Title 15, Commerce and TradeRelease 119-110
§697f Prepayment of Development Company Debentures
Title 15 › CHAPTER 14B — SMALL BUSINESS INVESTMENT PROGRAM › SUBCHAPTER V — LOANS TO STATE AND LOCAL DEVELOPMENT COMPANIES › § 697f
Summary
Allows an issuer or borrower to pay off a debenture early if the Administration agrees and the rules below are met. The party that prepays must pay the unpaid principal, accrued interest at the coupon rate, and a repurchase premium. The repurchase premium equals the unpaid principal multiplied by a percentage based on the loan term: 8.5% for 10 years, 9.5% for 15 years, 10.5% for 20 years, and 11.5% for 25 years. The Administration may raise or lower those percentages by up to one-third (the same change for all terms) to keep the program revenue-neutral, and any excess collected must be refunded. The Administration also pays any difference needed so the Federal Financing Bank receives the full premium it would have gotten. The debenture must be current and not in default when prepaid. Prepayment funds must come from State, local, personal funds, or from allowed refinancing. For debentures under section 697, the issuer must certify that borrowers get all net benefits. No other fees or penalties are allowed beyond what this law specifies. Refinancing can only cover the amount needed to prepay, including costs and premiums, and normally follows the rules for refinancing under sections 697a and 697b, except applicants do not have to show job creation. A development company may charge a one-time processing fee up to 0.5% of the loan principal. The Administration must send a preliminary notice (by certified mail and other means) giving the range and estimated dollar amount of premiums, allow at least 45 days for a borrower to say it wants to join, and require a $1,000 nonrefundable deposit credited to the premium. After responses, the Administration gives final premium figures and at least 4 months to complete prepayment. “Issuer” means the development company or a licensed small business investment company; “borrower” means the small business whose loan backs the debenture. The Administration had to issue rules within 30 days after October 22, 1994, and $30,000,000 was authorized to run the program.
Full Legal Text
Title 15, §697f
Commerce and Trade, Source: USLM XML via OLRC
(a)In general
(1)Prepayment authorized
Subject to the requirements set forth in subsection (b), an issuer of a debenture purchased by the Federal Financing Bank and guaranteed by the Administration under this chapter may, at the election of the borrower (in the case of a loan under section 697 of this title) or the issuer (in the case of a small business investment company) and with the approval of the Administration, prepay such debenture in accordance with the provisions of this section.
(2)Procedure
(A)In general
In making a prepayment under paragraph (1)—
(i)the borrower (in the case of a loan under section 697 of this title) or the issuer (in the case of a small business investment company) shall pay to the Federal Financing Bank an amount that is equal to the sum of the unpaid principal balance due on the debenture as of the date of the prepayment (plus accrued interest at the coupon rate on the debenture) and the amount of the repurchase premium described in subparagraph (B); and
(ii)the Administration shall pay to the Federal Financing Bank the difference between the repurchase premium paid by the borrower under this subsection and the repurchase premium that the Federal Financing Bank would otherwise have received.
(B)Repurchase premium
(i)In general
For purposes of subparagraph (A)(i), the repurchase premium is the amount equal to the product of— (I)
(II)the applicable percentage rate, as determined in accordance with clauses (ii) and (iii).
(ii)Applicable percentage rate
For purposes of clause (i)(II), the applicable percentage rate means—
(I)with respect to a 10-year term loan, 8.5 percent;
(II)with respect to a 15-year term loan, 9.5 percent;
(III)with respect to a 20-year term loan, 10.5 percent; and
(IV)with respect to a 25-year term loan, 11.5 percent.
(iii)Adjustments to applicable percentage rate
The percentage rates described in clause (ii) shall be increased or decreased by the Administration by a factor not to exceed one-third, if the same factor is applied in each case and if the Administration determines that an adjustment is necessary, based on the number of borrowers having given notice of their intent to participate, in order to make the program (including the amounts appropriated for this purpose under Public Law 103–317) result in no substantial net gain or loss of revenue to the Federal Financing Bank or to the Administration. Amounts collected in excess of the amount necessary to ensure revenue neutrality shall be refunded to the borrowers.
(b)Requirements
For purposes of subsection (a), the requirements of this subsection are that—
(1)the debenture is outstanding and neither the loan that secures the debenture, if any, nor the debenture is in default on the date on which the prepayment is made;
(2)State, local, or personal funds, or the proceeds of a refinancing in accordance with subsection (d) under the programs authorized by this subchapter, are used to prepay or roll over the debenture; and
(3)with respect to a debenture issued under section 697 of this title, the issuer certifies that the benefits, net of fees and expenses authorized herein, associated with prepayment of the debenture are entirely passed through to the borrower.
(c)No prepayment fees or penalties
No fees or penalties other than those specified in this section may be imposed on the issuer, the borrower, the Administration, or any fund or account administered by the Administration as the result of a prepayment under this section.
(d)Refinancing limitations
(1)In general
The refinancing of a debenture under section 697a and 697b of this title, in accordance with subsection (b)(2)—
(A)shall not exceed the amount necessary to prepay existing debentures, including all costs associated with the refinancing and any applicable prepayment penalty or repurchase premium; and
(B)except as provided in paragraphs (2) and (3), shall be subject to the provisions of section 697a and 697b of this title and the rules and regulations promulgated thereunder, including rules and regulations governing payment of authorized expenses, commissions, fees, and discounts to brokers and dealers in trust certificates issued pursuant to section 697b of this title.
