PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following proposed rule:
Proposed Action:
Addition of Part 4251 to Title 21 NYCRR.
Statutory authority:
Urban Development Corporation Act, section 5(4); L. 1968, ch. 174 and L. 2011, ch. 103, section 16-K
Subject:
Capital Access Program.
Purpose:
Provide the basis for administration of the Capital Access Program.
Text of proposed rule:
Part 4251
CAPITAL ACCESS PROGRAM
Section 4251.1 Purpose.
The purpose of this rule is to facilitate the administration of the Capital Access Program (the “Program”) authorized by section sixteen-k of the New York State Urban Development Corporation Act (the “Act”). Pursuant to the Act, the Corporation (hereinafter defined) may, within available appropriations, assist small businesses, that otherwise find it difficult to obtain regular or sufficient bank financing, through the funding of loan loss reserves for loans made to such small businesses by participating financial institutions.
Section 4251.2 Definitions.
a) “Act” shall have the meaning given in Section 4251.1 of this rule.
b) “Capital Access Program”, “Program” or “CAP” shall mean the loan portfolio insurance program established pursuant to section sixteen-k of the Act and subject to applicable laws, rules and regulations, and any guidelines that the Corporation may from time to time adopt with respect to the Program.
c) “Community Based Lending Organization” shall include community development financial institutions, small business lending consortia, certified development companies, providers of United States Department of Agriculture business and industrial guaranteed loans, United States Small Business Administration loan providers, community development credit unions, and community banks.
d) “Corporation” shall mean the New York State Urban Development Corporation, d/b/a Empire State Development, a corporate governmental agency of the State of New York, constituting a political subdivision and public benefit corporation created by chapter one hundred seventy-four of the Laws of nineteen hundred sixty-eight, as amended.
e) “Eligible Small Business” shall mean a Small Business that otherwise finds it difficult to obtain regular or sufficient bank financing.
f) “Financial Institution” shall mean any bank, trust company, savings bank, savings and loan association or cooperative bank chartered by the State or any national banking association, federal savings and loan association or federal savings bank or any Community Based Lending Organization, provided, however, that such entity has its principal office located in the State.
g) “Highly Distressed Area” shall mean an area of pervasive poverty, high unemployment and general economic distress, that has (1) a poverty rate of at least twenty percent for the most recent year for which the data is available; or (2) an unemployment rate of at least 1.25 times the statewide unemployment rate for the most recent year for which the data is available; or (3) a median household income that is eighty percent or less of the statewide median household income for the most recent year for which the data is available.
h) “Loan Loss Reserve Fund” shall mean an account subject to the Program maintained as a loan loss reserve for losses incurred by a Participating Financial Institution on its portfolio of Program Loans.
i) “Minority-Owned Business Enterprise” shall mean a business enterprise, including a sole proprietorship, partnership or corporation that is: (1) at least fifty-one percent owned by one or more Minority Group Members; (2) an enterprise in which such minority ownership is real, substantial and continuing; (3) an enterprise in which such minority ownership has and exercises the authority to control independently the day-to-day business decisions of the enterprise; (4) an enterprise authorized to do business in this state and independently owned and operated; (5) an enterprise owned by an individual or individuals, whose ownership, control and operation are relied upon for certification, with a personal net worth that does not exceed three million five hundred thousand dollars, as adjusted annually on the first of January for inflation according to the consumer price index of the previous year; and (6) an enterprise that is a Small Business, unless the term Minority-Owned Business Enterprise is otherwise defined in section 310 of the Executive Law, in which case the definition shall be as set forth for such term in such section.
j) “Minority Group Members” shall mean persons who are:
1) Black;
2) Hispanic persons of Mexican, Puerto Rican, Dominican, Cuban, Central or South American descent or either Indian or Hispanic origin, regardless of race;
3) Asian and Pacific Islander persons having origins in the Far East, Southeast Asia, the Indian sub-continent or the Pacific Islands; or
4) American Indian or Alaskan Native persons having origins in any of the original people of North America and maintaining identifiable tribal affiliations through membership and participation or community identification, unless the term Minority Group Member is otherwise defined in section 310 of the Executive Law, in which case the definition shall be as set forth for such term in such section.
