HB5420eng 96TH GENERAL ASSEMBLY

HB5420 Engrossed LRB096 18878 JDS 34265 b

AN ACT concerning State government.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 1. Short title. This Act may be cited as the Microloan Program Act.

Section 5. Definitions. For purposes of this Act:

"Department" means the Department of Commerce and Economic Opportunity.

"Director" means the Director of Commerce and Economic Opportunity.

"Intermediary" means (i) a private, non-profit entity; (ii) a private, non-profit community development corporation; (iii) a consortium of private, non-profit organizations or non-profit community development corporations; or (iv) a quasi-governmental economic development entity (such as a planning and development district) if no application is received from an eligible non-profit organization or the Director determines that the needs of a region or geographic area are not adequately served by an existing, eligible non-profit organization that has submitted an application.

"Microloan" means a short-term, fixed rate loan of not more than $35,000, made by an intermediary to a startup, newly established, or growing small business concern.

"Rural area" means any political subdivision or unincorporated area (i) in a non-metropolitan county (as defined by the Secretary of Agriculture) or its equivalent or (ii) in a metropolitan county or its equivalent that has a resident population of less than 20,000 if the Department of Commerce and Economic Opportunity has determined such a political subdivision or area to be rural.

"Economically distressed area", as used in Section 30, means a county or unit of local government in which a small business concern is located and in which, according to the most recent data available from the Bureau of the Census, Department of Commerce, not less than 40% of residents have an annual income that is at or below the poverty level.

Section 10. Purposes. The purposes of the Microloan Program are:

(1) to assist female, low-income, veteran, and minority entrepreneurs and business owners and other individuals possessing the capability to operate successful business concerns;

(2) to assist small business concerns in those areas suffering from a lack of credit due to economic downturns;

(3) to establish a microloan program to be administered by the Department of Commerce and Economic Opportunity in order to:

(A) make loans to eligible intermediaries to enable those intermediaries to provide small-scale loans, particularly loans in amounts averaging not more than $13,000, to startup, newly established, or growing small business concerns for working capital or the acquisition of materials, supplies, or equipment;

(B) make grants to eligible intermediaries that, together with non-State matching funds, will enable those intermediaries to provide intensive marketing, management, and technical assistance to microloan borrowers;

(C) make grants to eligible non-profit entities that, together with non-State matching funds, will enable those entities to provide intensive marketing, management, and technical assistance to assist low-income entrepreneurs and other low-income individuals in obtaining private sector financing for their businesses, with or without loan guarantees; and

(D) report to the Committee on State Government Administration in the House of Representatives and the State Government and Veterans Affairs Committee in the Senate on the effectiveness of the microloan program.

Section 15. Microloan program established. A microloan program is established in the Department of Commerce and Economic Opportunity under which the Director of Commerce and Economic Opportunity may:

(1) make direct loans to eligible intermediaries, as provided under Section 25, for the purpose of making short-term, fixed interest rate microloans to startup, newly established, and growing small business concerns under Section 40;

(2) in conjunction with these loans and subject to the requirements of Section 30, make grants to these intermediaries for the purpose of providing intensive marketing, management, and technical assistance to small business concerns that are borrowers under this Act; and

(3) subject to the requirements of Section 35 make grants to non-profit entities for the purpose of providing marketing, management, and technical assistance to low-income individuals seeking to start or enlarge their own businesses, if that assistance includes working with the grant recipient to secure loans in amounts not to exceed $35,000 from private sector lending institutions, with or without a loan guarantee from the non-profit entity.

Section 20. Eligibility for participation. An intermediary shall be eligible to receive loans and grants under paragraphs (1) and (2) of Section 15 if it meets the definition of intermediary in Section 5.

Section 25. Loans to intermediaries.

(a) As part of its application for a loan, each intermediary shall submit a description to the Director of the type of businesses to be assisted; the size and range of loans to be made; the geographic area to be served and its economic, poverty, and unemployment characteristics; the status of small business concerns in the area to be served and an analysis of their credit and technical assistance needs; any marketing, management, and technical assistance to be provided in connection with a loan made under this Act; the local economic credit markets, including the costs associated with obtaining credit locally; the qualifications of the applicant to carry out the purpose of this Act; and any plan to involve other technical assistance providers or private sector lenders in assisting selected business concerns. In selecting intermediaries to participate in the program established under this Act, the Director shall give priority to those applicants that provide loans in amounts averaging not more than $13,000.

(b) As a condition of any loan made to an intermediary under paragraph (2) of Section 15, the Department shall require the intermediary to contribute not less than 15% of the loan amount in cash from non-State sources.

(c) No loan shall be made to an intermediary under this Act if the total amount outstanding and committed to that intermediary (excluding outstanding grants) from the Business Loan and Investment Fund would, as a result of that loan, exceed $750,000 in the first year of the intermediary's participation in the program or $3,500,000 in later years of the intermediary's participation in the program.