(2)Job creation
An applicant for refinancing under section 697a of this title of a loan made pursuant to section 697 of this title shall not be required to demonstrate that a requisite number of jobs will be created with the proceeds of a refinancing.
(3)Loan processing fee
To cover the cost of loan packaging, processing, and other administrative functions, a development company that provides refinancing under subsection (b)(2) may impose a one-time loan processing fee, not to exceed 0.5 percent of the principal amount of the loan.
(4)New debentures
Issuers of debentures under subchapter III may issue new debentures in accordance with such subchapter in order to prepay existing debentures as authorized in this section.
(5)Preliminary notice
(A)In general
The Administration shall use certified mail and other reasonable means to notify each eligible borrower of the prepayment program provided in this subchapter. Each preliminary notice shall specify the range and dollar amount of repurchase premiums which could be required of that borrower in order to participate in the program. In carrying out this program, the Administration shall provide a period of not less than 45 days following the receipt of such notice by the borrower during which the borrower must notify the Administration of the borrower’s intent to participate in the program. The Administration shall require that a borrower who gives notice of its intent to participate to make an earnest money deposit of $1,000 which shall not be refundable but which shall be credited toward the final repurchase premium.
(B)“Borrower” defined
For purposes of this paragraph, the term “borrower”, in the case of a small business investment company or a specialized small business investment company, means “issuer”.
(6)Final notice
Based upon the response to the preliminary notice under paragraph (5), the Administration shall make a final computation of the necessary prepayment premiums and shall notify each qualified respondent of the results of such computation. Each qualified respondent shall be afforded not less than 4 months to complete the prepayment.
(e)Definitions
For purposes of this section
(1)
(2)the term “borrower” means a small business concern whose loan secures a debenture issued pursuant to section 697 of this title.
(f)Regulations
Not later than 30 days after October 22, 1994, the Administration shall promulgate such regulations as may be necessary to carry out this section.
(g)Authorization
There are authorized to be appropriated $30,000,000 to carry out the provisions of The Small Business Prepayment Penalty Relief Act of 1994.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
References in Text
For definition of “this chapter”, referred to in subsec. (a)(1), see
References in Text
note set out under section 661 of this title. Public Law 103–317, referred to in subsec. (a)(2)(B)(iii), is Pub. L. 103–317, Aug. 26, 1994, 108 Stat. 1724, known as the Departments of Commerce, Justice, and State, The Judiciary, and Related Agencies Appropriations Act, 1995. For complete classification of this Act to the Code, see Tables. The Small Business Prepayment Penalty Relief Act of 1994, referred to in subsec. (g), is title V of Pub. L. 103–403, Oct. 22, 1994, 108 Stat. 4198, which enacted this section and provisions set out as notes under this section and section 661 of this title. For complete classification of this Act to the Code, see
Short Title
of 1994 Amendment note set out under section 661 of this title and Tables.
Amendments
1996—Subsec. (a)(1). Pub. L. 104–208, § 208(h)(1)(H)(i), struck out at end “A small business investment company operating under the authority of section 681(d) of this title that has issued a debenture that was purchased by and is held by the Administration, may, under the same terms and conditions, prepay such debenture, and the penalty as provided in this section, and shall thereafter be immediately eligible to apply for additional assistance from the Administration.” Subsec. (e)(1)(B). Pub. L. 104–208, § 208(h)(1)(H)(ii), substituted “section 681 of this title” for “subsection (c) or (d) of section 681 of this title”.
Statutory Notes and Related Subsidiaries
Intention of Congress Pub. L. 103–403, title V, § 502, Oct. 22, 1994, 108 Stat. 4198, provided that: “(a) In General.—The Small Business Administration shall fully utilize the $30,000,000 appropriated in Public Law 103–317 [108 Stat. 1724] to reduce, in accordance with this title [enacting this section and provisions set out as a note under section 661 of this title] and the
Amendments
made by this title, prepayment penalties imposed in connection with debentures issued under—“(1) section 303 or 503 of the Small Business Investment Act of 1958 [15 U.S.C. 683, 697], which have been purchased by the Federal Financing Bank; and “(2) title III [probably means title III of Pub. L. 85–699, which is classified to section 681 et seq. of this title] to companies operating under section 301(d) of such Act [15 U.S.C. 681(d)], which have been purchased by the Small Business Administration. “(b) Equal Opportunity.—In order to provide an equal opportunity to participate in the program authorized under this title, the Small Business Administration shall afford each borrower or issuer of a debenture subject to this title, not less than 45 days to elect to participate and to provide an earnest money deposit. The Administration shall subsequently allow a period of not less than 4 months, during which those borrowers or issuers that elect to participate shall be allowed to complete the prepayment process. “(c) Restrictions on Participation.—In no event shall the Small Business Administration—“(1) allow any borrower or issuer to participate in the program if the borrower or issuer fails to—“(A) make a timely election and provide the deposit on a timely basis; or “(B) complete the prepayment process within the required time; or “(2) allow any borrower or issuer to participate in the program at a percentage rate other than the rate finally determined to be applicable to all other borrowers or issuers with similar terms of years.”
Reference
Citations & Metadata
Citation
15 U.S.C. § 697f
Title 15, Commerce and Trade
Last Updated
Sep 22, 2026
Release point: 119-110