[Title 13 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2009 Edition]
[From the U.S. Government Printing Office]



[[Page i]]


13

                         Revised as of January 1, 2009


          Business Credit and Assistance




________________________

          Containing a codification of documents of general 
          applicability and future effect

          As of January 1, 2009
          With Ancillaries
                    Published by:
                    Office of the Federal Register
                    National Archives and Records
                    Administration
                    A Special Edition of the Federal Register

[[Page ii]]

          U.S. GOVERNMENT OFFICIAL EDITION NOTICE

          Legal Status and Use of Seals and Logos
          
          
          The seal of the National Archives and Records Administration 
              (NARA) authenticates the Code of Federal Regulations (CFR) as 
              the official codification of Federal regulations established 
              under the Federal Register Act. Under the provisions of 44 
              U.S.C. 1507, the contents of the CFR, a special edition of the 
              Federal Register, shall be judicially noticed. The CFR is 
              prima facie evidence of the original documents published in 
              the Federal Register (44 U.S.C. 1510).

          It is prohibited to use NARA's official seal and the stylized Code 
              of Federal Regulations logo on any republication of this 
              material without the express, written permission of the 
              Archivist of the United States or the Archivist's designee. 
              Any person using NARA's official seals and logos in a manner 
              inconsistent with the provisions of 36 CFR part 1200 is 
              subject to the penalties specified in 18 U.S.C. 506, 701, and 
              1017.

          Use of ISBN Prefix

          This is the Official U.S. Government edition of this publication 
              and is herein identified to certify its authenticity. Use of 
              the 0-16 ISBN prefix is for U.S. Government Printing Office 
              Official Editions only. The Superintendent of Documents of the 
              U.S. Government Printing Office requests that any reprinted 
              edition clearly be labeled as a copy of the authentic work 
              with a new ISBN.

              
              
          U . S . G O V E R N M E N T P R I N T I N G O F F I C E

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

          U.S. Superintendent of Documents  Washington, DC 
              20402-0001

          http://bookstore.gpo.gov

          Phone: toll-free (866) 512-1800; DC area (202) 512-1800

[[Page iii]]




                            Table of Contents



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

  Title 13:
          Chapter I--Small Business Administration                   3
          Chapter III--Economic Development Administration, 
          Department of Commerce                                   623
          Chapter IV--Emergency Steel Guarantee Loan Board         679
          Chapter V--Emergency Oil and Gas Guaranteed Loan 
          Board                                                    703
  Finding Aids:
      Table of CFR Titles and Chapters........................     729
      Alphabetical List of Agencies Appearing in the CFR......     749
      List of CFR Sections Affected...........................     759

[[Page iv]]





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

                     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.

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

[[Page v]]



                               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

    The contents of the Federal Register are required to be judicially 
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 
together to determine the latest version of any given rule.
    To determine whether a Code volume has been amended since its 
revision date (in this case, January 1, 2009), 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

    Each volume of the Code contains amendments published in the Federal 
Register since the last revision of that volume of the Code. Source 
citations for the regulations are referred to by volume number and page 
number of the Federal Register and date of publication. Publication 
dates and effective dates are usually not the same and care must be 
exercised by the user in determining the actual effective date. In 
instances where the effective date is beyond the cut-off date for the 
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.

[[Page vi]]

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, 1986, consult either the List of CFR Sections Affected, 1949-
1963, 1964-1972, or 1973-1985, published in seven separate volumes. For 
the period beginning January 1, 1986, a ``List of CFR 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 
effect of incorporation by reference is that the material is treated as 
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.
    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 202-741-6010.

CFR INDEXES AND TABULAR GUIDES

    A subject index to the Code of Federal Regulations is contained in a 
separate volume, revised annually as of January 1, entitled CFR Index 
and Finding Aids. This volume contains the Parallel Table of Statutory 
Authorities and Agency Rules (Table I). A list of CFR titles, chapters, 
and parts and an alphabetical list of agencies publishing in the CFR are 
also included in this volume.
    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.



[[Page vii]]


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 
volume, contact the issuing agency. The issuing agency's name appears at 
the top of odd-numbered pages.
    For inquiries concerning CFR reference assistance, call 202-741-6000 
or write to the Director, Office of the Federal Register, National 
Archives and Records Administration, Washington, DC 20408 or e-mail 
[email protected].

SALES

    The Government Printing Office (GPO) processes all sales and 
distribution of the CFR. For payment by credit card, call toll-free, 
866-512-1800, or DC area, 202-512-1800, M-F 8 a.m. to 4 p.m. e.s.t. or 
fax your order to 202-512-2250, 24 hours a day. For payment by check, 
write to: US Government Printing Office - New Orders, P.O. Box 979050, 
St. Louis, MO 63197-9000. For GPO Customer Service call 202-512-1803.

ELECTRONIC SERVICES

    The full text of the Code of Federal Regulations, the LSA (List of 
CFR Sections Affected), The United States Government Manual, the Federal 
Register, Public Laws, Public Papers, Weekly Compilation of Presidential 
Documents and the Privacy Act Compilation are available in electronic 
format at www.gpoaccess.gov/nara (``GPO Access''). For more information, 
contact Electronic Information Dissemination Services, U.S. Government 
Printing Office. Phone 202-512-1530, or 888-293-6498 (toll-free). E-
mail, [email protected].
    The Office of the Federal Register also offers a free service on the 
National Archives and Records Administration's (NARA) World Wide Web 
site for public law numbers, Federal Register finding aids, and related 
information. Connect to NARA's web site at www.archives.gov/federal-
register. The NARA site also contains links to GPO Access.

    Raymond A. Mosley,
    Director,
    Office of the Federal Register.
    January 1, 2009.







[[Page ix]]



                               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 Guarantee 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, 2009.

    For this volume, Bonnie Fritts was Chief Editor. The Code of Federal 
Regulations publication program is under the direction of Michael L. 
White, assisted by Ann Worley.


[[Page 1]]



                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............         400

chapter v--Emergency Oil and Gas Guaranteed Loan Board......         500


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

[[Page 3]]



                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
1-100           [Reserved]



101             Administration..............................           5
102             Record disclosure and privacy...............          11
103             Standards for conducting business with SBA..          29
105             Standards of conduct and employee 
                    restrictions and responsibilities.......          32
106             Cosponsorships, fee and non-fee based SBA-
                    sponsored activities and gifts..........          35
107             Small business investment companies.........          40
108             New Markets Venture Capital (``NMVC'') 
                    Program.................................         109
112             Nondiscrimination in federally assisted 
                    programs of SBA--effectuation of Title 
                    VI of the Civil Rights Act of 1964......         152
113             Nondiscrimination in financial assistance 
                    programs of SBA--effectuation of 
                    policies of Federal Government and SBA 
                    Administrator...........................         158
114             Administrative claims under the Federal Tort 
                    Claims Act and representation and 
                    indemnification of SBA employees........         183
115             Surety bond guarantee.......................         187
117             Nondiscrimination in federally assisted 
                    programs or activities of SBA--
                    effectuation of the Age Discrimination 
                    Act of 1975, as amended.................         204
119             Program for investment in Microentrepreneurs 
                    (``PRIME'' or (``The Act'').............         215
120             Business loans..............................         223
121             Small business size regulations.............         330
123             Disaster loan program.......................         387
124             8(a) Business Development/Small 
                    Disadvantaged Business status 
                    determinations..........................         407
125             Government contracting programs.............         462
126             HUBZone program.............................         485
127             Women-owned small business Federal contract 
                    assistance procedures...................         506
130             Small business development centers..........         517

[[Page 4]]

134             Rules of procedure governing cases before 
                    the Office of Hearings and Appeals......         529
136             Enforcement of nondiscrimination on the 
                    basis of handicap in programs or 
                    activities conducted by the Small 
                    Business Administration.................         555
140             Debt collection.............................         563
142             Program Fraud Civil Remedies Act regulations         569
143             Uniform administrative requirements for 
                    grants and cooperative agreements to 
                    State and local governments.............         579
146             New restrictions on lobbying................         606
147             Governmentwide requirements for drug-free 
                    workplace (nonprocurement)..............         617

[[Page 5]]

                         PARTS 1	100 [RESERVED]



PART 101_ADMINISTRATION--Table of Contents




                           Subpart A_Overview

Sec.
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 purpose?
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?

               Subpart E_Small Business Energy Efficiency

101.500 Small Business Energy Efficiency Program.

    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; 42 
U.S.C. 6307(d); 15 U.S.C. 657h; 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

[[Page 6]]

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.



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 assistance offices. The Office of Disaster Assistance 
maintains five permanent field offices which are named according to the 
particular functions they perform in the disaster loan making process. 
The office names are: Disaster Assistance Customer Service Center, 
Disaster Assistance Processing and Disbursement Center, Disaster 
Assistance Field Operations Center East, Disaster Assistance Field 
Operations Center West, and the Disaster Assistance Personnel and 
Administrative Services Center. Each office is managed by a Center 
Director who reports to the Deputy Associate Administrator for Disaster 
Assistance. The offices provide loan services to victims of declared 
disasters, or support the efforts of the other offices to do so. 
Temporary disaster offices may be 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.

[61 FR 2394, Jan. 26, 1996, as amended at 71 FR 63676, Oct. 31, 2006]



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

    (a) General. This section describes the official seal of the SBA and 
prescribes rules for its use.
    (b) Official Seal. The official seal of the SBA is illustrated 
below.
[GRAPHIC] [TIFF OMITTED] TR11JA08.000


    (c) Authorized Use. The official seal and reproductions of the seal 
may only be used as follows:

[[Page 7]]

    (1) Certify and authenticate originals and copies of any books, 
records, papers or other documents on file within SBA or extracts taken 
from them or to provide certification for the purposes authorized in 28 
U.S.C. 1733;
    (2) SBA award certificates and medals;
    (3) SBA awards for career service;
    (4) Security credentials and employee identification cards;
    (5) Business cards for SBA employees;
    (6) Official SBA signs;
    (7) Plaques; the design of the SBA seal may be incorporated in 
plaques for display in Agency auditoriums, presentation rooms, lobbies, 
offices and on buildings occupied by SBA;
    (8) The SBA flag;
    (9) Officially authorized reports or publications of the SBA; or
    (10) For such other purposes as determined necessary by the 
Administrator.
    (d) Unauthorized use. The official seal shall not be used, except as 
authorized by the Administrator, in connection with:
    (1) Contractor operated facilities;
    (2) Souvenir or novelty items;
    (3) Toys or commercial gifts or premiums;
    (4) Letterhead design, except on official SBA stationery;
    (5) Clothing or equipment; or
    (6) Any article which may disparage the seal or reflect unfavorably 
upon SBA.
    (e) SBA's seal will not be used in any manner which implies SBA 
endorsement of commercial products or services or of the user's policies 
or activities.
    (f) Reproduction of Official Seal. Requests for permission to 
reproduce the SBA seal in circumstances other than those listed in 
paragraph (c) of this section must be made in writing to the 
Administrator. The decision whether to grant permission will be made in 
writing on a case-by-case basis, in consultation with the General 
Counsel, with consideration of any relevant factors which may include 
the benefit or cost to the Agency of granting the request; the 
unintended appearance of endorsement or authentication by SBA; the 
potential for misuse; the reputability of the use; the extent of control 
by SBA over the use; and the extent of control by SBA over distribution 
of any products or publications bearing the SBA seal.
    (g) Penalties for Unauthorized Use. Fraudulent or wrongful use of 
SBA's seal can lead to criminal penalties under 18 U.S.C. 506 or 18 
U.S.C. 1017.

[72 FR 1963, Jan. 11, 2008]



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;
    (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

[[Page 8]]

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 Director, Office of Business 
Operations at 409 3rd Street, SW., Washington, DC 20416.

[61 FR 2394, Jan. 26, 1996, as amended at 72 FR 50038, Aug. 30, 2007]



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.
    (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;

[[Page 9]]

    (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.



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.

[[Page 10]]



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.



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--

[[Page 11]]

    (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 Sec. Sec. 101.400 
through and including 101.406 in an emergency.



               Subpart E_Small Business Energy Efficiency



Sec. 101.500  Small Business Energy Efficiency Program.

    (a) The Administration has developed and coordinated a Government-
wide program, which is located at http://www.sba.gov/energy, building on 
the Energy Star for Small Business Program, to assist small business 
concerns in becoming more energy efficient, understanding the cost 
savings from improved energy efficiency, and identifying financing 
options for energy efficiency upgrades.
    (b) The Program has been developed and coordinated in consultation 
with the Secretary of the Department of Energy and the Administrator of 
the Environmental Protection Agency, and in cooperation with entities 
the Administrator has considered appropriate, for example, such as 
industry trade associations, industry members, and energy efficiency 
organizations. SBA's Office of Policy and Strategic Planning will be 
responsible for overseeing the program but will coordinate with the 
Department of Energy and EPA.
    (c) The Administration is distributing and making available online, 
the information and materials developed under the program to small 
business concerns, including smaller design, engineering, and 
construction firms, and other Federal programs for energy efficiency, 
such as the Energy Star for Small Business Program.
    (d) The Administration will develop a strategy to educate, 
encourage, and assist small business concerns in adopting energy 
efficient building fixtures and equipment.

[73 FR 61666, Oct. 17, 2008]



PART 102_RECORD DISCLOSURE AND PRIVACY--Table of Contents




                   Subpart A_Disclosure of Information

Sec.
102.1 General provisions.
102.2 Public reading rooms.
102.3 Requirements pertaining to the submission of requests.
102.4 Timing of responses to requests.
102.5 Responses to requests.
102.6 Fees.
102.7 Business information.
102.8 Appeals.
102.9 Public Index.
102.10 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_Protection of Privacy and Access to Individual Records Under 
                         the Privacy Act of 1974

102.20 General provisions.
102.21 Agency employees responsible for the Privacy Act of 1974.
102.22 Requirements relating to systems of records.
102.23 Publication in the Federal Register--Notices of systems of 
          records.
102.24 Requests for access to records.
102.25 Responsibility for responding to requests for access to records.
102.26 Responses to requests for access to records.
102.27 Appeals from denials of requests for access to records.
102.28 Requests for amendment or correction of records.
102.29 Requests for an accounting of record disclosures.

[[Page 12]]

102.30 Preservation of records.
102.31 Fees.
102.32 Notice of court-ordered and emergency disclosures.
102.33 Security of systems of records.
102.34 Contracts for the operation of record systems.
102.35 Use and collection of Social Security Numbers.
102.36 Privacy Act standards of conduct.
102.37 Training requirements.
102.38 Other rights and services.
102.39 SBA's exempt Privacy Act systems of records.
102.40 Computer matching.
102.41 Other provisions.

    Authority: 5 U.S.C. 301, 552, 552a; 31 U.S.C. 9701; 44 U.S.C. 3501, 
et seq., E.O. 12600, 52 FR 23781, 3 CFR, 187 Comp., p. 235.

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



                   Subpart A_Disclosure of Information

    Source: 68 FR 59092, Oct. 14, 2003, unless otherwise noted.



Sec. 102.1  General provisions.

    This subpart describes the procedures that the U.S. Small Business 
Administration (SBA) follows for responding to requests made under the 
Freedom of Information Act (FOIA) (5 U.S.C. 552).



Sec. 102.2  Public reading rooms.

    (a) SBA maintains a public reading room in the Headquarters 
Reference Library at 409 3rd St., SW., Suite 5000, Washington, DC 20416 
where you may read and copy the following:
    (1) Final SBA opinions and orders issued by the Office of Hearings 
and Appeals in adjudicating a case,
    (2) Official non-privileged policy statements, opinions, or 
interpretations,
    (3) Standard operating procedures affecting members of the public,
    (4) Records SBA has released in response to previous FOIA requests 
which, because of their subject matter, SBA determines are likely to be 
requested again, and
    (5) An index of the records referred to under paragraph (a)(4) of 
this section.
    (b) The records described in paragraph (a) of this section are 
available in the SBA Online Reading Room at http://www.sba.gov/library/.
    (c) Reading room records created on or after November 1, 1996 are 
available electronically.



Sec. 102.3  Requirements pertaining to the submission of requests.

    (a) You may make a request for SBA records by writing directly to 
the program or field office that maintains the records, or to the 
Freedom of Information/Privacy Acts (FOI/PA) Office by mail to 409 3rd 
St., SW., Washington, DC 20416 or fax to 202-205-7059 or e-mail to 
[email protected]. The office receiving your request will forward it to the 
correct office. The correct office will consider your request to be 
complete only when you:
    (1) Describe the records sought in enough detail for an Agency 
employee to locate the records with a reasonable amount of effort;
    (2) Agree to pay applicable fees pursuant to Sec. 102.6, unless you 
seek a waiver of fees; and
    (3) Make an advance payment if either the correct office estimates 
the fees will exceed $250 or you owe for past FOIA fees. If you owe past 
due FOIA fees, you must pay the estimated amount, plus any past due 
charges and interest.
    (b) If you make a request on behalf of another person for 
information pertaining to that person, your request must include an 
authorization signed by the latter, allowing SBA to release such 
information to you.
    (c) To make a Privacy Act request for records about yourself, you 
must follow the procedures detailed in Sec. 102.34(b) of subpart B.



Sec. 102.4  Timing of responses to requests.

    (a) In general. Subject to paragraphs (b) and (c) of this section, 
once the correct office receives your complete request, that office must 
respond within 20 working days unless that office notifies you in 
writing that the time is extended by an additional 10 working days for 
one or more of the following reasons:
    (1) The need to search for and collect the requested records from 
field facilities or other establishments separate from the office 
processing the request;

[[Page 13]]

    (2) The need to search for, collect, and appropriately examine a 
voluminous amount of separate and distinct records which are demanded in 
a single request; or
    (3) The need for consultation, which shall be conducted with all 
practicable speed, with another agency having substantial interest in 
the determination of the request or among two or more components of the 
agency having substantial subject matter interest therein.
    (b) Additional time. Where an extension of more than ten working 
days will be necessary due to exceptional circumstances, the correct 
office will give the requester an opportunity to modify the request so 
it may be processed within the usual time limits in paragraph (a) of 
this section, or to arrange an alternative time period for processing 
the request or a modified request.
    (c) Expedited processing. (1) SBA will give expedited processing to 
requests and appeals upon written request, if one of the following 
conditions is met:
    (i) You demonstrate someone's life or physical safety will be in 
imminent danger if SBA does not expedite its response to your request; 
or
    (ii) You are a news media representative (as defined in Sec. 
102.6(b)(8)) who demonstrates an urgent need to inform the public about 
an actual or alleged Federal government activity.
    (2) You must provide a written statement, certified to be true and 
correct to the best of your knowledge and belief, explaining in detail 
one of these circumstances of ``compelling need'' and submit it to the 
correct office. Within 10 working days of its receipt of such a 
statement, or sooner, if SBA concludes that circumstances warrant, that 
office will notify you of its decision whether or not to grant expedited 
processing. If expedited processing is granted, the request shall be 
given priority and processed as soon as practicable. If an expedited 
processing request is denied, an appeal may be submitted which will be 
acted on expeditiously.
    (d) Multiple requests. Where an office believes that multiple 
requests submitted by a requester, or by a group of collaborating 
requesters, constitute a single request that would otherwise involve 
unusual circumstances, and the requests involve clearly related matters, 
they will be aggregated for processing.



Sec. 102.5  Responses to requests.

    Within the time limits described in Sec. 102.4, SBA will respond to 
your request in writing. SBA's response will do one or more of the 
following:
    (a) Advise you that SBA is releasing the requested documents;
    (b) Explain why SBA has decided not to give you all or some of the 
records requested, citing specific FOIA exemptions where applicable and 
noting the number of pages withheld (except where noting the number of 
pages withheld would harm an interest protected by an exemption), and 
explain how to appeal that decision;
    (c) Provide a cost estimate or bill you for the actual fee, less any 
advance payment you have made. SBA will not provide any records until 
payment in full is received; and/or
    (d) Advise you that SBA will refer your request for records 
generated by another Federal agency to that agency for proper 
processing.



Sec. 102.6  Fees.

    (a) In general. SBA will charge fees for processing requests as 
outlined in this section. Fees must be paid by check or money order made 
payable to SBA.
    (b) Definitions and applicable fees. For purposes of this section:
    (1) Direct costs means those expenses that SBA actually incurs in 
searching for and duplicating (and, in the case of commercial use 
requesters, reviewing) documents in response to an FOIA request. Direct 
costs include the salary of the employee performing the work and the 
cost of operating duplication machinery.
    (2) Search means the process of looking for and retrieving records 
responsive to a request. It includes page-by-page or line-by-line 
identification of information within records and also includes 
reasonable efforts to locate and retrieve information from records 
maintained in electronic form or format. SBA may charge search fees even 
if they fail to locate records or if

[[Page 14]]

records located are determined to be exempt from disclosure. Search fees 
are $30 per hour.
    (3) Duplication means the making of a copy of a record. Copies can 
take the form of paper, microfilm, audiovisual materials, or electronic 
records (for example, magnetic tape or disk), among others. SBA will 
charge $.10 per page for photocopy duplication and the actual cost for 
other methods. SBA will honor a requester's specified preference of form 
or format of disclosure if the record is readily reproducible with 
reasonable efforts in the requested form or format by the office 
responding to the request.
    (4) Review refers to the examination of documents responsive to a 
request in order to determine whether any portion of it is exempt from 
disclosure. It includes processing any record for disclosure, e.g., all 
necessary redaction and preparation for disclosure. It also includes 
time spent considering any formal objection to disclosure made by a 
business submitter under Sec. 102.7, but does not include time spent 
resolving general legal or policy issues regarding the application of 
exemptions. Review costs are recoverable even if a record is ultimately 
not disclosed. Only commercial use requesters are assessed review costs. 
Review costs are $30 per hour.
    (5) A commercial use request refers to a request from or on behalf 
of a person who seeks information for a use or purpose that furthers his 
or her commercial, trade or profit interests, which can include 
furthering those interests through litigation. When it appears the 
requester will put the requested records to a commercial use, either 
because of the nature of the request itself or where SBA has reasonable 
cause to doubt a requester's stated use, SBA will seek additional 
clarification. SBA will charge commercial use requesters the full direct 
costs of searching for, reviewing for release, and duplicating the 
records sought.
    (6) Educational institution means 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 institution of vocational education that operates a 
program of scholarly research. An educational institution requester must 
show that the request is authorized by and is made under the auspices of 
a qualifying institution and that the records are not sought for a 
commercial use but are sought to further scholarly research. SBA will 
provide documents to requesters in this category for the cost of 
reproduction alone, excluding charges for the first 100 pages.
    (7) Noncommercial scientific institution means an institution that 
is not operated on a commercial basis, and that is operated solely for 
the purpose of conducting scientific research the results of which are 
not intended to promote any particular product or industry. A 
noncommercial scientific institution requester must show that the 
request is authorized by and is made under the auspices of a qualifying 
institution and that the records are not sought for a commercial use but 
are sought to further scientific research. SBA will charge noncommercial 
scientific institution requesters for the cost of reproduction alone 
after the first 100 pages.
    (8) A representative of the news media is a requester actively 
gathering information for one or more news media who:
    (i) Is employed by a news medium or
    (ii) Has a reasonable expectation of selling the information 
obtained to one or more news media. A news medium is an entity organized 
and operated to distribute information to the general public. A news 
medium may provide information by subscription and may target its 
dissemination to a narrow section of the general public so long as any 
member of the general public may purchase information from it. A request 
for records supporting the news dissemination function of the requester 
shall not be considered to be for commercial use. A news media requester 
must show that the request is authorized by and is made under the 
auspices of a qualifying news medium and that the records are not sought 
for a commercial use but are sought to further the dissemination of 
information to the general public. SBA will provide documents to 
representatives of the news media for the cost of reproduction

[[Page 15]]

alone, excluding charges for the first 100 pages.
    (9) A member of the general public is a requester who does not fit 
into any of the categories in paragraphs (b)(1) through (8) of this 
section. SBA will charge requesters in this category search time after 
the first two hours and duplication after the first 100 pages.
    (c) Other charges. SBA will recover the full costs of providing 
special services, such as certifying that records are true copies or 
sending copies by other than ordinary mail, to the extent that SBA 
elects to provide them.
    (d) Charging interest. SBA will charge interest on any unpaid bill 
starting on the 31st day following the date of billing. Interest charges 
will accrue at the maximum rate allowed under 31 U.S.C. 3717. If still 
unpaid by the 91st day after the billing date, SBA may notify consumer 
credit reporting agencies of the delinquency and/or take other 
appropriate action in accordance with law.
    (e) Fee waivers or reductions. SBA will furnish responsive records 
without charge or at a reduced charge when a requester can show that 
disclosure of the information is in the public interest because it is 
likely to contribute significantly to public understanding of the 
operations or activities of the government and is not primarily in the 
commercial interest of the requester.
    (1) You must submit a request for a fee waiver or reduction to the 
initial processing office.
    (2) On the basis of the information that you provide, the initial 
processing office will determine whether you meet the fee waiver 
requirements outlined in this section.



Sec. 102.7  Business information.

    (a) In general. Business information provided to SBA from a 
submitter will only be disclosed in accordance with this section.
    (b) Definitions. For purposes of this section:
    (1) Business information is commercial or financial information 
obtained by SBA from a submitter that may arguably be protected from 
disclosure under Exemption 4 of the FOIA.
    (2) Submitter is any person or entity who provides business 
information, directly or indirectly to SBA.
    (c) Designation of business information. Submitters of business 
information will use reasonable, good-faith efforts to designate, by 
appropriate markings, either at the time of submission or at a 
reasonable time thereafter, any portions of their submissions that they 
consider to be protected from disclosure under Exemption 4 of the FOIA. 
Designations will expire ten years after the date of the submission 
unless the submitter requests, and provides justification for, a longer 
designation period.
    (d) Notice to submitters. SBA will provide a submitter with written 
notice of a FOIA request or administrative appeal that seeks its 
business information whenever SBA intends to release that information. 
The notice will either describe the business information or include 
copies of the records in the form SBA proposes to release them. SBA will 
also advise the requester that the submitter is being given the 
opportunity to object to any proposed disclosure. When notification of a 
voluminous number of submitters is required, SBA may post or publish 
such a notice in a place reasonably likely to accomplish notice.
    (e) Opportunity to object to disclosure. SBA will give the submitter 
ten working days from the date of the written notice to submit a 
detailed written statement specifying all grounds upon which disclosure 
is opposed. A reasonable extension of time may be granted by the correct 
office upon good cause shown by the submitter. The submitter's statement 
must demonstrate why it believes information is a trade secret or 
commercial or financial information that is privileged or confidential. 
If a submitter fails to timely respond to the notice, such failure will 
be deemed a waiver by the submitter of any objection to the disclosure 
of the information. Information provided by a submitter under this 
paragraph may itself be subject to disclosure under the FOIA.
    (f) Notice of intent to disclose. SBA will consider a submitter's 
objections and specific grounds for nondisclosure in accordance with 
paragraph (e) of this

[[Page 16]]

section in deciding whether to disclose business information. If SBA 
decides to disclose business information despite the objection of a 
submitter, SBA will give the submitter written notice, advising the 
submitter what will be disclosed, and that such disclosure will occur 
within 10 working days from the date of the notice.



Sec. 102.8  Appeals.

    (a) If you are dissatisfied with SBA's response to your request, you 
may appeal an adverse determination denying your request, in any 
respect, to the Chief, FOI/PA Office, 409 Third St., SW., Washington, DC 
20416.
    (b) The Chief must receive your signed, written appeal within 60 
calendar days of the date of the SBA determination from which you are 
appealing.
    (c) You should include as much information as possible, i.e., 
identifying the records not disclosed, the reason(s) a fee should be 
waived, or the reason(s) a request should be expedited. You must 
identify the deciding official and his/her office location.
    (d) The Chief will decide your appeal unless the Chief originally 
made the determination you are appealing. In that case, the Assistant 
Administrator for Hearings and Appeals will decide your appeal.
    (e) If SBA upholds the initial adverse determination, SBA will tell 
you why the decision has been upheld and tell you how to obtain judicial 
review of the decision.



Sec. 102.9  Public Index.

    (a) The Public Index is a document that provides identifying 
information about official documents that SBA has issued.
    (b) SBA has administratively determined, as permitted by FOIA, that 
periodic publication and distribution of the Public Index is unnecessary 
and impracticable.
    (c) The Public Index is an appendix to SBA Standard Operating 
Procedure 40 03. You can obtain the latest edition of SOP 40 03 from 
SBA's Online Reading Room at http://www.sba.gov/library or by requesting 
it from any SBA office.



Sec. 102.10  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 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.

[69 FR 21952, Apr. 23, 2004]



 Subpart B_Protection of Privacy and Access to Individual Records Under 
                         the Privacy Act of 1974

    Source: 72 FR 17369, Apr. 9, 2007, unless otherwise noted.



Sec. 102.20  General provisions.

    (a) Purpose and scope. This subpart implements the provisions of the 
Privacy Act of 1974, 5 U.S.C. 552a. These regulations apply to all 
records which are contained in systems of records maintained by the U.S. 
Small Business Administration (SBA) and that are retrieved by an 
individual's name or personal identifier. These regulations set forth 
the procedures by which individuals may request access to records about 
themselves, request amendment or correction of those records, and 
request an accounting of disclosures of

[[Page 17]]

those records by the SBA. These regulations also set forth the 
requirements applicable to SBA employees maintaining, collecting, using 
or disseminating records pertaining to individuals. This subpart applies 
to SBA and all of its offices and is mandatory for use by all SBA 
employees.
    (b) Definitions. As used in this subpart:
    (1) Agency means the U.S. Small Business Administration (SBA) and 
includes all of its offices wherever located;
    (2) Employee means any employee of the SBA, regardless of grade, 
status, category or place of employment;
    (3) Individual means a citizen of the United States or an alien 
lawfully admitted for permanent residence. This term shall not encompass 
entrepreneurial enterprises (e.g. sole proprietors, partnerships, 
corporations, or other forms of business entities);
    (4) Maintain includes maintain, collect, use, or disseminate;
    (5) Record means any item, collection, or grouping of information 
about an individual that is maintained by the SBA, including, but not 
limited to education, financial transactions, medical history, and 
criminal or employment history and that contains the individual's name, 
or an identifying number, symbol, or other identifying particular 
assigned to the individual such as a finger or voice print or 
photograph;
    (6) System of records means a group of any records under the control 
of SBA from which information is retrieved by the name of the individual 
or by an identifying number, symbol, or other identifying particular 
assigned to the individual;
    (7) Statistical record means a record in a system of records 
maintained for statistical research or reporting purposes only and not 
used in whole or in part in making any determination about an 
identifiable individual;
    (8) Routine use means, with respect to the disclosure of a record, 
the use of such record for a purpose which is compatible with the 
purpose for which it was collected;
    (9) Request for access to a record means a request made under 
Privacy Act subsection (d)(1) allowing an individual to gain access to 
his or her record or to any information pertaining to him or her which 
is contained in a system of records;
    (10) Request for amendment or correction of a record means a request 
made under Privacy Act subsection (d)(2), permitting an individual to 
request amendment or correction of a record that he or she believes is 
not accurate, relevant, timely, or complete;
    (11) Request for an accounting means a request made under Privacy 
Act subsection (c)(3) allowing an individual to request an accounting of 
any disclosure to any SBA officers and employees who have a need for the 
record in the performance of their duties;
    (12) Requester is an individual who makes a request for access, a 
request for amendment or correction, or a request for an accounting 
under the Privacy Act; and
    (13) Authority to request records for a law enforcement purpose 
means that the head of an Agency or a United States Attorney, or 
either's designee, is authorized to make written requests under 
subsection (b)(7) of the Privacy Act for records maintained by other 
agencies that are necessary to carry out an authorized law enforcement 
activity.



Sec. 102.21  Agency employees responsible for the Privacy Act of 1974.

    (a) Program/Support Office Head is the SBA employee in each field 
office and major program and support area responsible for implementing 
and overseeing this regulation in that office.
    (b) Privacy Act Systems Manager (PASM) is the designated SBA 
employee in each office responsible for the development and management 
of any Privacy Act systems of records in that office.
    (c) Senior Agency Official for Privacy is SBA's Chief Information 
Officer (CIO) who has overall responsibility and accountability for 
ensuring the SBA's implementation of information privacy protections, 
including the SBA's full compliance with Federal laws, regulations, and 
policies relating to information privacy such as the Privacy Act and the 
E-Government Act of 2002.
    (d) Chief, Freedom of Information/Privacy Acts (FOI/PA) Office 
oversees and

[[Page 18]]

implements the record access, amendment, and correction provisions of 
the Privacy Act.



Sec. 102.22  Requirements relating to systems of records.

