Calendar No. 166

104TH CONGRESS

1ST SESSION S. 895

[Report No. 104–129]

A BILL

To amend the Small Business Act to reduce the

Administration, and for other purposes.ministration in certain loans guaranteed by thelevel of participation by the Small Business AdAUGUST 5 (legislative day, JULY 10), 1995

Reported with an amendment
II

Calendar No. 166

104TH CONGRESS

1ST SESSION S. 895

[Report No. 104–129]

To amend the Small Business Act to reduce the level of participation by

the Small Business Administration in certain loans guaranteed by the

Administration, and for other purposes.

IN THE SENATE OF THE UNITED STATES

JUNE 8 (legislative day, JUNE 5), 1995

Mr. BOND (for himself, Mr. BUMPERS, Mr. WELLSTONE, Mr. BURNS, and Ms.

SNOWE) introduced the following bill; which was read twice and referred

to the Committee on Small Business

AUGUST 5 (legislative day, JULY 10), 1995

Reported by Mr. BOND, with an amendment

[Strike out all after the enacting clause and insert the part printed in italic]

A BILL

To amend the Small Business Act to reduce the level of

participation by the Small Business Administration in

certain loans guaranteed by the Administration, 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,
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1 SECTION 1. SHORT TITLE.

2 This Act may be cited as the ‘‘Small Business Lend3 ing Enhancement Act of 1995’’.

4 SEC. 2. REDUCED LEVEL OF PARTICIPATION IN GUARAN5 TEED LOANS.

6 Section 7(a)(2) of the Small Business Act (15 U.S.C.

7 636(a)(2)) is amended to read as follows:

8 ‘‘(2) LEVEL OF PARTICIPATION IN GUARAN9 TEED LOANS.—

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

11 subparagraph (B), in an agreement to partici12 pate in a loan on a deferred basis under this

13 subsection (including a loan made under the

14 Preferred Lenders Program), such participation

15 by the Administration shall be equal to—

16 ‘‘(i) 75 percent of the balance of the

17 financing outstanding at the time of dis18 bursement of the loan, if such balance ex19 ceeds $100,000; or

20 ‘‘(ii) 80 percent of the balance of the

21 financing outstanding at the time of dis22 bursement of the loan, if such balance is

23 less than or equal to $100,000.

24 ‘‘(B) REDUCED PARTICIPATION UPON RE25 QUEST.—
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1 ‘‘(i) IN GENERAL.—The guarantee

2 percentage specified by subparagraph (A)

3 for any loan under this subsection may be

4 reduced upon the request of the participat5 ing lender.

6 ‘‘(ii) PROHIBITION.—The Administra7 tion shall not use the guarantee percentage

8 requested by a participating lender under

9 clause (i) as a criterion for establishing

10 priorities in approving loan guarantee re11 quests under this subsection.

12 ‘‘(C) INTEREST RATE UNDER PREFERRED

13 LENDERS PROGRAM.—

14 ‘‘(i) IN GENERAL.—The maximum in15 terest rate for a loan guaranteed under the

16 Preferred Lenders Program shall not ex17 ceed the maximum interest rate, as deter18 mined by the Administration, applicable to

19 other loans guaranteed under this sub20 section.

21 ‘‘(ii) PREFERRED LENDERS PROGRAM

22 DEFINED.—For purposes of this subpara23 graph, the term ‘Preferred Lenders Pro24 gram’ means any program established by

25 the Administrator, as authorized under the
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1 proviso in section 5(b)(7), under which a

2 written agreement between the lender and

3 the Administration delegates to the lend4 er—

5 ‘‘(I) complete authority to make

6 and close loans with a guarantee from

7 the Administration without obtaining

8 the prior specific approval of the Ad9 ministration; and

10 ‘‘(II) authority to service and liq11 uidate such loans.’’.

