---
kind: "range"
citation: "15 U.S.C. §§ 695–697f"
title: "15"
from: "695"
to: "697f"
count: 9
release: "119-102"
url: "https://uscodex.org/usc/15/695..697f"
---

# §695. State development companies

- (a) **Congressional finding and declaration of purpose—** The Congress hereby finds and declares that the purpose of this subchapter is to foster economic development and to create or preserve job opportunities in both urban and rural areas by providing long-term financing for [small business concerns](/usc/15/78c.md?p=a-53-B-ii) through the development [company](/usc/15/662.md?p=3) [program](/usc/15/2921.md?p=6) authorized by this subchapter.
- (b) **Loans; obligations of development companies—** The [Administration](/usc/15/662.md?p=1) is authorized to make loans to [State](/usc/15/662.md?p=4) [development companies](/usc/15/662.md?p=6) to assist in carrying out the purposes of this chapter. Any funds advanced under this subsection shall be in [exchange](/usc/15/636.md?p=a-36-A-xvi) for obligations of the development [company](/usc/15/662.md?p=3) which bear interest at such rate, and contain such other terms, as the [Administration](/usc/15/662.md?p=1) may fix, and funds may be so advanced without regard to the use and investment by the development [company](/usc/15/662.md?p=3) of funds secured by it from other sources.
- (c) **Maximum loans to development companies—** The total amount of obligations purchased and outstanding at any one time by the [Administration](/usc/15/662.md?p=1) under this section from any one [State](/usc/15/662.md?p=4) development [company](/usc/15/662.md?p=3) shall not exceed the total amount borrowed by it from all other sources. Funds advanced to a [State](/usc/15/662.md?p=4) development [company](/usc/15/662.md?p=3) under this section shall be treated on an equal basis with those funds borrowed by such [company](/usc/15/662.md?p=3) after August 21, 1958, regardless of source, which have the highest priority, except when this requirement is waived by the [Administrator](/usc/15/662.md?p=2).
- (d) **Eligibility for assistance—** In [order](/usc/15/8702.md?p=14) to qualify for assistance under this subchapter, the development [company](/usc/15/662.md?p=3) must demonstrate that the [project](/usc/15/2502.md?p=6) to be funded is directed toward at least one of the following economic development objectives—
  - (1) the creation of job opportunities within two years of the completion of the [project](/usc/15/2502.md?p=6) or the preservation or retention of jobs attributable to the [project](/usc/15/2502.md?p=6);
  - (2) improving the economy of the locality, such as stimulating other business development in the community, bringing new income into the area, or assisting the community in diversifying and stabilizing its economy; or
  - (3) the achievement of one or more of the following public policy goals:
    - (A) business district revitalization,
    - (B) expansion of exports,
    - (C) expansion of [minority business](/usc/15/3704.md?p=c-8-E) development or [women](/usc/15/657p.md?p=a-10)-owned business development,
    - (D) rural development,
    - (E) expansion of [small business concerns](/usc/15/78c.md?p=a-53-B-ii) owned and controlled by veterans, as defined in [section 632(q) of this title](/usc/15/632.md?p=q), especially service-disabled veterans, as defined in such [section 632(q) of this title](/usc/15/632.md?p=q),
    - (F) enhanced economic competition, including the advancement of technology, plan retooling, conversion to robotics, or competition with imports,
    - (G) changes necessitated by Federal budget cutbacks, including defense related industries,
    - (H) business restructuring arising from Federally mandated standards or policies affecting the environment or the safety and health of employees,
    - (I) reduction of energy consumption by at least 10 percent,
    - (J) increased use of sustainable design, including designs that reduce the use of greenhouse gas emitting fossil fuels, or low-impact design to produce buildings that reduce the use of non-renewable resources and minimize environmental impact,
    - (K) plant, equipment and process upgrades of renewable energy sources such as the small-scale production of energy for individual buildings or communities consumption, commonly known as micropower, or renewable fuels producers including biodiesel and ethanol producers, or
    - (L) reduction of rates of unemployment in labor surplus areas, as such areas are determined by the Secretary of Labor.

    In subparagraphs [(J)](#d-3-J) and [(K)](#d-3-K), terms have the meanings given those terms under the Leadership in Energy and Environmental Design (LEED) standard for green building certification, as determined by the [Administrator](/usc/15/662.md?p=2).

  If eligibility is based upon the criteria set forth in paragraph [(2)](#d-2) or [(3)](#d-3), the [project](/usc/15/2502.md?p=6) need not meet the job creation or job preservation criteria developed by the [Administration](/usc/15/662.md?p=1) if the overall portfolio of the development [company](/usc/15/662.md?p=3) meets or exceeds such job creation or retention criteria.

- (e) **Creation or retention of jobs—**
  - (1) A [project](/usc/15/2502.md?p=6) meets the objective set forth in [subsection (d)(1)](#d-1) if the [project](/usc/15/2502.md?p=6) creates or retains one job for every $65,000 guaranteed by the [Administration](/usc/15/662.md?p=1), except that the amount is $100,000 in the case of a [project](/usc/15/2502.md?p=6) of a [small manufacturer](#e-6).
  - (2) [Paragraph (1)](#e-1) does not apply to a [project](/usc/15/2502.md?p=6) for which eligibility is based on the objectives set forth in paragraph [(2)](#d-2) or [(3)](#d-3) of subsection (d), if the development [company](/usc/15/662.md?p=3)’s portfolio of outstanding debentures creates or retains one job for every $65,000 guaranteed by the [Administration](/usc/15/662.md?p=1).
  - (3) For [projects](/usc/15/2502.md?p=6) in Alaska, Hawaii, [State](/usc/15/662.md?p=4)-designated enterprise zones, empowerment zones and enterprise communities, labor surplus areas, as determined by the Secretary of Labor, and for other areas designated by the [Administrator](/usc/15/662.md?p=2), the development [company](/usc/15/662.md?p=3)’s portfolio may average not more than $75,000 per job created or retained.
  - (4) Loans for [projects](/usc/15/2502.md?p=6) of [small manufacturers](#e-6) shall be excluded from calculations under paragraph [(2)](#e-2) or [(3)](#e-3).
  - (5) Under regulations prescribed by the [Administrator](/usc/15/662.md?p=2), the [Administrator](/usc/15/662.md?p=2) may waive, on a case-by-case basis or by regulation, any requirement of this subsection (other than [paragraph (4)](#e-4)). With respect to any waiver the [Administrator](/usc/15/662.md?p=2) is prohibited from adopting a dollar amount that is lower than the amounts set forth in paragraphs [(1)](#e-1), [(2)](#e-2), and [(3)](#e-3).
  - (6) As used in this subsection, the term “small manufacturer” means a [small business concern](/usc/15/78c.md?p=a-53-B-ii)—
    - (A) the primary business of which is classified in sector 31, 32, or 33 of the North American Industrial Classification System; and
    - (B) all of the production facilities of which are located in the United States.

# §696. Loans for plant acquisition, construction, conversion and expansion


The [Administration](/usc/15/662.md?p=1) may, in addition to its [authority](/usc/15/3051.md?p=1) under [section 695 of this title](/usc/15/695.md), make loans for plant acquisition, construction, conversion or expansion, including the acquisition of land, to [State](/usc/15/662.md?p=4) and local [development companies](/usc/15/662.md?p=6), and such loans may be made or effected either directly or in cooperation with banks or other lending institutions through [agreements](/usc/15/7a.md?p=2) to participate on an immediate or deferred basis: Provided, however, That the foregoing powers shall be subject to the following restrictions and limitations:

