134
value or so secured as reasonably to assure re-
payment. 
‘‘(B) SPECIAL
RULES.—For purposes of 
subparagraph (A), any reasonable doubt re-
garding the likelihood of repayment shall be re-
solved in favor of the applicant if the applicant 
is—
‘‘(i) a disabled person (as defined in 
paragraph (8)); or 
‘‘(ii) a small manufacturer. 
‘‘(C) COLLATERAL.—The Administrator 
shall not refuse to make a loan under this sub-
section solely due to inadequate collateral, but 
a loan shall be secured as fully as possible with 
available assets. If the assets of the business 
are not sufficient to fully secure the loan, other 
assets of the owners of the small business con-
cern may be taken as collateral to the extent 
the aggregate amount of collateral does not ex-
ceed the amount necessary to fully secure the 
loan. 
‘‘(6) LEVEL
OF
PARTICIPATION
IN
GUARAN-
TEED LOANS.—
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B), in an agreement to partici-
135
pate in a loan on a deferred basis under this 
subsection (including a loan made under the 
Preferred Lenders Program), such participation 
by the Administrator shall be equal to—
‘‘(i) 75 percent of the balance of the 
financing outstanding at the time of dis-
bursement of the loan, if such balance ex-
ceeds $150,000; or 
‘‘(ii) 85 percent of the balance of the 
financing outstanding at the time of dis-
bursement of the loan, if such balance is 
less than or equal to $150,000. 
‘‘(B) REDUCED PARTICIPATION UPON RE-
QUEST.—
‘‘(i) IN
GENERAL.—The guarantee 
percentage specified by subparagraph (A) 
for any loan under this subsection may be 
reduced upon the request of the partici-
pating lender. 
‘‘(ii) 
PROHIBITION.—The 
Adminis-
trator shall not use the guarantee percent-
age requested by a participating lender 
under clause (i) as a criterion for estab-
lishing priorities in approving loan guar-
antee requests under this subsection.
136
‘‘(C) 
PARTICIPATION
UNDER
EXPORT 
WORKING CAPITAL PROGRAM.—Notwithstanding 
subparagraph (A), in an agreement to partici-
pate in a loan on a deferred basis under the 
Export Working Capital Program established 
pursuant to paragraph (14), such participation 
by the Administrator shall not exceed 90 per-
cent. 
‘‘(7) MAXIMUM LOAN AMOUNTS.—No loan shall 
be made under this subsection—
‘‘(A) if the total amount outstanding and 
committed (by participation or otherwise) solely 
for purposes of this subsection to the borrower 
from the business loan and investment fund es-
tablished by this Act would exceed $1,000,000 
(or if the gross loan amount would exceed 
$2,000,000), except as provided in subpara-
graph (B); 
‘‘(B) if the total amount outstanding and 
committed (on a deferred basis) solely for the 
purposes provided in paragraph (16) to the bor-
rower from the business loan and investment 
fund established by this Act would exceed 
$2,000,000 of which not more than $1,200,000 
may be used for working capital, supplies, or
137
financings under paragraph (14) for export 
purposes; and 
‘‘(C) if made either directly or in coopera-
tion with banks or other lending institutions 
through agreements to participate on an imme-
diate basis if the amount would exceed 
$350,000. 
‘‘(8) INTEREST RATES.—
‘‘(A) MAXIMUM
RATE
SET
BY
ADMINIS-
TRATOR.—Notwithstanding any State limitation 
on the rate or amount of interest which may be 
charged, taken, received, or reserved, the max-
imum legal rate of interest on any financing 
made on a deferred basis pursuant to this sub-
section shall not exceed a rate prescribed by the 
Administrator. 
‘‘(B) IMMEDIATE
AND
DIRECT
LOANS.—
The rate of interest for the Administrator’s 
share of any direct or immediate participation 
loan shall not exceed the current average mar-
ket yield on outstanding marketable obligations 
of the United States with remaining periods to 
maturity comparable to the average maturities 
of such loans and adjusted to the nearest 1⁄8 of 
1 percent, and an additional amount as deter-
138
mined by the Administrator, but not to exceed 
1 percent per year; 
‘‘(C) PREFERRED
LENDERS
PROGRAM.—
The maximum interest rate for a loan guaran-
teed under the Preferred Lenders Program con-
ducted pursuant to paragraph (31) shall not ex-
ceed the maximum interest rate, as determined 
by the Administrator, applicable to other loans 
guaranteed under this subsection. 
‘‘(D) DISABLED PERSONS.—
‘‘(i) IN GENERAL.—The maximum in-
terest rate for a loan made under this sub-
section to a disabled person for the estab-
lishment, acquisition or operation of a 
small business concern shall be 3 percent 
per year. 
‘‘(ii) DISABLED
PERSON.—For the 
purposes of this subparagraph, the term 
‘disabled person’ means any individual 
who—
‘‘(I) is a service-disabled veteran; 
or 
‘‘(II) has a disability (as defined 
in section 3 of the Americans with 
Disabilities Act of 1990) which limits
139
such individual’s selection of any type 
of employment for which such indi-
vidual would otherwise be qualified or 
qualifiable. 
‘‘(9) PREPAYMENT CHARGES.—
‘‘(A) IN GENERAL.—A borrower who pre-
pays any loan guaranteed under this subsection 
shall remit to the Administrator a subsidy 
recoupment fee calculated in accordance with 
subparagraph (B) if—
‘‘(i) the loan is for a term of not less 
than 15 years; 
‘‘(ii) the prepayment is voluntary; 
‘‘(iii) the amount of prepayment in 
any calendar year is more than 25 percent 
of the outstanding balance of the loan; and 
‘‘(iv) the prepayment is made within 
the first 3 years after disbursement of the 
loan proceeds. 
