97TH GENERAL ASSEMBLY
State of Illinois
2011 and 2012
HB2072

 

Introduced 2/22/2011, by Rep. Lou Lang

 

SYNOPSIS AS INTRODUCED:
 
20 ILCS 605/605-422 new

    Amends the Department of Commerce and Economic Opportunity Law of the Civil Administrative Code of Illinois. Creates the Capital Access Loan Pilot Program. Creates the Capital Access Loan Loss Reserve Fund. Provides that the Department shall secure 10% of loans to eligible small businesses, if the participating financial institution would not offer the borrower a small business loan under the institution's prevailing credit standards without the 10% guarantee. Provides that the financial institution must submit an application to participate in the Program. Provides guidelines that the Department shall consider when determining whether a loan may be considered "eligible". Provides that an eligible business shall pay a one-time fee to the Department. Provides that the Department shall establish procedures under which participating financial institutions may submit claims for reimbursement for losses incurred as a result of qualified loan defaults. Provides that the Department may promulgate rules to implement the Program.


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FISCAL NOTE ACT MAY APPLY

 

 

A BILL FOR

 

HB2072LRB097 08823 PJG 48953 b

1    AN ACT concerning State government.
 
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
 
4    Section 5. The Department of Commerce and Economic
5Opportunity Law of the Civil Administrative Code of Illinois is
6amended by adding Section 605-422 as follows:
 
7    (20 ILCS 605/605-422 new)
8    Sec. 605-422. Capital Access Loan Pilot Program.
9    (a) The Illinois General Assembly finds and declares that
10it is in the best interest of the State of Illinois to create
11the Capital Access Loan Pilot Program to assist small
12businesses in obtaining access to capital that will allow them
13to create jobs. Small businesses have difficulty gaining access
14to capital for start-up and expansion purposes. Small
15businesses owned by minorities, women, the disabled, and
16veterans, and those located in rural and low-income to
17moderate-income areas of our State, have special capital access
18difficulties. The General Assembly finds that improving access
19to capital for these small businesses will spur investment,
20create jobs, expand economic opportunities, assist in the
21recovery of communities affected by the economic downturn, and
22help sustain and strengthen the economic recovery of Illinois.
23    (b) As used in this Section, the following words and

 

 

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1phrases have the following meanings:
2        (1) "Financial institution" means any bank, savings
3    and loan association, savings bank, or credit union
4    organized under the laws of this State or another state, or
5    organized under the laws of the United States, the accounts
6    of which are insured by applicable law, and their
7    subsidiaries and affiliates.
8        (2) "Capital Access Loan Loss Reserve Fund" means a
9    fund created outside the State treasury, subject to the
10    limitations and procedures set forth in this Section.
11        (3) "Department" means the Department of Commerce and
12    Economic Opportunity.
13        (4) "Authority" means the Illinois Finance Authority.
14        (5) "Participating financial institution" means a
15    financial institution, as defined in this Section, that has
16    been approved by the Department to enroll eligible loans in
17    the program and has agreed to all terms and conditions
18    established in this Section and in administrative rules.
19        (6) "Eligible loan" means a loan or a portion of a loan
20    made by a participating financial institution to an
21    eligible small business for any business activity that will
22    create or retain jobs in the State of Illinois and that
23    meets the criteria of the Capital Access Loan Pilot Program
24    established in this Section.
25        (7) "Eligible business" means a small business, as
26    defined in this Section, that meets all of the following

 

 

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1    criteria:
2            (A) It is a general or limited corporation, general
3        or limited partnership, cooperative, or other entity,
4        whether that entity is a nonprofit entity or an entity
5        established for profit, that is authorized to conduct
6        business in the State of Illinois.
7            (B) It has its primary business location in the
8        State of Illinois.
9            (C) It has a physical presence in the State of
10        Illinois.
11            (D) It is a business not in contravention of the
12        public good.
13        (8) "Small business" means a business having fewer than
14    100 employees and with annual gross receipts totaling less
15    than $5 million.
16        (9) "Program" means the Capital Access Loan Pilot
17    Program.
18        (10) "Realized loss" means the amount of the principal
19    balance remaining on the loan at the time a borrower
20    defaults, less any amount subsequently recovered by the
21    financial institution pursuant to collection efforts after
22    loan default. The realized loss does not include any fees
23    paid by the financial institution or on behalf of the
24    borrower that are assessed by the State to participate in
25    this Program.
26    (c) The Capital Access Loan Pilot Program is created. The

 

 