    (a) In general. Each SBA office shall, in accordance with the 
Privacy Act:
    (1) Maintain in its records only such information about an 
individual as is relevant and necessary to accomplish a purpose of the 
Agency required to be accomplished by a statute or by Executive Order of 
the President;
    (2) Collect information to the greatest extent practicable directly 
from the subject individual when the information may affect an 
individual's rights, benefits, and privileges under Federal programs;
    (b) Requests for information from individuals. If a form is being 
used to collect information from individuals, either the form used to 
collect the information, or a separate form that can be retained by the 
individual, must state the following:
    (1) The authority (whether granted by statute, or by Executive Order 
of the President) which authorizes the solicitation of the information 
and whether disclosure of such information is mandatory or voluntary;
    (2) The principal purpose or purposes for which the information is 
intended to be used;
    (3) The routine uses which may be made of the information; and
    (4) The effects on such individual, if any, of not providing all or 
any part of the requested information.
    (c) Report on new systems. Each SBA office shall provide adequate 
advance notice to Congress and OMB through the FOI/PA Office of any 
proposal to establish or alter any system of records in order to permit 
an evaluation of the probable or potential effect of such proposal on 
the privacy and other personal or property rights of individuals or the 
disclosure of information relating to such individuals.
    (d) Accurate and secure maintenance of records. Each SBA office 
shall:
    (1) Maintain all records which are used in making any determination 
about any individual with such accuracy, relevance, timeliness, and 
completeness as is reasonably necessary to assure fairness to the 
individual in the determination;
    (2) Prior to disseminating any record from a system of records about 
an individual to any requestor, including an agency, make reasonable 
efforts to assure that such records are accurate, complete, timely, and 
relevant for SBA purposes; and
    (3) Establish appropriate administrative, technical, and physical 
safeguards to insure the security and confidentiality of records and to 
protect against any anticipated threats or hazards to their security or 
integrity which could result in substantial harm, embarrassment, 
inconvenience, or unfairness to any individual on whom information is 
maintained.
    (i) PASMs, with the approval of the head of their offices, shall 
establish administrative and physical controls, consistent with SBA 
regulations, to insure the protection of records systems from 
unauthorized access or disclosure and from physical damage or 
destruction. The controls instituted shall be proportional to the degree 
of sensitivity of the records but at a minimum must ensure that records 
other than those available to the general public under the FOIA, are 
protected from public view, that the area in which the records are 
stored is supervised during all business hours and physically secured 
during non-business hours to prevent unauthorized personnel from 
obtaining access to the records.
    (ii) PASMs, with the approval of the head of their offices, shall 
adopt access restrictions to insure that only those individuals within 
the agency who have a need to have access to the records for the 
performance of their duties have access to them. Procedures shall also 
be adopted to prevent accidental access to, or dissemination of, 
records.
    (e) Prohibition against maintenance of records concerning First 
Amendment rights. No SBA office shall maintain a record describing how 
any individual exercises rights guaranteed by the First Amendment (e.g. 
speech), unless the maintenance of such record is:
    (1) Expressly authorized by statute, or
    (2) Expressly authorized by the individual about whom the record is 
maintained, or

[[Page 19]]

    (3) Pertinent to and within the scope of an authorized law 
enforcement activity.



Sec. 102.23  Publication in the Federal Register--Notices of systems 
of records.

    (a) Notices of systems of records to be published in the Federal 
Register. (1) The SBA shall publish in the Federal Register upon 
establishment or revision a notice of the existence and character of any 
new or revised systems of records. Unless otherwise instructed, each 
notice shall include:
    (i) The name and location of the system;
    (ii) The categories of individuals on who records are maintained in 
the system;
    (iii) The categories of records maintained in the system;
    (iv) Each routine use of the records contained in the system, 
including the categories of users and the purpose of such use;
    (v) The policies and practices of the office regarding storage, 
retrievability, access controls, retention, and disposal of the records;
    (vi) The title and business address of the SBA official who is 
responsible for the system of records;
    (vii) A statement that SBA procedures allow an individual, at his or 
her request, to determine whether a system of records contains a record 
pertaining to him or her, to review such records and to contest or amend 
such records, located in sections 102.25 through 102.29 of these 
regulations.
    (viii) A statement that such requests may be directed to the SBA's 
FOI/PA Office, 409 3rd St., SW., Washington, DC 20416 or faxed to 202-
205-7059; and
    (ix) The categories of sources of records in the system.
    (2) Minor changes to systems of records shall be published annually.
    (b) Notice of new or modified routine uses to be published in the 
Federal Register. At least 30 days prior to disclosing records pursuant 
to a new use or modification of a routine use, as published under 
paragraph (a)(1)(iv) of this section, each SBA office shall publish in 
the Federal Register notice of such new or modified use of the 
information in the system and provide an opportunity for any individual 
or persons to submit written comments.



Sec. 102.24  Requests for access to records.

    (a) How made and addressed. An individual, or his or her legal 
guardian, may make a request for access to an SBA record about himself 
or herself by appearing in person or by writing directly to the SBA 
office that maintains the record or to the FOI/PA Office by mail to 409 
3rd St., SW., Washington, DC 20416 or fax to 202-205-7059. A request 
received by the FOI/PA Office will be forwarded to the appropriate SBA 
Office where the records are located.
    (b) Description of records sought. A request for access to records 
must describe the records sought in sufficient detail to enable SBA 
personnel to locate the system of records containing them with a 
reasonable amount of effort. A request should also state the date of the 
record or time period in which the record was compiled, and the name or 
identifying number of each system of records in which the requester 
believes the record is kept. The SBA publishes notices in the Federal 
Register that describe its systems of records. A description of the 
SBA's systems of records also may be found at http://www.sba.gov/foia/
systemrecords.doc.
    (c) Verification of identity. Any individual who submits a request 
for access to records must verify his or her identity. No specific form 
is required; however, the requester must state his or her full name, 
current address, and date and place of birth. The request must be signed 
and the requester's signature must either be notarized or submitted 
under 28 U.S.C. 1746. This law permits statements to be made under 
penalty of perjury as a substitute for notarization, the language 
states:
    (1) If executed outside the United States: ``I declare (or certify, 
verify, or state) under penalty of perjury under the laws of the United 
States of America that the foregoing is true and correct. Executed on 
(date). Signature''; or
    (2) If executed within the Untied States, its territories, 
possessions or commonwealths: ``I declare (or certify,

[[Page 20]]

verify, or state) under penalty of perjury that the foregoing is true 
and correct. Executed on (date). Signature''.
    (d) Verification of guardianship. When making a request as a legal 
agent or the parent or guardian of a minor or as the guardian of someone 
determined by a court to be incompetent, for access to records about 
that individual, the requester must establish:
    (1) The identity of the individual who is the subject of the record, 
by stating the name, current address, date and place of birth, and, at 
the requester's option, the social security number of the individual;
    (2) The requester's own identity, as required in paragraph (c) of 
this section;
    (3) That the requester is the legal agent or parent or guardian of 
that individual, which may be proven by providing a copy of the 
individual's birth certificate showing his parentage or by providing a 
court order establishing guardianship; and
    (4) That the requester is acting on behalf of that individual in 
making the request.



Sec. 102.25  Responsibility for responding to requests for access to 
records.

    (a) In general. Except as stated in paragraphs (c), (d), and (e) of 
this section and in Sec. 102.24(a), the office that first receives a 
request for access to a record, and has possession of that record, is 
the office responsible for responding to the request. That office shall 
acknowledge receipt of the request not later than 10 days (excluding 
Saturdays, Sundays, and legal public holidays) after the date of receipt 
of the request in writing. In determining which records are responsive 
to a request, an office ordinarily shall include only those records in 
its possession as of the date the office begins its search for them. If 
any other date is used, the office shall inform the requester of that 
date.
    (b) Authority to grant or deny requests. The Program/Support Office 
Head, or designee, is authorized to grant or deny any request for access 
to a record of that office.
    (c) Consultations and referrals. When an office receives a request 
for access to a record in its possession, it shall determine whether 
another office, or another agency of the Federal Government, is better 
able to determine whether the record is exempt from access under the 
Privacy Act. If the receiving office determines that it is best able to 
process the record in response to the request, then it shall do so. If 
the receiving office determines that it is not best able to process the 
record, then it shall either:
    (1) Respond to the request regarding that record, after consulting 
with the office or agency best able to determine whether the record is 
exempt from access and with any other office or agency that has a 
substantial interest in it; or
    (2) Refer the responsibility for responding to the request to the 
office best able to determine whether the record is exempt from access 
or to another agency that originated the record (but only if that agency 
is subject to the Privacy Act). Ordinarily the office or agency that 
originated a record will be presumed to be best able to determine 
whether it is exempt from access.
    (d) Law enforcement information. Whenever a request is made for 
access to a record containing information that relates to an 
investigation of a possible violation of law and that was originated by 
SBA's Office of the Inspector General (OIG) or another agency, the 
receiving office shall refer the responsibility for responding to the 
request regarding that information to either SBA's OIG or the other 
agency ``depending on where the investigation originated.''
    (e) Classified information. Whenever a request is made for access to 
a record containing information that has been classified by or may be 
appropriate for classification by another office or agency under 
Executive Order 12958 or any other executive order concerning the 
classification of records, the receiving office shall refer the 
responsibility for responding to the request regarding that information 
to the office or agency that classified the information, should consider 
the information for classification, or has the primary interest in it, 
as appropriate. Whenever a record contains information that has been 
derivatively classified by an office

[[Page 21]]

because it contains information classified by another office or agency, 
the office shall refer the responsibility for responding to the request 
regarding that information to the office or agency that classified the 
underlying information. Information determined to no longer require 
classification shall not be withheld from a requester on the basis of 
Exemption (k)(1) of the Privacy Act.
    (f) Notice of referral. Whenever an office refers all or any part of 
the responsibility for responding to a request to another office or 
agency, it shall notify the requester of the referral and inform the 
requester of the name of each office or agency to which the request has 
been referred and of the part of the request that has been referred.
    (g) Responses to consultations and referrals. All consultations and 
referrals shall be processed according to the date the access request 
was initially received by the first office or agency, not any later 
date.
    (h) Agreements regarding consultations and referrals. Offices may 
make agreements with other offices or agencies to eliminate the need for 
consultations or referrals for particular types of records.



Sec. 102.26  Responses to requests for access to records.

    (a) Acknowledgements of requests. On receipt of a request, an office 
shall send an acknowledgement letter to the requester.
    (b) Grants of requests for access. Once an office makes a 
determination to grant a request for access in whole or in part, it 
shall notify the requester in writing. The Program/Support Office Head 
or designee shall inform the requester in the notice of any fee charged 
under Sec. 102.31 and shall disclose records to the requester promptly 
on payment of any applicable fee. If a request is made in person, the 
office may disclose records to the requester directly, in a manner not 
unreasonably disruptive of its operations, on payment of any applicable 
fee and with a written record made of the grant of the request. If a 
requester is accompanied by another person, he or she shall be required 
to authorize in writing any discussion of the records in the presence of 
the other person.
    (c) Adverse determinations of requests for access. A Program/Support 
Office Head or designee making an adverse determination denying a 
request for access in any respect shall notify the requester of that 
determination in writing. Adverse determinations, or denials of 
requests, consist of: a determination to withhold any requested record 
in whole or in part; a determination that a requested record does not 
exist or cannot be located; a determination that the requested 
information is not a record subject to the Privacy Act; a determination 
on any disputed fee matter; and a denial of a request for expedited 
treatment. The notification letter shall be signed by the Program/
Support Office Head or designee, and shall include:
    (1) The name and title or position of the person responsible for the 
denial;
    (2) A brief statement of the reason(s) for the denial, including any 
FOIA or Privacy Act exemption(s) applied in denying the request; and
    (3) A statement that the denial may be appealed under Sec. 
102.27(a) and a description of the requirements of Sec. 102.27(a).



Sec. 102.27  Appeals from denials of requests for access to records.

    (a) Appeals. If the requester is dissatisfied with an office's 
response to his or her request for access to records, the requester may 
make a written appeal of the adverse determination denying the request 
in any respect to the SBA's FOI/PA Office, 409 3rd St., SW., Washington, 
DC 20416. The appeal must be received by the FOI/PA Office within 60 
days of the date of the letter denying the request. The requester's 
appeal letter should include as much information as possible, including 
the identity of the office whose adverse determination is being 
appealed. Unless otherwise directed, the Chief, FOI/PA will decide all 
appeals under this subpart.
    (b) Responses to appeals. The decision on a requester's appeal will 
be made in writing not later than 30 days (excluding Saturdays, Sundays, 
and legal public holidays) after the date of receipt of such appeal. A 
decision affirming an adverse determination in whole or in

[[Page 22]]

part will include a brief statement of the reason(s) for the 
affirmation, including any Privacy Act exemption applied, and will 
inform the requester of the Privacy Act provisions for court review of 
the decision. If the adverse determination is reversed or modified on 
appeal in whole or in part, the requester will be notified in a written 
decision and his request will be reprocessed in accordance with that 
appeal decision.
    (c) Judicial review. In order to seek judicial review by a court of 
any adverse determination or denial of a request, a requester must first 
appeal it to the FOI/PA Office under this section.



Sec. 102.28  Requests for amendment or correction of records.

    (a) How made and addressed. Unless the record is not subject to 
amendment or correction as stated in paragraph (f) of this section, an 
individual may make a request for amendment or correction of an SBA 
record about himself or herself by writing directly to the office that 
maintains the record, following the procedures in Sec. 102.24. The 
request should identify each particular record in question, state the 
amendment or correction sought, and state why the record is not 
accurate, relevant, timely, or complete. The requester may submit any 
documentation that he or she thinks would be helpful. If the requester 
believes that the same record is in more than one system of records, 
that should be stated and the request should be sent to each office that 
maintains a system of records containing the record.
    (b) Office responses. Within ten (10) days (excluding Saturdays, 
Sundays, and legal public holidays) of receiving a request for amendment 
or correction of records, an office shall send the requester a written 
acknowledgment of receipt, and the office shall notify the requester 
within 30 days (excluding Saturdays, Sundays, and legal public holidays) 
of receipt of the request whether it is granted or denied. If the 
Program/Support Office Head or designee grants the request in whole or 
in part, the amendment or correction must be made, and the requester 
advised of his or her right to obtain a copy of the corrected or amended 
record. If the office denies a request in whole or in part, it shall 
send the requester a letter signed by the Program/Support Office Head or 
designee that shall state:
    (1) The reason(s) for the denial; and
    (2) The procedure for appeal of the denial under paragraph (c) of 
this section, including the name and business address of the official 
who will act on your appeal.
    (c) Appeals. An individual may appeal a denial of a request for 
amendment or correction to the FOI/PA Office in the same manner as a 
denial of a request for access to records (see Sec. 102.27), and the 
same procedures shall be followed. If the appeal is denied, the 
requester shall be advised of his or her right to file a Statement of 
Disagreement as described in paragraph (d) of this section and of his or 
her right under the Privacy Act for court review of the decision.
    (d) Statement of Disagreement. If an appeal under this section is 
denied in whole or in part, the requester has the right to file a 
Statement of Disagreement that states the reason(s) for disagreeing with 
the SBA's denial of his or her request for amendment or correction. A 
Statement of Disagreement must be concise, must clearly identify each 
part of any record that is disputed, and should be no longer than one 
typed page for each fact disputed. An individual's Statement of 
Disagreement must be sent to the office that maintains the record 
involved, which shall place it in the system of records in which the 
disputed record is maintained and shall mark the disputed record to 
indicate that a Statement of Disagreement has been filed and where in 
the system of records it may be found.
    (e) Notification of amendment/correction or disagreement. Within 30 
days (excluding Saturdays, Sundays, and legal public holidays) of the 
amendment or correction of a record, the office that maintains the 
record shall notify all persons, organizations, or agencies to which it 
previously disclosed the record, if an accounting of that disclosure was 
made, that the record has been amended or corrected. If an individual 
has filed a Statement of Disagreement, the office shall append a

[[Page 23]]

copy of it to the disputed record whenever the record is disclosed and 
may also append a concise statement of its reason(s) for denying the 
request to amend or correct the record.
    (f) Records not subject to amendment or correction. The following 
records are not subject to amendment or correction:
    (1) Transcripts of testimony given under oath or written statements 
made under oath;
    (2) Transcripts of grand jury proceedings, judicial proceedings, or 
quasi-judicial proceedings, which are the official record of those 
proceedings;
    (3) Pre-sentence records that originated with the courts; and
    (4) Records in systems of records that have been exempted from 
amendment and correction under Privacy Act, 5 U.S.C. 552a (j) or (k) by 
notice published in the Federal Register.



Sec. 102.29  Requests for an accounting of record disclosures.

    (a) How made and addressed. Except where accountings of disclosures 
are not required to be kept (as stated in paragraph (b) of this 
section), an individual may make a request for an accounting of any 
disclosure that has been made by the SBA to another person, 
organization, or agency of any record in a system of records about him 
or her. This accounting contains the date, nature, and purpose of each 
disclosure, as well as the name and address of the person, organization, 
or agency to which the disclosure was made. The request for an 
accounting should identify each particular record in question and should 
be made by writing directly to the SBA office that maintains the record, 
following the procedures in Sec. 102.24.
    (b) Where accountings are not required. Offices are not required to 
provide accountings where they relate to:
    (1) Disclosures for which accountings are not required to be kept; 
disclosures that are made to employees within the SBA and disclosures 
that are made under the FOIA;
    (2) Disclosures made to law enforcement agencies for authorized law 
enforcement activities in response to written requests from those law 
enforcement agencies specifying the civil or criminal law enforcement 
activities for which the disclosures are sought; or
    (3) Disclosures made from law enforcement systems of records that 
have been exempted from accounting requirements under Privacy Act, 5 
U.S.C. 552a(j) or (k) by notice published in the Federal Register.
    (c) Appeals. An individual may appeal a denial of a request for an 
accounting to the FOI/PA Office in the same manner as a denial of a 
request for access to records (see Sec. 102.27), and the same 
procedures will be followed.



Sec. 102.30  Preservation of records.

    Each office will preserve all correspondence pertaining to the 
requests that it receives under this subpart, as well as copies of all 
requested records, until disposition or destruction is authorized by 
title 44 of the United States Code or the National Archives and Records 
Administration's General Records Schedule 14. Records will not be 
disposed of while they are the subject of a pending request, appeal, or 
lawsuit under the Privacy Act.



Sec. 102.31  Fees.

    SBA offices shall charge fees for duplication of records under the 
Privacy Act in the same way in which they charge duplication fees under 
Sec. 102.6(b)(3). No search or review fee may be charged for any record 
unless the record has been exempted from access under Exemptions (j)(2) 
or (k)(2) of the Privacy Act. SBA will waive fees under $25.00.



Sec. 102.32  Notice of court-ordered and emergency disclosures.

    (a) Court-ordered disclosures. When a record pertaining to an 
individual is required to be disclosed by order of a court of competent 
jurisdiction, the office that maintains the record shall make reasonable 
efforts to provide notice of this to the individual. Notice shall be 
given within a reasonable time after the office's receipt of the order, 
except that in a case in which the order is not a matter of public 
record, the notice shall be given only after the order becomes public. 
This notice shall be mailed to the individual's last known address and 
shall contain a copy of the

[[Page 24]]

order and a description of the information disclosed. Notice shall not 
be given if disclosure is made from a criminal law enforcement system of 
records that has been exempted from the notice requirement.
    (b) Emergency disclosures. Upon disclosing a record pertaining to an 
individual made under compelling circumstances affecting health or 
safety, the office shall notify that individual of the disclosure. This 
notice shall be mailed to the individual's last known address and shall 
state the nature of the information disclosed; the person, organization, 
or agency to which it was disclosed; the date of disclosure; and the 
compelling circumstances justifying the disclosure.



Sec. 102.33  Security of systems of records.

    (a) Each Program/Support Office Head or designee shall establish 
administrative and physical controls to prevent unauthorized access to 
its systems of records, to prevent unauthorized disclosure of records, 
and to prevent physical damage to or destruction of records. The 
stringency of these controls shall correspond to the sensitivity of the 
records that the controls protect. At a minimum, each office's 
administrative and physical controls shall ensure that:
    (1) Records are protected from public view;
    (2) The area in which records are kept is supervised during business 
hours to prevent unauthorized persons from having access to them;
    (3) Records are inaccessible to unauthorized persons outside of 
business hours; and
    (4) Records are not disclosed to unauthorized persons or under 
unauthorized circumstances in either oral or written form.
    (b) Each Program/Support Office Head or designee shall establish 
procedures that restrict access to records to only those individuals 
within the SBA who must have access to those records in order to perform 
their duties and that prevent inadvertent disclosure of records.
    (c) The OCIO shall provide SBA offices with guidance and assistance 
for privacy and security of electronic systems and compliance with 
pertinent laws and requirements.



Sec. 102.34  Contracts for the operation of record systems.

    When SBA contracts for the operation or maintenance of a system of 
records or a portion of a system of records by a contractor, the record 
system or the portion of the record affected, are considered to be 
maintained by the SBA, and subject to this subpart. The SBA is 
responsible for applying the requirements of this subpart to the 
contractor. The contractor and its employees are to be considered 
employees of the SBA for purposes of the sanction provisions of the 
Privacy Act during performance of the contract.



Sec. 102.35  Use and collection of Social Security Numbers.

    Each Program/Support Office Head or designee shall ensure that 
collection and use of SSN is performed only when the functionality of 
the system is dependant on use of the SSN as an identifier. Employees 
authorized to collect information must be aware:
    (a) That individuals may not be denied any right, benefit, or 
privilege as a result of refusing to provide their social security 
numbers, unless:
    (1) The collection is authorized either by a statute; or
    (2) The social security numbers are required under statute or 
regulation adopted prior to 1975 to verify the identity of an 
individual; and
    (b) That individuals requested to provide their social security 
numbers must be informed of:
    (1) Whether providing social security numbers is mandatory or 
voluntary;
    (2) Any statutory or regulatory authority that authorizes the 
collection of social security numbers; and
    (3) The uses that will be made of the numbers.



Sec. 102.36  Privacy Act standards of conduct.

    Each Program/Support Office Head or designee shall inform its 
employees of the provisions of the Privacy Act, including its civil 
liability and criminal penalty provisions. Unless otherwise permitted by 
law, an employee of the SBA shall:

[[Page 25]]

    (a) Collect from individuals only the information that is relevant 
and necessary to discharge the responsibilities of the SBA;
    (b) Collect information about an individual directly from that 
individual whenever practicable;
    (c) Inform each individual from whom information is collected of:
    (1) The legal authority to collect the information and whether 
providing it is mandatory or voluntary;
    (2) The principal purpose for which the SBA intends to use the 
information;
    (3) The routine uses the SBA may make of the information; and
    (4) The effects on the individual, if any, of not providing the 
information;
    (d) Ensure that the office maintains no system of records without 
public notice and that it notifies appropriate SBA officials of the 
existence or development of any system of records that is not the 
subject of a current or planned public notice;
    (e) Maintain all records that are used by the SBA in making any 
determination about an individual with such accuracy, relevance, 
timeliness, and completeness as is reasonably necessary to ensure 
fairness to the individual in the determination;
    (f) Except as to disclosures made to an agency or made under the 
FOIA, make reasonable efforts, prior to disseminating any record about 
an individual, to ensure that the record is accurate, relevant, timely, 
and complete;
    (g) Maintain no record describing how an individual exercises his or 
her First Amendment rights, unless it is expressly authorized by statute 
or by the individual about whom the record is maintained, or is 
pertinent to and within the scope of an authorized law enforcement 
activity;
    (h) When required by the Privacy Act, maintain an accounting in the 
specified form of all disclosures of records by the SBA to persons, 
organizations, or agencies;
    (i) Maintain and use records with care to prevent the unauthorized 
or inadvertent disclosure of a record to anyone; and
    (j) Notify the appropriate SBA official of any record that contains 
information that the Privacy Act does not permit the SBA to maintain.



Sec. 102.37  Training requirements.

    All employees should attend privacy training within one year of 
employment with SBA. All employees with Privacy Act responsibilities 
must attend Privacy Act training, whenever needed, that is offered by 
the SBA.



Sec. 102.38  Other rights and services.

    Nothing in this subpart shall be construed to entitle any person, as 
a right, to any service or to the disclosure of any record to which such 
person is not entitled under the Privacy Act.



Sec. 102.39  SBA's exempt Privacy Act systems of records.

    (a) Systems of records subject to investigatory material exemption 
under 5 U.S.C. 552a(k)(2), or 5 U.S.C. 552a(k)(5) or both:
    (1) Office of Inspector General Records Other Than Investigation 
Records--SBA 4, contains records pertaining to audits, evaluations, and 
other non-audit services performed by the OIG;
    (2) Equal Employment Opportunity Complaint Cases--SBA 13, contains 
complaint files, Equal Employment Opportunity counselor's reports, 
investigation materials, notes, reports, and recommendations;
    (3) Investigative Files--SBA 16, contains records gathered by the 
OIG in the investigation of allegations that are within the jurisdiction 
of the OIG;
    (4) Investigations Division Management Information System--SBA 17, 
contains records gathered or created during preparation for, conduct of, 
and follow-up on investigations conducted by the OIG, the Federal Bureau 
of Investigation (FBI), and other Federal, State, local, or foreign 
regulatory or law enforcement agency;
    (5) Litigation and Claims Files--SBA 19, contains records relating 
to recipients classified as ``in litigation'' and all individuals 
involved in claims by or against the Agency;
    (6) Personnel Security Files--SBA 24, contains records on active and 
inactive personnel security files, employee or former employee's name, 
background information, personnel actions, OPM,

[[Page 26]]

and/or authorized contracting firm background investigations;
    (7) Security and Investigations Files--SBA 27, contains records 
gathered or created during preparation for, conduct of, and follow-up on 
investigations conducted by OIG, the FBI, and other Federal, State, 
local, or foreign regulatory or law enforcement agencies as well as 
other material submitted to or gathered by OIG in furtherance of its 
investigative function; and
    (8) Standards of Conduct Files--SBA 29, contains records on 
confidential employment and financial statements of employees Grade 13 
and above.
    (b) These systems of records are exempt from the following 
provisions of the Privacy Act and all regulations in this part 
promulgated under these provisions:
    (1) 552a(c)(3) (Accounting of Certain Disclosures);
    (2) 552a(d) (Access to Records);
    (3) 552a(e)(1), 4G, H, and I (Agency Requirements); and
    (4) 552a(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 4, 16, 17, 24, and 27 are 
exempt from the Privacy Act except for subsections (b), (c)(1) and (2), 
(e)(4)(A) through F, (e)(6), (7), (9), (10) and (11) and (i) to the 
extent that they contain:
    (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 exempt from the Privacy Act to the extent described in that 
paragraph because they are records maintained by the Investigations 
Division of the OIG, 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 OIG investigations from using the 
Privacy Act 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. 3;
    (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. 102.40  Computer matching.

    The OCIO will enforce the computer matching provisions of the 
Privacy Act. The FOI/PA Office will review and concur on all computer 
matching agreements prior to their activation and/or renewal.
    (a) Matching agreements. SBA will comply with the Computer Matching 
and Privacy Protection Act of 1988 (5 U.S.C. 552a(o), 552a notes) . The 
Privacy Protection Act establishes procedures

[[Page 27]]

Federal agencies must use if they want to match their computer lists. 
SBA shall not disclose any record which is contained in a system of 
records to a recipient agency or non-Federal agency for use in a 
computer matching program except pursuant to a written agreement between 
SBA and the recipient agency or non-Federal agency specifying:
    (1) The purpose and legal authority for conducting the program;
    (2) The justification for the purpose and the anticipated results, 
including a specific estimate of any savings;
    (3) A description of the records that will be matched, including 
each data element that will be used, the approximate number of records 
that will be matched, and the projected starting and completion dates of 
the matching program;
    (4) Procedures for providing individualized notice at the time of 
application, and periodically thereafter as directed by the Data 
Integrity Board, that any information provided by any of the above may 
be subject to verification through matching programs to:
    (i) Applicants for and recipients of financial assistance or 
payments under Federal benefit programs, and
    (ii) Applicants for and holders of positions as Federal personnel.
    (5) Procedures for verifying information produced in such matching 
program as required by paragraph (c) of this section.
    (6) Procedures for the retention and timely destruction of 
identifiable records created by a recipient agency or non-Federal agency 
in such matching program;
    (7) Procedures for ensuring the administrative, technical, and 
physical security of the records matched and the results of such 
programs;
    (8) Prohibitions on duplication and redisclosure of records provided 
by SBA within or outside the recipient agency or non-Federal agency, 
except where required by law or essential to the conduct of the matching 
program;
    (9) Procedures governing the use by a recipient agency or non-
Federal agency of records provided in a matching program by SBA, 
including procedures governing return of the records to SBA or 
destruction of records used in such programs;
    (10) Information on assessments that have been made on the accuracy 
of the records that will be used in such matching programs; and
    (11) That the Comptroller General may have access to all records of 
a recipient agency or non-Federal agency that the Comptroller General 
deems necessary in order to monitor or verify compliance with the 
agreement.
    (b) Agreement specifications. A copy of each agreement entered into 
pursuant to paragraph (a) of this section shall be transmitted to OMB, 
the Committee on Governmental Affairs of the Senate and the Committee on 
Governmental Operations of the House of Representatives and be available 
upon request to the public.
    (1) No such agreement shall be effective until 30 days after the 
date on which a copy is transmitted.
    (2) Such an agreement shall remain in effect only for such period, 
not to exceed 18 months, as the Data Integrity Board determines is 
appropriate in light of the purposes, and length of time necessary for 
the conduct, of the matching program.
    (3) Within three (3) months prior to the expiration of such an 
agreement, the Data Integrity Board may without additional review, renew 
the matching agreement for a current, ongoing matching program for not 
more than one additional year if:
    (i) Such program will be conducted without any change; and
    (ii) Each party to the agreement certifies to the Board in writing 
that the program has been conducted in compliance with the agreement.
    (c) Verification. In order to protect any individual whose records 
are used in matching programs, SBA and any recipient agency or non-
Federal agency may not suspend, terminate, reduce, or make a final 
denial of any financial assistance or payment under the Federal benefit 
program to such individual, or take other adverse action against such 
individual as a result of information produced by such matching programs 
until such information has been independently verified.

[[Page 28]]

    (1) Independent verification requires independent investigation and 
confirmation of any information used as a basis for an adverse action 
against an individual including, where applicable:
    (i) The amount of the asset or income involved,
    (ii) Whether such individual actually has or had access to such 
asset or income or such individual's own use, and
    (iii) The period or periods when the individual actually had such 
asset or income.
    (2) SBA and any recipient agency or non-Federal agency may not 
suspend, terminate, reduce, or make a final denial of any financial 
assistance or payment under a Federal benefit program, or take other 
adverse action as a result of information produced by a matching 
program,
    (i) Unless such individual has received notice from such agency 
containing a statement of its findings and information of the 
opportunity to contest such findings, and
    (ii) Until the subsequent expiration of any notice period provided 
by the program's governing statute or regulations, or 30 days. Such 
opportunity to contest may be satisfied by notice, hearing, and appeal 
rights governing such Federal benefit program. The exercise of any such 
rights shall not affect rights available under the Privacy Act.
    (3) SBA may take any appropriate action otherwise prohibited by the 
above if SBA determines that the public health or safety may be 
adversely affected or significantly threatened during the notice period 
required by paragraph (c)(2)(ii) of this section.
    (d) Sanctions. Notwithstanding any other provision of law, SBA may 
not disclose any record which is contained in a system of records to a 
recipient agency or non-Federal agency for a matching program if SBA has 
reason to believe that the requirements of paragraph (c) of this 
section, or any matching agreement entered into pursuant to paragraph 
(b) of this section or both, are not being met by such recipient agency.
    (1) SBA shall not renew a matching agreement unless,
    (i) The recipient agency or non-Federal agency has certified that it 
has complied with the provisions of that agreement; and
    (ii) SBA has no reason to believe that the certification is 
inaccurate.
    (e) Review annually each ongoing matching program in which the 
Agency has participated during the year, either as a source or as a 
matching agency in order to assure that the requirements of the Privacy 
Act, OMB guidance, and any Agency regulations and standard operating 
procedures, operating instructions, or guidelines have been met.
    (f) Data Integrity Board. SBA shall establish a Data Integrity Board 
(Board) to oversee and coordinate the implementation of the matching 
program. The Board shall consist of the senior officials designated by 
the Administrator, to include the Inspector General (who shall not serve 
as chairman), and the Senior Agency Official for Privacy. The Board 
shall:
    (1) Review, approve and maintain all written agreements for receipt 
or disclosure of Agency records for matching programs to ensure 
compliance with paragraph (a) of this section and with all relevant 
statutes, regulations, and guidance;
    (2) Review all matching programs in which SBA has participated 
during the year, determine compliance with applicable laws, regulations, 
guidelines, and Agency agreements, and assess the costs and benefits of 
such programs;
    (3) Review all recurring matching programs in which SBA has 
participated during the year, for continued justification for such 
disclosures;
    (4) At the instruction of OMB, compile a report to be submitted to 
the Administrator and OMB, and made available to the public on request, 
describing the matching activities of SBA, including,
    (i) Matching programs in which SBA has participated;
    (ii) Matching agreements proposed that were disapproved by the 
Board;
    (iii) Any changes in membership or structure of the Board in the 
preceding year;
    (iv) The reasons for any waiver of the requirement described below 
for completion and submission of a cost-benefit analysis prior to the 
approval of a matching program;

[[Page 29]]

    (v) Any violations of matching agreements that have been alleged or 
identified and any corrective action taken; and
    (vi) Any other information required by OMB to be included in such 
report;
    (5) Serve as clearinghouse for receiving and providing information 
on the accuracy, completeness, and reliability of records used in 
matching programs;
    (6) Provide interpretation and guidance to SBA offices and personnel 
on the requirements for matching programs;
    (7) Review Agency recordkeeping and disposal policies and practices 
for matching programs to assure compliance with the Privacy Act; and
    (8) May review and report on any SBA matching activities that are 
not matching programs.
    (g) Cost-benefit analysis. Except as provided in paragraphs (e)(2) 
and (3) of this section, the Data Integrity Board shall not approve any 
written agreement for a matching program unless SBA has completed and 
submitted to such Board a cost-benefit analysis of the proposed program 
and such analysis demonstrates that the program is likely to be cost 
effective. The Board may waive these requirements if it determines, in 
writing, and in accordance with OMB guidelines, that a cost-benefit 
analysis is not required. Such an analysis also shall not be required 
prior to the initial approval of a written agreement for a matching 
program that is specifically required by statute.
    (h) Disapproval of matching agreements. If a matching agreement is 
disapproved by the Data Integrity Board, any party to such agreement may 
appeal to OMB. Timely notice of the filing of such an appeal shall be 
provided by OMB to the Committee on Governmental Affairs of the Senate 
and the Committee on Government Operations of the House of 
Representatives.
    (1) OMB may approve a matching agreement despite the disapproval of 
the Data Integrity Board if OMB determines that:
    (i) The matching program will be consistent with all applicable 
legal, regulatory, and policy requirements;
    (ii) There is adequate evidence that the matching agreement will be 
cost-effective; and
    (iii) The matching program is in the public interest.
    (2) The decision of OMB to approve a matching agreement shall not 
take effect until 30 days after it is reported to the committees 
described in paragraph (h) of this section.
    (3) If the Data Integrity Board and the OMB disapprove a matching 
program proposed by the Inspector General, the Inspector General may 
report the disapproval to the Administrator and to the Congress.



