I 
110TH CONGRESS 
2D SESSION 
H. R. 7175 
To amend the Small Business Act to improve the section 7(a) lending 
program, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
SEPTEMBER 27, 2008 
Ms. VELA´ZQUEZ (for herself, Mr. CHABOT, Mr. DAVID DAVIS of Tennessee, 
Ms. CLARKE, and Mr. CUELLAR) introduced the following bill; which was 
referred to the Committee on Small Business 
A BILL 
To amend the Small Business Act to improve the section 
7(a) lending program, and for other purposes. 
Be it enacted by the Senate and House of Representa-
tives 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 
‘‘Small Business Financing Improvements Act of 2008’’. 
(b) TABLE OF CONTENTS.— 
Sec. 1. Short title; table of contents. 
TITLE I—7(a) LOAN PROGRAM 
Sec. 101. Loan pooling. 
Sec. 102. Alternative size standard. 
TITLE II—504 CDC PROGRAM 
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Sec. 201. Definitions. 
Sec. 202. Eligibility of development companies to be designated as certified de-
velopment companies. 
Sec. 203. Definition of rural areas. 
Sec. 204. Businesses in low-income areas. 
Sec. 205. Combinations of certain goals. 
Sec. 206. Refinancing. 
Sec. 207. Additional equity injections. 
Sec. 208. Loan liquidations. 
Sec. 209. Closing costs. 
Sec. 210. Uniform leasing policy. 
TITLE III—SMALL BUSINESS INVESTMENT COMPANY PROGRAM 
Sec. 301. Simplified maximum leverage limits. 
Sec. 302. Simplified aggregate investment limitations. 
TITLE I—7(a) LOAN PROGRAM 
SEC. 101. LOAN POOLING. 
Section 5(g)(1) of the Small Business Act (15 U.S.C. 
634(g)(1)) is amended— 
(1) by inserting ‘‘(A)’’ before ‘‘The Administra-
tion’’; 
(2) by striking the colon and all that follows 
and inserting a period; and 
(3) by adding at the end the following: 
‘‘(B) A trust certificate issued under subparagraph 
(A) shall be based on, and backed by, a trust or pool ap-
proved by the Administrator and composed solely of the 
guaranteed portion of such loans. 
‘‘(C) The interest rate on a trust certificate issued 
under subparagraph (A) shall be either— 
‘‘(i) the lowest interest rate on any individual 
loan in the pool; or 
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‘‘(ii) the weighted average interest rate of all 
loans in the pool, subject to such limited variations 
in loan characteristics as the Administrator deter-
mines appropriate to enhance marketability of the 
pool certificates.’’. 
SEC. 102. ALTERNATIVE SIZE STANDARD. 
Section 3(a) of the Small Business Act (15 U.S.C. 
632(a)) is amended by adding at the end the following: 
‘‘(5) OPTIONAL SIZE STANDARD.— 
‘‘(A) IN
GENERAL.—The Administrator 
shall establish an optional size standard for 
business loan applicants under section 7(a) and 
development company loan applicants under 
title V of the Small Business Investment Act of 
1958, which uses maximum tangible net worth 
and average net income as an alternative to the 
use of industry standards. 
‘‘(B) INTERIM RULE.—Until the date on 
which the optional size standards established 
under subparagraph (A) are in effect, the alter-
native size standard in section 121.301(b) of 
title 13, Code of Federal Regulations, or any 
successor thereto, may be used by business loan 
applicants under section 7(a) and development 
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company loan applicants under title V of the 
Small Business Investment Act of 1958.’’. 
TITLE II—504 CDC PROGRAM 
SEC. 201. DEFINITIONS. 
Section 103(6) of the Small Business Investment Act 
of 1958 (15 U.S.C. 662(6)) is amended to read as follows: 
‘‘(6) the term ‘development company’ means an 
entity incorporated under State law with the author-
ity to promote and assist the growth and develop-
ment of small business concerns in the areas in 
which it is authorized to operate by the Administra-
tion, and the term ‘certified development company’ 
means a development company which the Adminis-
tration has determined meets the criteria of section 
506;’’. 
SEC. 202. ELIGIBILITY OF DEVELOPMENT COMPANIES TO 
BE DESIGNATED AS CERTIFIED DEVELOP-
MENT COMPANIES. 
Section 506 of the Small Business Investment Act 
of 1958 (15 U.S.C. 697c) is amended to read as follows: 
‘‘SEC. 506. CERTIFIED DEVELOPMENT COMPANIES. 
