HOUSE BILL REPORT
SHB 1858
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
Majority Report: The substitute bill be substituted therefor and the substitute bill do pass. (13)
Signed by Representatives Cantwell, Chair; Wineberry, Vice Chair; Doty, Ranking Republican Member; G. Fisher, Kremen, Moyer, Rasmussen, Raiter, Rector, Schoon, Tate, Walk and Youngsman.
House Staff:Bill Lynch (786-7092)
Rereferred House Committee on Appropriations
Majority Report: The substitute bill by Committee on Trade & Economic Development be substituted therefor and the substitute bill do pass. (28)
Signed by Representatives Locke, Chair; Grant, Vice Chair; H. Sommers, Vice Chair; Silver, Ranking Republican Member; Youngsman, Assistant Ranking Republican Member; Appelwick, Belcher, Bowman, Braddock, Brekke, Bristow, Brough, Dorn, Doty, Ebersole, Ferguson, Hine, May, McLean, Nealey, Peery, Rust, Sayan, Spanel, Sprenkle, Valle, Wang and Wineberry.
House Staff: Randy Acker (786-7136)
AS PASSED HOUSE MARCH 13, 1989
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.
It is suggested that more small business loans would be made within the state if the state regulated non-depository lenders for the purpose of enabling them to make 7(a) guaranteed loans.
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 applicants are competent and of good character, and 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.
Appropriation: $25,000, or as much thereof as may be necessary, is appropriated for the biennium ending June 30, 1991, from the general fund to the bank examination fund for the regulatory purposes of this act.
Fiscal Note: Requested February 14, 1989.
House Committee ‑ Testified For: (Trade & Economic Development) Mary Jean Ryan, Evergreen Community Development Association and K. Collins Sprague, Association of Washington Business.
(Appropriations) Mary Jean Ryan, Evergreen Community Development Association.
House Committee - Testified Against: (Trade & Economic Development) None Presented.
(Appropriations) None Presented.
House Committee - Testimony For: (Trade & Economic Development) More Small Business Administration 7(a) loans will be made in the state to help small businesses obtain working capital if the state would regulate non-depository lenders for this purpose.
(Appropriations) There is a lack of working capital for small businesses in Washington. More Small Business Administration 7(a) loans could be made in Washington if this bill is enacted and thus provide some of the needed capital.
House Committee - Testimony Against: (Trade & Economic Development) None Presented.
(Appropriations) None Presented.