II 

109TH CONGRESS 

2D SESSION S. 2595 

To amend the Small Business Investment Act of 1958 to modernize the 

treatment of development companies. 

IN THE SENATE OF THE UNITED STATES 

APRIL 6, 2006 

Mr. KERRY (for himself and Mr. PRYOR) introduced the following bill; which 

was read twice and referred to the Committee on Small Business and Entrepreneurship 

A BILL 

To amend the Small Business Investment Act of 1958 to 

modernize the treatment of development companies. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS; DEFINI4 TIONS. 

5 (a) SHORT TITLE.—This Act may be cited as the 

6 ‘‘504 Loan Program Modernization Act of 2006’’. 

7 (b) TABLE OF CONTENTS.—The table of contents for 

8 this Act is as follows: 

Sec. 1. Short title; table of contents; definitions. 

Sec. 2. Findings and purposes. 

Sec. 3. Authorizations for 504 Loan Program. 

Sec. 4. Certified development company economic development. 


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Sec. 5. Definitions. 

Sec. 6. Eligibility of development companies to be designated as certified development companies; authority to issue debentures; providing an 

area of operational authority, funding restrictions, and ethical 

requirements. 

Sec. 7. Conforming amendments. 

Sec. 8. Definition of rural areas. 

Sec. 9. Businesses in low-income areas. 

Sec. 10. Combinations of certain goals. 

Sec. 11. Repeal of sunset on reserve requirements for premier certified lenders. 

Sec. 12. Refinancing. 

Sec. 13. Fees. 

Sec. 14. Additional equity injections. 

Sec. 15. Loan liquidations. 

Sec. 16. Closing costs. 

Sec. 17. Maximum 504 and 7(a) loan eligibility. 

Sec. 18. Technical correction. 

Sec. 19. Premier Certified Lenders Program report. 

Sec. 20. Regulations. 

1 (c) DEFINITIONS.—In this Act— 

2 (1) the terms ‘‘Administration’’ and ‘‘Adminis3 trator’’ means the Small Business Administration 

4 and the Administrator thereof, respectively; 

5 (2) the term ‘‘Premier Certified Lenders Pro6 gram’’ means the program established under section 

7 508(a) of the Small Business Investment Act of 

8 1958 (15 U.S.C. 697e(a)); and 

9 (3) the term ‘‘504 Loan Program’’ means the 

10 program to provide financing to small business con11 cerns by guarantees of loans under title V of the 

12 Small Business Investment Act of 1958 (15 U.S.C. 

13 695 et seq.), which are funded by debentures guar14 anteed by the Administrator. 

15 SEC. 2. FINDINGS AND PURPOSES. 

16 (a) FINDINGS.—Congress finds that— 


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1 (1) in pursuing its mission of aiding small busi2 nesses, the Administration provides small businesses 

3 with access to credit, primarily by guaranteeing 

4 loans through its 7(a) and 504 Loan Programs; 

5 (2) the 504 Loan Program provides long-term, 

6 fixed-rate financing to growing small businesses for 

7 expansion or modernization, primarily of real estate 

8 and large equipment; 

9 (3) the 504 financing is delivered through cer10 tified development companies (in this section re11 ferred to as ‘‘CDCs’’), about 270 typically pre12 existing nonprofit corporations, established to con13 tribute to the economic development of their commu14 nities; 

15 (4) during the 5 years preceding the date of en16 actment of this Act, 504 loans have slightly in17 creased to Hispanics and Asians, but have been flat18 level funded to African Americans, with 2 percent of 

19 the loans, and have decreased in loans to women, 

20 from 19 percent to 15 percent; 

21 (5) the CDC industry and the 504 Loan Pro22 gram have experienced unprecedented structural 

23 changes, such as the shift of all 504 loan processing, 

24 loan servicing and liquidation from 70 Administra25 tion district offices to 1 or 2 centers in the country; 


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1 (6) in 2004, the Administration adopted regula2 tions that allowed for Statewide and multistate CDC 

3 operations, resulting in increased competition and 

4 program growth in many areas of the country, with 

5 limited accountability measures to ensure that CDCs 

6 are investing in local economic development activities 

7 in each State as they expand; and 

8 (7) such changes require Congress to examine 

9 the 504 Loan Program and the industry and set a 

10 statutory course that ensures that the intent and the 

11 mission of CDCs and the 504 Loan Program for the 

12 future are clearly established as local economic de13 velopment. 