‘‘(a) AUTHORITY TO ISSUE DEBENTURES.—A devel-
opment company may issue debentures pursuant to this 
Act if the Administration certifies that the company meets 
the following criteria: 
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‘‘(1) SIZE.—The development company is re-
quired to be a small concern with fewer than 500 
employees and not under the control of any entity 
which does not meet the Administration’s size stand-
ards as a small business, except that any develop-
ment company which was certified by the Adminis-
tration prior to December 31, 2005 may continue to 
issue debentures. 
‘‘(2) PURPOSE.—The primary purpose of the 
development company is to benefit the community by 
fostering economic development to create and pre-
serve jobs and stimulate private investment. 
‘‘(3) PRIMARY FUNCTION.—The primary func-
tion of the development company is to accomplish its 
purpose by providing long-term financing to small 
businesses by the utilization of the Certified Devel-
opment Company Economic Development Loan Pro-
gram. It may also provide or support such other 
local economic development activities to assist the 
community. 
‘‘(4) NON-PROFIT
STATUS.—The development 
company is a non-profit corporation, except that a 
development company certified by the Administra-
tion prior to January 1, 1987, may retain its status 
as a for-profit corporation. 
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‘‘(5) GOOD STANDING.—The development com-
pany is in good standing in its State of incorpora-
tion and in any other State in which it conducts 
business, and is in compliance with all laws, includ-
ing taxation requirements, in its State of incorpora-
tion and in any other State in which it conducts 
business. 
‘‘(6) MEMBERSHIP.—The development company 
should have at least 25 members (or stockholders if 
the corporation is a for-profit entity), none of whom 
may own or control more than 20 percent of the 
company’s voting membership, consisting of rep-
resentation from each of the following groups (none 
of which are in a position to control the development 
company): 
‘‘(A) Government organizations that are 
responsible for economic development. 
‘‘(B) Financial institutions that provide 
commercial long-term fixed asset financing. 
‘‘(C) Community organizations that are 
dedicated to economic development. 
‘‘(D) Businesses. 
‘‘(7) BOARD OF DIRECTORS.—The development 
company has a board of directors that— 
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‘‘(A) is elected from the membership by 
the members; 
‘‘(B) should represent at least 3 of the 4 
groups enumerated in subsection (a)(6) with no 
group is in a position to control the company; 
and 
‘‘(C) meets on a regular basis to make pol-
icy decisions for such company. 
‘‘(8) 
PROFESSIONAL
MANAGEMENT
AND 
STAFF.—The development company has full-time 
professional management, including a chief executive 
officer to manage daily operations, and a full-time 
professional staff qualified to market the Certified 
Development Company Economic Development Loan 
Program and handle all aspects of loan approval and 
servicing, including liquidation, if appropriate. The 
development company is required to be independ-
ently managed and operated to pursue its economic 
development mission and to employ its chief execu-
tive officer directly, with the following exceptions: 
‘‘(A) A development company may be an 
affiliate of another local non-profit service cor-
poration (specifically excluding another develop-
ment company) whose mission is to support 
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economic development in the area in which the 
development company operates. In such a case: 
‘‘(i) The development company may 
satisfy the requirement for full-time pro-
fessional staff by contracting with a local 
non-profit service corporation (or one of its 
non-profit affiliates), or a governmental or 
quasi-governmental agency, to provide the 
required staffing. 
‘‘(ii) The development company and 
the local non-profit service corporation may 
have partially common boards of directors. 
‘‘(B) A development company in a rural 
area (as defined in section 501(f)) shall be 
deemed to have satisfied the requirements of a 
full-time professional staff and professional 
management ability if it contracts with another 
certified development company which has such 
staff and management ability and which is lo-
cated in the same general area to provide such 
services. 
‘‘(C) A development company that has 
been certified by the Administration as of De-
cember 31, 2005, and that has contracted with 
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a for-profit company to provide services as of 
such date may continue to do so. 
‘‘(b) AREA
OF OPERATIONS.—The Administration 
shall specify the area in which an applicant is certified 
to provide assistance to small businesses under this title, 
which may not initially exceed its State of incorporation 
unless it proposes to operate in a local economic area 
which is required to include part of its State of incorpora-
tion and may include adjacent areas within several States. 
