II 117th CONGRESS 2d Session S. 5102 IN THE SENATE OF THE UNITED STATES November 16, 2022 Mr. Cardin introduced the following bill; which was read twice and referred to the Committee on Small Business and Entrepreneurship A BILL To authorize the Community Advantage Loan Program of the Small Business Administration, and for other purposes.

1. Short title This Act may be cited as the Community Advantage Loan Program Permanency Act of 2022 . 2. Findings Congress finds that— (1) capital access remains one of the largest barriers to overcome for socially and economically disadvantaged business owners as well as for the smallest small businesses; (2) according to the Double Jeopardy: COVID–19’s Concentrated Health and Wealth Effects in Black Communities study conducted by the Federal Reserve banks, in 2020— (A) firms owned by people of color are more likely to have weak capitalizations, limited bank relationships, and little in cash reserves; and (B) 51 percent of Black-owned businesses have less than 3 months of cash reserves in case of an emergency, which is nearly 7 percentage points higher than their peers; (3) according to the Small Business Credit Survey conducted by the Federal Reserve banks, in 2021— (A) 31 percent of firms that sought financing received the full financing sought by the firm; (B) firms owned by people of color were least likely to receive the full amount of financing sought by the firm, with 15 percent of Asian-owned businesses, 16 percent of Black-owned businesses, and 19 percent of Hispanic-owned businesses receiving full financing, as opposed to 35 percent of non-Hispanic White-owned businesses receiving full financing; and (C) firms with fewer employees were also least likely to receive the full financing sought by the firm, with 23 percent of businesses with 1 to 4 employees and 37 percent of businesses with 5 to 49 employees receiving full financing, as opposed to 55 percent of businesses with 50 to 499 employees receiving full financing; (4) the Community Advantage Pilot Program of the Small Business Administration has helped increase lending backed by the Administration to firms owned by people of color, women, and veterans and firms classified as start ups; (5) from fiscal year 2018 to fiscal year 2022— (A) 13 percent of loans under the Community Advantage Pilot Program went to Black business owners, while 4 percent of loans under the loan program under section 7(a) of the Small Business Act ( 15 U.S.C. 636(a) ) (in this section referred to as the 7(a) loan program ) went to Black business owners; (B) 15 percent of loans under the Community Advantage Pilot Program went to Hispanic business owners, while 8 percent of loans under the 7(a) loan program went to Hispanic business owners; (C) 20 percent of loans under the Community Advantage Pilot Program went to women business owners, while 17 percent of loans under the 7(a) loan program went to women business owners; and (D) 9 percent of loans under the Community Advantage Pilot Program went to veteran business owners, while 5 percent of loans under the 7(a) loan program went to veteran business owners; and (6) from fiscal year 2020 to fiscal year 2021, 14 percent of loans under the Community Advantage Pilot Program went to startup business owners, while 7 percent of loans under the 7(a) loan program went to startup business owners. 3. Community Advantage Loan Program (a) In general Section 7(a) of the Small Business Act ( 15 U.S.C. 636(a) ) is amended by adding at the end the following: (38) 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, socially and economically disadvantaged individuals, as described in paragraphs (5) and (6)(A) of section 8(a), respectively, women, and new businesses; (iii) to ensure that the program under this subsection expands inclusion 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 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; (vii) to encourage collaboration between mission-oriented and conventional lenders under this subsection in order to support underserved small business concerns; and (viii) to assist covered institutions with providing business support services and technical assistance to small business concerns, when needed. (B) Definitions In this paragraph— (i) the term Community Advantage Network Partner — (I) means a nonprofit, mission-oriented organization that acts as a Referral Agent to covered institutions in order to expand the reach of the program to small businesses in underserved markets; and (II) does not include a covered institution making loans under the program; (ii) the term covered institution means an entity that— (I) is— (aa) 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 that Act ( 15 U.S.C. 695 et seq. ); (bb) a nonprofit intermediary, as defined in subsection (m)(11), participating in the microloan program under subsection (m); (cc) a non-Federally regulated entity or a lending institution 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) ); or (dd) an eligible intermediary, as defined in subsection (l)(1), participating in the Intermediary Lending Program established under subsection (l)(2); and (II) has approved and disbursed 10 similarly sized loans in the preceding 24-month period and is servicing not less than 10 similarly sized loans to small business concerns in the portfolio of the entity; (iii) 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; (iv) the term new business means a small business concern that has been in existence for not more than 2 years on the date on which a loan is made to the small business concern under the program; (v) the term program means the Community Advantage Loan Program established under subparagraph (C); (vi) the term Referral Agent