15 U.S.C. § 697e — Premier Certified Lenders Program

Page 1146 TITLE 15—COMMERCE AND TRADE § 697e 1 So in original. Probably should be preceded by ‘‘if’’. Except as otherwise provided, amendment by Pub. L. 116–260 effective on Dec. 27, 2020, and applicable to loans and grants made on or after Dec. 27, 2020, see section 348 of Pub. L. 116–260, set out as a note under section 636 of this title. REGULATIONS Pub. L. 103–403, title II, § 212(b), Oct. 22, 1994, 108 Stat. 4184, provided that: ‘‘Not later than 120 days after the date of enactment of this Act [Oct. 22, 1994], the Admin- istration shall promulgate final regulations to carry out this section [enacting this section and provisions set out below].’’ REPORT ON IMPLEMENTATION OF PROGRAM Pub. L. 103–403, title II, § 212(c), Oct. 22, 1994, 108 Stat. 4184, provided that: ‘‘Not later than 1 year after the ef- fective date of regulations promulgated under sub- section (b) [set out above], and biennially thereafter, the Administration shall report to the Committees on Small Business of the Senate and the House of Rep- resentatives [Committee on Small Business of Senate now Committee on Small Business and Entrepreneur- ship of Senate] on the implementation of this section [enacting this section and provisions set out above]. Such report shall include data on the number of devel- opment companies designated as accredited lenders, their debenture guarantee volume, their loss rates, the average processing time on their guarantee applica- tions, and such other information as the Administra- tion deems appropriate.’’ § 697e. Premier Certified Lenders Program (a) Establishment The Administration may establish a Premier Certified Lenders Program for certified develop- ment companies that meet the requirements of subsection (b). (b) Requirements (1) Application To be eligible to participate in the Premier Certified Lenders Program established under subsection (a), a certified development com- pany shall prepare and submit to the Adminis- tration an application at such time, in such manner, and containing such information as the Administration may require. (2) Designation The Administration may designate a cer- tified development company as a premier cer- tified lender— (A) if the company is an active certified development company in good standing and has been an active participant in the accred- ited lenders program during the entire 12- month period preceding the date on which the company submits an application under paragraph (1), except that the Administra- tion may waive this requirement if the com- pany is qualified to participate in the ac- credited lenders program; (B) if the company has a history of— (i) submitting to the Administration adequately analyzed debenture guarantee application packages; and (ii) of properly closing section 504 [15 U.S.C. 697a] loans and servicing its loan portfolio; (C) if the company agrees to assume and to reimburse the Administration for 10 percent of any loss sustained by the Administration as a result of default by the company in the payment of principal or interest on a deben- ture issued by such company and guaranteed by the Administration under this section (15 percent in the case of any such loss attrib- utable to a debenture issued by the company during any period for which an election is in effect under subsection (c)(7) for such com- pany); and (D) the 1 Administrator determines, with respect to the company, that the loss reserve established in accordance with subsection (c) is sufficient for the company to meet its ob- ligations to protect the Federal Government from risk of loss. (3) Applicability of criteria after designation The Administrator may revoke the designa- tion of a certified development company as a premier certified lender under this section at any time, if the Administrator determines that the certified development company does not meet any requirement described in sub- paragraphs (A) through (D) of paragraph (2). (c) Loss reserve (1) Establishment A company designated as a premier certified lender shall establish a loss reserve for financ- ing approved pursuant to this section. (2) Amount The amount of each loss reserve established under paragraph (1) shall be 10 percent of the amount of the company’s exposure, as deter- mined under subsection (b)(2)(C). (3) Assets Each loss reserve established under para- graph (1) shall be comprised of— (A) segregated funds on deposit in an ac- count or accounts with a federally insured depository institution or institutions se- lected by the company, subject to a collat- eral assignment in favor of, and in a format acceptable to, the Administration; (B) irrevocable letter or letters of credit, with a collateral assignment in favor of, and a commercially reasonable format accept- able to, the Administration; or (C) any