[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[S. 2482 Reported in Senate (RS)]
<DOC>
Calendar No. 158
118th CONGRESS
1st Session
S. 2482
To amend the Small Business Act to authorize the Community Advantage
Loan Program of the Small Business Administration, and for other
purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
July 25, 2023
Mr. Cardin, from the Committee on Small Business and Entrepreneurship,
reported the following original bill; which was read twice and placed
on the calendar
_______________________________________________________________________
A BILL
To amend the Small Business Act to authorize the Community Advantage
Loan Program of the Small Business Administration, and for other
purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Community
Advantage Loan Program Act of 2023''.
(b) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; table of contents.
Sec. 2. Definitions.
TITLE I--COMMUNITY ADVANTAGE LOAN PROGRAM
Sec. 101. Community Advantage Loan Program.
TITLE II--SMALL BUSINESS LENDING COMPANIES
Sec. 201. Short title.
Sec. 202. Findings.
Sec. 203. Lending criteria.
Sec. 204. Affiliation and franchise directory.
Sec. 205. Loan authorization.
Sec. 206. Oversight of small business lending companies.
Sec. 207. Office of Credit Risk Management.
Sec. 208. Denied loan or loan modification request.
Sec. 209. Direct lending.
Sec. 210. Restriction on refinancing debt.
Sec. 211. GAO study.
SEC. 2. DEFINITIONS.
In this Act:
(1) Administration.--The term ``Administration'' means the
Small Business Administration.
(2) Administrator.--The term ``Administrator'' means the
Administrator of the Administration.
TITLE I--COMMUNITY ADVANTAGE LOAN PROGRAM
SEC. 101. COMMUNITY ADVANTAGE LOAN PROGRAM.
(a) In General.--Section 7(a) of the Small Business Act (15 U.S.C.
636(a)) is amended by adding at the end the following:
``(38) Community advantage loan program.--
``(A) Purposes.--The purposes of the Community
Advantage Loan Program are--
``(i) to create a mission-oriented loan
guarantee program;
``(ii) to increase lending to small
business concerns in underserved and rural
markets, including to new businesses;
``(iii) to ensure that the program under
this subsection expands inclusion and more
broadly meets congressional intent to reach
borrowers who are unable to get credit
elsewhere on reasonable terms and conditions;
``(iv) to help underserved small business
concerns become bankable by utilizing the small
dollar financing and business support
experience of mission-oriented lenders;
``(v) to allow certain mission-oriented
lenders, primarily financial intermediaries
focused on economic development in underserved
markets, access to guarantees for loans under
this subsection (referred to in this paragraph
as `7(a) loans') and provide management and
technical assistance to small business concerns
as needed; and
``(vi) to assist covered institutions with
providing business support services and
technical assistance to small business
concerns, when needed.
``(B) Definitions.--In this paragraph:
``(i) Community advantage network
partner.--The term `Community Advantage Network
Partner'--
``(I) means a nonprofit, mission-
oriented organization that acts as a
Referral Agent to covered institutions
in order to expand the reach of the
program to small business concerns in
underserved markets; and
``(II) does not include a covered
institution making loans under the
program.
``(ii) Covered institution.--The term
`covered institution' means an entity that--
``(I) is--
``(aa) a development
company, as defined in section
103 of the Small Business
Investment Act of 1958 (15
U.S.C. 662), participating in
the 504 Loan Guaranty program
established under title V of
that Act (15 U.S.C. 695 et
seq.);
``(bb) a nonprofit
intermediary, as defined in
subsection (m)(11),
participating in the microloan
program under subsection (m);
``(cc) a non-Federally
regulated entity certified as a
community development financial
institution by the Community
Development Financial
Institutions Fund established
under section 104(a) of the
Community Development Banking
and Financial Institutions Act
of 1994 (12 U.S.C. 4703(a)); or
``(dd) an eligible
intermediary, as defined in
subsection (l)(1),
participating in the small
business intermediary lending
program established under
subsection (l)(2); and
``(II) has approved and disbursed
10 similarly sized loans in the
preceding 24-month period and is
servicing not less than 10 similarly
sized loans to small business concerns
in the portfolio of the entity.
``(iii) Existing business.--The term
`existing business' means a small business
concern that has been in existence for not less
than 2 years on the date on which a loan is
made to the small business concern under the
program.
``(iv) New business.--The term `new
business' means a small business concern that
has been in existence for not more than 2 years
on the date on which a loan is made to the
small business concern under the program.
``(v) Program.--The term `program' means
the Community Advantage Loan Program
established under subparagraph (C).
``(vi) Referral agent.--The term `Referral
Agent' has the meaning given the term in
section 103.1(f) of title 13, Code of Federal
Regulations, or any successor regulation.
``(vii) Rural area.--The term `rural area'
means any county that the Bureau of the Census
has defined as mostly rural or completely rural
in the most recent decennial census.
``(viii) Small business concern in an
underserved market.--The term `small business
concern in an underserved market' means a small
business concern--
``(I) that is located in--
``(aa) a low- to moderate-
income community;
``(bb) a HUBZone, as that
term is defined in section
31(b);
``(cc) a rural area;
``(dd) a community that has
been designated as an
empowerment zone or enterprise
community under section 1391 of
the Internal Revenue Code of
1986;
``(ee) a community that has
been designated as a qualified
opportunity zone under section
1400Z-1 of the Internal Revenue
Code of 1986; or
``(ff) a community that has
been designated as a promise
zone by the Secretary of
Housing and Urban Development;
``(II) for which more than 50
percent of the employees reside in a
low- or moderate-income community;
``(III) that is a new business; or
``(IV) that is owned and controlled
by veterans or spouses of veterans.