14 (b) PURPOSES.—The purpose and intent of this Act 

15 are— 

16 (1) to make a clear distinction between non17 profit and for-profit lending practices through the 

18 preservation of the CDCs as non-profit economic de19 velopment intermediaries that are an essential ele20 ment in Congress’ and the Administration’s mission 

21 to assist small businesses to foster local economic 

22 development through job creation and investment in 

23 all our communities; 

24 (2) to reconfirm the statutory intent of CDCs 

25 as originally established in 1958 to provide small 


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1 business programs, services, and assistance that for2 profit lenders do not provide; 

3 (3) to direct the Administration within 90 days 

4 of the date of enactment of this Act to report to the 

5 Committee on Small Business and Entrepreneurship 

6 of the Senate and the Committee on Small Business 

7 of the House of Representatives on how the Admin8 istration could implement 1 closing, rather than 2 in 

9 the 504 Loan Program, and potentially save the bor10 rower thousands in funds and retain outstanding 

11 participation of private lenders; 

12 (4) to direct the Administration to report on 

13 the utilization of the Premier Certified Lender Pro14 gram over the past 3 years, specifically outlining 

15 how many 504 loans have been processed through 

16 the program, what difficulties have been encountered 

17 in making these loans, and how the number of loans 

18 in the program could be increased or streamlined; 

19 (5) to establish the expansion of business in 

20 low-income communities as a separate public policy 

21 goal to highlight the need for CDCs to include such 

22 goal as a primary objective in future projects and 

23 outreach to underserved populations; 

24 (6) to ensure accountability as CDC operations 

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1 thorizations by the Administrator to operate in 

2 multistates and require that CDCs use excess funds 

3 for local economic development projects in the area 

4 of operations where such funds were generated and 

5 submit an annual report to the Administrator of 

6 such projects in each State of operation; 

7 (7) to provide small businesses which need both 

8 long-term fixed asset financing through the 504 

9 Loan Program and shorter term working capital and 

10 equipment financing through the 7(a) loan program 

11 the option of utilizing both Administration loan 

12 guaranty programs to their maximum amount; 

13 (8) to direct the Administration to require that 

14 504 defaulted loan liquidations and recoveries be 

15 processed by CDCs or their designated third-party 

16 contractors, and that CDCs be compensated for the 

17 cost of such liquidation activities; and 

18 (9) to direct the Administration to establish an 

19 incentive program directed to CDCs that foreclose 

20 and liquidate defaulted loans. 

21 SEC. 3. AUTHORIZATIONS FOR 504 LOAN PROGRAM. 

22 Section 20 of the Small Business Act (20 U.S.C. 631 

23 note) is amended by adding at the end the following: 

24 ‘‘(f) FISCAL YEAR 2007.—For the program author25 ized under section 7(a)(13) and the 504 Loan Program, 


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1 the Administrator is authorized to make $8,500,000,000 

2 in financings, and there are authorized to be appropriated 

3 to the Administrator such sums as are necessary to carry 

4 out such programs. 

5 ‘‘(g) FISCAL YEAR 2008.—For the program author6 ized under section 7(a)(13) and the 504 Loan Program, 

7 the Administrator is authorized to make $9,500,000,000 

8 in financings, and there are authorized to be appropriated 

9 to the Administrator such sums as are necessary to carry 

10 out such programs. 

11 ‘‘(h) FISCAL YEAR 2009.—For the program author12 ized under section 7(a)(13) and the 504 Loan Program, 

13 the Administrator is authorized to make $10,500,000,000 

14 in financings, and there are authorized to be appropriated 

15 to the Administrator such sums as are necessary to carry 

16 out such programs.’’. 

17 SEC. 4. CERTIFIED DEVELOPMENT COMPANY ECONOMIC 

18 DEVELOPMENT. 

19 Section 504 of the Small Business Investment Act 

20 of 1958 (15 U.S.C. 697a) is amended— 

21 (1) by striking the section heading and insert22 ing the following: ‘‘PRIVATE DEBENTURE SALES

23 AND PROGRAM NAME’’; 

24 (2) by redesignating subsections (a) and (b) as 

25 subsections (b) and (c), respectively; and 


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1 (3) by inserting before subsection (b) the fol2 lowing: 

3 ‘‘(a) PROGRAM NAME.—The program to provide fi4 nancing to small business concerns by guarantees of loans 

5 under this title, which are funded by debentures guaran6 teed by the Administrator shall be known as the ‘Certified 

7 Development Company Economic Development Loan Pro8 gram’ or the ‘504 Loan Program’.’’. 

9 SEC. 5. DEFINITIONS. 

10 Section 103 of the Small Business Investment Act 

11 of 1958 (15 U.S.C. 662) is amended— 

12 (1) by striking paragraph (6) and inserting the 

13 following: 

14 ‘‘(6) the term ‘development company’ means an 

15 entity incorporated under State law with the author16 ity to promote and assist the growth and develop17 ment of small business concerns in the areas in 

18 which it is authorized to operate by the Adminis19 trator;’’; 

20 (2) in paragraph (16), by striking ‘‘and’’ at the 

21 end; 

22 (3) in paragraph (17), by striking the period at 

23 the end and inserting ‘‘; and’’; and 

24 (4) by adding at the end the following: 


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1 ‘‘(18) the term ‘certified development company’ 

2 means a development company which the Adminis3 trator has determined meets the criteria of section 

4 506.’’. 

