[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 15USC697]
TITLE 15--COMMERCE AND TRADE
CHAPTER 14B--SMALL BUSINESS INVESTMENT PROGRAM
SUBCHAPTER V--LOANS TO STATE AND LOCAL DEVELOPMENT COMPANIES
Sec. 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) of this section, 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) of this section 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 conditions
No guarantee may be made with respect to any debenture under
subsection (a) of this section 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) of this
section.
(c) Commercial loan interest rate
(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
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)
of this section.
(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 696(3)(B)(i) of this title. 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 661a of title 2) to the Administration of making guarantees
under subsection (a) of this section.
(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 661a of title 2) to the
Administration of making guarantees under subsection (a) of this
section.
(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
The fees authorized by subsections (b) and (d) of this section shall
apply to financings approved by the Administration on or after October
1, 1996, but shall not apply to financings approved by the
Administration on or after October 1, 2003.
(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 661a of title 2) to the
Administration of purchasing and guaranteeing debentures under this
chapter.
(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 \1\
shall take all necessary steps to purchase or accelerate the
debenture.
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\1\ So in original. Probably should be capitalized.
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(3) Prepayment penalties
With 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
The Administration may not assess or collect any up front guarantee
fee with respect to loans made under this subchapter during the 2-year
period beginning on October 1, 2002.
(Pub. L. 85-699, title V, Sec. 503, as added Pub. L. 96-302, title I,
Sec. 113(a), July 2, 1980, 94 Stat. 837; amended Pub. L. 100-590, title
I, Secs. 112(c), 114, 117(a), Nov. 3, 1988, 102 Stat. 2996-2998; Pub. L.
101-515, title V, Sec. 8, Nov. 5, 1990, 104 Stat. 2144; Pub. L. 103-403,
title II, Sec. 213(1), Oct. 22, 1994, 108 Stat. 4184; Pub. L. 104-36,
Sec. 6, Oct. 12, 1995, 109 Stat. 297; Pub. L. 104-208, div. D, title II,
Secs. 202(b)-(e), 203, Sept. 30, 1996, 110 Stat. 3009-735, 3009-736;
Pub. L. 105-135, title II, Sec. 222, Dec. 2, 1997, 111 Stat. 2604; Pub.
L. 106-554, Sec. 1(a)(9) [title III, Sec. 304], Dec. 21, 2000, 114 Stat.
2763, 2763A-684; Pub. L. 107-100, Sec. 6(b), Dec. 21, 2001, 115 Stat.
971.)
References in Text
For definition of ``this chapter'', referred to in subsecs.
(b)(7)(A)(ii) and (g), see References in Text note set out under section
661 of this title.
Amendments
2001--Subsec. (b)(7)(A). Pub. L. 107-100, Sec. 6(b)(1), designated
existing provisions following ``not exceed'' as cl. (i), redesignated
former cls. (i) and (ii) as subcls. (I) and (II), respectively, of cl.
(i), realigned margins, and added cl. (ii).
Subsec. (i). Pub. L. 107-100, Sec. 6(b)(2), added subsec. (i).
2000--Subsec. (f). Pub. L. 106-554 amended heading and text of
subsec. (f) generally. Prior to amendment, text read as follows: ``The
fees authorized by subsections (b) and (c) of this section shall apply
to financings approved by the Administration on or after October 1,
1996, but shall not apply to financings approved by the Administration
on or after October 1, 2000.''
1997--Subsec. (b)(7)(A). Pub. L. 105-135, Sec. 222(1), added subpar.
(A) and struck out former subpar. (A) which read as follows: ``assesses
and collects a fee, which shall be payable by the borrower, in an amount
equal to the lesser of--
``(i) 0.9375 percent per year of the outstanding balance of the
loan; or
``(ii) such percentage per year of the outstanding balance of
the loan as the Administrator may determine to be necessary to
reduce the cost (as that term is defined in section 661a of title 2)
to the Administration of purchasing and guaranteeing debentures
under this chapter to an amount that, taking into consideration any
available appropriated funds, would permit the Administration to
purchase or guarantee $2,000,000,000 of debentures in fiscal year
1997; and''.
