IMPROVING SMALL BUSINESSES ACCESS TO CAPITAL THROUGH REGULATION OF SBA LOAN BROKERS ACT OF 2016 H.R. A BILL

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1 IMPROVING SMALL BUSINESSES ACCESS TO CAPITAL THROUGH REGULATION OF SBA LOAN BROKERS ACT OF 2016 H.R. A BILL For the establishment, licensing, and oversight of SBA Loan Brokers Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, that: SECTION 1. SHORT TITLE. This Act may be cited as the Improving Small Businesses Access to Capital Through Regulation of SBA Loan Brokers Act of SEC. 2. REGULATORY OVERSIGHT OF SBA LOAN BROKERS Section 48 of the Small Business Act (15 U.S.C. 658) is newly enacted as follows: No loan shall be made or guaranteed by the Small Business Administration (the SBA or the Administration ) to any business enterprise that sought such loan or guaranty through an intermediary (other than the direct lender obtaining a guaranty from the SBA) unless such intermediary is a SBA Loan Broker. As used in this section 48 of the Small Business Act, the term intermediary shall mean any person who, in exchange for a fee or other consideration, assists or refers a loan applicant to the Small Business Administration or to a bank or other financial institution that directly or indirectly obtains a loan made or guaranteed by the Small Business Administration; provided, however, that the following persons shall not be deemed an intermediary as a result of their having engaged in the following conduct: (i) a lawyer or accountant who provides such assistance or makes such a referral in the course of providing legal or accounting services to the loan applicant; and (ii) an employee of the Small Business Administration, bank or other financial institution who provides such assistance or makes such a referral in the regular course of his or her duties to his employer.

2 (c) An SBA Loan Broker shall have established and shall maintain the following qualifications: (1) If the applicant for a license as a SBA Loan Broker is a corporation, limited liability company, or partnership, such applicant must be in good standing in its state of organization and must have all of its officers and principal owners licensed as SBA Loan Broker. As used in this Act, a principal owner is each individual who, directly or indirectly, owns 50% or more of the equity of the SBA Loan Broker and/or who, directly or indirectly, controls the board of directors, managing member, or general partner, as the case may be, of the SBA Loan Broker. (2) Neither the SBA Loan Broker nor any of its officers or principal owners shall have been convicted of a felony within the period ending 10 years prior to the date of such license or thereafter. (3) The SBA Loan Broker applicant and each of its officers and principal owners shall have passed an examination focusing on the Small Business Act, in general, and on section 16, Criminal Penalties, in particular, within the past three years of the date or such license and prior to every third-year anniversary of such license. (4) Neither the SBA Loan Broker nor any of its officers or principal owners shall have been found liable for (civil or criminal) fraud prior to the date of such license or its renewal thereafter. In the event that an officer or principal owner of a SBA Loan Broker is found (by final adjudication or settlement) liable for fraud and the SBA Loan Broker severs all ties with such officer or principal owner within 60 days of such final adjudication or settlement, the SBA Loan Broker shall not have lost its qualification as a SBA Loan Broker. As used herein, the term final adjudication means a final order of a tribunal (including arbitrator or arbitration panel) whether obtained by settlement, default, or contest, that is not subject to appeal. If a SBA Loan Broker shall have been found liable for fraud, neither it nor its successors, assigns, officers or principal owners (or entities controlled by any of the foregoing) may qualify as a SBA Loan Broker (or officer or principal owner thereof) for a period of 5 years following such final adjudication, absent good cause, as determined by the Small Business Administration. 2

3 (5) The SBA Loan Broker s default ratio shall not at any time be greater than the threshold, absent good cause, as determined by the Small Business Administration. As used herein, the term default ratio of a SBA Loan Broker means the ratio of (i) the amount of outstanding principal, in the aggregate, of non-performing SBA loans placed by such SBA Loan Broker over the most recent 3-year period, and (ii) the notional loan amount (original face amount of principal), in the aggregate, of all SBA Loans placed by such SBA Loan Broker over the most recent 3-year period. As used herein, non-performing SBA loans shall mean a loan made or guaranteed by the SBA with respect to which collateral has been foreclosed or collection proceedings were instituted. As used herein, the threshold shall mean 30%. (6) Each SBA Loan Broker shall maintain a three-year running list of all loans he, she, or it originated that were made or guaranteed by the SBA and shall annually inquire as to the amount of non-performing SBA loans. (7) The Small Business Administration shall oversee the examination and licensing process, the (three-year) renewal thereof, and the annual collection of information required to determine the SBA Loan Broker s default ratio and whether such SBA Loan Broker (its officers or principals) have been found liable for fraud. (8) The Small Business Administration shall have authority to reject an applicant for SBA Loan Broker s license and to suspend or revoke any such license, subject to section 30 of the Small Business Act (15 USC 657), as amended. SEC. 3. FEES & APPROPRIATIONS The Small Business Administration shall impose a fee upon every application for and every renewal of a license for SBA Loan Broker. The fees shall approximate the costs and expenses budgeted by the SBA for the activities required of it in effectuating the purposes of this Act. The SBA is hereby authorized the appropriation of $5,000,000 to implement (whether internally or by contract with vendors) the development of forms, study materials, testing materials, software, and procedures, and to train staff necessary to effectuate the purposes of this Act. 3

4 SEC. 4. RECORDS & REPORTING REQUIREMENTS. The Small Business Administration shall maintain a record of all SBA Loan Brokers, and a regulatory enforcement file for each such broker, which record shall be available to SBA lenders, the Ombudsman and to the Office of Inspector General. The Administration shall publish periodic public reports of all licensees that have had their licenses revoked or suspended. Sec. 5 EFFECTIVE DATE & TRANSITIONAL RULES The effective date of this Act shall be three-years following the date of its enactment. The Small Business Administration shall have study materials, testing materials, forms, procedures (including interactive website processes) and software in place within one-year for the date of the enactment of this Act and shall then roll-out the licensing of SBA Loan Brokers (and their officers and principal owners) as follows: (1) All commercial loan brokers who have assisted or referred business entities in obtaining loans made or guaranteed by the SBA as of the date of enactment of this Act, shall, and their respective officers and principal owners also shall (collectively, priority applicants ), submit requests (via use of the SBA website) for applications, testing procedures, and study materials within 18 months following the enactment of this Act; (2) All priority applicants shall complete the process of obtaining a license as a SBA Loan Broker within 24 months of the date of enactment of this Act; (3) All other applicants and all priority applicants who did not comply with the time frames noted in paragraphs (1) and (2) of this subsection shall be eligible to apply for a SBA Broker License after 24 months of the date of enactment of this Act. Sec. 6 OTHER CONFORMING AMENDMENTS. Section 30 of the Small Business Act (15 U.S.C. 657) is amended to provide that the Ombudsman shall have jurisdiction over any dispute regarding a rejected, revoked, or suspended license as a SBA Loan Broker. 4

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