Title: Closing the Credit Gap Act
Policy area: Commerce

Summary:
Closing the Credit Gap Act
This bill establishes a Community Advantage Loan Program under which the Small Business Administration (SBA) may guarantee loans made by covered institutions to small business concerns in underserved markets.
Specifically, the bill makes the Community Advantage Pilot Program (CA) permanent and includes women and minorities as eligible groups for CA loans in addition to the other categories that are currently eligible. The bill requires at least 60% of loans made by a covered institution under the program be made to small business concerns in underserved markets, and it allows the SBA to waive the $250,000 cap on loan sizes up to $350,000. The bill further requires the SBA to provide both in-person and online training and technical assistance that is free or low-cost for covered institutions making loans under the program.
The SBA must establish a working group to develop recommendations for the SBA to effectively manage, support, and promote the program and its mission.
Lastly, the bill requires the Government Accountability Office to report on program outcomes.

[Congressional Bills 116th Congress]
[From the U.S. Government Publishing Office]
[S. 2361 Introduced in Senate (IS)]

<DOC>






116th CONGRESS
  1st Session
                                S. 2361

  To amend the Small Business Act to increase lending to underserved 
   borrowers through the largest loan program of the Small Business 
                Administration, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             July 31, 2019

  Mr. Cardin introduced the following bill; which was read twice and 
    referred to the Committee on Small Business and Entrepreneurship

_______________________________________________________________________

                                 A BILL


 
  To amend the Small Business Act to increase lending to underserved 
   borrowers through the largest loan program of the Small Business 
                Administration, and for other purposes.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Closing the Credit Gap Act''.

SEC. 2. COMMUNITY ADVANTAGE LOAN PROGRAM.

