Overview
Title
To amend the Small Business Act to codify the Community Advantage Loan Program, and for other purposes.
ELI5 AI
H.R. 7560 is a plan to help tiny businesses in hard-to-reach places by making it easier for them to get loans. It sets rules for who can give these loans and how the money should be shared so that everyone gets a fair chance.
Summary AI
H.R. 7560, titled the "Community Advantage Loan Program Act of 2024," aims to amend the Small Business Act by officially establishing the Community Advantage Loan Program. The purpose of this program is to help small businesses in underserved and rural markets by providing loan guarantees. It sets rules for the participation of lenders, including specific requirements and benefits for experienced lenders, and mandates a significant portion of loans to go to underserved markets. The bill also includes provisions for reporting, training, and outreach to effectively implement the program.
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AnalysisAI
To understand the proposed Community Advantage Loan Program Act of 2024, it is vital to break down its objectives, potential issues, and the broader implications it could have if enacted. This bill, introduced in the U.S. House of Representatives, aims to amend the Small Business Act by codifying the Community Advantage Loan Program, which is intended to facilitate access to credit for small businesses, especially in underserved and rural areas. Let's explore the main components and ramifications of this bill.
Summary of the Bill
The proposed legislation seeks to establish the Community Advantage Loan Program under the Small Business Act. Its primary aim is to provide a structured loan guarantee program to help small businesses, particularly those in underserved and rural markets, that struggle to secure credit through conventional means. The bill outlines several key purposes:
Mission-Oriented Assistance: The program is designed to offer mission-oriented loan guarantees to increase lending specifically targeted at underserved and rural markets.
Supporting New and Existing Businesses: It focuses on helping both new businesses (those operational for less than two years) and more established ones.
Inclusivity and Technical Support: The bill stresses inclusivity in lending and aims to assist businesses in becoming financially viable by leveraging technical expertise from participating lenders.
Limitations and Caps: Generally, the loans are capped at $350,000, although certain experienced lenders may provide loans up to $750,000. Additionally, it mandates that at least 60% of the loans must go to businesses in underserved markets.
Significant Issues
While the bill appears well-intentioned, several notable issues arise:
Definition Ambiguities: Some definitions within the bill, such as 'referral agent' and 'experienced lenders,' reference external regulations or provide vague criteria, which could lead to inconsistencies should these guidelines change or be interpreted differently.
Complex Financial Requirements: The financial requirements, particularly around loan loss reserves and the reporting of loan data, are quite detailed and may be confusing for the institutions involved, potentially leading to errors or financial mismanagement.
Training and Outsourcing: The term ‘accessible trainings’ lacks a clear definition, risking inconsistency in quality. Moreover, the possibility of outsourcing these trainings to select organizations could inadvertently favor certain entities, thus limiting participation fairness.
Subjective Decision-Making: Terms such as ‘as determined by the Administration’ lack clear operational guidelines, which might result in subjective and potentially biased applications of the program.
Operational Transparency: The handling of fees paid to Community Advantage Network Partners is inadequately defined, possibly leading to inefficiencies or misuse of funds.
Potential Public and Stakeholder Impact
The impact of this legislation could be substantial, especially for small businesses operating in economically disenfranchised areas:
For Small Businesses: If effectively implemented, this program could provide much-needed financial support, helping businesses that might not otherwise access institutional loans. This can potentially stimulate economic growth and job creation in struggling communities.
For Lending Institutions: Lenders have the opportunity to expand their reach and fulfill a critical social mission. However, they also face significant regulatory and administrative challenges due to the bill's complexities around definitions and financial guidelines.
Regulatory Agencies: Bodies such as the Small Business Administration (SBA) must prepare for increased oversight responsibilities to ensure the program's rules are applied consistently and effectively across diverse participants.
Overall, while the Community Advantage Loan Program Act of 2024 aims to foster economic inclusivity and support underserved markets, its success heavily depends on clear guidelines, transparency in application, and stakeholder cooperation to address the outlined issues. These aspects are crucial for maximizing the positive impact on both the intended beneficiaries and the broader economic landscape.
