[Title 13 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2003 Edition]
[From the U.S. Government Printing Office]



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                    13

                         Revised as of January 1, 2003

Business Credit and Assistance





          Containing a codification of documents of general 
          applicability and future effect
          As of January 1, 2003
          With Ancillaries
          Published by:
          Office of the Federal Register
          National Archives and Records
          Administration

A Special Edition of the Federal Register



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                     U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003



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                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 13:
          Chapter I--Small Business Administration                   3
          Chapter III--Economic Development Administration, 
          Department of Commerce                                   539
          Chapter IV--Emergency Steel Guarantee Loan Board         595
          Chapter V--Emergency Oil and Gas Guaranteed Loan 
          Board                                                    619
  Finding Aids:
      Material Approved for Incorporation by Reference........     645
      Table of CFR Titles and Chapters........................     647
      Alphabetical List of Agencies Appearing in the CFR......     665
      List of CFR Sections Affected...........................     675



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                     ----------------------------

                     Cite this Code:  CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 13 CFR 101.100 
                       refers to title 13, part 
                       101, section 100.

                     ----------------------------

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                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

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noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

    The Code of Federal Regulations is kept up to date by the individual 
issues of the Federal Register. These two publications must be used 
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    To determine whether a Code volume has been amended since its 
revision date (in this case, January 1, 2003), consult the ``List of CFR 
Sections Affected (LSA),'' which is issued monthly, and the ``Cumulative 
List of Parts Affected,'' which appears in the Reader Aids section of 
the daily Federal Register. These two lists will identify the Federal 
Register page number of the latest amendment of any given rule.

EFFECTIVE AND EXPIRATION DATES

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Register since the last revision of that volume of the Code. Source 
citations for the regulations are referred to by volume number and page 
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Code a note has been inserted to reflect the future effective date. In 
those instances where a regulation published in the Federal Register 
states a date certain for expiration, an appropriate note will be 
inserted following the text.

OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

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Many agencies have begun publishing numerous OMB control numbers as 
amendments to existing regulations in the CFR. These OMB numbers are 
placed as close as possible to the applicable recordkeeping or reporting 
requirements.

OBSOLETE PROVISIONS

    Provisions that become obsolete before the revision date stated on 
the cover of each volume are not carried. Code users may find the text 
of provisions in effect on a given date in the past by using the 
appropriate numerical list of sections affected. For the period before 
January 1, 2001, consult either the List of CFR Sections Affected, 1949-
1963, 1964-1972, 1973-1985, or 1986-2000, published in 11 separate 
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Sections Affected'' is published at the end of each CFR volume.

INCORPORATION BY REFERENCE

    What is incorporation by reference? Incorporation by reference was 
established by statute and allows Federal agencies to meet the 
requirement to publish regulations in the Federal Register by referring 
to materials already published elsewhere. For an incorporation to be 
valid, the Director of the Federal Register must approve it. The legal 
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if it were published in full in the Federal Register (5 U.S.C. 552(a)). 
This material, like any other properly issued regulation, has the force 
of law.
    What is a proper incorporation by reference? The Director of the 
Federal Register will approve an incorporation by reference only when 
the requirements of 1 CFR part 51 are met. Some of the elements on which 
approval is based are:
    (a) The incorporation will substantially reduce the volume of 
material published in the Federal Register.
    (b) The matter incorporated is in fact available to the extent 
necessary to afford fairness and uniformity in the administrative 
process.
    (c) The incorporating document is drafted and submitted for 
publication in accordance with 1 CFR part 51.
    Properly approved incorporations by reference in this volume are 
listed in the Finding Aids at the end of this volume.
    What if the material incorporated by reference cannot be found? If 
you have any problem locating or obtaining a copy of material listed in 
the Finding Aids of this volume as an approved incorporation by 
reference, please contact the agency that issued the regulation 
containing that incorporation. If, after contacting the agency, you find 
the material is not available, please notify the Director of the Federal 
Register, National Archives and Records Administration, Washington DC 
20408, or call (202) 523-4534.

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separate volume, revised annually as of January 1, entitled CFR Index 
and Finding Aids. This volume contains the Parallel Table of Statutory 
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    An index to the text of ``Title 3--The President'' is carried within 
that volume.
    The Federal Register Index is issued monthly in cumulative form. 
This index is based on a consolidation of the ``Contents'' entries in 
the daily Federal Register.
    A List of CFR Sections Affected (LSA) is published monthly, keyed to 
the revision dates of the 50 CFR titles.

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REPUBLICATION OF MATERIAL

    There are no restrictions on the republication of material appearing 
in the Code of Federal Regulations.

INQUIRIES

    For a legal interpretation or explanation of any regulation in this 
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    For inquiries concerning CFR reference assistance, call 202-741-6000 
or write to the Director, Office of the Federal Register, National 
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                              Raymond A. Mosley,
                                    Director,
                          Office of the Federal Register.

January 1, 2003.



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                               THIS TITLE

    Title 13--Business Credit and Assistance is composed of one volume. 
This volume contains chapter I--Small Business Administration, chapter 
III--Economic Development Administration Department of Commerce, chapter 
IV--Emergency Steel Guartantee Board, and chapter V--Emergency Oil and 
Gas Guarantee Board. The contents of this volume represent all current 
regulations codified under this title of the CFR as of January 1, 2003.

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

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                TITLE 13--BUSINESS CREDIT AND ASSISTANCE




  --------------------------------------------------------------------
                                                                    Part

chapter i--Small Business Administration....................         101

chapter iii--Economic Development Administration, Department 
  of Commerce...............................................         300

chapter iv--Emergency Steel Guarantee Loan Board, Department 
  of Commerce...............................................         400

chapter v--Emergency Oil and Gas Guaranteed Loan Board, 
  Department of Commerce....................................         500

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                CHAPTER I--SMALL BUSINESS ADMINISTRATION




  --------------------------------------------------------------------


  Editorial Note: The Small Business Administration has asked the 
Director of the Federal Register to inform users of this chapter that 
parts 143, 145, and 146 are common rule regulations that cannot be 
amended by the Small Business Administration unilaterally.
Part                                                                Page
101             Administration..............................           5
102             Record disclosure and privacy...............          10
103             Standards for conducting business with SBA..          21
105             Standards of conduct and employee 
                    restrictions and responsibilities.......          23
107             Small business investment companies.........          27
108             New Markets Venture Capital (``NMVC'') 
                    Program.................................          96
112             Nondiscrimination in federally assisted 
                    programs of SBA--effectuation of Title 
                    VI of the Civil Rights Act of 1964......         139
113             Nondiscrimination in financial assistance 
                    programs of SBA--effectuation of 
                    policies of Federal Government and SBA 
                    Administrator...........................         145
114             Administrative claims under the Federal Tort 
                    Claims Act and representation and 
                    indemnification of SBA employees........         170
115             Surety bond guarantee.......................         174
117             Nondiscrimination in federally assisted 
                    programs of SBA--effectuation of the Age 
                    Discrimination Act of 1975, as amended..         191
119             Program for investment in Microentrepreneurs 
                    (``PRIME'' or (``The Act'').............         201
120             Business loans..............................         209
121             Small business size regulations.............         273
123             Disaster loan program.......................         322
124             8(A) Business Development/Small 
                    Disadvantaged Business status 
                    determinations..........................         342
125             Government contracting programs.............         403
126             HUBZone program.............................         414
130             Small business development centers..........         429
134             Rules of procedure governing cases before 
                    the Office of Hearings and Appeals......         441
136             Enforcement of nondiscrimination on the 
                    basis of handicap in programs or 
                    actitities conducted by the Small 
                    Business Administration.................         461

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140             Debt collection through offset..............         469
142             Program Fraud Civil Remedies Act regulations         471
143             Uniform administrative requirements for 
                    grants and cooperative agreements to 
                    State and local governments.............         480
145             Governmentwide debarment and suspension 
                    (nonprocurement) and governmentwide 
                    requirements for drug-free workplace 
                    (grants)................................         507
146             New restrictions on lobbying................         526


Abbreviations Used in This Chapter:
    SBA = Small Business Administration.
    SBID = The Small Business Investment Division of SBA.
    RFC = Reconstruction Finance Corporation.

Cross Reference: For regulations of the Securities and Exchange 
  Commission, see 17 CFR, Chapter II.

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PART 101--ADMINISTRATION--Table of Contents




                           Subpart A--Overview

101.100  What is the purpose of SBA?
101.101  Who manages SBA?
101.102  Where is SBA's Headquarters located?
101.103  Where are SBA's field offices located?
101.104  What are the functions of SBA's field offices?
101.105  Who may use SBA's official seal and for what purposes?
101.106  Does Federal law apply to SBA programs and activities?
101.107  What SBA forms are approved for public use?
101.108  Has SBA waived any of the public participation exemptions of 
          the Administrative Procedure Act?
101.109  Do SBA regulations include the section headings?

                Subpart B--Employment of Private Counsel

101.200  When does SBA hire private counsel?
101.201  What are the minimum terms of private counsel's employment?

                      Subpart C--Inspector General

101.300  What is the Inspector General's authority to conduct audits, 
          investigations, and inspections?
101.301  Who should receive information or allegations of waste, fraud, 
          and abuse?
101.302  What is the scope of the Inspector General's authority?
101.303  How are Inspector General subpoenas served?

                Subpart D--Intergovernmental Partnership

101.400  What is the purpose of this subpart?
101.401  What programs and activities of SBA are subject to this 
          subpart?
101.402  What procedures apply to the selection of SBA programs and 
          activities?
101.403  What are the notice and comment procedures?
101.404  How does the Administrator receive comments?
101.405  How does the Administrator respond to comments?
101.406  What are the Administrator's responsibilities in interstate 
          situations?
101.407  May the Administrator waive these regulations?

    Authority: 5 U.S.C. 552 and App. 3, secs. 2, 4(a), 6(a), and 
9(a)(1)(T); 15 U.S.C. 633, 634, 687; 31 U.S.C. 6506; 44 U.S.C. 3512; 
E.O. 12372 (July 14, 1982), 47 FR 30959, 3 CFR, 1982 Comp., p. 197, as 
amended by E.O. 12416 (April 8, 1983), 48 FR 15887, 3 CFR, 1983 Comp., 
p. 186.

    Source: 61 FR 2394, Jan. 26, 1996, unless otherwise noted.



                           Subpart A--Overview



Sec. 101.100  What is the purpose of SBA?

    The U.S. Small Business Administration (SBA) aids, counsels, 
assists, and protects the interests of small business concerns, and 
advocates on their behalf within the Government. It also helps victims 
of disasters. It provides financial assistance, contractual assistance, 
and business development assistance. For a more detailed description of 
the functions of SBA see The United States Government Manual, a special 
publication of the Federal Register, which is available from 
Superintendent of Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954.



Sec. 101.101  Who manages SBA?

    (a) An Administrator, appointed by the President with the advice and 
consent of the Senate, manages SBA. The Administrator--
    (1) Is responsible to the President and Congress for exercising 
direction, authority, and control over SBA.
    (2) Determines and approves all policies covering SBA's programs to 
aid, counsel, assist, and protect the interests of the nation's small 
businesses.
    (3) Employs or appoints employees necessary to implement the Small 
Business Act, as amended, the Small Business Investment Act, as amended, 
and other laws and directives.
    (4) Delegates certain activities, by issuing regulations or 
otherwise, to Headquarters and field positions.
    (b) A Deputy Administrator, appointed by the President with the 
advice and consent of the Senate, serves as Acting Administrator during 
the absence or disability of the Administrator or in the event of a 
vacancy in the Office of the Administrator.



Sec. 101.102  Where is SBA's Headquarters located?

    The Headquarters of SBA is at 409 3rd Street, SW., Washington, DC 
20416.

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Sec. 101.103  Where are SBA's field offices located?

    A list of SBA's field offices with addresses, phone numbers and 
jurisdictions served is periodically published in the Federal Register. 
You can also obtain the address and phone number of an SBA office to 
serve you by calling 1-800-8-ASK-SBA or 1-800-827-5722.



Sec. 101.104  What are the functions of SBA's field offices?

    (a) Regional offices. Regional offices are managed by a Regional 
Administrator who is responsible to the Administrator and to the 
Associate Administrator for Field Operations. They are located in major 
cities and have geographical boundaries which cover multi-state areas. 
Regional offices exercise limited authority over field activities within 
their region.
    (b) District offices. District offices are managed by a District 
Director and are located in cities within a region. District offices are 
responsible to Headquarters, the Associate Administrator for Field 
Operations, and to a regional office. Within their delegated authority, 
district offices have authority for--
    (1) Conducting all program delivery activities within the district 
boundaries;
    (2) Supervising all branch offices located within the district 
boundaries; and
    (3) Providing subordinate branch offices with the technical 
capability necessary to execute assigned programs.
    (c) Branch offices. Branch offices are managed by a Branch Manager 
and are located in cities within a district. Branch offices are 
responsible to the district office within whose boundaries it is 
located. Branch offices execute one or more elements of the business or 
disaster loan programs and have limited authority for program execution.
    (d) Disaster area offices. Disaster area offices are managed by Area 
Directors and are located in cities within defined geographical areas. 
Disaster area offices are responsible to Headquarters and provide loan 
services to victims of declared disasters. Temporary disaster offices 
are often established in areas where disasters have occurred.
    (e) Responsibilities. Each field office has responsibilities within 
a defined geographical area as periodically set forth in the Federal 
Register.



Sec. 101.105  Who may use SBA's official seal and for what purposes?

    (a) The SBA's seal shall be in a manner and form set forth as 
follows:
[GRAPHIC] [TIFF OMITTED] TC08SE91.003

    (b) The Administrator, Deputy Administrator, General Counsel, 
Assistant Administrator for Administration, Assistant Administrator for 
Hearings and Appeals, Associate Administrator for Minority Enterprise 
Development, Regional Administrators, District Directors, Branch 
Managers, the Inspector General, and Disaster Area Directors are 
authorized to--
    (1) Certify and authenticate originals and copies of any books, 
records, papers, or other documents on file within SBA, or extracts 
taken from them.
    (2) Certify the nonexistence of records.
    (3) Affix the Seal of SBA to all such certifications for those 
purposes authorized by 28 U.S.C. 1733.



Sec. 101.106  Does Federal law apply to SBA programs and activities?

    (a) SBA makes loans and provides other services that are authorized 
and executed under Federal programs to achieve national purposes.
    (b) The following are construed and enforced in accordance with 
Federal law--
    (1) Instruments evidencing loans;

[[Page 7]]

    (2) Security interests in real or personal property payable to or 
held by SBA or the Administrator such as promissory notes, bonds, 
guarantee agreements, mortgages, and deeds of trust;
    (3) Other evidences of debt or security;
    (4) Contracts or agreements to which SBA is a party, unless 
expressly provided otherwise.
    (c) To the extent feasible, SBA uses local or state procedures, 
especially for recordation and notification purposes, in implementing 
and facilitating SBA's loan programs. This use of local or state 
procedures is not a waiver by SBA of any Federal immunity from any local 
or state control, penalty, tax, or liability.
    (d) No person, corporation, or organization that applies for and 
receives any benefit or assistance from SBA, or that offers any 
assurance or security upon which SBA relies for the granting of such 
benefit or assistance, is entitled to claim or assert any local or state 
law to defeat the obligation incurred in obtaining or assuring such 
Federal benefit or assistance.



Sec. 101.107  What SBA forms are approved for public use?

    (a) SBA uses forms approved by the Office of Management and Budget 
(OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et 
seq.), as amended. You may obtain approved forms for use by the public 
when applying for or obtaining SBA assistance, or when providing 
services for SBA, from any field office (see Sec. 101.103). You may also 
use forms which you have prepared yourself, or have obtained from 
another source, if those forms are identical in every respect to the 
forms approved by OMB for the same purpose.
    (b) Any member of the public who has reason to believe any SBA 
office or agent is in violation of the Public Protection Clause of the 
Paperwork Reduction Act (44 U.S.C. 3512 and see 5 CFR 1320.6) should 
notify SBA. Direct such comments to the Assistant Administrator for 
Administration at 409 3rd Street, SW., Washington, DC 20416.



Sec. 101.108  Has SBA waived any of the public participation exemptions of the Administrative Procedure Act?

    Yes. Despite these exemptions, SBA will follow the public 
participation requirements of the Administrative Procedure Act, 5 U.S.C. 
553, in rulemakings relating to public property, loans, grants, 
benefits, or contracts.



Sec. 101.109  Do SBA regulations include the section headings?

    Yes. All SBA regulations must be interpreted as including the 
section headings.



                Subpart B--Employment of Private Counsel



Sec. 101.200  When does SBA hire private counsel?

    (a) Business loans. SBA may hire private counsel to represent it in 
regard to business loans when the volume of activity in an area is not 
sufficient to require a full-time SBA employee, or the area is too 
remote for economical use of a full-time SBA employee.
    (b) Disaster loans. SBA may hire private counsel in regard to 
disaster loans when the disaster presents an emergency and a volume of 
activity that cannot be promptly and economically serviced by available 
SBA employees.



Sec. 101.201  What are the minimum terms of private counsel's employment?

    (a) Private counsel must perform all requested work in compliance 
with SBA's regulations, policies, and instructions, and take such action 
as is legally required under the Small Business Act, the Small Business 
Investment Act, and other laws applicable to SBA.
    (b) Private counsel must adhere to the highest standards of 
professional conduct and maintain confidentiality appropriate to the 
attorney-client relationship.
    (c) Private counsel acts under the supervision of the SBA General 
Counsel (and designees).
    (d) Private counsel usually is compensated at an hourly rate as 
approved by SBA. Contingency fee agreements may be used if approved by 
the General Counsel.

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    (e) Either party may terminate the employment upon written notice.



                      Subpart C--Inspector General



Sec. 101.300  What is the Inspector General's authority to conduct audits, investigations, and inspections?

    The Inspector General Act of 1978, as amended (5 U.S.C. App. 3) 
authorizes SBA's Inspector General to provide policy direction for, and 
to conduct, supervise, and coordinate such audits, investigations, and 
inspections relating to the programs and operations of SBA as appears 
necessary or desirable.



Sec. 101.301  Who should receive information or allegations of waste, fraud, and abuse?

    The Office of Inspector General should receive all information or 
allegations of waste, fraud, or abuse regarding SBA programs and 
operations.



Sec. 101.302  What is the scope of the Inspector General's authority?

    To obtain the necessary information and evidence, the Inspector 
General (and designees) have the right to:
    (a) Have access to all records, reports, audits, reviews, documents, 
papers, recommendations, and other materials available to SBA and 
relating to SBA's programs and operations;
    (b) Require by subpoena the production of all information, 
documents, reports, answers, records, accounts, papers, and other data 
and documentary evidence;
    (c) Administer oaths and affirmations or take affidavits; and
    (d) Request information or assistance from any Federal, state, or 
local government agency or unit.



Sec. 101.303  How are Inspector General subpoenas served?

    (a) Service of subpoenas may be effected by any of the following 
means--
    (1) If by mail, a copy of the subpoena must be addressed to the 
person, partnership, corporation, or unincorporated association to be 
served at a residence or usual dwelling place, or a principal office or 
place of business, and mailed first class by registered or certified 
mail (postage prepaid, return receipt requested), or by a commercial or 
U.S. Postal Service overnight or express delivery service.
    (2) If by personal delivery, a copy of the subpoena must be 
delivered to the person to be served, or to a member of the partnership 
to be served, or to an executive officer or a director of the 
corporation or unincorporated association to be served, or to a person 
authorized by appointment or by law to receive process for the person or 
entity named in the subpoena.
    (3) If by delivery to an address, a copy of the subpoena must be 
left at the principal office or place of business of the person, 
partnership, corporation, or unincorporated association to be served, or 
at the residence or usual dwelling place of the person, member of the 
partnership, or officer or director of the corporation or unincorporated 
association to be served, with someone of suitable age and discretion.
    (b) Proof of service--
    (1) When service is by registered, certified, overnight, or express 
mail, it is complete upon delivery of the document by the Postal Service 
or commercial service.
    (2) The return Postal Service receipt for a document that was 
registered or certified and mailed, the signed receipt for a document 
delivered by an overnight or express delivery service, or the Return of 
Service completed by the individual serving the subpoena by personal 
delivery shall be proof of service.



                Subpart D--Intergovernmental Partnership



Sec. 101.400  What is the purpose of this subpart?

    (a) This subpart implements section 401 of the Intergovernmental 
Cooperation Act (31 U.S.C. 6506 et seq.) which promotes 
intergovernmental partnership and strengthens Federalism by relying on 
state processes and state, area-wide, regional, and local coordination 
for the review of proposed Federal financial assistance and direct 
Federal development.
    (b) While guiding SBA's management, this subpart does not create any 
right or benefit enforceable at law.

[[Page 9]]



Sec. 101.401  What programs and activities of SBA are subject to this subpart?

    SBA publishes in the Federal Register a list of programs and 
activities subject to this subpart.



Sec. 101.402  What procedures apply to the selection of SBA programs and activities?

    (a) A state may--
    (1) Select any program or activity published in the Federal Register 
under Sec. 101.401 for intergovernmental review (providing it consults 
with local elected officials before doing so) and then notify the 
Administrator of the programs and activities selected; and
    (2) Notify the Administrator of changes in its selections at any 
time. For each change, the state submits to the Administrator an 
assurance that it consulted with local elected officials regarding the 
change.
    (b) SBA may establish deadlines by which states must inform the 
Administrator of changes in their program selections.
    (c) After receiving notice of a state's selections, the 
Administrator uses a state's process as soon as feasible depending on 
individual programs and activities.
    (d) ``State'' means any of the 50 States, the District of Columbia, 
the Commonwealth of Puerto Rico, the Commonwealth of the Northern 
Mariana Islands, Guam, American Samoa, the U.S. Virgin Islands, or the 
Trust Territory of the Pacific Islands.



Sec. 101.403  What are the notice and comment procedures?

    (a) The Administrator provides notice to directly affected state, 
area-wide, regional, and local entities in a state of proposed SBA 
financial assistance or direct SBA development if--
    (1) The state has not adopted a process under Executive Order 12372 
(3 CFR, 1982 Comp., p. 197), as amended by Executive Order 12416 (3 CFR, 
1983 Comp., p. 186); or
    (2) The assistance or development involves a program or activity not 
selected for the state process.
    (b) Notice may be made by publication in the Federal Register or 
other means as SBA deems appropriate.
    (c) Except in unusual circumstances the Administrator gives state 
processes or directly affected state, area-wide, regional, and local 
officials and entities at least 60 days to comment on proposed SBA 
financial assistance or direct SBA development.
    (d) In cases where SBA delegates the review, coordination, and 
communication authority under this subpart, this section also applies.



Sec. 101.404  How does the Administrator receive comments?

    (a) The Administrator follows the procedures of Sec. 101.405 if--
    (1) A state office or official is designated to act as a single 
point of contact between a state process and all Federal agencies; and
    (2) That office or official transmits a state process recommendation 
for a program selected under Sec. 101.402(a).
    (b)(1) The single point of contact is not obligated to transmit 
comments from state, area-wide, regional, or local officials and 
entities where there is no state process recommendation.
    (2) If a state process recommendation is transmitted by a single 
point of contact, all comments from state, area-wide, regional, and 
local officials and entities that differ from it must also be 
transmitted.
    (c) If a state has not established a process, or is unable to submit 
a state process recommendation, state, area-wide, regional, and local 
officials and entities may submit comments to SBA.
    (d) If a program or activity is not selected for a state process, 
state, area-wide, regional, and local officials and entities may submit 
comments to SBA. In addition, if a state process recommendation for a 
non-selected program or activity is transmitted to SBA by the single 
point of contact, the Administrator follows the procedures of 
Sec. 101.405.
    (e) The Administrator considers comments which do not constitute a 
state process recommendation submitted under this subpart and for which 
the Administrator is not required to apply the procedures of 
Sec. 101.405 when such comments are provided by a single point of 
contact directly to SBA by a commenting party.

[[Page 10]]



Sec. 101.405  How does the Administrator respond to comments?

    (a) If a state process provides a recommendation to SBA through its 
single point of contact, the Administrator:
    (1) Accepts the recommendation; or
    (2) Reaches a mutually agreeable solution with the state process; or
    (3) Provides the single point of contact with a written explanation 
of the decision in a form the Administrator deems appropriate. The 
Administrator may also supplement the written explanation by telephone 
or other means.
    (b) In any explanation under paragraph (a)(3) of this section, the 
Administrator informs the single point of contact that--
    (1) SBA will not implement its decision for at least 10 days after 
the single point of contact receives the explanation; or
    (2) Because of unusual circumstances the waiting period of at least 
10 days is not feasible.
    (c) For purposes of computing the waiting period under paragraph 
(b)(1) of this section, a single point of contact is presumed to have 
received written notification 5 days after the date of mailing.



Sec. 101.406  What are the Administrator's responsibilities in interstate situations?

    The Administrator is responsible for--
    (a) Identifying proposed SBA financial assistance and direct SBA 
development that have an impact on interstate areas;
    (b) Notifying appropriate officials and entities in states which 
have adopted a process and selected an SBA program or activity;
    (c) Making efforts to identify and notify the affected state, area-
wide, regional, and local officials and entities in states that have not 
adopted a process or selected an SBA program or activity;
    (d) Using the procedures of Sec. 101.405 if a recommendation of a 
designated area-wide agency is transmitted by a single point of contact 
in cases in which the review, coordination, and communication with SBA 
has been delegated; and
    (e) Using the procedures of Sec. 101.405 if a state process provides 
a state recommendation to SBA through a single point of contact.



Sec. 101.407  May the Administrator waive these regulations?

    The Administrator may waive any provision of Secs. 101.400 through 
and including 101.406 in an emergency.



PART 102--RECORD DISCLOSURE AND PRIVACY--Table of Contents




                  Subpart A--Disclosure of Information

Sec.
102.1  What does this subpart do?
102.2  How can I get records from SBA?
102.3  How long will it take for SBA to respond to my request for 
          records?
102.4  How will SBA respond to my request?
102.5  If SBA grants my request, which records will be supplied?
102.6  How will SBA respond to requests for business information?
102.7  What are the procedures for submitters of business information to 
          SBA after March 1, 1996?
102.8  What fees will SBA charge?
102.9  How may I appeal a denial of my request for information or a fee 
          determination?
102.10  How can I get the Public Index of SBA materials?
102.11  What happens if I ask SBA for a record that another Federal 
          agency generated?
102.12  What happens if I subpoena records or testimony of employees in 
          connection with a civil lawsuit, criminal proceeding or 
          administrative proceeding to which SBA is not a party?

                       Subpart B--The Privacy Act

102.20  What privacy rights does this subpart regulate?
102.21  How will SBA maintain records?
102.22  When will SBA disclose records?
102.23  Are there special rules about personnel and equal employment 
          opportunity files?
102.24  What is a record?
102.25  What is a system of records?
102.26  What does this subpart mean by ``person to whom a record 
          pertains'' or ``you''?
102.27  What records are partially exempt from the provisions of the 
          Privacy Act?
102.28  What about information compiled for a civil action?
102.29  Who administers SBA's responsibilities under the Privacy Act?

[[Page 11]]

102.30  How can I write to the Privacy Act Officer?
102.31  Who appoints Systems Managers?
102.32  What do Systems Managers do?
102.33  How can I write to a Systems Manager?
102.34  How can I see records kept on me?
102.35  How long will it take SBA to respond to my request?
102.36  How will SBA respond to my request?
102.37  How may I appeal a decision to deny me access to my records?
102.38  To whom should my appeal be addressed?
102.39  By when must I appeal to the Privacy Act Officer?
102.40  When will SBA respond to my appeal?
102.41  How will SBA respond to my appeal?
102.42  How can I get SBA to amend a record kept on me?
102.43  What should my petition say?
102.44  For what reasons will SBA amend my record?
102.45  Will SBA ask me for more information after I make my request?
102.46  When will SBA respond to my request?
102.47  How will SBA respond to my request?
102.48  How do I appeal a refusal to amend a record kept on me?
102.49  To whom should I address my appeal?
102.50  By when must I submit my appeal?
102.51  By what standards will the Privacy Act Officer review my appeal?
102.52  When will SBA respond to my appeal?
102.53  How will SBA respond to my appeal?
102.54  How can I obtain judicial review of an SBA Privacy Act decision?
102.55  What must SBA tell the individuals from whom it collects 
          information?
102.56  Will SBA release my name or address?
102.57  Do I have to give SBA my SSN?
102.58  When will SBA show personnel records to a representative?
102.59  What fees will SBA charge me for my records?
102.60  May I be informed of disclosures made of my records?
102.61  Are there Matching Program procedures?

    Authority: 5 U.S.C. 552 and 552a; 31 U.S.C. 1 et seq. and 67 et 
seq.; 44 U.S.C. 3501 et seq.; E.O. 12600, 3 CFR, 1987 Comp., p. 235.

    Source: 61 FR 2673, Jan. 29, 1996, unless otherwise noted.



                  Subpart A--Disclosure of Information



Sec. 102.1  What does this subpart do?

    This subpart describes the procedures by which the SBA makes 
documents available under the Freedom of Information Act (``FOIA'') (5 
U.S.C. 552).



Sec. 102.2  How can I get records from SBA?

    (a) You can go to the SBA office at which the records are kept, and 
photocopy any final SBA decision, policy statement, or standard 
operating procedure.
    (b) For copies of all other records, you must send a letter request 
to the SBA office at which the records are kept. The letter must 
describe specific records you want. If you don't know which SBA office 
keeps the records, you may send your letter to the nearest SBA District 
Office. You may also send your letter to the Chief, FOIA & PA Office, 
409 Third Street SW., Suite 5900, Washington DC 20416. The office 
receiving your letter will forward it to the correct office.



Sec. 102.3  How long will it take for SBA to respond to my request for records?

    (a) If you have met the fee requirements of Sec. 102.8, SBA will 
respond within 10 working days after the correct office receives your 
request, unless you have requested an especially large number of 
records, the records are not located in the office handling the request, 
or SBA needs to consult with another government office.
    (b) If you make your request on behalf of another person, SBA will 
respond within 10 working days after you present a document signed by 
that person authorizing you to request information on his or her behalf. 
If you make your request on behalf of another person without including 
such signed authorization, SBA will inform you of the authorization 
needed.
    (c) If you send your request to the wrong office, that office will 
send it to the correct office within 10 working days and will send you 
an acknowledgment letter.
    (d) If SBA determines that one of the circumstances described in 
paragraph (a) of this section apply, it will respond within 20 working 
days of the date upon which the correct office receives your request, 
and will notify you that the extra time is required.

[[Page 12]]



Sec. 102.4  How will SBA respond to my request?

    Within the time limit described in Sec. 102.3, SBA will either:
    (a) Give you all the records you requested;
    (b) Give you some or none of the records you requested, explain why 
SBA has decided not to comply fully with your request, citing specific 
exemptions where applicable, and explain how to appeal that decision; or
    (c) Tell you that you will not receive a response until you have 
either paid your fee or committed to the amount of fee you will pay, as 
applicable.



Sec. 102.5  If SBA grants my request, which records will be supplied?

    SBA will give you copies of all records or portions of records 
requested which are in the processing office as of the close of the day 
upon which that office received your request.



Sec. 102.6  How will SBA respond to requests for business information?

    (a) Business information is a trade secret, or commercial or 
financial information, contained in records provided to SBA by any 
person and which may be protected from disclosure under Exemption Four 
of FOIA (5 U.S.C. 552(b)(4)).
    (b) The submitter is the business entity to which the business 
information pertains and which submitted the information to SBA, either 
directly or through an intermediary, such as a bank.
    (c) SBA will disclose upon request business information that has 
previously been released to the general public.
    (d) If you request business information submitted to SBA prior to 
March 1, 1996 which has not previously been released to the general 
public, SBA will notify the submitter of your request upon SBA's receipt 
of it if SBA intends to release that information. SBA will give the 
submitter 5 working days to identify information the disclosure of which 
would likely cause substantial competitive harm and why that harm would 
occur unless SBA intends to deny your request in full.
    (e) If you request business information submitted to SBA after March 
1, 1996 which has not previously been released to the general public, 
SBA will notify the submitter if it intends to release business 
information which either the submitter has previously claimed or which 
SBA believes to be confidential and the disclosure of which would cause 
substantial competitive harm. The submitter will have 5 working days to 
object to the disclosure, explaining why the harm would occur.
    (f) Whenever a submitter objects to disclosure, SBA will consider 
the submitter's objections, but will not be bound by it. If SBA 
discloses information despite a submitter's objection, SBA will give the 
submitter the maximum notice possible before disclosure without 
violating the time constraints imposed by FOIA. In this notice, SBA will 
tell the submitter when and what it intends to disclose.
    (g) SBA will promptly notify the submitter of any suit filed against 
SBA to compel disclosure.



Sec. 102.7  What are the procedures for submitters of business information to SBA after March 1, 1996?

    Submitters may identify business information at the time of 
submission which would likely cause them substantial competitive harm if 
disclosed. The identification shall lapse after 10 years, unless renewed 
in writing.



Sec. 102.8  What fees will SBA charge?

    (a) Basic fees. (1) For manual record search. SBA will charge $18 
per hour.
    (2) For computer record searches. SBA will charge the actual costs.
    (3) For review and disclosure determinations. SBA will charge $18 
per hour.
    (4) Duplication. SBA will charge 10 cents per page for photocopy 
duplication, and the actual cost of reproduction for other methods.
    (5) Certifying records. SBA will charge actual costs.
    (6) For requested special types of delivery other than first-class 
mail. SBA may charge the actual cost.
    (b) If you are a representative of an educational institution, a 
non-commercial scientific institution, or a member of the news media. 
SBA will charge you only for the cost of duplication after the first 100 
pages.

[[Page 13]]

    (1) What is an educational institution? A state-certified preschool, 
elementary or secondary school, an accredited college or university, an 
accredited institution of professional education, or any accredited or 
state-certified institute of vocational education which operates a 
program or programs of scholarly research.
    (2) What is a non-commercial scientific institution? An organization 
which is operated solely for the purpose of conducting scientific 
research, the results of which are not intended to promote any 
particular product or industry.
    (3) What is a representative of an educational or non-commercial 
scientific institution? A requester seeking records on behalf of that 
institution who is authorized by that institution to do so, and who is 
seeking those records for scholarly or scientific reasons, as long as 
there is no commercial purpose to the request for records.
    (4) What is a representative of the news media? An individual who is 
actively gathering news for an entity that is organized and operated to 
disseminate information to the general public. To be considered ``news 
media'', this organization may provide information by subscription and 
may target its dissemination to a narrow section of the general public 
as long as any member of the general public may purchase information 
from it. If you are not employed by the news media, but have a 
reasonable expectation that you will sell the information you obtain to 
the news media, SBA may conclude that you are a representative of the 
news media. SBA will not consider you to be a representative of the news 
media if your request has a commercial purpose, beyond the commercial 
purpose of selling information to the general public.
    (c) Member of the general public. If you are a member of the general 
public, SBA will not charge you for the first two hours of search time, 
the first hundred pages of photocopy duplication, or for review and 
disclosure determinations. The general public is anyone who is not a 
representative of an educational institution, a representative of the 
news media, or a commercial requester.
    (d) Commercial requester. If you are a commercial requester you must 
pay all the basic fees set forth in paragraph (a) of this section. A 
commercial requester is anyone seeking information for commercial, 
trade, or profit interests of the requester or someone he or she is 
trying to help.
    (e) How does SBA determine what category of requester I am? The SBA 
office processing your request will determine the appropriate category. 
If you are not a commercial requester, you must show us what category of 
requester you are.
    (f) Tell us how much you are willing to pay. To get the quickest 
possible response, you must tell SBA how much money you are willing to 
pay in fees when you make your request for records.
    (g) If you don't tell us how much you are willing to pay and SBA 
estimates that the fee will exceed $25.00, SBA will estimate the fee and 
will not process your request until you tell SBA that you are willing to 
pay the estimated amount, or until you narrow the request so that the 
fee is less than $25.
    (h) SBA will waive fees less than $25.
    (i) If the fee is more than $250, or if you have a history of 
failing to pay FOIA fees in a timely manner, SBA will ask you to remit 
the estimated amount and any past due charges before sending you the 
records.
    (j) Who determines the fee? The SBA office which processes your 
request.
    (k) When do you pay the fee? SBA will bill you when it responds to 
your request. You must pay within thirty-one calendar days.
    (l) Failure to pay fees. (1) If you do not pay by the thirty-first 
day after the billing date, SBA will charge interest at the maximum rate 
allowed under Title 31 of the United States Code, section 3717.
    (2) If you do not pay the amount due within ninety calendar days of 
the due date, SBA may notify consumer credit reporting agencies of your 
delinquency.
    (3) If you owe fees for previous FOIA responses, SBA will not 
respond to further requests unless you satisfy the amount due.
    (m) Unsuccessful searches. If SBA's search for records is 
unsuccessful, it will still bill you for the search.
    (n) Multiple requests. If you make multiple requests at or about the 
same

[[Page 14]]

time, SBA will aggregate your requests for records. In no case will SBA 
give you more than the first two hours of search time, or more than the 
first 100 pages of duplication without charge.
    (o) Reduction of fees in the public interest. If SBA determines that 
disclosure of the information you seek is in the public interest because 
it is likely to contribute significantly to public understanding of the 
operations or activities of the government, and that you are not seeking 
the information in your own commercial interests, SBA may waive or 
reduce the fee.



Sec. 102.9  How may I appeal a denial of my request for information or a fee determination?

    (a) You must write to the Chief, FOIA & PA Office at 409 Third 
Street SW., Suite 5900, Washington, DC 20416.
    (b) The Chief must receive your written appeal within 45 calendar 
days of the date of the SBA determination from which you are appealing.
    (c)(1) If you are appealing a denial of your request for 
information, the appeal must contain the following information:
    (i) What records were denied.
    (ii) The name and title of the individual who denied the request and 
the address of his or her office.
    (iii) Any other information you deem appropriate.
    (2) If you are appealing a fee determination, the appeal must 
contain the following information:
    (i) The address of the office which made the fee determination from 
which you are appealing.
    (ii) The fee that office charged.
    (iii) The fee, if any, you believe should have been charged.
    (iv) The reasons you believe that your fee should be lower than the 
fee which the Agency charged.
    (v) Any other information you deem appropriate.
    (d) The Chief will decide your appeal, unless the Chief originally 
made the determination you are appealing. In that case, SBA's Assistant 
Administrator for Hearings and Appeals will decide your appeal.
    (e) SBA will decide your appeal within 20 working days from the date 
of its receipt. SBA may have an additional 10 working days if unusual 
circumstances require.
    (f)(1) If you are appealing a decision to deny your request for 
records, SBA will either:
    (i) Give you the records you requested; or
    (ii) Decline to give you the records you requested, tell you why SBA 
has concluded that the records were exempt from disclosure under FOIA, 
and tell you how to obtain judicial review of SBA's decision.
    (2) If you are appealing a fee determination, SBA will either charge 
the fee you request or charge another fee and explain why SBA has 
concluded that the fee it has decided to charge is appropriate.



Sec. 102.10  How can I get the Public Index of SBA materials?

    (a) The Public Index is a document which provides identifying 
information about official documents which SBA has issued.
    (b) SBA has administratively determined, as permitted by FOIA, that 
periodic publication and distribution is unnecessary and impracticable.
    (c) The Public Index is set forth in Appendix 3 of SBA Standard 
Operating Procedure 40 03. You can obtain the Public Index from any SBA 
office.



Sec. 102.11  What happens if I ask SBA for a record that another Federal agency generated?

    Such a request is a request directed to the wrong office, as that 
term is used in Sec. 102.3(c). SBA will forward your request to the 
generating agency.



Sec. 102.12  What happens if I subpoena records or testimony of employees in connection with a civil lawsuit, criminal proceeding or administrative proceeding 
          to which SBA is not a party?

    (a) The person to whom the subpoena is directed must consult with 
SBA counsel in the relevant SBA office, who will seek approval for 
compliance from the Associate General Counsel for Litigation. Except 
where the subpoena requires the testimony of an employee of the 
Inspector General's office, or records within the possession of the 
Inspector General, the Associate General

[[Page 15]]

Counsel may delegate the authorization for appropriate production of 
documents or testimony to local SBA counsel.
    (b) If SBA counsel approves compliance with the subpoena, SBA will 
comply.
    (c) If SBA counsel disapproves compliance with the subpoena, SBA 
will not comply, and will base such noncompliance on an appropriate 
legal basis such as privilege or a statute.
    (d) SBA counsel must provide a copy of any subpoena relating to a 
criminal matter to SBA's Inspector General prior to its return date.



                       Subpart B--The Privacy Act



Sec. 102.20  What privacy rights does this subpart regulate?

    This subpart establishes SBA's policy and procedures safeguarding an 
individual against an invasion of personal privacy.
    (a) Except as otherwise provided by law or regulation, SBA will 
permit you to do the following:
    (1) Determine what records pertaining to you are collected, 
maintained, used, or disseminated by SBA;
    (2) Object when records pertaining to you are obtained by SBA for a 
particular purpose and are proposed to be used or made available for 
another purpose without your consent; and
    (3) Gain access to information pertaining to you in records, have a 
copy made of all or any portion of those records, and correct or amend 
such records as appropriate.
    (b) SBA will collect, maintain, use, or disseminate any record of 
identifiable personal information in a manner that assures that such 
action is for a necessary and lawful purpose, that the information is 
current and accurate for its intended use, and that adequate safeguards 
are provided to prevent misuse of such information.
    (c) SBA will permit exemptions from the requirements of 5 U.S.C. 
552a (Privacy Act of 1974) (``PA'') only where an important public 
policy need for such exemption has been determined pursuant to or under 
specific statutory authority.



Sec. 102.21  How will SBA maintain records?

    SBA records will:
    (a) Contain only such information about an individual as is relevant 
and necessary to accomplish a purpose required of SBA by statute, 
regulation, or by Executive Order of the President.
    (b) Be comprised, to the maximum practical extent, of an 
individual's own statements when the information may result in an 
adverse determination about an individual's rights, benefits, or 
privileges under a Federal program.



Sec. 102.22  When will SBA disclose records?

    SBA will not disclose to anyone any record which is contained in a 
system of records, except that it will disclose a record:
    (a) To the person about whom the record is maintained, or to that 
person's agent, within the limits discussed in this subpart;
    (b) To those SBA employees who have a need for the record to perform 
their duties;
    (c) When required under 5 U.S.C. 552 (FOIA);
    (d) For a routine use of the record compatible with the purpose for 
which it was collected;
    (e) To the Bureau of the Census for purposes of planning or carrying 
out a census, survey, or related activity pursuant to Title 13, United 
States Code;
    (f) To a recipient who has provided the Agency with advance adequate 
written assurance that the record will be used solely as a statistical 
research or reporting record, where the record is transferred in a form 
that is not individually identifiable;
    (g) To the National Archives of the United States as a record which 
has sufficient historical or other value to warrant its continued 
preservation by the U.S. Government, or for evaluation by the 
Administrator of General Services or his or her designee to determine 
whether the record has such value;
    (h) To another agency or to an instrumentality of any governmental 
jurisdiction within or under the control of the United States for a 
civil or criminal law enforcement activity if:
    (1) The activity is authorized by law; and

[[Page 16]]

    (2) The head of the agency or instrumentality has made a written 
request to the PA Officer specifying the particular portion desired and 
the law enforcement activity for which the record is sought;
    (i) To a person showing compelling circumstances affecting the 
health or safety of an individual. Upon disclosure, SBA will notify such 
individual at his or her last known address;
    (j) To either House of Congress, or, to the extent of matters within 
its jurisdiction, any committee or subcommittee thereof, or any joint 
committee of Congress or subcommittee of any such joint committee;
    (k) To the Comptroller General, or any of his or her authorized 
representatives, in the course of the performance of the duties of the 
General Accounting Office;
    (l) Pursuant to the order of a court of competent jurisdiction; or
    (m) To a consumer reporting agency in accordance with 31 U.S.C. 
3711(f).



Sec. 102.23  Are there special rules about personnel and equal employment opportunity files?

    (a) The provisions of parts 293 and 297 of title 5 of the Code of 
Federal Regulations govern all SBA files which the Office of Personnel 
Management determines are personnel files.
    (b) The provisions of part 1611 of title 29 of the Code of Federal 
Regulations govern all Equal Employment Opportunity complaint files.



Sec. 102.24  What is a record?

    A record is information which SBA maintains on an individual and 
which includes either his name or an identifying symbol (such as a 
fingerprint, a social security number (``SSN''), or a photograph).



Sec. 102.25  What is a system of records?

    A system of records is one or more records which SBA routinely keeps 
for official purposes, and from which SBA can retrieve records by using 
a name or personal identifier.



Sec. 102.26  What does this subpart mean by ``person to whom a record pertains'' or ``you''?

    When this subpart refers to the ``person to whom a record pertains'' 
or uses the pronoun ``you'', it refers to a United States citizen or a 
lawfully admitted alien. It does not refer to a corporation, 
partnership, or sole proprietorship.



Sec. 102.27  What records are partially exempt from the provisions of the Privacy Act?

    (a) The following systems of records are exempt from certain 
provisions of the PA: Audit Reports (system of records SBA 
015), Litigation and Claims Files (SBA 070), Personnel Security 
Files (SBA 100), Security and Investigations Files 
(SBA 120), Office of Inspector General Referrals (SBA 
125), Investigations Division Management Information System 
(SBA 130), and Standards of Conduct Files (SBA 140).
    (b) The provisions of the PA from which these systems of records are 
exempt are subsections (c)(3) (Accounting of Certain Disclosures), (d) 
(Access to Records), (e)(1), 4G, H, and I (Agency Requirements), and (f) 
(Agency Rules).
    (c) The systems of records described in paragraph (a) of this 
section are exempt from the provisions of the Privacy Act described in 
paragraph (b) of this section in order to:
    (1) Prevent the subject of investigations from frustrating the 
investigatory process;
    (2) Protect investigatory material compiled for law enforcement 
purposes;
    (3) Fulfill commitments made to protect the confidentiality of 
sources and to maintain access to necessary sources of information; or
    (4) Prevent interference with law enforcement proceedings.
    (d) In addition to the foregoing exemptions in paragraphs (a) 
through (c) of this section, the systems of records described in 
paragraph (a) of this section numbered SBA 015, 100, 120, 125 and 130 
are fully exempt from the Privacy Act to the extent that they contain:

[[Page 17]]

    (1) Information compiled to identify individual criminal offenders 
and alleged offenders and consisting only of identifying data and 
notations of arrests, confinement, release, and parole and probation 
status;
    (2) Information, including reports of informants and investigators, 
associated with an identifiable individual compiled to investigate 
criminal activity; or
    (3) Reports compiled at any stage of the process of enforcement of 
the criminal laws from arrest or indictment through release from 
supervision associated with an identifiable individual.
    (e) The systems of records described in paragraph (d) of this 
section are fully exempt from the PA to the extent described in that 
paragraph because they are records maintained by the Investigations 
Division of the Inspector General, which is a component of SBA which 
performs as its principal function activities pertaining to the 
enforcement of criminal laws within the meaning of 5 U.S.C. 552a(j)(2). 
They are exempt in order to:
    (1) Prevent the subjects of Office of Inspector General (OIG) 
investigations from using the PA to frustrate the investigative process;
    (2) Protect the identity of Federal employees who furnish a 
complaint or information to the OIG, consistent with section 7(b) of the 
Inspector General Act of 1978, 5 U.S.C. App. I;
    (3) Protect the confidentiality of other sources of information;
    (4) Avoid endangering confidential sources and law enforcement 
personnel;
    (5) Prevent interference with law enforcement proceedings;
    (6) Assure access to sources of confidential information, including 
that contained in Federal, State, and local criminal law enforcement 
information systems;
    (7) Prevent the disclosure of investigative techniques; or
    (8) Prevent the disclosure of classified information.



Sec. 102.28  What about information compiled for a civil action?

    No individual shall have access to any information compiled by SBA 
in reasonable anticipation of a civil action or proceeding. In the event 
of a question as to disclosure, the Systems Manager for the system of 
records involved will rely on the opinion of the General Counsel or 
designee, and will also consult with the PA Officer.



Sec. 102.29  Who administers SBA's responsibilities under the Privacy Act?

    The PA Officer has overall responsibility for administering the PA 
for SBA. A Systems Manager is responsible for administering the PA as to 
systems of records within an SBA Office.



Sec. 102.30  How can I write to the Privacy Act Officer?

    You can write to the PA Officer at 409 Third Street SW., Suite 5900, 
Washington, DC 20416.



Sec. 102.31  Who appoints Systems Managers?

    The senior official in each field office and each Headquarters 
program area designates himself or herself or appoints another as the 
Systems Manager for that office.



Sec. 102.32  What do Systems Managers do?

    Systems Managers have the following responsibilities, among others, 
for the offices for which they are appointed:
    (a) Acting as the initial contact person for individuals seeking 
access to or amendment of their records.
    (b) Responding to requests for information.
    (c) Discussing the availability of records with individuals.
    (d) Amending records in cases where amended information is not 
controversial and does not involve policy decisionmaking.
    (e) Informing individuals of any reproduction fees to be charged.
    (f) Assuring that their systems of records contain no record 
describing how any individual exercises rights guaranteed by the First 
Amendment unless expressly authorized by statute or by the individual 
about whom the record is maintained, or unless pertinent to and within 
the scope of an authorized law enforcement activity.

[[Page 18]]



Sec. 102.33  How can I write to a Systems Manager?

    You can write to a Systems Manager by writing to the SBA Office 
which maintains the record you are seeking. If you do not know which 
office that is, or you do not know the address of that office, you can 
write to the PA Officer at 409 3rd Street SW., Suite 5900, Washington, 
DC 20416, who will forward your request to the proper Systems Manager.



Sec. 102.34  How can I see records kept on me?

    (a) You may look at any information pertaining to yourself contained 
in any SBA system of records unless some law or regulation prohibits it.
    (b) In order to see this information, you must ask for it in 
writing, identifying what records you want. The writing should be 
addressed to the Systems Manager overseeing the system of records 
containing the record you wish to see.
    (c) The Systems Manager (or, when appropriate, the PA Officer) may 
ask for more specific information about the system of records in which 
the document you are seeking is kept, and may ask you for 
identification. The Systems Manager may ask you for your social security 
number but you are not obliged to present it and your request will not 
be denied simply because you do not provide it. The Systems Manager may, 
however, deny your request if he or she cannot determine that you are 
the person to whom the information pertains.



Sec. 102.35  How long will it take SBA to respond to my request?

    The Systems Manager will respond within 10 working days.



Sec. 102.36  How will SBA respond to my request?

    The Systems Manager will inform you that:
    (a) Your request is denied, in which case he or she will set forth 
the reasons for denial and your rights to appeal; or
    (b) Your request is granted and you may view your record, in which 
case he or she will set forth the time and date for you to review your 
record in the presence of an SBA employee; or
    (c) Your request is granted and, unless you object, SBA will mail 
you a copy of your record. SBA will mail you your record only if it 
determines that there are no other reasonable means for you to obtain 
access to your record.



Sec. 102.37  How may I appeal a decision to deny me access to my records?

    Your appeal should be in writing and should set forth any 
information you think would show that you should have access to your 
records.



Sec. 102.38  To whom should my appeal be addressed?

    (a) Denial of a personnel file. Address an appeal of a denial of a 
request for a personnel file to the Office of Personnel Management, 1900 
E Street NW., Washington, DC 20006.
    (b) Denial of an Equal Employment Opportunity Complaint File. 
Address an appeal of a denial of a request for an Equal Employment 
Opportunity Complaint File to the Equal Employment Opportunity 
Commission, 1801 L Street NW., Washington, DC 20036.
    (c) All other appeals. Appeal the denial of any other record to the 
PA Officer. See Sec. 102.30.



Sec. 102.39  By when must I appeal to the Privacy Act Officer?

    Your appeal must reach the PA Officer on or before 30 calendar days 
after the date the denial was issued. If your appeal is based on the 
failure of the Systems Manager to answer your request, your appeal must 
reach the PA Officer on or before 90 calendar days after the date by 
which the Systems Manager should have responded under Sec. 102.35.



Sec. 102.40  When will SBA respond to my appeal?

    The PA Officer will respond to you within 30 working days of the 
date when your appeal was received.



Sec. 102.41  How will SBA respond to my appeal?

    The PA Officer will inform you that:
    (a) Your request is denied, in which case the reasons for denial 
will be set forth along with your rights to judicial review of SBA's 
decision; or

[[Page 19]]

    (b) Your request is granted and you may view your record, in which 
case the time and date for you to review your records in the presence of 
an SBA employee will be set forth; or
    (c) Your request is granted and, unless you object, SBA will mail 
you a copy of your record. SBA will mail you your record only if it 
determines that there are no other reasonable means for you to obtain 
access to your record.



Sec. 102.42  How can I get SBA to amend a record kept on me?

    You can petition to have records kept on you amended by writing to 
the Systems Manager who oversees the system of records in which the 
record you wish amended is kept. If you are unable to determine who that 
Systems Manager is, you may send your petition to the PA Officer, who 
will forward it to the right Systems Manager. See Sec. 102.30.



Sec. 102.43  What should my petition say?

    Your petition should include the following:
    (a) In what system of records the record you want amended is kept.
    (b) What record you want amended.
    (c) What specific information in that record you want amended.
    (d) Why you want the record amended.
    (e) Any information you have, including copies of evidence, which 
you think will persuade the Systems Manager to amend the record.
    (f) What the record should say.



Sec. 102.44  For what reasons will SBA amend my record?

    SBA seeks to maintain only accurate, complete, and up-to-date 
records which are relevant to accomplish some purpose required by law, 
regulation, or Executive Order of the President. There are four grounds 
for amending a record. They are:
    (a) The record is not accurate.
    (b) The record is not relevant to any legitimate SBA concern.
    (c) The record is out-of-date. For example, there may have been 
events since the date of the record which have affected some of the 
information contained in the record.
    (d) The record is incomplete. There may be additional information 
relevant to the material contained in the record.



Sec. 102.45  Will SBA ask me for more information after I make my request?

    Perhaps, in which case the procedures of Sec. 102.34(c) shall apply.



Sec. 102.46  When will SBA respond to my request?

    The Systems Manager will acknowledge receipt of your request within 
10 working days and issue a written response within 30 working days.



Sec. 102.47  How will SBA respond to my request?

    The Systems Manager will:
    (a) Make the amendment you request, and send all individuals who had 
previously received a copy of that record a copy of the amended record; 
or
    (b) Amend the record, in a different manner, sending all individuals 
who had previously received a copy of that record a copy of the amended 
record and, in addition, telling you why your request was not granted in 
full and what appeal rights you have; or
    (c) Decline to amend the record, explaining why your request was not 
granted and telling you of your appeal rights.



Sec. 102.48  How do I appeal a refusal to amend a record kept on me?

    Your appeal should be in writing and include the following:
    (a) All of the information contained in your original request to 
amend the record;
    (b) Any response of the Systems Manager, including any reasons for 
denying your request; and
    (c) Any information you wish to submit in response to the Systems 
Manager's findings.



Sec. 102.49  To whom should I address my appeal?

    (a) Personnel file. Address your appeal to the Office of Personnel 
Management, 1900 E Street NW., Washington, DC 20006.
    (b) Equal Employment Opportunity Complaint File. Address your appeal 
to the Equal Employment Opportunity

[[Page 20]]

Commission, 1801 L Street NW., Washington, DC 20036.
    (c) All other appeals. Address your appeal to the PA Officer. See 
Sec. 102.30.



Sec. 102.50  By when must I submit my appeal?

    Your appeal must be received by the PA Officer within 30 calendar 
days of the date the Systems Manager declined to amend your records, or 
within 90 calendar days of the date the Systems Manager should have 
responded under Sec. 102.46 if the Systems Manager did not so respond.



Sec. 102.51  By what standards will the Privacy Act Officer review my appeal?

    The PA Officer will decide your appeal using the criteria of 
accuracy, relevance, timeliness, and completeness described in 
Sec. 102.44. The PA Officer will review all relevant information and may 
seek the views of other SBA personnel. The PA Officer may review 
information not available to or not used by the Systems Manager.



Sec. 102.52  When will SBA respond to my appeal?

    The PA Officer will respond to your appeal within 30 working days of 
its receipt, unless the Administrator determines that unusual 
circumstances exist, in which case the PA Officer will notify you of the 
presence of these unusual circumstances within 30 working days of the 
date upon which he or she received your appeal, and will respond to your 
appeal within 60 working days of the date of receipt.



Sec. 102.53  How will SBA respond to my appeal?

    The PA Officer will:
    (a) Make the amendment you request, sending all individuals who had 
previously received a copy of that record a copy of the amended record; 
or
    (b) Amend the record in a different manner; or decline to amend it 
at all:
    (1) Sending all individuals who had previously received a copy of 
that record a copy of the amended record;
    (2) Telling you why your request was not granted in full and that 
you can seek judicial review; and
    (3) Marking the areas of dispute, including your statement of 
disagreement in the file, and, if appropriate, a concise statement of 
why SBA refused to amend the record as you requested, sending this 
material to all individuals who had previously received a copy of that 
record.



Sec. 102.54  How can I obtain judicial review of an SBA Privacy Act decision?

    You may bring a civil action against SBA in a United States district 
court if the SBA:
    (a) Makes a final determination not to provide you with access to or 
to amend your record in accordance with your request;
    (b) Fails to maintain your records with such accuracy, relevance, 
timeliness and completeness as is necessary to assure fairness in any 
determination relating to the qualifications, character, rights, 
opportunities of, or benefits to you that may be made on the basis of 
such records, and consequently a determination is made which harms you; 
or
    (c) Fails to comply with any other provisions of the PA (5 U.S.C. 
552a) or the implementing regulations in this subpart, in such a way as 
to cause harm to you.



Sec. 102.55  What must SBA tell the individuals from whom it collects information?

    When SBA collects information from an individual, it must, either on 
the form which collects the information or on a separate form which the 
individual may keep, state:
    (a) Whether disclosure of the information is voluntary or mandatory;
    (b) By what authority SBA is collecting the information;
    (c) For what principal purpose or purposes SBA is collecting the 
information;
    (d) What routine uses might be made of that information; and
    (e) What will happen if the information isn't supplied.



Sec. 102.56  Will SBA release my name or address?

    No, unless compelled to by law.

[[Page 21]]



Sec. 102.57  Do I have to give SBA my SSN?

    (a) No. You need not give SBA your SSN, even if SBA asks for it.
    (b) If SBA asks you for your SSN, it must tell you under what 
authority it seeks your SSN, and for what purpose.
    (c) SBA cannot withhold a benefit solely because you refuse to tell 
it your SSN.



Sec. 102.58  When will SBA show personnel records to a representative?

    (a) If you go to where the records are kept, SBA will permit one 
person of your choosing to inspect the records with you.
    (b) If you want your representative to inspect the records without 
you, you must give SBA a written authorization.
    (c) SBA will mail a copy of the record to your representative if you 
direct SBA to do so in writing.
    (d) You may inspect the records of a minor if you present evidence 
that you are the custodial parent (including joint custodial parent) or 
legal guardian of that minor. An affidavit or declaration, signed by you 
under penalty of perjury, is normally sufficient evidence unless SBA has 
information to the contrary.
    (e) You may inspect the records of an adult incompetent if you 
present evidence that you are the legal guardian of that person. A 
guardianship order is sufficient evidence of your guardianship. Other 
evidence may be considered.



Sec. 102.59  What fees will SBA charge me for my records?

    SBA will charge you only for photocopying at the rate of 10 cents 
per page. SBA will not charge you for finding or reviewing your records. 
Fees less than $25 will be waived.



Sec. 102.60  May I be informed of disclosures made of my records?

    SBA will tell you what disclosures it made of your records if you 
ask, except that SBA will not tell you about disclosures it made to 
another federal agency or government entity for law enforcement 
purposes.



Sec. 102.61  Are there Matching Program procedures?

    (a) SBA will comply with the Computer Matching and Privacy 
Protection Act of 1988 (5 U.S.C. 552a, 552a notes). This Act establishes 
procedures federal agencies must use if they want to match their 
computer lists.
    (b) If SBA adopts any procedures to supplement its compliance with 
the Computer Matching and Privacy Protection Act of 1988 which are not 
mandated in that Act, SBA will publish those procedures in Standard 
Operating Procedure (SOP) 40 04. You can get a copy of SOP 40 04 at any 
SBA Office.
    (c) If SBA enters into an agreement with any federal agency, 
contractor of any federal agency, state or local government, or agency 
of any state or local government to disclose records for purposes of a 
computer matching program, SBA will make a copy of that agreement 
available to the general public. You can get a copy of any such 
agreement by writing to the Privacy Act Officer.



PART 103--STANDARDS FOR CONDUCTING BUSINESS WITH SBA--Table of Contents




103.1  Key definitions.
103.2  Who may conduct business with SBA?
103.3  May SBA suspend or revoke an Agent's privilege?
103.4  What is ``good cause'' for suspension or revocation?
103.5  How does SBA regulate an Agent's fees and provision of service?

    Authority: Secs. 5, 13, 72 Stat. 385, 394 (15 U.S.C. 634, 642).

    Source: 61 FR 2681, Jan. 29, 1996, unless otherwise noted.



Sec. 103.1  Key definitions.

    (a) Agent means an authorized representative, including an attorney, 
accountant, consultant, packager, lender service provider, or any other 
person representing an applicant or participant by conducting business 
with SBA.
    (b) The term conduct business with SBA means:
    (1) Preparing or submitting on behalf of an applicant an application 
for financial assistance of any kind, assistance from the Investment 
Division of

[[Page 22]]

SBA, or assistance in procurement and technical matters;
    (2) Preparing or processing on behalf of a lender or a participant 
in any of SBA's programs an application for federal financial 
assistance;
    (3) Participating with or communicating in any way with officers or 
employees of SBA on an applicant's, participant's, or lender's behalf;
    (4) Acting as a lender service provider; and
    (5) Such other activity as SBA reasonably shall determine.
    (c) Applicant means any person, firm, concern, corporation, 
partnership, cooperative or other business enterprise applying for any 
type of assistance from SBA.
    (d) Lender Service Provider means an Agent who carries out lender 
functions in originating, disbursing, servicing, or liquidating a 
specific SBA business loan or loan portfolio for compensation from the 
lender. SBA determines whether or not one is a ``Lender Service 
Provider'' on a loan-by-loan basis.
    (e) Packager means an Agent who is employed and compensated by an 
Applicant or lender to prepare the Applicant's application for financial 
assistance from SBA. SBA determines whether or not one is a ``Packager'' 
on a loan-by-loan basis.
    (f) Referral Agent means a person or entity who identifies and 
refers an Applicant to a lender or a lender to an Applicant. The 
Referral Agent may be employed and compensated by either an Applicant or 
a lender.
    (g) Participant means a person or entity that is participating in 
any of the financial, investment, or business development programs 
authorized by the Small Business Act or Small Business Investment Act of 
1958.



Sec. 103.2  Who may conduct business with SBA?

    (a) If you are an Applicant, a Participant, a partner of an 
Applicant or Participant partnership, or serve as an officer of an 
Applicant, Participant corporation, or limited liability company, you 
may conduct business with SBA without a representative.
    (b) If you are an Agent, you may conduct business with SBA on behalf 
of an Applicant, Participant or lender, unless representation is 
otherwise prohibited by law or the regulations in this part or any other 
part in this chapter. For example, persons debarred under the SBA or 
Government-wide debarment regulations may not conduct business with SBA. 
SBA may request that any Agent supply written evidence of his or her 
authority to act on behalf of an Applicant, Participant, or lender as a 
condition of revealing any information about the Applicant's, 
Participant's, or lender's current or prior dealings with SBA.



Sec. 103.3  May SBA suspend or revoke an Agent's privilege?

    The Administrator of SBA or designee may, for good cause, suspend or 
revoke the privilege of any Agent to conduct business with SBA. Part 134 
of this chapter states the procedures for appealing the decision to 
suspend or revoke the privilege. The suspension or revocation remains in 
effect during the pendency of any administrative proceedings under part 
134 of this chapter.



Sec. 103.4  What is ``good cause'' for suspension or revocation?

    Any unlawful or unethical activity is good cause for suspension or 
revocation of the privilege to conduct business. This includes:
    (a) Attempting to influence any employee of SBA or a lender, by 
gifts, bribes or other unlawful or unethical activity, with respect to 
any matter involving SBA assistance.
    (b) Soliciting for the provision of services to an Applicant by 
another entity when there is an undisclosed business relationship 
between the two parties.
    (c) Violating ethical guidelines which govern the profession or 
business of the Agent or which are published at any time by SBA.
    (d) Implying or stating that the work to be performed for an 
Applicant will include use of political or other special influence with 
SBA. Examples include indicating that the entity is affiliated with or 
paid, endorsed or employed by SBA, advertising using the words Small 
Business Administration or SBA in a manner that implies SBA's 
endorsement or sponsorship, use of SBA's seal or symbol, and giving a 
``guaranty'' to

[[Page 23]]

an Applicant that the application will be approved.
    (e) Charging or proposing to charge any fee that does not bear a 
necessary and reasonable relationship to the services actually rendered 
or expenses actually incurred in connection with a matter before SBA or 
which is materially inconsistent with the provisions of an applicable 
compensation agreement or Lender Service Provider agreement. A fee based 
solely on a percentage of a loan or guarantee amount can be reasonable, 
depending on the circumstances of a case and the services actually 
rendered.
    (f) Engaging in any conduct indicating a lack of business integrity 
or business honesty, including debarment, criminal conviction, or civil 
judgment within the last seven years for fraud, embezzlement, theft, 
forgery, bribery, falsification or destruction of records, false 
statements, conspiracy, receiving stolen property, false claims, or 
obstruction of justice.
    (g) Acting as both a Lender Service Provider or Referral Agent and a 
Packager for an Applicant on the same SBA business loan and receiving 
compensation for such activity from both the Applicant and lender. A 
limited exception to this ``two master'' prohibition exists when an 
Agent acts as a Packager and is compensated by the Applicant for 
packaging services; also acts as a Referral Agent and is compensated by 
the lender for those activities; discloses the referral activities to 
the Applicant; and discloses the packaging activities to the lender.
    (h) Violating materially the terms of any compensation agreement or 
Lender Service Provider agreement provided for in Sec. 103.5.
    (i) Violating or assisting in the violation of any SBA regulations, 
policies, or procedures of which the Applicant has been made aware.



Sec. 103.5  How does SBA regulate an Agent's fees and provision of service?

    (a) Any Applicant, Agent, or Packager must execute and provide to 
SBA a compensation agreement, and any Lender Service Provider must 
execute and provide to SBA a Lender Service Provider agreement. Each 
agreement governs the compensation charged for services rendered or to 
be rendered to the Applicant or lender in any matter involving SBA 
assistance. SBA provides the form of compensation agreement and a 
suggested form of Lender Service Provider agreement to be used by 
Agents.
    (b) Compensation agreements must provide that in cases where SBA 
deems the compensation unreasonable, the Agent or Packager must: reduce 
the charge to an amount SBA deems reasonable, refund any sum in excess 
of the amount SBA deems reasonable to the Applicant, and refrain from 
charging or collecting, directly or indirectly, from the Applicant an 
amount in excess of the amount SBA deems reasonable.
    (c) Each Lender Service Provider must enter into a written agreement 
with each lender for whom it acts in that capacity. SBA will review all 
such agreements. Such agreements need not contain each and every 
provision found in the SBA's suggested form of agreement. However, each 
agreement must indicate that both parties agree not to engage in any 
sharing of secondary market premiums, that the services to be provided 
are accurately described, and that the agreement is otherwise consistent 
with SBA requirements. Subject to the prohibition on splitting premiums, 
lenders have reasonable discretion in setting compensation for Lender 
Service Providers. However, such compensation may not be directly 
charged to an Applicant or borrower.



PART 105--STANDARDS OF CONDUCT AND EMPLOYEE RESTRICTIONS AND RESPONSIBILITIES--Table of Contents




                          Standards of Conduct

Sec.
105.101  Cross-reference to employee ethical conduct standards and 
          financial disclosure regulations.

 Restrictions and Responsibilities Related to SBA Employees and Former 
                                Employees

105.201  Definitions.
105.202  Employment of former employee by person previously the 
          recipient of SBA Assistance.
105.203  SBA Assistance to person employing former SBA employee.

[[Page 24]]

105.204  Assistance to SBA employees or members of their household.
105.205  Duty to report irregularities.
105.206  Applicable rules and directions.
105.207  Politically motivated activities with respect to the Minority 
          Small Business Program.
105.208  Penalties.

           Restrictions on SBA Assistance to Other Individuals

105.301  Assistance to officers or employees of other Government 
          organizations.
105.302  Assistance to employees or members of quasi-Government 
          organizations.

                        Administrative Provisions

105.401  Standards of Conduct Committee.
105.402  Standards of Conduct Counselors.
105.403  Designated Agency Ethics Officials.

    Authority: 5 U.S.C. 7301; 15 U.S.C. 634, 637(a)(18) and (a)(19), 
642, and 645(a).

    Source: 61 FR 2399, Jan. 26, 1996, unless otherwise noted.

                          Standards of Conduct



Sec. 105.101  Cross-reference to employee ethical conduct standards and financial disclosure regulations.

    In addition to this part, Small Business Administration (SBA) 
employees should refer to the Uniform Standards of Ethical Conduct for 
Executive Branch employees at 5 CFR part 2635, the SBA Supplemental 
Standards of Ethical Conduct at 5 CFR chapter XLIV, and the Uniform 
Financial Disclosure regulation for Executive Branch employees at 5 CFR 
part 2634.

 Restrictions and Responsibilities Related to SBA Employees and Former 
                                Employees



Sec. 105.201  Definitions.

    (a) Employee means an officer or employee of the SBA regardless of 
grade, status or place of employment, including employees on leave with 
pay or on leave without pay other than those on extended military leave. 
Unless stated otherwise. Employee shall include those within the 
category of Special Government Employee.
    (b) Special Government Employee means an officer or employee of SBA, 
who is retained, appointed or employed to perform temporary duties on a 
full-time or intermittent basis, with or without compensation, for not 
to exceed 130 days during any period of 365 consecutive days.
    (c) Person means an individual, a corporation, a company, an 
association, a firm, a partnership, a society, a joint stock company, or 
any other organization or institution.
    (d) Household member means spouse and minor children of an employee, 
all blood relations of the employee and any spouse who resides in the 
same place of abode with the employee.
    (e) SBA Assistance means financial, contractual, grant, managerial 
or other aid, including size determinations, section 8(a) participation, 
licensing, certification, and other eligibility determinations made by 
SBA. The term also includes an express decision to compromise or defer 
possible litigation or other adverse action.



Sec. 105.202  Employment of former employee by person previously the recipient of SBA Assistance.

    (a) No former employee, who occupied a position involving discretion 
over, or who exercised discretion with respect to, the granting or 
administration of SBA Assistance may occupy a position as employee, 
partner, agent, attorney or other representative of a concern which has 
received this SBA Assistance for a period of two years following the 
date of granting or administering such SBA Assistance if--
    (1) The date of granting or administering such SBA Assistance was 
within the period of the employee's term of employment; or
    (2) The date of granting or administering such SBA Assistance was 
within one year following the termination of such employment.
    (b) Failure of a recipient of SBA Assistance to comply with these 
provisions may result, in the discretion of SBA, in the requirement for 
immediate repayment of SBA financial Assistance, the immediate 
termination of other SBA Assistance involved or other appropriate 
action.



Sec. 105.203  SBA Assistance to person employing former SBA employee.

    (a) SBA will not provide SBA Assistance to any person who has, as an 
employee, owner, partner, attorney, agent, owner of stock, officer, 
director,

[[Page 25]]

creditor or debtor, any individual who, within one year prior to the 
request for such SBA Assistance was an SBA employee, without the prior 
approval of the SBA Standards of Conduct Counselor. The Standards of 
Conduct Counselor will refer matters of a controversial nature to the 
Standards of Conduct Committee for final decision; otherwise, his or her 
decision is final.
    (b) In reviewing requests for approval, the Standards of Conduct 
Counselor will consider:
    (1) The relationship of the former employee with the applicant 
concern;
    (2) The nature of the SBA Assistance requested;
    (3) The position held by the former employee with SBA and its 
relationship to the SBA Assistance requested; and
    (4) Whether an apparent conflict of interest might exist if the SBA 
Assistance were granted.



Sec. 105.204  Assistance to SBA employees or members of their household.

    Without the prior written approval of the Standards of Conduct 
Committee, no SBA Assistance, other than Disaster loans under 
subparagraphs (1) and (2) of section 7(b) of the Small Business Act, 
shall be furnished to a person when the sole proprietor, partner, 
officer, director or significant stockholder of the person is an SBA 
employee or a household member.



Sec. 105.205  Duty to report irregularities.

    Every employee shall immediately report to the SBA Inspector General 
any acts of malfeasance or misfeasance or other irregularities, either 
actual or suspected, arising in connection with the performance by SBA 
of any of its official functions.



Sec. 105.206  Applicable rules and directions.

    Every employee shall follow all agency rules, regulations, operating 
procedures, instructions and other proper directions in the performance 
of his official functions.



Sec. 105.207  Politically motivated activities with respect to the Minority Small Business Program.

    (a) Any employee who has authority to take, direct others to take, 
recommend, or approve any action with respect to any program or activity 
conducted pursuant to section 8(a) or section 7(j) of the Small Business 
Act, shall not, with respect to any such action, exercise or threaten to 
exercise such authority on the basis of the political activity or 
affiliation of any party. Employees shall expeditiously report to the 
SBA Inspector General any such action for which such employee's 
participation has been solicited or directed.
    (b) Any employee who willfully and knowingly violates this section 
shall be subject to disciplinary action, which may consist of separation 
from service, reduction in grade, suspension, or reprimand.
    (c) This section shall not apply to any action taken as a penalty or 
other enforcement of a violation of any law, rule, or regulation 
prohibiting or restricting political activity.
    (d) The prohibitions in and remedial measures provided for under 
this section with regard to such prohibitions, shall be in addition to, 
and not in lieu of, any other prohibitions, measures or liabilities that 
may arise under any other provision of law.



Sec. 105.208  Penalties.

    Any employee guilty of violating any of the provisions in this part 
may be disciplined, including removal or suspension from SBA employment.

           Restrictions on SBA Assistance to Other Individuals



Sec. 105.301  Assistance to officers or employees of other Government organizations.

    (a) SBA must receive a written statement of no objection by the 
pertinent Department or military service before it gives any SBA 
Assistance, other than Disaster loans under subparagraphs (1) and (2) of 
section 7(b) of the Small Business Act, to a person when

[[Page 26]]

its sole proprietor, partner, officer, director or stockholder with a 10 
percent or more interest, or a household member, is an employee of 
another Government Department or Agency having a grade of at least GS-13 
or its equivalent.
    (b) The Standards of Conduct Committee must approve an SBA contract 
with an entity if a sole proprietor, general partner, officer, director, 
or stockholder with a 10 or more percent interest (or a household member 
of such individuals) is an employee of a Government Department or 
Agency. See also 48 CFR part 35, subpart 3.6.
    (c) The Standards of Conduct Committee must approve SBA Assistance, 
other than disaster loans under subparagraphs (1) and (2) of section 
7(b) of the Small Business Act, to a person if its sole proprietor, 
general partner, officer, director or stockholder with a 10 percent or 
more interest (or a household member of such individual) is a member of 
Congress or an appointed official or employee of the legislative or 
judicial branch of the Government.



Sec. 105.302  Assistance to employees or members of quasi-Government organizations.

    (a) The Standards of Conduct Committee must approve SBA Assistance, 
other than Disaster loans under subparagraphs (1) and (2) of section 
7(b) of the Small Business Act, to a person if its sole proprietor, 
general partner, officer, director or stockholder with a 10 percent or 
more interest (or a household member) is a member or employee of a Small 
Business Advisory Council or is a SCORE volunteer.
    (b) In reviewing requests for approval, factors the Standards of 
Conduct Committee may consider include whether the granting of the SBA 
Assistance might result in or create the appearance of giving 
preferential treatment, the loss of complete independence or 
impartiality, or adversely affect the confidence of the public in the 
integrity of the Government.

                        Administrative Provisions



Sec. 105.401  Standards of Conduct Committee.

    (a) The Standards of Conduct Committee will:
    (1) Advise and give direction to SBA management officials concerning 
the administration of this part and any other rules, regulations or 
directives dealing with conflicts of interest and ethical standards of 
SBA employees; and
    (2) Make decisions on specific requests when its approval is 
required.
    (b) The Standards of Conduct Committee will consist of:
    (1) The General Counsel or, in his or her absence, the Deputy 
General Counsel or, in his or her absence, the Acting General Counsel 
who shall act as Chairman of the Committee;
    (2) The Associate Deputy Administrator for Management and 
Administration, or in his or her absence, the Assistant Administrator 
for Administration; and
    (3) The Director of Human Resources, or in his or her absence, the 
Deputy Director of Human Resources.



Sec. 105.402  Standards of Conduct Counselors.

    (a) The SBA Standards of Conduct Counselor is the Designated Agency 
Ethics Official, as appointed by the Administrator. Assistant Standards 
of Conduct Counselors may be designated by the Standards of Conduct 
Counselor.
    (b) The Standards of Conduct Counselors and Assistants:
    (1) Provide general advice, assistance and guidance to employees 
concerning this part and the regulations referred to in Sec. 105.101;
    (2) Monitor the Standards of Conduct Program within their assigned 
areas and provide required reports thereon;
    (3) Review Confidential Financial Disclosure Reports as required 
under 5 CFR part 2634, subpart I, and provide an annual report on 
compliance with filing requirements to the SBA Standards of Conduct 
Counselor as of February 1 of each year; and
    (4) Provide Outside Employment decisions pursuant to 5 CFR 5401.104.
    (c) Each employee will be periodically informed of the name, address 
and telephone number of the Assistant Standards of Conduct Counselor to 
contact for advice and assistance.

[[Page 27]]

    (d) Employee requests for advice or rulings should be directed to 
the appropriate Standards of Conduct Counselor for appropriate action.

[61 FR 2399, Jan. 26, 1996, as amended at 62 FR 48477, Sept. 16, 1997]



Sec. 105.403  Designated Agency Ethics Officials.

    The Designated Agency Ethics Official and Alternates administer the 
program for Financial Disclosure Statements under 5 CFR 2634.201, 
receive and evaluate these statements, and provide advice and counsel 
regarding matters relating to the Ethics in Government Act of 1978 and 
its implementing regulations. The duties and responsibilities of the 
Designated Agency Ethics Official and Alternates are set forth in more 
detail in 5 CFR 2638.203, which is promulgated and amended by the Office 
of Government Ethics.

[62 FR 2399, Jan. 26, 1996, as amended at 62 FR 48477, Sept. 16, 1997]



PART 107--SMALL BUSINESS INVESTMENT COMPANIES--Table of Contents




                   Subpart A--Introduction to Part 107

Sec.
107.20  Legal basis and applicability of this part 107.
107.30  Amendments to Act and regulations.
107.40  How to read this part 107.

             Subpart B--Definition of Terms Used in Part 107

107.50  Definition of terms.

                Subpart C--Qualifying for an SBIC License

                           Organizing an SBIC

107.100  Organizing a Section 301(c) Licensee.
107.115  1940 Act and 1980 Act Companies.
107.120  Special rules for a Section 301(d) Licensee owned by another 
          Licensee.
107.130  Requirement for qualified management.
107.140  SBA approval of initial Management Expenses.
107.150  Management-ownership diversity requirement.
107.160  Special rules for Licensees formed as limited partnerships.

                          Capitalizing an SBIC

107.200  Adequate capital for Licensees.
107.210  Minimum capital requirements for Licensees.
107.230  Permitted sources of Private Capital for Licensees.
107.240  Limitations on including non-cash capital contributions in 
          Private Capital.
107.250  Exclusion of stock options issued by Licensee from Management 
          Expenses.

                      Applying for an SBIC License

107.300  License application form and fee.

  Subpart D--Changes in Ownership, Control, or Structure of Licensee; 
                           Transfer of License

               Changes in Control or Ownership of Licensee

107.400  Changes in ownership of 10 percent or more of Licensee but no 
          change of Control.
107.410  Changes in Control of Licensee (through change in ownership or 
          otherwise).
107.420  Prohibition on exercise of ownership or Control rights in 
          Licensee before SBA approval.
107.430  Notification to SBA of transactions that may change ownership 
          or Control.
107.440  Standards governing prior SBA approval for a proposed transfer 
          of Control.
107.450  Notification to SBA of pledge of Licensee's shares.

  Restrictions on Common Control or Ownership of Two or More Licensees

107.460  Restrictions on Common Control or ownership of two (or more) 
          Licensees.

                     Change in Structure of Licensee

107.470  SBA approval of merger, consolidation, or reorganization of 
          Licensee.

                           Transfer of License

107.475  Transfer of license.

            Subpart E--Managing the Operations of a Licensee

                          General Requirements

107.500  Lawful operations under the Act.
107.501  Identification as a Licensee.
107.502  Representations to the public.
107.503  Licensee's adoption of an approved Valuation Policy.
107.504  Equipment and office requirements.
107.505  Facsimile requirement.
107.506  Safeguarding Licensee's assets/Internal controls.
107.507  Violations based on false filings and nonperformance of 
          agreements with SBA.
107.509  Employment of SBA officials.

                       Management and Compensation

107.510  SBA approval of Licensee's Investment Adviser/Manager.

[[Page 28]]

107.520  Management Expenses of a Licensee.

                      Cash Management by a Licensee

107.530  Restrictions on investments of idle funds by leveraged 
          Licensees.

               Borrowing by Licensees From Non-SBA Sources

107.550  Prior approval of secured third-party debt of leveraged 
          Licensees.
107.560  Subordination of SBA's creditor position.
107.570  Restrictions on third-party debt of issuers of Participating 
          Securities.

           Voluntary Decrease in Licensee's Regulatory Capital

107.585  Voluntary decrease in Licensee's Regulatory Capital.

           Requirement To Conduct Active Investment Operations

107.590  Licensee's requirement to maintain active operations.

 Subpart F--Recordkeeping, Reporting, and Examination Requirements for 
                                Licensees

                Recordkeeping Requirements for Licensees

107.600  General requirement for Licensee to maintain and preserve 
          records.
107.610  Required certifications for Loans and Investments.
107.620  Requirements to obtain information from Portfolio Concerns.

                  Reporting Requirements for Licensees

107.630  Requirement for Licensees to file financial statements with SBA 
          (Form 468).
107.640  Requirement to file Portfolio Financing Reports (SBA Form 
          1031).
107.650  Requirement to report portfolio valuations to SBA.
107.660  Other items required to be filed by Licensee with SBA.
107.670  Application for exemption from civil penalty for late filing of 
          reports.
107.680  Reporting changes in Licensee not subject to prior SBA 
          approval.

       Examinations of Licensees by SBA for Regulatory Compliance

107.690  Examinations.
107.691  Responsibilities of Licensee during examination.
107.692  Examination fees.

          Subpart G--Financing of Small Businesses by Licensees

   Determining the Eligibility of a Small Business for SBIC Financing

107.700  Compliance with size standards in part 121 of this chapter as a 
          condition of Assistance.
107.710  Requirement to finance smaller enterprises.
107.720  Small Businesses that may be ineligible for financing.
107.730  Financings which constitute conflicts of interest.
107.740  Portfolio diversification (``overline'' limitation).
107.750  Conditions for financing a change of ownership of a Small 
          Business.
107.760  How a change in size or activity of a Portfolio Concern affects 
          the Licensee and the Portfolio Concern.

Structuring Licensee's Financing of Eligible Small Businesses: Types of 
                                Financing

107.800  Financings in the form of Equity Securities.
107.810  Financings in the form of Loans.
107.815  Financings in the form of Debt Securities.
107.820  Financings in the form of guarantees.
107.825  Purchasing securities from an underwriter or other third party.

 Structuring Licensee's Financing of an Eligible Small Business: Terms 
                       and Conditions of Financing

107.830  Minimum duration/term of financing.
107.835  Exceptions to minimum duration/term of Financing.
107.840  Maximum term of financing.
107.845  Maximum rate of amortization on Loans and Debt Securities.
107.850  Restrictions on redemption of Equity Securities.
107.855  Interest rate ceiling and limitations on fees charged to small 
          businesses (``Cost of Money'').
107.860  Financing fees and expense reimbursements a Licensee may 
          receive from a small business.
107.865  Control of a small business by a Licensee.
107.880  Assets acquired in liquidation of Portfolio securities.

                  Limitations on Disposition of Assets

107.885  Disposition of assets to Licensee's Associates or to 
          competitors of Portfolio Concern.

[[Page 29]]

                      Management Services and Fees

107.900  Management fees for services provided to a Small Business by 
          Licensee or its Associate.

      Subpart H--Non-leveraged Licensees-Exceptions to Regulations

107.1000  Licensees without leverage--exceptions to the regulations.

      Subpart I--SBA Financial Assistance for Licensees (Leverage)

              General Information About Obtaining Leverage

107.1100  Types of Leverage and application procedures.
107.1120  General eligibility requirements for Leverage.
107.1130  Leverage fees and additional charges payable by Licensee.
107.1140  Licensee's acceptance of SBA remedies under Secs. 107.1800 
          through 107.1820.

       Maximum Amount of Leverage for Which a Licensee Is Eligible

107.1150  Maximum amount of Leverage for a Section 301(c) Licensee.
107.1160  Maximum amount of Leverage for a Section 301(d) Licensee.
107.1170  Maximum amount of Participating Securities for any Licensee.

    Conditional Commitments by SBA To Reserve Leverage for a Licensee

107.1200  SBA's Leverage commitment to a Licensee--application 
          procedure, amount, and term.
107.1210  Payment of leverage fee upon receipt of commitment.
107.1220  Requirement for Licensee to file quarterly financial 
          statements.
107.1230  Draw-downs by Licensee under SBA's Leverage commitment.
107.1240  Funding of Licensee's draw request through sale to short-term 
          investor.

         Preferred Securities Leverage--Section 301(d) Licensees

107.1400  Dividends or partnership distributions on 4 percent Preferred 
          Securities.
107.1410  Requirement to redeem 4 percent Preferred Securities.
107.1420  Articles requirements for 4 percent Preferred Securities.
107.1430  Redeeming 4 percent Preferred Securities with proceeds of non-
          subsidized Debentures.
107.1440  Three percent preferred stock issued before November 21, 1989.
107.1450  Optional redemption of Preferred Securities.

                    Participating Securities Leverage

107.1500  General description of Participating Securities.
107.1505  Liquidity requirements for Licensees issuing Participating 
          Securities.
107.1510  How a Licensee computes Earmarked Profit (Loss).
107.1520  How a Licensee computes and allocates Prioritized Payments to 
          SBA.
107.1530  How a Licensee computes SBA's Profit Participation.
107.1540  Distributions by Licensee--Prioritized Payments and 
          Adjustments.
107.1550  Distributions by Licensee--permitted ``tax Distributions'' to 
          private investors and SBA.
107.1560  Distributions by Licensee--required Distributions to private 
          investors and SBA.
107.1570  Distributions by Licensee--optional Distribution to private 
          investors and SBA.
107.1575  Distributions on other than Payment Dates.
107.1580  Special rules for In-Kind Distributions by Licensees.
107.1585  Exchange of Debentures for Participating Securities.
107.1590  Special rules for companies licensed on or before March 31, 
          1993.

 Funding Leverage by Use of SBA-Guaranteed Trust Certificates (``TCs'')

107.1600  SBA authority to issue and guarantee Trust Certificates.
107.1610  Effect of prepayment or early redemption of Leverage on a 
          Trust Certificate.
107.1620  Functions of agents, including Central Registration Agent, 
          Selling Agent and Fiscal Agent.
107.1630  SBA regulation of Brokers and Dealers and disclosure to 
          purchasers of Leverage or Trust Certificates.
107.1640  SBA access to records of the CRA, Brokers, Dealers and Pool or 
          Trust assemblers.

                              Miscellaneous

107.1700  Transfer by SBA of its interest in Licensee's Leverage 
          security.
107.1710  SBA authority to collect or compromise its claims.
107.1720  Characteristics of SBA's guarantee.

       Subpart J--Licensee's Noncompliance With Terms of Leverage

107.1800  Licensee's agreement to terms and conditions in Secs. 107.1810 
          and 107.1820.
107.1810  Events of default and SBA's remedies for Licensee's 
          noncompliance with terms of Debentures.
107.1820  Conditions affecting issuers of Preferred Securities and/or 
          Participating Securities.

[[Page 30]]

              Computation of Licensee's Capital Impairment

107.1830  Licensee's Capital Impairment--definition and general 
          requirements.
107.1840  Computation of Licensee's Capital Impairment Percentage.
107.1850  Exceptions to Capital Impairment provisions for Licensees with 
          outstanding Participating Securities.

               Subpart K--Ending Operations as a Licensee

107.1900  Surrender of license.

                        Subpart L--Miscellaneous

107.1910  Non-waiver of SBA's rights or terms of Leverage security.
107.1920  Licensee's application for exemption from a regulation in this 
          part 107.
107.1930  Effect of changes in this part 107 on transactions previously 
          consummated.

    Authority: 15 U.S.C. 681 et seq., 683, 687(c), 687b, 687d, 687g and 
687m.

    Source: 61 FR 3189, Jan. 31, 1996, unless otherwise noted.



                   Subpart A--Introduction to Part 107



Sec. 107.20  Legal basis and applicability of this part 107.

    (a) The regulations in this part implement Title III of the Small 
Business Investment Act of 1958, as amended. All Licensees must comply 
with all applicable regulations, accounting guidelines and valuation 
guidelines for Licensees.
    (b) Provisions of this part which are not mandated by the Act shall 
not supersede existing State law. A party claiming that a conflict 
exists shall submit an opinion of independent counsel, citing 
authorities, for SBA's resolution of the issues involved.



Sec. 107.30  Amendments to Act and regulations.

    A Licensee shall be subject to all existing and future provisions of 
the Act and parts 107 and 112 of title 13 of the Code of Federal 
Regulations.



Sec. 107.40  How to read this part 107.

    (a) Center Headings. All references in this part to SBA forms, and 
instructions for their preparation, are to the current issue of such 
forms. Center headings are descriptive and are used for convenience 
only. They have no regulatory effect.
    (b) Capitalizing defined terms. Terms defined in Sec. 107.50 are 
capitalized in this part 107.
    (c) The pronoun ``you'' as used in this part 107 means a Licensee or 
license applicant, as appropriate, unless otherwise noted.



             Subpart B--Definition of Terms Used in Part 107



Sec. 107.50  Definition of terms.

    Accumulated Prioritized Payments has the meaning set forth in 
Sec. 107.1520.
    Act means the Small Business Investment Act of 1958, as amended.
    Adjustments has the meaning set forth in Sec. 107.1520.
    Affiliate or Affiliates has the meaning set forth in Sec. 121.103 of 
this chapter.
    Articles mean articles of incorporation or charter for a Corporate 
Licensee and the partnership agreement or certificate for a Partnership 
Licensee.
    Assistance or Assisted means Financing of or management services 
rendered to a Small Business by a Licensee pursuant to the Act and these 
regulations.
    Associate of a Licensee means any of the following:
    (1)(i) An officer, director, employee or agent of a Corporate 
Licensee;
    (ii) A Control Person, employee or agent of a Partnership Licensee;
    (iii) An Investment Adviser/Manager of any Licensee, including any 
Person who contracts with a Control Person of a Partnership Licensee to 
be the Investment Adviser/Manager of such Licensee; or
    (iv) Any Person regularly serving a Licensee on retainer in the 
capacity of attorney at law.
    (2) Any Person who owns or controls, or who has entered into an 
agreement to own or control, directly or indirectly, at least 10 percent 
of any class of stock of a Corporate Licensee or a limited partner's 
interest of at least 10 percent of the partnership capital of a 
Partnership Licensee. However, a limited partner in a Partnership 
Licensee is not considered an Associate if such

[[Page 31]]

Person is an entity Institutional Investor whose investment in the 
Partnership, including commitments, represents no more than 33 percent 
of the partnership capital of the Licensee and no more than five percent 
of such Person's net worth.
    (3) Any officer, director, partner (other than a limited partner), 
manager, agent, or employee of any Associate described in paragraph (1) 
or (2) of this definition.
    (4) Any Person that directly or indirectly Controls, or is 
Controlled by, or is under Common Control with, a Licensee.
    (5) Any Person that directly or indirectly Controls, or is 
Controlled by, or is under Common Control with, any Person described in 
paragraphs (1) and (2) of this definition.
    (6) Any Close Relative of any Person described in paragraphs 
(1),(2), (4), and (5) of this definition.
    (7) Any Secondary Relative of any Person described in paragraphs 
(1), (2), (4), and (5) of this definition.
    (8) Any concern in which--
    (i) Any person described in paragraphs (1) through (6) of this 
definition is an officer; general partner, or managing member; or
    (ii) Any such Person(s) singly or collectively Control or own, 
directly or indirectly, an equity interest of at least 10 percent 
(excluding interests that such Person(s) own indirectly through 
ownership interests in the Licensee).
    (9) Any concern in which any Person(s) described in paragraph (7) of 
this definition singly or collectively own (including beneficial 
ownership) a majority equity interest, or otherwise have Control. As 
used in this paragraph (9), ``collectively'' means together with any 
Person(s) described in paragraphs (1) though (7) of this definition.
    (10) For the purposes of this definition, if any Associate 
relationship described in paragraphs (1) through (7) of this definition 
exists at any time within six months before or after the date that a 
Licensee provides Financing, then that Associate relationship is 
considered to exist on the date of the Financing.
    (11) If any Licensee has any ownership interest in another Licensee, 
the two Licensees are Associates of each other.
    Capital Impairment has the meaning set forth in Sec. 107.1830(c).
    Central Registration Agent or CRA means one or more agents appointed 
by SBA for the purpose of issuing TCs and performing the functions 
enumerated in Sec. 107.1620 and performing similar functions for 
Debentures and Participating Securities funded outside the pooling 
process.
    Charge means an annual fee on Leverage issued on or after October 1, 
1996 (except for Leverage issued pursuant to a commitment made by SBA 
before October 1, 1996), which is payable to SBA by Licensees, subject 
to the terms and conditions set forth in Sec. 107.1130(d).
    Close Relative of an individual means:
    (1) A current or former spouse;
    (2) A father, mother, guardian, brother, sister, son, daughter; or
    (3) A father-in-law, mother-in-law, brother-in-law, sister-in-law, 
son-in-law, or daughter-in-law.
    Combined Capital means the sum of Regulatory Capital and outstanding 
Leverage.
    Commitment means a written agreement between a Licensee and an 
eligible Small Business that obligates the Licensee to provide Financing 
(except a guarantee) to that Small Business in a fixed or determinable 
sum, by a fixed or determinable future date. In this context the term 
``agreement'' means that there has been agreement on the principal 
economic terms of the Financing. The agreement may include reasonable 
conditions precedent to the Licensee's obligation to fund the 
commitment, but these conditions must be outside the Licensee's control.
    Common Control means a condition where two or more Persons, either 
through ownership, management, contract, or otherwise, are under the 
Control of one group or Person. Two or more Licensees are presumed to be 
under Common Control if they are Affiliates of each other by reason of 
common ownership or common officers, directors, or general partners; or 
if they are managed or their investments are significantly directed 
either by a common independent investment advisor or managerial 
contractor, or by two or more such advisors or contractors that

[[Page 32]]

are Affiliates of each other. This presumption may be rebutted by 
evidence satisfactory to SBA.
    Control means the possession, direct or indirect, of the power to 
direct or cause the direction of the management and policies of a 
Licensee or other concern, whether through the ownership of voting 
securities, by contract, or otherwise.
    Control Person means any Person that controls a Licensee, either 
directly or through an intervening entity. A Control Person includes:
    (1) A general partner of a Partnership Licensee;
    (2) Any Person serving as the general partner, officer, director, or 
manager (in the case of a limited liability company) of any entity that 
controls a Licensee, either directly or through an intervening entity;
    (3) Any Person that--
    (i) Controls or owns, directly or through an intervening entity, at 
least 10 percent of a Partnership Licensee or any entity described in 
paragraphs (1) or (2) of this definition; and
    (ii) Participates in the investment decisions of the general partner 
of such Partnership Licensee;
    (4) Any Person that controls or owns, directly or through an 
intervening entity, at least 50 percent of a Partnership Licensee or any 
entity described in paragraphs (1) or (2) of this definition.
    Corporate Licensee. See definition of Licensee in this section.
    Cost of Money has the meaning set forth in Sec. 107.855.
    Debenture Rate means the interest rate, as published from time to 
time in the Federal Register by SBA, for ten year debentures issued by 
Licensees and funded through public sales of certificates bearing SBA's 
guarantee. User or guarantee fees, if any, paid by a Licensee are not 
considered in determining the Debenture Rate.
    Debentures means debt obligations issued by Licensees pursuant to 
section 303(a) of the Act and held or guaranteed by SBA.
    Debt Securities has the meaning set forth in Sec. 107.815.
    Disadvantaged Business means a Small Business that is at least 50 
percent owned, and controlled and managed, on a day to day basis, by a 
person or persons whose participation in the free enterprise system is 
hampered because of social or economic disadvantages.
    Distributable Securities means equity securities that are determined 
by SBA (with the advice of a third party expert in the marketing of 
securities) to meet each of the following requirements:
    (1) The securities (which may include securities that are salable 
pursuant to the provisions of Rule 144 (17 CFR 230.144) under the 
Securities Act of 1933, as amended) are salable immediately without 
restriction under Federal and state securities laws;
    (2) The securities are of a class:
    (i) Which is listed and registered on a national securities 
exchange, or
    (ii) For which quotation information is disseminated in the National 
Association of Securities Dealers Automated Quotation System and as to 
which transaction reports and last sale data are disseminated pursuant 
to Rule 11Aa3-1 (17 CFR 240.11Aa3-1) under the Securities Exchange Act 
of 1934, as amended; and
    (3) The quantity of such securities to be distributed to SBA can be 
sold over a reasonable period of time without having an adverse impact 
upon the price of the security.
    Distribution means any transfer of cash or non-cash assets to SBA, 
its agent or Trustee, or to partners in a Partnership Licensee, or to 
shareholders in a Corporate Licensee. Capitalization of Retained 
Earnings Available for Distribution constitutes a Distribution to the 
Licensee's non-SBA partners or shareholders.
    Earmarked Assets has the meaning set forth in Sec. 107.1510(b). (See 
also Sec. 107.1590.)
    Earmarked Profit (Loss) has the meaning set forth in Sec. 107.1510.
    Earned Prioritized Payments has the meaning set forth in 
Sec. 107.1520.
    Equity Capital Investments means investments in a Small Business in 
the form of common or preferred stock, limited partnership interests, 
options, warrants, or similar equity instruments, including subordinated 
debt with equity features if such debt provides only for interest 
payments contingent upon and limited to the extent

[[Page 33]]

of earnings. Equity Capital Investments must not require amortization. 
Equity Capital Investments may be guaranteed; however, neither Equity 
Capital Investments nor such guarantee may be collateralized or 
otherwise secured. Investments classified as Debt Securities (see 
Secs. 107.800 and 107.815) are not precluded from qualifying as Equity 
Capital Investments.
    Equity Securities has the meaning set forth in Sec. 107.800.
    Financing or Financed means outstanding financial assistance 
provided to a Small Business by a Licensee, whether through:
    (1) Loans;
    (2) Debt Securities;
    (3) Equity Securities;
    (4) Guarantees; or
    (5) Purchases of securities of a Small Business through or from an 
underwriter (see Sec. 107.825).
    Guaranty Agreement means the contract entered into by SBA which is a 
guarantee backed by the full faith and credit of the United States 
Government as to timely payment of principal and interest on Debentures 
or the Redemption Price of and Prioritized Payments on Participating 
Securities and SBA's rights in connection with such guarantee.
    Includible Non-Cash Gains means those non-cash gains (as reported on 
SBA Form 468) that are realized in the form of Publicly Traded and 
Marketable securities or investment grade debt instruments. For purposes 
of this definition, investment grade debt instruments means those 
instruments that are rated ``BBB'' or ``Baa'', or better, by Standard & 
Poor's Corporation or Moody's Investors Service, respectively. Non-rated 
debt may be considered to be investment grade if Licensee obtains a 
written opinion from an investment banking firm acceptable to SBA 
stating that the non-rated debt instrument is equivalent in risk to the 
issuer's investment grade debt.
    Institutional Investor means:
    (1) Entities. Any of the following entities if the entity has a net 
worth (exclusive of unfunded commitments from investors) of at least $1 
million, or such higher amount as is specified in paragraph (1) of this 
definition. (See also Sec. 107.230(b)(4) for limitations on the amount 
of an Institutional Investor's commitment that may be included in 
Private Capital.)
    (i) A State or National bank, trust company, savings bank, or 
savings and loan association.
    (ii) An insurance company.
    (iii) A 1940 Act Investment Company or Business Development Company 
(each as defined in the Investment Company Act of 1940, as amended (15 
U.S.C. 8a-1 et seq.).
    (iv) A holding company of any entity described in paragraph (1)(i), 
(ii) or (iii) of this definition.
    (v) An employee benefit or pension plan established for the benefit 
of employees of the Federal government, any State or political 
subdivision of a State, or any agency or instrumentality of such 
government unit.
    (vi) An employee benefit or pension plan (as defined in the Employee 
Retirement Income Security Act of 1974, as amended (Pub. L. 93-406, 88 
Stat. 829), excluding plans established under section 401(k) of the 
Internal Revenue Code of 1986 (26 U.S.C. 401(k)), as amended).
    (vii) A trust, foundation or endowment exempt from Federal income 
taxation under the Internal Revenue Code of 1986, as amended.
    (viii) A corporation, partnership or other entity with a net worth 
(exclusive of unfunded commitments from investors) of more than $10 
million.
    (ix) A State, a political subdivision of a State, or an agency or 
instrumentality of a State or its political subdivision.
    (x) An entity whose primary purpose is to manage and invest non-
Federal funds on behalf of at least three Institutional Investors 
described in paragraphs (1)(i) through (1)(ix) of this definition, each 
of whom must have at least a 10 percent ownership interest in the 
entity.
    (xi) Any other entity that SBA determines to be an Institutional 
Investor.
    (2) Individuals. (i) Any of the following individuals if he/she is 
also a permanent resident of the United States:
    (A) An individual who is an Accredited Investor (as defined in the 
Securities Act of 1933, as amended (15 U.S.C. 77a-77aa)) and whose 
commitment to

[[Page 34]]

the Licensee is backed by a letter of credit from a State or National 
bank acceptable to SBA.
    (B) An individual whose personal net worth is at least $2 million 
and at least ten times the amount of his or her commitment to the 
Licensee. The individual's personal net worth must not include the value 
of any equity in his or her most valuable residence.
    (C) An individual whose personal net worth (determined in accordance 
with paragraph (2)(i)(B) of this definition) is at least $10 million.
    (ii) Any individual who is not a permanent resident of the United 
States but who otherwise satisfies paragraph (2)(i) of this definition 
provided such individual has irrevocably appointed an agent within the 
United States for the service of process.
    Investment Adviser/Manager means any Person who furnishes advice or 
assistance with respect to operations of a Licensee under a written 
contract executed in accordance with the provisions of Sec. 107.510.
    Lending Institution means a concern that is operating under 
regulations of a state or Federal licensing, supervising, or examining 
body, or whose shares are publicly traded and listed on a recognized 
stock exchange or NASDAQ and which has assets in excess of $500 million; 
and which, in either case, holds itself out to the public as engaged in 
the making of commercial and industrial loans and whose lending 
operations are not for the purpose of financing its own or an 
Associates's sales or business operations.
    Leverage means financial assistance provided to a Licensee by SBA, 
either through the purchase or guaranty of a Licensee's Debentures or 
Participating Securities, or the purchase of a Licensee's Preferred 
Securities, and any other SBA financial assistance evidenced by a 
security of the Licensee.
    Leverageable Capital means Regulatory Capital, excluding unfunded 
commitments.
    Licensee means either a corporation (Corporate Licensee), or a 
limited partnership organized pursuant to Sec. 107.160 (Partnership 
Licensee), to which a license has been granted pursuant to the Act. For 
certain purposes, the Entity General Partner of a Partnership Licensee 
is treated as if it were a Licensee (see Sec. 107.160(b)(2)).
    LMI Enterprise means:
    (1) A Small Business that has at least 50% of its employees or 
tangible assets located in LMI Zone(s) or in which at least 35% of the 
full-time employees have primary residences in LMI Zone(s), in either 
case determined as of the time of application for SBIC financing; or
    (2) A Small Business that does not meet the requirements of 
paragraph (1) of this definition as of the time of application for SBIC 
financing but that certifies at such time that it intends to meet the 
requirements within 180 days after the closing of the SBIC financing. A 
Small Business qualifying under this paragraph (2) will no longer be an 
LMI Enterprise as of the 180th day after the closing of the SBIC 
financing unless, on or before such date, at least 50% of its employees 
or tangible assets are located in LMI Zones or at least 35% of its full-
time employees have primary residences in LMI Zones.
    LMI Investment means a financing of an LMI Enterprise, made after 
September 30, 1999, in the form of equity securities or debt securities 
that are junior to all existing or future secured borrowings of the 
business. The debt securities may be guaranteed and may be secured by 
the assets of the LMI Enterprise, but the guarantee may not be 
collateralized or otherwise secured.
    LMI Zone means any area located within a HUBZone (as defined in 13 
CFR 126.103), an Urban Empowerment Zone or Urban Enterprise Community 
(as designated by the Secretary of the Department of Housing and Urban 
Development), a Rural Empowerment Zone or Rural Enterprise Community (as 
designated by the Secretary of the Department of Agriculture), an area 
of Low Income or Moderate Income (as recognized by the Federal Financial 
Institutions Examination Council), or a county with Persistent Poverty 
(as classified by the Economic Research Service of the Department of 
Agriculture).
    Loan has the meaning set forth in Sec. 107.810.
    Loans and Investments means Portfolio Securities, Assets Acquired in

[[Page 35]]

Liquidation of Portfolio Securities, Operating Concerns Acquired, and 
Notes and Other Securities Received, as set forth in the Statement of 
Financial Position of SBA Form 468.
    Management Expenses has the meaning set forth in Sec. 107.520.
    1940 Act Company means a Licensee which is registered under the 
Investment Company Act of 1940.
    1980 Act Company means a Licensee which is registered under the 
Small Business Investment Incentive Act of 1980.
    Original Issue Price means the price paid by the purchaser for 
securities at the time of issuance.
    Participating Securities means preferred stock, preferred limited 
partnership interests, or similar instruments issued by Licensees, 
including debentures having interest payable only to the extent of 
earnings, all of which are subject to the terms set forth in 
Secs. 107.1500 through 107.1590 and section 303(g) of the Act.
    Partnership Licensee. See definition of Licensee in this section.
    Payment Date means, for a Participating Securities issuer, each 
February 1, May 1, August 1, and November 1 during the term of a 
Participating Security.
    Person means a natural person or legal entity.
    Pool means an aggregation of SBA guaranteed Debentures or SBA 
guaranteed Participating Securities approved by SBA.
    Portfolio means the securities representing a Licensee's total 
outstanding Financing of Small Businesses. It does not include idle 
funds or assets acquired in liquidation of Portfolio securities.
    Portfolio Concern means a Small Business Assisted by a Licensee.
    Preferred Securities means nonvoting preferred stock or nonvoting 
limited partnership interests issued to SBA prior to October 1, 1996, by 
a Section 301(d) Licensee. Such securities were issued at par value in 
the case of preferred stock, or at face value in the case of preferred 
limited partnership interests.
    Prioritized Payments has the meaning set forth in Sec. 107.1520.
    Private Capital has the meaning set forth in Sec. 107.230.
    Profit Participation has the meaning set forth in 
Sec. 107.1500(c)(3).
    Publicly Traded and Marketable means securities that are salable 
without restriction or that are salable within 12 months pursuant to 
Rule 144 (17 CFR 230.144) of the Securities Act of 1933, as amended, by 
the holder thereof (or in the case of an In-kind Distribution by the 
distributee thereof), and are of a class which is traded on a regulated 
stock exchange, or is listed in the Automated Quotation System of the 
National Association of Securities Dealers (NASDAQ), or has, at a 
minimum, at least two market makers as defined in the relevant sections 
of the Securities Exchange Act of 1934, as amended (15 U.S.C. 77b et 
seq.), and in all cases the quantity of which can be sold over a 
reasonable period of time without having an adverse impact upon the 
price of the stock.
    Qualified Non-private Funds has the meaning set forth in 
Sec. 107.230.
    Redemption Price means the amount required to be paid by the issuer, 
or successor to the issuer, of Preferred or Participating Securities to 
repurchase such securities from the holder. The Redemption Price shall 
be the Original Issue Price less any prepayments or prior redemptions.
    Regulatory Capital means:
    (1) General. Regulatory Capital means Private Capital, excluding 
non-cash assets contributed to a Licensee or a license applicant, and 
non-cash assets purchased by a license applicant, unless such assets 
have been converted to cash or have been approved by SBA for inclusion 
in Regulatory Capital. For purposes of this definition, sales of 
contributed non-cash assets with recourse or borrowing against such 
assets shall not constitute a conversion to cash.
    (2) Exclusion of questionable commitments. An investor's commitment 
to a Licensee is excluded from Regulatory Capital if SBA determines that 
the collectibility of the commitment is questionable.
    Retained Earnings Available for Distribution means Undistributed Net 
Realized Earnings less any Unrealized Depreciation on Loans and 
Investments (as reported on SBA Form 468), and

[[Page 36]]

represents the amount that a Licensee may distribute to investors 
(including SBA) as a profit Distribution, or transfer to Private 
Capital.
    SBA means the Small Business Administration, 409 Third Street, SW., 
Washington, DC 20416.
    Secondary Relative of an individual means:
    (1) A grandparent, grandchild, or any other ancestor or lineal 
descendent who is not a Close Relative;
    (2) An uncle, aunt, nephew, niece, or first cousin; or
    (3) A spouse of any person described in paragraph (1) or (2) of this 
definition.
    Section 301(c) Licensee has the meaning set forth in Sec. 107.100.
    Section 301(d) Licensee means a company licensed prior to October 1, 
1996 under section 301(d) of the Act as in effect on the date of 
licensing, that may provide Assistance only to Disadvantaged Businesses. 
A Section 301(d) Licensee may be organized as a for-profit corporation, 
as a non-profit corporation, or as a limited partnership.
    Short-term Financing means Financing for a term of less than five 
years in accordance with the regulations.
    SIC Manual means the latest issue of the Standard Industrial 
Classification Manual, prepared by the Office of Management and Budget, 
and available from the U.S. Government Printing Office, Superintendent 
of Documents, P.O. Box 371954, Pittsburgh, Pa., 15250-7954.
    Small Business means a small business concern as defined in section 
103(5) of the Act (including its Affiliates), which for purposes of size 
eligibility, meets the applicable criteria set forth in part 121 of this 
chapter.
    Smaller Enterprise has the meaning set forth in Sec. 107.710.
    Start-up Financing means an Equity Capital Investment in a Small 
Business that--
    (1) Has not had sales exceeding $3,000,000 or positive cash flow 
from operations in any of its last three full fiscal years; and
    (2) Was not formed to acquire any existing business, unless the 
acquired business satisfies paragraphs (1) and (2) of this definition.
    Temporary Debt has the meaning set forth in Sec. 107.570.
    Trust means the legal entity created for the purpose of holding 
guaranteed Debentures or Participating Securities and the guaranty 
agreement related thereto, receiving, holding and making any related 
payments, and accounting for such payments.
    Trust Certificate Rate means a fixed rate determined by the 
Secretary of the Treasury at the time Participating Securities or 
Debentures are pooled, taking into consideration the current average 
market yield on outstanding marketable obligations of the United States 
with maturities comparable to the maturities of the Trust Certificates 
being guaranteed by SBA, adjusted to the nearest one-eighth of one 
percent.
    Trust Certificates (TCs) means certificates issued by SBA, its agent 
or Trustee and representing ownership of all or a fractional part of a 
Trust or Pool of Debentures or Participating Securities.
    Trustee means the trustee or trustees of a Trust.
    Undistributed Net Realized Earnings means Undistributed Realized 
Earnings less Non-cash Gains/Income, each as reported on SBA Form 468.
    Unrealized Appreciation means the amount by which a Licensee's 
valuation of each of its Loans and Investments, as determined by its 
Board of Directors or General Partner(s) in accordance with Licensee's 
valuation policies, exceeds the cost basis thereof.
    Unrealized Depreciation means the amount by which a Licensee's 
valuation of each of its Loans and Investments, as determined by its 
Board of Directors or General Partner(s) in accordance with Licensee's 
valuation policies, is below the cost basis thereof.
    Unrealized Gain (Loss) on Securities Held means the sum of the 
Unrealized Appreciation and Unrealized Depreciation on all of a 
Licensee's Loans and Investments, less estimated future income tax 
expense or estimated realizable future income tax benefit, as 
appropriate.
    Venture Capital Financing has the meaning set forth in 
Sec. 107.1160.

[[Page 37]]

    Wind-up Plan has the meaning set forth in Sec. 107.590.

[61 FR 3189, Jan. 31, 1996; 61 FR 41496, Aug. 9, 1996, as amended at 62 
FR 11759, Mar. 13, 1997; 63 FR 5865, Feb. 5, 1998; 64 FR 52645, Sept. 
30, 1999; 64 FR 70995, Dec. 20, 1999]



                Subpart C--Qualifying for an SBIC License

                           Organizing an SBIC



Sec. 107.100  Organizing a Section 301(c) Licensee.

    Section 301(c) Licensee means a company licensed under section 
301(c) of the Act. It may be organized as a for-profit corporation or as 
a limited partnership created in accordance with the special rules of 
Sec. 107.160.



Sec. 107.115  1940 Act and 1980 Act Companies.

    A 1940 Act or 1980 Act Company is eligible to apply for an SBIC 
license, and an existing Licensee is eligible to apply for SBA's 
approval to convert to a 1940 Act or 1980 Act Company. In either case, 
the 1940 Act or 1980 Act Company may elect to be taxed as a regulated 
investment company under section 851 of the Internal Revenue Code of 
1986, as amended (26 U.S.C. 851). However, a Licensee making such 
election may make Distributions only as permitted under the applicable 
sections of this part (see the definition of Retained Earnings Available 
for Distribution, Sec. 107.585, and Secs. 107.1540 through 107.1580).



Sec. 107.120  Special rules for a Section 301(d) Licensee owned by another Licensee.

    With SBA's prior written approval, a Section 301(d) Licensee may 
operate as the subsidiary of one or more Licensees (participant 
Licensees), subject to the following:
    (a) Each participant Licensee must own at least 20 percent of the 
voting securities of the Section 301(d) Licensee.
    (b) A participant Licensee must treat its entire capital 
contribution to the subsidiary as a reduction of its Leverageable 
Capital. The participant Licensee's remaining Leverageable Capital must 
be sufficient to support its outstanding Leverage.
    (c) A participant Licensee may not transfer its Leverage to a 
subsidiary Section 301(d) Licensee.

[63 FR 5865, Feb. 5, 1998]



Sec. 107.130  Requirement for qualified management.

    When applying for a license, you must show, to the satisfaction of 
SBA, that your current or proposed management is qualified and has the 
knowledge, experience, and capability necessary for investing in the 
types of businesses contemplated by the Act, these regulations and your 
business plan. You must designate at least one individual as the 
official responsible for contact with SBA.



Sec. 107.140  SBA approval of initial Management Expenses.

    If you plan to obtain Leverage, you must have your Management 
Expenses approved by SBA at the time of licensing. (See Sec. 107.520 for 
the definition of Management Expenses.)



Sec. 107.150  Management-ownership diversity requirement.

    (a) Diversity requirement. You must satisfy the requirements in 
paragraphs (b), (c) and (d) of this section:
    (1) In order to obtain an SBIC license (unless you do not plan to 
obtain Leverage),
    (2) If at the time you were licensed you did not plan to obtain 
Leverage, but you now wish to be eligible for Leverage, or
    (3) If SBA so requires as a condition of approval of your transfer 
of Control under Sec. 107.440.
    (b) Percentage ownership requirement. (1) Except as provided in 
paragraph (b)(2) of this section, no Person or group of Persons who are 
Affiliates of one another may own or control, directly or indirectly, 
more than 70 percent of your Regulatory Capital or your Leverageable 
Capital.
    (2) Exception. An investor that is a traditional investment company, 
as determined by SBA, may own and control more than 70 percent of your 
Regulatory Capital and your Leverageable Capital. For purposes of this 
section, a traditional investment company must be a professionally 
managed firm organized exclusively to pool capital from

[[Page 38]]

more than one source for the purpose of investing in businesses that are 
expected to generate substantial returns to the firm's investors. In 
determining whether a firm is a traditional investment company for 
purposes of this section, SBA will also consider:
    (i) Whether the managers of the firm are unrelated to and 
unaffiliated with the investors in the firm;
    (ii) Whether the managers of the firm are authorized and motivated 
to make investments that, in their independent judgment, are likely to 
produce significant returns to all investors in the firm;
    (iii) Whether the firm benefits from the use of the SBIC only 
through the financial performance of the SBIC; and
    (iv) Other related factors.
    (c) Non-affiliation requirement. (1) General rule. At least 30 
percent of your Regulatory Capital and Leverageable Capital must be 
owned and controlled by three Persons unaffiliated with your management 
and unaffiliated with each other, and whose investments are significant 
in dollar and percentage terms as determined by SBA. Such Persons must 
not be your Associates (except for their status as your shareholders, 
limited partners, or members) and must not Control, be Controlled by, or 
be under Common Control with any of your Associates. A single 
``acceptable'' Institutional Investor may be substituted for two or 
three of the three Persons who are otherwise required under this 
paragraph. The following Institutional Investors are ``acceptable'' for 
this purpose:
    (i) Entities whose overall activities are regulated and periodically 
examined by state, Federal or other governmental authorities 
satisfactory to SBA;
    (ii) Entities listed on the New York Stock Exchange;
    (iii) Entities that are publicly-traded and that meet both the 
minimum numerical listing standards and the corporate governance listing 
standards of the New York Stock Exchange;
    (iv) Public or private employee pension funds;
    (v) Trusts, foundations, or endowments, but only if exempt from 
Federal income taxation; and
    (vi) Other Institutional Investors satisfactory to SBA.
    (2) Look-through for traditional investment company investors. SBA, 
in its sole discretion, may consider the requirement in paragraph (c)(1) 
of this section to be satisfied if at least 30 percent of your 
Regulatory Capital and Leverageable Capital is owned and controlled 
indirectly, through a traditional investment company, by Persons 
unaffiliated with your management.
    (d) Voting requirement. (1) Except as provided in paragraph (d)(2) 
of this section, the investors required for you to satisfy diversity may 
not delegate their voting rights to any Person who is your Associate, or 
who Controls, is Controlled by, or is under Common Control with any of 
your Associates, without prior SBA approval.
    (2) Exception. Paragraph (d)(1) of this section does not apply to 
investors in publicly-traded Licensees, to proxies given to vote in 
accordance with specific instructions for single specified meetings, or 
to any delegation of voting rights to a Person who is neither a 
diversity investor in the Licensee nor affiliated with management of the 
Licensee.
    (e) Requirement to maintain diversity. If you were required to have 
management-ownership diversity at any time, you must maintain such 
diversity while you have outstanding Leverage or Earmarked Assets. To 
maintain management-ownership diversity, you may continue to satisfy the 
diversity requirement as in effect at the time it was first applicable 
to you or you may satisfy the management-ownership diversity requirement 
as currently in effect. If, at any time, you no longer have the required 
management-ownership diversity, you must:
    (1) Notify SBA within 10 days; and
    (2) Re-establish diversity within six months. For the consequences 
of failure to re-establish diversity, see Secs. 107.1810(g) and 
107.1820(f).

[65 FR 71055, Nov. 29, 2000]



Sec. 107.160  Special rules for Licensees formed as limited partnerships.

    A limited partnership organized under State law solely for the 
purpose of performing the functions and conducting the activities 
contemplated

[[Page 39]]

under the Act may apply for a license under section 301(c) or section 
301 (d) of the Act (``Partnership Licensee'').
    (a) Number of Licensee's General Partners. If you are a Partnership 
Licensee, you must have as your general partner(s) at least two 
individuals, or at least one corporation, partnership, or limited 
liability company (LLC), or any combination of individuals, 
corporations, partnerships, or LLCs.
    (b) Entity General Partner of Licensee. A general partner which is a 
corporation, limited liability company or partnership (an ``Entity 
General Partner'') shall be organized under state law solely for the 
purpose of serving as the general partner of one or more Licensees.
    (1) SBA must approve any person who will serve as an officer, 
director, manager, or general partner of the Entity General Partner. 
This provision must be stated in an Entity General Partner's Certificate 
of Incorporation, member agreement, Limited Partnership Agreement or 
other similar governing instrument which must, in each case, accompany 
the license application.
    (2) An Entity General Partner is subject to the same examination and 
reporting requirements as a Licensee under section 310(b) of the Act. 
The restrictions and obligations imposed upon a Licensee by 
Secs. 107.1800 through 107.1820, and 107.30, 107.410 through 107.450, 
107.470, 107.475, 107.500, 107.510, 107.585, 107.600, 107.680, 107.690 
through 107.692, 107.865, and 107.1910 apply also to an Entity General 
Partner of a Licensee.
    (3) The general partner(s) of your Entity General Partner(s) will be 
considered your general partner.
    (4) If your Entity General Partner is a limited partnership, its 
limited partners may be considered your Control Person(s) if they meet 
the definition for Control Person in Sec. 107.50.
    (5) If your Entity General Partner is a limited partnership, it is 
subject to paragraph (a) of this section.
    (c) Other requirements for Partnership Licensees. If you are a 
Partnership Licensee:
    (1) You must have a minimum duration of ten years or two years 
following the maturity of your last-maturing Leverage security, 
whichever is longer. After 10 years, if all Leverage has been repaid or 
redeemed and all amounts due SBA, its agent, or Trustee have been paid, 
the Partnership Licensee may be terminated by a vote of your partners. 
(For purposes of this provision SBA is not considered a partner.);
    (2) None of your general partner(s) may be removed or replaced by 
your limited partners without prior written approval of SBA;
    (3) Any transferee of, or successor in interest to, your general 
partner shall have only the rights and liabilities of a limited partner 
pending SBA's written approval of such transfer or succession; and
    (4) You must incorporate all the provisions in this paragraph (c) in 
your Limited Partnership Agreement.
    (d) Obligations of a Control Person. All Control Persons are bound 
by the disciplinary provisions of sections 313 and 314 of the Act and by 
the conflict-of-interest rules under section 312 of the Act. The term 
Licensee, as used in Secs. 107.30, 107.460, and 107.680 includes all of 
the Licensee's Control Persons. The term Licensee as used in 
Sec. 107.670 includes only the Licensee's general partner(s). The 
conditions specified in Secs. 107.1800 through 107.1820 and 
Sec. 107.1910 apply to all general partners.
    (e) Liability of general partner for partnership debts to SBA. 
Subject to section 314 of the Act, your general partner is not liable 
solely by reason of its status as a general partner for repayment of any 
Leverage or debts you owe to SBA unless SBA, in the exercise of 
reasonable investment prudence, and with regard to your financial 
soundness, determines otherwise prior to the purchase or guaranty of 
your Leverage.
    (f) Reorganization of Licensee. A corporate Licensee wishing to 
reorganize as a Partnership Licensee, or a Partnership Licensee wishing 
to reorganize as a Corporate Licensee, may apply to SBA for approval 
under Sec. 107.470.
    (g) Special Leverage requirement. Before your first issuance of 
Leverage, you must furnish SBA with evidence that you qualify as a 
partnership for tax purposes, either by a ruling from the Internal 
Revenue Service, or by an opinion of counsel.

[[Page 40]]

                          Capitalizing an SBIC



Sec. 107.200  Adequate capital for Licensees.

    You must meet the requirements of this Sec. 107.200 to qualify for a 
license, to continue as a Licensee, and to receive Leverage.
    (a) You must have enough Regulatory Capital to provide reasonable 
assurance that:
    (1) You will operate soundly and profitably over the long term; and
    (2) You will be able to operate actively in accordance with your 
Articles and within the context of your business plan, as approved by 
SBA.
    (b) In SBA's sole discretion, you must be economically viable, 
taking into consideration actual and anticipated income and losses on 
your Loans and Investments, and the experience and qualifications of 
your owners and managers.



Sec. 107.210  Minimum capital requirements for Licensees.

    (a) Companies licensed on or after October 1, 1996. A company 
licensed on or after October 1, 1996 must have Leverageable Capital of 
at least $2,500,000 and must meet the applicable minimum Regulatory 
Capital requirement:
    (1) Licensees other than Participating Securities issuers. A 
Licensee that does not wish to be eligible to apply for Participating 
Securities must have Regulatory Capital of at least $5,000,000. As an 
exception to this general rule, SBA in its sole discretion and based on 
a showing of special circumstances and good cause may license an 
applicant with Regulatory Capital of at least $3,000,000, but only if 
the applicant:
    (i) Has satisfied all licensing standards and requirements except 
the minimum capital requirement, as determined solely by SBA;
    (ii) Has a viable business plan reasonably projecting profitable 
operations; and
    (iii) Has a reasonable timetable for achieving Regulatory Capital of 
at least $5,000,000.
    (2) Participating Securities issuers. A Licensee that wishes to be 
eligible to apply for Participating Securities must have Regulatory 
Capital of at least $10,000,000, unless it demonstrates to SBA's 
satisfaction that it can be financially viable over the long term with a 
lower amount. Under no circumstances can the Licensee have Regulatory 
Capital of less than $5,000,000.
    (b) Companies licensed before October 1, 1996. A company licensed 
before October 1, 1996 must meet the minimum capital requirements 
applicable to such company, as required by the regulations in effect on 
September 30, 1996. See Sec. 107.1120(c)(2) for Leverage eligibility 
requirements.

[63 FR 5866, Feb. 5, 1998]



Sec. 107.230  Permitted sources of Private Capital for Licensees.

    Private Capital means the contributed capital of a Licensee, plus 
unfunded binding commitments by Institutional Investors (including 
commitments evidenced by a promissory note) to contribute capital to a 
Licensee.
    (a) Contributed capital. For purposes of this section, contributed 
capital means the paid-in capital and paid-in surplus of a Corporate 
Licensee, or the partners' contributed capital of a Partnership 
Licensee, in either case subject to the limitations in paragraph (b) of 
this section.
    (b) Exclusions from Private Capital. Private Capital does not 
include:
    (1) Funds borrowed by a Licensee from any source.
    (2) Funds obtained through the issuance of Leverage.
    (3) Funds obtained directly or indirectly from any Federal, State, 
or local government agency or instrumentality, except for:
    (i) Funds invested by a public pension fund;
    (ii) Funds obtained from the business revenues (excluding any 
governmental appropriation) of any federally chartered or government-
sponsored corporation established before October 1, 1987, to the extent 
that such revenues are reflected in the retained earnings of the 
corporation; and
    (iii) ``Qualified Non-private Funds'' as defined in paragraph (d) of 
this section.
    (4) Any portion of a commitment from an Institutional Investor with 
a net worth of less than $10 million that exceeds 10 percent of such 
Institutional

[[Page 41]]

Investor's net worth and is not backed by a letter of credit from a 
State or National bank acceptable to SBA.
    (c) Non-cash capital contributions. Capital contributions in a form 
other than cash are subject to the limitations in Sec. 107.240.
    (d) Qualified Non-private Funds. Private Capital includes 
``Qualified Non-private Funds'' as defined in this paragraph (d); 
however, investors of Qualified Non-private Funds must not control, 
directly or indirectly, a Licensee's management, or its board of 
directors or general partner(s). Qualified Non-private Funds are:
    (1) Funds directly or indirectly invested in any Licensee on or 
before August 16, 1982 by any Federal agency except SBA, under a statute 
explicitly mandating the inclusion of such funds in ``Private Capital'';
    (2) Funds directly or indirectly invested in any Licensee by any 
Federal agency under a statute that is enacted after September 4, 1992, 
explicitly mandating the inclusion of such funds in ``Private Capital'';
    (3) Funds invested in any Licensee or license applicant by one or 
more State or local government entities (including any guarantee 
extended by such entities) in an aggregate amount that does not exceed 
33 percent of Regulatory Capital; and
    (4) Funds invested in or committed in writing to any Section 301(d) 
Licensee prior to October 1, 1996, from the following sources:
    (i) A State financing agency, or similar agency or instrumentality, 
if the funds invested are derived from such agency's net income and not 
from appropriated State or local funds; and
    (ii) Grants made by a state or local government agency or 
instrumentality into a nonprofit corporation or institution exercising 
discretionary authority with respect to such funds, if SBA determines 
that such funds have taken on a private character and the nonprofit 
corporation or institution is not a mere conduit.
    (e) You may not accept any capital contribution made with funds 
borrowed by a Person seeking to own an equity interest (whether direct 
or indirect, beneficial or of record) of at least 10 percent of your 
Private Capital. This exclusion does not apply if:
    (1) Such Person's net worth is at least twice the amount borrowed; 
or
    (2) SBA gives its prior written approval of the capital 
contribution.

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5866, Feb. 5, 1998; 64 
FR 70995, Dec. 20, 1999]



Sec. 107.240  Limitations on including non-cash capital contributions in Private Capital.

    Non-cash capital contributions to a Licensee or license applicant 
are included in Private Capital only if they fall into one of the 
following categories:
    (a) Direct obligations of, or obligations guaranteed as to principal 
and interest by, the United States.
    (b) Services rendered or to be rendered to you, priced at no more 
than their fair market value.
    (c) Tangible assets used in your operations, priced at no more than 
their fair market value.
    (d) Shares in a Disadvantaged Business received by a subsidiary 
Section 301(d) Licensee from its parent Licensee, valued at the lower of 
cost or fair value.
    (e) Other non-cash assets approved by SBA.



Sec. 107.250  Exclusion of stock options issued by Licensee from Management Expenses.

    Stock options issued by any Licensee, including a 1940 or 1980 Act 
Company, are not considered compensation and therefore do not count as 
part of a Licensee's Management Expenses.

                      Applying for an SBIC License



Sec. 107.300  License application form and fee.

    The license application must be submitted on SBA Form 415 together 
with a processing fee computed as follows:
    (a) All license applicants will pay a base fee of $10,000.
    (b) All applicants who will be Partnership Licensees will pay an 
additional $5,000 fee, for a total of $15,000.
    (c) All applicants who will be issuing Participating Securities will 
pay an additional $5,000 fee, for a total of

[[Page 42]]

$15,000, or a total fee of $20,000 if they also intend to be Partnership 
Licensees.



  Subpart D--Changes in Ownership, Control, or Structure of Licensee; 
                           Transfer of License

               Changes in Control or Ownership of Licensee



Sec. 107.400  Changes in ownership of 10 percent or more of Licensee but no change of Control.

    (a) Prior approval requirements. You must obtain SBA's prior written 
approval for any proposed transfer or issuance of ownership interests 
that results in the ownership (beneficial or of record) by any Person, 
or group of Persons acting in concert, of at least 10 percent of any 
class of your stock or partnership capital.
    (b) Fee. A processing fee of $200 must accompany each such request 
for approval of a change of ownership.



Sec. 107.410  Changes in Control of Licensee (through change in ownership or otherwise).

    (a) Prior approval requirements. You must obtain SBA's prior written 
approval for any proposed transaction or event that results in Control 
by any Person(s) not previously approved by SBA.
    (b) Fee. A processing fee of $10,000 must accompany any application 
for approval of one or more transactions or events that will result in a 
transfer of Control.



Sec. 107.420  Prohibition on exercise of ownership or Control rights in Licensee before SBA approval.

    Without prior written SBA approval, no change of ownership or 
Control may take effect and no officer, director, employee or other 
Person acting on your behalf shall:
    (a) Register on your books any transfer of ownership interest to the 
proposed new owner(s);
    (b) Permit the proposed new owner(s) to exercise voting rights with 
respect to such ownership interest (including directly or indirectly 
procuring or voting any proxy, consent or authorization as to such 
voting rights at any shareholders' or partnership meeting);
    (c) Permit the proposed new owner(s) to participate in any manner in 
the conduct of your affairs (including exercising control over your 
books, records, funds or other assets; participating directly or 
indirectly in any disposition thereof; or serving as an officer, 
director, partner, employee or agent); or
    (d) Allow ownership or Control to pass to another Person.



Sec. 107.430  Notification to SBA of transactions that may change ownership or Control.

    You must promptly notify SBA as soon as you have knowledge of 
transactions or events that may result in a transfer of Control or 
ownership of at least 10 percent of your capital. If there is any doubt 
as to whether a particular transaction or event will result in such a 
change, report the facts to SBA.



Sec. 107.440  Standards governing prior SBA approval for a proposed transfer of Control.

    SBA approval is contingent upon full disclosure of the real parties 
in interest, the source of funds for the new owners' interest, and other 
data requested by SBA. As a condition of approving a proposed transfer 
of control, SBA may:
    (a) Require an increase in your Regulatory Capital;
    (b) Require the new owners or the transferee's Control Person(s) to 
assume, in writing, personal liability for your Leverage, effective only 
in the event of their direct or indirect participation in any transfer 
of Control not approved by SBA; or
    (c) Require compliance with any other conditions set by SBA, 
including compliance with the requirements for minimum capital and 
management-ownership diversity as in effect at such time for new license 
applicants.

[61 FR 3189, Jan. 31, 1996]



Sec. 107.450  Notification to SBA of pledge of Licensee's shares.

    (a) You must notify SBA in writing, within 30 calendar days, of the 
terms of any transaction in which:
    (1) Any Person, or group of Persons acting in concert, pledges 
shares of

[[Page 43]]

your stock (or equivalent ownership interests) as collateral for 
indebtedness; and
    (2) The shares pledged are at least 10 percent of your Regulatory 
Capital.
    (b) If the transaction creates a change of ownership or Control, you 
must comply with Sec. 107.400 or Sec. 107.410, as appropriate.

  Restrictions on Common Control or Ownership of Two or More Licensees



Sec. 107.460  Restrictions on Common Control or ownership of two (or more) Licensees.

    (a) General rule. Without SBA's prior written approval, you must not 
have an officer, director, manager, Control Person, or owner (with a 
direct or indirect ownership interest of at least 10 percent) who is 
also:
    (1) An officer, director, manager, Control Person, or owner (with a 
direct or indirect ownership interest of at least 10 percent) of another 
Licensee; or
    (2) An officer or director of any Person that directly or indirectly 
controls, or is controlled by, or is under Common Control with, another 
Licensee.
    (b) Exceptions to general rule. This Sec. 107.460 does not apply to:
    (1) Common officers, directors, managers, or owners of a Section 
301(c) Licensee and its Section 301(d) subsidiary; or
    (2) Common officers, directors, managers, Control Persons, or owners 
of two (or more) Licensees which have no Leverage.

                     Change in Structure of Licensee



Sec. 107.470  SBA approval of merger, consolidation, or reorganization of Licensee.

    (a) Prior approval requirements. You may not merge, consolidate, 
change form of organization (corporation or partnership) or reorganize 
without SBA's prior written approval. Any such merger or consolidation 
will be subject to Sec. 107.440.
    (b) Fee. A processing fee of $5,000 must accompany any application 
for approval of a change in your form of organization (from corporation 
to partnership or partnership to corporation).

                           Transfer of License



Sec. 107.475  Transfer of license.

    You may not transfer your license in any manner without SBA's prior 
written approval.



            Subpart E--Managing the Operations of a Licensee

                          General Requirements



Sec. 107.500  Lawful operations under the Act.

    You must engage only in the activities contemplated by the Act and 
in no other activities.



Sec. 107.501  Identification as a Licensee.

    You must display your SBIC license in a prominent location. You must 
also have a listed telephone number. Before collecting an application 
fee or extending Financing to a Small Business, you must obtain a 
written statement from the concern acknowledging its awareness that you 
are ``a Federal licensee under the Small Business Investment Act of 
1958, as amended.''



Sec. 107.502  Representations to the public.

    You may not represent or imply to anyone that the SBA, the U.S. 
Government or any of its agencies or officers has approved any ownership 
interests you have issued or obligations you have incurred. Be certain 
to include a statement to this effect in any solicitation to investors. 
Example: You may not represent or imply that ``SBA stands behind the 
Licensee'' or that ``Your capital is safe because SBA's experts review 
proposed investments to make sure they are safe for the Licensee.''



Sec. 107.503  Licensee's adoption of an approved valuation policy.

    (a) Valuation guidelines. You must prepare, document and report the 
valuations of your Loans and Investments in accordance with the 
Valuation Guidelines for SBICs issued by SBA. These guidelines may be 
obtained from SBA's Investment Division.

[[Page 44]]

    (b) SBA approval of valuation policy. You must have a written 
valuation policy approved by SBA for use in determining the value of 
your Loans and Investments. You must either:
    (1) Adopt without change the model valuation policy set forth in 
section III of the Valuation Guidelines for SBICs; or
    (2) Obtain SBA's prior written approval of an alternative valuation 
policy.
    (c) Responsibility for valuations. Your board of directors or 
general partner(s) will be solely responsible for adopting your 
valuation policy and for using it to prepare valuations of your Loans 
and Investments for submission to SBA. If SBA reasonably believes that 
your valuations, individually or in the aggregate, are materially 
misstated, it reserves the right to require you to engage, at your 
expense, an independent third party, acceptable to SBA, to substantiate 
the valuations.
    (d) Frequency of valuations. (1) If you have outstanding Leverage or 
Earmarked Assets, you must value your Loans and Investments at the end 
of the second quarter of your fiscal year, and at the end of your fiscal 
year.
    (2) Otherwise, you must value your Loans and Investments only at 
your fiscal year end.
    (3) On a case-by-case basis, SBA may require you to perform 
valuations more frequently.
    (4) You must report material adverse changes in valuations at least 
quarterly, within thirty days following the close of the quarter.
    (e) Review of valuations by independent public accountant. (1) For 
valuations performed as of the end of your fiscal year, your independent 
public accountant must review your valuation procedures and the 
implementation of such procedures, including adequacy of documentation.
    (2) The independent public accountant's report on your audited 
annual financial statements (SBA Form 468) must include a statement that 
your valuations were prepared in accordance with your approved valuation 
policy established in accordance with section 310(d)(2) of the Act.

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5866, Feb. 5, 1998]



Sec. 107.504  Equipment and office requirements.

    (a) Computer capability. You must have a personal computer with a 
modem, and be able to use this equipment to prepare reports (using SBA-
provided software) and transmit them to SBA. In addition, by March 31, 
2000, you must have access to the Internet and the capability to send 
and receive electronic mail via the Internet.
    (b) Facsimile capability. You must be able to receive facsimile 
messages 24 hours per day at your primary office.
    (c) Accessible office. You must maintain an office that is 
convenient to the public and is open for business during normal working 
hours.

[64 FR 70995, Dec. 20, 1999]



Sec. 107.505  Facsimile requirement.

    You must be able to receive fax messages 24 hours per day at your 
primary office.



Sec. 107.506  Safeguarding Licensee's assets/Internal controls.

    You must adopt a plan to safeguard your assets and monitor the 
reliability of your financial data, personnel, Portfolio, funds and 
equipment. You must provide your bank and custodian with a certified 
copy of your resolution or other formal document describing your control 
procedures.



Sec. 107.507  Violations based on false filings and nonperformance of agreements with SBA.

    The following shall constitute a violation of this part:
    (a) Nonperformance. Nonperformance of any of the requirements of any 
Debenture, Participating Security or Preferred Security, or of any 
written agreement with SBA.
    (b) False statement. In any document submitted to SBA:
    (1) Any false statement knowingly made; or
    (2) Any misrepresentation of a material fact; or
    (3) Any failure to state a material fact. A material fact is any 
fact which is necessary to make a statement not misleading in light of 
the circumstances under which the statement was made.

[[Page 45]]



Sec. 107.509  Employment of SBA officials.

    Without SBA's prior written approval, for a period of two years 
after the date of your most recent issuance of Leverage (or the receipt 
of any SBA Assistance as defined in part 105 of this chapter), you are 
not permitted to employ, offer employment to, or retain for professional 
services, any person who:
    (a) Served as an officer, attorney, agent, or employee of SBA on or 
within one year before such date; and
    (b) As such, occupied a position or engaged in activities which, in 
SBA's determination, involved discretion with respect to the granting of 
Assistance under the Act.

                       Management and Compensation



Sec. 107.510  SBA approval of Licensee's Investment Adviser/Manager.

    You may employ an Investment Adviser/Manager who will be subject to 
the supervision of your board of directors or general partner. If you 
have Leverage or plan to seek Leverage, you must obtain SBA's prior 
written approval of the management contract. SBA's approval of an 
Investment Adviser/Manager for one Licensee does not indicate approval 
of that manager for any other Licensee.
    (a) Management contract. The contract must:
    (1) Specify the services the Investment Adviser/Manager will render 
to you and to the Small Businesses in your Portfolio; and
    (2) Indicate the basis for computing Management Expenses.
    (b) Material change to approved management contract. If there is a 
material change, both you and SBA must approve such change in advance. 
If you are uncertain if the change is material, submit the proposed 
revision to SBA.



Sec. 107.520  Management Expenses of a Licensee.

    SBA must approve any increases in your Management Expenses if you 
have outstanding Leverage or Earmarked Assets.
    (a) Definition of Management Expenses. Management Expenses include:
    (1) Salaries;
    (2) Office expenses;
    (3) Travel;
    (4) Business development;
    (5) Office and equipment rental;
    (6) Bookkeeping; and
    (7) Expenses related to developing, investigating and monitoring 
investments.
    (b) Management Expenses do not include services provided by 
specialized outside consultants, outside lawyers and independent public 
accountants, if they perform services not generally performed by a 
venture capital company.
    (c) If your Management Expenses have not already been approved by 
SBA, you must submit such expenses for approval with your SBA Form 468 
for your first fiscal year ending after January 31, 1996.

                      Cash Management by a Licensee



Sec. 107.530  Restrictions on investments of idle funds by leveraged Licensees.

    (a) Applicability of this section. This Sec. 107.530 applies if you 
have outstanding Leverage or if you have applied for Leverage.
    (b) Permitted investments of idle funds. Funds not invested in Small 
Businesses must be maintained in:
    (1) Direct obligations of, or obligations guaranteed as to principal 
and interest by, the United States, which mature within 15 months from 
the date of the investment; or
    (2) Repurchase agreements with federally insured institutions, with 
a maturity of seven days or less. The securities underlying the 
repurchase agreements must be direct obligations of, or obligations 
guaranteed as to principal and interest by, the United States. The 
securities must be maintained in a custodial account at a federally 
insured institution; or
    (3) Certificates of deposit with a maturity of one year or less, 
issued by a federally insured institution; or
    (4) A deposit account in a federally insured institution, subject to 
a withdrawal restriction of one year or less; or
    (5) A checking account in a federally insured institution; or
    (6) A reasonable petty cash fund.
    (c) Deposit of funds in excess of the insured amount. (1) You are 
permitted to

[[Page 46]]

deposit funds in a federally insured institution in excess of the 
institution's insured amount, but only if the institution is ``well 
capitalized'' in accordance with the definition set forth in regulations 
of the Federal Deposit Insurance Corporation, as amended (12 CFR 
325.103).
    (2) Exception: You may make a temporary deposit (not to exceed 30 
days) in excess of the insured amount, in a transfer account established 
to facilitate the receipt and disbursement of funds or to hold funds 
necessary to honor Commitments issued.
    (d) Deposit of funds in Associate institution. A deposit in, or a 
repurchase agreement with, a federally insured institution that is your 
Associate is not considered a Financing of such Associate under 
Sec. 107.730, provided the terms of such deposit or repurchase agreement 
are no less favorable than those available to the general public.

               Borrowing by Licensees From Non-SBA Sources



Sec. 107.550  Prior approval of secured third-party debt of leveraged Licensees.

    (a) Definition. In this Sec. 107.550, ``secured third-party debt'' 
means any non-SBA debt secured by any of your assets, including secured 
guarantees and other contingent obligations that you voluntarily assume, 
secured lines of credit, and secured Temporary Debt of a Licensee with 
outstanding Participating Securities.
    (b) General rule. If you have outstanding Leverage, you must get 
SBA's written approval before you incur any secured third-party debt or 
refinance any debt with secured third-party debt, including any renewal 
of a secured line of credit, increase in the maximum amount available 
under a secured line of credit, or expansion of the scope of a security 
interest or lien. For purposes of this paragraph (b), ``expansion of the 
scope of a security interest or lien'' does not include the substitution 
of one asset or group of assets for another, provided the asset values 
(as reported on your most recent annual Form 468) are comparable.
    (c) Additional rule for secured lines of credit in existence on 
April 8, 1994. If you have outstanding Leverage and you have a secured 
line of credit that was created on or before April 8, 1994, you must 
receive SBA's written approval of the line before you increase the 
amounts outstanding thereunder.
    (d) Conditions for SBA approval. As a condition of granting its 
approval under this Sec. 107.550, SBA may impose such restrictions or 
limitations as it deems appropriate, taking into account your historical 
performance, current financial position, proposed terms of the secured 
debt and amount of aggregate debt you will have outstanding (including 
Leverage). SBA will not favorably consider any requests for approval 
which include a blanket lien on all your assets, or a security interest 
in your investor commitments in excess of 125 percent of the proposed 
borrowing.
    (e) Thirty day approval. Unless SBA notifies you otherwise within 30 
days after it receives your request, you may consider your request 
automatically approved if:
    (1) You are in regulatory compliance;
    (2) The security interest in your assets is limited to either those 
assets being acquired with the borrowed funds or an asset coverage ratio 
of no more than 2:1;
    (3) Your Leverage does not exceed 150 percent of your Leverageable 
Capital; and
    (4) Your request is for approval of a secured line of credit that 
would not cause your total outstanding borrowings (not including 
Leverage) to exceed 50 percent of your Leverageable Capital.



Sec. 107.560  Subordination of SBA's creditor position.

    (a) Debentures purchased or guaranteed on or before July 1, 1991. 
Under the terms of any Debenture purchased or guaranteed by SBA on or 
before July 1, 1991, SBA's unsecured claims against you, as a Debenture-
holder or as subrogee, are subordinated in favor of all your other 
creditors, except to the extent that such claims may be subject to 
equitable subordination in SBA's favor.
    (b) Debentures purchased or guaranteed after July 1, 1991, including 
refinancings of Debentures previously purchased or guaranteed. (1) Under 
the terms of any

[[Page 47]]

Debenture purchased or guaranteed by SBA after July 1, 1991, SBA's 
unsecured claims against you, as a Debenture-holder or as subrogee, are 
subordinated only in favor of non-Associate lenders; and, to the extent 
that your indebtedness to such lenders exceeds the lesser of $10,000,000 
or 200 percent of your Regulatory Capital (determined as of the date 
your Debentures were purchased or guaranteed), SBA's unsecured claims 
enjoy parity with those of other unsecured creditors, except with 
respect to indebtedness created on or before July 1, 1991.
    (2) In order to induce others to lend you money after your Debenture 
has been purchased or guaranteed, SBA may agree in writing on a case-by-
case basis to subordinate its unsecured claims, on such terms as it may 
determine, in favor of one or more of your Associates, or in favor of 
other lenders in excess of the amounts mentioned in paragraph (b)(1) of 
this section.
    (3) SBA reserves the authority to refuse to subordinate its claims 
if it determines, at the time you request your Debenture be purchased or 
guaranteed, that the exercise of reasonable investment prudence and your 
financial condition warrant such refusal.



Sec. 107.570  Restrictions on third-party debt of issuers of Participating Securities.

    (a) General. Temporary Debt is the only debt (other than Leverage) 
that you are permitted to incur if you have applied to issue 
Participating Securities or if you have outstanding Participating 
Securities. For additional rules governing secured Temporary Debt, see 
Sec. 107.550.
    (b) Definition of Temporary Debt. Temporary Debt means your short-
term borrowings if:
    (1) Such borrowings are for the purpose of maintaining your 
operating liquidity or providing funds for a particular Financing of a 
Small Business;
    (2) The funds are borrowed from a regulated financial institution or 
a regulated credit company (or, if approved by SBA on a case-by-case 
basis, from non-regulated lenders including shareholders or partners);
    (3) Your total outstanding borrowings (not including Leverage) do 
not exceed 50 percent of your Leverageable Capital; and
    (4) All such borrowings are fully paid off for at least 30 
consecutive days during your fiscal year so that you have no outstanding 
third-party debt for 30 days.

           Voluntary Decrease in Licensee's Regulatory Capital



Sec. 107.585  Voluntary decrease in Licensee's Regulatory Capital.

    You must obtain SBA's prior written approval to reduce your 
Regulatory Capital by more than two percent in any fiscal year, unless 
otherwise permitted under Secs. 107.1560 and 107.1570. At all times, you 
must retain sufficient Regulatory Capital to meet the minimum capital 
requirements in the Act and Sec. 107.210, and sufficient Leverageable 
Capital to avoid having excess Leverage in violation of section 303 of 
the Act and Secs. 107.1150 through 107.1170.

           Requirement To Conduct Active Investment Operations



Sec. 107.590  Licensee's requirement to maintain active operations.

    (a) Activity test. You must conduct active operations, as determined 
under this Sec. 107.590, as a condition of your license. You will be 
considered active if:
    (1) During the eighteen months preceding your most recent fiscal 
year end, you made Financings totaling at least 20 percent of your 
Regulatory Capital; or
    (2) Your idle funds did not exceed 20 percent of your total assets 
(at cost) at your most recent fiscal year end.
    (b) Permitted exceptions to activity requirements. You are 
considered active if your failure to meet the requirements in paragraph 
(a) of this section is the result of one or more of the following 
factors:
    (1) Your excess idle funds are the result of the receipt, within the 
previous nine months, of realized gains, repayments, additional capital 
contributions, or Leverage.
    (2) It is necessary for you to maintain excess idle funds to conduct 
your operations because:

[[Page 48]]

    (i) Your unfunded commitments from investors are no more than 20 
percent of your Regulatory Capital; and
    (ii) You cannot receive additional Leverage, solely because SBA has 
insufficient funds available.
    (3) You have not made sufficient Financings because of a lack of 
available funds, evidenced by Loans and Investments (at cost) equal to 
at least 90 percent of your Combined Capital as of your most recent 
fiscal year end.
    (4) You have not made sufficient Financings solely because SBA has 
restricted your ability to make investments.
    (c) Applicability of activity requirements. The activity 
requirements in paragraph (a) of this section do not apply if you have 
filed a ``Wind-up Plan'' approved by SBA. ``Wind-up Plan'' means a plan 
that you prepare when you decide that you will no longer make any 
Financings other than follow-on investments, and that you update 
annually when you file your SBA Form 468. The plan must contain your 
best estimates of the following:
    (1) The remaining number of years you expect to operate.
    (2) For each of your Loans and Investments, the expected liquidation 
date and anticipated proceeds.
    (3) The timing of your repayment of obligations to SBA.
    (4) The timing and amount of any planned reductions in your 
Management Expenses.
    (d) Phase-in of activity requirements. (1) General rule. You must 
meet the activity requirements in this Sec. 107.590 as of the end of 
your first full fiscal year beginning after January 31, 1996. Until 
then, you will be considered active if you meet the activity 
requirements in effect on January 30, 1996.
    (2) Rule for new Licensees. If you received your license after 
January 31, 1996, or if you received your license less than eighteen 
months before the fiscal year end determined under paragraph (d)(1) of 
this section, you must meet the activity requirements in this 
Sec. 107.590 as of the end of your second full fiscal year beginning 
after the date you received your license.



 Subpart F--Recordkeeping, Reporting, and Examination Requirements for 
                                Licensees

                Recordkeeping Requirements for Licensees



Sec. 107.600  General requirement for Licensee to maintain and preserve records.

    (a) Maintaining your accounting records. You must establish and 
maintain your accounting records using SBA's standard chart of accounts 
for Licensees, unless SBA approves otherwise.
    (b) Location of records. You must keep the following records at your 
principal place of business or, in the case of paragraph (b)(3) of this 
section, at the branch office that is primarily responsible for the 
transaction:
    (1) All your accounting and other financial records;
    (2) All minutes of meetings of directors, stockholders, executive 
committees, partners, or other officials; and
    (3) All documents and supporting materials related to your business 
transactions, except for any items held by a custodian under a written 
agreement between you and a Portfolio Concern or non-SBA lender, or any 
securities held in a safe deposit box, or by a licensed securities 
broker in an amount not exceeding the broker's per-account insurance 
coverage.
    (c) Preservation of records. You must retain all the records that 
are the basis for your financial reports. Such records must be preserved 
for the periods specified in this paragraph (c), and must remain 
accessible for the first two years of the preservation period.
    (1) You must preserve for at least 15 years or, in the case of a 
Partnership Licensee, at least two years beyond the date of liquidation:
    (i) All your accounting ledgers and journals, and any other records 
of assets, asset valuations, liabilities, equity, income, and expenses.
    (ii) Your Articles, bylaws, minute books, and license application.
    (iii) All documents evidencing ownership of the Licensee including 
ownership ledgers, and ownership transfer registers.

[[Page 49]]

    (2) You must preserve for at least six years all supporting 
documentation (such as vouchers, bank statements, or canceled checks) 
for the records listed in paragraph (b)(1) of this section.
    (3) After final disposition of any item in your Portfolio, you must 
preserve for at least six years:
    (i) Financing applications and Financing instruments.
    (ii) All loan, participation, and escrow agreements.
    (iii) Size status declarations (SBA Form 480) and Financing 
Eligibility Statements (SBA Form 1941).
    (iv) Any capital stock certificates and warrants of the Portfolio 
Concern that you did not surrender or exercise.
    (v) All other documents and supporting material relating to the 
Portfolio Concern, including correspondence.
    (4) You may substitute a microfilm or computer-scanned or generated 
copy for the original of any record covered by this paragraph (c).



Sec. 107.610  Required certifications for Loans and Investments.

    For each of your Loans and Investments, you must have the documents 
listed in this section. You must keep these documents in your files and 
make them available to SBA upon request.
    (a) SBA Form 480, the Size Status Declaration, executed both by you 
and by the concern you are financing. By executing this document, both 
parties certify that the concern is a Small Business. For securities 
purchased from an underwriter in a public offering, you may substitute a 
prospectus showing that the concern is a Small Business.
    (b) SBA Form 652, a certification by the concern you are financing 
that it will not illegally discriminate (see part 112 of this chapter).
    (c) SBA Form 1941 (for Section 301(d) Licensees only), executed both 
by you and by the concern you are financing. By executing this document, 
both parties certify that the concern is a Disadvantaged Business.
    (d) A certification by the concern you are financing of the intended 
use of the proceeds. For securities purchased from an underwriter in a 
public offering, you may substitute a prospectus indicating the intended 
use of proceeds.
    (e) For each LMI Investment:
    (1) A certification by the concern, dated as of the date of 
application for SBIC financing, as to the basis for its qualification as 
an LMI Enterprise,
    (2) If the concern qualifies as an LMI Enterprise as defined in 
paragraph (2) of the definition of LMI Enterprise in Sec. 107.50, an 
additional certification dated no later than the date 180 days after the 
closing of the LMI Investment, as to the location of the concern's 
employees or tangible assets or the principal residences of its full-
time employees as of the date of such certification, and
    (3) Certification(s) by the SBIC, made contemporaneously with the 
certification(s) of the concern, that the concern qualifies as an LMI 
Enterprise as of the date(s) of the concern's certification(s) and the 
basis for such qualification.

[61 FR 3189, Jan. 31, 1996, as amended at 64 FR 52646, Sept. 30, 1999]



Sec. 107.620  Requirements to obtain information from Portfolio Concerns.

    All the information required by this section is subject to the 
requirements of Sec. 107.600 and must be in English.
    (a) Information for initial Financing decision. Before extending any 
Financing, you must require the applicant to submit such financial 
statements, plans of operation (including intended use of financing 
proceeds), cash flow analyses and projections as are necessary to 
support your investment decision. The information submitted must be 
consistent with the size and type of the business and the amount of the 
proposed Financing.
    (b) Updated financial information. (1) The terms of each Financing 
must require the Portfolio Concern to provide, at least annually, 
sufficient financial information to enable you to perform the following 
required procedures:
    (i) Evaluate the financial condition of the Portfolio Concern for 
the purpose of valuing your investment;
    (ii) Determine the continued eligibility of the Portfolio Concern; 
and
    (iii) Verify the use of Financing proceeds.

[[Page 50]]

    (2) The information submitted to you must be certified by the 
president, chief executive officer, treasurer, chief financial officer, 
general partner, or proprietor of the Portfolio Concern.
    (3) For financial and valuation purposes, you may accept a complete 
copy of the Federal income tax return filed by the Portfolio Concern (or 
its proprietor) in lieu of financial statements, but only if appropriate 
for the size and type of the business involved.
    (4) The requirements in this paragraph (b) do not apply when you 
acquire securities from an underwriter in a public offering (see 
Sec. 107.825). In that case, you must keep copies of all reports 
furnished by the Portfolio Concern to the holders of its securities.
    (c) Information required for examination purposes. You must obtain 
any information requested by SBA's examiners for the purpose of 
verifying the certifications made by a Portfolio Concern under 
Sec. 107.610. In this regard, your Financing documents must contain 
provisions requiring the Portfolio Concern to give you and/or SBA's 
examiners access to its books and records for such purpose.

                  Reporting Requirements for Licensees



Sec. 107.630  Requirement for Licensees to file financial statements with SBA (Form 468).

    (a) Annual filing of Form 468. For each fiscal year, you must submit 
to SBA financial statements and supplementary information prepared on 
SBA Form 468. You must file Form 468 on or before the last day of the 
third month following the end of your fiscal year, except for the 
information required under paragraph (e) of this section, which must be 
filed on or before the last day of the fifth month following the end of 
your fiscal year.
    (1) Audit of Form 468. The annual Form 468 must be audited by an 
independent public accountant acceptable to SBA.
    (2) Insurance requirement for public accountant. Unless SBA approves 
otherwise, your independent public accountant must carry at least 
$1,000,000 of Errors and Omissions insurance, or be self-insured and 
have a net worth of at least $1,000,000.
    (b) Interim filings of Form 468. When requested by SBA, you must 
file interim reports on Form 468. SBA may require you to file the entire 
form or only certain statements and schedules. You must file such 
reports on or before the last day of the month following the end of the 
reporting period. If you have an outstanding Leverage commitment from 
SBA, see the filing requirements in Sec. 107.1220.
    (c) Standards for preparation of Form 468. You must prepare SBA Form 
468 in accordance with SBA's Accounting Standards and Financial 
Reporting Requirements for Small Business Investment Companies.
    (d) Where to file Form 468. Submit all filings of Form 468 to the 
Investment Division of SBA.
    (e) Reporting of economic impact information on Form 468. Your 
annual filing of SBA Form 468 must include an assessment of the economic 
impact of each Financing, specifying the full-time equivalent jobs 
created or retained, and the impact of the Financing on the revenues and 
profits of the business and on taxes paid by the business and its 
employees.



Sec. 107.640  Requirement to file Portfolio Financing Reports (SBA Form 1031).

    For each Financing of a Small Business (excluding guarantees), you 
must submit a Portfolio Financing Report on SBA Form 1031 within 30 days 
of the closing date.



Sec. 107.650  Requirement to report portfolio valuations to SBA.

    You must determine the value of your Loans and Investments in 
accordance with Sec. 107.503. You must report such valuations to SBA 
within 90 days of the end of the fiscal year in the case of annual 
valuations, and within 30 days following the close of other reporting 
periods. You must report material adverse changes in valuations at least 
quarterly, within thirty days following the close of the quarter.



Sec. 107.660  Other items required to be filed by Licensee with SBA.

    (a) Reports to owners. You must give SBA a copy of any report you 
furnish

[[Page 51]]

to your investors, including any prospectus, letter, or other 
publication concerning your financial operations or those of any 
Portfolio Concern.
    (b) Documents filed with SEC. You must give SBA a copy of any 
report, application or document you file with the Securities and 
Exchange Commission.
    (c) Litigation reports. When you become a party to litigation or 
other proceedings, you must give SBA a report within 30 days that 
describes the proceedings and identifies the other parties involved and 
your relationship to them.
    (1) The proceedings covered by this paragraph (c) include any action 
by you, or by your security holder(s) in a personal or derivative 
capacity, against an officer, director, Investment Adviser or other 
Associate of yours for alleged breach of official duty.
    (2) SBA may require you to submit copies of the pleadings and other 
documents SBA may specify.
    (3) Where proceedings have been terminated by settlement or final 
judgment, you must promptly advise SBA of the terms.
    (4) This paragraph (c) does not apply to collection actions or 
proceedings to enforce your ordinary creditors' rights.
    (d) Notification of criminal charges. If any officer, director, or 
general partner of the Licensee, or any other person who was required by 
SBA to complete a personal history statement in connection with your 
license, is charged with or convicted of any criminal offense other than 
a misdemeanor involving a minor motor vehicle violation, you must report 
the incident to SBA within 5 calendar days. Such report must fully 
describe the facts which pertain to the incident.
    (e) Other reports. You must file any other reports that SBA may 
require by written directive.

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5866, Feb. 5, 1998]



Sec. 107.670  Application for exemption from civil penalty for late filing of reports.

    (a) If it is impracticable to submit any required report within the 
time allowed, you may apply for an extension. The request for an 
extension must:
    (1) Be filed before the reporting deadline;
    (2) Certify to an extraordinary occurrence, not within your control, 
that makes timely filing of the report impracticable; and
    (3) Be accompanied by written evidence of such occurrence, where 
appropriate.
    (b) Upon receipt of your request, SBA may exempt you from the civil 
penalty provision of section 315(a) of the Act, in such manner and under 
such conditions as SBA determines.



Sec. 107.680  Reporting changes in Licensee not subject to prior SBA approval.

    (a) Changes to be reported for post approval. (1) This section 
applies to any changes in your Articles, ownership, capitalization, 
management, operating area, or investment policies that do not require 
SBA's prior approval. You must report such changes to SBA within 30 days 
for post approval. A processing fee of $200 must accompany each request 
for post approval of new officers, directors, or Control Persons.
    (2) Exception for non-leveraged Licensees. If you do not have 
outstanding Leverage or Earmarked Assets, you are not required to obtain 
post approval of new directors or new officers other than your chief 
operating officer; however, you must notify SBA of the new directors or 
officers within 30 days.
    (b) Approval by SBA. You may consider any change submitted under 
this section Sec. 107.680 to be approved unless SBA notifies you to the 
contrary within 90 days after receiving it. SBA's approval is contingent 
upon your full disclosure of all relevant facts and is subject to any 
conditions SBA may prescribe.

       Examinations of Licensees by SBA for Regulatory Compliance



Sec. 107.690  Examinations.

    SBA will examine all Licensees for the purpose of evaluating 
regulatory compliance.

[[Page 52]]



Sec. 107.691  Responsibilities of Licensee during examination.

    You must make all books, records and other pertinent documents and 
materials available for the examination, including any information 
required by the examiner under Sec. 107.620(c). In addition, the 
agreement between you and the independent public accountant performing 
your audit must provide that any information in the accountant's working 
papers be made available to SBA upon request.



Sec. 107.692  Examination fees.

    (a) General. SBA will assess fees for examinations in accordance 
with this Sec. 107.692. Unless SBA determines otherwise on a case by 
case basis, SBA will not assess fees for special examinations to obtain 
specific information.
    (b) Base fee. A base fee will be assessed based on your total assets 
(at cost) as of the date of your latest certified financial statement or 
a more recent interim statement requested by and submitted to SBA in 
connection with the examination. The base fee table is as follows:

----------------------------------------------------------------------------------------------------------------
      Total assets of licensee          Base fee                      Plus, percent of assets
----------------------------------------------------------------------------------------------------------------
$0 to $1,500,000....................       $3,500  +0%
$1,500,001 to $5,000,000............        3,700  +.065% of the amount over $1,500,000
$5,000,001 to $10,000,000...........        6,000  +.02% of the amount over $5,000,000
$10,000,001 to $15,000,000..........        7,000  +.01% of the amount over $10,000,000`
$15,000,001 to $25,000,000..........        7,700  +.015% of the amount over $15,000,000
$25,000,001 to $50,000,000..........        9,200  +.015% of the amount over $25,000,000
$50,000,001 to $60,000,000..........       13,000  +.01% of the amount over $50,000,000
$60,000,001 and above...............       14,000  +0%
----------------------------------------------------------------------------------------------------------------

    (c) Adjustments to base fee. Your base fee, as determined by the 
table in paragraph (b) of this section, will be adjusted (increased or 
decreased) based on the following criteria:
    (1) If you have no outstanding regulatory violations at the time of 
the commencement of the examination and SBA did not identify any 
violations as a result of the most recent prior examination, you will 
receive a 15% discount on your base fee;
    (2) If you were fully responsive to the letter of notification of 
examination (that is, you provided all requested documents and 
information within the time period stipulated in the notification letter 
in a complete and accurate manner, and you prepared and had available 
all information requested by the examiner for on-site review), you will 
receive a 10% discount on your base fee;
    (3) If you are organized as a partnership or limited liability 
company, you will pay an additional charge equal to 5% of your base fee;
    (4) If you are a Licensee authorized to issue Participating 
Securities, you will pay an additional charge equal to 10% of your base 
fee; and
    (5) If you maintain your records/files in multiple locations (as 
permitted under Sec. 107.600(b)), you will pay an additional charge 
equal to 10% of your base fee.
    (d) Fee discounts and additions table. The following table 
summarizes the discounts and additions noted in paragraph (c) of this 
section:

----------------------------------------------------------------------------------------------------------------
                                                 Amount of                                            Amount of
                                                discount--%                                          Addition--%
           Examination fee discounts              of base           Examination fee additions          of base
                                                examination                                          examination
                                                    fee                                                  fee
----------------------------------------------------------------------------------------------------------------
No prior violations...........................         15    Partnership or limited liability                5
                                                              company.
Responsiveness................................         10    Participating Security Licensee.......         10
                                                             Records/files at multiple locations...         10
----------------------------------------------------------------------------------------------------------------


[[Page 53]]

    (e) Delay fee. If, in the judgement of SBA, the time required to 
complete your examination is delayed due to your lack of cooperation or 
the condition of your records, SBA may assess an additional fee of up to 
$500 per day.

[62 FR 23338, Apr. 30, 1997]



          Subpart G--Financing of Small Businesses by Licensees

   Determining the Eligibility of a Small Business for SBIC Financing



Sec. 107.700  Compliance with size standards in part 121 of this chapter as a condition of Assistance.

    You are permitted to provide financial assistance and management 
services only to a Small Business. To determine whether an applicant is 
a Small Business, you may use either the financial size standards in 
Sec. 121.301(c)(1) of this chapter or the industry standard covering the 
industry in which the applicant is primarily engaged, as set forth in 
Sec. 121.301(c)(2) of this chapter.



Sec. 107.710  Requirement to finance smaller enterprises.

    Your Portfolio must include Financings to Smaller Enterprises.
    (a) Definition of Smaller Enterprise. A Smaller Enterprise means any 
small business concern that:
    (1) Both together with its Affiliates, and by itself, meets the size 
standard of Sec. 121.201 of this chapter at the time of Financing for 
the industry in which it is then primarily engaged; or
    (2) Together with its affiliates has a net worth of not more than $6 
million and average net income after Federal income taxes (excluding any 
carry-over losses) for the preceding two years no greater than $2 
million. If the applicant is not required by law to pay Federal income 
taxes at the enterprise level, but is required to pass income through to 
its shareholders, partners, beneficiaries, or other equitable owners, 
the applicant's ``net income after Federal income taxes'' will be its 
net income reduced by an amount computed as follows:
    (i) If the applicant is not required by law to pay State (and local, 
if any) income taxes at the enterprise level, multiply its net income by 
the marginal State income tax rate (or by the combined State and local 
income tax rates, as applicable) that would have applied if it were a 
taxable corporation.
    (ii) Multiply the applicant's net income, less any deduction for 
State and local income taxes calculated under paragraph (a)(2)(i) of 
this section, by the marginal Federal income tax rate that would have 
applied if the applicant were a taxable corporation.
    (iii) Add the results obtained in paragraphs (a)(2)(i) and 
(a)(2)(ii) of this section.
    (b) Smaller Enterprise Financings--(1) General rule. At the close of 
each of your fiscal years, for all Financings you extended since April 
25, 1994, excluding Financings made in whole or in part with Leverage in 
excess of $90,000,000, at least 20 percent (in total dollars) must have 
been invested in Smaller Enterprises. If you were licensed after April 
25, 1994, the 20 percent requirement applies to the Financings you 
extended since you were licensed, excluding Financings made in whole or 
in part with Leverage in excess of $90,000,000, plus any pre-licensing 
investments approved by SBA for inclusion in your Regulatory Capital. 
For purposes of this paragraph (b)(1), Leverage in excess of $90,000,000 
includes aggregate Leverage over $90,000,000 issued by two or more 
Licensees under Common Control. See also paragraph (d) of this section.
    (2) Phase-in for new Licensees At the close of your first full 
fiscal year after licensing, at least 10 percent of the total dollar 
amount of the Financings you extended, including any pre-licensing 
investments approved by SBA for inclusion in your Regulatory Capital, 
must have been invested in Smaller Enterprises. At the close of each 
fiscal year thereafter, you must meet the requirement in paragraph 
(b)(1) of this section.
    (c) Special requirement for certain leveraged Licensees. (1) This 
paragraph (c) applies if you were licensed on or before September 30, 
1996, and you issued Leverage after that date, and you have Regulatory 
Capital of:
    (i) Less than $10,000,000 if such Leverage included Participating 
Securities; or

[[Page 54]]

    (ii) Less than $5,000,000 if such Leverage was Debentures only.
    (2) At the close of each of your fiscal years, at least 50 percent 
of the total dollar amount of the Financings you extended after 
September 30, 1996 must have been invested in Smaller Enterprises.
    (d) Special requirement for Leverage over $90,000,000. If you have 
issued Leverage over $90,000,000 (including aggregate Leverage over 
$90,000,000 issued by two or more Licensees under Common Control), at 
the end of each of your fiscal years the cumulative Financings you 
extended to Smaller Enterprises must equal at least:
    (1) The dollar amount necessary to satisfy paragraph (b) of this 
section; plus
    (2) 100 percent of the amount of all Financings made in whole or in 
part with Leverage over $90,000,000.
    (e) Financing a change of ownership which results in the creation of 
a Smaller Enterprises. The Financing of a change of ownership under 
Sec. 107.750 which results in the creation of a Smaller Enterprise 
qualifies as a Smaller Enterprise Financing.
    (f) Non-compliance with this section. If you have not reached the 
required percentage of Smaller Enterprise Financings at the end of any 
fiscal year, then you must be in compliance by the end of the following 
fiscal year. However, you will not be eligible for additional Leverage 
until you reach the required percentage (see Sec. 107.1120(c) through 
(e)).

[62 FR 11760, Mar. 13, 1997, as amended at 63 FR 5866, Feb. 5, 1998; 64 
FR 70995, Dec. 20, 1999; 66 FR 30647, June 7, 2001]



Sec. 107.720  Small Businesses that may be ineligible for financing.

    (a) Relenders or reinvestors. You are not permitted to finance any 
business that is a relender or reinvestor.
    (1) Definition. Relenders or reinvestors are businesses whose 
primary business activity involves, directly or indirectly, providing 
funds to others, purchasing debt obligations, factoring, or long-term 
leasing of equipment with no provision for maintenance or repair.
    (2) Exception. You may provide Venture Capital Financing to 
Disadvantaged Businesses that are relenders or reinvestors (except banks 
or savings and loans not insured by agencies of the federal government, 
and agricultural credit companies). Without SBA's prior written 
approval, total Financings under this paragraph (a)(2) that are 
outstanding as of the close of your fiscal year must not exceed your 
Regulatory Capital.
    (b) Passive Businesses. You are not permitted to finance a passive 
business.
    (1) Definition. A business is passive if:
    (i) It is not engaged in a regular and continuous business operation 
(for purposes of this paragraph (b), the mere receipt of payments such 
as dividends, rents, lease payments, or royalties is not considered a 
regular and continuous business operation); or
    (ii) Its employees are not carrying on the majority of day to day 
operations, and the company does not provide effective control and 
supervision, on a day to day basis, over persons employed under 
contract; or
    (iii) It passes through substantially all of the proceeds of the 
Financing to another entity.
    (2) Exception for pass-through of proceeds to subsidiary. You may 
finance a passive business if it is a Small Business and it passes 
substantially all the proceeds through to one or more subsidiary 
companies, each of which is an eligible Small Business that is not 
passive. For the purpose of this paragraph (b)(2), ``subsidiary 
company'' means a company in which at least 50 percent of the 
outstanding voting securities are owned by the Financed passive 
business.
    (3) Exception for certain Partnership Licensees. With the prior 
written approval of SBA, if you are a Partnership Licensee, you may form 
one or more wholly-owned corporations in accordance with this paragraph 
(b)(3). The sole purpose of such corporation(s) must be to provide 
Financing to one or more eligible, unincorporated Small Businesses. You 
may form such corporation(s) only if a direct Financing to such Small 
Businesses would cause any of your investors to incur unrelated business 
taxable income under section 511 of the Internal Revenue Code of 1986, 
as amended (26 U.S.C. 511). Your ownership of such corporation(s)

[[Page 55]]

will not constitute a violation of Sec. 107.865(a) and your investment 
of funds in such corporation(s) will not constitute a violation of 
Sec. 107.730(a).
    (c) Real Estate Businesses. (1) You are not permitted to finance any 
business classified under Major Group 65 (Real Estate) or Industry No. 
1531 (Operative Builders) of the SIC Manual, with the following 
exceptions:
    (i) Title Abstract companies (Industry No. 6541); and
    (ii) Companies listed under Industry No. 6531 (for example, real 
estate agents, brokers, escrow agents, managers and multiple listing 
services) that derive at least 80 percent of their revenue from non-
Affiliate sources.
    (2) You are not permitted to finance a business, regardless of SIC 
classification, if the Financing is to be used to acquire or refinance 
real property, unless the Small Business:
    (i) Is acquiring an existing property and will use at least 51 
percent of the usable square footage for an eligible business purpose; 
or
    (ii) Is building or renovating a building and will use at least 67 
percent of the usable square footage for an eligible business purpose; 
or
    (iii) Occupies the subject property and uses at least 67 percent of 
the usable square footage for an eligible business purpose.
    (d) Project Financing. You are not permitted to finance a business 
if:
    (1) The assets of the business are to be reduced or consumed, 
generally without replacement, as the life of the business progresses, 
and the nature of the business requires that a stream of cash payments 
be made to the business's financing sources, on a basis associated with 
the continuing sale of assets. Examples include real estate development 
projects and oil and gas wells; or
    (2) The primary purpose of the Financing is to fund production of a 
single item or defined limited number of items, generally over a defined 
production period, and such production will constitute the majority of 
the activities of the Small Business. Examples include motion pictures 
and electric generating plants.
    (e) Farm land purchases. You are not permitted to finance the 
acquisition of farm land. Farm land means land which is or is intended 
to be used for agricultural or forestry purposes, such as the production 
of food, fiber, or wood, or is so taxed or zoned.
    (f) Public interest. You are not permitted to finance any business 
if the proceeds are to be used for purposes contrary to the public 
interest, including but not limited to activities which are in violation 
of law, or inconsistent with free competitive enterprise.
    (g) Foreign investment--(1) General rule. You are not permitted to 
finance a business if:
    (i) The funds will be used substantially for a foreign operation; or
    (ii) At the time of the Financing or within one year thereafter, 
more than 49 percent of the employees or tangible assets of the Small 
Business are located outside the United States (unless you can show, to 
SBA's satisfaction, that the Financing was used for a specific domestic 
purpose).
    (2) Exception. This paragraph (g) does not prohibit a Financing used 
to acquire foreign materials and equipment or foreign property rights 
for use or sale in the United States.
    (h) Associated supplier. You are not permitted to finance a business 
that purchases, or will purchase, goods or services from a supplier who 
is your Associate, except under the following conditions:
    (1) The amount of goods and services purchased (or to be purchased) 
from your Associate with the proceeds of the Financing, or with funds 
released as a result of the Financing, is less than 50 percent of the 
total amount of the Financing (75 percent for a Section 301(d) 
Licensee);
    (2) The price of such goods and services is no higher than that 
charged other customers of your Associate; and
    (3) The Small Business purchases no capital goods from your 
Associate.
    (i) Financing Licensees. You are not permitted to provide funds, 
directly or indirectly, that the Small Business will use:
    (1) To purchase stock in or provide capital to a Licensee; or

[[Page 56]]

    (2) To repay an indebtedness incurred for the purpose of investing 
in a Licensee.

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5867, Feb. 5, 1998; 64 
FR 70995, Dec. 20, 1999]



Sec. 107.730  Financings which constitute conflicts of interest.

    (a) General rule. You must not self-deal to the prejudice of a Small 
Business, the Licensee, its shareholders or partners, or SBA. Unless you 
obtain a prior written exemption from SBA for special instances in which 
a Financing may further the purposes of the Act despite presenting a 
conflict of interest, you must not directly or indirectly:
    (1) Provide Financing to any of your Associates.
    (2) Provide Financing to an Associate of another Licensee if one of 
your Associates has received or will receive any direct or indirect 
Financing or a Commitment from that Licensee or a third Licensee 
(including Financing or Commitments received under any understanding, 
agreement, or cross dealing, reciprocal or circular arrangement).
    (3) Borrow money from:
    (i) A Small Business Financed by you;
    (ii) An officer, director, or owner of at least a 10 percent equity 
interest in such business; or
    (iii) A Close Relative of any such officer, director, or equity 
owner.
    (4) Provide Financing to a Small Business to discharge an obligation 
to your Associate or free other funds to pay such obligation. This 
paragraph (a)(4) does not apply if the obligation is to an Associate 
Lending Institution and is a line of credit or other obligation incurred 
in the normal course of business.
    (5) Provide Financing to a Small Business for the purpose of 
purchasing property from your Associate, except as permitted under 
Sec. 107.720(h).
    (b) Rules applicable to Associates. Without SBA' s prior written 
approval, your Associates must not, directly or indirectly:
    (1) Borrow money from any Person described in paragraph (a)(3) of 
this section.
    (2) Receive from a Small Business any compensation in connection 
with Assistance you provide (except as permitted under Secs. 107.825(c) 
and 107.900), or anything of value for procuring, attempting to procure, 
or influencing your action with respect to such Assistance.
    (c) Applicability of other laws. You are also bound by any 
restrictions in Federal or State laws governing conflicts of interest 
and fiduciary obligations.
    (d) Financings with Associates--(1) Financings with Associates 
requiring prior approval. Without SBA's prior written approval, you may 
not Finance any business in which your Associate has either a voting 
equity interest, or total equity interests (including potential 
interests), of at least five percent.
    (2) Other Financings with Associates. If you and an Associate 
provide Financing to the same Small Business, either at the same time or 
at different times, you must be able to demonstrate to SBA's 
satisfaction that the terms and conditions are (or were) fair and 
equitable to you, taking into account any differences in the timing of 
each party's financing transactions.
    (3) Exceptions to paragraphs (d)(1) and (d)(2) of this section. A 
Financing that falls into one of the following categories is exempt from 
the prior approval requirement in paragraph (d)(1) of this section or is 
presumed to be fair and equitable to you for the purposes of paragraph 
(d)(2) of this section, as appropriate:
    (i) Your Associate is a Lending Institution that is providing 
financing under a credit facility in order to meet the operational needs 
of the Small Business, and the terms of such financing are usual and 
customary.
    (ii) Your Associate invests in the Small Business on the same terms 
and conditions and at the same time as you.
    (iii) Both you and your Associate are leveraged Licensees, and both 
have outstanding Participating Securities or neither has outstanding 
Participating Securities.
    (iv) You have no outstanding Leverage and do not intend to issue 
Leverage in the future, and your Associate either is not a Licensee or 
has no outstanding Leverage and does not intend to issue Leverage in the 
future.

[[Page 57]]

    (e) Use of Associates to manage Portfolio Concerns. To protect your 
investment, you may designate an Associate to serve as an officer, 
director, or other participant in the management of a Small Business. 
You must identify any such Associate in your records available for SBA's 
review under Sec. 107.600. Without SBA's prior written approval, the 
Associate must not:
    (1) Have any other direct or indirect financial interest in the 
Portfolio Concern that exceeds, or has the potential to exceed, 5 
percent of the Portfolio Concern's equity.
    (2) Have served for more than 30 days as an officer, director or 
other participant in the management of the Portfolio Concern before you 
provided Financing.
    (3) Receive any income or anything of value from the Portfolio 
Concern unless it is for your benefit, with the exception of director's 
fees, expenses, and distributions based upon the Associate's ownership 
interest in the Concern.
    (f) 1940 and 1980 Act Companies: SEC exemptions. If you are a 1940 
or 1980 Act Company and you receive an exemption from the Securities and 
Exchange Commission for a transaction described in this Sec. 107.730, 
you need not obtain SBA's approval of the transaction. However, you must 
promptly notify SBA of the transaction and satisfy the public notice 
requirements in paragraph (g) of this section.
    (g) Public notice. Before SBA grants an exemption under this 
Sec. 107.730, you must publish notice of the transaction in a newspaper 
of general circulation in the locality most directly affected by the 
transaction, and furnish a certified copy to SBA within 10 days of 
publication. SBA will publish a similar notice in the Federal Register.

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5867, Feb. 5, 1998; 64 
FR 70996, Dec. 20, 1999]



Sec. 107.740  Portfolio diversification (``overline'' limitation).

    (a) General rule. This Sec. 107.740 applies if you have outstanding 
Leverage or intend to issue Leverage in the future. Without SBA's prior 
written approval, you may provide Financing or a Commitment to a Small 
Business only if the resulting amount of your aggregate outstanding 
Financings and Commitments to such Small Business and its Affiliates 
does not exceed:
    (1) For a Section 301(c) Licensee, 20 percent of the sum of:
    (i) Your Regulatory Capital as of the date of the Financing or 
Commitment; plus
    (ii) Any Distribution(s) you made under Sec. 107.1570(b), during the 
five years preceding the date of the Financing or Commitment, which 
reduced your Regulatory Capital; plus
    (iii) Any Distribution(s) you made under Sec. 107.585, during the 
five years preceding the date of the Financing or Commitment, which 
reduced your Regulatory Capital by no more than two percent or which SBA 
approves for inclusion in the sum determined in this paragraph (a)(1).
    (2) For a Section 301(d) Licensee, 30 percent of a sum determined in 
the manner set forth in paragraph (a)(1)(i) through (iii) of this 
section.
    (b) Outstanding Financings. For the purposes of paragraph (a) of 
this section, you must measure each outstanding Financing at its current 
cost plus any amount of the Financing that was previously written off.
    (c) Adjustment to Regulatory Capital. For the purposes of paragraph 
(a) of this section, you may compute a higher maximum permitted 
investment in a Small Business (an ``increased limit'') by adding ``net 
unrealized gains'' on Publicly Traded and Marketable securities to your 
Regulatory Capital, subject to the following conditions:
    (1) ``Net unrealized gains'' on Publicly Traded and Marketable 
securities means unrealized gains on Publicly Traded and Marketable 
securities minus unrealized losses on all Loans and Investments.
    (2) You must value your Publicly Traded and Marketable securities in 
accordance with your SBA-approved valuation policy.
    (3) You must have positive Retained Earnings Available for 
Distribution at the time you compute an increased limit under this 
paragraph (c).
    (4) At the time you first compute an increased limit, and as of the 
first business day of each calendar quarter that the increased limit is 
in effect, you

[[Page 58]]

must keep copies in your files of the NASDAQ listings (or the Wall 
Street Journal) or written quotations from the market makers quoting the 
Publicly Traded and Marketable securities which support the adjustment.
    (5) If your net unrealized gains on Publicly Traded and Marketable 
securities are more than 30 percent below their original level on the 
first business day of any calendar quarter, and remain so for the next 
30 days, you agree to do one of the following to remain in compliance 
with the terms of your Leverage:
    (i) By the first day of the next calendar quarter, increase your 
Regulatory Capital sufficiently to restore support for the increased 
limit; or
    (ii) Lower the increased limit to reflect the decrease in net 
unrealized gains on Publicly Traded and Marketable securities, and 
reduce any Financings that exceed the lower limit.

    Example to paragraph (c) of this section. Your Regulatory Capital is 
$2,500,000 and your overline limit is $500,000 (20 percent of 
$2,500,000). On January 15, 1995, you document net unrealized gains on 
Publicly Traded and Marketable securities of $200,000 and compute an 
increased limit of $540,000 (20 percent of $2,700,000). You now make an 
investment of $540,000 in a Small Business. Nothing changes until the 
first business day of April, 1996, when you document net unrealized 
gains on Publicly Traded and Marketable securities of only $120,000, a 
reduction of more than 30 percent. Your net unrealized gains remain at 
this level for the next 30 days. Your increased limit is now only 
$524,000 (20 percent of $2,620,000). By July 1, 1996, you must either 
increase Regulatory Capital by $80,000 to restore your increased limit 
to $540,000, or reduce your portfolio investment from $540,000 to 
$524,000.

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5867, Feb. 5, 1998; 64 
FR 70996, Dec. 20, 1999]



Sec. 107.750  Conditions for financing a change of ownership of a Small Business.

    You may finance a change of ownership of a Small Business only under 
the conditions set forth in this section.
    (a) The Financing must:
    (1) Promote the sound development or preserve the existence of the 
Small Business;
    (2) Help create a Small Business as a result of a corporate 
divestiture; or
    (3) Facilitate ownership in a Disadvantaged Business.
    (b) The Resulting Concern (as defined in paragraph (c) of this 
section) must:
    (1) Be a Small Business under Sec. 107.700;
    (2) Have 500 or fewer full-time equivalent employees; or meet one of 
the appropriate debt/equity ratio tests:
    (i) If you have outstanding Leverage, the Resulting Concern's ratio 
of debt to equity must be no more than 5 to 1; or
    (ii) If you have no outstanding Leverage, the Resulting Concern's 
ratio of debt to equity must be no more than 8 to 1.
    (c) Definitions. (1) The ``Resulting Concern'' is determined by 
viewing the business as though the change of ownership had already 
occurred, giving effect to all contemplated financing, mergers, and 
acquisitions.
    (2) For purposes of this section, ``debt'' means long-term debt, 
including contingent liabilities, but excluding accounts payable, 
operating leases, letters of credit, subordinated notes payable to the 
seller, any other liabilities approved for exclusion by SBA and short-
term working capital loans (so long as the loans carry a zero balance 
for 30 consecutive days during the concern's fiscal year).
    (3) For purposes of this section, ``equity'' means common and 
preferred stock (corporation), contributed capital (partnership), or 
membership interests (limited liability company).



Sec. 107.760  How a change in size or activity of a Portfolio Concern affects the Licensee and the Portfolio Concern.

    (a) Effect on Licensee of a change in size of a Portfolio Concern. 
If a Portfolio Concern no longer qualifies as a Small Business you may 
keep your investment in the concern and:
    (1) Subject to the overline limitations of Sec. 107.740, you may 
provide additional Financing to the concern up to the time it makes a 
public offering of its securities.
    (2) Even after the concern makes a public offering, you may exercise 
any stock options, warrants, or other rights to purchase Equity 
Securities which you acquired before the public offering,

[[Page 59]]

or fund Commitments you made before the public offering.
    (b) Effect of a change in business activity occurring within one 
year of Licensee's initial Financing--(1) Retention of Investment. 
Unless you receive SBA's written approval, you may not keep your 
investment in a Portfolio Concern, small or otherwise, which becomes 
ineligible by reason of a change in its business activity within one 
year of your initial investment.
    (2) Request for SBA's approval to retain investment. If you request 
that SBA approve the retention of your investment, your request must 
include sufficient evidence to demonstrate that the change in business 
activity was caused by an unforeseen change in circumstances and was not 
contemplated at the time the Financing was made.
    (3) Additional Financing. If SBA approves your request to retain an 
investment under paragraph (b)(2) of this section, you may provide 
additional Financing to the Portfolio Concern to the extent necessary to 
protect against the loss of the amount of your original investment, 
subject to the overline limitations of Sec. 107.740.
    (c) Effect of a change in business activity occurring more than one 
year after the initial Financing. If a Portfolio Concern becomes 
ineligible because of a change in business activity more than one year 
after your initial Financing you may:
    (1) Retain your investment; and
    (2) Provide additional Financing to the Portfolio Concern to the 
extent necessary to protect against the loss of the amount of your 
original investment, subject to the overline limitations of 
Sec. 107.740.

Structuring Licensee's Financing of Eligible Small Businesses: Types of 
                                Financing



Sec. 107.800  Financings in the form of Equity Securities.

    (a) You may purchase the Equity Securities of a Small Business. You 
may not, inadvertently or otherwise:
    (1) Become a general partner in any unincorporated business; or
    (2) Become jointly or severally liable for any obligations of an 
unincorporated business.
    (b) Definition. Equity Securities means stock of any class in a 
corporation, stock options, warrants, limited partnership interests in a 
limited partnership, membership interests in a limited liability 
company, or joint venture interests. If the Financing agreement contains 
debt-type acceleration provisions or includes redemption provisions 
other than those permitted under Sec. 107.850, the security will be 
considered a Debt Security for purposes of Sec. 107.855.



Sec. 107.810  Financings in the form of Loans.

    You may make Loans to Small Businesses. A Loan means a transaction 
evidenced by a debt instrument with no provision for you to acquire 
Equity Securities.



Sec. 107.815  Financings in the form of Debt Securities.

    You may purchase Debt Securities from Small Businesses.
    (a) Definitions. Debt Securities are instruments evidencing a loan 
with an option or any other right to acquire Equity Securities in a 
Small Business or its Affiliates, or a loan which by its terms is 
convertible into an equity position, or a loan with a right to receive 
royalties that are excluded from the Cost of Money pursuant to 
Sec. 107.855(g)(12). Consideration must be paid for all options that you 
acquire.
    (b) Restriction on options obtained by Licensee's management and 
employees. If you have outstanding Leverage or plan to obtain Leverage, 
your employees, officers, directors or general partners, or the general 
partners of the management company that is providing services to you or 
to your general partner, may obtain options in a Financed Small Business 
only if:
    (1) They participate in the Financing on a pari passu basis with 
you; or
    (2) SBA gives its prior written approval; or
    (3) The options received are compensation for service as a member of 
the board of directors of the Small Business, and such compensation does 
not exceed that paid to other outside directors. In the absence of such 
directors, fees must be reasonable when

[[Page 60]]

compared with amounts paid to outside directors of similar companies.

[61 FR 3189, Jan. 31, 1996, as amended at 65 FR 69432, Nov. 17, 2000]



Sec. 107.820  Financings in the form of guarantees.

    At the request of a Small Business or where necessary to protect 
your existing investment, you may guarantee the monetary obligation of a 
Small Business to any non-Associate creditor.
    (a) You may not issue a guaranty if:
    (1) You would become subject to State regulation as an insurance, 
guaranty or surety business;
    (2) The amount of the guaranty plus any direct Financings to the 
Small Business exceed the overline limitations of Sec. 107.740, except 
that a pledge of the Equity Securities of the issuer or a subordination 
of your lien or creditor position does not count toward your overline; 
or
    (3) The total financing cost to the Small Business exceeds the cost 
of money limits of Sec. 107.855.
    (b) Pledge of Licensee's assets as guaranty. For purposes of this 
section, a guaranty with recourse only to specific asset(s) you have 
pledged is equal to the fair market value of such asset(s) or the amount 
of the debt guaranteed, whichever is less.



Sec. 107.825  Purchasing securities from an underwriter or other third party.

    (a) Securities purchased through or from an underwriter. You may 
purchase the securities of a Small Business through or from an 
underwriter if:
    (1) You purchase such securities within 90 days of the date the 
public offering is first made;
    (2) Your purchase price is no more than the original public offering 
price; and
    (3) The amount paid by you for the securities (less ordinary and 
reasonable underwriting charges and commissions) has been, or will be, 
paid to the Small Business, and the underwriter certifies in writing 
that this requirement has been met.
    (b) Recordkeeping requirements. If you have outstanding Leverage or 
plan to obtain Leverage, you must keep records available for SBA's 
inspection which show the relevant details of the transaction, 
including, but not limited to, date, price, commissions, and the 
underwriter's certifications required under paragraph (c) of this 
section.
    (c) Underwriter's requirements. If you have outstanding Leverage or 
plan to obtain Leverage, the underwriter must certify whether it is your 
Associate. You may pay reasonable and customary commissions and expenses 
to an Associate underwriter for the portion of an offering that you 
purchase, provided it is no more than 25 percent of the total offering. 
If you buy more than 25 percent of the offering, the amount you pay to 
the Associate underwriter must not exceed the total of the application 
and closing fees and reimbursable expenses permitted by Sec. 107.860.
    (d) Securities purchased from another Licensee or from SBA. You may 
purchase from, or exchange with, another Licensee, Portfolio securities 
(or any interest therein). Such purchase or exchange may only be made on 
a non-recourse basis. You may not have more than one-third of your total 
assets(valued at cost) invested in such securities. If you have 
previously sold Portfolio Securities (or any interest therein) on a 
recourse basis, you shall include the amount for which you may be 
contingently liable in your overline computation.
    (e) Purchases of securities from other non-issuers. You may purchase 
securities of a Small Business from a non-issuer not previously 
described in this Sec. 107.825 if:
    (1) Such acquisition is a reasonably necessary part of the overall 
sound Financing of the Small Business under the Act; or
    (2) The securities are acquired to finance a change of ownership 
under Sec. 107.750.

 Structuring Licensee's Financing of an Eligible Small Business: Terms 
                       and Conditions of Financing



Sec. 107.830  Minimum duration/term of financing.

    (a) General rule for Section 301(c) Licensees. If you are a Section 
301(c) Licensee, the duration/term of all your

[[Page 61]]

Financings must be for a minimum period of five years. Exception: You 
may finance a Disadvantaged Business for a minimum term of four years.
    (b) General rule for Section 301(d) Licensees. The duration/term of 
your Financings may be for a minimum period of four years.
    (c) Restrictions on mandatory redemption of Equity Securities. If 
you have acquired Equity Securities, options or warrants on terms that 
include redemption by the Small Business, you must not require 
redemption by the Small Business within the first five years of your 
acquisition except as permitted in Sec. 107.850.
    (d) Special rules for Loans and Debt Securities. (1) Term. The 
minimum term for Loans and Debt Securities starts with the first 
disbursement of the Financing.
    (2) Prepayment before five years. You must permit voluntary 
prepayment of Loans and Debt Securities by the Small Business at any 
time during the initial five year term. You must obtain SBA's prior 
written approval of any restrictions on the ability of the Small 
Business to prepay other than the imposition of a reasonable prepayment 
penalty under paragraph (d)(3) of this section.
    (3) Prepayment penalties. You may charge a reasonable prepayment 
penalty which must be agreed upon at the time of the Financing. If SBA 
determines that a prepayment penalty is unreasonable, you must refund 
the entire penalty to the Small Business. A prepayment penalty equal to 
5 percent of the outstanding balance during the first year of any 
Financing, declining by one percentage point per year through the fifth 
year, is considered reasonable.



Sec. 107.835  Exceptions to minimum duration/term of Financing.

    You may make a Short-term Financing for a term less than five years 
if the Financing is:
    (a) An interim financing (for a period not to exceed one year) in 
contemplation of long-term Financing. The contemplated long-term 
Financing must be in an amount at least equal to the short-term 
Financing, and must be made by you alone or in participation with other 
investors; or
    (b) For protection of your prior investment(s); or
    (c) For the purpose of Financing a change of ownership under 
Sec. 107.750. The total amount of such Financings may not exceed 20 
percent of your Loans and Investments (at cost) at the end of any fiscal 
year; or
    (d) An LMI Investment with a term of at least one year; or
    (e) For the purpose of aiding a Small Business in performing a 
contract awarded under a Federal, State, or local government set-aside 
program for ``minority'' or ``disadvantaged'' contractors.

[61 FR 3189, Jan. 31, 1996, as amended at 64 FR 52646, Sept. 30, 1999]



Sec. 107.840  Maximum term of Financing.

    The maximum term of any Loan or Debt Security Financing must be no 
longer than 20 years.



Sec. 107.845  Maximum rate of amortization on Loans and Debt Securities.

    The principal of any Loan (or the loan portion of a Debt Security) 
with a term of five years or less cannot be amortized faster than 
straight line. If the term is greater than five years, the principal 
cannot be amortized faster than straight line for the first five years.



Sec. 107.850  Restrictions on redemption of Equity Securities.

    (a) A Portfolio Concern cannot be required to redeem Equity 
Securities earlier than five years (or one year in the case of an LMI 
Investment) from the date of the first closing unless:
    (1) The concern makes a public offering, or has a change of 
management or control, or files for protection under the provisions of 
the Bankruptcy Code, or materially breaches your Financing agreement; or
    (2) You make a follow-on investment, in which case the new 
securities may be redeemed in less than five years, but no earlier than 
the redemption date associated with your earliest Financing of the 
concern.
    (b) The redemption price must be either:

[[Page 62]]

    (1) A fixed amount that is no higher than the price you paid for the 
securities; or
    (2) An amount that cannot be fixed or determined before the time of 
redemption. In this case, the redemption price must be based on:
    (i) A reasonable formula that reflects the performance of the 
concern (such as one based on earnings or book value); or
    (ii) The fair market value of the concern at the time of redemption, 
as determined by a professional appraisal performed under an agreement 
acceptable to both parties.
    (c) Any method for determining the redemption price must be agreed 
upon no later than the date of the first (or only) closing of the 
Financing.

[61 FR 3189, Jan. 31, 1996, as amended at 64 FR 52646, Sept. 30, 1999]



Sec. 107.855  Interest rate ceiling and limitations on fees charged to Small Businesses (``Cost of Money'').

    ``Cost of Money'' means the interest and other consideration that 
you receive from a Small Business. Subject to lower ceilings prescribed 
by local law, the Cost of Money to the Small Business must not exceed 
the ceiling determined under this section.
    (a) Financings to which the Cost of Money rules apply. This section 
applies to all Loans and Debt Securities. As required by 
Sec. 107.800(b), you must include as Debt Securities any equity 
interests with redemption provisions that do not meet the restrictions 
in Sec. 107.850.
    (b) When to determine the Cost of Money ceiling for a Financing. You 
may determine your Cost of Money ceiling for a particular Financing as 
of the date you issue a Commitment or as of the date of the first 
closing of the Financing. Once determined, the Cost of Money ceiling 
remains fixed for the duration of the Financing.
    (c) How to determine the Cost of Money ceiling for a Financing. At a 
minimum, you may use a Cost of Money ceiling of 19 percent for a Loan 
and 14 percent for a Debt Security. To determine whether you may charge 
more, do the following:
    (1) Choose a base rate for your Cost of Money computation. The base 
rate may be either the Debenture Rate currently in effect plus the 
applicable Charge determined under Sec. 107.1130(d)(1), or your own 
``Cost of Capital'' as determined under paragraph (d) of this section.
    (2) For a Loan, add 11 percentage points to the base rate; for a 
Debt Security, add 6 percentage points. In either case, round the sum 
down to the nearest eighth of one percent.
    (3) If the result is more than 19 percent (for a Loan) or 14 percent 
(for a Debt Security), you may use it as your Cost of Money ceiling.
    (4) If two or more Licensees participate in the same Financing of a 
Small Business, the base rate used in this paragraph (c) is the highest 
of the following:
    (i) The current Debenture Rate plus the applicable Charge determined 
under Sec. 107.1130(d)(1);
    (ii) The Cost of Capital of the lead Licensee; or
    (iii) The weighted average of the Cost of Capital for all Licensees 
participating in the Financing.
    (d) How to determine your Cost of Capital. ``Cost of Capital'' is an 
optional computation of the weighted average interest rate you pay on 
your ``qualified borrowings''. ``Qualified borrowings'' means your 
Debentures together with your borrowings at or below the usual interest 
rate charged by banks in your locality on the date your loan was made.
    (1) For any fiscal year, you may compute your Cost of Capital:
    (i) As of the first day of your fiscal year, to remain in effect for 
the entire year; or
    (ii) As of the first day of every fiscal quarter during the fiscal 
year, to remain in effect for the duration of the quarter.
    (2) For each qualified borrowing outstanding at your last fiscal 
year or fiscal quarter end, multiply the ending principal balance (net 
of related unamortized fees) by the number of days during the past four 
fiscal quarters that the borrowing was outstanding, and divide the 
result by 365.
    (3) Add together the amounts computed for all borrowings under 
paragraph (d)(2) of this section. The result is your weighted average 
borrowings.

[[Page 63]]

    (4) For all qualified borrowings outstanding at your last fiscal 
year or fiscal quarter end, determine the aggregate interest expense for 
the past four fiscal quarters, excluding amortization of loan fees. For 
the purposes of this paragraph (d)(4):
    (i) Interest expense on Debentures includes the 1 percent Charge 
paid by a Licensee under Sec. 107.1130(d)(1); and
    (ii) Section 301(d) Licensees with outstanding subsidized Debentures 
are presumed to have paid interest at the rate stated on the face of 
such Debentures, without regard to any subsidy paid by SBA.
    (5) Divide the interest expense from paragraph (d)(4) of this 
section by the weighted average borrowings from paragraph (d)(3) of this 
section, and multiply by 100. The result is your Cost of Capital, which 
you may use to compute a Cost of Money ceiling under paragraph (c) of 
this section.
    (e) SBA review of Cost of Capital computation. You must keep your 
Cost of Capital computations in a separate file available for SBA's 
review.
    (1) A computation that is kept in such a file and is audited by your 
independent public accountant is considered correct unless SBA 
demonstrates otherwise.
    (2) If a computation is not kept in such a file or is unaudited, you 
must prove its accuracy to SBA's satisfaction.
    (f) Charges included in the Cost of Money. The Cost of Money 
includes all interest, points, discounts, fees, royalties, profit 
participation, and any other consideration you receive from a Small 
Business, except for the specific exclusions in paragraph (g) of this 
section. For equity interests subject to the Cost of Money rules (see 
paragraph (a) of this section), you must include:
    (1) The portion of the fixed redemption price that exceeds your 
original cost.
    (2) Any amount of a redemption that is paid out of accounts other 
than the Small Business's capital accounts (capital, paid-in surplus, or 
retained earnings of a corporation; or partners' capital of a 
partnership).
    (g) Charges excluded from the Cost of Money. You may exclude from 
the Cost of Money:
    (1) Discount on the loan portion of a Debt Security, if such 
discount exists solely as the result of the allocation of value to 
detachable stock purchase warrants in accordance with generally accepted 
accounting principles.
    (2) Closing fees, application fees, and expense reimbursements, each 
as permitted under Sec. 107.860.
    (3) Reasonable prepayment penalties permitted under 
Sec. 107.830(d)(3).
    (4) Out-of-pocket conveyance and/or recordation fees and taxes.
    (5) Reasonable closing costs.
    (6) Fees for management services as permitted under Sec. 107.900.
    (7) Reasonable and necessary out-of-pocket expenses you incur to 
monitor the Financing.
    (8) Board of director fees not in excess of those paid to other 
outside directors, if your board representation meets the requirements 
of Sec. 107.730(e).
    (9) A reasonable fee for arranging financing for a Small Business 
from a source that is neither a Licensee nor an Associate of yours. The 
Small Business must agree in writing to pay such a fee before you 
arrange the financing.
    (10) A one-time ``bonus'' that satisfies the requirements in 
paragraph (i) of this section.
    (11) The difference between the contractual interest rate of the 
Financing and a default rate of interest permitted as follows:
    (i) If a Small Business is in default, you may charge a default rate 
of interest as much as 7 percentage points higher than the contractual 
rate until the default is cured.
    (ii) For this purpose, ``default'' means either failure to pay an 
amount when due or failure to provide information required under the 
Financing documents.
    (12) Royalty payments based on improvement in the performance of the 
Small Business after the date of the Financing.
    (13) Gains realized on the disposition of Equity Securities issued 
by the Small Business.
    (h) How to evaluate compliance with the Cost of Money ceiling. You 
must determine whether a Financing is within the Cost of Money ceiling 
based on its discounted cash flows, as follows:

[[Page 64]]

    (1) Beginning with the date of the first disbursement (``period 
zero''), identify your cash inflows and cash outflows for each period of 
the Financing. The appropriate period to use (such as years, quarters, 
or months) depends on how you have structured the disbursements and 
payments.
    (2) Discount the cash flows back to the first disbursement date 
using the Cost of Money ceiling from paragraph (d) of this section as 
the discount rate.
    (3) If the result is zero or less, the Financing is within the Cost 
of Money ceiling; if it is greater than zero, the Financing exceeds the 
Cost of Money ceiling.

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5867, Feb. 5, 1998; 64 
FR 52646, Sept. 30, 1999; 65 FR 69432, Nov. 17, 2000]



Sec. 107.860  Financing fees and expense reimbursements a Licensee may receive from a Small Business.

    You may collect Financing fees and receive expense reimbursements 
from a Small Business only as permitted under this Sec. 107.860.
    (a) Application fee. You may collect a nonrefundable application fee 
from a Small Business to review its Financing application. The 
application fee may be collected at the same time as the closing fee 
under paragraph (c) or (d) of this section, or earlier. The fee must be:
    (1) No more than 1 percent of the amount of Financing requested (or, 
if two or more Licensees participate in the Financing, their combined 
application fees are no more than 1 percent of the total Financing 
requested); and
    (2) Agreed to in writing by the Financing applicant.
    (b) SBA review of application fees. For any fiscal year, if the 
number of application fees you collect is more than twice the number of 
Financings closed, SBA in its sole discretion may determine that you are 
engaged in activities not contemplated by the Act, in violation of 
Sec. 107.500.
    (c) Closing fee--Loans. You may charge a closing fee on a Loan if:
    (1) The fee is no more than 2 percent of the Financing amount (or, 
if two or more Licensees participate in the Financing, their combined 
closing fees are no more than 2 percent of the total Financing amount); 
and
    (2) You charge the fee no earlier than the date of the first 
disbursement.
    (d) Closing fee--Debt or Equity Financings. You may charge a Closing 
Fee on a Debt Security or Equity Security Financing if:
    (1) The fee is no more than 4 percent of the Financing amount (or, 
if two or more Licensees participate in the Financing, their combined 
closing fees are no more than 4 percent of the total Financing amount); 
and
    (2) You charge the fee no earlier than the date of the first 
disbursement.
    (e) Limitation on dual fees. If another Licensee or an Associate of 
yours collects a transaction fee under Sec. 107.900(e) in connection 
with your Financing of a Small Business, the sum of the transaction fee 
and your application and closing fees cannot exceed the maximum 
application and closing fees permitted under this Sec. 107.860.
    (f) Expense reimbursements. You may charge a Small Business for the 
reasonable out-of-pocket expenses, other than Management Expenses, that 
you incur to process its Financing application. If SBA determines that 
any of your reimbursed expenses are unreasonable or are Management 
Expenses, SBA will require you to include such amounts in the Cost of 
Money or refund them to the Small Business.
    (g) Breakup fee. If a Small Business accepts your Commitment and 
then fails to close the Financing because it has accepted funds from 
another source, you may charge a ``breakup fee'' equal to the closing 
fee that you would have been permitted to charge under paragraph (c) or 
(d) of this section.

[61 FR 3189, Jan. 31, 1996; 61 FR 41496, Aug. 9, 1996]



Sec. 107.865  Control of a Small Business by a Licensee.

    (a) In general. You, or you and your Associates (in the latter case, 
the ``Investor Group''), may exercise Control over a Small Business for 
purposes connected to your investment, through ownership of voting 
securities, management agreements, voting trusts, majority 
representation on the board of directors, or otherwise. The period of

[[Page 65]]

such Control will be limited to the seventh anniversary of the date on 
which such Control was initially acquired, or any earlier date specified 
by the terms of any investment agreement.
    (b) Presumption of control. Control over a Small Business based on 
ownership of voting securities will be presumed to exist whenever you or 
the Investor Group own or control, directly or indirectly:
    (1) At least 50 percent of the outstanding voting securities, if 
there are fewer than 50 shareholders; or
    (2) More than 25 percent of the outstanding voting securities, if 
there are 50 or more shareholders; or
    (3) At least 20 percent of the outstanding voting securities, if 
there are 50 or more shareholders and no other party holds a larger 
block.
    (c) Rebuttals to presumption of Control. A presumption of Control 
under paragraph (b) of this section is rebutted if:
    (1) The management of the Small Business owns at least a 25 percent 
interest in the voting securities of the business; and
    (2) The management of the Small Business can elect at least 40 
percent of the board members of a corporation, general partners of a 
limited partnership, or managers of a limited liability company, as 
appropriate, and the Investor Group can elect no more than 40 percent. 
The balance of such officials may be elected through mutual agreement by 
management and the Investor Group.
    (d) Extension of Control. With SBA's prior written approval you, or 
the Investor Group, may retain Control for such additional period as may 
be reasonably necessary to complete divestiture of Control or to ensure 
the financial stability of the portfolio company.
    (e) Additional Financing for businesses under Licensee's Control. If 
you assume Control of a Small Business, you may later provide additional 
Financing, without an exemption under Sec. 107.730(a)(1).

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5867, Feb. 5, 1998; 64 
FR 52646, Sept. 30, 1999; 67 FR 64790, Oct. 22, 2002]



Sec. 107.880  Assets acquired in liquidation of Portfolio securities.

    You may acquire assets in full or partial liquidation of a Small 
Business's obligation to you under the conditions permitted by this 
Sec. 107.880. The assets may be acquired from the Small Business, a 
guarantor of its obligation, or another party.
    (a) Timely disposition of assets. You must dispose of assets 
acquired in liquidation of a Portfolio security within a reasonable 
period of time.
    (b) Permitted expenditures to preserve assets. (1) You may incur 
reasonably necessary expenditures to maintain and preserve assets 
acquired.
    (2) You may incur reasonably necessary expenditures for improvements 
to render such assets saleable.
    (3) You may make payments of mortgage principal and interest 
(including amounts in arrears when you acquired the asset), pay taxes 
when due, and pay for necessary insurance coverage.
    (c) SBA approval of expenditures. This paragraph (c) applies if you 
have outstanding Leverage or are applying for Leverage. Any application 
for SBA approval under this paragraph must specify all expenses 
estimated to be necessary pending disposal of the assets. Without SBA's 
prior written approval:
    (1) Your total expenditures under paragraphs (b)(1) and (b)(2) of 
this section plus your total Financing(s) to the Small Business must not 
exceed your overline limit under Sec. 107.740; and
    (2) Your total expenditures under paragraph (b) of this section plus 
your total Financing(s) to the Small Business must not exceed 35 percent 
of your Regulatory Capital.

                  Limitations on Disposition of Assets



Sec. 107.885  Disposition of assets to Licensee's Associates or to competitors of Portfolio Concern.

    Sale of assets to Associate. Except with SBA's prior written 
approval, you are not permitted to dispose of assets (including assets 
acquired in liquidation) to any Associate if you have outstanding 
Leverage or Earmarked Assets. As a prerequisite to such approval, you 
must demonstrate that the proposed terms of disposal are at least

[[Page 66]]

as favorable to you as the terms obtainable elsewhere.

[61 FR 3189, Jan. 31, 1996, as amended at 67 FR 64791, Oct. 22, 2002]

                      Management Services and Fees



Sec. 107.900  Management fees for services provided to a Small Business by Licensee or its Associate.

    This Sec. 107.900 applies to management services that you or your 
Associate provide to a Small Business during the term of a Financing or 
prior to Financing. It does not apply to management services that you or 
your Associate provide to a Small Business that you do not finance. Fees 
permitted under this section are not included in the Cost of Money (see 
Sec. 107.855).
    (a) Permitted management fees. You or your Associate may provide 
management services to a Small Business financed by you if:
    (1) You or your Associate have entered into a written contract with 
the Small Business;
    (2) The fees charged are for services actually performed;
    (3) Services are provided on an hourly fee, project fee, or other 
reasonable basis; and
    (4) You can demonstrate to SBA, upon request, that the rate does not 
exceed the prevailing rate charged for comparable services by other 
organizations in the geographic area of the Small Business.
    (b) Fees for service as a board member. You or your Associate may 
receive fees in the form of cash, warrants, or other payments, for 
services provided as members of the board of directors of a Small 
Businesses Financed by you. The fees must not exceed those paid to other 
outside board members. In the absence of such board members, fees must 
be reasonable when compared with amounts paid to outside directors of 
similar companies.
    (c) SBA approval required. You must obtain SBA's prior written 
approval of any management contract that does not satisfy paragraphs (a) 
or (b) of this section.
    (d) Recordkeeping requirements. You must keep a record of hours 
spent and amounts charged to the Small Business, including expenses 
charged.
    (e) Transaction fees. (1) You may charge reasonable transaction fees 
for work you or your Associate perform to prepare a client for a public 
offering, private offering, or sale of all or part of the business, and 
for assisting with the transaction. Compensation may be in the form of 
cash, notes, stock, and/or options.
    (2) Your Associate may charge market rate investment banking fees to 
a Small Business on that portion of a Financing that you do not provide.



      Subpart H--Non-leveraged Licensees--Exceptions to Regulations



Sec. 107.1000  Licensees without Leverage--exceptions to the regulations.

    The regulatory exceptions in this section apply to Licensees with no 
outstanding Leverage or Earmarked Assets.
    (a) You are exempt from the following provisions (but you must come 
into compliance with them to become eligible for Leverage):
    (1) The overline limitation in Sec. 107.740.
    (2) The restrictions in Sec. 107.530 on investments of idle funds, 
provided you do not engage in activities not contemplated by the Act.
    (3) The restrictions in Sec. 107.550 on third-party debt.
    (4) The restrictions in Sec. 107.880 on expenses incurred to 
maintain or improve assets acquired in liquidation of Portfolio 
securities.
    (5) The recordkeeping requirements and fee limitations in 
Sec. 107.825 (b) and (c), respectively, for securities purchased through 
or from an underwriter.
    (b) You are exempt from the requirements to obtain SBA's prior 
approval for:
    (1) A decrease in your Regulatory Capital of more than two percent 
under Sec. 107.585 (but not below the minimum required under the Act or 
these regulations). You must report the reduction to SBA within 30 days.
    (2) Disposition of any asset to your Associate under Sec. 107.885.
    (3) A contract to employ an Investment Adviser/Manager under 
Sec. 107.510. However, you must notify SBA of the Management Expenses to 
be incurred

[[Page 67]]

under such contract, or of any subsequent material changes in such 
Management Expenses, within 30 days of execution. In order to become 
eligible for Leverage, you must have the contract approved by SBA.
    (4) Your initial Management Expenses under Sec. 107.140 and 
increases in your Management Expenses under Sec. 107.520. However, you 
must have your Management Expenses approved by SBA in order to become 
eligible for Leverage.
    (5) Options obtained from a Small Business by your management or 
employees under Sec. 107.815(b).
    (c) You are exempt from the requirement in Sec. 107.680 to obtain 
SBA's post approval of new directors and new officers, other than your 
chief operating officer. However, you must notify SBA of the new 
directors or officers within 30 days, and you must have all directors 
and officers approved by SBA in order to become eligible for Leverage.



      Subpart I--SBA Financial Assistance for Licensees (Leverage)

              General Information About Obtaining Leverage



Sec. 107.1100  Types of Leverage and application procedures.

    (a) Types of Leverageable available. You may apply for Leverage from 
SBA in one or both of the following forms:
    (1) The purchase or guarantee of your Debentures.
    (2) The purchase or guarantee of your Participating Securities.
    (b) Applying for Leverage. The Leverage application process has two 
parts. You must first apply for SBA's conditional commitment to reserve 
a specific amount of Leverage for your future use. Yu may then apply to 
draw down Leverage against the commitment. See Secs. 107.1200 through 
107.1240.
    (c) Where to send your application. Send all Leverage applications 
to SBA, Investment Division, 409 Third Street, S.W., Washington, DC 
20416.

[63 FR 5868, Feb. 5, 1998, as amended at 64 FR 70996, Dec. 20, 1999]



Sec. 107.1120  General eligibility requirements for Leverage.

    To be eligible for Leverage, you must:
    (a) Demonstrate a need for Leverage, evidenced by your investment 
activity and a lack of sufficient funds for investment. For your first 
issuance of Leverage, if you have invested at least 50 percent of your 
Leverageable Capital, you are presumed to lack sufficient funds for 
investment.
    (b) Have adequate Private Capital to satisfy the requirements for 
financial viability under Sec. 107.200.
    (c) Meet the minimum capital requirements of Sec. 107.210, subject 
to the following additional conditions:
    (1) If you were licensed after September 30, 1996 under the 
exception in Sec. 107.210(a)(1), you will not be eligible for Leverage 
until you have Regulatory Capital of at least $5,000,000.
    (2) If you were licensed on or before September 30, 1996, and have 
Regulatory Capital of less than $5,000,000 (less than $10,000,000 if you 
wish to issue Participating Securities):
    (i) You must certify in writing that at least 50 percent of the 
aggregate dollar amount of your Financings extended after September 30, 
1996 will be provided to Smaller Enterprises (as defined in 
Sec. 107.710(a)); and
    (ii) You must demonstrate to SBA's satisfaction that the approval of 
Leverage will not create or contribute to an unreasonable risk of 
default or loss to the United States government, based on such 
measurements of profitability and financial viability as SBA deems 
appropriate.
    (d) Certify, if applicable, that you will satisfy the requirement in 
Sec. 107.710(d) to provide Financing to Smaller Enterprises.
    (e) Certify in writing that you are in compliance with the 
requirement to finance Smaller Enterprises in Sec. 107.710(b).
    (f) Show, to the satisfaction of SBA, that your management is 
qualified and has the knowledge, experience, and capability necessary 
for investing in the types of businesses contemplated by the Act, the 
regulations in this part and your business plan.
    (g) Be in compliance with the regulations in this part.

[[Page 68]]

    (h) If required by SBA, have your Control Person(s) assume, in 
writing, personal responsibility for your Leverage, effective only if 
such Control Person(s) participate (directly or indirectly) in a 
transfer of Control not approved by SBA.

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5868, Feb. 5, 1998; 64 
FR 70996, Dec. 20, 1999]



Sec. 107.1130  Leverage fees and additional charges payable by Licensee.

    (a) Leverage fee. You must pay a leverage fee to SBA for each 
issuance of a Debenture or Participating Security. The fee is 3 percent 
of the face amount of the Leverage issued.
    (b) Payment of leverage fee. (1) If you issue a Debenture or 
Participating Security to repay or redeem existing Leverage, you must 
pay the leverage fee before SBA will guarantee or purchase the new 
Leverage security.
    (2) If you issue a Debenture or Participating Security that is not 
used to repay or redeem existing Leverage, SBA will deduct the leverage 
fee from the proceeds remitted to you, unless you prepaid the fee under 
Sec. 107.1210.
    (c) Refundability. The leverage fee is not refundable under any 
circumstances.
    (d) Additional charge for Leverage.--(1) Debentures. You must pay to 
SBA a Charge of 1 percent per annum on the outstanding amount of your 
Debentures issued on or after October 1, 1996, payable under the same 
terms and conditions as the interest on the Debentures. This Charge does 
not apply to Debentures issued pursuant to a Leverage commitment 
obtained from SBA on or before September 30, 1996.
    (2) Participating Securities. You must pay to SBA a Charge of 1 
percent per annum on the outstanding amount of your Participating 
Securities issued on or after October 1, 1996, payable under the same 
terms and conditions as the Prioritized Payments on the Participating 
Securities. This Charge does not apply to Participating Securities 
issued pursuant to a Leverage commitment obtained from SBA on or before 
September 30, 1996.
    (e) Other Leverage fees. SBA may establish a fee structure for 
services performed by the CRA. SBA will not collect any fee for its 
guarantee of TCs.

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5868, Feb. 5, 1998]



Sec. 107.1140  Licensee's acceptance of SBA remedies under Secs. 107.1800 through 107.1820.

    If you issue Leverage after April 25, 1994, you automatically agree 
to the terms and conditions in Secs. 107.1800 through 107.1820 as they 
exist at the time of issuance. The effect of these terms and conditions 
is the same as if they were fully incorporated in the terms of your 
Leverage.

       Maximum Amount of Leverage for Which a Licensee Is Eligible



Sec. 107.1150  Maximum amount of Leverage for a Section 301(c) Licensee.

    (a) Maximum amount of Leverage. (1) Amounts before indexing. If you 
are a Section 301(c) Licensee, the following table shows the maximum 
amount of Leverage you may have outstanding at any time, subject to the 
indexing adjustment set forth in paragraph (a)(2) of this section:

------------------------------------------------------------------------
                                             Then your maximum leverage
     If your leverageable capital is:                    is:
------------------------------------------------------------------------
(1) Not over $17,500,000..................  300 percent of Leverageable
                                             Capital
(2) Over $17,500,000 but not over           $52,500,000 + [2 x
 $35,100,000.                                (Leverageable Capital -
                                             $17,500,000)]
(3) Over $35,100,000 but not over           $87,700,000 + (Leverageable
 $52,600,000.                                Capital -$35,100,000)
(4) Over $52,600,000......................  $105,200,000
------------------------------------------------------------------------

    (2) Indexing of maximum amount of Leverage. SBA will adjust the 
amounts in paragraph (a) of this section annually to reflect increases 
through September in the Consumer Price Index published by the Bureau of 
Labor Statistics. SBA will publish the indexed maximum Leverage amounts 
each year in a Notice in the Federal Register.
    (b) Exceptions to maximum Leverage provisions. (1) Licensees under 
Common Control. Two or more Licensees under Common Control may have 
aggregate outstanding Leverage over $105,200,000 (subject to indexing as 
set forth in paragraph (a)(2) of this section) only if SBA gives them 
permission to do so. SBA may grant such permission on a

[[Page 69]]

case-by-case basis only. SBA may impose any terms and conditions SBA 
considers appropriate to minimize its risk of loss in the event of 
default.
    (2) Licensees with excess Leverage issued before March 31, 1993. If 
you had outstanding Debentures on March 31, 1993 that exceeded 300 
percent of your Leverageable Capital:
    (i) You do not have to prepay the excess amount.
    (ii) You may apply for an additional Debenture guarantee or 
Participating Security guarantee if you use the proceeds solely to pay 
the amount due at maturity on a Debenture issued before March 31, 1993. 
The new Debenture or Participating Security must mature on or before 
September 30, 2002.
    (iii) You must maintain at least 65 percent of your ``Total Funds 
Available for Investment'' in ``Venture Capital Financings'' (as defined 
in Sec. 107.1160(e) and (f), respectively) until your outstanding 
Debentures no longer exceed 300 percent of your Leverageable Capital.
    (3) Maximum amount of Participating Securities. See Sec. 107.1170.

[61 FR 3189, Jan. 31, 1996, as amended at 64 FR 70996, Dec. 20, 1999]



Sec. 107.1160  Maximum amount of Leverage for a Section 301(d) Licensee.

    This section applies to Leverage issued by a Section 301(d) Licensee 
on or before September 30, 1996. Effective October 1, 1996, a Section 
301(d) Licensee may apply to issue new Leverage, or refinance existing 
Leverage, only on the same terms permitted under Sec. 107.1150.
    (a) Maximum amount of subsidized Leverage. (1) ``Subsidized 
Leverage'' means Debentures with a reduced interest rate and Preferred 
Securities. If you are a Section 301(d) Licensee:
    (i) The maximum amount of subsidized Leverage you may have 
outstanding at any time is the lesser of 400 percent of your 
Leverageable Capital, or $35,000,000. The same limit applies to a group 
of Section 301(d) Licensees under Common Control.
    (ii) The maximum amount of Preferred Securities you may have 
outstanding at any time is 200 percent of your Leverageable Capital.
    (2) Certain types and amounts of subsidized Leverage have special 
eligibility requirements (see paragraphs (c) and (d) of this section).
    (b) Maximum amount of total Leverage. Use Sec. 107.1150 (a) and 
(b)(1) to determine your maximum amount of Leverage as if you were a 
Section 301(c) Licensee. If the result is more than your maximum 
subsidized Leverage, then this is your maximum total (subsidized plus 
non-subsidized) Leverage. Otherwise, your maximum total Leverage is the 
same as your maximum subsidized Leverage. For Participating Securities, 
see Sec. 107.1170.
    (c) Special eligibility requirements for fourth tier of Leverage. A 
``fourth tier of Leverage'' is any amount of outstanding Leverage in 
excess of 300 percent of your Leverageable Capital.
    (1) To qualify for a fourth tier of Leverage, you must have invested 
(or have Commitments to invest) at least 30 percent of your ``Total 
Funds Available for Investment'' in ``Venture Capital Financings'' (see 
the definitions in paragraphs (e) and (f) of this section).
    (2) While you have a fourth tier of Leverage, you must maintain 
Venture Capital Financings (at cost) that equal at least 30 percent of 
your Total Funds Available for Investment.
    (d) Special eligibility requirements for second tier of Preferred 
Securities. A ``second tier of Preferred Securities'' is any amount of 
outstanding Preferred Securities in excess of 100 percent of your 
Leverageable Capital.
    (1) To qualify for a second tier of Preferred Securities:
    (i) If your license was issued after October 13, 1971, you must have 
at least $500,000 of Leverageable Capital.
    (ii) You must have invested (or have Commitments to invest) at least 
the same dollar amount in Venture Capital Financings.
    (2) While you have a second tier of Preferred Securities, you must 
maintain at least the same dollar amount of Venture Capital Financings 
(at cost).
    (e) Definition of ``Total Funds Available for Investment''. Total 
Funds Available for Investment means the result obtained from the 
following formula:

T = .90 x (CA + LI)

Where:


[[Page 70]]


T = Total funds available for investment
CA = Total current assets
LI = Total Loans and Investment at cost (as reported on SBA Form 468), 
net of current maturities

    (f) Definition of ``Venture Capital Financing''. Venture Capital 
Financing means an investment represented by common or preferred stock, 
a limited partnership interest, or a similar ownership interest; or by 
an unsecured debt instrument that is subordinated by its terms to all 
other borrowings of the issuer.
    (1) A debt secured by any agreement with a third party is not a 
Venture Capital Financing, whether or not you have a security interest 
in any asset of the third party or have recourse against the third 
party.
    (2) A Financing that originally qualified as a Venture Capital 
Financing will continue to qualify (at its original cost), even if you 
later must report it on SBA Form 468 under either Assets Acquired in 
Liquidation of Portfolio Securities or Operating Concerns Acquired.

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5868, Feb. 5, 1998]



Sec. 107.1170  Maximum amount of Participating Securities for any Licensee.

    The maximum amount of Participating Securities you may have 
outstanding at any time is 200 percent of your Leverageable Capital. If 
you are a Section 301(d) Licensee, the maximum combined amount of 
Participating Securities and Preferred Securities you may have 
outstanding at any time is 200 percent of your Leverageable Capital.

    Conditional Commitments by SBA To Reserve Leverage for a Licensee



Sec. 107.1200  SBA's Leverage commitment to a Licensee--application procedure, amount, and term.

    (a) General. Under the provisions in Secs. 107.1200 through 
107.1240, you may apply for SBA's conditional commitment to reserve a 
specific amount and type of Leverage for your future use. You may then 
apply to draw down Leverage against the commitment.
    (b) Applying for a Leverage commitment. SBA will notify you when it 
is accepting requests for Leverage commitments. Upon receipt of your 
request, SBA will send you a complete application package.
    (c) Limitations on the amount of a Leverage commitment. The amount 
of a Leverage commitment must be a multiple of $5,000.
    (d) Term of Leverage commitment. SBA's Leverage commitment will 
automatically lapse on the expiration date stated in the commitment 
letter issued to you by SBA.

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5868, Feb. 5, 1998]



Sec. 107.1210  Payment of leverage fee upon receipt of commitment.

    (a) Partial prepayment of leverage fee. As a condition of SBA's 
Leverage commitment, and before you draw any Leverage under such 
commitment, you must pay to SBA a non-refundable fee equal to 1 percent 
of the face amount of the Debentures or Participating Securities 
reserved under the commitment. This amount represents a partial 
prepayment of the 3 percent leverage fee established under 
Sec. 107.1130(a).
    (b) Automatic cancellation of commitment. Unless you pay the fee 
required under paragraph (a) of this section by 5:00 P.M. Eastern Time 
on the 30th calendar day following the issuance of SBA's Leverage 
commitment, the commitment will be automatically canceled.

[63 FR 5868, Feb. 5, 1998]



Sec. 107.1220  Requirement for Licensee to file quarterly financial statements.

    As long as any part of SBA's Leverage commitment is outstanding, you 
must give SBA a Financial Statement on SBA Form 468 (Short Form) as of 
the close of each quarter of your fiscal year (other than the fourth 
quarter, which is covered by your annual filing of Form 468 under 
Sec. 107.630(a)). You must file this form within 30 days after the close 
of the quarter. You will not be eligible for a draw if you are not in 
compliance with this Sec. 107.1220.

[64 FR 70996, Dec. 20, 1999]

[[Page 71]]



Sec. 107.1230  Draw-downs by Licensee under SBA's Leverage commitment.

    (a) Licensee's authorization of SBA to purchase or guarantee 
securities. By submitting a request for a draw against SBA's Leverage 
commitment, you authorize SBA, or any agent or trustee SBA designates, 
to guarantee your Debenture or Participating Security and to sell it 
with SBA's guarantee.
    (b) Limitations on amount of draw. The amount of a draw must be a 
multiple of $5,000. SBA, in its discretion, may determine a minimum 
dollar amount for draws against SBA's Leverage commitments. Any such 
minimum amounts will be published in Notices in the Federal Register 
from time to time.
    (c) Effect of regulatory violations on Licensee's eligibility for 
draws--(1) General rule. You are eligible to make a draw against SBA's 
Leverage commitment only if you are in compliance with all applicable 
provisions of the Act and SBA regulations (i.e., no unresolved statutory 
or regulatory violations).
    (2) Exception to general rule. If you are not in compliance, you may 
still be eligible for draws if:
    (i) SBA determines that your outstanding violations are of non-
substantive provisions of the Act or regulations and that you have not 
repeatedly violated any non-substantive provisions; or
    (ii) You have agreed with SBA on a course of action to resolve your 
violations and such agreement does not prevent you from issuing 
Leverage.
    (d) Procedures for funding draws. You may request a draw at any time 
during the term of the commitment. With each request, submit the 
following documentation:
    (1) A statement certifying that there has been no material adverse 
change in your financial condition since your last filing of SBA Form 
468 (see also Sec. 107.1220 for SBA Form 468 filing requirements).
    (2) If your request is submitted more than 30 days following the end 
of your fiscal year, but before you have submitted your annual filing of 
SBA Form 468 (Long Form) in accordance with Sec. 107.630(a), a 
preliminary unaudited annual financial statement on SBA Form 468 (Short 
Form).
    (3) A statement certifying that to the best of your knowledge and 
belief, you are in compliance with all provisions of the Act and SBA 
regulations (i.e., no unresolved regulatory or statutory violations), or 
a statement listing any specific violations you are aware of. Either 
statement must be executed by one of the following:
    (i) An officer of the Licensee;
    (ii) An officer of a corporate general partner of the Licensee; or
    (iii) An individual who is authorized to act as or for a general 
partner of the Licensee.
    (4) A statement that the proceeds are needed to fund one or more 
particular Small Businesses or to provide liquidity for your operations. 
If required by SBA, the statement must include the name and address of 
each Small Business, and the amount and anticipated closing date of each 
proposed Financing.
    (e) Reporting requirements after drawing funds. (1) Within 30 
calendar days after the actual closing date of each Financing funded 
with the proceeds of your draw, you must file an SBA Form 1031 
confirming the closing of the transaction.
    (2) If SBA required you to provide information concerning a specific 
planned Financing under paragraph (d)(3) of this section, and such 
Financing has not closed within 60 calendar days after the anticipated 
closing date, you must give SBA a written explanation of the failure to 
close.
    (3) If you do not comply with this paragraph (e), you will not be 
eligible for additional draws. SBA may also determine that you are not 
in compliance with the terms of your Leverage under Secs. 107.1810 or 
107.1820.

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5868, Feb. 5, 1998; 64 
FR 70996, Dec. 20, 1999]



Sec. 107.1240  Funding of Licensee's draw request through sale to short-term investor.

    (a) Licensee's authorization of SBA to arrange sale of securities to 
short-term investor. By submitting a request for a draw of Debenture or 
Participating Security Leverage, you authorize SBA, or any agent or 
trustee SBA designates, to enter into any agreements (and to

[[Page 72]]

bind you to such agreements) necessary to accomplish:
    (1) The sale of your Debenture or Participating Security to a short-
term investor at a rate that may be different from the Trust Certificate 
Rate which will be established at the time of the pooling of your 
security;
    (2) The purchase of your security from the short-term investor, 
either by you or on your behalf; and
    (3) The pooling of your security with other securities with the same 
maturity date.
    (b) Sale of Debentures to a short-term investor. If SBA sells your 
Debenture to a short-term investor:
    (1) The sale price will be the face amount.
    (2) At the next scheduled date for the sale of Debenture Trust 
Certificates, whether or not the sale actually occurs, you must pay 
interest to the short-term investor for the short-term period. If the 
actual sale of Trust Certificates takes place after the scheduled date, 
you must pay the short-term investor interest from the scheduled sale 
date to the actual sale date. This additional interest is due on the 
actual sale date.
    (3) Failure to pay the interest constitutes noncompliance with the 
terms of your Leverage (see Sec. 107.1810).
    (c) Sale of Participating Securities to a short-term investor. If 
SBA sells your Participating Security to a short-term investor, the sale 
price will be the face amount.
    (d) Licensee's right to repurchase its Debentures before pooling. 
You may repurchase your Debentures from the short-term investor before 
they are pooled. To do so, you must:
    (1) Give SBA written notice at least 10 days before the cut-off date 
for the pool in which your Debenture is to be included; and
    (2) Pay the face amount of the Debenture, plus interest, to the 
short-term investor.

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5868, Feb. 5, 1998]

         Preferred Securities Leverage--Section 301(d) Licensees



Sec. 107.1400  Dividends or partnership distributions on 4 percent Preferred Securities.

    If you issued Preferred Securities to SBA on or after November 21, 
1989, you must pay SBA a dividend or partnership distribution of 4 
percent per year, from the date you issued Preferred Securities to the 
date you repay them, both inclusive. The dividend or partnership 
distribution is:
    (a) Computed on the par value of the outstanding stock or the face 
value of the outstanding limited partnership interest.
    (b) Cumulative. This means that if you do not pay the entire 
dividend or partnership distribution for a given fiscal year, the unpaid 
balance accumulates as a distribution in arrears. You do not have to pay 
interest on distributions in arrears.
    (c) Preferred. This means that you must pay SBA in full (including 
distributions in arrears) before setting aside or paying any amount to 
any other equity holder.
    (d) Payable at the discretion of your Board of Directors or General 
Partner(s), except that all distributions in arrears must be paid in 
full when you redeem the Preferred Securities.

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5869, Feb. 5, 1998]



Sec. 107.1410  Requirement to redeem 4 percent Preferred Securities.

    You must redeem 4 percent Preferred Securities not later than 15 
years from the date of issuance. At the redemption date, you must pay to 
SBA:
    (a) The par value (of preferred stock) or face value (of a preferred 
limited partnership interest); plus
    (b) Any unpaid dividends or partnership distributions accrued to the 
redemption date.



Sec. 107.1420  Articles requirements for 4 percent Preferred Securities.

    If you have outstanding 4 percent Preferred Securities, your 
Articles

[[Page 73]]

must contain all the provisions in Secs. 107.1400 and 107.1410.

[63 FR 5869, Feb. 5, 1998]



Sec. 107.1430  Redeeming 4 percent Preferred Securities with proceeds of non-subsidized Debentures.

    If SBA approves, a Section 301(d) Licensee may use the proceeds of a 
Debenture to redeem Preferred Securities at their mandatory redemption 
date, including any accrued unpaid dividends or partnership 
distributions.

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5869, Feb. 5, 1998]



Sec. 107.1440  Three percent preferred stock issued before November 21, 1989.

    Before November 21, 1989, Preferred Securities were available only 
in the form of preferred stock and had a preferred and cumulative 
dividend of 3 percent. If you have such preferred stock outstanding, you 
must follow Sec. 107.1400 (except for Sec. 107.1400(d)), substituting 
``3 percent'' for ``4 percent'' throughout.) Dividends on 3 percent 
preferred stock are payable at the discretion of your Board of Directors 
or General Partner(s), except that all dividends in arrears must be paid 
in full before any non-SBA investor receives any distribution. Upon your 
liquidation, SBA is entitled to payment of all dividends in arrears even 
if you have no Retained Earnings Available for Distribution at such 
time.



Sec. 107.1450  Optional redemption of Preferred Securities.

    (a) Redemption at par or face value. A Section 301(d) Licensee may 
redeem Preferred Securities at any time, provided you give SBA at least 
30 days written notice. You may redeem all or only part of your 
Preferred Securities, but the par value or face value of the securities 
being redeemed must be at least $50,000. At the redemption date, you 
must pay to SBA:
    (1) The par value (of preferred stock) or face value (of a preferred 
limited partnership interest); plus
    (2) Any unpaid dividends or partnership distributions accrued to the 
redemption date.
    (b) Repurchase of 3 percent preferred stock for less than par value. 
If you issued 3 percent preferred stock to SBA, you may ask SBA to sell 
it back to you at a price less than its par value. The terms and 
conditions of any such transaction will be as set forth in the Notice 
published in the Federal Register on April 1, 1994 (Copies of this 
notice are available from SBA, 409 3rd Street, SW., Washington, DC, 
20416). SBA has sole discretion to:
    (1) Approve or disapprove the sale.
    (2) Determine the sale price after considering any factors SBA 
considers appropriate.
    (3) Determine the form of payment SBA will accept. SBA is not 
authorized to accept the proceeds of a subsidized Debenture as payment.

                    Participating Securities Leverage



Sec. 107.1500  General description of Participating Securities.

    (a) Types of Participating Securities. Participating Securities are 
redeemable, preferred, equity-type securities. SBA may purchase or 
guarantee Participating Securities issued by Licensees in the form of 
limited partnership interests, preferred stock, or debentures with 
interest payable only to the extent of earnings. The structure, terms 
and conditions of Participating Securities are set forth in detail in 
Secs. 107.1500 through 107.1590.
    (b) Special eligibility requirements for Participating Securities. 
In addition to the general eligibility requirements for Leverage under 
Sec. 107.1120, Participating Securities issuers must also comply with 
special rules on:
    (1) Minimum capital (see Sec. 107.210).
    (2) Liquidity (see Sec. 107.1505).
    (3) Non-SBA borrowing (see Sec. 107.570).
    (4) Equity investing, as set forth in this paragraph (b)(4). If you 
issue Participating Securities, you must invest an amount equal to the 
Original Issue Price of such securities solely in Equity Capital 
Investments, as defined in Sec. 107.50.
    (c) Special features of Participating Securities--Prioritized 
Payments, Adjustments, and Profit Participation. When you issue 
Participating Securities, you agree to make the following payments:
    (1) Prioritized Payments. Depending upon the type of Participating 
Security you issue, Prioritized Payments

[[Page 74]]

may be preferred partnership distributions, preferred dividends, or 
interest. Your obligation to pay Prioritized Payments is contingent upon 
your profits as determined under Sec. 107.1520.
    (2) Adjustments to Prioritized Payments. If you have unpaid 
Prioritized Payments, you must compute Adjustments, which are additional 
contingent obligations determined under Sec. 107.1520. The conditions 
for paying Adjustments are the same as for Prioritized Payments.
    (3) SBA Profit Participation. Profit Participation is an amount 
payable to SBA under Sec. 107.1530 in consideration for SBA's guarantee 
of your Participating Securities.
    (d) Distributions by Licensees issuing Participating Securities. 
Sections 107.1540 through 107.1580 govern both required and optional 
Distributions by Participating Securities issuers. Distributions include 
both profit distributions and returns of capital, paid either to SBA or 
to your non-SBA investors.
    (e) Mandatory redemption of Participating Securities. You must 
redeem Participating Securities at the redemption date, which is the 
same as the maturity date of the Trust Certificates for the Trust 
containing such securities. The redemption date can never be later than 
15 years after the issue date. You must pay the Redemption Price plus 
any unpaid Earned Prioritized Payments and any earned Adjustments and 
earned Charges (see Sec. 107.1520).
    (f) Priority of Participating Securities in liquidation of Licensee. 
In the event of your liquidation, the following are senior in priority, 
for all purposes, to all other equity interests you have issued at any 
time:
    (1) The Redemption Price of Participating Securities;
    (2) Any Earned Prioritized Payments and any earned Adjustments and 
earned Charges (see Sec. 107.1520); and
    (3) Any Profit Participation allocated to SBA under Sec. 107.1530.

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5869, Feb. 5, 1998]



Sec. 107.1505  Liquidity requirements for Licensees issuing Participating Securities.

    If you have outstanding Participating Securities, you must maintain 
sufficient liquidity to avoid a condition of Liquidity Impairment. Such 
a condition will constitute noncompliance with the terms of your 
Leverage under Sec. 107.1820(e).
    (a) Definition of Liquidity Impairment. A condition of Liquidity 
Impairment exists when your Liquidity Ratio, as determined in paragraph 
(b) of this section, is less than 1.20. You are responsible for 
calculating whether you have a condition of Liquidity Impairment:
    (1) As of the close of your fiscal year;
    (2) At the time you apply for Leverage, unless SBA permits 
otherwise; and
    (3) At such time as you contemplate making any Distribution.
    (b) Computation of Liquidity Ratio. Your Liquidity Ratio equals your 
Total Current Funds Available (A) divided by your Total Current Funds 
Required (B), as determined in the following table:

                     Calculation of Liquidity Ratio
------------------------------------------------------------------------
                                   Amount
      Financial account         reported  on     Weight      Weighted
                                SBA form 468                  amount
------------------------------------------------------------------------
(1) Cash and invested idle     ..............  x1.00      ..............
 funds.
(2) Commitments from           ..............  x1.00      ..............
 investors.
(3) Current maturities.......  ..............  x0.50      ..............
(4) Other current assets.....  ..............  x1.00      ..............
(5) Publicly Traded and        ..............  x1.00      ..............
 Marketable Securities.
(6) Anticipated operating                 (1)  x1.00      ..............
 revenue for next 12 months.
(7) Total Current Funds        ..............  .........               A
 Available.
(8) Current liabilities......  ..............  x1.00      ..............
(9) Commitments to Small       ..............  x0.75      ..............
 Businesses.
(10) Anticipated operating                (1)  x1.00      ..............
 expense for next 12 months.
(11) Anticipated interest                 (1)  x1.00      ..............
 expense for next 12 months.
(12) Contingent liabilities    ..............  x0.25      ..............
 (guarantees).
(13) Total Current Funds       ..............  .........               B
 Required.
------------------------------------------------------------------------
\1\ As determined by Licensee's management under its business plan.


[[Page 75]]


[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5869, Feb. 5, 1998]



Sec. 107.1510  How a Licensee computes Earmarked Profit (Loss).

    Computing your Earmarked Profit (Loss) is the first step in 
determining your obligations to pay Prioritized Payments, Adjustments 
and Charges under Sec. 107.1520 and Profit Participation under 
Sec. 107.1530.
    (a) Requirement to compute your Earmarked Profit (Loss). While you 
have Participating Securities outstanding or have Earmarked Assets (as 
defined in paragraph (b) of this section), you must compute your 
Earmarked Profit (Loss) for:
    (1) Each full fiscal year.
    (2) Any interim period (consisting of one or more fiscal quarters) 
for which you want to make a Distribution.
    (b) How to determine your Earmarked Assets. ``Earmarked Assets'' 
means all the Loans and Investments that you have when you issue 
Participating Securities or that you acquire while you have 
Participating Securities outstanding, and any non-cash assets that you 
receive in exchange for such Loans and Investments.
    (1) An Earmarked Asset remains earmarked until you dispose of it, 
even if you no longer have any outstanding Participating Securities.
    (2) Investments you make after redeeming all your Participating 
Securities are not Earmarked Assets. However, if you issue new 
Participating Securities, all of your Loans and Investments again become 
Earmarked Assets.
    (3) If you were licensed before March 31, 1993, you may be permitted 
to exclude Loans and Investments held at that date from Earmarked Assets 
under Sec. 107.1590.
    (c) How to compute your Earmarked Asset Ratio. You must determine 
your Earmarked Asset Ratio each time you compute Earmarked Profit 
(Loss). If all your Loans and Investments are Earmarked Assets, your 
Earmarked Asset Ratio equals 100 percent. Otherwise, compute your 
Earmarked Asset Ratio using the following formula:

EAR = (EA / LI) x 100

where:

EAR = Earmarked Asset Ratio.
EA = Average Earmarked Assets (at cost) for the fiscal year or interim 
period.
LI = Average Loans and Investments (at cost) for the fiscal year or 
interim period.

    (d) How to compute your Earmarked Profit (Loss) if Earmarked Asset 
Ratio is 100 percent. (1) (i) If your Earmarked Asset Ratio from 
paragraph (b) of this section is 100 percent, use the following formula 
to compute your Earmarked Profit (Loss):

EP = NI + IK + EME

where:

EP = Earmarked Profit (Loss)
NI = Net Income (Loss), as reported on SBA Form 468 except as otherwise 
provided in this paragraph (d)(1)
IK = Unrealized Appreciation (Depreciation) on Earmarked Assets that you 
are distributing as an In-Kind Distribution under Sec. 107.1580
EME = Excess Management Expenses

    (ii) For the purpose of determining Net Income (Loss), leverage fees 
paid to SBA and partnership syndication costs that you incur must be 
capitalized and amortized on a straight-line basis over not less than 
five years.
    (2) ``Excess Management Expenses'' are those that exceed the 
following limit:
    (i) For a full fiscal year, the limit is the lower of:
    (A) 2.5 percent of your weighted average Combined Capital for the 
year, plus $125,000 if Combined Capital is below $20,000,000; or
    (B) Your Management Expenses approved by SBA.
    (ii) For less than a full fiscal year, you must prorate the annual 
amounts in paragraph (d)(2)(i) of this section to determine the limit.
    (e) How to compute your Earmarked Profit (Loss) if Earmarked Asset 
Ratio is less than 100 percent. If your Earmarked Asset Ratio is less 
than 100 percent, compute your Earmarked Profit (Loss) as follows:
    (1) Do the Earmarked Profit (Loss) computation in paragraph (d) of 
this section.
    (2) Subtract your net realized gain (loss) (as reported on SBA Form 
468) on Loans and Investments that are not Earmarked Assets.
    (3) Separate the result from paragraph (e)(2) of this section into:

[[Page 76]]

    (i) Net realized gain (loss) (as reported on SBA Form 468) on 
Earmarked Assets (``EGL''); and
    (ii) The remainder (``R'').
    (4) Your Earmarked Profit (Loss) equals:

EGL + (R x Earmarked Asset Ratio)

    (f) How to compute your cumulative Earmarked Profit (Loss). Sum your 
Earmarked Profit (Loss) for all fiscal years and for any interim period 
following the end of your last fiscal year. The total is your cumulative 
Earmarked Profit (Loss), which you must use in the Prioritized Payment 
computations under Sec. 107.1520.

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5870, Feb. 5, 1998]



Sec. 107.1520  How a Licensee computes and allocates Prioritized Payments to SBA.

    This section tells you how to compute Prioritized Payments, 
Adjustments and Charges on Participating Securities and determine the 
amounts you must pay. To distribute these amounts, see Sec. 107.1540.
    (a) How to compute Prioritized Payments and Adjustments--(1) 
Prioritized Payments. For a full fiscal year, the Prioritized Payment on 
an outstanding Participating Security equals the Redemption Price times 
the related Trust Certificate Rate. For an interim period, you must 
prorate the annual Prioritized Payment. If your Participating Security 
was sold to a short-term investor in accordance with Sec. 107.1240, the 
Prioritized Payment for the short-term period equals the Redemption 
Price times the short-term rate.
    (2) Adjustments. Compute Adjustments using paragraph (f) of this 
section.
    (3) Charges. Compute Charges in accordance with Sec. 107.1130(d)(2).
    (b) Licensee's obligation to pay Prioritized Payments, Adjustments 
and Charges. You are obligated to pay Prioritized Payments, Adjustments 
and Charges only if you have profit as determined in paragraph (d) of 
this section.
    (1) Prioritized Payments that you must pay (or have already paid) 
because you have sufficient profit are ``Earned Prioritized Payments''.
    (2) Prioritized Payments that have not become payable because you 
lack sufficient profit are ``Accumulated Prioritized Payments''. Treat 
all Prioritized Payments as ``Accumulated'' until they become ``Earned'' 
under this section.
    (3) Adjustments (computed under paragraph (f) of this section) and 
Charges (computed under Sec. 107.1130(d)(2)) are ``earned'' according to 
the same criteria applied to Prioritized Payments.
    (c) How to keep track of Prioritized Payments. You must establish 
three accounts to record your Accumulated and Earned Prioritized 
Payments:
    (1) Accumulation Account. The Accumulation Account is a memorandum 
account. Its balance represents your Accumulated Prioritized Payments, 
unearned Adjustments and unearned Charges.
    (2) Distribution Account. The Distribution Account is a liability 
account. Its balance represents your unpaid Earned Prioritized Payments, 
earned Adjustments and earned Charges.
    (3) Earned Payments Account. The Earned Payments Account is a 
memorandum account. Each time you add to the Distribution Account 
balance, add the same amount to the Earned Payments Account. Its balance 
represents your total (paid and unpaid) Earned Prioritized Payments, 
earned Adjustments and earned Charges.
    (d) How to determine your profit for Prioritized Payment purposes. 
As of the end of each fiscal year and any interim period for which you 
want to make a Distribution:
    (1) Bring the Accumulation Account up to date by adding to it all 
Prioritized Payments and Charges through the end of the appropriate 
fiscal period.
    (2) Determine whether you have profit for the purposes of this 
section by doing the following computation:
    (i) Cumulative Earmarked Profit (Loss) under Sec. 107.1510(f); minus
    (ii) The Earned Payments Account balance; minus
    (iii) All Distributions previously made under Secs. 107.1550, 
107.1560 and 107.1570(a); minus

[[Page 77]]

    (iv) Any Profit Participation previously allocated to SBA under 
Sec. 107.1530, but not yet distributed.
    (3) The amount computed in paragraph (d)(2) of this section, if 
greater than zero, is your profit. If the amount is zero or less, you 
have no profit.
    (4) If you have a profit, continue with paragraph (e) of this 
section. Otherwise, continue with paragraph (f) of this section.
    (e) Allocating Prioritized Payments to the Distribution Account. (1) 
If you have a profit under paragraph (d) of this section, determine the 
lesser of:
    (i) Your profit; or
    (ii) The balance in your Accumulation Account.
    (2) Subtract the result in paragraph (e)(1) of this section from the 
Accumulation Account and add it to the Distribution Account and the 
Earned Payments Account.
    (f) How to compute Adjustments. You must compute Adjustments as of 
the end of each fiscal year if you have a balance greater than zero in 
either your Accumulation Account or your Distribution Account, after 
giving effect to any Distribution that will be made no later than the 
second Payment Date following the fiscal year end.
    (1) Determine the combined average Accumulation Account and 
Distribution Account balances for the fiscal year, assuming that 
Prioritized Payments accumulate on a daily basis without compounding.
    (2) Multiply the average balance computed in paragraph (f)(1) of 
this section by the average of the Trust Certificate Rates for all the 
Participating Securities poolings during the fiscal year.
    (3) Add the amounts computed in this paragraph (f) to your 
Accumulation Account.
    (g) Licensee's obligation to pay Prioritized Payments after 
redeeming Participating Securities. This paragraph (g) applies if you 
have redeemed all your Participating Securities, but you still hold 
Earmarked Assets and still have a balance in your Accumulation Account.
    (1) You must continue to perform all the procedures in this section 
as of the end of each fiscal quarter and prior to making any 
Distribution. You must distribute any Earned Prioritized Payments, 
earned Adjustments and earned Charges in accordance with Sec. 107.1540.
    (2) After you dispose of all your Earmarked Assets and make any 
required Distributions in accordance with Sec. 107.1540, your obligation 
to pay any remaining Accumulated Prioritized Payments, unearned 
Adjustments and unearned Charges will be extinguished.

[63 FR 5870, Feb. 5, 1998]



Sec. 107.1530  How a Licensee computes SBA's Profit Participation.

    This section tells you how to compute SBA's Profit Participation. 
Profit Participation is included in the Distributions you make to SBA 
under Secs. 107.1550 and 107.1560.
    (a) How to compute Profit Participation. Profit Participation equals 
your ``Base'' times your ``Profit Participation Rate'' (if the Base is 
zero or less, you do not owe SBA Profit Participation). Compute the Base 
using paragraph (c) of this section and the Profit Participation Rate 
using paragraphs (d) through (g) of this section. You must compute your 
Earmarked Profit (Loss) under Sec. 107.1510 and your Prioritized 
Payments and Adjustments under Sec. 107.1520 before you can compute 
Profit Participation.
    (b) How to keep track of Profit Participation. You must establish a 
Profit Participation Account to record your computations under this 
section and payments under Secs. 107.1550 and 107.1560. Its balance 
represents your unpaid Profit Participation.
    (c) How to compute the Base. As of the end of each fiscal year and 
any year-to-date interim period for which you want to make a 
Distribution, compute your Base using the following formula:

B = EP - PPA - UL

where:

B = Base.
EP = Earmarked Profit (Loss) for the period from Sec. 107.1510.
PPA = Prioritized Payments for the period from Sec. 107.1520(a)(1), 
Adjustments (if applicable) from Sec. 107.1520(f), and Charges (if 
applicable) from Sec. 107.1130(d)(2).
UL = ``Unused Loss'' from prior periods as determined in this paragraph 
(c).


[[Page 78]]


    (1) If the Base computed as of the end of your previous fiscal year 
(your ``Previous Base'') was less than zero, your Unused Loss equals 
your Previous Base.
    (2) If your Previous Base was zero or greater, your Unused Loss 
equals zero, with the following exception: If you made an interim 
Distribution of Profit Participation during your previous fiscal year, 
and your Previous Base was lower than the interim Base on which your 
Distribution was computed, then your Unused Loss equals the difference 
between the interim Base and the Previous Base. For example, assume you 
are computing your Base as of December 31, 1997, your fiscal year end. 
Your Previous Base, computed as of December 31, 1996, was $3,000,000. 
During 1996, you made an interim Distribution which was computed on a 
Base of $3,500,000 as of June 30, 1996. The $500,000 difference between 
the 1996 interim and year-end Bases would be carried forward as Unused 
Loss in the computation of your Base as of December 31, 1997.
    (3) If you had no Participating Securities outstanding as of the end 
of your last fiscal year, you may request SBA's approval to treat your 
Undistributed Net Realized Loss, as reported on SBA Form 468 for that 
year, as Unused Loss. If you did not file SBA Form 468 because you were 
not yet licensed as of the end of your last fiscal year, you may request 
SBA's approval to treat pre-licensing losses as Unused Loss.
    (d) How to compute the Profit Participation Rate. You must determine 
your Profit Participation Rate each time you compute a Base that is 
greater than zero. Compute the Rate by following the steps in paragraphs 
(e) through (g) of this section.
    (e) Compute the ``PLC ratio''. (1) General rule. The ``PLC ratio'' 
is the highest ratio of outstanding Participating Securities to 
Leverageable Capital that you have ever attained.
    (2) Exception. You may reduce the ratio computed under paragraph 
(e)(1) of this section if you have increased your Leverageable Capital 
above its highest previous level. The increase must have taken place at 
least 120 days before the date as of which your Base is computed. In 
addition, the increase must have been expressly provided for in a plan 
of operations submitted to and approved by SBA in writing, or must be 
the result of the takedown of commitments or the conversion of non-cash 
assets that were included in your Private Capital. If these conditions 
are satisfied, compute your reduced PLC ratio as follows:
    (i) Divide the highest dollar amount of Participating Securities you 
have ever had outstanding by your increased Leverageable Capital.
    (ii) If the result in paragraph (e)(2)(i) of this section is lower 
than your PLC ratio currently in effect, such result will become your 
new PLC ratio.
    (f) Compute the Profit Participation Rate (before indexing). Compute 
the Profit Participation Rate (before indexing) using the table in this 
paragraph (f). Then go to paragraph (g) of this section to determine 
whether to index the Profit Participation Rate.

------------------------------------------------------------------------
     If your PLC ratio is:       Then your Profit Participation Rate is:
------------------------------------------------------------------------
1 or less......................  9%xPLC Ratio.
More than 1....................  9%+[3%x(PLC ratio-1)].
------------------------------------------------------------------------

    (g) Indexing the Profit Participation Rate. The Profit Participation 
Rate is indexed, up or down, to the yield-to-maturity on Treasury bonds 
with a remaining term of ten (10) years (the ``Treasury Rate''). You 
must perform the indexing procedures in this paragraph (g) unless the 
Treasury Rate was exactly 8 percent on every date that you issued 
Participating Securities.
    (1) Licensees that have issued Participating Securities on only one 
occasion. Determine the Treasury Rate for the date you issued your 
Participating Security. Adjust the Profit Participation Rate from 
paragraph (f) of this section by the percentage difference between the 
Treasury Rate and 8 percent. For example, assume that you issued 
Participating Securities when the Treasury Rate was 10 percent. The 
percentage difference between 10 percent and 8 percent is 25 percent. If 
you had a PLC ratio of 1, the Profit Participation Rate before indexing 
would be 9 percent. You would increase this rate by 25 percent, giving 
you a Profit Participation Rate of 11.25 percent.

[[Page 79]]

    (2) Licensees that have issued Participating Securities on more than 
one occasion. Determine the Treasury Rate for each of the dates you 
issued Participating Securities.
    (i) Compute an average of all such Treasury Rates, weighted to 
reflect the dollar amount of each issuance (ignoring any redemptions) 
and the number of days from the date of each issuance to the date as of 
which you are computing the Profit Participation Rate.
    Example to paragraph (g)(2)(i) of this section. If you issued $10 
million of Participating Securities on the 60th day of Fiscal Year 1 
when the Treasury Rate was 8 percent, and another $15 million on the 
100th day of Fiscal Year 3 when the Treasury Rate was 10 percent, then 
the weighted average Treasury Rate computed as of the end of Fiscal Year 
3 would be 8.55 percent. [Days elapsed since first issuance of 
Participating Securities = 1,035; days elapsed since second issuance of 
Participating Securities = 265; weighted amount of first issuance = 
$10,000,000 x 1,035/1,035 = $10,000,000; weighted amount of second 
issuance = $15,000,000 x 265/1035 = $3,840,579; weighted average amount 
of Participating Securities issued = $10,000,000 + $3,840,579 = 
$13,840,579; weighted average Treasury Rate= {(.08 x $10,000,000) + (.10 
x $3,840,579){time}  / $13,840,579 = 8.55%]
    (ii) Adjust the Profit Participation Rate from paragraph (f) of this 
section by the percentage difference between the weighted average 
Treasury Rate and 8 percent. In the example given in paragraph (g)(2)(i) 
of this section, if the PLC ratio were equal to 2, the Profit 
Participation Rate for the fiscal year would be 12.83 percent. 
[{((.0855-.08) / .08) + 1{time}  x .12 x 100 = 12.83%]
    (h) Computing SBA's Profit Participation. If the Base from paragraph 
(c) of this section is greater than zero, you must compute SBA's Profit 
Participation as follows:
    (1) Multiply the Base from paragraph (c) of this section by the 
Profit Participation Rate from paragraph (g) of this section.
    (2) If your last Profit Participation computation was for an interim 
period during the same fiscal year and used a higher Profit 
Participation Rate than the Rate you just used in paragraph (h)(1) of 
this section, you must adjust the amount computed in paragraph (h)(1) of 
this section as follows:
    (i) Determine the difference between the Profit Participation Rate 
you just used in paragraph (h)(1) of this section and the Rate used in 
your previous computation;
    (ii) Multiply the difference by the Base from your last Profit 
Participation computation; and
    (iii) Add the result to the amount you computed in paragraph (h)(1) 
of this section.
    (3) Reduce the Profit Participation computed in paragraphs (h)(1) 
and (h)(2) of this section by any amounts of Profit Participation that 
you distributed or reserved for distribution to SBA, or its designated 
agent or Trustee, for any previous interim period(s) during the fiscal 
year. The result is SBA's Profit Participation (unless it is less than 
zero, in which case SBA's Profit Participation is zero).
    (i) Allocation of Profit Participation. Before any Distribution and 
in any case within 120 days following the end of your fiscal year, you 
must add the amount of Profit Participation computed under this 
Sec. 107.1530 to the Profit Participation Account. You must reserve 
funds equal to this amount for distribution to SBA, or its designated 
agent or Trustee; you may not reinvest these funds or use them for any 
other purpose.

[61 FR 3189, Jan. 31, 1996; 61 FR 41496, Aug. 9, 1996, as amended at 63 
FR 5871, Feb. 5, 1998]



Sec. 107.1540  Distributions by Licensee--Prioritized Payments and Adjustments.

    After you compute Prioritized Payments and Adjustments under 
Sec. 107.1520, you must distribute them in accordance with this 
Sec. 107.1540. You must notify SBA of any planned distribution under 
this section 10 business days before the distribution date, unless SBA 
permits otherwise.
    (a) Requirement to distribute Prioritized Payments and Adjustments. 
This paragraph (a) applies only if you satisfy the liquidity requirement 
in Sec. 107.1505. All Distributions under this paragraph (a) go to SBA 
or its designated agent or trustee.

[[Page 80]]

    (1) You must distribute the balance in your Distribution Account 
from Sec. 107.1520 annually on the first or second Payment Date 
following your fiscal year end, and on any date when you are making any 
other Distribution.
    (2) You may distribute all or part of the balance in your 
Distribution Account on any Payment Date regardless of whether you are 
making any other Distribution on that date.
    (b) Additional requirement for Licensees with undistributed 
Prioritized Payments. This paragraph (b) applies if you do not 
distribute the full amount in your Distribution Account by the second 
Payment Date following the end of your fiscal year. At the end of each 
fiscal quarter, until you reduce the balance in your Distribution 
Account to zero, you must:
    (1) Do all the steps in Sec. 107.1520; and
    (2) Distribute the balance in your Distribution Account on the next 
Payment Date following the end of your fiscal quarter, provided you 
satisfy the liquidity requirement in Sec. 107.1505.

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5871, Feb. 5, 1998]



Sec. 107.1550  Distributions by Licensee--permitted ``tax Distributions'' to private investors and SBA.

    If you have outstanding Participating Securities or Earmarked 
Assets, and you are a limited partnership, ``S Corporation,'' or 
equivalent pass-through entity for tax purposes, you may make ``tax 
Distributions'' to your investors in accordance with this Sec. 107.1550, 
whether or not they have an actual tax liability. SBA receives a share 
of any tax Distribution you make. This section tells you when you may 
make a ``tax Distribution'' and how to compute it. You must notify SBA 
of any planned distribution under this section 10 business days before 
the distribution date, unless SBA permits otherwise.
    (a) Conditions for making a tax Distribution. You may make a tax 
Distribution only if:
    (1) You have paid all your Prioritized Payments, Adjustments, and 
Charges, so that the balance in both your Distribution Account and your 
Accumulation Account is zero (see Sec. 107.1520).
    (2) You satisfy the liquidity requirement in Sec. 107.1505.
    (3) The tax Distribution does not exceed your Retained Earnings 
Available for Distribution.
    (4) The tax Distribution does not exceed the Maximum Tax Liability 
from paragraph (b) of this section.
    (b) How to compute the Maximum Tax Liability. (1) You may compute 
your Maximum Tax Liability for a full fiscal year or for any calendar 
quarter. Use the following formula:

M = (TOI x HRO) + (TCG x HRC)

where:

M = Maximum Tax Liability
TOI = Net ordinary income allocated to your partners or other owners for 
Federal income tax purposes for the fiscal year or calendar quarter for 
which the Distribution is being made, excluding Prioritized Payments 
allocated to SBA.
HRO = The highest combined marginal Federal and State income tax rate 
for corporations or individuals on ordinary income, determined in 
accordance with paragraphs (b)(2) through (b)(4) of this section.
TCG = Net capital gains allocated to your partners or other owners for 
Federal income tax purposes for the fiscal year or calendar quarter for 
which the Distribution is being made, excluding Prioritized Payments 
allocated to SBA.
HRC = The highest combined marginal Federal and State income tax rate 
for corporations or individuals on capital gains, determined in 
accordance with paragraphs (b)(2) through (b)(4) of this section.

    (2) You may compute the highest combined marginal Federal and State 
income tax rate on ordinary income and capital gains using either 
individual or corporate rates. However, you must apply the same type of 
rate, either individual or corporate, to both ordinary income and 
capital gains.
    (3) In determining the combined Federal and State income tax rate, 
you must assume that State income taxes are deductible from Federal 
income taxes. For example, if the Federal tax rate was 35 percent and 
the State tax rate was 5 percent, the combined tax rate would be [35% x 
(1-.05)] + 5% = 38.25%.
    (4) For purposes of this paragraph (b), the ``State income tax'' is 
that of the State where your principal place of business is located, and 
does not include any local income taxes.

[[Page 81]]

    (c) SBA's share of the tax Distribution. (1) SBA's percentage share 
of the tax Distribution is equal to the Profit Participation Rate 
computed under Sec. 107.1530.
    (2) SBA may direct you to pay its share of the tax Distribution to 
its designated agent or Trustee.
    (3) SBA will apply its share of the tax Distribution in the order 
set forth in Sec. 107.1560(g).
    (d) Paying a tax Distribution. You may make an annual tax 
Distribution on the first or second Payment Date following the end of 
your fiscal year. You may make a quarterly tax Distribution on the first 
Payment Date following the end of the calendar quarter for which the 
Distribution is being made. See also Sec. 107.1575(a).
    (e) Excess tax Distributions. (1) As of the end of your fiscal year, 
you must determine whether you made any excess tax Distributions for the 
year in accordance with paragraph (e)(2) of this section. Any tax 
Distributions that you make for a subsequent period must be reduced by 
the excess amount distributed.
    (2) Determine your excess tax Distributions by adding together all 
your quarterly tax Distributions for the year (ignoring any required 
reductions for excess tax Distributions made in prior years), and 
subtracting the maximum tax Distribution that you would have been 
permitted to make based upon a single computation performed for the 
entire fiscal year. The result, if greater than zero, is your excess tax 
Distribution for the year.

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5871, Feb. 5, 1998; 64 
FR 70996, Dec. 20, 1999]



Sec. 107.1560  Distributions by Licensee--required Distributions to private investors and SBA.

    You must make Distributions under this Sec. 107.1560 if you have 
outstanding Participating Securities or Earmarked Assets and you satisfy 
the conditions in paragraph (a) of this section. Distributions under 
this section are determined as of the end of each fiscal year. You must 
notify SBA of any planned distribution under this section 10 business 
days before the distribution date, unless SBA permits otherwise.
    (a) Conditions for making Distributions. Distributions under this 
section are subject to the following conditions:
    (1) You must have paid all Prioritized Payments, Adjustments and 
Charges, so that the balance in both your Distribution Account and your 
Accumulation Account is zero (see Secs. 107.1520 and 107.1540).
    (2) You must have made any permitted tax Distribution that you 
choose to make under Sec. 107.1550.
    (3) You must satisfy the liquidity requirement in Sec. 107.1505.
    (4) The amount you distribute under this section must not exceed 
your remaining Retained Earnings Available for Distribution.
    (b) Total amount you must distribute. Unless SBA permits otherwise, 
the total amount you must distribute equals the result (if greater than 
zero) of the following computation:
    (1) Your Retained Earnings Available for Distribution as of the end 
of your fiscal year, after giving effect to any Distribution under 
Secs. 107.1540 and 107.1550; minus
    (2) All previous Distributions under this section and 
Sec. 107.1570(a) that were applied as redemptions or repayments of 
Leverage; plus
    (3) All previous Distributions under Sec. 107.1570(b) that reduced 
your Retained Earnings Available for Distribution.
    (c) When you must make Distributions. You must make the required 
Distributions on either the first or second Payment Date following the 
end of your fiscal year.
    (d) Effect of Distributions on Retained Earnings Available for 
Distribution. Distributions under this Sec. 107.1560 have the following 
effect on your Retained Earnings Available for Distribution:
    (1) All Distributions to private investors reduce Retained Earnings 
Available for Distribution.
    (2) Distributions to SBA, or its designated agent or Trustee, reduce 
Retained Earnings Available for Distribution if they are applied as 
payments of Profit Participation or distributions on Preferred 
Securities (see paragraph (g) of this section).
    (3) Distributions to SBA, or its designated agent or Trustee, do not 
reduce

[[Page 82]]

Retained Earnings Available for Distribution if they are applied as a 
repayment or redemption of Leverage (see paragraph (g) of this section).
    (e) SBA's share of the total Distribution. Use the following table 
to determine the percentage share of the total Distribution (from 
paragraph (b) of this section) that goes to SBA (or its designated agent 
or Trustee):

              SBA's Percentage Share of Total Distribution
------------------------------------------------------------------------
 If your ratio of Leverage to Leverageable   Then SBA's percentage share
  Capital as of the fiscal period end is:      of the Distribution is:
------------------------------------------------------------------------
Over 200%.................................  [Leverage / (Leverage +
                                             Leverageable Capital)] x
                                             100.
Over 100% but not over 200%...............  50%.
100% or less..............................  Profit Participation Rate
                                             from Sec.  107.1530.
------------------------------------------------------------------------

    (f) Exceptions to the Distribution requirement. (1) With SBA's prior 
written approval, you may withhold from distribution reasonable reserves 
necessary to protect your investments or relative position in Loans and 
Investments and to meet contingent liabilities.
    (i) If you submit a written request for SBA approval, you may 
consider it approved unless SBA notifies you otherwise within 30 days 
from receipt.
    (ii) Reserves that you withhold from distribution may not be used to 
make investments in additional portfolio companies.
    (iii) Withholding of reserves under this paragraph (f)(1) is not a 
``payment failure'' in violation of Sec. 107.1820(e)(6).
    (2) SBA may restrict Distributions under this Sec. 107.1560 if SBA 
determines that the value of your assets is materially overstated. SBA 
must give you notice of such a determination in advance of your proposed 
Distribution.
    (g) How SBA will apply your Distributions. Your Distributions to SBA 
(or its designated agent or Trustee) under this Sec. 107.1560 will be 
applied in the following order:
    (1) First, to Profit Participation;
    (2) Second, to the extent there remain any Retained Earnings 
Available for Distribution, to distributions on Preferred Securities;
    (3) Third, as a redemption of Participating Securities in order of 
issue;
    (4) Fourth, as a redemption of Preferred Securities; and
    (5) Fifth, as the repayment of principal of any outstanding 
Debentures, with such repayment to be made into escrow on terms and 
conditions SBA determines.

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5872, Feb. 5, 1998]



Sec. 107.1570  Distributions by Licensee--optional Distribution to private investors and SBA.

    If you have outstanding Participating Securities or Earmarked 
Assets, you may make two types of optional Distributions under this 
Sec. 107.1570: quarterly Distributions determined the same way as the 
required annual Distributions in Sec. 107.1560, and Distributions 
allocated between SBA and your private investors in proportion to the 
capital contributions of each. You must notify SBA of any planned 
distribution under this section 10 business days before the distribution 
date, unless SBA permits otherwise.
    (a) Quarterly Distributions subject to conditions in Sec. 107.1560. 
(1) You may make Distributions under this paragraph (a) as of the end of 
any fiscal quarter, giving SBA (or its designated agent or Trustee) a 
percentage share determined under Sec. 107.1560(e).
    (2) Such Distributions are subject to all the provisions in 
Sec. 107.1560 (a)(1), (a)(3), (a)(4), (d), (f)(2), and (g).
    (3) You may make such Distributions only on the next Payment Date 
following the end of your fiscal quarter.
    (4) The total amount of such Distributions may not exceed the result 
of the following computation:
    (i) Your Retained Earnings Available for Distribution as of the end 
of your fiscal quarter; minus
    (ii) All previous Distributions under this paragraph (a) or 
Sec. 107.1560 that were applied as redemptions or repayments of 
Leverage; plus
    (iii) All previous Distributions under paragraph (b) of this section 
that reduced your Retained Earnings Available for Distribution.
    (b) Other optional Distributions. On any Payment Date, you may make 
additional Distributions to your private investors and to SBA (or its 
designated

[[Page 83]]

agent or Trustee) under this paragraph (b).
    (1) Conditions for making a Distribution. You may make a 
Distribution under this paragraph (b) only if:
    (i) You have distributed all Earned Prioritized Payments, earned 
Adjustments, and earned Charges, so that the balance in your 
Distribution Account is zero (see Sec. 107.1520).
    (ii) You have distributed all Profit Participation computed under 
Sec. 107.1530 which you are required to distribute under Sec. 107.1560 
or permitted to distribute under paragraph (a) of this section, as 
appropriate, and you have made all required Distributions under 
Sec. 107.1560.
    (iii) You satisfy the liquidity requirement in Sec. 107.1505 or 
obtain SBA's prior written approval of the Distribution.
    (iv) You do not have a condition of Capital Impairment.
    (v) The Distribution does not reduce your Regulatory Capital 
(excluding commitments from Institutional Investors) below the minimum 
required under Sec. 107.210, unless SBA approves the reduction as part 
of a plan of liquidation.
    (vi) The Distribution does not cause you to have excess Leverage 
contrary to section 303 of the Act.
    (2) SBA's share of Distribution. (i) If your Capital Impairment 
Percentage under Sec. 107.1840 is zero, SBA's percentage share of any 
Distribution under this paragraph (b) equals:

[Leverage /(Leverage + Leverageable Capital)] x 100


In this formula, use Leverage and Leverageable Capital as of the date of 
the Distribution, after giving effect to any Distribution under 
Sec. 107.1560 and paragraph (a) of this section.
    (ii) If your Capital Impairment Percentage under Sec. 107.1840 is 
greater than zero, you must modify the formula in paragraph (b)(2)(i) of 
this section by replacing Leverageable Capital with:

Leverageable Capital x (100% - CIP)

where ``CIP'' is your Capital Impairment Percentage or 100 percent, 
whichever is less.

