HB2072 97TH GENERAL ASSEMBLY

LRB097 08823 PJG 48953 b

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.

FISCAL NOTE ACT MAY APPLY

A BILL FOR

AN ACT concerning State government.

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

Section 5. The Department of Commerce and Economic Opportunity Law of the Civil Administrative Code of Illinois is amended by adding Section 605-422 as follows:

(20 ILCS 605/605-422 new)

Sec. 605-422. Capital Access Loan Pilot Program.

(a) The Illinois General Assembly finds and declares that it is in the best interest of the State of Illinois to create the Capital Access Loan Pilot Program to assist small businesses in obtaining access to capital that will allow them to create jobs. Small businesses have difficulty gaining access to capital for start-up and expansion purposes. Small businesses owned by minorities, women, the disabled, and veterans, and those located in rural and low-income to moderate-income areas of our State, have special capital access difficulties. The General Assembly finds that improving access to capital for these small businesses will spur investment, create jobs, expand economic opportunities, assist in the recovery of communities affected by the economic downturn, and help sustain and strengthen the economic recovery of Illinois.

(b) As used in this Section, the following words and phrases have the following meanings:

(1) "Financial institution" means any bank, savings and loan association, savings bank, or credit union organized under the laws of this State or another state, or organized under the laws of the United States, the accounts of which are insured by applicable law, and their subsidiaries and affiliates.

(2) "Capital Access Loan Loss Reserve Fund" means a fund created outside the State treasury, subject to the limitations and procedures set forth in this Section.

(3) "Department" means the Department of Commerce and Economic Opportunity.

(4) "Authority" means the Illinois Finance Authority.

(5) "Participating financial institution" means a financial institution, as defined in this Section, that has been approved by the Department to enroll eligible loans in the program and has agreed to all terms and conditions established in this Section and in administrative rules.

(6) "Eligible loan" means a loan or a portion of a loan made by a participating financial institution to an eligible small business for any business activity that will create or retain jobs in the State of Illinois and that meets the criteria of the Capital Access Loan Pilot Program established in this Section.

(7) "Eligible business" means a small business, as defined in this Section, that meets all of the following criteria:

(A) It is a general or limited corporation, general or limited partnership, cooperative, or other entity, whether that entity is a nonprofit entity or an entity established for profit, that is authorized to conduct business in the State of Illinois.

(B) It has its primary business location in the State of Illinois.

(C) It has a physical presence in the State of Illinois.

(D) It is a business not in contravention of the public good.

(8) "Small business" means a business having fewer than 100 employees and with annual gross receipts totaling less than $5 million.

(9) "Program" means the Capital Access Loan Pilot Program.

(10) "Realized loss" means the amount of the principal balance remaining on the loan at the time a borrower defaults, less any amount subsequently recovered by the financial institution pursuant to collection efforts after loan default. The realized loss does not include any fees paid by the financial institution or on behalf of the borrower that are assessed by the State to participate in this Program.

(c) The Capital Access Loan Pilot Program is created. The Program shall be administered by the Department and shall have an initial term of 2 years or until a full commitment of the Capital Access Loan Loss Reserve Fund has been made, whichever occurs first, running from the effective date of this amendatory Act of the 97th General Assembly. Before the second year of the program expires or before the Fund has been fully guaranteed, the Department shall provide to the General Assembly a report showing the amount of guarantees made by the State and the number of jobs created or retained. The Department's authority to enter into agreements and generate guarantees of small business loans shall cease at the end of the pilot program term, and the Department shall transfer back to the General Revenue Fund any portion of the Fund not serving as a guarantee, unless the General Assembly extends the Program by law.

(d) The Capital Access Loan Loss Reserve Fund is created, to be held outside the State treasury and to be administered by the Authority.

(1) The General Assembly, subject to appropriation, shall allocate $15 million to the Fund, to be used by the Department to 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 incentive of the 10% guarantee.

(2) The Fund shall be interest-bearing, and interest earned by the moneys held in this Fund shall remain in the Fund.

(3) Notwithstanding any other law to the contrary, the Fund is not subject to administrative charges or charge-backs that would in any way transfer any moneys from the Fund into any other fund of the State.

(e) The Department shall enter into agreements with financial institutions for the purpose of allowing the financial institution to participate in the Capital Access Loan Pilot Program established by this Section. The agreement shall provide for all of the following:

(1) The participating financial institution and the eligible business shall deposit the fees to the credit of the Capital Access Loan Loss Reserve Fund when the financial institution makes an eligible loan.

(2) The liability of the State and the Department to the financial institution under the agreement is limited to providing a guarantee of 10% of the outstanding principal balance on loans made by these participating financial institutions.

(3) Before any guarantee applies, the participating financial institution must submit an application to participate in the Program that includes the following:

(A) a certification from the small business identifying the number of jobs the business anticipates will be created or saved if the loan is made; and

(B) a certification from the participating financial institution that the participating financial institution would not offer the borrower the loan under the institution's prevailing credit standards without the incentive of the 10% guarantee.

(4) Before any guarantee applies, the participating financial institution shall provide any additional information that the Department may require, including financial information that is identifiable with, or identifiable from, the financial records of a particular small business seeking a loan through this Program.

