H.R. 3719 (104th): Small Business Programs Improvement Act of 1996

104th Congress, 1995–1996. Text as of Sep 06, 1996 (Received by the Senate).

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HR 3719 RDS

104th CONGRESS

2d Session

H. R. 3719

IN THE SENATE OF THE UNITED STATES

September 6, 1996

Received


AN ACT

To amend the Small Business Act and Small Business Investment Act of 1958.

    Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) SHORT TITLE- This Act may be cited as the ‘Small Business Programs Improvement Act of 1996’.

    (b) TABLE OF CONTENTS-

      Sec. 1. Short title; table of contents.

      Sec. 2. Administrator defined.

      Sec. 3. Effective date.

TITLE I--AMENDMENTS TO SMALL BUSINESS ACT

      Sec. 101. References.

      Sec. 102. Risk management database.

      Sec. 103. Section 7(a) loan program.

      Sec. 104. Disaster loan program.

      Sec. 105. Microloan demonstration program.

      Sec. 106. Small business development center program.

      Sec. 107. Miscellaneous authorities to provide loans and other financial assistance.

      Sec. 108. Small business competitiveness demonstration program.

      Sec. 109. Amendment to Small Business Guaranteed Credit Enhancement Act of 1993.

      Sec. 110. 1998 authorizations.

      Sec. 111. Level of participation for export working capital loans.

TITLE II--AMENDMENTS TO SMALL BUSINESS INVESTMENT ACT

      Sec. 201. References.

      Sec. 202. Modifications to development company debenture program.

      Sec. 203. Required actions upon default.

      Sec. 204. Loan liquidation pilot program.

      Sec. 205. Registration of certificates.

      Sec. 206. Preferred surety bond guarantee program.

      Sec. 207. Sense of the Congress.

SEC. 2. ADMINISTRATOR DEFINED.

    In this Act, the term ‘Administrator’ means the Administrator of the Small Business Administration.

SEC. 3. EFFECTIVE DATE.

    Except as otherwise expressly provided, this Act and the amendments made by this Act shall take effect on October 1, 1996.

TITLE I--AMENDMENTS TO SMALL BUSINESS ACT

SEC. 101. REFERENCES.

    Except as otherwise expressly provided, whenever in this title an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Small Business Act (15 U.S.C. 631 et seq.).

SEC. 102. RISK MANAGEMENT DATABASE.

    Section 4(b) (15 U.S.C. 633) is amended by inserting after paragraph (2) the following:

      ‘(3) RISK MANAGEMENT DATABASE-

        ‘(A) ESTABLISHMENT- The Administration shall establish, within the management system for the loan programs authorized by subsections (a) and (b) of section 7 of this Act and title V of the Small Business Investment Act of 1958, a management information system that will generate a database capable of providing timely and accurate information in order to identify loan underwriting, collections, recovery, and liquidation problems.

        ‘(B) INFORMATION TO BE MAINTAINED- In addition to such other information as the Administration considers appropriate, the database established under subparagraph (A) shall, with respect to each loan program described in subparagraph (A), include information relating to--

          ‘(i) the identity of the institution making the guaranteed loan or issuing the debenture;

          ‘(ii) the identity of the borrower;

          ‘(iii) the total dollar amount of the loan or debenture;

          ‘(iv) the total dollar amount of government exposure in each loan;

          ‘(v) the district of the Administration in which the borrower has its principal office;

          ‘(vi) the borrower’s principal line of business, as identified by Standard Industrial Classification Code (or any successor to that system);

          ‘(vii) the delinquency rate for each program (including number of instances and days overdue);

          ‘(viii) the number of defaults in each program (including losses and recoveries);

          ‘(ix) the number of deferrals or forbearances in each program (including days and number of instances); and

          ‘(x) comparisons on the basis of loan program, lender, Administration district

and region, for all the data elements maintained.

        ‘(C) DEADLINE FOR OPERATIONAL CAPABILITY- The database established under subparagraph (A) shall be operational not later than March 31, 1997, and shall capture data beginning on the first day of the first quarter of fiscal year 1997 beginning after such date and thereafter.’.

SEC. 103. SECTION 7(a) LOAN PROGRAM.

    (a) SERVICING AND LIQUIDATION OF LOANS BY PREFERRED LENDERS- Section 7(a)(2)(C)(ii)(II) (15 U.S.C. 636(a)(2)(C)(ii)(II)) is amended to read as follows:

            ‘(II) complete authority to service and liquidate such loans without obtaining the prior specific approval of the Administration for routine servicing and liquidation activities, but shall not take any actions creating an actual or apparent conflict of interest.’.

    (b) CERTIFIED LENDERS PROGRAM- Section 7(a)(19) (15 U.S.C. 636(a)(19)) is amended to read as follows:

      ‘(19)(A) CERTIFIED LENDERS PROGRAM-

        ‘(i) ESTABLISHMENT- In addition to the Preferred Lenders Program authorized by the proviso in section 5(b)(7), the Administration is authorized to establish a Certified Lenders Program for lenders who establish their knowledge of Administration laws and regulations concerning the guaranteed loan program and their proficiency in program requirements.

        ‘(ii) SUSPENSION AND REVOCATION- The designation of a lender as a certified lender shall be suspended or revoked at any time that the Administration determines that the lender is not adhering to its rules and regulations or that the loss experience of the lender is excessive as compared to other lenders, but such suspension or revocation shall not affect any outstanding guarantee.

