HF 611

2nd Engrossment - 87th Legislature (2011 - 2012) Posted on 05/02/2011 03:11pm

A bill for an act
relating to economic development; creating a small business loan guarantee
program; proposing coding for new law in Minnesota Statutes, chapter 116J.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

new text begin [116J.881] SMALL BUSINESS LOAN GUARANTEE PROGRAM.
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new text begin Subdivision 1. new text end

new text begin Definitions. new text end

new text begin (a) For purposes of this section, the following terms
have the meanings given.
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new text begin (b) "Borrower" means a small business receiving an eligible loan under this section.
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new text begin (c) "Commissioner" means the commissioner of employment and economic
development.
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new text begin (d) "Eligible loan" means a loan to a small business to be used for business
purposes exclusively in Minnesota, including: construction; remodeling or renovation;
leasehold improvements; the purchase of land and buildings; business acquisitions,
including employee stock ownership plan financing; machinery or equipment purchases,
maintenance, or repair; expenses related to moving into or within Minnesota; and working
capital when the working capital is secured by fixed assets.
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new text begin (e) "Loan guarantee" means a guarantee of 70 percent of the loan amount provided
by a QED lender. The guaranteed portion of the loan must not exceed $1,500,000.
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new text begin (f) "Loan guarantee trust fund" means a dedicated fund established under this
section for the purpose of compensation for defaulted loan guarantees and for program
administration.
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new text begin (g) "Loan purchaser" means an institutional investor that purchases, holds, and
services small business loans on a nonrecourse basis from QED lenders participating in
the small business loan guarantee program.
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new text begin (h) "Qualified economic development lender" or "QED lender" means a public entity
or a private nonprofit economic development organization whose headquarters is located
in Minnesota with not less than three years of active lending experience that provides
financing to small businesses in partnership with banks and other commercial lenders, and
that originates subordinated loans to small businesses for sale to the secondary market.
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new text begin (i) "Secondary market" means the market in which loans are sold to investors, either
directly or through an intermediary.
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new text begin (j) "Small business" means a business employing no more than 500 persons in
Minnesota.
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new text begin (k) "Subordinated loan" means a loan secured by a lien that is lower in priority than
one or more specified other liens.
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new text begin Subd. 2. new text end

new text begin Loan guarantee program. new text end

new text begin A small business loan guarantee program to
support the origination and sale of eligible subordinated loans to the secondary market by
providing a credit enhancement in the form of a partial guarantee of small business loans
that are made to Minnesota businesses by a QED lender is created in the Department of
Employment and Economic Development. A loan guarantee shall be provided for eligible
loans under this section only when a bank or other commercial lender provides at least 50
percent of the total amount loaned to the small business. The loan guarantee shall apply
only to the portion of the loan that was made by the QED lender.
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new text begin Subd. 3. new text end

new text begin Required provisions. new text end

new text begin Loan guarantees under this section for loans to be
sold on the secondary market by QED lenders shall provide that:
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new text begin (1) principal and interest payments made by the borrower under the terms of the loan
are applied by the loan purchaser to reduce the guaranteed and nonguaranteed portion of
the loan on a proportionate basis. The nonguaranteed portion shall not receive preferential
treatment over the guaranteed portion;
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new text begin (2) the loan purchaser shall not accelerate repayment of the loan or exercise other
remedies if the borrower defaults, unless:
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new text begin (i) the borrower fails to make a required payment of principal or interest;
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new text begin (ii) the commissioner consents in writing; or
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new text begin (iii) the loan guarantee agreement provides for accelerated repayment or other
remedies.
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new text begin In the event of a default, the loan purchaser may not make a demand for payment
pursuant to the guarantee unless the commissioner agrees in writing that the default has
materially affected the rights or security of the parties, and finds that the loan purchaser is
entitled to receive payment pursuant to the loan guarantee;
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new text begin (3) there is a written commitment from one or more secondary market investors to
purchase the loan, subject to the provision of a state loan guarantee;
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new text begin (4) the QED lender has timely prepared and delivered to the commissioner, annually
by the date specified in the loan guarantee, an audited or reviewed financial statement
for the loan, prepared by a certified public accountant according to generally accepted
accounting principles, and documentation that the borrower used the loan proceeds solely
for purposes of its Minnesota operations;
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new text begin (5) the commissioner has access to the original loan documents prior to approval of
the state credit enhancement to facilitate the sale of the loan to the secondary market;
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new text begin (6) the QED lender maintains adequate records and documents concerning the
original loan so that the commissioner may determine the borrower's financial condition
and compliance with program requirements; and
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new text begin (7) orderly liquidation of collateral securing the original loan is provided for in
the event of default, with an option on the part of the commissioner to acquire the loan
purchaser's interest in the assets pursuant to the loan guarantee.
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new text begin Subd. 4. new text end

new text begin Loan guarantee trust fund established. new text end

new text begin A loan guarantee trust fund is
created in the state treasury to pay for defaulted loan guarantees. The commissioner shall
administer this fund and provide annual reports concerning the performance of the fund to
the chairs of the standing committees of the house of representatives and senate having
jurisdiction over economic development issues.
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new text begin Subd. 5. new text end

new text begin Limitation. new text end

new text begin At no time shall total outstanding loan guarantees for loans
sold to the secondary market exceed five times the amount on deposit in the loan guarantee
trust fund.
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new text begin Subd. 6. new text end

new text begin Guarantee fee. new text end

new text begin Participating QED lenders shall pay a fee to the fund of
0.25 percent of the principal amount of each guaranteed loan upon approval of each loan
guarantee. The guarantee fee, along with any interest earnings from the trust fund, shall
be used only for the administration of the small business loan guarantee program and
as additional loan loss reserves.
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new text begin Subd. 7. new text end

new text begin Loan guarantee application. new text end

new text begin The commissioner shall prepare a form for
QED lenders to use in applying for loan guarantees under this section. The form shall
include the following information:
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new text begin (1) the name and contact information for the QED lender, including the name and
title of a contact person;
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new text begin (2) the names of the financial institutions, including the names and titles of contact
persons, that are participating in the total financing being provided to the small business
borrower, along with the dollar amount of the loan provided by the financial institution;
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new text begin (3) the percentage and dollar amount of the subordinated debt loan provided to the
Minnesota small business by the QED lender; and
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new text begin (4) the loan guarantee amount that is requested from the program.
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new text begin Subd. 8. new text end

new text begin Notice and application process. new text end

new text begin Subject to the availability of funds under
subdivision 4, the commissioner shall publish a notice regarding the opportunity for QED
lenders to originate loans for which the loan guarantee may be secured as the loans are
prepared for sale to the secondary market. The commissioner shall decide whether to
provide a loan guarantee for each loan based on:
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new text begin (1) the completeness of the loan guarantee application;
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new text begin (2) the availability of funds in the loan guarantee trust fund; and
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new text begin (3) execution of agreements that satisfy requirements established in subdivision 3.
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