``(C) Establishment.--There is established a
Community Advantage Loan Program under which the
Administration may guarantee loans closed by covered
institutions under this subsection, with an emphasis on
loans made to small business concerns in underserved
markets.
``(D) Program levels.--In fiscal year 2024 and each
fiscal year thereafter, not more than 10 percent of the
number of loans guaranteed under this subsection may be
guaranteed under the program.
``(E) Grandfathering of existing lenders.--Any
covered institution that was licensed by the
Administrator as a Community Advantage small business
lending company, or that participated in the Community
Advantage Pilot Program of the Administration, during
the period beginning on May 1, 2023, and ending on
September 30, 2023, and was in good standing during
that period, as determined by the Administration--
``(i) shall be designated as participants
in the program;
``(ii) shall not be required to submit an
application to participate in the program; and
``(iii) for the purpose of determining the
loan loss reserve amount of the covered
institution, shall have participation in the
Community Advantage Pilot Program included in
the calculation under subparagraph (J).
``(F) Requirement to make loans to underserved
markets.--Not less than 60 percent of loans closed by a
covered institution under the program shall consist of
loans made to small business concerns in underserved
markets.
``(G) Maximum loan amount; collateral.--
``(i) Maximum loan amount.--
``(I) In general.--Except as
provided in subclause (II), the maximum
loan amount for a loan guaranteed under
the program is $350,000.
``(II) Experienced lenders.--
``(aa) In general.--The
Administrator may approve not
more than 8 covered
institutions (referred to in
this subclause as the
`experienced lenders'), each of
which has not less than 5 years
of experience making loans
under the Community Advantage
Pilot Program of the
Administration or the program
established under this
paragraph, to be eligible to
make loans under this
subclause.
``(bb) Maximum loan
amount.--Subject to item (dd),
an experienced lender may make
a loan guaranteed under the
program in an amount that is
not more than $750,000.
``(cc) Participation by the
administration.--With respect
to an agreement to participate
in a loan made under this
subclause on a deferred basis,
the participation by the
Administration shall be--
``(AA) 75 percent
of the balance of the
financing outstanding
at the time of the
disbursement of the
loan, if that balance
is more than $350,000;
``(BB) as described
in clause (i) of
paragraph (2)(G), if
the balance of the
financing outstanding
at the time of the
disbursement of the
loan is as described in
that clause; or
``(CC) as described
in clause (ii) of
paragraph (2)(G), if
the balance of the
financing outstanding
at the time of the
disbursement of the
loan is as described in
that clause.
``(dd) Requirements to make
loans in certain amounts.--Not
less than 60 percent of loans
closed by each experienced
lender under the program shall
consist of loans in an amount
that is not more than $350,000.
``(ii) Collateral.--
``(I) In general.--A covered
institution shall not be required to
take collateral with respect to a loan
guaranteed under the program if the
amount of that loan is not more than
$50,000.
``(II) Policies and procedures of
covered institution.--In determining
the amount of collateral required with
respect to a loan guaranteed under the
program, a covered institution may use
the collateral policies and procedures
of the covered institution with respect
to similarly sized commercial loans
closed by the covered institution that
are not guaranteed by the
Administration.
``(H) Interest rates.--The maximum allowable
interest rate prescribed by the Administration on any
financing made on a deferred basis pursuant to the
program shall not exceed the maximum allowable interest
rate under sections 120.213 and 120.214 of title 13,
Code of Federal Regulations, or any successor
regulations.
``(I) Refinancing of community advantage program
loans.--A loan guaranteed under the program or
guaranteed under the Community Advantage Pilot Program
of the Administration may be refinanced into another
7(a) loan made by a lender that does not participate in
the program.
``(J) Loan loss reserve requirements.--
``(i) Loan loss reserve account for covered
institutions.--A covered institution--
``(I) with not more than 5 years of
participation in the program shall
maintain a loan loss reserve account
with an amount equal to 5 percent of
the outstanding amount of the
unguaranteed portion of the loan
portfolio of the covered institution
under the program; and
``(II) with more than 5 years of
participation in the program shall
maintain a loan loss reserve account
with an amount equal to the average
repurchase rate of the covered
institution over the preceding 36-month
period, except that such amount shall
not be less than 3 percent of the
outstanding amount of the unguaranteed
portion of the loan portfolio of the
covered institution under the program.
``(ii) Additional loan loss reserve amount
for selling loans on the secondary market.--In
addition to the amount required in the loan
loss reserve account under clause (i), a
covered institution that sells a program loan
on the secondary market shall be required to
maintain the following additional amounts in
the loan loss reserve account:
``(I) For a covered institution
with less than 5 years of experience
selling program loans on the secondary
market, an amount equal to 3 percent of
the guaranteed portion of each program
loan sold on the secondary market.
``(II) For a covered institution
with more than 5 years of experience
selling program loans on the secondary
market, an amount equal to the average
repurchase rate for loans sold by the
covered institution on the secondary
market over the preceding 36 months,
except that such amount shall be not
less than 2 percent of the guaranteed
portion of each program loan sold into
the secondary market.
``(iii) Recalculation.--On October 1 of
each year, the Administrator shall recalculate
the loan loss reserve required under clauses
(i) and (ii).
``(K) Training.--The Administration--
``(i) shall provide accessible upfront and
ongoing training for covered institutions
making loans under the program to support
program compliance and improve the interface
between the covered institutions and the
Administration, which shall include--
``(I) guidance for following the
regulations of the Administration; and
``(II) guidance specific to
mission-oriented lending that is
intended to help lenders effectively
reach and support small business
concerns in underserved markets,
including management and technical
assistance delivery;
``(ii) may enter into a contract to provide
the training described in clause (i) with an
organization--
``(I) with expertise in lending
under this subsection; and
``(II) primarily specializing in--
``(aa) mission-oriented
lending; and
``(bb) lending to small
business concerns in
underserved markets; and
``(iii) shall provide training for the
employees and contractors of the Administration
that regularly engage with covered institutions
or borrowers under the program.