5 SEC. 6. ELIGIBILITY OF DEVELOPMENT COMPANIES TO BE 

6 DESIGNATED AS CERTIFIED DEVELOPMENT 

7 COMPANIES; AUTHORITY TO ISSUE DEBEN8 TURES; PROVIDING AN AREA OF OPER9 ATIONAL AUTHORITY, FUNDING RESTRIC10 TIONS, AND ETHICAL REQUIREMENTS. 

11 Section 506 of the Small Business Investment Act 

12 of 1958 (15 U.S.C. 697c) is amended to read as follows: 

13 ‘‘SEC. 506. CERTIFIED DEVELOPMENT COMPANIES. 

14 ‘‘(a) AUTHORITY TO ISSUE DEBENTURES.—A devel15 opment company may issue debentures under this title if 

16 the Administrator certifies that the company meets the 

17 following criteria: 

18 ‘‘(1) SIZE.— 

19 ‘‘(A) IN GENERAL.—Except as provided in 

20 subparagraph (B), the development company 

21 shall be a small business concern with fewer 

22 than 500 employees, and shall not be under the 

23 control of any entity that does not meet the size 

24 standards established by the Administrator for 

25 a small business concern. 


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1 ‘‘(B) EXCEPTION.—Any development com2 pany that was certified by the Administrator 

3 prior to December 31, 2005, may continue to 

4 issue debentures under this title. 

5 ‘‘(2) PURPOSE.—A primary purpose of the de6 velopment company shall be to benefit the commu7 nity by fostering economic development to create and 

8 preserve jobs and stimulate private investment. 

9 ‘‘(3) PRIMARY FUNCTION.—A primary function 

10 of the development company shall be to accomplish 

11 its purpose by providing long term financing to 

12 small business concerns under the 504 Loan Pro13 gram. The development company may also provide 

14 or support other local economic development activi15 ties to assist the community. 

16 ‘‘(4) NONPROFIT STATUS.— 

17 ‘‘(A) IN GENERAL.—Except as provided in 

18 subparagraph (B), the development company 

19 shall be a nonprofit corporation. 

20 ‘‘(B) EXCEPTION.—A development com21 pany certified by the Administrator prior to 

22 January 1, 1987, may continue to issue deben23 tures under this title and retain its status as a 

24 for-profit enterprise. 


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1 ‘‘(5) GOOD STANDING.—The development com2 pany shall be in compliance with all laws, including 

3 taxation requirements, in the State in which such 

4 company is incorporated and in any other State in 

5 which it conducts business. 

6 ‘‘(6) MEMBERSHIP OF DEVELOPMENT COM7 PANY.—There shall— 

8 ‘‘(A) be not fewer than 25 members of the 

9 development company (or owners or stock10 holders, if the corporation is a for-profit enti11 ty)— 

12 ‘‘(i) none of whom may own or control 

13 more than 10 percent of the voting mem14 bership of the company; and 

15 ‘‘(ii) all of whom shall be residents of 

16 the area of operations of the development 

17 company, as specified by the Administrator 

18 under subsection (b); and 

19 ‘‘(B) be at least 1 member of the develop20 ment company from each of— 

21 ‘‘(i) government organizations that 

22 are responsible for economic development; 

23 ‘‘(ii) financial institutions that provide 

24 commercial long term fixed asset financing; 


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1 ‘‘(iii) community organizations that 

2 are dedicated to economic development; 

3 and 

4 ‘‘(iv) businesses. 

5 ‘‘(7) BOARD OF DIRECTORS.— 

6 ‘‘(A) IN GENERAL.—The development com7 pany shall have a board of directors. 

8 ‘‘(B) MEMBERS OF BOARD.—Each member 

9 of the board of directors of the development 

10 company shall be— 

11 ‘‘(i) a member of the development 

12 company; 

13 ‘‘(ii) elected by the members of the 

14 development company; and 

15 ‘‘(iii) a resident of the area of oper16 ations of the development company, as 

17 specified by the Administrator under sub18 section (b). 

19 ‘‘(C) REPRESENTATION OF ORGANIZA20 TIONS AND INSTITUTIONS.—There shall be at 

21 least 1 member of the board of directors from 

22 not fewer than 3 of the 4 organizations and in23 stitutions described in paragraph (6)(B), none 

24 of whom is in a position to control the develop25 ment company. 


