Closing the Credit Gap Act

II 116TH CONGRESS 1ST SESSION S. 2361 To amend the Small Business Act to increase lending to underserved bor- rowers through the largest loan program of the Small Business Adminis- tration, and for other purposes. IN THE SENATE OF THE UNITED STATES JULY 31, 2019 Mr. CARDIN introduced the following bill; which was read twice and referred to the Committee on Small Business and Entrepreneurship A BILL To amend the Small Business Act to increase lending to underserved borrowers through the largest loan program of the Small Business Administration, and for other pur- poses. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Closing the Credit Gap 4 Act’’. 5 SEC. 2. COMMUNITY ADVANTAGE LOAN PROGRAM. 6 Section 7(a) of the Small Business Act (15 U.S.C. 7 636(a)) is amended by adding at the end the following: 8 VerDate Sep 11 2014 03:31 Aug 08, 2019 Jkt 089200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S2361.IS S2361 kjohnson on DSK79L0C42 with BILLS 2 •S 2361 IS ‘‘(36) COMMUNITY ADVANTAGE LOAN PRO- 1 GRAM.— 2 ‘‘(A) PURPOSES.—The purposes of the 3 Community Advantage Loan Program are— 4 ‘‘(i) to create a mission-oriented loan 5 guarantee program that builds on the dem- 6 onstrated success of the Community Ad- 7 vantage Pilot Program of the Administra- 8 tion, as established in 2011, to reach more 9 underserved small business concerns; 10 ‘‘(ii) to increase lending to small busi- 11 ness concerns in underserved and rural 12 markets, including veterans and members 13 of the military community, small business 14 concerns owned and controlled by socially 15 and economically disadvantaged individ- 16 uals, women, and startups; 17 ‘‘(iii) to ensure that the program 18 under this subsection (in this paragraph 19 referred to as the ‘7(a) loan program’) is 20 more inclusive and more broadly meets 21 congressional intent to reach borrowers 22 who are unable to get credit elsewhere on 23 reasonable terms and conditions; 24 VerDate Sep 11 2014 03:31 Aug 08, 2019 Jkt 089200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S2361.IS S2361 kjohnson on DSK79L0C42 with BILLS 3 •S 2361 IS ‘‘(iv) to help underserved small busi- 1 ness concerns become bankable by utilizing 2 the small-dollar financing and business 3 support experience of mission-oriented 4 lenders; 5 ‘‘(v) to allow certain mission-oriented 6 lenders, primarily nonprofit financial inter- 7 mediaries focused on economic develop- 8 ment in underserved markets, access to 9 guarantees for loans under this subsection 10 (in this paragraph referred to as ‘7(a) 11 loans’) of not more than $350,000 and 12 provide management and technical assist- 13 ance to small business concerns as needed; 14 ‘‘(vi) to provide certainty for the lend- 15 ing partners that make loans under this 16 subsection and to attract new lenders; and 17 ‘‘(vii) to encourage collaboration be- 18 tween mission-oriented and conventional 19 lenders under this subsection in order to 20 support underserved small business con- 21 cerns. 22 ‘‘(B) DEFINITIONS.—In this paragraph— 23 ‘‘(i) the term ‘covered institution’ 24 means— 25 VerDate Sep 11 2014 03:31 Aug 08, 2019 Jkt 089200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S2361.IS S2361 kjohnson on DSK79L0C42 with BILLS 4 •S 2361 IS ‘‘(I) a development company, as 1 defined in section 103 of the Small 2 Business Investment Act of 1958 (15 3 U.S.C. 662), participating in the 504 4 Loan Guaranty program established 5 under title V of such Act (15 U.S.C. 6 695 et seq.); 7 ‘‘(II) a nonprofit intermediary, as 8 defined in subsection (m)(11), partici- 9 pating in the microloan program 10 under subsection (m); 11 ‘‘(III) a non-Federally