Bill Text: MN HF611 | 2011-2012 | 87th Legislature | Engrossed
Bill Title: Small business loan guarantee program created.
Spectrum: Bipartisan Bill
Status: (Engrossed - Dead) 2011-05-17 - Laid on table [HF611 Detail]
Download: Minnesota-2011-HF611-Engrossed.html
1.2relating to economic development; creating a small business loan guarantee
1.3program; proposing coding for new law in Minnesota Statutes, chapter 116J.
1.4BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:
1.5 Section 1. [116J.881] SMALL BUSINESS LOAN GUARANTEE PROGRAM.
1.6 Subdivision 1. Definitions. (a) For purposes of this section, the following terms
1.7have the meanings given.
1.8(b) "Borrower" means a small business receiving an eligible loan under this section.
1.9(c) "Commissioner" means the commissioner of employment and economic
1.10development.
1.11(d) "Eligible loan" means a loan to a small business to be used for business
1.12purposes exclusively in Minnesota, including: construction; remodeling or renovation;
1.13leasehold improvements; the purchase of land and buildings; business acquisitions,
1.14including employee stock ownership plan financing; machinery or equipment purchases,
1.15maintenance, or repair; expenses related to moving into or within Minnesota; and working
1.16capital when the working capital is secured by fixed assets.
1.17(e) "Loan guarantee" means a guarantee of 70 percent of the loan amount provided
1.18by a QED lender. The guaranteed portion of the loan must not exceed $1,500,000.
1.19(f) "Loan guarantee trust fund" means a dedicated fund established under this
1.20section for the purpose of compensation for defaulted loan guarantees and for program
1.21administration.
1.22(g) "Loan purchaser" means an institutional investor that purchases, holds, and
1.23services small business loans on a nonrecourse basis from QED lenders participating in
1.24the small business loan guarantee program.
2.1(h) "Qualified economic development lender" or "QED lender" means a public entity
2.2or a private nonprofit economic development organization whose headquarters is located
2.3in Minnesota with not less than three years of active lending experience that provides
2.4financing to small businesses in partnership with banks and other commercial lenders, and
2.5that originates subordinated loans to small businesses for sale to the secondary market.
2.6(i) "Secondary market" means the market in which loans are sold to investors, either
2.7directly or through an intermediary.
2.8(j) "Small business" means a business employing no more than 500 persons in
2.9Minnesota.
2.10(k) "Subordinated loan" means a loan secured by a lien that is lower in priority than
2.11one or more specified other liens.
2.12 Subd. 2. Loan guarantee program. A small business loan guarantee program to
2.13support the origination and sale of eligible subordinated loans to the secondary market by
2.14providing a credit enhancement in the form of a partial guarantee of small business loans
2.15that are made to Minnesota businesses by a QED lender is created in the Department of
2.16Employment and Economic Development. A loan guarantee shall be provided for eligible
2.17loans under this section only when a bank or other commercial lender provides at least 50
2.18percent of the total amount loaned to the small business. The loan guarantee shall apply
2.19only to the portion of the loan that was made by the QED lender.
2.20 Subd. 3. Required provisions. Loan guarantees under this section for loans to be
2.21sold on the secondary market by QED lenders shall provide that:
2.22(1) principal and interest payments made by the borrower under the terms of the loan
2.23are applied by the loan purchaser to reduce the guaranteed and nonguaranteed portion of
2.24the loan on a proportionate basis. The nonguaranteed portion shall not receive preferential
2.25treatment over the guaranteed portion;
2.26(2) the loan purchaser shall not accelerate repayment of the loan or exercise other
2.27remedies if the borrower defaults, unless:
2.28(i) the borrower fails to make a required payment of principal or interest;
2.29(ii) the commissioner consents in writing; or
2.30(iii) the loan guarantee agreement provides for accelerated repayment or other
2.31remedies.
2.32 In the event of a default, the loan purchaser may not make a demand for payment
2.33pursuant to the guarantee unless the commissioner agrees in writing that the default has
2.34materially affected the rights or security of the parties, and finds that the loan purchaser is
2.35entitled to receive payment pursuant to the loan guarantee;
3.1(3) there is a written commitment from one or more secondary market investors to
3.2purchase the loan, subject to the provision of a state loan guarantee;
3.3(4) the QED lender has timely prepared and delivered to the commissioner, annually
3.4by the date specified in the loan guarantee, an audited or reviewed financial statement
3.5for the loan, prepared by a certified public accountant according to generally accepted
3.6accounting principles, and documentation that the borrower used the loan proceeds solely
3.7for purposes of its Minnesota operations;
3.8(5) the commissioner has access to the original loan documents prior to approval of
3.9the state credit enhancement to facilitate the sale of the loan to the secondary market;
3.10(6) the QED lender maintains adequate records and documents concerning the
3.11original loan so that the commissioner may determine the borrower's financial condition
3.12and compliance with program requirements; and
3.13(7) orderly liquidation of collateral securing the original loan is provided for in
3.14the event of default, with an option on the part of the commissioner to acquire the loan
3.15purchaser's interest in the assets pursuant to the loan guarantee.