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1 ‘‘(D) MEETINGS.—The board of directors 

2 of the development company shall meet on a 

3 regular basis to make policy decisions for such 

4 company. 

5 ‘‘(8) PROFESSIONAL MANAGEMENT AND

6 STAFF.— 

7 ‘‘(A) IN GENERAL.—The development com8 pany shall have full-time professional manage9 ment, including a chief executive officer to man10 age daily operations, and a full-time profes11 sional staff qualified to market the 504 Loan 

12 Program and handle all aspects of loan ap13 proval and servicing, including liquidation, if 

14 appropriate. 

15 ‘‘(B) INDEPENDENCE.—Except as pro16 vided in subparagraph (C), the development 

17 company shall be independently managed and 

18 operated to pursue the economic development 

19 mission of the company and shall employ its 

20 chief executive officer directly. 

21 ‘‘(C) EXCEPTIONS.— 

22 ‘‘(i) AFFILIATION.—A development 

23 company may be an affiliate of another 

24 local nonprofit service corporation (other 

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1 sion is to support economic development in 

2 the area in which the development com3 pany operates. 

4 ‘‘(ii) MEMBERS OF BOARD.—A devel5 opment company and a local nonprofit 

6 service corporation with which it is affili7 ated may have in common some, but not 

8 all, members of their respective boards of 

9 directors. 

10 ‘‘(iii) STAFFING.—Except as provided 

11 in clause (iv), a development company may 

12 satisfy the requirement for full-time pro13 fessional staff under subparagraph (A) by 

14 contracting for the required staffing with 

15 an entity with which the development com16 pany is affiliated, including— 

17 ‘‘(I) a local nonprofit service cor18 poration; 

19 ‘‘(II) a nonprofit affiliate of a 

20 local nonprofit service corporation; 

21 ‘‘(III) an entity wholly or par22 tially operated by a governmental 

23 agency; or 

24 ‘‘(IV) another entity approved by 

25 the Administrator. 


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1 ‘‘(iv) RURAL AREAS.—A development 

2 company located in a rural area, as defined 

3 in section 501(f), may satisfy the require4 ments of a full-time professional staff and 

5 professional management ability under 

6 subparagraph (A) by contracting with an7 other certified development company that 

8 has such staff and management ability and 

9 is located in the same general area in 

10 which the development company is located. 

11 ‘‘(v) FOR-PROFIT COMPANIES.—A de12 velopment company that was certified by 

13 the Administrator prior to January 1, 

14 2006, and that has contracted with a for15 profit company to provide professional 

16 staff as of such date may continue to con17 tract for staffing with a for-profit com18 pany. 

19 ‘‘(b) AREA OF OPERATIONS.— 

20 ‘‘(1) IN GENERAL.—The Administrator shall 

21 specify the area in which an applicant is certified to 

22 provide assistance to small business concerns under 

23 this title. 

24 ‘‘(2) INITIAL AREA.—The Administrator shall 

25 not authorize an applicant to provide assistance 


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1 under paragraph (1) outside of the State of incorpo2 ration of the development company when first au3 thorizing an applicant to provide assistance under 

4 this title, unless it proposes to operate in a local eco5 nomic area under subsection (c). 

6 ‘‘(c) LOCAL ECONOMIC AREA REQUIREMENT AND

7 EXEMPTION.— 

8 ‘‘(1) DEFINITION.—In this subsection, the term 

9 ‘local economic area’ means an area, as determined 

10 by the Administrator, that— 

11 ‘‘(A) is in a State other than the State in 

12 which a development company is incorporated; 

13 ‘‘(B) shares a border with the area of oper14 ations of the development company; and 

15 ‘‘(C) is a part of a local trade area (includ16 ing a city that is bisected by a State line and 

17 a metropolitan statistical area that is bisected 

18 by a State line) that is contiguous to the area 

19 of operations of the development company. 

20 ‘‘(2) EXEMPTION.—An applicant operating in a 

21 local economic area shall not be deemed to be oper22 ating in a multistate area, and shall not be required 

23 to comply with the requirements of multistate oper24 ation. 


