this section; and(III) the term “qualified debt” means indebtedness—(aa) that was incurred not less than 6 months before the date of the application for assistance under this subparagraph;(bb) that is a commercial loan;(cc) the proceeds of which were used to acquire an eligible fixed asset;(dd) that was incurred for the benefit of the small business concern; and(ee) that is collateralized by eligible fixed assets.

(ii)Authority.—A project that does not involve the expansion of a small business concern may include the refinancing of qualified debt if—(I) the amount of the financing is not more than 90 percent of the value of the collateral for the financing, except that, if the appraised value of the eligible fixed assets serving as collateral for the financing is less than the amount equal to 125 percent of the amount of the financing, the borrower may provide additional cash or other collateral to eliminate any deficiency;(II) the borrower has been in operation for all of the 2-year period ending on the date the loan application is submitted; and(III) for a financing for which the Administrator determines there will be an additional cost attributable to the refinancing of the qualified debt, the borrower agrees to pay a fee in an amount equal to the anticipated additional cost.

(iii)Financing for business expenses.—(I)Financing for business expenses.—The Administrator may provide financing to a borrower that receives financing that includes a refinancing of qualified debt under clause (ii), in addition to the refinancing under clause (ii), to be used solely for the payment of business expenses.(II)Application for financing.—An application for financing under subclause (I) shall include—(aa) a specific description of the expenses for which the additional financing is requested; and(bb) an itemization of the amount of each expense.(III)Condition on additional financing.—A borrower may not use any part of the financing under this clause for non-business purposes.

(iv)Loans based on jobs.—(I)Job creation and retention goals.—(aa)In general.—The Administrator may provide financing under this subparagraph for a borrower that meets the job creation goals under subsection (d) or (e) of section 695 of this title.(bb)Alternate job retention goal.—The Administrator may provide financing under this subparagraph to a borrower that does not meet the goals described in item (aa) in an amount that is not more than the product obtained by multiplying the number of employees of the borrower by $75,000.(II)Number of employees.—For purposes of subclause (I), the number of employees of a borrower is equal to the sum of—(aa) the number of full-time employees of the borrower on the date on which the borrower applies for a loan under this subparagraph; and(bb) the product obtained by multiplying—(AA) the number of part-time employees of the borrower on the date on which the borrower applies for a loan under this subparagraph, by(BB) the quotient obtained by dividing the average number of hours each part time employee of the borrower works each week by 40.

(v)Total amount of loans.—The Administrator may provide not more than a total of $7,500,000,000 of financing under this subparagraph for each fiscal year.

(Pub. L. 85–699, title V, § 502, Aug. 21, 1958, 72 Stat. 697; Pub. L. 87–27, § 26, May 1, 1961, 75 Stat. 63; Pub. L. 87–341, § 10, Oct. 3, 1961, 75 Stat. 756; Pub. L. 94–305, title I, §§ 108(a), 110, June 4, 1976, 90 Stat. 666, 667; Pub. L. 95–507, title I, § 112, Oct. 24, 1978, 92 Stat. 1760; Pub. L. 97–35, title XIX, § 1909, Aug. 13, 1981, 95 Stat. 778; Pub. L. 100–418, title VIII, § 8007(b), Aug. 23, 1988, 102 Stat. 1561; Pub. L. 100–590, title I, § 116(a), (b)(1), Nov. 3, 1988, 102 Stat. 2997, 2998; Pub. L. 101–574, title II, § 214(c), Nov. 15, 1990, 104 Stat. 2822; Pub. L. 104–208, div. D, title II, § 202(a), Sept. 30, 1996, 110 Stat. 3009–734; Pub. L. 105–135, title II, § 221, Dec. 2, 1997, 111 Stat. 2603; Pub. L. 106–554, § 1(a)(9) [title II, § 208(b), title III, § 303, title VIII, § 802(b)], Dec. 21, 2000, 114 Stat. 2763, 2763A–683, 2763A–684, 2763A–702; Pub. L. 108–447, div. K, title I, § 104, Dec. 8, 2004, 118 Stat. 3444; Pub. L. 110–140, title XII, § 1204(b), Dec. 19, 2007, 121 Stat. 1772; Pub. L. 111–5, div. A, title V, § 504(a), Feb. 17, 2009, 123 Stat. 155; Pub. L. 111–240, title I, §§ 1112, 1122, Sept. 27, 2010, 124 Stat. 2508, 2510; Pub. L. 115–371, § 2, Dec. 21, 2018, 132 Stat. 5106; Pub. L. 116–260, div. N, title III, § 328(a)(2), Dec. 27, 2020, 134 Stat. 2038.)

