12 U.S.C. § 5704 — Approving State capital access programs

Page 2018 TITLE 12—BANKS AND BANKING § 5704 (5) Allocation to municipalities (A) If more than 3 If more than 3 municipalities, or combina- tion of municipalities as provided in para- graph (3), of a State apply for approval by the Secretary to be participating munici- palities under this subsection, and the appli- cations meet the approval criteria in para- graph (4), the Secretary shall allocate Fed- eral funds to the 3 municipalities with the largest populations. (B) If 3 or fewer If 3 or fewer municipalities, or combina- tion of municipalities as provided in para- graph (3), of a State apply for approval by the Secretary to be participating munici- palities under this subsection, and the appli- cations meet the approval criteria in para- graph (4), the Secretary shall allocate Fed- eral funds to each applicant municipality or combination of municipalities. (6) Apportionment of allocated amount among participating municipalities If the Secretary approves municipalities to be participating municipalities under this sub- section, the Secretary shall apportion the full amount of the Federal funds that are allocated to that State to municipalities that are ap- proved under this subsection in amounts pro- portionate to the population of those munici- palities, based on the most recent available decennial census. (7) Approving State programs for municipali- ties If the Secretary approves municipalities to be participating municipalities under this sub- section, the Secretary shall take into account the additional considerations in section 5705(d) of this title in making the determination under section 5704 or 5705 of this title that the State program or programs to be implemented by the participating municipalities, including a State capital access program, is eligible for Federal contributions to, or for the account of, the State program. (Pub. L. 111–240, title III, § 3004, Sept. 27, 2010, 124 Stat. 2573; Pub. L. 117–2, title III, § 3301(a)(1)(B), Mar. 11, 2021, 135 Stat. 69.) Editorial Notes AMENDMENTS 2021—Subsec. (d)(1), (2). Pub. L. 117–2 substituted ‘‘March 11, 2021’’ for ‘‘September 27, 2010’’ whenever ap- pearing. 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. § 5704. Approving State capital access programs (a) Application A participating State that establishes a new, or has an existing, State capital access program that meets the eligibility criteria in subsection (c) may apply to Secretary to have the State capital access program approved as eligible for Federal contributions to the reserve fund. (b) Approval The Secretary shall approve such State cap- ital access program as eligible for Federal con- tributions to the reserve fund if— (1) within 60 days after March 11, 2021, the State has filed with the Secretary a notice of intent to apply for approval by the Secretary of a State capital access program; (2) within 9 months after March 11, 2021, the State has filed with the Secretary a complete application for approval by the Secretary of a capital access program; (3) the State satisfies the requirements of subsections (a) and (b) of section 5703 of this title; and (4) the State capital access program meets the eligibility criteria in subsection (c). (c) Eligibility criteria for State capital access programs For a State capital access program to be ap- proved under this section, that program shall be required to be a program of the State that— (1) provides portfolio insurance for business loans based on a separate loan-loss reserve fund for each financial institution; (2) requires insurance premiums to be paid by the financial institution lenders and by the business borrowers to the reserve fund to have their loans enrolled in the reserve fund; (3) provides for contributions to be made by the State to the reserve fund in amounts at least equal to the sum of the amount of the in- surance premium charges paid by the borrower and the financial institution to the reserve fund for any newly enrolled loan; and (4) provides its portfolio insurance solely for loans that meet both the following require- ments: (A) The borrower has 500 employees or less at the time that the loan is enrolled in the Program. (B) The loan amount does not exceed $5,000,000. (d) Federal contributions to approved State cap- ital access programs A State capital access program approved under this section will be eligible for receiving Federal contributions to the reserve fund in an amount equal to the sum of the amount of the insurance premium charges paid by the bor- rowers and by the financial institution to the re- serve fund for loans that meet the requirements in subsection (c)(4). A participating State may use the Federal contribution to make its con- tribution to the reserve fund of an approved State capital access program. (e) Minimum program requirements for State capital access programs The Secretary shall, by regulation or other guidance, prescribe Program requirements that meet the following minimum requirements: (1) Experience and capacity The participating State shall determine for each financial institution that participates in Page 2019 TITLE 12—BANKS AND BANKING § 5704 the State capital access program, after con- sultation with the appropriate Federal bank- ing agency or, in the case of a financial insti- tution that is a nondepository community de- velopment financial institution, the Commu- nity Development Financial Institution Fund, that the financial institution has sufficient commercial lending experience and financial and managerial capacity to participate in the approved State capital access program. The determination by the State shall not be re- viewable by the Secretary. (2) Investment authority Subject to applicable State law, the partici- pating State may invest, or cause to be in- vested, funds held in a reserve fund by estab- lishing a deposit account at the financial in- stitution lender in the name of the partici- pating State. In the event that funds in the re- serve fund are not deposited in such an ac- count, such funds shall be invested in a form that the participating State determines is safe and liquid. (3) Loan terms and conditions to be deter- mined by agreement A loan to be filed for enrollment in an ap- proved State capital access program may be made with such interest rate, fees, and other terms and conditions, and the loan may be en- rolled in the approved State capital access program and claims may be filed and paid, as agreed upon by the financial institution 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 shall require the finan- cial institution 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 by the borrower and the fi- nancial institution lender shall be prescribed by the financial institution 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 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. (6) State contributions In enrolling a loan in an approved State cap- ital access program, the participating State may make a contribution to the reserve fund to supplement Federal contributions made under this Program. (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 ac- cess program, the financial institution lend- er— (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, by