      ‘(B) UNIFORM AND SIMPLIFIED LOAN FORMS- In order to encourage all lending institutions and other entities making loans authorized under this subsection to provide loans of $50,000 or less in guarantees to eligible small business loan applicants, the Administration shall develop and allow participating lenders to solely utilize a uniform and simplified loan form for such loans.

      ‘(C) LOW DOCUMENTATION LOAN PROGRAM- The Administrator may carry out the low documentation loan program for loans of $100,000 or less only through Preferred Lenders and Certified Lenders, or lenders with significant experience making small business loans. The Administration shall give special consideration to lenders who have made loans under the authority of this section. The Administrator shall promulgate regulations defining the experience necessary for lenders other than Preferred or Certified Lenders for participation as a lender in the low documentation loan program no later than 90 days after the date of enactment of this subsection.

      ‘(D) AUTHORITY LIQUIDATE LOANS-

        ‘(i) IN GENERAL- Lenders participating in the Certified Lenders Program shall have authority to liquidate loans made with a guarantee from the Administration.

        ‘(ii) APPROVAL- The Administrator has the authority to require a certified lender to request approval of a routine liquidation activity, and if the Administrator does not approve or deny a request made by a certified lender within a period of 5 business days, such request shall be deemed to be approved.

      ‘(E) LOW DOCUMENTATION LOAN PROGRAM SUBSIDY RATE- The Administrator shall with the assistance of the Director of the Office of Management and Budget establish and monitor, on an annual basis, the subsidy rate for the low documentation loan program, independently of other loans authorized by this section.’.

    (c) LIMITATION ON CONDUCTING PILOT PROJECTS- Section 7(a) (15 U.S.C. 636(a)) is amended by adding at the end the following new paragraph:

      ‘(25) LIMITATION ON CONDUCTING PILOT PROJECTS-

        ‘(A) IN GENERAL- Not more than 10 percent of the total number of loans guaranteed in any fiscal year under this subsection may be awarded as part of a pilot program which is commenced by the Administrator on or after October 1, 1996.

        ‘(B) PILOT PROGRAM DEFINED- In this paragraph, the term ‘pilot program’ means any lending program initiative, project, innovation, or other activity not specifically authorized by law.’.

    (d) SECURITIZATION OF UNGUARANTEED PORTIONS OF SBA LOANS- Section 5(f)(3) (15 U.S.C. 634(f)(3)) is

amended by adding at the end the following: ‘The Administration may not prohibit a lender from securitizing the nonguaranteed portion of any loan made under section 7(a). In order to reduce the risk of loss to the government in the event of default, the Administration may require all lenders securitizing, or requesting Administration approval for the securitization of the nonguaranteed portion of any loan, to retain exposure of up to 10 percent of the amount of the loan, which percentage shall be applicable uniformly to both depository institutions and other lenders unless the Administrator determines that the lender, on a case by case basis, has undertaken other agreements which retain an acceptable exposure to loss by the lender in the event of default of a loan being securitized.’.

    (e) CONDITIONS ON PURCHASE OF LOANS-

      (1) SERVICING FEE- Section 5(g)(5) (15 U.S.C. 634(g)(5)) is amended by adding at the end the following:

    ‘(C) In the event the Administration pays a claim under a guarantee issued under this Act, the servicing fees paid to the lender from the earliest date of default to the date of payment of the claim shall be no more than the agreed upon rate, minus one percent.’.

      (2) PAYMENT OF ACCRUED INTEREST- Section 7(a)(17) is amended--

        (A) by striking ‘(17) The Administration’ and inserting ‘(17)(A) The Administration’; and

        (B) by adding at the end the following:

      ‘(B) Any bank or other lending institution making a claim for payment on the guaranteed portion of a loan made under this subsection shall be paid the accrued interest due on the loan from the earliest date of default to the date of payment of the claim at a rate not to exceed the rate of interest on the loan on the date of default, minus one percent.’.

    (f) PLAN FOR TRANSFER OF LOAN SERVICING FUNCTIONS TO CENTRALIZED CENTERS-

      (1) IMPLEMENTATION PLAN REQUIRED- The Administrator of the Small Business Administration shall submit a detailed plan for consolidating, in one or more centralized centers, the performance of the various functions relating to the servicing of loans directly made or guaranteed by the Administration pursuant to the Small Business Act, addressing the matters described in paragraph (2) by the deadline specified in paragraph (3).

      (2) CONTENTS OF PLAN- In addition to such other matters as the Administrator may deem appropriate, the plan required by paragraph (1) shall include--

        (A) the proposed number and location of such centralized loan processing centers;

        (B) the proposed workload (identified by type and numbers of loans and their geographic origin by the Small Business Administration district office) and staffing of each such center;

        (C) a detailed, time-phased plan for the transfer of the identified loan servicing functions to each proposed center; and

        (D) any identified impediments to the timely execution of the proposed plan (including adequacy of available financial resources, availability of needed personnel, facilities, and related equipment) and the Administrator’s recommendations for addressing such impediments.

      (3) DEADLINE FOR SUBMISSION- The plan required by paragraph (1) shall be submitted to the Committees on the Small Business of the House of Representatives and Senate not later than February 28, 1997.

