I

103D CONGRESS

1ST SESSION H. R. 3655

To authorize the Small Business Administration to reduce the interest rate

on certain outstanding debentures, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

NOVEMBER 22, 1993

Mr. LAFALCE introduced the following bill; which was referred to the

Committee on Small Business

A BILL

To authorize the Small Business Administration to reduce

the interest rate on certain outstanding debentures, and

for other purposes.

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

3 That this Act may be cited as ‘‘The Small Business Pre4 payment Penalty Relief Act of 1993’’.

5 TITLE II

6 SEC. 201. BUY-DOWNS AND INTEREST RATE RE7 DUCTIONS.—(a) Upon the request of the issuer, annually

8 the Administration is authorized to buy-down the interest

9 rate on any debenture purchased by the Federal Financing

10 Bank (1) which has been issued by a development com-
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1 pany pursuant to the provisions of section 503 of the In2 vestment Act or (2) which has been issued by a small busi3 ness investment company pursuant to the provisions of

4 section 303 of such Act. The buy-down shall be limited

5 to the current year only. As used in this section, the term

6 ‘‘buy-down’’ means a payment from the Administration to

7 the Federal Financing Bank in an amount determined by

8 the Administration to reduce the interest payment for that

9 year to an amount equal to 7.5 per centum of the out10 standing principal amount of the debenture.

11 (b) Upon the request of the issuer, annually the Ad12 ministration is authorized to reduce the interest rate on

13 any debenture issued by a small business investment com14 pany licensed pursuant to the provisions of section 301(d)

15 of the Investment Act. The reduction shall be limited to

16 the current year only. The amount of the reduction shall

17 be an amount determined by the Administration to make

18 the interest payment for that year equal to 7.5 per centum

19 of the outstanding principal amount of the debenture, less

20 the amount of any other reductions or credits otherwise

21 provided by law.

22 TITLE III

23 SEC. 301. PREPAYMENTS.—(a) Annually, after the

24 regular Appropriations Act has been signed into law pro25 viding funding for the Administration, the Administration
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1 shall calculate the amount needed to carry out the provi2 sions of section 201 of this Act. If it determines that it

3 has sufficient funding to fully carry out the buy-downs and

4 reductions authorized by such section, it shall obtain from

5 the Federal Financing Bank a computation of the amount

6 of the prepayment penalty which would be required from

7 the issuer of each such debenture if it was prepaid as of

8 the end of the current fiscal year. The Administration

9 shall also compute the amount of the prepayment penalty

10 on 301(d) debentures as if such debentures had been sold

11 to the Federal Financing Bank.

12 (b) After making the above determinations, the Ad13 ministration shall promptly notify the issuer of each de14 benture subject to the provisions of section 201 of this

15 Act that it will receive offers from any interested issuer

16 to prepay the debenture in full. The issuer shall include

17 in any offer amount of the full prepayment penalty, or

18 assumed prepayment penalty in the case of a debenture

19 from a 301(d) issuer, less any amount proposed by the

20 issuer to be paid by the Administration pursuant to the

21 provisions of this title. The notification to the issuer shall

22 include such information as the Administration determines

23 to be appropriate, but shall include—

24 (1) the amount of funds available to carry out

25 this title;
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1 (2) a computation of the total amount of the

2 prepayment penalties and assumed prepayment pen3 alties if all issuers prepaid;

4 (3) the amount of the prepayment penalty or

5 assumed prepayment penalty for the issuer receiving

6 the notification;

7 (4) the time period during which the Adminis8 tration will accept offers; and

9 (5) a description of the process under which the

10 Administration will evaluate, give priority to, and ac11 cept submission of offers pursuant to this title.

12 (c) Within 30 days after termination of the period

13 for submission of offers, the Administration shall evaluate

14 each offer and shall assign each a priority. The priority

15 shall be based upon the per centum of the prepayment

16 penalty which the issuer offers to pay, with the highest

17 per centum receiving the highest priority. The Administra18 tion shall approve offers beginning with the one with the

19 highest priority and continuing until it utilizes all funds

20 available to carry out this title in the current fiscal year.

21 SEC. 302. PREPAYING DEVELOPMENT COMPANY DE22 BENTURES.—(a) For purposes of this section, the term

23 ‘‘issuer’’ means the issuer of a debenture which has been

24 purchased by the Federal Financing Bank pursuant to

25 section 503 of the Investment Act, and the term ‘‘bor-
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1 rower’’ means the small business concern whose loan se2 cures a debenture issued pursuant to such section.

3 (b) The issuer of a debenture purchased by the Fed4 eral Financing Bank and guaranteed by the Small Busi5 ness Administration under section 503 of the Investment

6 Act may offer to prepay such debenture pursuant to sec7 tion 301 of this Act: Provided, That—

8 (1) the debenture is outstanding on the date of

9 enactment of this Act, and neither the loan that se10 cures the debenture nor the debenture is in default

11 on the date the prepayment is made;

12 (2) State or personal funds, which may include

13 refinancing under the programs authorized by sec14 tions 504 and 505 of the Investment Act are used

15 to prepay the debenture; and

16 (3) the issuer certifies that the benefits, net of

17 fees and expenses authorized herein, associated with

18 prepayment of the debenture are entirely passed

19 through to the borrower.