Sec. 102.41  Other provisions.

    (a) Personnel records. All SBA personnel records and files, as 
prescribed by OPM, shall be maintained in such a way that the privacy of 
all individuals concerned is protected in accordance with regulations of 
OPM (5 CFR parts 293 and 297).
    (b) Mailing lists. The SBA will not sell or rent an individual's 
name or address. This provision shall not be construed to require the 
withholding of names or addresses otherwise permitted to be made public.
    (c) Changes in systems. The SBA shall provide adequate advance 
notice to Congress and OMB of any proposal to establish or alter any 
system of records in order to permit an evaluation of the probable or 
potential effect of such proposal on the privacy and other personal or 
property rights of individuals or the disclosure of information relating 
to such individuals, and its effect on the preservation of the 
constitutional principles of federalism and separation of powers.
    (d) Medical records. Medical records shall be disclosed to the 
individual to whom they pertain. SBA may, however, transmit such 
information to a medical doctor named by the requesting individual. In 
regard to medical records in personnel files, see also 5 CFR 297.205.



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




Sec.
103.1 Key definitions.
103.2 Who may conduct business with SBA?
103.3 May SBA suspend or revoke an Agent's privilege?

[[Page 30]]

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 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

[[Page 31]]

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 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

[[Page 32]]

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.
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 Standards of Ethical Conduct for Employees 
of the Executive Branch at 5 CFR part 2635 and the regulations at 5 CFR 
part 2634 entitled, Executive Branch Financial Disclosure, Qualified 
Trusts and Certificates of Divestiture.

[69 FR 63922, Nov. 3, 2004]

 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

[[Page 33]]

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, 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.

[[Page 34]]



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 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 Administrator, Office of Management and 
Administration, or in his or her absence, the Director, Office of 
Business Operations; and
    (3) The Chief Human Capital Officer, or in his or her absence, the 
Deputy Director of Human Resources.

[61 FR 2399, Jan. 26, 1996, as amended at 72 FR 50038, Aug. 30, 2007]



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

[[Page 35]]

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; and
    (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.
    (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.
    (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; 
69 FR 63922, Nov. 3, 2004]



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 106_COSPONSORSHIPS, FEE AND NON-FEE BASED SBA-SPONSORED ACTIVITIES 
AND GIFTS--Table of Contents




                     Subpart A_Scope and Definitions

Sec.
106.100 Scope.
106.101 Definitions.

                    Subpart B_Cosponsored Activities

106.200 Cosponsored Activity.
106.201 Who may be a Cosponsor?
106.202 What are the minimum requirements applicable to Cosponsored 
          Activities?
106.203 What provisions must be set forth in a Cosponsorship Agreement?
106.204 Who has the authority to approve and sign a Cosponsorship 
          Agreement?

              Subpart C_Fee Based SBA-Sponsored Activities

106.300 Fee Based SBA-Sponsored Activity.
106.301 What are the minimum requirements applicable to Fee Based SBA-
          Sponsored Activities?
106.302 What provisions must be set forth in a Fee Based Record?
106.303 Who has the authority to approve and sign a Fee Based Record?

            Subpart D_Non-Fee Based SBA-Sponsored Activities

106.400 Non-Fee Based SBA-Sponsored Activity.
106.401 What are the minimum requirements applicable to a Non-Fee Based 
          SBA-Sponsored Activity?
106.402 What provisions must be set forth in a Non-Fee Based Record?
106.403 Who has the authority to approve and sign a Non-Fee Based 
          Record?

                             Subpart E_Gifts

106.500 What is SBA's Gift authority?
106.501 What minimum requirements are applicable to SBA's solicitation 
          and/or acceptance of Gifts?
106.502 Who has authority to perform a Gift conflict of interest 
          determination?
106.503 Are there types of Gifts which SBA may not solicit and/or 
          accept?

    Authority: 15 U.S.C. 633 (g) and (h); 15 U.S.C. 637(b)(1)(A); 15 
U.S.C. 637(b)(G).

    Source: 70 FR 70704, Nov. 23, 2005, unless otherwise noted.



                     Subpart A_Scope and Definitions



Sec. 106.100  Scope.

    The regulations in this part apply to SBA-provided assistance for 
the benefit of small business through Fee Based SBA-Sponsored Activities 
or through Cosponsored Activities with Eligible Entities authorized 
under section 4(h) of the Small Business Act, and to SBA assistance 
provided directly to small business concerns through Non-Fee Based SBA-
Sponsored Activities authorized under section 8(b)(1)(A) of the Small 
Business Act. The regulations in

[[Page 36]]

this part also apply to SBA's solicitation and acceptance of Gifts under 
certain sections (sections 4(g), 8(b)(1)(G), 5(b)(9) and 7(k)(2)) of the 
Small Business Act (15 U.S.C. 631 et seq.), including Gifts of cash, 
property, services and subsistence. Under section 4(g) of the Small 
Business Act, Gifts may be solicited and accepted for marketing and 
outreach purposes including the cost of promotional items and wearing 
apparel.



Sec. 106.101  Definitions.

    The following definitions apply to this part. Defined terms are 
capitalized wherever they appear.
    (a) Cosponsor means an entity or individual designated in Sec. 
106.201 that has signed a written Cosponsorship Agreement with SBA and 
who actively and substantially participates in planning and conducting 
an agreed upon Cosponsored Activity.
    (b) Cosponsored Activity means an activity, event, project or 
initiative, designed to provide assistance for the benefit of small 
business as authorized by section 4(h) of the Small Business Act, which 
has been set forth in an approved written Cosponsorship Agreement. The 
Cosponsored Activity must be planned and conducted by SBA and one or 
more Cosponsors. Assistance for purposes of Cosponsored Activity does 
not include grant or any other form of financial assistance. A 
Participant Fee may be charged by SBA or another Cosponsor at any 
Cosponsored Activity.
    (c) Cosponsorship Agreement means an approved written document (as 
outlined in Sec. Sec. 106.203 and 106.204 which has been duly executed 
by SBA and one or more Cosponsors. The Cosponsorship Agreement shall 
contain the parties' respective rights, duties and responsibilities 
regarding implementation of the Cosponsored Activity.
    (d) Donor means an individual or entity that provides a Gift, 
bequest or devise (in cash or in-kind) to SBA.
    (e) An Eligible Entity is a potential Cosponsor. An Eligible Entity 
must be a for-profit or not-for-profit entity, or a Federal, State or 
local government official or entity.
    (f) Fee Based SBA-Sponsored Activity Record (Fee Based Record) means 
a written document, as outlined in Sec. 106.302, describing a Fee Based 
SBA-Sponsored Activity and approved in writing pursuant to Sec. 
106.303.
    (g) Fee Based SBA-Sponsored Activity means an activity, event, 
project or initiative designed to provide assistance for the benefit of 
small business, as authorized by section 4(h) of the Small Business Act, 
at which SBA may charge a Participant Fee. Assistance for purposes of 
Fee Based SBA-Sponsored Activity does not include grant or any other 
form of financial assistance. A Fee Based SBA-Sponsored Activity must be 
planned, conducted, controlled and sponsored solely by SBA.
    (h) Gift (including a bequest or a device) is the voluntary transfer 
to SBA of something of value without the Donor receiving legal 
consideration.
    (i) Non-Fee Based SBA-Sponsored Activity Record (Non-Fee Based 
Record) means a written document describing a Non-Fee Based SBA-
Sponsored Activity which has been approved pursuant to Sec. 106.403.
    (j) Non-Fee Based SBA-Sponsored Activity means an activity, event, 
project or initiative designed to provide assistance directly to small 
business concerns as authorized by section 8(b)(1)(A) of the Small 
Business Act. Assistance for purposes of a Non-Fee Based SBA-Sponsored 
Activity does not include grant or any other form of financial 
assistance. A Non-Fee Based SBA-Sponsored Activity must be planned, 
conducted, controlled and sponsored solely by SBA. No fees including 
Participant Fees may be charged for a Non-Fee Based SBA-Sponsored 
Activity.
    (k) Participant Fee means a minimal fee assessed against a person or 
entity that participates in a Cosponsored Activity or Fee Based SBA-
Sponsored Activity and is used to cover the direct costs of such 
activity.
    (l) Responsible Program Official is an SBA senior management 
official from the originating office who is accountable for the 
solicitation and/or acceptance of a Gift to the SBA; a Cosponsored 
Activity; a Fee Based SBA-Sponsored Activity; or a Non-Fee Based SBA-
Sponsored Activity. If the originating office is a district or branch 
office, the Responsible Program Official is the district director or 
their deputy.

[[Page 37]]

In headquarters, the Responsible Program Official is the management 
board member or their deputy with responsibility for the relevant 
program area.



                    Subpart B_Cosponsored Activities



Sec. 106.200  Cosponsored Activity.

    The Administrator (or designee), after consultation with the General 
Counsel (or designee), may provide assistance for the benefit of small 
business through Cosponsored Activities pursuant to section 4(h) of the 
Small Business Act.



Sec. 106.201  Who may be a Cosponsor?

    (a) Except as specified in paragraph (b) of this section, SBA may 
enter into a Cosponsorship Agreement with an Eligible Entity as defined 
in Sec. 106.101(e).
    (b) SBA may not enter into a Cosponsorship Agreement with an 
Eligible Entity if the Administrator (or designee), after consultation 
with the General Counsel (or designee), determines that such agreement 
would create a conflict of interest.



Sec. 106.202  What are the minimum requirements applicable to 
Cosponsored Activities?

    While SBA may subject a Cosponsored Activity to additional 
requirements through internal policy, procedure and the Cosponsorship 
Agreement, the following requirements apply to all Cosponsored 
Activities:
    (a) Cosponsored Activities must be set forth in a written 
Cosponsorship Agreement signed by the Administrator (or designee) and 
each Cosponsor;
    (b) Appropriate recognition must be given to SBA and each Cosponsor 
but shall not constitute or imply an endorsement by SBA of any Cosponsor 
or any Cosponsor's products or services;
    (c) Any printed or electronically generated material used to 
publicize or conduct the Cosponsored Activity, including any material 
which has been developed, prepared or acquired by a Cosponsor, must be 
approved in advance by the Responsible Program Official and must include 
a prominent disclaimer stating that the Cosponsored Activity does not 
constitute or imply an endorsement by SBA of any Cosponsor or the 
Cosponsor's products or services;
    (d) No Cosponsor shall make a profit on any Cosponsored Activity. 
SBA grantees who earn program income on Cosponsored Activities must use 
that program income for the Cosponsored Activity;
    (e) Participant Fee(s) charged for a Cosponsored Activity may not 
exceed the minimal amount needed to cover the anticipated direct costs 
of the Cosponsored Activity and must be liquidated prior to other 
sources of funding for the Cosponsored Activity. If SBA charges a 
Participant Fee, the collection of the Participant Fees is subject to 
internal SBA policies and procedures as well as applicable U.S. Treasury 
rules and guidelines;
    (f) SBA may not provide a Cosponsor with lists of names and 
addresses of small business concerns compiled by SBA which are otherwise 
protected by law or policy from disclosure; and
    (g) Written approval must be obtained as outlined in Sec. 106.204.



Sec. 106.203  What provisions must be set forth in a Cosponsorship 
Agreement?

    While SBA may require additional provisions in the Cosponsorship 
Agreement through internal policy and procedure, the following 
provisions must be in all Cosponsorship Agreements:
    (a) A written statement agreed to by each Cosponsor that they will 
abide by all of the provisions of the Cosponsorship Agreement, the 
requirements of this subpart as well the applicable definitions in Sec. 
106.100;
    (b) A narrative description of the Cosponsored Activity;
    (c) A listing of SBA's and each Cosponsor's rights, duties and 
responsibilities with regard to the Cosponsored Activity;
    (d) A proposed budget demonstrating:
    (1) The type and source of financial contribution(s) (including but 
not limited to cash, in-kind, Gifts, and Participant Fees) that the SBA 
and each Cosponsor will make to the Cosponsored Activity; and
    (2) A reasonable estimation of all anticipated expenses;
    (e) A written statement that each Cosponsor agrees that they will 
not make

[[Page 38]]

a profit on the Cosponsored Activity; and
    (f) A written statement that Participant Fees, if charged, will not 
exceed the minimal amount needed to cover the anticipated direct costs 
of the Cosponsored Activity as outlined in the budget and will be 
liquidated prior to other sources of funding for the Cosponsored 
Activity.



Sec. 106.204  Who has the authority to approve and sign a Cosponsorship 
Agreement?

    The Administrator, or upon his/her written delegation, the Deputy 
Administrator, an associate or assistant administrator, after 
consultation with the General Counsel (or designee), has the authority 
to approve each Cosponsored Activity and sign each Cosponsorship 
Agreement. This authority cannot be re-delegated.



              Subpart C_Fee Based SBA-Sponsored Activities



Sec. 106.300  Fee Based SBA-Sponsored Activity.

    The Administrator (or designee), after consultation with the General 
Counsel (or designee), may provide assistance for the benefit of small 
business through Fee-Based SBA-Sponsored Activities pursuant to section 
4(h) of the Small Business Act.



Sec. 106.301  What are the minimum requirements applicable to Fee Based 
SBA-Sponsored Activities?

    While SBA may subject a Fee Based SBA-Sponsored Activity to 
additional requirements through internal policy and procedure, the 
following requirements apply to all Fee Based SBA-Sponsored Activities:
    (a) A Fee Based Record must be prepared by the Responsible Program 
Official in advance of the activity;
    (b) Any Participant Fees charged will not exceed the minimal amount 
needed to cover the anticipated direct costs of the activity;
    (c) Gifts of cash accepted and the collection of Participant Fees 
for Fee Based SBA-Sponsored Activities are subject to the applicable 
requirements in this part, internal SBA policies and procedures as well 
as applicable U.S. Treasury rules and guidelines; and
    (d) Written approval must be obtained as outlined in Sec. 106.303.



Sec. 106.302  What provisions must be set forth in a Fee Based Record?

    A Fee Based Record must contain the following:
    (a) A narrative description of the Fee Based SBA-Sponsored Activity;
    (b) A certification by the Responsible Program Official that he or 
she will abide by the requirements contained in this part, as well as 
all other applicable statutes, regulations, policies and procedures for 
Fee Based SBA-Sponsored Activities;
    (c) A proposed budget demonstrating:
    (1) All sources of funding, including annual appropriations, 
Participant Fees and Gifts, to be used in support of the Fee Based SBA-
Sponsored Activity;
    (2) A reasonable estimation of all anticipated expenses, which 
indicates that no profit is anticipated from the Fee Based SBA-Sponsored 
Activity; and
    (3) A provision stating that Participant Fees, if charged, will not 
exceed the minimal amount needed to cover the anticipated direct costs 
of the Fee Based SBA-Sponsored Activity as outlined in the budget;
    (d) With regard to any donations made in support of the Fee Based 
SBA-Sponsored Activity, the Fee Based Record will reflect the following:
    (1) Each Donor may receive appropriate recognition for its Gift; and
    (2) Any printed or electronically generated material recognizing a 
Donor will include a prominent disclaimer stating that the acceptance of 
the Gift does not constitute or imply an endorsement by SBA of the Donor 
or the Donor's products or services.



Sec. 106.303  Who has authority to approve and sign a Fee Based Record?

    The Administrator, or upon his/her written delegation, the Deputy 
Administrator, an associate or assistant administrator, after 
consultation with the General Counsel (or designee), has the authority 
to approve and sign each Fee Based Record. This authority may not be re-
delegated.

[[Page 39]]



            Subpart D_Non-Fee Based SBA-Sponsored Activities



Sec. 106.400  Non-Fee Based SBA-Sponsored Activity.

    The Administrator (or designee) may provide assistance directly to 
small business concerns through Non-Fee Based SBA-Sponsored Activities 
under section 8(b)(1)(A) of the Small Business Act.



Sec. 106.401  What are the minimum requirements applicable to a 
Non-Fee Based SBA-Sponsored Activities?

    While SBA may subject Non-Fee Based SBA-Sponsored Activities to 
additional requirements through internal policy and procedure, the 
following requirements apply to all Non-Fee Based SBA-Sponsored 
Activity:
    (a) A Non-Fee Based Record must be prepared and approved by the 
Responsible Program Official in advance of the activity;
    (b) Gifts of cash accepted for Non-Fee Based SBA-Sponsored 
Activities are subject to Sec. 106.500, internal SBA policies and 
procedures as well as applicable U.S. Treasury rules and guidelines; and
    (c) Written approval must be obtained as outlined in Sec. 106.403.



Sec. 106.402  What provisions must be set forth in a Non-Fee Based 
Record?

    A Non-Fee Based Record must contain the following:
    (a) A narrative description of the Non-Fee Based SBA-Sponsored 
Activity;
    (b) A certification by the Responsible Program Official that he or 
she will abide by the requirements contained in this part, as well as 
all other applicable statutes, regulations, policies and procedures for 
Non-Fee Based SBA-Sponsored Activities;
    (c) If applicable, a list of Donors supporting the activity; and
    (d) With regard to any donations made in support of a Non-Fee Based 
SBA-Sponsored Activity, the Non-Fee Based Record will reflect the 
following:
    (1) Each Donor may receive appropriate recognition for its Gift; and
    (2) Any printed or electronically generated material recognizing a 
Donor will include a prominent disclaimer stating that the acceptance of 
the Gift does not constitute or imply an endorsement by SBA of the 
Donor, or the Donor's products or services.



Sec. 106.403  Who has authority to approve and sign a Non-Fee Based 
Record?

    The appropriate Responsible Program Official, after consultation 
with the designated legal counsel, has authority to approve and sign 
each Non-Fee Based Record.



                             Subpart E_Gifts



Sec. 106.500  What is SBA's Gift authority?

    This section covers SBA's Gift acceptance authority under sections 
4(g), 8(b)(1)(G), 5(b)(9) and 7(k)(2) of the Small Business Act.



Sec. 106.501  What minimum requirements are applicable to SBA's 
solicitation and/or acceptance of Gifts?

    While SBA may subject the solicitation and/or acceptance of Gifts to 
additional requirements through internal policy and procedure, the 
following requirements must apply to all Gift solicitations and/or 
acceptances under the authority of the Small Business Act sections cited 
in Sec. 106.500:
    (a) SBA is required to use the Gift (whether cash or in-kind) in a 
manner consistent with the original purpose of the Gift;
    (b) There must be written documentation of each Gift solicitation 
and/or acceptance signed by an authorized SBA official;
    (c) Any Gift solicited and/or accepted must undergo a determination, 
prior to solicitation of the Gift or prior to acceptance of the Gift if 
unsolicited, of whether a conflict of interest exists between the Donor 
and SBA; and
    (d) All cash Gifts donated to SBA under the authority cited in Sec. 
106.500 must be deposited in an SBA trust account at the U.S. Department 
of the Treasury.



Sec. 106.502  Who has authority to perform a Gift conflict of interest 
determination?

    (a) For Gifts solicited and/or accepted under sections 4(g), 
8(b)(1)(G), and 7(k)(2) of the Small Business Act, the

[[Page 40]]

General Counsel, or designee, must make the final conflict of interest 
determination. No Gift shall be solicited and/or accepted under these 
sections of the Small Business Act if such solicitation and/or 
acceptance would, in the determination of the General Counsel (or 
designee), create a conflict of interest.
    (b) For Gifts of services and facilities solicited and/or accepted 
under section 5(b)(9), the conflict of interest determination may be 
made by designated disaster legal counsel.



Sec. 106.503  Are there types of Gifts which SBA may not solicit and/or 
accept?

    Yes. SBA shall not solicit and/or accept Gifts of or for (or use 
cash Gifts to purchase or engage in) the following:
    (a) Alcohol products;
    (b) Tobacco products;
    (c) Pornographic or sexually explicit objects or services;
    (d) Gambling (including raffles and lotteries);
    (e) Parties primarily for the benefit of Government employees; and
    (f) Any other product or service prohibited by law or policy.



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.

[[Page 41]]

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.
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 42]]

                      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 Sec. Sec. 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 Sec. Sec. 
          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 43]]

              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, 
687m, and Pub. L. 106-554, 114 Stat. 2763.

    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 44]]

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 45]]

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 46]]

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 
Sec. Sec. 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 47]]

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 48]]

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 Sec. Sec. 
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 49]]

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 with a term of less than one 
year 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 50]]

    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; 69 FR 8098, Feb. 23, 2004]



                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 Sec. Sec. 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

[[Page 51]]

be a professionally managed firm organized exclusively to pool capital 
from 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 Sec. Sec. 107.1810(g) and 
107.1820(f).

[65 FR 71055, Nov. 29, 2000]

[[Page 52]]



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 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 Sec. Sec. 
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 Sec. Sec. 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 Sec. Sec. 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,

[[Page 53]]

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.

                          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

[[Page 54]]

    (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 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:

[[Page 55]]

    (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 $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]

[[Page 56]]



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 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.''

[[Page 57]]



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.
    (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.

[[Page 58]]

    (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.



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

[[Page 59]]

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 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.

[[Page 60]]



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 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 Sec. Sec. 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 Sec. Sec. 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

[[Page 61]]

    (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:
    (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

[[Page 62]]

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.
    (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

[[Page 63]]

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.
    (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.

[[Page 64]]



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 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

[[Page 65]]

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.



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.

[[Page 66]]

 
Responsiveness................................         10    Participating Security Licensee.......         10
                                                ...........  Records/files at multiple locations...         10
----------------------------------------------------------------------------------------------------------------

    (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

[[Page 67]]

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
    (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

[[Page 68]]

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) 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:

[[Page 69]]

    (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
    (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 Sec. Sec. 
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

[[Page 70]]

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.
    (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:

[[Page 71]]

    (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 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).

[[Page 72]]



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, 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

[[Page 73]]

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 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-

[[Page 74]]

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. The duration/term of all your Financings must be 
for a minimum period of one year.
    (b) 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 year of your 
acquisition except as permitted in Sec. 107.850.
    (c) 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. You must permit voluntary prepayment of Loans and 
Debt Securities by the Small Business. 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 (c)(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.

[61 FR 3189, Jan. 31, 1996, as amended at 69 FR 8098, Feb. 23, 2004]



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

    You may make a Short-term Financing for a term less than one year if 
the Financing is:
    (a) An interim Financing 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) 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; 
69 FR 8098, Feb. 23, 2004]



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 any Debt Security) 
with a term of one year or less cannot be amortized faster than straight 
line. If the term is greater than one year, the principal cannot be 
amortized faster than straight line for the first year.

[69 FR 8098, Feb. 23, 2004]



Sec. 107.850  Restrictions on redemption of Equity Securities.

    (a) A Portfolio Concern cannot be required to redeem Equity 
Securities earlier than one year 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

[[Page 75]]

    (2) You make a follow-on investment, in which case the new 
securities may be redeemed in less than one year, but no earlier than 
the redemption date associated with your earliest Financing of the 
concern.
    (b) The redemption price must be either:
    (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; 
69 FR 8098, Feb. 23, 2004]



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

[[Page 76]]

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.
    (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.

[[Page 77]]

    (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:
    (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]

[[Page 78]]



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 
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.

[[Page 79]]

                  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 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.

[[Page 80]]

    (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 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 Sec. Sec. 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.

[[Page 81]]

    (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.
    (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 
Sec. Sec. 107.1800 through 107.1820.

    If you issue Leverage after April 25, 1994, you automatically agree 
to the terms and conditions in Sec. Sec. 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

[[Page 82]]

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 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.

[[Page 83]]

    (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:

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 Sec. Sec. 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

[[Page 84]]

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]



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 Sec. Sec. 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]

[[Page 85]]



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 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.

[[Page 86]]



Sec. 107.1420  Articles requirements for 4 percent Preferred Securities.

    If you have outstanding 4 percent Preferred Securities, your 
Articles must contain all the provisions in Sec. Sec. 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 
Sec. Sec. 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

[[Page 87]]

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 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 reported  on SBA                                Weighted
              Financial account                       form 468                   Weight               amount
----------------------------------------------------------------------------------------------------------------
(1) Cash and invested idle funds............  .......................  x1.00                      ..............
(2) Commitments from investors..............  .......................  x1.00                      ..............
(3) Current maturities......................  .......................  x0.50                      ..............
(4) Other current assets....................  .......................  x1.00                      ..............
(5) Publicly Traded and Marketable            .......................  x1.00                      ..............
 Securities.
(6) Anticipated operating revenue for next                        (1)  x1.00                      ..............
 12 months.
(7) Total Current Funds Available...........  .......................  .........................               A
(8) Current liabilities.....................  .......................  x1.00                      ..............
(9) Commitments to Small Businesses.........  .......................  x0.75                      ..............
(10) Anticipated operating expense for next                       (1)  x1.00                      ..............
 12 months.
(11) Anticipated interest expense for next                        (1)  x1.00                      ..............
 12 months.
(12) Contingent liabilities (guarantees)....  .......................  x0.25                      ..............

[[Page 88]]

 
(13) Total Current Funds Required...........  .......................  .........................               B
----------------------------------------------------------------------------------------------------------------
\1\ As determined by Licensee's management under its business plan.


[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

[[Page 89]]

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:
    (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

[[Page 90]]

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 Sec. Sec. 107.1550, 
107.1560 and 107.1570(a); minus
    (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 Sec. Sec. 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 Sec. Sec. 107.1550 and 107.1560. Its balance 
represents your unpaid Profit Participation.

[[Page 91]]

    (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).

    (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.

------------------------------------------------------------------------
                                    Then your Profit Participation Rate
      If your PLC ratio is:                         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

[[Page 92]]

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.
    (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

[[Page 93]]

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.
    (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

[[Page 94]]

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.
    (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 Sec. Sec. 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 
Sec. Sec. 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:

[[Page 95]]

    (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 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

[[Page 96]]

    (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 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 Sec. Sec. 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

[[Page 97]]

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, Retained Earnings Available for Distribution, liquidity 
ratio, Capital Impairment, and any other applicable computations 
required under Sec. Sec. 107.1500 through 107.1570, must be:
    (i) The distribution date, or
    (ii) If your Distribution includes annual Distributions under 
Sec. Sec. 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 Sec. Sec. 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:

[[Page 98]]

    (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 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,

[[Page 99]]

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.

[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 100]]

    (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 101]]

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 
Sec. Sec. 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 102]]

    (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 Sec. Sec. 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 103]]

these regulations or, without the prior written consent of SBA, you 
reduce your Regulatory Capital, except as permitted by Sec. Sec. 
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 Sec. Sec. 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 104]]

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 105]]

    (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 Sec. Sec. 
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 Sec. Sec. 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 106]]

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 Sec. Sec. 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
----------------------------------------------------------------------------------------------------------------
   If the percentage of equity capital       And your ratio of outstanding
 investments (at cost) in your portfolio    leverage to leverageable capital      Then your maximum permitted
                   is:                                    is:                  capital 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
    (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

[[Page 107]]

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:

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

[[Page 108]]

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

[[Page 109]]



                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.

 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.

[[Page 110]]

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.
108.710 Requirement to finance Low-Income Enterprises.
108.720 Small Businesses that may be ineligible for financing.

[[Page 111]]

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.
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.

[[Page 112]]

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;
    (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

[[Page 113]]

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.
    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

[[Page 114]]

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 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

[[Page 115]]

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.
    (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

[[Page 116]]

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
    (ii) 80 percent of the statewide nonmetropolitan area median income.
    Low-Income Investment means an Equity Capital Investment in a Low-
Income Enterprise.

[[Page 117]]

    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 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.

[[Page 118]]

    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]



              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

[[Page 119]]

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
    (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

[[Page 120]]

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 
Sec. Sec. 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 Sec. Sec. 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.

                       Capitalizing a NMVC Company



Sec. 108.200  Adequate capital for NMVC Companies.

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

[[Page 121]]



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:
    (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

[[Page 122]]

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 
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

[[Page 123]]

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 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

[[Page 124]]

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 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--

[[Page 125]]

    (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 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;

[[Page 126]]

    (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 127]]

    (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 128]]

                       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 129]]

            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 130]]

    (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 131]]

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 132]]

    (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 133]]

     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 134]]

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

[[Page 135]]

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

[[Page 136]]

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 137]]



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 138]]

    (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 139]]

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 Sec. Sec. 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 Sec. Sec. 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 140]]

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 141]]

    (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

[[Page 142]]

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 143]]

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 144]]

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 
Sec. Sec. 108.510 and 108.520.
    (2) Improper Distributions. You make any Distribution to your 
shareholders

[[Page 145]]

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 146]]

    (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 147]]

    (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 148]]

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 Sec. Sec. 108.2010 through 108.2040.
    (b) SSBICs. Regulations governing Operational Assistance grants to 
SSBICs may be found in Sec. Sec. 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 149]]

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 150]]

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 151]]

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 Sec. Sec. 
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 Sec. Sec. 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 152]]



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 Federal financial 
assistance 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.
    (e) The terms program or activity and program mean all of the 
operations of any entity described in paragraphs (e)(1) through (4) of 
this section, any part of which is extended Federal financial 
assistance:

[[Page 153]]

    (1)(i) A department, agency, special purpose district, or other 
instrumentality of a State or of a local government; or
    (ii) 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;
    (2)(i) A college, university, or other postsecondary institution, or 
a public system of higher education; or
    (ii) A local educational agency (as defined in 20 U.S.C. 7801), 
system of vocational education, or other school system;
    (3)(i) An entire corporation, partnership, or other private 
organization, or an entire sole proprietorship--
    (A) If assistance is extended to such corporation, partnership, 
private organization, or sole proprietorship as a whole; or
    (B) Which is principally engaged in the business of providing 
education, health care, housing, social services, or parks and 
recreation; or
    (ii) 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
    (4) Any other entity which is established by two or more of the 
entities described in paragraph (e)(1),(2), or (3) of this section.

[30 FR 298, Jan. 9, 1965, as amended at 38 FR 17934, July 5, 1973; 50 FR 
1441 Jan. 11, 1985; 68 FR 51348, 51349, Aug. 26, 2003]



Sec. 112.3  Discrimination prohibited.

    (a) General. To the extent that this part applies, 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 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, a 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; 68 FR 
51349, Aug. 26, 2003]

[[Page 154]]



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.



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

[[Page 155]]

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, and the extent to which like 
assurances will be required of contractors and subcontractors, 
transferees, successors in interest, and other participants.

[30 FR 298, Jan. 9, 1965, as amended at 68 FR 51349, Aug. 26, 2003]



Sec. 112.9  Compliance information.

    (a) Cooperation and assistance. SBA shall to the fullest extent 
practicable 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,

[[Page 156]]

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]



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 Sec. Sec. 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

[[Page 157]]

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]



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]



                       Sec. Appendix A to Part 112

------------------------------------------------------------------------
   Name of Federal financial assistance               Authority
------------------------------------------------------------------------
         Federal Financial Assistance Involving Grants of Funds
------------------------------------------------------------------------
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).

[[Page 158]]

 
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).
------------------------------------------------------------------------
                   Other Federal Financial Assistance
------------------------------------------------------------------------
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 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).
------------------------------------------------------------------------

    Note: All types of Federal financial assistance listed above are 
also covered by part 113 of title 13 of the Code of Federal Regulations.

[50 FR 1441, Jan. 11, 1985, as amended at 68 FR 51348, 51349, Aug. 26, 
2003]



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.

[[Page 159]]

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.



                      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

[[Page 160]]

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; 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

[[Page 161]]

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 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:

[[Page 162]]

    (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.



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.

[[Page 163]]

    (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 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

[[Page 164]]

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 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

[[Page 165]]

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 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

[[Page 166]]

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 Sec. Sec. 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.
    (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

[[Page 167]]

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]



                Sec. 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.
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.