    (g) PREFERRED LENDER STANDARD REVIEW PROGRAM- Not later than 60 days after the date of enactment of this Act, the Administrator shall issue a request for proposals regarding the standard review program for the Preferred Lender Program established by section 5(b)(7) of the Small Business Act (15 U.S.C. 634(b)(7)). The Administrator shall require such standard review for each new entrant to the Preferred Lender Program.

    (h) INDEPENDENT STUDY OF LOAN PROGRAMS-

      (1) STUDY REQUIRED- The Administrator shall conduct a comprehensive assessment of the performance of the loan programs authorized by section 7(a) of the Small Business Act (15 U.S.C. 636(a)) and title V of the Small Business Investment Act of 1958 (15 U.S.C. 661) addressing the matters described in paragraph (2) and resulting in a report to Congress pursuant to paragraph (5).

      (2) MATTERS TO BE ASSESSED- In addition to such other matters as the Administrator considers appropriate, the assessment required by paragraph (1) shall address, with respect to each loan program described in paragraph (1) for each of the fiscal years described in paragraph (3)--

        (A) the number and frequency of deferrals and defaults;

        (B) default rates;

        (C) comparative loss rates, by--

          (i) type of lender (separately addressing preferred lenders, certified lenders, and general participation lenders);

          (ii) term of the loan; and

          (iii) dollar value of the loan at disbursement; and

        (D) the economic models used by the Office of Management and Budget to calculate the credit subsidy rate applicable to the loan programs.

      (3) PERIOD OF ASSESSMENT- The assessments undertaken pursuant to paragraph (2) shall address data for the period beginning with the first full fiscal year of the implementation of each loan program described in paragraph (1) through fiscal year 1995.

      (4) PERFORMANCE BY THE PRIVATE SECTOR-

        (A) CONTRACTOR PERFORMANCE- A private sector contractor shall be used by the Administrator to conduct the assessment required by paragraph (1) and to prepare the report to Congress required by paragraph (3).

        (B) SOLICITATION AND AWARD- The contract shall be awarded pursuant to a solicitation issued not later than 60 days after the date of the enactment of this Act, which shall provide for full and open competition. The Administrator shall make every reasonable effort to award the contract not later that 60 days after the date specified in the solicitation for receipt of proposals.

        (C) ACCESS TO INFORMATION- The Administrator shall provide to the contractor access to any information collected by or available to the Administration with regard to the loan programs being assessed. The contractor shall preserve the confidentiality of any information for which confidentiality is protected by law or properly asserted by the person submitting such information.

        (D) CONTRACT FUNDING- The Administrator shall fund the cost of the contract from the amounts appropriated for the salaries and expenses of the Administration for fiscal year 1997.

      (5) REPORT TO CONGRESS-

        (A) CONTENTS- The contractor shall submit a report of--

          (i) its analyses of the matters to be assessed pursuant to paragraph (2); and

          (ii) its independent recommendations, with respect to each loan program, regarding--

            (I) improving the Administration’s timely collection and subsequent management of data to measure the performance of each loan program described in paragraph (1); and

            (II) reducing loss rates for each such loan program.

        (B) SUBMISSION BY CONTRACTOR- The contractor shall submit the report required by subparagraph (A) not later than 6 months after the date of the contract award.

        (C) SUBMISSION TO CONGRESS- The Administrator shall submit the report received from the contractor pursuant to subparagraph (B) to the Committees on Small Business of the House of Representatives and the Senate within 30 days of receipt of the report. The Administrator shall append his comments, and those of the Office of Management and Budget, if any, to the report.

    (i) GENERAL ACCOUNTING OFFICE STUDY-

      (1) IN GENERAL- The General Accounting Office shall conduct a comparison of the cost of liquidation for--

        (A) loans guaranteed under the Preferred Lenders Program that are authorized by section 7(a) of the Small Business Act (15 U.S.C. 636(a)) and liquidated by the Preferred Lenders;

        (B) loans made and liquidated by, Preferred Lenders, but not guaranteed under the authority in section 7(a); and

        (C) loans guaranteed by the Small Business Administration under the authority in section 7(a) and liquidated by the Administration, taking into account all of the related costs incurred by the Federal Government.

      (2) REPORT- Not later than 9 months after the date of enactment of this Act the General Accounting Office shall deliver the results of the study to the Committees on Small Business of the House and Senate.

SEC. 104. DISASTER LOAN PROGRAM.

    (a) INTEREST RATE- Section 7(c) (15 U.S.C. 636(c)) is amended by redesignating paragraphs (6) and (7) as paragraphs (8) and (9), respectively, and by inserting after paragraph (5) the following:

      ‘(6) DISASTERS COMMENCING AFTER OCTOBER 1, 1996- Notwithstanding any other provision of law, the interest rate on the Federal share of any loan made under subsection (b)(1) and (b)(2) on account of a disaster commencing on or after October 1, 1996, shall be in the case of a homeowner, or business, or other concern, including agricultural cooperatives, unable to obtain credit elsewhere, at the rate

prescribed by the Administration but not more than 3/4 of the rate determined by the Secretary of the Treasury, taking into consideration the current average market yield on outstanding marketable obligations of the United States with remaining periods to maturity comparable to the average maturities of such loans plus an additional charge of not to exceed 1 percent per annum as determined by the Administrator, and adjusted to the nearest 1/8 of 1 percent but not to exceed 7 per centum per annum.