    Section 7(a) of the Small Business Act (15 U.S.C. 636(a)) is 
amended by adding at the end the following:
            ``(36) Community advantage loan program.--
                    ``(A) Purposes.--The purposes of the Community 
                Advantage Loan Program are--
                            ``(i) to create a mission-oriented loan 
                        guarantee program that builds on the 
                        demonstrated success of the Community Advantage 
                        Pilot Program of the Administration, as 
                        established in 2011, to reach more underserved 
                        small business concerns;
                            ``(ii) to increase lending to small 
                        business concerns in underserved and rural 
                        markets, including veterans and members of the 
                        military community, small business concerns 
                        owned and controlled by socially and 
                        economically disadvantaged individuals, women, 
                        and startups;
                            ``(iii) to ensure that the program under 
                        this subsection (in this paragraph referred to 
                        as the `7(a) loan program') is more inclusive 
                        and more broadly meets congressional intent to 
                        reach borrowers who are unable to get credit 
                        elsewhere on reasonable terms and conditions;
                            ``(iv) to help underserved small business 
                        concerns become bankable by utilizing the 
                        small-dollar financing and business support 
                        experience of mission-oriented lenders;
                            ``(v) to allow certain mission-oriented 
                        lenders, primarily nonprofit financial 
                        intermediaries focused on economic development 
                        in underserved markets, access to guarantees 
                        for loans under this subsection (in this 
                        paragraph referred to as `7(a) loans') of not 
                        more than $350,000 and provide management and 
                        technical assistance to small business concerns 
                        as needed;
                            ``(vi) to provide certainty for the lending 
                        partners that make loans under this subsection 
                        and to attract new lenders; and
                            ``(vii) to encourage collaboration between 
                        mission-oriented and conventional lenders under 
                        this subsection in order to support underserved 
                        small business concerns.
                    ``(B) Definitions.--In this paragraph--
                            ``(i) the term `covered institution' 
                        means--
                                    ``(I) a development company, as 
                                defined in section 103 of the Small 
                                Business Investment Act of 1958 (15 
                                U.S.C. 662), participating in the 504 
                                Loan Guaranty program established under 
                                title V of such Act (15 U.S.C. 695 et 
                                seq.);
                                    ``(II) a nonprofit intermediary, as 
                                defined in subsection (m)(11), 
                                participating in the microloan program 
                                under subsection (m);
                                    ``(III) a non-Federally regulated 
                                entity certified as a community 
                                development financial institution by 
                                the Community Development Financial 
                                Institutions Fund established under 
                                section 104(a) of the Riegle Community 
                                Development and Regulatory Improvement 
                                Act of 1994 (12 U.S.C. 4703(a)); and
                                    ``(IV) an eligible intermediary, as 
                                defined in subsection (l)(1), 
                                participating in the Intermediary 
                                Lending Pilot Program established under 
                                subsection (l)(2);
                            ``(ii) the term `existing business' means a 
                        small business concern that has been in 
                        existence for not less than 2 years on the date 
                        on which a loan is made to the small business 
                        concern under the program;
                            ``(iii) the term `new business' means a 
                        small business concern that has been existence 
                        for not more than 2 years on the date on which 
                        a loan is made to the small business concern 
                        under the program;
                            ``(iv) the term `program' means the 
                        Community Advantage Loan Program established 
                        under subparagraph (C);
                            ``(v) the term `Reservist' means a member 
                        of a reserve component of the Armed Forces 
                        named in section 10101 of title 10, United 
                        States Code;
                            ``(vi) the term `rural area' means any 
                        county that the Bureau of the Census has 
                        defined as mostly rural or completely rural in 
                        the most recent decennial census;
                            ``(vii) the term `service-connected' has 
                        the meaning given the term in section 101(16) 
                        of title 38, United States Code;
                            ``(viii) the term `small business concern 
                        in an underserved market' means a small 
                        business concern--
                                    ``(I) that is located in--
                                            ``(aa) a low- to moderate-
                                        income community;
                                            ``(bb) a HUBZone;
                                            ``(cc) a community that has 
                                        been designated as an 
                                        empowerment zone or an 
                                        enterprise community under 
                                        section 1391 of the Internal 
                                        Revenue Code of 1986;
                                            ``(dd) a community that has 
                                        been designated as a promise 
                                        zone by the Secretary of 
                                        Housing and Urban Development;
                                            ``(ee) a community that has 
                                        been designated as a qualified 
                                        opportunity zone under section 
                                        1400Z-1 of the Internal Revenue 
                                        Code of 1986; or
                                            ``(ff) a rural area;
                                    ``(II) for which more than 50 
                                percent of the employees reside in a 
                                low- or moderate-income community;
                                    ``(III) that is a startup or new 
                                business;
                                    ``(IV) owned and controlled by 
                                socially and economically disadvantaged 
                                individuals, including Black Americans, 
                                Hispanic Americans, Native Americans, 
                                Asian Pacific Americans, and other 
                                minorities;
                                    ``(V) owned and controlled by 
                                women;
                                    ``(VI) owned and controlled by 
                                veterans;
                                    ``(VII) owned and controlled by 
                                service-disabled veterans;
                                    ``(VIII) not less than 51 percent 
                                owned and controlled by 1 or more--
                                            ``(aa) members of the Armed 
                                        Forces participating in the 
                                        Transition Assistance Program 
                                        of the Department of Defense;
                                            ``(bb) Reservists;
                                            ``(cc) spouses of veterans, 
                                        members of the Armed Forces, or 
                                        Reservists; or
                                            ``(dd) surviving spouses of 
                                        veterans who died on active 