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1Program shall be administered by the Department and shall have
2an initial term of 2 years or until a full commitment of the
3Capital Access Loan Loss Reserve Fund has been made, whichever
4occurs first, running from the effective date of this
5amendatory Act of the 97th General Assembly. Before the second
6year of the program expires or before the Fund has been fully
7guaranteed, the Department shall provide to the General
8Assembly a report showing the amount of guarantees made by the
9State and the number of jobs created or retained. The
10Department's authority to enter into agreements and generate
11guarantees of small business loans shall cease at the end of
12the pilot program term, and the Department shall transfer back
13to the General Revenue Fund any portion of the Fund not serving
14as a guarantee, unless the General Assembly extends the Program
15by law.
16    (d) The Capital Access Loan Loss Reserve Fund is created,
17to be held outside the State treasury and to be administered by
18the Authority.
19        (1) The General Assembly, subject to appropriation,
20    shall allocate $15 million to the Fund, to be used by the
21    Department to secure 10% of loans to eligible small
22    businesses, if the participating financial institution
23    would not offer the borrower a small business loan under
24    the institution's prevailing credit standards without the
25    incentive of the 10% guarantee.
26        (2) The Fund shall be interest-bearing, and interest

 

 

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1    earned by the moneys held in this Fund shall remain in the
2    Fund.
3        (3) Notwithstanding any other law to the contrary, the
4    Fund is not subject to administrative charges or
5    charge-backs that would in any way transfer any moneys from
6    the Fund into any other fund of the State.
7    (e) The Department shall enter into agreements with
8financial institutions for the purpose of allowing the
9financial institution to participate in the Capital Access Loan
10Pilot Program established by this Section. The agreement shall
11provide for all of the following:
12        (1) The participating financial institution and the
13    eligible business shall deposit the fees to the credit of
14    the Capital Access Loan Loss Reserve Fund when the
15    financial institution makes an eligible loan.
16        (2) The liability of the State and the Department to
17    the financial institution under the agreement is limited to
18    providing a guarantee of 10% of the outstanding principal
19    balance on loans made by these participating financial
20    institutions.
21        (3) Before any guarantee applies, the participating
22    financial institution must submit an application to
23    participate in the Program that includes the following:
24            (A) a certification from the small business
25        identifying the number of jobs the business
26        anticipates will be created or saved if the loan is

 

 

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1        made; and
2            (B) a certification from the participating
3        financial institution that the participating financial
4        institution would not offer the borrower the loan under
5        the institution's prevailing credit standards without
6        the incentive of the 10% guarantee.
7        (4) Before any guarantee applies, the participating
8    financial institution shall provide any additional
9    information that the Department may require, including
10    financial information that is identifiable with, or
11    identifiable from, the financial records of a particular
12    small business seeking a loan through this Program.
13        (5) All loan applicants are encouraged to seek business
14    plan development assistance from the Department's Small
15    Business Development Center (SBDC) technical advisors. All
16    new startup businesses and loan applicants eligible for the
17    enhanced loan guarantee, available pursuant to subsection
18    (o) of this Section, are required to seek business plan
19    development assistance from an SBDC and certify to the
20    Department that they have pursued that assistance as part
21    of its application to the Department.
22    (f) The Department has the sole authority to determine
23whether a loan is considered "eligible" to merit the State's
24guarantee. The Department shall consider the following
25guidelines:
26        (1) An eligible loan is a loan that would not be

 

 

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1    extended to a small business under the institution's
2    prevailing credit standards, but for the incentive of the
3    guarantee provided for in this Section.
4        (2) An eligible loan may be made in the form of a line
5    of credit, in which case the participating financial
6    institution shall specify the amount of the line of credit
7    to be covered under the Program, which may be equal to the
8    maximum commitment under the line of credit or an amount
9    that is less than that maximum commitment.
10        (3) An eligible loan made under the Program may be made
11    with the interest rate, fees, and other terms and
12    conditions agreed upon by the participating financial
13    institution and the borrower, but the Department shall not
14    approve as an eligible loan one where the interest rate
15    charged to an eligible small business participating in this
16    Program is higher than 4 points over the WSJ (Wall Street
17    Journal) prime rate on the date of the loan closing.
18    (g) A financial institution that participates in this
19Program shall submit to the Department an application seeking
20approval of the loan guarantee as applied to that small
21business loan. If the small business meets the criteria
22established in subsection (o) of this Section, the
23participating financial institution shall provide the
24Department with substantiating documentation of meeting those
25criteria. The Department shall approve the loan guarantee and
26shall notify the participating financial institution of the

