---
kind: "section"
citation: "12 U.S.C. § 5702"
title: "12"
title_heading: "Banks and Banking"
number: "5702"
heading: "Federal funds allocated to States"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/12/5702"
units:
  - "Chapter 54 — State Small Business Credit Initiative"
---

# §5702. Federal funds allocated to States

- (a) **Program established; purpose—** There is established the [State](/usc/12/5701.md?p=10) Small Business [Credit](/usc/12/5481.md?p=7) Initiative, to be administered by the [Secretary](/usc/12/5701.md?p=14). Under the [Program](/usc/12/5701.md?p=7), the [Secretary](/usc/12/5701.md?p=14) shall allocate Federal funds to [participating States](/usc/12/5701.md?p=6) and make the allocated funds available to the [participating States](/usc/12/5701.md?p=6) as provided in this section for the uses described in this section.
- (b) **Allocation formula—**
  - (1) **In general—** Not later than 30 days after March 11, 2021, the [Secretary](/usc/12/5701.md?p=14) shall allocate Federal funds to [participating States](/usc/12/5701.md?p=6) so that each [State](/usc/12/5701.md?p=10) is eligible to receive an amount equal to what the [State](/usc/12/5701.md?p=10) would receive under the 2021 allocation, as determined under [paragraph (2)](#b-2).
  - (2) **2021 allocation formula—**
    - (A) **In general—** With respect to [States](/usc/12/5701.md?p=10) other than [Tribal governments](/usc/12/5701.md?p=19), the [Secretary](/usc/12/5701.md?p=14) shall determine the 2021 allocation by allocating Federal funds among the [States](/usc/12/5701.md?p=10) in the proportion that each such [State](/usc/12/5701.md?p=10)’s 2020 [State](/usc/12/5701.md?p=10) employment decline bears to the aggregate of the 2020 [State](/usc/12/5701.md?p=10) employment declines for all [States](/usc/12/5701.md?p=10).
    - (B) **Minimum allocation—** The [Secretary](/usc/12/5701.md?p=14) shall adjust the allocations under [subparagraph (A)](#b-2-A) for each [State](/usc/12/5701.md?p=10) to the extent necessary to ensure that no [State](/usc/12/5701.md?p=10) receives less than 0.9 percent of the Federal funds.
    - (C) **1 2020 State employment decline defined—** In this paragraph and with respect to a [State](/usc/12/5701.md?p=10), the term “2020 [State](/usc/12/5701.md?p=10) employment decline” means the excess (if any) of—
      - (i) the number of individuals employed in such [State](/usc/12/5701.md?p=10) determined for December 2019; over
      - (ii) the number of individuals employed in such [State](/usc/12/5701.md?p=10) determined for December 2020.
    - (C) **1 Separate allocation for Tribal governments—**
      - (i) **In general—** With respect to [States](/usc/12/5701.md?p=10) that are [Tribal governments](/usc/12/5701.md?p=19), the [Secretary](/usc/12/5701.md?p=14) shall determine the 2021 allocation by allocating $500,000,000 among the [Tribal governments](/usc/12/5701.md?p=19) in the proportion the [Secretary](/usc/12/5701.md?p=14) determines appropriate, including with consideration to available employment and economic data regarding each such [Tribal government](/usc/12/5701.md?p=19).
      - (ii) **Notice of intent; timing of allocation—** With respect to allocations to [States](/usc/12/5701.md?p=10) that are [Tribal governments](/usc/12/5701.md?p=19), the [Secretary](/usc/12/5701.md?p=14) may—
        - (I) require [Tribal governments](/usc/12/5701.md?p=19) that individually or jointly wish to participate in the [Program](/usc/12/5701.md?p=7) to file a notice of intent with the [Secretary](/usc/12/5701.md?p=14) not later than 30 days after March 11, 2021; and
        - (II) notwithstanding [paragraph (1)](#b-1), allocate Federal funds to participating [Tribal governments](/usc/12/5701.md?p=19) not later than 60 days after March 11, 2021.
    - (D) **Employment data—** If the [Secretary](/usc/12/5701.md?p=14) determines that employment data with respect to a [State](/usc/12/5701.md?p=10) is unavailable from the [Bureau](/usc/12/5481.md?p=2) of Labor Statistics of the Department of Labor, the [Secretary](/usc/12/5701.md?p=14) shall consider such other economic and employment data that is otherwise available for purposes of determining the employment data of such [State](/usc/12/5701.md?p=10).
- (c) **Availability of allocated amount—** The amount allocated by the [Secretary](/usc/12/5701.md?p=14) to each [participating State](/usc/12/5701.md?p=6) under [subsection (b)](#b) shall be made available to the [State](/usc/12/5701.md?p=10) as follows:
  - (1) **Allocated amount generally to be available to State in one-thirds—**