regulated 12 entity certified as a community devel- 13 opment financial institution by the 14 Community Development Financial 15 Institutions Fund established under 16 section 104(a) of the Riegle Commu- 17 nity Development and Regulatory Im- 18 provement Act of 1994 (12 U.S.C. 19 4703(a)); and 20 ‘‘(IV) an eligible intermediary, as 21 defined in subsection (l)(1), partici- 22 pating in the Intermediary Lending 23 Pilot Program established under sub- 24 section (l)(2); 25 VerDate Sep 11 2014 03:31 Aug 08, 2019 Jkt 089200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S2361.IS S2361 kjohnson on DSK79L0C42 with BILLS 5 •S 2361 IS ‘‘(ii) the term ‘existing business’ 1 means a small business concern that has 2 been in existence for not less than 2 years 3 on the date on which a loan is made to the 4 small business concern under the program; 5 ‘‘(iii) the term ‘new business’ means a 6 small business concern that has been exist- 7 ence for not more than 2 years on the date 8 on which a loan is made to the small busi- 9 ness concern under the program; 10 ‘‘(iv) the term ‘program’ means the 11 Community Advantage Loan Program es- 12 tablished under subparagraph (C); 13 ‘‘(v) the term ‘Reservist’ means a 14 member of a reserve component of the 15 Armed Forces named in section 10101 of 16 title 10, United States Code; 17 ‘‘(vi) the term ‘rural area’ means any 18 county that the Bureau of the Census has 19 defined as mostly rural or completely rural 20 in the most recent decennial census; 21 ‘‘(vii) the term ‘service-connected’ has 22 the meaning given the term in section 23 101(16) of title 38, United States Code; 24 VerDate Sep 11 2014 03:31 Aug 08, 2019 Jkt 089200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S2361.IS S2361 kjohnson on DSK79L0C42 with BILLS 6 •S 2361 IS ‘‘(viii) the term ‘small business con- 1 cern in an underserved market’ means a 2 small business concern— 3 ‘‘(I) that is located in— 4 ‘‘(aa) a low- to moderate-in- 5 come community; 6 ‘‘(bb) a HUBZone; 7 ‘‘(cc) a community that has 8 been designated as an empower- 9 ment zone or an enterprise com- 10 munity under section 1391 of the 11 Internal Revenue Code of 1986; 12 ‘‘(dd) a community that has 13 been designated as a promise 14 zone by the Secretary of Housing 15 and Urban Development; 16 ‘‘(ee) a community that has 17 been designated as a qualified 18 opportunity zone under section 19 1400Z–1 of the Internal Revenue 20 Code of 1986; or 21 ‘‘(ff) a rural area; 22 ‘‘(II) for which more than 50 23 percent of the employees reside in a 24 low- or moderate-income community; 25 VerDate Sep 11 2014 03:31 Aug 08, 2019 Jkt 089200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S2361.IS S2361 kjohnson on DSK79L0C42 with BILLS 7 •S 2361 IS ‘‘(III) that is a startup or new 1 business; 2 ‘‘(IV) owned and controlled by 3 socially and economically disadvan- 4 taged individuals, including Black 5 Americans, Hispanic Americans, Na- 6 tive Americans, Asian Pacific Ameri- 7 cans, and other minorities; 8 ‘‘(V) owned and controlled by 9 women; 10 ‘‘(VI) owned and controlled by 11 veterans; 12 ‘‘(VII) owned and controlled by 13 service-disabled veterans; 14 ‘‘(VIII) not less than 51 percent 15 owned and controlled by 1 or more— 16 ‘‘(aa) members of the Armed 17 Forces participating in the Tran- 18 sition Assistance Program of the 19 Department of Defense; 20 ‘‘(bb) Reservists; 21 ‘‘(cc) spouses of veterans, 22 members of the Armed Forces, or 23 Reservists; or 24 VerDate Sep 11 2014 03:31 Aug 08, 2019 Jkt 089200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S2361.IS S2361 kjohnson on DSK79L0C42 with BILLS 8 •S 2361 IS ‘‘(dd) surviving spouses of 1 veterans