combination of the assets de- scribed in subparagraphs (A) and (B). (4) Contributions The company shall make contributions to the loss reserve, either cash or letters of credit 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 Adminis- tration, any portion of the loss reserve, and other funds provided by the premier company as necessary, may be used to reimburse the Administration for the premier company’s share of the loss as provided in subsection Page 1147 TITLE 15—COMMERCE AND TRADE § 697e (b)(2)(C). If the company utilizes the reserve, within 30 days it shall replace an equivalent amount of funds. (6) Disbursements (A) In general The Administration shall allow the cer- tified development company to withdraw from the loss reserve amounts attributable to any debenture that has been repaid. (B) Temporary reduction based on out- standing balance Notwithstanding subparagraph (A), during the 2-year period beginning on the date that is 90 days after May 28, 2004, the Administra- tion shall allow the certified development company to withdraw from the loss reserve such amounts as are in excess of 1 percent of the aggregate outstanding balances of de- bentures 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) with respect to such debenture has been made. (7) Alternative loss reserve (A) Election With respect to any eligible calendar quar- ter, any qualified high loss reserve PCL may elect to have the requirements of this para- graph apply in lieu of the requirements of paragraphs (2) and (4) for such quarter. (B) Contributions (i) Ordinary rules inapplicable Except as provided under clause (ii) and paragraph (5), a qualified high loss reserve PCL that makes the election described in subparagraph (A) with respect to a cal- endar quarter shall not be required to make contributions to its loss reserve dur- ing such quarter. (ii) Based on loss A qualified high loss reserve PCL that makes the election described in subpara- graph (A) with respect to any calendar quarter 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, 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 for which an election is in effect under subparagraph (A), the head of the PCL shall submit to the Administrator a cer- tification 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 may require and shall be signed by the head of such PCL and the auditor making the determination under clause (ii)(II). (C) Disbursements (i) Ordinary rule inapplicable Paragraph (6) shall not apply with re- spect to any qualified high loss reserve PCL for any calendar quarter for which an election is in effect under subparagraph (A). (ii) Excess funds At the end of each calendar quarter for which an election is in effect under sub- paragraph (A), the Administration shall allow the qualified high loss reserve PCL to withdraw from its loss reserve the ex- cess of— (I) the amount of the loss reserve, over (II) the greater of $100,000 or the amount which is determined under sub- paragraph (B)(ii) to be sufficient to meet the PCL’s obligation to protect the Fed- eral Government from risk of loss. (D) Recontribution If the requirements of this paragraph apply to a qualified high loss reserve PCL for any calendar quarter and cease to apply to such PCL for any subsequent calendar quarter, such PCL shall make a contribution to its loss reserve in such amount as the Ad- ministrator 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 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 fails to meet the requirement of subparagraph (F)(iii) during any period for which an elec- tion is in effect under subparagraph (A) and such failure continues for 180 days, the re- quirements of paragraphs (2), (4), and (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). The Administrator may waive the requirements of this subpara- graph. (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 as a qualified high loss reserve PCL for such year. The Adminis- trator shall not designate a company under the preceding sentence unless the Adminis- trator determines that— (i) the amount of the loss reserve of the company is not less than $100,000; (ii) the company has established and is utilizing an appropriate and effective proc- ess for analyzing the risk of loss associated with its portfolio of PCLP loans and for Page 1148 TITLE 15—COMMERCE AND TRADE § 697e grading each PCLP loan made by the com- pany on the basis of the risk of loss associ- ated with such loan; and (iii) the company meets or exceeds 4 or more of the specified risk management benchmarks as of the most recent assess- ment by the Administration or the Admin- istration 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: (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; (ii) is independent of such PCL; and (iii) has been approved by the Adminis- trator 