k) “Participating Financial Institution” shall mean a Financial Institution approved to participate in the Program by the Corporation.
l) “Program Loan” shall mean a loan that conforms with section sixteen-k of the Act and this rule, which is made to an Eligible Small Business by a Participating Financial Institution and covered by a Loan Loss Reserve Fund under the Program.
m) “Regulated Depository Financial Institution” shall mean a financial institution regulated and chartered by the State or federal government that is legally allowed to accept monetary deposits from consumers, provided that such depository institutions are insured by the Federal Deposit Insurance Corporation (FDIC).
n) “Small Business” shall have the meaning as set forth in section 131 of the Economic Development Law.
o) “State” shall mean the State of New York.
p) “Third Party Agent” or “Agent” shall mean either New York Business Development Corporation or another third party contracted through a competitive process by the Corporation to administer the Capital Access Program.
q) “Women-owned Business Enterprise” shall mean a business enterprise, including a sole proprietorship, partnership or corporation that is: (1) at least fifty-one percent owned by one or more United States citizens or permanent resident aliens who are women; (2) an enterprise in which the ownership interest of such women is real, substantial and continuing; (3) an enterprise in which such women ownership has and exercises the authority to control independently the day-to-day business decisions of the enterprise; (4) an enterprise authorized to do business in State and independently owned and operated; (5) an enterprise owned by an individual or individuals, whose ownership, control and operation are relied upon for certification, with a personal net worth that does not exceed three million five hundred thousand dollars, as adjusted annually on the first of January for inflation according to the consumer price index of the previous year; and (6) an enterprise that is a Small Business, unless the term Women-Owned Business Enterprise is otherwise defined in section 310 of the Executive Law, in which case the definition shall be as set forth for such term in such section.
To the extent feasible, the Corporation shall assure adequate geographic distribution of Participating Financial Institutions throughout the State. A Financial Institution that becomes a Participating Financial Institution shall execute an agreement in such form as the Corporation or the Agent may prescribe, which agreement shall contain, among other things, the terms and provisions set forth in Section 4251.4 of this rule and such other terms and provisions as the Corporation or the Agent may deem necessary or appropriate.
Section 4251.4 Program Operations.
a) A Participating Financial Institution shall:
1) provide to the Corporation or the Agent, as the case may be, a plan for the marketing of the Program to Eligible Small Businesses, including Small Businesses in Highly Distressed Areas and Minority-Owned Business Enterprises and Women-Owned Businesses Enterprises, with appropriate lending objectives identified by the Participating Financial Institution for such areas and businesses;
2) make Program Loans to Eligible Small Businesses only for the purposes of expansion, facility or technology upgrading, start-up or working capital purposes;
3) not make any Program Loan in a principal amount greater than five hundred thousand dollars;
4) with respect to each Program Loan, deliver for deposit in the Loan Loss Reserve Fund an amount, specified or agreed to in writing by the Corporation or its Third Party Agent, from both the Participating Financial Institution and the Eligible Small Business borrower, in aggregate neither less than three percent nor more than seven percent of the principal amount of the Program Loan, whereby the amount contributed by the Eligible Small Business is not greater than fifty percent of such aggregate; and
5) with respect to each Program Loan, certify to the Corporation or the Third Party Agent in such a fashion and with such supporting information as the Corporation or the Third Party Agent shall prescribe, that the Participating Financial Institution has made such loan and delivered the aggregate Loan Loss Reserve Fund contribution with respect to such loan.
b) With respect to each Program Loan, the Corporation or its Third Party Agent, after satisfactory certification pursuant to paragraph (5) of subdivision (a) of section 4251.4, shall transfer to the Loan Loss Reserve Fund account an amount, as determined by the Corporation or the Third Party Agent, that is (1) not less than the aggregate contribution of the Participating Financial Institution and the Small Business with respect to such loan, and (2) not greater than one hundred fifty percent of such aggregate contributions as determined by the Corporation or its Third Party Agent.
c) In the event the Participating Financial Institution suffers a loss on its portfolio of Program Loans, the Participating Financial Institution may in its discretion draw upon the funds in such Loan Loss Reserve Fund to cover such loss in whole or in part.
d) With respect to a Participating Financial Institution, if there are insufficient funds in the Loan Loss Reserve Fund account to cover losses on such institution’s Program Loans, the Corporation or its Agent may authorize the Participating Financial Institution to withdraw an amount equal to the current balance in the Loan Loss Reserve Fund account, which payment shall be deemed to satisfy fully the claim(s) on the Loan Loss Reserve Fund with respect to such losses, and the Participating Financial Institution shall have no right to receive any further amount from the Loan Loss Reserve Fund account with respect to such claim(s).