``(L) Community advantage outreach and education.--
The Administrator--
``(i) shall develop and implement a program
to promote to, conduct outreach to, and educate
prospective covered institutions about the
program; and
``(ii) may enter into a contract with 1 or
more nonprofit organizations experienced in
working with and training mission-oriented
lenders to provide the promotion, outreach, and
education described in clause (i).
``(M) Community advantage network partner
participation.--
``(i) In general.--A covered institution
that uses a Community Advantage Network Partner
shall abide by policies and procedures of the
Administration concerning the use of Referral
Agent fees permitted by the Administration and
disclosure of those fees.
``(ii) Payment of fees.--Notwithstanding
any other provision of law, all fees described
in clause (i) shall be paid by the covered
institution to the Community Advantage Network
Partner upon disbursement of the applicable
program loan.
``(N) Delegated authority.--A covered institution
is not eligible to receive delegated authority from the
Administration under the program until the covered
institution has satisfied the following applicable
requirements:
``(i) For a covered institution actively
participating in the Community Advantage Pilot
Program of the Administration, as of the day
before the date of enactment of this
paragraph--
``(I) the covered institution has
approved and fully disbursed not fewer
than 10 loans under that Pilot Program;
and
``(II) the Administration has
evaluated the ability of the covered
institution to fulfill program
requirements.
``(ii) For any covered institution not
described in clause (i)--
``(I) the covered institution has
approved and fully disbursed not fewer
than 20 loans under the program; and
``(II) the Administration has
evaluated the ability of the covered
institution to fulfill program
requirements.
``(O) Reporting.--
``(i) Weekly reports.--
``(I) In general.--The
Administration shall report on the
website of the Administration, as part
of the weekly reports on lending
approvals under this subsection--
``(aa) on and after the
date of enactment of this
paragraph, the number and
dollar amount of loans
guaranteed under the Community
Advantage Pilot Program of the
Administration; and
``(bb) on and after the
date on which the
Administration begins to
approve loans under the
program, the number and dollar
amount of loans guaranteed
under the program.
``(II) Separate accounting.--The
number and dollar amount of loans
reported in a weekly report under
subclause (I) for loans guaranteed
under the Community Advantage Pilot
Program of the Administration and under
the program shall include a breakdown
by the demographic information of the
owners of the small business concerns,
by whether the small business concern
is a new business or an existing
business, and by whether the small
business concern is located in an urban
or rural area, and broken down by--
``(aa) loans of not more
than $50,000;
``(bb) loans of more than
$50,000 and not more than
$150,000;
``(cc) loans of more than
$150,000 and not more than
$250,000;
``(dd) loans of more than
$250,000 and not more than
$350,000; and
``(ee) loans of more than
$350,000 and not more than
$750,000.
``(ii) Annual reports.--
``(I) In general.--For each fiscal
year in which the program is in effect,
the Administration shall submit to the
Committee on Small Business and
Entrepreneurship of the Senate and the
Committee on Small Business of the
House of Representatives, and make
publicly available on the internet,
information about loans provided under
the program and under the Community
Advantage Pilot Program of the
Administration.
``(II) Contents.--Each report
submitted and made publicly available
under subclause (I) shall include--
``(aa) the number and
dollar amounts of loans
provided to small business
concerns under the program,
including a breakdown by--
``(AA) the
demographic information
of the owners of the
small business concern;
``(BB) whether the
small business concern
is located in an urban
or rural area; and
``(CC) whether the
small business concern
is an existing business
or a new business, as
provided in the weekly
reports on lending
approvals under this
subsection;
``(bb) the proportion of
loans described in item (aa)
compared to--
``(AA) other 7(a)
loans of any amount;
``(BB) other 7(a)
loans of similar
amounts;
``(CC) express
loans provided under
paragraph (31) of
similar amounts; and
``(DD) other 7(a)
loans of similar
amounts provided to
small business concerns
in underserved markets;
``(cc) the number and
dollar amounts of loans
provided to small business
concerns under each category
described in subitems (AA),
(BB), and (CC) of item (aa),
which shall be broken down by--
``(AA) loans of not
more than $50,000;
``(BB) loans of
more than $50,000 and
not more than $150,000;
``(CC) loans of
more than $150,000 and
not more than $250,000;
``(DD) loans of
more than $250,000 and
not more than $350,000;
and
``(EE) loans of
more than $350,000 and
not more than $750,000;
``(dd) the number and
dollar amounts of loans
provided to small business
concerns under the program by
State, and the jobs created or
retained within each State; and
``(ee) a list of covered
institutions participating in
the program and the Community
Advantage Pilot Program of the
Administration, including--
``(AA) the name,
location, and contact
information, such as
the website and
telephone number, of
each covered
institution; and
``(BB) a breakdown
by the number and
dollar amount of the
loans approved for
small business
concerns.
``(III) Timing.--An annual report
required under this clause shall--
``(aa) be submitted and
made publicly available not
later than December 1 of each
year; and
``(bb) cover the lending
activity for the fiscal year
that ended on September 30 of
that same year.
``(P) GAO report.--Not later than 5 years after the
date of enactment of this paragraph, the Comptroller
General of the United States shall submit to the
Administrator, the Committee on Small Business and
Entrepreneurship of the Senate, and the Committee on
Small Business of the House of Representatives a
report--
``(i) assessing--
``(I) the extent to which the
program fulfills the requirements of
this paragraph; and
``(II) the performance of covered
institutions participating in the
program; and
``(ii) providing recommendations on the
administration of the program and the findings
under subclauses (I) and (II) of clause (i).