§ 697. Development company debentures

(a) Guarantees; Administration authority; regulatory terms and conditions; full faith and credit; subordination of debentures

(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 be 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 in 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) Statutory terms and conditionsNo 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 696 of this title;

(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 debenture is not less than the rate of interest determined by the Secretary of the Treasury for purposes of section 683(b) of this title;

(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 661a of title 2) to the Administration of purchasing and guaranteeing debentures under this chapter 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 661a of title 2) to the Administration of making guarantees under subsection (a).

(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 697a of this title 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 697a of this title which is not funded by a debenture guaranteed under this section.

(d) Charges for Administration expenses

(1) Level of charges

(2) Participation fee

(3) Development company fee

(e) “Qualified State or local development company” defined; exception for rural company; authority

(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.

(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 636(a) of this title, to service such loans and to charge a reasonable fee for servicing such loans.

(f) Effective date

(g) Calculation of subsidy rate

(h) Required actions upon default

(1) Initial actionsNot 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

(3) Prepayment penaltiesWith respect to the portion of any project derived from funds set forth in section 696(3) of this title, 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

(Pub. L. 85–699, title V, § 503, as added Pub. L. 96–302, title I, § 113(a), July 2, 1980, 94 Stat. 837; amended Pub. L. 100–590, title I, §§ 112(c), 114, 117(a), Nov. 3, 1988, 102 Stat. 2996–2998; Pub. L. 101–515, title V, § 8, Nov. 5, 1990, 104 Stat. 2144; Pub. L. 103–403, title II, § 213(1), Oct. 22, 1994, 108 Stat. 4184; Pub. L. 104–36, § 6, Oct. 12, 1995, 109 Stat. 297; Pub. L. 104–208, div. D, title II, §§ 202(b)–(e), 203, Sept. 30, 1996, 110 Stat. 3009–735, 3009–736; Pub. L. 105–135, title II, § 222, Dec. 2, 1997, 111 Stat. 2604; Pub. L. 106–554, § 1(a)(9) [title III, § 304], Dec. 21, 2000, 114 Stat. 2763, 2763A–684; Pub. L. 107–100, § 6(b), Dec. 21, 2001, 115 Stat. 971; Pub. L. 108–199, div. B, title VI, § 631, Jan. 23, 2004

§ 697a. Private debenture sales

(a) Notwithstanding any other law, rule, or regulation, the Administration shall sell to investors, either publicly or by private placement, debentures pursuant to section 697 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 each of 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 697 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).

(Pub. L. 85–699, title V, § 504, as added Pub. L. 99–272, title XVIII, § 18008(a), Apr. 7, 1986, 100 Stat. 366; amended Pub. L. 100–72, § 2 July 11, 1987, 101 Stat. 477; Pub. L. 100–590, title I, § 112(a), Nov. 3, 1988, 102 Stat. 2996.)

§ 697b. Pooling of debentures

(a) Issuance; debentures composing trust or pool

(b) Terms and conditions of guarantee; payment of principal and interest

(d) Collection of fees

(e) Subrogation rights; ownership rights in debentures

(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) Central registration requirements; regulation of brokers and dealers; electronic registration

(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.

(Pub. L. 85–699, title V, § 505, as added Pub. L. 99–272, title XVIII, § 18008(c), Apr. 7, 1986, 100 Stat. 367; amended Pub. L. 100–590, title I, § 111(d)(1), (2), Nov. 3, 1988, 102 Stat. 2995; Pub. L. 104–208, div. D, title II, § 205(c), Sept. 30, 1996, 110 Stat. 3009–738.)

§ 697c. Restrictions on development company assistance

Notwithstanding Any Other Provision 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 subchapter or if it includes any conditions or imposes any requirements, directly or indirectly, upon any recipient of assistance under this subchapter; 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 subchapter nor shall it include any condition or impose any requirement, directly or indirectly, upon any recipient of assistance under this subchapter: 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.

(Pub. L. 85–699, title V, § 506, as added Pub. L. 100–590, title I, § 117(b), Nov. 3, 1988, 102 Stat. 2998.)

§ 697d. Accredited Lenders Program

(a) Establishment

(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 696, 697, and 697a of this title 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.