12 SEC. 3. GUARANTEE FEES.

13 (a) AMOUNT OF FEES.—Section 7(a)(18) of the

14 Small Business Act (15 U.S.C. 636(a)(18)) is amended

15 to read as follows:

16 ‘‘(18) GUARANTEE FEES.—With respect to each

17 loan guaranteed under this subsection (other than a

18 loan that is repayable in 1 year or less), the Admin19 istration shall collect a guarantee fee, which shall be

20 payable by the participating lender and may be

21 charged to the borrower, in an amount equal to the

22 sum of—

23 ‘‘(A) 3 percent of the amount of the de24 ferred participation share of the loan that is

25 less than or equal to $250,000;
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1 ‘‘(B) if the deferred participation share of

2 the loan exceeds $250,000, 4 percent of the dif3 ference between—

4 ‘‘(i) $500,000 or the total deferred

5 participation share of the loan, whichever

6 is less; and

7 ‘‘(ii) $250,000; and

8 ‘‘(C) if the deferred participation share of

9 the loan exceeds $500,000, 5 percent of the dif10 ference between—

11 ‘‘(i) the total deferred participation

12 share of the loan; and

13 ‘‘(ii) $500,000.’’.

14 (b) REPEAL OF PROVISIONS ALLOWING RETENTION

15 OF FEES BY LENDERS.—Section 7(a)(19) of the Small

16 Business Act (15 U.S.C. 636(a)(19)) is amended—

17 (1) in subparagraph (B)—

18 (A) by striking ‘‘shall (i) develop’’ and in19 serting ‘‘shall develop’’; and

20 (B) by striking ‘‘, and (ii)’’ and all that

21 follows through the end of the subparagraph

22 and inserting a period; and

23 (2) by striking subparagraph (C).
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1 SEC. 4. ESTABLISHMENT OF ANNUAL FEE.

2 (a) IN GENERAL.—Section 7(a) of the Small Busi3 ness Act (15 U.S.C. 636(a)) is amended by adding at the

4 end the following new paragraph:

5 ‘‘(23) ANNUAL FEE.—In carrying out this sub6 section, the Administration shall, in accordance with

7 such terms and procedures as the Administration

8 shall establish by regulation, assess and collect an

9 annual fee, which shall be payable by the participat10 ing lender, in an aggregate amount equal to not

11 more than 0.4 percent of the outstanding balance of

12 the deferred participation share of the loan.’’.

13 (b) CONFORMING AMENDMENT.—Section 5(g)(4)(A)

14 of the Small Business Act (15 U.S.C. 634(g)(4)(A)) is

15 amended—

16 (1) by striking the first sentence and inserting

17 the following: ‘‘The Administration may collect a fee

18 for any loan guarantee sold into the secondary mar19 ket under subsection (f) in an amount equal to not

20 more than 50 percent of the portion of the sale price

21 that exceeds 110 percent of the outstanding prin22 cipal amount of the portion of the loan guaranteed

23 by the Administration.’’; and

24 (2) by striking ‘‘fees’’ each place such term ap25 pears and inserting ‘‘fee’’.
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1 SEC. 5. TECHNICAL AMENDMENT.

2 Section 3 of the Small Business Act (15 U.S.C. 632)

3 is amended by adding at the end the following new sub4 section:

5 ‘‘(o) PARTICIPATING LENDER.—For purposes of this

6 Act, the term ‘participating lender’ means any bank or

7 other financial institution that enters into an agreement

8 with the Administration described section 7(a) to provide

9 financing in accordance with that section.’’.

10 SECTION 1. SHORT TITLE.

11 This Act may be cited as the ‘‘Small Business Lending

12 Enhancement Act of 1995’’.

13 SEC. 2. REDUCED LEVEL OF PARTICIPATION IN GUARAN14 TEED LOANS.

15 Section 7(a)(2) of the Small Business Act (15 U.S.C.

16 636(a)(2)) is amended to read as follows:

17 ‘‘(2) LEVEL OF PARTICIPATION IN GUARANTEED

18 LOANS.—

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

20 subparagraph (B), in an agreement to partici21 pate in a loan on a deferred basis under this

22 subsection (including a loan made under the

23 Preferred Lenders Program), such participation

24 by the Administration shall be equal to—

25 ‘‘(i) 75 percent of the balance of the fi26 nancing outstanding at the time of dis-
8

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1 bursement of the loan, if such balance ex2 ceeds $100,000; or

3 ‘‘(ii) 80 percent of the balance of the fi4 nancing outstanding at the time of dis5 bursement of the loan, if such balance is less

6 than or equal to $100,000.