who died on active duty 2 or as a result of a service-con- 3 nected disability; or 4 ‘‘(IX) that is eligible to receive a 5 veterans advantage loan; 6 ‘‘(ix) the term ‘small business concern 7 owned and controlled by socially and eco- 8 nomically disadvantaged individuals’ has 9 the meaning given the term in section 10 8(d)(3)(C); 11 ‘‘(x) the term ‘startup’ means a busi- 12 ness that has not yet opened; and 13 ‘‘(xi) the term ‘veterans advantage 14 loan’ means a loan made to a small busi- 15 ness concern under this subsection that is 16 eligible for a waiver of the guarantee fee 17 under paragraph (18) or the yearly fee 18 under paragraph (23) because the small 19 business concern is a concern described in 20 subclause (VI), (VII), or (VIII) of clause 21 (viii). 22 ‘‘(C) ESTABLISHMENT.—There is estab- 23 lished a Community Advantage Loan Program 24 under which the Administration may guarantee 25 VerDate Sep 11 2014 03:31 Aug 08, 2019 Jkt 089200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S2361.IS S2361 kjohnson on DSK79L0C42 with BILLS 9 •S 2361 IS loans made by covered institutions under this 1 subsection, including loans made to small busi- 2 ness concerns in underserved markets. 3 ‘‘(D) PROGRAM LEVELS.—In each of fiscal 4 years 2020, 2021, 2022, 2023, and 2024, not 5 more than 10 percent of the number of loans 6 guaranteed under this subsection may be guar- 7 anteed under the program. 8 ‘‘(E) NEW LENDERS.— 9 ‘‘(i) FISCAL YEARS 2020 AND 2021.—In 10 each of fiscal years 2020 and 2021— 11 ‘‘(I) not more than 150 covered 12 institutions shall participate in the 13 program; and 14 ‘‘(II) the Administrator shall 15 allow for new applicants and give pri- 16 ority to applications submitted by any 17 covered institution that is located in 18 an area with insufficient or no lending 19 under the program. 20 ‘‘(ii) FISCAL YEARS 2022, 2023, AND 21 2024.— 22 ‘‘(I) IN GENERAL.—In each of 23 fiscal years 2022, 2023, and 2024— 24 VerDate Sep 11 2014 03:31 Aug 08, 2019 Jkt 089200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S2361.IS S2361 kjohnson on DSK79L0C42 with BILLS 10 •S 2361 IS ‘‘(aa) except as provided in 1 subclause (II), not more than 2 175 covered institutions shall 3 participate in the program; and 4 ‘‘(bb) the Administrator 5 shall allow for new applicants 6 and give priority to applications 7 submitted by any covered institu- 8 tion that is located in an area 9 with insufficient or no lending 10 under the program. 11 ‘‘(II) EXCEPTION FOR FISCAL 12 YEAR 2024.—In fiscal year 2024, not 13 more than 200 covered institutions 14 may participate in the program if— 15 ‘‘(aa) after reviewing the re- 16 port under subparagraph 17 (M)(iii), the Administrator deter- 18 mines that not more than 200 19 covered institutions may partici- 20 pate in the program; 21 ‘‘(bb) the Administrator no- 22 tifies Congress in writing of the 23 determination of the Adminis- 24 trator under item (aa); and 25 VerDate Sep 11 2014 03:31 Aug 08, 2019 Jkt 089200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S2361.IS S2361 kjohnson on DSK79L0C42 with BILLS 11 •S 2361 IS ‘‘(cc) not later than July 30, 1 2023, the Administrator notifies 2 the public of the determination of 3 the Administrator under item 4 (aa). 5 ‘‘(F) GRANDFATHERING OF EXISTING 6 LENDERS.—Any covered institution that par- 7 ticipated in the Community Advantage Pilot 8 Program of the Administration and is in good 9 standing on the day before the date of enact- 10 ment of this paragraph— 11 ‘‘(i) shall retain designation in the 12 program; and 13 ‘‘(ii) shall not be required to submit 14 an application to participate in the pro- 15 gram. 16 ‘‘(G) REQUIREMENT TO MAKE LOANS TO 17 UNDERSERVED MARKETS.