    - (A) **In general—** The [Secretary](/usc/12/5701.md?p=14) shall—
      - (i) apportion the [participating State](/usc/12/5701.md?p=6)’s allocated amount into thirds;
      - (ii) transfer to the [participating State](/usc/12/5701.md?p=6) the first ⅓ when the [Secretary](/usc/12/5701.md?p=14) approves the [State](/usc/12/5701.md?p=10) for participation under [section 5703 of this title](/usc/12/5703.md); and
      - (iii) transfer to the [participating State](/usc/12/5701.md?p=6) each successive ⅓ when the [State](/usc/12/5701.md?p=10) has certified to the [Secretary](/usc/12/5701.md?p=14) that it has expended, transferred, or obligated 80 percent of the last transferred ⅓ for [Federal contributions](/usc/12/5701.md?p=4) to, or for the account of, [State programs](/usc/12/5701.md?p=13) that have delivered loans or investments to eligible businesses.
    - (B) **Authority to withhold pending audit—** The [Secretary](/usc/12/5701.md?p=14) may withhold the transfer of any successive ⅓ pending results of a financial audit.
    - (C) **Inspector General audits—**
      - (i) **In general—** The Inspector General of the Department of the Treasury shall carry out an audit of the [participating State](/usc/12/5701.md?p=6)’s use of allocated Federal funds transferred to the [State](/usc/12/5701.md?p=10).
      - (ii) **Recoupment of misused transferred funds required—** The allocation agreement between the [Secretary](/usc/12/5701.md?p=14) and the [participating State](/usc/12/5701.md?p=6) shall provide that the [Secretary](/usc/12/5701.md?p=14) shall recoup any allocated Federal funds transferred to the [participating State](/usc/12/5701.md?p=6) if the results of the an audit include a finding that there was an intentional or reckless misuse of transferred funds by the [State](/usc/12/5701.md?p=10).
      - (iii) **Penalty for misstatement—** Any [participating State](/usc/12/5701.md?p=6) that is found to have intentionally misstated any report issued to the [Secretary](/usc/12/5701.md?p=14) under the [Program](/usc/12/5701.md?p=7) shall be ineligible to receive any additional funds under the [Program](/usc/12/5701.md?p=7). Funds that had been allocated or that would otherwise have been allocated to such [participating State](/usc/12/5701.md?p=6) shall be paid into the general fund of the Treasury for reduction of the public debt.
      - (iv) **Municipalities—** In this subparagraph, the term “[participating State](/usc/12/5701.md?p=6)” shall include a municipality given special permission to participate in the [Program](/usc/12/5701.md?p=7), under [section 5703(d) of this title](/usc/12/5703.md?p=d).
    - (D) **Exception—** The [Secretary](/usc/12/5701.md?p=14) may, in the [Secretary](/usc/12/5701.md?p=14)’s discretion, transfer the full amount of the [participating State](/usc/12/5701.md?p=6)’s allocated amount to the [State](/usc/12/5701.md?p=10) in a single transfer if the [participating State](/usc/12/5701.md?p=6) applies to the [Secretary](/usc/12/5701.md?p=14) for approval to use the full amount of the allocation as collateral for a [qualifying loan or swap funding facility](/usc/12/5701.md?p=8).
  - (2) **Transferred amounts—** Each amount transferred to a [participating State](/usc/12/5701.md?p=6) under this section shall remain available to the [State](/usc/12/5701.md?p=10) until used by the [State](/usc/12/5701.md?p=10) as permitted under [paragraph (3)](#c-3).
  - (3) **Use of transferred funds—** Each [participating State](/usc/12/5701.md?p=6) may use funds transferred to it under this section only—
    - (A) for making [Federal contributions](/usc/12/5701.md?p=4) to, or for the account of, an approved [State program](/usc/12/5701.md?p=13);
    - (B) as collateral for a [qualifying loan or swap funding facility](/usc/12/5701.md?p=8);
    - (C) in the case of the first ⅓ transferred, for paying administrative costs incurred by the [State](/usc/12/5701.md?p=10) in implementing an approved [State program](/usc/12/5701.md?p=13) in an amount not to exceed 5 percent of that first ⅓; or
    - (D) in the case of each successive ⅓ transferred, for paying administrative costs incurred by the [State](/usc/12/5701.md?p=10) in implementing an approved [State program](/usc/12/5701.md?p=13) in an amount not to exceed 3 percent of that successive ⅓.
  - (4) **Termination of availability of amounts not transferred—**
    - (A) **In general—** Any portion of a [participating State](/usc/12/5701.md?p=6)’s allocated amount that has not been transferred to the [State](/usc/12/5701.md?p=10) under this section may be deemed by the [Secretary](/usc/12/5701.md?p=14) to be no longer allocated to the [State](/usc/12/5701.md?p=10) and no longer available to the [State](/usc/12/5701.md?p=10) and shall be returned to the general fund of the Treasury or reallocated as described under [subparagraph (B)](#c-4-B), if—
