§697. Development company debentures

(a) Guarantees; Administration authority; regulatory terms and conditions; full faith and credit; subordination of debentures

(1) Except as provided in subsection (b) of this section, the Administration may guarantee the timely payment of all principal and interest as scheduled on any debenture issued by any qualified State or local development company.

(2) Such guarantees may be made on such terms and conditions as the Administration may be regulation determine to be appropriate: Provided, That the Administration shall not decline to issue such guarantee when the ownership interests of the small business concern and the ownership interests of the property to be financed with the proceeds of a loan made pursuant to subsection (b)(1) of this section are not identical because one or more of the following classes of relatives have an ownership interest in either the small business concern or the property: father, mother, son, daughter, wife, husband, brother, or sister: Provided further, That the Administrator or his designee has determined on a case-by-case basis that such ownership interest, such guarantee, and the proceeds of such loan, will substantially benefit the small business concern.

(3) The full faith and credit of the United States in pledged to the payment of all amounts guaranteed under this subsection.

(4) Any debenture issued by any State or local development company with respect to which a guarantee is made under this subsection, may be subordinated by the Administration to any other debenture, promissory note, or other debt or obligation of such company.

(b) Statutory terms and conditions

No guarantee may be made with respect to any debenture under subsection (a) of this section unless-

(1) such debenture is issued for the purpose of making one or more loans to small business concerns, the proceeds of which shall be used by such concern for the purposes set forth in section 696 of this title;

(2) necessary funds for making such loans are not available to such company from private sources on reasonable terms;

(3) the interest rate on such debenture is not less than the rate of interest determined by the Secretary of the Treasury for purposes of section 683(b) of this title;

(4) the aggregate amount of such debenture does not exceed the amount of loans to be made from the proceeds of such debenture (other than any excess attributable to the administrative costs of such loans);

(5) the amount of any loan to be made from such proceeds does not exceed an amount equal to 50 percent of the cost of the project with respect to which such loan is made; and

(6) the Administration approves each loan to be made from such proceeds.

(c) Commercial loan interest rate

(1) The purpose of this subsection is to facilitate the orderly and necessary flow of long-term loans from certified development companies to small business concerns.

(2) Notwithstanding the provisions of the constitution or laws of any State limiting the rate or amount of interest which may be charged, taken, received, or reserved, the maximum legal rate of interest on any commercial loan which funds any portion of the cost of the project financed pursuant to this section or section 697a of this title which is not funded by a debenture guaranteed under this section shall be a rate which is established by the Administrator of the Small Business Administration under the authority of this section.

(3) The Administrator is authorized and directed to establish and publish quarterly a maximum legal interest rate for any commercial loan which funds any portion of the cost of the project financed pursuant to this section or section 697a of this title which is not funded by a debenture guaranteed under this section.

(d) Administrative expenses; additional charge

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) of this section.

(e) "Qualified State or local development company" defined; exception for rural company; authority

(1) For purposes of this section, the term "qualified State or local development company" means any State or local development company which, as determined by the Administration, has-

(A) a full-time professional staff;

(B) professional management ability (including adequate accounting, legal, and business-servicing abilities); and

(C) a board of directors, or membership, which meets on a regular basis to make management decisions for such company, including decisions relating to the making and servicing of loans by such company.

(2) A company in a rural area shall be deemed to have satisfied the requirements of a full-time professional staff and professional management ability if it contracts with another certified development company which has such staff and management ability and which is located in the same general area to provide such services.

(3) Notwithstanding any other provision of law, qualified State or local development companies shall be authorized to prepare applications for deferred participation loans under section 636(a) of this title, to service such loans and to charge a reasonable fee for servicing such loans.

(Pub. L. 85–699, title V, §503, as added Pub. L. 96–302, title I, §113(a), July 2, 1980, 94 Stat. 837 ; amended Pub. L. 100–590, title I, §§112(c), 114, 117(a), Nov. 3, 1988, 102 Stat. 2996–2998 ; Pub. L. 101–515, title V, §8, Nov. 5, 1990, 104 Stat. 2144 ; Pub. L. 103–403, title II, §213(1), Oct. 22, 1994, 108 Stat. 4184 .)

Amendments

1994-Subsec. (c) to (e). Pub. L. 103–403 made technical amendment to Pub. L. 100–590, §112(c). See 1988 Amendment note below.

1990-Subsec. (e)(3). Pub. L. 101–515 added par. (3).

1988-Subsec. (a)(2). Pub. L. 100–590, §114, inserted two provisos that Administration not decline to issue such guarantee when ownership interests of small business concern and of property to be financed with loan are not identical, and that Administrator has determined on case-by-case basis that such ownership interest, guarantee, and loan, will substantially benefit small business concern.

Subsec. (c). Pub. L. 100–590, §112(c)(B), formerly §112(c)(1)(B), as amended by Pub. L. 103–403, added subsec. (c). Former subsec. (c) redesignated (d).

Subsec. (d). Pub. L. 100–590, §112(c)(A), formerly §112(c)(1)(A), as amended by Pub. L. 103–403, redesignated subsec. (c) as (d). Former subsec. (d) redesignated (e).

Subsec. (e). Pub. L. 100–590, §117, which directed substitution of "(1) For purposes of" for "For purposes of", redesignated former pars. (1) to (3) as subpars. (A) to (C), respectively, and added par. (2), was executed to subsec. (e) to reflect the probable intent of Congress and the intervening redesignation of subsec. (d) as (e) by Pub. L. 100–590, §112(c)(1).

Pub. L. 100–590, §112(c)(A), formerly §112(c)(1)(A), as amended by Pub. L. 103–403, redesignated former subsec. (d) as (e).

Termination Date of 1988 Amendment

Section 112(c)(2) of Pub. L. 100–590, as amended by Pub. L. 101–515, title V, §3, Nov. 5, 1990, 104 Stat. 2140 ; Pub. L. 103–317, title IV, Aug. 26, 1994, 108 Stat. 1755 , which provided that the amendment made by paragraph (1), amending this section, was to be repealed on Oct. 1, 1997, was repealed by Pub. L. 103–403, title II, §213(2), Oct. 22, 1994, 108 Stat. 4184 .

Effective Date

Section effective Oct. 1, 1980, see section 507 of Pub. L. 96–302, set out as an Effective Date of 1980 Amendment note under section 631 of this title.

Section Referred to in Other Sections

This section is referred to in sections 697a, 697d, 697e, 697f of this title.