      ‘(7) LIABILITY- Whoever wrongfully misapplies the proceeds of a loan under subsection (b) shall be liable to the Administrator in an amount equal to 1 1/2 times the original principal amount of the loan.’.

    (b) PRIVATE SECTOR LOAN SERVICING DEMONSTRATION PROGRAM-

      (1)(A) DEMONSTRATION PROGRAM REQUIRED- The Administration shall conduct a demonstration program, within the parameters described in paragraph (2), to evaluate the comparative costs and benefits of having the Administration’s portfolio of disaster loans serviced under contract rather than directly by employees of the Administration.

      (B) INITIATION DATE- Not later than 90 days after the date of enactment of this Act, the Administration shall issue a request for proposals for the program parameters described in paragraph (2).

      (2) DEMONSTRATION PROGRAM PARAMETERS-

        (A) LOAN SAMPLE- The sample of loans for the demonstration program shall be randomly drawn from the Administration’s portfolio of loans made pursuant to section 7(b) of the Small Business Act and include 20,000 loans for residential properties and 5,000 loans for commercial properties.

        (B) CONTRACT AND OPTIONS- The Administration shall solicit and competitively award one or more contracts to service the loans included in the sample of loans described in subparagraph (A) for a term of 2 years with 5 2-year options, each to be awarded subject to subparagraph (C).

        (C) ASSESSMENTS OF PERFORMANCE- Prior to award of any contract option, the Administration shall assess the costs and performance of each contractor and compare such costs and such performance to the costs and performance of servicing disaster loans by employees of the Administration. The Administrator shall not exercise a contract option if the cost of performance of the loan servicing by the contractor exceeds the cost of performance of the loan servicing by employees of the Administration. The Administrator may terminate the contract during its initial term (or any subsequent option period), based upon performance and cost criteria specified in the solicitation and included in the contract.

        (D) DISPOSITION OF GOVERNMENT FURNISHED PROPERTY- The contract shall require the contractor to--

          (i) maintain the confidentiality of the loan files furnished by the Administration; and

          (ii) return such loan files and other Government-furnished property within a specified period after expiration (or termination) of the contract.

      (3) TERM OF DEMONSTRATION PROGRAM-

        (A) IN GENERAL- The demonstration program required by paragraph (1) shall commence on the first day of the first fiscal year quarter after the award of the contract and continue through the last day of the fiscal year quarter at the expiration of the 2-year contract period or any subsequent contract option.

        (B) EARLY TERMINATION- If the Administrator terminates each contract pursuant to paragraph (2)(C), the demonstration program shall end on the effective date of such termination.

      (4) REPORTS-

        (A) INTERIM REPORTS- The Administrator shall submit to the Committees on Small Business of the House of Representatives and Senate interim reports on the conduct of the demonstration program not later than 60 days prior to the expiration of the initial 2-year contract performance period, each subsequent option period, or termination of a contract. The contractor shall be afforded a reasonable opportunity to attach comments to each such report.

        (B) FINAL REPORT- The Administrator shall submit to the Committees on Small Business of the House of Representatives and Senate a final report within 120 days of the termination of the demonstration program.

    (c) DEFINITION OF DISASTER- (1) Section 3(k) (15 U.S.C. 632(k)) is amended by striking ‘ocean conditions’

and inserting ‘ocean conditions, or government action (regulatory or otherwise)’.

    (2) For the purposes of this Act this amendment shall be considered effective with respect to any disaster occurring on or after March 1, 1994.

SEC. 105. MICROLOAN DEMONSTRATION PROGRAM.

    (a) TECHNICAL ASSISTANCE GRANT REQUIREMENTS- Section 7(m)(4) (15 U.S.C. 636(m)(4)) is amended--

      (1) in subparagraph (A) by striking ‘25 percent’ and inserting ‘20 percent’; and

      (2) in subparagraph (B) by striking ‘25 percent’ and inserting ‘35 percent’.

    (b) IMPLEMENTATION OF GUARANTEED MICROLOAN PILOT PROGRAM-

      (1) ACTION REQUIRED- The Administrator shall implement or submit a detailed report explaining the impediments to the implementation of a Guaranteed Microloan Pilot Program pursuant to section 7(m)(12) (15 U.S.C. 636(m)(12)) addressing the matters described in paragraph (2) by the deadline specified in paragraph (3).

      (2) CONTENTS OF IMPLEMENTATION REPORT- In addition to such other matters as the Administrator may deem appropriate, the plan required by paragraph (1) shall include any identified impediments to implementation of a Guaranteed Microloan Pilot Program that, in the opinion of the Administrator, require amendments to the program’s authorizing legislation, and if such impediments are identified, includes recommendations for such statutory changes.

      (3) DEADLINE FOR SUBMISSION- The plan required by paragraph (2) shall be submitted to the Committees on Small Business of the House of Representatives and Senate not later than December 1, 1996.

    (c) LIMITATION ON FUNDING- In the event that the Administrator shall fail to submit the report required by subsection (b)(1) by the deadline specified in subsection (b)(3), none of the amounts appropriated to carry out the Microloan Program authorized by section 7(m)(12) of the Small Business Act (15 U.S.C. 636(m)(12)) during fiscal year 1997 may be expended until such time as the pilot program is implemented or the report is submitted.

SEC. 106. SMALL BUSINESS DEVELOPMENT CENTER PROGRAM.