‘‘(B) SUBSIDY
RECOUPMENT
FEE.—The 
subsidy recoupment fee charged under subpara-
graph (A) shall be—
‘‘(i) 5 percent of the amount of pre-
payment, if the borrower prepays during 
the first year after disbursement;
140
‘‘(ii) 3 percent of the amount of pre-
payment, if the borrower prepays during 
the second year after disbursement; and 
‘‘(iii) 1 percent of the amount of pre-
payment, if the borrower prepays during 
the third year after disbursement. 
‘‘(10) MAXIMUM TERM.—No loans made under 
this subsection, including renewals and extensions 
thereof, may be made for a period or periods exceed-
ing 25 years, except that such portion of a loan 
made for the purpose of acquiring real property or 
constructing, converting, or expanding facilities may 
have a maturity of 25 years plus such additional pe-
riod as is estimated may be required to complete 
such construction, conversion, or expansion. 
‘‘(11) CONSTRUCTION AND REHABILITATION OF 
REAL PROPERTY.—The Administrator may make a 
loan under this subsection to finance residential or 
commercial construction or rehabilitation for sale if 
such loan is not used primarily for the acquisition of 
land. 
‘‘(12) UNEMPLOYED AND LOW-INCOME INDIVID-
UALS.—The Administrator may make loans under 
this subsection to any small business concern, or to 
any qualified person seeking to establish such a con-
141
cern, if the Administrator determines that such loan 
will further the policies established in section 2, with 
particular emphasis on the preservation or establish-
ment of small business concerns located in urban or 
rural areas with high proportions of unemployed or 
low-income individuals or owned by low-income indi-
viduals. 
‘‘(13) STATE AND LOCAL DEVELOPMENT COM-
PANIES.—The Administrator may make loans under 
this subsection to State and local development com-
panies for the purposes of, and subject to the re-
strictions in, title V of the Small Business Invest-
ment Act of 1958. 
‘‘(14) EXPORT WORKING CAPITAL PROGRAM.—
‘‘(A) IN
GENERAL.—The Administrator 
may provide extensions of credit, standby let-
ters of credit, revolving lines of credit for export 
purposes, and other financing to enable small 
business concerns, including small business ex-
port trading companies and small business ex-
port management companies, to develop foreign 
markets. 
‘‘(B) INTEREST RATES.—A bank or par-
ticipating lending institution may establish the
142
rate of interest on such financings as may be 
legal and reasonable. 
‘‘(C) CRITERIA FOR LOANS.—When consid-
ering loan or guarantee applications, the Ad-
ministrator shall give weight to export-related 
benefits, including opening new markets for 
United States goods and services abroad and 
encouraging the involvement of small busi-
nesses, including agricultural concerns, in the 
export market. 
‘‘(D) 
MARKETING.—The 
Administrator 
shall aggressively market its export financing 
program to small businesses. 
‘‘(15) QUALIFIED EMPLOYEE TRUSTS.—
‘‘(A) LOAN GUARANTEES.—The Adminis-
trator may guarantee loans under this sub-
section to qualified employee trusts with respect 
to a small business concern for the purpose of 
purchasing stock of the concern under a plan 
approved by the Administrator which, when car-
ried out, results in the qualified employee trust 
owning at least 51 percent of the stock of the 
concern. A qualified employee trust shall be eli-
gible for any loan guarantee under this sub-
section with respect to a small business concern
143
on the same basis as if such trust were the 
same legal entity as such concern. 
‘‘(B) APPROVAL OF PLAN.—The plan re-
quiring the Administrator’s approval under sub-
paragraph (A) shall be submitted to the Admin-
istrator by the trustee of such trust with its ap-
plication for the guarantee. Such plan shall in-
clude an agreement with the Administrator 
which is binding on such trust and on the small 
business concern and which provides that—
‘‘(i) not later than the date the loan 
guaranteed under subparagraph (A) is re-
paid (or as soon thereafter as is consistent 
with the requirements of section 401(a) of 
the Internal Revenue Code of 1986, at 
least 51 percent of the total stock of such 
concern shall be allocated to the accounts 
of at least 51 percent of the employees of 
such concern who are entitled to share in 
such allocation; 
‘‘(ii) there will be periodic reviews of 
the role in the management of such con-
cern of employees to whose accounts stock 
is allocated; and
144
‘‘(iii) there will be adequate manage-
ment to assure management expertise and 
continuity. 
‘‘(C) CERTAIN CHARACTERISTICS OF EM-
PLOYEE-OWNERS
DISREGARDED.—In 
deter-
mining whether to guarantee any loan under 
this paragraph, the individual business experi-
ence or personal assets of employee-owners shall 
not be used as criteria, except that the business 
experience of employee-owners who assume 
managerial responsibilities may be considered. 
‘‘(D) CERTAIN
CORPORATIONS
TREATED 
AS SMALL BUSINESS CONCERNS.—For purposes 
of this paragraph, a corporation which is con-
trolled by any other person shall be treated as 
a small business concern if such corporation 
would, after the plan described in subparagraph 
(B) is carried out, be treated as a small busi-
ness concern. 