—Not less than 60 18 percent of loans made by a covered institution 19 under the program shall consist of loans made 20 to small business concerns in underserved mar- 21 kets. 22 ‘‘(H) MAXIMUM LOAN AMOUNT.— 23 ‘‘(i) IN GENERAL.—Except as pro- 24 vided in clause (ii), the maximum loan 25 VerDate Sep 11 2014 03:31 Aug 08, 2019 Jkt 089200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S2361.IS S2361 kjohnson on DSK79L0C42 with BILLS 12 •S 2361 IS amount for a loan guaranteed under the 1 program is $250,000. 2 ‘‘(ii) EXCEPTION.— 3 ‘‘(I) IN GENERAL.—The Admin- 4 istration may, in the discretion of the 5 Administration, approve a guarantee 6 of a loan under the program that is 7 more than $250,000 and not more 8 than $350,000. 9 ‘‘(II) NOTIFICATION.—Not later 10 than 2 days after receiving a request 11 for an exception to the maximum loan 12 amount established under clause (i), 13 the Administration shall— 14 ‘‘(aa) review the request; 15 and 16 ‘‘(bb) provide a decision re- 17 garding the request to the cov- 18 ered institution making the loan. 19 ‘‘(I) INTEREST RATES.— 20 ‘‘(i) IN GENERAL.—Except as pro- 21 vided in clause (ii), the maximum allowable 22 interest rate prescribed by the Administra- 23 tion on any financing made on a deferred 24 basis pursuant to the program shall not 25 VerDate Sep 11 2014 03:31 Aug 08, 2019 Jkt 089200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S2361.IS S2361 kjohnson on DSK79L0C42 with BILLS 13 •S 2361 IS exceed the maximum allowable interest 1 rate in effect on September 1, 2018. 2 ‘‘(ii) MODIFICATION.—The Adminis- 3 tration shall not modify the maximum al- 4 lowable interest rate described in clause (i) 5 unless the Administration provides the 6 public with an opportunity to comment for 7 a period of not less than 180 days before 8 implementing the modified interest rate. 9 ‘‘(J) TRAINING AND TECHNICAL ASSIST- 10 ANCE.—The Administration— 11 ‘‘(i) shall in person and online, pro- 12 vide upfront and ongoing training and 13 technical assistance for covered institutions 14 making loans under the program in order 15 to support prudent lending standards and 16 improve the interface between the covered 17 institutions and the Administration; 18 ‘‘(ii) shall ensure that the training 19 and technical assistance described in clause 20 (i) is provided for free or at a low-cost; 21 and 22 ‘‘(iii) may enter into a contract to 23 provide the training or technical assistance 24 described in clause (i) with an organization 25 VerDate Sep 11 2014 03:31 Aug 08, 2019 Jkt 089200 PO 00000 Frm 00013 Fmt 6652 Sfmt 6201 E:\BILLS\S2361.IS S2361 kjohnson on DSK79L0C42 with BILLS 14 •S 2361 IS with expertise in lending under this sub- 1 section, mission-oriented lending, and lend- 2 ing to underserved markets. 3 ‘‘(K) DELEGATED AUTHORITY.—A covered 4 institution is not eligible to receive delegated 5 authority from the Administration under the 6 program until the covered institution makes not 7 less than 7 loans under the program. 8 ‘‘(L) REGULATIONS.— 9 ‘‘(i) IN GENERAL.—Not later than 10 180 days after the date of enactment of 11 this paragraph and in accordance with the 12 notice and comment procedures under sec- 13 tion 553 of title 5, United States Code, the 14 Administrator shall promulgate regulations 15 to carry out the program, which shall be 16 substantially similar to the Community Ad- 17 vantage Pilot Program of the Administra- 18 tion, as in effect on September 1, 2018, 19 and shall— 20 ‘‘(I) outline the requirements for 21 participation by covered institutions in 22 the p [Text truncated for display. 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