PART 5. OFFICE OF THE GOVERNOR, ECONOMIC DEVELOPMENT AND TOURISM OFFICE
CHAPTER 200. TEXAS SMALL BUSINESS CREDIT INITIATIVE
The Office of the Governor, Economic Development and Tourism Office ("Office") adopts new Subchapter A, §§200.1 - 200.20, concerning the Texas Small Business Credit Initiative Capital Access Program, and new Subchapter B, §§200.101 - 200.117, concerning the Texas Small Business Credit Initiative Loan Guarantee Program. New §§200.1, 200.3 - 200.7, 200.9 - 200.20, 200.101, 200.103 - 200.105, 200.107 - 200.117 are adopted without changes to the proposed text as published in the March 10, 2023, issue of the Texas Register (48 TexReg 1381) and will not be republished. New §§200.2, 200.8, 200.102, 200.106 are adopted with changes to the proposed text as published in the March 10, 2023, issue of the Texas Register (48 TexReg 1381) and will be republished. The Office has made changes to §§200.2, 200.8, 200.102, 200.106 from the proposed text to clarify the losses that are eligible for reimbursement and that certain refinanced loans are eligible for enrollment in the Texas Small Business Credit Initiative ("TSCBI") Capital Access Program ("CAP") and Loan Guarantee Program ("LGP"). The revisions do not materially alter the issues addressed in the rules, address new subjects of regulation, affect no new individuals, and impose no additional requirements for compliance.
REASONED JUSTIFICATION
Subchapter A. Texas Small Business Credit Initiative Capital Access Program
Adopted new §200.1 specifies the authority and purpose of the TSBCI CAP.
Adopted new §200.2 establishes definitions the Bank intends to utilize in administering TSBCI CAP. After its initial publication, the Office updated §200.2(7) to clarify what losses are covered by the TSBCI CAP program. The word "original" was added before "principal amount," and the definition of "Loss" now reads: "Any original principal amount due and not paid and not more than the enrolled amount of the Qualified Loan plus reasonable out-of-pocket expenses. In the event only a portion of a Qualified Loan was enrolled, the Office limits reimbursement of out-of-pocket expenses to the ratio of the enrolled portion to the total loan amount."
Adopted new §200.3 establishes that a financial institution seeking to participate in TSBCI CAP must apply through the TSBCI portal, provide any additional information the Office determines is necessary to properly review the application, and sign a required participation agreement. The adopted rule also specifies that the Office has no obligation to allow a financial institution to participate.
Adopted new §200.4 specifies that the Office will develop an agreement and underscore that a financial institution must agree to the terms of that agreement to participate in the program.
Adopted new §200.5 establishes that a participating financial institution must establish a loan loss reserve account after it enters the participation agreement with the Office. The account must have a competitive interest rate. The new rule also specifies that the funds in the loan loss reserve account may be used to cover loan charge offs. Thus, if a borrower defaults on a loan, the financial institution may withdraw funds from the reserve to cover the principal it lost when it charged off the loan. Adopted new §200.6 establishes that the loan loss reserve account does not belong to the financial institution; rather, the account is property of the State of Texas. The state will collect all interest earned on the contributions to the account and periodically withdraw the earned interest. Section 200.6 also specifies that the Office may withdraw contributions the Office made to the account if the Office must unenroll a loan that was enrolled in error.
Adopted new §200.7 establishes the types of loans that qualify to be enrolled in TSBCI CAP and sets minimum and maximum loan amount thresholds.
Adopted new §200.8 specifies prohibited uses of funds from loans enrolled in the program. After its initial publication, the Office updated §200.8(b) to delete former paragraph (5), renumber the remaining provisions in the subsection, and add language to clarify that only loans already enrolled in non TSBCI related credit enhancement or credit insurance programs may not be refinanced. These changes clarify that certain refinanced loans or portions of refinanced loans may be enrolled in TSBCI CAP.
Adopted new §200.9 specifies the contributions that a borrower and financial institution must make to the loan loss reserve and establishes the circumstances in which a financial institution may seek the maximum contribution allowed under TSCBI CAP.