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1 ‘‘(d) MULTISTATE OPERATION.—After a development 

2 company has demonstrated its ability to provide financial 

3 assistance in its area of operations, it may request the Ad4 ministrator to authorize the development company to oper5 ate as a multistate certified development company and to 

6 finance small business concerns under this title in a State 

7 other than the State in which the development company 

8 is incorporated, if — 

9 ‘‘(1) such State is contiguous to the State in 

10 which the development company is incorporated, ex11 cept that the States of Alaska and Hawaii shall be 

12 deemed to be contiguous to any State abutting the 

13 Pacific ocean; 

14 ‘‘(2) the development company demonstrates its 

15 proficiency in making and servicing loans under the 

16 504 Loan Program by— 

17 ‘‘(A) requesting and receiving designation 

18 as an accredited lender under section 507 or a 

19 premier certified lender under section 508; and 

20 ‘‘(B) meeting or exceeding performance 

21 standards established by the Administrator; 

22 ‘‘(3) the development company adds additional 

23 members of the development company from such 

24 State that— 


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1 ‘‘(A) meet the requirements of subsection 

2 (a)(6); and 

3 ‘‘(B) are residents of such State; 

4 ‘‘(4) the development company adds at least 1 

5 member to its board of directors from such State; 

6 and 

7 ‘‘(5) the development company meets such 

8 other criteria or comply with such conditions as the 

9 Administrator may require. 

10 ‘‘(e) PROCESSING OF EXPANSION APPLICATIONS.— 

11 Not later than 30 days after the date of receipt of an ap12 plication under subsection (d), the Administrator shall de13 termine whether the development company meets the re14 quirements of subsection (d) and accept or reject the re15 quest of a development company for approval as a 

16 multistate company in writing. 

17 ‘‘(f) USE OF EXCESS FUNDS.—Any funds generated 

18 by a development company from making 504 loans which 

19 remain after payment of staff, operating and overhead ex20 penses shall be retained by the development company as 

21 a reserve for— 

22 ‘‘(1) future operations; 

23 ‘‘(2) expanding the area in which the certified 

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1 ate as a multistate development company under sub2 section (d); or 

3 ‘‘(3) investment in other local community or 

4 economic development activity in the State from 

5 which such funds were generated or in a local eco6 nomic area which includes part of the State of incor7 poration. 

8 ‘‘(g) ETHICAL REQUIREMENTS.— 

9 ‘‘(1) DEFINITIONS.—In this subsection— 

10 ‘‘(A) the term ‘close relative’ means a 

11 spouse, parent, child, sibling, or the spouse of 

12 a parent, child, or sibling; and 

13 ‘‘(B) the term ‘position of control’ means 

14 an officer, member of the board of directors, 

15 manager, chief executive officer, agent involved 

16 in the loan process, key employee or similar 

17 management position of a certified development 

18 company and, if the development company is a 

19 for-profit entity, a holder of 20 percent or more 

20 of the value of the stock of the certified devel21 opment. 

22 ‘‘(2) CONFLICT OF INTEREST.—A certified de23 velopment company, and the officers, employees, and 

24 other staff of a certified development company, shall 

25 at all times act ethically and avoid activities which 


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1 constitute a conflict of interest or appear to con2 stitute a conflict of interest. 

3 ‘‘(3) CONTROL OF MULTIPLE COMPANIES.— 

4 ‘‘(A) IN GENERAL.—No person, either di5 rectly or indirectly, may hold a position of con6 trol on more than 1 certified development com7 pany. 

8 ‘‘(B) RELATIVES.—No close relative of an 

9 individual who holds a position of control in a 

10 certified development company may hold a posi11 tion of control in a certified development com12 pany, except for the certified development com13 pany in which the individual serves. 

14 ‘‘(4) PROHIBITED CONFLICT IN PROJECT

15 LOANS.— 

16 ‘‘(A) IN GENERAL.—Except as provided in 

17 subparagraph (B), no certified development 

18 company may— 

19 ‘‘(i) recommend or approve a guar20 antee of a debenture by the Administrator 

21 as part of a project under the 504 Loan 

22 Program that is collateralized by a second 

23 lien position on the property being con24 structed or acquired; and 


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1 ‘‘(ii) provide, or be affiliated with a 

2 corporation or other entity which directly 

3 or indirectly provides financing 

4 collateralized by a first lien on the same 

5 property. 

6 ‘‘(B) EXCEPTION.—A business develop7 ment company that was participating as a first 

8 mortgage lender under the 504 Loan Program 

9 in fiscal year 2004 or 2005, either directly or 

10 through an affiliate, may continue to do so. 

11 ‘‘(5) OTHER ECONOMIC DEVELOPMENT ACTIVI12 TIES.— 

13 ‘‘(A) MULTIPLE PROGRAMS.—Operation of 

14 multiple programs to assist small business con15 cerns in order for a certified development com16 pany to carry out its economic development 

17 mission shall not be deemed a conflict of inter18 est for purposes of this section. 