Financial Assessment
The "Community Advantage Loan Program Act of 2024" includes several important financial references and allocations, all of which play critical roles in the implementation and effectiveness of the program. The bill's financial elements revolve mainly around loan amounts, administration participation, and the financial obligations required from covered institutions. Here's an overview and analysis of the financial aspects of the bill:
Financial References in Loan Amounts and Administration Participation
The bill sets a framework for the financial structure of loans guaranteed under the program. Specifically, it defines:
Maximum Loan Amounts: The bill specifies that the maximum loan amount is $350,000 for most loans. However, experienced lenders, those with at least five years of prior lending experience, can offer loans up to $750,000, provided that at least 60% of their loans are less than or equal to $350,000.
Administration Participation: The Small Business Administration (SBA) will participate financially by covering portions of these loans. The bill notes that for loans greater than $350,000, the SBA will participate up to 75% of the outstanding balance at disbursement. For loans within specific thresholds, participation percentages vary:
- 80% participation for loans with balances greater than $150,000 but less than or equal to $350,000.
- 90% participation for loans with balances less than or equal to $150,000.
Loan Loss Reserve Requirements
Covered institutions participating in the program are expected to maintain loan loss reserve accounts:
For institutions with less than five years in the program, they must reserve an amount equal to 5% of the unguaranteed portion of their loan portfolio.
Institutions with over five years of participation must maintain reserves not less than 3%, calculated based on their average repurchase rates over a prior three-year period.
These financial reserve requirements, while ensuring a buffer against potential loan defaults, may pose challenges (Issue 4) due to their complexity and the potential difficulty for institutions to accurately interpret and apply them.
Financial Reporting and Accountability
The bill mandates comprehensive financial reporting to provide transparency and track the program's financial impact:
- Weekly and annual reports (Section 2, clauses (I) and (O)) are required to disclose the number and dollar amounts of loans, with breakdowns by demographic categories and geographic locations. This detailed reporting structure is crucial for accountability and ensures that underserved markets receive a substantial portion of the loans, in line with the bill's objectives.
Issues Related to Financial Elements
Several issues arise concerning the bill's financial references:
Training Accessibility: While the bill indicates that accessible training must be provided, the lack of a clear definition of what constitutes "accessible" (Issue 3) might lead to inconsistent support for covered institutions in meeting financial performance benchmarks, particularly in handling loan loss reserves and participation agreements.
Referral Agent Fees: The bill states that fees associated with Community Advantage Network Partners are to be paid upon loan disbursement. However, the absence of limits or specific conditions for these fees (Issue 5) creates a potential for financial inefficiencies and lack of clarity in how funds are allocated.
Eligibility Criteria for Lenders: The criteria for selecting "experienced lenders," based solely on the length of experience without performance metrics (Issue 2), could lead to an uneven application of maximum loan limits, affecting the program’s financial allocations.
In conclusion, while the "Community Advantage Loan Program Act of 2024" lays out a detailed financial framework for supporting small businesses in underserved areas, some ambiguities and complexities within the bill's financial references could impact its effective implementation. Addressing these issues would be critical to ensure the intended financial support reaches the target communities efficiently and equitably.
Issues
The definition of 'referral agent' is referenced from external regulations (section 103.1(f) of title 13, Code of Federal Regulations), which may lead to ambiguity if those regulations change. This could result in significant legal and procedural uncertainty affecting the application of the bill. Refer to Section 2, clause (B)(vii).
The criteria for selecting 'experienced lenders' are vague, relying solely on years of experience without defining specific metrics for performance or quality, potentially leading to inconsistent application of the program. This is found in Section 2, clause (G)(ii).
The directive to provide 'accessible trainings' does not define what constitutes 'accessible,' potentially leading to variability in training content and delivery quality. This issue is located in Section 2, clause (K)(i).
