Office of House Bill AnalysisH.B. 2781
By: Pitts
Financial Institutions


Legislation passed by the 75th Legislature created a class of commercial
loans called "qualified commercial loans," which consists of  commercial
loans in the original principal amount of $3 million or more.  The
important feature of a qualified commercial loan is that the lender and
borrower may contract for additional charges for incentives such as the
option to convert equity, to purchase equity, or to share in the revenue or
profit without fear of running afoul of the usury laws because the Texas
Credit Title does not consider these additional charges as interest.  These
incentives are frequently used by small and "start-up" businesses to
provide capital for their growth. 

Often, however, a borrower enters into transactions with several different
lenders, or more than one individual borrower may seek such a package of
loans from a lender or lenders as part of one transaction.  Prior to the
76th Legislature, the law did not specify that all the loans in a "bundle
of loans" totaling more than $3 million and forming part of the same
package would be considered as "qualified commercial loans," making it
unclear whether such a loan package enjoyed the available protections.
H.B. 2781 redefines "qualified commercial loan" to include the situation in
which more than one lender lends or more than one borrower receives money
or credit in the aggregate amount of $3 million or more as part of the same


It is the opinion of the Office of House Bill Analysis that this bill does
not expressly delegate any additional rulemaking authority to a state
officer, department, agency, or institution. 


SECTION 1.  Amends Article 1H.001(9), Title 79 (Article 5069-1H.001,
V.T.C.S.), to define "qualified commercial loan" as a commercial loan in
which one or more persons as part of the same transaction lends, advances,
borrows, receives, or is obligated to lend or advance or entitled to borrow
or receive money or credit with an aggregate value of $3,000,000 or more,
rather than a commercial loan in the original principal amount of
$3,000,000 or more; or a renewal or extension of such a commercial loan,
regardless of the principal amount of the loan at the time of the renewal
or extension.  Makes conforming and nonsubstantive changes. 

SECTION 2.  Amends Section 306.001(9), Finance Code, to make conforming

SECTION 3.  Provides that SECTION 1 is effective upon passage only if the
Act of the 76th Legislature, Regular Session, 1999, relating to additions
to and corrections in enacted codes does not take effect.  Provides that
SECTION 2 is effective September 1, 1999, only if the Act of the 76th
Legislature, Regular Session, 1999, relating to nonsubstantive additions to
and corrections in enacted codes takes effect. 

SECTION 4.  Emergency clause.