Adopted new §200.10 establishes that, after a financial institution deposits the required contribution to the loan loss reserve, the financial institution may request that the Office enroll the loan in TSBCI CAP. The adopted rule also lays out the loan-enrollment process. The rule also establishes that the Office must unenroll any loans it determines were in enrolled in error. Section 200.10 also establishes that no loan may be enrolled in TSBCI CAP for more than one hundred twenty months.
Adopted new §200.11 requires the Office to deposit into the loan loss reserve account an amount equal to the combined contribution from the borrower and the financial institution. For example, if the borrower and financial institution each contribute premiums equal to 3.5 percent of the loan principal a combined contribution equal to seven percent of the loan principal unless an exception applies, the Office will deposit an additional amount equal to seven percent of the loan principal into the loan loss reserve. New §200.11 also specifies the exceptions to the requirement that the Office match contributions dollar-for-dollar, such as if the TSBCI Fund does not contain money greater than or equal to the contribution.
Adopted new §200.12 details the process a financial institution must follow to make a claim for reimbursement on a loan the institution charged off. The rule also specifies the steps a financial institution must take before making a claim.
Adopted new §200.13 establishes how the Office will review claims and reimburse a financial institution when the institution makes a valid claim. The rule also details the circumstances in which the Office may reject a claim. New §200.13 also specifies that, if the loan loss reserve account does not have sufficient funds to cover the requested reimbursement, then the Office will pay an amount up to the available balance of the loan loss reserve account, less earned interest. Adopted new §200.14 requires financial institutions that recover on debts after the institutions have been reimbursed for a loss to promptly repay the loan loss reserve the amount recovered on the debt, up to the amount of the reimbursement.
Adopted new §200.15 details some of the circumstances in which the Office may terminate the enrollment of loans in TSBCI CAP, when the Office may terminate the participation agreement with a financial institution, and how a financial institution may withdraw from TSBCI CAP.
Adopted new §200.16 notifies financial institutions that, if an institution has an annual claims rate that exceeds six percent and the Office determines the institution's practices do not meet TSBCI CAP standards or it is using the program to offset costs of a high default rate, the Office may disallow that institution from enrolling future loans in the program. The new rule also details how claims rates are determined.
Adopted new §200.17 establishes that the Office may inspect a financial institution's files related to enrolled loans. New §200.18 specifies reporting requirements for program participants. New §200.19 notes the Office may recover actual and necessary administrative expenses accrued in operating TSBCI CAP from the TSBCI Fund.
Adopted new §200.20 details the circumstances in which a provision in Subchapter A may be waived.
Subchapter B. Texas Small Business Credit Initiative Loan Guarantee Program
Adopted new §200.101 specifies the authority and purpose of the TSBCI LGP.
Adopted new §200.102 establishes definitions the Bank intends to utilize in administering TSBCI LGP. After its initial publication, the Office updated §200.2(7) to clarify what losses are covered by the TSBCI LGP program. The word "original" was added before "principal amount," and the definition of "Loss" now reads: "Any original principal amount due and not paid and not in excess of the Guaranteed Amount of the Qualified Loan."
Adopted new §200.103 establishes that a financial institution seeking to participate in TSBCI LGP must apply through the TSBCI portal, provide any additional information the Office determines is necessary to properly review the application, and sign a required participation agreement. The adopted rule also specifies that the Office has no obligation to allow a financial institution to participate.
Adopted new §200.104 specifies that the Office will develop an agreement and underscore that a financial institution must agree to the terms of that agreement to participate in the program.
Adopted new §200.105 establishes the types of loans that qualify to be enrolled in TSBCI LGP and sets minimum and maximum loan amount thresholds.
Adopted new §200.106 specifies the purposes for which loan proceeds may and may not be used. After its initial publication, the Office updated §200.106(b) to delete former paragraph (5), renumber the remaining provisions in the subsection, and add language to clarify that only loans already enrolled in non TSBCI related credit enhancement or credit insurance programs may not be refinanced. These changes clarify that certain refinanced loans or portions of refinanced loans may be enrolled in TSBCI LGP.