    (3) How SBA will apply Distributions. Any amounts you distribute to 
SBA, or its designated agent or Trustee, under this paragraph (b) will 
be applied as a repayment or redemption of Leverage in the order set 
forth in Sec. 107.1560(g)(3) through (g)(5).
    (4) Effect of Distributions on Retained Earnings Available for 
Distribution. Any amounts you distribute to non-SBA investors under this 
paragraph (b) must reduce your Retained Earnings Available for 
Distribution to zero before reducing your Private Capital.
    (5) Permitted exception to Sec. 107.585. You may make any 
Distribution permitted by this paragraph (b), even if the result is a 
reduction in your Regulatory Capital that would otherwise be prohibited 
under Sec. 107.585.

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5872, Feb. 5, 1998]



Sec. 107.1575  Distributions on other than Payment Dates.

    (a) Permitted Distributions on other than Payment Dates. 
Notwithstanding any provisions to the contrary in Secs. 107.1540 through 
107.1570, you may make Distributions on dates other than Payment Dates 
as follows:
    (1) Required annual Distributions under Sec. 107.1540(a)(1), annual 
Distributions under Sec. 107.1550, and any Distributions under 
Sec. 107.1560 must be made no later than the second Payment Date 
following the end of your fiscal year.
    (2) Required Distributions under Sec. 107.1540(b) must be made no 
later than the first Payment Date following the end of the applicable 
fiscal quarter;
    (3) Optional Distributions under Sec. 107.1540(a)(2) and 
Sec. 107.1570 may be made on any date.
    (4) Quarterly Distributions under Sec. 107.1550 must be made no 
earlier than the last day of the calendar quarter for which the 
Distribution is being made and no later than the first Payment Date 
following the end of such calendar quarter.
    (b) Conditions for making Distribution. All Distributions under this 
section are subject to the following conditions:
    (1) You must obtain SBA's written approval before the distribution 
date;
    (2) The ending date of the period for which you compute your 
Earmarked Profits, Prioritized Payments, Adjustments, Charges, Profit 
Participation,

[[Page 84]]

Retained Earnings Available for Distribution, liquidity ratio, Capital 
Impairment, and any other applicable computations required under 
Secs. 107.1500 through 107.1570, must be:
    (i) The distribution date, or
    (ii) If your Distribution includes annual Distributions under 
Secs. 107.1540(a)(1), 107.1550 and/or 107.1560, your most recent fiscal 
year end;
    (3) If your Distribution includes an amount which SBA will apply as 
a redemption of Participating Securities, the effective date of such 
redemption, for all purposes including future computations of 
Prioritized Payments, will be the next Payment Date following the 
distribution date.

[63 FR 5872, Feb. 5, 1998, as amended at 64 FR 70997, Dec. 20, 1999]



Sec. 107.1580  Special rules for In-Kind Distributions by Licensees.

    (a) In-Kind Distributions while Licensee has outstanding 
Participating Securities. A Distribution under Secs. 107.1540, 107.1560 
or 107.1570 may consist of securities (an ``In-Kind Distribution''). 
Such a Distribution must satisfy the conditions in this paragraph (a).
    (1) You may distribute only Distributable Securities.
    (2) You must distribute each security pro-rata to all investors and 
to SBA or its designated agent or Trustee, based on the amounts that 
each party would receive if the Distribution were in cash.
    (3) You must impute a gain (loss) on each security being distributed 
as if it were being sold, using the value of the security as of the 
declaration date of the Distribution (if you are a Corporate Licensee) 
or the distribution date (if you are a Partnership Licensee).
    (4) You must deposit SBA's share of securities being distributed 
with a disposition agent designated by SBA. As an alternative, if you 
agree, SBA may direct you to dispose of its shares. In this case, you 
must promptly remit the proceeds to SBA.
    (b) In-Kind Distributions after Licensee has redeemed all 
Participating Securities. This paragraph (b) applies from the time you 
redeem all your Participating Securities until you dispose of all your 
Earmarked Assets.
    (1) You may make an In-Kind Distribution of an Earmarked Asset only 
if you pay SBA the lower of:
    (i) An amount equal to the Unrealized Appreciation on the asset; or
    (ii) The full amount of your Accumulated Prioritized Payments and 
unpaid Adjustments.
    (2) You must obtain SBA's prior written approval of any In-Kind 
Distribution of Earmarked Assets that are not Distributable Securities, 
specifically including approval of the valuation of the assets.

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5872, Feb. 5, 1998; 64 
FR 70997, Dec. 20, 1999]



Sec. 107.1585  Exchange of Debentures for Participating Securities.

    You may, in SBA's discretion, retire a Debenture through the 
issuance of Participating Securities. To do so, you must:
    (a) Obtain SBA's approval to issue Participating Securities;
    (b) Pay all unpaid accrued interest on the Debenture, plus any 
applicable prepayment penalties, fees, and other charges;
    (c) Have outstanding Equity Capital Investments (at cost) equal to 
the amount of the Debenture being refinanced; and
    (d) Classify all your existing Loans and Investments as Earmarked 
Assets.

[63 FR 5869, Feb. 5, 1998]



Sec. 107.1590  Special rules for companies licensed on or before March 31, 1993.

    This section applies to companies licensed on or before March 31, 
1993 that apply to issue Participating Securities.
    (a) Election to exclude pre-existing portfolio. You may choose to 
exclude all (but not a portion) of your Loans and Investments as of 
March 31, 1993, from classification as Earmarked Assets if:
    (1) The proceeds of your first issuance of Participating Securities 
are not used to refinance outstanding Debentures (see Sec. 107.1585(a)). 
SBA will consider payment or prepayment of any outstanding Debenture to 
be a refinancing unless you demonstrate to SBA's satisfaction that you 
can pay

[[Page 85]]

the Debenture principal without relying on the proceeds of the 
Participating Securities.
    (2) SBA, in its sole discretion, approves the exclusion.
    (b) Treatment of pre-existing portfolio if not excluded. If you do 
not choose to exclude your Loans and Investments as of March 31, 1993, 
they will be Earmarked Assets for all purposes.
    (c) Requirements for Licensee's first issuance of Participating 
Securities. When you apply for your first issuance of Participating 
Securities, you must comply with the following:
    (1) For each of your Loans and Investments, you must submit:
    (i) The most recent annual report (or fiscal year-end financial 
statements) and the most recent interim financial statements of the 
Small Business; and
    (ii) Your valuation reports on the Small Business, prepared as of 
the end of each of your last three fiscal years. If you have applied for 
Participating Securities on the basis of interim financial statements, 
you must also submit a valuation report as of your interim financial 
statement date.
    (2) If you have negative Undistributed Net Realized Earnings and/or 
a net Unrealized Loss on Securities Held, SBA may require you to undergo 
a quasi-reorganization in accordance with generally accepted accounting 
principles.
    (3) If your financial statements accompanying the Participating 
Securities application are for an interim period, you must have your 
SBA-approved independent public accountant perform a limited-scope audit 
of the statements. For purposes of this paragraph (d)(3), ``limited 
scope audit'' means auditing procedures sufficient to enable the 
independent public accountant to express an opinion on the Statement of 
Financial Position and the accompanying Schedule of Loans and 
Investments.

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5873, Feb. 5, 1998]

 Funding Leverage by Use of SBA-Guaranteed Trust Certificates (``TCs'')



Sec. 107.1600  SBA authority to issue and guarantee Trust Certificates.

    (a) Authorization. Sections 319(a) and (b) of the Act authorize SBA 
or its CRA to issue TCs, and SBA to guarantee the timely payment of the 
principal and interest thereon. Any guarantee by SBA of such TC is 
limited to the principal and interest due on the Debentures or the 
Redemption Price of and Prioritized Payments on Participating Securities 
in any Trust or Pool backing such TC. The full faith and credit of the 
United States is pledged to the payment of all amounts due under the 
guarantee of any TC.
    (b) Periodic exercise of authority. SBA will issue guarantees of 
Debentures and Participating Securities under section 303 and of TCs 
under section 319 of the Act at six month intervals, or at shorter 
intervals, taking into account the amount and number of such guarantees 
or TCs.
    (c) SBA authority to arrange public or private fundings of Leverage. 
SBA in its discretion may arrange for public or private financing under 
its guarantee authority. Such financing arranged by SBA may be 
accomplished by the sale of individual Debentures or Participating 
Securities, aggregations of Debentures or Participating Securities, or 
Pools or Trusts of Debentures or Participating Securities.
    (d) Pass-through provisions. TCs shall provide for a pass-through to 
their holders of all amounts of principal and interest paid on the 
Debentures, or the Redemption Price of and Prioritized Payments on the 
Participating Securities, in the Pool or Trust against which they are 
issued.
    (e) Formation of a Pool or Trust holding Leverage Securities. SBA 
shall approve the formation of each Pool or Trust. SBA may, in its 
discretion, establish the size of the Pools and their composition, the 
interest rate on the TCs issued against Trusts or Pools, fees, 
discounts, premiums and other

[[Page 86]]

charges made in connection with the Pools, Trusts, and TCs, and any 
other characteristics of a Pool or Trust it deems appropriate.

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5873, Feb. 5, 1998]



Sec. 107.1610  Effect of prepayment or early redemption of Leverage on a Trust Certificate.

    (a) The rights, if any, of a Licensee to prepay any Debenture or 
make early redemption of any Participating Security are established by 
the terms of such securities, and no such right is created or denied by 
the regulations in this part.
    (b) SBA's rights to purchase or prepay any Debenture without premium 
are established by the terms of the Guaranty Agreement relating to the 
Debenture. SBA's rights to redeem, at any time, any Participating 
Security without premium are established by the terms of the Guaranty 
Agreement relating to the Participating Security.
    (c) Any prepayment of a Debenture or early redemption of a 
Participating Security pursuant to the terms of the Guaranty Agreement 
relating to such securities, shall reduce the SBA guarantee of timely 
payment of principal and interest on a TC in proportion to the amount of 
principal or Redemption Price that such prepaid Debenture or redeemed 
Participating Security represents in the Trust or Pool backing such TC.
    (d) SBA shall be discharged from its guarantee obligation to the 
holder or holders of any TC, or any successor or transferee of such 
holder, to the extent of any such prepayment, whether or not such 
successor or transferee shall have notice of any such prepayment.
    (e) Interest on prepaid Debentures and Prioritized Payments on 
Participating Securities shall accrue only through the date of such 
voluntary prepayment or SBA payment, as the case may be.
    (f) In the event that all Debentures or Participating Securities 
constituting a Trust or Pool are prepaid, the TCs backed by such Trust 
or Pool shall be redeemed by payment of the unpaid principal and 
interest on the TCs; Provided, however, that in the case of the 
prepayment of a Debenture pursuant to the provisions of the Guaranty 
Agreement relating to the Debenture, the CRA shall pass through pro rata 
to the holders of the TCs any such prepayments including any prepayment 
penalty paid by the obligor Licensee pursuant to the terms of the 
Debenture.



Sec. 107.1620  Functions of agents, including Central Registration Agent, Selling Agent and Fiscal Agent.

    (a) Agents. SBA will appoint or cause to be appointed agent(s) to 
perform functions necessary to market and service Debentures, 
Participating Securities, or TCs pursuant to this part.
    (1) Selling Agent. As a condition of guaranteeing a Debenture or 
Participating Security, SBA shall cause each Licensee to appoint a 
Selling Agent to perform functions which include, but are not limited 
to:
    (i) Selecting qualified entities to become pool or Trust assemblers 
(``Poolers'').
    (ii) Receiving guaranteed Debentures and Participating Securities as 
well as negotiating the terms and conditions of periodic offerings of 
Debentures and/or TCs with Poolers on behalf of Licensees.
    (iii) Directing and coordinating periodic sales of Debentures and 
Participating Securities and/or TCs.
    (iv) Arranging for the production of the Offering Circular, 
certificates, and such other documents as may be required from time to 
time.
    (2) Fiscal Agent. SBA shall appoint a Fiscal Agent to:
    (i) Establish performance criteria for Poolers.
    (ii) Monitor and evaluate the financial markets to determine those 
factors that will minimize or reduce the cost of funding Debentures or 
Participating Securities.
    (iii) Monitor the performance of the Selling Agent, Poolers, CRA, 
and the Trustee.
    (iv) Perform such other functions as SBA, from time to time, may 
prescribe.
    (3) Central Registration Agent. Pursuant to a contract entered into 
with SBA, the CRA, as SBA's agent, will do the following with respect to 
the Pools or Trust Certificates for the Debentures or Participating 
Securities:

[[Page 87]]

    (i) Form an SBA-approved Pool or Trust;
    (ii) Issue the TCs in the form prescribed by SBA;
    (iii) Transfer the TCs upon the sale of original issue TCs in any 
secondary market transaction;
    (iv) Receive payments from Licensees;
    (v) Make periodic payments as scheduled or required by the terms of 
the TCs, and pay all amounts required to be paid upon prepayment of 
Debentures or redemption of Participating Securities;
    (vi) Hold, safeguard, and release all Debentures and Participating 
Securities constituting Trusts or Pools upon instructions from SBA;
    (vii) Remain custodian of such other documentation as SBA shall 
direct by written instructions;
    (viii) Provide for the registration of all pooled Debentures and 
Participating Securities, all Pools and Trusts, and all TCs;
    (ix) Perform such other functions as SBA may deem necessary to 
implement the provisions of this section.
    (b) Functions. The function of locating purchasers, and negotiating 
and closing the sale of Debentures, Participating Securities and TCs, 
may be performed either by SBA or an agent appointed by SBA. Nothing in 
the regulations in this part shall be interpreted to prevent the CRA 
from acting as SBA's agent for this purpose.



Sec. 107.1630  SBA regulation of Brokers and Dealers and disclosure to purchasers of Leverage or Trust Certificates.

    (a) Disclosure to purchasers. Prior to any sale of a Debenture, 
Participating Security, or TC, SBA shall require the seller, or the 
broker or dealer as agent for the seller, to disclose to the purchaser, 
in a form prescribed or approved by SBA, specified information on the 
terms, conditions, and yield of such instrument.
    (b) Brokers and Dealers. Each broker, dealer, and Pool or Trust 
assembler approved by SBA pursuant to these regulations shall either be 
regulated by a Federal financial regulatory agency, or be a member of 
the National Association of Securities Dealers (NASD), and shall be in 
good standing in respect to compliance with the financial, ethical, and 
reporting requirements of such body. They also shall be in good standing 
with SBA as determined by the SBA Associate Administrator for Investment 
(see paragraph (d) of this section) and shall provide a fidelity bond or 
insurance in such amount as SBA may require.
    (c) Suspension and/or termination of Broker or Dealer. SBA shall 
exclude from the sale and all other dealings in Debentures, 
Participating Securities or TCs any broker or dealer:
    (1) If such broker's or dealer's authority to engage in the 
securities business has been revoked or suspended by a supervisory 
agency. When such authority has been suspended, such broker or dealer 
will be suspended by SBA for the duration of such suspension by the 
supervisory agency.
    (2) If such broker or dealer has been indicted or otherwise formally 
charged with a misdemeanor or felony bearing on its fitness, such broker 
or dealer may be suspended while the charge is pending. Upon conviction, 
participation may be terminated.
    (3) If such broker or dealer has suffered an adverse final civil 
judgment, holding that such broker or dealer has committed a breach of 
trust or violation of law or regulation protecting the integrity of 
business transactions or relationships, participation in the market for 
Debentures, Participating Securities or TCs may be terminated.
    (4) If such broker or dealer has failed to make full disclosure of 
the information required by SBA in paragraph (a) of this section, such 
broker's or dealer's participation in the market for Debentures, 
Participating Securities or TCs may be terminated.
    (d) Termination/suspension proceedings. A broker's or dealer's 
participation in the market for Debentures, Participating Securities or 
TCs will be conducted in accordance with part 134 of this chapter. SBA 
may, for any of the reasons stated in paragraphs (b)(1) through (b)(4) 
of this section, suspend the privilege of any broker or dealer to 
participate in this market. SBA shall give written notice at least ten 
(10) business days prior to the effective date of such suspension. Such 
notice shall inform the broker or dealer of the

[[Page 88]]

opportunity for a hearing pursuant to part 134 of this chapter.



Sec. 107.1640  SBA access to records of the CRA, Brokers, Dealers and Pool or Trust assemblers.

    The CRA and any broker, dealer and Pool or Trust assembler operating 
under the regulations in this part shall make all books, records and 
related materials associated with Debentures, Participating Securities 
and TCs available to SBA for review and copying purposes. Such access 
shall be at such party's primary place of business during normal 
business hours.

                              Miscellaneous



Sec. 107.1700  Transfer by SBA of its interest in Licensee's Leverage security.

    Upon such conditions and for such consideration as it deems 
reasonable, SBA may sell, assign, transfer, or otherwise dispose of any 
Preferred Security, Debenture, Participating Security, or other security 
held by or on behalf of SBA in connection with Leverage. Upon notice by 
SBA, Licensee will make all payments of principal, dividends, interest, 
Prioritized Payments, and redemptions as shall be directed by SBA. 
Licensee will be liable for all damage or loss which SBA may sustain by 
reason of such disposal, up to the amount of Licensee's liability under 
such security, plus court costs and reasonable attorney's fees incurred 
by SBA.



Sec. 107.1710  SBA authority to collect or compromise its claims.

    SBA may, upon such conditions and for such consideration as it deems 
reasonable, collect or compromise all claims relating to Preferred or 
Participating Securities or obligations held or guaranteed by SBA, and 
all legal or equitable rights accruing to SBA.



Sec. 107.1720  Characteristics of SBA's guarantee.

    If SBA agrees to guarantee a Licensee's Debentures or Participating 
Securities, such guarantee will be unconditional, irrespective of the 
validity, regularity or enforceability of the Debentures or 
Participating Securities or any other circumstances which might 
constitute a legal or equitable discharge or defense of a guarantor. 
Pursuant to its guarantee, SBA will make timely payments of principal 
and interest on the Debentures or the Redemption Price of and 
Prioritized Payments on the Participating Securities.

[63 FR 5873, Feb. 5, 1998]



       Subpart J--Licensee's Noncompliance With Terms of Leverage



Sec. 107.1800  Licensee's agreement to terms and conditions in Secs. 107.1810 and 107.1820.

    Any Licensee that violates the terms and conditions of its Leverage 
is subject to SBA remedies. The terms, conditions and remedies in 
Sec. 107.1810 apply to outstanding Debentures issued after April 25, 
1994. The terms, conditions and remedies in Sec. 107.1820 apply to 
outstanding Preferred Securities and Participating Securities issued 
after April 25, 1994, or if you have Earmarked Assets in your portfolio.



Sec. 107.1810  Events of default and SBA's remedies for Licensee's noncompliance with terms of Debentures.

    (a) Applicability of this section. This Sec. 107.1810 applies to 
Debentures issued after April 25, 1994. By issuing such Debentures, you 
automatically agree to the terms, conditions and remedies in this 
section, as in effect at the time of issuance and as if fully set forth 
in the Debentures. Debentures issued before April 25, 1994 continue to 
be governed by the remedies in effect at the time of their issuance.
    (b) Automatic events of default. The occurrence of one or more of 
the events in this paragraph (b) causes the remedies in paragraph (c) of 
this section to take effect immediately.
    (1) Insolvency. You become equitably or legally insolvent.
    (2) Voluntary assignment. You make a voluntary assignment for the 
benefit of creditors without SBA's prior written approval.
    (3) Bankruptcy. You file a petition to begin any bankruptcy or 
reorganization proceeding, receivership, dissolution or other similar 
creditors' rights proceeding, or such action is initiated against you 
and is not dismissed within 60 days.

[[Page 89]]

    (c) SBA remedies for automatic events of default. Upon the 
occurrence of one or more of the events in paragraph (b) of this 
section:
    (1) Without notice, presentation or demand, the entire indebtedness 
evidenced by your Debentures, including accrued interest, and any other 
amounts owed SBA with respect to your Debentures, is immediately due and 
payable; and
    (2) You automatically consent to the appointment of SBA or its 
designee as your receiver under section 311(c) of the Act.
    (d) Events of default with notice. For any occurrence (as determined 
by SBA) of one or more of the events in this paragraph (d), SBA may 
avail itself of one or more of the remedies in paragraph (e) of this 
section.
    (1) Fraud. You commit a fraudulent act which causes detriment to 
SBA's position as a creditor or guarantor.
    (2) Fraudulent transfers. You make any transfer or incur any 
obligation that is fraudulent under the terms of 11 U.S.C. 548.
    (3) Willful conflicts of interest. You willfully violate 
Sec. 107.730.
    (4) Willful non-compliance. You willfully violate one or more of the 
substantive provisions of the Act, specifically including but not 
limited to the provisions summarized in section 310(c) of the Act, or 
any substantive regulation promulgated under the Act.
    (5) Repeated Events of Default. At any time after being notified by 
SBA of the occurrence of an event of default under paragraph (f) of this 
section, you engage in similar behavior which results in another 
occurrence of the same event of default.
    (6) Transfer of Control. You violate Sec. 107.475 and/or willfully 
violate Sec. 107.410, and as a result of such violation you undergo a 
transfer of Control.
    (7) Non-cooperation under Sec. 107.1810(h). You fail to take 
appropriate steps, satisfactory to SBA, to accomplish any action SBA may 
have required under paragraph (h) of this section.
    (8) Non-notification of Events of Default. You fail to notify SBA as 
soon as you know or reasonably should have known that any event of 
default exists under this section.
    (9) Non-notification of defaults to others. You fail to notify SBA 
in writing within ten days from the date of a declaration of an event of 
default or nonperformance under any note, debenture or indebtedness of 
yours, issued to or held by anyone other than SBA.
    (e) SBA remedies for events of default with notice. Upon written 
notice to you of the occurrence (as determined by SBA) of one or more of 
the events in paragraph (d) of this section:
    (1) SBA may declare the entire indebtedness evidenced by your 
Debentures, including accrued interest, and/or any other amounts owed 
SBA with respect to your Debentures, immediately due and payable; and
    (2) SBA may avail itself of any remedy available under the Act, 
specifically including institution of proceedings for the appointment of 
SBA or its designee as your receiver under section 311(c) of the Act.
    (f) Events of default with opportunity to cure. For any occurrence 
(as determined by SBA) of one or more of the events in this paragraph 
(f), SBA may avail itself of one or more of the remedies in paragraph 
(g) of this section.
    (1) Excessive Management Expenses. Without the prior written consent 
of SBA, you incur Management Expenses in excess of those permitted under 
Sec. 107.520.
    (2) Improper Distributions. You make any Distribution to your 
shareholders or partners, except with the prior written consent of SBA, 
other than:
    (i) Distributions permitted under Sec. 107.585;
    (ii) Payments from Retained Earnings Available for Distribution 
based on either the shareholders' pro-rata interests or the provisions 
for profit distributions in your partnership agreement, as appropriate; 
and
    (iii) Distributions by Participating Securities issuers as permitted 
under Secs. 107.1540 through 107.1580.
    (3) Failure to make payment. Unless otherwise approved by SBA, you 
fail to make timely payment of any amount due under any security or 
obligation of yours that is issued to, held or guaranteed by SBA.
    (4) Failure to maintain Regulatory Capital. You fail to maintain the 
minimum Regulatory Capital required under

[[Page 90]]

these regulations or, without the prior written consent of SBA, you 
reduce your Regulatory Capital, except as permitted by Secs. 107.585 and 
107.1560 through 107.1580.
    (5) Capital Impairment. You have a condition of Capital Impairment 
as determined under Sec. 107.1830.
    (6) Cross-default. An obligation of yours that is greater than 
$100,000 becomes due or payable (with or without notice) before its 
stated maturity date, for any reason including your failure to pay any 
amount when due. This provision does not apply if you pay the amount due 
within any applicable grace period or contest the payment of the 
obligation in good faith by appropriate proceedings.
    (7) Nonperformance. You violate or fail to perform one or more of 
the terms and conditions of any security or obligation of yours that is 
issued to, held or guaranteed by SBA, or of any agreement with or 
conditions imposed by SBA in its administration of the Act and the 
regulations promulgated under the Act.
    (8) Noncompliance. Except as otherwise provided in paragraph (d)(5) 
of this section, SBA determines that you have violated one or more of 
the substantive provisions of the Act, specifically including but not 
limited to the provisions summarized in section 310(c) of the Act, or 
any substantive regulation promulgated under the Act.
    (9) Failure to maintain investment ratio. You fail to maintain the 
investment ratio for Leverage in excess of 300 percent of Leverageable 
Capital (see Secs. 107.1150(b)(2) and 107.1160(c)), if applicable to 
you, as of the end of each fiscal year. In determining whether you have 
maintained the ratio, SBA will disregard any prepayment, sale, or 
disposition of Venture Capital Financing, any increase in Leverageable 
Capital, and any receipt of additional Leverage, within 120 days prior 
to the end of your fiscal year.
    (10) Failure to maintain diversity. You fail to maintain diversity 
between management and ownership as required by Sec. 107.150, if 
applicable to you.
    (g) SBA remedies for events of default with opportunity to cure. (1) 
Upon written notice to you of the occurrence (as determined by SBA) of 
one or more of the events of default in paragraph (f) of this section, 
and subject to the conditions in paragraph (g)(2) of this section:
    (i) SBA may declare the entire indebtedness evidenced by your 
Debentures, including accrued interest, and/or any other amounts owed 
SBA with respect to your Debentures, immediately due and payable; and
    (ii) SBA may avail itself of any remedy available under the Act, 
specifically including institution of proceedings for the appointment of 
SBA or its designee as your receiver under section 311(c) of the Act.
    (2) SBA may invoke the remedies in paragraph (g)(1) of this section 
only if:
    (i) It has given you at least 15 days to cure the default(s); and
    (ii) You fail to cure the default(s) to SBA's satisfaction within 
the allotted time.
    (h) Repeated non-substantive violations. If you repeatedly fail to 
comply with one or more of the non-substantive provisions of the Act or 
any non-substantive regulation promulgated under the Act, SBA, after 
written notification to you and until you cure such condition to SBA's 
satisfaction, may deny you additional Leverage and/or require you to 
take such actions as SBA may determine to be appropriate under the 
circumstances.
    (i) Consent to removal of officers, directors, or general partners 
and/or appointment of receiver. The Articles of any Licensee issuing 
Debentures after April 25, 1994 must include the following provisions as 
a condition to the purchase or guarantee by SBA of such Leverage. Upon 
the occurrence of any of the events specified in paragraphs (d)(1) 
through (d)(6) or (f)(1) through (f)(3) of this section as determined by 
SBA, SBA shall have the right, and your consent to SBA's exercise of 
such right:
    (1) With respect to a Corporate Licensee, upon written notice, to 
require you to replace, with individuals approved by SBA, one or more of 
your officers and/or such number of directors of your board of directors 
as is sufficient to constitute a majority of such board; or
    (2) With respect to a Partnership Licensee, upon written notice, to 
require you to remove the person(s) responsible

[[Page 91]]

for such occurrence and/or to remove the general partner of Licensee, 
which general partner shall then be replaced in accordance with 
Licensee's Articles by a new general partner approved by SBA; and/or
    (3) With respect to either a Corporate or Partnership Licensee, to 
obtain the appointment of SBA or its designee as your receiver under 
section 311(c) of the Act for the purpose of continuing your operations. 
The appointment of a receiver to liquidate a Licensee is not within such 
consent, but is governed instead by the relevant provisions of the Act.



Sec. 107.1820  Conditions affecting issuers of Preferred Securities and/or Participating Securities.

    (a) Applicability of this section. This section applies if you have 
Preferred Securities issued after April 25, 1994, or if you issue 
Participating Securities or have Earmarked Assets in your portfolio. 
Your Articles must include the provisions of this Sec. 107.1820 as a 
condition to SBA's purchase of Preferred Securities or guarantee of 
Participating Securities and for as long as you own Earmarked Assets. 
Preferred Securities issued before April 25, 1994 continue to be 
governed by the remedies in effect at the time of their issuance.
    (b) Removal Conditions. Upon the occurrence (as determined by SBA) 
of any of the following conditions (``Removal Conditions''), SBA may 
avail itself of one or more of the remedies in paragraph (d) of this 
section:
    (1) Insolvency or extreme Capital Impairment. You become equitably 
or legally insolvent, or have a Capital Impairment Percentage of 100 
percent or more (``extreme Capital Impairment'') and have not cured such 
Capital Impairment within the time limits set by SBA in writing. In this 
regard:
    (i) You are not considered to have a condition of extreme Capital 
Impairment during the first eight years following your first issuance of 
Participating Securities.
    (ii) This paragraph (b)(1) does not give you an additional 
opportunity to cure if you have already had an opportunity to cure your 
Capital Impairment under paragraph (e)(3) of this section.
    (2) Voluntary assignment. You make a voluntary assignment for the 
benefit of creditors.
    (3) Bankruptcy. You begin any bankruptcy or reorganization 
proceeding, receivership, dissolution or other similar creditors' rights 
proceeding, or such action is initiated against you and is not dismissed 
within 60 days.
    (4) Transfer of Control. You violate Sec. 107.475 and/or willfully 
violate Sec. 107.410, and such violation results in a transfer of 
Control.
    (5) Fraud. You commit a fraudulent act which causes serious 
detriment to SBA's position as a guarantor or investor.
    (6) Fraudulent transfers. You make any transfer or incur any 
obligation that is fraudulent under the terms of 11 USC 548.
    (c) Contingent Removal Conditions. Upon the occurrence (as 
determined by SBA) of any of the following conditions (``Contingent 
Removal Conditions''), SBA may avail itself of one or more of the 
remedies in paragraph (d) of this section, but only if you fail to 
remove the person(s) SBA identifies as responsible for such occurrence 
and/or cure such occurrence to SBA's satisfaction within a time period 
determined by SBA (but not less than 15 days):
    (1) Willful conflicts of interest. You willfully violate 
Sec. 107.730.
    (2) Willful or repeated noncompliance. You willfully or repeatedly 
violate one or more of the substantive provisions of the Act, 
specifically including but not limited to the provisions summarized in 
section 310(c) of the Act, or any substantive regulation promulgated 
under the Act.
    (3) Failure to comply with restrictions under paragraph (f) of this 
section. You fail to comply with the restrictions imposed by SBA under 
paragraph (f) of this section.
    (d) SBA remedies for Removal Conditions and Contingent Removal 
Conditions. Upon the occurrence (as determined by SBA) of any Removal 
Condition, or any Contingent Removal Condition accompanied by your 
failure to act as set forth in paragraph (c) of this section, SBA has 
the following rights, and you consent to SBA's exercise of any or all of 
such rights:

[[Page 92]]

    (1) With respect to a Corporate Licensee, upon written notice, to 
require you to replace, with individuals approved by SBA, one or more of 
your officers and/or such number of directors as is sufficient to 
constitute a majority of your board of directors; or
    (2) With respect to a Partnership Licensee, upon written notice, to 
require you to remove the person(s) responsible for such occurrence and/
or to remove your general partner, who shall then be replaced in 
accordance with your Articles by a new general partner approved by SBA; 
and/or
    (3) With respect to either a Corporate or Partnership Licensee, to 
the appointment of SBA or its designee as your receiver under section 
311(c) of the Act for the purpose of continuing your operations. The 
appointment of a receiver to liquidate a Licensee is not within such 
consent, but is governed instead by the relevant provisions of the Act.
    (e) Restricted Operations Conditions. Upon the occurrence (as 
determined by SBA) of any of the following conditions (``Restricted 
Operations Conditions''), SBA may avail itself of any of the remedies in 
paragraph (f) of this section.
    (1) Removal Conditions or Contingent Removal Conditions. Any 
condition occurs which is listed in paragraphs (b) or (c) of this 
section.
    (2) Failure to maintain Regulatory Capital. You fail to maintain the 
minimum Regulatory Capital required by this part.
    (3) Capital or Liquidity Impairment. You have a condition of Capital 
Impairment as determined under Sec. 107.1830 or, if applicable, a 
condition of Liquidity Impairment as determined under Sec. 107.1505, and 
you fail to cure the impairment within time limits set by SBA in 
writing.
    (4) Improper Distributions. You make any Distribution to your 
shareholders or partners other than those permitted by Secs. 107.585 and 
107.1560 through 107.1580.
    (5) Excessive Management Expenses. Without the prior written consent 
of SBA, you incur Management Expenses in excess of those permitted under 
Sec. 107.520.
    (6) Failure to make payment. You fail to pay any amounts due under 
Preferred Securities or required by Secs. 107.1500 through 107.1590, 
unless otherwise permitted by SBA.
    (7) Noncompliance. Except as otherwise provided for in paragraphs 
(c)(1) and (c)(2) of this section, SBA determines that you have failed 
to comply with one or more of the substantive provisions of the Act, 
specifically including but not limited to the provisions summarized in 
section 310(c) of the Act, or any substantive regulation promulgated 
under the Act.
    (8) Failure to maintain diversity. You fail to maintain diversity 
between management and ownership as required by Sec. 107.150, if 
applicable to you.
    (9) Failure to meet investment requirements. You fail to make the 
amount of Equity Capital Investments required for Participating 
Securities (Sec. 107.1500(b)(4)), if applicable to you; or you fail to 
maintain as of the end of each fiscal year the investment ratios or 
amounts required for Leverage in excess of 300 percent of Leverageable 
Capital (Sec. 107.1160(c)) or Preferred Securities in excess of 100 
percent of Leverageable Capital (Sec. 107.1160(d)), if applicable to 
you. In determining whether you have met the maintenance requirements in 
Sec. 107.1160(c) or (d), SBA will disregard any prepayment, sale, or 
disposition of Venture Capital Financings, any increase in Leverageable 
Capital, and any receipt of additional Leverage, within 120 days prior 
to the end of your fiscal year.
    (10) Nonperformance. You violate or fail to perform one or more of 
the terms and conditions of any Participating Security or Preferred 
Security or of any agreement with or condition imposed by SBA in its 
administration of the Act and the regulations promulgated thereunder.
    (11) Noncooperation under paragraph (g) of this section. You fail to 
take appropriate steps, satisfactory to SBA, to accomplish such action 
as SBA may have required under paragraph (g) of this section.
    (f) SBA remedies for Restricted Operations Conditions. Upon the 
occurrence of any Restricted Operations Condition, and until such 
condition(s) are cured to SBA's satisfaction within a time period 
determined by SBA (but

[[Page 93]]

not less than 15 days), upon written notice SBA shall have the following 
rights, and you consent to SBA's exercise of any or all of such rights:
    (1) To prohibit you from making any additional investments except 
for investments under legally binding commitments you entered into 
before such notice and, subject to SBA's prior written approval, 
investments that are necessary to protect your investments;
    (2) Until all Leverage is redeemed and amounts due are paid, to 
prohibit Distributions by you to any party other than SBA, its agent or 
Trustee;
    (3) To require all your commitments from investors to be funded at 
the earliest time(s) permitted in accordance with your Articles; and
    (4) To review and re-determine your approved Management Expenses.
    (g) Repeated non-substantive violations. If you repeatedly fail to 
comply with one or more of the non-substantive provisions of the Act or 
any non-substantive regulation promulgated thereunder, SBA, after 
written notification to you and until such condition is cured to SBA's 
satisfaction, will deny you additional Leverage and/or require you to 
take such actions as SBA may determine to be appropriate under the 
circumstances.

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5873, Feb. 5, 1998]

              Computation of Licensee's Capital Impairment



Sec. 107.1830  Licensee's Capital Impairment--definition and general requirements.

    (a) Applicability of this section. This section applies to Leverage 
issued on or after April 25, 1994. For Leverage issued before April 25, 
1994, you must comply with paragraphs (e) and (f) of this section and 
the Capital Impairment regulations in this part in effect when you 
issued your Leverage. For all Leverage issued, you must also comply with 
any contractual provisions to which you have agreed.
    (b) Significance of Capital Impairment condition. If you have a 
condition of Capital Impairment, you are not in compliance with the 
terms of your Leverage. As a result, SBA has the right to impose the 
applicable remedies for noncompliance in Secs. 107.1810(g) and 
107.1820(f).
    (c) Definition of Capital Impairment condition. You have a condition 
of Capital Impairment if your Capital Impairment Percentage, as computed 
in Sec. 107.1840, exceeds:
    (1) For Section 301(d) Licensees, 75 percent.
    (2) For Section 301(c) Licensees, the appropriate percentage from 
the following table:

                  Maximum Permitted Capital Impairment Percentages for Section 301(c) Licensees
----------------------------------------------------------------------------------------------------------------
                                                                                                      Then your
                                                                                                       maximum
                                                                                                      permitted
 If the percentage of equity capital investments      And your ratio of outstanding leverage to        capital
         (at cost) in your portfolio is:                       leverageable capital is:               impairment
                                                                                                      percentage
                                                                                                         is:
----------------------------------------------------------------------------------------------------------------
67%.............................................  100% or less.....................................           70
                                                  Over 100% but not over 200%......................           60
                                                  Over 200%........................................           50
At least 40% but under 67%......................  100% or less.....................................           55
                                                  Over 100% but not over 200%......................           50
                                                  Over 200%........................................           40
Under 40%.......................................  100% or less.....................................           45
                                                  Over 100% but not over 200%......................           40
                                                  Over 200%........................................           35
----------------------------------------------------------------------------------------------------------------

    (d) Phase-in of maximum permitted Capital Impairment Percentages for 
Section 301(c) Licensees. If you are a Section 301(c) Licensee, 
regardless of your maximum permitted Capital Impairment Percentage under 
paragraph (c) of this section, you will not have a condition of Capital 
Impairment if:
    (1) Your Capital Impairment Percentage does not exceed 50 percent; 
and

[[Page 94]]

    (2) You have not reached your first fiscal year end occurring after 
April 25, 1995.
    (e) Quarterly computation requirement and procedure. You must 
determine whether you have a condition of Capital Impairment as of the 
end of each fiscal quarter. You must notify SBA promptly if you are 
capitally impaired.
    (f) SBA's right to determine Licensee's Capital Impairment 
condition. SBA may make its own determination of your Capital Impairment 
condition at any time.

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5873, Feb. 5, 1998]



Sec. 107.1840  Computation of Licensee's Capital Impairment Percentage.

    (a) General. This section contains the procedures you must use to 
determine your Capital Impairment Percentage if you have outstanding 
Leverage issued after April 25, 1994. You must compare your Capital 
Impairment Percentage to the maximum permitted under Sec. 107.1830(c) to 
determine whether you have a condition of Capital Impairment.
    (b) Preliminary impairment test. If you satisfy the preliminary 
impairment test, your Capital Impairment Percentage is zero and you do 
not have to perform any more procedures in this Sec. 107.1840. 
Otherwise, you must continue with paragraph (c) of this section. You 
satisfy the test if the following amounts are both zero or greater:
    (1) The sum of Undistributed Net Realized Earnings, as reported on 
SBA Form 468, and Includible Non-Cash Gains.
    (2) Unrealized Gain (Loss) on Securities Held.
    (c) How to compute your Capital Impairment Percentage. (1) If you 
have an Unrealized Gain on Securities Held, compute your Adjusted 
Unrealized Gain using paragraph (d) of this section. If you have an 
Unrealized Loss on Securities Held, continue with paragraph (c)(2) of 
this Section.
    (2) Add together your Undistributed Net Realized Earnings, your 
Includible Non-cash Gains, and either your Unrealized Loss on Securities 
Held or your Adjusted Unrealized Gain.
    (3) If the sum in paragraph (c)(2) of this section is zero or 
greater, your Capital Impairment Percentage is zero.
    (4) If the sum in paragraph (c)(2) of this section is less than 
zero, drop the negative sign, divide by your Regulatory Capital 
(excluding Treasury Stock), and multiply by 100. The result is your 
Capital Impairment Percentage.
    (d) How to compute your Adjusted Unrealized Gain. (1) Subtract 
Unrealized Depreciation from Unrealized Appreciation. This is your ``Net 
Appreciation''.
    (2) Determine your Unrealized Appreciation on Publicly Traded and 
Marketable securities. This is your ``Class 1 Appreciation''.
    (3) Determine your Unrealized Appreciation on securities that are 
not Publicly Traded and Marketable and meet the following criteria, 
which must be substantiated to the satisfaction of SBA (this is your 
``Class 2 Appreciation''):
    (i) The Small Business that issued the security received a 
significant subsequent equity financing by an investor whose objectives 
were not primarily strategic and at a price that conclusively supports 
the Unrealized Appreciation;
    (ii) Such financing represents a substantial investment in the form 
of an arm's length transaction by a sophisticated new investor in the 
issuer's securities; and
    (iii) Such financing occurred within 24 months of the date of the 
Capital Impairment computation, or the Small Business' pre-tax cash flow 
from operations for its most recent fiscal year was at least 10 percent 
of the Small Business' average contributed capital for such fiscal year.
    (4) Perform the appropriate computation from the following table:

[[Page 95]]



          Adjusted Unrealized Gain Before Estimated Tax Effects
------------------------------------------------------------------------
                                                       Then adjusted
              If:                      And:           unrealized gain
                                                      before taxes is:
------------------------------------------------------------------------
Class 1 Appreciation [le] Net   Class 1            (80% x Class 1
 Appreciation.                   Appreciation +     Appreciation) + (50%
                                 Class 2            x Class 2
                                 Appreciation       Appreciation).
                                 [le] Net
                                 Appreciation.
Class 1 Appreciation [le] Net   Class 1            (80% x Class 1
 Appreciation.                   Appreciation +     Appreciation) +
                                 Class 2            [(50% x (Net
                                 Appreciation  Net        1 Appreciation)].
                                 Appreciation.
Class 1 Appreciation  Net Appreciation.                              Appreciation.
------------------------------------------------------------------------

    (5) Reduce the gain computed in paragraph (d)(4) of this section by 
your estimate of related future income tax expense. Subject to any 
adjustment required by paragraph (d)(6) of this section, the result is 
your Adjusted Unrealized Gain for use in paragraph (c)(2) of this 
section.
    (6) If any securities that are the source of either Class 1 or Class 
2 Appreciation are pledged or encumbered in any way, you must reduce the 
Adjusted Unrealized Gain computed in paragraph (d)(5) of this section by 
the amount of the related borrowing or other obligation, up to the 
amount of the Unrealized Appreciation on the securities.



Sec. 107.1850  Exceptions to Capital Impairment provisions for Licensees with outstanding Participating Securities.

    The provisions in this Sec. 107.1850 apply only if at least two-
thirds of your outstanding Leverage consists of Participating 
Securities, and at least two-thirds of your Loans and Investments (at 
cost) consist of Equity Capital Investments.
    (a) Forbearance period for Participating Securities issuers. During 
the first forty-eight (48) months following your first issuance of 
Participating Securities, you will not have a condition of Capital 
Impairment if your Capital Impairment Percentage is below 85 percent.
    (b) Extended forbearance period for early stage investors. If at 
least two-thirds of your Loans and Investments (at cost) are in Start-Up 
Financings, the forbearance period in paragraph (a) of this section is 
extended to 60 months.
    (c) Forbearance based on actions by Licensee. The provisions of this 
paragraph (c) apply only during the fifth and sixth years following your 
first issuance of Participating Securities. If your Capital Impairment 
Percentage, as determined either by you or by SBA, exceeds the maximum 
permitted under Sec. 107.1830(c) but is below 85 percent, you will not 
have a condition of Capital Impairment if you do either of the following 
within thirty (30) days of such determination:
    (1) Increase your Regulatory Capital by a cash contribution placed 
in an escrow account or other account satisfactory to SBA, for its 
benefit. The contribution must equal, during the fifth year, 15 percent 
of your outstanding Leverage or, during the sixth year, 30 percent.
    (2) Provide a guarantee, satisfactory to SBA and for its benefit, 
for the amount of the cash contribution required in paragraph (c)(1) of 
this section. SBA will credit any escrowed funds or guarantee received 
in the fifth year toward the requirements for the sixth year.
    (d) Conditions for forbearance under paragraph (c) of this section. 
(1) You cannot count any funds placed in an escrow or other account 
under paragraph (c) of this section as Leverageable Capital.
    (2) Any fee and/or any claim to repayment by the party making the 
capital contribution or by the guarantor must be deferred and 
subordinate to all outstanding Leverage plus any unpaid Earned 
Prioritized Payments and earned Adjustments.
    (3) If there is an acceleration or mandatory redemption under 
Sec. 107.1810 or Sec. 107.1820, any funds in the escrow account and/or 
any guarantee received under paragraph (c) of this section will be 
applied toward repaying any amounts due SBA.
    (4) If you reduce your Capital Impairment Percentage to zero, SBA 
will release and return any escrowed funds

[[Page 96]]

and/or any guarantee received under paragraph (c) of this section.



               Subpart K--Ending Operations as a Licensee



Sec. 107.1900  Surrender of license.

    You may not surrender your license without SBA's prior written 
approval. Your request for approval must be accompanied by an offer of 
immediate repayment of all of your outstanding Leverage (including any 
prepayment penalties thereon), or by a plan satisfactory to SBA for the 
orderly liquidation of the Licensee.



                        Subpart L--Miscellaneous



Sec. 107.1910  Non-waiver of SBA's rights or terms of Leverage security.

    SBA's failure to exercise or delay in exercising any right or remedy 
under the Act or the regulations in this part does not constitute a 
waiver of such right or remedy. SBA's failure to require you to perform 
any term or provision of your Leverage does not affect SBA's right to 
enforce such term or provision. Similarly, SBA's waiver of, or failure 
to enforce, any term or provision of your Leverage or of any event or 
condition set forth in Sec. 107.1810 or Sec. 107.1820 does not 
constitute a waiver of any succeeding breach of such term or provision 
or condition.



Sec. 107.1920  Licensee's application for exemption from a regulation in this part 107.

    You may file an application in writing with SBA to have a proposed 
action exempted from any procedural or substantive requirement, 
restriction, or prohibition to which it is subject under this part, 
unless the provision is mandated by the Act. SBA may grant an exemption 
for such applicant, conditionally or unconditionally, provided the 
exemption would not be contrary to the purposes of the Act. Your 
application must be accompanied by supporting evidence which 
demonstrates to SBA's satisfaction that:
    (a) The proposed action is fair and equitable; and
    (b) The exemption requested is reasonably calculated to advance the 
best interests of the SBIC program in a manner consonant with the policy 
objectives of the Act and the regulations in this part.



Sec. 107.1930  Effect of changes in this part 107 on transactions previously consummated.

    The legality of a transaction covered by the regulations in this 
part is governed by the regulations in this part in effect at the time 
the transaction was consummated, regardless of later changes. Nothing in 
this part bars SBA enforcement action with respect to any transaction 
consummated in violation of provisions applicable at the time, but no 
longer in effect.



PART 108--NEW MARKETS VENTURE CAPITAL (``NMVC'') PROGRAM--Table of Contents




                   Subpart A--Introduction to Part 108

Sec.
108.10  Description of the New Markets Venture Capital Program.
108.20  Legal basis and applicability of this part 108.
108.30  Amendments to Act and regulations.
108.40  How to read this part 108.

          Subpart B--Definition of Terms Used in This Part 108

108.50  Definition of terms.

             Subpart C--Qualifications for the NMVC Program

                        Organizing a NMVC Company

108.100  Business form.
108.110  Qualified management.
108.120  Economic development primary mission.
108.130  Identified Low Income Geographic Areas.
108.140  SBA approval of initial Management Expenses.
108.150  Management and ownership diversity requirement.
108.160  Special rules for NMVC Companies formed as limited 
          partnerships.

                       Capitalizing a NMVC Company

108.200  Adequate capital for NMVC Companies.
108.210  Minimum capital requirements for NMVC Companies.
108.230  Private Capital for NMVC Companies.

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Subpart D--Application and Approval Process for NMVC Company Designation

108.300  When and how to apply for designation as a NMVC Company.
108.310  Contents of application.
108.320  Contents of comprehensive business plan.
108.330   Grant issuance fee.

          Subpart E--Evaluation and Selection of NMVC Companies

108.340   Evaluation and selection--general.
108.350   Eligibility and completeness.
108.360   Evaluation criteria.
108.370   Conditional approval.
108.380   Final approval as a NMVC Company.

         Subpart F--Changes in Ownership, Structure, or Control

             Changes in Control or Ownership of NMVC Company

108.400   Changes in ownership of 10 percent or more of NMVC Company but 
          no change of Control.
108.410   Changes in Control of NMVC Company (through change in 
          ownership or otherwise).
108.420   Prohibition on exercise of ownership or Control rights in NMVC 
          Company before SBA approval.
108.430   Notification to SBA of transactions that may change ownership 
          or Control.
108.440   Standards governing prior SBA approval for a proposed transfer 
          of Control.
108.450   Notification to SBA of pledge of NMVC Company's shares.

    Restrictions on Common Control or Ownership of Two or More NMVC 
                                Companies

108.460   Restrictions on Common Control or ownership of two (or more) 
          NMVC Companies.

                   Change in Structure of NMVC Company

108.470   SBA approval of merger, consolidation, or reorganization of 
          NMVC Company.

          Subpart G--Managing the Operations of a NMVC Company

                          General Requirements

108.500   Lawful operations under the Act.
108.502   Representations to the public.
108.503   NMVC Company's adoption of an approved valuation policy.
108.504   Equipment and office requirements.
108.506   Safeguarding the NMVC Company's assets/Internal controls.
108.507   Violations based on false filings and nonperformance of 
          agreements with SBA.
108.509   Employment of SBA officials.

                       Management and Compensation

108.510   SBA approval of NMVC Company's Investment Adviser/Manager.
108.520   Management Expenses of a NMVC Company.

                    Cash Management by a NMVC Company

108.530   Restrictions on investments of idle funds by NMVC Companies.

            Borrowing by NMVC Companies From Non-SBA Sources

108.550   Prior approval of secured third-party debt of NMVC companies.

                Voluntary Decrease in Regulatory Capital

108.585  Voluntary decrease in NMVC Company's Regulatory Capital.

 Subpart H--Recordkeeping, Reporting, and Examination Requirements for 
                             NMVC Companies

              Recordkeeping Requirements For NMVC Companies

108.600   General requirement for NMVC Company to maintain and preserve 
          records.
108.610   Required certifications for Loans and Investments.
108.620   Requirements to obtain information from Portfolio Concerns.

                Reporting Requirements for NMVC Companies

108.630   Requirement for NMVC companies to file financial statements 
          and supplementary information with SBA (SBA Form 468).
108.640   Requirement to file portfolio financing reports (SBA Form 
          1031).
108.650   Requirement to report portfolio valuations to SBA.
108.660   Other items required to be filed by NMVC Company with SBA.
108.680   Reporting changes in NMVC Company not subject to prior SBA 
          approval.

     Examinations of NMVC Companies by SBA for Regulatory Compliance

108.690   Examinations.
108.691   Responsibilities of NMVC Company during examination.
108.692   Examination fees.

       Subpart I--Financing of Small Businesses by NMVC Companies

   Determining the Eligibility of a Small Business for NMVC Financing

108.700   Compliance with size standards in part 121 of this chapter as 
          a condition of Assistance.

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108.710   Requirement to finance Low-Income Enterprises.
108.720   Small Businesses that may be ineligible for financing.
108.730   Financings which constitute conflicts of interest.
108.740   Portfolio diversification (``overline'' limitation).
108.760   How a change in size or activity of a Portfolio Concern 
          affects the NMVC Company and the Portfolio Concern.

    Structuring NMVC Company's Financing of Eligible Small Businesses

108.800   Financings in the form of equity interests.
108.820   Financings in the form of guarantees.
108.825   Purchasing securities from an underwriter or other third 
          party.

                  Limitations on Disposition of Assets

108.885   Disposition of assets to NMVC Company's Associates.

                      Management Services and Fees

108.900  Fees for management services provided to a Small Business by a 
          NMVC Company or its Associate.

    Subpart J--SBA Financial Assistance for NMVC Companies (Leverage)

              General Information About Obtaining Leverage

108.1100   Type of Leverage and application procedures.
108.1120   General eligibility requirement for Leverage.
108.1130   Leverage fees payable by NMVC Company.
108.1140   NMVC Company's acceptance of SBA remedies under 
          Sec. 108.1810.

     Maximum Amount of Leverage for Which a NMVC Company is Eligible

108.1150   Maximum amount of Leverage for a NMVC Company.

  Conditional Commitments by SBA to Reserve Leverage for a NMVC Company

108.1200   SBA's Leverage commitment to a NMVC Company'application 
          procedure, amount, and term.
108.1220   Requirement for NMVC Company to file financial statements at 
          the time of request for a draw.
108.1230   Draw-downs by NMVC Company under SBA's Leverage commitment.
108.1240   Funding of NMVC Company's draw request through sale to third-
          party.

 Funding Leverage by Use of SBA Guaranteed Trust Certificates (``TCs'')

108.1600   SBA authority to issue and guarantee Trust Certificates.
108.1610   Effect of prepayment or early redemption of Leverage on a 
          Trust Certificate.
108.1620   Functions of agents, including Central Registration Agent, 
          Selling Agent and Fiscal Agent.
108.1630   SBA regulation of Brokers and Dealers and disclosure to 
          purchasers of Leverage or Trust Certificates.
108.1640   SBA access to records of the CRA, Brokers, Dealers and Pool 
          or Trust assemblers.

                              Miscellaneous

108.1700   Transfer by SBA of its interest in a NMVC Company's Leverage 
          security.
108.1710   SBA authority to collect or compromise its claims.
108.1720   Characteristics of SBA's guarantee.

     Subpart K--NMVC Company's Noncompliance With Terms of Leverage

108.1810   Events of default and SBA's remedies for NMVC Company's 
          noncompliance with terms of Debentures.

            Computation of NMVC Company's Capital Impairment

108.1830   NMVC Company's Capital Impairment definition and general 
          requirements.
108.1840   Computation of NMVC Company's Capital Impairment Percentage.

             Subpart L--Ending Operations as a NMVC Company

108.1900   Termination of participation as a NMVC Company.

                        Subpart M--Miscellaneous

108.1910   Non-waiver of SBA's rights or terms of Leverage security.
108.1920   NMVC Company's application for exemption from a regulation in 
          this part 108.
108.1930   Effect of changes in this part 108 on transactions previously 
          consummated.
108.1940   Procedures for designation of additional Low-Income 
          Geographic Areas

Subpart N--Requirements and Procedures for Operational Assistance Grants 
                      to NMVC Companies and SSBICs

108.2000  Operational Assistance grants to NMVC Companies and SSBICs.
108.2001  When and how SSBICs may apply for Operational Assistance 
          grants.

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108.2002  Eligibility of SSBICs to apply for Operational Assistance 
          grants.
108.2003  Grant issuance fee for SSBICs.
108.2004  Contents of application submitted by SSBICs.
108.2005  Contents of plan submitted by SSBICs.
108.2006  Evaluation and selection of SSBICs.
108.2007  Grant award to SSBICs.
108.2010   Restrictions on use of Operational Assistance grant funds.
108.2020   Amount of Operational Assistance grant.
108.2030   Matching requirements.
108.2040   Reporting and recordkeeping requirements.

    Authority: 15 U.S.C. 689-689q.

    Source: 66 FR 28609, May 23, 2001, unless otherwise noted.



                   Subpart A--Introduction to Part 108



Sec. 108.10  Description of the New Markets Venture Capital Program.

    The New Markets Venture Capital (``NMVC'') Program is a 
developmental venture capital program for the purpose of promoting 
economic development and the creation of wealth and job opportunities in 
low-income geographic areas and among individuals living in such areas. 
SBA selects and then enters into participation agreements with selected 
newly formed venture capital companies, and provides leverage in the 
form of debenture guarantees to such companies to allow them to make 
equity capital investments in smaller enterprises located in low-income 
geographic areas. SBA also awards grants to such companies and to 
Specialized Small Business Investment Companies so that they can provide 
operational assistance to such smaller enterprises in connection with 
such investments.



Sec. 108.20  Legal basis and applicability of this part 108.

    The regulations in this part implement Part B of Title III of the 
Small Business Investment Act of 1958, as amended (15 U.S.C. 661 et 
seq.). All NMVC Companies must comply with all applicable SBA 
regulations, accounting guidelines and valuation guidelines for NMVC 
Companies, available from SBA.



Sec. 108.30  Amendments to Act and regulations.

    A NMVC Company is subject to all provisions of the Act and parts 108 
and 112 of title 13 of the Code of Federal Regulations.



Sec. 108.40  How to read this part 108.

    (a) Center headings. All references in this part to SBA forms, and 
instructions for their preparation, are to the current issue of such 
forms (available from Investment Division, SBA). Center headings are 
descriptive and are used for convenience only. They have no regulatory 
effect.
    (b) Capitalizing defined terms. Terms defined in Sec. 108.50 have 
initial capitalization in this part 108.
    (c) ``You.'' The pronoun ``you'' as used in this part 108 means a 
NMVC Company unless otherwise noted.



          Subpart B--Definition of Terms Used in This Part 108



Sec. 108.50  Definition of terms.

    The following definitions apply to this part 108:
    Act means the Small Business Investment Act of 1958, as amended (15 
U.S.C. 661 et seq.).
    Affiliate or Affiliates has the meaning set forth in Sec. 121.103 of 
this chapter.
    Applicant means any entity submitting an application to SBA for 
designation as a NMVC Company under this part.
    Articles mean articles of incorporation or charter for a Corporate 
NMVC Company, the partnership agreement or certificate for a Partnership 
NMVC Company, and the operating agreement or other organizational 
documents for a LLC NMVC Company.
    Assistance or Assisted means Financing of or management services 
rendered to a Small Business by or through a NMVC Company pursuant to 
the Act and this part.
    Associate of a NMVC Company means any of the following:
    (1)(i) An officer, director, employee or agent of a Corporate NMVC 
Company;
    (ii) A Control Person, employee or agent of a Partnership NMVC 
Company;

[[Page 100]]

    (iii) A managing member of a LLC NMVC Company;
    (iv) An Investment Adviser/Manager of any NMVC Company, including 
any Person who contracts with a Control Person of a Partnership NMVC 
Company to be the Investment Adviser/Manager of such NMVC Company; or
    (v) Any Person regularly serving a NMVC Company on retainer in the 
capacity of attorney at law.
    (2) Any Person who owns or controls, or who has entered into an 
agreement to own or control, directly or indirectly, at least 10 percent 
of any class of stock of a Corporate NMVC Company or 10 percent of the 
membership interests of an LLC NMVC Company, or a limited partner's 
interest of at least 10 percent of the partnership capital of a 
Partnership NMVC Company. However, neither a limited partner in a 
Partnership NMVC Company nor a non-managing member in an LLC NMVC 
Company is considered an Associate if such Person is an entity 
Institutional Investor whose investment in the Partnership, including 
commitments, represents no more than 33 percent of the capital of the 
NMVC Company and no more than five percent of such Person's net worth.
    (3) Any officer, director, partner (other than a limited partner), 
manager, agent, or employee of any Associate described in paragraph (1) 
or (2) of this definition.
    (4) Any Person that directly or indirectly Controls, or is 
Controlled by, or is under Common Control with, a NMVC Company.
    (5) Any Person that directly or indirectly Controls, or is 
Controlled by, or is under Common Control with, any Person described in 
paragraphs (1) and (2) of this definition.
    (6) Any Close Relative of any Person described in paragraphs (1), 
(2), (4), and (5) of this definition.
    (7) Any Secondary Relative of any Person described in paragraphs 
(1), (2), (4), and (5) of this definition.
    (8) Any concern in which--
    (i) Any person described in paragraphs (1) through (6) of this 
definition is an officer; general partner, or managing member; or
    (ii) Any such Person(s) singly or collectively Control or own, 
directly or indirectly, an equity interest of at least 10 percent 
(excluding interests that such Person(s) own indirectly through 
ownership interests in the NMVC Company).
    (9) Any concern in which any Person(s) described in paragraph (7) of 
this definition singly or collectively own (including beneficial 
ownership) a majority equity interest, or otherwise have Control. As 
used in this paragraph (9), ``collectively'' means together with any 
Person(s) described in paragraphs (1) though (7) of this definition.
    (10) For the purposes of this definition, if any Associate 
relationship described in paragraphs (1) through (7) of this definition 
exists at any time within six months before or after the date that a 
NMVC Company provides Financing, then that Associate relationship is 
considered to exist on the date of the Financing.
    (11) If any NMVC Company has any ownership interest in another NMVC 
Company, the two NMVC companies are Associates of each other.
    Capital Impairment has the meaning set forth in Sec. 108.1830(b).
    Central Registration Agent or CRA means one or more agents appointed 
by SBA for the purpose of issuing TCs and performing the functions 
enumerated in Sec. 108.1620 and performing similar functions for 
Debentures funded outside the pooling process.
    Close Relative of an individual means:
    (1) A current or former spouse;
    (2) A father, mother, guardian, brother, sister, son, daughter; or
    (3) A father-in-law, mother-in-law, brother-in-law, sister-in-law, 
son-in-law, or daughter-in-law.
    Commitment means a written agreement between a NMVC Company and an 
eligible Small Business that obligates the NMVC Company to provide 
Financing (except a guarantee) to that Small Business in a fixed or 
determinable sum, by a fixed or determinable future date. In this 
context the term ``agreement'' means that there has been agreement on 
the principal economic terms of the Financing. The agreement may include 
reasonable conditions precedent to the NMVC Company's obligation to fund 
the commitment, but these conditions must be outside the NMVC Company's 
control.

[[Page 101]]

    Common Control means a condition where two or more Persons, either 
through ownership, management, contract, or otherwise, are under the 
Control of one group or Person. Two or more NMVC companies are presumed 
to be under Common Control if they are Affiliates of each other by 
reason of common ownership or common officers, directors, or general 
partners; or if they are managed or their investments are significantly 
directed either by a common independent investment advisor or managerial 
contractor, or by two or more such advisors or contractors that are 
Affiliates of each other. This presumption may be rebutted by evidence 
satisfactory to SBA.
    Community Development Finance means debt and equity-type investments 
in low-income communities.
    Conditionally Approved NMVC Company means a company that--
    (1) Has applied for participation as a NMVC Company, and
    (2) SBA has conditionally approved to participate in the NMVC 
program for a specified period of time not to exceed two years, subject 
to the company fulfilling the requirements to be a NMVC Company within 
that specified period of time.
    Control means the possession, direct or indirect, of the power to 
direct or cause the direction of the management and policies of a NMVC 
Company or other concern, whether through the ownership of voting 
securities, by contract, or otherwise.
    Control Person means any Person that controls a NMVC Company, either 
directly or through an intervening entity. A Control Person includes:
    (1) A general partner of a Partnership NMVC Company;
    (2) Any Person serving as the general partner, officer, director, or 
manager (in the case of a limited liability company) of any entity that 
controls a NMVC Company, either directly or through an intervening 
entity;
    (3) Any Person that--
    (i) Controls or owns, directly or through an intervening entity, at 
least 10 percent of a Partnership NMVC Company or any entity described 
in paragraphs (1) or (2) of this definition; and
    (ii) Participates in the investment decisions of the general partner 
of such Partnership NMVC Company;
    (4) Any Person that controls or owns, directly or through an 
intervening entity, at least 50 percent of a Partnership NMVC Company or 
any entity described in paragraphs (1) or (2) of this definition.
    Corporate NMVC Company. See definition of NMVC Company in this 
section.
    Debentures means debt obligations issued by NMVC companies pursuant 
to section 355 of the Act and held or guaranteed by SBA.
    Debt Securities are instruments evidencing a loan with an option or 
any other right to acquire Equity Securities in a Small Business or its 
Affiliates, or a loan which by its terms is convertible into an equity 
position. Consideration must be paid for all options that you acquire.
    Developmental Venture Capital means capital in the form of Equity 
Capital Investments in Smaller Enterprises made with a primary objective 
of fostering economic development in Low-Income Geographic Areas.
    Distribution means any transfer of cash or non-cash assets to SBA, 
its agent or Trustee, or to partners in a Partnership NMVC Company, or 
to shareholders in a Corporate NMVC Company, or to members in an LLC 
NMVC Company. Capitalization of Retained Earnings Available for 
Distribution constitutes a Distribution to the NMVC Company's non-SBA 
partners, shareholders, or members.
    Equity Capital Investments means investments in the form of common 
or preferred stock, limited partnership interests, options, warrants, or 
similar equity instruments, including subordinated debt with equity 
features if such debt provides only for interest payments contingent 
upon and limited to the extent of earnings. Equity Capital Investments 
must not require amortization. Equity Capital Investments may be 
guaranteed by one or more third parties; however, neither Equity Capital 
Investments nor such guarantee may be collateralized or otherwise 
secured. Investments classified as Debt Securities are not precluded 
from qualifying as Equity Capital Investments. Equity Capital 
Investments

[[Page 102]]

may provide for royalty payments only if the royalty payments are based 
on the earnings of the concern.
    Equity Securities means stock of any class in a corporation, stock 
options, warrants, limited partnership interests in a limited 
partnership, membership interests in a limited liability company, or 
joint venture interests.
    Financing or Financed means outstanding financial assistance 
provided to a Small Business by a NMVC Company, whether through:
    (1) Loans;
    (2) Debt Securities;
    (3) Equity Securities;
    (4) Guarantees; or
    (5) Purchases of securities of a Small Business through or from an 
underwriter (see Sec. 108.825).
    Guaranty Agreement means the contract entered into by SBA which is a 
guarantee backed by the full faith and credit of the United States 
Government as to timely payment of principal and interest on Debentures 
and SBA's rights in connection with such guarantee.
    Includible Non-Cash Gains means those non-cash gains (as reported on 
SBA Form 468) that are realized in the form of Publicly Traded and 
Marketable securities or investment grade debt instruments. For purposes 
of this definition, investment grade debt instruments means those 
instruments that are rated ``BBB'' or ``Baa'', or better, by Standard & 
Poor's Corporation or Moody's Investors Service, respectively. Non-rated 
debt may be considered to be investment grade if a NMVC Company obtains 
a written opinion from an investment banking firm acceptable to SBA 
stating that the non-rated debt instrument is equivalent in risk to the 
issuer's investment grade debt.
    Institutional Investor means:
    (1) Entities. Any of the following entities if the entity has a net 
worth (exclusive of unfunded commitments from investors) of at least $1 
million, or such higher amount as is specified in this paragraph (1). 
(See also Sec. 108.230(c)(4) for limitations on the amount of an 
Institutional Investor's commitment that may be included in Private 
Capital.)
    (i) A State or National bank, trust company, savings bank, or 
savings and loan association.
    (ii) An insurance company.
    (iii) A 1940 Act Investment Company or Business Development Company 
(each as defined in the Investment Company Act of 1940, as amended (15 
U.S.C. 8a-1 et seq.).
    (iv) A holding company of any entity described in paragraph (l)(i), 
(ii) or (iii) of this definition.
    (v) An employee benefit or pension plan established for the benefit 
of employees of the Federal government, any State or political 
subdivision of a State, or any agency or instrumentality of such 
government unit.
    (vi) An employee benefit or pension plan (as defined in the Employee 
Retirement Income Security Act of 1974, as amended (Public Law 93-406, 
88 Stat. 829), excluding plans established under section 401(k) of the 
Internal Revenue Code of 1986 (26 U.S.C. 401(k)), as amended).
    (vii) A trust, foundation or endowment exempt from Federal income 
taxation under the Internal Revenue Code of 1986, as amended.
    (viii) A corporation, partnership or other entity with a net worth 
(exclusive of unfunded commitments from investors) of more than $10 
million.
    (ix) A State, a political subdivision of a State, or an agency or 
instrumentality of a State or its political subdivision.
    (x) An entity whose primary purpose is to manage and invest non-
Federal funds on behalf of at least three Institutional Investors 
described in paragraphs (l)(i) through (l)(ix) of this definition, each 
of whom must have at least a 10 percent ownership interest in the 
entity.
    (xi) Any other entity that SBA determines to be an Institutional 
Investor.
    (2) Individuals. (i) Any of the following individuals if he/she is 
also a permanent resident of the United States:
    (A) An individual who is an Accredited Investor (as defined in the 
Securities Act of 1933, as amended (15 U.S.C. 77a-77aa)) and whose 
commitment to the NMVC Company is backed by a letter of credit from a 
State or National bank acceptable to SBA.

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    (B) An individual whose personal net worth is at least $2 million 
and at least ten times the amount of his or her commitment to the NMVC 
Company. The individual's personal net worth must not include the value 
of any equity in his or her most valuable residence.
    (C) An individual whose personal net worth, not including the value 
of any equity in his or her most valuable residence, is at least $10 
million.
    (ii) Any individual who is not a permanent resident of the United 
States but who otherwise satisfies paragraph (2)(i) of this definition 
provided such individual has irrevocably appointed an agent within the 
United States for the service of process.
    Investment Adviser/Manager means any Person who furnishes advice or 
assistance with respect to operations of a NMVC Company under a written 
contract executed in accordance with the provisions of Sec. 108.510.
    Lending Institution means a concern that is operating under 
regulations of a state or Federal licensing, supervising, or examining 
body, or whose shares are publicly traded and listed on a recognized 
stock exchange or NASDAQ and which has assets in excess of $500 million; 
and which, in either case, holds itself out to the public as engaged in 
the making of commercial and industrial loans and whose lending 
operations are not for the purpose of financing its own or an 
Associate's sales or business operations.
    Leverage means financial assistance provided to a NMVC Company by 
SBA through the guaranty of a NMVC Company's Debentures, and any other 
SBA financial assistance evidenced by a security of the NMVC Company.
    Leverageable Capital means Regulatory Capital, excluding unfunded 
commitments.
    LLC NMVC Company. See definition of NMVC Company in this section.
    Loan means a transaction evidenced by a debt instrument with no 
provision for you to acquire Equity Securities.
    Loans and Investments means Portfolio securities, assets acquired in 
liquidation of Portfolio securities, operating concerns acquired, and 
notes and other securities received, as set forth in the Statement of 
Financial Position of SBA Form 468.
    Low-Income Enterprise means a Smaller Enterprise that, as of the 
time of the initial Financing, has its Principal Office located in a 
Low-Income Geographic Area.
    Low-Income Geographic Area (``LI Area'') means--
    (1) Any population census tract (or in the case of an area that is 
not tracted for population census tracts, the equivalent county 
division, as defined by the Bureau of the Census of the United States 
Department of Commerce for purposes of defining poverty areas), if--
    (i) The poverty rate for that census tract is not less than 20 
percent;
    (ii) In the case of a tract--
    (A) That is located within a metropolitan area, 50 percent or more 
of the households in that census tract have an income equal to less than 
60 percent of the area median gross income; or
    (B) That is not located within a metropolitan area, the median 
household income for such tract does not exceed 80 percent of the 
statewide median household income; or
    (C) As determined by the Administrator in accordance with 
Sec. 108.1940 of this part, a substantial population of Low-Income 
Individuals reside, an inadequate access to investment capital exists, 
or other indications of economic distress exist in that census tract; or
    (2) Any area located within--
    (i) A Historically Underutilized Business Zone (``HUBZone'') as 
defined in section 3(p) of the Small Business Act and 13 CFR 126.103;
    (ii) An Urban Empowerment Zone or Urban Enterprise Community (as 
designated by the Secretary of the United States Department of Housing 
and Urban Development); or
    (iii) A Rural Empowerment Zone or Rural Enterprise Community (as 
designated by the Secretary of the United States Department of 
Agriculture).
    Low-Income Individual means an individual whose income (adjusted for 
family size) does not exceed--
    (1) For metropolitan areas, 80 percent of the area median income; 
and
    (2) For nonmetropolitan areas, the greater of--
    (i) 80 percent of the area median income, or

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    (ii) 80 percent of the statewide nonmetropolitan area median income.
    Low-Income Investment means an Equity Capital Investment in a Low-
Income Enterprise.
    Management Expenses has the meaning set forth in Sec. 108.520.
    NAICS Manual means the latest issue of the North American Industrial 
Classification System Manual, prepared by the Office of Management and 
Budget, and available from the U.S. Government Printing Office, 
Superintendent of Documents, P.O. Box 371954, Pittsburgh, Pa., 15250-
7954.
    New Markets Tax Credit program means the tax credit created by the 
Consolidated Appropriations Act of 2001, Public Law 106-554 (114 Stat. 
2762A), enacted December 21, 2000, to be implemented by the Internal 
Revenue Service, United States Department of Treasury.
    New Markets Venture Capital Company or NMVC Company means a 
corporation (Corporate NMVC Company), a limited partnership organized as 
required by Sec. 108.160 (Partnership NMVC Company), or a limited 
liability company (LLC NMVC Company) that--
    (1) Has been granted final approval by SBA under Sec. 108.380, and
    (2) Has entered into a Participation Agreement with SBA. For certain 
purposes, the Entity General Partner of a Partnership NMVC Company is 
treated as if it were a NMVC Company (see Sec. 108.160(a)).
    1940 Act Company means a NMVC Company which is registered under the 
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.).
    1980 Act Company means a NMVC Company which is registered under the 
Small Business Investment Incentive Act of 1980 (Public Law 96-447, 94 
Stat. 2275).
    Operational Assistance means management, marketing, and other 
technical assistance that assists a Small Business with its business 
development.
    Original Issue Price means the price paid by the purchaser for 
securities at the time of issuance.
    Participation Agreement means an agreement between SBA and a company 
to which SBA has granted final approval under Sec. 108.380, that--
    (1) Details the company's operating plan and investment criteria; 
and
    (2) Requires the company to make investments in Smaller Enterprises 
at least 80 percent of which Smaller Enterprises are located in LI 
Areas.
    Partnership NMVC Company. See definition of NMVC Company in this 
section.
    Person means a natural person or legal entity.
    Pool means an aggregation of SBA guaranteed Debentures approved by 
SBA.
    Portfolio means the securities representing a NMVC Company's total 
outstanding Financing of Smaller Enterprises. It does not include idle 
funds or assets acquired in liquidation of Portfolio securities.
    Portfolio Concern means a Small Business Assisted by a NMVC Company.
    Principal Office means the location where the greatest number of the 
concern's employees at any one location perform their work. However, for 
those concerns whose ``primary industry'' (see 13 CFR 121.107) is 
service or construction (see 13 CFR 121.201), the determination of 
principal office excludes the concern's employees who perform the 
majority of their work at job-site locations to fulfill specific 
contract obligations.
    Private Capital has the meaning set forth in Sec. 108.230.
    Publicly Traded and Marketable means securities that are salable 
without restriction or that are salable within 12 months pursuant to 
Rule 144 (17 CFR 230.144) of the Securities Act of 1933, as amended, by 
the holder thereof, and are of a class which is traded on a regulated 
stock exchange, or is listed in the Automated Quotation System of the 
National Association of Securities Dealers (NASDAQ), or has, at a 
minimum, at least two market makers as defined in the relevant sections 
of the Securities Exchange Act of 1934, as amended (15 U.S.C. 77b et 
seq.), and in all cases the quantity of which can be sold over a 
reasonable period of time without having an adverse impact upon the 
price of the stock.
    Regulatory Capital means Private Capital, excluding any portion of 
Private Capital that is designated as

[[Page 105]]

matching resources in accordance with Sec. 108.2030(b)(3).
    Relevant Venture Capital Finance means Equity Capital Investments in 
small businesses in low-income communities or benefiting low-income 
communities.
    Retained Earnings Available for Distribution means Undistributed Net 
Realized Earnings less any Unrealized Depreciation on Loans and 
Investments (as reported on SBA Form 468), and represents the amount 
that a NMVC Company may distribute to investors (including SBA) as a 
profit Distribution, or transfer to Private Capital.
    SBA means the Small Business Administration, 409 Third Street, SW., 
Washington, DC 20416.
    Secondary Relative of an individual means:
    (1) A grandparent, grandchild, or any other ancestor or lineal 
descendent who is not a Close Relative;
    (2) An uncle, aunt, nephew, niece, or first cousin; or
    (3) A spouse of any person described in paragraph (1) or (2) of this 
definition.
    Small Business means a small business concern as defined in section 
103(5) of the Act (including its Affiliates), and which meets the 
criteria applicable to the Small Business Investment Company program as 
set forth in part 121 of this chapter.
    Small Business Investment Company (SBIC) means a Licensee, as that 
term is defined in Sec. 107.50 of this chapter.
    Smaller Enterprise means any Small Business that:
    (1) Together with its Affiliates has a net worth of not more than 
$6.0 million and average net income after Federal income taxes 
(excluding any carry-over losses) for the preceding two years no greater 
than $2.0 million; or
    (2) Both together with its Affiliates, and by itself, meets the size 
standard of Sec. 121.201 of this chapter at the time of Financing for 
the industry in which it is then primarily engaged.
    Specialized Small Business Investment Companies (SSBICs) means any 
Small Business Investment Company that--
    (1) Invests solely in small business concerns that contribute to a 
well-balanced national economy by facilitating ownership in such 
concerns by persons whose participation in the free enterprise system is 
hampered because of social or economic disadvantages; and
    (2) Was licensed under section 301(d) of the Small Business 
Investment Act, as in effect before September 30, 1996.
    Trust means the legal entity created for the purpose of holding 
guaranteed Debentures and the guaranty agreement related thereto, 
receiving, holding and making any related payments, and accounting for 
such payments.
    Trust Certificate Rate means a fixed rate determined at the time 
Debentures are pooled.
    Trust Certificates (TCs) means certificates issued by SBA, its agent 
or Trustee and representing ownership of all or a fractional part of a 
Trust or Pool of Debentures.
    Trustee means the trustee or trustees of a Trust.
    Undistributed Net Realized Earnings means Undistributed Realized 
Earnings less Non-cash Gains/Income, each as reported on SBA Form 468.
    Unrealized Appreciation means the amount by which a NMVC Company's 
valuation of each of its Loans and Investments, as determined by its 
Board of Directors or General Partner(s) in accordance with NMVC 
Company's valuation policies, exceeds the cost basis thereof.
    Unrealized Depreciation means the amount by which a NMVC Company's 
valuation of each of its Loans and Investments, as determined by its 
Board of Directors or General Partner(s) in accordance with NMVC 
Company's valuation policies, is below the cost basis thereof.
    Unrealized Gain (Loss) on Securities Held means the sum of the 
Unrealized Appreciation and Unrealized Depreciation on all of a NMVC 
Company's Loans and Investments, less estimated future income tax 
expense or estimated realizable future income tax benefit, as 
appropriate.

[66 FR 28609, May 23, 2001, as amended at 67 FR 68502, Nov. 12, 2002]

[[Page 106]]



             Subpart C--Qualifications for the NMVC Program

                        Organizing a NMVC Company



Sec. 108.100  Business form.

    A NMVC Company must be a newly formed for-profit entity or, subject 
to Sec. 108.150, a newly formed for-profit subsidiary of an existing 
entity. It must be organized under State law solely for the purpose of 
performing the functions and conducting the activities contemplated 
under the Act. It may be organized as a corporation (``Corporate NMVC 
Company''), a limited partnership (``Partnership NMVC Company''), or a 
limited liability company (``LLC NMVC Company'').



Sec. 108.110  Qualified management.

    An Applicant must show, to the satisfaction of SBA, that its current 
or proposed management team is qualified and has the knowledge, 
experience, and capability in Community Development Finance or Relevant 
Venture Capital Finance, necessary for investing in the types of 
businesses contemplated by the Act, the regulations in this part and its 
business plan. In determining whether an Applicant's current or proposed 
management team has sufficient qualifications, SBA will consider 
information provided by the Applicant and third parties concerning the 
background, capability, education, training and reputation of its 
general partners, managers, officers, key personnel, and investment 
committee and governing board members. The Applicant must designate at 
least one individual as the official responsible for contact with SBA.



Sec. 108.120  Economic development primary mission.

    The primary mission of a NMVC Company must be economic development 
of one or more LI Areas.



Sec. 108.130  Identified Low Income Geographic Areas.

    A NMVC Company must identify the specific LI Areas in which it 
intends to make Developmental Venture Capital investments and provide 
Operational Assistance under the NMVC program.



Sec. 108.140  SBA approval of initial Management Expenses.

    A NMVC Company must have its Management Expenses approved by SBA at 
the time of designation as a NMVC Company. (See Sec. 108.520 for the 
definition of Management Expenses.)



Sec. 108.150  Management and ownership diversity requirement.

    (a) Diversity requirement. You must have diversity between 
management and ownership in order to be a NMVC Company. To establish 
diversity, you must meet the requirements in paragraphs (b) and (c) of 
this section.
    (b) Percentage ownership requirement. No Person or group of Persons 
who are Affiliates of one another may own or control, directly or 
indirectly, more than 70 percent of your Regulatory Capital or your 
Leverageable Capital.
    (c) Non-affiliation requirement. At least 30 percent of your 
Regulatory Capital and Leverageable Capital must be owned and controlled 
by three Persons unaffiliated with your management and unaffiliated with 
each other, whose investments are significant in dollar and percentage 
terms as determined by SBA. Such Persons must not be your Associates 
(except for their status as your shareholders, limited partners or 
members) and must not Control, be Controlled by, or be under Common 
Control with any of your Associates. A single ``acceptable'' 
Institutional Investor may be substituted for two or three of the three 
investors who are otherwise required. The following Institutional 
Investors are ``acceptable'' for this purpose:
    (1) Entities whose overall activities are regulated and periodically 
examined by state, Federal or other governmental authorities 
satisfactory to SBA;
    (2) Entities listed on the New York Stock Exchange;
    (3) Entities that are publicly-traded and that meet both the minimum 
numerical listing standards and the corporate governance listing 
standards of the New York Stock Exchange:
    (4) Public or private employee pension funds;
    (5) Trusts, foundations, or endowments, but only if exempt from 
Federal income taxation; and

[[Page 107]]

    (6) Other Institutional Investors satisfactory to SBA.
    (d) Voting requirement. The investors required for you to satisfy 
diversity may not delegate their voting rights to any Person who is your 
Associate, or who Controls, is Controlled by, or is under Common Control 
with any of your Associates, without prior SBA approval.
    (e) Requirement to maintain diversity. You must maintain management-
ownership diversity while you are a NMVC Company. If, at any time, you 
no longer have the required management-ownership diversity, you must:
    (1) Notify SBA within 10 days; and
    (2) Re-establish diversity within six months.

[66 FR 28609, May 23, 2001; 66 FR 32894, June 19, 2001]



Sec. 108.160  Special rules for NMVC Companies formed as limited partnerships.

    (a) Entity General Partner. (1) A general partner which is a 
corporation, limited liability company or partnership (an ``Entity 
General Partner'') shall be organized under state law solely for the 
purpose of serving as the general partner of one or more NMVC companies.
    (2) SBA must approve any person who will serve as an officer, 
director, manager, or general partner of the Entity General Partner. 
This provision must be stated in an Entity General Partner's Certificate 
of Incorporation, operating agreement, limited partnership agreement or 
other similar governing instrument.
    (3) An Entity General Partner is subject to the same examination and 
reporting requirements as a NMVC Company under sections 361 and 362 of 
the Act. The restrictions and obligations imposed upon a NMVC Company by 
Secs. 108.1810, 108.30, 108.410 through 108.450, 108.470, 108.500, 
108.510, 108.585, 108.600, 108.680, 108.690 through 108.692, and 
108.1910 apply also to an Entity General Partner of a NMVC Company.
    (4) The general partner(s) of your Entity General Partner(s) will be 
considered your general partner.
    (5) If your Entity General Partner is a limited partnership, its 
limited partners may be considered your Control Person(s) if they meet 
the definition for Control Person in Sec. 108.50.
    (b) Other requirements for Partnership NMVC Companies. If you are a 
Partnership NMVC Company:
    (1) You must have a minimum duration of 10 years or two years 
following the maturity of your last-maturing Leverage security, 
whichever is longer. After 10 years, if all Leverage has been repaid or 
redeemed and all amounts due SBA, its agent, or Trustee have been paid, 
the Partnership NMVC Company may be terminated by a vote of your 
partners;
    (2) None of your general partner(s) may be removed or replaced by 
your limited partners without prior written approval of SBA;
    (3) Any transferee of, or successor in interest to, your general 
partner shall have only the rights and liabilities of a limited partner 
pending SBA's written approval of such transfer or succession; and
    (4) You must incorporate all the provisions in this paragraph (b) in 
your limited partnership agreement.
    (c) Obligations of a Control Person. All Control Persons are bound 
by the disciplinary provisions of sections 365 and 366 of the Act and by 
the conflict-of-interest rules under Sec. 108.730. The term NMVC 
Company, as used in Secs. 108.30, 108.460, and 108.680, includes all of 
the NMVC Company's Control Persons. The conditions specified in 
Sec. 108.1810 and Sec. 108.1910 apply to all general partners.
    (d) Liability of general partner for partnership debts to SBA. 
Subject to section 365 of the Act, your general partner is not liable 
solely by reason of its status as a general partner for repayment of any 
Leverage or debts you owe to SBA unless SBA, in the exercise of 
reasonable investment prudence, and with regard to your financial 
soundness, determines otherwise prior to the purchase or guaranty of 
your Leverage.
    (e) Special Leverage requirement. Before your first issuance of 
Leverage, you must furnish SBA with evidence that you qualify as a 
partnership for tax purposes, either by a ruling from the Internal 
Revenue Service or by an opinion of counsel.

[[Page 108]]

                       Capitalizing a NMVC Company



Sec. 108.200  Adequate capital for NMVC Companies.

    You must meet the requirements of Secs. 108.200-108.230 in order to 
qualify for designation as a NMVC Company and to receive Leverage.



Sec. 108.210  Minimum capital requirements for NMVC Companies.

    You must have Regulatory Capital of at least $5,000,000 and 
Leverageable Capital of at least $500,000 to become a NMVC Company.



Sec. 108.230  Private Capital for NMVC Companies.

    (a) General. Private Capital means the contributed capital of a NMVC 
Company, plus unfunded binding commitments by Institutional Investors 
(including commitments evidenced by a promissory note) to contribute 
capital to a NMVC Company.
    (b) Contributed capital. For purposes of this section, contributed 
capital means the paid-in capital and paid-in surplus of a Corporate 
NMVC Company, the members' paid-in capital of a LLC NMVC Company, or the 
partners' paid-in capital of a Partnership NMVC Company, in each case 
subject to the limitations in paragraph (c) of this section.
    (c) Exclusions from Private Capital. Private Capital does not 
include:
    (1) Funds borrowed by a NMVC Company from any source.
    (2) Funds obtained through the issuance of Leverage.
    (3) Funds obtained directly from any Federal agency or department.
    (4) Any portion of a commitment from an Institutional Investor with 
a net worth of less than $10 million that exceeds 10 percent of such 
Institutional Investor's net worth.
    (5) A commitment from an investor if SBA determines that the 
collectability of the commitment is questionable.
    (d) Limitations on including non-cash capital contributions in 
Private Capital. Private Capital does not include capital contributions 
in a form other than cash, except as provided in this paragraph (d). 
Subject to SBA's prior approval, Private Capital may include payments 
made on behalf of an Applicant or Conditionally Approved NMVC Company 
before the Applicant or Conditionally Approved NMVC Company becomes a 
NMVC Company for organizational expenses and Management Expenses 
incurred by the Applicant or the Conditionally Approved NMVC Company 
prior to its becoming a NMVC Company.
    (e) Contributions with borrowed funds. You may not accept any 
capital contribution made with funds borrowed by a Person seeking to own 
an equity interest (whether direct or indirect, beneficial or of record) 
of at least 10 percent of your Private Capital. This exclusion does not 
apply if:
    (1) Such Person's net worth is at least twice the amount borrowed; 
or
    (2) SBA gives its prior written approval of the capital 
contribution.

[66 FR 28609, May 23, 2001, as amended at 67 FR 68502, Nov. 12, 2002]



Subpart D--Application and Approval Process for NMVC Company Designation



Sec. 108.300  When and how to apply for designation as a NMVC Company.

    (a) Notice of Funds Availability (``NOFA''). SBA will publish a NOFA 
in the Federal Register, advising potential applicants of the 
availability of funds for the NMVC program. An entity may then submit an 
application for designation as a NMVC Company. When submitting its 
application, an Applicant must comply with both these regulations and 
any requirements specified in the NOFA, including submission deadlines. 
The NOFA may specify limitations, special rules, procedures, and 
restrictions for a particular funding round.
    (b) Application form. An Applicant must apply for designation as a 
NMVC Company using the application packet provided by SBA. Upon receipt 
of an application, SBA may request clarifying or technical information 
on the materials submitted as part of the application.



Sec. 108.310  Contents of application.

    Each Applicant must submit a complete application, including the 
following:

[[Page 109]]

    (a) Amounts. The Applicant must indicate--
    (1) The specific amount of Regulatory Capital it proposes to raise 
(which amount must be at least $5,000,000); and
    (2) The specific amount of binding commitments for contributions in 
cash or in-kind it proposes to raise, and/or an annuity it proposes to 
purchase, in accordance with the requirements of Sec. 108.2030, as its 
matching resources for its Operational Assistance grant award (the 
aggregate of which must be not less than $1,500,000 or 30 percent of the 
Regulatory Capital it proposes to raise under paragraph (a)(1) of this 
section, whichever is greater).
    (b) Comprehensive business plan. The Applicant must submit a 
comprehensive business plan covering at least a five-year period, 
addressing the specific items described in Sec. 108.320, and which 
demonstrates that the Applicant has the capacity to operate successfully 
as a NMVC Company.
    (c) New Markets Tax Credit program. Applicant must address if and to 
what extent it intends to conform its activities to the New Markets Tax 
Credit laws. If Applicant plans to seek a New Markets Tax Credit, 
Applicant also must state the amount of tax credit allocation it intends 
to seek.

[66 FR 28609, May 23, 2001, as amended at 67 FR 68502, Nov. 12, 2002]



Sec. 108.320  Contents of comprehensive business plan.

    (a) Executive summary. The executive summary must include a 
description of--
    (1) The Applicant;
    (2) Its strategy for how it proposes to make successful 
Developmental Venture Capital investments in identified LI Areas;
    (3) The markets in the LI Areas it proposes to serve; and
    (4) How it intends to work with community organizations in and be 
accountable to the residents of identified LI Areas in order to 
facilitate its Developmental Venture Capital investments.
    (b) Capacity, skills, and experience of the management team. An 
Applicant must provide information generally as to the background, 
capability, education, reputation and training of its general partners, 
managers, officers, key personnel, investment committee and governing 
board members. The Applicant also must provide information specifically 
on these individuals' qualifications and reputation in the areas of 
Community Development Finance and/or Relevant Venture Capital Finance, 
including the impact of these individuals' activities in these areas.
    (c) Market analysis. An Applicant must provide an analysis of the LI 
Areas in which it intends to focus its Developmental Venture Capital 
investments and Operational Assistance to Smaller Enterprises, 
demonstrating that the Applicant understands the market and the unmet 
capital needs in such areas and how its activities will meet these unmet 
capital needs through Developmental Venture Capital investments and will 
have a positive economic impact on those areas. The analysis must 
include a description of the extent of the economic distress in the 
identified LI Areas. An Applicant also must analyze the extent of the 
demand in such areas for Developmental Venture Capital investments and 
any factors or trends that may affect the Applicant's ability to make 
effective Developmental Venture Capital investments.
    (d) Operational capacity and investment strategies. An Applicant 
must submit information concerning its policies and procedures for 
underwriting and approving its Developmental Venture Capital 
investments, monitoring its portfolio, and maintaining internal controls 
and operations.
    (e) Regulatory Capital. An Applicant must include a detailed 
description of how it plans to raise its Regulatory Capital. An 
Applicant must discuss its potential sources of Regulatory Capital, the 
estimated timing on raising such funds, and the extent of the 
expressions of interest to commit such funds to the Applicant.
    (f) Plan for providing Operational Assistance. An Applicant must 
describe how it plans to use its grant funds to provide Operational 
Assistance to Smaller Enterprises in which it will make Developmental 
Venture Capital investments. Its plan must address the types of 
Operational Assistance it proposes to provide, and how it plans to

[[Page 110]]

provide the Operational Assistance through the use of licensed 
professionals, when necessary, either from its own staff or from outside 
entities.
    (g) Matching resources for Operational Assistance grant. An 
Applicant must include a detailed description of how it plans to obtain 
binding commitments for cash or in-kind contributions, and/or to 
purchase an annuity, to match the funds requested from SBA for the 
Applicant's Operational Assistance grant. If it proposes to obtain 
commitments for cash and in-kind contributions, it also must estimate 
the ratio of cash to in-kind contributions (in no event may in-kind 
contributions exceed 50 percent of the total contributions). Applicant 
must discuss its potential sources of matching resources, the estimated 
timing on raising such funds, and the extent of the expressions of 
interest to commit such funds to the Applicant. Potential sources of 
matching resources must satisfy the requirements in Sec. 108.2030(b)(1).
    (h) Projected amount of investment in LI Areas. An Applicant must 
describe the amount of its total Regulatory Capital and Leverage that it 
proposes to invest in Smaller Enterprises located in LI Areas, as 
compared to the amount that it proposes to invest in Small Businesses 
located outside of LI Areas.
    (i) Projected impact. An Applicant must describe the criteria and 
economic measurements to be used to evaluate whether and to what extent 
it has met the objectives of the NMVC program. It must include:
    (1) A description of the extent to which it will concentrate its 
Developmental Venture Capital investments and Operational Assistance 
activities in identified LI Areas;
    (2) An estimate of the social, economic, and community development 
benefits to be created within identified LI Areas over the next five 
years or more as a result of its activities;
    (3) A description of the criteria to be used to measure the benefits 
created as a result of its activities;
    (4) A discussion about the amount of such benefits created that it 
will consider to constitute successfully meeting the objectives of the 
NMVC program.
    (j) Affiliates and business relationships. Applicant must submit 
information regarding the management and financial strength of any 
parent or holding entity, affiliated firm or entity, or any other firm 
or entity essential to the success of the Applicant's business plan.

[66 FR 28609, May 23, 2001, as amended at 67 FR 68503, Nov. 12, 2002]



Sec. 108.330  Grant issuance fee.

    An Applicant must pay to SBA a grant issuance fee of $5,000. An 
Applicant must submit this fee in advance, at the time of application 
submission. If SBA does not select an Applicant as a Conditionally 
Approved NMVC Company or designate an Applicant as a NMVC Company, SBA 
will refund this fee to the Applicant.



          Subpart E--Evaluation and Selection of NMVC Companies



Sec. 108.340  Evaluation and selection--general.

    SBA will evaluate and select an Applicant to participate in the NMVC 
program solely at SBA's discretion, based on SBA's review of the 
Applicant's application materials, interviews or site visits with the 
Applicant (if any), and background investigations conducted by SBA and 
other Federal agencies. SBA's evaluation and selection process is 
intended to--
    (a) Ensure that Applicants are evaluated on a competitive basis and 
in a fair and consistent manner;
    (b) Take into consideration the unique proposals presented by 
Applicants;
    (c) Ensure that each Applicant that SBA designates as a NMVC Company 
can fulfill successfully the goals of its comprehensive business plan; 
and
    (d) Ensure that SBA selects Applicants in such a way as to promote 
Developmental Venture Capital investments nationwide and in both urban 
and rural areas.



Sec. 108.350  Eligibility and completeness.

    SBA will not consider any application that is not complete or that 
is submitted by an Applicant that does

[[Page 111]]

not meet the eligibility criteria described in subpart C of this part. 
SBA, at its sole discretion, may request from an Applicant additional 
information concerning eligibility criteria or easily completed portions 
of the application in order to allow SBA to consider that Applicant's 
application.



Sec. 108.360  Evaluation criteria.

    SBA will evaluate and select an Applicant for participation in the 
NMVC program by considering the following criteria--
    (a) The quality of the Applicant's comprehensive business plan in 
terms of meeting the objectives of the NMVC program;
    (b) The likelihood that the Applicant will fulfill the goals 
described in its comprehensive business plan;
    (c) The capability of the Applicant's management team;
    (d) The strength and likelihood for success of the Applicant's 
operations and investment strategies;
    (e) The need for Developmental Venture Capital investments in the LI 
Areas in which the Applicant intends to invest;
    (f) The extent to which the Applicant will concentrate its 
activities on serving the LI Areas in which it intends to invest, 
including the ratio of resources that it proposes to invest in such 
areas as compared to other areas;
    (g) The Applicant's demonstrated understanding of the markets in the 
LI Areas in which it intends to focus its activities;
    (h) The likelihood that and the time frame within which the 
Applicant will be able to--
    (1) Raise the Regulatory Capital it proposes to raise for its 
investments, and
    (2) Obtain the binding commitments for contributions in cash or in-
kind and/or an annuity it proposes to obtain as its matching resources 
for its Operational Assistance grant award;
    (i) The strength of the Applicant's proposal to provide Operational 
Assistance to Smaller Enterprises in which it plans to invest;
    (j) The extent to which the activities proposed by the Applicant 
will promote economic development and the creation of wealth and job 
opportunities in the LI Areas in which it intends to invest and among 
individuals living in LI Areas; and
    (k) The strength of the Applicant's application compared to 
applications submitted by other Applicants and by SSBICs intending to 
invest in the same or proximate LI Areas.

[66 FR 28609, May 23, 2001, as amended at 67 FR 68503, Nov. 12, 2002]



Sec. 108.370  Conditional approval.

    From among the Applicants submitting eligible and complete 
applications, SBA will select a number of Applicants and will 
conditionally approve such selected Applicants to participate in the 
NMVC program. SBA will give each such Conditionally Approved NMVC 
Company a specific period of time, not to exceed two years, to satisfy 
the requirements to become a NMVC Company.



Sec. 108.380  Final approval as a NMVC Company.

    (a) General rule. With respect to each Conditionally Approved NMVC 
Company, SBA will either:
    (1) Grant final approval to participate in the NMVC program and 
designate such company as a NMVC Company, if such Conditionally Approved 
NMVC Company:
    (i) Within the specific period of time SBA gave to it when SBA 
conditionally approved it for participation in the NMVC program, has 
raised:
    (A) The amount of Regulatory Capital set forth in its application, 
pursuant to Sec. 108.310(a)(1); and
    (B) The amount of matching resources for its Operational Assistance 
grant award set forth in its application, pursuant to 
Sec. 108.310(a)(2); and
    (ii) Enters into a Participation Agreement with SBA; or
    (2) Revoke SBA's conditional approval of the company, at which time 
it is no longer a Conditionally Approved NMVC Company and must not 
participate in the NMVC program or represent itself as a Conditionally 
Approved NMVC Company.
    (b) Exception to requirement to raise matching resources. (1) 
General. At its discretion and based upon a showing of good cause, SBA 
may consider a Conditionally Approved NMVC Company to

[[Page 112]]

have satisfied the requirement in paragraph (a)(1)(i)(B) of this section 
to raise matching resources in the amount of at least 30 percent of its 
Regulatory Capital if the Conditionally Approved NMVC Company--
    (i) Already has raised at least 20 percent of the total amount of 
required matching resources; and
    (ii) Has a viable plan that reasonably projects its capacity to 
raise the remainder of the required amount of matching resources.
    (2) Request for exception. Before the expiration of the time period 
given to it by SBA to meet the requirements to become a NMVC Company, a 
Conditionally Approved NMVC Company may submit to SBA a request that SBA 
grant the exception described in paragraph (b)(1) of this section. Such 
Conditionally Approved NMVC must present to SBA evidence of good cause 
for such request, as well as evidence supporting the elements of the 
exception described in paragraph (b)(1) of this section.
    (3) No applicability to Regulatory Capital. The exception described 
in this section applies only to matching resources for the Operational 
Assistance grant award. Under no circumstances will SBA designate a 
Conditionally Approved NMVC Company as a NMVC Company if such 
Conditionally Approved NMVC Company does not raise the required amount 
of Regulatory Capital within the time period SBA gave it to do so.

[66 FR 28609, May 23, 2001, as amended at 67 FR 68503, Nov. 12, 2002]



         Subpart F--Changes in Ownership, Structure, or Control

             Changes in Control or Ownership of NMVC Company



Sec. 108.400  Changes in ownership of 10 percent or more of NMVC Company but no change of Control.

    You must obtain SBA's prior written approval for any proposed 
transfer or issuance of ownership interests that results in the 
ownership (beneficial or of record) by any Person, or group of Persons 
acting in concert, of at least 10 percent of any class of your stock, 
partnership capital or membership interests.



Sec. 108.410  Changes in Control of NMVC Company (through change in ownership or otherwise).

    You must obtain SBA's prior written approval for any proposed 
transaction or event that results in Control by any Person(s) not 
previously approved by SBA.



Sec. 108.420  Prohibition on exercise of ownership or Control rights in NMVC Company before SBA approval.

    Without prior written SBA approval, no change of ownership or 
Control may take effect and no officer, director, employee or other 
Person acting on your behalf shall:
    (a) Register on your books any transfer of ownership interest to the 
proposed new owner(s);
    (b) Permit the proposed new owner(s) to exercise voting rights with 
respect to such ownership interest (including directly or indirectly 
procuring or voting any proxy, consent or authorization as to such 
voting rights at any meeting of shareholders, partners or members);
    (c) Permit the proposed new owner(s) to participate in any manner in 
the conduct of your affairs (including exercising control over your 
books, records, funds or other assets; participating directly or 
indirectly in any disposition thereof; or serving as an officer, 
director, partner, manager, employee or agent); or
    (d) Allow ownership or Control to pass to another Person.



Sec. 108.430  Notification to SBA of transactions that may change ownership or Control.

    You must promptly notify SBA as soon as you have knowledge of 
transactions or events that may result in a transfer of Control or 
ownership of at least 10 percent of your capital. If there is any doubt 
as to whether a particular transaction or event will result in such a 
change, report the facts to SBA.



Sec. 108.440  Standards governing prior SBA approval for a proposed transfer of Control.

    SBA approval is contingent upon full disclosure of the real parties 
in interest, the source of funds for the new

[[Page 113]]

owners' interest, and other data requested by SBA. As a condition of 
approving a proposed transfer of control, SBA may:
    (a) Require an increase in your Regulatory Capital;
    (b) Require the new owners or the transferee's Control Person(s) to 
assume, in writing, personal liability for your Leverage, effective only 
in the event of their direct or indirect participation in any transfer 
of Control not approved by SBA; or
    (c) Require compliance with any other conditions set by SBA, 
including compliance with the requirements for minimum capital and 
management-ownership diversity as in effect at such time for new NMVC 
Companies.



Sec. 108.450  Notification to SBA of pledge of NMVC Company's shares.

    (a) You must notify SBA in writing, within 30 calendar days, of the 
terms of any transaction in which:
    (1) Any Person, or group of Persons acting in concert, pledges 
shares of your stock (or equivalent ownership interests) as collateral 
for indebtedness; and
    (2) The shares pledged are at least 10 percent of your Regulatory 
Capital.
    (b) If the transaction creates a change of ownership or Control, you 
must comply with Sec. 108.400 or Sec. 108.410, as appropriate.

    Restrictions on Common Control or Ownership of Two or More NMVC 
                                Companies



Sec. 108.460  Restrictions on Common Control or ownership of two (or more) NMVC Companies.

    Without SBA's prior written approval, you must not have an officer, 
director, manager, Control Person, or owner (with a direct or indirect 
ownership interest of at least 10 percent) who is also:
    (a) An officer, director, manager, Control Person, or owner (with a 
direct or indirect ownership interest of at least 10 percent) of another 
NMVC Company; or
    (b) An officer or director of any Person that directly or indirectly 
controls, or is controlled by, or is under Common Control with, another 
NMVC Company.

                   Change in Structure of NMVC Company



Sec. 108.470  SBA approval of merger, consolidation, or reorganization of NMVC Company.

    You may not merge, consolidate, change form of organization 
(corporation or partnership) or reorganize without SBA's prior written 
approval. Any such merger or consolidation will be subject to 
Sec. 108.440.



          Subpart G--Managing the Operations of a NMVC Company

                          General Requirements



Sec. 108.500  Lawful operations under the Act.

    You must engage only in the activities contemplated by the Act and 
in no other activities.



Sec. 108.502  Representations to the public.

    You may not represent or imply to anyone that the SBA, the U.S. 
Government or any of its agencies or officers has approved any ownership 
interests you have issued or obligations you have incurred. Be certain 
to include a statement to this effect in any solicitation to investors. 
Example: You may not represent or imply that ``SBA stands behind the 
NMVC Company'' or that ``Your capital is safe because SBA's experts 
review proposed investments to make sure they are safe for the NMVC 
Company.''



Sec. 108.503  NMVC Company's adoption of an approved valuation policy.

    (a) Valuation guidelines. You must prepare, document and report the 
valuations of your Loans and Investments in accordance with the 
Valuation Guidelines for SBICs issued by SBA. These guidelines may be 
obtained from SBA's Investment Division.
    (b) SBA approval of valuation policy. You must have a written 
valuation policy approved by SBA for use in determining the value of 
your Loans and Investments. You must either:
    (1) Adopt without change the model valuation policy set forth in 
section III of the Valuation Guidelines for SBICs; or

[[Page 114]]

    (2) Obtain SBA's prior written approval of an alternative valuation 
policy.
    (c) Responsibility for valuations. Your board of directors, managing 
members, or general partner(s) will be solely responsible for adopting 
your valuation policy and for using it to prepare valuations of your 
Loans and Investments for submission to SBA. If SBA reasonably believes 
that your valuations, individually or in the aggregate, are materially 
misstated, it reserves the right to require you to engage, at your 
expense, an independent third party acceptable to SBA to substantiate 
the valuations.
    (d) Frequency of valuations. (1) You must value your Loans and 
Investments at the end of the second quarter of your fiscal year, and at 
the end of your fiscal year.
    (2) On a case-by-case basis, SBA may require you to perform 
valuations more frequently.
    (3) You must report material adverse changes in valuations at least 
quarterly, within thirty days following the close of the quarter.
    (e) Review of valuations by independent public accountant. (1) For 
valuations performed as of the end of your fiscal year, your independent 
public accountant must review your valuation procedures and the 
implementation of such procedures, including adequacy of documentation.
    (2) The independent public accountant's report on your audited 
annual financial statements (SBA Form 468) must include a statement that 
your valuations were prepared in accordance with your approved valuation 
policy.



Sec. 108.504  Equipment and office requirements.

    (a) Computer capability. You must have a personal computer with a 
modem, and be able to use this equipment to prepare reports (using SBA 
provided software) and transmit them to SBA. In addition, you must have 
access to the Internet and the capability to send and receive electronic 
mail via the Internet.
    (b) Facsimile capability. You must be able to receive facsimile 
messages 24 hours per day at your primary office.
    (c) Accessible office. You must maintain an office that is 
convenient to the public and is open for business during normal working 
hours.



Sec. 108.506  Safeguarding the NMVC Company's assets/Internal controls.

    You must adopt a plan to safeguard your assets and monitor the 
reliability of your financial data, personnel, Portfolio, funds and 
equipment. You must provide your bank and custodian with a certified 
copy of your resolution or other formal document describing your control 
procedures.



Sec. 108.507  Violations based on false filings and nonperformance of agreements with SBA.

    The following shall constitute a violation of this part:
    (a) Nonperformance. Nonperformance of any of the requirements of any 
Debenture or of any written agreement with SBA.
    (b) False statement. In any document submitted to SBA:
    (1) Any false statement knowingly made; or
    (2) Any misrepresentation of a material fact; or
    (3) Any failure to state a material fact. A material fact is any 
fact that is necessary to make a statement not misleading in light of 
the circumstances under which the statement was made.



Sec. 108.509  Employment of SBA officials.

    Without SBA's prior written approval, for a period of two years 
after the date of your most recent issuance of Leverage (or the receipt 
of any SBA Assistance as defined in part 105 of this chapter), you are 
not permitted to employ, offer employment to, or retain for professional 
services, any person who:
    (a) Served as an officer, attorney, agent, or employee of SBA on or 
within one year before such date; and
    (b) As such, occupied a position or engaged in activities which, in 
SBA's determination, involved discretion with respect to the granting of 
SBA Assistance.

[[Page 115]]

                       Management and Compensation



Sec. 108.510  SBA approval of NMVC Company's Investment Adviser/Manager.

    You may employ an Investment Adviser/Manager who will be subject to 
the supervision of your board of directors, managing members, or general 
partner. If you have Leverage or plan to seek Leverage, you must obtain 
SBA's prior written approval of the management contract. SBA's approval 
of an Investment Adviser/Manager for one NMVC Company does not indicate 
approval of that manager for any other NMVC Company.
    (a) Management contract. The contract must:
    (1) Specify the services the Investment Adviser/Manager will render 
to you and to the Small Businesses in your Portfolio; and
    (2) Indicate the basis for computing Management Expenses.
    (b) Material change to approved management contract. If there is a 
material change, both you and SBA must approve such change in advance. 
If you are uncertain if the change is material, submit the proposed 
revision to SBA.



Sec. 108.520  Management Expenses of a NMVC Company.

    SBA must approve your initial Management Expenses and any increases 
in your Management Expenses.
    (a) Definition of Management Expenses. Management Expenses include:
    (1) Salaries;
    (2) Office expenses;
    (3) Travel;
    (4) Business development;
    (5) Office and equipment rental;
    (6) Bookkeeping; and
    (7) Expenses related to developing, investigating and monitoring 
investments.
    (b) Management Expenses do not include services provided by 
specialized outside consultants, outside lawyers and independent public 
accountants, if they perform services not generally performed by a 
venture capital company.

                    Cash Management by a NMVC Company



Sec. 108.530  Restrictions on investments of idle funds by NMVC Companies.

    (a) Permitted investments of idle funds. Funds not invested in Small 
Businesses must be maintained in:
    (1) Direct obligations of, or obligations guaranteed as to principal 
and interest by, the United States, which mature within 15 months from 
the date of the investment; or
    (2) Repurchase agreements with federally insured institutions, with 
a maturity of seven days or less. The securities underlying the 
repurchase agreements must be direct obligations of, or obligations 
guaranteed as to principal and interest by, the United States. The 
securities must be maintained in a custodial account at a federally 
insured institution; or
    (3) Certificates of deposit with a maturity of one year or less, 
issued by a federally insured institution; or
    (4) A deposit account in a federally insured institution, subject to 
a withdrawal restriction of one year or less; or
    (5) A checking account in a federally insured institution; or
    (6) A reasonable petty cash fund.
    (b) Deposit of funds in excess of the insured amount. (1) You are 
permitted to deposit funds in a federally insured institution in excess 
of the institution's insured amount, but only if the institution is 
``well capitalized'' in accordance with the definition set forth in 
regulations of the Federal Deposit Insurance Corporation, as amended (12 
CFR 325.103).
    (2) Exception: You may make a temporary deposit (not to exceed 30 
days) in excess of the insured amount, in a transfer account established 
to facilitate the receipt and disbursement of funds or to hold funds 
necessary to honor Commitments issued.
    (c) Deposit of funds in Associate institution. A deposit in, or a 
repurchase agreement with, a federally insured institution that is your 
Associate is not considered a Financing of such Associate under 
Sec. 108.730, provided the terms of such deposit or repurchase agreement 
are no less favorable than those available to the general public.

[[Page 116]]

            Borrowing by NMVC Companies From Non-SBA Sources



Sec. 108.550  Prior approval of secured third-party debt of NMVC companies.

    (a) Definition. In this section, ``secured third-party debt'' means 
any non-SBA debt secured by any of your assets, including secured 
guarantees and other contingent obligations that you voluntarily assume 
and secured lines of credit.
    (b) General rule. You must get SBA's written approval before you 
incur any secured third-party debt or refinance any debt with secured 
third-party debt, including any renewal of a secured line of credit, 
increase in the maximum amount available under a secured line of credit, 
or expansion of the scope of a security interest or lien. For purposes 
of this paragraph (b), ``expansion of the scope of a security interest 
or lien'' does not include the substitution of one asset or group of 
assets for another, provided the asset values (as reported on your most 
recent annual Form 468) are comparable.
    (c) Conditions for SBA approval. As a condition of granting its 
approval under this section, SBA may impose such restrictions or 
limitations as it deems appropriate, taking into account your historical 
performance, current financial position, proposed terms of the secured 
debt and amount of aggregate debt you will have outstanding (including 
Leverage). SBA will not favorably consider any requests for approval 
which include a blanket lien on all your assets, or a security interest 
in your investor commitments in excess of 125 percent of the proposed 
borrowing.
    (d) Thirty-day approval. Unless SBA notifies you otherwise within 30 
days after it receives your request, you may consider your request 
automatically approved if:
    (1) You are in regulatory compliance;
    (2) The security interest in your assets is limited to either those 
assets being acquired with the borrowed funds or an asset coverage ratio 
of no more than 2:1;
    (3) Your request is for approval of a secured line of credit that 
would not cause your total outstanding borrowings (not including 
Leverage) to exceed 50 percent of your Leverageable Capital.

                Voluntary Decrease in Regulatory Capital



Sec. 108.585  Voluntary decrease in NMVC Company's Regulatory Capital.

    You must obtain SBA's prior written approval to reduce your 
Regulatory Capital by more than two percent in any fiscal year. At all 
times, you must retain sufficient Regulatory Capital to meet the minimum 
capital requirements in the Act and Sec. 108.210, and sufficient 
Leverageable Capital to avoid having excess Leverage in violation of 
section 355(d) of the Act.



 Subpart H--Recordkeeping, Reporting, and Examination Requirements for 
                             NMVC Companies

              Recordkeeping Requirements for NMVC Companies



Sec. 108.600  General requirement for NMVC Company to maintain and preserve records.

    (a) Maintaining your accounting records. You must establish and 
maintain your accounting records using SBA's standard chart of accounts 
for SBICs, unless SBA approves otherwise. You may obtain this chart of 
accounts from SBA.
    (b) Location of records. You must keep the following records at your 
principal place of business or, in the case of paragraph (b)(3) of this 
section, at the branch office that is primarily responsible for the 
transaction:
    (1) All your accounting and other financial records;
    (2) All minutes of meetings of directors, stockholders, executive 
committees, partners, or other officials; and
    (3) All documents and supporting materials related to your business 
transactions, except for any items held by a custodian under a written 
agreement between you and a Portfolio Concern or non-SBA lender, or any 
securities held in a safe deposit box, or by a licensed securities 
broker in an amount not exceeding the broker's per-account insurance 
coverage.

[[Page 117]]

    (c) Preservation of records. You must retain all the records that 
are the basis for your financial reports. Such records must be preserved 
for the periods specified in this paragraph (c), and must remain 
accessible for the first two years of the preservation period.
    (1) You must preserve for at least 15 years or, in the case of a 
Partnership NMVC Company or LLC NMVC Company, at least two years beyond 
the date of liquidation:
    (i) All your accounting ledgers and journals, and any other records 
of assets, asset valuations, liabilities, equity, income, and expenses.
    (ii) Your Articles, bylaws, minute books, and NMVC Company 
application.
    (iii) All documents evidencing ownership of the NMVC Company 
including ownership ledgers, and ownership transfer registers.
    (2) You must preserve for at least six years all supporting 
documentation (such as vouchers, bank statements, or canceled checks) 
for the records listed in paragraph (b)(1) of this section.
    (3) After final disposition of any item in your Portfolio, you must 
preserve for at least six years:
    (i) Financing applications and Financing instruments.
    (ii) All loan, participation, and escrow agreements.
    (iii) Size status declarations (SBA Form 480).
    (iv) Any capital stock certificates and warrants of the Portfolio 
Concern that you did not surrender or exercise.
    (v) All other documents and supporting material relating to the 
Portfolio Concern, including correspondence.
    (4) You may substitute a microfilm or computer-scanned or generated 
copy for the original of any record covered by this paragraph (c).
    (d) Additional requirement. You must comply with the recordkeeping 
and record retention requirements set forth in Circular A-110 of the 
Office of Management and Budget. (OMB circulars are available from the 
addresses in 5 CFR 1310.3.)



Sec. 108.610  Required certifications for Loans and Investments.

    For each of your Loans and Investments, you must have the documents 
listed in this section. You must keep these documents in your files and 
make them available to SBA upon request.
    (a) SBA Form 480, the Size Status Declaration, executed both by you 
and by the concern you are financing. By executing this document, both 
parties certify that the concern is a Small Business. For securities 
purchased from an underwriter in a public offering, you may substitute a 
prospectus showing that the concern is a Small Business.
    (b) SBA Form 652, a certification by the concern you are financing 
that it will not illegally discriminate (see part 112 of this chapter).
    (c) A certification by the concern you are financing of the intended 
use of the proceeds. For securities purchased from an underwriter in a 
public offering, you may substitute a prospectus indicating the intended 
use of proceeds.
    (d) For each Low-Income Investment, a certification by the concern 
you are financing as to the basis for its qualification as a Low-Income 
Enterprise.



Sec. 108.620  Requirements to obtain information from Portfolio Concerns.

    All the information required by this section is subject to the 
requirements of Sec. 108.600 and must be in English.
    (a) Information for initial Financing decision. Before extending any 
Financing, you must require the applicant to submit such financial 
statements, plans of operation (including intended use of financing 
proceeds), cash flow analyses, projections, and such community economic 
development information about the company, as are necessary to support 
your investment decision. The information submitted must be consistent 
with the size and type of the business and the amount of the proposed 
Financing.
    (b) Updated financial and community economic development 
information. (1) The terms of each Financing must require the Portfolio 
Concern to provide, at least annually, sufficient financial and 
community economic development

[[Page 118]]

information to enable you to perform the following required procedures:
    (i) Evaluate the financial condition of the Portfolio Concern for 
the purpose of valuing your investment;
    (ii) Determine the continued eligibility of the Portfolio Concern;
    (iii) Verify the use of Financing proceeds; and
    (iv) Evaluate the community economic development impact of the 
Financing.
    (2) The president, chief executive officer, treasurer, chief 
financial officer, general partner, or proprietor of the Portfolio 
Concern must certify the information submitted to you.
    (3) For financial and valuation purposes, you may accept a complete 
copy of the Federal income tax return filed by the Portfolio Concern (or 
its proprietor) in lieu of financial statements, but only if appropriate 
for the size and type of the business involved.
    (4) The requirements in this paragraph (b) do not apply when you 
acquire securities from an underwriter in a public offering (see 
Sec. 108.825). In that case, you must keep copies of all reports 
furnished by the Portfolio Concern to the holders of its securities.
    (c) Information required for examination purposes. You must obtain 
any information requested by SBA's examiners for the purpose of 
verifying the certifications made by a Portfolio Concern under 
Sec. 108.610. In this regard, your Financing documents must contain 
provisions requiring the Portfolio Concern to give you and/or SBA's 
examiners access to its books and records for such purpose.

                Reporting Requirements for NMVC Companies



Sec. 108.630  Requirement for NMVC companies to file financial statements and supplementary information with SBA (SBA Form 468).

    (a) Annual filing of Form 468. For each fiscal year, you must submit 
to SBA financial statements and supplementary information prepared on 
SBA Form 468. You must file Form 468 on or before the last day of the 
third month following the end of your fiscal year, except for the 
information required under paragraphs (e) and (f) of this section, which 
must be filed on or before the last day of the fifth month following the 
end of your fiscal year.
    (1) Audit of Form 468. An independent public accountant acceptable 
to SBA must audit the annual Form 468.
    (2) Insurance requirement for public accountant. Unless SBA approves 
otherwise, your independent public accountant must carry at least 
$1,000,000 of Errors and Omissions insurance, or be self-insured and 
have a net worth of at least $1,000,000.
    (b) Interim filings of Form 468. When requested by SBA, you must 
file interim reports on Form 468. SBA may require you to file the entire 
form or only certain statements and schedules. You must file such 
reports on or before the last day of the month following the end of the 
reporting period. When you submit a request for a draw under an SBA 
Leverage commitment, you must also comply with any applicable filing 
requirements set forth in Sec. 108.1220.
    (c) Standards for preparation of Form 468. You must prepare SBA Form 
468 in accordance with SBA's Accounting Standards and Financial 
Reporting Requirements for Small Business Investment Companies, which 
you may obtain from SBA.
    (d) Where to file Form 468. Submit all filings of Form 468 to the 
Office of New Markets Venture Capital in the Investment Division of SBA.
    (e) Reporting of social, economic, or community development impact 
information on Form 468. Your annual filing of SBA Form 468 must include 
an assessment of the social, economic, or community development impact 
of each Financing. This assessment must specify the fulltime equivalent 
jobs created, the impact of the Financing on the revenues and profits of 
the business and on taxes paid by the business and its employees, and a 
listing of the number and percentage of employees who reside in LI 
Areas.
    (f) Reporting of community development information. For each 
Financing of a Low-Income Enterprise, your Form 468 must include an 
assessment of such Financing with respect to:
    (1) The social, economic or community development benefits achieved 
as a result of the Financing;

[[Page 119]]

    (2) How and to what extent such benefits fulfilled the goals of your 
comprehensive business plan and Participation Agreement;
    (3) Whether you consider the Financing or the results of the 
Financing to have fulfilled the objectives of the NMVC program; and
    (4) Whether, and if so, how you achieved accountability to the 
residents of the LI Area in connection with that Financing.



Sec. 108.640  Requirement to file portfolio financing reports (SBA Form 1031).

    For each Financing you make (excluding guarantees), you must submit 
a Portfolio Financing Report on SBA Form 1031 within 30 days of the 
closing date.



Sec. 108.650  Requirement to report portfolio valuations to SBA.

    You must determine the value of your Loans and Investments in 
accordance with Sec. 108.503. You must report such valuations to SBA 
within 90 days of the end of the fiscal year in the case of annual 
valuations, and within 30 days following the close of other reporting 
periods. You must report material adverse changes in valuations at least 
quarterly, within thirty days following the close of the quarter.



Sec. 108.660  Other items required to be filed by NMVC Company with SBA.

    (a) Reports to owners. You must give SBA a copy of any report you 
furnish to your investors, including any prospectus, letter, or other 
publication concerning your financial operations or those of any 
Portfolio Concern.
    (b) Documents filed with SEC. You must give SBA a copy of any 
report, application or document you file with the Securities and 
Exchange Commission.
    (c) Litigation reports. When you become a party to litigation or 
other proceedings, you must give SBA a report within 30 days that 
describes the proceedings and identifies the other parties involved and 
your relationship to them.
    (1) The proceedings covered by this paragraph (c) include any action 
by you, or by your security holder(s) in a personal or derivative 
capacity, against an officer, director, Investment Adviser or other 
Associate of yours for alleged breach of official duty.
    (2) SBA may require you to submit copies of the pleadings and other 
documents SBA may specify.
    (3) Where proceedings have been terminated by settlement or final 
judgment, you must promptly advise SBA of the terms.
    (4) This paragraph (c) does not apply to collection actions or 
proceedings to enforce your ordinary creditors' rights.
    (d) Notification of criminal charges. If any officer, director, or 
general partner of the NMVC Company, or any other person who was 
required by SBA to complete a personal history statement, is charged 
with or convicted of any criminal offense other than a misdemeanor 
involving a minor motor vehicle violation, you must report the incident 
to SBA within 5 calendar days. Such report must fully describe the facts 
that pertain to the incident.
    (e) Reports concerning Operational Assistance grant funds. You must 
comply with all reporting requirements set forth in Circular A-110 of 
the Office of Management and Budget and any grant award document 
executed between you and SBA.
    (f) Other reports. You must file any other reports SBA may require 
in writing.



Sec. 108.680  Reporting changes in NMVC Company not subject to prior SBA approval.

    (a) Changes to be reported for post-approval. This section applies 
to any changes in your Articles, ownership, capitalization, management, 
operating area, or investment policies that do not require SBA's prior 
approval. You must report such changes to SBA within 30 days for post 
approval.
    (b) Approval by SBA. You may consider any change submitted under 
this section to be approved unless SBA notifies you to the contrary 
within 90 days after receiving it. SBA's approval is contingent upon 
your full disclosure of all relevant facts and is subject to any 
conditions SBA may prescribe.

[[Page 120]]

     Examinations of NMVC Companies by SBA for Regulatory Compliance



Sec. 108.690  Examinations.

    All NMVC companies must submit to annual examinations by or at the 
direction of SBA for the purpose of evaluating regulatory compliance.



Sec. 108.691  Responsibilities of NMVC Company during examination.

    You must make all books, records and other pertinent documents and 
materials available for the examination, including any information 
required by the examiner under Sec. 108.620(c). In addition, the 
agreement between you and the independent public accountant performing 
your audit must provide that any information in the accountant's working 
papers be made available to SBA upon request.



Sec. 108.692  Examination fees.

    (a) General. SBA will assess fees for examinations in accordance 
with this section. Unless SBA determines otherwise on a case by case 
basis, SBA will not assess fees for special examinations to obtain 
specific information.
    (b) Base fee. A base fee of $3,500 will be assessed, subject to 
adjustment in accordance with paragraph (c) of this section.
    (c) Adjustments to base fee. The base fee will be decreased based on 
the following criteria:
    (1) If you have no outstanding regulatory violations at the time of 
the commencement of the examination and SBA did not identify any 
violations as a result of the most recent prior examination, you will 
receive a 15% discount on your base fee; and
    (2) If you were fully responsive to the letter of notification of 
examination (that is, you provided all requested documents and 
information within the time period stipulated in the notification letter 
in a complete and accurate manner, and you prepared and had available 
all information requested by the examiner for on-site review), you will 
receive a 10% discount on your base fee.
    (d) Delay fee. If, in the judgment of SBA, the time required to 
complete your examination is delayed due to your lack of cooperation or 
the condition of your records, SBA may assess an additional fee of up to 
$500 per day.



       Subpart I--Financing of Small Businesses by NMVC Companies

   Determining the Eligibility of a Small Business for NMVC Financing



Sec. 108.700  Compliance with size standards in part 121 of this chapter as a condition of Assistance.

    You are permitted to provide financial assistance and management 
services only to a Small Business. To determine whether an applicant 
meets the size standards for a Small Business, you may use either the 
financial size standards in Sec. 121.301(c)(1) of this chapter or the 
industry standard covering the industry in which the applicant is 
primarily engaged, as set forth in Sec. 121.301(c)(2) of this chapter.



Sec. 108.710  Requirement to finance Low-Income Enterprises.

    (a) Low-Income Enterprise Financings. At the close of each of your 
fiscal years--
    (1) At least 80 percent of your Portfolio Concerns must be Low-
Income Enterprises in which you have an Equity Capital Investment; and
    (2) For all Financings you have extended, you must have invested at 
least 80 percent (in total dollars) in Equity Capital Investments in 
Low-Income Enterprises.
    (b) Non-compliance with this section. If you have not reached the 
percentages required in paragraph (a) of this section at the end of any 
fiscal year, then you must be in compliance by the end of the following 
fiscal year. However, you will not be eligible for additional Leverage 
until such time as you reach the required percentages (see 
Sec. 108.1120).



Sec. 108.720  Small Businesses that may be ineligible for financing.

    (a) Relenders or reinvestors. You are not permitted to finance any 
business that is a relender or reinvestor. Relenders or reinvestors are 
businesses whose primary business activity involves, directly or 
indirectly, providing funds to others, purchasing debt obligations, 
factoring, or long-term leasing

[[Page 121]]

of equipment with no provision for maintenance or repair.
    (b) Passive Businesses. You are not permitted to finance a passive 
business.
    (1) Definition. A business is passive if:
    (i) It is not engaged in a regular and continuous business operation 
(for purposes of this paragraph (b), the mere receipt of payments such 
as dividends, rents, lease payments, or royalties is not considered a 
regular and continuous business operation); or
    (ii) Its employees are not carrying on the majority of day to day 
operations, and the company does not provide effective control and 
supervision, on a day to day basis, over persons employed under 
contract; or
    (iii) It passes through substantially all of the proceeds of the 
Financing to another entity.
    (2) Exception for pass-through of proceeds to subsidiary. With the 
prior written approval of SBA, you may finance a passive business if it 
is a Small Business and it passes substantially all the proceeds through 
to one or more subsidiary companies, each of which is an eligible Small 
Business that is not passive. For the purpose of this paragraph (b) (2), 
``subsidiary company'' means a company in which at least 50 percent of 
the outstanding voting securities are owned by the Financed passive 
business.
    (3) Exception for certain Partnership NMVC companies. With the prior 
written approval of SBA, if you are a Partnership NMVC Company, you may 
form one or more wholly owned corporations in accordance with this 
paragraph (b) (3). The sole purpose of such corporation(s) must be to 
provide Financing to one or more eligible, unincorporated Small 
Businesses. You may form such corporation(s) only if a direct Financing 
to such Small Businesses would cause any of your investors to incur 
unrelated business taxable income under section 511 of the Internal 
Revenue Code of 1986, as amended (26 U.S.C. 511). Your investment of 
funds in such corporation(s) will not constitute a violation of 
Sec. 108.730(a).
    (c) Real Estate Businesses. (1) You are not permitted to finance:
    (i) Any business classified under subsector 5311 (Lessors of Real 
Estate) of the NAICS Manual; or
    (ii) Any business listed under subsector 5312 (Offices of Real 
Estate Agents and Brokers) unless at least 80 percent of the revenue is 
derived from non-Affiliate sources.
    (2) You are not permitted to finance a business, regardless of NAICS 
classification, if the Financing is to be used to acquire or refinance 
real property, unless the Small Business:
    (i) Is acquiring an existing property and will use at least 51 
percent of the usable square footage for an eligible business purpose; 
or
    (ii) Is building or renovating a building and will use at least 67 
percent of the usable square footage for an eligible business purpose; 
or
    (iii) Occupies the subject property and uses at least 67 percent of 
the usable square footage for an eligible business purpose.
    (d) Project Financing. You are not permitted to finance a business 
if:
    (1) The assets of the business are to be reduced or consumed, 
generally without replacement, as the life of the business progresses, 
and the nature of the business requires that a stream of cash payments 
be made to the business's financing sources, on a basis associated with 
the continuing sale of assets. Examples include real estate development 
projects and oil and gas wells; or
    (2) The primary purpose of the Financing is to fund production of a 
single item or defined limited number of items, generally over a defined 
production period, and such production will constitute the majority of 
the activities of the Small Business. Examples include motion pictures 
and electric generating plants.
    (e) Farm land purchases. You are not permitted to finance the 
acquisition of farmland. Farmland means land, which is or is intended to 
be used for agricultural or forestry purposes, such as the production of 
food, fiber, or wood, or is so taxed or zoned.
    (f) Public interest. You are not permitted to finance any business 
if the proceeds are to be used for purposes contrary to the public 
interest, including but not limited to activities which

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are in violation of law, or inconsistent with free competitive 
enterprise.
    (g) Foreign investment. (1) General rule. You are not permitted to 
finance a business if:
    (i) The funds will be used substantially for a foreign operation; or
    (ii) At the time of the Financing or within one year thereafter, 
more than 49 percent of the employees or tangible assets of the Small 
Business are located outside the United States (unless you can show, to 
SBA's satisfaction, that the Financing was used for a specific domestic 
purpose).
    (2) Exception. This paragraph (g) does not prohibit a Financing used 
to acquire foreign materials and equipment or foreign property rights 
for use or sale in the United States.
    (h) Financing NMVC companies or SBICs. You are not permitted to 
provide funds, directly or indirectly, that the Small Business will use:
    (1) To purchase stock in or provide capital to a NMVC Company or 
SBIC; or
    (2) To repay an indebtedness incurred for the purpose of investing 
in a NMVC Company or SBIC.



Sec. 108.730  Financings which constitute conflicts of interest.

    (a) General rule. You must not self-deal to the prejudice of a Small 
Business, the NMVC Company, its shareholders or partners, or SBA. Unless 
you obtain a prior written exemption from SBA for special instances in 
which a Financing may further the purposes of the Act despite presenting 
a conflict of interest, you must not directly or indirectly:
    (1) Provide Financing to any of your Associates, except for a Small 
Business that satisfies all of the following conditions:
    (i) Your Associate relationship with the Small Business is described 
by paragraph (8) or (9) of the definition of Associate in Sec. 108.50;
    (ii) No Person triggering the Associate relationship identified in 
paragraph (a)(1)(i) of this section is a Close Relative or Secondary 
Relative of any Person described in paragraph (1), (2), (4), or (5) of 
the definition of Associate in Sec. 108.50; and
    (iii) No single Associate of yours has either a voting interest or 
an economic interest in the Small Business exceeding 20 percent, and no 
two or more of your Associates have either a voting interest or an 
economic interest exceeding 33 percent. Economic interests shall be 
computed on a fully diluted basis, and both voting and economic 
interests shall exclude any interest owned through the NMVC Company.
    (2) Provide Financing to an Associate of another NMVC Company if one 
of your Associates has received or will receive any direct or indirect 
Financing or a Commitment from that NMVC Company or a third NMVC Company 
(including Financing or Commitments received under any understanding, 
agreement, or cross dealing, reciprocal or circular arrangement).
    (3) Borrow money from:
    (i) A Small Business Financed by you;
    (ii) An officer, director, or owner of at least a 10 percent equity 
interest in such business; or
    (iii) A Close Relative of any such officer, director, or equity 
owner.
    (4) Provide Financing to a Small Business to discharge an obligation 
to your Associate or free other funds to pay such obligation. This 
paragraph (a)(4) does not apply if the obligation is to an Associate 
Lending Institution and is a line of credit or other obligation incurred 
in the normal course of business.
    (b) Rules applicable to Associates. Without SBA' s prior written 
approval, your Associates must not, directly or indirectly:
    (1) Borrow money from any Person described in paragraph (a)(3) of 
this section.
    (2) Receive from a Small Business any compensation in connection 
with Assistance you provide (except as permitted under Sec. 108.825(c)), 
or anything of value for procuring, attempting to procure, or 
influencing your action with respect to such Assistance.
    (c) Applicability of other laws. You are also bound by any 
restrictions in Federal or State laws governing conflicts of interest 
and fiduciary obligations.
    (d) Financings with Associates. (1) Financings with Associates 
requiring prior approval. Without SBA's prior

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written approval, you may not Finance any business in which your 
Associate has either a voting equity interest or total equity interests 
(including potential interests) of at least five percent, except as 
otherwise permitted under paragraph (a)(1) of this section.
    (2) Other Financings with Associates. If you and an Associate 
provide Financing to the same Small Business, either at the same time or 
at different times, you must be able to demonstrate to SBA's 
satisfaction that the terms and conditions are (or were) fair and 
equitable to you, taking into account any differences in the timing of 
each party's financing transactions.
    (3) Exceptions to paragraphs (d)(1) and (d)(2) of this section. A 
Financing that falls into one of the following categories is exempt from 
the prior approval requirement in paragraph (d)(1) of this section or is 
presumed to be fair and equitable to you for the purposes of paragraph 
(d)(2) of this section, as appropriate:
    (i) Your Associate is a Lending Institution that is providing 
financing under a credit facility in order to meet the operational needs 
of the Small Business, and the terms of such financing are usual and 
customary.
    (ii) Your Associate invests in the Small Business on the same terms 
and conditions and at the same time as you.
    (iii) Both you and your Associate are NMVC companies.
    (e) Use of Associates to manage Portfolio Concerns. To protect your 
investment, you may designate an Associate to serve as an officer, 
director, or other participant in the management of a Small Business. 
You must identify any such Associate in your records available for SBA's 
review under Sec. 108.600. Without SBA's prior written approval, the 
Associate must not:
    (1) Have any other direct or indirect financial interest in the 
Portfolio Concern that exceeds, or has the potential to exceed, the 
percentages of the Portfolio Concern's equity set forth in paragraph 
(a)(1) of this section.
    (2) Receive any income or anything of value from the Portfolio 
Concern unless it is for your benefit, with the exception of director's 
fees, expenses, and distributions based upon the Associate's ownership 
interest in the Concern.
    (f) 1940 and 1980 Act Companies: SEC exemptions. If you are a 1940 
or 1980 Act Company and you receive an exemption from the Securities and 
Exchange Commission for a transaction described in this section, you 
need not obtain SBA's approval of the transaction. However, you must 
promptly notify SBA of the transaction.
    (g) Restriction on options obtained by NMVC Company's management and 
employees. Your employees, officers, directors, managing members or 
general partners, or the general partners of the management company that 
is providing services to you or to your general partner, may obtain 
options in a Financed Small Business only if:
    (1) They participate in the Financing on a pari passu basis with 
you; or
    (2) SBA gives its prior written approval; or
    (3) The options received are compensation for service as a member of 
the board of directors of the Small Business, and such compensation does 
not exceed that paid to other outside directors. In the absence of such 
directors, fees must be reasonable when compared with amounts paid to 
outside directors of similar companies.



Sec. 108.740  Portfolio diversification (``overline'' limitation).

    (a) Without SBA's prior written approval, you may provide Financing 
or a Commitment to a Small Business only if the resulting amount of your 
aggregate outstanding Financings and Commitments to such Small Business 
and its Affiliates does not exceed 20 percent of the sum of:
    (1) Your Regulatory Capital as of the date of the Financing or 
Commitment; plus
    (2) Any permitted Distribution(s) you made during the five years 
preceding the date of the Financing or Commitment which reduced your 
Regulatory Capital.
    (b) For the purposes of paragraph (a) of this section, you must 
measure each outstanding Financing at its current cost plus any amount 
of the Financing that was previously written off.

[[Page 124]]



Sec. 108.760  How a change in size or activity of a Portfolio Concern affects the NMVC Company and the Portfolio Concern.

    (a) Effect on NMVC Company of a change in size of a Portfolio 
Concern. If a Portfolio Concern no longer qualifies as a Small Business 
you may keep your investment in the concern and:
    (1) Subject to the overline limitations of Sec. 108.740, you may 
provide additional Financing to the concern up to the time it makes a 
public offering of its securities.
    (2) Even after the concern makes a public offering, you may exercise 
any stock options, warrants, or other rights to purchase Equity 
Securities which you acquired before the public offering, or fund 
Commitments you made before the public offering.
    (b) Effect of a change in business activity occurring within one 
year of NMVC Company's initial Financing. (1) Retention of Investment. 
Unless you receive SBA's written approval, you may not keep your 
investment in a Portfolio Concern, small or otherwise, which becomes 
ineligible by reason of a change in its business activity within one 
year of your initial investment.
    (2) Request for SBA 's approval to retain investment. If you request 
that SBA approve the retention of your investment, your request must 
include sufficient evidence to demonstrate that the change in business 
activity was caused by an unforeseen change in circumstances and was not 
contemplated at the time the Financing was made.
    (3) Additional Financing. If SBA approves your request to retain an 
investment under paragraph (b)(2) of this section, you may provide 
additional Financing to the Portfolio Concern to the extent necessary to 
protect against the loss of the amount of your original investment, 
subject to the overline limitations of Sec. 108.740.
    (c) Effect of a change in business activity occurring more than one 
year after the initial Financing. If a Portfolio Concern becomes 
ineligible because of a change in business activity more than one year 
after your initial Financing you may:
    (1) Retain your investment; and
    (2) Provide additional Financing to the Portfolio Concern to the 
extent necessary to protect against the loss of the amount of your 
original investment, subject to the overline limitations of 
Sec. 108.740.

    Structuring NMVC Company's Financing of Eligible Small Businesses



Sec. 108.800  Financings in the form of equity interests.

    You may not, inadvertently or otherwise:
    (a) Become a general partner in any unincorporated business; or
    (b) Become jointly or severally liable for any obligations of an 
unincorporated business.



Sec. 108.820  Financings in the form of guarantees.

    (a) General rule. At the request of a Small Business or where 
necessary to protect your existing investment, you may guarantee the 
monetary obligation of a Small Business to any non-Associate creditor.
    (b) Exception. You may not issue a guaranty if:
    (1) You would become subject to State regulation as an insurance, 
guaranty or surety business; or
    (2) The amount of the guaranty plus any direct Financings to the 
Small Business exceed the overline limitations of Sec. 108.740, except 
that a pledge of the Equity Securities of the issuer or a subordination 
of your lien or creditor position does not count toward your overline.
    (c) Pledge of NMVC Company's assets as guaranty. For purposes of 
this section, a guaranty with recourse only to specific asset(s) you 
have pledged is equal to the fair market value of such asset(s) or the 
amount of the debt guaranteed, whichever is less.



Sec. 108.825  Purchasing securities from an underwriter or other third party.

    (a) Securities purchased through or from an underwriter. You may 
purchase the securities of a Small Business through or from an 
underwriter if:
    (1) You purchase such securities within 90 days of the date the 
public offering is first made;

[[Page 125]]

    (2) Your purchase price is no more than the original public offering 
price; and
    (3) The amount paid by you for the securities (less ordinary and 
reasonable underwriting charges and commissions) has been, or will be, 
paid to the Small Business, and the underwriter certifies in writing 
that this requirement has been met.
    (b) Recordkeeping requirements. You must keep records available for 
SBA's inspection which show the relevant details of the transaction, 
including, but not limited to, date, price, commissions, and the 
underwriter's certifications required under paragraphs (a)(3) and (c) of 
this section.
    (c) Underwriter's requirements. The underwriter must certify whether 
it is your Associate. You may pay reasonable and customary commissions 
and expenses to an Associate underwriter for the portion of an offering 
that you purchase.
    (d) Securities purchased from another NMVC Company or from SBA. You 
may purchase from, or exchange with, another NMVC Company, Portfolio 
securities (or any interest therein). Such purchase or exchange may only 
be made on a non-recourse basis. You may not have more than one-third of 
your total assets (valued at cost) invested in such securities. If you 
have previously sold Portfolio securities (or any interest therein) on a 
recourse basis, you shall include the amount for which you may be 
contingently liable in your overline computation.
    (e) Purchases of securities from other non-issuers. You may purchase 
securities of a Small Business from a non-issuer not previously 
described in this section if such acquisition is a reasonably necessary 
part of the overall sound Financing of the Small Business.

                  Limitations on Disposition of Assets



Sec. 108.885  Disposition of assets to NMVC Company's Associates.

    Except with SBA's prior written approval, you are not permitted to 
dispose of assets (including assets acquired in liquidation) to any 
Associate. As a prerequisite to such approval, you must demonstrate that 
the proposed terms of disposal are at least as favorable to you as the 
terms obtainable elsewhere.

                      Management Services and Fees



Sec. 108.900  Fees for management services provided to a Small Business by a NMVC Company or its Associate.

    (a) General. This section applies to management services that you or 
your Associate provide to a Small Business during the term of a 
Financing or prior to a Financing. It does not apply to management 
services that your Associate provides to a Small Business that you do 
not finance. It also does not apply to Operational Assistance that you 
or your Associate provide to a Smaller Enterprise that you have Financed 
or in which you expect to make a Financing, for which neither you nor 
your Associate may charge the Smaller Enterprise.
    (b) SBA approval. You must obtain SBA's prior written approval of 
any management services fees and other fees described in this section 
that you or your Associate charge.
    (c) Permitted management services fees. You or your Associate may 
provide management services to a Small Business financed by you if:
    (1) You or your Associate have entered into a written contract with 
the Small Business;
    (2) The fees charged are for services actually performed;
    (3) Services are provided on an hourly fee, project fee, or other 
reasonable basis;
    (4) You can demonstrate to SBA, upon request, that the rate does not 
exceed the prevailing rate charged for comparable services by other 
organizations in the geographic area of the Small Business; and
    (5) At least 50 percent of any management services fees paid to your 
Associate by a Small Business for management services provided by the 
Associate is allocated back to you for your benefit.
    (d) Fees for service as a board member. You or your Associate may 
charge a Small Business Financed by you for services provided as members 
of the Small Business' board of directors. The fees must not exceed 
those paid to other outside board members. In the

[[Page 126]]

absence of such board members, fees must be reasonable when compared 
with amounts paid to outside directors of similar companies. Fees may be 
in the form of cash, warrants, or other payments. At least 50 percent of 
any such fees paid to your Associate by a Small Business for service by 
the Associate as a board member must be allocated back to you for your 
benefit.
    (e) Transaction fees. (1) You or your Associate may charge 
reasonable transaction fees for work performed such as preparing a Small 
Business for a public offering, private offering, or sale of all or part 
of the business, and for assisting with the transaction. Fees may be in 
the form of cash, notes, stock, and/or options. At least 50 percent of 
any such fees paid to your Associate by a Small Business for 
transactions work done by the Associate must be allocated back to you 
for your benefit.
    (2) Your Associate may charge market rate investment banking fees to 
a Small Business on that portion of a Financing that you do not provide.
    (f) Recordkeeping requirements. You must keep a record of hours 
spent and amounts charged to the Small Business, including expenses 
charged.

[67 FR 68503, Nov. 12, 2002]



    Subpart J--SBA Financial Assistance for NMVC Companies (Leverage)

              General Information About Obtaining Leverage



Sec. 108.1100  Type of Leverage and application procedures.

    (a) Type of Leverage available. You may apply for Leverage from SBA 
in the form of a guarantee of your Debentures.
    (b) Applying for Leverage. The Leverage application process has two 
parts. You must first apply for SBA's conditional commitment to reserve 
a specific amount of Leverage for your future use. You may then apply to 
draw down Leverage against the commitment. See Secs. 108.1200 through 
108.1240.
    (c) Where to send your application. Send all Leverage applications 
to SBA, Investment Division Office of New Markets Venture Capital, 409 
Third Street, SW., Washington, DC 20416.



Sec. 108.1120  General eligibility requirement for Leverage.

    To be eligible for Leverage, you must be in compliance with the Act, 
the regulations in this part, and your Participation Agreement.



Sec. 108.1130  Leverage fees payable by NMVC Company.

    There is no fee for the issuance of Debentures by a NMVC Company.



Sec. 108.1140  NMVC Company's acceptance of SBA remedies under Sec. 108.1810.

    If you issue Leverage, you automatically agree to the terms and 
conditions in Sec. 108.1810 as it exists at the time of issuance. The 
effect of these terms and conditions is the same as if they were fully 
incorporated in the terms of your Leverage.

     Maximum Amount of Leverage for Which a NMVC Company Is Eligible



Sec. 108.1150  Maximum amount of Leverage for a NMVC Company.

    The face amount of a NMVC Company's outstanding Debentures may not 
exceed 150 percent of its Leverageable Capital.

  Conditional Commitments by SBA To Reserve Leverage for a NMVC Company



Sec. 108.1200  SBA's Leverage commitment to a NMVC Company--application procedure, amount, and term.

    (a) General. Under the provisions in Secs. 108.1200 through 
108.1240, you may apply for SBA's conditional commitment to reserve a 
specific amount and type of Leverage for your future use. You may then 
apply to draw down Leverage against the commitment.
    (b) Applying for a Leverage commitment. SBA will notify you when it 
is accepting requests for Leverage commitments. Upon receipt of your 
request, SBA will send you a complete application package.
    (c) Limitations on the amount of a Leverage commitment. The amount 
of a Leverage commitment must be a multiple of $5,000. SBA, in its 
discretion, may

[[Page 127]]

determine a minimum dollar amount for Leverage commitments. Any such 
minimum amounts will be published in Notices in the Federal Register 
from time to time.
    (d) Term of Leverage commitment. SBA's Leverage commitment will 
automatically lapse on the expiration date stated in the commitment 
letter issued to you by SBA.



Sec. 108.1220  Requirement for NMVC Company to file financial statements at the time of request for a draw.

    (a) If you submit a request for a draw against SBA's Leverage 
commitment more than 90 days since your submission of an annual Form 468 
or a Form 468 (Short Form), you must:
    (1) Give SBA a financial statement on Form 468 (Short Form); and
    (2) File a statement of no material adverse change in your financial 
condition since your last filing of Form 468.
    (b) You will not be eligible for a draw if you are not in compliance 
with this section.



Sec. 108.1230  Draw-downs by NMVC Company under SBA's Leverage commitment.

    (a) NMVC Company's authorization of SBA to guarantee securities. By 
submitting a request for a draw against SBA's Leverage commitment, you 
authorize SBA, or any agent or trustee SBA designates, to guarantee your 
Debenture and to sell it with SBA's guarantee.
    (b) Limitations on amount of draw. The amount of a draw must be a 
multiple of $5,000. SBA, in its discretion, may determine a minimum 
dollar amount for draws against SBA's Leverage commitments. Any such 
minimum amounts will be published in Notices in the Federal Register 
from time to time.
    (c) Effect of regulatory violations on NMVC Company's eligibility 
for draws. (1) General rule. You are eligible to make a draw against 
SBA's Leverage commitment only if you are in compliance with all 
applicable provisions of the Act and SBA regulations (i.e., no 
unresolved statutory or regulatory violations) and your Participation 
Agreement.
    (2) Exception to general rule. If you are not in compliance, you may 
still be eligible for draws if:
    (i) SBA determines that your outstanding violations are of non-
substantive provisions of the Act or regulations or your Participation 
Agreement and that you have not repeatedly violated any non-substantive 
provisions; or
    (ii) You have agreed with SBA on a course of action to resolve your 
violations and such agreement does not prevent you from issuing 
Leverage.
    (d) Procedures for funding draws. You may request a draw at any time 
during the term of the commitment. With each request, submit the 
following documentation:
    (1) A statement certifying that there has been no material adverse 
change in your financial condition since your last filing of SBA Form 
468 (see also Sec. 108.1220 for SBA Form 468 filing requirements).
    (2) If your request is submitted more than 30 days following the end 
of your fiscal year, but before you have submitted your annual filing of 
SBA Form 468 (Long Form) in accordance with Sec. 108.630(a), a 
preliminary unaudited annual financial statement on SBA Form 468 (Short 
Form).
    (3) A statement certifying that to the best of your knowledge and 
belief, you are in compliance with all provisions of the Act and SBA 
regulations (i.e., no unresolved regulatory or statutory violations) and 
your Participation Agreement, or a statement listing any specific 
violations you are aware of. Either statement must be executed by one of 
the following:
    (i) An officer of the NMVC Company;
    (ii) An officer of a corporate general partner of the NMVC Company;
    (iii) An individual who is authorized to act as or for a general 
partner of the NMVC Company; or
    (iv) An individual who is authorized to act as or for a member-
manager of the NMVC Company.
    (4) A statement that the proceeds are needed to fund one or more 
particular Small Businesses or to provide liquidity for your operations. 
If required by SBA, the statement must include the name and address of 
each Small Business, and the amount and anticipated closing date of each 
proposed Financing.

[[Page 128]]

    (e) Reporting requirements after drawing funds. (1) Within 30 
calendar days after the actual closing date of each Financing funded 
with the proceeds of your draw, you must file an SBA Form 1031 
confirming the closing of the transaction.
    (2) If SBA required you to provide information concerning a specific 
planned Financing under paragraph (d)(4) of this section, and such 
Financing has not closed within 60 calendar days after the anticipated 
closing date, you must give SBA a written explanation of the failure to 
close.
    (3) If you do not comply with this paragraph (e), you will not be 
eligible for additional draws. SBA may also determine that you are not 
in compliance with the terms of your Leverage under Sec. 108.1810.



Sec. 108.1240  Funding of NMVC Company's draw request through sale to third-party.

    (a) NMVC Company's authorization of SBA to arrange sale of 
securities to third-party. By submitting a request for a draw of 
Debenture Leverage, you authorize SBA, or any agent or trustee SBA 
designates, to enter into any agreements (and to bind you to such 
agreements) necessary to accomplish:
    (1) The sale of your Debenture to a third-party at a rate approved 
by SBA; and
    (2) The purchase of your security from the third-party and the 
pooling of your security with other securities with the same maturity 
date.
    (b) Sale of Debentures to a third-party. If SBA arranges for the 
sale of your Debenture to a third-party, the sale price may be an amount 
discounted from the face amount of the Debenture.

 Funding Leverage by use of SBA Guaranteed Trust Certificates (``TCs'')



Sec. 108.1600  SBA authority to issue and guarantee Trust Certificates.

    (a) Authorization. Section 356 of the Act authorizes SBA to issue 
TCs and to guarantee the timely payment of the principal and interest 
thereon. Any guarantee by SBA of such TC is limited to the principal and 
interest due on the Debentures in any Trust or Pool backing such TC. The 
full faith and credit of the United States is pledged to the payment of 
all amounts due under the guarantee of any TC.
    (b) SBA authority to arrange public or private fundings of Leverage. 
SBA in its discretion may arrange for public or private financing under 
its guarantee authority. Such financing arranged by SBA may be 
accomplished by the sale of individual Debentures, aggregations of 
Debentures, or Pools or Trusts of Debentures.
    (c) Pass-through provisions. TCs shall provide for a pass-through to 
their holders of all amounts of principal and interest paid on the 
Debentures in the Pool or Trust against which they are issued.
    (d) Formation of a Pool or Trust holding Leverage Securities. SBA 
shall approve the formation of each Pool or Trust. SBA may, in its 
discretion, establish the size of the Pools and their composition, the 
interest rate on the TCs issued against Trusts or Pools, fees, 
discounts, premiums and other charges made in connection with the Pools, 
Trusts, and TCs, and any other characteristics of a Pool or Trust it 
deems appropriate.



Sec. 108.1610  Effect of prepayment or early redemption of Leverage on a Trust Certificate.

    (a) The rights, if any, of a NMVC Company to prepay any Debenture is 
established by the terms of such security, and no such right is created 
or denied by the regulations in this part.
    (b) SBA's rights to purchase or prepay any Debenture without premium 
are established by the terms of the Guaranty Agreement relating to the 
Debenture.
    (c) Any prepayment of a Debenture pursuant to the terms of the 
Guaranty Agreement relating to such security shall reduce the SBA 
guarantee of timely payment of principal and interest on a TC in 
proportion to the amount of principal that such prepaid Debenture 
represents in the Trust or Pool backing such TC.
    (d) SBA shall be discharged from its guarantee obligation to the 
holder or holders of any TC, or any successor or transferee of such 
holder, to the extent of any such prepayment. whether or

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not such successor or transferee shall have notice of any such 
prepayment.
    (e) Interest on prepaid Debentures shall accrue only through the 
date of prepayment.
    (f) In the event that all Debentures constituting a Trust or Pool 
are prepaid, the TCs backed by such Trust or Pool shall be redeemed by 
payment of the unpaid principal and interest on the TCs; provided, 
however, that in the case of the prepayment of a Debenture pursuant to 
the provisions of the Guaranty Agreement relating to the Debenture, the 
CRA shall pass through pro rata to the holders of the TCs any such 
prepayments including any prepayment penalty paid by the obligor NMVC 
Company pursuant to the terms of the Debenture.



Sec. 108.1620  Functions of agents, including Central Registration Agent, Selling Agent and Fiscal Agent.

    (a) Agents. SBA may appoint or cause to be appointed agent(s) to 
perform functions necessary to market and service Debentures or TCs 
pursuant to this part.
    (1) Selling Agent. As a condition of guaranteeing a Debenture, SBA 
may cause each NMVC Company to appoint a Selling Agent to perform 
functions that include, but are not limited to:
    (i) Selecting qualified entities to become pool or Trust assemblers 
(``Poolers'').
    (ii) Receiving guaranteed Debentures as well as negotiating the 
terms and conditions of sales or periodic offerings of Debentures and/or 
TCs on behalf of NMVC companies.
    (iii) Directing and coordinating periodic sales of Debentures and/or 
TCs.
    (iv) Arranging for the production of Offering Circulars, 
certificates, and such other documents as may be required from time to 
time.
    (2) Fiscal Agent. SBA shall appoint a Fiscal Agent to:
    (i) Establish performance criteria for Poolers.
    (ii) Monitor and evaluate the financial markets to determine those 
factors that will minimize or reduce the cost of funding Debentures.
    (iii) Monitor the performance of the Selling Agent, Poolers, CRA, 
and the Trustee.
    (iv) Perform such other functions as SBA, from time to time, may 
prescribe.
    (3) Central Registration Agent. Pursuant to a contract entered into 
with SBA, the CRA, as SBA's agent, will do the following with respect to 
the Pools or Trust Certificates for the Debentures:
    (i) Form an SBA-approved Pool or Trust;
    (ii) Issue the TCs in the form prescribed by SBA;
    (iii) Transfer the TCs upon the sale of original issue TCs in any 
secondary market transaction;
    (iv) Receive payments from NMVC companies;
    (v) Make periodic payments as scheduled or required by the terms of 
the TCs, and pay all amounts required to be paid upon prepayment of 
Debentures;
    (vi) Hold, safeguard, and release all Debentures constituting Trusts 
or Pools upon instructions from SBA;
    (vii) Remain custodian of such other documentation as SBA shall 
direct by written instructions;
    (viii) Provide for the registration of all pooled Debentures, all 
Pools and Trusts, and all TCs;
    (ix) Perform such other functions as SBA may deem necessary to 
implement the provisions of this section.
    (b) Functions. Either SBA or an agent appointed by SBA may perform 
the function of locating purchasers, and negotiating and closing the 
sale of Debentures and TCs. Nothing in the regulations in this part 
shall be interpreted to prevent the CRA from acting as SBA's agent for 
this purpose.



Sec. 108.1630  SBA regulation of Brokers and Dealers and disclosure to purchasers of Leverage or Trust Certificates.

    (a) Brokers and Dealers. Each broker, dealer, and Pool or Trust 
assembler approved by SBA pursuant to these regulations shall either be 
regulated by a Federal financial regulatory agency, or be a member of 
the National Association of Securities Dealers (NASD), and shall be in 
good standing in respect to compliance with the financial, ethical, and 
reporting requirements of such body. They also shall be in good standing 
with SBA as determined by the

[[Page 130]]

SBA Associate Administrator for Investment (see paragraph (c) of this 
section) and shall provide a fidelity bond or insurance in such amount 
as SBA may require.
    (b) Suspension and/or termination of Broker or Dealer. SBA shall 
exclude from the sale and all other dealings in Debentures or TCs any 
broker or dealer:
    (1) If such broker's or dealer's authority to engage in the 
securities business has been revoked or suspended by a supervisory 
agency. When such authority has been suspended, SBA will suspend such 
broker or dealer for the duration of such suspension by the supervisory 
agency.
    (2) If such broker or dealer has been indicted or otherwise formally 
charged with a misdemeanor or felony bearing on its fitness, such broker 
or dealer may be suspended while the charge is pending. Upon conviction, 
participation may be terminated.
    (3) If such broker or dealer has suffered an adverse final civil 
judgment holding that such broker or dealer has committed a breach of 
trust or violation of law or regulation protecting the integrity of 
business transactions or relationships, participation in the market for 
Debentures or TCs may be terminated.
    (c) Termination/suspension proceedings. A broker's or dealer's 
participation in the market for Debentures or TCs will be conducted in 
accordance with part 134 of this chapter. SBA may, for any of the 
reasons stated in paragraphs (b)(1) through (b)(3) of this section, 
suspend the privilege of any broker or dealer to participate in this 
market. SBA shall give written notice at least ten (10) business days 
prior to the effective date of such suspension. Such notice shall inform 
the broker or dealer of the opportunity for a hearing pursuant to part 
134 of this chapter.



Sec. 108.1640  SBA access to records of the CRA, Brokers, Dealers and Pool or Trust assemblers.

    The CRA and any broker, dealer and Pool or Trust assembler operating 
under the regulations in this part shall make all books, records and 
related materials associated with Debentures and TCs available to SBA 
for review and copying purposes. Such access shall be at such party's 
primary place of business during normal business hours.

                              Miscellaneous



Sec. 108.1700  Transfer by SBA of its interest in a NMVC Company's Leverage security.

    Upon such conditions and for such consideration as it deems 
reasonable, SBA may sell, assign, transfer, or otherwise dispose of any 
Debenture held by or on behalf of SBA. Upon notice by SBA, a NMVC 
Company will make all payments of principal and interest as shall be 
directed by SBA. A NMVC Company will be liable for all damage or loss 
which SBA may sustain by reason of such disposal, up to the amount of 
the NMVC Company's liability under such security, plus court costs and 
reasonable attorney's fees incurred by SBA.



Sec. 108.1710  SBA authority to collect or compromise its claims.

    SBA may, upon such conditions and for such consideration as it deems 
reasonable, collect or compromise all claims relating to obligations 
held or guaranteed by SBA, and all legal or equitable rights accruing to 
SBA.



Sec. 108.1720  Characteristics of SBA's guarantee.

    If SBA agrees to guarantee a NMVC Company's Debentures, such 
guarantee will be unconditional, irrespective of the validity, 
regularity or enforceability of the Debentures or any other 
circumstances that might constitute a legal or equitable discharge or 
defense of a guarantor. Pursuant to its guarantee, SBA will make timely 
payments of principal and interest on the Debentures.



     Subpart K--NMVC Company's Noncompliance With Terms of Leverage



Sec. 108.1810  Events of default and SBA's remedies for NMVC Company's noncompliance with terms of Debentures.

    (a) Applicability of this section. By issuing Debentures, you 
automatically

[[Page 131]]

agree to the terms, conditions and remedies in this section, as in 
effect at the time of issuance and as if fully set forth in the 
Debentures.
    (b) Automatic events of default. The occurrence of one or more of 
the events in this paragraph (b) causes the remedies in paragraph (c) of 
this section to take effect immediately.
    (1) Insolvency. You become equitably or legally insolvent.
    (2) Voluntary assignment. You make a voluntary assignment for the 
benefit of creditors without SBA's prior written approval.
    (3) Bankruptcy. You file a petition to begin any bankruptcy or 
reorganization proceeding, receivership, dissolution or other similar 
creditors' rights proceeding, or such action is initiated against you 
and is not dismissed within 60 days.
    (c) SBA remedies for automatic events of default. Upon the 
occurrence of one or more of the events in paragraph (b) of this 
section:
    (1) Without notice, presentation or demand, the entire indebtedness 
evidenced by your Debentures, including accrued interest, and any other 
amounts owed SBA with respect to your Debentures, is immediately due and 
payable; and
    (2) You automatically consent to the appointment of SBA or its 
designee as your receiver under section 363(c) of the Act.
    (d) Events of default with notice. For any occurrence (as determined 
by SBA) of one or more of the events in this paragraph (d), SBA may 
avail itself of one or more of the remedies in paragraph (e) of this 
section.
    (1) Fraud. You commit a fraudulent act that causes detriment to 
SBA's position as a creditor or guarantor.
    (2) Fraudulent transfers. You make any transfer or incur any 
obligation that is fraudulent under the terms of 11 U.S.C. 548.
    (3) Willful conflicts of interest. You willfully violate 
Sec. 108.730.
    (4) Willful non-compliance. You willfully violate one or more of the 
substantive provisions of the Act or any substantive regulation 
promulgated under the Act or any substantive provision of your 
Participation Agreement.
    (5) Repeated Events of Default. At any time after being notified by 
SBA of the occurrence of an event of default under paragraph (f) of this 
section, you engage in similar behavior that results in another 
occurrence of the same event of default.
    (6) Transfer of Control. You willfully violate Sec. 108.410, and as 
a result of such violation you undergo a transfer of Control.
    (7) Non-cooperation under paragraph (h) of this section. You fail to 
take appropriate steps, satisfactory to SBA, to accomplish any action 
SBA may have required under paragraph (h) of this section.
    (8) Non-notification of Events of Default. You fail to notify SBA as 
soon as you know or reasonably should have known that any event of 
default exists under this section.
    (9) Non-notification of defaults to others. You fail to notify SBA 
in writing within ten days from the date of a declaration of an event of 
default or nonperformance under any note, debenture or indebtedness of 
yours, issued to or held by anyone other than SBA.
    (e) SBA remedies for events of default with notice. Upon written 
notice to you of the occurrence (as determined by SBA) of one or more of 
the events in paragraph (d) of this section:
    (1) SBA may declare the entire indebtedness evidenced by your 
Debentures, including accrued interest. and/or any other amounts owed 
SBA with respect to your Debentures, immediately due and payable; and
    (2) SBA may avail itself of any remedy available under the Act, 
specifically including institution of proceedings for the appointment of 
SBA or its designee as your receiver under section 363 (c) of the Act.
    (f) Events of default with opportunity to cure. For any occurrence 
(as determined by SBA) of one or more of the events in this paragraph 
(f), SBA may avail itself of one or more of the remedies in paragraph 
(g) of this section.
    (1) Excessive Management Expenses. Without the prior written consent 
of SBA, you incur Management Expenses in excess of those permitted under 
Secs. 108.510 and 108.520.
    (2) Improper Distributions. You make any Distribution to your 
shareholders

[[Page 132]]

or partners, except with the prior written consent of SBA, other than:
    (i) Distributions permitted under Sec. 108.585; and
    (ii) Payments from Retained Earnings Available for Distribution 
based on either the shareholders' or members' pro-rata interests or the 
provisions for profit distributions in your partnership agreement, as 
appropriate.
    (3) Failure to make payment. Unless otherwise approved by SBA, you 
fail to make timely payment of any amount due under any security or 
obligation of yours that is issued to, held or guaranteed by SBA.
    (4) Failure to maintain Regulatory Capital. You fail to maintain the 
minimum Regulatory Capital required under these regulations or, without 
the prior written consent of SBA, you reduce your Regulatory Capital 
except as permitted by Sec. 108.585.
    (5) Capital Impairment. You have a condition of Capital Impairment 
as determined under Sec. 108.1830.
    (6) Cross-default. An obligation of yours that is greater than 
$100,000 becomes due or payable (with or without notice) before its 
stated maturity date, for any reason including your failure to pay any 
amount when due. This provision does not apply if you pay the amount due 
within any applicable grace period or contest the payment of the 
obligation in good faith by appropriate proceedings.
    (7) Nonperformance. You violate or fail to perform one or more of 
the terms and conditions of any security or obligation of yours that is 
issued to, held or guaranteed by SBA, or of any agreement (including 
your Participation Agreement) with or conditions imposed by SBA in its 
administration of the Act and the regulations promulgated under the Act.
    (8) Noncompliance. Except as otherwise provided in paragraph (d) (5) 
of this section, SBA determines that you have violated one or more of 
the substantive provisions of the Act or any substantive regulation 
promulgated under the Act.
    (9) Failure to maintain diversity. You fail to maintain diversity 
between management and ownership as required by Sec. 108.150.
    (g) SBA remedies for events of default with opportunity to cure. (1) 
Upon written notice to you of the occurrence (as determined by SBA) of 
one or more of the events of default in paragraph (f) of this section, 
and subject to the conditions in paragraph (g)(2) of this section:
    (i) SBA may declare the entire indebtedness evidenced by your 
Debentures, including accrued interest, and/ or any other amounts owed 
SBA with respect to your Debentures, immediately due and payable; and
    (ii) SBA may avail itself of any remedy available under the Act, 
specifically including institution of proceedings for the appointment of 
SBA or its designee as your receiver under section 363(c) of the Act.
    (2) SBA may invoke the remedies in paragraph (g)(l) of this section 
only if:
    (i) It has given you at least 15 days to cure the default(s); and
    (ii) You fail to cure the default(s) to SBA's satisfaction within 
the allotted time.
    (h) Repeated non-substantive violations. If you repeatedly fail to 
comply with one or more of the non-substantive provisions of the Act or 
any non-substantive regulation promulgated under the Act, SBA, after 
written notification to you and until you cure such condition to SBA's 
satisfaction, may deny you additional Leverage and/or require you to 
take such actions as SBA may determine to be appropriate under the 
circumstances.
    (i) Consent to removal of officers, directors, or general partners 
and/or appointment of receiver. The Articles of each NMVC Company must 
include the following provisions as a condition to the purchase or 
guarantee by SBA of Leverage. Upon the occurrence of any of the events 
specified in paragraphs (d)(1) through (d)(6) or (f)(1) through (f)(3) 
of this section as determined by SBA, SBA shall have the right, and you 
consent to SBA's exercise of such right:
    (1) With respect to a Corporate NMVC Company, upon written notice, 
to require you to replace, with individuals approved by SBA, one or more 
of your officers and/or such number of directors of your board of 
directors as is sufficient to constitute a majority of such board; or

[[Page 133]]

    (2) With respect to a Partnership NMVC Company or an LLC NMVC 
Company, upon written notice, to require you to remove the person(s) 
responsible for such occurrence and/or to remove the general partner or 
manager of the NMVC Company, which general partner or manager shall then 
be replaced in accordance with NMVC Company's Articles by a new general 
partner or manager approved by SBA; and/or
    (3) With respect to a Corporate or Partnership or LLC NMVC Company, 
to obtain the appointment of SBA or its designee as your receiver under 
section 363(c) of the Act for the purpose of continuing your operations. 
The appointment of a receiver to liquidate a NMVC Company is not within 
such consent, but is governed instead by the relevant provisions of the 
Act.

            Computation of NMVC Company's Capital Impairment



Sec. 108.1830  NMVC Company's Capital Impairment definition and general requirements.

    (a) Significance of Capital Impairment condition. If you have a 
condition of Capital Impairment, you are not in compliance with the 
terms of your Leverage. As a result, SBA has the right to impose the 
applicable remedies for noncompliance in Sec. 108.1810(g).
    (b) Definition of Capital Impairment condition. You have a condition 
of Capital Impairment if your Capital Impairment Percentage, as computed 
in Sec. 108.1840, exceeds 70 percent.
    (c) Quarterly computation requirement and procedure. You must 
determine whether you have a condition of Capital Impairment as of the 
end of each fiscal quarter. You must notify SBA promptly if you are 
capitally impaired.
    (d) SBA's right to determine NMVC Company's Capital Impairment 
condition. SBA may make its own determination of your Capital Impairment 
condition at any time.



Sec. 108.1840  Computation of NMVC Company's Capital Impairment Percentage.

    (a) General. This section contains the procedures you must use to 
determine your Capital Impairment Percentage. You must compare your 
Capital Impairment Percentage to the maximum permitted under 
Sec. 108.1830(b) to determine whether you have a condition of Capital 
Impairment.
    (b) Preliminary impairment test. If you satisfy the preliminary 
impairment test, your Capital Impairment Percentage is zero and you do 
not have to perform any more procedures in this section. Otherwise, you 
must continue with paragraph (c) of this section. You satisfy the test 
if the following amounts are both zero or greater:
    (1) The sum of Undistributed Net Realized Earnings, as reported on 
SBA Form 468, and Includible Non-Cash Gains.
    (2) Unrealized Gain (Loss) on Securities Held.
    (c) How to compute your Capital Impairment Percentage. (1) If you 
have an Unrealized Gain on Securities Held, compute your Adjusted 
Unrealized Gain using paragraph (d) of this section. If you have an 
Unrealized Loss on Securities Held, continue with paragraph (c)(2) of 
this section.
    (2) Add together your Undistributed Net Realized Earnings, your 
Includible Non-cash Gains, and either your Unrealized Loss on Securities 
Held or your Adjusted Unrealized Gain.
    (3) If the sum in paragraph (c)(2) of this section is zero or 
greater, your Capital Impairment Percentage is zero.
    (4) If the sum in paragraph (c)(2) of this section is less than 
zero, drop the negative sign, divide by your Regulatory Capital 
(excluding Treasury Stock), and multiply by 100. The result is your 
Capital Impairment Percentage.
    (d) How to compute your Adjusted Unrealized Gain. (1) Subtract 
Unrealized Depreciation from Unrealized Appreciation. This is your ``Net 
Appreciation''.
    (2) Determine your Unrealized Appreciation on Publicly Traded and 
Marketable securities. This is your ''Class I Appreciation''.
    (3) Determine your Unrealized Appreciation on securities that are 
not Publicly Traded and Marketable and meet the following criteria, 
which must be substantiated to the satisfaction of SBA (this is your 
``Class 2 Appreciation''):

[[Page 134]]

    (i) The Small Business that issued the security received a 
significant subsequent equity financing by an investor whose objectives 
were not primarily strategic and at a price that conclusively supports 
the Unrealized Appreciation;
    (ii) Such financing represents a substantial investment in the form 
of an arm's length transaction by a sophisticated new investor in the 
issuer's securities; and
    (iii) Such financing occurred within 24 months of the date of the 
Capital Impairment computation, or the Small Business' pre-tax cash flow 
from operations for its most recent fiscal year was at least 10 percent 
of the Small Business' average contributed capital for such fiscal year.
    (4) Perform the appropriate computation from the table in 
Sec. 107.1840(d)(4) of this chapter.
    (5) Reduce the gain computed in paragraph (d) (4) of this section by 
your estimate of related future income tax expense. Subject to any 
adjustment required by paragraph (d)(6) of this section, the result is 
your Adjusted Unrealized Gain for use in paragraph (c)(2) of this 
section.
    (6) If any securities that are the source of either Class 1 or Class 
2 Appreciation are pledged or encumbered in any way, you must reduce the 
Adjusted Unrealized Gain computed in paragraph (d)(5) of this section by 
the amount of the related borrowing or other obligation, up to the 
amount of the Unrealized Appreciation on the securities.



             Subpart L--Ending Operations as a NMVC Company



Sec. 108.1900  Termination of participation as a NMVC Company.

    You may not terminate your participation as a NMVC Company without 
SBA's prior written approval. Your request for approval must be 
accompanied by an offer of immediate repayment of all of your 
outstanding Leverage (including any prepayment penalties thereon), or by 
a plan satisfactory to SBA for the orderly liquidation of the NMVC 
Company.



                        Subpart M--Miscellaneous



Sec. 108.1910  Non-waiver of SBA's rights or terms of Leverage security.

    SBA's failure to exercise or delay in exercising any right or remedy 
under the Act or the regulations in this part does not constitute a 
waiver of such right or remedy. SBA's failure to require you to perform 
any term or provision of your Leverage does not affect SBA's right to 
enforce such term or provision. Similarly, SBA's waiver of, or failure 
to enforce, any term or provision of your Leverage or of any event or 
condition set forth in Sec. 108.1810 does not constitute a waiver of any 
succeeding breach of such term or provision or condition.



Sec. 108.1920  NMVC Company's application for exemption from a regulation in this part 108.

    (a) General. You may file an application in writing with SBA to have 
a proposed action exempted from any procedural or substantive 
requirement, restriction, or prohibition to which it is subject under 
this part, unless the provision is mandated by the Act. SBA may grant an 
exemption for such applicant, conditionally or unconditionally, provided 
the exemption would not be contrary to the purposes of the Act.
    (b) Contents of application. Your application must be accompanied by 
supporting evidence that demonstrates to SBA's satisfaction that:
    (1) The proposed action is fair and equitable; and
    (2) The exemption requested is reasonably calculated to advance the 
best interests of the NMVC program in a manner consistent with the 
policy objectives of the Act and the regulations in this part.



Sec. 108.1930  Effect of changes in this part 108 on transactions previously consummated.

    The legality of a transaction covered by the regulations in this 
part is governed by the regulations in this part in effect at the time 
the transaction was consummated, regardless of later changes. Nothing in 
this part bars SBA enforcement action with respect to any transaction 
consummated in violation

[[Page 135]]

of provisions applicable at the time, but no longer in effect.



Sec. 108.1940  Procedures for designation of additional Low-Income Geographic Areas

    (a) General. On its own initiative or upon written request by a 
Person which addresses the relevant factor(s) set forth in paragraph (b) 
of this section, SBA may consider whether to designate additional census 
tracts (or equivalent county divisions) as LI Areas.
    (b) Criteria. SBA will consider one or more of the following factors 
in determining whether to designate a particular census tract (or 
equivalent county division) as an additional LI Area:
    (1) A substantial number of Low-Income Individuals reside in that 
census tract (or equivalent county division).
    (2) As adequately supported by studies or other analyses or reliable 
data, that census tract (or equivalent county division) has a pattern of 
unmet needs for investment capital.
    (3) As adequately supported by studies or other analyses or reliable 
data, that census tract (or equivalent county division) has indications 
of economic distress.
    (c) Procedure for designation. (1) If SBA decides to consider the 
designation of an additional LI Area, SBA will publish in the Federal 
Register a notice that it is considering such designation. SBA will 
advise the public that it will consider any comments supporting or 
opposing the designation, submitted within a specified time period.
    (2) In making a final decision on whether to designate a particular 
census tract (or equivalent county division) as an additional LI Area, 
SBA will consider evidence submitted by any requester, SBA's own 
research, any public comments submitted, and any other information 
deemed relevant by SBA.
    (3) If SBA designates a particular census tract (or equivalent 
county division) as an additional LI Area, SBA will publish a notice in 
the Federal Register and, if appropriate, will amend this part to 
include the additional LI Area.



Subpart N--Requirements and Procedures for Operational Assistance Grants 
                      to NMVC Companies and SSBICs



Sec. 108.2000  Operational Assistance Grants to NMVC Companies and SSBICs.

    (a) NMVC Companies. Regulations governing Operational Assistance 
grants to NMVC Companies may be found in subparts D and E of this part 
108, and in Secs. 108.2010 through 108.2040.
    (b) SSBICs. Regulations governing Operational Assistance grants to 
SSBICs may be found in Secs. 108.2001 through 108.2040.

[67 FR 68503, Nov. 12, 2002]



Sec. 108.2001  When and how SSBICs may apply for Operational Assistance grants.

    (a) Notice of Funds Availability (``NOFA''). SBA will publish a NOFA 
in the Federal Register, advising SSBICs of the availability of funds 
for Operational Assistance grants to SSBICs. This NOFA will be the same 
NOFA described in Sec. 108.300(a), or will be published simultaneously 
with that NOFA. An SSBIC may submit an application for an Operational 
Assistance grant only during the time period specified for such purpose 
in the NOFA.
    (b) Application form. An SSBIC must apply for an Operational 
Assistance grant using the application packet provided by SBA. Upon 
receipt of an application, SBA may request clarifying or technical 
information on the materials submitted as part of the application.

[67 FR 68503, Nov. 12, 2002]



Sec. 108.2002  Eligibility of SSBICs to apply for Operational Assistance grants.

    An SSBIC is eligible to apply for an Operational Assistance grant 
if:
    (a) It intends to increase its Regulatory Capital, as in effect on 
December 21, 2000, and to make Low-Income Investments in the amount of 
such increase;
    (b) It intends to raise binding commitments for contributions in 
cash or in-kind, and/or to purchase an annuity, in an amount not less 
than 30 percent

[[Page 136]]

of the intended increase in its Regulatory Capital described in 
paragraph (a) of this section; and
    (c) It has a plan describing how it intends to use the requested 
grant funds to provide Operational Assistance to Smaller Enterprises in 
which it has made or expects to make Low-Income Investments after 
December 21, 2000.

[67 FR 68503, Nov. 12, 2002]



Sec. 108.2003  Grant issuance fee for SSBICs.

    An SSBIC must pay to SBA a grant issuance fee of $5,000. An SSBIC 
must submit this fee in advance, at the time of application submission. 
If SBA does not award a grant to the SSBIC, SBA will refund this fee to 
the SSBIC.

[67 FR 68503, Nov. 12, 2002]



Sec. 108.2004  Contents of application submitted by SSBICs.

    Each application submitted by an SSBIC for an Operational Assistance 
grant must contain the information specified in the application packet 
provided by SBA, including the following information:
    (a) Amounts. An SSBIC must specify the amount of Regulatory Capital 
it intends to raise after December 21, 2000, and the amount of 
Operational Assistance grant funds it seeks from SBA, which must be at 
least 30 percent of its intended increase in its Regulatory Capital 
since December 21, 2000.
    (b) Plan. An SSBIC must submit a plan addressing the specific items 
described in Sec. 108.2005.

[67 FR 68503, Nov. 12, 2002]



Sec. 108.2005  Contents of plan submitted by SSBICs.

    (a) Plan for providing Operational Assistance. The SSBIC must 
describe how it plans to use its grant funds to provide Operational 
Assistance to Smaller Enterprises in which it will make Low-Income 
Investments. Its plan must address the types of Operational Assistance 
it proposes to provide, and how it plans to provide the Operational 
Assistance through the use of licensed professionals, when necessary, 
either from its own staff or from outside entities.
    (b) Matching resources for Operational Assistance grant. The SSBIC 
must include a detailed description of how it plans to obtain binding 
commitments for contributions in cash or in-kind, and/or to purchase an 
annuity, to match the funds requested from SBA for the SSBIC's 
Operational Assistance grant. If it proposes to obtain commitments for 
cash and in-kind contributions, it also must estimate the ratio of cash 
to in-kind contributions (in no event may in-kind contributions exceed 
50 percent of the total contributions). The SSBIC must discuss its 
potential sources of matching resources, the estimated timing on raising 
such match, and the extent of the expressions of interest to commit such 
match to the SSBIC.
    (c) Identification of LI Areas. The SSBIC must identify the specific 
LI Areas in which it intends to make Low-Income Investments and provide 
Operational Assistance under the NMVC program.
    (d) Projected allocation of investments among identified LI Areas. 
The SSBIC must describe the amount of Low-Income Investments it intends 
to make in each of the identified LI Areas.
    (e) Track record of management team in obtaining public policy 
results through investments. The SSBIC must provide information 
concerning the past track record of the SSBIC in making investments that 
have had a demonstrable impact on the socially or economically 
disadvantaged businesses targeted by the SSBIC program (for example, new 
businesses created, jobs created, or wealth created). Such information 
might include case studies or examples of the SSBIC's successful 
Financings.
    (f) Market analysis. The SSBIC must provide an analysis of the LI 
Areas in which it intends to makes its Low-Income Investments and 
provide its Operational Assistance to Smaller Enterprises, demonstrating 
that the SSBIC understands the market and the unmet capital needs in 
such areas and how its activities will meet these unmet capital needs 
through Low-Income Investments and have a positive economic impact on 
those areas. The analysis must include a description of the extent of 
the economic distress in the identified LI Areas. The SSBIC also

[[Page 137]]

must analyze the extent of the demand in such areas for Low-Income 
Investments and any factors or trends that may affect the SSBIC's 
ability to make effective Low-Income Investments.
    (g) Regulatory Capital. The SSBIC must include a detailed 
description of how it plans to raise its Regulatory Capital. The SSBIC 
must discuss its potential sources of Regulatory Capital, the estimated 
timing on raising such funds, and the extent of the expressions of 
interest to commit such funds to the SSBIC.
    (h) Projected impact. The SSBIC must describe the criteria and 
economic measurements to be used to evaluate whether and to what extent 
it has met the objectives of the NMVC program. It must include:
    (1) An estimate of the social, economic, and community development 
benefits to be created within identified LI Areas over the next five 
years or more as a result of its activities;
    (2) A description of the criteria to be used to measure the benefits 
created as a result of its activities; and
    (3) A discussion about the amount of such benefits created that it 
will consider to constitute successfully meeting the objectives of the 
NMVC program.

[67 FR 68503, Nov. 12, 2002]



Sec. 108.2006  Evaluation and selection of SSBICs.

    SBA will evaluate and select an SSBIC for an Operational Assistance 
grant award under the NMVC program solely at SBA's discretion, based on 
SBA's review of the SSBIC's application materials, interviews or site 
visits with the SSBIC (if any), and information in SBA's records 
relating to the SSBIC's regulatory compliance status and track record as 
an SSBIC. SBA's evaluation and selection process is intended to ensure 
that SSBIC requests are evaluated on a competitive basis and in a fair 
and consistent manner. SBA will evaluate and select SSBICs for an 
Operational Assistance grant award by considering the following 
criteria:
    (a) The strength of the SSBIC's application, including the strength 
of its proposal to provide Operational Assistance to Smaller Enterprises 
in which it intends to invest;
    (b) The SSBIC's regulatory compliance status and past track record 
in being able to accomplish program goals through its investment 
activity;
    (c) The likelihood that and the time frame within which the SSBIC 
will be able to raise the Regulatory Capital it intends to raise and 
obtain the matching resources described in Sec. 108.2005(b) and (g);
    (d) The need for Low-Income Investments in the LI Areas in which the 
SSBIC intends to invest;
    (e) The SSBIC's demonstrated understanding of the markets in the LI 
Areas in which it intends to invest;
    (f) The extent to which the activities proposed by the SSBIC will 
promote economic development and the creation of wealth and job 
opportunities in the LI Areas in which it intends to invest and among 
individuals living in LI Areas;
    (g) The likelihood that the SSBIC will fulfill the goals described 
in its application and meet the objectives of the NMVC program; and
    (h) The strength of the SSBIC's application compared to applications 
submitted by other SSBICs and by Applicants intending to invest in the 
same or proximate LI Areas.

[67 FR 68503, Nov. 12, 2002]



Sec. 108.2007  Grant award to SSBICs.

    An SSBIC selected for an Operational Assistance grant award will 
receive a grant award only if, by a date established by SBA, it 
increases its Regulatory Capital in the specific amount set forth in its 
application, pursuant to Sec. 108.2004(a), and raises matching resources 
for the grant in the amount required by Sec. 108.2030(d)(2).

[67 FR 68503, Nov. 12, 2002]



Sec. 108.2010  Restrictions on use of Operational Assistance grant funds.

    (a) Restrictions applicable only to SSBICs. An SSBIC that receives 
an Operational Assistance grant must use both grant funds awarded by SBA 
and its matching resources only to provide Operational Assistance in 
connection with a Low-Income Investment made

[[Page 138]]

by the SSBIC with Regulatory Capital raised after December 21, 2000.
    (b) Restrictions applicable only to NMVC Companies. A NMVC Company 
must use at least 80 percent of both grant funds awarded by SBA and its 
matching resources to provide Operational Assistance to Smaller 
Enterprises whose Principal Office at the time the Operational 
Assistance commences is located in an LI Area.
    (c) Restrictions applicable to NMVC Companies and SSBICs. A NMVC 
Company or a SSBIC that receives an Operational Assistance grant must 
not use either grant funds awarded by SBA or its matching resources for 
``general and administrative expense,'' as defined in the Federal 
Acquisition Regulations, ``Definitions of Words and Terms,'' 48 CFR 
2.101.

[66 FR 28609, May 23, 2001; 66 FR 32894, June 19, 2001, as amended at 67 
FR 68505, Nov. 12, 2002]



Sec. 108.2020  Amount of Operational Assistance grant.

    (a) Amount of grant to NMVC Company. NMVC Companies are eligible for 
an Operational Assistance grant award equal to the amount of matching 
resources raised by the NMVC Company in accordance with 
Secs. 108.380(a)(1)(i)(B) and 108.2030.
    (b) Amount of grant to SSBIC. SSBICs are eligible for an Operational 
Assistance grant award equal to the amount of matching resources raised 
by the SSBIC in accordance with Secs. 108.2007 and 108.2030.
    (c) Pro rata reductions. In the event that the total amount of funds 
available to SBA for purposes of making Operational Assistance grant 
awards to NMVC Companies and SSBICs is not sufficient to award grants in 
the amounts described in paragraphs (a) and (b) of this section, SBA 
will make pro rata reductions in the amounts otherwise awarded to each 
such NMVC Company and SSBIC.

[66 FR 28609, May 23, 2001, as amended at 67 FR 68505, Nov. 12, 2002]



Sec. 108.2030  Matching requirements.

    (a) General. All Operational Assistance grant funds SBA awards to an 
NMVC Company or a SSBIC must be matched on a dollar for dollar basis 
with funds or other resources raised by the NMVC Company or SSBIC.
    (b) Allowable sources. (1) Any source other than SBA is an allowable 
source of matching resources for an Operational Assistance grant award.
    (2) Neither a NMVC Company nor a SSBIC may use funds or other 
resources that it has used to satisfy a legal requirement for obtaining 
funds under any other Federal program, to satisfy the matching resources 
requirements described in this part.
    (3) A portion of Private Capital may be designated as matching 
resources if the designated funds are used to purchase an annuity 
pursuant to paragraph (c)(2)(iv) of this section or are otherwise 
segregated in a manner acceptable to SBA.
    (c) Type and form of matching resources. (1) Matching resources may 
come from cash contributions or in-kind contributions. In-kind 
contributions cannot exceed 50 percent of the total amount of match 
raised by the NMVC Company or SSBIC.
    (2) Matching resources may be in the form of:
    (i) Cash;
    (ii) In-kind contributions;
    (iii) Binding commitments for cash or in-kind contributions that may 
be payable over a multiyear period acceptable to SBA (but not to exceed 
the term of the Operational Assistance grant from SBA and in no event 
more than 10 years); and/or
    (iv) An annuity, purchased with funds other than Regulatory Capital, 
from an insurance company acceptable to SBA and that may be payable over 
a multiyear period acceptable to SBA (but not to exceed the term of the 
Operational Assistance grant from SBA and in no event more than 10 
years).
    (d) Amount of matching resources.
    (1) NMVC Companies. The amount of matching resources required of an 
NMVC Company is set forth in Sec. 108.380(a)(1)(i)(B).
    (2) SSBICs. The amount of matching resources required of an SSBIC is 
equal to the amount of Operational Assistance grant funds requested by 
the SSBIC, as set forth in its application pursuant to Sec. 108.2004(a).

[66 FR 28609, May 23, 2001, as amended at 67 FR 68505, Nov. 12, 2002]

[[Page 139]]



Sec. 108.2040  Reporting and recordkeeping requirements.

    (a) NMVC Companies. Policies governing reporting, record retention, 
and recordkeeping requirements applicable to NMVC Companies may be found 
in subpart H of this part. NMVC Companies also must comply with all 
reporting, record retention, and recordkeeping requirements set forth in 
Circular A-110 of the Office of Management and Budget (for availability, 
see 5 CFR 1310.3) and any grant award document executed between SBA and 
the NMVC Company.
    (b) SSBICs. An SSBIC receiving an Operational Assistance grant award 
must comply with all reporting, record retention and recordkeeping 
requirements set forth in Circular A-110 of the Office of Management and 
Budget and any grant award document executed between SBA and the SSBIC, 
as well as the reporting requirements in Sec. 108.630(f) and the filing 
requirement in Sec. 108.640.

[66 FR 28609, May 23, 2001, as amended at 67 FR 68505, Nov. 12, 2002]



PART 112--NONDISCRIMINATION IN FEDERALLY ASSISTED PROGRAMS OF SBA--EFFECTUATION OF TITLE VI OF THE CIVIL RIGHTS ACT OF 1964--Table of Contents




Sec.
112.1  Purpose.
112.2  Application of this part.
112.3  Discrimination prohibited.
112.4  Discrimination in employment.
112.5  Discrimination in providing financial assistance.
112.6  Discrimination in accommodations or services.
112.7  Illustrative applications.
112.8  Assurances required.
112.9  Compliance information.
112.10  Conduct of investigations.
112.11  Procedure for effecting compliance.
112.12  Effect on other regulations; forms and instructions.

Appendix A to Part 112

    Authority: Sec. 602, 78 Stat. 252 (42 U.S.C. 2000d-1).

    Source: 30 FR 298, Jan. 9, 1965, unless otherwise noted.



Sec. 112.1  Purpose.

    The purpose of this part is to effectuate the provisions of Title VI 
of the Civil Rights Act of 1964 (hereinafter referred to as the Act) to 
the end that no person in the United States shall, on the ground of 
race, color, or national origin, be excluded from participation in, be 
denied the benefits of, or be otherwise subjected to discrimination 
under any financial assistance activities of the Small Business 
Administration to which the Act applies.



Sec. 112.2  Application of this part.

    (a) This part applies to all recipients of assistance under programs 
administered by the Small Business Administration. (See appendix A)
    (b) The term Federal financial assistance includes: (1) Grants and 
loans of Federal funds; (2) the grant or donation of Federal property 
and interests in property; (3) the detail of Federal personnel; (4) the 
sale and lease of, and the permission to use (on other than a casual or 
transient basis), Federal property or any interest in such property 
without consideration, or at a nominal consideration, or at a 
consideration which is reduced for the purpose of assisting the 
recipient, or in recognition of the public interest to be served by such 
sale or lease to the recipient; and (5) any Federal agreement, 
arrangement, or other contract which has as one of its purposes the 
provision of assistance.
    (c) This part does not apply to financial assistance extended by way 
of insurance or guarantee.
    (d) The terms applicant and recipient mean, respectively, one who 
applies for and one who receives any of the financial assistance under 
any of the statutes referred to in paragraph (a) of this section. The 
term recipient also shall be deemed to include subrecipients of SBA 
financial assistance, i.e., concerns which secondarily receive financial 
assistance from the primary recipients of such financial assistance.

[30 FR 298, Jan. 9, 1965, as amended at 38 FR 17934, July 5, 1973; 50 FR 
1441 Jan. 11, 1985]



Sec. 112.3  Discrimination prohibited.

    (a) General. To the extent that this part applies, no person in the 
United

[[Page 140]]

States shall, on the ground of race, color or national origin be 
excluded from participation in, be denied the benefits of, or be 
otherwise subjected to discrimination by any business or other activity.
    (b) Specific discriminatory actions prohibited. (1) To the extent 
that this part applies, a business or other activity may not, directly 
or through contractual or other arrangements, on ground of race, color 
or national origin:
    (i) Deny an individual any services, financial aid or other benefit 
provided by the business or other activity;
    (ii) Provide any service, financial aid or other benefit to an 
individual which is different or is provided in a different manner, from 
that provided to others by the business or other activity;
    (iii) Subject an individual to segregation or separate treatment in 
any manner related to his receipt of any service, financial aid or other 
benefit from the business or other activity;
    (iv) Restrict an individual in any way in the enjoyment of any 
advantage or privilege enjoyed by others receiving any service, 
financial aid or other benefit from the business or other activity;
    (v) Treat an individual differently from others in determining 
whether he satisfies any admission, enrollment, quota, eligibility, 
membership or other requirement or condition which individuals must meet 
in order to be provided any service, financial aid or other benefit 
provided by the business or other activity.
    (2) The enumeration of specific forms of prohibited discrimination 
in this paragraph does not limit the generality of the prohibition in 
paragraph (a) of this section.
    (3) This regulation does not prohibit the consideration of race, 
color, or national origin if the purpose and effect are to remove or 
overcome the consequences of practices or impediments which have 
restricted the availability of, or participation in, the program or 
activity receiving Federal financial assistance, on the grounds of race, 
color, or national origin. Where previous discriminatory practice or 
usage tends, on the grounds of race, color, or national origin, to 
exclude individuals from participation in, to deny them the benefits of, 
or to subject them to discrimination under any program or activity to 
which this regulation applies, the applicant or recipient has an 
obligation to take reasonable action to remove or overcome the 
consequences of the prior discriminatory practice or usage, and to 
accomplish the purposes of the Act.

[30 FR 298, Jan. 9, 1965, as amended at 38 FR 17934, July 5, 1973]



Sec. 112.4  Discrimination in employment.

    Small business concerns and development companies which apply for or 
receive any financial assistance of the kind described in Sec. 112.2(a) 
(1) and (2), including concerns which are identifiable beneficiaries of 
loans made under Sec. 112.2(a)(2), may not discriminate on the grounds 
of race, color, or national origin in their employment practices. Such 
assistance is deemed to have as a primary objective the providing of 
employment. Where a primary objective of the Federal financial 
assistance is not to provide employment, but discrimination on the 
grounds of race, color, or national origin in the employment practices 
of the recipient or other persons subject to the regulation tends, on 
the grounds of race, color, or national origin, to exclude individuals 
from participation in, to deny them the benefits of, or to subject them 
to discrimination under any program to which this regulation applies, 
the provisions of Sec. 112.7(a) shall apply to the employment practices 
of the recipient or other persons subject to the regulation, to the 
extent necessary to assure equality of opportunity and nondiscriminatory 
treatment.

[38 FR 17934, July 5, 1973]



Sec. 112.5  Discrimination in providing financial assistance.

    Development companies and small business investment companies which 
apply for or receive any of the financial assistance described in 
Sec. 112.2(a) may not discriminate, on the ground of race, color or 
national origin, in providing financial assistance to small business 
concerns.

[[Page 141]]



Sec. 112.6  Discrimination in accommodations or services.

    Small business concerns which apply for or receive any financial 
assistance of the kind described in Sec. 112.2(a)(1), concerns which are 
identifiable beneficiaries of loans made under Sec. 112.2(a)(2), and 
physicians, hospitals, schools, libraries, and other individuals or 
organizations which apply for or receive financial assistance of the 
kind described in Sec. 112.2(a)(5), may not discriminate in the 
treatment accommodations or services they provide to their patients, 
students, visitors, guests, members, passengers, or patrons in the 
conduct of such businesses or other enterprises, whether or not operated 
for profit.

[31 FR 2374, Feb. 4, 1966]



Sec. 112.7  Illustrative applications.

    (a) Employment. The discrimination prohibited by Sec. 112.4 includes 
but is not limited to any action (taken directly or through contractual 
or other arrangements) which subjects an individual to discrimination on 
the ground of race, color or national origin in any employment practice, 
including recruitment or recruitment advertising, employment, layoff or 
termination, upgrading, demotion, or transfer, rates of pay or other 
forms of compensation, and use of facilities.
    (b) Financial assistance. The discrimination prohibited by 
Sec. 112.5 includes but is not limited to the failure or refusal, 
because of the race, color, or national origin of a person, to extend a 
loan or equity financing to him or to any business concern of which he 
is an owner or employee; or, in the case of financing which has actually 
been extended, the failure or refusal, because of the race, color, or 
national origin of the borrower or of an owner or employee of the 
borrower, to accord the borrower fair treatment and the customary 
courtesies regarding such matters as default, grace periods and the 
like.
    (c) Accommodations or services. The discrimination prohibited by 
Sec. 112.6 includes but is not limited to the failure or refusal, 
because of the race, color, or national origin of a person, to accept 
him on a nonsegregated basis as a patient, student, visitor, guest, 
member, customer, passenger or patron.
    (d) Affirmative action. (1) In some situations even though past 
discriminatory practices have been abandoned, the consequences of such 
practices continue to impede the full availability of equal opportunity. 
If the efforts required of the applicant or recipient under 
Sec. 112.3(b)(3) to provide information as to the availability of equal 
opportunity, and the rights of individuals under this regulation, have 
failed to overcome these consequences, it will become necessary for such 
applicant or recipient to take additional steps to make equal 
opportunity fully available to racial and nationality groups previously 
subjected to discrimination.
    (2) Even though an applicant or recipient has never used 
discriminatory policies, the opportunities in the business it operates 
may not in fact be equally available to some racial or nationality 
groups. In such circumstances a recipient may properly give special 
consideration to race, color, or national origin to make opportunity 
more widely available to such groups.

[30 FR 298, Jan. 9, 1965, as amended at 38 FR 17934, July 5, 1973]



Sec. 112.8  Assurances required.

    An application for any of the financial assistance described in 
Sec. 112.2(a) shall, as a condition to its approval and the extension of 
such assistance, contain or be accompanied by an assurance that the 
recipient will comply with this part. Such an assurance shall contain 
provisions authorizing the acceleration of the maturity of the 
recipient's financial obligation to the SBA in the event of a failure to 
comply, and provisions which give the United States a right to seek 
judicial enforcement of the terms of the assurance. SBA shall specify 
the form of the foregoing assurance for each program, and the extent to 
which like assurances will be required of contractors and 
subcontractors, transferees, successors in interest, and other 
participants in the program.



Sec. 112.9  Compliance information.

    (a) Cooperation and assistance. SBA shall to the fullest extent 
practicable

[[Page 142]]

seek the cooperation of applicants and recipients in obtaining 
compliance with this part and shall provide assistance and guidance to 
applicants and recipients to help them comply voluntarily with this 
part.
    (b) Compliance reports. Each applicant or recipient shall keep such 
records and submit to SBA timely, complete and accurate compliance 
reports at such times, and in such form and containing such information, 
as SBA may determine to be necessary to enable SBA to ascertain whether 
the applicant or recipient has complied or is complying with this part. 
In the case of a small business concern which receives financial 
assistance from a development company or from a small business 
investment company, such concern shall submit to the company such 
information as may be necessary to enable the company to meet its 
reporting requirements under this part.
    (c) Access to sources of information. Each applicant or recipient 
shall permit access by SBA during normal business hours to such of its 
books, records, accounts, and other sources of information, and its 
facilities as may be pertinent to ascertain compliance with this part. 
Where any information required of an applicant or recipient is in the 
exclusive possession of any other agency, institution or person and this 
agency, institution or person shall fail or refuse to furnish this 
information, the applicant or recipient shall so certify in its report 
and shall set forth what efforts it has made to obtain this information.
    (d) Information to the public. Each recipient shall make available 
to persons entitled under the Act and under this part to protection 
against discrimination by the recipient such information as SBA may find 
necessary to apprise them of their rights to such protection.

[30 FR 298, Jan. 9, 1965, as amended at 38 FR 17934, July 5, 1973]



Sec. 112.10  Conduct of investigations.

    (a) Periodic compliance reviews. SBA shall from time to time review 
the practices of recipients to determine whether they are complying with 
this part.
    (b) Complaints. Any person who believes himself or any specific 
class of individuals to be subjected to discrimination prohibited by 
this part may, by himself or by a representative, file with SBA a 
written complaint. A complaint must be filed not later than 180 days 
from the date of the alleged discrimination, unless the time for filing 
is extended by SBA.
    (c) Investigations. SBA will make a prompt investigation whenever a 
compliance review, report, complaint, or any other information indicates 
a possible failure to comply with this part. The investigation should 
include, where appropriate, a review of the pertinent practices and 
policies of the applicant or recipient, the circumstances under which 
the possible noncompliance with this part occurred, and other factors 
relevant to a determination as to whether the applicant or recipient has 
failed to comply with this part.
    (d) Resolution of matters. (1) If an investigation pursuant to 
paragraph (c) of this section indicates a failure to comply with this 
part, SBA will so inform the applicant or recipient and the matter will 
be resolved by informal means whenever possible. If it has been 
determined that the matter cannot be resolved by informal means, action 
will be taken as provided for in Sec. 112.11.
    (2) If an investigation does not warrant action pursuant to 
paragraph (d)(1) of this section, SBA will so inform the applicant or 
recipient and the complainant, if any, in writing.
    (e) Intimidatory or retaliatory acts prohibited. No applicant or 
recipient or other person shall intimidate, threaten, coerce, or 
discriminate against any individual for the purpose of interfering with 
any right or privilege secured by section 601 of the Act or by this part 
or because he has made a complaint, testified, assisted, or participated 
in any manner in an investigation, proceeding, or hearing under this 
part. The identity of complainants shall be kept confidential except to 
the extent necessary to carry out the purposes of this part, including 
the conduct of any investigation, hearing, or judicial proceeding 
arising thereunder.

[30 FR 298, Jan. 9, 1965, as amended at 38 FR 17934, July 5, 1973]

[[Page 143]]



Sec. 112.11  Procedure for effecting compliance.

    (a) General. (1) If there appears to be a failure or threatened 
failure to comply with this part and if the noncompliance or threatened 
noncompliance cannot be corrected by informal means, compliance with 
this part may be effected by suspending, terminating, or refusing any 
financial assistance approved but not yet disbursed to an applicant or, 
in the case of a loan which has been partially disbursed, by refusing to 
make further disbursements. In addition, compliance may be effected by 
any other means authorized by law.
    (2) Such other means may include but are not limited to (i) legal 
action by SBA to enforce its right, embodied in the assurances described 
in Sec. 112.8, to accelerate the maturity of the recipient's obligation; 
(ii) a reference to the Department of Justice with a recommendation that 
appropriate proceedings be brought to enforce any rights of the United 
States under any law of the United States, including other titles of the 
Act; and (iii) any applicable proceedings under State or local law.
    (b) Noncompliance with Sec. 112.8. If an applicant fails or refuses 
to furnish an assurance required under Sec. 112.8 or otherwise fails or 
refuses to comply with a requirement imposed by or pursuant to that 
section Federal financial assistance may be refused in accordance with 
the procedures of paragraph (c) of this section. SBA shall not be 
required to provide assistance in such a case during the pendency of the 
administrative proceedings under such paragraph except that SBA shall 
continue assistance during the pendency of such proceedings where such 
assistance is due and payable pursuant to an application therefor 
approved prior to the effective date of this part. Such proceedings 
shall be conducted in accordance with the provisions of part 134 of this 
chapter by an Administrative Law Judge of the Office of Hearings and 
Appeals, who shall issue an initial decision in the case. The 
Administrator shall be the reviewing official for purposes of 
Sec. 134.228. The applicant's failure to file a timely motion in 
accordance with Secs. 134.222 and 134.211, requesting that the matter be 
scheduled for an oral hearing, shall constitute waiver of the right to 
an oral hearing but shall not prevent the submission of written 
information and argument for the record in accordance with the 
provisions of part 134.
    (c) Conditions precedent. No order suspending, terminating, or 
refusing financial assistance shall become effective until (1) SBA has 
advised the applicant or recipient of his failure to comply and has 
determined that compliance cannot be secured by voluntary means; (2) 
there has been an express finding on the record after an opportunity for 
an oral hearing, of a failure by the applicant or recipient to comply 
with a requirement imposed by or pursuant to this part; (3) the initial 
decision has become final pursuant to Sec. 134.227(b); and (4) the 
expiration of 30 days after SBA has filed with the committee of the 
House and the committee of the Senate having legislative jurisdiction of 
the form of financial assistance involved, a full written report of the 
circumstances and the grounds for such action.
    (d) Other means authorized by law. No action to effect compliance by 
any other means authorized by law shall be taken until (1) SBA has 
determined that compliance cannot be secured by voluntary means; (2) the 
action has been approved by the Administrator or his designee; (3) the 
applicant or recipient or other person has been notified of its failure 
to comply and of the action to be taken to effect compliance; and (4) 
the expiration of at least 10 days from the mailing of such notice to 
the applicant or recipient or other person. During this period of at 
least 10 days from the mailing of such notice to the applicant or 
recipient or other person. During this period of at least 10 days 
additional efforts shall be made to persuade the applicant or recipient 
or other person to comply with this part and to take such corrective 
action as may be appropriate.

[30 FR 298, Jan. 9, 1965, as amended at 38 FR 17934, July 5, 1973; 49 FR 
33629, Aug. 24, 1984; 61 FR 2691, Jan. 29, 1996]

[[Page 144]]



Sec. 112.12  Effect on other regulations; forms and instructions.

    (a) Effect on other regulations. All regulations, orders or like 
directions heretofore issued by SBA which impose requirements designed 
to prohibit any discrimination against individuals on the grounds of 
race, color, or national origin and which authorize the suspension or 
termination of or refusal to grant to or to continue financial 
assistance to any applicant for or recipient of such assistance for 
failure to comply with such requirements, are hereby superseded to the 
extent that such discrimination is prohibited by this part, except that 
nothing in this part shall be deemed to relieve any person of any 
obligation assumed or imposed under any such superseded regulation, 
order, instruction, or like direction prior to the effective date of 
this part. Nothing in this part, however, shall be deemed to supersede 
any of the following (including future amendments thereof):
    (1) Executive Order 11246 and regulations issued thereunder, or (2) 
any other orders, regulations or instructions, insofar as such order, 
regulations, or instructions prohibit discrimination on the grounds of 
race, color, or national origin in any program or situation to which 
this part is inapplicable or prohibit discrimination on any other 
ground.
    (b) Forms and instructions. SBA shall issue and promptly make 
available to interested persons forms and detailed instructions and 
procedures for effectuating this part.
    (c) Supervision and coordination. The Administrator may from time to 
time assign to officials of SBA or to officials of other agencies of the 
Government with the consent of such agencies, responsibilities in 
connection with the effectuation of the purpose of Title VI of the Act 
and this part (other than responsibility for final decision as provided 
in Sec. 112.13), including the achievement of effective coordination and 
maximum uniformity within SBA and within the Executive Branch of the 
Government in the application of Title VI and this part to similar 
programs and in similar situations. Any action taken, determination 
made, or requirement imposed by an official of another Department or 
agency acting pursuant to an assignment of responsibility under this 
subsection shall have the same effect as though such action had been 
taken by the Administrator of SBA.

[30 FR 298, Jan. 9, 1965, as amended at 38 FR 17935, July 5, 1973. 
Redesignated at 49 FR 33629, Aug. 24, 1984]

                         Appendix A to Part 112

------------------------------------------------------------------------
              Name of program                         Authority
------------------------------------------------------------------------
                           Financial Programs
------------------------------------------------------------------------
Regular business loans....................  Small Business Act, sec.
                                             7(a) and 7(a)(11).
Handicapped assistance loans..............  Small Business Act, sec.
                                             7(a)(10)
Small business energy loans...............  Small Business Act, sec.
                                             7(a)(12).
Small general contractors.................  Small Business Act, sec.
                                             7(a)(9).
Vietnam-era and Disabled Veterans Loan      Pub. L. 97-72.
 Program.
Debtor State development company loans      Small Business Investment
 (501) and their small business concerns.    Act, title V, and Small
                                             Business Act, sec.
                                             7(a)(13).
Debtor small business investment companies  Small Business Investment
 and their small business concerns.          Act, title III.
------------------------------------------------------------------------
                             Disaster Loans
------------------------------------------------------------------------
Physical..................................  Small Business Act, sec.
                                             7(b)(1).
Economic injury (EIDL)....................  Small Business Act, sec.
                                             7(b)(2).
Federal action--economic injury...........  Small Business Act, sec.
                                             7(b)(3).
Currency fluctuation--economic injury.....  Small Business Act, sec.
                                             7(b)(4).
------------------------------------------------------------------------
                          Nonfinancial Programs
------------------------------------------------------------------------
Women's business enterprise...............  Executive Order 12138.
Small business innovation and research....  Small Business Act, sec. 9.
Procurement automated source system.......  Small Business Act, sec. 8
                                             and Pub. L. 96-302.
Business Development Program..............  Small Business Act, sec.
                                             8(a) and Pub. L. 95-507, as
                                             amended by Pub. L. 96-481.
Small Business Institute Program..........  Small Business Act, sec.
                                             8(b)(1) and Pub. L. 85-536.
Certificate of competency.................  Small Business Act, sec.
                                             8(b)(7) and Pub. L 95-89.
Subcontracting Assistance Program.........  Small Business Act, sec.
                                             8(d) and and Pub. L. 95-
                                             507.
Technology Assistance Program.............  Small Business Act, sec. 9.
Small business development centers........  Small Business Act, sec. 21
                                             and Pub. L. 96-302.
International Trade Program...............  Small Business Act, sec. 22
                                             and Pub. L. 96-481.
Service Corps of Retired Executives and     Small Business Act, secs.
 Active Corps of Executives.                 101 and 8(b)(1) and Pub. L.
                                             95-510.
Veterans affairs programs.................  Pub. L. 93-237.

[[Page 145]]

 
Private sector initiatives................  Small Business Act, sec.
                                             8(b)(1).
------------------------------------------------------------------------

    Note: All programs listed above are also covered by part 113 of 
title 13 of the Code of Federal Regulations.

[50 FR 1441, Jan. 11, 1985]



PART 113--NONDISCRIMINATION IN FINANCIAL ASSISTANCE PROGRAMS OF SBA--EFFECTUATION OF POLICIES OF FEDERAL GOVERNMENT AND SBA ADMINISTRATOR--Table of Contents




                      Subpart A--General Provisions

Sec.
113.1  Purpose.
113.2  Definitions.
113.3  Discrimination prohibited.
113.3-1  Consideration of race, color, religion, sex, marital status, 
          handicap, or national origin.
113.3-2  Accommodations to religious observance and practice.
113.3-3  Structural accommodations for handicapped clients.
113.4  Assurances required.
113.5  Compliance information.
113.6  Conduct of investigations.
113.7  Procedure for effecting compliance.
113.8  Effect on other regulations, forms and instructions.

Appendix A to Subpart A of Part 113

 Subpart B--Nondiscrimination on the Basis of Sex in Education Programs 
          or Activities Receiving Federal Financial Assistance

                              Introduction

113.100  Purpose and effective date.
113.105  Definitions.
113.110  Remedial and affirmative action and self-evaluation.
113.115  Assurance required.
113.120  Transfers of property.
113.125  Effect of other requirements.
113.130  Effect of employment opportunities.
113.135  Designation of responsible employee and adoption of grievance 
          procedures.
113.140  Dissemination of policy.

                                Coverage

113.200  Application.
113.205  Educational institutions and other entities controlled by 
          religious organizations.
113.210  Military and merchant marine educational institutions.
113.215  Membership practices of certain organizations.
113.220  Admissions.
113.225  Educational institutions eligible to submit transition plans.
113.230  Transition plans.
113.235  Statutory amendments.

    Discrimination on the Basis of Sex in Admission and Recruitment 
                               Prohibited

113.300  Admission.
113.305  Preference in admission.
113.310  Recruitment.

 Discrimination on the Basis of Sex in Education Programs or Activities 
                               Prohibited

113.400  Education programs or activities.
113.405  Housing.
113.410  Comparable facilities.
113.415  Access to course offerings.
113.420  Access to schools operated by LEAs.
113.425  Counseling and use of appraisal and counseling materials.
113.430  Financial assistance.
113.435  Employment assistance to students.
113.440  Health and insurance benefits and services.
113.445  Marital or parental status.
113.450  Athletics.
113.455  Textbooks and curricular material.

 Discrimination on the Basis of Sex in Employment in Education Programs 
                        or Activities Prohibited

113.500  Employment.
113.505  Employment criteria.
113.510  Recruitment.
113.515  Compensation.
113.520  Job classification and structure.
113.525  Fringe benefits.
113.530  Marital or parental status.
113.535  Effect of state or local law or other requirements.
113.540  Advertising.
113.545  Pre-employment inquiries.
113.550  Sex as a bona fide occupational qualification.

                               Procedures

113.600  Notice of covered programs.
113.605  Enforcement procedures.

    Authority: 15 U.S.C. 633, 634, 687, 1691; 20 U.S.C. 1681, 1682, 
1683, 1685, 1686, 1687, 1688; 29 U.S.C. 794; Sec. 5, Pub. L. 85-536, 72 
Stat. 385, as amended; Sec. 308, Pub. L. 85-699, 72 Stat. 694, as 
amended.

    Source: 44 FR 20068, Apr. 4, 1979, unless otherwise noted.

[[Page 146]]



                      Subpart A--General Provisions



Sec. 113.1  Purpose.

    (a) Part 112 of this chapter, issued pursuant to Title VI of the 
Civil Rights Act of 1964, prohibits discrimination on the basis of race, 
color, or national origin by some recipients of financial assistance 
from SBA. The purpose of this part is to reflect to the fullest extent 
possible the nondiscrimination policies of the Federal Government as 
expressed in the several statutes, Executive Orders, and messages of the 
President dealing with civil rights and equality of opportunity, and in 
the previous determination of the Administrator of the Small Business 
Administration that discrimination based on race, color, religion, sex, 
marital status, handicap or national origin shall be prohibited, to the 
extent that it is not prohibited by part 112 of this chapter, to all 
recipients of financial assistance from SBA.
    (b) In accordance with Pub. L. 94-239, 15 U.S.C. 1691, cited as the 
Equal Credit Act Amendments of 1976, it is unlawful for any recipient 
creditor to discriminate against any applicant, with respect to any 
aspect of a credit transaction because of race, color, religion, 
national origin, sex, marital status, age: (Provided, the applicant has 
the capacity to contract), because all or part of the applicant's income 
derives from any public assistance program, or because the applicant has 
in good faith exercised any right under the Consumer Credit Protection 
Act.
    (c) It is the intention of the Administrator that the prohibitions 
in this part supplement those in part 112 of this chapter, that the two 
parts be read in pari materia, and that the procedures established 
herein be harmonized to the maximum extent feasible with those 
established in part 112 of this chapter.



Sec. 113.2  Definitions.

    As used in this part:
    (a) The term Federal financial assistance includes (1) grants and 
loans of Federal funds, (2) the grant or donation of Federal property 
and interests in property, (3) the detail of Federal personnel, (4) the 
sale and lease of, and the permission to use (on other than a casual or 
transient basis), Federal property or any interest in such property 
without consideration, or at a nominal consideration, or at a 
consideration which is reduced for the purpose of assisting the 
recipient, or in recognition of the public interest to be served by such 
sale or lease to the recipient, and (5) any Federal agreement, 
arrangement, or other contract which has as one of its purposes the 
provision of assistance.
    (b) The terms applicant and recipient mean, respectively, one who 
applies for and one who receives any of the financial assistance under 
any of the statutes referred to in paragraph (a) of this section. The 
term recipient also shall be deemed to include subrecipients of SBA 
financial assistance, i.e., concerns which secondarily receive financial 
assistance from the primary recipients of such financial assistance. For 
the purposes of this part, a paragraph (b) lender (13 CFR 120.4(b)) 
shall be deemed a recipient of financial assistance.
    (c) The term religion includes all aspects of religious observance 
and practice, as well as belief.
    (d) The term qualified handicapped person means (1) with respect to 
employment, a handicapped person who, with reasonable accommodation, can 
perform the essential functions of the job in question and (2) with 
respect to services, a handicapped person who meets the essential 
eligibility requirements for the receipt of such services.
    (e) The term handicapped person, as defined by the guideline set 
forth by the Department of Health, Education, and Welfare in Sec. 85.31 
of title 45 of the CFR (43 FR 2137, dated January 13, 1978), means any 
person who has a physical or mental impairment that substantially limits 
one or more major life activities, has a record of such an impairment, 
or is regarded as having such an impairment.
    (f) As used in paragraph (e) of this section, the phrase:
    (1) Physical or mental impairment means (i) any physiological 
disorder or condition, cosmetic disfigurement, or anatomical loss 
affecting one or more of the following body systems: Neurological; 
musculoskeletal; special sense organs; respiratory, including speech 
organs; cardiovascular; reproductive;

[[Page 147]]

digestive; genitourinary; hemic and lymphatic; skin; and endocrine; or 
(ii) any mental or psychological disorder, such as mental retardation, 
organic brain syndrome, emotional or mental illness, and specific 
learning disabilities. The term physical or mental impairment includes, 
but is not limited to, such diseases and conditions as orthopedic, 
visual, speech, and hearing impairments, cerebral palsy, epilepsy, 
muscular dystrophy, multiple sclerosis, cancer, heart disease, diabetes, 
mental retardation, emotional illness, drug addiction and alcoholism.
    (2) Major life activities means functions such as caring for one's 
self, performing manual tasks, walking, seeing, hearing, speaking, 
breathing, learning, and working.
    (3) Has a record of such an impairment means has a history of, or 
has been misclassified as having, a mental or physical impairment that 
substantially limits one or more major life activities.
    (4) Is regarded as having an impairment means (i) has a physical or 
mental impairment that does not substantially limit major life 
activities but is treated by a recipient as constituting such a 
limitation; (ii) has a physical or mental impairment that substantially 
limits major life activities only as a result of the attitudes of others 
toward such impairment; or (iii) has none of the impairments defined in 
paragraph (f)(1) of this section but is treated by a recipient as having 
such an impairment.
    (g) The term reasonable accommodation as used in these Regulations 
may include: (1) making facilities used by employees readily accessible 
to and usable by handicapped persons; and (2) job restructuring, part-
time or modified work schedules, acquisition or modification of 
equipment or devices, the provision of readers or interpreters, and 
other similar actions.
    (h) The term facility means all or any portion of buildings, 
structures, equipment, roads, walks, parking lots, or other real or 
personal property.

[44 FR 20068, Apr. 4, 1979, as amended at 48 FR 14891, Apr. 6, 1983]



Sec. 113.3  Discrimination prohibited.

    To the extent not covered or prohibited by part 112 of this chapter, 
recipients of financial assistance may not:
    (a) Discriminate with regard to goods, services, or accommodations 
offered or provided by the aided business or other enterprise, whether 
or not operated for profit, because of race, color, religion, sex, 
handicap, or national origin of a person, or fail or refuse to accept a 
person on a nonsegregated basis as a patient, student, visitor, guest, 
customer, passenger, or patron.
    (b) With regard to employment practices within the aided business or 
other enterprise, whether or not operated for profit; fail or refuse, 
because of race, color, religion, sex or national origin of a person, to 
seek or retain the person's services, or to provide the person with 
opportunities for advancement or promotion, or accord an employee the 
rank and rate of compensation, including fringe benefits, merited by the 
employee's services and abilities.
    (c) With regard to employment practices within the aided business or 
other enterprise, whether or not operated for profit; discriminate 
against a qualified handicapped person; or because of handicap, fail or 
refuse to seek or retain the person's services or to provide the person 
with opportunities for advancement or promotion, or accord an employee 
the rank and rate of compensation, including fringe benefits, merited by 
the employee's services and abilities. All employment decisions shall be 
made in a manner which ensures that discrimination on the basis of 
handicap does not occur. Such decisions may not limit, segregate, or 
classify job applicants or employees in any way that adversely affects 
the opportunities or status of qualified handicapped individuals.
    (d) Participate in a contractual or other relationship that has the 
effect of subjecting job applicants or employees to discrimination 
prohibited by this part. The relationships referred to in this paragraph 
include those with employment and referral agencies, labor unions, 
organizations providing

[[Page 148]]

or administering fringe benefits to employees of the recipient, and 
organizations providing training and apprenticeship programs. Activities 
covered by this part are as follows:
    (1) Recruitment, advertising, and the processing of applications for 
employment;
    (2) Hiring, upgrading, promotion, award of tenure, demotion, 
transfer, layoff, termination, right of return from layoff, and 
rehiring;
    (3) Rates of pay or any other form of compensation and changes in 
compensation;
    (4) Job assignments, job classifications, organizational structures, 
position descriptions, lines of progression, and seniority lists;
    (5) Leaves of absence, sick leave, or any other leave;
    (6) Fringe benefits available by virtue of employment, whether or 
not administered by the recipient;
    (7) Selection and financial support for training, including 
apprenticeship, professional meetings, conferences, and other related 
activities, and selection for leaves of absence to pursue training;
    (8) Employer sponsored activities, including social or recreational 
programs; and
    (9) Any other term, condition, or privilege of employment.
    (e) Use employment tests or criteria that discriminate on the basis 
of race, color, religion, sex, marital status, handicap, or national 
origin. Employment tests which are used for all other job applicants 
shall be adapted in an appropriate mode for use by persons who have 
handicaps that impair sensory, manual, or speaking skills.
    (f) Conduct a preemployment medical examination, unless required of 
all job applicants, and subsequent to a conditional offer of employment. 
The results of all such medical examinations shall be kept confidential.
    (g) Make a preemployment inquiry as to whether a job applicant is a 
handicapped person or as to the nature or severity of a handicap: EXCEPT 
when a recipient is taking remedial action to overcome the effects of 
conditions which resulted in past discrimination, or when a recipient is 
taking affirmative action pursuant to section 503 of the Rehabilitation 
Act of 1973, as amended.
    (1) Such preemployment inquiry may only be made after the job 
applicant has been informed that such disclosure is for the purposes set 
forth in paragraph (g) of this section; that the disclosure is voluntary 
and will be kept confidential; and that refusal of the job applicant to 
provide such information will not subject the applicant to any adverse 
action.
    (2) Information elicited from qualified handicapped job applicants 
concerning their medical history or condition shall be kept confidential 
EXCEPT that:
    (i) Supervisors and managers may be informed about restrictions on 
or accommodations to be made for the qualified handicapped individual;
    (ii) First aid and safety personnel may be informed, where 
appropriate, of the need for possible emergency treatment; and
    (iii) Compliance officials shall be given relevant information, if 
requested.
    (h) Discriminate on the basis of race, color, religion, handicap or 
national origin in the use of toilets or any facilities for rest or 
comfort. Discriminate on the basis of race, color, religion, sex, 
handicap or national origin in the use of cafeterias, recreational 
programs or other programs sponsored by the applicant or recipient.
    (i) With regard to all recipients offering credit, such as Small 
Business Investment Companies and Community Development Companies, 
discriminate against debtors on the basis of race, color, religion, sex, 
marital status, handicap, or national origin.
    (j) With regard to the granting of credit by all recipient 
creditors, discriminate against any credit applicant, with respect to 
any aspect of a credit transaction because of race, color, religion, 
national origin, sex, marital status, handicap, age (provided the 
applicant has the capacity to contract), because all or part of the 
applicant's income derives from any public assistance program, or 
because the applicant has in good faith exercised any right under the 
Consumer Credit Protection Act.

[[Page 149]]



Sec. 113.3-1  Consideration of race, color, religion, sex, marital status, handicap, or national origin.

    (a) This regulation does not prohibit the consideration of race, 
color, religion, sex, marital status, handicap, or national origin if 
the purpose and effect are to remove or overcome the consequences of 
practices or impediments which have restricted the availability of, or 
participation in, the program or activity receiving Federal financial 
assistance, on the grounds of race, color, religion, sex, marital 
status, handicap, or national origin. Where previous discriminatory 
practices or usage tends, on the grounds of race, color, religion, sex, 
marital status, handicap, or national origin, to exclude individuals 
from participation in, to deny them the benefits of, or to subject them 
to discrimination under any program or activity to which this regulation 
applies, the applicant or recipient has an obligation to take reasonable 
action to remove or overcome the consequences of the prior 
discriminatory practice or usage, and to accomplish the purposes of this 
regulation. All programs and activities shall be administered in the 
most integrated setting possible.
    (b) Nothing in this part shall prohibit the restriction of certain 
jobs to members of one sex if a bona fide occupational qualification can 
be demonstrated by the applicant or recipient. Custom or tradition is 
not a bona fide occupational qualification.
    (c) Recipients shall take steps to ensure that communications with 
job applicants and employees who have vision and/or hearing disabilities 
are available in appropriate modes.
    (d) Recipients shall make reasonable accommodation to the known 
physical or mental limitations of an otherwise qualified handicapped job 
applicant or employee UNLESS the recipient can demonstrate that the 
accommodation would impose an undue hardship on the operation of the 
business. Factors to be considered in determining whether an 
accommodation would impose an undue hardship on the operation of a 
recipient's business include:
    (1) The overall size of the recipient's business with respect to 
number of employees, number and type of facilities, size of budget, and 
the financial condition of the business;
    (2) The type of the recipient's operation, including the composition 
and structure of the recipient's workforce; and
    (3) The nature and cost of the accommodation needed.
    (e) Such accommodation may include making facilities used by 
employees readily accessible to and usable by handicapped persons, job 
restructuring, part-time or modified work schedules, acquisition or 
modification of equipment or devices, the provision of readers or 
interpreters, and other similar actions.
    (f) The final decision, when making a review or investigation of a 
complaint, as to whether an accommodation would impose an undue hardship 
on the operation of a recipient business will be made by the compliance 
officials of the Small Business Administration.
    (g) Recipients shall administer programs and activities in the most 
integrated setting appropriate to the needs of qualified handicapped 
persons, and shall not participate in a contractual relationship that 
has the effect of subjecting qualified handicapped job applicants or 
employees to discrimination prohibited by this part. The relationships 
referred to in this paragraph include those with referral agencies, 
labor unions, organizations providing or administering fringe benefits 
to employees of the recipient, and organizations providing training and 
apprenticeship programs.
    (h) Nothing in this part shall apply to a religious corporation, 
association, educational institution or society with respect to the 
membership or the employment of individuals of a particular religion to 
perform work connected with the carrying on by such corporation, 
association, educational institution or society of its religious 
activities.



Sec. 113.3-2  Accommodations to religious observance and practice.

    A recipient of financial assistance must accommodate to the 
religious observances and practices of an employee or prospective 
employee unless the recipient demonstrates that it is unable

[[Page 150]]

to reasonably accommodate to an employee's or prospective employee's 
religious observance or practice without undue hardship on the conduct 
of the employer's business. As part of this obligation, recipient must 
make reasonable accommodations to the religious observances and 
practices of an employee or prospective employee who regularly observes 
Friday evening and Saturday, or some other day of the week, as Sabbath 
and/or who observes certain religious holidays during the year and who 
is conscientiously opposed to performing work or engaging in similar 
activity on such days, when such accommodations can be made without 
undue hardship on the conduct of the employer's business. In determining 
the extent of a recipient's obligations under this section, at least the 
following factors should be considered: (a) Business necessity, (b) 
financial costs and expenses, and (c) resulting personnel problems.



Sec. 113.3-3  Structural accommodations for handicapped clients.

    (a) Existing facilities. Recipients in preexisting structures shall 
make their goods or services accessible to and usable by handicapped 
clients. Where structural changes are necessary to make the recipient's 
goods or services accessible, such changes shall be made as soon as 
practicable, but in no event later than three years after the effective 
date of this Regulation. A plan setting forth the steps necessary to 
complete such structural changes shall be developed and submitted to 
SBA. If practical, interested persons, including handicapped persons or 
organizations representing handicapped persons, will be consulted.
    (b) Design, construction, and alteration. New facilities shall be 
designed and constructed to be readily accessible to and usable by 
persons with handicaps. Alterations to existing facilities that affect 
usability shall, to the maximum extent feasible, be designed and 
constructed to be readily accessible to and usable by handicapped 
persons.
    (c) Conformance with Uniform Federal Accessibility Standards. (1) 
Effective as of January 18, 1991, design, construction, or alteration of 
buildings in conformance with sections 3-8 of the Uniform Federal 
Accessibility Standards (UFAS) (appendix A to 41 CFR subpart 101-19.6) 
shall be deemed to comply with the requirements of this section with 
respect to those buildings. Departures from particular technical and 
scoping requirements of UFAS by the use of other methods are permitted 
where substantially equivalent or greater access to and usability of the 
building is provided.
    (2) For purposes of this section, section 4.1.6(1)(g) of UFAS shall 
be interpreted to exempt from the requirements of UFAS only mechanical 
rooms and other spaces that, because of their intended use, will not 
require accessibility to the public or beneficiaries or result in the 
employment or residence therein of persons with physical handicaps.
    (3) This section does not require recipients to make building 
alterations that have little likelihood of being accomplished without 
removing or altering a load-bearing structural member.

[44 FR 20068, Apr. 4, 1979, as amended at 45 FR 81734, Dec. 12, 1980; 55 
FR 52138, 52140, Dec. 19, 1990]



Sec. 113.4  Assurances required.

    An application for financial assistance shall, as a condition to its 
approval and the extension of such assistance, contain or be accompanied 
by an assurance that the recipient will comply with this part. Such an 
assurance shall contain provisions authorizing the acceleration of the 
maturity of the recipient's financial obligations to SBA in the event of 
a failure to comply, and provisions which give the United States a right 
to seek judicial enforcement of the terms of the assurance. SBA shall 
specify the form of the foregoing assurance for each program, and the 
extent to which like assurances will be required of contractors and 
subcontractors, transferees, successors in interest, and other 
participants in the program.



Sec. 113.5  Compliance information.

    (a) Cooperation and assistance: SBA shall to the fullest extent 
practicable seek the cooperation of applicants and recipients in 
obtaining compliance

[[Page 151]]

with this part and shall provide assistance and guidance to applicants 
and recipients to help them comply voluntarily with this part. 
Recipients are expected to continually evaluate their compliance status, 
with the assistance of interested persons, including handicapped persons 
or organizations representing handicapped persons.
    (b) Compliance reports: Each applicant or recipient shall keep such 
records and submit to SBA timely, complete and accurate compliance 
reports at such times, and in such form and containing such information, 
as SBA may determine to be necessary to enable SBA to ascertain whether 
the applicant or recipient has complied or is complying with this part. 
In the case of a small business concern which receives financial 
assistance from a development company or from a small business 
investment company, such concern shall submit to the company such 
information as may be necessary to enable the company to meet its 
reporting requirements under this part.
    (c) Access to sources of information: Each applicant or recipient 
shall permit access by SBA during normal business hours to such of its 
books, records, accounts and other sources of information, and its 
facilities as may be pertinent to ascertain compliance with this part. 
Where any information required of an applicant or recipient is in the 
exclusive possession of any other agency, institution or person; and 
such agency, institution or person shall fail or refuse to furnish this 
information, the applicant or recipient shall so certify in its report 
and shall set forth what efforts it has made to obtain this information.
    (d) Information to the Public. Each recipient shall make available 
to persons entitled under this part to protection against discrimination 
by the recipient such information as SBA may find necessary to apprise 
them of their rights to such protection.
    (1) In some situations even though past discriminatory practices 
have been abandoned, the consequences of such practices continue to 
impede the full availability of equal opportunity. If the efforts 
required of the applicant or recipient under Sec. 113.5(b) to provide 
information as to the availability of equal opportunity, and the rights 
of individuals under this regulation, have failed to overcome these 
consequences, it will become necessary for such applicant or recipient 
to take additional steps to make equal opportunity fully available to 
racial, qualified handicapped, nationality groups and persons who 
because of their sex were previously subjected to discrimination.
    (2) Even though an applicant or recipient has never used 
discriminatory policies, the opportunities in the business it operates 
may not in fact be equally available to some racial, qualified 
handicapped, or nationality groups. In such circumstances a recipient 
may properly give special consideration to race, color, religion, sex, 
marital status, qualified handicap or national origin to make the 
opportunities more widely available to such groups.



Sec. 113.6  Conduct of investigations.

    (a) Periodic compliance reviews. SBA shall from time to time review 
the practices of recipients to determine whether they are complying with 
this part.
    (b) Complaints. Any person who believes that he, she or any class of 
individuals has been subjected to discrimination prohibited by this part 
may, personally or through a representative, file with SBA a written 
complaint. A complaint must be filed not later than 180 days from the 
date of the alleged discrimination, unless the time for filing is 
extended by SBA.
    (c) Investigations. SBA will make a prompt investigation whenever a 
compliance review, report, complaint, or any other information indicates 
a possible failure to comply with this part. The investigation should 
include, where appropriate, a review of the pertinent practices and 
policies of the applicant or recipient, the circumstances under which 
the possible noncompliance with this part occurred, and other factors 
relevant to a determination as to whether the applicant or recipient has 
failed to comply with this part.
    (d) Resolution of matters. (1) If an investigation pursuant to 
paragraph (c) of this section indicates a failure to comply with this 
part, SBA will so inform the applicant or recipient and the matter will 
be resolved by informal

[[Page 152]]

means whenever possible. If it has been determined that the matter 
cannot be resolved by informal means, action will be taken as provided 
for in Sec. 113.7.
    (2) If an investigation does not warrant action pursuant to 
paragraph (d)(1) of this section, SBA will so inform the applicant or 
recipient and the complainant, if any, in writing.
    (e) Intimidatory or retaliatory acts prohibited. No applicant or 
recipient or other person shall intimidate, threaten, coerce, or 
discriminate against any individual for the purpose of interfering with 
any right or privilege secured by this part or because he has made a 
complaint, testified, assisted, or participated in any manner in an 
investigation, proceeding, or hearing under this part. The identity of 
complainants shall be kept confidential except to the extent necessary 
to carry out the purposes of this part, including the conduct of any 
investigation, hearing, or judicial proceeding arising thereunder.



Sec. 113.7  Procedure for effecting compliance.

    (a) General. (1) If there appears to be a failure or threatened 
failure to comply with this part and if the noncompliance or threatened 
noncompliance cannot be corrected by informal means, compliance with 
this part may be effected by suspending, terminating, or refusing any 
financial assistance approved but not yet disbursed to an applicant. In 
the case of loans partially or fully disbursed, compliance with this 
part may be effected by calling, canceling, terminating, accelerating 
repayment, or suspending in whole or in part the financial assistance 
provided. In addition compliance may be effected by any other means 
authorized by law.
    (2) Such other means may include but are not limited to (i) legal 
action by SBA to enforce its rights, embodied in the assurances 
described in Sec. 113.4; (ii) a reference to the Department of Justice 
with a recommendation that appropriate proceedings be brought to enforce 
any rights of the United States under any law of the United States; and 
(iii) any applicable proceedings under State or local law.
    (b) Noncompliance with Sec. 113.4. If an applicant fails or refuses 
to furnish an assurance required under Sec. 113.4 or otherwise fails or 
refuses to comply with a requirement imposed by or pursuant to that 
section, Federal financial assistance may be refused in accordance with 
the procedures of paragraph (c) of this section. SBA shall not be 
required to provide assistance in such a case during the pendency of the 
administrative proceedings under such paragraph except that SBA shall 
continue assistance during the pendency of such proceedings where such 
assistance is due and payable pursuant to an application therefor 
approved prior to the effective date of this part. Such proceedings 
shall be conducted in accordance with the provisions of part 134 of this 
chapter by an Administrative Law Judge of the Office of Hearings and 
Appeals, who shall issue an initial decision in the case. The 
Admininstrator shall be the reviewing official for purposes of 
Sec. 134.228. The applicant's failure to file a timely motion in 
accordance with Secs. 134.222 and 134.211, requesting that the matter be 
scheduled for an oral hearing, shall constitute waiver of the right to 
an oral hearing but shall not prevent the submission of written 
information and argument for the record in accordance with the 
provisions of part 134.
    (c) Condition precedent. Under this part 113, no order suspending, 
terminating, refusing, calling, canceling, or accelerating repayment of 
financial assistance in whole or in part shall become effective until 
(1) SBA has advised the applicant or recipient of his failure to comply 
and has determined that compliance cannot be secured by voluntary means; 
(2) there has been an express finding on the record after an opportunity 
for an oral hearing, of a failure by the applicant or recipient to 
comply with a requirement imposed by or pursuant to this part; and (3) 
the initial decision has become final pursuant to Sec. 134.227(b).
    (d) Other means authorized by law. No action to effect compliance by 
any other means authorized by law shall be taken until:
    (1) SBA has determined that compliance cannot be secured by 
voluntary means.

[[Page 153]]

    (2) The action has been approved by the Administrator or the 
Administrator's designee.
    (3) The applicant or recipient or other person has been notified of 
its failure to comply and of the action to be taken to effect 
compliance.
    (4) The expiration of at least 10 days from the mailing of such 
notice to the applicant or recipient or other person. During this period 
of at least 10 days, additional efforts shall be made to persuade the 
applicant or recipient or other person to comply with this part and to 
take such corrective action as may be appropriate.

[44 FR 20068, Apr. 4, 1979, as amended at 49 FR 33629, Aug. 24, 1984; 61 
FR 2691, Jan. 29, 1996]



Sec. 113.8  Effect on other regulations, forms and instructions.

    (a) Effect on other regulations. All regulations, orders of like 
directions heretofore issued by SBA which impose requirements designed 
to prohibit any discrimination against individuals on the grounds of 
race, color, religion, sex, handicap, marital status, age, or national 
origin and which authorize the suspension or termination of a refusal to 
grant to or to continue financial assistance to any applicant for or 
recipient of such assistance for failure to comply with such 
requirements, are hereby superseded to the extent that such 
discrimination is prohibited by this part, except that nothing in this 
part shall be deemed to relieve any person of any obligation assumed or 
imposed under any such superseded regulation, order, instruction or like 
direction prior to the effective date of this part.
    (b) Forms and instructions. SBA shall issue and promptly make 
available to interested persons forms and detailed instructions and 
procedures for effectuating this part.
    (c) Supervision and coordination. The Administrator may from time-
to-time assign to officials of SBA or to officials of other agencies of 
the Government, with the consent of such agencies, responsibilities in 
connection with the effectuation of the purposes of this part (other 
than responsibility of first decisions as provided in Sec. 113.9) 
including the achievement of effective coordination and maximum 
uniformity within SBA and within the executive branch of the Government 
in the application of this part and of comparable regulations issued by 
other agencies of the Government to similar situations. Any action 
taken, determination made, or requirement imposed by an official of 
another department or agency acting pursuant to an assignment of 
responsibility under this subsection shall have the same effect as 
though such action had been taken by the Administrator of SBA.

[44 FR 20068, Apr. 4, 1979. Redesignated at 49 FR 33629, Aug. 24, 1984]

                   Appendix A to Subpart A of Part 113

------------------------------------------------------------------------
              Name of program                         Authority
------------------------------------------------------------------------
                           Financial Programs
------------------------------------------------------------------------
Regular business loans....................  Small Business Act, sec.
                                             7(a).
Handicapped assistance loans..............  Small Business Act, sec.
                                             7(a)(10).
Small business energy loans...............  Small Business Act, sec.
                                             7(a)(12).
Small general contractors loans...........  Small Business Act, sec.
                                             7(a)(9).
Export revolving line of credit...........  Small Business Act, sec.
                                             7(a)(14).
Vietnam-era and Disabled Veterans Loan      Pub. L. 97-72.
 Program.
Debtor State development company loans      Small Business Investment
 (501) and their small business concerns.    Act, Title V and Small
                                             Business Act, sec.
                                             7(a)(13).
Debtor State and local development company  Small Business Investment
 loans (502) and their small business        Act, Title V and Small
 concerns.                                   Business Act, sec.
                                             7(a)(13).
Debtor certified development companies      Small Business Investment
 (503) and their small business concerns.    Act, Title V and Small
                                             Business Act, sec.
                                             7(a)(13).
Debtor small business investment companies  Small Business Investment
 and their small business concerns.          Act, Title III.
Pollution Control.........................  Small Business Investment
                                             Act, Title IV, Part A.
Surety bond guarantees....................  Small Business Investment
                                             Act, Title IV, Part B.
Lease guarantees (not funded) disaster      Small Business Investment
 loans.                                      Act, Title IV.
Physical..................................  Small Business Act, sec.
                                             7(b)(1).
Economic injury (EIDL)....................  Small Business Act, sec.
                                             7(b)(2).
Federal action--economic injury...........  Small Business Act, sec.
                                             7(b)(3).
Currency fluctuation--economic injury.....  Small Business Act, sec
                                             7(b)(4).
------------------------------------------------------------------------
                          Nonfinancial Programs
------------------------------------------------------------------------
Women's business enterprise...............  Executive Order 12138.
Small business innovation and research....  Small Business Act, sec. 9.
Procurement automated source system.......  Small Business Act, sec. 8
                                             and Pub. L. 96-302.

[[Page 154]]

 
Business Development Program..............  Small Business Act, sec.
                                             8(a) and Pub. L. 95-507, as
                                             amended by Pub. L. 96-481.
Small Business Institute..................  Small Business Act, sec.
                                             8(b)(1).
Certificate of competency.................  Small Business Act, sec.
                                             8(b)(7) and Pub. L. 95-89.
Subcontracting Assistance Program.........  Small Business Act, sec.
                                             8(d) and Pub. L. 95-507.
Technology Assistance Program.............  Small Business Act, sec. 9.
Small business development centers........  Small Business Act, sec. 21
                                             and Pub. L. 96-302.
International Trade Program...............  Small Business Act, sec. 22
                                             and Pub. L. 96-481.
Service Corps of Retired Executives and     Small Business Act, secs.
 Active Corps of Executives.                 101 and 8(b)(1) and Pub. L.
                                             95-510.
Veterans Affairs Programs.................  Pub. L. 93-237.
Private sector initiatives................  Small Business Act, sec.
                                             8(b)(1).
------------------------------------------------------------------------


[50 FR 1442, Jan. 11, 1985]



 Subpart B--Nondiscrimination on the Basis of Sex in Education Programs 
          or Activities Receiving Federal Financial Assistance

    Authority: 20 U.S.C. 1681, 1682, 1683, 1685, 1686, 1687, 1688.

    Source: 65 FR 52865, 52876, Aug. 30, 2000, unless otherwise noted.

                              Introduction



Sec. 113.100  Purpose and effective date.

    The purpose of these Title IX regulations is to effectuate Title IX 
of the Education Amendments of 1972, as amended (except sections 904 and 
906 of those Amendments) (20 U.S.C. 1681, 1682, 1683, 1685, 1686, 1687, 
1688), which is designed to eliminate (with certain exceptions) 
discrimination on the basis of sex in any education program or activity 
receiving Federal financial assistance, whether or not such program or 
activity is offered or sponsored by an educational institution as 
defined in these Title IX regulations. The effective date of these Title 
IX regulations shall be September 29, 2000.



Sec. 113.105  Definitions.

    As used in these Title IX regulations, the term:
    Administratively separate unit means a school, department, or 
college of an educational institution (other than a local educational 
agency) admission to which is independent of admission to any other 
component of such institution.
    Admission means selection for part-time, full-time, special, 
associate, transfer, exchange, or any other enrollment, membership, or 
matriculation in or at an education program or activity operated by a 
recipient.
    Applicant means one who submits an application, request, or plan 
required to be approved by an official of the Federal agency that awards 
Federal financial assistance, or by a recipient, as a condition to 
becoming a recipient.
    Designated agency official means Assistant Administrator for Equal 
Employment and Civil Rights Compliance.
    Educational institution means a local educational agency (LEA) as 
defined by 20 U.S.C. 8801(18), a preschool, a private elementary or 
secondary school, or an applicant or recipient that is an institution of 
graduate higher education, an institution of undergraduate higher 
education, an institution of professional education, or an institution 
of vocational education, as defined in this section.
    Federal financial assistance means any of the following, when 
authorized or extended under a law administered by the Federal agency 
that awards such assistance:
    (1) A grant or loan of Federal financial assistance, including funds 
made available for:
    (i) The acquisition, construction, renovation, restoration, or 
repair of a building or facility or any portion thereof; and
    (ii) Scholarships, loans, grants, wages, or other funds extended to 
any entity for payment to or on behalf of students admitted to that 
entity, or extended directly to such students for payment to that 
entity.
    (2) A grant of Federal real or personal property or any interest 
therein, including surplus property, and the proceeds of the sale or 
transfer of such property, if the Federal share of the fair market value 
of the property is not, upon such sale or transfer, properly accounted 
for to the Federal Government.

[[Page 155]]

    (3) Provision of the services of Federal personnel.
    (4) Sale or lease of Federal property or any interest therein at 
nominal consideration, or at consideration reduced for the purpose of 
assisting the recipient or in recognition of public interest to be 
served thereby, or permission to use Federal property or any interest 
therein without consideration.
    (5) Any other contract, agreement, or arrangement that has as one of 
its purposes the provision of assistance to any education program or 
activity, except a contract of insurance or guaranty.
    Institution of graduate higher education means an institution that:
    (1) Offers academic study beyond the bachelor of arts or bachelor of 
science degree, whether or not leading to a certificate of any higher 
degree in the liberal arts and sciences;
    (2) Awards any degree in a professional field beyond the first 
professional degree (regardless of whether the first professional degree 
in such field is awarded by an institution of undergraduate higher 
education or professional education); or
    (3) Awards no degree and offers no further academic study, but 
operates ordinarily for the purpose of facilitating research by persons 
who have received the highest graduate degree in any field of study.
    Institution of professional education means an institution (except 
any institution of undergraduate higher education) that offers a program 
of academic study that leads to a first professional degree in a field 
for which there is a national specialized accrediting agency recognized 
by the Secretary of Education.
    Institution of undergraduate higher education means:
    (1) An institution offering at least two but less than four years of 
college-level study beyond the high school level, leading to a diploma 
or an associate degree, or wholly or principally creditable toward a 
baccalaureate degree; or
    (2) An institution offering academic study leading to a 
baccalaureate degree; or
    (3) An agency or body that certifies credentials or offers degrees, 
but that may or may not offer academic study.
    Institution of vocational education means a school or institution 
(except an institution of professional or graduate or undergraduate 
higher education) that has as its primary purpose preparation of 
students to pursue a technical, skilled, or semiskilled occupation or 
trade, or to pursue study in a technical field, whether or not the 
school or institution offers certificates, diplomas, or degrees and 
whether or not it offers full-time study.
    Recipient means any State or political subdivision thereof, or any 
instrumentality of a State or political subdivision thereof, any public 
or private agency, institution, or organization, or other entity, or any 
person, to whom Federal financial assistance is extended directly or 
through another recipient and that operates an education program or 
activity that receives such assistance, including any subunit, 
successor, assignee, or transferee thereof.
    Student means a person who has gained admission.
    Title IX means Title IX of the Education Amendments of 1972, Public 
Law 92-318, 86 Stat. 235, 373 (codified as amended at 20 U.S.C. 1681-
1688) (except sections 904 and 906 thereof), as amended by section 3 of 
Public Law 93-568, 88 Stat. 1855, by section 412 of the Education 
Amendments of 1976, Public Law 94-482, 90 Stat. 2234, and by Section 3 
of Public Law 100-259, 102 Stat. 28, 28-29 (20 U.S.C. 1681, 1682, 1683, 
1685, 1686, 1687, 1688).
    Title IX regulations means the provisions set forth at Secs. 113.100 
through 113.605.
    Transition plan means a plan subject to the approval of the 
Secretary of Education pursuant to section 901(a)(2) of the Education 
Amendments of 1972, 20 U.S.C. 1681(a)(2), under which an educational 
institution operates in making the transition from being an educational 
institution that admits only students of one sex to being one that 
admits students of both sexes without discrimination.



Sec. 113.110  Remedial and affirmative action and self-evaluation.

    (a) Remedial action. If the designated agency official finds that a 
recipient has discriminated against persons on

[[Page 156]]

the basis of sex in an education program or activity, such recipient 
shall take such remedial action as the designated agency official deems 
necessary to overcome the effects of such discrimination.
    (b) Affirmative action. In the absence of a finding of 
discrimination on the basis of sex in an education program or activity, 
a recipient may take affirmative action consistent with law to overcome 
the effects of conditions that resulted in limited participation therein 
by persons of a particular sex. Nothing in these Title IX regulations 
shall be interpreted to alter any affirmative action obligations that a 
recipient may have under Executive Order 11246, 3 CFR, 1964-1965 Comp., 
p. 339; as amended by Executive Order 11375, 3 CFR, 1966-1970 Comp., p. 
684; as amended by Executive Order 11478, 3 CFR, 1966-1970 Comp., p. 
803; as amended by Executive Order 12086, 3 CFR, 1978 Comp., p. 230; as 
amended by Executive Order 12107, 3 CFR, 1978 Comp., p. 264.
    (c) Self-evaluation. Each recipient education institution shall, 
within one year of September 29, 2000:
    (1) Evaluate, in terms of the requirements of these Title IX 
regulations, its current policies and practices and the effects thereof 
concerning admission of students, treatment of students, and employment 
of both academic and non-academic personnel working in connection with 
the recipient's education program or activity;
    (2) Modify any of these policies and practices that do not or may 
not meet the requirements of these Title IX regulations; and
    (3) Take appropriate remedial steps to eliminate the effects of any 
discrimination that resulted or may have resulted from adherence to 
these policies and practices.
    (d) Availability of self-evaluation and related materials. 
Recipients shall maintain on file for at least three years following 
completion of the evaluation required under paragraph (c) of this 
section, and shall provide to the designated agency official upon 
request, a description of any modifications made pursuant to paragraph 
(c)(2) of this section and of any remedial steps taken pursuant to 
paragraph (c)(3) of this section.



Sec. 113.115  Assurance required.

    (a) General. Either at the application stage or the award stage, 
Federal agencies must ensure that applications for Federal financial 
assistance or awards of Federal financial assistance contain, be 
accompanied by, or be covered by a specifically identified assurance 
from the applicant or recipient, satisfactory to the designated agency 
official, that each education program or activity operated by the 
applicant or recipient and to which these Title IX regulations apply 
will be operated in compliance with these Title IX regulations. An 
assurance of compliance with these Title IX regulations shall not be 
satisfactory to the designated agency official if the applicant or 
recipient to whom such assurance applies fails to commit itself to take 
whatever remedial action is necessary in accordance with Sec. 113.110(a) 
to eliminate existing discrimination on the basis of sex or to eliminate 
the effects of past discrimination whether occurring prior to or 
subsequent to the submission to the designated agency official of such 
assurance.
    (b) Duration of obligation. (1) In the case of Federal financial 
assistance extended to provide real property or structures thereon, such 
assurance shall obligate the recipient or, in the case of a subsequent 
transfer, the transferee, for the period during which the real property 
or structures are used to provide an education program or activity.
    (2) In the case of Federal financial assistance extended to provide 
personal property, such assurance shall obligate the recipient for the 
period during which it retains ownership or possession of the property.
    (3) In all other cases such assurance shall obligate the recipient 
for the period during which Federal financial assistance is extended.
    (c) Form. (1) The assurances required by paragraph (a) of this 
section, which may be included as part of a document that addresses 
other assurances or obligations, shall include that the applicant or 
recipient will comply with all applicable Federal statutes relating to 
nondiscrimination. These include but

[[Page 157]]

are not limited to: Title IX of the Education Amendments of 1972, as 
amended (20 U.S.C. 1681-1683, 1685-1688).
    (2) The designated agency official will specify the extent to which 
such assurances will be required of the applicant's or recipient's 
subgrantees, contractors, subcontractors, transferees, or successors in 
interest.



Sec. 113.120  Transfers of property.

    If a recipient sells or otherwise transfers property financed in 
whole or in part with Federal financial assistance to a transferee that 
operates any education program or activity, and the Federal share of the 
fair market value of the property is not upon such sale or transfer 
properly accounted for to the Federal Government, both the transferor 
and the transferee shall be deemed to be recipients, subject to the 
provisions of Secs. 113.205 through 113.235(a).



Sec. 113.125  Effect of other requirements.

    (a) Effect of other Federal provisions. The obligations imposed by 
these Title IX regulations are independent of, and do not alter, 
obligations not to discriminate on the basis of sex imposed by Executive 
Order 11246, 3 CFR, 1964-1965 Comp., p. 339; as amended by Executive 
Order 11375, 3 CFR, 1966-1970 Comp., p. 684; as amended by Executive 
Order 11478, 3 CFR, 1966-1970 Comp., p. 803; as amended by Executive 
Order 12087, 3 CFR, 1978 Comp., p. 230; as amended by Executive Order 
12107, 3 CFR, 1978 Comp., p. 264; sections 704 and 855 of the Public 
Health Service Act (42 U.S.C. 295m, 298b-2); Title VII of the Civil 
Rights Act of 1964 (42 U.S.C. 2000e et seq.); the Equal Pay Act of 1963 
(29 U.S.C. 206); and any other Act of Congress or Federal regulation.
    (b) Effect of State or local law or other requirements. The 
obligation to comply with these Title IX regulations is not obviated or 
alleviated by any State or local law or other requirement that would 
render any applicant or student ineligible, or limit the eligibility of 
any applicant or student, on the basis of sex, to practice any 
occupation or profession.
    (c) Effect of rules or regulations of private organizations. The 
obligation to comply with these Title IX regulations is not obviated or 
alleviated by any rule or regulation of any organization, club, athletic 
or other league, or association that would render any applicant or 
student ineligible to participate or limit the eligibility or 
participation of any applicant or student, on the basis of sex, in any 
education program or activity operated by a recipient and that receives 
Federal financial assistance.



Sec. 113.130  Effect of employment opportunities.

    The obligation to comply with these Title IX regulations is not 
obviated or alleviated because employment opportunities in any 
occupation or profession are or may be more limited for members of one 
sex than for members of the other sex.



Sec. 113.135  Designation of responsible employee and adoption of grievance procedures.

    (a) Designation of responsible employee. Each recipient shall 
designate at least one employee to coordinate its efforts to comply with 
and carry out its responsibilities under these Title IX regulations, 
including any investigation of any complaint communicated to such 
recipient alleging its noncompliance with these Title IX regulations or 
alleging any actions that would be prohibited by these Title IX 
regulations. The recipient shall notify all its students and employees 
of the name, office address, and telephone number of the employee or 
employees appointed pursuant to this paragraph.
    (b) Complaint procedure of recipient. A recipient shall adopt and 
publish grievance procedures providing for prompt and equitable 
resolution of student and employee complaints alleging any action that 
would be prohibited by these Title IX regulations.



Sec. 113.140  Dissemination of policy.

    (a) Notification of policy. (1) Each recipient shall implement 
specific and continuing steps to notify applicants for admission and 
employment, students and parents of elementary and secondary school 
students, employees, sources of referral of applicants for admission and 
employment, and all unions or professional organizations

[[Page 158]]

holding collective bargaining or professional agreements with the 
recipient, that it does not discriminate on the basis of sex in the 
educational programs or activities that it operates, and that it is 
required by Title IX and these Title IX regulations not to discriminate 
in such a manner. Such notification shall contain such information, and 
be made in such manner, as the designated agency official finds 
necessary to apprise such persons of the protections against 
discrimination assured them by Title IX and these Title IX regulations, 
but shall state at least that the requirement not to discriminate in 
education programs or activities extends to employment therein, and to 
admission thereto unless Secs. 113.300 through 113.310 do not apply to 
the recipient, and that inquiries concerning the application of Title IX 
and these Title IX regulations to such recipient may be referred to the 
employee designated pursuant to Sec. 113.135, or to the designated 
agency official.
    (2) Each recipient shall make the initial notification required by 
paragraph (a)(1) of this section within 90 days of September 29, 2000 or 
of the date these Title IX regulations first apply to such recipient, 
whichever comes later, which notification shall include publication in:
    (i) Newspapers and magazines operated by such recipient or by 
student, alumnae, or alumni groups for or in connection with such 
recipient; and
    (ii) Memoranda or other written communications distributed to every 
student and employee of such recipient.
    (b) Publications. (1) Each recipient shall prominently include a 
statement of the policy described in paragraph (a) of this section in 
each announcement, bulletin, catalog, or application form that it makes 
available to any person of a type, described in paragraph (a) of this 
section, or which is otherwise used in connection with the recruitment 
of students or employees.
    (2) A recipient shall not use or distribute a publication of the 
type described in paragraph (b)(1) of this section that suggests, by 
text or illustration, that such recipient treats applicants, students, 
or employees differently on the basis of sex except as such treatment is 
permitted by these Title IX regulations.
    (c) Distribution. Each recipient shall distribute without 
discrimination on the basis of sex each publication described in 
paragraph (b)(1) of this section, and shall apprise each of its 
admission and employment recruitment representatives of the policy of 
nondiscrimination described in paragraph (a) of this section, and shall 
require such representatives to adhere to such policy.

                                Coverage



Sec. 113.200  Application.

    Except as provided in Secs. 113.205 through 113.235(a), these Title 
IX regulations apply to every recipient and to each education program or 
activity operated by such recipient that receives Federal financial 
assistance.



Sec. 113.205  Educational institutions and other entities controlled by religious organizations.

    (a) Exemption. These Title IX regulations do not apply to any 
operation of an educational institution or other entity that is 
controlled by a religious organization to the extent that application of 
these Title IX regulations would not be consistent with the religious 
tenets of such organization.
    (b) Exemption claims. An educational institution or other entity 
that wishes to claim the exemption set forth in paragraph (a) of this 
section shall do so by submitting in writing to the designated agency 
official a statement by the highest-ranking official of the institution, 
identifying the provisions of these Title IX regulations that conflict 
with a specific tenet of the religious organization.



Sec. 113.210  Military and merchant marine educational institutions.

    These Title IX regulations do not apply to an educational 
institution whose primary purpose is the training of individuals for a 
military service of the United States or for the merchant marine.

[[Page 159]]



Sec. 113.215  Membership practices of certain organizations.

    (a) Social fraternities and sororities. These Title IX regulations 
do not apply to the membership practices of social fraternities and 
sororities that are exempt from taxation under section 501(a) of the 
Internal Revenue Code of 1954, 26 U.S.C. 501(a), the active membership 
of which consists primarily of students in attendance at institutions of 
higher education.
    (b) YMCA, YWCA, Girl Scouts, Boy Scouts, and Camp Fire Girls. These 
Title IX regulations do not apply to the membership practices of the 
Young Men's Christian Association (YMCA), the Young Women's Christian 
Association (YWCA), the Girl Scouts, the Boy Scouts, and Camp Fire 
Girls.
    (c) Voluntary youth service organizations. These Title IX 
regulations do not apply to the membership practices of a voluntary 
youth service organization that is exempt from taxation under section 
501(a) of the Internal Revenue Code of 1954, 26 U.S.C. 501(a), and the 
membership of which has been traditionally limited to members of one sex 
and principally to persons of less than nineteen years of age.



Sec. 113.220  Admissions.

    (a) Admissions to educational institutions prior to June 24, 1973, 
are not covered by these Title IX regulations.
    (b) Administratively separate units. For the purposes only of this 
section, Secs. 113.225 and 113.230, and Secs. 113.300 through 113.310, 
each administratively separate unit shall be deemed to be an educational 
institution.
    (c) Application of Secs. 113.300 through 113.310. Except as provided 
in paragraphs (d) and (e) of this section, Secs. 113.300 through 113.310 
apply to each recipient. A recipient to which Secs. 113.300 through 
113.310 apply shall not discriminate on the basis of sex in admission or 
recruitment in violation of Secs. 113.300 through 113.310.
    (d) Educational institutions. Except as provided in paragraph (e) of 
this section as to recipients that are educational institutions, 
Secs. 113.300 through 113.310 apply only to institutions of vocational 
education, professional education, graduate higher education, and public 
institutions of undergraduate higher education.
    (e) Public institutions of undergraduate higher education. 
Secs. 113.300 through 113.310 do not apply to any public institution of 
undergraduate higher education that traditionally and continually from 
its establishment has had a policy of admitting students of only one 
sex.



Sec. 113.225  Educational institutions eligible to submit transition plans.

    (a) Application. This section applies to each educational 
institution to which Secs. 113.300 through 113.310 apply that:
    (1) Admitted students of only one sex as regular students as of June 
23, 1972; or
    (2) Admitted students of only one sex as regular students as of June 
23, 1965, but thereafter admitted, as regular students, students of the 
sex not admitted prior to June 23, 1965.
    (b) Provision for transition plans. An educational institution to 
which this section applies shall not discriminate on the basis of sex in 
admission or recruitment in violation of Secs. 113.300 through 113.310.



Sec. 113.230  Transition plans.

    (a) Submission of plans. An institution to which Sec. 113.225 
applies and that is composed of more than one administratively separate 
unit may submit either a single transition plan applicable to all such 
units, or a separate transition plan applicable to each such unit.
    (b) Content of plans. In order to be approved by the Secretary of 
Education, a transition plan shall:
    (1) State the name, address, and Federal Interagency Committee on 
Education Code of the educational institution submitting such plan, the 
administratively separate units to which the plan is applicable, and the 
name, address, and telephone number of the person to whom questions 
concerning the plan may be addressed. The person who submits the plan 
shall be the chief administrator or president of the institution, or 
another individual legally authorized to bind the institution to all 
actions set forth in the plan.
    (2) State whether the educational institution or administratively 
separate

[[Page 160]]

unit admits students of both sexes as regular students and, if so, when 
it began to do so.
    (3) Identify and describe with respect to the educational 
institution or administratively separate unit any obstacles to admitting 
students without discrimination on the basis of sex.
    (4) Describe in detail the steps necessary to eliminate as soon as 
practicable each obstacle so identified and indicate the schedule for 
taking these steps and the individual directly responsible for their 
implementation.
    (5) Include estimates of the number of students, by sex, expected to 
apply for, be admitted to, and enter each class during the period 
covered by the plan.
    (c) Nondiscrimination. No policy or practice of a recipient to which 
Sec. 113.225 applies shall result in treatment of applicants to or 
students of such recipient in violation of Secs. 113.300 through 113.310 
unless such treatment is necessitated by an obstacle identified in 
paragraph (b)(3) of this section and a schedule for eliminating that 
obstacle has been provided as required by paragraph (b)(4) of this 
section.
    (d) Effects of past exclusion. To overcome the effects of past 
exclusion of students on the basis of sex, each educational institution 
to which Sec. 113.225 applies shall include in its transition plan, and 
shall implement, specific steps designed to encourage individuals of the 
previously excluded sex to apply for admission to such institution. Such 
steps shall include instituting recruitment programs that emphasize the 
institution's commitment to enrolling students of the sex previously 
excluded.



Sec. 113.235  Statutory amendments.

    (a) This section, which applies to all provisions of these Title IX 
regulations, addresses statutory amendments to Title IX.
    (b) These Title IX regulations shall not apply to or preclude:
    (1) Any program or activity of the American Legion undertaken in 
connection with the organization or operation of any Boys State 
conference, Boys Nation conference, Girls State conference, or Girls 
Nation conference;
    (2) Any program or activity of a secondary school or educational 
institution specifically for:
    (i) The promotion of any Boys State conference, Boys Nation 
conference, Girls State conference, or Girls Nation conference; or
    (ii) The selection of students to attend any such conference;
    (3) Father-son or mother-daughter activities at an educational 
institution or in an education program or activity, but if such 
activities are provided for students of one sex, opportunities for 
reasonably comparable activities shall be provided to students of the 
other sex;
    (4) Any scholarship or other financial assistance awarded by an 
institution of higher education to an individual because such individual 
has received such award in a single-sex pageant based upon a combination 
of factors related to the individual's personal appearance, poise, and 
talent. The pageant, however, must comply with other nondiscrimination 
provisions of Federal law.
    (c) Program or activity or program means:
    (1) All of the operations of any entity described in paragraphs 
(c)(1)(i) through (iv) of this section, any part of which is extended 
Federal financial assistance:
    (i)(A) A department, agency, special purpose district, or other 
instrumentality of a State or of a local government; or
    (B) The entity of such State or local government that distributes 
such assistance and each such department or agency (and each other State 
or local government entity) to which the assistance is extended, in the 
case of assistance to a State or local government;
    (ii)(A) A college, university, or other postsecondary institution, 
or a public system of higher education; or
    (B) A local educational agency (as defined in section 8801 of title 
20), system of vocational education, or other school system;
    (iii)(A) An entire corporation, partnership, or other private 
organization, or an entire sole proprietorship--

[[Page 161]]

    (1) If assistance is extended to such corporation, partnership, 
private organization, or sole proprietorship as a whole; or
    (2) Which is principally engaged in the business of providing 
education, health care, housing, social services, or parks and 
recreation; or
    (B) The entire plant or other comparable, geographically separate 
facility to which Federal financial assistance is extended, in the case 
of any other corporation, partnership, private organization, or sole 
proprietorship; or
    (iv) Any other entity that is established by two or more of the 
entities described in paragraphs (c)(1)(i), (ii), or (iii) of this 
section.
    (2)(i) Program or activity does not include any operation of an 
entity that is controlled by a religious organization if the application 
of 20 U.S.C. 1681 to such operation would not be consistent with the 
religious tenets of such organization.
    (ii) For example, all of the operations of a college, university, or 
other postsecondary institution, including but not limited to 
traditional educational operations, faculty and student housing, campus 
shuttle bus service, campus restaurants, the bookstore, and other 
commercial activities are part of a ``program or activity'' subject to 
these Title IX regulations if the college, university, or other 
institution receives Federal financial assistance.
    (d)(1) Nothing in these Title IX regulations shall be construed to 
require or prohibit any person, or public or private entity, to provide 
or pay for any benefit or service, including the use of facilities, 
related to an abortion. Medical procedures, benefits, services, and the 
use of facilities, necessary to save the life of a pregnant woman or to 
address complications related to an abortion are not subject to this 
section.
    (2) Nothing in this section shall be construed to permit a penalty 
to be imposed on any person or individual because such person or 
individual is seeking or has received any benefit or service related to 
a legal abortion. Accordingly, subject to paragraph (d)(1) of this 
section, no person shall be excluded from participation in, be denied 
the benefits of, or be subjected to discrimination under any academic, 
extracurricular, research, occupational training, employment, or other 
educational program or activity operated by a recipient that receives 
Federal financial assistance because such individual has sought or 
received, or is seeking, a legal abortion, or any benefit or service 
related to a legal abortion.

    Discrimination on the Basis of Sex in Admission and Recruitment 
                               Prohibited



Sec. 113.300  Admission.

    (a) General. No person shall, on the basis of sex, be denied 
admission, or be subjected to discrimination in admission, by any 
recipient to which Secs. 113.300 through Secs. 113.310 apply, except as 
provided in Secs. 113.225 and Secs. 113.230.
    (b) Specific prohibitions. (1) In determining whether a person 
satisfies any policy or criterion for admission, or in making any offer 
of admission, a recipient to which Secs. 113.300 through 113.310 apply 
shall not:
    (i) Give preference to one person over another on the basis of sex, 
by ranking applicants separately on such basis, or otherwise;
    (ii) Apply numerical limitations upon the number or proportion of 
persons of either sex who may be admitted; or
    (iii) Otherwise treat one individual differently from another on the 
basis of sex.
    (2) A recipient shall not administer or operate any test or other 
criterion for admission that has a disproportionately adverse effect on 
persons on the basis of sex unless the use of such test or criterion is 
shown to predict validly success in the education program or activity in 
question and alternative tests or criteria that do not have such a 
disproportionately adverse effect are shown to be unavailable.
    (c) Prohibitions relating to marital or parental status. In 
determining whether a person satisfies any policy or criterion for 
admission, or in making any offer of admission, a recipient to which 
Secs. 113.300 through 113.310 apply:
    (1) Shall not apply any rule concerning the actual or potential 
parental, family, or marital status of a student or applicant that 
treats persons differently on the basis of sex;

[[Page 162]]

    (2) Shall not discriminate against or exclude any person on the 
basis of pregnancy, childbirth, termination of pregnancy, or recovery 
therefrom, or establish or follow any rule or practice that so 
discriminates or excludes;
    (3) Subject to Sec. 113.235(d), shall treat disabilities related to 
pregnancy, childbirth, termination of pregnancy, or recovery therefrom 
in the same manner and under the same policies as any other temporary 
disability or physical condition; and
    (4) Shall not make pre-admission inquiry as to the marital status of 
an applicant for admission, including whether such applicant is ``Miss'' 
or ``Mrs.'' A recipient may make pre-admission inquiry as to the sex of 
an applicant for admission, but only if such inquiry is made equally of 
such applicants of both sexes and if the results of such inquiry are not 
used in connection with discrimination prohibited by these Title IX 
regulations.



Sec. 113.305  Preference in admission.

    A recipient to which Secs. 113.300 through 113.310 apply shall not 
give preference to applicants for admission, on the basis of attendance 
at any educational institution or other school or entity that admits as 
students only or predominantly members of one sex, if the giving of such 
preference has the effect of discriminating on the basis of sex in 
violation of Secs. 113.300 through 113.310.



Sec. 113.310  Recruitment.

    (a) Nondiscriminatory recruitment. A recipient to which 
Secs. 113.300 through 113.310 apply shall not discriminate on the basis 
of sex in the recruitment and admission of students. A recipient may be 
required to undertake additional recruitment efforts for one sex as 
remedial action pursuant to Sec. 113.110(a), and may choose to undertake 
such efforts as affirmative action pursuant to Sec. 113.110(b).
    (b) Recruitment at certain institutions. A recipient to which 
Secs. 113.300 through 113.310 apply shall not recruit primarily or 
exclusively at educational institutions, schools, or entities that admit 
as students only or predominantly members of one sex, if such actions 
have the effect of discriminating on the basis of sex in violation of 
Secs. 113.300 through 113.310.

 Discrimination on the Basis of Sex in Education Programs or Activities 
                               Prohibited



Sec. 113.400  Education programs or activities.

    (a) General. Except as provided elsewhere in these Title IX 
regulations, no person shall, on the basis of sex, be excluded from 
participation in, be denied the benefits of, or be subjected to 
discrimination under any academic, extracurricular, research, 
occupational training, or other education program or activity operated 
by a recipient that receives Federal financial assistance. Sections 
113.400 through 113.455 do not apply to actions of a recipient in 
connection with admission of its students to an education program or 
activity of a recipient to which Secs. 113.300 through 113.310 do not 
apply, or an entity, not a recipient, to which Secs. 113.300 through 
113.310 would not apply if the entity were a recipient.
    (b) Specific prohibitions. Except as provided in Secs. 113.400 
through 113.455, in providing any aid, benefit, or service to a student, 
a recipient shall not, on the basis of sex:
    (1) Treat one person differently from another in determining whether 
such person satisfies any requirement or condition for the provision of 
such aid, benefit, or service;
    (2) Provide different aid, benefits, or services or provide aid, 
benefits, or services in a different manner;
    (3) Deny any person any such aid, benefit, or service;
    (4) Subject any person to separate or different rules of behavior, 
sanctions, or other treatment;
    (5) Apply any rule concerning the domicile or residence of a student 
or applicant, including eligibility for in-state fees and tuition;
    (6) Aid or perpetuate discrimination against any person by providing 
significant assistance to any agency, organization, or person that 
discriminates on the basis of sex in providing any aid, benefit, or 
service to students or employees;

[[Page 163]]

    (7) Otherwise limit any person in the enjoyment of any right, 
privilege, advantage, or opportunity.
    (c) Assistance administered by a recipient educational institution 
to study at a foreign institution. A recipient educational institution 
may administer or assist in the administration of scholarships, 
fellowships, or other awards established by foreign or domestic wills, 
trusts, or similar legal instruments, or by acts of foreign governments 
and restricted to members of one sex, that are designed to provide 
opportunities to study abroad, and that are awarded to students who are 
already matriculating at or who are graduates of the recipient 
institution; Provided, that a recipient educational institution that 
administers or assists in the administration of such scholarships, 
fellowships, or other awards that are restricted to members of one sex 
provides, or otherwise makes available, reasonable opportunities for 
similar studies for members of the other sex. Such opportunities may be 
derived from either domestic or foreign sources.
    (d) Aids, benefits or services not provided by recipient. (1) This 
paragraph (d) applies to any recipient that requires participation by 
any applicant, student, or employee in any education program or activity 
not operated wholly by such recipient, or that facilitates, permits, or 
considers such participation as part of or equivalent to an education 
program or activity operated by such recipient, including participation 
in educational consortia and cooperative employment and student-teaching 
assignments.
    (2) Such recipient:
    (i) Shall develop and implement a procedure designed to assure 
itself that the operator or sponsor of such other education program or 
activity takes no action affecting any applicant, student, or employee 
of such recipient that these Title IX regulations would prohibit such 
recipient from taking; and
    (ii) Shall not facilitate, require, permit, or consider such 
participation if such action occurs.



Sec. 113.405  Housing.

    (a) Generally. A recipient shall not, on the basis of sex, apply 
different rules or regulations, impose different fees or requirements, 
or offer different services or benefits related to housing, except as 
provided in this section (including housing provided only to married 
students).
    (b) Housing provided by recipient. (1) A recipient may provide 
separate housing on the basis of sex.
    (2) Housing provided by a recipient to students of one sex, when 
compared to that provided to students of the other sex, shall be as a 
whole:
    (i) Proportionate in quantity to the number of students of that sex 
applying for such housing; and
    (ii) Comparable in quality and cost to the student.
    (c) Other housing. (1) A recipient shall not, on the basis of sex, 
administer different policies or practices concerning occupancy by its 
students of housing other than that provided by such recipient.
    (2)(i) A recipient which, through solicitation, listing, approval of 
housing, or otherwise, assists any agency, organization, or person in 
making housing available to any of its students, shall take such 
reasonable action as may be necessary to assure itself that such housing 
as is provided to students of one sex, when compared to that provided to 
students of the other sex, is as a whole:
    (A) Proportionate in quantity; and
    (B) Comparable in quality and cost to the student.
    (ii) A recipient may render such assistance to any agency, 
organization, or person that provides all or part of such housing to 
students of only one sex.



Sec. 113.410  Comparable facilities.

    A recipient may provide separate toilet, locker room, and shower 
facilities on the basis of sex, but such facilities provided for 
students of one sex shall be comparable to such facilities provided for 
students of the other sex.



Sec. 113.415  Access to course offerings.