- (1) **Use of proceeds.—** The proceeds of any such loan shall be used solely by the [borrower](/usc/15/697f.md?p=e-2) to assist 1 or more identifiable [small business concerns](/usc/15/78c.md?p=a-53-B-ii) and for a sound business purpose approved by the [Administration](/usc/15/662.md?p=1).
- (2) **Maximum amount.—**
  - (A) **In general.—** Loans made by the [Administration](/usc/15/662.md?p=1) under this section shall be limited to—
    - (i) $5,000,000 for each [small business concern](/usc/15/78c.md?p=a-53-B-ii) if the loan proceeds will not be directed toward a goal or [project](/usc/15/2502.md?p=6) described in clause [(ii)](#2-A-ii), [(iii)](#2-A-iii), [(iv)](#2-A-iv), or [(v)](#2-A-v);
    - (ii) $5,000,000 for each [small business concern](/usc/15/78c.md?p=a-53-B-ii) if the loan proceeds will be directed toward 1 or more of the public policy goals described under [section 695(d)(3) of this title](/usc/15/695.md?p=d-3);
    - (iii) $5,500,000 for each [project](/usc/15/2502.md?p=6) of a small manufacturer;
    - (iv) $5,500,000 for each [project](/usc/15/2502.md?p=6) that reduces the [borrower](/usc/15/697f.md?p=e-2)’s energy consumption by at least 10 percent; and
    - (v) $5,500,000 for each [project](/usc/15/2502.md?p=6) that generates renewable energy or renewable fuels, such as biodiesel or ethanol production.
  - (B) **Definition.—** As used in this paragraph, the term “small manufacturer” means a [small business concern](/usc/15/78c.md?p=a-53-B-ii)—
    - (i) the primary business of which is classified in sector 31, 32, or 33 of the North American Industrial Classification System; and
    - (ii) all of the production facilities of which are located in the United States.
- (3) **Criteria for assistance.—**
  - (A) **In general.—** Any development [company](/usc/15/662.md?p=3) assisted under this section or [section 697 of this title](/usc/15/697.md) must meet the criteria established by the [Administration](/usc/15/662.md?p=1), including the extent of participation to be required or amount of paid-in capital to be used in each instance as is determined to be reasonable by the [Administration](/usc/15/662.md?p=1).
  - (B) **Community injection funds.—**
    - (i) **Sources of funds.—** Community injection funds may be derived, in whole or in part, from—
      - (I) [State](/usc/15/662.md?p=4) or [local governments](/usc/15/34.md?p=1);
      - (II) banks or other [financial institutions](/usc/15/1681s–2.md?p=a-7-G-ii);
      - (III) foundations or other not-for-profit institutions; or
      - (IV) the [small business concern](/usc/15/78c.md?p=a-53-B-ii) (or its owners, stockholders, or affiliates) receiving assistance through a body authorized by this subchapter.
    - (ii) **Funding from institutions.—** Not less than 50 percent of the total cost of any [project](/usc/15/2502.md?p=6) financed pursuant to clauses[^1] (i), (ii), or (iii) of [subparagraph (C)](#3-C) shall come from the institutions described in subclauses [(I)](#3-B-i-I), [(II)](#3-B-i-II), and [(III)](#3-B-i-III) of clause (i).
  - (C) **Funding from a small business concern.—** The [small business concern](/usc/15/78c.md?p=a-53-B-ii) (or its owners, stockholders, or affiliates) receiving assistance through a body authorized by this subchapter shall provide—
    - (i) at least 15 percent of the total cost of the [project](/usc/15/2502.md?p=6) financed, if the [small business concern](/usc/15/78c.md?p=a-53-B-ii) has been in operation for a period of 2 years or less;
    - (ii) at least 15 percent of the total cost of the [project](/usc/15/2502.md?p=6) financed if the [project](/usc/15/2502.md?p=6) involves the construction of a limited or single purpose building or structure;
    - (iii) at least 20 percent of the total cost of the [project](/usc/15/2502.md?p=6) financed if the [project](/usc/15/2502.md?p=6) involves both of the conditions set forth in clauses [(i)](#3-C-i) and [(ii)](#3-C-ii); or
    - (iv) at least 10 percent of the total cost of the [project](/usc/15/2502.md?p=6) financed, in all other circumstances, at the discretion of the development [company](/usc/15/662.md?p=3).
  - (D) **Seller financing.—** Seller-provided financing may be used to meet the requirements of [subparagraph (B)](#3-B), if the seller subordinates the interest of the seller in the property to the debenture guaranteed by the [Administration](/usc/15/662.md?p=1).
  - (E) **Collateralization.—**
    - (i) **In general.—** The collateral provided by the [small business concern](/usc/15/78c.md?p=a-53-B-ii) shall generally include a subordinate lien position on the property being financed under this subchapter, and is only 1 of the factors to be evaluated in the [credit](/usc/15/1679a.md?p=4) determination. Additional collateral shall be required only if the [Administration](/usc/15/662.md?p=1) determines, on a case-by-case basis, that additional [security](/usc/15/78lll.md?p=14) is necessary to protect the interest of the Government.
    - (ii) **Appraisals.—**
      - (I) **In general.—** With respect to commercial real property provided by the [small business concern](/usc/15/78c.md?p=a-53-B-ii) as collateral, an appraisal of the property by a [State](/usc/15/662.md?p=4) licensed or certified appraiser—
        - (aa) shall be required by the [Administration](/usc/15/662.md?p=1) before disbursement of the loan if the estimated value of that property is more than the Federal banking regulator appraisal threshold; or
        - (bb) may be required by the [Administration](/usc/15/662.md?p=1) or the lender before disbursement of the loan if the estimated value of that property is equal to or less than the Federal banking regulator appraisal threshold, and such appraisal is necessary for appropriate evaluation of creditworthiness.
      - (II) **Federal banking regulator appraisal threshold defined.—** For purposes of this clause, the term “Federal banking regulator appraisal threshold” means the lesser of the threshold amounts set by the [Board](/usc/15/205c.md?p=1) of Governors of the Federal Reserve System, the Comptroller of the Currency, and the Federal Deposit Insurance Corporation for when a federally related transaction that is a commercial real estate transaction requires an appraisal prepared by a [State](/usc/15/662.md?p=4) licensed or certified appraiser.
- (4) If the [project](/usc/15/2502.md?p=6) is to construct a new facility, up to 33 per centum of the total [project](/usc/15/2502.md?p=6) may be leased, if reasonable projections of growth demonstrate that the assisted [small business concern](/usc/15/78c.md?p=a-53-B-ii) will need additional space within three years and will fully utilize such additional space within ten years.
- (5) **Limitation on leasing.—** In addition to any portion of the [project](/usc/15/2502.md?p=6) permitted to be leased under [paragraph (4)](#4), not to exceed 20 percent of the [project](/usc/15/2502.md?p=6) may be leased by the assisted [small business](/usc/15/1691c–2.md?p=h-2) to 1 or more other tenants, if the assisted [small business](/usc/15/1691c–2.md?p=h-2) occupies permanently and uses not less than a total of 60 percent of the space in the [project](/usc/15/2502.md?p=6) after the execution of any leases authorized under this section.
