---
kind: "section"
citation: "12 U.S.C. § 5704"
title: "12"
title_heading: "Banks and Banking"
number: "5704"
heading: "Approving State capital access programs"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/12/5704"
units:
  - "Chapter 54 — State Small Business Credit Initiative"
---

# §5704. Approving State capital access programs

- (a) **Application—** A [participating State](/usc/12/5701.md?p=6) that establishes a new, or has an existing, [State capital access program](/usc/12/5701.md?p=11) that meets the eligibility criteria in [subsection (c)](#c) may apply to [Secretary](/usc/12/5701.md?p=14) to have the [State capital access program](/usc/12/5701.md?p=11) approved as eligible for [Federal contributions](/usc/12/5701.md?p=4) to the [reserve fund](/usc/12/5701.md?p=9).
- (b) **Approval—** The [Secretary](/usc/12/5701.md?p=14) shall approve such [State capital access program](/usc/12/5701.md?p=11) as eligible for [Federal contributions](/usc/12/5701.md?p=4) to the [reserve fund](/usc/12/5701.md?p=9) if—
  - (1) within 60 days after March 11, 2021, the [State](/usc/12/5701.md?p=10) has filed with the [Secretary](/usc/12/5701.md?p=14) a notice of intent to apply for approval by the [Secretary](/usc/12/5701.md?p=14) of a [State capital access program](/usc/12/5701.md?p=11);
  - (2) within 9 months after March 11, 2021, the [State](/usc/12/5701.md?p=10) has filed with the [Secretary](/usc/12/5701.md?p=14) a complete application for approval by the [Secretary](/usc/12/5701.md?p=14) of a capital access [program](/usc/12/5701.md?p=7);
  - (3) the [State](/usc/12/5701.md?p=10) satisfies the requirements of subsections (a) and (b) of [section 5703 of this title](/usc/12/5703.md); and
  - (4) the [State capital access program](/usc/12/5701.md?p=11) meets the eligibility criteria in [subsection (c)](#c).
- (c) **Eligibility criteria for State capital access programs—** For a [State capital access program](/usc/12/5701.md?p=11) to be approved under this section, that [program](/usc/12/5701.md?p=7) shall be required to be a [program](/usc/12/5701.md?p=7) of the [State](/usc/12/5701.md?p=10) that—
  - (1) provides portfolio insurance for business loans based on a separate loan-loss [reserve fund](/usc/12/5701.md?p=9) for each [financial institution](/usc/12/5701.md?p=5);
  - (2) requires insurance premiums to be paid by the [financial institution](/usc/12/5701.md?p=5) lenders and by the business borrowers to the [reserve fund](/usc/12/5701.md?p=9) to have their loans enrolled in the [reserve fund](/usc/12/5701.md?p=9);
  - (3) provides for contributions to be made by the [State](/usc/12/5701.md?p=10) to the [reserve fund](/usc/12/5701.md?p=9) in amounts at least equal to the sum of the amount of the insurance premium charges paid by the borrower and the [financial institution](/usc/12/5701.md?p=5) to the [reserve fund](/usc/12/5701.md?p=9) for any newly [enrolled loan](/usc/12/5701.md?p=3); 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](/usc/12/5701.md?p=7).
    - (B) The loan amount does not exceed $5,000,000.
- (d) **Federal contributions to approved State capital access programs—** A [State capital access program](/usc/12/5701.md?p=11) approved under this section will be eligible for receiving [Federal contributions](/usc/12/5701.md?p=4) to the [reserve fund](/usc/12/5701.md?p=9) in an amount equal to the sum of the amount of the insurance premium charges paid by the borrowers and by the [financial institution](/usc/12/5701.md?p=5) to the [reserve fund](/usc/12/5701.md?p=9) for loans that meet the requirements in [subsection (c)(4)](#c-4). A [participating State](/usc/12/5701.md?p=6) may use the [Federal contribution](/usc/12/5701.md?p=4) to make its contribution to the [reserve fund](/usc/12/5701.md?p=9) of an approved [State capital access program](/usc/12/5701.md?p=11).
- (e) **Minimum program requirements for State capital access programs—** The [Secretary](/usc/12/5701.md?p=14) shall, by regulation or other guidance, prescribe [Program](/usc/12/5701.md?p=7) requirements that meet the following minimum requirements:
  - (1) **Experience and capacity—** The [participating State](/usc/12/5701.md?p=6) shall determine for each [financial institution](/usc/12/5701.md?p=5) that participates in the [State capital access program](/usc/12/5701.md?p=11), after consultation with the [appropriate Federal banking agency](/usc/12/5701.md?p=2) or, in the case of a [financial institution](/usc/12/5701.md?p=5) that is a nondepository [community development financial institution](/usc/12/5701.md?p=16), the [Community Development Financial Institution](/usc/12/5701.md?p=16) Fund, that the [financial institution](/usc/12/5701.md?p=5) has sufficient commercial lending experience and financial and managerial capacity to participate in the approved [State capital access program](/usc/12/5701.md?p=11). The determination by the [State](/usc/12/5701.md?p=10) shall not be reviewable by the [Secretary](/usc/12/5701.md?p=14).