7 ‘‘(B) REDUCED PARTICIPATION UPON RE8 QUEST.—

9 ‘‘(i) IN GENERAL.—The guarantee per10 centage specified by subparagraph (A) for

11 any loan under this subsection may be re12 duced upon the request of the participating

13 lender.

14 ‘‘(ii) PROHIBITION.—The Administra15 tion shall not use the guarantee percentage

16 requested by a participating lender under

17 clause (i) as a criterion for establishing pri18 orities in approving loan guarantee requests

19 under this subsection.

20 ‘‘(C) INTEREST RATE UNDER PREFERRED

21 LENDERS PROGRAM.—

22 ‘‘(i) IN GENERAL.—The maximum in23 terest rate for a loan guaranteed under the

24 Preferred Lenders Program shall not exceed

25 the maximum interest rate, as determined
9

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1 by the Administration, applicable to other

2 loans guaranteed under this subsection.

3 ‘‘(ii) PREFERRED LENDERS PROGRAM

4 DEFINED.—For purposes of this subpara5 graph, the term ‘Preferred Lenders Pro6 gram’ means any program established by

7 the Administrator, as authorized under the

8 proviso in section 5(b)(7), under which a

9 written agreement between the lender and

10 the Administration delegates to the lender—

11 ‘‘(I) complete authority to make

12 and close loans with a guarantee from

13 the Administration without obtaining

14 the prior specific approval of the Ad15 ministration; and

16 ‘‘(II) authority to service and liq17 uidate such loans.’’.

18 SEC. 3. GUARANTEE FEES.

19 (a) AMOUNT OF FEES.—Section 7(a)(18) of the Small

20 Business Act (15 U.S.C. 636(a)(18)) is amended to read

21 as follows:

22 ‘‘(18) GUARANTEE FEES.—

23 ‘‘(A) IN GENERAL.—With respect to each

24 loan guaranteed under this subsection (other

25 than a loan that is repayable in 1 year or less),
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1 the Administration shall collect a guarantee fee,

2 which shall be payable by the participating lend3 er and may be charged to the borrower, in an

4 amount equal to the sum of—

5 ‘‘(i) 2.5 percent of the amount of the

6 deferred participation share of the loan that

7 is less than or equal to $250,000;

8 ‘‘(ii) if the deferred participation share

9 of the loan exceeds $250,000, 3 percent of

10 the difference between—

11 ‘‘(I) $500,000 or the total deferred

12 participation share of the loan, which13 ever is less; and

14 ‘‘(II) $250,000; and

15 ‘‘(iii) if the deferred participation

16 share of the loan exceeds $500,000, 3.5 per17 cent of the difference between—

18 ‘‘(I) $750,000 or the total deferred

19 participation share of the loan, which20 ever is less; and

21 ‘‘(II) $500,000.

22 ‘‘(B) EXCEPTION FOR CERTAIN LOANS.—

23 Notwithstanding subparagraph (A), if the total

24 deferred participation share of a loan guaranteed

25 under this subsection is less than or equal to
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1 $80,000, the guarantee fee collected under sub2 paragraph (A) shall be in an amount equal to

3 2 percent of the total deferred participation

4 share of the loan.