(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

(e) Definition

(Pub. L. 85–699, title V, § 507, as added Pub. L. 103–403, title II, § 212(a), Oct. 22, 1994, 108 Stat. 4183; amended Pub. L. 116–260, div. N, title III, § 328(b), Dec. 27, 2020, 134 Stat. 2040.)

§ 697e. Premier Certified Lenders Program

(a) Establishment

(b) Requirements

(1) Application

(2) DesignationThe 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 [15 U.S.C. 697a] 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 1

1 So in original. Probably should be preceded by “if”.

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

(1) Establishment

(2) Amount

(3) AssetsEach 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

(4) ContributionsThe 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.

(5) Replenishment

(6) Disbursements

(A) In general

(B) Temporary reduction based on outstanding balance

(7) Alternative loss reserve

(A) Election

(B) Contributions

(i) Ordinary rules inapplicable

(ii) Based on lossA 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

(i) Ordinary rule inapplicable

(ii) Excess funds(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

(E) Risk management

(F) Qualified high loss reserve PCLThe 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 benchmarksFor 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 auditorFor 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

(J) Eligible calendar quarterFor 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 May 28, 2004; and

(ii) the 7 succeeding calendar quarters.

(K) Calendar quarterFor 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) RegulationsNot later than 45 days after May 28, 2004, 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

(B) Purpose

(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

(2) LimitationsThe 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

(2) Scope of review

(f) Review

(g) Suspension or revocationThe 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

(i) Program goals

(j) ReportNot later than 1 year after October 22, 1994, 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.

(Pub. L. 85–699, title V, § 508, as added and amended Pub. L. 103–403, title II, § 217, Oct. 22, 1994, 108 Stat. 4185; Pub. L. 105–135, title II, § 223(a), Dec. 2, 1997, 111 Stat. 2604; Pub. L. 106–554, § 1(a)(9) [title III, §§ 305, 306], Dec. 21, 2000, 114 Stat. 2763, 2763A–685; Pub. L. 108–232, §§ 2–3(c), May 28, 2004, 118 Stat. 649–652.)

§ 697f. Prepayment of development company debentures

(a) In general

(1) Prepayment authorized

(2) Procedure

(A) In generalIn making a prepayment under paragraph (1)—

(i) the borrower (in the case of a loan under section 697 of this title) 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 generalFor 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 rateFor 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

(b) RequirementsFor 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) under the programs authorized by this subchapter, are used to prepay or roll over the debenture; and

(3) with respect to a debenture issued under section 697 of this title, 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.

(d) Refinancing limitations

(1) In generalThe refinancing of a debenture under sections 697a and 697b of this title, 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 697a and 697b of this title 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 697b of this title.

(2) Job creation

(3) Loan processing fee

(4) New debentures

(5) Preliminary notice

(A) In general

(B) “Borrower” defined

(6) Final notice

(e) DefinitionsFor purposes of this section—

(1) the term “issuer” means—

(A) the qualified State or local development company that issued a debenture pursuant to section 697 of this title, which has been purchased by the Federal Financing Bank; and

(B) a small business investment company licensed pursuant to section 681 of this title; or

(2) the term “borrower” means a small business concern whose loan secures a debenture issued pursuant to section 697 of this title.

(f) Regulations

(g) Authorization

(Pub. L. 85–699, title V, § 509, as added Pub. L. 103–403, title V, § 503, Oct. 22, 1994, 108 Stat. 4199; amended Pub. L. 104–208, div. D, title II, § 208(h)(1)(H), Sept. 30, 1996, 110 Stat. 3009–747.)

§ 697g. Foreclosure and liquidation of loans

(a) Delegation of authority

(b) Eligibility for delegation

(1) RequirementsA 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 697e of this title; 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 697 of this title; 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 697 of this title; 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

(1) In generalEach qualified State or local development company to which the Administration delegates authority under section 1

1 So in original. Probably should be “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 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 696 of this title; 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

(ii) Administration action on plan(I) Timing(II) Notice of no decision

(iii) Routine actions

(B) Purchase of indebtedness

(i) In general

(ii) Administration action on request(I) Timing(II) Notice of no decision

(i) In general

(ii) Administration action on plan(I) Timing(II) Notice of no decision

(D) Compromise of indebtednessIn 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 decisionAny 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

(d) Suspension or revocation of authorityThe 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

(2) ContentsEach 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.

(Pub. L. 85–699, title V, § 510, as added Pub. L. 106–554, § 1(a)(9) [title III, § 307(a)], Dec. 21, 2000, 114 Stat. 2763, 2763A–685.)