Section 4251.5 Program Administration.
a) The Corporation may administer the Program through the Third Party Agent, which may be the New York Business Development Corporation, established under section 210 of the Banking Law, provided, however, that if the Third Party Agent is to be a Financial Institution other than the New York Business Development Corporation, then such Third Party agent will be selected pursuant to a competitive process.
b) Any contract entered into pursuant to this Section 4251.5, shall have a term of two years and shall be renewed for an additional two year period subject to requirements of subdivision (c) of Section 4251.5 of these rules and regulations and provide for compensation for expenses incurred by the Third Party Agent in connection with its services as Agent and for such other services as the Corporation may deem appropriate including, but not limited to the use of the premises, personnel and personal property of the Third Party Agent.
c) The Corporation shall conduct an annual review and assessment of the performance of the Third Party Agent in its capacity as agent for the Corporation to determine whether the contract with the Third Party Agent should be renewed for an additional two year period. The review shall be based on whether the Third Party Agent has satisfactorily met the terms and conditions of the contract, and such other factors as the Corporation shall deem appropriate.
d) Where an initial determination finds that the Third Party Agent’s performance is unsatisfactory, the Corporation will allow the Third Party Agent a limited opportunity to take corrective action, generally, during a period of not longer than 60 days.
e) Where a final review of the Third Party Agent’s performance concludes that the Third Party Agent’s performance continues to be unsatisfactory, the Corporation shall submit to the speaker of the Assembly and the temporary President of the Senate the Corporation’s recommendation to terminate the contract with the Third Party Agent, and thereafter, may terminate the contract and take over administration of the Program pursuant to section sixteen-k of the Act or procure another Third Party Agent.
Section 4251.6 Loan Loss Reserve Account.
a) All amounts in a Loan Loss Reserve Fund shall be deposited: (1) if the Participating Financial Institution is a Regulated Depository Financial Institution, in a depository account at said Participating Financial Institution; or (2) if the Participating Financial Institution is not a Regulated Depository Financial Institution, in a depository account at a Regulated Depository Financial Institution satisfactory to the Corporation.
b) Earnings of interest from the principal of said Loan Loss Reserve Fund account shall be (1) maintained in the said account and held as additional loan loss reserves for Program Loans and (2) available to the Corporation or the Agent at any time and from time to time, to be used to defray the costs of administering the Program incurred by the Corporation or its Agent or to replenish the loan loss reserve account of the Corporation or its Agent.
Section 4251.7 Application and Approval Process.
The Corporation shall identify, review, and approve eligible Participating Financial Institutions through an open recruitment and enrollment process throughout the life of the Program. Participating Financial Institutions participating in the Program will possess sufficient commercial lending experience, financial and managerial capabilities, and operational skills to meet the Program objectives. The Corporation may require from applicants such information or documentation as it deems necessary and appropriate, including one or more of the following documents.
a) For banks (including CDFI banks):
1) Uniform Banking Performance Report (UBPR) showing that commercial loans and leases comprise a significant part of the institution’s assets.
2) A UBPR peer group analysis showing that the institution’s percentage of non-current loans and leases does not exceed its peer group average.
b) For community credit unions:
1) Financial Performance Reports (FPRs) from the National Credit Union Administration.
c) For Community Development Financial Institutions (excluding banks and community credit unions):
1) A review of the CDFI’s CARS ratings (CDFI Assessment and Ratings System).
Section 4251.8 Claims and Recoveries.