19 ‘‘(B) OTHER SOURCES OF FUNDING.— 

20 ‘‘(i) IN GENERAL.—Except as pro21 vided in clause (ii), and notwithstanding 

22 any other provision of law, no certified de23 velopment company may accept funding 

24 from any source, including any department 

25 or agency of the Federal Government— 


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1 ‘‘(I) if such funding includes any 

2 conditions, priorities or restrictions 

3 upon the types of small business con4 cerns to which the certified develop5 ment company may provide financial 

6 assistance under this title; or 

7 ‘‘(II) if such funding includes 

8 any conditions or imposes any require9 ments, directly or indirectly, upon any 

10 recipient of assistance under this title. 

11 ‘‘(ii) EXCEPTION.—Clause (i) shall 

12 not apply if the source of funding de13 scribed in clause (i) provides all of the fi14 nancial assistance to be delivered by the 

15 certified development company to the small 

16 business concern and such conditions, pri17 orities, or restrictions are limited solely to 

18 the financial assistance so provided. 

19 ‘‘(h) REPORTING.—A certified development company 

20 shall submit an annual report to the Administration re21 garding— 

22 ‘‘(1) the use of excess funds by the company 

23 under subsection (f); and 


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1 ‘‘(2) the involvement of the company with local 

2 economic development activities in every State in 

3 which the certified development company operates.’’. 

4 SEC. 7. CONFORMING AMENDMENTS. 

5 Section 503 of the Small Business Investment Act 

6 of 1958 (15 U.S.C. 697) is amended— 

7 (1) in subsection (a)(1), by striking ‘‘qualified 

8 State or local development company’’ and inserting 

9 ‘‘certified development company’’; and 

10 (2) by striking subsection (e) and inserting the 

11 following: 

12 ‘‘(e) Notwithstanding any other provision of law, a 

13 certified development company is authorized to prepare 

14 applications for deferred participation loans under section 

15 7(a) of the Small Business Act, to service such loans, and 

16 to charge a reasonable fee for servicing such loans.’’. 

17 SEC. 8. DEFINITION OF RURAL AREAS. 

18 Section 501 of the Small Business Investment Act 

19 of 1958 (15 U.S.C. 695) is amended by adding at the end 

20 the following: 

21 ‘‘(f) As used in this section, the terms ‘rural’ and 

22 ‘rural area’ include any area other than— 

23 ‘‘(1) a city or town that has a population great24 er than 50,000 inhabitants; and 


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1 ‘‘(2) the urbanized area contiguous and adja2 cent to such a city or town.’’. 

3 SEC. 9. BUSINESSES IN LOW-INCOME AREAS. 

4 Section 501(d)(3) of the Small Business Investment 

5 Act of 1958 (15 U.S.C. 695(d)(3)) is amended— 

6 (1) in subparagraph (G), by striking ‘‘or’’ at 

7 the end; 

8 (2) in subparagraph (H), by striking the period 

9 at the end and inserting ‘‘, or’’; and 

10 (3) by adding at the end the following: 

11 ‘‘(I) expansion of businesses in low-income 

12 communities (defined as any area which would 

13 be eligible for new markets tax credits under 

14 section 45D(a) of the Internal Revenue Code of 

15 1986, or regulations issued thereunder).’’. 

16 SEC. 10. COMBINATIONS OF CERTAIN GOALS. 

17 Section 501(d) of the Small Business Investment Act 

18 of 1958 (15 U.S.C. 695(d)) is amended by inserting before 

19 the undesignated matter at the end the following: 

20 ‘‘(4) A small business concern which is owned 

21 by more than 1 individual, or a corporation whose 

22 stock is owned by more than 1 individual, shall be 

23 deemed to have achieved a public policy goal under 

24 paragraph (3) if not less than 51 percent of the 

25 small business concern is owned by individuals who 


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1 are in 1 or a combination of the groups described as 

2 public policy goals in subparagraph (C) and (E) of 

3 paragraph (3).’’. 

4 SEC. 11. REPEAL OF SUNSET ON RESERVE REQUIREMENTS 

5 FOR PREMIER CERTIFIED LENDERS. 

6 Section 508(c)(6)(B) of the Small Business Invest7 ment Act of 1958 (15 U.S.C. 697e(c)(6)(B)) is amend8 ed— 

9 (1) in the subparagraph heading, by striking 

10 ‘‘TEMPORARY REDUCTION’’ and inserting ‘‘REDUC11 TION’’; and 

12 (2) by striking ‘‘Notwithstanding subparagraph 

13 (A), during the 2-year period beginning on the date 

14 that is 90 days after the date of the enactment of 

15 this subparagraph, the’’ and inserting ‘‘The’’. 

16 SEC. 12. REFINANCING. 

17 Section 502 of the Small Business Investment Act 

18 of 1958 (15 U.S.C. 696) is amended by adding at the end 

19 the following: 

20 ‘‘(7) PERMISSIBLE DEBT REFINANCING.— 

21 ‘‘(A) IN GENERAL.—Any financing ap22 proved under this title may also include a lim23 ited amount of debt refinancing, as described in 

24 subparagraph (B). 