``(Q) Regulations.--
``(i) In general.--Not later than 180 days
after the date of enactment of this paragraph,
the Administrator shall promulgate regulations
governing the program, including metrics for
lender performance, metrics of success and
benchmarks of the program, and criteria for
appropriate management and technical
assistance.
``(ii) Updates.--The Administrator shall
consult the report submitted under subparagraph
(P) and, not later than 180 days after the date
on which the Comptroller General of the United
States submits the report, promulgate any
necessary changes to existing regulations of
the Administration based on the recommendations
contained in the report.''.
(b) Participation.--Section 7(a)(2) of the Small Business Act (15
U.S.C. 636(a)(2)) is amended--
(1) in subparagraph (A), in the matter preceding clause
(i), by striking ``and (F)'' and inserting ``(F), and (G)'';
and
(2) by adding at the end the following:
``(G) Participation in the community advantage loan
program.--Subject to subparagraph (G)(i)(II)(cc) of
paragraph (38), in an agreement to participate in a
loan on a deferred basis under that paragraph, the
participation by the Administration shall be--
``(i) 80 percent of the balance of the
financing outstanding at the time of the
disbursement of the loan, if that balance is
more than $150,000 and not more than $350,000;
or
``(ii) 90 percent of the balance of the
financing outstanding at the time of the
disbursement of the loan, if that balance is
not more than $150,000.''.
TITLE II--SMALL BUSINESS LENDING COMPANIES
SEC. 201. SHORT TITLE.
This title may be cited as the ``Modernizing SBA's Business Loan
Programs Act of 2023''.
SEC. 202. FINDINGS.
Congress finds that--
(1) in 1982, the Administration placed a moratorium on
licensing new small business lending companies because the
Administration lacked the resources to effectively service and
supervise additional small business lending companies;
(2) according to the Office of the Inspector General of the
Administration, the reduction in staff in the Office of Credit
Risk Management of the Administration from 42 full-time
employees to 29 full-time employees could affect the fiscal
year 2023 goals of the Administration for oversight reviews;
(3) the Administration has finalized a rulemaking to lift
the moratorium on the licensing new small business lending
companies and establish a new Community Advantage small
business lending company license, and there is no cap on the
number of small business lending companies licenses that could
be issued by the Administration;
(4) the increased costs and fees for an existing Community
Advantage lender in the Community Advantage Pilot Program of
the Administration to obtain and maintain a Community Advantage
small business lending company license could be cost
prohibitive for a majority of current Community Advantage
lenders to transition to a Community Advantage small business
lending company;
(5) on May 1, 2023, the Administration announced that the
Community Advantage Pilot Program would sunset on September 30,
2023, and the authority of a Community Advantage lender to make
loans under section 7(a) of the Small Business Act (15 U.S.C.
636(a)) under the pilot program will terminate;
(6) the Administration does not have adequate resources to
issue either more than 3 new small business lending company
licenses or new Community Advantage small business lending
company licenses, as the Office of Credit Risk Management does
not have the capacity to assume additional oversight
responsibilities; and
(7) in order to increase small dollar lending in
underserved areas, the Community Advantage Pilot Program should
be made permanent, giving lenders certainty to continue to make
loans under section 7(a) of the Small Business Act (15 U.S.C.
636(a)).
SEC. 203. LENDING CRITERIA.
(a) 7(a) Loans.--Section 7(a)(1) of the Small Business Act (15
U.S.C. 636(a)(1)) is amended by adding at the end the following:
``(D) Underwriting requirements.--
``(i) In general.--With respect to a loan
guaranteed under this subsection--
``(I) the applicant (including an
operating company) shall be
creditworthy;
``(II) the loan must be so sound as
to reasonably assure repayment; and
``(III) subject to the approval of
the Administrator, the Director of the
Office of Credit Risk Management may
require additional criteria.
``(ii) Lending criteria for loans of
$350,000 or more.--With respect to a loan
guaranteed under this section that is not less
than $350,000, the Administration and lenders
shall, as applicable, consider the following:
``(I) Credit history of the
applicant (and the operating company,
if applicable), and the associates and
guarantors of the applicant.
``(II) Experience and depth of
management.
``(III) Strength of the business.
``(IV) Past earnings, projected
cash flow, and future prospects.
``(V) Ability to repay the loan
with earnings from the business of the
applicant.
``(VI) Sufficient invested equity
to operate on a sound financial basis.
``(VII) Potential for long-term
success.
``(VIII) Nature and value of
collateral (although inadequate
collateral may not be the sole reason
for denial of a loan application).
``(IX) The effect any affiliate of
the applicant may have on the ultimate
repayment ability of the applicant.
``(iii) Lending criteria for loans of less
than $350,000.--With respect to a loan
guaranteed under this section that is less than
$350,000--
``(I) lenders shall use appropriate
and generally acceptable commercial
credit analysis processes and
procedures consistent with those used
for similarly-sized commercial loans
that are not guaranteed by the
Administration;
``(II) the Administration and
lenders may use a business credit
scoring model; and
``(III) the Administration and
lenders shall, as applicable,
consider--
``(aa) the credit score or
credit history of the applicant
(and the operating company, if
applicable), and the associates
and guarantors of the
applicant;
``(bb) the earnings or cash
flow of the applicant;
``(cc) any equity or
collateral of the applicant;
and
``(dd) the effect any
affiliates of the applicant may
have on the ultimate repayment
ability of the applicant.''.
(b) 504/CDC Loans.--Section 502 of the Small Business Investment
Act of 1958 (15 U.S.C. 696) is amended by adding at the end the
following:
``(8) Underwriting requirements.--
``(A) In general.--With respect to a loan made
under this section--
``(i) the applicant (including an operating
company) shall be creditworthy; and
``(ii) the loan must be so sound as to
reasonably assure repayment.