3.16 Subd. 4. Loan guarantee trust fund established. A loan guarantee trust fund
3.17account in the special revenue fund is created in the state treasury to pay for defaulted
3.18loan guarantees. The commissioner shall administer this fund and provide annual reports
3.19concerning the performance of the fund to the chairs of the standing committees of the
3.20house of representatives and senate having jurisdiction over economic development issues.
3.21 Subd. 5. Limitation. At no time shall total outstanding loan guarantees for loans
3.22sold to the secondary market exceed five times the amount on deposit in the loan guarantee
3.23trust fund.
3.24 Subd. 6. Guarantee fee. Participating QED lenders shall pay a fee to the fund of
3.250.25 percent of the principal amount of each guaranteed loan upon approval of each loan
3.26guarantee. The guarantee fee, along with any interest earnings from the trust fund, shall
3.27be used only for the administration of the small business loan guarantee program and
3.28as additional loan loss reserves.
3.29 Subd. 7. Loan guarantee application. The commissioner shall prepare a form for
3.30QED lenders to use in applying for loan guarantees under this section. The form shall
3.31include the following information:
3.32(1) the name and contact information for the QED lender, including the name and
3.33title of a contact person;
3.34(2) the names of the financial institutions, including the names and titles of contact
3.35persons, that are participating in the total financing being provided to the small business
3.36borrower, along with the dollar amount of the loan provided by the financial institution;
4.1(3) the percentage and dollar amount of the subordinated debt loan provided to the
4.2Minnesota small business by the QED lender; and
4.3(4) the loan guarantee amount that is requested from the program.
4.4 Subd. 8. Notice and application process. Subject to the availability of funds under
4.5subdivision 4, the commissioner shall publish a notice regarding the opportunity for QED
4.6lenders to originate loans for which the loan guarantee may be secured as the loans are
4.7prepared for sale to the secondary market. The commissioner shall decide whether to
4.8provide a loan guarantee for each loan based on:
4.9(1) the completeness of the loan guarantee application;
4.10(2) the availability of funds in the loan guarantee trust fund; and
4.11(3) execution of agreements that satisfy requirements established in subdivision 3.
1.3program; proposing coding for new law in Minnesota Statutes, chapter 116J.
1.4BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:
1.5 Section 1. [116J.881] SMALL BUSINESS LOAN GUARANTEE PROGRAM.
1.6 Subdivision 1. Definitions. (a) For purposes of this section, the following terms
1.7have the meanings given.
1.8(b) "Borrower" means a small business receiving an eligible loan under this section.
1.9(c) "Commissioner" means the commissioner of employment and economic
1.10development.
1.11(d) "Eligible loan" means a loan to a small business to be used for business
1.12purposes exclusively in Minnesota, including: construction; remodeling or renovation;
1.13leasehold improvements; the purchase of land and buildings; business acquisitions,
1.14including employee stock ownership plan financing; machinery or equipment purchases,
1.15maintenance, or repair; expenses related to moving into or within Minnesota; and working
1.16capital when the working capital is secured by fixed assets.
1.17(e) "Loan guarantee" means a guarantee of 70 percent of the loan amount provided
1.18by a QED lender. The guaranteed portion of the loan must not exceed $1,500,000.
1.19(f) "Loan guarantee trust fund" means a dedicated fund established under this
1.20section for the purpose of compensation for defaulted loan guarantees and for program
1.21administration.
1.22(g) "Loan purchaser" means an institutional investor that purchases, holds, and
1.23services small business loans on a nonrecourse basis from QED lenders participating in
1.24the small business loan guarantee program.
2.1(h) "Qualified economic development lender" or "QED lender" means a public entity
2.2or a private nonprofit economic development organization whose headquarters is located
2.3in Minnesota with not less than three years of active lending experience that provides
2.4financing to small businesses in partnership with banks and other commercial lenders, and
2.5that originates subordinated loans to small businesses for sale to the secondary market.
2.6(i) "Secondary market" means the market in which loans are sold to investors, either
2.7directly or through an intermediary.
2.8(j) "Small business" means a business employing no more than 500 persons in
2.9Minnesota.
2.10(k) "Subordinated loan" means a loan secured by a lien that is lower in priority than
2.11one or more specified other liens.
