FINAL BILL REPORT

SHB 1858

                                  C 212 L 89

BYHouse Committee on Trade & Economic Development (originally sponsored by Representatives Kremen, Cantwell, Doty, Schoon, Rasmussen, Moyer, Raiter, Braddock and Wineberry)

Authorizing the supervisor of banking to regulate the small business association 7(a) loan guaranty program.

House Committe on Trade & Economic Development

Senate Committee on Economic Development & Labor

SYNOPSIS AS ENACTED

BACKGROUND:

The Small Business Administration administers a national small business loan program known as the 7(a) loan guaranty program.  This loan program provides financing to small firms that need long- term financing and working capital for plant acquisition, construction, conversion, or expansion.  This includes the acquisition of land, material, supplies, equipment, and other fixed assets. With some exceptions, the loans may not exceed a period of 25 years.

The Small Business Administration guarantees up to 90 percent of these 7(a) loans.  This guaranteed portion of the loans is valuable on the secondary loan market.  The Small Business Administration, however, will not guarantee 7(a) loans made by non-depository lenders unless these lenders are regulated by the state.  Washington State does not have a regulatory mechanism established for non-depository lenders.

SUMMARY:

The State Supervisor of Banking is authorized to license and regulate corporations to enable them to participate in the federal 7(a) loan guaranty program.

Before approving an application for a license to make federal 7(a) loans, the supervisor must review information concerning the controlling persons of the corporation making the application, review the applicant's business plan, and consider other information the supervisor deems relevant. The supervisor must determine that the applicant has established a loan loss reserve sufficient to cover projected loan losses which are not guaranteed by the federal government, that the applicant is competent and of good character, and that the applicant is capitalized in an amount not less than $500,000 and in an amount sufficient to conduct business as a 7(a) lender.

Licensees are prohibited from holding control, either directly or indirectly, over a business firm to which it has made a loan under the federal 7(a) program.  Any change of control of a licensee is subject to the approval of the supervisor.

The supervisor is authorized to charge a fee for an application for a license, an application to acquire control over a licensee, an application for a licensee to merge with another corporation, an application for a licensee to purchase the business of another, and an application for a licensee to sell its business to another licensee.  The supervisor may include the costs of investigation within the fees charged for the applications for these licenses. The supervisor may also charge a fee for an annual license and may charge for excess examiner time.  All fees collected by the supervisor of Banking pursuant to the implementation of the 7(a) program are to be transmitted and credited to the banking examination fund.

Licensees must keep records in the manner that the supervisor requires.  Each licensee must file an annual audit report with the supervisor. The supervisor must examine each licensee at least once each year.  If the supervisor retains professional assistance in the course of examining a licensee, the licensee must pay the fees of the person retained.

Violations of any rules established by the supervisor to enforce the 7(a) lender program is punishable by a fine as determined by the supervisor.  No fine may exceed $100 for each offense.  Each day that a violation continues is a separate offense. All fines are credited to the banking examination fund.

The supervisor is authorized to deny, suspend, or revoke a license if an applicant or licensee violated rules adopted pursuant to the 7(a) lender program. The supervisor may bring an action for a restraining order or injunction to enjoin any violations or to enforce compliance.

VOTES ON FINAL PASSAGE:

      House 98   0

      Senate    46     0

EFFECTIVE:July 23, 1989