``(B) Lending criteria.--With respect to a loan
made under this section--
``(i) lenders and certified development
companies shall use appropriate and generally
acceptable commercial credit analysis processes
and procedures consistent with those used for
similarly-sized commercial loans that are not
guaranteed by the Administration;
``(ii) the Administration, lenders, and
certified development companies may use a
business credit scoring model; and
``(iii) the Administration, lenders, and
certified development companies shall, as
applicable, consider--
``(I) the credit score or credit
history of the applicant (and the
operating company, if applicable), and
the associates and guarantors of the
applicant;
``(II) the earnings or cash flow of
the applicant; and
``(III) any equity or collateral of
the applicant.''.
SEC. 204. AFFILIATION AND FRANCHISE DIRECTORY.
(a) Affiliation Principles.--
(1) Business loans.--Section 7(a)(1) of the Small Business
Act (15 U.S.C. 636(a)(1)), as amended by section 203(a) of this
Act, is amended by adding at the end the following:
``(E) Affiliation principles.--Affiliation under
any of the circumstances described below is sufficient
to establish affiliation for applicants for a loan
guaranteed under this subsection:
``(i) Affiliation based on ownership.--
``(I) In general.--For determining
affiliation based on equity ownership,
a concern is an affiliate of an
individual, concern, or entity that
owns or has the power to control more
than 50 percent of the voting equity of
the concern.
``(II) Other officers.--If no
individual, concern, or entity is found
to control a concern under subclause
(I), the Administrator shall deem the
board of directors, president, or chief
executive officer (or other officers,
managing members, or partners who
control the management of the concern)
to be in control of the concern.
``(III) Minority shareholder.--The
Administrator shall deem a minority
shareholder of a concern to be in
control of the concern if that
individual or entity has the ability,
under the charter, by-laws, or
shareholder agreement of the concern,
to prevent a quorum or otherwise block
action by the board of directors or
shareholders of the concern.
``(ii) Affiliation arising under stock
options, convertible securities, and agreements
to merge.--
``(I) In general.--In determining
the size of a concern, the
Administrator shall--
``(aa) consider stock
options, convertible
securities, and agreements to
merge (including agreements in
principle) to have a present
effect on the power to control
a concern; and
``(bb) treat options,
convertible securities, and
agreements described in item
(aa) as though the rights
granted have been exercised.
``(II) Agreements to open or
continue negotiations.--An agreement to
open or continue negotiations towards
the possibility of a merger or a sale
of stock at some later date is not
considered an `agreement in principle'
and is not given present effect.
``(III) Conditions precedent.--
Stock options, convertible securities,
and agreements that are subject to
conditions precedent that are incapable
of fulfillment, speculative,
conjectural, or unenforceable under
State or Federal law, or where the
probability of the transaction (or
exercise of the rights) occurring is
shown to be extremely remote, are not
given present effect.
``(IV) Termination of control.--
``(aa) In general.--An
individual, concern, or other
entity that controls 1 or more
other concerns cannot use stock
options, convertible
securities, or agreements to
appear to terminate such
control before actually doing
so.
``(bb) Divesting.--The
Administrator shall not give
present effect to the ability
of an individual, concern, or
other entity to divest all or
part of their ownership
interest in a concern in order
to avoid a finding of
affiliation.
``(iii) Affiliation based on management.--
Affiliation arises where--
``(I) the chief executive officer
or president of the applicant concern
(or other officers, managing members,
or partners who control the management
of the concern) also controls the
management of 1 or more other concerns;
``(II) a single individual,
concern, or entity that controls the
board of directors or management of 1
concern also controls the board of
directors or management of 1 of more
other concerns; or
``(III) a single individual,
concern, or entity controls the
management of the applicant concern
through a management agreement.
``(iv) Affiliation based on identity of
interest.--
``(I) Definition.--In this clause,
the term `close relative' means--
``(aa) a spouse, parent,
child, or sibling; and
``(bb) the spouse of any
individual described in item
(aa).
``(II) Close relatives.--
Affiliation arises when there is an
identity of interest between close
relatives with identical or
substantially identical business or
economic interests, such as where the
close relatives operate concerns in the
same or similar industry in the same
geographic area.
``(III) Aggregated interests.--If
the Administrator determines that
interests described in subclause (II)
should be aggregated, an individual or
firm may rebut that determination with
evidence showing that the interests
deemed to be affiliated are in fact
separate.
``(v) Affiliation based on franchise and
license agreements.--
``(I) In general.--The restraints
imposed on a franchisee or licensee by
its franchise or license agreement
generally shall not be considered in
determining whether the franchisor or
licensor is affiliated with an
applicant franchisee or licensee, if
the applicant franchisee or licensee
has the right to profit from its
efforts and bears the risk of loss
commensurate with ownership.
``(II) Nature of agreement.--For
purposes of subclause (I), the
Administrator shall only consider the
franchise or license agreements of the
applicant concern.
``(vi) Determining the concern's size.--In
determining the size of a concern, the
Administrator counts the receipts, employees,
or the alternate size standard (if applicable)
of the concern whose size is at issue and all
of the domestic and foreign affiliates of the
concern, regardless of whether the affiliates
are organized for profit.
``(vii) Exceptions to affiliation.--The
exceptions to affiliation described in section
121.103(b) of title 13, Code of Federal
Regulations, or any successor regulation, shall
apply.''.
(2) 504/CDC loans.--Section 502 of the Small Business
Investment Act of 1958 (15 U.S.C. 696), as amended by section
203(b) of this Act, is amended by adding at the end the
following:
``(9) Affiliation principles.--Affiliation under any of the
circumstances described below is sufficient to establish
affiliation for applicants for a loan under this section:
``(A) Affiliation based on ownership.--
``(i) Ownership of another business.--When
the applicant owns more than 50 percent of
another business, the applicant and the other
business are affiliated.