    (a) A recipient shall not provide any course or otherwise carry out 
any of its education program or activity separately on the basis of sex, 
or require or refuse participation therein by any of its students on 
such basis, including

[[Page 164]]

health, physical education, industrial, business, vocational, technical, 
home economics, music, and adult education courses.
    (b)(1) With respect to classes and activities in physical education 
at the elementary school level, the recipient shall comply fully with 
this section as expeditiously as possible but in no event later than one 
year from September 29, 2000. With respect to physical education classes 
and activities at the secondary and post-secondary levels, the recipient 
shall comply fully with this section as expeditiously as possible but in 
no event later than three years from September 29, 2000.
    (2) This section does not prohibit grouping of students in physical 
education classes and activities by ability as assessed by objective 
standards of individual performance developed and applied without regard 
to sex.
    (3) This section does not prohibit separation of students by sex 
within physical education classes or activities during participation in 
wrestling, boxing, rugby, ice hockey, football, basketball, and other 
sports the purpose or major activity of which involves bodily contact.
    (4) Where use of a single standard of measuring skill or progress in 
a physical education class has an adverse effect on members of one sex, 
the recipient shall use appropriate standards that do not have such 
effect.
    (5) Portions of classes in elementary and secondary schools, or 
portions of education programs or activities, that deal exclusively with 
human sexuality may be conducted in separate sessions for boys and 
girls.
    (6) Recipients may make requirements based on vocal range or quality 
that may result in a chorus or choruses of one or predominantly one sex.



Sec. 113.420  Access to schools operated by LEAs.

    A recipient that is a local educational agency shall not, on the 
basis of sex, exclude any person from admission to:
    (a) Any institution of vocational education operated by such 
recipient; or
    (b) Any other school or educational unit operated by such recipient, 
unless such recipient otherwise makes available to such person, pursuant 
to the same policies and criteria of admission, courses, services, and 
facilities comparable to each course, service, and facility offered in 
or through such schools.



Sec. 113.425  Counseling and use of appraisal and counseling materials.

    (a) Counseling. A recipient shall not discriminate against any 
person on the basis of sex in the counseling or guidance of students or 
applicants for admission.
    (b) Use of appraisal and counseling materials. A recipient that uses 
testing or other materials for appraising or counseling students shall 
not use different materials for students on the basis of their sex or 
use materials that permit or require different treatment of students on 
such basis unless such different materials cover the same occupations 
and interest areas and the use of such different materials is shown to 
be essential to eliminate sex bias. Recipients shall develop and use 
internal procedures for ensuring that such materials do not discriminate 
on the basis of sex. Where the use of a counseling test or other 
instrument results in a substantially disproportionate number of members 
of one sex in any particular course of study or classification, the 
recipient shall take such action as is necessary to assure itself that 
such disproportion is not the result of discrimination in the instrument 
or its application.
    (c) Disproportion in classes. Where a recipient finds that a 
particular class contains a substantially disproportionate number of 
individuals of one sex, the recipient shall take such action as is 
necessary to assure itself that such disproportion is not the result of 
discrimination on the basis of sex in counseling or appraisal materials 
or by counselors.



Sec. 113.430  Financial assistance.

    (a) General. Except as provided in paragraphs (b) and (c) of this 
section, in providing financial assistance to any of its students, a 
recipient shall not:
    (1) On the basis of sex, provide different amounts or types of such 
assistance, limit eligibility for such assistance that is of any 
particular type or

[[Page 165]]

source, apply different criteria, or otherwise discriminate;
    (2) Through solicitation, listing, approval, provision of 
facilities, or other services, assist any foundation, trust, agency, 
organization, or person that provides assistance to any of such 
recipient's students in a manner that discriminates on the basis of sex; 
or
    (3) Apply any rule or assist in application of any rule concerning 
eligibility for such assistance that treats persons of one sex 
differently from persons of the other sex with regard to marital or 
parental status.
    (b) Financial aid established by certain legal instruments. (1) A 
recipient may administer or assist in the administration of 
scholarships, fellowships, or other forms of financial assistance 
established pursuant to domestic or foreign wills, trusts, bequests, or 
similar legal instruments or by acts of a foreign government that 
require that awards be made to members of a particular sex specified 
therein; Provided, that the overall effect of the award of such sex-
restricted scholarships, fellowships, and other forms of financial 
assistance does not discriminate on the basis of sex.
    (2) To ensure nondiscriminatory awards of assistance as required in 
paragraph (b)(1) of this section, recipients shall develop and use 
procedures under which:
    (i) Students are selected for award of financial assistance on the 
basis of nondiscriminatory criteria and not on the basis of availability 
of funds restricted to members of a particular sex;
    (ii) An appropriate sex-restricted scholarship, fellowship, or other 
form of financial assistance is allocated to each student selected under 
paragraph (b)(2)(i) of this section; and
    (iii) No student is denied the award for which he or she was 
selected under paragraph (b)(2)(i) of this section because of the 
absence of a scholarship, fellowship, or other form of financial 
assistance designated for a member of that student's sex.
    (c) Athletic scholarships. (1) To the extent that a recipient awards 
athletic scholarships or grants-in-aid, it must provide reasonable 
opportunities for such awards for members of each sex in proportion to 
the number of students of each sex participating in interscholastic or 
intercollegiate athletics.
    (2) A recipient may provide separate athletic scholarships or 
grants-in-aid for members of each sex as part of separate athletic teams 
for members of each sex to the extent consistent with this paragraph (c) 
and Sec. 113.450.



Sec. 113.435  Employment assistance to students.

    (a) Assistance by recipient in making available outside employment. 
A recipient that assists any agency, organization, or person in making 
employment available to any of its students:
    (1) Shall assure itself that such employment is made available 
without discrimination on the basis of sex; and
    (2) Shall not render such services to any agency, organization, or 
person that discriminates on the basis of sex in its employment 
practices.
    (b) Employment of students by recipients. A recipient that employs 
any of its students shall not do so in a manner that violates 
Secs. 113.500 through 113.550.



Sec. 113.440  Health and insurance benefits and services.

    Subject to Sec. 113.235(d), in providing a medical, hospital, 
accident, or life insurance benefit, service, policy, or plan to any of 
its students, a recipient shall not discriminate on the basis of sex, or 
provide such benefit, service, policy, or plan in a manner that would 
violate Secs. 113.500 through 113.550 if it were provided to employees 
of the recipient. This section shall not prohibit a recipient from 
providing any benefit or service that may be used by a different 
proportion of students of one sex than of the other, including family 
planning services. However, any recipient that provides full coverage 
health service shall provide gynecological care.



Sec. 113.445  Marital or parental status.

    (a) Status generally. A recipient shall not apply any rule 
concerning a student's actual or potential parental, family, or marital 
status that treats students differently on the basis of sex.
    (b) Pregnancy and related conditions. (1) A recipient shall not 
discriminate against any student, or exclude any student from its 
education program or

[[Page 166]]

activity, including any class or extracurricular activity, on the basis 
of such student's pregnancy, childbirth, false pregnancy, termination of 
pregnancy, or recovery therefrom, unless the student requests 
voluntarily to participate in a separate portion of the program or 
activity of the recipient.
    (2) A recipient may require such a student to obtain the 
certification of a physician that the student is physically and 
emotionally able to continue participation as long as such a 
certification is required of all students for other physical or 
emotional conditions requiring the attention of a physician.
    (3) A recipient that operates a portion of its education program or 
activity separately for pregnant students, admittance to which is 
completely voluntary on the part of the student as provided in paragraph 
(b)(1) of this section, shall ensure that the separate portion is 
comparable to that offered to non-pregnant students.
    (4) Subject to Sec. 113.235(d), a recipient shall treat pregnancy, 
childbirth, false pregnancy, termination of pregnancy and recovery 
therefrom in the same manner and under the same policies as any other 
temporary disability with respect to any medical or hospital benefit, 
service, plan, or policy that such recipient administers, operates, 
offers, or participates in with respect to students admitted to the 
recipient's educational program or activity.
    (5) In the case of a recipient that does not maintain a leave policy 
for its students, or in the case of a student who does not otherwise 
qualify for leave under such a policy, a recipient shall treat 
pregnancy, childbirth, false pregnancy, termination of pregnancy, and 
recovery therefrom as a justification for a leave of absence for as long 
a period of time as is deemed medically necessary by the student's 
physician, at the conclusion of which the student shall be reinstated to 
the status that she held when the leave began.



Sec. 113.450  Athletics.

    (a) General. No person shall, on the basis of sex, be excluded from 
participation in, be denied the benefits of, be treated differently from 
another person, or otherwise be discriminated against in any 
interscholastic, intercollegiate, club, or intramural athletics offered 
by a recipient, and no recipient shall provide any such athletics 
separately on such basis.
    (b) Separate teams. Notwithstanding the requirements of paragraph 
(a) of this section, a recipient may operate or sponsor separate teams 
for members of each sex where selection for such teams is based upon 
competitive skill or the activity involved is a contact sport. However, 
where a recipient operates or sponsors a team in a particular sport for 
members of one sex but operates or sponsors no such team for members of 
the other sex, and athletic opportunities for members of that sex have 
previously been limited, members of the excluded sex must be allowed to 
try out for the team offered unless the sport involved is a contact 
sport. For the purposes of these Title IX regulations, contact sports 
include boxing, wrestling, rugby, ice hockey, football, basketball, and 
other sports the purpose or major activity of which involves bodily 
contact.
    (c) Equal opportunity. (1) A recipient that operates or sponsors 
interscholastic, intercollegiate, club, or intramural athletics shall 
provide equal athletic opportunity for members of both sexes. In 
determining whether equal opportunities are available, the designated 
agency official will consider, among other factors:
    (i) Whether the selection of sports and levels of competition 
effectively accommodate the interests and abilities of members of both 
sexes;
    (ii) The provision of equipment and supplies;
    (iii) Scheduling of games and practice time;
    (iv) Travel and per diem allowance;
    (v) Opportunity to receive coaching and academic tutoring;
    (vi) Assignment and compensation of coaches and tutors;
    (vii) Provision of locker rooms, practice, and competitive 
facilities;
    (viii) Provision of medical and training facilities and services;
    (ix) Provision of housing and dining facilities and services;
    (x) Publicity.

[[Page 167]]

    (2) For purposes of paragraph (c)(1) of this section, unequal 
aggregate expenditures for members of each sex or unequal expenditures 
for male and female teams if a recipient operates or sponsors separate 
teams will not constitute noncompliance with this section, but the 
designated agency official may consider the failure to provide necessary 
funds for teams for one sex in assessing equality of opportunity for 
members of each sex.
    (d) Adjustment period. A recipient that operates or sponsors 
interscholastic, intercollegiate, club, or intramural athletics at the 
elementary school level shall comply fully with this section as 
expeditiously as possible but in no event later than one year from 
September 29, 2000. A recipient that operates or sponsors 
interscholastic, intercollegiate, club, or intramural athletics at the 
secondary or postsecondary school level shall comply fully with this 
section as expeditiously as possible but in no event later than three 
years from September 29, 2000.



Sec. 113.455  Textbooks and curricular material.

    Nothing in these Title IX regulations shall be interpreted as 
requiring or prohibiting or abridging in any way the use of particular 
textbooks or curricular materials.

 Discrimination on the Basis of Sex in Employment in Education Programs 
                        or Activities Prohibited



Sec. 113.500  Employment.

    (a) General. (1) No person shall, on the basis of sex, be excluded 
from participation in, be denied the benefits of, or be subjected to 
discrimination in employment, or recruitment, consideration, or 
selection therefor, whether full-time or part-time, under any education 
program or activity operated by a recipient that receives Federal 
financial assistance.
    (2) A recipient shall make all employment decisions in any education 
program or activity operated by such recipient in a nondiscriminatory 
manner and shall not limit, segregate, or classify applicants or 
employees in any way that could adversely affect any applicant's or 
employee's employment opportunities or status because of sex.
    (3) A recipient shall not enter into any contractual or other 
relationship which directly or indirectly has the effect of subjecting 
employees or students to discrimination prohibited by Secs. 113.500 
through 113.550, including relationships with employment and referral 
agencies, with labor unions, and with organizations providing or 
administering fringe benefits to employees of the recipient.
    (4) A recipient shall not grant preferences to applicants for 
employment on the basis of attendance at any educational institution or 
entity that admits as students only or predominantly members of one sex, 
if the giving of such preferences has the effect of discriminating on 
the basis of sex in violation of these Title IX regulations.
    (b) Application. The provisions of Secs. 113.500 through 113.550 
apply to:
    (1) Recruitment, advertising, and the process of application for 
employment;
    (2) Hiring, upgrading, promotion, consideration for and award of 
tenure, demotion, transfer, layoff, termination, application of nepotism 
policies, right of return from layoff, and rehiring;
    (3) Rates of pay or any other form of compensation, and changes in 
compensation;
    (4) Job assignments, classifications, and structure, including 
position descriptions, lines of progression, and seniority lists;
    (5) The terms of any collective bargaining agreement;
    (6) Granting and return from leaves of absence, leave for pregnancy, 
childbirth, false pregnancy, termination of pregnancy, leave for persons 
of either sex to care for children or dependents, or any other leave;
    (7) Fringe benefits available by virtue of employment, whether or 
not administered by the recipient;
    (8) Selection and financial support for training, including 
apprenticeship, professional meetings, conferences, and other related 
activities, selection for tuition assistance, selection for sabbaticals 
and leaves of absence to pursue training;

[[Page 168]]

    (9) Employer-sponsored activities, including social or recreational 
programs; and
    (10) Any other term, condition, or privilege of employment.



Sec. 113.505  Employment criteria.

    A recipient shall not administer or operate any test or other 
criterion for any employment opportunity that has a disproportionately 
adverse effect on persons on the basis of sex unless:
    (a) Use of such test or other criterion is shown to predict validly 
successful performance in the position in question; and
    (b) Alternative tests or criteria for such purpose, which do not 
have such disproportionately adverse effect, are shown to be 
unavailable.



Sec. 113.510  Recruitment.

    (a) Nondiscriminatory recruitment and hiring. A recipient shall not 
discriminate on the basis of sex in the recruitment and hiring of 
employees. Where a recipient has been found to be presently 
discriminating on the basis of sex in the recruitment or hiring of 
employees, or has been found to have so discriminated in the past, the 
recipient shall recruit members of the sex so discriminated against so 
as to overcome the effects of such past or present discrimination.
    (b) Recruitment patterns. A recipient shall not recruit primarily or 
exclusively at entities that furnish as applicants only or predominantly 
members of one sex if such actions have the effect of discriminating on 
the basis of sex in violation of Secs. 113.500 through 113.550.



Sec. 113.515  Compensation.

    A recipient shall not make or enforce any policy or practice that, 
on the basis of sex:
    (a) Makes distinctions in rates of pay or other compensation;
    (b) Results in the payment of wages to employees of one sex at a 
rate less than that paid to employees of the opposite sex for equal work 
on jobs the performance of which requires equal skill, effort, and 
responsibility, and that are performed under similar working conditions.



Sec. 113.520  Job classification and structure.

    A recipient shall not:
    (a) Classify a job as being for males or for females;
    (b) Maintain or establish separate lines of progression, seniority 
lists, career ladders, or tenure systems based on sex; or
    (c) Maintain or establish separate lines of progression, seniority 
systems, career ladders, or tenure systems for similar jobs, position 
descriptions, or job requirements that classify persons on the basis of 
sex, unless sex is a bona fide occupational qualification for the 
positions in question as set forth in Sec. 113.550.



Sec. 113.525  Fringe benefits.

    (a) ``Fringe benefits'' defined. For purposes of these Title IX 
regulations, fringe benefits means: Any medical, hospital, accident, 
life insurance, or retirement benefit, service, policy or plan, any 
profit-sharing or bonus plan, leave, and any other benefit or service of 
employment not subject to the provision of Sec. 113.515.
    (b) Prohibitions. A recipient shall not:
    (1) Discriminate on the basis of sex with regard to making fringe 
benefits available to employees or make fringe benefits available to 
spouses, families, or dependents of employees differently upon the basis 
of the employee's sex;
    (2) Administer, operate, offer, or participate in a fringe benefit 
plan that does not provide for equal periodic benefits for members of 
each sex and for equal contributions to the plan by such recipient for 
members of each sex; or
    (3) Administer, operate, offer, or participate in a pension or 
retirement plan that establishes different optional or compulsory 
retirement ages based on sex or that otherwise discriminates in benefits 
on the basis of sex.



Sec. 113.530  Marital or parental status.

    (a) General. A recipient shall not apply any policy or take any 
employment action:
    (1) Concerning the potential marital, parental, or family status of 
an employee or applicant for employment that treats persons differently 
on the basis of sex; or

[[Page 169]]

    (2) Which is based upon whether an employee or applicant for 
employment is the head of household or principal wage earner in such 
employee's or applicant's family unit.
    (b) Pregnancy. A recipient shall not discriminate against or exclude 
from employment any employee or applicant for employment on the basis of 
pregnancy, childbirth, false pregnancy, termination of pregnancy, or 
recovery therefrom.
    (c) Pregnancy as a temporary disability. Subject to Sec. 113.235(d), 
a recipient shall treat pregnancy, childbirth, false pregnancy, 
termination of pregnancy, recovery therefrom, and any temporary 
disability resulting therefrom as any other temporary disability for all 
job-related purposes, including commencement, duration, and extensions 
of leave, payment of disability income, accrual of seniority and any 
other benefit or service, and reinstatement, and under any fringe 
benefit offered to employees by virtue of employment.
    (d) Pregnancy leave. In the case of a recipient that does not 
maintain a leave policy for its employees, or in the case of an employee 
with insufficient leave or accrued employment time to qualify for leave 
under such a policy, a recipient shall treat pregnancy, childbirth, 
false pregnancy, termination of pregnancy, and recovery therefrom as a 
justification for a leave of absence without pay for a reasonable period 
of time, at the conclusion of which the employee shall be reinstated to 
the status that she held when the leave began or to a comparable 
position, without decrease in rate of compensation or loss of 
promotional opportunities, or any other right or privilege of 
employment.



Sec. 113.535  Effect of state or local law or other requirements.

    (a) Prohibitory requirements. The obligation to comply with 
Secs. 113.500 through 113.550 is not obviated or alleviated by the 
existence of any State or local law or other requirement that imposes 
prohibitions or limits upon employment of members of one sex that are 
not imposed upon members of the other sex.
    (b) Benefits. A recipient that provides any compensation, service, 
or benefit to members of one sex pursuant to a State or local law or 
other requirement shall provide the same compensation, service, or 
benefit to members of the other sex.



Sec. 113.540  Advertising.

    A recipient shall not in any advertising related to employment 
indicate preference, limitation, specification, or discrimination based 
on sex unless sex is a bona fide occupational qualification for the 
particular job in question.



Sec. 113.545  Pre-employment inquiries.

    (a) Marital status. A recipient shall not make pre-employment 
inquiry as to the marital status of an applicant for employment, 
including whether such applicant is ``Miss'' or ``Mrs.''
    (b) Sex. A recipient may make pre-employment inquiry as to the sex 
of an applicant for employment, but only if such inquiry is made equally 
of such applicants of both sexes and if the results of such inquiry are 
not used in connection with discrimination prohibited by these Title IX 
regulations.



Sec. 113.550  Sex as a bona fide occupational qualification.

    A recipient may take action otherwise prohibited by Secs. 113.500 
through 113.550 provided it is shown that sex is a bona fide 
occupational qualification for that action, such that consideration of 
sex with regard to such action is essential to successful operation of 
the employment function concerned. A recipient shall not take action 
pursuant to this section that is based upon alleged comparative 
employment characteristics or stereotyped characterizations of one or 
the other sex, or upon preference based on sex of the recipient, 
employees, students, or other persons, but nothing contained in this 
section shall prevent a recipient from considering an employee's sex in 
relation to employment in a locker room or toilet facility used only by 
members of one sex.

                               Procedures



Sec. 113.600  Notice of covered programs.

    Within 60 days of September 29, 2000, each Federal agency that 
awards Federal financial assistance shall publish in the Federal 
Register a notice of

[[Page 170]]

the programs covered by these Title IX regulations. Each such Federal 
agency shall periodically republish the notice of covered programs to 
reflect changes in covered programs. Copies of this notice also shall be 
made available upon request to the Federal agency's office that enforces 
Title IX.



Sec. 113.605  Enforcement procedures.

    The investigative, compliance, and enforcement procedural provisions 
of Title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d) (``Title 
VI'') are hereby adopted and applied to these Title IX regulations. 
These procedures may be found at 13 CFR part 112.

[65 FR 52876, Aug. 30, 2000]



PART 114--ADMINISTRATIVE CLAIMS UNDER THE FEDERAL TORT CLAIMS ACT AND REPRESENTATION AND INDEMNIFICATION OF SBA EMPLOYEES--Table of Contents




                  Subpart A--Administrative Tort Claims

Sec.
114.100  Definitions.
114.101  What do these regulations cover?
114.102  When, where and how do I present a claim?
114.103  Who may file a claim?
114.104  What evidence and information may SBA require relating to my 
          claim?
114.105  Who investigates and considers my claim?
114.106  What if my claim exceeds $5,000?
114.107  What if my claim exceeds $25,000 or has other special features?
114.108  What if my claim is approved?
114.109  What if my claim is denied?

     Subpart B--Representation and Indemnification of SBA Employees

114.110  What is SBA's policy with respect to indemnifying and providing 
          legal representation to SBA employees?
114.111  Does the attorney-client privilege apply when SBA employees are 
          represented by the Government?

    Authority: 15 U.S.C. 634 (b)(1), (b)(6); 28 U.S.C. 2672; 28 CFR 
14.11.

    Source: 61 FR 2401, Jan. 26, 1996, unless otherwise noted.



                  Subpart A--Administrative Tort Claims



Sec. 114.100  Definitions.

    As used throughout this part 114, date of accrual means the date you 
know or reasonably should have known of your injury. The date of accrual 
will depend on the facts of each case. Site means the geographic 
location where the incident giving rise to your claim occurred.



Sec. 114.101  What do these regulations cover?

    This part applies only to monetary claims you assert under the 
Federal Tort Claims Act, 28 U.S.C. 2671 et seq., for injury to or loss 
of property, personal injury, or death arising from the negligent or 
wrongful act or omission of any SBA employee acting within the scope of 
his or her employment.



Sec. 114.102  When, where and how do I present a claim?

    (a) When. You must present your claim within 2 years of the date of 
accrual.
    (b) Where. You may present your claim at the SBA District Office 
nearest to the site of the action giving rise to the claim and within 
the same state as the site. If your claim is based on the acts or 
omissions of an employee of SBA's Disaster Assistance Program, you may 
present your claim either to the appropriate SBA District Office or to 
the Disaster Assistance Office nearest to the site of the action giving 
rise to the claim.
    (c) How. You must use an official form which can be obtained from 
the SBA office where you file the claim or give other written notice of 
your claim, stating the specific amount of your alleged damages and 
providing enough information to enable SBA to investigate your claim. 
You may present your claim in person or by mail, but your claim will not 
be considered presented until SBA receives the written information.

[64 FR 40283, July 26, 1999]

[[Page 171]]



Sec. 114.103  Who may file a claim?

    (a) If a claim is based on factors listed in the first column, then 
it may be presented by persons listed in the second column.

------------------------------------------------------------------------
               Claim factors                      Claim presenters
------------------------------------------------------------------------
Injury to or loss of property.............  The owner of the property,
                                             his or her duly authorized
                                             agent, or legal
                                             representative.
Personal injury...........................  The injured person, his or
                                             her duly authorized agent,
                                             or legal representative.
Death.....................................  The executor, administrator,
                                             or legal representative of
                                             the decedent's estate, or
                                             any other person entitled
                                             to assert the claim under
                                             applicable state law.
Loss wholly compensated by an insurer with  The parties individually, as
 rights as a subrogee.                       their interests appear, or
                                             jointly.
------------------------------------------------------------------------

    (b) An agent or legal representative may present your claim in your 
name, but must sign the claim, state his or her title or legal capacity, 
and include documentation of authority to present the claim on your 
behalf.



Sec. 114.104  What evidence and information may SBA require relating to my claim?

    (a) For a claim based on injury to or loss of property:
    (1) Proof you own the property.
    (2) A specific statement of the damage you claim with respect to 
each item of property.
    (3) Itemized receipts for payment for necessary repairs or itemized 
written estimates of the cost of such repairs.
    (4) A statement listing date of purchase, purchase price and salvage 
value, where repair is not economical.
    (5) Full information about potential insurance coverage and any 
insurance claims or payments relating to your claim.
    (6) Any other information that may be relevant to the government's 
alleged liability or the damages you claim.
    (b) For a claim based on personal injury, including pain and 
suffering:
    (1) A written report from your health care provider stating the 
nature and extent of your injury and treatment, the degree of your 
temporary or permanent disability, your prognosis, period of 
hospitalization, and any diminished earning capacity.
    (2) A written report following a physical, dental or mental 
examination of you by a physician employed by SBA or another Federal 
Agency. If you want a copy of this report, you must request it in 
writing, furnish SBA with the written report of your health care 
provider, if SBA requests it, and make or agree to make available to SBA 
any other medical reports relevant to your claim.
    (3) Itemized bills for medical, dental and hospital expenses you 
have incurred, or itemized receipts of payment for these expenses.
    (4) Your health care provider's written statement of the expected 
expenses related to any necessary future treatment.
    (5) A statement from your employer showing actual time lost from 
employment, whether you are a full or part-time employee, and the wages 
or salary you actually lost.
    (6) Documentary evidence showing the amount of earnings you actually 
lost if you are self-employed.
    (7) Information about the existence of insurance coverage and any 
insurance claims or payments relating to the claim in question.
    (8) Any other information that may be relevant to the government's 
alleged liability or the damages you claim.
    (c) For a claim based on death:
    (1) An authenticated death certificate or other competent evidence 
showing cause of death, date of death, and age of the decedent.
    (2) Evidence of decedent's employment or occupation at the time of 
death, including monthly or yearly salary or earnings, and the duration 
of such employment or occupation.
    (3) Full names, addresses, birth dates, kinship, and marital status 
of the decedent's survivors, including identification of those survivors 
who were dependent upon the decedent for support at the time of his or 
her death.
    (4) Evidence of the support provided by the decedent to each 
dependent survivor at the time of his or her death.
    (5) A summary of the decedent's general physical and mental 
condition before death.
    (6) Itemized bills or receipts for payments for medical and burial 
expenses.

[[Page 172]]

    (7) For pain and suffering damage claims, a physician's detailed 
statement specifying the injuries suffered, the duration of pain and 
suffering, any drugs administered for pain, and the decedent's physical 
condition in the interval between injury and death.
    (8) Any other information that may be relevant to the government's 
alleged liability or the damages claimed.



Sec. 114.105  Who investigates and considers my claim?

    (a) SBA may investigate, or ask another Federal agency to 
investigate, your claim. SBA also may request any Federal agency to 
conduct a physical examination of you and provide a report to SBA. SBA 
will reimburse the Federal agency for the costs of that examination when 
authorized or required by statute or regulation.
    (b) In those cases in which SBA investigates your claim, and which 
arise out of the acts or omissions of employees other than employees of 
the Disaster Assistance Program, the SBA District Counsel in the office 
with jurisdiction over the site where the action giving rise to the 
claim occurred will investigate and make recommendations or 
determination with respect to your claim. In those cases in which SBA 
investigates your claim, and which arise out of acts or omissions of 
Disaster Assistance Program employees, the SBA Disaster Area Counsel in 
the office with jurisdiction over the site where the action giving rise 
to the claim occurred will investigate and make recommendations or a 
determination with respect to your claim. The District Counsel, or 
Disaster Area Counsel, where appropriate, may negotiate with you, and is 
authorized to use alternative dispute resolution mechanisms, which are 
nonbinding on SBA, when they may promote the prompt, fair and efficient 
resolution of your claim.
    (c) If your claim is for $5,000 or less, the District Counsel or 
Disaster Area Counsel who investigates your claim may deny the claim, or 
may recommend approval, compromise, or settlement of the claim to the 
Associate General Counsel for Litigation, who will in such a case take 
final action.

[61 FR 2401, Jan. 26, 1996, as amended at 64 FR 40283, July 26, 1999]



Sec. 114.106  What if my claim exceeds $5,000?

    The District Counsel or Disaster Area Counsel, as appropriate, must 
review and investigate your claim and forward it with a report and 
recommendation to the Associate General Counsel for Litigation, who may 
approve or deny an award, compromise, or settlement of claims in excess 
of $5,000, but not exceeding $25,000.

[64 FR 40283, July 26, 1999]



Sec. 114.107  What if my claim exceeds $25,000 or has other special features?

    (a) The U.S. Attorney General or designee must approve in writing 
any award, compromise, or settlement of a claim in excess of $25,000. 
For this purpose, a principal claim and any derivative or subrogated 
claim are considered a single claim.
    (b) SBA must consult with the Department of Justice before 
adjusting, determining, compromising, or settling a claim whenever the 
General Counsel or designee determines:
    (1) The claim involves a new precedent or a new point of law; or
    (2) The claim involves or may involve a question of policy; or
    (3) The United States is or may be entitled to indemnity or 
contribution from a third party and SBA is unable to adjust the third 
party claim; or
    (4) Approval of a claim, as a practical matter, will or may control 
the disposition of a related claim in which the amount to be paid may 
exceed $25,000.
    (c) SBA must consult with the Department of Justice before 
adjusting, determining, compromising, or settling a claim whenever SBA 
learns that the United States, or any of its employees, agents, or cost-
plus contractors, is involved in litigation based on a claim arising out 
of the same incident or transaction.
    (d) SBA, acting through its General Counsel or designee, must make 
any referrals to the Department of Justice

[[Page 173]]

for approval or consultation by transmitting them in writing to the 
Assistant Attorney General, Civil Division.
    (1) The referral must contain a short and concise statement of the 
facts and the reason for the request or referral, copies of the relevant 
portions of the claim file, and SBA's views and recommendations.
    (2) SBA may make this referral at any time after a claim is 
presented.



Sec. 114.108  What if my claim is approved?

    SBA will notify you in writing if it approves your claim. The 
District Counsel or Disaster Area Counsel investigating your claim will 
forward to you, your agent or legal representative the forms necessary 
to indicate satisfaction of your claim and your acceptance of the 
payment. Acceptance by you, your agent or your legal representative of 
any award, compromise or settlement releases all your claims against the 
United States under the Federal Tort Claims Act. This means that it 
binds you, your agent or your legal representative, and any other person 
on whose behalf or for whose benefit the claim was presented. It also 
constitutes a complete release of your claim against the United States 
and its employees. If you are represented by counsel, SBA will designate 
you and your counsel as joint payees and will deliver the check to 
counsel. Payment is contingent upon the waiver of your claim and is 
subject to the availability of appropriated funds.

[64 FR 40283, July 26, 1999]



Sec. 114.109  What if my claim is denied?

    SBA will notify you or your agent or legal representative in writing 
by certified or registered mail if it denies your claim. You have a 
right to file suit in an appropriate U.S. District Court not later than 
six months after the date the notification was mailed.



     Subpart B--Representation and Indemnification of SBA Employees



Sec. 114.110  What is SBA's policy with respect to indemnifying and providing legal representation to SBA employees?

    (a) If an SBA employee engages in conduct, within the scope of his 
or her employment, which gives rise to a claim, and the SBA 
Administrator or designee determines that any of the following actions 
relating to the claim are in SBA's interest, SBA may:
    (1) Indemnify the employee after a verdict, judgment, or other 
monetary award is rendered personally against the employee in any civil 
suit in state or federal court or any arbitration proceeding;
    (2) Settle or compromise the claim; and/or
    (3) Pay for, or request that the Department of Justice provide, 
legal representation to the employee once personally named in such a 
suit.
    (b) If you are an SBA employee, you may ask SBA to settle or 
compromise your claim, provide you with legal representation, or provide 
you with indemnification for a verdict, judgment or award entered 
against you in a suit. To do so, you must submit a timely, written 
request to the General Counsel, with appropriate documentation, 
including copies of any pleadings, verdict, judgment, award, or 
settlement proposal. The General Counsel will decide all requests for 
representation or settlement, and will forward to the Administrator, 
with the accompanying documentation and a recommendation, any requests 
for indemnification.
    (c) Any payments by SBA under this section will be contingent upon 
the availability of appropriated funds.



Sec. 114.111  Does the attorney-client privilege apply when SBA employees are represented by the Government?

    When attorneys employed by SBA participate in any process in which 
SBA seeks to determine whether SBA

[[Page 174]]

should request the Department of Justice to provide representation to an 
SBA employee sued, subpoenaed, or charged in his or her individual 
capacity, or whether attorneys employed by SBA should provide 
representational assistance for such an employee, those attorneys 
undertake a full and traditional attorney-client relationship with the 
employee with respect to the attorney-client privilege. If 
representation is authorized, SBA attorneys who assist in the 
representation of an SBA employee also undertake a full and traditional 
attorney-client relationship with the employee with respect to the 
attorney-client privilege. Unless authorized by the employee, the 
attorney must not disclose to anyone other than attorneys also 
responsible for the employee's representation information communicated 
to the attorney by the client-employee during the course of the 
attorney-client relationship. The attorney-client privilege will 
continue with respect to that information whether or not representation 
is provided, and even if the employee's representation is denied or 
discontinued.



PART 115--SURETY BOND GUARANTEE--Table of Contents




Sec.
115.1  Overview of regulations.
115.2  Savings clause.

          Subpart A--Provisions for All Surety Bond Guarantees

115.10  Definitions.
115.11  Applying to participate in the Surety Bond Guarantee Program.
115.12  General program policies and provisions.
115.13  Eligibility of Principal.
115.14  Loss of Principal's eligibility for future assistance.
115.15  Underwriting and servicing standards.
115.16  Determination of Surety's Loss.
115.17  Minimization of Surety's Loss.
115.18  Refusal to issue further guarantees; suspension and termination 
          of PSB status.
115.19  Denial of liability.
115.20  Insolvency of Surety.
115.21  Audits and investigations.

             Subpart B--Guarantees Subject to Prior Approval

115.30  Submission of Surety's guarantee application.
115.31  Guarantee percentage.
115.32  Fees and Premiums.
115.33  Surety bonding line.
115.34  Minimization of Surety's Loss.
115.35  Claims for reimbursement of Losses.
115.36  Indemnity settlements and reinstatement of Principal.

            Subpart C--Preferred Surety Bond (PSB) Guarantees

115.60  Selection and admission of PSB Sureties.
115.61  Duration of PSB program.
115.62  Prohibition on participation in Prior Approval program.
115.63  Allotment of guarantee authority.
115.64  Timeliness requirement.
115.65  General PSB procedures.
115.66  Fees.
115.67  Changes in Contract or bond amount.
115.68  Guarantee percentage.
115.69  Imminent Breach.
115.70  Claims for reimbursement of Losses.
115.71  Denial of liability.

    Authority: 5 U.S.C. app 3; 15 U.S.C. 687b, 687c, 694a, 694b; 694b 
note, Pub. L. 106-554, 114 Stat. 2763A-653.

    Source: 61 FR 3271, Jan. 31, 1996, unless otherwise noted.



Sec. 115.1  Overview of regulations.

    The regulations in this part cover the SBA's Surety Bond Guarantee 
Programs under Part B of Title IV of the Small Business Investment Act 
of 1958, as amended. Subpart A of this part contains regulations common 
to both the program requiring prior SBA approval of each bond guarantee 
(the Prior Approval Program) and the program not requiring prior 
approval (the PSB Program). Subpart B of this part contains the 
regulations applicable only to the Prior Approval Program. Subpart C of 
this part contains the regulations applicable only to the PSB Program.



Sec. 115.2  Savings clause.

    Transactions affected by this part 115 are governed by the 
regulations in effect at the time they occur.

[[Page 175]]



          Subpart A--Provisions for All Surety Bond Guarantees



Sec. 115.10  Definitions.

    AA/SG means SBA's Associate Administrator for Surety Guarantees.
    Affiliate is defined in part 121 of this chapter.
    Ancillary Bond means a bond incidental and essential to the 
performance of a Contract for which there is a guaranteed Final Bond.
    Bid Bond means a bond conditioned upon the bidder on a Contract 
entering into the Contract, and furnishing the required Payment and 
Performance Bonds. The term does not include a forfeiture bond unless it 
is issued for a jurisdiction where statute or settled decisional law 
requires forfeiture bonds for public works.
    Contract means a written obligation of the Principal requiring the 
furnishing of services, supplies, labor, materials, machinery, 
equipment, or construction. A Contract must not prohibit a Surety from 
performing the Contract upon default of the Principal. A Contract does 
not include a permit, subdivision contract, lease, land contract, 
evidence of debt, financial guarantee (e.g., a contract requiring any 
payment by the Principal to the Obligee), warranty of performance or 
efficiency, warranty of fidelity, or release of lien (other than for 
claims under a guaranteed bond). It includes a maintenance agreement of 
2 years or less which covers defective workmanship or materials only. 
With SBA's written approval, it can also include a longer maintenance 
agreement covering defective workmanship or materials, or a maintenance 
agreement covering something other than defective workmanship or 
materials. To qualify for such approval, the agreement must be ancillary 
to the Contract for which SBA is guaranteeing a bond, must be required 
to be performed by the same Principal, and must be customarily required 
in the relevant trade or industry.
    Execution means signing by a representative or agent of the Surety 
with the authority and power to bind the Surety.
    Final Bond means a Performance Bond and/or a Payment Bond.
    Imminent Breach means a threat to the successful completion of a 
bonded Contract which, unless remedied by the Surety, makes a default 
under the bond appear to be inevitable.
    Investment Act means the Small Business Investment Act of 1958 (15 
U.S.C. 661 et seq.), as amended.
    Loss has the meaning set forth in Sec. 115.16.
    Obligee means:
    (1)(i) In the case of a Bid Bond, the Person requesting bids for the 
performance of a Contract; or
    (ii) In the case of a Final Bond, the Person who has contracted with 
a Principal for the completion of the Contract and to whom the primary 
obligation of the Surety runs in the event of a breach by the Principal.
    (2) In either case, no Person (other than a Federal department or 
agency) may be named co-Obligee or Obligee on a bond or on a rider to 
the bond unless that Person is bound by the Contract to the Principal 
(or to the Surety, if the Surety has arranged completion of the 
Contract) to the same extent as the original Obligee. In no event may 
the addition of one or more co-Obligees increase the aggregate liability 
of the Surety under the bond.
    OSG means SBA's Office of Surety Guarantees.
    Payment Bond means a bond which is conditioned upon the payment by 
the Principal of money to persons who have a right of action against 
such bond, including those who have furnished labor, materials, 
equipment and supplies for use in the performance of the Contract. A 
Payment Bond can not require the Surety to pay an amount which exceeds 
the claimant's actual loss or damage.
    Performance Bond means a bond conditioned upon the completion by the 
Principal of a Contract in accordance with its terms.
    Person means a natural person or a legal entity.
    Premium means the amount charged by a Surety to issue bonds. The 
Premium is determined by applying an approved rate (see Secs. 115.32(a) 
and 115.60(a)(2)) to the bond or contract amount. The Premium does not 
include surcharges for extra services, whether

[[Page 176]]

or not considered part of the ``premium'' under local law.
    Principal means, in the case of a Bid Bond, the Person bidding for 
the award of a Contract. In the case of Final Bonds and Ancillary Bonds, 
Principal means the Person primarily liable to complete the Contract, or 
to make Contract-related payments to other persons, and is the Person 
whose performance or payment is bonded by the Surety. A Principal may be 
a prime contractor or a subcontractor.
    Prior Approval Agreement means the Surety Bond Guarantee Agreement 
(SBA Form 990) entered into between a Prior Approval Surety and SBA 
under which SBA agrees to guarantee a specific bond.
    Prior Approval Surety means a Surety which must obtain SBA's prior 
approval on each guarantee and which has entered into one or more Prior 
Approval Agreements with SBA.
    PSB Agreement means the Preferred Surety Bond Guarantee Agreement 
entered into between a PSB Surety and SBA.
    PSB Surety means a Surety that has been admitted to the Preferred 
Surety Bond (PSB) Program.
    Surety means a company which:
    (1)(i) Under the terms of a Bid Bond, agrees to pay a sum of money 
to the Obligee if the Principal breaches the conditions of the bond;
    (ii) Under the terms of a Performance Bond, agrees to pay a sum of 
money or to incur the cost of fulfilling the terms of a Contract if the 
Principal breaches the conditions of the Contract; and
    (iii) Under the terms of a Payment or an Ancillary Bond, agrees to 
make payment to all who have a right of action against such bond, 
including those who have furnished labor, materials, equipment and 
supplies in the performance of the Contract.
    (2) The term Surety includes an agent, independent agent, 
underwriter, or any other company or individual empowered to act on 
behalf of the Surety.

[61 FR 3271, Jan. 31, 1996; 61 FR 7985, Mar. 1, 1996]



Sec. 115.11  Applying to participate in the Surety Bond Guarantee Program.

    Sureties interested in participating as Prior Approval Sureties or 
PSB Sureties should apply in writing to the AA/SG at 409 3rd Street, 
SW., Washington, DC 20416. OSG will determine the eligibility of the 
applicant considering its standards and procedures for underwriting, 
administration, claims and recovery. Each applicant must be a 
corporation listed by the U.S. Treasury as eligible to issue bonds in 
connection with Federal procurement contracts.



Sec. 115.12  General program policies and provisions.

    (a) Description of Surety Bond Guarantee Programs. SBA guarantees 
Sureties participating in the Surety Bond Guarantee Programs against a 
portion of their Losses incurred and paid as a result of a Principal's 
breach of the terms of a Bid Bond, Final Bond or Ancillary Bond, on any 
eligible Contract. In the Prior Approval Program, the Surety must obtain 
SBA's approval before a guaranteed bond can be issued. In the PSB 
Program, selected Sureties may issue, monitor, and service SBA 
guaranteed bonds without further SBA approval.
    (b) Eligibility of bonds. Bid Bonds and Final Bonds are eligible for 
an SBA guarantee if they are executed in connection with an eligible 
Contract and are of a type listed in the ``Contract Bonds'' section of 
the current Manual of Rules, Procedures and Classifications of the 
Surety Association of America (100 Wood Avenue South, Iselin, New Jersey 
08830). Ancillary Bonds may also be eligible for SBA's guarantee. A 
Performance Bond must not prohibit a Surety from performing the Contract 
upon default of the Principal.
    (c) Expiration of Bid Bond Guarantee. A Bid Bond guarantee expires 
120 days after Execution of the Bid Bond, unless the Surety notifies SBA 
in writing before the 120th day that a later expiration date is 
required. The notification must include the new expiration date.

[[Page 177]]

    (d) Guarantee agreement. The terms and conditions of SBA's bond 
guarantee agreements, including the guarantee percentage, may vary from 
Surety to Surety, depending on past experience with SBA. If the 
guarantee percentage is not fixed by the Investment Act, it is 
determined by OSG after considering, among other things, the rating or 
ranking assigned to the Surety by recognized authority, and the Surety's 
Loss rate, average Contract amount, average bond penalty per guaranteed 
bond, and ratio of Bid Bonds to Final Bonds, all in comparison with 
other Sureties participating in the same SBA Surety Bond Guarantee 
Program (Prior Approval or PSB) to a comparable degree. Any guarantee 
agreement under this part is made exclusively for the benefit of SBA and 
the Surety, and does not confer any rights (such as a right of action 
against SBA) or benefits on any other party.
    (e) Amount of Contract--(1) Statutory ceiling. The amount of the 
Contract to be bonded must not exceed $2,000,000 in face value at the 
time of the bond's Execution.
    (2) Aggregation of Contract amounts. The amounts of two or more 
Contracts for a ``single project'' are aggregated to determine the 
Contract amount unless the Contracts are to be performed in phases and 
the prior bond is released before the beginning of each succeeding 
phase. A bond may be considered released even if the warranty period it 
is covering has not yet expired. For purposes of this paragraph, a 
``single project'' means one represented by two or more Contracts of one 
Principal or its Affiliates with one Obligee or its Affiliates for 
performance at the same location, regardless of job title or nature of 
the work to be performed.
    (3) Service and supply contracts. A service or supply Contract 
covering more than a 1 year period is eligible for an SBA guaranteed 
bond if neither the annual Contract amount nor the penal sum of the bond 
exceeds $2,000,000 at any time.
    (f) Transfers or sales by Surety. Sureties must not sell or 
otherwise transfer their files or accounts, whether before or after a 
default by the Principal has occurred, without the prior written 
approval of SBA. A violation of this provision is grounds for 
termination from participation in the program. This provision does not 
apply to the sale of an entire business division, subsidiary or 
operation of the Surety.

[61 FR 3271, Jan. 31, 1996, as amended at 66 FR 30804, June 8, 2001]



Sec. 115.13  Eligibility of Principal.

    (a) General eligibility. In order to be eligible for a bond 
guaranteed by SBA, the Principal must comply with the following 
requirements:
    (1) Size. Together with its Affiliates, it must qualify as a small 
business under part 121 of this title.
    (2) Character. It must possess good character and reputation. A 
Principal meets this standard if each owner of 20% or more of its 
equity, and each of its officers, directors, or general partners, 
possesses good character and reputation. A Person's good character and 
reputation is presumed absent when:
    (i) The Person is under indictment for, or has been convicted of a 
felony, or a final civil judgment has been entered stating that such 
Person has committed a breach of trust or has violated a law or 
regulation protecting the integrity of business transactions or business 
relationships; or
    (ii) A regulatory authority has revoked, canceled, or suspended a 
license of the Person which is necessary to perform the Contract; or
    (iii) The Person has obtained a bond guarantee by fraud or material 
misrepresentation (as described in Sec. 115.19(b)), or has failed to 
keep the Surety informed of unbonded contracts or of a contract bonded 
by another Surety, as required by a bonding line commitment under 
Sec. 115.33.
    (3) Need for bond. It must certify that a bond is expressly required 
by the bid solicitation or the original Contract in order to bid on the 
Contract or to serve as a prime contractor or subcontractor.
    (4) Availability of bond. It must certify that a bond is not 
obtainable on reasonable terms and conditions without SBA's guarantee.
    (5) Partial subcontract. It must certify the percentage of work 
under the Contract to be subcontracted. SBA will not guarantee bonds for 
Principals who are

[[Page 178]]

primarily brokers or who have effectively transferred control over the 
project to one or more subcontractors.
    (6) Debarment. It must certify that the Principal is not presently 
debarred, suspended, proposed for debarment, declared ineligible, or 
voluntarily excluded from transactions with any Federal department or 
agency, under governmentwide debarment and suspension rules.
    (b) Conflict of interest. A Principal is not eligible for an SBA-
guaranteed bond issued by a particular Surety if that Surety, or an 
Affiliate of that Surety, or a close relative or member of the household 
of that Surety or Affiliate owns, directly or indirectly, 10% or more of 
the Principal. This prohibition also applies to ownership interests in 
any of the Principal's Affiliates.



Sec. 115.14  Loss of Principal's eligibility for future assistance.

    (a) Ineligibility. A Principal and its Affiliates lose eligibility 
for further SBA bond guarantees if any of the following occurs under an 
SBA-guaranteed bond issued on behalf of the Principal:
    (1) Legal action under the guaranteed bond has been initiated.
    (2) The Obligee has declared the Principal to be in default under 
the Contract.
    (3) The Surety has established a claim reserve for the bond of at 
least $1000.
    (4) The Surety has requested reimbursement for Losses incurred under 
the bond.
    (5) The guarantee fee has not been paid by the Principal.
    (6) The Principal committed fraud or material misrepresentation in 
obtaining the guaranteed bond.
    (b) Reinstatement of Principal's eligibility. Prior Approval 
Sureties should refer to Sec. 115.36(b) for provisions on reinstatement 
of the Principal's eligibility. A PSB Surety may reinstate a Principal's 
eligibility upon the Surety's determination that reinstatement is 
appropriate.



Sec. 115.15  Underwriting and servicing standards.

    (a) Underwriting. (1) Sureties must evaluate the credit, capacity, 
and character of a Principal using standards generally accepted by the 
surety industry and in accordance with SBA's Standard Operating 
Procedures on underwriting and the Surety's principles and practices on 
unguaranteed bonds. The Principal must satisfy the eligibility 
requirements set forth in Sec. 115.13. The Surety must reasonably expect 
that the Principal will successfully perform the Contract to be bonded.
    (2) The terms and conditions of the bond and the Contract must be 
reasonable in light of the risks involved and the extent of the Surety's 
participation. The bond must satisfy the eligibility requirements set 
forth in Sec. 115.12(b). The Surety must be satisfied as to the 
reasonableness of cost and the feasibility of successful completion of 
the Contract.
    (b) Servicing. The Surety must ensure that the Principal remains 
viable and eligible for SBA's Surety Bond Guarantee Program, must 
monitor the Principal's progress on bonded Contracts guaranteed by SBA, 
and must request job status reports from Obligees of Final Bonds 
guaranteed by SBA. Documentation of the job status requests must be 
maintained by the Surety.



Sec. 115.16  Determination of Surety's Loss.

    Loss is determined as follows:
    (a) Loss under a Bid Bond is the lesser of the penal sum or the 
amount which is the difference between the bonded bid and the next 
higher responsive bid. In either case, the Loss is reduced by any 
amounts the Surety recovers by reason of the Principal's defenses 
against the Obligee's demand for performance by the Principal and any 
sums the Surety recovers from indemnitors and other salvage.
    (b) Loss under a Payment Bond is, at the Surety's option, the sum 
necessary to pay all just and timely claims against the Principal for 
the value of labor, materials, equipment and supplies furnished for use 
in the performance of the bonded Contract and other covered debts, or 
the penal sum of the Payment Bond. In either case, the Loss includes 
interest (if any), but Loss is reduced by any amounts recovered (through 
offset or otherwise) by reason

[[Page 179]]

of the Principal's claims against laborers, materialmen, subcontractors, 
suppliers, or other rightful claimants, and by any amounts recovered 
from indemnitors and other salvage.
    (c) Loss under a Performance Bond is, at the Surety's option, the 
sum necessary to meet the cost of fulfilling the terms of a bonded 
Contract or the penal sum of the bond. In either case, the Loss includes 
interest (if any), but Loss is reduced by any amounts recovered (through 
offset or otherwise) by reason of the Principal's defenses or causes of 
action against the Obligee, and by any amounts recovered from 
indemnitors and other salvage.
    (d) Loss under an Ancillary Bond is the amount covered by such bond 
which is attributable to the Contract for which guaranteed Final Bonds 
were Executed.
    (e) Loss includes the following expenses if they are itemized, 
documented and attributable solely to the Loss under the guaranteed 
bond:
    (1) Amounts actually paid by the Surety which are specifically 
allocable to the investigation, adjustment, negotiation, compromise, 
settlement of, or resistance to a claim for Loss resulting from the 
breach of the terms of the bonded Contract. Any cost allocation method 
must be reasonable and must comply with generally accepted accounting 
principles; and
    (2) Amounts actually paid by the Surety for court costs and 
reasonable attorney's fees incurred to mitigate any Loss under 
paragraphs (a) through (e)(1) of this section including suits to obtain 
sums due from Obligees, indemnitors, Principals and others.
    (f) Loss does not include the following expenses:
    (1) Any unallocated expenses, or any clear mark-up on expenses or 
any overhead, of the Surety, its attorney, or any other party hired by 
the Surety or the attorney;
    (2) Expenses paid for any suits, cross-claims, or counterclaims 
filed against the United States of America or any of its agencies, 
officers, or employees unless the Surety has received, prior to filing 
such suit or claim, written concurrence from SBA that the suit may be 
filed;
    (3) Attorney's fees and court costs incurred by the Surety in a suit 
by or against SBA or its Administrator; and
    (4) Fees, costs, or other payments, including tort damages, arising 
from a successful tort suit or claim by a Principal or any other Person 
against the Surety.



Sec. 115.17  Minimization of Surety's Loss.

    (a) Indemnity agreements and collateral--(1) Requirements. The 
Surety must take all reasonable action to minimize risk of Loss 
including, but not limited to, obtaining from each Principal a written 
indemnity agreement which covers actual Losses under the Contract and 
Imminent Breach payments under Sec. 115.34(a) or Sec. 115.69. The 
indemnity agreement must be secured by such collateral as the Surety or 
SBA finds appropriate. Indemnity agreements from other Persons, secured 
or unsecured, may also be required by the Surety or SBA.
    (2) Prohibitions. No indemnity agreement may be obtained from the 
Surety, its agent or any other representative of the Surety. The Surety 
must not separately collateralize the portion of its bond which is not 
guaranteed by SBA.
    (b) Salvage and recovery--(1) General. The Surety must pursue all 
possible sources of salvage and recovery. Salvage and recovery includes 
all payments made in settlement of the Surety's claim, even though the 
Surety has incurred other losses as a result of that Principal which are 
not reimbursable by SBA.
    (2) SBA's share. SBA is entitled to its guaranteed percentage of all 
salvage and recovery from a defaulted Principal, its guarantors and 
indemnitors, and any other party, received by the Surety in connection 
with the guaranteed bond or any other bond issued by the Surety on 
behalf of the Principal unless such recovery is unquestionably 
identifiable as related solely to the non-guaranteed bond. The Surety 
must reimburse or credit SBA (in the same proportion as SBA's share of 
Loss) within 90 days of receipt of any recovery by the Surety.
    (3) Multiple Sureties. In any dispute between two or more Sureties 
concerning recovery under SBA guaranteed bonds, the dispute must first 
be

[[Page 180]]

brought to the attention of OSG for an attempt at mediation and 
settlement.



Sec. 115.18  Refusal to issue further guarantees; suspension and termination of PSB status.

    (a) Improper surety bond guarantee practices--(1) Imprudent 
practices. SBA may refuse to issue further guarantees to a Prior 
Approval Surety or may suspend the preferred status of a PSB Surety, by 
written notice stating all reasons for such decision and the effective 
date. Reasons for such a decision include, but are not limited to, a 
determination that the Surety (in its underwriting, its efforts to 
minimize Loss, its claims or recovery practices, or its documentation 
related to SBA guaranteed bonds) has failed to adhere to prudent 
standards or practices, including any standards or practices required by 
SBA, as compared to those of other Sureties participating in the same 
SBA Surety Bond Guarantee Program to a comparable degree.
    (2) Regulatory violations, fraud. Acts of wrongdoing such as fraud, 
material misrepresentation, breach of the Prior Approval or PSB 
Agreement, or regulatory violations (as defined in Secs. 115.19(d) and 
115.19(h)) also constitute sufficient grounds for refusal to issue 
further guarantees, or in the case of a PSB Surety, termination of 
preferred status.
    (3) Audit; records. The failure of a Surety to consent to SBA's 
audit or to maintain and produce records constitutes grounds for SBA to 
refuse to issue further guarantees for a Prior Approval Surety, to 
suspend a PSB Surety from participation, and to refuse to honor claims 
submitted by a Prior Approval or PSB Surety until the Surety consents to 
the audit.
    (4) Excessive Losses. If a Surety experiences excessive Losses on 
SBA guaranteed bonds relative to those of other Sureties participating 
in the same SBA Surety Bond Guarantee Program to a comparable degree, 
SBA may also require the renegotiation of the guarantee percentage and/
or SBA's charge to the Surety for bonds executed thereafter.
    (b) Lack of business integrity. A Surety's participation in the 
Surety Bond Guarantee Programs may be denied, suspended, or terminated 
upon the occurrence of any event in paragraphs (b) (1) through (5) of 
this section involving any of the following Persons: The Surety or any 
of its officers, directors, partners, or other individuals holding at 
least 20% of the Surety's voting securities, and any agents, 
underwriters, or any individual empowered to act on behalf of any of the 
preceding Persons.
    (1) If a State or other authority has revoked, canceled, or 
suspended the license required of such Person to engage in the surety 
business, the right of such Person to participate in the SBA Surety Bond 
Guarantee Program may be denied, terminated, or suspended, as 
applicable, in that jurisdiction or in other jurisdictions. 
Ineligibility or suspension from the Surety Bond Guarantee Programs is 
for at least the duration of the license suspension.
    (2) If such Person has been indicted or otherwise formally charged 
with a misdemeanor or felony bearing on such Person's fitness to 
participate in the Surety Bond Guarantee Programs, the participation of 
such Person may be suspended pending disposition of the charge. Upon 
conviction, participation may be denied or terminated.
    (3) If a final civil judgment is entered holding that such Person 
has committed a breach of trust or violation of a law or regulation 
protecting the integrity of business transactions or relationships, 
participation may be denied or terminated.
    (4) If such Person has made a material misrepresentation or 
willfully false statement in the presentation of oral or written 
information to SBA in connection with an application for a surety bond 
guarantee or the presentation of a claim, or committed a material breach 
of the Prior Approval or PSB Agreement or a material violation of the 
regulations (all as described in Sec. 115.19), participation may be 
denied or terminated.
    (5) If such Person is debarred, suspended, voluntarily excluded 
from, or declared ineligible for participation in Federal programs, 
participation may be denied or terminated.
    (c) Notification requirement. The Prior Approval or PSB Surety must 
promptly notify SBA of the occurrence of any

[[Page 181]]

event in paragraphs (b) (1) through (5) of this section, or if any of 
the Persons described in paragraph (b) of this section does not, or 
ceases to, qualify as a Surety. SBA may require submission of a 
Statement of Personal History (SBA Form 912) from any of these Persons.
    (d) SBA proceedings. Decisions to suspend, terminate, deny 
participation in, or deny reinstatement in the Surety Bond Guarantee 
program are made by the AA/SG. A Surety may file a petition for review 
of suspensions and terminations with the SBA Office of Hearings and 
Appeals (OHA) under part 134 of this chapter. SBA's Administrator may, 
pending a decision pursuant to part 134 of this chapter, suspend the 
participation of any Surety for any of the causes listed in paragraphs 
(b) (1) through (5) of this section.
    (e) Effect on guarantee. A guarantee issued by SBA before a 
suspension or termination under this section remains in effect, subject 
to SBA's right to deny liability under the guarantee.



Sec. 115.19  Denial of liability.

    In addition to equitable and legal defenses and remedies under 
contract law, the Act and the regulations in this part, SBA is not 
liable under a Prior Approval or PSB Agreement if any of the 
circumstances in paragraphs (a) through (h) of this section exist.
    (a) Excess Contract or bond amount. The total Contract amount at the 
time of Execution of the bond exceeds $2,000,000 in face value (see 
Sec. 115.12(e)), or the bond amount at any time exceeds the total 
Contract amount.
    (b) Misrepresentation or fraud. The Surety obtained the Prior 
Approval or PSB Agreement, or applied for reimbursement for losses, by 
fraud or material misrepresentation. Material misrepresentation includes 
(but is not limited to) both the making of an untrue statement of 
material fact and the omission of a statement of material fact necessary 
to make a statement not misleading in light of the circumstances in 
which it was made. Material misrepresentation also includes the adoption 
by the Surety of a material misstatement made by others which the Surety 
knew or under generally accepted underwriting standards should have 
known to be false or misleading. The Surety's failure to disclose its 
ownership (or the ownership by any owner of at least 20% of the Surety's 
equity) of an interest in a Principal or an Obligee is considered the 
omission of a statement of material fact.
    (c) Material breach. The Surety has committed a material breach of 
one or more terms or conditions of its Prior Approval or PSB Agreement. 
A material breach is considered to have occurred if:
    (1) Such breach (or such breaches in the aggregate) causes an 
increase in the Contract amount or in the bond amount of at least 25% or 
$50,000; or
    (2) One of the conditions under Part B of Title IV of the Investment 
Act is not met.
    (d) Substantial regulatory violation. The Surety has committed a 
``substantial violation'' of SBA regulations. For purposes of this 
paragraph, a ``substantial violation'' is a violation which causes an 
increase in the bond amount of at least 25% or $50,000 in the aggregate, 
or is contrary to the purposes of the Surety Bond Guarantee Programs.
    (e) Alteration. Without obtaining prior written approval from SBA 
(which may be conditioned upon payment of additional fees), the Surety 
agrees to or acquiesces in any material alteration in the terms, 
conditions, or provisions of the bond, including but not limited to the 
following acts:
    (1) Naming as an Obligee or co-Obligee any Person that does not 
qualify as an Obligee under Sec. 115.10; or
    (2) In the case of a Prior Approval Surety, acquiescing in any 
alteration to the bond which would increase the bond amount by at least 
25% or $50,000.
    (f) Timeliness. (1) Either:
    (i) The bond was Executed prior to the date of SBA's guarantee; or
    (ii) The bond was Executed (or approved, if the Surety is legally 
bound by such approval) after the work under the Contract had begun, 
unless SBA executes a ``Surety Bond Guarantee Agreement Addendum'' (SBA 
Form 991) after receiving all of the following from the Surety:
    (A) Satisfactory evidence, including a certified copy of the 
Contract (or a sworn affidavit from the Principal), showing that the 
bond requirement was

[[Page 182]]

contained in the original Contract, or other documentation satisfactory 
to SBA, showing why a bond was not previously obtained and is now being 
required;
    (B) Certification by the Principal that all taxes and labor costs 
are current, and listing all suppliers and subcontractors, indicating 
that they are all paid to date, and attaching a waiver of lien from 
each; or an explanation satisfactory to SBA why such documentation 
cannot be produced; and
    (C) Certification by the Obligee that all payments due under the 
Contract to date have been made and that the job has been satisfactorily 
completed to date.
    (2)(i) For purposes of paragraph (f)(1)(ii) of this section, work 
under a Contract is considered to have begun when a Principal takes any 
action at the job site which would have exposed its Surety to liability 
under applicable law had a bond been Executed (or approved, if the 
Surety is legally bound by such approval) at the time.
    (ii) For purposes of this paragraph (f), the Surety must maintain a 
contemporaneous record of the Execution and approval of each bond.
    (g) Principal fee. The Surety has not remitted to SBA the 
Principal's payment for the full amount of the guarantee fee within the 
time period required under Sec. 115.30(d) for Prior Approval Sureties or 
Sec. 115.66 for PSB Sureties. SBA may reinstate the guarantee upon a 
showing that the Contract is not in default and that a valid reason 
exists why a timely submission was not made.
    (h) Other regulatory violations. The occurrence of any of the 
following:
    (1) The Principal on the bonded Contract is not a small business;
    (2) The bond was not required under the bid solicitation or the 
original Contract;
    (3) The bond was not eligible for guarantee by SBA because the 
bonded contract was not a Contract as defined in Sec. 115.10;
    (4) The loss occurred under a bond that was not guaranteed by SBA;
    (5) The loss incurred by the Surety was not a Loss as determined 
under Sec. 115.16; or
    (6) The Surety's loss under a Performance Bond did not result from 
the Principal's breach or Imminent Breach of the Contract.

[61 FR 3271, Jan. 31, 1996, as amended at 66 FR 30804, June 8, 2001]



Sec. 115.20  Insolvency of Surety.

    (a) Successor in interest. If a Surety becomes insolvent, all rights 
or benefits conferred on the Surety under a valid and binding Prior 
Approval or PSB Agreement will accrue only to the trustee or receiver of 
the Surety. SBA will not be liable to the trustee or receiver of the 
insolvent Surety except for the guaranteed portion of any Loss incurred 
and actually paid by such Surety or its trustee or receiver under the 
guaranteed bonds.
    (b) Filing requirement. The trustee or receiver must submit to SBA 
quarterly status reports accounting for all funds received and all 
settlements being considered.



Sec. 115.21  Audits and investigations.

    (a) Audits--(1) Scope of audit. SBA may audit in the office of a 
Prior Approval or PSB Surety, the Surety's attorneys or consultants, or 
the Principal or its subcontractors, all documents, files, books, 
records, tapes, disks and other material relevant to SBA's guarantee, 
commitments to guarantee a surety bond, or agreements to indemnify the 
Prior Approval or PSB Surety. See Sec. 115.18(a)(3) for consequences of 
failure to comply with this section.
    (2) Frequency of PSB audits. Each PSB Surety is subject to audit at 
least once each year by examiners selected and approved by SBA.
    (b) Records. The Surety must maintain the records listed in this 
paragraph (b) for the term of each bond, plus any additional time 
required to settle any claims of the Surety for reimbursement from SBA 
and to attempt salvage or other recovery, plus an additional 3 years. If 
there are any unresolved audit findings in relation to a particular 
bond, the Surety must maintain the related records until the findings 
are resolved. The records to be maintained include the following:
    (1) A copy of the bond;
    (2) A copy of the bonded Contract;

[[Page 183]]

    (3) All documentation submitted by the Principal in applying for the 
bond;
    (4) All information gathered by the Surety in reviewing the 
Principal's application;
    (5) All documentation of any of the events set forth in 
Sec. 115.35(a) or Sec. 115.65(c)(2);
    (6) All records of any transaction for which the Surety makes 
payment under or in connection with the bond, including but not limited 
to claims, bills (including lawyers' and consultants' bills), judgments, 
settlement agreements and court or arbitration decisions, consultants' 
reports, Contracts and receipts;
    (7) All documentation relating to efforts to mitigate Losses, 
including documentation required by Sec. 115.34(a) or Sec. 115.69 
concerning Imminent Breach;
    (8) All records of any accounts into which fees and funds obtained 
in mitigation of Losses were paid and from which payments were made 
under the bond, and any other trust accounts, and any reconciliations of 
such accounts;
    (9) Job status reports received from Obligees and documentation of 
each unanswered request for a job status report; and
    (10) All documentation relating to any collateral held by or 
available to the Surety.
    (c) Purpose of audit. SBA's audit will determine, but not be limited 
to:
    (1) The adequacy and sufficiency of the Surety's underwriting and 
credit analysis, its documentation of claims and claims settlement 
procedures and activities, and its recovery procedures and practices;
    (2) The Surety's minimization of Loss, including the exercise of 
bond options upon Contract default; and
    (3) The Surety's loss ratio in comparison with other Sureties 
participating in the same SBA Surety Bond Guarantee Program to a 
comparable degree.
    (d) Investigations. SBA may conduct investigations to inquire into 
the possible violation by any Person of the Small Business Act or the 
Investment Act, or of any rule or regulation under those Acts, or of any 
order issued under those Acts, or of any Federal law relating to 
programs and operations of SBA.



             Subpart B--Guarantees Subject to Prior Approval



Sec. 115.30  Submission of Surety's guarantee application.

    (a) Legal effect of application. By submitting an application to SBA 
for a bond guarantee, the Prior Approval Surety certifies that the 
Principal meets the eligibility requirements set forth in Sec. 115.13 
and that the underwriting standards set forth in Sec. 115.15 have been 
met.
    (b) SBA's determination. SBA's approval or decline of a guarantee 
application is made in writing by an authorized SBA officer. The officer 
may provide telephone notice before the Prior Approval Surety receives 
SBA's guarantee approval form if the officer has already signed the 
form. In the event of a conflict between the telephone notice and the 
written form, the written form controls.
    (c) Reconsideration-appeal of SBA determination. A Prior Approval 
Surety may request reconsideration of a decline from the SBA officer who 
made the decision. If the decision on reconsideration is negative, the 
Surety may appeal to an individual designated by the AA/SG. If the 
decision is again adverse, the Surety may appeal to the AA/SG, who will 
make the final decision.
    (d) Notice and payment to SBA. When the Surety has Executed a Final 
Bond, including a Final Bond under a bonding line, the Surety must 
complete the Prior Approval Agreement, and submit the form, together 
with the Principal's payment for its guarantee fee (see Sec. 115.32(b)) 
to SBA within 45 days, or in the case of a bonding line, within 15 
business days (see Sec. 115.33(d)(2)) after Execution of the bond.



Sec. 115.31  Guarantee percentage.

    (a) Ninety percent. SBA reimburses a Prior Approval Surety for 90% 
of the Loss incurred and paid if:
    (1) The total amount of the Contract at the time of Execution of the 
bond is $100,000 or less; or
    (2) The bond was issued on behalf of a small business owned and 
controlled by socially and economically disadvantaged individuals or on 
behalf of a

[[Page 184]]

qualified HUBZone small business concern.
    (b) Eighty percent. SBA reimburses a Prior Approval Surety in an 
amount not to exceed 80% of the Loss incurred and paid on bonds for 
Contracts in excess of $100,000 which are executed on behalf of non-
disadvantaged concerns.
    (c) Contract increase to over $100,000. If the Contract amount 
increases to more than $100,000 after Execution of the bond, the 
guarantee percentage decreases by one percentage point for each $5,000 
of increase or part thereof, but it does not decrease below 80%. This 
provision applies only to guarantees which qualify under paragraph 
(a)(1) of this section.
    (d) Contract increase to over $2,000,000. If the Contract amount 
increases above the statutory limit of $2,000,000 after Execution of the 
bond, SBA's share of the Loss is limited to that percentage of the 
increased Contract amount which the statutory limit represents, 
multiplied by the guarantee percentage approved by SBA. For example if a 
Contract amount increases to $2,100,000, SBA's share of the Loss under 
an 80% guarantee is limited to 76.1% [2,000,000 / 2,100,000 = 95.2% x 
80% = 76.1%].
    (e) Contract decrease to $100,000 or less. If the Contract amount 
decreases to $100,000 or less after Execution of the bond, SBA's 
guarantee percentage increases to 90% if the Surety provides SBA with 
evidence supporting the decrease and any other information or documents 
requested.

[61 FR 3271, Jan. 31, 1996, as amended at 64 FR 18324, Apr. 14, 1999; 66 
FR 30804, June 8, 2001]



Sec. 115.32  Fees and Premiums.

    (a) Surety's Premium. A Prior Approval Surety must not charge a 
Principal an amount greater than that authorized by the appropriate 
insurance department. The Surety must not require the Principal to 
purchase casualty or other insurance or any other services from the 
Surety or any Affiliate or agent of the Surety. The Surety must not 
charge non-Premium fees to a Principal unless the Surety performs other 
services for the Principal, the additional fee is permitted by State 
law, and the Principal agrees to the fee.
    (b) SBA charge to Principal. SBA does not charge Principals 
application or Bid Bond guarantee fees. If SBA guarantees a Final Bond, 
the Principal must pay a guarantee fee equal to a certain percentage of 
the Contract amount. The percentage is determined by SBA and is 
published in Notices in the Federal Register from time to time. The 
Principal's fee is rounded to the nearest dollar and is to be remitted 
to SBA by the Surety together with the form required under 
Sec. 115.30(d). See paragraph (d) of this section for additional 
requirements when the Contract amount changes.
    (c) SBA charge to Surety. SBA does not charge Sureties application 
or Bid Bond guarantee fees. Subject to Sec. 115.18(a)(4), the Surety 
must pay SBA a guarantee fee on each guaranteed bond (other than a Bid 
Bond) in the ordinary course of business. The fee is a certain 
percentage of the bond Premium, determined by SBA and published in 
Notices in the Federal Register from time to time. The fee is rounded to 
the nearest dollar. SBA does not receive any portion of a Surety's non-
Premium charges. See paragraph (d) of this section for additional 
requirements when the bond amount or the Contract amount changes.
    (d) Contract or bond increases/decreases--(1) Notification and 
approval. The Prior Approval Surety must notify SBA of any increases or 
decreases in the Contract or bond amount that aggregate 25% or $50,000, 
as soon as the Surety acquires knowledge of the change. Whenever the 
original bond amount increases as a result of a single change order of 
at least 25% or $50,000, the prior written approval of such increase by 
SBA is required on a supplemental Prior Approval Agreement (Supplemental 
Form 990) and is conditioned upon payment by the Surety of the increase 
in the Principal's guarantee fee as set forth in paragraph (d)(2) of 
this section.
    (2) Increases; fees. Notification of increases in the Contract or 
bond amount under this paragraph (d) must be accompanied by payment of 
the increase in the Principal's guarantee fee computed on the increase 
in the Contract

[[Page 185]]

amount. If the increase in the Principal's fee is less than $40, such 
increase is not due until all unpaid increases in the Principal's fee 
aggregate at least $40. The Surety's check for payment of the increase 
in the Surety's guarantee fee, computed on the increase in the bond 
Premium, may be submitted in the ordinary course of business. Increases 
in the Surety's fee are not due until they aggregate at least $40.
    (3) Decreases; refunds. Whenever SBA is notified of a decrease in 
the Contract or bond amount, SBA will refund to the Principal a 
proportionate amount of the Principal's guarantee fee and rebate to the 
Surety a proportionate amount of SBA's Premium share in the ordinary 
course of business. If the amount to be refunded or rebated is less than 
$40, such refund or rebate will not be made until the amounts to be 
refunded or rebated, respectively, aggregate at least $40. Upon receipt 
of the refund, the Surety must promptly pay a proportionate amount of 
its Premium to the Principal.



Sec. 115.33  Surety bonding line.

    A surety bonding line is a written commitment by SBA to a Prior 
Approval Surety which provides for the Surety's Execution of multiple 
bonds for a specified small business strictly within pre-approved terms, 
conditions and limitations. In applying for a bonding line, the Surety 
must provide SBA with information on the applicant as requested. In 
addition to the other limitations and provisions set forth in this part 
115, the following conditions apply to each surety bonding line:
    (a) Underwriting. A bonding line may be issued by SBA for a 
Principal only if the underwriting evaluation is satisfactory. The Prior 
Approval Surety must require the Principal to keep it informed of all 
its contracts, whether bonded by the same or another surety or unbonded, 
during the term of the bonding line.
    (b) Bonding line conditions. The bonding line contains limitations 
on the following:
    (1) The term of the bonding line, not to exceed 1 year subject to 
renewal in writing;
    (2) The total dollar amount of the Principal's bonded and unbonded 
work on hand at any time, including outstanding bids, during the term of 
the bonding line;
    (3) The number of such bonded and unbonded contracts outstanding at 
any time during the term of the bonding line;
    (4) The maximum dollar amount of any single guaranteed bonded 
Contract;
    (5) The timing of Execution of bonds under the bonding line--bonds 
must be dated and Executed before the work on the underlying Contract 
has begun, or the Surety must submit to SBA the documentation required 
under Sec. 115.19(f)(1)(ii); and
    (6) Any other limitation related to type, specialty of work, 
geographical area, or credit.
    (c) Excess bonding. If, after a bonding line is issued, the 
Principal desires a bond and the Surety desires a guarantee exceeding a 
limitation of the bonding line, the Surety must submit an application to 
SBA under regular procedures.
    (d) Submission of forms to SBA--(1) Bid Bonds. Within 15 business 
days after the Execution of any Bid Bonds under a bonding line, the 
Surety must submit a ``Surety Bond Guarantee Underwriting Review'' (SBA 
Form 994B) to SBA for approval. If that form is already on file with SBA 
and no new financial statements are required or have been received from 
the Principal, a ``Surety Bond Guarantee Review Update'' (SBA Form 994C) 
may be submitted instead. If the Surety fails to submit either form 
within this time period, SBA's guarantee of the bond will be void from 
its inception unless SBA determines otherwise upon a showing that a 
valid reason exists why the timely submission was not made.
    (2) Final Bonds. Within 15 business days after the Execution of any 
Final Bonds under a bonding line, the Surety must submit a signed Prior 
Approval Agreement and a ``Surety Bond Guarantee Underwriting Review'' 
(SBA Form 994B) to SBA for approval. If that form is already on file 
with SBA and no new financial statements are required

[[Page 186]]

or have been received from the Principal, a ``Surety Bond Guarantee 
Review Update'' (SBA Form 994C) may be submitted instead. If the Surety 
fails to submit these forms together with the Principal's payment for 
its guarantee fee within this time period, SBA's guarantee of the bond 
will be void from its inception unless SBA determines otherwise upon a 
showing that the Contract is not in default and a valid reason exists 
why the timely submission was not made.
    (3) Additional information. The Surety must submit any other data 
SBA requests.
    (e) Cancellation of bonding line--(1) Optional cancellation. Either 
SBA or the Surety may cancel a bonding line at any time, with or without 
cause, upon written notice to the other party. Upon the receipt of any 
adverse information concerning the Principal, the Surety must promptly 
notify SBA, and SBA may cancel the bonding line.
    (2) Mandatory cancellation. Upon the occurrence of a default by the 
Principal, whether under a contract bonded by the same or another surety 
or an unbonded contract, the Surety must immediately cancel the bonding 
line.
    (3) Effect of cancellation. Cancellation of a bonding line by SBA is 
effective upon receipt of written notice by the Surety. Bonds issued 
before the effective date of cancellation remain guaranteed by SBA. Upon 
cancellation by SBA or the Surety, the Surety must promptly notify the 
Principal in writing.



Sec. 115.34  Minimization of Surety's Loss.

    (a) Imminent Breach--(1) Prior approval requirement. SBA will 
reimburse its guaranteed share of payments made by a Surety to avoid or 
attempt to avoid an Imminent Breach of the terms of a Contract covered 
by an SBA guaranteed bond only if the payments were made with the prior 
approval of OSG. OSG's prior approval will be given only if the Surety 
demonstrates to SBA's satisfaction that a breach is imminent and that 
there is no other recourse to prevent such breach.
    (2) Amount of reimbursement. The aggregate of the payments by SBA to 
avoid Imminent Breach cannot exceed 10% of the Contract amount, unless 
the Administrator finds that a greater payment (not to exceed the 
guaranteed share of the bond penalty) is necessary and reasonable. In no 
event will SBA make any duplicate payment pursuant to this or any other 
provision of this part 115.
    (3) Recordkeeping requirement. The Surety must keep records of 
payments made to avoid Imminent Breach.
    (b) Salvage and recovery. A Prior Approval Surety must pursue all 
possible sources of salvage and recovery until SBA concurs with the 
Surety's recommendation for a discontinuance or for a settlement. The 
Surety must certify that continued pursuit of salvage and recovery would 
be neither economically feasible nor a viable strategy in maximizing 
recovery. See also Sec. 115.17(b).



Sec. 115.35  Claims for reimbursement of Losses.

    (a) Notification requirements--(1) Events requiring notification. A 
Prior Approval Surety must notify OSG of the occurrence of any of the 
following:
    (i) Legal action under the bond has been initiated.
    (ii) The Obligee has declared the Principal to be in default under 
the Contract.
    (iii) The Surety has established a claim reserve for the bond.
    (iv) The Surety has received any adverse information concerning the 
Principal's financial condition or possible inability to complete the 
project or to pay laborers or suppliers.
    (2) Timing of notification. Notification must be made in writing at 
the earlier of the time the Surety applies for a guarantee on behalf of 
an affected Principal, or within 30 days of the date the Surety acquires 
knowledge, or should have acquired knowledge, of any of the listed 
events.
    (b) Surety action. The Surety must take all necessary steps to 
mitigate Losses resulting from any of the events in paragraph (a) of 
this section, including the disposal at fair market value of any 
collateral held by or available to the Surety. Unless SBA notifies the 
Surety otherwise, the Surety must take charge of all claims or suits 
arising from a defaulted bond, and compromise, settle and defend such 
suits.

[[Page 187]]

The Surety must handle and process all claims under the bond and all 
settlements and recoveries as it does on non-guaranteed bonds.
    (c) Claim reimbursement requests. (1) Claims for reimbursement for 
Losses which the Surety has paid must be submitted (together with a copy 
of the bond, the bonded Contract, and any indemnity agreements) with the 
initial claim to OSG on a ``Default Report, Claim for Reimbursement and 
Record of Administrative Action'' (SBA Form 994H), within 1 year from 
the time of each disbursement. Claims submitted after 1 year must be 
accompanied by substantiation satisfactory to SBA. The date of the claim 
for reimbursement is the date of receipt of the claim by SBA, or such 
later date as additional information requested by SBA is received.
    (2) The Surety must also submit evidence of the disposal of all 
collateral at fair market value.
    (3) SBA may request additional information prior to reimbursing the 
Surety for its Loss.
    (4) Subject to the offset provisions of part 140, SBA pays its share 
of the Loss incurred and paid by the Surety within 90 days of receipt of 
the requisite information.
    (5) Claims for reimbursement and any additional information 
submitted are subject to review and audit by SBA, including but not 
limited to the Surety's compliance with SBA's regulations and forms.
    (d) Status updates. The Surety must submit semiannual status reports 
on each claim 6 months after the initial default notice, and then every 
6 months. The Surety must notify SBA immediately of any substantial 
changes in the status of the claim or the amounts of Loss reserves.
    (e) Reservation of SBA rights. The payment by SBA of a Surety's 
claim does not waive or invalidate any of the terms of the Prior 
Approval Agreement, the regulations set forth in this part 115, or any 
defense SBA may have against the Surety. Within 30 days of receipt of 
notification that a claim or any portion of a claim should not have been 
paid by SBA, the Surety must repay the specified amounts to SBA.



Sec. 115.36  Indemnity settlements and reinstatement of Principal.

    (a) Indemnity settlements. (1) An indemnity settlement occurs when a 
defaulted Principal and its Surety agree upon an amount, less than the 
actual loss under the bond, which will satisfy the Principal's 
indebtedness to the Surety. Sureties must not agree to any indemnity 
settlement proposal or enter into any such agreement without SBA's 
concurrence.
    (2) Any settlement proposal submitted for SBA's consideration must 
include current financial information, including financial statements, 
tax returns, and credit reports, together with the Surety's written 
recommendations. It should also indicate whether the Principal is 
interested in further bonding.
    (3) The Surety must pay SBA its pro rata share of the settlement 
amount within 90 days of receipt. Prior to closing the file on a 
Principal, the Surety must certify that SBA has received its pro rata 
share of all indemnity recovery.
    (b) Conditions for reinstatement. At any time after a Principal 
becomes ineligible for further bond guarantees under Sec. 115.14(a), the 
Surety may recommend that such Principal's eligibility be reinstated. 
OSG may agree to reinstate the Principal and its Affiliates if:
    (1) The Principal's guarantee fee has been paid to SBA and SBA 
receives evidence that the Principal has paid all delinquent amounts due 
to the Surety (including amounts for Imminent Breach); or
    (2) The Surety has settled its claim with the Principal for an 
amount and on terms accepted by OSG; or
    (3) The Principal contests a claim and provides collateral, 
acceptable to the Surety and OSG, which has a liquidation value of at 
least the amount of the claim including related expenses; or
    (4) The Principal's indebtedness to the Surety is discharged by 
operation of law (e.g., bankruptcy discharge); or
    (5) OSG and the Surety determine that further bond guarantees are 
appropriate.
    (c) Underwriting after reinstatement. A guarantee application 
submitted after

[[Page 188]]

reinstatement of the Principal's eligibility is subject to a very 
stringent underwriting review.



            Subpart C--Preferred Surety Bond (PSB) Guarantees



Sec. 115.60  Selection and admission of PSB Sureties.

    (a) Selection of PSB Sureties. SBA's selection of PSB Sureties will 
be guided by, but not limited to, these factors:
    (1) An underwriting limitation of at least $2,000,000 on the U.S. 
Treasury Department list of acceptable sureties;
    (2) An agreement to charge Principals no more than the Surety 
Association of America's advisory premium rates in effect on August 1, 
1987;
    (3) Premium income from contract bonds guaranteed by any government 
agency (Federal, State or local) of no more than one- quarter of the 
total contract bond premium income of the Surety;
    (4) The vesting of underwriting authority for SBA guaranteed bonds 
only in employees of the Surety;
    (5) The vesting of final settlement authority for claims and 
recovery under the PSB program only in employees of the Surety's 
permanent claims department; and
    (6) The rating or ranking designations assigned to the Surety by 
recognized authority.
    (b) Admission of PSB Sureties. A Surety admitted to the PSB program 
must execute a PSB Agreement before approving SBA guaranteed bonds. No 
SBA guarantee attaches to bonds approved before the AA/SG or designee 
has countersigned the Agreement.

[61 FR 3271, Jan. 31, 1996, as amended at 66 FR 30804, June 8, 2001]



Sec. 115.61  Duration of PSB program.

    The PSB program terminates on September 30, 2003, unless extended by 
legislation. SBA guarantees effective under this program on or before 
September 30, 2003, will remain in effect after such date.

[61 FR 3271, Jan. 31, 1996, as amended at 63 FR 12605, Mar. 16, 1998; 66 
FR 30804, June 8, 2001]



Sec. 115.62  Prohibition on participation in Prior Approval program.

    Neither a PSB Surety nor any of its Affiliates is eligible to submit 
applications under subpart B of this part.



Sec. 115.63  Allotment of guarantee authority.

    (a) General. SBA allots to each PSB Surety a periodic maximum 
guarantee authority. No SBA guarantee attaches to bonds approved by a 
PSB Surety if the bonds exceed the allotted authority for the period in 
which the bonds are approved. No reliance on future authority is 
permitted. An allotment can be increased only by prior written 
permission of SBA.
    (b) Execution of Bid Bonds. When the PSB Surety Executes a Bid Bond, 
SBA debits the Surety's allotment for an amount equal to the guarantee 
percentage of the estimated penal sum of the Final Bond SBA would 
guarantee if the Contract were awarded. If the Contract is then awarded 
for an amount other than the bid amount, or if the bid is withdrawn or 
the Bid Bond guarantee has expired (see Sec. 115.12(c)), SBA debits or 
credits the Surety's allotment accordingly.
    (c) Execution of Final Bonds. If the PSB Surety Executes a 
guaranteed Final Bond, but not the related Bid Bond, SBA debits the 
Surety's allotment for an amount equal to the guarantee percentage of 
the penal sum of the Final Bond. SBA will debit the allotment for 
increases, and credit the allotment for decreases, in the bond amount.
    (d) Release and non-issuance of Final Bonds. The release of Final 
Bonds upon completion of the Contract does not restore the corresponding 
allotment. If, however, a PSB Surety approves a Final Bond but never 
issues the bond, SBA will credit the Surety's allotment for an amount 
equal to the guarantee percentage of the penal sum of the bond. In that 
event, the Surety must notify SBA as soon as possible, but in no event 
later than 5 business days after the non-issuance has been determined. 
Until the Surety has so notified SBA, it cannot rely on such credit.

[[Page 189]]



Sec. 115.64  Timeliness requirement.

    There must be no Execution or approval of a bond by a PSB Surety 
after commencement of work under a Contract unless the Surety obtains 
written approval from the AA/SG. To apply for such approval, the Surety 
must submit a completed ``Surety Bond Guarantee Agreement Addendum'' 
(SBA Form 991), together with the evidence and certifications described 
in Sec. 115.19(f)(1)(ii).



Sec. 115.65  General PSB procedures.

    (a) Retention of information. A PSB Surety must comply with all 
applicable SBA regulations and obtain from its applicants all the 
information and certifications required by SBA. The PSB Surety must 
document compliance with SBA regulations and retain such certifications 
in its files, including a contemporaneous record of the date of approval 
and Execution of each bond. See also Sec. 115.19(f). The certifications 
and other information must be made available for inspection by SBA or 
its agents and must be available for submission to SBA in connection 
with the Surety's claims for reimbursement. The PSB Surety must retain 
the certifications and other information for the term of the bond, plus 
such additional time as may be required to settle any claims of the 
Surety for reimbursement from SBA and to attempt salvage or other 
recovery, plus an additional 3 years. If there are any unresolved audit 
findings in relation to a particular bond, the Surety must maintain the 
related certifications and other information until the findings are 
resolved.
    (b) Usual staff and procedures. The approval, Execution and 
administration by a PSB Surety of SBA guaranteed bonds must be handled 
in the same manner and with the same staff as the Surety's activity 
outside the PSB program. The Surety must request job status reports from 
Obligees in accordance with its own procedures.
    (c) Notification to SBA. (1) Approvals. A PSB Surety must notify SBA 
by electronic transmission or monthly bordereau, as agreed between the 
Surety and SBA, of all approved Bid and Final Bonds, and of the Surety's 
approval of increases and decreases in the Contract or bond amount. The 
notice must contain the information specified from time to time in 
agreements between the Surety and SBA. SBA may deny liability with 
respect to Final Bonds for which SBA has not received timely notice.
    (2) Other events requiring notification. The PSB Surety must notify 
SBA within 30 calendar days of the name and address of any Principal 
against whom legal action on the bond has been instituted; whenever an 
Obligee has declared a default; whenever the Surety has established or 
added to a claim reserve; of the recovery of any amounts on the 
guaranteed bond; and of any decision by the Surety to bond any such 
Principal again.



Sec. 115.66  Fees.

    The PSB Surety must pay SBA a certain percentage of the Premium it 
charges on Final Bonds. The PSB Surety must also remit to SBA the 
Principal's payment for its guarantee fee, equal to a certain percentage 
of the Contract amount. The fee percentages are determined by SBA and 
are published in Notices in the Federal Register from time to time. Each 
fee is rounded to the nearest dollar. The Surety must remit SBA's 
Premium share and the Principal's guarantee fee with the bordereau 
listing the related Final Bond, as required in the PSB Agreement.



Sec. 115.67  Changes in Contract or bond amount.

    (a) Increases. The PSB Surety must process Contract or bond amount 
increases within its allotment in the same manner as initial guaranteed 
bond issuances (see Sec. 115.65(c)(1)). The Surety must present checks 
for additional fees due from the Principal and the Surety on increases 
aggregating 25% of the contract or bond amount or $50,000, and attach 
such payments to the respective monthly bordereau. If the additional 
Principal's fee or Surety's fee is less than $40, such fee is not due 
until all unpaid increases in such fee aggregate at least $40.
    (b) Decreases. If the Contract or bond amount is decreased, SBA will 
refund to the Principal a proportionate

[[Page 190]]

amount of the guarantee fee, and adjust SBA's Premium share accordingly 
in the ordinary course of business. No refund or adjustment will be made 
until the amounts to be refunded or rebated, respectively, aggregate at 
least $40.



Sec. 115.68  Guarantee percentage.

    SBA reimburses a PSB Surety in an amount not to exceed 70% of the 
Loss incurred and paid. Where the Contract amount, after the Execution 
of the bond, increases beyond the statutory limit of $2,000,000, SBA's 
share of the Loss is limited to that percentage of the increased 
Contract amount which the statutory limit represents, multiplied by the 
guarantee percentage approved by SBA. For an example, see 
Sec. 115.31(d).

[61 FR 3271, Jan. 31, 1996, as amended at 66 FR 30804, June 8, 2001]



Sec. 115.69  Imminent Breach.

    (a) No prior approval requirement. SBA will reimburse a PSB Surety 
for the guaranteed portion of payments the Surety makes to avoid or 
attempt to avoid an Imminent Breach of the terms of a Contract covered 
by an SBA guaranteed bond. The PSB Surety does not need SBA approval to 
make Imminent Breach payments.
    (b) Amount of reimbursement. The aggregate of the payments by SBA 
under this section cannot exceed 10% of the Contract amount, unless the 
Administrator finds that a greater payment (not to exceed the guaranteed 
portion of the bond penalty) is necessary and reasonable. In no event 
will SBA make any duplicate payment under any provision of these 
regulations in this part.
    (c) Recordkeeping requirement. The PSB Surety must keep records of 
payments made to avoid Imminent Breach.



Sec. 115.70  Claims for reimbursement of Losses.

    (a) How claims are submitted. A PSB Surety must submit claims for 
reimbursement on a form approved by SBA no later than 1 year from the 
date the Surety paid the amount. Loss is determined as of the date of 
receipt by SBA of the claim for reimbursement, or as of such later date 
as additional information requested by SBA is received. Subject to the 
offset provisions of part 140, SBA pays its share of Loss within 90 days 
of receipt of the requisite information. Claims for reimbursement and 
any additional information submitted are subject to review and audit by 
SBA.
    (b) Surety responsibilities. The PSB Surety must take all necessary 
steps to mitigate Losses when legal action against a bond has been 
instituted, when the Obligee has declared a default, and when the Surety 
has established a claim reserve. The Surety may dispose of collateral at 
fair market value only. Unless SBA notifies the Surety otherwise, the 
Surety must take charge of all claims or suits arising from a defaulted 
bond, and compromise, settle or defend the suits. The Surety must handle 
and process all claims under the bond and all settlements and recoveries 
in the same manner as it does on non-guaranteed bonds.
    (c) Reservation of SBA's rights. The payment by SBA of a PSB 
Surety's claim does not waive or invalidate any of the terms of the PSB 
Agreement, the regulations in this part 115, or any defense SBA may have 
against the Surety. Within 30 days of receipt of notification that a 
claim or any portion of a claim should not have been paid by SBA, the 
Surety must repay the specified amounts to SBA.



Sec. 115.71  Denial of liability.

    In addition to the grounds set forth in Sec. 115.19, SBA may deny 
liability to a PSB Surety if:
    (a) The PSB Surety's guaranteed bond was in an amount which, 
together with all other guaranteed bonds, exceeded the allotment for the 
period during which the bond was approved, and no prior SBA approval had 
been obtained;
    (b) The PSB Surety's loss was incurred under a bond which was not 
listed on the bordereau for the period when it was approved; or
    (c) The loss incurred by the PSB Surety is not attributable to the 
particular Contract for which an SBA guaranteed bond was approved.

[[Page 191]]



PART 117--NONDISCRIMINATION IN FEDERALLY ASSISTED PROGRAMS OF SBA--EFFECTUATION OF THE AGE DISCRIMINATION ACT OF 1975, AS AMENDED--Table of Contents




Sec.
117.1  Purpose.
117.2  Application of this part.
117.3  Definitions.
117.4  Discrimination prohibited and exceptions.
117.5  Illustrative applications.
117.6  Remedial and affirmative action by recipients.
117.7  Assurances required.
117.8  Responsibilities of SBA recipients.
117.9  Compliance information.
117.10  Review procedures.
117.11  Complaint procedures.
117.12  Mediation.
117.13  Investigation and resolution of matters.
117.14  Intimidating or retaliatory acts prohibited.
117.15  Procedure for effecting compliance.
117.16  Hearings.
117.17  Decisions and notices.
117.18  Judicial review.
117.19  Effect on other regulations.
117.20  Supervision and coordination.

Appendix A to Part 117

    Authority: Age Discrimination Act of 1975, 42 U.S.C. 6101 et seq.

    Source: 50 FR 41648, Oct. 11, 1985, unless otherwise noted.



Sec. 117.1  Purpose.

    The purpose of this part is to effectuate the provisions of The Age 
Discrimination Act of 1975, as amended (hereinafter referred to as the 
Act), to the end that no person in the United States shall, on the basis 
of age, be excluded from participation in, be denied the benefits of, or 
be subjected to discrimination under programs receiving financial 
assistance or any financial activities of the Small Business 
Administration to which this Act applies. The Act also permits 
recipients of Federal funds to continue to use certain age distinctions 
and other factors other than age which meet the requirements of the Act 
and these regulations in the conduct of programs and the provision of 
services to the public.



Sec. 117.2  Application of this part.

    (a) This part applies to all recipients of assistance under programs 
administered by the Small Business Administration and to programs of 
financial assistance by the Small Business Administration, whether or 
not listed in appendix A.
    (b) For the purposes of this part, the prohibition against age 
discrimination applies to natural persons of all ages.
    (c) This part does not apply to the employment practices of any 
recipients.



Sec. 117.3  Definitions.

    As used in this part:
    (a) The term act means the Age Discrimination Act of 1975, as 
amended (Title III of Pub. L. 94-135).
    (b) The term action means any act, activity, policy, rule, standard, 
or method of administration; or the use of any policy, rule, standard, 
or method of administration.
    (c) The term age means how old a person is, or the number of years 
from the date of a person's birth.
    (d) The term age distinction means any action using age or an age-
related term.
    (e) The term age-related means a word or words which necessarily 
imply a particular age or range of ages (for example, children, adult, 
older persons, but not student).
    (f) The term agency means a Federal department or agency that is 
empowered to extend financial assistance.
    (g) The term applicant means one who applies for Federal financial 
assistance.
    (h) The term Federal financial assistance includes: (1) Grants and 
loans of Federal funds; (2) the grant or donation of Federal property 
and interests in property; (3) the detail of Federal personnel; (4) the 
sale and lease of, and the permission to use (on other than a casual or 
transient basis), Federal property or any interest in such property 
without consideration, or at a nominal consideration, or at a 
consideration which is reduced for the purpose of assisting the 
recipient, or in recognition of the public interest to be served by such 
sale or lease to the recipient; and (5) any Federal agreement, 
arrangement, or other contract which has as one of its purposes the 
provision of assistance.

[[Page 192]]

    (i) The term normal operation means the operation of a business or 
activity without significant changes that would impair its ability to 
meet its objectives.
    (j) The term recipient means one who receives any Federal financial 
assistance under any program administered by the Small Business 
Administration. (See Appendix A.) The term recipient also shall be 
deemed to include subrecipients of SBA financial assistance.
    (k) The term SBA means the Small Business Administration.
    (l) The term subrecipient means any business concern that receives 
Federal financial assistance from the primary recipient of such 
financial assistance. A subrecipient is generally regarded as a 
recipient of Federal financial assistance and has all the duties of a 
recipient in these regulations.
    (m) The term statutory objective means the purposes of the 
legislation as stated in an act, statute or ordinance or can be shown in 
the legislative history of any Federal statute, State statute, or local 
statute or ordinance adopted by an elected, general purpose legislative 
body.



Sec. 117.4  Discrimination prohibited and exceptions.

    (a) General. To the extent that this part applies, no person in the 
United States shall, on the basis of age, be excluded from participation 
in, be denied the benefits of, or be subjected to discrimination under 
any business or activity receiving Federal financial assistance.
    (b) Specific discriminatory actions prohibited. To the extent that 
this part applies, a recipient business or other activity may not, 
directly or through contractual arrangements, on the ground of age:
    (1) Deny an individual any services, financial aid or other benefit 
provided by the business or other activity, except where sanctioned by 
one of the exceptions stated in Sec. 117.4 (d), (e) or (f) of this 
section.
    (2) Provide any service, financial aid or other benefit, except as 
sanctioned by one of the exceptions stated below, in such a way as to 
deny or limit persons in their efforts to participate in federally-
assisted programs;
    (3) Treat an individual differently from others, except as 
sanctioned by an exception stated below, in determining whether the 
person satisfied any admission, enrollment, eligibility, membership, or 
other requirement or condition which individuals must meet in order to 
be provided any service, financial aid or other benefit provided by the 
business or activity.
    (c) The specific forms of prohibited discrimination in paragraph (b) 
of this section does not limit the generality of the prohibition in 
paragraph (a) of this section.
    (d) Exception 1. A recipient is permitted to take an action 
otherwise prohibited by paragraphs (a) and (b) of this section, if the 
action reasonably takes into account age as a factor necessary to the 
normal operation or the achievement of any statutory objective of a 
business or activity. An action reasonably takes into account age as a 
factor necessary to the normal operation or the achievement of any 
statutory objective of a business or activity, if:
    (1) Age is used as a measure or approximation of one or more other 
characteristics; and
    (2) The other characteristic(s) must be measured or approximated in 
order for the normal operation of the business or activity to continue, 
or to achieve any statutory objective of the business or activity; and
    (3) The other characteristic(s) can be reasonably measured or 
approximated by the use of age; and
    (4) The other characteristic(s) are impractical to measure directly 
on an individual basis.

    Note: All of the above factors must be met in order to exclude a 
business activity from the provisions of this part.

    (e) Exception 2. A recipient is permitted to take an action 
otherwise prohibited by paragraphs (a) and (b) of this section which is 
based on a factor other than age, even though that action may have a 
disproportionate effect on persons of different ages. An action may be 
based on a factor other than age if the factor bears a direct and 
substantial relationship to the normal operation of the business or 
activity or to the achievement of a statutory objective.

[[Page 193]]

    (f) Exception 3. A recipient is permitted to take an action 
otherwise prohibited by paragraphs (a) and (b) of this section if an age 
distinction is contained in that part of a Federal, State or local 
statute or ordinance adopted by an elected general purpose legislative 
body which provides any benefits or assistance to, establishes criteria 
for participation in, or describes intended beneficiaries or target 
groups in age-related terms.
    (g) The burden of proving that an age distinction or other action 
falls within the exceptions outlined in paragraphs (d), (e), and (f) of 
this section on the recipient of Federal financial assistance.



Sec. 117.5  Illustrative applications.

    (a) Discrimination in providing financial assistance. Development 
companies and small business investment companies, which apply for or 
receive any financial assistance may not discriminate on the ground of 
age in providing financial assistance to small business concerns. Such 
discrimination prohibited by Sec. 117.4 includes but is not limited to 
the failure or refusal, because of the age of the applicant, or the age 
of the applicant's principal owner or operating official to extend a 
loan or equity financing to any business concern; or, in the case of 
financing which has actually been extended, the failure or refusal 
because of the age of the recipient, or the age of recipient's principal 
owner or operating official to accord the recipient fair treatment and 
the customary courtesies regarding such matters as default, grace 
periods and the like.
    (b) Discrimination in accommodations or services. Small Business 
Concerns and others who or which apply for or receive any financial 
assistance in a program administered by the Small Business 
Administration, such as but not limited to physicians, dentists, 
hospitals, schools, libraries, and other individuals or organizations 
may not discriminate in the treatment, accommodations or services they 
provide to their patients, students, members, passengers, or members of 
the public, except when the normal operation or statutory objective of 
the business or activity of the intended beneficiary is designated in 
age-related terms, whether or not operated for profit. Action by such 
business or activity to be excluded from compliance with this regulation 
must fall within the exceptions enumerated in Sec. 117.4 (d), (e), and 
(f) of this part.
    (c) The discrimination prohibited by Sec. 117.5(b) includes, but is 
not limited to the failure or refusal, because of age, to accept a 
patient, student, member, customer, client, or passenger, except when 
the imposition of this prohibition would interfere with the normal 
operation of the business, e.g., pediatricians, nursery schools, 
geriatric clinics.



Sec. 117.6  Remedial and affirmative action by recipients.

    (a) Where a recipient is found to have discriminated on the basis of 
age, the recipient shall take any remedial action which the Agency may 
require to overcome the effects of the discrimination. If another 
recipient exercises control over the recipient that has discriminated, 
both recipients may be required to take remedial action.
    (b) Even in the absence of a finding of discrimination, a recipient 
may take affirmative action to overcome the effects of conditions that 
resulted in limited participation in the recipient's business or program 
on the basis of age.
    (c) If a recipient operating a program which serves the elderly or 
children in addition to persons of other ages, provides special benefits 
to the elderly or to children, the provision of those benefits shall be 
presumed to be voluntary affirmative action provided that it does not 
have the effect of excluding otherwise eligible persons from 
participation in the program.



Sec. 117.7  Assurances required.

    An application for financial assistance under any program 
administered by the Small Business Administration shall, as a condition 
of its approval and the extension of such assistance, contain or be 
accompanied by an assurance that the recipient will comply with this 
part. SBA shall specify the form of the foregoing assurance for each 
program, and the extent to which

[[Page 194]]

like assurances will be required of contractors and subcontractors, 
transferees, successors, and other participants in the program.



Sec. 117.8  Responsibilities of SBA recipients.

    (a) Each SBA recipient has the primary responsibility to ensure that 
its programs and activities are in compliance with the Act and these 
regulations, and shall take steps to eliminate violations of the Act. A 
recipient also has responsibility to maintain records, provide 
information, and to afford SBA access to its records to the extent SBA 
finds necessary to determine whether the recipient is in compliance with 
the Act and these regulations. (OMB No. 3245 0076)
    (b) Where a recipient passes on Federal financial assistance from 
SBA to subrecipients, the recipient shall provide the subrecipients 
written notice of their obligations under the Act and these regulations.
    (c) Each recipient shall make necessary information about the Act 
and these regulations available to its program beneficiaries in order to 
inform them about the protections against discrimination provided by the 
Act and these regulations.
    (d) Whenever an assessment indicates a violation of the Act and the 
SBA regulations, the recipient shall take corrective action.



Sec. 117.9  Compliance information.

    (a) Cooperation and assistance. SBA shall, to the fullest extent 
practicable, seek the cooperation of recipients in obtaining compliance 
with this part and shall provide assistance and guidance to recipients 
to help them comply voluntarily with this part.
    (b) Record Keeping. Each recipient shall keep records in such form, 
and containing such information which SBA determines may be necessary to 
ascertain whether the recipient has complied or is complying with this 
part (OMB No. 3245 0076). In the case of a small business concern which 
receives financial assistance from a development company or from a small 
business investment company, the small business concern shall also keep 
such records and information as may be necessary to enable SBA to 
determine if the small business concern is complying with this part.
    (c) Each recipient shall provide to SBA, upon request, information 
and reports which SBA determines are necessary to ascertain whether the 
recipient is complying with the Act and these regulations.
    (d) Access to sources of information. Each recipient shall permit 
reasonable access by SBA during normal business hours to such of its 
books, records, accounts, and other sources of information, and its 
facilities as may be pertinent to ascertain compliance with this part. 
Where any information required of an applicant or recipient is in the 
exclusive possession of any other agency, institution or person and that 
agency, institution or person shall fail or refuse to furnish the 
information, the recipient shall so certify and shall set forth what 
efforts it has made to obtain the required information. The recipient 
will be held responsible for submitting the information. Failure to 
submit information or permit access to sources of information required 
by SBA will subject the recipient to enforcement procedure as provided 
in Sec. 117.15 of this part.

(Information collection requirements in paragraph (c) were approved by 
the Office of Management and Budget under control number 3245-0076)



Sec. 117.10  Review procedures.

    (a) SBA shall from time to time review the practices of recipients 
to determine whether they are complying with this part. As part of a 
compliance review or complaint investigation, SBA may require a 
recipient employing 15 or more full-time employees to complete a written 
self-evaluation, in a manner specified by the Agency, of any age 
distinction imposed in its program or activity receiving Federal 
financial assistance.
    (b) If a compliance review or pre-award review indicates a violation 
of the Act or these regulations, SBA will attempt to achieve voluntary 
compliance with the Act. If voluntary compliance with the recipient 
cannot be achieved, such recipient will be subject to the enforcement 
procedure contained in Sec. 117.15 of these regulations. A

[[Page 195]]

refusal to permit an on-site compliance review during normal working 
hours may constitute noncompliance with this part.



Sec. 117.11  Complaint procedures.

    (a) Any person who believes that he/she or any specific class of 
individuals is being or has been subjected to discrimination by SBA, a 
recipient, or an applicant for assistance, prohibited by this part may, 
by himself/herself or by a representative, file with SBA a written 
complaint. The complainant has the right to have a representative at all 
stages of the complaint procedure.
    (b) A complaint must be filed not later than 180 days from the date 
of the alleged discrimination, unless the time filing is extended by 
SBA. The Adminstrator, the Director, Office of Equal Employment 
Opportunity and Compliance, and the Chief, Office of Civil Rights 
Compliance, are the only officials who may waive the 180-day time limit 
for filing complaints under this part. SBA will consider the date a 
complaint is filed to be the date upon which the complaint is sufficient 
to be processed.
    (c) Each complaint will be reviewed to ensure that it falls within 
the coverage of the Act and contains all information necessary for 
further processing.
    (d) SBA will attempt to facilitate the filing of complaints wherever 
possible, including taking the following actions:
    (1) Accepting as a sufficient complaint, any written statement which 
identifies the parties involved and the date the complainant first had 
knowledge of the alleged violation, describes generally the action or 
practice complained of, and is signed by the complainant.
    (2) Freely permitting a complainant to add information to the 
complaint to meet the requirements of a sufficient complaint.
    (3) Notifying the complainant and the recipient of their rights and 
obligations under the complaint procedure, including the right to have a 
representative at all stages of the complaint procedure.
    (4) Notifying the complainant and the recipient (or their 
representatives) of their right to contact the Chief, Office of Civil 
Rights Compliance, for information and assistance regarding the 
complaint resolution process.
    (e) SBA will return to the complainant any complaint filed under the 
jurisdiction of this regulation, but found to be outside the 
jurisdiction of this regulation, and will state the reason(s) why it is 
outside the jurisdiction of this regulation.



Sec. 117.12  Mediation.

    (a) SBA shall, after ensuring that the complaint falls within the 
coverage of this Act and all information necessary for further 
processing is contained therein, unless the age distinction complained 
of is clearly within an exception, promptly refer the complaint to the 
Federal Mediation and Conciliation Service (FMCS).
    (b) SBA shall, to the extent possible, require the participation of 
the recipient and the complainant in the mediation process in an effort 
to reach a mutually satisfactory settlement of the complaint or make an 
informed judgment that an agreement is not possible. Both parties need 
not meet with the mediator at the same time.
    (c) If the complainant and the recipient reach a mutually 
satisfactory resolution of the complaint during the mediation period, 
the mediator shall prepare a written statement of the agreement and have 
the complainant and recipient sign it.
    (d) A copy of the written mediation agreement will be referred to 
SBA, and no further action will be taken unless it appears that either 
the complainant or the recipient (or other alleged discriminator subject 
to this part) fails to comply with the agreement.
    (e) If at the end of 60 days after the receipt of a complaint by 
SBA, or at any time prior thereto, an agreement is reached or the 
mediator determines an agreement cannot be reached through mediation, 
the agreement or complaint will be returned to SBA.
    (f) This 60-day period may be extended by the mediator, with the 
concurrence of SBA for not more than 30 days if the mediator determines 
that an agreement will likely be reached during the extended period.

[[Page 196]]

    (g) The mediator shall protect the confidentiality of all 
information obtained in the course of the mediation process. No mediator 
shall testify in any adjudicative proceeding, produce any document, or 
otherwise disclose any information obtained during the course of the 
mediation process without prior approval of the head of the agency 
appointing the mediator.



Sec. 117.13  Investigation and resolution of matters.

    (a) SBA will make a prompt investigation whenever a compliance 
review indicates a possible failure to comply with this part by the 
recipient and additional information is needed by SBA to assure 
compliance with this part, or when an unresolved complaint has been 
returned by the FMCS, or when it appears that the complainant or the 
recipient is failing to comply with a mediation agreement. The 
investigation shall include a review of the pertinent practices and 
policies of the recipient, the circumstances under which the possible 
noncompliance with this part occurred, and other factors relevant to a 
determination as to whether the recipient is complying, is not 
complying, or has failed to comply with this part.
    (b) Resolution of matters. If an investigation indicates a failure 
to comply with this part, SBA will so inform the complainant, if 
applicable, and the recipient that the matter will be resolved by 
informal means that are mutually agreeable to the parties, whenever 
possible.
    (1) If, during the course of an investigation, the matter is 
resolved by informal means, SBA will put any agreement in writing and 
have it signed by the parties and an authorized official of SBA.
    (2) If investigation indicates a violation of the Act or these 
regulations, SBA will attempt to achieve voluntary compliance. If SBA 
cannot achieve voluntary compliance, it will begin enforcement as 
described in Sec. 117.15.
    (3) If an investigation does not warrant action, SBA will so inform 
the complainant, if applicable, and the recipient in writing.



Sec. 117.14  Intimidating or retaliatory acts prohibited.

    No complainant, recipient or other person shall intimidate, 
threaten, coerce, or discriminate against any individual for the purpose 
of interfering with any right or privilege secured by this part or 
because an individual or group has made a complaint, testified, 
assisted, or participated in any manner in an investigation, review, 
enforcement process, or hearing under this part. The identity of 
complainants shall be kept confidential except to the extent necessary 
to carry out the purposes of this part, including the conduct of any 
investigation, hearing, mediation, or judicial proceeding.



Sec. 117.15  Procedure for effecting compliance.

    (a) General. (1) If there appears to be a failure or threatened 
failure to comply with this part by an applicant or recipient and if the 
noncompliance or threatened noncompliance cannot be resolved by informal 
means, compliance with this part may be effected by suspending, 
terminating, or refusing any financial assistance approved but not yet 
disbursed to an applicant. In the case of loans partially or fully 
disbursed, compliance with this part may be effected by calling, 
canceling, terminating, accelerating repayment, or suspending in whole 
or in part the Federal financial assistance provided. The determination 
of the recipient's violation may be made only after a recipient has had 
an opportunity for a hearing on the record before an administrative law 
judge.
    (2) In addition, compliance may be effected by any other means 
authorized by law. Such other means may include, but are not limited to:
    (i) Action by SBA to accelerate the maturity of the recipient's 
obligation;
    (ii) Referral to the Department of Justice with a recommendation 
that appropriate proceedings be brought to enforce any rights of the 
United States under any law of the United States or obligations of the 
recipient created by the Act or this part; and
    (iii) Use of any requirement of or referral to any Federal, State or 
local government agency that will have the

[[Page 197]]

effect of correcting a violation of the Act or these regulations.
    (3) If there appears to be a failure or threatened failure to comply 
with this part by an SBA program office or official, the Chief, Office 
of Civil Rights Compliance, through the Director, Office of Equal 
Employment Opportunity and Compliance, will recommend appropriate 
corrective action to the Administrator. Any resulting adverse action 
against an SBA employee shall follow Office of Personnel Management and 
SBA procedures for such action.
    (b) Noncompliance with Secs. 117.7 and 117.9. If an applicant fails 
or refuses to furnish an assurance required under Sec. 117.7, or fails 
to provide information or allow SBA access to information under 
Sec. 117.9 or otherwise fails or refuses to comply with a requirement 
imposed by or pursuant to those sections, Federal financial assistance 
may be deferred for a period not to exceed 60 days after the applicant 
has received a notice for an opportunity for hearing under Sec. 117.16, 
or unless a hearing has begun within that time, or the time for 
beginning the hearing has been extended by mutual consent of the 
recipient and the Agency, for purposes of determining what constitutes 
mutual consent, the Agency shall be deemed to have consented to any 
extension requested by the recipient and granted by the administrative 
law judge (hearing officer), whether or not the Agency initially 
approved the extension. A deferral may not continue for more than 30 
days after the close of the hearing, unless the hearing results in a 
finding against the applicant or recipient.
    (c) SBA will not take action toward accelerating repayment, 
suspending, terminating, or refusing financial assistance until:
    (1) SBA has advised the applicant or recipient of the failure to 
comply and has determined that compliance cannot be secured by voluntary 
means;
    (2) There has been an express finding on the record, after an 
opportunity for hearing, of a failure by the applicant or recipient to 
comply with a requirement imposed by or pursuant to this part;
    (3) The action has been approved by the Administrator of SBA 
pursuant to Sec. 117.17; and
    (4) The expiration of 30 days after SBA has filed with the committee 
of the House and the committee of the Senate having legislative 
jurisdiction over the form of financial assistance involved, a full 
written report of the circumstances and the grounds for such action.
    (d) Other means authorized by law. No action to effect compliance by 
any other means authorized by law shall be taken until:
    (1) SBA has determined that compliance cannot be secured by 
voluntary means;
    (2) The action has been approved by the Administrator or designee;
    (3) The expiration of 30 days after SBA has filed with the committee 
of the House and the committee of the Senate having legislative 
jurisdiction over the form of financial assistance involved, a full 
written report of the circumstances and the grounds for such action;
    (4) The applicant or recipient has been notified of the failure to 
comply, and of the action to be taken to effect compliance; and
    (5) The expiration of at least 10 days from the mailing of such 
notice to the applicant or recipient or other person. During this period 
of at least 10 days from the mailing of such notice to the applicant or 
recipient or other person, additional efforts shall be made to persuade 
the applicant or recipient to comply with this part and to take such 
corrective action as may be appropriate.



Sec. 117.16  Hearings.

    (a) Opportunity for hearing. Whenever an opportunity for a hearing 
is required by Sec. 117.15, reasonable notice shall be given by 
registered or certified mail, return receipt requested, to the affected 
applicant or recipient. This notice shall advise the applicant or 
recipient of the action proposed to be taken, the specific provision 
under which the proposed action against it is to be taken, and the 
matters of fact or law asserted as the basis for this action, and 
either.
    (1) Fix a date not less than 20 days after the date of such notice 
within which the applicant or recipient may

[[Page 198]]

request the Office of Hearings and Appeals (OHA) that the matter be 
scheduled for hearing; or
    (2) Advise the applicant or recipient that the matter in question 
has been set down for hearing at a stated place and time. The time and 
place so fixed shall be reasonable and shall be subject to change for 
cause. The complainant shall be advised of the time and place of the 
hearing. An applicant or recipient may waive a hearing and submit 
written information and argument for the record. The failure of an 
applicant or recipient to appear at a hearing for which a date has been 
set shall be deemed to be a waiver of the right to a hearing and as 
consent to the making of a decision on the basis of such information as 
is available.
    (b) Time and place of hearing. Hearings shall be held at OHA in 
Washington, DC, at a time fixed by OHA unless that office determines 
that the convenience of the complainant, applicant, recipient or SBA 
requires that another place be selected. Hearings shall be held before 
an administrative law judge designated in accordance with the 
Administrative Procedure Act.
    (c) Right to counsel. In all proceedings under this section, the 
applicant or recipient and SBA shall have the right to be represented by 
counsel.
    (d) Procedures, evidence, and record. (1) The hearings, decisions, 
and any administrative review shall be conducted in conformity with the 
Administrative Procedure Act and 13 CFR part 134. Such rules of 
procedure should be consistent with this section, relate to the conduct 
of the hearing, provide for giving of notices to those referred to in 
paragraph (a) of this section, taking of testimony, exhibits, arguments, 
and briefs, request for findings and other related matters. SBA, the 
complainant, if any, and the applicant or recipient shall be entitled to 
introduce all relevant evidence on the issues as stated in the notice 
for hearing, or as determined by the administrative law judge conducting 
the hearing at the outset of or during the hearing.
    (2) Technical rules of evidence may be waived by the administrative 
law judge conducting a hearing pursuant to this part, but rules or 
principles designed to assure production of the most credible evidence 
available, and subject testimony to test by cross-examination shall be 
applied where reasonably necessary. The administrative law judge may 
exclude irrelevant, immaterial, or unduly repetitious evidence. All 
documents and other evidence offered or taken for the record shall be 
open to examination by the parties and opportunity shall be given to 
refute facts and arguments advanced on either side of the issues. A 
transcript shall be made of the oral evidence except to the extent the 
substance thereof is stipulated for the record. All decisions shall be 
based upon the hearing record and written findings shall be made.
    (e) Consolidated or joint hearings. In cases in which the same or 
related facts are asserted to constitute noncompliance or threatened 
noncompliance with this part, with respect to two or more forms of 
financial assistance to which this part applies, or noncompliance with 
this part and the regulations of one or more other Federal agencies 
issued under the Act, the Administrator may, by agreement with such 
other agencies, provide for the conduct of consolidated or joint 
hearings, and for the application to such hearings of rules and 
procedures not inconsistent with this part. Final decisions in such 
cases, insofar as this part is concerned, shall be made in accordance 
with Sec. 117.17.



Sec. 117.17  Decisions and notices.

    (a) Decision by an administrative law judge. If the hearing is held 
by an administrative law judge, such administrative law judge shall 
either make an initial decision, if so authorized, or certify the entire 
record, including recommended findings and proposed decision, to the 
Administrator for a final decision and a copy of such initial decision 
or certification shall be mailed to the applicant or recipient and the 
complainant. Where the initial decision is made by the administrative 
law judge, the applicant or recipient may, within 30 days of the mailing 
of such notice of initial decision, file with the Administrator 
exceptions to the initial decision, with the reasons therefor. In the 
absence of exceptions, the Administrator may, by motion within 45 days

[[Page 199]]

after the initial decision, serve on the applicant or recipient a notice 
that he/she will review the decision. Upon the filing of such exceptions 
or of such notice of review, the Administrator shall review the initial 
decision and issue his/her decision thereon, including the reasons 
therefor. The decision of the Administrator shall be mailed promptly to 
the applicant or recipient, and the complainant, if any. In the absence 
of either exceptions or a notice of review, the initial decision shall 
constitute the final decision of the Administrator.
    (b) Decisions on record or review by the Administrator. Whenever a 
record is certified to the Administrator for decision or the 
Administrator reviews the decision of an administrative law judge 
pursuant to paragraph (a) of this section, or whenever the Secretary of 
the Department of Health and Human Services or the Department of Justice 
conducts the hearing, the applicant or recipient shall be given 
reasonable opportunity to file briefs or other written statements of its 
contentions and a copy of the final decision of the Administrator shall 
be given in writing to the applicant or recipient and the complainant, 
if any.
    (c) Decisions on record where a hearing is waived. Whenever a 
hearing is waived pursuant to Sec. 117.16, a decision shall be made by 
the Administrator on the record and a copy of such decision shall be 
given in writing to the applicant or recipient, and to the complainant, 
if any.
    (d) Rulings required. Each decision of an administrative law judge 
or the Administrator shall set forth the ruling on each finding, 
conclusion, or exception presented, and shall identify the requirement 
or requirements imposed by or pursuant to this part with which it is 
found that the applicant or recipient has failed to comply.
    (e) Decision by the Administrator. The Administrator shall make any 
final decision which provides for the suspension or termination of, or 
the refusal to grant or continue Federal financial assistance, 
acceleration repayment or the imposition of any other sanction available 
under the regulations or taken under other means authorized by law.
    (f) Content of orders. The final decision may provide for 
accelerating of repayment, suspension or termination of, or refusal to 
approve, disburse, or continue Federal financial assistance, in whole or 
in part, under the programs involved, and may contain such terms, 
conditions, and other provisions as are consistent with and will 
effectuate the purposes of the Act and this part, including provisions 
designed to assure that no Federal financial assistance will, 
thereafter, be extended under such program to the applicant or recipient 
determined by such decision to have failed to comply with this part, 
unless and until it corrects its noncompliance and satisfies the 
Administrator that it will fully comply with this part.
    (g) Post termination proceedings. (1) An applicant or recipient 
adversely affected by an order issued under paragraph (e) of this 
section shall be restored to full eligibility to receive Federal 
financial assistance only if it satisfies the terms and conditions of 
that order for such eligibility and it brings itself into compliance 
with this regulation and provides reasonable assurance that it will 
fully comply with this regulation.
    (2) Any applicant or recipient adversely affected by an order 
entered pursuant to paragraph (f) of this section may at any time 
request the Administrator to restore fully its eligibility to receive 
Federal financial assistance. Any such request shall be supported by 
information showing that the applicant or recipient has met the 
requirements of paragraph (g)(1) of this section. If the Administrator 
determines that those requirements have been satisfied, he/she shall 
restore such eligibility.
    (3) If the Administrator denies any such request, the applicant or 
recipient may submit a request for a hearing in writing, specifying why 
it believes the denial to have been in error. It shall there upon be 
given an expeditious hearing, with a decision on the record, in 
accordance with rules and procedures issued by the Administrator. The 
applicant or recipient shall be restored to such eligibility if it 
proves at such hearing that it satisfied the requirements of paragraph 
(g)(1) of this section. While proceedings under this

[[Page 200]]

paragraph are pending, the sanctions imposed by the order issued under 
paragraph (f) of this section shall remain in effect.



Sec. 117.18  Judicial review.

    (a) The complainant may file a civil action following the exhaustion 
of administrative remedies under the Act. Administrative remedies are 
exhausted if:
    (1) 180 days have elapsed since the complainant filed the complaint 
and the Agency has made no finding with regard to the complaint; or
    (2) The Agency has issued a finding in favor of the recipient.
    (b) If the Agency fails to make a finding within 180 days or issues 
a finding in favor of the recipient, the Agency shall:
    (1) Advise the complainant of this fact;
    (2) Advise the complainant of the right to file a civil action for 
injunctive relief; and
    (3) Inform the complainant:
    (i) That the complainant may bring a civil action only in a United 
States district court for the district in which the recipient is found 
or transacts business;
    (ii) That a complainant prevailing in a civil action has the right 
to be awarded the costs of the action, including reasonable attorney's 
fees, but that the complainant must demand these costs in the complaint;
    (iii) That before commencing the action the complainant shall give 
30 days notice by registered mail to the Secretary of the Department of 
Health and Human Services, the Attorney General of the United States and 
the recipient;
    (iv) That the notice must state: The alleged violation of the Act; 
the relief requested; the court in which the complainant is bringing the 
action; and whether or not attorney's fees are demanded in the event the 
complainant prevails; and
    (v) That the complainant may not bring an action if the same alleged 
violation of the Act by the same recipient is the subject of a pending 
action in any court of the United States.



Sec. 117.19  Effect on other regulations.

    (a) All regulations, orders or like directions heretofore issued by 
SBA which impose requirements designed to prohibit any discrimination 
against individuals on the grounds of age and which authorize the 
suspension or termination of or refusal to grant or to continue 
financial assistance to any applicant for or recipient of such 
assistance for failure to comply with such requirements, are hereby 
superseded to the extent that such discrimination is prohibited by this 
part, except that nothing in this part shall be deemed to relieve any 
person of any obligation assumed or imposed under any such superseded 
regulation, order, instruction, or like direction prior to the effective 
date of this part. Nothing in this part, however, shall be deemed to 
supersede any of the following (including future amendments thereof):
    (1) Executive Order 11246, as amended, and regulations issued 
thereunder;
    (2) Title VI of the Civil Rights Act of 1964, as amended;
    (3) The Equal Credit Opportunity Act, as amended and Regulation B of 
the Board of Governors of the Federal Reserve System, (12 CFR part 202);
    (4) Section 504 of the Rehabilitation Act of 1973, as amended;
    (5) Title VIII of the Civil Rights Act of 1968;
    (6) Title IX of the Educational Amendments of 1972;
    (7) Section 633(b) of the Small Business Act;
    (8) Part 113 of title 13 of the Code of Federal Regulations (13 CFR 
part 113); or
    (9) Any other statute, order, regulation or instruction, insofar as 
such order, regulations, or instruction prohibits discrimination on the 
grounds of age in any program or situation to which this part is 
inapplicable on any other ground.



Sec. 117.20  Supervision and coordination.

    The Administrator may from time to time assign to officials of SBA 
or to officials of other agencies of the Government with the consent of 
such agencies, responsibilities in connection with the effectuation of 
the purpose of

[[Page 201]]

the Act and this part (other than responsibility for final decision as 
provided in Sec. 117.17), including the achievement of effective 
coordination and maximum uniformity within SBA and within the Executive 
Branch of the Government in the application of the Act and this part to 
similar programs and in similar situations. Responsibility for 
administering and enforcing this part is assigned by the Administrator, 
to the Office of Civil Rights Compliance, Office of Equal Employment 
Opportunity and Compliance of the Small Business Administration.

                        Appendix A to Part 117\1\

------------------------------------------------------------------------
              Name of program                         Authority
------------------------------------------------------------------------
Business Loans............................  Small Business Act, section
                                             7(a).
Debtor State Development companies (501)    Small Business Investment
 and their small business concerns.          Act, Title V.
Debtor State Development companies (502)    Small Business Investment
 and their small business concerns.          Act, Title V.
Debtor certified development companies      Small Business Investment
 (503) and their small business concerns.    Act, Title V.
Debtor small business investment companies  Small Business Investment
 and their small business concerns.          Act, Title III.
Pollution Control.........................  Small Business Investment
                                             Act, Title IV, Part A.
Disaster Loans:
  Physical, including riot................  Small Business Act, section
                                             7(b)(1).
  Economic Injury (EIDL)..................  Small Business Act, section
                                             7(b)(2).
  Federal Action Loan Program.............  Small Business Act, section
                                             7(b)(3).
  Small Business Institute................  Small Business Act, section
                                             8(b)(1).
  Small Business Development Centers......  Small Business Act, section
                                             21.
  International Trade Program.............  Small Business Act, section
                                             22.
  Technical and Management Assistance.....  Small Business Act, section
                                             7(j).
------------------------------------------------------------------------
\1\ None of the programs administered have any age distinctions except
  as statutorily required.



PART 119--PROGRAM FOR INVESTMENT IN MICROENTREPRENEURS (``PRIME'' OR ``THE ACT'')--Table of Contents




Sec.
119.1  What is the Program for Investment in Microentreprenuers 
          (``PRIME'' or ``the Act'')?
119.2  Definitions.
119.3  What types of organizations are eligible for PRIME grants?
119.4  What services or activities must PRIME grant funds be used for?
119.5  How are PRIME grant awards allocated?
119.6  What are the minimum and maximum amounts for an award?
119.7  How long and for what amounts will grant funding be available to 
          a single grantee?
119.8  Are there matching requirements for grantees?
119.9  How will a qualified organization apply for PRIME grant awards?
119.10  Will SBA give preferential consideration to other SBA program 
          participants?
119.11  What information will be requested in an application under the 
          PRIME program?
119.12  What criteria will SBA use to evaluate applications for funding 
          under the PRIME program?
119.13  How will an applicant make a subgrant?
119.14  Are there limitations regarding the use of program income?
119.15  If a grantee is unable to spend the entire amount allotted for a 
          single fiscal year, can the funds be carried over to the next 
          year?
119.16  What are the reporting, record keeping, and related requirements 
          for grantees?
119.17  What types of oversight will SBA provide to grantees?
119.18  What are the restrictions against lobbying?
119.19  Is fundraising an allowable expense under the PRIME program?
119.20  Should grantees and subgrantees raise conflict of interest 
          matters with SBA?

    Authority: 15 U.S.C. 634(b)(6) and Pub. L. 106-102.

    Source: 66 FR 29013, May 29, 2001, unless otherwise noted.



Sec. 119.1  What is the Program for Investment in Microentrepreneurs (``PRIME'' or ``the Act'')?

    PRIME authorizes SBA to make grants to ``qualified organizations'' 
to fund training and technical assistance for disadvantaged 
entrepreneurs, build these organizations' own capacity to give training 
and technical assistance, fund research and development of ``best 
practices'' in microenterprise development and technical assistance 
programs for disadvantaged microentrepreneurs, and to fund other 
undertakings the Administrator or designee deems consistent with these 
purposes.

[[Page 202]]



Sec. 119.2  Definitions.

    For the purposes of this part, the following definitions apply:
    Capacity Building Grant means a grant made under the Act identified 
under Sec. 119.4(b).
    Capacity building services means services provided to an 
organization or program that is currently, or is developing as, a 
microenterprise development organization or program, for the purpose of 
enhancing its ability to provide training and technical assistance to 
disadvantaged microentrepreneurs.
    Collaborative means two or more nonprofit entities that agree to act 
jointly as a qualified organization under this part.
    Developer means a person interested in starting or acquiring a 
microenterprise.
    Disadvantaged entrepreneur, or disadvantaged microentrepreneur, 
means the owner, majority owner, or developer, of a microenterprise who 
is also--
    (1) A low-income person;
    (2) A very low-income person; or
    (3) An entrepreneur who lacks adequate access to capital or other 
resources essential for business success, or is economically 
disadvantaged, as defined in this part.
    Discretionary Grant means a grant made under the Act identified 
under Sec. 119.4(d).
    Economically disadvantaged entrepreneur, or economically 
disadvantaged microentrepreneur, means an owner, majority owner, or 
developer of a microenterprise whose ability to compete in the free 
enterprise system has been impaired due to diminished capital and credit 
opportunities as compared to others in the industry such that his or her 
ownership of a small business would help to qualify the small business 
for assistance under section 7(j) or section 8(a) programs of the Small 
Business Act.
    Grantee means a recipient of a grant under the Act.
    Group has the same meaning as ``collaborative'' as defined in this 
section.
    Indian tribe means any Indian tribe, band, pueblo, nation, or other 
organized group or community, including any Alaska Native village or 
regional or village corporation, as defined in or established pursuant 
to the Alaska Native Claims Settlement Act, which is recognized as 
eligible for the special programs and services the United States 
provides to Indians because of their status as Indians.
    Indian tribe jurisdiction means Indian country, as defined in 18 
U.S.C. 1151, and any other lands, title to which is either held by the 
United States in trust for the benefit of any Indian tribe or individual 
or held by any tribe or individual subject to a restriction by the 
United States against alienation, and any land held by Alaska Native 
groups, regional corporations, and village corporations, as defined in 
or established under the Alaska Native Claims Settlement Act, public 
domain Indian allotments, and former Indian reservations in the State of 
Oklahoma.
    Intermediary means a private, nonprofit entity serving or seeking to 
serve microenterprise development organizations or programs identified 
under Sec. 119.3.
    Large microenterprise development organization or program means a 
microenterprise development organization or program with 10 or more full 
time employees or equivalents, including its executive director, as of 
the date it files its application with SBA for a PRIME grant.
    Local community means an identifiable area and population 
constituting a political subdivision of a state.
    Low-income person means a person having an income, adjusted for 
family size, of not more than--
    (1) For metropolitan areas, 80 percent of the median income; and
    (2) For non-metropolitan areas, the greater of--
    (i) 80 percent of the area median income; or
    (ii) 80 percent of the statewide non-metropolitan area median 
income.
    Microenterprise means a sole proprietorship, partnership or 
corporation that--
    (1) Has fewer than 5 employees, including the owner; and
    (2) Generally lacks access to conventional loans, equity, or other 
banking services.
    Microenterprise development organization or program means a 
nonprofit entity, or a program administered by such

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an entity, including community development corporations or other 
nonprofit development organizations and social service organizations, 
that provides services to disadvantaged microentrepreneurs.
    Qualified organization means an organization eligible for a PRIME 
grant identified under Sec. 119.3.
    Research and Development Grant means a grant made under the Act 
identified under Sec. 119.4(c).
    Severe constraints on available sources of matching funds means the 
documented inability of a qualified organization applying for a PRIME 
grant to raise matching funds or in-kind resources from non-Federal 
sources during the 2 years immediately prior to the date of its 
application because of a lack of or increased scarcity of monetary or 
in-kind resources from potential non-Federal sources.
    Small microenterprise development organization or program means a 
microenterprise development organization or program with less than 10 
full time employees or equivalents, including its executive director, as 
of the date it files its application with SBA for a PRIME grant.
    Technical Assistance Grant means a grant made under the Act 
identified under Sec. 119.4(a).
    Training and technical assistance means services and support 
provided to disadvantaged entrepreneurs, such as, but not limited to, 
assistance intended to enhance business planning, marketing, management, 
financial management skills, business operations, or assistance for the 
purpose of increasing access to loans and other financial services.
    Very low-income person means having an income adjusted for family 
size of not more than 150 percent of the poverty line, as defined in 
section 673(2) of the Community Services Block Grant Act, 42 U.S.C. 
9902(2), including any revision required by that section.



Sec. 119.3  What types of organizations are eligible for PRIME grants?

    An organization eligible for a PRIME grant (``qualified 
organization'') is one that is:
    (a) A microenterprise development organization or program as defined 
in Sec. 119.2(q) (or a group or collaborative thereof) that has a 
demonstrated record of delivering microenterprise services to 
disadvantaged microentrepreneurs;
    (b) An intermediary, as defined in Sec. 119.2(l);
    (c) A microenterprise development organization or program as defined 
in Sec. 119.2(q) that is accountable to a local community, working with 
a State or local government or Indian tribe; or
    (d) An Indian tribe acting on its own, if the Indian tribe can 
certify that no private organization or program referred to in 
paragraphs (a), (b) and (c) of this section exists within its 
jurisdiction.



Sec. 119.4  What services or activities must PRIME grant funds be used for?

    A recipient of a PRIME grant (``grantee'') must use PRIME grants to-
-
    (a) Provide training and technical assistance to disadvantaged 
microentrepreneurs (``Technical Assistance Grant'');
    (b) Provide training and capacity building services to 
microenterprise development organizations and programs to assist them to 
develop microenterprise training and services (``Capacity Building 
Grant'');
    (c) Aid in researching and developing the best practices in the 
field of microenterprise development and technical assistance programs 
for disadvantaged microentrepreneurs (``Research and Development 
Grant''); or
    (d) Conduct such other activities as the Administrator or designee 
determines to be consistent with the purposes of the Act 
(``Discretionary Grant'').



Sec. 119.5  How are PRIME grant awards allocated?

    (a) At least 50 percent of the number of grant awards made under 
this part will be awarded to qualified organizations that benefit very 
low-income persons, including those residing on Indian reservations. In 
general, SBA will make grant award decisions to serve diverse 
populations by including as recipients both large and small 
microenterprise development organizations,

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and organizations serving urban, rural, and Indian tribal communities.
    (b) SBA will allocate the funding available for awards as follows:
    (1) A minimum of 75 percent for Technical Assistance Grants;
    (2) A minimum of 15 percent for Capacity Building Grants; and
    (3) The remaining 10 percent or less may be allocated by SBA, in its 
sole discretion to be used for:
    (i) Research and Development Grants; or
    (ii) Discretionary Grants.



Sec. 119.6  What are the minimum and maximum amounts for an award?

    (a) The minimum grant award for Technical Assistance and Capacity 
Building Grants will be $50,000 during the first year of the award, 
subject to the availability of funds.
    (b) There is no minimum grant award for Research and Development or 
Discretionary Grants.
    (c) The maximum amount that an individual grant recipient may 
receive in any fiscal year from a single award or multiple awards, under 
any of the purposes of the program, may not exceed $250,000 or 10 
percent of the total grant funds available for award in that fiscal 
year, whichever is less.



Sec. 119.7  How long and in what amounts will grant funding be available to a single grantee?

    (a) Generally, the funding period for a PRIME grant will be one 
year. Subject to availability of funds and continuing authorization, 
funding may be available on an annual basis allowing for the initial 
grant plus up to four option years, for a project period of up to five 
years. Decisions regarding option year awards and the funding levels of 
these awards will depend upon availability of funding and the grantee's 
performance as measured against project objectives and milestones. A 
grantee that enters into a cooperative agreement must submit a separate 
application to have the support continued for each subsequent year. In 
all cases, continuation awards require a determination by SBA that 
continued funding is in the best interest of the Federal government. 
Neither the approval of any application nor the entering into of any 
cooperative agreement commits or obligates the Federal Government in any 
way to make any additional, supplemental, continuation or other award 
with respect to any grantee.
    (b) For Technical Assistance and Capacity Building Grants, after a 
grantee receives an initial grant, funding for any option year(s) must 
be no more than 67 percent of the initial grant amount.
    (c) For Research and Development and Discretionary Grants, after a 
grantee receives an initial grant, funding for any option year(s) will 
be approved at the discretion of the SBA.
    (d) In the final year of a project, grantees may apply to extend the 
expiration date of a grant if additional time beyond the established 
expiration date is required to assure adequate completion of the 
original scope of work within the funds already made available. For this 
purpose, the grantee may make an extension request for a one-time, no-
cost extension, not to exceed 12 months, prior to the established 
expiration date. Written notification of such an extension, with the 
supporting reasons, must be received by the SBA Grant Officer at least 
60 days prior to the expiration of the award. SBA reserves the right to 
disapprove the extension if the requirements set forth in OMB Circular 
A-110, paragraph .25(e)(2) are not met or if the extension is not in the 
best interests of SBA.



Sec. 119.8  Are there matching requirements for grantees?

    Applicants and grantees must match SBA funding as follows:
    (a) Except as provided in paragraph (c) of this section, applicants 
and grantees must match Federal assistance with funds from sources other 
than the Federal Government in an amount not less than 50 percent of the 
grant amount awarded each year. Sources such as fees, grants, gifts, 
income from loan sources, and in-kind resources of a grant recipient 
from non-Federal public or private sources may be used to comply with 
the matching funds requirement;
    (b) Grantees receiving funds in option years as described in 
Sec. 119.7(b) through

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(c) are subject to the matching requirements of this section.
    (c) Applicants or grantees with severe constraints on available 
sources of matching funds may request that the Administrator or designee 
reduce or eliminate the matching requirements. Any reductions or 
eliminations must not exceed 10 percent of the aggregate of all PRIME 
grant funds made available by SBA in any fiscal year. By requesting a 
waiver, the applicant is implying that, but for the waiver, the proposed 
programming will not be possible at the levels requested.
    (d) An applicant may request a waiver of the matching fund 
requirement by submitting a written request with its application for 
funding. The request must justify, and evidence, the need for a waiver. 
As evidence, the request must include, but is not limited to:
    (1) The cause and extent of the constraints on the historical and 
projected ability to raise matching funds as demonstrated by financial 
statements and letters of rejection from previous funders and potential 
new funding sources;
    (2) Evidence of efforts to raise match specific to the subject 
application, including negative responses, and
    (3) Based on those efforts, a list of any matching funds expected 
for the PRIME grant.
    (e) Subject to Sec. 119.12 (a) through (d), applications will be 
evaluated on merit before being matched with cost proposals. Any 
organization requesting a waiver of matching funds, therefore, will not 
be rejected solely on the basis of such a request.
    (f) Applications will be ranked, within their respective categories, 
from the most to least qualified. The best qualified applicants in each 
category will be selected whether or not a waiver is requested until the 
availability of waivers is exhausted.



Sec. 119.9  How will a qualified organization apply for PRIME grant awards?

    (a) SBA will issue Program Announcements specifying the terms, 
conditions, and evaluation criteria for each potential set of awards. 
Program Announcements will summarize the purpose of the available funds; 
will advise potential applicants regarding how to obtain an application 
packet; and will provide summary information regarding deadlines and 
other requirements. Program Announcements may specify any limitations, 
special rules, procedures, and restrictions for available funding.
    (b) Applicants may submit applications in response to the Program 
Announcements. Each applicant shall submit an application for a grant in 
accordance with this part and the applicable Program Announcement.
    (c) SBA reserves the right to consider at the same time multiple 
applications from a single applicant when appropriate.



Sec. 119.10  Will SBA give preferential consideration to other SBA program participants?

    In making grants under this part, SBA will not give preferential 
consideration to an applicant that is a participant in programs 
established under section 7(m) of the Small Business Act.



Sec. 119.11  What information will be requested in an application under the PRIME program?

    Each application must contain the information and documentation 
specified in the applicable Program Announcement including, but not 
limited to, the following items.
    (a) For applications seeking Technical Assistance Grants:
    (1) Identifying information and core documentation for the applicant 
including such items as the applicant's articles of incorporation, by-
laws, proof of IRS tax-exempt status, financial statements, and 
reference contacts.
    (2) A description of past and present activities and technical 
qualifications of the applicant, including workshops, programs and other 
technical assistance services, with specific descriptions of the extent 
to which such services have reached low and very low-income individuals, 
and the success rates of clients.
    (3) A list of applicant's community partnerships and collaborations 
with

[[Page 206]]

state and local entities, and a description of how such partnerships and 
collaborations are serving microentrepreneurs.
    (4) A description of the proposed activity for which the applicant 
will use PRIME grant funds, including training programming plans; a plan 
for outreach and delivery; applicant's capacity to provide thorough and 
detailed reports; and a description of the applicant's current data 
collection and management system, such as computer hardware, software 
and internet capabilities.
    (5) In the event the applicant is a collaborative, a plan for 
maintaining internal controls, accountability, and program quality 
control among the participants of the collaborative.
    (6) Resumes of the personnel that will be administering and managing 
the proposed activities under the PRIME grant, showing knowledge in such 
areas as business development, business structures, financial 
management, and business training and counseling.
    (7) A list of grants received, and/or contracts entered into, that 
are similar in scope to the subject grant, including name of Federal or 
other agency providing funding, grant or contract number, and a summary 
of services provided.
    (b) For applicants seeking Capacity Building Grants:
    (1) See paragraphs (a)(1), (5), (6) and (7) of this section.
    (2) A description of past and present activities and technical 
qualifications of the applicant, including workshops, programs, 
operational services, and other technical assistance services, or 
program development services with specific descriptions of the extent to 
which such services have improved the operations of client MDOs, 
assisted client MDOs with operational issues, and assisted client MDOs 
in reaching low and very low-income individuals.
    (3) A description of the proposed activity for which the applicant 
will use PRIME grant funds, including training programming plans, a plan 
for outreach and delivery, applicant's capacity to provide thorough and 
detailed reports; a description of the applicant's current data 
collection and management system, such as computer hardware, software, 
and internet capabilities and a description of how these capabilities 
will or will not be integrated into the training of MDOs.
    (c) For applicants seeking Research and Development Grants:
    (1) See paragraphs (a)(1), (6), and (7) of this section.
    (2) A research proposal indicating the thesis, method(s), scope, 
duration, and implementation plans (if any).
    (3) A description of the expected effect of the research on services 
to disadvantaged microentrepreneurs.
    (d) For applicants seeking Discretionary Grants:
    (1) See paragraph (a)(1) of this section.
    (2) A description of the proposed activity for which the applicant 
will use PRIME grant funds, including applicant's capacity to provide 
thorough and detailed reports, and a description of the applicant's 
current data collection and management system, such as computer 
hardware, software and internet capabilities.



Sec. 119.12  What criteria will SBA use to evaluate applications for funding under the PRIME program?

    During the first year for which funding is available for the PRIME 
program, SBA will give special consideration to organizations located in 
and serving areas of, or with a history of successful outreach to, low-
income and very low-income persons, to enable the PRIME program to 
assist those with the greatest need first. SBA will evaluate 
applications for funding in accordance with the specific goals of the 
Act, and as more fully described in the Program Announcements. 
Evaluation criteria include, but are not limited to, the following:
    (a) Applications for Technical Assistance Grants:
    (1) Applicants will compete based on expertise and ability to 
fulfill the purposes of the Act.
    (2) SBA will evaluate organizational structure, financial stability, 
financial management systems, personnel capacity, and electronic 
communication capabilities (or potential for same). SBA

[[Page 207]]

will also evaluate data collection capabilities, reporting capacities, 
and ability to account for performance and outcome.
    (3) SBA will evaluate the applicant's history of providing technical 
assistance to low-income and very low-income microentrepreneurs. This 
factor includes patterns of program growth, client success, outcomes of 
training, success in establishing new businesses, and success in 
arranging micro-level financing when the client indicates financing as a 
goal.
    (4) SBA will evaluate the applicant's ability to use community 
partnerships and collaborations with state and local entities to better 
serve low-income and very low-income microentrepreneurs.
    (b) Applications for Capacity Building Grants:
    (1) SBA will evaluate the criteria set forth in paragraph (a)(2) of 
this section.
    (2) SBA will evaluate the applicant's history of providing capacity 
building services to MDOs, as an indication of the organization's 
understanding of the goals and purposes of capacity building, its 
historical effectiveness with the microenterprise development industry, 
and its ability to provide quality programming to the targeted market. 
SBA will evaluate patterns of program growth, outcomes of training, 
types of services provided, delivery systems used, the number and types 
of clients served, and the successes realized within the client's 
organizational goals.
    (3) SBA will evaluate expected impact on client MDOs; expected 
impact on services to low-and very-low income microentrepreneurs; and a 
plan for service and delivery.
    (c) Applications for Research and Development Grants:
    (1) SBA will evaluate the criteria set forth in paragraph (a)(2) of 
this section.
    (2) SBA will evaluate how the research potentially will enhance 
microenterprise-oriented technical assistance services to disadvantaged 
entrepreneurs. Applicants must show the method(s), scope, duration, and 
implementation plans of the proposed research.
    (3) SBA will evaluate applicant's plan of action incorporating 
original and secondary research. Applicants must show impact on improved 
access to microenterprise development services for disadvantaged 
microentrepreneurs, and the expected replicability/transferability of 
the finished product to the field.
    (d) Applications for Discretionary Grants will be evaluated based on 
the goals and the viability of the project.



Sec. 119.13  How will an applicant make a subgrant?

    (a) An applicant that wants to make subgrants using PRIME grant 
funds must receive written approval from SBA prior to making subgrants. 
The applicant must identify the subgrantee(s) and describe in detail 
what the subgrantee(s) will do to help the grantee implement its 
proposal. An applicant must submit information to SBA demonstrating 
that, through the subgrantee(s), the grantee's program will:
    (1) Provide expanded services to the community,
    (2) Provide a method by which one or more previously unserved 
communities will gain access to the program, or
    (3) Provide other specific benefits to the clients, such as 
specialized training, expanded schedules of operation, or other 
benefits.
    (b) If an applicant has identified potential subgrantee(s) at the 
time it submits an application for a PRIME grant, the applicant must 
include the information requested in paragraph (a) of this section in 
the application. Otherwise, the applicant or grantee may submit the 
requested information at such time that approvals for subgrantee(s) are 
requested.
    (c) A grantee may not use more than 7.5 percent of the assistance 
received under its PRIME grant for administrative expenses in connection 
with the making of subgrants.



Sec. 119.14  Are there limitations regarding the use of program income?

    Program income, as defined in OMB Circular A-110, may only be used 
to further PRIME program objectives. As such, fees collected from 
clients, and other program income as defined, may

[[Page 208]]

be used to help fund the matching requirement. All program income, as 
defined, shall be reported on financial reports submitted to SBA and 
added to funds committed to the project by SBA and the recipient 
organization. However, any interest earned in excess of the maximum 
allowable amount as specified in the OMB circular incorporated into the 
grant must be returned to the Federal Government by the grantee.



Sec. 119.15  If a grantee is unable to spend the entire amount allotted for a single fiscal year, can the funds be carried over to the next year?

    (a) The grantee may request approval to use unexpended funds in the 
next budget period. This is permissible if funds are to be used for a 
non-severable, non-recurring project or activity within the scope of the 
PRIME program. Non-severable means a project in its entirety that cannot 
be subdivided. The request for using unexpended funds in the next budget 
period must include the following:
    (1) SF 424, budget pages, and justification;
    (2) Explanation of why the funds were not expended during the period 
in which they were awarded; and
    (3) Evidence of match. The match requirement for funds carried over 
to the next budget period can be met by using any excess of matching 
funds from the current budget period, new matching funds, or a 
combination of both.
    (b) The request must be made no later than 60 days before the end of 
the budget/project period or the de-obligation process will begin. 
Approved requests will require the issuance of a revised Notice of 
Award. Expenditures for funds carried over to the next budget period 
must be tracked separately.



Sec. 119.16  What are the reporting, record keeping, and related requirements for grantees?

    A grantee must keep records and meet the other requirements of 
section 115 of the Riegle Community Development and Regulatory 
Improvement Act of 1994 (Riegle Act), as if it were a community 
development financial institution. (See 12 U.S.C. 4714). In addition to 
meeting requirements of the Riegle Act, a grantee must also maintain 
data allowing it to measure the impact of services provided by it and 
any subgrantees, and, if specifically required by the terms of the PRIME 
grant, measure the success rate of individual clients whom the grantees 
assist. SBA will detail such requirements in its Program Announcements.



Sec. 119.17  What types of oversight will SBA provide to grantees?

    (a) In addition to reports required under the Riegle Act, SBA will 
require reports in accordance with applicable OMB circulars. Such 
reports will include the following information:
    (1) For recipients of Technical Assistance and Capacity Building 
Grants, for the first two years of receiving grant funding, narrative 
performance reports and financial status reports will be required 
quarterly within 15 calendar days of the end of each quarter. 
Thereafter, grantees may request that SBA reduce the frequency of 
reports from quarterly to semi-annually. The frequency of reporting then 
will be determined at the discretion of SBA. In addition, details of 
expenditures will be required with each request for payment. Grantees 
will be required to submit audited financial statements on an annual 
basis, if available, or annual financial statements prepared by a 
licensed, independent public accountant, within 120 calendar days of the 
end of the grantee's fiscal year.
    (2) For recipients of Research and Development Grants, reports will 
be required in accordance with agreed upon milestones and as part of the 
disbursement process.
    (3) For recipients of Discretionary Grants, reports will be required 
as appropriate for the project, or on a schedule as described in 
paragraph(a)(1) of this section, whichever is more frequent.
    (b) In addition, SBA may, from time to time, make site visits to the 
grantee, and review all applicable books and records.



Sec. 119.18  What are the restrictions against lobbying?

    No assistance made available under the PRIME program may be expended 
by a grantee or subgrantee to pay any

[[Page 209]]

person to influence, or attempt to influence, any agency, elected 
official, officer, or employee of a Federal, State, or local government 
in connection with its participation in the program.



Sec. 119.19  Is fundraising an allowable expense under the PRIME program?

    Expenditures of grant funds for fundraising activities are not 
allowable costs under this program. Applicants must be able to raise 
matching funds without the assistance of grant funds. Unless the full 
requirement for matching funds is waived, the applicant must demonstrate 
that it has adequate fundraising resources to obtain the required non-
Federal matching funds to perform the project.



Sec. 119.20  Should grantees and subgrantees raise conflict of interest matters with SBA?

    Each grantee or subgrantee must provide SBA with a copy of its 
conflicts of interest policies prior to receipt of funding under the 
program. Such policies must clearly describe the grantee's or 
subgrantee's protections from conflicts of interest or the appearance 
thereof in the handling of grant funding and program provision under 
this program.



PART 120--BUSINESS LOANS--Table of Contents




          General Descriptions of SBA'S Business Loan Programs

Sec.
120.1  Which loan programs does this part cover?
120.2  Descriptions of the business loan programs.
120.3  Pilot programs.

                               Definitions

120.10  Definitions.

           Subpart A--Policies Applying to All Business Loans

                        Eligibility Requirements

120.100  What are the basic eligibility requirements for all applicants 
          for SBA business loans?
120.101  Credit not available elsewhere.
120.102  Funds not available from alternative sources, including 
          personal resources of principals.
120.103  Are farm enterprises eligible?
120.104  Are businesses financed by SBICs eligible?
120.105  Special consideration for veterans.

          Ineligible Businesses and Eligible Passive Companies

120.110  What businesses are ineligible for SBA business loans?
120.111  What conditions must an Eligible Passive Company satisfy?

                            Uses of Proceeds

120.120  What are eligible uses of proceeds?
120.130  Restrictions on uses of proceeds.
120.131  Leasing part of new construction or existing building to 
          another business.

                          Ethical Requirements

120.140  What ethical requirements apply to participants?

                      Credit Criteria for SBA Loans

120.150  What are SBA's lending criteria?
120.151  What is the statutory limit for total loans to a Borrower?
120.160  Loan conditions.

            Requirements Imposed Under Other Laws and Orders

120.170  Flood insurance.
120.171  Compliance with child support obligations.
120.172  Flood-plain and wetlands management.
120.173  Lead-based paint.
120.174  Earthquake hazards.
120.175  Coastal barrier islands.
120.176  Compliance with other laws.

                   Enforceability Despite Rule Changes

120.180  Are rules enforceable if they are changed later?

                            Loan Applications

120.190  Where does an applicant apply for a loan?
120.191  The contents of a business loan application.
120.192  Approval or denial.
120.193  Reconsideration after denial.

                         Computerized SBA Forms

120.194  Use of computer forms.

                            Reporting of Fees

120.195  Disclosure of fees.

               Subpart B--Policies Specific to 7(a) Loans

                          Bonding Requirements

120.200  What bonding requirements exist during construction?

[[Page 210]]

                     Limitations on Use of Proceeds

120.201  Refinancing unsecured or undersecured loans.
120.202  Restrictions on loans for changes in ownership.

         Maturities; Interest Rates; Loan and Guarantee Amounts

120.210  What percentage of a loan may SBA guarantee?
120.211  What limits are there on the amounts of direct loans?
120.212  What limits are there on loan maturities?
120.213  What fixed interest rates may a Lender charge?
120.214  What conditions apply for variable interest rates?
120.215  What interest rates apply to smaller loans?

                        Fees for Guaranteed Loans

120.220  Fees that Lender pays SBA.
120.221  Fees which the Lender may collect from a loan applicant.
120.222  Fees which the Lender or Associate may not collect from the 
          Borrower or share with third parties.

                    Subpart C--Special Purpose Loans

120.300  Statutory authority.

                 Disabled Assistance Loan Program (DAL)

120.310  What assistance is available for the disabled?
120.311  Definitions.
120.312  DAL-1 use of proceeds and other program conditions.
120.313  DAL-2 use of proceeds and other program conditions.
120.314  Resolving doubts about creditworthiness.
120.315  Interest rate and loan limit.

               Businesses Owned by Low Income Individuals

120.320  Policy.

                           Energy Conservation

120.330  Who is eligible for an energy conservation loan?
120.331  What devices or techniques are eligible for a loan?
120.332  What are the eligible uses of proceeds?
120.333  Are there any special credit criteria?

                  Export Working Capital Program (EWCP)

120.340  What is the Export Working Capital Program?
120.341  Who is eligible?
120.342  What are eligible uses of proceeds?
120.343  Collateral.
120.344  Unique requirements of the EWCP.

                        International Trade Loans

120.345  Policy.
120.346  Eligibility.
120.347  Use of proceeds.
120.348  Amount of guarantee.

                    Qualified Employee Trusts (ESOP)

120.350  Policy.
120.351  Definitions.
120.352  Use of proceeds.
120.353  Eligibility.
120.354  Creditworthiness.

                          Veterans Loan Program

120.360  Which veterans are eligible?
120.361  Other conditions of eligibility.

                        Pollution Control Program

120.370  Policy.

                Loans to Participants in the 8(a) Program

120.375  Policy.
120.376  Special requirements.
120.377  Use of proceeds.

                 Defense Economic Transition Assistance

120.380  Program.
120.381  Eligibility.
120.382  Repayment ability.
120.383  Restrictions on loan processing.

                            CapLines Program

120.390  Revolving credit.

                          Builders Loan Program

120.391  What is the Builders Loan Program?
120.392  Who may apply?
120.393  Are there special application requirements?
120.394  What are the eligible uses of proceeds?
120.395  What is SBA's collateral position?
120.396  What is the term of the loan?
120.397  Are there any special restrictions?

                           Subpart D--Lenders

120.400  Loan Guarantee Agreements.

                         Participation Criteria

120.410  Requirements for all participating Lenders.
120.411  Preferences.
120.412  Other services Lenders may provide Borrowers.
120.413  Advertisement of relationship with SBA.

                        Miscellaneous Provisions

120.414  SBA access to Lender files.
120.415  Suspension or revocation of eligibility to participate.

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                     Participating Lender Financings

120.420  Definitions.
120.421  Which Lenders may securitize?
120.422  Are all securitizations subject to this subpart?
120.423  Which 7(a) loans may a Lender securitize?
120.424  What are the basic conditions a Lender must meet to securitize?
120.425  What are the minimum elements that SBA will require before 
          consenting to a securitization?
120.426  What action will SBA take if a securitizer transfers the 
          subordinated tranche prior to the termination of the holding 
          period?
120.427  Will SBA approve a securitization application from a capital 
          impaired Securitizer?
120.428  What happens to a securitizer's other PLP responsibilities if 
          SBA suspends its PLP approval privilege?

                            Other Conveyances

120.430  What conveyances are covered by Secs. 120.430 through 120.435?
120.431  Which Lenders may sell, sell participations in, or pledge 7(a) 
          loans?
120.432  Under what circumstances does this subpart permit sales of, or 
          sales of participating interests in, 7(a) loans?
120.433  What are SBA's other requirements for sales and sales of 
          participating interests?
120.434  What are SBA's requirements for loan pledges?
120.435  Which loan pledges do not require notice to or consent by SBA?

                     Certified Lenders Program (CLP)

120.440  What is the Certified Lenders Program?
120.441  How does a Lender become a CLP Lender?
120.442  Suspension or revocation of CLP status.

                     Preferred Lenders Program (PLP)

120.450  What is the Preferred Lenders Program?
120.451  How does a Lender become a PLP Lender?
120.452  What are the requirements of PLP loan processing?
120.453  What are the requirements of a PLP Lender in servicing and 
          liquidating SBA guaranteed loans?
120.454  PLP performance review.
120.455  Suspension or revocation of PLP status.

                 Small Business Lending Companies (SBLC)

120.470  What is an SBLC?
120.471  Records.
120.472  Reports to SBA.
120.473  Change of ownership or control.
120.474  Prohibited financing.
120.475  Audits.
120.476  Suspension or revocation.

                     Subpart E--Loan Administration

120.500  General.

                                Servicing

120.510  Servicing direct and immediate participation loans.
120.511  Servicing guaranteed loans.
120.512  Who services the loan after SBA honors its guarantee?
120.513  What servicing actions require the prior written consent of 
          SBA?

                 SBA'S Purchase of a Guaranteed Portion

120.520  When does SBA honor its guarantee?
120.521  What interest rate applies after SBA purchases its guaranteed 
          portion?
120.522  How much accrued interest does SBA pay to the Lender or 
          Registered Holder when SBA purchases the guaranteed portion?
120.523  What is the ``earliest uncured payment default''?
120.524  When is SBA released from liability on its guarantee?

          Deferment, Extension of Maturity and Loan Moratorium

120.530  Deferment of payment.
120.531  Extension of maturity.
120.532  What is a loan Moratorium?

                        Liquidation of Collateral

120.540  What are SBA's policies concerning the liquidation of 
          collateral and the sale of business loans and physical 
          disaster assistance loans, physical disaster business loans 
          and economic injury disaster loans?

                    Homestead Protection for Farmers

120.550  What is homestead protection for farmers?
120.551  Who is eligible for homestead protection?
120.552  Lease.
120.553  Appeal.
120.554  Conflict of laws.

                       Subpart F--Secondary Market

                     Fiscal and Transfer Agent (FTA)

120.600  Definitions.
120.601  SBA Secondary Market.

                              Certificates

120.610  Form and terms of Certificates.
120.611  Pools backing Pool Certificates.
120.612  Loans eligible to back Certificates.
120.613  Secondary Participation Guarantee Agreement.

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                   The SBA Guarantee of a Certificate

120.620  SBA guarantee of a Pool Certificate.
120.621  SBA guarantee of an Individual Certificate.

                             Pool Assemblers

120.630  Qualifications to be a Pool Assembler.
120.631  Suspension or termination of Pool Assembler.

                        Miscellaneous Provisions

120.640  Administration of the Pool and Individual Certificates.
120.641  Disclosure to purchasers.
120.642  Requirements before the FTA issues Pool Certificates.
120.643  Requirements before the FTA issues Individual Certificates.
120.644  Transfers of Certificates.
120.645  Redemption of Certificates.
120.650  Registration duties of FTA in Secondary Market.
120.651  Claim to FTA by Registered Holder to replace Certificate.
120.652  FTA fees.

       Suspension or Revocation of Participant in Secondary Market

120.660  Suspension or revocation.

                      Subpart G--Microloan Program

120.700  What is the Microloan Program?
120.701  Definitions.
120.702  Are there limitations on who can be an Intermediary or on where 
          an Intermediary may operate?
120.703  How does an organization apply to become an Intermediary?
120.704  How are applications evaluated?
120.705  What is a Specialized Intermediary?
120.706  What are the terms and conditions of an SBA loan to an 
          intermediary?
120.707  What conditions apply to loans by Intermediaries to Microloan 
          borrowers?
120.708  What is the Intermediary's financial contribution?
120.709  What is the Microloan Revolving Fund?
120.710  What is the Loan Loss Reserve Fund?
120.711  What rules govern Intermediaries?
120.712  How does an Intermediary get a grant to assist Microloan 
          borrowers?
120.713  Does SBA provide technical assistance to Intermediaries?
120.714  How are grants made to non-lending technical assistance 
          providers (NTAP)?
120.715  Does SBA guarantee any loans an Intermediary obtains from 
          another source?
120.716  Suspension or revocation of an Intermediary or NTAP.

            Subpart H--Development Company Loan Program (504)

120.800  What is the purpose of the 504 program?
120.801  How is a 504 Project financed?
120.802  Definitions.

                Certification Procedures to Become a CDC

120.810  Applications for certification as a CDC.
120.811  Public notice of CDC certification application.
120.812  Probationary period for newly certified CDCs.

            Requirements for CDC Certification and Operation

120.820  CDC non-profit status.
108.821  CDC Area of Operations.
120.822  CDC membership.
120.823  CDC Board of Directors.
120.824  Professional management and staff.
120.825  Financial ability to operate.
120.826  Basic requirements for operating a CDC.
120.827  Services a CDC provides to small businesses.
120.828  Minimum level of CDC lending activity.
120.829  Job Opportunity average a CDC must maintain.
120.830  Reports a CDC must submit.

                  Extending a CDC's Area of Operations

120.835  Application to expand an Area of Operations.
120.836  Public notice and opportunity for response.
120.837  SBA decision on application for a new CDC or for an existing 
          CDC to expand Area of Operations.
120.838  Expiration of existing, temporary expansions.
120.839  Case-by-case extensions.

                    Accredited Lenders Program (ALP)

120.840  Accredited Lenders Program.

                    Premier Certified Lenders Program

120.845  Premier Certified Lenders Program (PCLP).

                 Associate Development Companies (ADCs)

120.850  ADC functions.
120.851  ADC eligibility and operating requirements.
120.852  Suspension and revocation of ADCs.

                          Ethical Requirements

120.855  CDC and ADC ethical requirements.

                   Project Economic Development Goals

120.860  Required objectives.
120.861  Job creation or retention.

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120.862  Other economic development objectives.

                 Leasing Policies Specific to 504 Loans

120.870  Leasing Project Property.
120.871  Leasing part of an existing building to another business.

               Loan-Making Policies Specific to 504 Loans

120.880  Basic eligibility requirements.
120.881  Ineligible Projects for 504 loans.
120.882  Eligible Project costs for 504 loans.
120.883  Eligible administrative costs for 504 loans.
120.884  Ineligible costs for 504 loans.

                            Interim Financing

120.890  Source of interim financing.
120.891  Certifications of disbursement and completion.
120.892  Certifications of no adverse change.

                           Permanent Financing

120.900  What are the sources of permanent financing?

                       The Borrower's Contribution

120.910  How much must the Borrower contribute?
120.911  Land contributions.
120.912  Borrowed contributions.
120.913  May an SBIC provide the contribution?

                            Third Party Loans

120.920  Required participation by the Third Party Lender.
120.921  Terms of Third Party loans.
120.922  Pre-existing debt on the Project Property.
120.923  What are the policies on subordination?
120.924  Prepayment of subordinate financing.
120.925  Preferences.
120.926  Referral fee.

                        504 Loans and Debentures

120.930  Amount.
120.931  504 lending limits.
120.932  Interest rate.
120.933  Maturity.
120.934  Collateral.
120.935  Deposit.
120.936  Subordination to CDC.
120.937  Assumption.
120.938  Default.
120.939  Borrower prohibition.
120.940  Prepayment of the 504 loan or Debenture.
120.941  Certificates.

                   Debenture Sales and Service Agents

120.950  SBA and CDC must appoint agents.
120.951  Selling agent.
120.952  Fiscal agent.
120.953  Trustee.
120.954  Central Servicing Agent.
120.955  Agent bonds and records.
120.956  Suspension or revocation of brokers and dealers.

                                Closings

120.960  Responsibility for closing.
120.961  Construction escrow accounts.

                           Servicing and Fees

120.970  Servicing of 504 loans and Debentures.
120.971  Allowable fees paid by Borrower.
120.972  Third Party Lender participation fee and Development Company 
          fee.
120.973  Oversight and evaluation of CDCs and ADCs.

                 CDR Transfer, Suspension and Revocation

120.980  Transfer of CDC to ADC status.
120.981  Voluntary transfer and surrender of CDC certification.
120.982  Correcting CDC servicing deficiencies.
120.983  Transfer of CDC servicing to SBA or another CDC.
120.984  Suspension or revocation of CDC certification.

         Enforceability of 501, 502 and 503 Loans and Other Laws

120.990  501, 502 and 503 loans.
120.991  Effect of other laws.

    Authority: 15 U.S.C. 634 (b)(6), 636(a) and (h), 696(3), and 
697(a)(2).

    Source: 61 FR 3235, Jan. 31, 1996, unless otherwise noted.

          General Descriptions of SBA's Business Loan Programs



Sec. 120.1  Which loan programs does this part cover?

    This part regulates SBA's financial assistance to small businesses 
under its general business loan programs (``7(a) loans'') authorized by 
section 7(a) of the Small Business Act (``the Act''), 15 U.S.C. 636(a), 
its microloan demonstration loan program (``Microloans'') authorized by 
section 7(m) of the Act, 15 U.S.C. 636(m), and its development company 
program (``504 loans'') authorized by Title V of the Small Business 
Investment Act, 15 U.S.C. 695 to 697f (``Title V''). These three 
programs constitute the business loan programs of the SBA.

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Sec. 120.2  Descriptions of the business loan programs.

    (a) 7(a) loans. (1) 7(a) loans provide financing for general 
business purposes and may be:
    (i) A direct loan by SBA;
    (ii) An immediate participation loan by a Lender and SBA; or
    (iii) A guaranteed loan (deferred participation) by which SBA 
guarantees a portion of a loan made by a Lender.
    (2) A guaranteed loan is initiated by a Lender agreeing to make an 
SBA guaranteed loan to a small business and applying to SBA for SBA's 
guarantee under a blanket guarantee agreement (participation agreement) 
between SBA and the Lender. If SBA agrees to guarantee (authorizes) a 
portion of the loan, the Lender funds and services the loan. If the 
small business defaults on the loan, SBA's guarantee requires SBA to 
purchase its portion of the outstanding balance, upon demand by the 
Lender and subject to specific conditions. Regulations specific to 7(a) 
loans are found in subpart B of this part.
    (b) Microloans. SBA makes loans and loan guarantees to non-profit 
Intermediaries that make short-term loans up to $25,000 to eligible 
small businesses for general business purposes, except payment of 
personal debts. SBA also makes grants to Intermediaries for use in 
providing management assistance and counseling to small businesses. 
Regulations specific to these loans are found in subpart G of this part.
    (c) 504 loans. Projects involving 504 loans require long-term fixed-
asset financing for small businesses. A Certified Development Company 
(CDC) provides the final portion of this financing with a 504 loan made 
from the proceeds of a Debenture issued by the CDC, guaranteed 100 
percent by SBA (with the full faith and credit of the United States), 
and sold to investors. The regulations specific to these loans are found 
in subpart H of this part.



Sec. 120.3  Pilot programs.

    The Administrator of SBA may from time to time suspend, modify, or 
waive rules for a limited period of time to test new programs or ideas. 
The Administrator shall publish a document in the Federal Register 
explaining the reasons for these actions.

                               Definitions



Sec. 120.10  Definitions.

    The following terms have the same meaning wherever they are used in 
this part. Defined terms are capitalized wherever they appear.
    Associate. (1) An Associate of a Lender or CDC is:
    (i) An officer, director, key employee, or holder of 20 percent or 
more of the value of the Lender's or CDC's stock or debt instruments, or 
an agent involved in the loan process;
    (ii) Any entity in which one or more individuals referred to in 
paragraphs (1)(i) of this definition or a Close Relative of any such 
individual owns or controls at least 20 percent.
    (2) An Associate of a small business is:
    (i) An officer, director, owner of more than 20 percent of the 
equity, or key employee of the small business;
    (ii) Any entity in which one or more individuals referred to in 
paragraphs (2)(i) of this definition owns or controls at least 20 
percent; and
    (iii) Any individual or entity in control of or controlled by the 
small business (except a Small Business Investment Company (``SBIC'') 
licensed by SBA).
    (3) For purposes of this definition, the time during which an 
Associate relationship exists commences six months before the following 
dates and continues as long as the certification, participation 
agreement, or loan is outstanding:
    (i) For a CDC, the date of certification by SBA;
    (ii) For a Lender, the date of application for a loan guarantee on 
behalf of an applicant; or
    (iii) For a small business, the date of the loan application to SBA, 
the CDC, the Intermediary, or the Lender.
    Authorization is SBA's written agreement providing the terms and 
conditions under which SBA will make or guarantee business loans. It is 
not a contract to make a loan.
    Borrower is the obligor of an SBA business loan.

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    Certified Development Company (``CDC'') is an entity authorized by 
SBA to deliver 504 financing to small businesses.
    Close Relative is a spouse; a parent; or a child or sibling, or the 
spouse of any such person.
    Eligible Passive Company is a small entity or trust which does not 
engage in regular and continuous business activity, which leases real or 
personal property to an Operating Company for use in the Operating 
Company's business, and which complies with the conditions set forth in 
Sec. 120.111.
    Intermediary is the entity in the Microloan program that receives 
SBA financial assistance and makes loans to small businesses in amounts 
up to $25,000.
    Lender is an institution that has executed a participation agreement 
with SBA under the guaranteed loan program.
    Loan Instruments are the Authorization, note, instruments of 
hypothecation, and all other agreements and documents related to a loan.
    Operating Company is an eligible small business actively involved in 
conducting business operations now or about to be located on real 
property owned by an Eligible Passive Company, or using or about to use 
in its business operations personal property owned by an Eligible 
Passive Company.
    Preference is any arrangement giving a Lender or a CDC a preferred 
position compared to SBA relating to the making, servicing, or 
liquidation of a business loan with respect to such things as repayment, 
collateral, guarantees, control, maintenance of a compensating balance, 
purchase of a Certificate of deposit or acceptance of a separate or 
companion loan, without SBA's consent.
    Rentable Property is the total square footage of all buildings or 
facilities used for business operations.
    Rural Area is a political subdivision or unincorporated area in a 
non-metropolitan county (as defined by the Department of Agriculture), 
or, if in a metropolitan county, any such subdivision or area with a 
resident population under 20,000 which is designated by SBA as rural.
    Service Provider is an entity that contracts with a Lender or CDC to 
perform management, marketing, legal or other services.

[61 FR 3235, Jan. 31, 1996, as amended at 64 FR 2117, Jan. 13, 1999]



           Subpart A--Policies Applying to All Business Loans

                        Eligibility Requirements



Sec. 120.100  What are the basic eligibility requirements for all applicants for SBA business loans?

    To be eligible for an SBA business loan, a small business applicant 
must:
    (a) Be an operating business (except for loans to Eligible Passive 
Companies);
    (b) Be organized for profit;
    (c) Be located in the United States;
    (d) Be small under the size requirements of part 121 of this chapter 
(including affiliates). See subpart H of this part for the size 
standards of part 121 of this chapter which apply only to 504 loans; and
    (e) Be able to demonstrate a need for the desired credit.



Sec. 120.101  Credit not available elsewhere.

    SBA provides business loan assistance only to applicants for whom 
the desired credit is not otherwise available on reasonable terms from 
non-Federal sources. SBA requires the Lender or CDC to certify or 
otherwise show that the desired credit is unavailable to the applicant 
on reasonable terms and conditions from non-Federal sources without SBA 
assistance, taking into consideration the prevailing rates and terms in 
the community in or near where the applicant conducts business, for 
similar purposes and periods of time. Submission of an application to 
SBA by a Lender or CDC constitutes certification by the Lender or CDC 
that it has examined the availability of credit to the applicant, has 
based its certification upon that examination, and has substantiation in 
its file to support the certification.

[[Page 216]]



Sec. 120.102  Funds not available from alternative sources, including personal resources of principals.

    (a) An applicant for a business loan must show that the desired 
funds are not available from the personal resources of any owner of 20 
percent or more of the equity of the applicant. SBA will require the use 
of personal resources from any such owner as an injection to reduce the 
SBA funded portion of the total financing package (i.e., any SBA loans 
and any other financing, including loans from any other source) when 
that owner's liquid assets exceed the amounts specified in paragraphs 
(a) (1) through (3) of this section. When the total financing package:
    (1) Is $250,000 or less, each 20 percent owner of the applicant must 
inject any personal liquid assets which are in excess of two times the 
total financing package or $100,000, whichever is greater;
    (2) Is between $250,001 and $500,000, each 20 percent owner of the 
applicant must inject any personal liquid assets which are in excess of 
one and one-half times the total financing package or $500,000, 
whichever is greater;
    (3) Exceeds $500,000, each 20 percent owner of the applicant must 
inject any personal liquid assets which are in excess of one times the 
total financing package or $750,000, whichever is greater.
    (b) Any liquid assets in excess of the applicable amount set forth 
in paragraph (a) of this section must be used to reduce the SBA portion 
of the total financing package. These funds must be injected prior to 
the disbursement of the proceeds of any SBA financing.
    (c) For purposes of this section, liquid assets means cash or cash 
equivalent, including savings accounts, CDs, stocks, bonds, or other 
similar assets. Equity in real estate holdings and other fixed assets 
are not to be considered liquid assets.



Sec. 120.103  Are farm enterprises eligible?

    Federal financial assistance to agricultural enterprises is 
generally made by the United States Department of Agriculture (USDA), 
but may be made by SBA under the terms of a Memorandum of Understanding 
between SBA and USDA. Farm-related businesses which are not agricultural 
enterprises are eligible businesses under SBA's business loan programs.



Sec. 120.104  Are businesses financed by SBICs eligible?

    SBA may make or guarantee loans to a business financed by an SBIC if 
SBA's collateral position will be superior to that of the SBIC. SBA may 
also make or guarantee a loan to an otherwise eligible small business 
which temporarily is owned or controlled by an SBIC under the 
regulations in part 107 of this chapter. SBA neither guarantees SBIC 
loans nor makes loans jointly with SBICs.



Sec. 120.105  Special consideration for veterans.

    SBA will give special consideration to a small business owned by a 
veteran or, if the veteran chooses not to apply, to a business owned or 
controlled by one of the veteran's dependents. If the veteran is 
deceased or permanently disabled, SBA will give special consideration to 
one survivor or dependent. SBA will process the application of a 
business owned or controlled by a veteran or dependent promptly, resolve 
close questions in the applicant's favor, and pay particular attention 
to maximum loan maturity. For SBA loans, a veteran is a person honorably 
discharged from active military service.

          Ineligible Businesses and Eligible Passive Companies



Sec. 120.110  What businesses are ineligible for SBA business loans?

    The following types of businesses are ineligible:
    (a) Non-profit businesses (for-profit subsidiaries are eligible);
    (b) Financial businesses primarily engaged in the business of 
lending, such as banks, finance companies, and factors (pawn shops, 
although engaged in lending, may qualify in some circumstances);
    (c) Passive businesses owned by developers and landlords that do not 
actively use or occupy the assets acquired or improved with the loan 
proceeds (except Eligible Passive Companies under Sec. 120.111);

[[Page 217]]

    (d) Life insurance companies;
    (e) Businesses located in a foreign country (businesses in the U.S. 
owned by aliens may qualify);
    (f) Pyramid sale distribution plans;
    (g) Businesses deriving more than one-third of gross annual revenue 
from legal gambling activities;
    (h) Businesses engaged in any illegal activity;
    (i) Private clubs and businesses which limit the number of 
memberships for reasons other than capacity;
    (j) Government-owned entities (except for businesses owned or 
controlled by a Native American tribe);
    (k) Businesses principally engaged in teaching, instructing, 
counseling or indoctrinating religion or religious beliefs, whether in a 
religious or secular setting;
    (l) Consumer and marketing cooperatives (producer cooperatives are 
eligible);
    (m) Loan packagers earning more than one third of their gross annual 
revenue from packaging SBA loans;
    (n) Businesses with an Associate who is incarcerated, on probation, 
on parole, or has been indicted for a felony or a crime of moral 
turpitude;
    (o) Businesses in which the Lender or CDC, or any of its Associates 
owns an equity interest;
    (p) Businesses which:
    (1) Present live performances of a prurient sexual nature; or
    (2) Derive directly or indirectly more than de minimis gross revenue 
through the sale of products or services, or the presentation of any 
depictions or displays, of a prurient sexual nature;
    (q) Unless waived by SBA for good cause, businesses that have 
previously defaulted on a Federal loan or Federally assisted financing, 
resulting in the Federal government or any of its agencies or 
Departments sustaining a loss in any of its programs, and businesses 
owned or controlled by an applicant or any of its Associates which 
previously owned, operated, or controlled a business which defaulted on 
a Federal loan (or guaranteed a loan which was defaulted) and caused the 
Federal government or any of its agencies or Departments to sustain a 
loss in any of its programs. For purposes of this section, a compromise 
agreement shall also be considered a loss;
    (r) Businesses primarily engaged in political or lobbying 
activities; and
    (s) Speculative businesses (such as oil wildcatting).



Sec. 120.111  What conditions must an Eligible Passive Company satisfy?

    An Eligible Passive Company must use loan proceeds to acquire or 
lease, and/or improve or renovate, real or personal property (including 
eligible refinancing), that it leases to one or more Operating Companies 
for conducting the Operating Company's business (references to Operating 
Company in paragraphs (a) and (b) of this section mean each Operating 
Company). Any ownership structure or legal form may qualify as an 
Eligible Passive Company.
    (a) Conditions that apply to all legal forms:
    (1) The Operating Company must be an eligible small business, and 
the proposed use of the proceeds must be an eligible use if the 
Operating Company were obtaining the financing directly;
    (2) The Eligible Passive Company (with the exception of a trust) and 
the Operating Company each must be small under the appropriate size 
standards in part 121 of this chapter;
    (3) The lease between the Eligible Passive Company and the Operating 
Company must be in writing and must be subordinated to SBA's mortgage, 
trust deed lien, or security interest on the property. Also, the 
Eligible Passive Company (as landlord) must furnish as collateral for 
the loan an assignment of all rents paid under the lease;
    (4) The lease between the Eligible Passive Company and the Operating 
Company, including options to renew exercisable solely by the Operating 
Company, must have a remaining term at least equal to the term of the 
loan;
    (5) The Operating Company must be a guarantor or a co-borrower (with 
the Eligible Passive Company) of the loan (in a 7(a) loan including 
working capital, the Operating Company must be a co-borrower); and
    (6) Each holder of an ownership interest constituting at least 20 
percent of the Eligible Passive Company and the Operating Company must 
guarantee

[[Page 218]]

the loan (the trustee shall execute the guarantee on behalf of any 
trust).
    (b) Additional conditions that apply to trusts. The eligibility 
status of the trustor will determine trust eligibility. All donors to 
the trust will be deemed to have trustor status for eligibility 
purposes. A trust qualifying as an Eligible Passive Company may engage 
in other activities as authorized by its trust agreement. The trustee 
must warrant and certify that the trust will not be revoked or 
substantially amended for the term of the loan without the consent of 
SBA. The trustor must guarantee the loan. For purposes of this section, 
the trustee shall certify to SBA that:
    (1) The trustee has authority to act;
    (2) The trust has the authority to borrow funds, pledge trust 
assets, and lease the property to the Operating Company;
    (3) The trustee has provided accurate, pertinent language from the 
trust agreement confirming the above; and
    (4) The trustee has provided and will continue to provide SBA with a 
true and complete list of all trustors and donors.

[61 FR 3235, Jan. 31, 1996; 61 FR 7986, Mar. 1, 1996, as amended at 64 
FR 2117, Jan. 13, 1999]

                            Uses of Proceeds



Sec. 120.120  What are eligible uses of proceeds?

    A small business must use an SBA business loan for sound business 
purposes. The uses of proceeds are prescribed in each loan's 
Authorization.
    (a) A Borrower may use loan proceeds from any SBA loan to:
    (1) Acquire land (by purchase or lease);
    (2) Improve a site (e.g., grading, streets, parking lots, 
landscaping), including up to 5 percent for community improvements such 
as curbs and sidewalks;
    (3) Purchase one or more existing buildings;
    (4) Convert, expand or renovate one or more existing buildings;
    (5) Construct one or more new buildings; and/or
    (6) Acquire (by purchase or lease) and install fixed assets (for a 
504 loan, these assets must have a useful life of at least 10 years and 
be at a fixed location, although short-term financing for equipment, 
furniture, and furnishings may be permitted where essential to and a 
minor portion of the 504 Project).
    (b) A Borrower may also use 7(a) and microloan proceeds for:
    (1) Inventory;
    (2) Supplies;
    (3) Raw materials; and
    (4) Working capital (if the Operating Company is a co-Borrower with 
an Eligible Passive Company, part of the loan proceeds may be applied 
for working capital if used for that purpose only by the Operating 
Company).
    (c) A Borrower may use 7(a) loan proceeds for refinancing certain 
outstanding debts.



Sec. 120.130  Restrictions on uses of proceeds.

    SBA will not authorize nor may a Borrower use loan proceeds for the 
following purposes (including the replacement of funds used for any such 
purpose):
    (a) Payments, distributions or loans to Associates of the applicant 
(except for ordinary compensation for services rendered);
    (b) Refinancing a debt owed to a Small Business Investment Company 
(``SBIC'');
    (c) Floor plan financing or other revolving line credit, except 
under Sec. 120.390;
    (d) Investments in real or personal property acquired and held 
primarily for sale, lease, or investment (except for a loan to an 
Eligible Passive Company or to a small contractor under Sec. 120.310);
    (e) A purpose which does not benefit the small business; or
    (f) Any use restricted by Secs. 120.201 through 120.203 and 120.884 
(specific to 7(a) loans and 504 loans respectively).



Sec. 120.131  Leasing part of new construction or existing building to another business.

    (a) If the SBA business loan involves the construction of a new 
building, a Borrower may lease up to 33 percent of the Rentable Property 
for a short term to any third party if reasonable growth projections 
show that the Borrower will need additional space within three

[[Page 219]]

years and will use all of the additional space within ten years. If the 
Borrower is an Eligible Passive Company leasing 100 percent of the 
Project space to one or more Operating Company, the Operating Company, 
or Operating Companies together, may sublease up to 33 percent of the 
Rentable Property to a third party under the same conditions. (See 
Sec. 120.870(c) for an exception with respect to 504 Projects.)
    (b) If the SBA business loan involves the acquisition, renovation, 
or reconstruction of an existing building, the Borrower may lease up to 
49 percent of the Rentable Property long term. If the Borrower is an 
Eligible Passive Company leasing 100 percent of the Project space to one 
or more Operating Companies, the Operating Company, or Operating 
Companies together may sublease up to 49 percent of its Rentable 
Property to a third party under the same conditions. (For 504 loans, see 
Sec. 120.871).

[64 FR 2117, Jan. 13, 1999; 64 FR 27445, May 20, 1999]

                          Ethical Requirements



Sec. 120.140  What ethical requirements apply to participants?

    Lenders, Intermediaries, CDCs, and Associate Development Companies 
(``ADCs'') (in this section, collectively referred to as 
``Participants''), must act ethically and exhibit good character. 
Ethical indiscretion of an Associate of a Participant or a member of a 
CDC will be attributed to the Participant. A Participant must promptly 
notify SBA if it obtains information concerning the unethical behavior 
of an Associate. The following are examples of such unethical behavior. 
A Participant may not:
    (a) Self-deal;
    (b) Have a real or apparent conflict of interest with a small 
business with which it is dealing (including any of its Associates or an 
Associate's Close Relatives) or SBA;
    (c) Own an equity interest in a business that has received or is 
applying to receive SBA financing (during the term of the loan or within 
6 months prior to the loan application);
    (d) Be incarcerated, on parole, or on probation;
    (e) Knowingly misrepresent or make a false statement to SBA;
    (f) Engage in conduct reflecting a lack of business integrity or 
honesty;
    (g) Be a convicted felon, or have an adverse final civil judgment 
(in a case involving fraud, breach of trust, or other conduct) that 
would cause the public to question the Participant's business integrity, 
taking into consideration such factors as the magnitude, repetition, 
harm caused, and remoteness in time of the activity or activities in 
question;
    (h) Accept funding from any source that restricts, prioritizes, or 
conditions the types of small businesses that the Participant may assist 
under an SBA program or that imposes any conditions or requirements upon 
recipients of SBA assistance inconsistent with SBA's loan programs or 
regulations;
    (i) Fail to disclose to SBA all relationships between the small 
business and its Associates (including Close Relatives of Associates), 
the Participant, and/or the lenders financing the Project of which it is 
aware or should be aware;
    (j) Fail to disclose to SBA whether the loan will:
    (1) Reduce the exposure of a Participant or an Associate of a 
Participant in a position to sustain a loss;
    (2) Directly or indirectly finance the purchase of real estate, 
personal property or services (including insurance) from the Participant 
or an Associate of the Participant;
    (3) Repay or refinance a debt due a Participant or an Associate of a 
Participant; or
    (4) Require the small business, or an Associate (including Close 
Relatives of Associates), to invest in the Participant (except for 
institutions which require an investment from all members as a condition 
of membership, such as a Production Credit Association);
    (k) Issue a real estate forward commitment to a builder or 
developer; or
    (l) Engage in any activity which taints its objective judgment in 
evaluating the loan.

[[Page 220]]

                      Credit Criteria for SBA Loans



Sec. 120.150  What are SBA's lending criteria?

    The applicant (including an Operating Company) must be creditworthy. 
Loans must be so sound as to reasonably assure repayment. SBA will 
consider:
    (a) Character, reputation, and credit history of the applicant (and 
the Operating Company, if applicable), its Associates, and guarantors;
    (b) Experience and depth of management;
    (c) Strength of the business;
    (d) Past earnings, projected cash flow, and future prospects;
    (e) Ability to repay the loan with earnings from the business;
    (f) Sufficient invested equity to operate on a sound financial 
basis;
    (g) Potential for long-term success;
    (h) Nature and value of collateral (although inadequate collateral 
will not be the sole reason for denial of a loan request); and
    (i) The effect any affiliates (as defined in part 121 of this 
chapter) may have on the ultimate repayment ability of the applicant.



Sec. 120.151  What is the statutory limit for total loans to a Borrower?

    The aggregate amount of the SBA portions of all loans to a single 
Borrower, including the Borrower's affiliates as defined in part 121 of 
this chapter, may not exceed a guarantee amount of $750,000, except as 
otherwise authorized by statute for a specific loan program. The amount 
of any loan received by an Eligible Passive Company applies to the loan 
limit of both the Eligible Passive Company and the Operating Company.



Sec. 120.160  Loan conditions.

    The following requirements are normally required by SBA for all 
business loans:
    (a) Personal guarantees. Holders of at least a 20 percent ownership 
interest generally must guarantee the loan. SBA, in its discretion, 
consulting with the Participating Lender, may require other appropriate 
individuals to guarantee the loan as well, except SBA will not require 
personal guarantees from those owning less than 5% ownership.
    (b) Appraisals. SBA may require professional appraisals of the 
applicant's and principals' assets, a survey, or a feasibility study.
    (c) Hazard Insurance. SBA requires hazard insurance on all 
collateral.
    (d) Taxes. The applicant may not use any of the proceeds to pay 
past-due Federal and state payroll taxes.

            Requirements Imposed Under Other Laws and Orders



Sec. 120.170  Flood insurance.

    Under the Flood Disaster Protection Act of 1973 (Sec. 205(b) of Pub. 
L. 93-234; 87 Stat. 983 (42 U.S.C. 4000 et seq.)), a loan recipient must 
obtain flood insurance if any building (including mobile homes), 
machinery, or equipment acquired, installed, improved, constructed, or 
renovated with the proceeds of SBA financial assistance is located in a 
special flood hazard area. The requirement applies also to any inventory 
(business loan program), fixtures or furnishings contained or to be 
contained in the building. Mobile homes on a foundation are buildings. 
SBA, Lenders, CDCs, and Intermediaries must notify Borrowers that flood 
insurance must be maintained.



Sec. 120.171  Compliance with child support obligations.

    Any holder of 50% or more of the ownership interest in the recipient 
of an SBA loan must certify that he or she is not more than 60 days 
delinquent on any obligation to pay child support arising under:
    (a) An administrative order;
    (b) A court order;
    (c) A repayment agreement between the holder and a custodial parent; 
or
    (d) A repayment agreement between the holder and a State agency 
providing child support enforcement services.



Sec. 120.172  Flood-plain and wetlands management.

    (a) All loans must conform to requirements of Executive Orders 
11988, ``Flood Plain Management'' (3 CFR, 1977 Comp., p. 117) and 11990, 
``Protection of Wetlands'' (3 CFR, 1977 Comp.,

[[Page 221]]

p. 121). Lenders, Intermediaries, CDCs, and SBA must comply with 
requirements applicable to them. Applicants must show:
    (1) Whether the location for which financial assistance is proposed 
is in a floodplain or wetland;
    (2) If it is in a floodplain, that the assistance is in compliance 
with local land use plans; and
    (3) That any necessary construction or use permits will be issued.
    (b) Generally, there is an 8-step decision making process with 
respect to:
    (1) Construction or acquisition of anything, other than a building;
    (2) Repair and restoration equal to more than 50% of the market 
value of a building; or
    (3) Replacement of destroyed structures.
    (c) SBA may determine for the following types of actions, on a case-
by-case basis, that the full 8-step process is not warranted and that 
only the first step (determining if a proposed action is in the base 
floodplain) need be completed:
    (1) Actions located outside the base floodplain;
    (2) Repairs, other than to buildings, that are less than 50% of the 
market value;
    (3) Replacement of building contents, materials, and equipment;
    (4) Hazard mitigation measures;
    (5) Working capital loans; or
    (6) SBA loan assistance of $1,500,000 or less.



Sec. 120.173  Lead-based paint.

    If loan proceeds are for the construction or rehabilitation of a 
residential structure, lead-based paint may not be used on any interior 
surface, or on any exterior surface that is readily accessible to 
children under the age of seven years.



Sec. 120.174  Earthquake hazards.

    When loan proceeds are used to construct a new building or an 
addition to an existing building, the construction must conform with the 
``National Earthquake Hazards Reduction Program (``NEHRP'') Recommended 
Provisions for the Development of Seismic Regulations for New 
Buildings'' (which can be obtained from the Federal Emergency Management 
Agency, Publications Office, Washington, DC) or a code identified by SBA 
as being substantially equivalent.



Sec. 120.175  Coastal barrier islands.

    SBA and Intermediaries may not make or guarantee any loan within the 
Coastal Barrier Resource System.



Sec. 120.176  Compliance with other laws.

    All SBA loans are subject to all applicable laws, including (without 
limitation) the civil rights laws (see parts 112, 113, 117 and 136 of 
this chapter), prohibiting discrimination on the grounds of race, color, 
national origin, religion, sex, marital status, disability or age. SBA 
requests agreements or evidence to support or document compliance with 
these laws, including reports required by applicable statutes or the 
regulations in this chapter.

                   Enforceability Despite Rule Changes



Sec. 120.180  Are rules enforceable if they are changed later?

    Regulations and contractual provisions in effect at the time of a 
transaction govern an SBA loan financing transaction, notwithstanding 
subsequent rule or contract changes. SBA may conduct an enforcement 
action regarding any violation of provisions of regulations or contracts 
applicable at the time, but no longer in effect or in use.

                            Loan Applications



Sec. 120.190  Where does an applicant apply for a loan?

    An applicant for a business loan should apply to:
    (a) A Lender for a guaranteed or immediate participation loan;
    (b) A CDC for a 504 loan;
    (c) An Intermediary for a Microloan; or
    (d) SBA for a direct loan.



Sec. 120.191  The contents of a business loan application.

    For most business loans, SBA requires that an application for a 
business loan contain, among other things, a description of the history 
and nature

[[Page 222]]

of the business, the amount and purpose of the loan, the collateral 
offered for the loan, current financial statements, historical financial 
statements (or tax returns if appropriate) for the past three years, IRS 
tax verification, and a business plan, when applicable. Personal 
histories and financial statements will be required from principals of 
the applicant (and the Operating Company, if applicable).



Sec. 120.192  Approval or denial.

    Applicants receive notice of approval or denial by the Lender, CDC, 
Intermediary, or SBA, as appropriate. Notice of denial will include the 
reasons. If a loan is approved, an Authorization will be issued.



Sec. 120.193  Reconsideration after denial.

    An applicant or recipient of a business loan may request 
reconsideration of a denied loan or loan modification request within 6 
months of denial. Applicants denied due to a size determination can 
appeal that determination under part 121 of this chapter. All others 
must be submitted to the office that denied the original request. To 
prevail, the applicant must demonstrate that it has overcome all 
legitimate reasons for denial. Six months after denial, a new 
application is required. If the reconsideration is denied, a second and 
final reconsideration may be considered by the Associate Administrator 
for Financial Assistance (AA/FA), whose decision is final.

                         Computerized SBA Forms



Sec. 120.194  Use of computer forms.

    Any Applicant or Participant may use computer generated SBA 
application forms, closing forms, and other forms designated by SBA if 
the forms are exact reproductions of SBA forms.

                            Reporting of Fees



Sec. 120.195  Disclosure of fees.

    An Applicant for a business loan must identify to SBA the name of 
each Agent as defined in part 103 of this chapter that helped the 
applicant obtain the loan, describing the services performed, and 
disclosing the amount of each fee paid or to be paid by the applicant to 
the Agent in conjunction with the performance of those services.



               Subpart B--Policies Specific to 7(a) Loans

                          Bonding Requirements



Sec. 120.200  What bonding requirements exist during construction?

    On 7(a) loans which finance construction, the Borrower must supply a 
100 percent payment and performance bond and builder's risk insurance, 
unless waived by SBA.

                     Limitations on Use of Proceeds



Sec. 120.201  Refinancing unsecured or undersecured loans.

    A Borrower may not use 7(a) loan proceeds to pay any creditor in a 
position to sustain a loss causing a shift to SBA of all or part of a 
potential loss from an existing debt.



Sec. 120.202  Restrictions on loans for changes in ownership.

    A Borrower may not use 7(a) loan proceeds to purchase a portion of a 
business or a portion of another owner's interest. One or more current 
owners may use loan proceeds to purchase the entire interest of another 
current owner, or a Borrower can purchase ownership of an entire 
business.

         Maturities; Interest Rates; Loan and Guarantee Amounts



Sec. 120.210  What percentage of a loan may SBA guarantee?

    SBA's guarantee percentage must not exceed the applicable percentage 
established in section 7(a) of the Act. The maximum allowable guarantee 
percentage on a loan will be determined by the loan amount. As of 
October 12, 1995, the percentages are: Loans of $100,000 or less may 
receive a maximum guarantee of 80 percent. All other loans may receive a 
maximum guarantee of 75 percent, not to exceed $750,000, unless 
otherwise authorized by SBA.

[[Page 223]]



Sec. 120.211  What limits are there on the amounts of direct loans?

    (a) The statutory limit for direct loans made under the authority of 
section 7(a)(1)-(19) of the Small Business Act is $350,000. SBA has 
established an administrative limit of $150,000 for direct loans. The 
AA/FA may authorize acceptance of an application up to the statutory 
limit.
    (b) The statutory limit for direct loans made under the authority of 
section 7(a)(20) is $750,000. SBA has established an administrative 
limit of $150,000. The Associate Administrator for Minority Enterprise 
Development may authorize the acceptance of an application that exceeds 
the administrative limit.
    (c) The statutory limit on SBA's portion of an immediate 
participation loan is $350,000. The administrative limit is the lesser 
of 75 percent of the loan or $150,000. The AA/FA may authorize 
exceptions to the administrative limit up to $350,000.



Sec. 120.212  What limits are there on loan maturities?

    The term of a loan shall be:
    (a) The shortest appropriate term, depending upon the Borrower's 
ability to repay;
    (b) Ten years or less, unless it finances or refinances real estate 
or equipment with a useful life exceeding ten years; and
    (c) A maximum of 25 years, including extensions. (A portion of a 
loan used to acquire or improve real property may have a term of 25 
years plus an additional period needed to complete the construction or 
improvements.)



Sec. 120.213  What fixed interest rates may a Lender charge?

    (a) Fixed Rates for Guaranteed Loans. A loan may have a reasonable 
fixed interest rate. SBA periodically publishes the maximum allowable 
rate in the Federal Register.
    (b) Direct loans. A statutory formula based on the cost of money to 
the Federal government determines the interest rate on direct loans. SBA 
publishes the rate periodically in the Federal Register.



Sec. 120.214  What conditions apply for variable interest rates?

    A Lender may use a variable rate of interest, upon SBA's approval. 
SBA's maximum allowable rates apply only to the initial rate on the date 
SBA received the loan application. SBA shall approve the use of a 
variable interest rate under the following conditions:
    (a) Frequency. The first change may occur on the first calendar day 
of the month following initial disbursement, using the base rate (see 
paragraph (c) of this section) in effect on the first business day of 
the month. After that, changes may occur no more often than monthly.
    (b) Range of fluctuation. The amount of fluctuation shall be equal 
to the movement in the base rate. The difference between the initial 
rate and the ceiling rate may be no greater than the difference between 
the initial rate and the floor rate.
    (c) Base rate. The base rate shall be the prime rate in effect on 
the first business day of the month, printed in a national financial 
newspaper published each business day, or the SBA Optional Peg Rate 
which SBA publishes quarterly in the Federal Register.
    (d) Maturities under 7 years. For loans with maturities under seven 
years, the maximum interest rate shall not exceed two and one-quarter (2 
1/4 ) percentage points over the base rate.
    (e) Maturities of 7 years or more. For loans with maturities of 
seven or more years, the maximum interest rate shall not exceed two and 
three-quarters (2 3/4) percentage points over the base rate.
    (f) Amortization. Initial amortization of principal and interest may 
be recomputed and reassessed as interest rates fluctuate, as directed by 
SBA. With prior approval of SBA, the Lender may use certain other 
amortization methods, except that SBA does not allow balloon payments.



Sec. 120.215  What interest rates apply to smaller loans?

    For a loan over $25,000 but not exceeding $50,000, the interest rate 
may be one percent more than the maximum interest rate described above. 
For a loan of $25,000 or less, the maximum interest rate described above

[[Page 224]]

may be increased by two percentage points.

[61 FR 3235, Jan. 31, 1996; 61 FR 7986, Mar. 1, 1996]

                        Fees for Guaranteed Loans



Sec. 120.220  Fees that Lender pays SBA.

    (a) The Lender pays a guarantee fee to SBA for each loan as follows:

----------------------------------------------------------------------------------------------------------------
                                    Fee measured as
   Guaranteed portion of loan        percentage of       When payable     Lender may get fee   When SBA refunds
                                  guaranteed portion                         from borrower     fee from borrower
----------------------------------------------------------------------------------------------------------------
12 Months or less...............  .25%..............  With Guarantee      When SBA Approves   If Application
                                                       Application.        Loan.               Withdrawn or
                                                                                               Denied.\1\
More Than 12 months and Total     2.0% of Guaranteed  Within 90 days of   After First         If Loan Cancelled
 Guaranteed Portion Is $80,000     Portion.            SBA Approval.       Disbursement.       and Never
 or Less.                                                                                      Disbursed.
More Than 12 Months and Amount    3%................  Within 90 Days of   After First         If Loan Cancelled
 of Guaranteed Portion of Loan                         SBA Approval.       Disbursement.       and Never
 That Is $250,000 or Less.                                                                     Disbursed.
More Than 12 Months and Amount    3.0% of 1st         Within 90 Days of   After First         If Loan Cancelled
 of Guaranteed Portion of Loan     $250,000 plus       SBA Approval.       Disbursement.       and Never
 Between $250,000 and $500,000.    3.5% of balance.                                            Disbursed.
More Than 12 Months and Amount    3.0% of 1st         Within 90 Days of   After First         If Loan Cancelled
 of Guaranteed Portion of Loan     $250,000 plus       SBA Approval.       Disbursement.       and Never
 Exceeding $500,000.               3.5% of next                                                Disbursed.
                                   $250,000 plus
                                   3.875% of the
                                   Amount Exceeding
                                   $500,000.
----------------------------------------------------------------------------------------------------------------
\1\ Also, if SBA substantially changes the Lender's loan terms and approves the loan, but the modified terms are
  unacceptable to the Borrower or Lender. (The Lender must request refund in writing within 30 calendar days of
  the approval).

    (b) If the guarantee fee is not paid, SBA may terminate the 
guarantee. The Borrower may use working capital loan proceeds to 
reimburse the Lender for the guarantee fee. Acceptance of the guarantee 
fee by SBA shall not waive any right of SBA arising from the Lender's 
misconduct or violation of any provision of this part, the guarantee 
agreement, the Authorization, or other loan documents.
    (c) The Lender shall also pay SBA an annual service fee equal to 0.5 
percent of the outstanding balance of the guaranteed portion of each 
loan. The service fee cannot be charged to the Borrower. SBA may 
institute a late fee charge for delinquent payments of the annual 
service fee to cover administrative costs associated with collecting 
delinquent fees.

[61 FR 3235, Jan. 31, 1996; 61 FR 11471, Mar. 20, 1996]



Sec. 120.221  Fees which the Lender may collect from a loan applicant.

    (a) Service and packaging fees. The Lender may charge an applicant 
reasonable fees (customary for similar Lenders in the geographic area 
where the loan is being made) for packaging and other services. The 
Lender must advise the applicant in writing that the applicant is not 
required to obtain or pay for unwanted services. The applicant is 
responsible for deciding whether fees are reasonable. SBA may review 
these fees at any time. Lender must refund any such fee considered 
unreasonable by SBA.
    (b) Extraordinary servicing. Subject to prior written SBA approval, 
if all or part of a loan will have extraordinary servicing needs, the 
Lender may charge the applicant a service fee not to exceed 2 percent 
per year on the outstanding balance of the part requiring special 
servicing.
    (c) Out-of-pocket expenses. The Lender may collect from the 
applicant necessary out-of-pocket expenses such as filing or recording 
fees.
    (d) Late payment fee. The Lender may charge the Borrower a late 
payment fee not to exceed 5 percent of the regular loan payment.
    (e) No prepayment fee. The Lender may not charge a fee for full or 
partial prepayment of a loan.



Sec. 120.222  Fees which the Lender or Associate may not collect from the Borrower or share with third parties.

    The Lender or its Associate may not:

[[Page 225]]

    (a) Require the applicant or Borrower to pay the Lender, an 
Associate, or any party designated by either, any fees or charges for 
goods or services, including insurance, as a condition for obtaining an 
SBA guaranteed loan (unless permitted by this part);
    (b) Charge an applicant any commitment, bonus, broker, commission, 
referral or similar fee;
    (c) Charge points or add-on interest;
    (d) Share any premium received from the sale of an SBA guaranteed 
loan in the secondary market with a Service Provider, packager, or other 
loan-referral source; or
    (e) Charge the Borrower for legal services, unless they are hourly 
charges for requested services actually rendered.



                    Subpart C--Special Purpose Loans



Sec. 120.300  Statutory authority.

    Congress has authorized several special purpose programs in various 
subsections of section 7(a) of the Act. Generally, 7(a) loan policies, 
eligibility requirements and credit criteria enumerated in subpart B of 
this part apply to these programs. The sections of this subpart 
prescribe the special conditions applying to each special purpose 
program. As with other business loans, special purpose loans are 
available only to the extent funded by annual appropriations.

                 Disabled Assistance Loan Program (DAL)



Sec. 120.310  What assistance is available for the disabled?

    Section 7(a)(10) of the Act authorizes SBA to guarantee or make 
direct loans to the disabled. SBA distinguishes two kinds of assistance:
    (a) DAL-1. DAL-1 Financial Assistance is available to non-profit 
public or private organizations for disabled individuals that employ 
such individuals; or
    (b) DAL-2. DAL-2 Financial Assistance is available to:
    (1) Small businesses wholly owned by disabled individuals; and
    (2) Disabled individuals to establish, acquire, or operate a small 
business.



Sec. 120.311  Definitions.

    (a) Organization for the disabled means one which:
    (1) Is organized under federal or state law to operate in the 
interest of disabled individuals;
    (2) Is non-profit;
    (3) Employs disabled individuals for seventy-five percent of the 
time needed to produce commodities or services for sale; and
    (4) Complies with occupational and safety standards prescribed by 
the Department of Labor.
    (b) Disabled individual means a person who has a permanent physical, 
mental or emotional impairment, defect, ailment, disease or disability 
which limits the type of employment for which the person would otherwise 
be qualified.



Sec. 120.312  DAL-1 use of proceeds and other program conditions.

    (a) DAL-1 applicants must submit appropriate documents to establish 
program eligibility.
    (b) Generally, applicants may use loan proceeds for any 7(a) loan 
purposes. Loan proceeds may not be used:
    (1) To purchase or construct facilities if construction grants and 
mortgage assistance are available from another Federal source; or
    (2) For supportive services (expenses incurred by a DAL-1 
organization to subsidize wages of low producers, health and 
rehabilitation services, management, training, education, and housing of 
disabled workers).
    (c) SBA does not consider a DAL-1 organization to have a conflict of 
interest if one or more of its Associates is an Associate of the Lender.



Sec. 120.313  DAL-2 use of proceeds and other program conditions.

    (a) The DAL-2 loan proceeds may be used for any 7(a) loan purposes.
    (b) An applicant may use DAL-2 loan proceeds to acquire an eligible 
small business without complying with the change of ownership conditions 
in Sec. 120.202.
    (c) A DAL-2 applicant must submit evidence from a physician, 
psychiatrist, or other qualified professional as

[[Page 226]]

to the permanent nature of the disability and the limitation it places 
on the applicant.



Sec. 120.314  Resolving doubts about creditworthiness.

    For the purpose of the DAL Program, SBA shall resolve doubts 
concerning the creditworthiness of an applicant in favor of the 
applicant. However, the applicant must present satisfactory evidence of 
repayment ability. Personal guarantees of Associates are not required 
for purposes of DAL-1 financial assistance.



Sec. 120.315  Interest rate and loan limit.

    The interest rate on direct DAL loans is three percent. There is an 
administrative limit of $150,000 on a direct DAL loan.

               Businesses Owned by Low Income Individuals



Sec. 120.320  Policy.

    Section 7(a)(11) of the Act authorizes SBA to guarantee or make 
direct loans to establish, preserve or strengthen small business 
concerns:
    (a) Located in an area having high unemployment according to the 
Department of Labor;
    (b) Located in an area in which a high percentage of individuals 
have a low income inadequate to satisfy basic family needs; and
    (c) More than 50 percent owned by low income individuals.

                           Energy Conservation



Sec. 120.330  Who is eligible for an energy conservation loan?

    SBA may make or guarantee loans to assist a small business to 
design, engineer, manufacture, distribute, market, install, or service 
energy devices or techniques designed to conserve the Nation's energy 
resources.



Sec. 120.331  What devices or techniques are eligible for a loan?

    Eligible energy conservation devices or techniques include:
    (a) Solar thermal equipment;
    (b) Photovoltaic cells and related equipment;
    (c) A product or service which increases the energy efficiency of 
existing equipment, methods of operation or systems which use fossil 
fuels, and which is on the Energy Conservation Measures list of the 
Secretary of Energy;
    (d) Equipment producing energy from wood, biological waste, grain or 
other biomass energy sources;
    (e) Equipment for cogeneration of energy, district heating or 
production of energy from industrial waste;
    (f) Hydroelectric power equipment;
    (g) Wind energy conversion equipment; and
    (h) Engineering, architectural, consulting, or other professional 
services necessary or appropriate for any of the devices or techniques 
in paragraphs (a) through (g) of this section.



Sec. 120.332  What are the eligible uses of proceeds?

    (a) Acquire property. The Borrower may use the loan proceeds to 
acquire land necessary for imminent plant construction, buildings, 
machinery, equipment, furniture, fixtures, facilities, supplies, and 
material needed to accomplish any of the eligible program purposes in 
Sec. 120.330.
    (b) Research and development. Up to 30% of loan proceeds may be used 
for research and development:
    (1) Of an existing product or service; or
    (2) A new product or service.
    (c) Working capital. The Borrower may use proceeds for working 
capital for entering or expanding in the energy conservation market.



Sec. 120.333  Are there any special credit criteria?

    In addition to regular credit evaluation criteria, SBA shall weigh 
the greater risk associated with energy projects. SBA shall consider 
such factors as quality of the product or service, technical 
qualifications of the applicant's management, sales projections, and 
financial status.

                  Export Working Capital Program (EWCP)



Sec. 120.340  What is the Export Working Capital Program?

    Under the EWCP, SBA guarantees short-term working capital loans made 
by participating lenders to exporters

[[Page 227]]

(section 7(a)(14) of the Act). Loan maturities may be for up to three 
years with annual renewals. Proceeds can be used only to finance export 
transactions. Loans can be for single or multiple export transactions. 
An export transaction is the production and payment associated with a 
sale of goods or services to a foreign buyer.



Sec. 120.341  Who is eligible?

    In addition to the eligibility criteria applicable to all 7(a) 
loans, an applicant must be in business for one full year at the time of 
application, but not necessarily in the exporting business. SBA may 
waive this requirement if the applicant has sufficient export trade 
experience or other managerial experience.



Sec. 120.342  What are eligible uses of proceeds?

    Loan proceeds may be used:
    (a) To acquire inventory;
    (b) To pay the manufacturing costs of goods for export;
    (c) To purchase goods or services for export;
    (d) To support standby letters of credit;
    (e) For pre-shipment working capital; and
    (f) For post-shipment foreign accounts receivable financing.



Sec. 120.343  Collateral.

    A Borrower must give SBA a first security interest sufficient to 
cover 100 percent of the EWCP loan amount (such as insured accounts 
receivable or letters of credit). Collateral must be located in the 
United States, its territories or possessions.



Sec. 120.344  Unique requirements of the EWCP.

    (a) An applicant must submit cash flow projections to support the 
need for the loan and the ability to repay. After the loan is made, the 
loan recipient must submit continual progress reports.
    (b) SBA does not limit the amount of extraordinary servicing fees, 
as referenced in Sec. 120.221(b), under the EWCP.
    (c) SBA does not prescribe the interest rates for the EWCP, but will 
monitor these rates for reasonableness.

                        International Trade Loans



Sec. 120.345  Policy.

    Section 7(a)(16) of the Act authorizes SBA to guarantee loans to 
small businesses that are:
    (a) Engaged or preparing to engage in international trade; or
    (b) Adversely affected by import competition.



Sec. 120.346  Eligibility.

    (a) An applicant must establish that:
    (1) The loan proceeds will significantly expand an existing export 
market or develop new export markets; or
    (2) The applicant business is adversely affected by import 
competition; and
    (3) Upgrading facilities or equipment will improve the applicant's 
competitive position.
    (b) The applicant must have a business plan reasonably supporting 
its projected export sales.



Sec. 120.347  Use of proceeds.

    The Borrower may use loan proceeds to acquire, construct, renovate, 
modernize, improve, or expand facilities and equipment to be used in the 
United States to produce goods or services involved in international 
trade, and to develop and penetrate foreign markets.



Sec. 120.348  Amount of guarantee.

    SBA can guarantee up to $1,250,000 for a combination of fixed-asset 
financing and working capital, supplies and EWCP assistance. The fixed-
asset portion of the loan cannot exceed $1,000,000 and the non-fixed-
asset portion cannot exceed $750,000.

                    Qualified Employee Trusts (ESOP)



Sec. 120.350  Policy.

    Section 7(a)(15) of the Act authorizes SBA to guarantee a loan to a 
qualified employee trust (``ESOP'') to:
    (a) Help finance the growth of its employer's small business; or
    (b) Purchase ownership or voting control of the employer.



Sec. 120.351  Definitions.

    All terms specific to ESOPs have the same definition for purposes of 
this section as in the Internal Revenue

[[Page 228]]

Service (IRS) Code (title 26 of the United States Code) or regulations 
(26 CFR chapter I).



Sec. 120.352  Use of proceeds.

    Loan proceeds may be used for two purposes.
    (a) Qualified employer securities. A qualified employee trust may 
relend loan proceeds to the employer by purchasing qualified employer 
securities. The small business concern may use these funds for any 
general 7(a) purpose.
    (b) Control of employer. A qualified employee trust may use loan 
proceeds to purchase a controlling interest (51 percent) in the 
employer. Ownership and control must vest in the trust by the time the 
loan is repaid.



Sec. 120.353  Eligibility.

    SBA may assist a qualified employee trust (or equivalent trust) that 
meets the requirements and conditions for an ESOP prescribed in all 
applicable IRS, Treasury and Department of Labor (DOL) regulations. In 
addition, the following conditions apply:
    (a) The small business must provide the funds needed by the trust to 
repay the loan; and
    (b) The small business must provide adequate collateral.



Sec. 120.354  Creditworthiness.

    In determining repayment ability, SBA shall not consider the 
personal assets of the employee-owners of the trust. SBA shall consider 
the earnings history and projected future earnings of the employer small 
business. SBA may consider the business and management experience of the 
employee-owners.

                          Veterans Loan Program



Sec. 120.360  Which veterans are eligible?

    SBA may guarantee or make direct loans to a small business 51 
percent owned by one or more of the following eligible veterans:
    (a) Vietnam-era veterans who served for a period of more than 180 
days between August 5, 1964, and May 7, 1975, and were discharged other 
than dishonorably;
    (b) Disabled veterans of any era with a minimum compensable 
disability of 30 percent; or
    (c) A veteran of any era who was discharged for disability.



Sec. 120.361  Other conditions of eligibility.

    (a) Management and daily operations of the business must be directed 
by one or more of the veteran owners whose veteran status was used to 
qualify for the loan.
    (b) This direct loan program is available only if private sector 
financing and guaranteed loans are not available.
    (c) A veteran may qualify only once for this program on a direct 
loan basis.

                        Pollution Control Program



Sec. 120.370  Policy.

    Section 7(a)(12) of the Act authorizes SBA to guarantee loans up to 
$1,000,000 to an eligible small business to plan, design or install a 
pollution control facility. An applicant must meet the eligibility 
requirements for 7(a) loans.

                Loans to Participants in the 8(a) Program



Sec. 120.375  Policy.

    Section 7(a)(20) of the Act authorizes SBA to provide direct 
(unilaterally or together with Lenders) or guaranteed loans to firms 
participating in the 8(a) Program.



Sec. 120.376  Special requirements.

    The following special conditions apply (otherwise, 7(a) loan 
eligibility criteria apply):
    (a) The Associate Administrator of Minority Enterprise Development 
(``MED'') may waive the direct loan administrative ceiling of $150,000, 
and raise it to $750,000.
    (b) The SBA portion of a guaranteed loan must not exceed $750,000.
    (c) The interest rate on a guaranteed loan shall be the same as on 
7(a) guaranteed business loans. The interest rate on a direct loan shall 
be one percent less than on a regular direct loan.
    (d) For a direct loan or SBA's portion of an immediate participation 
loan,

[[Page 229]]

SBA shall subordinate its security interest on all collateral to other 
debt of the applicant.



Sec. 120.377  Use of proceeds.

    The loan proceeds shall not be used for debt refinancing. Only a 
manufacturing concern may use loan proceeds for working capital.

                 Defense Economic Transition Assistance



Sec. 120.380  Program.

    Section 7(a)(21) of the Act authorizes SBA to guarantee loans to 
help eligible small businesses transition from defense to civilian 
markets, or eligible individuals adversely impacted by base closures or 
defense cutbacks to acquire or open and operate a small business.



Sec. 120.381  Eligibility.

    (a) Eligible small businesses. A small business is eligible if it 
has been detrimentally impacted by the closure (or substantial 
reduction) of a Department of Defense installation, or the termination 
(or substantial reduction) of a Department of Defense Program on which 
the small business was a prime contractor, subcontractor, or supplier at 
any tier.
    (b) Eligible individual. An eligible individual, for purposes of 
this program, includes the following persons involuntarily separated 
from their position or voluntarily terminated under a program offering 
inducements to encourage early retirement:
    (1) A member of the Armed Forces of the United States (honorably 
discharged);
    (2) A civilian employee of the Department of Defense; or
    (3) An employee of a prime contractor, sub-contractor, or supplier 
at any tier of a Department of Defense program.
    (c) Defense loan and technical assistance (DELTA). The DELTA program 
provides financial and technical assistance to defense dependent small 
businesses which have been adversely affected by defense reductions. The 
goal of the program is to assist these businesses to diversify into the 
commercial market while remaining part of the defense industrial base. 
Complete information on eligibility and other rules is available from 
each SBA district office.



Sec. 120.382  Repayment ability.

    SBA shall resolve reasonable doubts concerning the small business' 
proposed business plan for transition to non-defense-related markets in 
favor of the loan applicant in determining the sound value of the 
proposed loan.



Sec. 120.383  Restrictions on loan processing.

    Since greater risk may be associated with a loan to an applicant 
under this program, a Certified Lender or Preferred Lender shall not 
make a defense economic assistance loan under the PLP or CLP programs.

                            CapLines Program



Sec. 120.390  Revolving credit.

    (a) CapLines finances eligible small businesses' short-term, 
revolving and non-revolving working-capital needs. SBA regulations 
governing the 7(a) loan program govern business loans made under this 
program. Under CapLines, SBA generally can guarantee up to $750,000.
    (b) CapLines proceeds can be used to finance the cyclical, 
recurring, or other identifiable short-term operating capital needs of 
small businesses. Proceeds can be used to create current assets or used 
to provide financing against the current assets that already exist.

                          Builders Loan Program



Sec. 120.391  What is the Builders Loan Program?

    Under section 7(a)(9) of the Act, SBA may make or guarantee loans to 
finance small general contractors to construct or rehabilitate 
residential or commercial property for resale. This program provides an 
exception under specified conditions to the general rule against 
financing investment property. ``Construct'' and ``rehabilitate'' mean 
only work done on-site to the structure, utility connections and 
landscaping.

[[Page 230]]



Sec. 120.392  Who may apply?

    A construction contractor or home-builder with a past history of 
profitable construction or rehabilitation projects of comparable type 
and size may apply. An applicant may subcontract the work. Subcontracts 
in excess of $25,000 may require 100 percent payment and performance 
bonds.



Sec. 120.393  Are there special application requirements?

    (a) An applicant must submit documentation from:
    (1) A mortgage lender indicating that permanent mortgage money is 
available to qualified purchasers to buy such properties;
    (2) A real estate broker indicating that a market exists for the 
proposed building and that it will be compatible with its neighborhood; 
and
    (3) An architect, appraiser or engineer agreeing to make inspections 
and certifications to support interim disbursements.
    (b) The Borrower may substitute a letter from a qualified Lender for 
one or more of the letters.



Sec. 120.394  What are the eligible uses of proceeds?

    A Borrower must use the loan proceeds solely to acquire, construct 
or substantially rehabilitate an individual residential or commercial 
building for sale. ``Substantial'' means rehabilitation expenses of more 
than one-third of the purchase price or fair market value at the time of 
the application. A Borrower may use up to 20 percent of the proceeds to 
acquire land, and up to 5 percent for community improvements such as 
curbs and sidewalks.



Sec. 120.395  What is SBA's collateral position?

    SBA will require a lien on the building which must be in no less 
than a second position.



Sec. 120.396  What is the term of the loan?

    The loan must not exceed sixty (60) months plus the estimated time 
to complete construction or rehabilitation.



Sec. 120.397  Are there any special restrictions?

    The borrower must not use loan proceeds to purchase vacant land for 
possible future construction or to operate or hold rental property for 
future rehabilitation. SBA may allow rental of the property only if the 
rental will improve the ability to sell the property. The sale must be a 
legitimate change of ownership.



                           Subpart D--Lenders



Sec. 120.400  Loan Guarantee Agreements.

    SBA may enter into a Loan Guarantee Agreement with a Lender to make 
deferred participation (guaranteed) loans. Such an agreement does not 
obligate SBA to participate in any specific proposed loan that a Lender 
may submit. The existence of a Loan Guarantee Agreement does not limit 
SBA's rights to deny a specific loan or establish general policies. See 
also Secs. 120.441(b) and 120.451(d) concerning Supplemental Guarantee 
Agreements.

                         Participation Criteria



Sec. 120.410  Requirements for all participating Lenders.

    A Lender must:
    (a) Have a continuing ability to evaluate, process, close, disburse, 
service and liquidate small business loans;
    (b) Be open to the public for the making of such loans (not be a 
financing subsidiary, engaged primarily in financing the operations of 
an affiliate);
    (c) Have continuing good character and reputation, and otherwise 
meet and maintain the ethical requirements of Sec. 120.140
    (d) Be supervised and examined by a State or Federal regulatory 
authority, satisfactory to SBA; and
    (e) In order to make Low Documentation loans, be:
    (1) A bank or thrift institution which has executed an SBA Form 750, 
Loan Guaranty Agreement, and which has at least 20 qualified loans 
outstanding as of the call report date closest to the date of its fiscal 
year end, or
    (2) An institution other than a bank or thrift institution which has 
executed an SBA Form 750, Loan Guaranty Agreement, and which has at 
least 20

[[Page 231]]

qualified loans outstanding as of its latest fiscal year end. For 
purposes of this paragraph (e), a qualified loan is one which was 
initially approved in the amount of $100,000 or less and is classified 
as a commercial, industrial or commercial real estate loan for purposes 
of call reporting. A lender may request an exception to the requirements 
of this paragraph (e) from the SBA Associate Administrator for Financial 
Assistance.

[61 FR 3235, Jan. 31, 1996, as amended at 62 FR 302, Jan. 3, 1997]



Sec. 120.411  Preferences.

    An agreement to participate under the Act may not establish any 
Preferences in favor of the Lender.



Sec. 120.412  Other services Lenders may provide Borrowers.

    Subject to Sec. 120.140 Lenders, their Associates or the designees 
of either may provide services to and contract for goods with a Borrower 
only after full disbursement of the loan to the small business or to an 
account not controlled by the Lender, its Associate, or the designee. A 
Lender, an Associate, or a designee providing such services must do so 
under a written contract with the small business, based on time and 
hourly charges, and must maintain time and billing records for 
examination by SBA. Fees cannot exceed those charged by established 
professional consultants providing similar services. See also 
Sec. 120.195.



Sec. 120.413  Advertisement of relationship with SBA.

    A Lender may refer in its advertising to its participation with SBA. 
The advertising may not:
    (a) State or imply that the Lender, or any of its Borrowers, has or 
will receive preferential treatment from SBA;
    (b) Be false or misleading; or
    (c) Make use of SBA's seal.

                        Miscellaneous Provisions



Sec. 120.414  SBA access to Lender files.

    A Lender must allow SBA's authorized representatives, during normal 
business hours, access to its files to review, inspect and copy all 
records and documents relating to SBA guaranteed loans.

[61 FR 3235, Jan. 31, 1996. Redesignated at 64 FR 6509, Feb. 10, 1999]



Sec. 120.415  Suspension or revocation of eligibility to participate.

    SBA may suspend or revoke the eligibility of a Lender to participate 
in the 7(a) program because of a violation of SBA regulations, a breach 
of any agreement with SBA, a change of circumstance resulting in the 
Lender's inability to meet operational requirements, or a failure to 
engage in prudent lending practices. Proceedings for such purposes will 
be conducted in accordance with the provisions of part 134 of this 
chapter. A suspension or revocation will not invalidate a guarantee 
previously provided by SBA.

[61 FR 3235, Jan. 31, 1996. Redesignated at 64 FR 6509, Feb. 10, 1999]

                     Participating Lender Financings

    Source: Sections 120.420 through 120.428 appear at 64 FR 6507-6509, 
Feb. 10, 1999, unless otherwise noted.



Sec. 120.420  Definitions.

    (a) 7(a) Loans--All references to 7(a) loans under this subpart 
include loans made under section 7(a) of the Small Business Act (15 
U.S.C. 631 et seq.) and loans made under section 502 of the Small 
Business Investment Act (15 U.S.C. 661 et seq.), both of which may be 
securitized under this subpart.
    (b) Bank Regulatory Agencies--The bank regulatory agencies are the 
Federal Deposit Insurance Corporation, the Federal Reserve Board, the 
Office of the Comptroller of the Currency, and the Office of Thrift 
Supervision.
    (c) Benchmark Number--The maximum number of percentage points that a 
securitizer's Currency Rate can decrease without triggering the PLP 
suspension provision set forth in Sec. 120.425. SBA will publish the 
Benchmark Number in the Federal Register.
    (d) Currency Rate--A securitizer's ``Currency Rate'' is the dollar 
balance of its 7(a) guaranteed loans that are less than 30 days past due 
divided by the dollar balance of its portfolio of 7(a) guaranteed loans 
outstanding, as

[[Page 232]]

calculated quarterly by SBA, excluding loans approved in SBA's current 
fiscal year.
    (e) Currency Rate Percentage--The relationship between the 
securitizer's Currency Rate and the SBA 7(a) loan portfolio Currency 
Rate as calculated by dividing the securitizer's Currency Rate by the 
SBA 7(a) loan portfolio Currency Rate.
    (f) Good Standing--A Lender is in ``good standing'' with SBA if it:
    (1) Is in compliance with all applicable:
    (i) Laws and regulations;
    (ii) Policies; and
    (iii) Procedures;
    (2) Is in good financial condition as determined by SBA;
    (3) Is not under investigation or indictment for, or has not been 
convicted of, or had a judgment entered against it for a felony or 
fraud, or charges relating to a breach of trust or violation of a law or 
regulation protecting the integrity of business transactions or 
relationships; and
    (4) Does not have any officer or employee who has been under 
investigation or indictment for, or has been convicted of, or had a 
judgment entered against him for a felony or fraud, or charges relating 
to a breach of trust or violation of a law or regulation protecting the 
integrity of business transactions or relationships unless, the 
Securitization Committee has determined that good standing exists 
despite the existence of such person.
    (g) Initial Currency Rate--The Initial Currency Rate (ICR) is the 
securitizer's benchmark Currency Rate. SBA will calculate the 
securitizer's ICR as of the end of the calendar quarter immediately 
prior to the first securitization completed after April 12, 1999. This 
calculation will include all 7(a) loans which are outstanding and were 
approved in any fiscal year prior to SBA's current fiscal year. Each 
quarter, SBA will compare each securitizer's Currency Rate to its ICR.
    (h) Initial Currency Rate Percentage--The Initial Currency Rate 
Percentage (ICRP) measures the relationship between a securitizer's 
Initial Currency Rate and the SBA 7(a) loan portfolio Currency Rate at 
the time of the first securitization after April 12, 1999. The ICRP is 
calculated by dividing the securitizer's Currency Rate by the SBA 7(a) 
loan portfolio Currency Rate. SBA will calculate the securitizer's ICRP 
as of the end of the calendar quarter immediately prior to the first 
securitization completed after April 12, 1999.
    (i) Loss Rate--A securitizer's ``loss rate,'' as calculated by SBA, 
is the aggregate principal amount of the securitizer's 7(a) loans 
determined uncollectable by SBA for the most recent 10-year period, 
excluding SBA's current fiscal year activity, divided by the aggregate 
original principal amount of 7(a) loans disbursed by the securitizer 
during that period.
    (j) Nondepository Institution--A ``nondepository institution'' is a 
Small Business Lending Company (``SBLC'') regulated by SBA or a Business 
and Industrial Development Company (``BIDCO'') or other nondepository 
institution participating in SBA's 7(a) program.
    (k) Securitization--A ``securitization'' is the pooling and sale of 
the unguaranteed portion of SBA guaranteed loans to a trust, special 
purpose vehicle, or other mechanism, and the issuance of securities 
backed by those loans to investors in either a private placement or 
public offering.



Sec. 120.421  Which Lenders may securitize?

    All SBA participating Lenders may securitize subject to SBA's 
approval.



Sec. 120.422  Are all securitizations subject to this subpart?

    All securitizations are subject to this subpart. Until additional 
regulations are promulgated, SBA will consider securitizations involving 
multiple Lenders on a case by case basis, using the conditions in 
Sec. 120.425 as a starting point. SBA will consider securitizations by 
affiliates as single Lender securitizations for purposes of this 
subpart.

[[Page 233]]



Sec. 120.423  Which 7(a) loans may a Lender securitize?

    A Lender may only securitize 7(a) loans that will be fully disbursed 
within 90 days of the securitization's closing date. If the amount of a 
fully disbursed loan increases after a securitization settles, the 
Lender must retain the increased amount.



Sec. 120.424  What are the basic conditions a Lender must meet to securitize?

    To securitize, a Lender must:
    (a) Be in good standing as determined by the Associate Administrator 
for Financial Assistance (AA/FA);
    (b) Use a securitization structure which is satisfactory to SBA;
    (c) Use documents acceptable to SBA, including SBA's model multi-
party agreement, as amended from time to time;
    (d) Obtain SBA's written consent, which it may withhold in its sole 
discretion, prior to executing a commitment to securitize; and
    (e) Cause the original notes to be stored at the FTA, as defined in 
Sec. 120.600, and other loan documents to be stored with a party 
approved by SBA.



Sec. 120.425  What are the minimum elements that SBA will require before consenting to a securitization?

    A securitizer must comply with the following three conditions:
    (a) Capital Requirement--All securitizers must be considered to be 
``well capitalized'' by their regulator. SBA will consider a depository 
institution to be in compliance with this section if it meets the 
definition of ``well capitalized'' used by its bank regulator. SBA's 
capital requirement does not change the requirements that banks already 
meet. For nondepository institutions, SBA, as the regulator, will 
consider a non-depository institution to be ``well capitalized'' if it 
maintains a minimum unencumbered paid in capital and paid in surplus 
equal to at least 10 percent of its assets, excluding the guaranteed 
portion of 7(a) loans. The capital charge applies to the remaining 
balance outstanding on the unguaranteed portion of the securitizer's 
7(a) loans in its portfolio and in any securitization pools. Each 
nondepository institution must submit annual audited financial 
statements demonstrating that it has met SBA's capital requirement.
    (b) Subordinated Tranche--A securitizer or its wholly owned 
subsidiary must retain a tranche of the securities issued in the 
securitization (subordinated tranche) equal to the greater of two times 
the securitizer's Loss Rate or 2 percent of the principal balance 
outstanding at the time of securitization of the unguaranteed portion of 
the loans in the securitization. This tranche must be subordinate to all 
other securities issued in the securitization including other 
subordinated tranches. The securitizer or its wholly owned subsidiary 
may not sell, pledge, transfer, assign, sell participations in, or 
otherwise convey the subordinated tranche during the first 6 years after 
the closing date of the securitization. The securities evidencing the 
subordinated tranche must bear a legend stating that the securities may 
not be sold until 6 years after the issue date. SBA's Securitization 
Committee may modify the formula for determining the tranche size for a 
securitizer creating a securitization from a pool of loans located in a 
region affected by a severe economic downturn if the Securitization 
Committee concludes that enforcing this section might exacerbate the 
adverse economic conditions in the region. SBA will work with the 
securitizer to verify the accuracy of the data used to make the Loss 
Rate calculation.
    (c) PLP Privilege Suspension.
    (1) Suspension: If a securitizer's Currency Rate declines, SBA may 
suspend the securitizer's PLP unilateral loan approval privileges (PLP 
approval privileges) if the decline from the securitizer's ICR is more 
than the Benchmark Number as published in the Federal Register from time 
to time and the securitizer's Currency Rate Percentage is less than its 
ICRP. The securitizer will first be placed on probation for one quarter. 
If, at the end of the probationary quarter the securitizer has not met 
either of the following conditions in paragraph (c)(1)(i) or (c)(1)(ii) 
of this section, SBA will suspend the securitizer's PLP approval 
privileges and will not approve

[[Page 234]]

additional securitization requests from that securitizer. SBA will 
provide written notice at least 10 days prior to the effective date of 
suspension. The suspension will last a minimum of 3 months. During the 
suspension period, the securitizer must use Certified Lender or Regular 
Procedures to process 7(a) loan applications. The prohibition will end 
if, at the end of the probationary quarter: (i) the securitizer has 
improved its Currency Rate to above its ICR less the Benchmark Number; 
or (ii) its Currency Rate Percentage is either the same or greater than 
its ICRP.
    (2) Reinstatement: The suspension will remain in effect until the 
securitizer meets either the condition in paragraph (c)(1)(i) or 
(c)(1)(ii) of this section. If the securitizer meets either condition by 
the end of the 3-month period, notifies SBA with acceptable 
documentation, and SBA agrees, SBA will reinstate the securitizer. If 
the securitizer cannot meet either condition, the suspension will remain 
in effect. The securitizer may then petition the SBA Securitization 
Committee (Committee) for reinstatement. The Committee will review the 
reinstatement petition and determine if the securitizer's PLP approval 
privilege and securitization status should be reinstated. The Committee 
may consider the economic conditions in the securitizer's market area, 
the securitizer's efforts to improve its Currency Rate, and the quality 
of the securitizer's 7(a) loan packages and servicing. The Committee 
will consider only one petition by a securitizer per quarter.
    (3) The Benchmark Number. SBA will monitor the Benchmark Number. If 
economic conditions or policy considerations warrant, SBA may modify the 
Benchmark Number to protect the safety and soundness of the 7(a) 
program.
    (4) Data. SBA will calculate Currency Rate and Currency Rate 
Percentages quarterly from financial information that securitizers 
provide. SBA will work with a securitizer to verify the accuracy of the 
data used to make the Currency Rate calculation.

[64 FR 6508, Feb. 10, 1999, as amended at 65 FR 49481, Aug. 14, 2000]



Sec. 120.426  What action will SBA take if a securitizer transfers the subordinated tranche prior to the termination of the holding period?

    If a securitizer transfers the subordinated tranche prior to the 
termination of the holding period, SBA will suspend immediately the 
securitizer's ability to make new 7(a) loans. The securitizer will have 
30 calendar days to submit an explanation to SBA's Securitization 
Committee (``Committee''). The Committee will have 30 calendar days to 
review the explanation and determine whether to lift the suspension. If 
an explanation is not received within 30 calendar days or the 
explanation is not satisfactory to the Committee, SBA may transfer the 
servicing of the applicable securitized loans, including the 
securitizers' servicing fee on the guaranteed and unguaranteed portions 
and the premium protection fee on the guaranteed portion, to another SBA 
participating Lender.



Sec. 120.427  Will SBA approve a securitization application from a capital impaired Securitizer?

    If a securitizer does not maintain the level of capital required by 
this subpart, SBA will not approve a securitization application from 
that securitizer.



Sec. 120.428  What happens to a securitizer's other PLP responsibilities if SBA suspends its PLP approval privilege?

    The securitizer must continue to service and liquidate loans 
according to its PLP Supplemental Agreement.

                            Other Conveyances

    Source: Sections 120.430 through 120.435 appear at 64 FR 6509, 6510, 
Feb. 10, 1999, unless otherwise noted.



Sec. 120.430  What conveyances are covered by Secs. 120.430 through 120.435?

    Sections 120.430 through 120.435 cover all other transactions in 
which a Lender sells, sells a participating interest in, or pledges an 
SBA guaranteed loan other than for the purpose of securitizing and other 
than conveyances covered under Subpart F, Secondary Market, of this 
part.

[[Page 235]]



Sec. 120.431  Which Lenders may sell, sell participations in, or pledge 7(a) loans?

    All Lenders may sell, sell participations in, or pledge 7(a) loans 
in accordance with this subpart.



Sec. 120.432  Under what circumstances does this subpart permit sales of, or sales of participating interests in, 7(a) loans?

    (a) A Lender may sell all of its interest in a 7(a) loan to another 
Lender operating under a current Loan Guarantee Agreement (SBA Form 750) 
(``participating Lender''), with SBA's prior written consent, which SBA 
may withhold in its sole discretion. A Lender may not sell any of its 
interest in a 7(a) loan to a nonparticipating Lender. The purchasing 
Lender must take possession of the promissory note and other loan 
documents, and service the sold 7(a) loan. The purchasing Lender 
purchases the loan subject to SBA's existing rights including its right 
to deny liability on its guarantee as provided in Sec. 120.524. After 
purchase, the purchased loan will be subject to the purchasing Lender's 
Loan Guarantee Agreement.
    (b) A Lender may sell, or sell a participating interest in, a part 
of a 7(a) loan to another participating Lender. If the Lender retains 
ownership of a part of the unguaranteed portion of the loan equal to at 
least 10 percent of the outstanding principal balance of the loan, the 
Lender must give SBA prior written notice of the transaction, and the 
Lender must continue to hold the note and service the loan. If a Lender 
retains ownership of a part of the unguaranteed portion of the loan 
equal to less than 10 percent of the outstanding principal balance of 
the loan, the Lender must obtain SBA's prior written consent to the 
transaction, which consent SBA may withhold in its sole discretion. The 
Lender must continue to hold the note and other loan documents, and 
service the loan unless SBA otherwise agrees in its sole discretion.
    (c) For purposes of determining the percentage of ownership a Lender 
has retained, SBA will not consider a Lender to be the owner of the part 
of a loan in which it has sold a participating interest.



Sec. 120.433  What are SBA's other requirements for sales and sales of participating interests?

    SBA requires the following:
    (a) The Lender must be in good standing as determined by the AA/FA; 
and
    (b) In transactions requiring SBA's consent, all documentation must 
be satisfactory to SBA, including, if SBA determines it to be necessary, 
a multi-party agreement.



Sec. 120.434  What are SBA's requirements for loan pledges?

    (a) Except as set forth in Sec. 120.435, SBA must give its prior 
written consent to all pledges of any portion of a 7(a) loan, which 
consent SBA may withhold in its sole discretion;
    (b) The Lender must be in good standing as determined by the AA/FA;
    (c) All loan documents must be satisfactory to SBA and must include 
a multi-party agreement among SBA, Lender, the pledgee, FTA and such 
other parties as SBA determines are necessary;
    (d) The Lender must use the proceeds of the loan secured by the 7(a) 
loans only for financing 7(a) loans and for costs and expenses directly 
connected with the borrowing for which the loans are pledged;
    (e) The Lender must remain the servicer of the loans and retain 
possession of all loan documents other than the original promissory 
notes;
    (f) The Lender must deposit the original promissory notes at the 
FTA; and
    (g) The Lender must retain an economic interest in and the ultimate 
risk of loss on the unguaranteed portion of the loans.



Sec. 120.435  Which loan pledges do not require notice to or consent by SBA?

    Notwithstanding the provisions of Sec. 120.434(d), 7(a) loans may be 
pledged for the following purposes without notice to or consent by SBA:
    (a) Treasury tax and loan accounts;
    (b) The deposit of public funds;
    (c) Uninvested trust funds;
    (d) Discount borrowings at a Federal Reserve Bank; or

[[Page 236]]

    (e) Advances by a Federal Home Loan Bank.

                     Certified Lenders Program (CLP)



Sec. 120.440  What is the Certified Lenders Program?

    Under the Certified Lenders Program (CLP), designated Lenders 
process, close, service, and may liquidate, SBA guaranteed loans. SBA 
gives priority to applications and servicing actions submitted by 
Lenders under this program, and will provide expedited loan processing 
or servicing. All other rules in this part 120 relating to the 
operations of Lenders apply to CLP Lenders.

[61 FR 3235, Jan. 31, 1996; 61 FR 7986, Mar. 1, 1996]



Sec. 120.441  How does a Lender become a CLP Lender?

    (a) An SBA field office may nominate a Lender or a Lender may 
request a field office to consider it for CLP status. SBA district 
directors may approve and renew a Lender's CLP status. The district 
director will consider whether the Lender:
    (1) Has the ability to process, close, service and liquidate loans;
    (2) Has a satisfactory performance history with SBA, including the 
submission of complete and accurate loan guarantee application packages;
    (3) Has an acceptable SBA purchase rate; and
    (4) Has shown the ability to work well with the local SBA office.
    (b) If the district director does not approve a request for CLP 
status, the Lender may appeal to the AA/FA, whose decision will be 
final. If SBA grants CLP status, it applies only in the field office 
that processed the CLP designation. A CLP Lender must execute a 
Supplemental Guarantee Agreement that will specify a term not to exceed 
two years.



Sec. 120.442  Suspension or revocation of CLP status.

    The AA/FA may suspend or revoke CLP status upon written notice 
providing the reasons at least 10 business days prior to the effective 
date of the suspension or revocation. Reasons for suspension or 
revocation may include a loan performance record unacceptable to SBA, 
failure to make the required number of loans under the expedited 
procedures, or violations of applicable statutes, regulations or 
published SBA policies and procedures. A CLP Lender may appeal the 
suspension or revocation made under this section under procedures found 
in part 134 of this chapter. The action of the AA/FA remains in effect 
pending resolution of the appeal.

                     Preferred Lenders Program (PLP)



Sec. 120.450  What is the Preferred Lenders Program?

    Under the Preferred Lenders Program (PLP), designated Lenders 
process, close, service, and liquidate SBA guaranteed loans with reduced 
requirements for documentation to and prior approval by SBA.



Sec. 120.451  How does a Lender become a PLP Lender?

    (a) An SBA field office serving the area in which a Lender's office 
is located can nominate the Lender, or a Lender can request a field 
office to consider it for PLP status. The SBA field office will forward 
its recommendation to an SBA centralized loan processing center which 
will submit its recommendation and supporting documentation to the AA/FA 
for final decision.
    (b) In making its decision, SBA considers whether the Lender:
    (1) Has the required ability to process, close, service and 
liquidate loans;
    (2) Has the ability to develop and analyze complete loan packages; 
and
    (3) Has a satisfactory performance history with SBA.
    (c) If the Lender is approved, the AA/FA will designate the area in 
which it can make PLP loans.
    (d) Before it can operate as a PLP Lender, the approved Lender must 
execute a Supplemental Guarantee Agreement, which will specify a term 
not to exceed two years.
    (e) When a PLP's Supplemental Guarantee Agreement expires, SBA may 
recertify it as a PLP Lender for an additional term not to exceed two 
years. Prior to recertification, SBA

[[Page 237]]

will review a PLP Lender's loans, policies and procedures. The 
recertification decision of the AA/FA is final.
    (f) A PLP Lender may request an expansion of the territory in which 
it can process PLP loans by submitting its request to a loan processing 
center. The center will obtain the recommendation of each SBA office in 
the area into which the PLP Lender would like to expand its PLP 
operations. The center will forward the recommendations to the AA/FA for 
final decision. If a PLP Lender is not a CLP Lender in a territory into 
which it seeks to expand its PLP status, it automatically obtains CLP 
status in that territory when it is granted PLP status for the 
territory.



Sec. 120.452  What are the requirements of PLP loan processing?

    (a) Subparts A and B of this part govern the making of PLP loans, 
except for the following:
    (1) Certain types of businesses, loans, and loan programs are not 
eligible for PLP, as detailed in published SBA policy and procedures.
    (2) A Lender may not make a PLP business loan which reduces its 
existing credit exposure for any Borrower, except in cases where an 
interim loan(s) has been made for other than real estate construction 
purposes to the Borrower which was approved by the Lender within 90 days 
of receipt of the issuance fo a subsequent PLP loan number.
    (3) SBA will not guarantee more than the specified statutory 
percentage of any PLP loan.
    (b) A PLP Lender notifies SBA of its approval of a PLP loan by 
submitting to SBA's loan processing center appropriate documentation 
signed by two of the PLP's authorized representatives. SBA will attach 
the SBA guarantee and notify the PLP Lender of the SBA loan number (if 
it does not identify a problem with eligibility, and funds are 
available).
    (c) The PLP Lender is responsible for all PLP loan decisions 
regarding eligibility (including size) and creditworthiness. The PLP 
Lender is also responsible for confirming that all PLP loan closing 
decisions are correct, and that it has complied with all requirements of 
law and SBA regulations.



Sec. 120.453  What are the requirements of a PLP Lender in servicing and liquidating SBA guaranteed loans?

    The PLP Lender must service and liquidate its SBA guaranteed loan 
portfolio (including its non-PLP loans) using generally accepted 
commercial banking standards employed by prudent lenders. The PLP Lender 
must liquidate any defaulted SBA guaranteed loan in its portfolio unless 
SBA advises in writing that SBA will liquidate the loan. The PLP Lender 
must submit a liquidation plan to SBA prior to commencing liquidation 
action. The PLP Lender may take any necessary servicing action, or 
liquidation action consistent with a plan, for any SBA guaranteed loan 
in its portfolio, except it may not:
    (a) Take any action that confers a Preference on the Lender; and
    (b) Accept a compromise settlement without prior written SBA 
consent.

[61 FR 3235, Jan. 31, 1996, as amended at 64 FR 6510, Feb. 10, 1999]



Sec. 120.454  PLP performance review.

    SBA may review the performance of a PLP Lender. SBA may charge the 
PLP Lender a fee to cover the costs of this review.



Sec. 120.455  Suspension or revocation of PLP status.

    The AA/FA may suspend or revoke PLP status upon written notice 
providing the reasons at least 10 business days prior to the effective 
date of the suspension or revocation. Reasons for suspension or 
revocation may include loan performance unacceptable to SBA, failure to 
make the required number of loans under the expedited procedures, or 
violations of applicable statutes, regulations or published SBA policies 
and procedures. A PLP Lender may appeal the suspension or revocation 
made under this section under procedures found in part 134 of this 
chapter. The action of the AA/FA remains in effect pending resolution of 
the appeal.

[[Page 238]]

                 Small Business Lending Companies (SBLC)



Sec. 120.470  What is an SBLC?

    A Small Business Lending Company (SBLC) is a nondepository lending 
institution licensed by SBA. SBA supervises, examines, and regulates 
SBLCs. An SBLC is subject to all applicable SBA regulations, including 
those governing Lenders. SBA has imposed a moritorium on licensing new 
SBLC's since January, 1982.
    (a) An SBLC may only make:
    (1) Loans under section 7(a) (except section 7(a)(13)) of the Act in 
participation with SBA; and/or
    (2) SBA guaranteed loans to micro-Lenders in the SBA Microloan 
program (see subpart G of this part). Such loans are subject to the same 
conditions as guaranteed loans made to SBA-designated microlenders by 
SBA participating Lenders.
    (b) In addition to complying with Secs. 120.400 through 120.413, an 
SBLC must meet the following requirements:
    (1) Business structure. It must be a corporation (profit or non-
profit).
    (2) Written agreement. It must sign a written agreement with SBA.
    (3) Capital structure. It must have unencumbered paid-in capital and 
paid-in surplus of at least $1,000,000, or ten percent of the aggregate 
of its share of all outstanding loans, whichever is more.
    (4) Capital impairment. It must avoid capital impairment at all 
times. Impairment exists if the retained earnings deficit of an SBLC 
exceeds 50 percent of combined paid-in capital and paid-in-surplus, 
excluding treasury stock. An SBLC must give SBA prompt written notice of 
any capital impairment within 30 calendar days of the month-end 
financial report that first reflects the impairment. Until the 
impairment is cured, an SBLC may not present any loans to SBA for 
guarantee.
    (5) Issuance of securities. Without prior written SBA approval, it 
must not issue any securities (including stock options and debt 
securities) except stock dividends and common stock issued for cash or 
direct obligations of, or obligations fully guaranteed as to principal 
and interest by, the United States.
    (6) Voluntary capital reduction. Without prior written SBA approval, 
it must not voluntarily reduce its capital, or purchase and hold more 
than 2 percent of any class or combination of classes of its stock.
    (7) Reserves for losses. It must maintain a reserve in the amount of 
anticipated losses on loans and receivables.
    (8) Internal control. It must adopt a plan designed to safeguard its 
funds and other assets, to assure the reliability of its personnel, and 
to maintain the accuracy of its financial data.
    (9) Dual control. It must maintain dual control over disbursement of 
funds and withdrawal of securities. An SBLC may disburse funds only by 
checks or wire transfers authorized by signatures of two or more 
officers covered by the SBLC's fidelity bond, except that checks in an 
amount of $1,000 or less may be signed by one bonded officer. There must 
be two or more bonded officers, or one bonded officer and a bonded 
employee to open safe deposit boxes or withdraw securities from 
safekeeping. The SBLC shall furnish to each depository bank, custodian, 
or entity providing safe deposit boxes a certified copy of the 
resolution implementing these control procedures.
    (10) Fidelity insurance. It must maintain a Brokers Blanket Bond, 
Standard Form 14, or Finance Companies Blanket Bond, Standard Form 15, 
or such other form of coverage as SBA may approve, in a minimum amount 
of $500,000 executed by a surety holding a certificate of authority from 
the Secretary of the Treasury pursuant to 31 U.S.C. 9304-9308.
    (11) Common control. It must not control, be controlled by, or be 
under common control with, another SBLC. Without prior written SBA 
approval, an Associate of one SBLC shall not be an Associate of another 
SBLC or of any entity which directly or indirectly controls or is under 
common control with another SBLC.
    (12) Management. An SBLC must employ full time professional 
management.
    (13) Borrowed funds. Without SBA's prior written approval, it must 
not be

[[Page 239]]

capitalized with borrowed funds. Shareholders owning 10 percent or more 
of any class of its stock shall not use borrowed funds to purchase the 
stock unless the net worth of the shareholders is at least twice the 
amount borrowed or unless the shareholders receive SBA's prior written 
approval for a lower ratio.



Sec. 120.471  Records.

    Each SBLC must comply with the following requirements concerning 
records:
    (a) Maintenance of Records. It must maintain accurate and current 
financial records, including books of account, minutes of stockholder, 
directors, and executive committee meetings, and all documents and 
supporting materials relating to the SBLC's transactions at its 
principal business office. Securities held by a custodian pursuant to a 
written agreement shall be exempt from this requirement.
    (b) Preservation of records. (1) It must preserve in a manner 
permitting immediate retrieval the following documentation for the 
financial statements required by Sec. 120.472 (and of the accompanying 
certified public accountant's opinion), for the following specified 
periods:
    (i) Preserve permanently:
    (A) All general and subsidiary ledgers (or other records) reflecting 
asset, liability, capital stock and surplus, income, and expense 
accounts;
    (B) All general and special journals (or other records forming the 
basis for entries in such ledgers); and
    (C) The corporate charter, bylaws, application for determination of 
eligibility to participate with SBA, and all minutes books, capital 
stock certificates or stubs, stock ledgers, and stock transfer 
registers;
    (ii) Preserve for at least 6 years following final disposition of 
the related loan:
    (A) All applications for financing;
    (B) Lending, participation, and escrow agreements;
    (C) Financing instruments; and
    (D) All other documents and supporting material relating to such 
loans, including correspondence.
    (2) Records and other documents referred to in this section may be 
preserved electronically if the original is available for retrieval 
within a reasonable period.



Sec. 120.472  Reports to SBA.

    An SBLC must submit the following to the AA/FA:
    (a) An audited financial statement prepared by a certified public 
accountant within three months after the close of each fiscal year, and 
interim financial reports when requested by SBA;
    (b) A report of any legal or administrative proceeding, by or 
against the SBLC, or against an officer, director, or employee of the 
SBLC for an alleged breach of official duty, within 10 days after 
initiating or learning of the proceeding, as well as notification of the 
terms of any settlement or final judgment (in addition to any reporting 
under applicable SBA Forms);
    (c) Copies of any report furnished to its stockholders (including 
any prospectus, letter, or other publication concerning the financial 
operations of the SBLC);
    (d) A summary of any changes in the SBLC's organization or 
financing, such as:
    (1) Any change in its name, address or telephone number;
    (2) Any change in its charter, bylaws, or its officers or directors 
(to be accompanied by a statement of personal history on an approved SBA 
form);
    (3) Any changes in capitalization (including those identified in 
Sec. 120.470);
    (4) Any changes affecting the eligibility of the SBLC to continue to 
participate as an SBLC; and
    (5) Notice of a pledge of stock within 30 calendar days of the 
transaction if 10 percent or more of the stock is pledged by any person 
(or group of persons acting in concert) as collateral for indebtedness, 
and such pledge does not involve a transfer for which prior written 
approval of SBA is required under Sec. 120.473;
    (e) Such other reports as SBA may require from time to time by 
written directive.



Sec. 120.473  Change of ownership or control.

    (a) Any change of ownership or control without prior written 
approval of

[[Page 240]]

SBA is prohibited. An SBLC must request approval of any such change from 
the AA/FA. Pending the approval, the SBLC may not register the proposed 
new owners on its transfer books nor permit them to participate in any 
manner in the conduct of the SBLC's affairs. Change of ownership or 
control includes:
    (1) Any transfer of 10 percent or more of any class of the SBLC's 
stock, and any agreement providing for such transfer;
    (2) Any transfer that could result in the beneficial ownership by 
any person or group of persons acting in concert of 10 percent or more 
of any class of its stock, and any agreement providing for such 
transfer;
    (3) Any merger, consolidation, or reorganization; or
    (4) Any other transaction or agreement that transfers control of the 
SBLC.
    (b) If transfer of ownership or control is subject to the approval 
of any State or Federal chartering, licensing, or other regulatory 
authority, copies of any documents filed with such authority must, at 
the same time, be transmitted to the AA/FA.



Sec. 120.474  Prohibited financing.

    An SBLC may not make a loan to a small business that has received 
financing (or a commitment for financing) from an SBIC that is an 
Associate of the SBLC.



Sec. 120.475  Audits.

    Every SBLC is subject to periodic audits by SBA's Office of 
Inspector General, Auditing Division, and the cost of such audits will 
be assessed against the SBLC, except for the first audit. Fees are 
structured based on the SBLC's assets as of the date of the latest 
audited financial statement submitted to SBA before the audit. The fee 
schedule is set forth in SBA's Standard Operating Procedures manual.



Sec. 120.476  Suspension or revocation.

    SBA may revoke or suspend an SBLC for a violation of law, these 
regulations, or any agreement with SBA. An appeal can be made following 
the procedures set forth in part 134 of this chapter.



                     Subpart E--Loan Administration



Sec. 120.500  General.

    This subpart outlines the general loan administration policies 
applicable to loan servicing and liquidation.

                                Servicing



Sec. 120.510  Servicing direct and immediate participation loans.

    SBA services the direct loans that it makes. Generally, the Lender 
services immediate participation loans that it makes and in which SBA 
participates.



Sec. 120.511  Servicing guaranteed loans.

    The Lender services guaranteed loans, holds the Loan Instruments and 
receives the Borrower's payments of principal and interest.



Sec. 120.512  Who services the loan after SBA honors its guarantee?

    Generally, after SBA honors its guarantee, the Lender must continue 
to hold the Loan Instruments and service and liquidate the loan. The 
Lender must execute a Certificate of Interest showing SBA's percentage 
of the loan, and must submit a liquidation plan to SBA for each loan to 
be liquidated. If SBA elects to service or liquidate the loan, the 
Lender must assign the Loan Instruments to SBA.



Sec. 120.513  What servicing actions require the prior written consent of SBA?

    Except as otherwise provided in a Supplemental Guarantee Agreement 
with the Lender, SBA must give its prior written consent before the 
Lender takes any of the following actions:
    (a) Alters substantially the terms or conditions of any Loan 
Instrument (for example, any increase in the principal amount or change 
in the interest rate, or action conferring a Preference on the Lender);
    (b) Releases collateral having a cumulative value in excess of 20 
percent of the original loan amount;
    (c) Accelerates the maturity of the note;
    (d) Sues upon any Loan Instrument;

[[Page 241]]

    (e) Compromises or waives any claim against any Borrower, guarantor, 
obligor or standby creditor arising out of any Loan Instrument; or
    (f) Increases the amount of any prior lien held by the Lender on the 
collateral securing the loan.

                 SBA'S Purchase of a Guaranteed Portion



Sec. 120.520  When does SBA honor its guarantee?

    (a) SBA, in its sole discretion, may purchase a guaranteed portion 
of a loan at any time. A Lender may demand in writing that SBA honor its 
guarantee if the Borrower is in default on any installment for more than 
60 calendar days (or less if SBA agrees) and the default has not been 
cured. If a Borrower cures a default before a Lender requests purchase 
by SBA, the Lender's right to request purchase on that default lapses.
    (b) Purchase by SBA of the guaranteed portion does not waive any of 
SBA's rights to recover money paid on the guarantee, based upon the 
Lender's negligence, misconduct, or violation of this part, including 
those actions listed in Sec. 120.524(a), the Loan Guarantee Agreement or 
the Loan Instruments.



Sec. 120.521  What interest rate applies after SBA purchases its guaranteed portion?

    When SBA purchases the guaranteed portion of a fixed interest rate 
loan, the rate of interest remains as stated in the note. On loans with 
a fluctuating interest rate, the interest rate that the Borrower owes 
will be at the rate in effect at the time of the earliest uncured 
payment default, or the rate in effect at the time of purchase (where no 
default has occurred).



Sec. 120.522  How much accrued interest does SBA pay to the Lender or Registered Holder when SBA purchases the guaranteed portion?

    (a) Rate of interest. If SBA purchases the guaranteed portion from a 
Lender or from a Registered Holder (if sold in the Secondary Market), it 
will pay accrued interest at:
    (1) The rate in the note if it is a fixed rate loan; or
    (2) The rate in effect on the date of the earliest uncured payment 
default, or of SBA's purchase (if there has been no default).
    (b) Payment to Lender. If the Lender submits a complete purchase 
request to SBA within 120 days of the earliest uncured payment default, 
SBA will pay accrued interest to the Lender from the last interest paid-
to-date up to the date of payment. If the Lender requests SBA to 
purchase after 120 days from the date of the earliest uncured payment 
default date, SBA will pay only 120 days of interest. For LowDoc loans, 
the interest paid to the Lender will be governed by the Supplemental 
Guarantee Agreement.
    (c) Payment to Registered Holder. SBA will pay a Registered Holder 
all accrued interest up to the date of payment.
    (d) Extension of the 120 day period. Before the 120 days expire, the 
SBA field office may extend the period if the Lender and SBA agree that 
the Borrower can cure the default within a reasonable and definite 
period of time or that the benefits from doing so otherwise will exceed 
the costs of SBA paying additional interest. If the 120 days have 
passed, only the AA/FA or designee can extend the period.



Sec. 120.523  What is the ``earliest uncured payment default''?

    The earliest uncured payment default is the date of the earliest 
failure by a Borrower to pay a regular installment of principal and/or 
interest when due. Payments made by the Borrower before a Lender makes 
its request to SBA to purchase are applied to the earliest uncured 
payment default. If the installment is paid in full, the earliest 
uncured payment default date will advance to the next unpaid installment 
date. If a Borrower makes any payment after the Lender makes its request 
to SBA to purchase, the earliest uncured payment default date does not 
change because the Lender has already exercised its right to request 
purchase.



Sec. 120.524  When is SBA released from liability on its guarantee?

    (a) SBA is released from liability on a loan guarantee (in whole or 
in part,

[[Page 242]]

within SBA's exclusive discretion), if any of the events below occur:
    (1) The Lender has failed to comply materially with any of the 
provisions of these regulations, the Loan Guarantee Agreement, or the 
Authorization;
    (2) The Lender has failed to make, close, service, or liquidate a 
loan in a prudent manner;
    (3) The Lender's improper action or inaction has placed SBA at risk;
    (4) The Lender has failed to disclose a material fact to SBA 
regarding a guaranteed loan in a timely manner;
    (5) The Lender has misrepresented a material fact to SBA regarding a 
guaranteed loan;
    (6) SBA has received a written request from the Lender to terminate 
the guarantee;
    (7) The Lender has not paid the guarantee fee within the period 
required under SBA rules and regulations;
    (8) The Lender has failed to request that SBA purchase a guarantee 
within 120 days after maturity of the loan;
    (9) The Lender has failed to use required SBA forms or exact 
electronic copies; or
    (10) The Borrower has paid the loan in full.
    (b) If SBA determines, after purchasing its guaranteed portion of a 
loan, that any of the events set forth in paragraph (a) of this section 
occurred in connection with that loan, SBA is entitled to recover any 
money paid on the guarantee plus interest from the Lender responsible 
for those events.
    (c) If the Lender's loan documentation indicates that one or more of 
the events in paragraph (a) of this section may have occurred, SBA may 
undertake such investigation as it deems necessary to determine whether 
to honor or deny the guarantee, and may withhold a decision on whether 
to honor the guarantee until the completion of such investigation.
    (d) Any information provided to SBA prior to Lender's request for 
SBA to honor its guarantee shall not prejudice SBA's right to deny 
liability for a guarantee if one or more of the events listed in 
paragraph (a) of this section occur.
    (e) Unless SBA provides written notice to the contrary, the Lender 
remains responsible for all loan servicing ad liquidation actions until 
SBA honors its guarantee in full.

          Deferment, Extension of Maturity and Loan Moratorium



Sec. 120.530  Deferment of payment.

    SBA may agree to defer payments on a business loan for a stated 
period of time, and use such other methods as it considers necessary and 
appropriate to help in the successful operation of the Borrower. This 
policy applies to all business loan programs, including 504 loans.



Sec. 120.531  Extension of maturity.

    SBA may agree to extend the maturity of a loan for up to 10 years 
beyond its original maturity if the extension will aid in the orderly 
repayment of the loan.



Sec. 120.532  What is a loan Moratorium?

    SBA may assume a Borrower's obligation to repay principal and 
interest on a loan by agreeing to make the payments to the Lender on 
behalf of the Borrower under terms and conditions set by SBA. This 
relief is called a ``Moratorium.'' Complete information concerning this 
program may be obtained from local SBA offices.

                        Liquidation of Collateral



Sec. 120.540  What are SBA's policies concerning the liquidation of collateral and the sale of business loans and physical disaster assistance loans, physical 
          disaster business loans and economic injury disaster loans?

    (a) Liquidation policy. SBA or the Lender may liquidate collateral 
securing a loan if the loan is in default or there is no reasonable 
prospect that the loan can be repaid within a reasonable period.
    (b) Sale and conversion of loans. Without the consent of the 
Borrower, SBA may:
    (1) Sell a direct loan;
    (2) Convert a guaranteed or immediate participation loan to a direct 
loan; or
    (3) Convert an immediate participation loan to a guaranteed loan or 
a loan owned solely by the Lender.

[[Page 243]]

    (4) Sell direct and purchased 7(a) and 501, 502, 503 and 504 loans 
and physical disaster home loans, physical disaster business loans and 
economic injury disaster loans in asset sales. SBA will offer these 
loans for sale to qualified bidders by means of competitive procedures 
at publicly advertised sales. Bidder qualifications will be set for each 
sale in accordance with the terms and conditions of each sale.
    (c) Disposal of collateral and assets acquired through foreclosure 
or conveyance. SBA or the Lender may sell real and personal property 
(including contracts and claims) pledged to secure a loan that is in 
default in accordance with the provisions of the related security 
instrument (see Sec. 120.550 for Homestead Protection for Farmers).
    (1) Competitive bids or negotiated sales. Generally, SBA will offer 
loan collateral and acquired assets for public sale through competitive 
bids at auctions or sealed bid sales. The Lender may use negotiated 
sales if consistent with its usual practice for similar non-SBA assets.
    (2) Lease of acquired property. Normally, neither SBA nor a Lender 
will rent or lease acquired property or grant options to purchase. SBA 
and the Lender will consider proposals for a lease if it appears a 
property cannot be sold advantageously and the lease may be terminated 
on reasonable notice upon receipt of a favorable purchase offer.
    (d) Recoveries and security interests shared. SBA and the Lender 
will share pro rata (in accordance with their respective interests in a 
loan) all loan payments or recoveries, including proceeds from asset 
sales, all reasonable expenses (including advances for the care, 
preservation, and maintenance of collateral securing the loan and the 
payment of senior lienholders), and any security interest or guarantee 
(excluding SBA's guarantee) which the Lender or SBA may hold or receive 
in connection with a loan.
    (e) Guarantors. Guarantors of financial assistance have no rights of 
contribution against SBA on an SBA guaranteed or direct loan. SBA is not 
deemed to be a co-guarantor with any other guarantors.

[61 FR 3235, Jan. 31, 1996, as amended at 64 FR 44110, Aug. 13, 1999; 65 
FR 17133, Mar. 31, 2000]

                    Homestead Protection for Farmers



Sec. 120.550  What is homestead protection for farmers?

    SBA may lease to a farmer-Borrower the farm residence occupied by 
the Borrower and a reasonable amount of adjoining property (no more than 
10 acres and seven farm buildings), if they were acquired by SBA as a 
result of a defaulted farm loan made or guaranteed by SBA (see the 
Consolidated Farm and Rural Development Act, 7 U.S.C. 1921, for 
qualifying loan purposes).



Sec. 120.551  Who is eligible for homestead protection?

    SBA must notify the Borrower in possession of the availability of 
these homestead protection rights within 30 days after SBA acquires the 
property. A farmer-Borrower must:
    (a) Apply for the homestead occupancy to the SBA field office which 
serviced the loan within 90 days after SBA acquires the property;
    (b) Provide evidence that the farm produces farm income reasonable 
for the area and economic conditions;
    (c) Show that at least 60 percent of the Borrower and spouse's gross 
annual income came from farm or ranch operations in at least any two out 
of the last six calendar years;
    (d) Have resided on the property during the previous six years; and
    (e) Be personally liable for the debt.



Sec. 120.552  Lease.

    If approved, the applicant must personally occupy the residence 
during the term of the lease and pay a reasonable rent to SBA. The lease 
will be for a period of at least 3 years, but no more than 5 years. A 
lease of less than 5 years may be renewed, but not beyond 5 years from 
the original lease date. During or at the end of the lease period, the 
lessee has a right of first refusal to reacquire the homestead property 
under terms and conditions no less

[[Page 244]]

favorable than those offered to any other purchaser.



Sec. 120.553  Appeal.

    If the application is denied, the Borrower may appeal the decision 
to the AA/FA. Until the conclusion of any appeal, the Borrower may 
retain possession of the homestead property.



Sec. 120.554  Conflict of laws.

    In the event of a conflict between the homestead provisions at 
Secs. 120.550 through 120.553 of this part, and any state law relating 
to the right of a Borrower to designate for separate sale or to redeem 
part or all of the real property securing a loan foreclosed by the 
Lender, state law shall prevail.



                       Subpart F--Secondary Market

                     Fiscal and Transfer Agent (FTA)



Sec. 120.600  Definitions.

    (a) Certificate is the document the FTA issues representing a 
beneficial fractional interest in a Pool (Pool Certificate), or an 
undivided interest in the entire guaranteed portion of an individual 
7(a) guaranteed loan (Individual Certificate).
    (b) Current means that no repayment from a Borrower to a Lender is 
over 29 days late measured from the due date of the payment on the 
records of the FTA's central registry (Pools) or the entity servicing 
the loan (individual guaranteed portion).
    (c) FTA is the SBA's fiscal and transfer agent.
    (d) Note Rate is the interest rate on the Borrower's note.
    (e) Net Rate is the interest rate on an individual guaranteed 
portion of a loan in a Pool.
    (f) Pool is an aggregation of SBA guaranteed portions of loans made 
by Lenders.
    (g) Pool Assembler is a financial institution that:
    (1) Organizes and packages a Pool by acquiring the SBA guaranteed 
portions of loans from Lenders;
    (2) Resells fractional interests in the Pool to Registered Holders; 
and
    (3) Directs the FTA to issue Certificates.
    (h) Pool Rate is the interest rate on a Pool Certificate.
    (i) Registered Holder is the Certificate owner listed in FTA's 
records.
    (j) SBA's Secondary Market Program Guide is an issuance from SBA 
which describes the characteristics of Secondary Market transactions.



Sec. 120.601  SBA Secondary Market.

    The SBA secondary market (``Secondary Market'') consists of the sale 
of Certificates, representing either the entire guaranteed portion of an 
individual 7(a) guaranteed loan or an undivided interest in a Pool 
consisting of the SBA guaranteed portions of a number of 7(a) guaranteed 
loans. By the terms of such Certificate, SBA guarantees a Registered 
Holder timely payment of principal and interest from the loan or loans 
underlying the Certificate. Transactions involving interests in Pools or 
the sale of individual guaranteed portions of loans are governed by the 
contracts entered into by the parties, SBA's Secondary Market Program 
Guide, and this subpart. See sections 5 (f), (g), and (h) of the Small 
Business Act (15 U.S.C. 634 (f), (g) and (h)).

                              Certificates



Sec. 120.610  Form and terms of Certificates.

    (a) General form and content. Each Certificate must be registered 
with the FTA. SBA must approve the terms of the Certificate.
    (b) Face amount of Pool Certificate. The face amount of a Pool 
Certificate cannot be less than a minimum amount as specified in the 
Program Guide, and the dollar amount of Certificates must be in 
increments which SBA will specify in the Program Guide (except for one 
Certificate in each Pool). SBA may change these requirements based upon 
an analysis of market conditions and program experience, and will 
publish any such change in the Federal Register.
    (c) Basis of payment for Pool Certificates. Principal installments 
and interest payments are based on the unpaid principal balance of the 
portion of the Pool represented by a Pool Certificate. All prepayments 
on loans in the Pool

[[Page 245]]

must be passed through to the appropriate Registered Holders with the 
regularly scheduled payments to such Holders.
    (d) Basis of payment for Individual Certificates. Principal 
installments and interest payments are based on the unpaid principal 
balance of the SBA guaranteed portion of the loan supporting an 
Individual Certificate. The Certificate must provide for a pass through 
to the Registered Holder of payments which the FTA receives from a 
Lender or any entity servicing the loan, less applicable fees.
    (e) Interest rate on Pool Certificate. The interest rate on a Pool 
Certificate must be equal to the lowest Net Rate on any individual 
guaranteed portion of a loan in the Pool.



Sec. 120.611  Pools backing Pool Certificates.

    (a) Pool characteristics. As set forth in the Program Guide, each 
Pool must have:
    (1) A minimum number of guaranteed portions of loans;
    (2) A minimum aggregate principal balance of the guaranteed 
portions;
    (3) A maximum percentage of the Pool which an individual guaranteed 
portion may constitute;
    (4) A maximum allowable difference between the highest and lowest 
note interest rates;
    (5) A maximum allowable difference between the remaining terms to 
maturity of the loans in the Pool; and
    (6) A minimum weighted average maturity at Pool formation.
    (b) Adjustment of Pool characteristics. SBA may adjust the Pool 
characteristics periodically based upon program experience and market 
conditions.



Sec. 120.612  Loans eligible to back Certificates.

    (a) Pool Certificates are backed by the SBA guaranteed portions of 
loans comprising the Pool. An Individual Certificate is backed by the 
SBA guaranteed portion of a single loan. Any such loan must:
    (1) Be current as of the date the Pool is formed or the individual 
guaranteed portion of a loan is initially sold in the Secondary Market;
    (2) Be guaranteed under the Act; and
    (3) Meet such other standards as SBA may determine to be necessary 
for the successful operation of the Secondary Market program.
    (b) The loans that back a Pool must meet the SBA requirements in 
effect at the time the Pool is formed.



Sec. 120.613  Secondary Participation Guarantee Agreement.

    When a Lender wants to sell the guaranteed portion of a loan, it 
enters into a Secondary Participation Guarantee Agreement (``SPGA'') 
with SBA and the prospective purchaser. The terms of sale between the 
Lender and the purchaser cannot require the Lender or SBA to repurchase 
the guaranteed portion of the loan except in accordance with the terms 
of the SPGA. Before execution of the SPGA, the Lender must:
    (a) Submit to FTA a copy of the proposed SPGA, the note, and such 
other documents as SBA may require;
    (b) Disburse to the Borrower the full amount of the loan; and
    (c) Pay SBA all guarantee fees relevant to the loan in full.

                   The SBA Guarantee of a Certificate



Sec. 120.620  SBA guarantee of a Pool Certificate.

    (a) Extent of Guarantee. SBA guarantees to a Registered Holder the 
timely payment of principal and interest installments and any prepayment 
or other recovery of principal to which the Registered Holder is 
entitled. If the Borrower of a loan in a Pool backing the Certificates 
does not make a required installment payment, SBA, through the FTA, will 
make advances to maintain the schedule of interest and principal 
payments to the Registered Holders.
    (b) SBA guarantee backed by full faith and credit. SBA's guarantee 
of the Pool Certificate is backed by the full faith and credit of the 
United States.



Sec. 120.621  SBA guarantee of an Individual Certificate.

    (a) Extent of SBA guarantee. With respect to Individual 
Certificates, SBA guarantees to purchase from the Registered Holder the 
guaranteed portion of the loan for an amount equal to the

[[Page 246]]

unpaid principal and accrued interest due as of the date of SBA's 
purchase, less deductions for applicable fees. Unlike the SBA guarantee 
with respect to pooled loans, SBA does not guarantee timely payment on 
Individual Certificates.
    (b) What triggers the SBA guarantee. SBA's guarantee to the 
Registered Holder may be called upon when:
    (1) The Borrower remains in uncured default for 60 days on payments 
of principal or interest due on the note;
    (2) The Lender fails to send to the FTA on a timely basis payments 
it received from the Borrower; or
    (3) The FTA fails to send to the Registered Holder on a timely basis 
any payments it has received from the Lender.
    (c) Full faith and credit. SBA's guarantee to the Registered Holder 
is backed by the full faith and credit of the United States.