has the meaning given the term in section 103.1(f) of title 13, Code of Federal Regulations, or any successor regulation; (vii) 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; and (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, as that term is defined in section 31(b); (cc) a rural area; or (dd) any area for which a disaster declaration or determination described in subparagraph (A), (B), (C), or (E) of subsection (b)(2) has been made that has not terminated more than 2 years before the date (or later, as determined by the Administrator) on which a loan is made to the small business concern under the program, except that, in the case of a major disaster described in subsection (b)(2)(A), that period shall be 5 years; (II) for which more than 50 percent of the employees reside in a low- or moderate-income community; (III) that is a new business; (IV) owned and controlled by socially and economically disadvantaged individuals, as described in paragraphs (5) and (6)(A) of section 8(a), respectively, which the Administrator, in carrying out the program, shall presume includes Black Americans, Hispanic Americans, Native Americans, Asian Pacific Americans, and other minorities; (V) owned and controlled by women; (VI) owned and controlled by veterans or spouses of veterans; (VII) owned and controlled by a member of an Indian Tribe individually identified (including parenthetically) in the most recent list published pursuant to section 104 of the Federally Recognized Indian Tribe List Act of 1994 ( 25 U.S.C. 5131 ); (VIII) owned and controlled by an individual who has completed a term of imprisonment in a Federal, State, or local jail or prison; (IX) owned and controlled by an individual with a disability, as that term is defined in section 3 of the Americans with Disabilities Act of 1990 ( 42 U.S.C. 12102 ); or (X) as otherwise determined by the Administrator. (C) Establishment There is established a Community Advantage Loan Program under which the Administration may guarantee loans made by covered institutions under this subsection, with an emphasis on loans made to small business concerns in underserved markets. (D) Program levels In fiscal year 2023 and each fiscal year thereafter, not more than 10 percent of the number of loans guaranteed under this subsection may be guaranteed under the program. (E) Grandfathering of existing lenders Any covered institution that actively participated in the Community Advantage Pilot Program of the Administration and is in good standing, as determined by the Administration, on the day before the date of enactment of this paragraph— (i) shall retain designation in the program; (ii) shall not be required to submit an application to participate in the program; and (iii) for the purpose of determining the loan loss reserve amount of the covered institution, shall have participation in the Community Advantage Pilot Program included in the calculation under subparagraph (J). (F) Requirement to make loans to underserved markets Not less than 70 percent of loans made by a covered institution under the program shall consist of loans made to small business concerns in underserved markets. (G) Maximum loan amount The maximum loan amount for a loan guaranteed under the program is $350,000. (H) Interest rates 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 under sections 120.213 and 120.214 of title 13, Code of Federal Regulations, or any successor regulations. (I) Refinancing of Community Advantage program loans A loan guaranteed under the program or guaranteed under the Community Advantage Pilot Program of the Administration may be refinanced into another 7(a) loan made by lender that does not participate in the program. (J) Loan loss reserve requirements (i) Loan loss reserve account for covered institutions A covered institution— (I) with not more than 5 years of participation in the program shall maintain a loan loss reserve account with an amount equal to 5 percent of the outstanding amount of the unguaranteed portion of the loan portfolio of the covered institution under the program; and (II) with more than 5 years of participation in the program shall maintain a loan loss reserve account with an amount equal to the average repurchase rate of the covered institution over the preceding 36-month period. (ii) Additional loan loss reserve amount for selling loans on the secondary market In addition to the amount required in the loan loss reserve account under clause (i), a covered institution that sells a program loan on the secondary market shall be required to maintain the following additional amounts in the loan loss reserve account: (I) An amount equal to 2 percent of the guaranteed portion of each program loan sold on the secondary market for lenders with less than 5 years experience selling program loans on the secondary market. (II) An amount equal to the average repurchase rate for loans sold by the lender on the secondary market over the preceding 36 months for lenders with more than 5 years experience selling program loans on the secondary market. (iii) Recalculation The loan loss reserve required under clauses (i) and (ii) shall be recalculated on October 1 of each year. (K) Training The Administration— (i) shall provide accessible upfront and ongoing training for covered institutions making loans under the program to support program compliance and improve the interface between the covered institutions and the Administration, which shall include— (I) guidance for following the regulations of the Administration; and (II) guidance specific to mission-oriented lending that is intended to help lenders effectively reach and support underserved small business concerns, including management