[[Page 168]]

    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.
    (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.

[[Page 169]]

    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 Sec. Sec. 
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 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

[[Page 170]]

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 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 Sec. Sec. 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.

[[Page 171]]



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 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 Sec. Sec. 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.

[[Page 172]]

                                Coverage



Sec. 113.200  Application.

    Except as provided in Sec. Sec. 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.



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, Sec. Sec. 113.225 and 113.230, and Sec. Sec. 113.300 through 
113.310, each administratively separate unit shall be deemed to be an 
educational institution.
    (c) Application of Sec. Sec. 113.300 through 113.310. Except as 
provided in paragraphs (d) and (e) of this section, Sec. Sec. 113.300 
through 113.310 apply to each recipient. A recipient to which Sec. Sec. 
113.300 through 113.310 apply shall not discriminate on the basis of sex 
in admission or recruitment in violation of Sec. Sec. 113.300 through 
113.310.
    (d) Educational institutions. Except as provided in paragraph (e) of 
this section as to recipients that are educational institutions, 
Sec. Sec. 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. 
Sec. Sec. 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 Sec. Sec. 113.300 through 113.310 apply that:

[[Page 173]]

    (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 Sec. Sec. 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 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 Sec. Sec. 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;

[[Page 174]]

    (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--
    (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

[[Page 175]]

subjected to discrimination in admission, by any recipient to which 
Sec. Sec. 113.300 through Sec. Sec. 113.310 apply, except as provided 
in Sec. Sec. 113.225 and Sec. Sec. 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 Sec. Sec. 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 
Sec. Sec. 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;
    (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 Sec. Sec. 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 Sec. Sec. 113.300 through 113.310.



Sec. 113.310  Recruitment.

    (a) Nondiscriminatory recruitment. A recipient to which Sec. Sec. 
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 
Sec. Sec. 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 
Sec. Sec. 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

[[Page 176]]

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 Sec. Sec. 113.300 through 
113.310 do not apply, or an entity, not a recipient, to which Sec. Sec. 
113.300 through 113.310 would not apply if the entity were a recipient.
    (b) Specific prohibitions. Except as provided in Sec. Sec. 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;
    (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.

[[Page 177]]

    (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 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

[[Page 178]]

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 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.

[[Page 179]]



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 Sec. Sec. 
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 Sec. Sec. 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 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

[[Page 180]]

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.
    (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 Sec. Sec. 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.

[[Page 181]]

    (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 Sec. Sec. 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;
    (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 Sec. Sec. 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

[[Page 182]]

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
    (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 
Sec. Sec. 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.

[[Page 183]]



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 Sec. Sec. 
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 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

[[Page 184]]

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]



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.

[[Page 185]]

    (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.
    (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

[[Page 186]]

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 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,

[[Page 187]]

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 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 [Reserved]
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 note, 
Pub. L. 106-554; Pub. L. 108-447, Div K, Sec. 203.

    Source: 61 FR 3271, Jan. 31, 1996, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 115 appear at 72 FR 
50038, Aug. 30, 2007.



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,

[[Page 188]]

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.



           Subpart A_Provisions for All Surety Bond Guarantees



Sec. 115.10  Definitions.

    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.
    D/SG means SBA's Director, Office of Surety Guarantees.
    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

[[Page 189]]

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 Sec. Sec. 
115.32(a) and 115.60(a)(2)) to the bond or contract amount. The Premium 
does not include surcharges for extra services, whether 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.
    Service-Disabled Veteran means a veteran with a disability that is 
service-connected, as defined in Section 101(16) of Title 38, United 
States Code.
    Small Business Owned and Controlled by Service-Disabled Veterans 
means:
    (1) A Small Concern of which not less than 51 percent is owned by 
one or more Service-Disabled Veterans; or a publicly-owned Small concern 
of which not less than 51 percent of the stock is owned by one or more 
Service-Disabled Veterans; and
    (2) The management and daily business operations of which are 
controlled by one or more Service-Disabled Veterans, or in the case of a 
Service-Disabled Veteran with permanent and severe disability, the 
spouse or permanent caregiver of such Veteran.
    Small Business Owned and Controlled by Veterans means:
    (1) A Small Concern of which not less than 51 percent is owned by 
one or more Veterans; or a publicly-owned Small Concern of which not 
less than 51 percent of the stock is owned by one or more Veterans; and
    (2) The management and daily business operations of which are 
controlled by one or more Veterans.
    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.
    Veteran has the meaning given the term in Section 101(2) of Title 
38, United States Code.

[61 FR 3271, Jan. 31, 1996, as amended at 61 FR 7985, Mar. 1, 1996; 72 
FR 34599, June 25, 2007; 72 FR 50038, Aug. 30, 2007]



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 D/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

[[Page 190]]

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.
    (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:

[[Page 191]]

    (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 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

[[Page 192]]

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 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

[[Page 193]]

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 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 Sec. Sec. 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

[[Page 194]]

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 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 D/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

[[Page 195]]

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 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) Delinquent fees. 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, or has not made timely payment of the 
Surety's fee within the time period required by Sec. 115.32(c). SBA may 
reinstate the guarantee upon showing that the contract is not in default 
and that a valid reason exists why a timely remittance or payment 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; 72 
FR 34599, July 25, 2007]



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

[[Page 196]]

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 an audit 
at least once every 3 years 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;
    (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.

[61 FR 3271, Jan. 31, 1996, as amended at 72 FR 34599, June 25, 2007]



             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

[[Page 197]]

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 D/SG. If the 
decision is again adverse, the Surety may appeal to the D/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, on 
behalf of a qualified HUBZone small business concern, or on behalf of a 
small business owned and controlled by veterans or a small business 
owned and controlled by Service-disabled veterans.
    (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; 72 FR 34599, June 25, 2007]



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

[[Page 198]]

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) within 60 calendar days after SBA's approval of the Prior Approval 
Payment or Performance Bond on the SBA Form 990, Guarantee Agreement. 
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 Contract or bond 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 the 
Principal's check for the increase in the Principal's guarantee fee 
computed on the increase in the Contract amount. If the increase in the 
Principal's fee is less than $40, no payment is due until the total 
amount of increases in the Principal's fee equals or exceeds $40. The 
Surety's check for payment of the increase in the Surety's guarantee 
fee, computed on the increase in the bond Premium, must be submitted to 
SBA within 60 calendar days of SBA's approval of the supplemental Prior 
Approval Agreement, unless the amount of such increased guarantee fee is 
less than $40. When the total amount of increase in the guarantee fee 
equals or exceeds $40, the Surety's check must be submitted to SBA 
within 60 calendar days.
    (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.

[61 FR 3271, Jan. 31, 1996, as amended at 72 FR 34599, June 25, 2007]



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

[[Page 199]]

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 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

[[Page 200]]

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. 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.

[[Page 201]]



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 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 that the Surety will neither charge a bond premium 
in excess of that authorized by the appropriate State insurance 
department, nor impose any non-premium fee unless such fee is permitted 
by applicable State law and approved by SBA.
    (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 D/SG or designee has 
countersigned the Agreement.

[61 FR 3271, Jan. 31, 1996, as amended at 66 FR 30804, June 8, 2001; 72 
FR 34600, June 25, 2007]



Sec. 115.61   [Reserved]



Sec. 115.62  Prohibition on participation in Prior Approval program.

    A PSB Surety is not eligible to submit applications under subpart B 
of this part. This prohibition does not extend to an Affiliate, as 
defined in 13 CFR Sec. 121.103, of a PSB Surety that is

[[Page 202]]

not itself a PSB Surety provided that the relationship between the PSB 
Surety and the Affiliate has been fully disclosed to SBA and that such 
Affiliate has been approved by SBA to participate as a Prior Approval 
Surety pursuant to Sec. 115.11.

[72 FR 34600, June 25, 2007]



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.



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 D/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

[[Page 203]]

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 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

[[Page 204]]

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.



PART 117_NONDISCRIMINATION IN FEDERALLY ASSISTED PROGRAMS OR ACTIVITIES 
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.

    Editorial Note: Nomenclature changes to part 117 appear at 68 FR 
51349, Aug. 26, 2003.



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 or activities 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

[[Page 205]]

and the provision of services to the public.



Sec. 117.2  Application of this part.

    (a) This part applies to all recipients of Federal financial 
assistance administered by the Small Business Administration, whether or 
not the specific type of Federal financial assistance administered is 
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.

[50 FR 41648, Oct. 11, 1985, as amended at 68 FR 51349, Aug. 26, 2003]



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.
    (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 program or activity means all of the operations of any 
entity described in paragraphs (j)(1) through (4) of this section, any 
part of which is extended Federal financial assistance:
    (1)(i) A department, agency, special purpose district, or other 
instrumentality of a State or of a local government; or
    (ii) 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;
    (2)(i) A college, university, or other postsecondary institution, or 
a public system of higher education; or
    (ii) A local educational agency (as defined in 20 U.S.C. 7801), 
system of vocational education, or other school system;
    (3)(i) An entire corporation, partnership, or other private 
organization, or an entire sole proprietorship--
    (A) If assistance is extended to such corporation, partnership, 
private organization, or sole proprietorship as a whole; or
    (B) Which is principally engaged in the business of providing 
education, health care, housing, social services, or parks and 
recreation; or
    (ii) 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
    (4) Any other entity which is established by two or more of the 
entities described in paragraph (j)(1), (2), or (3) of this section.

[[Page 206]]

    (k) The term recipient means one who receives any Federal financial 
assistance administered by the Small Business Administration. (See 
Appendix A.) The term recipient also shall be deemed to include 
subrecipients of SBA financial assistance.
    (l) The term SBA means the Small Business Administration.
    (m) 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.
    (n) 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.

[50 FR 41648, Oct. 11, 1985, as amended at 68 FR 51349, Aug. 26, 2003]



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 or activities;
    (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.
    (f) Exception 3. A recipient is permitted to take an action 
otherwise prohibited by paragraphs (a) and (b) of this

[[Page 207]]

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 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 program or activity 
on the basis of age.
    (c) If a recipient operating a program or activity 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 or activity.



Sec. 117.7  Assurances required.

    An application for financial assistance 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, and the extent to which like assurances 
will be required of contractors and subcontractors, transferees, 
successors, and other participants.

[[Page 208]]



Sec. 117.8  Responsibilities of SBA recipients.

    (a) Each SBA recipient has the primary responsibility to ensure that 
its programs or 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 the beneficiaries of its programs or 
activities 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 refusal to 
permit an on-site compliance review during normal working hours may 
constitute noncompliance with this part.

[[Page 209]]



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 Assistant Administrator, Office of Equal 
Employment Opportunity & 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 Assistant Administrator, 
Office of Equal Employment Opportunity & 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.

[50 FR 41648, Oct. 11, 1985, as amended at 72 FR 50038, Aug. 30, 2007]



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.
    (g) The mediator shall protect the confidentiality of all 
information obtained in the course of the mediation

[[Page 210]]

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 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 office or official, the Assistant 
Administrator, Office of

[[Page 211]]

Equal Employment Opportunity & Civil Rights 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 Sec. Sec. 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.

[50 FR 41648, Oct. 11, 1985, as amended at 72 FR 50038, Aug. 30, 2007]



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 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

[[Page 212]]

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 
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

[[Page 213]]

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, to which this regulation applies, 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 to which this 
regulation applies will, thereafter, be extended 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 paragraph are 
pending, the sanctions imposed by the order issued under paragraph (f) 
of this section shall remain in effect.

[[Page 214]]



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 activity 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 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 or activities and in similar situations.

[[Page 215]]

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.



                     Sec. Appendix A to Part 117\1\

------------------------------------------------------------------------
   Type of Federal financial assistance               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.



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

[[Page 216]]

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 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.

[[Page 217]]

    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, 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

[[Page 218]]

    (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 (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

[[Page 219]]

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 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

[[Page 220]]

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 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,

[[Page 221]]

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 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.

[[Page 222]]



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 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.

[[Page 223]]



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.

      Applicability and Enforceability of Loan Program Requirements

120.180 Lender and CDC compliance with Loan Program Requirements.
120.181 Status of Lenders and CDCs.

                            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

120.195 Disclosure of fees.
120.197 Notifying SBA's Office of Inspector General of suspected fraud.

                Subpart B_Policies Specific to 7(a) Loans

                          Bonding Requirements

120.200 What bonding requirements exist during construction?

[[Page 224]]

                     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.
120.223 Subsidy recoupment fee payable to SBA by Borrower.

                     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.

[[Page 225]]

                     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 Sec. Sec. 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 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 Responsibilities of PLP Lenders for servicing and liquidating 
          7(a) loans.
120.454 PLP performance review.
120.455 Suspension or revocation of PLP status.

                         SBA Supervised Lenders

120.460 What are SBA's additional requirements for SBA Supervised 
          Lenders?
120.461 What are SBA's additional requirements for SBA Supervised 
          Lenders concerning records?
120.462 What are SBA's additional requirements on capital maintenance 
          for SBA Supervised Lenders?
120.463 Regulatory accounting--What are SBA's regulatory accounting 
          requirements for SBA Supervised Lenders?
120.464 Reports to SBA.
120.465 Civil penalty for late submission of required reports.

                 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_Servicing, Liquidation and Debt Collection Litigation of 7(a) 
                              and 504 Loans

                 SBA'S Purchase of a Guaranteed Portion

120.520 Purchase of 7(a) loan guarantees.
120.521 What interest rate applies after SBA purchases its guaranteed 
          portion?
120.522 Payment of accrued interest 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?
120.530 Deferment of payment.
120.531 Extension of maturity.
120.532 What is a loan Moratorium?
120.535 Standards for Lender and CDC loan servicing, loan liquidation 
          and debt collection litigation.
120.536 Servicing and liquidation actions that require the prior written 
          consent of SBA.
120.540 Liquidation and litigation plans.
120.541 Time for approval by SBA.
120.542 Payment by SBA of legal fees and other expenses.
120.545 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?
120.546 Loan asset sales.

                    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.

[[Page 226]]

                       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.

                   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 The purpose of the 504 program.
120.801 How a 504 Project is financed.
120.802 Definitions.

                Certification Procedures to Become a CDC

120.810 Applications for certification as a CDC.
120.812 Probationary period for newly certified CDCs.

            Requirements for CDC Certification and Operation

120.820 CDC non-profit status and good standing.
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 Other services a CDC may provide to small businesses.
120.828 Minimum level of 504 loan activity and restrictions on portfolio 
          concentrations.
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.
120.837 SBA decision on application for a new CDC or for an existing CDC 
          to expand Area of Operations.
120.839 Case-by-case application to make a 504 loan outside of a CDC's 
          Area of Operation.

                    Accredited Lenders Program (ALP)

120.840 Accredited Lenders Program (ALP).
120.841 Qualifications for the ALP.

                    Premier Certified Lenders Program

120.845 Premier Certified Lenders Program (PCLP).
120.846 Requirements for maintaining and renewing PCLP status.

[[Page 227]]

120.847 Requirements for the Loan Loss Reserve Fund (LLRF).
120.848 Requirements for 504 loan processing, closing, servicing, 
          liquidating, and litigating by PCLP CDCs.

                 Associate Development Companies (ADCs)

120.850 Expiration of Associate Development Company designation.

                         Other CDC Requirements

120.851 CDC ethical requirements.
120.852 Restrictions regarding CDC participation in the Small Business 
          Investment Company (SBIC) program and the 7(a) loan program.

                              SBA Oversight

120.853 Oversight and evaluation of CDCs.

                         SBA Enforcement Actions

120.854 Grounds for taking enforcement action against a CDC.
120.855 Types of enforcement actions.
120.856 Enforcement procedures.
120.857 Voluntary transfer and surrender of CDC certification.

                   Project Economic Development Goals

120.860 Required objectives.
120.861 Job creation or retention.
120.862 Other economic development objectives.

                 Leasing Policies Specific to 504 Loans

120.870 Leasing Project Property.
120.871 Leasing part of Project Property 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 Sources of permanent financing.

                       The Borrower's Contribution

120.910 Borrower contributions.
120.911 Land contributions.
120.912 Borrowed contributions.
120.913 Limitations on any contributions by a Licensee.

                            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 Policies on subordination.
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 from the Borrower that a CDC may require.
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

120.970 Servicing of 504 loans and Debentures.

                                  Fees

120.971 Allowable fees paid by Borrower.
120.972 Third Party Lender participation fee and CDC fee.

 Authority of CDCs To Perform Liquidation and Debt Collection Litigation

120.975 CDC Liquidation of loans and debt collection litigation.

         Enforceability of 501, 502 and 503 Loans and Other Laws

120.990 501, 502 and 503 loans.
120.991 Effect of other laws.

                  Subpart I_Risk-Based Lender Oversight

                               Supervision

120.1000 Risk-Based Lender Oversight.
120.1005 Bureau of PCLP Oversight.
120.1010 SBA access to SBA Lender, Intermediary, and NTAP files.

[[Page 228]]

120.1015 Risk Rating System.
120.1025 Off-site reviews and monitoring.
120.1050 On-site reviews and examinations.
120.1051 Frequency of on-site reviews and examinations.
120.1055 Review and examination results.
120.1060 Confidentiality of Reports, Risk Ratings, and related 
          Confidential Information.
120.1070 Lender oversight fees

                           Enforcement Actions

120.1400 Grounds for enforcement actions--SBA Lenders.
120.1425 Grounds for enforcement actions--Intermediaries participating 
          in the Microloan Program and NTAPs.
120.1500 Types of enforcement actions--SBA Lenders.
120.1510 Other Regulated SBLCs.
120.1511 Certification and other reporting and notification requirements 
          for Other Regulated SBLCs.
120.1540 Types of enforcement actions--Intermediaries participating in 
          the Microloan Program and NTAPs.
120.1600 General procedures for enforcement actions against SBA Lenders, 
          SBA Supervised Lenders, Other Regulated SBLCs, Management 
          Officials, Other Persons, Intermediaries, and NTAPs.

    Authority: 15 U.S.C. 634(b)(6), 634(b)(7), 634(b)(14), 633(b)(3), 
636(a) and (h), 650, and 696(3) and 697(a)(2).

    Effective Date Note: At 73 FR 75510, Dec. 11, 2008, the authority 
citation of part 120 was revised, effective Jan. 12, 2009. For the 
convenience of the user, the revised text is set forth as follows:
    Authority: 15 U.S.C. 634(b)(6), (b)(7), (b)(14), (h), and note, 
636(a), (h) and (m), 650, 687(f), 696(3), and 697(a) and (e).

    Source: 61 FR 3235, Jan. 31, 1996, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 120 appear at 72 FR 
50039, Aug. 30, 2007.

          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.



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.

[[Page 229]]



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.
    Authorized CDC Liquidator is a CDC in good standing with authority 
under the Act and SBA regulations to conduct liquidation and certain 
debt collection litigation in connection with 504 loans, as authorized 
by Sec. 120.975.
    Borrower is the obligor of an SBA business loan.
    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.
    Loan program requirements are requirements imposed upon Lenders or 
CDCs by statute, SBA regulations, any agreement the Lender or CDC has 
executed with SBA, SBA SOPs, official SBA notices and forms applicable 
to the 7(a) and 504 loan programs, and loan authorizations, as such 
requirements are issued and revised by SBA from time to time. For CDCs, 
this term also includes requirements imposed by Debentures, as that term 
is defined in Sec. 120.802.
    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

[[Page 230]]

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.
    SOPs are SBA Standard Operating Procedures, as issued and revised by 
SBA from time to time. SOPs are publicly available on SBA's Web site at 
http://www.sba.gov in the online library.

[61 FR 3235, Jan. 31, 1996, as amended at 64 FR 2117, Jan. 13, 1999; 68 
FR 57980, Oct. 7, 2003; 72 FR 18360, Apr. 12, 2007]

    Effective Date Note: At 73 FR 75510, Dec. 11, 2008, Sec. 120.10 was 
amended by adding new definitions ``Acceptable Risk Rating'', ``Federal 
Financial Institution Regulator'', ``Lender Oversight Committee'', 
``Less Than Acceptable Risk Rating'', ``Management Official'', ``Non-
Federally Regulated Lender'', ``Other Regulated SBLC'', ``Person'', 
``Risk Rating'', ``SBA Lender'', ``SBA Supervised Lender'', and ``Small 
Business Lending Company'' in alphabetical order, and removing the 
definition for ``Lender'' and adding in its place a definition of 
``Lender or 7(a) Lender'', effective Jan. 12, 2009. For the convenience 
of the user, the added text is set forth as follows:



Sec. 120.10  Definitions.

                                * * * * *

    Acceptable Risk Rating is an SBA-assigned Risk Rating, currently 
defined by SBA as ``1'', ``2'' or ``3'' on a scale of 1 to 5, which 
represents an acceptable level of risk as determined by SBA, and which 
may be revised by SBA from time to time as published in the Federal 
Register through notice and comment.

                                * * * * *

    Federal Financial Institution Regulator is the federal banking 
regulator of a 7(a) Lender and may include the Federal Deposit Insurance 
Corporation, the Federal Reserve Board, the Office of the Comptroller of 
the Currency, the Office of Thrift Supervision, the National Credit 
Union Administration, and the Farm Credit Administration.

                                * * * * *

    Lender or 7(a) Lender is an institution that has executed a 
participation agreement with SBA under the guaranteed loan program.
    Lender Oversight Committee is a committee within SBA, with 
responsibilities as outlined in Delegations of Authority, as published 
in the Federal Register.
    Less Than Acceptable Risk Rating is an SBA-assigned Risk Rating, 
currently defined by SBA as ``4'' or ``5'' on a scale of 1 to 5, which 
represents a higher level of risk as determined by SBA, and which may be 
revised by SBA from time to time as published in the Federal Register 
through notice and comment.

                                * * * * *

    Management Official is an officer, director, general partner, 
manager, employee participating in management, agent or other 
participant in the management of the affairs of the SBA Supervised 
Lender's activities under the 7(a) program.
    Non-Federally Regulated Lender (NFRL) is a business concern that is 
authorized by the SBA to make loans under section 7(a) and is subject to 
regulation by a state but whose lending activities are not regulated by 
a Federal Financial Institution Regulator.

                                * * * * *

    Other Regulated SBLC is a Small Business Lending Company whose SBA 
operations receive regular safety and soundness examinations by a state 
banking regulator or a Federal Financial Institution Regulator, and 
which meets the requirements set forth in Sec. 120.1511.
    Person is any individual, corporation, partnership, association, 
unit of government, or legal entity, however organized.

                                * * * * *

    Risk Rating is an SBA internal composite rating assigned to 
individual SBA Lenders, Intermediaries, or NTAPs that reflects the risk 
associated with the SBA Lender's or

[[Page 231]]

Intermediary's portfolio of SBA loans or with the NTAP. Risk Ratings 
currently range from one to five, with one representing the least risk 
and five representing the most risk, and may be revised by SBA from time 
to time as published in the Federal Register through notice and comment.

                                * * * * *

    SBA Lender is a 7(a) Lender or a CDC. This term includes SBA 
Supervised Lenders.
    SBA Supervised Lender is a 7(a) Lender that is either a Small 
Business Lending Company or a NFRL.

                                * * * * *

    Small Business Lending Company (SBLC) is a nondepository lending 
institution that is SBA licensed and is authorized by SBA to only make 
loans pursuant to section 7(a) of the Small Business Act and loans to 
Intermediaries in SBA's Microloan program. SBA has imposed a moratorium 
on licensing new SBLCs since January 1982.

                                * * * * *



            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.



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

[[Page 232]]

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);
    (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

[[Page 233]]

    (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 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]

[[Page 234]]

                            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 Sec. Sec. 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 financing (whether 7(a) or 504) is for the 
construction of a new building, a Borrower may permanently lease up to 
20 percent of the Rentable Property to one or more tenants if the 
Borrower permanently occupies and uses no less than 60 percent of the 
Rentable Property, and plans to permanently occupy and use within three 
years some of the remaining space not immediately occupied and not 
permanently leased and plans to permanently occupy and use within ten 
years all of the remaining space not permanently leased. If the Borrower 
is an Eligible Passive Company which leases 100 percent of the new 
building's space to one or more Operating Companies, the Operating 
Company, or Operating Companies together, must follow the same rules set 
forth in this paragraph.
    (b) If the SBA financing (whether 7(a) or 504) is for the 
acquisition, renovation, or reconstruction of an existing building, the 
Borrower may permanently lease up to 49 percent of the Rentable Property 
if the Borrower permanently occupies and uses no less than 51 percent of 
the Rentable Property. If the Borrower is an Eligible Passive Company 
which leases 100 percent of the space of the existing building to one or 
more Operating Companies, the Operating Company, or Operating Companies 
together, must follow the same rules set forth in this paragraph.

[68 FR 51679, Aug. 28, 2003]

[[Page 235]]

                          Ethical Requirements



Sec. 120.140  What ethical requirements apply to participants?

    Lenders, Intermediaries, and CDCs (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.

[61 FR 3235, Jan. 31, 1996, as amended at 68 FR 57980, Oct. 7, 2003]

                      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.

[[Page 236]]



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 Sec. 
121.103 of this chapter, must not exceed a guaranty amount of 
$1,000,000, except as otherwise authorized by statute for a specific 
program. The maximum loan amount for any one 7(a) loan is $2,000,000. 
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.

[61 FR 3235, Jan. 31, 1996, as amended at 68 FR 51680, Aug. 28, 2003]



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., 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:

[[Page 237]]

    (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.

      Applicability and Enforceability of Loan Program Requirements



Sec. 120.180  Lender and CDC compliance with Loan Program Requirements.

    Lenders must comply and maintain familiarity with Loan Program 
Requirements for the 7(a) program, as such requirements are revised from 
time to time. CDCs must comply and maintain familiarity with Loan 
Program Requirements for the 504 program, as such requirements are 
revised from time to time. Loan Program Requirements in effect at the 
time that a Lender or CDC takes an action in connection with a 
particular loan govern that specific action. For example, although loan 
closing requirements in effect when a Lender or CDC closes a loan will 
govern the closing actions, a Lender or CDC's liquidation actions on the 
same loan are subject to the liquidation requirements in effect at the 
time that a liquidation action is taken.

[72 FR 18360, Apr. 12, 2007]



Sec. 120.181  Status of Lenders and CDCs.

    Lenders, CDCs and their contractors are independent contractors that 
are responsible for their own actions with respect to a 7(a) or 504 
loan. SBA has no responsibility or liability for any claim by a 
borrower, guarantor or other party alleging injury as a result of any 
allegedly wrongful action taken by a Lender, CDC or an employee, agent, 
or contractor of a Lender or CDC.

[72 FR 18360, Apr. 12, 2007]

                            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.

[[Page 238]]



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 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 Director, Office of 
Financial Assistance (D/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



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.



Sec. 120.197  Notifying SBA's Office of Inspector General of suspected 
fraud.

    Lenders, CDCs, Borrowers, and others must notify the SBA Office of 
Inspector General of any information which indicates that fraud may have 
occurred in connection with a 7(a) or 504 loan. Send the notification to 
the Assistant Inspector General for Investigations, Office of Inspector 
General, U.S. Small Business Administration, 409 3rd Street, SW., 
Washington, DC 20416.

[72 FR 18360, Apr. 12, 2007]



                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

[[Page 239]]

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. Effective 
December 21, 2000, loans of $150,000 or less may receive a maximum 
guaranty of 85 percent. Loans more than $150,000 may receive a maximum 
guaranty of 75 percent, except as otherwise authorized by law.

[61 FR 3235, Jan. 31, 1996, as amended at 68 FR 51680, Aug. 28, 2003]



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 D/
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 Director, Office of Business 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 D/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 will be one of the following: ( i) The 
prime rate; (ii) the thirty-day (1-month) London Interbank Offered Rate 
(LIBOR) plus 3 percentage points, or (iii) the Optional Peg Rate. The 
prime or LIBOR rate will be that which is in effect on the first 
business day of the month, as printed in a national financial newspaper 
published each business day. SBA publishes the Optional Peg Rate 
quarterly in the Federal Register.
    (d) Maturities under 7 years. For loans with maturities under seven 
years, the

[[Page 240]]

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.

[61 FR 3235, Jan. 31, 1996, as amended at 73 FR 67101, Nov. 13, 2008]



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 
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 Lender must pay a guaranty fee to SBA for each loan it makes. If 
the guarantee fee is not paid, SBA may terminate the guarantee. 
Acceptance of the guaranty fee by SBA does not waive any right of SBA 
arising from a Lender's negligence, misconduct or violation of any 
provision of these regulations, the guaranty agreement, or the loan 
authorization.
    (a) Amount of guaranty fee--(1) In general. Except to the extent 
paragraph (a)(2) of this section applies, for a loan with a maturity of 
twelve (12) months or less, the guarantee fee which the Lender must pay 
to SBA is one-quarter (\1/4\) of one percent of the guaranteed portion 
of the loan. For a loan with a maturity of more than twelve (12) months, 
the guarantee fee is:
    (i) 2 percent of the guaranteed portion of a loan if the total 
amount of the loan is not more than $150,000,
    (ii) 3 percent of the guaranteed portion of a loan if the total 
amount is more than $150,000 but not more than $700,000, and
    (iii) 3.5 percent of the guaranteed portion of a loan if the total 
loan amount is more than $700,000.
    (2) For loans approved October 1, 2002, through September 30, 2004. 
For a loan with a maturity of twelve (12) months or less, the guarantee 
fee which the Lender must pay to SBA is one-quarter (\1/4\) of one 
percent of the guaranteed portion of the loan. For a loan with a 
maturity of more than twelve (12) months, the guarantee fee is:
    (i) 1 percent of the guaranteed portion of the loan if the total 
loan amount is not more than $150,000,
    (ii) 2.5 percent of the guaranteed portion of a loan if the total 
loan amount is more than $150,000, but not more than $700,000, and
    (iii) 3.5 percent of the guaranteed portion if the total loan amount 
is more than $700,000.
    (b) When the guaranty fee is payable. For a loan with a maturity of 
twelve (12) months or less, the Lender must pay the guaranty fee to SBA 
with its application for a guaranty. The Lender may charge the Borrower 
for the fee when the loan is approved by SBA. For a loan with a maturity 
in excess of twelve (12) months, the Lender must pay the guaranty fee to 
SBA within 90 days after SBA gives its loan approval. The Lender may 
charge the Borrower the fee after the Lender has made the first 
disbursement of the loan. The Borrower may use the loan proceeds to pay 
the guaranty fee. However, the first disbursement must not be made 
solely or primarily to pay the guaranty fee.
    (c) Refund of guaranty fee. For a loan with a maturity of twelve 
(12) months or less, SBA will refund the guaranty fee if the loan 
application is withdrawn prior to approval by SBA; if SBA declines to 
guarantee the loan; or if SBA substantially changes the Lender's loan 
terms and then approves the loan, but SBA's modified terms are 
unacceptable to the Lender. In the latter case, the Lender must request 
a refund in writing within 30 calendar days of SBA's approval. For a 
loan with a maturity of more than twelve (12) months,

[[Page 241]]

SBA will refund the guaranty fee if the Lender has not made any 
disbursement and the lender requests in writing the refund and 
cancellation of the SBA guaranty.
    (d) Lender's retention of portion of guaranty fee. With respect to a 
loan with a maturity of more than twelve (12) months, where the total 
loan amount is no more than $150,000 Lender may retain not more than 25 
percent of the guaranty fee.
    (e) 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.
    (f) Lender's annual service fee payable to SBA--(1) In general. 
Except to the extent paragraph (f)(2) of this section applies, the 
lender shall 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.
    (2) For loans approved from October 1, 2002, through September 30, 
2004. The lender shall pay SBA an annual service fee equal to 0.25 
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, as amended at 68 
FR 51680, Aug. 28, 2003; 68 FR 56554, Oct. 1, 2003]



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:
    (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.



Sec. 120.223  Subsidy recoupment fee payable to SBA by Borrower.

    (a) The subsidy recoupment fee is payable to SBA when:

[[Page 242]]

    (1) Loan has a maturity of 15 years or more.
    (2) Borrower makes a voluntary prepayment (or several prepayments in 
the aggregate) during any one of the first three successive 12 month 
periods following the first disbursement of the loan. Prepayment is 
defined as a payment of principal in excess of the amount due according 
to the amortization schedule.
    (3) The prepayment (or several prepayments in the aggregate) is more 
than 25 percent of the highest outstanding principal balance of the loan 
in any one of the first three successive 12 month periods following the 
first disbursement.
    (b) When all the conditions above exist, the following subsidy 
recoupment fees apply:
    (1) If the prepayment is made during the first 12 month period after 
first disbursement, the charge is 5 percent of the total amount of all 
prepayments made during such period;
    (2) If the prepayment is made during the second 12 month period 
after first disbursement, the charge is 3 percent of the total amount of 
all prepayments made during that period; and
    (3) If the prepayment is made during the third 12 month period after 
first disbursement, the charge is 1 percent of the total amount of all 
prepayments made during that period.

[68 FR 51680, Aug. 28, 2003]



                     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,

[[Page 243]]

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 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

[[Page 244]]

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 (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.

[[Page 245]]



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 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

[[Page 246]]

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 Director, Office of Business 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, 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.

[[Page 247]]

                          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.