    (a) ASSOCIATE ADMINISTRATOR FOR SMALL BUSINESS DEVELOPMENT CENTERS-

      (1) DUTIES- Section 21(h) (15 U.S.C. 648(h)) is amended to read as follows:

    ‘(h) ASSOCIATE ADMINISTRATOR FOR SMALL BUSINESS DEVELOPMENT CENTERS-

      ‘(1) APPOINTMENT AND COMPENSATION- The Administrator shall appoint an Associate Administrator for Small Business Development Centers who shall report to an official who is not more than one level below the Office of the Administrator and who shall serve without regard to the provisions of title 5 governing appointments in the competitive service, and without regard to chapter 51, and subchapter III of chapter 53 of such title relating to classification and General Schedule pay rates, but at a rate not less than the rate of GS-17 of the General Schedule.

      ‘(2) DUTIES-

        ‘(A) IN GENERAL- The sole responsibility of the Associate Administrator for Small Business Development Centers shall be to administer the small business development center program. Duties of the position shall include, but are not limited to, recommending the annual program budget, reviewing the annual budgets submitted by each applicant, establishing appropriate funding levels therefore, selecting applicants to participate in this program, implementing the provisions of this section, maintaining a clearinghouse to provide for the dissemination and exchange of information between small business development centers and conducting audits of recipients of grants under this section.

        ‘(B) CONSULTATION REQUIREMENTS- In carrying out the duties described in this subsection, the Associate Administrator shall confer with and seek the advice of the Board established by subsection (i) and Administration officials in areas served by the small business development centers; however, the Associate Administrator shall be responsible for the management and administration of the program and shall not be subject to the approval or concurrence of such Administration officials.’.

      (2) REFERENCES TO ASSOCIATE ADMINISTRATOR- Section 21 (15 U.S.C. 648) is amended--

        (A) in subsection (c)(7) by striking ‘Deputy Associate Administrator of the Small Business Development Center program’ and inserting ‘Associate Administrator for Small Business Development Centers’; and

        (B) in subsection (i)(2) by striking ‘Deputy Associate Administrator for Management Assistance’ and inserting ‘Associate Administrator for Small Business Development Centers’.

    (b) EXTENSION OR RENEWAL OF COOPERATIVE AGREEMENTS- Section 21(k)(3) (15 U.S.C. 648(k)(3)) is amended to read as follows:

      ‘(3) EXTENSION OR RENEWAL OF COOPERATIVE AGREEMENTS-

        ‘(A) IN GENERAL- In extending or renewing a cooperative agreement of a small business development center, the Administration shall consider the results of the examination and certification program conducted pursuant to paragraphs (1) and (2).

        ‘(B) CERTIFICATION REQUIREMENT- After September 30, 2000, the Administration may not renew or extend any cooperative agreement with a small business development center unless the center has been approved under the certification program conducted pursuant to this subsection; except that the Associate Administrator for Small Business Development Centers may waive such certification requirement, in the discretion of the Associate Administrator, upon a showing that the center is making a good faith effort to obtain certification.’.

    (c) TECHNICAL CORRECTION- Section 21(l) (15 U.S.C. 648(l)) is amended to read as follows:

    ‘(l) CONTRACT AUTHORITY- The authority to enter into contracts shall be in effect for each fiscal year only to the extent and in the amounts as are provided in advance in appropriations Acts. After the administration has entered a contract, either as a grant or a cooperative agreement, with any applicant under this section, it shall not suspend, terminate, or fail to renew or extend any such contract unless the Administration provides the applicant with written notification setting forth the reasons therefore and affording the applicant an opportunity for a hearing, appeal, or other administrative proceeding under the provisions of chapter 5 of title 5, United States Code.’.

SEC. 107. MISCELLANEOUS AUTHORITIES TO PROVIDE LOANS AND OTHER FINANCIAL ASSISTANCE.

    (a) FUNDING LIMITATION; SEMINARS- Section 7(d) (15 U.S.C. 636(d)) is amended--

      (1) by striking ‘(d)(1)’ and inserting ‘(d)’; and

      (2) by striking paragraph (2).

    (b) TRADE ADJUSTMENT LOANS- Section 7(e) (15 U.S.C. 636(e)) is amended to read as follows:

    ‘(e) [Struck out->][ RESERVED ][<-Struck out] .’.

    (c) WAIVER OF CREDIT ELSEWHERE TEST FOR COLLEGES AND UNIVERSITIES- Section 7(f) (15 U.S.C. 636(f)) is amended to read as follows:

    ‘(f) [Struck out->][ RESERVED ][<-Struck out] .’.

    (d) LOANS TO SMALL BUSINESS CONCERNS FOR SOLAR ENERGY AND ENERGY CONSERVATION MEASURES- Section 7(l) (15 U.S.C. 636(l)) is amended to read as follows:

    ‘(l) [Struck out->][ RESERVED ][<-Struck out] .’.

SEC. 108. SMALL BUSINESS COMPETITIVENESS DEMONSTRATION PROGRAM.

    (a) EXTENSION OF DEMONSTRATION PROGRAM- Section 711(c) of the Small Business Competitiveness Demonstration Program Act of 1988 (15 U.S.C. 644 note; 102 Stat. 3890) is amended by striking ‘September 30, 1996’ and inserting ‘September 30, 2000’.