Adopted new §200.107 specifies the maximum guarantees available under TSBCI LGP and establishes the circumstances in which a financial institution may seek the maximum guarantee allowed under TSCBI LGP. Adopted new §200.107 also establishes the process a financial institution must undertake to enroll a loan in TSBCP LGP. The rule also establishes that the Office must unenroll any loans it determines were in enrolled in error. Section 200.107 also establishes that no loan may be enrolled in TSBCI LGP for more than one hundred eight months.
Adopted new §200.108 requires the Office to encumber an amount up to the guaranteed amount in the TSBCI fund, and attribute that encumbrance to the enrolled loan. New §200.108 also specifies the exceptions to the requirement that the Office encumbers up to the guaranteed amount, such as if the TSBCI Fund does not contain an available balance greater than or equal to the encumbrance amount.
Adopted new §200.109 details the process a financial institution must follow to make a claim for reimbursement on a loan the institution charged off. The rule also specifies the steps a financial institution must take before making a claim.
Adopted new §200.110 establishes how the Office will review claims and remit funds to a financial institution when the institution makes a valid claim. The rule also details the circumstances in which the Office may reject a claim. New §200.110 also specifies that, if the TSBCI Fund does not have sufficient funds to cover the requested amount, then the Office will pay an amount up to the available balance of the TSBCI Fund allocated to the LGP. Adopted new §200.111 requires financial institutions that recover on debts after the institutions have recovered on a loss to promptly repay the Office for the amount recovered on the debt, up to the amount of the recovery.
Adopted new §200.112 details some of the circumstances in which the Office may terminate the enrollment of loans in TSBCI LGP, when the Office may terminate the participation agreement with a financial institution, and how a financial institution may withdraw from TSBCI LGP.
Adopted new §200.113 notifies financial institutions that, if an institution has an annual claims rate that exceeds six percent and the Office determines the institution's practices to not meet TSBCI LGP standards or it is using the program to offset costs of a high default rate, the Office may disallow that institution from enrolling future loans in the program. The new rule also details how claims rates are determined.
Adopted new §200.114 establishes that the Office may inspect a financial institution's files related to enrolled loans. New §200.115 specifies reporting requirements for program participants. New §200.16 notes the Office may recover actual and necessary administrative expenses accrued in operating TSBCI LGP from the TSBCI Fund.
Adopted new §200.17 details the circumstances in which a provision established in Subchapter B may be waived.
SUMMARY OF COMMENTS AND AGENCY RESPONSES
The public comment period for these rules began on March 10, 2023, and continued for at least 30 days, as required by Chapter 2001, Texas Government Code. The OOG received six comments. The following provides summaries of the comments and the OOG's responses.
Comment 1: The commenter expressed support for Texas's implementation of the State Small Business Credit Initiative.
Response: The Office appreciates the commenter's support.
Comment 2: The commenter expressed support for Texas's implementation of the State Small Business Credit Initiative.
Response: The Office appreciates the commenter's support.
Comment 3: The commenter expressed support for Texas's implementation of the State Small Business Credit Initiative and suggested the following: (1) Regarding 10 T.A.C. §200.113, the commenter suggested increasing the threshold for when the Office may stop authorizing loan enrollments from 6 percent to 15 percent; (2) regarding 10 TAC §200.107, the commenter encouraged the Office to not "re-underwrite" loans submitted for enrollment; and (3) the commenter asked for loans to be enrolled in the Loan Guarantee Program before the loan is funded so the lender has assurance the loan will be supported. The commenter also suggested that, should any fees be charged by the Programs, they be less than those charged by other programs, such as the federal SBA program.
Response: The Office is grateful for the support for Texas's implementation of the State Small Business Credit Initiative and for the commenter's participation in the rulemaking process.
Regarding suggestion (1): Section VII.g of Treasury's SSBCI guidance pertaining to Capital Access Programs requires the Office to review lenders whose annual claims rate exceeds 6 percent. If lenders have an excessive claims rate, the Office "may" not "must" decline to enroll loans in the Capital Access Program if the Office determines the lender's practices do not meet program standards or is using the program to offset costs of high default rate lending. The Office has also independently determined the 6 percent threshold is an appropriate measure for increase oversight of a lender. For administrative alignment, the appropriateness of the threshold, and the discretionary nature of the requirement, the Office set a similar standard for TSBCI LGP. The Office will review each lender independently and will make determinations based on the facts before the Office. Accordingly, the Office declines to make such a change.