and technical assistance delivery; (ii) shall ensure that the training described in clause (i) is provided for free or at a low cost; (iii) may enter into a contract to provide the training described in clause (i) with an organization with expertise in lending under this subsection and primarily specializing in mission-oriented lending, and lending to underserved markets; and (iv) shall provide training for the employees and contractors of the Administration that regularly engage with covered institutions or borrowers in the program. (L) Community advantage outreach and education The Administrator— (i) shall develop and implement a program to promote to, conduct outreach to, and educate prospective covered institutions about the program, with a focus on women- and minority-owned covered institutions; and (ii) may enter into a contract with 1 or more nonprofit organizations experienced in working with and training mission driven lenders to provide the outreach and education described in clause (i). (M) Community advantage network partner participation (i) In general A covered institution that uses a Community Advantage Network Partner shall abide by policies and procedures of the Administration concerning the use of Referral Agent fees permitted by the Administration and disclosure of those fees. (ii) Payment of fees Notwithstanding any other provision of law, all fees described in clause (i) shall be paid by the covered institution to the Community Advantage Network Partner upon disbursement of the applicable program loan. (N) Delegated authority A covered institution is not eligible to receive delegated authority from the Administration under the program until the covered institution has approved and fully disbursed not less than 10 loans under the program and the Administration had evaluated the ability of the covered institution to fulfill program requirements. (O) 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, 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, by whether the small business concern is a new or existing small business concern, and by whether the small business concern is located in an urban or rural area, and 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. (ii) Annual reports (I) In general For each fiscal year 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, 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, disaggregated in a manner that captures all the racial groups specified in the American Community Survey conducted by the Bureau of the Census; (CC) whether the small business concern is located in an urban or rural area; and (DD) whether the small business concern is 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 and under each category of loans described in item (aa), 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 by State, and the jobs created or retained within each State; (ee) 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 (ff) the benchmarks established by the Community Advantage Working Group under subparagraph (O)(i). (III) Timing An annual report required under this clause shall— (aa) be submitted and made publicly available not later than December 1 of each year; and (bb) cover the lending activity for the fiscal year that ended on September 30 of that same year. (P) GAO report Not later than 5 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— (I) the extent to which the program fulfills the requirements of this paragraph; and (II) the performance of covered institutions participating in the program; and (ii) providing recommendations on the administration of the program and the findings under subclauses (I) and (II) of clause (i). (Q) Community Advantage 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; (IV) establish criteria assessing the business support services and technical assistance needs of borrowers and methods to assess lender expertise to provide necessary services and assistance; and (V) institute regular and sustainable systems of communication between the Administration and covered institutions participating in the program. (ii) Report Not later than 1 year 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. (R) Regulations (i) In general Not later than 180 days after the date of enactment of this paragraph, the Administrator shall promulgate regulations governing the program, including metrics for lender performance, metrics of success and benchmarks of the program, and criteria for appropriate management and technical assistance. (ii) Updates The Administrator shall consult the report issued under subparagraph (P)(ii) and, not later than 180 days after submission of the report, promulgate any necessary changes to existing regulations of the Administration based on the recommendations contained in the report. (S) Authorization of appropriations There is authorized to be appropriated such sums as may be necessary to conduct outreach and education described in subparagraph (L). . (b) Participation Section 7(a)(2) of the Small Business Act ( 15 U.S.C. 636(a)(2) ) is amended— (1) in subparagraph (A), in the matter preceding clause (i), by striking and (F) and inserting (F), and (G) ; and (2) by adding at the end the following: (G) Participation in the Community Advantage Loan Program In an agreement to participate in a loan on a deferred basis under paragraph (38), the participation by the Administration shall be— (i) 80 percent of the balance of the financing outstanding at the time of the disbursement of the loan, if that balance is more than $150,000 and not more than $350,000; or (ii) 90 percent of the balance of the financing outstanding at the time of the disbursement of the loan, if that balance is not more than $150,000. .