      - (i) the second ⅓ of a [State](/usc/12/5701.md?p=10)’s allocated amount has not been transferred to the [State](/usc/12/5701.md?p=10) before the end of the end of the 3-year period beginning on the date that the [Secretary](/usc/12/5701.md?p=14) approves the [State](/usc/12/5701.md?p=10) for participation; or
      - (ii) the last ⅓ of a [State](/usc/12/5701.md?p=10)’s allocated amount has not been transferred to the [State](/usc/12/5701.md?p=10) before the end of the end of the 6-year period beginning on the date that the [Secretary](/usc/12/5701.md?p=14) approves the [State](/usc/12/5701.md?p=10) for participation.
    - (B) **Reallocation—** Any amount deemed by the [Secretary](/usc/12/5701.md?p=14) to be no longer allocated to a [State](/usc/12/5701.md?p=10) and no longer available to such [State](/usc/12/5701.md?p=10) under [subparagraph (A)](#c-4-A) may be reallocated by the [Secretary](/usc/12/5701.md?p=14) to other [participating States](/usc/12/5701.md?p=6). In making such a reallocation, the [Secretary](/usc/12/5701.md?p=14) shall not take into account the minimum allocation requirements under [subsection (b)(2)(B)](#b-2-B) or the specific allocation for [Tribal governments](/usc/12/5701.md?p=19) described under [subsection (b)(2)(C)](#b-2-C).
  - (5) **Transferred amounts not assistance—** The amounts transferred to a [participating State](/usc/12/5701.md?p=6) under this section shall not be considered assistance for purposes of subtitle V of title 31.
  - (6) **Definitions—** In this section—
    - (A) the term “allocated amount” means the total amount of Federal funds allocated by the [Secretary](/usc/12/5701.md?p=14) under [subsection (b)](#b) to the [participating State](/usc/12/5701.md?p=6); and
    - (B) the term “⅓” means—
      - (i) in the case of the first ⅓ and second ⅓, an amount equal to 33 percent of a [participating State](/usc/12/5701.md?p=6)’s allocated amount; and
      - (ii) in the case of the last ⅓, an amount equal to 34 percent of a [participating State](/usc/12/5701.md?p=6)’s allocated amount.
- (d) **Additional allocations to support business enterprises owned and controlled by socially and economically disadvantaged individuals—** Of the amounts appropriated for fiscal year 2021 to carry out the [Program](/usc/12/5701.md?p=7), the [Secretary](/usc/12/5701.md?p=14) shall—
  - (1) allocate $1,500,000,000 to [States](/usc/12/5701.md?p=10) from funds allocated under this section and, by regulation or other guidance, prescribe [Program](/usc/12/5701.md?p=7) requirements that the funds be expended for business enterprises owned and controlled by [socially and economically disadvantaged individuals](/usc/12/5701.md?p=18); and
  - (2) allocate such amounts to [States](/usc/12/5701.md?p=10) based on the needs of business enterprises owned and controlled by [socially and economically disadvantaged individuals](/usc/12/5701.md?p=18), as determined by the [Secretary](/usc/12/5701.md?p=14), in each [State](/usc/12/5701.md?p=10), and not subject to the allocation formula described under [subsection (b)](#b).
- (e) **Incentive allocations to support business enterprises owned and controlled by socially and economically disadvantaged individuals—** Of the amounts appropriated for fiscal year 2021 to carry out the [Program](/usc/12/5701.md?p=7), the [Secretary](/usc/12/5701.md?p=14) shall set aside $1,000,000,000 for an incentive [program](/usc/12/5701.md?p=7) under which the [Secretary](/usc/12/5701.md?p=14) shall increase the second ⅓ and last ⅓ allocations for [States](/usc/12/5701.md?p=10) that demonstrate robust support, as determined by the [Secretary](/usc/12/5701.md?p=14), for business concerns owned and controlled by [socially and economically disadvantaged individuals](/usc/12/5701.md?p=18) in the deployment of prior allocation amounts.
- (f) **Additional allocations to support very small businesses—**
  - (1) **In general—** Of the amounts appropriated to carry out the [Program](/usc/12/5701.md?p=7), the [Secretary](/usc/12/5701.md?p=14) shall allocate not less than $500,000,000 to [States](/usc/12/5701.md?p=10) from funds allocated under this section to be expended for very small businesses.
  - (2) **Very small business defined—** In this subsection, the term “very small business”—
    - (A) means a business with fewer than 10 employees; and
    - (B) may include independent contractors and sole proprietors.