    (b) REPORTING OF SUBCONTRACT PARTICIPATION IN CONTRACTS FOR ARCHITECTURAL AND ENGINEERING SERVICES- Section 714(b)(5) of the Small Business Competitiveness Demonstration Program Act of 1988 (15 U.S.C. 644 note; 102 Stat. 3892) is amended to read as follows:

      ‘(5) DURATION- The system described in subsection (a) shall be established not later than October 1, 1996 (or as soon as practicable thereafter on the first day of a subsequent quarter of fiscal year 1997), and shall terminate on September 30, 2000.’.

    (c) REFERENCES TO ARCHITECTURAL AND ENGINEERING SERVICES-

      (1) IN GENERAL- The Small Business Competitiveness Demonstration Program Act of 1988 (15 U.S.C. 644 note; 102 Stat. 3889 et seq.) is amended in subsections (a)(3) and (d) by striking ‘surveying and mapping’ and inserting ‘surveying, mapping, and landscape architecture’.

      (2) DESIGNATED INDUSTRY GROUPS- Section 717(d) of the Small Business Competitiveness Demonstration Program Act of 1988 (15 U.S.C. 644 note; 102 Stat. 3894) is amended by inserting ‘standard industrial classification codes 0781 (if identified as pertaining to architecture services),’ after ‘(if identified as pertaining to mapping services),’.

    (d) REPORTS TO CONGRESS-

      (1) IN GENERAL- Section 716 of the Small Business Competitiveness Demonstration Program Act of 1988 (15 U.S.C. 644 note; 102 Stat. 3893) is amended--

        (A) in subsection (a), by striking ‘fiscal year 1991 and 1995’ and inserting ‘each of fiscal years 1991 through 1999’;

        (B) in subsection (a), by striking ‘results’ and inserting ‘cumulative results’; and

        (C) in subsection (c), by striking ‘1996’ and inserting ‘1999’.

      (2) CUMULATIVE REPORT THROUGH FISCAL YEAR 1995- A cumulative report of the results of the Small Business Competitiveness Demonstration Program for fiscal years 1991 through 1995 shall be submitted not later than 60 days after the date of the enactment of this Act pursuant to section 716(a) of the Small Business Competitiveness Demonstration Program Act of 1988 (15 U.S.C. 644 note; 102 Stat. 3893), as amended by paragraph (1) of this subsection.

SEC. 109. AMENDMENT TO SMALL BUSINESS GUARANTEED CREDIT ENHANCEMENT ACT OF 1993.

    (a) Section 7 of the Small Business Guaranteed Credit Enhancement Act of 1993 (Public Law 103-81; 15 U.S.C. 634 note) is repealed effective September 29, 1996.

    (b) CLERICAL AMENDMENT- The table of contents for the Small Business Guaranteed Credit Enhancement Act of 1993 (Public Law 103-81; 15 U.S.C. 631 note) is amended by striking the item relating to section 7.

SEC. 110. 1998 AUTHORIZATIONS.

    Section 20 (15 U.S.C. 631 note) is amended--

      (1) in subsection (p), by striking ‘authorized for fiscal year 1997’ and inserting ‘authorized for each of fiscal years 1997 and 1998’;

      (2) by striking subsection (p)(3)(B) and by inserting the following:

        ‘(B) $268,000,000 in guarantees of debentures; and’;

      (3) in subsection (q)(1) by striking ‘fiscal year 1997’ and inserting ‘each of fiscal years 1997 and 1998’; and

      (4) in subsection (q)(2) by striking ‘year 1997’ and inserting ‘years 1997 and 1998’.

SEC. 111. LEVEL OF PARTICIPATION FOR EXPORT WORKING CAPITAL LOANS.

    Section 7(a)(2) (15 U.S.C. 636(a)(2)) is amended by adding at the end the following:

        ‘(D) PARTICIPATION UNDER EXPORT WORKING CAPITAL PROGRAM- Notwithstanding subparagraph (A), in an agreement to participate in a loan on a deferred basis under the Export Working Capital Program established pursuant to paragraph (14)(A), such participation by the Administration shall be equal to the rate specified under this paragraph as in effect on the day before the date of the enactment of the Small Business Lending Enhancement Act of 1995.’.

TITLE II--AMENDMENTS TO SMALL BUSINESS INVESTMENT ACT

SEC. 201. REFERENCES.

    Except as otherwise expressly provided, whenever in this title an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Small Business Investment Act of 1958 (15 U.S.C. 661 et seq.).

SEC. 202. MODIFICATIONS TO DEVELOPMENT COMPANY DEBENTURE PROGRAM.

    (a) DECREASED LOAN TO VALUE RATIOS- Section 502(3) (15 U.S.C. 696(3)) is amended to read as follows:

      ‘(3) CRITERIA FOR ASSISTANCE-

        ‘(A) IN GENERAL- Any development company assisted under this section or section 503 of this title must meet the criteria established by the Administration, 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.

        ‘(B) COMMUNITY INJECTION FUNDS-

          ‘(i) SOURCES OF FUNDS- Community injection funds may be derived, in whole or in part, from--

            ‘(I) State or local governments;

            ‘(II) banks or other financial institutions;

            ‘(III) foundations or other not-for-profit institutions; or

            ‘(IV) the small business concern (or its owners, stockholders, or affiliates) receiving assistance through a body authorized by this title.

