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.  Such a
qualified commercial loan allows the lender to receive certain defined
compensation from the borrower in the form of "equity participation" which
is not classified as interest under Texas law and, therefore, does not
subject the lender to penalties for usury.  This feature encourages small
and "start up" businesses in emerging fields like technology which are able
to borrow sufficient capital for business formation only by utilizing
equity participation with their lenders. 

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.  Current law
does not clarify that all of the loans in such 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 enjoys the available protections.  H.B. 2781 clarifies the
definition of  "qualified commercial loan" to include the situation where
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 
"quality 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 75th 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 75th
Legislature, Regular Session, 1999, relating to nonsubstantive additions to
and corrections in enacted codes takes effect. 

SECTION 4.  Emergency clause.