3 CCR 703-4
DEPARTMENT OF REGULATORY AGENCIES Division of Financial Services SMALL BUSINESS DEVELOPMENT CREDIT CORPORATION REGULATIONS 3 CCR 703-4 [Editor’s Notes follow the text of the rules at the end of this CCR Document.] _________________________________________________________________________ I. Definitions, as used in these regulations:
A. “Associate” means, if used with respect to a licensee:
1. A controlling person, director, officer, agent, or advisor of that licensee.
2. A director, officer, or partner of a person referred to in paragraph (1).
3. A person who controls, is controlled by, or is under common control with a person referred to in paragraph (1) directly through one or more intermediaries.
4. Any relative of any person referred to in paragraph (1).
5. A person of which a person referred to in paragraphs (1) to (4) is a director or officer.
6. A person of which a person referred to in paragraphs (1) to (4), or any combination of those persons acting in concert, owns or controls, directly or indirectly, a 20% or greater equity interest.
B. “Control,” including “controlling,” “controlled by,” or “under common control with,” means the possession, directly or indirectly, of the power to direct of cause the direction of the management and policies of a person, whether through ownership, by contract or otherwise.
C. “Director” means any member of the board of directors of a corporation or any other person performing similar functions with respect to any entity , whether incorporated or unincorporated.
D. “Good character” means a person, as defined in section 11-36-103(4), Colorado Revised Statutes, who has not been convicted of, nor pleaded nolo contendre to, a crime involving fraud or dishonesty, and who may reasonably be believed to be likely to comply with the act if licensed.
E. “Officer” means a president, vice president, secretary, treasurer or principal financial officer, comptroller or principal accounting officer, or any person routinely performing corresponsding functions with respect to any entity, whether incorporated or unincorporated.
F. “Relative” means parent, child, sibling, spouse, father-in-law, mother-in-law, son-in-law, brother-in-law, daughter in law, sister-in-law, grandparent, grandchild, nephew, niece, uncle, aunt, or cousin.
G. “SBA” means the United States Small Business Administration. Code of Colorado Regulations 1 H. “Undue Influence” means any improper or wrongful constraint, misuse of position of confidence, or exercise of such dominion and control over the volition of another person that that person's freedom of action or volition is destroyed, and that person's actions then conform to the will of another.
II. Application for licensure or changes in operations. When applying for licensure or for changes in any operations as required by 11-36-101, et seq, CRS, the following conditions shall apply.
A. All applications shall be on forms prescribed by and furnished by the executive director.
B. No application submitted to the executive director shall be deemed to have been received until it is complete, as determined by the executive director. When an application is deemed to be complete, the executive director will notify the applicant in writing. The executive director shall have the authority to request additional or supplemental information if and when he determines it is necessary.
C. When determining whether to grant an initial license, the executive director shall consider whether the applicant has met all applicable statutory requirements, whether the applicant's business plan makes reasonable assumptions, whether investors have been given complete disclosure about the applicant's plans and activities and any other information the executive director shall deem relevant.
D. Unless given specific authorization by the executive director, licensees shall not be capitalized with borrowed funds. Shareholders owning ten percent or more of any class of its stock shall not use borrowed funds in purchasing such stock without prior written approval of the executive director.
E. When determining whether to grant licensees' requests for control of a business firm under 11-36-106, CRS, the executive director shall consider how such acquisition will affect the licensee's ability to continue operating, how such acquisition will affect the licensee's ability to comply with applicable laws and regulations and any other information he deems to be relevant.
III. Reporting and Record Keeping.
A. Audits required by 11-36-109(3), Colorado Revised Statutes shall be prepared in accordance with generally accepted accounting principles and shall be certified. Such audits shall be filed with the executive director by March 1 of each year.
B. When any licensee is party to any suit or proceeding, either civil or criminal, arising out of any transaction authorized by 11-36-101 et seq., CRS, these rules or any other transaction in which the licensee engages or is accused of engaging in any act of fraud or dishonesty, it shall notify the executive director and supply him with a copy of the complaint, indictment, information or other initiating pleading within thirty (30) days after initiating said proceeding or being served with process in said proceeding. In addition, the licensee shall supply the executive director a copy of the answer filed, if any, and a copy of the final judgement, verdict, finding or sentence which may be made, entered or imposed therein within thirty (30) days of said final disposition.
C. Licensees shall preserve, for the periods hereinafter specified and in a manner that permits the immediate location thereof, such documents which are the basis for financial statements required by 11-36-109(3) CRS (and of the accompanying independent public accountant's opinion), and shall:
1. Preserve permanently:
Code of Colorado Regulations 2
2. Preserve for at least six years following final disposition of the related loan:
3. Records and other documents referreed to in this paragraph (1) may be preserved by reproduction. Provided, however, that said licensee shall cause a duplicate to made on a current basis and stored separately from the original for the time required, and shall maintain at all times facilities for the projection and reproduction of the records.
IV. Continuing operations.
A. Licensees shall maintain at all times an adequate financial condition.
(2) Reserves for Losses. Licensees shall maintain a reserve in the amount of anticipated losses on loans and receivables, but not less than 2 percent of the total portfolio not guaranteed by the U.S. government or any agency thereof.
B. If a licensee provides financing assistance to a business firm or engages in another business transaction, and if that financing assistance or transaction involves a potential conflict of interest, the terms and conditions under which the licensee provides the financing assistance or engages in the transaction shall not be less favorable to the licensee than the terms and conditions that would be required by the licensee in the ordinary course of business if the transaction did not involve a potential conflict of interest. Each person who participates in the decision of the licensee relating to a transaction described in this section and has knowledge of a potential conflict of interest involving that transaction shall ensure that the potential conflict of insterest is disclosed in the financing documents of the transaction or, for a business transaction not involving financing Code of Colorado Regulations 3 assistance, in another appropriate document. Such documents shall be submitted as part of the audit documents required by 11-36-109(3), CRS and Part III of these rules.
(1) For the purposes of section (C) transactions engaged in by a licensee which involve a potential conflict of interest include, but are not limited to, the following:
2. Nothing in this section or in any other section of these rules and regulations limits the authority of the executive director to determine that an act involves a conflict of interest or to enforce disciplinary sanctions if a majority of the licensee's transactions involve conflicts of interest pursuant to 11-36-114(2) and 11-36-116, CRS.
C. Licensees shall continue to meet the requirements of 11-36-111, (1)(b) CRS as a condition to maintain the license. Any change which results in a licensee not meeting such requirements shall be reported to the executive director within ten (10) days.
D. Any change of condition, including address, phone number, identity of officers or directors, or other information which would result in the information on the application submitted to the executive director becoming untrue, shall be reported to the executive director in writing within ten days of the occurance of the change.
E. Licensees shall comply with orders issued by the executive director. Such orders may be appealed pursuant to 24-4-105, CRS.
Code of Colorado Regulations 4 F. No licensee shall provide false information to the executive director.
G. No licensee shall violate any applicable state or federal securities law or regulation.
V. Criteria for suspension or revocation of a license.
A. Before suspending or revoking a license, the executive director shall consider whether a licensee has violated applicable laws or regulations, if the licensee is in a financial condition to continue operations, any information the licensee deems to be relevant and any other information the executive director deems to be relevant.
_________________________________________________________________________ Editor’s Notes History Code of Colorado Regulations 5