‘‘(16) INTERNATIONAL TRADE.—
‘‘(A) IN GENERAL.—If the Administrator 
determines that a loan guaranteed under this 
subsection will allow an eligible small business 
concern in an industry engaged in or adversely 
affected by international trade to improve its
145
competitive position, the Administrator may 
make such loan to assist such concern in—
‘‘(i) the financing of the acquisition, 
construction, renovation, modernization, 
improvement or expansion of productive fa-
cilities or equipment to be used in the 
United States in the production of goods 
and services involved in international 
trade; or 
‘‘(ii) the refinancing of existing in-
debtedness which is not structured with 
reasonable terms and conditions. 
‘‘(B) SECURITY.—Each loan made under 
this paragraph shall be secured by a first lien 
position or first mortgage on the property or 
equipment financed by the loan or on other as-
sets of the concern. 
‘‘(C) ENGAGED
IN
OR
ADVERSELY
AF-
FECTED BY INTERNATIONAL TRADE.—For pur-
poses of this paragraph, a small business con-
cern shall be considered to be engaged in or ad-
versely affected by international trade if such 
concern is determined by the Administrator 
(under regulations prescribed by the Adminis-
trator to be—
146
‘‘(i) in a position to significantly ex-
pand existing export markets or develop 
new export markets; or 
‘‘(ii) adversely affected by import 
competition in that it—
‘‘(I) is confronting increased di-
rect competition with foreign firms in 
the relevant market; and 
‘‘(II) can demonstrate injury at-
tributable to such competition. 
‘‘(D) FINDINGS BY INTERNATIONAL TRADE 
COMMISSION.—For purposes of subparagraph 
(C)(ii)(II), the Administrator shall accept any 
finding of injury by the International Trade 
Commission. 
‘‘(17) AUTHORIZED LENDING INSTITUTIONS.—
The Administrator shall authorize lending institu-
tions and other entities in addition to banks to make 
loans authorized under this subsection. 
‘‘(18) GUARANTEE FEES.—
‘‘(A) IN GENERAL.—With respect to each 
loan guaranteed under this subsection (other 
than a loan that is repayable in 1 year or less), 
the Administration shall collect a guarantee fee, 
which shall be payable by the participating
147
lender, but which may be collected in advance 
by the lender from the borrower, as follows: 
‘‘(i) A guarantee fee equal to 1 per-
cent of the deferred participation share of 
a total loan amount that is not more than 
$150,000. 
‘‘(ii) A guarantee fee equal to 2.5 per-
cent of the deferred participation share of 
a total loan amount that is more than 
$150,000, but not more than $700,000. 
‘‘(iii) A guarantee fee equal to 3.5 
percent of the deferred participation share 
of a total loan amount that is more than 
$700,000. 
‘‘(B) RETENTION
OF
CERTAIN
FEES.—
Lenders participating in the programs estab-
lished under this subsection may retain not 
more than 25 percent of a fee collected under 
subparagraph (A)(i). 
‘‘(19) CERTIFIED LENDERS PROGRAM.—
‘‘(A) IN GENERAL.— There is a Certified 
Lenders Program for lenders who establish 
their knowledge of laws and regulations con-
cerning the guaranteed loan program and their 
proficiency in program requirements as set
148
forth in regulations codified in the Code of Fed-
eral Regulations. 
‘‘(B) SUSPENSION
AND
REVOCATION
OF 
DESIGNATION.—The designation of a lender as 
a certified lender shall be suspended or revoked 
at any time that the Administrator determines 
that the lender is not adhering to established 
rules and regulations or that the loss experience 
of the lender is excessive as compared to other 
lenders, but such suspension or revocation shall 
not affect any outstanding guarantee. 
‘‘(C) AUTHORITY TO LIQUIDATE LOANS.—
‘‘(i) IN GENERAL.—The Administrator 
may permit lenders participating in the 
Certified Lenders Program to liquidate 
loans made with a guarantee from the Ad-
ministrator pursuant to a liquidation plan 
approved by the Administrator. 
‘‘(ii) AUTOMATIC
APPROVAL.—If the 
Administrator does not approve or deny a 
request for approval of a liquidation plan 
within 10 business days of the date on 
which the request is made (or with respect 
to any routine liquidation activity under
149
such a plan, within 5 business days) such 
request shall be deemed to be approved. 
‘‘(20) MINORITY BUSINESS DEVELOPMENT PRO-
GRAM PARTICIPANTS.—
‘‘(A) IN
GENERAL.—The Administrator 
may make loans either directly or in coopera-
tion with banks or other financial institutions 
through agreements to participate on an imme-
diate or deferred (guaranteed) basis to small 
business concerns eligible for assistance under 
section 8(a). Such assistance may be provided 
only if the Administrator determines that—
‘‘(i) the type and amount of such as-
sistance requested by such concern is not 
otherwise available on reasonable terms 
from other sources; 
‘‘(ii) with such assistance such con-
cern has a reasonable prospect for oper-
ating soundly and profitably within a rea-
sonable period of time; 
‘‘(iii) the proceeds of such assistance 
will be used within a reasonable time for 
plant construction, conversion, or expan-
sion, including the acquisition of equip-
ment, facilities, machinery, supplies, or
150
material or to supply such concern with 
working capital to be used in the manufac-
ture of articles, equipment, supplies, or 
material for defense or civilian production 
or as may be necessary to insure a well-
balanced national economy; and 
‘‘(iv) such assistance is of such sound 
value as reasonably to assure that the 
terms under which it is provided will not 
be breached by the small business concern. 