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 that begins after the end of the 90-day period begin- ning with May 28, 2004; and (ii) the 7 succeeding calendar quarters. (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 shall publish in the Fed- eral Register and transmit to the Congress regulations to carry out this paragraph. Such regulations shall include provisions re- lating to— (i) the approval of auditors under sub- paragraph (H); and (ii) the designation of qualified high loss reserve PCLs under subparagraph (F), in- cluding the determination of whether a process for analyzing risk of loss is appro- priate and effective for purposes of sub- paragraph (F)(ii). (8) Bureau of PCLP Oversight (A) Establishment There is hereby established in the Small Business Administration 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 under this subsection as the Administrator may designate. (C) Deadline Not later than 90 days after May 28, 2004— (i) the Administrator shall ensure that the Bureau of PCLP Oversight is prepared to carry out any functions designated under subparagraph (B), and (ii) the Office of the Inspector General of the Administration shall report to the Congress on the preparedness of the Bu- reau of PCLP Oversight to carry out such functions. (d) Sale of certain defaulted loans (1) Notice If, upon default in repayment, the Adminis- tration acquires a loan guaranteed under this section and identifies such loan for inclusion in a bulk asset sale of defaulted or repur- chased loans or other financings, it shall give prior notice thereof to any certified develop- ment company which has a contingent liabil- ity under this section. The notice shall be given to the company as soon as possible after the financing is identified, but not less than 90 days before the date the Administration first makes any records on such financing available for examination by prospective purchasers prior to its offering in a package of loans for bulk sale. (2) Limitations The Administration shall not offer any loan described in paragraph (1) as part of a bulk sale unless it— (A) provides prospective purchasers with the opportunity to examine the Administra- tion’s records with respect to such loan; and (B) provides the notice required by para- graph (1). (e) Loan approval authority (1) In general Notwithstanding section 697(b)(6) of this title, and subject to such terms and conditions as the Administration may establish, the Ad- ministration may permit a company des- ignated as a premier certified lender under this section to approve, authorize, close, serv- ice, foreclose, litigate (except that the Admin- istration 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 and may authorize the guar- antee 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 Adminis- Page 1149 TITLE 15—COMMERCE AND TRADE § 697e tration pursuant to section 697(a) of this title, but such final approval shall not include re- view of decisions by the lender involving cred- itworthiness, loan closing, or compliance with legal requirements imposed by law or regula- tion. (f) Review After the issuance and sale of debentures under this section, the Administration, at inter- vals not greater than 12 months, shall review the financings made by each premier certified lender. The review shall include the lender’s credit decisions and general compliance with the eligibility requirements for each financing ap- proved under the program authorized under this section. The Administration shall consider the findings of the review in carrying out its respon- sibilities under subsection (g), but such review shall not affect any outstanding debenture guar- antee. (g) Suspension or revocation The designation of a certified development company as a premier certified lender may be suspended or revoked if the Administration de- termines that the company— (1) has not continued to meet the criteria for eligibility under subsection (b); (2) has not established or maintained the loss reserve required under subsection (c); (3) is failing to adhere to the Administra- tion’s rules and regulations; or (4) is violating any other applicable provi- sion of law. (h) Effect of suspension or revocation A suspension or revocation under subsection (g) shall not affect any outstanding debenture guarantee. (i) Program goals Each certified development company partici- pating in the program under this section shall establish a goal of processing a minimum of not less than 50 percent of the loan applications for assistance under section 697a of this title pursu- ant to the program authorized under this sec- tion. (j) Report Not later than 1 year after October 22, 1994, and annually thereafter, the Administration shall report to the Committees on Small Busi- ness of the Senate and the House of Representa- tives on the