                                        duty or as a result of a 
                                        service-connected disability; 
                                        or
                                    ``(IX) that is eligible to receive 
                                a veterans advantage loan;
                            ``(ix) the term `small business concern 
                        owned and controlled by socially and 
                        economically disadvantaged individuals' has the 
                        meaning given the term in section 8(d)(3)(C);
                            ``(x) the term `startup' means a business 
                        that has not yet opened; and
                            ``(xi) the term `veterans advantage loan' 
                        means a loan made to a small business concern 
                        under this subsection that is eligible for a 
                        waiver of the guarantee fee under paragraph 
                        (18) or the yearly fee under paragraph (23) 
                        because the small business concern is a concern 
                        described in subclause (VI), (VII), or (VIII) 
                        of clause (viii).
                    ``(C) Establishment.--There is established a 
                Community Advantage Loan Program under which the 
                Administration may guarantee loans made by covered 
                institutions under this subsection, including loans 
                made to small business concerns in underserved markets.
                    ``(D) Program levels.--In each of fiscal years 
                2020, 2021, 2022, 2023, and 2024, not more than 10 
                percent of the number of loans guaranteed under this 
                subsection may be guaranteed under the program.
                    ``(E) New lenders.--
                            ``(i) Fiscal years 2020 and 2021.--In each 
                        of fiscal years 2020 and 2021--
                                    ``(I) not more than 150 covered 
                                institutions shall participate in the 
                                program; and
                                    ``(II) the Administrator shall 
                                allow for new applicants and give 
                                priority to applications submitted by 
                                any covered institution that is located 
                                in an area with insufficient or no 
                                lending under the program.
                            ``(ii) Fiscal years 2022, 2023, and 2024.--
                                    ``(I) In general.--In each of 
                                fiscal years 2022, 2023, and 2024--
                                            ``(aa) except as provided 
                                        in subclause (II), not more 
                                        than 175 covered institutions 
                                        shall participate in the 
                                        program; and
                                            ``(bb) the Administrator 
                                        shall allow for new applicants 
                                        and give priority to 
                                        applications submitted by any 
                                        covered institution that is 
                                        located in an area with 
                                        insufficient or no lending 
                                        under the program.
                                    ``(II) Exception for fiscal year 
                                2024.--In fiscal year 2024, not more 
                                than 200 covered institutions may 
                                participate in the program if--
                                            ``(aa) after reviewing the 
                                        report under subparagraph 
                                        (M)(iii), the Administrator 
                                        determines that not more than 
                                        200 covered institutions may 
                                        participate in the program;
                                            ``(bb) the Administrator 
                                        notifies Congress in writing of 
                                        the determination of the 
                                        Administrator under item (aa); 
                                        and
                                            ``(cc) not later than July 
                                        30, 2023, the Administrator 
                                        notifies the public of the 
                                        determination of the 
                                        Administrator under item (aa).
                    ``(F) Grandfathering of existing lenders.--Any 
                covered institution that participated in the Community 
                Advantage Pilot Program of the Administration and is in 
                good standing on the day before the date of enactment 
                of this paragraph--
                            ``(i) shall retain designation in the 
                        program; and
                            ``(ii) shall not be required to submit an 
                        application to participate in the program.
                    ``(G) Requirement to make loans to underserved 
                markets.--Not less than 60 percent of loans made by a 
                covered institution under the program shall consist of 
                loans made to small business concerns in underserved 
                markets.
                    ``(H) Maximum loan amount.--
                            ``(i) In general.--Except as provided in 
                        clause (ii), the maximum loan amount for a loan 
                        guaranteed under the program is $250,000.
                            ``(ii) Exception.--
                                    ``(I) In general.--The 
                                Administration may, in the discretion 
                                of the Administration, approve a 
                                guarantee of a loan under the program 
                                that is more than $250,000 and not more 
                                than $350,000.
                                    ``(II) Notification.--Not later 
                                than 2 days after receiving a request 
                                for an exception to the maximum loan 
                                amount established under clause (i), 
                                the Administration shall--
                                            ``(aa) review the request; 
                                        and
                                            ``(bb) provide a decision 
                                        regarding the request to the 
                                        covered institution making the 
                                        loan.
                    ``(I) Interest rates.--
                            ``(i) In general.--Except as provided in 
                        clause (ii), the maximum allowable interest 
                        rate prescribed by the Administration on any 
                        financing made on a deferred basis pursuant to 
                        the program shall not exceed the maximum 
                        allowable interest rate in effect on September 
                        1, 2018.
                            ``(ii) Modification.--The Administration 
                        shall not modify the maximum allowable interest 
                        rate described in clause (i) unless the 
                        Administration provides the public with an 
                        opportunity to comment for a period of not less 
                        than 180 days before implementing the modified 
                        interest rate.
                    ``(J) Training and technical assistance.--The 
                Administration--
                            ``(i) shall in person and online, provide 
                        upfront and ongoing training and technical 
                        assistance for covered institutions making 
                        loans under the program in order to support 
                        prudent lending standards and improve the 
                        interface between the covered institutions and 
                        the Administration;
                            ``(ii) shall ensure that the training and 
                        technical assistance described in clause (i) is 
                        provided for free or at a low-cost; and
                            ``(iii) may enter into a contract to 
                        provide the training or technical assistance 
                        described in clause (i) with an organization 
                        with expertise in lending under this 
                        subsection, mission-oriented lending, and 
                        lending to underserved markets.
                    ``(K) Delegated authority.--A covered institution 
                is not eligible to receive delegated authority from the 
                Administration under the program until the covered 