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1 ‘‘(B) EXPANSIONS.—If the project for 

2 which a financing under this title is sought in3 volves the expansion of a small business concern 

4 which has existing indebtedness collateralized 

5 by fixed assets, any amount of existing indebtedness that does not exceed 1 6 ⁄2 of the project 

7 cost of the expansion may be refinanced and 

8 added to the expansion cost, if— 

9 ‘‘(i) the existing indebtedness was not 

10 financed under the 504 Loan Program or 

11 under section 7(a) of the Small Business 

12 Act; 

13 ‘‘(ii) the proceeds of the indebtedness 

14 were used to acquire land, including a 

15 building situated thereon, to construct a 

16 building thereon or to purchase equipment; 

17 ‘‘(iii) the borrower has been current 

18 on all payments due on the existing debt 

19 for the 1-year period prior to the date on 

20 which the application is submitted; and 

21 ‘‘(iv) the financing under the 504 

22 Loan Program will provide better terms or 

23 rate of interest than exists on the existing 

24 debt.’’. 


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1 SEC. 13. FEES. 

2 (a) IN GENERAL.—Section 503(d) of the Small Busi3 ness Investment Act of l958 (15 U.S.C. 697(d)) is amend4 ed— 

5 (1) by striking paragraph (2); 

6 (2) by redesignating paragraph (3) as para7 graph (2); and 

8 (3) in paragraph (2), as so redesignated, by 

9 striking ‘‘0.125 percent’’ and inserting ‘‘0.155 per10 cent’’. 

11 (b) REPORTING.—Not later than 2 years after the ef12 fective date under subsection (c), the Administrator shall 

13 submit to the Committee on Small Business and Entrepre14 neurship of the Senate and the Committee on Small Busi15 ness of the House of Representatives a report assessing 

16 the impact of the change in fees under subsection (a)(3) 

17 in fostering economic development. 

18 (c) EFFECTIVE DATE.—The amendments made by 

19 subsection (a) shall take effect and apply to loans ap20 proved under the 504 Loan Program, on or after the date 

21 that is 30 days after the date of enactment of this Act. 

22 (d) RECOMPUTATION.—Notwithstanding any other 

23 provision of law, the Administrator shall recalculate the 

24 amount of the fee to be paid by a borrower under section 

25 503(b)(7) of the Small Business Investment Act of 1958 

26 (15 U.S.C. 697(b)(7)) such that the cost of making guarVerDate Aug 31 2005 22:32 Apr 12, 2006 Jkt 049200 PO 00000 Frm 00027 Fmt 6652 Sfmt 6201 E:\BILLS\S2595.IS S2595

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1 antees under the 504 Loan Program is zero after the ef2 fective date under subsection (c). 

3 SEC. 14. ADDITIONAL EQUITY INJECTIONS. 

4 Section 502(3)(B)(ii) of the Small Business Invest5 ment Act of 1958 (15 U.S.C. 696(3)(B)(ii)) is amended 

6 to read as follows: 

7 ‘‘(ii) FUNDING FROM INSTITU8 TIONS.—If a small business concern that is 

9 required to provide a contribution under 

10 clause (i), (ii) or (iii) of subparagraph 

11 (C)— 

12 ‘‘(I) provides the minimum 

13 amount required under such subpara14 graph, not less than 50 percent of the 

15 total cost of the project shall come 

16 from financing provided by an institu17 tion described in subclause (I), (II), 

18 or (III) of clause (i) of this subpara19 graph; or 

20 ‘‘(II) provides more than the 

21 minimum amount required under such 

22 subparagraph, any contribution in ex23 cess of such minimum amount may be 

24 used to reduce the amount required 

25 from an institution described in subVerDate Aug 31 2005 22:32 Apr 12, 2006 Jkt 049200 PO 00000 Frm 00028 Fmt 6652 Sfmt 6201 E:\BILLS\S2595.IS S2595

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1 clause (I), (II), or (III) of clause (i) 

2 of this subparagraph, except that the 

3 amount from such institution may not 

4 be reduced to an amount equal to or 

5 less than the amount of the loan made 

6 by the Administrator.’’. 

7 SEC. 15. LOAN LIQUIDATIONS. 

8 Section 510 of the Small Business Investment Act 

9 of 1958 (15 U.S.C. 697g) is amended— 

10 (1) by redesignating subsection (e) as sub11 section (g); and 

12 (2) by inserting after subsection (d) the fol13 lowing:: 

14 ‘‘(e) PARTICIPATION.— 

15 ‘‘(1) MANDATORY.— 

16 ‘‘(A) IN GENERAL.—Any certified develop17 ment company that elects not to apply for au18 thority to foreclose and liquidate defaulted 

19 loans under this section, or that the Adminis20 trator determines to be ineligible for such au21 thority, shall contract with a third-party to per22 form foreclosure and liquidation of defaulted 

23 loans in its portfolio. 