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 Sec. Sec. 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

[[Page 248]]

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 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]

    Effective Date Note: At 73 FR 75510, Dec. 11, 2008, Sec. 120.410 
was amended by revising paragraphs (a), (d) and (e) and adding a new 
paragraph (f), effective Jan. 12, 2009. For the convenience of the user, 
the added and revised text is set forth as follows:



Sec. 120.410  Requirements for all participating Lenders.

                                * * * * *

    (a) Have a continuing ability to evaluate, process, close, disburse, 
service, liquidate and litigate small business loans including, but not 
limited to:
    (1) Holding sufficient permanent capital to support SBA lending 
activities (for SBA Lenders with a Federal Financial Institution 
Regulator, meeting capital requirements for an adequately capitalized 
financial institution is considered sufficient permanent capital to 
support SBA lending activities; for SBLCs, meeting its SBA minimum 
capital requirement; and for NFRLs, meeting its state minimum capital 
requirement); and
    (2) Maintaining satisfactory SBA performance, as determined by SBA 
in its discretion. The 7(a) Lender's Risk Rating, among other factors, 
will be considered in determining satisfactory SBA performance. Other 
factors may include, but are not limited to, on-site review/examination 
assessments, historical performance measures (like default rate, 
purchase rate and loss rate), loan volume to the extent that it impacts 
performance measures, and other performance related measurements and 
information (such as contribution toward SBA mission);

                                * * * * *

    (d) Be supervised and examined by either:
    (1) A Federal Financial Institution Regulator,
    (2) A state banking regulator satisfactory to SBA, or
    (3) SBA;
    (e) Be in good standing with SBA as defined in Sec. 120.420(f) (and 
determined by SBA in its discretion) and, as applicable, with an SBA 
Lender's state regulator and Federal Financial Institution Regulator; 
and
    (f) Operate in a safe and sound condition using commercially 
reasonable lending policies, procedures, and standards employed by 
prudent Lenders.



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.

[[Page 249]]

                        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]

    Effective Date Note: At 73 FR 75511, Dec. 11, 2008, Sec. 120.414 
and the undesignated center heading immediately preceding Sec. 120.414 
were removed, effective Jan. 12, 2009.



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]

    Effective Date Note: At 73 FR 75511, Dec. 11, 2008, Sec. 120.415 
was removed, effective Jan. 12, 2009.

                     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 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

[[Page 250]]

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.

    Effective Date Note: At 73 FR 75511, Dec. 11, 2008, Sec. 120.420 
was amended by revising paragraph (f) introductory text and paragraphs 
(f)(3) and (4), effective Jan. 12, 2009. For the convenience of the 
user, the revised text is set forth as follows:



Sec. 120.420  Definitions.

                                * * * * *

    (f) Good Standing--In general, a Lender is in ``good standing'' with 
SBA if it:

                                * * * * *

    (3) Is not under investigation or indictment for, or has not been 
convicted of, or had a judgment entered against it for 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 Lender Oversight Committee has determined that 
good standing exists despite the existence of such factors.
    (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 Lender 
Oversight Committee has determined that good standing exists despite the 
existence of such person.

                                * * * * *



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.



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 D/FA;

[[Page 251]]

    (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.

    Effective Date Note: At 73 FR 75511, Dec. 11, 2008, Sec. 120.424 
was amended by revising paragraph (a), redesignating paragraphs (b), 
(c), (d), and (e) as (c), (d), (e), and (f), and adding new paragraph 
(b), effective Jan. 12, 2009. For the convenience of the user, the added 
and revised text is set forth as follows:



Sec. 120.424  What are the basic conditions a Lender must meet to 
          securitize?

                                * * * * *

    (a) Be in good standing with SBA as defined in Sec. 120.420(f) of 
this chapter and determined by SBA in its discretion;
    (b) Have satisfactory SBA performance, as determined by SBA in its 
discretion. The Lender's Risk Rating, among other factors, will be 
considered in determining satisfactory SBA performance. Other factors 
may include, but are not limited to, on-site review/examination 
assessments, historical performance measures (like default rate, 
purchase rate and loss rate), loan volume to the extent that it impacts 
performance measures, and other performance related measurements and 
information (such as contribution toward SBA mission);

                                * * * * *



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

[[Page 252]]

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 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]

    Effective Date Note: At 73 FR 75511, Dec. 11, 2008, Sec. 
120.425(c)(2) was amended by removing ``SBA Securitization Committee'' 
and add in its place ``Lender Oversight Committee'' in the fourth 
sentence, effective Jan. 12, 2009.



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.

    Effective Date Note: At 73 FR 75511, Dec. 11, 2008, Sec. 120.426 
was amended by removing ``SBA's Securitization Committee'' and add in 
its place ``Lender Oversight Committee'' in the second sentence, 
effective Jan. 12, 2009.



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.

[[Page 253]]



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 Sec. Sec. 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.



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.

    Effective Date Note: At 73 FR 75511, Dec. 11, 2008, Sec. 120.433 
was amended by revising paragraph (a), redesignating paragraph (b) as 
(c), and adding a new paragraph (b), effective Jan. 12, 2009. For the 
convenience of the user, the added and revised text is set forth as 
follows:



Sec. 120.433  What are the SBA's other requirements for sales and sales 
          of participating interests?

                                * * * * *

    (a) The Lender must be in good standing with SBA as defined in Sec. 
120.420(f) and determined by SBA in its discretion;
    (b) The Lender has satisfactory SBA performance, as determined by 
SBA in its discretion. The Lender's Risk Rating, among other factors, 
will be considered in determining satisfactory SBA performance. Other 
factors may include, but are not limited to,

[[Page 254]]

on-site review/examination assessments, historical performance measures 
(like default rate, purchase rate and loss rate), loan volume to the 
extent that it impacts performance measures, and other performance 
related measurements and information (such as contribution toward SBA 
mission); and

                                * * * * *



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 D/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.

    Effective Date Note: At 73 FR 75511, Dec. 11, 2008, Sec. 120.434 
was amended by revising paragraph (b), redesignating paragraphs (c), 
(d), (e), (f), and (g) as (d), (e), (f), (g), and (h), and adding a new 
paragraph (c), effective Jan. 12, 2009. For the convenience of the user, 
the added and revised text is set forth as follows:



Sec. 120.434  What are SBA's requirements for loan pledges?

                                * * * * *

    (b) The Lender must be in good standing with SBA as defined in Sec. 
120.420(f) and determined by SBA in its discretion;
    (c) The Lender has satisfactory SBA performance, as determined by 
SBA in its discretion. The Lender's Risk Rating, among other factors, 
will be considered in determining satisfactory SBA performance. Other 
factors may include, but are not limited to, on-site review/examination 
assessments, historical performance measures (like default rate, 
purchase rate and loss rate), loan volume to the extent that it impacts 
performance measures, and other performance related measurements and 
information (such as contribution toward SBA mission);

                                * * * * *



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
    (e) Advances by a Federal Home Loan Bank.

    Effective Date Note: At 73 FR 75511, Dec. 11, 2008, Sec. 120.435 
introductory text was revised, effective Jan. 12, 2009. For the 
convenience of the user, the revised text is set forth as follows:



Sec. 120.435  Which loan pledges do not require notice to or consent by 
          SBA?

    Notwithstanding the provisions of Sec. 120.434(e), 7(a) loans may 
be pledged for the following purposes without notice to or consent by 
SBA:

                                * * * * *

                     Certified Lenders Program (CLP)



Sec. 120.440  The Certified Lenders Program.

    Under the Certified Lenders Program (CLP), designated Lenders 
process and close 7(a) loans and service and liquidate such loans in 
accordance with subpart E of this part. 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, as amended at 72 
FR 18360, Apr. 12, 2007]

[[Page 255]]



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 D/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 D/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 D/FA remains in effect 
pending resolution of the appeal.

    Effective Date Note: At 73 FR 75511, Dec. 11, 2008, Sec. 120.442 
was removed, effective Jan. 12, 2009.

                     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 D/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 D/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 will review a PLP Lender's loans, 
policies and procedures. The recertification decision of the D/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 D/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.

    Effective Date Note: At 73 FR 75511, Dec. 11, 2008, Sec. 120.451 
was amended by revising the

[[Page 256]]

last sentence in paragraph (a), revising paragraph (b)(3), removing 
paragraph (c), redesignating paragraph (d) as (c), redesignating 
paragraph (e) as (d) and revising its last sentence, and adding a new 
paragraph (e), effective Jan. 12, 2009. For the convenience of the user, 
the added and revised text is set forth as follows:



Sec. 120.451  How does a Lender become a PLP Lender?

    (a) * * * 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 appropriate Office of 
Capital Access official in accordance with Delegations of Authority for 
final decision.
    (b) * * *
    (3) Has satisfactory SBA performance, as determined by SBA in its 
discretion. The Lender's Risk Rating, among other factors, will be 
considered in determining satisfactory SBA performance. Other factors 
may include, but are not limited to, on-site review/examination 
assessments, historical performance measures (like default rate, 
purchase rate and loss rate), loan volume to the extent that it impacts 
performance measures, and other performance related measurements and 
information (such as contribution toward SBA mission).

                                * * * * *

    (d) * * * The recertification decision is made by the appropriate 
Office of Capital Access official in accordance with Delegations of 
Authority and is final.
    (e) When a PLP Lender's Supplemental Guaranty Agreement expires, SBA 
may recertify the Lender as a PLP Lender for an additional term not to 
exceed two years. Prior to recertification, SBA will review a PLP 
Lender's loans, policies, procedures, SBA performance, Risk Rating, 
review or examination results, and other risk related information as 
determined by SBA.

                                * * * * *



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  Responsibilities of PLP Lenders for servicing and 
liquidating 7(a) loans.

    Servicing and Liquidation responsibilities for PLP Lenders are set 
forth in subpart E of this part.

[72 FR 18360, Apr. 12, 2007]



Sec. 120.454  PLP performance review.

    SBA may review the performance of a PLP Lender.

[72 FR 25194, May 4, 2007]

    Effective Date Note: At 73 FR 75512, Dec. 11, 2008, Sec. 120.454 
was removed, effective Jan. 12, 2009.



Sec. 120.455  Suspension or revocation of PLP status.

    The D/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

[[Page 257]]

under this section under procedures found in part 134 of this chapter. 
The action of the D/FA remains in effect pending resolution of the 
appeal.

    Effective Date Note: At 73 FR 75512, Dec. 11, 2008, Sec. 120.455 
was removed, effective Jan. 12, 2009.

                         SBA Supervised Lenders



Sec. 120.460  What are SBA's additional requirements for SBA Supervised 
Lenders?

    (a) In general. In addition to complying with SBA's requirements for 
SBA Lenders, an SBA Supervised Lender must meet the additional 
requirements set forth in this regulation and the SBA Supervised Lender 
regulations that follow.
    (b) Operations and internal controls. Each SBA Supervised Lender's 
board of directors (or management, if the SBA Supervised Lender is a 
division of another company and does not have its own board of 
directors) must adopt an internal control policy which provides adequate 
direction to the institution in establishing effective control over and 
accountability for operations, programs, and resources. The internal 
control policy must, at a minimum:
    (1) Direct management to assign responsibility for the internal 
control function (covering financial, credit, credit review, collateral, 
and administrative matters) to an officer or officers of the SBA 
Supervised Lender;
    (2) Adopt and set forth procedures for maintenance and periodic 
review of the internal control function; and
    (3) Direct the operation of a program to review and assess the SBA 
Supervised Lender's assets. The asset review program policies must 
specify the following:
    (i) Loan, loan-related asset, and appraisal review standards, 
including standards for scope of selection for review (of any such loan, 
loan-related asset or appraisal) and standards for work papers and 
supporting documentation;
    (ii) Asset quality classification standards consistent with the 
standardized classification systems used by the Federal Financial 
Institution Regulators;
    (iii) Specific internal control requirements for the SBA Supervised 
Lender's major asset categories (cash and investment securities), 
lending, and the issuance of debt;
    (iv) Specific internal control requirements for the SBA Supervised 
Lender's oversight of Lender Service Providers; and
    (v) Standards for training to implement the asset review program.

[73 FR 75512, Dec. 11, 2008]

    Effective Date Note: At 73 FR 75512, Dec. 11, 2008, Sec. 120.460 
was added, effective Jan. 12, 2009.



Sec. 120.461  What are SBA's additional requirements for SBA Supervised 
Lenders concerning records?

    (a) Report filing. All SBA Supervised Lender-specific reports 
(including all SBLC-only reports) must be filed with the appropriate 
Office of Capital Access official in accordance with Delegations of 
Authority.
    (b) Maintenance of records. An SBA Supervised Lender must maintain 
at its principal business office accurate and current financial records, 
including books of accounts, minutes of stockholder, directors, and 
executive committee meetings, and all documents and supporting materials 
relating to the SBA Supervised Lender's transactions. However, 
securities held by a custodian pursuant to a written agreement are 
exempt from this requirement.
    (c) Permanent preservation of records. An SBA Supervised Lender must 
permanently preserve in a manner permitting immediate (one business day) 
retrieval the following documentation for the financial statements and 
other reports required by Sec. 120.464 (and the accompanying certified 
public accountant's opinion):
    (1) All general and subsidiary ledgers (or other records) reflecting 
asset, liability, capital stock and additional paid-in capital, income, 
and expense accounts;
    (2) All general and special journals (or other records forming the 
basis for entries in such ledgers); and
    (3) The corporate charter, bylaws, application for determination of 
eligibility to participate with SBA, and all

[[Page 258]]

minutes books, capital stock certificates or stubs, stock ledgers, and 
stock transfer registers.
    (d) Other preservation of records. An SBA Supervised Lender must 
preserve for at least 6 years following final disposition of each 
individual SBA loan:
    (1) All applications for financing;
    (2) Lending, participation, and escrow agreements;
    (3) Financing instruments; and
    (4) All other documents and supporting material relating to such 
loans, including correspondence.
    (e) Electronic preservation. Records and other documents referred to 
in this section may be preserved electronically if the original is 
available for retrieval within 15 working days.

[73 FR 75512, Dec. 11, 2008]

    Effective Date Note: At 73 FR 75512, Dec. 11, 2008, Sec. 120.461 
was added, effective Jan. 12, 2009.



Sec. 120.462  What are SBA's additional requirements on capital 
maintenance for SBA Supervised Lenders?

    (a) Capital adequacy. The board of directors (or management, if the 
SBA Supervised Lender is a division of another company and does not have 
its own board of directors) of each SBA Supervised Lender must determine 
capital adequacy goals; that is, the total amount of capital needed to 
assure the SBA Supervised Lender's continued financial viability and 
provide for any necessary growth. The minimum standards set in Sec. 
120.471 for SBLCs and those established by state regulators for NFRLs 
are not to be adopted as the ideal capital level for a given SBA 
Supervised Lender. Rather, the minimum standards are to serve as minimum 
levels of capital that each SBA Supervised Lender must maintain to 
protect against the credit risk and other general risks inherent in its 
operation.
    (b) Capital plan. (1) The board of directors of each SBA Supervised 
Lender must establish, adopt, and maintain a formal written capital 
plan. The plan must include any interim capital targets that are 
necessary to achieve the SBA Supervised Lender's capital adequacy goals 
as well as the minimum capital standards. The plan must address any 
projected dividend goals, equity retirements, or any other anticipated 
action that may decrease the SBA Supervised Lender's capital. The plan 
must set forth the circumstances in which capital retirements (e.g., 
dividends, distributions of capital or purchase of treasury stock) can 
occur. In addition to factors described above that must be considered in 
meeting the minimum standards, the board of directors must also address 
the following factors in developing the SBA Supervised Lender's capital 
adequacy plan:
    (i) Management capability;
    (ii) Quality of operating policies, procedures, and internal 
controls;
    (iii) Quality and quantity of earnings;
    (iv) Asset quality and the adequacy of the allowance for loan losses 
within the loan portfolio;
    (v) Sufficiency of liquidity; and
    (vi) Any other risk-oriented activities or conditions that warrant 
additional capital (e.g., portfolio growth rate).
    (2) An SBA Supervised Lender must keep its capital plan current, 
updating it at least annually or more often as operating conditions may 
warrant.
    (c) Certification of compliance. Within 45 days of the end of each 
fiscal quarter, each SBA Supervised Lender must furnish the SBA with a 
calculation of capital and certification of compliance with its minimum 
capital requirement as set forth in Sec. Sec. 120.471, 120.472, or 
120.474, as applicable, for SBLCs and as established by state regulators 
for NFRLs. The SBA Supervised Lender's chief financial officer must 
certify the calculation to be correct. The quarterly calculation and 
certification of compliance may be included in the SBA Supervised 
Lender's Quarterly Condition Report.
    (d) Capital impairment. An SBA Supervised Lender must meet its 
minimum regulatory capital requirement and avoid capital impairment. 
Capital impairment exists if an SBA Supervised Lender fails to meet its 
minimum regulatory capital requirement under Sec. Sec. 120.471, 
120.472, and 120.474 for SBLCs or as established by state regulators for 
NFRLs. An SBA Supervised Lender must provide the appropriate Office of 
Capital Access official in accordance with Delegations of Authority 
written

[[Page 259]]

notice of any failure to meet its minimum capital requirement within 30 
calendar days of the month-end in which the impairment occurred. Unless 
otherwise waived by the appropriate Office of Capital Access official in 
accordance with Delegations of Authority in writing, an SBA Supervised 
Lender may not present any loans to SBA for guaranty until the 
impairment is cured. SBA may waive the presentment prohibition for good 
cause as determined by SBA in its discretion. In the case of differences 
in calculating capital or capital requirements between the SBA 
Supervised Lender and SBA, SBA's calculations will prevail until 
differences between the two calculations are resolved.
    (e) Capital restoration plan. (1) Filing requirement. An SBA 
Supervised Lender must file a written capital restoration plan with SBA 
within 45 days of the date that the SBA Supervised Lender provides 
notice to SBA under paragraph (d) of this section or receives notice 
from SBA (whichever is earlier) that the SBA Supervised Lender has not 
met its minimum capital requirement, unless SBA notifies the SBA 
Supervised Lender in writing that the plan is to be filed within a 
different time period.
    (2) Plan content. An SBA Supervised Lender must detail the steps it 
will take to meet its minimum capital requirement; the time within which 
each step will be taken; the timeframe for accomplishing the entire 
capital restoration; and the person or department at the SBA Supervised 
Lender charged with carrying out the capital restoration plan.
    (3) SBA response. SBA will provide written notice of whether the 
capital restoration plan is approved or not or whether SBA will seek 
additional information. If the capital restoration plan is not approved 
by SBA, the SBA Supervised Lender will submit a revised capital 
restoration plan within the timeframe specified by SBA.
    (4) Amendment of capital restoration plan. An SBA Supervised Lender 
that has submitted an approved capital restoration plan may, after prior 
written notice to and approval by SBA, amend the plan to reflect a 
change in circumstance. Until such time as a proposed amendment has been 
approved, the SBA Supervised Lender must implement the capital 
restoration plan as approved prior to the proposed amendment.
    (5) Failure. If an SBA Supervised Lender fails to submit a capital 
restoration plan that is acceptable to SBA within its discretion within 
the required timeframe, or fails to implement, in any material respect 
as determined by SBA in its discretion, its SBA approved capital 
restoration plan within the plan timeframe, SBA may undertake 
enforcement actions under Sec. 120.1500.

[73 FR 75512, Dec. 11, 2008]

    Effective Date Note: At 73 FR 75512, Dec. 11, 2008, Sec. 120.462 
was added, effective Jan. 12, 2009.



Sec. 120.463  Regulatory accounting--What are SBA's regulatory 
accounting requirements for SBA Supervised Lenders?

    (a) Books and records. The books and records of an SBA Supervised 
Lender must be kept on an accrual basis in accordance with Generally 
Accepted Accounting Principles (GAAP) as promulgated by the Financial 
Accounting Standards Board (FASB), supplemented by Regulatory Accounting 
Principles (RAP) as identified by SBA in Policy, Procedural or 
Information Notices, from time to time.
    (b) Annual audit. Each SBA Supervised Lender must have its financial 
statements audited annually by a certified public accountant experienced 
in auditing financial institutions. The audit must be performed in 
accordance with generally accepted auditing standards as adopted by the 
Auditing Standards Board of the American Institute of Certified Public 
Accountants (AICPA) for non-public companies and by the Public Company 
Accounting Oversight Board (PCAOB) for public companies. Annually, the 
auditor must issue an audit report with an opinion as to the fairness of 
the SBA Supervised Lender's financial statements and their compliance 
with GAAP.
    (c) Auditor qualifications. The audit shall be conducted by an 
independent certified public accountant who:
    (1) Is registered or licensed to practice as a certified public 
accountant,

[[Page 260]]

and is in good standing, under the laws of the state or other political 
subdivision of the United States in which the SBA Supervised Lender's 
principal office is located;
    (2) Agrees in the engagement letter with the SBA Supervised Lender 
to provide the SBA with access to and copies of any work papers, 
policies, and procedures relating to the services performed;
    (3)(i) Is in compliance with the AICPA Code of Professional Conduct; 
and
    (ii) Meets the independence requirements and interpretations of the 
Securities and Exchange Commission and its staff;
    (4) Has received a peer review or is enrolled in a peer review 
program, that meets AICPA guidelines; and
    (5) Is otherwise acceptable to SBA.
    (d) Change of auditor. If an SBA Supervised Lender discharges or 
changes its auditor, it must notify SBA in writing within ten days of 
the occurrence. Such notification must provide:
    (1) The name, address, and telephone number of the discharged 
auditor; and
    (2) If the discharge/change involved a dispute over the financial 
statements, a reasonably detailed statement of all the reasons for the 
discharge or change. This statement must set out the issue in dispute, 
the position of the auditor, the position of the SBA Supervised Lender, 
and the effect of each position on the balance sheet and income 
statement of the SBA Supervised Lender.
    (e) Specific accounting requirements. (1) Each SBA Supervised Lender 
must maintain an allowance for losses on loans and other assets that is 
sufficient to absorb all probable and estimated losses that may 
reasonably be expected based on the SBA Supervised Lender's historical 
performance and reasonably-anticipated events. Each SBA Supervised 
Lender must maintain documentation of its loan loss allowance 
calculations and analysis in sufficient detail to permit the SBA to 
understand the assumptions used and the application of those assumptions 
to the assets of the SBA Supervised Lender.
    (2) The unguaranteed portions of loans determined to be 
uncollectible must be charged-off promptly. If the portion determined to 
be uncollectible by the SBA Supervised Lender is different from the 
amount determined by its auditors or the SBA, the SBA Supervised Lender 
must charge-off such amount as the SBA may direct.
    (3) Each SBA Supervised Lender must classify loans as:
    (i) ``Nonaccrual,'' if any portion of the principal or interest is 
determined to be uncollectible and
    (ii) ``Formally restructured,'' if the loan meets the ``troubled 
debt restructuring'' definition set forth in FASB Statement of Financial 
Accounting Standards No. 15, Accounting by Debtors and Creditors for 
Troubled Debt Restructurings.
    (4) When one loan to a borrower is classified as nonaccrual or 
formally restructured, all loans to that borrower must be so classified 
unless the SBA Supervised Lender can document that the loans have 
independent sources of repayment.
    (f) Valuing loan servicing rights and residual interests. Each SBA 
Supervised Lender must account for loan sales transactions and the 
valuation of loan servicing rights in accordance with GAAP. At the end 
of each quarter, the SBA Supervised Lender must review for 
reasonableness the existing environmental assumptions used in the 
valuation. Particular attention must be given to interest rate and 
repayment rate assumptions. Assumptions considered no longer reasonable 
must be modified and modifications must be reflected in the valuation 
and must be documented and supported by a market analysis. Work papers 
reflecting the analysis of assumptions and any resulting adjustment in 
the valuation must be maintained for SBA review in accordance with Sec. 
120.461. SBA may require an SBA Supervised Lender to use industry 
averages for the valuation of servicing rights.

[73 FR 75513, Dec. 11, 2008]

    Effective Date Note: At 73 FR 75513, Dec. 11, 2008, Sec. 120.463 
was added, effective Jan. 12, 2009.



Sec. 120.464  Reports to SBA.

    (a) An SBA Supervised Lender must submit the following to SBA:
    (1) Annual Report. Within three months after the close of each 
fiscal

[[Page 261]]

year, each SBA Supervised Lender must submit to SBA two copies of an 
annual report including audited financial statements as prepared by a 
certified public accountant in accordance with Sec. 120.463. 
Specifically, the annual report must, at a minimum, include the 
following:
    (i) Audited balance sheet;
    (ii) Audited statement of income and expense;
    (iii) Audited reconciliation of capital accounts;
    (iv) Audited source and application of funds;
    (v) Such footnotes as are necessary to an understanding of the 
report;
    (vi) Auditor's letter to management on internal control weaknesses; 
and
    (vii) The auditor's report.
    (2) Quarterly Condition Reports. By the 45th calendar day following 
the end of each calendar quarter, each SBA Supervised Lender must submit 
a Quarterly Condition Report in a form and content as the SBA may 
prescribe from time to time. At a minimum, the Quarterly Condition 
Report must include the SBA Supervised Lender's quarterly financial 
statements, which may be internally prepared. The SBA Supervised Lender 
must apply uniform definitions to categories of nonperforming loans and 
include recovery amounts on liquidated loans. SBA may, on a case-by-case 
basis, depending on an SBA Supervised Lender's size and the quality of 
its assets, adjust the requirements for content and frequency of filing 
Quarterly Condition Reports.
    (3) Legal and Administrative Proceeding Report. Each SBA Supervised 
Lender must report any legal or administrative proceeding by or against 
the SBA Supervised Lender, or against any officer, director or employee 
of the SBA Supervised Lender for an alleged breach of official duty, 
within ten business days after initiating or learning of the proceeding, 
and also must notify the SBA of the terms of any settlement or final 
judgment. The SBA Supervised Lender must include such information in any 
reporting required under other provisions of SBA regulations.
    (4) Stockholder Reports. Each SBA Supervised Lender must submit to 
SBA a copy of any report furnished to its stockholders in any manner, 
within 30 calendar days after submission to stockholders, including any 
prospectus, letter, or other document, concerning the financial 
operations or condition of the SBA Supervised Lender.
    (5) Reports of Changes. Each SBA Supervised Lender must submit to 
SBA a summary of any changes in the SBA Supervised Lender's organization 
or financing (within 30 calendar days of the change), such as:
    (i) Any change in its name, address or telephone number;
    (ii) Any change in its charter, bylaws, or its officers or directors 
(to be accompanied by a statement of personal history on the form 
approved by SBA);
    (iii) Any change in capitalization, including such types of change 
as are identified in this part 120;
    (iv) Any changes affecting an SBA Supervised Lender's eligibility to 
continue to participate as an SBA Supervised Lender; and
    (v) Notice of any 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.
    (6) Report of Changes in Financial Condition. In addition to other 
reports required under this part 120, each SBA Supervised Lender must 
submit a report to SBA on any material change in financial condition. 
The SBA Supervised Lender must submit such report promptly, but no later 
than ten days after its management becomes aware of such change (except 
as provided for in Sec. 120.462(d)). Failure to promptly notify SBA 
concerning a material change in financial condition may lead to 
enforcement action.
    (7) Other Reports. Each SBA Supervised Lender must submit such other 
reports as SBA from time to time may in writing require.
    (b) Preparing financial reports for filing. Each SBA Supervised 
Lender must prepare financial reports:
    (1) In accordance with all applicable laws, regulations, procedures, 
standards, and such instructions and specifications and in such form and 
media format as may be prescribed by SBA from time to time;

[[Page 262]]

    (2) On an accrual basis, in accordance with GAAP principles and such 
other accounting requirements, standards, and procedures as may be 
prescribed by the SBA from time to time;
    (3) That contain all applicable footnotes in accordance with GAAP 
principals, one of which includes a brief analysis of how the SBA 
Supervised Lender complies with SBA's capital regulations, as 
applicable; and
    (4) In such manner as to facilitate the reconciliation of these 
reports with the books and records of the SBA Supervised Lender.
    (c) Responsibility for assuring the accuracy of filed financial 
reports. Each financial report filed with SBA must be certified as 
having been prepared in accordance with all applicable regulations, 
SOPs, notices, and instructions and to be a true, accurate, and complete 
representation of the financial condition and financial performance of 
the SBA Supervised Lender to which it applies. The reports must be 
certified by the officer of the reporting SBA Supervised Lender named 
for that purpose by action of the institution's board of directors. If 
the institution's board of directors has not acted to name an officer to 
certify the correctness of its reports of financial condition and 
financial performance, then the reports must be certified by the 
president or chief executive officer of the reporting SBA Supervised 
Lender.
    (d) Waiver. The appropriate Office of Capital Access official in 
accordance with Delegations of Authority may in his/her discretion waive 
any Sec. 120.464 reporting requirement for SBA Supervised Lenders for 
good cause (including, but not limited to, where an SBA Supervised 
Lender has a relatively small SBA loan portfolio), as determined by SBA. 
SBA Supervised Lenders must request the waiver in writing and include 
all supporting reasons and documentation. The waiver decision of the 
appropriate Office of Capital Access official in accordance with 
Delegations of Authority is final.

[73 FR 75514, Dec. 11, 2008]

    Effective Date Note: At 73 FR 75514, Dec. 11, 2008, Sec. 120.464 
was added, effective Jan. 12, 2009.



Sec. 120.465  Civil penalty for late submission of required reports.

    (a) Obligation to submit required reports by applicable due dates. 
SBA Supervised Lenders must submit complete reports by the due dates 
described in the regulations or as directed in writing by SBA. SBA 
considers any report that an SBA Supervised Lender sends to SBA by the 
applicable due date but that is submitted only in part, to have not been 
submitted by the applicable due date. SBA also considers any report that 
is postmarked by the due date to be submitted by the due date.
    (b) Amount of civil penalty. For each day past the due date for such 
report, the SBA Supervised Lender must pay to SBA a civil penalty of not 
more than $5,000 per day per report. Such civil penalty continues to 
accrue until and including the date upon which SBA Supervised Lender 
submits the complete report. In determining the amount of the civil 
penalty to be assessed, SBA may consider the financial resources and 
good faith of the SBA Supervised Lender, the gravity of the violation, 
the history of previous violations and any such other matters as justice 
may require.
    (c) Notification of amount of civil penalty. SBA will notify the SBA 
Supervised Lender in writing of the amount of civil penalties imposed 
either upon receiving the required complete report or at such other time 
as SBA determines. The SBA Supervised Lender must pay this amount to SBA 
within 30 days of the date of SBA's written demand.
    (d) Identification during examination. SBA may also impose on an SBA 
Supervised Lender a civil penalty as described in this section if SBA 
discovers, during an examination pursuant to subpart I of this Part 120 
or otherwise, that the SBA Supervised Lender did not submit a required 
report by the due date.
    (e) Extensions of submission due dates. (1) An SBA Supervised Lender 
may request in writing to SBA that SBA extend its report due date. The 
request must reference the report and its due date, state the reasonable 
cause for extension, and assert how much additional time is needed in 
order to submit a complete report. SBA will advise

[[Page 263]]

SBA Supervised Lender in writing as to whether it approved or denied the 
extension request. If SBA determines that there is reasonable cause to 
grant an extension and it is not due to willful neglect, SBA will 
establish a new due date. Such determination as to willful neglect and 
reasonable cause is in SBA's discretion. SBA will consider the following 
factors in determining willful neglect:
    (i) Whether the SBA Supervised Lender failed to file required 
reports for more than two reporting periods and
    (ii) If SBA provided the SBA Supervised Lender notice of the failure 
to file and the SBA Supervised Lender failed to respond or failed to 
provide a reasonable explanation for the filing failure in its response.
    (2) If SBA disapproves the extension, the due date remains the same. 
The civil penalty accrues regardless of whether the SBA Supervised 
Lender files an extension request. If SBA approves the extension, SBA 
will waive the civil penalty that has accrued so far for that particular 
report. However, a new civil penalty will accrue if the SBA Supervised 
Lender does not submit a complete report by the new due date established 
by SBA.
    (f) Requests for reduction or exemption. (1) An SBA Supervised 
Lender may request a reduction or exemption from the civil penalty in 
writing to SBA. The request must reference the required report, its due 
date and the amount sought for reduction, and state in detail the 
reasons for the reduction. SBA will consider the following factors:
    (i) Whether there is reasonable cause for failure to file timely and 
it was not due to willful neglect;
    (ii) Whether the SBA Supervised Lender has demonstrated to SBA's 
satisfaction that it has modified its internal procedures to comply with 
reporting requirements in the future; and
    (iii) Whether the SBA Supervised Lender has demonstrated to SBA's 
satisfaction, based on financial information fully disclosed together 
with its request, that it would have difficulty paying the civil penalty 
assessed.
    (2) SBA must also determine that a reduction or exemption is not 
inconsistent with the public interest or the protection of SBA.
    (3) SBA may in writing approve the exemption, reduce the civil 
penalty, or deny the exemption.
    (4) If SBA grants the reduction request or denies the reduction or 
exemption, the SBA Supervised Lender must pay the amount owed within 30 
days of the letter date. Civil penalties will accrue while the request 
is pending.
    (g) Reconsideration of decisions. An SBA Supervised Lender may 
request in writing to the Associate Administrator for Capital Access 
(AA/CA) to reconsider its request for extension, reduction, or 
exemption. The reconsideration request must be received by SBA within 30 
days of the date of the letter denying the SBA Supervised Lender's 
original request. SBA will not consider untimely requests. The SBA 
Supervised Lender must include any additional information or 
documentation to support its reconsideration request. SBA will issue a 
written decision on the reconsideration request. The decision is a final 
agency decision. If on reconsideration, a civil penalty remains due, the 
SBA Supervised Lender must pay to SBA the civil penalty within 30 days 
of the written decision or as otherwise directed. Civil penalties will 
continue to accrue while the reconsideration request is pending.
    (h) Other enforcement actions. SBA may seek additional remedies for 
failure to timely file reports as authorized by law.
    (i) Exception for affiliate of SBLC. Civil penalties under this 
section do not apply to any affiliate of an SBLC that procures at least 
10% of its annual purchasing requirements from small manufacturers.