- (6) **Ownership requirements.—** Ownership requirements to determine the eligibility of a [small business concern](/usc/15/78c.md?p=a-53-B-ii) that applies for assistance under any [credit](/usc/15/1679a.md?p=4) [program](/usc/15/2921.md?p=6) under this subchapter shall be determined without regard to any ownership interest of a spouse arising solely from the [application](/usc/15/77ccc.md?p=8) of the community property laws of a [State](/usc/15/662.md?p=4) for purposes of determining marital interests.
- (7) **Permissible debt refinancing.—**
  - (A) **In general.—** Any financing approved under this subchapter may include a limited amount of debt refinancing.
  - (B) **Expansions.—** If the [project](/usc/15/2502.md?p=6) involves expansion of a [small business concern](/usc/15/78c.md?p=a-53-B-ii), any amount of existing indebtedness that does not exceed 100 percent of the [project](/usc/15/2502.md?p=6) cost of the expansion may be refinanced and added to the expansion cost, if—
    - (i) the proceeds of the indebtedness were used to acquire land, including a building situated thereon, to construct a building thereon, or to [purchase](/usc/15/78c–5.md?p=g) equipment;
    - (ii) the existing indebtedness is collateralized by fixed assets;
    - (iii) the existing indebtedness was incurred for the benefit of the [small business concern](/usc/15/78c.md?p=a-53-B-ii);
    - (iv) the financing under this subchapter will be used only for refinancing existing indebtedness or costs relating to the [project](/usc/15/2502.md?p=6) financed under this subchapter;
    - (v) the financing under this subchapter will provide a substantial benefit to the [borrower](/usc/15/697f.md?p=e-2) when prepayment penalties, financing fees, and other financing costs are accounted for;
    - (vi) the [borrower](/usc/15/697f.md?p=e-2) has been current on all payments due on the existing debt for not less than 1 year preceding the date of refinancing; and
    - (vii) the financing under [section 697a of this title](/usc/15/697a.md) will provide better terms or rate of interest than the existing indebtedness at the time of refinancing.
  - (C) **Refinancing not involving expansions.—**
    - (i) **Definitions.—** In this subparagraph—
      - (I) the term “borrower” means a [small business concern](/usc/15/78c.md?p=a-53-B-ii) that submits an [application](/usc/15/77ccc.md?p=8) to a development [company](/usc/15/662.md?p=3) for financing under this subparagraph;
      - (II) the term “eligible fixed asset” means tangible property relating to which the [Administrator](/usc/15/662.md?p=2) may provide financing under this section; and
      - (III) the term “qualified debt” means indebtedness—
        - (aa) that was incurred not less than 6 months before the date of the [application](/usc/15/77ccc.md?p=8) for assistance under this subparagraph;
        - (bb) that is a commercial loan;
        - (cc) the proceeds of which were used to acquire an [eligible fixed asset](#7-C-i-II);
        - (dd) that was incurred for the benefit of the [small business concern](/usc/15/78c.md?p=a-53-B-ii); and
        - (ee) that is collateralized by [eligible fixed assets](#7-C-i-II).
    - (ii) **Authority.—** A [project](/usc/15/2502.md?p=6) that does not involve the expansion of a [small business concern](/usc/15/78c.md?p=a-53-B-ii) may include the refinancing of qualified debt if—
      - (I) the amount of the financing is not more than 90 percent of the value of the collateral for the financing, except that, if the appraised value of the [eligible fixed assets](#7-C-i-II) serving as collateral for the financing is less than the amount equal to 125 percent of the amount of the financing, the [borrower](/usc/15/697f.md?p=e-2) may provide additional cash or other collateral to eliminate any deficiency;
      - (II) the [borrower](/usc/15/697f.md?p=e-2) has been in operation for all of the 2-year period ending on the date the loan [application](/usc/15/77ccc.md?p=8) is submitted; and
      - (III) for a financing for which the [Administrator](/usc/15/662.md?p=2) determines there will be an additional cost attributable to the refinancing of the qualified debt, the [borrower](/usc/15/697f.md?p=e-2) agrees to pay a fee in an amount equal to the anticipated additional cost.
    - (iii) **Financing for business expenses.—**
      - (I) **Financing for business expenses.—** The [Administrator](/usc/15/662.md?p=2) may provide financing to a [borrower](/usc/15/697f.md?p=e-2) that receives financing that includes a refinancing of qualified debt under [clause (ii)](#7-C-ii), in addition to the refinancing under [clause (ii)](#7-C-ii), to be used solely for the payment of business expenses.
      - (II) **Application for financing.—** An [application](/usc/15/77ccc.md?p=8) for financing under [subclause (I)](#7-C-iii-I) shall include—
        - (aa) a specific description of the expenses for which the additional financing is requested; and
        - (bb) an itemization of the amount of each expense.
      - (III) **Condition on additional financing.—** A [borrower](/usc/15/697f.md?p=e-2) may not use any part of the financing under this clause for non-business purposes.
    - (iv) **Loans based on jobs.—**
      - (I) **Job creation and retention goals.—**
        - (aa) **In general.—** The [Administrator](/usc/15/662.md?p=2) may provide financing under this subparagraph for a [borrower](/usc/15/697f.md?p=e-2) that meets the job creation goals under subsection (d) or (e) of [section 695 of this title](/usc/15/695.md).
        - (bb) **Alternate job retention goal.—** The [Administrator](/usc/15/662.md?p=2) may provide financing under this subparagraph to a [borrower](/usc/15/697f.md?p=e-2) that does not meet the goals described in [item (aa)](#7-C-iv-I-aa) in an amount that is not more than the product obtained by multiplying the number of employees of the [borrower](/usc/15/697f.md?p=e-2) by $75,000.
      - (II) **Number of employees.—** For purposes of [subclause (I)](#7-C-iv-I), the number of employees of a [borrower](/usc/15/697f.md?p=e-2) is equal to the sum of—
        - (aa) the number of full-time employees of the [borrower](/usc/15/697f.md?p=e-2) on the date on which the [borrower](/usc/15/697f.md?p=e-2) applies for a loan under this subparagraph; and
        - (bb) the product obtained by multiplying—
          - (AA) the number of part-time employees of the [borrower](/usc/15/697f.md?p=e-2) on the date on which the [borrower](/usc/15/697f.md?p=e-2) applies for a loan under this subparagraph, by
          - (BB) the quotient obtained by dividing the average number of hours each part time employee of the [borrower](/usc/15/697f.md?p=e-2) works each week by 40.
    - (v) **Total amount of loans.—** The [Administrator](/usc/15/662.md?p=2) may provide not more than a total of $7,500,000,000 of financing under this subparagraph for each fiscal year.