                             Pool Assemblers



Sec. 120.630  Qualifications to be a Pool Assembler.

    (a) Application to become Pool Assembler. The application to become 
a Pool Assembler is available from the AA/FA. In order to qualify as a 
Pool Assembler, an entity must send the application to the AA/FA, with 
an application fee, and certify that it:
    (1) Is regulated by the appropriate agency as defined in section 
3(a)(34)(G) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(34)(G));
    (2) Meets all financial and other applicable requirements of its 
regulatory authority and the Government Securities Act of 1986, as 
amended (Pub. L. 99-571, 100 Stat. 3208);
    (3) Has the financial capability to assemble acceptable and eligible 
guaranteed loan portions in sufficient quantity to support the issuance 
of Pool Certificates; and
    (4) Is in good standing with SBA (as the AA/FA determines), the 
Office of the Comptroller of the Currency (``OCC'') if it is a national 
bank, the Federal Deposit Insurance Corporation if it is a bank not 
regulated by the OCC, or the National Association of Securities Dealers 
if it is a member.
    (b) Approval by SBA. An entity may not submit Pool applications to 
the FTA until SBA has approved the application to become a Pool 
Assembler.
    (c) Conduct of business by Pool Assembler. An entity continues to 
qualify as a Pool Assembler so long as it:
    (1) Meets the eligibility standards in paragraph (a) of this 
section;
    (2) Conducts its business in accordance with SBA regulations and 
accepted securities or banking industry practices, ethics, and 
standards; and
    (3) Maintains its books and records in accordance with generally 
accepted accounting principles or in accordance with the guidelines of 
the regulatory body governing its activities.



Sec. 120.631  Suspension or termination of Pool Assembler.

    (a) Suspension or termination. The AA/FA may suspend a Pool 
Assembler from operating in the Secondary Market for up to 18 months or 
terminate its status as a Pool Assembler, if the Pool Assembler (and/or 
its Associates):
    (1) Does not comply with any of the requirements in Sec. 120.630 (a) 
and (c);
    (2) Has been indicted or otherwise formally charged with, or 
convicted of, a misdemeanor or felony;
    (3) Has received an adverse civil judgment that it has committed a 
breach of trust or a violation of a law or regulation protecting the 
integrity of business transactions or relationships;
    (4) Has not formed a Pool for at least three years; or
    (5) Is under investigation by its regulating authority for 
activities which may affect its fitness to participate in the Secondary 
Market.
    (b) Suspension procedures. The AA/FA shall notify a Pool Assembler 
by certified mail, return receipt requested, of the decision to suspend 
and the reasons therefore at least 10 business days prior to the 
effective date of the suspension. The Pool Assembler may appeal the 
suspension made under this section pursuant to the procedures set forth 
in part 134 of this chapter. The action of the AA/FA shall remain in 
effect pending resolution of the appeal.
    (c) Notice of termination. In order to terminate a Pool Assembler, 
the AA/FA must issue an order to show cause why the SBA should not 
terminate the Pool Assembler's participation in the Secondary Market. 
The Pool Assembler

[[Page 247]]

may appeal the termination made under this section pursuant to 
procedures set forth in part 134 of this chapter. The action of the AA/
FA shall remain in effect pending resolution of the appeal.

                        Miscellaneous Provisions



Sec. 120.640  Administration of the Pool and Individual Certificates.

    (a) FTA responsibility. The FTA has the responsibility to administer 
each Pool or Individual Certificate. It shall maintain a registry of 
Registered Holders and other information as SBA requires.
    (b) Self-liquidating. Each Pool or individual guaranteed portion of 
a loan in the Secondary Market is self-liquidating because of Borrower 
payments or prepayments, redemption by SBA, and/or payments by SBA or 
the Lender after default by the Borrower. Substitution of the guaranteed 
portions of existing loans for defaulted loans is not permitted.
    (c) SBA's right to subrogation. If SBA pays a claim under a 
guarantee with respect to a Certificate issued under this subpart, it 
must be subrogated fully to the rights satisfied by such payment.
    (d) SBA ownership rights not limited. No Federal, State or local law 
can preclude or limit the exercise by SBA of its ownership rights in the 
portions of loans constituting the Pool against which the Certificates 
are issued.



Sec. 120.641  Disclosure to purchasers.

    (a) Information to purchaser. Prior to any sale, the Pool Assembler, 
Registered Holder of an Individual Certificate, or any subsequent seller 
must disclose to the purchaser, verbally or in writing, information on 
the terms, conditions, and yield as described in the SBA Secondary 
Market Program Guide.
    (b) Information on transfer document. The seller must provide the 
same information described in paragraph (a) of this section in writing 
on the transfer document when the seller submits it to the FTA. After 
the sale of an Individual Certificate, the FTA will provide the 
disclosure information in writing to the purchaser.
    (c) Information in prospectus. If the Registered Holder is a trust, 
investment Pool, mutual fund or other security, it must disclose the 
information in paragraph (a) of this section to investors through a 
prospectus and other promotional material if an Individual Certificate 
or Pool Certificate is placed into or used as the backing for the 
investment vehicle.



Sec. 120.642  Requirements before the FTA issues Pool Certificates.

    Before the FTA issues any Pool Certificate, the Pool Assembler must 
deliver to it the following documents:
    (a) A properly completed Pool application form;
    (b) Either:
    (1) Individual Certificates evidencing the guaranteed portions 
comprising the Pool; or
    (2) An executed SPGA and related documentation for the loans whose 
guaranteed portions are to be part of the Pool; and
    (c) Any other documentation which SBA may require.



Sec. 120.643  Requirements before the FTA issues Individual Certificates.

    (a) FTA issuance of initial Certificate. Before the FTA can issue 
the Individual Certificate for a guaranteed portion of a loan, the 
original seller must provide the following documents to the FTA:
    (1) An executed SPGA;
    (2) A copy of the note representing the guaranteed loan; and
    (3) Any other documentation which SBA may require.
    (b) Review of documentation. SBA may review or require the FTA to 
review any documentation before the FTA issues a Certificate.



Sec. 120.644  Transfers of Certificates.

    (a) General rule. Certificates are transferable. Transfers in the 
Secondary Market must comply with Article 8 of the Uniform Commercial 
Code of the State of New York. The seller must use the detached form of 
assignment (SBA Form 1088), unless the seller and purchaser choose to 
use another form which the SBA approves. The FTA may refuse to issue a 
Certificate

[[Page 248]]

until it is satisfied that the documents of transfer are complete.
    (b) Transfer on FTA records. In order for the transfer of a 
Certificate to be effective the FTA must reflect it on its records.
    (c) Contents of letter of transmittal accompanying the transfer of 
Certificates. (1) A letter of transmittal must accompany each 
Certificate which a Registered Holder submits to the FTA for transfer. 
The Registered Holder must supply the following information in the 
letter:
    (i) Pool number, if applicable;
    (ii) Certificate number;
    (iii) Name of purchaser of Certificate;
    (iv) Address and tax identification number of the purchaser;
    (v) Name and telephone number of the person handling or facilitating 
the transfer;
    (vi) Instructions for the delivery of the new Certificate.
    (2) The Registered Holder must also send the fee which the FTA 
charges for this service. The FTA will supply fee information to the 
Registered Holder.
    (d) Lender cannot purchase guaranteed portion of loan it made. The 
Lender (or its Associate) that made a 7(a) guaranteed loan cannot 
purchase the guaranteed portion of that loan in the Secondary Market. If 
a Lender does purchase the guaranteed portion of one of its own loans, 
it shall not have the unconditional guarantee of SBA.



Sec. 120.645  Redemption of Certificates.

    (a) Redemption of Individual Certificate. The prepayment of the 
underlying loan or a default on such loan will trigger the redemption of 
the Certificate by FTA/SBA in accordance with the procedures prescribed 
in the SPGA.
    (b) Redemption of Pool Certificate. The FTA and SBA may redeem a 
Pool Certificate because of prepayment or default of all loans in a 
Pool.



Sec. 120.650  Registration duties of FTA in Secondary Market.

    The FTA registers all Certificates. This means it issues, transfers 
title to, and redeems them. All financial transactions relating to a 
guaranteed portion of a loan flow through the FTA. In fulfilling its 
obligation to keep the central registry current, the FTA may, with SBA's 
approval, obtain any necessary information from the parties involved in 
the Secondary Market.



Sec. 120.651  Claim to FTA by Registered Holder to replace Certificate.

    (a) To replace a Certificate because of loss, theft, destruction, 
mutilation, or defacement, the Registered Holder must:
    (1) Give the FTA information about the Certificate and the facts 
relating to the claim;
    (2) File an indemnity bond acceptable to SBA and the FTA with a 
surety to protect the interests of SBA and the FTA;
    (3) Pay the FTA its fee to replace a Certificate; and
    (4) Use an affidavit of loss (form available from the FTA) to 
report:
    (i) The name and address of the Registered Holder (and the name and 
capacity of any representative actually filing the claim);
    (ii) The Certificate by Pool number, if applicable;
    (iii) The Certificate number;
    (iv) The original principal amount;
    (v) The name in which the Certificate was registered;
    (vi) Any assignment, endorsement or other writing on the 
Certificate; and
    (vii) A statement of the circumstances of the theft or loss.
    (b) When the FTA receives notice of the theft or loss, it will stop 
any transfer of the Certificate. The Registered Holder must send to the 
FTA all available portions of a mutilated or defaced Certificate. When 
the Registered Holder completes these steps, the FTA will replace the 
Certificate.



Sec. 120.652  FTA fees.

    The FTA may charge reasonable servicing fees, transfer fees, and 
other fees as the SBA and FTA may negotiate under contract.

       Suspension or Revocation of Participant in Secondary Market



Sec. 120.660  Suspension or revocation.

    (a) Suspension or revocation of Lender, broker, dealer, or 
Registered Holder for violation of Secondary Market rules and 
regulations. The AA/FA may suspend or revoke the privilege of a Lender,

[[Page 249]]

broker, dealer, or Registered Holder to sell, purchase, broker, or deal 
in loans or Certificates for:
    (1) Committing a serious violation, in SBA's discretion, of:
    (i) The regulations governing the Secondary Market; or
    (ii) Any provisions in the contracts entered into by the parties, 
including SBA Forms 1085, 1086, 1088 and 1454; or
    (2) Knowingly submitting false or fraudulent information to the SBA 
or FTA.
    (b) Additional rules for suspension or revocation of broker or 
dealer. In addition to acting under paragraph (a) of this section, the 
AA/FA may suspend or revoke the privilege of any broker or dealer to 
sell or otherwise deal in Certificates in the Secondary Market if:
    (1) Its supervisory agency has revoked or suspended the broker or 
dealer from engaging in the securities business, or is investigating the 
firm or broker for a practice which SBA considers, in its sole 
discretion, to be relevant to the broker's or dealer's fitness to 
participate in the Secondary Market;
    (2) The broker or dealer has been indicted or otherwise formally 
charged with a misdemeanor or felony which bears on its fitness to 
participate in the Secondary Market; or
    (3) A civil judgment is entered holding that the broker or dealer 
has committed a breach of trust or a violation of any law or regulation 
protecting the integrity of business transactions or relationships.
    (c) Notice to suspend or revoke. The AA/FA shall notify the affected 
party in writing, providing the reasons therefore, at least 10 business 
days prior to the effective date of the suspension or revocation. The 
affected party may appeal the suspension or revocation made under this 
section pursuant to the procedures set forth in part 134 of this 
chapter. The action of the AA/FA will remain in effect pending 
resolution of the appeal. Revocation will last a minimum of five years.



                      Subpart G--Microloan Program



Sec. 120.700  What is the Microloan Program?

    The Microloan Program assists women, low income individuals, 
minority entrepreneurs, and other small businesses which need small 
amounts of financial assistance. Under this program, SBA makes direct 
and guaranteed loans to Intermediaries (as defined below) who use the 
proceeds to make loans to eligible borrowers. SBA may also make grants 
under the program to Intermediaries and other qualified nonprofit 
entities to be used for marketing, management, and technical assistance 
to the program's target population.

[61 FR 3235, Jan. 31, 1996, as amended at 66 FR 47073, Sept. 11, 2001]



Sec. 120.701  Definitions.

    (a) Deposit account is a demand, time, savings, passbook, or similar 
account maintained with an insured depository institution (not including 
an account evidenced by a Certificate of Deposit).
    (b) Economically Distressed Area is a county or equivalent division 
of local government of a state in which, according to the most recent 
available data from the United States Bureau of the Census, 40 percent 
or more of the residents have an annual income that is at or below the 
poverty level.
    (c) Grant is a Federal award of money, or property in lieu of money 
(including cooperative agreements) to an eligible grantee that must 
account for its use. The term does not include the provision of 
technical assistance, revenue sharing, loans, loan guarantees, interest 
subsidies, insurance, direct appropriations, or any fellowship or other 
lump sum award.
    (d) Insured depository institution has the same meaning as in 
section 3(c) of the Federal Deposit Insurance Act, 12 U.S.C. 1813(c).
    (e) Intermediary is an entity participating in the Microloan 
Demonstration Program which makes and services Microloans to eligible 
small businesses

[[Page 250]]

and which provides marketing, management, and technical assistance to 
its borrowers. It may be:
    (1) A private, nonprofit community development corporation or other 
entity;
    (2) A consortium of private, nonprofit community development 
corporations or other entities;
    (3) A quasi-governmental economic development entity, other than a 
state, county, municipal government or any agency thereof; or
    (4) An agency of or a nonprofit entity established by a Native 
American Tribal Government.
    (f) Microloan is a short-term, fixed interest rate loan of not more 
than $35,000 made by an Intermediary to an eligible small business.
    (g) Non-Federal sources are sources of funds other than the Federal 
Government and may include indirect costs or in-kind contributions paid 
for under non-Federal programs. Community Block Development Grants are 
considered non-Federal sources.
    (h) Non-lending technical assistance provider (NTAP) is an entity 
which receives grant funds from SBA to provide technical assistance to 
Microloan borrowers.
    (i) Specialized Intermediary is an Intermediary which maintains a 
portfolio of Microloans averaging $10,000 or less.

[61 FR 3235, Jan. 31, 1996, as amended at 66 FR 47073, Sept. 11, 2001; 
66 FR 47878, Sept. 14, 2001]



Sec. 120.702  Are there limitations on who can be an Intermediary or on where an Intermediary may operate?

    (a) Prior experience requirement. To be eligible to be an 
Intermediary, an organization must:
    (1) Have made and serviced short-term fixed rate loans of not more 
than $35,000 to newly established or growing small businesses for at 
least one year: and
    (2) Have at least one year of experience providing technical 
assistance to its borrowers.
    (b) Limitation to one state. An Intermediary may not operate in more 
than one state unless the AA/FA determines that it would be in the best 
interests of the small business community for it to operate across state 
lines.

[61 FR 3235, Jan. 31, 1996, as amended at 66 FR 47878, Sept. 14, 2001]



Sec. 120.703  How does an organization apply to become an Intermediary?

    (a) Application Process. Organizations interested in becoming 
Intermediaries should contact SBA for information on the application 
process.
    (b) Documentation in support of application. The application must 
include a detailed narrative statement describing:
    (1) The types of businesses assisted in the past and those the 
applicant intends to assist with Microloans;
    (2) The average size of the loans made in the past and the average 
size of intended Microloans;
    (3) The extent to which the applicant will make Microloans to small 
businesses in rural areas;
    (4) The geographic area in which the applicant intends to operate, 
including a description of the economic and demographic conditions 
existing in the intended area of operations;
    (5) The availability and cost of obtaining credit for small 
businesses in the area;
    (6) The applicant's experience and qualifications in providing 
marketing, management, and technical assistance to small businesses; and
    (7) Any plan to use other technical assistance resources (such as 
counselors from the Service Corps of Retired Executives) to help 
Microloan borrowers.



Sec. 120.704  How are applications evaluated?

    (a) Evaluation criteria. In selecting Intermediaries, SBA will 
attempt to insure that Microloans are available to small businesses in 
all industries and particularly to small businesses located in urban and 
rural areas.
    (b) Preference for organizations which make very small loans. In 
selecting Intermediaries, SBA will give priority to applicants which 
maintain a portfolio of loans averaging $10,000 or less.

[[Page 251]]

    (c) Consideration of quasi-governmental organizations. Generally, 
SBA will consider applications by quasi-governmental organizations only 
when it determines that program services for a particular geographic 
area would be best provided by such organization.

[61 FR 3235, Jan. 31, 1996, as amended at 66 FR 47878, Sept. 14, 2001]



Sec. 120.705  What is a Specialized Intermediary?

    At the end of an Intermediary's first year of participation in the 
program, SBA will determine whether it qualifies as a Specialized 
Intermediary. An Intermediary qualifies as a Specialized Intermediary if 
it maintains a portfolio of Microloans averaging $10,000 or less. 
Specialized Intermediaries qualify for more favorable interest rates on 
SBA loans. If, after the first year, an Intermediary qualifies as a 
Specialized Intermediary, the special interest rate is applied 
retroactively to SBA loans made to the Intermediary. After the first 
year SBA will determine an Intermediary's qualifications as a 
Specialized Intermediary annually, based on its lending practices during 
the term of its participation in the program. Specialized Intermediaries 
also qualify for a greater amount of technical assistance grant funding.

[61 FR 3235, Jan. 31, 1996, as amended at 66 FR 47878, Sept. 14, 2001]



Sec. 120.706  What are the terms and conditions of an SBA loan to an Intermediary?

    (a) Loan Amount. An Intermediary may not borrow more than $750,000 
in the first year of participation in the program. In later years, the 
Intermediary's obligation to SBA may not exceed an aggregate of $3.5 
million, subject to statutory limitations on the total amount of funds 
available per state.
    (b) Repayment terms. During the first year of the loan, an 
Intermediary is not required to make any payments, but interest accrues 
from the date that SBA disburses the loan proceeds to the Intermediary. 
After that, SBA will determine the periodic payments. The loan must be 
repaid within 10 years.
    (c) Interest rate. The interest rate is equal to the rate applicable 
to five-year obligations of the United States Treasury, adjusted to the 
nearest one-eighth percent, less 1.25 percent. However, the interest 
rate for Specialized Intermediaries is equal to the rate applicable to 
five-year obligations of the United States Treasury, adjusted to the 
nearest one-eighth percent, less two percent.
    (d) Collateral. As security for repayment of the SBA loan, an 
Intermediary must pledge to SBA a first lien position in the MRF 
(described below), LLRF (described below), and all notes receivable from 
Microloans.
    (e) Default. If for any reason an Intermediary is unable to make 
payment to SBA when due, SBA may accelerate maturity of the loan and 
demand payment in full. In this event, or if an Intermediary violates 
this part or the terms of its loan agreement, it must surrender 
possession of all collateral described in paragraph (d) of this section 
to SBA. The Intermediary is not obligated to pay SBA any loss or 
deficiency which may remain after liquidation of the collateral unless 
the loss was caused by fraud, negligence, violation of any of the 
ethical requirements of Sec. 120.140, or violation of any other 
provision of this part.
    (f) Fees. SBA does not charge Intermediaries any fees for loans 
under this Program. An Intermediary may, however, pay minimal closing 
costs to third parties, such as filing and recording fees.

[61 FR 3235, Jan. 31, 1996, as amended at 66 FR 47073, Sept. 11, 2001]



Sec. 120.707  What conditions apply to loans by Intermediaries to Microloan borrowers?

    (a) General. An intermediary may make Microloans to any small 
business eligible to receive financial assistance under this part. A 
borrower may also use Microloan proceeds to establish a nonprofit child 
care business. Proceeds from Microloans may be used only for working 
capital and acquisition of materials, supplies, furniture, fixtures, and 
equipment. SBA does not review Microloans for creditworthiness.
    (b) Amount and maturity. Generally, Intermediaries should not make a 
Microloan of more than $10,000 to any borrower. An Intermediary may not

[[Page 252]]

make a Microloan of more than $20,000 unless the borrower demonstrates 
that it is unable to obtain credit elsewhere at comparable interest 
rates and that it has good prospects for success. An Intermediary may 
not make a Microloan of more than $35,000, and no borrower may owe an 
Intermediary more than $35,000 at any one time. Each Microloan must be 
repaid within six years.
    (c) Interest rate. The maximum interest rate that can be charged a 
Microloan borrower is:
    (1) On loans of more than $10,000, the interest rate charged on the 
SBA loan to the Intermediary, plus 7.75 percentage points; and
    (2) On loans of $10,000 or less, the interest rate charged on the 
SBA loan to the Intermediary, plus 8.5 percentage points.

[61 FR 3235, Jan. 31, 1996, as amended at 66 FR 47073, Sept. 11, 2001; 
66 FR 47878, Sept. 14, 2001]



Sec. 120.708  What is the Intermediary's financial contribution?

    The Intermediary must contribute from non-Federal sources an amount 
equal to 15 percent of any loan that it receives from SBA. The 
contribution may not be borrowed. For purposes of this program, 
Community Development Block Grants are considered non-Federal sources.



Sec. 120.709  What is the Microloan Revolving Fund?

    The Microloan Revolving Fund (``MRF'') is an interest-bearing 
Deposit Account into which an Intermediary must deposit the proceeds 
from SBA loans, its contributions from non-Federal sources, and payments 
from its Microloan borrowers. An Intermediary may only withdraw from 
this account the money needed to establish the Loan Loss Reserve Fund 
(Sec. 120.710), proceeds for each Microloan it makes, and any payments 
to be made to SBA.



Sec. 120.710  What is the Loan Loss Reserve Fund?

    (a) General. The Loan Loss Reserve Fund (``LLRF'') is an interest-
bearing Deposit Account which an Intermediary must establish to pay any 
shortage in the MRF caused by delinquencies or losses on Microloans. An 
Intermediary must maintain the LLRF until it has repaid all obligations 
it owes SBA.
    (b) Level of Loan Loss Reserve Fund. Until it is in the Microloan 
program for at least five years, an Intermediary must maintain a balance 
on deposit in its LLRF equal to 15 percent of the outstanding balance of 
the notes receivable owed to it by its Microloan borrowers 
(``Portfolio'').
    (c) SBA review of Loan Loss Reserve Fund. After an Intermediary has 
been in the Microloan program for five years, it may request SBA's 
Associate Administrator for Financial Assistance (``AA/FA'') to reduce 
the percentage of its Portfolio which it must maintain in its LLRF to an 
amount equal to the actual average loan loss rate during the preceding 
five-year period. Upon receipt of such request, the AA/FA will review 
the Intermediary's annual loss rate for the most recent five-year period 
preceding the request.
    (d) Reduction of Loan Loss Reserve Fund. The AA/FA has the authority 
to reduce the percentage of an Intermediary's Portfolio that it must 
maintain in its LLRF to an amount equal to the actual average loan loss 
rate during the preceding five-year period. The AA/FA can not reduce the 
LLRF to less than ten percent of the Portfolio.
    (e) What must an intermediary demonstrate to get a reduction in Loan 
Loss Reserve Fund? To get a reduction in its LLRF, an Intermediary must 
demonstrate to the satisfaction of the AA/FA that:
    (1) Its average annual loss rate during the preceding five years is 
less than fifteen percent, and
    (2) No other factors exist that may impair the Intermediary's 
ability to repay all obligations which it owes to the SBA under the 
Microloan program.

[61 FR 3235, Jan. 31, 1996, as amended at 65 FR 17439, Apr. 3, 2000]



Sec. 120.711  What rules govern Intermediaries?

    Intermediaries must operate in accordance with applicable statutes, 
regulations, policy notices, SBA's Standard Operating Procedures (SOPs), 
and the information in the application.

[[Page 253]]



Sec. 120.712  How does an Intermediary get a grant to assist Microloan borrowers?

    (a) General. An Intermediary is eligible to receive grant funding 
from SBA of not more than 25 percent of the outstanding balance of all 
SBA loans to the Intermediary. The Intermediary must contribute, solely 
from non-Federal sources, an amount equal to 25 percent of the grant. 
Contributions may be made in cash or in kind.
    (b) Limitations on grant funds. An Intermediary may not borrow its 
contribution. It may only use grant funds to provide Microloan borrowers 
with marketing, management, and technical assistance, except that:
    (1) Up to 25 percent of the grant funds may be used to provide 
information and technical assistance to prospective Microloan borrowers; 
and
    (2) Grant monies may be used to attend training required by SBA. 
Intermediaries may not enter into third party contracts for the 
provision of technical assistance to program clients.
    (c) Exception to contribution requirement. Intermediaries which make 
at least 50 percent of their loans to small businesses located in or 
owned by residents of Economically Distressed Areas are not subject to 
the contribution requirement in paragraph (a) of this section.
    (d) Intermediaries eligible to receive additional grant monies. An 
Intermediary may receive an additional SBA grant equal to five percent 
of the outstanding balance of all loans received from SBA (with no 
obligation to contribute additional matching funds) if:
    (1) The Intermediary makes at least 25 percent of its loans to small 
businesses located in or owned by residents of an Economically 
Distressed Area; or
    (2) The Intermediary is a Specialized Intermediary.
    (e) Third party contracts for technical assistance. An Intermediary 
may use no more than 25 percent of the grant funds it receives from SBA 
for contracts with third parties for the latter to provide technical 
assistance to Microloan borrowers.

[61 FR 3235, Jan. 31, 1996, as amended at 66 FR 47073, Sept. 11, 2001]



Sec. 120.713  Does SBA provide technical assistance to Intermediaries?

    SBA may procure technical assistance for an Intermediary to improve 
its knowledge, skill, and understanding of microlending by awarding a 
grant to a more experienced Intermediary. SBA may also obtain such 
assistance for prospective Intermediaries in areas of the country that 
are either not served or underserved by an existing Intermediary.



Sec. 120.714  How are grants made to non-lending technical assistance providers (NTAP)?

    SBA selects non-lending technical assistance providers (NTAP) to 
receive grant funds for technical assistance to Microloan borrowers.
    (a) Grant procedure for non-Intermediaries. Any nonprofit entity 
that is not an Intermediary may apply to SBA for a grant to provide 
marketing, management and technical assistance to low-income individuals 
for the purpose of assisting them in obtaining private sector financing 
in amounts of $35,000 or less. To qualify, it must submit information 
regarding its ability to provide this assistance. If approved, the grant 
agreement will establish the terms and conditions for the grant.
    (b) Number and amount of grants. In each year of the Microloan 
Program, SBA may make no more than 55 grants to non-Intermediaries for 
terms of up to five years. A grant may not exceed $200,000.
    (c) Contribution by nonprofit entity. The nonprofit entity must 
contribute an amount equal to 20 percent of the grant. The contribution 
from the nonprofit entity must come solely from non-Federal sources, and 
may include direct costs or in-kind contributions paid for under non-
Federal programs.

[61 FR 3235, Jan. 31, 1996, as amended at 66 FR 47073, Sept. 11, 2001; 
66 FR 47878, Sept. 14, 2001]



Sec. 120.715  Does SBA guarantee any loans an Intermediary obtains from another source?

    (a) SBA may guarantee not less than 90 percent of loans made by for-
profit or nonprofit entities (or an alliance of

[[Page 254]]

such entities) to no more than 10 Intermediaries in urban areas and 10 
Intermediaries in Rural Areas (as defined in Sec. 120.10).
    (b) Any loan guaranteed by SBA under this section will have a term 
of 10 years. If an Intermediary receives such a loan, it will not need 
to repay any principal or interest during the first year, although the 
interest will accrue. During the second through fifth years, the 
Intermediary will pay interest only. During the sixth through tenth 
years, it will pay interest and fully amortize the principal.
    (c) The interest rate on any loan under this section shall be 
calculated as described in Sec. 120.706.

[61 FR 3235, Jan. 31, 1996, as amended at 66 FR 47073, Sept. 11, 2001]



Sec. 120.716  Suspension or revocation of an Intermediary or NTAP.

    (a) The AA/FA may suspend or revoke the participation status of an 
Intermediary or NTAP from the Microloan Program, or may impose other 
sanctions in the best interests of the program, if it fails to comply 
with the laws, regulations, and policies governing the program or if it 
fails to meet any one of the following minimum performance standards.
    (1) For Intermediaries only: An Intermediary must
    (i) Close and fund a minimum of four microloans per year, and
    (ii) Satisfactorily provide in-house technical assistance to 
microloan clients and prospective microloan clients.
    (2) For NTAPs only: An NTAP must show that, for every thirty clients 
for which it provided technical assistance, one client received a loan 
from the private sector.
    (3) For Intermediaries and NTAPs: An Intermediary and an NTAP must
    (i) Cover the service territory assigned by SBA, including honoring 
the SBA determined boundaries of neighboring Intermediaries and NTAPs,
    (ii) Fulfill reporting requirements,
    (iii) Manage program funds and matching funds in a satisfactory and 
financially sound manner,
    (iv) Communicate and file reports via the internet within six months 
after beginning participation in the program,
    (v) Maintain a currency rate of 85% or more (that is loans that are 
no more than 30 days late in scheduled payments),
    (vi) Maintain a default rate of 15% or less of the cumulative 
dollars loaned under the program, and
    (vii) Attend Microloan Program training conferences offered by SBA, 
or such substitute training as may be approved by SBA on a case by case 
basis.
    (b) The AA/FA, on a case by case basis, may impose pre-suspension or 
revocation sanctions which may include, but are not limited to, the 
following:
    (1) Accelerated reporting requirements;
    (2) Accelerated loan repayment requirements for outstanding program 
debt to SBA; and
    (3) Imposition of a temporary lending and/or training moratorium.
    (c) Revocation from the Microloan Program will include:
    (1) Removal from the program;
    (2) Liquidation of MRF and LLRF accounts, by SBA, and application of 
liquidated funds to any outstanding balance owed to SBA;
    (3) Payment of outstanding debt to SBA by the Intermediary;
    (4) Forfeiture or repayment of any unused grant funds by the 
Intermediary or NTAP;
    (5) Debarment of the organization from receipt of federal funds 
until loan and grant repayment requirements are met.
    (d) An Intermediary or NTAP may appeal a suspension or revocation 
under procedures found in part 134 of this chapter. The action of the 
AA/FA remains in effect pending resolution of the appeal.

[66 FR 47073, Sept. 11, 2001]



            Subpart H--Development Company Loan Program (504)



Sec. 120.800  What is the purpose of the 504 program?

    As authorized by Congress, SBA has established this program to 
foster economic development, create or preserve job opportunities, and 
stimulate growth, expansion, and modernization of small businesses.

[[Page 255]]



Sec. 120.801  How is a 504 Project financed?

    (a) One or more small businesses may apply for 504 financing through 
a CDC serving the area where the 504 Project is located. SBA issues an 
Authorization if it agrees to guarantee part of the funding for a 
Project.
    (b) Usually, a Project requires interim financing from an interim 
lender (often the same lender that later provides a portion of the 
permanent financing).
    (c) Generally, permanent financing of the Project consists of:
    (1) A contribution by the small business in an amount of at least 10 
percent of the Project costs;
    (2) A loan made with the proceeds of a CDC Debenture for up to 40 
percent of the Project costs and certain administrative costs, 
collateralized by a second lien on the Project Property; and
    (3) A Third Party Loan comprising the balance of the financing, 
collateralized by a first lien on the Project property (see 
Sec. 120.920).
    (d) The Debenture is guaranteed 100 percent by SBA (with the full 
faith and credit of the United States), and sold to Underwriters who 
form Debenture Pools. Investors purchase interests in Debenture Pools 
and receive Certificates representing ownership of all or part of a 
Debenture Pool. SBA and CDCs use various agents to facilitate the sale 
and service of the Certificates and the orderly flow of funds among the 
parties.

[61 FR 3235, Jan. 31, 1996, as amended at 64 FR 2118, Jan. 13, 1999]



Sec. 120.802  Definitions.

    The following terms have the same meaning wherever they are used in 
this subpart. Defined terms are capitalized wherever they appear.
    Area of Operations is the geographic area where SBA has approved a 
CDC's request to provide 504 program services to small businesses on a 
permanent basis.
    Associate Development Company (ADC) is an entity approved by SBA to 
assist CDCs to deliver 504 financing.
    Central Servicing Agent (CSA) is an entity that receives and 
disburses funds among the various parties involved in 504 financing 
under a master servicing agent agreement with SBA.
    Certificate is a document issued by SBA or its agent representing 
ownership of all or part of a Debenture Pool.
    Debenture is an obligation issued by a CDC and guaranteed 100 
percent by SBA, the proceeds of which are used to fund a 504 loan.
    Debenture Pool is an aggregation of Debentures.
    Investor is an owner of a beneficial interest in a Debenture Pool.
    Job Opportunity is a full time (or equivalent) permanent job created 
within two years of receipt of 504 funds, or retained in the community 
because of a 504 loan.
    Local Economic Area is an area, as determined by SBA, that is in a 
State other than the State in which an existing CDC (or an applicant 
applying to become a CDC) is incorporated, shares a border with the 
CDC's existing Area of Operations (or applicant's proposed Area of 
Operations) in its State of incorporation, and is a part of a local 
trade area that is contiguous to the CDC's Area of Operations (or 
applicant's proposed Area of Operations) within its State of 
incorporation. Examples of a local trade area would be a city that is 
bisected by a State line or a metropolitan statistical area that is 
bisected by a State line.
    Multi-State CDC is a CDC that is incorporated in one State and is 
authorized by SBA to operate as a CDC in a State contiguous to its State 
of incorporation beyond any contiguous Local Economic Areas.
    Net Debenture Proceeds are the portion of Debenture proceeds that 
finance eligible Project costs (excluding administrative costs).
    Project is the purchase or lease, and/or improvement or renovation 
of long-term fixed assets by a small business, with 504 financing, for 
use in its business operations.
    Project Property is one or more long-term fixed assets, such as 
land, buildings, machinery, and equipment, acquired or improved by a 
small business, with 504 financing, for use in its business operations.
    Third Party Loan is a loan from a commercial or private lender, 
investor, or Federal (non-SBA), State or local

[[Page 256]]

government source that is part of the Project financing.
    Underwriter is an entity approved by SBA to form Debenture Pools and 
arrange for the sale of Certificates.

[61 FR 3235, Jan. 31, 1996, as amended at 64 FR 2118, Jan. 13, 1999; 65 
FR 42632, July 11, 2000]

                Certification Procedures to Become a CDC



Sec. 120.810  Applications for certification as a CDC.

    Applicants for certification as a CDC must apply to the SBA District 
Office serving the area in which the applicant has or proposes to locate 
its headquarters.
    (a) An SBA District Office may accept an application for a county 
only if:
    (1) There is no CDC that includes the county in its Area of 
Operations;
    (2) Any CDCs that include the county in their Areas of Operations 
have not averaged together at least one 504 loan approval per 100,000 
population per year averaged over the 24 months prior to SBA receiving a 
complete application from the applicant; and the county has not become 
part of another CDC's Area of Operations within the prior 24 months; or
    (3) The county is part of the Area of Operations of only one CDC; 
the county has a population of 100,000 or more; the county has not 
become part of an Area of Operations within the prior 24 months of 
another CDC; the applicant is incorporated in the State where the county 
is located; and the CDC that includes the county in its Area of 
Operations submits a statement of no objection to the application.
    (b) An applicant whose application has been accepted must then 
demonstrate that it satisfies the certification and operating criteria 
in Secs. 120.820 through 120.829 and the need for 504 services in the 
Area Of Operations (if there is already a CDC in the Area of Operations, 
the applicant must justify the need for another and present a plan to 
avoid duplication or overlap). Applications must also include an 
operating budget approved by the applicant's Board of Directors, and a 
plan to meet CDC operating requirements (without specializing in a 
particular industry). An applicant's proposed Area of Operations may 
include Local Economic Areas. An applicant may not apply to cover an 
area as a Multi-State CDC. The AA/FA shall make the certification 
decision.

[65 FR 42632, July 11, 2000]



Sec. 120.811  Public notice of CDC certification application.

    (a) As part of the application process, the applicant must publish a 
notice in a general circulation newspaper in the proposed Area of 
Operations, including the name and location of the proposed CDC, its 
purpose and Area of Operations, and the names and addresses of its 
officers and directors. The applicant shall send a copy of the notice to 
SBA. The notice shall provide the public at least 30 days to submit 
written comments to the District Office. The SBA shall consider the 
comments in making its decision on the application.
    (b) CDCs serving the proposed Area of Operations shall be directly 
notified and given at least 30 days to comment.



Sec. 120.812  Probationary period for newly certified CDCs.

    (a) Newly certified CDCs will be on probation for a period of two 
years, at the end of which the CDC must petition for:
    (1) Permanent CDC status;
    (2) A single, one-year extension of probation; or
    (3) ADC status.
    (b) SBA will consider failure to file a petition before the end of 
the probationary period as a withdrawal from the 504 program. If the CDC 
elects ADC status or withdrawal, it must transfer all funded and/or 
approved loans to another CDC, SBA, or another servicer approved by SBA.

            Requirements for CDC Certification and Operation



Sec. 120.820  CDC non-profit status.

    A CDC must be a non-profit corporation in good standing. (For-profit 
CDCs certified by SBA prior to January 1, 1987 may retain their 
certifications.) An SBIC may not become a CDC.

[65 FR 42632, July 11, 2000]

[[Page 257]]



Sec. 120.821  CDC Area of Operations.

    A CDC must have a designated Area of Operations, specified by the 
CDC and approved by SBA. There can be only one statewide CDC in each 
state, which must foster economic development throughout the state and 
provide 504 assistance to areas not adequately served by other CDCs.



Sec. 120.822  CDC membership.

    (a) A CDC must have at least 25 members (or stockholders for for-
profit CDCs approved prior to January 1, 1987). The CDC membership must 
meet annually. No person or entity may own or control more than 10 
percent of the CDC's voting membership (or stock). Members must be 
representative of and provide evidence of active support in the Area of 
Operations. Members must be from each of the following groups:
    (1) Government organizations responsible for economic development in 
the Area of Operations and acceptable to SBA;
    (2) Financial institutions that provide commercial long term fixed 
asset financing in the Area of Operations;
    (3) Community organizations dedicated to economic development in the 
Area of Operations such as chambers of commerce, foundations, trade 
associations, colleges, or universities; and
    (4) Businesses in the Area of Operations.
    (b) A CDC that is incorporated in one State and is operating as a 
Multi-State CDC in another State must meet the membership requirements 
for each State.

[65 FR 42632, July 11, 2000]



Sec. 120.823  CDC Board of Directors.

    The CDC must have a Board of Directors chosen from the membership by 
the members, and representing at least three of the four membership 
groups. No single group shall control. No person who is a member of a 
CDC's staff may be a voting member of the Board except for the CDC 
manager. The Board Members must be responsible officials of the 
organizations they represent and at least one member other than the CDC 
manager must possess commercial lending experience. The Board must meet 
at least quarterly and shall be responsible for CDC staff decisions and 
actions. A quorum shall require at least 5 Directors authorized to vote. 
When the Board votes on SBA loan approval or servicing actions, at least 
one Board Member with commercial loan experience acceptable to SBA, 
other than the CDC manager, must be present and vote. There must be no 
actual or apparent conflict of interest with respect to any actions of 
the Board.
    (a) The Board may establish a Loan Committee of non-Board Members 
that reports to the Board. Loan Committee members must include at least 
one member with commercial lending experience acceptable to SBA. All 
members of the Loan Committee must live or work in the Area of 
Operations of the State where the 504 project they are voting on is 
located unless the project falls under one of the exceptions listed in 
Sec. 120.839, Case-by-case extensions. No CDC staff may serve on a Loan 
Committee. A quorum must have at least five committee members authorized 
to vote. The CDC's Board must ratify the actions of any Loan Committee. 
There must be no actual or apparent conflict of interest with respect to 
any actions of the Loan Committee.
    (b) If the CDC is incorporated in one State and is approved as a 
Multi-State CDC to operate in another State, the CDC must meet the Board 
requirements for each State and must have a Loan Committee for each 
State.

[65 FR 42632, July 11, 2000]



Sec. 120.824  Professional management and staff.

    A CDC must have full-time professional management, including an 
Executive Director (or the equivalent) managing daily operations. It 
must also have a full-time professional staff qualified by training and 
experience to market the 504 Program, package and process loan 
applications, close loans, service, and, if authorized by SBA, liquidate 
the loan portfolio, and sustain a sufficient level of service and 
activity in the Area of Operations. CDCs may obtain, under written 
contract, marketing, packaging, processing, closing, servicing or 
liquidation services provided by qualified individuals and entities who 
live or do business in the

[[Page 258]]

CDC's Area of Operations under the following circumstances:
    (a) The CDC has at least one salaried professional employee that is 
employed directly (not contracted) full-time to manage the CDC. A CDC 
may petition SBA to waive the requirement of at least one full-time 
manager if:
    (1) The CDC is rural and has insufficient loan volume to justify its 
own management, and another CDC located in the same general area will 
provide the management; or
    (2) The management of a CDC is to be contributed by a non-profit 
affiliate of the CDC that has the economic development of the CDC's Area 
of Operations as one of its principal activities. In the latter case, 
the management contributed by the affiliate may work on and operate 
other economic development programs of the affiliate, but must be 
available to 504 customers during regular business hours.
    (b) SBA must pre-approve contracts the CDC makes for managing, 
marketing, packaging, processing, closing, servicing, or liquidation 
functions. (CDCs may contract for legal and accounting services without 
SBA approval, except for legal services in connection with loan 
liquidation or litigation.)
    (c) Contracts must clearly identify terms and conditions 
satisfactory to SBA that permit the CDC to terminate the contract prior 
to its expiration date on a reasonable basis.
    (d) The CDC must provide copies of these contracts to SBA for review 
annually.
    (e) If a CDC's Board believes that it is in the best interest of the 
CDC to contract for a management, marketing, packaging, processing, 
closing, servicing or liquidation function, the CDC's Board must explain 
its reasoning to SBA. The CDC's Board must demonstrate to SBA that:
    (1) The compensation under the contract is only from the CDC, 
reasonable and customary for similar services in the Area of Operations, 
and is only for actual services performed;
    (2) The full term of the contract (including options) is reasonable; 
and
    (3) The contract does not evidence any actual or apparent conflict 
of interest or self-dealing on the part of any of the CDC's officers, 
management, and staff, including members of the Board and any Loan 
Committee.
    (f) No contractor (under this section) or Associate of a contractor 
may be a voting or non-voting member of the CDC's Board.

[65 FR 42632, July 11, 2000]



Sec. 120.825  Financial ability to operate.

    A CDC must be able to sustain its operations continuously, with 
reliable sources of funds (such as income from services rendered and 
contributions from government or other sponsors). Any funds generated 
from 503 and 504 loan activity by a CDC remaining after payment of staff 
and overhead expenses must be retained by the CDC as a reserve for 
future operations or for investment in other local economic development 
activity in its Area of Operations. If a CDC is operating as a Multi-
State CDC, it must maintain a separate accounting for each State of all 
504 fee income and expenses and provide, upon SBA's request, evidence 
that the funds resulting from its Multi-State CDC operations are being 
invested in economic development activities in each State in which they 
were generated.

[65 FR 42633, July 11, 2000]



Sec. 120.826  Basic requirements for operating a CDC.

    A CDC must operate in accordance with applicable statutes, 
regulations, policy notices, SBA's SOPs, and the information in its 
application. It must supply to SBA current and accurate information 
about all certification and operational requirements, and maintain the 
records and submit the reports required by SBA.



Sec. 120.827  Services a CDC provides to small businesses.

    (a) A CDC must operate in and adequately service its Area of 
Operations. It must market the 504 program, package and process 504 loan 
applications, and close and service 504 loans. A CDC's loan portfolio 
must be diversified by business sector.
    (b) A CDC may provide small businesses with financial and technical 
assistance, or may help small businesses

[[Page 259]]

obtain such assistance from other sources, including preparing, closing, 
and servicing loans under contract with Lenders in SBA's 7(a) program.
    (c) A CDC also may loan amounts to the Borrower equal to the value 
of all or part of the Borrower's contribution to a Project in the form 
of cash or land, including site improvements, previously acquired by the 
CDC.



Sec. 120.828  Minimum level of CDC lending activity.

    A CDC must provide at least two 504 loan approvals each full fiscal 
year.



Sec. 120.829  Job Opportunity average a CDC must maintain.

    (a) A CDC's portfolio must reflect an average of one Job Opportunity 
per $35,000 of 504 loan funding. The AA/FA may permit a CDC to average 
up to one per $45,000 for good cause in:
    (1) Alaska;
    (2) Hawaii;
    (3) State-designated urban or rural jobs and enterprise zones;
    (4) Empowerment Zones and Enterprise Communities; and
    (5) Labor Surplus Areas listed in the Department of Labor's 
publication ``Area Trends.''
    (b) A CDC must indicate in its annual report the Job Opportunities 
actually or estimated to be provided by each Project.
    (c) If a CDC does not maintain the required average, it may retain 
its certification if it justifies to SBA's satisfaction its failure to 
do so in its annual report and shows how it intends to attain the 
required average.



Sec. 120.830  Reports a CDC must submit.

    A CDC must submit the following reports to SBA:
    (a) An annual report within 90 days after the end of the CDC's 
fiscal year, and such interim reports as SBA may require;
    (b) Resumes for all new Associates and staff;
    (c) Reports of involvement in any legal proceeding;
    (d) Changes in organizational status;
    (e) Changes in any condition that affects its eligibility to 
continue to participate in the 504 program; and
    (f) Quarterly service reports on each loan in its portfolio which is 
60 days or more past due (and interim reports upon request by SBA).

                  Extending a CDC'S Area of Operations



Sec. 120.835  Application to expand an Area of Operations.

    An existing, active CDC applying to expand its Area of Operations 
must be operating in conformance with all existing SBA regulations, 
policies, and performance benchmarks and be well qualified to serve the 
proposed area. A CDC seeking to expand its Area of Operations must apply 
in writing to the SBA District Office where the CDC is headquartered, 
unless it is applying to be a Multi-State CDC. In that case, the CDC 
must apply to the SBA District Office that services the area where the 
Multi-State CDC intends to locate its principal office for that State.
    (a) An SBA District Office may accept a CDC's application to expand 
its Area of Operations into a county within its State of incorporation, 
or in a Local Economic Area only if:
    (1) There is no CDC that includes the county in its Area of 
Operations; or
    (2) Any CDCs that include the county in their Areas of Operations 
have not averaged together at least one 504 loan approval per 100,000 
population per year averaged over the 24 months prior to SBA receiving a 
complete application from the applicant CDC; and the county has not 
become part of an Area of Operations of another CDC within the prior 24 
months; or
    (3) The county is part of the Area of Operations of only one CDC; 
the county has a population of 100,000 or more; the county has not 
become part of an Area of Operations within the prior 24 months of 
another CDC; the applicant is incorporated in the State where the county 
is located; and the CDC that includes the county in its Area of 
Operations submits a statement of no objection to the application.
    (b) An SBA District Office may accept a CDC's application to expand 
and service an area as a Multi-State CDC only if:
    (1) There is no CDC that includes the county in its Area of 
Operations, or the

[[Page 260]]

CDCs that include the county in their Areas of Operations have not 
averaged together at least one 504 loan approval per 100,000 population 
per year averaged over the previous 24 months prior to SBA receiving a 
complete application from the applicant CDC; and the county has not 
become part of an Area of Operations of another CDC within the last 24 
months; and
    (2) The State it seeks to expand into is contiguous to the State of 
the CDC's incorporation; and
    (3) The requirements in Section 120.822, Membership, are separately 
met for the Area of Operations within the CDC's State of incorporation 
and for each State in which it operates or seeks to operate as a Multi-
State CDC; and
    (4) The requirements in Section 120.823, Board of Directors, are 
separately met for the State of incorporation and each additional State 
in which it operates or seeks to operate as a Multi-State CDC; and
    (5) The CDC has a Loan committee meeting the requirements of 
Sec. 120.823(b).
    (c) An applicant whose application for expansion has been accepted 
must demonstrate to the satisfaction of SBA that it satisfies all of the 
certification and operating criteria in Secs. 120.820 through 120.829. 
It must demonstrate that it has the ability to provide full service to 
small businesses in the requested area including processing, closing, 
servicing, and, if authorized, liquidating 504 loans. It must also 
demonstrate the need for 504 services in the Area of Operations and 
present a plan for servicing the area. If there is already one or more 
CDCs in the requested Area of Operations, the applicant must justify the 
need for another.

[65 FR 42633, July 11, 2000]



Sec. 120.836  Public notice and opportunity for response.

    SBA will notify all CDCs servicing the proposed area of expansion, 
allowing at least 30 days for the existing CDCs to respond to the 
District Office. The expanding CDC also must publish a notice in a 
general circulation newspaper in the proposed area of expansion, 
advising of its intent to expand and giving the public at least 30 days 
to comment to SBA. The burden of proof in opposing the application will 
be upon the existing CDC or CDCs to show why SBA should not grant the 
application for extension.



Sec. 120.837  SBA decision on application for a new CDC or for an existing CDC to expand Area of Operations.

    The processing District Office must solicit the comments of any 
other District Office in which the CDC operates or proposes to operate. 
The processing District Office must determine that the CDC is in 
compliance with SBA's regulations, policies, and performance benchmarks, 
including pre-approval and annual review by SBA of any management or 
staff contracts, and the timely submission of all annual reports. In 
making its recommendation on the application, the District Office may 
consider any information presented to it regarding the requesting CDC, 
the existing CDC, or CDCs that may be affected by the application, and 
the proposed Area of Operations.
    (a) The SBA District office will submit the application, 
recommendation, and supporting materials within 60 days of the receipt 
of a complete application from the CDC to the AA/FA, who will make the 
final decision. The AA/FA may consider any information submitted or 
available related to the applicant and the application.
    (b) If a CDC is approved to operate as a Multi-State CDC, any 
unilateral authority that a CDC has in its State of incorporation under 
any SBA program, including Accredited Lender's Program (ALP), Premier 
Certified Lenders Program (PCLP), or Expedited Closing Process (Priority 
CDC), does not carry over into a State in which it is approved to 
operate as a Multi-State CDC. The CDC must earn the status in each State 
based solely on its activity and performance in that State.

[65 FR 42633, July 11, 2000]



Sec. 120.838  Expiration of existing, temporary expansions.

    All existing, temporary expansions of Areas of Operation shall 
expire 6 months after March 1, 1996, unless a CDC applies for permanent 
expansion before the expiration date.

[[Page 261]]



Sec. 120.839  Case-by-case extensions.

    (a) A CDC may apply to make an individual loan for a Project outside 
its Area of Operations to the District Office serving the area in which 
the Project will be located if:
    (1) The applicant CDC has previously assisted the business to obtain 
a 504 loan;
    (2) The applicant small business or CDC can document in writing to 
the AA/FA specific circumstances that would prevent the existing CDC or 
CDCs serving the area from assisting the business adequately; or
    (3) The existing CDC or CDCs serving the area agree to permit the 
applicant CDC to make the loan.
    (b) The applicant CDC must demonstrate that it adequately can 
service the loan.
    (c) The AA/FA may approve the request for good cause shown.

[61 FR 3235, Jan. 31, 1996; 61 FR 7986, Mar. 1, 1996]

                    Accredited Lenders Program (ALP)



Sec. 120.840  Accredited Lenders Program.

    The SBA may designate a CDC as an Accredited Lender. SBA will 
provide an Accredited Lender with expedited loan processing or servicing 
action.
    (a) Applications. CDCs may apply to the SBA field office with which 
it is most active. The SBA office will send its recommendation and the 
application to the AA/FA for final decision.
    (b) Eligibility. In order to be eligible to receive Accredited 
Lender status, a CDC must have been an active participant in the 504 
loan program for not less than the preceding 12 months. In evaluating an 
application to be an Accredited Lender, SBA will consider all relevant 
factors, including:
    (1) The CDC's ability to work with the local SBA office;
    (2) The quality of past performance; and
    (3) The quality of the loan portfolio, including the default rate.
    (c) Term of designation. CDCs will be designated as ALPs for a two 
year period, and are eligible to renew the designation for additional 
two year periods.
    (d) Suspension and revocation. The AA/FA may suspend or revoke ALP 
designation upon written notice stating the reasons therefore at least 
10 business days prior to the effective date of the suspension or 
revocation. Reasons for suspension or revocation may include loan 
performance unacceptable to SBA or violations of applicable statutes, 
regulations or published SBA policies and procedures. An ALP may appeal 
the suspension or revocation made under this section pursuant to the 
procedures set forth in part 134 of this chapter. The action of the AA/
FA shall remain in effect pending resolution of the appeal.

                    Premier Certified Lenders Program



Sec. 120.845  Premier Certified Lenders Program (PCLP).

    The SBA has established a pilot program (``Program'') to designate a 
number of CDCs as Premier Certified Lenders (''Premier CDCs''), and to 
authorize them to approve, close, service, foreclose, litigate, and 
liquidate 504 loans subject to SBA regulations, procedures, and 
policies. A Premier CDC's authority to approve loans under the Program 
is subject to SBA's determination that the loan and Borrower meet SBA's 
eligibility requirements.
    (a) PCLP Loan Approvals. A Premier CDC notifies SBA of its approval 
of a PCLP loan by submitting appropriate documentation to SBA's loan 
processing center. SBA will notify the Premier CDC of the SBA loan 
number (if it does not identify a problem with eligibility, and funds 
are available).
    (b) Premier CDC Exposure. A Premier CDC must reimburse SBA for 10% 
of any loss (including attorney's fees and litigation costs and 
expenses) incurred by SBA as a result of a default by the Premier CDC on 
a Debenture issued under the PCLP (``Exposure'').
    (c) Loss Reserve. A Premier CDC must establish a loss reserve to 
provide funds to pay its Exposure to SBA.
    (1) Assets. (i) A Premier CDC's loss reserve must be composed of any 
combination of:
    (A) Segregated funds on deposit in one or more federally insured 
depository institutions in which the Premier CDC has granted to SBA, in 
a manner acceptable to SBA, a first priority perfected security interest 
to secure the

[[Page 262]]

Premier CDC's obligations to SBA under the PCLP; or
    (B) Irrevocable letters of credit.
    (ii) SBA must be named as the beneficiary of all letters of credit. 
A Premier CDC's loss reserve deposits in an institution may exceed the 
institution's insured amount, but only if the institution is ``well-
capitalized'' as defined in regulations of the Federal Deposit Insurance 
Corporation, as amended (12 CFR 325.103) (``well capitalized bank'').
    (iii) A loss reserve letter of credit must:
    (A) Be issued by a well-capitalized bank;
    (B) Have a term equal to or longer than the maturity of the PCLP 
loan which triggered the requirement for the Premier CDC to contribute 
to the loss reserve;
    (C) Be irrevocable;
    (D) Be otherwise acceptable to the SBA;
    (E) Have an issuer who remains well-capitalized throughout the term 
of the letter of credit, or SBA may require an additional loss reserve 
contribution by the contributing Premier CDC.
    (2) Contributions. A Premier CDC's loss reserve must total 1 percent 
of the Debentures it issues under the PCLP Program. A Premier CDC must 
contribute 50 percent of the required loss reserve attributable to each 
PCLP loan when the Debenture it issues to fund the PCLP loan is closed, 
25 percent within 1 year after the Debenture is closed, and 25 percent 
within 2 years after the Debenture is closed.
    (3) Reimbursement. SBA determines a Premier CDC's Exposure on a loan 
and withdraws the amount necessary to cover the Exposure. If, after full 
use of any assets in the loss reserve, there are not enough loss reserve 
assets to cover a Premier CDC's Exposure, the Premier CDC must pay SBA 
any difference between the Exposure and the loss reserve assets 
withdrawn by SBA to cover the Exposure within 45 days of a demand for 
payment by SBA.
    (4) Replenishment. If SBA withdraws assets from the loss reserve to 
cover a Premier CDC's Exposure, the Premier CDC must replace the 
withdrawn loss reserve assets within 30 days of the withdrawal with 
contributions equal to or greater than the amount of the assets 
withdrawn.
    (5). Withdrawal. A Premier CDC may withdraw loss reserve assets 
attributable to any repaid Debenture upon written approval by SBA.
    (d) Review. SBA will review a Premier CDC's PCLP loans annually.
    (e) Suspension and revocation. The AA/FA may suspend or revoke a 
CDC's Premier designation upon written notice stating the reasons for 
the suspension or revocation at least 10 business days prior to the 
effective date of the suspension or revocation. Reasons for suspension 
or revocation may include loan performance unacceptable to SBA, failure 
to meet loss reserve or eligibility criteria, or violations of 
applicable statutes, regulations, or published SBA policies and 
procedures. A Premier CDC may appeal the suspension or revocation made 
under this section pursuant to the procedures set forth in part 134 of 
this chapter. The action of the AA/FA shall remain in effect pending 
resolution of the appeal.
    (f) Applications. A CDC may obtain information concerning this pilot 
program from the Office of Program Development in the Office of 
Financial Assistance at SBA's Headquarters. A CDC may submit its 
application to the SBA field office in which it is most active. The SBA 
field office will send the application with its recommendation to the 
AA/FA for a final decision.
    (g) Acceptance into Program. When determining a CDC's application, 
SBA will consider the CDC's ability to work with the local SBA office 
and the quality of past performance.
    (h) Program period. The PCLP pilot program ends on October 1, 2000.

[64 FR 26274, May 14, 1999]

                 Associate Development Companies (ADCs)



Sec. 120.850  ADC functions.

    (a) An ADC must support local economic development efforts. An ADC 
may package, close, and service loans for a CDC under a written contract 
approved by SBA. Such contracts must meet Service Provider criteria, and 
specify the rights and responsibilities of the parties (including 
payment

[[Page 263]]

terms). The CDC remains solely responsible to SBA for the processing, 
closing, and servicing of the loan. It may not charge the Borrower a 
higher fee because it is using the ADC's services.
    (b) An ADC must operate in accordance with statutes, regulations, 
policy notices, SBA's Standard Operating Procedures (SOPs), and the 
information in its application. It must supply to SBA current and 
accurate information about all certification and operational 
requirements, and maintain the records required by SBA.



Sec. 120.851  ADC eligibility and operating requirements.

    (a) An ADC must demonstrate to SBA and maintain the following:
    (1) Adequate management ability;
    (2) A Board of Directors meeting at least quarterly and chosen from 
the membership by the members;
    (3) A professional staff, including at least one qualified full-time 
professional with small business lending experience available during 
regular business hours; and
    (4) A budget or financial statements showing the financial 
capability and funding to sustain continuing operations.
    (b) An ADC may contract out for staff services only if SBA gives 
prior approval. The contract, subject to SBA audit, may not be self-
serving, and compensation must be reasonable and customary.



Sec. 120.852  Suspension and revocation of ADCs.

    SBA may require corrective action, or the AA/FA may suspend or 
revoke ADC status upon written notice stating the reasons therefore at 
least 10 business days prior to the effective date of the suspension or 
revocation. Reasons for suspension or revocation may include violations 
of applicable statutes, regulations or published SBA policies and 
procedures. An ADC may appeal the suspension or revocation made under 
this section pursuant to the procedures set forth in part 134 of this 
chapter. The action of the AA/FA shall remain in effect pending 
resolution of the appeal.

                          Ethical Requirements



Sec. 120.855  CDC and ADC ethical requirements.

    CDCs, ADCs and their Associates must act ethically and exhibit good 
character. They must meet all of the ethical requirements of 
Sec. 120.140. In addition, they are subject to the following:
    (a) Any benefit flowing to an Associate or his or her employer from 
activities as an Associate must be merely incidental (this requirement 
does not prevent an Associate or an Associate's employer from engaging 
in a business relationship with the CDC and/or the Borrower in the 
regular course of business, including providing interim financing or 
Third-Party loans); and
    (b) Unless waived by SBA for good cause, an Associate may not be an 
officer, director, or manager of more than one CDC or ADC (except that 
the membership or Board of Directors of a broader-based CDC may include 
a member or director of a local CDC within its Area of Operations).

                   Project Economic Development Goals



Sec. 120.860  Required objectives.

    A Project must achieve at least one of the economic development 
objectives set forth in Sec. 120.861 or Sec. 120.862.



Sec. 120.861  Job creation or retention.

    A Project must create or retain one Job Opportunity for every 
$35,000 guaranteed by SBA.



Sec. 120.862  Other economic development objectives.

    A Project that achieves any of the following community development 
or public policy goals is eligible if the CDC's overall portfolio of 504 
loans, including the subject loan, meets or exceeds the CDC's required 
Job Opportunity average. Loan applications must indicate how the Project 
will meet the specified economic development objective.
    (a) Community Development goals:
    (1) Improving, diversifying or stabilizing the economy of the 
locality;
    (2) Stimulating other business development;

[[Page 264]]

    (3) Bringing new income into the community;
    (4) Assisting manufacturing firms (Standard Industrial 
Classification Manual (SIC) Codes 20-49); or
    (5) Assisting businesses in Labor Surplus Areas as defined by the 
Department of Labor.
    (b) Public Policy goals:
    (1) Revitalizing a business district of a community with a written 
revitalization or redevelopment plan;
    (2) Expanding exports;
    (3) Expanding Minority Enterprise development (See Sec. 124.105(b) 
for minority groups who qualify for this description);
    (4) Aiding rural development;
    (5) Increasing productivity and competitiveness (retooling, 
robotics, modernization, competition with imports);
    (6) Modernizing or upgrading facilities to meet health, safety, and 
environmental requirements; or
    (7) Assisting businesses in or moving to areas affected by Federal 
budget reductions, including base closings, either because of the loss 
of Federal contracts or the reduction in revenues in the area due to a 
decreased Federal presence.

[61 FR 3235, Jan. 31, 1996, as amended at 64 FR 2118, Jan. 13, 1999]

                 Leasing Policies Specific to 504 Loans



Sec. 120.870  Leasing Project Property.

    (a) A Borrower may use the proceeds of a 504 loan to acquire, 
construct, or modify buildings and improvements, and/or to purchase and 
install machinery and equipment located on land leased to the Borrower 
by the CDC or an unrelated lessor if:
    (1) The remaining term of the lease, including options to renew, 
exercisable only by the lessee, equals or exceeds the term of the 
Debenture;
    (2) The Borrower assigns its interest in the lease to the CDC with 
right of reassignment to SBA; and
    (3) The 504 loan is secured by a recorded lien against the leasehold 
estate and other collateral as necessary.
    (b) If a CDC leases property to a small business, the rent paid by 
the small business during the term of the Debenture must be enough to 
pay principal and interest on all debt incurred by the CDC to finance 
the Project, and all related expenses. The rent also may include a 
reasonable return on the CDC's investment.
    (c) If the Project is for new construction, the Borrower may lease 
long term up to 20 percent of the Rentable Property in the Project to 
one or more tenants if the Borrower immediately occupies at least 60 
percent of the Rentable Property, plans to occupy within three years 
some of the remaining space not immediately occupied and not leased long 
term, and plans to occupy all of the remaining space not leased long 
term within ten years.

[61 FR 3235, Jan. 31, 1996, as amended at 64 FR 2118, Jan. 13, 1999]



Sec. 120.871  Leasing part of an existing building to another business.

    (a) The costs of interior finishing of space to be leased out to 
another business are not eligible Project costs.
    (b) Third-party loan proceeds used to renovate the leased space do 
not count towards the 504 first mortgage requirement or the Borrower's 
contribution.

               Loan-Making Policies Specific to 504 Loans



Sec. 120.880  Basic eligibility requirements.

    In addition to the eligibility requirements specified in subpart A, 
to be an eligible Borrower for a 504 loan, a small business must:
    (a) Use the Project Property (except that an Eligible Passive 
Company may lease to an Operating Company); and
    (b) Together with its affiliates, meet one of the following size 
standards:
    (1) It does not have a tangible net worth in excess of $6 million, 
and does not have an average net income after Federal income taxes 
(excluding any carry-over losses) for the preceding two years in excess 
of $2 million; or
    (2) It meets the size standards in part 121 of this chapter for the 
industry in which it is primarily engaged.



Sec. 120.881  Ineligible Projects for 504 loans.

    In addition to the ineligible businesses and uses of proceeds 
specified in subpart A of this part, the following

[[Page 265]]

Projects are ineligible for 504 financing:
    (a) Relocation of any of the operations of a small business which 
will cause a net reduction of one-third or more in the workforce of a 
relocating small business or a substantial increase in unemployment in 
any area of the country, unless the CDC can justify the loan because:
    (1) The relocation is for key economic reasons and crucial to the 
continued existence, economic wellbeing, and/or competitiveness of the 
applicant; and
    (2) The economic development benefits to the applicant and the 
receiving community outweigh the negative impact on the community from 
which the applicant is moving; and
    (b) Projects in foreign countries (loans financing real or personal 
property located outside the United States or its possessions).



Sec. 120.882  Eligible Project costs for 504 loans.

    Eligible Project costs which may be paid with the proceeds of 504 
loans are:
    (a) Costs directly attributable to the Project including 
expenditures incurred by the Borrower (with its own funds or from a 
loan):
    (1) To acquire land used in the Project prior to applying to SBA for 
the 504 loan; or
    (2) For any other expense toward a Project within nine months prior 
to receipt by SBA of a complete loan application, unless the time limit 
is extended or waived by SBA for good cause;
    (b) In Projects involving construction, a contingency reserve for 
cost overruns not to exceed 10 percent of construction cost;
    (c) Professional fees directly attributable and essential to the 
Project, such as title insurance, architecture, engineering, accounting, 
environmental studies, and legal fees (other than legal fees associated 
with the closing); and
    (d) Repayment of interim financing including points, fees and 
interest.



Sec. 120.883  Eligible administrative costs for 504 loans.

    The following administrative costs are not part of Project costs, 
but may be paid with the proceeds of the 504 loan and the Debenture (see 
Sec. 120.971):
    (a) SBA guarantee fee;
    (b) Funding fee (to cover the cost of a public issuance of 
securities and the Trustee);
    (c) CDC processing fee;
    (d) Borrower's out-of-pocket costs associated with the closing of 
the 504 loan (other than legal fees);
    (e) CDC Closing Fee (see Sec. 120.971(a)(2)) up to a maximum of 
$2,500; and
    (f) Underwriters' fee.

[64 FR 2118, Jan. 13, 1999]



Sec. 120.884  Ineligible costs for 504 loans.

    Costs not directly attributable and necessary for the Project may 
not be paid with proceeds of the 504 loan. These include, but are not 
limited to, the following:
    (a) Debt refinancing (other than interim financing).
    (b) Third-Party Loan fees (commitment, broker, finders, origination, 
processing fees of permanent financing).
    (c) Ancillary business expenses, such as:
    (1) Working capital;
    (2) Counseling or management services fees;
    (3) Incorporation/organization costs;
    (4) Franchise fees; and
    (5) Advertising.
    (d) Fixed-asset Project components, such as:
    (1) Short-term equipment, furniture, and furnishings (unless 
essential to and a minor portion of the Project);
    (2) Automobiles, trucks, and airplanes; and
    (3) Construction equipment (except for heavy duty construction 
equipment integral to a business' operations and meeting the IRS 
definition of capital equipment).

[61 FR 3235, Jan. 31, 1996, as amended at 64 FR 2118, Jan. 13, 1999]

[[Page 266]]

                            Interim Financing



Sec. 120.890  Source of interim financing.

    A Project may use interim financing for all Project costs except the 
Borrower's contribution. Any source (including a CDC) may supply interim 
financing provided:
    (a) The financing is not derived from any SBA program, directly or 
indirectly;
    (b) The terms and conditions of the financing are acceptable to SBA;
    (c) The source is not the Borrower or an Associate of the Borrower; 
and
    (d) The source has the experience and qualifications to monitor 
properly all Project construction and progress payments. (If the source 
lacks such experience or qualifications, SBA may require the interim 
loan to be managed by a third party such as a bank or professional 
construction manager.)



Sec. 120.891  Certifications of disbursement and completion.

    Before the Debenture is issued, the interim lender must certify the 
amount disbursed. The CDC must certify that the Project was completed in 
accordance with the final plans and specifications (except as provided 
in Sec. 120.961).



Sec. 120.892  Certifications of no adverse change.

    Following completion of the Project, the following certifications 
must be made before the 504 loan closing:
    (a) The interim lender must certify to the CDC that it has no 
knowledge of any unremedied substantial adverse change in the condition 
of the small business since the application to the interim lender;
    (b) The Borrower (or Operating Company) must certify to the CDC that 
there has been no unremedied substantial adverse change in its financial 
condition or its ability to repay the 504 loan since the date of 
application, and must furnish interim financial statements, current 
within 90 days of closing; and
    (c) The CDC must issue an opinion to the best of its knowledge that 
there has been no unremedied substantial adverse change in the 
Borrower's (or Operating Company's) ability to repay the 504 loan since 
its submission of the loan application to SBA.

                           Permanent Financing



Sec. 120.900  What are the sources of permanent financing?

    Permanent financing for each Project must come from three sources: 
the Borrower's contribution, Third-Party Loans, and the 504 loan. 
Typically, the Borrower contributes 10 percent of the permanent 
financing, Third-Party Loans 50 percent and the 504 loan 40 percent.

                       The Borrower's Contribution



Sec. 120.910  How much must the Borrower contribute?

    (a) The Borrower must contribute to the Project cash (or property 
acceptable to SBA obtained with the cash) or land (that is part of the 
Project Property), in an amount equal to the following percentage of the 
Project cost, excluding administrative costs:
    (1) At least 15 percent, if the Borrower (or Operating Company if 
the Borrower is an Eligible Passive Company) has operated for two years 
or less;
    (2) At least 15 percent, if the Project involves the acquisition, 
construction, conversion, or expansion of a limited or single purpose 
building or structure;
    (3) At least 20 percent, if the Project involves conditions 
described in paragraphs (a)(1) and (2) of this section; or
    (4) At least 10 percent, in all other circumstances.
    (b) The source of the contribution may be a CDC or any other source 
except an SBA business loan program (see Sec. 120.913 for SBIC 
exception).

[64 FR 2118, Jan. 13, 1999]



Sec. 120.911  Land contributions.

    The Borrower's contribution may be land (including buildings, 
structures and other site improvements which will be part of the Project 
Property) previously acquired by the Borrower or the CDC.



Sec. 120.912  Borrowed contributions.

    The Borrower may borrow its cash contribution from the CDC or a 
third

[[Page 267]]

party. If any of the contribution is borrowed, the interest rate must be 
reasonable. If the loan is secured by any of the Project assets, the 
loan must be subordinate to the liens securing the 504 Loan, and the 
loan may not be repaid at a faster rate than the 504 Loan unless SBA 
gives prior written approval. A third party lender may not receive 
voting rights, stock options, or any other actual or potential voting 
interest in the small business.



Sec. 120.913  May an SBIC provide the contribution?

    Subject to part 107 of this chapter, SBIC's may provide financing 
for all or part of the Borrower's contribution to the project. SBA shall 
consider SBIC funds to be derived from federal sources if the SBIC has 
leverage (as defined in part 107 of this chapter). If the SBIC does not 
have leverage, the investment will be considered to be from private 
funds. SBIC financing must be subordinated to the 504 loan and may not 
be repaid at a faster rate than the Debenture.

                            Third Party Loans



Sec. 120.920  Required participation by the Third Party Lender.

    (a) Amount of Third Party Loans. A Project financing must include 
one or more Third Party Loans totaling at least as much as the 504 loan. 
However, the Third Party Loans must total at least 50 percent of the 
total cost of the Project if:
    (1) The Borrower (or Operating Company, if the Borrower is an 
Eligible Passive Company) has operated for two years or less, or
    (2) The Project is for the acquisition, construction, conversion or 
expansion of a limited or single purpose asset.
    (b) Third Party Loan collateral. Third Party Loans usually are 
collateralized by a first lien on the Project property. The SBA cannot 
guarantee these loans.

[64 FR 2118, Jan. 13, 1999]



Sec. 120.921  Terms of Third Party loans.

    (a) Maturity. A Third Party Loan must have a term of at least 7 
years when the 504 loan is for a term of 10 years and 10 years when the 
504 loan is for 20 years. If there is more than one Third Party Loan, an 
overall loan maturity must be calculated, taking into account the 
maturities and amounts of each loan. If there is a balloon payment, it 
must be justified in the loan report and clearly identified in the Loan 
Authorization.
    (b) Interest rates. Interest rates must be reasonable. SBA must 
establish and publish in the Federal Register a maximum interest rate 
for any Third Party Loan from commercial financial institutions. The 
rate shall remain in effect until changed.
    (c) Other terms. The Third Party Loan must not have any early call 
feature or contain any demand provisions unless the loan is in default. 
By participating, a Third Party Loan lender waives, as to the CDC/SBA 
financing, any provision in its deed of trust, or mortgage, or other 
documents prohibiting further encumbrances or subordinate debt. In the 
event of default, the Third Party Lender must give the CDC and SBA 
written notice of default within 30 days of the event of default and at 
least 60 days prior to foreclosure.
    (d) Future advances. The Third Party Loan must not be open-ended. 
After completion of the Project, the Third Party Lender may not make 
future advances under the Third Party Loan except expenditures to 
collect amounts due the Third Party Loan notes, maintain collateral and 
protect the Third Party Lender's lien position on the Third Party Loan.
    (e) Subordination. The Third Party Lender's lien will be subordinate 
to the CDC/SBA lien regarding any prepayment penalties, late fees, other 
default charges, and escalated interest after default due under the 
Third Party Loan.
    (f) Escalation upon default. A Third-Party Lender may not escalate 
the rate of interest upon default to a rate greater than the maximum 
rate set forth in paragraph (b) of this section. Regarding any Project 
that SBA approved after September 30, 1996, SBA will only pay the 
interest rate on the note in effect before the date of the Borrower's 
default.

[61 FR 3235, Jan. 31, 1996, as amended at 64 FR 2118, Jan. 13, 1999]

[[Page 268]]



Sec. 120.922  Pre-existing debt on the Project Property.

    In addition to its share of Project cost, a Third-Party Loan may 
include consolidation of existing debt on the Project Property. The 
consolidation must not improve the lien position of the Lender on the 
pre-existing debt, unless the debt is a previous Third-Party Loan.



Sec. 120.923  What are the policies on subordination?

    (a) Financing provided by the seller of Project Property must be 
subordinate to the 504 loan. SBA may waive the subordination requirement 
if the property is classified as ``other real estate owned'' by a 
national bank or other Federally regulated lender and SBA considers the 
property to be of sufficient value to support the 504 loan.
    (b) A Borrower is eligible for a 504 loan even if part of the 
Project financing is tax-exempt. SBA's lien position must not be 
subordinate to loans made from the proceeds of the tax-exempt 
obligation.



Sec. 120.924  Prepayment of subordinate financing.

    The Borrower must not prepay any Project financing subordinate to 
the 504 loan without SBA's prior written consent.



Sec. 120.925  Preferences.

    No Third Party Lender shall establish a Preference.



Sec. 120.926  Referral fee.

    The CDC may receive a referral fee from the Third Party Lender if 
the CDC secured the lender for the Borrower under a written contract. 
The Borrower cannot pay this fee. If a CDC charges a referral fee, the 
CDC will be construed as a Referral Agent under part 103 of this 
chapter.

                        504 Loans and Debentures



Sec. 120.930  Amount.

    (a) Generally, a 504 loan may not exceed 40 percent of total Project 
cost plus 100 percent of eligible administrative costs. For good cause 
shown, SBA may authorize an increase in the percentage of Project costs 
covered up to 50 percent. No more than 50 percent of eligible Project 
costs can be from Federal sources, whether received directly or 
indirectly through an intermediary.
    (b) Generally, the minimum 504 loan must be $50,000, although, upon 
good cause shown, SBA may permit a 504 loan as small as $25,000. The 
amount of the Debenture must equal the amount of the 504 Loan plus 
administrative costs.
    (c) Upon completion of the Project, the Debenture amount will be 
reduced by the amount that the unused contingency reserve exceeds 2 
percent of the anticipated Debenture.



Sec. 120.931  504 lending limits.

    The outstanding balance of all SBA financial assistance to a 
Borrower and its affiliates under the 504 program covered by this part 
must not exceed $750,000 ($1,000,000 if one or more of the public policy 
goals enumerated in Sec. 120.862(b) applies to the Project).



Sec. 120.932  Interest rate.

    The interest rate of the 504 Loan and the Debenture which funds it 
is set by the SBA and approved by the Secretary of the Treasury.



Sec. 120.933  Maturity.

    The term of a 504 Loan and the Debenture which funds it shall be 
either 10 or 20 years.



Sec. 120.934  Collateral.

    The CDC/SBA takes a junior lien position (usually a second lien) on 
the Project collateral. In rare circumstances, collateral other than the 
Project collateral may be accepted by SBA. Sometimes secondary 
collateral is required. All collateral must be insured against such 
hazards and risks as SBA may require, with provisions for notice to SBA 
and the CDC in the event of impending lapse of coverage.



Sec. 120.935  Deposit.

    At the time of application for a 504 loan, the CDC may require a 
deposit from the Borrower of $2,500 or 1 percent of the Net Debenture 
Proceeds, whichever is less. The deposit may be applied to the loan 
processing fee if the application is accepted, but must be refunded if 
the application is denied. If

[[Page 269]]

the small business withdraws its application, the CDC may deduct from 
the deposit reasonable costs incurred in packaging and processing the 
application.



Sec. 120.936  Subordination to CDC.

    SBA, in its sole discretion, may permit subordination of the 
Debenture to any other obligation of the CDC, except debt incurred by 
the CDC to obtain funds to loan to the Borrower for the Borrower's 
required contribution to the Project financing.



Sec. 120.937  Assumption.

    A 504 loan may be assumed with SBA's prior written approval.



Sec. 120.938  Default.

    (a) Upon occurrence of an event of default specified in the 504 note 
which requires automatic acceleration, the note becomes due and payable. 
Upon occurrence of an event of default which does not require automatic 
acceleration, SBA may forbear acceleration of the note and attempt to 
resolve the default. If the default is not cured subsequently, the note 
shall be accelerated. In either case, upon acceleration of the note, the 
Debenture which funded it is also due immediately, and SBA must honor 
its guarantee of the Debenture. SBA shall not reimburse the investor for 
any premium paid.
    (b) If a CDC defaults on a Debenture, SBA generally shall limit its 
recovery to the payments made by the small business to the CDC on the 
loan made from the Debenture proceeds, and the collateral securing the 
defaulted loan. However, SBA will look to the CDC for the entire amount 
of the Debenture in the case of fraud, negligence, or misrepresentation 
by the CDC.



Sec. 120.939  Borrower prohibition.

    Neither a Borrower nor an Associate of the Borrower may purchase an 
interest in a Debenture Pool in which the Debenture that funded its 504 
loan has been placed.



Sec. 120.940  Prepayment of the 504 loan or Debenture.

    The Borrower may prepay its 504 loan, if it pays the entire 
principal balance, unpaid interest, any unpaid fees, and any prepayment 
premium established in the note. If the Borrower prepays, the CDC must 
prepay the corresponding Debenture with interest and premium. If one of 
the Debentures in a Debenture Pool is prepaid, the Investors in that 
Debenture Pool must be paid pro rata, and SBA's guarantee on the entire 
Debenture Pool must be proportionately reduced. If the entire Debenture 
Pool is paid off, SBA may call all Certificates backed by the Pool for 
redemption.



Sec. 120.941  Certificates.

    (a) The face value of a Certificate must be at least $25,000. 
Certificates are issued in registered form and transferred only by entry 
on the central registry maintained by the Trustee. SBA guarantees the 
timely payment of principal and interest on the Certificates.
    (b) Before the sale of a Certificate, the seller, or the broker or 
dealer acting as the seller's agent, must disclose to the purchaser the 
terms, conditions, yield, and premium and other characteristics not 
guaranteed by SBA.

                   Debenture Sales and Service Agents



Sec. 120.950  SBA and CDC must appoint agents.

    SBA and the CDC must appoint the following agents to facilitate the 
sale and service of the Certificates and disbursement of the proceeds.



Sec. 120.951  Selling agent.

    The CDC, with SBA approval, shall appoint a Selling Agent to select 
underwriters, negotiate the terms and conditions of Debenture offerings 
with the underwriters, and direct and coordinate Debenture sales.



Sec. 120.952  Fiscal agent.

    SBA shall appoint a Fiscal Agent to assess the financial markets, 
minimize the cost of sales, arrange for the production of the Offering 
Circular, Debenture Certificates, and other required documents, and 
monitor the performance of the Trustee and the underwriters.



Sec. 120.953  Trustee.

    SBA must appoint a Trustee to:
    (a) Issue Certificates;

[[Page 270]]

    (b) Transfer the Certificates upon resale in the secondary market;
    (c) Maintain physical possession of the Debentures for SBA and the 
Certificate holders;
    (d) Establish and maintain a central registry of:
    (1) Debenture Pools, including the CDC obligors and the interest 
rate payable on the Debentures in each Pool;
    (2) Certificates issued or transferred, including the Debenture Pool 
backing the Certificate, name and address of the purchaser, price paid, 
the interest rate on the Certificate, and fees or charges assessed by 
the transferror; and
    (3) Brokers and dealers in Certificates, and the commissions, fees 
or discounts granted to the brokers and dealers;
    (e) Receive semi-annual Debenture payments and prepayments;
    (f) Make regularly scheduled and prepayment payments to Investors; 
and
    (g) Assure before any resale of a Debenture or Certificate is 
recorded in the registry that the seller has provided the purchaser a 
written disclosure statement approved by SBA.



Sec. 120.954  Central Servicing Agent.

    (a) SBA has entered into a Master Servicing Agreement designating a 
Central Servicing Agent (CSA) to support the orderly flow of funds among 
Borrowers, CDCs, and SBA. The CDC and Borrower must enter into an 
individual Servicing Agent Agreement with the CSA for each 504 loan, 
constituting acceptance by the CDC and the Borrower of the terms of the 
Master Servicing Agreement.
    (b) The CSA has established a master reserve account. All funds 
related to the 504 loans and Debentures flow through the master reserve 
account under the provisions of the Master Servicing Agreement. The 
master reserve account will be funded by a guarantee fee, a funding fee 
to be published from time to time in the Federal Register, and by 
principal and interest payments of 504 loans. At SBA's direction, the 
CSA may use funds in the master reserve account to defray program 
expenses. In the event a Borrower defaults and its 504 note is 
accelerated, SBA shall add funds under its guarantee to ensure the full 
and timely payment of the Debenture which funded the 504 loan. At SBA's 
direction, the CSA must pay to the CDC servicing each loan the interest 
accruing in the master reserve account on loan payments made by each 
Borrower between the date of receipt of each monthly payment and the 
date of disbursement to investors. The CSA may disburse such interest 
periodically to CDCs on a pro rata basis. SBA may use interest accruals 
in the master reserve account earned prior to October 1991 (not 
previously distributed to the CDCs) for the costs of 504 program 
administration.



Sec. 120.955  Agent bonds and records.

    (a) Each agent (in Secs. 120.951 through 120.954) must provide a 
fidelity bond or insurance in such amount as necessary to fully protect 
the interest of the government.
    (b) SBA must have access at the agent's place of business to all 
books, records and other documents relating to Debenture activities.



Sec. 120.956  Suspension or revocation of brokers and dealers.

    The AA/FA may suspend or revoke the privilege of any broker or 
dealer to participate in the sale or marketing of Debentures and 
Certificates for actions or conduct bearing negatively on the broker's 
fitness to participate in the securities market. SBA must give the 
broker or dealer written notice, stating the reasons therefore, at least 
10 business days prior to the effective date of the suspension or 
revocation. A broker or dealer may appeal the suspension or revocation 
made under this section pursuant to the procedures set forth in part 134 
of this chapter. The action of the AA/FA will remain in effect pending 
resolution of the appeal. SBA may suspend or revoke the opportunity for 
a hearing under part 134 of this chapter.

                                Closings



Sec. 120.960  Responsibility for closing.

    The CDC is responsible for the 504 Loan closing. The Debenture 
closing is the joint responsibility of the CDC and SBA.

[[Page 271]]



Sec. 120.961  Construction escrow accounts.

    The CSA, title company, CDC attorney, or bank may hold Debenture 
proceeds in escrow to complete Project components such as landscaping 
and parking lots, and acquire machinery and equipment if the component 
or acquisition is a minor portion of the total Project and has been 
contracted for completion or delivery at a specified price and specific 
future date. The escrow agent must disburse funds upon approval by the 
CDC and the SBA, supported by invoices and payable jointly to the small 
business and the designated contractor.

                           Servicing and Fees



Sec. 120.970  Servicing of 504 loans and Debentures.

    The CDC must service the 504 loan in accordance with the Loan 
Authorization, these regulations, SBA policies and procedures, and 
prudent lending standards until paid in full, including review of the 
small business's financial statements, tax filings, insurance, and 
security filings. In doing so, CDCs must comply with the provisions of 
Sec. 120.513. In addition, CDCs must comply with the servicing 
requirements set forth in SBA's SOP. CDCs must report promptly to SBA 
any adverse trend, condition or information relevant to a Borrower. Upon 
request by a CDC, SBA may agree to defer a Borrower's monthly payment. 
SBA may negotiate agreements with CDCs to liquidate loans.



Sec. 120.971  Allowable fees paid by Borrower.

    (a) CDC fees. CDCs may charge the following fees to the Borrower:
    (1) Processing fee. The CDC may charge up to 1.5 percent of the net 
Debenture proceeds to process the financing. Two-thirds of this fee will 
be considered earned and may be collected by the CDC when the 
Authorization for the Debenture is issued by SBA. The portion of the 
processing fee paid by the Borrower may be reimbursed from the Debenture 
proceeds;
    (2) Closing fee. The CDC may charge a reasonable closing fee 
sufficient to reimburse it for the expenses of its in-house or outside 
legal counsel, and other miscellaneous closing costs (CDC Closing Fee). 
Closing costs, other than legal fees, may be funded out of the Debenture 
proceeds;
    (3) Servicing fee. The CDC will charge a monthly servicing fee of at 
least 0.625 percent per annum and no more than 2 percent per annum on 
the unpaid balance of the loan as determined at five-year anniversary 
intervals. A servicing fee greater than 1.5 percent in a rural area and 
1 percent everywhere else requires SBA's prior written approval, based 
on evidence of substantial need. The servicing fee may be paid only from 
loan payments received. The fees may be accrued without interest and 
collected from the CSA when the payments are made.
    (4) Late fees. Loan payments received after the 15th of each month 
may be subject to a late payment fee of 5 percent of the late payment or 
$100, whichever is greater. These fees will be collected by the CSA on 
behalf of the CDC; and
    (5) Assumption fee. Upon SBA's written approval, a CDC may charge an 
assumption fee not to exceed 1 percent of the outstanding principal 
balance of the loan being assumed.
    (b) CSA fees. The CSA may charge an initiation fee on each loan and 
a monthly servicing fee under the terms of the Master Servicing 
Agreement.
    (c) Other agent fees. Agent fees and charges necessary to market and 
service Debentures and Certificates may be assessed to the Borrower or 
the investor. The fees must be approved by SBA and published 
periodically in the Federal Register.
    (d) SBA fees. (1) SBA charges a 0.5 percent guarantee fee on the 
Debenture.
    (2) For loans approved by SBA after September 30, 1996, SBA charges 
a fee of not more than 0.9375 percent annually on the unpaid principal 
balance of the loan as determined at five-year anniversary intervals.
    (e) Miscellaneous fees. A funding fee not to exceed 0.25 percent of 
the Debenture may be charged to cover costs incurred by the trustee, 
fiscal agent, transfer agent.

[61 FR 3235, Jan. 31, 1996, as amended at 64 FR 2119, Jan. 13, 1999]

[[Page 272]]



Sec. 120.972  Third Party Lender participation fee and Development Company fee.

    (a) Participation fee. For loans approved by SBA after September 30, 
1996, SBA must collect a one-time fee from the Third Party Lender equal 
to 50 basis points on its total participation in a Project when the 
Third Party Lender occupies a senior credit position to SBA in the 
project.
    (b) Development company fee. For loans approved by SBA after 
September 30, 1996, SBA must collect an annual fee from the CDC equal to 
0.125 percent of the outstanding principal balance of the debenture. The 
fee must be paid from the servicing fees collected by the CDC and cannot 
be paid from any additional fees imposed on the Borrowers.

[64 FR 2119, Jan. 13, 1999]



Sec. 120.973  Oversight and evaluation of CDCs and ADCs.

    SBA may conduct an operational review of a CDC or ADC. The SBA 
Office of Inspector General may conduct, supervise or coordinate audits 
pursuant to the Inspector General Act. The CDC or ADC must cooperate and 
make its staff, records, and facilities available.

[61 FR 3235, Jan. 31, 1996. Redesignated at 64 FR 2119, Jan. 13, 1999]

                 CDC Transfer, Suspension and Revocation



Sec. 120.980  Transfer of CDC to ADC status.

    SBA shall transfer to ADC status any CDC that fails to meet the 
activity level required by SBA, on average over two consecutive fiscal 
years. SBA shall notify the CDC in writing of the action and of the 
opportunity for a hearing pursuant to part 134 of this chapter at least 
10 business days prior to the transfer. During the pendency of a 
hearing, SBA's action will remain in effect.



Sec. 120.981  Voluntary transfer and surrender of CDC certification.

    A CDC may not transfer its certification or withdraw from the 504 
program without SBA's consent. The CDC must provide a plan to SBA to 
transfer its portfolio. The portfolio may only be transferred with SBA's 
written consent. If a CDC desires to withdraw from the 504 program, it 
must forfeit its portfolio to SBA. SBA may conduct an audit of the 
transferring or withdrawing CDC.



Sec. 120.982  Correcting CDC servicing deficiencies.

    SBA may require corrective action, including the transfer of 
existing or pending financings to another CDC in good standing. SBA must 
notify the CDC in writing of any servicing, reporting or collection 
deficiencies and the corrective actions to be taken. SBA may instruct 
the CSA to withhold service and late fees and may assess the CDC up to 
$250 per day for expenses incurred by SBA to correct the deficiencies. 
If non-compliance continues for 90 days, SBA may take the fees as 
compensation for its efforts to obtain compliance.



Sec. 120.983  Transfer of CDC servicing to SBA or another CDC.

    If a CDC fails to correct servicing deficiencies, or is unable or 
unwilling to service its portfolio, SBA may assume the servicing or 
require the transfer of all or part of the CDC's portfolio to another 
CDC within or adjoining the deficient CDC's Area of Operations. If there 
is no suitable CDC, SBA may approve a transfer to another entity. Future 
service fees from transferred loans will be paid to the transferee. In 
addition, the CDC's processing authority will be temporarily suspended.



Sec. 120.984  Suspension or revocation of CDC certification.

    (a) Suspend or revoke. The AA/FA may suspend or revoke the CDC's 
certification if a CDC:
    (1) Violates a statute, an SBA regulation, or the terms of a 
Debenture, authorization, or agreement with SBA;
    (2) Makes a material false statement, knowingly misrepresents, or 
fails to state a material fact;
    (3) Fails to maintain good character;
    (4) Fails to operate according to prudent lending standards;
    (5) Fails to correct servicing, collection, reporting, or other 
deficiencies; or

[[Page 273]]

    (6) Is unable or unwilling to operate in accordance with the 
requirements of this part.
    (b) Transfer portfolio. Upon suspension or revocation, the CDC must 
transfer its remaining portfolio and any 504 applications or financings 
in process to another CDC designated or approved by SBA. If a pending 
504 financing is completed after a transfer, any deposit must also be 
transferred. Any fees must be apportioned by SBA between the two CDCs in 
proportion to services performed.
    (c) Provide written notice. SBA must give written notice to the CDC 
at least 10 business days prior to the effective date of a suspension or 
revocation, informing the CDC of the opportunity for a hearing pursuant 
to part 134 of this chapter.

         Enforceability of 501, 502 and 503 Loans and Other Laws



Sec. 120.990  501, 502 and 503 loans.

    SBA has discontinued loan programs for 501, 502, and 503 loans. 
Outstanding loans remain under these programs, and Borrowers, CDCs, and 
SBA must comply with the terms and conditions of the corresponding notes 
and Debentures, and the regulations in this part in effect when the 
obligations were undertaken or last in effect, if applicable.



Sec. 120.991  Effect of other laws.

    No State or local law may preclude or limit SBA's exercise of its 
rights with respect to notes, guarantees, Debentures and Debenture 
Pools, or of its enforcement rights to foreclose on collateral.



PART 121--SMALL BUSINESS SIZE REGULATIONS--Table of Contents




          Subpart A--Size Eligibility Provisions and Standards

                   Provisions of General Applicability

Sec.
121.101  What are SBA size standards?
121.102  How does SBA establish size standards?
121.103  What is affiliation?
121.104  How does SBA calculate annual receipts?
121.105  How does SBA define ``business concern or concern''?
121.106  How does SBA calculate number of employees?
121.107  How does SBA determine a concern's ``primary industry''?
121.108  What are the penalties for misrepresentation of size status?

          Size Standards Used to Define Small Business Concerns

121.201  What size standards has SBA identified by North American 
          Industry Classification System codes?

       Size Eligibility Requirements for SBA Financial Assistance

121.301  What size standards are applicable to financial assistance 
          programs?
121.302  When does SBA determine the size status of an applicant?
121.303  What size procedures are used by SBA before it makes a formal 
          size determination?
121.304  What are the size requirements for refinancing an existing SBA 
          loan?
121.305  What size eligibility requirements exist for obtaining business 
          loans relating to particular procurements?

        Size Eligibility Requirements for Government Procurement

121.401  What procurement programs are subject to size determinations?
121.402  What size standards are applicable to procurement assistance 
          programs?
121.403  Are SBA size determinations and NAICS code designations binding 
          on parties?
121.404  When does SBA determine the size status of a business concern?
121.405  May a business concern self-certify its small business size 
          status?
121.406  How does a small business concern qualify to provide 
          manufactured products under small business set-aside or MED 
          procurements?
121.407  What are the size procedures for multiple item procurements?
121.408  What are the size procedures for SBA's Certificate of 
          Competency Program?
121.409  What size standard applies in an unrestricted procurement for 
          Certificate of Competency purposes?
121.410  What are the size standards for SBA's Section 8(d) 
          Subcontracting Program?
121.411  What are the size procedures for SBA's Section 8(d) 
          Subcontracting Program?
121.412  What are the size procedures for partial small business set-
          asides?
121.413  What size must a concern be to be eligible for the Very Small 
          Business program?

[[Page 274]]

 Size Eligibility Requirements for Sales or Lease of Government Property

121.501  What programs for sales or leases of Government property are 
          subject to size determinations?
121.502  What size standards are applicable to programs for sales or 
          leases of Government property?
121.503  Are SBA size determinations binding on parties?
121.504  When does SBA determine the size status of a business concern?
121.505  What is the effect of a self-certification?
121.506  What definitions are important for sales or leases of 
          Government-owned timber?
121.507  What are the size standards and other requirements for the 
          purchase of Government-owned timber (other than Special 
          Salvage Timber)?
121.508  What are the size standards and other requirements for the 
          purchase of Government-owned Special Salvage Timber?
121.509  What is the size standard for leasing of Government land for 
          coal mining?
121.510  What is the size standard for leasing of Government land for 
          uranium mining?
121.511  What is the size standard for buying Government-owned 
          petroleum?
121.512  What is the size standard for stockpile purchases?

 Size Eligibility Requirements for the Minority Enterprise Development 
                              (MED) Program

121.601  What is a small business for purposes of admission to SBA's 
          Minority Enterprise Development (MED) program?
121.602  At what point in time must a MED applicant be small?
121.603  How does SBA determine whether a Participant is small for a 
          particular MED subcontract?
121.604  Are MED Participants considered small for purposes of other SBA 
          assistance?

Size Eligibility Requirements for the Small Business Innovation Research 
                             (SBIR) Program

121.701  What SBIR programs are subject to size determinations?
121.702  What size standards are applicable to the SBIR program?
121.703  Are formal size determinations binding on parties?
121.704  When does SBA determine the size status of a business concern?
121.705  Must a business concern self-certify its size status?

      Size Eligibility Requirements for Paying Reduced Patent Fees

121.801  May patent fees be reduced if a concern is small?
121.802  What size standards are applicable to reduced patent fees 
          programs?
121.803  Are formal size determinations binding on parties?
121.804  When does SBA determine the size status of a business concern?
121.805  May a business concern self-certify its size status?

  Size Eligibility Requirements for Compliance With Programs of Other 
                                Agencies

121.901  Can other Government agencies obtain SBA size determinations?
121.902  What size standards are applicable to programs of other 
          agencies?
121.903  How may an agency use size standards for its programs that are 
          different than those established by SBA?
121.904  When does SBA determine the size status of a business concern?

Procedures for Size Protests and Requests for Formal Size Determinations

121.1001  Who may initiate a size protest or a request for formal size 
          determination?
121.1002  Who makes a formal size determination?
121.1003  Where should a size protest be filed?
121.1004  What time limits apply to size protests?
121.1005  How must a protest be filed with the contracting officer?
121.1006  When will a size protest be referred to an SBA Government 
          Contracting Area Office?
121.1007  Must a protest of size status relate to a particular 
          procurement and be specific?
121.1008  What happens after SBA receives a size protest or a request 
          for a formal size determination?
121.1009  What are the procedures for making the size determination?
121.1010  How does a concern become recertified as a small business?

       Appeals of Size Determinations and NAICS Code Designations

121.1101  Are formal size determinations subject to appeal?
121.1102  Are NAICS code designations subject to appeal?
121.1103  What are the procedures for appealing an NAICS code 
          designation?

                 Subpart B--Other Applicable Provisions

    Waivers of the Nonmanufacturer Rule for Classes of Products and 
                          Individual Contracts

121.1201  What is the Nonmanufacturer Rule?

[[Page 275]]

121.1202  When will a waiver of the Nonmanufacturer Rule be granted for 
          a class of products?
121.1203  When will a waiver of the Nonmanufacturer Rule be granted for 
          an individual contract?
121.1204  What are the procedures for requesting and granting waivers?
121.1205  How is a list of previously granted class waivers obtained?

    Authority: 15 U.S.C. 632(a), 634(b)(6), 636(b), 637(a), and 644(c), 
and 662(5); and sec. 304, Pub. L. 103-403, 108 Stat. 4175, 4188, Pub. L. 
106-24, 113 Stat. 39.

    Source: 61 FR 3286, Jan. 31, 1996, unless otherwise noted.



          Subpart A--Size Eligibility Provisions and Standards

                   Provisions of General Applicability



Sec. 121.101  What are SBA size standards?

    (a) SBA's size standards define whether a business entity is small 
and, thus, eligible for Government programs and preferences reserved for 
``small business'' concerns. Size standards have been established for 
types of economic activity, or industry, generally under the North 
American Industry Classification System (NAICS).
    (b) NAICS is described in the North American Industry Classification 
Manual--United States,  which is available from the National Technical 
Information Service, 5285 Port Royal Road, Springfield, VA 22161; by 
calling 1(800) 553-6847 or 1(703) 605-6000; or via the Internet at 
http://www.ntis.gov/yellowbk/1nty205.htm. The manual includes 
definitions for each industry, tables showing relationships between 1997 
NAICS and 1987 SICs, and a comprehensive index. NAICS assigns codes to 
all economic activity within twenty broad sectors. Section 121.201 
provides a full table of small business size standards matched to the 
U.S. NAICS industry codes. A full table matching a size standard with 
each NAICS Industry or U.S. Industry code is also published annually by 
SBA in the Federal Register.

[65 FR 30840, May 15, 2000, as amended at 67 FR 52602, Aug. 13, 2002]



Sec. 121.102  How does SBA establish size standards?

    (a) SBA considers economic characteristics comprising the structure 
of an industry, including degree of competition, average firm size, 
start-up costs and entry barriers, and distribution of firms by size. It 
also considers technological changes, competition from other industries, 
growth trends, historical activity within an industry, unique factors 
occurring in the industry which may distinguish small firms from other 
firms, and the objectives of its programs and the impact on those 
programs of different size standard levels.
    (b) As part of its review of a size standard, SBA will investigate 
if any concern at or below a particular standard would be dominant in 
the industry. SBA will take into consideration market share of a concern 
and other appropriate factors which may allow a concern to exercise a 
major controlling influence on a national basis in which a number of 
business concerns are engaged. Size standards seek to ensure that a 
concern that meets a specific size standard is not dominant in its field 
of operation.
    (c) As part of its review of size standards, SBA's Office of Size 
Standards will examine the impact of inflation on monetary-based size 
standards (e.g., receipts, net income, assets) at least once every five 
years and submit a report to the Administrator or designee. If SBA finds 
that inflation has significantly eroded the value of the monetary-based 
size standards, it will issue a proposed rule to increase size 
standards.
    (d) Please address any requests to change existing size standards or 
establish new ones for emerging industries to the Assistant 
Administrator for Size Standards, Small Business Administration, 409 3rd 
Street, SW., Washington, DC 20416.

[61 FR 3286, Jan. 31, 1996, as amended at 67 FR 3045, Jan. 23, 2002]



Sec. 121.103  What is affiliation?

    (a) General Principles of Affiliation. (1) Concerns are affiliates 
of each other when one concern controls or has the power to control the 
other, or a third

[[Page 276]]

party or parties controls or has the power to control both.
    (2) SBA considers factors such as ownership, management, previous 
relationships with or ties to another concern, and contractual 
relationships, in determining whether affiliation exists.
    (3) Individuals or firms that have identical or substantially 
identical business or economic interests, such as family members, 
persons with common investments, or firms that are economically 
dependent through contractual or other relationships, may be treated as 
one party with such interests aggregated.
    (4) SBA counts the receipts or employees of the concern whose size 
is at issue and those of all its domestic and foreign affiliates, 
regardless of whether the affiliates are organized for profit, in 
determining the concern's size.
    (b) Exclusion from affiliation coverage. (1) Business concerns owned 
in whole or substantial part by investment companies licensed, or 
development companies qualifying, under the Small Business Investment 
Act of 1958, as amended, are not considered affiliates of such 
investment companies or development companies.
    (2) Business concerns owned and controlled by Indian Tribes, Alaska 
Regional or Village Corporations organized pursuant to the Alaska Native 
Claims Settlement Act (43 U.S.C. 1601), Native Hawaiian Organizations, 
or Community Development Corporations authorized by 42 U.S.C. 9805 are 
not considered affiliates of such entities, or with other concerns owned 
by these entities solely because of their common ownership.
    (3) Business concerns which are part of an SBA approved pool of 
concerns for a joint program of research and development as authorized 
by the Small Business Act are not affiliates of one another because of 
the pool.
    (4) Business concerns which lease employees from concerns primarily 
engaged in leasing employees to other businesses or which enter into a 
co-employer arrangement with a Professional Employer Organization (PEO) 
are not affiliated with the leasing company or PEO solely on the basis 
of a leasing agreement.
    (5) For financial, management or technical assistance under the 
Small Business Investment Act of 1958, as amended, (an applicant is not 
affiliated with the investors listed in paragraphs (b)(5) (i) through 
(vi) of this section.
    (i) Venture capital operating companies, as defined in the U.S. 
Department of Labor regulations found at 29 CFR 2510.3-101(d);
    (ii) Employee benefit or pension plans established and maintained by 
the Federal government or any state, or their political subdivisions, or 
any agency or instrumentality thereof, for the benefit of employees;
    (iii) Employee benefit or pension plans within the meaning of the 
Employee Retirement Income Security Act of 1974, as amended (29 U.S.C. 
1001, et seq.);
    (iv) Charitable trusts, foundations, endowments, or similar 
organizations exempt from Federal income taxation under section 501(c) 
of the Internal Revenue Code of 1986, as amended (26 U.S.C. 501(c));
    (v) Investment companies registered under the Investment Company Act 
of 1940, as amended (1940 Act) (15 U.S.C. 80a-1, et seq.); and
    (vi) Investment companies, as defined under the 1940 Act, which are 
not registered under the 1940 Act because they are beneficially owned by 
less than 100 persons, if the company's sales literature or 
organizational documents indicate that its principal purpose is 
investment in securities rather than the operation of commercial 
enterprises.
    (6) A protege firm is not an affiliate of a mentor firm solely 
because the protege firm receives assistance from the mentor firm under 
Federal Mentor-Protege programs.
    (c) Affiliation based on stock ownership. (1) A person is an 
affiliate of a concern if the person owns or controls, or has the power 
to control 50 percent or more of its voting stock, or a block of stock 
which affords control because it is large compared to other outstanding 
blocks of stock.
    (2) If two or more persons each owns, controls or has the power to 
control less than 50 percent of the voting stock of a concern, with 
minority holdings that are equal or approximately equal

[[Page 277]]

in size, but the aggregate of these minority holdings is large as 
compared with any other stock holding, each such person is presumed to 
be an affiliate of the concern.
    (d) Affiliation arising under stock options, convertible debentures, 
and agreements to merge. Since stock options, convertible debentures, 
and agreements to merge (including agreements in principle) affect the 
power to control a concern, SBA treats them as though the rights granted 
have been exercised (except that an affiliate cannot use them to appear 
to terminate control over another concern before it actually does so). 
SBA gives present effect to an agreement to merge or sell stock whether 
such agreement is unconditional, conditional, or finalized but 
unexecuted. Agreements to open or continue negotiations towards the 
possibility of a merger or a sale of stock at some later date are not 
considered ``agreements in principle'' and, thus, are not given present 
effect.
    (e) Affiliation based on common management. Affiliation arises where 
one or more officers, directors or general partners controls the board 
of directors and/or the management of another concern.
    (f) Affiliation based on joint venture arrangements. (1) Parties to 
a joint venture are affiliates if any one of them seeks SBA financial 
assistance for use in connection with the joint venture.
    (2) Except as provided in paragraph (f)(3) of this section, concerns 
submitting offers on a particular procurement or property sale as joint 
venturers are affiliated with each other with regard to the performance 
of that contract.
    (3) Exclusion from affiliation. (i) A joint venture or teaming 
arrangement of two or more business concerns may submit an offer as a 
small business for a Federal procurement without regard to affiliation 
under this paragraph (f) so long as each concern is small under the size 
standard corresponding to the NAICS code assigned to the contract, 
provided:
    (A) The procurement qualifies as a ``bundled'' requirement, at any 
dollar value, within the meaning of Sec. 125.2(d)(1)(i) of this chapter; 
or
    (B) The procurement is other than a ``bundled'' requirement within 
the meaning of Sec. 125.2(d)(1)(i) of this chapter, and:
    (1) For a procurement having a revenue-based size standard, the 
dollar value of the procurement, including options, exceeds half the 
size standard corresponding to the NAICS code assigned to the contract; 
or
    (2) For a procurement having an employee-based size standard, the 
dollar value of the procurement, including options, exceeds $10 million.
    (ii) A joint venture or teaming arrangement of at least one 8(a) 
Participant and one or more other business concerns may submit an offer 
for a competitive 8(a) procurement without regard to affiliation under 
paragraph (f) of this section so long as the requirements of 13 CFR 
124.513(b)(1) are met.
    (iii) Two firms approved by SBA to be a mentor and protege under 13 
CFR 124.520 may joint venture as a small business for any Federal 
Government procurement, provided the protege qualifies as small for the 
size standard corresponding to the NAICS code assigned to the 
procurement and, for purposes of 8(a) sole source requirements, has not 
reached the dollar limit set forth in 13 CFR 124.519.
    (4) A contractor and subcontractor are treated as joint venturers if 
the ostensible subcontractor will perform primary and vital requirements 
of a contract or if the prime contractor is unusually reliant upon the 
ostensible subcontractor. All requirements of the contract are 
considered in reviewing such relationship, including contract 
management, technical responsibilities, and the percentage of 
subcontracted work.
    (5) For size purposes, a concern must include in its revenues its 
proportionate share of joint venture receipts.
    (g) Affiliation based on franchise and license agreements. The 
restraints imposed on a franchisee or licensee by its franchise or 
license agreement relating to standardized quality, advertising, 
accounting format and other similar provisions, generally will not be 
considered in determining whether the franchisor or licensor is 
affiliated with the franchisee or licensee provided the franchisee or 
licensee has the right to profit from its efforts and bears the

[[Page 278]]

risk of loss commensurate with ownership. Affiliation may arise, 
however, through other means, such as common ownership, common 
management or excessive restrictions upon the sale of the franchise 
interest.

[61 FR 3286, Jan. 31, 1996, as amended at 62 FR 26381, May 14, 1997; 63 
FR 35738, June 30, 1998; 64 FR 57370, Oct. 25, 1999; 65 FR 30840, May 
15, 2000; 65 FR 35812, June 6, 2000; 65 FR 45833, July 26, 2000]



Sec. 121.104  How does SBA calculate annual receipts?

    (a) Definitions. In determining annual receipts of a concern:
    (1) Receipts means ``total income'' (or in the case of a sole 
proprietorship, ``gross income'') plus ``cost of goods sold'' as these 
terms are defined or reported on Internal Revenue Service (IRS) Federal 
tax return forms; Form 1120 for corporations; Form 1120S for Subchapter 
S corporations; Form 1065 for partnerships; and Form 1040, Schedule F 
for farm or Schedule C for sole proprietorships). However, the term 
receipts excludes net capital gains or losses, taxes collected for and 
remitted to a taxing authority if included in gross or total income, 
proceeds from the transactions between a concern and its domestic or 
foreign affiliates (if also excluded from gross or total income on a 
consolidated return filed with the IRS), and amounts collected for 
another by a travel agent, real estate agent, advertising agent, 
conference management service provider, freight forwarder or customs 
broker.
    (2) Completed fiscal year means a taxable year including any short 
period. Taxable year and short period have the meaning attributed to 
them by the IRS.
    (3) Unless otherwise defined in this section, all terms shall have 
the meaning attributed to them by the IRS.
    (b) Period of measurement. (1) Annual receipts of a concern which 
has been in business for 3 or more completed fiscal years means the 
receipts of the concern over its last 3 completed fiscal years divided 
by three.
    (2) Annual receipts of a concern which has been in business for less 
than 3 complete fiscal years means the receipts for the period the 
concern has been in business divided by the number of weeks in business, 
multiplied by 52.
    (3) Annual receipts of a concern which has been in business 3 or 
more complete fiscal years but has a short year as one of those years 
means the receipts for the short year and the two full fiscal years 
divided by the number of weeks in the short year and the two full fiscal 
years, multiplied by 52.
    (c) Use of information other than the Federal tax return. Where 
other information gives SBA reason to regard Federal Income Tax returns 
as false, SBA may base its size determination on such other information.
    (d) Annual receipts of affiliates. (1) If a concern has acquired an 
affiliate or been acquired as an affiliate during the applicable 
averaging period or before small business self-certification, the annual 
receipts in determining size status include the receipts of both firms. 
Furthermore, this aggregation applies for the entire applicable period 
used in computing size rather than only for the period after the 
affiliation arose. Receipts are determined for the concern and its 
affiliates in accordance with paragraph (b) of this section even though 
this may result in different periods being used to calculate annual 
receipts.
    (2) The annual receipts of a former affiliate are not included as 
annual receipts if affiliation ceased before the date used for 
determining size. This exclusion of annual receipts of a former 
affiliate applies during the entire period used in computing size, 
rather than only for the period after which the affiliation ceased .

[61 FR 3286, Jan. 31, 1996, as amended at 65 FR 48604, Aug. 9, 2000]



Sec. 121.105  How does SBA define ``business concern or concern''?

    (a) A business concern eligible for assistance from SBA as a small 
business is a business entity organized for profit, with a place of 
business located in the United States, and which operates primarily 
within the United States or which makes a significant contribution to 
the U.S. economy through payment of taxes or use of American products, 
materials or labor.

[[Page 279]]

    (b) A business concern may be in the legal form of an individual 
proprietorship, partnership, limited liability company, corporation, 
joint venture, association, trust or cooperative, except that where the 
form is a joint venture there can be no more than 49 percent 
participation by foreign business entities in the joint venture.
    (c) A firm will not be treated as a separate business concern if a 
substantial portion of its assets and/or liabilities are the same as 
those of a predecessor entity. In such a case, the annual receipts and 
employees of the predecessor will be taken into account in determining 
size.



Sec. 121.106  How does SBA calculate number of employees?

    (a) Employees counted in determining size include all individuals 
employed on a full-time, part-time, temporary, or other basis. SBA will 
consider the totality of the circumstances, including factors relevant 
for tax purposes, in determining whether individuals are employees of 
the concern in question.
    (b) Where the size standard is number of employees, the method for 
determining a concern's size includes the following principles:
    (1) The average number of employees of the concern is used 
(including the employees of its domestic and foreign affiliates) based 
upon numbers of employees for each of the pay periods for the preceding 
completed 12 calendar months.
    (2) Part-time and temporary employees are counted the same as full-
time employees.
    (3) If a concern has not been in business for 12 months, the average 
number of employees is used for each of the pay periods during which it 
has been in business.
    (4) The treatment of employees of former affiliates or recently 
acquired affiliates is the same as for size determinations using annual 
receipts in Sec. 121.104(d).



Sec. 121.107  How does SBA determine a concern's ``primary industry''?

    In determining the primary industry in which a concern or a concern 
combined with its affiliates is engaged, SBA considers the distribution 
of receipts, employees and costs of doing business among the different 
industries in which business operations occurred for the most recently 
completed fiscal year. SBA may also consider other factors, such as the 
distribution of patents, contract awards, and assets.



Sec. 121.108  What are the penalties for misrepresentation of size status?

    In addition to other laws which may be applicable, section 16(d) of 
the Small Business Act, 15 U.S.C. 645(d), provides severe criminal 
penalties for knowingly misrepresenting the small business size status 
of a concern in connection with procurement programs. Section 16(a) of 
the Act also provides, in part, for criminal penalties for knowingly 
making false statements or misrepresentations to SBA for the purpose of 
influencing in any way the actions of the Agency.

          Size Standards Used To Define Small Business Concerns



Sec. 121.201  What size standards has SBA identified by North American Industry Classification System codes?

    The size standards described in this section apply to all SBA 
programs unless otherwise specified in this part. The size standards 
themselves are expressed either in number of employees or annual 
receipts in millions of dollars, unless otherwise specified. The number 
of employees or annual receipts indicates the maximum allowed for a 
concern and its affiliates to be considered small.

[[Page 280]]



                                 Small Business Size Standards by NAICS Industry
----------------------------------------------------------------------------------------------------------------
                                                                                  Size standards  Size standards
              NAICS codes                       NAICS U.S. industry title         in millions of   in number of
                                                                                      dollars        employees
----------------------------------------------------------------------------------------------------------------
                              Sector 11--Agriculture, Forestry, Fishing and Hunting
----------------------------------------------------------------------------------------------------------------
                                         Subsector 111--Crop Production
----------------------------------------------------------------------------------------------------------------
111110.................................  Soybean Farming........................           $0.75  ..............
111120.................................  Oilseed (except Soybean) Farming.......           $0.75  ..............
111130.................................  Dry Pea and Bean Farming...............           $0.75  ..............
111140.................................  Wheat Farming..........................           $0.75  ..............
111150.................................  Corn Farming...........................           $0.75  ..............
111160.................................  Rice Farming...........................           $0.75  ..............
111191.................................  Oilseed and Grain Combination Farming..           $0.75  ..............
111199.................................  All Other Grain Farming................           $0.75  ..............
111211.................................  Potato Farming.........................           $0.75  ..............
111219.................................  Other Vegetable (except Potato) and               $0.75  ..............
                                          Melon Farming.
111310.................................  Orange Groves..........................           $0.75  ..............
111320.................................  Citrus (except Orange) Groves..........           $0.75  ..............
111331.................................  Apple Orchards.........................           $0.75  ..............
111332.................................  Grape Vineyards........................           $0.75  ..............
111333.................................  Strawberry Farming.....................           $0.75  ..............
111334.................................  Berry (except Strawberry) Farming......           $0.75  ..............
111335.................................  Tree Nut Farming.......................           $0.75  ..............
111336.................................  Fruit and Tree Nut Combination Farming.           $0.75  ..............
111339.................................  Other Noncitrus Fruit Farming..........           $0.75  ..............
111411.................................  Mushroom Production....................           $0.75  ..............
111419.................................  Other Food Crops Grown Under Cover.....           $0.75  ..............
111421.................................  Nursery and Tree Production............           $0.75  ..............
111422.................................  Floriculture Production................           $0.75  ..............
111910.................................  Tobacco Farming........................           $0.75  ..............
111920.................................  Cotton Farming.........................           $0.75  ..............
111930.................................  Sugarcane Farming......................           $0.75  ..............
111940.................................  Hay Farming............................           $0.75  ..............
111991.................................  Sugar Beet Farming.....................           $0.75  ..............
111992.................................  Peanut Farming.........................           $0.75  ..............
111998.................................  All Other Miscellaneous Crop Farming...           $0.75  ..............
----------------------------------------------------------------------------------------------------------------
                                        Subsector 112--Animal Production
----------------------------------------------------------------------------------------------------------------
112111.................................  Beef Cattle Ranching and Farming.......           $0.75  ..............
112112.................................  Cattle Feedlots........................           $1.50  ..............
112120.................................  Dairy Cattle and Milk Production.......           $0.75  ..............
112210.................................  Hog and Pig Farming....................           $0.75  ..............
112310.................................  Chicken Egg Production.................          $10.50  ..............
112320.................................  Broilers and Other Meat Type Chicken              $0.75  ..............
                                          Production.
112330.................................  Turkey Production......................           $0.75  ..............
112340.................................  Poultry Hatcheries.....................           $0.75  ..............
112390.................................  Other Poultry Production...............           $0.75  ..............
112410.................................  Sheep Farming..........................           $0.75  ..............
112420.................................  Goat Farming...........................           $0.75  ..............
112511.................................  Finfish Farming and Fish Hatcheries....           $0.75  ..............
112512.................................  Shellfish Farming......................           $0.75  ..............
112519.................................  Other Animal Aquaculture...............           $0.75  ..............
112910.................................  Apiculture.............................           $0.75  ..............
112920.................................  Horse and Other Equine Production......           $0.75  ..............
112930.................................  Fur-Bearing Animal and Rabbit                     $0.75  ..............
                                          Production.
112990.................................  All Other Animal Production............           $0.75  ..............
----------------------------------------------------------------------------------------------------------------
                                       Subsector 113--Forestry and Logging
----------------------------------------------------------------------------------------------------------------
113110.................................  Timber Tract Operations................            $6.0  ..............
113210.................................  Forest Nurseries and Gathering of                  $6.0  ..............
                                          Forest Products.
113310.................................  Logging................................  ..............             500
----------------------------------------------------------------------------------------------------------------
                                  Subsector 114--Fishing, Hunting and Trapping
----------------------------------------------------------------------------------------------------------------
114111.................................  Finfish Fishing........................            $3.5  ..............
114112.................................  Shellfish Fishing......................            $3.5  ..............
114119.................................  Other Marine Fishing...................            $3.5  ..............
114210.................................  Hunting and Trapping...................            $3.5  ..............
----------------------------------------------------------------------------------------------------------------
                         Subsector 115--Support Activities for Agriculture and Forestry
----------------------------------------------------------------------------------------------------------------
115111.................................  Cotton Ginning.........................            $6.0  ..............

[[Page 281]]

 
115112.................................  Soil Preparation, Planting, and                    $6.0  ..............
                                          Cultivating.
115113.................................  Crop Harvesting, Primarily by Machine..            $6.0  ..............
115114.................................  Postharvest Crop Activities (except                $6.0  ..............
                                          Cotton Ginning).
115115.................................  Farm Labor Contractors and Crew Leaders            $6.0  ..............
115116.................................  Farm Management Services...............            $6.0  ..............
115210.................................  Support Activities for Animal                      $6.0  ..............
                                          Production.
115310.................................  Support Activities for Forestry........            $6.0  ..............
----------------------------------------------------------------------------------------------------------------
                                                Sector 21--Mining
----------------------------------------------------------------------------------------------------------------
                                      Subsector 211--Oil and Gas Extraction
----------------------------------------------------------------------------------------------------------------
211111.................................  Crude Petroleum and Natural Gas          ..............             500
                                          Extraction.
211112.................................  Natural Gas Liquid Extraction..........  ..............             500
----------------------------------------------------------------------------------------------------------------
                                   Subsector 212--Mining (except Oil and Gas)
----------------------------------------------------------------------------------------------------------------
212111.................................  Bituminous Coal and Lignite Surface      ..............             500
                                          Mining.
212112.................................  Bituminous Coal Underground Mining.....  ..............             500
212113.................................  Anthracite Mining......................  ..............             500
212210.................................  Iron Ore Mining........................  ..............             500
212221.................................  Gold Ore Mining........................  ..............             500
212222.................................  Silver Ore Mining......................  ..............             500
212231.................................  Lead Ore and Zinc Ore Mining...........  ..............             500
212234.................................  Copper Ore and Nickel Ore Mining.......  ..............             500
212291.................................  Uranium-Radium-Vanadium Ore Mining.....  ..............             500
212299.................................  All Other Metal Ore Mining.............  ..............             500
212311.................................  Dimension Stone Mining and Quarrying...  ..............             500
212312.................................  Crushed and Broken Limestone Mining and  ..............             500
                                          Quarrying.
212313.................................  Crushed and Broken Granite Mining and    ..............             500
                                          Quarrying.
212319.................................  Other Crushed and Broken Stone Mining    ..............             500
                                          and Quarrying.
212321.................................  Construction Sand and Gravel Mining....  ..............             500
212322.................................  Industrial Sand Mining.................  ..............             500
212324.................................  Kaolin and Ball Clay Mining............  ..............             500
212325.................................  Clay and Ceramic and Refractory          ..............             500
                                          Minerals Mining.
212391.................................  Potash, Soda, and Borate Mineral Mining  ..............             500
212392.................................  Phosphate Rock Mining..................  ..............             500
212393.................................  Other Chemical and Fertilizer Mineral    ..............             500
                                          Mining.
212399.................................  All Other Nonmetallic Mineral Mining...  ..............             500
----------------------------------------------------------------------------------------------------------------
                                  Subsector 213--Support Activities for Mining
----------------------------------------------------------------------------------------------------------------
213111.................................  Drilling Oil and Gas Wells.............  ..............             500
213112.................................  Support Activities for Oil and Gas                 $6.0  ..............
                                          Operations.
213113.................................  Support Activities for Coal Mining.....            $6.0  ..............
213114.................................  Support Activities for Metal Mining....            $6.0  ..............
213115.................................  Support Activities for Nonmetallic                 $6.0  ..............
                                          Minerals (except Fuels).
----------------------------------------------------------------------------------------------------------------
                                              Sector 22--Utilities
----------------------------------------------------------------------------------------------------------------
                                            Subsector 221--Utilities
----------------------------------------------------------------------------------------------------------------
221111.................................  Hydroelectric Power Generation.........  See footnote 1  ..............
221112.................................  Fossil Fuel Electric Power Generation..  See footnote 1  ..............
221113.................................  Nuclear Electric Power Generation......  See footnote 1  ..............
221119.................................  Other Electric Power Generation........  See footnote 1  ..............
221121.................................  Electric Bulk Power Transmission and     See footnote 1
                                          Control.
221122.................................  Electric Power Distribution............  See footnote 1  ..............
221210.................................  Natural Gas Distribution...............  ..............             500
221310.................................  Water Supply and Irrigation Systems....            $6.0  ..............
221320.................................  Sewage Treatment Facilities............            $6.0  ..............
221330.................................  Steam and Air-Conditioning Supply......           $10.5  ..............
----------------------------------------------------------------------------------------------------------------
                                             Sector 23--Construction
----------------------------------------------------------------------------------------------------------------
                                    Subsector 236--Construction of Buildings
----------------------------------------------------------------------------------------------------------------
236115.................................  New Single-Family Housing Construction            $28.5  ..............
                                          (except Operative Builders).
236116.................................  New Multifamily Housing Construction              $28.5  ..............
                                          (except Operative Builders).
236117.................................  New Housing Operative Builders.........           $28.5  ..............
236118.................................  Residential Remodelers.................           $28.5  ..............

[[Page 282]]

 
236210.................................  Industrial Building Construction.......           $28.5  ..............
236220.................................  Commercial and Institutional Building             $28.5  ..............
                                          Construction.
----------------------------------------------------------------------------------------------------------------
                             Subsector 237--Heavy and Civil Engineering Construction
----------------------------------------------------------------------------------------------------------------
237110.................................  Water and Sewer Line and Related                  $28.5  ..............
                                          Structures Construction.
237120.................................  Oil and Gas Pipeline and Related                  $28.5  ..............
                                          Structures Construction.
237130.................................  Power and Communication Line and                  $28.5  ..............
                                          Related Structures Construction.
237210.................................  Land Subdivision.......................            $6.0  ..............
237310.................................  Highway, Street, and Bridge                       $28.5  ..............
                                          Construction.
237990.................................  Other Heavy and Civil Engineering                 $28.5  ..............
                                          Construction.
                EXCEPT,                  Dredging and Surface Cleanup Activities       \2\ $17.0  ..............
                                          \2\.
----------------------------------------------------------------------------------------------------------------
                                   Subsector 238--Specialty Trade Contractors
----------------------------------------------------------------------------------------------------------------
238110.................................  Poured Concrete Foundation and                    $12.0  ..............
                                          Structure Contractors.
238120.................................  Structural Steel and Precast Concrete             $12.0  ..............
                                          Contractors.
238130.................................  Framing Contractors....................           $12.0  ..............
238140.................................  Masonry Contractors....................           $12.0  ..............
238150.................................  Glass and Glazing Contractors..........           $12.0  ..............
238160.................................  Roofing Contractors....................           $12.0  ..............
238170.................................  Siding Contractors.....................           $12.0  ..............
238190.................................  Other Foundation, Structure, and                  $12.0  ..............
                                          Building Exterior Contractors.
238210.................................  Electrical Contractors.................           $12.0  ..............
238220.................................  Plumbing, Heating, and Air-Conditioning           $12.0  ..............
                                          Contractors.
238290.................................  Other Building Equipment Contractors...           $12.0  ..............
238310.................................  Drywall and Insulation Contractors.....           $12.0  ..............
238320.................................  Painting and Wall Covering Contractors.           $12.0  ..............
238330.................................  Flooring Contractors...................           $12.0  ..............
238340.................................  Tile and Terrazzo Contractors..........           $12.0  ..............
238350.................................  Finish Carpentry Contractors...........           $12.0  ..............
238390.................................  Other Building Finishing Contractors...           $12.0  ..............
238910.................................  Site Preparation Contractors...........           $12.0  ..............
238990.................................  All Other Specialty Trade Contractors..           $12.0  ..............
                EXCEPT,                  Base Housing Maintenance \13\..........      \13\ $12.0  ..............
----------------------------------------------------------------------------------------------------------------
                                          Sectors 31-33--Manufacturing
----------------------------------------------------------------------------------------------------------------
                                        Subsector 311--Food Manufacturing
----------------------------------------------------------------------------------------------------------------
311111.................................  Dog and Cat Food Manufacturing.........  ..............             500
311119.................................  Other Animal Food Manufacturing........  ..............             500
311211.................................  Flour Milling..........................  ..............             500
311212.................................  Rice Milling...........................  ..............             500
311213.................................  Malt Manufacturing.....................  ..............             500
311221.................................  Wet Corn Milling.......................  ..............             750
311222.................................  Soybean Processing.....................  ..............             500
311223.................................  Other Oilseed Processing...............  ..............           1,000
311225.................................  Fats and Oils Refining and Blending....  ..............           1,000
311230.................................  Breakfast Cereal Manufacturing.........  ..............           1,000
311311.................................  Sugarcane Mills........................  ..............             500
311312.................................  Cane Sugar Refining....................  ..............             750
311313.................................  Beet Sugar Manufacturing...............  ..............             750
311320.................................  Chocolate and Confectionery              ..............             500
                                          Manufacturing from Cacao Beans.
311330.................................  Confectionery Manufacturing from         ..............             500
                                          Purchased Chocolate.
311340.................................  Non-Chocolate Confectionery              ..............             500
                                          Manufacturing.
311411.................................  Frozen Fruit, Juice and Vegetable        ..............             500
                                          Manufacturing.
311412.................................  Frozen Specialty Food Manufacturing....  ..............             500
311421.................................  Fruit and Vegetable Canning \3\........  ..............         \3\ 500
311422.................................  Specialty Canning......................  ..............           1,000
311423.................................  Dried and Dehydrated Food Manufacturing  ..............             500
311511.................................  Fluid Milk Manufacturing...............  ..............             500
311512.................................  Creamery Butter Manufacturing..........  ..............             500
311513.................................  Cheese Manufacturing...................  ..............             500
311514.................................  Dry, Condensed, and Evaporated Dairy     ..............             500
                                          Product Manufacturing.
311520.................................  Ice Cream and Frozen Dessert             ..............             500
                                          Manufacturing.
311611.................................  Animal (except Poultry) Slaughtering...  ..............             500
311612.................................  Meat Processed from Carcasses..........  ..............             500
311613.................................  Rendering and Meat By-product            ..............             500
                                          Processing.
311615.................................  Poultry Processing.....................  ..............             500
311711.................................  Seafood Canning........................  ..............             500

[[Page 283]]

 
311712.................................  Fresh and Frozen Seafood Processing....  ..............             500
311811.................................  Retail Bakeries........................  ..............             500
311812.................................  Commercial Bakeries....................  ..............             500
311813.................................  Frozen Cakes, Pies, and Other Pastries   ..............             500
                                          Manufacturing.
311821.................................  Cookie and Cracker Manufacturing.......  ..............             750
311822.................................  Flour Mixes and Dough Manufacturing      ..............             500
                                          from Purchased Flour.
311823.................................  Dry Pasta Manufacturing................  ..............             500
311830.................................  Tortilla Manufacturing.................  ..............             500
311911.................................  Roasted Nuts and Peanut Butter           ..............             500
                                          Manufacturing.
311919.................................  Other Snack Food Manufacturing.........  ..............             500
311920.................................  Coffee and Tea Manufacturing...........  ..............             500
311930.................................  Flavoring Syrup and Concentrate          ..............             500
                                          Manufacturing.
311941.................................  Mayonnaise, Dressing and Other Prepared  ..............             500
                                          Sauce Manufacturing.
311942.................................  Spice and Extract Manufacturing........  ..............             500
311991.................................  Perishable Prepared Food Manufacturing.  ..............             500
311999.................................  All Other Miscellaneous Food             ..............             500
                                          Manufacturing.
----------------------------------------------------------------------------------------------------------------
                            Subsector 312--Beverage and Tobacco Product Manufacturing
----------------------------------------------------------------------------------------------------------------
312111.................................  Soft Drink Manufacturing...............  ..............             500
312112.................................  Bottled Water Manufacturing............  ..............             500
312113.................................  Ice Manufacturing......................  ..............             500
312120.................................  Breweries..............................  ..............             500
312130.................................  Wineries...............................  ..............             500
312140.................................  Distilleries...........................  ..............             750
312210.................................  Tobacco Stemming and Redrying..........  ..............             500
312221.................................  Cigarette Manufacturing................  ..............           1,000
312229.................................  Other Tobacco Product Manufacturing....  ..............             500
----------------------------------------------------------------------------------------------------------------
                                          Subsector 313--Textile Mills
----------------------------------------------------------------------------------------------------------------
313111.................................  Yarn Spinning Mills....................  ..............             500
313112.................................  Yarn Texturizing, Throwing and Twisting  ..............             500
                                          Mills.
313113.................................  Thread Mills...........................  ..............             500
313210.................................  Broadwoven Fabric Mills................  ..............           1,000
313221.................................  Narrow Fabric Mills....................  ..............             500
313222.................................  Schiffli Machine Embroidery............  ..............             500
313230.................................  Nonwoven Fabric Mills..................  ..............             500
313241.................................  Weft Knit Fabric Mills.................  ..............             500
313249.................................  Other Knit Fabric and Lace Mills.......  ..............             500
313311.................................  Broadwoven Fabric Finishing Mills......  ..............           1,000
313312.................................  Textile and Fabric Finishing (except     ..............             500
                                          Broadwoven Fabric) Mills.
313320.................................  Fabric Coating Mills...................  ..............           1,000
----------------------------------------------------------------------------------------------------------------
                                      Subsector 314--Textile Product Mills
----------------------------------------------------------------------------------------------------------------
314110.................................  Carpet and Rug Mills...................  ..............             500
314121.................................  Curtain and Drapery Mills..............  ..............             500
314129.................................  Other Household Textile Product Mills..  ..............             500
314911.................................  Textile Bag Mills......................  ..............             500
314912.................................  Canvas and Related Product Mills.......  ..............             500
314991.................................  Rope, Cordage and Twine Mills..........  ..............             500
314992.................................  Tire Cord and Tire Fabric Mills........  ..............           1,000
314999.................................  All Other Miscellaneous Textile Product  ..............             500
                                          Mills.
----------------------------------------------------------------------------------------------------------------
                                      Subsector 315--Apparel Manufacturing
----------------------------------------------------------------------------------------------------------------
315111.................................  Sheer Hosiery Mills....................  ..............             500
315119.................................  Other Hosiery and Sock Mills...........  ..............             500
315191.................................  Outerwear Knitting Mills...............  ..............             500
315192.................................  Underwear and Nightwear Knitting Mills.  ..............             500
315211.................................  Men's and Boys' Cut and Sew Apparel      ..............             500
                                          Contractors.
315212.................................  Women's, Girls', and Infants' Cut and    ..............             500
                                          Sew Apparel Contractors.
315221.................................  Men's and Boys' Cut and Sew Underwear    ..............             500
                                          and Nightwear Manufacturing.
315222.................................  Men's and Boys' Cut and Sew Suit, Coat   ..............             500
                                          and Overcoat Manufacturing.
315223.................................  Men's and Boys' Cut and Sew Shirt        ..............             500
                                          (except Work Shirt) Manufacturing.
315224.................................  Men's and Boys' Cut and Sew Trouser,     ..............             500
                                          Slack and Jean Manufacturing.

[[Page 284]]

 
315225.................................  Men's and Boys' Cut and Sew Work         ..............             500
                                          Clothing Manufacturing.
315228.................................  Men's and Boys' Cut and Sew Other        ..............             500
                                          Outerwear Manufacturing.
315231.................................  Women's and Girls' Cut and Sew           ..............             500
                                          Lingerie, Loungewear and Nightwear
                                          Manufacturing.
315232.................................  Women's and Girls' Cut and Sew Blouse    ..............             500
                                          and Shirt Manufacturing.
315233.................................  Women's and Girls' Cut and Sew Dress     ..............             500
                                          Manufacturing.
315234.................................  Women's and Girls' Cut and Sew Suit,     ..............             500
                                          Coat, Tailored Jacket and Skirt
                                          Manufacturing.
315239.................................  Women's and Girls' Cut and Sew Other     ..............             500
                                          Outerwear Manufacturing.
315291.................................  Infants' Cut and Sew Apparel             ..............             500
                                          Manufacturing.
315292.................................  Fur and Leather Apparel Manufacturing..  ..............             500
315299.................................  All Other Cut and Sew Apparel            ..............             500
                                          Manufacturing.
315991.................................  Hat, Cap and Millinery Manufacturing...  ..............             500
315992.................................  Glove and Mitten Manufacturing.........  ..............             500
315993.................................  Men's and Boys' Neckwear Manufacturing.  ..............             500
315999.................................  Other Apparel Accessories and Other      ..............             500
                                          Apparel Manufacturing.
----------------------------------------------------------------------------------------------------------------
                             Subsector 316--Leather and Allied Product Manufacturing
----------------------------------------------------------------------------------------------------------------
316110.................................  Leather and Hide Tanning and Finishing.  ..............             500
316211.................................  Rubber and Plastics Footwear             ..............           1,000
                                          Manufacturing.
316212.................................  House Slipper Manufacturing............  ..............             500
316213.................................  Men's Footwear (except Athletic)         ..............             500
                                          Manufacturing.
316214.................................  Women's Footwear (except Athletic)       ..............             500
                                          Manufacturing.
316219.................................  Other Footwear Manufacturing...........  ..............             500
316991.................................  Luggage Manufacturing..................  ..............             500
316992.................................  Women's Handbag and Purse Manufacturing  ..............             500
316993.................................  Personal Leather Good (except Women's    ..............             500
                                          Handbag and Purse) Manufacturing.
316999.................................  All Other Leather Good Manufacturing...  ..............             500
----------------------------------------------------------------------------------------------------------------
                                    Subsector 321--Wood Product Manufacturing
----------------------------------------------------------------------------------------------------------------
321113.................................  Sawmills...............................  ..............             500
321114.................................  Wood Preservation......................  ..............             500
321211.................................  Hardwood Veneer and Plywood              ..............             500
                                          Manufacturing.
321212.................................  Softwood Veneer and Plywood              ..............             500
                                          Manufacturing.
321213.................................  Engineered Wood Member (except Truss)    ..............             500
                                          Manufacturing.
321214.................................  Truss Manufacturing....................  ..............             500
321219.................................  Reconstituted Wood Product               ..............             500
                                          Manufacturing.
321911.................................  Wood Window and Door Manufacturing.....  ..............             500
321912.................................  Cut Stock, Resawing Lumber, and Planing  ..............             500
321918.................................  Other Millwork (including Flooring)....  ..............             500
321920.................................  Wood Container and Pallet Manufacturing  ..............             500
321991.................................  Manufactured Home (Mobile Home)          ..............             500
                                          Manufacturing.
321992.................................  Prefabricated Wood Building              ..............             500
                                          Manufacturing.
321999.................................  All Other Miscellaneous Wood Product     ..............             500
                                          Manufacturing.
----------------------------------------------------------------------------------------------------------------
                                       Subsector 322--Paper Manufacturing
----------------------------------------------------------------------------------------------------------------
322110.................................  Pulp Mills.............................  ..............             750
322121.................................  Paper (except Newsprint) Mills.........  ..............             750
322122.................................  Newsprint Mills........................  ..............             750
322130.................................  Paperboard Mills.......................  ..............             750
322211.................................  Corrugated and Solid Fiber Box           ..............             500
                                          Manufacturing.
322212.................................  Folding Paperboard Box Manufacturing...  ..............             750
322213.................................  Setup Paperboard Box Manufacturing.....  ..............             500
322214.................................  Fiber Can, Tube, Drum, and Similar       ..............             500
                                          Products Manufacturing.
322215.................................  Non-Folding Sanitary Food Container      ..............             750
                                          Manufacturing.
322221.................................  Coated and Laminated Packaging Paper     ..............             500
                                          and Plastics Film Manufacturing.
322222.................................  Coated and Laminated Paper               ..............             500
                                          Manufacturing.
322223.................................  Plastics, Foil, and Coated Paper Bag     ..............             500
                                          Manufacturing.
322224.................................  Uncoated Paper and Multiwall Bag         ..............             500
                                          Manufacturing.
322225.................................  Laminated Aluminum Foil Manufacturing    ..............             500
                                          for Flexible Packaging Uses.
322226.................................  Surface-Coated Paperboard Manufacturing  ..............             500
322231.................................  Die-Cut Paper and Paperboard Office      ..............             500
                                          Supplies Manufacturing.
322232.................................  Envelope Manufacturing.................  ..............             500
322233.................................  Stationery, Tablet, and Related Product  ..............             500
                                          Manufacturing.
322291.................................  Sanitary Paper Product Manufacturing...  ..............             500
322299.................................  All Other Converted Paper Product        ..............             500
                                          Manufacturing.
----------------------------------------------------------------------------------------------------------------

[[Page 285]]

 
                             Subsector 323--Printing and Related Support Activities
----------------------------------------------------------------------------------------------------------------
323110.................................  Commercial Lithographic Printing.......  ..............             500
323111.................................  Commercial Gravure Printing............  ..............             500
323112.................................  Commercial Flexographic Printing.......  ..............             500
323113.................................  Commercial Screen Printing.............  ..............             500
323114.................................  Quick Printing.........................  ..............             500
323115.................................  Digital Printing.......................  ..............             500
323116.................................  Manifold Business Forms Printing.......  ..............             500
323117.................................  Books Printing.........................  ..............             500
323118.................................  Blankbook, Loose-leaf Binder and Device  ..............             500
                                          Manufacturing.
323119.................................  Other Commercial Printing..............  ..............             500
323121.................................  Tradebinding and Related Work..........  ..............             500
323122.................................  Prepress Services......................  ..............             500
----------------------------------------------------------------------------------------------------------------
                            Subsector 324--Petroleum and Coal Products Manufacturing
----------------------------------------------------------------------------------------------------------------
324110.................................  Petroleum Refineries\4\................  ..............       \4\ 1,500
324121.................................  Asphalt Paving Mixture and Block         ..............             500
                                          Manufacturing.
324122.................................  Asphalt Shingle and Coating Materials    ..............             750
                                          Manufacturing.
324191.................................  Petroleum Lubricating Oil and Grease     ..............             500
                                          Manufacturing.
324199.................................  All Other Petroleum and Coal Products    ..............             500
                                          Manufacturing.
----------------------------------------------------------------------------------------------------------------
                                      Subsector 325--Chemical Manufacturing
----------------------------------------------------------------------------------------------------------------
325110.................................  Petrochemical Manufacturing............  ..............           1,000
325120.................................  Industrial Gas Manufacturing...........  ..............           1,000
325131.................................  Inorganic Dye and Pigment Manufacturing  ..............           1,000
325132.................................  Synthetic Organic Dye and Pigment        ..............             750
                                          Manufacturing.
325181.................................  Alkalies and Chlorine Manufacturing....  ..............           1,000
325182.................................  Carbon Black Manufacturing.............  ..............             500
325188.................................  All Other Basic Inorganic Chemical       ..............           1,000
                                          Manufacturing.
325191.................................  Gum and Wood Chemical Manufacturing....  ..............             500
325192.................................  Cyclic Crude and Intermediate            ..............             750
                                          Manufacturing.
325193.................................  Ethyl Alcohol Manufacturing............  ..............           1,000
325199.................................  All Other Basic Organic Chemical         ..............           1,000
                                          Manufacturing.
325211.................................  Plastics Material and Resin              ..............             750
                                          Manufacturing.
325212.................................  Synthetic Rubber Manufacturing.........  ..............           1,000
325221.................................  Cellulosic Organic Fiber Manufacturing.  ..............           1,000
325222.................................  Noncellulosic Organic Fiber              ..............           1,000
                                          Manufacturing.
325311.................................  Nitrogenous Fertilizer Manufacturing...  ..............           1,000
325312.................................  Phosphatic Fertilizer Manufacturing....  ..............             500
325314.................................  Fertilizer (Mixing Only) Manufacturing.  ..............             500
325320.................................  Pesticide and Other Agricultural         ..............             500
                                          Chemical Manufacturing.
325411.................................  Medicinal and Botanical Manufacturing..  ..............             750
325412.................................  Pharmaceutical Preparation               ..............             750
                                          Manufacturing.
325413.................................  In-Vitro Diagnostic Substance            ..............             500
                                          Manufacturing.
325414.................................  Biological Product (except Diagnostic)   ..............             500
                                          Manufacturing.
325510.................................  Paint and Coating Manufacturing........  ..............             500
325520.................................  Adhesive Manufacturing.................  ..............             500
325611.................................  Soap and Other Detergent Manufacturing.  ..............             750
325612.................................  Polish and Other Sanitation Good         ..............             500
                                          Manufacturing.
325613.................................  Surface Active Agent Manufacturing.....  ..............             500
325620.................................  Toilet Preparation Manufacturing.......  ..............             500
325910.................................  Printing Ink Manufacturing.............  ..............             500
325920.................................  Explosives Manufacturing...............  ..............             750
325991.................................  Custom Compounding of Purchased Resins.  ..............             500
325992.................................  Photographic Film, Paper, Plate and      ..............             500
                                          Chemical Manufacturing.
325998.................................  All Other Miscellaneous Chemical         ..............             500
                                          Product and Preparation Manufacturing.
----------------------------------------------------------------------------------------------------------------
                            Subsector 326--Plastics and Rubber Products Manufacturing
----------------------------------------------------------------------------------------------------------------
326111.................................  Unsupported Plastics Bag Manufacturing.  ..............             500
326112.................................  Unsupported Plastics Packaging Film and  ..............             500
                                          Sheet Manufacturing.
326113.................................  Unsupported Plastics Film and Sheet      ..............             500
                                          (except Packaging) Manufacturing.
326121.................................  Unsupported Plastics Profile Shapes      ..............             500
                                          Manufacturing.
326122.................................  Plastics Pipe and Pipe Fitting           ..............             500
                                          Manufacturing.
326130.................................  Laminated Plastics Plate, Sheet and      ..............             500
                                          Shape Manufacturing.
326140.................................  Polystyrene Foam Product Manufacturing.  ..............             500

[[Page 286]]

 
326150.................................  Urethane and Other Foam Product (except  ..............             500
                                          Polystyrene) Manufacturing.
326160.................................  Plastics Bottle Manufacturing..........  ..............             500
326191.................................  Plastics Plumbing Fixture Manufacturing  ..............             500
326192.................................  Resilient Floor Covering Manufacturing.  ..............             750
326199.................................  All Other Plastics Product               ..............             500
                                          Manufacturing.
326211.................................  Tire Manufacturing (except               ..............       \5\ 1,000
                                          Retreading)\5\.
326212.................................  Tire Retreading........................  ..............             500
326220.................................  Rubber and Plastics Hoses and Belting    ..............             500
                                          Manufacturing.
326291.................................  Rubber Product Manufacturing for         ..............             500
                                          Mechanical Use.
326299.................................  All Other Rubber Product Manufacturing.  ..............             500
----------------------------------------------------------------------------------------------------------------
                            Subsector 327--Nonmetallic Mineral Product Manufacturing
----------------------------------------------------------------------------------------------------------------
327111.................................  Vitreous China Plumbing Fixture and      ..............             750
                                          China and Earthenware Bathroom
                                          Accessories Manufacturing.
327112.................................  Vitreous China, Fine Earthenware and     ..............             500
                                          Other Pottery Product Manufacturing.
327113.................................  Porcelain Electrical Supply              ..............             500
                                          Manufacturing.
327121.................................  Brick and Structural Clay Tile           ..............             500
                                          Manufacturing.
327122.................................  Ceramic Wall and Floor Tile              ..............             500
                                          Manufacturing.
327123.................................  Other Structural Clay Product            ..............             500
                                          Manufacturing.
327124.................................  Clay Refractory Manufacturing..........  ..............             500
327125.................................  Nonclay Refractory Manufacturing.......  ..............             750
327211.................................  Flat Glass Manufacturing...............  ..............           1,000
327212.................................  Other Pressed and Blown Glass and        ..............             750
                                          Glassware Manufacturing.
327213.................................  Glass Container Manufacturing..........  ..............             750
327215.................................  Glass Product Manufacturing Made of      ..............             500
                                          Purchased Glass.
327310.................................  Cement Manufacturing...................  ..............             750
327320.................................  Ready-Mix Concrete Manufacturing.......  ..............             500
327331.................................  Concrete Block and Brick Manufacturing.  ..............             500
327332.................................  Concrete Pipe Manufacturing............  ..............             500
327390.................................  Other Concrete Product Manufacturing...  ..............             500
327410.................................  Lime Manufacturing.....................  ..............             500
327420.................................  Gypsum Product Manufacturing...........  ..............           1,000
327910.................................  Abrasive Product Manufacturing.........  ..............             500
327991.................................  Cut Stone and Stone Product              ..............             500
                                          Manufacturing.
327992.................................  Ground or Treated Mineral and Earth      ..............             500
                                          Manufacturing.
327993.................................  Mineral Wool Manufacturing.............  ..............             750
327999.................................  All Other Miscellaneous Nonmetallic      ..............             500
                                          Mineral Product Manufacturing.
----------------------------------------------------------------------------------------------------------------
                                   Subsector 331--Primary Metal Manufacturing
----------------------------------------------------------------------------------------------------------------
331111.................................  Iron and Steel Mills...................  ..............           1,000
331112.................................  Electrometallurgical Ferroalloy Product  ..............             750
                                          Manufacturing.
331210.................................  Iron and Steel Pipe and Tube             ..............           1,000
                                          Manufacturing from Purchased Steel.
331221.................................  Cold-Rolled Steel Shape Manufacturing..  ..............           1,000
331222.................................  Steel Wire Drawing.....................  ..............           1,000
331311.................................  Alumina Refining.......................  ..............           1,000
331312.................................  Primary Aluminum Production............  ..............           1,000
331314.................................  Secondary Smelting and Alloying of       ..............             750
                                          Aluminum.
331315.................................  Aluminum Sheet, Plate and Foil           ..............             750
                                          Manufacturing.
331316.................................  Aluminum Extruded Product Manufacturing  ..............             750
331319.................................  Other Aluminum Rolling and Drawing.....  ..............             750
331411.................................  Primary Smelting and Refining of Copper  ..............           1,000
331419.................................  Primary Smelting and Refining of         ..............             750
                                          Nonferrous Metal (except Copper and
                                          Aluminum).
331421.................................  Copper Rolling, Drawing and Extruding..  ..............             750
331422.................................  Copper Wire (except Mechanical) Drawing  ..............           1,000
331423.................................  Secondary Smelting, Refining, and        ..............             750
                                          Alloying of Copper.
331491.................................  Nonferrous Metal (except Copper and      ..............             750
                                          Aluminum) Rolling, Drawing and
                                          Extruding.
331492.................................  Secondary Smelting, Refining, and        ..............             750
                                          Alloying of Nonferrous Metal (except
                                          Copper and Aluminum).
331511.................................  Iron Foundries.........................  ..............             500
331512.................................  Steel Investment Foundries.............  ..............             500
331513.................................  Steel Foundries (except Investment)....  ..............             500
331521.................................  Aluminum Die-Casting Foundries.........  ..............             500
331522.................................  Nonferrous (except Aluminum) Die-        ..............             500
                                          Casting Foundries.
331524.................................  Aluminum Foundries (except Die-Casting)  ..............             500
331525.................................  Copper Foundries (except Die-Casting)..  ..............             500

[[Page 287]]

 
331528.................................  Other Nonferrous Foundries (except Die-  ..............             500
                                          Casting).
----------------------------------------------------------------------------------------------------------------
                              Subsector 332--Fabricated Metal Product Manufacturing
----------------------------------------------------------------------------------------------------------------
332111.................................  Iron and Steel Forging.................  ..............             500
332112.................................  Nonferrous Forging.....................  ..............             500
332114.................................  Custom Roll Forming....................  ..............             500
332115.................................  Crown and Closure Manufacturing........  ..............             500
332116.................................  Metal Stamping.........................  ..............             500
332117.................................  Powder Metallurgy Part Manufacturing...  ..............             500
332211.................................  Cutlery and Flatware (except Precious)   ..............             500
                                          Manufacturing.
332212.................................  Hand and Edge Tool Manufacturing.......  ..............             500
332213.................................  Saw Blade and Handsaw Manufacturing....  ..............             500
332214.................................  Kitchen Utensil, Pot and Pan             ..............             500
                                          Manufacturing.
332311.................................  Prefabricated Metal Building and         ..............             500
                                          Component Manufacturing.
332312.................................  Fabricated Structural Metal              ..............             500
                                          Manufacturing.
332313.................................  Plate Work Manufacturing...............  ..............             500
332321.................................  Metal Window and Door Manufacturing....  ..............             500
332322.................................  Sheet Metal Work Manufacturing.........  ..............             500
332323.................................  Ornamental and Architectural Metal Work  ..............             500
                                          Manufacturing.
332410.................................  Power Boiler and Heat Exchanger          ..............             500
                                          Manufacturing.
332420.................................  Metal Tank (Heavy Gauge) Manufacturing.  ..............             500
332431.................................  Metal Can Manufacturing................  ..............           1,000
332439.................................  Other Metal Container Manufacturing....  ..............             500
332510.................................  Hardware Manufacturing.................  ..............             500
332611.................................  Spring (Heavy Gauge) Manufacturing.....  ..............             500
332612.................................  Spring (Light Gauge) Manufacturing.....  ..............             500
332618.................................  Other Fabricated Wire Product            ..............             500
                                          Manufacturing.
332710.................................  Machine Shops..........................  ..............             500
332721.................................  Precision Turned Product Manufacturing.  ..............             500
332722.................................  Bolt, Nut, Screw, Rivet and Washer       ..............             500
                                          Manufacturing.
332811.................................  Metal Heat Treating....................  ..............             750
332812.................................  Metal Coating, Engraving (except         ..............             500
                                          Jewelry and Silverware), and Allied
                                          Services to Manufacturers.
332813.................................  Electroplating, Plating, Polishing,      ..............             500
                                          Anodizing and Coloring.
332911.................................  Industrial Valve Manufacturing.........  ..............             500
332912.................................  Fluid Power Valve and Hose Fitting       ..............             500
                                          Manufacturing.
332913.................................  Plumbing Fixture Fitting and Trim        ..............             500
                                          Manufacturing.
332919.................................  Other Metal Valve and Pipe Fitting       ..............             500
                                          Manufacturing.
332991.................................  Ball and Roller Bearing Manufacturing..  ..............             750
332992.................................  Small Arms Ammunition Manufacturing....  ..............           1,000
332993.................................  Ammunition (except Small Arms)           ..............           1,500
                                          Manufacturing.
332994.................................  Small Arms Manufacturing...............  ..............           1,000
332995.................................  Other Ordnance and Accessories           ..............             500
                                          Manufacturing.
332996.................................  Fabricated Pipe and Pipe Fitting         ..............             500
                                          Manufacturing.
332997.................................  Industrial Pattern Manufacturing.......  ..............             500
332998.................................  Enameled Iron and Metal Sanitary Ware    ..............             750
                                          Manufacturing.
332999.................................  All Other Miscellaneous Fabricated       ..............             500
                                          Metal Product Manufacturing.
----------------------------------------------------------------------------------------------------------------
                                   Subsector 333--Machinery Manufacturing \6\
----------------------------------------------------------------------------------------------------------------
333111.................................  Farm Machinery and Equipment             ..............             500
                                          Manufacturing.
333112.................................  Lawn and Garden Tractor and Home Lawn    ..............             500
                                          and Garden Equipment Manufacturing.
333120.................................  Construction Machinery Manufacturing...  ..............             750
333131.................................  Mining Machinery and Equipment           ..............             500
                                          Manufacturing.
333132.................................  Oil and Gas Field Machinery and          ..............             500
                                          Equipment Manufacturing.
333210.................................  Sawmill and Woodworking Machinery        ..............             500
                                          Manufacturing.
333220.................................  Plastics and Rubber Industry Machinery   ..............             500
                                          Manufacturing.
333291.................................  Paper Industry Machinery Manufacturing.  ..............             500
333292.................................  Textile Machinery Manufacturing........  ..............             500
333293.................................  Printing Machinery and Equipment         ..............             500
                                          Manufacturing.
333294.................................  Food Product Machinery Manufacturing...  ..............             500
333295.................................  Semiconductor Machinery Manufacturing..  ..............             500
333298.................................  All Other Industrial Machinery           ..............             500
                                          Manufacturing.
333311.................................  Automatic Vending Machine Manufacturing  ..............             500
333312.................................  Commercial Laundry, Drycleaning and      ..............             500
                                          Pressing Machine Manufacturing.
333313.................................  Office Machinery Manufacturing.........  ..............           1,000
333314.................................  Optical Instrument and Lens              ..............             500
                                          Manufacturing.
333315.................................  Photographic and Photocopying Equipment  ..............             500
                                          Manufacturing.

[[Page 288]]

 
333319.................................  Other Commercial and Service Industry    ..............             500
                                          Machinery Manufacturing.
333411.................................  Air Purification Equipment               ..............             500
                                          Manufacturing.
333412.................................  Industrial and Commercial Fan and        ..............             500
                                          Blower Manufacturing.
333414.................................  Heating Equipment (except Warm Air       ..............             500
                                          Furnaces) Manufacturing.
333415.................................  Air-Conditioning and Warm Air Heating    ..............             750
                                          Equipment and Commercial and
                                          Industrial Refrigeration Equipment
                                          Manufacturing.
333511.................................  Industrial Mold Manufacturing..........  ..............             500
333512.................................  Machine Tool (Metal Cutting Types)       ..............             500
                                          Manufacturing.
333513.................................  Machine Tool (Metal Forming Types)       ..............             500
                                          Manufacturing.
333514.................................  Special Die and Tool, Die Set, Jig and   ..............             500
                                          Fixture Manufacturing.
333515.................................  Cutting Tool and Machine Tool Accessory  ..............             500
                                          Manufacturing.
333516.................................  Rolling Mill Machinery and Equipment     ..............             500
                                          Manufacturing.
333518.................................  Other Metalworking Machinery             ..............             500
                                          Manufacturing.
333611.................................  Turbine and Turbine Generator Set Unit   ..............           1,000
                                          Manufacturing.
333612.................................  Speed Changer, Industrial High- Speed    ..............             500
                                          Drive and Gear Manufacturing.
333613.................................  Mechanical Power Transmission Equipment  ..............             500
                                          Manufacturing.
333618.................................  Other Engine Equipment Manufacturing...  ..............           1,000
333911.................................  Pump and Pumping Equipment               ..............             500
                                          Manufacturing.
333912.................................  Air and Gas Compressor Manufacturing...  ..............             500
333913.................................  Measuring and Dispensing Pump            ..............             500
                                          Manufacturing.
333921.................................  Elevator and Moving Stairway             ..............             500
                                          Manufacturing.
333922.................................  Conveyor and Conveying Equipment         ..............             500
                                          Manufacturing.
333923.................................  Overhead Traveling Crane, Hoist and      ..............             500
                                          Monorail System Manufacturing.
333924.................................  Industrial Truck, Tractor, Trailer and   ..............             750
                                          Stacker Machinery Manufacturing.
333991.................................  Power-Driven Hand Tool Manufacturing...  ..............             500
333992.................................  Welding and Soldering Equipment          ..............             500
                                          Manufacturing.
333993.................................  Packaging Machinery Manufacturing......  ..............             500
333994.................................  Industrial Process Furnace and Oven      ..............             500
                                          Manufacturing.
333995.................................  Fluid Power Cylinder and Actuator        ..............             500
                                          Manufacturing.
333996.................................  Fluid Power Pump and Motor               ..............             500
                                          Manufacturing.
333997.................................  Scale and Balance (except Laboratory)    ..............             500
                                          Manufacturing.
333999.................................  All Other Miscellaneous General Purpose  ..............             500
                                          Machinery Manufacturing.
----------------------------------------------------------------------------------------------------------------
                        Subsector 334--Computer and Electronic Product Manufacturing \6\
----------------------------------------------------------------------------------------------------------------
334111.................................  Electronic Computer Manufacturing......  ..............           1,000
334112.................................  Computer Storage Device Manufacturing..  ..............           1,000
334113.................................  Computer Terminal Manufacturing........  ..............           1,000
334119.................................  Other Computer Peripheral Equipment      ..............           1,000
                                          Manufacturing.
334210.................................  Telephone Apparatus Manufacturing......  ..............           1,000
334220.................................  Radio and Television Broadcasting and    ..............             750
                                          Wireless Communications Equipment
                                          Manufacturing.
334290.................................  Other Communications Equipment           ..............             750
                                          Manufacturing.
334310.................................  Audio and Video Equipment Manufacturing  ..............             750
334411.................................  Electron Tube Manufacturing............  ..............             750
334412.................................  Bare Printed Circuit Board               ..............             500
                                          Manufacturing.
334413.................................  Semiconductor and Related Device         ..............             500
                                          Manufacturing.
334414.................................  Electronic Capacitor Manufacturing.....  ..............             500
334415.................................  Electronic Resistor Manufacturing......  ..............             500
334416.................................  Electronic Coil, Transformer, and Other  ..............             500
                                          Inductor Manufacturing.
334417.................................  Electronic Connector Manufacturing.....  ..............             500
334418.................................  Printed Circuit Assembly (Electronic     ..............             500
                                          Assembly) Manufacturing.
334419.................................  Other Electronic Component               ..............             500
                                          Manufacturing.
334510.................................  Electromedical and Electrotherapeutic    ..............             500
                                          Apparatus Manufacturing.
334511.................................  Search, Detection, Navigation,           ..............             750
                                          Guidance, Aeronautical, and Nautical
                                          System and Instrument Manufacturing.
334512.................................  Automatic Environmental Control          ..............             500
                                          Manufacturing for Residential,
                                          Commercial and Appliance Use.
334513.................................  Instruments and Related Products         ..............             500
                                          Manufacturing for Measuring,
                                          Displaying, and Controlling Industrial
                                          Process Variables.
334514.................................  Totalizing Fluid Meter and Counting      ..............             500
                                          Device Manufacturing.
334515.................................  Instrument Manufacturing for Measuring   ..............             500
                                          and Testing Electricity and Electrical
                                          Signals.
334516.................................  Analytical Laboratory Instrument         ..............             500
                                          Manufacturing.
334517.................................  Irradiation Apparatus Manufacturing....  ..............             500
334518.................................  Watch, Clock, and Part Manufacturing...  ..............             500
334519.................................  Other Measuring and Controlling Device   ..............             500
                                          Manufacturing.

[[Page 289]]

 
334611.................................  Software Reproducing...................  ..............             500
334612.................................  Prerecorded Compact Disc (except         ..............             750
                                          Software), Tape, and Record
                                          Reproducing.
334613.................................  Magnetic and Optical Recording Media     ..............           1,000
                                          Manufacturing.
----------------------------------------------------------------------------------------------------------------
                 Subsector 335--Electrical Equipment, Appliance and Component Manufacturing \6\
----------------------------------------------------------------------------------------------------------------
335110.................................  Electric Lamp Bulb and Part              ..............           1,000
                                          Manufacturing.
335121.................................  Residential Electric Lighting Fixture    ..............             500
                                          Manufacturing.
335122.................................  Commercial, Industrial and               ..............             500
                                          Institutional Electric Lighting
                                          Fixture Manufacturing.
335129.................................  Other Lighting Equipment Manufacturing.  ..............             500
335211.................................  Electric Housewares and Household Fan    ..............             750
                                          Manufacturing.
335212.................................  Household Vacuum Cleaner Manufacturing.  ..............             750
335221.................................  Household Cooking Appliance              ..............             750
                                          Manufacturing.
335222.................................  Household Refrigerator and Home Freezer  ..............           1,000
                                          Manufacturing.
335224.................................  Household Laundry Equipment              ..............           1,000
                                          Manufacturing.
335228.................................  Other Major Household Appliance          ..............             500
                                          Manufacturing.
335311.................................  Power, Distribution and Specialty        ..............             750
                                          Transformer Manufacturing.
335312.................................  Motor and Generator Manufacturing......  ..............           1,000
335313.................................  Switchgear and Switchboard Apparatus     ..............             750
                                          Manufacturing.
335314.................................  Relay and Industrial Control             ..............             750
                                          Manufacturing.
335911.................................  Storage Battery Manufacturing..........  ..............             500
335912.................................  Primary Battery Manufacturing..........  ..............           1,000
335921.................................  Fiber Optic Cable Manufacturing........  ..............           1,000
335929.................................  Other Communication and Energy Wire      ..............           1,000
                                          Manufacturing.
335931.................................  Current-Carrying Wiring Device           ..............             500
                                          Manufacturing.
335932.................................  Noncurrent-Carrying Wiring Device        ..............             500
                                          Manufacturing.
335991.................................  Carbon and Graphite Product              ..............             750
                                          Manufacturing.
335999.................................  All Other Miscellaneous Electrical       ..............             500
                                          Equipment and Component Manufacturing.
----------------------------------------------------------------------------------------------------------------
                            Subsector 336--Transportation Equipment Manufacturing \6\
----------------------------------------------------------------------------------------------------------------
336111.................................  Automobile Manufacturing...............  ..............           1,000
336112.................................  Light Truck and Utility Vehicle          ..............           1,000
                                          Manufacturing.
336120.................................  Heavy Duty Truck Manufacturing.........  ..............           1,000
336211.................................  Motor Vehicle Body Manufacturing.......  ..............           1,000
336212.................................  Truck Trailer Manufacturing............  ..............             500
336213.................................  Motor Home Manufacturing...............  ..............           1,000
336214.................................  Travel Trailer and Camper Manufacturing  ..............             500
336311.................................  Carburetor, Piston, Piston Ring and      ..............             500
                                          Valve Manufacturing.
336312.................................  Gasoline Engine and Engine Parts         ..............             750
                                          Manufacturing.
336321.................................  Vehicular Lighting Equipment             ..............             500
                                          Manufacturing.
336322.................................  Other Motor Vehicle Electrical and       ..............             750
                                          Electronic Equipment Manufacturing.
336330.................................  Motor Vehicle Steering and Suspension    ..............             750
                                          Components (except Spring)
                                          Manufacturing.
336340.................................  Motor Vehicle Brake System               ..............             750
                                          Manufacturing.
336350.................................  Motor Vehicle Transmission and Power     ..............             750
                                          Train Parts Manufacturing.
336360.................................  Motor Vehicle Seating and Interior Trim  ..............             500
                                          Manufacturing.
336370.................................  Motor Vehicle Metal Stamping...........  ..............             500
336391.................................  Motor Vehicle Air-Conditioning           ..............             750
                                          Manufacturing.
336399.................................  All Other Motor Vehicle Parts            ..............             750
                                          Manufacturing.
336411.................................  Aircraft Manufacturing.................  ..............           1,500
336412.................................  Aircraft Engine and Engine Parts         ..............           1,000
                                          Manufacturing.
336413.................................  Other Aircraft Part and Auxiliary        ..............       \7\ 1,000
                                          Equipment Manufacturing \7\.
336414.................................  Guided Missile and Space Vehicle         ..............           1,000
                                          Manufacturing.
336415.................................  Guided Missile and Space Vehicle         ..............           1,000
                                          Propulsion Unit and Propulsion Unit
                                          Parts Manufacturing.
336419.................................  Other Guided Missile and Space Vehicle   ..............           1,000
                                          Parts and Auxiliary Equipment
                                          Manufacturing.
336510.................................  Railroad Rolling Stock Manufacturing...  ..............           1,000
336611.................................  Ship Building and Repairing............  ..............           1,000
336612.................................  Boat Building..........................  ..............             500
336991.................................  Motorcycle, Bicycle and Parts            ..............             500
                                          Manufacturing.
336992.................................  Military Armored Vehicle, Tank and Tank  ..............           1,000
                                          Component Manufacturing.
336999.................................  All Other Transportation Equipment       ..............             500
                                          Manufacturing.
----------------------------------------------------------------------------------------------------------------

[[Page 290]]

 
                           Subsector 337--Furniture and Related Product Manufacturing
----------------------------------------------------------------------------------------------------------------
337110.................................  Wood Kitchen Cabinet and Counter Top     ..............             500
                                          Manufacturing.
337121.................................  Upholstered Household Furniture          ..............             500
                                          Manufacturing.
337122.................................  Nonupholstered Wood Household Furniture  ..............             500
                                          Manufacturing.
337124.................................  Metal Household Furniture Manufacturing  ..............             500
337125.................................  Household Furniture (except Wood and     ..............             500
                                          Metal) Manufacturing.
337127.................................  Institutional Furniture Manufacturing..  ..............             500
337129.................................  Wood Television, Radio, and Sewing       ..............             500
                                          Machine Cabinet Manufacturing.
337211.................................  Wood Office Furniture Manufacturing....  ..............             500
337212.................................  Custom Architectural Woodwork and        ..............             500
                                          Millwork Manufacturing.
337214.................................  Office Furniture (Except Wood)           ..............             500
                                          Manufacturing.
337215.................................  Showcase, Partition, Shelving, and       ..............             500
                                          Locker Manufacturing.
337910.................................  Mattress Manufacturing.................  ..............             500
337920.................................  Blind and Shade Manufacturing..........  ..............             500
----------------------------------------------------------------------------------------------------------------
                                   Subsector 339--Miscellaneous Manufacturing
----------------------------------------------------------------------------------------------------------------
339111.................................  Laboratory Apparatus and Furniture       ..............             500
                                          Manufacturing.
339112.................................  Surgical and Medical Instrument          ..............             500
                                          Manufacturing.
339113.................................  Surgical Appliance and Supplies          ..............             500
                                          Manufacturing.
339114.................................  Dental Equipment and Supplies            ..............             500
                                          Manufacturing.
339115.................................  Ophthalmic Goods Manufacturing.........  ..............             500
339116.................................  Dental Laboratories....................  ..............             500
339911.................................  Jewelry (except Costume) Manufacturing.  ..............             500
339912.................................  Silverware and Hollowware Manufacturing  ..............             500
339913.................................  Jewelers' Material and Lapidary Work     ..............             500
                                          Manufacturing.
339914.................................  Costume Jewelry and Novelty              ..............             500
                                          Manufacturing.
339920.................................  Sporting and Athletic Goods              ..............             500
                                          Manufacturing.
339931.................................  Doll and Stuffed Toy Manufacturing.....  ..............             500
339932.................................  Game, Toy, and Children's Vehicle        ..............             500
                                          Manufacturing.
339941.................................  Pen and Mechanical Pencil Manufacturing  ..............             500
339942.................................  Lead Pencil and Art Good Manufacturing.  ..............             500
339943.................................  Marking Device Manufacturing...........  ..............             500
339944.................................  Carbon Paper and Inked Ribbon            ..............             500
                                          Manufacturing.
339950.................................  Sign Manufacturing.....................  ..............             500
339991.................................  Gasket, Packing, and Sealing Device      ..............             500
                                          Manufacturing.
339992.................................  Musical Instrument Manufacturing.......  ..............             500
339993.................................  Fastener, Button, Needle and Pin         ..............             500
                                          Manufacturing.
339994.................................  Broom, Brush and Mop Manufacturing.....  ..............             500
339995.................................  Burial Casket Manufacturing............  ..............             500
339999.................................  All Other Miscellaneous Manufacturing..  ..............             500
----------------------------------------------------------------------------------------------------------------
                                           Sector 42--Wholesale Trade
 (Not applicable to Government procurement of supplies. The nonmanufacturer size standard of 500 employees shall
                          be used for purposes of Government procurement of supplies.)
----------------------------------------------------------------------------------------------------------------
                               Subsector 423--Merchant Wholesalers, Durable Goods
----------------------------------------------------------------------------------------------------------------
423110.................................  Automobile and Other Motor Vehicle       ..............             100
                                          Merchant Wholesalers.
423120.................................  Motor Vehicle Supplies and New Parts     ..............             100
                                          Merchant Wholesalers.
423130.................................  Tire and Tube Merchant Wholesalers.....  ..............             100
423140.................................  Motor Vehicle Parts (Used) Merchant      ..............             100
                                          Wholesalers.
423210.................................  Furniture Merchant Wholesalers.........  ..............             100
423220.................................  Home Furnishing Merchant Wholesalers...  ..............             100
423310.................................  Lumber, Plywood, Millwork, and Wood      ..............             100
                                          Panel Merchant Wholesalers.
423320.................................  Brick, Stone, and Related Construction   ..............             100
                                          Material Merchant Wholesalers.
423330.................................  Roofing, Siding, and Insulation          ..............             100
                                          Material Merchant Wholesalers.
423390.................................  Other Construction Material Merchant     ..............             100
                                          Wholesalers.
423410.................................  Photographic Equipment and Supplies      ..............             100
                                          Merchant Wholesalers.
423420.................................  Office Equipment Merchant Wholesalers..  ..............             100
423430.................................  Computer and Computer Peripheral         ..............             100
                                          Equipment and Software Merchant
                                          Wholesalers.
423440.................................  Other Commercial Equipment Merchant      ..............             100
                                          Wholesalers.
423450.................................  Medical, Dental, and Hospital Equipment  ..............             100
                                          and Supplies Merchant Wholesalers.
423460.................................  Ophthalmic Goods Merchant Wholesalers..  ..............             100
423490.................................  Other Professional Equipment and         ..............             100
                                          Supplies Merchant Wholesalers.
423510.................................  Metal Service Centers and Other Metal    ..............             100
                                          Merchant Wholesalers.

[[Page 291]]

 
423520.................................  Coal and Other Mineral and Ore Merchant  ..............             100
                                          Wholesalers.
423610.................................  Electrical Apparatus and Equipment,      ..............             100
                                          Wiring Supplies, and Related Equipment
                                          Merchant Wholesalers.
423620.................................  Electrical and Electronic Appliance,     ..............             100
                                          Television, and Radio Set Merchant
                                          Wholesalers.
423690.................................  Other Electronic Parts and Equipment     ..............             100
                                          Merchant Wholesalers.
423710.................................  Hardware Merchant Wholesalers..........  ..............             100
423720.................................  Plumbing and Heating Equipment and       ..............             100
                                          Supplies (Hydronics) Merchant
                                          Wholesalers.
423730.................................  Warm Air Heating and Air-Conditioning    ..............             100
                                          Equipment and Supplies Merchant
                                          Wholesalers.
423740.................................  Refrigeration Equipment and Supplies     ..............             100
                                          Merchant Wholesalers.
423810.................................  Construction and Mining (except Oil      ..............             100
                                          Well) Machinery and Equipment Merchant
                                          Wholesalers.
423820.................................  Farm and Garden Machinery and Equipment  ..............             100
                                          Merchant Wholesalers.
423830.................................  Industrial Machinery and Equipment       ..............             100
                                          Merchant Wholesalers.
423840.................................  Industrial Supplies Merchant             ..............             100
                                          Wholesalers.
423850.................................  Service Establishment Equipment and      ..............             100
                                          Supplies Merchant Wholesalers.
423860.................................  Transportation Equipment and Supplies    ..............             100
                                          (except Motor Vehicle) Merchant
                                          Wholesalers.
423910.................................  Sporting and Recreational Goods and      ..............             100
                                          Supplies Merchant Wholesalers.
423920.................................  Toy and Hobby Goods and Supplies         ..............             100
                                          Merchant Wholesalers.
423930.................................  Recyclable Material Merchant             ..............             100
                                          Wholesalers.
423940.................................  Jewelry, Watch, Precious Stone, and      ..............             100
                                          Precious Metal Merchant Wholesalers.
423990.................................  Other Miscellaneous Durable Goods        ..............             100
                                          Merchant Wholesalers.
----------------------------------------------------------------------------------------------------------------
                              Subsector 424--Merchant Wholesalers, Nondurable Goods
----------------------------------------------------------------------------------------------------------------
424110.................................  Printing and Writing Paper Merchant      ..............             100
                                          Wholesalers.
424120.................................  Stationary and Office Supplies Merchant  ..............             100
                                          Wholesalers.
424130.................................  Industrial and Personal Service Paper    ..............             100
                                          Merchant Wholesalers.
424210.................................  Drugs and Druggists' Sundries Merchant   ..............             100
                                          Wholesalers.
424310.................................  Piece Goods, Notions, and Other Dry      ..............             100
                                          Goods Merchant Wholesalers.
424320.................................  Men's and Boys' Clothing and             ..............             100
                                          Furnishings Merchant Wholesalers.
424330.................................  Women's, Children's, and Infants'        ..............             100
                                          Clothing and Accessories Merchant
                                          Wholesalers.
424340.................................  Footwear Merchant Wholesalers..........  ..............             100
424410.................................  General Line Grocery Merchant            ..............             100
                                          Wholesalers.
424420.................................  Packaged Frozen Food Merchant            ..............             100
                                          Wholesalers.
424430.................................  Dairy Product (except Dried or Canned)   ..............             100
                                          Merchant Wholesalers.
424440.................................  Poultry and Poultry Product Merchant     ..............             100
                                          Wholesalers.
424450.................................  Confectionery Merchant Wholesalers.....  ..............             100
424460.................................  Fish and Seafood Merchant Wholesalers..  ..............             100
424470.................................  Meat and Meat Product Merchant           ..............             100
                                          Wholesalers.
424480.................................  Fresh Fruit and Vegetable Merchant       ..............             100
                                          Wholesalers.
424490.................................  Other Grocery and Related Products       ..............             100
                                          Merchant Wholesalers.
424510.................................  Grain and Field Bean Merchant            ..............             100
                                          Wholesalers.
424520.................................  Livestock Merchant Wholesalers.........  ..............             100
424590.................................  Other Farm Product Raw Material          ..............             100
                                          Merchant Wholesalers.
424610.................................  Plastics Materials and Basic Forms and   ..............             100
                                          Shapes Merchant Wholesalers.
424690.................................  Other Chemical and Allied Products       ..............             100
                                          Merchant Wholesalers.
424710.................................  Petroleum Bulk Stations and Terminals..  ..............             100
424720.................................  Petroleum and Petroleum Products         ..............             100
                                          Merchant Wholesalers (except Bulk
                                          Stations and Terminals).
424810.................................  Beer and Ale Merchant Wholesalers......  ..............             100
424820.................................  Wine and Distilled Alcoholic Beverage    ..............             100
                                          Merchant Wholesalers.
424910.................................  Farm Supplies Merchant Wholesalers.....  ..............             100
424920.................................  Book, Periodical, and Newspaper          ..............             100
                                          Merchant Wholesalers.
424930.................................  Flower, Nursery Stock, and Florists'     ..............             100
                                          Supplies Merchant Wholesalers.
424940.................................  Tobacco and Tobacco Product Merchant     ..............             100
                                          Wholesalers.
424950.................................  Paint, Varnish, and Supplies Merchant    ..............             100
                                          Wholesalers.
424990.................................  Other Miscellaneous Nondurable Goods     ..............             100
                                          Merchant Wholesalers.
----------------------------------------------------------------------------------------------------------------
                       Subsector 425--Wholesale Electronic Markets and Agents and Brokers
----------------------------------------------------------------------------------------------------------------
425110.................................  Business to Business Electronic Markets  ..............             100

[[Page 292]]

 
425120.................................  Wholesale Trade Agents and Brokers.....  ..............             100
----------------------------------------------------------------------------------------------------------------
                                           Sectors 44-45--Retail Trade
 (Not applicable to Government procurement of supplies. The nonmanufacturer size standard of 500 employees shall
                          be used for purposes of Government procurement of supplies.)
----------------------------------------------------------------------------------------------------------------
                                 Subsector 441--Motor Vehicle and Parts Dealers
----------------------------------------------------------------------------------------------------------------
441110.................................  New Car Dealers........................           $24.5  ..............
441120.................................  Used Car Dealers.......................           $19.5  ..............
441210.................................  Recreational Vehicle Dealers...........            $6.0  ..............
441221.................................  Motorcycle Dealers.....................            $6.0  ..............
441222.................................  Boat Dealers...........................            $6.0  ..............
441229.................................  All Other Motor Vehicle Dealers........            $6.0  ..............
    EXCEPT.............................  Aircraft Dealers, Retail...............            $8.5  ..............
441310.................................  Automotive Parts and Accessories Stores            $6.0  ..............
441320.................................  Tire Dealers...........................            $6.0  ..............
----------------------------------------------------------------------------------------------------------------
                              Subsector 442--Furniture and Home Furnishings Stores
----------------------------------------------------------------------------------------------------------------
442110.................................  Furniture Stores.......................            $6.0  ..............
442210.................................  Floor Covering Stores..................            $6.0  ..............
442291.................................  Window Treatment Stores................            $6.0  ..............
442299.................................  All Other Home Furnishings Stores......            $6.0  ..............
----------------------------------------------------------------------------------------------------------------
                                 Subsector 443--Electronics and Appliance Stores
----------------------------------------------------------------------------------------------------------------
443111.................................  Household Appliance Stores.............            $7.5  ..............
443112.................................  Radio, Television and Other Electronics            $7.5  ..............
                                          Stores.
443120.................................  Computer and Software Stores...........            $7.5  ..............
443130.................................  Camera and Photographic Supplies Stores            $6.0  ..............
----------------------------------------------------------------------------------------------------------------
                   Subsector 444--Building Material and Garden Equipment and Supplies Dealers
----------------------------------------------------------------------------------------------------------------
444110.................................  Home Centers...........................            $6.0  ..............
444120.................................  Paint and Wallpaper Stores.............            $6.0  ..............
444130.................................  Hardware Stores........................            $6.0  ..............
444190.................................  Other Building Material Dealers........            $6.0  ..............
444210.................................  Outdoor Power Equipment Stores.........            $6.0  ..............
444220.................................  Nursery and Garden Centers.............            $6.0  ..............
----------------------------------------------------------------------------------------------------------------
                                     Subsector 445--Food and Beverage Stores
----------------------------------------------------------------------------------------------------------------
445110.................................  Supermarkets and Other Grocery (except            $23.0  ..............
                                          Convenience) Stores.
445120.................................  Convenience Stores.....................           $23.0  ..............
445210.................................  Meat Markets...........................            $6.0  ..............
445220.................................  Fish and Seafood Markets...............            $6.0  ..............
445230.................................  Fruit and Vegetable Markets............            $6.0  ..............
445291.................................  Baked Goods Stores.....................            $6.0  ..............
445292.................................  Confectionery and Nut Stores...........            $6.0  ..............
445299.................................  All Other Specialty Food Stores........            $6.0  ..............
445310.................................  Beer, Wine and Liquor Stores...........            $6.0  ..............
----------------------------------------------------------------------------------------------------------------
                                 Subsector 446--Health and Personal Care Stores
----------------------------------------------------------------------------------------------------------------
446110.................................  Pharmacies and Drug Stores.............            $6.0  ..............
446120.................................  Cosmetics, Beauty Supplies and Perfume             $6.0  ..............
                                          Stores.
446130.................................  Optical Goods Stores...................            $6.0
446191.................................  Food (Health) Supplement Stores........            $6.0  ..............
446199.................................  All Other Health and Personal Care                 $6.0  ..............
                                          Stores.
----------------------------------------------------------------------------------------------------------------
                                        Subsector 447--Gasoline Stations
----------------------------------------------------------------------------------------------------------------
447110.................................  Gasoline Stations with Convenience                $23.0  ..............
                                          Stores.
447190.................................  Other Gasoline Stations................            $7.5  ..............
----------------------------------------------------------------------------------------------------------------
                             Subsector 448--Clothing and Clothing Accessories Stores
----------------------------------------------------------------------------------------------------------------
448110.................................  Men's Clothing Stores..................            $7.5  ..............
448120.................................  Women's Clothing Stores................            $7.5  ..............
448130.................................  Children's and Infants' Clothing Stores            $6.0  ..............

[[Page 293]]

 
448140.................................  Family Clothing Stores.................            $7.5  ..............
448150.................................  Clothing Accessories Stores............            $6.0  ..............
448190.................................  Other Clothing Stores..................            $6.0  ..............
448210.................................  Shoe Stores............................            $7.5  ..............
448310.................................  Jewelry Stores.........................            $6.0  ..............
448320.................................  Luggage and Leather Goods Stores.......            $6.0  ..............
----------------------------------------------------------------------------------------------------------------
                           Subsector 451--Sporting Good, Hobby, Book and Music Stores
----------------------------------------------------------------------------------------------------------------
451110.................................  Sporting Goods Stores..................            $6.0  ..............
451120.................................  Hobby, Toy and Game Stores.............            $6.0  ..............
451130.................................  Sewing, Needlework and Piece Goods                 $6.0  ..............
                                          Stores.
451140.................................  Musical Instrument and Supplies Stores.            $6.0  ..............
451211.................................  Book Stores............................            $6.0  ..............
451212.................................  News Dealers and Newsstands............            $6.0  ..............
451220.................................  Prerecorded Tape, Compact Disc and                 $6.0  ..............
                                          Record Stores.
----------------------------------------------------------------------------------------------------------------
                                    Subsector 452--General Merchandise Stores
----------------------------------------------------------------------------------------------------------------
452111.................................  Department Stores (except Discount                $23.0  ..............
                                          Department Stores).
452112.................................  Discount Department Stores.............           $23.0
452910.................................  Warehouse Clubs and Superstores........           $23.0  ..............
452990.................................  All Other General Merchandise Stores...            $9.5  ..............
----------------------------------------------------------------------------------------------------------------
                                  Subsector 453--Miscellaneous Store Retailers
----------------------------------------------------------------------------------------------------------------
453110.................................  Florists...............................            $6.0  ..............
453210.................................  Office Supplies and Stationery Stores..            $6.0  ..............
453220.................................  Gift, Novelty and Souvenir Stores......            $6.0  ..............
453310.................................  Used Merchandise Stores................            $6.0  ..............
453910.................................  Pet and Pet Supplies Stores............            $6.0  ..............
453920.................................  Art Dealers............................            $6.0  ..............
453930.................................  Manufactured (Mobile) Home Dealers.....           $11.0  ..............
453991.................................  Tobacco Stores.........................            $6.0  ..............
453998.................................  All Other Miscellaneous Store Retailers            $6.0  ..............
                                          (except Tobacco Stores).
----------------------------------------------------------------------------------------------------------------
                                        Subsector 454--Nonstore Retailers
----------------------------------------------------------------------------------------------------------------
454111.................................  Electronic Shopping....................           $21.0  ..............
454112.................................  Electronic Auctions....................           $21.0  ..............
454113.................................  Mail-Order Houses......................           $21.0  ..............
454210.................................  Vending Machine Operators..............            $6.0  ..............
454311.................................  Heating Oil Dealers....................           $10.5  ..............
454312.................................  Liquefied Petroleum Gas (Bottled Gas)              $6.0  ..............
                                          Dealers.
454319.................................  Other Fuel Dealers.....................            $6.0  ..............
454390.................................  Other Direct Selling Establishments....            $6.0  ..............
----------------------------------------------------------------------------------------------------------------
                                          Sectors 48-49--Transportation
----------------------------------------------------------------------------------------------------------------
                                        Subsector 481--Air Transportation
----------------------------------------------------------------------------------------------------------------
481111.................................  Scheduled Passenger Air Transportation.  ..............           1,500
481112.................................  Scheduled Freight Air Transportation...  ..............           1,500
481211.................................  Nonscheduled Chartered Passenger Air     ..............           1,500
                                          Transportation.
                EXCEPT,                  Offshore Marine Air Transportation                $23.5  ..............
                                          Services.
481212.................................  Nonscheduled Chartered Freight Air       ..............           1,500
                                          Transportation.
                EXCEPT,                  Offshore Marine Air Transportation                $23.5  ..............
                                          Services.
481219.................................  Other Nonscheduled Air Transportation..            $6.0  ..............
----------------------------------------------------------------------------------------------------------------
                                       Subsector 482--Rail Transportation
----------------------------------------------------------------------------------------------------------------
482111.................................  Line-Haul Railroads....................  ..............           1,500
482112.................................  Short Line Railroads...................  ..............             500
----------------------------------------------------------------------------------------------------------------
                                    Subsector 483--Water Transportation \15\
----------------------------------------------------------------------------------------------------------------
483111.................................  Deep Sea Freight Transportation........  ..............             500
483112.................................  Deep Sea Passenger Transportation......  ..............             500
483113.................................  Coastal and Great Lakes Freight          ..............             500
                                          Transportation.
483114.................................  Coastal and Great Lakes Passenger        ..............             500
                                          Transportation.
483211.................................  Inland Water Freight Transportation....  ..............             500
483212.................................  Inland Water Passenger Transportation..  ..............             500
----------------------------------------------------------------------------------------------------------------

[[Page 294]]

 
                                       Subsector 484--Truck Transportation
----------------------------------------------------------------------------------------------------------------
484110.................................  General Freight Trucking, Local........           $21.5  ..............
484121.................................  General Freight Trucking, Long-                   $21.5  ..............
                                          Distance, Truckload.
484122.................................  General Freight Trucking, Long-                   $21.5  ..............
                                          Distance, Less Than Truckload.
484210.................................  Used Household and Office Goods Moving.           $21.5  ..............
484220.................................  Specialized Freight (except Used Goods)           $21.5  ..............
                                          Trucking, Local.
484230.................................  Specialized Freight (except Used Goods)           $21.5  ..............
                                          Trucking, Long-Distance.
----------------------------------------------------------------------------------------------------------------
                           Subsector 485--Transit and Ground Passenger Transportation
----------------------------------------------------------------------------------------------------------------
485111.................................  Mixed Mode Transit Systems.............            $6.0  ..............
485112.................................  Commuter Rail Systems..................            $6.0  ..............
485113.................................  Bus and Motor Vehicle Transit Systems..            $6.0  ..............
485119.................................  Other Urban Transit Systems............            $6.0  ..............
485210.................................  Interurban and Rural Bus Transportation            $6.0  ..............
485310.................................  Taxi Service...........................            $6.0  ..............
485320.................................  Limousine Service......................            $6.0  ..............
485410.................................  School and Employee Bus Transportation.            $6.0  ..............
485510.................................  Charter Bus Industry...................            $6.0  ..............
485991.................................  Special Needs Transportation...........            $6.0  ..............
485999.................................  All Other Transit and Ground Passenger             $6.0  ..............
                                          Transportation.
----------------------------------------------------------------------------------------------------------------
                                     Subsector 486--Pipeline Transportation
----------------------------------------------------------------------------------------------------------------
486110.................................  Pipeline Transportation of Crude Oil...  ..............           1,500
486210.................................  Pipeline Transportation of Natural Gas.            $6.0  ..............
486910.................................  Pipeline Transportation of Refined       ..............           1,500
                                          Petroleum Products.
486990.................................  All Other Pipeline Transportation......           $29.0  ..............
----------------------------------------------------------------------------------------------------------------
                              Subsector 487--Scenic and Sightseeing Transportation
----------------------------------------------------------------------------------------------------------------
487110.................................  Scenic and Sightseeing Transportation,             $6.0  ..............
                                          Land.
487210.................................  Scenic and Sightseeing Transportation,             $6.0  ..............
                                          Water.
487990.................................  Scenic and Sightseeing Transportation,             $6.0  ..............
                                          Other.
----------------------------------------------------------------------------------------------------------------
                              Subsector 488--Support Activities for Transportation
----------------------------------------------------------------------------------------------------------------
488111.................................  Air Traffic Control....................            $6.0  ..............
488119.................................  Other Airport Operations...............            $6.0  ..............
488190.................................  Other Support Activities for Air                   $6.0  ..............
                                          Transportation.
488210.................................  Support Activities for Rail                        $6.0  ..............
                                          Transportation.
488310.................................  Port and Harbor Operations.............           $21.5  ..............
488320.................................  Marine Cargo Handling..................           $21.5  ..............
488330.................................  Navigational Services to Shipping......            $6.0  ..............
488390.................................  Other Support Activities for Water                 $6.0  ..............
                                          Transportation.
488410.................................  Motor Vehicle Towing...................            $6.0  ..............
488490.................................  Other Support Activities for Road                  $6.0  ..............
                                          Transportation.
488510.................................  Freight Transportation Arrangement \10\       \10\ $6.0  ..............
                EXCEPT,                  Non-Vessel Owning Common Carriers and             $21.5  ..............
                                          Household Goods Forwarders.
488991.................................  Packing and Crating....................           $21.5  ..............
488999.................................  All Other Support Activities for                   $6.0  ..............
                                          Transportation.
----------------------------------------------------------------------------------------------------------------
                                          Subsector 491--Postal Service
----------------------------------------------------------------------------------------------------------------
491110.................................  Postal Service.........................            $6.0  ..............
----------------------------------------------------------------------------------------------------------------
                                     Subsector 492--Couriers and Messengers
----------------------------------------------------------------------------------------------------------------
492110.................................  Couriers...............................  ..............           1,500
492210.................................  Local Messengers and Local Delivery....           $21.5  ..............
----------------------------------------------------------------------------------------------------------------
                                     Subsector 493--Warehousing and Storage
----------------------------------------------------------------------------------------------------------------
493110.................................  General Warehousing and Storage........           $21.5  ..............
493120.................................  Refrigerated Warehousing and Storage...           $21.5  ..............
493130.................................  Farm Product Warehousing and Storage...           $21.5  ..............
493190.................................  Other Warehousing and Storage..........           $21.5  ..............
----------------------------------------------------------------------------------------------------------------

[[Page 295]]

 
                                             Sector 51--Information
----------------------------------------------------------------------------------------------------------------
                             Subsector 511--Publishing Industries (except Internet)
----------------------------------------------------------------------------------------------------------------
511110.................................  Newspaper Publishers...................  ..............             500
511120.................................  Periodical Publishers..................  ..............             500
511130.................................  Book Publishers........................  ..............             500
511140.................................  Directory and Mailing List Publishers..  ..............             500
511191.................................  Greeting Card Publishers...............  ..............             500
511199.................................  All Other Publishers...................  ..............             500
511210.................................  Software Publishers....................           $21.0  ..............
----------------------------------------------------------------------------------------------------------------
                          Subsector 512--Motion Picture and Sound Recording Industries
----------------------------------------------------------------------------------------------------------------
512110.................................  Motion Picture and Video Production....           $25.0  ..............
512120.................................  Motion Picture and Video Distribution..           $25.0  ..............
512131.................................  Motion Picture Theaters (except Drive-             $6.0  ..............
                                          Ins).
512132.................................  Drive-In Motion Picture Theaters.......            $6.0  ..............
512191.................................  Teleproduction and Other Postproduction           $25.0  ..............
                                          Services.
512199.................................  Other Motion Picture and Video                     $6.0  ..............
                                          Industries.
512210.................................  Record Production......................            $6.0  ..............
512220.................................  Integrated Record Production/            ..............             750
                                          Distribution.
512230.................................  Music Publishers.......................  ..............             500
512240.................................  Sound Recording Studios................            $6.0  ..............
512290.................................  Other Sound Recording Industries.......            $6.0  ..............
----------------------------------------------------------------------------------------------------------------
                                  Subsector 515--Broadcasting (except Internet)
----------------------------------------------------------------------------------------------------------------
515111.................................  Radio Networks.........................            $6.0  ..............
515112.................................  Radio Stations.........................            $6.0  ..............
515120.................................  Television Broadcasting................           $12.0  ..............
515210.................................  Cable and Other Subscription                      $12.5  ..............
                                          Programming.
----------------------------------------------------------------------------------------------------------------
                               Subsector 516--Internet Publishing and Broadcasting
----------------------------------------------------------------------------------------------------------------
516110.................................  Internet Publishing and Broadcasting...  ..............             500
----------------------------------------------------------------------------------------------------------------
                                        Subsector 517--Telecommunications
----------------------------------------------------------------------------------------------------------------
517110.................................  Wired Telecommunications Carriers......  ..............           1,500
517211.................................  Paging.................................  ..............           1,500
517212.................................  Cellular and Other Wireless              ..............           1,500
                                          Telecommunications.
517310.................................  Telecommunications Resellers...........  ..............           1,500
517410.................................  Satellite Telecommunications...........           $12.5  ..............
517510.................................  Cable and Other Program Distribution...           $12.5  ..............
517910.................................  Other Telecommunications...............           $12.5  ..............
----------------------------------------------------------------------------------------------------------------
           Subsector 518--Internet Service Providers, Web Search Portals, and Data Processing Services
----------------------------------------------------------------------------------------------------------------
518111.................................  Internet Service Providers.............           $21.0  ..............
518112.................................  Web Search Portals.....................            $6.0  ..............
518210.................................  Data Processing, Hosting, and Related             $21.0  ..............
                                          Services.
----------------------------------------------------------------------------------------------------------------
                                    Subsector 519--Other Information Services
----------------------------------------------------------------------------------------------------------------
519110.................................  News Syndicates........................            $6.0  ..............
519120.................................  Libraries and Archives.................            $6.0  ..............
519190.................................  All Other Information Services.........            $6.0  ..............
----------------------------------------------------------------------------------------------------------------
                                        Sector 52--Finance and Insurance
----------------------------------------------------------------------------------------------------------------
                           Subsector 522--Credit Intermediation and Related Activities
----------------------------------------------------------------------------------------------------------------
522110.................................  Commercial Banking \8\.................    $150 million
                                                                                   in assets \8\
522120.................................  Savings Institutions \8\...............    $150 million  ..............
                                                                                   in assets \8\
522130.................................  Credit Unions \8\......................    $150 million  ..............
                                                                                   in assets \8\
522190.................................  Other Depository Credit Intermediation     $150 million  ..............
                                          \8\.                                     in assets \8\

[[Page 296]]

 
522210.................................  Credit Card Issuing \8\................    $150 million  ..............
                                                                                   in assets \8\
522220.................................  Sales Financing........................            $6.0  ..............
522291.................................  Consumer Lending.......................            $6.0  ..............
522292.................................  Real Estate Credit.....................            $6.0  ..............
522293.................................  International Trade Financing \8\......    $150 million  ..............
                                                                                   in assets \8\
522294.................................  Secondary Market Financing.............            $6.0  ..............
522298.................................  All Other Non-Depository Credit                    $6.0  ..............
                                          Intermediation.
522310.................................  Mortgage and Nonmortgage Loan Brokers..            $6.0  ..............
522320.................................  Financial Transactions Processing,                 $6.0  ..............
                                          Reserve, and Clearing House Activities.
522390.................................  Other Activities Related to Credit                 $6.0  ..............
                                          Intermediation.
----------------------------------------------------------------------------------------------------------------
                           Subsector 523--Financial Investments and Related Activities
----------------------------------------------------------------------------------------------------------------
523110.................................  Investment Banking and Securities                  $6.0  ..............
                                          Dealing.
523120.................................  Securities Brokerage...................            $6.0  ..............
523130.................................  Commodity Contracts Dealing............            $6.0  ..............
523140.................................  Commodity Contracts Brokerage..........            $6.0  ..............
523210.................................  Securities and Commodity Exchanges.....            $6.0  ..............
523910.................................  Miscellaneous Intermediation...........            $6.0  ..............
523920.................................  Portfolio Management...................            $6.0  ..............
523930.................................  Investment Advice......................            $6.0  ..............
523991.................................  Trust, Fiduciary and Custody Activities            $6.0  ..............
523999.................................  Miscellaneous Financial Investment                 $6.0  ..............
                                          Activities.
----------------------------------------------------------------------------------------------------------------
                            Subsector 524--Insurance Carriers and Related Activities
----------------------------------------------------------------------------------------------------------------
524113.................................  Direct Life Insurance Carriers.........            $6.0  ..............
524114.................................  Direct Health and Medical Insurance                $6.0  ..............
                                          Carriers.
524126.................................  Direct Property and Casualty Insurance   ..............           1,500
                                          Carriers.
524127.................................  Direct Title Insurance Carriers........            $6.0  ..............
524128.................................  Other Direct Insurance (except Life,               $6.0  ..............
                                          Health and Medical) Carriers.
524130.................................  Reinsurance Carriers...................            $6.0  ..............
524210.................................  Insurance Agencies and Brokerages......            $6.0  ..............
524291.................................  Claims Adjusting.......................            $6.0  ..............
524292.................................  Third Party Administration of Insurance            $6.0  ..............
                                          and Pension Funds.
524298.................................  All Other Insurance Related Activities.            $6.0  ..............
----------------------------------------------------------------------------------------------------------------
                            Subsector 525--Funds, Trusts and Other Financial Vehicles
----------------------------------------------------------------------------------------------------------------
525110.................................  Pension Funds..........................            $6.0  ..............
525120.................................  Health and Welfare Funds...............            $6.0  ..............
525190.................................  Other Insurance Funds..................            $6.0  ..............
525910.................................  Open-End Investment Funds..............            $6.0  ..............
525920.................................  Trusts, Estates, and Agency Accounts...            $6.0  ..............
525930.................................  Real Estate Investment Trusts..........            $6.0  ..............
525990.................................  Other Financial Vehicles...............            $6.0  ..............
----------------------------------------------------------------------------------------------------------------
                                  Sector 53--Real Estate and Rental and Leasing
----------------------------------------------------------------------------------------------------------------
                                           Subsector 531--Real Estate
----------------------------------------------------------------------------------------------------------------
531110.................................  Lessors of Residential Buildings and               $6.0  ..............
                                          Dwellings.
531120.................................  Lessors of Nonresidential Buildings                $6.0  ..............
                                          (except Miniwarehouses).
531130.................................  Lessors of Miniwarehouses and Self                $21.5  ..............
                                          Storage Units.
531190.................................  Lessors of Other Real Estate Property..            $6.0
    Except,............................  Leasing of Building Space to Federal             9 17.5
                                          Government by Owners 9.
531210.................................  Offices of Real Estate Agents and                10 1.5
                                          Brokers 10.
531311.................................  Residential Property Managers..........             1.5
531312.................................  Nonresidential Property Managers.......            $1.5  ..............
531320.................................  Offices of Real Estate Appraisers......            $1.5  ..............
531390.................................  Other Activities Related to Real Estate            $1.5  ..............
----------------------------------------------------------------------------------------------------------------
                                   Subsector 532--Rental and Leasing Services
----------------------------------------------------------------------------------------------------------------
532111.................................  Passenger Car Rental...................           $21.5  ..............
532112.................................  Passenger Car Leasing..................           $21.5  ..............
532120.................................  Truck, Utility Trailer, and RV                    $21.5  ..............
                                          (Recreational Vehicle) Rental and
                                          Leasing.

[[Page 297]]

 
532210.................................  Consumer Electronics and Appliances                $6.0  ..............
                                          Rental.
532220.................................  Formal Wear and Costume Rental.........            $6.0  ..............
532230.................................  Video Tape and Disc Rental.............            $6.0  ..............
532291.................................  Home Health Equipment Rental...........            $6.0  ..............
532292.................................  Recreational Goods Rental..............            $6.0  ..............
532299.................................  All Other Consumer Goods Rental........            $6.0  ..............
532310.................................  General Rental Centers.................            $6.0  ..............
532411.................................  Commercial Air, Rail, and Water                    $6.0  ..............
                                          Transportation Equipment Rental and
                                          Leasing.
532412.................................  Construction, Mining and Forestry                  $6.0  ..............
                                          Machinery and Equipment Rental and
                                          Leasing.
532420.................................  Office Machinery and Equipment Rental             $21.0  ..............
                                          and Leasing.
532490.................................  Other Commercial and Industrial                    $6.0  ..............
                                          Machinery and Equipment Rental and
                                          Leasing.
----------------------------------------------------------------------------------------------------------------
               Subsector 533--Lessors of Nonfinancial Intangible Assets (except Copyrighted Works)
----------------------------------------------------------------------------------------------------------------
533110.................................  Lessors of Nonfinancial Intangible                 $6.0  ..............
                                          Assets (except Copyrighted Works).
----------------------------------------------------------------------------------------------------------------
                           Sector 54--Professional, Scientific and Technical Services
----------------------------------------------------------------------------------------------------------------
                         Subsector 541--Professional, Scientific and Technical Services
----------------------------------------------------------------------------------------------------------------
541110.................................  Offices of Lawyers.....................            $6.0  ..............
541191.................................  Title Abstract and Settlement Offices..            $6.0  ..............
541199.................................  All Other Legal Services...............            $6.0  ..............
541211.................................  Offices of Certified Public Accountants            $7.0  ..............
541213.................................  Tax Preparation Services...............            $6.0  ..............
541214.................................  Payroll Services.......................            $7.0  ..............
541219.................................  Other Accounting Services..............            $7.0  ..............
541310.................................  Architectural Services.................            $4.0  ..............
541320.................................  Landscape Architectural Services.......            $6.0  ..............
541330.................................  Engineering Services...................            $4.0  ..............
                EXCEPT,                  Military and Aerospace Equipment and              $23.0  ..............
                                          Military Weapons.
                EXCEPT,                  Contracts and Subcontracts for                    $23.0  ..............
                                          Engineering Services Awarded Under the
                                          National Energy Policy Act of 1992.
                EXCEPT,                  Marine Engineering and Naval                      $15.5  ..............
                                          Architecture.
541340.................................  Drafting Services......................            $6.0  ..............
                EXCEPT,                  Map Drafting...........................            $4.0  ..............
541350.................................  Building Inspection Services...........            $6.0  ..............
541360.................................  Geophysical Surveying and Mapping                  $4.0  ..............
                                          Services.
541370.................................  Surveying and Mapping (except                      $4.0  ..............
                                          Geophysical) Services.
541380.................................  Testing Laboratories...................            $6.0  ..............
541410.................................  Interior Design Services...............            $6.0  ..............
541420.................................  Industrial Design Services.............            $6.0  ..............
541430.................................  Graphic Design Services................            $6.0  ..............
541490.................................  Other Specialized Design Services......            $6.0  ..............
541511.................................  Custom Computer Programming Services...           $21.0  ..............
541512.................................  Computer Systems Design Services.......           $21.0  ..............
541513.................................  Computer Facilities Management Services           $21.0  ..............
541519.................................  Other Computer Related Services........           $21.0  ..............
541611.................................  Administrative Management and General              $6.0  ..............
                                          Management Consulting Services.
541612.................................  Human Resources and Executive Search               $6.0  ..............
                                          Consulting Services.
541613.................................  Marketing Consulting Services..........            $6.0  ..............
541614.................................  Process, Physical Distribution and                 $6.0  ..............
                                          Logistics Consulting Services.
541618.................................  Other Management Consulting Services...            $6.0  ..............
541620.................................  Environmental Consulting Services......            $6.0  ..............
541690.................................  Other Scientific and Technical                     $6.0  ..............
                                          Consulting Services.
541710.................................  Research and Development in the          ..............        \11\ 500
                                          Physical, Engineering, and Life
                                          Sciences\11\.
                EXCEPT,                  Aircraft...............................  ..............           1,500
                EXCEPT,                  Aircraft Parts, and Auxiliary            ..............           1,000
                                          Equipment, and Aircraft Engine Parts.
                EXCEPT,                  Space Vehicles and Guided Missiles,      ..............           1,000
                                          their Propulsion Units, their
                                          Propulsion Units Parts, and their
                                          Auxiliary Equipment and Parts.
541720.................................  Research and Development in the Social            .$6.0  ..............
                                          Sciences and Humanities.
541810.................................  Advertising Agencies \10\..............       \10\ $6.0  ..............
541820.................................  Public Relations Agencies..............            $6.0  ..............
541830.................................  Media Buying Agencies..................            $6.0  ..............
541840.................................  Media Representatives..................            $6.0  ..............

[[Page 298]]

 
541850.................................  Display Advertising....................            $6.0  ..............
541860.................................  Direct Mail Advertising................            $6.0  ..............
541870.................................  Advertising Material Distribution                  $6.0  ..............
                                          Services.
541890.................................  Other Services Related to Advertising..            $6.0  ..............
541910.................................  Marketing Research and Public Opinion              $6.0  ..............
                                          Polling.
541921.................................  Photography Studios, Portrait..........            $6.0  ..............
541922.................................  Commercial Photography.................            $6.0  ..............
541930.................................  Translation and Interpretation Services            $6.0  ..............
541940.................................  Veterinary Services....................            $6.0  ..............
541990.................................  All Other Professional, Scientific and             $6.0  ..............
                                          Technical Services.
----------------------------------------------------------------------------------------------------------------
                               Sector 55--Management of Companies and Enterprises
----------------------------------------------------------------------------------------------------------------
                             Subsector 551--Management of Companies and Enterprises
----------------------------------------------------------------------------------------------------------------
551111.................................  Offices of Bank Holding Companies......            $6.0  ..............
551112.................................  Offices of Other Holding Companies.....            $6.0  ..............
----------------------------------------------------------------------------------------------------------------
                Sector 56--Administrative and Support, Waste Management and Remediation Services
----------------------------------------------------------------------------------------------------------------
                               Subsector 561--Administrative and Support Services
----------------------------------------------------------------------------------------------------------------
561110.................................  Office Administrative Services.........            $6.0  ..............
561210.................................  Facilities Support Services\12\........        \12\$6.0  ..............
                EXCEPT,                  Base Maintenance\13\...................       \13\$23.0  ..............
561310.................................  Employment Placement Agencies..........            $6.0  ..............
561320.................................  Temporary Help Services................           $11.5  ..............
561330.................................  Employee Leasing Services..............           $11.5  ..............
561410.................................  Document Preparation Services..........            $6.0  ..............
561421.................................  Telephone Answering Services...........            $6.0  ..............
561422.................................  Telemarketing Bureaus..................            $6.0  ..............
561431.................................  Private Mail Centers...................            $6.0  ..............
561439.................................  Other Business Service Centers                     $6.0  ..............
                                          (including Copy Shops).
561440.................................  Collection Agencies....................            $6.0  ..............
561450.................................  Credit Bureaus.........................            $6.0  ..............
561491.................................  Repossession Services..................            $6.0  ..............
561492.................................  Court Reporting and Stenotype Services.            $6.0  ..............
561499.................................  All Other Business Support Services....            $6.0  ..............
561510.................................  Travel Agencies\10\....................        \10\$3.0  ..............
561520.................................  Tour Operators.........................            $6.0  ..............
561591.................................  Convention and Visitors Bureaus........            $6.0  ..............
561599.................................  All Other Travel Arrangement and                   $6.0  ..............
                                          Reservation Services.
561611.................................  Investigation Services.................           $10.5  ..............
561612.................................  Security Guards and Patrol Services....           $10.5  ..............
561613.................................  Armored Car Services...................           $10.5  ..............
561621.................................  Security Systems Services (except                 $10.5  ..............
                                          Locksmiths).
561622.................................  Locksmiths.............................            $6.0  ..............
561710.................................  Exterminating and Pest Control Services            $6.0  ..............
561720.................................  Janitorial Services....................           $14.0  ..............
561730.................................  Landscaping Services...................            $6.0  ..............
561740.................................  Carpet and Upholstery Cleaning Services           .$4.0  ..............
561790.................................  Other Services to Buildings and                    $6.0  ..............
                                          Dwellings.
561910.................................  Packaging and Labeling Services........            $6.0  ..............
561920.................................  Convention and Trade Show                      \10\$6.0  ..............
                                          Organizers\10\.
561990.................................  All Other Support Services.............            $6.0  ..............
----------------------------------------------------------------------------------------------------------------
                            Subsector 562--Waste Management and Remediation Services
----------------------------------------------------------------------------------------------------------------
562111.................................  Solid Waste Collection.................           $10.5  ..............
562112.................................  Hazardous Waste Collection.............           $10.5  ..............
562119.................................  Other Waste Collection.................           $10.5  ..............
562211.................................  Hazardous Waste Treatment and Disposal.           $10.5  ..............
562212.................................  Solid Waste Landfill...................           $10.5  ..............
562213.................................  Solid Waste Combustors and Incinerators           $10.5  ..............
562219.................................  Other Nonhazardous Waste Treatment and            $10.5  ..............
                                          Disposal.
562910.................................  Remediation Services...................           $12.0  ..............
                EXCEPT,                  Environmental Remediation Services\14\.                         500\14\
562920.................................  Materials Recovery Facilities..........           $10.5  ..............
562991.................................  Septic Tank and Related Services.......            $6.0  ..............
562998.................................  All Other Miscellaneous Waste                      $6.0  ..............
                                          Management Services.
----------------------------------------------------------------------------------------------------------------

[[Page 299]]

 
                                         Sector 61--Educational Services
----------------------------------------------------------------------------------------------------------------
                                       Subsector 611--Educational Services
----------------------------------------------------------------------------------------------------------------
611110.................................  Elementary and Secondary Schools.......            $6.0  ..............
611210.................................  Junior Colleges........................            $6.0  ..............
611310.................................  Colleges, Universities and Professional            $6.0  ..............
                                          Schools.
611410.................................  Business and Secretarial Schools.......            $6.0  ..............
611420.................................  Computer Training......................            $6.0  ..............
611430.................................  Professional and Management Development            $6.0  ..............
                                          Training.
611511.................................  Cosmetology and Barber Schools.........            $6.0  ..............
611512.................................  Flight Training........................           $21.5  ..............
611513.................................  Apprenticeship Training................            $6.0  ..............
611519.................................  Other Technical and Trade Schools......            $6.0  ..............
611610.................................  Fine Arts Schools......................            $6.0  ..............
611620.................................  Sports and Recreation Instruction......            $6.0  ..............
611630.................................  Language Schools.......................            $6.0  ..............
611691.................................  Exam Preparation and Tutoring..........            $6.0  ..............
611692.................................  Automobile Driving Schools.............            $6.0  ..............
611699.................................  All Other Miscellaneous Schools and                $6.0  ..............
                                          Instruction.
611710.................................  Educational Support Services...........            $6.0  ..............
----------------------------------------------------------------------------------------------------------------
                                  Sector 62--Health Care and Social Assistance
----------------------------------------------------------------------------------------------------------------
                         Subsector 621--Ambulatory Health Care Services
----------------------------------------------------------------------------------------------------------------
621111.................................  Offices of Physicians (except Mental               $8.5  ..............
                                          Health Specialists).
621112.................................  Offices of Physicians, Mental Health               $8.5  ..............
                                          Specialists.
621210.................................  Offices of Dentists....................            $6.0  ..............
621310.................................  Offices of Chiropractors...............            $6.0  ..............
621320.................................  Offices of Optometrists................            $6.0  ..............
621330.................................  Offices of Mental Health Practitioners             $6.0  ..............
                                          (except Physicians).
621340.................................  Offices of Physical, Occupational and              $6.0  ..............
                                          Speech Therapists and Audiologists.
621391.................................  Offices of Podiatrists.................            $6.0  ..............
621399.................................  Offices of All Other Miscellaneous                 $6.0  ..............
                                          Health Practitioners.
621410.................................  Family Planning Centers................            $8.5  ..............
621420.................................  Outpatient Mental Health and Substance             $8.5  ..............
                                          Abuse Centers.
621491.................................  HMO Medical Centers....................            $8.5  ..............
621492.................................  Kidney Dialysis Centers................           $29.0  ..............
621493.................................  Freestanding Ambulatory Surgical and               $8.5  ..............
                                          Emergency Centers.
621498.................................  All Other Outpatient Care Centers......            $8.5  ..............
621511.................................  Medical Laboratories...................           $11.5  ..............
621512.................................  Diagnostic Imaging Centers.............           $11.5  ..............
621610.................................  Home Health Care Services..............           $11.5  ..............
621910.................................  Ambulance Services.....................            $6.0  ..............
621991.................................  Blood and Organ Banks..................            $8.5  ..............
621999.................................  All Other Miscellaneous Ambulatory                 $8.5  ..............
                                          Health Care Services.
----------------------------------------------------------------------------------------------------------------
                                    Subsector 622--Hospitals
----------------------------------------------------------------------------------------------------------------
622110.................................  General Medical and Surgical Hospitals.           $29.0  ..............
622210.................................  Psychiatric and Substance Abuse                   $29.0  ..............
                                          Hospitals.
622310.................................  Specialty (except Psychiatric and                 $29.0  ..............
                                          Substance Abuse) Hospitals.
----------------------------------------------------------------------------------------------------------------
                     Subsector 623--Nursing and Residential Care Facilities
----------------------------------------------------------------------------------------------------------------
623110.................................  Nursing Care Facilities................           $11.5  ..............
623210.................................  Residential Mental Retardation                     $8.5  ..............
                                          Facilities.
623220.................................  Residential Mental Health and Substance            $6.0  ..............
                                          Abuse Facilities.
623311.................................  Continuing Care Retirement Communities.           $11.5  ..............
623312.................................  Homes for the Elderly..................            $6.0  ..............
623990.................................  Other Residential Care Facilities......            $6.0  ..............
----------------------------------------------------------------------------------------------------------------
                                Subsector 624--Social Assistance
----------------------------------------------------------------------------------------------------------------
624110.................................  Child and Youth Services...............            $6.0  ..............
624120.................................  Services for the Elderly and Persons               $6.0  ..............
                                          with Disabilities.
624190.................................  Other Individual and Family Services...            $6.0  ..............
624210.................................  Community Food Services................            $6.0  ..............
624221.................................  Temporary Shelters.....................            $6.0  ..............

[[Page 300]]

 
624229.................................  Other Community Housing Services.......            $6.0  ..............
624230.................................  Emergency and Other Relief Services....            $6.0  ..............
624310.................................  Vocational Rehabilitation Services.....            $6.0  ..............
624410.................................  Child Day Care Services................            $6.0  ..............
----------------------------------------------------------------------------------------------------------------
                          Sector 71--Arts, Entertainment and Recreation
----------------------------------------------------------------------------------------------------------------
             Subsector 711--Performing Arts, Spectator Sports and Related Industries
----------------------------------------------------------------------------------------------------------------
711110.................................  Theater Companies and Dinner Theaters..            $6.0  ..............
711120.................................  Dance Companies........................            $6.0  ..............
711130.................................  Musical Groups and Artists.............            $6.0  ..............
711190.................................  Other Performing Arts Companies........            $6.0  ..............
711211.................................  Sports Teams and Clubs.................            $6.0  ..............
711212.................................  Race Tracks............................            $6.0  ..............
711219.................................  Other Spectator Sports.................            $6.0  ..............
711310.................................  Promoters of Performing Arts, Sports               $6.0  ..............
                                          and Similar Events with Facilities.
711320.................................  Promoters of Performing Arts, Sports               $6.0  ..............
                                          and Similar Events without Facilities.
711410.................................  Agents and Managers for Artists,                   $6.0  ..............
                                          Athletes, Entertainers and Other
                                          Public Figures.
711510.................................  Independent Artists, Writers, and                  $6.0  ..............
                                          Performers.
----------------------------------------------------------------------------------------------------------------
                Subsector 712--Museums, Historical Sites and Similar Institutions
----------------------------------------------------------------------------------------------------------------
712110.................................  Museums................................            $6.0  ..............
712120.................................  Historical Sites.......................            $6.0  ..............
712130.................................  Zoos and Botanical Gardens.............            $6.0  ..............
712190.................................  Nature Parks and Other Similar                     $6.0  ..............
                                          Institutions.
----------------------------------------------------------------------------------------------------------------
                  Subsector 713--Amusement, Gambling and Recreation Industries
----------------------------------------------------------------------------------------------------------------
713110.................................  Amusement and Theme Parks..............            $6.0  ..............
713120.................................  Amusement Arcades......................            $6.0  ..............
713210.................................  Casinos (except Casino Hotels).........            $6.0  ..............
713290.................................  Other Gambling Industries..............            $6.0  ..............
713910.................................  Golf Courses and Country Clubs.........            $6.0  ..............
713920.................................  Skiing Facilities......................            $6.0  ..............
713930.................................  Marinas................................            $6.0  ..............
713940.................................  Fitness and Recreational Sports Centers            $6.0  ..............
713950.................................  Bowling Centers........................            $6.0  ..............
713990.................................  All Other Amusement and Recreation                 $6.0  ..............
                                          Industries.
----------------------------------------------------------------------------------------------------------------
                           Sector 72--Accommodation and Food Services
----------------------------------------------------------------------------------------------------------------
                                  Subsector 721--Accommodation
----------------------------------------------------------------------------------------------------------------
721110.................................  Hotels (except Casino Hotels) and                  $6.0  ..............
                                          Motels.
721120.................................  Casino Hotels..........................            $6.0  ..............
721191.................................  Bed and Breakfast Inns.................            $6.0  ..............
721199.................................  All Other Traveler Accommodation.......            $6.0  ..............
721211.................................  RV (Recreational Vehicle) Parks and                $6.0  ..............
                                          Campgrounds.
721214.................................  Recreational and Vacation Camps (except            $6.0  ..............
                                          Campgrounds).
721310.................................  Rooming and Boarding Houses............            $6.0  ..............
----------------------------------------------------------------------------------------------------------------
                        Subsector 722--Food Services and Drinking Places
----------------------------------------------------------------------------------------------------------------
722110.................................  Full-Service Restaurants...............            $6.0  ..............
722211.................................  Limited-Service Restaurants............            $6.0  ..............
722212.................................  Cafeterias.............................            $6.0  ..............
722213.................................  Snack and Nonalcoholic Beverage Bars...            $6.0  ..............
722310.................................  Food Service Contractors...............           $17.5  ..............
722320.................................  Caterers...............................            $6.0  ..............
722330.................................  Mobile Food Services...................            $6.0  ..............
722410.................................  Drinking Places (Alcoholic Beverages)..            $6.0  ..............
----------------------------------------------------------------------------------------------------------------
                                    Sector 81--Other Services
----------------------------------------------------------------------------------------------------------------
                              Subsector 811--Repair and Maintenance
----------------------------------------------------------------------------------------------------------------
811111.................................  General Automotive Repair..............            $6.0  ..............

[[Page 301]]

 
811112.................................  Automotive Exhaust System Repair.......            $6.0  ..............
811113.................................  Automotive Transmission Repair.........            $6.0  ..............
811118.................................  Other Automotive Mechanical and                    $6.0  ..............
                                          Electrical Repair and Maintenance.
811121.................................  Automotive Body, Paint and Interior                $6.0  ..............
                                          Repair and Maintenance.
811122.................................  Automotive Glass Replacement Shops.....            $6.0  ..............
811191.................................  Automotive Oil Change and Lubrication              $6.0  ..............
                                          Shops.
811192.................................  Car Washes.............................            $6.0  ..............
811198.................................  All Other Automotive Repair and                    $6.0  ..............
                                          Maintenance.
811211.................................  Consumer Electronics Repair and                    $6.0  ..............
                                          Maintenance.
811212.................................  Computer and Office Machine Repair and            $21.0  ..............
                                          Maintenance.
811213.................................  Communication Equipment Repair and                 $6.0  ..............
                                          Maintenance.
811219.................................  Other Electronic and Precision                     $6.0  ..............
                                          Equipment Repair and Maintenance.
811310.................................  Commercial and Industrial Machinery and            $6.0  ..............
                                          Equipment (except Automotive and
                                          Electronic) Repair and Maintenance.
811411.................................  Home and Garden Equipment Repair and               $6.0  ..............
                                          Maintenance.
811412.................................  Appliance Repair and Maintenance.......            $6.0  ..............
811420.................................  Reupholstery and Furniture Repair......            $6.0  ..............
811430.................................  Footwear and Leather Goods Repair......            $6.0  ..............
811490.................................  Other Personal and Household Goods                 $6.0  ..............
                                          Repair and Maintenance.
----------------------------------------------------------------------------------------------------------------
                          Subsector 812--Personal and Laundry Services
----------------------------------------------------------------------------------------------------------------
812111.................................  Barber Shops...........................            $6.0  ..............
812112.................................  Beauty Salons..........................            $6.0  ..............
812113.................................  Nail Salons............................            $6.0  ..............
812191.................................  Diet and Weight Reducing Centers.......            $6.0  ..............
812199.................................  Other Personal Care Services...........            $6.0  ..............
812210.................................  Funeral Homes and Funeral Services.....            $6.0  ..............
812220.................................  Cemeteries and Crematories.............            $6.0  ..............
812310.................................  Coin-Operated Laundries and Drycleaners            $6.0  ..............
812320.................................  Drycleaning and Laundry Services                   $4.0  ..............
                                          (except Coin-Operated).
812331.................................  Linen Supply...........................           $12.0  ..............
812332.................................  Industrial Launderers..................           $12.0  ..............
812910.................................  Pet Care (except Veterinary) Services..            $6.0  ..............
812921.................................  Photo Finishing Laboratories (except               $6.0  ..............
                                          One-Hour).
812922.................................  One-Hour Photo Finishing...............            $6.0  ..............
812930.................................  Parking Lots and Garages...............            $6.0  ..............
812990.................................  All Other Personal Services............            $6.0  ..............
----------------------------------------------------------------------------------------------------------------
              Subsector 813--Religious, Grantmaking, Civic, Professional and Similar Organizations
----------------------------------------------------------------------------------------------------------------
813110.................................  Religious Organizations................            $6.0  ..............
813211.................................  Grantmaking Foundations................            $6.0  ..............
813212.................................  Voluntary Health Organizations.........            $6.0  ..............
813219.................................  Other Grantmaking and Giving Services..            $6.0  ..............
813311.................................  Human Rights Organizations.............            $6.0  ..............
813312.................................  Environment, Conservation and Wildlife             $6.0  ..............
                                          Organizations.
813319.................................  Other Social Advocacy Organizations....            $6.0  ..............
813410.................................  Civic and Social Organizations.........            $6.0  ..............
813910.................................  Business Associations..................            $6.0  ..............
813920.................................  Professional Organizations.............            $6.0  ..............
813930.................................  Labor Unions and Similar Labor                     $6.0  ..............
                                          Organizations.
813940.................................  Political Organizations................            $6.0  ..............
813990.................................  Other Similar Organizations (except                $6.0  ..............
                                          Business, Professional, Labor, and
                                          Political Organizations).
----------------------------------------------------------------------------------------------------------------


                                Footnotes

    1. NAICS codes 221111, 221112, 221113, 221119, 221121, and 221122--A 
firm is small if, including its affiliates, it is primarily engaged in 
the generation, transmission, and/or distribution of electric energy for 
sale and its total electric output for the preceding fiscal year did not 
exceed 4 million megawatt hours.
    2. NAICS code 237990--Dredging: To be considered small for purposes 
of Government procurement, a firm must perform at least 40 percent of 
the volume dredged with its own equipment or equipment owned by another 
small dredging concern.
    3. NAICS code 311421--For purposes of Government procurement for 
food canning and preserving, the standard of 500 employees excludes 
agricultural labor as defined in 3306(k)

[[Page 302]]

of the Internal Revenue Code, 26 U.S.C. 3306(k).
    4. NAICS code 324110--For purposes of Government procurement, the 
firm may not have more than 1,500 employees nor more than 75,000 barrels 
per day capacity of petroleum-based inputs, including crude oil or bona 
fide feedstocks. Capacity includes owned or leased facilities as well as 
facilities under a processing agreement or an arrangement such as an 
exchange agreement or a throughput. The total product to be delivered 
under the contract must be at least 90 percent refined by the successful 
bidder from either crude oil or bona fide feedstocks.
    5. NAICS code 326211--For Government procurement, a firm is small 
for bidding on a contract for pneumatic tires within Census 
Classification codes 30111 and 30112, provided that:
    (a) The value of tires within Census Classification codes 30111 and 
30112 which it manufactured in the United States during the previous 
calendar year is more than 50 percent of the value of its total 
worldwide manufacture,
    (b) The value of pneumatic tires within Census Classification codes 
30111 and 30112 comprising its total worldwide manufacture during the 
preceding calendar year was less than 5 percent of the value of all such 
tires manufactured in the United States during that period, and
    (c) The value of the principal product which it manufactured or 
otherwise produced, or sold worldwide during the preceding calendar year 
is less than 10 percent of the total value of such products manufactured 
or otherwise produced or sold in the United States during that period.
    6. NAICS Subsectors 333, 334, 335 and 336--For rebuilding machinery 
or equipment on a factory basis, or equivalent, use the NAICS code for a 
newly manufactured product. Concerns performing major rebuilding or 
overhaul activities do not necessarily have to meet the criteria for 
being a ``manufacturer'' although the activities may be classified under 
a manufacturing NAICS code. Ordinary repair services or preservation are 
not considered rebuilding.
    7. NAICS code 336413--Contracts for the rebuilding or overhaul of 
aircraft ground support equipment on a contract basis are classified 
under NAICS code 336413.
    8. NAICS Codes 522110, 522120, 522130, 522190, 522210 and 522293--A 
financial institution's assets are determined by averaging the assets 
reported on its four quarterly financial statements for the preceding 
year. ``Assets'' for the purposes of this size standard means the assets 
defined according to the Federal Financial Institutions Examination 
Council 034 call report form.
    9. NAICS code 531190--Leasing of building space to the Federal 
Government by Owners: For Government procurement, a size standard of 
$17.5 million in gross receipts applies to the owners of building space 
leased to the Federal Government. The standard does not apply to an 
agent.
    10. NAICS codes 488510 (part), 531210, 541810, 561510 and 561920--As 
measured by total revenues, but excluding funds received in trust for an 
unaffiliated third party, such as bookings or sales subject to 
commissions. The commissions received are included as revenue.
    11. NAICS code 541710--For research and development contracts 
requiring the delivery of a manufactured product, the appropriate size 
standard is that of the manufacturing industry.
    (a) ``Research and Development'' means laboratory or other physical 
research and development. It does not include economic, educational, 
engineering, operations, systems, or other nonphysical research; or 
computer programming, data processing, commercial and/or medical 
laboratory testing.
    (b) For purposes of the Small Business Innovation Research (SBIR) 
program only, a different definition has been established by law. See 
Sec. 121.701 of these regulations.
    (c) ``Research and Development'' for guided missiles and space 
vehicles includes evaluations and simulation, and other services 
requiring thorough knowledge of complete missiles and spacecraft.
    12. NAICS code 561210--Facilities Management, a component of NAICS 
561210, includes establishments, not classified elsewhere, which provide 
overall management and personnel to perform a variety of related support 
services in operating a complete facility in or around a specific 
building, or within another business or Government establishment. 
Facilities management means furnishing three or more personnel supply 
services which may include, but are not limited to secretarial services, 
typists, word processing, maintaining files and/or libraries, telephone 
answering, switchboard operation, reproduction or mimeograph service, 
mailing service, writers, bookkeeping, financial or business management, 
public relations, conference planning, minor office equipment 
maintenance and repair, use of information systems (not programming), 
word processing, travel arrangements, maintaining files and/or 
libraries.
    13. NAICS code 238990 (All Other Special Trade Contractors) and 
NAICS code 561210 (Facilities Support Services)--Base Maintenance:
    (a) If one of the activities of base maintenance, as defined in 
paragraph (b) (below in this endnote) can be identified with a separate 
industry and that activity (or industry) accounts for 50 percent or more 
of the value of an entire contract, then the proper size standard is 
that of the particular industry, and not the base maintenance size 
standard.

[[Page 303]]

    (b) ``Base Maintenance'' requires the performance of three or more 
separate activities in the areas of service or special trade 
construction industries. If services are performed, these activities 
must each be in a separate NAICS code including, but not limited to, 
Janitorial and Custodial Service, Fire Prevention Service, Messenger 
Service, Commissary Service, Protective Guard Service, and Grounds 
Maintenance and Landscaping Service. If the contract requires the use of 
special trade contractors (plumbing, painting, plastering, carpentry, 
etc.), all such special trade construction activities are considered a 
single activity and classified as Base Housing Maintenance. Since Base 
Housing Maintenance is only one activity, two additional activities are 
required for a contract to be classified as ``Base Maintenance.''
    14. NAICS 562910--Environmental Remediation Services:
    (a) For SBA assistance as a small business concern in the industry 
of Environmental Remediation Services, other than for Government 
procurement, a concern must be engaged primarily in furnishing a range 
of services for the remediation of a contaminated environment to an 
acceptable condition including, but not limited to, preliminary 
assessment, site inspection, testing, remedial investigation, 
feasibility studies, remedial design, containment, remedial action, 
removal of contaminated materials, storage of contaminated materials and 
security and site closeouts. If one of such activities accounts for 50 
percent or more of a concern's total revenues, employees, or other 
related factors, the concern's primary industry is that of the 
particular industry and not the Environmental Remediation Services 
Industry.
    (b) For purposes of classifying a Government procurement as 
Environmental Remediation Services, the general purpose of the 
procurement must be to restore a contaminated environment and also the 
procurement must be composed of activities in three or more separate 
industries with separate NAICS codes or, in some instances (e.g., 
engineering), smaller sub-components of NAICS codes with separate, 
distinct size standards. These activities may include, but are not 
limited to, separate activities in industries such as: Heavy 
Construction; Special Trade Construction; Engineering Services; 
Architectural Services; Management Services; Refuse Systems; Sanitary 
Services, Not Elsewhere Classified; Local Trucking Without Storage; 
Testing Laboratories; and Commercial, Physical and Biological Research. 
If any activity in the procurement can be identified with a separate 
NAICS code, or component of a code with a separate distinct size 
standard, and that industry accounts for 50 percent or more of the value 
of the entire procurement, then the proper size standard is the one for 
that particular industry, and not the Environmental Remediation Service 
size standard.
    15. Subsector 483--Water Transportation--Offshore Marine Services: 
The applicable size standard shall be $23.5 million for firms furnishing 
specific transportation services to concerns engaged in offshore oil 
and/or natural gas exploration, drilling production, or marine research; 
such services encompass passenger and freight transportation, anchor 
handling, and related logistical services to and from the work site or 
at sea.

[65 FR 30840, May 15, 2000, as amended at 65 FR 53535, Sept. 5, 2000; 65 
FR 60343, Oct. 11, 2000; 65 FR 69438, Nov. 17, 2000; 65 FR 70637, Nov. 
24, 2000; 66 FR 30647, June 7, 2001; 66 FR 32416, June 14, 2001; 67 FR 
3045, Jan. 23, 2002; 67 FR 11880, Mar. 15, 2002; 67 FR 19637, Apr. 23, 
2002; 67 FR 38191, May 31, 2002; 67 FR 56906, Sept. 6, 2002; 67 FR 
62292, Oct. 4, 2002; 67 FR 67103, 67253, Nov. 4, 2002]

       Size Eligibility Requirements For SBA Financial Assistance



Sec. 121.301  What size standards are applicable to financial assistance programs?

    (a) For Business Loans and Disaster Loans (other than physical 
disaster loans), an applicant must not exceed the size standard for the 
industry in which:
    (1) The applicant combined with its affiliates is primarily engaged; 
and
    (2) The applicant alone is primarily engaged.
    (b) For Development Company programs, an applicant must meet one of 
the following standards:
    (1) The same standards applicable under paragraph (a) of this 
section; or
    (2) Including its affiliates, tangible net worth not in excess of $7 
million, and average net income after Federal income taxes (excluding 
any carry-over losses) for the preceding two completed fiscal years not 
in excess of $2.5 million. If the applicant is not required by law to 
pay Federal income taxes at the enterprise level, but is required to 
pass income through to its shareholders, partners, beneficiaries, or 
other equitable owners, the applicant's ``net income after Federal 
income taxes'' will be its net income reduced by an amount computed as 
follows:
    (i) If the applicant is not required by law to pay State (and local, 
if any) income taxes at the enterprise level, multiply its net income by 
the marginal State income tax rate (or by the

[[Page 304]]

combined State and local income tax rates, as applicable) that would 
have applied if it were a taxable corporation.
    (ii) Multiply the applicant's net income, less any deduction for 
State and local income taxes calculated under paragraph (b)(2)(i) of 
this section, by the marginal Federal income tax rate that would have 
applied if the applicant were a taxable corporation.
    (iii) Sum the results obtained in paragraphs (b)(2)(i) and 
(b)(2)(ii) of this section.
    (c) For the Small Business Investment Company (SBIC) program, an 
applicant must meet one of the following standards:
    (1) The same standards applicable under paragraph (a) of this 
section; or
    (2) Including its affiliates, tangible net worth not in excess of 
$18 million, and average net income after Federal income taxes 
(excluding any carry-over losses) for the preceding two completed fiscal 
years not in excess of $6 million. If the applicant is not required by 
law to pay Federal income taxes at the enterprise level, but is required 
to pass income through to its shareholders, partners, beneficiaries, or 
other equitable owners, the applicant's ``net income after Federal 
income taxes'' will be its net income reduced by an amount computed as 
follows:
    (i) If the applicant is not required by law to pay State (and local, 
if any) income taxes at the enterprise level, multiply its net income by 
the marginal State income tax rate (or by the combined State and local 
income tax rates, as applicable) that would have applied if it were a 
taxable corporation.
    (ii) Multiply the applicant's net income, less any deduction for 
State and local income taxes calculated under paragraph (c)(2)(i) of 
this section, by the marginal Federal income tax rate that would have 
applied if the applicant were a taxable corporation.
    (iii) Add the results obtained in paragraphs (c)(2)(i) and 
(c)(2)(ii) of this section.
    (d) For Surety Bond Guarantee assistance--
    (1) Any construction (general or special trade) concern or concern 
performing a contract for services is small if its average annual 
receipts do not exceed $6.0 million.
    (2) Any concern not specified in paragraph (d)(1) of this section 
must meet the size standard for the primary industry in which it, 
combined with its affiliates, is engaged.
    (e) The applicable size standards for the purpose of all SBA 
financial assistance programs, excluding the Surety Bond Guarantee 
assistance program, are increased by 25 percent whenever the applicant 
agrees to use the assistance within a labor surplus area. Labor surplus 
areas are listed monthly in the Department of Labor publication called 
``Area Trends.''

[61 FR 3286, Jan. 31, 1996, as amended at 66 FR 30648, June 7, 2001; 67 
FR 3056, Jan. 23, 2002]



Sec. 121.302  When does SBA determine the size status of an applicant?

    (a) The size of an applicant for SBA financial assistance is 
determined as of the date the application for such financial assistance 
is accepted for processing by SBA, except for the Disaster Loan and 
Preferred Lenders programs.
    (b) For the Preferred Lenders program, size is determined as of the 
date of approval of the loan by the Preferred Lender.
    (c) For disaster loan assistance (other than physical disaster 
loans), size status is determined as of the date the disaster commenced, 
as set forth in the Disaster Declaration. For pre-disaster mitigation 
loans, size status is determined as of the date SBA accepts the 
application for processing. For economic injury disaster loan assistance 
under disaster declarations for the September 11, 2001 terrorist attacks 
or under subpart G of part 123 of this chapter, size status is 
determined as of the date SBA accepts the application for processing, 
and for applications submitted before March 15, 2002, whether denied 
because of size status or pending, such applications shall be deemed 
resubmitted on March 15, 2002. For pre-disaster mitigation loans, size 
status is determined as of the date SBA accepts a complete Pre-Disaster 
Mitigation Small Business Loan Application for processing. Refer to 
Sec. 123.408 of this chapter to find out what SBA considers to be a 
complete Pre-Disaster

[[Page 305]]

Mitigation Small Business Loan Application.
    (d) Changes in size subsequent to the applicable date when size is 
determined will not disqualify an applicant for assistance.

[61 FR 3286, Jan. 31, 1996, as amended at 64 FR 48276, Sept. 3, 1999; 67 
FR 11880, Mar. 15, 2002; 67 FR 62337, Oct. 7, 2002]



Sec. 121.303  What size procedures are used by SBA before it makes a formal size determination?

    (a) A concern that submits an application for financial assistance 
is deemed to have certified that it is small under the applicable size 
standard. SBA may question the concern's status based on information 
supplied in the application or from any other source.
    (b) A small business investment company, a development company, a 
surety bond company, or a preferred lender may accept as true the size 
information provided by an applicant, unless credible evidence to the 
contrary is apparent.
    (c) Size is initially considered by the individual with final 
financial assistance authority. This is not a formal size determination. 
A formal determination may be requested prior to a denial of eligibility 
based on size.
    (d) An applicant may request a formal size determination when 
assistance has been denied for size ineligibility. Except for disaster 
loan eligibility, a request for a formal size determination must be made 
to the Government Contracting Area Director serving the area in which 
the headquarters of the applicant is located, regardless of the location 
of the parent company or affiliates. For disaster loan assistance, the 
request for a size determination must be made to the Area Director for 
the Disaster Area Office which denied the assistance.
    (e) There are no time limitations for making a formal size 
determination for purposes of financial assistance. The official making 
the formal size determination must provide a copy of the determination 
to the applicant, to the requesting SBA official, and to other 
interested SBA program officials.



Sec. 121.304  What are the size requirements for refinancing an existing SBA loan?

    (a) A concern that applies to refinance an existing SBA loan or 
guarantee will be considered small for the refinancing even though its 
size has increased since the date of the original financing to exceed 
its applicable size standard, provided that:
    (1) The increase in size is due to natural growth (as distinguished 
from merger, acquisition or similar management action); and
    (2) SBA determines that refinancing is necessary to protect the 
Government's financial interest.
    (b) If a concern's size has increased other than by natural growth, 
the concern and its affiliates must be small at the time the application 
for refinancing is accepted for processing by SBA.



Sec. 121.305  What size eligibility requirements exist for obtaining business loans relating to particular procurements?

    A concern qualified as small for a particular procurement, including 
an 8(a) subcontract, is small for financial assistance directly and 
primarily relating to the performance of the particular procurement.

        Size Eligibility Requirements for Government Procurement



Sec. 121.401  What procurement programs are subject to size determinations?

    The requirements set forth in Secs. 121.401 through 121.413 cover 
all procurement programs for which status as a small business is 
required, including the small business set-aside program, SBA's 
Certificate of Competency program, SBA's 8(a) Business Development 
program, the Small Business Subcontracting program authorized under 
section 8(d) of the Small Business Act, the Federal Small Disadvantaged 
Business (SDB) programs, the HUBZone program, and the Very Small 
Business (VSB) program.

[63 FR 46642, Sept. 2, 1998]

[[Page 306]]



Sec. 121.402  What size standards are applicable to procurement assistance programs?

    (a) A concern must meet the size standard for the NAICS code 
specified in the solicitation.
    (b) The procuring agency contracting officer, or authorized 
representative, designates the proper NAICS code and size standard in a 
solicitation, selecting the NAICS code which best describes the 
principal purpose of the product or service being acquired. Primary 
consideration is given to the industry descriptions in the NAICS United 
States Manual, the product or service description in the solicitation 
and any attachments to it, the relative value and importance of the 
components of the procurement making up the end item being procured, and 
the function of the goods or services being purchased. Other factors 
considered include previous Government procurement classifications of 
the same or similar products or services, and the classification which 
would best serve the purposes of the Small Business Act. A procurement 
is usually classified according to the component which accounts for the 
greatest percentage of contract value.
    (c) The NAICS code assigned to a procurement and its corresponding 
size standard is final unless timely appealed to SBA's Office of 
Hearings and Appeals (OHA), or unless SBA assigns an NAICS code or size 
standard as provided in paragraph (d) of this section.
    (d) An unclear, incomplete or missing NAICS code designation or size 
standard in the solicitation may be clarified, completed or supplied by 
SBA in connection with a formal size determination or size appeal.
    (e) Any offeror or other interested party adversely affected by an 
NAICS code designation or size standard designation may appeal the 
designations to OHA under part 134 of this chapter.

[61 FR 3286, Jan. 31, 1996, as amended at 65 FR 30863, May 15, 2000]



Sec. 121.403  Are SBA size determinations and NAICS code designations binding on parties?

    Formal size determinations and NAICS code designations made by 
authorized SBA officials are binding upon the parties. Opinions 
otherwise provided by SBA officials to contracting officers or others 
are advisory in nature, and are not binding or appealable.

[61 FR 3286, Jan. 31, 1996, as amended at 65 FR 30863, May 15, 2000]



Sec. 121.404  When does SBA determine the size status of a business concern?

    Generally, SBA determines the size status of a concern (including 
its affiliates) as of the date the concern submits a written self-
certification that it is small to the procuring agency as part of its 
initial offer including price. The following are two exceptions to this 
rule:
    (a) The size status of an applicant for a Certificate of Competency 
(COC) relating to an unrestricted procurement is determined as of the 
date of the concern's application for the COC.
    (b) Size status for purposes of compliance with the nonmanufacturer 
rule set forth in Sec. 121.406(b)(1) and the ostensible subcontractor 
rule set forth in Sec. 121.103(f)(3) is determined as of the date of the 
best and final offer.



Sec. 121.405  May a business concern self-certify its small business size status?

    (a) A concern must self-certify it is small under the size standard 
specified in the solicitation, or as clarified, completed or supplied by 
SBA pursuant to Sec. 121.402(d).
    (b) A contracting officer may accept a concern's self-certification 
as true for the particular procurement involved in the absence of a 
written protest by other offerors or other credible information which 
causes the contracting officer or SBA to question the size of the 
concern.
    (c) Procedures for protesting the self-certification of an offeror 
are set forth in Secs. 121.1001 through 121.1009.



Sec. 121.406  How does a small business concern qualify to provide manufactured products under small business set-aside or MED procurements?

    (a) General. In order to qualify as a small business concern for a 
small business set-aside or 8(a) contract to

[[Page 307]]

provide manufactured products, an offeror must either:
    (1) Be the manufacturer of the end item being procured (and the end 
item must be manufactured or produced in the United States); or
    (2) Comply with the requirements of paragraph (b), (c) or (d) of 
this section as a nonmanufacturer, a kit assembler or a supplier under 
Simplified Acquisition Procedures.
    (b) Nonmanufacturers. (1) A concern may qualify for a requirement to 
provide manufactured products as a nonmanufacturer if it:
    (i) Does not exceed 500 employees;
    (ii) Is primarily engaged in the wholesale or retail trade and 
normally sells the items being supplied to the general public; and
    (iii) Will supply the end item of a small business manufacturer or 
processor made in the United States, or obtains a waiver of such 
requirement pursuant to paragraph (b)(3) of this section.
    (2) For size purposes, there can be only one manufacturer of the end 
item being acquired. The manufacturer is the concern which, with its own 
facilities, performs the primary activities in transforming inorganic or 
organic substances, including the assembly of parts and components, into 
the end item being acquired. The end item must possess characteristics 
which, as a result of mechanical, chemical or human action, it did not 
possess before the original substances, parts or components were 
assembled or transformed. The end item may be finished and ready for 
utilization or consumption, or it may be semifinished as a raw material 
to be used in further manufacturing. Firms which perform only minimal 
operations upon the item being procured do not qualify as manufacturers 
of the end item. SBA will evaluate the following factors in determining 
whether a concern is the manufacturer of the end item:
    (i) The proportion of total value in the end item added by the 
efforts of the concern, excluding costs of overhead, testing, quality 
control, and profit; and
    (ii) The importance of the elements added by the concern to the 
function of the end item, regardless of their relative value.
    (3) The Administrator or designee may waive the requirement set 
forth in paragraph (b)(1)(iii) of this section under the following two 
circumstances:
    (i) The contracting officer has determined that no small business 
manufacturer or processor reasonably can be expected to offer a product 
meeting the specifications (including period for performance) required 
by a particular solicitation and SBA reviews and accepts that 
determination; or
    (ii) SBA determines that no small business manufacturer or processor 
of the product or class of products is available to participate in the 
Federal procurement market.
    (4) The two waiver possibilities identified in paragraph (b)(3) of 
this section are called ``individual'' and ``class'' waivers 
respectively, and the procedures for them are contained in Sec. 121.1204 
.
    (5) Any SBA waiver of the nonmanufacturer rule has no effect on 
requirements external to the Small Business Act which involve domestic 
sources of supply, such as the Buy American Act.
    (c) Kit assemblers. (1) Where the manufactured item being acquired 
is a kit of supplies or other goods provided by an offeror for a special 
purpose, the offeror cannot exceed 500 employees, and 50 percent of the 
total value of the components of the kit must be manufactured by 
business concerns in the United States which are small under the size 
standards for the NAICS codes of the components being assembled. The 
offeror need not itself be the manufacturer of any of the items 
assembled.
    (2) Where the Government has specified an item for the kit which is 
not produced by U.S. small business concerns, such item shall be 
excluded from the calculation of total value in paragraph (c)(1) of this 
section.
    (d) Simplified Acquisition Procedures. Where the procurement of a 
manufactured item is processed under Simplified Acquisition Procedures, 
as defined in Sec. 13.101 of the Federal Acquisition Regulation (FAR) 
(48 CFR 13.101), and where the anticipated cost of the procurement will 
not exceed $25,000, the offeror need not supply the end product of a 
small business concern as

[[Page 308]]

long as the product acquired is manufactured or produced in the United 
States, and the offeror does not exceed 500 employees. The offeror need 
not itself be the manufacturer of any of the items acquired.

[61 FR 3286, Jan. 31, 1996; 61 FR 7986, Mar. 1, 1996, as amended at 65 
FR 30863, May 15, 2000]



Sec. 121.407  What are the size procedures for multiple item procurements?

    If a procurement calls for two or more specific end items or types 
of services with different size standards and the offeror may submit an 
offer on any or all end items or types of services, the offeror must 
meet the size standard for each end item or service item for which it 
submits an offer. If the procurement calls for more than one specific 
end item or type of service and an offeror is required to submit an 
offer on all items, the offeror may qualify as a small business for the 
procurement if it meets the size standard of the item which accounts for 
the greatest percentage of the total contract value.



Sec. 121.408  What are the size procedures for SBA's Certificate of Competency Program?

    (a) A firm which applies for a COC must file an ``Application for 
Small Business Size Determination'' (SBA Form 355). If the initial 
review of SBA Form 355 indicates the applicant, including its 
affiliates, is small for purposes of the COC program, SBA will process 
the application for COC. If the review indicates the applicant, 
including its affiliates, is other than small, SBA will initiate a 
formal size determination as set forth in Sec. 121.1009. In such a case, 
SBA will not further process the COC application until a formal size 
determination is made.
    (b) A concern is ineligible for a COC if a formal SBA size 
determination finds the concern other than small.



Sec. 121.409  What size standard applies in an unrestricted procurement for Certificate of Competency purposes?

    For the purpose of receiving a Certificate of Competency in an 
unrestricted procurement, the applicable size standard is that 
corresponding to the NAICS code set forth in the solicitation. For a 
manufactured product, a concern must also furnish a domestically 
produced or manufactured product, regardless of the size status of the 
product manufacturer. The offeror need not be the manufacturer of any of 
the items acquired.

[61 FR 3286, Jan. 31, 1996, as amended at 65 FR 30863, May 15, 2000]



Sec. 121.410  What are the size standards for SBA's Section 8(d) Subcontracting Program?

    For subcontracting purposes pursuant to section 8(d) of the Small 
Business Act, a concern is small:
    (a) For subcontracts of $10,000 or less which relate to Government 
procurements, if its number of employees (including its affiliates) does 
not exceed 500 employees. However, subcontracts for engineering services 
awarded under the National Energy Policy Act of 1992 have the same size 
standard as Military and Aerospace Equipment and Military Weapons under 
NAICS code 541330;
    (b) For subcontracts exceeding $10,000 which relate to Government 
procurements, if its number of employees or average annual receipts 
(including its affiliates) does not exceed the size standard for the 
product or service it is providing on the subcontract; and
    (c) For subcontracts for financial services, if the concern 
(including its affiliates) is a commercial bank or savings and loan 
association whose assets do not exceed $100 million.

[61 FR 3286, Jan. 31, 1996, as amended at 65 FR 30863, May 15, 2000]



Sec. 121.411  What are the size procedures for SBA's Section 8(d) Subcontracting Program?

    (a) Prime contractors may rely on the information contained in SBA's 
Procurement Automated Source System (PASS), or equivalent data base 
maintained or sanctioned by SBA, as an accurate representation of a 
concern's size and ownership characteristics for purposes of maintaining 
a small business source list. Even though a concern is on a small 
business source list, it must still qualify and self-certify as a small 
business at the time it

[[Page 309]]

submits its offer as a section 8(d) subcontractor.
    (b) Upon determination of the successful subcontract offeror for a 
competitive subcontract, but prior to award, the prime contractor must 
inform each unsuccessful subcontract offeror in writing of the name and 
location of the apparent successful offeror.
    (c) The self-certification of a concern subcontracting or proposing 
to subcontract under section 8(d) of the Small Business Act may be 
protested by the contracting officer, the prime contractor, the 
appropriate SBA official or any other interested party.



Sec. 121.412  What are the size procedures for partial small business set-asides?

    A firm is required to meet size standard requirements only for the 
small business set-aside portion of a procurement, and is not required 
to qualify as a small business for the unrestricted portion.



Sec. 121.413  What size must a concern be to be eligible for the Very Small Business program?

    A concern is a very small business (see Sec. 125.7 of this chapter) 
if, together with its affiliates, it has no more than 15 employees and 
its average annual receipts do not exceed $1 million.

[63 FR 46642, Sept. 2, 1998]

 Size Eligibility Requirements for Sales or Lease of Government Property



Sec. 121.501  What programs for sales or leases of Government property are subject to size determinations?

    Sections 121.501 through 121.512 apply to small business size 
determinations for the purpose of the sale or lease of Government 
property, including the Timber Sales Program, the Special Salvage Timber 
Sales Program, and the sale of Government petroleum, coal and uranium.



Sec. 121.502  What size standards are applicable to programs for sales or leases of Government property?

    (a) Unless otherwise specified in this part--
    (1) A concern primarily engaged in manufacturing is small for sales 
or leases of Government property if it does not exceed 500 employees;
    (2) A concern not primarily engaged in manufacturing is small for 
sales or leases of Government property if it has annual receipts not 
exceeding $6.0 million.
    (b) Size status for such sales and leases is determined by the 
primary industry of the applicant business concern.

[61 FR 3286, Jan. 31, 1996, as amended at 67 FR 3056, Jan. 23, 2002]



Sec. 121.503  Are SBA size determinations binding on parties?

    Formal size determinations based upon a specific Government sale or 
lease, or made in response to a request from another Government agency 
under Sec. 121.901, are binding upon the parties. Other SBA opinions 
provided to contracting officers or others are only advisory, and are 
not binding or appealable.



Sec. 121.504  When does SBA determine the size status of a business concern?

    SBA determines the size status of a concern (including its 
affiliates) as of the date the concern submits a written self-
certification that it is small to the Government as part of its initial 
offer including price where there is a specific sale or lease at issue, 
or as set forth in Sec. 121.903 if made in response to a request of 
another Government agency.



Sec. 121.505  What is the effect of a self-certification?

    (a) A contracting officer may accept a concern's self-certification 
as true for the particular sale or lease involved, in the absence of a 
written protest by other offerors or other credible information which 
would cause the contracting officer or SBA to question the size of the 
concern.
    (b) Procedures for protesting the self-certification of an offeror 
are set forth in Secs. 121.1001 through 121.1009.

[[Page 310]]



Sec. 121.506  What definitions are important for sales or leases of Government-owned timber?

    (a) Forest product industry means logging, wood preserving, and the 
manufacture of lumber and wood related products such as veneer, plywood, 
hardboard, particle board, or wood pulp, and of products of which lumber 
or wood related products are the principal raw materials.
    (b) Logging of timber means felling and bucking, yarding, and/or 
loading. It does not mean hauling.
    (c) Manufacture of logs means, at a minimum, breaking down logs into 
rough cuts of the finished product.
    (d) Sell means, in addition to its usual and customary meaning, the 
exchange of sawlogs for sawlogs on a product-for-product basis with or 
without monetary adjustment, and an indirect transfer, such as the sale 
of the assets of a concern after it has been awarded one or more set-
aside sales of timber.
    (e) Significant logging of timber means that a concern uses its own 
employees to perform at least two of the following: felling and bucking, 
yarding, and loading.



Sec. 121.507  What are the size standards and other requirements for the purchase of Government-owned timber (other than Special Salvage Timber)?

    (a) To be small for purposes of the sale of Government-owned timber 
(other than Special Salvage Timber) a concern must:
    (1) Be primarily engaged in the logging or forest products industry;
    (2) Not exceed 500 employees, taking into account its affiliates; 
and
    (3) If it does not intend at the time of the offer to resell the 
timber--
    (i) Agree that it will manufacture the logs with its own facilities 
or those of another business which meets the requirements of paragraphs 
(a)(1) and (a)(2) of this section;
    (ii) Agree that if it eventually resells the timber, it will resell 
no more than 30% of the sawtimber volume to other businesses which do 
not meet the requirements of paragraphs (a)(1) and (a)(2) of this 
section; and
    (iii) Agree that if it becomes acquired or controlled by a business 
which does not meet the requirements of paragraphs (a)(1) and (a)(2) of 
this section, it will require as a condition of the acquisition or 
change of control that the acquiring or controlling business resell at 
least 70% of the sawtimber volume to businesses which do meet the 
requirements of paragraphs (a)(1) and (a)(2) of this section; or
    (4) If it intends at the time of offer to resell the timber--
    (i) Agree that it will not sell more than 30% of such timber (50% of 
such timber if the concern is an Alaskan business) to a business which 
does not meet the requirements of paragraphs (a)(1) and (a)(2) of this 
section; and
    (ii) Agree that if it becomes acquired or controlled by a business 
which does not meet the requirements of paragraphs (a)(1) and (a)(2) of 
this section, it will require as a condition of the acquisition or 
change of control that the acquiring or controlling business resell at 
least 70% of the sawtimber volume (or at least 50% of the sawtimber 
volume, if it is an Alaskan business) to businesses which meet the 
requirements of paragraphs (a)(1) and (a)(2) of this section.
    (b) For a period of three years following the date upon which a 
concern purchases timber under a small business set-aside (other than 
through the Special Salvage Timber Sale program), it must maintain a 
record of:
    (1) The name, address and size status of every concern to which it 
sells the timber or sawlogs; and
    (2) The species, grades and volumes of sawlogs sold.
    (c) For a period of three years following the date upon which a 
concern purchases timber, it must by contract require all small business 
repurchasers of the sawlogs or timber it purchased under the small 
business set-aside to maintain the records described in paragraph (b) of 
this section.



Sec. 121.508  What are the size standards and other requirements for the purchase of Government-owned Special Salvage Timber?

    (a) In order to purchase Government-owned Special Salvage Timber 
from the United States Forest Service or the

[[Page 311]]

Bureau of Land Management as a small business, a concern must:
    (1) Be primarily engaged in the logging or forest product industry;
    (2) Have, together with its affiliates, no more than twenty-five 
employees during any pay period for the last twelve months; and
    (3) If it does not intend at the time of offer to resell the timber-
-
    (i) Agree that it will manufacture a significant portion of the logs 
with its own employees; and
    (ii) Agree that it will log the timber only with its own employees 
or with employees of another business which is eligible for award of a 
Special Salvage Timber sales contract; or
    (4) If it intends at the time of offer to resell the timber, agree 
that it will perform a significant portion of timber logging with its 
own employees and that it will subcontract the remainder of the timber 
logging to a concern which is eligible for award of a Special Salvage 
Timber sales contract.



Sec. 121.509  What is the size standard for leasing of Government land for coal mining?

    A concern is small for this purpose if it:
    (a) Together with its affiliates, does not have more than 250 
employees;
    (b) Maintains management and control of the actual mining operations 
of the tract; and
    (c) Agrees that if it subleases the Government land, it will be to 
another small business, and that it will require its sublessors to agree 
to the same.



Sec. 121.510  What is the size standard for leasing of Government land for uranium mining?

    A concern is small for this purpose if it, together with its 
affiliates, does not have more than 100 employees.



Sec. 121.511  What is the size standard for buying Government-owned petroleum?

    A concern is small for this purpose if it is primarily engaged in 
petroleum refining and meets the size standard for a petroleum refining 
business.



Sec. 121.512  What is the size standard for stockpile purchases?

    A concern is small for this purpose if:
    (a) It is primarily engaged in the purchase of materials which are 
not domestic products; and
    (b) Its annual receipts, together with its affiliates, do not exceed 
$48.5 million.

[61 FR 3286, Jan. 31, 1996, as amended at 67 FR 3056, Jan. 23, 2002]

 Size Eligibility Requirements for the Minority Enterprise Development 
                              (MED) Program



Sec. 121.601  What is a small business for purposes of admission to SBA's Minority Enterprise Development (MED) program?

    An applicant must be small under the size standard corresponding to 
its primary industry classification in order to be admitted to SBA's 
Minority Enterprise Development (MED) program.



Sec. 121.602  At what point in time must a MED applicant be small?

    A MED applicant must be small for its primary industry at the time 
SBA certifies it for admission into the program.



Sec. 121.603  How does SBA determine whether a Participant is small for a particular MED subcontract?

    (a) Self certification by Participant. A MED Participant must 
certify that it qualifies as a small business under the NAICS code 
assigned to a particular MED subcontract as part of its initial offer 
including price to the procuring agency. The Participant also must 
submit a copy of its offer, including its self-certification as to size, 
to the appropriate SBA district office at the same time it submits the 
offer to the procuring agency. See Sec. 121.404 for the time at which 
size is determined for, and Sec. 121.406 for the applicability of the 
nonmanufacturer rule to, MED procurements.
    (b) Verification of size by SBA. Within 30 days of its receipt of a 
Participant's size self-certification for a particular MED subcontract, 
the SBA district office serving the geographic area in which the 
Participant's principal office is located will review the Participant's 
self-certification and determine if it is small for purposes of that 
subcontract. The SBA district office will review the

[[Page 312]]

Participant's most recent financial statements and other relevant data 
and then notify the Participant of its decision.
    (c) Changes in size between date of self-certification and date of 
award. (1) Where SBA verifies that the selected Participant is small for 
a particular procurement, subsequent changes in size up to the date of 
award, except those due to merger with or acquisition by another 
business concern, will not affect the firm's size status for that 
procurement.
    (2) Where a Participant has merged with or been acquired by another 
business concern between the date of its self-certification and the date 
of award, the concern must recertify its size status, and SBA must 
verify the new certification before award can occur.
    (d) Finding Participant to be other than small. (1) A Participant 
may request a formal size determination (pursuant to Secs. 121.1001 
through 121.1009) with the SBA Government Contracting Area Office 
serving the geographic area in which the principal office of the 
Participant is located within 5 working days of its receipt of notice 
from the SBA district office that it is not small for a particular MED 
subcontract.
    (2) Where the Participant does not timely request a formal size 
determination, SBA may accept the procurement in support of another 
Participant, or may rescind its acceptance of the offer for the MED 
program, as appropriate.

[61 FR 3286, Jan. 31, 1996, as amended at 65 FR 30863, May 15, 2000]



Sec. 121.604  Are MED Participants considered small for purposes of other SBA assistance?

    A concern which SBA determines to be a small business for the award 
of a MED subcontract will be considered to have met applicable size 
eligibility requirements of other SBA programs where that assistance 
directly and primarily relates to the performance of the MED subcontract 
in question.

Size Eligibility Requirements for the Small Business Innovation Research 
                             (SBIR) Program



Sec. 121.701  What SBIR programs are subject to size determinations?

    (a) These sections apply to size status for award of a funding 
agreement pursuant to the Small Business Innovation Development Act of 
1982 (Pub. L. 97-219, 15 U.S.C. 638(e) through (k)).
    (b) Funding agreement officer means a contracting officer, a grants 
officer, or a cooperative agreement officer.
    (c) Funding agreement means any contract, grant or cooperative 
agreement entered into between any Federal agency and any small business 
for the performance of experimental, developmental, or research work 
funded in whole or in part by the Federal Government. Such work 
includes:
    (1) A systematic, intensive study directed toward greater knowledge 
or understanding of the subject studied;
    (2) A systematic study directed specifically toward applying new 
knowledge to meet a recognized need; or
    (3) A systematic application of knowledge toward the production of 
useful materials, devices, and systems or methods, including design, 
development, and improvement of prototypes and new processes to meet 
specific requirements.



Sec. 121.702  What size standards are applicable to the SBIR program?

    To be eligible to compete for award of funding agreements in SBA's 
Small Business Innovation Research (SBIR) program, a business concern 
must:
    (a) Be at least 51 percent owned and controlled by one or more 
individuals who are citizens of, or permanent resident aliens in, the 
United States; and
    (b) Not have more than 500 employees, including its affiliates.



Sec. 121.703  Are formal size determinations binding on parties?

    Size determinations by authorized SBA officials are formal actions 
based upon a specific funding agreement, and are binding upon the 
parties. Other SBA opinions provided to funding

[[Page 313]]

agreement officers or others, are only advisory, and are not binding or 
appealable.



Sec. 121.704  When does SBA determine the size status of a business concern?

    The size status of a concern for the purpose of a funding agreement 
under the SBIR program is determined as of the date of the award for 
both Phase I and Phase II SBIR awards.



Sec. 121.705  Must a business concern self-certify its size status?

    (a) A firm must self-certify it is small in its SBIR funding 
proposal.
    (b) A funding agreement officer may accept a concern's self-
certification as true for the particular funding agreement involved in 
the absence of a written protest by other offerors or other credible 
information which would cause the funding agreement officer or SBA to 
question the size of the concern.
    (c) Procedures for protesting an offeror's self-certification are 
set forth in Secs. 121.1001 through 121.1009.

      Size Eligibility Requirements for Paying Reduced Patent Fees



Sec. 121.801  May patent fees be reduced if a concern is small?

    These sections apply to size status for the purpose of paying 
reduced patent fees authorized by Pub. L. 97-247, 96 Stat. 317. The 
eligibility requirements for independent inventors and nonprofit 
organizations for the purpose of paying reduced patent fees are set 
forth in regulations of the Patent and Trademark Office of the 
Department of Commerce, 37 CFR 1.9, 1.27, 1.28.



Sec. 121.802  What size standards are applicable to reduced patent fees programs?

    A concern eligible for reduced patent fees is one:
    (a) Whose number of employees, including affiliates, does not exceed 
500 persons; and
    (b) Which has not assigned, granted, conveyed, or licensed (and is 
under no obligation to do so) any rights in the invention to any person 
who made it and could not be classified as an independent inventor, or 
to any concern which would not qualify as a non-profit organization or a 
small business concern under this section.



Sec. 121.803  Are formal size determinations binding on parties?

    Size determinations by authorized SBA officials are formal actions, 
based upon a specific patent application pursuant to the rules of the 
Patent and Trademark Office, Department of Commerce, and are binding 
upon the parties. Other SBA opinions provided to patent applicants or 
others are only advisory, and are not binding or appealable.



Sec. 121.804  When does SBA determine the size status of a business concern?

    Size status is determined as of the date of the patent applicant's 
written verification of size.



Sec. 121.805  May a business concern self-certify its size status?

    (a) A concern verifies its size status with its submission of its 
patent application.
    (b) Any attempt to establish small size status improperly 
(fraudulently, through gross negligence, or otherwise) may result in 
remedial action by the Patent and Trademark Office.
    (c) In the absence of credible information indicating otherwise, the 
Patent and Trademark Office may accept the verification by the concern 
as a small business as true.
    (d) Questions concerning the size verification are resolved 
initially by the Patent and Trademark Office. If not verified as small, 
the applicant may request a formal SBA size determination.

  Size Eligibility Requirements for Compliance With Programs of Other 
                                Agencies



Sec. 121.901  Can other Government agencies obtain SBA size determinations?

    Upon request by another Government agency, SBA will provide a size 
determination, under SBA rules, standards and procedures, for its use in 
determining compliance with small business requirements of its statutes, 
regulations or programs.

[[Page 314]]



Sec. 121.902  What size standards are applicable to programs of other agencies?

    SBA size standards. The size standards for compliance with programs 
of other agencies are those for SBA programs which are most comparable 
to the programs of such other agencies, unless the agency and SBA agree 
otherwise.

[67 FR 13716, Mar. 26, 2002]



Sec. 121.903  How may an agency use size standards for its programs that are different than those established by SBA?

    (a) Federal agencies or departments promulgating regulations 
relating to small businesses usually use SBA size criteria. In limited 
circumstances, if they decide the SBA size standard is not suitable for 
their programs, then agency heads may establish a more appropriate small 
business definition for the exclusive use in such programs, but only 
when:
    (1) The size standard will determine:
    (i) The size of a manufacturing concern by its average number of 
employees based on the preceding twelve calendar months, determined 
according to Sec. 121.106;
    (ii) The size of a services concern by its average annual receipts 
over a period of at least three years, determined according to 
Sec. 121.104;
    (iii) The size of other concerns on data over a period of at least 
three years; or,
    (iv) Other factors approved by SBA;
    (2) The agency has consulted in writing with SBA's Assistant 
Administrator for Size Standards at least fourteen (14) calendar days 
before publishing the proposed rule which is part of the rulemaking 
process. The written consultation will include:
    (i) What size standard the agency contemplates using;
    (ii) To what agency program it will apply;
    (iii) How the agency arrived at this particular size standard for 
this program; and,
    (iv) Why SBA's existing size standards do not satisfy the program 
requirements;
    (3) The agency proposes the size standard for public comment 
pursuant to the Administrative Procedure Act, 5 U.S.C. 553;
    (4) The agency provides a copy of the proposed rule, when it 
publishes it for public comment as part of the rulemaking process, to 
SBA's Assistant Administrator for Size Standards; and
    (5) SBA's Administrator approves the size standard before the agency 
adopts a final rule or otherwise prescribes the size standard for its 
use. The agency's request for the SBA Administrator's approval must 
include:
    (i) Copies of all comments on the proposed size standard received in 
response to the proposed rule;
    (ii) A separate written justification for the intended size 
standard;
    (iii) A copy of the intended final rule if available at that time, 
or a copy of the intended final rule and preamble prior to its 
publication; and
    (iv) Other information SBA may request in connection with the 
request.
    (b) When approving any size standard established pursuant to this 
section, SBA's Administrator will ensure that the size standard varies 
from industry to industry to the extent necessary to reflect the 
differing characteristics of the various industries, and consider other 
relevant factors.
    (c) Where the agency head is developing a size standard for the sole 
purpose of performing a Regulatory Flexibility Analysis pursuant to 
section 601(3) of the Regulatory Flexibility Act, the department or 
agency may, after consultation with the SBA Office of Advocacy, 
establish a size standard different from SBA's which is more appropriate 
for such analysis.

[67 FR 13716, Mar. 26, 2002]



Sec. 121.904  When does SBA determine the size status of a business concern?

    For compliance with programs of other agencies, SBA will base its 
size determination on the size of the concern as of the date set forth 
in the request of the other agency.

[67 FR 13716, Mar. 26, 2002]

[[Page 315]]

Procedures for Size Protests and Requests for Formal Size Determinations



Sec. 121.1001  Who may initiate a size protest or request a formal size determination?

    (a) Size Status Protests. (1) For SBA's Small Business Set-Aside 
Program, including the Property Sales Program, the following entities 
may file a size protest in connection with a particular procurement or 
sale:
    (i) Any offeror;
    (ii) The contracting officer;
    (iii) The SBA Government Contracting Area Director having 
responsibility for the area in which the headquarters of the protested 
offeror is located, regardless of the location of a parent company or 
affiliates, or the Associate Administrator for Government Contracting; 
and
    (iv) Other interested parties. Other interested parties include 
large businesses where only one concern submitted an offer for the 
specific procurement in question. A concern found to be other than small 
in connection with the procurement is not an interested party unless 
there is only one remaining offeror after the concern is found to be 
other than small.
    (2) For competitive 8(a) contracts, the following entities may 
protest:
    (i) Any offeror;
    (ii) The contracting officer; or
    (iii) The SBA District Director, or designee, in either the district 
office serving the geographical area in which the procuring activity is 
located or the district office that services the apparent successful 
offeror, or the Associate Administrator for 8(a) Business Development.
    (3) For SBA's Subcontracting Program, the following entities may 
protest:
    (i) The prime contractor;
    (ii) The contracting officer;
    (iii) Other potential subcontractors;
    (iv) The responsible SBA Government Contracting Area Director or the 
Associate Administrator for Government Contracting; and
    (v) Other interested parties.
    (4) For SBA's Small Business Innovation Research (SBIR) Program, the 
following entities may protest:
    (i) A prospective offeror;
    (ii) The funding agreement officer;
    (iii) The responsible SBA Government Contracting Area Director or 
the Assistant Administrator for Technology; and
    (iv) Other interested parties.
    (5) For the Department of Defense's Small Disadvantaged Business 
(SDB) Program, and any other similar program of another Federal agency, 
the following entities may file a protest in connection with a 
particular SDB procurement:
    (i) Any offeror for the specific SDB requirement;
    (ii) The contracting officer; and
    (iii) The responsible SBA Government Contracting Area Director, the 
Associate Administrator for Government Contracting, or the Associate 
Administrator for MED.
    (6) For SBA's HUBZone program, the following entities may protest in 
connection with a particular HUBZone procurement:
    (i) Any concern that submits an offer for a specific HUBZone set-
aside contract;
    (ii) Any concern that submitted an offer in full and open 
competition and its opportunity for award will be affected by a price 
evaluation preference given a qualified HUBZone SBC;
    (iii) The contracting officer; and
    (iv) The Associate Administrator for Government Contracting, or 
designee.
    (7) For any unrestricted Government procurement in which status as a 
small business may be beneficial, including, but not limited to, the 
award of a contract to a small business where there are tie bids, the 
opportunity to seek a Certificate of Competency by a small business, and 
SDB price evaluation preferences, the following entities may protest in 
connection with a particular procurement:
    (i) Any offeror;
    (ii) The contracting officer; and
    (iii) The responsible SBA Government Contracting Area Director, the 
Associate Administrator for Government Contracting, or the Associate 
Administrator for MED.
    (b) Request for Size Determinations. (1) For SBA's Financial 
Assistance Programs, the following entities may request a formal size 
determination:

[[Page 316]]

    (i) The applicant for assistance; and
    (ii) The SBA official with authority to take final action on the 
assistance requested. That official may also request the appropriate 
Government Contracting Area Office to determine whether affiliation 
exists between an applicant for financial assistance and one or more 
other entities for purposes of determining whether the applicant would 
exceed the loan limit amount imposed by Sec. 120.151 of this chapter.
    (2) For SBA's 8(a) BD program:
    (i) Concerning initial or continued 8(a) BD eligibility, the 
following entities may request a formal size determination:
    (A) The 8(a) BD applicant concern or Participant; or
    (B) The Assistant Administrator of the Division of Program 
Certification and Eligibility or the Associate Administrator for 8(a)BD.
    (ii) Concerning individual sole source 8(a) contract awards, the 
following entities may request a formal size determination:
    (A) The Participant nominated for award of the particular sole 
source contract;
    (B) The SBA program official with authority to execute the 8(a) 
contract; or
    (C) The SBA District Director in the district office that services 
the Participant, or the Associate Administrator for 8(a)BD.
    (3) For SBA's Certificate of Competency Program, the following 
entities may request a formal size determination:
    (i) The offeror who has applied for a COC; and
    (ii) The responsible SBA Government Contracting Area Director or the 
Associate Administrator for Government Contracting.
    (4) For SBA's sale or lease of government property, the following 
entities may request a formal size determination:
    (i) The responsible SBA Government Contracting Area Director or the 
Associate Administrator for Government Contracting; and
    (ii) Authorized officials of other Federal agencies administering a 
property sales program.
    (5) For eligibility to pay reduced patent fees, the following 
entities may request a formal size determination:
    (i) The applicant for the reduced patent fees; and
    (ii) The Patent and Trademark Office.
    (6) For purposes of determining compliance with small business 
requirements of another Government agency program not otherwise 
specified in this section, an official with authority to administer the 
program involved may request a formal size determination.

[61 FR 3286, Jan. 31, 1996, as amended at 63 FR 31907, June 11, 1998; 63 
FR 35739, June 30, 1998]



Sec. 121.1002  Who makes a formal size determination?

    The responsible Government Contracting Area Director or designee 
makes all formal size determinations in response to either a size 
protest or a request for a formal size determination, with the exception 
of size determinations for purposes of the Disaster Loan Program, which 
will be made by the Disaster Area Office Director or designee 
responsible for the area in which the disaster occurred.



Sec. 121.1003  Where should a size protest be filed?

    A protest involving a government procurement or sale must be filed 
with the contracting officer for the procurement or sale, who must 
forward the protest to the SBA Government Contracting Area Office 
serving the area in which the headquarters of the protested concern is 
located, regardless of the location of any parent company or affiliates.



Sec. 121.1004  What time limits apply to size protests?