(d) The Department shall, by regulation, require each intermediary to establish a loan loss reserve fund, and to maintain that reserve fund until all obligations owed to the Department under this Act are repaid. Unless otherwise authorized under this subsection (d), the Director shall require the loan loss reserve fund of an intermediary to be maintained at a level equal to 15% of the outstanding balance of the notes receivable owed to the intermediary. After the initial 5 years of an intermediary's participation in the program, the Director shall, at the request of the intermediary, conduct a review of the annual loss rate of the intermediary. The Director may reduce the annual loan loss reserve requirement of an intermediary to reflect the actual average loan loss rate for the intermediary during the preceding 5-year period, except that in no case shall the loan loss reserve be reduced to less than 10% of the outstanding balance of the notes receivable owed to the intermediary. The Director may reduce the annual loan loss reserve requirement of an intermediary only if the intermediary demonstrates to the satisfaction of the Director that the average annual loss rate for the intermediary during the preceding 5-year period is less than 15%; and that no other factors exist that may impair the ability of the intermediary to repay all obligations owed to the Director under this Act.

(e) An intermediary may make a loan under this Act of more than $20,000 to a small business concern only if the small business concern demonstrates that it is unable to obtain credit elsewhere at comparable interest rates and that it has good prospects for success. In no case shall an intermediary make a loan under this Act of more than $35,000, or have outstanding or committed to any one borrower more than $35,000.

(f) Loans made by the Department to an intermediary under this Act shall be for a term of 10 years. Except as otherwise provided in this subsection (f), loans made by the Department to an intermediary under this Act shall bear an interest rate equal to 1.25 percentage points below the rate determined by the Secretary of the Treasury for obligations of the United States with a period of maturity of 5 years, adjusted to the nearest one-eighth of 1%. Loans made by the Department to an intermediary that makes loans to small business concerns and entrepreneurs averaging not more than $7,500, shall bear an interest rate that is 2 percentage points below the rate determined by the Secretary of the Treasury for obligations of the United States with a period of maturity of 5 years, adjusted to the nearest one-eighth of 1%. The applicable rate of interest under this subsection (f) shall be applied retroactively for the first year of an intermediary's participation in the program, based upon the actual lending practices of the intermediary as determined by the Department before the end of that year and be based in the second and subsequent years of an intermediary's participation in the program, upon the actual lending practices of the intermediary during the term of the intermediary's participation in the program. The interest rates prescribed in this subsection (f) shall apply to all loans made to intermediaries under this Act.

(g) The Department shall not require repayment of interest or principal of a loan made to an intermediary under this Act during the first year of the loan.

(h) Except as provided in subsections (b) and (d) of this Section 25, the Department shall not charge any fees or require collateral other than an assignment of the notes receivable of the microloans with respect to any loan made to an intermediary under this Act.

Section 30. Marketing, management, and technical assistance grants to intermediaries.

(a) Except as otherwise provided in subsections (b) and (c) of this Section 30, each intermediary that receives a loan under paragraph (1) of Section 15 shall be eligible to receive a grant to provide marketing, management, and technical assistance to small business concerns that are borrowers under this Act. Except as provided in subsection (c) of this Section 30, each intermediary meeting the requirements of subsection (b) of this Section 30 may receive a grant of not more than 25% of the total outstanding balance of loans made to it under this Act.

(b) As a condition of any grant made under subsection (a) of this Section 30, except for a grant made to an intermediary that provides not less than 50% of its loans to small business concerns located in or owned by one or more residents of an economically distressed area, the Department shall require the intermediary to contribute an amount equal to 25% of the amount of the grant, obtained solely from non-State sources. In addition to cash or other direct funding, the contribution may include indirect costs or in-kind contributions paid for under non-State programs.

(c) In addition to grants made under subsection (a), each intermediary shall be eligible to receive a grant equal to 5% of the total outstanding balance of loans made to the intermediary under this Act if (i) the intermediary provides not less than 25% of its loans to small business concerns located in or owned by one or more residents of an economically distressed area or (ii) the intermediary has a portfolio of loans made under this Act that averages not more than $13,000 during the period of the intermediary's participation in the program.

(d) A grant awarded under subsection (c) may be used to provide marketing, management, and technical assistance to small business concerns that are borrowers under this Act.

(e) The contribution requirements in subsection (b) of this Section 30 do not apply to grants made under subsection (c).

(f) The eligibility for a grant described in subsections (a) and (c) shall be determined separately for each loan-making site or office of that intermediary.

(g) Each intermediary may expend an amount not to exceed 25% of the grant funds received under paragraph (2) of Section 15 to provide information and technical assistance to small business concerns that are prospective borrowers under this Act.

(h) An intermediary may expend not more than 25% of the funds received under paragraph (2) of Section 15 to enter into third party contracts for the provision of technical assistance.