# §697. Development company debentures

- (a) **Guarantees; Administration authority; regulatory terms and conditions; full faith and credit; subordination of debentures—**
  - (1) Except as provided in [subsection (b)](#b), the [Administration](/usc/15/662.md?p=1) may guarantee the timely payment of all principal and interest as scheduled on any debenture issued by any [qualified State or local development company](#e-1).
  - (2) Such guarantees may be made on such terms and conditions as the [Administration](/usc/15/662.md?p=1) may be regulation determine to be appropriate: Provided, That the [Administration](/usc/15/662.md?p=1) shall not decline to issue such guarantee when the ownership interests of the [small business concern](/usc/15/78c.md?p=a-53-B-ii) and the ownership interests of the property to be financed with the proceeds of a loan made pursuant to [subsection (b)(1)](#b-1) are not identical because one or more of the following classes of relatives have an ownership interest in either the [small business concern](/usc/15/78c.md?p=a-53-B-ii) or the property: father, mother, son, daughter, wife, husband, brother, or sister: Provided further, That the [Administrator](/usc/15/662.md?p=2) or his designee has determined on a case-by-case basis that such ownership interest, such guarantee, and the proceeds of such loan, will substantially benefit the [small business concern](/usc/15/78c.md?p=a-53-B-ii).
  - (3) The full faith and [credit](/usc/15/1679a.md?p=4) of the United States in pledged to the payment of all amounts guaranteed under this subsection.
  - (4) Any debenture issued by any [State](/usc/15/662.md?p=4) or local development [company](/usc/15/662.md?p=3) with respect to which a guarantee is made under this subsection, may be subordinated by the [Administration](/usc/15/662.md?p=1) to any other debenture, promissory note, or other debt or obligation of such [company](/usc/15/662.md?p=3).
- (b) **Statutory terms and conditions—** No guarantee may be made with respect to any debenture under [subsection (a)](#a) unless—
  - (1) such debenture is issued for the purpose of making one or more loans to [small business concerns](/usc/15/78c.md?p=a-53-B-ii), the proceeds of which shall be used by such concern for the purposes set forth in [section 696 of this title](/usc/15/696.md);
  - (2) necessary funds for making such loans are not available to such [company](/usc/15/662.md?p=3) from private sources on reasonable terms;
  - (3) the interest rate on such debenture is not less than the rate of interest determined by the Secretary of the Treasury for purposes of [section 683(b) of this title](/usc/15/683.md?p=b);
  - (4) the aggregate amount of such debenture does not exceed the amount of loans to be made from the proceeds of such debenture (other than any excess attributable to the administrative costs of such loans);
  - (5) the amount of any loan to be made from such proceeds does not exceed an amount equal to 50 percent of the cost of the [project](/usc/15/2502.md?p=6) with respect to which such loan is made;
  - (6) the [Administration](/usc/15/662.md?p=1) approves each loan to be made from such proceeds; and
  - (7) with respect to each loan made from the proceeds of such debenture, the [Administration](/usc/15/662.md?p=1)—
    - (A) assesses and collects a fee, which shall be payable by the [borrower](/usc/15/697f.md?p=e-2), in an amount established annually by the [Administration](/usc/15/662.md?p=1), which amount shall not exceed—
      - (i) the lesser of—
        - (I) 0.9375 percent per year of the outstanding balance of the loan; and
        - (II) the minimum amount necessary to reduce the cost (as defined in [section 661a of title 2](/usc/2/661a.md)) to the [Administration](/usc/15/662.md?p=1) of purchasing and guaranteeing debentures under this chapter to zero; and
      - (ii) 50 percent of the amount established under [clause (i)](#b-7-A-i) in the case of a loan made during the 2-year period beginning on October 1, 2002, for the life of the loan; and
    - (B) uses the proceeds of such fee to offset the cost (as such term is defined in [section 661a of title 2](/usc/2/661a.md)) to the [Administration](/usc/15/662.md?p=1) of making guarantees under [subsection (a)](#a).
- (c) **Commercial loan interest rate—**
  - (1) The purpose of this subsection is to facilitate the orderly and necessary flow of long-term loans from certified [development companies](/usc/15/662.md?p=6) to [small business concerns](/usc/15/78c.md?p=a-53-B-ii).
  - (2) Notwithstanding the provisions of the constitution or laws of any [State](/usc/15/662.md?p=4) limiting the rate or amount of interest which may be charged, taken, received, or reserved, the maximum legal rate of interest on any commercial loan which funds any portion of the cost of the [project](/usc/15/2502.md?p=6) financed pursuant to this section or [section 697a of this title](/usc/15/697a.md) which is not funded by a debenture guaranteed under this section shall be a rate which is established by the [Administrator](/usc/15/662.md?p=2) of the [Small Business](/usc/15/1691c–2.md?p=h-2) [Administration](/usc/15/662.md?p=1) under the [authority](/usc/15/3051.md?p=1) of this section.
  - (3) The [Administrator](/usc/15/662.md?p=2) is authorized and directed to establish and publish quarterly a maximum legal interest rate for any commercial loan which funds any portion of the cost of the [project](/usc/15/2502.md?p=6) financed pursuant to this section or [section 697a of this title](/usc/15/697a.md) which is not funded by a debenture guaranteed under this section.
- (d) **Charges for Administration expenses—**
  - (1) **Level of charges—** The [Administration](/usc/15/662.md?p=1) may impose an additional charge for administrative expenses with respect to each debenture for which payment of principal and interest is guaranteed under [subsection (a)](#a).
  - (2) **Participation fee—** The [Administration](/usc/15/662.md?p=1) shall collect a one-time fee in an amount equal to 50 basis points on the total participation in any [project](/usc/15/2502.md?p=6) of any institution described in subclause (I), (II), or (III) of [section 696(3)(B)(i) of this title](/usc/15/696.md?p=3-B-i). Such fee shall be imposed only when the participation of the institution will occupy a senior [credit](/usc/15/1679a.md?p=4) position to that of the development [company](/usc/15/662.md?p=3). All proceeds of the fee shall be used to offset the cost (as that term is defined in [section 661a of title 2](/usc/2/661a.md)) to the [Administration](/usc/15/662.md?p=1) of making guarantees under [subsection (a)](#a).
  - (3) **Development company fee—** The [Administration](/usc/15/662.md?p=1) shall collect annually from each development [company](/usc/15/662.md?p=3) a fee of 0.125 percent of the outstanding principal balance of any guaranteed debenture authorized by the [Administration](/usc/15/662.md?p=1) after September 30, 1996. Such fee shall be derived from the servicing fees collected by the development [company](/usc/15/662.md?p=3) pursuant to regulation, and shall not be derived from any additional fees imposed on [small business concerns](/usc/15/78c.md?p=a-53-B-ii). All proceeds of the fee shall be used to offset the cost (as that term is defined in [section 661a of title 2](/usc/2/661a.md)) to the [Administration](/usc/15/662.md?p=1) of making guarantees under [subsection (a)](#a).
- (e) **“Qualified State or local development company” defined; exception for rural company; authority—**
  - (1) For purposes of this section, the term “qualified State or local development company” means any [State](/usc/15/662.md?p=4) or local development [company](/usc/15/662.md?p=3) which, as determined by the [Administration](/usc/15/662.md?p=1), has—
    - (A) a full-time professional staff;
    - (B) professional management ability (including adequate accounting, legal, and business-servicing abilities); and
    - (C) a [board](/usc/15/205c.md?p=1) of directors, or membership, which meets on a regular basis to make management decisions for such [company](/usc/15/662.md?p=3), including decisions relating to the making and servicing of loans by such [company](/usc/15/662.md?p=3).
  - (2) A [company](/usc/15/662.md?p=3) in a rural area shall be deemed to have satisfied the requirements of a full-time professional staff and professional management ability if it contracts with another certified development [company](/usc/15/662.md?p=3) which has such staff and management ability and which is located in the same general area to provide such services.
  - (3) Notwithstanding any other provision of law, [qualified State or local development companies](#e-1) shall be authorized to prepare [applications](/usc/15/77ccc.md?p=8) for deferred participation loans under [section 636(a) of this title](/usc/15/636.md?p=a), to service such loans and to charge a reasonable fee for servicing such loans.
- (f) **Effective date—** The fees authorized by subsections [(b)](#b) and [(d)](#d) shall apply to financings approved by the [Administration](/usc/15/662.md?p=1) on or after October 1, 1996.
- (g) **Calculation of subsidy rate—** All fees, interest, and profits received and retained by the [Administration](/usc/15/662.md?p=1) under this section shall be included in the calculations made by the Director of the Office of Management and Budget to offset the cost (as that term is defined in [section 661a of title 2](/usc/2/661a.md)) to the [Administration](/usc/15/662.md?p=1) of purchasing and guaranteeing debentures under this chapter.
- (h) **Required actions upon default—**
  - (1) **Initial actions—** Not later than the 45th day after the date on which a payment on a loan funded through a debenture guaranteed under this section is due and not received, the [Administration](/usc/15/662.md?p=1) shall—
    - (A) take all necessary steps to bring such a loan current; or
    - (B) implement a formal written deferral [agreement](/usc/15/7a.md?p=2).
  - (2) **Purchase or acceleration of debenture—** Not later than the 65th day after the date on which a payment on a loan described in [paragraph (1)](#h-1) is due and not received, and absent a formal written deferral [agreement](/usc/15/7a.md?p=2), the [administration](/usc/15/662.md?p=1)[^1] shall take all necessary steps to [purchase](/usc/15/78c–5.md?p=g) or accelerate the debenture.
  - (3) **Prepayment penalties—** With respect to the portion of any [project](/usc/15/2502.md?p=6) derived from funds set forth in [section 696(3) of this title](/usc/15/696.md?p=3), the [Administration](/usc/15/662.md?p=1)—
    - (A) shall negotiate the elimination of any prepayment penalties or late fees on defaulted loans made prior to September 30, 1996;
    - (B) shall not pay any prepayment penalty or late fee on the default based [purchase](/usc/15/78c–5.md?p=g) of loans issued after September 30, 1996; and
    - (C) for any [project](/usc/15/2502.md?p=6) financed after September 30, 1996, shall not pay any default interest rate higher than the interest rate on the note prior to the date of default.
- (i) **Two-year waiver of fees—** The [Administration](/usc/15/662.md?p=1) may not assess or collect any up front guarantee fee with respect to loans made under this subchapter during the 2-year period beginning on October 1, 2002.

# §697a. Private debenture sales

- (a) Notwithstanding any other law, rule, or regulation, the [Administration](/usc/15/662.md?p=1) shall sell to investors, either publicly or by private placement, debentures pursuant to [section 697 of this title](/usc/15/697.md) as follows:
  - (1) Of the [program](/usc/15/2921.md?p=6) levels otherwise authorized by law for fiscal year 1986, an amount not to exceed $200,000,000.
  - (2) Of the [program](/usc/15/2921.md?p=6) levels otherwise authorized by law for each of fiscal years 1987 and 1988, an amount not to exceed $425,000,000.
  - (3) All of the [program](/usc/15/2921.md?p=6) levels authorized for fiscal year 1989 and subsequent fiscal years.
- (b) Nothing in any provision of law shall be construed to authorize the Federal Financing Bank to acquire—
  - (1) any obligation the payment of principal or interest on which at any time has been guaranteed in whole or in part under [section 697 of this title](/usc/15/697.md) and which is being sold pursuant to the provisions of the [program](/usc/15/2921.md?p=6) authorized in this section;
  - (2) any obligation which is an interest in any obligation described in [paragraph (1)](#b-1); or
  - (3) any obligation which is secured by, or substantially all of the value of which is attributable to, any obligation described in paragraph [(1)](#b-1) or [(2)](#b-2).