    (a) Protests by entities other than contracting officers or SBA. (1) 
Non-negotiated procurement or sale. A protest must be received by the 
contracting officer prior to the close of business on the 5th day, 
exclusive of Saturdays, Sundays, and legal holidays, after bid or 
proposal opening.
    (2) Negotiated procurement. A protest must be received by the 
contracting officer prior to the close of business on the 5th day, 
exclusive of Saturdays,

[[Page 317]]

Sundays, and legal holidays, after the contracting officer has notified 
the protestor of the identity of the prospective awardee.
    (3) Multiple award schedule. On a multiple award schedule 
procurement set aside for small business, protests will be considered 
timely if received by SBA at any time prior to the expiration of the 
contract period (including renewals).
    (b) Protests by contracting officers or SBA. The time limitations in 
paragraph (a) of this section do not apply to contracting officers or 
SBA, and they may file protests before or after awards, except to the 
extent set forth in paragraph (e) of this section.
    (c) Effect of contract award. A timely filed protest applies to the 
procurement in question even though a contracting officer awarded the 
contract prior to receipt of the protest.
    (d) Untimely protests. A protest received after the allotted time 
limits must still be forwarded to SBA. SBA will dismiss untimely 
protests.
    (e) Premature protests. A protest filed by any party, including the 
contracting officer, before bid opening or notification to offerors of 
the selection of the apparent successful offer will be dismissed as 
premature.



Sec. 121.1005  How must a protest be filed with the contracting officer?

    A protest must be delivered to the contracting officer by hand, 
telegram, mail, FAX, or telephone. If a protest is made by telephone, 
the contracting officer must later receive a confirming letter either 
within the 5-day period in Sec. 121.1004(a)(1) or postmarked no later 
than one day after the date of the telephone protest.



Sec. 121.1006  When will a size protest be referred to an SBA Government Contracting Area Office?

    (a) A contracting officer who receives a protest (other than from 
SBA) must forward the protest promptly to the SBA Government Contracting 
Area Office serving the area in which the headquarters of the offeror is 
located.
    (b) A contracting officer's referral must contain the following 
information:
    (1) The protest and any accompanying materials;
    (2) A copy of the self-certification as to size;
    (3) Identification of the applicable size standard;
    (4) A copy of the solicitation;
    (5) Identification of the date of bid opening or notification 
provided to unsuccessful offerors;
    (6) The date on which the protest was received; and
    (7) A complete address and point of contact for the protested 
concern.



Sec. 121.1007  Must a protest of size status relate to a particular procurement and be specific?

    (a) Particular procurement. A protest challenging the size of a 
concern which does not pertain to a particular procurement or sale will 
not be acted on by SBA.
    (b) A protest must include specific facts. A protest must be 
sufficiently specific to provide reasonable notice as to the grounds 
upon which the protested concern's size is questioned. Some basis for 
the belief or allegation stated in the protest must be given. A protest 
merely alleging that the protested concern is not small or is affiliated 
with unnamed other concerns does not specify adequate grounds for the 
protest. No particular form is prescribed for a protest. Where materials 
supporting the protest are available, they should be submitted with the 
protest.
    (c) Non-specific protests will be dismissed. Protests which do not 
contain sufficient specificity will be dismissed by SBA.



Sec. 121.1008  What happens after SBA receives a size protest or a request for a formal size determination?

    (a) When a size protest is received, the SBA Government Contracting 
Area Director, or designee, will promptly notify the contracting 
officer, the protested concern, and the protestor that a protest has 
been received. In the event the size protest pertains to a requirement 
involving SBA's HUBZone Program, the Government Contracting Area 
Director will advise the AA/HUB of receipt of the protest. In the event 
the size protest pertains to a requirement involving SBA's SBIR Program,

[[Page 318]]

the Government Contracting Area Director will advise the Assistant 
Administrator for Technology of the receipt of the protest. SBA will 
provide a copy of the protest to the protested concern along with a 
blank SBA Application for Small Business Size Determination (SBA Form 
355) by certified mail, return receipt requested, or by any overnight 
delivery service that provides proof of receipt. SBA will ask the 
protested concern to respond to the allegations of the protestor.
    (b) When SBA receives a request for a formal size determination in 
accord with Sec. 121.1001(b), SBA will provide a blank copy of SBA Form 
355 to the concern whose size is at issue.
    (c) The protested concern or concern whose size is at issue must 
return the completed SBA Form 355 and all other requested information to 
SBA within 3 working days from the date of receipt of the blank form 
from SBA. SBA has discretion to grant an extension of time to file the 
form. The firm must attach to the completed SBA Form 355 its answers to 
the allegations contained in the protest, where applicable, together 
with any supporting material.
    (d) If a concern does not submit a completed SBA Form 355, answers 
to the protest allegations, or other requested information within the 
allotted time provided by SBA, or if it submits incomplete information, 
SBA may presume that disclosure of the form, any information missing 
from it, or other missing information would show or tend to show that 
the concern is other than a small business.

[61 FR 3286, Jan. 31, 1996, as amended at 63 FR 31908, June 11, 1998]



Sec. 121.1009  What are the procedures for making the size determination?

    (a) Time frame for making size determination. After receipt of a 
protest or a request for a formal size determination, SBA will make a 
formal size determination within 10 working days, if possible.
    (b) Basis for determination. The size determination will be based 
primarily on information supplied by the protestor or the entity 
requesting the size determination and the subject concern. The 
determination, however, may also be based on other grounds not raised in 
the protest or request for size determination. SBA may utilize other 
information in its files and may make inquiries including requests to 
the protestor, the protested concern and any alleged affiliates, or 
other persons for additional specific information.
    (c) Burden of persuasion. The concern whose size is under 
consideration has the burden of establishing its small business size.
    (d) Weight of evidence. SBA will give greater weight to specific, 
signed, factual evidence than to general, unsupported allegations or 
opinions. In the case of refusal or failure to furnish requested 
information within a required time period, SBA may assume that 
disclosure would be contrary to the interests of the party failing to 
make disclosure.
    (e) Formal size determination. The SBA will base its formal size 
determination upon the record, including reasonable inferences from the 
record, and will state in writing the basis for its findings and 
conclusions.
    (f) Notification of determination. SBA will promptly notify the 
contracting officer, the protestor, and the protested offeror, as well 
as each affiliate or alleged affiliate, of the size determination. The 
notification will be by certified mail, return receipt requested, or by 
any overnight delivery service that provides proof of receipt.
    (g) Results of an SBA size determination. (1) A formal size 
determination becomes effective immediately and remains in full force 
and effect unless and until reversed by OHA.
    (2) Once SBA has determined that a concern is other than small for 
purposes of a particular procurement, the concern cannot later become 
eligible for the procurement by reducing its size.
    (3) A concern determined to be other than small for a particular 
size standard is ineligible for any procurement or assistance authorized 
by the Small Business Act or the Small Business Investment Act of 1958, 
requiring the same or a lower size standard, unless recertified as small 
pursuant to Sec. 121.1010. Following an adverse size determination, a 
concern cannot again self-certify as small within the same or

[[Page 319]]

a lower size standard unless it is recertified as small by SBA. If it 
does so, it may be in violation of criminal laws, including section 
16(d) of the Small Business Act, 15 U.S.C. 645(d). If the concern has 
already certified itself as small on a pending procurement or on another 
assistance application, the concern must immediately inform the 
officials responsible for the pending procurement or other requested 
assistance of the adverse size determination.
    (h) Limited reopening of size determinations. In cases where the 
size determination contains clear administrative error or a clear 
mistake of fact, SBA may, in its sole discretion, reopen the size 
determination to correct the error or mistake, provided no appeal has 
been filed with OHA.

[61 FR 3286, Jan. 31, 1996, as amended at 67 FR 47245, July 18, 2002]



Sec. 121.1010  How does a concern become recertified as a small business?

    (a) A concern may request SBA to recertify it as small at any time 
by filing an application for recertification with the Government 
Contracting Area Office responsible for the area in which the 
headquarters of the applicant is located, regardless of the location of 
parent companies or affiliates. No particular form is prescribed for the 
application; however, the request for recertification must be 
accompanied by a current completed SBA Form 355 and any other 
information sufficient to show a significant change in its ownership, 
management, or other factors bearing on its status as a small concern.
    (b) Recertification will not be required nor will the prohibition 
against future self-certification apply if the adverse SBA size 
determination is based solely on a finding of affiliation due to a joint 
venture (e.g., ostensible subcontracting) limited to a particular 
Government procurement or property sale, or is based on an ineligible 
manufacturer where the eligible small business bidder or offeror is a 
nonmanufacturer on a particular Government procurement.
    (c) A denial of an application for recertification is a formal size 
determination and may be reviewed by OHA at the discretion of that 
office.
    (d) The granting of an application for recertification has future 
effect only. While it is a formal size determination, notice of 
recertification is required to be given only to the applicant.

       Appeals of Size Determinations and NAICS Code Designations



Sec. 121.1101  Are formal size determinations subject to appeal?

    A formal size determination made by a Government Contracting Area 
Office or by a Disaster Area Office may be appealed to OHA. The 
procedures governing OHA appeals are set forth in part 134 of this 
chapter. The OHA appeal is an administrative remedy that must be 
exhausted before judicial review of a formal size determination may be 
sought in a court.

[67 FR 47245, July 18, 2002]



Sec. 121.1102  Are NAICS code designations subject to appeal?

    A NAICS code designation made by a procuring activity contracting 
officer may be appealed to OHA. The procedures governing OHA appeals are 
set forth in part 134 of this chapter. The OHA appeal is an 
administrative remedy that must be exhausted before judicial review of a 
NAICS code designation may be sought in a court.

[67 FR 47245, July 18, 2002]



Sec. 121.1103  What are the procedures for appealing an NAICS code designation?

    (a) Generally, any interested party who has been adversely affected 
by an NAICS code designation may appeal the designation to OHA. However, 
with respect to a particular sole source 8(a) contract, only the 
Associate Administrator for 8(a)BD may appeal.
    (b) Procedures for perfecting NAICS code appeals with OHA are 
contained in Sec. 19.303 of the Federal Acquisition Regulations, 48 CFR 
19.303.

[61 FR 3286, Jan. 31, 1996, as amended at 63 FR 35739, June 30, 1998; 65 
FR 30863, May 15, 2000]

[[Page 320]]



                 Subpart B--Other Applicable Provisions

    Waivers of the Nonmanufacturer Rule for Classes of Products and 
                          Individual Contracts



Sec. 121.1201  What is the Nonmanufacturer Rule?

    The Nonmanufacturer Rule is set forth in Sec. 121.406(b).



Sec. 121.1202  When will a waiver of the Nonmanufacturer Rule be granted for a class of products?

    (a) A waiver for a class of products (class waiver) will be granted 
when there are no small business manufacturers or processors available 
to participate in the Federal market for that class of products.
    (b) Federal market means acquisitions by the Federal Government from 
offerors located in the United States, or such smaller area as SBA 
designates if it concludes that the class of products is not supplied on 
a national basis.
    (1) When considering the appropriate market area for a product, SBA 
presumes that the entire United States is the relevant Federal market, 
unless it is clearly demonstrated that a class of products cannot be 
procured on a national basis. This presumption may be particularly 
difficult to overcome in the case of manufactured products, since such 
items typically have a market area encompassing the entire United 
States.
    (2) When considering geographic segmentation of a Federal market, 
SBA will not necessarily use market definitions dependent on airline 
radius, political, or SBA regional boundaries. Market areas typically 
follow established transportation routes rather than jurisdictional 
borders. SBA examines the following factors, among others, in cases 
where geographic segmentation for a class of products is urged:
    (i) Whether perishability affects the area in which the product can 
practically be sold;
    (ii) Whether transportation costs are high as a proportion of the 
total value of the product so as to limit the economic distribution of 
the product;
    (iii) Whether there are legal barriers to transportation of the 
item;
    (iv) Whether a fixed, well-delineated boundary exists for the 
purported market area and whether this boundary has been stable over 
time; and
    (v) Whether a small business, not currently selling in the defined 
market area, could potentially enter the market from another area and 
supply the market at a reasonable price.
    (c) Available to participate in the context of the Federal market 
means that contractors exist that have been awarded or have performed a 
contract to supply a specific class of products to the Federal 
Government within 24 months from the date of the request for waiver, 
either directly or through a dealer, or who have submitted an offer on a 
solicitation for that class of products within that time frame.
    (d) Class of products is an individual subdivision within an NAICS 
Industry Number as established by the Office of Management and Budget in 
the NAICS Manual.

[61 FR 3286, Jan. 31, 1996, as amended at 65 FR 30863, May 15, 2000]



Sec. 121.1203  When will a waiver of the Nonmanufacturer Rule be granted for an individual contract?

    An individual waiver for a product in a specific solicitation will 
be approved when the SBA Associate Administrator for Government 
Contracting reviews and accepts a contracting officer's determination 
that no small business manufacturer or processor can reasonably be 
expected to offer a product meeting the specifications of a 
solicitation, including the period of performance.



Sec. 121.1204  What are the procedures for requesting and granting waivers?

    (a) Waivers for classes of products. (1) SBA may, at its own 
initiative, examine a class of products for possible waiver of the 
Nonmanufacturer Rule.
    (2) Any interested person, business, association, or Federal agency 
may submit a request for a waiver for a particular class of products. 
Requests should be addressed or hand-carried to

[[Page 321]]

the Associate Administrator of Government Contracting, Small Business 
Administration, 409 3rd Street SW., Washington, DC 20416.
    (3) Requests for a waiver of a class of products need not be in any 
particular form, but should include a statement of the class of products 
to be waived, the applicable NAICS code, and detailed information on the 
efforts made to identify small business manufacturers or processors for 
the class.
    (4) If SBA decides that there are small business manufacturers or 
processors in the Federal procurement market, it will deny the request 
for waiver, issue notice of the denial, and provide the names, 
addresses, and telephone numbers of the sources found. If SBA does not 
initially confirm the existence of small business manufacturers or 
processors in the Federal market, it will:
    (i) Publish notices in the Commerce Business Daily and the Federal 
Register seeking information on small business manufacturers or 
processors, announcing a notice of intent to waive the Nonmanufacturer 
Rule for that class of products and affording the public a 15-day 
comment period; and
    (ii) If no small business sources are identified, publish a notice 
in the Federal Register stating that no small business sources were 
found and that a waiver of the Nonmanufacturer Rule for that class of 
products has been granted.
    (5) An expedited procedure for issuing a class waiver may be used 
for emergency situations, but only if the contracting officer provides a 
determination to the Associate Administrator for Government Contracting 
that the procurement is proceeding under the authority of FAR 
Sec. 6.302-2 (48 CFR 6.302-2) for ``unusual and compelling urgency,'' or 
provides a determination materially the same as one of unusual and 
compelling urgency. Under the expedited procedure, if a small business 
manufacturer or processor is not identified by a PASS search, the SBA 
will grant the waiver for the class of products and then publish a 
notice in the Federal Register. The notice will state that a waiver has 
been granted, and solicit public comment for future procurements.
    (6) The decision by the Associate Administrator for Government 
Contracting to grant or deny a waiver is the final decision by the 
Agency.
    (7) A waiver of the Nonmanufacturer Rule for classes of products has 
no specific time limitation. SBA will, however, periodically review 
existing class waivers to the Nonmanufacturer Rule to determine if small 
business manufacturers or processors have become available to 
participate in the Federal market for the waived classes of products and 
the waiver should be terminated.
    (i) Upon SBA's receipt of evidence that a small business 
manufacturer or processor exists in the Federal market for a waived 
class of products, the waiver will be terminated by the Associate 
Administrator for Government Contracting. This evidence may be 
discovered by SBA during a periodic review of existing waivers or may be 
brought to SBA's attention by other sources.
    (ii) SBA will announce its intent to terminate a waiver for a class 
of products through the publication of a notice in the Federal Register, 
asking for comments regarding the proposed termination.
    (iii) Unless public comment reveals that no small business 
manufacturer or processor in fact exists for the class of products in 
question, SBA will publish a final Notice of Termination in the Federal 
Register.
    (b) Individual waivers for specific solicitations. (1) A contracting 
officer's request for a waiver of the Nonmanufacturer Rule for specific 
solicitations need not be in any particular form, but must, at a 
minimum, include:
    (i) A definitive statement of the specific item to be waived and 
justification as to why the specific item is required;
    (ii) The solicitation number, NAICS code, dollar amount of the 
procurement, and a brief statement of the procurement history;
    (iii) A determination by the contracting officer that there are no 
known small business manufacturers or processors for the requested items

[[Page 322]]

(the determination must contain a narrative statement of the contracting 
officer's efforts to search for small business manufacturers or 
processors of the item and the results of those efforts, and a statement 
by the contracting officer that there are no known small business 
manufacturers for the items and that no small business manufacturer or 
processor can reasonably be expected to offer the required items); and
    (iv) For contracts expected to exceed $500,000, a copy of the 
Statement of Work.
    (2) Requests should be addressed to the Associate Administrator for 
Government Contracting, Small Business Administration, 409 3rd Street, 
SW., Washington, DC 20416.
    (3) SBA will examine the contracting officer's determination and any 
other information it deems necessary to make an informed decision on the 
individual waiver request. If SBA's research verifies that no small 
business manufacturers or processors exist for the item, the Associate 
Administrator for Government Contracting will grant an individual, one-
time waiver. If a small business manufacturer or processor is found for 
the product in question, the Associate Administrator will deny the 
request. Either decision represents a final decision by SBA.

[61 FR 3286, Jan. 31, 1996, as amended at 65 FR 30863, May 15, 2000]



Sec. 121.1205  How is a list of previously granted class waivers obtained?

    A list of classes of products for which waivers of the 
Nonmanufacturer Rule have been granted will be maintained in SBA's 
Procurement Automated Source System (PASS). A list of such waivers may 
also be obtained by contacting the Office of Government Contracting at 
the Small Business Administration, 409 3rd Street, SW., Washington, DC 
20416, or at the nearest SBA Government Contracting Area Office.



PART 123--DISASTER LOAN PROGRAM--Table of Contents




                           Subpart A--Overview

Sec.
123.1  What do these rules cover?
123.2  What are disaster loans and disaster declarations?
123.3  How are disaster declarations made?
123.4  What is a disaster area and why is it important?
123.5  What kinds of loans are available?
123.6  What does SBA look for when considering a disaster loan 
          applicant?
123.7  Are  there restrictions on how disaster loans can be used?
123.8  Does SBA charge any fees for obtaining a disaster loan?
123.9  What happens if I don't use loan proceeds for the intended 
          purpose?
123.10  What happens if I cannot use my insurance proceeds to make 
          repairs?
123.11  Does SBA require collateral for any of its disaster loans?
123.12  Are books and records required?
123.13  What happens if my loan application is denied?
123.14  How does the Federal Debt Collection Procedures Act of 1990 
          apply?
123.15  What if I change my mind?
123.16  How are loans administered and serviced?
123.17  Do other Federal requirements apply?
123.18  Can I request an increase in the amount of a physical disaster 
          loan?
123.19  May I request an increase in the amount of an economic injury 
          loan?
123.20  How long do I have to request an increase in the amount of a 
          physical disaster loan or an economic injury loan?
123.21  What is a mitigation measure?

                     Subpart B--Home Disaster Loans

123.100  Am I eligible to apply for a home disaster loan?
123.101  When am I not eligible for a home disaster loan?
123.102  What circumstances would justify my relocating?
123.103  What happens if I am forced to move from my home?
123.104  What interest rate will I pay on my home disaster loan?
123.105  How much can I borrow with a home disaster loan and what limits 
          apply on use of funds and repayment terms?
123.106  What is eligible refinancing?
123.107  How much can I borrow for post-disaster mitigation for my home?

               Subpart C--Physical Disaster Business Loans

123.200  Am I eligible to apply for a physical disaster business loan?
123.201  When am I not eligible to apply for a physical disaster 
          business loan?
123.202  How much can my business borrow with a physical disaster 
          business loan?
123.203  What interest rate will my business pay on a physical disaster 
          business loan and what are the repayment terms?

[[Page 323]]

123.204  How much can your business borrow for post-disaster mitigation?

                Subpart D--Economic Injury Disaster Loans

123.300  Is my business eligible to apply for an economic injury 
          disaster loan?
123.301  When would my business not be eligible to apply for an economic 
          injury disaster loan?
123.302  What is the interest rate on an economic injury disaster loan?
123.303  How can my business spend my economic injury disaster loan?

                Subpart E--Pre-Disaster Mitigation Loans

Sec.
123.400  What is the Pre-Disaster Mitigation Loan Program?
123.401  What types of mitigating measures can your business include in 
          an application for a pre-disaster mitigation loan?
123.402  Can your business include its relocation as a mitigation 
          measure in an application for a pre-disaster mitigation loan?
123.403  When is your business eligible to apply for a pre-disaster 
          mitigation loan?
123.404  When is your business ineligible to apply for a pre-disaster 
          mitigation loan?
123.405  How much can your business borrow with a pre-disaster 
          mitigation loan?
123.406  What is the interest rate on a pre-disaster mitigation loan?
123.407  When does your business apply for a pre-disaster mitigation 
          loan and where does your business get the application?
123.408  How does your business apply for a pre-disaster mitigation 
          loan?
123.409  Which pre-disaster mitigation loan requests will SBA consider 
          for funding?
123.410  Which loan requests will SBA fund?
123.411  What if SBA determines that your business loan request meets 
          the selection criteria of Sec. 123.409 but SBA is unable to 
          fund it because SBA has already allocated all program funds?
123.412  What happens if SBA declines your business' pre-disaster loan 
          request?

      Subpart F--Military Reservist Economic Injury Disaster Loans

123.500  Definitions.
123.501  When is your business eligible to apply for a Military 
          Reservist Economic Injury Disaster Loan (EIDL)?
123.502  When is your business ineligible to apply for a Military 
          Reservist EIDL?
123.503  When can you apply for a Military Reservist EIDL?
123.504  How do you apply for a Military Reservist EIDL?
123.505  What if you are both an essential employee and the owner of the 
          small business and you started active duty before applying for 
          a Military Reservist EIDL?
123.506  How much can you borrow under the Military Reservist EIDL 
          Program?
123.507  Under what circumstances will SBA consider waiving the $1.5 
          million loan limit?
123.508  How can you use Military Reservist EIDL funds?
123.509  What can't you use Military Reservist EIDL funds for?
123.510  What if you don't use your Military Reservist EIDL funds as 
          authorized?
123.511  How will SBA disburse Military Reservist EIDL funds?
123.512  What is the interest rate on a Military Reservist EIDL?

 Subpart G--Economic Injury Disaster Loans as a Result of the September 
                       11, 2001 Terrorist Attacks

123.600  Are economic injury disaster loans under this subpart limited 
          to the geographic areas contiguous to the declared disaster 
          areas?
123.601  Is my business eligible to apply for an economic injury 
          disaster loan under this subpart?
123.602  When would my business not be eligible to apply for an economic 
          injury disaster loan under this subpart?
123.603  What is the interest rate on an economic injury disaster loan 
          under this subpart?
123.604  How can my business spend my economic injury disaster loan 
          under this subpart?
123.605  How long do I have to apply for a loan under this subpart?
123.606  May I request an increase in the amount of an economic injury 
          disaster loan under this subpart?

    Authority: 15 U.S.C. 634(b)(6), 636(b), 636(c); Pub. L. 102-395, 106 
Stat. 1828, 1864; and Pub. L. 103-75, 107 Stat. 739; and Pub. L. 106-50, 
113 Stat. 245.

    Source: 61 FR 3304, Jan. 31, 1996, unless otherwise noted.



                           Subpart A--Overview



Sec. 123.1  What do these rules cover?

    This part covers the disaster loan programs authorized under the 
Small Business Act, 15 U.S.C. 636(b), (c), and (f). Since SBA cannot 
predict the occurrence or magnitude of disasters, it reserves the right 
to change the rules in this part, without advance notice, by publishing 
interim emergency regulations in the Federal Register.

[[Page 324]]



Sec. 123.2  What are disaster loans and disaster declarations?

    SBA offers low interest, fixed rate loans to disaster victims, 
enabling them to repair or replace property damaged or destroyed in 
declared disasters. It also offers such loans to affected small 
businesses to help them recover from economic injury caused by such 
disasters. Disaster declarations are official notices recognizing that 
specific geographic areas have been damaged by floods and other acts of 
nature, riots, civil disorders, or industrial accidents such as oil 
spills. These disasters are sudden events which cause severe physical 
damage, and do not include slower physical occurrences such as shoreline 
erosion or gradual land settling. Sudden physical events that cause 
substantial economic injury may be disasters even if they do not cause 
physical damage to a victim's property. Past examples include ocean 
conditions causing significant displacement (major ocean currents) or 
closure (toxic algae blooms) of customary fishing waters, as well as 
contamination of food or other products for human consumption from 
unforeseeable and unintended events beyond the control of the victims.



Sec. 123.3  How are disaster declarations made?

    (a) There are four ways in which disaster declarations are issued 
which make SBA disaster loans possible:
    (1) The President declares a Major Disaster, or declares an 
emergency, and authorizes Federal Assistance, including individual 
assistance (Assistance to Individuals and Households Program).
    (2) If the President declares a Major Disaster limited to public 
assistance only, a private nonprofit facility which provides non-
critical services under guidelines of the Federal Emergency Management 
Agency (FEMA) must first apply to SBA for disaster loan assistance for 
such non-critical services before it could seek grant assistance from 
FEMA.
    (3) SBA makes a physical disaster declaration, based on the 
occurrence of at least a minimum amount of physical damage to buildings, 
machinery, equipment, inventory, homes and other property. Such damage 
usually must meet the following tests:
    (i) In any county or other smaller political subdivision of a State 
or U.S. possession, at least 25 homes or 25 businesses, or a combination 
of at least 25 homes, businesses, or other eligible institutions, each 
sustain uninsured losses of 40 percent or more of the estimated fair 
replacement value or pre-disaster fair market value of the damaged 
property, whichever is lower; or
    (ii) In any such political subdivision, at least three businesses 
each sustain uninsured losses of 40 percent or more of the estimated 
fair replacement value or pre-disaster fair market value of the damaged 
property, whichever is lower, and, as a direct result of such physical 
damage, 25 percent or more of the work force in their community would be 
unemployed for at least 90 days; and
    (iii) The Governor of the State in which the disaster occurred 
submits a written request to SBA for a physical disaster declaration by 
SBA (OMB Approval No. 3245-0121). This request should be delivered to 
the SBA Disaster Area Office serving the region where the disaster 
occurred within 60 days of the date of the disaster.
    (4) SBA makes an economic injury disaster declaration in response to 
a determination of a natural disaster by the Secretary of Agriculture.
    (5) SBA makes an economic injury declaration in reliance on a state 
certification that at least 5 small business concerns in a disaster area 
have suffered substantial economic injury as a result of the disaster 
and are in need of financial assistance not otherwise available on 
reasonable terms. The state certification must be signed by the 
Governor, must specify the county or counties or other political 
subdivisions in which the disaster occurred, and must be delivered (with 
supporting documentation) to the servicing SBA Disaster Area Office 
within 120 days of the disaster occurrence. The Administrator may, in a 
case of undue hardship, accept such request after 120 days have expired.
    (b) SBA publishes notice of any disaster declaration in the Federal 
Register. The published notice will identify the kinds of assistance 
available, the date and nature of the disaster, and

[[Page 325]]

the deadline and location for filing loan applications. Additionally, 
SBA will use the local media to inform potential loan applicants where 
to obtain loan applications and otherwise to assist victims in applying 
for disaster loans. SBA will accept applications after the announced 
deadline only when SBA determines that the late filing resulted from 
substantial causes beyond the control of the applicant.

[61 FR 3304, Jan. 31, 1996, as amended at 64 FR 13667, Mar. 22, 1999; 67 
FR 64518, Oct. 21, 2002]



Sec. 123.4  What is a disaster area and why is it important?

    Each disaster declaration defines the geographical areas affected by 
the disaster. Only those victims located in the declared disaster area 
are eligible to apply for SBA disaster loans. When the President 
declares a major disaster, the Federal Emergency Management Agency 
defines the disaster area. In major disasters, economic injury disaster 
loans may be made for victims in contiguous counties or other political 
subdivisions, provided, however, that with respect to major disasters 
which authorize public assistance only, SBA shall not make economic 
injury disaster loans in counties contiguous to the disaster area. 
Disaster declarations issued by the Administrator of SBA include 
contiguous counties for both physical and economic injury assistance. 
Contiguous counties or other political subdivisions are those land areas 
which abut the land area of the declared disaster area without 
geographic separation other than by a minor body of water, not to exceed 
one mile between the land areas of such counties.

[61 FR 3304, Jan. 31, 1996, as amended at 67 FR 64519, Oct. 21, 2002]



Sec. 123.5  What kinds of loans are available?

    SBA offers three kinds of disaster loans: physical disaster home 
loans, physical disaster business loans, and economic injury business 
loans. SBA makes these loans directly or in participation with a 
financial institution. If a loan is made in participation with a 
financial institution, SBA's share in that loan may not exceed 90 
percent.



Sec. 123.6  What does SBA look for when considering a disaster loan applicant?

    There must be reasonable assurance that you can repay your loan out 
of your personal or business cash flow, and you must have satisfactory 
credit and character. SBA will not make a loan to you if repayment 
depends upon the sale of collateral through foreclosure or any other 
disposition of assets owned by you. SBA is prohibited by statute from 
making a loan to you if you are engaged in the production or 
distribution of any product or service that has been determined to be 
obscene by a court.



Sec. 123.7  Are there restrictions on how disaster loans can be used?

    You must use disaster loans to restore or replace your primary home 
(including a mobile home used as a primary residence) and your personal 
or business property as nearly as possible to their condition before the 
disaster occurred, and within certain limits, to protect damaged or 
destroyed real property from possible future similar disasters.



Sec. 123.8  Does SBA charge any fees for obtaining a disaster loan?

    SBA does not charge points, closing, or servicing fees on any 
disaster loan. You will be responsible for payment of any closing costs 
owed to third parties, such as recording fees and title insurance 
premiums. If your loan is made in participation with a financial 
institution, SBA will charge a guarantee fee to the financial 
institution, which then may recover the guarantee fee from you.



Sec. 123.9  What happens if I don't use loan proceeds for the intended purpose?

    (a) When SBA approves each loan application, it issues a loan 
authorization which specifies the amount of the loan, repayment terms, 
any collateral requirements, and the permitted use of loan proceeds. If 
you wrongfully misapply these proceeds, you will be liable to SBA for 
one and one-half times the proceeds disbursed to you as of the date SBA 
learns of your wrongful misapplication. Wrongful

[[Page 326]]

misapplication means the willful use of any loan proceeds without SBA 
approval contrary to the loan authorization. If you fail to use loan 
proceeds for authorized purposes for 60 days or more after receiving a 
loan disbursement check, such non-use also is considered a wrongful 
misapplication of the proceeds.
    (b) If SBA learns that you may have misapplied your loan proceeds, 
SBA will notify you at your last known address, by certified mail, 
return receipt requested. You will be given at least 30 days to submit 
to SBA evidence that you have not misapplied the loan proceeds or that 
you have corrected any such misapplication. Any failure to respond in 
time will be considered an admission that you misapplied the proceeds. 
If SBA finds a wrongful misapplication, it will cancel any undisbursed 
loan proceeds, call the loan, and begin collection measures to collect 
your outstanding loan balance and the civil penalty. You may also face 
criminal prosecution or civil or administrative action.



Sec. 123.10  What happens if I cannot use my insurance proceeds to make repairs?

    If you must pay insurance proceeds to the holder of a recorded lien 
or encumbrance against your damaged property instead of using them to 
make repairs, you may apply to SBA for the full amount needed to make 
such repairs. If you voluntarily pay insurance proceeds to a recorded 
lienholder, your loan eligibility is reduced by the amount of the 
voluntary payment.



Sec. 123.11  Does SBA require collateral for any of its disaster loans?

    Generally, SBA will not require that you pledge collateral to secure 
a disaster home loan or a physical disaster business loan of $10,000 or 
less, or an economic injury disaster loan of $5,000 or less. For loans 
larger than these amounts, you will be required to provide available 
collateral such as a lien on the damaged or replacement property, a 
security interest in personal property, or both.
    (a) Sometimes a borrower, including affiliates as defined in part 
121 of this title, will have more than one loan after a single disaster. 
In deciding whether collateral is required, SBA will add up all physical 
disaster loans to see if they exceed $10,000 and all economic injury 
disaster loans to see if they exceed $5,000.
    (b) SBA will not decline a loan if you lack a particular amount of 
collateral as long as it is reasonably sure that you can repay your 
loan. If you refuse to pledge available collateral when requested by 
SBA, however, SBA may decline or cancel your loan.



Sec. 123.12  Are books and records required?

    You must retain complete records of all transactions financed with 
your SBA loan proceeds, including copies of all contracts and receipts, 
for a period of 3 years after you receive your final disbursement of 
loan proceeds. If you have a physical disaster business or economic 
injury loan, you must also maintain current and accurate books of 
account, including financial and operating statements, insurance 
policies, and tax returns. You must retain applicable books and records 
for 3 years after your loan matures including any extensions, or from 
the date when your loan is paid in full, whichever occurs first. You 
must make available to SBA or other authorized government personnel upon 
request all such books and records for inspection, audit, and 
reproduction during normal business hours and you must also permit SBA 
and any participating financial institution to inspect and appraise your 
assets. (OMB Approval No. 3245-0110.)



Sec. 123.13  What happens if my loan application is denied?

    (a) If SBA denies your loan application, SBA will notify you in 
writing and set forth the specific reasons for the denial. Any applicant 
whose request for a loan is declined for reasons other than size (not 
being a small business) has the right to present information to overcome 
the reason or reasons for the decline and to request reconsideration in 
writing. (OMB Approval No. 3245-0122.)
    (b) Any decline due to size can only be appealed as set forth in 
part 121 of this chapter.

[[Page 327]]

    (c) Any request for reconsideration must be received by the SBA 
office that declined the original application within six months of the 
date of the declined notice. After six months, a new loan application is 
required.
    (d) A request for reconsideration must contain all significant new 
information that you rely on to overcome SBA's denial of your original 
loan application. Your request for reconsideration of a business loan 
application must also be accompanied by current business financial 
statements.
    (e) If SBA declines your application a second time, you have the 
right to appeal in writing to the Area Director's Office. All appeals 
must be received by the office that declined the prior reconsideration 
within 30 days of the decline action. Your request must state that you 
are appealing, and must give specific reasons why the decline action 
should be reversed.
    (f) The decision of the Area Director is final unless:
    (1) The Area Director does not have authority to approve the 
requested loan;
    (2) The Area Director refers the matter to the Associate 
Administrator for Disaster Assistance; or
    (3) The Associate Administrator for Disaster Assistance, upon a 
showing of special circumstances, requests the Area Director's office to 
forward the matter to him or her for final consideration. Special 
circumstances may include, but are not limited to, policy 
considerations, alleged improper acts by SBA personnel or others in 
processing the application, and conflicting policy interpretations 
between two Area Offices.



Sec. 123.14  How does the Federal Debt Collection Procedures Act of 1990 apply?

    (a) Under the Federal Debt Collection Procedures Act of 1990 (28 
U.S.C. 3201(e)), a debtor who owns property which is subject to an 
outstanding judgment lien for a debt owed to the United States generally 
is not eligible to receive physical and economic injury disaster loans. 
The SBA Associate Administrator for Disaster Assistance, or designee, 
may waive this restriction as to disaster loans upon a demonstration of 
good cause. Good cause means a written representation by you under oath 
which convinces SBA that:
    (1) The declared disaster was a major contributing factor to the 
delinquency which led to the judgment lien, regardless of when the 
original debt was incurred; or
    (2) The disaster directly prevented you from fulfilling the terms of 
an agreement with SBA or any other Federal Government entity to satisfy 
its pre-disaster judgment lien; in this situation, the judgment creditor 
must certify to SBA that you were complying with the agreement to 
satisfy the judgment lien when the disaster occurred; or
    (3) Other circumstances exist which would justify a waiver.
    (b) The waiver determination by the Associate Administrator for 
Disaster Assistance, or designee, is a final, non-appealable decision. 
The granting of a waiver does not include loan approval; a waiver 
recipient must then follow normal loan application procedures.



Sec. 123.15  What if I change my mind?

    If SBA required you to pledge collateral for your loan, you may 
change your mind and rescind your loan pursuant to the Consumer Credit 
Protection Act, 15 U.S.C. 1601, and Regulation Z of the Federal Reserve 
Board, 12 CFR part 226. Your note and any collateral documents signed by 
you will be canceled upon your return of all loan proceeds and your 
payment of any interest accrued.



Sec. 123.16  How are loans administered and serviced?

    (a) If you obtained your disaster loan from a participating lender, 
that lender is responsible for closing and servicing your loan. If you 
obtained your loan directly from SBA, your loan will be closed and 
serviced by SBA. The SBA rules on servicing are found in part 120 of 
this chapter.
    (b) If you are unable to pay your SBA loan installments in a timely 
manner for reasons substantially beyond your control, you may request 
that SBA suspend your loan payments, extend your maturity, or both.

[[Page 328]]



Sec. 123.17  Do other Federal requirements apply?

    As a condition of disbursement, you must be in compliance with 
certain requirements relating to flood insurance, lead-based paint, 
earthquake hazards, coastal barrier islands, and child support 
obligations, as set forth in Secs. 120.170 through 120.175 of this 
chapter.



Sec. 123.18  Can I request an increase in the amount of a physical disaster loan?

    SBA will consider your request for an increase in your loan if you 
can show that the eligible cost of repair or replacement of damages 
increased because of events occurring after the loan approval that were 
beyond your control. An eligible cost is one which is related to the 
disaster for which SBA issued the original loan. For example, if you 
discover hidden damage within a reasonable time after SBA approved your 
original disaster loan and before repair, renovation, or reconstruction 
is complete, you may request an increase. Or, if applicable building 
code requirements were changed since SBA approved your original loan, 
you may request an increase in your loan amount.

[63 FR 15072, Mar. 30, 1998]



Sec. 123.19  May I request an increase in the amount of an economic injury loan?

    SBA will consider your request for an increase in the loan amount if 
you can show that the increase is essential for your business to 
continue and is based on events occurring after SBA approved your 
original loan which were beyond your control. For example, delays may 
have occurred beyond your control which prevent you from resuming your 
normal business activity in a reasonable time frame. Your request for an 
increase in the loan amount must be related to the disaster for which 
the SBA economic injury disaster loan was originally made.

[63 FR 15072, Mar. 30, 1998]



Sec. 123.20  How long do I have to request an increase in the amount of a physical disaster loan or an economic injury loan?

    You should request a loan increase as soon as possible after you 
discover the need for the increase, but not later than two years after 
SBA approved your physical disaster or economic injury loan. After two 
years, the SBA Associate Administrator for Disaster Assistance (AA/DA) 
may waive this limitation after finding extraordinary and unforeseeable 
circumstances.

[63 FR 15073, Mar. 30, 1998]



Sec. 123.21  What is a mitigation measure?

    A mitigation measure is something done for the purpose of protecting 
real and personal property against disaster related damage. You may 
implement mitigation measures after a disaster occurs (post-disaster) to 
protect against recurring disaster related damage, or before a disaster 
occurs (pre-disaster) to protect against future disaster related damage. 
Examples of mitigation measures include building retaining walls, sea 
walls, grading and contouring land, elevating flood prone structures, 
relocating utilities, or retrofitting structures to protect against high 
winds, earthquakes, flood, wildfires, or other physical disasters. 
Section 123.107 specifically addresses post-disaster mitigation for home 
disaster loans, and Sec. 123.204 specifically addresses post-disaster 
mitigation for businesses. Sections 123.400 through 123.412 specifically 
address pre-disaster mitigation.

[67 FR 62337, Oct. 7, 2002]



                     Subpart B--Home Disaster Loans



Sec. 123.100  Am I eligible to apply for a home disaster loan?

    (a) You are eligible to apply for a home disaster loan if you:
    (1) Own and occupy your primary residence and have suffered a 
physical loss to your primary residence, personal property, or both; or
    (2) Do not own your primary residence, but have suffered a physical 
loss

[[Page 329]]

to your personal property. Family members sharing a residence are 
eligible if they are not dependents of the owners of the residence.
    (b) Losses may be claimed only by the owners of the property at the 
time of the disaster, and all such losses will be verified by SBA. SBA 
will consider beneficial ownership as well as legal title (for real or 
personal property) in determining who suffered the loss.



Sec. 123.101  When am I not eligible for a home disaster loan?

    You are not eligible for a home disaster loan if:
    (a) You have been convicted, during the past year, of a felony 
during and in connection with a riot or civil disorder or other declared 
disaster;
    (b) You acquired voluntarily more than a 50 percent ownership 
interest in the damaged property after the disaster, and no contract of 
sale existed at the time of the disaster;
    (c) Your damaged property can be repaired or replaced with the 
proceeds of insurance, gifts or other compensation, including 
condemnation awards (with one exception), these amounts must either be 
deducted from the amount of the claimed losses or, if received after SBA 
has approved and disbursed a loan, must be paid to SBA as principal 
payments on your loan. You must notify SBA of any such recoveries 
collected after receiving an SBA disaster loan. The one exception 
applies to amounts received under the Individuals and Household Program 
of the Federal Emergency Management Agency solely to meet an emergency 
need pending processing of an SBA loan. In such an event, you must repay 
the financial assistance with SBA loan proceeds if it was used for 
purposes also eligible for an SBA loan;
    (d) SBA determines that you assumed the risk (for example, by not 
maintaining flood insurance as required by an earlier SBA disaster loan 
when the current loss is also due to flood);
    (e) Your damaged property is a secondary home (although if you 
rented the property out before the disaster and the property would not 
constitute a ``residence'' under the provisions of Section 280A of the 
Internal Revenue Code (26 U.S.C. 280A), you may be eligible for a 
physical disaster business loan);
    (f) Your damaged property is the type of vehicle normally used for 
recreational purposes, such as motorhomes, aircraft, and boats;
    (g) Your damaged property consists of cash or securities;
    (h) The replacement value of your damaged personal property is 
extraordinarily high and not easily verified, such as the value of 
antiques, artworks, or hobby collections;
    (i) You or other principal owners of the damaged property are 
presently incarcerated, or on probation or parole following conviction 
for a serious criminal offense;
    (j) Your only interest in the damaged property is in the form of a 
security interest, mortgage, or deed of trust;
    (k) The damaged building, including contents, was newly constructed 
or substantially improved on or after February 9, 1989, and (without a 
significant business justification) is located seaward of mean high tide 
or entirely in or over water; or
    (l) You voluntarily decide to relocate outside the business area in 
which the disaster has occurred, and there are no special or unusual 
circumstances leading to your decision (business area means the 
municipality which provides general governmental services to your 
damaged home or, if not located in a municipality, the county or 
equivalent political entity in which your damaged home is located).

[61 FR 3304, Jan. 31, 1996, as amended at 67 FR 64519, Oct. 21, 2002]



Sec. 123.102  What circumstances would justify my relocating?

    SBA may approve a loan if you intend to relocate outside the 
business area in which the disaster has occurred if your relocation is 
caused by such special or unusual circumstances as:
    (a) Demonstrable risk that the business area will suffer future 
disasters;
    (b) A change in employment status (such as loss of job, transfer, 
lack of adequate job opportunities within the business area or scheduled 
retirement within 18 months after the disaster occurs);
    (c) Medical reasons; or

[[Page 330]]

    (d) Special family considerations which necessitate a move outside 
of the business area.



Sec. 123.103  What happens if I am forced to move from my home?

    If you must relocate inside or outside the business area because 
local authorities will not allow you to repair your damaged property, 
SBA considers this to be a total loss and a mandatory relocation. In 
this case, your loan would be an amount that SBA considers sufficient to 
replace your residence at your new location, plus funds to cover losses 
of personal property and eligible refinancing.



Sec. 123.104  What interest rate will I pay on my home disaster loan?

    If you can obtain credit elsewhere, your interest rate is set by a 
statutory formula, but will not exceed 8 percent per annum. If you 
cannot obtain credit elsewhere, your interest rate is one-half the 
statutory rate, but will not exceed 4 percent per annum. Credit 
elsewhere means that, with your cash flow and disposable assets, SBA 
believes you could obtain financing from non-federal sources on 
reasonable terms. If you cannot obtain credit elsewhere, you also may be 
able to borrow from SBA to refinance existing recorded liens against 
your damaged real property. Under prior legislation, some SBA disaster 
loans had split interest rates. On any such loan, repayments of 
principal are applied first to that portion of the loan with the lowest 
interest rate.



Sec. 123.105  How much can I borrow with a home disaster loan and what limits apply on use of funds and repayment terms?

    (a) For all disasters occurring on or after October 26, 1993, there 
are limits on how much money you can borrow for particular purposes:
    (1) $40,000 for repair or replacement of household and personal 
effects;
    (2) $200,000 for repair or replacement of a primary residence 
(including upgrading in order to meet minimum standards of safety and 
decency or current building code requirements). Repair or replacement of 
landscaping and/or recreational facilities cannot exceed $5,000;
    (3) $200,000 for eligible refinancing purposes; and
    (4) 20 percent of the loan amount (not including refinancing) up to 
a maximum of $48,000 for mitigation (see Sec. 123.107).
    (b) You may not use loan proceeds to repay any debts on personal 
property, secured or unsecured, unless you incurred those debts as a 
direct result of the disaster.
    (c) SBA determines the loan maturity and repayment terms based on 
your needs and your ability to pay. Generally, you will pay equal 
monthly installments of principal and interest, beginning five months 
from the date of the loan, as shown on the Note securing the loan. SBA 
will consider other payment terms if you have seasonal or fluctuating 
income, and SBA may allow installment payments of varying amounts over 
the first two years of the loan. The maximum maturity for a home 
disaster loan is 30 years. There is no penalty for prepayment of home 
disaster loans.



Sec. 123.106  What is eligible refinancing?

    (a) If your home (primary residence) is totally destroyed or 
substantially damaged, and you do not have credit elsewhere, SBA may 
allow you to borrow money to refinance recorded liens or encumbrances on 
your home. Your home is totally destroyed or substantially damaged if it 
has suffered uninsured or otherwise uncompensated damage which, at the 
time of the disaster, is either:
    (1) 40 percent or more of the home's market value or replacement 
cost at the time of the disaster, including land value, whichever is 
less; or
    (2) 50 percent or more of its market value or replacement cost at 
the time of the disaster, not including land value, whichever is less.
    (b) Your home disaster loan for refinancing existing liens or 
encumbrances cannot exceed an amount equal to the lesser of $200,000, or 
the physical damage to your primary residence after reductions for any 
insurance or other recovery.

[[Page 331]]



Sec. 123.107  How much can I borrow for post-disaster mitigation for my home?

    For mitigation measures implemented after a disaster has occurred, 
you can borrow the lesser of the cost of the mitigation measure, or up 
to 20 percent of the amount of your approved home disaster loan to 
repair or replace your damaged primary residence and personal property.

[67 FR 62337, Oct. 7, 2002]



               Subpart C--Physical Disaster Business Loans



Sec. 123.200  Am I eligible to apply for a physical disaster business loan?

    (a) Almost any business concern or charitable or other non-profit 
entity whose real or tangible personal property is damaged in a declared 
disaster area is eligible to apply for a physical disaster business 
loan. Your business may be a sole proprietorship, partnership, 
corporation, limited liability company, or other legal entity recognized 
under State law. Your business' size (average annual receipts or number 
of employees) is not taken into consideration in determining your 
eligibility for a physical disaster business loan. If your damaged 
business occupied rented space at the time of the disaster, and the 
terms of your business' lease require you to make repairs to your 
business' building, you may have suffered a physical loss and can apply 
for a physical business disaster loan to repair the property. In all 
other cases, the owner of the building is the eligible loan applicant.
    (b) Damaged vehicles, of the type normally used for recreational 
purposes, such as motorhomes, aircraft, and boats, may be repaired or 
replaced with SBA loan proceeds if you can submit evidence that the 
damaged vehicles were used in your business at the time of the disaster.



Sec. 123.201  When am I not eligible to apply for a physical disaster business loan?

    (a) You are not eligible for a physical disaster business loan if 
your business is an agricultural enterprise or if you (or any principal 
of the business) fit into any of the categories in Sec. 123.101. 
Agricultural enterprise means a business primarily engaged in the 
production of food and fiber, ranching and raising of livestock, 
aquaculture and all other farming and agriculture-related industries.
    (b) Sometimes a damaged business entity (whether in the form of a 
corporation, limited liability company, partnership, or sole 
proprietorship) is engaged in both agricultural enterprise and a non-
agricultural business venture. If the agricultural enterprise part of 
your business entity has suffered a physical disaster, that enterprise 
is not eligible for SBA physical disaster assistance. If the non-
agricultural business venture of your entity has suffered physical 
disaster damage, that part of your business operation would be eligible 
for SBA physical disaster assistance. If both the agricultural 
enterprise part and the non-agricultural business venture have incurred 
physical disaster damage, only the non-agricultural business venture of 
your business entity would be eligible for SBA physical disaster 
assistance.
    (c) If your business is going to relocate voluntarily outside the 
business area in which the disaster occurred, you are not eligible for a 
physical disaster business loan. If, however, the relocation is due to 
uncontrollable or compelling circumstances, SBA will consider the 
relocation to be involuntary and eligible for a loan. Such circumstances 
may include, but are not limited to:
    (1) The elimination or substantial decrease in the market for your 
products or services, as a consequence of the disaster;
    (2) A change in the demographics of your business area within 18 
months prior to the disaster, or as a result of the disaster, which 
makes it uneconomical to continue operations in your business area;
    (3) A substantial change in your cost of doing business, as a result 
of the disaster, which makes the continuation of your business in the 
business area not economically viable;
    (4) Location of your business in a hazardous area such as a special 
flood hazard area or an earthquake-prone area;

[[Page 332]]

    (5) A change in the public infrastructure in your business area 
which occurred within 18 months or as a result of the disaster that 
would result in substantially increased expenses for your business in 
the business area;
    (6) Your implementation of decisions adopted and at least partially 
implemented within 18 months prior to the disaster to move your business 
out of the business area; and
    (7) Other factors which undermine the economic viability of your 
business area.
    (d) You are not eligible if your business is engaged in any illegal 
activity.
    (e) You are not eligible if you are a government owned entity 
(except for a business owned or controlled by a Native American tribe).
    (f) You are not eligible if your business presents live performances 
of a prurient sexual nature or derives directly or indirectly more than 
de minimis gross revenue through the sale of products or services, or 
the presentation of any depictions or displays, of a prurient sexual 
nature.

[61 FR 3304, Jan. 31, 1996, as amended at 62 FR 35337, July 1, 1997; 63 
FR 46644, Sept. 2, 1998]



Sec. 123.202  How much can my business borrow with a physical disaster business loan?

    (a) Disaster business loans, including both physical disaster and 
economic injury loans to the same borrower, together with its 
affiliates, cannot exceed the lesser of the uncompensated physical loss 
and economic injury or $1.5 million. Physical disaster loans may include 
amounts to meet current building code requirements. If your business is 
a major source of employment, SBA may waive the $1.5 million limitation. 
A major source of employment is a business concern which has one or more 
locations in the disaster area which:
    (1) Employed 10 percent or more of the entire work force within the 
commuting area of a geographically identifiable community (no larger 
than a county), provided that the commuting area does not extend more 
than 50 miles from such community; or
    (2) Employed 5 percent of the work force in an industry within the 
disaster area and, if the concern is a non-manufacturing concern, 
employed no less than 50 employees in the disaster area, or if the 
concern is a manufacturing concern, employed no less than 150 employees 
in the disaster area; or
    (3) Employed no less than 250 employees within the disaster area.
    (b) SBA will consider waiving the $1.5 million loan limit only if:
    (1) Your damaged location or locations are out of business or in 
imminent danger of going out of business as a result of the disaster, 
and a loan in excess of $1.5 million is necessary to reopen or keep open 
the damaged locations in order to avoid substantial unemployment in the 
disaster area; and
    (2) You have used all reasonably available funds from your business, 
its affiliates and its principal owners (20% or greater ownership 
interest) and all available credit elsewhere (as described in 
Sec. 123.104) to alleviate your physical damage and economic injury.
    (c) Physical disaster business borrowers may request refinancing of 
liens on both damaged real property and machinery and equipment, but for 
an amount reduced by insurance or other compensation. To do so, your 
business property must be totally destroyed or substantially damaged, 
which means:
    (1) 40 percent or more of the aggregate value (lesser of market 
value or replacement cost at the time of the disaster) of the damaged 
real property (including land) and damaged machinery and equipment; or
    (2) 50 percent or more of the aggregate value (lesser of market 
value or replacement cost at the time of the disaster) of the damaged 
real property (excluding land) and damaged machinery and equipment.
    (d) Loan funds allocated for repair or replacement of landscaping or 
recreational facilities may not exceed $5,000 unless the landscaping or 
recreational facilities fulfilled a functional need or contributed to 
the generation of business.

[61 FR 3304, Jan. 31, 1996, as amended at 63 FR 46644, Sept. 2, 1998]

[[Page 333]]



Sec. 123.203  What interest rate will my business pay on a physical disaster business loan and what are the repayment terms?

    (a) SBA will announce interest rates with each disaster declaration. 
If your business, together with its affiliates and principal owners, 
have credit elsewhere, your interest rate is set by a statutory formula, 
but will not exceed 8 percent per annum. If you do not have credit 
elsewhere, your interest rate will not exceed 4 percent per annum. The 
maturity of your loan depends upon your repayment ability, but cannot 
exceed 3 years if you have credit elsewhere. Otherwise, the maximum 
maturity is 30 years.
    (b) Generally, you must pay equal monthly installments, of principal 
and interest, beginning five months from the date of the loan as shown 
on the Note. SBA will consider other payment terms if you have seasonal 
or fluctuating income, and SBA may allow installment payments of varying 
amounts over the first two years of the loan. There is no penalty for 
prepayment for disaster loans.



Sec. 123.204  How much can your business borrow for post-disaster mitigation?

    For mitigation measures implemented after a disaster has occurred, 
you can borrow the lesser of the cost of the mitigation measure, or up 
to 20 percent of the amount of your approved physical disaster business 
loan to repair or replace your damaged business real estate and other 
business assets.

[67 FR 62337, Oct. 7, 2002]



                Subpart D--Economic Injury Disaster Loans



Sec. 123.300  Is my business eligible to apply for an economic injury disaster loan?

    (a) If your business is located in a declared disaster area, and 
suffered substantial economic injury as a direct result of a declared 
disaster, you are eligible to apply for an economic injury disaster 
loan.
    (1) Substantial economic injury is such that a business concern is 
unable to meet its obligations as they mature or to pay its ordinary and 
necessary operating expenses.
    (2) Loss of anticipated profits or a drop in sales is not considered 
substantial economic injury for this purpose.
    (b) Economic injury disaster loans are available only if you were a 
small business (as defined in part 121 of this chapter) when the 
declared disaster commenced (except disaster declarations for the 
September 11, 2001 terrorist attacks, for which size status is 
determined as of the date SBA accepts the application for processing and 
for applications submitted before March 15, 2002, whether denied or 
pending, such applications shall be deemed resubmitted on March 15, 
2002), you and your affiliates and principal owners (20% or more 
ownership interest) have used all reasonably available funds, and you 
are unable to obtain credit elsewhere (see Sec. 123.104).
    (c) Eligible businesses do not include agricultural enterprises, but 
do include--
    (1) Small nurseries affected by a drought disaster designated by the 
Secretary of Agriculture (nurseries are commercial establishments 
deriving 50 percent or more of their annual receipts from the production 
and sale of ornamental plants and other nursery products, including, but 
not limited to, bulbs, florist greens, foliage, flowers, flower and 
vegetable seeds, shrubbery, and sod);
    (2) Small agricultural cooperatives; and
    (3) Producer cooperatives.

[61 FR 3304, Jan. 31, 1996, as amended at 67 FR 11880, Mar. 15, 2002]



Sec. 123.301  When would my business not be eligible to apply for an economic injury disaster loan?

    Your business is not eligible for an economic disaster loan if you 
(or any principal of the business) fit into any of the categories in 
Secs. 123.101 and 123.201, or if your business is:
    (a) Engaged in lending, multi-level sales distribution, speculation, 
or investment (except for real estate investment with property held for 
rental when the disaster occurred);
    (b) A non-profit or charitable concern;

[[Page 334]]

    (c) A consumer or marketing cooperative;
    (d) Not a small business concern; or
    (e) Deriving more than one-third of gross annual revenue from legal 
gambling activities;
    (f) A loan packager which earns more than one-third of its gross 
annual revenue from packaging SBA loans;
    (g) Principally engaged in teaching, instructing, counseling, or 
indoctrinating religion or religious beliefs, whether in a religious or 
secular setting; or
    (h) Primarily engaged in political or lobbying activities.

[61 FR 3304, Jan. 31, 1996, as amended at 63 FR 46644, Sept. 2, 1998]



Sec. 123.302  What is the interest rate on an economic injury disaster loan?

    Your economic injury loan will have an interest rate of 4 percent 
per annum or less.



Sec. 123.303  How can my business spend my economic injury disaster loan?

    (a) You can only use the loan proceeds for working capital necessary 
to carry your concern until resumption of normal operations and for 
expenditures necessary to alleviate the specific economic injury, but 
not to exceed that which the business could have provided had the injury 
not occurred.
    (b) Loan proceeds may not be used to:
    (1) Refinance indebtedness which you incurred prior to the disaster 
event;
    (2) Make payments on loans owned by another federal agency 
(including SBA) or a Small Business Investment Company licensed under 
the Small Business Investment Act;
    (3) Pay, directly or indirectly, any obligations resulting from a 
federal, state or local tax penalty as a result of negligence or fraud, 
or any non-tax criminal fine, civil fine, or penalty for non-compliance 
with a law, regulation, or order of a federal, state, regional, or local 
agency or similar matter;
    (4) Repair physical damage; or
    (5) Pay dividends or other disbursements to owners, partners, 
officers or stockholders, except for reasonable remuneration directly 
related to their performance of services for the business.



                Subpart E--Pre-Disaster Mitigation Loans

    Source: 67 FR 62337, Oct. 7, 2002, unless otherwise noted.



Sec. 123.400  What is the Pre-Disaster Mitigation Loan Program?

    The Pre-Disaster Mitigation Loan Program allows SBA to make low 
interest, fixed rate loans to small businesses for the purpose of 
implementing mitigation measures to protect their commercial real 
property (building) or leasehold improvements or contents from disaster 
related damage. This program supports the Federal Emergency Management 
Agency (FEMA's) Pre-Disaster Mitigation Program. This pilot program is 
authorized for 5 fiscal years (October--September), from 2000 through 
2004, and has only been approved for limited funding. Therefore, 
approved loan requests are funded on a first come, first served basis up 
to the limit of program funds available (see Sec. 123.411).



Sec. 123.401  What types of mitigation measures can your business include in an application for a pre-disaster mitigation loan?

    To be included in a pre-disaster mitigation loan application, each 
of your business' mitigation measures must satisfy the following 
criteria:
    (a) The mitigation measure, as described in the application, must 
serve the purpose of protecting your commercial real property (building) 
or leasehold improvements or contents from damage that may be caused by 
future disasters; and
    (b) The mitigation measure must conform to the priorities and goals 
of the State or local government's mitigation plan for the community in 
which the business subject to the measure is located. To show that this 
factor is satisfied your business must submit to SBA, as a part of your 
complete application, a written statement from a State or local 
emergency management coordinator confirming this fact (see 
Sec. 123.408). Contact your regional FEMA office for a list of your 
State's emergency management coordinators or visit the FEMA Web site at 
http://www.fema.gov.

[[Page 335]]



Sec. 123.402  Can your business include its relocation as a mitigation measure in an application for a pre-disaster mitigation loan?

    Yes, you may request a pre-disaster mitigation loan for the 
relocation of your business if:
    (a) Your commercial real property (building) is located in a SFHA 
(Special Flood Hazard Area); and
    (b) Your business relocates outside the SFHA but remains in the same 
participating pre-disaster mitigation community. Contact your regional 
FEMA office for a listing of communities participating in the Pre-
Disaster Mitigation Program and SFHAs or visit the FEMA Web site at 
http://www.fema.gov.



Sec. 123.403  When is your business eligible to apply for a pre-disaster mitigation loan?

    To be eligible to apply for a pre-disaster mitigation loan your 
business must meet each of the following criteria:
    (a) Your business, which is the subject of the pre-disaster 
mitigation measure, must be located in a participating pre-disaster 
mitigation community. Each State, the District of Columbia, Puerto Rico, 
and the Virgin Islands have at least one participating pre-disaster 
mitigation community. Contact your regional FEMA office to find out the 
locations of participating pre-disaster mitigation communities or visit 
the FEMA Web site at http://www.fema.gov.;
    (b) If your business is proposing a mitigation measure that protects 
against a flood hazard, the location of your business which is the 
subject of the mitigation measure must be located in a Special Flood 
Hazard Area (SFHA). Contact your FEMA regional office to find out the 
locations of SFHAs or visit the FEMA Web site at http://www.fema.gov.;
    (c) As of the date your business submits a complete Pre-Disaster 
Mitigation Small Business Loan Application to SBA (see Sec. 123.408 for 
what SBA's considers to be a complete application), your business, along 
with its affiliates, must be a small business concern as defined in part 
121 of this chapter. The definition of small business concern 
encompasses sole proprietorships, partnerships, corporations, limited 
liability entities, and other legal entities recognized under State law;
    (d) Your business, which is the subject of the mitigation measure, 
must have operated as a business in its present location for at least 
one year before submitting its application;
    (e) Your business, along with its affiliates and owners, must not 
have the financial resources to fund the proposed mitigation measures 
without undue hardship. SBA makes this determination based on the 
information your business submits as a part of its application; and
    (f) If your business is owning and leasing out real property, the 
mitigation measures must be for protection of a building leased 
primarily for commercial rather than residential purposes (SBA will 
determine this based upon a comparative square footage basis).



Sec. 123.404  When is your business ineligible to apply for a pre-disaster mitigation loan?

    Your business is ineligible to apply for a pre-disaster mitigation 
loan if your business (including its affiliates) satisfies any of the 
following conditions:
    (a) Any of your business' principal owners is presently 
incarcerated, or on probation or parole following conviction of a 
serious criminal offense, or has been indicted for a felony or a crime 
of moral turpitude;
    (b) Your business' only interest in the business property is in the 
form of a security interest, mortgage, or deed of trust;
    (c) The building, which is the subject of the mitigation measure, 
was newly constructed or substantially improved on or after February 9, 
1989, and (without significant business justification) is located 
seaward of mean high tide or entirely in or over water;
    (d) Your business is an agricultural enterprise. Agricultural 
enterprise means a business primarily engaged (see Sec. 121.107 of this 
chapter) in the production of food and fiber, ranching and raising of 
livestock, aquaculture and all other farming and agriculture-related 
industries. Sometimes a business is engaged in both agricultural and

[[Page 336]]

non-agricultural business activities. If the primary business activity 
of your business is not an agricultural enterprise, it may apply for a 
pre-disaster mitigation loan, but loan proceeds may not be used, 
directly or indirectly, for the benefit of the agricultural activities;
    (e) Your business is engaged in any illegal activity;
    (f) Your business is a government owned entity (except for a 
business owned or controlled by a Native American tribe);
    (g) Your business presents live performances of a prurient sexual 
nature or derives directly or indirectly more than de minimis gross 
revenue through the sale of products or services, or the presentation of 
any depictions or displays, of a prurient sexual nature;
    (h) Your business engages in lending, multi-level sales 
distribution, speculation, or investment (except for real estate 
investment with property held for commercial rental);
    (i) Your business is a non-profit or charitable concern;
    (j) Your business is a consumer or marketing cooperative;
    (k) Your business derives more than one-third of its gross annual 
revenue from legal gambling activities;
    (l) Your business is a loan packager that earns more than one-third 
of its gross annual revenue from packaging SBA loans;
    (m) Your business principally engages in teaching, instructing, 
counseling, or indoctrinating religion or religious beliefs, whether in 
a religious or secular setting; or
    (n) Your business is primarily engaged in political or lobbying 
activities.



Sec. 123.405  How much can your business borrow with a pre-disaster mitigation loan?

    Your business, together with its affiliates, may borrow up to 
$50,000 each fiscal year. This loan amount may be used to fund only 
those projects that were a part of your business' approved loan request. 
SBA will consider mitigation measures costing more than $50,000 per year 
if your business can identify, as a part of its Pre-Disaster Mitigation 
Small Business Loan Application, sources that will fund the cost above 
$50,000.



Sec. 123.406  What is the interest rate on a pre-disaster mitigation loan?

    The interest rate on a pre-disaster mitigation loan will be fixed at 
4 percent per annum or less. The exact interest rate will be stated in 
the Federal Register notice announcing each filing period (see 
Sec. 123.407).



Sec. 123.407  When does your business apply for a pre-disaster mitigation loan and where does your business get an application?

    SBA will publish a notice in the Federal Register announcing the 
availability of pre-disaster mitigation loans. The notice will designate 
a 30-day application filing period with a specific opening date and 
filing deadline, as well as the locations for obtaining and filing loan 
applications. In addition to the Federal Register, SBA will coordinate 
with FEMA, and will issue press releases to the local media to inform 
potential loan applicants where to obtain loan applications. SBA will 
not accept any applications postmarked after the filing deadline; 
however, SBA may announce additional application periods each year 
depending on the availability of program funds.



Sec. 123.408  How does your business apply for a pre-disaster mitigation loan?

    To apply for a pre-disaster mitigation loan your business must 
submit a complete Pre-Disaster Mitigation Small Business Loan 
Application (application) within the announced filing period. Complete 
applications mailed to SBA and postmarked within the announced filing 
period will be accepted. The complete application serves as your 
business' loan request. A complete application supplies all of the 
filing requirements specified on the application form including a 
written statement from the local or State coordinator confirming:
    (a) The business that is the subject of the mitigation measure is 
located within the participating pre-disaster mitigation community; and
    (b) The mitigation measure is in accordance with the specific 
priorities and goals of the local participating

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pre-disaster mitigation community in which the business is located. (The 
local or State coordinator's written statement does not constitute an 
endorsement or technical approval of the project and is not a guarantee 
that the project will prevent damage in future disasters).



Sec. 123.409  Which pre-disaster mitigation loan requests will SBA consider for funding?

    (a) SBA will consider a loan request for funding if, after reviewing 
a complete application, SBA determines that it meets the following 
selection criteria:
    (1) Your business satisfies the requirements of Secs. 123.401, 
123.402 and 123.403;
    (2) None of the conditions specified in Sec. 123.404 apply to your 
business, its affiliates, or principal owners;
    (3) Your business has submitted a reasonable cost estimate for the 
proposed mitigation measure and has chosen to undertake a mitigation 
measure that is likely to accomplish the desired mitigation result 
(SBA's determination of this point is not a guaranty that the project 
will prevent damage in future disasters);
    (4) Your business is creditworthy; and
    (5) There is a reasonable assurance of loan repayment in accordance 
with the terms of a loan agreement.
    (b) SBA will notify you in writing if your loan request does not 
meet the criteria in this section.



Sec. 123.410  Which loan requests will SBA fund?

    SBA will date stamp each application (loan request) as it is 
received. SBA will fund loan requests which meet the selection criteria 
specified in Sec. 123.409 on a first come, first served basis using this 
date stamp, until it has allocated all available program funds. Multiple 
applications received on the same day will be ranked by a computer based 
random selection system to determine their funding order. SBA will 
notify you in writing of its funding decision.



Sec. 123.411  What if SBA determines that your business loan request meets the selection criteria of Sec. 123.409 but SBA is unable to fund it because SBA has 
          already allocated all program funds?

    If SBA determines that your business' loan request meets the 
selection criteria of Sec. 123.409 but we are unable to fund it because 
we have already allocated all available program funds, your request will 
be given priority status, based on the original acceptance date, once 
more program funds become available. However, if more than 6 months pass 
since SBA determined to fund your request, SBA may request updated or 
additional financial information.



Sec. 123.412  What happens if SBA declines your business' pre-disaster mitigation loan request?

    If SBA declines your business' loan request, SBA will notify your 
business in writing giving specific reasons for decline. If your 
business disagrees with SBA's decision, it may respond in accordance 
with Sec. 123.13. If SBA reverses its decision, SBA will use the date it 
received your business' last request for reconsideration or appeal as 
the basis for determining the order of funding.



      Subpart F--Military Reservist Economic Injury Disaster Loans

    Source: 66 FR 38530, July 25, 2001, unless otherwise noted.



Sec. 123.500  Definitions.

    The following terms have the same meaning wherever they are used in 
this subpart:
    (a) Essential employee is an individual (whether or not an owner of 
a small business) whose managerial or technical expertise is critical to 
the successful day-to-day operations of a small business.
    (b) Military reservist is a member of a reserve component of the 
Armed Forces ordered to active duty during a period of military 
conflict.
    (c) Period of military conflict means:
    (1) A period of war declared by the Congress,

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    (2) A period of national emergency declared by the Congress or by 
the President, or
    (3) A period of contingency operation, as defined in 10 U.S.C. 
101(a).
    (d) Principal owner is a person or entity which owns 20 percent or 
more of the small business.
    (e) Substantial economic injury means an economic harm to the small 
business such that it cannot:
    (1) Meet its obligations as they mature,
    (2) Pay its ordinary and necessary operating expenses, or
    (3) Market, produce or provide a product or service ordinarily 
marketed, produced or provided by the business. Loss of anticipated 
profits or a drop in sales is not considered substantial economic injury 
for this purpose.



Sec. 123.501  When is your business eligible to apply for a Military Reservist Economic Injury Disaster Loan?

    Your business is eligible to apply for a Military Reservist EIDL if:
    (a) It is a small business as defined in 13 CFR part 121 when the 
essential employee was called to active duty,
    (b) The owner of the business is a military reservist and an 
essential employee or the business employs a military reservist who is 
an essential employee,
    (c) The essential employee has been called-up to active military 
duty during a period of military conflict existing on or after March 24, 
1999,
    (d) The business has suffered or is likely to suffer substantial 
economic injury as a result of the absence of the essential employee, 
and
    (e) You and your affiliates and principal owners (20% or more 
ownership interest) have used all reasonably available funds, and you 
are unable to obtain credit elsewhere (see Sec. 123.104).

[66 FR 38530, July 25, 2001, as amended at 67 FR 64519, Oct. 21, 2002]



Sec. 123.502  When is your business ineligible to apply for a Military Reservist EIDL?

    Your business is ineligible for a Military Reservist EIDL if it, 
together with its affiliates, is subject to any of the following 
conditions:
    (a) Any of your business' principal owners has been convicted, 
during the past year, of a felony during and in connection with a riot 
or civil disorder;
    (b) You have assumed the risk associated with employing the military 
reservist, as determined by SBA (for example, hiring the ``essential 
employee'' after the employee has received call-up orders or been 
notified that they are imminent);
    (c) Any of your business' principal owners is presently 
incarcerated, or on probation or parole following conviction of a 
serious criminal offense;
    (d) Your business is an agricultural enterprise. Agricultural 
enterprise means a business primarily engaged in the production of food 
and fiber, ranching and raising of livestock, aquaculture and all other 
farming and agriculture-related industries. (See 13 CFR 121.107, ``How 
does SBA determine a concern's primary industry?'') Sometimes a business 
is engaged in both agricultural and non-agricultural business 
activities. If the primary business activity of the business is not an 
agricultural enterprise, it may apply for a Military Reservist EIDL, but 
loan proceeds may not be used, directly or indirectly, for the benefit 
of the agricultural enterprises;
    (e) Your business is engaged in any illegal activity;
    (f) Your business is a government owned entity (except for a 
business owned or controlled by a Native American tribe);
    (g) Your business presents live performances of a prurient sexual 
nature or derives directly or indirectly more than an insignificant 
gross revenue through the sale of products or services, or through the 
presentation of any depictions or displays, of a prurient sexual nature;
    (h) Your business is engaged in lending, multi-level sales 
distribution, speculation, or investment (except for real estate 
investment with property held for commercial rental);
    (i) Your business is a non-profit or charitable concern;
    (j) Your business is a consumer or marketing cooperative;
    (k) Your business is not a small business concern;

[[Page 339]]

    (l) Your business derives more than one-third of its gross annual 
revenue from legal gambling activities;
    (m) Your business is a loan packager which earns more than one-third 
of its gross annual revenue from packaging SBA loans;
    (n) Your business' principal activity is teaching, instructing, 
counseling, or indoctrinating religion or religious beliefs, whether in 
a religious or secular setting; or
    (o) Your business' principal activity is political or lobbying 
activities.



Sec. 123.503  When can you apply for a Military Reservist EIDL?

    Your small business can apply for a Military Reservist EIDL any time 
beginning on the date your essential employee receives official call-up 
orders and ending 90 days after the date the essential employee is 
discharged or released from active duty.



Sec. 123.504  How do you apply for a Military Reservist EIDL?

    To apply for a Military Reservist EIDL you must complete a SBA 
Military Reservist EIDL application package (SBA Form 5R and supporting 
documentation can be obtained through SBA's Disaster Area Office) 
including:
    (a) A copy of the essential employee's official call-up orders for 
active duty showing the date of call up, and if known, the date of 
release from active duty;
    (b) A statement from the business owner that the reservist is 
essential to the successful day-to-day operations of the business 
(detailing the employee's duties and responsibilities and explaining why 
these duties and responsibilities can't be completed in the essential 
employee's absence);
    (c) A certification by the essential employee supporting that he or 
she concurs with the business owner's statement as described in 
paragraph (b) of this section;
    (d) A written explanation and financial estimate of how the call-up 
of the essential employee has or will result in economic injury to your 
business;
    (e) The steps your business is taking to alleviate the economic 
injury; and
    (f) The business owners' certification that the essential employee 
will be offered the same or a similar job upon the employee's return 
from active duty.



Sec. 123.505  What if you are both an essential employee and the owner of the small business and you started active duty before applying for a Military 
          Reservist EIDL?

    If you are both an essential employee and the owner of the small 
business and you started active duty before applying for an Military 
Reservist EIDL, a person who has a power of attorney with the authority 
to borrow and make other related commitments on your behalf, may 
complete and submit the EIDL loan application package for you.



Sec. 123.506  How much can you borrow under the Military Reservist EIDL Program?

    You can borrow an amount equal to the substantial economic injury 
you have suffered or are likely to suffer until normal operations resume 
as a result of the absence of one or more essential employees called to 
active duty, up to a maximum of $1.5 million



Sec. 123.507  Under what circumstances will SBA consider waiving the $1.5 million loan limit?

    SBA will consider waiving the $1.5 million dollar limit if you can 
certify to the following conditions and SBA approves of such 
certification based on the information supplied in your application:
    (a) Your small business is a major source of employment. A major 
source of employment:
    (1) Employs 10 percent or more of the work force within the 
commuting area of the geographically identifiable community (no larger 
than a county) in which the business employing the essential employee is 
located, provided that the commuting area does not extend more than 50 
miles from such community; or
    (2) Employs 5 percent of the work force in an industry within such 
commuting area and, if the small business is a non-manufacturing small 
business, employs no less than 50 employees in the same commuting area, 
or if the small business is a manufacturing small business, employs no 
less than

[[Page 340]]

150 employees in the commuting area; or
    (3) Employs no less than 250 employees within such commuting area;
    (b) Your small business is in imminent danger of going out of 
business as a result of one or more essential employees being called up 
to active duty during a period of military conflict, and a loan in 
excess of $1.5 million is necessary to reopen or keep open the small 
business; and
    (c) Your small business has used all reasonably available funds from 
the small business, its affiliates, its principal owners and all 
available credit elsewhere to alleviate the small business' economic 
injury. Credit elsewhere means financing from non-Federal sources on 
reasonable terms given your available cash flow and disposable assets 
which SBA believes your small business, its affiliates and principal 
owners could obtain.



Sec. 123.508  How can you use Military Reservist EIDL funds?

    Your small business can use Military Reservist EIDL to:
    (a) Meet obligations as they mature,
    (b) Pay ordinary and necessary operating expenses, or
    (c) Enable the business to market, produce or provide products or 
services ordinarily marketed, produced, or provided by the business, 
which cannot be done as a result of the essential employee's military 
call-up.



Sec. 123.509  What can't you use Military Reservist EIDL funds for?

    Your small business can not use Military Reservist EIDL funds for 
purposes described in Sec. 123.303(b) (See Sec. 123.303, `` How can my 
business spend my economic injury disaster loan?'').



Sec. 123.510  What if you don't use your Military Reservist EIDL funds as authorized?

    If your small business does not use Military Reservist EIDL funds as 
authorized by Sec. 123.508, then Sec. 123.9 applies (See Sec. 123.9, 
``What happens if I don't use loan proceeds for the intended 
purpose?'').



Sec. 123.511  How will SBA disburse Military Reservist EIDL funds?

    SBA will disburse your funds in quarterly installments (unless 
otherwise specified in your loan authorization agreement) based on a 
continued need as demonstrated by comparative financial information. On 
or about 30 days before your scheduled fund disbursement, SBA will 
request ordinary and usual financial statements (including balance 
sheets and profit and loss statements). Based on this information, SBA 
will assess your continued need for disbursements under this program. 
Upon making such assessment, SBA will notify you of the status of future 
disbursements.



Sec. 123.512  What is the interest rate on a Military Reservist EIDL?

    The interest rate on a Military Reservist EIDL will be 4 percent per 
annum or less. SBA will publish the interest rate quarterly in the 
Federal Register.



 Subpart G--Economic Injury Disaster Loans as a Result of the September 
                       11, 2001 Terrorist Attacks

    Source: 66 FR 53331, Oct. 22, 2001, unless otherwise noted.



Sec. 123.600  Are economic injury disaster loans under this subpart limited to the geographic areas contiguous to the declared disaster areas?

    No. Notwithstanding Sec. 123.4, SBA may make economic injury 
disaster loans outside the declared disaster areas and the contiguous 
geographic areas to small business concerns that have suffered 
substantial economic injury as a direct result of the destruction of the 
World Trade Center or the damage to the Pentagon on September 11, 2001, 
or as a direct result of any related federal action taken between 
September 11, 2001 and October 22, 2001.



Sec. 123.601  Is my business eligible to apply for an economic injury disaster loan under this subpart?

    (a) If your business has suffered substantial economic injury as a 
direct result of the destruction of the World Trade Center or the damage 
to the

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Pentagon on September 11, 2001, or as a direct result of any related 
federal action taken between September 11, 2001 and October 22, 2001, 
you are eligible to apply for an economic injury disaster loan under 
this subpart.
    (1) Substantial economic injury is such that a business concern is 
unable to meet its obligations as they mature or to pay its ordinary and 
necessary operating expenses.
    (2) Loss of anticipated profits or a drop in sales is not considered 
substantial economic injury for this purpose.
    (b) Economic injury disaster loans are available under this subpart 
only if you were a small business (as defined in part 121 of this 
chapter) on the date SBA accepts your application for processing (and 
for applications submitted before March 15, 2002, whether denied or 
pending, such applications shall be deemed resubmitted on March 15, 
2002, you and your affiliates and principal owners (20% or more 
ownership interest) have used all reasonable available funds, and you 
are unable to obtain credit elsewhere (see Sec. 123.104).
    (c) Eligible businesses do not include agricultural enterprises, but 
do include small agricultural cooperatives and producer cooperatives.

[66 FR 53331, Oct. 22, 2001, as amended at 67 FR 11880, Mar. 15, 2002]



Sec. 123.602  When would my business not be eligible to apply for an economic injury disaster loan under this subpart?

    Your business is not eligible for an economic injury disaster loan 
under this subpart if you (or any principal of the business) fit into 
any of the categories in Secs. 123.101 and 123.201, or if your business 
is:
    (a) Engaged in lending, multi-level sales distribution, speculation, 
or investment (except for real estate investment with property held for 
rental on September 11, 2001);
    (b) A non-profit or charitable concern;
    (c) A consumer or marketing cooperative;
    (d) Not a small business concern; or
    (e) Deriving more than one-third of gross annual revenue from legal 
gambling activities;
    (f) A loan packager which earns more than one-third of its gross 
annual revenue from packaging SBA loans;
    (g) Principally engaged in teaching, instructing, counseling, or 
indoctrinating religion or religious beliefs, whether in a religious or 
secular setting; or
    (h) Primarily engaged in political or lobbying activities.



Sec. 123.603  What is the interest rate on an economic injury disaster loan under this subpart?

    Your economic injury disaster loan under this subpart will have an 
interest rate of 4 percent per annum or less.



Sec. 123.604  How can my business spend my economic injury disaster loan under this subpart?

    (a) You can only use the loan proceeds for working capital necessary 
to carry your concern until resumption of normal operations and for 
expenditures necessary to alleviate the specific economic injury, but 
not to exceed that which the business could have provided had the injury 
not occurred.
    (b) Loan proceeds may not be used to:
    (1) Refinance indebtedness which you incurred prior to September 11, 
2001;
    (2) Make payments on loans owned by another federal agency 
(including SBA) or a Small Business Investment Company licensed under 
the Small Business Investment Act;
    (3) Pay, directly or indirectly, any obligations resulting from a 
federal, state or local tax penalty as a result of negligence or fraud, 
or any non-tax criminal fine, civil fine, or penalty for non-compliance 
with a law, regulation, or order of a federal, state, regional, or local 
agency or similar matter;
    (4) Repair physical damage; or
    (5) Pay dividends or other disbursements to owners, partners, 
officers, or stockholders, except for reasonable remuneration directly 
related to their performance of services for the business.



Sec. 123.605  How long do I have to apply for a loan under this subpart?

    You have until January 22, 2002 to apply for a loan under this 
subpart. Your application must be postmarked no later than this date. 
SBA has the discretion, for good cause, to extend

[[Page 342]]

the application deadline by publication of a notice in the Federal 
Register.



Sec. 123.606  May I request an increase in the amount of an economic injury disaster loan under this subpart?

    Yes. Notwithstanding Sec. 123.20, you may request an increase in the 
amount of an economic injury disaster loan under this subpart not later 
than one year after the date SBA approves your initial request.



PART 124--8(A) BUSINESS DEVELOPMENT/SMALL DISADVANTAGED BUSINESS STATUS DETERMINATIONS--Table of Contents




                  Subpart A--8(a) Business Development

                   Provisions of General Applicability

Sec.
124.1  What is the purpose of the 8(a) Business Development program?
124.2  What length of time may a business participate in the 8(a) BD 
          program?
124.3  What definitions are important in the 8(a) BD program?

    Eligibility Requirements for Participation in the 8(a) Business 
                           Development Program

124.101  What are the basic requirements a concern must meet for the 
          8(a) BD program?
124.102  What size business is eligible to participate in the 8(a) BD 
          program?
124.103  Who is socially disadvantaged?
124.104  Who is economically disadvantaged?
124.105  What does it mean to be unconditionally owned by one or more 
          disadvantaged individuals?
124.106  When do disadvantaged individuals control an applicant or 
          Participant?
124.107  What is potential for success?
124.108  What other eligibility requirements apply for individuals or 
          businesses?
124.109  Do Indian tribes and Alaska Native Corporations have any 
          special rules for applying to the 8(a) BD program?
124.110  Do Native Hawaiian Organizations have any special rules for 
          applying to the 8(a) BD program?
124.111  Do Community Development Corporations (CDCs) have any special 
          rules for applying to the 8(a) BD program?
124.112  What criteria must a business meet to remain eligible to 
          participate in the 8(a) BD program?

                     Applying to the 8(a) BD Program

124.201  May any business submit an application?
124.202  Where must an application be filed?
124.203  What must a concern submit to apply to the 8(a) BD program?
124.204  How does SBA process applications for 8(a) BD program 
          admission?
124.205  Can an applicant ask SBA to reconsider SBA's initial decision 
          to decline its application?
124.206  What appeal rights are available to an applicant that has been 
          denied admission?
124.207  Can an applicant reapply for admission to the 8(a) BD program?

                       Exiting the 8(a) BD Program

124.301  What are the ways a business may leave the 8(a) BD program?
124.302  What is early graduation?
124.303  What is termination?
124.304  What are the procedures for early graduation and termination?
124.305  What is suspension and how is a Participant suspended from the 
          8(a) BD program?

                          Business Development

124.401  Which SBA field office services a Participant?
124.402  How does a Participant develop a business plan?
124.403  How is a business plan updated and modified?
124.404  What business development assistance is available to 
          Participants during the two stages of participation in the 
          8(a) BD program?
124.405  How does a Participant obtain Federal Government surplus 
          property?

                         Contractual Assistance

124.501  What general provisions apply to the award of 8(a) contracts?
124.502  How does an agency offer a procurement to SBA for award through 
          the 8(a) BD program?
124.503  How does SBA accept a procurement for award through the 8(a) BD 
          program?
124.504  What circumstances limit SBA's ability to accept a procurement 
          for award as an 8(a) contract?
124.505  When will SBA appeal the terms or conditions of a particular 
          8(a) contract or a procuring activity decision not to reserve 
          a requirement for the 8(a) BD program?
124.506  At what dollar threshold must an 8(a) procurement be competed 
          among eligible Participants?
124.507  What procedures apply to competitive 8(a) procurements?
124.508  How is an 8(a) contract executed?
124.509  What are non-8(a) business activity targets?
124.510  What percentage of work must a Participant perform on an 8(a) 
          contract?

[[Page 343]]

124.511  How is fair market price determined for an 8(a) contract?
124.512  Delegation of contract administration to procuring agencies.
124.513  Under what circumstances can a joint venture be awarded an 8(a) 
          contract?
124.514  Exercise of 8(a) options and modifications.
124.515  Can a Participant change its ownership or control and continue 
          to perform an 8(a) contract, and can it transfer performance 
          to another firm?
124.516  Who decides contract disputes arising between a Participant and 
          a procuring activity after the award of an 8(a) contract?
124.517  Can the eligibility or size of a Participant for award of an 
          8(a) contract be questioned?
124.518  How can an 8(a) contract be terminated before performance is 
          completed?
124.519  Are there any dollar limits on the amount of 8(a) contracts 
          that a Participant may receive?
124.520  Mentor/Protege program.

                  Miscellaneous Reporting Requirements

124.601  What reports does SBA require concerning parties who assist 
          Participants in obtaining federal contracts?
124.602  What kind of annual financial statement must a Participant 
          submit to SBA?
124.603  What reports regarding the continued business operations of 
          former Participants does SBA require?

               Management and Technical Assistance Program

124.701  What is the purpose of the 7(j) management and technical 
          assistance program?
124.702  What types of assistance are available through the 7(j) 
          program?
124.703  Who is eligible to receive 7(j) assistance?
124.704  What additional management and technical assistance is reserved 
          exclusively for concerns eligible to receive 8(a) contracts?

Subpart B--Eligibility, Certification, and Protests Relating to Federal 
                  Small Disadvantaged Business Programs

124.1001  General applicability.
124.1002  What is a Small Disadvantaged Business (SDB)?
124.1003  What is a Private Certifier?
124.1004  How does an organization or business concern become a Private 
          Certifier?
124.1005  Can a fee be charged to a firm to process the firm's 
          application for SDB certification?
124.1006  Is there a list of Private Certifiers?
124.1007  How long may an organization or business concern be a Private 
          Certifier?
124.1008  How does a firm become certified as an SDB?
124.1009  How does a firm appeal a decision of a Private Certifier?
124.1010  Can a firm represent itself to be an SDB if it has not yet 
          been certified as an SDB?
124.1011  What is a misrepresentation of SDB status?
124.1012  Can a firm reapply for SDB certification?
124.1013  Is there a list of certified SDBs?
124.1014  How long does an SDB certification last?
124.1015  What is the effect of receiving an SDB certification?
124.1016  Can SBA re-evaluate the SDB status of a firm after SBA 
          certifies it to be SDB?
124.1017  Who may protest the disadvantaged status of a concern?
124.1018  When will SBA not decide an SDB protest?
124.1019  Who decides disadvantaged status protests?
124.1020  What procedures apply to disadvantaged status protests?
124.1021  What format, degree of specificity, and basis does SBA require 
          to consider an SDB protest?
124.1022  What will SBA do when it receives an SDB protest?
124.1023  How does SBA make disadvantaged status determinations in 
          considering an SDB protest?
124.1024  Appeals of disadvantaged status determinations.

    Authority: 15 U.S.C. 634(b)(6), 636(j), 637(a), 637(d) and Pub. L. 
99-661, Pub. L. 100-656, sec. 1207, Pub. L. 101-37, Pub. L. 101-574, and 
42 U.S.C. 9815.



                  Subpart A--8(a) Business Development

    Source: 63 FR 35739, June 30, 1998, unless otherwise noted.

                   Provisions of General Applicability



Sec. 124.1  What is the purpose of the 8(a) Business Development program?

    Sections 8(a) and 7(j) of the Small Business Act authorize a 
Minority Small Business and Capital Ownership Development program 
(designated the 8(a) Business Development or ``8(a) BD'' program for 
purposes of the regulations in this part). The purpose of the 8(a) BD 
program is to assist eligible small disadvantaged business concerns

[[Page 344]]

compete in the American economy through business development.



Sec. 124.2  What length of time may a business participate in the 8(a) BD program?

    A Participant receives a program term of nine years from the date of 
SBA's approval letter certifying the concern's admission to the program. 
The Participant must maintain its program eligibility during its tenure 
in the program and must inform SBA of any changes that would adversely 
affect its program eligibility. A firm that completes its nine year term 
of participation in the 8(a) BD program is deemed to graduate from the 
program. The nine year program term may be shortened only by 
termination, early graduation or voluntary graduation as provided for in 
this subpart.



Sec. 124.3  What definitions are important in the 8(a) BD program?

    Alaska Native means a citizen of the United States who is a person 
of one-fourth degree or more Alaskan Indian (including Tsimshian Indians 
not enrolled in the Metlaktla Indian Community), Eskimo, or Aleut blood, 
or a combination of those bloodlines. The term includes, in the absence 
of proof of a minimum blood quantum, any citizen whom a Native village 
or Native group regards as an Alaska Native if their father or mother is 
regarded as an Alaska Native.
    Alaska Native Corporation or ANC means any Regional Corporation, 
Village Corporation, Urban Corporation, or Group Corporation organized 
under the laws of the State of Alaska in accordance with the Alaska 
Native Claims Settlement Act, as amended (43 U.S.C. 1601, et seq.)
    Bona fide place of business, for purposes of 8(a) construction 
procurements, means a location where a Participant regularly maintains 
an office which employs at least one full-time individual within the 
appropriate geographical boundary. The term does not include 
construction trailers or other temporary construction sites.
    Community Development Corporation or CDC means a nonprofit 
organization responsible to residents of the area it serves which has 
received financial assistance under 42 U.S.C. 9805, et seq.
    Concern is defined in part 121 of this title.
    Days means calendar days unless otherwise specified.
    Day-to-day operations of a firm means the marketing, production, 
sales, and administrative functions of the firm.
    Immediate family member means father, mother, husband, wife, son, 
daughter, brother, sister, grandfather, grandmother, grandson, 
granddaughter, father-in-law, and mother-in-law.
    Indian tribe means any Indian tribe, band, nation, or other 
organized group or community of Indians, including any ANC, which is 
recognized as eligible for the special programs and services provided by 
the United States to Indians because of their status as Indians, or is 
recognized as such by the State in which the tribe, band, nation, group, 
or community resides. See definition of ``tribally-owned concern.''
    Native Hawaiian means any individual whose ancestors were natives, 
prior to 1778, of the area which now comprises the State of Hawaii.
    Native Hawaiian Organization means any community service 
organization serving Native Hawaiians in the State of Hawaii which is a 
not-for-profit organization chartered by the State of Hawaii, is 
controlled by Native Hawaiians, and whose business activities will 
principally benefit such Native Hawaiians.
    Negative control is defined in part 121 of this title.
    Non-disadvantaged individual means any individual who does not claim 
disadvantaged status, does not qualify as disadvantaged, or upon whose 
disadvantaged status an applicant or Participant does not rely in 
qualifying for 8(a) BD program participation.
    Participant means a small business concern admitted to participate 
in the 8(a) BD program.
    Primary industry classification means the four digit Standard 
Industrial Classification (SIC) code designation which best describes 
the primary business activity of the 8(a) BD applicant or Participant. 
The SIC code designations are described in the Standard Industrial

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Classification Manual published by the U.S. Office of Management and 
Budget.
    Principal place of business means the business location where the 
individuals who manage the concern's day-to-day operations spend most 
working hours and where top management's business records are kept. If 
the offices from which management is directed and where the business 
records are kept are in different locations, SBA will determine the 
principal place of business for program purposes.
    Program year means a 12-month period of an 8(a) BD Participant's 
program participation. The first program year begins on the date that 
the concern is certified to participate in the 8(a) BD program and ends 
one year later. Each subsequent program year begins on the Participant's 
anniversary of program certification and runs for one 12-month period.
    Same or similar line of business means business activities within 
the same two-digit ``Major Group'' of the SIC Manual as the primary 
industry classification of the applicant or Participant. The phrase 
``same business area'' is synonymous with this definition.
    Self-marketing of a requirement occurs when a Participant identifies 
a requirement that has not been committed to the 8(a) BD program and, 
through its marketing efforts, causes the procuring activity to offer 
that specific requirement to the 8(a) BD program on the Participant's 
behalf. A firm which identifies and markets a requirement which is 
subsequently offered to the 8(a) BD program as an open requirement or on 
behalf of another Participant has not ``self-marketed'' the requirement 
within the meaning of this part.
    Tribally-owned concern means any concern at least 51 percent owned 
by an Indian tribe as defined in this section.
    Unconditional ownership means ownership that is not subject to 
conditions precedent, conditions subsequent, executory agreements, 
voting trusts, restrictions on or assignments of voting rights, or other 
arrangements causing or potentially causing ownership benefits to go to 
another (other than after death or incapacity). The pledge or 
encumbrance of stock or other ownership interest as collateral, 
including seller-financed transactions, does not affect the 
unconditional nature of ownership if the terms follow normal commercial 
practices and the owner retains control absent violations of the terms.

    Eligibility Requirements for Participation in the 8(a) Business 
                           Development Program



Sec. 124.101  What are the basic requirements a concern must meet for the 8(a) BD program?

    Generally, a concern meets the basic requirements for admission to 
the 8(a) BD program if it is a small business which is unconditionally 
owned and controlled by one or more socially and economically 
disadvantaged individuals who are of good character and citizens of the 
United States, and which demonstrates potential for success.



Sec. 124.102  What size business is eligible to participate in the 8(a) BD program?

    (a) An applicant concern must qualify as a small business concern as 
defined in part 121 of this title. The applicable size standard is the 
one for its primary industry classification. The rules for calculating 
the size of a tribally-owned concern, a concern owned by an Alaska 
Native Corporation, a concern owned by a Native Hawaiian Organization, 
or a concern owned by a Community Development Corporation are 
additionally affected by Secs. 124.109, 124.110, and 124.111, 
respectively.
    (b) If 8(a) BD program officials determine that a concern may not 
qualify as small, they may deny an application for 8(a) BD program 
admission or may request a formal size determination under part 121 of 
this title.
    (c) A concern whose application is denied due to size by 8(a) BD 
program officials may request a formal size determination under part 121 
of this title. A favorable determination will enable the firm to 
immediately submit a new 8(a) BD application without waiting one year.



Sec. 124.103  Who is socially disadvantaged?

    (a) General. Socially disadvantaged individuals are those who have 
been subjected to racial or ethnic prejudice

[[Page 346]]

or cultural bias within American society because of their identities as 
members of groups and without regard to their individual qualities. The 
social disadvantage must stem from circumstances beyond their control.
    (b) Members of designated groups. (1) There is a rebuttable 
presumption that the following individuals are socially disadvantaged: 
Black Americans; Hispanic Americans; Native Americans (American Indians, 
Eskimos, Aleuts, or Native Hawaiians); Asian Pacific Americans (persons 
with origins from Burma, Thailand, Malaysia, Indonesia, Singapore, 
Brunei, Japan, China (including Hong Kong), Taiwan, Laos, Cambodia 
(Kampuchea), Vietnam, Korea, The Philippines, U.S. Trust Territory of 
the Pacific Islands (Republic of Palau), Republic of the Marshall 
Islands, Federated States of Micronesia, the Commonwealth of the 
Northern Mariana Islands, Guam, Samoa, Macao, Fiji, Tonga, Kiribati, 
Tuvalu, or Nauru); Subcontinent Asian Americans (persons with origins 
from India, Pakistan, Bangladesh, Sri Lanka, Bhutan, the Maldives 
Islands or Nepal); and members of other groups designated from time to 
time by SBA according to procedures set forth at paragraph (d) of this 
section. Being born in a country does not, by itself, suffice to make 
the birth country an individual's country of origin for purposes of 
being included within a designated group.
    (2) An individual must demonstrate that he or she has held himself 
or herself out, and is currently identified by others, as a member of a 
designated group if SBA requires it.
    (3) The presumption of social disadvantage may be overcome with 
credible evidence to the contrary. Individuals possessing or knowing of 
such evidence should submit the information in writing to the Associate 
Administrator for 8(a) BD (AA/8(a)BD) for consideration.
    (c) Individuals not members of designated groups. (1) An individual 
who is not a member of one of the groups presumed to be socially 
disadvantaged in paragraph (b)(1) of this section must establish 
individual social disadvantage by a preponderance of the evidence.
    (2) Evidence of individual social disadvantage must include the 
following elements:
    (i) At least one objective distinguishing feature that has 
contributed to social disadvantage, such as race, ethnic origin, gender, 
physical handicap, long-term residence in an environment isolated from 
the mainstream of American society, or other similar causes not common 
to individuals who are not socially disadvantaged;
    (ii) Personal experiences of substantial and chronic social 
disadvantage in American society, not in other countries; and
    (iii) Negative impact on entry into or advancement in the business 
world because of the disadvantage. SBA will consider any relevant 
evidence in assessing this element. In every case, however, SBA will 
consider education, employment and business history, where applicable, 
to see if the totality of circumstances shows disadvantage in entering 
into or advancing in the business world.
    (A) Education. SBA considers such factors as denial of equal access 
to institutions of higher education, exclusion from social and 
professional association with students or teachers, denial of 
educational honors rightfully earned, and social patterns or pressures 
which discouraged the individual from pursuing a professional or 
business education.
    (B) Employment. SBA considers such factors as unequal treatment in 
hiring, promotions and other aspects of professional advancement, pay 
and fringe benefits, and other terms and conditions of employment; 
retaliatory or discriminatory behavior by an employer; and social 
patterns or pressures which have channelled the individual into 
nonprofessional or non-business fields.
    (C) Business history. SBA considers such factors as unequal access 
to credit or capital, acquisition of credit or capital under 
commercially unfavorable circumstances, unequal treatment in 
opportunities for government contracts or other work, unequal treatment 
by potential customers and business associates, and exclusion from 
business or professional organizations.

[[Page 347]]

    (d) Socially disadvantaged group inclusion. (1) General. 
Representatives of an identifiable group whose members believe that the 
group has suffered chronic racial or ethnic prejudice or cultural bias 
may petition SBA to be included as a presumptively socially 
disadvantaged group under paragraph (b)(1) of this section. Upon 
presentation of substantial evidence that members of the group have been 
subjected to racial or ethnic prejudice or cultural bias because of 
their identity as group members and without regard to their individual 
qualities, SBA will publish a notice in the Federal Register that it has 
received and is considering such a request, and that it will consider 
public comments.
    (2) Standards to be applied. In determining whether a group has made 
an adequate showing that it has suffered chronic racial or ethnic 
prejudice or cultural bias for the purposes of this section, SBA must 
determine that:
    (i) The group has suffered prejudice, bias, or discriminatory 
practices;
    (ii) Those conditions have resulted in economic deprivation for the 
group of the type which Congress has found exists for the groups named 
in the Small Business Act; and
    (iii) Those conditions have produced impediments in the business 
world for members of the group over which they have no control and which 
are not common to small business owners generally.
    (3) Procedure. The notice published under paragraph (d)(1) of this 
section will authorize a specified period for the receipt of public 
comments supporting or opposing the petition for socially disadvantaged 
group status. If appropriate, SBA may hold hearings. SBA may also 
conduct its own research relative to the group's petition.
    (4) Decision. In making a final decision that a group should be 
considered presumptively disadvantaged, SBA must find that a 
preponderance of the evidence demonstrates that the group has met the 
standards set forth in paragraph (d)(2) of this section based on SBA's 
consideration of the group petition, the comments from the public, and 
any independent research it performs. SBA will advise the petitioners of 
its final decision in writing, and publish its conclusion as a notice in 
the Federal Register. If appropriate, SBA will amend paragraph (b)(1) of 
this section to include a new group.



Sec. 124.104  Who is economically disadvantaged?

    (a) General. Economically disadvantaged individuals are socially 
disadvantaged individuals whose ability to compete in the free 
enterprise system has been impaired due to diminished capital and credit 
opportunities as compared to others in the same or similar line of 
business who are not socially disadvantaged.
    (b) Submission of narrative and financial information. (1) Each 
individual claiming economic disadvantage must describe it in a 
narrative statement, and must submit personal financial information.
    (2) When married, an individual claiming economic disadvantage also 
must submit separate financial information for his or her spouse, unless 
the individual and the spouse are legally separated.
    (c) Factors to be considered. In considering diminished capital and 
credit opportunities, SBA will examine factors relating to the personal 
financial condition of any individual claiming disadvantaged status, 
including personal income for the past two years (including bonuses and 
the value of company stock given in lieu of cash), personal net worth, 
and the fair market value of all assets, whether encumbered or not. SBA 
will also consider the financial condition of the applicant compared to 
the financial profiles of small businesses in the same primary industry 
classification, or, if not available, in similar lines of business, 
which are not owned and controlled by socially and economically 
disadvantaged individuals in evaluating the individual's access to 
credit and capital. The financial profiles that SBA compares include 
total assets, net sales, pre tax profit, sales/working capital ratio, 
and net worth.
    (1) Transfers within two years. (i) Except as set forth in paragraph 
(c)(1)(ii) of this section, SBA will attribute to an individual claiming 
disadvantaged status any assets which that individual has transferred to 
an immediate family

[[Page 348]]

member, or to a trust a beneficiary of which is an immediate family 
member, for less than fair market value, within two years prior to a 
concern's application for participation in the 8(a) BD program or within 
two years of a Participant's annual program review, unless the 
individual claiming disadvantaged status can demonstrate that the 
transfer is to or on behalf of an immediate family member for that 
individual's education, medical expenses, or some other form of 
essential support.
    (ii) SBA will not attribute to an individual claiming disadvantaged 
status any assets transferred by that individual to an immediate family 
member that are consistent with the customary recognition of special 
occasions, such as birthdays, graduations, anniversaries, and 
retirements.
    (iii) In determining an individual's access to capital and credit, 
SBA may consider any assets that the individual transferred within such 
two-year period described by paragraph (c)(1)(i) of this section that 
SBA does not consider in evaluating the individual's assets and net 
worth (e.g., transfers to charities).
    (2) Net worth. For initial 8(a) BD eligibility, the net worth of an 
individual claiming disadvantage must be less than $250,000. For 
continued 8(a) BD eligibility after admission to the program, net worth 
must be less than $750,000. In determining such net worth, SBA will 
exclude the ownership interest in the applicant or Participant and the 
equity in the primary personal residence (except any portion of such 
equity which is attributable to excessive withdrawals from the applicant 
or Participant). Exclusions for net worth purposes are not exclusions 
for asset valuation or access to capital and credit purposes.
    (i) A contingent liability does not reduce an individual's net 
worth.
    (ii) The personal net worth of an individual claiming to be an 
Alaska Native will include assets and income from sources other than an 
Alaska Native Corporation and exclude any of the following which the 
individual receives from any Alaska Native Corporation: cash (including 
cash dividends on stock received from an ANC) to the extent that it does 
not, in the aggregate, exceed $2,000 per individual per annum; stock 
(including stock issued or distributed by an ANC as a dividend or 
distribution on stock); a partnership interest; land or an interest in 
land (including land or an interest in land received from an ANC as a 
dividend or distribution on stock); and an interest in a settlement 
trust.



Sec. 124.105  What does it mean to be unconditionally owned by one or more disadvantaged individuals?

    An applicant or Participant must be at least 51 percent 
unconditionally and directly owned by one or more socially and 
economically disadvantaged individuals who are citizens of the United 
States, except for concerns owned by Indian tribes, Alaska Native 
Corporations, Native Hawaiian Organizations, or Community Development 
Corporations (CDCs). See Sec. 124.3 for definition of unconditional 
ownership; and Secs. 124.109, 124.110, and 124.111, respectively, for 
special ownership requirements for concerns owned by Indian tribes, 
ANCs, Native Hawaiian Organizations, and CDCs.
    (a) Ownership must be direct. Ownership by one or more disadvantaged 
individuals must be direct ownership. An applicant or Participant owned 
principally by another business entity or by a trust (including employee 
stock ownership trusts) that is in turn owned and controlled by one or 
more disadvantaged individuals does not meet this requirement. However, 
ownership by a trust, such as a living trust, may be treated as the 
functional equivalent of ownership by a disadvantaged individual where 
the trust is revocable, and the disadvantaged individual is the grantor, 
a trustee, and the sole current beneficiary of the trust.
    (b) Ownership of a partnership. In the case of a concern which is a 
partnership, at least 51 percent of every class of partnership interest 
must be unconditionally owned by one or more individuals determined by 
SBA to be socially and economically disadvantaged. The ownership must be 
reflected in the concern's partnership agreement.
    (c) Ownership of a limited liability company. In the case of a 
concern which is a limited liability company, at least 51

[[Page 349]]

percent of each class of member interest must be unconditionally owned 
by one or more individuals determined by SBA to be socially and 
economically disadvantaged.
    (d) Ownership of a corporation. In the case of a concern which is a 
corporation, at least 51 percent of each class of voting stock 
outstanding and 51 percent of the aggregate of all stock outstanding 
must be unconditionally owned by one or more individuals determined by 
SBA to be socially and economically disadvantaged.
    (e) Stock options' effect on ownership. In determining unconditional 
ownership, SBA will disregard any unexercised stock options or similar 
agreements held by disadvantaged individuals. However, any unexercised 
stock options or similar agreements (including rights to convert non-
voting stock or debentures into voting stock) held by non-disadvantaged 
individuals will be treated as exercised, except for any ownership 
interests which are held by investment companies licensed under the 
Small Business Investment Act of 1958.
    (f) Dividends and distributions. One or more disadvantaged 
individuals must be entitled to receive:
    (1) At least 51 percent of the annual distribution of dividends paid 
on the stock of a corporate applicant concern;
    (2) 100 percent of the value of each share of stock owned by them in 
the event that the stock is sold; and
    (3) At least 51 percent of the retained earnings of the concern and 
100 percent of the unencumbered value of each share of stock owned in 
the event of dissolution of the corporation.
    (g) Ownership of another Participant. The individuals determined to 
be disadvantaged for purposes of one Participant, their immediate family 
members, and the Participant itself, may not hold, in the aggregate, 
more than a 20 percent equity ownership interest in any other single 
Participant.
    (h) Ownership restrictions for non-disadvantaged individuals and 
concerns. (1) A non-disadvantaged individual (in the aggregate with all 
immediate family members) or a non-Participant concern that is a general 
partner or stockholder with at least a 10 percent ownership interest in 
one Participant may not own more than a 10 percent interest in another 
Participant that is in the developmental stage or more than a 20 percent 
interest in another Participant in the transitional stage of the 
program. This restriction does not apply to financial institutions 
licensed or chartered by Federal, state or local government, including 
investment companies which are licensed under the Small Business 
Investment Act of 1958.
    (2) A non-Participant concern in the same or similar line of 
business may not own more than a 10 percent interest in a Participant 
that is in the developmental stage or more than a 20 percent interest in 
a Participant in a transitional stage of the program, except that a 
former Participant or a principal of a former Participant (except those 
that have been terminated from 8(a) BD program participation pursuant to 
Secs. 124.303 and 124.304) may have an equity ownership interest of up 
to 20 percent in a current Participant in the developmental stage of the 
program or up to 30 percent in a transitional stage Participant, in the 
same or similar line of business.
    (i) Change of ownership. A Participant may change its ownership or 
business structure so long as one or more disadvantaged individuals own 
and control it after the change and SBA approves the transaction in 
writing prior to the change. The decision to approve or deny a 
Participant's request for a change in ownership or business structure 
will be made and communicated to the firm by the AA/8(a)BD. The decision 
of the AA/8(a)BD is the final decision of the Agency. The AA/8(a)BD will 
issue a decision within 60 days from receipt of a request containing all 
necessary documentation, or as soon thereafter as possible. If 60 days 
lapse without a decision from SBA, the Participant cannot presume that 
it can complete the change without written approval from SBA. A decision 
to deny a request for change of ownership or business structure may be 
grounds for program termination where the change is made nevertheless.
    (1) Any Participant that was awarded one or more 8(a) contracts may 
substitute one disadvantaged individual for another disadvantaged 
individual without requiring the termination of

[[Page 350]]

those contracts or a request for waiver under Sec. 124.515, as long as 
it receives SBA's approval prior to the change.
    (2) Where the previous owner held less than a 10 percent interest in 
the concern, or the transfer results from the death or incapacity due to 
a serious, long-term illness or injury of a disadvantaged principal, 
prior approval is not required, but the concern must notify SBA within 
60 days.
    (3) Continued participation of the Participant with new ownership 
and the award of any new 8(a) contracts requires SBA's determination 
that all eligibility requirements are met by the concern and the new 
owners.
    (4) Where a Participant requests a change of ownership or business 
structure, and proceeds with the change prior to receiving SBA approval 
(or where a change of ownership results from the death or incapacity of 
a disadvantaged individual for which a request prior to the change in 
ownership could not occur), SBA will suspend the Participant from 
program benefits pending resolution of the request. If the change is 
approved, the length of the suspension will be restored to the 
Participant's program term in the case of death or incapacity, or if the 
firm requested prior approval and waited 60 days for SBA approval.
    (5) A change in ownership does not provide the new owner(s) with a 
new 8(a) BD program term. For example, if a concern has been in the 8(a) 
BD program for five years when a change in ownership occurs, the new 
owner will have four years remaining until program graduation.
    (j) Public offering. A Participant's request for SBA's approval for 
the issuance of a public offering will be treated as a request for a 
change of ownership. Such request will cause SBA to examine the 
concern's continued need for access to the business development 
resources of the 8(a) BD program.
    (k) Community property laws given effect. In determining ownership 
interests when an owner resides in any of the community property states 
or territories of the United States (Arizona, California, Idaho, 
Louisiana, Nevada, New Mexico, Puerto Rico, Texas, Washington and 
Wisconsin), SBA considers applicable state community property laws. If 
only one spouse claims disadvantaged status, that spouse's ownership 
interest will be considered unconditionally held only to the extent it 
is vested by the community property laws. A transfer or relinquishment 
of interest by the non-disadvantaged spouse may be necessary in some 
cases to establish eligibility.



Sec. 124.106  When do disadvantaged individuals control an applicant or Participant?

    Control is not the same as ownership, although both may reside in 
the same person. SBA regards control as including both the strategic 
policy setting exercised by boards of directors and the day-to-day 
management and administration of business operations. An applicant or 
Participant's management and daily business operations must be conducted 
by one or more disadvantaged individuals, except for concerns owned by 
Indian tribes, ANCs, Native Hawaiian Organizations, or Community 
Development Corporations (CDCs). (See Secs. 124.109, 124.110, and 
124.111, respectively, for the requirements for concerns owned by Indian 
tribes or ANCs, for concerns owned by Native Hawaiian Organizations, and 
for CDC-owned concerns.) Disadvantaged individuals managing the concern 
must have managerial experience of the extent and complexity needed to 
run the concern. A disadvantaged individual need not have the technical 
expertise or possess a required license to be found to control an 
applicant or Participant if he or she can demonstrate that he or she has 
ultimate managerial and supervisory control over those who possess the 
required licenses or technical expertise. However, where a critical 
license is held by a non-disadvantaged individual having an equity 
interest in the applicant or Participant firm, the non-disadvantaged 
individual may be found to control the firm.
    (a)(1) An applicant or Participant must be managed on a full-time 
basis by one or more disadvantaged individuals who possess requisite 
management capabilities.

[[Page 351]]

    (2) A disadvantaged full-time manager must hold the highest officer 
position (usually President or Chief Executive Officer) in the applicant 
or Participant.
    (3) One or more disadvantaged individuals who manage the applicant 
or Participant must devote full-time to the business during the normal 
working hours of firms in the same or similar line of business. Work in 
a wholly-owned subsidiary of the applicant or participant may be 
considered to meet the requirement of full-time devotion. This applies 
only to a subsidiary owned by the 8(a) firm, and not to firms in which 
the disadvantaged individual has an ownership interest.
    (4) Any disadvantaged manager who wishes to engage in outside 
employment must notify SBA of the nature and anticipated duration of the 
outside employment and obtain the prior written approval of SBA. SBA 
will deny a request for outside employment which could conflict with the 
management of the firm or could hinder it in achieving the objectives of 
its business development plan.
    (5) Except as provided in paragraph (d)(1) of this section, a 
disadvantaged owner's unexercised right to cause a change in the control 
or management of the applicant concern does not in itself constitute 
disadvantaged control and management, regardless of how quickly or 
easily the right could be exercised.
    (b) In the case of a partnership, one or more disadvantaged 
individuals must serve as general partners, with control over all 
partnership decisions. A partnership in which no disadvantaged 
individual is a general partner will be ineligible for participation.
    (c) In the case of a limited liability company, one or more 
disadvantaged individuals must serve as management members, with control 
over all decisions of the limited liability company.
    (d) One or more disadvantaged individuals must control the Board of 
Directors of a corporate applicant or Participant.
    (1) SBA will deem disadvantaged individuals to control the Board of 
Directors where:
    (i) A single disadvantaged individual owns 100% of all voting stock 
of an applicant or Participant concern;
    (ii) A single disadvantaged individual owns at least 51% of all 
voting stock of an applicant or Participant concern, the individual is 
on the Board of Directors and no super majority voting requirements 
exist for shareholders to approve corporation actions. Where super 
majority voting requirements are provided for in the concern's articles 
of incorporation, its by-laws, or by state law, the disadvantaged 
individual must own at least the percent of the voting stock needed to 
overcome any such super majority voting requirements; or
    (iii) More than one disadvantaged shareholder seeks to qualify the 
concern (i.e., no one individual owns 51%), each such individual is on 
the Board of Directors, together they own at least 51% of all voting 
stock of the concern, no super majority voting requirements exist, and 
the disadvantaged shareholders can demonstrate that they have made 
enforceable arrangements to permit one of them to vote the stock of all 
as a block without a shareholder meeting. Where the concern has super 
majority voting requirements, the disadvantaged shareholders must own at 
least that percentage of voting stock needed to overcome any such super 
majority ownership requirements.
    (2) Where an applicant or Participant does not meet the requirements 
set forth in paragraph (d)(1) of this section, the disadvantaged 
individual(s) upon whom eligibility is based must control the Board of 
Directors through actual numbers of voting directors or, where permitted 
by state law, through weighted voting (e.g., in a concern having a two-
person Board of Directors where one individual on the Board is 
disadvantaged and one is not, the disadvantaged vote must be weighted--
worth more than one vote--in order for the concern to be eligible for 
8(a) participation). Where a concern seeks to comply with this 
paragraph:
    (i) Provisions for the establishment of a quorum cannot permit non-
disadvantaged Directors to control the Board of Directors, directly or 
indirectly;

[[Page 352]]

    (ii) Any Executive Committee of Directors must be controlled by 
disadvantaged directors unless the Executive Committee can only make 
recommendations to and cannot independently exercise the authority of 
the Board of Directors.
    (3) An applicant must inform SBA of any super majority voting 
requirements provided for in its articles of incorporation, its by-laws, 
by state law, or otherwise. Similarly, after being admitted to the 
program, a Participant must inform SBA of changes regarding super 
majority voting requirements.
    (4) Non-voting, advisory, or honorary Directors may be appointed 
without affecting disadvantaged individuals' control of the Board of 
Directors.
    (5) Arrangements regarding the structure and voting rights of the 
Board of Directors must comply with applicable state law.
    (e) Non-disadvantaged individuals may be involved in the management 
of an applicant or Participant, and may be stockholders, partners, 
limited liability members, officers, and/or directors of the applicant 
or Participant. However, no such non-disadvantaged individual or 
immediate family member may:
    (1) Exercise actual control or have the power to control the 
applicant or Participant;
    (2) Be a former employer or a principal of a former employer of any 
disadvantaged owner of the applicant or Participant, unless it is 
determined by the AA/8(a)BD that the relationship between the former 
employer or principal and the disadvantaged individual or applicant 
concern does not give the former employer actual control or the 
potential to control the applicant or Participant and such relationship 
is in the best interests of the 8(a) BD firm; or
    (3) Receive compensation from the applicant or Participant in any 
form as directors, officers or employees, including dividends, that 
exceeds the compensation to be received by the highest officer (usually 
CEO or President). The highest ranking officer may elect to take a lower 
salary than a non-disadvantaged individual only upon demonstrating that 
it helps the applicant or Participant. In the case of a Participant, the 
Participant must also obtain the prior written consent of the AA/8(a)BD 
or designee before changing the compensation paid to the highest ranking 
officer to be below that paid to a non-disadvantaged individual.
    (f) Non-disadvantaged individuals who transfer majority stock 
ownership or control of the firm to an immediate family member within 
two years prior to the application and remain involved in the firm as a 
stockholder, officer, director, or key employee of the firm are presumed 
to control the firm. The presumption may be rebutted by showing that the 
transferee has independent management experience necessary to control 
the operation of the firm.
    (g) Non-disadvantaged individuals or entities may be found to 
control or have the power to control in any of the following 
circumstances, which are illustrative only and not all inclusive:
    (1) In circumstances where an applicant or Participant seeks to 
establish disadvantaged control of the Board of Directors through 
paragraph (d)(2) of this section, non-disadvantaged individuals control 
the Board of Directors of the applicant or Participant, either directly 
through majority voting membership, or indirectly, where the by-laws 
allow non-disadvantaged individuals effectively to prevent a quorum or 
block actions proposed by the disadvantaged individuals.
    (2) A non-disadvantaged individual or entity, having an equity 
interest in the applicant or participant, provides critical financial or 
bonding support or a critical license to the applicant or Participant 
which directly or indirectly allows the non-disadvantaged individual 
significantly to influence business decisions of the Participant.
    (3) A non-disadvantaged individual or entity controls the applicant 
or Participant or an individual disadvantaged owner through loan 
arrangements. Providing a loan guaranty on commercially reasonable terms 
does not, by itself, give a non-disadvantaged individual or entity the 
power to control a firm.
    (4) Business relationships exist with non-disadvantaged individuals 
or entities which cause such dependence that

[[Page 353]]

the applicant or Participant cannot exercise independent business 
judgment without great economic risk.



Sec. 124.107  What is potential for success?

    The applicant concern must possess reasonable prospects for success 
in competing in the private sector if admitted to the 8(a) BD program. 
To do so, it must be in business in its primary industry classification 
for at least two full years immediately prior to the date of its 8(a) BD 
application, unless a waiver for this requirement is granted pursuant to 
paragraph (b) of this section.
    (a) Income tax returns for each of the two previous tax years must 
show operating revenues in the primary industry in which the applicant 
is seeking 8(a) BD certification.
    (b)(1) SBA may waive the two years in business requirement if each 
of the following five conditions are met:
    (i) The individual or individuals upon whom eligibility is based 
have substantial business management experience;
    (ii) The applicant has demonstrated technical experience to carry 
out its business plan with a substantial likelihood for success if 
admitted to the 8(a) BD program;
    (iii) The applicant has adequate capital to sustain its operations 
and carry out its business plan as a Participant;
    (iv) The applicant has a record of successful performance on 
contracts from governmental or nongovernmental sources in its primary 
industry category; and
    (v) The applicant has, or can demonstrate its ability to timely 
obtain, the personnel, facilities, equipment, and any other requirements 
needed to perform contracts as a Participant.
    (2) The concern seeking a waiver under paragraph (b) must provide 
information on governmental and nongovernmental contracts in progress 
and completed (including letters of reference) in order to establish 
successful contract performance, and must demonstrate how it otherwise 
meets the five conditions for waiver. SBA considers an applicant's 
performance on both government and private sector contracts in 
determining whether the firm has an overall successful performance 
record. If, however, the applicant has performed only government 
contracts or only private sector contracts, SBA will review its 
performance on those contracts alone to determine whether the applicant 
possesses a record of successful performance.
    (c) In assessing potential for success, SBA considers the concern's 
access to credit and capital, including, but not limited to, access to 
long-term financing, access to working capital financing, equipment 
trade credit, access to raw materials and supplier trade credit, and 
bonding capability.
    (d) In assessing potential for success, SBA will also consider the 
technical and managerial experience of the applicant concern's managers, 
the operating history of the concern, the concern's record of 
performance on previous Federal and private sector contracts in the 
primary industry in which the concern is seeking 8(a) BD certification, 
and its financial capacity. The applicant concern as a whole must 
demonstrate both technical knowledge in its primary industry category 
and management experience sufficient to run its day-to-day operations.
    (e) The Participant or individuals employed by the Participant must 
hold all requisite licenses if the concern is engaged in an industry 
requiring professional licensing (e.g., public accountancy, law, 
professional engineering).
    (f) An applicant will not be denied admission into the 8(a) BD 
program due solely to a determination that potential 8(a) contract 
opportunities are unavailable to assist in the development of the 
concern unless:
    (1) The Government has not previously procured and is unlikely to 
procure the types of products or services offered by the concern; or
    (2) The purchase of such products or services by the Federal 
Government will not be in quantities sufficient to support the 
developmental needs of the applicant and other Participants providing 
the same or similar items or services.

[[Page 354]]



Sec. 124.108  What other eligibility requirements apply for individuals or businesses?

    (a) Good character. The applicant or Participant and all its 
principals must have good character.
    (1) If, during the processing of an application, adverse information 
is obtained from the applicant or a credible source regarding possible 
criminal conduct by the applicant or any of its principals, no further 
action will be taken on the application until SBA's Inspector General 
has collected relevant information and has advised the AA/8(a)BD of his 
or her findings. The AA/8(a)BD will consider those findings when 
evaluating the application.
    (2) Violations of any of SBA's regulations may result in denial of 
participation in the 8(a) BD program. The AA/8(a)BD will consider the 
nature and severity of the violation in making an eligibility 
determination.
    (3) Debarred or suspended concerns or concerns owned by debarred or 
suspended persons are ineligible for admission to the 8(a) BD program.
    (4) An applicant is ineligible for admission to the 8(a) BD program 
if the applicant concern or a proprietor, partner, limited liability 
member, director, officer, or holder of at least 10 percent of its 
stock, or another person (including key employees) with significant 
authority over the concern:
    (i) Lacks business integrity as demonstrated by information related 
to an indictment or guilty plea, conviction, civil judgment, or 
settlement; or
    (ii) Is currently incarcerated, or on parole or probation pursuant 
to a pre-trial diversion or following conviction for a felony or any 
crime involving business integrity.
    (5) If, during the processing of an application, SBA determines that 
an applicant has knowingly submitted false information, regardless of 
whether correct information would cause SBA to deny the application, and 
regardless of whether correct information was given to SBA in 
accompanying documents, SBA will deny the application. If, after 
admission to the program, SBA discovers that false information has been 
knowingly submitted by a firm, SBA will initiate termination proceedings 
and suspend the firm under Secs. 124.304 and 124.305. Whenever SBA 
determines that the applicant submitted false information, the matter 
will be referred to SBA's Office of Inspector General for review.
    (b) One-time eligibility. Once a concern or disadvantaged individual 
upon whom eligibility was based has participated in the 8(a) BD program, 
neither the concern nor that individual will be eligible again.
    (1) An individual who claims disadvantage and completes the 
appropriate SBA forms to qualify an applicant has participated in the 
8(a) BD program if SBA approves the application.
    (2) Use of eligibility will take effect on the date of the concern's 
approval for admission into the program.
    (3) An individual who uses his or her one-time eligibility to 
qualify a concern for the 8(a) BD program will be considered a non-
disadvantaged individual for ownership or control purposes of another 
applicant or Participant. The criteria restricting participation by non-
disadvantaged individuals will apply to such an individual. See 
Secs. 124.105 and 124.106.
    (4) When at least 50% of the assets of a concern are the same as 
those of a former Participant, the concern will not be eligible for 
entry into the program.
    (5) Participants which change their form of business organization 
and transfer their assets and liabilities to the new organization may do 
so without affecting the eligibility of the new organization provided 
the previous business is dissolved and all other eligibility criteria 
are met. In such a case, the new organization may complete the remaining 
program term of the previous organization. A request for a change in 
business form will be treated as a change of ownership under 
Sec. 124.105(i).
    (c) Wholesalers. An applicant concern seeking admission to the 8(a) 
BD program as a wholesaler need not demonstrate that it is capable of 
meeting the requirements of the nonmanufacturer rule for its primary 
industry classification.
    (d) Brokers. Brokers are ineligible to participate in the 8(a) BD 
program. A

[[Page 355]]

broker is a concern that adds no material value to an item being 
supplied to a procuring activity or which does not take ownership or 
possession of or handle the item being procured with its own equipment 
or facilities.
    (e) Federal financial obligations. Neither a firm nor any of its 
principals that fails to pay significant financial obligations owed to 
the Federal Government, including unresolved tax liens and defaults on 
Federal loans or other Federally assisted financing, is eligible for 
admission to or participation in the 8(a) BD program.
    (f) Achievement of benchmarks. Where actual participation by 
disadvantaged businesses in a particular SIC Major Group exceeds the 
benchmark limitations established by the Department of Commerce, SBA, in 
its discretion, may decide not to accept an application for 8(a) BD 
participation from a concern whose primary industry classification falls 
within that Major Group.

[63 FR 35739, 35772, June 30, 1998]



Sec. 124.109  Do Indian tribes and Alaska Native Corporations have any special rules for applying to the 8(a) BD program?

    (a) Special rules for ANCs. Small business concerns owned and 
controlled by ANCs are eligible for participation in the 8(a) program 
and must meet the eligibility criteria set forth in Sec. 124.112 to the 
extent the criteria are not inconsistent with this section. ANC-owned 
concerns are subject to the same conditions that apply to tribally-owned 
concerns, as described in paragraphs (b) and (c) of this section, except 
that the following provisions and exceptions apply only to ANC-owned 
concerns:
    (1) Alaska Natives and descendants of Natives must own a majority of 
both the total equity of the ANC and the total voting powers to elect 
directors of the ANC through their holdings of settlement common stock. 
Settlement common stock means stock of an ANC issued pursuant to 43 
U.S.C. 1606(g)(1), which is subject to the rights and restrictions 
listed in 43 U.S.C. 1606(h)(1).
    (2) An ANC that meets the requirements set forth in paragraph (a)(1) 
of this section is deemed economically disadvantaged under 43 U.S.C. 
1626(e), and need not establish economic disadvantage as required by 
paragraph (b)(2) of this section.
    (3) Even though an ANC can be either for profit or non-profit, a 
small business concern owned and controlled by an ANC must be for profit 
to be eligible for the 8(a) program. The concern will be deemed owned 
and controlled by the ANC where both the majority of stock or other 
ownership interest and total voting power are held by the ANC and 
holders of its settlement common stock.
    (4) The Alaska Native Claims Settlement Act provides that a concern 
which is majority owned by an ANC shall be deemed to be both owned and 
controlled by Alaska Natives and an economically disadvantaged business. 
Therefore, an individual responsible for control and management of an 
ANC-owned applicant or Participant need not establish personal social 
and economic disadvantage.
    (5) Paragraphs (b)(3)(i), (ii) and (iv) of this section are not 
applicable to an ANC, provided its status as an ANC is clearly shown in 
its articles of incorporation.
    (6) Paragraph (c)(1) of this section is not applicable to an ANC-
owned concern to the extent it requires an express waiver of sovereign 
immunity or a ``sue and be sued'' clause.
    (b) Tribal eligibility. In order to qualify a concern which it owns 
and controls for participation in the 8(a) BD program, an Indian tribe 
must establish its own economic disadvantaged status under paragraph 
(b)(2) of this section. Thereafter, it need not reestablish such status 
in order to have other businesses that it owns certified for 8(a) BD 
program participation, unless specifically required to do so by the AA/
8(a)BD or designee. Each tribally-owned concern seeking to be certified 
for 8(a) BD participation must comply with the provisions of paragraph 
(c) of this section.
    (1) Social disadvantage. An Indian tribe as defined in Sec. 124.3 is 
considered to be socially disadvantaged.
    (2) Economic disadvantage. In order to be eligible to participate in 
the 8(a) BD program, the Indian tribe must demonstrate to SBA that the 
tribe itself is economically disadvantaged. This must involve the 
consideration of available

[[Page 356]]

data showing the tribe's economic condition, including but not limited 
to, the following information:
    (i) The number of tribal members.
    (ii) The present tribal unemployment rate.
    (iii) The per capita income of tribal members, excluding judgment 
awards.
    (iv) The percentage of the local Indian population below the poverty 
level.
    (v) The tribe's access to capital.
    (vi) The tribal assets as disclosed in a current tribal financial 
statement. The statement must list all assets including those which are 
encumbered or held in trust, but the status of those encumbered or in 
trust must be clearly delineated.
    (vii) A list of all wholly or partially owned tribal enterprises or 
affiliates and the primary industry classification of each. The list 
must also specify the members of the tribe who manage or control such 
enterprises by serving as officers or directors.
    (3) Forms and documents required to be submitted. Except as 
otherwise provided in this section, the Indian tribe generally must 
submit the forms and documents required of 8(a) BD applicants as well as 
the following material:
    (i) A copy of all governing documents such as the tribe's 
constitution or business charter.
    (ii) Evidence of its recognition as a tribe eligible for the special 
programs and services provided by the United States or by its state of 
residence.
    (iii) Copies of its articles of incorporation and bylaws as filed 
with the organizing or chartering authority, or similar documents needed 
to establish and govern a non-corporate legal entity.
    (iv) Documents or materials needed to show the tribe's economically 
disadvantaged status as described in paragraph (b)(2) of this section.
    (c) Business eligibility. In order to be eligible to participate in 
the 8(a) BD program, a concern which is owned by an eligible Indian 
tribe (or wholly owned business entities of such tribe) must meet the 
conditions set forth in paragraphs (c)(1) through (c)(7) of this 
section.
    (1) Legal business entity organized for profit and susceptible to 
suit. The applicant or participating concern must be a separate and 
distinct legal entity organized or chartered by the tribe, or Federal or 
state authorities. The concern's articles of incorporation, partnership 
agreement or limited liability company articles of organization must 
contain express sovereign immunity waiver language, or a ``sue and be 
sued'' clause which designates United States Federal Courts to be among 
the courts of competent jurisdiction for all matters relating to SBA's 
programs including, but not limited to, 8(a) BD program participation, 
loans, and contract performance. Also, the concern must be organized for 
profit, and the tribe must possess economic development powers in the 
tribe's governing documents.
    (2) Size. (i) A tribally-owned applicant concern must qualify as a 
small business concern as defined for purposes of Federal Government 
procurement in part 121 of this title. The particular size standard to 
be applied is based on the primary industry classification of the 
applicant concern.
    (ii) A tribally-owned Participant must certify to SBA that it is a 
small business pursuant to the provisions of part 121 of this title for 
the purpose of performing each individual contract which it is awarded.
    (iii) In determining the size of a small business concern owned by a 
socially and economically disadvantaged Indian tribe (or a wholly owned 
business entity of such tribe) for either 8(a) BD program entry or 
contract award, the firm's size shall be determined independently 
without regard to its affiliation with the tribe, any entity of the 
tribal government, or any other business enterprise owned by the tribe, 
unless the Administrator determines that one or more such tribally-owned 
business concerns have obtained, or are likely to obtain, a substantial 
unfair competitive advantage within an industry category.
    (3) Ownership. (i) For corporate entities, a tribe must own at least 
51 percent of the voting stock and at least 51 percent of the aggregate 
of all classes of stock. For non-corporate entities, a tribe must own at 
least a 51 percent interest.

[[Page 357]]

    (ii) A tribe cannot own 51% or more of another firm which, either at 
the time of application or within the previous two years, has been 
operating in the 8(a) program under the same primary SIC code as the 
applicant. A tribe may, however, own a Participant or an applicant that 
conducts or will conduct secondary business in the 8(a) BD program under 
the same SIC code that a current Participant owned by the tribe operates 
in the 8(a) BD program as its primary SIC code.
    (iii) The restrictions of Sec. 124.105(h) do not apply to tribes; 
they do, however, apply to non disadvantaged individuals or other 
business concerns that are partial owners of a tribally-owned concern.
    (4) Control and management. (i) The management and daily business 
operations of a tribally-owned concern must be controlled by the tribe, 
through one or more disadvantaged individual members who possess 
sufficient management experience of an extent and complexity needed to 
run the concern, or through management as follows:
    (A) Management may be provided by committees, teams, or Boards of 
Directors which are controlled by one or more members of an economically 
disadvantaged tribe, or
    (B) Management may be provided by non-tribal members if SBA 
determines that such management is required to assist the concern's 
development, that the tribe will retain control of all management 
decisions common to boards of directors, including strategic planning, 
budget approval, and the employment and compensation of officers, and 
that a written management development plan exists which shows how 
disadvantaged tribal members will develop managerial skills sufficient 
to manage the concern or similar tribally-owned concerns in the future.
    (ii) Members of the management team, business committee members, 
officers, and directors are precluded from engaging in any outside 
employment or other business interests which conflict with the 
management of the concern or prevent the concern from achieving the 
objectives set forth in its business development plan. This is not 
intended to preclude participation in tribal or other activities which 
do not interfere with such individual's responsibilities in the 
operation of the applicant concern.
    (5) Individual eligibility limitation. SBA does not deem an 
individual involved in the management or daily business operations of a 
tribally-owned concern to have used his or her individual eligibility 
within the meaning of Sec. 124.108(b).
    (6) Potential for success. (i) A tribally-owned applicant concern 
must be in business for at least two years, as evidenced by income tax 
returns for each of the two previous tax years showing operating 
revenues in the primary industry in which the applicant is seeking 8(a) 
BD certification, or demonstrate potential for success as set forth in 
paragraph (c)(6)(ii) of this section.
    (ii) In determining whether a tribally-owned concern has the 
potential for success, SBA will look at a number of factors including, 
but not limited to:
    (A) The technical and managerial experience and competency of the 
individual(s) who will manage and control the daily operation of the 
concern;
    (B) The financial capacity of the concern; and
    (C) The concern's record of performance on any previous Federal or 
private sector contracts in the primary industry in which the concern is 
seeking 8(a) certification.
    (7) Other eligibility criteria. (i) As with other 8(a) applicants, a 
tribally-owned applicant concern shall not be denied admission into the 
8(a) program due solely to a determination that specific contract 
opportunities are unavailable to assist the development of the concern 
unless:
    (A) The Government has not previously procured and is unlikely to 
procure the types of products or services offered by the concern; or
    (B) The purchase of such products or services by the Federal 
Government will not be in quantities sufficient to support the 
developmental needs of the applicant and other program participants 
providing the same or similar items or services.
    (ii) Except for the tribe itself, the concern's officers, directors, 
and all shareholders owning an interest of 20%

[[Page 358]]

or more must demonstrate good character. See Sec. 124.108(a).



Sec. 124.110  Do Native Hawaiian Organizations have any special rules for applying to the 8(a) BD program?

    (a) Concerns owned by economically disadvantaged Native Hawaiian 
Organizations, as defined in Sec. 124.3, are eligible for participation 
in the 8(a) program and other federal programs requiring SBA to 
determine social and economic disadvantage as a condition of 
eligibility. Such concerns must meet all eligibility criteria set forth 
in Secs. 124.101 through 124.108 and Sec. 124.112 to the extent that 
they are not inconsistent with this section.
    (b) A concern owned by a Native Hawaiian Organization must qualify 
as a small business concern as defined in part 121 of this title. The 
size standard corresponding to the primary industry classification of 
the applicant concern applies for determining size. SBA will determine 
the concern's size independently, without regard to its affiliation with 
the Native Hawaiian Organization or any other business enterprise owned 
by the Native Hawaiian Organization, unless the Administrator determines 
that one or more such concerns owned by the Native Hawaiian Organization 
have obtained, or are likely to obtain, a substantial unfair competitive 
advantage within an industry category.
    (c) A Native Hawaiian Organization cannot own 51% or more of another 
firm which, either at the time of application or within the previous two 
years, has been operating in the 8(a) program under the same primary SIC 
code as the applicant. A Native Hawaiian Organization may, however, own 
a Participant or an applicant that conducts or will conduct secondary 
business in the 8(a) BD program under the same SIC code that a current 
Participant owned by the Native Hawaiian Organization operates in the 
8(a) BD program as its primary SIC code.
    (d) SBA does not deem an individual involved in the management or 
daily business operations of a Participant owned by a Native Hawaiian 
Organization to have used his or her individual eligibility within the 
meaning of Sec. 124.108(b).
    (e)(1) An applicant concern owned by a Native Hawaiian Organization 
must be in business for at least two years, as evidenced by income tax 
returns for each of the two previous tax years showing operating 
revenues in the primary industry in which the applicant is seeking 8(a) 
BD certification, or demonstrate potential for success as set forth in 
paragraph (e)(2) of this section.
    (2) In determining whether a concern owned by a Native Hawaiian 
Organization has the potential for success, SBA will look at a number of 
factors including, but not limited to:
    (i) The technical and managerial experience and competence of the 
individual(s) who will manage and control the daily operation of the 
concern.
    (ii) The financial capacity of the concern; and
    (iii) The concern's record of performance on any previous Federal or 
private sector contracts in the primary industry in which the concern is 
seeking 8(a) certification.



Sec. 124.111  Do Community Development Corporations (CDCs) have any special rules for applying to the 8(a) BD program?

    (a) Concerns owned at least 51 percent by CDCs (or a wholly owned 
business entity of a CDC) are eligible for participation in the 8(a) BD 
program and other federal programs requiring SBA to determine social and 
economic disadvantage as a condition of eligibility. These concerns must 
meet all eligibility criteria set forth in Sec. 124.101 through 
Sec. 124.108 and Sec. 124.112 to the extent that they are not 
inconsistent with this section.
    (b) A concern that is at least 51 percent owned by a CDC (or a 
wholly owned business entity of a CDC) is considered to be controlled by 
such CDC and eligible for participation in the 8(a) BD program, provided 
it meets all eligibility criteria set forth or referred to in this 
section and its management and daily business operations are conducted 
by one or more individuals determined to have managerial experience of 
an extent and complexity needed to run the concern.
    (c) A concern that is at least 51 percent owned by a CDC (or a 
wholly

[[Page 359]]

owned business entity of a CDC) must qualify as a small business concern 
as defined in part 121 of this title. The size standard corresponding to 
the primary industry classification of the applicant concern applies for 
determining size. SBA will determine the concern's size independently, 
without regard to its affiliation with the CDC or any other business 
enterprise owned by the CDC, unless the Administrator determines that 
one or more such concerns owned by the CDC have obtained, or are likely 
to obtain, a substantial unfair competitive advantage within an industry 
category.
    (d) A CDC cannot own 51% or more of another firm which, either at 
the time of application or within the previous two years, has been 
operating in the 8(a) program under the same primary SIC code as the 
applicant. A CDC may, however, own a Participant or an applicant that 
conducts or will conduct secondary business in the 8(a) BD program under 
the same SIC code that a current Participant owned by the CDC operates 
in the 8(a) BD program as its primary SIC code.
    (e) SBA does not deem an individual involved in the management or 
daily business operations of a CDC-owned concern to have used his or her 
individual eligibility within the meaning of Sec. 124.108(b).
    (f)(1) A CDC-owned applicant concern must be in business for at 
least two years, as evidenced by income tax returns for each of the two 
previous tax years showing operating revenues in the primary industry in 
which the applicant is seeking 8(a) BD certification, or demonstrate 
potential for success as set forth in paragraph (e)(2) of this section.
    (2) In determining whether a CDC-owned concern has the potential for 
success, SBA will look at a number of factors including, but not limited 
to:
    (i) The technical and managerial experience and competence of the 
individual(s) who will manage and control the daily operation of the 
concern;
    (ii) The financial capacity of the concern; and
    (iii) The concern's record of performance on any previous Federal or 
private sector contracts in the primary industry in which the concern is 
seeking 8(a) certification.
    (g) A CDC-owned applicant and all of its principals must have good 
character as set forth in Sec. 124.108(a).



Sec. 124.112  What criteria must a business meet to remain eligible to participate in the 8(a) BD program?

    (a) Standards. In order for a concern (except those owned by Indian 
tribes, ANCs, Native Hawaiian Organizations or CDCs) to remain eligible 
for 8(a) BD program participation, it must continue to meet all 
eligibility criteria contained in Sec. 124.101 through Sec. 124.108. For 
concerns owned by Indian tribes, ANCs, Native Hawaiian Organizations or 
CDCs to remain eligible, they must meet the criteria set forth in this 
Sec. 124.112 to the extent that they are not inconsistent with 
Sec. 124.109, Sec. 124.110 and Sec. 124.111, respectively. The concern 
must inform SBA in writing of any changes in circumstances which would 
adversely affect its program eligibility, especially economic 
disadvantage and ownership and control. Any concern that fails to meet 
the eligibility requirements after being admitted to the program will be 
subject to termination or early graduation under Secs. 124.302 through 
124.304, as appropriate.
    (b) Submissions supporting continued eligibility. As part of an 
annual review, each Participant must annually submit to the servicing 
district office the following:
    (1) A certification that it meets the 8(a) BD program eligibility 
requirements as set forth in Sec. 124.101 through Sec. 124.108 and 
paragraph (a) of this section;
    (2) A certification that there have been no changed circumstances 
which could adversely affect the Participant's program eligibility. If 
the Participant is unable to provide such certification, the Participant 
must inform SBA of any changes and provide relevant supporting 
documentation.
    (3) Personal financial information for each disadvantaged owner;
    (4) A record from each individual claiming disadvantaged status 
regarding the transfer of assets for less than fair market value to any 
immediate family member, or to a trust any beneficiary of which is an 
immediate family

[[Page 360]]

member, within two years of the date of the annual review. The record 
must provide the name of the recipient(s) and family relationship, and 
the difference between the fair market value of the asset transferred 
and the value received by the disadvantaged individual.
    (5) A record of all payments, compensation, and distributions 
(including loans, advances, salaries and dividends) made by the 
Participant to each of its owners, officers or directors, or to any 
person or entity affiliated with such individuals;
    (6) If it is an approved protege, a narrative report detailing the 
contacts it has had with its mentor and benefits it has received from 
the mentor/protege relationship. See Sec. 124.520(b)(4) for additional 
annual requirements;
    (7) IRS Form 4506, Request for Copy or Transcript of Tax Form; and
    (8) Such other information as SBA may deem necessary. For other 
required annual submissions, see Secs. 124.601 through 124.603.
    (c) Eligibility reviews. (1) Upon receipt of specific and credible 
information alleging that a Participant no longer meets the eligibility 
requirements for continued program eligibility, SBA will review the 
concern's eligibility for continued participation in the program.
    (2) Sufficient reasons for SBA to conclude that a socially 
disadvantaged individual is no longer economically disadvantaged 
include, but are not limited to, excessive withdrawals of funds or other 
assets withdrawn from the concern by its owners, or substantial personal 
assets, income or net worth of any disadvantaged owner. SBA may also 
consider access by the Participant firm to a significant new source of 
capital or loans since the financial condition of the Participant is 
considered in evaluating the disadvantaged individual's economic status.
    (d) Excessive withdrawals. (1) The term withdrawal includes, but is 
not limited to, the following: officer's salary; cash dividends; 
distributions in excess of amounts needed to pay S Corporation taxes; 
cash and property withdrawals; bonuses; loans; advances; payments to 
immediate family members; investments on behalf of an owner, officer, or 
key employee; acquisition of a business not merged with the 8(a) 
Participant; charitable contributions; and speculative ventures.
    (2) If SBA determines that excessive funds or other assets have been 
withdrawn from the Participant, SBA may:
    (i) Initiate termination proceedings under Secs. 124.303 and 124.304 
where the withdrawals detrimentally affect the achievement of the 
Participant's targets, objectives and goals set forth in its business 
plan, or its overall business development;
    (ii) Initiate early graduation proceedings under Secs. 124.302 and 
124.303 where the withdrawals do not adversely affect the Participant's 
business development; or
    (iii) Require an appropriate reinvestment of funds or other assets, 
as well as any other actions SBA deems necessary to counteract the 
detrimental effects of the withdrawals, as a condition of the 
Participant maintaining program eligibility.
    (3) Withdrawals are excessive if during any fiscal year of the 
Participant they exceed (i) $150,000 for firms with sales up to 
$1,000,000; (ii) $200,000 for firms with sales between $1,000,000 and 
$2,000,000; and (iii) $300,000 for firms with sales over $2,000,000.
    (4) The fact that a concern's net worth has increased despite 
withdrawals that are deemed excessive will not preclude SBA from 
determining that such withdrawals were detrimental to the attainment of 
the concern's business objectives or to its overall business 
development.

                     Applying to the 8(a) BD Program



Sec. 124.201  May any business submit an application?

    Any concern or any individual on behalf of a business has the right 
to apply for 8(a) BD program participation whether or not there is an 
appearance of eligibility.



Sec. 124.202  Where must an application be filed?

    An application for 8(a) BD program admission must be filed in the 
SBA Division of Program Certification and Eligibility (DPCE) field 
office serving the territory in which the principal

[[Page 361]]

place of business is located. The SBA district office will provide an 
applicant concern with information regarding the 8(a) BD program and 
with all required application forms.



Sec. 124.203  What must a concern submit to apply to the 8(a) BD program?

    Each 8(a) BD applicant concern must submit those forms and 
attachments required by SBA when applying for admission to the 8(a) BD 
program. These forms and attachments will include, but not be limited 
to, financial statements, Federal personal and business tax returns, and 
personal history statements. An applicant must also submit IRS Form 
4506, Request for Copy or Transcript of Tax Form, to SBA. The 
application package may be in the form of an electronic application.



Sec. 124.204  How does SBA process applications for 8(a) BD program admission?

    (a) The AA/8(a)BD is authorized to approve or decline applications 
for admission to the 8(a) BD program. The appropriate DPCE field office 
will receive, review and evaluate all 8(a) BD applications except those 
from ANC-owned applicants. SBA's Anchorage District Office will receive 
all applications from ANC-owned applicants and review them for 
completeness before sending them to the AA/8(a)BD for further 
processing. The appropriate field office will advise each program 
applicant within 15 days after the receipt of an application whether the 
application is complete and suitable for evaluation and, if not, what 
additional information or clarification is required to complete the 
application. SBA will process an application for 8(a) BD program 
participation within 90 days of receipt of a complete application 
package by the DPCE field office. Incomplete application packages will 
not be processed.
    (b) SBA, in its sole discretion, may request clarification of 
information contained in the application at any time in the application 
process. SBA will take into account any clarifications made by an 
applicant in response to a request for such by SBA.
    (c) An applicant concern's eligibility will be based on 
circumstances existing on the date of application, except where 
clarification is made pursuant to paragraph (b) of this section or as 
provided in paragraph (d) of this section.
    (d) Changed circumstances for an applicant concern occurring 
subsequent to its application and which adversely affect eligibility 
will be considered and may constitute grounds for decline. The applicant 
must inform SBA of any changed circumstances that could adversely affect 
its eligibility for the program (particularly economic disadvantage and 
ownership and control) during its application review. Failure to inform 
SBA of any such changed circumstances constitutes good cause for which 
SBA may terminate the Participant if non-compliance is discovered after 
admittance.
    (e) The decision of the AA/8(a)BD to approve or deny an application 
will be in writing. A decision to deny admission will state the specific 
reasons for denial, and will inform the applicant of any appeal rights.
    (f) If the AA/8(a)BD approves the application, the date of the 
approval letter is the date of program certification for purposes of 
determining the concern's program term.



Sec. 124.205  Can an applicant ask SBA to reconsider SBA's initial decision to decline its application?

    (a) An applicant may request the AA/8(a)BD to reconsider his or her 
initial decline decision by filing a request for reconsideration with 
the SBA field office that originally processed its application. Filing 
means submission by personal delivery, first-class mail, express mail, 
fascimile transmission followed by first-class mail, or commercial 
delivery service. The applicant must submit its request for 
reconsideration within 45 days of receiving notice that its application 
was declined. The applicant must provide any additional information and 
documentation pertinent to overcoming the reason(s) for the initial 
decline.
    (b) The AA/8(a)BD will issue a written decision within 45 days of 
the regional DPCE's receipt of the applicant's request. The AA/8(a)BD 
may either approve the application, deny it on the same grounds as the 
original decision, or deny it on other grounds. If denied, the AA/8(a)BD 
will explain why

[[Page 362]]

the applicant is not eligible for admission to the 8(a) BD program and 
give specific reasons for the decline.
    (c) If the AA/8(a)BD declines the application solely on issues not 
raised in the initial decline, the applicant can ask for reconsideration 
as if it were an initial decline.



Sec. 124.206  What appeal rights are available to an applicant that has been denied admission?

    (a) An applicant may appeal a denial of program admission to SBA's 
Office of Hearings and Appeals (OHA), if it is based solely on a 
negative finding of social disadvantage, economic disadvantage, 
ownership, control, or any combination of these four criteria. A denial 
decision that is based at least in part on the failure to meet any other 
eligibility criterion is not appealable and is the final decision of 
SBA.
    (b) The applicant may appeal an initial decision of the AA/8(a)BD 
without requesting reconsideration, or may appeal the decision of the 
AA/8(a)BD on reconsideration.
    (c) The applicant may initiate an appeal by filing a petition in 
accordance with part 134 of this chapter with OHA within 45 days after 
the applicant receives the Agency decision.
    (d) If an appeal is filed with OHA, the written decision of the 
Administrative Law Judge is the final Agency decision. If an appealable 
decision is not appealed, the decision of the AA/8(a)BD is the final 
Agency decision.

[63 FR 35739, June 30, 1998, as amended at 67 FR 47247, July 18, 2002]



Sec. 124.207  Can an applicant reapply for admission to the 8(a) BD program?

    A concern which has been declined for 8(a) BD program admission may 
submit a new application for admission to the program 12 months after 
the date of the final Agency decision to decline.

                       Exiting the 8(a) BD Program



Sec. 124.301  What are the ways a business may leave the 8(a) BD program?

    A concern participating in the 8(a) BD program may leave the program 
by any of the following means:
    (a) Graduation upon the expiration of the program term established 
pursuant to Sec. 124.2;
    (b) Voluntary early graduation;
    (c) Early graduation pursuant to the provisions of Secs. 124.302 and 
124.304; or
    (d) Termination pursuant to the provisions of Secs. 124.303 and 
124.304.



Sec. 124.302  What is early graduation?

    (a) General. SBA may graduate a firm from the 8(a) BD program prior 
to the expiration of its Program Term where SBA determines that:
    (1) The concern has successfully completed the 8(a) BD program by 
substantially achieving the targets, objectives, and goals set forth in 
its business plan prior to the expiration of its program term, and has 
demonstrated the ability to compete in the marketplace without 
assistance under the 8(a) BD program; or
    (2) One or more of the disadvantaged owners upon whom the 
Participant's eligibility is based are no longer economically 
disadvantaged.
    (b) Criteria for determining whether a Participant has met its goals 
and objectives. In determining whether a Participant has substantially 
achieved the targets, objectives and goals of its business plan and in 
assessing the overall competitive strength and viability of a 
Participant, SBA considers the totality of circumstances, including the 
following factors:
    (1) Degree of sustained profitability;
    (2) Sales trends, including improved ratio of non-8(a) sales to 8(a) 
sales since program entry;
    (3) Business net worth, financial ratios, working capital, 
capitalization, and access to credit and capital;
    (4) Current ability to obtain bonding;
    (5) A comparison of the Participant's business and financial 
profiles with profiles of non-8(a) BD businesses having the same primary 
four-digit SIC code as the Participant;
    (6) Strength of management experience, capability, and expertise; 
and
    (7) Ability to operate successfully without 8(a) contracts.
    (c) Excessive withdrawals. SBA may graduate a Participant prior to 
the expiration of its program term where excessive funds or other assets 
have been withdrawn from the Participant (see

[[Page 363]]

Sec. 124.112(d)(3)), causing SBA to determine that the Participant has 
demonstrated the ability to compete in the marketplace without 
assistance under the 8(a) BD program.
    (d) Benchmark achievement. SBA may graduate a Participant prior to 
the expiration of its program term where the Participant has 
substantially achieved the targets, objectives and goals of its business 
plan as adjusted under Sec. 124.403(d) and its primary industry 
classification falls within a SIC Major Group in which the benchmarks 
described in Sec. 124.403(d) have been achieved.

[63 FR 35739, 35772, June 30, 1998]



Sec. 124.303  What is termination?

    (a) SBA may terminate the participation of a concern in the 8(a) BD 
program prior to the expiration of the concern's Program Term for good 
cause. Examples of good cause include, but are not limited to, the 
following:
    (1) Submission of false information in the concern's 8(a) BD 
application, regardless of whether correct information would have caused 
the concern to be denied admission to the program, and regardless of 
whether correct information was given to SBA in accompanying documents 
or by other means.
    (2) Failure by the concern to maintain its eligibility for program 
participation.
    (3) Failure by the concern for any reason, including the death of an 
individual upon whom eligibility was based, to maintain ownership, full-
time day-to-day management, and control by disadvantaged individuals.
    (4) Failure by the concern to obtain prior written approval from SBA 
for any changes in ownership or business structure, management or 
control pursuant to Secs. 124.105 and 124.106.
    (5) Failure by the concern to disclose to SBA the extent to which 
non-disadvantaged persons or firms participate in the management of the 
Participant business concern.
    (6) Failure by the concern or one or more of the concern's 
principals to maintain good character.
    (7) A pattern of failure to make required submissions or responses 
to SBA in a timely manner, including a failure to provide required 
financial statements, requested tax returns, reports, updated business 
plans, information requested by SBA's Office of Inspector General, or 
other requested information or data within 30 days of the date of 
request.
    (8) Cessation of business operations by the concern.
    (9) Failure by the concern to pursue competitive and commercial 
business in accordance with its business plan, or failure in other ways 
to make reasonable efforts to develop and achieve competitive viability.
    (10) A pattern of inadequate performance by the concern of awarded 
section 8(a) contracts.
    (11) Failure by the concern to pay or repay significant financial 
obligations owed to the Federal Government.
    (12) Failure by the concern to obtain and keep current any and all 
required permits, licenses, and charters, including suspension or 
revocation of any professional license required to operate the business.
    (13) Excessive withdrawals, including transfers of funds or other 
business assets, from the concern for the personal benefit of any of its 
owners or any person or entity affiliated with the owners that hinder 
the development of the concern (see Sec. 124.112(d).
    (14) Unauthorized use of SBA direct or guaranteed loan proceeds or 
violation of an SBA loan agreement.
    (15) Submission by or on behalf of a Participant of false 
information to SBA, including false certification of compliance with 
non-8(a) business activity targets under Sec. 124.507 or failure to 
report changes that adversely affect the program eligibility of an 
applicant or program participant under Sec. 124.204 and Sec. 124.112, 
where responsible officials of the 8(a) BD Participant knew or should 
have known the submission to be false.
    (16) Debarment, suspension, voluntary exclusion, or ineligibility of 
the concern or its principals pursuant to part 145 of this title or FAR 
subpart 9.4 (48 CFR part 9, subpart 9.4).
    (17) Conduct by the concern, or any of its principals, indicating a 
lack of business integrity. Such conduct may be demonstrated by 
information related to a criminal indictment or

[[Page 364]]

guilty plea, a criminal conviction, or a judgment or settlement in a 
civil case.
    (18) Willful failure by the Participant business concern to comply 
with applicable labor standards and obligations.
    (19) Material breach of any terms and conditions of the 8(a) BD 
Program Participation Agreement.
    (20) Willful violation by a concern, or any of its principals, of 
any SBA regulation pertaining to material issues.
    (b) The examples of good cause listed in paragraph (a) of this 
section are intended to be illustrative only. Other grounds for 
terminating a Participant from the 8(a) BD program for cause may exist 
and may be used by SBA.



Sec. 124.304  What are the procedures for early graduation and termination?

    (a) General. The same procedures apply to both early graduation and 
termination of Participants from the 8(a) BD program.
    (b) Letter of Intent to Terminate or Graduate Early. When SBA 
believes that a Participant should be terminated or graduated prior to 
the expiration of its program term, SBA will notify the concern in 
writing. The Letter of Intent to Terminate or Graduate Early will set 
forth the specific facts and reasons for SBA's findings, and will notify 
the concern that it has 30 days from the date it receives the letter to 
submit a written response to SBA explaining why the proposed ground(s) 
should not justify termination or early graduation.
    (c) Recommendation and decision. Following the 30-day response 
period, the Assistant Administrator for DPCE (AA/DPCE) or designee will 
consider the proposed early graduation or termination and any 
information submitted in response by the concern. Upon determining that 
early graduation or termination is not warranted, the AA/DPCE or 
designee will notify the Participant in writing. If early graduation or 
termination appears warranted, the AA/DPCE will make such a 
recommendation to the AA/8(a)BD, who will then make a decision whether 
to early graduate or terminate the concern. SBA will act in a timely 
manner in processing early graduation and termination actions.
    (d) Notice requirements. Upon deciding that early graduation or 
termination is warranted, the AA/8(a)BD will issue a Notice of Early 
Graduation or Termination. The Notice will set forth the specific facts 
and reasons for the decision, and will advise the concern that it may 
appeal the decision in accordance with the provisions of part 134 of 
this title.
    (e) Appeal to OHA. Procedures governing appeals of early graduation 
or termination to SBA's OHA are set forth in part 134. If a Participant 
does not appeal a Notification of Early Graduation or Termination within 
45 days after the Participant receives the Notification, the decision of 
the AA/8(a)BD is the final agency decision effective on the date the 
appeal right expired.
    (f) Effect of early graduation or termination. After the effective 
date of early graduation or termination, a Participant is no longer 
eligible to receive any 8(a) BD program assistance. However, such 
concern is obligated to complete previously awarded 8(a) contracts, 
including any priced options which may be exercised.

[63 FR 35739, June 30, 1998, as amended at 67 FR 47246, July 18, 2002]



Sec. 124.305  What is suspension and how is a Participant suspended from the 8(a) BD program?

    (a) At any time after SBA issues a Letter of Intent to Terminate 
pursuant to Sec. 124.304, the AA/8(a)BD may suspend 8(a) contract 
support and all other forms of 8(a) BD program assistance to that 
concern until the issue of the concern's termination from the program is 
finally decided. The AA/8(a)BD may suspend a Participant when he or she 
determines that suspension is needed to protect the interests of the 
Federal Government, such as where information showing a clear lack of 
program eligibility or conduct indicating a lack of business integrity 
exists, including where the concern or one of its principals submitted 
false statements to the Federal Government. SBA will suspend a 
Participant where SBA determines that the Participant submitted false 
information in its 8(a) BD application.

[[Page 365]]

    (b) SBA will issue a Notice of Suspension to the Participant's last 
known address by certified mail, return receipt requested. Suspension is 
effective as of the date of the issuance of the Notice. The Notice will 
provide the following information:
    (1) The basis for the suspension;
    (2) A statement that the suspension will continue pending the 
completion of further investigation, a final program termination 
determination, or some other specified period of time;
    (3) A statement that awards of competitive and non-competitive 8(a) 
contracts, including those which have been ``self-marketed'' by a 
Participant, will not be made during the pendency of the suspension 
unless it is determined by the head of the relevant procuring agency or 
an authorized representative to be in the best interest of the 
Government to do so, and SBA adopts that determination;
    (4) A statement that the concern is obligated to complete previously 
awarded section 8(a) contracts;
    (5) A statement that the suspension is effective nationally 
throughout SBA;
    (6) A statement that a request for a hearing on the suspension will 
be considered by an Administrative Law Judge at OHA, and granted or 
denied as a matter of discretion.
    (7) A statement that the firm's participation in the program is 
suspended effective on the date the Notice is served, and that the 
program term will resume only if the suspension is lifted or the firm is 
not terminated.
    (c) The Participant may appeal a Notice of Suspension by filing a 
petition in accordance with part 134 of this chapter with OHA within 45 
days after the concern receives the Notice of Suspension pursuant to 
paragraph (b) of this section. It is contemplated that in most cases a 
hearing on the issue of the suspension will be afforded if the 
Participant requests one, but authority to grant a hearing is within the 
discretion of the Administrative Law Judge in OHA. A suspension remains 
in effect pending the result of its appeal.
    (d) SBA has the burden of showing that adequate evidence exists that 
protection of the Federal Government's interest requires suspension 
before OHA or the AA/8(a)BD makes a final determination regarding the 
termination action.
    (1) The term ``adequate evidence'' means information contained in 
the record before the AA/8(a)BD at the time of his or her suspension 
decision that is sufficient to support the reasonable belief that the 
Government's interests need to be protected.
    (2) SBA need not demonstrate that an act or omission actually 
occurred in order for OHA to uphold a suspension. SBA's burden in a 
suspension proceeding is limited to demonstrating that it had a 
reasonable belief that a particular act or omission occurred, and that 
that act or omission requires suspension to protect the interests of the 
Government.
    (3) Unless the Administrative Law Judge consolidates the suspension 
and termination proceedings, OHA's review is limited to determining 
whether the Government's interests need to be protected, and will not 
consider the merits of the termination action.
    (e) If there is a timely appeal, the decision of the Administrative 
Law Judge is the final SBA decision. If there is not a timely appeal, 
the decision of the AA/8(a)BD is the final Agency decision.
    (f) Upon the request of SBA, OHA may consolidate suspension and 
termination proceedings when the issues presented are identical.
    (g) Any program suspension which occurs under this section is 
effective until such time as SBA lifts the suspension or the 
Participant's participation in the program is fully terminated. If the 
concern is ultimately not terminated from the 8(a) BD program, the 
suspension will be lifted and the length of the suspension will be added 
to the concern's program term.
    (h) SBA may suspend a Participant from program benefits where a 
change of ownership or business structure has been requested if 
ownership or control of the participant changed prior to SBA's approval 
pending resolution of the request to change its ownership or control. If 
the change of ownership is approved, the length of the suspension will 
be added to the firm's program term where the change in ownership 
results from the death or incapacity of a disadvantaged individual or 
where the

[[Page 366]]

firm requested prior approval and waited 60 days for SBA approval before 
making the change. The suspension will be commenced by the issuance of a 
notice similar to that required for termination-related suspensions 
under paragraph (b) of this section, except that a change of ownership 
suspension is not appealable.
    (i) SBA does not recognize the concept of de facto suspension. 
Adding time to the end of a Participant's program term equal to the 
length of a suspension will occur only where a concern's program 
participation has been formally suspended in accordance with the 
procedures set forth in this section.
    (j) A suspension from 8(a) BD participation under this section has 
no effect on a concern's eligibility for non-8(a) Federal Government 
contracts. However, a debarment or suspension under the Federal 
Acquisition Regulation (48 CFR, chapter 1) will disqualify a concern 
from receiving all Federal Government contracts, including 8(a) 
contracts.

[63 FR 35739, June 30, 1998, as amended at 67 FR 47246, July 18, 2002]

                          Business Development



Sec. 124.401  Which SBA field office services a Participant?

    The SBA district office which serves the geographical territory 
where a Participant's principal place of business is located normally 
will service the concern during its participation in the 8(a) BD 
program.



Sec. 124.402  How does a Participant develop a business plan?

    (a) General. In order to assist the SBA servicing office in 
determining the business development needs of its portfolio 
Participants, each Participant must develop a comprehensive business 
plan setting forth its business targets, objectives, and goals.
    (b) Submission of initial business plan. Each Participant must 
submit a business plan to its SBA servicing office as soon as possible 
after program admission. The Participant will not be eligible for 8(a) 
BD program benefits, including 8(a) contracts, until SBA approves its 
business plan.
    (c) Contents of business plan. The business plan must contain at 
least the following:
    (1) A detailed description of any products currently being produced 
and any services currently being performed by the concern, as well as 
any future plans to enter into one or more new markets;
    (2) The applicant's designation of its primary industry 
classification, as defined in Sec. 124.3;
    (3) An analysis of market potential, competitive environment, and 
the concern's prospects for profitable operations during and after its 
participation in the 8(a) BD program;
    (4) An analysis of the concern's strengths and weaknesses, with 
particular attention on ways to correct any financial, managerial, 
technical, or work force conditions which could impede the concern from 
receiving and performing non-8(a) contracts;
    (5) Specific targets, objectives, and goals for the business 
development of the concern during the next two years;
    (6) Estimates of both 8(a) and non-8(a) contract awards that will be 
needed to meet its targets, objectives and goals; and
    (7) Such other information as SBA may require.



Sec. 124.403  How is a business plan updated and modified?

    (a) Annual review. Each Participant must annually review its 
business plan with its assigned Business Opportunity Specialist (BOS), 
and modify the plan as appropriate. The Participant must submit a 
modified plan and updated information to its BOS within thirty (30) days 
after the close of each program year. It also must submit a capability 
statement describing its current contract performance capabilities as 
part of its updated business plan.
    (b) Contract forecast. As part of the annual review of its business 
plan, each Participant must annually forecast in writing its needs for 
contract awards for the next program year. The forecast must include:
    (1) The aggregate dollar value of 8(a) contracts to be sought, 
broken down by sole source and competitive opportunities where possible;
    (2) The aggregate dollar value of non-8(a) contracts to be sought;

[[Page 367]]

    (3) The types of contract opportunities to be sought, identified by 
product or service; and
    (4) Such other information as SBA may request to aid in providing 
effective business development assistance to the Participant.
    (c) Transition management strategy. Beginning in the first year of 
the transitional stage of program participation, each Participant must 
annually submit a transition management strategy to be incorporated into 
its business plan. The transition management strategy must describe:
    (1) How the Participant intends to meet the applicable non-8(a) 
business activity target imposed by Sec. 124.507 during the transitional 
stage of participation; and
    (2) The specific steps the Participant intends to take to continue 
its business growth and promote profitable business operations after the 
expiration of its program term.
    (d) Benchmark achievement. Where actual participation by 
disadvantaged businesses in a particular SIC Major Group exceeds the 
benchmark limitations established by the Department of Commerce for that 
Major Group, SBA may adjust the targets, objectives and goals contained 
in the business plans of Participants whose primary industry 
classification falls within that Major Group. Any adjustment will take 
into account projected decreases in 8(a) and SDB contracting 
opportunities.

[63 FR 35739, 35772, June 30, 1998]



Sec. 124.404  What business development assistance is available to Participants during the two stages of participation in the 8(a) BD program?

    (a) General. Participation in the 8(a) BD program is divided into 
two stages, a developmental stage and a transitional stage. The 
developmental stage will last four years, and the transitional stage 
will last five years, unless the concern has exited the program by one 
of the means set forth in Sec. 124.301 prior to the expiration of its 
program term.
    (b) Developmental stage of program participation. A Participant, if 
otherwise eligible, may receive the following assistance during the 
developmental stage of program participation:
    (1) Sole source and competitive 8(a) contract support;
    (2) Financial assistance pursuant to Sec. 120.375 of this title;
    (3) The transfer of technology or surplus property owned by the 
United States pursuant to Sec. 124.405; and
    (4) Training to aid in developing business principles and strategies 
to enhance their ability to compete successfully for both 8(a) and non-
8(a) contracts.
    (c) Transitional stage of program participation. A Participant, if 
otherwise eligible, may receive the following assistance during the 
transitional stage of program participation:
    (1) The same assistance as that provided to Participants in the 
developmental stage;
    (2) Assistance from procuring agencies (in cooperation with SBA) in 
forming joint ventures, leader-follower arrangements, and teaming 
agreements between the concern and other Participants or other business 
concerns with respect to contracting opportunities outside the 8(a) BD 
program for research, development, or full scale engineering or 
production of major systems (these arrangements must comply with all 
relevant statutes and regulations, including applicable size standard 
requirements); and
    (3) Training and technical assistance in transitional business 
planning.



Sec. 124.405  How does a Participant obtain Federal Government surplus property?

    (a) General. (1) Pursuant to 15 U.S.C. 636(j)(13)(F), eligible 
Participants may receive surplus Federal Government property from State 
Agencies for Surplus Property (SASPs). The procedures set forth in 41 
CFR Part 101-44 and this section will be used to transfer surplus 
property to eligible Participants.
    (2) The property which may be transferred to SASPs for further 
transfer to eligible Participants includes all personal property which 
has been determined to be ``donable'' as defined in 41 CFR 101-44.001-3.
    (b) Eligibility to receive Federal surplus property. To be eligible 
to receive Federal surplus property, on the date of transfer a concern 
must:
    (1) Be in the 8(a) BD program;

[[Page 368]]

    (2) Be in compliance with all program requirements, including any 
reporting requirements;
    (3) Not be debarred, suspended, or declared ineligible under part 9, 
subpart 9.4 of the Federal Acquisition Regulations, Title 48 of the Code 
of Federal Regulations;
    (4) Not be under a pending 8(a) BD program suspension, termination 
or early graduation proceeding; and
    (5) Be engaged or expect to be engaged in business activities making 
the item useful to it.
    (c) Use of acquired surplus property. (1) Eligible Participants may 
acquire surplus Federal property from any SASP located in any state, 
provided the concern represents and agrees in writing:
    (i) As to what the intended use of the surplus property is to be and 
that this use is consistent with the objectives of the concern's 8(a) 
business plan;
    (ii) That it will use the property to be acquired in the normal 
conduct of its business activities or be liable for the fair rental 
value from the date of its receipt;
    (iii) That it will not sell or transfer the property to be acquired 
to any party other than the Federal Government during its term of 
participation in the 8(a) program and for one year after it leaves the 
program;
    (iv) That, at its own expense, it will return the property to a SASP 
or transfer it to another Participant if directed to do so by SBA 
because it has not used the property as intended within one year of 
receipt;
    (v) That, should it breach its agreement not to sell or transfer the 
property, it will be liable to the Government for the established fair 
market value or the sale price, whichever is greater, of the property 
sold or transferred; and
    (vi) That it will give SBA access to inspect the property and all 
records pertaining to it.
    (2) A firm receiving surplus property pursuant to this section 
assumes all liability associated with or stemming from the use of the 
property.
    (3) If the property is not placed in use for the purposes for which 
it was intended within one year of its receipt, SBA may direct the 
concern to deliver the property to another Participant or to the SASP 
from which it was acquired.
    (4) Failure to comply with any of the commitments made under 
paragraph (c)(1) of this section constitutes a basis for termination 
from the 8(a) program.
    (d) Procedures for acquiring Federal Government surplus property. 
(1) Participants may participate in the surplus property distribution 
program administered by the SASPs to the same extent, but with no 
special priority over, other authorized transferees. See 41 CFR subpart 
101-44.2.
    (2) Each Participant seeking to acquire Federal Government surplus 
property from a SASP must:
    (i) Certify in writing to the SASP that it is eligible to receive 
the property pursuant to paragraph (b) of this section;
    (ii) Make the written representations and agreement required by 
paragraph (c)(1) of this section; and
    (iii) Identify to the SASP its servicing SBA field office.
    (3) Upon receipt of the required certification, representations, 
agreement, and information set forth in paragraph (d)(2) of this 
section, the SASP must contact the appropriate SBA field office and 
obtain SBA's verification that the concern seeking to acquire the 
surplus property is eligible, and that the identified use of the 
property is consistent with the concern's business activities. SASPs may 
not release property to a Participant without this verification.
    (4) The SASP and the Participant must agree on and record the fair 
market value of the surplus property at the time of the transfer to the 
Participant. The SASP must provide to SBA a written record, including 
the agreed upon fair market value, of each transaction to a Participant 
when any property has been transferred.
    (e) Costs. Participants acquiring surplus property from a SASP must 
pay a service fee to the SASP which is equal to the SASP's direct costs 
of locating, inspecting, and transporting the surplus property. If a 
Participant elects to incur the responsibility and the expense for 
transporting the acquired property, the concern may do so and no 
transportation costs will be charged by the SASP. In addition, the SASP 
may

[[Page 369]]

charge a reasonable fee to cover its costs of administering the program. 
In no instance will any SASP charge a Participant more for any service 
than their established fees charged to other transferees.
    (f) Title. The title to surplus property acquired from a SASP will 
pass to the Participant when the Participant executes the applicable 
SASP distribution documents and takes possession of the property.
    (g) Compliance. (1) SBA will periodically review whether 
Participants that have received surplus property have used and 
maintained the property as agreed. This review may include site visits 
to visually inspect the property to ensure that it is being used in a 
manner consistent with the terms of its transfer.
    (2) Participants must provide SBA with access to all relevant 
records upon request.
    (3) Where SBA receives credible information that transferred surplus 
property may have been disposed of or otherwise used in a manner that is 
not consistent with the terms of the transfer, SBA may investigate such 
claim to determine its validity.
    (4) SBA may take any action to correct any noncompliance involving 
the use of transferred property still in possession of the Participant 
or to enforce any terms, conditions, reservations, or restrictions 
imposed on the property by the distribution document. Actions to enforce 
compliance, or which may be taken as a result of noncompliance, include 
the following:
    (i) Requiring that the property be placed in proper use within a 
specified time;
    (ii) Requiring that the property be transferred to another 
Participant having a need and use for the property, returned to the SASP 
serving the area where the property is located for distribution to 
another eligible transferee or to another SASP, or transferred through 
GSA to another Federal agency;
    (iii) Recovery of the fair rental value of the property from the 
date of its receipt by the Participant; and
    (iv) Initiation of proceedings to terminate the Participant from the 
8(a) BD program.
    (5) Where SBA finds that a recipient has sold or otherwise disposed 
of the acquired surplus property in violation of the agreement covering 
sale and disposal, the Participant is liable for the agreed upon fair 
market value of the property at the time of the transfer, or the sale 
price, whichever is greater. However, a Participant need not repay any 
amount where it can demonstrate to SBA's satisfaction that the property 
is no longer useful for the purpose for which it was transferred and 
receives SBA's prior written consent to transfer the property. For 
example, if a piece of equipment breaks down beyond repair, it may be 
disposed of without being subject to the repayment provision, so long as 
the concern receives SBA's prior consent.
    (6) Any funds received by SBA in enforcement of this section will be 
remitted promptly to the Treasury of the United States as miscellaneous 
receipts.

                         Contractual Assistance



Sec. 124.501  What general provisions apply to the award of 8(a) contracts?

    (a) Pursuant to section 8(a) of the Small Business Act, SBA is 
authorized to enter into all types of contracts with other Federal 
agencies, including contracts to furnish equipment, supplies, services, 
leased real property, or materials to them or to perform construction 
work for them, and to contract the performance of these contracts to 
qualified Participants. Where practicable, simplified acquisition 
procedures should be used for 8(a) contracts at or below the simplified 
acquisition threshold. Where appropriate, SBA will delegate the contract 
execution function to procuring activities. In order to receive and 
retain a delegation of SBA's contract execution and review functions, a 
procuring activity must report all 8(a) contract awards, modifications, 
and options to SBA.
    (b) 8(a) contracts may either be sole source awards or awards won 
through competition with other Participants.
    (c) Admission into the 8(a) BD program does not guarantee that a 
Participant will receive 8(a) contracts.
    (d) A requirement for possible award may be identified by SBA, a 
particular

[[Page 370]]

Participant or the procuring activity itself. SBA will submit the 
capability statements provided to SBA annually under Sec. 124.403 to 
appropriate procuring activities for the purpose of matching 
requirements with Participants.
    (e) Participants should market their capabilities to appropriate 
procuring activities to increase their prospects of receiving sole 
source 8(a) contracts.
    (f) An 8(a) participant that identifies a requirement that appears 
suitable for award through the 8(a) BD program may request SBA to 
contact the procuring activity to request that the requirement be 
offered to the 8(a) BD program.
    (g) A concern must be a current Participant in the 8(a) BD program 
at the time of award, except as provided in Sec. 124.507(d).
    (h) A Participant must certify that it is a small business under the 
size standard corresponding to the SIC code assigned to each 8(a) 
contract. 8(a) BD program personnel will verify size prior to award of 
an 8(a) contract. If the Participant is not verified as small, it may 
request a formal size determination from the appropriate General 
Contracting Area Office under part 121 of this title.
    (i) Any person or entity that misrepresents its status as a ``small 
business concern owned and controlled by socially and economically 
disadvantaged individuals'' in order to obtain any 8(a) contracting 
opportunity will be subject to possible criminal, civil and 
administrative penalties, including those imposed by section 16(d) of 
the Small Business Act, 15 U.S.C. 645(d).



Sec. 124.502  How does an agency offer a procurement to SBA for award through the 8(a) BD program?

    (a) A procuring activity contracting officer indicates his or her 
formal intent to award a procurement requirement as an 8(a) contract by 
submitting a written offering letter to SBA. The procuring activity may 
transmit the offering letter to SBA by electronic mail, if available, or 
by facsimile transmission, as well as by mail or commercial delivery 
service.
    (b) Contracting officers must submit offering letters to the 
following locations:
    (1) For competitive 8(a) requirements and those sole source 
requirements for which no specific Participant is nominated (i.e., open 
requirements) other than construction requirements, to the SBA district 
office serving the geographical area in which the procuring activity is 
located;
    (2) For competitive and open construction requirements, to the SBA 
district office serving the geographical area in which the work is to be 
performed or, in the case of such contracts to be performed overseas, to 
the Office of 8(a) BD located in SBA Headquarters;
    (3) For sole source requirements offered on behalf of a specific 
Participant, to the SBA district office servicing that concern.
    (c) An offering letter must contain the following information:
    (1) A description of the work to be performed;
    (2) The estimated period of performance;
    (3) The SIC code that applies to the principal nature of the 
acquisition;
    (4) The anticipated dollar value of the requirement, including 
options, if any;
    (5) Any special restrictions or geographical limitations on the 
requirement;
    (6) The location of the work to be performed for construction 
procurements;
    (7) Any special capabilities or disciplines needed for contract 
performance;
    (8) The type of contract to be awarded, such as firm fixed price, 
cost reimbursement, or time and materials;
    (9) The acquisition history, if any, of the requirement;
    (10) The names and addresses of any small business contractors which 
have performed on this requirement during the previous 24 months;
    (11) A statement that prior to the offering no solicitation for the 
specific acquisition has been issued as a small business set-aside, or 
as a small disadvantaged business set-aside if applicable, and that no 
other public communication (such as a notice in the Commerce Business 
Daily) has been made showing the procuring activity's clear

[[Page 371]]

intent to use any of these means of procurement;
    (12) Identification of any specific Participant that the procuring 
activity contracting officer nominates for award of a sole source 8(a) 
contract, if appropriate, including a brief justification for the 
nomination, such as one of the following:
    (i) The Participant, through its own efforts, marketed the 
requirement and caused it to be reserved for the 8(a) BD program; or
    (ii) The acquisition is a follow-on or renewal contract and the 
nominated concern is the incumbent;
    (13) Bonding requirements, if applicable;
    (14) Identification of all Participants which have expressed an 
interest in being considered for the acquisition;
    (15) Identification of all SBA field offices which have requested 
that the requirement be awarded through the 8(a) BD program;
    (16) A request, if appropriate, that a requirement whose estimated 
contract value is under the applicable competitive threshold be awarded 
as an 8(a) competitive contract; and
    (17) Any other information that the procuring activity deems 
relevant or which SBA requests.



Sec. 124.503  How does SBA accept a procurement for award through the 8(a) BD program?

    (a) Acceptance of the requirement. Upon receipt of the procuring 
activity's offer of a procurement requirement, SBA will determine 
whether it will accept the requirement for the 8(a) BD program. SBA's 
decision whether to accept the requirement will be sent to the procuring 
activity in writing within 10 working days of receipt of the written 
offering letter if the contract is valued at more than the simplified 
acquisition threshold, and within two days of receipt of the offering 
letter if the contract is valued at or below the simplified acquisition 
threshold, unless SBA requests, and the procuring activity grants, an 
extension. SBA is not required to accept any particular procurement 
offered to the 8(a) BD program.
    (1) Where SBA decides to accept an offering of a sole source 8(a) 
procurement, SBA will accept the offer both on behalf of the 8(a) BD 
program and in support of a specific Participant.
    (2) Where SBA decides to accept an offering of a competitive 8(a) 
procurement, SBA will accept the offer on behalf of the 8(a) BD program.
    (3) Where SBA has delegated its contract execution functions to a 
procuring activity, the procuring activity may assume that SBA accepts 
its offer for the 8(a) program if the procuring activity does not 
receive a reply to its offer within five days.
    (4) In the case of procurement requirements valued at or below the 
Simplified Acquisition Procedures threshold:
    (i) Where a procuring activity makes an offer to the 8(a) program on 
behalf of a specific Program Participant and does not receive a reply to 
its offer within two days, the procuring activity may assume the offer 
is accepted and proceed with award of an 8(a) contract;
    (ii) Where SBA has delegated its 8(a) contract execution functions 
to an agency, SBA may authorize the procuring activity to award an 8(a) 
contract without requiring an offer and acceptance of the requirement 
for the 8(a) program. In such a case, the procuring activity must notify 
SBA of all 8(a) awards made under this authority.
    (5) Where SBA does not respond to an offering letter within the 
normal 10-day time period, the procuring activity may seek SBA's 
acceptance through the AA/8(a)BD. The procuring activity may assume that 
SBA accepts its offer for the 8(a) program if it does not receive a 
reply from the AA/8(a)BD within 5 days of his or her receipt of the 
procuring activity request.
    (b) Verification of SIC code. As part of the acceptance process, SBA 
will verify the appropriateness of the SIC code designation assigned to 
the requirement by the procuring activity contracting officer.
    (1) SBA will accept the SIC code assigned to the requirement by the 
procuring activity contracting officer as long as it is reasonable, even 
though other SIC codes may also be reasonable.
    (2) If SBA and the procuring activity are unable to agree as to the 
proper

[[Page 372]]

SIC code designation for the requirement, SBA may either refuse to 
accept the requirement for the 8(a) BD program, appeal the contracting 
officer's determination to the head of the agency pursuant to 
Sec. 124.505, or appeal the SIC code designation to OHA under part 134 
of this title.
    (c) Sole source award where procuring activity nominates a specific 
Participant. SBA will determine whether an appropriate match exists 
where the procuring activity identifies a particular Participant for a 
sole source award.
    (1) Once SBA determines that a procurement is suitable to be 
accepted as an 8(a) sole source contract, SBA will normally accept it on 
behalf of the Participant recommended by the procuring activity, 
provided that:
    (i) The procurement is consistent with the Participant's business 
plan;
    (ii) The Participant complies with its applicable non-8(a) business 
activity target imposed by Sec. 124.509(d);
    (iii) The Participant is small for the size standard corresponding 
to the SIC code assigned to the requirement by the procuring activity 
contracting officer; and
    (iv) The Participant has submitted required financial statements to 
SBA.
    (2) If an appropriate match exists, SBA will advise the procuring 
activity whether SBA will participate in contract negotiations or 
whether SBA will authorize the procuring activity to negotiate directly 
with the identified Participant. Where SBA has delegated its contract 
execution functions to a procuring activity, SBA will also identify that 
delegation in its acceptance letter.
    (3) If an appropriate match does not exist, SBA will notify the 
Participant and the procuring activity, and may then nominate an 
alternate Participant.
    (d) Open requirements. When a procuring activity does not nominate a 
particular concern for performance of a sole source 8(a) contract (open 
requirement), the following additional procedures will apply:
    (1) If the procurement is a construction requirement, SBA will 
examine the portfolio of Participants that have a bona fide place of 
business within the geographical boundaries served by the SBA district 
office where the work is to be performed to select a qualified 
Participant. If none is found to be qualified or a match for a concern 
in that district is determined to be impossible or inappropriate, SBA 
may nominate a Participant with a bona fide place of business within the 
geographical boundaries served by another district office within the 
same state, or may nominate a Participant having a bona fide place of 
business out of state but within a reasonable proximity to the work 
site. SBA's decision will ensure that the nominated Participant is close 
enough to the work site to keep costs of performance reasonable.
    (2) If the procurement is not a construction requirement, SBA may 
select any eligible, responsible Participant nationally to perform the 
contract.
    (3) In cases in which SBA selects a Participant for possible award 
from among two or more eligible and qualified Participants, the 
selection will be based upon relevant factors, including business 
development needs, compliance with competitive business mix requirements 
(if applicable), financial condition, management ability, technical 
capability, and whether award will promote the equitable distribution of 
8(a) contracts.
    (e) Formal technical evaluations. Except for requirements for 
architectural and engineering services, SBA will not authorize formal 
technical evaluations for sole source 8(a) requirements. A procuring 
activity:
    (1) Must request that a procurement be a competitive 8(a) award if 
it requires formal technical evaluations of more than one Participant 
for a requirement below the applicable competitive threshold amount; and
    (2) May conduct informal assessments of several Participants' 
capabilities to perform a specific requirement, so long as the statement 
of work for the requirement is not released to any of the Participants 
being assessed.
    (f) Repetitive acquisitions. A procuring activity contracting 
officer must submit a new offering letter to SBA where he or she intends 
to award a follow-on or repetitive contract as an 8(a) award. This 
enables SBA to determine:
    (1) Whether the requirement should be a competitive 8(a) award;

[[Page 373]]

    (2) A nominated firm's eligibility, whether or not it is the same 
firm that performed the previous contract;
    (3) The affect that contract award would have on the equitable 
distribution of 8(a) contracts; and
    (4) Whether the requirement should continue under the 8(a) BD 
program.
    (g) Basic Ordering Agreements (BOAs). A Basic Ordering Agreement 
(BOA) is not a contract under the FAR. See 48 CFR 16.703(a). Each order 
to be issued under the BOA is an individual contract. As such, the 
procuring activity must offer, and SBA must accept, each task order 
under a BOA in addition to offering and accepting the BOA itself.
    (1) SBA will not accept for award on a sole source basis any task 
order under a BOA that would cause the total dollar amount of task 
orders issued to exceed the applicable competitive threshold amount set 
forth in Sec. 124.506(a).
    (2) Where a procuring activity believes that task orders to be 
issued under a proposed BOA will exceed the applicable competitive 
threshold amount set forth in Sec. 124.506(a), the procuring activity 
must offer the requirement to the program to be competed among eligible 
Participants.
    (3) Once a concern's program term expires, the concern otherwise 
exits the 8(a) BD program, or becomes other than small for the SIC code 
assigned under the BOA, new orders will not be accepted for the concern.
    (h) Multiple Award and Federal Supply Schedule Contracts. Unlike 
Basic Ordering Agreements, Multiple Award and Federal Supply Schedule 
contracts are contracts. Orders issued under these contracts are not 
considered separate contracts. As such, SBA's acceptance of the original 
Multiple Award or Federal Supply Schedule contract is valid for the 
duration of the contract. Separate offers and acceptances will not be 
made for individual task orders under these contracts.
    (1) Task orders are not required to be competed where the value of 
the task order will exceed the competitive threshold as long as the 
original contract was competed.
    (2) A concern may continue to accept new orders under a Multiple 
Award or Federal Supply Schedule contract even where a concern's program 
term expires, the concern otherwise exits the 8(a) BD program, or the 
concern becomes other than small for the SIC code assigned under the 
contract subsequent to award of the contract.
    (i) Requirements where SBA has delegated contract execution 
authority. Except as provided in paragraph (a)(4)(i) of this section, 
where SBA has delegated its 8(a) contract execution authority to the 
procuring activity, the procuring activity must still offer and SBA must 
still accept all requirements intended to be awarded as 8(a) contracts.



Sec. 124.504  What circumstances limit SBA's ability to accept a procurement for award as an 8(a) contract?

    SBA will not accept a procurement for award as an 8(a) contract if 
the circumstances identified in paragraphs (a) through (d) of this 
section exist.
    (a) Reservation as small business or SDB set-aside. The procuring 
activity issued a solicitation for or otherwise expressed publicly a 
clear intent to reserve the procurement as a small business or small 
disadvantaged business (SDB) set-aside prior to offering the requirement 
to SBA for award as an 8(a) contract. The AA/8(a)BD may permit the 
acceptance of the requirement, however, under extraordinary 
circumstances.

    Example to paragraph (a). SBA may accept a requirement where a 
procuring activity made a decision to offer the requirement to the 8(a) 
BD program before the solicitation was sent out and the procuring 
activity acknowledges and documents that the solicitation was in error.

    (b) Competition prior to offer and acceptance. The procuring 
activity competed a requirement among Participants prior to offering the 
requirement to SBA and receiving SBA's formal acceptance of the 
requirement.
    (1) Any competition conducted without first obtaining SBA's formal 
acceptance of the procurement for the 8(a) BD program will not be 
considered an 8(a) competitive requirement.
    (2) SBA may accept the requirement for the 8(a) BD program as a 
competitive 8(a) requirement, but only if the procuring activity agrees 
to resolicit

[[Page 374]]

the requirement using appropriate competitive 8(a) procedures.
    (c) Adverse impact. SBA has made a written determination that 
acceptance of the procurement for 8(a) award would have an adverse 
impact on an individual small business, a group of small businesses 
located in a specific geographical location, or other small business 
programs. The adverse impact concept is designed to protect small 
business concerns which are performing Government contracts awarded 
outside the 8(a) BD program, and does not apply to follow-on or renewal 
8(a) acquisitions. SBA will not consider adverse impact with respect to 
any requirement offered to the 8(a) program under Simplified Acquisition 
Procedures.
    (1) In determining whether the acceptance of a requirement would 
have an adverse impact on an individual small business, SBA will 
consider all relevant factors.
    (i) In connection with a specific small business, SBA presumes 
adverse impact to exist where:
    (A) The small business concern has performed the specific 
requirement for at least 24 months;
    (B) The small business is performing the requirement at the time it 
is offered to the 8(a) BD program, or its performance of the requirement 
ended within 30 days of the procuring activity's offer of the 
requirement to the 8(a) BD program; and
    (C) The dollar value of the requirement that the small business is 
or was performing is 25 percent or more of its most recent annual gross 
sales (including those of its affiliates). For a multi-year requirement, 
the dollar value of the last 12 months of the requirement will be used 
to determine whether a small business would be adversely affected by 
SBA's acceptance.
    (ii) Except as provided in paragraph (c)(2) of this section, adverse 
impact does not apply to ``new'' requirements. A new requirement is one 
which has not been previously procured by the relevant procuring 
activity.
    (A) Where a requirement is new, no small business could have 
previously performed the requirement and, thus, SBA's acceptance of the 
requirement for the 8(a) BD program will not adversely impact any small 
business.
    (B) Construction contracts, by their very nature (e.g., the building 
of a specific structure), are deemed new requirements.
    (C) The expansion or modification of an existing requirement will be 
considered a new requirement where the magnitude of change is 
significant enough to cause a price adjustment of at least 25 percent 
(adjusted for inflation) or to require significant additional or 
different types of capabilities or work.
    (D) SBA need not perform an impact determination where a new 
requirement is offered to the 8(a) BD program.
    (2) In determining whether the acceptance of a requirement would 
have an adverse impact on a group of small businesses, SBA will consider 
the effects of combining or consolidating various requirements being 
performed by two or more small business concerns into a single contract 
which would be considered a ``new'' requirement as compared to any of 
the previous smaller requirements. SBA may find adverse impact to exist 
if one of the existing small business contractors meets the presumption 
set forth in paragraph (c)(1)(i) of this section.
    (3) In determining whether the acceptance of a requirement would 
have an adverse impact on other small business programs, SBA will 
consider all relevant factors, including but not limited to, the number 
and value of contracts in the subject industry reserved for the 8(a) BD 
program as compared with other small business programs.
    (d) Benchmark achievement. Where actual participation by 
disadvantaged businesses in a SIC Major Group exceeds the benchmark 
limitations established by the Department of Commerce for that Major 
Group, SBA may elect not to accept a requirement having a SIC code 
within the Major Group that is offered to SBA for award as an 8(a) 
contract. In determining whether to accept a requirement in such a case, 
SBA will consider the developmental needs of Participants and other 
anticipated contracting opportunities available to them.
    (e) Release for non-8(a) competition. In limited instances, SBA may 
decline to

[[Page 375]]

accept the offer of a follow-on or renewal 8(a) acquisition to give a 
concern previously awarded the contract that is leaving or has left the 
8(a) BD program the opportunity to compete for the requirement outside 
the 8(a) BD program.
    (1) SBA will consider release only where:
    (i) The procurement awarded through the 8(a) BD program is being or 
was performed by either a Participant whose program term will expire 
prior to contract completion, or, by a former Participant whose program 
term expired within one year of the date of the offering letter;
    (ii) The concern requests in writing that SBA decline to accept the 
offer prior to SBA's acceptance of the requirement for award as an 8(a) 
contract; and
    (iii) The concern qualifies as a small business for the requirement 
now offered to the 8(a) BD program.
    (2) In considering release, SBA will balance the importance of the 
requirement to the concern's business development needs against the 
business development needs of other Participants that are qualified to 
perform the requirement. This determination will include consideration 
of whether rejection of the requirement would seriously reduce the pool 
of similar types of contracts available for award as 8(a) contracts. SBA 
will seek the views of the procuring activity.
    (3) If SBA declines to accept the offer and releases the 
requirement, it will recommend to the procuring activity that the 
requirement be procured as a small business or, if authorized, an SDB 
set-aside.

[63 FR 35739, 35772, June 30, 1998]



Sec. 124.505  When will SBA appeal the terms or conditions of a particular 8(a) contract or a procuring activity decision not to reserve a requirement for the 
          8(a) BD program?

    (a) What SBA may appeal. The Administrator of SBA may appeal the 
following matters to the head of the procuring agency:
    (1) A contracting officer's decision not to make a particular 
procurement available for award as an 8(a) contract;
    (2) A contracting officer's decision to reject a specific 
Participant for award of an 8(a) contract after SBA's acceptance of the 
requirement for the 8(a) BD program; and
    (3) The terms and conditions of a proposed 8(a) contract, including 
the procuring activity's SIC code designation and estimate of the fair 
market price.
    (b) Procedures for appeal. (1) SBA must notify the contracting 
officer of the SBA Administrator's intent to appeal an adverse decision 
within 5 working days of SBA's receipt of the decision.
    (2) Upon receipt of the notice of intent to appeal, the procuring 
activity must suspend further action regarding the procurement until the 
head of the procuring agency issues a written decision on the appeal, 
unless the head of the procuring agency makes a written determination 
that urgent and compelling circumstances which significantly affect 
interests of the United States will not permit waiting for a 
consideration of the appeal.
    (3) The SBA Administrator must send a written appeal of the adverse 
decision to the head of the procuring agency within 15 working days of 
SBA's notification of intent to appeal or the appeal may be considered 
withdrawn.
    (4) By statute (15 U.S.C. 637(a)(1)(A)), the procuring agency head 
must specify in writing the reasons for a denial of an appeal brought by 
the Administrator under this section.



Sec. 124.506  At what dollar threshold must an 8(a) procurement be competed among eligible Participants?

    (a) Competitive thresholds. (1) A procurement offered and accepted 
for the 8(a) BD program must be competed among eligible Participants if:
    (i) There is a reasonable expectation that at least two eligible 
Participants will submit offers at a fair market price;
    (ii) The anticipated award price of the contract, including options, 
will exceed $5,000,000 for contracts assigned manufacturing SIC codes 
and $3,000,000 for all other contracts; and
    (iii) The requirement has not been accepted by SBA for award as a 
sole source 8(a) procurement on behalf of a tribally-owned or ANC-owned 
concern.

[[Page 376]]

    (2) For all types of contracts, the applicable competitive threshold 
amounts will be applied to the procuring activity estimate of the total 
value of the contract, including all options. For indefinite delivery or 
indefinite quantity type contracts, the thresholds are applied to the 
maximum order amount authorized.
    (3) Where the estimate of the total value of a proposed 8(a) 
contract is less than the applicable competitive threshold amount and 
the requirement is accepted as a sole source requirement on that basis, 
award may be made even though the contract price arrived at through 
negotiations exceeds the competitive threshold, provided that the 
contract price is not more than ten percent greater than the competitive 
threshold amount.

    Example to paragraph (a)(3). If the anticipated award price for a 
professional services requirement is determined to be $2.7 million and 
it is accepted as a sole source 8(a) requirement on that basis, a sole 
source award will be valid even if the contract price arrived at after 
negotiation is $3.1 million.

    (4) A proposed 8(a) requirement with an estimated value exceeding 
the applicable competitive threshold amount may not be divided into 
several separate procurement actions for lesser amounts in order to use 
8(a) sole source procedures to award to a single contractor.
    (b) Exemption from competitive thresholds for Participants owned by 
Indian tribes. SBA may award a sole source 8(a) contract to a 
Participant concern owned and controlled by an Indian tribe or an ANC 
where the anticipated value of the procurement exceeds the applicable 
competitive threshold if SBA has not accepted the requirement into the 
8(a) BD program as a competitive procurement. There is no requirement 
that a procurement must be competed whenever possible before it can be 
accepted on a sole source basis for a tribally-owned or ANC-owned 
concern, but a procurement may not be removed from competition to award 
it to a tribally-owned or ANC-owned concern on a sole source basis.
    (c) Competition below thresholds. The AA/8(a)BD, on a nondelegable 
basis, may approve a request from a procuring activity to compete a 
requirement that is below the applicable competitive threshold amount 
among eligible Participants.
    (1) This authority will be used primarily when technical 
competitions are appropriate or when a large number of potential 
awardees exist.
    (2) The AA/8(a)BD may consider whether the procuring activity has 
made and will continue to make available a significant number of its 
contracts to the 8(a) BD program on a noncompetitive basis.
    (3) The AA/8(a)BD may deny a request if the procuring activity 
previously offered the requirement to the 8(a) BD program on a 
noncompetitive basis and the request is made following the inability of 
the procuring activity and the potential sole source awardee to reach an 
agreement on price or some other material term or condition.
    (d) Sole source above thresholds. Where a contract opportunity 
exceeds the applicable threshold amount and there is not a reasonable 
expectation that at least two eligible 8(a) Participants will submit 
offers at a fair price, the AA/8(a)BD may accept the requirement for a 
sole source 8(a) award if he or she determines that an eligible 
Participant in the 8(a) portfolio is capable of performing the 
requirement at a fair price.



Sec. 124.507  What procedures apply to competitive 8(a) procurements?

    (a) FAR procedures. Procuring activities will conduct competitions 
among and evaluate offers received from Participants in accordance with 
the Federal Acquisition Regulation (48 CFR, chapter 1).
    (b) Eligibility determination by SBA. In either a negotiated or 
sealed bid competitive 8(a) acquisition, the procuring activity will 
request that the SBA district office servicing the apparent successful 
offeror determine that firm's eligibility for award.
    (1) Within 5 working days after receipt of a procuring activity's 
request for an eligibility determination, SBA will determine whether the 
firm identified by the procuring activity is eligible for award.
    (2) Eligibility is based on 8(a) BD program criteria, including 
whether the Participant is:

[[Page 377]]

    (i) A small business under the SIC code assigned to the requirement;
    (ii) In compliance with any applicable competitive business mix 
target established or remedial measure imposed by Sec. 124.509 that does 
not include the denial of future 8(a) contracts;
    (iii) In the developmental stage of program participation if the 
solicitation restricts offerors to the developmental stage of 
participation; and
    (iv) A concern with a bona fide place of business in the applicable 
geographic area if the procurement is for construction.
    (3) If SBA determines that the apparent successful offeror is 
ineligible, SBA will notify the procuring activity. The procuring 
activity will then send to SBA the identity of the next highest 
evaluated firm for an eligibility determination. The process is repeated 
until SBA determines that an identified offeror is eligible for award.
    (4) Except to the extent set forth in paragraph (d) of this section, 
SBA determines whether a Participant is eligible for a specific 8(a) 
competitive requirement as of the date that the Participant submitted 
its initial offer which includes price.
    (5) If the procuring activity contracting officer believes that the 
apparent successful offeror is not responsible to perform the contract, 
he or she must refer the concern to SBA for a possible Certificate of 
Competency in accord with Sec. 125.5 of this title.
    (c) Restricted competition. (1) Competition within stages of program 
participation. SBA may accept a competitive 8(a) requirement that is 
limited to Participants in the developmental stage of program 
participation, or may accept a requirement to be competed among firms 
both in the developmental and transitional stages of program 
participation.
    (2) Construction competitions. Based on its knowledge of the 8(a) BD 
portfolio, SBA will determine whether a competitive 8(a) construction 
requirement should be competed among only those Participants having a 
bona fide place of business within the geographical boundaries of one or 
more SBA district offices, within a state, or within the state and 
nearby areas. Only those Participants with bona fide places of business 
within the appropriate geographical boundaries are eligible to submit 
offers.
    (3) Competition for all non-construction requirements. Except for 
construction requirements, all eligible Participants regardless of 
location may submit offers in response to competitive 8(a) 
solicitations. The only geographic restrictions pertaining to 8(a) 
competitive requirements, other than those for construction 
requirements, are any imposed by the solicitations themselves.
    (d) Award to firms whose program terms have expired. A concern that 
has completed its term of participation in the 8(a) BD program may be 
awarded a competitive 8(a) contract if it was a Participant eligible for 
award of the contract on the initial date specified for receipt of 
offers contained in the contract solicitation, and if it continues to 
meet all other applicable eligibility criteria.
    (1) Amendments to the solicitation extending the date for 
submissions of offers will be disregarded.
    (2) For a negotiated procurement, a Participant may submit revised 
offers, including a best and final offer, and be awarded a competitive 
8(a) contract if it was eligible as of the initial date specified for 
the receipt of offers in the solicitation, even though its program term 
may expire after that date.



Sec. 124.508  How is an 8(a) contract executed?

    (a) An 8(a) contract can be awarded in the following ways:
    (1) As a tripartite agreement in which the procuring activity, SBA 
and the Participant all sign the appropriate contract documents. There 
may be separate prime and subcontract documents (i.e., a prime contract 
between the procuring activity and SBA and a subcontract between SBA and 
the selected 8(a) concern) or a combined contract document representing 
both the prime and subcontract relationships; or
    (2) Where SBA has delegated contract execution authority to the 
procuring activity, directly by the procuring activity through a 
contract between the procuring activity and the Participant.
    (b) Where SBA receives a contract for signature valued at or below 
the simplified acquisition threshold, it will

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sign the contract and return it to the procuring activity within three 
(3) days of receipt.
    (c) In order to be eligible to receive a sole source 8(a) contract, 
a firm must be a current Participant on the date of award. (See 
Sec. 124.507(d) for competitive 8(a) awards.)



Sec. 124.509  What are non-8(a) business activity targets?

    (a) General. (1) To ensure that Participants do not develop an 
unreasonable reliance on 8(a) awards, and to ease their transition into 
the competitive marketplace after graduating from the 8(a) BD program, 
Participants must make maximum efforts to obtain business outside the 
8(a) BD program.
    (2) During both the developmental and transitional stages of the 
8(a) BD program, a Participant must make substantial and sustained 
efforts, including following a reasonable marketing strategy, to attain 
the targeted dollar levels of non-8(a) revenue established in its 
business plan. It must attempt to use the 8(a) BD program as a resource 
to strengthen the firm for economic viability when program benefits are 
no longer available.
    (b) Required non-8(a) business activity targets during transitional 
stage. (1) General. During the transitional stage of the 8(a) BD 
program, a Participant must achieve certain targets of non-8(a) contract 
revenue (i.e., revenue from other than sole source or competitive 8(a) 
contracts). These targets are called non-8(a) business activity targets 
and are expressed as a percentage of total revenue. The targets call for 
an increase in non-8(a) revenue over time.
    (2) Non-8(a) business activity targets. During their transitional 
stage of program participation, Participants must meet the following 
non-8(a) business activity targets each year:

------------------------------------------------------------------------
                                                       Non-8(a) business
                                                        activity targets
                                                       (required minimum
     Participant's year in the transitional stage       non-8(a) revenue
                                                        as a percentage
                                                       of total revenue)
------------------------------------------------------------------------
1....................................................                 15
2....................................................                 25
3....................................................                 35
4....................................................                 45
5....................................................                 55
------------------------------------------------------------------------

    (3) Compliance with non-8(a) business activity targets. SBA will 
measure the Participant's compliance with the applicable non-8(a) 
business activity target at the end of each program year in the 
transitional stage based on the Participant's latest fiscal year-end 
total revenue. Thus, at the end of the first year in the transitional 
stage of program participation, SBA will compare the Participant's non-
8(a) revenue to its total revenue during that first year. If 
appropriate, SBA will require remedial measures during the subsequent 
program year. Thus, for example, non-compliance with the required non-
8(a) business activity target in year one of the transitional stage 
would cause SBA to initiate remedial measures under paragraph (d) of 
this section for year two in the transitional stage.
    (4) Certification of compliance. A Participant must certify as part 
of its offer that it complies with the applicable non-8(a) business 
activity target or with the measures imposed by SBA under paragraph (d) 
of this section before it can receive any 8(a) contract during the 
transitional stage of the 8(a) BD program.
    (c) Reporting and verification of business activity. (1) Once 
admitted to the 8(a) BD program, a Participant must provide to SBA as 
part of its annual review:
    (i) Annual financial statements with a breakdown of 8(a) and non-
8(a) revenue in accord with Sec. 124.602; and
    (ii) An annual report within 30 days from the end of the program 
year of all non-8(a) contracts, options, and modifications affecting 
price executed during the program year.
    (2) At the end of each year of participation in the transitional 
stage, the BOS assigned to work with the Participant will review the 
Participant's total revenues to determine whether the non-8(a) revenues 
have met the applicable target. In determining compliance, SBA will 
compare all 8(a) revenues received during the year, including those from 
options and modifications, to all non-8(a) revenues received during the 
year.
    (d) Consequences of not meeting competitive business mix targets. 
(1) Except as set forth in paragraph (e) of this section, beginning at 
the end of the first

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year in the transitional stage (the fifth year of participation in the 
8(a) BD program), any firm that does not meet its applicable competitive 
business mix target for the just completed program year will be 
ineligible for sole source 8(a) contracts in the current program year, 
unless and until the Participant corrects the situation as described in 
paragraph (d)(2) of this section.
    (2) If SBA determines that an 8(a) Participant has failed to meet 
its applicable competitive business mix target during any program year 
in the transitional stage of program participation, SBA may increase its 
monitoring of the Participant's contracting activity during the ensuing 
program year. SBA will also notify the Participant in writing that the 
Participant will not be eligible for further 8(a) sole source contract 
awards until it has demonstrated to SBA that it has complied with its 
non-8(a) business activity requirements as described in paragraphs 
(d)(2)(i) and (d)(2)(ii) of this section. In order for a Participant to 
come into compliance with the non-8(a) business activity target and be 
eligible for further 8(a) sole source contracts, it may:
    (i) Wait until the end of the current program year and demonstrate 
to SBA as part of the normal annual review process that it has met the 
revised non-8(a) business activity target; or
    (ii) At its option, submit information regarding its non-8(a) 
revenue to SBA quarterly throughout the current program year in an 
attempt to come into compliance before the end of the current program 
year. If the Participant satisfies the requirements of paragraphs 
(d)(2)(ii)(A) or (d)(2)(ii)(B) of this section, SBA will reinstate the 
Participant's ability to get sole source 8(a) contracts prior to its 
annual review.
    (A) To qualify for reinstatement during the first six months of the 
current program year (i.e., at either the first or second quarterly 
review), the Participant must demonstrate that it has received non-8(a) 
revenue and new non-8(a) contract awards that are equal to or greater 
than the dollar amount by which it failed to meet its non-8(a) business 
activity target for the just completed program year. For this purpose, 
SBA will not count options on existing non-8(a) contracts in determining 
whether a Participant has received new non-8(a) contract awards.
    (B) To qualify for reinstatement during the last six months of the 
current program year (i.e., at either the nine-month or one year 
review), the Participant must demonstrate that it has achieved its non-
8(a) business activity target as of that point in the current program 
year.

    Example 1 to paragraph (d)(2). Firm A had $10 million in total 
revenue during year 2 in the transitional stage (year 6 in the program), 
but failed to meet the minimum non-8(a) business activity target of 25 
percent. It had 8(a) revenues of $8.5 million and non-8(a) revenues of 
$1.5 million (15 percent). Based on total revenues of $10 million, Firm 
A should have had at least $2.5 million in non-8(a) revenues. Thus, Firm 
A missed its target by $1 million (its target ($2.5 million) minus its 
actual non-8(a) revenues ($1.5 million)). Because Firm A did not achieve 
its non-8(a) business activity target, it cannot receive 8(a) sole 
source awards until correcting that situation. The firm may wait until 
the next annual review to establish that it has met the revised target, 
or it can choose to report contract awards and other non-8(a) revenue to 
SBA quarterly. Firm A elects to submit information to SBA quarterly in 
year 3 of the transitional stage (year 7 in the program). In order to be 
eligible for sole source 8(a) contracts after either its 3 month or 6 
month review, Firm A must show that it has received non-8(a) revenue 
and/or been awarded new non-8(a) contracts totaling $1 million (the 
amount by which it missed its target in year 2 of the transitional 
stage).
    Example 2 to paragraph (d)(2). Firm B had $10 million in total 
revenue during year 2 in the transitional stage (year 6 in the program), 
of which $8.5 million were 8(a) revenues and $1.5 million were non-8(a) 
revenues. At its first two quarterly reviews during year 3 of the 
transitional stage (year 7 in the program), Firm B could not demonstrate 
that it had received at least $1 million in non-8(a) revenue and new 
non-8(a) awards. In order to be eligible for sole source 8(a) contracts 
after its 9 month or 1 year review, Firm B must show that at least 35% 
(the non-8(a) business activity target for year 3 in the transitional 
stage) of all revenues received during year 3 in the transitional stage 
as of that point are from non-8(a) sources.

    (3) In determining whether a Participant has achieved its required 
non-8(a) business activity target at the end of any program year in the 
transitional stage, or whether a Participant that

[[Page 380]]

failed to meet the target for the previous program year has achieved the 
required level of non-8(a) business at its nine-month review, SBA will 
measure 8(a) support by adding the base year value of all 8(a) contracts 
awarded during the applicable program year to the value of all options 
and modifications executed during that year.
    (4) As a condition of eligibility for new 8(a) contracts, SBA may 
also impose other requirements on a Participant that fails to achieve 
the non-8(a) business activity targets. These include requiring the 
Participant to obtain management assistance, technical assistance, and/
or counseling, and/or attend seminars relating to management assistance, 
business development, financing, marketing, accounting, or proposal 
preparation.
    (5) SBA may initiate proceedings to terminate a Participant from the 
8(a) BD program where the firm makes no good faith efforts to obtain 
non-8(a) revenues.
    (e) Waiver of sole source prohibition. (1) The AA/8(a)BD, or his or 
her designee, may waive the requirement prohibiting a Participant from 
receiving further sole source 8(a) contracts when a Participant does not 
meet its non-8(a) business activity target where a denial of a sole 
source contract would cause severe economic hardship on the Participant 
so that the Participant's survival may be jeopardized, or where 
extenuating circumstances beyond the Participant's control caused the 
Participant not to meet its non-8(a) business activity target. The 
decision to grant or deny a request for a waiver is at SBA's discretion, 
and no appeal may be taken with respect to that decision.
    (2) The SBA Administrator on a non-delegable basis may waive the 
requirement prohibiting a Participant from receiving further sole source 
8(a) contracts when the Participant does not meet its non-8(a) business 
activity target where the head of a procuring activity represents to the 
SBA Administrator that award of a sole source 8(a) contract to the 
Participant is needed to achieve significant interests of the 
Government.



Sec. 124.510  What percentage of work must a Participant perform on an 8(a) contract?

    (a) To assist the business development of Participants in the 8(a) 
BD program, an 8(a) contractor must perform certain percentages of work 
with its own employees. These percentages and the requirements relating 
to them are the same as those established for small business set-aside 
prime contractors, and are set forth in Sec. 125.6 of this title.
    (b) A Participant must certify in its offer that it will meet the 
applicable percentage of work requirement. SBA will determine whether 
the firm will be in compliance as of the date of award of the contract 
for both sealed bid and negotiated procurements.
    (c) Indefinite quantity contracts. (1) In order to ensure that the 
required percentage of costs on an indefinite quantity 8(a) award is 
performed by the Participant, the Participant must demonstrate 
semiannually that it has performed the required percentage to that date. 
For a service or supply contract, this does not mean that the 
Participant must perform 50 percent of the applicable costs for each 
task order with its own force, or that a Participant must have performed 
50 percent of the applicable costs at any point in time during the 
contract's life. Rather, the Participant must perform 50 percent of the 
applicable costs for the combined total of all task orders issued to 
date at six month intervals.

    Example to paragraph (c)(1). Two task orders are issued under an 
8(a) indefinite quantity service contract during the first six months of 
the contract. If $100,000 in personnel costs are incurred on the first 
task order, 90% of those costs ($90,000) are incurred for performance by 
the Participant's own work force, and the second task order also 
requires $100,000 in personnel costs, the Participant would have to 
perform only 10 percent of the personnel costs on the second task order 
because it would still have performed 50% of the total personnel costs 
at the end of the six-month period ($100,000 out of $200,000).

    (2) Where there is a guaranteed minimum condition in an indefinite 
quantity 8(a) award, the required performance of work percentage need 
not be met on task orders issued during the first six months of the 
contract. In

[[Page 381]]

such a case, however, the percentage of work that a Participant may 
further contract to other concerns during the first six months of the 
contract may not exceed 50 percent of the total guaranteed minimum 
dollar value to be provided by the contract. Once the guaranteed minimum 
amount is met, the general rule for indefinite quantity contracts set 
forth in paragraph (c)(1) of this section applies.

    Example to paragraph (c)(2). Where a contract guarantees a minimum 
of $100,000 in professional services and the first task order is for 
$60,000 in such services, the Participant may perform as little as 
$10,000 of the personnel costs for that order. In such a case, however, 
the Participant must perform all of the next task order(s) up to $40,000 
to ensure that it performs 50% of the $100,000 guaranteed minimum 
($10,000 + $40,000 = $50,000 or 50% of the $100,000).

    (3) The applicable SBA District Director may waive the provisions in 
paragraphs (c)(1) and (c)(2) of this section requiring a Participant to 
meet the applicable performance of work requirement at the end of any 
six-month period where he or she makes a written determination that 
larger amounts of subcontracting are essential during certain stages of 
performance, provided that there are written assurances from both the 
Participant and the procuring activity that the contract will ultimately 
comply with the requirements of this section. Where SBA authorizes a 
Participant to exceed the subcontracting limitations and the Participant 
does not ultimately comply with the performance of work requirements by 
the end of the contract, SBA will not grant future waivers for the 
Participant.



Sec. 124.511  How is fair market price determined for an 8(a) contract?

    (a) The procuring activity determines what constitutes a ``fair 
market price'' for an 8(a) contract.
    (1) The procuring activity must derive the estimate of a current 
fair market price for a new requirement, or a requirement that does not 
have a satisfactory procurement history, from a price or cost analysis. 
This analysis may take into account prevailing market conditions, 
commercial prices for similar products or services, or data obtained 
from any other agency. The analysis must also consider any cost or 
pricing data that is timely submitted by SBA.
    (2) The procuring activity must base the estimate of a current fair 
market price for a requirement that has a satisfactory procurement 
history on recent award prices adjusted to ensure comparability. 
Adjustments will take into account differences in quantities, 
performance, times, plans, specifications, transportation costs, 
packaging and packing costs, labor and material costs, overhead costs, 
and any other additional costs which may be appropriate.
    (b) Upon the request of SBA, a procuring activity will provide to 
SBA a written statement detailing the method it has used to estimate the 
current fair market price for the 8(a) requirement. This statement must 
be submitted within 10 working days of SBA's request. The procuring 
activity must identify the information, studies, analyses, and other 
data it used in making its estimate.
    (c) The procuring activity's estimate of fair market price and any 
supporting data may not be disclosed by SBA to any Participant or 
potential contractor.
    (d) The concern selected to perform an 8(a) contract may request SBA 
to protest the procuring activity's estimate of current fair market 
price to the Secretary of the Department or head of the agency in 
accordance with Sec. 124.505.



Sec. 124.512  Delegation of contract administration to procuring agencies.

    (a) SBA may delegate, by the use of special clauses in the 8(a) 
contract documents or by a separate agreement with the procuring 
activity, all responsibilities for administering an 8(a) contract to the 
procuring activity except the approval of novation agreements under 48 
CFR 42.302(a)(25).
    (b) This delegation of contract administration authorizes a 
contracting officer to execute any priced option or in scope 
modification without SBA's concurrence. The contracting officer must, 
however, notify SBA of all modifications and options exercised.

[[Page 382]]



Sec. 124.513  Under what circumstances can a joint venture be awarded an 8(a) contract?

    (a) General. (1) If approved by SBA, a Participant may enter into a 
joint venture agreement with one or more other small business concerns, 
whether or not 8(a) Participants, for the purpose of performing a 
specific 8(a) contract.
    (2) A joint venture agreement is permissible only where an 8(a) 
concern lacks the necessary capacity to perform the contract on its own, 
and the agreement is fair and equitable and will be of substantial 
benefit to the 8(a) concern. However, where SBA concludes that an 8(a) 
concern brings very little to the joint venture relationship in terms of 
resources and expertise other than its 8(a) status, SBA will not approve 
the joint venture arrangement.
    (b) Size of concerns to an 8(a) joint venture. (1) A joint venture 
of at least one 8(a) Participant and one or more other business concerns 
may submit an offer as a small business for a competitive 8(a) 
procurement so long as each concern is small under the size standard 
corresponding to the SIC code assigned to the contract, provided:
    (i) The size of at least one 8(a) Participant to the joint venture 
is less than one half the size standard corresponding to the SIC code 
assigned to the contract; and
    (ii)(A) For a procurement having a revenue-based size standard, the 
procurement exceeds half the size standard corresponding to the SIC code 
assigned to the contract; or
    (B) For a procurement having an employee-based size standard, the 
procurement exceeds $10 million;
    (2) For sole source and competitive 8(a) procurements that do not 
exceed the dollar levels identified in paragraph (b)(1) of this section, 
an 8(a) Participant entering into a joint venture agreement with another 
concern is considered to be affiliated for size purposes with the other 
concern with respect to performance of the 8(a) contract. The combined 
annual receipts or employees of the concerns entering into the joint 
venture must meet the size standard for the SIC code assigned to the 
8(a) contract.
    (3) Notwithstanding the provisions of paragraphs (b)(1) and (b)(2) 
of this section, a joint venture between a protege firm and its approved 
mentor (see Sec. 124.520) will be deemed small provided the protege 
qualifies as small for the size standard corresponding to the SIC code 
assigned to the procurement and has not reached the dollar limit set 
forth in Sec. 124.519.
    (c) Contents of joint venture agreement. Every joint venture 
agreement to perform an 8(a) contract, including those between mentors 
and proteges authorized by Sec. 124.520, must contain a provision:
    (1) Setting forth the purpose of the joint venture;
    (2) Designating an 8(a) Participant as the managing venturer of the 
joint venture, and an employee of the managing venturer as the project 
manager responsible for performance of the 8(a) contract;
    (3) Stating that not less than 51 percent of the net profits earned 
by the joint venture will be distributed to the 8(a) Participant(s);
    (4) Providing for the establishment and administration of a special 
bank account in the name of the joint venture. This account must require 
the signature of all parties to the joint venture or designees for 
withdrawal purposes. All payments due the joint venture for performance 
on an 8(a) contract will be deposited in the special account; all 
expenses incurred under the contract will be paid from the account as 
well;
    (5) Itemizing all major equipment, facilities, and other resources 
to be furnished by each party to the joint venture, with a detailed 
schedule of cost or value of each;
    (6) Specifying the responsibilities of the parties with regard to 
contract performance, source of labor and negotiation of the 8(a) 
contract;
    (7) Obligating all parties to the joint venture to ensure 
performance of the 8(a) contract and to complete performance despite the 
withdrawal of any member;
    (8) Designating that accounting and other administrative records 
relating to the joint venture be kept in the office of the managing 
venturer, unless approval to keep them elsewhere is granted by the 
District Director or his/her designee upon written request;

[[Page 383]]

    (9) Requiring the final original records be retained by the managing 
venturer upon completion of the 8(a) contract performed by the joint 
venture;
    (10) Stating that quarterly financial statements showing cumulative 
contract receipts and expenditures (including salaries of the joint 
venture's principals) must be submitted to SBA not later than 45 days 
after each operating quarter of the joint venture; and
    (11) Stating that a project-end profit and loss statement, including 
a statement of final profit distribution, must be submitted to SBA no 
later than 90 days after completion of the contract.
    (d) Performance of work. For any 8(a) contract, including those 
between mentors and proteges authorized by Sec. 124.520, the joint 
venture must perform the applicable percentage of work required by 
Sec. 124.510, and the 8(a) partner(s) to the joint venture must perform 
a significant portion of the contract.
    (e) Prior approval by SBA. SBA must approve a joint venture 
agreement prior to the award of an 8(a) contract on behalf of the joint 
venture.
    (f) Contract execution. Where SBA has approved a joint venture, the 
procuring activity will execute an 8(a) contract in the name of the 
joint venture entity.
    (g) Amendments to joint venture agreement. All amendments to the 
joint venture agreement must be approved by SBA.
    (h) Inspection of records. SBA may inspect the records of the joint 
venture without notice at any time deemed necessary.



Sec. 124.514  Exercise of 8(a) options and modifications.

    (a) Unpriced options. The exercise of an unpriced option is 
considered to be a new contracting action.
    (1) If a concern has graduated or been terminated from the 8(a) BD 
program or is no longer small under the size standard corresponding to 
the SIC code for the requirement, negotiations to price the option 
cannot be entered into and the option cannot be exercised.
    (2) If the concern is still a Participant and otherwise eligible for 
the requirement on a sole source basis, the procuring activity 
contracting officer may negotiate price and exercise the option provided 
the option, considered a new contracting action, meets all regulatory 
requirements, including the procuring activity's offering and SBA's 
acceptance of the requirement for the 8(a) BD program.
    (3) If the estimated fair market price of the option exceeds the 
applicable threshold amount set forth in Sec. 124.506, the requirement 
must be competed as a new contract among eligible Participants.
    (b) Priced options. The procuring activity contracting officer may 
exercise a priced option to an 8(a) contract whether the concern that 
received the award has graduated or been terminated from the 8(a) BD 
program or is no longer eligible if to do so is in the best interests of 
the Government.
    (c) Modifications beyond the scope. A modification beyond the scope 
of the initial 8(a) contract award is considered to be a new contracting 
action. It will be treated the same as an unpriced option as described 
in paragraph (a) of this section.
    (d) Modifications within the scope. The procuring activity 
contracting officer may exercise a modification within the scope of the 
initial 8(a) contract whether the concern that received the award has 
graduated or been terminated from the 8(a) BD program or is no longer 
eligible if to do so is in the best interests of the Government.



Sec. 124.515  Can a Participant change its ownership or control and continue to perform an 8(a) contract, and can it transfer performance to another firm?

    (a) An 8(a) contract must be performed by the Participant that 
initially received it unless a waiver is granted under paragraph (b) of 
this section.
    (1) An 8(a) contract, whether in the base or an option year, must be 
terminated for the convenience of the Government if:
    (i) One or more of the individuals upon whom eligibility for the 
8(a) BD program was based relinquishes or enters into any agreement to 
relinquish ownership or control of the Participant such that the 
Participant would no longer be controlled or at least 51% owned by 
disadvantaged individuals; or

[[Page 384]]

    (ii) The contract is transferred or novated for any reason to 
another firm.
    (2) The procuring activity may not assess repurchase costs or other 
damages against the Participant due solely to the provisions of this 
section.
    (b) The SBA Administrator may waive the requirements of paragraph 
(a)(1) of this section if requested to do so by the 8(a) contractor 
when:
    (1) It is necessary for the owners of the concern to surrender 
partial control of such concern on a temporary basis in order to obtain 
equity financing;
    (2) Ownership and control of the concern that is performing the 8(a) 
contract will pass to another Participant, but only if the acquiring 
firm would otherwise be eligible to receive the award directly as an 
8(a) contract;
    (3) Any individual upon whom eligibility was based is no longer able 
to exercise control of the concern due to physical or mental incapacity 
or death;
    (4) The head of the procuring agency, or an official with delegated 
authority from the agency head, certifies that termination of the 
contract would severely impair attainment of the agency's program 
objectives or missions; or
    (5) It is necessary for the disadvantaged owners of the initial 8(a) 
awardee to relinquish ownership of a majority of the voting stock of the 
concern in order to raise equity capital, but only if--
    (i) The concern has graduated from the 8(a) BD program;
    (ii) The disadvantaged owners will maintain ownership of the largest 
single outstanding block of voting stock (including stock held by 
affiliated parties); and
    (iii) The disadvantaged owners will maintain control of the daily 
business operations of the concern.
    (c) The 8(a) contractor must request a waiver in writing prior to 
the change of ownership and control except in the case of death or 
incapacity. A request for waiver due to incapacity or death must be 
submitted within 60 days after such occurrence. The Participant seeking 
to change ownership or control must specify the grounds upon which it 
requests a waiver, and must demonstrate that the proposed transaction 
would meet such grounds.
    (d) SBA determines the eligibility of an acquiring Participant under 
paragraph (b)(2) of this section by referring to the items identified in 
Sec. 124.507(b)(2) and deciding whether at the time of the request for 
waiver (and prior to the transaction) the acquiring Participant is a 
responsible and eligible concern with respect to each contract for which 
a waiver is sought. As part of the waiver request, the acquiring firm 
must certify that it is a small business for the size standard 
corresponding to the SIC code assigned to each contract for which a 
waiver is sought.
    (e) Anyone other than a procuring agency head who submits a 
certification regarding the impairment of the agency's objectives under 
paragraph (b)(4) of this section, must also certify delegated authority 
to make the certification.
    (f) In processing a request for a waiver under paragraph (b)(2) of 
this section, SBA will treat a transfer of all a Participant's operating 
assets to another Participant the same as the transfer of an ownership 
interest, provided the Participant that transfers its assets to another 
eligible Participant:
    (1) Voluntarily graduates from the 8(a) BD program; and
    (2) Ceases its business operations, or presents a plan to SBA for 
its orderly dissolution.
    (g) A concern performing an 8(a) contract must notify SBA in writing 
immediately upon entering into an agreement or agreement in principle 
(either oral or written) to transfer all or part of its stock or other 
ownership interest or assets to any other party. Such an agreement could 
include an oral agreement to enter into a transaction to transfer 
interests in the future.
    (h) The Administrator has discretion to decline a request for waiver 
even though legal authority exists to grant the waiver.
    (i) The 8(a) contractor may appeal SBA's denial of a waiver request 
by filing a petition with OHA pursuant to part 134 of this chapter 
within 45 days after the contractor receives the Administrator's 
decision.

[63 FR 35739, June 30, 1998, as amended at 67 FR 47246, July 18, 2002]

[[Page 385]]



Sec. 124.516  Who decides contract disputes arising between a Participant and a procuring activity after the award of an 8(a) contract?

    For purposes of the Disputes Clause of a specific 8(a) contract, the 
contracting officer is that of the procuring activity. A dispute arising 
between an 8(a) contractor and the procuring activity contracting 
officer will be decided by the procuring activity, and appeals may be 
taken by the 8(a) contractor without SBA involvement.



Sec. 124.517  Can the eligibility or size of a Participant for award of an 8(a) contract be questioned?

    (a) The eligibility of a Participant for a sole source or 
competitive 8(a) requirement may not be challenged by another 
Participant or any other party, either to SBA or any administrative 
forum as part of a bid or other contract protest.
    (b) The size status of the apparent successful offeror for a 
competitive 8(a) procurement may be protested pursuant to 
Sec. 121.1001(a)(2) of this chapter. The size status of a nominated 
Participant for a sole source 8(a) procurement may not be protested by 
another Participant or any other party.
    (c) A Participant cannot appeal SBA's determination not to award it 
a specific 8(a) contract because the concern lacks an element of 
responsibility or is ineligible for the contract, other than the right 
set forth in Sec. 124.501(h) to request a formal size determination 
where SBA cannot verify it to be small.
    (d)(1) The SIC code assigned to a sole source 8(a) requirement may 
not be challenged by another Participant or any other party either to 
SBA or any administrative forum as part of a bid or contract protest. 
Only the AA/8(a)BD may appeal a SIC code designation with respect to a 
sole source 8(a) requirement.
    (2) In connection with a competitive 8(a) procurement, any 
interested party who has been adversely affected by a SIC code 
designation may appeal the designation to SBA's OHA pursuant to 
Sec. 121.1103 of this title.
    (e) Anyone with information questioning the eligibility of a 
Participant to continue participation in the 8(a) BD program or for 
purposes of a specific 8(a) contract may submit such information to SBA 
under Sec. 124.112(c).



Sec. 124.518  How can an 8(a) contract be terminated before performance is completed?

    (a) Termination for default. A decision to terminate a specific 8(a) 
contract for default can be made by the procuring activity contracting 
officer after consulting with SBA. The contracting officer must advise 
SBA of any intent to terminate an 8(a) contract for default in writing 
before doing so. SBA may provide to the Participant any program benefits 
reasonably available in order to assist it in avoiding termination for 
default. SBA will advise the contracting officer of this effort. Any 
procuring activity contracting officer who believes grounds for 
termination continue to exist may terminate the 8(a) contract for 
default, in accordance with the Federal Acquisition Regulations (48 CFR 
chapter 1). SBA will have no liability for termination costs or 
reprocurement costs.
    (b) Termination for convenience. After consulting with SBA, the 
procuring activity contracting officer may terminate an 8(a) contract 
for convenience when it is in the best interests of the Government to do 
so. A termination for convenience is appropriate if any disadvantaged 
owner of the Participant performing the contract relinquishes ownership 
or control of such concern, or enters into any agreement to relinquish 
such ownership or control, unless a waiver is granted pursuant to 
Sec. 124.515.
    (c) Substitution of one 8(a) contractor for another. Where a 
procuring activity contracting officer demonstrates to SBA that an 8(a) 
contract will otherwise be terminated for default, SBA may authorize 
another Participant to complete performance and, in conjunction with the 
procuring activity, permit novation of the contract without invoking the 
termination for convenience or waiver provisions of Sec. 124.515.



Sec. 124.519  Are there any dollar limits on the amount of 8(a) contracts that a Participant may receive?

    (a) A Participant (other than one owned by an Indian tribe or an 
ANC)

[[Page 386]]

may not receive sole source 8(a) contract awards where it has received a 
combined total of competitive and sole source 8(a) contracts in excess 
of the dollar amount set forth in this section during its participation 
in the 8(a) BD program.
    (1) For a firm having a revenue-based primary SIC code at time of 
program entry, the limit above which it can no longer receive sole 
source 8(a) contracts is five times the size standard corresponding to 
that SIC code as of the date of SBA's acceptance of the requirement for 
the 8(a) BD program or $100,000,000, whichever is less.
    (2) For a firm having an employee-based primary SIC code at time of 
program entry, the limit above which it can no longer receive sole 
source 8(a) contracts is $100,000,000.
    (3) SBA will not consider 8(a) contracts awarded under $100,000 in 
determining whether a Participant has reached the limit identified in 
paragraphs (a)(1) and (a)(2) of this section.
    (b) Once the limit is reached, a firm may not receive any more 8(a) 
sole source contracts, but may remain eligible for competitive 8(a) 
awards.
    (c) The limitation set forth in paragraph (a) of this section will 
not apply for firms that are current Participants in the 8(a) BD program 
as of December 31, 1997.
    (d) SBA includes the dollar value of 8(a) options and modifications 
in determining whether a Participant has reached the limit identified in 
paragraph (a) of this section. If an option is not exercised or the 
contract value is reduced by modification, SBA will deduct those values.
    (e) A Participant's eligibility for a sole source award in terms of 
whether it has exceeded the dollar limit for 8(a) contracts is measured 
as of the date that the requirement is accepted for the 8(a) program 
without taking into account whether the value of that award will cause 
the limit to be exceeded.
    (f) The SBA Administrator on a non-delegable basis may waive the 
requirement prohibiting a Participant from receiving sole source 8(a) 
contracts in excess of the dollar amount set forth in this section where 
the head of a procuring activity represents to the SBA Administrator 
that award of a sole source 8(a) contract to the Participant is needed 
to achieve significant interests of the Government.



Sec. 124.520  Mentor/protege program.

    (a) General. The mentor/protege program is designed to encourage 
approved mentors to provide various forms of assistance to eligible 
Participants. This assistance may include technical and/or management 
assistance; financial assistance in the form of equity investments and/
or loans; subcontracts; and/or assistance in performing prime contracts 
with the Government in the form of joint venture arrangements. The 
purpose of the mentor/protege relationship is to enhance the 
capabilities of the protege and to improve its ability to successfully 
compete for contracts.
    (b) Mentors. Any concern that demonstrates a commitment and the 
ability to assist developing 8(a) Participants may act as a mentor and 
receive benefits as set forth in this section. This includes businesses 
that have graduated from the 8(a) BD program, firms that are in the 
transitional stage of program participation, other small businesses, and 
large businesses.
    (1) In order to qualify as a mentor, a concern must demonstrate that 
it:
    (i) Possesses favorable financial health, including profitability 
for at least the last two years;
    (ii) Possesses good character;
    (iii) Does not appear on the federal list of debarred or suspended 
contractors; and
    (iv) Can impart value to a protege firm due to lessons learned and 
practical experience gained because of the 8(a) BD program, or through 
its general knowledge of government contracting.
    (2) Generally, a mentor will have no more than one protege at a 
time. However, the AA/8(a)BD may authorize a concern to mentor more than 
one protege at a time where the concern can demonstrate that the 
additional mentor/protege relationship will not adversely affect the 
development of either protege firm (e.g., the second firm cannot be a 
competitor of the first firm).
    (3) In order to demonstrate its favorable financial health, a firm 
seeking to

[[Page 387]]

be a mentor must submit its federal tax returns for the last two years 
to SBA for review.
    (4) Once approved, a mentor must annually certify that it continues 
to possess good character and a favorable financial position.
    (c) Proteges. (1) In order to initially qualify as a protege firm, a 
Participant must:
    (i) Be in the developmental stage of program participation;
    (ii) Have never received an 8(a) contract; or
    (ii) Have a size that is less than half the size standard 
corresponding to its primary SIC code.
    (2) Only firms that are in good standing in the 8(a) BD program 
(e.g., firms that do not have termination or suspension proceedings 
against them, and are up to date with all reporting requirements) may 
qualify as a protege.
    (3) A protege firm may have only one mentor at a time.
    (d) Benefits. (1) A mentor and protege may joint venture as a small 
business for any government procurement, including procurements less 
than half the size standard corresponding to the assigned SIC code and 
8(a) sole source contracts, provided both the mentor and the protege 
qualify as small for the procurement and, for purposes of 8(a) sole 
source requirements, the protege has not reached the dollar limit set 
forth in Sec. 124.519.
    (2) Notwithstanding the requirements set forth in Secs. 124.105(g) 
and (h), in order to raise capital for the protege firm, the mentor may 
own an equity interest of up to 40% in the protege firm.
    (3) Notwithstanding the mentor/protege relationship, a protege firm 
may qualify for other assistance as a small business, including SBA 
financial assistance.
    (4) No determination of affiliation or control may be found between 
a protege firm and its mentor based on the mentor/protege agreement or 
any assistance provided pursuant to the agreement.
    (e) Written agreement. (1) The mentor and protege firms must enter a 
written agreement setting forth an assessment of the protege's needs and 
describing the assistance the mentor commits to provide to address those 
needs (e.g., management and/or technical assistance, loans and/or equity 
investments, cooperation on joint venture projects, or subcontracts 
under prime contracts being performed by the mentor). The agreement must 
also provide that the mentor will provide such assistance to the protege 
firm for at least one year.
    (2) The written agreement must be approved by the AA/8(a)BD. The 
agreement will not be approved if SBA determines that the assistance to 
be provided is not sufficient to promote any real developmental gains to 
the protege, or if SBA determines that the agreement is merely a vehicle 
to enable a non-8(a) participant to receive 8(a) contracts.
    (3) The agreement must provide that either the protege or the mentor 
may terminate the agreement with 30 days advance notice to the other 
party to the mentor/protege relationship and to SBA.
    (4) SBA will review the mentor/protege relationship annually to 
determine whether to approve its continuation for another year.
    (5) SBA must approve all changes to a mentor/protege agreement in 
advance.
    (f) Evaluating the mentor/protege relationship. (1) In its annual 
business plan update required by Sec. 124.403(a,) the protege must 
report to SBA for the protege's preceding program year:
    (i) All technical and/or management assistance provided by the 
mentor to the protege;
    (ii) All loans to and/or equity investments made by the mentor in 
the protege;
    (iii) All subcontracts awarded to the protege by the mentor, and the 
value of each subcontract;
    (iv) All federal contracts awarded to the mentor/protege 
relationship as a joint venture (designating each as an 8(a), small 
business set aside, or unrestricted procurement), the value of each 
contract, and the percentage of the contract performed and the 
percentage of revenue accruing to each party to the joint venture; and
    (v) A narrative describing the success such assistance has had in 
addressing the developmental needs of the protege and addressing any 
problems encountered.

[[Page 388]]

    (2) The protege must annually certify to SBA whether there has been 
any change in the terms of the agreement.
    (3) SBA will review the protege's report on the mentor/protege 
relationship as part of its annual review of the firm's business plan 
pursuant to Sec. 124.403. SBA may decide not to approve continuation of 
the agreement if it finds that the mentor has not provided the 
assistance set forth in the mentor/protege agreement or that the 
assistance has not resulted in any material benefits or developmental 
gains to the protege.

                  Miscellaneous Reporting Requirements



Sec. 124.601  What reports does SBA require concerning parties who assist Participants in obtaining federal contracts?

    (a) Each Participant must submit annually a written report to its 
assigned BOS that includes a listing of any agents, representatives, 
attorneys, accountants, consultants and other parties (other than 
employees) receiving fees, commissions, or compensation of any kind to 
assist such participant in obtaining a Federal contract. The listing 
must indicate the amount of compensation paid and a description of the 
activities performed for such compensation.
    (b) Failure to submit the report is good cause for the initiation of 
a termination proceeding pursuant to Secs. 124.303 and 124.304.



Sec. 124.602  What kind of annual financial statement must a Participant submit to SBA?

    (a) Participants with gross annual receipts of more than $5,000,000 
must submit to SBA audited annual financial statements prepared by a 
licensed independent public accountant within 120 days after the close 
of the concern's fiscal year.
    (1) The servicing SBA District Director may waive the requirement 
for audited financial statements for good cause shown by the 
Participant.
    (2) Circumstances where waivers of audited financial statements may 
be granted include, but are not limited to, the following:
    (i) The concern has an unexpected increase in sales towards the end 
of its fiscal year that creates an unforeseen requirement for audited 
statements;
    (ii) The concern unexpectedly experiences severe financial 
difficulties which would make the cost of audited financial statements a 
particular burden; and
    (iii) The concern has been a Participant less than 12 months.
    (b) Participants with gross annual receipts between $1,000,000 and 
$5,000,000 must submit to SBA reviewed annual financial statements 
prepared by a licensed independent public accountant within 90 days 
after the close of the concern's fiscal year.
    (c) Participants with gross annual receipts of less than $1,000,000 
must submit to SBA an annual statement prepared in-house or a 
compilation statement prepared by a licensed independent public 
accountant, verified as to accuracy by an authorized officer, partner, 
limited liability member, or sole proprietor of the Participant, 
including signature and date, within 90 days after the close of the 
concern's fiscal year.
    (d) Any audited or reviewed financial statements submitted to SBA 
pursuant to paragraphs (a) or (b) of this section must be prepared in 
accordance with Generally Accepted Accounting Principles.
    (e) While financial statements need not be submitted until 90 or 120 
days after the close of a Participant's fiscal year, depending on the 
receipts of the concern, a Participant seeking to be awarded an 8(a) 
contract between the close of its fiscal year and such 90 or 120-day 
time period must submit a final sales report signed by the CEO or 
President to SBA in order for SBA to determine the concern's eligibility 
for the 8(a) contract. This report must show a breakdown of 8(a) and 
non-8(a) sales.
    (f) Notwithstanding the amount of a Participant's gross annual 
receipts, SBA may require audited or reviewed statements whenever they 
are needed to obtain more complete information as to a concern's assets, 
liabilities, income or expenses, such as when the concern's capacity to 
perform a specific 8(a) contract must be determined,

[[Page 389]]

or when they are needed to determine continued program eligibility.



Sec. 124.603  What reports regarding the continued business operations of former Participants does SBA require?

    Former Participants must provide such information as SBA may request 
concerning the former Participant's continued business operations, 
contracts, and financial condition for a period of three years following 
the date on which the concern graduates or is terminated from the 
program. Failure to provide such information when requested will 
constitute a violation of the regulations set forth in this part, and 
may result in the nonexercise of options on or termination of contracts 
awarded through the 8(a) BD program, debarment, or other legal recourse.

               Management and Technical Assistance Program



Sec. 124.701  What is the purpose of the 7(j) management and technical assistance program?

    Section 7(j)(1) of the Small Business Act, 15 U.S.C. 636(j)(1), 
authorizes SBA to enter into grants, cooperative agreements, or 
contracts with public or private organizations to pay all or part of the 
cost of technical or management assistance for individuals or concerns 
eligible for assistance under sections 7(a)(11), 7(j)(10), or 8(a) of 
the Small Business Act.



Sec. 124.702  What types of assistance are available through the 7(j) program?

    Through its private sector service providers, SBA may provide a wide 
variety of management and technical assistance to eligible individuals 
or concerns to meet their specific needs, including:
    (a) Counseling and training in the areas of financing, management, 
accounting, bookkeeping, marketing, and operation of small business 
concerns; and
    (b) The identification and development of new business 
opportunities.



Sec. 124.703  Who is eligible to receive 7(j) assistance?

    The following businesses are eligible to receive assistance from SBA 
through its service providers:
    (a) Businesses which qualify as small under part 121 of this title, 
and which are located in urban or rural areas with a high proportion of 
unemployed or low-income individuals, or which are owned by such low-
income individuals; and
    (b) Businesses eligible to receive 8(a) contracts.



Sec. 124.704  What additional management and technical assistance is reserved exclusively for concerns eligible to receive 8(a) contracts?

    In addition to the management and technical assistance available 
under Sec. 124.702, Section 7(j)(10) of the Small Business Act 
authorizes SBA to provide additional management and technical assistance 
through its service providers exclusively to small business concerns 
eligible to receive 8(a) contracts, including:
    (a) Assistance to develop comprehensive business plans with specific 
business targets, objectives, and goals;
    (b) Other nonfinancial services necessary for a Participant's growth 
and development, including loan packaging; and
    (c) Assistance in obtaining equity and debt financing.



Subpart B--Eligibility, Certification, and Protests Relating to Federal 
                  Small Disadvantaged Business Programs

    Source: 63 FR 35772, June 30, 1998, unless otherwise noted.



Sec. 124.1001  General applicability.

    (a) This subpart defines a Small Disadvantaged Business (SDB). It 
also sets forth procedures by which a firm can apply to be recognized as 
an SDB, including procedures to be used by private sector entities 
approved by SBA for determining whether a particular concern is owned 
and controlled by one or more disadvantaged individuals or

[[Page 390]]

Alaska Native Corporations (ANCs), Community Development Corporations 
(CDCs), Indian tribes (tribes) or Native Hawaiian Organizations (NHOs). 
Finally, this subpart establishes procedures by which SBA determines 
whether a particular concern qualifies as an SDB in response to a 
protest challenging the concern's status as disadvantaged. Unless 
specifically stated otherwise, the phrase ``socially and economically 
disadvantaged individuals'' in this subpart includes tribes, ANCs, CDCs, 
and NHOs.
    (b) Only small firms that are owned and controlled by socially and 
economically disadvantaged individuals are eligible to participate in 
Federal SDB price evaluation adjustment, evaluation factor or subfactor, 
monetary subcontracting incentive, or set-aside programs, or SBA's 
section 8(d) subcontracting program.
    (c) In order for a concern to represent that it is an SDB as a prime 
contractor for purposes of a Federal Government procurement, it must 
have:
    (1) Received a certification from SBA that it qualifies as an SDB; 
or
    (2) Submitted an application for SDB certification to SBA or a 
Private Certifier, and must not have received a negative determination 
regarding that application from SBA or the Private Certifier.
    (d) A firm cannot represent itself to be an SDB concern in order to 
receive a preference as an SDB for any Federal subcontracting program if 
it is not on the SBA-maintained list of qualified SDBs.



Sec. 124.1002  What is a Small Disadvantaged Business (SDB)?

    (a) Reliance on 8(a) criteria. In determining whether a firm 
qualifies as an SDB, the criteria of social and economic disadvantage 
and other eligibility requirements established in subpart A of this part 
apply, including the requirements of ownership and control and 
disadvantaged status, unless otherwise provided in this subpart. 
Qualified Private Certifiers must use the 8(a) criteria applicable to 
ownership and control in determining whether a particular firm is 
actually owned and controlled by one or more individuals claiming 
disadvantaged status.
    (b) SDB eligibility criteria. A small disadvantaged business (SDB) 
is a concern:
    (1) Which qualifies as small under part 121 of this title for the 
size standard corresponding to the applicable four digit Standard 
Industrial Classification (SIC) code.
    (i) For purposes of SDB certification, the applicable SIC code is 
that which relates to the primary business activity of the concern;
    (ii) For purposes related to a specific Federal Government contract, 
the applicable SIC code is that assigned by the contracting officer to 
the procurement at issue;
    (2) Which is at least 51 percent unconditionally owned by one or 
more socially and economically disadvantaged individuals as set forth in 
Sec. 124.105. For the requirements relating to tribes and ANCs, NHOs, or 
CDCs, see Secs. 124.109, 124.110, and 124.111, respectively.
    (3) Except for tribes, ANCs, NHOs, and CDCs, whose management and 
daily business operations are controlled by one or more socially and 
economically disadvantaged individuals. For the requirements relating to 
tribes and ANCs, NHOs, or CDCs, see Secs. 124.109, 124.110, and 124.111, 
respectively.
    (4) Which, for purposes of SDB procurement mechanisms authorized by 
10 U.S.C. 2323 (such as price evaluation adjustments, evaluation factors 
or subfactors, monetary subcontracting incentives, or SDB set-asides) 
relating to the Department of Defense, NASA and the Coast Guard only, 
has the majority of its earnings accruing directly to the socially and 
economically disadvantaged individuals.
    (c) Disadvantaged status. In assessing the personal financial 
condition of an individual claiming economic disadvantage, his or her 
net worth must be less than $750,000 after taking into account the 
exclusions set forth in Sec. 124.104(c)(2).
    (d) Additional eligibility criteria. Except for tribes, ANCs, CDCs 
and NHOs, each individual claiming disadvantaged status must be a 
citizen of the United States.
    (e) Potential for success not required. The potential for success 
requirement set forth in Sec. 124.107 does not apply as an eligibility 
requirement for an SDB.

[[Page 391]]

    (f) Joint ventures. Joint ventures are permitted for SDB procurement 
mechanisms (such as price evaluation adjustments, evaluation factors or 
subfactors, monetary subcontracting incentives, or SDB set-asides), 
provided that the requirements set forth in this paragraph are met.
    (1) The disadvantaged participant(s) to the joint venture must have:
    (i) Received an SDB certification from SBA; or
    (ii) Submitted an application for SDB certification to SBA or a 
Private Certifier, and must not have received a negative determination 
regarding that application.
    (2) For purposes of this paragraph, the term joint venture means two 
or more concerns forming an association to engage in and carry out a 
single, specific business venture for joint profit. Two or more concerns 
that form an ongoing relationship to conduct business would not be 
considered ``joint venturers'' within the meaning of this paragraph, and 
would also not be eligible to be certified as an SDB. The entity created 
by such a relationship would not be owned and controlled by one or more 
socially and economically disadvantaged individuals. Each contract for 
which a joint venture submits an offer will be evaluated on a case by 
case basis.
    (3) Except as set forth in 13 CFR 121.103(f)(3), a concern that is 
owned and controlled by one or more socially and economically 
disadvantaged individuals entering into a joint venture agreement with 
one or more other business concerns is considered to be affiliated with 
such other concern(s) for size purposes. If the exception does not 
apply, the combined annual receipts or employees of the concerns 
entering into the joint venture must meet the applicable size standard 
corresponding to the SIC code designated for the contract.
    (4) An SDB must be the managing venturer of the joint venture, and 
an employee of the managing venturer must be the project manager 
responsible for performance of the contract.
    (5) The joint venture must perform any applicable percentage of work 
required of SDB offerors, and the SDB joint venturer(s) must perform a 
significant portion of the contract.
    (g) Ownership restrictions for non-disadvantaged individuals. The 
ownership restrictions set forth in Sec. 124.105 (g) and (h) for non-
disadvantaged individuals and concerns do not apply for purposes of 
determining SDB eligibility.



Sec. 124.1003  What is a Private Certifier?

    A Private Certifier is an organization or business concern approved 
by SBA to determine whether firms are owned and controlled by one or 
more individuals claiming disadvantaged status. SBA may elect to arrange 
for one or more Private Certifiers to perform certain functions in the 
SDB Certification process. When that election is made, the provisions of 
Secs. 124.1004 through 124.1007 will apply. SBA will establish more 
detailed standards regarding qualifications, monitoring, procedures and 
use, if any, of Private Certifiers in specific contracts or agreements 
between SBA and the Private Certifiers.



Sec. 124.1004  How does an organization or business concern become a Private Certifier?

    (a) SBA may execute contracts or agreements with organizations or 
business concerns seeking to become Private Certifiers. Any such 
contract or agreement will include provisions for the oversight, 
monitoring, and evaluation of all certification activities by SBA.
    (b) The organization or business concern must demonstrate a 
knowledge of SBA's regulations regarding ownership and control, as well 
as business organizations and the legal principles affecting their 
ownership and control generally, including stock issuances, voting 
rights, convertability of debt to equity, options, and powers and 
responsibilities of officers and directors, general and limited 
partners, and limited liability members.
    (c) The organization or concern must also, along with its 
principals, demonstrate good character. Good character does not exist 
for these purposes if the organization or concern or any of its 
principals:

[[Page 392]]

    (1) Is debarred or suspended under any Federal procurement or non-
procurement debarment and suspension regulations; or
    (2) Has been indicted or convicted for any criminal offense or 
suffered a civil judgment indicating a lack of business integrity.
    (d) As a condition of approval, SBA may require that appropriate 
officers and/or key employees of the concern attend a training session 
on SBA's rules and requirements.
    (e) An organization or concern seeking to become a Private Certifier 
must agree to provide access to SBA of its books and records when 
requested, including records pertaining to its certification activities. 
Once SBA approves the organization or concern to be a Private Certifier, 
SBA may review this information, as well as the decisions of the Private 
Certifier, in determining whether it will renew or extend the term of 
the Private Certifier, or terminate the Private Certifier for cause.
    (f) SBA will include in any contract or agreement document 
authorizing an entity to act as a Private Certifier appropriate 
conditions to prohibit conflicts of interests between the Private 
Certifier and the firms for which it processes SDB applications and to 
protect the integrity of the decision-making process.



Sec. 124.1005  Can a fee be charged to a firm to process the firm's application for SDB certification?

    (a) With SBA's approval, a Private Certifier may charge a reasonable 
fee to a firm in order to screen the firm's application for completeness 
and to process a determination of ownership and control. The fee must be 
for actual services rendered and must not be related to whether or not 
the business concern is found to be owned and controlled by one or more 
individuals or entities claiming disadvantaged status.
    (b) Where SBA makes the determination of ownership and control, SBA 
may collect a fee comparable to that which would be charged by a Private 
Certifier. From time to time, SBA will publish a Notice in the Federal 
Register identifying any fee that SBA will charge to process a firm's 
determination of ownership and control. SBA will promptly remit any 
funds received pursuant to this section to the Treasury of the United 
States as miscellaneous receipts.



Sec. 124.1006  Is there a list of Private Certifiers?

    SBA will maintain a list of approved Private Certifiers on SBA's 
Home Page on the Internet. Any interested person may also obtain a copy 
of the list from the local SBA district office.



Sec. 124.1007  How long may an organization or business concern be a Private Certifier?

    (a) SBA's approval document will specify how long the organization 
or concern may be a Private Certifier. The initial contract or agreement 
will have a base period of one year, and may include option years or 
renewal provisions.
    (b) SBA may terminate a contract or agreement with an organization 
or business concern which is a Private Certifier for the convenience of 
the Government at any time, and may terminate the contract or agreement 
for default where appropriate. Specific grounds for termination for 
default include, but are not limited to:
    (1) Charging improper, unreasonable or contingent fees in violation 
of Sec. 124.1005;
    (2) Engaging in prohibited business transactions with the firms for 
which it processes SDB applications in violation of Sec. 124.1004(f); or
    (3) A demonstrated record of ownership and control determinations 
that are overturned on appeal by SBA's Office of Hearings and Appeals 
(OHA) or by SBA as part of an SDB protest.



Sec. 124.1008  How does a firm become certified as an SDB?

    Any firm may apply to be certified as an SDB. SBA's field offices 
will provide further information and required application forms to any 
firm interested in SDB certification. In order to become certified as an 
SDB, a firm must apply to SBA or, if directed by SBA, to a Private 
Certifier. The application must include evidence demonstrating that the 
firm is owned and controlled by one or

[[Page 393]]

more individuals claiming disadvantaged status, along with 
certifications or narratives regarding the disadvantaged status of such 
individuals. See paragraph (e)(1) of this section. The firm also must 
submit information necessary for a size determination. See 
Sec. 121.1008. Current 8(a) BD Participants do not need to submit 
applications for SDB status. These concerns automatically qualify as 
SDBs by virtue of their status as 8(a) BD concerns. An 8(a) 
Participant's continuing eligibility as an SDB will be reviewed as part 
of the concern's 8(a) annual review.
    (a) Filing an SDB application. (1) An interested firm must first 
submit a complete application to SBA's Assistant Administrator for Small 
Disadvantaged Business Certification and Eligibility (AA/SDBCE), Small 
Business Administration, 409 3rd Street, SW, Washington, DC 20416, or to 
a specific SBA field office or an approved Private Certifier if directed 
by SBA.
    (2) The firm must identify which individual(s) or entities are 
claiming disadvantaged status.
    (b) Required forms. Each firm seeking to be certified as an SDB must 
submit those forms and attachments required by SBA when applying for 
admission to the 8(a) BD program. These forms and attachments may 
include, but not be limited to, financial statements, Federal personal 
and business tax returns and personal history statements. The 
application package may be in the form of an electronic application.
    (c) Application processing. (1) SBA or a Private Certifier will 
advise each applicant generally within 15 days after the receipt of an 
application whether the application is complete and suitable for 
evaluation and, if not, what additional information or clarification is 
required. If the application is not complete, SBA or the Private 
Certifier will return the application to the firm, and will notify the 
firm that it may reapply when its application is complete.
    (2) The burden is on the applicant to demonstrate that those 
individuals claiming disadvantaged status own and control the concern.
    (d) Ownership and control decision. SBA or a Private Certifier will 
determine whether those individuals claiming disadvantaged status own 
and control the applicant firm within 30 days of receipt of a complete 
application package, whenever practicable..
    (1) Where a Private Certifier determines ownership and control, the 
Private Certifier will issue a written decision as to whether the 
applicant is owned and controlled by the individuals identified as 
claiming disadvantaged status.
    (i) If the Private Certifier finds that the applicant is owned and 
controlled by the individuals claiming disadvantaged status, the Private 
Certifier will forward the application to SBA along with a copy of its 
ownership and control determination and the information required by 
paragraph (e)(2)(ii) of this section, where appropriate.
    (ii) If the Private Certifier finds that the applicant is not owned 
and controlled by the individuals claiming disadvantaged status, its 
decision must state the specific reasons for the finding, and inform the 
applicant of its right to appeal the decision to SBA pursuant to 
Sec. 124.1009.
    (2) Where SBA determines ownership and control, SBA will first 
determine whether the applicant is owned and controlled by the 
individual(s) claiming to be disadvantaged. If SBA determines that the 
applicant is not owned and controlled by the individual(s) claiming 
disadvantaged status, SBA will issue a written decision addressing only 
the ownership and control issues. If SBA determines that the applicant 
is owned and controlled by the individual(s) claiming disadvantaged 
status, SBA will issue a single written decision as to whether the 
applicant qualifies as an SDB. Such a determination will include the 
ownership and control of the firm, the size status of the firm, and the 
disadvantaged status of those individuals claiming to be disadvantaged.
    (3) In its sole discretion, SBA may analyze and determine whether a 
firm is owned and controlled by one or more individuals claiming 
disadvantaged status notwithstanding the availability of a Private 
Certifier to make such a decision.
    (4) SBA reserves the right to re-evaluate an approved decision on 
ownership and control by a Private Certifier in a case where it has 
credible

[[Page 394]]

evidence that the Private Certifier has substantially disregarded the 
eligibility criteria.
    (e) Disadvantaged determination. Once a concern receives a decision 
finding that it is owned and controlled by those individuals or entities 
claiming disadvantaged status (either through an initial determination 
or on appeal), SBA will determine whether the other eligibility criteria 
are met, and, if so, will include the SDB on the SBA-maintained list of 
qualified SDBs. SBA will make this determination within 30 days of 
receiving an SDB application, if practicable.
    (1) Members of designated groups. (i) Those individuals claiming 
disadvantaged status that are members of the same designated groups that 
are presumed to be socially disadvantaged for purposes of SBA's 8(a) BD 
program (see Sec. 124.103(b)) are presumed to be socially and 
economically disadvantaged for purposes of SDB certification. These 
individuals must represent that they are members of one of the 
designated groups, that they are identified as a member of one of the 
designated groups, that their net worth is less than $750,000 after 
taking into account the exclusions set forth in Sec. 124.104(c)(2), and 
that they are citizens of the United States.
    (ii) Absent credible evidence to the contrary, SBA may accept these 
representations as true and certify the firm as an SDB.
    (2) Individuals not members of designated groups. (i) Each 
individual claiming disadvantaged status who is not a member of one of 
the designated groups must submit a statement identifying personally how 
his or her entry into or advancement in the business world has been 
impaired because of personally specific factors (see Sec. 124.103(c)), 
and how his or her ability to compete in the free enterprise system has 
been impaired due to diminished capital and credit opportunities (see 
Secs. 124.103(c) and 124.104).
    (ii) Where a Private Certifier determines ownership and control, the 
Private Certifier must also review the disadvantaged status submission 
and any other required information, and send to SBA the following:
    (A) An executive summary and analysis of the disadvantaged status 
submission;
    (B) The application and all supporting documentation; and
    (C) A certification that the application is complete and suitable 
for evaluation.
    (3) Concerns owned by tribes, ANCs, CDCs, or NHOs: SBA will process 
SDB applications from concerns owned and controlled by tribes, ANCs, 
CDCs, or NHOs in the same way as those from concerns owned by 
individuals who are members of designated groups.
    (f) SDB Determination. (1) If SBA's AA/SDBCE determines that the 
individual(s) claiming disadvantage are disadvantaged and other 
eligibility criteria are met, he or she will certify the firm as an SDB.
    (2) If SBA's AA/SDBCE determines that one or more of the individuals 
claiming to be disadvantaged is not disadvantaged and their 
disadvantaged status is required to establish disadvantaged ownership 
and control of the applicant, or any of the other eligibility criteria 
are not met, he or she will reject the firm's application for SDB 
certification. The AA/SDBCE will issue a written decision setting forth 
SBA's reasons for decline.
    (3)(i) If the AA/SDBCE declines the firm's application for SDB 
certification, the firm may request that the AA/SDBCE reconsider his or 
her initial decline by submitting a written request to the AA/SDBCE 
within 45 days of the date of the AA/SDBCE's decision. The applicant may 
provide any additional information and documentation pertinent to 
overcoming the reason(s) for the initial decline.
    (ii) The AA/SDBCE will issue a written decision within 30 days of 
receiving the applicant's request for reconsideration, if practicable. 
The AA/SDBCE may either approve the application, deny it on one or more 
of the same grounds as the initial decision, or deny it on other 
grounds. If the application is denied, the AA/SDBCE will explain why the 
applicant is not eligible for SDB certification and give specific 
reasons for the decline. If the AA/SDBCE declines the application solely 
on issues not raised in the initial decline,

[[Page 395]]

the applicant may request another reconsideration as if it were an 
initial decline. If the AA/SDBCE declines the application for one or 
more of the same reasons as addressed in the initial decline, the 
applicant is not entitled to a second reconsideration.
    (4) Pursuant to part 134 of this title, a firm may appeal to OHA the 
AA/SDBCE's decision that one or more of the individuals claiming 
disadvantaged status is not disadvantaged, or, where SBA determines 
ownership and control, that those claiming disadvantaged status do not 
own and control the applicant. (See Sec. 124.1009 for appeals from 
decisions by Private Certifiers.)
    (i) The firm must serve SBA's Associate General Counsel for 
Procurement Law with a copy of the appeal.
    (ii) OHA will determine whether SBA's decision in either case was 
arbitrary, capricious, or contrary to law. OHA's review is limited to 
the facts that were before SBA at the time of its decision and any 
arguments submitted in or in response to the appeal. OHA will not 
consider any facts beyond those that were already presented to SBA 
unless the administrative judge determines that manifest injustice would 
occur if the appeal were limited to the record.
    (5) A firm may also request a formal size determination pursuant to 
part 121 of this title where SBA finds that the firm is not small.
    (g) Current 8(a) BD program participants. Any firm that is currently 
a Participant in SBA's 8(a) BD program need not seek an ownership and 
control determination or apply to SBA for a separate certification as an 
SDB. SBA will certify current 8(a) BD Participants as SDBs, and 
automatically include them on the list of qualified SDBs.
    (h) 8(a) BD graduates. SBA will automatically certify a firm that 
has graduated from the SBA's 8(a) BD program to be an SDB, provided SBA 
determined that the firm continued to be eligible for the 8(a) BD 
program as part of an annual review within the last three years. (See 
Sec. 124.1014(b)).
    (i) Certification by DOT recipient. If a firm applying for SDB 
certification has a current, valid certification as a disadvantaged 
business enterprise (DBE) from a Department of Transportation (DOT) 
recipient, SBA may adopt the DBE certification as an SDB certification 
when determined by the AA/SDBCE or designee to be appropriate.

[63 FR 35772, June 30, 1998, as amended at 65 FR 33250, May 23, 2000; 65 
FR 57542, Sept. 25, 2000]



Sec. 124.1009  How does a firm appeal a decision of a Private Certifier?

    Where a Private Certifier performs an ownership and control 
determination and finds that a firm is not owned and controlled by the 
individual(s) claiming disadvantaged status, the firm may appeal that 
decision to OHA pursuant to part 134 of this title. The firm must serve 
SBA's Associate General Counsel for Procurement Law and the applicable 
Private Certifier with a copy of the appeal.
    (a) The Private Certifier must submit to OHA the full record upon 
which its decision was based within two days of receiving notification 
that an appeal has been filed.
    (b) The Private Certifier and SBA may each elect to appear or not 
appear in an appeal proceeding.
    (c) OHA's review is limited to the facts that were before the 
Private Certifier at the time of its final decision and any arguments 
submitted in or in response to the appeal. OHA will not consider any 
facts beyond those that were already presented to the Private Certifier 
unless the administrative judge determines that manifest injustice would 
occur if the appeal were limited to the record.
    (d) OHA will decide whether it believes that the facts are supported 
by a preponderance of the evidence the Private Certifier's determination 
regarding ownership and control.
    (e) Where the facts presented in the record leave significant doubt 
as to whether the petitioner is or is not owned and controlled by one or 
more individuals claiming to be disadvantaged, the administrative judge 
may remand the case to the Private Certifier for reconsideration in 
accord with his or her remand order.
    (f) If OHA finds that the firm is owned and controlled by the 
individual(s) claiming disadvantaged status, OHA will refer the 
application to SBA for further processing. If OHA

[[Page 396]]

finds that the firm is not owned and controlled by such individual(s), 
the administrative judge will state the reasons for that decision, which 
will be the final decision of the Agency.

[63 FR 35772, June 30, 1998, as amended at 65 FR 57542, Sept. 25, 2000]



Sec. 124.1010  Can a firm represent itself to be an SDB if it has not yet been certified as an SDB?

    (a) General rule. Except as set forth in paragraph (d) of this 
section, a firm may represent itself to be an SDB concern in order to 
receive a preference as an SDB for any Federal procurement program if it 
has submitted a complete application for SDB certification to SBA or a 
Private Certifier and it has not received a negative determination 
regarding that application from SBA or the Private Certifier. A firm 
that has received a negative determination of ownership and control or a 
negative determination regarding its disadvantaged status and is 
awaiting the resolution of its appeal of that determination may not 
represent itself to be an SDB.
    (b) Where applicant becomes successful offeror. If a concern becomes 
the apparent successful offeror on a contract for which it would receive 
a benefit for being an SDB while its application for SDB certification 
is pending, either at SBA or a Private Certifier, the contracting 
officer for the particular contract must immediately inform SBA's AA/
SDBCE. SBA will then prioritize the firm's SDB application and make a 
determination regarding the firm's status as an SDB within 15 days from 
the date that SBA received the contracting officer's notification.
    (1) Where the apparent successful offeror's completed application is 
pending an ownership and control determination with a Private Certifier, 
the concern must inform SBA which Private Certifier has its application. 
SBA will immediately contact the Private Certifier to require the 
Private Certifier to complete its ownership and control determination 
within 5 days of SBA's notification. In appropriate circumstances, SBA 
may undertake to make the determination itself, and may recoup the cost 
of the determination from the Private Certifier.
    (2) If requested to do so by the procuring activity contracting 
officer, SBA will determine whether other offerors are SDBs where they 
have represented that their completed applications for SDB status are 
pending at SBA or a Private Certifier and they could receive the award 
if SBA determines that the apparently successful offeror is not an SDB.
    (3) If the contracting officer does not receive an SBA determination 
within 15 calendar days after the SBA's receipt of the notification, the 
contracting officer will presume that the apparently successful offeror, 
and any other offerors referred to SBA in connection with the same 
procurement by the contracting officer, are not disadvantaged, and will 
make award accordingly, unless the contracting officer grants an 
extension to the 15-day response period.
    (c) Representation as SDB for statistical purposes. A firm may 
represent itself as an SDB concern for general statistical purposes 
without regard to any application for SDB certification or its inclusion 
on the SBA-maintained list of qualified SDB's.
    (d) Subcontracting programs. Only firms that are on the SBA-
maintained list of qualified SDBs may represent themselves as SDB 
concerns in order to receive a preference as an SDB for any Federal 
subcontracting program.



Sec. 124.1011  What is a misrepresentation of SDB status?

    (a) Any person or entity that misrepresents a firm's status as a 
``small business concern owned and controlled by socially and 
economically disadvantaged individuals'' (``SDB status'') in order to 
obtain an 8(d) or SDB contracting opportunity or preference will be 
subject to the penalties imposed by section 16(d) of the Small Business 
Act, 15 U.S.C. 645(d), as well as any other penalty authorized by law.
    (b) A representation of SDB status by any firm that SBA has found 
not to be an SDB (either in connection with an SDB application or 
protest) will be deemed a misrepresentation of SDB status, unless and 
until the firm reapplies for and obtains SDB certification.

[[Page 397]]



Sec. 124.1012  Can a firm reapply for SDB certification?

    (a) A concern which has been denied SDB certification may reapply 
for certification at any time 12 months or more after the date of the 
most recent final decision of SBA to decline its application (either on 
appeal of an ownership and control determination, or a negative finding 
of disadvantaged status).
    (b) A concern which received a decision that it was not owned and 
controlled by the individual(s) claiming disadvantaged status from a 
Private Certifier and does not appeal that decision to OHA may apply for 
a new ownership and control determination at any time.



Sec. 124.1013  Is there a list of certified SDBs?

    (a) If SBA certifies a firm to be an SDB, SBA will enter the name of 
the firm into an SBA-maintained central on-line register, such as PRO-
Net.
    (b) The register of SDBs will contain the names of all firms that 
are currently certified to be SDBs, including the names of all firms 
currently participating in SBA's 8(a) BD program.
    (c) On a continuing basis, SBA will delete from the on-line register 
those firms that have:
    (1) Graduated or been terminated from SBA's 8(a) BD program for any 
reason and have not otherwise received SDB certification (see, 
Secs. 124.1008(h) and 124.1014(b) for treatment of 8(a) graduates);
    (2) Been determined not to be an SDB in response to an SDB protest 
brought under Sec. 124.1017; or
    (3) Other than current 8(a) Participants, not received a renewed SDB 
certification after being on the register for three years (see 
Sec. 124.1014(c)).



Sec. 124.1014  How long does an SDB certification last?

    (a) Once SBA certifies a firm to be an SDB by placing it on the list 
of qualified SDBs, the firm will generally remain on the SBA-maintained 
list of certified SDBs for a period of three years from the date of its 
certification.
    (1) A firm's SDB certification will extend beyond three years where 
SBA finds the firm to be an SDB:
    (i) On the merits in connection with a particular protest (see 
Sec. 124.1023(h)(2));
    (ii) In connection with an SBA-initiated SDB determination (see 
Sec. 124.1016(a)(2)); or
    (iii) As part of an 8(a) BD annual review.
    (2) Where SBA finds a firm not to be an SDB in connection with an 
SDB protest, an SBA-initiated SDB determination, or an 8(a) BD annual 
review, SBA will immediately decertify the firm as an SDB and remove it 
from the qualified list of SDBs.
    (b) A firm that graduates from the 8(a) BD program will remain on 
the list of certified SDBs for a period of three years from the date of 
its last annual review.
    (c) To remain on the SDB register after three years, a firm whose 
status as an SDB has not been upheld in connection with a protest or an 
SBA-initiated SDB determination, or has not been certified as an 
eligible 8(a) Participant as part of an annual review, must submit a new 
application and receive a new certification.



Sec. 124.1015  What is the effect of receiving an SDB certification?

    (a) A firm that is certified to be an SDB may represent itself as an 
SDB for such purposes as Federal price evaluation adjustments, 
evaluation factors or subfactors, monetary subcontracting incentive 
programs, section 8(d) subcontracts, SDB set-asides, or any other 
programs which accept an SBA certification. A contracting officer may 
award a contract based on a firm's representation that it is a certified 
SDB absent a protest that the protested concern's circumstances have 
materially changed since SBA certified it as an SDB, or that the 
protested concern's SDB application contained false or misleading 
information (see Sec. 124.1018(d)).
    (b) For purposes of a particular Federal procurement, the firm must 
represent that it is both disadvantaged and small at the time it submits 
its initial offer including price (see part 121 of this title). At the 
same time, the firm must also represent that no material change has 
occurred in its SDB status since its SDB certification, or from the date 
of its application for

[[Page 398]]

SDB certification if its application has not yet been processed, and 
must specifically represent that the net worth of the disadvantaged 
individuals (not including concerns owned by tribes, ANCs, CDCs, or 
NHOs) upon whom the SDB certification was based still does not exceed 
$750,000.
    (c) A firm's status as ``disadvantaged'' or ``small'' may be 
protested pursuant to Secs. 124.1017 through 124.1021 and Secs. 121.1001 
through 121.1005, respectively, despite the presence of the firm on the 
SDB register, provided the protest contains specific allegations that 
the firm's circumstances have materially changed since SBA certified it 
as an SDB, or that the firm's SDB application contained false or 
misleading information.



Sec. 124.1016  Can SBA re-evaluate the SDB status of a firm after SBA certifies it to be SDB?

    (a) SBA may initiate an SDB determination whenever it receives 
credible information calling into the question a firm's eligibility as 
an SDB, including an adverse determination from a DOT recipient of the 
firm's status as a DBE. Upon its completion of an SDB determination, SBA 
will issue a written decision regarding the SDB status of the questioned 
firm.
    (1) If SBA finds that the firm does not qualify as an SDB, SBA will 
decertify the firm as an SDB, and immediately remove the firm from the 
list of qualified SDBs. The firm may appeal SBA's decision to OHA 
consistent with the provisions of Sec. 124.1008(f) and part 134 of this 
chapter.
    (2) If SBA finds that the firm continues to qualify as an SDB, the 
determination remains in effect for three years from the date of the 
decision under the same conditions as if the concern had been granted 
SDB certification under Sec. 124.1008.
    (b) An SDB firm must report within 10 days to the AA/SDBCE any 
changes in ownership and control or any other circumstances which could 
adversely affect its eligibility as an SDB.



Sec. 124.1017  Who may protest the disadvantaged status of a concern?

    (a) In connection with a requirement for which the apparent 
successful offeror has invoked an SDB evaluation adjustment or an SDB 
set-aside, the following entities may protest the disadvantaged status 
of the apparent successful offeror:
    (1) Any other concern which submitted an offer for that requirement, 
unless the contracting officer has found the concern to be non-
responsive or outside the competitive range, or SBA has previously found 
the protesting concern to be ineligible for the requirement at issue;
    (2) The procuring activity contracting officer; or
    (3) SBA.
    (b) In connection with an 8(d) subcontract, or a requirement for 
which the apparent successful offeror received an evaluation adjustment 
for proposing one or more SDB subcontractors, the procuring activity 
contracting officer or SBA may protest the disadvantaged status of a 
proposed subcontractor. Other interested parties may submit information 
to the contracting officer or SBA in an effort to persuade the 
contracting officer or SBA to initiate a protest.
    (c) An interested party seeking to protest both the disadvantaged 
status and size of an apparent successful SDB offeror must submit two 
separate protests, one as to disadvantaged status pursuant to this 
subpart, and one as to size pursuant to part 121 of this title. An 
interested party seeking to protest only size of an apparent successful 
SDB offeror must submit a size protest to the contracting officer 
pursuant to part 121.



Sec. 124.1018  When will SBA not decide an SDB protest?