(i) The Department may accept any funds transferred to it from the State, State agencies, and departments or agencies of the Federal Government to make grants to participating intermediaries and technical assistance providers under this Section 30, for use in accordance with subsection (k) to provide additional technical assistance and related services to low-income individuals under subparagraph (C) of paragraph (3) of Section 10 at the time the applicant initially applies for assistance.

(j) In making grants under subsection (i), the Department may select, from among participating intermediaries and technical assistance providers described in subsection (i), not more than 20 grantees in fiscal year 2011, not more than 25 grantees in fiscal year 2012, and not more than 30 grantees in fiscal year 2013, each of whom may receive a grant under subsection (i) in an amount not to exceed $200,000 per year.

(k) Grants under subsection (i) are in addition to other grants provided under this Act and shall not require the contribution of matching amounts as a condition of eligibility; and may be used by a grantee to pay or reimburse a portion of child care and transportation costs of low-income individuals, to the extent these costs are not otherwise paid by State block grants under the Child Care Development Block Grant Act of 1990 (42 U.S.C. 9858 et seq.) or under part A of Title IV of the Social Security Act (42 U.S.C. 601 et seq.); and for marketing, management, and technical assistance to those individuals.

(l) Prior to accepting any transfer of funds under subsection (i) from the State, a State agency, or a department or agency of the federal government, the Department shall enter into a Memorandum of Understanding with the State, State agency, or department or agency of the federal government, which shall specify the terms and conditions of the grants; and provide for appropriate monitoring of expenditures by each grantee and each recipient of assistance under subsection (i).

Section 35. Private sector borrowing technical assistance grants.

(a) The Department may make not more than 55 grants annually, each in an amount not to exceed $200,000 for the purposes specified in subparagraph (C) of paragraph (3) of Section 10.

(b) As a condition of the grant, the Department shall require the grant recipient to provide matching funds equal to 20% of the amount of the grant, obtained solely from non-State sources. In addition to cash or other direct funding, the matching funds may include indirect costs or in-kind contributions paid for under non-State programs.

Section 40. Loans to small business concerns from eligible intermediaries.

(a) An eligible intermediary shall make short-term, fixed rate loans to startup, newly established, and growing small business concerns from the funds made available to it under paragraph (1) of Section 15 for working capital and the acquisition of materials, supplies, furniture, fixtures, and equipment.

(b) To the extent practicable, each intermediary that operates a microloan program under this Act shall maintain a microloan portfolio with an average loan size of not more than $13,000.

(c) The Department shall not review individual microloans made by intermediaries prior to approval.

(d) In addition to other eligible small businesses concerns, borrowers under any program under this Act may include individuals who will use the loan proceeds to establish for-profit or non-profit child care establishments or businesses providing for-profit transportation services.

Section 45. Program funding for microloans.

(a) Under the program authorized by this Act, the Department may fund, on a competitive basis, not more than 300 intermediaries.

(b) Subject to the availability of appropriations, of the total amount of new loan funds made available for award under this Act in each fiscal year, the Department shall make available for award an amount equal to the sum appropriated by the General Assembly for that purpose.

Section 50. Equitable distribution of intermediaries. In approving intermediaries and providing funding to intermediaries under this Act, the Department shall select and provide funding to intermediaries as will ensure appropriate availability of loans for small businesses in all industries located throughout the State, particularly those located in urban and in rural areas.

Section 55. Grants for management, marketing, technical assistance, and related services.

(a) The Department may procure technical assistance for intermediaries participating in the Microloan Program to ensure that those intermediaries have the knowledge, skills, and understanding of microlending practices necessary to operate successful microloan programs.

(b) The General Assembly may appropriate up to 7% of the balance in the Business Loan and Investment Fund to the Department for the specific purpose of providing one or more technical assistance grants to experienced microlending organizations that have demonstrated experience in providing training support for microenterprise development and financing to achieve the purposes set forth in Section 10.

Section 60. Report to General Assembly. On November 1, 2012, the Department shall submit to the General Assembly a report, including the Department's evaluation of the effectiveness of the microloan program and the following:

(1) the numbers and locations of the intermediaries funded to conduct microloan programs;

(2) the amounts of each loan and each grant to intermediaries;

(3) a description of the matching contributions of each intermediary;

(4) the numbers and amounts of microloans made by the intermediaries to small business concern borrowers;

(5) the repayment history of each intermediary;

(6) a description of the loan portfolio of each intermediary including the extent to which it provides microloans to small business concerns in rural areas; and

(7) any recommendations for legislative changes that would improve program operations.

Section 65. Business Loan and Investment Fund. The Business Loan and Investment Fund is created as a special fund in the State treasury to accept appropriations, grants, gifts, and other donations made to fund the Microloan Program created by this Act. Moneys in the Fund may, subject to appropriation, be used by the Department to carry out the requirements of this Act.

Section 70. The State Finance Act is amended by adding Section 5.755 as follows:

(30 ILCS 105/5.755 new)

Sec. 5.755. The Business Loan and Investment Fund.