# §697b. Pooling of debentures

- (a) **Issuance; debentures composing trust or pool—** The [Administration](/usc/15/662.md?p=1) is authorized to issue trust certificates representing ownership of all or a fractional part of debentures issued by [State](/usc/15/662.md?p=4) or local [development companies](/usc/15/662.md?p=6) and guaranteed by the [Administration](/usc/15/662.md?p=1) under this chapter: Provided, That such trust certificates shall be based on and backed by a trust or pool approved by the [Administration](/usc/15/662.md?p=1) and composed solely of guaranteed debentures.
- (b) **Terms and conditions of guarantee; payment of principal and interest—** The [Administration](/usc/15/662.md?p=1) is authorized, upon such terms and conditions as are deemed appropriate, to guarantee the timely payment of the principal of and interest on trust certificates issued by the [Administration](/usc/15/662.md?p=1) or its agent for purposes of this section. Such guarantee shall be limited to the extent of principal and interest on the guaranteed debentures which compose the trust or pool. In the event that a debenture in such trust or pool is prepaid, either voluntarily or in the event of default, the guarantee of timely payment of principal and interest on the trust certificates shall be reduced in proportion to the amount of principal and interest such prepaid debenture represents in the trust or pool. Interest on prepaid or defaulted debentures shall accrue and be guaranteed by the [Administration](/usc/15/662.md?p=1) only through the date of payment on the guarantee. During the term of the trust certificate, it may be called for redemption due to prepayment or default of all debentures constituting the pool.
- (c) **Full faith and credit of United States—** The full faith and [credit](/usc/15/1679a.md?p=4) of the United States is pledged to the payment of all amounts which may be required to be paid under any guarantee of such trust certificates issued by the [Administration](/usc/15/662.md?p=1) or its agent pursuant to this section.
- (d) **Collection of fees—** The [Administration](/usc/15/662.md?p=1) shall not collect any fee for any guarantee under this section: Provided, That nothing herein shall preclude any agent of the [Administration](/usc/15/662.md?p=1) from collecting a fee approved by the [Administration](/usc/15/662.md?p=1) for the functions described in [subsection (f)(2)](#f-2) of this section.
- (e) **Subrogation rights; ownership rights in debentures—**
  - (1) In the event the [Administration](/usc/15/662.md?p=1) pays a claim under a guarantee issued under this section, it shall be subrogated fully to the rights satisfied by such payment.
  - (2) No [State](/usc/15/662.md?p=4) or local law, and no Federal law, shall preclude or limit the exercise by the [Administration](/usc/15/662.md?p=1) of its ownership rights in the debentures constituting the trust or pool against which the trust certificates are issued.
- (f) **Central registration requirements; regulation of brokers and dealers; electronic registration—**
  - (1) The [Administration](/usc/15/662.md?p=1) shall—
    - (A) provide for a central registration of all trust certificates sold pursuant to this section;
    - (B) contract with an agent to carry out on behalf of the [Administration](/usc/15/662.md?p=1) the central registration functions of this section and the issuance of trust certificates to facilitate poolings; such agent shall provide a fidelity bond or insurance in such amounts as the [Administration](/usc/15/662.md?p=1) determines to be necessary to fully protect the interests of the Government;
    - (C) prior to any sale, require the seller to disclose to a purchaser of a trust certificate issued pursuant to this section, information on the terms, conditions, and yield of such instrument; and
    - (D) have the [authority](/usc/15/3051.md?p=1) to regulate [brokers](/usc/15/6102.md?p=d-2-B-i) and [dealers](/usc/15/6102.md?p=d-2-B-i) in trust certificates sold pursuant to this section.
  - (2) Nothing in this subsection shall prohibit the utilization of a book-entry or other electronic form of registration for trust certificates.

# §697c. Restrictions on development company assistance


Notwithstanding Any Other Provision of Law: (1) on or after May 1, 1991, no development [company](/usc/15/662.md?p=3) may accept funding from any source, including but not limited to any department or agency of the United States Government, if such funding includes any conditions, priorities or restrictions upon the types of [small businesses](/usc/15/1691c–2.md?p=h-2) to which they may provide financial assistance under this subchapter or if it includes any conditions or imposes any requirements, directly or indirectly, upon any recipient of assistance under this subchapter; and (2) before such date, no department or agency of the United States Government which provides funding to any development [company](/usc/15/662.md?p=3) shall impose any condition, priority or restriction upon the type of [small business](/usc/15/1691c–2.md?p=h-2) which receives financing under this subchapter nor shall it include any condition or impose any requirement, directly or indirectly, upon any recipient of assistance under this subchapter: Provided, That the foregoing shall not affect any such conditions, priorities or restrictions if the department or agency also provides all of the financial assistance to be delivered by the development [company](/usc/15/662.md?p=3) to the [small business](/usc/15/1691c–2.md?p=h-2) and such conditions, priorities or restrictions are limited solely to the financial assistance so provided.


# §697d. Accredited Lenders Program

- (a) **Establishment—** The [Administration](/usc/15/662.md?p=1) is authorized to establish an Accredited Lenders [Program](/usc/15/2921.md?p=6) for qualified [State](/usc/15/662.md?p=4) and local [development companies](/usc/15/662.md?p=6) that meet the requirements of [subsection (b)](#b).
- (b) **Requirements—** The [Administration](/usc/15/662.md?p=1) may designate a [qualified State or local development company](#e) as an accredited lender if such [company](/usc/15/662.md?p=3)—
  - (1) has been an active participant in the Development [Company](/usc/15/662.md?p=3) [Program](/usc/15/2921.md?p=6) authorized by sections [696](/usc/15/696.md), [697](/usc/15/697.md), and [697a](/usc/15/697a.md) of this title for not less than the preceding 12 months;
  - (2) has well-trained, qualified personnel who are knowledgeable in the [Administration](/usc/15/662.md?p=1)’s lending policies and procedures for such Development [Company](/usc/15/662.md?p=3) [Program](/usc/15/2921.md?p=6);
  - (3) has the ability to process, close, and service financing for plant and equipment under such Development [Company](/usc/15/662.md?p=3) [Program](/usc/15/2921.md?p=6);
  - (4) has a loss rate on the [company](/usc/15/662.md?p=3)’s debentures that is reasonable and acceptable to the [Administration](/usc/15/662.md?p=1);
  - (5) has a history of submitting to the [Administration](/usc/15/662.md?p=1) complete and accurate debenture guaranty [application](/usc/15/77ccc.md?p=8) [packages](/usc/15/1471.md?p=3); and
  - (6) has demonstrated the ability to serve [small business](/usc/15/1691c–2.md?p=h-2) [credit](/usc/15/1679a.md?p=4) needs for financing plant and equipment through the Development [Company](/usc/15/662.md?p=3) [Program](/usc/15/2921.md?p=6).
- (c) **Expedited processing of loan applications—** The [Administration](/usc/15/662.md?p=1) shall develop an expedited procedure for processing a loan [application](/usc/15/77ccc.md?p=8) or servicing action submitted by a [qualified State or local development company](#e) that has been designated as an accredited lender in accordance with [subsection (b)](#b).
- (d) **Suspension or revocation of designation—**
  - (1) **In general—** The designation of a [qualified State or local development company](#e) as an accredited lender may be suspended or revoked if the [Administration](/usc/15/662.md?p=1) determines that—
    - (A) the development [company](/usc/15/662.md?p=3) has not continued to meet the criteria for eligibility under [subsection (b)](#b); or
    - (B) the development [company](/usc/15/662.md?p=3) has failed to adhere to the [Administration](/usc/15/662.md?p=1)’s rules and regulations or is violating any other applicable provision of law.
  - (2) **Effect—** A suspension or revocation under [paragraph (1)](#d-1) shall not affect any outstanding debenture guarantee.
- (e) **Definition—** In this section, the term “qualified State or local development company” has the meaning given the term in [section 697(e) of this title](/usc/15/697.md?p=e).