[73 FR 75515, Dec. 11, 2008]

    Effective Date Note: At 73 FR 75515, Dec. 11, 2008, Sec. 120.465 
was added, effective Jan. 12, 2009.

                 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

[[Page 264]]

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 Sec. Sec. 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 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.

[[Page 265]]


    Effective Date Note: At 73 FR 75515, Dec. 11, 2008, Sec. 120.470 
was revised, effective Jan. 12, 2009. For the convenience of the user, 
the revised text is set forth as follows:



Sec. 120.470  What are SBA's additional requirements for SBLCs?

    In addition to complying with SBA's requirements for SBA Lenders and 
SBA Supervised Lenders, an SBLC must meet the requirements contained in 
this regulation and the SBLC regulations that follow.
    (a) Lending. 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 Intermediaries (see subpart G of this 
part). Such loans are subject to the same conditions as guaranteed loans 
made to Intermediaries by 7(a) Lenders.
    (b) Business structure. An SBLC must be a corporation (profit or 
non-profit) or a limited liability company or limited partnership.
    (c) Written agreement. An SBLC must sign a written agreement with 
SBA.
    (d) Dual control. An SBLC must maintain dual control over 
disbursement of funds and withdrawal of securities.
    (1) 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, provided that such action is permitted 
under the SBLC's fidelity bond.
    (2) 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 must furnish to each depository bank, 
custodian, or entity providing safe deposit boxes a certified copy of 
the resolution implementing control procedures.
    (e) Fidelity insurance. An SBLC 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 $2,000,000 executed by a surety holding a certificate of 
authority from the Secretary of the Treasury pursuant to 31 U.S.C. 9304-
9308.
    (f) Common control. (1) An SBLC must not control, be controlled by, 
or be under common control with another SBLC.
    (2) In the case of a purchase of an SBLC by an organization that 
already owns an SBLC, the purchasing entity will have six months to 
submit a plan to SBA for the divestiture of one of the SBLCs. All 
divestiture plans must be approved by SBA and SBA may withhold approval 
in its discretion. Divestiture of the SBLC must occur within one year of 
purchase date.
    (3) Without prior written SBA approval, an Associate of one SBLC 
must not be an Associate of another SBLC or of any entity which directly 
or indirectly controls, or is under common control with, another SBLC.
    (4) For purposes of paragraph (f) of this section, common control 
means a condition where two or more SBLCs, either through ownership, 
management, contract, or otherwise, are under the Control of one group 
or Person (as defined in Sec. 120.10 of this chapter). Two or more 
SBLCs 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.
    (5) ``Affiliate'' has the meaning set forth in Sec. 121.103 of this 
chapter.
    (6) ``Control'' means the possession, direct or indirect, of the 
power to direct or cause the direction of the management and policies of 
an SBLC or other concern, whether through the ownership of voting 
securities, by contract, or otherwise. The common control presumption 
may be rebutted by evidence satisfactory to SBA.
    (g) Management. An SBLC must employ full time professional 
management.
    (h) Borrowed funds. In general, an SBLC may not be capitalized with 
borrowed funds. Shareholders owning 10 percent or more of any class of 
its stock must not use personally-borrowed funds to purchase the stock 
unless the net worth of the shareholder is at least twice the amount 
borrowed or unless the shareholder receives 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:

[[Page 266]]

    (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.

    Effective Date Note: At 73 FR 75516, Dec. 11, 2008, Sec. 120.471 
was revised, effective Jan. 12, 2009. For the convenience of the user, 
the revised text is set forth as follows:



Sec. 120.471  What are the minimum capital requirements for SBLCs?

    (a) Minimum capital requirements. Each SBLC must maintain, at a 
minimum, 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.
    (b) Composition of capital. For purposes of complying with paragraph 
(a) of this section, capital consists only of one or more of the 
following:
    (1) Common stock;
    (2) Preferred stock that is noncumulative as to dividends and does 
not have a maturity date;
    (3) Additional paid-in capital representing amounts paid for stock 
in excess of the par value;
    (4) Retained earnings of the business; and/or
    (5) For limited liability companies and limited partnerships, 
capital contributions must not be subject to repayment at any specific 
time, must not be subject to withdrawal and must have no cumulative 
priority return.
    (c) Voluntary capital reduction. Without prior written SBA approval, 
an SBLC must not voluntarily reduce its capital, or repurchase and hold 
more than 2 percent of any class or combination of classes of its stock.
    (d) Issuance of securities. Without prior written SBA approval, an 
SBLC must not issue any securities (including stock options and debt 
securities) except stock dividends.



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.

    Effective Date Note: At 73 FR 75516, Dec. 11, 2008, Sec. 120.472 
was revised, effective Jan. 12, 2009. For the convenience of the user, 
the revised text is set forth as follows:

[[Page 267]]



Sec. 120.472  Higher individual minimum capital requirement.

    The Associate Administrator for Capital Access (AA/CA) may require, 
under Sec. 120.473(d), an SBLC to maintain a higher level of capital, 
if the AA/CA determines, in his/her discretion, that the SBLC's level of 
capital is potentially inadequate to protect the SBA from loss due to 
the financial failure of the SBLC. The factors to be considered in the 
determination will vary in each case and may include, for example:
    (a) Specific conditions or circumstances pertaining to the SBLC;
    (b) Exigency of those circumstances or potential problems;
    (c) Overall condition, management strength, and future prospects of 
the SBLC and, if applicable, its parent or affiliates;
    (d) The SBLC's liquidity and existing capital level, and the 
performance of its SBA loan portfolio;
    (e) The management views of the SBLC's directors and senior 
management; and
    (f) Other risk-related factors, as determined by SBA.



Sec. 120.473  Change of ownership or control.

    (a) Any change of ownership or control without prior written 
approval of 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.

    Effective Date Note 1: At 73 FR 75516, Dec. 11, 2008, Sec. 120.473 
was redesignated as Sec. 120.475; and in newly redesignated Sec. 
120.475, the second sentence of paragraph (a) introductory text and 
paragraph (b) were revised, effective Jan. 12, 2009. For the convenience 
of the user, the revised text is set forth as follows:



Sec. 120.475  Change of ownership or control.

    (a) * * * An SBLC must request approval of any such change from the 
appropriate Office of Capital Access official in accordance with 
Delegations of Authority. * * *

                                * * * * *

    (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 appropriate Office of Capital 
Access official in accordance with Delegations of Authority.

    Effective Date Note 2: At 73 FR 75516, Dec. 11, 2008, a new Sec. 
120.473 was added, effective Jan. 12, 2009. For the convenience of the 
user, the added text is set forth as follows:



Sec. 120.473  Procedures for determining individual minimum capital 
          requirement.

    (a) Notice. When SBA determines that an individual minimum capital 
requirement above that set forth in this subpart or other legal 
authority is necessary or appropriate for a particular SBLC, SBA will 
notify the SBLC in writing of the proposed individual minimum capital 
requirement, the date by which it should be reached and will provide an 
explanation of why the requirement proposed is considered necessary or 
appropriate.
    (b) SBLC response. The SBLC may respond to the notice. The response 
should include any matters which the SBLC would have SBA consider in 
deciding whether individual minimum capital requirements should be 
established for the SBLC, what those capital requirements should be, 
and, if applicable, when they should be achieved. The response must be 
in writing and delivered to the AA/CA within 30 days after the date on 
which the SBLC received the notice. SBA may shorten the time for 
response when, in the opinion of SBA, the condition of the SBLC so 
warrants, provided that the SBLC is informed promptly of the new time 
period, or the SBLC consents to the shortening of its response time. In 
its discretion, SBA may extend the time period for good cause.
    (c) Failure to respond. An SBLC that does not respond within 30 days 
or such other time period as may be specified by SBA will have waived 
any objections to the proposed minimum capital requirement and the 
deadline for its achievement. Failure to respond

[[Page 268]]

will also constitute consent to the individual minimum capital 
requirement.
    (d) Decision. After the close of the SBLC's response period, the AA/
CA will decide, based on a review of SBA reasons for proposing the 
individual minimum capital requirement, the SBLC's response, and other 
information concerning the SBLC, whether the individual minimum capital 
requirement should be established for the SBLC and, if so, the 
requirement and the date it will become effective. The SBLC will be 
notified of the decision in writing. The notice will include an 
explanation of the decision; except for a decision not to establish an 
individual minimum capital requirement for the SBLC.
    (e) Submission of plan. The decision may require the SBLC to develop 
and submit to SBA, within a time period specified, an acceptable plan to 
reach the individual minimum capital requirement by the date required.
    (f) Change in circumstances. If, after SBA's decision in paragraph 
(d) of this section, there is a change in the circumstances affecting 
the SBLC's capital adequacy or its ability to reach the required 
individual minimum capital requirement by the specified date, either the 
SBLC or the AA/CA may propose to the other a change in the individual 
minimum capital requirement for the SBLC, the date when the individual 
minimum must be achieved, and/or the SBLC's plan (if applicable). The 
AA/CA may decline to consider proposals that are not based on a 
significant change in circumstances or are repetitive or frivolous. 
Pending a decision by the AA/CA on reconsideration, SBA's original 
decision and any plan required under that decision will continue in full 
force and effect.



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.

    Effective Date Note 1: At 73 FR 75516, Dec. 11, 2008, Sec. 120.474 
was redesignated as Sec. 120.476; and at 73 FR 75517 a new Sec. 
120.474 was added, effective Jan. 12, 2009. For the convenience of the 
user, the added text is set forth as follows:



Sec. 120.474  Relation to other actions.

    In lieu of, or in addition to, the procedures in this subpart, the 
individual minimum capital requirement for an SBLC may be established or 
revised through a written agreement or cease and desist proceedings 
under subpart I of this part.



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.

    Effective Date Note 1: At 73 FR 75516, Dec. 11, 2008, Sec. 120.475 
was redesignated as Sec. 120.490, effective Jan. 12, 2009.



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.

    Effective Date Note: At 73 FR 75516, Dec. 11, 2008, Sec. 120.476 
was removed, effective Jan. 12, 2009.



Subpart E_Servicing, Liquidation and Debt Collection Litigation of 7(a) 
                              and 504 Loans

                 SBA'S Purchase of a Guaranteed Portion



Sec. 120.520  Purchase of 7(a) loan guarantees.

    (a) When SBA will purchase--(1) For loans approved on or after May 
14, 2007. 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, 
provided all business personal property securing the defaulted SBA loan 
has been liquidated. A Lender may also submit a request for purchase of 
a defaulted 7(a) loan when a Borrower files for federal bankruptcy once 
a period of at least 60 days has elapsed since the last full installment 
payment. If a Borrower cures a default before a Lender requests purchase 
by SBA, the Lender's right to request purchase on that default lapses. 
SBA considers liquidation of business personal property collateral to be 
completed when a Lender has exhausted all prudent and commercially 
reasonable efforts to collect upon these assets. In addition, SBA, in 
its sole discretion,

[[Page 269]]

may purchase the guaranteed portion of a loan at any time whether in 
default or not, with or without the request from a Lender.
    (2) For loans approved before May 14, 2007. The regulations 
applicable to the time that a Lender may make demand for purchase that 
were in effect immediately prior to this date will govern such loans.
    (b) Documentation for purchase. SBA will not purchase its guaranteed 
portion of a loan from a Lender unless the Lender has submitted to SBA 
documentation that SBA deems sufficient to allow SBA to determine 
whether purchase of the guarantee is warranted under Sec. 120.524.
    (c) Purchase of loans sold in Secondary Market. When the Lender has 
sold the guaranteed portion of a loan in the Secondary Market, under 
subpart F of this part, Lenders must perform all necessary servicing and 
liquidation actions for such loan even after SBA has purchased the 
guaranteed portion of such loan from a Registered Holder (as that term 
is defined in Sec. 120.600(i)). In the event that SBA purchases its 
guaranteed portion of such a loan from the Registered Holder, Lenders 
must provide SBA with a loan status report within 15 business days of 
such purchase. This report should include but not be limited to, a 
status report on the borrower and current condition of the collateral, 
plans for any type of loan workout or loan restructuring, existing 
liquidation activities including the sale of loan collateral, or the 
status of ongoing foreclosure proceedings. The report should accompany 
requested documentation that SBA deems sufficient to be able to review 
the Lender's administration of the loan under Sec. 120.524. A Lender's 
failure to provide sufficient documentation may constitute a material 
failure to comply with SBA requirements under Sec. 120.524(a)(1), and 
may lead to initiation of an action for recovery from the Lender of all 
or some of the moneys SBA paid to a Registered Holder on a guarantee. 
SBA will also evaluate the Lender's continued participation in the 
Secondary Market and may restrict further sale of guaranteed portions 
into the Secondary Market until SBA determines that the Lender has 
provided sufficient documentation for purchases.
    (d) No waiver of SBA's rights. Purchase by SBA of the guaranteed 
portion of a loan, or of a portion of SBA's guarantee of a loan, either 
through a negotiated agreement with a Lender or otherwise, does not 
waive any of SBA's rights to recover from the responsible Lender any 
money paid on the guarantee based upon the occurrence of any of the 
events set forth in Sec. 120.524(a) in connection with that loan.

[72 FR 18360, Apr. 12, 2007]



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  Payment of accrued interest 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--(1) For loans approved on or after May 14, 
2007. SBA will pay up to a maximum of 120 days interest to a Lender at 
the time of guarantee purchase.
    (2) For loans approved before May 14, 2007. The regulations 
applicable to the amount of interest that SBA will pay to a Lender upon 
loan default that were in effect immediately prior to this date will 
govern such loans.

[[Page 270]]

    (c) Payment to Registered Holder. SBA will pay a Registered Holder 
all accrued interest up to the date of payment.

[61 FR 3235, Jan. 31, 1996, as amended at 72 FR 18361, Apr. 12, 2007]



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, within SBA's exclusive discretion), if any of the events below 
occur:
    (1) The Lender has failed to comply materially with any Loan Program 
Requirement for 7(a) loans.
    (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 180 days after maturity of the loan. However, if the Lender is 
conducting liquidation or debt collection litigation in connection with 
a loan that has matured, SBA will be released from its guarantee only if 
the Lender fails to request that SBA purchase the guarantee within 180 
days after the completion of the liquidation or debt collection 
litigation;
    (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, at any time, 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 moneys paid on the guarantee plus 
interest from the Lender responsible for those events.
    (c) If the Lender's loan documentation or other information 
indicates that one or more of the events in paragraph (a) of this 
section 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 by a Lender or other party will 
not prejudice, or be construed as effecting any waiver of, 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.

[61 FR 3235, Jan. 31, 1996, as amended at 72 FR 18361, Apr. 12, 2007]



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.

[[Page 271]]



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.



Sec. 120.535  Standards for Lender and CDC loan servicing, loan 
liquidation and debt collection litigation.

    (a) Service using prudent lending standards. Lenders and CDCs must 
service 7(a) and 504 loans in their portfolio no less diligently than 
their non-SBA portfolio, and in a commercially reasonable manner, 
consistent with prudent lending standards, and in accordance with Loan 
Program Requirements. Those Lenders and CDCs that do not maintain a non-
SBA loan portfolio must adhere to the same prudent lending standards for 
loan servicing followed by commercial lenders on loans without a 
government guarantee.
    (b) Liquidate using prudent lending standards. Lenders and 
Authorized CDC Liquidators must liquidate and conduct debt collection 
litigation for 7(a) and 504 loans in their portfolio no less diligently 
than for their non-SBA portfolio, and in a prompt, cost-effective and 
commercially reasonable manner, consistent with prudent lending 
standards, and in accordance with Loan Program Requirements and with any 
SBA approval of either a liquidation or litigation plan or any amendment 
of such a plan. Lenders and CDCs that do not maintain a non-SBA loan 
portfolio must adhere to the same prudent lending standards followed by 
commercial lenders that liquidate loans without a government guarantee. 
They are also to operate in accordance with Loan Program Requirements 
and with any SBA approval of either a liquidation or litigation plan or 
any amendment of such a plan.
    (c) Absence of actual or apparent conflict of interest. A CDC must 
not take any action in the liquidation or debt collection litigation of 
a 504 loan that would result in an actual or apparent conflict of 
interest between the CDC (or any employee of the CDC) and any Third 
Party Lender, associate of a Third Party Lender, or any person 
participating in a liquidation, foreclosure or loss mitigation action.
    (d) SBA rights to take over servicing or liquidation. SBA may, in 
its sole discretion, undertake the servicing, liquidation and/or 
litigation of any 7(a) or 504 loan. If SBA elects to service, liquidate 
and/or litigate a loan, it will notify the relevant Lender or CDC in 
writing, and, upon receiving such notice, the Lender or CDC must assign 
the Loan Instruments to SBA and provide any needed assistance to allow 
SBA to service, liquidate and/or litigate the loan. SBA will notify the 
Borrower of the change in servicing. SBA may use contractors to perform 
these actions.

[72 FR 18361, Apr. 12, 2007]



Sec. 120.536  Servicing and liquidation actions that require the prior 
written consent of SBA.

    (a) Actions by Lenders and CDCs. Except as otherwise provided in a 
Supplemental Guarantee Agreement with a Lender or an Agreement with a 
CDC, SBA must give its prior written consent before a Lender or CDC 
takes any of the following actions:
    (1) Increases the principal amount of a loan above that authorized 
by SBA at loan origination.
    (2) Confers a Preference on the Lender or CDC or engages in an 
activity that creates a conflict of interest.
    (3) Compromises the principal balance of a loan.
    (4) Takes title to any property in the name of SBA.
    (5) Takes title to environmentally contaminated property, or takes 
over operation and control of a business that handles hazardous 
substances or hazardous wastes.
    (6) Transfers, sells or pledges more than 90% of a loan.
    (7) Takes any action for which prior written consent is required by 
a Loan Program Requirement.
    (b) Actions by CDCs only (other than PCLP CDCs). SBA must give its 
prior written consent before a CDC, other than a PCLP CDC, takes any of 
the following actions with respect to a 504 loan:
    (1) Alters substantially the terms or conditions of any Loan 
Instrument.

[[Page 272]]

    (2) Releases collateral having a cumulative market value in excess 
of 10 percent of the Debenture amount or $10,000, whichever is less.
    (3) Accelerates the maturity of the note.
    (4) Compromises or releases any claim against any Borrower or 
obligor, or against any guarantor, standby creditor, or any other person 
that is contingently liable for moneys owed on the loan.
    (5) Purchases or pays off any indebtedness secured by the property 
that serves as collateral for a defaulted 504 loan, such as payment of 
the debt(s) owed to a lien holder or lien holders with priority over the 
lien securing the loan.
    (6) Accepts a workout plan to restructure the material terms and 
conditions of a loan that is in default or liquidation.
    (7) Takes any action for which prior written consent is required by 
a Loan Program Requirement.
    (c) Documentation requirements. For all servicing/liquidation 
actions not requiring SBA's prior written consent, Lenders and CDCs must 
document the justifications for their decisions and retain these and 
supporting documents in their file for future SBA review to determine if 
the actions taken by the Lender or CDC were prudent, commercially 
reasonable, and complied with all Loan Program Requirements.

[72 FR 18361, Apr. 12, 2007]



Sec. 120.540  Liquidation and litigation plans.

    (a) SBA oversight. SBA may monitor or review liquidation through the 
review of liquidation plans which all Authorized CDC Liquidators and 
certain Lenders must submit to SBA for approval prior to undertaking 
liquidation, and through liquidation wrap-up reports which Lenders must 
submit to SBA at the completion of liquidation. SBA will monitor debt 
collection litigation, such as judicial foreclosures, bankruptcy 
proceedings and other state and federal insolvency proceedings, through 
the review of litigation plans, as set forth in this section.
    (b) Liquidation plan. An Authorized CDC Liquidator and a Lender for 
a loan made under its authority as a CLP Lender must, prior to 
undertaking any liquidation, submit a written proposed liquidation plan 
to SBA and receive SBA's written approval of that plan.
    (c) Litigation plan. An Authorized CDC Liquidator and a Lender must 
obtain SBA's prior approval of a litigation plan before proceeding with 
any Non-Routine Litigation, as defined in paragraph (c)(1) of this 
section. SBA's prior approval is not required for Routine Litigation, as 
defined in paragraph (c)(2) of this section.
    (1) Non-Routine Litigation includes:
    (i) All litigation where factual or legal issues are in dispute and 
require resolution through adjudication;
    (ii) Any litigation where legal fees are estimated to exceed 
$10,000;
    (iii) Any litigation involving a loan where a Lender or Authorized 
CDC Liquidator has an actual or potential conflict of interest with SBA; 
and
    (iv) Any litigation involving a 7(a) or 504 loan where the Lender or 
CDC has made a separate loan to the same borrower which is not a 7(a) or 
504 loan.
    (2) Routine Litigation means uncontested litigation, such as non-
adversarial matters in bankruptcy and undisputed foreclosure actions, 
having estimated legal fees not exceeding $10,000.
    (d) Decision by SBA to take over litigation. If a Lender or 
Authorized CDC Liquidator is conducting, or proposes to conduct, debt 
collection litigation on a 7(a) loan or 504 loan, SBA may take over the 
litigation if SBA determines that the outcome of the litigation could 
adversely affect SBA's administration of the loan program or that the 
Government is entitled to legal remedies that are not available to the 
Lender or Authorized CDC Liquidator. Examples of cases that could 
adversely affect SBA's administration of a loan program include, but are 
not limited to, situations where SBA determines that:
    (1) The litigation involves important governmental policy or program 
issues.
    (2) The case is potentially of great precedential value or there is 
a risk of adverse precedent to the Government.
    (3) The Lender or Authorized CDC Liquidator has an actual or 
potential conflict of interest with SBA.

[[Page 273]]

    (4) The legal fees of the Lender or Authorized CDC Liquidator's 
outside counsel are unnecessary, unreasonable or not customary in the 
locality.
    (e) Amendments to a liquidation or litigation plan. Lenders and 
Authorized CDC Liquidators must submit an amended liquidation or 
litigation plan to address any material changes arising during the 
course of the liquidation or litigation that were not addressed in the 
original plan or an amended plan. Lenders and Authorized CDC Liquidators 
must obtain SBA's written approval of the amended plan prior to taking 
any further liquidation or litigation action. Examples of such material 
changes that would require the approval of an amended plan include, but 
are not limited to:
    (1) Changes arising during the course of Routine Litigation that 
transform the litigation into Non-Routine Litigation, such as when the 
debtor contests a foreclosure or when the actual legal fees incurred 
exceed $10,000.
    (2) If SBA has approved a litigation plan where anticipated legal 
fees exceed $10,000, or has approved an amended plan, and thereafter the 
anticipated or actual legal fees increase by more than 15 percent.
    (3) If SBA has approved a liquidation plan, or an amended plan, and 
thereafter the anticipated or actual costs of conducting the liquidation 
increase by more than 15 percent.
    (f) Limited waiver of need for a written liquidation or litigation 
plan. SBA may, in its discretion, and upon request by a Lender or 
Authorized CDC Liquidator, waive the requirements of paragraphs (b), (c) 
or (e) of this section, if one of the following extraordinary 
circumstances warrant such a waiver: the need for expeditious action to 
avoid the potential risk of loss on the loan or dissipation of 
collateral exists; an immediate response is required to litigation by a 
borrower, guarantor or third party; or another urgent reason arises. The 
Lender or Authorized CDC Liquidator must obtain SBA's written consent to 
such waiver before undertaking the Emergency action, if at all 
practicable. SBA's waiver will apply only to the specific action(s) 
which the Lender or Authorized CDC Liquidator has identified to SBA as 
being necessary to address the Emergency. The Lender or Authorized CDC 
Liquidator must, as soon after the Emergency as is practicable, submit a 
written liquidation or litigation plan to SBA or, if appropriate, a 
written amended plan, and may not take further liquidation or litigation 
action without written approval of such plan or amendment by SBA.
    (g) Appeals. A Lender for loans made under its authority as a CLP 
Lender or an Authorized CDC Liquidator that disagrees with an SBA 
office's decision pertaining to an original or amended liquidation plan, 
other than such portions of the plan that address litigation matters, 
may submit a written appeal to the AA/FA within 30 days of the decision. 
The AA/FA or designee will make the final Agency decision in 
consultation with the Associate General Counsel for Litigation. A Lender 
or Authorized CDC Liquidator that disagrees with an SBA office's 
decision pertaining to an original or amended litigation plan, or the 
portion of a liquidation plan addressing litigation matters, may submit 
a written appeal to the Associate General Counsel for Litigation within 
30 days of the decision. The Associate General Counsel for Litigation 
will make the final Agency decision in consultation with the AA/FA.

[72 FR 18362, Apr. 12, 2007]



Sec. 120.541  Time for approval by SBA.

    (a) Except as set forth in paragraph (c) of this section, in 
responding to a request for approval under Sec. Sec. 120.540(b), 
120.540(c), 120.536(b)(5) or 120.536(b)(6), SBA will approve or deny the 
request within 15 business days of the date when SBA receives the 
request. If SBA is unable to approve or deny the request within this 15-
day period, SBA will provide a written notice of no decision to the 
Lender or Authorized CDC Liquidator, stating the reason for SBA's 
inability to act; an estimate of the additional time required to act on 
the plan or request; and, if SBA deems appropriate, requesting 
additional information.
    (b) Except as set forth in paragraph (c) of this section, unless SBA 
gives its written consent to a proposed liquidation or litigation plan, 
or a proposed

[[Page 274]]

amendment of a plan, or any of the actions set forth in Sec. 
120.536(b)(5) or Sec. 120.536(b)(6), SBA will not be deemed to have 
approved the proposed action.
    (c) If a Lender seeks to perform liquidation on a loan made under 
its authority as a CLP Lender by submitting a liquidation plan to SBA 
for approval, SBA will approve or deny such plan within ten business 
days. If SBA fails to approve or deny the plan within ten business days, 
SBA will be deemed to have approved such plan.

[72 FR 18362, Apr. 12, 2007]



Sec. 120.542  Payment by SBA of legal fees and other expenses.

    (a) Legal fees SBA will not pay. (1) SBA will not pay legal fees or 
other costs that a Lender or Authorized CDC Liquidator incurs:
    (i) In asserting a claim, cross claim, counterclaim, or third-party 
claim against SBA or in defense of an action brought by SBA, unless 
payment of such fees or costs is otherwise required by federal law.
    (ii) In connection with actions of a Lender or Authorized CDC 
Liquidator's outside counsel for performing non-legal liquidation 
services, unless authorized by SBA prior to the action.
    (iii) In taking actions which solely benefit a Lender or Authorized 
CDC Liquidator and which do not benefit SBA, as determined by SBA.
    (2) SBA will not pay legal fees or other costs a Lender or CDC 
incurs in the defense of, or pay for any settlement or adverse judgment 
resulting from, a suit, counterclaim or other claim by a borrower, 
guarantor, or other party that seeks damages based upon a claim that the 
Lender or CDC breached any duty or engaged in any wrongful actions, 
unless SBA expressly directed the Lender or CDC to undertake the 
allegedly wrongful action that is the subject of the suit, counterclaim 
or other claim.
    (b) Legal fees SBA may decline to pay. In addition to any right or 
authority SBA may have under law or contract, SBA may, in its 
discretion, decline to pay a Lender or Authorized CDC Liquidator for 
all, or a portion, of legal fees and/or other costs incurred in 
connection with the liquidation and/or litigation of a 7(a) loan or 504 
loan under any of the following circumstances:
    (1) SBA determines that the Lender or Authorized CDC Liquidator 
failed to perform liquidation or litigation promptly and in accordance 
with commercially reasonable standards, in a prudent manner, or in 
accordance with any Loan Program Requirement or SBA approvals of either 
a liquidation or litigation plan or any amendment of such a plan.
    (2) A Lender or Authorized CDC Liquidator fails to obtain prior 
written approval from SBA for any liquidation or litigation plan, or for 
any amended liquidation or litigation plan, or for any action set forth 
in Sec. 120.536, when such approval is required by these regulations or 
a Loan Program Requirement.
    (3) If SBA has not specifically approved fees or costs identified in 
an original or amended liquidation or litigation plan under Sec. 
120.540, and SBA determines that such fees or costs are not reasonable, 
customary or necessary in the locality in question. In such cases, SBA 
will pay only such fees as it deems are necessary, customary and 
reasonable in the locality in question.
    (c) Fees for liquidation actions performed by Authorized CDC 
Liquidators. Subject to paragraph (d) of this section, SBA will 
compensate Authorized CDC Liquidators for their liquidation actions on 
504 loans, whether such actions are performed by the CDC or the CDC's 
contractor retained in accordance with Sec. 120.975(a)(2) or 
(b)(2)(ii). The compensation fee will be a percentage (to be published 
in the Federal Register from time to time, but not to exceed 10%) of the 
net recovery proceeds realized from the sale of collateral or other 
liquidation actions on an individual loan, up to a fee of $25,000 for 
such loan, and a lower percentage (also to be published in the Federal 
Register from time to time, but not to exceed 5%) of the realized net 
recovery proceeds above such amounts. The compensation fee limits set 
forth in this paragraph (c) do not include reasonable, customary and 
necessary administrative costs related to liquidation activities on such 
loan that are incurred in accordance with the liquidation plan, or 
amendments thereto, approved by SBA pursuant to Sec. 120.540(b).

[[Page 275]]

The Authorized CDC Liquidator may compensate its contractor up to the 
amount it receives from SBA. All requests for compensation fees must be 
received by SBA within nine months from the date of SBA's purchase of 
the defaulted debenture. Fee requests not received within such timeframe 
will be automatically rejected.
    (d) Appeals--liquidation costs. A Lender or Authorized CDC 
Liquidator that disagrees with a decision by an SBA office to decline to 
reimburse all, or a portion, of the fees and/or costs incurred in 
conducting liquidation may appeal this decision in writing to the AA/FA 
within 30 days of the decision. The decision of the AA/FA or designee 
will be made in consultation with the Associate General Counsel for 
Litigation, and will be the final Agency decision.
    (e) Appeals--litigation costs. A Lender or Authorized CDC Liquidator 
that disagrees with a decision by SBA to decline to reimburse all, or a 
portion, of the legal fees and/or costs incurred in conducting debt 
collection litigation may appeal this decision in writing to the 
Associate General Counsel for Litigation within 30 days of the decision. 
The decision of the Associate General Counsel for Litigation will be 
made in consultation with the AA/FA, and will be the final Agency 
decision.

[72 FR 18362, Apr. 12, 2007]



Sec. 120.545  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.
    (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

[[Page 276]]

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; 68 FR 51680, Aug. 28, 2003. Redesignated and 
amended at 72 FR 18362, Apr. 12, 2007]



Sec. 120.546  Loan asset sales.

    (a) General. Loan asset sales are governed by Sec. 120.545(b)(4) 
and by this section.
    (b) 7(a) loans--(1) For loans approved on or after May 14, 2007. The 
Lender will be deemed to have consented to SBA's sale of the loan 
(guaranteed and unguaranteed portions) in an asset sale conducted or 
overseen by SBA upon the occurrence any of the following:
    (i) SBA's purchase of the guaranteed portion of the loan from the 
Registered Holder for a loan where the guaranteed portion has been sold 
in the Secondary Market pursuant to subpart F of this part and after 
default, the Lender has not exercised its option to purchase such 
guaranteed portion; or
    (ii) SBA's purchase of the guaranteed portion from the Lender, 
provided however, that if SBA purchased the guaranteed portion pursuant 
to Sec. 120.520(a)(1) prior to the Lender's completion of liquidation 
for the loan, then SBA will not sell such loan in an asset sale until 
nine months from the date of SBA's purchase; or
    (iii) SBA receives written consent from the Lender.
    (2) For loans identified in paragraph (b)(1)(i) of this section, the 
Lender may request that SBA withhold the loan from an asset sale if the 
Lender submits a written request to SBA within 15 business days of SBA's 
purchase of the guaranteed portion of the loan from the Registered 
Holder and if such request addresses the issues described in this 
subparagraph. The Lender's written request must advise SBA of the status 
of the loan, the Lender's plans for workout and/or liquidation, 
including and pending sale of loan collateral or foreclosure proceedings 
arranged prior to SBA's purchase that already are underway, and the 
Lender's estimated schedule for restructuring the loan or liquidating 
the collateral. SBA will consider the Lender's request and, based on the 
circumstances, SBA in its sole discretion may elect to defer including 
the loan in an asset sale in order to provide the Lender additional time 
to complete the planned restructuring and/or liquidation actions.
    (3) For loans approved before May 14, 2007. SBA must obtain written 
consent from the Lender for the sale of such loans in an asset sale.
    (4) After SBA has purchased the guaranteed portion of a loan from 
the Registered Holder or from the Lender, the Lender must continue to 
perform all necessary servicing and liquidation actions for the loan up 
to the point the loan is transferred to the purchaser in an asset sale. 
The Lender also must cooperate and take all necessary actions to 
effectuate both the asset sale and the transfer of the loan to the 
purchaser in the asset sale.
    (c) 504 loans--(1) PCLP Loans. After SBA's purchase of a Debenture, 
SBA may at its sole discretion sell a defaulted PCLP Loan in an asset 
sale conducted or overseen by SBA, after providing to the PCLP CDC that 
made the loan advance notice of not less than 90 days before the date 
upon which SBA first makes its records concerning such loan available to 
prospective purchasers for examination.
    (2) All other 504 loans. After SBA's purchase of a Debenture, SBA 
may at its sole discretion sell a defaulted 504 loan in an asset sale 
conducted or overseen by SBA.