After a development company has demonstrated its ability 
to provide assistance in its area of operations, it may re-
quest the Administration to be allowed to operate in one 
or more additional States as a multi-State certified devel-
opment company if it satisfies the following criteria: 
‘‘(1) Each additional State is contiguous to the 
State of incorporation, except the States of Alaska 
and Hawaii shall be deemed to be contiguous to any 
State abutting the Pacific ocean. 
‘‘(2) It demonstrates its proficiency in making 
and servicing loans under the Certified Development 
Company Economic Development Loan Program 
by— 
‘‘(A) requesting and receiving designation 
as an accredited lender under section 507 or a 
premier certified lender under section 508; and 
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‘‘(B) meeting or exceeding performance 
standards established by the Administration. 
‘‘(3) The development company adds to the 
membership of its State of incorporation additional 
membership from each additional State and the 
added membership meets the requirements of sub-
section (a)(6). 
‘‘(4) The development company adds at least 
one member to its board of directors in the State of 
incorporation, providing that added member was se-
lected by the membership of the development com-
pany. 
‘‘(5) The company meets such other criteria or 
complies with such conditions as the Administration 
deems appropriate. 
‘‘(c) PROCESSING OF EXPANSION APPLICATIONS.— 
The Administration shall respond to the request of a cer-
tified development company for certification as a multi- 
State company on an expedited basis within 30 days of 
receipt of a completed application if the application dem-
onstrates that the development company meets the re-
quirements of subsection (b)(1) through (b)(4). 
‘‘(d) USE OF FUNDS LIMITED TO STATE WHERE 
GENERATED.—Any funds generated by a not-for-profit 
development company from making loans under the Cer-
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tified Development Company Economic Development 
Loan Program which remain after payment of staff, oper-
ating and overhead expenses shall be retained by the devel-
opment company as a reserve for future operations, for 
expanding its area of operations in a local economic area 
as authorized by the Administration, or for investment in 
other local economic development activity in the State 
from which the funds were generated. 
‘‘(e) ETHICAL REQUIREMENTS.— 
‘‘(1) IN GENERAL.—Certified development com-
panies, their officers, employees and other staff, 
shall at all times act ethically and avoid activities 
which constitute a conflict of interest or appear to 
constitute a conflict of interest. No one may serve as 
an officer, director or chief executive officer of more 
than one certified development company. 
‘‘(2) 
PROHIBITED
CONFLICT
IN
PROJECT 
LOANS.—As part of a project under the Certified 
Development Company Economic Development Loan 
Program, no certified development company may 
recommend or approve a guarantee of a debenture 
by the Administration that is collateralized by a sub-
ordinated lien position on the property being con-
structed or acquired and also provide, or be affili-
ated with a corporation or other entity, for-profit or 
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non-profit, which provides, financing collateralized 
by a prior lien on the same property. Upon approval 
by the Administrator, a business development com-
pany that was participating as a first mortgage lend-
er, either directly or through an affiliate, for the 
Certified Development Company Economic Develop-
ment Loan Program in either fiscal years 2004 or 
2005 may continue to do so. 
‘‘(3) OTHER ECONOMIC DEVELOPMENT ACTIVI-
TIES.—Operation of multiple programs to assist 
small business concerns in order for a certified de-
velopment company to carry out its economic devel-
opment mission shall not be deemed a conflict of in-
terest, but notwithstanding any other provision of 
law, no development company may accept funding 
from any source, including but not limited to any de-
partment or agency of the United States Govern-
ment— 
‘‘(A) if such funding includes any condi-
tions, priorities or restrictions upon the types of 
small businesses to which they may provide fi-
nancial assistance under this title; or 
‘‘(B) if it includes any conditions or im-
poses any requirements, directly or indirectly, 
upon any recipient of assistance under this title 
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unless the department or agency also provides 
all of the financial assistance to be delivered by 
the development company to the small business 
and such conditions, priorities or restrictions 
are limited solely to the financial assistance so 
provided.’’. 
SEC. 203. DEFINITION OF RURAL AREAS. 
Section 501 of the Small Business Investment Act 
of 1958 (15 U.S.C. 695) is amended by adding at the end 
the following new subsection: 
‘‘(f) As used in subsection (d)(3)(D), the term ‘rural’ 
shall include any area other than— 
‘‘(1) a city or town that has a population great-
er than 50,000 inhabitants; and 
‘‘(2) the urbanized area contiguous and adja-
cent to such a city or town.’’. 
SEC. 204. BUSINESSES IN LOW-INCOME AREAS. 