(5) All loan applicants are encouraged to seek business plan development assistance from the Department's Small Business Development Center (SBDC) technical advisors. All new startup businesses and loan applicants eligible for the enhanced loan guarantee, available pursuant to subsection (o) of this Section, are required to seek business plan development assistance from an SBDC and certify to the Department that they have pursued that assistance as part of its application to the Department.

(f) The Department has the sole authority to determine whether a loan is considered "eligible" to merit the State's guarantee. The Department shall consider the following guidelines:

(1) An eligible loan is a loan that would not be extended to a small business under the institution's prevailing credit standards, but for the incentive of the guarantee provided for in this Section.

(2) An eligible loan may be made in the form of a line of credit, in which case the participating financial institution shall specify the amount of the line of credit to be covered under the Program, which may be equal to the maximum commitment under the line of credit or an amount that is less than that maximum commitment.

(3) An eligible loan made under the Program may be made with the interest rate, fees, and other terms and conditions agreed upon by the participating financial institution and the borrower, but the Department shall not approve as an eligible loan one where the interest rate charged to an eligible small business participating in this Program is higher than 4 points over the WSJ (Wall Street Journal) prime rate on the date of the loan closing.

(g) A financial institution that participates in this Program shall submit to the Department an application seeking approval of the loan guarantee as applied to that small business loan. If the small business meets the criteria established in subsection (o) of this Section, the participating financial institution shall provide the Department with substantiating documentation of meeting those criteria. The Department shall approve the loan guarantee and shall notify the participating financial institution of the amount of the guarantee if all of the following criteria are met:

(1) The applicant is an eligible small business, as defined in this Section.

(2) The applicant has provided a certification indicating the number of jobs this loan will create or retain within the first year of the loan.

(3) The applicant meets other criteria that the Department deems relevant, in its discretion.

(h) Within 10 business days after an eligible loan closing, the participating financial institution shall notify the Department of the following, using a form approved by the Department:

(1) the date on which the loan closed;

(2) the principal amount of the loan;

(3) the interest rate applied to the loan; and

(4) the fees collected and deposited into the Capital Access Loan Loss Reserve Fund for this loan.

(i) After the Department certifies that this is an eligible loan to which the guarantee may be applied, the participating financial institution shall require the eligible business to which the loan is made to pay a one-time fee of no more than 25 basis points, to be assessed in the discretion of the Department. The participating financial institution shall also pay a fee of the same amount. The participating financial institution shall deposit these fees into the Capital Access Loan Loss Reserve Fund.

(j) The Department is authorized to offer the State of Illinois' 10% guarantee on eligible loans approved by the Department. The dollar amount of that guarantee shall be calculated against the original loan amount of the eligible loan.

(k) The Department shall seek available funds from federal and other sources, including a not-for-profit entity, for the purposes of this Section. Funds made available shall be deposited into the Capital Access Loan Loss Reserve Fund. The Department may not allocate more than the amounts appropriated for the loan guarantees under this Act.

(l) The Department shall establish procedures under which the participating financial institution may submit claims for reimbursement for losses incurred as a result of qualified loan defaults. These procedures shall be posted on the Department's website.

(m) If the eligible business receiving the loan defaults on the loan, as determined by the participating financial institution's guidelines, the participating financial institution shall notify the Department of the default contemporaneously with providing notification of default to the borrower. The participating financial institution shall also notify the Department of the realized loss suffered by the participating financial institution. After approving the realized loss amount, the Department is then authorized to release that portion of moneys in the Capital Access Loan Loss Reserve Fund that amounts to the participating financial institution's realized loss, up to the amount of the guarantee for that eligible loan.

(n) After an eligible loan has been active for at least one year, the Department is authorized to seek records from the small business showing documentation of jobs created or retained, and all small businesses participating in this Program shall comply with any requests for information from the Department. If the small business receiving an eligible loan through this Program fails to save or create the number of jobs indicated in the Program application, or fails to comply with the Department's request for documentation pursuant to this Section, the Department may assess an additional fee of not more than 10% of the loan. This additional fee shall be added to the monthly payments collected by the participating financial institution, and the participating financial institution shall deposit the additional funds into the Capital Access Loan Loss Reserve Fund.

(o) The amount of the State's guarantee on an eligible loan shall be increased to 20% if the participating financial institution determines, and the Department confirms, that the loan is being made to a borrower that meets one or more of the following criteria:

(1) The small business is minority-owned, as certified by the State of Illinois.

(2) The small business is women-owned, as certified by the State of Illinois.

(3) The small business is owned by a person with a disability, as determined by the ADA (Americans with Disabilities Act).

(4) The small business is owned by a veteran of the U.S. military or National Guard.

(5) The chief operations of the small business are located in a low-income to moderate-income census tract.

(p) The State's guarantee shall cease when either of the following events occurs:

(1) the small business borrower defaults on the loan, and the guarantee is paid to the participating financial institution; or

(2) the loan becomes 5 years old, as measured from the date on which the loan originally closes.

(q) For all loans entered into pursuant to this Section, the Department's guarantee shall not exceed $100,000 for any individual loan.

(r) The priority of issuance of the State's loan guarantees for eligible loan applicants shall be based solely on the chronological order in which applications are submitted.

(s) The Department may promulgate administrative rules to implement this Section, including but not limited to rules necessary for compliance with federal law.