To amend title IV of the Small Business Investment Act of 1958, relating to a pilot program for credit enhancement guarantees on pools of non-SBA loans.

October 3, 2003

Ms. SNOWE (for herself, Mr. PRYOR, and Mr. BOND) introduced the following bill; which was read twice and referred to the Committee on Small Business and Entrepreneurship

To amend title IV of the Small Business Investment Act of 1958, relating to a pilot program for credit enhancement guarantees on pools of non-SBA loans.

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

SECTION 1. SHORT TITLE.

This Act may be cited as the `Small Business Credit Liquidity Act of 2003'.

SEC. 2. PILOT PROGRAM FOR GUARANTEES ON POOLS OF NON-SBA LOANS.

Title IV of the Small Business Investment Act of 1958 (15 U.S.C. 692 et seq.) is amended by adding at the end the following:

`Part C--Credit Enhancement Guarantees

`SEC. 420. (a)(1) The Administration is authorized, upon such terms and conditions as it may prescribe, in order to encourage lenders to increase the availability of small business financing by improving such lenders' access to reasonable sources of funding, to provide a credit enhancement guarantee, or commitment to guarantee, of the timely payment of a portion of the principal and interest on securities issued and managed by not less than 2 qualified entities authorized and approved by the Administration.

`(2) The entities authorized under this subsection to act as issuers and managers of pools or trusts of loans shall be well-capitalized, as defined by the Administration, and shall maintain sufficient reserves to allow securities to be issued representing interests in each pool or trust that are rated as investment grade by a nationally-recognized rating agency.

`(3) The authority of the entities authorized under this subsection shall be reviewed annually by the Administration and may be renewed upon the satisfactory completion of such review.

`(4) The Administration shall set and maintain standards for entities authorized under this subsection, including standards relating to delinquency, default, liquidation, and loss rates.

`(5) If an entity authorized under this subsection fails to meet the standards set pursuant to paragraph (4), the Administration may terminate the entity's participation in the pilot program under this subsection.

`(b)(1)(A) The Administration may provide its credit enhancement guarantees in respect of securities that represent interests in, or other obligations issued by, a trust, pool, or other entity whose assets (other than the Administration's credit enhancement guarantee and credit enhancements provided by other parties) consist of loans made to small business concerns.

`(B) As used in this paragraph, the term `small business concern' has the meaning given that term in either the Small Business Act (15 U.S.C. 631 et seq.) or this Act (15 U.S.C. 661 et seq.).

`(2) The credit enhancement guarantees provided by the Administration under paragraph (1) shall be second-loss guarantees that are only available after the full payment of credit enhancement guarantees offered by the entities authorized to act as issuers and managers of pools or trusts of loans under this section.

`(3) A pool or trust of loans shall not be eligible for guarantees under this section--

`(A) if the value of such loans exceeds $350,000,000 in fiscal year 2004;

`(B) if the value of such loans exceeds $400,000,000 in fiscal year 2005; or

`(C) if the value of such loans exceeds $450,000,000 in fiscal year 2006.

`(4) All loans under paragraph (1) shall be originated, purchased, or assembled and managed consistent with requirements prescribed by the Administration in connection with this credit enhancement guarantee program.

`(5) The Administration shall prescribe requirements to be observed by the issuers and managers of the securities covered by credit enhancement guarantees to ensure the safety and soundness of the credit enhancement guarantee program.

`(c) The full faith and credit of the United States is pledged to the payment of all amounts the Administration may be required to pay as a result of credit enhancement guarantees under this section.

`(d)(1) The Administration may issue credit enhancement guarantees in an amount--

`(A) not to exceed $2,100,000,000 in fiscal year 2004;

`(B) not to exceed $3,250,000,000 in fiscal year 2005; and

`(C) not to exceed $4,500,000,000 in fiscal year 2006.

`(2) The Administration shall set the percentage and priority of each credit enhancement guarantee on issued securities at a level not to exceed 25 percent of the value of the securities so that the amount of the Administration's anticipated net loss (if any) as a result of such guarantee is fully reserved in a credit subsidy account funded wholly by fees collected by the Administration from the issuers or managers of the pool or trust.

`(3) The Administration shall charge and collect a fee from the issuer based on the Administration's guaranteed amount of issued securities, and the amount of such fee shall equal the estimated credit subsidy cost of the Administration's credit enhancement guarantee.

`(4) The fees provided for under this subsection shall be adjusted annually, as necessary, by the Administration.

`(5) The Federal government shall not appropriate any funds to finance credit enhancement guarantees under this section.

`(e) REPORT AND ANALYSIS-

`(1) REPORT-

`(A) IN GENERAL- During the development and implementation of the pilot program, the Administrator shall submit a report on the status of the pilot program under this section to Congress in each annual budget request and performance plan.

`(B) CONTENTS- The report submitted under subparagraph (A) shall include, among other items, information about the loans in the pools or trusts, including delinquency, default, loss, and recovery rates.

`(2) ANALYSIS AND REPORT- Not later than December 30, 2005, the Comptroller General shall--

`(A) conduct an analysis of the pilot program under this section; and

`(B) submit a report to Congress that contains a summary of the analysis conducted under subparagraph (A) and a description of any effects, not attributable to other causes, of the pilot program on the lending programs under section 7(a) of the Small Business Act (15 U.S.C. 636(a)) and title V of this Act.

`(3) IMPLEMENTATION-

`(A) REPORT- After completing operational guidelines to carry out the pilot program under this section, the Administration shall submit a report, which describes the method in which the pilot program will be implemented, to--

`(i) the Committee on Small Business and Entrepreneurship of the Senate; and

`(ii) the Committee on Small Business of the House of Representatives.

`(B) TIMING- The Administration shall not implement the pilot program under this section until the date that is 50 days after the report has been submitted under subparagraph (A).

`(f) SUNSET PROVISION- This section shall remain in effect until September 30, 2006.'.

END