``(ii) Ownership by other businesses.--
``(I) In general.--When a business
owns more than 50 percent of an
applicant, the business that owns the
applicant is affiliated with the
applicant.
``(II) Other business owned by
owner of applicant.--If a business
entity owner that owns more than 50
percent of an applicant also owns more
than 50 percent of another business
that operates in the same 3-digit North
American Industry Classification System
subsector as the applicant, then the
business entity owner, the other
business, and the applicant are all
affiliated.
``(iii) Ownership by individuals.--When an
individual owns more than 50 percent of the
applicant and the individual also owns more
than 50 percent of another business entity that
operates in the same 3-digit North American
Industry Classification System subsector as the
applicant, the applicant and the individual
owner's other business entity are affiliated.
``(iv) Less than 50 percent.--When an
applicant does not have an owner that owns more
than 50 percent of the applicant, if an owner
of 20 percent or more of the applicant also
owns more than 50 percent of another business
entity that operates in the same 3-digit North
American Industry Classification System
subsector as the applicant, the applicant and
the owner's other business entity are
affiliated.
``(v) Spouse and minor children.--Ownership
interests of spouses and minor children shall
be combined when determining amount of
ownership interest.
``(vi) Percentage of ownership.--When
determining the percentage of ownership that an
individual owns in a business, the
Administrator shall consider the pro rata
ownership of entities.
``(B) Affiliation arising under stock options,
convertible securities, and agreements to merge.--
``(i) In general.--The Administrator
shall--
``(I) consider stock options,
convertible securities, and agreements
to merge (including agreements in
principle) to have a present effect on
the ownership of an entity; and
``(II) treat options, convertible
securities, and agreements described in
subclause (I) as though the rights
granted have been exercised.
``(ii) Agreements to open or continue
negotiations.--An agreement to open or continue
negotiations towards the possibility of a
merger or a sale of stock at some later date is
not considered an `agreement in principle' and
is not given present effect.
``(iii) Conditions precedent.--Stock
options, convertible securities, and agreements
that are subject to conditions precedent that
are incapable of fulfillment, speculative,
conjectural, or unenforceable under State or
Federal law, or where the probability of the
transaction (or exercise of the rights)
occurring is shown to be extremely remote, are
not given present effect.
``(iv) Ability to divest.--The
Administrator shall not give present effect to
individuals', concerns', or other entities'
ability to divest all or part of their
ownership interest to avoid a finding of
affiliation.
``(C) Determining the concern's size.--In
determining the size of a concern, the Administrator
counts the receipts, employees, or the alternate size
standard (if applicable) of the concern whose size is
at issue and all of the domestic and foreign affiliates
of the concern, regardless of whether the affiliates
are organized for profit.
``(D) Exceptions to affiliation.--The exceptions to
affiliation described in section 121.103(b) of title
13, Code of Federal Regulations, or any successor
regulation, shall apply.''.
(b) Franchise Directory.--Not later than 30 days after the date of
enactment of this Act, the Administration shall publish and maintain on
the website of the Administration a Franchise Directory, which shall
contain a list that lenders and certified development companies may use
in evaluating whether a franchise is eligible for financing from the
Administration.
SEC. 205. LOAN AUTHORIZATION.
(a) 7(a) Loans.--Section 7(a)(1) of the Small Business Act (15
U.S.C. 636(a)(1)), as amended by section 204(a) of this Act, is amended
by adding at the end the following:
``(F) Loan authorization.--
``(i) In general.--With respect to a loan
made or guaranteed under this subsection, the
Administration shall issue a written agreement
providing the terms and conditions under which
the Administration will make or guarantee the
loan.
``(ii) Not a contract.--A written agreement
issued under clause (i) is not a contract to
make a loan.''.
(b) 504/CDC Loans.--Section 502 of the Small Business Investment
Act of 1958 (15 U.S.C. 696), as amended by section 204(b) of this Act,
is amended by adding at the end the following:
``(10) Loan authorization.--
``(A) In general.--With respect to a loan made
under this section, the Administration shall issue a
written agreement providing the terms and conditions
under which the Administration will make the loan.
``(B) Not a contract.--A written agreement issued
under subparagraph (A) is not a contract to make a
loan.''.
SEC. 206. OVERSIGHT OF SMALL BUSINESS LENDING COMPANIES.
(a) Definition.--Section 3(r) of the Small Business Act (15 U.S.C.
632(r)) is amended, in the matter preceding paragraph (1), by striking
``As used in section 23 of this Act'' and inserting ``In this Act''.
(b) Capital Requirements; Maximum Number.--Section 7(a)(1) of the
Small Business Act (15 U.S.C. 636(a)(1)), as amended by section 205(a)
of this Act, is amended by adding at the end the following:
``(G) Additional provisions relating to small
business lending companies.--
``(i) Maximum number.--
``(I) In general.--Not more than 17
small business lending companies may be
authorized to make loans under this
subsection at any time.
``(II) Existing small business
lending companies.--
``(aa) In general.--Except
as provided in subclause (III),
each of the 14 small business
lending companies authorized to
make loans under this
subsection as of June 1, 2023
shall retain such authorization
on and after the date of
enactment of this subparagraph.
``(bb) Loss of
authorization.--With respect to
a lender that, as of the date
of enactment of this
subparagraph, is authorized as
a Community Advantage small
business lending company, that
lender shall, beginning on that
date of enactment--
``(AA) no longer
have that
authorization; and
``(BB) be
designated as a lender
under the Community
Advantage Loan Program
established under
paragraph (38).
``(III) Transfer or sale.--The
Administrator shall have the discretion
to authorize the transfer or sale of a
license of a small business lending
company to make loans under this
subsection to another small business
lending company.