‘‘(B) MAXIMUM AMOUNT OF LOANS.—No 
loan shall be made under this paragraph if the 
total amount outstanding and committed (by 
participation or otherwise) to the borrower 
would exceed $750,000. 
‘‘(C) MINIMUM
PARTICIPATION.—Subject 
to the limitation of subparagraph (B), in agree-
ments to participate in loans on a deferred 
(guaranteed) basis, participation by the Admin-
istrator shall be not less than 85 percent of the 
balance of the financing outstanding at the time 
of disbursement. 
‘‘(D) INTEREST RATE.—The rate of inter-
est on financings made on a deferred (guaran-
teed) basis shall be legal and reasonable.
151
‘‘(E) METHODS
OF
PARTICIPATION.—No 
immediate participation may be purchased 
under this paragraph unless it is shown that a 
deferred participation is not available. No direct 
financing may be made under this paragraph 
unless it is shown that a participation is un-
available. A direct loan or the Administrator’s 
share of an immediate participation loan made 
pursuant to this paragraph shall be any secured 
debt instrument—
‘‘(i) that is subordinated by its terms 
to all other borrowings of the issuer; 
‘‘(ii) the rate of interest on which 
shall not exceed the current average mar-
ket yield on outstanding marketable obliga-
tions of the United States with remaining 
periods to maturity comparable to the av-
erage maturities of such loan and adjusted 
to the nearest 1⁄8 of 1 percent; 
‘‘(iii) the term of which is not more 
than 25 years; 
‘‘(iv) the principal on which is amor-
tized at such rate as may be deemed ap-
propriate by the Administrator; and
152
‘‘(v) the interest on which is payable 
not less often than annually. 
‘‘(21) CLOSURE OF DOD INSTALLATIONS.—
‘‘(A) IN
GENERAL.—The Administrator 
may make loans on a guaranteed basis under 
the authority of this subsection—
‘‘(i) to a small business concern that 
has been (or can reasonably be expected to 
be) detrimentally affected by—
‘‘(I) the closure (or substantial 
reduction) of a Department of De-
fense installation; or 
‘‘(II) the termination (or sub-
stantial reduction) of a Department of 
Defense program on which such small 
business was a prime contractor or 
subcontractor (or supplier) at any 
tier; or 
‘‘(ii) to a qualified individual or a vet-
eran seeking to establish (or acquire) and 
operate a small business concern. 
‘‘(B) REASONABLE DOUBT GIVEN TO AP-
PLICANT.—Recognizing that greater risk may 
be associated with a loan to a small business 
concern described in subparagraph (A)(i), any
153
reasonable doubts concerning the firm’s pro-
posed business plan for transition to non-
defense-related markets shall be resolved in 
favor of the loan applicant when making any 
determination regarding the sound value of the 
proposed loan in accordance with paragraph 
(5). 
‘‘(C) AUTHORIZATION.—Loans pursuant to 
this paragraph shall be authorized in such 
amounts as provided in advance in appropria-
tion Acts for the purposes of loans under this 
paragraph. 
‘‘(D) QUALIFIED
INDIVIDUAL.—For pur-
poses of this paragraph a qualified individual 
is—
‘‘(i) a member of the Armed Forces of 
the United States, honorably discharged 
from active duty involuntarily or pursuant 
to a program providing bonuses or other 
inducements to encourage voluntary sepa-
ration or early retirement; 
‘‘(ii) a civilian employee of the De-
partment of Defense involuntarily sepa-
rated from Federal service or retired pur-
154
suant to a program offering inducements 
to encourage early retirement; or 
‘‘(iii) an employee of a prime con-
tractor, subcontractor, or supplier at any 
tier of a Department of Defense program 
whose employment is involuntarily termi-
nated (or voluntarily terminated pursuant 
to a program offering inducements to en-
courage voluntary separation or early re-
tirement) due to the termination (or sub-
stantial reduction) of a Department of De-
fense program. 
‘‘(E) JOB
CREATION
AND
COMMUNITY 
BENEFIT.—In providing assistance under this 
paragraph, the Administrator shall develop pro-
cedures to ensure, to the maximum extent prac-
ticable, that such assistance is used for projects 
that—
‘‘(i) have the greatest potential for—
‘‘(I) creating new jobs for indi-
viduals whose employment is involun-
tarily terminated due to reductions in 
Federal defense expenditures; or 
‘‘(II) preventing the loss of jobs 
by employees of small business con-
155
cerns 
described 
in 
subparagraph 
(A)(i); and 
‘‘(ii) have substantial potential for 
stimulating new economic activity in com-
munities most affected by reductions in 
Federal defense expenditures. 
‘‘(22) LATE
FEES.—The Administrator may 
permit participating lenders to impose and collect a 
reasonable penalty fee on late payments of loans 
guaranteed under this subsection in an amount not 
to exceed 5 percent of the monthly loan payment per 
month plus interest. 
‘‘(23) ANNUAL FEE.—
‘‘(A) IN GENERAL.—With respect to each 
loan guaranteed under this subsection, the Ad-
ministrator shall, in accordance with such terms 
and procedures as the Administrator shall es-
tablish by regulation, assess and collect an an-
nual fee in an amount equal to 0.5 percent of 
the outstanding balance of the deferred partici-
pation share of the loan. With respect to loans 
approved during the 2-year period beginning on 
October 1, 2002, the annual fee assessed and 
collected under the preceding sentence shall be 
in an amount equal to 0.25 percent of the out-
156
standing balance of the deferred participation 
share of the loan. 