# §697e. Premier Certified Lenders Program

- (a) **Establishment—** The [Administration](/usc/15/662.md?p=1) may establish a Premier Certified Lenders [Program](/usc/15/2921.md?p=6) for certified [development companies](/usc/15/662.md?p=6) that meet the requirements of [subsection (b)](#b).
- (b) **Requirements—**
  - (1) **Application—** To be eligible to participate in the Premier Certified Lenders [Program](/usc/15/2921.md?p=6) established under [subsection (a)](#a), a certified development [company](/usc/15/662.md?p=3) shall prepare and submit to the [Administration](/usc/15/662.md?p=1) an [application](/usc/15/77ccc.md?p=8) at such time, in such manner, and containing such information as the [Administration](/usc/15/662.md?p=1) may require.
  - (2) **Designation—** The [Administration](/usc/15/662.md?p=1) may designate a certified development [company](/usc/15/662.md?p=3) as a premier certified lender—
    - (A) if the [company](/usc/15/662.md?p=3) is an active certified development [company](/usc/15/662.md?p=3) in good standing and has been an active participant in the accredited lenders [program](/usc/15/2921.md?p=6) during the entire 12-month period preceding the date on which the [company](/usc/15/662.md?p=3) submits an [application](/usc/15/77ccc.md?p=8) under [paragraph (1)](#b-1), except that the [Administration](/usc/15/662.md?p=1) may waive this requirement if the [company](/usc/15/662.md?p=3) is qualified to participate in the accredited lenders [program](/usc/15/2921.md?p=6);
    - (B) if the [company](/usc/15/662.md?p=3) has a history of—
      - (i) submitting to the [Administration](/usc/15/662.md?p=1) adequately analyzed debenture guarantee [application](/usc/15/77ccc.md?p=8) [packages](/usc/15/1471.md?p=3); and
      - (ii) of properly closing [section 504](/usc/15/504.md) [[15 U.S.C. 697a](/usc/15/697a.md)] loans and servicing its loan portfolio;
    - (C) if the [company](/usc/15/662.md?p=3) agrees to assume and to reimburse the [Administration](/usc/15/662.md?p=1) for 10 percent of any loss sustained by the [Administration](/usc/15/662.md?p=1) as a result of default by the [company](/usc/15/662.md?p=3) in the payment of principal or interest on a debenture issued by such [company](/usc/15/662.md?p=3) and guaranteed by the [Administration](/usc/15/662.md?p=1) under this section (15 percent in the case of any such loss attributable to a debenture issued by the [company](/usc/15/662.md?p=3) during any period for which an election is in effect under [subsection (c)(7)](#c-7) for such [company](/usc/15/662.md?p=3)); and
    - (D) the[^1] [Administrator](/usc/15/662.md?p=2) determines, with respect to the [company](/usc/15/662.md?p=3), that the loss reserve established in accordance with [subsection (c)](#c) is sufficient for the [company](/usc/15/662.md?p=3) to meet its obligations to protect the Federal Government from risk of loss.
  - (3) **Applicability of criteria after designation—** The [Administrator](/usc/15/662.md?p=2) may revoke the designation of a certified development [company](/usc/15/662.md?p=3) as a premier certified lender under this section at any time, if the [Administrator](/usc/15/662.md?p=2) determines that the certified development [company](/usc/15/662.md?p=3) does not meet any requirement described in [subparagraphs (A) through (D)](#b-2-A..b-2-D) of paragraph (2).
- (c) **Loss reserve—**
  - (1) **Establishment—** A [company](/usc/15/662.md?p=3) designated as a premier certified lender shall establish a loss reserve for financing approved pursuant to this section.
  - (2) **Amount—** The amount of each loss reserve established under [paragraph (1)](#c-1) shall be 10 percent of the amount of the [company](/usc/15/662.md?p=3)’s exposure, as determined under [subsection (b)(2)(C)](#b-2-C).
  - (3) **Assets—** Each loss reserve established under [paragraph (1)](#c-1) shall be comprised of—
    - (A) segregated funds on deposit in an [account](/usc/15/1681a.md?p=r-4) or [accounts](/usc/15/1681a.md?p=r-4) with a federally insured depository institution or institutions selected by the [company](/usc/15/662.md?p=3), subject to a collateral assignment in favor of, and in a format acceptable to, the [Administration](/usc/15/662.md?p=1);
    - (B) irrevocable letter or letters of [credit](/usc/15/1679a.md?p=4), with a collateral assignment in favor of, and a commercially reasonable format acceptable to, the [Administration](/usc/15/662.md?p=1); or
    - (C) any combination of the assets described in subparagraphs [(A)](#c-3-A) and [(B)](#c-3-B).
  - (4) **Contributions—** The [company](/usc/15/662.md?p=3) shall make contributions to the loss reserve, either cash or letters of [credit](/usc/15/1679a.md?p=4) as provided above, in the following amounts and at the following intervals:
    - (A) 50 percent when a debenture is closed.
    - (B) 25 percent additional not later than 1 year after a debenture is closed.
    - (C) 25 percent additional not later than 2 years after a debenture is closed.
  - (5) **Replenishment—** If a loss has been sustained by the [Administration](/usc/15/662.md?p=1), any portion of the loss reserve, and other funds provided by the premier [company](/usc/15/662.md?p=3) as necessary, may be used to reimburse the [Administration](/usc/15/662.md?p=1) for the premier [company](/usc/15/662.md?p=3)’s share of the loss as provided in [subsection (b)(2)(C)](#b-2-C). If the [company](/usc/15/662.md?p=3) utilizes the reserve, within 30 days it shall replace an equivalent amount of funds.
  - (6) **Disbursements—**
    - (A) **In general—** The [Administration](/usc/15/662.md?p=1) shall allow the certified development [company](/usc/15/662.md?p=3) to withdraw from the loss reserve amounts attributable to any debenture that has been repaid.
    - (B) **Temporary reduction based on outstanding balance—** Notwithstanding [subparagraph (A)](#c-6-A), during the 2-year period beginning on the date that is 90 days after May 28, 2004, the [Administration](/usc/15/662.md?p=1) shall allow the certified development [company](/usc/15/662.md?p=3) to withdraw from the loss reserve such amounts as are in excess of 1 percent of the aggregate outstanding balances of debentures to which such loss reserve relates. The preceding sentence shall not apply with respect to any debenture before 100 percent of the contribution described in [paragraph (4)](#c-4) with respect to such debenture has been made.
  - (7) **Alternative loss reserve—**
    - (A) **Election—** With respect to any [eligible calendar quarter](#c-7-J), any [qualified high loss reserve PCL](#c-7-F) may elect to have the requirements of this paragraph apply in lieu of the requirements of paragraphs [(2)](#c-2) and [(4)](#c-4) for such quarter.
    - (B) **Contributions—**
      - (i) **Ordinary rules inapplicable—** Except as provided under [clause (ii)](#c-7-B-ii) and [paragraph (5)](#c-5), a [qualified high loss reserve PCL](#c-7-F) that makes the election described in [subparagraph (A)](#c-7-A) with respect to a [calendar quarter](#c-7-K) shall not be required to make contributions to its loss reserve during such quarter.
      - (ii) **Based on loss—** A [qualified high loss reserve PCL](#c-7-F) that makes the election described in [subparagraph (A)](#c-7-A) with respect to any [calendar quarter](#c-7-K) shall, before the last day of such quarter, make such contributions to its loss reserve as are necessary to ensure that the amount of the loss reserve of the PCL is—
        - (I) not less than $100,000; and
        - (II) sufficient, as determined by a [qualified independent auditor](#c-7-H), for the PCL to meet its obligations to protect the Federal Government from risk of loss.
      - (iii) **Certification—** Before the end of any [calendar quarter](#c-7-K) for which an election is in effect under [subparagraph (A)](#c-7-A), the head of the PCL shall submit to the [Administrator](/usc/15/662.md?p=2) a certification that the loss reserve of the PCL is sufficient to meet such PCL’s obligation to protect the Federal Government from risk of loss. Such certification shall be in such form and submitted in such manner as the [Administrator](/usc/15/662.md?p=2) may require and shall be signed by the head of such PCL and the auditor making the determination under [clause (ii)(II)](#c-7-B-ii-II).
    - (C) **Disbursements—**
      - (i) **Ordinary rule inapplicable—** [Paragraph (6)](#c-6) shall not apply with respect to any [qualified high loss reserve PCL](#c-7-F) for any [calendar quarter](#c-7-K) for which an election is in effect under [subparagraph (A)](#c-7-A).
      - (ii) **Excess funds—** At the end of each [calendar quarter](#c-7-K) for which an election is in effect under [subparagraph (A)](#c-7-A), the [Administration](/usc/15/662.md?p=1) shall allow the [qualified high loss reserve PCL](#c-7-F) to withdraw from its loss reserve the excess of—
        - (I) the amount of the loss reserve, over
        - (II) the greater of $100,000 or the amount which is determined under [subparagraph (B)(ii)](#c-7-B-ii) to be sufficient to meet the PCL’s obligation to protect the Federal Government from risk of loss.
    - (D) **Recontribution—** If the requirements of this paragraph apply to a [qualified high loss reserve PCL](#c-7-F) for any [calendar quarter](#c-7-K) and cease to apply to such PCL for any subsequent [calendar quarter](#c-7-K), such PCL shall make a contribution to its loss reserve in such amount as the [Administrator](/usc/15/662.md?p=2) may determine provided that such amount does not exceed the amount which would result in the total amount in the loss reserve being equal to the amount which would have been in such loss reserve had this paragraph never applied to such PCL. The [Administrator](/usc/15/662.md?p=2) may require that such payment be made as a single payment or as a series of payments.