Section 501(d)(3) of the Small Business Investment 
Act of 1958 (15 U.S.C. 695(d)(3)) is amended by insert-
ing after ‘‘business district revitalization’’ the following: 
‘‘or expansion of businesses in low-income communities 
that would be eligible for new market tax credit invest-
ments under section 45D of the Internal Revenue Code 
of 1986 (26 U.S.C. 45D)’’. 
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SEC. 205. COMBINATIONS OF CERTAIN GOALS. 
Section 501(e) of the Small Business Investment Act 
of 1958 (15 U.S.C. 695(e)) is amended by adding at the 
end the following: 
‘‘(7) A small business concern that is uncondi-
tionally owned by more than one individual, or a cor-
poration whose stock is owned by more than one in-
dividual, is deemed to achieve a public policy goal 
under subsection (d)(3) if a combined ownership 
share of at least 51 percent is held by individuals 
who are in one of the groups listed as public policy 
goals 
specified 
in 
subsection 
(d)(3)(C) 
or 
(d)(3)(E).’’. 
SEC. 206. REFINANCING. 
Section 502 of the Small Business Investment Act 
of 1958 (15 U.S.C. 696) is amended by adding at the end 
the following: 
‘‘(7) PERMISSIBLE DEBT REFINANCING.—Any 
financing approved under this title may also include 
a limited amount of debt refinancing for debt that 
was not previously guaranteed by the Administra-
tion. If the project involves expansion of a small 
business 
which 
has 
existing 
indebtedness 
collateralized by fixed assets, a limited amount may 
be refinanced and added to the expansion cost, pro-
viding— 
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‘‘(A) the proceeds of the indebtedness were 
used to acquire land, including a building situ-
ated thereon, to construct a building thereon or 
to purchase equipment; 
‘‘(B) the borrower has been current on all 
payments due on the existing debt for at least 
the past year; and 
‘‘(C) the financing under the Certified De-
velopment Company Economic Development 
Loan Program will provide better terms or rate 
of interest than now exists on the debt.’’. 
SEC. 207. ADDITIONAL EQUITY INJECTIONS. 
Clause (ii) of section 502(3)(B) of the Small Business 
Investment Act of 1958 (15 U.S.C. 696(3)(B)) is amend-
ed to read as follows: 
‘‘(ii) 
FUNDING
FROM
INSTITU-
TIONS.— 
‘‘(I) If a small business concern 
provides the minimum contribution re-
quired under paragraph (C), not less 
than 50 percent of the total cost of 
any project financed pursuant to 
clauses (i), (ii), or (iii) of subpara-
graph (C) shall come from the institu-
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tions described in subclauses (I), (II), 
and (III) of clause (i). 
‘‘(II) If a small business concern 
provides more than the minimum con-
tribution required under paragraph 
(C), any excess contribution may be 
used to reduce the amount required 
from the institutions described in sub-
clauses (I), (II), and (III) of clause (i) 
except that the amount from such in-
stitutions may not be reduced to an 
amount less than the amount of the 
loan made by the Administration.’’. 
SEC. 208. LOAN LIQUIDATIONS. 
Section 510 of the Small Business Investment Act 
of 1958 (15 U.S.C. 697g) is amended— 
(1) by redesignating subsection (e) as sub-
section (g); and 
(2) by inserting after subsection (d) the fol-
lowing: 
‘‘(e) PARTICIPATION.— 
‘‘(1) MANDATORY.—Any certified development 
company which elects not to apply for authority to 
foreclose and liquidate defaulted loans under this 
section or which the Administration determines to be 
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ineligible for such authority shall contract with a 
qualified third-party to perform foreclosure and liq-
uidation of defaulted loans in its portfolio. The con-
tract shall be contingent upon approval by the Ad-
ministration with respect to the qualifications of the 
contractor, the terms and conditions of liquidation 
activities, and the ability to reimburse such con-
tractor. 
‘‘(2) COMMENCEMENT.—The provisions of this 
subsection shall not require any development com-
pany to liquidate defaulted loans until the Adminis-
tration has adopted and implemented a program to 
compensate and reimburse development companies 
as provided under subsection (f). 
‘‘(f) COMPENSATION AND REIMBURSEMENT.— 
‘‘(1) REIMBURSEMENT
OF
EXPENSES.—The 
Administration shall reimburse each certified devel-
opment company for all expenses paid by such com-
pany as part of the foreclosure and liquidation ac-
tivities if the expenses— 
‘‘(A) were approved in advance by the Ad-
ministration either specifically or generally; or 
‘‘(B) were incurred by the company on an 
emergency basis without Administration prior 
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approval but which were reasonable and appro-
priate. 