                institution makes not less than 7 loans under the 
                program.
                    ``(L) Regulations.--
                            ``(i) In general.--Not later than 180 days 
                        after the date of enactment of this paragraph 
                        and in accordance with the notice and comment 
                        procedures under section 553 of title 5, United 
                        States Code, the Administrator shall promulgate 
                        regulations to carry out the program, which 
                        shall be substantially similar to the Community 
                        Advantage Pilot Program of the Administration, 
                        as in effect on September 1, 2018, and shall--
                                    ``(I) outline the requirements for 
                                participation by covered institutions 
                                in the program;
                                    ``(II) define performance metrics 
                                for covered institutions participating 
                                in the program for the first time, 
                                which are required to be met in order 
                                to continue participating in the 
                                program;
                                    ``(III) determine the credit score 
                                of a small business concern under which 
                                the Administration is required to 
                                underwrite a loan provided to the small 
                                business concern under the program and 
                                the loan may not be made using the 
                                delegated authority of a covered 
                                institution;
                                    ``(IV) require each covered 
                                institution that sells loans made under 
                                the program on the secondary market to 
                                establish a loan loss reserve fund, 
                                which--
                                            ``(aa) with respect to 
                                        covered institutions in good 
                                        standing, including the covered 
                                        institutions described in 
                                        subparagraph (F), shall be 
                                        maintained at a level equal to 
                                        3 percent of the outstanding 
                                        guaranteed portion of the 
                                        loans; and
                                            ``(bb) with respect to any 
                                        other covered institution, 
                                        shall be maintained at a level 
                                        equal to 5 percent of the 
                                        outstanding guaranteed portion 
                                        of the loans; and
                                    ``(V) allow the Administrator to 
                                require additional amounts to be 
                                deposited into a loan loss reserve fund 
                                established by a covered institution 
                                under subclause (IV) based on the risk 
                                characteristics or performance of the 
                                covered institution and the loan 
                                portfolio of the covered institution.
                            ``(ii) Pilot program.--
                                    ``(I) Reversion.--Beginning on the 
                                date of enactment of this paragraph and 
                                ending on the day before the date on 
                                which the regulations promulgated by 
                                the Administrator under clause (i) take 
                                effect, the Administrator may only 
                                carry out the Community Advantage Pilot 
                                Program of the Administration based on 
                                applicable program guidelines, 
                                requirements, and other policy in 
                                effect on September 1, 2018, except 
                                that the definition of underserved 
                                market shall include--
                                            ``(aa) a community and an 
                                        area described in items (ee) 
                                        and (ff), respectively, of 
                                        subparagraph (B)(viii)(I); and
                                            ``(bb) small business 
                                        concerns described in 
                                        subclauses (IV) and (V) of 
                                        subparagraph (B)(viii).
                                    ``(II) Termination.--Beginning on 
                                the date on which the regulations 
                                promulgated by the Administrator under 
                                clause (i) take effect, the 
                                Administrator may not carry out the 
                                Community Advantage Pilot Program of 
                                the Administration.
                    ``(M) Reporting.--
                            ``(i) Weekly reports.--
                                    ``(I) In general.--The 
                                Administration shall report on the 
                                website of the Administration, as part 
                                of the weekly reports on lending 
                                approvals under this subsection--
                                            ``(aa) on and after the 
                                        date of enactment of this 
                                        paragraph until the date on 
                                        which the regulations 
                                        promulgated under subparagraph 
                                        (L)(i) take effect, the number 
                                        and dollar amount of loans 
                                        guaranteed under the Community 
                                        Advantage Pilot Program of the 
                                        Administration; and
                                            ``(bb) on and after the 
                                        date on which the 
                                        Administration begins to 
                                        approve loans under the 
                                        program, the number and dollar 
                                        amount of loans guaranteed 
                                        under the program.
                                    ``(II) Separate accounting.--The 
                                number and dollar amount of loans 
                                reported in a weekly report under 
                                subclause (I) for loans guaranteed 
                                under the Community Advantage Pilot 
                                Program of the Administration and under 
                                the program shall include a breakdown 
                                by the categories of race, ethnicity, 
                                and gender of the owners of the small 
                                business concerns.
                            ``(ii) Annual reports.--
                                    ``(I) In general.--For each of the 
                                first 5 fiscal years in which the 
                                program is in effect, the 
                                Administration shall submit to the 
                                Committee on Small Business and 
                                Entrepreneurship of the Senate and the 
                                Committee on Small Business of the 
                                House of Representatives, and make 
                                publicly available on the internet, 
                                information about loans provided under 
                                the program and under the Community 
                                Advantage Pilot Program of the 
                                Administration.
                                    ``(II) Contents.--Each report 
                                submitted and made publicly available 
                                under subclause (I) shall include--
                                            ``(aa) the number and 
                                        dollar amounts of loans 
                                        provided to small business 
                                        concerns under the program and 
                                        under the Community Advantage 
                                        Pilot Program of the 
                                        Administration, including a 
                                        breakdown by--