Regarding suggestion (2): The Office agrees with the commenter. The Office will perform due diligence and review to ensure lenders are appropriately underwriting loans; not engaging in fraud, waste, and abuse; and implement other controls required by law and Treasury guidance, but the Office will not "re-underwrite" loans.
Regarding suggestion (3): In TSBCI LGP, the Office requires a participating financial institution to apply through the Program Website on or before the 15th day after the loan documents were executed, but there is no restriction on how early an application can be submitted. This means that a lender may apply for the LGP before the loan is funded if the application is submitted on or before the 15th day after the loan documents are executed. The Office declines to make any changes in response to this suggestion.
Comment 4: The commenter suggested three modifications to the rulemaking related to TSBCI LGP: (1) increase the maximum guarantee amount for SEDI-owned or very small businesses from 80% to 100%; (2) include an additional item in the list of eligible uses of loan proceeds; and (3) increase the maximum guarantee for all borrowers from 50% to 80%.
Response: The Office is grateful for the commenter's suggestions and participation in the rulemaking process.
Regarding suggestion (1): The SSBCI controlling statutes and guidance require that lenders have "a meaningful amount of their own capital resources at risk." Providing a 100% maximum guarantee would mean a meaningful amount of lenders' capital would not be at risk, and would violate SSBCI program law and policy. Accordingly, the Office declines to make any changes in response to this suggestion.
Regarding suggestion (2): The list provided in §200.106(a) is a non-exhaustive list of "business purposes" and is only intended to give examples of expenditures that fall in the category. Accordingly, the Office declines to make any changes to the list, as the list is not intended to specify all purposes for which TSBCI-related funds may be used.
Regarding suggestion (3): In addition to requiring that lenders have a meaningful amount of capital at risk in their loans, SSBCI statutes and guidance encourage incentivizing lenders to provide access to capital to SEDI-owned and very small businesses. Accordingly, to encourage participating financial institutions to direct their efforts toward SEDI-owned businesses and very small businesses, the Office has provided a higher ceiling for guarantees associated with those types of businesses. Additionally, §200.107(g) provides a mechanism by which a lender may be approved to obtain the maximum guaranteed amount of 80%, regardless of the SEDI status of borrowers. Accordingly, the Office declines to make changes in response to this suggestion.
Comment 5: The commenter thanked the Office for its efforts on Texas's implementation of the SSBCI program and suggested two changes to the proposed rules "to foster the inclusion of [Community Development Financial Institutions (CDFIs)] and the communities they serve, particularly nonprofit CDFIs that serve the communities who lack access to capital from traditional financial institutions." The commenter expressed concern that the proposed rules may potentially omit CDFIs from participating in TSBCI programs and that language relating to the Office exercising its discretion in decision-making results in ambiguous guidance.
The commenter's first suggestion is for the definition of "Participating Financial Institution" or "PFI" to be updated to remove the phrase "bankable loans." The commenter states that some nonprofit CDFIs work to help unbankable communities become bankable, and so the current language implies that such nonprofits may not participate in the programs.
The commenter's second suggestion is for the Office to remove uses in the proposed rules of the phrases "sole discretion," "due care and diligent efforts," and "consistently and actively undertaken activities." The commenter asserts these phrases are subjective and may lead to inconsistent decision-making and create an unpredictable and potentially unfair environment for program recipients.
Regarding suggestion (1): The Office will remove the word "bankable" from the definition of "Participating Financial Institutions" to clarify that that nonprofit CDFIs may participate in the TSBCI programs.
Regarding suggestion (2): To best use SSBCI funds and ensure proper program administration, the Office must retain its ability to act in its discretion. The Office notes the purposes of the TSBCI Programs are established in §§200.1 and 200.101 and will exercise its discretion only in accordance with these established principles and purposes and will not act arbitrarily and capriciously. Accordingly, the Office declines to make any changes in response to this suggestion.
Comment 6: The commenter expressed excitement about the TSBCI programs but also expressed concern about its success because she believes lenders will not be incentivized to participate. The commenter suggested changing the programs to allow for the recovery of expenses the lender undertook to collect on defaulted debts, as well as unpaid interest.