The Corporation or its Agent will process claims made against a Loan Loss Reserve fund by a Participating Financial Institution as set forth in the agreement between the Participating Financial Institution and the Corporation. The process for collections and the process for treating recoveries will be detailed in the agreement between the Participating Financial Institution and the Corporation.
Section 4251.9 Auditing, Compliance and Reporting.
a) The Corporation or its Agent shall require quarterly and annual reporting from Participating Financial Institutions. Each report shall be in such form and provide such information as the Corporation or the Agent may, from time to time, prescribe, and may include, without limiting the foregoing, the following information:
1) use and balance of Loan Loss Reserve Fund;
2) information regarding all Program Loans covered by the Loan Loss Reserve Fund;
3) the outstanding amount of each Program Loan covered by the Loan Loss Reserve Fund;
4) the amount of interest income generated on the Loan Loss Reserve Account Fund;
5) the dollar amount, number of claims and recoveries with respect to the Loan Loss Reserve Fund;
6) types and uses of each credit product enrolled in the Loan Loss Reserve Fund;
7) pricing of each loan enrolled in the Loan Loss Reserve Fund;
8) a unique Program Loan identifier number, the census tract and zip code of each Program Loan borrower’s principal location in the state;
9) for each Program Loan, the total amount of principal loaned and authorized as a line of credit, and of that amount, the portion that is from non-private sources;
10) date of the initial Program Loan disbursement;
11) the insurance premiums paid by each Program Loan borrower and the Participating Lender;
12) each Program Loan borrower’s annual revenues in the last fiscal year;
13) each Program Loan borrower’s Full Time Equivalent (FTE) employees at the beginning and end of the period covered by the report;
14) the 6-digit North American Industry Classification System (NAICS) code for each Program Loan borrower’s industry;
15) the year each Program Loan borrower’s business was incorporated;
16) the number of jobs created or retained as a result of each Program Loan;
17) with respect to each Program Loan, the amount of additional private financing occurring after closing of such loan, if applicable; and
18) any other information that the Corporation may require.
b) The Corporation may conduct audits of Participating Financial Institutions in order to ensure compliance with the provisions of applicable laws and regulations, and with respect to agreements between the Participating Financial Institution and the Corporation and the Agent, all aspects of the use of Program funds and Program Loan transactions, and any other area that the Corporation determines to be relevant to the Program. In the event that the Corporation finds substantive noncompliance, the Corporation may terminate the Participating Financial Institution’s participation in the Program. Upon termination, no additional funds will be disbursed to the Loan Loss Reserve account for the Participating Financial Institution. Notwithstanding such termination, the Participating Financial Institution shall remain liable to the Corporation for any amount recovered on claims associated with the use of the Loan Loss Reserve account.
Section 4251.10 Confidentiality.
a) To the extent permitted by law, all information regarding the financial condition, marketing plans, manufacturing processes, production costs, customer lists, or other trade secrets and proprietary information of a person or entity requesting assistance from the Program administered through Participating Financial Institutions, shall be confidential and exempt from public disclosures.
b) To the extent permitted by law, no full time employee of the State of New York or any agency, department, authority or public benefit corporation thereof shall be eligible to receive assistance under this Program.
Section 4251.11 Non-Discrimination and Affirmative Action.
The Corporation’s affirmative action and non-discrimination policies and programs are grounded in both public policy and applicable law, including but not limited to, Section 2879 of the Public Authorities Law, Article 15-A of the Executive Law and Section 6254(11) of the Unconsolidated Laws. These laws mandate the Corporation to take affirmative action in implementing programs. The Corporation has charged the affirmative action department with overall responsibility to ensure that the spirit of these mandates is incorporated into the Corporation’s policies and projects. Where applicable, the affirmative action department will work with applicants in developing an appropriate Affirmative Action Program for business and employment opportunities generated by the Corporation’s participation of the Program.
Text of proposed rule and any required statements and analyses may be obtained from:
Antovk Pidedjian, Sr. Counsel - Lending, New York Urban Development Corporation, 633 Third Avenue, 37th Floor, New York, NY 10017, (212) 803-3792, email: apidedjian@esd.ny.gov
Data, views or arguments may be submitted to:
Same as above.
Public comment will be received until:
45 days after publication of this notice.