    (a) SBA will not decide a protest as to disadvantaged status of any 
concern other than the apparent successful offeror.
    (b) SBA will not normally consider a post award protest. SBA may 
consider a post award protest in its discretion where it determines that 
a protest decision after award would have a practical effect (e.g., 
where the contracting officer agrees to terminate the contract if the 
protest is sustained).
    (c) SBA will not decide an untimely protest (see Sec. 124.1020(c)).

[[Page 399]]

    (d) SBA will not decide a non-specific protest or one that does not 
present credible evidence that the protested concern's circumstances 
have materially changed since SBA certified it as an SDB, or that the 
protested concern's SDB application contained false or misleading 
information (see Sec. 124.1021).
    (e) An interested party may appeal SBA's dismissal of a protest for 
lack of specificity, timeliness, or a basis upon which SBA will consider 
a protest to SBA's Deputy Associate Deputy Administrator for Government 
Contracting and Minority Enterprise Development (DADA/GC&MED) pursuant 
to Sec. 124.1024.



Sec. 124.1019  Who decides disadvantaged status protests?

    In response to a protest challenging the disadvantaged status of a 
concern, the SBA's AA/SDBCE will determine whether the concern is 
disadvantaged.



Sec. 124.1020  What procedures apply to disadvantaged status protests?

    (a) General. The protest procedures described in this section are 
separate and distinct from those governing size protests and appeals. 
All protests relating to whether a concern is a ``small'' business for 
purposes of any Federal program, including SDB set-asides and SDB 
evaluation adjustments, must be filed and processed pursuant to part 121 
of this title.
    (b) Filing. (1) All protests challenging the disadvantaged status of 
a concern with respect to a particular Federal procurement requirement 
must be submitted in writing to the procuring activity contracting 
officer, except in cases where the contracting officer or SBA initiates 
a protest.
    (2) Any contracting officer who initiates a protest must submit the 
protest in writing to SBA in accord with paragraph (c) of this section.
    (3) In cases where SBA initiates a protest, the protest must be 
submitted in writing to the AA/SDBCE and notification provided in accord 
with Sec. 124.1022(a).
    (c) Timeliness of protest--(1) SDB evaluation adjustment and set-
aside protests*mdash;(i) General. In order for a protest to be timely, 
it must be received by the contracting officer prior to the close of 
business on the fifth day, exclusive of Saturdays, Sundays and legal 
holidays, after the bid opening date for sealed bids, or after the 
receipt from the contracting officer of notification of the identity of 
the prospective awardee in negotiated acquisitions.
    (ii) Oral protests. An oral protest relating to an SDB set-aside or 
SDB evaluation adjustment made to the contracting officer within the 
allotted 5-day period will be considered a timely protest only if the 
contracting officer receives a confirming letter postmarked, FAXed, or 
delivered no later than one calendar day after the date of such oral 
protest.
    (iii) Protests of contracting officers or SBA. The time limitations 
in paragraph (c)(1)(i) of this section do not apply to contracting 
officers or SBA, and they may file protests before or after awards, 
except to the extent set forth in paragraph (c)(3) of this section.
    (iv) Untimely protests. A protest received after the time limits set 
forth in this paragraph (c)(1) will be dismissed by SBA.
    (2) Section 8(d) protests. In connection with an 8(d) subcontract, 
the contracting officer or SBA must submit a protest to the AA/SDBCE 
prior to the completion of performance by the intended 8(d) 
subcontractor.
    (3) Premature protests. A protest in connection with any procurement 
which is submitted by any person, including the contracting officer, 
before bid opening or notification of intended award, whichever applies, 
will be considered premature, and will be returned to the protestor 
without action. A contracting officer that receives a premature protest 
must return it to the protestor without submitting it to the SBA.
    (d) Referral to SBA. (1) Any contracting officer who receives a 
protest that is not premature must promptly forward it to the SBA's AA/
SDBCE, 409 3rd Street, SW, Washington, DC 20416.
    (2) A contracting officer's referral of a protest to SBA must 
contain the following:
    (i) The written protest and any accompanying materials;
    (ii) The date on which the protest was received by the contracting 
officer;

[[Page 400]]

    (iii) A copy of the protested concern's selfrepresentation as an 
SDB, and the date of such self-representation; and
    (iv) The date of bid opening or the date on which notification of 
the apparent successful offeror was sent to all unsuccessful offerors, 
as applicable.



Sec. 124.1021  What format, degree of specificity, and basis does SBA require to consider an SDB protest?

    (a) Format. An SDB protest need not be in any specific format in 
order for SBA to consider it.
    (b) Specificity. A protest must be sufficiently specific to provide 
reasonable notice as to all grounds upon which the protested concern's 
disadvantaged status is challenged.
    (1) SBA will dismiss a protest that merely asserts that the 
protested concern is not disadvantaged, without setting forth specific 
facts or allegations.
    (2) The contracting officer must forward to SBA any non-premature 
protest received, notwithstanding whether he or she believes it is 
sufficiently specific or timely.
    (c) Basis. SBA will consider a protest challenging whether the 
apparent successful offeror is owned and controlled by one or more 
socially and economically disadvantaged individuals, including whether 
one or more of the individuals claiming disadvantaged status is in fact 
socially or economically disadvantaged, only if the protest presents 
credible evidence that the firm's circumstances have materially changed 
since SBA certified it as an SDB, or that the firm's SDB application 
contained false or misleading information.



Sec. 124.1022  What will SBA do when it receives an SDB protest?

    (a) Upon receipt of a protest challenging the disadvantaged status 
of a concern, the AA/SDBCE, or designee, will immediately notify the 
protestor and the contracting officer of the date the protest was 
received and whether it will be processed or dismissed for lack of 
timeliness or specificity.
    (b) In cases where the protest is timely and sufficiently specific, 
the AA/SDBCE, or designee, will also immediately advise the protested 
concern of the protest and forward a copy of it to the protested 
concern.
    (1) The AA/SDBCE, or designee, is authorized to ask the protested 
concern to provide any or all of the following information and 
documentation, completed so as to show the circumstances existing on the 
date of self-representation: SBA Form 1010A, ``Statement of Personal 
Eligibility'' for each individual claiming disadvantaged status; SBA 
Form 1010B, ``Statement of Business Eligibility;'' SBA Form 413, 
``Personal Financial Statement,'' for each individual claiming 
disadvantaged status; information as to whether the protested concern, 
or any of its owners, officers or directors, have applied for admission 
to or participated in the SBA's 8(a) BD program and if so, the name of 
the company which applied or participated and the date of the 
application or entry into the program; business tax returns for the last 
two completed fiscal years prior to the date of self-representation; 
personal tax returns for the last two years prior to the date of self-
representation for all individuals claiming disadvantaged status, all 
officers, all directors and for any individual owning at least 10% of 
the business entity; annual business financial statements for the last 
two completed fiscal years prior to the date of self-representation; a 
current monthly or quarterly business financial statement no older than 
90 days; articles of incorporation; corporate by-laws; partnership 
agreements; limited liability company articles of organization; and any 
other relevant information as to whether the protested concern is 
disadvantaged.
    (2) SBA's disadvantaged status determination need not be limited to 
consideration only of the issues raised in the protest. SBA may consider 
other applicable criteria.
    (3) Unless the protest presents specific credible information which 
calls into question the veracity of application or other documents 
previously submitted to SBA by a current Participant in SBA's 8(a) BD 
program, SBA will allow the Participant to submit, in lieu of the 
information specified in paragraph (b)(1) of this section, a sworn 
affidavit or declaration that circumstances concerning the ownership

[[Page 401]]

and control of the business and the disadvantaged status of its 
principals have not changed since its application or entry into the 
program or its most recent annual review, and a copy of its most 
recently completed annual review.
    (i) If the ownership or control of the business or the disadvantaged 
status of any principals have changed, the protested concern must comply 
with paragraph (b)(1) of this section.
    (ii) An affidavit or declaration may be allowed only if SBA admitted 
the protested concern to the 8(a) BD program, or conducted an annual 
review of the protested concern, during the 12month period preceding the 
date on which SBA receives the protest, and if proceedings to suspend, 
terminate or early graduate the concern from the 8(a) BD program are not 
pending.
    (c) Within 10 working days of the date that notification of the 
protest was received from the AA/SDBCE or designee, the protested 
concern must submit to the AA/SDBCE or designee, by personal delivery, 
FAX, or mail, the information and documentation requested pursuant to 
paragraph (b)(1) of this section or the affidavit permitted by paragraph 
(b)(2) of this section. Materials submitted must be received by the 
close of business on the 10th working day.
    (1) SBA will consider only materials submitted timely, and the late 
or non-submission of materials needed to make a disadvantaged status 
determination may result in sustaining the protest.
    (2) The burden is on the protested concern to demonstrate its 
disadvantaged status, whether or not it is currently shown on the list 
of qualified SDBs.
    (3) The protested concern must timely submit to SBA any information 
it deems relevant to a determination of its disadvantaged status.



Sec. 124.1023  How does SBA make disadvantaged status determinations in considering an SDB protest?

    (a) General. The AA/SDBCE, or designee, will determine a protested 
concern's disadvantaged status within 15 working days after receipt of a 
protest. If the procuring activity contracting officer does not receive 
an SBA determination within 15 working days after the SBA's receipt of 
the protest, the contracting officer may presume that the challenged 
offeror is disadvantaged, unless the SBA requests and the contracting 
officer grants an extension to the 15-day response period.
    (b) Award after protest. (1) After receiving a protest involving an 
offeror being considered for award, the contracting officer shall not 
award the contract until:
    (i) The SBA has made an SDB determination, or
    (ii) 15 working days have expired since SBA's receipt of a protest 
and the contracting officer has not agreed to an extension of the 15-day 
response period.
    (2) Notwithstanding paragraph (b)(1) of this section, the 
contracting officer may award a contract after the receipt of an SDB 
protest where he or she determines in writing that an award must be made 
to protect the public interest.
    (c) Withdrawal of protest. If a protest is withdrawn, SBA will not 
complete a new disadvantaged status determination, and a previous SDB 
certification will stand.
    (d) Basis for determination. (1) Except with respect to a concern 
which is a current Participant in SBA's 8(a) BD program and is 
authorized under Sec. 124.1022(b)(3) to submit an affidavit concerning 
its disadvantaged status, the disadvantaged status determination will be 
based on the protest record, including reasonable inferences therefrom, 
as supplied by the protestor, protested concern, SBA or others.
    (2) SBA may in its discretion make a part of the protest record 
information already in its files, and information submitted by the 
protestor, the protested concern, the contracting officer, or other 
persons contacted for additional specific information.
    (e) Disadvantaged status. In evaluating the social and economic 
disadvantage of individuals claiming disadvantaged status, SBA will 
consider the same information and factors set forth in Secs. 124.103 and 
124.104. As provided in Sec. 124.1002(c), individuals claiming 
disadvantaged status must have a

[[Page 402]]

net worth that is less than $750,000, after taking into account the 
exclusions set forth in Sec. 124.104(c)(2).
    (f) Disadvantaged status determination. SBA will render a written 
determination including the basis for its findings and conclusions.
    (g) Notification of determination. After making its disadvantaged 
status determination, the SBA will immediately notify the contracting 
officer, the protestor, and the protested concern of its determination. 
SBA will promptly provide by certified mail, return receipt requested, a 
copy of its written determination to the same entities, consistent with 
law.
    (h) Results of an SBA disadvantaged status determination. A 
disadvantaged status determination becomes effective immediately.
    (1) If the concern is found not to be disadvantaged, the 
determination remains in full force and effect unless reversed upon 
appeal by SBA's DADA/GC&MED, or designee, pursuant to Sec. 124.1024, or 
the concern is certified to be an SDB under Sec. 124.1008. The concern 
is precluded from applying for SDB certification for 12 months from the 
date of the final agency decision (whether by the AA/SDBCE, or designee, 
without an appeal, or by the DADA/GC&MED, or designee, on appeal).
    (2) If the concern is found to be disadvantaged, the determination 
remains in full force and effect unless and until reversed upon appeal 
by SBA's DADA/GC&MED, or designee, pursuant to Sec. 124.1024. A final 
Agency decision (whether by the AA/SDBCE, or designee, without an 
appeal, or by the DADA/GC&MED, or designee, on appeal) finding the 
protested concern to be an SDB remains in effect for three years from 
the date of the decision under the same conditions as if the concern had 
been granted SDB certification under Sec. 124.1008.



Sec. 124.1024  Appeals of disadvantaged status determinations.

    (a) Who may appeal. Appeals of protest determinations may be filed 
with the SBA's DADA/GC&MED by the protested concern, the protestor, or 
the contracting officer.
    (b) Timeliness of appeal. An appeal must be in writing and must be 
received by the DADA/GC&MED no later than 5 working days after the date 
of receipt of the protest determination. SBA will dismiss any appeal 
received after the five-day time period.
    (c) Notice of appeal. Notice of the appeal must be provided by the 
party bringing an appeal to the procuring activity contracting officer 
and either the protested concern or original protestor, as appropriate.
    (d) Grounds for appeal. SBA will reexamine a protest determination 
only if there was a clear and significant error in the processing of the 
protest, or if the AA/SDBCE, or designee, failed to consider a 
significant material fact contained within the information supplied by 
the protestor or the protested concern. SBA will not consider protest 
determination appeals based on additional information or changed 
circumstances which were not disclosed at the time of the decision of 
the AA/SDBCE or designee, or which are based on disagreement with the 
findings and conclusions contained in the determination.
    (e) Contents of appeal. No specific format is required for the 
appeal. However, the appeal must identify the protest determination 
which is appealed, and set forth a full and specific statement as to why 
the determination is erroneous under paragraph (c) of this section.
    (f) Completion of appeal after award. An appeal may proceed to 
completion even though an award of the SDB acquisition or other 
procurement requirement which prompted the protest has been made, if so 
desired by the protested concern, or where SBA determines that a 
decision on appeal would have a material impact on contracting 
decisions, such as where the contracting officer agrees:
    (1) In the case where an award is made to a concern other than the 
protested concern, to terminate the contract and award to the protested 
concern if the appeal finds that the protested concern is disadvantaged; 
or
    (2) In the case where an award is made to the protested concern, to 
terminate the contract if the appeal finds that the protested concern is 
not disadvantaged.

[[Page 403]]

    (g) The appeal will be decided by the DADA/GC&MED, within 5 working 
days of its receipt, if practicable.
    (h) The appeal decision will be based only on the information and 
documentation in the protest record as supplemented by the appeal. SBA 
will provide a copy of the decision to the contracting officer, the 
protestor, and the protested concern, consistent with law.
    (i) The decision of the DADA/GC&MED, is the final decision of the 
SBA, and cannot be further appealed to OHA.



PART 125--GOVERNMENT CONTRACTING PROGRAMS--Table of Contents




Sec.
125.1  Programs included.
125.2  Prime contracting assistance.
125.3  Subcontracting assistance.
125.4  Government property sales assistance.
125.5  Certificate of Competency Program.
125.6  Prime contractor performance requirements (limitations on 
          subcontracting).
125.7  What is the Very Small Business program?

    Authority: 15 U.S.C. 634(b)(6), 637 and 644; 31 U.S.C. 9701, 9702.

    Source: 61 FR 3312, Jan. 31, 1996, unless otherwise noted.



Sec. 125.1  Programs included.

    The regulations in this part relate to the Government contracting 
assistance programs of SBA. There are four main programs: Prime 
contracting assistance; Subcontracting assistance; Government property 
sales assistance; and the Certificate of Competency program. The 
objective of the programs is to assist small businesses in obtaining a 
fair share of Federal Government contracts, subcontracts, and property 
sales.



Sec. 125.2  Prime contracting assistance.

    (a) General. Small business concerns must receive any award or 
contract, or any contract for the sale of Government property, that SBA 
and the procuring or disposal agency determine to be in the interest of:
    (1) Maintaining or mobilizing the Nation's full productive capacity;
    (2) War or national defense programs;
    (3) Assuring that a fair proportion of the total purchases and 
contracts for property, services and construction for the Government in 
each industry category are placed with small business concerns; or
    (4) Assuring that a fair proportion of the total sales of Government 
property is made to small business concerns.
    (b) PCR and procuring activity responsibilities. (1) SBA Procurement 
Center Representatives (PCRs) are generally located at Federal agencies 
and buying activities which have major contracting programs. PCRs review 
all acquisitions not set-aside for small businesses to determine whether 
a set-aside is appropriate.
    (2) A procuring activity must provide a copy of a proposed 
acquisition strategy (e.g., Department of Defense Form 2579, or 
equivalent) to the applicable PCR (or to the SBA Office of Government 
Contracting Area Office serving the area in which the buying activity is 
located if a PCR is not assigned to the procuring activity) at least 30 
days prior to a solicitation's issuance whenever a proposed acquisition 
strategy:
    (i) Includes in its description goods or services currently being 
performed by a small business and the magnitude of the quantity or 
estimated dollar value of the proposed procurement would render small 
business prime contract participation unlikely;
    (ii) Seeks to package or consolidate discrete construction projects; 
or
    (iii) Meets the definition of a bundled requirement as defined in 
paragraph (d)(1)(i) of this section.
    (3) Whenever any of the circumstances identified in paragraph (b)(2) 
of this section exist, the procuring activity must also submit to the 
applicable PCR (or to the SBA Office of Government Contracting Area 
Office serving the area in which the buying activity is located if a PCR 
is not assigned to the procuring activity) a written statement 
explaining why:
    (i) If the proposed acquisition strategy involves a bundled 
requirement, the procuring activity believes that the bundled 
requirement is necessary and justified under the analysis required by 
paragraph (d)(3)(iii) of this section; or

[[Page 404]]

    (ii) If the description of the requirement includes goods or 
services currently being performed by a small business and the magnitude 
of the quantity or estimated dollar value of the proposed procurement 
would render small business prime contract participation unlikely, or if 
a proposed procurement for construction seeks to package or consolidate 
discrete construction projects:
    (A) The proposed acquisition cannot be divided into reasonably small 
lots to permit offers on quantities less than the total requirement;
    (B) Delivery schedules cannot be established on a basis that will 
encourage small business participation;
    (C) The proposed acquisition cannot be offered so as to make small 
business participation likely; or
    (D) Construction cannot be procured as separate discrete projects.
    (4) In conjunction with their duties to promote the set-aside of 
procurements for small business, PCRs will identify small businesses 
that are capable of performing particular requirements, including teams 
of small business concerns for larger or bundled requirements (see 
Sec. 121.103(f)(3) of this chapter).
    (5)(i) If a PCR believes that a proposed procurement will render 
small business prime contract participation unlikely, or if a PCR does 
not believe a bundled requirement to be necessary and justified, the PCR 
shall recommend to the procurement activity alternative procurement 
methods which would increase small business prime contract 
participation. Such alternatives may include:
    (A) Breaking up the procurement into smaller discrete procurements;
    (B) Breaking out one or more discrete components, for which a small 
business set-aside may be appropriate; and
    (C) Reserving one or more awards for small companies when issuing 
multiple awards under task order contracts.
    (ii) Where bundling is necessary and justified, the PCR will work 
with the procuring activity to tailor a strategy that preserves small 
business prime contract participation to the maximum extent practicable.
    (iii) The PCR will also work to ensure that small business 
participation is maximized through subcontracting opportunities. This 
may include:
    (A) Recommending that the solicitation and resultant contract 
specifically state the small business subcontracting goals which are 
expected of the contractor awardee; and
    (B) Recommending that the small business subcontracting goals be 
based on total contract dollars instead of subcontract dollars.
    (6) In cases where there is disagreement between a PCR and the 
contracting officer over the suitability of a particular acquisition for 
a small business set-aside, whether or not the acquisition is a bundled 
or substantially bundled requirement within the meaning of paragraph (d) 
of this section, the PCR may initiate an appeal to the head of the 
contracting activity. If the head of the contracting activity agrees 
with the contracting officer, SBA may appeal the matter to the secretary 
of the department or head of the agency. The time limits for such 
appeals are set forth in 19.505 of the Federal Acquisition Regulation 
(FAR) (48 CFR 19.505).
    (7) PCRs will work with a procuring activity's Small Business 
Specialist (SBS) to identify proposed solicitations that involve 
bundling, and with the agency acquisition officials to revise the 
acquisition strategies for such proposed solicitations, where 
appropriate, to increase the probability of participation by small 
businesses, including small business contract teams, as prime 
contractors. If small business participation as prime contractors 
appears unlikely, the SBS and PCR will facilitate small business 
participation as subcontractors or suppliers.
    (c) BPCR responsibilities. (1) SBA is required by section 403 of 
Public Law 98-577 (15 U.S.C. 644(l)) to assign a breakout PCR (BPCR) to 
major contracting centers. A major contracting center is a center that, 
as determined by SBA, purchases substantial dollar amounts of other than 
commercial items, and which has the potential to achieve significant 
savings as a result of the assignment of a BPCR.
    (2) BPCRs advocate full and open competition in the Federal 
contracting

[[Page 405]]

process and recommend the breakout for competition of items and 
requirements which previously have not been competed. They may appeal 
the failure by the buying activity to act favorably on a recommendation 
in accord with the appeal procedures set forth in Sec. 19.505 of the FAR 
(48 CFR 19.505). BPCRs also review restrictions and obstacles to 
competition and make recommendations for improvement. Other authorized 
functions of a BPCR are set forth in 48 CFR 19.403(c) of the FAR and 
Section 15(l) of the Act (15 U.S.C. 644(l)).
    (d) Contract bundling--(1) Definitions--(i) Bundled requirement or 
bundling. The term bundled requirement or bundling refers to the 
consolidation of two or more procurement requirements for goods or 
services previously provided or performed under separate smaller 
contracts into a solicitation of offers for a single contract that is 
likely to be unsuitable for award to a small business concern due to:
    (A) The diversity, size, or specialized nature of the elements of 
the performance specified;
    (B) The aggregate dollar value of the anticipated award;
    (C) The geographical dispersion of the contract performance sites; 
or
    (D) Any combination of the factors described in paragraphs (d)(1)(i) 
(A), (B), and (C) of this section.
    (ii) Separate smaller contract. A separate smaller contract is a 
contract that has previously been performed by one or more small 
business concerns or was suitable for award to one or more small 
business concerns.
    (iii) Substantial bundling. Substantial bundling is any contract 
consolidation, which results in an award whose average annual value is 
$10 million or more.
    (2) Requirement to foster small business participation. The Small 
Business Act requires each Federal agency to foster the participation of 
small business concerns as prime contractors, subcontractors, and 
suppliers in the contracting opportunities of the Government. To comply 
with this requirement, agency acquisition planners must:
    (i) Structure procurement requirements to facilitate competition by 
and among small business concerns, including small disadvantaged, 8(a) 
and women-owned business concerns; and
    (ii) Avoid unnecessary and unjustified bundling of contract 
requirements that inhibits or precludes small business participation in 
procurements as prime contractors.
    (3) Requirement for market research. In addition to the requirements 
of paragraph (b)(2) of this section and before proceeding with an 
acquisition strategy that could lead to a contract containing bundled or 
substantially bundled requirements, an agency must conduct market 
research to determine whether bundling of the requirements is necessary 
and justified. During the market research phase, the acquisition team 
should consult with the applicable PCR (or if a PCR is not assigned to 
the procuring activity, the SBA Office of Government Contracting Area 
Office serving the area in which the buying activity is located).
    (4) Requirement to notify current small business contractors of 
intent to bundle. The procuring activity must notify each small business 
which is performing a contract that it intends to bundle that 
requirement with one or more other requirements at least 30 days prior 
to the issuance of the solicitation for the bundled or substantially 
bundled requirement. The procuring activity, at that time, should also 
provide to the small business the name, phone number and address of the 
applicable SBA PCR (or if a PCR is not assigned to the procuring 
activity, the SBA Office of Government Contracting Area Office serving 
the area in which the buying activity is located).
    (5) Determining requirements to be necessary and justified. When the 
procuring activity intends to proceed with an acquisition involving 
bundled or substantially bundled procurement requirements, it must 
document the acquisition strategy to include a determination that the 
bundling is necessary and justified, when compared to the benefits that 
could be derived from meeting the agency's requirements through separate 
smaller contracts.
    (i) The procuring activity may determine a consolidated requirement 
to be necessary and justified if, as compared to the benefits that it 
would derive

[[Page 406]]

from contracting to meet those requirements if not consolidated, it 
would derive measurably substantial benefits. The procuring activity 
must quantify the identified benefits and explain how their impact would 
be measurably substantial. The benefits may include cost savings and/or 
price reduction, quality improvements that will save time or improve or 
enhance performance or efficiency, reduction in acquisition cycle times, 
better terms and conditions, and any other benefits that individually, 
in combination, or in the aggregate would lead to:
    (A) Benefits equivalent to 10 percent of the contract value 
(including options) where the contract value is $75 million or less; or
    (B) Benefits equivalent to 5 percent of the contract value 
(including options) or $7.5 million, whichever is greater, where the 
contract value exceeds $75 million.
    (ii) Notwithstanding paragraph (d)(5)(i) of this section, the 
Assistant Secretaries with responsibility for acquisition matters 
(Service Acquisition Executives) or the Under Secretary of Defense for 
Acquisition and Technology (for other Defense Agencies) in the 
Department of Defense and the Deputy Secretary or equivalent in civilian 
agencies may, on a non-delegable basis determine that a consolidated 
requirement is necessary and justified when:
    (A) There are benefits that do not meet the thresholds set forth in 
paragraph (d)(5)(i) of this section but, in the aggregate, are critical 
to the agency's mission success; and
    (B) Procurement strategy provides for maximum practicable 
participation by small business.
    (iii) The reduction of administrative or personnel costs alone shall 
not be a justification for bundling of contract requirements unless the 
administrative or personnel cost savings are expected to be substantial, 
in relation to the dollar value of the procurement to be consolidated 
(including options). To be substantial, such cost savings must be at 
least 10 percent of the contract value (including options).
    (iv) In assessing whether cost savings and/or a price reduction 
would be achieved through bundling, the procuring activity and SBA must 
compare the price that has been charged by small businesses for the work 
that they have performed and, where available, the price that could have 
been or could be charged by small businesses for the work not previously 
performed by small business.
    (6) OMB Circular A-76 Cost Comparison Analysis. The substantial 
benefit analysis set forth in paragraph (d)(5)(i) of this section is not 
required where a requirement is subject to a Cost Comparison Analysis 
under OMB Circular A-76 (See 5 CFR 1310.3 for availability).
    (7) Substantial bundling. Where a proposed procurement strategy 
involves a substantial bundling of contract requirements, the procuring 
agency must, in the documentation of that strategy, include a 
determination that the anticipated benefits of the proposed bundled 
contract justify its use, and must include, at a minimum:
    (i) The analysis for bundled requirements set forth in paragraph 
(d)(5)(i) of this section;
    (ii) An assessment of the specific impediments to participation by 
small business concerns as prime contractors that will result from the 
substantial bundling;
    (iii) Actions designed to maximize small business participation as 
prime contractors, including provisions that encourage small business 
teaming for the substantially bundled requirement; and
    (iv) Actions designed to maximize small business participation as 
subcontractors (including suppliers) at any tier under the contract or 
contracts that may be awarded to meet the requirements.
    (8) Significant subcontracting opportunity. (i) Where a bundled or 
substantially bundled requirement offers a significant opportunity for 
subcontracting, the procuring agency must designate the following 
factors as significant factors in evaluating offers:
    (A) A factor that is based on the rate of participation provided 
under the subcontracting plan for small business in the performance of 
the contract; and
    (B) For the evaluation of past performance of an offeror, a factor 
that is based on the extent to which the offeror attained applicable 
goals for small

[[Page 407]]

business participation in the performance of contracts.
    (ii) Where the offeror for such a bundled contract qualifies as a 
small business concern, the procuring agency must give to the offeror 
the highest score possible for the evaluation factors identified in 
paragraph (d)(5)(i) of this section.

[61 FR 3312, Jan. 31, 1996, as amended at 63 FR 31908, June 11, 1998; 64 
FR 57370, Oct. 25, 1999; 65 FR 45833, July 26, 2000]



Sec. 125.3  Subcontracting assistance.

    (a) The purpose of the subcontracting assistance program is to 
achieve maximum utilization of small business by major prime 
contractors. The Act requires other-than-small firms awarded contracts 
that offer subcontracting possibilities by the Federal Government in 
excess of $500,000, or $1 million for construction of a public facility, 
to submit a subcontracting plan to the contracting agency. The FAR sets 
forth the requirements for subcontracting plans in 48 CFR part 19, 
subpart 19.7, and 48 CFR 52.219-9.
    (b) Upon determination of the successful subcontract offeror on a 
subcontract for which a small business, small disadvantaged business, 
and/or a HUBZone small business received a preference, but prior to 
award, the prime contractor must inform each unsuccessful offeror in 
writing of the name and location of the apparent successful offeror and 
if the successful offeror was a small business, small disadvantaged 
business, or HUBZone business. This applies to all subcontracts over 
$10,000.
    (c) SBA Commercial Market Representatives (CMRs) facilitate the 
process of matching large prime contractors with small, small 
disadvantaged, and HUBZone subcontractors. CMRs identify, develop, and 
market small businesses to the prime contractors and assist the small 
concerns in obtaining subcontracts.
    (d) Each CMR has a portfolio of prime contractors and conducts 
periodic compliance reviews and needs assessments of the companies in 
this portfolio. CMRs are also required to perform opportunity 
development and source identification. Opportunity development means 
assessing the current and future needs of the prime contractors. Source 
identification means identifying those small, small disadvantaged, and 
HUBZone concerns which can fulfill the needs assessed from the 
opportunity development process.

[61 FR 3312, Jan. 31, 1996; 61 FR 7986, Mar. 1, 1996, as amended at 63 
FR 31908, June 11, 1998]



Sec. 125.4  Government property sales assistance.

    (a) The purpose of SBA's Government property sales assistance 
program is to:
    (1) Insure that small businesses obtain their fair share of all 
Federal real and personal property qualifying for sale or other 
competitive disposal action; and
    (2) Assist small businesses in obtaining Federal property being 
processed for disposal, sale, or lease.
    (b) SBA property sales assistance primarily consists of two 
activities:
    (1) Obtaining small business set-asides when necessary to insure 
that a fair share of Government property sales are made to small 
businesses; and
    (2) Providing advice and assistance to small businesses on all 
matters pertaining to sale or lease of Government property.
    (c) The program is intended to cover the following categories of 
Government property:
    (1) Sales of timber and related forest products;
    (2) Sales of strategic material from national stockpiles;
    (3) Sales of royalty oil by the Department of Interior's Minerals 
Management Service;
    (4) Leases involving rights to minerals, petroleum, coal, and 
vegetation; and
    (5) Sales of surplus real and personal property.
    (d) SBA has established specific small business size standards and 
rules for the sale or lease of the different kinds of Government 
property. These provisions are contained in Secs. 121.501 through 
121.514 of this chapter.



Sec. 125.5  Certificate of Competency Program.

    (a) General. (1) The Certificate of Competency (COC) Program is 
authorized under section 8(b)(7) of the Small

[[Page 408]]

Business Act. A COC is a written instrument issued by SBA to a 
Government contracting officer, certifying that one or more named small 
business concerns possess the responsibility to perform a specific 
Government procurement (or sale) contract. The COC Program is applicable 
to all Government procurement actions. For purposes of this Section, the 
term ``United States'' includes its territories, possessions, and the 
Commonwealth of Puerto Rico.
    (2) A contracting officer must, upon determining an apparent low 
small business offeror to be nonresponsible, refer that small business 
to SBA for a possible COC, even if the next low apparently responsible 
offeror is also a small business.
    (3) A small business offeror referred to SBA as nonresponsible may 
apply to SBA for a COC. Where the applicant is a non-manufacturing 
offeror on a supply contract, the COC applies to the responsibility of 
the non-manufacturer, not to that of the manufacturer.
    (b) COC Eligibility. (1) The offeror seeking a COC has the burden of 
proof to demonstrate its eligibility for COC review. To be eligible for 
the COC program, a firm must meet the following criteria:
    (i) It must qualify as a small business concern under the size 
standard applicable to the procurement. Where the solicitation fails to 
specify a size standard or Standard Industrial Classification (SIC) 
code, SBA will assign the appropriate size standard to determine COC 
eligibility. SBA determines size eligibility as of the date described in 
Sec. 121.404 of this chapter.
    (ii) A manufacturing, service, or construction concern must 
demonstrate that it will perform a significant portion of the proposed 
contract with its own facilities, equipment, and personnel. The contract 
must be performed or the end item manufactured within the United States.
    (iii) A non-manufacturer making an offer on a small business set-
aside contract for supplies must furnish end items that have been 
manufactured in the United States by a small business. A waiver of this 
requirement may be requested under Secs. 121.1301 through 121.1305 of 
this chapter for either the type of product being procured or the 
specific contract at issue.
    (iv) A non-manufacturer making an offer on an unrestricted 
procurement or a procurement utilizing simplified acquisition threshold 
procedures with a cost that does not exceed $25,000 must furnish end 
items manufactured in the United States to be eligible for a COC.
    (v) An offeror intending to provide a kit consisting of finished 
components or other components provided for a special purpose, is 
eligible if:
    (A) It meets the Size Standard for the SIC code assigned to the 
procurement;
    (B) Each component comprising the kit was manufactured in the United 
States; and
    (C) In the case of a set-aside, each component comprising the kit 
was manufactured by a small business under the size standard applicable 
to the component provided. A waiver of this requirement may be requested 
under Secs. 121.1301 through 121.1305 of this chapter.
    (2) SBA will determine a concern ineligible for a COC if the 
concern, or any of its principals, appears in the ``Parties Excluded 
From Federal Procurement Programs'' section found in the U.S. General 
Services Administration Office of Acquisition Policy Publication: List 
of Parties Excluded From Federal Procurement or Nonprocurement Programs. 
If a principal is unable to presently control the applicant concern, and 
appears in the Procurement section of the list due to matters not 
directly related to the concern itself, responsibility will be 
determined in accordance with paragraph (f)(2) of this section.
    (3) An eligibility determination will be made on a case-by-case 
basis, where a concern or any of its principals appears in the 
Nonprocurement Section of the publication referred to in paragraph 
(b)(2) of this section.
    (c) Referral of nonresponsibility determination to SBA. (1) A 
contracting officer who determines that an apparently successful offeror 
that has certified

[[Page 409]]

itself to be a small business with respect to a specific Government 
procurement lacks any element of responsibility (including competency, 
capability, capacity, credit, integrity or tenacity or perseverance) 
must refer the matter in writing to the SBA Government Contracting Area 
Office (Area Office) serving the area in which the headquarters of the 
offeror is located. The referral must include a copy of the following:
    (i) Solicitation;
    (ii) Offer submitted by the concern whose responsibility is at issue 
for the procurement (its Best and Final Offer for a negotiated 
procurement);
    (iii) Abstract of Bids, where applicable, or the Contracting 
Officer's Price Negotiation Memorandum;
    (iv) Preaward survey, where applicable;
    (v) Contracting officer's written determination of 
nonresponsibility;
    (vi) Technical data package (including drawings, specifications, and 
Statement of Work); and
    (vii) Any other justification and documentation used to arrive at 
the nonresponsibility determination.
    (2) Contract award must be withheld by the contracting officer for a 
period of 15 working days (or longer if agreed to by SBA and the 
contracting officer) following receipt by the appropriate Area Office of 
a referral which includes all required documentation.
    (3) The COC referral must indicate that the offeror has been found 
responsive to the solicitation, and also identify the reasons for the 
nonresponsibility determination.
    (d) Application for COC. (1) Upon receipt of the contracting 
officer's referral, the Area Office will inform the concern of the 
contracting officer's negative responsibility determination, and offer 
it the opportunity to apply to SBA for a COC by a specified date.
    (2) The COC application must include all information and 
documentation requested by SBA and any additional information which the 
firm believes will demonstrate its ability to perform on the proposed 
contract. The application should be returned as soon as possible, but no 
later than the date specified by SBA.
    (3) Upon receipt of a complete and acceptable application, SBA may 
elect to visit the applicant's facility to review its responsibility. 
SBA personnel may obtain clarification or confirmation of information 
provided by the applicant by directly contacting suppliers, financial 
institutions, and other third parties upon whom the applicant's 
responsibility depends.
    (e) Incomplete applications. If an application for a COC is 
materially incomplete or is not submitted by the date specified by SBA, 
SBA will close the case without issuing a COC and will notify the 
contracting officer and the concern with a declination letter.
    (f) Reviewing an application. (1) The COC review process is not 
limited to the areas of nonresponsibility cited by the contracting 
officer. SBA may, at its discretion, independently evaluate the COC 
applicant for all elements of responsibility, but it may presume 
responsibility exists as to elements other than those cited as 
deficient. SBA may deny a COC for reasons of nonresponsibility not 
originally cited by the contracting officer.
    (2) A small business will be rebuttably presumed nonresponsible if 
any of the following circumstances are shown to exist:
    (i) Within three years before the application for a COC, the 
concern, or any of its principals, has been convicted of an offense or 
offenses that would constitute grounds for debarment or suspension under 
FAR subpart 9.4 (48 CFR part 9, subpart 9.4), and the matter is still 
under the jurisdiction of a court (e.g., the principals of a concern are 
incarcerated, on probation or parole, or under a suspended sentence); or
    (ii) Within three years before the application for a COC, the 
concern or any of its principals has had a civil judgment entered 
against it or them for any reason that would constitute grounds for 
debarment or suspension under FAR subpart 9.4 (48 CFR part, subpart 
9.4).
    (g) Decision by Area Director (``Director''). After reviewing the 
information submitted by the applicant and the information gathered by 
SBA, the Area

[[Page 410]]

Director will make a determination, either final or recommended as set 
forth in the following chart:

------------------------------------------------------------------------
                                 SBA official or         Finality of
                                   office with        decision; options
     Contracting actions        authority to make      for contracting
                                    decision              agencies
------------------------------------------------------------------------
$100,000 or less, or in       Director may approve  Final. The Director
 accordance with Simplified    or deny.              will notify both
 Acquisition Threshold                               applicant and
 procedures.                                         contracting agency
                                                     in writing of the
                                                     decision.
Between $100,000 and $25      (1) Director may      (1) Final.
 million.                      deny.
                              (2) Director may      (2) Contracting
                               approve, subject to   agency may proceed
                               right of appeal and   under paragraph (h)
                               other options.        or paragraph (i) of
                                                     this section.
Exceeding $25 million.......  (1) Director may      (1) Final.
                               deny.
                              (2) Director must     (2) Contracting
                               refer to SBA          agency may proceed
                               Headquarters          under paragraph (j)
                               recommendation for    of this section.
                               approval.
------------------------------------------------------------------------

    (h) Notification of intent to issue on a contract with a value 
between $100,000 and $25 million. Where the Director determines that a 
COC is warranted, he or she will notify the contracting officer of the 
intent to issue a COC, and of the reasons for that decision, prior to 
issuing the COC. At the time of notification, the contracting officer 
has the following options:
    (1) Accept the Director's decision to issue the COC and award the 
contract to the concern. The COC issuance letter will then be sent, 
including as an attachment a detailed rationale of the decision; or
    (2) Ask the Director to suspend the case for one of the following 
purposes:
    (i) To forward a detailed rationale for the decision to the 
contracting officer for review within a specified period of time;
    (ii) To afford the contracting officer the opportunity to meet with 
the Area Office to review all documentation contained in the case file;
    (iii) To submit any information which the contracting officer 
believes SBA has not considered (at which time, SBA will establish a new 
suspense date mutually agreeable to the contracting officer and SBA); or
    (iv) To permit resolution of an appeal by the contracting agency to 
SBA Headquarters under paragraph (i) of this section.
    (i) Appeals of Area Director determinations. For COC actions with a 
value exceeding $100,000, contracting agencies may appeal a Director's 
decision to issue a COC to SBA Headquarters by filing an appeal with the 
Area Office processing the COC application. The Area Office must honor 
the request to appeal if the contracting officer agrees to withhold 
award until the appeal process is concluded. Without such an agreement 
from the contracting officer, the Director must issue the COC. When such 
an agreement has been obtained, the Area Office will immediately forward 
the case file to SBA Headquarters.
    (1) The intent of the appeal procedure is to allow the contracting 
agency the opportunity to submit to SBA Headquarters any documentation 
which the Area Office may not have considered.
    (2) SBA Headquarters will furnish written notice to the Director, 
Office of Small and Disadvantaged Business Utilization (OSDBU) at the 
secretariat level of the procuring agency (with a copy to the 
contracting officer), that the case file has been received and that an 
appeal decision may be requested by an authorized official at that 
level. If the contracting agency decides to file an appeal, it must 
notify SBA Headquarters through its Director, OSDBU, within 10 working 
days (or a time period agreed upon by both agencies) of its receipt of 
the notice under paragraph (h) of this section. The appeal and any 
supporting documentation must be filed within 10 working days (or a 
different time period agreed to by both agencies) after SBA receives the 
request for a formal appeal.
    (3) The SBA Associate Administrator for Government Contracting (AA/
GC) will make a final determination, in writing, to issue or to deny the 
COC.
    (j) Decision by SBA Headquarters where contract value exceeds $25 
million. (1)

[[Page 411]]

Prior to taking final action, SBA Headquarters will contact the 
contracting agency at the secretariat level or agency equivalent and 
afford it the following options:
    (i) Ask SBA Headquarters to suspend the case so that the agency can 
meet with Headquarters personnel and review all documentation contained 
in the case file; or
    (ii) Submit to SBA Headquarters for evaluation any information which 
the contracting agency believes has not been considered.
    (2) After reviewing all available information, the AA/GC will make a 
final decision to either issue or deny the COC. If the AA/GC's decision 
is to deny the COC, the applicant and contracting agency will be 
informed in writing by the Area Office. If the decision is to issue the 
COC, a letter certifying the responsibility of the firm will be sent to 
the contracting agency by Headquarters and the applicant will be 
informed of such issuance by the Area Office. Except as set forth in 
paragraph (l) of this section, there can be no further appeal or 
reconsideration of the decision of the AA/GC.
    (k) Notification of denial of COC. The notification to an 
unsuccessful applicant following either an Area Director or a 
Headquarters denial of a COC will briefly state all reasons for denial 
and inform the applicant that a meeting may be requested with 
appropriate SBA personnel to discuss the denial. Upon receipt of a 
request for such a meeting, the appropriate SBA personnel will confer 
with the applicant and explain the reasons for SBA's action. The meeting 
does not constitute an opportunity to rebut the merits of the SBA's 
decision to deny the COC, and is for the sole purpose of giving the 
applicant the opportunity to correct deficiencies so as to improve its 
ability to obtain future contracts either directly or, if necessary, 
through the issuance of a COC.
    (l) Reconsideration of COC after issuance. (1) An approved COC may 
be reconsidered and possibly rescinded, at the sole discretion of SBA, 
where an award of the contract has not occurred, and one of the 
following circumstances exists:
    (i) The COC applicant submitted false or omitted materially adverse 
information;
    (ii) New materially adverse information has been received relating 
to the current responsibility of the applicant concern; or
    (iii) The COC has been issued for more than 60 days (in which case 
SBA may investigate the firm's current circumstances).
    (2) Where SBA reconsiders and reaffirms the COC the procedures under 
paragraph (h) of this section do not apply.
    (m) Effect of a COC. By the terms of the Act, a COC is conclusive as 
to responsibility. Where SBA issues a COC on behalf of a small business 
with respect to a particular contract, contracting officers are required 
to award the contract without requiring the firm to meet any other 
requirement with respect to responsibility.
    (n) Effect of Denial of COC. Denial of a COC by SBA does not 
preclude a contracting officer from awarding a contract to the referred 
firm, nor does it prevent the concern from making an offer on any other 
procurement.
    (o) Monitoring performance. Once a COC has been issued and a 
contract awarded on that basis, SBA will monitor contractor performance.

[61 FR 3312, Jan. 31, 1996; 61 FR 7987, Mar. 1, 1996]



Sec. 125.6  Prime contractor performance requirements (limitations on subcontracting).

    (a) In order to be awarded a full or partial small business set-
aside contract, an 8(a) contract, or an unrestricted procurement where a 
concern has claimed a 10 percent small disadvantaged business (SDB) 
price evaluation preference, a small business concern must agree that:
    (1) In the case of a contract for services (except construction), 
the concern will perform at least 50 percent of the cost of the contract 
incurred for personnel with its own employees.
    (2) In the case of a contract for supplies or products (other than 
procurement from a non-manufacturer in such supplies or products), the 
concern will perform at least 50 percent of the cost

[[Page 412]]

of manufacturing the supplies or products (not including the costs of 
materials).
    (3) In the case of a contract for general construction, the concern 
will perform at least 15 percent of the cost of the contract with its 
own employees (not including the costs of materials).
    (4) In the case of a contract for construction by special trade 
contractors, the concern will perform at least 25 percent of the cost of 
the contract with its own employees (not including the cost of 
materials).
    (b) Definitions. The following definitions apply to this section:
    (1) Cost of the contract. All allowable direct and indirect costs 
allocable to the contract, excluding profit or fees.
    (2) Cost of contract performance incurred for personnel. Direct 
labor costs and any overhead which has only direct labor as its base, 
plus the concern's General and Administrative rate multiplied by the 
labor cost.
    (3) Cost of manufacturing. Those costs incurred by the firm in the 
production of the end item being acquired. These are costs associated 
with the manufacturing process, including the direct costs of 
fabrication, assembly, or other production activities, and indirect 
costs which are allocable and allowable. The cost of materials, as well 
as the profit or fee from the contract, are excluded.
    (4) Cost of materials. Includes costs of the items purchased, 
handling and associated shipping costs for the purchased items (which 
includes raw materials), off-the-shelf items (and similar 
proportionately high-cost common supply items requiring additional 
manufacturing or incorporation to become end items), special tooling, 
special testing equipment, and construction equipment purchased for and 
required to perform on the contract. In the case of a supply contract, 
the acquisition of services or products from outside sources following 
normal commercial practices within the industry are also included.
    (5) Off-the-shelf item. An item produced and placed in stock by a 
manufacturer, or stocked by a distributor, before orders or contracts 
are received for its sale. The item may be commercial or may be produced 
to military or Federal specifications or description. Off-the-shelf 
items are also known as Nondevelopmental Items (NDI).
    (6) Personnel. Individuals who are ``employees'' under Sec. 121.106 
of this chapter.
    (7) Subcontracting. That portion of the contract performed by a 
firm, other than the concern awarded the contract, under a second 
contract, purchase order, or agreement for any parts, supplies, 
components, or subassemblies which are not available off-the-shelf, and 
which are manufactured in accordance with drawings, specifications, or 
designs furnished by the contractor, or by the government as a portion 
of the solicitation. Raw castings, forgings, and moldings are considered 
as materials, not as subcontracting costs. Where the prime contractor 
has been directed by the Government to use any specific source for 
parts, supplies, components subassemblies or services, the costs 
associated with those purchases will be considered as part of the cost 
of materials, not subcontracting costs.
    (c) Compliance will be considered an element of responsibility and 
not a component of size eligibility.
    (d) The period of time used to determine compliance will be the 
period of performance which the evaluating agency uses to evaluate the 
proposal or bid. If the evaluating agency fails to articulate in its 
solicitation the period of performance it will use to evaluate the 
proposal or bid, the base contract period, excluding options, will be 
used to determine compliance. In indefinite quantity contracts, 
performance over the guaranteed minimum will be used to determine 
compliance unless the evaluating agency articulates a different period 
of performance which it will use to evaluate the proposal or bid in its 
solicitation.
    (e) Work to be performed by subsidiaries or other affiliates of a 
concern is not counted as being performed by the concern for purposes of 
determining whether the concern will perform the required percentage of 
work.
    (f) The procedures of Sec. 125.5 apply where the contracting officer 
determines non-compliance, the procurement is a full or partial small 
business

[[Page 413]]

set-aside or an SDB has claimed a preference, and refers the matter to 
SBA for a COC determination.
    (g) Where an offeror is exempt from affiliation under 
Sec. 121.103(f)(3) of this chapter and qualifies as a small business 
concern, the performance of work requirements set forth in this section 
apply to the cooperative effort of the team or joint venture, not its 
individual members.

[61 FR 3312, Jan. 31, 1996; 61 FR 39305, July 20, 1996; as amended at 64 
FR 57372, Oct. 25, 1999; 65 FR 45835, July 26, 2000]



Sec. 125.7  What is the Very Small Business program?

    (a) The Very Small Business (VSB) program is an extension of the 
small business set-aside program, administered by SBA as a pilot to 
increase opportunities for VSB concerns. Procurement requirements, 
including construction requirements, estimated to be between $2,500 and 
$50,000 must be reserved for eligible VSB concerns if the criteria in 
paragraph (c) of this section are met.
    (b) Definitions. (1) The term designated SBA district means the 
geographic area served by any of the following SBA district offices:
    (i) Albuquerque, NM, serving New Mexico;
    (ii) Los Angeles, CA, serving the following counties in California: 
Los Angeles, Santa Barbara, and Ventura;
    (iii) Boston, MA, serving Massachusetts;
    (iv) Louisville, KY, serving Kentucky;
    (v) Columbus, OH, serving the following counties in Ohio: Adams, 
Allen, Ashland, Athens, Auglaize, Belmont, Brown, Butler, Champaign, 
Clark, Clermont, Clinton, Coshocton, Crawford, Darke, Delaware, 
Fairfield, Fayette, Franklin, Gallia, Greene, Guernsey, Hamilton, 
Hancock, Hardin, Highland, Hocking, Holmes, Jackson, Knox, Lawrence, 
Licking, Logan, Madison, Marion, Meigs, Mercer, Miami, Monroe, 
Montgomery, Morgan, Morrow, Muskingum, Noble, Paulding, Perry, Pickaway, 
Pike, Preble, Putnam, Richland, Ross, Scioto, Shelby, Union, Van Wert, 
Vinton, Warren, Washington, and Wyandot;
    (vi) New Orleans, LA, serving Louisiana;
    (vii) Detroit, MI, serving Michigan;
    (viii) Philadelphia, PA, serving the State of Delaware and the 
following counties in Pennsylvania: Adams, Berks, Bradford, Bucks, 
Carbon, Chester, Clinton, Columbia, Cumberland, Dauphin, Delaware, 
Franklin, Fulton, Huntington, Juniata, Lackawanna, Lancaster, Lebanon, 
Lehigh, Luzerne, Lycoming, Mifflin, Monroe, Montgomery, Montour, 
Northampton, Northumberland, Philadelphia, Perry, Pike, Potter, 
Schuylkill, Snyder, Sullivan, Susquehanna, Tioga, Union, Wayne, Wyoming, 
and York;
    (ix) El Paso, TX, serving the following counties in Texas: Brewster, 
Culberson, El Paso, Hudspeth, Jeff Davis, Pecos, Presidio, Reeves, and 
Terrell; and
    (x) Santa Ana, CA, serving the following counties in California: 
Orange, Riverside, and San Bernadino.
    (2) The term very small business or VSB means a concern whose 
headquarters is located within the geographic area served by a 
designated SBA district and, together with its affiliates, has no more 
than 15 employees and has average annual receipts that do not exceed $1 
million. The terms concerns, affiliates, average annual receipts, and 
employees have the meaning given to them in Secs. 121.105, 121.103, 
121.104, and 121.106, respectively, of this chapter.
    (c)(1) A contracting officer must set aside for VSB concerns each 
procurement that has an anticipated dollar value between $2,500 and 
$50,000 if:
    (i) In the case of a procurement for manufactured or supply items:
    (A) The buying activity is located within the geographical area 
served by a designated SBA district, and
    (B) There is a reasonable expectation of obtaining offers from two 
or more responsible VSB concerns headquartered within the geographical 
area served by that designated SBA district that are competitive in 
terms of market prices, quality and delivery; or
    (ii) In the case of a procurement for other than manufactured or 
supply items:

[[Page 414]]

    (A) The requirement will be performed within the geographical area 
served by a designated SBA district, and
    (B) There is a reasonable expectation of obtaining offers from two 
or more responsible VSB concerns headquartered within the geographical 
area served by that designated SBA district that are competitive in 
terms of market prices, quality and delivery.
    (2) The geographic areas served by the SBA Los Angeles and Santa Ana 
District Offices will be treated as one designated SBA district for the 
purposes of this section.
    (3) If the contracting officer determines that there is not a 
reasonable expectation of receiving at least two responsible offers from 
VSB concerns headquartered within the geographic area served by the 
applicable designated SBA district, he or she must include in the 
contract file the reason(s) for this determination, and solicit the 
procurement pursuant to the provisions of 48 CFR 19.502-2. SBA may 
appeal such determination using the same procedure described in 48 CFR 
19.505.
    (4) If the contracting officer receives only one acceptable offer 
from a responsible VSB concern in response to a VSB set-aside, the 
contracting officer will make an award to that firm. If the contracting 
officer receives no acceptable offers from responsible VSB concerns, he 
or she will withdraw the procurement and, if still valid, must resolicit 
it pursuant to the provisions of 48 CFR 19.502-2.
    (d) Where a procurement is set aside for VSB concerns, only those 
VSB concerns whose headquarters are located within the geographic area 
served by the applicable designated SBA district are eligible to submit 
offers in response to the solicitation.
    (e) Nothing in this section shall be construed to alter in any way 
the procedures by which procuring activities award contracts under the 
SBA's 8(a) Business Development program (see 13 CFR part 124).
    (f) This pilot program terminates on September 30, 2000. Any award 
under this program must be made on or before this date.

[63 FR 46642, Sept. 2, 1998]



PART 126--HUBZONE PROGRAM--Table of Contents




             Subpart A--Provisions of General Applicability

Sec.
126.100  What is the purpose of the HUBZone program?
126.101  Which government departments or agencies are affected directly 
          by the HUBZone program?
126.102  What is the effect of the HUBZone program on the section 8(d) 
          subcontracting program?
126.103  What definitions are important in the HUBZone program?

          Subpart B--Requirements to be a Qualified HUBZone SBC

126.200  What requirements must a concern meet to receive SBA 
          certification as a qualified HUBZone SBC?
126.201  For this purpose, who does SBA consider to own a HUBZone SBC?
126.202  Who does SBA consider to control a HUBZone SBC?
126.203  What size standards apply to HUBZone SBCs?
126.204  May a qualified HUBZone SBC have affiliates?
126.205  May WOBs, 8(a) participants or SDBs be qualified HUBZone SBCs?
126.206  May non-manufacturers be certified as qualified HUBZone SBCs?
126.207  May a qualified HUBZone SBC have offices or facilities in 
          another HUBZone or outside a HUBZone?

                        Subpart C--Certification

126.300  How may a concern be certified as a qualified HUBZone SBC?
126.301  Is there any other way for a concern to obtain certification?
126.302  When may a concern apply for certification?
126.303  Where must a concern file its certification?
126.304  What must a concern submit to SBA?
126.305  What format must the certification to SBA take?
126.306  How will SBA process the certification?
126.307  Where will SBA maintain the List of qualified HUBZone SBCs?
126.308  What happens if SBA inadvertently omits a qualified HUBZone SBC 
          from the List?
126.309  How may a declined or de-certified concern seek certification 
          at a later date?

[[Page 415]]

                     Subpart D--Program Examinations

126.400  Who will conduct program examinations?
126.401  What will SBA examine?
126.402  When may SBA conduct program examinations?
126.403  May SBA require additional information from a HUBZone SBC?
126.404  What happens if SBA is unable to verify a qualified HUBZone 
          SBC's eligibility?
126.405  What happens if SBA verifies eligibility?

                  Subpart E--Maintaining HUBZone Status

126.500  How does a qualified HUBZone SBC maintain HUBZone status?
126.501  What are a qualified HUBZone SBC's ongoing obligations to SBA?
126.502  Is there a limit to the length of time a qualified HUBZone SBC 
          may be on the List?
126.503  When is a concern removed from the List?

                    Subpart F--Contractual Assistance

126.600  What are HUBZone contracts?
126.601  What additional requirements must a qualified HUBZone SBC meet 
          to bid on a contract?
126.602  Must a qualified HUBZone SBC maintain the employee residency 
          percentage during contract performance?
126.603  Does HUBZone certification guarantee receipt of HUBZone 
          contracts?
126.604  Who decides if a contract opportunity for HUBZone set-aside 
          competition exists?
126.605  What requirements are not available for HUBZone contracts?
126.606  May a contracting officer request that SBA release an 8(a) 
          requirement for award as a HUBZone contract?
126.607  When must a contracting officer set aside a requirement for 
          qualified HUBZone SBCs?
126.608  Are there HUBZone contracting opportunities below the 
          simplified acquisition threshold?
126.609  What must the contracting officer do if a contracting 
          opportunity does not exist for competition among qualified 
          HUBZone SBCs?
126.610  May SBA appeal a contracting officer's decision not to reserve 
          a procurement for award as a HUBZone contract?
126.611  What is the process for such an appeal?
126.612  When may a contracting officer award sole source contracts to a 
          qualified HUBZone SBC?
126.613  How does a price evaluation preference affect the bid of a 
          qualified HUBZone SBC in full and open competition?
126.614  How does a contracting officer treat a concern that is both a 
          qualified HUBZone SBC and an SDB in a full and open 
          competition?
126.615  May a large business participate on a HUBZone contract?
126.616  What requirements must a joint venture satisfy to bid on a 
          HUBZone contract?

              Subpart G--Contract Performance Requirements

126.700  What are the subcontracting percentages requirements under this 
          program?
126.701  Can these subcontracting percentages requirements change?
126.702  How can the subcontracting percentage requirements be changed?
126.703  What are the procedures for requesting changes in 
          subcontracting percentages?

                           Subpart H--Protests

126.800  Who may protest the status of a qualified HUBZone SBC?
126.801  How does one file a HUBZone status protest?
126.802  Who decides a HUBZone status protest?
126.803  How will SBA process a HUBZone status protest?
126.804  Will SBA decide all HUBZone status protests?
126.805  What are the procedures for appeals of HUBZone status 
          determinations?

                          Subpart I--Penalties

126.900  What penalties may be imposed under this part?

    Authority: 15 U.S.C. 632(a); Pub. L. 105-135 sec. 601 et seq., 111 
Stat. 2592.

    Source: 63 FR 31908, June 11, 1998, unless otherwise noted.



             Subpart A--Provisions of General Applicability



Sec. 126.100  What is the purpose of the HUBZone program?

    The purpose of the HUBZone program is to provide federal contracting 
assistance for qualified SBCs located in historically underutilized 
business zones in an effort to increase employment opportunities, 
investment, and economic development in such areas.

[[Page 416]]



Sec. 126.101  Which government departments or agencies are affected directly by the HUBZone program?

    (a) Until September 30, 2000, the HUBZone program applies only to 
procurements by the following departments and agencies:
(1) Department of Agriculture;
(2) Department of Defense;
(3) Department of Energy;
(4) Department of Health and Human Services;
(5) Department of Housing and Urban Development;
(6) Department of Transportation;
(7) Department of Veterans Affairs;
(8) Environmental Protection Agency;
(9) General Services Administration; and
(10) National Aeronautics and Space Administration.
    (b) After September 30, 2000, the HUBZone program will apply to all 
federal departments and agencies which employ one or more contracting 
officers as defined by 41 U.S.C. 423(f)(5).
    (c) The HUBZone program does not apply to contracts awarded by state 
and local governments. However, state and local governments may use the 
List of qualified HUBZone SBCs to identify qualified HUBZone SBCs for 
similar programs authorized under state or local law.

[63 FR 31908, June 11, 1998, as amended at 66 FR 4645, Jan. 18, 2001]



Sec. 126.102  What is the effect of the HUBZone program on the section 8(d) subcontracting program?

    The HUBZone Act of 1997 amended the section 8(d) subcontracting 
program to include qualified HUBZone SBCs in the formal subcontracting 
plans described in Sec. 125.3 of this title.



Sec. 126.103  What definitions are important in the HUBZone program?

    Administrator means the Administrator of the United States Small 
Business Administration (SBA).
    AA/8(a)BD means SBA's Associate Administrator for 8(a) Business 
Development.
    AA/HUB means SBA's Associate Administrator for the HUBZone Program.
    ADA/GC&8(a)BD means SBA's Associate Deputy Administrator for 
Government Contracting and 8(a) Business Development.
    Certify means the process by which SBA determines that a HUBZone SBC 
is qualified for the HUBZone program and entitled to be included in 
SBA's ``List of Qualified HUBZone SBCs.''
    Citizen means a person born or naturalized in the United States. SBA 
does not consider holders of permanent visas and resident aliens to be 
citizens.
    Concern means a firm which satisfies the requirements in 
Secs. 121.105(a) and (b) of this title.
    Contract opportunity means a situation in which a requirement for a 
procurement exists, none of the exclusions from Sec. 126.605 applies, 
and any applicable conditions in Sec. 126.607 are met.
    County means the political subdivisions recognized as a county by a 
state or commonwealth or which is an equivalent political subdivision 
such as a parish, borough, independent city, or municipio, where such 
subdivisions are not subdivisions within counties.
    County unemployment rate is the rate of unemployment for a county 
based on the most recent data available from the United States 
Department of Labor, Bureau of Labor Statistics. The appropriate data 
may be found in the DOL/BLS publication titled ``Supplement 2, 
Unemployment in States and Local Areas.'' This publication is available 
for public inspection at the Department of Labor, Bureau of Labor 
Statistics, Division of Local Area Unemployment Statistics located at 2 
Massachusetts Ave., NE, Room 4675, Washington D.C. 20212. A copy is also 
available at SBA, Office of AA/HUB, 409 3rd Street, SW, Washington D.C. 
20416.
    De-certify means the process by which SBA determines that a concern 
is no longer a qualified HUBZone SBC and removes that concern from its 
List.
    Employee means a person (or persons) employed by a HUBZone SBC on a 
full-time (or full-time equivalent), permanent basis. Full-time 
equivalent includes employees who work 30 hours per week or more. Full-
time equivalent also includes the aggregate of employees who work less 
than 30 hours a week, where the work hours of such employees add up to 
at least a 40 hour work week. The totality of the circumstances, 
including factors relevant

[[Page 417]]

for tax purposes, will determine whether persons are employees of a 
concern. Temporary employees, independent contractors or leased 
employees are not employees for these purposes.

    Example 1: 4 employees each work 20 hours per week; SBA will regard 
that circumstance as 2 full-time equivalent employees.
    Example 2: 1 employee works 20 hours per week and 1 employee works 
15 hours per week; SBA will regard that circumstance as not a full-time 
equivalent.
    Example 3: 1 employee works 15 hours per week, 1 employee works 10 
hours per week, and 1 employee works 20 hours per week; SBA will regard 
that circumstance as 1 full-time equivalent employee.
    Example 4: 1 employee works 30 hours per week and 2 employees each 
work 15 hours per week; SBA will regard that circumstance as 1 full-time 
equivalent employee.

    HUBZone means a historically underutilized business zone, which is 
an area located within one or more qualified census tracts, qualified 
non-metropolitan counties, or lands within the external boundaries of an 
Indian reservation. See other definitions in this section for further 
details.
    HUBZone small business concern (HUBZone SBC) means a concern that is 
small as defined by Sec. 126.203, is exclusively owned and controlled by 
persons who are United States citizens, and has its principal office 
located in a HUBZone.
    HUBZone 8(a) concern means a concern that is certified as an 8(a) 
program participant and which is also a qualified HUBZone SBC.
    Indian reservation has the meaning used by the Bureau of Indian 
Affairs in 25 CFR 151.2(f). This definition refers generally to land 
over which a ``tribe'' has jurisdiction, and ``tribe'' includes Alaska 
Native entities under 25 CFR 81.1(w).
    Interested party means any concern that submits an offer for a 
specific HUBZone sole source or set-aside contract, any concern that 
submitted an offer in full and open competition and its opportunity for 
award will be affected by a price evaluation preference given a 
qualified HUBZone SBC, the contracting activity's contracting officer, 
or SBA.
    Lands within the external boundaries of an Indian reservation 
includes all lands within the outside perimeter of an Indian 
reservation, whether tribally owned and governed or not. For example, 
land that is individually owned and located within the outside perimeter 
of an Indian reservation is ``lands within the external boundaries of an 
Indian reservation.'' By contrast, an Indian-owned parcel of land that 
is located outside the perimeter of an Indian reservation is not ``lands 
within the external boundaries of an Indian reservation.''
    List refers to the database of qualified HUBZone SBCs that SBA has 
certified.
    Median household income has the meaning used by the Bureau of the 
Census, United States Department of Commerce, in its publication titled, 
``1990 Census of Population, Social and Economic Characteristics,'' 
Report Number CP-2, pages B-14 and B-17. This publication is available 
for inspection at any local Federal Depository Library. For the location 
of a Federal Depository library, call toll-free (888) 293-6498 or 
contact the Bureau of the Census, Income Statistics Branch, Housing and 
Economic Statistics Division, Washington D.C. 20233-8500.
    Metropolitan statistical area means an area as defined in section 
143(k)(2)(B) of the Internal Revenue Code of 1986, (Title 26 of the 
United States Code).
    Non-metropolitan has the meaning used by the Bureau of the Census, 
United States Department of Commerce, in its publication titled, ``1990 
Census of Population, Social and Economic Characteristics,'' Report 
Number CP-2, page A-9. This publication is available for inspection at 
any local Federal Depository Library. For the location of a Federal 
Depository Library, call toll-free (888) 293-6498 or contact the Bureau 
of the Census, Population Distribution Branch, Population Division, 
Washington D.C. 20233-8800.
    Person means a natural person. Pursuant to the Alaska Native Claims 
Settlement Act, 43 U.S.C. 1626(e), Alaska Native Corporations and any 
direct or indirect subsidiary corporations, joint ventures, and 
partnerships of a Native Corporation are deemed to be owned and 
controlled by Natives, and are thus persons.

[[Page 418]]

    Principal office means the location where the greatest number of the 
concern's employees at any one location perform their work. However, for 
those concerns whose ``primary industry'' (see 13 CFR 121.107) is 
service or construction (see 13 CFR 121.201), the determination of 
principal office excludes the concern's employees who perform the 
majority of their work at job-site locations to fulfill specific 
contract obligations.
    Qualified census tract has the meaning given that term in section 
42(d)(5)(C)(ii)(I) of the Internal Revenue Code (Title 26 of the United 
States Code).
    Qualified HUBZone SBC means a HUBZone SBC that SBA certifies as 
qualified for federal contracting assistance under the HUBZone program.
    Qualified non-metropolitan county means any county that:
    (1) Based on the most recent data available from the Bureau of the 
Census of the Department of Commerce--
    (i) Is not located in a metropolitan statistical area; and
    (ii) In which the median household income is less than 80 percent of 
the non-metropolitan State median household income; or
    (2) Based on the most recent data available from the Secretary of 
Labor, has an unemployment rate that is not less than 140 percent of the 
statewide average unemployment rate for the State in which the county is 
located.
    Reside means to live in a primary residence at a place for at least 
180 days, or as a currently registered voter, and with intent to live 
there indefinitely.
    Small disadvantaged business (SDB) means a concern that is small 
pursuant to part 121 of this title, and is owned and controlled by 
socially and economically disadvantaged individuals, tribes, Alaska 
Native Corporations, Native Hawaiian Organizations, or Community 
Development Corporations.
    Statewide average unemployment rate is the rate based on the most 
recent data available from the Bureau of Labor Statistics, United States 
Department of Labor, Division of Local Area Unemployment Statistics, 2 
Massachusetts Ave., NE., Room 4675, Washington, D.C. 20212. A copy is 
also available at SBA, Office of AA/HUB, 409 3rd Street, SW., Washington 
DC 20416.
    Women-owned business (WOB) means a concern that is small pursuant to 
part 121 of this title, and is at least 51 percent owned and controlled 
by women.

[63 FR 31908, June 11, 1998, as amended at 66 FR 4645, Jan. 18, 2001]



          Subpart B--Requirements to be a Qualified HUBZone SBC



Sec. 126.200  What requirements must a concern meet to receive SBA certification as a qualified HUBZone SBC?

    (a) The concern must be a HUBZone SBC as defined in Sec. 126.103; 
and
    (b) At least 35 percent of the concern's employees must reside in a 
HUBZone, and the HUBZone SBC must certify that it will attempt to 
maintain this percentage during the performance of any HUBZone contract 
it receives. When determining the percentage of employees that reside in 
a HUBZone, if the percentage results in a fraction round up to the 
nearest whole number,

    Example 1: A concern has 25 employees, 35 percent or 8.75 employees 
must reside in a HUBZone. Thus, 9 employees must reside in a HUBZone.
    Example 2: A concern has 95 employees, 35 percent or 33.25 employees 
must reside in a HUBZone. Thus, 34 employees must reside in a HUBZone.


and
    (c) The HUBZone SBC must certify that it will ensure that it will 
comply with certain contract performance requirements in connection with 
contracts awarded to it as a qualified HUBZone SBC, as set forth in 
Sec. 126.700.



Sec. 126.201  For this purpose, who does SBA consider to own a HUBZone SBC?

    An owner of a HUBZone SBC is a person who owns any legal or 
equitable interest in such HUBZone SBC. More specifically:
    (a) Corporations. SBA will consider any person who owns stock, 
whether voting or non-voting, to be an owner. SBA will consider options 
to purchase stock to have been exercised. SBA will

[[Page 419]]

consider the right to convert debentures into voting stock to have been 
exercised.
    (b) Partnerships. SBA will consider a partner, whether general or 
limited, to be an owner if that partner owns an equitable interest in 
the partnership.
    (c) Sole proprietorships. The proprietor is the owner.
    (d) Limited liability companies. SBA will consider each member to be 
an owner of a limited liability company.

    Example 1: All stock of a corporation is owned by U.S. citizens. The 
president of the corporation, a non-U.S. citizen, owns no stock in the 
corporation, but owns options to purchase stock in the corporation. SBA 
will consider the option exercised, and the corporation is not eligible 
to be a qualified HUBZone SBC.
    Example 2: A partnership is owned 99.9 percent by persons who are 
U.S. citizens, and 0.1 percent by someone who is not. The partnership is 
not eligible because it is not 100 percent owned by U.S. citizens.



Sec. 126.202  Who does SBA consider to control a HUBZone SBC?

    Control means both the day-to-day management and long-term 
decisionmaking authority for the HUBZone SBC. Many persons share control 
of a concern, including each of those occupying the following positions: 
officer, director, general partner, managing partner, and manager. In 
addition, key employees who possess critical licenses, expertise or 
responsibilities related to the concern's primary economic activity may 
share significant control of the concern. SBA will consider the control 
potential of such key employees on a case by case basis.



Sec. 126.203  What size standards apply to HUBZone SBCs?

    (a) At time of application for certification. A HUBZone SBC must 
meet SBA's size standards for its primary industry classification as 
defined in Sec. 121.201 of this title. If SBA is unable to verify that a 
concern is small, SBA may deny the concern status as a qualified HUBZone 
SBC, or SBA may request a formal size determination from the responsible 
Government Contracting Area Director or designee.
    (b) At time of contract offer. A HUBZone SBC must be small within 
the size standard corresponding to the SIC code assigned to the 
contract.



Sec. 126.204  May a qualified HUBZone SBC have affiliates?

    A concern may have affiliates provided that the aggregate size of 
the concern and all its affiliates is small as defined in part 121 of 
this title.

[66 FR 4645, Jan. 18, 2001]



Sec. 126.205  May WOBs, 8(a) participants or SDBs be qualified HUBZone SBCs?

    Yes. WOBs, 8(a) participants, and SDBs can qualify as HUBZone SBCs 
if they meet the additional requirements in this part.



Sec. 126.206  May non-manufacturers be certified as qualified HUBZone SBCs?

    Non-manufacturers (referred to in the HUBZone Act of 1997 as 
``regular dealers'') may be certified as qualified HUBZone SBCs if they 
meet all of the requirements set forth in Sec. 126.200. For purposes of 
this part, a ``non-manufacturer'' is defined in Sec. 121.406(b)(1)(i) 
and (ii) of this title.

[66 FR 4645, Jan. 18, 2001]



Sec. 126.207  May a qualified HUBZone SBC have offices or facilities in another HUBZone or outside a HUBZone?

    Yes. A qualified HUBZone SBC may have offices or facilities in 
another HUBZone or even outside a HUBZone and still be a qualified 
HUBZone SBC. However, in order to qualify, the concern's principal 
office must be located in a HUBZone.



                        Subpart C--Certification



Sec. 126.300  How may a concern be certified as a qualified HUBZone SBC?

    A concern must apply to SBA for certification. The application must 
include a representation that it meets the eligibility requirements 
described in Sec. 126.200 and must submit relevant supporting 
information. SBA will consider the information provided by the concern 
in order to determine whether the concern qualifies. SBA, in its sole

[[Page 420]]

discretion, may rely solely upon the information submitted to establish 
eligibility, or may request additional information, or may verify the 
information before making a determination. If SBA determines that the 
concern is a qualified HUBZone SBC, it will issue a certification to 
that effect and add the concern to the List.



Sec. 126.301  Is there any other way for a concern to obtain certification?

    No. SBA certification is the only way to qualify for HUBZone program 
status.



Sec. 126.302  When may a concern apply for certification?

    A concern may apply to SBA and submit the required information 
whenever it can represent that it meets the eligibility requirements, 
subject to Sec. 126.309. All representations and supporting information 
contained in the application must be complete and accurate as of the 
date of submission. The application must be signed by an officer of the 
concern who is authorized to represent the concern.



Sec. 126.303  Where must a concern file its certification?

    The concern must file its certification with the AA/HUB, U.S. Small 
Business Administration, 409 Third Street, SW, Washington, DC 20416.



Sec. 126.304  What must a concern submit to SBA?

    (a) To be certified by SBA as a qualified HUBZone SBC, a concern 
must represent to SBA that under the definitions set forth in 
Sec. 126.103:
    (1) It is a small business concern that is both owned only by United 
States citizens and controlled only by United States citizens;
    (2) Its principal office is located in a HUBZone;
    (3) Not less than 35 percent of its employees reside in a HUBZone;
    (4) It will use good faith efforts to ensure that a minimum 
percentage of 35 percent of its employees continue to reside in a 
HUBZone so long as SBA certifies it as qualified and during the 
performance of any contract awarded to it on the basis of its status as 
a qualified HUBZone SBC; and
    (5) It will ensure that, where it enters into subcontracts to aid in 
performance of any prime contracts awarded to it because of its status 
as a qualified HUBZone SBC, it will incur not less than a certain 
minimum percentage of certain contract costs as set forth in 
Sec. 126.700.
    (b) If the concern is applying for HUBZone status based on a 
location within the external boundaries of an Indian reservation, the 
concern must submit with its application for certification official 
documentation from the appropriate Bureau of Indian Affairs (BIA) Land 
Titles and Records Office with jurisdiction over the concern's area, 
confirming that it is located within the external boundaries of an 
Indian reservation. BIA lists the Land Titles and Records Offices and 
their jurisdiction in 25 CFR 150.4 and 150.5. In cases where BIA is 
unable to verify whether the business is located within the external 
boundaries of an Indian reservation, applicants should contact the AA/
HUB and SBA will assist them.
    (c) In addition to these representations, the concern must submit 
the forms, attachments, and any additional information required by SBA.



Sec. 126.305  What format must the certification to SBA take?

    A concern must submit the required information in either a written 
or electronic application form provided by SBA. An electronic 
application must be sufficiently authenticated for enforcement purposes.



Sec. 126.306  How will SBA process the certification?

    (a) The AA/HUB is authorized to approve or decline certifications. 
SBA will receive and review all certifications, but SBA will not process 
incomplete packages. SBA will make its determination within 30 calendar 
days after receipt of a complete package whenever practicable. The 
decision of the AA/HUB is the final agency decision.
    (b) SBA will base its certification on facts existing on the date of 
submission. SBA, in its sole discretion, may request additional 
information or clarification of information contained in the submission 
at any time.

[[Page 421]]

    (c) If SBA approves the application, SBA will send a written notice 
to the concern and automatically enter it on the List described in 
Sec. 126.307.
    (d) A decision to deny eligibility must be in writing and state the 
specific reasons for denial.



Sec. 126.307  Where will SBA maintain the List of qualified HUBZone SBCs?

    SBA maintains the List at its Internet website at http://
www.sba.gov/HUB. Requesters also may obtain a copy of the List by 
writing to the AA/HUB at U.S. Small Business Administration, 409 Third 
Street, SW, Washington, DC 20416 or via e-mail at [email protected].



Sec. 126.308  What happens if SBA inadvertently omits a qualified HUBZone SBC from the List?

    A HUBZone SBC that has received SBA's notice of certification, but 
is not on the List within 10 business days thereafter should immediately 
notify the AA/HUB in writing at U.S. Small Business Administration, 409 
Third Street, SW, Washington, DC 20416 or via e-mail at [email protected]. 
The concern must appear on the List to be eligible for HUBZone 
contracts.



Sec. 126.309  How may a declined or de-certified concern seek certification at a later date?

    A concern that SBA has declined or de-certified may seek 
certification no sooner than one year from the date of decline or de-
certification if it believes that it has overcome all reasons for 
decline through changed circumstances, and is currently eligible.



                     Subpart D--Program Examinations



Sec. 126.400  Who will conduct program examinations?

    SBA field staff or others designated by the AA/HUB will conduct 
program examinations.



Sec. 126.401  What will SBA examine?

    (a) Eligibility. Examiners will verify that the qualified HUBZone 
SBC met the requirements set forth in Sec. 126.200 at the time of its 
application for certification and at the time of examination.
    (b) Scope of review. Examiners may review any information related to 
the HUBZone SBC qualifying requirements, including documentation related 
to the location and ownership of the concern, the employee percentage 
requirements, and the concern's attempt to maintain this percentage. The 
qualified HUBZone SBC must document each employee's residence address 
through employment records. The examiner also may review property tax, 
public utility or postal records, and other relevant documents. The 
concern must retain documentation demonstrating satisfaction of the 
employee residence and other qualifying requirements for 6 years from 
date of submission to SBA.



Sec. 126.402  When may SBA conduct program examinations?

    SBA may conduct a program examination at the time the concern 
certifies to SBA that it meets the requirements of the program or at any 
other time while the concern is on the List or subsequent to receipt of 
HUBZone contract benefits. For example, SBA may conduct a program 
examination to verify eligibility upon notification of a material change 
under Sec. 126.501. Additionally, SBA, in its sole discretion, may 
perform random program examinations to determine continuing compliance 
with program requirements, or it may conduct a program examination in 
response to credible information calling into question the HUBZone 
status of a small business concern. For protests to the HUBZone status 
of a small business concern in regard to a particular procurement, see 
Sec. 126.800.



Sec. 126.403  May SBA require additional information from a HUBZone SBC?

    Yes. At the discretion of the AA/HUB, SBA has the right to require 
that a HUBZone SBC submit additional information as part of the 
certification process, or at any time thereafter. If SBA finds a HUBZone 
SBC is not qualified, SBA will de-certify the concern and delete its 
name from the List. SBA may choose to pursue penalties against any 
concern that has made material misrepresentations in its submissions to 
SBA in accordance with Sec. 126.900.

[[Page 422]]



Sec. 126.404  What happens if SBA is unable to verify a qualified HUBZone SBC's eligibility?

    (a) Authorized SBA headquarters personnel will first notify the 
concern in writing of the reasons why it is no longer eligible.
    (b) The concern will have 10 business days from the date that it 
receives notification to respond.
    (c) The AA/HUB will consider the reasons for proposed de-
certification and the concern's response before making a decision 
whether to de-certify. The AA/HUB's decision is the final agency 
decision.



Sec. 126.405  What happens if SBA verifies eligibility?

    If SBA verifies that the concern is eligible, it will amend the date 
of certification on the List to reflect the date of verification.



                  Subpart E--Maintaining HUBZone Status



Sec. 126.500  How does a qualified HUBZone SBC maintain HUBZone status?

    (a) Any qualified HUBZone SBC wishing to remain on the List must 
self-certify annually to SBA that it remains a qualified HUBZone SBC.
    (b) Concerns wishing to remain in the program without any 
interruption must self-certify their continued eligibility to SBA within 
30 calendar days after each annual anniversary of their date of 
certification. Failure to do so will result in SBA de-certifying the 
concern. The concern then would have to submit a new application for 
certification under Secs. 126.300 through 126.306.
    (c) The self-certification to SBA must be in writing and must 
represent that the circumstances relative to eligibility which existed 
on the date of certification showing on the List have not materially 
changed.



Sec. 126.501  What are a qualified HUBZone SBC's ongoing obligations to SBA?

    The concern must immediately notify SBA of any material change which 
could affect its eligibility. The notification must be in writing, and 
must be sent or delivered to the AA/HUB to comply with this requirement. 
Failure of a qualified HUBZone SBC to notify SBA of such a material 
change will result in immediate de-certification and removal from the 
List, and SBA may seek the imposition of penalties under Sec. 126.900. 
If the concern later becomes eligible for the program, the concern must 
apply for certification pursuant to Secs. 126.300 through 126.309 and 
must include with its application for certification a full explanation 
of why it failed to notify SBA of the material change. If SBA is not 
satisfied with the explanation provided, SBA may decline to certify the 
concern pursuant to Sec. 126.306.



Sec. 126.502  Is there a limit to the length of time a qualified HUBZone SBC may be on the List?

    There is no limit to the length of time a qualified HUBZone SBC may 
remain on the List so long as it continues to follow the provisions of 
Secs. 126.200, 126.500, and 126.501.



Sec. 126.503  When is a concern removed from the List?

    If SBA determines at any time that a HUBZone SBC is not qualified, 
SBA may de-certify the HUBZone SBC, remove the concern from the List, 
and seek imposition of penalties pursuant to Sec. 126.900. An adverse 
finding in the resolution of a protest also may result in de-
certification and removal from the List, and the imposition of penalties 
pursuant to Sec. 126.900. Failure to notify SBA of a material change 
which could affect a concern's eligibility will result in immediate de-
certification, removal from the List, and SBA may seek the imposition of 
penalties under Sec. 126.900.



                    Subpart F--Contractual Assistance



Sec. 126.600  What are HUBZone contracts?

    HUBZone contracts are contracts awarded to a qualified HUBZone SBC 
through any of the following procurement methods:
    (a) Sole source awards to qualified HUBZone SBCs;
    (b) Set-aside awards based on competition restricted to qualified 
HUBZone SBCs; or

[[Page 423]]

    (c) Awards to qualified HUBZone SBCs through full and open 
competition after a price evaluation preference in favor of qualified 
HUBZone SBCs.



Sec. 126.601  What additional requirements must a qualified HUBZone SBC meet to bid on a contract?

    (a) In order to submit an offer on a specific HUBZone contract, a 
concern must be small under the size standard corresponding to the SIC 
code assigned to the contract.
    (b) At the time a qualified HUBZone SBC submits its offer on a 
specific contract, it must certify to the contracting officer that
    (1) It is a qualified HUBZone SBC which appears on SBA's List;
    (2) There has been no material change in its circumstances since the 
date of certification shown on the List which could affect its HUBZone 
eligibility; and
    (3) It is small under the SIC code assigned to the procurement.
    (c) If bidding as a joint venture, each qualified HUBZone SBC must 
make the certifications in paragraphs (b)(1), (2), and (3) of this 
section separately under its own name.
    (d) A qualified HUBZone SBC which is a non-manufacturer may submit 
an offer on a HUBZone contract for supplies if it meets the requirements 
of the non-manufacturer rule set forth at Sec. 121.406(b)(1)(i) and (ii) 
of this title, and if the small manufacturer providing the end item for 
the contract is also a qualified HUBZone SBC. However, for HUBZone 
contracts at or below $25,000 in total value, a qualified HUBZone SBC 
may supply the end item of any manufacturer, including a large business.

[63 FR 31908, June 11, 1998, as amended at 66 FR 4645, Jan. 18, 2001]



Sec. 126.602  Must a qualified HUBZone SBC maintain the employee residency percentage during contract performance?

    The qualified HUBZone SBC must attempt to maintain the required 
percentage of employees who reside in a HUBZone during the performance 
of any contract awarded to the concern on the basis of HUBZone status. 
``Attempt to maintain'' means making substantive and documented efforts 
to maintain that percentage such as written offers of employment, 
published advertisements seeking employees, and attendance at job fairs. 
HUBZone contracts are described more fully in Sec. 126.600. Enforcement 
of this paragraph will be the responsibility of SBA, which will monitor 
the requirement in accordance with Secs. 126.400 through 126.405.



Sec. 126.603  Does HUBZone certification guarantee receipt of HUBZone contracts?

    No. Qualified HUBZone SBCs should market their capabilities to 
appropriate procuring agencies in order to increase their prospects of 
having a requirement set aside for HUBZone contract award.



Sec. 126.604  Who decides if a contract opportunity for HUBZone set-aside competition exists?

    The contracting officer for the contracting activity makes this 
decision.



Sec. 126.605  What requirements are not available for HUBZone contracts?

    A contracting activity may not make a requirement available for a 
HUBZone contract if:
    (a) The contracting activity otherwise would fulfill that 
requirement through award to Federal Prison Industries, Inc. under 18 
U.S.C. 4124 or 4125, or to Javits-Wagner-O'Day Act participating non-
profit agencies for the blind and severely disabled, under 41 U.S.C. 46 
et seq., as amended; or
    (b) An 8(a) participant currently is performing that requirement or 
SBA has accepted that requirement for performance under the authority of 
the section 8(a) program, unless SBA has consented to release of the 
requirement from the section 8(a) program; or
    (c) The requirement is at or below the micropurchase threshold.



Sec. 126.606  May a contracting officer request that SBA release an 8(a) requirement for award as a HUBZone contract?

    Yes. However, SBA will grant its consent only where neither the 
incumbent nor any other 8(a) participant(s) can perform the requirement, 
and where

[[Page 424]]

the section 8(a) program will not be adversely affected. The SBA 
official authorized to grant such consent is the AA/8(a)BD.



Sec. 126.607  When must a contracting officer set aside a requirement for qualified HUBZone SBCs?

    (a) The contracting officer first must review a requirement to 
determine whether it is excluded from HUBZone contracting pursuant to 
Sec. 126.605.
    (b) The contracting officer must identify qualified HUBZone 8(a) 
concerns and other 8(a) concerns. The contracting officer must give 
first priority to qualified HUBZone 8(a) concerns.
    (c) After determining that neither paragraph (a) or (b) of this 
section apply, the contracting officer must set aside the requirement 
for competition restricted to qualified HUBZone SBCs if the contracting 
officer:
    (1) Has a reasonable expectation, after reviewing SBA's list of 
qualified HUBZone SBCs that at least two responsible qualified HUBZone 
SBCs will submit offers; and
    (2) Determines that award can be made at fair market price.



Sec. 126.608  Are there HUBZone contracting opportunities below the simplified acquisition threshold?

    Yes. If the requirement is below the simplified acquisition 
threshold, the contracting officer should set-aside the requirement for 
consideration among qualified HUBZone SBCs using simplified acquisition 
procedures.



Sec. 126.609  What must the contracting officer do if a contracting opportunity does not exist for competition among qualified HUBZone SBCs?

    If a contract opportunity for competition among qualified SBCs does 
not exist under the provisions of Sec. 126.607, the contracting officer 
must first consider the possibility of making an award to a qualified 
HUBZone SBC on a sole source basis, and then to a small business under 
small business set-aside procedures, in that order of precedence. If the 
criteria are not met for any of these special contracting authorities, 
then the contracting officer may solicit the procurement through another 
appropriate contracting method.



Sec. 126.610  May SBA appeal a contracting officer's decision not to reserve a procurement for award as a HUBZone contract?

    The Administrator may appeal a contracting officer's decision not to 
make a particular requirement available for award as a HUBZone sole 
source or a HUBZone set-aside contract.



Sec. 126.611  What is the process for such an appeal?

    (a) Notice of appeal. When the contracting officer rejects a 
recommendation by SBA's Procurement Center Representative to make a 
requirement available for award as a HUBZone contract, he or she must 
notify the Procurement Center Representative as soon as practicable. If 
the Administrator intends to appeal the decision, SBA must notify the 
contracting officer no later than five business days after receiving 
notice of the contracting officer's decision.
    (b) Suspension of action. Upon receipt of notice of SBA's intent to 
appeal, the contracting officer must suspend further action regarding 
the procurement until the head of the contracting activity issues a 
written decision on the appeal, unless the head of the contracting 
activity makes a written determination that urgent and compelling 
circumstances which significantly affect the interests of the United 
States compel award of the contract.
    (c) Deadline for appeal. Within 15 business days of SBA's 
notification to the contracting officer, SBA must file its formal appeal 
with the head of the contracting activity or that agency may consider 
the appeal withdrawn.
    (d) Decision. The contracting activity must specify in writing the 
reasons for a denial of an appeal brought under this section.



Sec. 126.612  When may a contracting officer award sole source contracts to a qualified HUBZone SBC?

    A contracting officer may award a sole source contract to a 
qualified HUBZone SBC only when the contracting officer determines that:
    (a) None of the provisions of Secs. 126.605 or 126.607 apply;

[[Page 425]]

    (b) The anticipated award price of the contract, including options, 
will not exceed:
    (1) $5,000,000 for a requirement within the SIC codes for 
manufacturing; or
    (2) $3,000,000 for a requirement within all other SIC codes;
    (c) Two or more qualified HUBZone SBCs are not likely to submit 
offers;
    (d) A qualified HUBZone SBC is a responsible contractor able to 
perform the contract; and
    (e) Contract award can be made at a fair and reasonable price.



Sec. 126.613  How does a price evaluation preference affect the bid of a qualified HUBZone SBC in full and open competition?

    Where a contracting officer will award a contract on the basis of 
full and open competition, the contracting officer must deem the price 
offered by a qualified HUBZone SBC to be lower than the price offered by 
another offeror (other than another small business concern) if the price 
offered by the qualified HUBZone SBC is not more than 10 percent higher 
than the price offered by the otherwise lowest, responsive, and 
responsible offeror.

    Example: In a full and open competition, a qualified HUBZone SBC 
submits an offer of $98; another small business concern submits an offer 
of $100; and a large business submits an offer of $93. The lowest, 
responsive, responsible offeror would be the large business. However, 
the contracting officer must apply the HUBZone price evaluation 
preference. If the qualified HUBZone SBC's offer is not more than 10 
percent higher than the large business's offer, the contracting officer 
must deem the qualified HUBZone SBC's price as lower than the price of 
the large business. In this example, the qualified HUBZone SBC's price 
is not more than 10 percent higher than the large business's price and, 
consequently, the qualified HUBZone SBC displaces the large business as 
the lowest, responsive, and responsible offeror. If the HUBZone SBC 
offer were $101, the award would go to the large business at $93. If the 
HUBZone SBC will not benefit from the preference, the preference is not 
applied to change an offer.



Sec. 126.614  How does a contracting officer treat a concern that is both a qualified HUBZone SBC and an SDB in a full and open competition?

    A concern that is both a qualified HUBZone SBC and an SDB must 
receive the benefit of both the HUBZone price evaluation preference 
described in Sec. 126.614 and the SDB price evaluation preference 
described in 10 U.S.C. 2323 and the Federal Acquisition Streamlining 
Act, section 7102(a)(1)(B), Public Law 103-355, in a full and open 
competition.



Sec. 126.615  May a large business participate on a HUBZone contract?

    A large business may not participate as a prime contractor on a 
HUBZone award but may participate as a subcontractor to an otherwise 
qualified HUBZone SBC, subject to the contract performance requirements 
set forth in Sec. 126.700.



Sec. 126.616  What requirements must a joint venture satisfy to bid on a HUBZone contract?

    A joint venture may bid on a HUBZone contract if the joint venture 
meets all of the following requirements:
    (a) HUBZone joint venture. A qualified HUBZone SBC may enter into a 
joint venture with one or more other qualified HUBZone SBCs, 8(a) 
participants, or WOBs for the purpose of performing a specific HUBZone 
contract.
    (b) Size of concerns. A joint venture of at least one qualified 
HUBZone SBC and an 8(a) participant or a woman-owned small business 
concern may submit an offer for a HUBZone contract so long as each 
concern is small under the size standard corresponding to the SIC code 
assigned to the contract, provided:
    (1) For a procurement having a revenue-based size standard, the 
procurement exceeds half the size standard corresponding to the SIC code 
assigned to the contract; and
    (2) For a procurement having an employee-based size standard, the 
procurement exceeds $10 million.

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    (c) Performance of work. The aggregate of the qualified HUBZone SBCs 
to the joint venture, not each concern separately, must perform the 
applicable percentage of work required by Sec. 126.700.



              Subpart G--Contract Performance Requirements



Sec. 126.700  What are the subcontracting percentages requirements under this program?

    (a) Subcontracting percentage requirements. A qualified HUBZone SBC 
prime contractor can subcontract part of a HUBZone contract provided:
    (1) In the case of a contract for services (except construction), 
the qualified HUBZone SBC spends at least 50 percent of the cost of the 
contract performance incurred for personnel on the concern's employees 
or on the employees of other qualified HUBZone SBCs;
    (2) In the case of a contract for general construction, the 
qualified HUBZone SBC spends at least 15 percent of the cost of contract 
performance incurred for personnel on the concern's employees or the 
employees of other qualified HUBZone SBCs;
    (3) In the case of a contract for construction by special trade 
contractors, the qualified HUBZone SBC spends at least 25 percent of the 
cost of contract performance incurred for personnel on the concerns' 
employees or the employees of other qualified HUBZone SBCs; and
    (4) In the case of a contract for procurement of supplies (other 
than a procurement from a regular dealer in such supplies) the qualified 
HUBZone SBC spends at least 50 percent of the manufacturing cost 
(excluding the cost of materials) on performing the contract in a 
HUBZone. One or more qualified HUBZone SBCs may combine to meet this 
subcontracting percentage requirement.
    (b) Definitions. Many definitions applicable to this section can be 
found in Sec. 125.6 of this title.



Sec. 126.701   Can these subcontracting percentages requirements change?

    Yes. The Administrator may change the subcontracting percentage 
requirements if the Administrator determines that such action is 
necessary to reflect conventional industry practices.



Sec. 126.702  How can the subcontracting percentage requirements be changed?

    Representatives of a national trade or industry group (as defined by 
two-digit Major Group industry codes) may request a change in 
subcontracting percentage requirements for that industry. Changes in 
subcontracting percentage requirements may be requested only for 
categories defined by two-digit Major Group industry codes in the 
Standard Industry Classification (SIC) Code system. SBA will not 
consider requests from anyone other than a representative of a national 
trade or industry group or requests for changes for four-digit SIC Code 
categories.



Sec. 126.703  What are the procedures for requesting changes in subcontracting percentages?

    (a) Format of request. There is no prescribed format, but the 
requester should try to demonstrate to the Administrator that a change 
in percentage is necessary to reflect conventional industry practices, 
and should support its request with information including, but not 
limited to:
    (1) Information relative to the economic conditions and structure of 
the entire national industry;
    (2) Market data, technical changes in the industry and industry 
trends;
    (3) Specific reasons and justifications for the change in the 
subcontracting percentage;
    (4) The effect such a change would have on the federal procurement 
process; and
    (5) Information demonstrating how the proposed change would promote 
the purposes of the HUBZone Program.
    (b) Notice to public. Upon an adequate preliminary showing to SBA, 
SBA will publish in the Federal Register a notice of its receipt of a 
request that it consider a change in the subcontracting percentage 
requirements for a particular industry for HUBZone contracts. The notice 
will identify the group making the request, and give the public an 
opportunity to submit to the Administrator information and arguments in 
both support and opposition.

[[Page 427]]

    (c) Comments. Once SBA has published a notice in the Federal 
Register, it will afford a period of not less than 60 days for public 
comment.
    (d) Decision. SBA will render its decision after the close of the 
comment period. If it decides against a change, it will publish notice 
of its decision in the Federal Register. Concurrent with the notice, SBA 
will advise the requester of its decision in writing. If it decides in 
favor of a change, SBA will propose an appropriate change to this part 
in accordance with proper rulemaking procedures.



                           Subpart H--Protests



Sec. 126.800  Who may protest the status of a qualified HUBZone SBC?

    (a) For sole source procurements. SBA or the contracting officer may 
protest the proposed awardee's qualified HUBZone SBC status.
    (b) For all other procurements. Any interested party may protest the 
apparent successful offeror's qualified HUBZone SBC status.



Sec. 126.801  How does one file a HUBZone status protest?

    (a) General. The protest procedures described in this part are 
separate from those governing size protests and appeals. All protests 
relating to whether a qualified HUBZone SBC is a ``small'' business for 
purposes of any Federal program are subject to part 121 of this title 
and must be filed in accordance with that part. If a protester protests 
both the size of the HUBZone SBC and whether the concern meets the 
HUBZone qualifying requirements set forth in Sec. 126.200, SBA will 
process each protest concurrently, under the procedures set forth in 
part 121 of this title and this part.
    (b) Format. Protests must be in writing and state all specific 
grounds for the protest. A protest merely asserting that the protested 
concern is not a qualified HUBZone SBC, without setting forth specific 
facts or allegations, is insufficient.
    (c) Filing. (1) An interested party other than a contracting officer 
or SBA must submit its written protest to the contracting officer.
    (2) A contracting officer and SBA must submit their protest to the 
AA/HUB.
    (3) Protestors may deliver their protests in person, by facsimile, 
by express delivery service, or by U.S. mail (postmarked within the 
applicable time period).
    (d) Timeliness. (1) An interested party must submit its protest by 
close of business on the fifth business day after bid opening (in sealed 
bid acquisitions) or by close of business on the fifth business day 
after notification by the contracting officer of the apparent successful 
offeror (in negotiated acquisitions).
    (2) Any protest received after the time limits is untimely.
    (3) Any protest received prior to bid opening or notification of 
intended award, whichever applies, is premature.
    (e) Referral to SBA. The contracting officer must forward to SBA any 
non-premature protest received, notwithstanding whether he or she 
believes it is sufficiently specific or timely. The contracting officer 
must send protests to AA/HUB, U.S. Small Business Administration, 409 
3rd Street, SW, Washington, DC 20416.



Sec. 126.802  Who decides a HUBZone status protest?

    The AA/HUB or designee will determine whether the concern has 
qualified HUBZone status.



Sec. 126.803  How will SBA process a HUBZone status protest?

    (a) Notice of receipt of protest. (1) SBA immediately will notify 
the contracting officer and the protestor of the date SBA receives a 
protest and whether SBA will process the protest or dismiss it in 
accordance with Sec. 126.804.
    (2) If SBA determines the protest is timely and sufficiently 
specific, SBA will notify the protested HUBZone SBC of the protest and 
the identity of the protestor. The protested HUBZone SBC may submit 
information responsive to the protest within 5 business days.
    (b) Time period for determination. (1) SBA will determine the 
HUBZone status of the protested HUBZone SBC within 15 business days 
after receipt of a protest.

[[Page 428]]

    (2) If SBA does not contact the contracting officer within 15 
business days, the contracting officer may award the contract, unless 
the contracting officer has granted SBA an extension.
    (3) The contracting officer may award the contract after receipt of 
a protest if the contracting officer determines in writing that an award 
must be made to protect the public interest.
    (c) Notice of determination. SBA will notify the contracting 
officer, the protestor, and the protested concern of its determination.
    (d) Effect of determination. The determination is effective 
immediately and is final unless overturned on appeal by the ADA/
GC&8(a)BD, pursuant to Sec. 126.805. If SBA upholds the protest, SBA 
will de-certify the concern as a qualified HUBZone SBC. If SBA denies 
the protest, after considering the merits of the protest, SBA will amend 
the date of certification on the List to reflect the date of protest 
decision.



Sec. 126.804  Will SBA decide all HUBZone status protests?

    SBA will decide all protests not dismissed as premature, untimely or 
non-specific.



Sec. 126.805  What are the procedures for appeals of HUBZone status determinations?

    (a) Who may appeal. The protested HUBZone SBC, the protestor, or the 
contracting officer may file appeals of protest determinations with 
SBA's ADA/GC&8(a)BD.
    (b) Timeliness of appeal. SBA's ADA/GC&8(a)BD must receive the 
appeal no later than 5 business days after the date of receipt of the 
protest determination. SBA will dismiss any appeal received after the 
five-day period.
    (c) Method of Submission. The party appealing the decision may 
deliver its appeal in person, by facsimile, by express delivery service, 
or by U.S. mail (postmarked within the applicable time period).
    (d) Notice of appeal. The party bringing an appeal must provide 
notice of the appeal to the contracting activity contracting officer and 
either the protested HUBZone SBC or original protestor, as appropriate.
    (e) Grounds for appeal. (1) SBA will re-examine a protest 
determination only if there was a clear and significant error in the 
processing of the protest or if the AA/HUB failed completely to consider 
a significant fact contained within the information supplied by the 
protestor or the protested HUBZone SBC.
    (2) SBA will not consider additional information or changed 
circumstances that were not disclosed at the time of the AA/HUB's 
decision or that are based on disagreement with the findings and 
conclusions contained in the determination.
    (f) Contents of appeal. The appeal must be in writing. The appeal 
must identify the protest determination being appealed and set forth a 
full and specific statement as to why the decision is erroneous or what 
significant fact the AA/HUB failed to consider.
    (g) Completion of appeal after award. An appeal may proceed to 
completion even after award of the contract that prompted the protest, 
if so desired by the protested HUBZone SBC, or where SBA determines that 
a decision on appeal is meaningful.
    (h) Decision. The ADA/GC&8(a)BD will make its decision within 5 
business days of its receipt, if practicable, and will base its decision 
only on the information and documentation in the protest record as 
supplemented by the appeal. SBA will provide a copy of the decision to 
the contracting officer, the protestor, and the protested HUBZone SBC, 
consistent with law. The ADA/GC&8(a)BD's decision is the final agency 
decision.



                          Subpart I--Penalties



Sec. 126.900  What penalties may be imposed under this part?

    (a) Suspension or debarment. The Agency debarring official may 
suspend or debar a person or concern pursuant to the procedures set 
forth in part 145 of this title. The contracting agency debarring 
official may debar or suspend a person or concern under the Federal 
Acquisition Regulation, 48 CFR Part 9, subpart 9.4.
    (b) Civil penalties. Persons or concerns are subject to civil 
remedies under the False Claims Act, 31 U.S.C. 3729-3733,

[[Page 429]]

and under the Program Fraud Civil Remedies Act, 31 U.S.C. 3801-3812, and 
any other applicable laws.
    (c) Criminal penalties. Persons or concerns are subject to severe 
criminal penalties for knowingly misrepresenting the HUBZone status of a 
small business concern in connection with procurement programs pursuant 
to section 16(d) of the Small Business Act, 15 U.S.C. 645(d), as 
amended; 18 U.S.C. 1001; and 31 U.S.C. 3729-3733. Persons or concerns 
also are subject to criminal penalties for knowingly making false 
statements or misrepresentations to SBA for the purpose of influencing 
any actions of SBA pursuant to section 16(a) of the Small Business Act, 
15 U.S.C. 645(a), as amended, including failure to correct ``continuing 
representations'' that are no longer true.



PART 130--SMALL BUSINESS DEVELOPMENT CENTERS--Table of Contents




Sec.
130.100  Introduction.
130.110  Definitions.
130.200  Eligible entities.
130.300  Small Business Development Centers (SBDCs). [Reserved]
130.310  Area of service.
130.320  Location of lead centers and SBDC service providers.
130.330  Operating requirements.
130.340  SBDC services and restrictions on service.
130.350  Specific program responsibilities.
130.360  SBDC advisory boards.
130.400  Application procedure. [Reserved]
130.410  New applications.
130.420  Renewal applications.
130.430  Application decisions.
130.440  Maximum grant.
130.450  Matching funds.
130.460  Budget justification.
130.470  Fees.
130.480  Program income.
130.500  Funding.
130.600  Cooperative agreement. [Reserved]
130.610  General terms.
130.620  Revisions and amendments to cooperative agreement.
130.630  Dispute resolution procedures.
130.700  Suspension, termination and non-renewal.
130.800  Oversight of the SBDC program.
130.810  SBA review authority.
130.820  Reports and recordkeeping.
130.830  Audits and investigations.

    Authority: Sections 5(b)(6) and 21 of the Small Business Act, as 
amended, 15 U.S.C. 634(b)(6) and 648; Pub. L. 101-515, 101 Stat. 2101; 
Pub. L. 101-574, 104 Stat. 2814; Pub. L. 102-366, 106 Stat. 986; and 
Pub. L. 102-395, 106 Stat. 1828.

    Source: 60 FR 31056, June 13, 1995, unless otherwise noted.



Sec. 130.100  Introduction.

    (a) Objective. The SBDC Program creates a broad-based system of 
assistance for the small business community by linking the resources of 
Federal, State and local governments with the resources of the 
educational community and the private sector. Although SBA is 
responsible for the general management and oversight of the SBDC 
Program, a partnership exists between SBA and the recipient organization 
for the delivery of assistance to the small business community.
    (b) Incorporation of amended references. All references in these 
regulations to OMB Circulars, other SBA regulations, Standard Operating 
Procedures, and other sources of SBA policy guidance incorporate all 
ensuing changes or amendments to such sources.



Sec. 130.110  Definitions.

    Applicant organization. An entity, described in Sec. 130.200(a), 
which applies to establish and operate an SBDC network.
    Application. The written submission by a new applicant organization 
or an existing recipient organization explaining its projected SBDC 
activities for the upcoming budget period and requesting SBA funding for 
use in its operations.
    Area of Service. The State or territory, or portion of a State or 
territory (when there is more than one SBDC in a State or territory), or 
the District of Columbia, in which an applicant organization proposes to 
provide services or in which a recipient organization provides services.
    Budget period. The 12-month period in which expenditure obligations 
are incurred by an SBDC network, coinciding with either the calendar 
year or the Federal fiscal year.
    Cash Match. Non-Federal funds allocated specifically to the 
operation of the SBDC network equalling no less than fifty percent of 
the Federal funds.

[[Page 430]]

Cash Match includes direct costs committed by the applicant or recipient 
organization and sponsoring SBDC organizations, to the extent that such 
costs are committed as part of the verified, specific, line item direct 
costs prior to funding. Cash Match does not include indirect costs, 
overhead costs or in-kind contributions.
    Cognizant Agency. The Federal agency, other than SBA, from which a 
recipient organization or sponsoring SBDC organization receives its 
largest grant or greatest amount of Federal funding, and from which it 
obtains an indirect cost rate for budgetary and funding purposes, 
applicable throughout the Federal government.
    Cooperative Agreement. The written contract between SBA and a 
recipient organization, describing the conditions under which SBA awards 
Federal funds and recipient organizations provide services to the small 
business community.
    Cosponsorship. A ``Cosponsorship'' as defined in and governed by 
Sec. 8(b)(1)(A) of the Act and SBA's Standard Operating Procedures.
    Counseling. Individual advice, guidance or instruction given to a 
small business person or entity.
    Direct costs: ``Direct costs'' as defined in Office of Management 
and Budget (OMB) Circulars A-21, A-87 and A-122. Recipient organizations 
must allocate at least 80 percent of the Federal funds provided through 
the Cooperative Agreement to the direct costs of program delivery.
    Dispute. Dispute means a program or financial disagreement which the 
recipient organization requests be handled with SBA in a formal manner.
    Grants and Cooperative Agreement Appeals Committee. The SBA 
committee, appointed by the SBA Administrator, which resolves appeals 
arising from financial Disputes between a recipient organization and 
SBA.
    Grants Management Specialist. An SBA employee designated by the AA/
SBDCs who is responsible for the financial review, award, and 
administration of one or more SBDC Cooperative Agreements.
    In-kind contributions. Property, facilities, services or other non-
monetary contributions from non-federal sources. See OMB Circular A-87, 
A-102, or A-110, as appropriate.
    Indirect costs. ``Indirect costs'' as defined in Office of 
Management and Budget (OMB) Circular A-21, A-87 or A-122.
    Lead Center. The entity which administers and operates the SBDC 
network.
    Lobbying. Lobbying as described in OMB Circulars A-21, A-87 and A-
122, and Pub. L. 101-121, section 319.
    Overmatched Amount. Non-Federal Contributions to SBDC project costs, 
including cash, in-kind contributions and indirect costs, in excess of 
the statutorily required amount.
    Program Announcement. SBA's annual publication of requirements which 
an applicant or recipient organization must address in its initial or 
renewal application.
    Program income. Income earned or received by the SBDC network from 
any SBDC supported activity as defined in Attachment D of OMB Circular 
A-110 and Attachment E of OMB Circular A-102.
    Program manager. An SBA employee responsible for overseeing the 
operations of one or more SBDCs.
    Project officer. An SBA employee who negotiates the annual 
Cooperative Agreement and monitors the ongoing operations of an SBDC.
    Project period. The period of time, usually in twelve (12) month 
increments, during which the SBDC network operates, beginning on the day 
of award and continuing over a number of budget periods.
    Recipient organization. The name given to an applicant organization 
after funding is approved and the applicant organization enters into a 
Cooperative Agreement. The recipient organization receives the Federal 
funds and is responsible for establishing the Lead Center.
    Recognized Organization. The organization whose members include a 
majority of SBDCs and which is recognized as an SBDC representative by 
SBA in accordance with Sec. 21(a)(3)(A) of the Small Business Act, 15 
U.S.C. 648(a)(3)(A).
    SBDC Director. The full-time senior manager designated by each 
recipient organization and approved by SBA.

[[Page 431]]

    SBDC network. The Lead Center and SBDC service providers.
    SBDC service providers. SBDC network participants, including the 
Lead Center, subcenters (at times referred to as regional centers), 
satellite locations, and any other entity authorized by the recipient 
organization to perform SBDC services.
    Specialized Services. SBDC services other than Counseling and 
Training.
    Sponsoring SBDC organizations. Organizations or entities which 
establish one or more SBDC service providers as part of the SBDC network 
under a contract or agreement with the recipient organization.
    Training. The provision of advice, guidance and instruction to 
groups of prospective and existing small business persons and entities, 
whether by in-person group sessions or by such communication modes as 
teleconferences, videos, publications and electronic media.



Sec. 130.200  Eligible entities.

    (a) Recipient Organization. The following entities are eligible to 
operate an SBDC network:
    (1) A public or private institution of higher education;
    (2) A land-grant college or university;
    (3) A college or school of business, engineering, commerce or 
agriculture;
    (4) A community or junior college;
    (5) An entity formed by two or more of the above entities; or
    (6) Any entity which was operating as a recipient organization as of 
December 31, 1990.
    (b) SBDC Service Providers. SBDC service providers are not required 
to meet the eligibility requirements of a recipient organization.



Sec. 130.300  Small Business Development Centers (SBDCs). [Reserved]



Sec. 130.310  Area of service.

    The AA/SBDC shall designate in writing the Area of Service of each 
recipient organization, consistent with the State plan. More than one 
recipient organization may be located in a State or Territory if the AA/
SBDC determines it is necessary or beneficial to implement the Program 
effectively and to provide services to all interested small businesses.



Sec. 130.320  Location of lead centers and SBDC service providers.

    (a) The recipient organization must locate its Lead Center and SBDC 
service providers so that services are readily accessible to small 
businesses in the Area of Service.
    (b) The locations of the Lead Center and the SBDC service providers 
will be reviewed by SBA as part of the application review process for 
each budget period.



Sec. 130.330  Operating requirements.

    (a) The Lead Center must be an independent entity within the 
recipient organization, having its own staff, including a full-time SBDC 
Director.
    (b) A Lead Center must provide administrative services and 
coordination for the SBDC network, including program development, 
program management, financial management, reports management, promotion 
and public relations, program assessment and evaluation, and internal 
quality control.
    (c) The Lead Center shall be open to the public throughout the year 
during the normal business hours of the recipient organization. 
Anticipated closures shall be included in the annual renewal 
application. Emergency closures shall be reported to the SBA Project 
Officer as soon as is feasible. Other SBDC service providers shall be 
open during the normal business hours of their sponsoring SBDC 
organizations.
    (d) The Lead Center and other SBDC service providers must have a 
conflict of interest policy applicable to their SBDC consultants, 
employees, instructors and volunteers.
    (e) The SBDC network shall comply with 13 CFR parts 112, 113 and 
117, which require that no person shall be excluded on the grounds of 
age, color, handicap, marital status, national origin, race, religion or 
sex from participation in, be denied that benefits of, or otherwise be 
subjected to discrimination under, any program or activity for which the 
recipient organization received Federal financial assistance from SBA.

[[Page 432]]



Sec. 130.340  SBDC services and restrictions on service.

    (a) Services. The SBDC network must provide prospective and existing 
small business persons and entities with Counseling, Training and 
Specialized Services, concerning the formation, financing, management 
and operation of small business enterprises, reflecting local needs. The 
recipient organization shall primarily utilize institutions of higher 
education to provide services to the small business community. To the 
extent possible, SBDCs shall use other Federal, State, and local 
government programs that assist small business. Services periodically 
should be assessed and improved to keep pace with changing small 
business needs.
    (b) Access to Capital. (1) SBDCs are encouraged to provide 
counseling services that increase a small business concern's access to 
capital, such as business plan development, financial statement 
preparation and analysis, and cash flow preparation and analysis.
    (2) SBDCs should help prepare their clients to represent themselves 
to lending institutions. While SBDCs may attend meetings with lenders to 
assist clients in preparing financial packages, the SBDCs may not take a 
direct role in representing clients in loan negotiations.
    (3) SBDCs should inform their clients that financial packaging 
assistance does not guarantee receipt of a loan.
    (4) SBDCs may not make loans, service loans or make credit decisions 
regarding the award of loans.
    (5) With respect to SBA guaranty programs, SBDCs may assist clients 
to formulate a business plan, prepare financial statements, complete 
forms which are part of a loan application, and accompany an applicant 
appearing before SBA. Unless authorized by the SBA Administrator with 
respect to a specific program, an SBDC may not advocate, recommend 
approval or otherwise attempt in any manner to influence SBA to provide 
financial assistance to any of its clients. An SBDC cannot collect fees 
for helping a client to prepare an application for SBA financial 
assistance.
    (c) Special emphasis initiatives. From time to time, SBA may 
identify portions of the general population to be targeted for 
assistance by SBDCs. Support of SBA special emphasis initiatives will be 
negotiated each year as part of the application process and included in 
the Cooperative Agreement when appropriate.



Sec. 130.350  Specific program responsibilities.

    (a) Policy development. SBA will establish Program policies and 
procedures to improve the delivery of services by SBDCs to the small 
business community, and to enhance compliance with applicable laws, 
regulations, OMB Circulars and Executive Orders. In doing so, SBA should 
consult, to the extent practicable, with the Recognized Organization.
    (b) Responsibilities of SBDC Directors. The SBDC Director shall 
direct and monitor program activities and financial affairs of the SBDC 
network to deliver effective services to the small business community, 
comply with applicable laws, regulations, OMB Circulars and Executive 
Orders, and implement the Cooperative Agreement. The SBDC Director has 
authority to control expenditures under the Lead Center's budget. SBDC 
Directors may manage other programs in addition to the SBDC Program if 
the programs serve small businesses and do not duplicate the services 
provided by the SBDC network. However, SBDC Directors may not receive 
additional compensation for managing these programs. The SBDC Director 
shall serve as the principal contact point for all matters involving the 
SBDC network.



Sec. 130.360  SBDC advisory boards.

    (a) State/Regional Advisory Boards. (1) The Lead Center must 
establish an advisory board to advise, counsel, and confer with the SBDC 
Director on matters pertaining to the operation of the SBDC network.
    (2) The advisory board shall be referred to as a State SBDC Advisory 
Board in an Area of Service having only one recipient organization, and 
a Regional SBDC Advisory Board in an Area of Service having more than 
one recipient organization.
    (3) These advisory boards must include small business owners and 
other

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representatives from the entire Area of Service.
    (4) New Lead Centers must establish a State or Regional SBDC 
Advisory Board no later than the second budget period.
    (5) A State or Regional SBDC Advisory Board member may also be a 
member of the National SBDC Advisory Board.
    (6) The reasonable cost of travel of any Board member for official 
Board activities may be paid out of the SBDC's budgeted funds.
    (b) National SBDC Advisory Board. (1) SBA shall establish a National 
SBDC Advisory Board consisting of nine members who are not Federal 
employees, appointed by the SBA Administrator. The Board shall elect a 
Chair. Three members of the Board shall be from universities or their 
affiliates and six shall be from small businesses or associations 
representing small businesses. Board members shall serve staggered three 
year terms, with three Board members appointed each year. The SBA 
Administrator may appoint successors to fill unexpired terms.
    (2) The National SBDC Advisory Board shall advise and confer with 
SBA's AA/SBDCs on policy matters pertaining to the operation of the SBDC 
program. The Board shall meet with the AA/SBDCs at least semiannually.



Sec. 130.400  Application procedure. [Reserved]



Sec. 130.410  New applications.

    (a) If SBA declines to renew an existing recipient organization or 
the recipient organization declines to reapply, SBA may accept 
applications from other organizations interested in becoming a recipient 
organization. An eligible entity may apply by submitting an application 
to the SBA District Office in the Area of Service in which the applicant 
proposes to provide services.
    (b) An application for initial funding of a new SBDC network must 
include a letter by the Governor, or his or her designee, of the Area of 
Service in which the SBDC will operate, or other evidence, confirming 
that the applicant's designation as an SBDC would be consistent with the 
plan adopted by the State government and approved by SBA. No such 
requirement is imposed on subsequent applications from existing 
recipient organizations.
    (c) The application must set forth the eligible entity or entities 
proposing to operate the SBDC network; a list of the Lead Center and 
other SBDC service providers by name, address and telephone number; the 
geographic areas to be serviced; the resources to be used; the services 
that will be provided; the method for delivering the services, including 
a description of how and to what extent academic, private and public 
resources will be used; a budget; a listing of the proposed members of 
the State or Regional Advisory Board and other relevant information set 
forth in the Program Announcement.
    (d) SBA officials may request supplemental information or 
documentation to revise or complete an application.
    (e) Upon written recommendation for approval by the SBA District 
Director, the proposal shall be submitted to the AA/SBDCs for review.



Sec. 130.420  Renewal applications.

    (a) SBDCs shall comply with the requirements in the annual Program 
Announcement, including format and due dates, to receive consideration 
of their renewal applications. The SBA Project Officer, with the 
concurrence of the Program Manager, may grant an extension. The 
recipient organization shall submit the renewal application to the SBA 
office in the District in which the recipient organization is located. 
The annual Program Announcement will include a timetable for SBA review.
    (b) After review by the SBA Project Officer and written 
recommendation for approval by the District Director, the Program 
Manager and Grants Management Specialist shall review the renewal 
application for conformity with the Program Announcement, OMB Circulars 
and all other statutory, financial and regulatory requirements. SBA 
officials may request supplemental information and documentation prior 
to issuing the Cooperative Agreement.

[[Page 434]]



Sec. 130.430  Application decisions.

    (a) The AA/SBDCs may approve, conditionally approve, or reject any 
application. In the event of a rejection, the AA/SBDCs shall communicate 
the reasons for rejection to the applicant and the appropriate SBA field 
office. If the approval is conditional, the conditions and applicable 
remedies shall be specified as special terms and conditions in the 
Cooperative Agreement. Upon approval or conditional approval, the Grants 
Management specialist may issue a Cooperative Agreement.
    (b) In considering the application, significant factors shall 
include:
    (1) The applicant's ability to contribute Matching Funds;
    (2) For renewal Proposals, the quality of prior performance;
    (3) The results of any examination conducted pursuant to 
Sec. 130.810(b) of these regulations; and
    (4) Any certification resulting from any certification program 
developed by the Recognized Organization.
    (c) In the event of a conditional approval, SBA may conditionally 
fund a recipient organization for one or more specified periods of time 
up to a maximum of one budget period. If the recipient organization 
fails to resolve the specified matters to the AA/SBDCs' satisfaction 
within the allotted time period, SBA has the right to discontinue 
funding the SBDC, subject to the provisions of Sec. 130.700.



Sec. 130.440  Maximum grant.

    No recipient shall receive an SBDC grant exceeding the greater of 
the minimum statutory amount, or its pro rata share of all SBDC grants 
as determined by the statutory formula set forth in section 21(a)(4) of 
the Act.



Sec. 130.450  Matching funds.

    (a) The recipient organization must provide total Matching Funds 
equal to the total amount of SBA funding. At least 50% of the Matching 
Funds must be Cash Match. The remaining 50% may be provided through any 
allowable combination of additional cash, in-kind contributions, or 
indirect costs.
    (b) All sources of Matching Funds must be identified as specifically 
as possible in the budget proposal. Cash sources shall be identified by 
name and account. All applicants must submit a Certification of Cash 
Match and Program Income executed by an authorized official of the 
recipient organization or any sponsoring SBDC organization providing 
Cash Match through a subcontract agreement. The account containing such 
cash must be under the direct management of the SBDC Director, or, if 
provided by a sponsoring SBDC organization, its subcenter Director. If a 
political entity is providing such cash and the funds have not been 
appropriated prior to issuance of the Cooperative Agreement, the 
recipient organization must certify that sufficient funds will be 
available from the political entity prior to the use of Federal dollars.
    (c) The Grants Management Specialist is responsible for determining 
whether Matching Funds or Cash Match meet the requirements of the Act 
and appropriate OMB circulars.
    (d) Overmatched Amounts. (1) SBDC are encouraged to furnish 
Overmatched Amounts.
    (2) An Overmatched Amount can be applied to additional Matching 
Funds requirements necessitated by any supplemental funding increase 
received by the SBDC during the budget period, as long as the total Cash 
Match provided by the SBDC is 50% or more of the total SBA funds 
provided during the budget period.
    (3) If used in the manner described in paragraph (d)(2) of this 
section, such Overmatched Amount is reclassified as committed Matching 
Funds.
    (4) Allowable Overmatched Amounts which have not been used in the 
manner described in paragraph (d)(2) of this section may, with the 
approval of the AA/SBDCs, be used as a credit to offset any confirmed 
audit disallowances applicable only to the budget period in which the 
Overmatched Amount exists and the two previous budget periods. Such 
offsetting funds shall be considered Matching Funds.
    (e) Impermissible sources of Matching Funds. Under no circumstances 
may the following be used as sources of the Matching Funds of the 
recipient organization:
    (1) Uncompensated student labor;
    (2) SCORE, ACE, or SBI volunteers;

[[Page 435]]

    (3) Program income or fees collected from small businesses receiving 
assistance;
    (4) Funds or indirect or in-kind contributions from any other 
Federal source.



Sec. 130.460  Budget justification.

    The SBDC Director, as a part of the renewal application, or the 
applicant organization's authorized representative in the case of a new 
SBDC application, shall prepare and submit to the SBA Project Officer 
the budget justification for the upcoming budget period. The budget 
shall be reviewed annually upon submission of a renewal application.
    (a) Direct costs. Unless otherwise provided in applicable OMB 
circulars, at least eighty percent (80%) of SBA funding must be 
allocated to direct costs of Program delivery.
    (b) Indirect costs. If the applicant organization waives all 
indirect costs to meet the Matching Funds requirement, one hundred 
percent (100%) of SBA funding must be allocated to program delivery. If 
some, but not all, indirect costs are waived to meet the Matching Funds 
requirement, the lesser of the following may be allocated as indirect 
costs of the Program and charged against the Federal contribution:
    (1) Twenty percent (20%) of Federal contribution, or
    (2) The amount remaining after the waived portion of indirect costs 
is subtracted from the total indirect costs.
    (c) Separate SBDC service provider budgets. (1) The applicant 
organization shall include separate budgets for all subcontracted SBDC 
service providers in conformity with OMB requirements. Applicable direct 
cost categories and indirect cost base/rate agreements shall be included 
for the Lead Center and all SBDC service providers, using a rate equal 
to or less than the negotiated predetermined rate. If no such rate 
exists, the sponsoring SBDC organization or SBDC service provider shall 
negotiate a rate with its Cognizant Agency. In the event the sponsoring 
SBDC organization or SBDC service provider does not have a Cognizant 
Agency, the rate shall be negotiated with the SBA Project Officer in 
accordance with OMB guidelines (see OMB Circular A-21).
    (2) The amount of cash, in-kind contributions and indirect costs for 
the Lead Center and all sub-contracted SBDC service providers shall be 
indicated in accordance with OMB requirements.
    (d) Cost principles. Principles for determining allowable costs are 
contained in OMB Circulars A-21 (cost principles for grants, contracts, 
and other agreements with educational institutions), A-87 (cost 
principles for programs administered by State and local governments), 
and A-122 (cost principles for nonprofit organizations).
    (e) Costs associated with lobbying. No portion of the Federal 
contribution received by an SBDC may be used for lobbying activities, 
either directly by the SBDC or indirectly through outside organizations, 
except those activities permitted by OMB. Restrictions on and reports of 
lobbying activities by the SBDC shall be in accordance with OMB 
requirements, Section 319 of Public Law No. 101-121, and the annual 
Program Announcement.
    (f) Salaries. (1) If a recipient organization is an educational 
institution, the salaries of the SBDC Director and the subcenter 
Directors must approximate the average annualized salary of a full 
professor and an assistant professor, respectively, in the school or 
department in which the SBDC is located. If a recipient organization is 
not an educational institution, the salaries of the SBDC Director and 
the subcenter Directors must approximate the average salaries of 
parallel positions within the recipient organization. In both cases, the 
recipient organization should consider the Director's longevity in the 
Program, the number of subcenters and the individual's experience and 
background.
    (2) Salaries for all other positions within the SBDC should be based 
upon level of responsibility, and be comparable to salaries for similar 
positions in the area served by the SBDC.
    (3) Recruitment and salary increases for SBDC Directors, subcenter 
Directors and staff members should conform to the administrative policy 
of the recipient organization.

[[Page 436]]

    (g) Travel. All travel must be separately identified in the proposed 
budget as planned in-State, planned out-of-State, unplanned in-State or 
unplanned out-of-State. All proposed travel must use coach class, apply 
directly to specific work of the SBDC or be incurred in the normal 
course of Program administration, and conform to the written travel 
policies of the recipient organization or the sponsoring SBDC 
organization. (Per diem rates, including lodging, shall not exceed those 
authorized by the recipient organization.) Transportation costs must be 
justified in writing, including the estimated cost, number of persons 
traveling, and the benefit to be derived by the small business community 
from the proposed travel. A specific projected amount, based on the 
SBDC's past experience, where appropriate, must also be included in the 
budget for unplanned travel. A more detailed justification must be given 
for unplanned out-of-State travel. Any proposed unplanned out-of-State 
travel exceeding the approved budgeted amount for travel must be 
submitted to the Project Officer for approval on a case-by-case basis. 
Travel outside the United States must have prior approval by the AA/
SBDCs on a case-by-case basis.
    (h) Dues. Costs of memberships in business, technical, and 
professional organizations shall be allowable expenses. The use of 
Federal funds to pay dues for business, technical and professional 
organizations shall be permitted, provided that the payments are 
included in the budget proposal, are approved by the SBA and comply with 
Sec. 130.460(e).



Sec. 130.470  Fees.

    An SBDC may charge clients a reasonable fee to cover the costs of 
Training sponsored or cosponsored by the SBDC, costs of services 
provided by or obtained from third parties, or the costs of providing 
Specialized Services. Fees may not be imposed for Counseling.



Sec. 130.480  Program income.

    (a) Program income for recipient organizations or SBDC service 
providers based in universities or nonprofit organizations shall be 
subject to OMB requirements (see OMB Circular A-110). Program income for 
recipient organizations or SBDC service providers based in State or 
local governments shall be subject to OMB requirements (see the 
provisions of Sec. 7.e and Attachment E of OMB Circular A-102) and 13 
CFR 143.25.
    (b) Program income, including any interest earned on Program income, 
must be used to expand the quantity or quality of services, resources or 
outreach provided by the SBDC network. It cannot be used to satisfy the 
requirements for Matching Funds. The Project Officer shall monitor the 
use of Program income. Any unused Program income will be carried over to 
a subsequent budget period.
    (c) SBDCs must report in detail on standard SBA forms receipts and 
expenditures of program income, including any income received through 
cosponsored activities. A narrative description of how Program income 
was used to accomplish Program objectives shall be included.



Sec. 130.500  Funding.

    The SBA funds Cooperative Agreements through its internal Letter of 
Credit Replacement System (LORS), using SBA standard forms to establish 
and modify letters of credit. SBDCs must use SBA standard forms to draw 
down funds required to meet their estimated or actual expenses and to 
submit quarterly cash transactions reports used by SBA to monitor the 
frequency of drawdowns and the cash-on-hand balance. Repeated drawdowns 
in excess of immediate cash needs may result in the cancellation of the 
letter of credit. If interest results from the deposit of any drawdowns 
in an interest-bearing account, SBDCs, other than State government 
sponsored SBDCs, must report and return such interest annually to SBA.



Sec. 130.600  Cooperative agreement. [Reserved]



Sec. 130.610  General terms.

    Upon approval of the initial or renewal application, SBA will enter 
into a Cooperative Agreement with the recipient organization, setting 
forth the programmatic and fiscal responsibilities of the recipient 
organization and

[[Page 437]]

SBA, the scope of the project to be funded, and the budget of the 
program year covered by the Cooperative Agreement. Administrative 
requirements are contained in 13 CFR 143 and applicable OMB Circulars.



Sec. 130.620  Revisions and amendments to cooperative agreement.

    (a) Requests for revisions. The recipient organization may request 
at any time one or more revisions to the Cooperative Agreement on an 
appropriate SBA form signed by the recipient organization's authorized 
representative (including a revised budget and budget narrative, if 
applicable). Revisions will normally relate to changes in scope, work or 
funding during the specified budget year.
    (b) Revisions which require amendment to Cooperative Agreement. The 
Cooperative Agreement shall list the revisions which require Project 
Officer concurrence, review by the Program Manager and the Grants 
Management Specialist, approval of the AA/SBDCs and amendment of the 
Cooperative Agreement. No application for an amendment shall be 
effective until it is approved and incorporated into the Cooperative 
Agreement. Revisions which require amendments shall include:
    (1) Any change in project scope or objectives;
    (2) The addition or deletion of any subgrants or contracts;
    (3) The addition of any new budget line items;
    (4) Budget revisions and fund reallocations exceeding the limit 
established by applicable administrative regulations or OMB Circulars, 
either individually or in the aggregate (see paragraphs (c)(1) and 
(c)(2) of this section);
    (5) Any proposed sole-source or one-bid contracts exceeding the 
limits established by applicable regulations or OMB Circulars; and
    (6) The carryover from one budget period to the next budget period 
of unobligated, unexpended SBA funds allocable under the Cooperative 
Agreement to nonrecurring, nonseverable bona fide needs of the SBDC 
network as provided in applicable OMB Circulars and the annual Program 
Announcement.
    (c) Revisions which do not require amendments to the Cooperative 
Agreement. (1) Budget revisions. Any budget revision, except those which 
are covered by paragraph (b)(4) of this section. Budget revisions 
require approval of the SBA Project Officer and the AA/SBDCs as 
prescribed by applicable OMB Circulars or 13 CFR 143.30.
    (2) Reallocation of funds. Reallocation of funds must be conducted 
in accordance with applicable OMB Circulars or 13 CFR 143.30. Additional 
guidance on this matter may be included in the annual Program 
Announcement.



Sec. 130.630  Dispute resolution procedures.

    (a) Financial Disputes. (1) A recipient organization wishing to 
resolve a financial Dispute formally must submit a written statement 
describing the subject of the Dispute, together with any relevant 
documents or other evidence bearing on the Dispute, to the Grants 
Management Specialist, with copies to the Project Officer. The Grants 
Management Specialist shall respond in writing to the recipient 
organization within 30 calendar days of receipt of the descriptive 
statement.
    (2) If the recipient organization receives an unfavorable decision 
from the Grants Management Specialist, it may file an appeal with the 
AA/SBDCs within 30 calendar days of issuance of the unfavorable 
decision. The AA/SBDCs shall respond in writing to the recipient 
organization within 15 calendar days of receipt of the appeal.
    (3) If the recipient organization receives an unfavorable decision 
from the AA/SBDCs, it may make a final appeal to the SBA Grants and 
Cooperative Agreements Appeals Committee (the ``Committee'') within 30 
calendar days of the date of issuance of the AA/SBDCs' written decision. 
Copies of the appeal shall also be sent to the Grants Management 
Specialist and the Project Officer.
    (4) Appeals must be in writing. Formal briefs and other technical 
forms of pleading are not required. Requests for a hearing will not be 
granted unless there are material facts substantially in dispute. 
Appeals must contain at least the following:

[[Page 438]]

    (i) Name and address of the recipient organization;
    (ii) The SBA field office;
    (iii) The Cooperative Agreement;
    (iv) A statement of the grounds for appeal, with reasons why the 
appeal should be sustained;
    (v) The specific relief desired on appeal; and
    (vi) If a hearing is requested, a statement of the material facts 
which are substantially in dispute.
    (5) The AA/SBDCs or the Committee may request from the SBDC or the 
District Office additional information or documentation at any stage in 
the proceedings.
    (6) If a request for a hearing is granted, the Committee will 
provide the recipient organization with written instructions, and will 
afford the parties an opportunity to present their positions to the 
Committee.
    (7) The Committee will reach a decision on the merits of the appeal 
within 30 days of the hearing date.
    (8) The Chairperson, with advice from the Office of General Counsel, 
shall prepare and transmit a written final decision to the recipient 
organization with copies to the Grants Management Specialist and the 
Project Officer.
    (9) Expedited Dispute appeal process. By an affirmative vote 
constituting a majority of its total membership, the Committee may 
shorten response times to attain final resolution of a Dispute before 
the issuance date of a new Cooperative Agreement. At any time within 120 
days of the end of the budget period, the recipient organization may 
submit a written request to use an expedited process. If a Dispute 
affects refunding, the Committee must meet to consider the matter prior 
to the end of the budget period, provided that the recipient 
organization has supplied the Committee with all requested 
documentation.
    (b) Programmatic (non-financial) Disputes. (1) If a programmatic 
Dispute is not resolved at the SBA District Office level, the recipient 
organization may request its submission to the next SBA administrative 
level having authority to review such matter. The Project Officer shall 
refer the Dispute in writing, including comments of the SBDC Director, 
within 15 calendar days of receipt of the request.
    (2) If the programmatic Dispute is not resolved at an intermediate 
SBA administrative level within 15 calendar days of receipt thereof, it 
shall be forwarded, in writing, to the AA/SBDCs for final resolution. 
All comments of the SBDC Director must be included in any package 
forwarded to the AA/SBDCs.
    (3) The AA/SBDCs shall transmit a final, written decision to the 
recipient organization, the SBDC Director, the SBA Project Officer and 
other appropriate SBA field office personnel within 30 calendar days of 
receipt of such documentation, unless an extension of time is mutually 
agreed upon by the recipient organization and the AA/SBDCs.



Sec. 130.700  Suspension, termination and non-renewal.

    (a) General. After SBA has entered into a Cooperative Agreement with 
a recipient organization, it shall not suspend, terminate or fail to 
renew the agreement unless SBA gives the recipient organization written 
notice setting forth the reasons and affording the recipient 
organization an opportunity for a hearing. Subject to this requirement 
and the provisions of Sec. 130.700(c) regarding non-renewal procedures 
for non-performance, the applicable general procedures for suspension 
and termination are contained in 13 CFR 143.43 and 143.44, and in OMB 
Circular A-110, Attachment L.
    (b) Causes. Causes which may lead to suspension, termination, or 
failure to renew include non-performance, poor performance, 
unwillingness to implement changes to improve performance, or any of the 
following reasons:
    (1) Disregard or material violation of these regulations;
    (2) A willful or material failure to perform under the Cooperative 
Agreement or under these regulations;
    (3) Conduct reflecting a lack of business integrity or honesty;
    (4) A conflict of interest causing real or perceived detriment to a 
small business concern, a contractor, the SBDC or SBA;
    (5) Improper use of Federal funds;

[[Page 439]]

    (6) Failure of a Lead Center or its subcenters to consent to audits 
or examination or to maintain required documents or records;
    (7) Failure of the SBDC Director to work at the SBDC Lead Center on 
a full-time basis;
    (8) Failure promptly to suspend or terminate the employment of an 
SBDC Director, subcenter Director or other key employee upon receipt of 
knowledge by the recipient organization and/or SBA that such individual 
is engaging in or has engaged in conduct resulting in a criminal 
conviction or civil judgment which would cause the public to question 
the SBDC's business integrity, taking into consideration such factors as 
the magnitude, repetitiveness, harm caused and remoteness in time of the 
activity or activities underlying the conviction or judgment.
    (9) Violation of the SBDC's standards of conduct as specified in 
these rules and as established by the SBDC pursuant to these rules; or
    (10) Any other cause not otherwise specified which materially and 
adversely affects the operation or integrity of an SBDC or the SBDC 
program.
    (c) Non-Renewal Procedure. (1) Subject to Sec. 130.700(a), when an 
SBA District Director believes there is sufficient evidence of SBDC 
nonperformance, poor performance or unwillingness to implement changes 
to improve performance, under the terms of the Cooperative Agreement or 
these regulations, the District Director shall notify the SBDC Director 
and any other appropriate official of the recipient organization of an 
intention not to approve its renewal application.
    (2) Notice can be submitted at any time during the budget period, 
but normally should be sent no later than 3 months prior to the due date 
for renewal applications at the District Office.
    (3) The notice shall specifically cite the reasons for the intention 
not to renew. It must allow the recipient organization 60 days within 
which to change its operations to correct the problems cited in the 
notice, and to report to the Project Officer, in writing, regarding the 
results of such changes.
    (4) If the recipient organization is unwilling or unable to address 
the specific problem areas to the satisfaction of the SBA District 
Office within the 60-day period, the SBA Project Officer shall have ten 
(10) calendar days after expiration of the 60 days to submit to the AA/
SBDCs a written description of the unresolved issues, a summary of the 
positions of the District Office on the issues, and any supportive 
documentation.
    (5) The AA/SBDCs shall transmit a written, final decision to the 
recipient organization, the SBDC Director, the SBA Project Officer and 
other appropriate SBA field office personnel within 30 calendar days of 
receipt of such documentation, unless an extension of time is mutually 
agreed upon by the recipient organization and the AA/SBDCs.
    (6) The AA/SBDCs shall consider written documentation of the issues 
to be resolved, including all relevant correspondence between the 
Project Officer, District Director and any other SBA personnel and the 
affected recipient organization. At a minimum, such documentation shall 
commence with the first written notice of issues invoking the non-
renewal procedure. In addition, the AA/SBDCs also may communicate with 
the recipient organization and appropriate SBA personnel.
    (7) If the AA/SBDCs determines that the evidence submitted 
establishes nonperformance, ineffective performance or an unwillingness 
to implement suggested changes to improve performance, the AA/SBDCs 
shall have full discretion to order non-renewal of the SBDC. The SBA 
District Office shall then pursue proposals from other organizations 
interested in applying for SBDC designation. The incumbent SBDC shall 
have until the end of the budget period or 120 days, whichever is 
longer, to conclude operations and to submit close-out documents to the 
SBA District Office. Close-out procedures shall conform with applicable 
OMB Circulars.
    (d) Effect of action on subcenter. If competing applications are 
being accepted, a subcenter of the previously funded recipient 
organization may apply for designation as the recipient organization, so 
long as the subcenter

[[Page 440]]

was not involved in the conduct leading to non-renewal or termination of 
the former recipient organization.



Sec. 130.800  Oversight of the SBDC program.

    SBA shall monitor and oversee the Cooperative Agreement and ongoing 
operations of the SBDC network to ensure the effective and efficient use 
of Federal funds for the benefit of the small business community.



Sec. 130.810  SBA review authority.

    (a) Site visits. The AA/SBDCs, or a representative, on notice to the 
SBDC Director, is authorized to make programmatic and financial review 
visits to SBDC service providers to inspect records and client files, 
and to analyze and assess SBDC activities.
    (b) SBA examinations. SBA examiners shall perform a biannual 
programmatic and financial examination of each SBDC.
    (c) Certification program. SBA may provide financial support to the 
Recognized Organization to develop and implement an SBDC certification 
program.
    (d) Audits. The examinations by SBA examiners shall not substitute 
for audits required of Federal grantees under the Single Audit Act of 
1984 or applicable OMB guidelines (see Circulars A-110, A-128 and A-
133), nor shall such internal review substitute for audits to be 
conducted by the SBA Office of Inspector General under authority of the 
Inspector General Act of 1978, as amended (see Sec. 130.830(b)).



Sec. 130.820  Reports and recordkeeping.

    (a) Records. The recipient organization shall maintain the records 
required for a Lead Center audit and SBA reports. Lead Centers and other 
SBDC service providers shall maintain detailed, complete and accurate 
client activity files, specifying counseling, training and other 
assistance provided.
    (b) Reports. The recipient organization shall submit client service 
evaluations and performance and financial reports for SBA review to 
determine the quality of services provided by the SBDC, the completeness 
and accuracy of SBDC records, and actual SBDC network accomplishments 
compared to performance objectives.
    (c) Performance reports. For recipient organizations in the Program 
for more than three years, interim reports shall be due 30 days after 
completion of six months of operation each year; for those recipient 
organizations in the Program three years or less, reports shall be due 
30 days after completion of each of the first three quarters. The annual 
report shall include the second semiannual or the fourth quarter report 
and shall be due December 30 for fiscal year and March 30 for calendar 
year SBDCs. These reports shall reflect accurately the activities, 
accomplishments and deficiencies of the SBDC network.
    (d) Financial reports. The recipient organization shall provide 
three quarterly and one annual financial report to the SBA Project 
Officer as set forth in the Program Announcement and the Cooperative 
Agreement, in compliance with OMB Circulars.
    (e) Availability of records. As required by OMB (see Circular A-
133), all SBDC service provider records shall be made available to SBA 
for review upon request.



Sec. 130.830  Audits and investigations.

    (a) Access to records. Applicable OMB Circulars set forth the 
requirements concerning record access and retention.
    (b) Audits. (1) Pre-award audit. Applicant organizations that 
propose to enter the Program for the first time may be subject to a pre-
award audit conducted by or coordinated with the SBA Office of Inspector 
General. The purpose of a pre-award audit is to verify the adequacy of 
the accounting system, the suitability of posed costs and the nature and 
source of proposed Matching Funds.
    (2) Interim or final audits. The recipient organization or SBA may 
conduct SBDC network audits. All audits will be conducted according to 
Government Auditing Standards, promulgated by the Comptroller General of 
the United States.
    (i) The recipient organization will conduct its audits as a single 
audit of a recipient organization pursuant to OMB Circulars A-102, A-
110, A-128, and A-133, as applicable.

[[Page 441]]

    (ii) The SBA Office of Inspector General or its agents will conduct, 
supervise, or coordinate SBA's audits, which may, at SBA's discretion, 
be audits of the SBDC network, even though single audits may have been 
performed. In such instances, SBA will conduct such audits in compliance 
with Government Auditing Standards and all applicable OMB Circulars.
    (c) Investigations. SBA may conduct investigations as it deems 
necessary to determine whether any person or entity has engaged in acts 
or practices constituting a violation of the Act, any rule, regulation 
or order issued under that Act, or any other applicable Federal law.



PART 134--RULES OF PROCEDURE GOVERNING CASES BEFORE THE OFFICE OF HEARINGS AND APPEALS--Table of Contents




                        Subpart A--General Rules

Sec.
134.101  Definitions.
134.102  Jurisdiction of OHA.
134.103  Rules applicable to time periods provided in this part.

               Subpart B--Rules of Practice for Most Cases

134.201  Scope of the rules in this subpart B.
134.202  Commencement of cases.
134.203  The petition.
134.204  Filing and service requirements.
134.205  Motion for a more definite statement.
134.206  The answer or response.
134.207  Amendments and supplemental pleadings.
134.208  Representation in cases before OHA.
134.209  Requirement of signature.
134.210  Intervention.
134.211  Motions.
134.212  Summary decision.
134.213  Discovery.
134.214  Subpoenas.
134.215  Interlocutory appeals.
134.216  Alternative dispute resolution procedures.
134.217  Settlement.
134.218  Judges.
134.219  Sanctions.
134.220  Prohibition against ex parte communications.
134.221  Prehearing conferences.
134.222  Oral hearing.
134.223  Evidence.
134.224  Standards for decision.
134.225  The record.
134.226  The decision.
134.227  Finality of decisions.
134.228  Review of initial decisions.
134.229  Termination of jurisdiction.

 Subpart C--Rules of Practice for Appeals From Size Determinations and 
                         NAICS Code Designations

134.301  Scope of the rules in this subpart C.
134.302  Who may appeal.
134.303  Advisory opinions.
134.304  Commencement of appeals from size determinations and NAICS code 
          designations.
134.305  The appeal petition.
134.306  Transmission of the case file and solicitation.
134.307  Service and filing requirements.
134.308  Limitation on new evidence and adverse inference from non-
          submission in appeals from size determinations.
134.309  Response to an appeal petition.
134.310  Discovery.
134.311  Oral hearings.
134.312  Evidence.
134.313  Applicability of subpart B provisions.
134.314  Standard of review.
134.315  The record.
134.316  The decision.
134.317  Return of the case file.

     Subpart D--Rules of Practice for Appeals Under the 8(a) Program

134.401  Scope of the rules in this subpart D.
134.402  Appeal petition.
134.403  Service of appeal petition.
134.404  Decision by Administrative Law Judge.
134.405  Jurisdiction.
134.406  Review of administrative record.
134.407  Evidence beyond the record and discovery.
134.408  Summary decision.
134.409  Decision on appeal.

      Subpart E--Implementation of the Equal Access to Justice Act

134.501  What is the purpose of this subpart?
134.502  Under what circumstances may I apply for reimbursement?
134.503  What is an adversary adjudication?
134.504  What benefits may I claim?
134.505  Under what circumstances are fees and expenses reimbursable?
134.506  Who is eligible for possible reimbursement?
134.507  How do I know which eligibility requirement applies to me?
134.508  What are the special rules for calculating net worth and number 
          of employees?

[[Page 442]]

134.509  What is the difference between a fee and an expense?
134.510  Are there limitations on reimbursement for fees and expenses?
134.511  What should I include in my application for an award?
134.512  What must a net worth exhibit contain?
134.513  What documentation do I need for fees and expenses?
134.514  What deadlines apply to my application for an award and where 
          do I send it?
134.515  How will proceedings relating to my application for fees and 
          expenses be conducted?
134.516  How will I know if I receive an award?
134.517  May I seek review of the ALJ's decision on my award?
134.518  How are awards paid?

    Authority: 5 U.S.C. 504; 15 U.S.C. 632, 634(b)(6), 637(a), 648(l), 
656(i), and 687(c); E.O. 12549, 51 FR 6370, 3 CFR, 1986 Comp., p. 189.

    Source: 61 FR 2683, Jan. 29, 1996, unless otherwise noted.



                        Subpart A--General Rules



Sec. 134.101  Definitions.

    As used in this part:
    AA/OHA means the Assistant Administrator for OHA.
    Act means the Small Business Act, 15 U.S.C. 631 et seq.
    Address means the primary home or business address of a person or 
entity, including the street location or postal box number, city or 
town, state, and postal zip code.
    Appeal petition has the same meaning as petition.
    Area Office means a Government Contracting Area Office or a Disaster 
Area Office of the Small Business Administration.
    Day means a calendar day, unless a Judge specifies otherwise.
    Hearing means the presentation and consideration of argument and 
evidence. A hearing need not include live testimony or argument.
    Investment Act means the Small Business Investment Act of 1958, 15 
U.S.C. 661 et seq.
    Judge means an Administrative Law Judge or an Administrative Judge 
of OHA, or the AA/OHA when he or she acts as an Administrative Judge.
    NAICS code means North American Industry Classification System code.
    OHA means the Office of Hearings and Appeals.
    Party means the petitioner, appellant, respondent, or intervenor, 
and the contracting officer in a NAICS code appeal.
    Person means an individual or any form of business entity.
    Petition (or appeal petition) means a written complaint, a written 
appeal from an SBA determination, or a written request for the 
initiation of proceedings before OHA.
    Pleading means a petition, an order to show cause commencing a case, 
an appeal petition, an answer, a response, or any amendment or 
supplement to those documents.
    Respondent means any person or governmental agency against which a 
case has been brought before OHA.
    SBA means the Small Business Administration.
    Size determination means a formal size determination made by an Area 
Office.

[61 FR 2683, Jan. 29, 1996, as amended at 67 FR 47246, July 18, 2002]



Sec. 134.102  Jurisdiction of OHA.

    OHA has authority to conduct proceedings in the following cases:
    (a) The revocation or suspension of Small Business Investment 
Company licenses, cease and desist orders, and the removal or suspension 
of directors and officers of licensees, under the Investment Act and 
part 107 of this chapter;
    (b) Alleged violations of those civil rights laws which are 
effectuated by parts 112, 113, 117, and 136 of this chapter;
    (c) The revocation of the privilege of a person to conduct business 
with SBA under the Act and part 103 of this chapter;
    (d) The eligibility of any bank or non-bank lender to continue to 
participate in SBA loan programs under the Act and part 120 of this 
chapter, or to do so with preferred or certified status, and any other 
appeal that is specifically authorized by part 120 of this chapter;
    (e) The suspension or termination of surety bond program 
participants under 15 U.S.C. 694a et seq. and part 115 of this chapter;

[[Page 443]]

    (f) The rights, privileges, or obligations of development companies 
under section 504 of the Investment Act and part 120, subpart H, of this 
chapter;
    (g) Allowance of fees and expenses under the Equal Access to Justice 
Act, 5 U.S.C. 504;
    (h) Debarment from appearance before the SBA because of post-
employment restrictions under 18 U.S.C. 207 and part 105 of this 
chapter;
    (i) Collection of debts owed to SBA and the United States under the 
Debt Collection Act of 1982 and part 140 of this chapter;
    (j) Appeals from the following SBA 8(a) program determinations under 
the Act and part 124 of this chapter:
    (1) Denial of program admission based solely on a negative finding 
as to social disadvantage, economic disadvantage, ownership or control; 
program termination; program graduation; or denial of a waiver of the 
requirement to perform to completion an 8(a) contract; and
    (2) Program suspension;
    (k) Appeals from size determinations and NAICS code designations 
under part 121 of this chapter;
    (l) The imposition of civil penalties and assessments against 
persons who make false claims or statements to SBA under the Program 
Fraud Civil Remedies Act, 31 U.S.C. 3801-3812 and part 142 of this 
chapter;
    (m) Appeals from the determination of the SBA under part 120 of this 
chapter to revoke or suspend a microloan intermediary or microloan non-
lending technical assistance provider;
    (n) Appeals from the following small disadvantaged business (SDB) 
determinations under part 124 of this chapter:
    (1) SBA's determination that an applicant firm does not qualify for 
certification, or that a certified SDB no longer qualifies for the 
program; and
    (2) A Private Certifier's ownership and control determination made 
on a firm's application for certification;
    (o) The suspension, termination, or non-renewal of cooperative 
agreements with Women's Business Centers and Small Business Development 
Centers under the Act and part 130 of this chapter;
    (p) Certain matters involving debarments and suspensions under part 
145 of this chapter;
    (q) The decision of the Appropriate Management Official in SBA 
Employee Dispute Resolution Process cases (Employee Disputes) under 
Standard Operating Procedure 37 71 02 (available at http://www.sba.gov/
library/soproom.html); and
    (r) Any other hearing, determination, or appeal proceeding referred 
to OHA by the Administrator of SBA.

[61 FR 2683, Jan. 29, 1996, as amended at 66 FR 47074, Sept. 11, 2001; 
67 FR 47246, July 18, 2002]



Sec. 134.103  Rules applicable to time periods provided in this part.

    (a) The day from which the time period is computed is excluded, but 
the last business day is counted, excluding Saturday, Sunday, or Federal 
holiday.
    (b) At the Judge's initiative, or upon the motion of a party showing 
good cause, the Judge may modify any of the applicable time limits, 
other than those established by statute and those governing when a case 
may be commenced.

[61 FR 2683, Jan. 29, 1996, as amended at 67 FR 47246, July 18, 2002]



               Subpart B--Rules of Practice for Most Cases



Sec. 134.201  Scope of the rules in this subpart B.

    (a) The rules in this subpart generally apply to all proceedings 
over which OHA has jurisdiction, except for appeals from size 
determinations and NAICS code designations. Specific procedural rules 
pertaining to 8(a) program appeals and to proceedings under the Program 
Fraud Civil Remedies Act are set forth, respectively in subpart D of 
this part and part 142 of this chapter.
    (b) In the case of a conflict between a particular rule in this 
subpart and a rule of procedure pertaining to OHA appearing in another 
subpart of this part or another part of this chapter, the latter rule 
shall govern.

[61 FR 2683, Jan. 29, 1996, as amended at 63 FR 35766, June 30, 1998; 67 
FR 47246, July 18, 2002]

[[Page 444]]



Sec. 134.202  Commencement of cases.

    (a) A party other than the SBA may commence a case by filing a 
written petition within the following time periods:
    (1) Except as provided by paragraphs (a)(2) through (a)(5) of this 
section, no later than 45 days from the date of receipt of the SBA 
action or determination to which the petition relates;
    (2) In debt collection proceedings under part 140 of this chapter, 
no later than 15 days after receipt of a notice of indebtedness and 
intention to collect such debt by salary or administrative offset;
    (3) In applications for an award of fees pursuant to subpart E of 
this part, no later than 30 days after the decision to which it applies 
becomes final;
    (4) For 8(a) program suspension proceedings, see Sec. 124.305 of 
this chapter;
    (5) For SBA Employee Disputes, see Standard Operating Procedure 37 
71 02, available at www.sba.gov/library/soproom.html.
    (b) The SBA may commence a case by issuing to the respondent an 
appropriate written order to show cause and filing the order to show 
cause with OHA.
    (c) Cases concerning Small Business Investment Company license 
suspensions and revocations and cease and desist orders must be 
commenced with an order to show cause containing a statement of the 
matters of fact and law asserted by the SBA, the legal authority and 
jurisdiction under which a hearing is to be held, a statement that a 
hearing will be held, and the time and place for the hearing.

[67 FR 47247, July 18, 2002]



Sec. 134.203  The petition.

    (a) A petition must contain the following:
    (1) The basis of OHA's jurisdiction;
    (2) A copy of the SBA determination being appealed, if applicable, 
and date received;
    (3) A clear and concise statement of the factual basis of the case;
    (4) The relief being sought;
    (5) The name, address, telephone number, facsimile number, and 
signature of the petitioner or its attorney;
    (6) A certificate of service (see Sec. 134.204(d)); and
    (7) In a debt collection case, a statement showing when the 
petitioner received the SBA notice initiating the debt collection 
proceeding (see Sec. 140.3 of this chapter).
    (b) A petition also must contain additional information or documents 
as required by the applicable program regulations in this chapter or by 
other subparts of this part 134. For SBA Employee Disputes, see Standard 
Operating Procedure 37 71 02, available at www.sba.gov/library/
soproom.html.
    (c) A petition which does not contain all of the information 
required by paragraphs (a) and (b) of this section may be dismissed, 
with or without prejudice, at the Judge's own initiative, or upon motion 
of the respondent.

[67 FR 47247, July 18, 2002]



Sec. 134.204  Filing and service requirements.

    (a) Methods of filing and service. Pleadings or other submissions 
must be filed and served by mail, delivery, or facsimile. Mail includes 
first class (including certified and registered), express, and priority 
mail. For good cause, the Judge may order that filing or service be 
effected by one of these methods.
    (b) Filing. Filing is the receipt of pleadings and other submissions 
at OHA.
    (1) OHA's address. OHA accepts filings between the hours of 8:30 
a.m. and 5 p.m. eastern time at the following address: Docketing Clerk, 
Office of Hearings and Appeals, Small Business Administration, 409 Third 
Street, SW., Suite 5900, Washington, DC 20416-0005. OHA's telephone 
number is (202) 401-8203. The number for OHA's facsimile machine is 
(202) 205-7059.
    (2) The date of filing for pleadings and other submissions filed by 
mail, delivery, or facsimile is the date the filing is received at OHA. 
Any filing received at OHA after 5:00 p.m. eastern time is considered 
filed as of the next day.
    (3) Exhibits. An exhibit, whether an original or a copy, must be 
authenticated or identified to be what it purports to be.

[[Page 445]]

    (4) Copies. No extra copies of pleadings or other submissions need 
be filed. If a document is offered as an exhibit, a copy of the document 
will be accepted by the Judge unless--
    (i) a genuine question is raised as to whether it is a true and 
accurate copy; or
    (ii) it would be unfair, under the circumstances, to admit the copy 
instead of the original.
    (c) Service. Service is the mailing, delivery, or facsimile to all 
other parties of a copy of each pleading or other submission filed with 
OHA.
    (1) Complete copies of all pleadings and other submissions filed 
with OHA must be served upon all other parties or, if represented, their 
authorized representatives or their attorneys, at their record 
addresses.
    (2) The date of service is as follows: for facsimile, the date the 
facsimile is sent; for personal delivery by the party, its employee, or 
its attorney, the date the document is given to the party served; for 
commercial delivery, the date the document is given to the delivery 
service; for mail, the date of mailing. The date of mailing is the date 
of a U.S. Postal Service postmark or any other proof of mailing. If 
there is insufficient proof of mailing, there is a rebuttable 
presumption that the mailing was made five days before receipt.
    (3) If the SBA is a party, the SBA must be served, as required by 
the applicable program regulations or by other subparts of this part 
134. If the SBA office for service is not specified elsewhere, serve: 
Office of General Counsel, Small Business Administration, 409 Third 
Street, S.W., Washington, DC 20416. For SBA Employee Disputes, see 
Standard Operating Procedure 37 71 02, available at www.sba.gov/library/
soproom.html.
    (d) Certificate of service. A certificate of service shows how, 
when, and to whom service was made. Every pleading and other submission 
filed with OHA and served on the other parties must include a 
certificate of service. The certificate should state: ``I certify that 
on [date], I caused the foregoing document to be served by [either 
``placing a copy in the mail,'' ``sending a copy by facsimile,'' 
``personally delivering a copy,'' or ``giving a copy to a delivery 
service,''] upon the following: [list name, address, telephone number, 
and facsimile number of each party served].'' The certificate must be 
signed and include the typed name and title of the individual serving 
the pleading or other submission.
    (e) Confidential information. Any information in pleadings or other 
submissions that is believed by the submitting party to constitute 
proprietary or confidential information need not be served upon parties 
so long as the deletions are clearly identified and generally described 
in the documents which are served. Upon motion, the Judge may direct 
that the withheld information be provided to other parties, subject to 
any appropriate protective order.

[61 FR 2683, Jan. 29, 1996, as amended at 67 FR 47247, July 18, 2002]



Sec. 134.205  Motion for a more definite statement.

    (a) Procedure. No later than 15 days after service of the petition 
or order to show cause, the respondent may file and serve a motion 
requesting a more definite statement of particular allegations in the 
petition.
    (b) Stay. The filing and service of a motion for a more definite 
statement stays the time for filing and serving an answer or response. 
The Judge will establish the time for filing and serving an answer or 
response.

[67 FR 47247, July 18, 2002]



Sec. 134.206  The answer or response.

    (a)(1) Except in a case involving a petition appealing from an SBA 
determination, a respondent must file and serve an answer within 45 days 
after the filing of a petition or the service of an order to show cause, 
except that in debt collection cases, answers are due within 30 days. 
For SBA Employee Disputes, see Standard Operating Procedure 37 71 02, 
available at www.sba.gov/library/soproom.html.
    (2) The answer must contain the following:
    (i) An admission or denial of each of the factual allegations 
contained in the petition or order to show cause, or a statement that 
the respondent denies

[[Page 446]]

knowledge or information sufficient to determine the truth of a 
particular allegation;
    (ii) Any affirmative defenses; and
    (iii) The name, address, telephone number, facsimile number, and 
signature of the respondent or its attorney.
    (3) Allegations in the petition or order to show cause that are not 
answered in accordance with paragraph (a)(2)(i) of this section will be 
deemed admitted unless injustice would occur.
    (b) Upon the filing of a petition appealing from an SBA 
determination, the Judge or the AA/OHA will issue an order informing all 
known parties of the date the appeal was filed. The respondent must file 
and serve a response to such a petition within 45 days after the filing 
of such a petition. The response need not admit or deny the allegations 
in the petition but shall set forth the respondent's positions in 
support of the SBA determination. The response must also set forth the 
name, address, telephone number, facsimile number, and signature of the 
respondent or its attorney.
    (c) If a petition or order to show cause is amended or if respondent 
is not properly served, the Judge will order the time to file an answer 
or response extended and will specify the date such answer or response 
is due. If respondent is not properly served with a petition appealing 
from an SBA determination, the Judge will issue an order directing that 
the petitioner serve respondent within a specified time and directing 
respondent to file and serve a response within 45 days after petitioner 
timely serves respondent in accordance with the order.
    (d) If the respondent fails to timely file and serve an answer or 
response, that failure will constitute a default. Following such a 
default, the Judge may prohibit the respondent from participating 
further in the case. If SBA, as respondent to a petition appealing from 
an SBA determination, fails to timely file and serve its response or the 
administrative record (where required), the Judge will issue an order 
directing SBA to file and serve the administrative record by a specified 
date.

[67 FR 47247, July 18, 2002]



Sec. 134.207  Amendments and supplemental pleadings.

    (a) Amendments. Upon motion, and under terms needed to avoid 
prejudice to any non-moving party, the Judge may permit the filing and 
service of amendments to pleadings. However, an amendment will not be 
permitted if it would cause unreasonable delay in the determination of 
the matter. The proposed amendment must be filed and served with the 
motion.
    (b) Supplemental pleadings. Upon motion, and under terms needed to 
avoid prejudice to any non-moving party, the Judge may permit the filing 
and service of a supplemental pleading setting forth relevant 
transactions or occurrences that have taken place since the filing of 
the original pleading. The proposed supplemental pleading must be filed 
and served with the motion.
    (c) 8(a) appeals. In 8(a) program appeals, amendments to pleadings 
and supplemental pleadings will be permitted by the Judge only upon a 
showing of good cause.
    (d) Answer or response. In an order permitting the filing and 
service of an amended or supplemented petition or order to show cause, 
the Judge will establish the time for filing and serving an answer or 
response.

[61 FR 2683, Jan. 29, 1996, as amended at 67 FR 47248, July 18, 2002]



Sec. 134.208  Representation in cases before OHA.

    (a) A party may represent itself, or be represented by an attorney. 
A partner may represent a partnership; a member may represent a limited 
liability company; and an officer may represent a corporation, trust, 
association, or other entity.
    (b) An attorney for a party who did not appear on behalf of that 
party in the party's first filing with OHA must file and serve a written 
notice of appearance.
    (c) An attorney seeking to withdraw from a case must file and serve 
a motion for the withdrawal of his or her appearance.

[67 FR 47248, July 18, 2002]

[[Page 447]]



Sec. 134.209  Requirement of signature.

    Every written submission to OHA, other than evidence, must be signed 
by the party filing that submission, or by the party's attorney. By 
signing the submission, a party or its attorney attests that the 
statements and allegations in that submission are true to the best of 
its knowledge, and that the submission is not being filed for the 
purpose of delay or harassment.



Sec. 134.210  Intervention.

    (a) By SBA. SBA may intervene as of right at any time in any case 
until 15 days after the close of record, or the issuance of a decision, 
whichever comes first.
    (b) By interested persons. Any interested person may move to 
intervene at any time until the close of record by filing and serving a 
motion to intervene containing a statement of the moving party's 
interest in the case and the necessity for intervention to protect such 
interest. An interested person is any individual, business entity, or 
governmental agency that has a direct stake in the outcome of the 
appeal. The Judge may grant leave to intervene upon such terms as he or 
she deems appropriate.

[67 FR 47248, July 18, 2002]



Sec. 134.211  Motions.

    (a) Contents. All motions must state the relief being requested, as 
well as the grounds and any authority for that relief.
    (b) Statement of whether motion is opposed. Except when filing a 
motion to dismiss or a motion for summary decision, the moving party 
must make reasonable efforts before filing the motion to contact any 
non-moving party and determine whether it will oppose the motion and 
must state in the motion whether each non-moving party will oppose or 
not oppose the motion. If the moving party cannot determine whether a 
non-moving party will oppose the motion, the moving party must describe 
in the motion the efforts made to contact that non-moving party.
    (c) Response. No later than 20 days after the service of a motion, 
all non-moving parties must serve and file a response or be deemed to 
have consented to the relief sought. Unless the Judge directs otherwise, 
the moving party will have no right to reply to a response, nor will 
oral argument be heard on the motion.
    (d) Service of orders. OHA will serve upon all parties any written 
order issued in response to a motion.
    (e) Motion to dismiss. A respondent may file a motion to dismiss any 
time before a decision is issued. If an answer or response has not been 
filed, the motion to dismiss stays the time to answer or respond. If the 
Judge denies the motion, and an answer or response has not been filed, 
the respondent must file the answer or response within 20 days after the 
order deciding the motion.
    (f) Motion for an extension of time. Except for good cause shown, a 
motion for an extension of time must be filed at least two days before 
the original deadline.

[61 FR 2683, Jan. 29, 1996, as amended at 63 FR 35766, June 30, 1998; 67 
FR 47248, July 18, 2002]



Sec. 134.212  Summary decision.

    (a) Grounds. A party may move for summary decision at any time as to 
all or any portion of the case, on the grounds that there is no genuine 
issue as to any material fact, and that the moving party is entitled to 
a decision in its favor as a matter of law.
    (b) Contents of motion. The motion must include a statement of the 
material facts believed not to be disputed, and relevant law. Supporting 
affidavits may also be included.
    (c) Cross-motions. In its response to a motion for summary decision, 
a party may cross-move for summary decision. The initial moving party 
may file and serve a response to any cross-motion for summary decision 
within 20 days after the service of that cross-motion.
    (d) Stay. A motion for summary decision stays the time to answer. 
The Judge will establish the time for filing and serving an answer in 
the order determining the motion for summary decision.
    (e) Appeal petitions from SBA determinations (other than 8(a) 
determinations). In a case involving an appeal petition, except as 
provided in subpart D of this part, if SBA has provided multiple grounds 
for the determination

[[Page 448]]

being appealed, SBA may move for summary decision on one or more 
grounds. If the Judge finds that there is no genuine issue of material 
fact and the SBA is entitled to a decision in its favor as a matter of 
law as to any such ground, the Judge will grant the motion for summary 
decision and dismiss the appeal.

[61 FR 2683, Jan. 29, 1996, as amended at 67 FR 47248, July 18, 2002]



Sec. 134.213  Discovery.

    (a) Motion. A party may obtain discovery only upon motion, and for 
good cause shown.
    (b) Forms. The forms of discovery which a Judge can order under 
paragraph (a) of this section include requests for admissions, requests 
for production of documents, interrogatories, and depositions.
    (c) Limitations. Discovery may be limited in accordance with the 
terms of a protective order. Further, privileged information and 
irrelevant issues or facts will not be subject to discovery.
    (d) Disputes. If a dispute should arise between the parties over a 
particular discovery request, the party seeking discovery may file and 
serve a motion to compel discovery. Discovery may be opposed on the 
grounds of harassment, needless embarrassment, irrelevance, undue burden 
or expense, privilege, or confidentiality.

[61 FR 2683, Jan. 29, 1996, as amended at 63 FR 35766, June 30, 1998; 67 
FR 47249, July 18, 2002]



Sec. 134.214  Subpoenas.

    (a) Availability. At the request of a party, or upon his or her own 
initiative, a Judge may issue a subpoena requiring a witness to appear 
and testify, or to produce particular documents, at a specified time and 
place. Subpoenas are not authorized for proceedings relating to internal 
Agency determinations, such as Employee Disputes.
    (b) Requests. A request for the issuance of a subpoena must be 
written, served upon all parties, and filed. The request must clearly 
identify the witness and any documents to be subpoenaed, and must set 
forth the relevance of the testimony or documents sought.
    (c) Service. A subpoena may only be served by personal delivery. The 
individual making service shall prepare an affidavit stating the date, 
time, and place of the service. The party which obtained the subpoena 
must serve upon all other parties, and file with OHA, a copy of the 
subpoena and affidavit of service within 2 days after service is made.
    (d) Motion to quash. A motion to limit or quash a subpoena must be 
filed and served within 10 days after service of the subpoena, or by the 
return date of the subpoena, whichever date comes first. Any response to 
the motion must be filed and served within 10 days after service of the 
motion, unless a shorter time is specified by the Judge. No oral 
argument will be heard on the motion unless the Judge directs otherwise.

[61 FR 2683, Jan. 29, 1996, as amended at 67 FR 47249, July 18, 2002]



Sec. 134.215  Interlocutory appeals.

    (a) General. A motion for leave to take an interlocutory appeal from 
a Judge's ruling will not be entertained in those proceedings in which 
OHA issues final decisions. In all other cases, an interlocutory appeal 
will be permitted only if, upon motion by a party, or upon the Judge's 
own initiative, the Judge certifies that his or her ruling raises a 
question which is immediately appealable. Interlocutory appeals will be 
decided by the AA/OHA or a designee.
    (b) Motion for certification. A party must file and serve a motion 
for certification no later than 20 days after issuance of the ruling to 
which the motion applies. A denial of the motion does not preclude 
objections to the ruling in any subsequent request for review of an 
initial decision.
    (c) Basis for certification. The Judge will certify a ruling for 
interlocutory appeal only if he or she determines that:
    (1) The ruling involves an important question of law or policy about 
which there is substantial ground for a difference of opinion; and
    (2) An interlocutory appeal will materially expedite resolution of 
the case, or denial of an interlocutory appeal would cause undue 
hardship to a party.

[[Page 449]]

    (d) Stay of proceedings. A stay while an interlocutory appeal is 
pending will be at the discretion of the Judge.

[61 FR 2683, Jan. 29, 1996, as amended at 67 FR 47249, July 18, 2002]



Sec. 134.216  Alternative dispute resolution procedures.

    At any time during the pendency of a case, the parties may submit a 
joint motion requesting that the Judge permit the use of alternative 
dispute resolution procedures to assist in resolving the matter. If the 
motion is granted, the Judge will also stay the proceedings before OHA, 
in whole or in part, as he or she deems appropriate, pending the outcome 
of the alternative dispute resolution procedures.



Sec. 134.217  Settlement.

    At any time during the pendency of a case, the parties may submit a 
joint motion to dismiss the appeal if they have settled the case, and 
may file with such motion a copy of the settlement agreement. If the 
Judge has express authority, under statute, SBA regulation or SBA 
standard operating procedures, to review the contents of a settlement 
agreement for legality, the Judge may order the parties to file a copy 
of the settlement agreement. Otherwise, upon the filing of a joint 
motion to dismiss, the Judge will issue an order dismissing the case. 
Settlement negotiations, and rejected settlement agreements, are not 
admissible into evidence.

[61 FR 2683, Jan. 29, 1996, as amended at 67 FR 47249, July 18, 2002]



Sec. 134.218  Judges.

    (a) Assignment. The AA/OHA will assign all cases subject to the 
Administrative Procedure Act, 5 U.S.C. 551 et seq., to an Administrative 
Law Judge. The AA/OHA will assign all other cases before OHA to either 
an Administrative Law Judge or an Administrative Judge, or, if the AA/
OHA is a duly licensed attorney, to himself or herself.
    (b) Authority. Except as otherwise limited by this part, or by 
statute or other regulation, a Judge has the authority to take all 
appropriate action to ensure the efficient, prompt, and fair 
determination of a case, including, but not limited to, the authority to 
administer oaths and affirmations and to subpoena and examine witnesses.
    (c) Recusal. Upon the motion of a party, or upon the Judge's own 
initiative, a Judge will promptly recuse himself or herself from further 
participation in a case whenever disqualification is appropriate due to 
conflict of interest, bias, or some other significant reason. A denial 
of a motion for recusal may be immediately appealed to the AA/OHA, or to 
the Administrative Law Judge if the AA/OHA is the Judge, but that appeal 
will not stay proceedings in the case.



Sec. 134.219  Sanctions.

    A Judge may impose appropriate sanctions, except for fees, costs, or 
monetary penalties, which he or she deems necessary to serve the ends of 
justice, if a party or its attorney:
    (a) Fails to comply with an order of the Judge;
    (b) Fails to comply with the rules set forth in this part;
    (c) Acts in bad faith or for purposes of delay or harassment;
    (d) Submits false statements knowingly, recklessly, or with 
deliberate disregard for the truth; or
    (e) Otherwise acts in an unethical or disruptive manner.



Sec. 134.220  Prohibition against ex parte communications.

    No person shall consult or communicate with a Judge concerning any 
fact, question of law, or SBA policy relevant to the merits of a case 
before that Judge except on prior notice to all parties, and with the 
opportunity for all parties to participate. In the event of such 
prohibited consultation or communication, the Judge will disclose the 
occurrence in accordance with 5 U.S.C. 557(d)(1), and may impose such 
sanctions as he or she deems appropriate.



Sec. 134.221  Prehearing conferences.

    Prior to a hearing, the Judge, at his or her own initiative, or upon 
the motion of any party, may direct the parties or their attorneys to 
appear, by telephone or in person, in order to consider any matter which 
may assist in the efficient, prompt, and fair determination of the case. 
The conference

[[Page 450]]

may be recorded verbatim at the discretion of the Judge, and, if so, a 
party may purchase a transcript, at its own expense, from the recording 
service.



Sec. 134.222  Oral hearing.

    (a) Availability. A party may obtain an oral hearing only if:
    (1) It is required by regulation; or
    (2) Following the motion of a party, or at his or her own 
initiative, the Judge orders an oral hearing upon concluding that there 
is a genuine dispute as to a material fact that cannot be resolved 
except by the taking of testimony and the confrontation of witnesses.
    (b) Place and time. The place and time of oral hearings is within 
the discretion of the Judge, who shall give due regard to the necessity 
and convenience of the parties, their attorneys, and witnesses. The 
Judge may direct that an oral hearing be conducted by telephone.
    (c) Public access. Unless otherwise ordered by the Judge, all oral 
hearings are public.
    (d) Payment of subpoenaed witnesses. A party which obtains a 
witness' presence at an oral hearing by subpoena, must pay to that 
witness the fees and mileage costs to which the witness would be 
entitled in Federal Court.
    (e) Recording. Oral hearings will be recorded verbatim. A transcript 
of a recording may be purchased by a party, at its own expense, from the 
recording service.

[61 FR 2683, Jan. 29, 1996, as amended at 63 FR 35766, June 30, 1998]



Sec. 134.223  Evidence.

    (a) Federal Rules of Evidence. Unless contrary to a particular rule 
in this part, or an order of the Judge, the Federal Rules of Evidence 
will be used as a general guide in all cases before OHA.
    (b) Hearsay. Hearsay evidence is admissible if it is deemed by the 
Judge to be relevant and reliable.



Sec. 134.224  Standards for decision.

    The decision of a Judge will be based upon a preponderance of the 
evidence.



Sec. 134.225  The record.

    (a) Contents. The record of a case before OHA will consist of all 
pleadings, motions, and other non-evidentiary submissions, all admitted 
evidence, all orders and decisions, and any transcripts of proceedings 
in the case.
    (b) Public access. Except for information subject to a protective 
order, proprietary or confidential information withheld in accordance 
with this part, or any other information which is excluded from 
disclosure by law or regulation, the record will be available at OHA for 
public inspection during normal business hours. Copies of the documents 
available for public inspection may be obtained by the public upon 
payment of any duplication charges.
    (c) Closure. The Judge will set the date upon which the pre-
decisional record of the case will be closed, and after which no 
additional evidence or argument will be accepted.



Sec. 134.226  The decision.

    (a) Contents. Following closure of the record, the Judge will issue 
a decision containing findings of fact and conclusions of relevant law, 
reasons for such findings and conclusions, and any relief ordered. The 
contents of the record will constitute the exclusive basis for a 
decision.
    (b) Time limits. Decisions pertaining to the collection of debts 
owed to SBA and the United States under the Debt Collection Act of 1982 
and part 140 of this chapter must be rendered within 60 days after a 
petition is filed. Time limits for decisions in other types of cases, if 
any, are indicated either in the applicable program regulations or in 
other subparts of this part 134.
    (c) Service. OHA will serve a copy of all written decisions on:
    (1) Each party, or, if represented by counsel, on its counsel; and
    (2) SBA's General Counsel, or his or her designee, if SBA is not a 
party.

[61 FR 2683, Jan. 29, 1996, as amended at 67 FR 47249, July 18, 2002]



Sec. 134.227  Finality of decisions.

    (a) Initial decisions. Except as otherwise provided in paragraph (b) 
of this section, a decision by the Judge on the merits is an initial 
decision. However,

[[Page 451]]

unless a request for review is filed pursuant to Sec. 134.228(a), or a 
request for reconsideration is filed pursuant to paragraph (c) of this 
section, an initial decision shall become the final decision of the SBA 
30 days after its service.
    (b) Final decisions. A decision by the Judge on the merits shall be 
a final decision in the following proceedings:
    (1) Collection of debts owed to SBA and the United States under the 
Debt Collection Act of 1982 (5 U.S.C. 5514 and 31 U.S.C. 3302, 3701, 
3711, 3716-3719) and part 140 of this chapter;
    (2) Appeals from SBA 8(a) program determinations under the Act and 
part 124 of this chapter;
    (3) Appeals from size determinations and NAICS code designations 
under part 121 of this chapter; and
    (4) In other proceedings as provided either in the applicable 
program regulations or in other subparts of this part 134.
    (c) Reconsideration. Except as otherwise provided by statute, the 
applicable program regulations in this chapter, or this part 134, an 
initial or final decision of the Judge may be reconsidered. Any party 
may request reconsideration by filing with the Judge and serving a 
petition for reconsideration within 20 days after service of the written 
decision, upon a clear showing of an error of fact or law material to 
the decision. The Judge also may reconsider a decision on his or her own 
initiative.

[67 FR 47249, July 18, 2002]



Sec. 134.228  Review of initial decisions.

    (a) Request for review. Within 30 days after the service of an 
initial decision or a reconsidered initial decision of a Judge, any 
party, or SBA's Office of General Counsel, may file and serve a request 
for review by the Administrator. A request for review must set forth the 
filing party's specific objections to the initial decision, and any 
alleged support for those objections in the record, or in case law, 
statute, regulation, or SBA policy. A party must serve its request for 
review upon all other parties and upon SBA's Office of General Counsel.
    (b) Response. Within 20 days after the service of a request for 
review, any party, or SBA's Office of General Counsel, may file and 
serve a response. A party must serve its response upon all other parties 
and upon SBA's Office of General Counsel.
    (c) Transfer of the record. Upon receipt of all responses, or 30 
days after the filing of a request for review, whichever is earlier, OHA 
will transfer the record of the case to the Administrator. The 
Administrator, or his or her designee, will then review the record.
    (d) Standard of review. Upon review, the Administrator, or his or 
her designee, will sustain the initial decision unless it is based on an 
erroneous finding of fact or an erroneous interpretation or application 
of case law, statute, regulation, or SBA policy.
    (e) Order. The Administrator, or his or her designee, will:
    (1) Affirm, reverse, or modify the initial decision, which 
determination will become the final decision of the SBA upon issuance; 
or
    (2) Remand the initial decision to the Judge for appropriate further 
proceedings.

[61 FR 2683, Jan. 29, 1996, as amended at 67 FR 47249, July 18, 2002]



Sec. 134.229  Termination of jurisdiction.

    Except when the Judge reconsiders a decision or remands the case, 
the jurisdiction of OHA will terminate upon the issuance of a decision 
resolving all material issues of fact and law. If the Judge reconsiders 
a decision, OHA's jurisdiction terminates when the Judge issues the 
decision after reconsideration. If the Judge remands the case, the Judge 
may retain jurisdiction at his or her own discretion, and the remand 
order may include the terms and duration of the remand.

[67 FR 47249, July 18, 2002]



 Subpart C--Rules of Practice for Appeals From Size Determinations and 
                         NAICS Code Designations



Sec. 134.301  Scope of the rules in this subpart C.

    The rules of practice in this subpart C apply to all appeals to OHA 
from:
    (a) Formal size determinations made by an SBA Government Contracting

[[Page 452]]

Area Office, under part 121 of this chapter, or by a Disaster Area 
Office, in connection with applications for disaster loans; and
    (b) NAICS code designations, pursuant to part 121 of this chapter.

[61 FR 2683, Jan. 29, 1996, as amended at 67 FR 47249, July 18, 2002]



Sec. 134.302  Who may appeal.

    Appeals from size determinations and NAICS code designations may be 
filed with OHA by the following, as applicable:
    (a) Any person adversely affected by a size determination;
    (b) Any person adversely affected by a NAICS code designation. 
However, with respect to a particular sole source 8(a) contract, only 
the AA/8(a)BD may appeal a NAICS code designation;
    (c) The Associate or Assistant Administrator for the SBA program 
involved, through SBA's Office of General Counsel; or
    (d) The procuring agency contracting officer responsible for the 
procurement affected by a size determination.

[61 FR 2683, Jan. 29, 1996, as amended at 67 FR 47249, July 18, 2002]



Sec. 134.303  Advisory opinions.

    The Office of Hearings and Appeals does not issue advisory opinions.

[67 FR 47249, July 18, 2002]



Sec. 134.304  Commencement of appeals from size determinations and NAICS code designations.

    (a) Appeals from size determinations and NAICS code designations 
must be commenced by filing and serving an appeal petition as follows:
    (1) If the appeal is from a size determination in a pending 
procurement or pending Government property sale, then the appeal 
petition must be filed and served within 15 days after appellant 
receives the size determination;
    (2) If the appeal is from a size determination other than one in a 
pending procurement or pending Government property sale, then the appeal 
petition must be filed and served within 30 days after appellant 
receives the size determination;
    (3) If the appeal is from a NAICS code designation, then the appeal 
petition must be filed and served within 10 days after the issuance of 
the initial solicitation. If the appeal relates to an amendment 
affecting the NAICS code, then the appeal petition must be filed and 
served within 10 days after the issuance of the amendment.
    (b) An untimely appeal will be dismissed. However, an appeal which 
is untimely under paragraph (a)(1) of this section, with respect to a 
pending procurement or sale, may, if timely under paragraph (a)(2) of 
this section, proceed with respect to future procurements or sales.

[61 FR 2683, Jan. 29, 1996, as amended at 67 FR 47249, July 18, 2002]



Sec. 134.305  The appeal petition.

    (a) Form. There is no required format for an appeal petition. 
However, it must include the following information:
    (1) The Area Office which issued the size determination, or the 
contracting office which designated the NAICS code;
    (2) The solicitation or contract number, and the name, address, and 
telephone number of the contracting officer;
    (3) A full and specific statement as to why the size determination 
or NAICS code designation is alleged to be in error, together with 
argument supporting such allegations; and
    (4) The name, address, telephone number, facsimile number, and 
signature of the appellant or its attorney.
    (b) Service of size determination appeals. The appellant must serve 
the appeal petition upon each of the following:
    (1) The SBA official who issued the size determination;
    (2) The contracting officer responsible for the procurement affected 
by a size determination;
    (3) The business concern whose size status is at issue;
    (4) All persons who filed protests; and
    (5) SBA's Office of Procurement Law.
    (c) Service of NAICS appeals. The appellant must serve the 
contracting officer who made the NAICS code designation.
    (d) Certificate of service. The appellant must attach to the appeal 
petition a

[[Page 453]]

signed certificate of service meeting the requirements of 
Sec. 134.204(d).
    (e) Dismissal. An appeal petition which does not contain all of the 
information required in paragraph (a) of this section may be dismissed, 
with or without prejudice, by the Judge at his or her own initiative, or 
upon motion of a respondent.

61 FR 2683, Jan. 29, 1996, as amended at 65 FR 57542, Sept. 25, 2000; 67 
FR 47251, July 18, 2002]



Sec. 134.306  Transmission of the case file and solicitation.

    (a) Upon receipt of an appeal petition pertaining to a size 
determination, the Area Office which issued the size determination must 
immediately send to OHA the entire case file relating to that 
determination.
    (b) Upon receipt of an appeal petition pertaining to a NAICS code 
designation, or a size determination made in connection with a 
particular procurement, the procuring agency contracting officer must 
immediately send to OHA a paper copy of both the original solicitation 
relating to that procurement and all amendments.

[61 FR 2683, Jan. 29, 1996, as amended at 67 FR 47250, July 18, 2002]



Sec. 134.307  Service and filing requirements.

    The provisions of Sec. 134.204 apply to the service and filing of 
all pleadings and other submissions permitted under this subpart.



Sec. 134.308  Limitation on new evidence and adverse inference from non-submission in appeals from size determinations.

    (a) Evidence not previously presented to the Area Office which 
issued the size determination being appealed will not be considered by a 
Judge unless:
    (1) The Judge, on his or her own initiative, orders the submission 
of such evidence; or
    (2) A motion is filed and served establishing good cause for the 
submission of such evidence. The offered new evidence must be filed and 
served with the motion.
    (b) If the submission of evidence is ordered by a Judge, and the 
party in possession of that evidence does not submit it, the Judge may 
draw adverse inferences against that party.

[61 FR 2683, Jan. 29, 1996, as amended at 67 FR 47250, July 18, 2002]



Sec. 134.309  Response to an appeal petition.

    (a) Who may respond. Any person served with an appeal petition, any 
intervenor, or any person with a general interest in an issue raised by 
the appeal may file and serve a response supporting or opposing the 
appeal. The response should present argument.
    (b) Time limits. The Judge will issue a Notice and Order informing 
the parties of the filing of the appeal petition, establishing the close 
of record as 15 days after service of the Notice and Order, and 
informing the parties that OHA must receive any responses to the appeal 
petition no later than the close of record.
    (c) Service. The respondent must serve its response upon the 
appellant and upon each of the persons identified in the certificate of 
service attached to the appeal petition pursuant to Sec. 134.305.
    (d) Reply to a response. No reply to a response will be permitted 
unless the Judge directs otherwise.

[61 FR 2683, Jan. 29, 1996, as amended at 67 FR 47250, July 18, 2002]



Sec. 134.310  Discovery.

    Discovery will not be permitted in appeals from size determinations 
or NAICS code designations.

[61 FR 2683, Jan. 29, 1996, as amended at 67 FR 47250, July 18, 2002]



Sec. 134.311  Oral hearings.

    Oral hearings will not be held in appeals from NAICS code 
designations, and will be held in appeals from size determinations only 
upon a finding by the Judge of extraordinary circumstances. If such an 
oral hearing is ordered, the proceeding shall be conducted in accordance 
with those rules of subpart B of this part as the Judge deems 
appropriate.

[61 FR 2683, Jan. 29, 1996, as amended at 67 FR 47250, July 18, 2002]

[[Page 454]]



Sec. 134.312  Evidence.

    To the extent the rules in this subpart permit the submission of 
evidence, the provisions of Sec. 134.223 (a) and (b) apply.



Sec. 134.313  Applicability of subpart B provisions.

    Except where inconsistent with this subpart C, the provisions of 
subpart B of this part apply to appeals from size determinations and 
NAICS code designations.

[67 FR 47250, July 18, 2002]



Sec. 134.314  Standard of review.

    The standard of review is whether the size determination or NAICS 
code designation was based on clear error of fact or law.

[61 FR 2683, Jan. 29, 1996, as amended at 67 FR 47250, July 18, 2002]



Sec. 134.315  The record.

    Where relevant, the provisions of Sec. 134.225 (a), (b), and (c) 
apply. In an appeal under this subpart, the contents of the record also 
include the case file or solicitation submitted to OHA in accordance 
with Sec. 134.306.



Sec. 134.316  The decision.

    (a) Contents. Following closure of the record, the Judge will issue 
a decision containing findings of fact and conclusions of law, reasons 
for such findings and conclusions, and any relief ordered.
    (b) Finality. The decision is the final decision of the SBA and 
becomes effective upon issuance. Where a size appeal is dismissed, the 
Area Office size determination remains in effect.
    (c) Service. OHA will serve a copy of all written decisions on:
    (1) Each party, or, if represented by counsel, on its counsel; and
    (2) SBA's General Counsel, or his or her designee, if SBA is not a 
party.
    (d) Reconsideration. The decision in a NAICS code appeal may not be 
reconsidered.

[61 FR 2683, Jan. 29, 1996, as amended at 67 FR 47250, July 18, 2002]



Sec. 134.317  Return of the case file.

    Upon issuance of the decision, OHA will return the case file to the 
transmitting Area Office. The remainder of the record will be retained 
by OHA.

[67 FR 47250, July 18, 2002]



     Subpart D--Rules of Practice for Appeals Under the 8(a) Program

    Source: 63 FR 35766, June 30, 1998, unless otherwise noted.



Sec. 134.401  Scope of the rules in this subpart D.

    The rules of practice in this subpart D apply to all appeals to OHA 
from:
    (a) Denials of 8(a) BD program admission based solely on a negative 
finding(s) of social disadvantage, economic disadvantage, ownership or 
control pursuant to Sec. 124.206 of this title;
    (b) Early graduation pursuant to Secs. 124.302 and 124.304;
    (c) Termination pursuant to Secs. 124.303 and 124.304;
    (d) Denials of requests to issue a waiver pursuant to Sec. 124.515; 
and
    (e) Suspensions pursuant to Sec. 124.305(a).



Sec. 134.402  Appeal petition.

    In addition to the requirements of Sec. 134.203, an appeal petition 
must state, with specific reference to the determination and the record 
supporting such determination, the reasons why the determination is 
alleged to be arbitrary, capricious or contrary to law. This section 
does not apply to suspension appeals. For suspensions, see Sec. 124.305 
of this chapter.

[63 FR 35766, June 30, 1998, as amended at 67 FR 47250, July 18, 2002]



Sec. 134.403  Service of appeal petition.

    (a) Concurrent with its filing with OHA, a concern must also serve 
SBA's AA/8(a)BD and the appropriate Associate General Counsel in SBA's 
Office of General Counsel with a copy of the petition, including 
attachments.
    (1) For appeals relating to denials of program admission pursuant to 
Sec. 124.206 of this title, suspensions of program assistance pursuant 
to Sec. 124.305, or denials of requests for waivers pursuant to 
Sec. 124.515, a petitioner must serve the SBA's Associate General 
Counsel for Procurement Law.

[[Page 455]]

    (2) For appeals relating to early graduation pursuant to 
Secs. 124.302 and 124.304 or termination pursuant to Secs. 124.303 and 
124.304, a petitioner must serve the SBA's Associate General Counsel for 
Litigation.
    (b) Serve the AA/8(a)BD and the applicable Associate General Counsel 
at the Small Business Administration, 409 3rd Street, SW, Washington, DC 
20416.

[63 FR 35766, June 30, 1998, as amended at 65 FR 57542, Sept. 25, 2000; 
67 FR 47250, July 18, 2002]



Sec. 134.404  Decision by Administrative Law Judge.

    Appeal proceedings brought under this subpart will be conducted by 
an Administrative Law Judge.



Sec. 134.405  Jurisdiction.

    (a) The Administrative Law Judge selected to preside over an appeal 
shall decline to accept jurisdiction over any matter if:
    (1) The appeal does not, on its face, allege facts that, if proven 
to be true, would warrant reversal or modification of the determination, 
including appeals of denials of 8(a) BD program admission based in whole 
or in part on grounds other than a negative finding of social 
disadvantage, economic disadvantage, ownership or control;
    (2) The appeal is untimely filed under Sec. 134.202 or is not 
otherwise filed in accordance with the requirements of this subpart or 
the requirements in subparts A and B of this part; or
    (3) The matter has been decided or is the subject of an adjudication 
before a court of competent jurisdiction over such matters.
    (b) Once the Administrative Law Judge accepts jurisdiction over an 
appeal, subsequent initiation of an adjudication of the matter by a 
court of competent jurisdiction will not preclude the Administrative Law 
Judge from rendering a final decision on the matter.
    (c) Jurisdiction of the Administrative Law Judge in a suspension 
case is limited to the issue of whether the protection of the 
Government's interest requires suspension pending resolution of the 
termination action, unless the Administrative Law Judge has consolidated 
the suspension appeal with the corresponding termination appeal.



Sec. 134.406  Review of the administrative record.

    (a) Any proceeding conducted under Sec. 134.401(a) through (d) shall 
be decided solely on a review of the written administrative record, 
except as provided in Sec. 134.407 and in suspension appeals. For 
suspension appeals under Sec. 134.401(e), see Sec. 124.305(d) of this 
chapter.
    (b) Except in suspension appeals, the Administrative Law Judge's 
review is limited to determining whether the Agency's determination is 
arbitrary, capricious, or contrary to law. As long as the Agency's 
determination is reasonable, the Administrative Law Judge must uphold it 
on appeal.
    (c) The administrative record must contain all documents that are 
relevant to the determination on appeal before the Administrative Law 
Judge and upon which the SBA decision-maker, and those SBA officials 
that recommended either for or against the decision, relied. The 
administrative record, however, need not contain all documents 
pertaining to the petitioner. For example, the administrative record in 
a termination proceeding need not include the Participant's entire 
business plan file, documents pertaining to specific 8(a) contracts, or 
the firm's application for participation in the 8(a) BD program if they 
are unrelated to the termination action. The petitioner may object to 
the absence of a document, previously submitted to, or sent by, SBA, 
which the petitioner believes was erroneously omitted from the 
administrative record. In the absence of any objection by the petitioner 
or a finding by the Judge pursuant to paragraph (e) of this section that 
the record is insufficiently complete to decide whether the 
determination was arbitrary, capricious, or contrary to law, the 
administrative record submitted by SBA shall be deemed complete.
    (d) Where the Agency files its response to the appeal petition after 
the date specified in Sec. 134.206, the Administrative Law Judge may 
decline to consider the response and base his or her

[[Page 456]]

decision solely on a review of the administrative record.
    (e) The Administrative Law Judge may remand a case to the AA/8(a)BD 
(or, in the case of a denial of a request for waiver under Sec. 124.515 
of this chapter, to the Administrator) for further consideration if he 
or she determines that, due to the absence in the written administrative 
record of the reasons upon which the determination was based, the 
administrative record is insufficiently complete to decide whether the 
determination is arbitrary, capricious, or contrary to law. In the event 
of such a remand, the Judge will not require the SBA to supplement the 
administrative record other than to supply the reason or reasons for the 
determination and any documents submitted to, or considered by, SBA in 
connection with any reconsideration permitted by regulation that occurs 
during the remand period. After such a remand, in the event the Judge 
finds that the reasons upon which the determination is based are absent 
from any supplemented record, the Judge will find the SBA determination 
to be arbitrary, capricious, or contrary to law. The Administrative Law 
Judge may also remand a case to the AA/8(a)BD (or, in the case of a 
denial of a request for waiver under Sec. 124.515 of this chapter, to 
the Administrator) for further consideration where it is clearly 
apparent from the record that SBA made an erroneous factual finding 
(e.g., SBA double counted an asset of an individual claiming 
disadvantaged status) or a mistake of law (e.g., SBA applied the wrong 
regulatory provision in evaluating the case). A remand under this 
section will be for a reasonable period.

[63 FR 35766, June 30, 1998, as amended at 67 FR 47250, July 18, 2002]



Sec. 134.407  Evidence beyond the record and discovery.

    (a) Except in suspension appeals, the Administrative Law Judge may 
not admit evidence beyond the written administrative record nor permit 
any form of discovery unless he or she first determines that the 
petitioner, upon written submission, has made a substantial showing, 
based on credible evidence and not mere allegation, that the Agency 
determination in question may have resulted from bad faith or improper 
behavior.
    (1) Prior to any such determination, the Administrative Law Judge 
must permit SBA to respond in writing to any allegations of bad faith or 
improper behavior.
    (2) Upon a determination by the Administrative Law Judge that the 
petitioner has made such a substantial showing, the Administrative Law 
Judge may permit appropriate discovery, and accept relevant evidence 
beyond the written administrative record, which is specifically limited 
to the alleged bad faith or improper behavior.
    (b) A determination by the Administrative Law Judge that the 
required showing set forth in paragraph (a) of this section has been 
made does not shift the burden of proof, which continues to rest with 
the petitioner.

[63 FR 35766, June 30, 1998, as amended at 67 FR 47251, July 18, 2002]



Sec. 134.408  Summary decision.

    (a) Generally. In any appeal under this subpart D, either party may 
move or cross-move for summary decision, as provided in Sec. 134.212.
    (b) Summary decision based on fewer than all grounds. If SBA has 
provided multiple grounds for the 8(a) determination being appealed, SBA 
may move for summary decision on one or more grounds.
    (1) Non-suspension cases. Except in suspension appeals, if the Judge 
finds that there is no genuine issue of material fact as to whether SBA 
acted arbitrarily, capriciously, or contrary to law as to any such 
ground or grounds, and that the SBA is entitled to a decision in its 
favor as a matter of law, the Judge will grant the motion for summary 
decision and dismiss the appeal.
    (2) Suspension cases. In suspension appeals, if the Judge finds that 
there is no genuine issue of material fact as to whether adequate 
evidence exists that protection of the Federal Government's interest 
requires suspension, as to any such ground or grounds for the proposed 
suspension, the SBA is entitled to a decision in its favor as a matter 
of

[[Page 457]]

law, and the Judge will grant the motion for summary decision and 
dismiss the appeal.

[67 FR 47251, July 18, 2002]



Sec. 134.409  Decision on appeal.

    (a) A decision of the Administrative Law Judge under this subpart is 
the final agency decision, and is binding on the parties.
    (b) The Administrative Law Judge shall issue a decision, insofar as 
practicable, within 90 days after an appeal petition is filed.
    (c) The Administrative Law Judge may reconsider an appeal decision 
within 20 days of the decision if there is a clear showing of an error 
of fact or law material to the decision.

[63 FR 35766, June 30, 1998. Redesignated and amended at 67 FR 47251, 
July 18, 2002]



      Subpart E--Implementation of the Equal Access to Justice Act

    Source: 61 FR 2683, Jan. 29, 1996. Redesignated at 63 FR 35766, June 
30, 1998.



Sec. 134.501  What is the purpose of this subpart?

    The Equal Access to Justice Act, 5 U.S.C. 504, establishes 
procedures by which prevailing parties in certain administrative 
proceedings may apply for reimbursement of fees and other expenses. 
Eligible parties may receive awards when they prevail over SBA, unless 
SBA's position in the proceeding was ``substantially justified'' or, as 
provided in Sec. 134.405(b), special circumstances make an award unjust. 
The rules of this subpart explain which OHA proceedings are covered, who 
may be eligible for an award of fees and expenses, and how to apply for 
such an award.



Sec. 134.502  Under what circumstances may I apply for reimbursement?

    You may apply for reimbursement under this subpart if you meet the 
eligibility requirements in Sec. 134.406 and you prevail over SBA in a 
final decision in:
    (a) The type of administrative proceeding which qualifies as an 
``adversary adjudication'' under Sec. 134.403; or
    (b) An ancillary or subsidiary issue in that administrative 
proceeding that is sufficiently significant and discrete to merit 
treatment as a separate unit; or
    (c) A matter which the agency orders to be determined as an 
``adversary adjudication'' under 5 U.S.C. 554.



Sec. 134.503  What is an adversary adjudication?

    For purposes of this subpart, adversary adjudications are 
administrative proceedings before OHA which involve SBA as a party and 
which are required to be conducted by an Administrative Law Judge 
(``ALJ''). These adjudications (``administrative proceedings'') include 
those proceedings listed in Sec. 134.102 (a), (i), and (j)(1), but do 
not include other OHA proceedings such as those listed in 
Sec. 134.102(k). In order for an administrative proceeding to qualify, 
SBA must have been represented by counsel or by another representative 
who enters an appearance and participates in the proceeding.



Sec. 134.504  What benefits may I claim?

    You may seek reimbursement for certain reasonable fees and expenses 
incurred in prosecuting or defending a claim in an administrative 
proceeding.



Sec. 134.505  Under what circumstances are fees and expenses reimbursable?

    (a) If you are a prevailing eligible party, you may receive an award 
for reasonable fees and expenses unless the position of the agency in 
the proceeding is found by the ALJ to be ``substantially justified'', or 
special circumstances exist which make an award unjust. The ``position 
of the agency'' includes not only the position taken by SBA in the 
administrative proceeding, but also the position which it took in the 
action which led to the administrative proceeding. No presumption arises 
that SBA's position was not substantially justified simply because it 
did not prevail in a proceeding. However, upon your assertion that the 
position of SBA was not substantially justified, SBA will be required to 
establish that its position was reasonable in fact and law.
    (b) The ALJ may reduce or deny an award for reimbursement if you 
have

[[Page 458]]

unreasonably protracted the administrative proceeding or if other 
special circumstances would make the award unjust.
    (c) Awards for fees and expenses incurred before the date on which 
an administrative proceeding was initiated are allowable only if you can 
demonstrate that they were reasonably incurred in preparation for the 
proceeding.



Sec. 134.506  Who is eligible for possible reimbursement?

    (a) You are eligible for possible reimbursement if:
    (1) You are an individual, owner of an unincorporated business, 
partnership, corporation, association, organization, or unit of local 
government; and
    (2) You are a party, as defined in 5 U.S.C. 551(3); and
    (3) You are the prevailing party; and
    (4) You meet certain net worth and employee eligibility requirements 
set forth in Sec. 134.407.
    (b) You are not eligible for possible reimbursement if you 
participated in the administrative proceeding only on behalf of persons 
or entities that are ineligible.



Sec. 134.507  How do I know which eligibility requirement applies to me?

    Follow this chart to determine your eligibility. You should 
calculate your net worth and the number of your employees as of the date 
the administrative proceeding was initiated.

------------------------------------------------------------------------
If your participation in the proceeding
                  was:                      Eligibility requirements:
------------------------------------------------------------------------
(1) As an individual rather than a       (1) Personal net worth may not
 business owner.                          exceed 2 million dollars.
(2) As owner of an unincorporated        (2) Personal net worth may not
 business.                                exceed 7 million dollars, and
                                         No more than 500 employees.
(3) As a partnership, corporation,       (3) Business net worth may not
 association, organization, or unit of    exceed 7 million dollars, and
 local government.                       No more than 500 employees.
(4) As a charitable or other tax-exempt  (4) No net worth limitations,
 organization described in 26 U.S.C.      and
 501(c)(3) or a cooperative association  No more than 500 employees.
 as defined in 12 U.S.C. 1141j(a).
------------------------------------------------------------------------



Sec. 134.508  What are the special rules for calculating net worth and number of employees?

    (a) Your net worth must include the value of any assets disposed of 
for the purpose of meeting an eligibility standard, and must exclude any 
obligation incurred for that purpose. Transfers of assets, or 
obligations incurred, for less than reasonably equivalent value will be 
presumed to have been made for the purpose of meeting an eligibility 
standard.
    (b) If you are an owner of an unincorporated business, or a 
partnership, corporation, association, organization, or unit of local 
government, your net worth must include the net worth of all of your 
affiliates. ``Affiliates'' are:
    (1) Corporations or other business entities which directly or 
indirectly own or control a majority of the voting shares or other 
ownership interests in the applicant concern; and
    (2) Corporations or other business entities in which the applicant 
concern directly or indirectly owns or controls a majority of the voting 
shares or other ownership interests.
    (c) Your employees include all those persons regularly working for 
you at the time the administrative proceeding was initiated, whether or 
not they were at work on that date. Part-time employees must be included 
on a proportional basis. You must include the employees of all your 
affiliates in your total number of employees.



Sec. 134.509  What is the difference between a fee and an expense?

    A fee is a charge to you for the professional services of attorneys, 
agents, or expert witnesses rendered in connection with your case. An 
expense is the cost to you of any study, analysis, engineering report, 
test, project, or similar matter prepared in connection with your case.



Sec. 134.510  Are there limitations on reimbursement for fees and expenses?

    (a) Awards will be calculated on the basis of fees and expenses 
actually incurred. If services were provided by one

[[Page 459]]

or more of your employees, or were made available to you free, you may 
not seek an award for those services. If services were provided at a 
reduced rate, fees and expenses will be calculated at that reduced rate.
    (b) In determining the reasonableness of the fees for attorneys, 
agents or expert witnesses, the ALJ will consider at least the 
following:
    (1) That provider's customary fee for like services;
    (2) The prevailing rate for similar services in the community in 
which that provider ordinarily performs services;
    (3) The time actually spent in representing you; and
    (4) The time reasonably spent in light of the difficulty and 
complexity of the issues.
    (c) An award for the fees of an attorney or agent may not exceed $75 
per hour, and an award for the fees of an expert witness may not exceed 
$25 per hour, regardless of the rate charged.
    (d) An award for the reasonable cost of any study, analysis, 
engineering report, test, project or similar matter prepared on your 
behalf may not exceed the prevailing rate payable for similar services, 
and you may be reimbursed only if the study or other matter was 
necessary to the preparation of your case.



Sec. 134.511  What should I include in my application for an award?

    (a) Your application must be in the form of a written petition which 
is served and filed in accordance with Sec. 134.204. It must contain the 
following information:
    (1) A statement that OHA has jurisdiction over the case pursuant to 
Sec. 134.102(g);
    (2) Identification of the administrative proceeding for which you 
are seeking an award;
    (3) A statement that you have prevailed, and a list of each issue in 
which you claim the position of SBA was not substantially justified;
    (4) Your status as an individual, owner of an unincorporated 
business, partnership, corporation, association, organization, or unit 
of local government;
    (5) Your net worth and number of employees as of the date the 
administrative proceeding was initiated, or a statement that one or both 
of these eligibility requirements do not apply to you;
    (6) The amount of fees and expenses you are seeking, along with the 
invoice or billing statement from each service provider;
    (7) A description of any affiliates (as that term is defined in 
Sec. 134.408), or a statement that no affiliates exist;
    (8) A statement that the application and any attached statements and 
exhibits are true and complete to the best of your knowledge and that 
you understand a false statement on these documents is a felony 
punishable by fine and imprisonment under 18 U.S.C. 1001; and
    (9)(i) Your name and address;
    (ii) Your signature, or the signature of either a responsible 
official or your attorney; and
    (iii) The address and telephone number of the person who signs the 
application.
    (b) You should follow this chart to determine which further 
documents must be included with your application:

------------------------------------------------------------------------
                 Party                          Required documents
------------------------------------------------------------------------
(1) Individual, owner of unincorporated  (1) Net worth exhibit.
 business, partnership, corporation,
 association, organization, or unit of
 local government.
(2) Organization qualified as tax-       (2) Copy of a ruling by the
 exempt under 26 U.S.C. 501(c)(3).        Internal Revenue Service that
                                          you qualify as a 501(c)(3)
                                          organization or
                                         Statement that you were listed
                                          in the current edition of IRS
                                          Bulletin 78 as of the date the
                                          administrative proceeding was
                                          initiated.
(3) Tax-exempt religious organization    (3) Description of your
 not required to obtain a ruling from     organization and the basis for
 the Internal Revenue Service on its      your belief you are exempt.
 exempt status.
(4) Cooperative association as defined   (4) Copy of your charter or
 in 12 U.S.C. 1141j(a).                   articles of incorporation, and
                                         Copy of your bylaws.
------------------------------------------------------------------------


[[Page 460]]



Sec. 134.512  What must a net worth exhibit contain?

    (a) A net worth exhibit may be in any format, but it must contain:
    (1) List of all assets and liabilities for you and each affiliate in 
detail sufficient to show your eligibility;
    (2) Aggregate net worth for you and all affiliates; and
    (3) Description of any transfers of assets from, or obligations 
incurred by, you or your affiliates within one year prior to the 
initiation of the administrative proceeding which reduced your net worth 
below the eligibility ceiling, or a statement that no such transfers 
occurred.
    (b) The net worth exhibit must be filed with your application, but 
will not be part of the public record of the proceeding. Further, in 
accordance with the provisions of Sec. 134.204(g), you need not serve 
your net worth exhibit on other parties.



Sec. 134.513  What documentation do I need for fees and expenses?

    You must submit a separate itemized statement or invoice for the 
services of each provider for which you seek reimbursement. Each 
separate statement or invoice must contain:
    (a) The hours worked in connection with the proceeding by each 
provider supplying a billable service;
    (b) A description of the specific services performed by each 
provider;
    (c) The rate at which fees were computed for each provider;
    (d) The total charged by the provider on that statement or invoice; 
and
    (e) The provider's verification that the statement or invoice is 
true to the best of his or her knowledge and that he or she understands 
that a false statement is punishable by fine and imprisonment under 18 
U.S.C. 1001.



Sec. 134.514  What deadlines apply to my application for an award and where do I send it?

    After you have prevailed in an administrative proceeding or in a 
discrete issue therein, you must serve, and file with OHA, your written 
application for an award, and its attachments, no later than 30 days 
after the decision in the administrative proceeding becomes final under 
Sec. 134.227. The deadline for filing an application for an award may 
not be extended. If SBA or another party requests review of the decision 
in the underlying administrative proceeding, your request for an award 
for fees and expenses may still be filed, but it will not be considered 
by the ALJ until a final decision is rendered.



Sec. 134.515  How will proceedings relating to my application for fees and expenses be conducted?

    Proceedings will be conducted in accordance with the provisions in 
subpart B of this part.



Sec. 134.516  How will I know if I receive an award?

    The ALJ will issue an initial decision on the merits of your request 
for an award which will become final in 30 days unless a request for 
review is filed under Sec. 134.228. The decision will include findings 
on your eligibility, on whether SBA's position was substantially 
justified, and on the reasonableness of the amount you requested. Where 
applicable, there will also be findings on whether you have unduly 
protracted the proceedings or whether other circumstances make an award 
unjust, and an explanation of the reason for the difference, if any, 
between the amount requested and the amount awarded. If you have sought 
an award against more than one federal agency, the decision will 
allocate responsibility for payment among the agencies with appropriate 
explanation.



Sec. 134.517  May I seek review of the ALJ's decision on my award?

    You may request review of the ALJ's decision on your award by filing 
a request for review in accordance with Sec. 134.228. You may seek 
judicial review of a final decision as provided in 5 U.S.C. 504(c)(2).



Sec. 134.518  How are awards paid?

    If you are seeking payment of an award, you must submit a copy of 
the final decision, along with your certification that you are not 
seeking judicial review of either the decision in the adversary 
adjudication, or of the award, to the following address: Chief Financial 
Officer, Office of Financial

[[Page 461]]

Operations, SBA, P.O. Box 205, Denver, CO 80201-0205. SBA will pay you 
the amount awarded within 60 days of receipt of your request unless it 
is notified that you or another party has sought judicial review of the 
underlying decision or the award.



PART 136--ENFORCEMENT OF NONDISCRIMINATION ON THE BASIS OF HANDICAP IN PROGRAMS OR ACTIVITIES CONDUCTED BY THE SMALL BUSINESS ADMINISTRATION--Table of Contents




Sec.
136.101  Purpose.
136.102  Application.
136.103  Definitions.
136.104-136.109  [Reserved]
136.110  Self-evaluation.
136.111  Notice.
136.112-136.129  [Reserved]
136.130  General prohibition against discrimination.
136.131-136.139  [Reserved]
136.140  Employment.
136.141-136.148  [Reserved]
136.149  Program accessibility: Discrimination prohibited.
136.150  Program accessibility: Existing facilities.
136.151  Program accessibility: New construction and alterations.
136.152-136.159  [Reserved]
136.160  Communications.
136.161-136.169  [Reserved]
136.170  Compliance procedures.

    Authority: 29 U.S.C. 794.

    Source: 53 FR 19760, May 31, 1988, unless otherwise noted.



Sec. 136.101  Purpose.

    The purpose of this part is to effectuate section 119 of the 
Rehabilitation, Comprehensive Services, and Developmental Disabilities 
Amendments of 1978, which amended section 504 of the Rehabilitation Act 
of 1973 to prohibit discrimination on the basis of handicap in programs 
or activities conducted by Executive agencies or the United States 
Postal Service.



Sec. 136.102  Application.

    This part applies to all programs or activities conducted by the 
Small Business Administration except for programs or activities 
conducted outside the United States that do not involve individuals with 
handicaps in the United States.



Sec. 136.103  Definitions.

    For purposes of this part, the term--
    Agency means the Small Business Administration.
    Assistant Attorney General. Assistant Attorney General means the 
Assistant Attorney General, Civil Rights Division, United States 
Department of Justice.
    Auxiliary aids means services or devices that enable persons with 
impaired sensory, manual, or speaking skills to have an equal 
opportunity to participate in, and enjoy the benefits of, programs or 
activities conducted by the Agency. For example, auxiliary aids useful 
for persons with impaired vision include readers, Brailled materials, 
audio recordings, and other similar services and devices. Auxiliary aids 
useful for persons with impaired hearing include telephone handset 
amplifiers, telephones compatible with hearing aids, telecommunication 
devices for deaf persons (TDD's), interpreters, notetakers, written 
materials, and other similar services and devices.
    Complete complaint means a written statement that contains the 
complainant's name and address and describes the Agency's alleged 
discriminatory actions in sufficient detail to inform the Agency of the 
nature and date of the alleged violation of section 504. It shall be 
signed by the complainant or by someone authorized to do so on his or 
her behalf. Complaints filed on behalf of classes or third parties shall 
describe or identify (by name, if possible) the alleged victims of 
discrimination.
    Facility means all or any portion of buildings, structures, 
equipment, roads, walks, parking lots, rolling stock or other 
conveyances, or other real or personal property.
    Individual with handicaps means any person who has a physical or 
mental impairment that substantially limits one or more major life 
activities, has a record of such an impairment, or is regarded as having 
such an impairment. As used in this definition, the phrase:
    (1) Physical or mental impairment includes--

[[Page 462]]

    (i) Any physiological disorder or condition, cosmetic disfigurement, 
or anatomical loss affecting one or more of the following body systems: 
Neurological; musculoskeletal; special sense organs; respiratory, 
including speech organs; cardiovascular; reproductive; digestive; 
genitourinary; hemic and lymphatic; skin; and endocrine; or
    (ii) Any mental or psychological disorder, such as mental 
retardation, organic brain syndrome, emotional or mental illness, and 
specific learning disabilities. The term physical or mental impairment 
includes, but is not limited to, such diseases and conditions as 
orthopedic, visual, speech, and hearing impairments, cerebral palsy, 
epilepsy, muscular dystrophy, multiple sclerosis, cancer, heart disease, 
diabetes, mental retardation, emotional illness, and drug addiction and 
alcoholism.
    (2) Major life activities includes functions such as caring for 
one's self, performing manual tasks, walking, seeing, hearing, speaking, 
breathing, learning, and working.
    (3) Has a record of such an impairment means has a history of, or 
has been misclassified as having, a mental or physical impairment that 
substantially limits one or more major life activities.
    (4) Is regarded as having an impairment means--
    (i) Has a physical or mental impairment that does not substantially 
limit major life activities but is treated by the Agency as constituting 
such a limitation;
    (ii) Has a physical or mental impairment that substantially limits 
major life activities only as a result of the attitudes of others toward 
such impairment; or
    (iii) Has none of the impairments defined in paragraph (1) of this 
definition but is treated by the Agency as having such an impairment.
    Qualified individual with handicaps means--
    (1) With respect to any Agency program or activity under which a 
person is required to perform services or to achieve a level of 
accomplishment, an individual with handicaps who meets the essential 
eligibility requirements and who can achieve the purpose of the program 
or activity without modifications in the program or activity that the 
Agency can demonstrate would result in a fundamental alteration in its 
nature;
    (2) With respect to any other program or activity, an individual 
with handicaps who meets the essential eligibility requirements for 
participation in, or receipt of benefits from, that program or activity; 
and
    (3) For purposes of employment, a person who qualifies under the 
definition contained at 29 CFR 1613.702(f), which is made applicable to 
this part by Sec. 136.140.
    Respondent means the organizational unit in which a complainant 
alleges that discrimination occurred.
    Section 504 means section 504 of the Rehabilitation Act of 1973 
((Pub. L. 93-112, 87 Stat. 394) (29 U.S.C. 794)), as amended by the 
Rehabilitation Act Amendments of 1974 (Pub. L. 93-516, 88 Stat. 1617), 
and the Rehabilitation, Comprehensive Services, and Developmental 
Disabilities Amendments of 1978 (Pub. L. 95-602, 92 Stat. 2955) and the 
Rehabilitation Act Amendments of 1986 (Pub. L. 99-506, 100 Stat. 1810). 
As used in this part, section 504 applies only to programs or activities 
conducted by SBA and not to activities of recipients of assistance from 
SBA.



Secs. 136.104-136.109  [Reserved]



Sec. 136.110  Self-evaluation.

    (a) The Agency shall, by July 17, 1989, evaluate its current 
policies and practices, and the effects thereof, that do not or may not 
meet the requirements of this part, and, to the extent modification of 
any such policies and practices is required, the Agency shall proceed to 
make the necessary modifications.
    (b) The Agency shall provide an opportunity to interested persons, 
including individuals with handicaps or organizations representing 
individuals with handicaps, to participate in the self-evaluation 
process by submitting comments (both oral and written).
    (c) The Agency shall, for at least three years following the self-
evaluation, maintain on file and make available for public inspection:
    (1) A description of areas examined and any problems identified; and

[[Page 463]]

    (2) A description of any modifications made.



Sec. 136.111  Notice.

    The Agency shall make available to employees, applicants, 
participants, beneficiaries, and other interested persons such 
information regarding the provisions of this part and its applicability 
to the programs or activities conducted by the Agency, and make such 
information available to them in such manner as the Administrator finds 
necessary to apprise such persons of the protections against 
discrimination assured them by section 504 and this part.



Secs. 136.112-136.129  [Reserved]



Sec. 136.130  General prohibition against discrimination.

    (a) No qualified individual with handicaps shall, on the basis of 
handicap, be excluded from participation in, be denied the benefits of, 
or otherwise be subjected to discrimination under any program or 
activity conducted by the Agency.
    (b) The Agency, in providing any aid, benefit, or service, may not, 
directly or through contractual, licensing, or other arrangements, on 
the basis of handicap:
    (1) Deny a qualified individual with handicaps the opportunity to 
participate in or benefit from the aid, benefit, or service;
    (2) Afford a qualified individual with handicaps an opportunity to 
participate in or benefit from the aid, benefit, or service that is not 
equal to that afforded others;
    (3) Provide a qualified individual with handicaps with an aid, 
benefit, or service that is not as effective in affording equal 
opportunity to obtain the same result, to gain the same benefit, or to 
reach the same level of achievement as that provided to others;
    (4) Provide different or separate aid, benefits, or services to 
individuals with handicaps or to any class of individuals with handicaps 
than is provided to others unless such action is necessary to provide 
qualified individuals with handicaps with aid, benefits, or services 
that are as effective as those provided to others;
    (5) Deny a qualified individual with handicaps the opportunity to 
participate as a member of planning, voluntary (such as SCORE or Ace) or 
advisory boards; or
    (6) Otherwise limit a qualified individual with handicaps in the 
enjoyment of any right, privilege, advantage, or opportunity enjoyed by 
others receiving the aid, benefit, or service.
    (c) The Agency shall permit a qualified individual with handicaps 
the opportunity to participate in any of the Agency's programs or 
activities, despite the existence of permissibly separate or different 
programs or activities especially designed to accommodate qualified 
individuals with handicaps.
    (d) The Agency may not, directly or through contractual or other 
arrangements, utilize criteria or methods of administration the purpose 
of effect of which would--
    (1) Subject qualified individuals with handicaps to discrimination 
on the basis of handicap; or
    (2) Defeat or substantially impair accomplishment of the objectives 
of a program or activity with respect to individuals with handicaps.
    (e) The Agency may not, in determining the site or location of a 
facility, make selections the purpose or effect of which would:
    (1) Exclude individuals with handicaps from, deny them the benefits 
of, or otherwise subject them to discrimination under any program or 
activity conducted by the Agency; or
    (2) Defeat or substantially impair the accomplishment of the 
objectives of a program or activity with respect to individuals with 
handicaps.
    (f) The Agency, in the selection of procurement contactors, may not 
use criteria that subject qualified individuals with handicaps to 
discrimination on the basis of handicap.
    (g) The Agency may not administer a licensing or certification 
program in a manner that subjects qualified individuals with handicaps 
to discrimination on the basis of handicap, nor may the Agency establish 
requirements for the programs or activities of licensees or certified 
entities that subject qualified

[[Page 464]]

individuals with handicaps to discrimination on the basis of handicap. 
However, the programs or activities of entities that are licensed or 
certified by the Agency are not, themselves, covered by this part.
    (h) The exclusion of individuals without handicaps from the benefits 
of a program limited by Federal statute or Executive Order to 
individuals with handicaps or the exclusion of a specific class of 
individuals with handicaps from a program limited by Federal statute or 
Executive Order to a different class of individuals with handicaps is 
not prohibited by this part.
    (i) The Agency shall administer programs and activities in the most 
integrated setting appropriate to the needs of qualified individuals 
with handicaps.



Secs. 136.131-136.139  [Reserved]



Sec. 136.140  Employment.

    (a) No qualified individual with handicaps shall, on the basis of 
handicap, be subjected to discrimination in employment under any 
program, or activity conducted by the Agency.
    (b) The definitions, requirements and procedures of section 501 of 
the Rehabilitation Act of 1973 (29 U.S.C. 791) as established by the 
EEOC in 29 CFR part 1613, shall apply to employment in federally 
conducted programs or activities.



Secs. 136.141-136.148  [Reserved]



Sec. 136.149  Program accessibility: Discrimination prohibited.

    Except as otherwise provided in Sec. 136.150, no qualified 
individual with handicaps shall, because the Agency's facilities are 
inaccessible to or unusable by individuals with handicaps, be denied the 
benefits of, be excluded from participation in, or otherwise be 
subjected to discrimination under any program or activity conducted by 
the Agency.



Sec. 136.150  Program accessibility: Existing facilities.

    (a) General. The Agency shall operate each program or activity so 
that the program or activity, when viewed in its entirety, is readily 
accessible to and usable by individuals with handicaps. This paragraph 
does not--
    (1) Necessarily require the Agency to make each of its existing 
facilities accessible to and usable by individuals with handicaps; or
    (2) Require the Agency to take any action that it can demonstrate 
would result in a fundamental alteration in the nature of a program or 
activity or in undue financial and administrative burdens. In those 
circumstances where Agency personnel believe that the proposed action 
would fundamentally alter the program or activity or would result in 
undue financial and administrative burdens, the Agency has the burden of 
proving that compliance with Sec. 136.150(a) would result in such 
alteration or burdens. The decision that compliance would result in such 
alteration or burdens must be made by the Administrator or Deputy 
Administrator after considering all Agency resources available for use 
in the funding and operation of the conducted program or activity and 
must be accompanied by a written statement of the reasons for reaching 
that conclusion. The Administrator or Deputy Administrator's decision 
shall be made within 30 days of the initial decision by Agency personnel 
that an action would result in such an alteration or burdens. If an 
action would result in such an alteration or such burdens, the Agency 
shall take any other action that would not result in such an alteration 
or such burdens but would, nevertheless, ensure that individuals with 
handicaps receive the benefits and services of the program or activity.
    (b) Methods. The Agency may comply with the requirements of this 
section through such means as redesign of equipment, reassignment of 
services to accessible buildings, assignment of aids to beneficiaries, 
home visits, delivery of services at alternate accessible sites, 
alteration of existing facilities and construction of new facilities, 
use of accessible rolling stock, or any other methods that result in 
making its programs or activities readily accessible to and usable by 
individuals with handicaps. The Agency is not required to make 
structural changes in existing facilities where other methods are 
effective in achieving compliance with this section. The Agency, in 
making alterations to existing buildings, shall

[[Page 465]]

meet accessibility requirements to the extent compelled by the 
Architectural Barriers Act of 1968, as amended (42 U.S.C. 4151-4157), 
and any regulations implementing it. In choosing among available methods 
for meeting the requirements of this section, the Agency shall give 
priority to those methods that offer programs and activities to 
qualified individuals with handicaps in the most integrated setting 
appropriate.
    (c) Time period for compliance. The Agency shall comply with the 
obligations established under this section by September 13, 1988, except 
that where structural changes in facilities are undertaken, such changes 
shall be made by July 15, 1991, but in any event as expeditiously as 
possible.
    (d) Transition plan. In the event that structural changes to 
facilities will be undertaken to achieve program accessibility, the 
Agency shall develop, by January 16, 1989, a transition plan setting 
forth the steps necessary to complete such changes. The Agency shall 
provide an opportunity to interested persons, including individuals with 
handicaps or organizations representing individuals with handicaps, to 
participate in the development of the transition plan by submitting 
comments (both oral and written). A copy of the transition plan shall be 
made available for public inspection. The plan shall, at a minimum:
    (1) Identify physical obstacles in the Agency's facilities that 
limit the accessibility of its programs or activities to individuals 
with handicaps;
    (2) Describe in detail the methods that will be used to make the 
facilities accessible;
    (3) Specify the schedule for taking the steps necessary to achieve 
compliance with this section and, if the time period of the transition 
plan is longer than one year, identify steps that will be taken during 
each year of the transition period; and
    (4) Indicate the official responsible for implementation of the 
plan.



Sec. 136.151  Program accessibility: New construction and alterations.

    Each building or part of a building that is constructed or altered 
by, on behalf if, or for the use of the Agency shall be designed, 
constructed, or altered so as to be readily accessible to and usable by 
individuals with handicaps. The definitions, requirements, and standards 
of the Architectural Barriers Act (42 U.S.C. 4151-4157), as established 
in 41 CFR 101-19.600--101-19.607, apply to buildings covered by this 
section.



Secs. 136.152-136.159  [Reserved]



Sec. 136.160  Communications.

    (a) The Agency shall take appropriate steps to ensure effective 
communication with applicants, participants, personnel of other Federal 
entities, and members of the public.
    (1) The Agency shall furnish appropriate auxiliary aids where 
necessary to afford an individual with handicaps an equal opportunity to 
participate in, and enjoy the benefits of, a program or activity 
conducted by the Agency.
    (i) In determining what type of auxiliary aid is necessary, the 
Agency shall give primary consideration to the requests of the 
individual with handicaps.
    (ii) The Agency need not provide individually prescribed devices, 
readers for personal use or study, or other devices of a personal 
nature.
    (2) Where the Agency communicates with applicants and beneficiaries 
by telephone, telecommunication devices for deaf persons (TDD's) or 
equally effective telecommunication systems shall be used.
    (b) The Agency shall ensure that interested persons, including 
persons with impaired vision or hearing, can obtain information as to 
the existence and location of accessible services, activities, and 
facilities.
    (c) The Agency shall provide a sign at each primary entrance to each 
of its inaccessible facilities, directing users to a location at which 
they can obtain information about accessible facilities. The 
international symbol for accessibility shall be used at each primary 
entrance of an accessible facility.
    (d) This section does not require the Agency to take any action that 
it can demonstrate would result in a fundamental alteration in the 
nature of a program or activity or in undue financial and administrative 
burdens. In

[[Page 466]]

those circumstances where Agency personnel believe that the proposed 
action would fundamentally alter the program or activity or would result 
in undue financial and administrative burdens, the Agency has the burden 
of proving that compliance with Sec. 136.160 would result in such 
alteration or burdens. The decision that compliance would result in such 
alteration or burdens must be made by the Administrator or Deputy 
Administrator after considering all Agency resources available for use 
in the funding and operation of the conducted program or activity and 
must be accompanied by a written statement of the reasons for reaching 
that conclusion. The Administrator or Deputy Administrator's decision 
shall be made within 30 days of the initial decision by Agency personnel 
that an action would result in such an alteration or burdens. If an 
action required to comply with this section would result in such as 
alteration or such burdens, the Agency shall take any other action that 
would not result in such an alteration or such burdens but would 
nevertheless ensure that, to the maximum extent possible, individuals 
with handicaps receive the benefits and services of the program or 
activity.



Secs. 136.161-136.169  [Reserved]



Sec. 136.170  Compliance procedures.

    (a) Applicability. Except as provided in paragraph (b) of this 
section, this section applies to all allegations of discrimination on 
the basis of handicap in programs or activities conducted by the Agency.
    (b) Employment complaints. The Agency shall process complaints 
alleging violations of section 504 with respect to employment according 
to the procedures established by EEOC in 29 CFR part 1613 pursuant to 
section 501 of the Rehabilitation Act of 1973 (29 U.S.C. 791).
    (c) Filing a complaint--(1) Who may file. Any person who believes 
that he or she has been subjected to discrimination prohibited by this 
part may file a complaint. An authorized representative of such person 
may file a complaint on his or her behalf. Any person who believes that 
any specific class of persons has been subjected to discrimination 
prohibited by this part and who is a member of that class, or the 
authorized representative of a member of that class, may file a 
complaint.
    (2) Confidentiality. The Chief, Office of Civil Rights Compliance 
(OCRC), shall hold in confidence the identity of any person submitting a 
complaint, unless the person submits written authorization otherwise, 
except to the extent necessary to carry out the purposes of this part, 
including the conduct of any investigation, hearing, or proceeding under 
this part, or to cooperate with the Office of Inspector General in the 
performance of its responsibilities under the Inspector General Act of 
1978, as amended.
    (3) When to file. Complaints shall be filed within 180 days of the 
alleged act of discrimination, except when this deadline is extended by 
the Chief, OCRC, for good cause shown. For purposes of determining when 
a complaint is timely filed under this paragraph, a complaint mailed to 
the Agency shall be deemed filed on the date it is postmarked. Any other 
complaint shall be deemed filed on the date it is received by the 
Agency.
    (4) How to file. Complaints may be delivered or mailed to the Chief, 
OCRC, Small Business Administration, 1441 L Street NW.--Room 501, 
Washington, DC 20416. Any other SBA official receiving a complaint under 
this part shall forward such complaint immediately to the Chief, OCRC.
    (d) Notification to the Architectural and Transportation Barriers 
Compliance Board. The agency shall promptly send to the Architectural 
and Transportation Barriers Compliance Board a copy of any complaint 
alleging that a building or facility that is subject to the 
Architectural Barriers Act of 1968, as amended, 42 U.S.C. 4151-4157 is 
not readily accessible to and usable by individuals with handicaps.
    (e) Acceptance of complaint. (1) The Chief, OCRC, shall accept a 
complete complaint that is filed in accordance with paragraph (c) of 
this section and over which the Agency has jurisdiction. The Chief, 
OCRC, shall notify the complainant and the respondent of receipt and 
acceptance of the complaint.
    (2) If the Chief, OCRC, receives a complaint that is not complete, 
he or

[[Page 467]]

she shall notify the complainant, within 30 days of receipt of the 
incomplete complaint, that additional information is needed. If the 
complainant fails to furnish the necessary information within 30 days of 
receipt of this notice, the Chief, OCRC, shall dismiss the complaint 
without prejudice.
    (3) If the Chief, OCRC, receives a complaint over which the Agency 
does not have jurisdiction, he or she shall promptly notify the 
complainant and shall make reasonable efforts to refer the complaint to 
the appropriate Government entity.
    (f) Investigation/Conciliation. (1) Within 180 days of the receipt 
of a complete complaint the Chief, OCRC, shall complete the 
investigation of the complaint and attempt informal resolution. If no 
informal resolution is achieved, the Chief, OCRC, shall issue a letter 
of findings.
    (2) The Chief, OCRC, may require Agency employees to cooperate in 
the investigation and attempted resolution of complaints. Employees who 
are required to participate in any investigation under this section 
shall do so as part of their official duties and during regular duty 
hours.
    (3) The Chief, OCRC, shall furnish the complainant and the 
respondent with a copy of the investigative report and provide the 
complainant and respondent with an opportunity for informal resolution 
of the complaint.
    (4) If a complaint is resolved informally, the terms of the 
agreement shall be reduced to writing and made part of the complaint 
file, with a copy of the agreement provided to the complainant and 
respondent. The written agreement may include a finding on the issue of 
discrimination and shall describe any corrective action to which the 
complainant and respondent have agreed.
    (g) Letter of findings. If an informal resolution of the complaint 
is not reached, the Chief, OCRC, shall, within 180 days of receipt of 
the complete complaint, notify the complainant, the respondent and the 
Director, Office of Equal Employment Opportunity and Compliance (OEEOC), 
of the results of the investigation in a letter sent by certified mail, 
return receipt requested, and containing--
    (1) Findings of fact and conclusions of law;
    (2) A description of a remedy for each violation found;
    (3) A notice of the right of the complainant and respondent to 
appeal to the Director, OEEOC; and
    (4) A notice of the right of the complainant and respondent to 
request a hearing.
    The letter of findings becomes the final Agency decision if neither 
party files an appeal within the time prescribed in paragraph (h)(1) of 
this section. The Chief, OCRC, shall certify that the letter of findings 
is the final Agency decision on the complaint at the expiration of that 
time.
    (h) Filing an appeal. (1) Any notice of appeal to the Director, 
OEEOC, with or without a request for hearing, shall be filed by the 
complainant or the respondent in writing with the Chief, OCRC, within 30 
days of receipt from him or her of the letter required by paragraph (g) 
of this section. The notice shall be accompanied by a certificate of 
service attesting that the party has served a copy of his or her notice 
of appeal on all other parties to the proceeding. The Director, OEEOC, 
may extend this time limit for good cause shown pursuant to the 
procedure in paragraph (h)(3) of this section.
    (2) If a timely notice of appeal without a request for hearing is 
filed, any other party may file a written request for hearing within the 
time limit specified in paragraph (h)(1) of this section or within 10 
days of his or her receipt of such notice of appeal, whichever is later.
    (3) A party may appeal to the Director, OEEOC, from a decision of 
the Chief, OCRC, that an appeal is untimely. This appeal shall be filed 
with the Director, OEEOC, within 15 days of receipt of the decision from 
the Chief, OCRC.
    (4) Any request for hearing will be construed as a request for an 
oral hearing. The complainant's failure to file a timely request for a 
hearing in accordance with this part shall constitute waiver of the 
right to a hearing, but shall not preclude his or her submitting written 
information and argument to the Director, OEEOC, in connection with his 
or her notice of appeal.

[[Page 468]]

    (i) Acceptance of appeal. The Chief, OCRC, shall accept and process 
any timely filed appeal.
    (1) If a notice of appeal is filed but no party requests a hearing, 
the Chief, OCRC, shall promptly transmit the complaint file, the letter 
of findings and the notice of appeal to the Director, OEEOC.
    (2) If a notice of appeal if filed and a party makes a timely 
request for a hearing, the Chief, OCRC, will transmit the notice of 
appeal, the request for hearing and the investigative file to the Office 
of Hearings and Appeals which office will assign the case to an 
administrative judge who will conduct a hearing in accordance with the 
procedures contained in 13 CFR part 134.
    (j) Decision. (1) Where no request for a hearing is made, the 
Director, OEEOC, shall make the final Agency decision based on the 
contents of the complaint file, the letter of findings, the notice of 
appeal, and any responses to the notice of appeal filed by other 
parties. The decision shall be made within 60 days of receipt of the 
appeal or any response to the notice of appeal, whichever is applicable. 
If the Director, OEEOC, determines that he or she needs additional 
information from any party, he or she shall request the information and 
provide the other party or parties an opportunity to respond to that 
information. The Director, OEEOC, shall have 60 days from receipt of the 
additional information or responses to such additional information, 
whichever is later, to make the decision. The Director, OEEOC, shall 
transmit his or her decision in writing to the parties. The decision 
shall set forth the findings, remedial actions, and reasons for the 
decision.
    (2) Where a request for a hearing has been made, the administrative 
judge shall issue an initial decision, in writing, based on the hearing 
record, composed of the proposed findings of fact, conclusions of law, 
and remedies, to the parties and to the Director, OEEOC, within 30 days 
after receipt of the hearing transcripts, or within 30 days after the 
conclusion of the hearing if no transcript is made. This time limit may 
be extended with the permission of the Director, OEEOC. The decision of 
the administrative judge shall be deemed to be the final decision of the 
Agency after 30 days, unless a party files a petition for review with 
the Director, OEEOC, pursuant to 13 CFR 134.228(a) or the Director, 
OEEOC, issues an order stating his or her decision to review the initial 
decision, pursuant to 13 CFR 134.228(a). See 13 CFR 134.227(b).
    (3) Where a petition for review is filed or a review is ordered by 
the Director, OEEOC, the Director, OEEOC, shall make the final decision 
of the Agency based on information in the complaint file, the letter of 
findings, the hearing record, the initial decision, the petition for 
review, and any responses to the petition or order. The decision shall 
be made within 60 days of receipt of the petition for review, the order, 
or any responses to such petition or order, whichever is later. If the 
Director, OEEOC, determines that he or she needs additional information 
from any party, he or she shall request the information and provide the 
other party or parties an opportunity to respond to that information. 
The Director, OEEOC, shall have 60 days from receipt of the additional 
information or responses to such additional information, whichever is 
later, to make the decision. The Director, OEEOC, shall transmit his or 
her decision by letter to the parties. The decision shall set forth the 
findings, recommended remedial actions, and reasons for the decision. 
The decision shall adopt, reject, or modify the initial decision of the 
administrative judge. If the decision is to reject or modify the initial 
decision, the decision letter shall set forth in detail the specific 
reasons for the rejection or modification.
    (4) Any respondent required to take action under the terms of the 
decision of the Agency shall do so promptly. The Chief, OCRC, may 
require periodic compliance reports specifying:
    (i) The manner in which compliance with the provisions of the 
decision has been achieved;
    (ii) The reasons any action required by the final decision has not 
been taken; and
    (iii) The steps being taken to ensure full compliance.
    (k) The time limit cited in paragraph (f) of this section may be 
extended with

[[Page 469]]

the permission of the Assistant Attorney General.
    (l) The Agency may delegate its authority for conducting complaint 
investigations to other Federal agencies, except that the authority for 
making the final determination may not be delegated to another agency.

[53 FR 19760, May 31, 1988, as amended at 61 FR 2691, Jan. 29, 1996]



PART 140--DEBT COLLECTION THROUGH OFFSET--Table of Contents




Sec.
140.1  What does this part cover?
140.2  What is a debt and how can the SBA collect it through offset?
140.3  What rights do you have when SBA tries to collect a debt from you 
          through offset?

    Authority: 31 U.S.C. 3711, Collection and compromise; 31 U.S.C. 
3720A, Reduction of tax refund by amount of debt; 5 U.S.C. 5514, 
Installment deduction for indebtedness to the United States; 31 U.S.C. 
3716, Administrative offset; 15 U.S.C. 634(b)(6), Small Business Act.

    Source: 60 FR 62191, Dec. 5, 1995, unless otherwise noted.



Sec. 140.1  What does this part cover?

    This part establishes procedures which SBA may use in the 
collection, through offset, of past-due debts owed to the Government. 
SBA's failure to comply with any provision of the regulations in this 
part is not available to any debtor as a defense against collection of 
the debt through judicial process.



Sec. 140.2  What is a debt and how can the SBA collect it through offset?

    (a) A debt means an amount owed to the United States from loans made 
or guaranteed by the United States, and from fees, leases, rents, 
royalties, services, sales of real or personal property, overpayments, 
fines, penalties, damages, interest, forfeitures, or any other source. 
You are a debtor if you owe an amount to the United States from any of 
these sources.
    (b) SBA may collect past-due debts through offset by using any of 
three procedures: administrative offset, salary offset, or IRS tax 
refund offset. A past-due debt is one which has been reduced to 
judgment, has been accelerated, or has been due for at least 90 days.
    (1) Administrative offset. SBA may withhold money it owes to the 
debtor in order to satisfy the debt. This procedure is an 
``administrative offset'' and is authorized by 31 U.S.C. 3716.
    (2) Salary offset. If the debtor is a federal employee (a civilian 
employee as defined by 5 U.S.C. 2105, an employee of the U.S. Postal 
Service or Postal Rate Commission, or a member of the Uniformed Services 
or Reserve of the Uniformed Services), SBA may deduct payments owed to 
SBA or another federal agency from the debtor's paycheck. This procedure 
is a ``salary offset'' and is authorized by 5 U.S.C. 5514.
    (i) Any amount deducted from salary in any one pay period will not 
exceed 15 percent of a debtor's disposable pay, unless the debtor agrees 
in writing to a greater percentage.
    (ii) SBA also may collect against travel advances, training 
expenses, disallowed payments, retirement benefits, or any other amount 
due the employee, including lump-sum payments.
    (iii) If an employee has terminated employment after salary offset 
has been initiated, there are no limitations on the amount that can be 
withheld or offset.
    (3) IRS tax refund offset. SBA may request that IRS reduce a 
debtor's tax refund by the amount of the debt, as authorized by 31 
U.S.C. 3720A. Where available, administrative and salary offsets must be 
used before collection is attempted through income tax offset. SBA may 
refer a debt to the IRS for a tax refund offset and take additional 
action against the debtor to collect the debt at the same time or in 
sequence. When SBA makes simultaneous or sequential referrals (within 
six months of the initial notice), only one review pursuant to the rules 
in this part and the statutes authorizing them is required.



Sec. 140.3  What rights do you have when SBA tries to collect a debt from you through offset?

    (a) SBA must write to you and tell you that it proposes to collect 
the debt by reducing your federal paycheck, withholding money the 
Government

[[Page 470]]

owes you, and/or reducing your tax refund.
    (b) In its written notice to you, SBA must tell you the nature and 
amount of the debt; that SBA will begin procedures to collect the debt 
through reduction of your federal paycheck, administrative offset, or 
reduction of your tax refund; that you have an opportunity to inspect 
and copy Government records relating to the debt at your expense; and 
that, before collection begins, you have an opportunity to agree with 
SBA on a schedule for repayment of your debt.
    (c) SBA also must tell you that unless you respond within 60 days 
from the date of the notice, it will disclose to consumer reporting 
agencies (also known as credit bureaus or credit agencies) that you are 
responsible for the debt and the specific information it intends to 
disclose in order to establish your identity. The amount, status, 
history of the debt, and agency program under which it arose also will 
be disclosed.
    (d) If you respond to SBA within 60 days from the date of the 
notice, SBA will not disclose the information to consumer reporting 
agencies until it considers your response and determines that you owe a 
past-due, legally enforceable debt.
    (e) Within 60 days of the notice you may present evidence that all 
or part of the debt is not past due or not legally enforceable.
    (1) Where a salary offset or administrative offset is proposed, you 
will have the opportunity to present your evidence to SBA's Office of 
Hearings and Appeals (``OHA''). The rules in part 134 of this title 
govern the procedural rights to which you are entitled. In order to have 
a hearing before OHA, you must request a hearing within 15 days of 
receipt of the written notice described in this section. An OHA judge 
will issue a decision within 60 days of the date you filed your 
petition/request for a review or hearing with OHA, unless you were 
granted additional time within which to file your request for review.
    (2) Where an income tax refund offset is proposed, you will have the 
opportunity to request a review and present your evidence to the 
appropriate SBA Commercial Loan Servicing Center at the address provided 
in the notice.
    (f) SBA must consider any evidence you present and must first decide 
that a debt is past due and legally enforceable. A debt is legally 
enforceable if there is any forum, including a State or Federal Court or 
administrative agency, in which SBA's claim would not be barred on the 
date of offset. Non-judgment debts are enforceable for ten years; 
judgment debts are enforceable beyond ten years. You will be notified of 
SBA's decision at least 30 days before any offset deduction is made. You 
also will be notified of the amount, frequency, proposed beginning date, 
and duration of the deductions, as well as any obligation to pay 
interest, penalties, and administrative costs.
    (g) If there is any substantial change in the status or amount of 
your debt, SBA will promptly report that change to each consumer 
reporting agency it originally contacted.
    (h) SBA will obtain satisfactory assurances from each consumer 
reporting agency that the consumer reporting agency has complied with 
all federal laws relating to provision of consumer credit information.
    (i) If your debt is being repaid by reduction of your income tax 
refund and you make any additional payments to SBA, SBA will notify the 
IRS of these payments and your new balance within 10 business days of 
receiving your payment.
    (j) When the debt of a federal employee is reduced to court 
judgment, the employee is not entitled to further review by SBA, but is 
only entitled to notice of a proposed salary offset resulting from the 
judgment. The amount deducted may not exceed 15% of disposable pay, 
except when the deduction of a greater amount is necessary to completely 
collect the debt within the employee's remaining period of employment.
    (k) When another federal agency asks SBA to offset a debt for it, 
SBA will not initiate the requested offset until it has received from 
the creditor agency a written certification that the debtor owes a debt, 
its amount, and that the provisions of all applicable statutes and 
regulations have been complied with fully.

[[Page 471]]

    (l) SBA may make an offset prior to completion of the procedures 
described in this part, if:
    (1) Failure to make an offset would substantially prejudice the 
government's ability to collect the debt; and
    (2) The time before the payment would otherwise be made to you does 
not reasonably permit the completion of the procedures.
    (3) Such prior offset then must be followed by the completion of the 
procedures described in this part.
    (m) Where an IRS tax refund offset is sought, SBA must follow the 
Department of the Treasury's regulations governing offset of a past-due, 
legally enforceable debt against tax overpayment.



PART 142--PROGRAM FRAUD CIVIL REMEDIES ACT REGULATIONS--Table of Contents




                        Overview and Definitions

142.1  Overview of regulations.
142.2  What kind of conduct will result in program fraud enforcement?
142.3  What is a claim?
142.4  What is a statement?
142.5  What is a false claim or statement?
142.6  What does the phrase ``know or have reason to know'' mean?

              Procedures Leading to Issuance of a Complaint

142.7  Who investigates program fraud?
142.8  What happens if program fraud is suspected?
142.9  When will SBA issue a complaint?
142.10  What is contained in a complaint?
142.11  How will the complaint be served?

               Procedures Following Service of a Complaint

142.12  How does a defendant respond to the complaint?
142.13  What happens if a defendant fails to file an answer?
142.14  What happens once an answer is filed?

                           Hearing Provisions

142.15  What kind of hearing is contemplated?
142.16  At the hearing, what rights do the parties have?
142.17  What is the role of the ALJ?
142.18  Can the reviewing official or ALJ be disqualified?
142.19  How are issues brought to the attention of the ALJ?
142.20  How are papers served?
142.21  How will the hearing be conducted and who has the burden of 
          proof?
142.22  How is evidence presented at the hearing?
142.23  Are there limits on disclosure of documents or discovery?
142.24  Can witnesses be subpoenaed?
142.25  Can a party or witness object to discovery?
142.26  Can a party informally discuss the case with the ALJ?
142.27  Are there sanctions for misconduct?
142.28  Where is the hearing held?
142.29  Are witness lists exchanged before the hearing?

                          Decisions and Appeals

142.30  How is the case decided?
142.31  Can a party request reconsideration of the initial decision?
142.32  When does the initial decision of the ALJ become final?
142.33  What are the procedures for appealing the ALJ decision?
142.34  Are there any limitations on the right to appeal to the 
          Administrator?
142.35  How does the Administrator dispose of an appeal?
142.36  Can I obtain judicial review?
142.37  What judicial review is available?
142.38  Can the administrative complaint be settled voluntarily?
142.39  How are civil penalties and assessments collected?
142.40  What if the investigation indicates criminal misconduct?
142.41  How does SBA protect the rights of defendants?

    Authority: 15 U.S.C. 634(b); 31 U.S.C. 3803(g)(2).

    Source: 61 FR 2691, Jan. 29, 1996, unless otherwise noted.

                        Overview and Definitions



Sec. 142.1  Overview of regulations.

    (a) Statutory basis. This part implements the Program Fraud Civil 
Remedies Act of 1986, 31 U.S.C. 3801-3812 (``the Act''). The Act 
provides SBA and other federal agencies with an administrative remedy to 
impose civil penalties and assessments against persons making false 
claims and statements. The Act also provides due process protections to 
all persons who are subject to administrative proceedings under this 
part.
    (b) Possible remedies for program fraud. In addition to any other 
penalty which may be prescribed by law, a person who submits, or causes 
to be submitted, a false claim or a false statement to SBA

[[Page 472]]

is subject to a civil penalty of not more than $5,000 for each statement 
or claim, regardless of whether property, services, or money is actually 
delivered or paid by SBA. If SBA has made any payment, transferred 
property, or provided services in reliance on a false claim, the person 
submitting it is also subject to an assessment of not more than twice 
the amount of the false claim. This assessment is in lieu of damages 
sustained by SBA because of the false claim.



Sec. 142.2  What kind of conduct will result in program fraud enforcement?

    (a) Any person who makes, or causes to be made, a false, fictitious, 
or fraudulent claim or written statement to SBA is subject to program 
fraud enforcement. A ``person'' means any individual, partnership, 
corporation, association, or other legal entity.
    (b) If more than one person makes a false claim or statement, each 
person is liable for a civil penalty. If more than one person makes a 
false claim which has induced SBA to make payment, an assessment is 
imposed against each person. The liability of each such person to pay 
the assessment is joint and several, that is, each is responsible for 
the entire amount.
    (c) No proof of specific intent to defraud is required to establish 
liability under this part.



Sec. 142.3  What is a claim?

    (a) Claim means any request, demand, or submission:
    (1) Made to SBA for property, services, or money;
    (2) Made to a recipient of property, services, or money from SBA or 
to a party to a contract with SBA for property or services, or for the 
payment of money. This provision applies only when the claim is related 
to the property, services or money from SBA or to the contract with SBA; 
or
    (3) Made to SBA which decreases an obligation to pay or account for 
property, services, or money.
    (b) A claim can relate to grants, loans, insurance, or other 
benefits, and includes SBA guaranteed loans made by participating 
lenders. A claim is made when it is received by SBA, an agent, fiscal 
intermediary, or other entity acting for SBA, or when it is received by 
the recipient of property, services, or money, or the party to the 
contract.
    (c) Each voucher, invoice, claim form, or individual request or 
demand for property, services, or money constitutes a separate claim.



Sec. 142.4  What is a statement?

    A ``statement'' means any written representation, certification, 
affirmation, document, record, or accounting or bookkeeping entry made 
with respect to a claim or with respect to a contract, bid or proposal 
for a contract, grant, loan or other benefit from SBA. ``From SBA'' 
means that SBA provides some portion of the money or property in 
connection with the contract, bid, grant, loan, or benefit, or is 
potentially liable to another party for some portion of the money or 
property under such contract, bid, grant, loan, or benefit. A statement 
is made, presented, or submitted to SBA when it is received by SBA or an 
agent, fiscal intermediary, or other entity acting for SBA.



Sec. 142.5  What is a false claim or statement?

    (a) A claim submitted to SBA is a ``false'' claim if the person 
making the claim, or causing the claim to be made, knows or has reason 
to know that the claim:
    (1) Is false, fictitious or fraudulent;
    (2) Includes or is supported by a written statement which asserts or 
contains a material fact which is false, fictitious, or fraudulent;
    (3) Includes or is supported by a written statement which is false, 
fictitious or fraudulent because it omits a material fact that the 
person making the statement has a duty to include in the statement; or
    (4) Is for payment for the provision of property or services which 
the person has not provided as claimed.
    (b) A statement submitted to SBA is a false statement if the person 
making the statement, or causing the statement to be made, knows or has 
reason to know that the statement:
    (1) Asserts a material fact which is false, fictitious, or 
fraudulent; or

[[Page 473]]

    (2) Is false, fictitious, or fraudulent because it omits a material 
fact that the person making the statement has a duty to include in the 
statement. In addition, the statement must contain or be accompanied by 
an express certification or affirmation of the truthfulness and accuracy 
of the contents of the statement.



Sec. 142.6  What does the phrase ``know or have reason to know'' mean?

    A person knows or has reason to know (that a claim or statement is 
false) if the person:
    (a) Has actual knowledge that the claim or statement is false, 
fictitious, or fraudulent; or
    (b) Acts in deliberate ignorance of the truth or falsity of the 
claim or statement; or
    (c) Acts in reckless disregard of the truth or falsity of the claim 
or statement.

              Procedures Leading to Issuance of a Complaint



Sec. 142.7  Who investigates program fraud?

    The Inspector General, or his designee, is responsible for 
investigating allegations that a false claim or statement has been made. 
In this regard, the Inspector General has authority under the Program 
Fraud Civil Remedies Act and the Inspector General Act of 1978 (5 U.S.C. 
App. 3), as amended, to issue administrative subpoenas for the 
production of records and documents. The methods for serving a subpoena 
are set forth in part 101 of this chapter.



Sec. 142.8  What happens if program fraud is suspected?

    (a) If the investigating official concludes that an action under 
this part is warranted, the investigating official submits a report 
containing the findings and conclusions of the investigation to a 
reviewing official. The reviewing official is the General Counsel or his 
designee. If the reviewing official determines that the report provides 
adequate evidence that a person submitted a false claim or statement, 
the reviewing official transmits to the Attorney General written notice 
of an intention to refer the matter for adjudication, with a request for 
approval of such referral. This notice will include the reviewing 
official's statements concerning:
    (1) The reasons for the referral;
    (2) The claims or statements upon which liability would be based;
    (3) The evidence that supports liability;
    (4) An estimate of the amount of money or the value of property, 
services, or other benefits requested or demanded in the false claim or 
statement;
    (5) Any exculpatory or mitigating circumstances that may relate to 
the claims or statements known by the reviewing official or the 
investigating official; and
    (6) The likelihood of collecting the proposed penalties and 
assessments.
    (b) If at any time, the Attorney General or designee requests in 
writing that this administrative process be stayed, the Administrator 
must stay the process immediately. The Administrator may order the 
process resumed only upon receipt of the written authorization of the 
Attorney General.



Sec. 142.9  When will SBA issue a complaint?

    SBA will issue a complaint:
    (a) If the Attorney General (or designee) approves the referral of 
the allegations for adjudication; and
    (b) In a case of submission of false claims, if the amount of money 
or the value of property or services demanded or requested in a false 
claim, or a group of related claims submitted at the same time, does not 
exceed $150,000. A group of related claims submitted at the same time 
includes only those claims arising from the same transaction (such as a 
grant, loan, application, or contract) which are submitted together as 
part of a single request, demand, or submission.



Sec. 142.10  What is contained in a complaint?

    (a) A complaint is a written statement giving notice to the person 
alleged to be liable under 31 U.S.C. 3802 of the specific allegations 
being referred for adjudication and of the person's right to request a 
hearing with respect

[[Page 474]]

to those allegations. The person alleged to have made false statements 
or to have submitted false claims to SBA is referred to as the 
``defendant.''
    (b) The reviewing official may join in a single complaint false 
claims or statements that are unrelated or were not submitted 
simultaneously, regardless of the amount of money or the value of 
property or services demanded or requested.
    (c) The complaint will state that SBA seeks to impose civil 
penalties, assessments, or both, against each defendant and will 
include:
    (1) The allegations of liability against each defendant, including 
the statutory basis for liability, identification of the claims or 
statements involved, and the reasons liability allegedly arises from 
such claims or statements;
    (2) The maximum amount of penalties and assessments for which each 
defendant may be held liable;
    (3) A statement that each defendant may request a hearing by filing 
an answer and may be represented by a representative;
    (4) Instructions for filing such an answer;
    (5) A warning that failure to file an answer within 30 days of 
service of the complaint will result in imposition of the maximum amount 
of penalties and assessments.
    (d) The reviewing official must serve any complaint on the defendant 
and provide a copy to the Office of Hearings and Appeals (OHA). If a 
hearing is requested, an Administrative Law Judge (ALJ) from OHA will 
serve as the Presiding Officer.



Sec. 142.11  How will the complaint be served?

    (a) The complaint must be served on individual defendants directly, 
a partnership through a general partner, and on corporations or on 
unincorporated associations through an executive officer or a director, 
except that service also may be made on any person authorized by 
appointment or by law to receive process for the defendant.
    (b) The complaint may be served either by:
    (1) Registered or certified mail (return receipt requested) 
addressed to the defendant at his or her residence, usual dwelling 
place, principal office or place of business; or by
    (2) Personal delivery by anyone 18 years of age or older.
    (c) The date of service is the date of personal delivery or, in the 
case of service by registered or certified mail, the date of postmark.
    (d) Proof of service--
    (1) When service is made by registered or certified mail, the return 
postal receipt will serve as proof of service.
    (2) When service is made by personal delivery, an affidavit of the 
individual serving the complaint, or written acknowledgment of receipt 
by the defendant or a representative, will serve as proof of service.
    (e) When served with the complaint, the defendant also should be 
served with a copy of this part 142 and 31 U.S.C. 3801-3812.

               Procedures Following Service of a Complaint



Sec. 142.12  How does a defendant respond to the complaint?

    (a) A defendant may file an answer with the reviewing official and 
the Office of Hearings and Appeals within 30 days of service of the 
complaint. An answer will be considered a request for an oral hearing.
    (b) In the answer, a defendant--
    (1) Must admit or deny each of the allegations of liability 
contained in the complaint (a failure to deny an allegation is 
considered an admission);
    (2) Must state any defense on which the defendant intends to rely;
    (3) May state any reasons why he or she believes the penalties, 
assessments, or both should be less than the statutory maximum; and
    (4) Must state the name, address, and telephone number of the person 
authorized by the defendant to act as defendant's representative, if 
any.
    (c) If the defendant is unable to file an answer which meets the 
requirements set forth in paragraph (b) of this section, the defendant 
may file with the reviewing official a general answer denying liability, 
requesting a hearing, and requesting an extension of time in

[[Page 475]]

which to file a complete answer. A general answer must be filed within 
30 days of service of the complaint.
    (d) If the defendant initially files a general answer requesting an 
extension of time, the reviewing official must promptly file with the 
ALJ the complaint, the general answer, and the request for an extension 
of time.
    (e) For good cause shown, the ALJ may grant the defendant up to 30 
additional days within which to file an answer meeting the requirements 
of paragraph (b) of this section. Such answer must be filed with OHA and 
a copy must be served on the reviewing official.



Sec. 142.13  What happens if a defendant fails to file an answer?

    (a) If a defendant does not file any answer within 30 days after 
service of the complaint, the reviewing official will refer the 
complaint to the ALJ.
    (b) Once the complaint is referred, the ALJ will promptly serve on 
the defendant a notice that an initial decision will be issued.
    (c) The ALJ will assume the facts alleged in the complaint to be 
true and, if such facts establish liability under the statute, the ALJ 
will issue an initial decision imposing the maximum amount of penalties 
and assessments allowed under the statute.
    (d) Except as otherwise provided in this section, when a defendant 
fails to file a timely answer, the defendant waives any right to further 
review of the penalties and assessments imposed in the initial decision.
    (e) The initial decision becomes final 30 days after it is issued.
    (f) If, at any time before an initial decision becomes final, a 
defendant files a motion with the ALJ asking that the case be reopened 
and describing the extraordinary circumstances that prevented the 
defendant from filing an answer, the initial decision will be stayed 
until the ALJ makes a decision on the motion. The reviewing official may 
respond to the motion.
    (g) If, in his motion to reopen, a defendant demonstrates 
extraordinary circumstances excusing his failure to file a timely 
answer, the ALJ will withdraw the initial decision, and grant the 
defendant an opportunity to answer the complaint.
    (h) A decision by the ALJ to deny a defendant's motion to reopen a 
case is not subject to review or reconsideration.



Sec. 142.14  What happens once an answer is filed?

    (a) When the reviewing official receives an answer, he must file 
concurrently, the complaint and the answer with the ALJ, along with a 
designation of an SBA representative.
    (b) When the ALJ receives the complaint and the answer, the ALJ will 
promptly serve a notice of oral hearing upon the defendant and the 
representative for SBA, in the same manner as the complaint, service of 
which is described in Sec. 142.11. The notice of oral hearing must be 
served within six years of the date on which the claim or statement is 
made.
    (c) The notice must include:
    (1) The tentative time, place and nature of the hearing;
    (2) The legal authority and jurisdiction under which the hearing is 
to be held;
    (3) The matters of fact and law to be asserted;
    (4) A description of the procedures for the conduct of the hearing;
    (5) The name, address, and telephone number of the defendant's 
representative and the representative for SBA; and
    (6) Such other matters as the ALJ deems appropriate.

                           Hearing Provisions



Sec. 142.15  What kind of hearing is contemplated?

    The hearing is a formal proceeding conducted by the ALJ during which 
a defendant will have the opportunity to cross-examine witnesses, 
present testimony, and dispute liability.



Sec. 142.16  At the hearing, what rights do the parties have?

    (a) The parties to the hearing shall be the defendant and SBA. 
Pursuant to 31 U.S.C. 3730(c)(5), a private plaintiff in an action under 
the False Claims Act may participate in the hearing to the extent 
authorized by the provisions of that Act.

[[Page 476]]

    (b) Each party has the right to:
    (1) Be represented by a representative;
    (2) Request a pre-hearing conference and participate in any 
conference held by the ALJ;
    (3) Conduct discovery;
    (4) Agree to stipulations of fact or law which will be made a part 
of the record;
    (5) Present evidence relevant to the issues at the hearing;
    (6) Present and cross-examine witnesses;
    (7) Present arguments at the hearing as permitted by the ALJ; and
    (8) Submit written briefs and proposed findings of fact and 
conclusions of law after the hearing, as permitted by the ALJ.



Sec. 142.17  What is the role of the ALJ?

    An ALJ from OHA serves as the Presiding Officer at all hearings, 
with authority as set forth in Sec. 134.218(b) of this chapter.



Sec. 142.18  Can the reviewing official or ALJ be disqualified?

    (a) A reviewing official or an ALJ may disqualify himself or herself 
at any time.
    (b) Upon motion of any party, the reviewing official or ALJ may be 
disqualified as follows:
    (1) The motion must be supported by an affidavit containing specific 
facts establishing that personal bias or other reason for 
disqualification exists, including the time and circumstances of the 
discovery of such facts;
    (2) The motion must be filed promptly after discovery of the grounds 
for disqualification, or the objection will be deemed waived; and
    (3) The party, or representative of record, must certify in writing 
that the motion is made in good faith.
    (c) Once a motion has been filed to disqualify the reviewing 
official, the ALJ will halt the proceedings until resolving the matter 
of disqualification. If the ALJ determines that the reviewing official 
is disqualified, the ALJ will dismiss the complaint without prejudice. 
If the ALJ disqualifies himself or herself, the case will be promptly 
reassigned to another ALJ.



Sec. 142.19  How are issues brought to the attention of the ALJ?

    All applications to the ALJ for an order or ruling are made by 
motion, stating the relief sought, the authority relied upon, and the 
facts alleged. Procedures for filing motions under this section are 
governed by Sec. 134.211 of this chapter.



Sec. 142.20  How are papers served?

    Except for service of a complaint or a notice of hearing under 
Secs. 142.11 and 142.14(b) respectively, service of papers must be made 
as prescribed by Sec. 134.204 of this chapter.



Sec. 142.21  How will the hearing be conducted and who has the burden of proof?

    (a) The ALJ conducts a hearing in order to determine whether a 
defendant is liable for a civil penalty, assessment, or both and, if so, 
the appropriate amount of the civil penalty and/or assessment. The 
hearing will be recorded and transcribed, and the transcript of 
testimony, exhibits admitted at the hearing, and all papers and requests 
filed in the proceeding constitute the record for a decision by the ALJ.
    (b) SBA must prove a defendant's liability and any aggravating 
factors by a preponderance of the evidence.
    (c) A defendant must prove any affirmative defenses and any 
mitigating factors by a preponderance of the evidence.
    (d) The hearing will be open to the public unless otherwise ordered 
by the ALJ for good cause shown.



Sec. 142.22  How is evidence presented at the hearing?

    (a) Witnesses at the hearing must testify orally under oath or 
affirmation unless otherwise ordered by the ALJ. At the discretion of 
the ALJ, testimony may be admitted in the form of a written statement or 
deposition, a copy of which must be provided to all other parties, along 
with the last known address of the witness, in a manner which allows 
sufficient time for other parties to subpoena the witness for cross-
examination at the hearing.

[[Page 477]]

    (b) The ALJ determines the admissibility of evidence in accordance 
with Sec. 134.223 (a) and (b) of this chapter.



Sec. 142.23  Are there limits on disclosure of documents or discovery?

    (a) Upon written request to the reviewing official, the defendant 
may review all non-privileged, relevant and material documents, records 
and other material related to the allegations contained in the 
complaint. After paying SBA a reasonable fee for duplication, the 
defendant may obtain a copy of the records described.
    (b) Upon written request to the reviewing official, the defendant 
may obtain a copy of all exculpatory information in the possession of 
the reviewing official or investigating official relating to the 
allegations in the complaint. If the document would otherwise be 
privileged, only the portion of the document containing exculpatory 
information must be disclosed. As used in this section, the term 
``information'' does not include legal materials such as statutes or 
case law obtained through legal research.
    (c) The notice sent to the Attorney General from the reviewing 
official is not discoverable under any circumstances.
    (d) Other discovery is available only as ordered by the ALJ and 
includes only those methods of discovery allowed by Sec. 134.213 of this 
chapter.



Sec. 142.24  Can witnesses be subpoenaed?

    A party seeking the appearance and testimony of any individual or 
the production of documents or records at a hearing may request in 
writing that the ALJ issue a subpoena. Any such request must be filed 
with the ALJ not less than 15 days before the scheduled hearing date 
unless otherwise allowed by the ALJ for good cause. A subpoena shall be 
issued by the ALJ in the manner specified by Sec. 134.214 of this 
chapter.



Sec. 142.25  Can a party or witness object to discovery?

    Any party or prospective witness may file a motion to quash a 
subpoena or to limit discovery or the disclosure of evidence. Motions to 
limit discovery or to object to the disclosure of evidence are governed 
by Sec. 134.213 of this chapter. Motions to limit or quash subpoenas are 
governed by Sec. 134.214(d) of this chapter.



Sec. 142.26  Can a party informally discuss the case with the ALJ?

    No. Such discussions are forbidden as ex parte communications with 
the ALJ as set forth in Sec. 134.220 of this chapter. This does not 
prohibit a party from communicating with other employees of OHA to 
inquire about the status of a case or to ask routine questions 
concerning administrative functions and procedures.



Sec. 142.27  Are there sanctions for misconduct?

    The ALJ may sanction a party or representative, as set forth in 
Sec. 134.219 of this chapter.



Sec. 142.28  Where is the hearing held?

    The ALJ will hold the hearing in any judicial district of the United 
States:
    (a) In which the defendant resides or transacts business; or
    (b) In which the claim or statement on which liability is based was 
made, presented or submitted to SBA; or
    (c) As agreed upon by the defendant and the ALJ.



Sec. 142.29  Are witness lists exchanged before the hearing?

    (a) At least 15 days before the hearing or at such other time as 
ordered by the ALJ, the parties must exchange witness lists and copies 
of proposed hearing exhibits, including copies of any written statements 
or transcripts of deposition testimony that the party intends to offer 
in lieu of live testimony.
    (b) If a party objects, the ALJ will not admit into evidence the 
testimony of any witness whose name does not appear on the witness list 
or any exhibit not provided to an opposing party unless the ALJ finds 
good cause for the omission or concludes that there is no prejudice to 
the objecting party.
    (c) Unless a party objects within the time set by the ALJ, documents 
exchanged in accordance with this section are deemed to be authentic for 
the purpose of admissibility at the hearing.

[[Page 478]]

                          Decisions and Appeals



Sec. 142.30  How is the case decided?

    (a) The ALJ will issue an initial decision based only on the record. 
It will contain findings of fact, conclusions of law, and the amount of 
any penalties and assessments imposed.
    (b) The ALJ will serve the initial decision on all parties within 90 
days after close of the hearing or expiration of any allowed time for 
submission of post-hearing briefs. If the ALJ fails to meet this 
deadline, he or she shall promptly notify the parties of the reason for 
the delay and set a new deadline.
    (c) The findings of fact must include a finding on each of the 
following issues:
    (1) Whether any one or more of the claims or statements identified 
in the complaint violate this part; and
    (2) If the defendant is liable for penalties or assessments, the 
appropriate amount of any such penalties or assessments, considering any 
mitigating or aggravating factors.
    (d) The initial decision will include a description of the right of 
a defendant found liable for a civil penalty or assessment to file a 
motion for reconsideration with the ALJ or a notice of appeal with the 
Administrator.



Sec. 142.31  Can a party request reconsideration of the initial decision?

    (a) Any party may file a motion for reconsideration of the initial 
decision with the ALJ within 20 days of receipt of the initial decision. 
If the initial decision was served by mail, there is a rebuttable 
presumption that the initial decision was received by the party 5 days 
from the date of mailing.
    (b) A motion for reconsideration must be accompanied by a supporting 
brief and must describe specifically each allegedly erroneous decision.
    (c) Any response to a motion for reconsideration must be filed 
within 20 days of receipt of such motion.
    (d) The ALJ will dispose of a motion for reconsideration by denying 
it or by issuing a revised initial decision.
    (e) If the ALJ issues a revised initial decision upon motion of a 
party, that party may not file another motion for reconsideration.



Sec. 142.32  When does the initial decision of the ALJ become final?

    (a) The initial decision of the ALJ becomes the final decision of 
SBA, and shall be binding on all parties 30 days after it is issued, 
unless any party timely files a motion for reconsideration or any 
defendant adjudged to have submitted a false claim or statement timely 
appeals to the SBA Administrator, as set forth in Sec. 142.33.
    (b) If the ALJ disposes of a motion for reconsideration by denying 
it or by issuing a revised initial decision, the ALJ's order on the 
motion for reconsideration becomes the final decision of SBA 30 days 
after the order is issued, unless a defendant adjudged to have submitted 
a false claim or statement timely appeals to the Administrator, within 
30 days of the ALJ's order, as set forth in Sec. 142.33.



Sec. 142.33  What are the procedures for appealing the ALJ decision?

    (a) Any defendant who submits a timely answer and is found liable 
for a civil penalty or assessment in an initial decision may appeal the 
decision.
    (b) The defendant may file a notice of appeal with the Administrator 
within 30 days following issuance of the initial decision, serving a 
copy of the notice of appeal on all parties and the ALJ. The 
Administrator may extend this deadline for up to thirty additional days 
if an extension request is filed within the initial 30 day period and 
shows good cause.
    (c) The defendant's appeal will not be considered until all timely 
motions for reconsideration have been resolved.
    (d) If a timely motion for reconsideration is denied, a notice of 
appeal may be filed within 30 days following such denial or issuance of 
a revised initial decision, whichever applies.
    (e) A notice of appeal must be supported by a written brief 
specifying why the initial decision should be reversed or modified.
    (f) SBA's representative may file a brief in opposition to the 
notice of appeal within 30 days of receiving the defendant's notice of 
appeal and supporting brief.
    (g) If a defendant timely files a notice of appeal, and the time for 
filing

[[Page 479]]

motions for reconsideration has expired, the ALJ will forward the record 
of the proceeding to the Administrator.



Sec. 142.34  Are there any limitations on the right to appeal to the Administrator?

    (a) A defendant has no right to appear personally, or through a 
representative, before the Administrator.
    (b) There is no right to appeal any interlocutory ruling.
    (c) The Administrator will not consider any objection or evidence 
that was not raised before the ALJ unless the defendant demonstrates 
that the failure to object was caused by extraordinary circumstances. If 
the appealing defendant demonstrates to the satisfaction of the 
Administrator that extraordinary circumstances prevented the 
presentation of evidence at the hearing, and that the additional 
evidence is material, the Administrator may remand the matter to the ALJ 
for consideration of the additional evidence.



Sec. 142.35  How does the Administrator dispose of an appeal?

    (a) The Administrator may affirm, reduce, reverse, compromise, 
remand, or settle any penalty or assessment imposed by the ALJ in the 
initial decision or reconsideration decision.
    (b) The Administrator will promptly serve each party to the appeal 
and the ALJ with a copy of his or her decision. This decision must 
contain a statement describing the right of any person, against whom a 
penalty or assessment has been made, to seek judicial review.



Sec. 142.36  Can I obtain judicial review?

    If the initial decision is appealed, the decision of the 
Administrator is the final decision of SBA and is not subject to 
judicial review unless the defendant files a petition for judicial 
review within 60 days after the Administrator serves the defendant with 
a copy of the final decision.



Sec. 142.37  What judicial review is available?

    31 U.S.C. 3805 authorizes judicial review by the appropriate United 
States District Court of any final SBA decision imposing penalties or 
assessments, and specifies the procedures for such review. To obtain 
judicial review, a defendant must file a petition in a timely fashion.



Sec. 142.38  Can the administrative complaint be settled voluntarily?

    (a) Parties may make offers of compromise or settlement at any time. 
Any compromise or settlement must be in writing.
    (b) The reviewing official has the exclusive authority to compromise 
or settle the case from the date on which the reviewing official is 
permitted to issue a complaint until the ALJ issues an initial decision.
    (c) The Administrator has exclusive authority to compromise or 
settle the case from the date of the ALJ's initial decision until 
initiation of any judicial review or any action to collect the penalties 
and assessments.
    (d) The Attorney General has exclusive authority to compromise or 
settle the case while any judicial review or any action to recover 
penalties and assessments is pending.
    (e) The investigating official may recommend settlement terms to the 
reviewing official, the Administrator, or the Attorney General, as 
appropriate. The reviewing official may recommend settlement terms to 
the Administrator or the Attorney General, as appropriate.



Sec. 142.39  How are civil penalties and assessments collected?

    31 U.S.C. 3806 and 3808(b) authorize the Attorney General to bring 
specific actions for collection of such civil penalties and assessments 
including administrative offset under 31 U.S.C. 3716. The penalties and 
assessments may not, however, be administratively offset against an 
overpayment of federal taxes (then or later owed) to the defendant by 
the United States.



Sec. 142.40  What if the investigation indicates criminal misconduct?

    (a) Any investigating official may:
    (1) Refer allegations of criminal misconduct directly to the 
Department of Justice for prosecution or for suit under the False Claims 
Act or other civil proceeding;

[[Page 480]]

    (2) Defer or postpone a report or referral to the reviewing official 
to avoid interference with a criminal investigation or prosecution; or
    (3) Issue subpoenas under other statutory authority.
    (b) Nothing in this part limits the requirement that SBA employees 
report suspected violations of criminal law to the SBA Office of 
Inspector General or to the Attorney General.



Sec. 142.41  How does SBA protect the rights of defendants?

    These procedures separate the functions of the investigating 
official, reviewing official, and the ALJ, each of whom report to a 
separate organizational authority in accordance with 31 U.S.C. 3801. 
Except for purposes of settlement, or as a witness or a representative 
in public proceedings, no investigating official, reviewing official, or 
SBA employee or agent who helps investigate, prepare, or present a case 
may (in such case, or a factually related case) participate in the 
initial decision or the review of the initial decision by the 
Administrator. This separation of functions and organization is designed 
to assure the independence and impartiality of each government official 
during every stage of the proceeding. The representative for SBA may be 
employed in the offices of either the investigating official or the 
reviewing official.