24 ‘‘(B) APPROVAL OF QUALIFICATIONS AND

25 TERMS.—A contract under subparagraph (A) 


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1 shall be contingent upon approval by the Ad2 ministrator of the qualifications of the con3 tractor and the terms and conditions of liquida4 tion activities. 

5 ‘‘(2) COMMENCEMENT.—This subsection shall 

6 not require any certified development company to 

7 liquidate defaulted loans until after the date on 

8 which the Administrator implements a program to 

9 compensate and reimburse certified development 

10 companies under subsection (f). 

11 ‘‘(f) COMPENSATION AND REIMBURSEMENT.— 

12 ‘‘(1) REIMBURSEMENT OF EXPENSES.—The 

13 Administrator shall reimburse each certified develop14 ment company for all expenses paid by such com15 pany as part of foreclosure and liquidation activities 

16 if the expenses— 

17 ‘‘(A) were approved in advance by the Ad18 ministrator, either specifically or generally; or 

19 ‘‘(B) were incurred by the certified devel20 opment company on an emergency basis with21 out prior approval from the Administrator, if 

22 the Administrator determines that the expenses 

23 were reasonable and appropriate. 

24 ‘‘(2) COMPENSATION FOR RESULTS.—The Ad25 ministrator shall develop a schedule to compensate 


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1 and provide an incentive to certified development 

2 companies that foreclose and liquidate defaulted 

3 loans, which schedule shall— 

4 ‘‘(A) be based on a percentage of the net 

5 amount recovered; 

6 ‘‘(B) not exceed a maximum amount; and 

7 ‘‘(C) not apply to any foreclosure which is 

8 conducted under a contract between a develop9 ment company and a qualified third-party to 

10 perform the foreclosure and liquidation.’’. 

11 SEC. 16. CLOSING COSTS. 

12 Section 503(b)(4) of the Small Business Investment 

13 Act of 1958 (15 U.S.C. 697(b)(4)) is amended to read 

14 as follows: 

15 ‘‘(4) the aggregate amount of such debenture 

16 does not exceed the amount of the loans to be made 

17 from the proceeds of such debenture plus, at the 

18 election of the borrower, other amounts attributable 

19 to the administrative and closing costs of such loans, 

20 except for the attorney fees of the borrower;’’. 

21 SEC. 17. MAXIMUM 504 AND 7(A) LOAN ELIGIBILITY. 

22 Section 502(2) of the Small Business Investment Act 

23 of 1958 (15 U.S.C. 696(2)) is amended by adding at the 

24 end the following: 


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1 ‘‘(C) COMBINATION FINANCING.—Financ2 ing under the 504 Loan Program may be pro3 vided to a borrower in the maximum amount 

4 provided in this subsection, and a loan guar5 antee under section 7(a) of the Small Business 

6 Act may be provided to the same borrower, up 

7 to the maximum amount provided in section 

8 7(a)(3)(A) of such Act.’’. 

9 SEC. 18. TECHNICAL CORRECTION. 

10 Section 501(e)(2) of the Small Business Investment 

11 Act of 1958 (15 U.S.C. 695(e)(2)) is amended by striking 

12 ‘‘outstanding’’. 

13 SEC. 19. PREMIER CERTIFIED LENDERS PROGRAM RE14 PORT. 

15 (a) IN GENERAL.—Not later than 90 days after the 

16 date of enactment of this Act, the Administrator shall sub17 mit to the Committee on Small Business and Entrepre18 neurship of the Senate and the Committee on Small Busi19 ness of the House of Representatives a report regarding 

20 the operation of the Premier Certified Lenders Program, 

21 during the 3-year period ending on the date of enactment 

22 of this Act. 

23 (b) CONTENTS.—The report submitted under sub24 section (a) shall— 


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1 (1) include the number of loans made under the 

2 Premier Certified Lenders Program; 

3 (2) describe any difficulties encountered in 

4 making such loans; and 

5 (3) make recommendations, if any, regarding 

6 how to increase the number of loans made under the 

7 Premier Certified Lenders Program or streamline 

8 such program. 

9 SEC. 20. REGULATIONS. 

10 The Administrator shall— 

11 (1) publish proposed regulations to implement 

12 this Act and the amendments made by this Act not 

13 later than 120 days after the date of enactment of 

14 this Act; and 

15 (2) publish such regulations in final form not 

16 later than 120 days after the date on which pro17 posed regulations are published under paragraph 

18 (1). 

Æ 


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