implementation of this section. Each report shall include— (1) the number of certified development com- panies designated as premier certified lenders; (2) the debenture guarantee volume of such companies; (3) a comparison of the loss rate for premier certified lenders to the loss rate for accredited and other lenders, specifically comparing de- fault rates and recovery rates on liquidations; and (4) such other information as the Adminis- tration deems appropriate. (Pub. L. 85–699, title V, § 508, as added and amended Pub. L. 103–403, title II, § 217, Oct. 22, 1994, 108 Stat. 4185; Pub. L. 105–135, title II, § 223(a), Dec. 2, 1997, 111 Stat. 2604; Pub. L. 106–554, § 1(a)(9) [title III, §§ 305, 306], Dec. 21, 2000, 114 Stat. 2763, 2763A–685; Pub. L. 108–232, §§ 2–3(c), May 28, 2004, 118 Stat. 649–652.) Editorial Notes CODIFICATION May 28, 2004, referred to in subsec. (c)(8)(C), was in the original ‘‘the date of enactment of this Act’’, which was translated as meaning the date of enactment of Pub. L. 108–232, which enacted subsec. (c)(8), to reflect the probable intent of Congress. October 22, 1994, referred to in subsec. (j), was in the original ‘‘the date of enactment of this Act’’, which was translated as meaning the date of enactment of Pub. L. 103–403, which enacted this section, to reflect the prob- able intent of Congress. AMENDMENTS 2004—Subsec. (b)(2)(C). Pub. L. 108–232, § 3(b), inserted ‘‘(15 percent in the case of any such loss attributable to a debenture issued by the company during any period for which an election is in effect under subsection (c)(7) for such company)’’ before ‘‘; and’’. Subsec. (b)(2)(D). Pub. L. 108–232, § 3(c)(1), substituted ‘‘subsection (c)’’ for ‘‘subsection (c)(2)’’. Subsec. (c)(5). Pub. L. 108–232, § 3(c)(2), struck out ‘‘10 percent’’ after ‘‘the premier company’s’’. Subsec. (c)(6). Pub. L. 108–232, § 2, designated existing provisions as subpar. (A), inserted heading, and added subpar. (B). Subsec. (c)(7), (8). Pub. L. 108–232, § 3(a), added pars. (7) and (8). 2000—Pub. L. 106–554, § 1(a)(9) [title III, § 305], repealed Pub. L. 103–403, § 217(b). See 1994 Amendment note below. Subsec. (a). Pub. L. 106–554, § 1(a)(9) [title III, § 306(1)], substituted ‘‘The’’ for ‘‘On a pilot program basis, the’’. Subsecs. (d), (e). Pub. L. 106–554, § 1(a)(9) [title III, § 306(2), (5)], added heading and text of subsec. (d) and redesignated former subsec. (d) as (e). Former subsec. (e) redesignated (f). Subsec. (f). Pub. L. 106–554, § 1(a)(9) [title III, § 306(2), (3)], redesignated subsec. (e) as (f) and substituted ‘‘sub- section (g)’’ for ‘‘subsection (f)’’. Former subsec. (f) re- designated (g). Subsec. (g). Pub. L. 106–554, § 1(a)(9) [title III, § 306(2)], redesignated subsec. (f) as (g). Former subsec. (g) redes- ignated (h). Subsec. (h). Pub. L. 106–554, § 1(a)(9) [title III, § 306(2), (4)], redesignated subsec. (g) as (h) and substituted ‘‘subsection (g)’’ for ‘‘subsection (f)’’. Former subsec. (h) redesignated (i). Subsecs. (i), (j). Pub. L. 106–554, § 1(a)(9) [title III, § 306(2)], redesignated subsecs. (h) and (i) as (i) and (j), respectively. 1997—Subsec. (a). Pub. L. 105–135, § 223(a)(1), struck out ‘‘not more than 15’’ before ‘‘certified development companies’’. Subsec. (b)(2). Pub. L. 105–135, § 223(a)(2)(A)(i), struck out ‘‘if such company’’ after ‘‘premier certified lender’’ in introductory provisions. Subsec. (b)(2)(A), (B). Pub. L. 105–135, § 223(a)(2)(A)(ii), added subpars. (A) and (B) and struck out former sub- pars. (A) and (B) which read as follows: ‘‘(A) has been an active participant in the accredited lenders program during the 12-month period preceding the date on which the company submits an application under paragraph (1), except that, prior to January 1, 1996, the Administration may waive this requirement if the company is qualified to participate in the accred- ited lenders program; ‘‘(B) has a history of submitting to the Administra- tion adequately analyzed debenture guarantee applica- tion packages; and’’. Subsec. (b)(2)(C). Pub. L. 105–135, § 223(a)(2)(A)(iii), in- serted ‘‘if the company’’ before ‘‘agrees to assume’’ and substituted ‘‘; and’’ for period at end. Subsec. (b)(2)(D). Pub. L. 105–135, § 223(a)(2)(A)(iv), added subpar. (D). Page 1150 TITLE 15—COMMERCE AND TRADE § 697f Subsec. (b)(3). Pub. L. 105–135, § 223(a)(2)(B), added par. (3). Subsec. (c). Pub. L. 105–135, § 223(a)(3), added subsec. (c) and struck out heading and text of former subsec. (c). Text read as follows: ‘‘(1) ESTABLISHMENT.—A company designated as a pre- mier certified lender shall establish a loss reserve for financings approved pursuant to this section. ‘‘(2) AMOUNT.—The amount of the loss reserve shall be based upon the greater of— ‘‘(A) the historic loss rate on debentures issued by such company; or ‘‘(B) 10 percent of the amount of the company’s ex- posure as determined under subsection (b)(2)(C) of this section. ‘‘(3) ASSETS.