PART 143--UNIFORM ADMINISTRATIVE REQUIREMENTS FOR GRANTS AND COOPERATIVE AGREEMENTS TO STATE AND LOCAL GOVERNMENTS--Table of Contents




                           Subpart A--General

Sec.
143.1  Purpose and scope of this part.
143.2  Scope of subpart.
143.3  Definitions.
143.4  Applicability.
143.5  Effect on other issuances.
143.6  Additions and exceptions.

                    Subpart B--Pre-Award Requirements

143.10  Forms for applying for grants.
143.11  State plans.
143.12  Special grant or subgrant conditions for ``high-risk'' grantees.

                   Subpart C--Post-Award Requirements

                        Financial Administration

143.20  Standards for financial management systems.
143.21  Payment.
143.22  Allowable costs.
143.23  Period of availability of funds.
143.24  Matching or cost sharing.
143.25  Program income.
143.26  Non-Federal audit.

                    Changes, Property, and Subawards

143.30  Changes.
143.31  Real property.
143.32  Equipment.
143.33  Supplies.
143.34  Copyrights.
143.35  Subawards to debarred and suspended parties.
143.36  Procurement.
143.37  Subgrants.

              Reports, Records, Retention, and Enforcement

143.40  Monitoring and reporting program performance.
143.41  Financial reporting.
143.42  Retention and access requirements for records.
143.43  Enforcement.
143.44  Termination for convenience.

                 Subpart D--After-the-Grant Requirements

143.50  Closeout.
143.51  Later disallowances and adjustments.
143.52  Collection of amounts due.

Subpart E--Entitlements [Reserved]

    Authority: 15 U.S.C. 634(b)(6).

    Source: 53 FR 8048, 8087, Mar. 11, 1988, unless otherwise noted.

    Editorial Note: For additional information, see related documents 
published at 49 FR 24958, June 18, 1984, 52 FR 20198, May 29, 1987, and 
53 FR 8028, Mar. 11, 1988.



                           Subpart A--General



Sec. 143.1  Purpose and scope of this part.

    This part establishes uniform administrative rules for Federal 
grants and cooperative agreements and subawards to State, local and 
Indian tribal governments.



Sec. 143.2  Scope of subpart.

    This subpart contains general rules pertaining to this part and 
procedures for control of exceptions from this part.

[[Page 481]]



Sec. 143.3  Definitions.

    As used in this part:
    Accrued expenditures mean the charges incurred by the grantee during 
a given period requiring the provision of funds for: (1) Goods and other 
tangible property received; (2) services performed by employees, 
contractors, subgrantees, subcontractors, and other payees; and (3) 
other amounts becoming owed under programs for which no current services 
or performance is required, such as annuities, insurance claims, and 
other benefit payments.
    Accrued income means the sum of: (1) Earnings during a given period 
from services performed by the grantee and goods and other tangible 
property delivered to purchasers, and (2) amounts becoming owed to the 
grantee for which no current services or performance is required by the 
grantee.
    Acquisition cost of an item of purchased equipment means the net 
invoice unit price of the property including the cost of modifications, 
attachments, accessories, or auxiliary apparatus necessary to make the 
property usable for the purpose for which it was acquired. Other charges 
such as the cost of installation, transportation, taxes, duty or 
protective in-transit insurance, shall be included or excluded from the 
unit acquisition cost in accordance with the grantee's regular 
accounting practices.
    Administrative requirements mean those matters common to grants in 
general, such as financial management, kinds and frequency of reports, 
and retention of records. These are distinguished from programmatic 
requirements, which concern matters that can be treated only on a 
program-by-program or grant-by-grant basis, such as kinds of activities 
that can be supported by grants under a particular program.
    Awarding agency means (1) with respect to a grant, the Federal 
agency, and (2) with respect to a subgrant, the party that awarded the 
subgrant.
    Cash contributions means the grantee's cash outlay, including the 
outlay of money contributed to the grantee or subgrantee by other public 
agencies and institutions, and private organizations and individuals. 
When authorized by Federal legislation, Federal funds received from 
other assistance agreements may be considered as grantee or subgrantee 
cash contributions.
    Contract means (except as used in the definitions for grant and 
subgrant in this section and except where qualified by Federal) a 
procurement contract under a grant or subgrant, and means a procurement 
subcontract under a contract.
    Cost sharing or matching means the value of the third party in-kind 
contributions and the portion of the costs of a federally assisted 
project or program not borne by the Federal Government.
    Cost-type contract means a contract or subcontract under a grant in 
which the contractor or subcontractor is paid on the basis of the costs 
it incurs, with or without a fee.
    Equipment means tangible, nonexpendable, personal property having a 
useful life of more than one year and an acquisition cost of $5,000 or 
more per unit. A grantee may use its own definition of equipment 
provided that such definition would at least include all equipment 
defined above.
    Expenditure report means: (1) For nonconstruction grants, the SF-269 
``Financial Status Report'' (or other equivalent report); (2) for 
construction grants, the SF-271 ``Outlay Report and Request for 
Reimbursement'' (or other equivalent report).
    Federally recognized Indian tribal government means the governing 
body or a governmental agency of any Indian tribe, band, nation, or 
other organized group or community (including any Native village as 
defined in section 3 of the Alaska Native Claims Settlement Act, 85 Stat 
688) certified by the Secretary of the Interior as eligible for the 
special programs and services provided by him through the Bureau of 
Indian Affairs.
    Government means a State or local government or a federally 
recognized Indian tribal government.
    Grant means an award of financial assistance, including cooperative 
agreements, in the form of money, or property in lieu of money, by the 
Federal Government to an eligible grantee. The term does not include 
technical assistance which provides services instead of money, or other 
assistance in the form

[[Page 482]]

of revenue sharing, loans, loan guarantees, interest subsidies, 
insurance, or direct appropriations. Also, the term does not include 
assistance, such as a fellowship or other lump sum award, which the 
grantee is not required to account for.
    Grantee means the government to which a grant is awarded and which 
is accountable for the use of the funds provided. The grantee is the 
entire legal entity even if only a particular component of the entity is 
designated in the grant award document.
    Local government means a county, municipality, city, town, township, 
local public authority (including any public and Indian housing agency 
under the United States Housing Act of 1937) school district, special 
district, intrastate district, council of governments (whether or not 
incorporated as a nonprofit corporation under state law), any other 
regional or interstate government entity, or any agency or 
instrumentality of a local government.
    Obligations means the amounts of orders placed, contracts and 
subgrants awarded, goods and services received, and similar transactions 
during a given period that will require payment by the grantee during 
the same or a future period.
    OMB means the United States Office of Management and Budget.
    Outlays (expenditures) mean charges made to the project or program. 
They may be reported on a cash or accrual basis. For reports prepared on 
a cash basis, outlays are the sum of actual cash disbursement for direct 
charges for goods and services, the amount of indirect expense incurred, 
the value of in-kind contributions applied, and the amount of cash 
advances and payments made to contractors and subgrantees. For reports 
prepared on an accrued expenditure basis, outlays are the sum of actual 
cash disbursements, the amount of indirect expense incurred, the value 
of inkind contributions applied, and the new increase (or decrease) in 
the amounts owed by the grantee for goods and other property received, 
for services performed by employees, contractors, subgrantees, 
subcontractors, and other payees, and other amounts becoming owed under 
programs for which no current services or performance are required, such 
as annuities, insurance claims, and other benefit payments.
    Percentage of completion method refers to a system under which 
payments are made for construction work according to the percentage of 
completion of the work, rather than to the grantee's cost incurred.
    Prior approval means documentation evidencing consent prior to 
incurring specific cost.
    Real property means land, including land improvements, structures 
and appurtenances thereto, excluding movable machinery and equipment.
    Share, when referring to the awarding agency's portion of real 
property, equipment or supplies, means the same percentage as the 
awarding agency's portion of the acquiring party's total costs under the 
grant to which the acquisition costs under the grant to which the 
acquisition cost of the property was charged. Only costs are to be 
counted--not the value of third-party in-kind contributions.
    State means any of the several States of the United States, the 
District of Columbia, the Commonwealth of Puerto Rico, any territory or 
possession of the United States, or any agency or instrumentality of a 
State exclusive of local governments. The term does not include any 
public and Indian housing agency under United States Housing Act of 
1937.
    Subgrant means an award of financial assistance in the form of 
money, or property in lieu of money, made under a grant by a grantee to 
an eligible subgrantee. The term includes financial assistance when 
provided by contractual legal agreement, but does not include 
procurement purchases, nor does it include any form of assistance which 
is excluded from the definition of grant in this part.
    Subgrantee means the government or other legal entity to which a 
subgrant is awarded and which is accountable to the grantee for the use 
of the funds provided.
    Supplies means all tangible personal property other than equipment 
as defined in this part.
    Suspension means depending on the context, either (1) temporary 
withdrawal of the authority to obligate grant funds pending corrective 
action

[[Page 483]]

by the grantee or subgrantee or a decision to terminate the grant, or 
(2) an action taken by a suspending official in accordance with agency 
regulations implementing E.O. 12549 to immediately exclude a person from 
participating in grant transactions for a period, pending completion of 
an investigation and such legal or debarment proceedings as may ensue.
    Termination means permanent withdrawal of the authority to obligate 
previously-awarded grant funds before that authority would otherwise 
expire. It also means the voluntary relinquishment of that authority by 
the grantee or subgrantee. Termination does not include: (1) Withdrawal 
of funds awarded on the basis of the grantee's underestimate of the 
unobligated balance in a prior period; (2) Withdrawal of the unobligated 
balance as of the expiration of a grant; (3) Refusal to extend a grant 
or award additional funds, to make a competing or noncompeting 
continuation, renewal, extension, or supplemental award; or (4) voiding 
of a grant upon determination that the award was obtained fraudulently, 
or was otherwise illegal or invalid from inception.
    Terms of a grant or subgrant mean all requirements of the grant or 
subgrant, whether in statute, regulations, or the award document.
    Third party in-kind contributions mean property or services which 
benefit a federally assisted project or program and which are 
contributed by non-Federal third parties without charge to the grantee, 
or a cost-type contractor under the grant agreement.
    Unliquidated obligations for reports prepared on a cash basis mean 
the amount of obligations incurred by the grantee that has not been 
paid. For reports prepared on an accrued expenditure basis, they 
represent the amount of obligations incurred by the grantee for which an 
outlay has not been recorded.
    Unobligated balance means the portion of the funds authorized by the 
Federal agency that has not been obligated by the grantee and is 
determined by deducting the cumulative obligations from the cumulative 
funds authorized.



Sec. 143.4  Applicability.

    (a) General. Subparts A through D of this part apply to all grants 
and subgrants to governments, except where inconsistent with Federal 
statutes or with regulations authorized in accordance with the exception 
provision of Sec. 143.6, or:
    (1) Grants and subgrants to State and local institutions of higher 
education or State and local hospitals.
    (2) The block grants authorized by the Omnibus Budget Reconciliation 
Act of 1981 (Community Services; Preventive Health and Health Services; 
Alcohol, Drug Abuse, and Mental Health Services; Maternal and Child 
Health Services; Social Services; Low-Income Home Energy Assistance; 
States' Program of Community Development Block Grants for Small Cities; 
and Elementary and Secondary Education other than programs administered 
by the Secretary of Education under Title V, Subtitle D, Chapter 2, 
Section 583--the Secretary's discretionary grant program) and Titles I-
III of the Job Training Partnership Act of 1982 and under the Public 
Health Services Act (Section 1921), Alcohol and Drug Abuse Treatment and 
Rehabilitation Block Grant and Part C of Title V, Mental Health Service 
for the Homeless Block Grant).
    (3) Entitlement grants to carry out the following programs of the 
Social Security Act:
    (i) Aid to Needy Families with Dependent Children (Title IV-A of the 
Act, not including the Work Incentive Program (WIN) authorized by 
section 402(a)19(G); HHS grants for WIN are subject to this part);
    (ii) Child Support Enforcement and Establishment of Paternity (Title 
IV-D of the Act);
    (iii) Foster Care and Adoption Assistance (Title IV-E of the Act);
    (iv) Aid to the Aged, Blind, and Disabled (Titles I, X, XIV, and 
XVI-AABD of the Act); and
    (v) Medical Assistance (Medicaid) (Title XIX of the Act) not 
including the State Medicaid Fraud Control program authorized by section 
1903(a)(6)(B).
    (4) Entitlement grants under the following programs of The National 
School Lunch Act:

[[Page 484]]

    (i) School Lunch (section 4 of the Act),
    (ii) Commodity Assistance (section 6 of the Act),
    (iii) Special Meal Assistance (section 11 of the Act),
    (iv) Summer Food Service for Children (section 13 of the Act), and
    (v) Child Care Food Program (section 17 of the Act).
    (5) Entitlement grants under the following programs of The Child 
Nutrition Act of 1966:
    (i) Special Milk (section 3 of the Act), and
    (ii) School Breakfast (section 4 of the Act).
    (6) Entitlement grants for State Administrative expenses under The 
Food Stamp Act of 1977 (section 16 of the Act).
    (7) A grant for an experimental, pilot, or demonstration project 
that is also supported by a grant listed in paragraph (a)(3) of this 
section;
    (8) Grant funds awarded under subsection 412(e) of the Immigration 
and Nationality Act (8 U.S.C. 1522(e)) and subsection 501(a) of the 
Refugee Education Assistance Act of 1980 (Pub. L. 96-422, 94 Stat. 
1809), for cash assistance, medical assistance, and supplemental 
security income benefits to refugees and entrants and the administrative 
costs of providing the assistance and benefits;
    (9) Grants to local education agencies under 20 U.S.C. 236 through 
241-1(a), and 242 through 244 (portions of the Impact Aid program), 
except for 20 U.S.C. 238(d)(2)(c) and 240(f) (Entitlement Increase for 
Handicapped Children); and
    (10) Payments under the Veterans Administration's State Home Per 
Diem Program (38 U.S.C. 641(a)).
    (b) Entitlement programs. Entitlement programs enumerated above in 
Sec. 143.4(a)(3) through (8) are subject to subpart E.



Sec. 143.5  Effect on other issuances.

    All other grants administration provisions of codified program 
regulations, program manuals, handbooks and other nonregulatory 
materials which are inconsistent with this part are superseded, except 
to the extent they are required by statute, or authorized in accordance 
with the exception provision in Sec. 143.6.



Sec. 143.6  Additions and exceptions.

    (a) For classes of grants and grantees subject to this part, Federal 
agencies may not impose additional administrative requirements except in 
codified regulations published in the Federal Register.
    (b) Exceptions for classes of grants or grantees may be authorized 
only by OMB.
    (c) Exceptions on a case-by-case basis and for subgrantees may be 
authorized by the affected Federal agencies.



                    Subpart B--Pre-Award Requirements



Sec. 143.10  Forms for applying for grants.

    (a) Scope. (1) This section prescribes forms and instructions to be 
used by governmental organizations (except hospitals and institutions of 
higher education operated by a government) in applying for grants. This 
section is not applicable, however, to formula grant programs which do 
not require applicants to apply for funds on a project basis.
    (2) This section applies only to applications to Federal agencies 
for grants, and is not required to be applied by grantees in dealing 
with applicants for subgrants. However, grantees are encouraged to avoid 
more detailed or burdensome application requirements for subgrants.
    (b) Authorized forms and instructions for governmental 
organizations. (1) In applying for grants, applicants shall only use 
standard application forms or those prescribed by the granting agency 
with the approval of OMB under the Paperwork Reduction Act of 1980.
    (2) Applicants are not required to submit more than the original and 
two copies of preapplications or applications.
    (3) Applicants must follow all applicable instructions that bear OMB 
clearance numbers. Federal agencies may specify and describe the 
programs, functions, or activities that will be used to plan, budget, 
and evaluate the work under a grant. Other supplementary instructions 
may be issued only with the approval of OMB to the

[[Page 485]]

extent required under the Paperwork Reduction Act of 1980. For any 
standard form, except the SF-424 facesheet, Federal agencies may shade 
out or instruct the applicant to disregard any line item that is not 
needed.
    (4) When a grantee applies for additional funding (such as a 
continuation or supplemental award) or amends a previously submitted 
application, only the affected pages need be submitted. Previously 
submitted pages with information that is still current need not be 
resubmitted.



Sec. 143.11  State plans.

    (a) Scope. The statutes for some programs require States to submit 
plans before receiving grants. Under regulations implementing Executive 
Order 12372, ``Intergovernmental Review of Federal Programs,'' States 
are allowed to simplify, consolidate and substitute plans. This section 
contains additional provisions for plans that are subject to regulations 
implementing the Executive order.
    (b) Requirements. A State need meet only Federal administrative or 
programmatic requirements for a plan that are in statutes or codified 
regulations.
    (c) Assurances. In each plan the State will include an assurance 
that the State shall comply with all applicable Federal statutes and 
regulations in effect with respect to the periods for which it receives 
grant funding. For this assurance and other assurances required in the 
plan, the State may:
    (1) Cite by number the statutory or regulatory provisions requiring 
the assurances and affirm that it gives the assurances required by those 
provisions,
    (2) Repeat the assurance language in the statutes or regulations, or
    (3) Develop its own language to the extent permitted by law.
    (d) Amendments. A State will amend a plan whenever necessary to 
reflect: (1) New or revised Federal statutes or regulations or (2) a 
material change in any State law, organization, policy, or State agency 
operation. The State will obtain approval for the amendment and its 
effective date but need submit for approval only the amended portions of 
the plan.



Sec. 143.12  Special grant or subgrant conditions for ``high-risk'' grantees.

    (a) A grantee or subgrantee may be considered high risk if an 
awarding agency determines that a grantee or subgrantee:
    (1) Has a history of unsatisfactory performance, or
    (2) Is not financially stable, or
    (3) Has a management system which does not meet the management 
standards set forth in this part, or
    (4) Has not conformed to terms and conditions of previous awards, or
    (5) Is otherwise not responsible; and if the awarding agency 
determines that an award will be made, special conditions and/or 
restrictions shall correspond to the high risk condition and shall be 
included in the award.
    (b) Special conditions or restrictions may include:
    (1) Payment on a reimbursement basis;
    (2) Withholding authority to proceed to the next phase until receipt 
of evidence of acceptable performance within a given funding period;
    (3) Requiring additional, more detailed financial reports;
    (4) Additional project monitoring;
    (5) Requiring the grante or subgrantee to obtain technical or 
management assistance; or
    (6) Establishing additional prior approvals.
    (c) If an awarding agency decides to impose such conditions, the 
awarding official will notify the grantee or subgrantee as early as 
possible, in writing, of:
    (1) The nature of the special conditions/restrictions;
    (2) The reason(s) for imposing them;
    (3) The corrective actions which must be taken before they will be 
removed and the time allowed for completing the corrective actions and
    (4) The method of requesting reconsideration of the conditions/
restrictions imposed.

[[Page 486]]



                   Subpart C--Post-Award Requirements

                        Financial Administration



Sec. 143.20  Standards for financial management systems.

    (a) A State must expand and account for grant funds in accordance 
with State laws and procedures for expending and accounting for its own 
funds. Fiscal control and accounting procedures of the State, as well as 
its subgrantees and cost-type contractors, must be sufficient to--
    (1) Permit preparation of reports required by this part and the 
statutes authorizing the grant, and
    (2) Permit the tracing of funds to a level of expenditures adequate 
to establish that such funds have not been used in violation of the 
restrictions and prohibitions of applicable statutes.
    (b) The financial management systems of other grantees and 
subgrantees must meet the following standards:
    (1) Financial reporting. Accurate, current, and complete disclosure 
of the financial results of financially assisted activities must be made 
in accordance with the financial reporting requirements of the grant or 
subgrant.
    (2) Accounting records. Grantees and subgrantees must maintain 
records which adequately identify the source and application of funds 
provided for financially-assisted activities. These records must contain 
information pertaining to grant or subgrant awards and authorizations, 
obligations, unobligated balances, assets, liabilities, outlays or 
expenditures, and income.
    (3) Internal control. Effective control and accountability must be 
maintained for all grant and subgrant cash, real and personal property, 
and other assets. Grantees and subgrantees must adequately safeguard all 
such property and must assure that it is used solely for authorized 
purposes.
    (4) Budget control. Actual expenditures or outlays must be compared 
with budgeted amounts for each grant or subgrant. Financial information 
must be related to performance or productivity data, including the 
development of unit cost information whenever appropriate or 
specifically required in the grant or subgrant agreement. If unit cost 
data are required, estimates based on available documentation will be 
accepted whenever possible.
    (5) Allowable cost. Applicable OMB cost principles, agency program 
regulations, and the terms of grant and subgrant agreements will be 
followed in determining the reasonableness, allowability, and 
allocability of costs.
    (6) Source documentation. Accounting records must be supported by 
such source documentation as cancelled checks, paid bills, payrolls, 
time and attendance records, contract and subgrant award documents, etc.
    (7) Cash management. Procedures for minimizing the time elapsing 
between the transfer of funds from the U.S. Treasury and disbursement by 
grantees and subgrantees must be followed whenever advance payment 
procedures are used. Grantees must establish reasonable procedures to 
ensure the receipt of reports on subgrantees' cash balances and cash 
disbursements in sufficient time to enable them to prepare complete and 
accurate cash transactions reports to the awarding agency. When advances 
are made by letter-of-credit or electronic transfer of funds methods, 
the grantee must make drawdowns as close as possible to the time of 
making disbursements. Grantees must monitor cash drawdowns by their 
subgrantees to assure that they conform substantially to the same 
standards of timing and amount as apply to advances to the grantees.
    (c) An awarding agency may review the adequacy of the financial 
management system of any applicant for financial assistance as part of a 
preaward review or at any time subsequent to award.



Sec. 143.21  Payment.

    (a) Scope. This section prescribes the basic standard and the 
methods under which a Federal agency will make payments to grantees, and 
grantees will make payments to subgrantees and contractors.
    (b) Basic standard. Methods and procedures for payment shall 
minimize the time elapsing between the transfer of funds and 
disbursement by the grantee or subgrantee, in accordance

[[Page 487]]

with Treasury regulations at 31 CFR part 205.
    (c) Advances. Grantees and subgrantees shall be paid in advance, 
provided they maintain or demonstrate the willingness and ability to 
maintain procedures to minimize the time elapsing between the transfer 
of the funds and their disbursement by the grantee or subgrantee.
    (d) Reimbursement. Reimbursement shall be the preferred method when 
the requirements in paragraph (c) of this section are not met. Grantees 
and subgrantees may also be paid by reimbursement for any construction 
grant. Except as otherwise specified in regulation, Federal agencies 
shall not use the percentage of completion method to pay construction 
grants. The grantee or subgrantee may use that method to pay its 
construction contractor, and if it does, the awarding agency's payments 
to the grantee or subgrantee will be based on the grantee's or 
subgrantee's actual rate of disbursement.
    (e) Working capital advances. If a grantee cannot meet the criteria 
for advance payments described in paragraph (c) of this section, and the 
Federal agency has determined that reimbursement is not feasible because 
the grantee lacks sufficient working capital, the awarding agency may 
provide cash or a working capital advance basis. Under this procedure 
the awarding agency shall advance cash to the grantee to cover its 
estimated disbursement needs for an initial period generally geared to 
the grantee's disbursing cycle. Thereafter, the awarding agency shall 
reimburse the grantee for its actual cash disbursements. The working 
capital advance method of payment shall not be used by grantees or 
subgrantees if the reason for using such method is the unwillingness or 
inability of the grantee to provide timely advances to the subgrantee to 
meet the subgrantee's actual cash disbursements.
    (f) Effect of program income, refunds, and audit recoveries on 
payment. (1) Grantees and subgrantees shall disburse repayments to and 
interest earned on a revolving fund before requesting additional cash 
payments for the same activity.
    (2) Except as provided in paragraph (f)(1) of this section, grantees 
and subgrantees shall disburse program income, rebates, refunds, 
contract settlements, audit recoveries and interest earned on such funds 
before requesting additional cash payments.
    (g) Withholding payments. (1) Unless otherwise required by Federal 
statute, awarding agencies shall not withhold payments for proper 
charges incurred by grantees or subgrantees unless--
    (i) The grantee or subgrantee has failed to comply with grant award 
conditions or
    (ii) The grantee or subgrantee is indebted to the United States.
    (2) Cash withheld for failure to comply with grant award condition, 
but without suspension of the grant, shall be released to the grantee 
upon subsequent compliance. When a grant is suspended, payment 
adjustments will be made in accordance with Sec. 143.43(c).
    (3) A Federal agency shall not make payment to grantees for amounts 
that are withheld by grantees or subgrantees from payment to contractors 
to assure satisfactory completion of work. Payments shall be made by the 
Federal agency when the grantees or subgrantees actually disburse the 
withheld funds to the contractors or to escrow accounts established to 
assure satisfactory completion of work.
    (h) Cash depositories. (1) Consistent with the national goal of 
expanding the opportunities for minority business enterprises, grantees 
and subgrantees are encouraged to use minority banks (a bank which is 
owned at least 50 percent by minority group members). A list of minority 
owned banks can be obtained from the Minority Business Development 
Agency, Department of Commerce, Washington, DC 20230.
    (2) A grantee or subgrantee shall maintain a separate bank account 
only when required by Federal-State agreement.
    (i) Interest earned on advances. Except for interest earned on 
advances of funds exempt under the Intergovernmental Cooperation Act (31 
U.S.C. 6501 et seq.) and the Indian Self-Determination Act (23 U.S.C. 
450), grantees and subgrantees shall promptly, but at least quarterly, 
remit interest earned on advances to the Federal agency. The

[[Page 488]]

grantee or subgrantee may keep interest amounts up to $100 per year for 
administrative expenses.



Sec. 143.22  Allowable costs.

    (a) Limitation on use of funds. Grant funds may be used only for:
    (1) The allowable costs of the grantees, subgrantees and cost-type 
contractors, including allowable costs in the form of payments to fixed-
price contractors; and
    (2) Reasonable fees or profit to cost-type contractors but not any 
fee or profit (or other increment above allowable costs) to the grantee 
or subgrantee.
    (b) Applicable cost principles. For each kind of organization, there 
is a set of Federal principles for determining allowable costs. 
Allowable costs will be determined in accordance with the cost 
principles applicable to the organization incurring the costs. The 
following chart lists the kinds of organizations and the applicable cost 
principles.

------------------------------------------------------------------------
           For the costs of a--                Use the principles in--
------------------------------------------------------------------------
State, local or Indian tribal government..  OMB Circular A-87.
Private nonprofit organization other than   OMB Circular A-122.
 an (1) institution of higher education,
 (2) hospital, or (3) organization named
 in OMB Circular A-122 as not subject to
 that circular.
Educational institutions..................  OMB Circular A-21.
For-profit organization other than a        48 CFR part 31. Contract
 hospital and an organization named in OBM   Cost Principles and
 Circular A-122 as not subject to that       Procedures, or uniform cost
 circular.                                   accounting standards that
                                             comply with cost principles
                                             acceptable to the Federal
                                             agency.
------------------------------------------------------------------------



Sec. 143.23  Period of availability of funds.

    (a) General. Where a funding period is specified, a grantee may 
charge to the award only costs resulting from obligations of the funding 
period unless carryover of unobligated balances is permitted, in which 
case the carryover balances may be charged for costs resulting from 
obligations of the subsequent funding period.
    (b) Liquidation of obligations. A grantee must liquidate all 
obligations incurred under the award not later than 90 days after the 
end of the funding period (or as specified in a program regulation) to 
coincide with the submission of the annual Financial Status Report (SF-
269). The Federal agency may extend this deadline at the request of the 
grantee.



Sec. 143.24  Matching or cost sharing.

    (a) Basic rule: Costs and contributions acceptable. With the 
qualifications and exceptions listed in paragraph (b) of this section, a 
matching or cost sharing requirement may be satisfied by either or both 
of the following:
    (1) Allowable costs incurred by the grantee, subgrantee or a cost-
type contractor under the assistance agreement. This includes allowable 
costs borne by non-Federal grants or by others cash donations from non-
Federal third parties.
    (2) The value of third party in-kind contributions applicable to the 
period to which the cost sharing or matching requirements applies.
    (b) Qualifications and exceptions--(1) Costs borne by other Federal 
grant agreements. Except as provided by Federal statute, a cost sharing 
or matching requirement may not be met by costs borne by another Federal 
grant. This prohibition does not apply to income earned by a grantee or 
subgrantee from a contract awarded under another Federal grant.
    (2) General revenue sharing. For the purpose of this section, 
general revenue sharing funds distributed under 31 U.S.C. 6702 are not 
considered Federal grant funds.
    (3) Cost or contributions counted towards other Federal costs-
sharing requirements. Neither costs nor the values of third party in-
kind contributions may count towards satisfying a cost sharing or 
matching requirement of a grant agreement if they have been or will be 
counted towards satisfying a cost sharing or matching requirement of 
another Federal grant agreement, a Federal procurement contract, or any 
other award of Federal funds.
    (4) Costs financed by program income. Costs financed by program 
income, as defined in Sec. 143.25, shall not count towards satisfying a 
cost sharing or matching requirement unless they are expressly permitted 
in the terms of the assistance agreement. (This use of general program 
income is described in Sec. 143.25(g).)

[[Page 489]]

    (5) Services or property financed by income earned by contractors. 
Contractors under a grant may earn income from the activities carried 
out under the contract in addition to the amounts earned from the party 
awarding the contract. No costs of services or property supported by 
this income may count toward satisfying a cost sharing or matching 
requirement unless other provisions of the grant agreement expressly 
permit this kind of income to be used to meet the requirement.
    (6) Records. Costs and third party in-kind contributions counting 
towards satisfying a cost sharing or matching requirement must be 
verifiable from the records of grantees and subgrantee or cost-type 
contractors. These records must show how the value placed on third party 
in-kind contributions was derived. To the extent feasible, volunteer 
services will be supported by the same methods that the organization 
uses to support the allocability of regular personnel costs.
    (7) Special standards for third party in-kind contributions. (i) 
Third party in-kind contributions count towards satisfying a cost 
sharing or matching requirement only where, if the party receiving the 
contributions were to pay for them, the payments would be allowable 
costs.
    (ii) Some third party in-kind contributions are goods and services 
that, if the grantee, subgrantee, or contractor receiving the 
contribution had to pay for them, the payments would have been an 
indirect costs. Costs sharing or matching credit for such contributions 
shall be given only if the grantee, subgrantee, or contractor has 
established, along with its regular indirect cost rate, a special rate 
for allocating to individual projects or programs the value of the 
contributions.
    (iii) A third party in-kind contribution to a fixed-price contract 
may count towards satisfying a cost sharing or matching requirement only 
if it results in:
    (A) An increase in the services or property provided under the 
contract (without additional cost to the grantee or subgrantee) or
    (B) A cost savings to the grantee or subgrantee.
    (iv) The values placed on third party in-kind contributions for cost 
sharing or matching purposes will conform to the rules in the succeeding 
sections of this part. If a third party in-kind contribution is a type 
not treated in those sections, the value placed upon it shall be fair 
and reasonable.
    (c) Valuation of donated services--(1) Volunteer services. Unpaid 
services provided to a grantee or subgrantee by individuals will be 
valued at rates consistent with those ordinarily paid for similar work 
in the grantee's or subgrantee's organization. If the grantee or 
subgrantee does not have employees performing similar work, the rates 
will be consistent with those ordinarily paid by other employers for 
similar work in the same labor market. In either case, a reasonable 
amount for fringe benefits may be included in the valuation.
    (2) Employees of other organizations. When an employer other than a 
grantee, subgrantee, or cost-type contractor furnishes free of charge 
the services of an employee in the employee's normal line of work, the 
services will be valued at the employee's regular rate of pay exclusive 
of the employee's fringe benefits and overhead costs. If the services 
are in a different line of work, paragraph (c)(1) of this section 
applies.
    (d) Valuation of third party donated supplies and loaned equipment 
or space. (1) If a third party donates supplies, the contribution will 
be valued at the market value of the supplies at the time of donation.
    (2) If a third party donates the use of equipment or space in a 
building but retains title, the contribution will be valued at the fair 
rental rate of the equipment or space.
    (e) Valuation of third party donated equipment, buildings, and land. 
If a third party donates equipment, buildings, or land, and title passes 
to a grantee or subgrantee, the treatment of the donated property will 
depend upon the purpose of the grant or subgrant, as follows:
    (1) Awards for capital expenditures. If the purpose of the grant or 
subgrant is to assist the grantee or subgrantee in the acquisition of 
property, the market value of that property at the time of

[[Page 490]]

donation may be counted as cost sharing or matching,
    (2) Other awards. If assisting in the acquisition of property is not 
the purpose of the grant or subgrant, paragraphs (e)(2)(i) and (ii) of 
this section apply:
    (i) If approval is obtained from the awarding agency, the market 
value at the time of donation of the donated equipment or buildings and 
the fair rental rate of the donated land may be counted as cost sharing 
or matching. In the case of a subgrant, the terms of the grant agreement 
may require that the approval be obtained from the Federal agency as 
well as the grantee. In all cases, the approval may be given only if a 
purchase of the equipment or rental of the land would be approved as an 
allowable direct cost. If any part of the donated property was acquired 
with Federal funds, only the non-federal share of the property may be 
counted as cost-sharing or matching.
    (ii) If approval is not obtained under paragraph (e)(2)(i) of this 
section, no amount may be counted for donated land, and only 
depreciation or use allowances may be counted for donated equipment and 
buildings. The depreciation or use allowances for this property are not 
treated as third party in-kind contributions. Instead, they are treated 
as costs incurred by the grantee or subgrantee. They are computed and 
allocated (usually as indirect costs) in accordance with the cost 
principles specified in Sec. 143.22, in the same way as depreciation or 
use allowances for purchased equipment and buildings. The amount of 
depreciation or use allowances for donated equipment and buildings is 
based on the property's market value at the time it was donated.
    (f) Valuation of grantee or subgrantee donated real property for 
construction/acquisition. If a grantee or subgrantee donates real 
property for a construction or facilities acquisition project, the 
current market value of that property may be counted as cost sharing or 
matching. If any part of the donated property was acquired with Federal 
funds, only the non-federal share of the property may be counted as cost 
sharing or matching.
    (g) Appraisal of real property. In some cases under paragraphs (d), 
(e) and (f) of this section, it will be necessary to establish the 
market value of land or a building or the fair rental rate of land or of 
space in a building. In these cases, the Federal agency may require the 
market value or fair rental value be set by an independent appraiser, 
and that the value or rate be certified by the grantee. This requirement 
will also be imposed by the grantee on subgrantees.



Sec. 143.25  Program income.

    (a) General. Grantees are encouraged to earn income to defray 
program costs. Program income includes income from fees for services 
performed, from the use or rental of real or personal property acquired 
with grant funds, from the sale of commodities or items fabricated under 
a grant agreement, and from payments of principal and interest on loans 
made with grant funds. Except as otherwise provided in regulations of 
the Federal agency, program income does not include interest on grant 
funds, rebates, credits, discounts, refunds, etc. and interest earned on 
any of them.
    (b) Definition of program income. Program income means gross income 
received by the grantee or subgrantee directly generated by a grant 
supported activity, or earned only as a result of the grant agreement 
during the grant period. During the grant period is the time between the 
effective date of the award and the ending date of the award reflected 
in the final financial report.
    (c) Cost of generating program income. If authorized by Federal 
regulations or the grant agreement, costs incident to the generation of 
program income may be deducted from gross income to determine program 
income.
    (d) Governmental revenues. Taxes, special assessments, levies, 
fines, and other such revenues raised by a grantee or subgrantee are not 
program income unless the revenues are specifically identified in the 
grant agreement or Federal agency regulations as program income.
    (e) Royalties. Income from royalties and license fees for 
copyrighted material, patents, and inventions developed by a grantee or 
subgrantee is program income only if the revenues are specifically 
identified in the grant agreement

[[Page 491]]

or Federal agency regulations as program income. (See Sec. 143.34.)
    (f) Property. Proceeds from the sale of real property or equipment 
will be handled in accordance with the requirements of Secs. 143.31 and 
143.32.
    (g) Use of program income. Program income shall be deducted from 
outlays which may be both Federal and non-Federal as described below, 
unless the Federal agency regulations or the grant agreement specify 
another alternative (or a combination of the alternatives). In 
specifying alternatives, the Federal agency may distinguish between 
income earned by the grantee and income earned by subgrantees and 
between the sources, kinds, or amounts of income. When Federal agencies 
authorize the alternatives in paragraphs (g) (2) and (3) of this 
section, program income in excess of any limits stipulated shall also be 
deducted from outlays.
    (1) Deduction. Ordinarily program income shall be deducted from 
total allowable costs to determine the net allowable costs. Program 
income shall be used for current costs unless the Federal agency 
authorizes otherwise. Program income which the grantee did not 
anticipate at the time of the award shall be used to reduce the Federal 
agency and grantee contributions rather than to increase the funds 
committed to the project.
    (2) Addition. When authorized, program income may be added to the 
funds committed to the grant agreement by the Federal agency and the 
grantee. The program income shall be used for the purposes and under the 
conditions of the grant agreement.
    (3) Cost sharing or matching. When authorized, program income may be 
used to meet the cost sharing or matching requirement of the grant 
agreement. The amount of the Federal grant award remains the same.
    (h) Income after the award period. There are no Federal requirements 
governing the disposition of program income earned after the end of the 
award period (i.e., until the ending date of the final financial report, 
see paragraph (a) of this section), unless the terms of the agreement or 
the Federal agency regulations provide otherwise.



Sec. 143.26  Non-Federal audit.

    (a) Basic Rule. Grantees and subgrantees are responsible for 
obtaining audits in accordance with the Single Audit Act Amendments of 
1996 (31 U.S.C. 7501-7507) and revised OMB Circular A-133, ``Audits of 
States, Local Governments, and Non-Profit Organizations.'' The audit 
shall be made by an independent auditor in accordance with generally 
accepted government auditing standards covering financial audits.
    (b) Subgrantees. State or local governments, as those terms are 
defined for purposes of the Single Audit Act Amendments of 1996, that 
provide Federal awards to a subgrantee, which expends $300,000 or more 
(or other amount as specified by OMB) in Federal awards in a fiscal year 
shall:
    (1) Determine whether State or local subgrantees have met the audit 
requirements of the Act and whether subgrantees covered by OMB Circular 
A-110, ``Uniform Administrative Requirements with Institutions of Higher 
Education, Hospitals, and Other Non-Profit Organizations,'' have met the 
audit requirements of the Act. Commercial contractors (private for-
profit and private and governmental organizations) providing goods and 
services to State and local governments are not required to have a 
single audit performed. State and local governments should use their own 
procedures to ensure that the contractors has complied with laws and 
regulations affecting the expenditure of Federal funds;
    (2) Determine whether the subgrantee spent Federal assistance funds 
provided in accordance with applicable laws and regulations. This may be 
accomplished by reviewing an audit of the subgrantee made in accordance 
with the Act, Circular A-110, or through other means (e.g., program 
reviews) if the subgrantee has not had such an audit;
    (3) Ensure that appropriate corrective action is taken within six 
months after receipt of the audit report in instance of noncompliance 
with Federal laws and regulations;
    (4) Consider whether subgrantee audits necessitate adjustment of the 
grantee's own records; and

[[Page 492]]

    (5) Require each subgrantee to permit independent auditors to have 
access to the records and financial statements.
    (c) Auditor selection. In arranging for audit services, Sec. 143.36 
shall be followed.

[53 FR 8048, 8087, Mar. 11, 1988, as amended at 62 FR 45939, 45940, Aug. 
29, 1997]

                    Changes, Property, and Subawards



Sec. 143.30  Changes.

    (a) General. Grantees and subgrantees are permitted to rebudget 
within the approved direct cost budget to meet unanticipated 
requirements and may make limited program changes to the approved 
project. However, unless waived by the awarding agency, certain types of 
post-award changes in budgets and projects shall require the prior 
written approval of the awarding agency.
    (b) Relation to cost principles. The applicable cost principles (see 
Sec. 143.22) contain requirements for prior approval of certain types of 
costs. Except where waived, those requirements apply to all grants and 
subgrants even if paragraphs (c) through (f) of this section do not.
    (c) Budget changes--(1) Nonconstruction projects. Except as stated 
in other regulations or an award document, grantees or subgrantees shall 
obtain the prior approval of the awarding agency whenever any of the 
following changes is anticipated under a nonconstruction award:
    (i) Any revision which would result in the need for additional 
funding.
    (ii) Unless waived by the awarding agency, cumulative transfers 
among direct cost categories, or, if applicable, among separately 
budgeted programs, projects, functions, or activities which exceed or 
are expected to exceed ten percent of the current total approved budget, 
whenever the awarding agency's share exceeds $100,000.
    (iii) Transfer of funds allotted for training allowances (i.e., from 
direct payments to trainees to other expense categories).
    (2) Construction projects. Grantees and subgrantees shall obtain 
prior written approval for any budget revision which would result in the 
need for additional funds.
    (3) Combined construction and nonconstruction projects. When a grant 
or subgrant provides funding for both construction and nonconstruction 
activities, the grantee or subgrantee must obtain prior written approval 
from the awarding agency before making any fund or budget transfer from 
nonconstruction to construction or vice versa.
    (d) Programmatic changes. Grantees or subgrantees must obtain the 
prior approval of the awarding agency whenever any of the following 
actions is anticipated:
    (1) Any revision of the scope or objectives of the project 
(regardless of whether there is an associated budget revision requiring 
prior approval).
    (2) Need to extend the period of availability of funds.
    (3) Changes in key persons in cases where specified in an 
application or a grant award. In research projects, a change in the 
project director or principal investigator shall always require approval 
unless waived by the awarding agency.
    (4) Under nonconstruction projects, contracting out, subgranting (if 
authorized by law) or otherwise obtaining the services of a third party 
to perform activities which are central to the purposes of the award. 
This approval requirement is in addition to the approval requirements of 
Sec. 143.36 but does not apply to the procurement of equipment, 
supplies, and general support services.
    (e) Additional prior approval requirements. The awarding agency may 
not require prior approval for any budget revision which is not 
described in paragraph (c) of this section.
    (f) Requesting prior approval. (1) A request for prior approval of 
any budget revision will be in the same budget formal the grantee used 
in its application and shall be accompanied by a narrative justification 
for the proposed revision.
    (2) A request for a prior approval under the applicable Federal cost 
principles (see Sec. 143.22) may be made by letter.
    (3) A request by a subgrantee for prior approval will be addressed 
in writing to the grantee. The grantee will promptly review such request 
and

[[Page 493]]

shall approve or disapprove the request in writing. A grantee will not 
approve any budget or project revision which is inconsistent with the 
purpose or terms and conditions of the Federal grant to the grantee. If 
the revision, requested by the subgrantee would result in a change to 
the grantee's approved project which requires Federal prior approval, 
the grantee will obtain the Federal agency's approval before approving 
the subgrantee's request.



Sec. 143.31  Real property.

    (a) Title. Subject to the obligations and conditions set forth in 
this section, title to real property acquired under a grant or subgrant 
will vest upon acquisition in the grantee or subgrantee respectively.
    (b) Use. Except as otherwise provided by Federal statutes, real 
property will be used for the originally authorized purposes as long as 
needed for that purposes, and the grantee or subgrantee shall not 
dispose of or encumber its title or other interests.
    (c) Disposition. When real property is no longer needed for the 
originally authorized purpose, the grantee or subgrantee will request 
disposition instructions from the awarding agency. The instructions will 
provide for one of the following alternatives:
    (1) Retention of title. Retain title after compensating the awarding 
agency. The amount paid to the awarding agency will be computed by 
applying the awarding agency's percentage of participation in the cost 
of the original purchase to the fair market value of the property. 
However, in those situations where a grantee or subgrantee is disposing 
of real property acquired with grant funds and acquiring replacement 
real property under the same program, the net proceeds from the 
disposition may be used as an offset to the cost of the replacement 
property.
    (2) Sale of property. Sell the property and compensate the awarding 
agency. The amount due to the awarding agency will be calculated by 
applying the awarding agency's percentage of participation in the cost 
of the original purchase to the proceeds of the sale after deduction of 
any actual and reasonable selling and fixing-up expenses. If the grant 
is still active, the net proceeds from sale may be offset against the 
original cost of the property. When a grantee or subgrantee is directed 
to sell property, sales procedures shall be followed that provide for 
competition to the extent practicable and result in the highest possible 
return.
    (3) Transfer of title. Transfer title to the awarding agency or to a 
third-party designated/approved by the awarding agency. The grantee or 
subgrantee shall be paid an amount calculated by applying the grantee or 
subgrantee's percentage of participation in the purchase of the real 
property to the current fair market value of the property.



Sec. 143.32  Equipment.

    (a) Title. Subject to the obligations and conditions set forth in 
this section, title to equipment acquired under a grant or subgrant will 
vest upon acquisition in the grantee or subgrantee respectively.
    (b) States. A State will use, manage, and dispose of equipment 
acquired under a grant by the State in accordance with State laws and 
procedures. Other grantees and subgrantees will follow paragraphs (c) 
through (e) of this section.
    (c) Use. (1) Equipment shall be used by the grantee or subgrantee in 
the program or project for which it was acquired as long as needed, 
whether or not the project or program continues to be supported by 
Federal funds. When no longer needed for the original program or 
project, the equipment may be used in other activities currently or 
previously supported by a Federal agency.
    (2) The grantee or subgrantee shall also make equipment available 
for use on other projects or programs currently or previously supported 
by the Federal Government, providing such use will not interfere with 
the work on the projects or program for which it was originally 
acquired. First preference for other use shall be given to other 
programs or projects supported by the awarding agency. User fees should 
be considered if appropriate.
    (3) Notwithstanding the encouragement in Sec. 143.25(a) to earn 
program income, the grantee or subgrantee must not use equipment 
acquired with grant

[[Page 494]]

funds to provide services for a fee to compete unfairly with private 
companies that provide equivalent services, unless specifically 
permitted or contemplated by Federal statute.
    (4) When acquiring replacement equipment, the grantee or subgrantee 
may use the equipment to be replaced as a trade-in or sell the property 
and use the proceeds to offset the cost of the replacement property, 
subject to the approval of the awarding agency.
    (d) Management requirements. Procedures for managing equipment 
(including replacement equipment), whether acquired in whole or in part 
with grant funds, until disposition takes place will, as a minimum, meet 
the following requirements:
    (1) Property records must be maintained that include a description 
of the property, a serial number or other identification number, the 
source of property, who holds title, the acquisition date, and cost of 
the property, percentage of Federal participation in the cost of the 
property, the location, use and condition of the property, and any 
ultimate disposition data including the date of disposal and sale price 
of the property.
    (2) A physical inventory of the property must be taken and the 
results reconciled with the property records at least once every two 
years.
    (3) A control system must be developed to ensure adequate safeguards 
to prevent loss, damage, or theft of the property. Any loss, damage, or 
theft shall be investigated.
    (4) Adequate maintenance procedures must be developed to keep the 
property in good condition.
    (5) If the grantee or subgrantee is authorized or required to sell 
the property, proper sales procedures must be established to ensure the 
highest possible return.
    (e) Disposition. When original or replacement equipment acquired 
under a grant or subgrant is no longer needed for the original project 
or program or for other activities currently or previously supported by 
a Federal agency, disposition of the equipment will be made as follows:
    (1) Items of equipment with a current per-unit fair market value of 
less than $5,000 may be retained, sold or otherwise disposed of with no 
further obligation to the awarding agency.
    (2) Items of equipment with a current per unit fair market value in 
excess of $5,000 may be retained or sold and the awarding agency shall 
have a right to an amount calculated by multiplying the current market 
value or proceeds from sale by the awarding agency's share of the 
equipment.
    (3) In cases where a grantee or subgrantee fails to take appropriate 
disposition actions, the awarding agency may direct the grantee or 
subgrantee to take excess and disposition actions.
    (f) Federal equipment. In the event a grantee or subgrantee is 
provided federally-owned equipment:
    (1) Title will remain vested in the Federal Government.
    (2) Grantees or subgrantees will manage the equipment in accordance 
with Federal agency rules and procedures, and submit an annual inventory 
listing.
    (3) When the equipment is no longer needed, the grantee or 
subgrantee will request disposition instructions from the Federal 
agency.
    (g) Right to transfer title. The Federal awarding agency may reserve 
the right to transfer title to the Federal Government or a third part 
named by the awarding agency when such a third party is otherwise 
eligible under existing statutes. Such transfers shall be subject to the 
following standards:
    (1) The property shall be identified in the grant or otherwise made 
known to the grantee in writing.
    (2) The Federal awarding agency shall issue disposition instruction 
within 120 calendar days after the end of the Federal support of the 
project for which it was acquired. If the Federal awarding agency fails 
to issue disposition instructions within the 120 calendar-day period the 
grantee shall follow Sec. 143.32(e).
    (3) When title to equipment is transferred, the grantee shall be 
paid an amount calculated by applying the percentage of participation in 
the purchase to the current fair market value of the property.



Sec. 143.33  Supplies.

    (a) Title. Title to supplies acquired under a grant or subgrant will 
vest,

[[Page 495]]

upon acquisition, in the grantee or subgrantee respectively.
    (b) Disposition. If there is a residual inventory of unused supplies 
exceeding $5,000 in total aggregate fair market value upon termination 
or completion of the award, and if the supplies are not needed for any 
other federally sponsored programs or projects, the grantee or 
subgrantee shall compensate the awarding agency for its share.



Sec. 143.34  Copyrights.

    The Federal awarding agency reserves a royalty-free, nonexclusive, 
and irrevocable license to reproduce, publish or otherwise use, and to 
authorize others to use, for Federal Government purposes:
    (a) The copyright in any work developed under a grant, subgrant, or 
contract under a grant or subgrant; and
    (b) Any rights of copyright to which a grantee, subgrantee or a 
contractor purchases ownership with grant support.



Sec. 143.35  Subawards to debarred and suspended parties.

    Grantees and subgrantees must not make any award or permit any award 
(subgrant or contract) at any tier to any party which is debarred or 
suspended or is otherwise excluded from or ineligible for participation 
in Federal assistance programs under Executive Order 12549, ``Debarment 
and Suspension.''



Sec. 143.36  Procurement.

    (a) States. When procuring property and services under a grant, a 
State will follow the same policies and procedures it uses for 
procurements from its non-Federal funds. The State will ensure that 
every purchase order or other contract includes any clauses required by 
Federal statutes and executive orders and their implementing 
regulations. Other grantees and subgrantees will follow paragraphs (b) 
through (i) in this section.
    (b) Procurement standards. (1) Grantees and subgrantees will use 
their own procurement procedures which reflect applicable State and 
local laws and regulations, provided that the procurements conform to 
applicable Federal law and the standards identified in this section.
    (2) Grantees and subgrantees will maintain a contract administration 
system which ensures that contractors perform in accordance with the 
terms, conditions, and specifications of their contracts or purchase 
orders.
    (3) Grantees and subgrantees will maintain a written code of 
standards of conduct governing the performance of their employees 
engaged in the award and administration of contracts. No employee, 
officer or agent of the grantee or subgrantee shall participate in 
selection, or in the award or administration of a contract supported by 
Federal funds if a conflict of interest, real or apparent, would be 
involved. Such a conflict would arise when:
    (i) The employee, officer or agent,
    (ii) Any member of his immediate family,
    (iii) His or her partner, or
    (iv) An organization which employs, or is about to employ, any of 
the above, has a financial or other interest in the firm selected for 
award. The grantee's or subgrantee's officers, employees or agents will 
neither solicit nor accept gratuities, favors or anything of monetary 
value from contractors, potential contractors, or parties to 
subagreements. Grantee and subgrantees may set minimum rules where the 
financial interest is not substantial or the gift is an unsolicited item 
of nominal intrinsic value. To the extent permitted by State or local 
law or regulations, such standards or conduct will provide for 
penalties, sanctions, or other disciplinary actions for violations of 
such standards by the grantee's and subgrantee's officers, employees, or 
agents, or by contractors or their agents. The awarding agency may in 
regulation provide additional prohibitions relative to real, apparent, 
or potential conflicts of interest.
    (4) Grantee and subgrantee procedures will provide for a review of 
proposed procurements to avoid purchase of unnecessary or duplicative 
items. Consideration should be given to consolidating or breaking out 
procurements to obtain a more economical

[[Page 496]]

purchase. Where appropriate, an analysis will be made of lease versus 
purchase alternatives, and any other appropriate analysis to determine 
the most economical approach.
    (5) To foster greater economy and efficiency, grantees and 
subgrantees are encouraged to enter into State and local 
intergovernmental agreements for procurement or use of common goods and 
services.
    (6) Grantees and subgrantees are encouraged to use Federal excess 
and surplus property in lieu of purchasing new equipment and property 
whenever such use is feasible and reduces project costs.
    (7) Grantees and subgrantees are encouraged to use value engineering 
clauses in contracts for construction projects of sufficient size to 
offer reasonable opportunities for cost reductions. Value engineering is 
a systematic and creative anaylsis of each contract item or task to 
ensure that its essential function is provided at the overall lower 
cost.
    (8) Grantees and subgrantees will make awards only to responsible 
contractors possessing the ability to perform successfully under the 
terms and conditions of a proposed procurement. Consideration will be 
given to such matters as contractor integrity, compliance with public 
policy, record of past performance, and financial and technical 
resources.
    (9) Grantees and subgrantees will maintain records sufficient to 
detail the significant history of a procurement. These records will 
include, but are not necessarily limited to the following: rationale for 
the method of procurement, selection of contract type, contractor 
selection or rejection, and the basis for the contract price.
    (10) Grantees and subgrantees will use time and material type 
contracts only--
    (i) After a determination that no other contract is suitable, and
    (ii) If the contract includes a ceiling price that the contractor 
exceeds at its own risk.
    (11) Grantees and subgrantees alone will be responsible, in 
accordance with good administrative practice and sound business 
judgment, for the settlement of all contractual and administrative 
issues arising out of procurements. These issues include, but are not 
limited to source evaluation, protests, disputes, and claims. These 
standards do not relieve the grantee or subgrantee of any contractual 
responsibilities under its contracts. Federal agencies will not 
substitute their judgment for that of the grantee or subgrantee unless 
the matter is primarily a Federal concern. Violations of law will be 
referred to the local, State, or Federal authority having proper 
jurisdiction.
    (12) Grantees and subgrantees will have protest procedures to handle 
and resolve disputes relating to their procurements and shall in all 
instances disclose information regarding the protest to the awarding 
agency. A protestor must exhaust all administrative remedies with the 
grantee and subgrantee before pursuing a protest with the Federal 
agency. Reviews of protests by the Federal agency will be limited to:
    (i) Violations of Federal law or regulations and the standards of 
this section (violations of State or local law will be under the 
jurisdiction of State or local authorities) and
    (ii) Violations of the grantee's or subgrantee's protest procedures 
for failure to review a complaint or protest. Protests received by the 
Federal agency other than those specified above will be referred to the 
grantee or subgrantee.
    (c) Competition. (1) All procurement transactions will be conducted 
in a manner providing full and open competition consistent with the 
standards of Sec. 143.36. Some of the situations considered to be 
restrictive of competition include but are not limited to:
    (i) Placing unreasonable requirements on firms in order for them to 
qualify to do business,
    (ii) Requiring unnecessary experience and excessive bonding,
    (iii) Noncompetitive pricing practices between firms or between 
affiliated companies,
    (iv) Noncompetitive awards to consultants that are on retainer 
contracts,
    (v) Organizational conflicts of interest,
    (vi) Specifying only a brand name product instead of allowing an 
equal product to be offered and describing

[[Page 497]]

the performance of other relevant requirements of the procurement, and
    (vii) Any arbitrary action in the procurement process.
    (2) Grantees and subgrantees will conduct procurements in a manner 
that prohibits the use of statutorily or administratively imposed in-
State or local geographical preferences in the evaluation of bids or 
proposals, except in those cases where applicable Federal statutes 
expressly mandate or encourage geographic preference. Nothing in this 
section preempts State licensing laws. When contracting for 
architectural and engineering (A/E) services, geographic location may be 
a selection criteria provided its application leaves an appropriate 
number of qualified firms, given the nature and size of the project, to 
compete for the contract.
    (3) Grantees will have written selection procedures for procurement 
transactions. These procedures will ensure that all solicitations:
    (i) Incorporate a clear and accurate description of the technical 
requirements for the material, product, or service to be procured. Such 
description shall not, in competitive procurements, contain features 
which unduly restrict competition. The description may include a 
statement of the qualitative nature of the material, product or service 
to be procured, and when necessary, shall set forth those minimum 
essential characteristics and standards to which it must conform if it 
is to satisfy its intended use. Detailed product specifications should 
be avoided if at all possible. When it is impractical or uneconomical to 
make a clear and accurate description of the technical requirements, a 
brand name or equal description may be used as a means to define the 
performance or other salient requirements of a procurement. The specific 
features of the named brand which must be met by offerors shall be 
clearly stated; and
    (ii) Identify all requirements which the offerors must fulfill and 
all other factors to be used in evaluating bids or proposals.
    (4) Grantees and subgrantees will ensure that all prequalified lists 
of persons, firms, or products which are used in acquiring goods and 
services are current and include enough qualified sources to ensure 
maximum open and free competition. Also, grantees and subgrantees will 
not preclude potential bidders from qualifying during the solicitation 
period.
    (d) Methods of procurement to be followed. (1) Procurement by small 
purchase procedures. Small purchase procedures are those relatively 
simple and informal procurement methods for securing services, supplies, 
or other property that do not cost more than the simplified acquisition 
threshold fixed at 41 U.S.C. 403(11) (currently set at $100,000). If 
small purchase procedures are used, price or rate quotations shall be 
obtained from an adequate number of qualified sources.
    (2) Procurement by sealed bids (formal advertising). Bids are 
publicly solicited and a firm-fixed-price contract (lump sum or unit 
price) is awarded to the responsible bidder whose bid, conforming with 
all the material terms and conditions of the invitation for bids, is the 
lowest in price. The sealed bid method is the preferred method for 
procuring construction, if the conditions in Sec. 143.36(d)(2)(i) apply.
    (i) In order for sealed bidding to be feasible, the following 
conditions should be present:
    (A) A complete, adequate, and realistic specification or purchase 
description is available;
    (B) Two or more responsible bidders are willing and able to compete 
effectively and for the business; and
    (C) The procurement lends itself to a firm fixed price contract and 
the selection of the successful bidder can be made principally on the 
basis of price.
    (ii) If sealed bids are used, the following requirements apply:
    (A) The invitation for bids will be publicly advertised and bids 
shall be solicited from an adequate number of known suppliers, providing 
them sufficient time prior to the date set for opening the bids;
    (B) The invitation for bids, which will include any specifications 
and pertinent attachments, shall define the items or services in order 
for the bidder to properly respond;
    (C) All bids will be publicly opened at the time and place 
prescribed in the invitation for bids;

[[Page 498]]

    (D) A firm fixed-price contract award will be made in writing to the 
lowest responsive and responsible bidder. Where specified in bidding 
documents, factors such as discounts, transportation cost, and life 
cycle costs shall be considered in determining which bid is lowest. 
Payment discounts will only be used to determine the low bid when prior 
experience indicates that such discounts are usually taken advantage of; 
and
    (E) Any or all bids may be rejected if there is a sound documented 
reason.
    (3) Procurement by competitive proposals. The technique of 
competitive proposals is normally conducted with more than one source 
submitting an offer, and either a fixed-price or cost-reimbursement type 
contract is awarded. It is generally used when conditions are not 
appropriate for the use of sealed bids. If this method is used, the 
following requirements apply:
    (i) Requests for proposals will be publicized and identify all 
evaluation factors and their relative importance. Any response to 
publicized requests for proposals shall be honored to the maximum extent 
practical;
    (ii) Proposals will be solicited from an adequate number of 
qualified sources;
    (iii) Grantees and subgrantees will have a method for conducting 
technical evaluations of the proposals received and for selecting 
awardees;
    (iv) Awards will be made to the responsible firm whose proposal is 
most advantageous to the program, with price and other factors 
considered; and
    (v) Grantees and subgrantees may use competitive proposal procedures 
for qualifications-based procurement of architectural/engineering (A/E) 
professional services whereby competitors' qualifications are evaluated 
and the most qualified competitor is selected, subject to negotiation of 
fair and reasonable compensation. The method, where price is not used as 
a selection factor, can only be used in procurement of A/E professional 
services. It cannot be used to purchase other types of services though 
A/E firms are a potential source to perform the proposed effort.
    (4) Procurement by noncompetitive proposals is procurement through 
solicitation of a proposal from only one source, or after solicitation 
of a number of sources, competition is determined inadequate.
    (i) Procurement by noncompetitive proposals may be used only when 
the award of a contract is infeasible under small purchase procedures, 
sealed bids or competitive proposals and one of the following 
circumstances applies:
    (A) The item is available only from a single source;
    (B) The public exigency or emergency for the requirement will not 
permit a delay resulting from competitive solicitation;
    (C) The awarding agency authorizes noncompetitive proposals; or
    (D) After solicitation of a number of sources, competition is 
determined inadequate.
    (ii) Cost analysis, i.e., verifying the proposed cost data, the 
projections of the data, and the evaluation of the specific elements of 
costs and profits, is required.
    (iii) Grantees and subgrantees may be required to submit the 
proposed procurement to the awarding agency for pre-award review in 
accordance with paragraph (g) of this section.
    (e) Contracting with small and minority firms, women's business 
enterprise and labor surplus area firms. (1) The grantee and subgrantee 
will take all necessary affirmative steps to assure that minority firms, 
women's business enterprises, and labor surplus area firms are used when 
possible.
    (2) Affirmative steps shall include:
    (i) Placing qualified small and minority businesses and women's 
business enterprises on solicitation lists;
    (ii) Assuring that small and minority businesses, and women's 
business enterprises are solicited whenever they are potential sources;
    (iii) Dividing total requirements, when economically feasible, into 
smaller tasks or quantities to permit maximum participation by small and 
minority business, and women's business enterprises;
    (iv) Establishing delivery schedules, where the requirement permits, 
which encourage participation by small and minority business, and 
women's business enterprises;

[[Page 499]]

    (v) Using the services and assistance of the Small Business 
Administration, and the Minority Business Development Agency of the 
Department of Commerce; and
    (vi) Requiring the prime contractor, if subcontracts are to be let, 
to take the affirmative steps listed in paragraphs (e)(2)(i) through (v) 
of this section.
    (f) Contract cost and price. (1) Grantees and subgrantees must 
perform a cost or price analysis in connection with every procurement 
action including contract modifications. The method and degree of 
analysis is dependent on the facts surrounding the particular 
procurement situation, but as a starting point, grantees must make 
independent estimates before receiving bids or proposals. A cost 
analysis must be performed when the offeror is required to submit the 
elements of his estimated cost, e.g., under professional, consulting, 
and architectural engineering services contracts. A cost analysis will 
be necessary when adequate price competition is lacking, and for sole 
source procurements, including contract modifications or change orders, 
unless price resonableness can be established on the basis of a catalog 
or market price of a commercial product sold in substantial quantities 
to the general public or based on prices set by law or regulation. A 
price analysis will be used in all other instances to determine the 
reasonableness of the proposed contract price.
    (2) Grantees and subgrantees will negotiate profit as a separate 
element of the price for each contract in which there is no price 
competition and in all cases where cost analysis is performed. To 
establish a fair and reasonable profit, consideration will be given to 
the complexity of the work to be performed, the risk borne by the 
contractor, the contractor's investment, the amount of subcontracting, 
the quality of its record of past performance, and industry profit rates 
in the surrounding geographical area for similar work.
    (3) Costs or prices based on estimated costs for contracts under 
grants will be allowable only to the extent that costs incurred or cost 
estimates included in negotiated prices are consistent with Federal cost 
principles (see Sec. 143.22). Grantees may reference their own cost 
principles that comply with the applicable Federal cost principles.
    (4) The cost plus a percentage of cost and percentage of 
construction cost methods of contracting shall not be used.
    (g) Awarding agency review. (1) Grantees and subgrantees must make 
available, upon request of the awarding agency, technical specifications 
on proposed procurements where the awarding agency believes such review 
is needed to ensure that the item and/or service specified is the one 
being proposed for purchase. This review generally will take place prior 
to the time the specification is incorporated into a solicitation 
document. However, if the grantee or subgrantee desires to have the 
review accomplished after a solicitation has been developed, the 
awarding agency may still review the specifications, with such review 
usually limited to the technical aspects of the proposed purchase.
    (2) Grantees and subgrantees must on request make available for 
awarding agency pre-award review procurement documents, such as requests 
for proposals or invitations for bids, independent cost estimates, etc. 
when:
    (i) A grantee's or subgrantee's procurement procedures or operation 
fails to comply with the procurement standards in this section; or
    (ii) The procurement is expected to exceed the simplified 
acquisition threshold and is to be awarded without competition or only 
one bid or offer is received in response to a solicitation; or
    (iii) The procurement, which is expected to exceed the simplified 
acquisition threshold, specifies a ``brand name'' product; or
    (iv) The proposed award is more than the simplified acquisition 
threshold and is to be awarded to other than the apparent low bidder 
under a sealed bid procurement; or
    (v) A proposed contract modification changes the scope of a contract 
or increases the contract amount by more than the simplified acquisition 
threshold.
    (3) A grantee or subgrantee will be exempt from the pre-award review 
in

[[Page 500]]

paragraph (g)(2) of this section if the awarding agency determines that 
its procurement systems comply with the standards of this section.
    (i) A grantee or subgrantee may request that its procurement system 
be reviewed by the awarding agency to determine whether its system meets 
these standards in order for its system to be certified. Generally, 
these reviews shall occur where there is a continuous high-dollar 
funding, and third-party contracts are awarded on a regular basis.
    (ii) A grantee or subgrantee may self-certify its procurement 
system. Such self-certification shall not limit the awarding agency's 
right to survey the system. Under a self-certification procedure, 
awarding agencies may wish to rely on written assurances from the 
grantee or subgrantee that it is complying with these standards. A 
grantee or subgrantee will cite specific procedures, regulations, 
standards, etc., as being in compliance with these requirements and have 
its system available for review.
    (h) Bonding requirements. For construction or facility improvement 
contracts or subcontracts exceeding the simplified acquisition 
threshold, the awarding agency may accept the bonding policy and 
requirements of the grantee or subgrantee provided the awarding agency 
has made a determination that the awarding agency's interest is 
adequately protected. If such a determination has not been made, the 
minimum requirements shall be as follows:
    (1) A bid guarantee from each bidder equivalent to five percent of 
the bid price. The ``bid guarantee'' shall consist of a firm commitment 
such as a bid bond, certified check, or other negotiable instrument 
accompanying a bid as assurance that the bidder will, upon acceptance of 
his bid, execute such contractual documents as may be required within 
the time specified.
    (2) A performance bond on the part of the contractor for 100 percent 
of the contract price. A ``performance bond'' is one executed in 
connection with a contract to secure fulfillment of all the contractor's 
obligations under such contract.
    (3) A payment bond on the part of the contractor for 100 percent of 
the contract price. A ``payment bond'' is one executed in connection 
with a contract to assure payment as required by law of all persons 
supplying labor and material in the execution of the work provided for 
in the contract.
    (i) Contract provisions. A grantee's and subgrantee's contracts must 
contain provisions in paragraph (i) of this section. Federal agencies 
are permitted to require changes, remedies, changed conditions, access 
and records retention, suspension of work, and other clauses approved by 
the Office of Federal Procurement Policy.
    (1) Administrative, contractual, or legal remedies in instances 
where contractors violate or breach contract terms, and provide for such 
sanctions and penalties as may be appropriate. (Contracts more than the 
simplified acquisition threshold)
    (2) Termination for cause and for convenience by the grantee or 
subgrantee including the manner by which it will be effected and the 
basis for settlement. (All contracts in excess of $10,000)
    (3) Compliance with Executive Order 11246 of September 24, 1965, 
entitled ``Equal Employment Opportunity,'' as amended by Executive Order 
11375 of October 13, 1967, and as supplemented in Department of Labor 
regulations (41 CFR chapter 60). (All construction contracts awarded in 
excess of $10,000 by grantees and their contractors or subgrantees)
    (4) Compliance with the Copeland ``Anti-Kickback'' Act (18 U.S.C. 
874) as supplemented in Department of Labor regulations (29 CFR part 3). 
(All contracts and subgrants for construction or repair)
    (5) Compliance with the Davis-Bacon Act (40 U.S.C. 276a to 276a-7) 
as supplemented by Department of Labor regulations (29 CFR part 5). 
(Construction contracts in excess of $2000 awarded by grantees and 
subgrantees when required by Federal grant program legislation)
    (6) Compliance with Sections 103 and 107 of the Contract Work Hours 
and Safety Standards Act (40 U.S.C. 327-330) as supplemented by 
Department of Labor regulations (29 CFR part 5).

[[Page 501]]

(Construction contracts awarded by grantees and subgrantees in excess of 
$2000, and in excess of $2500 for other contracts which involve the 
employment of mechanics or laborers)
    (7) Notice of awarding agency requirements and regulations 
pertaining to reporting.
    (8) Notice of awarding agency requirements and regulations 
pertaining to patent rights with respect to any discovery or invention 
which arises or is developed in the course of or under such contract.
    (9) Awarding agency requirements and regulations pertaining to 
copyrights and rights in data.
    (10) Access by the grantee, the subgrantee, the Federal grantor 
agency, the Comptroller General of the United States, or any of their 
duly authorized representatives to any books, documents, papers, and 
records of the contractor which are directly pertinent to that specific 
contract for the purpose of making audit, examination, excerpts, and 
transcriptions.
    (11) Retention of all required records for three years after 
grantees or subgrantees make final payments and all other pending 
matters are closed.
    (12) Compliance with all applicable standards, orders, or 
requirements issued under section 306 of the Clean Air Act (42 U.S.C. 
1857(h)), section 508 of the Clean Water Act (33 U.S.C. 1368), Executive 
Order 11738, and Environmental Protection Agency regulations (40 CFR 
part 15). (Contracts, subcontracts, and subgrants of amounts in excess 
of $100,000)
    (13) Mandatory standards and policies relating to energy efficiency 
which are contained in the state energy conservation plan issued in 
compliance with the Energy Policy and Conservation Act (Pub. L. 94-163, 
89 Stat. 871).

[53 FR 8048, 8087, Mar. 11, 1988, as amended at 60 FR 19639, 19642, Apr. 
19, 1995]



Sec. 143.37  Subgrants.

    (a) States. States shall follow state law and procedures when 
awarding and administering subgrants (whether on a cost reimbursement or 
fixed amount basis) of financial assistance to local and Indian tribal 
governments. States shall:
    (1) Ensure that every subgrant includes any clauses required by 
Federal statute and executive orders and their implementing regulations;
    (2) Ensure that subgrantees are aware of requirements imposed upon 
them by Federal statute and regulation;
    (3) Ensure that a provision for compliance with Sec. 143.42 is 
placed in every cost reimbursement subgrant; and
    (4) Conform any advances of grant funds to subgrantees substantially 
to the same standards of timing and amount that apply to cash advances 
by Federal agencies.
    (b) All other grantees. All other grantees shall follow the 
provisions of this part which are applicable to awarding agencies when 
awarding and administering subgrants (whether on a cost reimbursement or 
fixed amount basis) of financial assistance to local and Indian tribal 
governments. Grantees shall:
    (1) Ensure that every subgrant includes a provision for compliance 
with this part;
    (2) Ensure that every subgrant includes any clauses required by 
Federal statute and executive orders and their implementing regulations; 
and
    (3) Ensure that subgrantees are aware of requirements imposed upon 
them by Federal statutes and regulations.
    (c) Exceptions. By their own terms, certain provisions of this part 
do not apply to the award and administration of subgrants:
    (1) Section 143.10;
    (2) Section 143.11;
    (3) The letter-of-credit procedures specified in Treasury 
Regulations at 31 CFR part 205, cited in Sec. 143.21; and
    (4) Section 143.50.

              Reports, Records, Retention, and Enforcement



Sec. 143.40  Monitoring and reporting program performance.

    (a) Monitoring by grantees. Grantees are responsible for managing 
the day-to-day operations of grant and subgrant supported activities. 
Grantees must monitor grant and subgrant supported activities to assure 
compliance with applicable Federal requirements and that performance 
goals are being

[[Page 502]]

achieved. Grantee monitoring must cover each program, function or 
activity.
    (b) Nonconstruction performance reports. The Federal agency may, if 
it decides that performance information available from subsequent 
applications contains sufficient information to meet its programmatic 
needs, require the grantee to submit a performance report only upon 
expiration or termination of grant support. Unless waived by the Federal 
agency this report will be due on the same date as the final Financial 
Status Report.
    (1) Grantees shall submit annual performance reports unless the 
awarding agency requires quarterly or semi-annual reports. However, 
performance reports will not be required more frequently than quarterly. 
Annual reports shall be due 90 days after the grant year, quarterly or 
semi-annual reports shall be due 30 days after the reporting period. The 
final performance report will be due 90 days after the expiration or 
termination of grant support. If a justified request is submitted by a 
grantee, the Federal agency may extend the due date for any performance 
report. Additionally, requirements for unnecessary performance reports 
may be waived by the Federal agency.
    (2) Performance reports will contain, for each grant, brief 
information on the following:
    (i) A comparison of actual accomplishments to the objectives 
established for the period. Where the output of the project can be 
quantified, a computation of the cost per unit of output may be required 
if that information will be useful.
    (ii) The reasons for slippage if established objectives were not 
met.
    (iii) Additional pertinent information including, when appropriate, 
analysis and explanation of cost overruns or high unit costs.
    (3) Grantees will not be required to submit more than the original 
and two copies of performance reports.
    (4) Grantees will adhere to the standards in this section in 
prescribing performance reporting requirements for subgrantees.
    (c) Construction performance reports. For the most part, on-site 
technical inspections and certified percentage-of-completion data are 
relied on heavily by Federal agencies to monitor progress under 
construction grants and subgrants. The Federal agency will require 
additional formal performance reports only when considered necessary, 
and never more frequently than quarterly.
    (d) Significant developments. Events may occur between the scheduled 
performance reporting dates which have significant impact upon the grant 
or subgrant supported activity. In such cases, the grantee must inform 
the Federal agency as soon as the following types of conditions become 
known:
    (1) Problems, delays, or adverse conditions which will materially 
impair the ability to meet the objective of the award. This disclosure 
must include a statement of the action taken, or contemplated, and any 
assistance needed to resolve the situation.
    (2) Favorable developments which enable meeting time schedules and 
objectives sooner or at less cost than anticipated or producing more 
beneficial results than originally planned.
    (e) Federal agencies may make site visits as warranted by program 
needs.
    (f) Waivers, extensions. (1) Federal agencies may waive any 
performance report required by this part if not needed.
    (2) The grantee may waive any performance report from a subgrantee 
when not needed. The grantee may extend the due date for any performance 
report from a subgrantee if the grantee will still be able to meet its 
performance reporting obligations to the Federal agency.



Sec. 143.41  Financial reporting.

    (a) General. (1) Except as provided in paragraphs (a) (2) and (5) of 
this section, grantees will use only the forms specified in paragraphs 
(a) through (e) of this section, and such supplementary or other forms 
as may from time to time be authorized by OMB, for:
    (i) Submitting financial reports to Federal agencies, or
    (ii) Requesting advances or reimbursements when letters of credit 
are not used.
    (2) Grantees need not apply the forms prescribed in this section in 
dealing

[[Page 503]]

with their subgrantees. However, grantees shall not impose more 
burdensome requirements on subgrantees.
    (3) Grantees shall follow all applicable standard and supplemental 
Federal agency instructions approved by OMB to the extend required under 
the Paperwork Reduction Act of 1980 for use in connection with forms 
specified in paragraphs (b) through (e) of this section. Federal 
agencies may issue substantive supplementary instructions only with the 
approval of OMB. Federal agencies may shade out or instruct the grantee 
to disregard any line item that the Federal agency finds unnecessary for 
its decisionmaking purposes.
    (4) Grantees will not be required to submit more than the original 
and two copies of forms required under this part.
    (5) Federal agencies may provide computer outputs to grantees to 
expedite or contribute to the accuracy of reporting. Federal agencies 
may accept the required information from grantees in machine usable 
format or computer printouts instead of prescribed forms.
    (6) Federal agencies may waive any report required by this section 
if not needed.
    (7) Federal agencies may extend the due date of any financial report 
upon receiving a justified request from a grantee.
    (b) Financial Status Report--(1) Form. Grantees will use Standard 
Form 269 or 269A, Financial Status Report, to report the status of funds 
for all nonconstruction grants and for construction grants when required 
in accordance with Sec. 143.41(e)(2)(iii) of this section.
    (2) Accounting basis. Each grantee will report program outlays and 
program income on a cash or accrual basis as prescribed by the awarding 
agency. If the Federal agency requires accrual information and the 
grantee's accounting records are not normally kept on the accural basis, 
the grantee shall not be required to convert its accounting system but 
shall develop such accrual information through and analysis of the 
documentation on hand.
    (3) Frequency. The Federal agency may prescribe the frequency of the 
report for each project or program. However, the report will not be 
required more frequently than quarterly. If the Federal agency does not 
specify the frequency of the report, it will be submitted annually. A 
final report will be required upon expiration or termination of grant 
support.
    (4) Due date. When reports are required on a quarterly or semiannual 
basis, they will be due 30 days after the reporting period. When 
required on an annual basis, they will be due 90 days after the grant 
year. Final reports will be due 90 days after the expiration or 
termination of grant support.
    (c) Federal Cash Transactions Report--(1) Form. (i) For grants paid 
by letter or credit, Treasury check advances or electronic transfer of 
funds, the grantee will submit the Standard Form 272, Federal Cash 
Transactions Report, and when necessary, its continuation sheet, 
Standard Form 272a, unless the terms of the award exempt the grantee 
from this requirement.
    (ii) These reports will be used by the Federal agency to monitor 
cash advanced to grantees and to obtain disbursement or outlay 
information for each grant from grantees. The format of the report may 
be adapted as appropriate when reporting is to be accomplished with the 
assistance of automatic data processing equipment provided that the 
information to be submitted is not changed in substance.
    (2) Forecasts of Federal cash requirements. Forecasts of Federal 
cash requirements may be required in the Remarks section of the report.
    (3) Cash in hands of subgrantees. When considered necessary and 
feasible by the Federal agency, grantees may be required to report the 
amount of cash advances in excess of three days' needs in the hands of 
their subgrantees or contractors and to provide short narrative 
explanations of actions taken by the grantee to reduce the excess 
balances.
    (4) Frequency and due date. Grantees must submit the report no later 
than 15 working days following the end of each quarter. However, where 
an advance either by letter of credit or electronic transfer of funds is 
authorized at an annualized rate of one million dollars or more, the 
Federal agency may require the report to be submitted within

[[Page 504]]

15 working days following the end of each month.
    (d) Request for advance or reimbursement--(1) Advance payments. 
Requests for Treasury check advance payments will be submitted on 
Standard Form 270, Request for Advance or Reimbursement. (This form will 
not be used for drawdowns under a letter of credit, electronic funds 
transfer or when Treasury check advance payments are made to the grantee 
automatically on a predetermined basis.)
    (2) Reimbursements. Requests for reimbursement under nonconstruction 
grants will also be submitted on Standard Form 270. (For reimbursement 
requests under construction grants, see paragraph (e)(1) of this 
section.)
    (3) The frequency for submitting payment requests is treated in 
Sec. 143.41(b)(3).
    (e) Outlay report and request for reimbursement for construction 
programs. (1) Grants that support construction activities paid by 
reimbursement method.
    (i) Requests for reimbursement under construction grants will be 
submitted on Standard Form 271, Outlay Report and Request for 
Reimbursement for Construction Programs. Federal agencies may, however, 
prescribe the Request for Advance or Reimbursement form, specified in 
Sec. 143.41(d), instead of this form.
    (ii) The frequency for submitting reimbursement requests is treated 
in Sec. 143.41(b)(3).
    (2) Grants that support construction activities paid by letter of 
credit, electronic funds transfer or Treasury check advance.
    (i) When a construction grant is paid by letter of credit, 
electronic funds transfer or Treasury check advances, the grantee will 
report its outlays to the Federal agency using Standard Form 271, Outlay 
Report and Request for Reimbursement for Construction Programs. The 
Federal agency will provide any necessary special instruction. However, 
frequency and due date shall be governed by Sec. 143.41(b) (3) and (4).
    (ii) When a construction grant is paid by Treasury check advances 
based on periodic requests from the grantee, the advances will be 
requested on the form specified in Sec. 143.41(d).
    (iii) The Federal agency may substitute the Financial Status Report 
specified in Sec. 143.41(b) for the Outlay Report and Request for 
Reimbursement for Construction Programs.
    (3) Accounting basis. The accounting basis for the Outlay Report and 
Request for Reimbursement for Construction Programs shall be governed by 
Sec. 143.41(b)(2).



Sec. 143.42  Retention and access requirements for records.

    (a) Applicability. (1) This section applies to all financial and 
programmatic records, supporting documents, statistical records, and 
other records of grantees or subgrantees which are:
    (i) Required to be maintained by the terms of this part, program 
regulations or the grant agreement, or
    (ii) Otherwise reasonably considered as pertinent to program 
regulations or the grant agreement.
    (2) This section does not apply to records maintained by contractors 
or subcontractors. For a requirement to place a provision concerning 
records in certain kinds of contracts, see Sec. 143.36(i)(10).
    (b) Length of retention period. (1) Except as otherwise provided, 
records must be retained for three years from the starting date 
specified in paragraph (c) of this section.
    (2) If any litigation, claim, negotiation, audit or other action 
involving the records has been started before the expiration of the 3-
year period, the records must be retained until completion of the action 
and resolution of all issues which arise from it, or until the end of 
the regular 3-year period, whichever is later.
    (3) To avoid duplicate recordkeeping, awarding agencies may make 
special arrangements with grantees and subgrantees to retain any records 
which are continuously needed for joint use. The awarding agency will 
request transfer of records to its custody when it determines that the 
records possess long-term retention value. When the records are 
transferred to or maintained by the Federal agency, the 3-year retention 
requirement is not applicable to the grantee or subgrantee.

[[Page 505]]

    (c) Starting date of retention period--(1) General. When grant 
support is continued or renewed at annual or other intervals, the 
retention period for the records of each funding period starts on the 
day the grantee or subgrantee submits to the awarding agency its single 
or last expenditure report for that period. However, if grant support is 
continued or renewed quarterly, the retention period for each year's 
records starts on the day the grantee submits its expenditure report for 
the last quarter of the Federal fiscal year. In all other cases, the 
retention period starts on the day the grantee submits its final 
expenditure report. If an expenditure report has been waived, the 
retention period starts on the day the report would have been due.
    (2) Real property and equipment records. The retention period for 
real property and equipment records starts from the date of the 
disposition or replacement or transfer at the direction of the awarding 
agency.
    (3) Records for income transactions after grant or subgrant support. 
In some cases grantees must report income after the period of grant 
support. Where there is such a requirement, the retention period for the 
records pertaining to the earning of the income starts from the end of 
the grantee's fiscal year in which the income is earned.
    (4) Indirect cost rate proposals, cost allocations plans, etc. This 
paragraph applies to the following types of documents, and their 
supporting records: indirect cost rate computations or proposals, cost 
allocation plans, and any similar accounting computations of the rate at 
which a particular group of costs is chargeable (such as computer usage 
chargeback rates or composite fringe benefit rates).
    (i) If submitted for negotiation. If the proposal, plan, or other 
computation is required to be submitted to the Federal Government (or to 
the grantee) to form the basis for negotiation of the rate, then the 3-
year retention period for its supporting records starts from the date of 
such submission.
    (ii) If not submitted for negotiation. If the proposal, plan, or 
other computation is not required to be submitted to the Federal 
Government (or to the grantee) for negotiation purposes, then the 3-year 
retention period for the proposal plan, or computation and its 
supporting records starts from end of the fiscal year (or other 
accounting period) covered by the proposal, plan, or other computation.
    (d) Substitution of microfilm. Copies made by microfilming, 
photocopying, or similar methods may be substituted for the original 
records.
    (e) Access to records--(1) Records of grantees and subgrantees. The 
awarding agency and the Comptroller General of the United States, or any 
of their authorized representatives, shall have the right of access to 
any pertinent books, documents, papers, or other records of grantees and 
subgrantees which are pertinent to the grant, in order to make audits, 
examinations, excerpts, and transcripts.
    (2) Expiration of right of access. The rights of access in this 
section must not be limited to the required retention period but shall 
last as long as the records are retained.
    (f) Restrictions on public access. The Federal Freedom of 
Information Act (5 U.S.C. 552) does not apply to records Unless required 
by Federal, State, or local law, grantees and subgrantees are not 
required to permit public access to their records.



Sec. 143.43  Enforcement.

    (a) Remedies for noncompliance. If a grantee or subgrantee 
materially fails to comply with any term of an award, whether stated in 
a Federal statute or regulation, an assurance, in a State plan or 
application, a notice of award, or elsewhere, the awarding agency may 
take one or more of the following actions, as appropriate in the 
circumstances:
    (1) Temporarily withhold cash payments pending correction of the 
deficiency by the grantee or subgrantee or more severe enforcement 
action by the awarding agency,
    (2) Disallow (that is, deny both use of funds and matching credit 
for) all or part of the cost of the activity or action not in 
compliance,
    (3) Wholly or partly suspend or terminate the current award for the 
grantee's or subgrantee's program,
    (4) Withhold further awards for the program, or

[[Page 506]]

    (5) Take other remedies that may be legally available.
    (b) Hearings, appeals. In taking an enforcement action, the awarding 
agency will provide the grantee or subgrantee an opportunity for such 
hearing, appeal, or other administrative proceeding to which the grantee 
or subgrantee is entitled under any statute or regulation applicable to 
the action involved.
    (c) Effects of suspension and termination. Costs of grantee or 
subgrantee resulting from obligations incurred by the grantee or 
subgrantee during a suspension or after termination of an award are not 
allowable unless the awarding agency expressly authorizes them in the 
notice of suspension or termination or subsequently. Other grantee or 
subgrantee costs during suspension or after termination which are 
necessary and not reasonably avoidable are allowable if:
    (1) The costs result from obligations which were properly incurred 
by the grantee or subgrantee before the effective date of suspension or 
termination, are not in anticipation of it, and, in the case of a 
termination, are noncancellable, and,
    (2) The costs would be allowable if the award were not suspended or 
expired normally at the end of the funding period in which the 
termination takes effect.
    (d) Relationship to debarment and suspension. The enforcement 
remedies identified in this section, including suspension and 
termination, do not preclude grantee or subgrantee from being subject to 
``Debarment and Suspension'' under E.O. 12549 (see Sec. 143.35).



Sec. 143.44  Termination for convenience.

    Except as provided in Sec. 143.43 awards may be terminated in whole 
or in part only as follows:
    (a) By the awarding agency with the consent of the grantee or 
subgrantee in which case the two parties shall agree upon the 
termination conditions, including the effective date and in the case of 
partial termination, the portion to be terminated, or
    (b) By the grantee or subgrantee upon written notification to the 
awarding agency, setting forth the reasons for such termination, the 
effective date, and in the case of partial termination, the portion to 
be terminated. However, if, in the case of a partial termination, the 
awarding agency determines that the remaining portion of the award will 
not accomplish the purposes for which the award was made, the awarding 
agency may terminate the award in its entirety under either Sec. 143.43 
or paragraph (a) of this section.



                 Subpart D--After-the-Grant Requirements



Sec. 143.50  Closeout.

    (a) General. The Federal agency will close out the award when it 
determines that all applicable administrative actions and all required 
work of the grant has been completed.
    (b) Reports. Within 90 days after the expiration or termination of 
the grant, the grantee must submit all financial, performance, and other 
reports required as a condition of the grant. Upon request by the 
grantee, Federal agencies may extend this timeframe. These may include 
but are not limited to:
    (1) Final performance or progress report.
    (2) Financial Status Report (SF 269) or Outlay Report and Request 
for Reimbursement for Construction Programs (SF-271) (as applicable).
    (3) Final request for payment (SF-270) (if applicable).
    (4) Invention disclosure (if applicable).
    (5) Federally-owned property report:

In accordance with Sec. 143.32(f), a grantee must submit an inventory of 
all federally owned property (as distinct from property acquired with 
grant funds) for which it is accountable and request disposition 
instructions from the Federal agency of property no longer needed.
    (c) Cost adjustment. The Federal agency will, within 90 days after 
receipt of reports in paragraph (b) of this section, make upward or 
downward adjustments to the allowable costs.
    (d) Cash adjustments. (1) The Federal agency will make prompt 
payment to the grantee for allowable reimbursable costs.
    (2) The grantee must immediately refund to the Federal agency any 
balance of unobligated (unencumbered) cash

[[Page 507]]

advanced that is not authorized to be retained for use on other grants.



Sec. 143.51  Later disallowances and adjustments.

    The closeout of a grant does not affect:
    (a) The Federal agency's right to disallow costs and recover funds 
on the basis of a later audit or other review;
    (b) The grantee's obligation to return any funds due as a result of 
later refunds, corrections, or other transactions;
    (c) Records retention as required in Sec. 143.42;
    (d) Property management requirements in Secs. 143.31 and 143.32; and
    (e) Audit requirements in Sec. 143.26.



Sec. 143.52  Collection of amounts due.

    (a) Any funds paid to a grantee in excess of the amount to which the 
grantee is finally determined to be entitled under the terms of the 
award constitute a debt to the Federal Government. If not paid within a 
reasonable period after demand, the Federal agency may reduce the debt 
by:
    (1) Making an adminstrative offset against other requests for 
reimbursements,
    (2) Withholding advance payments otherwise due to the grantee, or
    (3) Other action permitted by law.
    (b) Except where otherwise provided by statutes or regulations, the 
Federal agency will charge interest on an overdue debt in accordance 
with the Federal Claims Collection Standards (4 CFR Ch. II). The date 
from which interest is computed is not extended by litigation or the 
filing of any form of appeal.

Subpart E--Entitlements [Reserved]



PART 145--GOVERNMENTWIDE DEBARMENT AND SUSPENSION (NONPROCUREMENT) AND GOVERNMENTWIDE REQUIREMENTS FOR DRUG-FREE WORKPLACE (GRANTS)--Table of Contents




                           Subpart A--General

Sec.
145.100  Purpose.
145.105  Definitions.
145.110  Coverage.
145.115  Policy.

                       Subpart B--Effect of Action

145.200  Debarment or suspension.
145.205  Ineligible persons.
145.210  Voluntary exclusion.
145.215  Exception provision.
145.220  Continuation of covered transactions.
145.225  Failure to adhere to restrictions.

                          Subpart C--Debarment

145.300  General.
145.305  Causes for debarment.
145.310  Procedures.
145.311  Investigation and referral.
145.312  Notice of proposed debarment.
145.313  Opportunity to contest proposed debarment.
145.314  Debarring official's decision.
145.315  Settlement and voluntary exclusion.
145.320  Period of debarment.
145.325  Scope of debarment.

                          Subpart D--Suspension

145.400  General.
145.405  Causes for suspension.
145.410  Procedures.
145.411  Notice of suspension.
145.412  Opportunity to contest suspension.
145.413  Suspending official's decision.
145.415  Period of suspension.
145.420  Scope of suspension.

       Subpart E--Responsibilities of GSA, Agency and Participants

145.500  GSA responsibilities.
145.505  SBA responsibilities.
145.510  Participants' responsibilities.

          Subpart F--Drug-Free Workplace Requirements (Grants)

145.600  Purpose.
145.605  Definitions.
145.610  Coverage.
145.615  Grounds for suspension of payments, suspension or termination 
          of grants, or suspension or debarment.
145.620  Effect of violation.
145.625  Exception provision.
145.630  Certification requirements and procedures.
145.635  Reporting of and employee sanctions for convictions of criminal 
          drug offenses.

Appendix A to Part 145--Certification Regarding Debarment, Suspension, 
          and Other Responsibility Matters--Primary Covered Transactions

[[Page 508]]

Appendix B to Part 145--Certification Regarding Debarment, Suspension, 
          Ineligibility and Voluntary Exclusion--Lower Tier Covered 
          Transactions
Appendix C to Part 145--Certification Regarding Drug-Free Workplace 
          Requirements

    Authority: E.O. 12549; Secs. 5151-5160 of the Drug-Free Workplace 
Act of 1988 (Pub. L. 100-690, Title V, Subtitle D; 41 U.S.C. 701 et 
seq.); 15 U.S.C. 634(b)(6).

    Cross Reference: See also Office of Management and Budget notice 
published at 55 FR 21679, May 25, 1990, and 60 FR 33036, June 26, 1995.

    Source: 53 FR 19176, 19204, May 26, 1988, unless otherwise noted.

    Editorial Note: For additional information, see related documents 
published at 52 FR 20360, May 29, 1987, 53 FR 19160, May 26, 1988, and 
53 FR 34474, Sept. 6, 1988.



                           Subpart A--General



Sec. 145.100  Purpose.

    (a) Executive Order (E.O.) 12549 provides that, to the extent 
permitted by law, Executive departments and agencies shall participate 
in a governmentwide system for nonprocurement debarment and suspension. 
A person who is debarred or suspended shall be excluded from Federal 
financial and nonfinancial assistance and benefits under Federal 
programs and activities. Debarment or suspension of a participant in a 
program by one agency shall have governmentwide effect.
    (b) These regulations implement section 3 of E.O. 12549 and the 
guidelines promulgated by the Office of Management and Budget under 
section 6 of the E.O. by:
    (1) Prescribing the programs and activities that are covered by the 
governmentwide system;
    (2) Prescribing the governmentwide criteria and governmentwide 
minimum due process procedures that each agency shall use;
    (3) Providing for the listing of debarred and suspended 
participants, participants declared ineligible (see definition of 
``ineligible'' in Sec. 145.105), and participants who have voluntarily 
excluded themselves from participation in covered transactions;
    (4) Setting forth the consequences of a debarment, suspension, 
determination of ineligibility, or voluntary exclusion; and
    (5) Offering such other guidance as necessary for the effective 
implementation and administration of the governmentwide system.
    (c) These regulations also implement Executive Order 12689 (3 CFR, 
1989 Comp., p. 235) and 31 U.S.C. 6101 note (Public Law 103-355, sec. 
2455, 108 Stat. 3327) by--
    (1) Providing for the inclusion in the List of Parties Excluded from 
Federal Procurement and Nonprocurement Programs all persons proposed for 
debarment, debarred or suspended under the Federal Acquisition 
Regulation, 48 CFR part 9, subpart 9.4; persons against which 
governmentwide exclusions have been entered under this part; and persons 
determined to be ineligible; and
    (2) Setting forth the consequences of a debarment, suspension, 
determination of ineligibility, or voluntary exclusion.
    (d) Although these regulations cover the listing of ineligible 
participants and the effect of such listing, they do not prescribe 
policies and procedures governing declarations of ineligibility.

[60 FR 33040, 33044, June 26, 1995]



Sec. 145.105  Definitions.

    The following definitions apply to this part:
    Adequate evidence. Information sufficient to support the reasonable 
belief that a particular act or omission has occurred.
    Affiliate. Persons are affiliates of each other if, directly or 
indirectly, either one controls or has the power to control the other, 
or, a third person controls or has the power to control both. Indicia of 
control include, but are not limited to: interlocking management or 
ownership, identity of interests among family members, shared facilities 
and equipment, common use of employees, or a business entity organized 
following the suspension or debarment of a person which has the same or 
similar management, ownership, or principal employees as the suspended, 
debarred, ineligible, or voluntarily excluded person.
    Agency. Any executive department, military department or defense 
agency or other agency of the executive

[[Page 509]]

branch, excluding the independent regulatory agencies.
    Civil judgment. The disposition of a civil action by any court of 
competent jurisdiction, whether entered by verdict, decision, 
settlement, stipulation, or otherwise creating a civil liability for the 
wrongful acts complained of; or a final determination of liability under 
the Program Fraud Civil Remedies Act of 1988 (31 U.S.C. 3801-12).
    Conviction. A judgment or conviction of a criminal offense by any 
court of competent jurisdiction, whether entered upon a verdict or a 
plea, including a plea of nolo contendere.
    Debarment. An action taken by a debarring official in accordance 
with these regulations to exclude a person from participating in covered 
transactions. A person so excluded is debarred.
    Debarring official. An official authorized to impose debarment. The 
debarring official is either:
    (1) The agency head, or
    (2) An official designated by the agency head.
    Indictment. Indictment for a criminal offense. An information or 
other filing by competent authority charging a criminal offense shall be 
given the same effect as an indictment.
    Ineligible. Excluded from participation in Federal nonprocurement 
programs pursuant to a determination of ineligibility under statutory, 
executive order, or regulatory authority, other than Executive Order 
12549 and its agency implementing regulations; for exemple, excluded 
pursuant to the Davis-Bacon Act and its implementing regulations, the 
equal employment opportunity acts and executive orders, or the 
environmental protection acts and executive orders. A person is 
ineligible where the determination of ineligibility affects such 
person's eligibility to participate in more than one covered 
transaction.
    Legal proceedings. Any criminal proceeding or any civil judicial 
proceeding to which the Federal Government or a State or local 
government or quasi-governmental authority is a party. The term includes 
appeals from such proceedings.
    List of Parties Excluded from Federal Procurement and Nonprocurement 
Programs. A list compiled, maintained and distributed by the General 
Services Administration (GSA) containing the names and other information 
about persons who have been debarred, suspended, or voluntarily excluded 
under Executive Orders 12549 and 12689 and these regulations or 48 CFR 
part 9, subpart 9.4, persons who have been proposed for debarment under 
48 CFR part 9, subpart 9.4, and those persons who have been determined 
to be ineligible.
    Notice. A written communication served in person or sent by 
certified mail, return receipt requested, or its equivalent, to the last 
known address of a party, its identified counsel, its agent for service 
of process, or any partner, officer, director, owner, or joint venturer 
of the party. Notice, if undeliverable, shall be considered to have been 
received by the addressee five days after being properly sent to the 
last address known by the agency.
    Participant. Any person who submits a proposal for, enters into, or 
reasonably may be expected to enter into a covered transaction. This 
term also includes any person who acts on behalf of or is authorized to 
commit a participant in a covered transaction as an agent or 
representative of another participant.
    Person. Any individual, corporation, partnership, association, unit 
of government or legal entity, however organized, except: foreign 
governments or foreign governmental entities, public international 
organizations, foreign government owned (in whole or in part) or 
controlled entities, and entities consisting wholly or partially of 
foreign governments or foreign governmental entities.
    Preponderance of the evidence. Proof by information that, compared 
with that opposing it, leads to the conclusion that the fact at issue is 
more probably true than not.
    Principal. Officer, director, owner, partner, key employee, or other 
person within a participant with primary management or supervisory 
responsibilities; or a person who has a critical influence on or 
substantive control over a covered transaction, whether or not employed 
by the participant. Persons who have a critical influence on or

[[Page 510]]

substantive control over a covered transaction are:
    (1) Principal investigators.
    (2) Securities brokers and dealers under the section 7(a) Loan, 
Certified Development Company (CDC) and Small Business Investment 
Company (SBIC) Programs.
    Proposal. A solicited or unsolicited bid, application, request, 
invitation to consider or similar communication by or on behalf of a 
person seeking to participate or to receive a benefit, directly or 
indirectly, in or under a covered transaction.
    Respondent. A person against whom a debarment or suspension action 
has been initiated.
    State. Any of the States of the United States, the District of 
Columbia, the Commonwealth of Puerto Rico, any territory or possession 
of the United States, or any agency of a State, exclusive of 
institutions of higher education, hospitals, and units of local 
government. A State instrumentality will be considered part of the State 
government if it has a written determination from a State government 
that such State considers that instrumentality to be an agency of the 
State government.
    Suspending official. An official authorized to impose suspension. 
The suspending official is either:
    (1) The agency head, or
    (2) An official designated by the agency head.
    Suspension. An action taken by a suspending official in accordance 
with these regulations that immediately excludes a person from 
participating in covered transactions for a temporary period, pending 
completion of an investigation and such legal, debarment, or Program 
Fraud Civil Remedies Act proceedings as may ensue. A person so excluded 
is suspended.
    Voluntary exclusion or voluntarily excluded. A status of 
nonparticipation or limited participation in covered transactions 
assumed by a person pursuant to the terms of a settlement.
    SBA. The Small Business Administration.

[53 FR 19176, 19204, May 26, 1988, as amended at 53 FR 19176, May 26, 
1988; 60 FR 33041, 33044, June 26, 1995]



Sec. 145.110  Coverage.

    (a) These regulations apply to all persons who have participated, 
are currently participating or may reasonably be expected to participate 
in transactions under Federal nonprocurement programs. For purposes of 
these regulations such transactions will be referred to as covered 
transactions.
    (1) Covered transaction. For purposes of these regulations, a 
covered transaction is a primary covered transaction or a lower tier 
covered transaction. Covered transactions at any tier need not involve 
the transfer of Federal funds.
    (i) Primary covered transaction. Except as noted in paragraph (a)(2) 
of this section, a primary covered transaction is any nonprocurement 
transaction between an agency and a person, regardless of type, 
including: grants, cooperative agreements, scholarships, fellowships, 
contracts of assistance, loans, loan guarantees, subsidies, insurance, 
payments for specified use, donation agreements and any other 
nonprocurement transactions between a Federal agency and a person. 
Primary covered transactions also include those transactions specially 
designated by the U.S. Department of Housing and Urban Development in 
such agency's regulations governing debarment and suspension.
    (ii) Lower tier covered transaction. A lower tier covered 
transaction is:
    (A) Any transaction between a participant and a person other than a 
procurement contract for goods or services, regardless of type, under a 
primary covered transaction.
    (B) Any procurement contract for goods or services between a 
participant and a person, regardless of type, expected to equal or 
exceed the Federal procurement small purchase threshold fixed at 10 
U.S.C. 2304(g) and 41 U.S.C. 253(g) (currently $25,000) under a primary 
covered transaction.
    (C) Any procurement contract for goods or services between a 
participant and a person under a covered transaction, regardless of 
amount, under which that person will have a critical influence on or 
substantive control over that covered transaction. Such persons are:
    (1) Principal investigators.

[[Page 511]]

    (2) Providers of federally-required audit services.
    (3) Securities brokers and dealers under the section 7(a) Loan, 
Certified Development Company (CDC), and Small Business Investment 
Company (SBIC) Programs.
    (4) Applicant representatives under the section 7(a) Loan, Certified 
Development Company (CDC), Small Business Investment Company (SBIC), 
Small Business Development Center (SBDC) and section 7(j) Programs.
    (5) Providers of professional services under the section 7(a) Loan, 
Certified Development Center (CDC), Small Business Investment Company 
(SBIC), Small Business Development Center (SBDC), and section 7(j) 
Programs.
    (2) Exceptions. The following transactions are not covered:
    (i) Statutory entitlements or mandatory awards (but not subtier 
awards thereunder which are not themselves mandatory), including 
deposited funds insured by the Federal Government;
    (ii) Direct awards to foreign governments or public international 
organizations, or transactions with foreign governments or foreign 
governmental entities, public international organizations, foreign 
government owned (in whole or in part) or controlled entities, entities 
consisting wholly or partially of foreign governments or foreign 
governmental entities;
    (iii) Benefits to an individual as a personal entitlement without 
regard to the individual's present responsibility (but benefits received 
in an individual's business capacity are not excepted);
    (iv) Federal employment;
    (v) Transactions pursuant to national or agency-recognized 
emergencies or disasters;
    (vi) Incidental benefits derived from ordinary governmental 
operations; and
    (vii) Other transactions where the application of these regulations 
would be prohibited by law.
    (b) Relationship to other sections. This section describes the types 
of transactions to which a debarment or suspension under the regulations 
will apply. Subpart B, ``Effect of Action,'' Sec. 145.200, ``Debarment 
or suspension,'' sets forth the consequences of a debarment or 
suspension. Those consequences would obtain only with respect to 
participants and principals in the covered transactions and activities 
described in Sec. 145.110(a). Sections 145.325, ``Scope of debarment,'' 
and 145.420, ``Scope of suspension,'' govern the extent to which a 
specific participant or organizational elements of a participant would 
be automatically included within a debarment or suspension action, and 
the conditions under which affiliates or persons associated with a 
participant may also be brought within the scope of the action.
    (c) Relationship to Federal procurement activities. In accordance 
with E.O. 12689 and section 2455 of Public Law 103-355, any debarment, 
suspension, proposed debarment or other governmentwide exclusion 
initiated under the Federal Acquisition Regulation (FAR) on or after 
August 25, 1995 shall be recognized by and effective for Executive 
Branch agencies and participants as an exclusion under this regulation. 
Similarly, any debarment, suspension or other governmentwide exclusion 
initiated under this regulation on or after August 25, 1995 shall be 
recognized by and effective for those agencies as a debarment or 
suspension under the FAR.

[53 FR 19176, 19204, May 26, 1988, as amended at 53 FR 19176, May 26, 
1988; 60 FR 33041, 33044, June 26, 1995]



Sec. 145.115  Policy.

    (a) In order to protect the public interest, it is the policy of the 
Federal Government to conduct business only with responsible persons. 
Debarment and suspension are discretionary actions that, taken in 
accordance with Executive Order 12549 and these regulations, are 
appropriate means to implement this policy.
    (b) Debarment and suspension are serious actions which shall be used 
only in the public interest and for the Federal Government's protection 
and not for purposes of punishment. Agencies may impose debarment or 
suspension for the causes and in accordance with the procedures set 
forth in these regulations.
    (c) When more than one agency has an interest in the proposed 
debarment or suspension of a person, consideration shall be given to 
designating one agency as the lead agency for making the decision. 
Agencies are encouraged

[[Page 512]]

to establish methods and procedures for coordinating their debarment or 
suspension actions.



                       Subpart B--Effect of Action



Sec. 145.200  Debarment or suspension.

    (a) Primary covered transactions. Except to the extent prohibited by 
law, persons who are debarred or suspended shall be excluded from 
primary covered transactions as either participants or principals 
throughout the Executive Branch of the Federal Government for the period 
of their debarment, suspension, or the period they are proposed for 
debarment under 48 CFR part 9, subpart 9.4. Accordingly, no agency shall 
enter into primary covered transactions with such excluded persons 
during such period, except as permitted pursuant to Sec. 145.215.
    (b) Lower tier covered transactions. Except to the extent prohibited 
by law, persons who have been proposed for debarment under 48 CFR part 
9, subpart 9.4, debarred or suspended shall be excluded from 
participating as either participants or principals in all lower tier 
covered transactions (see Sec. 145.110(a)(1)(ii)) for the period of 
their exclusion.
    (c) Exceptions. Debarment or suspension does not affect a person's 
eligibility for--
    (1) Statutory entitlements or mandatory awards (but not subtier 
awards thereunder which are not themselves mandatory), including 
deposited funds insured by the Federal Government;
    (2) Direct awards to foreign governments or public international 
organizations, or transactions with foreign governments or foreign 
governmental entities, public international organizations, foreign 
government owned (in whole or in part) or controlled entities, and 
entities consisting wholly or partially of foreign governments or 
foreign governmental entities;
    (3) Benefits to an individual as a personal entitlement without 
regard to the individual's present responsibility (but benefits received 
in an individual's business capacity are not excepted);
    (4) Federal employment;
    (5) Transactions pursuant to national or agency-recognized 
emergencies or disasters;
    (6) Incidental benefits derived from ordinary governmental 
operations; and
    (7) Other transactions where the application of these regulations 
would be prohibited by law.

[60 FR 33041, 33044, June 26, 1995]



Sec. 145.205  Ineligible persons.

    Persons who are ineligible, as defined in Sec. 145.105(i), are 
excluded in accordance with the applicable statutory, executive order, 
or regulatory authority.



Sec. 145.210  Voluntary exclusion.

    Persons who accept voluntary exclusions under Sec. 145.315 are 
excluded in accordance with the terms of their settlements. SBA shall, 
and participants may, contact the original action agency to ascertain 
the extent of the exclusion.



Sec. 145.215  Exception provision.

    SBA may grant an exception permitting a debarred, suspended, or 
voluntarily excluded person, or a person proposed for debarment under 48 
CFR part 9, subpart 9.4, to participate in a particular covered 
transaction upon a written determination by the agency head or an 
authorized designee stating the reason(s) for deviating from the 
Presidential policy established by Executive Order 12549 and 
Sec. 145.200. However, in accordance with the President's stated 
intention in the Executive Order, exceptions shall be granted only 
infrequently. Exceptions shall be reported in accordance with 
Sec. 145.505(a).

[60 FR 33041, 33044, June 26, 1995]



Sec. 145.220  Continuation of covered transactions.

    (a) Notwithstanding the debarment, suspension, proposed debarment 
under 48 CFR part 9, subpart 9.4, determination of ineligibility, or 
voluntary exclusion of any person by an agency, agencies and 
participants may continue covered transactions in existence at the time 
the person was debarred, suspended, proposed for debarment under 48 CFR 
part 9, subpart 9.4, declared ineligible, or voluntarily excluded. A 
decision as to the type of termination action, if any, to be taken

[[Page 513]]

should be made only after thorough review to ensure the propriety of the 
proposed action.
    (b) Agencies and participants shall not renew or extend covered 
transactions (other than no-cost time extensions) with any person who is 
debarred, suspended, proposed for debarment under 48 CFR part 9, subpart 
9.4, ineligible or voluntary excluded, except as provided in 
Sec. 145.215.

[60 FR 33041, 33044, June 26, 1995]



Sec. 145.225  Failure to adhere to restrictions.

    (a) Except as permitted under Sec. 145.215 or Sec. 145.220, a 
participant shall not knowingly do business under a covered transaction 
with a person who is--
    (1) Debarred or suspended;
    (2) Proposed for debarment under 48 CFR part 9, subpart 9.4; or
    (3) Ineligible for or voluntarily excluded from the covered 
transaction.
    (b) Violation of the restriction under paragraph (a) of this section 
may result in disallowance of costs, annulment or termination of award, 
issuance of a stop work order, debarment or suspension, or other 
remedies as appropriate.
    (c) A participant may rely upon the certification of a prospective 
participant in a lower tier covered transaction that it and its 
principals are not debarred, suspended, proposed for debarment under 48 
CFR part 9, subpart 9.4, ineligible, or voluntarily excluded from the 
covered transaction (See Appendix B of these regulations), unless it 
knows that the certification is erroneous. An agency has the burden of 
proof that a participant did knowingly do business with a person that 
filed an erroneous certification.

[60 FR 33041, 33044, June 26, 1995]



                          Subpart C--Debarment



Sec. 145.300  General.

    The debarring official may debar a person for any of the causes in 
Sec. 145.305, using procedures established in Secs. 145.310 through 
145.314. The existence of a cause for debarment, however, does not 
necessarily require that the person be debarred; the seriousness of the 
person's acts or omissions and any mitigating factors shall be 
considered in making any debarment decision.



Sec. 145.305  Causes for debarment.

    Debarment may be imposed in accordance with the provisions of 
Secs. 145.300 through 145.314 for:
    (a) Conviction of or civil judgment for:
    (1) Commission of fraud or a criminal offense in connection with 
obtaining, attempting to obtain, or performing a public or private 
agreement or transaction;
    (2) Violation of Federal or State antitrust statutes, including 
those proscribing price fixing between competitors, allocation of 
customers between competitors, and bid rigging;
    (3) Commission of embezzlement, theft, forgery, bribery, 
falsification or destruction of records, making false statements, 
receiving stolen property, making false claims, or obstruction of 
justice; or
    (4) Commission of any other offense indicating a lack of business 
integrity or business honesty that seriously and directly affects the 
present responsibility of a person.
    (b) Violation of the terms of a public agreement or transaction so 
serious as to affect the integrity of an agency program, such as:
    (1) A willful failure to perform in accordance with the terms of one 
or more public agreements or transactions;
    (2) A history of failure to perform or of unsatisfactory performance 
of one or more public agreements or transactions; or
    (3) A willful violation of a statutory or regulatory provision or 
requirement applicable to a public agreement or transaction.
    (c) Any of the following causes:
    (1) A nonprocurement debarment by any Federal agency taken before 
October 1, 1988, the effective date of these regulations, or a 
procurement debarment by any Federal agency taken pursuant to 48 CFR 
subpart 9.4;
    (2) Knowingly doing business with a debarred, suspended, ineligible, 
or voluntarily excluded person, in connection with a covered 
transaction, except as permitted in Sec. 145.215 or Sec. 145.220;
    (3) Failure to pay a single substantial debt, or a number of 
outstanding debts

[[Page 514]]

(including disallowed costs and overpayments, but not including sums 
owed the Federal Government under the Internal Revenue Code) owed to any 
Federal agency or instrumentality, provided the debt is uncontested by 
the debtor or, if contested, provided that the debtor's legal and 
administrative remedies have been exhausted;
    (4) Violation of a material provision of a voluntary exclusion 
agreement entered into under Sec. 145.315 or of any settlement of a 
debarment or suspension action; or
    (5) Violation of any requirement of subpart F of this part, relating 
to providing a drug-free workplace, as set forth in Sec. 145.615 of this 
part.
    (d) Any other cause of so serious or compelling a nature that it 
affects the present responsibility of a person.

[53 FR 19176, 19204, May 26, 1988, as amended at 54 FR 4950, 4953, Jan. 
31, 1989]



Sec. 145.310  Procedures.

    SBA shall process debarment actions as informally as practicable, 
consistent with the principles of fundamental fairness, using the 
procedures in Secs. 145.311 through 145.314.



Sec. 145.311  Investigation and referral.

    Information concerning the existence of a cause for debarment from 
any source shall be promptly reported, investigated, and referred, when 
appropriate, to the debarring official for consideration. After 
consideration, the debarring official may issue a notice of proposed 
debarment.



Sec. 145.312  Notice of proposed debarment.

    A debarment proceeding shall be initiated by notice to the 
respondent advising:
    (a) That debarment is being considered;
    (b) Of the reasons for the proposed debarment in terms sufficient to 
put the respondent on notice of the conduct or transaction(s) upon which 
it is based;
    (c) Of the cause(s) relied upon under Sec. 145.305 for proposing 
debarment;
    (d) Of the provisions of Secs. 145.311 through 145.314, and any 
other SBA procedures, if applicable, governing debarment decisionmaking; 
and
    (e) Of the potential effect of a debarment.



Sec. 145.313  Opportunity to contest proposed debarment.

    (a) Submission in opposition. Within 30 days after receipt of the 
notice of proposed debarment, the respondent may submit, in person, in 
writing, or through a representative, information and argument in 
opposition to the proposed debarment.
    (b) Additional proceedings as to disputed material facts. (1) In 
actions not based upon a conviction or civil judgment, if the debarring 
official finds that the respondent's submission in opposition raises a 
genuine dispute over facts material to the proposed debarment, 
respondent(s) shall be afforded an opportunity to appear with a 
representative, submit documentary evidence, present witnesses, and 
confront any witness the agency presents.
    (2) A transcribed record of any additional proceedings shall be made 
available at cost to the respondent, upon request, unless the respondent 
and the agency, by mutual agreement, waive the requirement for a 
transcript.
    (3) In accordance with Sec. 145.314(b)(2), the debarring official 
may refer cases involving disputed material facts to the Office of 
Hearings and Appeals, which shall conduct any additional proceedings 
necessary in accordance with the procedures contained in part 134 of 
this title. Upon conclusion of such proceedings, the Office of Hearings 
and Appeals shall issue a recommended decision to the debarring official 
including proposed findings of facts and conclusions of law.

[53 FR 19176, 19204, May 26, 1988, as amended at 53 FR 19176, May 26, 
1988]



Sec. 145.314  Debarring official's decision.

    (a) No additional proceedings necessary. In actions based upon a 
conviction or civil judgment, or in which there is no genuine dispute 
over material facts, the debarring official shall make a decision on the 
basis of all the information in the administrative record, including any 
submission made by the respondent. The decision shall be made within 45 
days after receipt of any information and argument submitted by the 
respondent, unless the debarring

[[Page 515]]

official extends this period for good cause.
    (b) Additional proceedings necessary. (1) In actions in which 
additional proceedings are necessary to determine disputed material 
facts, written findings of fact shall be prepared. The debarring 
official shall base the decision on the facts as found, together with 
any information and argument submitted by the respondent and any other 
information in the administrative record.
    (2) The debarring official may refer disputed material facts to 
another official for findings of fact. The debarring official may reject 
any such findings, in whole or in part, only after specifically 
determining them to be arbitrary and capricious or clearly erroneous.
    (i) The Office of Hearings and Appeals shall conduct any proceedings 
regarding disputed material facts necessary under this section.
    (ii) Any party to the debarment proceeding may file exceptions to 
the recommended decision with the debarring official in accordance with 
13 CFR 134.35.
    (3) The debarring official's decision shall be made after the 
conclusion of the proceedings with respect to disputed facts.
    (c)(1) Standard of proof. In any debarment action, the cause for 
debarment must be established by a preponderance of the evidence. Where 
the proposed debarment is based upon a conviction or civil judgment, the 
standard shall be deemed to have been met.
    (2) Burden of proof. The burden of proof is on the agency proposing 
debarment.
    (d) Notice of debarring official's decision. (1) If the debarring 
official decides to impose debarment, the respondent shall be given 
prompt notice:
    (i) Referring to the notice of proposed debarment;
    (ii) Specifying the reasons for debarment;
    (iii) Stating the period of debarment, including effective dates; 
and
    (iv) Advising that the debarment is effective for covered 
transactions throughout the executive branch of the Federal Government 
unless an agency head or an authorized designee makes the determination 
referred to in Sec. 145.215.
    (2) If the debarring official decides not to impose debarment, the 
respondent shall be given prompt notice of that decision. A decision not 
to impose debarment shall be without prejudice to a subsequent 
imposition of debarment by any other agency.

[53 FR 19176, 19204, May 26, 1988, as amended at 53 FR 19176, May 26, 
1988]



Sec. 145.315  Settlement and voluntary exclusion.

    (a) When in the best interest of the Government, SBA may, at any 
time, settle a debarment or suspension action.
    (b) If a participant and the agency agree to a voluntary exclusion 
of the participant, such voluntary exclusion shall be entered on the 
Nonprocurement List (see subpart E).



Sec. 145.320  Period of debarment.

    (a) Debarment shall be for a period commensurate with the 
seriousness of the cause(s). If a suspension precedes a debarment, the 
suspension period shall be considered in determining the debarment 
period.
    (1) Debarment for causes other than those related to a violation of 
the requirements of subpart F of this part generally should not exceed 
three years. Where circumstances warrant, a longer period of debarment 
may be imposed.
    (2) In the case of a debarment for a violation of the requirements 
of subpart F of this part (see Sec. 145.305(c)(5)), the period of 
debarment shall not exceed five years.
    (b) The debarring official may extend an existing debarment for an 
additional period, if that official determines that an extension is 
necessary to protect the public interest. However, a debarment may not 
be extended solely on the basis of the facts and circumstances upon 
which the initial debarment action was based. If debarment for an 
additional period is determined to be necessary, the procedures of 
Secs. 145.311 through 145.314 shall be followed to extend the debarment.
    (c) The respondent may request the debarring official to reverse the 
debarment decision or to reduce the period

[[Page 516]]

or scope of debarment. Such a request shall be in writing and supported 
by documentation. The debarring official may grant such a request for 
reasons including, but not limited to:
    (1) Newly discovered material evidence;
    (2) Reversal of the conviction or civil judgment upon which the 
debarment was based;
    (3) Bona fide change in ownership or management;
    (4) Elimination of other causes for which the debarment was imposed; 
or
    (5) Other reasons the debarring official deems appropriate.

[53 FR 19176, 19204, May 26, 1988, as amended at 54 FR 4950, 4953, Jan. 
31, 1989]



Sec. 145.325  Scope of debarment.

    (a) Scope in general. (1) Debarment of a person under these 
regulations constitutes debarment of all its divisions and other 
organizational elements from all covered transactions, unless the 
debarment decision is limited by its terms to one or more specifically 
identified individuals, divisions or other organizational elements or to 
specific types of transactions.
    (2) The debarment action may include any affiliate of the 
participant that is specifically named and given notice of the proposed 
debarment and an opportunity to respond (see Secs. 145.311 through 
145.314).
    (b) Imputing conduct. For purposes of determining the scope of 
debarment, conduct may be imputed as follows:
    (1) Conduct imputed to participant. The fraudulent, criminal or 
other seriously improper conduct of any officer, director, shareholder, 
partner, employee, or other individual associated with a participant may 
be imputed to the participant when the conduct occurred in connection 
with the individual's performance of duties for or on behalf of the 
participant, or with the participant's knowledge, approval, or 
acquiescence. The participant's acceptance of the benefits derived from 
the conduct shall be evidence of such knowledge, approval, or 
acquiescence.
    (2) Conduct imputed to individuals associated with participant. The 
fraudulent, criminal, or other seriously improper conduct of a 
participant may be imputed to any officer, director, shareholder, 
partner, employee, or other individual associated with the participant 
who participated in, knew of, or had reason to know of the participant's 
conduct.
    (3) Conduct of one participant imputed to other participants in a 
joint venture. The fraudulent, criminal, or other seriously improper 
conduct of one participant in a joint venture, grant pursuant to a joint 
application, or similar arrangement may be imputed to other participants 
if the conduct occurred for or on behalf of the joint venture, grant 
pursuant to a joint application, or similar arrangement may be imputed 
to other participants if the conduct occurred for or on behalf of the 
joint venture, grant pursuant to a joint application, or similar 
arrangement or with the knowledge, approval, or acquiescence of these 
participants. Acceptance of the benefits derived from the conduct shall 
be evidence of such knowledge, approval, or acquiescence.



                          Subpart D--Suspension



Sec. 145.400  General.

    (a) The suspending official may suspend a person for any of the 
causes in Sec. 145.405 using procedures established in Secs. 145.410 
through 145.413.
    (b) Suspension is a serious action to be imposed only when:
    (1) There exists adequate evidence of one or more of the causes set 
out in Sec. 145.405, and
    (2) Immediate action is necessary to protect the public interest.
    (c) In assessing the adequacy of the evidence, the agency should 
consider how much information is available, how credible it is given the 
circumstances, whether or not important allegations are corroborated, 
and what inferences can reasonably be drawn as a result. This assessment 
should include an examination of basic documents such as grants, 
cooperative agreements, loan authorizations, and contracts.



Sec. 145.405  Causes for suspension.

    (a) Suspension may be imposed in accordance with the provisions of 
Secs. 145.400 through 145.413 upon adequate evidence:

[[Page 517]]

    (1) To suspect the commission of an offense listed in 
Sec. 145.305(a); or
    (2) That a cause for debarment under Sec. 145.305 may exist.
    (b) Indictment shall constitute adequate evidence for purposes of 
suspension actions.



Sec. 145.410  Procedures.

    (a) Investigation and referral. Information concerning the existence 
of a cause for suspension from any source shall be promptly reported, 
investigated, and referred, when appropriate, to the suspending official 
for consideration. After consideration, the suspending official may 
issue a notice of suspension.
    (b) Decisionmaking process. SBA shall process suspension actions as 
informally as practicable, consistent with principles of fundamental 
fairness, using the procedures in Secs. 145.411 through 145.413.



Sec. 145.411  Notice of suspension.

    When a respondent is suspended, notice shall immediately be given:
    (a) That suspension has been imposed;
    (b) That the suspension is based on an indictment, conviction, or 
other adequate evidence that the respondent has committed irregularities 
seriously reflecting on the propriety of further Federal Government 
dealings with the respondent;
    (c) Describing any such irregularities in terms sufficient to put 
the respondent on notice without disclosing the Federal Government's 
evidence;
    (d) Of the cause(s) relied upon under Sec. 145.405 for imposing 
suspension;
    (e) That the suspension is for a temporary period pending the 
completion of an investigation or ensuing legal, debarment, or Program 
Fraud Civil Remedies Act proceedings;
    (f) Of the provisions of Secs. 145.411 through 145.413 and any other 
SBA procedures, if applicable, governing suspension decisionmaking; and
    (g) Of the effect of the suspension.



Sec. 145.412  Opportunity to contest suspension.

    (a) Submission in opposition. Within 30 days after receipt of the 
notice of suspension, the respondent may submit, in person, in writing, 
or through a representative, information and argument in opposition to 
the suspension.
    (b) Additional proceedings as to disputed material facts. (1) If the 
suspending official finds that the respondent's submission in opposition 
raises a genuine dispute over facts material to the suspension, 
respondent(s) shall be afforded an opportunity to appear with a 
representative, submit documentary evidence, present witnesses, and 
confront any witness the agency presents, unless:
    (i) The action is based on an indictment, conviction or civil 
judgment, or
    (ii) A determination is made, on the basis of Department of Justice 
advice, that the substantial interests of the Federal Government in 
pending or contemplated legal proceedings based on the same facts as the 
suspension would be prejudiced.
    (2) A transcribed record of any additional proceedings shall be 
prepared and made available at cost to the respondent, upon request, 
unless the respondent and the agency, by mutual agreement, waive the 
requirement for a transcript.
    (3) In accordance with Sec. 145.413(b)(2), the suspending official 
may refer cases involving disputed material facts to the Office of 
Hearings and Appeals, which shall conduct any additional proceedings 
necessary in accordance with the procedures contained in part 134 of 
this title. Upon conclusion of such proceedings, the Office of Hearings 
and Appeals shall issue a recommended decision to the suspending 
official including proposed findings of facts and conclusions of law.

[53 FR 19176, 19204, May 26, 1988, as amended at 53 FR 19176, May 26, 
1988]



Sec. 145.413  Suspending official's decision.

    The suspending official may modify or terminate the suspension (for 
example, see Sec. 145.320(c) for reasons for reducing the period or 
scope of debarment) or may leave it in force. However, a decision to 
modify or terminate the suspension shall be without prejudice to the 
subsequent imposition of suspension by any other agency or debarment by 
any agency. The decision

[[Page 518]]

shall be rendered in accordance with the following provisions:
    (a) No additional proceedings necessary. In actions: based on an 
indictment, conviction, or civil judgment; in which there is no genuine 
dispute over material facts; or in which additional proceedings to 
determine disputed material facts have been denied on the basis of 
Department of Justice advice, the suspending official shall make a 
decision on the basis of all the information in the administrative 
record, including any submission made by the respondent. The decision 
shall be made within 45 days after receipt of any information and 
argument submitted by the respondent, unless the suspending official 
extends this period for good cause.
    (b) Additional proceedings necessary. (1) In actions in which 
additional proceedings are necessary to determine disputed material 
facts, written findings of fact shall be prepared. The suspending 
official shall base the decision on the facts as found, together with 
any information and argument submitted by the respondent and any other 
information in the administrative record.
    (2) The suspending official may refer matters involving disputed 
material facts to another official for findings of fact. The suspending 
official may reject any such findings, in whole or in part, only after 
specifically determining them to be arbitrary or capricious or clearly 
erroneous.
    (i) The Office of Hearings and Appeals shall conduct any proceedings 
regarding disputed material facts necessary under this section.
    (ii) Any party to the suspension proceeding may file exceptions to 
the recommended decision with the suspending official in accordance with 
13 CFR 134.35.
    (c) Notice of suspending official's decision. Prompt written notice 
of the suspending official's decision shall be sent to the respondent.

[53 FR 19176, 19204, May 26, 1988, as amended at 53 FR 19176, May 26, 
1988]



Sec. 145.415  Period of suspension.

    (a) Suspension shall be for a temporary period pending the 
completion of an investigation or ensuing legal, debarment, or Program 
Fraud Civil Remedies Act proceedings, unless terminated sooner by the 
suspending official or as provided in paragraph (b) of this section.
    (b) If legal or administrative proceedings are not initiated within 
12 months after the date of the suspension notice, the suspension shall 
be terminated unless an Assistant Attorney General or United States 
Attorney requests its extension in writing, in which case it may be 
extended for an additional six months. In no event may a suspension 
extend beyond 18 months, unless such proceedings have been initiated 
within that period.
    (c) The suspending official shall notify the Department of Justice 
of an impending termination of a suspension, at least 30 days before the 
12-month period expires, to give that Department an opportunity to 
request an extension.



Sec. 145.420  Scope of suspension.

    The scope of a suspension is the same as the scope of a debarment 
(see Sec. 145.325), except that the procedures of Secs. 145.410 through 
145.413 shall be used in imposing a suspension.



       Subpart E--Responsibilities of GSA, Agency and Participants



Sec. 145.500  GSA responsibilities.

    (a) In accordance with the OMB guidelines, GSA shall compile, 
maintain, and distribute a list of all persons who have been debarred, 
suspended, or voluntarily excluded by agencies under Executive Order 
12549 and these regulations, and those who have been determined to be 
ineligible.
    (b) At a minimum, this list shall indicate:
    (1) The names and addresses of all debarred, suspended, ineligible, 
and voluntarily excluded persons, in alphabetical order, with cross-
references when more than one name is involved in a single action;
    (2) The type of action;
    (3) The cause for the action;
    (4) The scope of the action;
    (5) Any termination date for each listing; and
    (6) The agency and name and telephone number of the agency point of 
contact for the action.

[[Page 519]]



Sec. 145.505  SBA responsibilities.

    (a) The agency shall provide GSA with current information concerning 
debarments, suspension, determinations of ineligibility, and voluntary 
exclusions it has taken. Until February 18, 1989, the agency shall also 
provide GSA and OMB with information concerning all transactions in 
which SBA has granted exceptions under Sec. 145.215 permitting 
participation by debarred, suspended, or voluntarily excluded persons.
    (b) Unless an alternative schedule is agreed to by GSA, the agency 
shall advise GSA of the information set forth in Sec. 145.500(b) and of 
the exceptions granted under Sec. 145.215 within five working days after 
taking such actions.
    (c) The agency shall direct inquiries concerning listed persons to 
the agency that took the action.
    (d) Agency officials shall check the Nonprocurement List before 
entering covered transactions to determine whether a participant in a 
primary transaction is debarred, suspended, ineligible, or voluntarily 
excluded (Tel. ).
    (e) Agency officials shall check the Nonprocurement List before 
approving principals or lower tier participants where agency approval of 
the principal or lower tier participant is required under the terms of 
the transaction, to determine whether such principals or participants 
are debarred, suspended, ineligible, or voluntarily excluded.



Sec. 145.510  Participants' responsibilities.

    (a) Certification by participants in primary covered transactions. 
Each participant shall submit the certification in appendix A to this 
part for it and its principals at the time the participant submits its 
proposal in connection with a primary covered transaction, except that 
States need only complete such certification as to their principals. 
Participants may decide the method and frequency by which they determine 
the eligibility of their principals. In addition, each participant may, 
but is not required to, check the Nonprocurement List for its principals 
(Tel. ). Adverse information on the certification will not 
necessarily result in denial of participation. However, the 
certification, and any additional information pertaining to the 
certification submitted by the participant, shall be considered in the 
administration of covered transactions.
    (b) Certification by participants in lower tier covered 
transactions. (1) Each participant shall require participants in lower 
tier covered transactions to include the certification in appendix B to 
this part for it and its principals in any proposal submitted in 
connection with such lower tier covered transactions.
    (2) A participant may rely upon the certification of a prospective 
participant in a lower tier covered transaction that it and its 
principals are not debarred, suspended, ineligible, or voluntarily 
excluded from the covered transaction by any Federal agency, unless it 
knows that the certification is erroneous. Participants may decide the 
method and frequency by which they determine the eligiblity of their 
principals. In addition, a participant may, but is not required to, 
check the Nonprocurement List for its principals and for participants 
(Tel. ).
    (c) Changed circumstances regarding certification. A participant 
shall provide immediate written notice to SBA if at any time the 
participant learns that its certification was erroneous when submitted 
or has become erroneous by reason of changed circumstances. Participants 
in lower tier covered transactions shall provide the same updated notice 
to the participant to which it submitted its proposals.



          Subpart F--Drug-Free Workplace Requirements (Grants)

    Source: 55 FR 21688, 21692, May 25, 1990, unless otherwise noted.



Sec. 145.600  Purpose.

    (a) The purpose of this subpart is to carry out the Drug-Free 
Workplace Act of 1988 by requiring that--
    (1) A grantee, other than an individual, shall certify to the agency 
that it will provide a drug-free workplace;
    (2) A grantee who is an individual shall certify to the agency that, 
as a condition of the grant, he or she will

[[Page 520]]

not engage in the unlawful manufacture, distribution, dispensing, 
possession or use of a controlled substance in conducting any activity 
with the grant.
    (b) Requirements implementing the Drug-Free Workplace Act of 1988 
for contractors with the agency are found at 48 CFR subparts 9.4, 23.5, 
and 52.2.



Sec. 145.605  Definitions.

    (a) Except as amended in this section, the definitions of 
Sec. 145.105 apply to this subpart.
    (b) For purposes of this subpart--
    (1) Controlled substance means a controlled substance in schedules I 
through V of the Controlled Substances Act (21 U.S.C. 812), and as 
further defined by regulation at 21 CFR 1308.11 through 1308.15;
    (2) Conviction means a finding of guilt (including a plea of nolo 
contendere) or imposition of sentence, or both, by any judicial body 
charged with the responsibility to determine violations of the Federal 
or State criminal drug statutes;
    (3) Criminal drug statute means a Federal or non-Federal criminal 
statute involving the manufacture, distribution, dispensing, use, or 
possession of any controlled substance;
    (4) Drug-free workplace means a site for the performance of work 
done in connection with a specific grant at which employees of the 
grantee are prohibited from engaging in the unlawful manufacture, 
distribution, dispensing, possession, or use of a controlled substance;
    (5) Employee means the employee of a grantee directly engaged in the 
performance of work under the grant, including:
    (i) All direct charge employees;
    (ii) All indirect charge employees, unless their impact or 
involvement is insignificant to the performance of the grant; and,
    (iii) Temporary personnel and consultants who are directly engaged 
in the performance of work under the grant and who are on the grantee's 
payroll.

This definition does not include workers not on the payroll of the 
grantee (e.g., volunteers, even if used to meet a matching requirement; 
consultants or independent contractors not on the payroll; or employees 
of subrecipients or subcontractors in covered workplaces);
    (6) Federal agency or agency means any United States executive 
department, military department, government corporation, government 
controlled corporation, any other establishment in the executive branch 
(including the Executive Office of the President), or any independent 
regulatory agency;
    (7) Grant means an award of financial assistance, including a 
cooperative agreement, in the form of money, or property in lieu of 
money, by a Federal agency directly to a grantee. The term grant 
includes block grant and entitlement grant programs, whether or not 
exempted from coverage under the grants management government-wide 
common rule on uniform administrative requirements for grants and 
cooperative agreements. The term does not include technical assistance 
that provides services instead of money, or other assistance in the form 
of loans, loan guarantees, interest subsidies, insurance, or direct 
appropriations; or any veterans' benefits to individuals, i.e., any 
benefit to veterans, their families, or survivors by virtue of the 
service of a veteran in the Armed Forces of the United States;
    (8) Grantee means a person who applies for or receives a grant 
directly from a Federal agency (except another Federal agency);
    (9) Individual means a natural person;
    (10) State means any of the States of the United States, the 
District of Columbia, the Commonwealth of Puerto Rico, any territory or 
possession of the United States, or any agency of a State, exclusive of 
institutions of higher education, hospitals, and units of local 
government. A State instrumentality will be considered part of the State 
government if it has a written determination from a State government 
that such State considers the instrumentality to be an agency of the 
State government.



Sec. 145.610  Coverage.

    (a) This subpart applies to any grantee of the agency.

[[Page 521]]

    (b) This subpart applies to any grant, except where application of 
this subpart would be inconsistent with the international obligations of 
the United States or the laws or regulations of a foreign government. A 
determination of such inconsistency may be made only by the agency head 
or his/her designee.
    (c) The provisions of subparts A, B, C, D and E of this part apply 
to matters covered by this subpart, except where specifically modified 
by this subpart. In the event of any conflict between provisions of this 
subpart and other provisions of this part, the provisions of this 
subpart are deemed to control with respect to the implementation of 
drug-free workplace requirements concerning grants.



Sec. 145.615  Grounds for suspension of payments, suspension or termination of grants, or suspension or debarment.

    A grantee shall be deemed in violation of the requirements of this 
subpart if the agency head or his or her official designee determines, 
in writing, that--
    (a) The grantee has made a false certification under Sec. 145.630;
    (b) With respect to a grantee other than an individual--
    (1) The grantee has violated the certification by failing to carry 
out the requirements of paragraphs (A)(a)-(g) and/or (B) of the 
certification (Alternate I to Appendix C) or
    (2) Such a number of employees of the grantee have been convicted of 
violations of criminal drug statutes for violations occurring in the 
workplace as to indicate that the grantee has failed to make a good 
faith effort to provide a drug-free workplace.
    (c) With respect to a grantee who is an individual--
    (1) The grantee has violated the certification by failing to carry 
out its requirements (Alternate II to Appendix C); or
    (2) The grantee is convicted of a criminal drug offense resulting 
from a violation occurring during the conduct of any grant activity.



Sec. 145.620  Effect of violation.

    (a) In the event of a violation of this subpart as provided in 
Sec. 145.615, and in accordance with applicable law, the grantee shall 
be subject to one or more of the following actions:
    (1) Suspension of payments under the grant;
    (2) Suspension or termination of the grant; and
    (3) Suspension or debarment of the grantee under the provisions of 
this part.
    (b) Upon issuance of any final decision under this part requiring 
debarment of a grantee, the debarred grantee shall be ineligible for 
award of any grant from any Federal agency for a period specified in the 
decision, not to exceed five years (see Sec. 145.320(a)(2) of this 
part).



Sec. 145.625  Exception provision.

    The agency head may waive with respect to a particular grant, in 
writing, a suspension of payments under a grant, suspension or 
termination of a grant, or suspension or debarment of a grantee if the 
agency head determines that such a waiver would be in the public 
interest. This exception authority cannot be delegated to any other 
official.



Sec. 145.630  Certification requirements and procedures.

    (a)(1) As a prior condition of being awarded a grant, each grantee 
shall make the appropriate certification to the Federal agency providing 
the grant, as provided in appendix C to this part.
    (2) Grantees are not required to make a certification in order to 
continue receiving funds under a grant awarded before March 18, 1989, or 
under a no-cost time extension of such a grant. However, the grantee 
shall make a one-time drug-free workplace certification for a non-
automatic continuation of such a grant made on or after March 18, 1989.
    (b) Except as provided in this section, all grantees shall make the 
required certification for each grant. For mandatory formula grants and 
entitlements that have no application process, grantees shall submit a 
one-time

[[Page 522]]

certification in order to continue receiving awards.
    (c) A grantee that is a State may elect to make one certification in 
each Federal fiscal year. States that previously submitted an annual 
certification are not required to make a certification for Fiscal Year 
1990 until June 30, 1990. Except as provided in paragraph (d) of this 
section, this certification shall cover all grants to all State agencies 
from any Federal agency. The State shall retain the original of this 
statewide certification in its Governor's office and, prior to grant 
award, shall ensure that a copy is submitted individually with respect 
to each grant, unless the Federal agency has designated a central 
location for submission.
    (d)(1) The Governor of a State may exclude certain State agencies 
from the statewide certification and authorize these agencies to submit 
their own certifications to Federal agencies. The statewide 
certification shall name any State agencies so excluded.
    (2) A State agency to which the statewide certification does not 
apply, or a State agency in a State that does not have a statewide 
certification, may elect to make one certification in each Federal 
fiscal year. State agencies that previously submitted a State agency 
certification are not required to make a certification for Fiscal Year 
1990 until June 30, 1990. The State agency shall retain the original of 
this State agency-wide certification in its central office and, prior to 
grant award, shall ensure that a copy is submitted individually with 
respect to each grant, unless the Federal agency designates a central 
location for submission.
    (3) When the work of a grant is done by more than one State agency, 
the certification of the State agency directly receiving the grant shall 
be deemed to certify compliance for all workplaces, including those 
located in other State agencies.
    (e)(1) For a grant of less than 30 days performance duration, 
grantees shall have this policy statement and program in place as soon 
as possible, but in any case by a date prior to the date on which 
performance is expected to be completed.
    (2) For a grant of 30 days or more performance duration, grantees 
shall have this policy statement and program in place within 30 days 
after award.
    (3) Where extraordinary circumstances warrant for a specific grant, 
the grant officer may determine a different date on which the policy 
statement and program shall be in place.



Sec. 145.635  Reporting of and employee sanctions for convictions of criminal drug offenses.

    (a) When a grantee other than an individual is notified that an 
employee has been convicted for a violation of a criminal drug statute 
occurring in the workplace, it shall take the following actions:
    (1) Within 10 calendar days of receiving notice of the conviction, 
the grantee shall provide written notice, including the convicted 
employee's position title, to every grant officer, or other designee on 
whose grant activity the convicted employee was working, unless a 
Federal agency has designated a central point for the receipt of such 
notifications. Notification shall include the identification number(s) 
for each of the Federal agency's affected grants.
    (2) Within 30 calendar days of receiving notice of the conviction, 
the grantee shall do the following with respect to the employee who was 
convicted.
    (i) Take appropriate personnel action against the employee, up to 
and including termination, consistent with requirements of the 
Rehabilitation Act of 1973, as amended; or
    (ii) Require the employee to participate satisfactorily in a drug 
abuse assistance or rehabilitation program approved for such purposes by 
a Federal, State, or local health, law enforcement, or other appropriate 
agency.
    (b) A grantee who is an individual who is convicted for a violation 
of a criminal drug statute occurring during the conduct of any grant 
activity shall report the conviction, in writing, within 10 calendar 
days, to his or her Federal agency grant officer, or other designee, 
unless the Federal agency has designated a central point for the receipt 
of such notices. Notification shall include the identification number(s)

[[Page 523]]

for each of the Federal agency's affected grants.

(Approved by the Office of Management and Budget under control number 
0991-0002)

 Appendix A to Part 145--Certification Regarding Debarment, Suspension, 
     and Other Responsibility Matters--Primary Covered Transactions

                     Instructions for Certification

    1. By signing and submitting this proposal, the prospective primary 
participant is providing the certification set out below.
    2. The inability of a person to provide the certification required 
below will not necessarily result in denial of participation in this 
covered transaction. The prospective participant shall submit an 
explanation of why it cannot provide the certification set out below. 
The certification or explanation will be considered in connection with 
the department or agency's determination whether to enter into this 
transaction. However, failure of the prospective primary participant to 
furnish a certification or an explanation shall disqualify such person 
from participation in this transaction.
    3. The certification in this clause is a material representation of 
fact upon which reliance was placed when the department or agency 
determined to enter into this transaction. If it is later determined 
that the prospective primary participant knowingly rendered an erroneous 
certification, in addition to other remedies available to the Federal 
Government, the department or agency may terminate this transaction for 
cause or default.
    4. The prospective primary participant shall provide immediate 
written notice to the department or agency to which this proposal is 
submitted if at any time the prospective primary participant learns that 
its certification was erroneous when submitted or has become erroneous 
by reason of changed circumstances.
    5. The terms covered transaction, debarred, suspended, ineligible, 
lower tier covered transaction, participant, person, primary covered 
transaction, principal, proposal, and voluntarily excluded, as used in 
this clause, have the meanings set out in the Definitions and Coverage 
sections of the rules implementing Executive Order 12549. You may 
contact the department or agency to which this proposal is being 
submitted for assistance in obtaining a copy of those regulations.
    6. The prospective primary participant agrees by submitting this 
proposal that, should the proposed covered transaction be entered into, 
it shall not knowingly enter into any lower tier covered transaction 
with a person who is proposed for debarment under 48 CFR part 9, subpart 
9.4, debarred, suspended, declared ineligible, or voluntarily excluded 
from participation in this covered transaction, unless authorized by the 
department or agency entering into this transaction.
    7. The prospective primary participant further agrees by submitting 
this proposal that it will include the clause titled ``Certification 
Regarding Debarment, Suspension, Ineligibility and Voluntary Exclusion-
Lower Tier Covered Transaction,'' provided by the department or agency 
entering into this covered transaction, without modification, in all 
lower tier covered transactions and in all solicitations for lower tier 
covered transactions.
    8. A participant in a covered transaction may rely upon a 
certification of a prospective participant in a lower tier covered 
transaction that it is not proposed for debarment under 48 CFR part 9, 
subpart 9.4, debarred, suspended, ineligible, or voluntarily excluded 
from the covered transaction, unless it knows that the certification is 
erroneous. A participant may decide the method and frequency by which it 
determines the eligibility of its principals. Each participant may, but 
is not required to, check the List of Parties Excluded from Federal 
Procurement and Nonprocurement Programs.
    9. Nothing contained in the foregoing shall be construed to require 
establishment of a system of records in order to render in good faith 
the certification required by this clause. The knowledge and information 
of a participant is not required to exceed that which is normally 
possessed by a prudent person in the ordinary course of business 
dealings.
    10. Except for transactions authorized under paragraph 6 of these 
instructions, if a participant in a covered transaction knowingly enters 
into a lower tier covered transaction with a person who is proposed for 
debarment under 48 CFR part 9, subpart 9.4, suspended, debarred, 
ineligible, or voluntarily excluded from participation in this 
transaction, in addition to other remedies available to the Federal 
Government, the department or agency may terminate this transaction for 
cause or default.

Certification Regarding Debarment, Suspension, and Other Responsibility 
                  Matters--Primary Covered Transactions

    (1) The prospective primary participant certifies to the best of its 
knowledge and belief, that it and its principals:
    (a) Are not presently debarred, suspended, proposed for debarment, 
declared ineligible, or voluntarily excluded by any Federal department 
or agency;
    (b) Have not within a three-year period preceding this proposal been 
convicted of or had a civil judgment rendered against them

[[Page 524]]

for commission of fraud or a criminal offense in connection with 
obtaining, attempting to obtain, or performing a public (Federal, State 
or local) transaction or contract under a public transaction; violation 
of Federal or State antitrust statutes or commission of embezzlement, 
theft, forgery, bribery, falsification or destruction of records, making 
false statements, or receiving stolen property;
    (c) Are not presently indicted for or otherwise criminally or 
civilly charged by a governmental entity (Federal, State or local) with 
commission of any of the offenses enumerated in paragraph (1)(b) of this 
certification; and
    (d) Have not within a three-year period preceding this application/
proposal had one or more public transactions (Federal, State or local) 
terminated for cause or default.
    (2) Where the prospective primary participant is unable to certify 
to any of the statements in this certification, such prospective 
participant shall attach an explanation to this proposal.

[60 FR 33042, 33044, June 26, 1995]

 Appendix B to Part 145--Certification Regarding Debarment, Suspension, 
 Ineligibility and Voluntary Exclusion--Lower Tier Covered Transactions

                     Instructions for Certification

    1. By signing and submitting this proposal, the prospective lower 
tier participant is providing the certification set out below.
    2. The certification in this clause is a material representation of 
fact upon which reliance was placed when this transaction was entered 
into. If it is later determined that the prospective lower tier 
participant knowingly rendered an erroneous certification, in addition 
to other remedies available to the Federal Government the department or 
agency with which this transaction originated may pursue available 
remedies, including suspension and/or debarment.
    3. The prospective lower tier participant shall provide immediate 
written notice to the person to which this proposal is submitted if at 
any time the prospective lower tier participant learns that its 
certification was erroneous when submitted or had become erroneous by 
reason of changed circumstances.
    4. The terms covered transaction, debarred, suspended, ineligible, 
lower tier covered transaction, participant, person, primary covered 
transaction, principal, proposal, and voluntarily excluded, as used in 
this clause, have the meaning set out in the Definitions and Coverage 
sections of rules implementing Executive Order 12549. You may contact 
the person to which this proposal is submitted for assistance in 
obtaining a copy of those regulations.
    5. The prospective lower tier participant agrees by submitting this 
proposal that, should the proposed covered transaction be entered into, 
it shall not knowingly enter into any lower tier covered transaction 
with a person who is proposed for debarment under 48 CFR part 9, subpart 
9.4, debarred, suspended, declared ineligible, or voluntarily excluded 
from participation in this covered transaction, unless authorized by the 
department or agency with which this transaction originated.
    6. The prospective lower tier participant further agrees by 
submitting this proposal that it will include this clause titled 
``Certification Regarding Debarment, Suspension, Ineligibility and 
Voluntary Exclusion-Lower Tier Covered Transaction,'' without 
modification, in all lower tier covered transactions and in all 
solicitations for lower tier covered transactions.
    7. A participant in a covered transaction may rely upon a 
certification of a prospective participant in a lower tier covered 
transaction that it is not proposed for debarment under 48 CFR part 9, 
subpart 9.4, debarred, suspended, ineligible, or voluntarily excluded 
from covered transactions, unless it knows that the certification is 
erroneous. A participant may decide the method and frequency by which it 
determines the eligibility of its principals. Each participant may, but 
is not required to, check the List of Parties Excluded from Federal 
Procurement and Nonprocurement Programs.
    8. Nothing contained in the foregoing shall be construed to require 
establishment of a system of records in order to render in good faith 
the certification required by this clause. The knowledge and information 
of a participant is not required to exceed that which is normally 
possessed by a prudent person in the ordinary course of business 
dealings.
    9. Except for transactions authorized under paragraph 5 of these 
instructions, if a participant in a covered transaction knowingly enters 
into a lower tier covered transaction with a person who is proposed for 
debarment under 48 CFR part 9, subpart 9.4, suspended, debarred, 
ineligible, or voluntarily excluded from participation in this 
transaction, in addition to other remedies available to the Federal 
Government, the department or agency with which this transaction 
originated may pursue available remedies, including suspension and/or 
debarment.

    Certification Regarding Debarment, Suspension, Ineligibility an 
          Voluntary Exclusion--Lower Tier Covered Transactions

    (1) The prospective lower tier participant certifies, by submission 
of this proposal, that neither it nor its principals is presently 
debarred, suspended, proposed for debarment,

[[Page 525]]

declared ineligible, or voluntarily excluded from participation in this 
transaction by any Federal department or agency.
    (2) Where the prospective lower tier participant is unable to 
certify to any of the statements in this certification, such prospective 
participant shall attach an explanation to this proposal.

[60 FR 33042, 33044, June 26, 1995]

  Appendix C to Part 145--Certification Regarding Drug-Free Workplace 
                              Requirements

                     Instructions for Certification

    1. By signing and/or submitting this application or grant agreement, 
the grantee is providing the certification set out below.
    2. The certification set out below is a material representation of 
fact upon which reliance is placed when the agency awards the grant. If 
it is later determined that the grantee knowingly rendered a false 
certification, or otherwise violates the requirements of the Drug-Free 
Workplace Act, the agency, in addition to any other remedies available 
to the Federal Government, may take action authorized under the Drug-
Free Workplace Act.
    3. For grantees other than individuals, Alternate I applies.
    4. For grantees who are individuals, Alternate II applies.
    5. Workplaces under grants, for grantees other than individuals, 
need not be identified on the certification. If known, they may be 
identified in the grant application. If the grantee does not identify 
the workplaces at the time of application, or upon award, if there is no 
application, the grantee must keep the identity of the workplace(s) on 
file in its office and make the information available for Federal 
inspection. Failure to identify all known workplaces constitutes a 
violation of the grantee's drug-free workplace requirements.
    6. Workplace identifications must include the actual address of 
buildings (or parts of buildings) or other sites where work under the 
grant takes place. Categorical descriptions may be used (e.g., all 
vehicles of a mass transit authority or State highway department while 
in operation, State employees in each local unemployment office, 
performers in concert halls or radio studios).
    7. If the workplace identified to the agency changes during the 
performance of the grant, the grantee shall inform the agency of the 
change(s), if it previously identified the workplaces in question (see 
paragraph five).
    8. Definitions of terms in the Nonprocurement Suspension and 
Debarment common rule and Drug-Free Workplace common rule apply to this 
certification. Grantees' attention is called, in particular, to the 
following definitions from these rules:
    Controlled substance means a controlled substance in Schedules I 
through V of the Controlled Substances Act (21 U.S.C. 812) and as 
further defined by regulation (21 CFR 1308.11 through 1308.15);
    Conviction means a finding of guilt (including a plea of nolo 
contendere) or imposition of sentence, or both, by any judicial body 
charged with the responsibility to determine violations of the Federal 
or State criminal drug statutes;
    Criminal drug statute means a Federal or non-Federal criminal 
statute involving the manufacture, distribution, dispensing, use, or 
possession of any controlled substance;
    Employee means the employee of a grantee directly engaged in the 
performance of work under a grant, including: (i) All direct charge 
employees; (ii) All indirect charge employees unless their impact or 
involvement is insignificant to the performance of the grant; and, (iii) 
Temporary personnel and consultants who are directly engaged in the 
performance of work under the grant and who are on the grantee's 
payroll. This definition does not include workers not on the payroll of 
the grantee (e.g., volunteers, even if used to meet a matching 
requirement; consultants or independent contractors not on the grantee's 
payroll; or employees of subrecipients or subcontractors in covered 
workplaces).

        Certification Regarding Drug-Free Workplace Requirements

             Alternate I. (Grantees Other Than Individuals)

    A. The grantee certifies that it will or will continue to provide a 
drug-free workplace by:
    (a) Publishing a statement notifying employees that the unlawful 
manufacture, distribution, dispensing, possession, or use of a 
controlled substance is prohibited in the grantee's workplace and 
specifying the actions that will be taken against employees for 
violation of such prohibition;
    (b) Establishing an ongoing drug-free awareness program to inform 
employees about--
    (1) The dangers of drug abuse in the workplace;
    (2) The grantee's policy of maintaining a drug-free workplace;
    (3) Any available drug counseling, rehabilitation, and employee 
assistance programs; and
    (4) The penalties that may be imposed upon employees for drug abuse 
violations occurring in the workplace;
    (c) Making it a requirement that each employee to be engaged in the 
performance of the grant be given a copy of the statement required by 
paragraph (a);
    (d) Notifying the employee in the statement required by paragraph 
(a) that, as a

[[Page 526]]

condition of employment under the grant, the employee will--
    (1) Abide by the terms of the statement; and
    (2) Notify the employer in writing of his or her conviction for a 
violation of a criminal drug statute occurring in the workplace no later 
than five calendar days after such conviction;
    (e) Notifying the agency in writing, within ten calendar days after 
receiving notice under paragraph (d)(2) from an employee or otherwise 
receiving actual notice of such conviction. Employers of convicted 
employees must provide notice, including position title, to every grant 
officer or other designee on whose grant activity the convicted employee 
was working, unless the Federal agency has designated a central point 
for the receipt of such notices. Notice shall include the identification 
number(s) of each affected grant;
    (f) Taking one of the following actions, within 30 calendar days of 
receiving notice under paragraph (d)(2), with respect to any employee 
who is so convicted--
    (1) Taking appropriate personnel action against such an employee, up 
to and including termination, consistent with the requirements of the 
Rehabilitation Act of 1973, as amended; or
    (2) Requiring such employee to participate satisfactorily in a drug 
abuse assistance or rehabilitation program approved for such purposes by 
a Federal, State, or local health, law enforcement, or other appropriate 
agency;
    (g) Making a good faith effort to continue to maintain a drug-free 
workplace through implementation of paragraphs (a), (b), (c), (d), (e) 
and (f).
    B. The grantee may insert in the space provided below the site(s) 
for the performance of work done in connection with the specific grant:

Place of Performance (Street address, city, county, state, zip code)
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

Check [squ] if there are workplaces on file that are not identified 
here.

              Alternate II. (Grantees Who Are Individuals)

    (a) The grantee certifies that, as a condition of the grant, he or 
she will not engage in the unlawful manufacture, distribution, 
dispensing, possession, or use of a controlled substance in conducting 
any activity with the grant;
    (b) If convicted of a criminal drug offense resulting from a 
violation occurring during the conduct of any grant activity, he or she 
will report the conviction, in writing, within 10 calendar days of the 
conviction, to every grant officer or other designee, unless the Federal 
agency designates a central point for the receipt of such notices. When 
notice is made to such a central point, it shall include the 
identification number(s) of each affected grant.

[55 FR 21690, 21692, May 25, 1990]



PART 146--NEW RESTRICTIONS ON LOBBYING--Table of Contents




                           Subpart A--General

146.100  Conditions on use of funds.
146.105  Definitions.
146.110  Certification and disclosure.

                 Subpart B--Activities by Own Employees

146.200  Agency and legislative liaison.
146.205  Professional and technical services.
146.210  Reporting.

            Subpart C--Activities by Other Than Own Employees

146.300  Professional and technical services.

                  Subpart D--Penalties and Enforcement

146.400  Penalties.
146.405  Penalty procedures.
146.410  Enforcement.

                          Subpart E--Exemptions

146.500  Secretary of Defense.

                        Subpart F--Agency Reports

146.600  Semi-annual compilation.
146.605  Inspector General report.

Appendix A to Part 146--Certification Regarding Lobbying
Appendix B to Part 146--Disclosure Form to Report Lobbying

    Authority: Section 319, Pub. L. 101-121 (31 U.S.C. 1352); 15 U.S.C. 
634(b)(6).

    Cross Reference: See also Office of Management and Budget notice 
published at 54 FR 52306, December 20, 1989.

    Source: 55 FR 6737 and 6747, Feb. 26, 1990, unless otherwise noted.



                           Subpart A--General



Sec. 146.100  Conditions on use of funds.

    (a) No appropriated funds may be expended by the recipient of a 
Federal contract, grant, loan, or cooperative ageement to pay any person 
for influencing or attempting to influence an officer or employee of any 
agency, a

[[Page 527]]

Member of Congress, an officer or employee of Congress, or an employee 
of a Member of Congress in connection with any of the following covered 
Federal actions: the awarding of any Federal contract, the making of any 
Federal grant, the making of any Federal loan, the entering into of any 
cooperative agreement, and the extension, continuation, renewal, 
amendment, or modification of any Federal contract, grant, loan, or 
cooperative agreement.
    (b) Each person who requests or receives from an agency a Federal 
contract, grant, loan, or cooperative agreement shall file with that 
agency a certification, set forth in appendix A, that the person has not 
made, and will not make, any payment prohibited by paragraph (a) of this 
section.
    (c) Each person who requests or receives from an agency a Federal 
contract, grant, loan, or a cooperative agreement shall file with that 
agency a disclosure form, set forth in appendix B, if such person has 
made or has agreed to make any payment using nonappropriated funds (to 
include profits from any covered Federal action), which would be 
prohibited under paragraph (a) of this section if paid for with 
appropriated funds.
    (d) Each person who requests or receives from an agency a commitment 
providing for the United States to insure or guarantee a loan shall file 
with that agency a statement, set forth in appendix A, whether that 
person has made or has agreed to make any payment to influence or 
attempt to influence an officer or employee of any agency, a Member of 
Congress, an officer or employee of Congress, or an employee of a Member 
of Congress in connection with that loan insurance or guarantee.
    (e) Each person who requests or receives from an agency a commitment 
providing for the United States to insure or guarantee a loan shall file 
with that agency a disclosure form, set forth in appendix B, if that 
person has made or has agreed to make any payment to influence or 
attempt to influence an officer or employee of any agency, a Member of 
Congress, an officer or employee of Congress, or an employee of a Member 
of Congress in connection with that loan insurance or guarantee.



Sec. 146.105  Definitions.

    For purposes of this part:
    (a) Agency, as defined in 5 U.S.C. 552(f), includes Federal 
executive departments and agencies as well as independent regulatory 
commissions and Government corporations, as defined in 31 U.S.C. 
9101(1).
    (b) Covered Federal action means any of the following Federal 
actions:
    (1) The awarding of any Federal contract;
    (2) The making of any Federal grant;
    (3) The making of any Federal loan;
    (4) The entering into of any cooperative agreement; and,
    (5) The extension, continuation, renewal, amendment, or modification 
of any Federal contract, grant, loan, or cooperative agreement.

Covered Federal action does not include receiving from an agency a 
commitment providing for the United States to insure or guarantee a 
loan. Loan guarantees and loan insurance are addressed independently 
within this part.
    (c) Federal contract means an acquisition contract awarded by an 
agency, including those subject to the Federal Acquisition Regulation 
(FAR), and any other acquisition contract for real or personal property 
or services not subject to the FAR.
    (d) Federal cooperative agreement means a cooperative agreement 
entered into by an agency.
    (e) Federal grant means an award of financial assistance in the form 
of money, or property in lieu of money, by the Federal Government or a 
direct appropriation made by law to any person. The term does not 
include technical assistance which provides services instead of money, 
or other assistance in the form of revenue sharing, loans, loan 
guarantees, loan insurance, interest subsidies, insurance, or direct 
United States cash assistance to an individual.
    (f) Federal loan means a loan made by an agency. The term does not 
include loan guarantee or loan insurance.
    (g) Indian tribe and tribal organization have the meaning provided 
in section 4 of the Indian Self-Determination and Education Assistance 
Act (25 U.S.C. 450B). Alaskan Natives are included

[[Page 528]]

under the definitions of Indian tribes in that Act.
    (h) Influencing or attempting to influence means making, with the 
intent to influence, any communication to or appearance before an 
officer or employee or any agency, a Member of Congress, an officer or 
employee of Congress, or an employee of a Member of Congress in 
connection with any covered Federal action.
    (i) Loan guarantee and loan insurance means an agency's guarantee or 
insurance of a loan made by a person.
    (j) Local government means a unit of government in a State and, if 
chartered, established, or otherwise recognized by a State for the 
performance of a governmental duty, including a local public authority, 
a special district, an intrastate district, a council of governments, a 
sponsor group representative organization, and any other instrumentality 
of a local government.
    (k) Officer or employee of an agency includes the following 
individuals who are employed by an agency:
    (1) An individual who is appointed to a position in the Government 
under title 5, U.S. Code, including a position under a temporary 
appointment;
    (2) A member of the uniformed services as defined in section 101(3), 
title 37, U.S. Code;
    (3) A special Government employee as defined in section 202, title 
18, U.S. Code; and,
    (4) An individual who is a member of a Federal advisory committee, 
as defined by the Federal Advisory Committee Act, title 5, U.S. Code 
appendix 2.
    (l) Person means an individual, corporation, company, association, 
authority, firm, partnership, society, State, and local government, 
regardless of whether such entity is operated for profit or not for 
profit. This term excludes an Indian tribe, tribal organization, or any 
other Indian organization with respect to expenditures specifically 
permitted by other Federal law.
    (m) Reasonable compensation means, with respect to a regularly 
employed officer or employee of any person, compensation that is 
consistent with the normal compensation for such officer or employee for 
work that is not furnished to, not funded by, or not furnished in 
cooperation with the Federal Government.
    (n) Reasonable payment means, with respect to perfessional and other 
technical services, a payment in an amount that is consistent with the 
amount normally paid for such services in the private sector.
    (o) Recipient includes all contractors, subcontractors at any tier, 
and subgrantees at any tier of the recipient of funds received in 
connection with a Federal contract, grant, loan, or cooperative 
agreement. The term excludes an Indian tribe, tribal organization, or 
any other Indian organization with respect to expenditures specifically 
permitted by other Federal law.
    (p) Regularly employed means, with respect to an officer or employee 
of a person requesting or receiving a Federal contract, grant, loan, or 
cooperative agreement or a commitment providing for the United States to 
insure or guarantee a loan, an officer or employee who is employed by 
such person for at least 130 working days within one year immediately 
preceding the date of the submission that initiates agency consideration 
of such person for receipt of such contract, grant, loan, cooperative 
agreement, loan insurance commitment, or loan guarantee commitment. An 
officer or employee who is employed by such person for less than 130 
working days within one year immediately preceding the date of the 
submission that initiates agency consideration of such person shall be 
considered to be regularly employed as soon as he or she is employed by 
such person for 130 working days.
    (q) State means a State of the United States, the District of 
Columbia, the Commonwealth of Puerto Rico, a territory or possession of 
the United States, an agency or instrumentality of a State, and a multi-
State, regional, or interstate entity having governmental duties and 
powers.



Sec. 146.110  Certification and disclosure.

    (a) Each person shall file a certification, and a disclosure form, 
if required, with each submission that initiates agency consideration of 
such person for:

[[Page 529]]

    (1) Award of a Federal contract, grant, or cooperative agreement 
exceeding $100,000; or
    (2) An award of a Federal loan or a commitment providing for the 
United States to insure or guarantee a loan exceeding $150,000.
    (b) Each person shall file a certification, and a disclosure form, 
if required, upon receipt by such person of:
    (1) A Federal contract, grant, or cooperative agreement exceeding 
$100,000; or
    (2) A Federal loan or a commitment providing for the United States 
to insure or guarantee a loan exceeding $150,000,

Unless such person previously filed a certification, and a disclosure 
form, if required, under paragraph (a) of this section.
    (c) Each person shall file a disclosure form at the end of each 
calendar quarter in which there occurs any event that requires 
disclosure or that materially affects the accuracy of the information 
contained in any disclosure form previously filed by such person under 
paragraphs (a) or (b) of this section. An event that materially affects 
the accuracy of the information reported includes:
    (1) A cumulative increase of $25,000 or more in the amount paid or 
expected to be paid for influencing or attempting to influence a covered 
Federal action; or
    (2) A change in the person(s) or individual(s) influencing or 
attempting to influence a covered Federal action; or,
    (3) A change in the officer(s), employee(s), or Member(s) contacted 
to influence or attempt to influence a covered Federal action.
    (d) Any person who requests or receives from a person referred to in 
paragraphs (a) or (b) of this section:
    (1) A subcontract exceeding $100,000 at any tier under a Federal 
contract;
    (2) A subgrant, contract, or subcontract exceeding $100,000 at any 
tier under a Federal grant;
    (3) A contract or subcontract exceeding $100,000 at any tier under a 
Federal loan exceeding $150,000; or,
    (4) A contract or subcontract exceeding $100,000 at any tier under a 
Federal cooperative agreement,

Shall file a certification, and a disclosure form, if required, to the 
next tier above.
    (e) All disclosure forms, but not certifications, shall be forwarded 
from tier to tier until received by the person referred to in paragraphs 
(a) or (b) of this section. That person shall forward all disclosure 
forms to the agency.
    (f) Any certification or disclosure form filed under paragraph (e) 
of this section shall be treated as a material representation of fact 
upon which all receiving tiers shall rely. All liability arising from an 
erroneous representation shall be borne solely by the tier filing that 
representation and shall not be shared by any tier to which the 
erroneous representation is forwarded. Submitting an erroneous 
certification or disclosure constitutes a failure to file the required 
certification or disclosure, respectively. If a person fails to file a 
required certification or disclosure, the United States may pursue all 
available remedies, including those authorized by section 1352, title 
31, U.S. Code.
    (g) For awards and commitments in process prior to December 23, 
1989, but not made before that date, certifications shall be required at 
award or commitment, covering activities occurring between December 23, 
1989, and the date of award or commitment. However, for awards and 
commitments in process prior to the December 23, 1989 effective date of 
these provisions, but not made before December 23, 1989, disclosure 
forms shall not be required at time of award or commitment but shall be 
filed within 30 days.
    (h) No reporting is required for an activity paid for with 
appropriated funds if that activity is allowable under either Subpart B 
or C.



                 Subpart B--Activities by Own Employees



Sec. 146.200  Agency and legislative liaison.

    (a) The prohibition on the use of appropriated funds, in 
Sec. 146.100 (a), does not apply in the case of a payment of reasonable 
compensation made to an officer or employee of a person requesting or 
receiving a Federal contract, grant, loan, or cooperative agreement

[[Page 530]]

if the payment is for agency and legislative liaison activities not 
directly related to a covered Federal action.
    (b) For purposes of paragraph (a) of this section, providing any 
information specifically requested by an agency or Congress is allowable 
at any time.
    (c) For purposes of paragraph (a) of this section, the following 
agency and legislative liaison activities are allowable at any time only 
where they are not related to a specific solicitation for any covered 
Federal action:
    (1) Discussing with an agency (including individual demonstrations) 
the qualities and characteristics of the person's products or services, 
conditions or terms of sale, and service capabilities; and,
    (2) Technical discussions and other activities regarding the 
application or adaptation of the person's products or services for an 
agency's use.
    (d) For purposes of paragraph (a) of this section, the following 
agencies and legislative liaison activities are allowable only where 
they are prior to formal solicitation of any covered Federal action:
    (1) Providing any information not specifically requested but 
necessary for an agency to make an informed decision about initiation of 
a covered Federal action;
    (2) Technical discussions regarding the preparation of an 
unsolicited proposal prior to its official submission; and,
    (3) Capability presentations by persons seeking awards from an 
agency pursuant to the provisions of the Small Business Act, as amended 
by Public Law 95-507 and other subsequent amendments.
    (e) Only those activities expressly authorized by this section are 
allowable under this section.



Sec. 146.205  Professional and technical services.

    (a) The prohibition on the use of appropriated funds, in 
Sec. 146.100 (a), does not apply in the case of a payment of reasonable 
compensation made to an officer or employee of a person requesting or 
receiving a Federal contract, grant, loan, or cooperative agreement or 
an extension, continuation, renewal, amendment, or modification of a 
Federal contract, grant, loan, or cooperative agreement if payment is 
for professional or technical services rendered directly in the 
preparation, submission, or negotiation of any bid, proposal, or 
application for that Federal contract, grant, loan, or cooperative 
agreement or for meeting requirements imposed by or pursuant to law as a 
condition for receiving that Federal contract, grant, loan, or 
cooperative agreement.
    (b) For purposes of paragraph (a) of this section, professional and 
technical services shall be limited to advice and analysis directly 
applying any professional or technical discipline. For example, drafting 
of a legal document accompanying a bid or proposal by a lawyer is 
allowable. Similarly, technical advice provided by an engineer on the 
performance or operational capability of a piece of equipment rendered 
directly in the negotiation of a contract is allowable. However, 
communications with the intent to influence made by a professional (such 
as a licensed lawyer) or a technical person (such as a licensed 
accountant) are not allowable under this section unless they provide 
advice and analysis directly applying their professional or technical 
expertise and unless the advice or analysis is rendered directly and 
solely in the preparation, submission or negotiation of a covered 
Federal action. Thus, for example, communications with the intent to 
influence made by a lawyer that do not provide legal advice or analysis 
directly and solely related to the legal aspects of his or her client's 
proposal, but generally advocate one proposal over another are not 
allowable under this section because the lawyer is not providing 
professional legal services. Similarly, communications with the intent 
to influence made by an engineer providing an engineering analysis prior 
to the preparation or submission of a bid or proposal are not allowable 
under this section since the engineer is providing technical services 
but not directly in the preparation, submission or negotiation of a 
covered Federal action.
    (c) Requirements imposed by or pursuant to law as a condition for 
receiving a covered Federal award include those required by law or 
regulation, or

[[Page 531]]

reasonably expected to be required by law or regulation, and any other 
requirements in the actual award documents.
    (d) Only those services expressly authorized by this section are 
allowable under this section.



Sec. 146.210  Reporting.

    No reporting is required with respect to payments of reasonable 
compensation made to regularly employed officers or employees of a 
person.



            Subpart C--Activities by Other Than Own Employees



Sec. 146.300  Professional and technical services.

    (a) The prohibition on the use of appropriated funds, in 
Sec. 146.100 (a), does not apply in the case of any reasonable payment 
to a person, other than an officer or employee of a person requesting or 
receiving a covered Federal action, if the payment is for professional 
or technical services rendered directly in the preparation, submission, 
or negotiation of any bid, proposal, or application for that Federal 
contract, grant, loan, or cooperative agreement or for meeting 
requirements imposed by or pursuant to law as a condition for receiving 
that Federal contract, grant, loan, or cooperative agreement.
    (b) The reporting requirements in Sec. 146.110 (a) and (b) regarding 
filing a disclosure form by each person, if required, shall not apply 
with respect to professional or technical services rendered directly in 
the preparation, submission, or negotiation of any commitment providing 
for the United States to insure or guarantee a loan.
    (c) For purposes of paragraph (a) of this section, professional and 
technical services shall be limited to advice and analysis directly 
applying any professional or technical discipline. For example, drafting 
or a legal document accompanying a bid or proposal by a lawyer is 
allowable. Similarly, technical advice provided by an engineer on the 
performance or operational capability of a piece of equipment rendered 
directly in the negotiation of a contract is allowable. However, 
communications with the intent to influence made by a professional (such 
as a licensed lawyer) or a technical person (such as a licensed 
accountant) are not allowable under this section unless they provide 
advice and analysis directly applying their professional or technical 
expertise and unless the advice or analysis is rendered directly and 
solely in the preparation, submission or negotiation of a covered 
Federal action. Thus, for example, communications with the intent to 
influence made by a lawyer that do not provide legal advice or analysis 
directly and solely related to the legal aspects of his or her client's 
proposal, but generally advocate one proposal over another are not 
allowable under this section because the lawyer is not providing 
professional legal services. Similarly, communications with the intent 
to influence made by an engineer providing an engineering analysis prior 
to the preparation or submission of a bid or proposal are not allowable 
under this section since the engineer is providing technical services 
but not directly in the preparation, submission or negotiation of a 
covered Federal action.
    (d) Requirements imposed by or pursuant to law as a condition for 
receiving a covered Federal award include those required by law or 
regulation, or reasonably expected to be required by law or regulation, 
and any other requirements in the actual award documents.
    (e) Persons other than officers or employees of a person requesting 
or receiving a covered Federal action include consultants and trade 
associations.
    (f) Only those services expressly authorized by this section are 
allowable under this section.



                  Subpart D--Penalties and Enforcement



Sec. 146.400  Penalties.

    (a) Any person who makes an expenditure prohibited herein shall be 
subject to a civil penalty of not less than $10,000 and not more than 
$100,000 for each such expenditure.
    (b) Any person who fails to file or amend the disclosure form (see 
appendix B) to be filed or amended if required herein, shall be subject 
to a civil penalty of not less than $10,000 and not

[[Page 532]]

more than $100,000 for each such failure.
    (c) A filing or amended filing on or after the date on which an 
administrative action for the imposition of a civil penalty is commenced 
does not prevent the imposition of such civil penalty for a failure 
occurring before that date. An administrative action is commenced with 
respect to a failure when an investigating official determines in 
writing to commence an investigation of an allegation of such failure.
    (d) In determining whether to impose a civil penalty, and the amount 
of any such penalty, by reason of a violation by any person, the agency 
shall consider the nature, circumstances, extent, and gravity of the 
violation, the effect on the ability of such person to continue in 
business, any prior violations by such person, the degree of culpability 
of such person, the ability of the person to pay the penalty, and such 
other matters as may be appropriate.
    (e) First offenders under paragraphs (a) or (b) of this section 
shall be subject to a civil penalty of $10,000, absent aggravating 
circumstances. Second and subsequent offenses by persons shall be 
subject to an appropriate civil penalty between $10,000 and $100,000, as 
determined by the agency head or his or her designee.
    (f) An imposition of a civil penalty under this section does not 
prevent the United States from seeking any other remedy that may apply 
to the same conduct that is the basis for the imposition of such civil 
penalty.



Sec. 146.405  Penalty procedures.

    Agencies shall impose and collect civil penalties pursuant to the 
provisions of the Program Fraud and Civil Remedies Act, 31 U.S.C. 
sections 3803 (except subsection (c)), 3804, 3805, 3806, 3807, 3808, and 
3812, insofar as these provisions are not inconsistent with the 
requirements herein.



Sec. 146.410  Enforcement.

    The head of each agency shall take such actions as are necessary to 
ensure that the provisions herein are vigorously implemented and 
enforced in that agency.



                          Subpart E--Exemptions



Sec. 146.500  Secretary of Defense.

    (a) The Secretary of Defense may exempt, on a case-by-case basis, a 
covered Federal action from the prohibition whenever the Secretary 
determines, in writing, that such an exemption is in the national 
interest. The Secretary shall transmit a copy of each such written 
exemption to Congress immediately after making such a determination.
    (b) The Department of Defense may issue supplemental regulations to 
implement paragraph (a) of this section.



                        Subpart F--Agency Reports



Sec. 146.600  Semi-annual compilation.

    (a) The head of each agency shall collect and compile the disclosure 
reports (see appendix B) and, on May 31 and November 30 of each year, 
submit to the Secretary of the Senate and the Clerk of the House of 
Representatives a report containing a compilation of the information 
contained in the disclosure reports received during the six-month period 
ending on March 31 or September 30, respectively, of that year.
    (b) The report, including the compilation, shall be available for 
public inspection 30 days after receipt of the report by the Secretary 
and the Clerk.
    (c) Information that involves intelligence matters shall be reported 
only to the Select Committee on Intelligence of the Senate, the 
Permanent Select Committee on Intelligence of the House of 
Representatives, and the Committees on Appropriations of the Senate and 
the House of Representatives in accordance with procedures agreed to by 
such committees. Such information shall not be available for public 
inspection.
    (d) Information that is classified under Executive Order 12356 or 
any successor order shall be reported only to the Committee on Foreign 
Relations of the Senate and the Committee on Foreign Affairs of the 
House of Representatives or the Committees on Armed Services of the 
Senate and the House of Representatives (whichever such committees have 
jurisdiction of matters involving such information) and to the

[[Page 533]]

Committees on Appropriations of the Senate and the House of 
Representatives in accordance with procedures agreed to by such 
committees. Such information shall not be available for public 
inspection.
    (e) The first semi-annual compilation shall be submitted on May 31, 
1990, and shall contain a compilation of the disclosure reports received 
from December 23, 1989 to March 31, 1990.
    (f) Major agencies, designated by the Office of Management and 
Budget (OMB), are required to provide machine-readable compilations to 
the Secretary of the Senate and the Clerk of the House of 
Representatives no later than with the compilations due on May 31, 1991. 
OMB shall provide detailed specifications in a memorandum to these 
agencies.
    (g) Non-major agencies are requested to provide machine-readable 
compilations to the Secretary of the Senate and the Clerk of the House 
of Representatives.
    (h) Agencies shall keep the originals of all disclosure reports in 
the official files of the agency.



Sec. 146.605  Inspector General report.

    (a) The Inspector General, or other official as specified in 
paragraph (b) of this section, of each agency shall prepare and submit 
to Congress each year, commencing with submission of the President's 
Budget in 1991, an evaluation of the compliance of that agency with, and 
the effectiveness of, the requirements herein. The evaluation may 
include any recommended changes that may be necessary to strengthen or 
improve the requirements.
    (b) In the case of an agency that does not have an Inspector 
General, the agency official comparable to an Inspector General shall 
prepare and submit the annual report, or, if there is no such comparable 
official, the head of the agency shall prepare and submit the annual 
report.
    (c) The annual report shall be submitted at the same time the agency 
submits its annual budget justifications to Congress.
    (d) The annual report shall include the following: All alleged 
violations relating to the agency's covered Federal actions during the 
year covered by the report, the actions taken by the head of the agency 
in the year covered by the report with respect to those alleged 
violations and alleged violations in previous years, and the amounts of 
civil penalties imposed by the agency in the year covered by the report.

        Appendix A to Part 146--Certification Regarding Lobbying

 Certification for Contracts, Grants, Loans, and Cooperative Agreements

    The undersigned certifies, to the best of his or her knowledge and 
belief, that:
    (1) No Federal appropriated funds have been paid or will be paid, by 
or on behalf of the undersigned, to any person for influencing or 
attempting to influence an officer or employee of an agency, a Member of 
Congress, an officer or employee of Congress, or an employee of a Member 
of Congress in connection with the awarding of any Federal contract, the 
making of any Federal grant, the making of any Federal loan, the 
entering into of any cooperative agreement, and the extension, 
continuation, renewal, amendment, or modification of any Federal 
contract, grant, loan, or cooperative agreement.
    (2) If any funds other than Federal appropriated funds have been 
paid or will be paid to any person for influencing or attempting to 
influence an officer or employee of any agency, a Member of Congress, an 
officer or employee of Congress, or an employee of a Member of Congress 
in connection with this Federal contract, grant, loan, or cooperative 
agreement, the undersigned shall complete and submit Standard Form-LLL, 
``Disclosure Form to Report Lobbying,'' in accordance with its 
instructions.
    (3) The undersigned shall require that the language of this 
certification be included in the award documents for all subawards at 
all tiers (including subcontracts, subgrants, and contracts under 
grants, loans, and cooperative agreements) and that all subrecipients 
shall certify and disclose accordingly.
    This certification is a material representation of fact upon which 
reliance was placed when this transaction was made or entered into. 
Submission of this certification is a prerequisite for making or 
entering into this transaction imposed by section 1352, title 31, U.S. 
Code. Any person who fails to file the required certification shall be 
subject to a civil penalty of not less than $10,000 and not more than 
$100,000 for each such failure.

            Statement for Loan Guarantees and Loan Insurance

    The undersigned states, to the best of his or her knowledge and 
belief, that:
    If any funds have been paid or will be paid to any person for 
influencing or attempting

[[Page 534]]

to influence an officer or employee of any agency, a Member of Congress, 
an officer or employee of Congress, or an employee of a Member of 
Congress in connection with this commitment providing for the United 
States to insure or guarantee a loan, the undersigned shall complete and 
submit Standard Form-LLL, ``Disclosure Form to Report Lobbying,'' in 
accordance with its instructions.
    Submission of this statement is a prerequisite for making or 
entering into this transaction imposed by section 1352, title 31, U.S. 
Code. Any person who fails to file the required statement shall be 
subject to a civil penalty of not less than $10,000 and not more than 
$100,000 for each such failure.

[[Page 535]]

       Appendix B to Part 146--Disclosure Form to Report Lobbying
[GRAPHIC] [TIFF OMITTED] TC08SE91.000


[[Page 536]]


[GRAPHIC] [TIFF OMITTED] TC08SE91.001


[[Page 537]]


[GRAPHIC] [TIFF OMITTED] TC08SE91.002


[[Page 539]]



CHAPTER III--ECONOMIC DEVELOPMENT ADMINISTRATION, DEPARTMENT OF COMMERCE




  --------------------------------------------------------------------

Part                                                                Page
300             General information.........................         541
301             General eligibility and grant rate 
                    requirements............................         543
302             Economic Development Districts; standards 
                    for designation, modification and 
                    termination.............................         546
303             Planning process and strategies for district 
                    and other planning organizations 
                    supported by EDA........................         549
304             General selection process and evaluation 
                    criteria................................         550
305             Grants for Public Works and Development 
                    Facilities..............................         551
306             Planning assistance.........................         558
307             Local Technical Assistance, University 
                    Center Technical Assistance, National 
                    Technical Assistance, Training, 
                    Research, and Evaluation................         559
308             Requirements for Economic Adjustment grants.         563
309-313

[Reserved]

314             Property....................................         573
315             Certification and adjustment assistance for 
                    firms...................................         578
316             General requirements for financial 
                    assistance..............................         586
317             Civil rights................................         591
318             Evaluations of University Centers and 
                    Economic Development Districts..........         593

[[Page 541]]



PART 300--GENERAL INFORMATION--Table of Contents




Sec.
300.1  Introduction and purpose.
300.2  Definitions.
300.3  OMB control numbers.
300.4  Economic Development Administration-Washington, DC, Regional and 
          Economic Development Representatives.

    Authority: 42 U.S.C. 3211; Department of Commerce Organization Order 
10-4.

    Source: 64 FR 5352, Feb. 3, 1999, unless otherwise noted.



Sec. 300.1  Introduction and purpose.

    (a) Introduction. Is your community suffering from severe economic 
distress (e.g., high unemployment, low income, sudden economic changes, 
etc.)? Are you a representative of a State or local unit of government, 
Indian tribe, public or private nonprofit organization, educational 
institution, or community development corporation looking for grant 
assistance to enhance your opportunities for economic development? If 
so, these regulations of the Economic Development Administration (EDA) 
of the U.S. Department of Commerce may be of help. These regulations 
tell you the purpose of EDA and outline the program requirements, 
project selection process, project evaluation criteria, and other 
relevant matters. The information in these regulations covers grant 
programs of EDA that provide financial awards for the following:

     Public Works and Development Facilities;
     Planning;
     Research, Evaluation, Training and Technical Assistance;
     Trade Adjustment Assistance; and
     Economic Adjustment Assistance.

    (b) What is the Purpose of the Economic Development Administration?
    (1) Many communities lag behind and suffer economic distress in one 
form or another, such as:

     High unemployment;
     Low income;
     Underemployment;
     Outmigration;
     Sudden economic changes due to the restructuring or 
relocation of industrial firms;
     Closing or realignment of defense bases or cutbacks in 
defense procurement;
     Economic impact of natural disasters or other emergencies;
     Actions of the Federal government (such as environmental 
requirements) that curtail or remove economic activities; and
     Impacts of foreign trade.

    (2) The purpose of the Economic Development Administration is to 
address economic problems affecting economically distressed rural and 
urban communities; by helping them:
    (i) Develop and strengthen their economic development planning and 
institutional capacity to design and implement business outreach and 
development programs; and
    (ii) Develop or expand public works and other facilities, financing 
tools, and resources that will create new job opportunities, save 
existing jobs, retain existing businesses, and support the development 
of new businesses.
    (3) To promote a strong and growing economy throughout the United 
States, EDA works in partnership with State and local governments, 
Indian tribes and local, regional, and State public and private 
nonprofit organizations. With them EDA develops and carries out 
comprehensive economic development strategies that address the economic 
problems of distressed communities. EDA helps such communities increase 
their economic development capacities so that they can take advantage of 
existing resources and development opportunities.



Sec. 300.2  Definitions.

    Unless otherwise defined in other parts or sections of this Chapter, 
the terms listed are defined as follows:
    Comprehensive Economic Development Strategy, CEDS, or strategy means 
a strategy approved by EDA under Sec. 301.3 of this chapter.
    Department means the Department of Commerce.
    Economic Development District or district:
    (1) Means any area in the United States that has been designated by 
EDA as an Economic Development District under Sec. 302.1 of these 
regulations; and
    (2) Includes any Economic Development District designated by EDA 
under sec. 403 of the Public Works and Economic Development Act of 1965, 
as

[[Page 542]]

amended, as in effect on the day before the effective date of Public Law 
105-393.
    EDA means the Economic Development Administration in the U.S. 
Department of Commerce when a place or agency is intended, and refers to 
the headquarters office in Washington, D.C., or a regional office, as 
appropriate; or it means the Assistant Secretary of Commerce for 
Economic Development or his/her designee when a person is intended. The 
locations of EDA's offices are listed each year in a Notice of Funding 
Availability (NOFA). The general information telephone number for EDA is 
(202) 482-2309.
    Eligible applicant means:
    (1) In general,--
    (i) An entity qualified to be an eligible recipient, or
    (ii) Its authorized representative.
    (2) Except in the case of Research, Evaluation, Training, or 
Technical Assistance grants under part 307, a private individual or for-
profit organization cannot be an eligible applicant.
    Eligible recipient means
    (1) In general,--
    (i) An area described in Sec. 301.2 of these regulations;
    (ii) An Economic Development District;
    (iii) An Indian tribe or a consortium of Indian tribes;
    (iv) A State;
    (v) A city or other political subdivision of a State or a consortium 
of political subdivisions;
    (vi) An institution of higher education or a consortium of 
institutions of higher education; or
    (vii) A public or private nonprofit organization or association 
acting in cooperation with officials of a political subdivision of a 
State.
    (2) In the case of Research, Evaluation, Training, and Technical 
Assistance grants under part 307, eligible recipient also includes 
private individuals and for-profit organizations.
    Federal agency means a department, agency, or instrumentality of the 
United States.
    Federally-declared disaster means a Presidentially-declared disaster 
or a Federally-declared disaster pursuant to the Magnuson-Stevens 
Fishery Conversation and Management Act (Public Law 94-265) as amended 
by the Sustainable Fisheries Act (Public Law 104-297), or a Federal 
declaration pursuant to the Consolidated Farm and Rural Development Act, 
as amended (Public Laws 92-419, 96-438, 97-35, 98-258, 99-198, 100-233, 
100-387, and 101-624), or a Federally-declared disaster pursuant to the 
Small Business Act, as amended (Public Law 85-536).
    Financial assistance means grant.
    Grant means the non-procurement award of EDA funds to an eligible 
recipient under PWEDA or the Trade Act, as applicable. The term includes 
a cooperative agreement, within the meaning of chapter 63 of title 31, 
United States Code.
    Indian tribe means any Indian tribe, band, nation, pueblo, or other 
organized group or community, including any Alaska Native Village or 
Regional Corporation (as defined in or established under the Alaska 
Native Claims Settlement Act (43 U.S.C. 1601 et seq.)), that is 
recognized as eligible for the special programs and services provided by 
the United States to Indians because of their status as Indians. The 
term includes: The governing body of a tribe, nonprofit Indian 
corporation (restricted to Indians), Indian authority, or other 
nonprofit tribal organization or entity, provided that the tribal 
organization or entity is wholly owned by, and established for the 
benefit of, the tribe or Alaska Native Village.
    Local share, matching share or local share match are used 
interchangeably to mean non-Federal funds or goods and services provided 
by recipients or third parties that are required as a condition of a 
grant, and includes funds from other Federal agencies only if there is 
statutory authority allowing such use.
    Notice of Funding Availability or NOFA, refers to the notice or 
notices EDA publishes each year in the Federal Register and on EDA's 
internet web site, http://www.doc.gov/eda, describing the available 
amounts, particular procedures, priorities, and special circumstances 
for the EDA grant programs for that year.
    PWEDA means the Public Works and Economic Development Act of 1965, 
as amended (Pub. L. 89-136, 42 U.S.C. 3121 et seq.), including the 
comprehensive

[[Page 543]]

amendments by the Economic Development Administration Reform Act of 1998 
(Pub. L. 105-393). (The term ``PWEDA'' was used to refer to EDA's 
authorizing legislation as it was in effect before the effective date of 
Public Law 105-393, signed into law on November 13, 1998. In these 
regulations, the term ``PWEDA'' refers to the legislation as currently 
amended by the 1998 law.)
    Presidentially-declared disaster means a major disaster or emergency 
declared under the Robert T. Stafford Disaster Relief and Emergency 
Assistance Act (42 U.S.C. 5121 et seq.).
    Project means the activity or activities the purpose of which 
fulfills EDA program requirements and that EDA funds in whole or in 
part.
    Proposed District means a geographic entity composed of one or more 
eligible areas proposed for designation as an Economic Development 
District.
    Recipient and grantee are used interchangeably to mean an entity 
receiving funds from EDA under PWEDA or the Trade Act, as applicable, 
and includes any EDA approved successor to such recipient.
    State means a State, the District of Columbia, the Commonwealth of 
Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, the 
Commonwealth of the Northern Mariana Islands, the Republic of the 
Marshall Islands, the Federated States of Micronesia, and the Republic 
of Palau.
    The Trade Act means Title II, Chapters 3 and 5, of the Trade Act of 
1974, as amended (19 U.S.C. 2341, et seq.).
    United States means all of the States.

[64 FR 5352, Feb. 3, 1999, as amended at 64 FR 69873, Dec. 14, 1999]



Sec. 300.3  OMB control numbers.

    (a) This table displays control numbers assigned to EDA's 
information collection requirements by the Office of Management and 
Budget (``OMB'') pursuant to the Paperwork Reduction Act of 1980, Pub. 
L. 96-511. EDA intends that this table comply with Section 3507(f) of 
the Paperwork Reduction Act, requiring agencies to display a current 
control number assigned by the Director of OMB for each agency 
information collection requirement.
    (b) Control number table:

------------------------------------------------------------------------
13 CFR part or section where identified an
                 described                     Current OMB control No.
------------------------------------------------------------------------
301.......................................  0610-0094
302.......................................  0610-0094
303.......................................  0610-0093
304.......................................  0610-0094
305.......................................  0610-0094 and 0610-0096
306.......................................  0610-0094
307.......................................  0610-0094
308.......................................  0610-0094 and 0610-0095
314.......................................  0610-0094
315.......................................  0610-0091 and 0610-0094
316.......................................  0610-0094
------------------------------------------------------------------------


[64 FR 5352, Feb. 3, 1999, as amended at 65 FR 71024, Nov. 28, 2000]



Sec. 300.4  Economic Development Administration-Washington, D.C., Regional and Economic Development Representatives.

    For addresses and phone numbers of the Economic Development 
Administration in Washington, D.C., Regional and Field Offices and 
Economic Development Representatives, refer to EDA's annual Fiscal Year 
(FY) Notice of Funding Availability (NOFA).



PART 301--GENERAL ELIGIBILITY AND GRANT RATE REQUIREMENTS--Table of Contents




Sec.
301.1  Applicants.
301.2  Area eligibility.
301.3  Strategy required.
301.4  Grant rates.

    Authority: 42 U.S.C. 3211; Department of Commerce Organization Order 
10-4.

    Source: 64 FR 5353, Feb. 3, 1999, unless otherwise noted.



Sec. 301.1  Applicants.

    (a) Eligible applicants are defined in Sec. 300.2 of this chapter.
    (b) Except as otherwise provided in parts 307 and 308 of this 
chapter, a public or private nonprofit organization applicant must 
include in its application for assistance, a resolution passed by, or a 
letter signed by, an authorized representative of a general purpose 
political subdivision of a State or an Indian tribe, acknowledging that 
the applicant is acting in cooperation with officials of the political 
subdivision or Indian tribe, as applicable.

[64 FR 5353, Feb. 3, 1999, as amended at 64 FR 69873, Dec. 14, 1999; 65 
FR 71024, Nov. 28, 2000]

[[Page 544]]



Sec. 301.2  Area eligibility.

    (a) EDA awards public works and development facilities grants under 
part 305 and economic adjustment grants under part 308 for projects to 
enhance economic development in economically distressed areas.
    (b) An area is eligible for a project grant under part 305 or 308 if 
it has one of the following:
    (1) An unemployment rate that is, for the most recent 24-month 
period for which data are available, at least one percent greater than 
the national average unemployment rate. For example, if the national 
average unemployment rate is 6 percent, an area is eligible under this 
provision if it has an unemployment rate of 7 percent.
    (2) Per capita income that is, for the most recent period for which 
data are available, 80 percent or less of the national average per 
capita income.
    (3) A special need, as determined by EDA, arising from actual or 
threatened severe unemployment or economic adjustment problems resulting 
from severe short-term or long-term changes in economic conditions, for 
example:
    (i) Substantial outmigration or population loss;
    (ii) Underemployment, that is, employment of workers at less than 
full time or at less skilled tasks than their training or abilities 
permit;
    (iii) Military base closures or realignments, defense contractor 
reductions-in-force, or Department of Energy defense-related funding 
reductions;
    (iv) Natural or other major disasters or emergencies;
    (v) Extraordinary depletion of natural resources;
    (vi) Closure or restructuring of industrial firms, essential to area 
economies; or
    (vii) Destructive impacts of foreign trade.
    (c) A non-distressed area [i.e., an area that does not meet the 
criteria of paragraph (b) of this section] within an Economic 
Development District is also eligible, provided the project will be of a 
substantial direct benefit to an area that meets at least one of the 
criteria of paragraph (b) of this section. A project provides 
substantial direct benefit if it provides significant employment 
opportunities for unemployed, underemployed or low income residents.
    (d) Normally an area is defined by geographical/political 
boundaries, e.g., city, county, Indian reservation. However, a smaller 
area (without regard to political boundaries) is also eligible even 
though it may be part of a larger community that overall is experiencing 
low distress. When the boundaries of the project area differ from 
established political boundaries, the project area must be of sufficient 
size appropriate to the proposed project, and the applicant must justify 
the proposed boundaries in relation to the project's benefits to the 
area.
    (e) Eligibility is determined at the time that EDA receives an 
application and is based on the most recent Federal data available for 
the area where the project will be located or where the substantial 
direct benefits will be received. If no Federal data are available to 
determine eligibility, an applicant must submit to EDA the most recent 
data available through the government of the State in which the area is 
located, i.e., conducted by or at the direction of the State government. 
Other data may be submitted, as appropriate, to substantiate eligibility 
based on special needs, under paragraph (b)(3) of this section.
    (f) EDA may reject any documentation of eligibility that it 
determines is inaccurate.
    (g) There is no area eligibility requirement for a project grant 
under part 306 or 307.
    (h) EDA describes special needs criteria under paragraph (b)(3) of 
this section in a NOFA.

[64 FR 5353, Feb. 3, 1999, as amended at 64 FR 69873, Dec. 14, 1999]



Sec. 301.3  Strategy required.

    (a) To be eligible for a project grant under part 305 or 308 of this 
chapter, the application for assistance must include a CEDS acceptable 
to EDA. The applicant may, however, incorporate by reference a current 
strategy previously approved by EDA, as an alternative to including the 
strategy in the application. (Exception: A strategy is not required when 
a funding request is for planning assistance, e.g., a strategy grant, 
under part 308 of this chapter.)

[[Page 545]]

The strategy must be in conformance with CEDS requirements under 
Sec. 303.3 of this chapter.
    (b) EDA will approve as acceptable a strategy that it determines 
meets the requirements of Sec. 303.3 of this chapter. The strategy may 
be one developed:
    (1) With EDA assistance,
    (2) Under another Federally supported program, or
    (3) Through a local, regional, or State process.
    (c) In determining acceptability of a strategy, EDA will take into 
consideration the circumstances of the application, so that for instance 
a strategy accompanying an application for assistance immediately 
following a natural disaster will require less depth and detail than 
would be the case in other circumstances.
    (d) To be acceptable, a strategy must be approved, within one year 
prior to the date of application, by the entity developing the strategy 
or by the applicant. In the case of a strategy approved by the 
applicant, approval must be by the applicant's governing body, or in the 
case of a State, by the governor or the governor's designee(s).
    (e) Before EDA approves a strategy for an area all or partly within 
the boundaries of an EDD, the EDD organization must be given a 30-day 
opportunity to review and comment upon such strategy.

[64 FR 5353, Feb. 3, 1999, as amended at 64 FR 69873, Dec. 14, 1999]



Sec. 301.4  Grant rates.

    (a) Except as otherwise provided for in this chapter, the amount of 
the EDA grant may not exceed 50 percent of the cost of the project. Cash 
or in-kind contributions, fairly evaluated by EDA, including 
contributions of space, equipment, and services, may provide the non-
Federal share of the project cost. In-kind contributions must be 
eligible project costs and meet applicable Federal cost principles and 
uniform administrative requirements.
    (b) EDA may supplement the Federal share of a grant project where 
the applicant is able to demonstrate that the non-Federal share that 
would otherwise be required cannot be provided because of the overall 
economic situation. It is not necessary for an applicant to prove that 
it would be impossible to provide a full 50 percent non-Federal share, 
but it must show circumstances warranting any reduction. In determining 
whether to provide a Federal share greater than 50 percent for a 
project, EDA will give due consideration to the applicant's economic 
situation and the relative needs of the area. In the case of Indian 
tribes, EDA may reduce or waive the non-Federal share, and in other 
cases EDA may reduce the non-Federal share of the cost of the project 
below 50 percent, in accordance with the following table, showing the 
maximum Federal grant rate, including the supplement:

------------------------------------------------------------------------
                                                  Maximum grant rates
                   Projects                           (percentage)
------------------------------------------------------------------------
(1) Projects of Indian tribes where EDA has    100
 made a determination to waive the non-
 Federal share of the cost of the project.
(2) Projects under Part 308 located in         100
 Presidentially-declared disaster areas for
 which EDA receives an application for
 assistance under a supplemental
 appropriation, within 18 months of the date
 of declaration, and for which the President
 established a rate of Federal participation,
 based on the public assistance grant rate of
 the Federal Emergency Management Agency
 (FEMA) for the disaster, of greater than 80
 percent.
(3) Projects of Indian tribes where EDA has    Less than 100
 made a determination to reduce the non-
 Federal share of the cost of the project.
(4) Projects of States or political            Less than 100
 subdivisions of States that have exhausted
 their effective taxing and/or borrowing
 capacity, or nonprofit organizations that
 have exhausted their borrowing capacity.
(5) Projects under Part 308 located in         80
 Presidentially-declared disaster areas for
 which EDA receives an application for
 assistance under a supplemental
 appropriation, within 18 months of the date
 of declaration.
(6) Projects located in Federally-declared     80
 disaster areas, for which EDA receives an
 application for assistance within 18 months
 of the date of declaration, when the
 Assistant Secretary determines that the
 applicant cannot provide the required non-
 Federal share because of the disaster's
 impact on the economic situation.
(7) Projects located in eligible areas where:
    (i) The 24-month unemployment rate is at
     least 225% of the national average or
    (ii) The per capita income (PCI) is not    80
     more than 50% of the national average.
(8) Projects located in eligible areas that
 are not eligible for a higher rate, where:

[[Page 546]]

 
    (i) The 24-month unemployment rate is at
     least 180% of the national average or
    (ii) The PCI is not more than 60% of the   70
     national average.
(9) Projects located in eligible areas that
 are not eligible for a higher rate, where:
    (1) The 24-month unemployment rate is at
     least 150% of the national average or
    (2) The PCI is not more than 70% of the    60
     national average.
(10) Projects in all other eligible areas....  50
------------------------------------------------------------------------

    (c) The table in paragraph (b) of this section does not apply to 
projects which support the on-going operations of Economic Development 
Districts or University Centers. Grant rates for those projects are 
provided in part 306 and subpart B of part 307, of this chapter, 
respectively.
    (d) Projects located in designated Economic Development Districts 
are eligible for an amount of additional Federal grant assistance not to 
exceed 10 percent of the estimated cost of the project, provided
    (1) The project applicant is actively participating in the economic 
development activities of the district;
    (2) The project is consistent with the strategy of the district; and
    (3) The non-Federal share of the project is not less than 20 
percent.
    (4) The project is not a University Center project under subpart B 
of part 307, of this chapter; and
    (5) The district organization is not itself the sole project 
applicant. Projects (other than planning projects under part 306 of this 
chapter) for which the district organization is a co-applicant are 
eligible for the incentive if the co-applicant with the district is 
actively participating in the economic development activities of the 
district and the project is otherwise eligible for such incentive. 
Planning projects under part 306 of this chapter for which the district 
organization is an applicant or a co-applicant are not eligible for the 
10 percent increase in assistance.
    (e) EDA may make grants to supplement grants awarded in other 
Federal grant programs.
    (1) Supplemental grants under paragraph (e) of this section are only 
available for projects:
    (i) Under Federal grant programs that
    (A) Provide assistance in the construction or equipping of public 
works, public service, or development facilities, and
    (B) Are designated by EDA as eligible for supplemental EDA grants, 
and
    (ii) Are consistent with a strategy.
    (2) EDA's funds combined with funds from another Federal grant 
program may be at the maximum EDA grant rate, as set forth above, even 
if the other Federal program has a lower grant rate. If the other 
Federal program has a grant rate higher than the maximum EDA grant rate 
as set forth above, the combination of funds may exceed the EDA rate 
provided the EDA share does not exceed the EDA rate.
    (f) An applicant is eligible for the highest applicable maximum 
grant rate, as set forth above, in effect between the time EDA invites 
the application and the time the project is approved. The Federal share 
of a project receiving EDA grant assistance may be (and often is) less 
than the maximum grant rate for which the recipient is eligible.
    (g) EDA's NOFA will provide additional criteria to ensure that the 
level of economic distress of an area, rather than a preference for a 
geographic area or a specific type of economic distress, is the primary 
factor in allocating assistance.

[64 FR 5353, Feb. 3, 1999, as amended at 64 FR 32975, June 18, 1999; 64 
FR 69873, Dec. 14, 1999]



PART 302--ECONOMIC DEVELOPMENT DISTRICTS; STANDARDS FOR DESIGNATION, MODIFICATION AND TERMINATION--Table of Contents




Sec.
302.1  Designation of Economic Development Districts.
302.2  Designation of nonfunded districts.
302.3  District organizations.
302.4  District organization functions and responsibilities.
302.5  Modification of district boundaries.

[[Page 547]]

302.6  Termination and suspension of district designation.
302.7  Eligibility of non-distressed areas.

    Authority: 42 U.S.C. 3211; Department of Commerce Organization Order 
10-4.

    Source: 64 FR 5355, Feb. 3, 1999, unless otherwise noted.



Sec. 302.1  Designation of Economic Development Districts.

    EDA will designate a proposed district as an Economic Development 
District with the concurrence of the State or States in which the 
District will be wholly or partially located, when the proposed district 
meets the following requirements:
    (a) It is of sufficient size or population, and contains sufficient 
resources, to foster economic development on a scale involving more than 
a single eligible area;
    (b) It has an EDA approved strategy which meets CEDS requirements 
under Sec. 303.3 of this chapter.
    (c) It contains at least one area, eligible for assistance under 
Sec. 301.2, that has been identified in an approved strategy;
    (d) At least a majority of the counties, or other areas as 
determined by EDA, within the proposed district boundaries have 
submitted documentation of their commitment to support the economic 
development activities of the district;
    (e) A district organization has been established in the proposed 
district which meets the requirements of Sec. 302.4; and
    (f) The proposed district organization requests such designation.

[64 FR 5355, Feb. 3, 1999, as amended at 65 FR 71024, Nov. 28, 2000]



Sec. 302.2  Designation of nonfunded districts.

    The continuing designation of any Economic Development District is 
subject to the criteria and organization requirements of this part 
whether or not the Economic Development District organization receives 
any EDA financial assistance.



Sec. 302.3  District organizations.

    (a) The district shall be organized in one of the following ways:
    (1) As a public organization through an intergovernmental agreement 
for the joint exercise of local government powers; or
    (2) As a public organization established under State enabling 
legislation for the creation of multi-jurisdictional area wide planning 
organizations; or
    (3) As a non-profit organization incorporated under the laws of the 
State in which it is located.
    (b) Each district organization must meet EDA requirements concerning 
membership composition [Sec. 302.3(c)], the maintenance of adequate 
staff support to perform its economic development functions 
[Sec. 302.3(d)], and its authorities and responsibilities for carrying 
out economic development functions [Sec. 302.4]. Such requirements must 
also be met by the board of directors (or other governing body of the 
organization) as a whole.
    (c) The district organization shall demonstrate that its governing 
body meets all of the following requirements:
    (1) It is broadly representative of the principal economic interests 
of the district area including the interests of its minority and low-
income populations;
    (2) There is at least a simple majority of its membership who are 
elected officials and/or employees of a general purpose unit of local 
government who have been appointed to represent the government; and
    (3) At least 20 percent of its membership who are private citizens, 
i.e., neither elected officials of a general purpose unit of local 
government nor employees of such a government who have been appointed to 
represent that government.
    (d) The district organization shall be assisted by a professional 
staff drawn from qualified persons in economic development, planning or 
related disciplines. EDA may provide planning grants to Economic 
Development Districts to employ professional staff in accordance with 
part 306 of this chapter.
    (e) The governing bodies of district organizations shall provide 
access for persons who are not members to make their views known 
concerning ongoing

[[Page 548]]

and proposed district activities in accordance with the following 
requirements:
    (1) The economic development district organization must hold 
meetings open to the public at least once a year and shall also publish 
the date and agenda of the meeting enough in advance to allow the public 
a reasonable time to prepare to participate effectively.
    (2) The district organization shall adopt a system of parliamentary 
procedures to assure that board members and others have access to and an 
effective opportunity to participate in the affairs of the district.
    (3) Information should be provided sufficiently in advance of public 
decisions to give the public adequate opportunity to review and react to 
proposals. District organizations should seek to relate technical data 
and other material to the public so they may understand the impact of 
public programs, available options and alternative decisions.



Sec. 302.4  District organization functions and responsibilities.

    (a) All Economic Development District organizations are responsible 
for seeing that the following are provided on a continuing basis, 
consistent with the requirements of Sec. 302.3:
    (1) Organizational actions, including:
    (i) Arranging the legal form of organization which will be used;
    (ii) Arranging for the membership of the governing body to meet 
Sec. 302.3 requirements;
    (iii) Recruiting staff to carry out the economic development 
functions;
    (iv) Establishing a management system;
    (v) The inclusion of private citizens who are not officials of or 
employees appointed by the officials of a general purpose unit of local 
government;
    (vi) Contracting for services to carry out district functions;
    (vii) Establishing and directing activities of economic development 
subcommittees; and
    (viii) Submitting reports as determined by EDA to comply with civil 
rights requirements under part 317 of this chapter.
    (2) Actions to develop and maintain the required district strategy, 
and any subsequent supplements or revisions, including:
    (i) Preparing the analytic, strategic and implementation components 
of the strategy;
    (ii) Adopting the strategy by formal action of the Economic 
Development District governing board;
    (iii) Submitting the strategy, any supplements or revisions and 
annual reports for reviews by appropriate governmental bodies and 
interested organized groups, and attaching dissenting opinions and 
comments received; and
    (iv) Submitting to EDA an approvable strategy.
    (b) District organizations receiving EDA financial assistance for 
the development and implementation of Comprehensive Economic Development 
Strategies must also:
    (1) Coordinate and implement economic development activities in the 
district, including:
    (i) Assisting other eligible units within the district to apply for 
grant assistance for economic development purposes;
    (ii) Carrying out economic development related research, planning, 
implementation and advisory functions as are necessary to the 
development and implementation of the strategy;
    (2) Coordinate the development and implementation of the strategy 
with other local, State, Federal and private organizations (including 
minority organizations);
    (3) Carry out the annual strategy for implementation; and
    (4) Comply with the requirements of part 303 of this chapter.

[64 FR 5355, Feb. 3, 1999, as amended at 64 FR 69874, Dec. 14, 1999; 65 
FR 71024, Nov. 28, 2000]



Sec. 302.5  Modification of district boundaries.

    EDA, at the request of a district and with concurrence of the State 
or States affected (unless such concurrence is waived by the Assistant 
Secretary), may modify the boundaries of a district, if it determines 
that such modification will contribute to a more effective program for 
economic development.

[[Page 549]]



Sec. 302.6  Termination and suspension of district designation.

    EDA may, upon 60 days prior written notice to the district 
organization, member counties or other areas as determined by EDA, and 
each affected State, terminate the designation status of an Economic 
Development District:
    (a) When the district no longer meets the standards for designation 
as set forth above;
    (b) When a district has not maintained a currently approved strategy 
in accordance with part 303 of this chapter; or
    (c) When a district has requested termination.

[64 FR 5355, Feb. 3, 1999, as amended at 64 FR 69874, Dec. 14, 1999]



Sec. 302.7  Eligibility of non-distressed areas.

    Areas in districts which are not themselves eligible for assistance 
under parts 305 or 308 may be eligible, as provided in Sec. 301.2(c).



PART 303--PLANNING PROCESS AND STRATEGIES FOR DISTRICT AND OTHER PLANNING ORGANIZATIONS SUPPORTED BY EDA--Table of Contents




Sec.
303.1  Definitions, purpose and scope.
303.2  Planning process.
303.3  Requirements for a strategy.

    Authority: 42 U.S.C. 3211; Department of Commerce Organization Order 
10-4.

    Source: 64 FR 5356, Feb. 3, 1999, unless otherwise noted.



Sec. 303.1  Definitions, purpose and scope.

    (a) As used in this part 303. (1) Planning organization means an 
Economic Development District organization, Indian tribe, or other 
recipient of an EDA grant under part 306 of this chapter which grant is 
awarded in whole or in part to develop, update, or replace a CEDS, and
    (2) Strategy committee means that committee or other entity 
identified by the planning organization as responsible for developing, 
updating, or replacing a strategy.
    (b) This part describes the planning process of and requirements for 
strategies developed and implemented by planning organizations supported 
by EDA. Though the strategy requirements are the same under all EDA 
programs which call for a strategy, the planning process and reporting 
and updating requirements for EDA supported planning organizations are 
more stringent.

[64 FR 5356, Feb. 3, 1999, as amended at 64 FR 69874, Dec. 14, 1999]



Sec. 303.2  Planning process.

    (a) The strategy committee must be inclusive and representative of 
the main economic interests of the area covered by the strategy. Such 
interests include public officials, community leaders, private 
individuals, business leaders, labor groups, minorities, and others who 
can contribute to and benefit from improved economic development in the 
area covered.
    (b) The planning organization must support the strategy committee 
with a staff skilled in economic planning or related fields.
    (c) The planning organization must conduct an initial and continuous 
study and analysis of the opportunities for economic development and of 
problems contributing to economic and related distress in the area 
covered, such as, for example, unemployment, underemployment, 
outmigration, or low per capita income, and possible solutions to such 
problems.
    (d) Planning organizations covered by this part 303 must submit an 
initial strategy to EDA in compliance with the requirements of 
Sec. 303.3, as determined by EDA. Each year thereafter, the planning 
organization must submit an annual strategy report, acceptable to EDA.
    (e) A new or revised strategy is required at least every five years, 
or sooner if EDA or the planning organization determines that the 
strategy is inadequate due to changed circumstances. Each strategy must 
be available for review and comment by appropriate government bodies and 
interest groups in the area covered. Strategies submitted by Districts 
require a 30 day opportunity for review and comment by the Governor or 
Governors, or designee(s), of the State or

[[Page 550]]

States in which they are located, prior to EDA approval.
    (f) If EDA identifies any deficiencies, it will notify the 
organization in writing and provide the organization a reasonable 
opportunity to remedy such deficiencies.
    (g) If any part of a district is in the Appalachian region (as 
defined in section 403 of the Appalachian Regional Development Act of 
1965 (40 U.S.C. App.)) the district shall ensure that a copy of the 
district's CEDS is provided to the Appalachian Regional Commission.

[64 FR 5356, Feb. 3, 1999, as amended at 64 FR 69874, Dec. 14, 1999; 65 
FR 71024, Nov. 28, 2000]



Sec. 303.3  Requirements for a strategy.

    A strategy must be the result of a continuing economic development 
planning process, developed with broad-based and diverse community 
participation, and contain the following:
    (a) An analysis of economic and community development problems and 
opportunities including incorporation of any relevant material or 
suggestions from other government sponsored or supported plans;
    (b) Background and history of the economic development situation of 
the area covered, with a discussion of the economy, including as 
appropriate, geography, population, labor force, resources, 
infrastructure, transportation systems, and the environment;
    (c) A discussion of community participation in the planning efforts;
    (d) A section setting forth goals and objectives for taking 
advantage of the opportunities of and solving the economic development 
problems of the area serviced;
    (e) A plan of action, including suggested projects to implement 
objectives and goals set forth in the strategy; and
    (f) Performance measures that will be used to evaluate whether and 
to what extent goals and objectives have been or are being met.

[64 FR 5356, Feb. 3, 1999, as amended at 64 FR 69874, Dec. 14, 1999]



PART 304--GENERAL SELECTION PROCESS AND EVALUATION CRITERIA--Table of Contents




Sec.
304.1  Project proposal, application, selection and evaluation for 
          programs under PWEDA.
304.2  How EDA evaluates proposals and applications for projects funded 
          under PWEDA.

    Authority: 42 U.S.C. 3211; Department of Commerce Organization Order 
10-4.

    Source: 64 FR 5357, Feb. 3, 1999, unless otherwise noted.



Sec. 304.1  Project proposal, application, selection and evaluation for programs under PWEDA.

    (a) Local projects. If you are or represent a party eligible to be 
an applicant, and are interested in a public works, economic adjustment, 
planning, local technical assistance or university center project grant, 
you should contact the appropriate Economic Development Representative 
(EDR) (or EDA Regional or headquarters office), identified in the NOFA. 
The EDR or other EDA official is available to provide program 
information, including the current published NOFA; provide a proposal 
form approved by the U.S. Office of Management and Budget (OMB), and 
provide assistance as needed in filling out the proposal form.
    (1) After submission of the proposal to the appropriate EDR or 
Regional Office of EDA, the appropriate Regional Office Project Review 
Committee (PRC), consisting of at least three EDA officials, will review 
the proposal. The EDR or other appropriate EDA official will evaluate 
the proposal under Sec. 304.2, program specific sections of this rule, 
and the NOFA, if applicable, before submitting it to the EDA Regional 
Office for its review.
    (2) After review by the PRC, EDA will send a letter in a timely 
manner to each submitter advising either that:
    (i) EDA invites the submitter to prepare and present a formal 
application on a standard application form, with attachments for the 
type of grant being requested; or
    (ii) EDA returns the proposal because of specified deficiencies and 
suggests

[[Page 551]]

resubmission when the deficiencies are cured; or
    (iii) EDA denies the proposal for specifically stated reasons.
    (b) National technical assistance, training, research, or evaluation 
projects. If you are or represent a party eligible to be an applicant, 
and are interested in a national technical assistance, training, 
research, or evaluation project under PWEDA, you should make initial 
contact with EDA in Washington, D.C., at locations identified in the 
NOFA, for information and assistance concerning proposals and to obtain 
program information, including a copy of the current NOFA, and OMB 
approved proposal form. After submission of the proposal to the 
appropriate EDA Washington, D.C. office, generally, three or more 
technically knowledgeable EDA officials will review the proposal for 
relevance and quality.
    (1) If EDA determines that the proposal is acceptable under 
Sec. 304.2, program specific sections of this chapter, and the NOFA, if 
applicable, EDA may by letter invite the submitter to provide an 
application with a more detailed and comprehensive project narrative.
    (2) If EDA determines that the proposal is not acceptable because of 
specified deficiencies, EDA will so notify the submitter in writing in a 
timely manner.
    (c) Additional criteria, or priority consideration factors for 
assistance, may be set forth in a NOFA.
    (d) EDA expects that applications will generally be submitted within 
30 days after receipt of an invitation letter. EDA's invitation to 
submit an application does not assure EDA funding.

[64 FR 5357, Feb. 3, 1999, as amended at 64 FR 69874, Dec. 14, 1999]



Sec. 304.2  How EDA evaluates proposals and applications for projects funded under PWEDA.

    (a) General proposal and application evaluation criteria for 
projects funded under PWEDA are as follows: EDA will screen all 
proposals/applications for conformance to statutory and regulatory 
requirements, the reasonableness of the budget presented, and the 
following criteria:
    (1) The relative severity of the economic problem of the area,
    (2) The quality of the scope of work proposed to address the 
problem,
    (3) The merits of the activity(ies) for which funding is requested, 
and
    (4) The ability of the prospective applicant to carry out the 
proposed activity(ies) successfully.
    (b) EDA will also review applications for conformance with any 
additional program specific evaluation criteria as stated in applicable 
sections of these rules or the NOFA.
    (c) The NOFA may identify special areas of interest or priority 
consideration for the period of such NOFA.

[64 FR 5357, Feb. 3, 1999, as amended at 64 FR 69875, Dec. 14, 1999]



PART 305--GRANTS FOR PUBLIC WORKS AND DEVELOPMENT FACILITIES--Table of Contents




                           Subpart A--General

Sec.
305.1  Purpose and scope.
305.2  Criteria.
305.3  Application requirements.
305.4  Selection and evaluation.

              Subpart B--Requirements for Approved Projects

305.5  Pilot program.
305.6  Project management conference.
305.7  Selection of the Achitect/Engineer.
305.8  Project phasing.
305.9  Recipient furnished equipment and materials.
305.10  Construction Management services.
305.11  Design/Build method of construction.
305.12  Advertising for bids.
305.13  Bid overrun.
305.14  Bid underrun.
305.15  Contract award.
305.16  Construction progress schedule.
305.17  Project sign.
305.18  Occupancy prior to completion.
305.19  Contract change orders.
305.20  Project development time schedule.
305.21  Controlling budget.
305.22  Services performed by the recipient's own forces.
305.23  Public Works projects for design and engineering work.
305.24  Disbursements of funds for grants.
305.25  Final inspection.
305.26  Reports.

    Authority: 42 U.S.C. 3211; Department of Commerce Organization Order 
10-4.

[[Page 552]]


    Source: 64 FR 5358, Feb. 3, 1999, unless otherwise noted.



                           Subpart A--General



Sec. 305.1  Purpose and scope.

    The purpose of Public Works and Development Facilities grants is to 
help the Nation's distressed communities revitalize and expand their 
physical and economic infrastructure and thereby provide support for the 
creation or retention of jobs for area residents by helping eligible 
recipients with their efforts to promote the economic development of 
distressed areas. The primary focus is on the creation of new, or the 
retention of existing, long-term private sector job opportunities in 
communities experiencing significant economic distress as evidenced by 
high unemployment, low income, or a special need arising from actual or 
threatened severe unemployment or severe changes in local economic 
conditions. These grants are intended to help communities achieve 
sustainable economic development by developing and expanding new and 
existing public works and other infrastructure facilities that will help 
generate long-term jobs and economic growth, improve economic conditions 
or otherwise enhance and promote the economic recovery of the area.



Sec. 305.2  Criteria.

    (a) A grant may be made under part 305 for the following purposes:
    (1) For the acquisition or development of land and improvements for 
use for a public works, public service or other type of development 
facility; or
    (2) For the acquisition, design and engineering, construction, 
rehabilitation, alteration, expansion, or improvement of such a 
facility, including related machinery and equipment.
    (b) A grant may be made under part 305 only when:
    (1) The project for which the grant is applied for will, directly or 
indirectly--
    (i) Improve the opportunities, in the area where the project is or 
will be located, for the successful establishment or expansion of 
industrial or commercial plants or facilities;
    (ii) Assist in the creation of additional long-term employment 
opportunities in the area; or
    (iii) Primarily benefit the long-term unemployed and members of low-
income families;
    (2) The project for which the grant is applied for will fulfill a 
pressing need of the area, or a part of the area, in which the project 
is or will be located; and
    (3) The area for which the project is to be carried out has a 
strategy and the project is consistent with the strategy.
    (c) Maximum assistance for each State. Not more than 15 percent of 
the annual appropriations available to carry out this part may be 
expended in any one State.

[64 FR 5358, Feb. 3, 1999, as amended at 64 FR 69875, Dec. 14, 1999]



Sec. 305.3  Application requirements.

    Each application for a grant under part 305 must:
    (a) Include evidence of area and applicant eligibility;
    (b) Include, or incorporate by reference, a strategy, as provided in 
Sec. 301.3;
    (c) Identify the sources of the other funds, both eligible Federal 
and non-Federal, that will make up the balance of the proposed project's 
financing, including any private sources of financing. The application 
must show that such other funds are committed to the project and will be 
available as needed. The local share must not be encumbered in any way 
that would preclude its use consistent with the requirements of the 
grant; and
    (d) Explain how the proposed project meets the criteria of 
Sec. 305.2.



Sec. 305.4  Selection and evaluation.

    (a) Projects will be selected in accordance with the application 
evaluation criteria set forth in Sec. 304.2 of this chapter.
    (b) In addition to the evaluation criteria set forth in part 304 of 
this chapter, project selection and evaluation will be made on the basis 
of whether, and to what extent, the proposed project will:
    (1) Assist in creating new or retaining existing private sector jobs 
and assist in the creation of additional long-

[[Page 553]]

term employment opportunities rather than merely transferring jobs from 
one area of the country to another;
    (2) Be supported by significant private sector investment;
    (3) Leverage or be a catalyst for the effective use of private, 
local government, State or other Federal funding that is available;
    (4) Likely be started and completed in a timely fashion; and
    (5) If the project is located in an area with a stable economy and 
low distress, provide employment opportunities for residents of nearby 
areas of high distress.



              Subpart B--Requirements for Approved Projects



Sec. 305.5  Pilot program.

    (a) EDA's Regional Offices may, upon approval of the Deputy 
Assistant Secretary for Program Operations, institute pilot programs for 
post-approval construction monitoring, thereby continuing EDA's efforts 
to streamline and simplify procedures for monitoring approved EDA 
construction projects. The knowledge and efficiencies gained from the 
pilot programs will be evaluated and used to improve and revise EDA's 
post-approval project management requirements and procedures.
    (b) As part of a pilot program, the procedures developed by a 
Regional Office may vary from those listed in this subpart B. No 
additional requirements are imposed by pilot program procedures. A 
Regional Office will provide guidelines, in its version of the 
``Requirements for Approved Projects,'' to all recipients of grants for 
construction projects monitored by the Office. The recipient may not be 
required to submit to EDA certain documentation at any set time, but 
will be required to maintain all documentation supporting any and all 
certifications submitted to the Regional Office, for the period of time 
provided in 15 CFR part 14 or 24, as appropriate.

[65 FR 71024, Nov. 28, 2000]



Sec. 305.6  Project management conference.

    After the EDA financial assistance award has been accepted by the 
recipient, EDA may schedule a planning conference with the recipient's 
representatives to explain the post-approval requirements for 
administration of the EDA assisted project.

[64 FR 69875, Dec. 14, 1999]



Sec. 305.7  Selection of the Architect/Engineer.

    Guidelines for the selection of the Architect/Engineer (A/E), 
services to be performed by the A/E, contract provisions for those 
services and eligible fees for the A/E are as follows:
    (a) Selection of the A/E may be by sealed bids using formal 
advertising or by competitive proposal procedures subject to negotiation 
of fair and reasonable compensation. The cost plus a percentage of cost 
and percentage of construction cost methods of contracting shall not be 
used.
    (b) The A/E agreement shall provide for all services required by the 
recipient for the engineering feasibility, design and contract 
administration of the proposed project. Appropriate standards or guides 
developed by such professional organizations as the American Consulting 
Engineers Council, American Society of Civil Engineers, National Society 
of Professional Engineers, and/or the American Institute of Architects 
may be used where the grantee does not have standard procurement/
contract documents.
    (c) Exhibit A-1, Checklist for Architect/Engineer Services, in the 
EDA publication, Requirements for Approved Construction Projects, 
displayed at EDA's Web Site, http//www.doc.gov/eda (a copy of this 
publication is available from EDA and a copy will be furnished to an 
award recipient with the Offer of Financial Assistance), lists the 
contract provisions which EDA recommends for the A/E contract. The A/E 
agreement must be furnished to EDA in order for the allowability of the 
costs of A/E services to be determined.
    (d) Eligible project costs may include, but not be limited to, costs 
for A/E fees, resident inspection, test borings, and the testing of 
materials provided under an agreement or contract with the recipient. 
The A/E fees should

[[Page 554]]

be in conformity with similar costs and projects in the area.

[64 FR 69875, Dec. 14, 1999]



Sec. 305.8  Project phasing.

    The recipient is strongly urged to award all contracts for 
construction at one time.
    (a) Where compelling reasons justify phasing the project, the 
recipient must secure the approval of EDA for phasing prior to 
advertising any portion for bid.
    (b) The recipient's request for approval of phasing must include 
valid reasons justifying the request and a statement from the recipient 
that it can, and will, fund any overrun that arises in the later phases.
    (c) Normally, EDA will not disburse funds until all construction 
contracts have been awarded, (an exception is the development of an 
underground source of water when required to determine the availability 
of an adequate source of water supply in terms of both quality and 
quantity as described in the grant application).
    (d) Disbursement of grant funds by phases must be approved by EDA. 
Such approvals will be given only if the recipient can demonstrate that 
a severe hardship will result if such approval is not given and there 
are compelling reasons why all phases cannot be contracted for at the 
same time.
    (e) The recipient must be capable of paying incurred costs prior to 
the first disbursement of EDA grant funds.

[64 FR 69875, Dec. 14, 1999]



Sec. 305.9  Recipient furnished equipment and materials.

    The recipient may wish to incorporate into the project equipment 
and/or materials which it will secure through its own efforts.
    (a) It is the responsibility of the recipient to assure that such 
equipment and/or materials are adequate for the proposed use.
    (b) The use of such equipment and materials must be approved by EDA 
to be eligible for EDA financial participation. The recipient shall be 
required to submit with its request for approval either a paid invoice 
or current quotes from not less than three suppliers who normally 
distribute such equipment and/or materials. EDA may require that major 
equipment items be subject to a lien in favor of EDA and may also 
require a statement from the Recipient regarding expected useful life 
and salvage value.
    (c) The recipient must be prepared to show that the cost claimed for 
such equipment and/or materials is competitive with local market costs.
    (d) Acquisitions of recipient furnished equipment and/or materials 
under this section is subject to the requirements of 15 CFR part 24 or 
15 CFR part 14.

[64 FR 69875, Dec. 14, 1999]



Sec. 305.10  Construction Management services.

    Construction Management is defined as the services of a firm with 
competent and experienced staff to act as the recipient's agent to 
perform all or part of project administration. EDA will not normally 
approve the use of a Construction Management firm for projects costing 
less than $5 million. EDA will participate in such cost only if EDA 
approves the contract for such services.

[64 FR 69876, Dec. 14, 1999]



Sec. 305.11  Design/Build method of construction.

    EDA discourages the use of the same entity to both design and to 
build EDA assisted facilities. If the recipient desires to use such a 
method, its use must be justified and EDA must approve the contract. The 
procurement of, and the compensation to, the designer/builder will be 
subject to the same rules as for the procurement of construction 
services.

[64 FR 69876, Dec. 14, 1999]



Sec. 305.12  Advertising for bids.

    In the absence of State or local law to the contrary, the 
advertisement for bids for construction projects should appear in 
publications of general circulation a minimum of four times within a 30-
day period prior to the opening of bids. Additional circulation of the 
invitation for bids is encouraged if it is needed to obtain the coverage 
necessary to secure competitive bids.

[[Page 555]]

Generally, a minimum of 30 days should be allowed for submission of 
bids.

[64 FR 69876, Dec. 14, 1999]



Sec. 305.13  Bid overrun.

    If at the construction contract bid opening the lowest responsive 
bid less deductive alternates, if any, exceeds the funds available for 
construction, the recipient may reject all bids or augment the funds 
available in an amount sufficient to enable the award to be made to the 
low bidder. If available, the recipient may take deductive alternates in 
the order given in the Invitation for Bids until at least one of the 
responsive bids less deductive alternates results in a price within the 
funds announced as available prior to the bid opening. The award then 
may be made to that bidder. Additional information on the procedures to 
be followed is in the EDA publication, Requirements for Approved 
Construction Projects.

[64 FR 69876, Dec. 14, 1999]



Sec. 305.14  Bid underrun.

    If at the construction contract bid opening, the lowest responsive 
bid is less than the funds available for construction, EDA must be 
notified immediately to determine whether any unneeded grant funds 
should be deobligated.

[64 FR 69876, Dec. 14, 1999]



Sec. 305.15  Contract award.

    EDA must concur in the award of all necessary contracts for design 
and construction of the EDA assisted facility in order for the cost to 
be eligible for EDA reimbursement. Pending EDA approval of the 
construction contract(s), the recipient may issue the notice to proceed 
permitting the work to go forward. If the work does go forward prior to 
EDA approval, the recipient will be proceeding at its own risk pending 
EDA review and concurrence. The EDA regional office will advise the 
recipient of the documents that are required to obtain EDA approval.

[64 FR 69876, Dec. 14, 1999]



Sec. 305.16  Construction progress schedule.

    If requested by EDA, the recipient will secure from the contractor 
or A/E and furnish a copy to EDA of the estimated construction progress 
chart and a schedule of amounts for contract payments. The construction 
progress chart should be updated monthly by the recipient, the A/E or 
the contractor, and an up-to-date copy furnished to EDA quarterly 
throughout the construction of the project.

[64 FR 69876, Dec. 14, 1999]



Sec. 305.17  Project sign.

    The recipient shall be responsible for the construction, erection, 
and maintenance in good condition throughout the construction period, of 
a sign or signs, (recommended specifications for the sign are included 
as an exhibit to the EDA publication, Requirements for Approved 
Construction Projects) at the project site in a conspicuous place 
indicating that the Federal government is participating in the project. 
EDA may require more than one sign if the project's location so 
warrants. The recipient should confer with the EDA regional office for 
suggestions on where the sign(s) should be located.

[64 FR 69876, Dec. 14, 1999]



Sec. 305.18  Occupancy prior to completion.

    If the project or any part of it is to be occupied or used prior to 
the project's acceptance from the contractor, the recipient must notify 
EDA of the intent to occupy or use the facility and the effective date 
of the occupancy or use, secure the written consent of the contractor; 
secure an endorsement from the insurance carrier and consent of the 
surety company permitting occupancy or use during the period of 
construction; secure permanent fire and extended coverage insurance and, 
when required, secure a permit to occupy the facility from the 
appropriate authority, e.g. the local building inspector.

[64 FR 69876, Dec. 14, 1999]

[[Page 556]]



Sec. 305.19  Contract change orders.

    After construction contracts have been executed, it may become 
necessary to alter them. This requires a formal contract change order, 
issued by the recipient and accepted by the contractor.
    (a) All contract change orders must be concurred in by EDA even if 
the recipient is to pay for all additional costs resulting from the 
change or the contract price is to be reduced.
    (b) The work on the project may continue pending EDA review and 
concurrence in the change order but the recipient should be aware that 
all such work will be at the recipient's risk as to whether the cost for 
the work will be an eligible project cost for EDA participation until 
EDA concurrence is received.
    (c) EDA will not approve financial participation in change orders 
that are solely for the purpose of using excess funds resulting from an 
underrun of one or more of the items in the approved project budget.
    (d) When a change order is for a project funded with one-year funds, 
EDA approval of such change order must be based on a finding by EDA that 
the work called for in the change order is within the project scope and 
is required for satisfactory operation or functioning of the project.

[64 FR 69876, Dec. 14, 1999, as amended at 65 FR 71025, Nov. 28, 2000]



Sec. 305.20  Project development time schedule.

    The recipient is responsible for expeditiously prosecuting the 
implementation of the project in accordance with the project development 
time schedule contained in the EDA grant award. As soon as the recipient 
becomes aware that it will not be possible to meet the time schedule, it 
must notify the EDA Regional Office.

[64 FR 69876, Dec. 14, 1999]



Sec. 305.21  Controlling budget.

    The tabulation of estimated project costs contained in the EDA grant 
award is the controlling budget for the project.
    (a) Budget line item revisions, including the addition of a new line 
item, which do not involve a change of scope may be approved by EDA if 
no new EDA funds are involved; another budget line item (preferably the 
contingency line item, although this is not mandatory) has funds which 
can be used without significantly adversely affecting the object of that 
line item; and unless the line item that is proposed to be supplemented 
is supplemented, the activity associated with that line item cannot be 
completed.
    (b) The recipient shall notify EDA of any proposed transfer of funds 
from one budget line item to another. The recipient's attention is 
called to the fact that the addition of a new line item to the approved 
budget may involve an impermissible change of scope and, therefore, may 
result in such costs being excluded from EDA's participation. 
Accordingly, the recipient is advised to discuss the need to add a new 
line item to the approved budget with EDA regional office staff before 
any costs are incurred under such new line item.

[64 FR 69877, Dec. 14, 1999]



Sec. 305.22  Services performed by the recipient's own forces.

    The recipient may wish to have a portion or all of the design, 
construction, inspection, legal services or other work and/or services 
in connection with the project performed by personnel who are employed 
by the recipient either full or part time (in-house). Due to the 
difficulty in monitoring in-house construction and the limited EDA staff 
available to perform the monitoring, in-house construction is 
discouraged.
    (a) If EDA approves the use of the recipient's in-house forces to 
construct all or part of the EDA assisted project and the in-house 
forces are to be augmented by personnel hired specifically for the EDA 
assisted project, the hourly wages to be paid to such personnel shall be 
the same as the hourly wages paid to full time personnel of the 
recipient doing the same or similar work. If the nature of the work is 
not similar and/or there is not an established wage scale, the 
prevailing state or county hourly wage for public employees shall be 
obtained from the appropriate state or county agency and used for the

[[Page 557]]

newly established position. However, non-profit recipients must pay all 
personnel employed for the construction of the EDA assisted project the 
prevailing hourly wages for the area as established by the U.S. 
Department of Labor.
    (b) The use of in-house forces for construction may be approved by 
EDA if:
    (1) The recipient has a special skill required for the construction 
of the project, e.g., construction of unique Indian structures, or
    (2) The recipient has made all reasonable efforts to obtain a 
contractor but has failed to do so because of uncontrollable factors 
such as the remoteness of the project site or an overabundance of 
construction work in the project area, or
    (3) Substantial cost savings can be demonstrated.

[64 FR 69877, Dec. 14, 1999]



Sec. 305.23  Public Works projects for design and engineering work.

    In general, EDA prefers to award a Public Works grant that includes 
all of the costs required for the successful completion of a project, 
including the design and engineering work.
    (a) When the purpose of the Public Works project is to accomplish 
only the design and engineering work for a proposed future construction 
project, EDA may award a grant for the design and engineering work with 
the understanding that EDA cannot make a commitment against a future 
fiscal year appropriation to fund the proposed construction project.
    (b) The purpose of the EDA assisted project for design and 
engineering work is to produce all of the documents required for the 
construction of the proposed future project in a format and in 
sufficient quantity to permit a construction contract to be advertised 
and awarded soon after the project's construction financing has been 
arranged. The EDA document, Requirements for Approved Construction 
Projects, should be used to ensure that the proposed construction 
project meets all applicable Federal requirements.
    (c) Design and engineering projects will not generally be considered 
unless the nature of the proposed project to be considered is complex or 
environmentally sensitive and EDA makes a determination that it is in 
the best interest of the Government to award a separate grant for design 
and engineering.
    (d) EDA requires the design/engineering contract to be submitted to 
and approved by EDA before any EDA grant funds can be disbursed.

[64 FR 69877, Dec. 14, 1999]



Sec. 305.24  Disbursements of funds for grants.

    (a) Disbursements of funds for construction grants are generally 
made on a reimbursable basis on request of the recipient for 
reimbursement. Disbursements may be made only:
    (1) After execution of all contracts required for the completion of 
the project. This condition may be waived by EDA if the grantee can 
demonstrate that enforcement of the condition would place an undue 
burden on it;
    (2) For itemized and certified eligible costs incurred, as 
substantiated by such documentary evidence as EDA may require;
    (3) On the basis of the work accomplished and the percentage of EDA 
participation, but in no event for more than the total sum stated in the 
financial assistance award accepted by the grantee;
    (4) Upon such evidence as EDA may require that grantee's 
proportionate share of funds not yet expended is on deposit;
    (5) After a determination by EDA that all applicable terms and 
conditions of the grant have been met; and
    (6) After meeting such other requirements as EDA may establish in 
accordance with other Federal laws, rules and regulations.
    (b) Disbursements are generally made in installments, based upon 
grantee's actual rate of disbursement in accordance with the grant rate.
    (c) Advances of funds are allowable when disbursement on a 
reimbursable basis would impose an undue burden, as determined by EDA, 
upon the recipient.

[64 FR 5358, Feb. 3, 1999. Redesignated and amended at 64 FR 69875, 
69877, Dec. 14, 1999]

[[Page 558]]



Sec. 305.25  Final inspection.

    A final inspection will be scheduled by the recipient and 
appropriate notification given to EDA, when the project has been 
completed and all deficiencies have been corrected. EDA personnel may 
attend and participate in the final inspection and, in any event, EDA 
must be advised of the outcome of such final inspection and the 
recipient's acceptance of the work.

[64 FR 69877, Dec. 14, 1999]



Sec. 305.26  Reports.

    Financial and performance reports requirements will be specified in 
the Special Award Conditions of the grant. Construction progress 
schedule reports will be required in Sec. 305.16.

[64 FR 69877, Dec. 14, 1999]



PART 306--PLANNING ASSISTANCE--Table of Contents




Sec.
306.1  Purpose and scope.
306.2  Application evaluation criteria.
306.3  Award requirements.
306.4  Post-approval requirements.

    Authority: 42 U.S.C. 3211; Department of Commerce Organization Order 
10-4.

    Source: 64 FR 5427, Feb. 3, 1999, unless otherwise noted.



Sec. 306.1  Purpose and scope.

    The primary objective of planning assistance is to provide funding 
for administrative expenses to support the formulation and 
implementation of economic development planning programs and for the 
conduct of planning activities designed to create and retain permanent 
jobs and increase incomes, particularly for the unemployed and 
underemployed in the nation's most economically distressed areas. EDA's 
planning assistance is for partnership planning grants with Districts, 
Indian Tribes and other eligible applicants, as well as for short term 
grants to eligible grantees. Planning activities supported by these 
funds must be part of a continuous process involving the active 
participation of public officials and private citizens, and include the 
following:
    (a) Analyzing local economies;
    (b) Defining economic development goals;
    (c) Determining project opportunities; and
    (d) Formulating and implementing an economic development program 
that includes systematic efforts to reduce unemployment and increase 
incomes.

[64 FR 5427, Feb. 3, 1999, as amended at 65 FR 71025, Nov. 28, 2000]



Sec. 306.2  Application evaluation criteria.

    (a) EDA uses the application evaluation criteria set forth in part 
304 of this chapter. In addition, EDA evaluates applications on the 
following:
    (1) Quality of the proposed work program;
    (2) Management and staff capacity and qualifications of the 
applicant organization; and
    (3) Extent of broad-based representation including for example, 
involvement of the local civic, business, leadership, labor, minority, 
and other community interests in the applicant's economic development 
activities.
    (b) Previously funded grantees, in addition to the requirements of 
paragraph (a) of this section, will also be evaluated on the basis of 
the quality of their past performance.



Sec. 306.3  Award requirements.

    (a) Planning assistance shall be used in conjunction with any other 
available Federal planning assistance to ensure adequate and effective 
planning and economical use of funds.
    (b) Grant rate: (1) The maximum Federal grant rate for a project 
under this part for recipients other than Economic Development Districts 
is 50 percent, except as supplemented as provided in Sec. 301.4(b) of 
this chapter.
    (2) The maximum Federal grant rate for a project under this part for 
a district is:
    (i) 50 percent, or
    (ii) 75 percent, if the project meets the criteria of paragraph 
(b)(3) of this section.
    (3) A district project is eligible for a supplemental grant 
increasing the Federal share up to and including 75 percent when the 
applicant is able to demonstrate that:

[[Page 559]]

    (i) The project is intended to address problems arising from actual 
or threatened high unemployment, low per capita income, or a special 
need that qualifies an area for eligibility under Sec. 301.2(b) of this 
chapter,
    (ii) The project is in significant part devoted to activities 
addressing the needs of the most economically distressed parts of the 
total area served by the applicant,
    (iii) The applicant is uniquely qualified to address the major 
causes of actual or threatened economic distress in the area served by 
the applicant, and
    (iv) The applicant cannot provide the non-Federal share otherwise 
required because in the overall economic situation there is a lack of 
available non-Federal share due, for instance, to the pressing demand 
for its use elsewhere.
    (4) A project receiving a supplemental grant increasing the Federal 
share under paragraph (b)(3) of this section is not eligible for 
additional Federal grant assistance under Sec. 301.4(d) of this chapter, 
i.e., the 10 percent incentive increase for certain projects in 
districts.
    (c) As a condition of the receipt of assistance by a State under 
this part 306:
    (1) The State must have or develop a CEDS;
    (2) Any State plan developed with such assistance must be developed 
cooperatively by the State, political subdivisions of the State, and the 
economic development districts located wholly or partially within the 
State;
    (3) Any overall State economic development planning assisted under 
this section shall be a part of a comprehensive planning process that 
shall consider the provision of public works to:
    (i) Promote economic development and opportunity,
    (ii) Foster effective transportation access,
    (iii) Enhance and protect the environment, and
    (iv) Balance resources through the sound management of physical 
development;
    (4) Upon completion of the State plan, the State must,
    (i) Certify to EDA that, in the development of the State plan, local 
and economic development district plans were considered and, to the 
maximum extent practicable, the State plan is consistent with the local 
and economic development district plans; and
    (ii) Identify any inconsistencies between the State plan and the 
local and economic development district plans and provide a 
justification for each inconsistency; and
    (5) The State must submit to EDA an annual report on the planning 
process so assisted.

[64 FR 5427, Feb. 3, 1999, as amended at 64 FR 69877, Dec. 14, 1999]



Sec. 306.4  Post-approval requirements.

    Financial, performance and progress reports, and project products 
will be as specified in the Special Award Conditions of the grant.

[64 FR 5427, Feb. 3, 1999]



PART 307--LOCAL TECHNICAL ASSISTANCE, UNIVERSITY CENTER TECHNICAL ASSISTANCE, NATIONAL TECHNICAL ASSISTANCE, TRAINING, RESEARCH, AND EVALUATION--Table of Contents




                  Subpart A--Local Technical Assistance

Sec.
307.1  Purpose and scope.
307.2  Application evaluation criteria.
307.3  Award and grant rate requirements.

                  Subpart B--University Center Program

307.4  Post-approval requirements.
307.5  Purpose and scope.
307.6  Application evaluation criteria.
307.7  Award and grant rate requirements.
307.8  Post-approval requirements.

   Subpart C--National Technical Assistance, Training, Research, and 
                               Evaluation

307.9  Purpose and scope.
307.10  Application evaluation criteria.
307.11  Award and grant rate requirements.
307.12  Post-approval requirements.

    Authority: 42 U.S.C. 3211; Department of Commerce Organization Order 
10-4.

    Source: 64 FR 5427, Feb. 3, 1999, unless otherwise noted.

[[Page 560]]



                  Subpart A--Local Technical Assistance



Sec. 307.1  Purpose and scope.

    Local Technical Assistance projects are intended to:
    (a) Determine the causes of excessive unemployment, underemployment, 
low per capita income, or high poverty rates in areas and regions of the 
Nation;
    (b) Assist in formulating and implementing new economic development 
tools, models, and innovative techniques that will raise employment and 
income levels; and
    (c) Assist distressed communities in formulating and implementing 
new economic development programs to increase the technology and human 
capacity of the communities. Local Technical Assistance funds may not be 
used to start or expand a private business.



Sec. 307.2  Application evaluation criteria.

    EDA selects local technical assistance projects for grant awards 
according to the general application evaluation criteria set forth in 
part 304 of this chapter and the extent, as appropriate, the project:
    (a) Strengthens the local capacity to undertake and promote 
effective economic development programs targeted to people and areas of 
distress;
    (b) Benefits distressed areas;
    (c) Helps to diversify distressed economies;
    (d) Demonstrates innovative approaches to stimulating economic 
development in distressed areas; and
    (e) Is consistent with the CEDS or other strategy accepted by EDA 
for the area in which the project is located.

[64 FR 5427, Feb. 3, 1999, as amended at 64 FR 69878, Dec. 14, 1999]



Sec. 307.3  Award and grant rate requirements.

    (a) EDA will provide assistance for the period of time required to 
complete the project scope of work, generally not to exceed twelve 
months.
    (b) If the project is regional in scope, EDA may determine that the 
requirement that public or private nonprofit organizations must act in 
cooperation with officials of a political subdivision of a State is 
satisfied by the nature of the project;
    (c) Grant rate:
    (1) The maximum Federal grant rate for a project under this subpart 
is:
    (i) 50 percent, except as supplemented as provided in Sec. 301.4(b); 
or
    (ii) Up to and including 100 percent, if the project is not feasible 
without, and merits, a reduction or waiver of the non-Federal share 
required under the rate provided in Sec. 301.4(b).
    (2) A project is eligible for a supplemental grant increasing the 
Federal share up to and including 100 percent when the applicant is able 
to demonstrate that,
    (i) It cannot provide the non-Federal share otherwise required 
because in the overall economic situation there is a lack of available 
non-Federal share due, for instance, to the pressing demand for its use 
elsewhere;
    (ii) The project is addressing major causes of distress in the 
service area and requires the unique characteristics of the applicant, 
which will not participate in the program if it must provide all or part 
of a 50 percent non-Federal share; or
    (iii) The project is for the benefit of local, State, regional, or 
national economic development efforts, and will be of no or only 
incidental benefit to the recipient.
    (3) A project receiving a supplemental grant increasing the Federal 
share under paragraph (c)(2) of this section is not eligible for 
additional Federal grant assistance under Sec. 301.4(d) of this chapter, 
i.e., the 10 percent incentive increase for certain projects in 
districts.
    (4) A local technical assistance project is eligible for a Federal 
grant rate of more than 75 percent, up to 100 percent, only if approved 
by the Assistant Secretary.

[64 FR 5427, Feb. 3, 1999, as amended at 64 FR 69878, Dec. 14, 1999]



                  Subpart B--University Center Program



Sec. 307.4  Post-approval requirements.

    Financial reports, progress reports, and project products will be 
specified

[[Page 561]]

in the Special Award Conditions of the grant or cooperative agreement.

[64 FR 69878, Dec. 14, 1999]



Sec. 307.5  Purpose and scope.

    The University Center technical assistance program is designed to 
help improve the economies of distressed areas. It helps institutions of 
higher education (or other applicants) use their own and other resources 
to address the economic development problems and opportunities of areas 
serviced.

[64 FR 5427, Feb. 3, 1999. Redesignated at 64 FR 69878, Dec. 14, 1999]



Sec. 307.6  Application evaluation criteria.

    EDA selects University Center projects for grant awards according to 
the general application evaluation criteria set forth in part 304 of 
this chapter and the extent, as appropriate, the project:
    (a) Has the commitment of the highest management levels of the 
sponsoring institution;
    (b) Provides evidence of adequate non-Federal financial support, 
either from the sponsoring institution or other sources;
    (c) Outlines activities consistent with the expertise of the 
proposed staff, the academic programs, and other resources available 
within the sponsoring institution;
    (d) Documents past experience of the sponsoring institution in 
operating technical assistance programs; and
    (e) Balances the geographic distribution of University Centers 
across the country. Only the Assistant Secretary has the authority to 
approve the selection for grant assistance of a University Center that 
has not received University Center assistance for the previous year.

[64 FR 5427, Feb. 3, 1999. Redesignated and amended at 64 FR 69878, Dec. 
14, 1999]



Sec. 307.7  Award and grant rate requirements.

    (a) EDA will provide assistance for the period of time required to 
complete the project scope of work, generally not to exceed twelve 
months.
    (b) If the project is regional in scope, EDA may determine that the 
requirement that public or private nonprofit organizations must act in 
cooperation with officials of a political subdivision of a State is 
satisfied by the nature of the project;
    (c) Grant rate:
    (1) The maximum Federal grant rate for a project under this subpart 
is:
    (i) 50 percent, or
    (ii) 75 percent, if the project is not feasible without, and merits, 
a reduction or waiver of the non-Federal share.
    (2) A project is eligible for a supplemental grant increasing the 
Federal share up to and including 75 percent when the applicant is able 
to demonstrate that:
    (i) It cannot provide the non-Federal share otherwise required 
because in the overall economic situation there is a lack of available 
non-Federal share due, for instance, to the pressing demand for its use 
elsewhere;
    (ii) The project is addressing major causes of distress in the area 
serviced and requires the unique characteristics of the applicant, which 
will not participate in the program if it must provide all or part of a 
50 percent non-Federal share; or
    (iii) The project is for the benefit of local, State, regional, or 
national economic development efforts, and will be of no or only 
incidental benefit to the recipient.
    (3) A project awarded under this subpart is not eligible for 
additional Federal grant assistance under the table in Sec. 301.4(b) or 
the provisions of Sec. 301.4(d) of this chapter, i.e., the 10 percent 
incentive increase for certain projects in districts.
    (d) Direct costs: At least 80 percent of EDA funding must be 
allocated to direct costs of program delivery.

[64 FR 5427, Feb. 3, 1999. Redesignated and amended at 64 FR 69878, Dec. 
14, 1999; 65 FR 71025, Nov. 28, 2000]



Sec. 307.8  Post-approval requirements.

    Financial reports, progress reports, and project products will be 
specified in the special award conditions of the grant or cooperative 
agreement.

[64 FR 69878, Dec. 14, 1999]

[[Page 562]]



   Subpart C--National Technical Assistance, Training, Research, and 
                               Evaluation



Sec. 307.9  Purpose and scope.

    (a) The purposes of National Technical Assistance, Training, 
Research, and Evaluation projects are:
    (1) To determine the causes of excessive unemployment, 
underemployment, outmigration or other problems indicating economic 
distress in areas and regions of the Nation;
    (2) To assist in formulating and implementing new economic 
development tools and national, State, and local programs that will 
raise employment and income levels and otherwise produce solutions to 
problems resulting from the above conditions;
    (3) To evaluate the effectiveness and economic impact of programs, 
projects, and techniques used to alleviate economic distress and promote 
economic development, and
    (4) To assist in disseminating information about effective programs, 
projects and techniques that alleviate economic distress and promote 
economic development.
    (b) EDA may during the course of the year, identify specific 
national technical assistance, training, research or evaluation projects 
it wishes to have conducted. Ordinarily, EDA specifies these projects in 
a NOFA, which also provides the appropriate point of contact and 
address.
    (c) National technical assistance, research, training, and 
evaluation funds may not be used to start or expand a private business.

[64 FR 5427, Feb. 3, 1999. Redesignated at 64 FR 69878, Dec. 14, 1999]



Sec. 307.10  Application evaluation criteria.

    EDA selects projects for national technical assistance, training, 
research or evaluation grant awards according to the general application 
evaluation criteria set forth in part 304 of this chapter and the 
extent, as appropriate, the project:
    (a) Does not depend upon further EDA or other Federal funding 
assistance to achieve results;
    (b) Strengthens the capability of local, State, or national 
organizations and institutions, including nonprofit economic development 
groups, to undertake and promote effective economic development programs 
targeted to people and areas of distress;
    (c) Benefits severely distressed areas;
    (d) Helps to diversify distressed economies; and
    (e) Demonstrates innovative approaches to stimulating economic 
development in distressed areas.

[64 FR 5427, Feb. 3, 1999. Redesignated at 64 FR 69878, Dec. 14, 1999]



Sec. 307.11  Award and grant rate requirements.

    (a) EDA will provide assistance for the period of time required to 
complete the project scope of work. Normally, this does not exceed 
twelve months.
    (b) If the project is regional or national in scope, EDA may 
determine that the requirement that public or private nonprofit 
organizations must act in cooperation with officials of a political 
subdivision of a State is satisfied by the nature of the project;
    (c) Grant rate:
    (1) The maximum Federal grant rate for a project under this subpart 
is:
    (i) 50 percent, except as supplemented as provided in Sec. 301.4(b); 
or
    (ii) Up to and including 100 percent, if the project is not feasible 
without, and merits, a reduction or waiver of the non-Federal share 
required under the rate provided in Sec. 301.4(b) of this chapter.
    (2) A project is eligible for a supplemental grant increasing the 
Federal share up to and including 100 percent when the applicant is able 
to demonstrate that:
    (i) The project is addressing major causes of distress in the area 
serviced and requires the unique characteristics of the applicant, which 
will not participate in the program if it must provide all or part of a 
50 percent non-Federal share; or
    (ii) The project is for the benefit of local, State, regional, or 
national economic development efforts, and will be of no or only 
incidental benefit to the recipient.

[64 FR 5427, Feb. 3, 1999. Redesignated and amended at 64 FR 69878, Dec. 
14, 1999]

[[Page 563]]



Sec. 307.12  Post-approval requirements.

    Financial reports, progress reports, and project products will be 
specified in the Special Award Conditions of the grant or cooperative 
agreement.

[64 FR 69879, Dec. 14, 1999]



PART 308--REQUIREMENTS FOR ECONOMIC ADJUSTMENT GRANTS--Table of Contents




Sec.

                           Subpart A--General

308.1  Purpose and scope.
308.2  Criteria.
308.3  Use of Economic Adjustment grants.
308.4  Selection and evaluation factors.
308.5  Applicant requirements.
308.6  Post-approval requirements.

  Subpart B--Special Requirements for Revolving Loan Fund Projects and 
                          Uses of Grant Funds.

308.7  Revolving Loan Funds established for business lending.
308.8  Definitions.
308.9  Revolving Loan Fund Plan.
308.10  Pre-loan requirements.
308.11  Lending areas and modification of lending areas.
308.12  Revolving Loan Fund income.
308.13  Records and retention.
308.14  Revolving Loan Fund semi-annual and annual reports.
308.15  Prudent management of Revolving Loan Funds.
308.16  Disbursement of funds to Revolving Loan Funds.
308.17  Effective utilization of Revolving Loan Funds.
308.18  Uses of capital.
308.19  Variances.

    Authority: 42 U.S.C. 3211; Department of Commerce Organization Order 
10-4.

    Source: 64 FR 5429, Feb. 3, 1999, unless otherwise noted.



                           Subpart A--General



Sec. 308.1  Purpose and scope.

    (a) The purpose of economic adjustment grants is to address the 
needs of communities experiencing adverse economic changes that may 
occur suddenly or over time, including but not limited to those caused 
by:
    (1) Military base closures or realignments, defense contractor 
reductions in force, or Department of Energy defense-related funding 
reductions,
    (2) Disasters or emergencies, in areas with respect to which a major 
disaster or emergency has been declared under the Robert T. Stafford 
Disaster Relief and Emergency Assistance Act (42 U.S.C. 5121 et seq.),
    (3) International trade,
    (4) Fishery failures, in areas with respect to which a determination 
that there is a commercial fishery failure has been made under sec. 
312(a) of the Magnuson-Stevens Fishery Conservation and Management Act 
(16 U.S.C. 1861a(a)),
    (5) Long-term economic deterioration, or
    (6) Loss of a major community employer.
    (b) Economic Adjustment grants are intended to enhance a distressed 
community's ability to compete economically by stimulating private 
investment in targeted economic sectors through use of tools that:
    (1) Help organize and carry out a CEDS;
    (2) Expand the capacity of public officials and economic development 
organizations to work effectively with businesses;
    (3) Assist in overcoming major obstacles identified in the strategy;
    (4) Enable communities to plan and coordinate: The use of Federal 
and other resources available to support economic recovery, development 
of regional economies, or recovery from natural or other disasters; and
    (5) Encourage the development of innovative public/private 
approaches to economic restructuring and revitalization.

[64 FR 5429, Feb. 3, 1999, as amended at 64 FR 69879, Dec. 14, 1999]



Sec. 308.2  Criteria.

    (a) A grant may be made under this part only when the project will 
help the area to meet a special need arising from actual or threatened 
severe unemployment or economic adjustment problems resulting from 
severe changes in economic conditions; and the area for which a project 
is to be carried out has a strategy and the project is consistent with 
the strategy, except that

[[Page 564]]

the strategy requirement shall not apply to planning projects.
    (b) The term ``special need'' in paragraph (a) of this section means 
conditions of unemployment, per capita income, or special need that 
qualify an area for eligibility under Sec. 301.2(b).
    (c) Additional criteria, and/or priority consideration factors for 
assistance, may be set forth in a NOFA.



Sec. 308.3  Use of Economic Adjustment grants.

    (a) Grants may be used to pay for developing a strategy to alleviate 
long-term economic deterioration or a sudden and severe economic 
dislocation, or to pay for a project in implementation of such a 
strategy.
    (1) Strategy grants may support developing, updating, or refining a 
strategy.
    (2) Implementation grants support activities identified in an EDA-
approved strategy. Specific activities may be funded as separate grants 
or as multiple elements of a single grant. Examples of implementation 
activities include:
    (i) Infrastructure improvements, such as site acquisition, site 
preparation, construction, rehabilitation and/or equipping of 
facilities;
    (ii) Provision of business or infrastructure financing through the 
funding of locally administered Revolving Loan Funds (RLFs), which may 
include interest rate buy downs;
    (iii) Market or industry research and analysis;
    (iv) Technical assistance, including organizational development such 
as business networking, restructuring or improving the delivery of 
business services, or feasibility studies;
    (v) Public services;
    (vi) Training (provided that it does not duplicate Department of 
Labor, Department of Education or other Federally-supported training 
programs), and
    (vii) Other activities as justified by the strategy which meet 
statutory and regulatory requirements.
    (b) Economic Adjustment grants may be spent directly by the grantee 
or redistributed to other entities.
    (1) Redistribution in the form of grants may only be to eligible 
recipients of grants under part 308.
    (2) Redistribution in the form of loans, loan guarantees, or 
equivalent assistance may be to public or private entities, including 
private for-profit entities.

[64 FR 5429, Feb. 3, 1999, as amended at 65 FR 2532, Jan. 18, 2000]



Sec. 308.4  Selection and evaluation factors.

    (a) Projects will be selected in accordance with part 304 of this 
chapter and the additional criteria as provided in subsections (b) and 
(c), as applicable.
    (b) Strategy grants. EDA will, as appropriate, review strategy grant 
applications for assurances that the proposed activities will conform to 
the CEDS requirements in Sec. 303.3 of this chapter.
    (c) Implementation Grants. (1) EDA will review implementation grant 
applications for the extent to which,
    (i) If appropriate, strategy meets the CEDS requirements in 
Sec. 303.3 of this chapter.
    (ii) The proposed project is identified as a necessary element of or 
consistent with the strategy.
    (2) Revolving Loan Fund (RLF) Grants. For applicants asking to 
capitalize or recapitalize an RLF, EDA will review the application for:
    (i) The need for a new or expanded public financing tool to enhance 
other business assistance programs and services targeting economic 
sectors and/or locations described in the strategy;
    (ii) The types of financing activities anticipated;
    (iii) The capacity of the RLF organization to manage lending, create 
networks between the business community and other financial providers, 
and contribute to the adjustment strategy; and
    (iv) Use of in-kind match. When in-kind match is included in a 
project, such match will be used for borrower technical assistance or 
general RLF administrative costs (e.g. the training of new RLF staff).
    (d) Additional criteria, or priority consideration factors for 
assistance, may be set forth in a NOFA.

[64 FR 5429, Feb. 3, 1999, as amended at 64 FR 69879, Dec. 14, 1999; 65 
FR 2532, Jan. 18, 2000; 65 FR 71025, Nov. 28, 2000]

[[Page 565]]



Sec. 308.5  Applicant requirements.

    Each application for a grant under part 308 must:
    (a) Include evidence of area and applicant eligibility (see part 301 
of this chapter). For Technical Assistance under the Economic Adjustment 
program, if the project is regional or national in scope, EDA may 
determine that the requirement that public or private nonprofit 
organizations must act in cooperation with officials of a political 
subdivision of a State is satisfied by the nature of the project;
    (b) Include, or incorporate by reference, if so approved by EDA, a 
strategy, as provided in Sec. 301.3 of this chapter (except that a 
strategy is not required when a funding request is for planning 
assistance, e.g., a strategy grant);
    (c) Identify the sources of the other funds, both eligible Federal 
and non-Federal, that will make up the balance of the proposed project's 
financing, including any private sources of financing. The application 
must show that such other funds are committed to the project and will be 
available as needed. The local share must not be encumbered in any way 
that would preclude its use consistent with the requirements of the 
grant; and
    (d) Explain how the proposed project meets the criteria of 
Sec. 308.2.

[64 FR 5429, Feb. 3, 1999, as amended at 64 FR 69879, Dec. 14, 1999; 65 
FR 71025, Nov. 28, 2000]



Sec. 308.6  Post-approval requirements.

    (a) Financial, performance, and progress reports will be specified 
in the Special Award Conditions of the grant.
    (b) Projects involving construction shall comply with the provisions 
of subpart B of part 305.
    (c) RLF Supplemental Requirements and Guidelines--RLF grants are 
subject to the requirements set forth in this part and the publications: 
EDA's RLF Standard Terms, EDA's RLF Administrative Manual, and EDA's RLF 
Audit Guidelines, Appendixes B-D of this part displayed at EDA's web 
site, http://www.doc.gov/eda. A copy of these documents is available 
from EDA and a copy will be furnished to an award recipient with the 
Offer of Financial Assistance.



  Subpart B--Special Requirements for Revolving Loan Fund Projects and 
                           Uses of Grant Funds

    Source: 65 FR 2532, Jan. 18, 2000, unless otherwise noted.



Sec. 308.7  Revolving Loan Funds established for business lending.

    EDA grants to capitalize or recapitalize Revolving Loan Funds are 
most commonly used for business lending, but may also be established for 
public infrastructure lending or other authorized purposes involving 
lending. The RLF requirements in this subpart B are applicable to RLFs 
established for business lending. Appropriate modifications of these 
requirements will be addressed in special award conditions to 
accommodate non-business RLF awards.



Sec. 308.8  Definitions.

    As used in this part:
    Closed loan means any loan for which all required documentation has 
been executed, received, and reviewed.
    Guaranteed loan means a loan made and serviced by a lending 
institution under the agreement that a third party (e.g., a governmental 
agency) will purchase the guaranteed portion if the borrower defaults.
    Program income means gross income received by the grant RLF 
recipient or the sub-recipient directly generated by a grant supported 
activity, or earned only as a result of the grant agreement during the 
grant period. Program income includes principal repayments and RLF 
income.
    Prudent lending practices means generally accepted underwriting and 
lending practices for public loan programs based on sound judgment to 
protect Federal and lender interests. Such practices cover loan 
processing, documentation, loan approval, collections, servicing, 
administrative procedures, collateral protection, and recovery actions. 
Prudent lending practices include compliance with local laws and filing 
requirements to perfect and maintain security interests in RLF 
collateral.

[[Page 566]]

    Recapitalization grants are additional grant funds awarded to 
increase the capital base of an RLF.
    RLF capital includes the funds which capitalized the RLF plus such 
earnings and fees generated by RLF activities as may be added to the RLF 
capital base to be used for lending. The original sources of capital for 
EDA RLFs are normally comprised of EDA grant funds and local cash 
matching share.
    RLF income means interest earned on outstanding loan principal, 
interest earned on accounts holding RLF funds not needed for immediate 
lending, all loan fees and loan-related charges received from RLF 
borrowers, and other income generated from RLF operations. The RLF 
recipient may use RLF income only to capitalize the RLF and/or to cover 
eligible and reasonable costs necessary to administer the RLF, unless 
otherwise provided for in the grant agreement or approved in writing by 
EDA. RLF income excludes principal repayments.
    Secondary market includes those entities that purchase an interest 
in a loan from an original lender.
    Securitization refers to the technique of securing an investment of 
new capital with the stream of income generated by one or more (usually 
a large group of) existing loans. EDA broadly defines securitization 
transactions to include techniques such as the sale of loans, pledging 
the future income stream of a loan, and similar activities, to access 
investor capital to increase available funds for lending.



Sec. 308.9  Revolving Loan Fund Plan.

    All RLF recipients must manage RLFs in accordance with an RLF Plan 
(Plan) as described in this part. For all RLF recipients, the Plan must 
be submitted to and approved by EDA prior to the grant award. For RLF 
recipients other than states, the RLF Plan must have been approved by 
resolution of the organizations' governing board and such resolution 
must be submitted to EDA along with the Plan prior to the grant award; 
with EDA's approval, political subdivisions of states may be exempted 
from the resolution requirement.
    (a) Format and content. (1) The title page of the Plan should show 
the RLF recipient organization's name and the date the Plan was adopted.
    (2) Part I of the Plan, titled Revolving Loan Fund Strategy, 
summarizes the area CEDS and business development objectives, and 
describes the RLF's financing strategy, policy and portfolio standards. 
Organization of the material and the level of detail provided in the 
subsections of Part I may be varied to improve the narrative flow, 
provided the substantive content is adequately covered.
    (3) Part II of the Plan, titled Operational Procedures, serves as 
the internal operating manual for the RLF.
    (b) Evaluation of Plans. EDA will use the following criteria in 
evaluating Plans:
    (1) The Plan must flow from and be consistent with the EDA-approved 
CEDS for the area.
    (2) The Plan must be an internally consistent, coherent statement of 
the strategic purpose of the particular RLF and the various 
considerations influencing the selection of its financing strategy, 
policies, and loan selection criteria encompassing:
    (i) A financing strategy that demonstrates a knowledgeable analysis 
of the local capital market and the financing needs of the targeted 
businesses; and
    (ii) Financing policies and portfolio standards that are consistent 
with EDA policies and requirements.
    (3) The strategic objectives defined must be sufficiently 
meaningful, though not necessarily quantified, so that progress toward 
them can be assessed over time.
    (4) The administrative procedures for operating the RLF must be 
consistent with generally accepted prudent lending practices for public 
lending institutions.

[65 FR 2532, Jan. 18, 2000, as amended at 65 FR 71025, Nov. 28, 2000]



Sec. 308.10  Pre-loan requirements.

    (a) RLF recipients must adopt procedures to review the impacts of 
prospective loan proposals on the physical environment. The Plan must 
provide for the disapproval of any loan project that adversely (without 
mitigation) impacts flood plains, wetlands, significant historic or 
cultural properties,

[[Page 567]]

drinking water resources, or nonrenewable natural resources. In 
administering the RLF, the RLF recipient must adopt procedures to 
comply, and ensure that potential borrowers comply, with applicable laws 
and regulations including, but not limited to Secs. 316.1, 316.3, 316.7, 
316.8, 316.15, and 317 of this chapter.
    (b) RLF recipients are responsible for ensuring compliance with the 
applicable requirements of this chapter prior to providing any loan 
assistance under the RLF. RLF recipients are responsible for ensuring 
that prospective borrowers, consultants, or contractors are aware of and 
comply with the Federal statutory and regulatory requirements that apply 
to activities carried out with RLF loans. RLF recipients must develop 
loan agreements that include applicable Federal requirements to ensure 
compliance. RLF recipients must adopt procedures to diligently correct 
instances of non-compliance, including the calling of loans, if 
necessary. RLF recipient loan documents and procedures must protect and 
hold the Government harmless from and against all liabilities that the 
Government may incur as a result of providing an award to assist 
(directly or indirectly) in site preparation or construction as well as 
the renovation or repair of any facility or site. This applies to the 
extent that such liabilities are incurred because of ground water, 
surface, soil or other conditions caused by operations of the RLF 
recipient or any of its predecessors on the property.



Sec. 308.11  Lending areas and modification of lending areas.

    (a) The economic activity and benefits of RLF loans must be located 
within the eligible areas identified in the grant award. For a 
determination of eligibility for new RLF lending areas, such areas must 
be included in or added to a CEDS in accordance with requirements under 
Sec. 301.3 of this chapter.
    (1) Where such RLFs have a grant condition that permits new areas 
that subsequently become eligible to be added to the lending area, RLFs 
that were awarded assistance (RLF capitalization or recapitalization) 
before February 11, 1999, whether fully disbursed or not, and fully 
disbursed RLFs that were awarded assistance (RLF capitalization or 
recapitalization) on or after February 11, 1999, may add such areas with 
EDA approval.
    (2) In the case of existing RLFs that are not fully disbursed that 
were awarded assistance (RLF capitalization or recapitalization) on or 
after February 11, 1999, the area proposed to be added must also be 
eligible to receive an EDA grant rate equal to or greater than that of 
the original grant.
    (b) Whenever an area is added, modification to the RLF Plan 
incorporating the new area and outlining the RLF lending strategy is 
required. Once approved, area eligibility is retained indefinitely.

[65 FR 2532, Jan. 18, 2000, as amended at 65 FR 71025, Nov. 28, 2000]



Sec. 308.12  Revolving Loan Fund income.

    (a) RLF income can be used to pay for eligible and reasonable 
administrative costs for the project. RLF recipients are expected to add 
RLF income to the RLF capital base where practicable. To determine the 
appropriate amount of RLF income to return to the RLF capital base, RLF 
operators must consider the costs necessary to operate an RLF program, 
the availability of other monetary resources, the portfolio risk level 
and projected capital erosions from loan losses and inflation, the 
community's (or area's) commitment to the RLF, and the anticipated 
demand for RLF loans.
    (b) RLF income that is not used for administrative costs during the 
selected twelve-month reporting period in which it is earned, must be 
added to the RLF capital base for lending purposes at the end of the 
twelve-month reporting period. Only RLF income earned during a current 
period may be used for current administrative expenses. RLF income may 
not be withdrawn from an RLF in a subsequent period for any uses, other 
than lending, without the written consent of EDA.
    (c) In accounting for RLF income, any net proceeds from the sale, 
collection, or liquidation of a defaulted loan, up to the amount of the 
unpaid principal, will be treated as repayments of RLF principal and 
placed in the RLF

[[Page 568]]

for lending purposes only. Any proceeds in excess of the unpaid 
principal will be treated as RLF income.
    (d) RLF recipients must comply with applicable OMB cost principles 
(as found in OMB Circular A-87 for State, Local or Indian tribal 
governments, OMB Circular A-122 for non-profit organizations other than 
institutions of higher education, hospitals, or organizations named in 
OMB Circular A-122 as not subject to that circular, and OMB Circular A-
21 for educational institutions) and with RLF Audit Guidelines (as found 
in OMB Circular A-133, Single Audit Act Requirements for State and Local 
Governments, Indian tribal governments, Institutions of Higher Education 
and Other Nonprofit Organizations, or the Compliance Supplement, as 
appropriate) when charging costs against RLF income. For availability of 
OMB circulars, see 5 CFR 1310.3.
    (e) When a RLF recipients uses RLF income to cover all or part of 
RLF administrative costs it must complete an RLF Income and Expense 
Statement required under Sec. 308.14(c) of this chapter.

[65 FR 2532, Jan. 18, 2000, as amended at 65 FR 71025, Nov. 28, 2000]



Sec. 308.13  Records and retention.

    (a) Loan files and related documents and records. Loan files and 
related documents and records must be retained by RLF recipients over 
the life of the loan and for a three year period from the date of final 
disposition of the loan. The date of final disposition of the loan is 
defined as the date of:
    (1) Full payment of the principal, interest, fees, penalties, and 
other costs associated with the loan; or
    (2) Final settlement or write-off of any unpaid amounts associated 
with the loan.
    (b) Administrative records. RLF recipients must:
    (1) Maintain adequate accounting records and source documentation to 
substantiate the amount and percent of RLF income expended for eligible 
RLF administrative costs.
    (2) Retain records of administrative costs incurred for activities 
and equipment relating to the operation of the RLF for three years from 
the actual submission date of the last semi-annual or annual report 
which covers the period that such costs were claimed, or for five years 
from the date the costs were claimed, whichever is less.
    (3) Make any retained records, even those retained for longer than 
the period described, available for inspection. The record retention 
periods, described in this Sec. 308.13, are minimum periods and such 
prescription is not intended to limit any other record retention 
requirement of law or agreement. In any event, EDA will not question 
claimed administrative costs that are more than three years old, unless 
fraud is an issue.



Sec. 308.14  Revolving Loan Fund semi-annual and annual reports.

    (a) Frequency of reports. All RLF recipients, including existing 
RLFs that receive recapitalization grants, must submit semi-annual 
reports until they qualify or requalify for ``Annual Report'' status. 
RLF recipients may apply for ``Annual Report'' status if:
    (1) All grant funds have been disbursed for at least one year;
    (2) Accurate semi-annual reports have been submitted on-time for the 
preceding two years;
    (3) Required periodic audits have been completed and submitted to 
EDA for the most recent audit period within the last two years; and
    (4) EDA determines that the RLF is in compliance with all applicable 
RLF requirements.
    (b) Report contents. RLF recipients must certify as part of the 
semi-annual or annual report to EDA that the RLF is being operated in 
accordance with the Plan referenced in Sec. 308.9 of this part. RLF 
recipients must request EDA approval of modifications to the Plan at any 
time there is evidence that such modifications are needed to ensure 
effective use of the RLF as a strategic financing tool.
    (c) RLF income statement. (1) RLF recipients using RLF income 
equivalent to 50 percent or more or at least $100,000 of RLF income for 
RLF administrative expenses during the selected twelve month period, 
must submit a completed RLF Income and Expense Statement per 
Sec. 308.12(e) to the appropriate EDA Regional Office within 90

[[Page 569]]

days of either September 30 or the RLF recipient's fiscal year end, 
whichever period is selected by the RLF recipient. RLF recipients using 
less than 50 percent and less than $100,000 of RLF income for 
administrative expenses in the twelve-month period will retain the RLF 
Income and Expense Statement for three years. RLF recipients are 
required to make this statement available to EDA personnel upon request.
    (2) Performance Measures. RLF recipients will submit to EDA as part 
of the semi-annual or annual report, the information identified as the 
Core Performance Measures in the special conditions accompanying the 
grant award. EDA will advise RLF recipients in writing, within a 
reasonable time for submission, in the event there are any modifications 
in the information required to be submitted.