Response: The Office is grateful for the commenter's input and shares her excitement about Texas's implementation of the State Small Business Credit Initiative. The Office notes that, in addition to the original principal amount of the loan, "reasonable out-of-pocket expenses" are reimbursable losses under both TSBCI CAP and TSBCI LGP. Accordingly, participating financial institutions will be able to recover reasonable expenses incurred to collect on defaulted debts. Accordingly, the Office declines to make any changes with respect to the commenter's suggestions.
SUBCHAPTER A. TEXAS SMALL BUSINESS CREDIT INITIATIVE CAPITAL ACCESS PROGRAM
STATUTORY AUTHORITY.
Section 481.021, Texas Government Code, authorizes the Office to adopt and enforce rules necessary to carry out the programs established in Chapter 481, Texas Government Code, including the TSBCI CAP, which the Office established, and the Bank will administer, pursuant to Section 481.403, Texas Government Code.
CROSS REFERENCE TO STATUTE
Chapter 200, Subchapter A. No other statutes, articles, or codes are affected by the adopted rules.
§200.2.Definitions.
The following words and terms, when used in this Subchapter, shall have the following meanings, unless the context clearly indicates otherwise:
(1) Agreement--A contract between a Financial Institution and the Office that authorizes the Financial Institution to participate in the Program and establishes, in accordance with §200.4 of this chapter (relating to Agreement), the terms required for the Financial Institution's participation.
(2) Borrower--A Qualified Business that has received a Qualified Loan from a Participating Financial Institution.
(3) Enrolled Loan--A Qualified Loan enrolled in the Program as described in §200.10 of this chapter (relating to Procedure for Enrollment of a Qualified Loan).
(4) Financial Institution--An insured depository institution, insured credit union, or Community Development Financial Institution, as each of those terms is defined in 12 U.S.C. § 4702.
(5) Fund--The Texas Small Business Credit Initiative Capital Access Fund.
(6) Loan Loss Reserve Account--An account established at a financial institution in which premiums are deposited to serve as insurance to reimburse a Participating Financial Institution for Losses on Enrolled Loans.
(7) Loss--Any original principal amount due and not paid and not more than the enrolled amount of the Qualified Loan plus reasonable out-of-pocket expenses. In the event only a portion of a Qualified Loan was enrolled, the Office limits reimbursement of out-of-pocket expenses to the ratio of the enrolled portion to the total loan amount.
(8) Office--The Economic Development and Tourism Office in the Office of the Governor.
(9) Participating Financial Institution or PFI--A Financial Institution authorized to conduct business in the State of Texas that has adequate capacity, as determined by the Office in its sole discretion, to underwrite and monitor loans and has executed an Agreement with the Office to participate in the Program.
(10) Principal of a Borrower--A person, other than an insured bank, that directly or indirectly, or acting through or in concert with one or more persons, owns, controls, or has the power to vote more than 10 percent of any class of voting securities of a member bank or company. Shares owned or controlled by a member of an individual's immediate family are considered to be held by the individual.
(11) Principal of a Lender--The principal of a lender is:
(A) If a sole proprietorship, the proprietor;
(B) If a partnership, each partner; and
(C) If a corporation, limited liability company, association or a development company, each director, each of the five most highly compensated executives, officers or employees of the entity, and each direct or indirect holder of twenty percent or more of the ownership stock or stock equivalent of the entity.
(12) Program--The Texas Small Business Credit Initiative Capital Access Program.
(13) Program Website--The dynamic web portal developed by the Office and located at https://tsbci.gov.texas.gov.
(14) Qualified Business--A Small Business authorized to conduct business in the State of Texas that meets the eligibility requirements of §200.7 of this chapter (relating Qualified Loan Eligibility and Approval).
(15) Qualified Loan--A loan or portion of a loan that is made by a PFI to a Qualified Business for a business purpose consistent with §200.8 of this chapter (relating to Eligible and Restricted Uses of Texas Small Business Credit Initiative Capital Access Program Loan Proceeds), and not contrary to state or federal law or policy.