``(IV) Limitation of delegated
authority.--
``(aa) In general.--
Notwithstanding paragraph (31),
any small business lending
company that the Administration
authorizes after June 1, 2023
to make loans under this
subsection shall be ineligible
for delegated authority from
the Administration to process,
close, service, and liquidate
certain loans made under this
subsection for the 5-year
period beginning on the date on
which the Administration
authorizes the small business
lending company to make loans
under this subsection.
``(bb) Existing sblcs.--
Item (aa) shall not apply with
respect to each of the 14 small
business lending companies
authorized to make loans under
this subsection as of June 1,
2023.
``(ii) Minimum capital requirements.--
``(I) In general.--Except as
provided in subclauses (II) and (III),
to be authorized to make loans under
this subsection, a small business
lending company shall comply with the
minimum capital requirements in effect
on January 3, 2021.
``(II) Approved on or after january
4, 2021.--Any small business lending
company authorized by the
Administration to make loans under this
subsection on or after January 4, 2021,
including in the event of a change of
ownership or control, shall maintain,
at a minimum, the greater of--
``(aa) unencumbered paid-in
capital and paid-in surplus of
not less than $5,000,000; or
``(bb) an amount equal to
10 percent of the aggregate of
its share of all outstanding
loans.
``(III) Requirements on and after
january 4, 2024.--On and after January
4, 2024, each small business lending
company that makes or acquires a loan
under this subsection shall maintain,
at a minimum, the greater of--
``(aa) unencumbered paid-in
capital and paid-in surplus of
not less than $5,000,000; or
``(bb) an amount equal to
10 percent of the aggregate of
its share of all outstanding
loans.
``(iii) Criteria for licensing small
business lending companies.--The Administrator
shall use uniform terms for the licensing of
business concerns as small business lending
companies and the participation of those
companies in the programs under this
subsection.''.
(c) Annual Stress Testing and Reviews.--Section 23(d) of the Small
Business Act (15 U.S.C. 650(d)) is amended--
(1) in paragraph (1), by inserting ``In general.--'' after
``(1)'';
(2) in paragraph (2), by inserting ``Hearing.--'' after
``(2)'';
(3) by redesignating paragraphs (3) and (4) as paragraphs
(4) and (5), respectively;
(4) by inserting after paragraph (2) the following:
``(3) Special supervisory authorities related to small
business lending companies.--
``(A) Review and revocation of authority.--
``(i) In general.--The Director of the
Office of Credit Risk Management (in this
paragraph referred to as the `Director')--
``(I) may review and revoke the
authority of a small business lending
company to make, service, or liquidate
business loans under section 7(a) for
performance, excessive losses, or
predatory lending;
``(II) shall review and may revoke
the authority of a small business
lending company to make, service, or
liquidate business loans under section
7(a) if--
``(aa) the early default
rate for the small business
lending company exceeds the
average default rate for all
small business lending
companies participating in the
loan program under section
7(a);
``(bb) the small business
lending company fails to comply
with the requirements under
subparagraph (B); or
``(cc) the Director finds
in an audit conducted under
subparagraph (C)(ii) that the
small business lending company
is not in compliance with 1 or
more of the requirements
described in subparagraph (C);
and
``(III) shall revoke the authority
of a small business lending company to
make, service, or liquidate business
loans under section 7(a) if the
Director has determined the small
business lending company has failed to
comply with the requirements in
subclause (II) or (III) of subparagraph
(B)(ii) for 2 or more years in a row.
``(ii) Reporting requirement.--If the
Director revokes the authority of a small
business lending company to make, service, or
liquidate business loans under section 7(a),
the Director shall report the revocation, along
with details and information describing why
that decision was made, to the Office of the
Inspector General of the Administration.
``(B) Annual stress tests.--
``(i) In general.--Each small business
lending company shall--
``(I) conduct an annual stress test
of the portfolio of the small business
lending company under section 7(a) in
accordance with the requirements under
clause (ii); and
``(II) report to the Director the
findings of each annual stress test
conducted under subclause (I).
``(ii) Requirements.--Each stress test
conducted under clause (i) shall comply with
the following requirements:
``(I) The small business lending
company shall use financial data as of
December 31 of the calendar year prior
to the reporting year.
``(II) The small business lending
company shall use the scenarios
provided by the Director, which shall
reflect a minimum of 2 sets of economic
and financial conditions, including
baseline and severely adverse scenarios
that incorporate consideration of
interest rate risk. The Director shall
provide a description of the scenarios
required to be used by each small
business lending company not later than
February 15 of the reporting year.
``(III) The board of directors and
senior management of each small
business lending company shall consider
the results of the stress tests
conducted under this subsection in the
normal course of business, including
capital planning, assessment of capital
adequacy, and risk management practices
of the small business lending company.
``(C) Compliance with bank secrecy act and anti-
money laundering requirements.--
``(i) Definition.--In this subparagraph,
the term `Bank Secrecy Act' means--
``(I) section 21 of the Federal
Deposit Insurance Act (12 U.S.C.
1829b);
``(II) chapter 2 of title I of
Public Law 91-508 (12 U.S.C. 1951 et
seq.); and
``(III) subchapter II of chapter 53
of title 31, United States Code.
``(ii) Annual reviews.--The Director--
``(I) shall conduct annual reviews
to ensure that small business lending
companies are in compliance with the
requirements contained in the
regulations issued under clause (iii);
and
``(II) in conducting a review under
subclause (I), may not rely on self-
certification by a small business
lending company that the small business
lending company is in compliance with
those requirements.
