U.S. Code > Title 38 Veterans' Benefits > PART III—READJUSTMENT AND RELATED BENEFITS (§§ 3001—4335) > CHAPTER 37—HOUSING AND SMALL BUSINESS LOANS (§§ 3701—3772_to_3775) > SUBCHAPTER IV—SMALL BUSINESS LOANS (§§ 3741—3751) > § 3742. Small business loan program

§ 3742. Small business loan program

(a)
(1) Subject to subsection (b) of this section, the Secretary may provide financial assistance to veterans’ small business concerns for the purpose of
(A) financing plant construction, conversion, or expansion (including the acquisition of land),
(B) financing the acquisition of equipment, facilities, machinery, supplies, or materials, or
(C) supplying such concerns with working capital.
(2) Subject to paragraph (3)(A) of this subsection, financial assistance under this section may be provided in the form of
(A) loan guaranties, or
(B) direct loans.
(3) The Secretary shall specify in regulations the criteria to be met for a business concern to qualify as a veterans’ small business concern for the purposes of this subchapter. Such regulations shall include requirements—
(A) that at least 51 percent of a business concern must be owned by individuals who are veterans of the Vietnam era or disabled veterans in order for such concern to qualify for a loan guaranty and that at least 51 percent of a business concern must be owned by disabled veterans in order for such concern to qualify for a direct loan; and
(B) that the management and daily business operations of the concern must be directed by one or more of the veterans whose ownership interest is part of the majority ownership for the purposes of meeting the requirement in clause (A) of this paragraph.
(b) The availability of financial assistance under subsection (a) of this section is subject to the following limitations:
(1) The Secretary may not make a direct loan under this section unless the veterans’ small business concern applying for the loan shows to the satisfaction of the Secretary that the concern is unable to obtain a loan guaranteed by the Department under this section or made or guaranteed by the Small Business Administration.
(2) The Secretary may not guarantee a loan under this section if the loan bears a rate of interest in excess of the maximum rate of interest prescribed under section 3745 of this title.
(3) The Secretary may not make or guarantee a loan under this section for an amount in excess of $200,000.
(4) The original liability of the Secretary on any loan guaranteed under this section may not exceed 90 percent of the amount of the loan, and such liability shall decrease or increase pro rata with any decrease or increase of the amount of the unpaid portion of the loan, but such liability may not exceed the amount of the original guaranty.
(c) Each loan made or guaranteed under this subchapter shall be of such sound value, taking into account the creditworthiness of the veterans’ small business concern (and the individual owners) applying for such loan, or so secured as reasonably to assure payment.
(d)
(1) Except as provided in paragraph (2) of this subsection, the Secretary may not make or guarantee a loan under this subchapter to a veterans’ small business concern in which an ownership interest is held by a veteran who also has an ownership interest in another small business concern if such ownership interest was considered in qualifying that other concern for an outstanding loan made or guaranteed under this subchapter or the Small Business Act (15 U.S.C. 631 et seq.).
(2) Paragraph (1) of this subsection shall not apply if 51 percent or more of the business concern seeking a direct or guaranteed loan under this subchapter is owned by veterans of the Vietnam era or disabled veterans without including the ownership interest of the veteran whose ownership interest in another small business concern was previously considered in qualifying that other concern for an outstanding guaranteed or direct business loan under this subchapter or the Small Business Act (15 U.S.C. 631 et seq.).
(e)
(1) In order to protect the interest of the United States, upon application by a veterans’ small business concern which is the recipient of a loan guaranteed under this subchapter, the Secretary (subject to the provisions of this subsection) may undertake the veterans’ small business concern’s obligation to make payments under such loan or, if the loan was a direct loan made by the Secretary, may suspend such obligation. While such payments are being made by the Secretary pursuant to the undertaking of such obligation or while such obligation is suspended, no such payment with respect to the loan may be required from the concern.
(2) The Secretary may undertake or suspend a veterans’ small business concern’s obligation under this subsection only if—
(A) such undertaking or suspension of the obligation is, in the judgment of the Secretary, necessary to protect the interest of the United States;
(B) with the undertaking or suspension of the obligation, the small business concern would, in the judgment of the Secretary, become or remain a viable small business entity; and
(C) the small business concern executes an agreement in writing satisfactory to the Secretary as provided by paragraph (4) of this subsection.
(3) The period of time for which the Secretary undertakes or suspends the obligation on a loan under this subsection may not exceed five years. The Secretary may extend the maturity of any loan on which the Secretary undertakes or suspends the obligation under this subsection for a corresponding period of time.
(4)
(A) Before the Secretary may undertake or suspend a veterans’ small business concern’s obligation under this subsection, the Secretary shall require the small business concern to execute an agreement to repay the aggregate amount of the payments which were required under the loan during the period for which the obligation was undertaken or suspended—
(i) by periodic payments not less in amount or less frequently falling due than those which were due under the loan during such period,
(ii) pursuant to a repayment schedule agreed upon by the Secretary and the small business concern, or
(iii) by a combination of the method of payments described in clauses (i) and (ii) of this subparagraph.
(B) In addition to requiring the small business concern to execute the agreement described in subparagraph (A) of this paragraph, the Secretary shall, before the undertaking or suspension of the obligation, take such action and require the small business concern to take such action as the Secretary considers appropriate in the circumstances, including the provision of such security as the Secretary considers necessary or appropriate, to assure that the rights and interest of the United States and any lender will be safeguarded adequately during and after the period in which such obligation is so undertaken or suspended.