          ‘(ii) FUNDING FROM INSTITUTIONS- Not less than 50 percent of the total cost of any project financed pursuant to clauses (i), (ii), or (iii) of subparagraph (C) shall come from the institutions described in subclauses (I), (II), and (III) of clause (i).

        ‘(C) FUNDING FROM A SMALL BUSINESS CONCERN- The small business concern (or its owners, stockholders, or affiliates) receiving assistance through a body authorized by this title shall provide--

          ‘(i) at least 15 percent of the total cost of the project financed, if the small business

concern has been in operation for a period of 2 years or less;

          ‘(ii) at least 15 percent of the total cost of the project financed if the project involves the construction of a limited or single purpose building or structure;

          ‘(iii) at least 20 percent of the total cost of the project financed if the project involves both of the conditions set forth in clauses (i) and (ii); or

          ‘(iv) at least 10 percent of the total cost of the project financed, in all other circumstances, at the discretion of the development company.’.

    (b) GUARANTEE FEE FOR DEVELOPMENT COMPANY DEBENTURES- Section 503(b)(7)(A) (15 U.S.C. 697(b)(7)(A)) is amended by striking ‘0.125 percent’ and inserting ‘0.9375 percent’.

    (c) FEES TO OFFSET SUBSIDY COST- Section 503(d) (15 U.S.C. 697(d)) is amended to read as follows:

    ‘(d) CHARGES FOR ADMINISTRATION EXPENSES-

      ‘(1) LEVEL OF CHARGES- The Administration 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).

      ‘(2) PARTICIPATION FEE- The Administration shall also impose a one-time fee of 50 basis points on the total participation in any project of any institution described in subclause (I), (II), or (III) of section 502(3)(B)(i). Such fee shall be imposed only when the participation of the institution will occupy a senior credit position to that of the development company. Such fee shall be collected by the development company, forwarded to the Administration, and used to offset the cost (as such term is defined in section 502 of the Credit Reform Act of 1990) to the Administration of making guarantees under subsection (a).

      ‘(3) DEVELOPMENT COMPANY FEE- The Administration shall collect annually from each development company a fee of 0.125 percent of the outstanding principal balance of any guaranteed debenture authorized by the Administration after September 30, 1996. Such fee shall be derived from the servicing fees collected by the development company pursuant to regulation, and shall not be derived from any additional fees imposed on small business concerns. All proceeds of the fee shall be used to offset the cost (as such term is defined in section 502 of the Credit Reform Act of 1990) to the Administration of making guarantees under subsection (a).’.

    (d) EFFECTIVE DATE- Section 503 (15 U.S.C. 697) is amended by adding at the end the following:

    ‘(f) EFFECTIVE DATE- The fees authorized by subsections (b) and (c) shall apply to financings approved by the Administration on or after October 1, 1996, but shall not apply to financings approved by the Administration on or after October 1, 1997.’.

SEC. 203. REQUIRED ACTIONS UPON DEFAULT.

    Section 503 (15 U.S.C. 697) is amended by adding at the end the following:

    ‘(g) REQUIRED ACTIONS UPON DEFAULT-

      ‘(1) DEADLINES-

        ‘(A) 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 shall--

          ‘(i) take all necessary steps to bring such a loan current; or

          ‘(ii) implement a formal written deferral agreement.

        ‘(B) PURCHASE OR ACCELERATION OF DEBENTURE- Not later than the 65th day after the date on which a payment on a loan described in subparagraph (A) is due and not received, and absent a formal written deferral agreement, the Administration shall take all necessary steps to purchase or accelerate the debenture.

      ‘(2) PREPAYMENT PENALTIES- The Administration shall, with respect to the portion of any project derived from funds set forth in section 502(3)--

        ‘(A) negotiate the elimination of any prepayment penalties or late fees on defaulted loans made prior to September 30, 1996;

        ‘(B) decline to pay any prepayment penalty or late fee on the default based purchase of loans issued after September 30, 1996; and

        ‘(C) for any project financed after September 30, 1996, decline to pay any default interest rate higher than the interest rate on the note prior to the date of default.’.

SEC. 204. LOAN LIQUIDATION PILOT PROGRAM.

    (a) IN GENERAL- The Administrator shall carry out a loan liquidation pilot program (in this section referred to as the ‘pilot program’) in accordance with the requirements of this section.

    (b) SELECTION OF DEVELOPMENT COMPANIES- Not later than 90 days after the date of the enactment of this Act, the Administrator shall allow not less than 15 development companies authorized to make loans and issue debentures under title V of the Small Business Investment Act of 1958 to participate in the pilot program. The development companies admitted shall agree not to take any action that would create a potential conflict of interest involving the development company, the third party lender, or an associate of the third party lender. In order to qualify to participate in the pilot, each development company shall--

      (1) have a minimum of 6 years experience in the program established by such title V;

      (2) have made, during the last 6 fiscal years, an average of 10 loans per year through the program established by such title V; and

      (3) have a minimum of 2 years experience, either independently or through an agent, in liquidating loans under the authority of a Federal, State, or other lending program.