Regulatory Impact Statement
1. Statutory Authority: Section 9-c of the New York State Urban Development Corporation Act Chapter 174 of the Laws of 1968 (Uncon. Laws section 6259-c), as amended (the “Act”), provides, in part, that the Corporation shall, assisted by the Commissioner of Economic Development and in consultation with the Department of Economic Development, promulgate rules and regulations in accordance with the State Administrative Procedure Act.
Section 16-k of the Act provides for the creation of the Capital Access Program (the “Program”) and authorizes the New York State Urban Development Corporation d/b/a Empire State Development (the “Corporation”), within available appropriations, to provide funding for loan loss reserves to Community Based Lending Organizations and Participating Financial Institutions, in order to provide portfolio insurance for those organizations’ loans to New York’s small businesses that are unable to obtain adequate credit or adequate terms for such credit.
2. Legislative Objectives: Section 16-k of the Act (Uncon. Laws section 6266-k, added by Chapter 103 of the Laws of 2011) sets forth the Legislative objective of authorizing the Corporation, within available appropriations, to provide funding for loan loss reserves to financial institutions and other community based lending organizations, in order to provide portfolio insurance for those organizations’ loans to New York’s small businesses that are unable to obtain adequate credit or adequate terms for such credit. The adoption of 21 NYCRR Part 4251 will further these goals by setting forth the types of available assistance, evaluation criteria, the application process and related matters for the Program.
3. Needs and Benefits: The State has allocated $18,994,204 of federal funds to provide funding for loan loss reserves to financial institutions and other community based lending organizations, in order to provide portfolio insurance for those organizations’ loans to New York’s small businesses that are unable to obtain adequate credit or adequate terms for such credit. Small businesses have been determined to be a major source of employment throughout the State. Small businesses have historically had difficulties obtaining financing or refinancing in order to remain competitive and grow their operations, and the current economic difficulties have exacerbated this problem. Providing loans to small businesses should sustain and potentially increase the employment provided by such businesses, especially during this period of historically high unemployment and underemployment. The Program allows the Corporation to use either the New York Business Development Corporation or another third party contracted through a competitive process by the Corporation to administer the Capital Access Program if desirable. The rule further facilitates the administration of the Program by defining eligible and ineligible small businesses, eligible uses of the proceeds of loans to small businesses and other criteria to be applied by the institutions in making loans to small businesses.
4. Costs: The Program is funded by a State appropriation of federal funds in the amount of $18,994,204 dollars. Pursuant to the rule, principal amount of Program Loans will not be greater than $500,000. The costs to participating financial institutions or community based lending organizations would depend on the extent to which they participate in the Program and their effectiveness and efficiency in making small business loans.
5. Paperwork / Reporting: There are no additional reporting or paperwork requirements as a result of this rule for Program participants except those required by the statute creating the Program such as an annual report on the organization’s lending activity and providing information in connection with an audit by the Corporation with respect to the organization’s use of Program funds. Standard documents used for most other assistance by the Corporation will be employed in keeping with the Corporation’s overall effort to facilitate the application process for all of the Corporation’s clients.
6. Local Government Mandates: The Program imposes no mandates – program, service, duty, or responsibility – upon any city, county, town, village, school district or other special district.
7. Duplication: The regulations do not duplicate any existing state or federal rule.
8. Alternatives: While larger financial institutions can potentially provide small business financing and the community based lending organizations already provide small business financing, access to financing remains limited. The State has established the Program in order to enhance the access of such financing to small businesses, and the proposed rule provides the regulatory basis for providing funding for loan loss reserves to financial institutions, including community based lending organizations, for lending to small businesses in accordance with the statutory requirements of the Program.
9. Federal Standards: There are no minimum federal standards related to this regulation. The regulation is not inconsistent with any federal standards or requirements. Federal funds through US Treasury’s State Small Business Credit Initiative are being used for this program and all regulations associated with SSBCI will be followed.