5 ‘‘(C) DISCRETIONARY INCREASE.—Notwith6 standing subparagraphs (A) and (B), during the

7 90-day period beginning on the first day of any

8 fiscal year, the Administration may increase the

9 guarantee fee collected under this paragraph by

10 an amount not to exceed 0.375 percent of the

11 total deferred participation share of the loan, if

12 the Administration—

13 ‘‘(i) determines that such action is nec14 essary to meet projected borrower demand

15 for loans under this subsection during that

16 fiscal year, based on the subsidy cost of the

17 loan program under this subsection and

18 amounts provided in advance for such pro19 gram in appropriations Acts; and

20 ‘‘(ii) not less than 15 days prior to im21 posing any such increase, notifies the Com22 mittees on Small Business of the Senate

23 and the House of Representatives of the de24 termination made under clause (i).’’.
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1 (b) REPEAL OF PROVISIONS ALLOWING RETENTION OF

2 FEES BY LENDERS.—Section 7(a)(19) of the Small Busi3 ness Act (15 U.S.C. 636(a)(19)) is amended—

4 (1) in subparagraph (B)—

5 (A) by striking ‘‘shall (i) develop’’ and in6 serting ‘‘shall develop’’; and

7 (B) by striking ‘‘, and (ii)’’ and all that fol8 lows through the end of the subparagraph and

9 inserting a period; and

10 (2) by striking subparagraph (C).

11 SEC. 4. ESTABLISHMENT OF ANNUAL FEE.

12 (a) IN GENERAL.—Section 7(a) of the Small Business

13 Act (15 U.S.C. 636(a)) is amended by adding at the end

14 the following new paragraph:

15 ‘‘(23) ANNUAL FEE.—

16 ‘‘(A) IN GENERAL.—With respect to each

17 loan guaranteed under this subsection, the Ad18 ministration shall, in accordance with such

19 terms and procedures as the Administration

20 shall establish by regulation, assess and collect

21 an annual fee in an amount equal to 0.5 percent

22 of the outstanding balance of the deferred par23 ticipation share of the loan.

24 ‘‘(B) PAYER.—The annual fee assessed

25 under subparagraph (A) shall be payable by the
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1 participating lender and shall not be charged to

2 the borrower.’’.

3 (b) CONFORMING AMENDMENT.—Section 5(g)(4)(A) of

4 the Small Business Act (15 U.S.C. 634(g)(4)(A)) is amend5 ed—

6 (1) by striking the first sentence and inserting

7 the following: ‘‘The Administration may collect a fee

8 for any loan guarantee sold into the secondary market

9 under subsection (f) in an amount equal to not more

10 than 50 percent of the portion of the sale price that

11 exceeds 110 percent of the outstanding principal

12 amount of the portion of the loan guaranteed by the

13 Administration.’’; and

14 (2) by striking ‘‘fees’’ each place such term ap15 pears and inserting ‘‘fee’’.

16 SEC. 5. NOTIFICATION REQUIREMENT.

17 (a) IN GENERAL.—Section 7(a) of the Small Business

18 Act (15 U.S.C. 636(a)) is amended by adding at the end

19 the following new paragraph:

20 ‘‘(24) NOTIFICATION REQUIREMENT.—The Ad21 ministration shall notify the Committees on Small

22 Business of the Senate and the House of Representa23 tives not later than 15 days before making any sig24 nificant policy or administrative change affecting the

25 operation of the loan program under this subsection.’’.
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1 SEC. 6. DEVELOPMENT COMPANY DEBENTURES.

2 Section 503(b) of the Small Business Investment Act

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

4 (1) in paragraph (5), by striking ‘‘and’’ at the

5 end;

6 (2) in paragraph (6), by striking the period at

7 the end and inserting ‘‘; and’’; and

8 (3) by adding at the end the following new para9 graph:

10 ‘‘(7) with respect to each loan made from the

11 proceeds of such debenture, the Administration—

12 ‘‘(A) assesses and collects a fee, which shall

13 be payable by the borrower, in an amount equal

14 to 0.0625 percent per year of the outstanding

15 balance of the loan; and

16 ‘‘(B) uses the proceeds of such fee to offset

17 the cost (as such term is defined in section 502

18 of the Federal Credit Reform Act of 1990) to the

19 Administration of making guarantees under sub20 section (a).’’.