2.12 Subd. 2. Loan guarantee program. A small business loan guarantee program to
2.13support the origination and sale of eligible subordinated loans to the secondary market by
2.14providing a credit enhancement in the form of a partial guarantee of small business loans
2.15that are made to Minnesota businesses by a QED lender is created in the Department of
2.16Employment and Economic Development. A loan guarantee shall be provided for eligible
2.17loans under this section only when a bank or other commercial lender provides at least 50
2.18percent of the total amount loaned to the small business. The loan guarantee shall apply
2.19only to the portion of the loan that was made by the QED lender.
2.20 Subd. 3. Required provisions. Loan guarantees under this section for loans to be
2.21sold on the secondary market by QED lenders shall provide that:
2.22(1) principal and interest payments made by the borrower under the terms of the loan
2.23are applied by the loan purchaser to reduce the guaranteed and nonguaranteed portion of
2.24the loan on a proportionate basis. The nonguaranteed portion shall not receive preferential
2.25treatment over the guaranteed portion;
2.26(2) the loan purchaser shall not accelerate repayment of the loan or exercise other
2.27remedies if the borrower defaults, unless:
2.28(i) the borrower fails to make a required payment of principal or interest;
2.29(ii) the commissioner consents in writing; or
2.30(iii) the loan guarantee agreement provides for accelerated repayment or other
2.31remedies.
2.32 In the event of a default, the loan purchaser may not make a demand for payment
2.33pursuant to the guarantee unless the commissioner agrees in writing that the default has
2.34materially affected the rights or security of the parties, and finds that the loan purchaser is
2.35entitled to receive payment pursuant to the loan guarantee;
3.1(3) there is a written commitment from one or more secondary market investors to
3.2purchase the loan, subject to the provision of a state loan guarantee;
3.3(4) the QED lender has timely prepared and delivered to the commissioner, annually
3.4by the date specified in the loan guarantee, an audited or reviewed financial statement
3.5for the loan, prepared by a certified public accountant according to generally accepted
3.6accounting principles, and documentation that the borrower used the loan proceeds solely
3.7for purposes of its Minnesota operations;
3.8(5) the commissioner has access to the original loan documents prior to approval of
3.9the state credit enhancement to facilitate the sale of the loan to the secondary market;
3.10(6) the QED lender maintains adequate records and documents concerning the
3.11original loan so that the commissioner may determine the borrower's financial condition
3.12and compliance with program requirements; and
3.13(7) orderly liquidation of collateral securing the original loan is provided for in
3.14the event of default, with an option on the part of the commissioner to acquire the loan
3.15purchaser's interest in the assets pursuant to the loan guarantee.
3.16 Subd. 4. Loan guarantee trust fund established. A loan guarantee trust fund
3.17account in the special revenue fund is created in the state treasury to pay for defaulted
3.18loan guarantees. The commissioner shall administer this fund and provide annual reports
3.19concerning the performance of the fund to the chairs of the standing committees of the
3.20house of representatives and senate having jurisdiction over economic development issues.
3.21 Subd. 5. Limitation. At no time shall total outstanding loan guarantees for loans
3.22sold to the secondary market exceed five times the amount on deposit in the loan guarantee
3.23trust fund.
3.24 Subd. 6. Guarantee fee. Participating QED lenders shall pay a fee to the fund of
3.250.25 percent of the principal amount of each guaranteed loan upon approval of each loan
3.26guarantee. The guarantee fee, along with any interest earnings from the trust fund, shall
3.27be used only for the administration of the small business loan guarantee program and
3.28as additional loan loss reserves.
3.29 Subd. 7. Loan guarantee application. The commissioner shall prepare a form for
3.30QED lenders to use in applying for loan guarantees under this section. The form shall
3.31include the following information:
3.32(1) the name and contact information for the QED lender, including the name and
3.33title of a contact person;
3.34(2) the names of the financial institutions, including the names and titles of contact
3.35persons, that are participating in the total financing being provided to the small business
3.36borrower, along with the dollar amount of the loan provided by the financial institution;
4.1(3) the percentage and dollar amount of the subordinated debt loan provided to the
4.2Minnesota small business by the QED lender; and
4.3(4) the loan guarantee amount that is requested from the program.
4.4 Subd. 8. Notice and application process. Subject to the availability of funds under
4.5subdivision 4, the commissioner shall publish a notice regarding the opportunity for QED
4.6lenders to originate loans for which the loan guarantee may be secured as the loans are
4.7prepared for sale to the secondary market. The commissioner shall decide whether to
4.8provide a loan guarantee for each loan based on:
4.9(1) the completeness of the loan guarantee application;
4.10(2) the availability of funds in the loan guarantee trust fund; and
4.11(3) execution of agreements that satisfy requirements established in subdivision 3.