                                                    ``(AA) the gender 
                                                of the owners of the 
                                                small business concern;

                                                    ``(BB) the race and 
                                                ethnicity of the owners 
                                                of the small business 
                                                concern;

                                                    ``(CC) whether the 
                                                small business concern 
                                                is located in an urban 
                                                or rural area; and

                                                    ``(DD) whether the 
                                                small business concern 
                                                is a startup, an 
                                                existing business, or a 
                                                new business, as 
                                                provided in the weekly 
                                                reports on lending 
                                                approvals under this 
                                                subsection;

                                            ``(bb) the proportion of 
                                        loans described in item (aa) 
                                        compared to--

                                                    ``(AA) other 7(a) 
                                                loans of any amount;

                                                    ``(BB) other 7(a) 
                                                loans of similar 
                                                amounts;

                                                    ``(CC) express 
                                                loans provided under 
                                                paragraph (31) of 
                                                similar amounts; and

                                                    ``(DD) other 7(a) 
                                                loans of similar 
                                                amounts provided to 
                                                small business concerns 
                                                in underserved markets;

                                            ``(cc) a comparison of the 
                                        number and dollar amounts of 
                                        loans provided to small 
                                        business concerns under the 
                                        program, under the Community 
                                        Advantage Pilot Program of the 
                                        Administration, and under each 
                                        category of loans described in 
                                        item (bb), broken down by--

                                                    ``(AA) loans of not 
                                                more than $50,000;

                                                    ``(BB) loans of 
                                                more than $50,000 and 
                                                not more than $150,000;

                                                    ``(CC) loans of 
                                                more than $150,000 and 
                                                not more than $250,000; 
                                                and

                                                    ``(DD) loans of 
                                                more than $250,000 and 
                                                not more than $350,000;

                                            ``(dd) the number and 
                                        dollar amounts of loans 
                                        provided to small business 
                                        concerns under the program and 
                                        under the Community Advantage 
                                        Pilot Program of the 
                                        Administration by State, and 
                                        the jobs created or retained 
                                        within each State;
                                            ``(ee) with respect to 
                                        loans provided to small 
                                        business concerns under the 
                                        program and under the Community 
                                        Advantage Pilot Program of the 
                                        Administration--

                                                    ``(AA) the 
                                                performance of the 
                                                loans provided by each 
                                                type of covered 
                                                institution;

                                                    ``(BB) the 
                                                performance of the 
                                                loans broken down by 
                                                loan size;

                                                    ``(CC) the 
                                                predictive purchase 
                                                rate of the loans;