Subsec. (f). Pub. L. 105-135, Sec. 222(2), substituted ``2000'' for
``1997''.
1996--Subsec. (b)(7)(A). Pub. L. 104-208, Sec. 202(b), substituted
``equal to the lesser of--'' for ``equal to 0.125 percent per year of
the outstanding balance of the loan'' and added cls. (i) and (ii).
Subsec. (d). Pub. L. 104-208, Sec. 202(c), inserted heading and
amended text of subsec. (d) generally. Prior to amendment, text read as
follows: ``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) of this
section.''
Subsec. (f). Pub. L. 104-208, Sec. 202(d), added subsec. (f).
Subsec. (g). Pub. L. 104-208, Sec. 202(e), added subsec. (g).
Subsec. (h). Pub. L. 104-208, Sec. 203, added subsec. (h).
1995--Subsec. (b)(7). Pub. L. 104-36 added par. (7).
1994--Subsec. (c) to (e). Pub. L. 103-403 made technical amendment
to Pub. L. 100-590, Sec. 112(c). See 1988 Amendment note below.
1990--Subsec. (e)(3). Pub. L. 101-515 added par. (3).
1988--Subsec. (a)(2). Pub. L. 100-590, Sec. 114, inserted two
provisos that Administration not decline to issue such guarantee when
ownership interests of small business concern and of property to be
financed with loan are not identical, and that Administrator has
determined on case-by-case basis that such ownership interest,
guarantee, and loan, will substantially benefit small business concern.
Subsec. (c). Pub. L. 100-590, Sec. 112(c)(B), formerly
Sec. 112(c)(1)(B), as amended by Pub. L. 103-403, added subsec. (c).
Former subsec. (c) redesignated (d).
Subsec. (d). Pub. L. 100-590, Sec. 112(c)(A), formerly
Sec. 112(c)(1)(A), as amended by Pub. L. 103-403, redesignated subsec.
(c) as (d). Former subsec. (d) redesignated (e).
Subsec. (e). Pub. L. 100-590, Sec. 117, which directed substitution
of ``(1) For purposes of'' for ``For purposes of'', redesignated former
pars. (1) to (3) as subpars. (A) to (C), respectively, and added par.
(2), was executed to subsec. (e) to reflect the probable intent of
Congress and the intervening redesignation of subsec. (d) as (e) by Pub.
L. 100-590, Sec. 112(c)(1).
Pub. L. 100-590, Sec. 112(c)(A), formerly Sec. 112(c)(1)(A), as
amended by Pub. L. 103-403, redesignated former subsec. (d) as (e).
Effective Date of 2001 Amendment; Use of Funds
Pub. L. 107-100, Sec. 6(d), (e), Dec. 21, 2001, 115 Stat. 972,
provided that:
``(d) Use of Funds.--The amendments made by this section to section
503 of the Small Business Investment Act of 1958 [15 U.S.C. 697], shall
be effective only to the extent that funds are made available under
appropriations Acts, which funds shall be utilized by the Administrator
to offset the cost (as such term is defined in section 502 of the
Federal Credit Reform Act of 1990 [2 U.S.C. 661a]) of such amendments.
``(e) Effective Date.--The amendments made by this section [amending
this section and section 636 of this title] shall become effective on
October 1, 2002.''
Effective Date of 1997 Amendment
Amendment by Pub. L. 105-135 effective Oct. 1, 1997, see section 3
of Pub. L. 105-135, set out as a note under section 631 of this title.
Effective Date of 1996 Amendment
Amendment by Pub. L. 104-208 effective Oct. 1, 1996, see section 3
of Pub. L. 104-208, set out as a note under section 633 of this title.
Effective Date of 1995 Amendment
Amendment by Pub. L. 104-36 inapplicable to loans made or guaranteed
under Small Business Act or Small Business Investment Act of 1958 before
Oct. 12, 1995, unless such loans are refinanced, extended, restructured,
or renewed on or after Oct. 12, 1995, see section 8 of Pub. L. 104-36,
set out as a note under section 634 of this title.
Termination Date of 1988 Amendment
Section 112(c)(2) of Pub. L. 100-5