(16) Small Business--A corporation, partnership, sole proprietorship, or other legal entity that:
(A) is domiciled in this state or has at least 51 percent of its employees located in this state;
(B) is formed to make a profit;
(C) is independently owned and operated; and
(D) employs fewer than 500 employees.
(17) Socially and Economically Disadvantaged Individuals or SEDI--Individuals whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities as compared to others in the same or similar line of business who are not socially disadvantaged.
(18) Treasury--The United States Department of Treasury.
(19) Very Small Business--A Small Business that employs fewer than 10 employees.
§200.8.Eligible and Restricted Uses of Texas Small Business Credit Initiative Capital Access Program Loan Proceeds.
(a) Borrowers must use loan proceeds for a business purpose. Business purposes include, but are not limited to:
(1) start-up costs;
(2) working capital;
(3) franchise fees; and
(4) acquisition of equipment, inventory, or services used in the production, manufacturing, or delivery of a business's goods or services, or in the purchase, construction, renovation, or tenant improvements of an eligible place of business that is not for passive real estate investment purposes.
(b) Loan proceeds shall not be used for:
(1) acquiring or holding passive investments in real estate;
(2) the purchase of owner-occupied residential housing;
(3) the construction, improvement, or purchase of residential housing that is owned or to be owned by the Borrower;
(4) the purchase of real property that is intended for resale or not used for the business operations of the Borrower;
(5) the purchase of securities;
(6) lobbying activities;
(7) the purchase of good will;
(8) inside bank transactions;
(9) repayment of delinquent federal or state income taxes unless the Borrower has a payment plan in place with the relevant taxing authority;
(10) repayment of taxes held in trust or escrow;
(11) reimbursement of funds owed to any owner, including any equity injection or injection of capital for the business' continuance;
(12) purchase of any portion of the ownership interest of any owner of the Borrower, such as the acquisition of shares of a company or the partnership interest of a partner when the proceeds of the Enrolled Loan will go to any existing owner or partner of the Borrower;
(13) refinance of any portion of a loan enrolled in another credit enhancement or credit insurance program not encompassed by 10 T.A.C. Chapter 200;
(14) a loan in which any Principal of a Borrower has been convicted of a sex offense against a minor as such terms are defined 34 U.S.C. 20911; or
(15) a loan that is contrary to federal or state law or policy.
The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on June 5, 2023.
TRD-202302060
Adriana Cruz
Executive Director
Office of the Governor, Economic Development and Tourism Office
Effective date: June 25, 2023
Proposal publication date: March 10, 2023
For further information, please call: (512) 463-2000
STATUTORY AUTHORITY.
Section 481.021, Texas Government Code, authorizes the Office to adopt and enforce rules necessary to carry out the programs established in Chapter 481, Texas Government Code, including the TSBCI LGP, which the Office established, and the Bank will administer, pursuant to Section 481.403, Texas Government Code.
CROSS REFERENCE TO STATUTE
Chapter 200, Subchapter B. No other statutes, articles, or codes are affected by the adopted rules.
§200.102.Definitions.
The following words and terms, when used in this subchapter, shall have the following meanings, unless the context clearly indicates otherwise:
(1) Agreement--A contract between a Financial Institution and the Office that authorizes the Financial Institution to participate in the Program and establishes, in accordance with §200.104 of this chapter (relating to Agreement), the terms required for the Financial Institution's participation.
(2) Borrower--A Qualified Business that has received a Qualified Loan from a Participating Financial Institution.
(3) Enrolled Loan--A Qualified Loan enrolled in the Program as described in §200.107 of this chapter (relating to Loan Guarantee Maximums; Procedure for Enrollment of a Qualified Loan).
(4) Financial Institution--An insured depository institution, insured credit union, or Community Development Financial Institution, as each of those terms is defined in 12 U.S.C. § 4702.
(5) Fund--The Texas Small Business Credit Initiative Loan Guarantee Fund.
(6) Guaranteed Amount--The amount of principal of an Enrolled Loan that is guaranteed by the Office.
(7) Loss--Any original principal amount due and not paid and not in excess of the Guaranteed Amount of the Qualified Loan.
(8) Office--The Economic Development and Tourism Office in the Office of the Governor.
