12 U.S.C. § 5704 (BANKS AND BANKING)
§ 5704. Approving State capital access programs
(a) Application
A participating State that establishes a new, or has an existing, State capital access program that meets the eligibility criteria in subsection (c) may apply to Secretary to have the State capital access program approved as eligible for Federal contributions to the reserve fund.
(b) Approval
The Secretary shall approve such State capital access program as eligible for Federal contributions to the reserve fund if—
(1) within 60 days after September 27, 2010, the State has filed with the Secretary a notice of intent to apply for approval by the Secretary of a State capital access program;
(2) within 9 months after September 27, 2010, the State has filed with the Secretary a complete application for approval by the Secretary of a capital access program;
(3) the State satisfies the requirements of subsections (a) and (b) of section 5703 of this title; and
(4) the State capital access program meets the eligibility criteria in subsection (c).
(c) Eligibility criteria for State capital access programs
For a State capital access program to be approved under this section, that program shall be required to be a program of the State that—
(1) provides portfolio insurance for business loans based on a separate loan-loss reserve fund for each financial institution;
(2) requires insurance premiums to be paid by the financial institution lenders and by the business borrowers to the reserve fund to have their loans enrolled in the reserve fund;
(3) provides for contributions to be made by the State to the reserve fund in amounts at least equal to the sum of the amount of the insurance premium charges paid by the borrower and the financial institution to the reserve fund for any newly enrolled loan; and
(4) provides its portfolio insurance solely for loans that meet both the following requirements:
(A) The borrower has 500 employees or less at the time that the loan is enrolled in the Program.
(B) The loan amount does not exceed $5,000,000.
(d) Federal contributions to approved State capital access programs
A State capital access program approved under this section will be eligible for receiving Federal contributions to the reserve fund in an amount equal to the sum of the amount of the insurance premium charges paid by the borrowers and by the financial institution to the reserve fund for loans that meet the requirements in subsection (c)(4). A participating State may use the Federal contribution to make its contribution to the reserve fund of an approved State capital access program.
(e) Minimum program requirements for State capital access programs
The Secretary shall, by regulation or other guidance, prescribe Program requirements that meet the following minimum requirements:
(1) Experience and capacity
The participating State shall determine for each financial institution that participates in the State capital access program, after consultation with the appropriate Federal banking agency or, in the case of a financial institution that is a nondepository community development financial institution, the Community Development Financial Institution Fund, that the financial institution has sufficient commercial lending experience and financial and managerial capacity to participate in the approved State capital access program. The determination by the State shall not be reviewable by the Secretary.
(2) Investment authority
Subject to applicable State law, the participating State may invest, or cause to be invested, funds held in a reserve fund by establishing a deposit account at the financial institution lender in the name of the participating State. In the event that funds in the reserve fund are not deposited in such an account, such funds shall be invested in a form that the participating State determines is safe and liquid.
(3) Loan terms and conditions to be determined by agreement
A loan to be filed for enrollment in an approved State capital access program may be made with such interest rate, fees, and other terms and conditions, and the loan may be enrolled in the approved State capital access program and claims may be filed and paid, as agreed upon by the financial institution lender and the borrower, consistent with applicable law.
(4) Lender capital at-risk
A loan to be filed for enrollment in the State capital access program shall require the financial institution lender to have a meaningful amount of its own capital resources at risk in the loan.
(5) Premium charges minimum and maximum amounts
The insurance premium charges payable to the reserve fund by the borrower and the financial institution lender shall be prescribed by the financial institution lender, within minimum and maximum limits that require that the sum of the insurance premium charges paid in connection with a loan by the borrower and the financial institution lender may not be less than 2 percent nor more than 7 percent of the amount of the loan enrolled in the approved State capital access program.
(6) State contributions
In enrolling a loan in an approved State capital access program, the participating State may make a contribution to the reserve fund to supplement Federal contributions made under this Program.
(7) Loan purpose
(A) Particular loan purpose requirements and prohibitions
In connection with the filing of a loan for enrollment in an approved State capital access program, the financial institution lender—
(i) shall obtain an assurance from each borrower that—
(I) the proceeds of the loan will be used for a business purpose;
(II) the loan will not be used to finance such business activities as the Secretary, by regulation, may proscribe as prohibited loan purposes for enrollment in an approved State capital access program; and
(III) the borrower is not—
(aa) an executive officer, director, or principal shareholder of the financial institution lender;
(bb) a member of the immediate family of an executive officer, director, or principal shareholder of the financial institution lender; or
(cc) a related interest of any such executive officer, director, principal shareholder, or member of the immediate family;
(ii) shall provide assurances to the participating State that the loan has not been made in order to place under the protection of the approved State capital access program prior debt that is not covered under the approved State capital access program and that is or was owed by the borrower to the financial institution lender or to an affiliate of the financial institution lender;
(iii) shall not allow the enrollment of a loan to a borrower that is a refinancing of a loan previously made to that borrower by the financial institution lender or an affiliate of the financial institution lender; and
(iv) may include additional restrictions on the eligibility of loans or borrowers that are not inconsistent with the provisions and purposes of this chapter, including compliance with all applicable Federal and State laws, regulations, ordinances, and Executive orders.
(B) Definitions
In this paragraph, the terms “executive officer”, “director”, “principal shareholder”, “immediate family”, and “related interest” refer to the same relationship to a financial institution lender as the relationship described in part 215 of title 12 of the Code of Federal Regulations, or any successor to such part.
(8) Capital access for small businesses in underserved communities
At the time that a State applies to the Secretary to have the State capital access program approved as eligible for Federal contributions, the State shall deliver to the Secretary a report stating how the State plans to use the Federal contributions to the reserve fund to provide access to capital for small businesses in low- and moderate-income, minority, and other underserved communities, including women- and minority-owned small businesses.
(Pub. L. 111–240, title III, § 3005, Sept. 27, 2010, 124 Stat. 2574.)