20 (c) No fees or penalties other than those specified in

21 this section may be imposed as a condition of such prepay22 ment against the issuer or the borrower, or the Adminis23 tration or any fund or account administered by the Admin24 istration, except as provided in this Act. If the debenture

25 is prepaid or refinanced other than through section 504,
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1 the issuer may require the borrower or pay a fee to the

2 issuer in an amount equal to one-half of one percent of

3 the unpaid principal balance of the debenture. If a deben4 ture is refinanced with a guarantee pursuant to section

5 504, the issuer may require the borrower to pay a fee to

6 the issuer in an amount equal to one-fourth of one percent

7 of the unpaid balance of the debenture.

8 (d) Debentures refinanced under section 504 shall be

9 subject to all of the other provisions of sections 504 and

10 505 of the Investment Act and the rules and regulations

11 of the Administration promulgated thereunder, including,

12 but not limited to, payment of authorized expenses and

13 commissions, fees and discounts to brokers and dealers in

14 trust certificates issued pursuant to section 505: Provided

15 however, That the issuer shall be deemed to have waived

16 any origination fee on the new debenture to which it other17 wise would have been entitled.

18 SEC. 303. PREPAYING SPECIALIZED SMALL BUSI19 NESS INVESTMENT COMPANY DEBENTURES.—(a) Any

20 specialized small business investment company which is

21 the issuer of a debenture purchased by the Administration

22 under title III of the Investment Act may offer to prepay

23 the debenture pursuant to the provisions of section 301

24 of this Act: Provided, That—
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1 (1) the debenture is outstanding on the date of

2 enactment of this Act and is not in default on the

3 date the prepayment is made; and

4 (2) personal funds, which may include refinanc5 ing with proceeds of debentures under title III of the

6 Investment Act, are used to prepay the debenture,

7 except that if new guaranteed debenture proceeds

8 are utilized, the length of time of the interest rate

9 reduction authorized by such title shall be reduced

10 by the length of time the issuer received an interest

11 rate reduction on the debenture being prepaid.

12 (b) No fees or penalties other than those specified

13 in this section may be imposed as a condition of such pre14 payment against the issuer, the Administration or any

15 fund or account administered by the Administration, ex16 cept as expressly provided herein.

17 SEC. 304. PREPAYING REGULAR SMALL BUSINESS

18 INVESTMENT COMPANY DEBENTURES.—(a) Any small

19 business investment company which is the issuer of a de20 benture guaranteed by the Administration under title III

21 of the Investment Act and purchased by the Federal Fi22 nancing Bank may offer to prepay the debenture pursuant

23 to section 301 of this Act: Provided, That—
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1 (1) the debenture is outstanding on the date of

2 enactment of this Act and is not in default on the

3 date the prepayment is made; and

4 (2) personal funds, which may include refinanc5 ing with proceeds of guaranteed debentures under

6 title III of the Investment Act, are used to prepay

7 the debenture.

8 (b) No fees or penalties other than those specified

9 in this section may be imposed as a condition of such pre10 payment against the issuer, the Administration or any

11 fund or account administered by the Administration, ex12 cept as expressly provided herein.

13 (c) Debentures refinanced under title III of the In14 vestment Act shall be subject to all of the other provisions

15 of such Act, including, but not limited to, payment of au16 thorized expenses and commissions, fees or discounts to

17 brokers and dealers in trust certificates issued pursuant

18 to section 321.

19 TITLE IV

20 SEC. 401. MISCELLANEOUS PROVISIONS.—(a) The

21 provisions of this Act are exercisable at the option of the

22 borrower under section 302 of this Act or at the option

23 of a small business investment company under sections

24 303 and 304 of this Act and are in addition to any prepay25 ment options otherwise authorized by law.
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1 (b) Within sixty days of the date of enactment of this

2 Act, the Small Business Administration shall issue regula3 tions to implement this Act.

4 (c) Any new credit or spending authority provided for

5 in this Act is subject to amounts provided for in advance

6 in appropriations acts.

7 SEC. 402. AUTHORIZATION.—(a) There are author8 ized to be appropriated such sums as may be necessary

9 to carry out the provisions of this Act.

10 (b) In the administration of this Act, the Administra11 tion shall not obligate any funds pursuant to title III of

12 this Act in any fiscal year unless it has provided the full

13 amount of assistance authorized and requested pursuant

14 to title II of this Act.

15 (c) If sufficient funds are not appropriated for any

16 fiscal year to fully carry out the buy-downs and reductions

17 authorized and requested pursuant to title II of this Act,

18 the Administration shall buy-down and reduce the interest

19 rates to the extent that funds are available for that year,

20 but may not utilize any funds to carry out title III.

21 SEC. 403. As used in this Act—

22 (a) the term ‘‘Administration’’ means the Small

23 Business Administration; and

24 (b) the term ‘‘Investment Act’’ means the Small

25 Business Investment Act of 1958.
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