‘‘(B) PAYER.—The annual fee assessed 
under subparagraph (A) shall be payable by the 
participating lender and shall not be charged to 
the borrower. 
‘‘(C) AGENTS.—The Administrator may 
contract with any agent to carry out, on behalf 
of the Administrator, the assessment and collec-
tion of annual fees referred to in subparagraph 
(A). Such agent may receive as compensation 
for services any interest earned on the fees 
while in such agent’s control and prior to the 
time when the agent, pursuant to contract, is 
required to remit the fees to the Administrator. 
‘‘(24) NOTIFICATION REQUIREMENT.—The Ad-
ministrator shall notify the Committee on Small 
Business of the House of Representatives and the 
Committee on Small Business and Entrepreneurship 
of the Senate not later than 15 days before making 
any significant policy or administrative change af-
fecting the operation of the loan program under this 
subsection, including the establishment of any pilot 
project pursuant to paragraph (25).
157
‘‘(25) LIMITATION
ON
CONDUCTING
PILOT 
PROJECTS.—
‘‘(A) LIMITATION ON NUMBER.—Not more 
than 10 percent of the total number of loans 
guaranteed in any fiscal year under this sub-
section may be awarded as part of a pilot pro-
gram which is commenced by the Administrator 
on or after January 1, 1994. 
‘‘(B) DOLLAR LIMITATIONS.—
‘‘(i) IN GENERAL.—In the case of any 
pilot program established on or after the 
date of the enactment of this subpara-
graph, no loan shall be made under such 
program if such loan would result in the 
total amount of loans made during the fis-
cal year under all such programs to be in 
excess of 5 percent of the total amount of 
loans guaranteed in such fiscal year under 
this subsection. 
‘‘(ii) CERTAIN
PRE-EXISTING
PRO-
GRAMS.—In the case of any pilot program 
established before the date of the enact-
ment of this subparagraph, no loan shall 
be made under such program if such loan 
would result in the total amount of loans
158
made during the fiscal year under all such 
programs to be in excess of 15 percent of 
the total amount of loans guaranteed in 
such fiscal year under this subsection. 
‘‘(C) MAXIMUM
TERM.—The duration of 
any pilot program authorized by this paragraph 
shall not exceed 3 years. For purposes of this 
subparagraph, a pilot program shall not be 
treated as a new pilot program solely on the 
basis of a modification or change in a pilot pro-
gram, including the change of its name. With 
respect to any pilot program in existence on the 
date of the enactment of this subparagraph, 
this subparagraph shall apply without regard to 
any period ending before such date. 
‘‘(D) REGULATIONS.—With respect to each 
pilot program under this subsection, the Admin-
istrator shall—
‘‘(i) promulgate regulations for such 
program pursuant to section 553(b) of title 
5, United States Code; 
‘‘(ii) provide not less than 60 days for 
notice and comment on such regulations; 
and
159
‘‘(iii) ensure that such regulations are 
codified in the Code of Federal Regula-
tions. 
In the case of any pilot program established 
after the date of the enactment of this subpara-
graph, such program shall not go into effect 
until after the requirements of this subpara-
graph are satisfied. 
‘‘(E) PILOT PROGRAM.—For purposes of 
this paragraph, the term ‘pilot program’ means 
any lending program initiative, project, innova-
tion, or other activity not specifically authorized 
by law. 
‘‘(26) CALCULATION
OF
SUBSIDY
RATE.—All 
fees, interest, and profits received and retained by 
the Administrator under this subsection shall be in-
cluded in the calculations made by the Director of 
the Office of Management and Budget to offset the 
cost (as that term is defined in section 502 of the 
Federal Credit Reform Act of 1990) to the Adminis-
trator of purchasing and guaranteeing loans under 
this Act. 
‘‘(27) 
LOW
DOCUMENTATION
LOAN
PRO-
GRAM.—
160
‘‘(A) IN
GENERAL.—The Administrator 
may issue guarantees under this subsection for 
loans of $150,000 or less with less documenta-
tion than would otherwise be required by the 
Administrator under this subsection. 
‘‘(B) REGULATIONS.—Not later than 120 
days after the date of the enactment of this 
paragraph, the Administrator shall promulgate 
regulations to carry out the provisions of this 
paragraph after the opportunity for notice and 
comment pursuant to section 553(b) of title 5, 
United States Code. Such regulations shall be 
codified in the Code of Federal Regulations. 
‘‘(28) LEASING.—In addition to such other 
lease arrangements as may be authorized by the Ad-
ministrator, a borrower may permanently lease to 
one or more tenants not more than 20 percent of 
any property constructed with the proceeds of a loan 
guaranteed under this subsection, if the borrower 
permanently occupies and uses not less than 60 per-
cent of the total business space in the property. 
‘‘(29) REAL
ESTATE
APPRAISALS.—With re-
spect to a loan under this subsection that is secured 
by commercial real property, an appraisal of such 
property by a State licensed or certified appraiser—
161
‘‘(A) shall be required by the Adminis-
trator in connection with any such loan for 
more than $250,000; or 
‘‘(B) may be required by the Administrator 
or the lender in connection with any such loan 
for $250,000 or less, if such appraisal is nec-
essary for appropriate evaluation of credit-
worthiness. 
‘‘(30) OWNERSHIP
REQUIREMENTS.—Owner-
ship requirements to determine the eligibility of a 
small business concern that applies for assistance 
under any credit program under this Act shall be de-
termined without regard to any ownership interest of 
a spouse arising solely from the application of the 
community property laws of a State for purposes of 
determining marital interests. 