[72 FR 18364, Apr. 12, 2007]

                    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

[[Page 277]]

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 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 D/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 
Sec. Sec. 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) Dollar-Weighted Average Net Rate of a Pool is calculated by 
multiplying the interest rate of each loan in the Pool by the ratio of 
that loan's current outstanding guaranteed principal to the current 
outstanding guaranteed principal of all loans in the Pool, and adding 
the sum of the resulting products. The Dollar-Weighted Average Net Rate 
of a Pool will fluctuate over the life of the Pool as loan defaults, 
prepayments and normal loan repayments occur.
    (d) FTA is the SBA's fiscal and transfer agent.
    (e) Note Rate is the interest rate on the Borrower's note.
    (f) Net Rate is the interest rate on an individual guaranteed 
portion of a loan in a Pool.
    (g) Pool is an aggregation of SBA guaranteed portions of loans made 
by Lenders.
    (h) 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.
    (i) Pool Rate is the interest rate on a Pool Certificate.
    (j) Registered Holder is the Certificate owner listed in FTA's 
records.
    (k) SBA's Secondary Market Program Guide is an issuance from SBA 
which describes the characteristics of Secondary Market transactions.
    (l) Weighted Average Coupon (WAC) Pool is a Pool where the interest 
rate payable to the investor is equal to the Dollar-Weighted Average Net 
Rate of the Pool.

[61 FR 3235, Jan. 31, 1996, as amended at 73 FR 67102, Nov. 13, 2008]

[[Page 278]]



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 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 will be either the lowest Net Rate of any individual 
guaranteed portion of a loan in the Pool or the Dollar-Weighted Average 
Net Rate of the Pool.

[61 FR 3235, Jan. 31, 1996, as amended at 73 FR 67102, Nov. 13, 2008]



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;
    (6) A minimum weighted average maturity at Pool formation; and
    (7) A maximum allowable difference between the highest and lowest 
Net Rate on the guaranteed portions that are placed in a WAC Pool.
    (b) Adjustment of Pool characteristics. SBA may adjust the Pool 
characteristics periodically based upon program experience and market 
conditions.

[61 FR 3235, Jan. 31, 1996, as amended at 73 FR 67102, Nov. 13, 2008]



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

[[Page 279]]

    (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) Except for export working capital loans, disburse to the 
Borrower the full amount of the loan; and
    (c) Pay SBA all guarantee fees relevant to the loan in full.

[61 FR 3235, Jan. 31, 1996, as amended at 68 FR 51680, Aug. 28, 2003]

                   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 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 D/FA. In order to qualify as a 
Pool Assembler, an entity must send the application to the D/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 D/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

[[Page 280]]

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.

    Effective Date Note: At 73 FR 75517, Dec. 11, 2008, Sec. 120.630 
was amended by adding paragraph (a)(5), effective Jan. 12, 2009. For the 
convenience of the user, the added text is set forth as follows:



Sec. 120.630  Qualifications to be a Pool Assembler.

    (a) * * *
    (5) For any pool assembler that is an SBA Lender, that the SBA 
Lender has satisfactory SBA performance, as determined by SBA in its 
discretion. The Lender's Risk Rating, among other factors, will be 
considered in determining satisfactory SBA performance. Other factors 
may include, but are not limited to, on-site review/examination 
assessments, historical performance measures (like default rate, 
purchase rate and loss rate), loan volume to the extent that it impacts 
performance measures, and other performance related measurements and 
information (such as contribution toward SBA mission).

                                * * * * *



Sec. 120.631  Suspension or termination of Pool Assembler.

    (a) Suspension or termination. The D/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 D/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 D/FA shall remain in effect pending 
resolution of the appeal.
    (c) Notice of termination. In order to terminate a Pool Assembler, 
the D/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 may appeal the termination made under this section 
pursuant to procedures set forth in part 134 of this chapter. The action 
of the D/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

[[Page 281]]

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 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

[[Page 282]]

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 D/FA may suspend or revoke the privilege of a Lender, 
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 
D/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;

[[Page 283]]

    (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 D/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 D/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 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]

[[Page 284]]



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 D/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]

    Effective Date Note: At 73 FR 75517, Dec. 11, 2008, Sec. 120.702(b) 
was revised, effective Jan. 12, 2009. For the convenience of the user, 
the revised text is set forth as follows:



Sec. 120.702  Are there limitations on who can be an Intermediary or on 
          where an Intermediary may operate?

                                * * * * *

    (b) Limitation to one state. An Intermediary may not operate in more 
than one state unless the appropriate Office of Capital Access official 
in accordance with Delegations of Authority determines that it would be 
in the best interests of the small business community for it to operate 
across state lines.

                                * * * * *



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.
    (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

[[Page 285]]

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 
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]

[[Page 286]]



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 Director, 
Office of Financial Assistance (``D/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 D/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 D/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 D/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 D/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]

    Effective Date Note: At 73 FR 75517, Dec. 11, 2008, Sec. 120.710 
was amended by revising paragraphs (c), (d), the introductory text of 
paragraph (e) and paragraph (e)(1), effective Jan. 12, 2009. For the 
convenience of the user, the added and revised text is set forth as 
follows:



Sec. 120.710  What is the Loan Loss Reserve Fund?

                                * * * * *

    (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 
appropriate Office of Capital Access official in accordance with 
Delegations of Authority 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, he/she 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 appropriate Office of 
Capital Access official in accordance with Delegations of Authority 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 
appropriate Office of Capital Access official in accordance with 
Delegations of Authority cannot reduce the LLRF to less than ten percent 
of the Portfolio.

[[Page 287]]

    (e) What must an intermediary demonstrate to get a reduction in Loan 
Loss Reserve Fund? To receive a reduction in its LLRF, an Intermediary 
must:
    (1) Have satisfactory SBA performance, as determined by SBA in its 
discretion. The Intermediary's Risk Rating, among other factors, will be 
considered in determining satisfactory SBA performance. Other factors 
may include, but are not limited to, on-site review/examination 
assessments, historical performance measures (like default rate, 
purchase rate and loss rate), loan volume to the extent that it impacts 
performance measures, and other performance related measurements and 
information (such as contribution toward SBA mission); and

                                * * * * *



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.



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.

[[Page 288]]

    (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 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 D/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 D/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;

[[Page 289]]

    (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 D/
FA remains in effect pending resolution of the appeal.

[66 FR 47073, Sept. 11, 2001]

    Effective Date Note: At 73 FR 75517, Dec. 11, 2008, Sec. 120.716 
was removed, effective Jan. 12, 2009.



            Subpart H_Development Company Loan Program (504)



Sec. 120.800  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.



Sec. 120.801  How a 504 Project is 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. The minimum Area of Operations is the State in which 
the CDC is incorporated.
    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.
    Designated Attorney is the CDC closing attorney that SBA has 
approved to close loans under an expedited closing process for a 
Priority CDC.
    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.
    Lead SBA Office is the SBA District Office designated by SBA as the 
primary liaison between SBA and a CDC and with responsibility for 
managing SBA's relationship with that CDC.
    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, is contiguous to the CDC's 
existing Area of

[[Page 290]]

Operations (or the applicant's proposed Area of Operations) of 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) of 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).
    Priority CDC is a CDC certified to participate on a permanent basis 
in the program (see Sec. 120.812) that SBA has approved to participate 
504 in an expedited 504 loan and Debenture closing process.
    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 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; 68 FR 57980, Oct. 7, 2003]

                Certification Procedures To Become a CDC



Sec. 120.810  Applications for certification as a CDC.

    (a) An applicant for certification as a CDC must apply to the SBA 
District Office serving the jurisdiction in which the applicant has or 
proposes to locate its headquarters (see Sec. 101.103 of this chapter).
    (b) The applicant must apply for an Area of Operations. The 
applicant's proposed Area of Operations must include the entire State in 
which the applicant is incorporated, and may include Local Economic 
Areas. An applicant may not apply to cover an area as a Multi-State CDC.
    (c) The applicant must demonstrate that it satisfies the CDC 
certification and operational requirements in Sec. Sec. 120.820, and 
120.822 through 120.824. The applicant also must include an operating 
budget, approved by the applicant's Board of Directors, which 
demonstrates the required financial ability (as described in Sec. 
120.825), and a plan to meet CDC operational requirements (without 
specializing in a particular industry) in Sec. Sec. 120.821, and 
120.826 through 120.830.
    (d) The District Office will forward the application and its 
recommendation to the D/FA, who will make the final decision. SBA will 
notify the CDC in writing of its decision, and, if the petition is 
declined, the reasons for the decision.

[68 FR 57980, Oct. 7, 2003]



Sec. 120.812  Probationary period for newly certified CDCs.

    (a) Newly certified CDCs will be on probation for a period of two 
years from the date of certification, at the end of which the CDC must 
petition the Lead SBA Office for:
    (1) Permanent CDC status; or
    (2) A single, one-year extension of probation.
    (b) SBA will consider the failure to file a petition before the end 
of the probationary period as a withdrawal from the 504 program. If the 
CDC elects withdrawal, SBA will direct the CDC to transfer all funded 
and/or approved loans to another CDC, SBA, or another servicer approved 
by SBA.
    (c) The Lead SBA Office will send the petition and its 
recommendation to the D/FA, who will make the final decision. SBA will 
determine permanent CDC status or an extension of probation, in part, 
based upon the CDC's compliance with the certification and operational 
requirements in Sec. Sec. 120.820 through 120.830.

[[Page 291]]

    (d) SBA will notify the CDC in writing of its decision, and, if the 
petition is declined, the reasons for the decision.

[68 FR 57980, Oct. 7, 2003]

    Effective Date Note: At 73 FR 75517, Dec. 11, 2008, Sec. 120.812 
was amended by adding three new sentences at the end of paragraph (c), 
effective Jan. 12, 2009. For the convenience of the user, the added text 
is set forth as follows:



Sec. 120.812  Probationary period for newly certified CDCs.

                                * * * * *

    (c) * * * To be considered for permanent CDC status or an extension 
of probation, the CDC must have satisfactory SBA performance, as 
determined by SBA in its discretion. The CDC's Risk Rating, among other 
factors, will be considered in determining satisfactory SBA performance. 
Other factors may include, but are not limited to, on-site review/
examination assessments, historical performance measures (like default 
rate, purchase rate and loss rate), loan volume to the extent that it 
impacts performance measures, and other performance related measurements 
and information (such as contribution toward SBA mission).

                                * * * * *

            Requirements for CDC Certification and Operation



Sec. 120.820  CDC non-profit status and good standing.

    A CDC must be a non-profit corporation, except that for-profit CDCs 
certified by SBA prior to January 1, 1987 may retain their 
certifications. An SBIC may not become a CDC. A CDC must be in good 
standing based upon the following criteria:
    (a) In good standing in the State in which the CDC is incorporated 
and any other State in which the CDC conducts business.
    (b) In compliance with all laws, including taxation requirements, in 
the State in which the CDC is incorporated and any other State in which 
the CDC conducts business.

[68 FR 57980, Oct. 7, 2003]

    Effective Date Note: At 73 FR 75518, Dec. 11, 2008, Sec. 120.820 
was amended by adding a new paragraph (c), effective Jan. 12, 2009. For 
the convenience of the user, the added text is set forth as follows:



Sec. 120.820  CDC non-profit status and good standing.

                                * * * * *

    (c) Must have satisfactory SBA performance, as determined by SBA in 
its discretion. The CDC's Risk Rating, among other factors, will be 
considered in determining satisfactory SBA performance. Other factors 
may include, but are not limited to, on-site review/examination 
assessments, historical performance measures (like default rate, 
purchase rate and loss rate), loan volume to the extent that it impacts 
performance measures, and other performance related measurements and 
information (such as contribution toward SBA mission).



Sec. 120.821  CDC Area of Operations.

    A CDC must operate only within its designated Area of Operations 
approved by SBA except as provided in Sec. 120.839.

[68 FR 57980, Oct. 7, 2003]



Sec. 120.822  CDC membership.

    (a) CDC Membership. 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 can own or 
control more than 10 percent of the CDC's voting membership (or stock). 
No employee or staff of the CDC can qualify as a member of the CDC for 
the purpose of meeting the membership requirements. The CDC membership 
must include representatives from all the groups listed in paragraph (b) 
of this section.
    (b) Membership groups. Members must be responsible for actively 
supporting economic development in the Area of Operations and must be 
from one of the following groups:
    (1) Government organizations responsible for economic development in 
the Area of Operations;
    (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, universities, or small

[[Page 292]]

business development centers (as defined in section 21(a)(1) of the Act, 
15 U.S.C. 648(a)(1)); and
    (4) Businesses in the Area of Operations.
    (c) 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.

[68 FR 57980, Oct. 7, 2003]



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 a CDC is incorporated in one State and is approved as a 
Multi-State CDC to operate in another State, the CDC must have a Loan 
Committee for each State.

[65 FR 42632, July 11, 2000, as amended at 68 FR 57981, Oct. 7, 2003]



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, management, marketing, packaging, processing, closing, 
servicing or liquidation services provided by qualified individuals and 
entities under the following circumstances:
    (a) The CDC must have at least one salaried professional employee 
that is employed directly (not a contractor or an Associate of a 
contractor) full-time to manage the CDC. The CDC manager must be hired 
by the CDC's board of directors and subject to termination only by the 
board. A CDC may petition SBA to waive the requirement of the manager 
being employed directly if:
    (1) Another non-profit entity that has the economic development of 
the CDC's Area of Operations as one of its principal activities will 
contribute the management of the CDC, and the management contributed by 
the other entity also may work on and operate that entity's economic 
development programs, but must be available to small businesses 
interested in the 504 program and to 504 loan borrowers during regular 
business hours; or
    (2) The CDC petitioning SBA for such waiver is rural; has 
insufficient loan volume to justify having management employed directly 
by the CDC; and has contracted with another CDC located in the same 
general area to provide the management.

[[Page 293]]

    (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, as amended at 68 FR 57981, Oct. 7, 2003]



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 all Loan Program Requirements. 
In its Area of Operations, a CDC must market the 504 program, package 
and process 504 loan applications, close and service 504 loans, and if 
authorized by SBA, liquidate and litigate 504 loans. It must supply to 
SBA current and accurate information about all certification and 
operational requirements, and maintain all records and submit all 
reports required by SBA.

[72 FR 18364, Apr. 12, 2007]

    Effective Date Note: At 73 FR 75518, Dec. 11, 2008, Sec. 120.826 
was revised, effective Jan. 12, 2009. For the convenience of the user, 
the revised text is set forth as follows:



Sec. 120.826  Basic requirements for operating a CDC.

    A CDC must operate in accordance with the following requirements:
    (a) In general. CDCs must meet all 504 Loan Program Requirements. In 
its Area of Operations, a CDC must market the 504 program, package and 
process 504 loan applications, close and service 504 loans, and if 
authorized by SBA, liquidate and litigate 504 loans. It must supply to 
SBA current and accurate information about all certification and 
operational requirements, and maintain the records and submit all 
reports required by SBA.
    (b) Operations and internal controls. Each CDC's board of directors 
must adopt an internal control policy which provides adequate direction 
to the institution for effective control over and accountability for 
operations, programs, and resources. The board adopted internal control 
policy must, at a minimum:
    (1) Direct management to assign the responsibility for the internal 
control function (covering financial, credit, credit review, collateral, 
and administrative matters) to an officer or officers of the CDC;
    (2) Adopt and set forth procedures for maintenance and periodic 
review of the internal control function;

[[Page 294]]

    (3) Direct the operation of a program to review and assess the CDC's 
504-related loans. For the 504 review program, the internal control 
policies must specify the following:
    (i) Loan, loan-related collateral, and appraisal review standards, 
including standards for scope of selection (for review of any such loan, 
loan-related collateral or appraisal) and standards for work papers and 
supporting documentation;
    (ii) Loan quality classification standards consistent with the 
standardized classification systems used by the Federal Financial 
Institution Regulators;
    (iii) Specific control requirements for the CDC's oversight of 
Lender Service Providers; and
    (iv) Standards for training to implement the loan review program; 
and
    (4) Address other control requirements as may be established by SBA.
    (c) Annual Audited/Reviewed Financial Statements. Each CDC with a 
504 loan portfolio balance of $20 million or more (as calculated by SBA) 
must have its financial statements audited annually by a certified 
public accountant that is independent and experienced in auditing 
financial institutions. The audit must be performed in accordance with 
generally accepted auditing standards as adopted by the Auditing 
Standards Board of the American Institute of Certified Public 
Accountants (AICPA). The auditor must be independent, as defined by the 
AICPA, of the CDC. Annually, the auditor must issue an opinion as to the 
fairness of the CDC's financial statements and their compliance with 
GAAP. For CDCs with a 504 portfolio balance of less than $20 million (as 
calculated by SBA), the CDC's annual financial statements submitted to 
SBA must be reviewed by an independent CPA in accordance with GAAP.
    (d) Auditor qualifications. The audit or review must be conducted by 
an independent certified public accountant who:
    (1) Is registered or licensed to practice as a public accountant, 
and is in good standing, under the laws of the state or other political 
subdivision of the United States in which the CDC's principal office is 
located;
    (2) Agrees in the engagement letter with the CDC to provide the SBA 
with access to and copies of any work papers, policies, and procedures 
relating to the services performed;
    (3)(i) Is in compliance with the AICPA Code of Professional Conduct; 
and
    (ii) Meets the independence requirements and interpretations of the 
Securities and Exchange Commission and its staff;
    (4) Has received a peer review or is enrolled in a peer review 
program that meets AICPA guidelines; and
    (5) Is otherwise acceptable to SBA.



Sec. 120.827  Other services a CDC may provide to small businesses.

    A CDC may provide a small business with assistance unrelated to the 
504 loan program as long as the CDC does not make such assistance a 
condition of the CDC accepting from that small business an application 
for a 504 loan. An example of other services a CDC may provide is 
assisting a small business in applying for a 7(a) loan (as described in 
Sec. 120.2). A CDC is subject to part 103 of this chapter when 
providing such assistance.

[68 FR 57981, Oct. 7, 2003]



Sec. 120.828  Minimum level of 504 loan activity and restrictions on 
portfolio concentrations.

    (a) A CDC is required to receive SBA approval of at least four 504 
loan approvals during two consecutive fiscal years.
    (b) A CDC's 504 loan portfolio must be diversified by business 
sector.

[68 FR 57981, Oct. 7, 2003]



Sec. 120.829  Job Opportunity average a CDC must maintain.

    (a) A CDC's portfolio must maintain a minimum average of one Job 
Opportunity per an amount of 504 loan funding that will be specified by 
SBA from time to time in a Federal Register notice. Such Job Opportunity 
average remains in effect until changed by subsequent Federal Register 
publication. A CDC is permitted two years from its certification date to 
meet this average.
    (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.

[61 FR 3235, Jan. 31, 1996, as amended at 68 FR 57981, Oct. 7, 2003]



Sec. 120.830  Reports a CDC must submit.

    A CDC must submit the following reports to SBA:
    (a) An annual report within 180 days after the end of the CDC's 
fiscal year

[[Page 295]]

(to include financial statements of the CDC and any affiliates or 
subsidiaries of the CDC), and such interim reports as SBA may require;
    (b) For each new associate and staff, a Statement of Personal 
History (for use by non-bank lenders and CDCs) and other information 
required by SBA;
    (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).
    (g) Other reports as required by SBA.

[61 FR 3235, Jan. 31, 1996, as amended at 68 FR 57981, Oct. 7, 2003]

    Effective Date Note: At 73 FR 75518, Dec. 11, 2008, Sec. 120.830(a) 
was revised, effective Jan. 12, 2009. For the convenience of the user, 
the revised text is set forth as follows:



Sec. 120.830  Reports a CDC must submit.

                                * * * * *

    (a) An annual report within one hundred-eighty days after the end of 
the CDC's fiscal year (to include audited or reviewed financial 
statements of the CDC, as applicable, and any affiliates or subsidiaries 
of the CDC prepared in accordance with Sec. 120.826(c) and (d)), and 
such interim reports as SBA may require.
    (1) The audited financial statements must, at a minimum, include the 
following:
    (i) Audited balance sheet;
    (ii) Audited statement of income (or receipts) and expense;
    (iii) Audited statement of source and application of funds;
    (iv) Such footnotes as are necessary to an understanding of the 
financial statements;
    (v) Auditor's letter to management on internal control weaknesses; 
and
    (vi) The auditor's report.
    (2) The reviewed financial statements must, at a minimum, include 
the following:
    (i) Balance sheet;
    (ii) Statement of income (or receipts) and expense;
    (iii) Statement of source and application of funds;
    (iv) Such footnotes as are necessary to an understanding of the 
financial statements; and
    (v) The accountant's review report.

                                * * * * *

                  Extending a CDC'S Area of Operations



Sec. 120.835  Application to expand an Area of Operations.

    (a) General. A CDC that has been certified to participate in the 504 
program may apply to expand its Area of Operations if it meets all 
requirements to be an Accredited Lender Program (ALP) CDC, as set forth 
in Sec. 120.840(c), and demonstrates that it can competently fulfill 
its 504 program responsibilities in the proposed area.
    (b) Local Economic Area Expansion. A CDC seeking to expand its Area 
of Operations into a Local Economic Area must apply in writing to the 
Lead SBA Office.
    (c) Multi-State CDC Expansion. A CDC seeking to become a Multi-State 
CDC must apply to the SBA District Office that services the area within 
each State where the CDC intends to locate its principal office for that 
State. A CDC may apply to be a Multi-State CDC only if:
    (1) The State the CDC seeks to expand into is contiguous to the 
State of the CDC's incorporation;
    (2) The CDC demonstrates that its membership meets the requirements 
in Sec. 120.822 separately for its State of incorporation and for each 
additional State in which it seeks to operate as a Multi-State CDC; and
    (3) The CDC has a loan committee meeting the requirements of Sec. 
120.823.

[68 FR 57981, Oct. 7, 2003]



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

[[Page 296]]

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 D/FA, who will make the 
final decision. The D/FA may consider any information submitted or 
available related to the applicant and the application.
    (b) SBA will notify the CDC of its decision in writing, and if the 
application is denied, the reasons for its decision.
    (c) If a CDC is approved to operate as a Multi-State CDC, the CDC's 
ALP, PCLP, or Priority CDC authority will carry over into every 
additional State in which it is approved to operate as a Multi-State 
CDC.

[65 FR 42633, July 11, 2000, as amended at 68 FR 57981, Oct. 7, 2003]



Sec. 120.839  Case-by-case application to make a 504 loan outside of a 
CDC's Area of Operations.

    A CDC may apply to make a 504 loan for a Project outside its Area of 
Operations to the District Office serving the area in which the Project 
will be located. The applicant CDC must demonstrate that it can 
adequately fulfill its 504 program responsibilities for the 504 loan, 
including proper servicing. The District Office may approve the 
application if:
    (a) The applicant CDC has previously assisted the business to obtain 
a 504 loan; or
    (b) The existing CDC or CDCs serving the area agree to permit the 
applicant CDC to make the 504 loan; or
    (c) There is no CDC within the Area of Operations.

[68 FR 57982, Oct. 7, 2003]

    Effective Date Note: At 73 FR 75518, Dec. 11, 2008, Sec. 120.839 
was amended by adding three new sentences after the second sentence in 
the introductory text, effective Jan. 12, 2009. For the convenience of 
the user, the added text is set forth as follows:



Sec. 120.839  Case-by-case application to make a 504 loan outside of a 
          CDC's Area of Operations.

    * * * In addition, the CDC must have satisfactory SBA performance, 
as determined by SBA in its discretion. The CDC's Risk Rating, among 
other factors, will be considered in determining satisfactory SBA 
performance. Other factors may include, but are not limited to, on-site 
review/examination assessments, historical performance measures (like 
default rate, purchase rate and loss rate), loan volume to the extent 
that it impacts performance measures, and other performance related 
measurements and information (such as contribution toward SBA mission). 
* * *

                                * * * * *

                    Accredited Lenders Program (ALP)



Sec. 120.840  Accredited Lenders Program (ALP).

    (a) General. Under the ALP program, SBA designates qualified CDCs as 
ALP CDCs, gives them increased authority to process, close, and service 
504 loans, and provides expedited processing of loan approval and 
servicing actions.
    (b) Application. A CDC must apply for ALP status to the Lead SBA 
Office. The Lead SBA Office will send its recommendation and the 
application to the D/FA for final decision.
    (c) Eligibility. In order for a CDC to be eligible to receive ALP 
status, its application must show that it meets the criteria set forth 
in Sec. 120.841.
    (d) Additional application requirements. The CDC's application must 
include the following:
    (1) Certified copy of the CDC's Board of Directors' resolution 
authorizing the application for ALP status.
    (2) Summary of the experience of each of the CDC's loan processing, 
closing, and servicing staff members with significant authority.
    (3) Name, address, and summary of experience of Designated Attorney.
    (4) Documentation of any SBA required insurance.
    (5) Any other documentation required by SBA.
    (e) Term of ALP designation. SBA generally will designate a CDC as 
an ALP CDC for a two-year period. SBA may renew the designation for 
additional two-year periods if the CDC continues to meet the ALP program 
eligibility requirements.
    (f) SBA approval or decline decision. SBA will notify the CDC in 
writing of an approval or decline of either an ALP application or of an 
ALP renewal. If the SBA approves the CDC's application, the ALP CDC may 
exercise its

[[Page 297]]

ALP authority in its entire Area of Operations. If an application or 
renewal is declined, SBA will notify the CDC of the reasons for the 
decision.

[68 FR 57982, Oct. 7, 2003]



Sec. 120.841  Qualifications for the ALP.

    An applicant for ALP status must show that it substantially meets 
the following criteria:
    (a) CDC staff experience. The CDC's staff must have well-trained, 
qualified loan officers who are knowledgeable concerning SBA's lending 
policies and procedures for the 504 program. The CDC must have at least 
one loan officer with three years of 504 loan processing experience and 
at least one loan officer with three years of 504 servicing experience 
or two years experience plus satisfactory completion of SBA-approved 
processing and servicing training. The same loan officer may meet these 
qualifications. In addition, the CDC's staff must have demonstrated 
satisfactorily to SBA the ability to process and service 504 loans.
    (b) Number of 504 loans approved and size of portfolio. SBA must 
have approved at least 20 504 loan applications by the CDC in the most 
recent three years, and the CDC must have a portfolio of at least 30 
active 504 loans. (An ``active'' 504 loan is a loan that was approved 
and closed by the CDC and has a status of either current, delinquent, or 
in liquidation.)
    (c) Current reviews in compliance. SBA-conducted oversight reviews 
must be current (within past 12 months) for applicants for ALP status, 
and these reviews must have found the CDC to be in compliance with Loan 
Program Requirements.
    (d) Record of compliance with 504 program requirements. The CDC must 
have a record of conforming to SBA's policies and procedures and of 
satisfactorily underwriting, closing and servicing 504 loans. SBA will 
consider all relevant material information, which will include but is 
not limited to whether the CDC meets all SBA's CDC portfolio benchmarks, 
when determining the CDC's record of compliance, including:
    (1) Submission of satisfactory 504 loan analyses and applications, 
and all required, and properly completed, loan documents.
    (2) Careful and thorough analysis and screening of all 504 loan 
applications for conformance with SBA credit and eligibility standards;
    (3) Proper completion of required 504 loan closing documents and 
compliance with SBA 504 loan closing policies and procedures.
    (4) Compliance with SBA loan servicing policies and procedures.
    (5) Compliance with the certification and operational requirements 
as set forth in Sec. Sec. 120.820 through 120.830.
    (6) Submission of timely, complete and acceptable annual reports.
    (7) Compliance with CDC ethical requirements (see Sec. 120.851).
    (e) Priority CDC. The CDC must be a Priority CDC with a Designated 
Attorney and SBA required insurance.
    (f) Record of Cooperation. The CDC must have a record of effective 
communication and a cooperative relationship with all SBA offices 
including district offices and SBA's loan processing and servicing 
centers.

[68 FR 57982, Oct. 7, 2003, as amended at 72 FR 18364, Apr. 12, 2007]

    Effective Date Note: At 73 FR 75519, Dec. 11, 2008, Sec. 120.841(c) 
was revised, effective Jan. 12, 2009. For the convenience of the user, 
the revised text is set forth as follows:



Sec. 120.841  Qualifications for the ALP.

                                * * * * *

    (c) CDC reviews. CDC reviews conducted by SBA must be current 
(within the last 24 months, if applicable) for applicants for ALP 
status. The CDC must have received a review assessment of either 
``Acceptable'' or ``Acceptable With Corrective Actions Required.'' In 
addition, the CDC must have satisfactory SBA performance, as determined 
by SBA in its discretion. The CDC's Risk Rating, among other factors, 
will be considered in determining satisfactory SBA performance. Other 
factors may include, but are not limited to, on-site review/examination 
assessments, historical performance measures (like default rate, 
purchase rate and loss rate), loan volume to the extent that it impacts 
performance measures, and other performance related measurements and 
information (such as contribution toward SBA mission);

                                * * * * *

[[Page 298]]

                    Premier Certified Lenders Program



Sec. 120.845  Premier Certified Lenders Program (PCLP).

    (a) General. Under the PCLP, SBA designates qualified CDCs as PCLP 
CDCs and delegates to them increased authority to process, close, 
service, and liquidate 504 loans. SBA also may give PCLP CDCs increased 
authority to litigate 504 loans.
    (b) Application. A CDC must apply for PCLP status to the Lead SBA 
Office. The Lead SBA Office will send its written recommendation and the 
application to SBA's PCLP Loan Processing Center, which will review 
these materials and forward them with a recommendation to the D/FA for 
final decision.
    (c) Eligibility. In order for a CDC to be eligible to receive PCLP 
status, its application must show that it meets the following criteria:
    (1) The CDC must be an ALP CDC in substantial compliance with Loan 
Program Requirements or meet the criteria to be an ALP CDC set forth in 
Sec. 120.841(a) through (h).
    (2) The CDC can adequately comply with SBA liquidation and 
litigation requirements.
    (d) Additional application requirements. The application must 
include the following:
    (1) Certified copy of the CDC's Board of Directors' resolution 
authorizing the application for PCLP status.
    (2) Summary of the experience of each of the CDC's loan processing, 
closing, servicing and liquidation staff members with significant 
authority.
    (3) Name, address and summary of experience of Designated Attorney.
    (4) Documentation of any SBA required insurance.
    (5) Any other documentation required by SBA.
    (e) Term of designation. If approved, SBA generally will confer PCLP 
status for a period of two years. However, if SBA deems it appropriate, 
it may confer PCLP status for a period of less than two years.
    (f) Area of Operations for PCLP CDCs. If the SBA approves the CDC's 
application, the PCLP CDC may exercise its PCLP authority in its entire 
Area of Operations.
    (g) SBA approval or decline decision. SBA will notify the CDC in 
writing of an approval or decline of a PCLP application. If an 
application is declined, SBA will notify the CDC of the reasons for the 
decision.

[68 FR 57982, Oct. 7, 2003, as amended at 72 FR 18364, Apr. 12, 2007]

    Effective Date Note: At 73 FR 75519, Dec. 11, 2008, Sec. 120.845(b) 
was revised, effective Jan. 12, 2009. For the convenience of the user, 
the revised text is set forth as follows:



Sec. 120.845  Premier Certified Lenders Program (PCLP).

                                * * * * *

    (b) Application. A CDC must apply for PCLP status to the Lead SBA 
Office. The Lead SBA Office will send its written recommendation and the 
application to SBA's PCLP Loan Processing Center. The PCLP Loan 
Processing Center will review these materials and forward them to the 
appropriate Office of Capital Access official in accordance with 
Delegations of Authority for final determination.

                                * * * * *



Sec. 120.846  Requirements for maintaining and renewing PCLP status.