—The loss reserve shall be comprised of segregated assets of the company which shall be securitized in favor of the Administration. ‘‘(4) CONTRIBUTIONS.—The company shall make con- tributions to the loss reserve in the following amounts and at the following intervals: ‘‘(A) 50 percent when a debenture is closed. ‘‘(B) 25 percent not later than 1 year after a deben- ture is closed. ‘‘(C) 25 percent not later than 2 years after a deben- ture is closed.’’ Subsec. (d)(1). Pub. L. 105–135, § 223(a)(4), substituted ‘‘to approve, authorize, close, service, foreclose, liti- gate (except that the Administration may monitor the conduct of any such litigation to which a premier cer- tified lender is a party), and liquidate loans’’ for ‘‘to approve loans’’. Subsec. (f). Pub. L. 105–135, § 223(a)(5), substituted ‘‘certified development company’’ for ‘‘State or local development company’’ in introductory provisions. Subsec. (g). Pub. L. 105–135, § 223(a)(6), substituted ‘‘revocation’’ for ‘‘designation’’ in heading. Subsec. (h). Pub. L. 105–135, § 223(a)(7), added subsec. (h) and struck out heading and text of former subsec. (h). Text read as follows: ‘‘Not later than 180 days after October 22, 1994, the Administration shall promulgate regulations to carry out this section.’’ Subsec. (i)(3). Pub. L. 105–135, § 223(a)(8), substituted ‘‘other lenders, specifically comparing default rates and recovery rates on liquidations’’ for ‘‘other lend- ers’’. 1994—Pub. L. 103–403, § 217(b), which directed repeal of this section effective Oct. 1, 2000, and was repealed by section 1(a)(9) [title III, § 305] of Pub. L. 106–554, was not executed to reflect the probable intent of Congress and the amendments to this section by section 1(a)(9) [title III, § 306] of Pub. L. 106–554. See Termination Date note below. Statutory Notes and Related Subsidiaries CHANGE OF NAME Committee on Small Business of Senate changed to Committee on Small Business and Entrepreneurship of Senate. See Senate Resolution No. 123, One Hundred Seventh Congress, June 29, 2001. EFFECTIVE DATE OF 1997 AMENDMENT Amendment by Pub. L. 105–135 effective Oct. 1, 1997, see section 3 of Pub. L. 105–135, set out as a note under section 631 of this title. TERMINATION DATE Section 217(b) of Pub. L. 103–403, as amended by Pub. L. 105–135, title II, § 223(c), Dec. 2, 1997, 111 Stat. 2606, which provided that this section was to be repealed ef- fective Oct. 1, 2000, was repealed by Pub. L. 106–554, § 1(a)(9) [title III, § 305], Dec. 21, 2000, 114 Stat. 2763, 2763A–685. REGULATIONS Pub. L. 105–135, title II, § 223(b), Dec. 2, 1997, 111 Stat. 2606, provided that: ‘‘The Administrator shall— ‘‘(1) not later than 150 days after the date of enact- ment of this Act [Dec. 2, 1997], promulgate regula- tions to carry out the amendments made by sub- section (a) [amending this section]; and ‘‘(2) not later than 180 days after the date of enact- ment of this Act, issue program guidelines and fully implement the amendments made by subsection (a).’’ § 697f. Prepayment of development company de- bentures (a) In general (1) Prepayment authorized Subject to the requirements set forth in sub- section (b), an issuer of a debenture purchased by the Federal Financing Bank and guaran- teed by the Administration under this chapter may, at the election of the borrower (in the case of a loan under section 697 of this title) or the issuer (in the case of a small business in- vestment company) and with the approval of the Administration, prepay such debenture in accordance with the provisions of this section. (2) Procedure (A) In general In making a prepayment under paragraph (1)— (i) the borrower (in the case of a loan under section 697 of this title) or the issuer (in the case of a small business investment company) shall pay to the Federal Financ- ing Bank an amount that is equal to the sum of the unpaid principal balance due on the debenture as of the date of the prepay- ment (plus accrued interest at the coupon rate on the debenture) and the amount of the repurchase premium described in sub- paragraph (B); and (ii) the Administration shall pay to the Federal Financing Bank the difference be- tween the repurchase premium paid by the borrower under this subsection and the re- purchase premium that the Federal Fi- nancing Bank would otherwise have re- ceived. (B) Repurchase premium (i) In general For purposes of subparagraph (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 prepay- ment; and (II) the applicable percentage rate, as determined in accordance with clauses (ii) and (iii). (ii) Applicable percentage rate For purposes of clause (i)(II), the appli- cable 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) shall be increased or decreased by the