Sec. 308.15  Prudent management of Revolving Loan Funds.

    (a) Accounting principles. (1) RLFs are expected to be operated in 
accordance with the generally accepted accounting principles (GAAP) and 
the provisions outlined in OMB Circular A-133 and Compliance Supplements 
as applicable.
    (2) In accordance with GAAP, a loan loss reserve may be reflected in 
the financial statements to show the fair value of an RLF's loan 
portfolio provided it is non-funded and represents non-cash entries.
    (b) Loan and accounting system documents. (1) RLF recipients are 
required to provide certification by an independent accountant familiar 
with the RLF recipient's accounting system that its accounting system is 
adequate to identify, safeguard, and account for all RLF funds, 
including RLF income.
    (2) RLF recipients are required to certify that standard RLF loan 
documents necessary for lending are in place and that these documents 
have been reviewed by its legal counsel for adequacy and compliance with 
the terms and conditions of the grant and applicable state and local 
laws. The standard loan documents must include, at a minimum, the 
following:
    (i) Loan application,
    (ii) Loan agreement,
    (iii) Promissory note,
    (iv) Security agreement(s),
    (v) Deed of Trust or Mortgage (as applicable),
    (vi) Agreement of prior lien holder (as applicable), and
    (vii) Personal Guaranty Agreement (for officers or owners of 
corporate borrowers, as applicable).
    (c) Interest rates. A RLF recipient can make loans and loan 
guarantees to eligible borrowers at interest rates and under conditions 
determined by the RLF recipient to be most appropriate in achieving the 
goals of the RLF. However, the minimum interest rate an RLF can charge 
is four (4) percentage points below the current money center prime rate 
quoted in the Wall Street Journal or the maximum interest rate allowed 
under state law, whichever is lower. In no event may the interest rate 
be less than four (4) percent. However, should the prime interest rate 
exceed fourteen (14) percent, the minimum RLF interest rate is not 
required to be raised above ten (10) percent if doing so compromises the 
ability of the RLF recipient to implement its financing strategy.
    (d) Private leveraging. (1) RLF loans must be used to leverage 
private investment of at least two dollars for every one dollar of RLF 
investment. This leveraging requirement applies to the portfolio as a 
whole, rather than to individual loans and is effective for the life of 
the RLF. Private investment, to be classified as leveraged, must be made 
concurrently with an RLF loan as part of the same business development 
project and may include:
    (i) Capital invested by the borrower or others,
    (ii) Financing from private entities, or
    (iii) The unguaranteed portion and 90 percent of the guaranteed 
portions of SBA 7(a) and SBA 504 debenture loans.
    (2) Private investments do not include equity build-up in a 
borrower's assets or prior capital investments by a borrower unless the 
investment is made within nine months of the RLF loan and is recognized 
by the RLF recipient.
    (e) Conflict of interest. (1) No officer, employee, or member of the 
RLF recipient's Board of Directors, or other Board (hereinafter referred 
to as ``other board'') that advises, approves,

[[Page 570]]

recommends or otherwise participates in decisions concerning loans or 
the use of RLF grant funds, or person related to the officer, another 
employee, or any member of the Board by immediate family, law, or 
business arrangement, may receive any benefits resulting from the use of 
the RLF loan or grant funds. In addition, the RLF recipient may not lend 
RLF funds to an employee of the RLF recipient or any member of the RLF 
recipient's Board of Directors, or a member of any other Board. 
Immediate family is defined as parents, grandparents, siblings, children 
and grandchildren, but does not include more distant relatives, 
including cousins, unless they live in the same household. Exception: A 
benefit or loan may be conferred if the officer, employee, or Board 
member affected first discloses to the RLF recipient on the public 
record the proposed or potential benefit and receives the RLF 
recipient's written determination that the benefit involved is not so 
substantial as to reflect adversely upon or affect the integrity of the 
RLF recipient's decision process or the services of the officer, 
employee or board member.
    (2) An officer, employee or board member of the RLF recipient will 
not solicit or accept, directly or indirectly, any gift, gratuity, 
favor, entertainment or any other thing of monetary value, for himself 
or for another person, from any person or organization seeking to obtain 
a loan or any portion of the grant funds.
    (3) Former board members and/or officers are ineligible to apply for 
or receive an RLF loan for a period of one year from the date of 
termination of his/her services. Exception: A benefit or loan may be 
conferred if the officer, or Board member affected first discloses to 
the RLF recipient on the public record the proposed or potential benefit 
and receives the RLF recipient's written determination that the benefit 
involved is not so substantial as to reflect adversely upon the 
integrity of the RLF recipient's decision process.



Sec. 308.16  Disbursement of funds to Revolving Loan Funds.

    (a) Timing of request for disbursement. A RLF recipient must request 
disbursements from EDA only at the time and in the amount immediately 
needed to close a loan or disburse funds to a borrower. Grant funds must 
be requested only for immediate use, i.e., when the intent is to 
disburse the funds within 14 days of receipt.
    (b) Amount of disbursement. As each new loan is made, the grant RLF 
recipient may request a disbursement of grant funds only for the 
difference, if any, between the amount of funds available for relending 
(from repayments of loan principal and RLF income) and the amount of the 
new loan, less an amount for local matching funds as may be required to 
be disbursed concurrent with the grant. However, RLF income received 
during the grant period may be held to cover eligible administrative 
expenses and need not be disbursed in order to draw additional grant 
funds.
    (c) Interest-bearing accounts. All RLF grant funds disbursed by EDA 
to reimburse RLF recipients for loan obligations already incurred must 
be held in interest bearing accounts by RLF recipients until disbursed 
to the borrower.
    (d) Pre-disbursement requirements. RLF recipients are required to 
provide:
    (1) Evidence to EDA that they have fidelity bond coverage for 
persons authorized to handle funds under the grant award in an amount 
sufficient to protect the interests of EDA and the RLF. Note that such 
insurance coverage must exist at all times during the life of the RLF; 
and
    (2) Certification in accordance with Sec. 308.15(b)(1) of this part.
    (e) Delays. (1) If grant funds are requested and the loan 
disbursement is subsequently delayed, a RLF recipient may hold the funds 
up to 30 days from the date of receipt. In the event that a loan 
disbursement is delayed beyond 30 days from the date of receipt of the 
Federal disbursement, the undisbursed funds must be returned to the 
Government for credit to the RLF recipient's account. Returned funds 
will be available to the RLF recipient for future draw down. When 
returning prematurely drawn funds, checks should identify on their face 
the name of the grantor agency--``EDA'' followed by

[[Page 571]]

the grant award number and the words ``Premature Draw.''
    (2) The interest earned on prematurely withdrawn funds must be 
returned to the Government (with the exception of $100 per year which 
may be retained for administrative expenses by states, local governments 
and Indian tribes in accordance with 15 CFR Part 24, and $250 for those 
subject to 15 CFR Part 14 as appropriate) and should be remitted 
promptly, but no less frequently than quarterly. All checks submitted 
should state ``EDA'' on their face and the award number followed by the 
word ``INTEREST'' in order to identify the check in question as 
remittance of interest income.
    (f) Local share. (1) When some portion of the local share of the RLF 
project is cash, it may only be used for lending. If the RLF project has 
an all-cash matching share, EDA's funds will be disbursed as needed for 
loan closing. The cash matching funds must be used either in proportion 
to the EDA funds, or at a faster rate than EDA funds.
    (2) When an RLF project has a combination of in-kind and cash 
matching share, the non-federal cash together with the Federal cash 
constitute the funds available for making loans and will be disbursed 
proportionately as needed for loan closing, provided that the last 20 
percent of the Federal funds may not be disbursed until all local in-
kind match has been expended. The full amount of the local cash matching 
share will be expected to remain for use in the RLF.
    (3) Upon repayment, local cash share funds are treated the same as 
EDA funds. Repayments of principal must be placed in the RLF for 
relending and interest payments must be used either for relending or for 
eligible RLF administrative costs. The local cash matching share must be 
available when needed for lending and must be under the control of the 
RLF recipient for the duration of the RLF for use in accordance with the 
terms of the grant.



Sec. 308.17  Effective utilization of Revolving Loan Funds.

    (a) Loan closing and disbursement schedule. (1) RLF loan activity 
must be sufficient to draw down grant funds in accordance with the time 
schedule for loan closings and disbursements to eligible RLF borrowers 
as prescribed in the award conditions. The time schedule requires that 
the initial round of lending (i.e., the grant disbursement phase) be 
completed within three years of the grant award.
    (2) If a RLF recipient substantially fails to meet the prescribed 
time schedules for loan closings and disbursements, EDA may terminate 
the undisbursed balance of the award. Exceptions may be granted where:
    (i) Funds are needed to close and disburse funds on loans approved 
prior to the deadline and will be disbursed within 45 days of the 
deadline,
    (ii) Funds are needed to meet continuing disbursement obligations on 
loans closed prior to the deadline, or
    (iii) EDA has approved a time schedule extension.
    (b) Time schedule extension. (1) RLF recipients are responsible for 
contacting EDA as soon as conditions become known that may materially 
affect their ability to meet the approved time schedules. RLF recipients 
must submit a written request to EDA for continued use of grant funds 
beyond a missed deadline. Extension requests must provide good reason 
for the delay and demonstrate that:
    (i) The delay was unforeseen or generally beyond the control of the 
RLF recipient;
    (ii) The need for the RLF still exists;
    (iii) The current and planned use and the anticipated benefits of 
the RLF will remain consistent with the current CEDS and the RLF Plan;
    (iv) The achievement of a new proposed time schedule is reasonable; 
and
    (v) An explanation why no further delays are foreseen.
    (2) EDA is under no obligation to grant a time extension, and in the 
event an extension is denied, EDA may deobligate (terminate) all or part 
of the unused portion of the grant.
    (c) Capital Utilization Standard. (1) During the revolving phase, 
RLF recipients must manage their repayment and lending schedules such 
that at least 75 percent of the RLF's capital is loaned out or committed 
at all times. RLF income earned during a current reporting period is not 
included as RLF

[[Page 572]]

capital when calculating the capital utilization percentage. Exception:
    (i) RLF recipients that anticipate making large loans relative to 
the size of the capital base, may propose RLF Plans that call for 
holding more than 25 percent.
    (ii) EDA may require an RLF with a capital base in excess of $4 
million to adopt a Plan that maintains a proportionately higher 
percentage of their funds loaned out.
    (2) When the percentage of loaned out capital falls below the 
applicable standard, the dollar amount of the funds equivalent to the 
difference between the actual percentage of capital loaned out and the 
standard is referred to as ``excess funds.''
    (i) Sequestration of excess funds. If the capital utilization 
standard is not met for two consecutive reporting intervals, EDA may 
require the RLF recipient to deposit ``excess funds'' in an interest 
bearing account; the portion of the interest earned on that account, 
attributable to the EDA grant, will be remitted to the U.S. Treasury. 
EDA approval is required to withdraw sequestered funds.
    (ii) Persistent noncompliance. A RLF recipient will normally be 
provided a reasonable period of time to lend ``excess funds'' and 
achieve the standard. However, if a RLF recipient fails to achieve the 
standard after a reasonable period of time as determined by EDA, the 
grant may be subject to sanctions for suspension and/or termination.



Sec. 308.18  Uses of capital.

    Generally, eligible loans to borrowers include loans for fixed 
assets, the acquisition of equipment, working capital, or other 
authorized uses. The EDA grant and the local cash matching funds will be 
used only for the purpose of making loans under an RLF. To preclude 
borrowers from using RLF funds inappropriately, the purpose of each RLF 
loan should be clearly stated in the loan agreement. RLFs established 
for business lending must conform to the following:
    (a) Loan guarantees. Prior to full disbursement of grant funds, the 
RLF recipient may not use the RLF to guarantee loans made by other 
lenders. In the revolving phase, after the full disbursement of grant 
funds, the RLF may be used to guarantee loans of private lenders 
provided the RLF recipient has obtained EDA's prior written approval of 
its proposed loan guarantee activities. The Plan for any loan guarantee 
activities should include the following information:
    (1) The maximum guarantee percentage that will be offered;
    (2) A certification from the RLF attorney that the guarantee 
agreement is valid under state law. At a minimum, the guarantee 
agreement must address the following:
    (i) The maximum reserve requirement;
    (ii) The rights and duties of each party in regard to loan 
collections, servicing, delinquencies and defaults;
    (iii) Foreclosures;
    (iv) Bankruptcies;
    (v) Collateral disposition and the call provisions of the guarantee; 
and
    (vi) Interest income and loan fees, if any, which will accrue to the 
RLF.
    (b) Restrictions on RLF capital. RLF capital may not be used to:
    (1) Acquire an equity position in a private business;
    (2) Subsidize interest payments on an existing loan;
    (3) Provide the equity contribution required of borrowers under 
other Federal loan programs;
    (4) Enable an RLF borrower to acquire an interest in a business, 
either through the purchase of stock or through the acquisition of 
assets, unless the need for RLF financing is sufficiently justified and 
documented in the loan write-up. Acceptable justification could include 
acquiring a business to substantially save it from imminent foreclosure, 
or acquiring it to facilitate a significant expansion or increased 
investment. In any case, the resulting economic benefits should be 
clearly consistent with the strategic objectives of the RLF;
    (5) Provide loans to a borrower for the purpose of investing in 
interest bearing accounts, certificates of deposit, or other investments 
not related to the objectives of the RLF;
    (6) Refinance existing debt unless:
    (i) There is sound economic justification and the RLF recipient 
sufficiently documents in the loan write-up that

[[Page 573]]

the RLF is not replacing private capital solely for the purpose of 
reducing the risk of loss to an existing lender(s) or to lower the cost 
of financing to a borrower, or
    (ii) An RLF uses RLF income sources and/or recycled RLF funds to 
purchase the rights of a prior lien holder during an in-process 
foreclosure action in order to preclude a significant loss on an RLF 
loan. This action may be undertaken only if there is a high probability 
of receiving compensation within 18 months from the sale of assets 
sufficient to cover an RLF's expenses plus a reasonable portion of the 
outstanding loan obligation; or
    (7) Finance any activity that serves to relocate jobs from one 
commuting area to another. (Commuting area is that area defined by the 
distance people travel to work in the locality of the project receiving 
RLF financial assistance.) An RLF's standard loan agreement must include 
a provision for calling the loan if it is determined that:
    (i) The business used the RLF loan to relocate jobs from another 
commuting area. or
    (ii) The activity financed was subsequently moved to a different 
commuting area to the detriment of local workers.
    (c) Credit otherwise available. Unless otherwise provided for in the 
grant agreement or modified in writing by EDA, a borrower is not 
eligible for RLF financing if credit is otherwise available on terms and 
conditions that permit the completion or successful operation of the 
project activity to be financed. The RLF recipient is responsible for 
determining that each borrower meets this requirement and for 
documenting the basis for its determination in the loan write-up.



Sec. 308.19  Variances.

    EDA may approve variances to the requirements of subpart B of this 
part provided they:
    (a) Are consistent with the goals of the Economic Adjustment Program 
and with an RLF's strategy,
    (b) Are necessary and reasonable for the effective implementation of 
the RLF,
    (c) Are economically and financially sound,
    (d) Do not conflict with applicable legal requirements, and
    (e) Do not change the scope of the award after the period of 
availability of the funds for obligation has expired.

                        PARTS 309-313 [RESERVED]



PART 314--PROPERTY--Table of Contents




                          Subpart A--In General

Sec.
314.1  Federal interest, applicability.
314.2  Definitions.
314.3  Use of property.
314.4  Unauthorized use.
314.5  Federal share.
314.6  Encumbrances.

                        Subpart B--Real Property

314.7  Title.
314.8  Recorded statement.

                      Subpart C--Personal Property

314.9  Recorded statement--Title.
314.10  Revolving loan funds.

              Subpart D--Release of EDA's Property Interest

314.11  Procedures for release of EDA's property interest.

    Authority: 42 U.S.C. 3211; 19 U.S.C. 2341-2355; 42 U.S.C. 6701; 42 
U.S.C. 184; Department of Commerce Organization Order 10-4.

    Source: 64 FR 5476, Feb. 3, 1999, unless otherwise noted.



                          Subpart A--In General



Sec. 314.1  Federal interest, applicability.

    (a) Property that is acquired or improved with EDA grant assistance 
shall be held in trust by the recipient for the benefit of the purposes 
of the project under which the property was acquired or improved. 
Limited exceptions to this requirement are listed in Sec. 314.7(c).
    (b) During the estimated useful life of the project, EDA retains an 
undivided equitable reversionary interest in property acquired or 
improved with EDA grant assistance, except for the exceptions listed in 
Sec. 314.7(c).
    (c) EDA may approve the substitution of an eligible entity for a 
recipient. The original recipient remains responsible for the period it 
was the recipient, and the successor recipient

[[Page 574]]

holds the project property with the responsibilities of an original 
recipient under the award.



Sec. 314.2  Definitions.

    As used in this part 314 of this chapter:
    Dispose includes sell, lease, abandon, or use for a purpose or 
purposes not authorized under the grant award or this part.
    Estimated useful life means that period of years, determined by EDA 
as the expected lifespan of the project.
    Owner includes fee owner, transferee, lessee, or optionee of real 
property upon which project facilities or improvements are or will be 
located, or real property improved under a project which has as its 
purpose that the property be sold or leased.
    Personal Property means all property other than real property.
    Project means the activity and property acquired or improved for 
which a grant is awarded. When property is used in other programs as 
provided in Sec. 314.3(b), ``project'' includes such programs.
    Property includes all forms of property, real, personal (tangible 
and intangible), and mixed.
    Real property means any land, improved land, structures, 
appurtenances thereto, or other improvements, excluding movable 
machinery and equipment. Improved land also includes land which is 
improved by the construction of such project facilities as roads, 
sewers, and water lines which are not situated directly on the land but 
which contribute to the value of such land as a specific part of the 
project purpose.
    Recipient includes any recipient of grant assistance under the 
Public Works and Economic Development Act of 1965, as amended, prior to 
or as amended by Public Law 105-393, or under Title II, Chapters 3 and 5 
of the Trade Act of 1974, Title I of the Public Works Employment Act of 
1976, the Public Works Employment Act of 1977, or the Community 
Emergency Drought Relief Act of 1977, and any EDA-approved successor to 
such recipient.



Sec. 314.3  Use of property.

    (a) The recipient or owner must use any property acquired or 
improved in whole or in part with grant assistance only for the 
authorized purpose of the project and such property must not be leased, 
sold, disposed of or encumbered without the written authorization of 
EDA.
    (b) However, in the event that EDA and the recipient determine that 
property acquired or improved in whole or in part with grant assistance 
is no longer needed for the original grant purpose, it may be used in 
other Federal grant programs, or programs that have purposes consistent 
with those authorized for support by EDA, but only if EDA approves such 
use.
    (c) When the authorized purpose of the EDA grant is to develop real 
property to be leased or sold, as determined by EDA, such sale or lease 
is permitted provided it is for adequate consideration and the sale is 
consistent with the authorized purpose of the grant and with applicable 
EDA requirements concerning, but not limited to, nondiscrimination and 
environmental compliance. The term ``adequate consideration'' means 
consideration that is fair and reasonable under the circumstances of the 
sale or lease, and may include money, services, property exchanges, 
contractual commitments, or acts of forbearance.
    (d) When acquiring replacement personal property of equal or greater 
value, the recipient may, with EDA's approval, trade-in the property 
originally acquired or sell the original property and use the proceeds 
in the acquisition of the replacement property, provided that the 
replacement property shall be used for the project and be subject to the 
same requirements as the original property. In extraordinary and 
compelling circumstances, EDA may allow replacement of real property, 
with the approval of the Assistant Secretary.

[64 FR 5476, Feb. 3, 1999, as amended at 64 FR 69879, Dec. 14, 1999]



Sec. 314.4  Unauthorized use.

    (a) Except as provided in Secs. 314.3(b), (c) or (d), whenever, 
during the expected useful life of the project, any property acquired or 
improved in whole or in part with grant assistance is disposed of, or no 
longer used for the authorized purpose of the project, the

[[Page 575]]

Federal Government must be compensated by the recipient for the Federal 
share of the value of the property; provided that for equipment and 
supplies, the standards of the Uniform Administrative Requirements for 
Grants at 15 CFR parts 14 and 24 or any supplements or successors 
thereto, as applicable, shall apply.
    (b) If property is disposed of or encumbered without EDA approval, 
EDA may assert its interest in the property to recover the Federal share 
of the value of the property for the Federal Government. To that end, 
EDA may take such actions as are provided in connection with loans and 
loan guarantees, in Sec. 316.5(c) of this chapter. EDA may pursue its 
rights under both paragraphs (a) and (b) of this section to recover the 
Federal share, plus costs and interest.
    (c) RLF grant projects. (1) EDA may suspend or terminate any RLF 
grant for cause based on, but not limited to, the following:
    (i) Failure to make loans in accordance with the RLF Plan, including 
the time-schedule for loan closings;
    (ii) Failure to obtain prior EDA approval for such changes to the 
RLF Plan, including provisions for administering the RLF;
    (iii) Failure to submit progress, financial or audit reports as 
required by the terms and conditions of the grant agreement;
    (iv) Failure to comply with prohibitions against conflict-of-
interest for any transactions involving the use of RLF funds; or
    (v) Failure to operate the RLF in accordance with the RLF Plan and 
the terms and conditions of the grant agreement.
    (2) Whenever an RLF recipient fails in its fiduciary 
responsibilities or is unable or unwilling to perform as trustee of the 
grant, EDA may suspend, terminate or transfer the grant to an eligible 
successor with jurisdiction over the project area, to administer it as 
such trustee (replacement grantee).
    (3) Whenever EDA terminates any RLF grant for cause, in whole or in 
part, it has the right to recover residual funds and assets of the RLF 
grant in accordance with the legal rights of the parties.
    (4) If there is a partial termination of an RLF grant, the full 
amount of the original non-federal matching share is expected to be 
retained in the RLF for lending purposes unless otherwise provided for 
in the grant agreement or agreed to in writing by EDA.

[64 FR 5476, Feb. 3, 1999, as amended at 64 FR 69879, Dec. 14, 1999; 65 
FR 2536, Jan. 18, 2000]



Sec. 314.5  Federal share.

    (a) For purposes of this part, the Federal share of the value of 
property is that percentage of the current fair market value of the 
property attributable to the EDA participation in the project (after 
deducting actual and reasonable selling and fix-up expenses, if any, 
incurred to put the property into condition for sale). The Federal share 
excludes that value of the property attributable to acquisition or 
improvements before or after EDA's participation in the project and not 
included in project costs.
    (b) Where the recipient's interest in property is a leasehold for a 
term of years less than the depreciable remaining life of the property, 
that factor will be considered in determining the percentage of the 
Federal share.
    (c) If property is transferred from the recipient to another 
eligible entity, as provided in Sec. 314.1(c), the Federal Government 
must be compensated the Federal share of any money or money equivalent 
paid by or on behalf of the successor recipient to or for the benefit of 
the original recipient, provided that EDA may first permit the recovery 
by the original recipient of an amount not exceeding its investment in 
the project nor exceeding that percentage of the value of the property 
that is not attributable to the EDA participation in the project.
    (d) When the Federal Government is fully compensated for the Federal 
share of the value of property acquired or improved in whole or in part 
with grant assistance, EDA has no further interest in the ownership, 
use, or disposition of the property.



Sec. 314.6  Encumbrances.

    (a) Except as provided in Sec. 314.6(c), recipient-owned property 
acquired or improved in whole or in part with grant assistance may not 
be used to secure a

[[Page 576]]

mortgage or deed of trust or otherwise be used as collateral or 
encumbered except to secure a grant or loan made by a State or Federal 
agency or other public body participating in the same project. This 
provision does not prevent projects from being developed on previously 
encumbered property, if the requirements of Sec. 314.7(b) are met.
    (b) Encumbering project property other than as permitted in this 
section is an unauthorized use of the property requiring compensation to 
the Federal Government as provided in Secs. 314.4 and 314.5.
    (c) EDA may waive the provisions of Sec. 314.6(a) for good cause 
when EDA determines all of the following:
    (1) All proceeds from the grant/loan to be secured by the 
encumbrance on the property shall be available only to the recipient, 
and all proceeds from such secured grant/loan shall be used only on the 
project for which the EDA grant was awarded or on related activities of 
which the project is an essential part;
    (2) The grantor/lender would not provide funds without the security 
of a lien on the project property; and
    (3) There is a reasonable expectation that the borrower/recipient 
will not default on its obligation.
    (d) EDA may waive the provisions of Sec. 314.6(a) as to an 
encumbrance on property which is acquired and/or improved by an EDA 
grant when EDA determines that the encumbrance arises solely from the 
requirements of a pre-existing water or sewer facility or other utility 
encumbrance which by its terms extends to additional property connected 
to such facilities.



                        Subpart B--Real Property



Sec. 314.7  Title.

    (a) The recipient must hold title to the real property required for 
a project, except in limited cases as provided in paragraph 314.7(c) of 
this section. Except in those limited cases, the recipient must furnish 
evidence, satisfactory in form and substance to EDA, that title to real 
property required for a project (other than property of the United 
States) is vested in the recipient, and that such easements, rights-of-
way, State permits, or long-term leases as are required for the project 
have been or will be obtained by the recipient within an acceptable time 
as determined by EDA.
    (b)(1) The recipient must disclose to EDA all:
    (i) Liens,
    (ii) Mortgages,
    (iii) Other encumbrances,
    (iv) Reservations,
    (v) Reversionary interests, or
    (vi) Other restrictions on title or the recipient's interest in the 
property.
    (2) No such encumbrance or restriction will be acceptable if, as 
determined by EDA, the encumbrance or restriction will interfere with 
the construction, use, operation or maintenance of the project during 
its estimated useful life.
    (c) EDA may determine that a long-term leasehold interest for a 
period not less than the estimated useful life of the project, or an 
agreement for the recipient to purchase the property, will be 
acceptable, but only if fee title is not obtainable and the lease or 
purchase agreement provisions adequately safeguard the Federal 
Government's interest in the project. Also, EDA may permit the following 
exceptions to the requirement that the recipient hold title to the real 
property required for a project.
    (1) When a project includes construction within a railroad's right-
of-way or over a railroad crossing, it may be acceptable for the work to 
be completed by the railroad and for the railroad to continue to own, 
operate and maintain that portion of the project, if required by the 
railroad, and provided that this is a minor but essential component of 
the project.
    (2) When a project includes construction on a State-owned or local 
government-owned highway, it may be acceptable for the State or local 
government to own, operate and maintain that portion of the project, if 
required by the State or local government, provided that this is a minor 
but essential component of the project, the construction is completed in 
accordance with EDA requirements, and the State or local government 
provides assurances to EDA:

[[Page 577]]

    (i) That the State or local government will operate and maintain the 
improvements for the useful life of the project as determined by EDA;
    (ii) That the State or local government will not sell the 
improvements for the useful life of the project, as determined by EDA; 
and
    (iii) That the use of the property will be consistent with the 
authorized purpose of the project.
    (3) When the authorized purpose of the project is to construct 
facilities to serve industrial or commercial parks or sites owned by the 
recipient for sale or lease to private parties, such sale or lease is 
permitted so long as EDA requirements continue to be met. EDA may 
require evidence that the recipient has title to the park or site prior 
to such sale or lease.
    (4) When the authorized purpose of the project is to construct 
facilities to serve privately owned industrial or commercial parks or 
sites for sale or lease, such ownership, sale or lease is permitted so 
long as EDA requirements continue to be met. EDA may require evidence 
that the private party has title to the park or site prior to such sale 
or lease, and may condition the award of project assistance upon 
assurances by the private party relating to the sale or lease that EDA 
determines are necessary to assure consistency with the project 
purposes.



Sec. 314.8  Recorded statement.

    (a) For all projects involving the acquisition, construction or 
improvement of a building, as determined by EDA, the recipient shall 
execute a lien, covenant or other statement of EDA's interest in the 
property acquired or improved in whole or in part with the funds made 
available under the award. The statement shall specify in years the 
estimated useful life of the project and shall include, but not be 
limited to disposition, encumbrance, and compensation of Federal share 
requirements of this part 314. The statement shall be satisfactory in 
form and substance to EDA.
    (b) The statement of EDA's interest must be perfected and placed of 
record in the real property records of the jurisdiction in which the 
property is located, all in accordance with local law.
    (c) Facilities in which the EDA investment is only a small part of a 
large project, as determined by EDA, may be exempted from the 
requirements of this section.



                      Subpart C--Personal Property



Sec. 314.9  Recorded statement--Title.

    For all projects which EDA determines involve the acquisition or 
improvement of significant items of tangible personal property, 
including but not limited to ships, machinery, equipment, removable 
fixtures or structural components of buildings, the recipient shall 
execute a security interest or other statement of EDA's interest in the 
property, acceptable in form and substance to EDA, which statement must 
be perfected and placed of record in accordance with local law, with 
continuances refiled as appropriate. Whether or not a statement is 
required by EDA to be recorded, the recipient must hold title to the 
personal property acquired or improved as part of the project, except as 
otherwise provided in this part.



Sec. 314.10  Revolving loan funds.

    (a) With EDA's consent, recipients holding revolving loan fund (RLF) 
property (including but not limited to money, notes, and security 
interests) may sell such property or encumber such property as part of a 
securitization of the RLF portfolio. The net transaction proceeds must 
be used for additional loans as part of the RLF project;
    (b) When a recipient determines that it is no longer necessary or 
desirable to operate an RLF, the RLF may be terminated; provided that, 
unless otherwise stated in the award, the recipient must compensate the 
Federal Government for the Federal share of the value of the RLF 
property. The Federal share is that percentage of the capitalized RLF 
contributed by EDA applied to all RLF property, including the present 
value of all outstanding loans. However, with EDA's prior approval, upon 
termination the recipient may use for other economic development 
purposes that portion of such RLF property that EDA determines is 
attributable to the payment of interest.

[[Page 578]]

    (c) In the event of the sale, collection, or liquidation of RLF 
loans, any proceeds, net of repaid principal and reasonable 
administrative costs incurred, up to the amount of the outstanding loan 
principal, must be returned to the RLF for relending. Any net proceeds 
from loan sales above the outstanding loan principal is considered RLF 
income and must either be added to the RLF capital base for lending or 
used to cover eligible costs for administering the RLF in accordance 
with the rules for use of RLF income. The net transaction proceeds must 
be used for additional loans as part of the RLF project.

[64 FR 5476, Feb. 3, 1999, as amended at 65 FR 2536, Jan. 18, 2000]



              Subpart D--Release of EDA's Property Interest



Sec. 314.11  Procedures for release of EDA's property interest.

    (a) Before the expiration of the estimated useful life of the grant 
project, EDA may release, in whole or in part, any real property 
interest, or tangible personal property interest, in connection with a 
grant after the date that is 20 years after the date on which the grant 
was awarded. (The term ``tangible personal property'' excludes debt 
instruments, currency, and accounts in financial institutions.) Except 
as provided in paragraph (b) of this section, such release is not 
automatic; it requires EDA's approval, which will not be withheld except 
for good cause. The release may be unconditional, or may be conditioned 
upon some activity of the recipient intended to be pursued as a 
consequence of the release.
    (b) EDA hereby releases all of its real and tangible personal 
property interests in projects awarded under the Public Works Employment 
Act of 1976 (Pub. L. 94-369) and under that act as amended by the Public 
Works Employment Act of 1977 (Pub. L. 95-28).
    (c)(1) Notwithstanding Secs. 314.11(a) and (b), in no event, either 
before or after the release of EDA's interest, may project property be 
used:
    (i) In violation of the nondiscrimination requirements of the 
project award, or
    (ii) For religious purposes prohibited by the holding of the U.S. 
Supreme Court in Tilton v. Richardson, 403 U.S. 672 (1971).
    (2) Such use voids the release, and is an unauthorized use of the 
property, as provided in Sec. 314.4.



PART 315--CERTIFICATION AND ADJUSTMENT ASSISTANCE FOR FIRMS--Table of Contents




                      Subpart A--General Provisions

Sec.
315.1  Purpose and scope.
315.2  Definitions.
315.3  Confidential business information.
315.4  Eligible applicants.
315.5  Selection process.
315.6  Evaluation criteria.
315.7  Award requirements.

             Subpart B--Trade Adjustment Assistance Centers

315.8  Purpose and scope.

                    Subpart C--Certification of Firms

315.9  Certification requirements.
315.10  Processing petitions for certification.
315.11  Hearings, appeals and final determinations.
315.12  Termination of certification and procedure.
315.13  Loss of certification benefits.

                   Subpart D--Assistance to Industries

315.14  Assistance to firms in import-impacted industries.

    Authority: 42 U.S.C. 3211; 19 U.S.C. 2341, et seq.; Department of 
Commerce Organization Order 10-4.

    Source: 64 FR 5478, Feb. 3, 1999, unless otherwise noted.



                      Subpart A--General Provisions



Sec. 315.1  Purpose and scope.

    The regulations in this part implement certain changes to 
responsibilities of the Secretary of Commerce under Chapter 3 of Title 
II of the Trade Act of 1974, as amended (19 U.S.C. 2341 et. seq.) (Trade 
Act), concerning adjustment assistance for firms. The statutory 
authority and responsibilities of the Secretary of Commerce relating to 
adjustment assistance are delegated to EDA. EDA has the duties of 
certifying

[[Page 579]]

firms as eligible to apply for adjustment assistance, providing 
technical adjustment assistance to eligible recipients, and providing 
assistance to organizations representing trade injured industries.



Sec. 315.2  Definitions.

    As used in this part 315 of this chapter:
    Adjustment assistance is technical assistance provided to firms or 
industries under Chapter 3 of Title II of the Trade Act.
    Adjustment proposal means a certified firm's plan for improving its 
economic situation.
    Certified firm means a firm which has been determined by EDA to be 
eligible to apply for adjustment assistance.
    Confidential business information means information submitted to EDA 
or TAACs by firms that concerns or relates to trade secrets for 
commercial or financial purposes which is exempt from public disclosure 
under 5 U.S.C. 552(b)(4), 5 U.S.C. 552b(c)(4) and 15 CFR part 4.
    Decreased absolutely means a firm's sales or production has 
declined:
    (1) Irrespective of industry or market fluctuations; and
    (2) Relative only to the previous performance of the firm.
    Directly competitive means:
    (1) Articles which are substantially equivalent for commercial 
purposes, i.e., are adapted to the same function or use and are 
essentially interchangeable; and
    (2) Oil or natural gas (exploration, drilling or otherwise 
produced).
    Firm means an individual proprietorship, partnership, joint venture, 
association, corporation (including a development corporation), business 
trust, cooperative, trustee in bankruptcy or receiver under court decree 
and including fishing, agricultural entities and those which explore, 
drill or otherwise produce oil or natural gas. When a firm owns or 
controls other firms as described below, for purposes of receiving 
benefits under this part, the firm and such other firms may be 
considered a single firm when they produce like or directly competitive 
articles or are exerting essential economic control over one or more 
production facilities. Such other firms include:
    (1) Predecessor;
    (2) Successor;
    (3) Affiliate; or
    (4) Subsidiary.
    A group of workers threatened with total or partial separation means 
there is reasonable evidence that such total or partial separation is 
imminent.
    Like articles means articles which are substantially identical in 
their intrinsic characteristics.
    Partial separation means either:
    (1) A reduction in an employee's work hours to 80 percent or less of 
the employee's average weekly hours during the year of such reductions 
as compared to the preceding year; or
    (2) A reduction in the employee's weekly wage to 80 percent or less 
of his/her average weekly wage during the year of such reduction as 
compared to the preceding year.
    Person means individual, organization or group.
    The record means:
    (1) A petition for certification of eligibility to qualify for 
adjustment assistance;
    (2) Any supporting information submitted by the petitioner;
    (3) Report of the EDA investigation in regard to the petition; and
    (4) Any information developed during the investigation or in 
connection with any public hearing held on the petition.
    Recipient means a firm, Trade Adjustment Assistance Center or other 
party receiving adjustment assistance or through which adjustment 
assistance is provided under the Trade Act.
    A significant number or proportion of workers means 5 percent of the 
firm's work force or 50 workers, whichever is less. An individual farmer 
is considered a significant number or proportion of workers.
    Substantial interest means a direct, material, economic interest in 
the certification or noncertification of the petitioner.
    Technical Assistance means assistance provided to firms or 
industries under Chapter 3 of Title II of the Trade Act.
    A totally separated worker means an employee who has been laid off 
or

[[Page 580]]

whose employment has been terminated by his/her employer for lack of 
work.



Sec. 315.3  Confidential business information.

    EDA will follow the procedures set forth in 15 CFR Sec. 4.7, and 
submitters should so designate any information they believe 
confidential.



Sec. 315.4  Eligible applicants.

    (a) Trade Adjustment Assistance Centers (TAACs) are eligible 
applicants. A TAAC can be:
    (1) A university affiliate;
    (2) State or local government affiliate;
    (3) Non-profit organization.
    (b) Firms;
    (c) Organizations assisting or representing industries in which a 
substantial number of firms or workers have been certified as eligible 
to apply for adjustment assistance under sections 223 or 251 of the 
Trade Act including the following:
    (1) Existing agencies;
    (2) Private individuals;
    (3) Firms;
    (4) Universities;
    (5) Institutions;
    (6) Associations;
    (7) Unions; or
    (8) Other non-profit industry organizations.



Sec. 315.5  Selection process.

    (a) TAACs are selected in accordance with the following:
    (1) Currently funded TAACs are invited by EDA to submit either new 
or amended applications, provided they have performed in a satisfactory 
manner and complied with previous and/or current conditions in their 
cooperative agreements with EDA and contingent upon availability of 
funds. Such TAACs shall submit an application on a form approved by OMB, 
as well as a proposed budget, narrative scope of work, and such other 
information as requested by EDA. Acceptance of an application or amended 
application for a cooperative agreement does not assure funding by EDA; 
and
    (2) New TAACs will be invited to submit proposals, and if they are 
acceptable, EDA will invite an application on a form approved by OMB. An 
application will be accompanied by a narrative scope of work, proposed 
budget and such other information as requested by EDA. Acceptance of an 
application does not assure funding by EDA.
    (b) Firms are selected in accordance with the following:
    (1) Firms may apply for certification generally through a TAAC by 
filling out a petition for certification. The TAAC will provide 
technical assistance to firms wishing to fill out such petitions;
    (2) Once firms are certified in accordance with the procedures 
described in Secs. 315.9 and 315.10, an adjustment proposal is usually 
prepared with technical assistance from a party independent of the firm, 
usually the TAAC, and submitted to EDA;
    (3) Certified firms which have submitted acceptable adjustment 
proposals within the time limits described in Sec. 315.13 below, may 
begin implementation of such proposal, generally through the TAAC and 
often with Technical Assistance from the TAAC, by submitting a request 
to the TAAC to provide assistance in implementing an accepted adjustment 
proposal; and
    (4) EDA determines whether or not to provide assistance for 
adjustment proposals based upon Sec. 315.6(c)(2).
    (c) Organizations representing trade injured industries must meet 
with an EDA representative to discuss the industry problems, 
opportunities and assistance needs, and if invited by EDA may then 
submit an application as approved by OMB, as well as a scope of work and 
proposed budget.



Sec. 315.6  Evaluation criteria.

    (a) Currently funded TAACs are generally evaluated based on the 
following:
    (1) How well they have performed under cooperative agreements with 
EDA and if they are in compliance with the terms and conditions of such 
cooperative agreements;
    (2) Proposed scope of work, budget and application or amended 
application; and
    (3) The availability of funds.
    (b) New TAACs are generally evaluated on the following:

[[Page 581]]

    (1) Demonstrates competence in administering business assistance 
programs;
    (2) Background and experience of staff;
    (3) Proposed scope of work, budget and application; and
    (4) The availability of funding.
    (c) Firms are generally evaluated based on the following:
    (1) For certification, firms' petitions are selected strictly on the 
basis of conformance with requirements set forth in Sec. 315.9 below;
    (2) An adjustment proposal is evaluated on the basis of the 
following:
    (i) The proposal must be submitted to EDA within 2 years after the 
date of the certification of the firm; and
    (ii) The adjustment proposal must include a description of any 
technical assistance requested to implement such proposal including 
financial and other supporting documentation as EDA determines is 
necessary, based upon either:
    (A) An analysis of the firm's problems, strengths and weaknesses and 
an assessment of its prospects for recovery; or
    (B) If EDA so determines, an acceptable adjustment proposal can be 
prepared on the basis of other available information.
    (iii) The adjustment proposal must be evaluated to determine that 
it:
    (A) Is reasonably calculated to contribute materially to the 
economic adjustment of the firm, i.e., that such proposal will be a 
constructive aid to the firm in establishing a competitive position in 
the same or a different industry;
    (B) Gives adequate consideration to the interests of a sufficient 
number of separated workers of the firm, by providing for example that 
the firm will:
    (1) Give a rehiring preference to such workers;
    (2) Make efforts to find new work for a number of such workers; and
    (3) Assist such workers in obtaining benefits under available 
programs.
    (C) Demonstrates that the firm will make all reasonable efforts to 
use its own resources for economic development, though under certain 
circumstances, resources of related firms or major stockholders will 
also be considered.
    (d) Organizations representing trade injured industries must 
demonstrate that the industry is injured by increased imports and that 
the activities to be funded will yield some short-term actions that the 
industry itself (and individual firms) can and will take toward the 
restoration of the industry's international competitiveness.
    (1) The emphasis is on practical results that can be implemented in 
the near term, and long-term research and development activities are 
given low priority.
    (2) It is also expected that the industry will continue activities 
on its own without the need for continued Federal assistance.



Sec. 315.7  Award requirements.

    (a) Award periods are as follows:
    (1) TAACs are generally funded for 12 months;
    (2) Firms are generally provided assistance over a 2-year period; 
and
    (3) Organizations representing trade injured industries are 
generally funded for 12 months.
    (b) Matching requirements are as follows:
    (1) There are no matching requirements for certification assistance 
provided by the TAACs to firms or for administrative expenses for the 
TAACs;
    (2) All adjustment proposals and implementation assistance must 
include not less than 25% nonfederal match, provided to the extent 
practicable, by firms being assisted; and
    (3) Contributions of at least 50% of the total project cash cost, in 
addition to appropriate in kind contributions, are expected from 
organizations representing trade injured industries.



             Subpart B--Trade Adjustment Assistance Centers



Sec. 315.8  Purpose and scope.

    (a) Trade Adjustment Assistance Centers (TAACs) are available to 
assist firms in all fifty states, the District of Columbia and the 
Commonwealth of Puerto Rico in obtaining adjustment assistance. TAACs 
provide technical assistance in accordance with this subpart either 
through their own staffs or

[[Page 582]]

by arrangements with outside consultants. Information concerning TAACs 
serving particular areas can be obtained from EDA. See the annual FY 
NOFA for the appropriate point of contact and address.
    (b) Prior to submitting a request for technical assistance to EDA, a 
firm should determine the extent to which the required technical 
assistance can be provided through a TAAC. EDA will provide technical 
assistance through TAACs whenever EDA determines that such assistance 
can be provided most effectively in this manner. Requests for technical 
assistance will normally be made through TAACs.
    (c) TAACs generally provide technical assistance to a firm by 
providing the following:
    (1) Assistance to a firm in preparing its petition for 
certification;
    (2) Assistance to a certified firm in diagnosing its strengths and 
weaknesses and developing an adjustment proposal for the firm; and
    (3) Assistance to a certified firm in the implementation of the 
adjustment proposal for the firm.



                    Subpart C--Certification of Firms



Sec. 315.9  Certification requirements.

    A firm will be certified eligible to apply for adjustment assistance 
based upon the petition for certification if EDA determines, under 
section 251(c) of the Trade Act, that:
    (a) Based upon a comparison of the most recent 12 month period for 
which data are available and the immediately preceding 12 month period, 
the following conditions have been met:
    (1) A significant number or proportion of workers in such firm have 
become totally or partially separated, or are threatened to become 
totally or partially separated;
    (2) Either sales or production, or both of the firm have decreased 
absolutely; or sales or production, or both of any article that 
accounted for not less than 25 percent of the total production or sales 
of the firm during the 12-month period preceding the most recent 12-
month period for which data are available have decreased absolutely; and
    (3) Increases of imports (absolute or relative to domestic 
production) of articles like or directly competitive with articles 
produced by such firm contributed importantly to such total or partial 
separation or threat thereof, and to such decline in sales or 
production; provided that imports will not be considered to have 
contributed importantly if other factors were so dominant, acting singly 
or in combination, that the worker separation or threat thereof, or 
decline in sales or production would have been essentially the same 
irrespective of the influence of imports; or
    (b) Based upon an interim sales or production decline, the following 
conditions have been met:
    (1) There has been an absolute decrease in sales or production for, 
at minimum, a three month period during the most recent 12 month period 
for which data are available as compared to the same period of time 
during the immediately preceding 12 month period;
    (2) During the same base and comparative period of time as the 
period of absolute decrease in sales or production, a significant number 
or proportion of workers in such firm have become totally or partially 
separated; and
    (3) During the same base and comparative period of time as the 
period of absolute decrease in sales or production, there has been an 
increase of imports (absolute or relative to domestic production) of 
articles like or directly competitive with articles produced by such 
firm which contributed importantly to such total or partial separation, 
and to such decline in sales or production; provided that imports will 
not be considered to have contributed importantly if other factors were 
so dominant, acting singly or in combination, that the worker 
separation, or decline in sales or production would have been 
essentially the same irrespective of the influence of imports; or
    (c) Based upon an interim employment decline, the following 
conditions have been met:
    (1) A significant number or proportion of workers in such firm have 
become totally or partially separated, or are threatened to become 
totally or partially separated during, at a minimum, the most recent 
month during

[[Page 583]]

the most recent 12 month period for which data are available as compared 
to the same period of time during the immediately preceding 12 month 
period; and
    (2) Either sales or production, or both of the firm have decreased 
absolutely during the 12-month period preceding the most recent 12-month 
period for which data are available; and
    (3) There has been an increase of imports (absolute or relative to 
domestic production) of articles like or directly competitive with 
articles produced by such firm which contributed importantly to such 
total or partial separation or threat thereof, and to such decline in 
sales or production; provided that imports will not be considered to 
have contributed importantly if other factors were so dominant, acting 
singly or in combination, that the worker separation or threat thereof, 
or decline in sales or production would have been essentially the same 
irrespective of the influence of imports.

[65 FR 71026, Nov. 28, 2000]



Sec. 315.10  Processing petitions for certification.

    (a) Firms are encouraged to consult with a TAAC or EDA for guidance 
and assistance in the preparation of their petitions for certification.
    (b) A firm seeking certification shall complete a petition (OMB 
Control Number 0610-0091) in the form prescribed by EDA with the 
following information about such firm:
    (1) Identification and description of the firm, including legal form 
of organization, economic history, major ownership interests, officers, 
directors, management, parent company, subsidiaries or affiliates, and 
production and sales facilities;
    (2) Description of goods and services produced and sold;
    (3) Description of imported articles like or directly competitive 
with those produced;
    (4) Data on its sales, production and employment for the two most 
recent years;
    (5) Copies of its audited financial statements, or if not available, 
unaudited financial statements and Federal income tax returns for the 
two most recent years;
    (6) Copies of unemployment insurance reports for the two most recent 
years;
    (7) Information concerning its major customers and their purchases; 
and
    (8) Such other information as EDA may consider material.
    (c) EDA shall determine whether the petition has been properly 
prepared and can be accepted. Immediately thereafter, EDA shall notify 
the petitioner that the petition has been accepted or advise the 
petitioner that the petition has not been accepted, but may be 
resubmitted at any time without prejudice when the specified 
deficiencies have been corrected and the resubmission will be treated as 
a new petition.
    (d) A notice of acceptance of a petition shall be published in the 
Federal Register.
    (e) An investigation shall be initiated by EDA to determine whether 
the petitioner meets requirements set forth in section 251(c) of the 
Trade Act and Sec. 315.9 above. The investigation can be terminated at 
any time for failure to meet such requirements. A report of this 
investigation shall become part of the record upon which a determination 
of the petitioner's eligibility to apply for adjustment assistance shall 
be made.
    (f) A petitioner may withdraw a petition for certification if a 
request for withdrawal is received by EDA before a certification 
determination or denial is made. Such firm may submit a new petition at 
any time thereafter in accordance with the requirements of this section 
and Sec. 315.9.
    (g) Following acceptance, EDA shall decide what action to take on 
petitions for certification as follows:
    (1) Make a determination based on the record as soon as possible 
after all material has been submitted. In no event may the period exceed 
60 days from the date on which the petition was accepted; and
    (2) Either certify the petitioner eligible to apply for adjustment 
assistance or deny the petition, and in either event EDA shall promptly 
give notice of the action in writing to the petitioner. A notice to the 
petitioner or

[[Page 584]]

any parties requesting notice as specified in Sec. 315.10(d) of a denial 
of a petition shall specify the reasons upon which the denial is based. 
If a petition is denied, the petitioner shall not be entitled to 
resubmit its petition within one year from the date of the denial. At 
the time of the denial of a petition EDA may waive the 1-year limitation 
for good cause.



Sec. 315.11  Hearings, appeals and final determinations.

    (a) Any petitioner may appeal to EDA from a denial of certification 
provided that the appeal is received by EDA in writing by personal 
delivery or by registered mail within 60 days from the date of notice of 
denial under Sec. 315.10(g). The appeal shall state the grounds on which 
the appeal is based, including a concise statement of the supporting 
facts and law. The decision of EDA on the appeal shall be the final 
determination within the Department of Commerce. In the absence of an 
appeal by the petitioner under this paragraph, such final determination 
shall be determined under Sec. 315.10(g).
    (b) A firm, its representative or any other interested domestic 
party aggrieved by a final determination under paragraph (a) of this 
section may, within 60 days after notice of such determination, begin a 
civil action in the United States Court of International Trade for 
review of such determination in accordance with section 284 of the Trade 
Act (19 U.S.C. 2395).
    (c) EDA will hold a public hearing on an accepted petition not later 
than 10 days after the date of publication of the Notice of Acceptance 
in the Federal Register if requested by either the petitioner or any 
other person found by EDA to have a substantial interest in the 
proceedings, under procedures, as follows:
    (1) The petitioner and other interested persons shall have an 
opportunity to be present, to produce evidence, and to be heard;
    (2) A request for public hearing must be delivered by hand or by 
registered mail to EDA. A request by a person other than the petitioner 
shall contain:
    (i) The name, address, and telephone number of the person requesting 
the hearing; and
    (ii) A complete statement of the relationship of the person 
requesting the hearing to the petitioner and the subject matter of the 
petition, and a statement of the nature of its interest in the 
proceedings.
    (3) If EDA determines that the requesting party does not have a 
substantial interest in the proceedings, a written notice of denial 
shall be sent to the requesting party. The notice shall specify the 
reasons for the denial;
    (4) EDA shall publish a notice of a public hearing in the Federal 
Register, containing the subject matter, name of petitioner, and date, 
time and place of hearing;
    (5) EDA shall appoint the presiding officer of the hearing who shall 
determine all procedural questions;
    (6) Procedures for requests to appear are as follows:
    (i) Within 5 days after publication of the Notice of Public Hearing 
in the Federal Register, each party wishing to be heard must file a 
request to appear with EDA. Such request may be filed by:
    (A) The party requesting such hearing;
    (B) Any other party with substantial interest; or
    (C) Any other party demonstrating to the satisfaction of the 
presiding officer that it should be allowed to be heard.
    (ii) The party filing the request shall submit the names of the 
witnesses and a summary of the evidence it wishes to present; and
    (iii) Such requests to appear may be approved as deemed appropriate 
by the presiding officer.
    (7) Witnesses will testify in the order and for the time designated 
by the presiding officer, except that the petitioner shall have the 
opportunity to make its presentation first. After testifying, a witness 
may be questioned by the presiding officer or his/her designee. The 
presiding officer may allow any person who has been granted permission 
to appear to question the witnesses for the purpose of assisting him/her 
in obtaining relevant and material facts on the subject matter of the 
hearing;
    (8) The presiding officer may exclude evidence which s/he deems 
improper or irrelevant. Formal rules of evidence

[[Page 585]]

shall not be applicable. Documentary material must be of a size 
consistent with ease of handling, transportation, and filing. Large 
exhibits may be used during the hearing, but copies of such exhibits 
must be provided in reduced size for submission as evidence. Two copies 
of all documentary evidence must be furnished to the presiding officer 
during the hearing;
    (9) Briefs may be presented to the presiding officer by parties who 
have entered an appearance. Three copies of such briefs shall be filed 
with the presiding officer within 10 days of the completion of the 
hearing; and
    (10) Procedures for transcripts are as follows:
    (i) All hearings will be transcribed. Persons interested in 
transcripts of the hearings may inspect them at the U.S. Department of 
Commerce in Washington, D.C., or purchase copies as provided in 15 CFR 
part 4, Public Information; and
    (ii) Confidential business information as determined by EDA shall 
not be a part of the transcripts. Any confidential business information 
may be submitted directly to the presiding officer prior to the hearing. 
Such information shall be labeled Confidential Business Information. For 
the purpose of the public record, a brief description of the nature of 
the information shall be submitted to the presiding officer during the 
hearing.



Sec. 315.12  Termination of certification and procedure.

    (a) Whenever EDA determines that a certified firm no longer requires 
adjustment assistance or for other good cause, EDA will terminate the 
certification and promptly publish notice of such termination in the 
Federal Register. The termination will take effect on the date specified 
in the Notice.
    (b) EDA shall immediately notify the petitioner and shall state the 
reasons for such termination.



Sec. 315.13  Loss of certification benefits.

    A firm may fail to obtain benefits of certification, regardless of 
whether its certification is terminated for any of the following 
reasons:
    (a) Failure to submit an acceptable adjustment proposal within 2 
years after date of certification. While approval of an adjustment 
proposal may occur after the expiration of such 2-year period, an 
acceptable adjustment proposal must be submitted before such expiration;
    (b) Failure to submit documentation necessary to start 
implementation or modify its request for adjustment assistance 
consistent with its adjustment proposal within 6 months after approval 
of the adjustment proposal and 2 years have elapsed since the date of 
certification. If the firm anticipates that a longer period will be 
required to submit documentation, such longer period should be indicated 
in its adjustment proposal. If the firm becomes unable to submit its 
documentation within the allowed time, it should notify EDA in writing 
of the reasons for the delay and submit a new schedule. EDA has the 
discretion to accept or refuse a new schedule;
    (c) If the firm's request for adjustment assistance has been denied, 
the time period allowed for the submission of any documentation in 
support of such request has expired, and 2 years have elapsed since the 
date of certification; or
    (d) Failure to diligently pursue an approved adjustment proposal, 
and 2 years have elapsed since the date of certification.



                   Subpart D--Assistance to Industries



Sec. 315.14  Assistance to firms in import-impacted industries.

    (a) Whenever the International Trade Commission makes an affirmative 
finding under section 202(B) of the Trade Act that increased imports are 
a substantial cause of serious injury or threat thereof with respect to 
an industry, EDA shall provide to the firms in such industry, assistance 
in the preparation and processing of petitions and applications for 
benefits under programs which may facilitate the orderly adjustment to 
import competition of such firms.
    (b) EDA may provide technical assistance, on such terms and 
conditions as EDA deems appropriate for the establishment of industry 
wide programs for new product development, new

[[Page 586]]

process development, export development or other uses consistent with 
the purposes of this part.
    (c) Expenditures for technical assistance under this section may be 
up to $10,000,000 annually per industry and shall be made under such 
terms and conditions as EDA deems appropriate.



PART 316--GENERAL REQUIREMENTS FOR FINANCIAL ASSISTANCE--Table of Contents




Sec.
316.1  Environment.
316.2  Excess capacity.
316.3  Nonrelocation.
316.4  Procedures in disaster areas.
316.5  Project servicing for loans and loan guarantees.
316.6  Public information.
316.7  Relocation assistance and land acquisition policies.
316.8  Additional requirements; Federal policies and procedures.
316.9  Amendments and changes.
316.10  Preapproval award costs.
316.11  Intergovernmental review of projects.
316.12  Fees for paying attorneys and consultants.
316.13   Economic development information clearinghouse.
316.14  Project administration, operation, and maintenance.
316.15  Maintenance of standards.
316.16  Records and audits.
316.17  Acceptance of certifications by applicants.
316.18  Reports by recipients.
316.19  Project administration by District organization.

    Authority: 42 U.S.C. 3211, 42 U.S.C. 5141; 19 U.S.C. 2341, et seq., 
Department of Commerce Organization Order 10-4.

    Source: 64 FR 5482, Feb. 3, 1999, unless otherwise noted.



Sec. 316.1  Environment.

    (a) The purpose of this section is to ensure proper environmental 
review of EDA's actions under PWEDA and the Trade Act and to comply with 
the Federal environmental statutes and regulations in making a 
determination that balances economic development and environmental 
enhancement and mitigates adverse environmental impacts to the extent 
possible.
    (b) Environmental assessments of EDA actions will be conducted in 
accordance with the statutes, regulations, and Executive Orders listed 
below. This list will be supplemented and modified, as applicable, in 
EDA's annual FY NOFA.
    (1) Requirements under the National Environmental Policy Act of 1969 
(NEPA), Pub. L. 91-190, as amended, 42 U.S.C. 4321 et seq. as 
implemented under 40 CFR parts 1500 et seq. including the following:
    (i) The implementing regulations of NEPA require EDA to provide 
public notice of the availability of project specific environmental 
documents such as environmental impact statements, environmental 
assessments, findings of no significant impact, records of decision 
etc., to the affected public as specified in 40 CFR 1506.6(b); and
    (ii) Depending on the project location, environmental information 
concerning specific projects can be obtained from the Environmental 
Officer in the appropriate Washington, D.C. or regional office listed in 
the NOFA;
    (2) Clean Air Act, Pub. L. 88-206 as amended, 42 U.S.C. 7401 et. 
seq.;
    (3) Clean Water Act (Federal Water Pollution Control Act), c. 758, 
62 Stat. 1152 as amended, 33 U.S.C. 1251 et. seq.;
    (4) Comprehensive Environmental Response, Compensation, and 
Liability Act of 1980 (CERCLA), Pub. L. 96-510, as amended, 42 U.S.C. 
9601 et. seq. and the Superfund Amendments and Reauthorization Act of 
1986 (SARA), Pub. L. 99-499, as amended;
    (5) Floodplain Management Executive Order 11988 (May 24, 1977);
    (6) Protection of Wetlands Executive Order 11990 (May 24, 1977);
    (7) Resource Conservation and Recovery Act of 1976, Pub.L. 94-580 as 
amended, 42 U.S.C. 6901 et seq.;
    (8) Historical and Archeological Data Preservation Act, Pub. L. 86-
523, as amended, 16 U.S.C. Sec. 469a-1 et. seq.;
    (9) National Historic Preservation Act of 1966, Pub. L. 89-665, as 
amended, 16 U.S.C. Sec. 470 et. seq.;
    (10) Endangered Species Act of 1973, Pub. L. 93-205, as amended, 16 
U.S.C. Sec. 1531 et. seq.;
    (11) Coastal Zone Management Act of 1972, Pub. L. 92-583, as 
amended, 16 U.S.C. Sec. 1451 et. seq.;
    (12) Flood Disaster Protection Act of 1973, Pub. L. 93-234, as 
amended, 42 U.S.C. Sec. 4002 et seq.;

[[Page 587]]

    (13) Safe Drinking Water Act of 1974, Pub. L. 92-523, as amended, 42 
U.S.C. Sec. 300f-j26;
    (14) Wild and Scenic Rivers Act, Pub. L. 90-542, as amended, 16 
U.S.C. Sec. 1271 et seq.;
    (15) Environmental Justice in Minority Populations and Low-Income 
Populations Executive Order 12898 (February 11, 1994);
    (16) Farmland Protection Policy Act, Pub. L. 97-98, as amended, 7 
U.S.C. Sec. 4201 et seq.; and
    (17) Other Federal Environmental Statutes and Executive Orders as 
applicable.



Sec. 316.2  Excess capacity.

    (a) Definitions. For purposes of this section only the following 
definitions apply:
    Beneficiary means a firm or group of firms, a public or private 
enterprise or organization that provides a commercial product or service 
and that directly benefits from an EDA-assisted project.
    Capacity means the maximum amount of a product or service that can 
be supplied to the market area over a sustained period by existing 
enterprises through the use of present facilities and customary work 
schedules for the industry.
    Commercial product or service means a product or service sold on the 
open market in competition with another provider's product or service of 
the same kind.
    Demand means the actual quantity of a commercial product or service 
that users are willing to purchase in the market area served by the 
intended beneficiary of the EDA assisted project.
    Efficient capacity means that part of capacity derived from the use 
of contemporary structures, machinery and equipment, designs, and 
technologies.
    Existing competitive enterprise means an established operation which 
either produces or delivers the same kind of commercial product or 
service to all or a substantial part of the market area served by the 
intended beneficiary of the EDA assisted project.
    Firm means any enterprise which produces or sells a commercial 
product or service.
    Market Area means the geographic area within which commercial 
products or services compete for purchase by customers.
    Product or service means a good, material, or commodity, or the 
availability of a service or facility.
    Section 208 means section 208 of PWEDA.
    (1) A section 208 study is a detailed economic analysis/evaluation 
of competitive impact.
    (2) A section 208 report is a summary of supply/demand factors.
    (3) A section 208 exemption may apply to a project having one or 
more of the characteristics listed in paragraph (e) of this section.
    (b) Under section 208:
    (1) No financial assistance under PWEDA shall be extended to any 
project when the result would be to increase the production of products 
or services when there is not sufficient demand for such products or 
services, to employ the efficient capacity of existing competitive 
commercial or industrial enterprises; and
    (2) When EDA considers extending assistance for a project that 
benefits a firm or industry that provides a commercial product or 
service, the beneficiary is subject to a 208 report, study, or 
exemption, resulting in a finding that the project will or will not 
violate section 208. A section 208 study or report is required, except 
as provided in paragraph (e) of this section.
    (c) The following procedures shall be followed to the extent 
necessary to provide EDA with sufficient information to prepare a 208 
study or report:
    (1) The beneficiary shall submit, as early as possible, the 
following information with regard to each commercial product or service 
affected by the project:
    (i) A detailed description of the commercial product or service;
    (ii) Current and projected amount and value of annual sales or 
receipts;
    (iii) Market area; and
    (iv) Name of other suppliers and amount of commercial product or 
service presently available in the market area.
    (2) If the beneficiary has conducted or commissioned a relevant 
market study, it shall be made available to

[[Page 588]]

EDA as early as possible, for possible use by EDA in the 208 study or 
report.
    (d) A section 208 report will form an acceptable basis on which to 
make a section 208 compliance finding when the beneficiary's projected 
new or additional annual output is less than one percent of the last 
recorded annual output in the market area, or when it is otherwise 
apparent that a 208 study is not required to determine that the project 
will not violate section 208.
    (e) Unless EDA determines that circumstances require a section 208 
study or report, EDA will make a finding of compliance with section 208 
without doing a section 208 report or study for those projects with 
known beneficiaries, and which have one or more of the following 
characteristics:
    (1) The project is primarily for the use and benefit of the 
community as a whole without significantly expanding the output of 
commercial products or services;
    (2) The project is primarily to be used for non-production or non-
distribution purposes;
    (3) The project will replace or restore capacity recently destroyed 
by flood, fire, wind, or other natural disaster, without contributing to 
significant expansion of the previously existing supply of the same 
kinds of commercial products or services;
    (4) The project will assure the retention of physical capacity and/
or employment without significantly expanding the existing supply of the 
same kinds of commercial products or services;
    (5) The project will assure the reopening of facilities closed 
within two years of the date of reopening, if the facility will provide 
the same kinds of products or services as previously provided, without a 
significant increase in output;
    (6) The project will replace, rebuild or modernize, within the same 
commuting area, facilities which within the previous two years have 
been, or are to be, displaced by official governmental action, without a 
change in the kind or significant increase in output of the commercial 
product or service previously provided;
    (7) The project assures completion of a project previously assisted 
by EDA, where further funding is required because of revised project 
cost estimates, rather than for additional productive capacity;
    (8) The project is wholly or primarily for planning, technical 
assistance, research, evaluation, other studies, or for the training of 
workers, and not for the direct benefit of a firm or an industry that 
produces a commercial product or service; or
    (9) No firm benefitted by the project will use 50 percent or more of 
any EDA-financed service or facility.

[64 FR 5482, Feb. 3, 1999, as amended at 64 FR 69879, Dec. 14, 1999]



Sec. 316.3  Nonrelocation.

    (a) General requirements for nonrelocation for funding under PWEDA 
are as follows:
    (1) EDA financial assistance will not be used to assist employers 
who transfer jobs from one commuting area to another. A commuting area 
(``area'') is that area defined by the distance people travel to work in 
the locality of the project receiving EDA financial assistance;
    (2) Every applicant for EDA financial assistance has an affirmative 
duty to inform EDA of any employer who will benefit from such assistance 
who will transfer jobs (not persons) in connection with the EDA grant;
    (3) EDA will determine compliance with this requirement prior to 
grant award based upon information provided by the applicant during the 
project selection process; and
    (4) Each applicant and identified primary beneficiary of EDA 
assistance, which for purposes of this section means an entity providing 
economic justification for the project, must submit its certification of 
compliance with this section, and other applicable information as 
determined by EDA.
    (b) The nonrelocation requirements stated in paragraph (a) of this 
section shall not apply to businesses which:
    (1) Relocated to the area prior to the date of the applicant's 
request for EDA assistance;
    (2) Have moved or will move into the area primarily for reasons 
which have no connection to the EDA assistance;
    (3) Will expand employment in the area where the project is to be 
located

[[Page 589]]

substantially beyond employment in the area in which the business had 
originally been located;
    (4) Are relocating from technologically obsolete facilities to be 
competitive;
    (5) Are expanding into the new area by adding a branch, affiliate, 
or subsidiary while maintaining employment levels in the old area or 
areas; or
    (6) Are determined by EDA to be exempt.



Sec. 316.4  Procedures in disaster areas.

    When non-statutory EDA administrative or procedural conditions for 
financial assistance awards cannot be met by applicants under PWEDA as 
the result of a disaster, EDA may waive such conditions.



Sec. 316.5  Project servicing for loans and loan guarantees.

    EDA will provide project servicing to borrowers and lenders who 
received EDA loans and/or guaranteed loans under any programs 
administered by EDA. This includes but is not limited to loans under 
PWEDA prior to the effective date of Public Law 105-393, the Trade Act 
and the Community Emergency Drought Relief Act of 1977.
    (a) EDA will continue to monitor such loans and guarantees in 
accordance with the loan or guarantee program.
    (b) Borrowers/lenders shall submit to EDA any requests for 
modifications of their agreements with EDA. EDA shall, in accordance 
with applicable laws and policies, including the Federal Credit Reform 
Act of 1990 (2 U.S.C. 661c(e)), consider and respond to such 
modification requests.
    (c) In the event that EDA determines it necessary or desirable to 
take actions to protect or further the interests of EDA in connection 
with loans or guarantees made or evidences of indebtedness purchased, 
EDA may:
    (1) Assign or sell at public or private sale, or otherwise dispose 
of for cash or credit, in its discretion and upon such terms and 
conditions as it shall determine to be reasonable, any evidence of debt, 
contract, claim, personal or real property, or security assigned to or 
held by it in connection with financial assistance extended;
    (2) Collect or compromise all obligations assigned to or held by it 
in connection with EDA financial assistance projects until such time as 
such obligations may be referred to the Attorney General for suit or 
collection; and
    (3) Take any and all other actions determined by it to be necessary 
or desirable in purchasing, servicing, compromising, modifying, 
liquidating, or otherwise administratively dealing with or realizing on 
loans or guaranties made or evidences of indebtedness purchased.



Sec. 316.6  Public information.

    The rules and procedures regarding public access to the records of 
the Economic Development Administration are found at 15 CFR part 4.



Sec. 316.7  Relocation assistance and land acquisition policies.

    Recipients of EDA financial assistance under PWEDA and the Trade Act 
(States and political subdivisions of States and non-profits as 
applicable) are subject to requirements set forth at 15 CFR part 11.



Sec. 316.8  Additional requirements; Federal policies and procedures.

    Recipients, as defined under Sec. 314.2 of this chapter, are subject 
to all Federal laws and to Federal, Department of Commerce, and EDA 
policies, regulations, and procedures applicable to Federal financial 
assistance awards, including 15 CFR part 24, Uniform Administrative 
Requirements for Grants and Cooperative Agreements to State and Local 
Governments, or 15 CFR part 14, Uniform Administrative Requirements for 
Grants and Agreements With Institutions of Higher Education, Other Non-
Profit and Commercial Organizations, whichever is applicable.



Sec. 316.9  Amendments and changes.

    (a) Requests by recipients for amendments to a grant shall be 
submitted in writing to EDA for approval, and shall contain such 
information and documentation necessary to justify the request.
    (b) Any changes made without approval by EDA are made at grantee's 
own risk of suspension or termination of the project.

[[Page 590]]

    (c) Changes of project scope after the time the project grant funds 
could be obligated will not be approved by EDA. Projects funded with no 
year funds are not subject to the change of scope rule.

[64 FR 5482, Feb. 3, 1999, as amended at 65 FR 71026, Nov. 28, 2000]



Sec. 316.10  Preapproval award costs.

    Project activities carried out before approval of an application by 
EDA are carried out at the sole risk of the applicant. Such activity 
could result in rejection of such project application, the disallowance 
of costs, or other adverse consequences as a result of non-compliance 
with Federal requirements, including, but not limited to, civil rights 
requirements, Federal labor standards, or Federal environmental, 
historic preservation or related requirements.



Sec. 316.11  Intergovernmental review of projects.

    (a) When the applicant is not a State, Indian tribe or other 
general-purpose governmental authority, the applicant must afford the 
appropriate general purpose local governmental authority of the area a 
minimum of 15 days in which to review and comment on a proposed project 
under EDA's public works and economic adjustment programs. Under these 
programs, applicants shall furnish the following with their application: 
if no comments were received, a statement of the efforts made to obtain 
such comments; or, if comments were received, a copy of the comments and 
a statement of any actions taken to address such comments.
    (b) Applicants as appropriate, must also give State and local 
governments a reasonable opportunity to review and comment on the 
proposed project if the State has a Single Point of Contact review 
process, including comments from areawide planning organizations in 
metropolitan areas as provided for in 15 CFR part 13.

[64 FR 5482, Feb. 3, 1999, as amended at 64 FR 69879, Dec. 14, 1999]



Sec. 316.12  Fees for paying attorneys and consultants.

    Grant funds must not be used directly or indirectly to pay for 
attorney's or consultant's fees in connection with obtaining grants and 
contracts for projects funded under PWEDA.



Sec. 316.13  Economic development information clearinghouse.

    EDA will provide assistance and information as follows:
    (a) Maintain a central information clearinghouse on matters relating 
to economic development, economic adjustment, disaster recovery, defense 
conversion, and trade adjustment programs and activities of the Federal 
and State governments, including political subdivisions of States;
    (b) Assist potential and actual applicants for economic development, 
economic adjustment, disaster recovery, defense conversion, and trade 
adjustment assistance under Federal, State, and local laws in locating 
and applying for the assistance; and
    (c) Assist areas described in Sec. 301.2(b) and other areas by 
providing to interested persons, communities, industries, and businesses 
in the areas any technical information, market research, or other forms 
of assistance, information, or advice that would be useful in 
alleviating or preventing conditions of excessive unemployment or 
underemployment in the areas.



Sec. 316.14  Project administration, operation, and maintenance.

    EDA shall approve Federal assistance under PWEDA only if satisfied 
that the project for which Federal assistance is granted will be 
properly and efficiently administered, operated, and maintained.



Sec. 316.15  Maintenance of standards.

    In accordance with sec. 602 of PWEDA all laborers and mechanics 
employed by contractors or subcontractors on public projects assisted by 
EDA under PWEDA shall be paid in accordance with the Davis-Bacon Act, as 
amended (40 U.S.C. 276a-276a-5).



Sec. 316.16  Records and audits.

    (a) Each recipient of Federal assistance under PWEDA shall keep such 
records as the Secretary shall require, including records that fully 
disclose--
    (1) The amount and the disposition by the recipient of the proceeds 
of the assistance;

[[Page 591]]

    (2) The total cost of the project in connection with which the 
assistance is given or used;
    (3) The amount and nature of the portion of the cost of the project 
provided by other sources; and
    (4) Such other records as will facilitate an effective audit.
    (b) Access to books for examination and audit--The Secretary, the 
Inspector General of the Department, and the Comptroller General of the 
United States, or any duly authorized representative, shall have access 
for the purpose of audit and examination to any books, documents, 
papers, and records of the recipient that relate to assistance received 
under PWEDA.



Sec. 316.17  Acceptance of certifications by applicants.

    EDA will accept an applicant's certifications, accompanied by 
evidence satisfactory to EDA, that the applicant meets the requirements 
of PWEDA. Each applicant must include in such evidence satisfactory 
information that any non-Federal funds (or eligible Federal funds) 
required to match the EDA share of project costs are committed to the 
project and will be available as needed.



Sec. 316.18  Reports by recipients.

    (a) In general, each recipient of assistance under PWEDA must submit 
reports to EDA at such intervals and in such manner as EDA shall 
require, except that no report shall be required to be submitted more 
than 10 years after the date of closeout of the assistance award.
    (b) Each report must contain an evaluation of the effectiveness of 
the economic assistance provided in meeting the need that the assistance 
was designed to address and in meeting the objectives of PWEDA



Sec. 316.19  Project administration by District organization.

    When an Economic Development District is not a recipient or co-
recipient of an award for a project involving construction, the District 
organization may administer the project for such recipient if the 
following conditions are met, as determined by EDA:
    (a) The recipient has requested (either in the application or by 
separate written request) that the district organization for the area in 
which the project is located perform the project administration;
    (b) The recipient certifies and EDA finds that:
    (1) Administration of the project is beyond the capacity of the 
recipient's current staff to perform and would require hiring additional 
staff or contracting for such services,
    (2) No local organization/business exists that would be able to 
administer the project in a more efficient or cost-effective manner than 
the staff of the district, and
    (3) The staff of the district would administer the project 
themselves, without subcontracting the work out;
    (c) EDA approves the request either by approving the application in 
which the request is made, or by separate specific written approval; and
    (d) The allowable costs for the administration of the project by the 
district organization staff will not exceed the customary and reasonable 
amount that would be allowable if the district were the recipient.



PART 317--CIVIL RIGHTS--Table of Contents




    Authority: 42 U.S.C. 3211; 42 U.S.C. 2000d-1; 29 U.S.C. 794; 42 
U.S.C. 3123; 42 U.S.C. 6709; 20 U.S.C. 1681; 42 U.S.C. 6101; Department 
of Commerce Organization Order 10-4.

    Source: 64 FR 5485, Feb. 3, 1999, unless otherwise noted.



Sec. 317.1  Civil rights.

    (a) Discrimination is prohibited in programs receiving federal 
financial assistance from EDA in accordance with the following 
authorities:
    (1) Section 601 of Title VI of the Civil Rights Act of 1964, 
codified at 42 U.S.C. 2000d et seq. (proscribing discrimination on the 
basis of race, color, or national origin), and the Department of 
Commerce's implementing regulations found at 15 CFR part 8;
    (2) 42 U.S.C. 3123 (proscribing discrimination on the basis of sex);
    (3) 29 U.S.C. 794, as amended, and the Department of Commerce's 
implementing regulations found at 15 CFR

[[Page 592]]

part 8b (proscribing discrimination on the basis of disabilities);
    (4) 42 U.S.C. 6101, as amended, and the Department of Commerce's 
implementing regulations found at 15 CFR part 20; and
    (5) 42 U.S.C. 6709 (proscribing discrimination on the basis of sex 
under the Local Public Works Program; and
    (6) Other Federal statutes, regulations and Executive Orders as 
applicable.
    (b) No recipient or other party shall intimidate, threaten, coerce, 
or discriminate against, any person for the purpose of interfering with 
any right or privilege secured by section 601 of the Civil Rights Act of 
1964, section 504 of the Rehabilitation Act of 1973, Title IX of the 
Education Amendments of 1972, 42 U.S.C. 3123, 42 U.S.C. 6709, and the 
Age Discrimination Act of 1975, or because the person has made a 
complaint, testified, assisted, or participated in any manner in an 
investigation, proceeding, or hearing under this part.
    (c) Definitions: (1) Other Parties means, as an elaboration of the 
definition in 15 CFR part 8, entities which, or which are intended to, 
create and/or save 15 or more permanent jobs as a result of EDA 
assistance provided that they are also either specifically named in the 
application as benefitting from the project, or are or will be located 
in an EDA building, port, facility, or industrial, commercial or 
business park prior to EDA's final disbursement of funds awarded for the 
project.
    (2) Additional definitions are provided in EDA's Civil Rights 
Guidelines and 15 CFR part 8.
    (d) All recipients of EDA financial assistance under PWEDA and the 
Trade Act, and Other Parties are required to submit the following to 
EDA:
    (1) Written assurances that they will comply with EDA regulations 
and other Department of Commerce regulations, and such other 
requirements as may be applicable, prohibiting discrimination;
    (2) Employment data in such form and manner as determined by EDA;
    (3) Information on civil rights status and involvement in charges of 
discrimination in employment or the provision of services during the 2 
years previous to the date of submission of such data as follows:
    (i) Description of the status of any lawsuits, complaints or the 
results of compliance reviews; and
    (ii) Statement indicating any administrative findings by a Federal 
or State agency.
    (4) Whenever deemed necessary by EDA to determine that applicants 
and other parties are in compliance with civil rights regulations, such 
applicants and other parties shall submit additional information in the 
form and manner requested by EDA; and
    (5) In addition to employment record requirements found in 15 CFR 
8.7, complete records on all employees and applicants for employment, 
including information on race, sex, national origin, age, education and 
job-related criteria must be retained by employers and made accessible 
to the responsible Department official.
    (e) To enable EDA to determine that there is no discrimination in 
the distribution of benefits in projects which provide service benefits, 
EDA may require that applicants submit a project service map and 
information on which to determine that services are provided to all 
segments of the area being assisted. Applicants may be required to 
submit any other information EDA may deem necessary for such 
determination.
    (f) EDA assisted planning organizations must meet the following 
requirements:
    (1) For the selection of representatives, EDA expects planning 
organizations and CEDS committees to take appropriate steps to ensure, 
where appropriate to the area, that there is adequate representation of 
minority and low-income populations, women, people with disabilities and 
Federal and State recognized American Indian tribes and that such 
representation is accomplished in a nondiscriminatory manner; and
    (2) EDA assisted planning organizations and CEDS committees shall 
take appropriate steps to ensure that no individual will be subject to 
discrimination in employment because of their race, color, national 
origin, sex, age or disability.

[[Page 593]]

    (3) Prior to approval of EDA initial funding, and for district 
designations, each district and other planning organizations so 
supported by EDA is required to report to EDA the membership of its 
governing bodies, executive committees, and staff. This report shall 
include the following items:
    (i) The total population and minority population of the area served 
by the organization;
    (ii) A list of organizations in the area representing the interests 
of minorities, women, and people with disabilities;
    (iii) A list of the membership of the governing board, executive 
committee indicating race, sex, national origin, age, and those who 
self-identify, as having disabilities;
    (iv) A description of actions taken and methods used in its 
diversity efforts to promote, as much as possible, the participation of 
all segments of the areas served;
    (v) Information regarding how they notified and provided 
organizations, including neighborhood associations representing the 
interests of minorities, women, and people with disabilities, the 
opportunity to select members and their own representatives;
    (vi) A list of employees on the staff of the organization by name, 
position title, salary, funding source, and hiring date, indicating 
race, sex, national origin, and age; and
    (vii) A brief summary of any economic development activities 
undertaken during the previous 12 months that may have impacted the 
covered persons in the area. This information is required with the 
initial application and annually thereafter for continuation planning 
funding.
    (4) Prior to approval of continuation funding for a planning grant 
each district and other planning organization so supported by EDA is 
required to submit a report which includes the items outlined in 
paragraph (f)(3) of this section except items in paragraphs (f)(3)(ii) 
and (v), (although paragraph (f)(3)(v) may be required when changes to 
the boards and committees affecting minorities, women, people with 
disabilities have occurred), and a summary indicating the annual 
progress made in the diversity efforts including a list by name, race, 
national origin, sex, and age of all hires, promotions, terminations, 
and composition of applicant pools since the last reporting period and 
steps taken to ensure nondiscrimination and to provide equal employment 
opportunity.
    (5) In order to determine whether districts and other planning 
organizations supported by EDA are complying with the requirements in 
paragraph (f)(4) of this section, EDA shall conduct annual compliance 
reviews of these organizations through either an in-depth desk audit or 
onsite review.
    (g) Applicants for Revolving Loan Funds will provide information 
describing the make-up of the existing or proposed RLF Loan Board 
members by race, national origin, gender, age, and those who voluntarily 
self-identify as having disabilities. The reports submitted to EDA by 
RLF grantees will be used to monitor civil rights compliance. Additional 
information may be requested as needed to determine compliance. 
Compliance issues which will be reviewed and monitored include, but are 
not limited to, the following:
    (1) The representation of minorities, women, and those who 
voluntarily self-identify as having disabilities, as well as the age of 
members on the RLF Loan Board;
    (2) Recipient's plans to openly market the RLF to prospective 
minority, disabled, and women business borrowers; and
    (3) Recipient's monitoring plans for borrowers' compliance with 
civil rights requirements concerning employees or applicants for 
employment, and/or providers of goods and services.
    (h) Reporting and other procedural matters are set forth in 15 CFR 
parts 8, 8b, 8c, and 20 and the Civil Rights Guidelines which are 
available from EDA's Regional Offices. See part 300 of this chapter.

[64 FR 5485, Feb. 3, 1999, as amended at 64 FR 69880, Dec. 14, 1999; 65 
FR 71026, Nov. 28, 2000]



PART 318--EVALUATIONS OF UNIVERSITY CENTERS AND ECONOMIC DEVELOPMENT DISTRICTS--Table of Contents




Sec.
318.1  University Center performance evaluations.

[[Page 594]]

318.2  Economic Development District performance evaluations.

    Authority: 42 U.S.C. 3211; Department of Commerce Organization Order 
10-4.

    Source: 64 FR 5486, Feb. 3, 1999, unless otherwise noted.



Sec. 318.1  University Center performance evaluations.

    (a) EDA will evaluate the performance of each University Center. EDA 
will:
    (1) Evaluate each University Center at least once every three years;
    (2) Assess the University Center's contribution to providing 
technical assistance, conducting applied research, and disseminating 
project results, in accordance with the scope(s) of work funded during 
the evaluation period; and
    (3) For peer review, ensure the participation of at least one other 
University Center, as appropriate, in the evaluation on a cost-
reimbursement basis.
    (b) A purpose of the evaluation is to determine if the University 
Center should continue to receive funding under the program.

[64 FR 5486, Feb. 3, 1999, as amended at 64 FR 69881, Dec. 14, 1999]



Sec. 318.2  Economic Development District performance evaluations.

    EDA will evaluate the performance of each Economic Development 
District. EDA will:
    (a) Evaluate each Economic Development District at least once every 
three years;
    (b) Assess the Economic Development District's management standards, 
financial accountability, and program performance; and
    (c) For peer review, ensure the participation of at least one other 
Economic Development District organization, as appropriate, in the 
evaluation on a cost-reimbursement basis.

[64 FR 5486, Feb. 3, 1999, as amended at 64 FR 69881, Dec. 14, 1999]

[[Page 595]]



            CHAPTER IV--EMERGENCY STEEL GUARANTEE LOAN BOARD




  --------------------------------------------------------------------

Part                                                                Page
400             Emergency Steel Guarantee Loan Program......         597

[[Page 597]]



PART 400--EMERGENCY STEEL GUARANTEE LOAN PROGRAM--Table of Contents




                           Subpart A--General

Sec.
400.1  Purpose.
400.2  Definitions.

                       Subpart B--Board Procedures

400.100  Purpose and scope.
400.101  Composition of the Board.
400.102  Authority of the Board.
400.103  Offices.
400.104  Meetings and actions of the Board.
400.105  Staff.
400.106  Ex parte communications.
400.107  Freedom of Information Act.
400.108  Restrictions on lobbying.
400.109  Government-wide debarment and suspension (nonprocurement).
400.110  Amendments.

                    Subpart C--Steel Guarantee Loans

400.200  Eligible Borrower.
400.201  Eligible Lender.
400.202  Loan amount.
400.203  Guarantee percentage.
400.204  Loan terms.
400.205  Application process.
400.206  Environmental requirements.
400.207  Application evaluation.
400.208  Issuance of the Guarantee.
400.209  Funding for the Program.
400.210  Assignment or transfer of loans.
400.211  Lender responsibilities.
400.212  Guarantee.
400.213  Termination of obligations.
400.214  Participations in guaranteed loans.
400.215  Supplemental Guarantees.

    Authority: Pub. L. 106-51, 113 Stat. 252 (15 U.S.C. 1841 note); Pub. 
L. 106-102, 113 Stat. 1338.

    Source: 64 FR 57933, Oct. 27, 1999, unless otherwise noted.



                           Subpart A--General



Sec. 400.1  Purpose.

    This part is issued by the Emergency Steel Guarantee Loan Board 
pursuant to section 552 of title 5 of the United States Code and the 
Emergency Steel Loan Guarantee Act of 1999, Chapter 1 of Public Law 106-
51, 113 Stat. 252, as amended by section 734 of Public Law 106-102, 113 
Stat. 1338, the Gramm-Leach-Bliley Financial Modernization Act (1999).

[65 FR 70293, Nov. 22, 2000]



Sec. 400.2  Definitions.

    (a) Act means the Emergency Steel Loan Guarantee Act of 1999, 
Chapter 1 of Public Law 106-51 (113 Stat. 252), as amended.
    (b) Administer, administering and administration, mean the Lender's 
actions in making, disbursing, servicing (including, but not limited to 
care, preservation and maintenance of collateral), collecting and 
liquidating a loan and security.
    (c) Agent means that Lender authorized to take such actions, 
exercise such powers, and perform such duties on behalf and in 
representation of all Lenders party to a Guarantee of a single loan, as 
is required by, or necessarily incidental to, the terms and conditions 
of the Guarantee.
    (d) Applicant means the private banking or investment institution 
applying for a loan guarantee under this part.
    (e) Board means the Emergency Steel Guarantee Loan Board.
    (f) Borrower means a Qualified Steel Company which could receive a 
loan guaranteed by the Board under this Program.
    (g) Guarantee means the written agreement between the Board and one 
or more Lenders, and approved by the Borrower, pursuant to which the 
Board guarantees repayment of a specified percentage of the principal of 
the loan, including the Special Terms and Conditions, the General Terms 
and Conditions, and all exhibits thereto.
    (h) Guaranteed Portion means the portion of the principal of a loan 
that is subject to the Guarantee.
    (i) Lender means a private banking or investment institution, 
eligible under Sec. 400.201, that is a party to a Guarantee issued by 
the Board. With respect to a Guarantee of a single loan to which more 
than one Lender is a party, the term Lender means Agent.
    (j) Loan Documents mean the loan agreement and all other 
instruments, and all documentation between the Lender and the Borrower 
evidencing the making, disbursing, securing, collecting, or otherwise 
administering of the loan. It includes any agreement and other documents 
relating to a Supplemental Guarantee. Loan Documents may not be modified 
without the prior written approval of the Board.

[[Page 598]]

    (k) Program means the Emergency Steel Guarantee Loan Program 
established by the Act.
    (l) Security means all property, real or personal, required by the 
provisions of the Guarantee or by the Loan Documents to secure repayment 
of any indebtedness of the Borrower under the Loan Documents or 
Guarantee. It does not include a Supplemental Guarantee.
    (m) Qualified Steel Company means a company that is incorporated 
under the laws of any State; is engaged in the production and 
manufacture of a product defined by the American Iron and Steel 
Institute as a basic steel mill product, including ingots, slab and 
billets, plates, flat-rolled steel, sections and structural products, 
bars, rail type products, pipe and tube, and wire rod; and has 
experienced layoffs, production losses, or financial losses since 
January 1, 1998. An iron ore company incorporated under the law of any 
state is considered a Qualified Steel Company for purposes of the 
Program.
    (n) Supplemental Guarantee means a guarantee provided by one or more 
third parties, public or private, of part of the Unguaranteed Portion of 
a guaranteed loan.
    (o) Unguaranteed Portion means the portion of the principal of a 
loan that is not covered by the Guarantee.

[64 FR 57933, Oct. 27, 1999, as amended at 65 FR 24104, Apr. 25, 2000; 
66 FR 53079, Oct. 19, 2001]



                       Subpart B--Board Procedures



Sec. 400.100  Purpose and scope.

    This subpart describes the Board's authorities and organizational 
structure, the means and rules by which the Board takes actions, and 
procedures for public access to Board records.



Sec. 400.101  Composition of the Board.

    The Board consists of the Chairman of the Board of Governors of the 
Federal Reserve System, who acts as Chairman of the Board, the Chairman 
of the Securities and Exchange Commission, and the Secretary of 
Commerce.



Sec. 400.102  Authority of the Board.

    Pursuant to the provisions of the Act, the Board is authorized to 
guarantee loans provided to Qualified Steel Companies by private banking 
and investment institutions in accordance with the procedures, rules, 
and regulations established by the Board, to make the determinations 
authorized by the Act, and to take such other actions as necessary to 
carry out its functions in accordance with the Act.



Sec. 400.103  Offices.

    The principal offices of the Board are located at 1099--14th Street, 
NW, Suite 2600 East, Washington, DC 20005.

[65 FR 70293, Nov. 22, 2000]



Sec. 400.104  Meetings and actions of the Board.

    (a) Place and frequency. The Board meets, on the call of the 
Chairman, in order to consider matters requiring action by the Board. 
Time and place for any such meeting shall be determined by the members 
of the Board.
    (b) Quorum and voting. Two voting members of the Board constitute a 
quorum for the transaction of business. All decisions and determinations 
of the Board shall be made by a majority vote of the voting members. All 
votes on determinations of the Board required by the Act shall be 
recorded in the minutes. A Board member may request that any vote be 
recorded according to individual Board members.
    (c) Agenda of meetings. To the extent practicable, an agenda for 
each meeting shall be distributed to members of the Board at least two 
days in advance of the date of the meeting, together with copies of 
materials relevant to the agenda items.
    (d) Minutes. The Secretary of the Board shall keep minutes of each 
Board meeting and of action taken without a meeting, a draft of which is 
to be distributed to each member of the Board as soon as practicable 
after each meeting or action. To the extent practicable, the minutes of 
a Board meeting shall be corrected and approved at the next meeting of 
the Board.
    (e) Use of conference call communications equipment. Any member may 
participate in a meeting of the Board

[[Page 599]]

through the use of conference call, telephone or similar communications 
equipment, by means of which all persons participating in the meeting 
can simultaneously speak to and hear each other. Any member so 
participating in a meeting shall be deemed present for all purposes. 
Actions taken by the Board at meetings conducted through the use of such 
equipment, including the votes of each member, shall be recorded in the 
usual manner in the minutes of the meetings of the Board.
    (f) Actions between meetings. When, in the judgment of the Chairman, 
circumstances occur making it desirable for the Board to consider action 
when it is not feasible to call a meeting, the relevant information and 
recommendations for action may be transmitted to the members by the 
Secretary of the Board and the voting members may communicate their 
votes to the Chairman in writing (including an action signed in 
counterpart by each Board member), electronically, or orally (including 
telephone communication). Any action taken under this paragraph has the 
same effect as an action taken at a meeting. Any such action shall be 
recorded in the minutes.
    (g) Delegations of authority. The Board may delegate authority, 
subject to such terms and conditions as the Board deems appropriate, to 
the Executive Director, the General Counsel, or the Secretary of the 
Board, to take certain actions not required by the Act to be taken by 
the Board. All delegations shall be made pursuant to resolutions of the 
Board and recorded in writing, whether in the minutes of a meeting or 
otherwise. Any action taken pursuant to delegated authority has the 
effect of an action taken by the Board.



Sec. 400.105  Staff.

    (a) Executive Director. The Executive Director of the Board advises 
and assists the Board in carrying out its responsibilities under the 
Act, provides general direction with respect to the administration of 
the Board's actions, directs the activities of the staff, and performs 
such other duties as the Board may require.
    (b) General Counsel. The General Counsel of the Board provides legal 
advice relating to the responsibilities of the Board and performs such 
other duties as the Board may require.
    (c) Secretary of the Board. The Secretary of the Board sends notice 
of all meetings, prepares minutes of all meetings, maintains a complete 
record of all votes and actions taken by the Board, has custody of all 
records of the Board and performs such other duties as the Board may 
require.
    (d) An individual may hold more than one staff position.

[64 FR 57933, Oct. 27, 1999, as amended at 65 FR 70293, Nov. 22, 2000]



Sec. 400.106  Ex parte communications.

    Oral or written communication, not on the public record, between any 
member of the Board and any party or parties interested in any matter 
pending before the Board concerning the substance of that matter is 
prohibited.

[66 FR 53079, Oct. 19, 2001]



Sec. 400.107  Freedom of Information Act.

    (a) Definitions. All terms used in this section which are defined in 
5 U.S.C. 551 or 5 U.S.C. 552 shall have the same meaning in this 
section. In addition the following definitions apply to this section:
    (1) FOIA, as used in this section, means the ``Freedom of 
Information Act,'' as amended, 5 U.S.C. 552.
    (2) Commercial use request means a request from or on behalf of one 
who seeks information for a use or purpose that furthers the commercial, 
trade, or profit interests of the requester or the person on whose 
behalf the request is made.
    (3) Direct costs mean those expenditures that the Board actually 
incurs in searching for, reviewing, and duplicating documents in 
response to a request made under paragraph (c) of this section. Direct 
costs include, for example, the labor costs of the employee performing 
the work (the basic rate of pay for the employee, plus 16 percent of 
that rate to cover benefits). Not included in direct costs are overhead 
expenses such as the costs of space and heating or lighting of the 
facility in which the records are kept.
    (4) Duplication means the process of making a copy of a document in 
response to a request for disclosure of

[[Page 600]]

records or for inspection of original records that contain exempt 
material or that otherwise cannot be inspected directly. Among others, 
such copies may take the form of paper, microfilm, audiovisual 
materials, or machine-readable documentation (e.g., magnetic tape or 
disk).
    (5) Educational institution means a preschool, a public or private 
elementary or secondary school, or an institution of undergraduate 
higher education, graduate higher education, professional education, or 
an institution of vocational education that operates a program of 
scholarly research.
    (6) Noncommercial scientific institution refers to an institution 
that is not operated on a ``commercial'' basis (as that term is used in 
this section) and which is operated solely for the purpose of conducting 
scientific research, the results of which are not intended to promote 
any particular product or industry.
    (7) News means information about current events or that would be of 
current interest to the public. Examples of news media entities include, 
but are not limited to, television or radio stations broadcasting to the 
public at large, and publishers of newspapers and other periodicals (but 
only in those instances when they can qualify as disseminators of 
``news'') who make their products available for purchase or subscription 
by the general public. ``Freelance'' journalists may be regarded as 
working for a news organization if they can demonstrate a solid basis 
for expecting publication through that organization, even though not 
actually employed by it.
    (8) Representative of the news media means any person actively 
gathering news for an entity that is organized and operated to publish 
or broadcast news to the general public.
    (9) Review means the process of examining documents, located in 
response to a request for access, to determine whether any portion of a 
document is exempt information. It includes doing all that is necessary 
to excise the documents and otherwise to prepare them for release. 
Review does not include time spent resolving general legal or policy 
issues regarding the application of exemptions.
    (10) Search means the process of looking for material that is 
responsive to a request, including page-by-page or line-by-line 
identification within documents. Searches may be done manually or by 
computer.
    (b) Records available for public inspection and copying--(1) Types 
of records made available. The information in this section is furnished 
for the guidance of the public and in compliance with the requirements 
of the Freedom of Information FOIA, as amended (5 U.S.C. 552)(FOIA). 
This section sets forth the procedures the Board follows to make 
publicly available the materials specified in 5 U.S.C. 552(a)(2). These 
materials shall be made available for inspection and copying at the 
Board's Freedom of Information Office pursuant to 5 U.S.C. 552(a)(2). 
Information routinely provided to the public as part of a regular Board 
activity (for example, press releases) may be provided to the public 
without following this section.
    (2) Reading room procedures. Information available under this 
section is available for inspection and copying, from 9:00 a.m. to 5:00 
p.m. weekdays, at the Freedom of Information Office of the Board, Steel 
Guarantee Loan Board, U.S. Department of Commerce, Washington, DC 20230.
    (3) Electronic records. Information available under this section 
that was created on or after November 1, 1996, shall also be available 
on the Board's website found at http://elb.osec.doc.gov and at http://
elb.commerce.gov.
    (c) Records available to the public on request--(1) Types of records 
made available. All records of the Board that are not available under 
paragraph (b) of this section shall be made available upon request, 
pursuant to the procedures in this section and the exceptions set forth 
in the FOIA. The Board's policy is to make discretionary disclosures of 
records or information exempt from disclosure under the FOIA whenever 
disclosure would not foreseeably harm an interest protected by a FOIA 
exemption, but this policy does not create any right enforceable in 
court.
    (2) Procedures for requesting records. A request for records shall 
reasonably describe the records in a way that enables the Board's staff 
to identify and

[[Page 601]]

produce the records with reasonable effort and without unduly burdening 
or significantly interfering with any of the Board's operations. The 
request shall be submitted in writing to the Secretary of the Board, 
Steel Guarantee Loan Board, U.S. Department of Commerce, Washington, DC 
20230; or sent by facsimile to the Secretary of the Board. The request 
shall be clearly marked FREEDOM OF INFORMATION ACT REQUEST.
    (3) Contents of request. The request shall contain the following 
information:
    (i) The name and address of the requester, and the telephone number 
at which the requester can be reached during normal business hours;
    (ii) Whether the requested information is intended for commercial 
use, or whether the requester represents an educational or noncommercial 
scientific institution, or news media;
    (iii) A statement agreeing to pay the applicable fees, or a 
statement identifying any fee limitation desired, or a request for a 
waiver or reduction of fees that satisfies paragraph (f) of this 
section.
    (d) Processing requests--(1) Priority of responses. The date of 
receipt for any request, including one that is addressed incorrectly or 
that is referred to the Board by another agency, is the date the 
Secretary of the Board actually receives the request. The Secretary of 
the Board shall normally process requests in the order they are 
received. However, in the Secretary of the Board's discretion, the Board 
may use two or more processing tracks by distinguishing between simple 
and more complex requests based on the number of pages involved, or some 
other measure of the amount of work and/or time needed to process the 
request, and whether the request qualifies for expedited processing as 
described in paragraph (d)(2), of this section. When using multitrack 
processing, the Secretary of the Board may provide requesters in the 
slower track(s) with an opportunity to limit the scope of their requests 
in order to qualify for faster processing. The Secretary of the Board 
shall contact the requester by telephone or by letter, whichever is most 
efficient in each case.
    (2) Expedited processing. (i) A person may request expedited access 
to records by submitting a statement, certified to be true and correct 
to the best of that person's knowledge and belief, that demonstrates a 
compelling need for the records, as defined in 5 U.S.C. 552(a)(6)(E)(v).
    (ii) The Secretary of the Board shall notify a requester of the 
determination whether to grant or deny a request for expedited 
processing within ten working days of receipt of the request. If the 
Secretary of the Board grants the request for expedited processing, the 
Board shall process the request for access to information as soon as 
practicable. If the Secretary of the Board denies a request for 
expedited processing, the requester may file an appeal pursuant to the 
procedures set forth in paragraph (e) of this section, and the Board 
shall respond to the appeal within twenty days after the appeal was 
received by the Board.
    (3) Time limits. The time for response to requests shall be 20 
working days, except:
    (i) In the case of expedited treatment under paragraph (d)(2) of 
this section;
    (ii) Where the running of such time is suspended for payment of fees 
pursuant to paragraph (f)(2)(ii) of this section;
    (iii) Where the estimated charge is less than $250, and the 
requester does not guarantee payment pursuant to paragraph (f)(2)(i) of 
this section; or
    (iv) In unusual circumstances, as defined in 5 U.S.C. 
552(a)(6)(B)(iii), the time limit may be extended for a period of time 
not to exceed 10 working days as provided by written notice to the 
requester, setting forth the reasons for the extension and the date on 
which a determination is expected to be dispatched; or such alternative 
time period as mutually agreed to by the Secretary of the Board and the 
requester when the Secretary of the Board notifies the requester that 
the request cannot be processed in the specified time limit.
    (4) Response to request. In response to a request that satisfies 
paragraph (c) of this section, an appropriate search shall be conducted 
of records in the custody and control of the Board on the date of 
receipt of the request, and

[[Page 602]]

a review made of any responsive information located. The Secretary of 
the Board shall notify the requester of:
    (i) The Secretary of the Board's determination of the request and 
the reasons therefor;
    (ii) The information withheld, and the basis for withholding; and
    (iii) The right to appeal any denial or partial denial, pursuant to 
paragraph (e) of this section.
    (5) Referral to another agency. To the extent a request covers 
documents that were created by, obtained from, classified by, or is in 
the primary interest of another agency, the Secretary of the Board may 
refer the request to that agency for a direct response by that agency 
and inform the requester promptly of the referral. The Secretary of the 
Board shall consult with another Federal agency before responding to a 
requester if the Board receives a request for a record in which:
    (i) Another Federal agency subject to the FOIA has a significant 
interest, but not the primary interest; or
    (ii) Another Federal agency not subject to the FOIA has the primary 
interest or a significant interest. Ordinarily, the agency that 
originated a record will be presumed to have the primary interest in it.
    (6) Providing responsive records. (i) A copy of records or portions 
of records responsive to the request shall be sent to the requester by 
regular U.S. mail to the address indicated in the request, unless the 
requester elects to take delivery of the documents at the Board's 
Freedom of Information Office or makes other acceptable arrangements, or 
the Secretary of the Board deems it appropriate to send the documents by 
another means. The Secretary of the Board shall provide a copy of the 
record in any form or format requested if the record is readily 
reproducible in that form or format, but the Secretary of the Board need 
not provide more than one copy of any record to a requester.
    (ii) The Secretary of the Board shall provide any reasonably 
segregable portion of a record that is responsive to the request after 
deleting those portions that are exempt under the FOIA or this section.
    (iii) Except where disclosure is expressly prohibited by statute, 
regulation, or order, the Secretary of the Board may authorize the 
release of records that are exempt from mandatory disclosure whenever 
the Board or designated Board members determine that there would be no 
foreseeable harm in such disclosure.
    (iv) The Board is not required in response to the request to create 
records or otherwise to prepare new records.
    (7) Prohibition against disclosure. Except as provided in this part, 
no officer, employee, or agent of the Board shall disclose or permit the 
disclosure of any unpublished information of the Board to any person 
(other than Board officers, employees, or agents properly entitled to 
such information for the performance of official duties), unless 
required by law.
    (e) Appeals. (1) Any person denied access to Board records requested 
under paragraph (c) of this section, denied expedited processing under 
paragraph (d) of this section, or denied a waiver of fees under 
paragraph (f) of this section may file a written appeal within 30 
calendar days after the date of such denial with the Board. The written 
appeal shall prominently display the phrase FREEDOM OF INFORMATION ACT 
APPEAL on the first page, and shall be addressed to the General Counsel 
of the Board, Steel Guarantee Loan Board, U.S. Department of Commerce, 
Washington, DC 20230; or sent by facsimile to the General Counsel of the 
Board. The appeal shall include a copy of the original request, the 
initial denial, if any, and a statement of the reasons why the requested 
records should be made available and why the initial denial was in 
error.
    (2) The General Counsel of the Board shall make a determination 
regarding any appeal within 20 working days of actual receipt of the 
appeal, and the determination letter shall notify the appealing party of 
the right to seek judicial review in event of denial.
    (f) Fee schedules; waiver of fees--
    (1) Fee schedule. The fees applicable to a request for records 
pursuant to paragraph (c) of this section are set forth in the uniform 
fee schedule at the end of this paragraph (f).

[[Page 603]]

    (i) Search. (A) Search fees shall be charged for all requests--other 
than requests made by educational institutions, noncommercial scientific 
institutions, or representatives of the news media--subject to the 
limitations of paragraph (f)(1)(iv) of this section. The Secretary of 
the Board shall charge for time spent searching even if no responsive 
record is located or if the Secretary of the Board withholds the 
record(s) located as entirely exempt from disclosure.
    Search fees shall be the direct costs of conducting the search by 
the involved employees.
    (B) For computer searches of records, requesters will be charged the 
direct costs of conducting the search, although certain requesters (as 
provided in paragraph (f)(3) of this section will be charged no search 
fee and certain other requesters (as provided in paragraph (f)(3)) are 
entitled to the cost equivalent of two hours of manual search time 
without charge. These direct costs include the costs, attributable to 
the search, of operating a central processing unit and operator/
programmer salary.
    (ii) Duplication. Duplication fees will be charged to all 
requesters, subject to the limitations of paragraph (f)(1)(iv) of this 
section. For a paper photocopy of a record (no more than one copy of 
which need be supplied), the fee shall be 15 cents per page. For copies 
produced by computer, such as tapes or printouts, the Secretary of the 
Board shall charge the direct costs, including operator time, of 
producing the copy. For other forms of duplication, the Secretary of the 
Board will charge the direct costs of that duplication.
    (iii) Review. Review fees shall be charged to requesters who make a 
commercial use request. Review fees shall be charged only for the 
initial record review--the review done when the Secretary of the Board 
determines whether an exemption applies to a particular record at the 
initial request level. No charge will be made for review at the 
administrative appeal level for an exemption already applied. However, 
records withheld under an exemption that is subsequently determined not 
to apply may be reviewed again to determine whether any other exemption 
not previously considered applies, and the costs of that review are 
chargeable. Review fees shall be the direct costs of conducting the 
review by the involved employees.
    (iv) Limitations on charging fees. (A) No search fee will be charged 
for requests by educational institutions, noncommercial scientific 
institutions, or representatives of the news media.
    (B) No search fee or review fee will be charged for a quarter-hour 
period unless more than half of that period is required for search or 
review.
    (C) Whenever a total fee calculated under this paragraph is $25 or 
less for any request, no fee will be charged.
    (D) For requesters other than those seeking records for a commercial 
use, no fee will be charged unless the cost of search in excess of two 
hours plus the cost of duplication in excess of 100 pages totals more 
than $25.
    (2) Payment procedures. All persons requesting records pursuant to 
paragraph (c) of this section shall pay the applicable fees before the 
Secretary of the Board sends copies of the requested records, unless a 
fee waiver has been granted pursuant to paragraph (f)(6) of this 
section. Requesters must pay fees by check or money order made payable 
to the Treasury of the United States.
    (i) Advance notification of fees. If the estimated charges are 
likely to exceed $25, the Secretary of the Board shall notify the 
requester of the estimated amount, unless the requester has indicated a 
willingness to pay fees as high as those anticipated. Upon receipt of 
such notice, the requester may confer with the Secretary of the Board to 
reformulate the request to lower the costs. The processing of the 
request shall be suspended until the requester provides the Secretary of 
the Board with a written guarantee that payment will be made upon 
completion of the processing.
    (ii) Advance payment. The Secretary of the Board shall require 
advance payment of any fee estimated to exceed $250. The Secretary of 
the Board shall also require full payment in advance where a requester 
has previously failed to pay a fee in a timely fashion. If an advance 
payment of an estimated fee exceeds the actual total fee by $1 or more, 
the difference shall be refunded

[[Page 604]]

to the requester. The time period for responding to requests under 
paragraph (d)(4) of this section, and the processing of the request 
shall be suspended until the Secretary of the Board receives the 
required payment.
    (iii) Late charges. The Secretary of the Board may assess interest 
charges when fee payment is not made within 30 days of the date on which 
the billing was sent. Assessment of such interest will commence on the 
31st day following the day on which the billing was sent. Interest is at 
the rate prescribed in 31 U.S.C. 3717.
    (3) Categories of uses. The fees assessed depend upon the fee 
category. In determining which category is appropriate, the Secretary of 
the Board shall look to the identity of the requester and the intended 
use set forth in the request for records. Where a requester's 
description of the use is insufficient to make a determination, the 
Secretary of the Board may seek additional clarification before 
categorizing the request.
    (i) Commercial use requester. The fees for search, duplication, and 
review apply when records are requested for commercial use.
    (ii) Educational, non-commercial scientific institutions, or 
representatives of the news media requesters. The fees for duplication 
apply when records are not sought for commercial use, and the requester 
is a representative of the news media or an educational or noncommercial 
scientific institution, whose purpose is scholarly or scientific 
research. The first 100 pages of duplication, however, will be provided 
free.
    (iii) All other requesters. For all other requests, the fees for 
search and duplication apply. The first two hours of search time and the 
first 100 pages of duplication, however, will be provided free.
    (4) Nonproductive search. Fees for search may be charged even if no 
responsive documents are found. Fees for search and review may be 
charged even if the request is denied.
    (5) Aggregated requests. A requester may not file multiple requests 
at the same time, solely in order to avoid payment of fees. If the 
Secretary of the Board reasonably believes that a requester is 
separating a request into a series of requests for the purpose of 
evading the assessment of fees or that several requesters appear to be 
acting together to submit multiple requests solely in order to avoid 
payment of fees, the Secretary of the Board may aggregate such requests 
and charge accordingly. It is considered reasonable for the Secretary of 
the Board to presume that multiple requests by one requester on the same 
topic made within a 30-day period have been made to avoid fees.
    (6) Waiver or reduction of fees. A request for a waiver or reduction 
of the fees, and the justification for the waiver, shall be included 
with the request for records to which it pertains. If a waiver is 
requested and the requester has not indicated in writing an agreement to 
pay the applicable fees if the waiver request is denied, the time for 
response to the request for documents, as set forth in under paragraph 
(d)(4) of this section, shall not begin until a determination has been 
made on the request for a waiver or reduction of fees.
    (i) Standards for determining waiver or reduction. The Secretary of 
the Board may grant a waiver or reduction of fees where it is determined 
both that disclosure of the information is in the public interest 
because it is likely to contribute significantly to public understanding 
of the operation or activities of the government, and that the 
disclosure of information is not primarily in the commercial interest of 
the requester. In making this determination, the following factors shall 
be considered:
    (A) Whether the subject of the records concerns the operations or 
activities of the government;
    (B) Whether disclosure of the information is likely to contribute 
significantly to public understanding of government operations or 
activities;
    (C) Whether the requester has the intention and ability to 
disseminate the information to the public;
    (D) Whether the information is already in the public domain;
    (E) Whether the requester has a commercial interest that would be 
furthered by the disclosure; and, if so,
    (F) Whether the magnitude of the identified commercial interest of 
the

[[Page 605]]

requester is sufficiently large, in comparison with the public interest 
in disclosure, that disclosure is primarily in the commercial interest 
of the requester.
    (ii) Contents of request for waiver. A request for a waiver or 
reduction of fees shall include a clear statement of how the request 
satisfies the criteria set forth in paragraph (f)(6)(i) of this section.
    (iii) Burden of proof. The burden shall be on the requester to 
present evidence or information in support of a request for a waiver or 
reduction of fees.
    (iv) Determination by Secretary of the Board. The Secretary of the 
Board shall make a determination on the request for a waiver or 
reduction of fees and shall notify the requester accordingly. A denial 
may be appealed to the Board in accordance with paragraph (e) of this 
section.
    (7) Uniform fee schedule.

------------------------------------------------------------------------
                  Service                               Rate
------------------------------------------------------------------------
(i) Manual search.........................  Actual salary rate of
                                             employee involved, plus 16
                                             percent of salary rate.
(ii) Computerized search..................  Actual direct cost,
                                             including operator time.
(iii) Duplication of records:
    (A) Paper copy reproduction...........  $.15 per page
    (B) Other reproduction (e.g., computer  Actual direct cost,
     disk or printout, microfilm,            including operator time.
     microfiche, or microform).
(iv) Review of records (includes            Actual salary rate of
 preparation for release, i.e. excising).    employee conducting review,
                                             plus 16 percent of salary
                                             rate.
------------------------------------------------------------------------

    (g) Reuest for confidential treatment of business information--(1) 
Submission of request. Any submitter of information to the Board who 
desires confidential treatment of business information pursuant to 5 
U.S.C. 552(b)(4) shall file a request for confidential treatment with 
the Board at the time the information is submitted or a reasonable time 
after submission.
    (2) Form of request. Each request for confidential treatment of 
business information shall state in reasonable detail the facts 
supporting the commercial or financial nature of the business 
information and the legal justification under which the business 
information should be protected. Conclusory statements that release of 
the information would cause competitive harm generally will not be 
considered sufficient to justify confidential treatment.
    (3) Designation and separation of confidential material. All 
information considered confidential by a submitter shall be clearly 
designated ``PROPRIETARY'' or ``BUSINESS CONFIDENTIAL'' in the 
submission and separated from information for which confidential 
treatment is not requested. Failure to segregate confidential commercial 
or financial information from other material may result in release of 
the nonsegregated material to the public without notice to the 
submitter.
    (h) Request for access to confidential commercial or financial 
information.--(1) Request for confidential commercial or financial 
information. A request by a submitter for confidential treatment of any 
business information shall be considered in connection with a request 
for access to that information.
    (2) Notice to the submitter. (i) The Secretary of the Board shall 
notify a submitter who requested confidential treatment of information 
pursuant to 5 U.S.C. 552(b)(4), of the request for access.
    (ii) Absent a request for confidential treatment, the Secretary of 
the Board may notify a submitter of a request for access to submitter's 
business information if the Secretary of the Board reasonably believes 
that disclosure of the information may cause substantial competitive 
harm to the submitter.
    (iii) The notice given to the submitter by mail, return receipt 
requested, shall be given as soon as practicable after receipt of the 
request for access, and shall describe the request and provide the 
submitter seven working days from the date of notice, to submit written 
objections to disclosure of the information. Such statement shall 
specify all grounds for withholding any of the information and shall 
demonstrate why the information which is considered to be commercial or 
financial information, and that the information is a trade secret, is 
privileged or confidential, or that its disclosure is likely to cause 
substantial competitive harm to the submitter. If the submitter fails to 
respond to the notice within the time specified, the submitter will be 
considered to have no

[[Page 606]]

objection to the release of the information. Information a submitter 
provides under this paragraph may itself be subject to disclosure under 
the FOIA.
    (3) Exceptions to notice to submitter. Notice to the submitter need 
not be given if:
    (i) The Secretary of the Board determines that the request for 
access should be denied;
    (ii) The requested information lawfully has been made available to 
the public;
    (iii) Disclosure of the information is required by law (other than 5 
U.S.C. 552); or
    (iv) The submitter's claim of confidentiality under 5 U.S.C. 
552(b)(4) appears obviously frivolous or has already been denied by the 
Secretary of the Board, except that in this last instance the Secretary 
of the Board shall give the submitter written notice of the 
determination to disclose the information at least seven working days 
prior to disclosure.
    (4) Notice to requester. At the same time the Secretary of the Board 
notifies the submitter, the Secretary of the Board also shall notify the 
requester that the request is subject to the provisions of this section.
    (5) Determination by Secretary of the Board. The Secretary of the 
Board's determination whether or not to disclose any information for 
which confidential treatment has been requested pursuant to this section 
shall be communicated to the submitter and the requester immediately. If 
the Secretary of the Board determines to disclose the business 
information over the objection of a submitter, the Secretary of the 
Board shall give the submitter written notice via mail, return receipt 
requested, or similar means, which shall include:
    (i) A statement of reason(s) why the submitter's objections to 
disclosure were not sustained;
    (ii) A description of the business information to be disclosed; and
    (iii) A statement that the component intends to disclose the 
information seven working days from the date the submitter receives the 
notice.
    (6) Notice of lawsuit. The Secretary of the Board shall promptly 
notify any submitter of information covered by this section of the 
filing of any suit against the Board to compel disclosure of such 
information, and shall promptly notify a requester of any suit filed 
against the Board to enjoin the disclosure of requested documents.

[64 FR 57933, Oct. 27, 1999, as amended at 65 FR 70293, Nov. 22, 2000]



Sec. 400.108  Restrictions on lobbying.

    (a) No funds received through a loan guaranteed under this Program 
may be expended by the recipient of a Federal contract, grant, loan, 
loan Guarantee, or cooperative agreement to pay any person for 
influencing or attempting to influence an officer or employee of any 
agency, a Member of Congress, an officer or employee of Congress, or an 
employee of a Member of Congress in connection with any of the following 
covered Federal actions: the awarding of any Federal contract, the 
making of any Federal grant, the making of any Federal loan or loan 
Guarantee, the entering into of any cooperative agreement, and the 
extension, continuation, renewal, amendment, or modification of any 
Federal contract, grant, loan, loan Guarantee, or cooperative agreement.
    (b) Each person who requests or receives from an agency a commitment 
providing for the United States to insure or guarantee a loan shall file 
with that agency a statement, set forth in the application form, whether 
that person has made or has agreed to make any payment to influence or 
attempt to influence an officer or employee of any agency, a Member of 
Congress, an officer or employee of Congress, or an employee of a Member 
of Congress in connection with that loan insurance or Guarantee.
    (c) Each person who requests or receives from an agency a commitment 
providing for the United States to insure or guarantee a loan shall file 
with that agency a Standard Form-LLL if that person has made or has 
agreed to make any payment to influence or attempt to influence an 
officer or employee of any agency, a Member of Congress, an officer or 
employee of Congress, or an employee of a Member of Congress in 
connection with that loan insurance or Guarantee.
    (d) Each person shall file a certification, contained in the 
application

[[Page 607]]

form, and a disclosure form (Standard Form-LLL), if required, with each 
submission that initiates agency consideration of such person for:
    (1) Award of a Federal contract, grant, or cooperative agreement 
exceeding $100,000; or
    (2) An award of a Federal loan or a commitment providing for the 
United States to insure or guarantee a loan exceeding $150,000.
    (e) Each person shall file a certification, and a disclosure form, 
if required, upon receipt by such person of:
    (1) A Federal contract, grant, or cooperative agreement exceeding 
$100,000; or
    (2) A Federal loan or a commitment providing for the United States 
to insure or Guarantee a loan exceeding $150,000, unless such person 
previously filed a certification, and a disclosure form, if required, 
under paragraph (c) of this section.
    (f) Each person shall file a disclosure form at the end of each 
calendar quarter in which there occurs any event that requires 
disclosure or that materially affects the accuracy of the information 
contained in any disclosure form previously filed by such person under 
paragraphs (d) or (e) of this section. An event that materially affects 
the accuracy of the information reported includes:
    (1) A cumulative increase of $25,000 or more in the amount paid or 
expected to be paid for influencing or attempting to influence a covered 
Federal action; or
    (2) A change in the person(s) or individual(s) influencing or 
attempting to influence a covered Federal action; or
    (3) A change in the officer(s), employee(s), or Member(s) contacted 
to influence or attempt to influence a covered Federal action.



Sec. 400.109  Government-wide debarment and suspension (nonprocurement).

    (a) Executive Order (E.O.) 12549 provides that, to the extent 
permitted by law, Executive departments and agencies shall participate 
in a governmentwide system for nonprocurement debarment and suspension. 
A person who is debarred or suspended shall be excluded from Federal 
financial and nonfinancial assistance and benefits under Federal 
programs and activities. Debarment or suspension of a participant in a 
program by one agency shall have governmentwide effect. The Board shall 
review the List of Debarred entities prior to making final loan 
Guarantee decisions. Suspension or debarment may be a basis for denying 
a loan Guarantee.
    (b) This section applies to all persons who have participated, are 
currently participating or may reasonably be expected to participate in 
transactions under Federal nonprocurement programs. For purposes of this 
section such transactions will be referred to as ``covered 
transactions''.
    (1) Covered transaction. For purposes of this section, a covered 
transaction is a primary covered transaction or a lower tier covered 
transaction. Covered transactions at any tier need not involve the 
transfer of Federal funds.
    (i) Primary covered transaction. Except as noted in paragraph (b)(2) 
of this section, a primary covered transaction is any nonprocurement 
transaction between an agency and a person, regardless of type, 
including: grants, cooperative agreements, scholarships, fellowships, 
contracts of assistance, loans, loan Guarantees, subsidies, insurance, 
payments for specified use, donation agreements and any other 
nonprocurement transactions between a Federal agency and a person.
    (ii) Lower tier covered transaction. A lower tier covered 
transaction is:
    (A) Any transaction between a participant and a person other than a 
procurement contract for goods or services, regardless of type, under a 
primary covered transaction;
    (B) Any procurement contract for goods or services between a 
participant and a person, regardless of type, expected to equal or 
exceed the Federal procurement small purchase threshold fixed at 10 
U.S.C. 2304(g) and 41 U.S.C. 253(g) (currently $100,000) under a primary 
covered transaction;
    (C) Any procurement contract for goods or services between a 
participant and a person under a covered transaction, regardless of 
amount, under which that person will have a critical influence on or 
substantive control over that covered transaction. Such persons may 
include loan officers or

[[Page 608]]

chief executive officers acting as principal investigators and providers 
of federally-required audit services.
    (2) Exceptions. The following transactions are not covered:
    (i) Statutory entitlements or mandatory awards (but not subtier 
awards thereunder which are not themselves mandatory), including 
deposited funds insured by the Federal Government;
    (ii) Direct awards to foreign governments or public international 
organizations, or transactions with foreign governments or foreign 
governmental entities, public international organizations, foreign 
government owned (in whole or in part) or controlled entities, entities 
consisting wholly or partially of foreign governments or foreign 
governmental entities;
    (iii) Benefits to an individual as a personal entitlement without 
regard to the individual's present responsibility (but benefits received 
in an individual's business capacity are not excepted);
    (iv) Federal employment;
    (v) Transactions pursuant to national or agency-recognized 
emergencies or disasters;
    (vi) Incidental benefits derived from ordinary governmental 
operations; and
    (vii) Other transactions where the application of this section would 
be prohibited by law.
    (3) Board covered transactions. This section applies to the Board's 
loan Guarantees, subcontracts and transactions at any tier that are 
charges as direct or indirect costs, regardless of type.
    (c) Primary covered transactions. Except to the extent prohibited by 
law, persons who are debarred or suspended shall be excluded from 
primary covered transactions as either participants or principals 
throughout the Executive Branch of the Federal Government for the period 
of their debarment, suspension, or the period they are proposed for 
debarment under 48 CFR part 9, subpart 9.4. Accordingly, no agency shall 
enter into primary covered transactions with such excluded persons 
during such period, except as permitted pursuant to paragraph (l) of 
this section.
    (d) Lower tier covered transactions. Except to the extent prohibited 
by law, persons who have been proposed for debarment under 48 CFR part 
9, subpart 9.4, debarred or suspended shall be excluded from 
participating as either participants or principals in all lower tier 
covered transactions (see paragraph (b)(1)(ii) of this section for the 
period of their exclusion.
    (e) Exceptions. Debarment or suspension does not affect a person's 
eligibility for--
    (1) Statutory entitlements or mandatory awards (but not subtier 
awards thereunder which are not themselves mandatory), including 
deposited funds insured by the Federal Government;
    (2) Direct awards to foreign governments or public international 
organizations, or transactions with foreign governments or foreign 
governmental entities, public international organizations, foreign 
government owned (in whole or in part) or controlled entities, and 
entities consisting wholly or partially of foreign governments or 
foreign governmental entities;
    (3) Benefits to an individual as a personal entitlement without 
regard to the individual's present responsibility (but benefits received 
in an individual's business capacity are not excepted);
    (4) Federal employment;
    (5) Transactions pursuant to national or agency-recognized 
emergencies or disasters;
    (6) Incidental benefits derived from ordinary governmental 
operations; and
    (7) Other transactions where the application of this section would 
be prohibited by law.
    (f) Persons who are ineligible are excluded in accordance with the 
applicable statutory, executive order, or regulatory authority.
    (g) Persons who accept voluntary exclusions are excluded in 
accordance with the terms of their settlements. The Board shall, and 
participants may, contact the original action agency to ascertain the 
extent of the exclusion.
    (h) The Board may grant an exception permitting a debarred, 
suspended, or voluntarily excluded person, or a person proposed for 
debarment under 48 CFR part 9, subpart 9.4, to participate in a 
particular covered transaction upon a written determination by the 
agency head or an authorized designee stating the reason(s) for 
deviating from the Presidential policy established by

[[Page 609]]

Executive Order 12549. However, in accordance with the President's 
stated intention in the Executive Order, exceptions shall be granted 
only infrequently. Exceptions shall be reported in accordance with the 
Executive Order.
    (i) Notwithstanding the debarment, suspension, proposed debarment 
under 48 CFR part 9, subpart 9.4, determination of ineligibility, or 
voluntary exclusion of any person by an agency, agencies and 
participants may continue covered transactions in existence at the time 
the person was debarred, suspended, proposed for debarment under 48 CFR 
part 9, subpart 9.4, declared ineligible, or voluntarily excluded. A 
decision as to the type of termination action, if any, to be taken 
should be made only after thorough review to ensure the propriety of the 
proposed action.
    (j) Agencies and participants shall not renew or extend covered 
transactions (other than no-cost time extensions) with any person who is 
debarred, suspended, proposed for debarment under 48 CFR part 9, subpart 
9.4, ineligible or voluntary excluded, except as provided in paragraph 
(h) of this section.
    (k) Except as permitted under paragraphs (h) or (i) of this section, 
a participant shall not knowingly do business under a covered 
transaction with a person who is--
    (1) Debarred or suspended;
    (2) Proposed for debarment under 48 CFR part 9, subpart 9.4; or
    (3) Ineligible for or voluntarily excluded from the covered 
transaction.
    (l) Violation of the restriction under paragraph (k) of this section 
may result in disallowance of costs, annulment or termination of award, 
issuance of a stop work order, debarment or suspension, or other 
remedies as appropriate.
    (m) A participant may rely upon the certification of a prospective 
participant in a lower tier covered transaction that it and its 
principals are not debarred, suspended, proposed for debarment under 48 
CFR part 9, subpart 9.4, ineligible, or voluntarily excluded from the 
covered transaction, unless it knows that the certification is 
erroneous. An agency has the burden of proof that a participant did 
knowingly do business with a person that filed an erroneous 
certification.



Sec. 400.110  Amendments.

    The Board's rules in this chapter may be adopted or amended, or new 
rules may be adopted, only by majority vote of the Board.

[65 FR 70293, Nov. 22, 2000]



                    Subpart C--Steel Guarantee Loans



Sec. 400.200  Eligible Borrower.

    (a) An eligible Borrower must be a Qualified Steel Company that can 
demonstrate:
    (1) Credit is not otherwise available to it under reasonable terms 
or conditions sufficient to meet its financing needs, as reflected in 
the financial and business plans of the company;
    (2) The prospective earning power of that company, together with the 
character and value of the security pledged, furnish reasonable 
assurance of repayment of the loan to be guaranteed in accordance with 
its terms;
    (3) The company has agreed to permit audits by the General 
Accounting Office and an independent auditor acceptable to the Board 
prior to the issuance of the guarantee and while any such guaranteed 
loan is outstanding;
    (4) It has experienced layoffs, production losses, or financial 
losses between January 1, 1998, and the date of application for the 
Guarantee, demonstrated as a comparison between employment, production, 
or net income existing on January 1, 1998 and on the date of 
application; and
    (5) In the case of a purchaser of substantial assets of a Qualified 
Steel Company; the Qualified Steel Company is unable to re-organize 
itself.
    (b) For purposes of this section, a company will be considered a 
purchaser of substantial assets of a Qualified Steel Company if the 
company's identifiable assets purchased from a Qualified Steel Company 
are 50 percent or more of the consolidated assets of that Qualified 
Steel Company and its subsidiaries.
    (c) The Lender must provide with its application a letter from at 
least one

[[Page 610]]

lending institution other than the Lender to which the Borrower has 
applied for financial assistance dated within six months of submission 
of the application, indicating that the Borrower was denied for 
substantially the same loan it is now applying for, and the reasons the 
Borrower was unable to obtain the financing for which it applied. In 
addition, the Lender applying for a guarantee under this Program must 
certify that it would not make the loan without the Board's guarantee.

[64 FR 57933, Oct. 27, 1999, as amended at 65 FR 70293, Nov. 22, 2000]



Sec. 400.201  Eligible Lender.

    (a) A lender eligible to apply to the Board for a Guarantee of a 
loan must be:
    (1) A banking institution, such as a commercial bank or trust 
company, subject to regulation by the Federal banking agencies 
enumerated in 12 U.S.C. 1813; or
    (2) An investment institution, such as an investment bank, 
commercial finance company, or insurance company, that is currently 
engaged in commercial lending in the normal course of its business.
    (b)(1) If more than one banking or investment institution is 
applying to the Board for a Guarantee of a single loan, each one of the 
banking or investment institutions on the application must meet the 
requirements to be an eligible lender set forth in paragraph (a) of this 
section.
    (2) An application for a Guarantee of a single loan submitted by a 
group of banking or investment institutions, as described in paragraph 
(b)(1) of this section, must identify one of the banking or investment 
institutions applying for such loan to act as agent for all. This agent 
is responsible for administering the loan and shall have those duties 
and responsibilities required of an agent, as set forth in the 
Guarantee.
    (3) Each Lender, irrespective of any indemnities or other agreements 
between the Lenders and the Agent, shall be bound by all actions, and/or 
failures to act, of the Agent. The Board shall be entitled to rely upon 
such actions and/or failures to act of the Agent as binding the Lenders.
    (c) Status as a Lender under paragraph (a) of this section does not 
assure that the Board will issue the Guarantee sought, or otherwise 
preclude the Board from declining to issue a Guarantee. In addition to 
evaluating an application pursuant to Sec. 400.207, in making a 
determination to issue a Guarantee to a Lender, the Board will assess:
    (1) The Agent Lender's level of regulatory capital, in the case of 
banking institutions, or net worth, in the case of investment 
institutions;
    (2) Whether the Agent Lender possesses the ability to administer the 
loan, as required by Sec. 400.211(b), including its experience with 
loans to steel companies;
    (3) The scope, volume and duration of the Agent Lender's activity in 
administering loans;
    (4) The performance of the Agent Lender's loan portfolio, including 
its current delinquency rate;
    (5) The Agent Lender's loss rate as a percentage of loan amounts for 
its current fiscal year; and
    (6) Any other matter the Board deems material to its assessment of 
the Agent Lender.
    (d) A proposed loan for the purpose, in whole or in part, of 
refinancing existing credit provided by the Agent will not be approved 
unless the Board is satisfied that the Agent retains at least a 
substantially equivalent level of risk as a result of the refinancing.

[64 FR 57933, Oct. 27, 1999, as amended at 65 FR 24104, Apr. 25, 2000; 
66 FR 53079, Oct. 19, 2001]



Sec. 400.202  Loan amount.

    (a) The aggregate amount of loan principal guaranteed under this 
Program to a single Qualified Steel Company may not exceed $ 250 
million.
    (b) Of the aggregate amount of loans authorized to be guaranteed and 
outstanding at any one time, not more than $30 million shall be loans to 
iron ore companies.



Sec. 400.203  Guarantee percentage.

    A guarantee issued by the Board may not exceed 85 percent of the 
amount of the principal of a loan to a Qualified Steel Company. Subject 
to the provisions of this part, one or more third

[[Page 611]]

parties, public or private, may guarantee repayment of part of the 
Unguaranteed Portion of a loan guaranteed by the Board.

[66 FR 53080, Oct. 19, 2001]



Sec. 400.204  Loan terms.

    (a) All loans guaranteed under the Program shall be due and payable 
in full no later than December 31, 2005.
    (b) Loans guaranteed under the Program must bear a rate of interest 
determined by the Board to be reasonable. The reasonableness of an 
interest rate will be determined with respect to current average yields 
on outstanding obligations of the United States with remaining periods 
of maturity comparable to the term of the loan sought to be guaranteed. 
The Board may reject an application to guarantee a loan if it determines 
the interest rate of such loan to be unreasonable.
    (c)(1) The performance of all of the Borrower's obligations under 
the Loan Documents shall be secured by, and shall have the priority in, 
such Security as provided for within the terms and conditions of the 
Guarantee.
    (2) Without limiting the Lender's or Borrower's obligations under 
paragraph (c) of this section, at a minimum, the loan shall be secured 
by:
    (i) A fully perfected and enforceable security interest and/or lien, 
with first priority over conflicting security interests or other liens 
in all property acquired, improved or derived from the loan funds;
    (ii) A fully perfected and enforceable security interest and/or lien 
in any other property of the Borrower's pledged to secure the loan, 
including accessions, replacements, proceeds, or property given by a 
third party as Security for the loan.
    (3) The entire loan will be secured by the same Security with equal 
lien priority for the Guaranteed Portion and the Unguaranteed Portion of 
the loan. The Unguaranteed Portion of the loan will neither be paid 
first nor given any preference over the Guaranteed Portion. A 
Supplemental Guarantor shall not have a security interest, direct or 
indirect, in any asset of the Borrower or any affiliate thereof other 
than the Security.
    (4) An Applicant's compliance with paragraph (c)(2) of this section 
does not assure a finding of reasonable assurance of repayment, or 
assure the Board's Guarantee of the loan.
    (d) An eligible Lender may assess and collect from the Borrower such 
other fees and costs associated with the application and origination of 
the loan as are reasonable and customary, taking into consideration the 
amount and complexity of the credit. The Board may take such other fees 
and costs into consideration when determining whether to offer a 
Guarantee to the Lender.

[64 FR 57933, Oct. 27, 1999, as amended at 64 FR 72020, Dec. 23, 1999; 
65 FR 70293, Nov. 22, 2000; 66 FR 53080, Oct. 19, 2001]



Sec. 400.205  Application process.

    (a) Application process. An original application and three copies 
must be received by the Board no later than 5 p.m. EST, August 31, 2001 
in the Board's offices at 1099--14th Street, NW, Suite 2600 East, 
Washington, DC 20005. Applications which have been provided to a 
delivery service with ``delivery guaranteed'' before 5 p.m. on August 
31, 2001 will be accepted for review if the Applicant can document that 
the application was provided to the delivery service with delivery to 
the address listed in this section guaranteed prior to the closing date 
and time. A postmark is not sufficient to meet this deadline as the 
application must be received by the required date and time. Applications 
will not be accepted via facsimile machine transmission or electronic 
mail.
    (b) Applications shall contain the following:
    (1) A completed Form ``Application for Steel Guarantee Loan'';
    (2) The information required for the completion of Form 
``Environmental Assessment and Compliance Findings for Related 
Environmental Laws'' and attachments, as required by 
Sec. 400.206(a)(2)(i)(D);
    (3) All Loan Documents that will be signed by the Lender and the 
Borrower, if the application is approved, including all terms and 
conditions of, and Security or additional Security to assure the 
Borrower's performance under, the loan;

[[Page 612]]

    (4) Certification by the chairman of the board and the chief 
executive officer of the Borrower acknowledging that the Borrower is 
aware that the Lender is applying to the Board for a Guarantee of a loan 
under the Program, as described in the Loan Documents; and agreeing to 
permit audits by the General Accounting Office, its designee, and an 
independent auditor acceptable to the Board prior to the issuance of the 
Guarantee and annually thereafter while such guarantee is outstanding;
    (5) The Lender's full written underwriting analysis of the loan to 
be guaranteed by the Board;
    (6) A certification by the Lender that the Lender meets each of the 
requirements of the Program as set forth in the Act and the Board's 
rules in this part;
    (7) A description of all Security for the loan, including, as 
applicable, current appraisal of real and personal property, copies of 
any appropriate environmental site assessments, and current personal and 
corporate financial statements of any guarantors for the same period as 
required for the Borrower. Appraisals of real property shall be prepared 
by State licensed or certified appraisers, and be consistent with the 
``Uniform Standards of Professional Appraisal Practice,'' promulgated by 
the Appraisal Standards Board of the Appraisal Foundation. Financial 
statements of guarantors shall be prepared by independent Certified 
Public Accountants;
    (8) Consolidated financial statements of the Borrower for the 
previous three years that have been audited by an independent certified 
public accountant, including any associated notes, as well as any 
interim financial statements and associated notes for the current fiscal 
year;
    (9) A five year history and five year projection for revenue, cash 
flow, average realized prices and average realized production costs. If 
the loan funds are to be used to purchase substantial assets of an 
existing firm, a pro forma balance sheet at startup, and five years 
projected year end balance sheets and income statement at start-up;
    (10) Documentation that credit is not otherwise available to the 
borrower under reasonable terms or conditions sufficient to meet its 
financial needs, as reflected in the financial or business plan of that 
company. The Lender must provide with its application those items 
required by Sec. 400.200(c);
    (11) Documentation sufficient to demonstrate that the Lender is 
eligible under Sec. 400.201(a) and to allow the Board to make a 
determination to issue a Guarantee to such Lender as set forth in 
Sec. 400.201(c); and
    (12) A description of any Supplemental Guarantee(s) that will apply 
to the Unguaranteed Portion of the loan.
    (c) No Guarantee will be made if either the Borrower or Lender has 
an outstanding, delinquent Federal debt until:
    (1) The delinquent account has been paid in full;
    (2) A negotiated repayment schedule is established and at least one 
payment has been received; or
    (3) Other arrangements, satisfactory to the agency responsible for 
collecting the debt, are made.

[64 FR 57933, Oct. 27, 1999, as amended at 64 FR 72021, Dec. 23, 1999; 
65 FR 24104, Apr. 25, 2000; 65 FR 70293, Nov. 22, 2000; 66 FR 53080, 
Oct. 19, 2001]



Sec. 400.206  Environmental requirements.

    (a)(1) In general. Environmental assessments of the Board's actions 
will be conducted in accordance with applicable statutes, regulations, 
and Executive Orders. Therefore, each application for a Guarantee under 
the Program must be accompanied by information necessary for the Board 
to meet the requirements of applicable law.
    (2) Actions requiring compliance with NEPA. (i) The types of actions 
classified as ``major Federal actions'' subject to NEPA procedures are 
discussed generally in 40 CFR parts 1500 through 1508.
    (ii) With respect to this Program, these actions typically include:
    (A) Any project, permanent or temporary, that will involve 
construction and/or installations;
    (B) Any project, permanent or temporary, that will involve ground 
disturbing activities; and
    (C) Any project supporting renovation, other than interior 
remodeling.

[[Page 613]]

    (3) Environmental information required from the Lender. (i) 
Environmental data or documentation concerning the use of the proceeds 
of any loan guaranteed under this Program must be provided by the Lender 
to the Board to assist the Board in meeting its legal responsibilities. 
The Lender may obtain this information from the Borrower. (ii) Such 
information includes:
    (A) Documentation for an environmental threshold review from 
qualified data sources, such as a Federal, State or local agency with 
expertise and experience in environmental protection, or other sources, 
qualified to provide reliable environmental information;
    (B) Any previously prepared environmental reports or data relevant 
to the loan at issue;
    (C) Any environmental review prepared by Federal, State, or local 
agencies relevant to the loan at issue;
    (D) The information required for the completion of Form XYZ, 
``Environmental Assessment and Compliance Findings for Related 
Environmental Laws;'' and
    (E) Any other information that can be used by the Board to ensure 
compliance with environmental laws.
    (ii) All information supplied by the Lender is subject to 
verification by the Board.
    (b) The regulations of the Council on Environmental Quality 
implementing NEPA require the Board to provide public notice of the 
availability of project specific environmental documents such as 
environmental impact statements, environmental assessments, findings of 
no significant impact, records of decision etc., to the affected public. 
See 40 CFR 1506.6(b). Environmental information concerning specific 
projects can be obtained from the Board by contacting: Executive 
Director, Emergency Steel Guarantee Loan Board, U.S. Department of 
Commerce, Washington, DC 20230.
    (c) National Environmental Policy Act. (1) Purpose. The purpose of 
this paragraph (c) is to adopt procedures for compliance with the 
National Environmental Policy Act, 42 U.S.C. 4321 et seq., by the Board. 
This paragraph supplements regulations at 40 CFR Chapter V.
    (2) Definitions. For purposes of this section, the following 
definitions apply: Categorical exclusion means a category of actions 
which do not individually or cumulatively have a significant effect on 
the human environment and for which neither an environmental assessment 
nor an environmental impact statement is required.
    Environmental assessment means a document that briefly discusses the 
environmental consequences of a proposed action and alternatives 
prepared for the purposes set forth in 40 CFR 1508.9.
    EIS means an environmental impact statement prepared pursuant to 
section 102(2)(C) of NEPA.
    FONSI means a finding of no significant impact on the quality of the 
human environment after the completion of an environmental assessment.
    NEPA means the National Environmental Policy Act, 42 U.S.C. 4321, et 
seq.
    Working capital loan means money used by an ongoing business concern 
to fund its existing operations.
    (3) Delegations to Executive Director. (i) All incoming 
correspondence from Council on Environmental Quality (CEQ) and other 
agencies concerning matters related to NEPA, including draft and final 
EIS, shall be brought to the attention of the Executive Director. The 
Executive Director will prepare or, at his or her discretion, coordinate 
replies to such correspondence.
    (ii) With respect to actions of the Board, the Executive Director 
will:
    (A) Ensure preparation of all necessary environmental assessments 
and EISs;
    (B) Maintain a list of actions for which environmental assessments 
are being prepared;
    (C) Revise this list at regular intervals, and send the revisions to 
the Environmental Protection Agency;
    (D) Make the list available for public inspection;
    (E) Maintain a list of EISs; and
    (F) Maintain a file of draft and final EISs.
    (4) Categorical exclusions. (1) This paragraph describes various 
classes of Board actions that normally do not have a significant impact 
on the

[[Page 614]]

human environment and are categorically excluded. The word ``normally'' 
is stressed; there may be individual cases in which specific factors 
require contrary action.
    (ii) Subject to the limitations in paragraph (c)(4)(iii) of this 
section, the actions described in this paragraph have been determined 
not to have a significant impact on the quality of the human 
environment. They are categorically excluded from the need to prepare an 
environmental assessment or an EIS under NEPA.
    (A) Guarantees of working capital loans; and
    (B) Guarantees of loans for the refinancing of outstanding 
indebtedness of the Borrower, regardless of the purpose for which the 
original indebtedness was incurred.
    (iii) Actions listed in paragraph (c)(4)(ii) of this section that 
otherwise are categorically excluded from NEPA review are not 
necessarily excluded from review if they would be located within, or in 
other cases, potentially affect:
    (A) A floodplain;
    (B) A wetland;
    (C) Important farmlands, or prime forestlands or rangelands;
    (D) A listed species or critical habitat for an endangered species;
    (E) A property that is listed on or may be eligible for listing on 
the National Register of Historic Places;
    (F) An area within an approved State Coastal Zone Management 
Program;
    (G) A coastal barrier or a portion of a barrier within the Coastal 
Barrier Resources System;
    (H) A river or portion of a river included in, or designated for, 
potential addition to the Wild and Scenic Rivers System;
    (I) A sole source aquifer recharge area;
    (J) A State water quality standard (including designated and/or 
existing beneficial uses and anti-degradation requirements); or
    (K) The release or disposal of regulated substances above the levels 
set forth in a permit or license issued by an appropriate regulatory 
authority.
    (5) Responsibilities and procedures for preparation of an 
environmental assessment. (i) the Executive Director will request that 
the Lender and Borrower provide information concerning all potentially 
significant environmental impacts of the Borrower's proposed project 
pursuant to 13 CFR 400.206. The Executive Director, consulting at his 
discretion with CEQ, will review the information provided by the Lender 
and Borrower. Though no specific format for an environmental assessment 
is prescribed, it shall be a separate document, suitable for public 
review and should include the following in conformance with 40 CFR 
1508.9:
    (A) Description of the environment. The existing environmental 
conditions relevant to the Board's analysis determining the 
environmental impacts of the proposed project, should be described. The 
no action alternative also should be discussed;
    (B) Documentation. Citations to information used to describe the 
existing environment and to assess environmental impacts should be 
clearly referenced and documented. These sources should include, as 
appropriate, but not be limited to, local, tribal, regional, State, and 
Federal agencies, as well as, public and private organizations and 
institutions;
    (C) Evaluating environmental consequences of proposed actions. A 
brief discussion should be included of the need for the proposal, of 
alternatives as required by 42 U.S.C. 4332(2)(E) and their environmental 
impacts. The discussion of the environmental impacts should include 
measures to mitigate adverse impacts and any irreversible or 
irretrievable commitments of resources to the proposed project.
    (ii) The Executive Director, in preparing an environmental 
assessment, may:
    (A) Tier upon the information contained in a previous EIS, as 
described in 40 CFR 1502.20;
    (B) Incorporate by reference reasonably available material, as 
described in 40 CFR 1502.21; and/or
    (C) Adopt a previously completed EIS reasonably related to the 
project for which the proceeds of the loan sought to be guaranteed under 
the Program will be used, as described in 40 CFR 1506.3.
    (iii) Because of the statute's admonition to the Board to make its 
decisions

[[Page 615]]

as soon as possible after receiving applications, the Board will not:
    (A) Publish notice of intent to prepare an environmental assessment, 
as describe in 40 CFR 1501.7;
    (B) Conduct scoping, as described in 40 CFR 1501.7; and
    (C) Seek comments on the environmental assessment, as described in 
40 CFR 1503.1.
    (iv) If, on the basis of an environmental assessment, it is 
determined that an EIS is not required, a FONSI, as described in 40 CFR 
1508.13 will be prepared. The FONSI will include the environmental 
assessment or a summary of it and be available to the public from the 
Board. The Executive Director shall maintain a record of these 
decisions, making them available to interested parties upon request. 
Requests should be directed to the Executive Director, Emergency Steel 
Guarantee Loan Program, 1099--14th Street, NW, Suite 2600 East, 
Washington, DC 20005. Prior to a final loan guarantee decision, a copy 
of the NEPA documentation shall be sent to the Board for consideration.
    (6) Responsibilities and procedures for preparation of an 
environmental impact statement. (i) If after an environmental assessment 
has been completed, it is determined that an EIS is necessary, it and 
other related documentation will be prepared by the Executive Director 
in accordance with section 102(2)(c) of NEPA, this section, and 40 CFR 
parts 1500 through 1508. The Executive Director may seek additional 
information from the applicant in preparing the EIS. Once the document 
is prepared, it shall be submitted to the Board. If the Board considers 
a document unsatisfactory, it shall be returned to the Executive 
Director for revision or supplementation prior to a loan guarantee 
decision; otherwise the Board will transmit the document to the 
Environmental Protection Agency.
    (ii)(A) The following procedures, as discussed in 40 CFR parts 1500 
through 1508, will be followed in preparing an EIS:
    (1) The format and contents of the draft and final EIS shall be as 
discussed in 40 CFR 1502.
    (2) The requirements of 40 CFR 1506.9 for filing of documents with 
the Environmental Protection Agency shall be followed.
    (3) The Executive Director, consulting at his discretion with CEQ, 
shall examine carefully the basis on which supportive studies have been 
conducted to assure that such studies are objective and comprehensive in 
scope and in depth.
    (4) NEPA requires that the decision making ``utilize a systematic, 
interdisciplinary approach that will ensure the integrated use of the 
natural and social sciences and the environmental design arts.'' 42 
U.S.C. 4332(A). If such disciplines are not present on the Board staff, 
appropriate use should be made of personnel of Federal, State, and local 
agencies, universities, non-profit organizations, or private industry.
    (B) Until the Board issues a record of decision as provided in 40 
CFR 1502.2 no action concerning the proposal shall be taken which would:
    (1) Have an adverse environmental impact; or
    (2) Limit the choice of reasonable alternatives.
    (3) 40 CFR 1506.10 places certain limitations on the timing of Board 
decisions on taking ``major Federal actions.'' A loan guarantee shall 
not be made before the times set forth in 40 CFR 1506.10.
    (iii) A public record of decision stating what the decision was; 
identifying alternatives that were considered, including the 
environmentally preferable one(s); discussing any national 
considerations that entered into the decision; and summarizing a 
monitoring and enforcement program if applicable for mitigating the 
environmental effects of a proposal; will be prepared. This record of 
decision will be prepared at the time the decision is made.

[64 FR 57933, Oct. 27, 1999, as amended at 64 FR 72021, Dec. 23, 1999; 
65 FR 70294, Nov. 22, 2000]



Sec. 400.207  Application evaluation.

    (a) Eligibility screening. Applications will be reviewed to 
determine whether the Lender and Borrower are eligible, the information 
required under Sec. 400.205(b) is complete, and the proposed loan 
complies with applicable statutes and regulations. The Board

[[Page 616]]

can at any time reject an application that does not meet these 
requirements.
    (b) Evaluation criteria. Applications that are determined to be 
eligible pursuant to paragraph (a) of this section shall be subject to a 
substantive review by the Board based upon the following evaluation 
factors, in order of importance:
    (1) The ability of the Borrower to repay the loan by the date 
specified in the Loan Document, which shall be no later than December 
31, 2005. Evaluation of this factor will consider the prospective 
earning power of the Borrower. An essential and necessary element of the 
Board's evaluation of whether this criterion is satisfied is whether the 
applicant has committed to undertake significant efforts to eliminate or 
reduce economically unviable capacity;
    (2) The adequacy of the proposed provisions to protect the 
Government, including sufficiency of Security, the priority of the lien 
position in the Security, and the percentage of Guarantee requested; and
    (3) Adequacy of the underwriting analysis performed by the Lender in 
preparing the application and the ability of the Lender to administer 
the loan in full compliance with the requisite standard of care set 
forth in Sec. 400.211(b).
    (c) Decisions by the Board. Upon completion of the evaluation of an 
application and as soon as possible after its receipt, the Board will 
approve or deny an eligible application that is timely received under 
this Program. The Board shall notify the Applicants and the Borrower in 
writing of the approval or denial of an application as soon as possible. 
Approvals for loan Guarantees shall be conditioned upon compliance with 
Sec. 400.208.

[64 FR 57933, Oct. 27, 1999, as amended at 65 FR 70294, Nov. 22, 2000; 
66 FR 53080, Oct. 19, 2001]



Sec. 400.208  Issuance of the Guarantee.

    (a) The Board's decisions to approve any application for, and extend 
an offer of, guarantee under Sec. 400.207 is conditioned upon:
    (1) The Lender and Borrower obtaining any required regulatory or 
judicial approvals;
    (2) The Lender and Borrower being legally authorized to enter into 
the loan under the terms and conditions submitted to the Board in the 
application;
    (3) The Board's receipt of the Loan Documents and any related 
instruments, in form and substance satisfactory to the Board, and the 
Guarantee, all properly executed by the Lender, Borrower, and any other 
required party other than the Board; and
    (4) No material adverse change in the Borrower's ability to repay 
the loan between the date of the Board's approval and the date the 
Guarantee is to be issued.
    (b) The Board may withdraw its approval of an application and 
rescind its offer of Guarantee if the Board determines that the Lender 
or the Borrower cannot, or is unwilling to, provide adequate 
documentation and proof of compliance with paragraph (a) of this section 
within the time provided for in the offer.
    (c) Only after receipt of all the documentation, required by this 
section, will the Board sign and deliver the Guarantee.
    (d) A Borrower receiving a loan guaranteed by the Board under this 
Program shall pay a one-time guarantee fee of 0.5 percent of the amount 
of the principal of the loan. This fee must be paid no later than one 
year from the issuance of the Guarantee.

[64 FR 57933, Oct. 27, 1999, as amended at 65 FR 70294, Nov. 22, 2000; 
66 FR 53080, Oct. 19, 2001]



Sec. 400.209  Funding for the Program.

    The Act provides funding for the costs incurred by the Government as 
a result of granting Guarantees under the Program. While pursuing the 
goals of the Act, it is the intent of the Board to minimize the cost of 
the Program to the Government. The Board will estimate the risk posed by 
the guaranteed loans to the funds appropriated for the costs of the 
Guarantees under the Program and operate the Program accordingly.



Sec. 400.210  Assignment or transfer of loans.

    (a) Neither the Loan Documents nor the Guarantee of the Board may be 
modified, in whole or in part, without

[[Page 617]]

the prior written approval of the Board.
    (b) Upon notice to the Board and a certification by the assignor 
that the assignee is an Eligible Lender, and subject to the provisions 
of paragraphs (c) and (d) of this section and other provisions of this 
part, a Lender may assign or transfer its interest in the loan including 
the Loan documents and the Guarantee to a party that qualifies as an 
Eligible Lender pursuant to Sec. 400.201. Any other assignment or 
transfer will require the prior written approval of the Board.
    (c) The provisions of paragraph (b) of this section shall not apply 
to transfers which occur by operation of law.
    (d) The Agent must hold and may not assign or transfer an interest 
in a loan guaranteed under the Program equal to at least the lesser of 
$25 million or fifteen percent of the aggregate amount of the loan. In 
addition, the Agent must hold and may not assign or transfer an interest 
the Unguaranteed Portion of the loan equal to at least the minimum 
amount of the loan required to be held by the Agent under the preceding 
sentence multiplied by the percentage of the loan represented by the 
Unguaranteed Portion. A non-Agent Lender must hold and may not assign or 
transfer an interest in the Unguaranteed Portion of the loan 
representing no less than five percent of such Lender's total interest 
in the loan; provided, that a non-Agent Lender may transfer its interest 
in the Unguaranteed Portion after payment of the Guaranteed Portion has 
been made under the Guarantee.

[66 FR 53080, Oct. 19, 2001]



Sec. 400.211  Lender responsibilities.

    The Lender shall have such obligations and duties to the Board as 
are set forth in the Guarantee.

[65 FR 70294, Nov. 22, 2000]



Sec. 400.212  Guarantee.

    The Board shall adopt a form of Guarantee to be used by the Board 
under the Program, and shall publish the Guarantee on its website. 
Modifications to the provisions of the form of Guarantee must be 
approved and adopted by the Board.

[65 FR 70294, Nov. 22, 2000]



Sec. 400.213  Termination of obligations.

    The Board shall have such rights to terminate the Guarantee as are 
set forth in the Guarantee.

[65 FR 70294, Nov. 22, 2000]



Sec. 400.214  Participations in guaranteed loans.

    (a) Subject to paragraphs (b), (c) and (d) of this section, a Lender 
may distribute the risk of a portion of a loan guaranteed under the 
Program by sale of participations therein if:
    (1) Neither the loan note nor the Guarantee is assigned, conveyed, 
sold, or transferred in whole or in part;
    (2) The Lender remains solely responsible for the administration of 
the loan; and
    (3) The Board's ability to assert any and all defenses available to 
it under the Guarantee and the law is not adversely affected.
    (b) The following categories of entities may purchase participations 
in loans guaranteed under the Program:
    (1) Eligible Lenders;
    (2) Private investment funds and insurance companies that do not 
usually invest in commercial loans;
    (3) Steel company suppliers or customers, who are interested in 
participating as a means of commencing or solidifying the supplier or 
customer relationship with the borrower; or
    (4) Any other entity approved by the Board on a case-by-case basis.
    (c) The Agent may not grant participations in that portion of its 
interest in a loan that may not be assigned or transferred under 
Sec. 400.210(d). A Lender, other than the Agent, may not grant 
participations in that portion of its interest in a loan that may not be 
assigned or transferred under Sec. 400.210(d).
    (d) At least 5 percent of any participation interest in a loan must 
be unguaranteed.

[65 FR 70294, Nov. 22, 2000]



Sec. 400.215  Supplemental Guarantees.

    The Board will allow the structure of a guaranteed loan to include 
one or more Supplemental Guarantees that

[[Page 618]]

cover the Unguaranteed Portion of the loan; provided that:
    (a) There shall be no Supplemental Guarantee with respect to the 
Unguaranteed Portion required to be held by the Agent pursuant to 
Sec. 400.210(c);
    (b) The Loan Documents relating to any Supplemental Guarantee shall 
be acceptable in form and substance to the Board; and
    (c) In approving the issuance of a Guarantee, the Board may impose 
any conditions with respect to Supplemental Guarantee(s) relating to the 
loan that it considers appropriate.

[66 FR 53080, Oct. 19, 2001]

[[Page 619]]



         CHAPTER V--EMERGENCY OIL AND GAS GUARANTEED LOAN BOARD




  --------------------------------------------------------------------
Part                                                                Page
500             Emergency Oil and Gas Guaranteed Loan 
                    Program.................................         621

[[Page 621]]



PART 500--EMERGENCY OIL AND GAS GUARANTEED LOAN PROGRAM--Table of Contents




                           Subpart A--General

Sec.
500.1  Purpose.
500.2  Definitions.

                       Subpart B--Board Procedures

500.100  Purpose and scope.
500.101  Composition of the Board.
500.102  Authority of the Board.
500.103  Offices.
500.104  Meetings and actions of the Board.
500.105  Staff.
500.106  Ex parte communications.
500.107  Freedom of Information Act.
500.108  Restrictions on lobbying.
500.109  Government-wide debarment and suspension (nonprocurement).
500.110  Amendments.

                 Subpart C--Oil and Gas Guaranteed Loans

500.200  Eligible Borrower.
500.201  Eligible Lender.
500.202  Loan amount.
500.203  Guarantee percentage.
500.204  Loan terms.
500.205  Application process.
500.206  Environmental requirements.
500.207  Application evaluation.
500.208  Issuance of the Guarantee.
500.209  Funding for the Program.
500.210  Assignment or transfer of loans.
500.211  Lender responsibilities.
500.212  Liquidation.
500.213  Termination of obligations.
500.214  OMB control number. [Reserved]

    Authority: Pub. L. 106-51, 113 Stat. 255 (15 U.S.C. 1841 note).

    Source: 64 FR 57947, Oct. 27, 1999, unless otherwise noted.



                           Subpart A--General



Sec. 500.1  Purpose.

    This part is issued by the Emergency Oil and Gas Guaranteed Loan 
Board pursuant to section 552 of title 5 of the United States Code and 
the Emergency Oil and Gas Guaranteed Loan Act, Chapter 2 of Public Law 
106-51. This part contains rules for making and servicing loans to 
qualified oil and gas guaranteed by the Board.



Sec. 500.2  Definitions.

    (a) Act means the Emergency Oil and Gas Guaranteed Loan Program Act, 
Chapter 2 of Public Law 106-51.
    (b) Administer, administering and administration, mean the Lender's 
actions in making, disbursing, servicing (including, but not limited to 
care, preservation and maintenance of collateral), collecting and 
liquidating a loan and security.
    (c) Agent means that Lender authorized to take such actions, 
exercise such powers, and perform such duties on behalf and in 
representation of all Lenders party to a Guarantee of a single loan, as 
is required by, or necessarily incidental to, the terms and conditions 
of the Guarantee.
    (d) Applicant means the private banking or investment institution 
applying for a loan guarantee under this part.
    (e) Board means the Emergency Oil and Gas Guaranteed Loan Board.
    (f) Borrower means a Qualified Oil and Gas Company which could 
receive a loan guaranteed by the Board under this Program.
    (g) Guarantee means the written agreement between the Board and one 
or more Lenders, and approved by the Borrower, pursuant to which the 
Board guarantees repayment of a specified percentage of the principal of 
the loan, including the Special Terms and Conditions, the General Terms 
and Conditions, and all exhibits thereto.
    (h) Lender means a private banking or investment institution, 
eligible under Sec. 500.201, that is a party to a Guarantee issued by 
the Board. With respect to a Guarantee of a single loan to which more 
than one Lender is a party, the term Lender means Agent.
    (i) Loan Documents mean the loan agreement and all other 
instruments, and all documentation between the Lender and the Borrower 
evidencing the making, disbursing, securing, collecting, or otherwise 
administering of the loan.
    (j) Program means the Emergency Oil and Gas Guaranteed Loan Program 
established by the Act.
    (k) Security means all property, real or personal, required by the 
provisions

[[Page 622]]

of the Guarantee or by the Loan Documents to secure repayment of any 
indebtedness of the Borrower under the Loan Documents or Guarantee.
    (l) Qualified Oil and Gas Company means any company that: (A) is (i) 
an independent oil and gas company (within the meaning of section 
57(a)(2)(B)(i) of the Internal Revenue Code of 1986) or; (ii) a small 
business concern under section 3 of the Small Business Act, 15 U.S.C. 
632, (or a company based in Alaska, including an Alaska Native 
Corporation created pursuant to the Alaska Native Claims Settlement Act, 
43 U.S.C. 1601 et seq.) that is an oil field service company whose main 
business is providing tools, products, personnel, and technical 
solutions on a contractual basis to exploration and production operators 
that drill, complete wells, and produce, transport, refine, and sell 
hydrocarbons and their byproducts as the main commercial business of the 
concern or company; and (B) has experienced layoffs, production losses, 
or financial losses since January 1997.

[64 FR 57947, Oct. 27, 1999, as amended at 65 FR 24106, Apr. 25, 2000]



                       Subpart B--Board Procedures



Sec. 500.100  Purpose and scope.

    This subpart describes the Board's authorities and organizational 
structure, the means and rules by which the Board takes actions, and 
procedures for public access to Board records.



Sec. 500.101  Composition of the Board.

    The Board consists of the Chairman of the Board of Governors of the 
Federal Reserve System, who acts as Chairman of the Board, the Chairman 
of the Securities and Exchange Commission, and the Secretary of 
Commerce.



Sec. 500.102  Authority of the Board.

    Pursuant to the provisions of the Act, the Board is authorized to 
guarantee loans provided to Qualified Oil and Gas companies by private 
banking and investment institutions in accordance with the procedures, 
rules, and regulations established by the Board, to make the 
determinations authorized by the Act, and to take such other actions as 
necessary to carry out its functions in accordance with the Act.



Sec. 500.103  Offices.

    The principal offices of the Board are in the U.S. Department of 
Commerce, Washington, D.C. 20230.



Sec. 500.104  Meetings and actions of the Board.

    (a) Place and frequency. The Board meets, on the call of the 
Chairman, in order to consider matters requiring action by the Board. 
Time and place for any such meeting shall be determined by the members 
of the Board.
    (b) Quorum and voting. Two voting members of the Board constitute a 
quorum for the transaction of business. All decisions and determinations 
of the Board shall be made by a majority vote of the voting members. All 
votes on determinations of the Board required by the Act shall be 
recorded in the minutes. A Board member may request that any vote be 
recorded according to individual Board members.
    (c) Agenda of meetings. To the extent practicable, an agenda for 
each meeting shall be distributed to members of the Board at least two 
days in advance of the date of the meeting, together with copies of 
materials relevant to the agenda items.
    (d) Minutes. The Secretary of the Board shall keep minutes of each 
Board meeting and of action taken without a meeting, a draft of which is 
to be distributed to each member of the Board as soon as practicable 
after each meeting or action. To the extent practicable, the minutes of 
a Board meeting shall be corrected and approved at the next meeting of 
the Board.
    (e) Use of conference call communications equipment. Any member may 
participate in a meeting of the Board through the use of conference 
call, telephone or similar communications equipment, by means of which 
all persons participating in the meeting can simultaneously speak to and 
hear each other. Any member so participating in a meeting shall be 
deemed present for all purposes. Actions taken by the Board at meetings 
conducted through the use of such equipment, including

[[Page 623]]

the votes of each member, shall be recorded in the usual manner in the 
minutes of the meetings of the Board.
    (f) Actions between meetings. When, in the judgment of the Chairman, 
circumstances occur making it desirable for the Board to consider action 
when it is not feasible to call a meeting, the relevant information and 
recommendations for action may be transmitted to the members by the 
Secretary of the Board and the voting members may communicate their 
votes to the Chairman in writing (including an action signed in 
counterpart by each Board member), electronically, or orally (including 
telephone communication). Any action taken under this paragraph has the 
same effect as an action taken at a meeting. Any such action shall be 
recorded in the minutes.
    (g) Delegations of authority. The Board may delegate authority, 
subject to such terms and conditions as the Board deems appropriate, to 
the Executive Director, the General Counsel, or the Secretary of the 
Board, to take certain actions not required by the Act to be taken by 
the Board. All delegations shall be made pursuant to resolutions of the 
Board and recorded in writing, whether in the minutes of a meeting or 
otherwise. Any action taken pursuant to delegated authority has the 
effect of an action taken by the Board.



Sec. 500.105  Staff.

    (a) Executive Director. The Executive Director of the Board advises 
and assists the Board in carrying out its responsibilities under the 
Act, provides general direction with respect to the administration of 
the Board's actions, directs the activities of the staff, and performs 
such other duties as the Board may require.
    (b) General Counsel. The General Counsel of the Board provides legal 
advice relating to the responsibilities of the Board and performs such 
other duties as the Board may require.
    (c) Secretary of the Board. The Secretary of the Board sends notice 
of all meetings, prepares minutes of all meetings, maintains a complete 
record of all votes and actions taken by the Board, has custody of all 
records of the Board and performs such other duties as the Board may 
require.



Sec. 500.106  Ex parte communications.

    Oral or written communication, not on the public record, between the 
Board, or any member of the Board, and any party or parties interested 
in any matter pending before the Board concerning the substance of that 
matter is prohibited. This section also applies to the Board's staff and 
employees of the constituent agencies who are or reasonably may be 
expected to be involved in the decisional process of the matter pending 
before the Board.



Sec. 500.107  Freedom of Information Act.

    (a) Definitions. All terms used in this section which are defined in 
5 U.S.C. 551 or 5 U.S.C. 552 shall have the same meaning in this 
section. In addition the following definitions apply to this section:
    (1) FOIA, as used in this section, means the ``Freedom of 
Information Act,'' as amended, 5 U.S.C. 552.
    (2) Commercial use request means a request from or on behalf of one 
who seeks information for a use or purpose that furthers the commercial, 
trade, or profit interests of the requester or the person on whose 
behalf the request is made.
    (3) Direct costs mean those expenditures that the Board actually 
incurs in searching for, reviewing, and duplicating documents in 
response to a request made under paragraph (c) of this section. Direct 
costs include, for example, the labor costs of the employee performing 
the work (the basic rate of pay for the employee, plus 16 percent of 
that rate to cover benefits). Not included in direct costs are overhead 
expenses such as the costs of space and heating or lighting of the 
facility in which the records are kept.
    (4) Duplication means the process of making a copy of a document in 
response to a request for disclosure of records or for inspection of 
original records that contain exempt material or that otherwise cannot 
be inspected directly. Among others, such copies may take the form of 
paper, microfilm, audiovisual materials, or machine-readable 
documentation (e.g., magnetic tape or disk).

[[Page 624]]

    (5) Educational institution means a preschool, a public or private 
elementary or secondary school, or an institution of undergraduate 
higher education, graduate higher education, professional education, or 
an institution of vocational education that operates a program of 
scholarly research.
    (6) Noncommercial scientific institution refers to an institution 
that is not operated on a ``commercial'' basis (as that term is used in 
this section) and which is operated solely for the purpose of conducting 
scientific research, the results of which are not intended to promote 
any particular product or industry.
    (7) News means information about current events or that would be of 
current interest to the public. Examples of news media entities include, 
but are not limited to, television or radio stations broadcasting to the 
public at large, and publishers of newspapers and other periodicals (but 
only in those instances when they can qualify as disseminators of 
``news'') who make their products available for purchase or subscription 
by the general public. ``Freelance'' journalists may be regarded as 
working for a news organization if they can demonstrate a solid basis 
for expecting publication through that organization, even though not 
actually employed by it.
    (8) Representative of the news media means any person actively 
gathering news for an entity that is organized and operated to publish 
or broadcast news to the general public.
    (9) Review means the process of examining documents, located in 
response to a request for access, to determine whether any portion of a 
document is exempt information. It includes doing all that is necessary 
to excise the documents and otherwise to prepare them for release. 
Review does not include time spent resolving general legal or policy 
issues regarding the application of exemptions.
    (10) Search means the process of looking for material that is 
responsive to a request, including page-by-page or line-by-line 
identification within documents. Searches may be done manually or by 
computer.
    (b) Records available for public inspection and copying--(1) Types 
of records made available. The information in this section is furnished 
for the guidance of the public and in compliance with the requirements 
of the Freedom of Information Act, as amended (5 U.S.C. 552) (FOIA). 
This section sets forth the procedures the Board follows to make 
publicly available the materials specified in 5 U.S.C. 552(a)(2). These 
materials shall be made available for inspection and copying at the 
Board's Freedom of Information Office pursuant to 5 U.S.C. 552(a)(2). 
Information routinely provided to the public as part of a regular Board 
activity (for example, press releases) may be provided to the public 
without following this section.
    (2) Reading room procedures. Information available under this 
section is available for inspection and copying, from 9:00 a.m. to 5:00 
p.m. weekdays, at the Freedom of Information Office of the Board, Oil 
and Gas Guarantee Loan Board, U.S. Department of Commerce, Washington, 
D.C. 20230.
    (3) Electronic records. Information available under this section 
that was created on or after November 1, 1996, shall also be available 
on the Board's website, found at www.doc.gov.
    (c) Records available to the public on request--(1) Types of records 
made available. All records of the Board that are not available under 
paragraph (b) of this section shall be made available upon request, 
pursuant to the procedures in this section and the exceptions set forth 
in the FOIA. The Board's policy is to make discretionary disclosures of 
records or information exempt from disclosure under the FOIA whenever 
disclosure would not foreseeably harm an interest protected by a FOIA 
exemption, but this policy does not create any right enforceable in 
court.
    (2) Procedures for requesting records. A request for records shall 
reasonably describe the records in a way that enables the Board's staff 
to identify and produce the records with reasonable effort and without 
unduly burdening or significantly interfering with any of the Board's 
operations. The request shall be submitted in writing to the Secretary 
of the Board, Oil and Gas Guarantee Loan Board, U.S. Department of 
Commerce, Washington, D.C. 20230; or sent by facsimile to the Secretary 
of the Board. The request shall

[[Page 625]]

be clearly marked FREEDOM OF INFORMATION ACT REQUEST.
    (3) Contents of request. The request shall contain the following 
information:
    (i) The name and address of the requester, and the telephone number 
at which the requester can be reached during normal business hours;
    (ii) Whether the requested information is intended for commercial 
use, or whether the requester represents an educational or noncommercial 
scientific institution, or news media;
    (iii) A statement agreeing to pay the applicable fees, or a 
statement identifying any fee limitation desired, or a request for a 
waiver or reduction of fees that satisfies paragraph (f) of this 
section.
    (d) Processing requests--(1) Priority of responses. The date of 
receipt for any request, including one that is addressed incorrectly or 
that is referred to the Board by another agency, is the date the 
Secretary of the Board actually receives the request. The Secretary of 
the Board shall normally process requests in the order they are 
received. However, in the Secretary of the Board's discretion, the Board 
may use two or more processing tracks by distinguishing between simple 
and more complex requests based on the number of pages involved, or some 
other measure of the amount of work and/or time needed to process the 
request, and whether the request qualifies for expedited processing as 
described in paragraph (d)(2) of this section. When using multitrack 
processing, the Secretary of the Board may provide requesters in the 
slower track(s) with an opportunity to limit the scope of their requests 
in order to qualify for faster processing. The Secretary of the Board 
shall contact the requester by telephone or by letter, whichever is most 
efficient in each case.
    (2) Expedited processing. (i) A person may request expedited access 
to records by submitting a statement, certified to be true and correct 
to the best of that person's knowledge and belief, that demonstrates a 
compelling need for the records, as defined in 5 U.S.C. 552(a)(6)(E)(v).
    (ii) The Secretary of the Board shall notify a requester of the 
determination whether to grant or deny a request for expedited 
processing within ten working days of receipt of the request. If the 
Secretary of the Board grants the request for expedited processing, the 
Board shall process the request for access to information as soon as 
practicable. If the Secretary of the Board denies a request for 
expedited processing, the requester may file an appeal pursuant to the 
procedures set forth in paragraph (e) of this section, and the Board 
shall respond to the appeal within twenty days after the appeal was 
received by the Board.
    (3) Time limits. The time for response to requests shall be 20 
working days, except:
    (i) In the case of expedited treatment under paragraph (d)(2) of 
this section;
    (ii) Where the running of such time is suspended for payment of fees 
pursuant to paragraph (f)(2)(ii) of this section;
    (iii) Where the estimated charge is less than $250, and the 
requester does not guarantee payment pursuant to paragraph (f)(2)(i) of 
this section; or
    (iv) In unusual circumstances, as defined in 5 U.S.C. 
552(a)(6)(B)(iii), the time limit may be extended for a period of time 
not to exceed 10 working days as provided by written notice to the 
requester, setting forth the reasons for the extension and the date on 
which a determination is expected to be dispatched; or such alternative 
time period as mutually agreed to by the Secretary of the Board and the 
requester when the Secretary of the Board notifies the requester that 
the request cannot be processed in the specified time limit.
    (4) Response to request. In response to a request that satisfies 
paragraph (c) of this paragraph, an appropriate search shall be 
conducted of records in the custody and control of the Board on the date 
of receipt of the request, and a review made of any responsive 
information located. The Secretary of the Board shall notify the 
requester of:
    (i) The Secretary of the Board's determination of the request and 
the reasons therefor;
    (ii) The information withheld, and the basis for withholding; and
    (iii) The right to appeal any denial or partial denial, pursuant to 
paragraph (e) of this section.

[[Page 626]]

    (5) Referral to another agency. To the extent a request covers 
documents that were created by, obtained from, classified by, or is in 
the primary interest of another agency, the Secretary of the Board may 
refer the request to that agency for a direct response by that agency 
and inform the requester promptly of the referral. The Secretary of the 
Board shall consult with another Federal agency before responding to a 
requester if the Board receives a request for a record in which:
    (i) Another Federal agency subject to the FOIA has a significant 
interest, but not the primary interest; or
    (ii) Another Federal agency not subject to the FOIA has the primary 
interest or a significant interest. Ordinarily, the agency that 
originated a record will be presumed to have the primary interest in it.
    (6) Providing responsive records. (i) A copy of records or portions 
of records responsive to the request shall be sent to the requester by 
regular U.S. mail to the address indicated in the request, unless the 
requester elects to take delivery of the documents at the Board's 
Freedom of Information Office or makes other acceptable arrangements, or 
the Secretary of the Board deems it appropriate to send the documents by 
another means. The Secretary of the Board shall provide a copy of the 
record in any form or format requested if the record is readily 
reproducible in that form or format, but the Secretary of the Board need 
not provide more than one copy of any record to a requester.
    (ii) The Secretary of the Board shall provide any reasonably 
segregable portion of a record that is responsive to the request after 
deleting those portions that are exempt under the FOIA or this section.
    (iii) Except where disclosure is expressly prohibited by statute, 
regulation, or order, the Secretary of the Board may authorize the 
release of records that are exempt from mandatory disclosure whenever 
the Board or designated Board members determine that there would be no 
foreseeable harm in such disclosure.
    (iv) The Board is not required in response to the request to create 
records or otherwise to prepare new records.
    (7) Prohibition against disclosure. Except as provided in this part, 
no officer, employee, or agent of the Board shall disclose or permit the 
disclosure of any unpublished information of the Board to any person 
(other than Board officers, employees, or agents properly entitled to 
such information for the performance of official duties), unless 
required by law.
    (e) Appeals. (1) Any person denied access to Board records requested 
under paragraph (c) of this section, denied expedited processing under 
paragraph (d) of this section, or denied a waiver of fees under 
paragraph (f) of this section may file a written appeal within 30 
calendar days after the date of such denial with the Board. The written 
appeal shall prominently display the phrase FREEDOM OF INFORMATION ACT 
APPEAL on the first page, and shall be addressed to the General Counsel 
of the Board, Oil and Gas Guaranteed Loan Board, U.S. Department of 
Commerce, Washington, D.C. 20230; or sent by facsimile to the General 
Counsel of the Board. The appeal shall include a copy of the original 
request, the initial denial, if any, and a statement of the reasons why 
the requested records should be made available and why the initial 
denial was in error.
    (2) The General Counsel of the Board shall make a determination 
regarding any appeal within 20 working days of actual receipt of the 
appeal, and the determination letter shall notify the appealing party of 
the right to seek judicial review in event of denial.
    (f) Fee schedules; waiver of fees--(1) Fee schedule. The fees 
applicable to a request for records pursuant to paragraph (c) of this 
section are set forth in the uniform fee schedule at the end of this 
paragraph (b).
    (i) Search. (A) Search fees shall be charged for all requests--other 
than requests made by educational institutions, noncommercial scientific 
institutions, or representatives of the news media--subject to the 
limitations of paragraph (f)(1)(iv) of this section. The Secretary of 
the Board shall charge for time spent searching even if no responsive 
record is located or if the Secretary of the Board withholds the 
record(s) located as entirely exempt from disclosure. Search fees shall 
be

[[Page 627]]

the direct costs of conducting the search by the involved employees.
    (B) For computer searches of records, requesters will be charged the 
direct costs of conducting the search, although certain requesters (as 
provided in paragraph (f)(3) of this section) will be charged no search 
fee and certain other requesters (as provided in paragraph (f)(3)) are 
entitled to the cost equivalent of two hours of manual search time 
without charge. These direct costs include the costs, attributable to 
the search, of operating a central processing unit and operator/
programmer salary.
    (ii) Duplication. Duplication fees will be charged to all 
requesters, subject to the limitations of paragraph (f)(1)(iv) of this 
section. For a paper photocopy of a record (no more than one copy of 
which need be supplied), the fee shall be 15 cents per page. For copies 
produced by computer, such as tapes or printouts, the Secretary of the 
Board shall charge the direct costs, including operator time, of 
producing the copy. For other forms of duplication, the Secretary of the 
Board will charge the direct costs of that duplication.
    (iii) Review. Review fees shall be charged to requesters who make a 
commercial use request. Review fees shall be charged only for the 
initial record review--the review done when the Secretary of the Board 
determines whether an exemption applies to a particular record at the 
initial request level. No charge will be made for review at the 
administrative appeal level for an exemption already applied. However, 
records withheld under an exemption that is subsequently determined not 
to apply may be reviewed again to determine whether any other exemption 
not previously considered applies, and the costs of that review are 
chargeable. Review fees shall be the direct costs of conducting the 
review by the involved employees.
    (iv) Limitations on charging fees. (A) No search fee will be charged 
for requests by educational institutions, noncommercial scientific 
institutions, or representatives of the news media.
    (B) No search fee or review fee will be charged for a quarter-hour 
period unless more than half of that period is required for search or 
review.
    (C) Whenever a total fee calculated under this paragraph is $25 or 
less for any request, no fee will be charged.
    (D) For requesters other than those seeking records for a commercial 
use, no fee will be charged unless the cost of search in excess of two 
hours plus the cost of duplication in excess of 100 pages totals more 
than $25.
    (2) Payment procedures. All persons requesting records pursuant to 
paragraph (c) of this section shall pay the applicable fees before the 
Secretary of the Board sends copies of the requested records, unless a 
fee waiver has been granted pursuant to paragraph (f)(6) of this 
section. Requesters must pay fees by check or money order made payable 
to the Treasury of the United States.
    (i) Advance notification of fees. If the estimated charges are 
likely to exceed $25, the Secretary of the Board shall notify the 
requester of the estimated amount, unless the requester has indicated a 
willingness to pay fees as high as those anticipated. Upon receipt of 
such notice, the requester may confer with the Secretary of the Board to 
reformulate the request to lower the costs. The processing of the 
request shall be suspended until the requester provides the Secretary of 
the Board with a written guarantee that payment will be made upon 
completion of the processing.
    (ii) Advance payment. The Secretary of the Board shall require 
advance payment of any fee estimated to exceed $250. The Secretary of 
the Board shall also require full payment in advance where a requester 
has previously failed to pay a fee in a timely fashion. If an advance 
payment of an estimated fee exceeds the actual total fee by $1 or more, 
the difference shall be refunded to the requester. The time period for 
responding to requests under paragraph (d)(4) of this section, and the 
processing of the request shall be suspended until the Secretary of the 
Board receives the required payment.
    (iii) Late charges. The Secretary of the Board may assess interest 
charges when fee payment is not made within 30 days of the date on which 
the billing was sent. Assessment of such interest will commence on the 
31st day following the day on which the billing

[[Page 628]]

was sent. Interest is at the rate prescribed in 31 U.S.C. 3717.
    (3) Categories of uses. The fees assessed depend upon the fee 
category. In determining which category is appropriate, the Secretary of 
the Board shall look to the identity of the requester and the intended 
use set forth in the request for records. Where a requester's 
description of the use is insufficient to make a determination, the 
Secretary of the Board may seek additional clarification before 
categorizing the request.
    (i) Commercial use requester. The fees for search, duplication, and 
review apply when records are requested for commercial use.
    (ii) Educational, non-commercial scientific institutions, or 
representatives of the news media requesters. The fees for duplication 
apply when records are not sought for commercial use, and the requester 
is a representative of the news media or an educational or noncommercial 
scientific institution, whose purpose is scholarly or scientific 
research. The first 100 pages of duplication, however, will be provided 
free.
    (iii) All other requesters. For all other requests, the fees for 
search and duplication apply. The first two hours of search time and the 
first 100 pages of duplication, however, will be provided free.
    (4) Nonproductive search. Fees for search may be charged even if no 
responsive documents are found. Fees for search and review may be 
charged even if the request is denied.
    (5) Aggregated requests. A requester may not file multiple requests 
at the same time, solely in order to avoid payment of fees. If the 
Secretary of the Board reasonably believes that a requester is 
separating a request into a series of requests for the purpose of 
evading the assessment of fees or that several requesters appear to be 
acting together to submit multiple requests solely in order to avoid 
payment of fees, the Secretary of the Board may aggregate such requests 
and charge accordingly. It is considered reasonable for the Secretary of 
the Board to presume that multiple requests by one requester on the same 
topic made within a 30-day period have been made to avoid fees.
    (6) Waiver or reduction of fees. A request for a waiver or reduction 
of the fees, and the justification for the waiver, shall be included 
with the request for records to which it pertains. If a waiver is 
requested and the requester has not indicated in writing an agreement to 
pay the applicable fees if the waiver request is denied, the time for 
response to the request for documents, as set forth in paragraph (4)(d) 
of this section, shall not begin until a determination has been made on 
the request for a waiver or reduction of fees.
    (i) Standards for determining waiver or reduction. The Secretary of 
the Board may grant a waiver or reduction of fees where it is determined 
both that disclosure of the information is in the public interest 
because it is likely to contribute significantly to public understanding 
of the operation or activities of the government, and that the 
disclosure of information is not primarily in the commercial interest of 
the requester. In making this determination, the following factors shall 
be considered:
    (A) Whether the subject of the records concerns the operations or 
activities of the government;
    (B) Whether disclosure of the information is likely to contribute 
significantly to public understanding of government operations or 
activities;
    (C) Whether the requester has the intention and ability to 
disseminate the information to the public;
    (D) Whether the information is already in the public domain;
    (E) Whether the requester has a commercial interest that would be 
furthered by the disclosure; and, if so,
    (F) Whether the magnitude of the identified commercial interest of 
the requester is sufficiently large, in comparison with the public 
interest in disclosure, that disclosure is primarily in the commercial 
interest of the requester.
    (ii) Contents of request for waiver. A request for a waiver or 
reduction of fees shall include a clear statement of how the request 
satisfies the criteria set forth in paragraph (f)(6)(i) of this section.
    (iii) Burden of proof. The burden shall be on the requester to 
present evidence

[[Page 629]]

or information in support of a request for a waiver or reduction of 
fees.
    (iv) Determination by Secretary of the Board. The Secretary of the 
Board shall make a determination on the request for a waiver or 
reduction of fees and shall notify the requester accordingly. A denial 
may be appealed to the Board in accordance with paragraph (e) of this 
section.
    (7) Uniform fee schedule.

------------------------------------------------------------------------
                  Service                               Rate
------------------------------------------------------------------------
(i) Manual search.........................  Actual salary rate of
                                             employee involved, plus 16
                                             percent of salary rate.
(ii) Computerized search..................  Actual direct cost,
                                             including operator time.
(iii) Duplication of records:
(A) Paper copy reproduction...............  $.15 per page.
(B) Other reproduction (e.g., computer      Actual direct cost,
 disk or printout, microfilm, microfiche,    including operator time.
 or microform).
(iv) Review of records (includes            Actual salary rate of
 preparation for release, i.e. excising).    employee conducting review,
                                             plus 16 percent of salary
                                             rate.
------------------------------------------------------------------------

    (g) Request for confidential treatment of business information.--(1) 
Submission of request. Any submitter of information to the Board who 
desires confidential treatment of business information pursuant to 5 
U.S.C. 552(b)(4) shall file a request for confidential treatment with 
the Board at the time the information is submitted or a reasonable time 
after submission.
    (2) Form of request. Each request for confidential treatment of 
business information shall state in reasonable detail the facts 
supporting the commercial or financial nature of the business 
information and the legal justification under which the business 
information should be protected. Conclusory statements that release of 
the information would cause competitive harm generally will not be 
considered sufficient to justify confidential treatment.
    (3) Designation and separation of confidential material. All 
information considered confidential by a submitter shall be clearly 
designated ``PROPRIETARY'' or ``BUSINESS CONFIDENTIAL'' in the 
submission and separated from information for which confidential 
treatment is not requested. Failure to segregate confidential commercial 
or financial information from other material may result in release of 
the nonsegregated material to the public without notice to the 
submitter.
    (h) Request for access to confidential commercial or financial 
information.--(1) Request for confidential commercial or financial 
information. A request by a submitter for confidential treatment of any 
business information shall be considered in connection with a request 
for access to that information.
    (2) Notice to the submitter. (i) The Secretary of the Board shall 
notify a submitter who requested confidential treatment of information 
pursuant to 5 U.S.C. 552(b)(4), of the request for access.
    (ii) Absent a request for confidential treatment, the Secretary of 
the Board may notify a submitter of a request for access to submitter's 
business information if the Secretary of the Board reasonably believes 
that disclosure of the information may cause substantial competitive 
harm to the submitter.
    (iii) The notice given to the submitter by mail, return receipt 
requested, shall be given as soon as practicable after receipt of the 
request for access, and shall describe the request and provide the 
submitter seven working days from the date of notice, to submit written 
objections to disclosure of the information. Such statement shall 
specify all grounds for withholding any of the information and shall 
demonstrate why the information which is considered to be commercial or 
financial information, and that the information is a trade secret, is 
privileged or confidential, or that its disclosure is likely to cause 
substantial competitive harm to the submitter. If the submitter fails to 
respond to the notice within the time specified, the submitter will be 
considered to have no objection to the release of the information. 
Information a submitter provides under this paragraph may itself be 
subject to disclosure under the FOIA.
    (3) Exceptions to notice to submitter. Notice to the submitter need 
not be given if:
    (i) The Secretary of the Board determines that the request for 
access should be denied;
    (ii) The requested information lawfully has been made available to 
the public;

[[Page 630]]

    (iii) Disclosure of the information is required by law (other than 5 
U.S.C. 552); or
    (iv) The submitter's claim of confidentiality under 5 U.S.C. 
552(b)(4) appears obviously frivolous or has already been denied by the 
Secretary of the Board, except that in this last instance the Secretary 
of the Board shall give the submitter written notice of the 
determination to disclose the information at least seven working days 
prior to disclosure.
    (4) Notice to requester. At the same time the Secretary of the Board 
notifies the submitter, the Secretary of the Board also shall notify the 
requester that the request is subject to the provisions of this section.
    (5) Determination by Secretary of the Board. The Secretary of the 
Board's determination whether or not to disclose any information for 
which confidential treatment has been requested pursuant to this section 
shall be communicated to the submitter and the requester immediately. If 
the Secretary of the Board determines to disclose the business 
information over the objection of a submitter, the Secretary of the 
Board shall give the submitter written notice via mail, return receipt 
requested, or similar means, which shall include:
    (i) A statement of reason(s) why the submitter's objections to 
disclosure were not sustained;
    (ii) A description of the business information to be disclosed; and
    (iii) A statement that the component intends to disclose the 
information seven working days from the date the submitter receives the 
notice.
    (6) Notice of lawsuit. The Secretary of the Board shall promptly 
notify any submitter of information covered by this section of the 
filing of any suit against the Board to compel disclosure of such 
information, and shall promptly notify a requester of any suit filed 
against the Board to enjoin the disclosure of requested documents.



Sec. 500.108  Restrictions on lobbying.

    (a) No funds received through a loan guaranteed under this Program 
may be expended by the recipient of a Federal contract, grant, loan, 
loan Guarantee, or cooperative agreement to pay any person for 
influencing or attempting to influence an officer or employee of any 
agency, a Member of Congress, an officer or employee of Congress, or an 
employee of a Member of Congress in connection with any of the following 
covered Federal actions: the awarding of any Federal contract, the 
making of any Federal grant, the making of any Federal loan or loan 
Guarantee, the entering into of any cooperative agreement, and the 
extension, continuation, renewal, amendment, or modification of any 
Federal contract, grant, loan, loan Guarantee, or cooperative agreement.
    (b) Each person who requests or receives from an agency a commitment 
providing for the United States to insure or guarantee a loan shall file 
with that agency a statement, set forth in the application form, whether 
that person has made or has agreed to make any payment to influence or 
attempt to influence an officer or employee of any agency, a Member of 
Congress, an officer or employee of Congress, or an employee of a Member 
of Congress in connection with that loan insurance or Guarantee.
    (c) Each person who requests or receives from an agency a commitment 
providing for the United States to insure or guarantee a loan shall file 
with that agency a Standard Form-LLL if that person has made or has 
agreed to make any payment to influence or attempt to influence an 
officer or employee of any agency, a Member of Congress, an officer or 
employee of Congress, or an employee of a Member of Congress in 
connection with that loan insurance or Guarantee.
    (d) Each person shall file a certification, contained in the 
application form, and a disclosure form (Standard Form-LLL), if 
required, with each submission that initiates agency consideration of 
such person for:
    (1) Award of a Federal contract, grant, or cooperative agreement 
exceeding $100,000; or
    (2) An award of a Federal loan or a commitment providing for the 
United States to insure or guarantee a loan exceeding $150,000.
    (e) Each person shall file a certification, and a disclosure form, 
if required, upon receipt by such person of:

[[Page 631]]

    (1) A Federal contract, grant, or cooperative agreement exceeding 
$100,000; or
    (2) A Federal loan or a commitment providing for the United States 
to insure or Guarantee a loan exceeding $150,000, unless such person 
previously filed a certification, and a disclosure form, if required, 
under paragraph (c) of this section.
    (f) Each person shall file a disclosure form at the end of each 
calendar quarter in which there occurs any event that requires 
disclosure or that materially affects the accuracy of the information 
contained in any disclosure form previously filed by such person under 
paragraphs (d) or (e) of this section. An event that materially affects 
the accuracy of the information reported includes:
    (1) A cumulative increase of $25,000 or more in the amount paid or 
expected to be paid for influencing or attempting to influence a covered 
Federal action; or
    (2) A change in the person(s) or individual(s) influencing or 
attempting to influence a covered Federal action; or
    (3) A change in the officer(s), employee(s), or Member(s) contacted 
to influence or attempt to influence a covered Federal action.



Sec. 500.109  Government-wide debarment and suspension (nonprocurement).

    (a) Executive Order (E.O.) 12549 provides that, to the extent 
permitted by law, Executive departments and agencies shall participate 
in a governmentwide system for nonprocurement debarment and suspension. 
A person who is debarred or suspended shall be excluded from Federal 
financial and nonfinancial assistance and benefits under Federal 
programs and activities. Debarment or suspension of a participant in a 
program by one agency shall have governmentwide effect. The Board shall 
review the List of Debarred entities prior to making final loan 
Guarantee decisions. Suspension or debarment may be a basis for denying 
a loan Guarantee.
    (b) This section applies to all persons who have participated, are 
currently participating or may reasonably be expected to participate in 
transactions under Federal nonprocurement programs. For purposes of this 
section such transactions will be referred to as ``covered 
transactions''.
    (1) Covered transaction. For purposes of this section, a covered 
transaction is a primary covered transaction or a lower tier covered 
transaction. Covered transactions at any tier need not involve the 
transfer of Federal funds.
    (i) Primary covered transaction. Except as noted in paragraph (b)(2) 
of this section, a primary covered transaction is any nonprocurement 
transaction between an agency and a person, regardless of type, 
including: grants, cooperative agreements, scholarships, fellowships, 
contracts of assistance, loans, loan Guarantees, subsidies, insurance, 
payments for specified use, donation agreements and any other 
nonprocurement transactions between a Federal agency and a person.
    (ii) Lower tier covered transaction. A lower tier covered 
transaction is:
    (A) Any transaction between a participant and a person other than a 
procurement contract for goods or services, regardless of type, under a 
primary covered transaction;
    (B) Any procurement contract for goods or services between a 
participant and a person, regardless of type, expected to equal or 
exceed the Federal procurement small purchase threshold fixed at 10 
U.S.C. 2304(g) and 41 U.S.C. 253(g) (currently $100,000) under a primary 
covered transaction;
    (C) Any procurement contract for goods or services between a 
participant and a person under a covered transaction, regardless of 
amount, under which that person will have a critical influence on or 
substantive control over that covered transaction. Such persons may 
include loan officers or chief executive officers acting as principal 
investigators and providers of federally-required audit services.
    (2) Exceptions. The following transactions are not covered:
    (i) Statutory entitlements or mandatory awards (but not subtier 
awards thereunder which are not themselves mandatory), including 
deposited funds insured by the Federal Government;

[[Page 632]]

    (ii) Direct awards to foreign governments or public international 
organizations, or transactions with foreign governments or foreign 
governmental entities, public international organizations, foreign 
government owned (in whole or in part) or controlled entities, entities 
consisting wholly or partially of foreign governments or foreign 
governmental entities;
    (iii) Benefits to an individual as a personal entitlement without 
regard to the individual's present responsibility (but benefits received 
in an individual's business capacity are not excepted);
    (iv) Federal employment;
    (v) Transactions pursuant to national or agency-recognized 
emergencies or disasters;
    (vi) Incidental benefits derived from ordinary governmental 
operations; and
    (vii) Other transactions where the application of this section would 
be prohibited by law.
    (3) Board covered transactions. This section applies to the Board's 
loan Guarantees, subcontracts and transactions at any tier that are 
charges as direct or indirect costs, regardless of type.
    (c) Primary covered transactions. Except to the extent prohibited by 
law, persons who are debarred or suspended shall be excluded from 
primary covered transactions as either participants or principals 
throughout the Executive Branch of the Federal Government for the period 
of their debarment, suspension, or the period they are proposed for 
debarment under 48 CFR part 9, subpart 9.4. Accordingly, no agency shall 
enter into primary covered transactions with such excluded persons 
during such period, except as permitted pursuant to paragraph (l) of 
this section.
    (d) Lower tier covered transactions. Except to the extent prohibited 
by law, persons who have been proposed for debarment under 48 CFR part 
9, subpart 9.4, debarred or suspended shall be excluded from 
participating as either participants or principals in all lower tier 
covered transactions (see paragraph (b)(1)(ii) of this section) for the 
period of their exclusion.
    (e) Exceptions. Debarment or suspension does not affect a person's 
eligibility for--
    (1) Statutory entitlements or mandatory awards (but not subtier 
awards thereunder which are not themselves mandatory), including 
deposited funds insured by the Federal Government;
    (2) Direct awards to foreign governments or public international 
organizations, or transactions with foreign governments or foreign 
governmental entities, public international organizations, foreign 
government owned (in whole or in part) or controlled entities, and 
entities consisting wholly or partially of foreign governments or 
foreign governmental entities;
    (3) Benefits to an individual as a personal entitlement without 
regard to the individual's present responsibility (but benefits received 
in an individual's business capacity are not excepted);
    (4) Federal employment;
    (5) Transactions pursuant to national or agency-recognized 
emergencies or disasters;
    (6) Incidental benefits derived from ordinary governmental 
operations; and
    (7) Other transactions where the application of this section would 
be prohibited by law.
    (f) Persons who are ineligible are excluded in accordance with the 
applicable statutory, executive order, or regulatory authority.
    (g) Persons who accept voluntary exclusions are excluded in 
accordance with the terms of their settlements. The Board shall, and 
participants may, contact the original action agency to ascertain the 
extent of the exclusion.
    (h) The Board may grant an exception permitting a debarred, 
suspended, or voluntarily excluded person, or a person proposed for 
debarment under 48 CFR part 9, subpart 9.4, to participate in a 
particular covered transaction upon a written determination by the 
agency head or an authorized designee stating the reason(s) for 
deviating from the Presidential policy established by Executive Order 
12549. However, in accordance with the President's stated intention in 
the Executive Order, exceptions shall be granted only infrequently. 
Exceptions shall be reported in accordance with the Executive Order.
    (i) Notwithstanding the debarment, suspension, proposed debarment 
under

[[Page 633]]

48 CFR part 9, subpart 9.4, determination of ineligibility, or voluntary 
exclusion of any person by an agency, agencies and participants may 
continue covered transactions in existence at the time the person was 
debarred, suspended, proposed for debarment under 48 CFR part 9, subpart 
9.4, declared ineligible, or voluntarily excluded. A decision as to the 
type of termination action, if any, to be taken should be made only 
after thorough review to ensure the propriety of the proposed action.
    (j) Agencies and participants shall not renew or extend covered 
transactions (other than no-cost time extensions) with any person who is 
debarred, suspended, proposed for debarment under 48 CFR part 9, subpart 
9.4, ineligible or voluntary excluded, except as provided in paragraph 
(h) of this section.
    (k) Except as permitted paragraphs (h) or (i) of this section, a 
participant shall not knowingly do business under a covered transaction 
with a person who is--
    (1) Debarred or suspended;
    (2) Proposed for debarment under 48 CFR part 9, subpart 9.4; or
    (3) Ineligible for or voluntarily excluded from the covered 
transaction.
    (l) Violation of the restriction under paragraph (k) of this section 
may result in disallowance of costs, annulment or termination of award, 
issuance of a stop work order, debarment or suspension, or other 
remedies as appropriate.
    (m) A participant may rely upon the certification of a prospective 
participant in a lower tier covered transaction that it and its 
principals are not debarred, suspended, proposed for debarment under 48 
CFR part 9, subpart 9.4, ineligible, or voluntarily excluded from the 
covered transaction, unless it knows that the certification is 
erroneous. An agency has the burden of proof that a participant did 
knowingly do business with a person that filed an erroneous 
certification.



Sec. 500.110  Amendments.

    The Board's rules in this chapter may be adopted or amended, or new 
rules may be adopted, only by majority vote of the Board. Authority to 
adopt or amend these rules may not be delegated.



                 Subpart C--Oil and Gas Guaranteed Loans



Sec. 500.200  Eligible Borrower.

    (a) An eligible Borrower must be a Qualified Oil and Gas Company 
that can demonstrate:
    (1) Credit is not otherwise available to it under reasonable terms 
or conditions sufficient to meet its financing needs, as reflected in 
the financial and business plans of the company;
    (2) The prospective earning power of that company, together with the 
character and value of the security pledged, furnish reasonable 
assurance of repayment of the loan to be guaranteed in accordance with 
its terms;
    (3) The company has agreed to permit audits by the General 
Accounting Office and an independent auditor acceptable to the Board 
prior to the issuance of the guarantee and while any such guaranteed 
loan is outstanding; and
    (4) It has experienced layoffs, production losses, or financial 
losses between January 1, 1997, and the date of application for the 
Guarantee, demonstrated as a comparison between employment, production, 
or net income existing on January 1, 1997 and on the date of 
application.
    (b) The Lender must provide with its application a letter from at 
least one lending institution other than the Lender to which the 
Borrower has applied for financial assistance, since January 1, 1997, 
indicating that the Borrower was denied for substantially the same loan 
they are now applying for, and the reasons the Borrower was unable to 
obtain the financing for which it applied. In addition, the Lender 
applying for a guarantee under this Program must certify that it would 
not make the loan without the Board's guarantee.



Sec. 500.201  Eligible Lender.

    (a) A lender eligible to apply to the Board for a Guarantee of a 
loan must be:
    (1) A banking institution, such as a commercial bank or trust 
company, subject to regulation by the Federal

[[Page 634]]

banking agencies enumerated in 12 U.S.C. Sec. 1813; or
    (2) An investment institution, such as an investment bank, 
commercial finance company, or insurance company, that is currently 
engaged in commercial lending in the normal course of its business.
    (b)(1) If more than one banking or investment institution is 
applying to the Board for a Guarantee of a single loan, each one of the 
banking or investment institutions on the application must meet the 
requirements to be an eligible lender set forth in paragraph (a) of this 
section.
    (2) An application for a Guarantee of a single loan submitted by a 
group of banking or investment institutions, as described in paragraph 
(b)(1) of this section, must identify one of the banking or investment 
institutions applying for such loan to act as agent for all. This agent 
is responsible for administering the loan and shall have those duties 
and responsibilities required of an agent, as set forth in the 
Guarantee.
    (3) Each Lender, irrespective of any indemnities or other agreements 
between the Lenders and the Agent, shall be bound by all actions, and/or 
failures to act, of the Agent. The Board shall be entitled to rely upon 
such actions and/or failures to act of the Agent as binding the Lenders.
    (c) Status as a Lender under paragraph (a) of this section does not 
assure that the Board will issue the Guarantee sought, or otherwise 
preclude the Board from declining to issue a Guarantee. In addition to 
evaluating an application pursuant to Sec. 500.207, in making a 
determination to issue a Guarantee to a Lender, the Board will assess:
    (1) The Lender's level of regulatory capital, in the case of banking 
institutions, or net worth, in the case of investment institutions;
    (2) Whether the Lender possesses the ability to administer the loan, 
as required by Sec. 500.211(b), including its experience with loans to 
oil and gas companies;
    (3) The scope, volume and duration of the Lender's activity in 
administering loans;
    (4) The performance of the Lender's loan portfolio, including its 
current delinquency rate;
    (5) The Lender's loss rate as a percentage of loan amounts for its 
current fiscal year; and
    (6) Any other matter the Board deems material to its assessment of 
the Lender.
    (d) In the case of the refinancing of an existing credit, the 
applicant must be a different lender than the holder of the existing 
credit.

[64 FR 57947, Oct. 27, 1999, as amended at 65 FR 24107, Apr. 25, 2000]



Sec. 500.202  Loan amount.

    The aggregate amount of loan principal guaranteed under this Program 
to a single Qualified Oil and Gas Company may not exceed $10 million.



Sec. 500.203  Guarantee percentage.

    A guarantee issued by the Board may not exceed 85 percent of the 
amount of the principal of a loan to a Qualified Oil and Gas Company.



Sec. 500.204  Loan terms.

    (a) All loans guaranteed under the Program shall be due and payable 
in full no later than December 31, 2010.
    (b) Loans guaranteed under the Program must bear a rate of interest 
determined by the Board to be reasonable. The reasonableness of an 
interest rate will be determined with respect to current average yields 
on outstanding obligations of the United States with remaining periods 
of maturity comparable to the term of the loan sought to be guaranteed. 
The Board may reject an application to guarantee a loan if it determines 
the interest rate of such loan to be unreasonable.
    (c)(1) The performance of all of the Borrower's obligations under 
the Loan Documents shall be secured by, and shall have the priority in, 
such Security as provided for within the terms and conditions of the 
Guarantee.
    (2) Without limiting the Lender's or Borrower's obligations under 
paragraph (c) of this section, at a minimum, the loan shall be secured 
by:
    (i) A fully perfected and enforceable security interest and or lien, 
with first

[[Page 635]]

priority over conflicting security interests or other liens in all 
property acquired, improved, or derived from the loan funds; and
    (ii) A fully perfected and enforceable security interest and or lien 
in any other property of the Borrower's pledged to secure the loan, 
including accessions, replacements, proceeds, or property given by a 
third party as Security for the loan, the priority of which shall be, at 
a minimum, equal in status with the existing highest voluntarily granted 
or acquired interest or lien;
    (3) The entire loan will be secured by the same Security with equal 
lien priority for the guaranteed and the unguaranteed portions of the 
loan. The unguaranteed portion of the loan will neither be paid first 
nor given any preference over the guaranteed portion.
    (4) An Applicant's compliance with paragraph (c)(2) of this section 
does not assure a finding of reasonable assurance of repayment, or 
assure the Board's Guarantee of the loan.
    (d) An eligible Lender may assess and collect from the Borrower such 
other fees and costs associated with the application and origination of 
the loan as are reasonable and customary, taking into consideration the 
amount and complexity of the credit. The Board may take such other fees 
and costs into consideration when determining whether to offer a 
Guarantee to the Lender.

[64 FR 57947, Oct. 27, 1999, as amended at 64 FR 72024, Dec. 23, 1999]



Sec. 500.205  Application process.

    (a) Application process. An original application and three copies 
must be received by the Board no later than 5 P.M. EST, February 28, 
2000, in the U.S. Department of Commerce, 1401 Constitution Avenue, NW., 
room H-2500, Washington, DC 20230. Applications which have been provided 
to a delivery service on or before February 27, 2000, with ``delivery 
guaranteed'' before 5 P.M. on February 28, 2000, will be acceptabled for 
review if the Applicant can document that the application was provided 
to the delivery service with delivery to the address listed in this 
section guaranteed prior to the closing date and time. A postmark of 
February 27, 2000, is not sufficient to meet this deadline as the 
application must be received by the required date and time. Applications 
will not be accepted via facsimile machine transmission or electronic 
mail.
    (b) Applications shall contain the following:
    (1) A completed Form, ``Application for Oil and Gas Guarantee 
Loan'';
    (2) The information required for the completion of Form 
``Environmental Assessment and Compliance Findings for Related 
Environmental Laws'' and attachments, as required by 
Sec. 500.206(a)(2)(i)(D), unless the project is categorically excluded 
under Sec. 500.206(b);
    (3) All Loan Documents that will be signed by the Lender and the 
Borrower, if the application is approved, including all terms and 
conditions of, and Security or additional Security to assure the 
Borrower's performance under, the loan;
    (4) Certification by the chairman of the board and the chief 
executive officer of the Borrower acknowledging that the Borrower is 
aware that the Lender is applying to the Board for a Guarantee of a loan 
under the Program, as described in the Loan Documents, and agreeing to 
permit audits by the General Accounting Office, its designee, an 
independent auditor acceptable to the Board prior to the issuance of the 
Guarantee and annually thereafter while such guarantee is outstanding;
    (5) The Lender's full written underwriting analysis of the loan to 
be guaranteed by the Board;
    (6) A certification that the Lender has followed the same loan 
underwriting analysis with the loan to be guaranteed as it would follow 
for a loan not guaranteed by the Government; and a certification by the 
Lender, that the loan, Lender, and Borrower meet each of the 
requirements of the Program as set forth in the Act and the Board's 
rules in this part;
    (7) A description of all Security for the loan, including, as 
applicable, current appraisal of real and personal property, copies of 
any appropriate environmental site assessments, and current personal and 
corporate financial statements of any guarantors for the

[[Page 636]]

same periods as required for the Borrower. Appraisals of real property 
shall be prepared by State licensed or certified appraisers, and be 
consistent with the ``Uniform Standards of Professional Appraisal 
Practice,'' promulgated by the Appraisal Standards Board of the 
Appraisal Foundation. Financial statements of guarantors shall be 
prepared by independent Certified Public Accountants;
    (8)(i) An independent oil and gas company, as defined in section 
201(c)(3)(A)(i) of the Act, is required to submit:
    (A) For loans less than $5 million, three years of financial 
statements reviewed by a certified public accountant following generally 
accepted accounting principles, as well as any interim financial 
statements; or
    (B) For loans of $5 million or greater, three years of financial 
statements must be submitted. The most recent year's statement must be 
audited by an independent certified public accountant. Statements from 
the prior two years must be reviewed by a certified public accountant 
following generally accepted accounting principles. In addition, any 
interim financial statements and associated notes must be submitted as 
well.
    (ii) A service company, as defined in section 201(c)(3)(A)(ii) of 
the Act, is required to submit consolidated financial statements of the 
Borrower for the previous three years that have been audited by an 
independent certified public accountant, including any associated notes, 
as well as any interim financial statements and associated notes.
    (9) A five year history and five year projection for revenue, cash 
flow, average realized prices and average realized production costs. If 
the loan funds are to be used to purchase substantial assets of an 
existing firm, a pro forma balance sheet at startup, and five years 
projected year end balance sheets and income statement at start-up;
    (10) Documentation that credit is not otherwise available to the 
borrower under reasonable terms or conditions sufficient to meet its 
financial needs, as reflected in the financial or business plan of that 
company. The Lender must provide with its application those items 
required by Sec. 500.200(b);
    (11) Documentation sufficient to demonstrate that the Lender is 
eligible under Sec. 500.201(a) and to allow the Board to make a 
determination to issue a Guarantee to such Lender as set forth in 
Sec. 500.201(c).
    (12) A report as to the Borrower's designation of the nature and 
value of project reserves from an independent petroleum engineer 
acceptable to the Board.
    (c) No Guarantee will be made if either the Borrower or Lender has 
an outstanding, delinquent Federal debt until:
    (1) The delinquent account has been paid in full;
    (2) A negotiated repayment schedule is established and at least one 
payment has been received; or
    (3) Other arrangements, satisfactory to the agency responsible for 
collecting the debt, are made.

[64 FR 57947, Oct. 27, 1999, as amended at 64 FR 72024, Dec. 23, 1999; 
65 FR 6889, Feb. 11, 2000; 65 FR 24107, Apr. 25, 2000]



Sec. 500.206  Environmental requirements.

    (a)(1) In General. Environmental assessments of the Board's actions 
will be conducted in accordance with applicable statutes, regulations, 
and Executive Orders. Therefore, each application for a Guarantee under 
the Program must be accompanied by information necessary for the Board 
to meet the requirements of applicable law.
    (2) Actions requiring compliance with NEPA. (i) The types of actions 
classified as ``major Federal actions'' subject to NEPA procedures are 
discussed generally in 40 CFR parts 1500 through 1508.
    (ii) With respect to this Program, these actions typically include:
    (A) Any project, permanent or temporary, that will involve 
construction and/or installations;
    (B) Any project, permanent or temporary, that will involve ground 
disturbing activities; and
    (C) Any project supporting renovation, other than interior 
remodeling.
    (3) Environmental information required from the Lender. (i) 
Environmental data or documentation concerning the use of the proceeds 
of any loan guaranteed

[[Page 637]]

under this Program must be provided by the Lender to the Board to assist 
the Board in meeting its legal responsibilities. The Lender may obtain 
this information from the Borrower. Such information includes:
    (A) Documentation for an environmental threshold review from 
qualified data sources, such as a Federal, State or local agency with 
expertise and experience in environmental protection, or other sources, 
qualified to provide reliable environmental information;
    (B) Any previously prepared environmental reports or data relevant 
to the loan at issue;
    (C) Any environmental review prepared by Federal, State, or local 
agencies relevant to the loan at issue;
    (D) The information required for the completion of Form XYZ, 
``Environmental Assessment and Compliance Findings for Related 
Environmental Laws;'' and
    (E) Any other information that can be used by the Board to ensure 
compliance with environmental laws.
    (ii) All information supplied by the Lender is subject to 
verification by the Board.
    (b) The regulations of the Council on Environmental Quality 
implementing NEPA require the Board to provide public notice of the 
availability of project specific environmental documents such as 
environmental impact statements, environmental assessments, findings of 
no significant impact, records of decision etc., to the affected public. 
See 40 CFR 1506.6(b). Environmental information concerning specific 
projects can be obtained from the Board by contacting: Executive 
Director, Emergency Oil and Gas Guaranteed Loan Board, U.S. Department 
of Commerce, Washington, DC 20230.
    (c) National Environmental Policy Act. (1) Purpose. The purpose of 
this paragraph (c) is to adopt procedures for compliance with the 
National Environmental Policy Act, 42 U.S.C. 4321 et seq., by the Board. 
This paragraph supplements regulations at 40 CFR Chapter V.
    (2) Definitions. For purposes of this section, the following 
definitions apply:
    Categorical exclusion means a category of actions which do not 
individually or cumulatively have a significant effect on the human 
environment and for which neither an environmental assessment nor an 
environmental impact statement is required.
    Environmental assessment means a document that briefly discusses the 
environmental consequences of a proposed action and alternatives 
prepared for the purposes set forth in 40 CFR 1508.9.
    EIS means an environmental impact statement prepared pursuant to 
section 102(2)(C) of NEPA.
    FONSI means a finding of no significant impact on the quality of the 
human environment after the completion of an environmental assessment.
    NEPA means the National Environmental Policy Act, 42 U.S.C. 4321, et 
seq.
    Working Capital Loan means money used by an ongoing business concern 
to fund its existing operations.
    (3) Delegations to Executive Director. (i) All incoming 
correspondence from Council on Environmental Quality (CEQ) and other 
agencies concerning matters related to NEPA, including draft and final 
EIS, shall be brought to the attention of the Executive Director. The 
Executive Director will prepare or, at his or her discretion, coordinate 
replies to such correspondence.
    (ii) With respect to actions of the Board, the Executive Director 
will:
    (A) Ensure preparation of all necessary environmental assessments 
and EISs;
    (B) Maintain a list of actions for which environmental assessments 
are being prepared;
    (C) Revise this list at regular intervals, and send the revisions to 
the Environmental Protection Agency;
    (D) Make the list available for public inspection;
    (E) Maintain a list of EISs; and
    (F) Maintain a file of draft and final EISs.
    (4) Categorical exclusions. (i) This paragraph describes various 
classes of Board actions that normally do not have a significant impact 
on the human environment and are categorically excluded. The word 
``normally'' is stressed; there may be individual cases in which 
specific factors require contrary action.

[[Page 638]]

    (ii) Subject to the limitations in paragraph (c)(4)(iii) of this 
section, the actions described in this paragraph have been determined 
not to have a significant impact on the quality of the human 
environment. They are categorically excluded from the need to prepare an 
environmental assessment or an EIS under NEPA.
    (A) Guarantees of working capital loans; and
    (B) Guarantees of loans for the refinancing of outstanding 
indebtedness of the Borrower, regardless of the purpose for which the 
original indebtedness was incurred.
    (iii) Actions listed in paragraph (c)(4)(ii) of this section that 
otherwise are categorically excluded from NEPA review are not 
necessarily excluded from review if they would be located within, or in 
other cases, potentially affect:
    (A) A floodplain;
    (B) A wetland;
    (C) Important farmlands, or prime forestlands or rangelands;
    (D) A listed species or critical habitat for an endangered species;
    (E) A property that is listed on or may be eligible for listing on 
the National Register of Historic Places;
    (F) An area within an approved State Coastal Zone Management 
Program;
    (G) A coastal barrier or a portion of a barrier within the Coastal 
Barrier Resources System;
    (H) A river or portion of a river included in, or designated for, 
potential addition to the Wild and Scenic Rivers System;
    (I) A sole source aquifer recharge area;
    (J) A State water quality standard (including designated and/or 
existing beneficial uses and anti-degradation requirements); or
    (K) The release or disposal of regulated substances above the levels 
set forth in a permit or license issued by an appropriate regulatory 
authority.
    (5) Responsibilities and procedures for preparation of an 
environmental assessment. (i) The Executive Director will request that 
the Lender and Borrower provide information concerning all potentially 
significant environmental impacts of the Borrower's proposed project 
pursuant to 13 CFR 500.206. The Executive Director, consulting at his 
discretion with CEQ, will review the information provided by the Lender 
and Borrower. Though no specific format for an environmental assessment 
is prescribed, it shall be a separate document and should include the 
following in conformance with 40 CFR 1508.9:
    (A) Description of the environment. The existing environmental 
conditions relevant to the Board's analysis determining the 
environmental impacts of the proposed project, should be described. The 
no action alternative also should be discussed;
    (B) Documentation. Citations to information used to describe the 
existing environment and to assess environmental impacts should be 
clearly referenced and documented. Such references should include, as 
appropriate, but not be limited to, local, tribal, regional, State, and 
Federal agencies, as well as, public and private organizations and 
institutions;
    (C) Evaluating environmental consequences of proposed actions. A 
brief discussion should be included of the need for the proposal, of 
alternatives as required by 42 U.S.C. 4332(2)(E) and their environmental 
impacts. The discussion of the environmental impacts should include 
measures to mitigate adverse impacts and any irreversible or 
irretrievable commitments of resources to the proposed project.
    (ii) The Executive Director, in preparing an environmental 
assessment, may:
    (A) Tier upon the information contained in a previous EIS, as 
described in 40 CFR 1502.20;
    (B) Incorporate by reference reasonably available material, as 
described in 40 CFR 1502.21; and/or
    (C) Adopt a previously completed EIS reasonably related to the 
project for which the proceeds of the loan sought to be guaranteed under 
the Program will be used, as described in 40 CFR 1506.3.
    (iii) Because of the statute's admonition to the Board to make its 
decisions as soon as possible after receiving applications, the Board 
will not:
    (A) Publish notice of intent to prepare an environmental assessment, 
as described in 40 CFR 1501.7;

[[Page 639]]

    (B) Conduct scoping, as described in 40 CFR 1501.7; and
    (C) Seek comments on the environmental assessment, as described in 
40 CFR 1503.1.
    (iv) If, on the basis of an environmental assessment, it is 
determined that an EIS is not required, a FONSI, as described in 40 CFR 
1508.13 will be prepared. The FONSI will include the environmental 
assessment or a summary of it and be available to the public from the 
Board. The Executive Director shall maintain a record of these 
decisions, making them available to interested parties upon request. 
Requests should be directed to the Executive Director Emergency Oil and 
Gas Guarantee Loan Program, 14th Street and Constitution Avenue, NW., 
Washington DC 20230. Prior to a final loan guarantee decision, a copy of 
the NEPA documentation shall be sent to their Board for consideration.
    (6) Responsibilities and procedures for preparation of an 
environmental impact statement. (i) If after an environmental assessment 
has been completed, it is determined that an EIS is necessary, it and 
other related documentation will be prepared by the Executive Director 
in accordance with section 102(2)(c) of NEPA, this section, and 40 CFR 
parts 1500 through 1508. The Executive Director may seek additional 
information from the applicant in preparing the EIS. Once the document 
is prepared, it shall be submitted to the Board. If the Board considers 
a document unsatisfactory, it shall be returned to the Executive 
Director for revision or supplementation prior to a loan guarantee 
decision; otherwise the Board will transmit the document to the 
Environmental Protection Agency.
    (ii)(A) The following procedures, as discussed in 40 CFR parts 1500 
through 1508, will be followed in preparing an EIS:
    (1) The format and contents of the draft and final EIS shall be as 
discussed in 40 CFR 1502.
    (2) The requirements of 40 CFR 1506.9 for filing of documents with 
the Environmental Protection Agency shall be followed.
    (3) The Executive Director, consulting at his discretion with CEQ, 
shall examine carefully the basis on which supportive studies have been 
conducted to assure that such studies are objective and comprehensive in 
scope and depth.
    (4) NEPA requires that the decision making ``utilize a systematic, 
interdisciplinary approach that will ensure the integrated use of the 
natural and social sciences and the environmental design arts.'' 42 
U.S.C. 4332(A). If such disciplines are not present on the Board staff, 
appropriate use should be made of personnel of Federal, State, and local 
agencies, universities, non-profit organizations, or private industry.
    (B) Until the Board issues a record of decision as provided in 40 
CFR 1502.2 no action concerning the proposal shall be taken which would:
    (1) Have an adverse environmental impact; or
    (2) Limit the choice of reasonable alternatives.
    (3) 40 CFR 1506.10 places certain limitations on the timing of Board 
decisions on taking ``major Federal actions.'' A loan guarantee shall 
not be make before the times set forth in 40 CFR 1506.10.
    (iii) A public record of decision stating what the decision was; 
identifying alternatives that were considered, including the 
environmentally preferable one(s); discussing any national 
considerations that entered into the decision; and summarizing a 
monitoring and enforcement program if applicable for mitigating the 
environmental effects of a proposal; will be prepared. This record of 
decision will be prepared at the time the decision is made.

[64 FR 57947, Oct. 27, 1999, as amended at 64 FR 72024, Dec. 23, 1999]



Sec. 500.207  Application evaluation.

    (a) Eligibility screening. Applications will be reviewed to 
determine whether the Lender and Borrower are eligible, the information 
required under Sec. 500.205(b) is complete, and the proposed loan 
complies with applicable statutes and regulations. The Board can at any 
time reject an application that does not meet these requirements.
    (b) Evaluation criteria. Applications that are determined to be 
eligible pursuant to paragraph (a) of this section

[[Page 640]]

shall be subject to a substantive review, on a competitive basis, by the 
Board based upon the following evaluation factors, in order of 
importance:
    (1) The ability of the Borrower to repay the loan by the date 
specified in the Loan Document, which shall be no later than December 
31, 2010;
    (2) The adequacy of the proposed provisions to protect the 
Government, including sufficiency of Security, the priority of the lien 
position in the Security, and the percentage of Guarantee requested; and
    (3) Adequacy of the underwriting analysis performed by the Lender in 
preparing the application and the ability of the Lender to administer 
the loan in full compliance with the requisite standard of care set 
forth in Sec. 500.211(b).
    (c) Decisions by the Board. Upon completion of the evaluation of the 
application and as soon as possible after the due date, the Board will 
approve or deny all eligible applications timely received under this 
Program. The Board shall notify all Applicants in writing of the 
approval or denial of the Guarantee applications as soon as possible. 
Approvals for loan Guarantees shall be conditioned upon compliance with 
Sec. 500.208.



Sec. 500.208  Issuance of the Guarantee.

    (a) The Board's decisions to approve any application for, and extend 
an offer of, guarantee under Sec. 500.207 is conditioned upon:
    (1) The Lender and Borrower obtaining any required regulatory or 
judicial approvals;
    (2) The Lender and Borrower being legally authorized to enter into 
the loan under the terms and conditions submitted to the Board in the 
application;
    (3) The Board's receipt of the Loan Documents, Guarantee, and any 
related instruments, properly executed by the Lender, Borrower, and any 
other required party other than the Board; and
    (4) No material adverse change in the Borrower's ability to repay 
the loan between the date of the Board's approval and the date the 
Guarantee is to be issued.
    (b) The Board may withdraw its approval of an application and 
rescind its offer of Guarantee if the Board determines that the Lender 
or the Borrower cannot, or is unwilling to, provide adequate 
documentation and proof of compliance with paragraph (a) of this section 
within the time provided for in the offer.
    (c) Only after receipt of all the documentation, required by this 
section, will the Board sign and deliver the Guarantee.
    (d) A Borrower receiving a loan guaranteed by the Board under this 
Program shall pay a one-time guarantee fee of 0.5 percent of the amount 
of the principal of the loan. This fee must be paid no later than one 
year from the issuance of the Guarantee.



Sec. 500.209  Funding for the Program.

    The Act provides funding for the costs incurred by the Government as 
a result of granting Guarantees under the Program. While pursuing the 
goals of the Act, it is the intent of the Board to minimize the cost of 
the Program to the Government. The Board will estimate the risk posed by 
the guaranteed loans to the funds appropriated for the costs of the 
Guarantees under the Program and operate the Program accordingly.



Sec. 500.210  Assignment or transfer of loans.

    (a) Neither the Loan Documents nor the Guarantee of the Board, or 
any interest therein, may be modified, assigned, conveyed, sold or 
otherwise transferred by the Lender, in whole or in part, without the 
prior written approval of the Board.
    (b) Under no circumstances will the Board permit an assignment or 
transfer of less than 100 percent of a Lender's interest in the Loan 
Documents and Guarantee, nor will it permit an assignment or transfer to 
be made to a party which the Board determines not to be an Eligible 
Lender pursuant to Sec. 500.201.
    (c) The proscription under paragraph (a) of this section shall not 
apply to:
    (1) Transfers which occur by operation of law, unless a primary 
purpose of the transaction leading to such a transfer was to assign, 
convey or sell the loan note or Guarantee without the

[[Page 641]]

necessity of securing the Board's prior written approval; or
    (2) An action or agreement by the Lender which has the effect of 
distributing the risks of the credit among other Lenders if:
    (i) Neither the loan note nor the Guarantee is assigned, conveyed, 
sold, or transferred in whole or in part;
    (ii) Both the unguaranteed and guaranteed portions of the loan are 
treated in the same manner;
    (iii) The Lender remains solely responsible for the administration 
of the loan; and
    (iv) The Board's ability to assert any and all defenses available to 
it under the Guarantee and the law is not adversely affected; or
    (3) Transfer by a non-Agent Lender of the non-guaranteed portion of 
the loan after payment under the Guarantee has been made.

[64 FR 57947, Oct. 27, 1999, as amended at 65 FR 24107, Apr. 25, 2000]



Sec. 500.211  Lender responsibilities.

    (a) General. Lender shall comply with all provisions of the 
Guarantee.
    (b) Standard of care. The Lender shall exercise due care and 
diligence in administering the loan as would be exercised by a 
reasonable and prudent banking institution when administering a secured 
loan of such banking institution's own funds without a Federal guaranty. 
Such standard shall also apply to any and all approvals, determinations, 
permissions, acceptances, requirements, or opinion made, given, imposed 
or reached by Lender.
    (c) Representation to the Board. In addition to any other 
representations required by the Guarantee, the Applicant shall represent 
to the Board that it has the ability to, and will, administer the loan, 
as well as to exercise the Applicant's rights and pursue its remedies, 
including conducting any liquidation of the Security or additional 
Security in full compliance with the standard of care, without the need 
for any advice, opinion, determination, recommendation, approval, 
disapproval, assistance (financial or other) or participation by the 
Board, except where the Board's consent is expressly required by the 
Guarantee, or where the Board, in its sole discretion and pursuant to 
the Guarantee, elects to provide same.
    (d) Covenants. With respect to any loan guaranteed by the Board 
pursuant to the Act and this part, the Lender shall require the Loan 
Documents to contain such affirmative and negative covenants by the 
Borrower as are required by the terms and conditions of the Guarantee, 
such as the prohibition on the payment of dividends.
    (e) Monitoring. In accordance with the Guarantee the Lender shall 
monitor Borrower's performance under the Loan Documents to detect any 
noncompliance by the Borrower with any provision thereof.
    (f) Reporting. With respect to any loan guaranteed by the Board 
pursuant to the Act and this part the Lender shall provide the Board 
with the following information, in accordance with the Guarantee:
    (1) Financial statements for the borrower, as provided in the 
Guarantee;
    (2) Projected balance sheet, income statement, and cash flows for 
the Borrower for each year remaining on the term of the loan; and
    (3) A completed signed copy of Form ``Quarterly Compliance 
Statement'' that includes information on the recent performance of the 
loan, within 15 days of the end of each calendar quarter.
    (g) Notices. All written notices, requests, or demands made to the 
Board shall be mailed to the Board at the U.S. Department of Commerce, 
H2500, Washington, DC 20230, except as otherwise specified by the 
Guarantee or as directed by the Board. Lender shall notify the Board in 
writing without delay of:
    (1) Deterioration in the internal risk rating of a loan guaranteed 
under this Program within 5 business days of such action by the Lender;
    (2) The occurrence of each event of default under the Loan Documents 
or Guarantee promptly, but not later than 5 business days, of the 
Lender's learning of such occurrence; and
    (3) Any other notification requirements as provided by law, or by 
the

[[Page 642]]

terms of the Guarantee or Loan Documents.

[64 FR 57947, Oct. 27, 1999, as amended at 65 FR 24107, Apr. 25, 2000; 
65 FR 51522, Aug. 24, 2000]



Sec. 500.212  Liquidation.

    (a) The Board may take, or direct to be taken, any action in 
liquidating the Security which the Board determines to be necessary or 
proper, consistent with Federal law and regulations.
    (b) Pursuant to the Guarantee, upon written demand by the Lender and 
whether or not the Board has made any payment under the Guarantee, the 
Board, at the Board's sole option shall have the right to require that 
the Lender, solely or jointly with the Board, conduct to completion the 
liquidation of any or all of the Security. The Board may choose to 
conduct the liquidation itself.



Sec. 500.213  Termination of obligations.

    (a) The Board, in its discretion, shall be entitled to terminate 
all, or a portion, of the Board's obligations under the Guarantee, 
without further cause, in the event that:
    (1) The Guarantee fee required by Sec. 500.208(d) shall not have 
been paid;
    (2) A Lender shall have released or covenanted not to sue the 
Borrower or any other guarantor, or agreed to the modification of any 
obligation of any party to any agreement related to the loan, without 
the prior written consent of the Board;
    (3) A Lender has released the Board from its liability and 
obligations under the Guarantee;
    (4) A Lender shall have made any incorrect or incomplete 
representation to the Board in any material respect in connection with 
the Application, the Guarantee or the Loan Documents;
    (5) A Lender fails to make a demand for payment within 30 days of 
payment default; or
    (6) A Lender fails to comply with any material provision of the Loan 
Documents or the Guarantee.
    (b) Upon receipt of a written demand for payment made pursuant to 
the Guarantee, the Board shall be entitled to seek such certifications 
from the Lender, undertake such audits or investigations, or take such 
other action as is provided for by law or the Guarantee so as to 
determine whether the Lender has complied with all of the Lender's 
obligations under the Guarantee.

[64 FR 57947, Oct. 27, 1999, as amended at 65 FR 24107, Apr. 25, 2000]



Sec. 500.214  OMB control number. [Reserved]


[[Page 643]]



                              FINDING AIDS




  --------------------------------------------------------------------

  A list of CFR titles, subtitles, chapters, subchapters and parts and 
an alphabetical list of agencies publishing in the CFR are included in 
the CFR Index and Finding Aids volume to the Code of Federal Regulations 
which is published separately and revised annually.

  Material Approved for Incorporation by Reference
  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  List of CFR Sections Affected

[[Page 645]]

            Material Approved for Incorporation by Reference

                     (Revised as of January 1, 2003)

  The Director of the Federal Register has approved under 5 U.S.C. 
552(a) and 1 CFR Part 51 the incorporation by reference of the following 
publications. This list contains only those incorporations by reference 
effective as of the revision date of this volume. Incorporations by 
reference found within a regulation are effective upon the effective 
date of that regulation. For more information on incorporation by 
reference, see the preliminary pages of this volume.


13 CFR (PARTS 1-199)

SMALL BUSINESS ADMINISTRATION
                                                                  13 CFR


American National Standards Institute

  25 West 43rd Street, Fourth floor, New York, NY 
  10036 Telephone: (212) 642-4900
ANSI A117.1-1980 American National Standard                   113.3-3(c)
  Specifications for Making Buildings and 
  Facilities Accessible to and Usable by the 
  Physically Handicapped.



[[Page 647]]



                    Table of CFR Titles and Chapters




                     (Revised as of January 1, 2003)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
        IV  Miscellaneous Agencies (Parts 400--500)

                          Title 2 [Reserved]

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  General Accounting Office (Parts 1--99)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Part 2100)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
        XV  Office of Administration, Executive Office of the 
                President (Parts 2500--2599)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Part 3201)
     XXIII  Department of Energy (Part 3301)
      XXIV  Federal Energy Regulatory Commission (Part 3401)
       XXV  Department of the Interior (Part 3501)
      XXVI  Department of Defense (Part 3601)

[[Page 648]]

    XXVIII  Department of Justice (Part 3801)
      XXIX  Federal Communications Commission (Parts 3900--3999)
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
      XXXI  Farm Credit Administration (Parts 4100--4199)
    XXXIII  Overseas Private Investment Corporation (Part 4301)
      XXXV  Office of Personnel Management (Part 4501)
        XL  Interstate Commerce Commission (Part 5001)
       XLI  Commodity Futures Trading Commission (Part 5101)
      XLII  Department of Labor (Part 5201)
     XLIII  National Science Foundation (Part 5301)
       XLV  Department of Health and Human Services (Part 5501)
      XLVI  Postal Rate Commission (Part 5601)
     XLVII  Federal Trade Commission (Part 5701)
    XLVIII  Nuclear Regulatory Commission (Part 5801)
         L  Department of Transportation (Part 6001)
       LII  Export-Import Bank of the United States (Part 6201)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Part 6401)
      LVII  General Services Administration (Part 6701)
     LVIII  Board of Governors of the Federal Reserve System (Part 
                6801)
       LIX  National Aeronautics and Space Administration (Part 
                6901)
        LX  United States Postal Service (Part 7001)
       LXI  National Labor Relations Board (Part 7101)
      LXII  Equal Employment Opportunity Commission (Part 7201)
     LXIII  Inter-American Foundation (Part 7301)
       LXV  Department of Housing and Urban Development (Part 
                7501)
      LXVI  National Archives and Records Administration (Part 
                7601)
      LXIX  Tennessee Valley Authority (Part 7901)
      LXXI  Consumer Product Safety Commission (Part 8101)
    LXXIII  Department of Agriculture (Part 8301)
     LXXIV  Federal Mine Safety and Health Review Commission (Part 
                8401)
     LXXVI  Federal Retirement Thrift Investment Board (Part 8601)
    LXXVII  Office of Management and Budget (Part 8701)

                          Title 6 [Reserved]

              

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture
         I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)

[[Page 649]]

        II  Food and Nutrition Service, Department of Agriculture 
                (Parts 210--299)
       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)
        IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)
         V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
        VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)
      VIII  Grain Inspection, Packers and Stockyards 
                Administration (Federal Grain Inspection Service), 
                Department of Agriculture (Parts 800--899)
        IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)
         X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)
        XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
        XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)
       XVI  Rural Telephone Bank, Department of Agriculture (Parts 
                1600--1699)
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)
     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
        XX  Local Television Loan Guarantee Board (Parts 2200--
                2299)
      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
      XXIX  Office of Energy, Department of Agriculture (Parts 
                2900--2999)
       XXX  Office of the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)
      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  Office of Procurement and Property Management, 
                Department of Agriculture (Parts 3200--3299)
    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)

[[Page 650]]

     XXXIV  Cooperative State Research, Education, and Extension 
                Service, Department of Agriculture (Parts 3400--
                3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)
     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)
    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
       XLI  [Reserved]
      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)

                    Title 8--Aliens and Nationality

         I  Immigration and Naturalization Service, Department of 
                Justice (Parts 1--599)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)
        II  Grain Inspection, Packers and Stockyards 
                Administration (Packers and Stockyards Programs), 
                Department of Agriculture (Parts 200--299)
       III  Food Safety and Inspection Service, Department of 
                Agriculture (Parts 300--599)

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)
       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 1000-
                -1099)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Part 1800)

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)

[[Page 651]]

        IV  Export-Import Bank of the United States (Parts 400--
                499)
         V  Office of Thrift Supervision, Department of the 
                Treasury (Parts 500--599)
        VI  Farm Credit Administration (Parts 600--699)
       VII  National Credit Union Administration (Parts 700--799)
      VIII  Federal Financing Bank (Parts 800--899)
        IX  Federal Housing Finance Board (Parts 900--999)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Department of the Treasury (Parts 1500--1599)
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700--1799)
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

         I  Small Business Administration (Parts 1--199)
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)
        IV  Emergency Steel Guarantee Loan Board (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board (Parts 
                500--599)

                    Title 14--Aeronautics and Space

         I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
        II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--499)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)
        VI  Air Transportation System Stabilization (Parts 1300--
                1399)

                 Title 15--Commerce and Foreign Trade

            Subtitle A--Office of the Secretary of Commerce (Parts 
                0--29)
            Subtitle B--Regulations Relating to Commerce and 
                Foreign Trade
         I  Bureau of the Census, Department of Commerce (Parts 
                30--199)
        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)

[[Page 652]]

        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
       VII  Bureau of Industry and Security, Department of 
                Commerce (Parts 700--799)
      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)
        IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)
        XI  Technology Administration, Department of Commerce 
                (Parts 1100--1199)
      XIII  East-West Foreign Trade Board (Parts 1300--1399)
       XIV  Minority Business Development Agency (Parts 1400--
                1499)
            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements
        XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399)

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

             Title 17--Commodity and Securities Exchanges

         I  Commodity Futures Trading Commission (Parts 1--199)
        II  Securities and Exchange Commission (Parts 200--399)
        IV  Department of the Treasury (Parts 400--499)

          Title 18--Conservation of Power and Water Resources

         I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
       III  Delaware River Basin Commission (Parts 400--499)
        VI  Water Resources Council (Parts 700--799)
      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  United States Customs Service, Department of the 
                Treasury (Parts 1--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)

[[Page 653]]

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)
       III  Social Security Administration (Parts 400--499)
        IV  Employees' Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Employment Standards Administration, Department of 
                Labor (Parts 700--799)
       VII  Benefits Review Board, Department of Labor (Parts 800-
                -899)
      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)
        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training, Department of Labor 
                (Parts 1000--1099)

                       Title 21--Food and Drugs

         I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
        II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

                      Title 22--Foreign Relations

         I  Department of State (Parts 1--199)
        II  Agency for International Development (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  Broadcasting Board of Governors (Parts 500--599)
       VII  Overseas Private Investment Corporation (Parts 700--
                799)
        IX  Foreign Service Grievance Board (Parts 900--999)
         X  Inter-American Foundation (Parts 1000--1099)
        XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
       XIV  Foreign Service Labor Relations Board; Federal Labor 
                Relations Authority; General Counsel of the 
                Federal Labor Relations Authority; and the Foreign 
                Service Impasse Disputes Panel (Parts 1400--1499)
        XV  African Development Foundation (Parts 1500--1599)
       XVI  Japan-United States Friendship Commission (Parts 1600-
                -1699)
      XVII  United States Institute of Peace (Parts 1700--1799)

[[Page 654]]

                          Title 23--Highways

         I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)
        II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)
       III  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 1300--1399)

                Title 24--Housing and Urban Development

            Subtitle A--Office of the Secretary, Department of 
                Housing and Urban Development (Parts 0--99)
            Subtitle B--Regulations Relating to Housing and Urban 
                Development
         I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)
        II  Office of Assistant Secretary for Housing-Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 200--299)
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
        IV  Office of Housing and Office of Multifamily Housing 
                Assistance Restructuring, Department of Housing 
                and Urban Development (Parts 400--499)
         V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)
        VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)
      VIII  Office of the Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Section 8 Housing Assistance 
                Programs, Section 202 Direct Loan Program, Section 
                202 Supportive Housing for the Elderly Program and 
                Section 811 Supportive Housing for Persons With 
                Disabilities Program) (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--1699)
         X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) (Parts 1700--1799)
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

[[Page 655]]

                           Title 25--Indians

         I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
        II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
        IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--799)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900)
        VI  Office of the Assistant Secretary-Indian Affairs, 
                Department of the Interior (Parts 1000--1199)
       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Part 1200)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--899)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Bureau of Alcohol, Tobacco and Firearms, Department of 
                the Treasury (Parts 1--299)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--199)
       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
         V  Bureau of Prisons, Department of Justice (Parts 500--
                599)
        VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
       VII  Office of Independent Counsel (Parts 700--799)
      VIII  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 800--899)
        IX  National Crime Prevention and Privacy Compact Council 
                (Parts 900--999)
        XI  Department of Justice and Department of State (Parts 
                1100--1199)

                            Title 29--Labor

            Subtitle A--Office of the Secretary of Labor (Parts 0-
                -99)
            Subtitle B--Regulations Relating to Labor
         I  National Labor Relations Board (Parts 100--199)
        II  Office of Labor-Management Standards, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)

[[Page 656]]

        IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
         V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
        IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
         X  National Mediation Board (Parts 1200--1299)
       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
        XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
       XXV  Pension and Welfare Benefits Administration, 
                Department of Labor (Parts 2500--2599)
     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
        XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Minerals Management Service, Department of the 
                Interior (Parts 200--299)
       III  Board of Surface Mining and Reclamation Appeals, 
                Department of the Interior (Parts 300--399)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance
         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 200-
                -399)
        IV  Secret Service, Department of the Treasury (Parts 400-
                -499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)
        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)
      VIII  Office of International Investment, Department of the 
                Treasury (Parts 800--899)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)

[[Page 657]]

                      Title 32--National Defense

            Subtitle A--Department of Defense
         I  Office of the Secretary of Defense (Parts 1--399)
         V  Department of the Army (Parts 400--699)
        VI  Department of the Navy (Parts 700--799)
       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense
       XII  Defense Logistics Agency (Parts 1200--1299)
       XVI  Selective Service System (Parts 1600--1699)
     XVIII  National Counterintelligence Center (Parts 1800--1899)
       XIX  Central Intelligence Agency (Parts 1900--1999)
        XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
       XXI  National Security Council (Parts 2100--2199)
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)
    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Transportation (Parts 1--
                199)
        II  Corps of Engineers, Department of the Army (Parts 200-
                -399)
        IV  Saint Lawrence Seaway Development Corporation, 
                Department of Transportation (Parts 400--499)

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education
         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)
        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)
       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Vocational and Adult Education, Department 
                of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599)
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
        XI  National Institute for Literacy (Parts 1100--1199)
            Subtitle C--Regulations Relating to Education
       XII  National Council on Disability (Parts 1200--1299)

[[Page 658]]

                        Title 35--Panama Canal

         I  Panama Canal Regulations (Parts 1--299)

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)
        II  Forest Service, Department of Agriculture (Parts 200--
                299)
       III  Corps of Engineers, Department of the Army (Parts 300-
                -399)
        IV  American Battle Monuments Commission (Parts 400--499)
         V  Smithsonian Institution (Parts 500--599)
       VII  Library of Congress (Parts 700--799)
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
        IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)
         X  Presidio Trust (Parts 1000--1099)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
        XV  Oklahoma City National Memorial Trust (Part 1501)
       XVI  Morris K. Udall Scholarship and Excellence in National 
                Environmental Policy Foundation (Parts 1600--1699)

             Title 37--Patents, Trademarks, and Copyrights

         I  United States Patent and Trademark Office, Department 
                of Commerce (Parts 1--199)
        II  Copyright Office, Library of Congress (Parts 200--299)
        IV  Assistant Secretary for Technology Policy, Department 
                of Commerce (Parts 400--499)
         V  Under Secretary for Technology, Department of Commerce 
                (Parts 500--599)

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--99)

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Rate Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--799)
        IV  Environmental Protection Agency and Department of 
                Justice (Parts 1400--1499)
         V  Council on Environmental Quality (Parts 1500--1599)
        VI  Chemical Safety and Hazard Investigation Board (Parts 
                1600--1699)

[[Page 659]]

       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)

          Title 41--Public Contracts and Property Management

            Subtitle B--Other Provisions Relating to Public 
                Contracts
        50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
        51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
        60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)
        61  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 61-1--61-999)
            Subtitle C--Federal Property Management Regulations 
                System
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
       102  Federal Management Regulation (Parts 102-1--102-299)
       105  General Services Administration (Parts 105-1--105-999)
       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
       114  Department of the Interior (Parts 114-1--114-99)
       115  Environmental Protection Agency (Parts 115-1--115-99)
       128  Department of Justice (Parts 128-1--128-99)
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]
            Subtitle E--Federal Information Resources Management 
                Regulations System
       201  Federal Information Resources Management Regulation 
                (Parts 201-1--201-99) [Reserved]
            Subtitle F--Federal Travel Regulation System
       300  General (Parts 300-1--300-99)
       301  Temporary Duty (TDY) Travel Allowances (Parts 301-1--
                301-99)
       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-70)
       304  Payment from a Non-Federal Source for Travel Expenses 
                (Parts 304-1--304-99)

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
        IV  Centers for Medicare & Medicaid Services, Department 
                of Health and Human Services (Parts 400--499)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1999)

[[Page 660]]

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands
         I  Bureau of Reclamation, Department of the Interior 
                (Parts 200--499)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10005)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency (Parts 0--399)
        IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare
        II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)
       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
        IV  Office of Refugee Resettlement, Administration for 
                Children and Families Department of Health and 
                Human Services (Parts 400--499)
         V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)
        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899)
         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)
       XII  Corporation for National and Community Service (Parts 
                1200--1299)
      XIII  Office of Human Development Services, Department of 
                Health and Human Services (Parts 1300--1399)
       XVI  Legal Services Corporation (Parts 1600--1699)
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
       XXI  Commission on Fine Arts (Parts 2100--2199)

[[Page 661]]

     XXIII  Arctic Research Commission (Part 2301)
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)
       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

         I  Coast Guard, Department of Transportation (Parts 1--
                199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
       III  Coast Guard (Great Lakes Pilotage), Department of 
                Transportation (Parts 400--499)
        IV  Federal Maritime Commission (Parts 500--599)

                      Title 47--Telecommunication

         I  Federal Communications Commission (Parts 0--199)
        II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)
       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 300-
                -399)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)
         2  Department of Defense (Parts 200--299)
         3  Department of Health and Human Services (Parts 300--
                399)
         4  Department of Agriculture (Parts 400--499)
         5  General Services Administration (Parts 500--599)
         6  Department of State (Parts 600--699)
         7  United States Agency for International Development 
                (Parts 700--799)
         8  Department of Veterans Affairs (Parts 800--899)
         9  Department of Energy (Parts 900--999)
        10  Department of the Treasury (Parts 1000--1099)
        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)
        15  Environmental Protection Agency (Parts 1500--1599)
        16  Office of Personnel Management Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
        17  Office of Personnel Management (Parts 1700--1799)
        18  National Aeronautics and Space Administration (Parts 
                1800--1899)
        19  Broadcasting Board of Governors (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)

[[Page 662]]

        21  Office of Personnel Management, Federal Employees 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
        23  Social Security Administration (Parts 2300--2399)
        24  Department of Housing and Urban Development (Parts 
                2400--2499)
        25  National Science Foundation (Parts 2500--2599)
        28  Department of Justice (Parts 2800--2899)
        29  Department of Labor (Parts 2900--2999)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        35  Panama Canal Commission (Parts 3500--3599)
        44  Federal Emergency Management Agency (Parts 4400--4499)
        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199)
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement (Parts 5300--5399)
        54  Defense Logistics Agency, Department of Defense (Part 
                5452)
        57  African Development Foundation (Parts 5700--5799)
        61  General Services Administration Board of Contract 
                Appeals (Parts 6100--6199)
        63  Department of Transportation Board of Contract Appeals 
                (Parts 6300--6399)
        99  Cost Accounting Standards Board, Office of Federal 
                Procurement Policy, Office of Management and 
                Budget (Parts 9900--9999)

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
         I  Research and Special Programs Administration, 
                Department of Transportation (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)
       III  Federal Motor Carrier Safety Administration, 
                Department of Transportation (Parts 300--399)
        IV  Coast Guard, Department of Transportation (Parts 400--
                499)
         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
      VIII  National Transportation Safety Board (Parts 800--999)
         X  Surface Transportation Board, Department of 
                Transportation (Parts 1000--1399)

[[Page 663]]

        XI  Bureau of Transportation Statistics, Department of 
                Transportation (Parts 1400--1499)
       XII  Transportation Security Administration, Department of 
                Transportation (Parts 1500--1599)

                   Title 50--Wildlife and Fisheries

         I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
        II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
       III  International Fishing and Related Activities (Parts 
                300--399)
        IV  Joint Regulations (United States Fish and Wildlife 
                Service, Department of the Interior and National 
                Marine Fisheries Service, National Oceanic and 
                Atmospheric Administration, Department of 
                Commerce); Endangered Species Committee 
                Regulations (Parts 400--499)
         V  Marine Mammal Commission (Parts 500--599)
        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

                      CFR Index and Finding Aids

            Subject/Agency Index
            List of Agency Prepared Indexes
            Parallel Tables of Statutory Authorities and Rules
            List of CFR Titles, Chapters, Subchapters, and Parts
            Alphabetical List of Agencies Appearing in the CFR



[[Page 665]]





           Alphabetical List of Agencies Appearing in the CFR




                     (Revised as of January 1, 2003)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Committee of the Federal Register  1, I
Advanced Research Projects Agency                 32, I
Advisory Council on Historic Preservation         36, VIII
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development, United      22, II
     States
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department                            5, LXXIII
  Agricultural Marketing Service                  7, I, IX, X, XI
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Chief Financial Officer, Office of              7, XXX
  Commodity Credit Corporation                    7, XIV
  Cooperative State Research, Education, and      7, XXXIV
       Extension Service
  Economic Research Service                       7, XXXVII
  Energy, Office of                               7, XXIX
  Environmental Quality, Office of                7, XXXI
  Farm Service Agency                             7, VII, XVIII
  Federal Acquisition Regulation                  48, 4
  Federal Crop Insurance Corporation              7, IV
  Food and Nutrition Service                      7, II
  Food Safety and Inspection Service              9, III
  Foreign Agricultural Service                    7, XV
  Forest Service                                  36, II
  Grain Inspection, Packers and Stockyards        7, VIII; 9, II
       Administration
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  Natural Resources Conservation Service          7, VI
  Operations, Office of                           7, XXVIII
  Procurement and Property Management, Office of  7, XXXII
  Rural Business-Cooperative Service              7, XVIII, XLII
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV
  Rural Telephone Bank                            7, XVI
  Rural Utilities Service                         7, XVII, XVIII, XLII
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force Department                              32, VII
  Federal Acquisition Regulation Supplement       48, 53
Alcohol, Tobacco and Firearms, Bureau of          27, I
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII
Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX
Architectural and Transportation Barriers         36, XI
     Compliance Board
Arctic Research Commission                        45, XXIII

[[Page 666]]

Armed Forces Retirement Home                      5, XI
Army Department                                   32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Benefits Review Board                             20, VII
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase From People Who Are
Broadcasting Board of Governors                   22, V
  Federal Acquisition Regulation                  48, 19
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X
Civil Rights, Commission on                       45, VII
Civil Rights, Office for                          34, I
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce Department                               44, IV
  Census Bureau                                   15, I
  Economic Affairs, Under Secretary               37, V
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 13
  Fishery Conservation and Management             50, VI
  Foreign-Trade Zones Board                       15, IV
  Industry and Security, Bureau of                15, VII
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II
  National Marine Fisheries Service               50, II, IV, VI
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Telecommunications and Information     15, XXIII; 47, III
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office, United States      37, I
  Productivity, Technology and Innovation,        37, IV
       Assistant Secretary for
  Secretary of Commerce, Office of                15, Subtitle A
  Technology, Under Secretary for                 37, V
  Technology Administration                       15, XI
  Technology Policy, Assistant Secretary for      37, IV
Commercial Space Transportation                   14, III
Commodity Credit Corporation                      7, XIV
Commodity Futures Trading Commission              5, XLI; 17, I
Community Planning and Development, Office of     24, V, VI
     Assistant Secretary for
Community Services, Office of                     45, X
Comptroller of the Currency                       12, I
Construction Industry Collective Bargaining       29, IX
     Commission
Consumer Product Safety Commission                5, LXXI; 16, II
Cooperative State Research, Education, and        7, XXXIV
     Extension Service
Copyright Office                                  37, II
Corporation for National and Community Service    45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Court Services and Offender Supervision Agency    28, VIII
     for the District of Columbia
Customs Service, United States                    19, I
Defense Contract Audit Agency                     32, I
Defense Department                                5, XXVI; 32, Subtitle A; 
                                                  40, VII
  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII

[[Page 667]]

  Army Department                                 32, V; 33, II; 36, III, 
                                                  48, 51
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 2
  National Imagery and Mapping Agency             32, I
  Navy Department                                 32, VI; 48, 52
  Secretary of Defense, Office of                 32, I
Defense Contract Audit Agency                     32, I
Defense Intelligence Agency                       32, I
Defense Logistics Agency                          32, XII; 48, 54
Defense Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
District of Columbia, Court Services and          28, VIII
     Offender Supervision Agency for the
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Affairs, Under Secretary                 37, V
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Civil Rights, Office for                        34, I
  Educational Research and Improvement, Office    34, VII
       of
  Elementary and Secondary Education, Office of   34, II
  Federal Acquisition Regulation                  48, 34
  Postsecondary Education, Office of              34, VI
  Secretary of Education, Office of               34, Subtitle A
  Special Education and Rehabilitative Services,  34, III
       Office of
  Vocational and Adult Education, Office of       34, IV
Educational Research and Improvement, Office of   34, VII
Elementary and Secondary Education, Office of     34, II
Emergency Oil and Gas Guaranteed Loan Board       13, V
Emergency Steel Guarantee Loan Board              13, IV
Employees' Compensation Appeals Board             20, IV
Employees Loyalty Board                           5, V
Employment and Training Administration            20, V
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             5, XXIII; 10, II, III, X
  Federal Acquisition Regulation                  48, 9
  Federal Energy Regulatory Commission            5, XXIV; 18, I
  Property Management Regulations                 41, 109
Energy, Office of                                 7, XXIX
Engineers, Corps of                               33, II; 36, III
Engraving and Printing, Bureau of                 31, VI
Environmental Protection Agency                   5, LIV; 40, I, IV, VII
  Federal Acquisition Regulation                  48, 15
  Property Management Regulations                 41, 115
Environmental Quality, Office of                  7, XXXI
Equal Employment Opportunity Commission           5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary  24, I
     for
Executive Office of the President                 3, I
  Administration, Office of                       5, XV
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                5, III, LXXVII; 14, VI; 
                                                  48, 99
  National Drug Control Policy, Office of         21, III
  National Security Council                       32, XXI; 47, 2
  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II
  Trade Representative, Office of the United      15, XX
       States
Export-Import Bank of the United States           5, LII; 12, IV
Family Assistance, Office of                      45, II

[[Page 668]]

Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV
Farm Service Agency                               7, VII, XVIII
Federal Acquisition Regulation                    48, 1
Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               31, IX
Federal Communications Commission                 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of   41, 60
Federal Crop Insurance Corporation                7, IV
Federal Deposit Insurance Corporation             5, XXII; 12, III
Federal Election Commission                       11, I
Federal Emergency Management Agency               44, I
  Federal Acquisition Regulation                  48, 44
Federal Employees Group Life Insurance Federal    48, 21
     Acquisition Regulation
Federal Employees Health Benefits Acquisition     48, 16
     Regulation
Federal Energy Regulatory Commission              5, XXIV; 18, I
Federal Financial Institutions Examination        12, XI
     Council
Federal Financing Bank                            12, VIII
Federal Highway Administration                    23, I, II
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Board                     12, IX
Federal Labor Relations Authority, and General    5, XIV; 22, XIV
     Counsel of the Federal Labor Relations 
     Authority
Federal Law Enforcement Training Center           31, VII
Federal Management Regulation                     41, 102
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Motor Carrier Safety Administration       49, III
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
Federal Railroad Administration                   49, II
Federal Register, Administrative Committee of     1, I
Federal Register, Office of                       1, II
Federal Reserve System                            12, II
  Board of Governors                              5, LVIII
Federal Retirement Thrift Investment Board        5, VI, LXXVI
Federal Service Impasses Panel                    5, XIV
Federal Trade Commission                          5, XLVII; 16, I
Federal Transit Administration                    49, VI
Federal Travel Regulation System                  41, Subtitle F
Fine Arts, Commission on                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
Fishery Conservation and Management               50, VI
Food and Drug Administration                      21, I
Food and Nutrition Service                        7, II
Food Safety and Inspection Service                9, III
Foreign Agricultural Service                      7, XV
Foreign Assets Control, Office of                 31, V
Foreign Claims Settlement Commission of the       45, V
     United States
Foreign Service Grievance Board                   22, IX
Foreign Service Impasse Disputes Panel            22, XIV
Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV
Forest Service                                    36, II
General Accounting Office                         4, I
General Services Administration                   5, LVII; 41, 105
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5
  Federal Management Regulation                   41, 102
  Federal Property Management Regulation          41, 101
  Federal Travel Regulation System                41, Subtitle F

[[Page 669]]

  General                                         41, 300
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
       of Certain Employees
  Relocation Allowances                           41, 302
  Temporary Duty (TDY) Travel Allowances          41, 301
Geological Survey                                 30, IV
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          5, XLV; 45, Subtitle A
  Centers for Medicare & Medicaid Services        42, IV
  Child Support Enforcement, Office of            45, III
  Children and Families, Administration for       45, II, III, IV, X
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Human Development Services, Office of           45, XIII
  Indian Health Service                           25, V
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Housing and Urban Development, Department of      5, LXV; 24, Subtitle B
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  Housing, Office of, and Multifamily Housing     24, IV
       Assistance Restructuring, Office of
  Inspector General, Office of                    24, XII
  Public and Indian Housing, Office of Assistant  24, IX
       Secretary for
  Secretary, Office of                            24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of  24, II, VIII, X, XX
     Assistant Secretary for
Housing, Office of, and Multifamily Housing       24, IV
     Assistance Restructuring, Office of
Human Development Services, Office of             45, XIII
Immigration and Naturalization Service            8, I
Independent Counsel, Office of                    28, VII
Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
     Secretary
Indian Arts and Crafts Board                      25, II
Indian Health Service                             25, V
Industry and Security, Bureau of                  15, VII
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
     Archives and Records Administration
Inspector General
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Interior Department
  American Indians, Office of the Special         25, VII
       Trustee
  Endangered Species Committee                    50, IV
  Federal Acquisition Regulation                  48, 14
  Federal Property Management Regulations System  41, 114
  Fish and Wildlife Service, United States        50, I, IV
  Geological Survey                               30, IV
  Indian Affairs, Bureau of                       25, I, V

[[Page 670]]

  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  Minerals Management Service                     30, II
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Reclamation, Bureau of                          43, I
  Secretary of the Interior, Office of            43, Subtitle A
  Surface Mining and Reclamation Appeals, Board   30, III
       of
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, United States Agency   22, II
     for
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
International Fishing and Related Activities      50, III
International Investment, Office of               31, VIII
International Joint Commission, United States     22, IV
     and Canada
International Organizations Employees Loyalty     5, V
     Board
International Trade Administration                15, III; 19, III
International Trade Commission, United States     19, II
Interstate Commerce Commission                    5, XL
James Madison Memorial Fellowship Foundation      45, XXIV
Japan-United States Friendship Commission         22, XVI
Joint Board for the Enrollment of Actuaries       20, VIII
Justice Department                                5, XXVIII; 28, I, XI; 40, 
                                                  IV
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             31, IX
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration and Naturalization Service          8, I
  Offices of Independent Counsel                  28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor Department                                  5, XLII
  Benefits Review Board                           20, VII
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V
  Employment Standards Administration             20, VI
  Federal Acquisition Regulation                  48, 29
  Federal Contract Compliance Programs, Office    41, 60
       of
  Federal Procurement Regulations System          41, 50
  Labor-Management Standards, Office of           29, II, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Pension and Welfare Benefits Administration     29, XXV
  Public Contracts                                41, 50
  Secretary of Labor, Office of                   29, Subtitle A
  Veterans' Employment and Training Service,      41, 61; 20, IX
       Office of the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Library of Congress                               36, VII
  Copyright Office                                37, II
Local Television Loan Guarantee Board             7, XX
Management and Budget, Office of                  5, III, LXXVII; 14, VI; 
                                                  48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II

[[Page 671]]

Merit Systems Protection Board                    5, II
Micronesian Status Negotiations, Office for       32, XXVII
Mine Safety and Health Administration             30, I
Minerals Management Service                       30, II
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
Morris K. Udall Scholarship and Excellence in     36, XVI
     National Environmental Policy Foundation
National Aeronautics and Space Administration     5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National and Community Service, Corporation for   45, XII, XXV
National Archives and Records Administration      5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Bureau of Standards                      15, II
National Capital Planning Commission              1, IV
National Commission for Employment Policy         1, IV
National Commission on Libraries and Information  45, XVII
     Science
National Council on Disability                    34, XII
National Counterintelligence Center               32, XVIII
National Credit Union Administration              12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           21, III
National Foundation on the Arts and the           45, XI
     Humanities
National Highway Traffic Safety Administration    23, II, III; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute for Literacy                   34, XI
National Institute of Standards and Technology    15, II
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV, VI
National Mediation Board                          29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
National Park Service                             36, I
National Railroad Adjustment Board                29, III
National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       5, XLIII; 45, VI
  Federal Acquisition Regulation                  48, 25
National Security Council                         32, XXI
National Security Council and Office of Science   47, II
     and Technology Policy
National Telecommunications and Information       15, XXIII; 47, III
     Administration
National Transportation Safety Board              49, VIII
National Weather Service                          15, IX
Natural Resources Conservation Service            7, VI
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy Department                                   32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Northeast Interstate Low-Level Radioactive Waste  10, XVIII
     Commission
Nuclear Regulatory Commission                     5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Offices of Independent Counsel                    28, VI
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
Overseas Private Investment Corporation           5, XXXIII; 22, VII
Panama Canal Commission                           48, 35
Panama Canal Regulations                          35, I
Patent and Trademark Office, United States        37, I
Payment From a Non-Federal Source for Travel      41, 304
     Expenses
Payment of Expenses Connected With the Death of   41, 303
   Certain Employees
[[Page 672]]

Peace Corps                                       22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension and Welfare Benefits Administration       29, XXV
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 45, VIII
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
       Acquisition Regulation
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
Postal Rate Commission                            5, XLVI; 39, III
Postal Service, United States                     5, LX; 39, I
Postsecondary Education, Office of                34, VI
President's Commission on White House             1, IV
     Fellowships
Presidential Documents                            3
Presidio Trust                                    36, X
Prisons, Bureau of                                28, V
Procurement and Property Management, Office of    7, XXXII
Productivity, Technology and Innovation,          37, IV
     Assistant Secretary
Public Contracts, Department of Labor             41, 50
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
Refugee Resettlement, Office of                   45, IV
Regional Action Planning Commissions              13, V
Relocation Allowances                             41, 302
Research and Special Programs Administration      49, I
Rural Business-Cooperative Service                7, XVIII, XLII
Rural Development Administration                  7, XLII
Rural Housing Service                             7, XVIII, XXXV
Rural Telephone Bank                              7, XVI
Rural Utilities Service                           7, XVII, XVIII, XLII
Saint Lawrence Seaway Development Corporation     33, IV
Science and Technology Policy, Office of          32, XXIV
Science and Technology Policy, Office of, and     47, II
     National Security Council
Secret Service                                    31, IV
Securities and Exchange Commission                17, II
Selective Service System                          32, XVI
Small Business Administration                     13, I
Smithsonian Institution                           36, V
Social Security Administration                    20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI
Special Counsel, Office of                        5, VIII
Special Education and Rehabilitative Services,    34, III
     Office of
State Department                                  22, I; 28, XI
  Federal Acquisition Regulation                  48, 6
Surface Mining and Reclamation Appeals, Board of  30, III
Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII
Technology Administration                         15, XI
Technology Policy, Assistant Secretary for        37, IV
Technology, Under Secretary for                   37, V
Tennessee Valley Authority                        5, LXIX; 18, XIII
Thrift Supervision Office, Department of the      12, V
     Treasury
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     5, L
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Commercial Space Transportation                 14, III
  Contract Appeals, Board of                      48, 63
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 12
  Federal Aviation Administration                 14, I
  Federal Highway Administration                  23, I, II

[[Page 673]]

  Federal Motor Carrier Safety Administration     49, III
  Federal Railroad Administration                 49, II
  Federal Transit Administration                  49, VI
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 49, V
  Research and Special Programs Administration    49, I
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Surface Transportation Board                    49, X
  Transportation Security Administration          49, XII
  Transportation Statistics Bureau                49, XI
Transportation, Office of                         7, XXXIII
Transportation Security Administration            49, XII
Transportation Statistics Bureau                  49, XI
Travel Allowances, Temporary Duty (TDY)           41, 301
Treasury Department                               5, XXI; 12, XV; 17, IV; 
                                                  31, IX
  Alcohol, Tobacco and Firearms, Bureau of        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs Service, United States                  19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Law Enforcement Training Center         31, VII
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  International Investment, Office of             31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
  Thrift Supervision, Office of                   12, V
Truman, Harry S. Scholarship Foundation           45, XVIII
United States and Canada, International Joint     22, IV
     Commission
United States and Mexico, International Boundary  22, XI
     and Water Commission, United States Section
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs Department                       38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training Service,        41, 61; 20, IX
     Office of the Assistant Secretary for
Vice President of the United States, Office of    32, XXVIII
Vocational and Adult Education, Office of         34, IV
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I
World Agricultural Outlook Board                  7, XXXVIII

[[Page 675]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations which were 
made by documents published in the Federal Register since January 1, 
2001, are enumerated in the following list. Entries indicate the nature 
of the changes effected. Page numbers refer to Federal Register pages. 
The user should consult the entries for chapters and parts as well as 
sections for revisions.
For the period before January 1, 2001, see the ``List of CFR Sections 
Affected, 1949-1963, 1964-1972, 1973-1985, and 1986-2000'' published in 
11 separate volumes.

                                  2001

13 CFR
                                                                   66 FR
                                                                    Page
Chapter I
107.710  (a) revised...............................................30647
108  Added; interim.................................................7224
    Regulation at 66 FR 7224 eff. date delayed.....................10811
    Regulation at 66 FR 7224 eff. date delayed.....................20530
    Regulation at 66 FR 7224 withdrawn.............................28602
    Added..........................................................28609
    Authority citation corrected...................................32894
108.150  (c) introductory text corrected...........................32894
108.2010  (b) corrected............................................32894
115  Authority citation revised....................................30804
115.12  (e)(1) and (3) amended.....................................30804
115.19  (a) amended................................................30804
115.31  (d) amended................................................30804
115.60  (a)(1) amended.............................................30804
115.61  Amended....................................................30804
115.68  Amended....................................................30804
119  Added.........................................................29013
120.131  Revised...................................................56987
    Regulation at 66 FR 56987 withdrawn............................64739
120.151  Amended...................................................56988
    Regulation at 66 FR 56988 withdrawn............................64739
120.210  Amended...................................................56988
    Regulation at 66 FR 56988 withdrawn............................64739
120.220  (a) revised; (b) and (c) redesignated as (e) and (f); 
        introductory text, new (b), new (c) and (d) added..........56988
120.223  Added.....................................................56988
    Regulation at 66 FR 56988 withdrawn............................64739
120.613  (b) revised...............................................56988
    Regulation at 66 FR 56988 withdrawn............................64739
120.700--120.715 (Subpart G)  Heading revised......................47073
120.700  Amended...................................................47073
120.701  (h) redesignated as (i); new (h) added....................47073
    (f) and (i) revised............................................47878
120.702  (a)(1) revised............................................47878
120.704  (b) revised...............................................47878
120.705  Amended...................................................47878
120.706  (a) amended...............................................47073
120.707  (a) revised...............................................47073
    (b) amended; (c)(1) and (2) revised............................47878
120.712  Heading, (b)(1) and (e) revised...........................47073
120.714  Heading and (b) revised; introductory text added..........47073
    (a) amended; (b) revised.......................................47878
120.715  (a) revised...............................................47073
120.716  Added.....................................................47073
120.845  Introductory text amended; (h) removed....................56988
    Regulation at 66 FR 56988 withdrawn............................64739
120.862  (b)(3) revised............................................56988
    Regulation at 66 FR 56988 withdrawn............................64739
120.870  (c) revised...............................................56989
    Regulation at 66 FR 56989 withdrawn............................64739
120.931  Revised...................................................56989

[[Page 676]]

    Regulation at 66 FR 56989 withdrawn............................64739
121  Waiver........................................................19381
121.201  Table amended.............................................30647
    Table corrected................................................32416
121.301  (b) and (c) revised.......................................30648
123  Authority citation revised....................................38530
    Undesignated center headings designated as Subparts A through 
E..................................................................38530
123.500--123.512 (Subpart F)  Added................................38530
123.600--123.606 (Subpart G)  Added; interim.......................53331
126  Authority citation revised.....................................4645
126.101  (c) added..................................................4645
126.103  Amended....................................................4645
126.204  Revised....................................................4645
126.206  Revised....................................................4645
126.601  (d) revised................................................4645
134.102  (l) amended; (m) redesignated as (n); new (m) added.......47074
Chapter IV
400.2  (h) through (l) redesignated as (i) through (m); (a), new 
        (j) and (l) revised; new (h), (n) and (o) added............53079
400.106  Revised...................................................53079
400.201  (c) and (d) revised.......................................53079
400.203  Revised...................................................53080
400.204  (c)(2)(i) and (3) revised.................................53080
400.205  (a) revised; (b)(10) and (11) amended; (b)(12) added......53080
400.207  (b)(1) revised............................................53080
400.208  (a)(3) revised............................................53080
400.210  Revised...................................................53080
400.215  Added.....................................................53080

                                  2002

13 CFR
                                                                   67 FR
                                                                    Page
Chapter I
107.865  Heading, (a), (b) and (d) revised; (e) and (f) removed; 
        (g) redesignated as (e)....................................64790
107.885  Amended; (b) removed......................................64791
108.50  Amended....................................................68502
108.230  (b) and (d) revised; (c)(5) added.........................68502
108.310  (a) revised...............................................68502
108.320  (g) amended...............................................68503
108.360  (k) revised...............................................68503
108.380  (a)(1)(i)(A) and (B) revised; (b)(3) amended..............68503
108.900  Undesignated centerheading added..........................68503
108.2000  Revised..................................................68503
108.2001  Added....................................................68503
108.2002  Added....................................................68503
108.2003  Added....................................................68503
108.2004  Added....................................................68503
108.2005  Added....................................................68503
108.2006  Added....................................................68503
108.2007  Added....................................................68503
108.2010  (b) redesignated as (c); new (b) added; (c) revised......68504
108.2020  (b) amended..............................................68505
108.2030  (c)(2)(iii), (iv) and (d)(2) revised.....................68505
108.2040  (a) revised..............................................68505
121  Waiver..........................................37665, 60855, 62334
    Policy statement...............................................56928
    Authority citation revised.....................................62337
121.101  (b) amended...............................................52602
121.102  (c) redesignated as (d); new (c) added; interim............3045
    Regulation at 67 FR 3045 confirmed.............................65290
121.201  Table amended; interim................3045, 11880, 52602--52605
    Table corrected...........................19637, 62292, 67103, 67253
    Table correctly revised........................................56906
    Regulation at 67 FR 11880 confirmed............................38186
    Table amended..................................................38191
    Regulation at 67 FR 3045 confirmed.............................65290
121.301  (b)(2) and (d)(1) amended; interim.........................3056
121.302  (c) amended; interim......................................11880
    Regulation at 67 FR 11880 confirmed............................38186
    (c) amended....................................................62337
121.502  (a)(2) amended; interim....................................3056
121.512  (b) amended; interim.......................................3056
121.902  Revised...................................................13716
121.903  Revised...................................................13716
121.904  Added.....................................................13716
121.1009  (h) revised..............................................47245
121.1101  Revised..................................................47245
121.1102  Revised..................................................47245
123  Authority citation revised....................................62337
123.3  (a)(1) revised; (a)(2), (3), and (4) redesignated as 
        (a)(3), (4), and (5); new (a)(2) added; interim............64518
123.4   Amended; interim...........................................64519
123.21  Redesignated from 123.107; revised.........................62337
123.101  (c) revised; interim......................................64519
123.107  Redesignated as 123.21; new 123.107 added.................62337

[[Page 677]]

123.204  Added.....................................................62337
123.300  (b) revised; interim......................................11880
    Regulation at 67 FR 11880 confirmed............................38186
123.400--123.412 (Subpart E)  Revised..............................62337
123.501   (a) revised; (c) and (d) amended; new (e) added; interim
                                                                   64519
123.601  (b) revised; interim......................................11880
    Regulation at 67 FR 11880 confirmed............................38186
124.206  (c) revised...............................................47246
124.304  (b) and (e) amended.......................................47246
124.305  (c) amended...............................................47246
124.515  (i) revised...............................................47246
134  Authority citation revised....................................47246
134.101  Amended...................................................47246
134.102  (d) revised; (k) and (m) amended; (n) redesignated as 
        (r); new (n) added.........................................47246
134.103  (b) amended...............................................47246
134.201  Existing text designated as (a) and (b); new (a) amended 
                                                                   47246
134.202  Revised...................................................47246
134.203  Revised...................................................47247
134.204   Heading, (a), (b), (c), (d) revised; (e) removed; (f) 
        redesignated as (e)........................................47247
134.205  Revised...................................................47246
134.206  Revised...................................................47247
134.207  (a) amended; (b) and (d) revised..........................47248
134.208  Revised...................................................47248
134.210  Revised...................................................47248
134.211  (b), (c) and (d) redesignated as (c), (d) and (e); new 
        (b) and (f) added; new (e) revised.........................47248
134.212  (c) and (d) amended; (e) added............................47248
134.213  (d) amended...............................................47249
134.214  (a) and (d) amended.......................................47249
134.215  (b) amended...............................................47249
134.217  Amended...................................................47249
134.226  (b) amended...............................................47249
134.227  Revised...................................................47249
134.228  (a) revised; (b) amended..................................47249
134.229  Revised...................................................47249
134.301--134.318 (Subpart C)  Heading revised......................47249
134.301  (b) amended...............................................47249
134.302  Introductory text and (b) revised.........................47249
134.303  Revised...................................................47249
134.304  Heading and (a) revised...................................47249
134.305  (a)(1), (3), (4) and (c) amended; (d) revised.............47250
134.306  Heading revised; existing text amended; (a) designated; 
        (b) added..................................................47250
134.308  (a)(2) revised............................................47250
134.309  (a) and (b) revised.......................................47250
134.310  Amended...................................................47250
134.311  Amended...................................................47450
134.313  Revised...................................................47250
134.314  Amended...................................................47250
134.316  (b) amended; (d) added....................................47250
134.317  Removed; new 134.317 redesignated from 134.318 and 
        revised....................................................47250
134.318  Redesignated as 134.317...................................47250
134.402  Amended...................................................47250
134.403  (a)(3) removed; (b) amended...............................47250
134.406  (a), (d) and (e) revised; (b) and (c) amended.............47250
134.407  (a) introductory text amended.............................47251
134.408  Redesignated as 134.409; new 134.408......................47251
134.409  Redesignated from 134.408; (b) amended....................47251


                      []
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