Georgia Department of Community Affairs

Transcription

1 Georgia Department of Community Affairs State Small Business Credit Initiative Regulations

2 THE GEORGIA DEPARTMENT OF COMMUNITY AFFAIRS CHAPTER GEORGIA STATE SMALL BUSINESS CREDIT INITIATIVE LOAN PROGRAM DESCRIPTION Table of Contents Chapter Name Scope and Purpose Eligible Applicants and Activities Terms and Conditions Name The name of this program is the Georgia State Small Business Credit Initiative. This program is divided into three sub-programs as follows: the Georgia Funding for Community Development Financial Institutions, The Georgia Capital Access Program, and the Georgia Small Business Credit Guarantee General Scope and Purpose The Small Business Jobs Act of 2010 (Act), designed to help increase credit availability for small businesses, created the State Small Business Credit Initiative (SSBCI) and appropriated $1.5 billion to be used by the United States Department of the Treasury (U.S. Treasury) to provide direct support for states for use in assisting private lenders to increase access to credit for small businesses. Pursuant to the Act, Treasury allocated $47,808,507 to the State of Georgia for the initiative. On November 29, 2011, Treasury approved the State s application. Consequently, the Georgia Department of Community Affairs (DCA) through the Georgia Housing and Finance Authority s (GHFA) economic development powers will utilize its $47,808,507 in SSBCI funds (the Allocated Funds) in three state-administered SSBCI programs as initially approved by U.S. Treasury: the Georgia Capital Access Program (GCAP), to which $10 million will be directed; the Georgia Small Business Credit Guarantee Program (SBCG), to which $17,808,507 will be directed; and, the Georgia Funding for Community Development Financial Institutions, (GA Funding for CDFIs), to which $20 million will be directed. The allocation amounts to the three programs can be adjusted depending on usage if approved by Treasury. Operation of the three programs under the Georgia State Small Business Credit Initiative is subject to the U.S. Treasury Guidelines for SSBCI and the Treasury- approved Georgia SSBCI application and SSBCI Allocation Agreement. U.S. Treasury laws, rules and regulations shall govern in the event of a conflict between the State s Regulations and U.S. Treasury Guidelines. Further, nonprogram income as defined by the U.S. Treasury Guidelines will be added to the Allocated Funds, and shall be used for the same purposes and under the same conditions as the Allocated Funds pursuant to federal requirements (1) Scope and Purpose of Georgia Capital Access Program (GCAP)

3 The GCAP assists small businesses with obtaining loans through participating financial institutions. GCAP private lenders may be banks, credit unions, or CDFIs, as defined by U.S. Treasury SSBCI regulations. To participate in GCAP, lenders will undergo a review process to ensure adequate commercial lending experience, financial and managerial capacity, and operational skills. Lenders approved for participation in GCAP will sign a Program Participation Agreement with [an entity designated by] the State. GCAP provides portfolio insurance to lenders by requiring insurance premiums to be paid, by the borrower and the lender into a loan loss reserve fund for each loan enrolled. GCAP allows the borrower s fee (including the borrower s share of the loan insurance premium) to be financed within the resulting loan s proceeds. Each financial institution has a separate loan loss reserve fund managed by GCAP in the name of the State s designated entity that will be located at the participating financial institution. GCAP will use SSBCI funds to contribute amounts equal to the sum of the amount of loan insurance premium contributions paid by the borrower and the lender for each eligible enrolled loan, subject to a cap of 7% of the enrolled loans principal amount. GCAP provides portfolio insurance solely for eligible enrolled loans (2) Scope and Purpose of Small Business Credit Guarantee (SBCG) Program Under the SBCG program, credit facilities are extended to eligible small businesses by Lenders (credit unions, banks, CDFIs, and qualified private investors, as defined by U.S. Treasury SSBCI Guidelines) that have each entered into a Program Participation Agreement (PPA) with the State. 1 The PPA provides that qualifying lenders may enroll a qualified credit to an eligible small business in the credit guarantee program for eligible business purposes that meet that eligibility criteria described in Initially, the State will reimburse from SSBCI funds 50% of losses incurred on an enrolled credit by a Lender that is not in material default of the PPA. Guarantee funds will generally be available to Lenders on a first-come, first-served basis. The State will charge an initial guarantee fee in an amount equal to 2% of the outstanding guarantee for funds advanced for the first 12 months, along with an annual fee in an amount of 0.5% of the outstanding guarantee for each subsequent year. Through various financial incentives, the Lender is encouraged to move loans from the 50% guarantee to a Risk Reserve Pool (RRP) where 10% of the outstanding balance on the converted loan is deposited in the RRP. Under the RRP, a Lender may receive up to 80% reimbursement for losses on individual credits. Amounts in the RRP may be used in addition to the 50% reimbursement for credits not in the RRP to bring the total reimbursement of those credits to 80%, if sufficient funds exist in the RRP. The annual guarantee fee of 0.5% is waived for loans placed in the RRP (3) Scope and Purpose of the GA Funding for Community Development Financial Institutions (GA Funding for CDFIs) Program The GA Funding for CDFIs program is designed to provide access to capital to small businesses in order to create job opportunities in low-to moderate-income, minority, and other underserved 1 For purposes of these SSBCI Regulations, the term "State" shall mean the entity or entities then designated by the State to administer the SSBCI Programs, as the context may require. Currently, the SSBCI Programs are being implemented by DCA through GHFA