                                                    ``(DD) the early 
                                                default rate of the 
                                                loans;

                                                    ``(EE) the 12-month 
                                                default rate of the 
                                                loans;

                                                    ``(FF) the 
                                                cumulative default rate 
                                                for the loans for the 
                                                5-year period preceding 
                                                the report;

                                                    ``(GG) the charge-
                                                off rates of the loans;

                                                    ``(HH) the charge-
                                                off rates as a percent 
                                                of the unpaid principal 
                                                balance as in table 9 
                                                of the annual budget 
                                                submitted by the 
                                                Administration; and

                                                    ``(II) the purchase 
                                                rates as a percent of 
                                                the unpaid principal 
                                                balance as in table 8 
                                                of the annual budget 
                                                submitted by the 
                                                Administration;

                                            ``(ff) a list of covered 
                                        institutions participating in 
                                        the program and the Community 
                                        Advantage Pilot Program of the 
                                        Administration, including--

                                                    ``(AA) the name, 
                                                location, and contact 
                                                information, such as 
                                                the website and 
                                                telephone number, of 
                                                each covered 
                                                institution; and

                                                    ``(BB) a breakdown 
                                                by the number and 
                                                dollar amount of the 
                                                loans approved for 
                                                small business 
                                                concerns; and

                                            ``(gg) the benchmarks 
                                        established by the Community 
                                        Advantage Working Group under 
                                        subparagraph (N)(i).
                                    ``(III) Timing.--An annual report 
                                required under this clause shall--
                                            ``(aa) be submitted and 
                                        made publicly available not 
                                        later than November 15 of each 
                                        year; and
                                            ``(bb) cover the lending 
                                        activity for the fiscal year 
                                        that ended on September 30 of 
                                        that same year.
                            ``(iii) GAO report.--Not later than 3 years 
                        after the date of enactment of this paragraph, 
                        the Comptroller General of the United States 
                        shall submit to the Administrator, the 
                        Committee on Small Business and 
                        Entrepreneurship of the Senate, and the 
                        Committee on Small Business of the House of 
                        Representatives a report--
                                    ``(I) assessing--
                                            ``(aa) the extent to which 
                                        the program fulfills the 
                                        requirements of this paragraph; 
                                        and
                                            ``(bb) the performance of 
                                        covered institutions 
                                        participating in the program; 
                                        and
                                    ``(II) providing recommendations on 
                                the administration of the program and 
                                the findings under items (aa) and (bb) 
                                of subclause (I).
                    ``(N) Working group.--
                            ``(i) In general.--Not later than 90 days 
                        after the date of enactment of this paragraph, 
                        the Administrator shall establish a Community 
                        Advantage Working Group, which shall--
                                    ``(I) include--
                                            ``(aa) a geographically 
                                        diverse representation of 
                                        members from among covered 
                                        institutions participating in 
                                        the program; and
                                            ``(bb) representatives from 
                                        the Office of Capital Access of 
                                        the Administration, including 
                                        the Office of Credit Risk 
                                        Management, the Office of 
                                        Financial Assistance, and the 
                                        Office of Economic Opportunity;
                                    ``(II) develop recommendations on 
                                how the Administration can effectively 
                                manage, support, and promote the 
                                program and the mission of the program;
                                    ``(III) establish metrics of 
                                success and benchmarks that reflect the 
                                mission and population served by 
                                covered institutions under the program, 
                                which the Administration shall use to 
                                evaluate the performance of those 
                                covered institutions; and
                                    ``(IV) institute regular and 
                                sustainable systems of communication 
                                between the Administration and covered 
                                institutions participating in the 
                                program.
                            ``(ii) Report.--Not later than 180 days 
                        after the date of enactment of this paragraph, 
                        the Administrator shall submit to the Committee 
                        on Small Business and Entrepreneurship of the 
                        Senate and the Committee on Small Business of 
                        the House of Representatives a report that 
                        includes--
                                    ``(I) the recommendations of the 
                                Community Advantage Working Group 
                                established under clause (i); and
                                    ``(II) a recommended plan and 
                                timeline for implementation of those 
                                recommendations.''.
                                 <all>