‘‘(31) PREFERRED LENDERS PROGRAM.—
‘‘(A) IN GENERAL.—There is a Preferred 
Lenders Program. 
‘‘(B) PARTICIPATION.—The Administrator 
may designate a preferred lender under this 
paragraph only if the lender demonstrates 
knowledge of the Small Business Act and the 
regulations promulgated thereunder and estab-
162
lishes to the satisfaction of the Administrator 
that it—
‘‘(i) has the ability to process, close, 
service, and liquidate loans; 
‘‘(ii) has the ability to develop and 
analyze complete loan packages; and 
‘‘(iii) has a satisfactory performance 
history of participation in the lending pro-
gram established under this subsection as 
demonstrated by a default rate that does 
not exceed—
‘‘(I) the national average; or 
‘‘(II) in the case any lender 
which made at least 20 percent of its 
loans in Alaska, Hawaii, State-des-
ignated enterprise zones, enterprise 
zones, empowerment zones, enterprise 
communities, or labor surplus areas 
as determined by the Department of 
Labor, or to small manufacturers, the 
national average plus 2 percentage 
points. 
‘‘(C) DELEGATED AUTHORITY.—With re-
spect to loans made under this subsection, pre-
163
ferred lenders shall, without prior approval of 
the Administrator: 
‘‘(i) Determine creditworthiness and 
eligibility. 
‘‘(ii) Make and close loans with a 
guarantee from the Administrator. 
‘‘(iii) Monitor loan performance. 
‘‘(iv) Service and collect the loans. 
‘‘(v) Foreclose and liquidate loans. 
‘‘(D) PROHIBITED
ACTIVITIES.—A pre-
ferred lender shall not take any action that cre-
ates an actual or apparent conflict of interest or 
places the Federal Government’s guarantee at 
significant risk beyond the risk associated with 
loan nonperformance. 
‘‘(E) AREA
OF
OPERATIONS.—The des-
ignation by the Administrator of a lender to 
participate in the program established pursuant 
to this paragraph shall authorize the activities 
described in subparagraph (C) only with respect 
to small business concerns located in areas 
served by such office or offices as the Adminis-
trator designates with respect to such lender. 
‘‘(F) DESIGNATION
AS
NATIONAL
PRE-
FERRED
LENDERS.—The Administrator, upon
164
application, may designate a preferred lender as 
a national preferred lender. A national pre-
ferred lender may conduct the activities de-
scribed in subparagraph (C) with respect to 
each area served by an office of the Adminis-
trator. The Administrator shall not grant such 
designation 
unless 
the 
applicant 
dem-
onstrates—
‘‘(i) operation as a preferred lender in 
at least 5 States or within the territory 
served by at least 10 offices of the Admin-
istrator for a period of not less than 3 
years; 
‘‘(ii) issuance of a minimum of 50 
loans per year as a preferred lender; 
‘‘(iii) centralization of approval, loan 
servicing and liquidation functions that 
meet such standards as the Administrator 
may establish by regulations, which are 
promulgated after notice and the oppor-
tunity for public comment not later than 
180 days after the date of the enactment 
of this clause;
165
‘‘(iv) maintenance of uniform written 
policies and procedures on the issuance of 
loans guaranteed under this subsection; 
‘‘(v) maintenance of a portfolio of 
loans guaranteed under this subsection 
that do not exceed the national average de-
fault, currency, and recovery rates for pre-
ferred lenders; and 
‘‘(vi) receipt of a substantially satis-
factory compliance review rating from the 
Administrator in its most recent audit and 
examination as a preferred lender and a 
small business lending company, if applica-
ble, or has received a substantially satisfac-
tory rating as a result of a follow-up re-
view. 
‘‘(G) CORRECTIVE ACTION.—If a national 
preferred lender is deficient with respect to any 
requirement described in subparagraph (F), the 
Administrator shall notify such lender in writ-
ing and shall provide the lender a reasonable 
period of time to conform to such requirements 
before taking any corrective action. 
‘‘(H) SUSPENSION OR REVOCATION.—The 
Administrator may, depending upon the severity
166
of the failure to comply with the standards set 
forth in this paragraph, suspend or revoke a 
lender’s status as a preferred lender or a na-
tional preferred lender. Any such suspension or 
revocation shall not affect any outstanding 
guarantee. 
‘‘(I) LIMITATION
ON
DELEGATION.—No 
authority under this paragraph may be dele-
gated to any employee of the Administration 
who is based in a regional or district office. 
‘‘(32) SIMPLIFIED FORM FOR SMALL GUARAN-
TEES.—The Administrator shall develop and allow 
participating lenders to solely utilize a uniform and 
simplified loan form for loans of $50,000 or less in 
guarantees to eligible applicants. 
‘‘(33) SPECIAL RULE ON AFFILIATION.—A busi-
ness concern applying for assistance under this sub-
section shall be considered small for purposes of this 
subsection without regard to affiliation with another 
business concern if the applicant has no legal re-
course to have its affiliate repay any of its debt obli-
gations. 
(b) DISASTER LOAN PROGRAM.—Subsection (b) of 
section 7 of the Small Business Act (15 U.S.C.636) is 
amended to read as follows:
167
‘‘(b) DISASTER LOAN PROGRAM.—
‘‘(1) PHYSICAL LOSS DISASTER LOANS.—
‘‘(A) LOAN AUTHORITY.—Except as to ag-
ricultural enterprises, the Administrator may, 
to the extent and in such amounts as provided 
in advance in appropriation Acts, make such 
loans (either directly or in cooperation with 
banks or other lending institutions through 
agreements to participate on an immediate or 
deferred (guaranteed) basis) as the Adminis-
trator may determine to be necessary or appro-
priate to repair, rehabilitate or replace prop-
erty, real or personal, damaged or destroyed by 
or as a result of natural or other disasters. 