4 communities, including women- and minority-owned businesses. Qualified CDFIs may participate in the GA Funding for CDFIs program through a contractual arrangement as either a loan originator/servicer or a contracting entity. CDFIs that wish to participate in the GA Funding for CDFIs programs will undergo a vetting process administered by the Department of Community Affairs. These CDFIs must be financially sound as evidenced by adequate capitalization, asset quality, management capacity, earning and liquidity. A minimum of two years existence as a Georgia-based non-profit corporation is required. Also, qualified CDFIs must have documented commercial lending policies in place and a history of successful small business lending to underserved communities. Qualified CDFIs will be invited to participate as either a loan originator/servicer or a contracting entity. With either option, the CDFI will enter into a performance-based contract arrangement with the Department of Community Affairs through the GHFA or its designee. The CDFI will receive and review eligible loan requests, then forward appropriate paperwork to DCA for final review and approval. Qualified non-profit, non-depository CDFIs will be able to participate as a contracting entity, whereby DCA (acting on behalf of GHFA or its designee) will advance SSBCI funds to the CDFI on a no-debt, loan-by-loan basis, and the CDFI, in turn, will then make the loan to the eligible business. The CDFI will be deemed the lender and holder of the loans for purposes of its books and records, and all principal, interest and other payments in respect of such loan may be retained by the applicable CDFI serving as the contracting entity. Qualified for-profit or non-profit, affiliated-depository CDFIs may participate as a loan servicer/originator, whereby DCA will advance SSBCI funds to the business borrower. In the case of the servicer/originator model, principal, interest and other payments in respect of the applicable loans originated and serviced by the CDFI will be retained by DCA/GHFA. All CDFIs may earn fees in exchange for origination (underwriting), closing, servicing, collections and related reporting services Eligible Applicants and Activities As required by Section 3005(e)(7) of the Act, Georgia requires that each financial institution lender obtain an assurance from each borrower stating that the loan proceeds will not be used for an impermissible purpose under the SSBCI Program. Financial institution lenders are prohibited from refinancing any existing outstanding balance or previously made loan, line of credit, extension of credit or other debt owed by a small business borrower already on the books of the same financial institution (or an affiliate) into a SSBCIsupported program. Each financial institution lender must obtain an assurance from the borrower affirming: (1) The loan proceeds must be used for a business purpose. A business purpose includes, but is not limited to, start-up costs, working capital, business procurement, franchise fees, equipment, inventory, as well as the purchase, construction, renovation or tenant improvements of an eligible place of business that is not for passive real estate investment purposes. The definition of business purpose excludes activities that relate to acquiring or holding passive investments such as

5 commercial real estate ownership, the purchase of securities; and lobbying activities as defined in Section 3 (7) of the Lobbying Disclosure Act of 1995, P.L , as amended (2) The loan proceeds will not be used to: a. repay a delinquent federal or state income taxes unless the borrower has a payment plan in place with the relevant taxing authority; or b. repay taxes held in trust or escrow, e.g. payroll or sales taxes; or c. reimburse funds owed to any owner, including any equity injection or injection of capital for the business continuance; or d. purchase any portion of the ownership interest of any owner of the business (3) The borrower is not: a. an executive officer, director, or principal shareholder of the financial institution lender; or b. a member of the immediate family of an executive officer, director, or principal shareholder of the financial institution lenders; or c. a related interest of such an executive officer, director, principal shareholder, or member of the immediate family. d. For the purposes of these three borrower restrictions, the terms executive officer, director, principal shareholder, immediate family, and related interest refer to the same relationship to a financial institution lender as the relationship described in part 215 of title 12 of the Code of Federal Regulations, or any successor to such part. e. The borrower is not: 1. a business engaged in speculative activities that develop profits from fluctuations in price rather than through normal course of trade, such as wildcatting for oil and dealing in commodities futures, unless those activities are incidental to the regular activities of the business and part of a legitimate risk management strategy to guard against price fluctuations related to the regular activities of the business; or 2. a business that earns more than half of its annual net revenue from lending activities; unless the business is a non-bank or non-bank holding company certified as a Community Development Financial Institution; or 3. a business engaged in pyramid sales, where a participant's primary incentive is based on the sales made by an ever-increasing number of participants; or 4. a business engaged in activities that are prohibited by federal or state law or applicable law in the jurisdiction where the business is located or conducted. (Included in these activities is the production, servicing, or distribution of otherwise legal products that are to be used in connection with an illegal activity, such as selling drug paraphernalia or operating a motel that knowingly permits illegal prostitution); or 5. a business engaged in gambling enterprises, unless the business earns less than 33% of its annual net revenue from state lottery sales (4) No principal of the borrowing entity has been convicted of a sex offense against a minor (as such terms are defined in section 111 of the Sex Offender Registration and Notification Act (42 U.S.C )). For the purposes of this certification, principal is defined as if a sole proprietorship, the proprietor; if a partnership, each managing partner and each partner who is a natural person and holds a 20% or more ownership interest in the partnership; and if a corporation, limited liability company, association or a development company, each director, each of the five most highly compensated executives or officers of the entity, and each natural person who is a direct or indirect holder of 20% or more of the ownership stock or stock equivalent of the entity