## Footnotes

[^1]: So in original. Two subpars. (C) have been enacted.

## Source credit

(Pub. L. 111–240, title III, § 3003, Sept. 27, 2010, 124 Stat. 2570; Pub. L. 117–2, title III, § 3301(a)(1)(A), (b), (c), Mar. 11, 2021, 135 Stat. 67, 69, 70.)

## Notes

### Editorial Notes

### Amendments

2021—Subsec. (b)(1). Pub. L. 117–2, § 3301(a)(1)(A)(i)(I), amended par. (1) generally. Prior to amendment, par. (1) required allocation of funds by 30 days after Sept. 27, 2010.

Subsec. (b)(2). Pub. L. 117–2, § 3301(a)(1)(A)(ii)(II)(bb), substituted “2020” for “2008” wherever appearing.

Pub. L. 117–2, § 3301(a)(1)(A)(i)(II)(aa), substituted “2021” for “2009” in heading and in subpar. (A).

Subsec. (b)(2)(A). Pub. L. 117–2, § 3301(a)(1)(A)(i)(II)(cc), substituted “With respect to States other than Tribal governments, the Secretary” for “The Secretary”.

Subsec. (b)(2)(C). Pub. L. 117–2, § 3301(a)(1)(A)(i)(II)(ee), added subpar. (C) relating to separate allocation for tribal governments.

Subsec. (b)(2)(C)(i). Pub. L. 117–2, § 3301(a)(1)(A)(i)(II)(dd), substituted “2019” for “2007” in cl. (i) of subpar. (C) defining 2020 State employment decline.

Subsec. (b)(2)(D). Pub. L. 117–2, § 3301(a)(1)(A)(i)(II)(ee), added subpar. (D).

Subsec. (b)(3). Pub. L. 117–2, § 3301(a)(1)(A)(i)(III), struck out par. (3) which provided for the 2010 allocation formula.

Subsec. (c)(1)(A)(iii). Pub. L. 117–2, § 3301(a)(1)(A)(ii)(I), inserted before period at end “that have delivered loans or investments to eligible businesses”.

Subsec. (c)(4). Pub. L. 117–2, § 3301(a)(1)(A)(ii)(II), amended par. (4) generally. Prior to amendment, text read as follows: “Any portion of a participating State’s allocated amount that has not been transferred to the State under this section by the end of the 2-year period beginning on the date that the Secretary approves the State for participation may be deemed by the Secretary to be no longer allocated to the State and no longer available to the State and shall be returned to the General Fund of the Treasury.”

Subsecs. (d), (e). Pub. L. 117–2, § 3301(b), added subsecs. (d) and (e).

Subsec. (f). Pub. L. 117–2, § 3301(c), added subsec. (f).

### Statutory Notes and Related Subsidiaries

### Effective Date of 2021 Amendment

Amendment by Pub. L. 117–2 applicable with respect to funds appropriated under section 3301 of Pub. L. 117–2 and funds appropriated on and after Mar. 11, 2021, see section 3301(g) of Pub. L. 117–2, set out as a note under section 5701 of this title.