Regulations regarding loan loss reserve requirements and recalculation, specifically clauses (J)(i), (J)(ii), and (J)(iii), are complex and may be difficult for covered institutions to interpret and apply, which could result in financial mismanagement. See Section 2, clause (J).
Clause (M) mentions fees paid to Community Advantage Network Partners without specifying limits or conditions, leading to potential financial inefficiency and lack of transparency regarding financial interactions. This is found in Section 2, clause (M).
The phrase 'as determined by the Administration' concerning grandfathered institutions' participation is subjective and could lead to inconsistent application, creating potential favoritism or bias. Refer to Section 2, clause (E).
The definitions provided for terms like 'small business concern in underserved markets' incorporate references to several other laws and codes, potentially causing confusion due to the complex legal cross-referencing. This issue is noted in Section 2, clauses (B)(x) and multiple sub-clauses.
Sections
Sections are presented as they are annotated in the original legislative text. Any missing headers, numbers, or non-consecutive order is due to the original text.
1. Short title Read Opens in new tab
Summary AI
The first section of this Act states the official title of the law, which is the "Community Advantage Loan Program Act of 2024."
2. Community Advantage Loan Program Read Opens in new tab
Summary AI
The Community Advantage Loan Program is established to help small businesses in underserved and rural areas by providing loan guarantees and technical assistance through specific lenders. The program aims to increase access to credit for new and existing businesses that can't get credit elsewhere, and requires at least 60% of loans to be made to businesses in underserved markets, with loans generally capped at $350,000, though some experienced lenders can provide larger loans up to $750,000.
Money References
- (a) Establishment of Community Advantage Loan Program.—Section 7(a) of the Small Business Act (15 U.S.C. 636(a)) is amended by adding at the end the following: “(38) COMMUNITY ADVANTAGE LOAN PROGRAM.— “(A) PURPOSES.—The purposes of the Community Advantage Loan Program are— “(i) to create a mission-oriented loan guarantee program; “(ii) to increase lending to small business concerns in underserved and rural markets, including to new businesses; “(iii) to ensure that the program under this subsection expands inclusion and more broadly meets congressional intent to reach borrowers who are unable to get credit elsewhere on reasonable terms and conditions; “(iv) to help underserved small business concerns become bankable by utilizing the small dollar financing and business support experience of mission-oriented lenders; “(v) to allow certain mission-oriented lenders, primarily financial intermediaries focused on economic development in underserved markets, access to guarantees for loans under this subsection and provide management and technical assistance to small business concerns as needed; and “(vi) to assist covered institutions with providing business support services and technical assistance to small business concerns, when needed. “
- , the maximum loan amount for a loan guaranteed under the program is $350,000.
- “(bb) MAXIMUM LOAN AMOUNT.—An experienced lender may make a loan guaranteed under the program in an amount that is not more than $750,000, but not less than 60 percent of the total number of such loans made by an experienced lender shall be in an amount that is less than or equal to $350,000.
- “(cc) PARTICIPATION BY THE ADMINISTRATION.—With respect to an agreement to participate in a loan made under this subclause on a deferred basis, the participation by the Administration shall be— “(AA) 75 percent of the balance of the financing outstanding at the time of the disbursement of the loan, if that balance is more than $350,000; “(BB) as described in clause (i) of paragraph (2)(G), if the balance of the financing outstanding at the time of the disbursement of the loan is as described in that clause; or “(CC) as described in clause (ii) of paragraph (2)(G), if the balance of the financing outstanding at the time of the disbursement of the loan is as described in that clause.
- — “(I) IN GENERAL.—A covered institution may not require collateral with respect to a loan guaranteed under the program if the amount of that loan is less than or equal to $50,000.