    (c) AUTHORITY OF DEVELOPMENT COMPANIES- The development companies selected under subsection (b) shall, for all loans in their portfolio of loans made through debentures guaranteed under title V of the Small Business Investment Act of 1958 that are in default after the date of enactment of this Act, be authorized to--

      (1) perform all liquidation and foreclosure functions, including the acceleration or purchase of community injection funds, subject to such company obtaining prior written approval from the Administrator before committing the agency to purchase any other indebtedness secured by the property: Provided, That the Administrator shall approve or deny a request for such purchase within a period of 5 business days; and

      (2) liquidate such loans in a reasonable and sound manner and according to commercially accepted practices pursuant to a liquidation plan approved by the administrator in advance of its implementation. If the Administrator does not approve or deny a request made by a certified development company within a period of 5 business days, such request shall be deemed to be approved.

    (d) AUTHORITY OF THE ADMINISTRATOR- In carrying out the pilot program, the Administrator shall--

      (1) have full authority to deny participation in the pilot program or rescind the authority granted any development company under this section upon a 10-day written notice stating the reasons for the denial or rescission; and

      (2) implement the pilot program no later than 90 days after the admission of the development companies specified in subsection (b).

    (e) REPORT-

      (1) IN GENERAL- The Administrator shall issue a report on the results of the pilot program to the Committees on Small Business of the House of Representatives and the Senate. The report shall include information relating to--

        (A) the total dollar amount of each loan and project liquidated;

        (B) the total dollar amount guaranteed by the Administration;

        (C) total dollar losses;

        (D) total recoveries both as percentage of the amount guaranteed and the total cost of the project; and

        (E) a comparison of the pilot program information with the same information for liquidation conducted outside the pilot program over the period of time.

      (2) REPORTING PERIOD- The report shall be based on data from, and issued not later than 90 days after the close of, the first eight 8 fiscal quarters of the pilot program’s operation after the date of implementation.

SEC. 205. REGISTRATION OF CERTIFICATES.

    (a) CERTIFICATES SOLD PURSUANT TO SMALL BUSINESS ACT- Section 5(h) of the Small Business Act (15 U.S.C. 634(h)) is amended--

      (1) by redesignating paragraphs (1) through (4) as subparagraphs (A) through (D);

      (2) by striking ‘(h)’ and inserting ‘(h)(1)’;

      (3) by striking subparagraph (A), as redesignated by paragraph (1) of this subsection, and inserting the following:

      ‘(A) provide for a central registration of all loans and trust certificates sold pursuant to subsections (f) and (g) of this section;’; and

      (4) by adding at the end the following:

    ‘(2) Nothing in this subsection shall prohibit the utilization of a book-entry or other electronic form of registration for trust certificates. The Administration may, with the consent of the Secretary of the Treasury, use the book-entry system of the Federal Reserve System.’.

    (b) CERTIFICATES SOLD PURSUANT TO SMALL BUSINESS INVESTMENT COMPANY PROGRAM- Section 321(f) (15 U.S.C. 6871(f)) is amended--

      (1) in paragraph (1) by striking ‘Such central registration shall include’ and all that follows through the period at the end of the paragraph; and

      (2) by adding at the end the following:

    ‘(5) Nothing in this subsection shall prohibit the use of a book-entry or other electronic form of registration for trust certificates.’.

    (c) CERTIFICATES SOLD PURSUANT TO DEVELOPMENT COMPANY PROGRAM- Section 505(f) (15 U.S.C. 697b(f)) is amended--

      (1) by redesignating paragraphs (1) through (4) as subparagraphs (A) through (D);

      (2) by striking ‘(f)’ and inserting ‘(f)(1)’;

      (3) by striking subparagraph (A), as redesignated by paragraph (1) of this subsection, and inserting the following:

      ‘(A) provide for a central registration of all trust certificates sold pursuant to this section;’ and

      (4) by adding at the end the following:

    ‘(2) Nothing in this subsection shall prohibit the utilization of a book-entry or other electronic form of registration for trust certificates.’.

SEC. 206. PREFERRED SURETY BOND GUARANTEE PROGRAM.

    (a) ADMISSIONS OF ADDITIONAL PROGRAM PARTICIPANTS- Section 411(a) (15 U.S.C. 694(a)) is amended by adding a new paragraph (5), as follows:

    ‘(5)(A) The Administration shall promptly act upon an application from a surety to participate in the Preferred Surety Bond Guarantee Program, authorized by paragraph (3), in accordance with criteria and procedures established in regulations pursuant to subsection (d).

    ‘(B) The Administration is authorized to reduce the allotment of bond guarantee authority or terminate the participation of a surety in the Preferred Surety Bond Guarantee Program based on the rate of participation of such surety during the 4 most recent fiscal year quarters compared to the median rate of participation by the other sureties in the program.’.

    (b) EFFECTIVE DATE- The amendments made by subsection (a) shall apply with respect to applications received (or pending substantive evaluation) on or after October 1, 1995.

SEC. 207. SENSE OF THE CONGRESS.

    It is the sense of the Congress that the subsidy models prepared by the Office of Management and Budget relative to loan programs sponsored by the United States Small Business Administration have a tendency to:

      (1) overestimate potential risks of loss; and

      (2) overemphasize historical losses that may be anomolous and do not truly reflect the success of the programs as a whole.

    Consequently, Congress mandates the independent study in section 103(h) with hopes of improving the ability of the Office of Management and Budget to more accurately reflect the budgetary implications of such programs.

Passed the House of Representatives September 5, 1996.

Attest:

ROBIN H. CARLE,

Clerk.