10. Compliance Schedule: The regulation shall take effect immediately upon adoption.
Regulatory Flexibility Analysis
1. Effects of Rule: In the rule: “Small business” is defined as a business that is resident and authorized to do business in the State, independently owned and operated, not dominant in its field, and employs one hundred or fewer persons on a full time basis; “Community Based Lending Organization” is defined as including community development financial institutions, small business lending consortia, certified development companies, providers of United States department of Agriculture business and industrial guaranteed loans, United States Small Business Administration loan providers, community development credit unions, and community banks; and “Financial Institution” is defined as any bank, trust company, savings bank, savings and loan association or cooperative bank chartered by the State or any national banking association, federal savings and loan association or federal savings bank or any Community Based Lending Organization, provided, however, that such entity has its principal office located in the State. The rule will facilitate the statutory Program’s purpose of having New York State Urban Development Corporation d/b/a Empire State Development (the “Corporation”) assist small businesses that otherwise find it difficult to obtain regular or sufficient bank financing, through the funding of loan loss reserves for loans made to such small businesses by participating financial institutions.
2. Compliance Requirements: There are no compliance requirements for local governments in these regulations. Small businesses must comply with the compliance requirements applicable to all participating lending institutions regardless of size. This is a voluntary program. Lending institution not wishing to undertake the compliance obligations need not participate.
3. Professional Services: Applicants do not need to obtain professional services to comply with these regulations.
4. Compliance Costs: There are no compliance costs for local governments in these regulations. With respect to small business lending institutions, they must comply with the compliance cost requirements applicable to all participating lending institutions regardless of size. This is a voluntary program. Lending institutions not wishing to undertake the compliance obligations need not participate.
5. Economic and Technological Feasibility: There are no compliance costs for small businesses and local governments in these regulations so there is no basis for determining the economic and technological feasible for compliance with the rule by small businesses and local governments.
6. Minimizing Adverse Impact: This rule has no adverse impacts on small businesses or local governments because it is designed to provide access to capital through the funding of loan loss reserves for loans made to small businesses by participating financial institutions.
7. Small Business and Local Government Participation: A number of banks and community lending organizations were surveyed by the Corporation and were supportive of the program and its structure.
Rural Area Flexibility Analysis
1. Types and Estimated Numbers of Rural Areas: Community development financial institutions serving all of the 44 counties defined as rural by the Executive Law § 481(7), are eligible to apply for the Capital Access Program (the “Program”) assistance pursuant to a State-wide request for proposals.
2. Reporting, Recordkeeping and Other Compliance Requirements and Professional Services: The rule will not impose any new or additional reporting or recordkeeping requirements other than those that would be required of any financial institution receiving a similar loan regarding such matters as financial condition, required matching funds, and utilization of Program funds, and the statutorily required annual report on the use of Program funds; no affirmative acts will be needed to comply other than the said reporting requirements and the making of loans to small businesses in the normal course of the business for any financial institution that receives Program assistance; and, it is not anticipated that applicants will have to secure any professional services in order to comply with this rule.
3. Costs: The costs to financial institutions that participate in the Program would depend on the extent to which they choose to participate in the Program, including the amount of required matching funds for their Program loans to small businesses and the administrative costs in connection with such small business loans and the fees, if any, charged to small businesses in connection with loans to such businesses that include Program funds.
4. Minimizing Adverse Impact: The purpose of the Program is to provide loans to financial institutions in order to enhance the ability of these entities to make loans to small businesses, especially those small businesses that may otherwise not be able to borrow funds at acceptable rates. This rule provides a basis for cooperation between the State and financial institutions, including lending institutions that serve rural areas of the State, in order to maximize the Program’s effectiveness and minimize any negative impacts for such financial institutions and the small businesses, including small businesses located in rural areas of the State, that such financial institutions serve.
5. Rural Area Participation: This rule maximizes geographic participation by not limiting applicants to those located only in urban areas or only in rural areas. A number of financial institutions that engage in lending to rural and urban small businesses responded to a survey circulated by the Corporation regarding implementation of the Program. Their comments were considered in the rulemaking process.
Job Impact Statement
These regulations will not adversely affect jobs or employment opportunities in New York State. The regulations are intended to improve the economy of New York by providing greater access to capital for main street everyday small businesses. The Program includes minorities, women and other New Yorkers who have difficulty accessing regular credit markets.
There will be no adverse impact on job opportunities in the state.