  - (2) **Investment authority—** Subject to applicable [State](/usc/12/5701.md?p=10) law, the [participating State](/usc/12/5701.md?p=6) may [invest](/usc/12/1861.md?p=b-6), or cause to be invested, funds held in a [reserve fund](/usc/12/5701.md?p=9) by establishing a deposit account at the [financial institution](/usc/12/5701.md?p=5) lender in the name of the [participating State](/usc/12/5701.md?p=6). In the event that funds in the [reserve fund](/usc/12/5701.md?p=9) are not deposited in such an account, such funds shall be invested in a form that the [participating State](/usc/12/5701.md?p=6) 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](/usc/12/5701.md?p=11) 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](/usc/12/5701.md?p=11) and claims may be filed and paid, as agreed upon by the [financial institution](/usc/12/5701.md?p=5) 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](/usc/12/5701.md?p=11) shall require the [financial institution](/usc/12/5701.md?p=5) 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](/usc/12/5701.md?p=9) by the borrower and the [financial institution](/usc/12/5701.md?p=5) lender shall be prescribed by the [financial institution](/usc/12/5701.md?p=5) 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](/usc/12/5701.md?p=5) 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](/usc/12/5701.md?p=11).
  - (6) **State contributions—** In enrolling a loan in an approved [State capital access program](/usc/12/5701.md?p=11), the [participating State](/usc/12/5701.md?p=6) may make a contribution to the [reserve fund](/usc/12/5701.md?p=9) to supplement [Federal contributions](/usc/12/5701.md?p=4) made under this [Program](/usc/12/5701.md?p=7).
  - (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](/usc/12/5701.md?p=11), the [financial institution](/usc/12/5701.md?p=5) 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](/usc/12/5701.md?p=14), by regulation, may proscribe as prohibited loan purposes for enrollment in an approved [State capital access program](/usc/12/5701.md?p=11); and
        - (III) the borrower is not—
          - (aa) an executive officer, [director](/usc/12/5481.md?p=10), or principal shareholder of the [financial institution](/usc/12/5701.md?p=5) lender;
          - (bb) a member of the immediate family of an executive officer, [director](/usc/12/5481.md?p=10), or principal shareholder of the [financial institution](/usc/12/5701.md?p=5) lender; or
          - (cc) a related interest of any such executive officer, [director](/usc/12/5481.md?p=10), principal shareholder, or member of the immediate family;
      - (ii) shall provide assurances to the [participating State](/usc/12/5701.md?p=6) that the loan has not been made in order to place under the protection of the approved [State capital access program](/usc/12/5701.md?p=11) prior debt that is not covered under the approved [State capital access program](/usc/12/5701.md?p=11) and that is or was owed by the borrower to the [financial institution](/usc/12/5701.md?p=5) lender or to an [affiliate](/usc/12/5481.md?p=1) of the [financial institution](/usc/12/5701.md?p=5) 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](/usc/12/5701.md?p=5) lender or an [affiliate](/usc/12/5481.md?p=1) of the [financial institution](/usc/12/5701.md?p=5) 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](/usc/12/5701.md?p=10) laws, regulations, ordinances, and Executive orders.
    - (B) **Definitions—** In this paragraph, the terms “executive officer”, “[director](/usc/12/5481.md?p=10)”, “principal shareholder”, “immediate family”, and “related interest” refer to the same relationship to a [financial institution](/usc/12/5701.md?p=5) lender as the relationship described in part [215](/usc/12/215.md) 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](/usc/12/5701.md?p=10) applies to the [Secretary](/usc/12/5701.md?p=14) to have the [State capital access program](/usc/12/5701.md?p=11) approved as eligible for [Federal contributions](/usc/12/5701.md?p=4), the [State](/usc/12/5701.md?p=10) shall deliver to the [Secretary](/usc/12/5701.md?p=14) a report stating how the [State](/usc/12/5701.md?p=10) plans to use the [Federal contributions](/usc/12/5701.md?p=4) to the [reserve fund](/usc/12/5701.md?p=9) 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.

## Source credit

(Pub. L. 111–240, title III, § 3005, Sept. 27, 2010, 124 Stat. 2574; Pub. L. 117–2, title III, § 3301(a)(1)(C), Mar. 11, 2021, 135 Stat. 69.)

## Notes

### Editorial Notes

### Amendments

2021—Subsec. (b)(1), (2). Pub. L. 117–2 substituted “March 11, 2021” for “September 27, 2010”.

### 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.