6 Terms and Conditions The following are the general terms and conditions of the three programs for the Georgia State Small Business Credit Initiative. (1) Georgia Capital Access Program (GCAP) a) The borrower and lender each make an equal contribution up to 3.5% of the amount enrolled, which GCAP will match, to a lender s loan loss reserve account, in compliance with federal SSBCI requirements. A borrower may also pay the lender s contribution, and vice versa, as long as a written agreement for such payments is signed. The borrower s and lender s contribution may be financed and may be part of the loan proceeds. b) As required by the SSBCI statute, the GCAP will not exceed a 7% (measured in terms of the enrolled loan s principal amount) State match for contributions to reserves. c) Georgia will require each lender qualifying to participate in GCAP to propose a plan for reaching underserved communities. A lender s existing plan that conforms to federal Community Reinvestment Act (CRA) guidelines may be considered where applicable. d) Federal SSBCI funds may be used to match the borrower/lender contribution to the lender s loan loss reserve account at a level of 1:1. e) The financial institution lender must have a meaningful amount of its own capital at risk in the loan. CAP programs in which private lenders bear 20 percent or more of the loss from a default will satisfy this requirement in accordance with U.S. Treasury Guidelines. f) GCAP will require that the small business have less than 500 employees, and the loan amount generally not exceed $500,000. Loan amounts greater than $500,000 may be approved by DCA (acting on behalf of the GHFA or its designee) on an exception basis which will be also subject to overall U.S. Treasury Guidelines required in Section 3005(c)(4) of the Act. (2) Small Business Credit Guarantee (SBCG) a) Borrowers will pay a fee equal to 2% of the outstanding guarantee for loan funds advanced for the first 12 months and an annual fee of 0.5% of the outstanding guarantee balance for each subsequent year. For term loans, the fee will be paid at the time of the loan closing and the beginning of each year. For lines of credit, the fee will be deducted pro-rata on a monthly basis as advances are made on the line. b) The maximum individual loan amount eligible for the SBCG guarantee will generally be $500,000. Guarantees for loan amounts greater than $500,000 may be approved by DCA on an exception basis. When considering exceptions, DCA may limit exceptions to insure the State s overall SSBCI portfolio meets the Treasury Guidelines required in Section 3006(c) of the Act. c) Concentration Limit The amount of allocation targeted to the 50% loan guarantee on the SBCG Pool of $17,808,507 will be limited to a $4 million cap. As outlined in Section (2), lenders will be incentivized to convert 50% loan guarantees to the Risk Reserve Pool (RRP) option