``(iii) Regulations.--Not later than 1 year
after the date of enactment of the Modernizing
SBA's Business Loan Programs Act of 2023, the
Administrator shall, in consultation with other
appropriate Federal agencies, issue regulations
to provide a framework to ensure that small
business lending companies are in compliance
with the requirements under the Bank Secrecy
Act, including Know Your Customer and anti-
money laundering requirements, and any
applicable consumer protection laws, including
the Truth in Lending Act (15 U.S.C. 1601 et
seq.), the Equal Credit Opportunity Act (15
U.S.C. 1691 et seq.), and the Gramm-Leach-
Bliley Act (Public Law 106-102; 113 Stat.
1338).'';
(5) in paragraph (4), as so redesignated, by inserting
``Notification.--'' after ``(4)''; and
(6) in paragraph (5), as so redesignated, by inserting
``Delegation.--'' after ``(5)''.
SEC. 207. OFFICE OF CREDIT RISK MANAGEMENT.
Section 47 of the Small Business Act (15 U.S.C. 657t) is amended--
(1) in subsection (c)--
(A) in paragraph (1), by inserting before the
period at the end the following: ``with a demonstrated
career in or outstanding qualifications or expertise
related to finance and financial risk management. The
Director shall report directly to the Administrator'';
and
(B) by adding at the end the following:
``(3) Compensation.--The Administrator shall fix the
compensation of the Director--
``(A) as necessary to carry out the duties of the
Office; and
``(B) in an amount that is not less than the
highest rate of basic pay for the Senior Executive
Service under section 5382(b) of title 5, United States
Code.''; and
(2) in subsection (h)(2)--
(A) in subparagraph (I), by striking ``and'' at the
end;
(B) in subparagraph (J), by striking the period at
the end and inserting a semicolon; and
(C) by adding at the end the following:
``(K) the number of 7(a) lenders that had an early
default rate of more than 3 percent; and
``(L) an analysis of the median and average credit
scores of borrowers relating to early default rates,
purchase rates, and charge offs.''.
SEC. 208. DENIED LOAN OR LOAN MODIFICATION REQUEST.
(a) 7(a) Loans.--Section 7(a)(1) of the Small Business Act (15
U.S.C. 636(a)(1)), as amended by section 206(b) of this Act, is amended
by adding at the end the following:
``(H) Denied loan or loan modification request.--
``(i) Role of administrator.--The
Administrator may not intervene or make a final
decision with respect to a request for
reconsideration of a denied loan or loan
modification request made by an applicant or
recipient of a loan under this subsection.
``(ii) Final decision.--Only the Director
of the Office of Financial Assistance may make
a final decision with respect to a request for
reconsideration of a denied loan or loan
modification request made by an applicant or
recipient of a loan under this subsection.''.
(b) 504/CDC Loans.--Section 502 of the Small Business Investment
Act of 1958 (15 U.S.C. 696), as amended by section 205(b) of this Act,
is amended by adding at the end the following:
``(11) Denied loan or loan modification request.--
``(A) Role of administrator.--The Administrator may
not intervene or make a final decision with respect to
a request for reconsideration of a denied loan or loan
modification request made by an applicant or recipient
of a loan under this section.
``(B) Final decision.--Only the Director of the
Office of Financial Assistance may make a final
decision with respect to a request for reconsideration
of a denied loan or loan modification request made by
an applicant or recipient of a loan under this
section.''.
SEC. 209. DIRECT LENDING.
Section 7(a)(1) of the Small Business Act (15 U.S.C. 636(a)(1)), as
amended by section 208(a) of this Act, is amended by adding at the end
the following:
``(I) Notification required before direct
lending.--Not later than 60 days before the
Administration implements any policy or pilot program
that would allow the Administration to directly make a
loan under this subsection, the Administrator shall
submit a notification to Congress for review.''.
SEC. 210. RESTRICTION ON REFINANCING DEBT.
Section 7(a)(1) of the Small Business Act (15 U.S.C. 636(a)(1)), as
amended by section 209 of this Act, is amended by adding at the end the
following:
``(J) Restriction on refinancing debt.--
``(i) Definition.--In this subparagraph,
the term `delegated authority' means status
granted by the Administration to a lender to
allow the lender to process, close, service,
and liquidate certain loans made under this
subsection without prior review by the
Administration.
``(ii) Restriction.--A lender shall be
prohibited from using any delegated authority
under this subsection to refinance any debt
held by the lender, including any loan made
under this subsection.''.
SEC. 211. GAO STUDY.
Not later than 2 years after the date of enactment of this Act, the
Comptroller General of the United States shall conduct a study and
submit to the Administrator, the Committee on Small Business and
Entrepreneurship of the Senate, and the Committee on Small Business of
the House of Representatives a report that includes--
(1) an analysis of the use of alternative credit models for
loans made under section 7(a) of the Small Business Act (15
U.S.C. 636(a)) in an amount of less than $350,000, including--
(A) an analysis of whether appropriate guardrails
are in place to prevent fraud, waste, and abuse and
provide protections for the borrower;
(B) an evaluation of the effectiveness of those
credit models in reducing barriers to access to capital
to underserved and rural communities; and
(C) recommendations as to whether improvements can
be made by Administration in its use of alternative
credit models to prevent waste, fraud, and abuse and to
improve access to capital to underserved and rural
communities;
(2) an audit of the operations, staffing, and resources of
the Office of Credit Risk Management of the Administration,
including the efforts of the Office to implement the new
oversight provisions under the amendments made by this title;
and
(3) a survey of the practices of lenders under section 7(a)
of the Small Business Act (15 U.S.C. 636(a)) relating to the
use of criminal history when determining whether to approve a
loan under that section or a similarly sized commercial loan
that is not guaranteed by the Administration.
Calendar No. 158
118th CONGRESS
1st Session
S. 2482
_______________________________________________________________________
A BILL
To amend the Small Business Act to authorize the Community Advantage
Loan Program of the Small Business Administration, and for other
purposes.
_______________________________________________________________________
July 25, 2023
Read twice and placed on the calendar