 

 

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1amount of the guarantee if all of the following criteria are
2met:
3        (1) The applicant is an eligible small business, as
4    defined in this Section.
5        (2) The applicant has provided a certification
6    indicating the number of jobs this loan will create or
7    retain within the first year of the loan.
8        (3) The applicant meets other criteria that the
9    Department deems relevant, in its discretion.
10    (h) Within 10 business days after an eligible loan closing,
11the participating financial institution shall notify the
12Department of the following, using a form approved by the
13Department:
14        (1) the date on which the loan closed;
15        (2) the principal amount of the loan;
16        (3) the interest rate applied to the loan; and
17        (4) the fees collected and deposited into the Capital
18    Access Loan Loss Reserve Fund for this loan.
19    (i) After the Department certifies that this is an eligible
20loan to which the guarantee may be applied, the participating
21financial institution shall require the eligible business to
22which the loan is made to pay a one-time fee of no more than 25
23basis points, to be assessed in the discretion of the
24Department. The participating financial institution shall also
25pay a fee of the same amount. The participating financial
26institution shall deposit these fees into the Capital Access

 

 

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1Loan Loss Reserve Fund.
2    (j) The Department is authorized to offer the State of
3Illinois' 10% guarantee on eligible loans approved by the
4Department. The dollar amount of that guarantee shall be
5calculated against the original loan amount of the eligible
6loan.
7    (k) The Department shall seek available funds from federal
8and other sources, including a not-for-profit entity, for the
9purposes of this Section. Funds made available shall be
10deposited into the Capital Access Loan Loss Reserve Fund. The
11Department may not allocate more than the amounts appropriated
12for the loan guarantees under this Act.
13    (l) The Department shall establish procedures under which
14the participating financial institution may submit claims for
15reimbursement for losses incurred as a result of qualified loan
16defaults. These procedures shall be posted on the Department's
17website.
18    (m) If the eligible business receiving the loan defaults on
19the loan, as determined by the participating financial
20institution's guidelines, the participating financial
21institution shall notify the Department of the default
22contemporaneously with providing notification of default to
23the borrower. The participating financial institution shall
24also notify the Department of the realized loss suffered by the
25participating financial institution. After approving the
26realized loss amount, the Department is then authorized to

 

 

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1release that portion of moneys in the Capital Access Loan Loss
2Reserve Fund that amounts to the participating financial
3institution's realized loss, up to the amount of the guarantee
4for that eligible loan.
5    (n) After an eligible loan has been active for at least one
6year, the Department is authorized to seek records from the
7small business showing documentation of jobs created or
8retained, and all small businesses participating in this
9Program shall comply with any requests for information from the
10Department. If the small business receiving an eligible loan
11through this Program fails to save or create the number of jobs
12indicated in the Program application, or fails to comply with
13the Department's request for documentation pursuant to this
14Section, the Department may assess an additional fee of not
15more than 10% of the loan. This additional fee shall be added
16to the monthly payments collected by the participating
17financial institution, and the participating financial
18institution shall deposit the additional funds into the Capital
19Access Loan Loss Reserve Fund.
20    (o) The amount of the State's guarantee on an eligible loan
21shall be increased to 20% if the participating financial
22institution determines, and the Department confirms, that the
23loan is being made to a borrower that meets one or more of the
24following criteria:
25        (1) The small business is minority-owned, as certified
26    by the State of Illinois.

 

 

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1        (2) The small business is women-owned, as certified by
2    the State of Illinois.
3        (3) The small business is owned by a person with a
4    disability, as determined by the ADA (Americans with
5    Disabilities Act).
6        (4) The small business is owned by a veteran of the
7    U.S. military or National Guard.
8        (5) The chief operations of the small business are
9    located in a low-income to moderate-income census tract.
10    (p) The State's guarantee shall cease when either of the
11following events occurs:
12        (1) the small business borrower defaults on the loan,
13    and the guarantee is paid to the participating financial
14    institution; or
15        (2) the loan becomes 5 years old, as measured from the
16    date on which the loan originally closes.
17    (q) For all loans entered into pursuant to this Section,
18the Department's guarantee shall not exceed $100,000 for any
19individual loan.
20    (r) The priority of issuance of the State's loan guarantees
21for eligible loan applicants shall be based solely on the
22chronological order in which applications are submitted.
23    (s) The Department may promulgate administrative rules to
24implement this Section, including but not limited to rules
25necessary for compliance with federal law.