7 d) Lender Concentration Limit The maximum combined guarantees under the 50% loan guarantee pool and 10% RRP that may be outstanding at any time with respect to a single lender will generally be $5,000,000. e) The maximum term for SBCG guarantee on lines of credit will generally be 24 months. f) The maximum term for SBCG guarantee on amortizing loans will generally be 48 months. g) The SBCG is a deficiency guarantee; lenders must first liquidate collateral before claiming the guarantee. h) The Risk Reserve Pool will be held by the State, not by individual lenders. i) The 80% limit on reimbursement for losses on individual credits shall be maintained to preserve the 20% lender capital at risk, as required by U.S. Treasury s SSBCI Guidelines and OMB Circular A-129. j) SBCG will target businesses with an average borrower size of 500 employees or less, but credit cannot be extended to businesses with more than 750 employees. Exceptions loans authorized pursuant to (2) (b) may not exceed a principal amount of $5 million. When considering exceptions, DCA may limit such considerations to insure the State s overall SSBCI portfolio meets the Treasury Guidelines required in Section 3006(c) of the Act. (3) GA Funding for CDFIs a) Qualified non-profit, non-depository CDFIs participating as contracting entities are permitted to retain the principal, interest and fees in order to relend the funds for future periods. (This option is not available to for-profit or non-profit, affiliated-depository CDFIs who may participate as loan originators/servicers.) All principal payments of SSBCI funds retained by a non-profit, non-depository CDFI must be used in economic development projects that meet U.S. Treasury s SSBCI guidelines. However, interest and income earned on SSBCI funds can be used by CDFIs to cover SSBCI-related expenses for operation of the SSBCI revolving loan funds as permitted under the U.S. Treasury Guidelines. At the end of the SSBCI program reporting requirements, SSBCI funds may remain with the CDFI in a revolving loan fund to the extent that funds are properly leveraging private lending and business activity consistent with DCA/GHFA s requirements. b) Meaningful lender capital resources at risk: Banks and participating CDFIs must have at least 50% capital at risk. c) GA Funding for CDFIs will target businesses with an average borrower size of 500 employees or less, but credit cannot be extended to businesses with more than 750 employees. Average projected loan size is between $100,000 and $250,000. (4) Terms and Conditions applicable to all Georgia SSBCI Programs a) The State must obtain an assurance from the financial institution lender or investor affirming: i. The loan has not been made in order to place under the protection of the approved State CAP or OCSP prior debt or investment that is not covered under the approved CAP or OCSP and that is or was owed by the borrower or investee to the financial institution lender or investor or investor or to an affiliate of the financial institution lender or investor

8 ii. The loan or investment is not a refinancing of a loan or investment previously made to that borrower or investee by the financial institution lender or investor or an affiliate of the financial institution lender or investor. iii. No principal of the financial institution lender or investor has been convicted of a sex offense against a minor (as such terms are defined in section 111 of the Sex Offender Registration or Notification Act (42 U.S.C ). For the purposes of this certification, principal is defined as if a sole proprietorship, the proprietor; if a partnership, each partner; if a corporation, limited liability company, association or a development company, each director, each of the five most highly compensated executives, officers, or employees of the entity, and each direct or indirect holder of 20% or more of the ownership stock of stock equivalent of the entity. iv. The financial institution or other private lender will make available to the Treasury Inspector General all books and records related to the use of SSBCI funds, subject to the Right to Financial Privacy Act (12 U.S.C et. seq.), including detailed loan records, as applicable. v. The financial institution is in compliance with the requirements of 31 C.F.R related to verification of the identity of persons opening accounts. b) Annual and Quarterly Reporting Requirements: All financial institutions/lenders in the Georgia SSBCI program are required to submit quarterly and annual reports to DCA. DCA will, in turn, collect and aggregate such quarterly and annual reports in order to fulfill the State s SSBCI quarterly and annual reporting requirements to U.S. Treasury. Details on the deadlines and format of these reports are available from DCA s web site or DCA directly. c) Lender Approval Criteria: Each lender seeking participation in the State of Georgia s SSBCI programs will undergo a thorough review process by the State to ensure that the lender has the adequate commercial lending experience, financial and managerial capacity, and operational skills to meet the objectives as set forth in the SSBCI Act. Regulated financial institutions must meet certain criteria established by their regulators to maintain their charters. DCA will work closely with the Georgia Department of Banking and Finance to implement the selection process for participating financial institutions including banks and credit unions. Principal evaluation factors of lenders will include capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risk. d) Pursuant to U.S. Treasury s SSBCI guidelines, Georgia s SSBCI programs may not enroll the unguaranteed portions of SBA-guaranteed loans without the express prior written consent of U.S. Treasury. This prohibition also applies to the unguaranteed portion of other federally generated loans. (5) Overall Terms and Conditions applicable to Georgia SSBCI Other Credit Support Programs (OCSPs) - SBCG and GA Funding for CDFIs a) Minimum, $1:$1 public: private investment. All loans will have a minimum $1:$1 public/private investment through bank participation or other private funds. b) New small business lending at least 10 times the SSBCI contributed Federal amount. It is anticipated that CDFIs will partner with banks to leverage SSBCI funds 10:1 over the life of the program. The desired SSBCI loan amount will be that amount which is less than or equal to 10% of the loan funded by the bank in order to immediately achieve the 10:1 ratio

9 c) Underserved Markets. In accordance with U.S. Treasury s SSBCI guidelines, Georgia s SSBCI OCSPs will reach underserved markets (defined by U.S. Treasury to include women- and minority-owned businesses as well as small businesses in low- and moderate-income communities, in minority communities, and in other underserved communities) through both program design and program outreach. SBCG is anticipated to serve primarily smaller banks and credit unions, while the GA Funding for CDFIs will assist CDFIs in reaching underserved markets