regulation, may proscribe as prohib- ited loan purposes for enrollment in an approved State capital access program; and (III) the borrower is not— (aa) an executive officer, director, or principal shareholder of the financial institution lender; (bb) a member of the immediate fam- ily of an executive officer, director, or principal shareholder of the financial institution lender; or (cc) a related interest of any such ex- ecutive officer, director, principal shareholder, or member of the imme- diate family; (ii) shall provide assurances to the par- ticipating State that the loan has not been made in order to place under the protec- tion of the approved State capital access program prior debt that is not covered under the approved State capital access program and that is or was owed by the borrower to the financial institution lend- er or to an affiliate of the financial insti- tution 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 lender or an affiliate of the financial institution lender; and (iv) may include additional restrictions on the eligibility of loans or borrowers that are not inconsistent with the provi- sions and purposes of this chapter, includ- ing compliance with all applicable Federal and State laws, regulations, ordinances, and Executive orders. (B) Definitions In this paragraph, the terms ‘‘executive of- ficer’’, ‘‘director’’, ‘‘principal shareholder’’, ‘‘immediate family’’, and ‘‘related interest’’ refer to the same relationship to a financial institution lender as the relationship de- scribed in part 215 of title 12 of the Code of Federal Regulations, or any successor to such part. (8) Capital access for small businesses in un- derserved communities At the time that a State applies to the Sec- retary to have the State capital access pro- gram approved as eligible for Federal con- tributions, the State shall deliver to the Sec- retary a report stating how the State plans to use the Federal contributions to the reserve fund to provide access to capital for small businesses in low- and moderate-income, mi- nority, and other underserved communities, including women- and minority-owned small businesses. (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.) Page 2020 TITLE 12—BANKS AND BANKING § 5705 1 So in original. Probably should be ‘‘Secretary’’. 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. § 5705. Approving collateral support and other innovative credit access and guarantee ini- tiatives for small businesses and manufactur- ers (a) Application A participating State that establishes a new, or has an existing, credit support program that meets the eligibility criteria in subsection (c) may apply to the Secretary to have the State other credit support program approved as eligi- ble for Federal contributions to, or for the ac- count of, the State program. (b) Approval The Secretary shall approve such State other credit support program as eligible for Federal contributions to, or for the account of, the pro- gram if— (1) the Secretary determines that the State satisfies the requirements of paragraphs (1) through (3) of section 5704(b) of this title; (2) the Secretary determines that the State other credit support program meets the eligi- bility criteria in subsection (c); (3) the Secretary determines the State other credit support program to be eligible based on the additional considerations in subsection (d); and (4) within 9 months after March 11, 2021, the State has filed with Treasury a complete ap- plication for Treasury approval. (c) Eligibility criteria for State other credit sup- port programs For a State other credit support program to be approved under this section, that program shall be required to be a program of the State that— (1) can demonstrate that, at a minimum, $1 of public investment by the State program will cause and result in $1 of new private cred- it; (2) can demonstrate a reasonable expecta- tion that, when considered with all other State programs of the State, such State pro- grams together have the ability to use amounts of new Federal contributions to, or for the account of, all such programs in the State to cause and result in amounts of new small business lending at least 10 times the new Federal contribution amount; (3) for those State other credit support pro- grams that provide their credit support through 1 or more financial institution lend- ers, requires the financial institution lenders to have a meaningful amount of their own cap- ital resources at risk in their small business lending; and (4) uses Federal funds allocated under this chapter to extend credit support that— (A) targets an average borrower size of 500 employees or less; (B) does not extend credit support to bor- rowers that have more than 750 employees; (C) targets support towards loans with an average principal amount of $5,000,000 or less; and (D) does not extend credit support to loans that exceed a principal amount of $20,000,000. (d) Additional considerations In making a determination that a State other credit support program is eligible for Federal contributions to, or for the account of, the State program, the Secretary shall take into account the following additional considerations: (1) The anticipated benefits to the State, its businesses, and its residents to be derived from the Federal contributions to, or for the account of, the approved State other credit support program, including the extent to which resulting small business lending will ex- pand economic opportunities. (2) The operational capacity, skills, and ex- perience of the management team of the State other credit support program. (3) The capacity of the State other credit support program to manage increases in the volume of its small business lending. (4) The internal accounting and administra- tive controls systems of the State other credit support program, and the extent to which they can provide reasonable assurance that funds of the State program are safeguarded against waste, loss, unauthorized use, or misappropria- tion. (5) The soundness of the program design and implementation plan of the State other credit support program. (e) Federal contributions to approved State other credit support programs A State other credit support program ap- proved under this section will be eligible for re- ceiving Federal contributions to, or for the ac- count of, the State program in an amount con- sistent with the schedule describing the appor- tionment of allocated Federal funds among State programs delivered by the State to the Secretary under the allocation agreement. (f) Minimum Program Requirements for State other credit support programs (1) Fund 1 to prescribe The Secretary shall, by regulation or other guidance, prescribe Program requirements for approved State other credit support programs. (2) Considerations for fund In prescribing minimum Program require- ments for approved State other credit support programs, the Secretary shall take into con- sideration, to the extent the Secretary deter- mines applicable and appropriate, the min- imum Program requirements for approved State capital access programs in section 5704(e) of this title. (Pub. L. 111–240, title III, § 3006, Sept. 27, 2010, 124 Stat. 2577; Pub. L. 117–2, title III, § 3301(a)(1)(D), Mar. 11, 2021, 135 Stat. 69.)