    - (E) **Risk management—** If a [qualified high loss reserve PCL](#c-7-F) fails to meet the requirement of [subparagraph (F)(iii)](#c-7-F-iii) during any period for which an election is in effect under [subparagraph (A)](#c-7-A) and such failure continues for 180 days, the requirements of paragraphs [(2)](#c-2), [(4)](#c-4), and [(6)](#c-6) shall apply to such PCL as of the end of such 180-day period and such PCL shall make the contribution to its loss reserve described in [subparagraph (D)](#c-7-D). The [Administrator](/usc/15/662.md?p=2) may waive the requirements of this subparagraph.
    - (F) **Qualified high loss reserve PCL—** The term “qualified high loss reserve PCL” means, with respect to any calendar year, any premier certified lender designated by the [Administrator](/usc/15/662.md?p=2) as a qualified high loss reserve PCL for such year. The [Administrator](/usc/15/662.md?p=2) shall not designate a [company](/usc/15/662.md?p=3) under the preceding sentence unless the [Administrator](/usc/15/662.md?p=2) determines that—
      - (i) the amount of the loss reserve of the [company](/usc/15/662.md?p=3) is not less than $100,000;
      - (ii) the [company](/usc/15/662.md?p=3) has established and is utilizing an appropriate and effective process for analyzing the risk of loss associated with its portfolio of [PCLP loans](#c-7-I) and for grading each [PCLP loan](#c-7-I) made by the [company](/usc/15/662.md?p=3) on the basis of the risk of loss associated with such loan; and
      - (iii) the [company](/usc/15/662.md?p=3) meets or exceeds 4 or more of the [specified risk management benchmarks](#c-7-G) as of the most recent assessment by the [Administration](/usc/15/662.md?p=1) or the [Administration](/usc/15/662.md?p=1) has issued a waiver with respect to the requirement of this clause.
    - (G) **Specified risk management benchmarks—** For purposes of this paragraph, the term “specified risk management benchmarks” means the following rates, as determined by the [Administrator](/usc/15/662.md?p=2):
      - (i) Currency rate.
      - (ii) Delinquency rate.
      - (iii) Default rate.
      - (iv) Liquidation rate.
      - (v) Loss rate.
    - (H) **Qualified independent auditor—** For purposes of this paragraph, the term “qualified independent auditor” means any auditor who—
      - (i) is compensated by the [qualified high loss reserve PCL](#c-7-F);
      - (ii) is independent of such PCL; and
      - (iii) has been approved by the [Administrator](/usc/15/662.md?p=2) during the preceding year.
    - (I) **PCLP loan—** For purposes of this paragraph, the term “PCLP loan” means any loan guaranteed under this section.
    - (J) **Eligible calendar quarter—** For purposes of this paragraph, the term “eligible calendar quarter” means—
      - (i) the first [calendar quarter](#c-7-K) that begins after the end of the 90-day period beginning with May 28, 2004; and
      - (ii) the 7 succeeding [calendar quarters](#c-7-K).
    - (K) **Calendar quarter—** For purposes of this paragraph, the term “calendar quarter” means—
      - (i) the period which begins on January 1 and ends on March 31 of each year;
      - (ii) the period which begins on April 1 and ends on June 30 of each year;
      - (iii) the period which begins on July 1 and ends on September 30 of each year; and
      - (iv) the period which begins on October 1 and ends on December 31 of each year.
    - (L) **Regulations—** Not later than 45 days after May 28, 2004, the [Administrator](/usc/15/662.md?p=2) shall publish in the Federal Register and transmit to the Congress regulations to carry out this paragraph. Such regulations shall include provisions relating to—
      - (i) the approval of auditors under [subparagraph (H)](#c-7-H); and
      - (ii) the designation of [qualified high loss reserve PCLs](#c-7-F) under [subparagraph (F)](#c-7-F), including the determination of whether a process for analyzing risk of loss is appropriate and effective for purposes of [subparagraph (F)(ii)](#c-7-F-ii).
  - (8) **Bureau of PCLP Oversight—**
    - (A) **Establishment—** There is hereby established in the [Small Business](/usc/15/1691c–2.md?p=h-2) [Administration](/usc/15/662.md?p=1) a bureau to be known as the Bureau of PCLP Oversight.
    - (B) **Purpose—** The Bureau of PCLP Oversight shall carry out such functions of the [Administration](/usc/15/662.md?p=1) under this subsection as the [Administrator](/usc/15/662.md?p=2) may designate.
    - (C) **Deadline—** Not later than 90 days after May 28, 2004—
      - (i) the [Administrator](/usc/15/662.md?p=2) shall ensure that the Bureau of PCLP Oversight is prepared to carry out any functions designated under [subparagraph (B)](#c-8-B), and
      - (ii) the Office of the Inspector General of the [Administration](/usc/15/662.md?p=1) shall report to the Congress on the preparedness of the Bureau of PCLP Oversight to carry out such functions.
- (d) **Sale of certain defaulted loans—**
  - (1) **Notice—** If, upon default in repayment, the [Administration](/usc/15/662.md?p=1) acquires a loan guaranteed under this section and identifies such loan for inclusion in a bulk asset sale of defaulted or repurchased loans or other financings, it shall give prior notice thereof to any certified development [company](/usc/15/662.md?p=3) which has a contingent liability under this section. The notice shall be given to the [company](/usc/15/662.md?p=3) as soon as possible after the financing is identified, but not less than 90 days before the date the [Administration](/usc/15/662.md?p=1) first makes any records on such financing available for examination by prospective purchasers prior to its offering in a [package](/usc/15/1471.md?p=3) of loans for bulk sale.
  - (2) **Limitations—** The [Administration](/usc/15/662.md?p=1) shall not offer any loan described in [paragraph (1)](#d-1) as part of a bulk sale unless it—
    - (A) provides prospective purchasers with the opportunity to examine the [Administration](/usc/15/662.md?p=1)’s records with respect to such loan; and
    - (B) provides the notice required by [paragraph (1)](#d-1).
- (e) **Loan approval authority—**
  - (1) **In general—** Notwithstanding [section 697(b)(6) of this title](/usc/15/697.md?p=b-6), and subject to such terms and conditions as the [Administration](/usc/15/662.md?p=1) may establish, the [Administration](/usc/15/662.md?p=1) may permit a [company](/usc/15/662.md?p=3) designated as a premier certified lender under this section to approve, authorize, close, service, foreclose, litigate (except that the [Administration](/usc/15/662.md?p=1) may monitor the conduct of any such litigation to which a premier certified lender is a party), and liquidate loans that are funded with the proceeds of a debenture issued by such [company](/usc/15/662.md?p=3) and may authorize the guarantee of such debenture.
  - (2) **Scope of review—** The approval of a loan by a premier certified lender shall be subject to final approval as to eligibility of any guarantee by the [Administration](/usc/15/662.md?p=1) pursuant to [section 697(a) of this title](/usc/15/697.md?p=a), but such final approval shall not include review of decisions by the lender involving creditworthiness, loan closing, or compliance with legal requirements imposed by law or regulation.
- (f) **Review—** After the issuance and sale of debentures under this section, the [Administration](/usc/15/662.md?p=1), at intervals not greater than 12 months, shall review the financings made by each premier certified lender. The review shall include the lender’s [credit](/usc/15/1679a.md?p=4) decisions and general compliance with the eligibility requirements for each financing approved under the [program](/usc/15/2921.md?p=6) authorized under this section. The [Administration](/usc/15/662.md?p=1) shall consider the findings of the review in carrying out its responsibilities under [subsection (g)](#g), but such review shall not affect any outstanding debenture guarantee.
- (g) **Suspension or revocation—** The designation of a certified development [company](/usc/15/662.md?p=3) as a premier certified lender may be suspended or revoked if the [Administration](/usc/15/662.md?p=1) determines that the [company](/usc/15/662.md?p=3)—
  - (1) has not continued to meet the criteria for eligibility under [subsection (b)](#b);
  - (2) has not established or maintained the loss reserve required under [subsection (c)](#c);
  - (3) is failing to adhere to the [Administration](/usc/15/662.md?p=1)’s rules and regulations; or
  - (4) is violating any other applicable provision of law.
- (h) **Effect of suspension or revocation—** A suspension or revocation under [subsection (g)](#g) shall not affect any outstanding debenture guarantee.
- (i) **Program goals—** Each certified development [company](/usc/15/662.md?p=3) participating in the [program](/usc/15/2921.md?p=6) under this section shall establish a goal of processing a minimum of not less than 50 percent of the loan [applications](/usc/15/77ccc.md?p=8) for assistance under [section 697a of this title](/usc/15/697a.md) pursuant to the [program](/usc/15/2921.md?p=6) authorized under this section.
- (j) **Report—** Not later than 1 year after October 22, 1994, and annually thereafter, the [Administration](/usc/15/662.md?p=1) shall report to the [Committees](/usc/15/2921.md?p=1) on [Small Business](/usc/15/1691c–2.md?p=h-2) of the Senate and the House of Representatives on the implementation of this section. Each report shall include—
  - (1) the number of certified [development companies](/usc/15/662.md?p=6) designated as premier certified lenders;
  - (2) the debenture guarantee volume of such [companies](/usc/15/662.md?p=3);
  - (3) a comparison of the loss rate for premier certified lenders to the loss rate for accredited and other lenders, specifically comparing default rates and recovery rates on liquidations; and
  - (4) such other information as the [Administration](/usc/15/662.md?p=1) deems appropriate.