- — “(I) IN GENERAL.—The Administrator shall report on the website of the Administration, as part of the weekly reports on lending approvals under this subsection— “(aa) on and after the date of enactment of this paragraph, the number and dollar amount of loans guaranteed under the Community Advantage Pilot Program of the Administration; and “(bb) on and after the date on which the Administrator begins to approve loans under the program, the number and dollar amount of loans guaranteed under the program. “
- (II) SEPARATE ACCOUNTING.—The number and dollar amount of loans reported in a weekly report under subclause (I) for loans guaranteed under the Community Advantage Pilot Program of the Administration and under the program shall include a breakdown by the demographic information of the owners of the small business concerns, by whether the small business concern is a new business or an existing business, and by whether the small business concern is located in an urban area or rural area, further disaggregated by— “(aa) loans less than or equal to $50,000; “(bb) loans greater than $50,000 and less than or equal to $150,000; “(cc) loans greater than $150,000 and less than or equal to $250,000; “(dd) loans greater than $250,000 and less than or equal to $350,000; and “(ee) loans greater than $350,000 and less than or equal to $750,000.
- “(II) CONTENTS.—Each report submitted and made publicly available under subclause (I) shall include— “(aa) the number and dollar amounts of loans provided to small business concerns under the program, including a breakdown by— “(AA) the demographic information of the owners of the small business concern; “(BB) whether the small business concern is located in an urban area or rural area; and “(CC) whether the small business concern is an existing business or a new business, as provided in the weekly reports on lending approvals under this subsection; “(bb) the proportion of loans described in item (aa) compared to— “(AA) other loans made under this subsection of any amount; “(BB) other loans made under this subsection of similar amounts; “(CC) express loans provided under paragraph (31) of similar amounts; and “(DD) other loans made under this subsection of similar amounts provided to small business concerns in underserved markets; “(cc) a comparison of the number and dollar amounts of loans provided to small business concerns under the program and under each category of loans described in item (aa), broken down by— “(AA) loans less than or equal to $50,000; “(BB) loans greater than $50,000 and less than or equal to $150,000; “(CC) loans greater than $150,000 and less than or equal to $250,000; “(DD) loans greater than $250,000 and less than or equal to $350,000; and “(EE) loans greater than $350,000 and less than or equal to $750,000; “(dd) the number and dollar amounts of loans provided to small business concerns under the program by State, and the jobs created or retained within each State; and “(ee) a list of covered institutions participating in the program and the Community Advantage Pilot Program of the Administration, including— “(AA) the name, location, and contact information, such as the website and telephone number, of each covered institution; and “(BB) a breakdown by the number and dollar amount of the loans approved for small business concerns. “(III) TIMING.—An annual report required under this clause shall— “(aa) be submitted and made publicly available not later than December 1 of each year; and “(bb) cover the lending activity for the fiscal year that ended on September 30 of that same year. “(P) GAO REPORT.—Not later than 5 years after the date of the enactment of this paragraph, the Comptroller General of the United States shall submit to the Administrator, the Committee on Small Business and Entrepreneurship of the Senate, and the Committee on Small Business of the House of Representatives a report— “(i) assessing— “(I) the extent to which the program fulfills the requirements of this paragraph; and “(II) the performance of covered institutions participating in the program; and “(ii) providing recommendations on the administration of the program and the findings under subclauses (I) and (II) of clause (i). “(Q) REGULATIONS.
- (b) Participation.—Section 7(a)(2) of the Small Business Act (15 U.S.C. 636(a)(2)) is amended— (1) in subparagraph (A), in the matter preceding clause (i), by striking “and (F)” and inserting “(F), and (G)”; and (2) by adding at the end the following: “(G) PARTICIPATION IN THE COMMUNITY ADVANTAGE LOAN PROGRAM.—Subject to subparagraph (G)(i)(II)(cc) of paragraph (38), in an agreement to participate in a loan on a deferred basis under that paragraph, the participation by the Administration shall be— “(i) 80 percent of the balance of the financing outstanding at the time of the disbursement of the loan, if that balance is greater than $150,000 and less than or equal to $350,000; or “(ii) 90 percent of the balance of the financing outstanding at the time of the disbursement of the loan, if that balance is less than or equal to $150,000.”. ---