‘‘(B) LOAN AMOUNT.—The amount of any 
loan made under this paragraph shall be equal 
to 100 percent of the loss except that the 
amount of the loan shall be reduced by—
‘‘(i) any amount covered by insurance 
or otherwise; or 
‘‘(ii) in the case of a loan used to refi-
nance a mortgage or other lien, any 
amount covered by insurance or otherwise. 
‘‘(C) SPECIAL RULES.—The Administrator 
shall not—
168
‘‘(i) reduce the loan amount on real 
estate to below $100,000 unless the 
amount of loss calculated under subpara-
graph (B) is less than $100,000; 
‘‘(ii) reduce the loan amount on per-
sonal property, whether held by a home-
owner or lessee, to below $20,000, unless 
the amount of the loss calculated under 
subparagraph (B) is less than $20,000; 
‘‘(iii) take into account for purposes 
of subparagraph (B) any sums made avail-
able for refinancing pursuant to subpara-
graph (D); or 
‘‘(iv) require collateral for loans of 
$10,000 or less. 
‘‘(D) REFINANCINGS.—Such loans may be 
used to refinance any mortgage or other lien 
against a totally destroyed or substantially 
damaged home or business concern except that 
the Administrator shall not make any loan or 
guarantee under this paragraph unless the Ad-
ministrator finds—
‘‘(i) the applicant is not able to obtain 
credit elsewhere;
169
‘‘(ii) such property is to be repaired, 
rehabilitated, or replaced; and 
‘‘(iii) the amount refinanced shall not 
exceed the amount of physical loss sus-
tained. 
‘‘(E) INCREASE
FOR
MITIGATING
MEAS-
URES.—The Administrator may increase the 
amount of any loan under this subsection by up 
to an additional 20 percent if he determines 
such increase to be necessary or appropriate in 
order to protect the damaged or destroyed prop-
erty from possible future disasters by taking 
mitigating measures, including construction of 
retaining walls and sea walls, grading and 
contouring land, relocating utilities and modi-
fying structures. 
‘‘(2) ECONOMIC INJURY DISASTER LOANS.—
‘‘(A) LOAN AUTHORITY.—Except as to ag-
ricultural enterprises (other than small agricul-
tural cooperatives), the Administrator may, to 
the extent and in such amounts as provided in 
advance in appropriation Acts, make such loans 
(either directly or in cooperation with banks or 
other lending institutions through agreements 
to participate on an immediate or deferred
170
(guaranteed) basis as the Administrator may 
determine to be necessary or appropriate to any 
small business concern or small agricultural co-
operative located in an area affected by a dis-
aster (which shall include all of the county in 
which the disaster occurred and counties contig-
uous to the county of the disaster as deter-
mined by the President or Administrator), if 
the Administrator determines that the concern 
or the cooperative has suffered a substantial 
economic injury as a result of such disaster and 
if such disaster constitutes—
‘‘(i) a major disaster, as determined 
by the President under the Disaster Relief 
and Emergency Assistance Act; or 
‘‘(ii) a natural disaster, as determined 
by the Secretary of Agriculture pursuant 
to the Consolidated Farmers Home Admin-
istration Act of 1961 (7 U.S.C. 1961); or 
‘‘(iii) a disaster, as determined by the 
Administrator. 
‘‘(B) STATE
CERTIFICATION.—If no dis-
aster declaration has been issued under sub-
paragraph (A), the Governor of a State in 
which a disaster has occurred may certify to the
171
Administrator that small business concerns or 
small agricultural cooperatives have suffered 
economic injury as a result of such disaster and 
are in need of financial assistance which is not 
available on reasonable terms in the disaster 
stricken area. Upon receipt of such certifi-
cation, the Administrator may then make such 
loans as would have been available under this 
paragraph if a disaster declaration had been 
issued. 
‘‘(C) UNABLE TO OBTAIN CREDIT ELSE-
WHERE.—No loan or guarantee shall be ex-
tended pursuant to this paragraph unless the 
Administrator finds that the applicant is not 
able to obtain credit elsewhere. 
‘‘(3) ESSENTIAL EMPLOYEES CALLED TO AC-
TIVE DUTY.—
‘‘(A) DEFINITIONS.—For purposes of this 
paragraph: 
‘‘(i) 
ESSENTIAL
EMPLOYEE.—The 
term ‘essential employee’ means an indi-
vidual who is employed by a small business 
concern and whose managerial or technical 
expertise is critical to the successful day-
172
to-day operations of that small business 
concern. 
‘‘(ii) PERIOD
OF
MILITARY
CON-
FLICT.—The term ‘period of military con-
flict’ has the meaning given the term in 
subsection (n)(1). 
‘‘(iii) SUBSTANTIAL
ECONOMIC
IN-
JURY.—The term ‘substantial economic in-
jury’ means an economic harm to a busi-
ness concern that results in the inability of 
the business concern—
‘‘(I) to meet its obligations as 
they mature; 
‘‘(II) to pay its ordinary and nec-
essary operating expenses; or 
‘‘(III) to market, produce, or pro-
vide a product or service ordinarily 
marketed, produced, or provided by 
the business concern. 