(9) Participating Financial Institution or PFI--A Financial Institution authorized to conduct business in the State of Texas that has adequate capacity, as determined by the Office in its sole discretion, to underwrite and monitor loans and has executed an Agreement with the Office to participate in the Program.
(10) Principal of a Borrower--A person, other than an insured bank, that directly or indirectly, or acting through or in concert with one or more persons, owns, controls, or has the power to vote more than 10 percent of any class of voting securities of a member bank or company. Shares owned or controlled by a member of an individual's immediate family are considered to be held by the individual.
(11) Principal of a Lender--The principal of a lender is:
(A) If a sole proprietorship, the proprietor;
(B) If a partnership, each partner; and
(C) If a corporation, limited liability company, association or a development company, each director, each of the five most highly compensated executives, officers or employees of the entity, and each direct or indirect holder of twenty percent or more of the ownership stock or stock equivalent of the entity.
(12) Program--The Texas Small Business Credit Initiative Loan Guarantee Program.
(13) Program Website--The dynamic web portal developed by the Office and located at https://tsbci.gov.texas.gov.
(14) Qualified Business--Any Small Business authorized to conduct business in the State of Texas that meets the eligibility requirements of §200.105 of this chapter (relating to Qualified Loan Eligibility and Approval).
(15) Qualified Loan--A loan or portion of a loan that is made by a PFI to a Qualified Business for a business purpose consistent with §200.106 of this chapter (relating to Eligible and Restricted Uses of Texas Small Business Credit Loan Guarantee Program Loan Proceeds), and not contrary to state or federal law or policy.
(16) Small Business--A corporation, partnership, sole proprietorship, or other legal entity that:
(A) is domiciled in this state or has at least 51 percent of its employees located in this state;
(B) is formed to make a profit;
(C) is independently owned and operated; and
(D) employs fewer than 500 employees.
(17) Socially and Economically Disadvantaged Individuals or SEDI--Individuals whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities as compared to others in the same or similar line of business who are not socially disadvantaged.
(18) Treasury--The United States Department of Treasury.
(19) Very Small Business--A Small Business that employs fewer than 10 employees.
§200.106.Eligible and Restricted Uses of Texas Small Business Credit Loan Guarantee Program Loan Proceeds.
(a) Borrowers must use loan proceeds for a business purpose. Business purposes include, but are not limited to:
(1) start-up costs;
(2) working capital;
(3) franchise fees; and
(4) acquisition of equipment, inventory, or services used in the production, manufacturing, or delivery of a business's goods or services, or in the purchase, construction, renovation, or tenant improvements of an eligible place of business that is not for passive real estate investment purposes.
(b) Loan proceeds shall not be used for:
(1) acquiring or holding passive investments in real estate;
(2) the purchase of owner-occupied residential housing;
(3) the construction, improvement, or purchase of residential housing that is owned or to be owned by the Borrower;
(4) the purchase of real property that is intended for resale or not used for the business operations of the Borrower;
(5) the purchase of securities;
(6) lobbying activities;
(7) the purchase of good will;
(8) inside bank transactions;
(9) repayment of delinquent federal or state income taxes unless the Borrower has a payment plan in place with the relevant taxing authority;
(10) repayment of taxes held in trust or escrow;
(11) reimbursement of funds owed to any owner, including any equity injection or injection of capital for the business' continuance;
(12) purchase of any portion of the ownership interest of any owner of the Borrower, such as the acquisition of shares of a company or the partnership interest of a partner when the proceeds of the Enrolled Loan will go to any existing owner or partner of the Borrower;
(13) refinance of any portion of a loan enrolled in another credit enhancement or credit insurance program not encompassed by 10 T.A.C. Chapter 200;
(14) a loan in which any Principal of a Borrower has been convicted of a sex offense against a minor as such terms are defined 34 U.S.C. 20911; or
(15) a loan that is contrary to federal or state law or policy.
The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on June 5, 2023.
TRD-202302061
Adriana Cruz
Executive Director
Office of the Governor, Economic Development and Tourism Office
Effective date: June 25, 2023
Proposal publication date: March 10, 2023
For further information, please call: (512) 463-2000