‘‘(2) COMPENSATION FOR RESULTS.—The Ad-
ministration shall develop a schedule to compensate 
and provide an incentive to qualified State or local 
development companies which foreclose and liquidate 
defaulted loans. The schedule shall be based on a 
percentage of the net amount recovered but shall not 
exceed a maximum amount. The schedule shall not 
apply to any foreclosure which is conducted pursu-
ant to a contract between a development company 
and a qualified third-party to perform the fore-
closure and liquidation.’’. 
SEC. 209. CLOSING COSTS. 
Paragraph (4) of section 503(b) of the Small Busi-
ness Investment Act of 1958 (15 U.S.C. 697(b)) is amend-
ed to read as follows: 
‘‘(4) the aggregate amount of such debenture 
does not exceed the amount of loans to be made 
from the proceeds of such debenture plus, at the 
election of the borrower under the Certified Develop-
ment Company Economic Development Loan Pro-
gram, other amounts attributable to the administra-
tive and closing costs of such loans, except for the 
borrower’s attorney fees;’’. 
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SEC. 210. UNIFORM LEASING POLICY. 
(a) IN GENERAL.—Section 502 of the Small Business 
Investment Act of 1958 (15 U.S.C. 696) is amended— 
(1) by striking paragraphs (4) and (5) and in-
serting the following: 
‘‘(4) LIMITATION ON LEASING.—If the use of a 
loan under this section includes the acquisition of a 
facility or the construction of a new facility, the 
small business concern assisted— 
‘‘(A) shall permanently occupy and use not 
less than a total of 50 percent of the space in 
the facility; and 
‘‘(B) may, on a temporary or permanent 
basis, lease to others not more than 50 percent 
of the space in the facility.’’; and 
(2) by redesignating paragraph (6) as para-
graph (5). 
(b) POLICY FOR 7(a) LOANS.—Section 7(a)(28) of 
the Small Business Act (15 U.S.C. 636(a)(28)) is amend-
ed to read as follows: 
‘‘(28) LIMITATION ON LEASING.—If the use of 
a loan under this subsection includes the acquisition 
of a facility or the construction of a new facility, the 
small business concern assisted— 
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‘‘(A) shall permanently occupy and use not 
less than a total of 50 percent of the space in 
the facility; and 
‘‘(B) may, on a temporary or permanent 
basis, lease to others not more than 50 percent 
of the space in the facility.’’. 
TITLE III—SMALL BUSINESS IN-
VESTMENT 
COMPANY 
PRO-
GRAM 
SEC. 301. SIMPLIFIED MAXIMUM LEVERAGE LIMITS. 
Section 303(b) of the Small Business Investment Act 
of 1958 (15 U.S.C. 683(b)) is amended— 
(1) by striking paragraph (2) and inserting the 
following: 
‘‘(2) MAXIMUM LEVERAGE.— 
‘‘(A) 
IN
GENERAL.—The 
maximum 
amount of outstanding leverage made available 
to any one company licensed under section 
301(c) of this Act may not exceed the lesser 
of— 
‘‘(i) 300 percent of such company’s 
private capital; or 
‘‘(ii) $150,000,000. 
‘‘(B) MULTIPLE
LICENSES
UNDER
COM-
MON CONTROL.—The maximum amount of out-
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standing leverage made available to two or more 
companies licensed under section 301(c) of this 
Act that are commonly controlled (as deter-
mined by the Administrator) and not under 
capital 
impairment 
may 
not 
exceed 
$225,000,000.’’; and 
(2) by striking paragraph (4). 
SEC. 302. SIMPLIFIED AGGREGATE INVESTMENT LIMITA-
TIONS. 
Section 306(a) of the Small Business Investment Act 
of 1958 (15 U.S.C. 686(a)) is amended to read as follows: 
‘‘(a) PERCENTAGE LIMITATION ON PRIVATE CAP-
ITAL.—If any small business investment company has ob-
tained financing from the Administration and such financ-
ing remains outstanding, the aggregate amount of securi-
ties acquired and for which commitments may be issued 
by such company under the provisions of this title for any 
single enterprise shall not, without the approval of the Ad-
ministration, exceed 10 percent of the sum of— 
‘‘(1) the private capital of such company; and 
‘‘(2) the total amount of leverage projected by 
the company in the company’s business plan that 
was approved by the Administration at the time of 
the grant of the company’s license.’’. 
Æ 
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