‘‘(B) LOAN
AUTHORITY.—The Adminis-
trator may make such disaster loans (either di-
rectly or in cooperation with banks or other 
lending institutions through agreements to par-
ticipate on an immediate or deferred basis) to 
assist a small business concern that has suf-
173
fered or that is likely to suffer substantial eco-
nomic injury as the result of an essential em-
ployee of such small business concern being or-
dered to active military duty during a period of 
military conflict. 
‘‘(C) PERIOD
OF
ELIGIBILITY.—A small 
business concern described in subparagraph (B) 
shall be eligible to apply for assistance under 
this paragraph during the period beginning on 
the date on which the essential employee is or-
dered to active duty and ending on the date 
that is 90 days after the date on which such es-
sential employee is discharged or released from 
active duty. 
‘‘(D) INTEREST RATE.—Any loan or guar-
antee extended pursuant to this paragraph shall 
be made at the same interest rate as economic 
injury disaster loans under paragraph (2). 
‘‘(E) MAXIMUM LOAN AMOUNT.—No loan 
may be made under this paragraph, either di-
rectly or in cooperation with banks or other 
lending institutions through agreements to par-
ticipate on an immediate or deferred basis, if 
the total amount outstanding and committed to 
the borrower under this subsection would ex-
174
ceed $1,500,000, unless the applicant can es-
tablish pursuant to regulations promulgated by 
the Administrator pursuant to paragraph (9) 
that this maximum should be waived. 
‘‘(F) NO
DISASTER
DECLARATION
RE-
QUIRED.—For purposes of assistance under this 
paragraph, no declaration of a disaster area 
shall be required. 
‘‘(4) SPECIAL
RULE
TO
DETERMINE
SMALL 
CONCERNS.—For purposes of this subsection, a busi-
ness concern and an agricultural cooperative are 
considered small if the business concern or agricul-
tural cooperative has 500 or fewer employees. 
‘‘(5) MAXIMUM TERM.— Except as provided in 
paragraph (6), no loan under this subsection, includ-
ing renewals and extensions thereof, may be made 
for a period or periods exceeding 30 years. No loan 
described in paragraph (11)(D)(iii) shall be made 
for a period or periods exceeding 3 years. 
‘‘(6) SUSPENSION OF PAYMENTS.—
‘‘(A) IN
GENERAL.—The Administrator 
may consent to a suspension in the payment of 
principal and interest charges on, and to an ex-
tension in the maturity of, the Federal share of
175
any loan under this subsection for a period of 
not to exceed 5 years, if—
‘‘(i) the borrower under such loan is a 
homeowner or a small business concern; 
‘‘(ii) the loan was made to enable—
‘‘(I) such homeowner to repair or 
replace his home; or 
‘‘(II) such concern to repair or 
replace plant or equipment which was 
damaged or destroyed as the result of 
a disaster described in clause (i) or 
(ii) of paragraph (2)(A); and 
‘‘(iii) the Administrator determines 
such action is necessary to avoid severe fi-
nancial hardship. 
‘‘(B) 
PURCHASE
OF
NON-FEDERAL 
SHARE.—During any period in which principal 
and interest charges are suspended on the Fed-
eral share of any loan under this paragraph, 
the Administrator shall, upon the request of 
any person, firm, or corporation having a par-
ticipation in such loan, purchase such participa-
tion, or assume the obligation of the borrower, 
for the balance of such period, to make prin-
cipal and interest payments on the non-Federal
176
share of such loan. No such payments shall be 
made by the Administrator in behalf of any bor-
rower unless—
‘‘(i) the Administrator determines 
that such action is necessary in order to 
avoid a default; and 
‘‘(ii) the borrower agrees to make pay-
ments to the Administration in an aggre-
gate amount equal to the amount paid in 
its behalf by the Administrator, in such 
manner and at such times (during or after 
the term of the loan) as the Administrator 
shall determine having due regard to the 
purposes sought to be achieved by this 
clause. 
‘‘(7) ADDITIONAL DISASTER AREAS.—The Ad-
ministrator shall promulgate regulations for deter-
mining under what circumstances loans can be made 
under paragraph (2)(A) in counties beyond the 
counties designated pursuant to clause (i), (ii), or 
(iii) of paragraph (2)(A). 
‘‘(8) CIVIL PENALTY FOR MISUSE OF LOAN.—
Whoever wrongfully misapplies the proceeds of a 
loan obtained under this subsection shall be civilly 
liable to the Administrator in an amount equal to
183
‘‘(B) in conjunction with such loans make 
grants to such intermediaries for the purpose of 
providing intensive marketing, management, 
and technical assistance to small business con-
cerns that are borrowers under this subsection; 
and 
‘‘(C) make grants to nonprofit entities for 
the purpose of providing marketing, manage-
ment, and technical assistance to low-income in-
dividuals seeking to start or enlarge their own 
businesses, if such assistance includes working 
with the grant recipient to secure loans in 
amounts not to exceed $35,000 from private 
sector lending institutions, with or without a 
loan guarantee from the nonprofit entity. 
‘‘(3) ELIGIBILITY
FOR
PARTICIPATION.—An 
intermediary shall be eligible to receive loans and 
grants under subparagraphs (B) and (C) of para-
graph (2) if it has at least 1 year of experience mak-
ing microloans to startup, newly established, or 
growing small business concerns and providing, as 
an integral part of its microloan program, intensive 
marketing, management, and technical assistance to 
its borrowers or equivalent experience, as determined 
by the Administrator provided that the equivalent