# §697f. Prepayment of development company debentures

- (a) **In general—**
  - (1) **Prepayment authorized—** Subject to the requirements set forth in [subsection (b)](#b), an [issuer](#e-1) of a debenture purchased by the Federal Financing Bank and guaranteed by the [Administration](/usc/15/662.md?p=1) under this chapter may, at the election of the [borrower](#e-2) (in the case of a loan under [section 697 of this title](/usc/15/697.md)) or the [issuer](#e-1) (in the case of a [small business investment company](/usc/15/662.md?p=3)) and with the approval of the [Administration](/usc/15/662.md?p=1), prepay such debenture in accordance with the provisions of this section.
  - (2) **Procedure—**
    - (A) **In general—** In making a prepayment under [paragraph (1)](#a-1)—
      - (i) the [borrower](#e-2) (in the case of a loan under [section 697 of this title](/usc/15/697.md)) or the [issuer](#e-1) (in the case of a [small business investment company](/usc/15/662.md?p=3)) shall pay to the Federal Financing Bank an amount that is equal to the sum of the unpaid principal balance due on the debenture as of the date of the prepayment (plus accrued interest at the coupon rate on the debenture) and the amount of the repurchase premium described in [subparagraph (B)](#a-2-B); and
      - (ii) the [Administration](/usc/15/662.md?p=1) shall pay to the Federal Financing Bank the difference between the repurchase premium paid by the [borrower](#e-2) under this subsection and the repurchase premium that the Federal Financing Bank would otherwise have received.
    - (B) **Repurchase premium—**
      - (i) **In general—** For purposes of [subparagraph (A)(i)](#a-2-A-i), the repurchase premium is the amount equal to the product of—
        - (I) the unpaid principal balance due on the debenture on the date of prepayment; and
        - (II) the applicable percentage rate, as determined in accordance with clauses [(ii)](#a-2-B-ii) and [(iii)](#a-2-B-iii).
      - (ii) **Applicable percentage rate—** For purposes of [clause (i)(II)](#a-2-B-i-II), the applicable percentage rate means—
        - (I) with respect to a 10-year term loan, 8.5 percent;
        - (II) with respect to a 15-year term loan, 9.5 percent;
        - (III) with respect to a 20-year term loan, 10.5 percent; and
        - (IV) with respect to a 25-year term loan, 11.5 percent.
      - (iii) **Adjustments to applicable percentage rate—** The percentage rates described in [clause (ii)](#a-2-B-ii) shall be increased or decreased by the [Administration](/usc/15/662.md?p=1) by a factor not to exceed one-third, if the same factor is applied in each case and if the [Administration](/usc/15/662.md?p=1) determines that an adjustment is necessary, based on the number of [borrowers](#e-2) having given notice of their intent to participate, in [order](/usc/15/8702.md?p=14) to make the [program](/usc/15/2921.md?p=6) (including the amounts appropriated for this purpose under Public Law 103–317) result in no substantial net gain or loss of revenue to the Federal Financing Bank or to the [Administration](/usc/15/662.md?p=1). Amounts collected in excess of the amount necessary to ensure revenue neutrality shall be refunded to the [borrowers](#e-2).
- (b) **Requirements—** For purposes of [subsection (a)](#a), the requirements of this subsection are that—
  - (1) the debenture is outstanding and neither the loan that secures the debenture, if any, nor the debenture is in default on the date on which the prepayment is made;
  - (2) [State](/usc/15/662.md?p=4), local, or personal funds, or the proceeds of a refinancing in accordance with [subsection (d)](#d) under the [programs](/usc/15/2921.md?p=6) authorized by this subchapter, are used to prepay or roll over the debenture; and
  - (3) with respect to a debenture issued under [section 697 of this title](/usc/15/697.md), the [issuer](#e-1) certifies that the benefits, net of fees and expenses authorized herein, associated with prepayment of the debenture are entirely passed through to the [borrower](#e-2).
- (c) **No prepayment fees or penalties—** No fees or penalties other than those specified in this section may be imposed on the [issuer](#e-1), the [borrower](#e-2), the [Administration](/usc/15/662.md?p=1), or any fund or [account](/usc/15/1681a.md?p=r-4) administered by the [Administration](/usc/15/662.md?p=1) as the result of a prepayment under this section.
- (d) **Refinancing limitations—**
  - (1) **In general—** The refinancing of a debenture under sections [697a](/usc/15/697a.md) and [697b](/usc/15/697b.md) of this title, in accordance with [subsection (b)(2)](#b-2)—
    - (A) shall not exceed the amount necessary to prepay existing debentures, including all costs associated with the refinancing and any applicable prepayment penalty or repurchase premium; and
    - (B) except as provided in paragraphs [(2)](#d-2) and [(3)](#d-3), shall be subject to the provisions of sections [697a](/usc/15/697a.md) and [697b](/usc/15/697b.md) of this title and the rules and regulations promulgated thereunder, including rules and regulations governing payment of authorized expenses, [commissions](/usc/15/78c.md?p=a-15), fees, and [discounts](/usc/15/1602.md?p=q) to [brokers](/usc/15/6102.md?p=d-2-B-i) and [dealers](/usc/15/6102.md?p=d-2-B-i) in trust certificates issued pursuant to [section 697b of this title](/usc/15/697b.md).
  - (2) **Job creation—** An [applicant](/usc/15/7a.md?p=3) for refinancing under [section 697a of this title](/usc/15/697a.md) of a loan made pursuant to [section 697 of this title](/usc/15/697.md) shall not be required to demonstrate that a requisite number of jobs will be created with the proceeds of a refinancing.
  - (3) **Loan processing fee—** To cover the cost of loan packaging, processing, and other administrative functions, a development [company](/usc/15/662.md?p=3) that provides refinancing under [subsection (b)(2)](#b-2) may impose a one-time loan processing fee, not to exceed 0.5 percent of the principal amount of the loan.
  - (4) **New debentures—** [Issuers](#e-1) of debentures under subchapter III may issue new debentures in accordance with such subchapter in [order](/usc/15/8702.md?p=14) to prepay existing debentures as authorized in this section.
  - (5) **Preliminary notice—**
    - (A) **In general—** The [Administration](/usc/15/662.md?p=1) shall use certified mail and other reasonable means to notify each eligible [borrower](#d-5-B) of the prepayment [program](/usc/15/2921.md?p=6) provided in this subchapter. Each preliminary notice shall specify the range and dollar amount of repurchase premiums which could be required of that [borrower](#d-5-B) in [order](/usc/15/8702.md?p=14) to participate in the [program](/usc/15/2921.md?p=6). In carrying out this [program](/usc/15/2921.md?p=6), the [Administration](/usc/15/662.md?p=1) shall provide a period of not less than 45 days following the receipt of such notice by the [borrower](#d-5-B) during which the [borrower](#d-5-B) must notify the [Administration](/usc/15/662.md?p=1) of the [borrower](#d-5-B)’s intent to participate in the [program](/usc/15/2921.md?p=6). The [Administration](/usc/15/662.md?p=1) shall require that a [borrower](#d-5-B) who gives notice of its intent to participate to make an earnest money deposit of $1,000 which shall not be refundable but which shall be credited toward the final repurchase premium.
    - (B) **“Borrower” defined—** For purposes of this paragraph, the term “borrower”, in the case of a [small business investment company](/usc/15/662.md?p=3) or a specialized [small business investment company](/usc/15/662.md?p=3), means “[issuer](#e-1)”.
  - (6) **Final notice—** Based upon the response to the preliminary notice under [paragraph (5)](#d-5), the [Administration](/usc/15/662.md?p=1) shall make a final computation of the necessary prepayment premiums and shall notify each qualified respondent of the results of such computation. Each qualified respondent shall be afforded not less than 4 months to complete the prepayment.
- (e) **Definitions—** For purposes of this section—
  - (1) the term “issuer” means—
    - (A) the qualified [State](/usc/15/662.md?p=4) or local development [company](/usc/15/662.md?p=3) that issued a debenture pursuant to [section 697 of this title](/usc/15/697.md), which has been purchased by the Federal Financing Bank; and
    - (B) a [small business investment company](/usc/15/662.md?p=3) licensed pursuant to [section 681 of this title](/usc/15/681.md); or
  - (2) the term “borrower” means a [small business concern](/usc/15/78c.md?p=a-53-B-ii) whose loan secures a debenture issued pursuant to [section 697 of this title](/usc/15/697.md).
- (f) **Regulations—** Not later than 30 days after October 22, 1994, the [Administration](/usc/15/662.md?p=1) shall promulgate such regulations as may be necessary to carry out this section.
- (g) **Authorization—** There are authorized to be appropriated $30,000,000 to carry out the provisions of The [Small Business](/usc/15/1691c–2.md?p=h-2) Prepayment Penalty Relief Act of 1994.