    (a) To maintain its status as a PCLP CDC, a CDC must continue to:
    (1) Meet the PCLP eligibility requirements in Sec. 120.845.
    (2) Timely conform with all requirements and deadlines set forth in 
SBA's regulations and policy and procedural guidance concerning properly 
establishing, funding and reporting a PCLP Loan Loss Reserve Fund 
(LLRF).
    (3) Substantially comply with all Loan Program Requirements.
    (4) Remain an active CDC.
    (5) In accordance with statutory requirements set forth in section 
508(i) of Title V, 15 U.S.C. 697e(i), establish a goal of processing at 
least 50 percent of its 504 loans using PCLP procedures.
    (b) SBA will notify the PCLP CDC in writing of a renewal or non-
renewal of PCLP status. If PCLP status is not renewed, SBA will notify 
the CDC of the reasons for the decision.

[68 FR 57983, Oct. 7, 2003, as amended at 72 FR 18364, Apr. 12, 2007]

[[Page 299]]



Sec. 120.847  Requirements for the Loan Loss Reserve Fund (LLRF).

    (a) General. PCLP CDCs must establish and maintain a LLRF (or 
multiple accounts which together constitute one LLRF) which complies 
with paragraphs (b) through (g) of this section. A PCLP CDC must use the 
LLRF or other funds to reimburse the SBA for 10 percent of any loss 
sustained by SBA as a result of a default in the payment of principal or 
interest on a Debenture it issued under the PCLP (``PCLP Debenture''). A 
CDC that is participating in the PCLP as of January 1, 2004, and a CDC 
that has participated in the PCLP in the past but which does not have 
PCLP status as of that date, must establish a LLRF within 30 days of 
that date to cover potential losses for all 504 loans made in connection 
with PCLP Debentures that remain outstanding as of that date. A CDC that 
receives PCLP status after that date must establish and maintain a LLRF 
prior to closing any 504 loans processed under its PCLP status. The LLRF 
is the accumulation of deposits that a PCLP CDC must establish and 
maintain for each PCLP Debenture that it issues. PCLP CDCs must 
coordinate with their Lead SBA Office to ensure that the LLRF is 
properly established, that all necessary documentation is executed and 
delivered by all parties in a timely fashion, and that all required 
deposits are made.
    (b) PCLP CDC Exposure and LLRF deposit requirements. A PCLP CDC's 
``Exposure'' is defined as its reimbursement obligation to SBA with 
respect to default in the payment of any PCLP Debenture. The amount of a 
PCLP CDC's Exposure is 10 percent of any loss (including attorney's 
fees; litigation costs; and care of collateral, appraisal and other 
liquidation costs and expenses) sustained by SBA as a result of a 
default in the payment of principal or interest on a PCLP Debenture. For 
each PCLP Debenture a PCLP CDC issues, it must establish and maintain an 
LLRF equal to one percent of the original principal amount (the face 
amount) of the PCLP Debenture. The amount the PCLP CDC must maintain in 
the LLRF for each PCLP Debenture remains the same even as the principal 
balance of the PCLP Debenture is paid down over time.
    (c) Establishing a LLRF. The LLRF must be a deposit account (or 
accounts) with a federally insured depository institution selected by 
the PCLP CDC. A ``deposit account'' is a demand, time, savings, or 
passbook account, including a certificate of deposit (CD) which is 
either uncertificated or, if certificated, non-transferable. A ``deposit 
account'' is not an investment account and must not contain securities 
or other investment properties. A deposit account may contain only cash 
and CDs credited to that account. A PCLP CDC may pool its deposits for 
multiple PCLP Debentures in a single account in one institution. The 
LLRF must be segregated from the PCLP CDC's other operating accounts. 
The PCLP CDC is responsible for all fees, costs and expenses incurred in 
connection with establishing, managing and maintaining the LLRF, 
including fees associated with transferring funds or early withdrawal of 
CDs, and related income tax expenses.
    (d) Creating and perfecting a security interest in a LLRF. A PCLP 
CDC must give SBA a first priority, perfected security interest in the 
LLRF to secure the PCLP CDC's obligation to reimburse SBA for the PCLP 
CDC's Exposure under all of its outstanding PCLP Debentures. (If a PCLP 
CDC's LLRF is comprised of multiple deposit accounts, it must give SBA 
this security interest with respect to each such account.) The PCLP CDC 
must grant to SBA the security interest in the LLRF pursuant to a 
security agreement between the PCLP CDC and SBA, and a control agreement 
between the PCLP CDC, SBA, and the applicable depository institution. 
The control agreement must include provisions requiring the depository 
institution to follow SBA instructions regarding withdrawal from the 
account without a requirement for obtaining further consent from the 
PCLP CDC, and must restrict the PCLP CDC's ability to make withdrawals 
from the account without SBA consent. When establishing the LLRF, a PCLP 
CDC must coordinate with its Lead SBA Office to execute and deliver the 
required documentation. The PCLP

[[Page 300]]

CDC must provide to the Lead SBA Office a fully executed original of the 
security and control agreements. All documents must be satisfactory to 
SBA in both form and substance.
    (e) Schedule for contributions to a LLRF. The PCLP CDC must 
contribute to the LLRF the required deposits for each PCLP Debenture in 
accordance with the following schedule:
    (1) At least 50 percent of the required deposits to the LLRF on or 
about the date that it issues the PCLP Debenture.
    (2) At least an additional 25 percent of the required deposits to 
the LLRF no later than one year after it issues the PCLP Debenture.
    (3) Any remainder of the required deposits to the LLRF no later than 
two years after it issues the PCLP Debenture.
    (f) LLRF reporting requirements. Each PCLP CDC must periodically 
report to SBA the amount in the LLRF in a form that will readily 
facilitate reconciliation of the amount maintained in the LLRF with the 
amount required to meet a PCLP CDC's Exposure for its entire portfolio 
of PCLP Debentures.
    (g) Withdrawal of excess funds. Interest and other funds in the LLRF 
that exceed the required minimums as set forth in paragraph (b) of this 
section, within the time frames set forth in paragraph (e) of this 
section, accrue to the benefit of the PCLP CDC. PCLP CDCs are authorized 
to withdraw excess funds, including interest, from the LLRF if such 
funds exceed the required minimums set forth in paragraph (b) of this 
section. The PCLP CDC must forward requests for withdrawals to the Lead 
SBA Office, which will verify the existence and amount of excess funds 
and notify the financial institution to transfer the excess funds to the 
PCLP CDC.
    (h) Determining SBA loss. When a PCLP CDC has concluded the 
liquidation of a defaulted 504 loan made with the proceeds of a PCLP 
Debenture and has submitted a liquidation wrap-up report to SBA, or when 
SBA otherwise determines that the PCLP CDC has exhausted all reasonable 
collection efforts with respect to that 504 loan, SBA will determine the 
amount of the loss to SBA. SBA will notify the PCLP CDC of the amount of 
its reimbursement obligation to SBA (if any) and will explain how SBA 
calculated the loss.
    (1) If the PCLP CDC agrees with SBA's calculations of the loss, it 
must reimburse SBA for ten percent of the amount of that loss no later 
than 30 days after SBA's notification to the PCLP CDC of the CDC's 
reimbursement obligation.
    (2) If the PCLP CDC disputes SBA's calculations, it must reimburse 
SBA for ten percent of any loss amount that is not in dispute no later 
than 30 days after SBA's notification to the PCLP CDC of the CDC's 
reimbursement obligation. No later than 30 days after SBA's 
notification, the PCLP CDC may submit to the D/FA or his or her delegate 
a written appeal of any disagreement regarding the calculation of SBA's 
loss. The PCLP CDC must include with that appeal an explanation of its 
reasons for the disagreement. Upon the D/FA's final decision as to the 
disputed amount of the loss, the PCLP CDC must promptly reimburse SBA 
for ten percent of that amount.
    (i) Reimbursing SBA for loss. A PCLP CDC may use funds in the LLRF 
or other funds to reimburse SBA for the PCLP CDC's Exposure on a 
defaulted PCLP Debenture. If a PCLP CDC does not satisfy the entire 
reimbursement obligation within 30 days after SBA's notification to the 
PCLP CDC's of its reimbursement obligation, SBA may cause funds in the 
LLRF to be transferred to SBA in order to cover the PCLP CDC's Exposure, 
unless the PCLP CDC has filed an appeal under paragraph (h)(2) of this 
section. If the PCLP CDC has filed such an appeal, SBA may cause such a 
transfer of funds to SBA 30 days after the D/FA's or his or her 
delegate's decision. If the LLRF does not contain sufficient funds to 
reimburse SBA for any unpaid Exposure with respect to any PCLP 
Debenture, the PCLP CDC must pay SBA the difference within 30 days after 
demand for payment by SBA.
    (j) Insufficient funding of LLRF. A PCLP CDC must diligently monitor 
the LLRF to ensure that it contains sufficient funds to cover its 
Exposure for its entire portfolio of PCLP Debentures. If, at any time, 
the LLRF does not contain sufficient funds, the PCLP CDC

[[Page 301]]

must, within 30 days of the earlier of the date it becomes aware of this 
deficiency or the date it receives notification from SBA of this 
deficiency, make additional contributions to the LLRF to make up this 
difference.

[68 FR 57983, Oct. 7, 2003]



Sec. 120.848  Requirements for 504 loan processing, closing, servicing, 
liquidating, and litigating by PCLP CDCs.

    (a) General. In processing closing, servicing, liquidating and 
litigating 504 loans under the PCLP (``PCLP Loans''), the PCLP CDC must 
comply with Loan Program Requirements and conduct such activities in 
accordance with prudent and commercially reasonable lending standards.
    (b) Documentation of decision making. For each PCLP Loan, the PCLP 
CDC must document in its files the basis for its decisions with respect 
to loan processing, closing, servicing, liquidating, and litigating.
    (c) Processing requirements. SBA expects PCLP CDCs to handle most 
504 loan processing situations, although SBA may require that the PCLP 
CDC process 504 loans involving complex or problematic eligibility 
issues through the SBA using standard 504 loan processing procedures. 
The PCLP CDC is responsible for properly determining borrower 
creditworthiness and establishing the terms and conditions under which 
the PCLP Loan will be made. The PCLP CDC also is responsible for 
properly undertaking such other processing actions as SBA may delegate 
to the PCLP CDC.
    (d) Submission of loan documents. A PCLP CDC must notify SBA of its 
approval of a 504 loan by submitting to SBA's PCLP Loan Processing 
Center all documentation required by SBA, including SBA's PCLP 
eligibility checklist, signed by an authorized representative of the 
PCLP CDC. The PCLP Loan Processing Center will review these documents to 
determine whether the PCLP CDC has identified any problems with the PCLP 
Loan approval, and whether SBA funds are available for the PCLP Loan. If 
appropriate, the PCLP Processing Center will notify the PCLP CDC of the 
loan number assigned to the loan.
    (e) Loan and Debenture closing. After receiving notification from 
SBA PCLP Loan Processing Center, the PCLP CDC is responsible for 
properly undertaking all actions necessary to close the PCLP Loan and 
Debenture in accordance with the expedited loan closing procedures 
applicable to a Priority CDC and with Sec. 120.960.
    (f) Servicing, liquidation and litigation responsibilities. The PCLP 
CDC generally must service, liquidate and litigate its entire portfolio 
of PCLP Loans, although SBA may in certain circumstances elect to handle 
such duties with respect to a particular PCLP Loan or Loans. Additional 
servicing and liquidation requirements are set forth in subpart E of 
this part.
    (g) Making a 504 loan previously considered by another CDC. A PCLP 
CDC also may utilize its PCLP status to process a 504 loan application 
from an applicant whose application was declined or rejected by another 
CDC operating in that same Area of Operations, if the applicant is 
located within that area and as long as SBA has not previously declined 
that applicant's 504 loan application. This may include the processing 
of a 504 loan application from an applicant that has withdrawn its 
application from another CDC.

[68 FR 57984, Oct. 7, 2003, as amended at 72 FR 18364, Apr. 12, 2007]

                 Associate Development Companies (ADCs)



Sec. 120.850  Expiration of Associate Development Company designation.

    The designation of Associate Development Company (ADC) will cease to 
exist on January 1, 2004. After that date, former ADCs may continue to 
contract with CDCs as Lender Service Providers (see part 103 of this 
chapter) or to perform other services.

[68 FR 57984, Oct. 7, 2003]

                         Other CDC Requirements



Sec. 120.851  CDC ethical requirements.

    CDCs 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:

[[Page 302]]

    (a) Any benefit flowing to a CDC's 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 providing interim financing as described in Sec. 120.890 or Third 
Party Loans as described in Sec. 120.920, as long as such activity does 
not violate Sec. 120.140); and
    (b) A CDC's Associate may not be an officer, director, or manager of 
more than one CDC.

[68 FR 57984, Oct. 7, 2003]



Sec. 120.852  Restrictions regarding CDC participation in the Small 
Business Investment Company (SBIC) program and the 7(a) loan program.

    (a) 7(a) loan program. A CDC must not invest in or be an Affiliate 
of a Lender participating in the 7(a) loan program described in Sec. 
120.2(a). (For a definition of Affiliation, refer to Sec. 121.103 of 
this chapter.) CDCs that already are affiliated with state development 
companies approved by SBA under section 501 of Title V, as of November 
6, 2003 may remain Affiliates.
    (b) SBIC program. A CDC must not directly or indirectly invest in a 
Licensee (as defined in Sec. 107.50 of this chapter) licensed by SBA 
under the SBIC program authorized in Part A of Title III of the Small 
Business Investment Act, 15 U.S.C. 681 et seq. A CDC that has an SBA-
approved investment in a Licensee as of November 6, 2003 may retain such 
investment.

[68 FR 57985, Oct. 7, 2003]

                              SBA Oversight



Sec. 120.853  Oversight and evaluation of CDCs.

    SBA may conduct an operational review of a CDC. The SBA Office of 
Inspector General may also conduct, supervise or coordinate audits 
pursuant to the Inspector General Act. The CDC must cooperate and make 
its staff, records, and facilities available.

[68 FR 57985, Oct. 7, 2003]

    Effective Date Note: At 73 FR 75519, Dec. 11, 2008, Sec. 120.853 
was amended by removing the undesignated center heading preceding it, by 
revising the heading, and by removing the first sentence, effective Jan. 
12, 2009. For the convenience of the user, the revised text is set forth 
as follows:



Sec. 120.853  Inspector General audits of CDCs.

                                * * * * *

                         SBA Enforcement Actions



Sec. 120.854  Grounds for taking enforcement action against a CDC.

    (a) General. The D/FA or his or her authorized delegate may 
undertake one or more of the enforcement actions set forth in Sec. Sec. 
120.855(a) and (b) with respect to a CDC, based upon a determination 
that one or more of the following grounds exist:
    (1) The CDC has failed to receive SBA approval for at least four 504 
loans during two consecutive fiscal years;
    (2) The CDC has failed to comply materially with any Loan Program 
Requirement.
    (3) The CDC has made a material false statement or has failed to 
disclose a material fact to SBA:
    (i) With respect to a 504 loan;
    (ii) In applying to SBA for authority to participate in the 504 
program or for any change in the CDC's participation in the 504 program; 
or
    (iii) In any report or other disclosure of information that SBA 
requires.
    (4) The CDC is not performing underwriting, closing, servicing, 
liquidation, litigation, or other actions with respect to 504 loans in a 
commercially reasonable or prudent manner. Supporting evidence of a 
CDC's commercially unreasonable or imprudent action may include, but is 
not limited to, failure to meet one or more of the portfolio benchmarks.
    (5) The CDC fails to correct an underwriting, closing, servicing, 
liquidation, litigation, or reporting deficiency, or fails to take other 
corrective action, after receiving notice from SBA of a deficiency and 
the need to take corrective action, if any, within the time period 
specified in SBA's notice of deficiency. Such a notice must give the CDC 
a reasonable time, as determined by SBA in its sole discretion, to 
correct the deficiency.
    (6) The CDC has engaged in a pattern of uncooperative behavior or 
taken an

[[Page 303]]

action that SBA determines is deleterious to the 504 program, that 
undermines SBA's management and administration of the 504 program, or 
that is not consistent with standards of good conduct. Prior to issuing 
a notice of a proposed enforcement action or immediate suspension under 
Sec. 120.855(a) or Sec. 120.855(b) based upon this paragraph, SBA must 
send prior written notice to the CDC explaining why the CDC's actions 
were uncooperative, deleterious to the program, undermined SBA's 
management of the program, or were not consistent with standards of good 
conduct. The prior notice must also state that the CDC's actions could 
give rise to a specified enforcement action, and provide the CDC with a 
reasonable time to cure the deficiency before any further action is 
taken.
    (b) ALP CDCs. The D/FA or his or her authorized delegate may 
undertake one of the enforcement actions set forth in Sec. 120.855(c) 
with respect to a CDC, based upon a determination that one or more of 
the following grounds exist:
    (1) The CDC has not continued to meet the criteria for eligibility 
under section 507(b) of Title V, 15 U.S.C. 697d.
    (2) The CDC has failed to adhere to the SBA's rules and regulations 
or is violating any other applicable provision of law.
    (c) PCLP CDCs. The D/FA or his or her authorized delegate may 
undertake one of the enforcement actions set forth in Sec. 120.855(d) 
with respect to a CDC, based upon a determination that one or more of 
the following grounds exist:
    (1) The CDC has not continued to meet the criteria for eligibility 
under section 508(b) of Title V, 15 U.S.C. 697e.
    (2) The CDC has not established or maintained the loss reserve 
required under this paragraph (c).
    (3) The CDC has failed to adhere to the SBA's rules and regulations.
    (4) The CDC is violating any other applicable provision of law.

[68 FR 57985, Oct. 7, 2003, as amended at 72 FR 18364, Apr. 12, 2007]

    Effective Date Note: At 73 FR 75519, Dec. 11, 2008, Sec. 120.854 
and the undesignated center heading immediately preceding Sec. 120.854 
were removed, effective Jan. 12, 2009.



Sec. 120.855  Types of enforcement actions.

    (a) Enforcement. Upon a determination that one or more of the 
grounds set forth in Sec. 120.854(a) exist, the D/FA or his or her 
authorized delegate may undertake, in SBA's sole discretion, one or more 
of the following enforcement actions:
    (1) Suspend or terminate the CDC's authority to participate in the 
504 program or in any pilot or program within the 504 program 
established by SBA other than a CDC's authority to participate as an ALP 
CDC or PCLP CDC, which are governed by paragraphs (c) and (d) of this 
section.
    (2) Suspend or terminate the CDC's authority to perform 
underwriting, closing, servicing, liquidation, or litigation on one or 
more 504 loans or to perform any other function in connection with the 
504 program.
    (3) Require the CDC to transfer some or all of its existing 504 loan 
portfolio and/or some or all of its pending 504 loan applications to 
SBA, another CDC, or any other entity designated by SBA. Any such 
transfer may be on a temporary or permanent basis, in SBA's sole 
discretion.
    (4) Instruct the CSA to withhold payment of servicing, late and/or 
other fee(s) to the CDC.
    (b) Immediate suspension. If SBA determines that one or more grounds 
set forth in Sec. 120.854(a) exist and further determines that 
immediate action is necessary to prevent the risk of significant loss to 
SBA or to prevent significant impairment of the integrity of the 504 
program, the D/FA may issue a written notice of immediate suspension to 
a CDC, suspending all or certain activities of a CDC pertaining to the 
504 program, and such suspension will be effective as of the date of the 
notice. SBA may combine a notice of immediate suspension with any 
enforcement action set forth in paragraphs (a), (c) or (d) of this 
section.
    (c) Suspension or termination of ALP CDC. Upon a determination that 
one or more of the grounds set forth in Sec. 120.854(b) exist, the D/FA 
or his or her authorized delegate may, in SBA's sole discretion, suspend 
or terminate a CDC's authority to participate as an ALP CDC.

[[Page 304]]

    (d) Suspension or termination of PCLP CDC. Upon a determination that 
one or more of the grounds set forth in Sec. 120.854(c) exist, the D/FA 
or his or her authorized delegate may, in SBA's sole discretion, suspend 
or terminate a CDC's authority to participate as a PCLP CDC.
    (e) Term of suspension. Any suspension issued under this section 
will be for a term determined by SBA in its sole discretion.

[68 FR 57985, Oct. 7, 2003]

    Effective Date Note: At 73 FR 75519, Dec. 11, 2008, Sec. 120.855 
was removed, effective Jan. 12, 2009.



Sec. 120.856  Enforcement procedures.

    (a) SBA's notice to CDC of enforcement action. (1) Prior to 
undertaking an enforcement action set forth in Sec. 120.855(a), (c) or 
(d) the D/FA or his or her authorized delegate must issue a written 
notice to the affected CDC identifying the proposed enforcement action, 
setting forth in reasonable detail the underlying facts and reasons for 
the proposed action and, if a suspension also is proposed, stating the 
term of the proposed suspension.
    (2) If the D/FA or his or her authorized delegate undertakes an 
immediate suspension pursuant to Sec. 120.855(b), he or she must issue 
a written notice to the affected CDC identifying the scope and term of 
the suspension, and setting forth in reasonable detail the underlying 
facts and reasons for the proposed action.
    (3) If a proposed enforcement action or immediate suspension is 
based upon information obtained from a party other than the CDC or SBA, 
SBA's notice of proposed action or immediate suspension will provide 
copies of documentation received from such third party, or the name of 
the third party in case of oral information, unless SBA determines that 
there are compelling reasons not to provide such information. If 
compelling reasons exist, SBA will provide a summary of the information 
it received to the CDC.
    (b) CDC's opportunity to object. (1) A CDC that desires to contest a 
proposed enforcement action or an immediate suspension must file, within 
30 calendar days of its receipt of the notice or within some other term 
established by SBA in its notice, a written objection with the D/FA or 
other SBA official identified in the notice. Notice will be presumed to 
have been received within five days of the date of the notice unless the 
CDC can provide compelling evidence to the contrary.
    (2) The objection must set forth in detail all grounds known to the 
CDC to contest the proposed action or immediate suspension and all 
mitigating factors, and must include documentation that the CDC believes 
is most supportive of its objection. A CDC must exhaust this 
administrative remedy in order to preserve its objection to a proposed 
enforcement action or an immediate suspension.
    (3) If a CDC can show legitimate reasons why it does not understand 
the reasons given by SBA in its notice of the action, the CDC may 
request clarification from the Agency. SBA will provide the requested 
clarification in writing to the CDC or notify the CDC in writing that 
such clarification is not necessary. SBA, in its sole discretion, will 
further advise in writing whether the CDC may have additional time to 
present its objection to the notice.
    (4) A CDC may request additional time to respond to SBA's notice if 
it can show that there are compelling reasons why it is not able to 
respond within the 30-day timeframe or timeframe given by the notice for 
response. If such a request is submitted to the Agency, SBA may, in its 
sole discretion, provide the CDC with additional time to respond to the 
notice of proposed action or immediate suspension.
    (5) Prior to the issuance of a final decision by SBA under Sec. 
120.856(c), if a CDC can show that there is newly discovered material 
evidence which, despite the CDC's exercise of due diligence, could not 
have been discovered within the timeframe given by SBA to respond to a 
notice, or that there are compelling reasons beyond the CDC's control 
why it was not able to present a material fact or argument to the D/FA 
or other deciding SBA official in its objection, and that the CDC has 
been prejudiced by not being able to present such information, the CDC 
may submit such information to SBA and request that the Agency consider 
such information in its final decision.

[[Page 305]]

    (c) SBA's decision on CDC's objection to proposed action. (1) If the 
affected CDC files a timely written objection to a proposed enforcement 
action, the D/FA or his or her authorized delegate must issue a written 
notice of decision to the affected CDC advising whether SBA is 
undertaking the proposed enforcement action setting forth the grounds 
for the decision. SBA will issue such a notice of decision whenever it 
deems appropriate.
    (2) If the affected CDC files a timely written objection to a notice 
of immediate suspension, the D/FA or his or her authorized delegate must 
issue a written notice of final decision to the affected CDC within 90 
days of receiving the CDC's objection advising whether SBA is continuing 
with the immediate suspension. If the CDC submits additional information 
to SBA after submitting its objection pursuant to Sec. 120.856(b)(5), 
SBA must issue its final decision within 90 days of receiving such 
information.
    (3) Prior to issuing a notice of decision, SBA in its sole 
discretion can request additional information from the affected CDC or 
other parties and conduct any other investigation it deems appropriate. 
If SBA determines, in its sole discretion, to consider an untimely 
objection, it must issue a notice of decision pursuant to this 
paragraph.
    (d) SBA's notice of final agency decision. If SBA chooses not to 
consider an untimely objection or if the affected CDC fails to file a 
written objection to a proposed enforcement action or an immediate 
suspension, and if SBA continues to believe that such proposed 
enforcement action or immediate suspension is appropriate, the D/FA or 
his or her authorized delegate must issue a written notice of decision 
to the affected CDC that SBA is undertaking one or more of the proposed 
enforcement actions against the CDC or that SBA will continue to pursue 
an immediate suspension of the CDC. Such a notice of decision need not 
state any grounds for the action other than to reference the CDC's 
failure to file a timely objection, and represents the final agency 
decision. If the affected CDC fails to file a written objection to an 
immediate suspension, SBA need not issue any further notice to the CDC.
    (e) Appeal to OHA. (1) A CDC may appeal from an SBA notice of 
decision issued pursuant to paragraph (c) of this section to the SBA 
Office of Hearings and Appeals (OHA). The rules and procedures set forth 
in part 134 of this chapter will govern such appeals.
    (2) OHA must limit its review to a determination of whether SBA's 
decision was arbitrary, capricious or contrary to law, or without 
procedure required by law. OHA must limit its review to the record that 
the D/FA or his or her authorized delegate, and any other SBA officials 
directly involved with the decision, considered in making the final 
decision. If the OHA decides that SBA's decision was arbitrary, 
capricious, contrary to law, or without procedure required by law, the 
OHA must remand the matter to the D/FA or the original deciding official 
for further consideration. The CDC may appeal from a reconsidered SBA 
decision as set forth in this paragraph (e).
    (3)(i) OHA must not consider any argument, fact or other information 
presented by the affected CDC unless the CDC previously submitted that 
information to SBA:
    (A) In or with the affected CDC's objection;
    (B) In response to a request for information from SBA; or
    (C) Pursuant to paragraph (b)(5) of this section if such information 
was accepted by SBA.
    (ii) However, if a CDC can show that there is newly discovered 
material evidence which, despite the CDC's exercise of due diligence, 
could not have been discovered before the Agency's final decision, or 
that there are compelling reasons beyond the CDC's control why it was 
not able to present a material fact or argument to the D/FA or other 
deciding SBA official prior to such decision, and that the CDC has been 
prejudiced by not being able to present such information to the 
official, the CDC may file a motion with the OHA for a remand of the 
matter.
    (4) A decision by OHA, other than a remand, is the final agency 
decision.
    (f) Limit on applicability. The procedures in this section shall 
only apply

[[Page 306]]

to an action taken by SBA pursuant to Sec. 120.855.

[68 FR 57986, Oct. 7, 2003]

    Effective Date Note: At 73 FR 75519, Dec. 11, 2008, Sec. 120.856 
was removed, effective Jan. 12, 2009.



Sec. 120.857  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.

[61 FR 3235, Jan. 31, 1996. Redesignated at 68 FR 57987, Oct. 7, 2003]

                   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 per an amount of 
504 loan funding that will be specified by SBA from time to time in a 
Federal Register notice. Such Job Opportunity average remains in effect 
until changed by subsequent Federal Register publication.

[68 FR 57987, Oct. 7, 2003]



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;
    (3) Bringing new income into the community;
    (4) Assisting manufacturing firms (North American Industry 
Classification System (NAICS), Sectors 31 `` 33); 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) Expansion of exports;
    (3) Expansion of small businesses owned and controlled by women as 
defined in section 29(a)(3) of the Act, 15 U.S.C. 656(a)(3);
    (4) Expansion of small businesses owned and controlled by veterans 
(especially service-disabled veterans) as defined in section 3(q) of the 
Act, 15 U.S.C. 632(q);
    (5) Expansion of minority enterprise development (see Sec. 
124.103(b) of this chapter for minority groups who qualify for this 
description);
    (6) Aiding rural development;
    (7) Increasing productivity and competitiveness (retooling, 
robotics, modernization, competition with imports);
    (8) Modernizing or upgrading facilities to meet health, safety, and 
environmental requirements; or
    (9) 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; 68 
FR 57987, Oct. 7, 2003]

                 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 an unrelated lessor if:

[[Page 307]]

    (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 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; 68 
FR 57987, Oct. 7, 2003]



Sec. 120.871  Leasing part of Project Property 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 size standards set 
forth in Sec. 121.301(b) of this chapter.

[61 FR 3235, Jan. 31, 1996, as amended at 68 FR 57987, Oct. 7, 2003]



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 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, opinion of title, architectural and 
engineering costs, appraisals, environmental studies, and legal fees 
related to zoning, permits, or platting; and
    (d) Repayment of interim financing including points, fees and 
interest.

[61 FR 3235, Jan. 31, 1996, as amended at 68 FR 57987, Oct. 7, 2003]

[[Page 308]]



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 504 loan and 
Debenture closing other than legal fees (for example, certifications and 
the copying costs associated with them, overnight delivery, postage, and 
messenger services) but not to include fees and costs described in Sec. 
120.882;
    (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, as amended at 68 FR 57987, Oct. 7, 2003]



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]

                            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 120 days of closing; and

[[Page 309]]

    (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.

[61 FR 3235, Jan. 31, 1996, as amended at 68 FR 57987, Oct. 7, 2003]

                           Permanent Financing



Sec. 120.900  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  Borrower contributions.

    (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.

[68 FR 57987, Oct. 7, 2003]



Sec. 120.912  Borrowed contributions.

    The Borrower may borrow its cash contribution from the CDC or a 
third 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  Limitations on any contributions by a Licensee.

    Subject to part 107 of this chapter, a Licensee may provide 
financing for all or part of the Borrower's contribution to the Project. 
SBA will consider Licensee funds to be derived from federal sources if 
the Licensee has Leverage (as defined in Sec. 107.50 of this chapter). 
If the Licensee does not have Leverage, SBA will consider the investment 
to be from private funds. Licensee financing must be subordinated to the 
504 loan and must not be repaid at a faster rate than the Debenture. 
(Refer to Sec. 120.930(a) for additional limitations.)

[68 FR 57987, Oct. 7, 2003]

                            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

[[Page 310]]

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]



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  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.
    (c) The Borrower must not prepay any Project financing subordinate 
to the 504 loan without SBA's prior written consent.

[61 FR 3235, Jan. 31, 1996, as amended at 68 FR 57988, Oct. 7, 2003]



Sec. 120.925  Preferences.

    No Third Party Lender shall establish a Preference. (See Sec. 
120.10 for a definition of Preference.)

[61 FR 3235, Jan. 31, 1996, as amended at 68 FR 57988, Oct. 7, 2003]



Sec. 120.926  Referral fee.

    The CDC can receive a reasonable referral fee from the Third Party 
Lender if the CDC secured the Third Party Lender for the Borrower under 
a written contract between the CDC and the Third Party Lender. Both the 
CDC and the Third Party Lender are prohibited

[[Page 311]]

from charging this fee to the Borrower. If a CDC charges a referral fee, 
the CDC will be construed as a Referral Agent under part 103 of this 
chapter.

[68 FR 57988, Oct. 7, 2003]

                        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) A 504 loan must not be less than $25,000.
    (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.

[61 FR 3235, Jan. 31, 1996, as amended at 68 FR 57988, Oct. 7, 2003]



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 $1,000,000 (or $1,300,000 if one or more of the public 
policy goals enumerated in Sec. 120.862(b) applies to the Project).

[68 FR 57988, Oct. 7, 2003]



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.

    From time to time, SBA will publish in the Federal Register the 
available maturities for a 504 loan and the Debenture that funds it. 
Such available maturities remain in effect until changed by subsequent 
Federal Register publication.

[68 FR 57988, Oct. 7, 2003]



Sec. 120.934  Collateral.

    The CDC usually takes a second lien position on the Project Property 
to secure the 504 loan. Sometimes additional collateral is required. (In 
rare circumstances, SBA may permit other collateral substituted for 
Project Property.) 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.

[68 FR 57988, Oct. 7, 2003]



Sec. 120.935  Deposit from the Borrower that a CDC may require.

    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 the small business withdraws its 
application, the CDC may deduct from the deposit reasonable costs 
incurred in packaging and processing the application.



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

[[Page 312]]

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;
    (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.

[[Page 313]]

    (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 Sec. Sec. 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 D/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 D/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.

    Effective Date Note: At 73 FR 75519, Dec. 11, 2008, Sec. 120.956 
was revised, effective Jan. 12, 2009. For the convenience of the user, 
the revised text is set forth as follows:



Sec. 120.956  Suspension or revocation of brokers and dealers.

    The appropriate Office of Capital Access official in accordance with 
Delegations of Authority 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, 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 this official will remain in effect 
pending resolution of the appeal.

                                Closings



Sec. 120.960  Responsibility for closing.

    (a) The CDC is responsible for the 504 loan closing.
    (b) The Debenture closing is the joint responsibility of the CDC and 
SBA.
    (c) SBA may, within its sole discretion, decline to close the 
Debenture; direct the transfer of the 504 loan to another CDC; or cancel 
its guarantee of the Debenture, prior to sale, if any of the following 
occur:
    (1) The CDC has failed to comply materially with any requirement 
imposed by statute, regulation, SOP, policy and procedural notice, any 
agreement the CDC has executed with SBA, or the terms of a Debenture or 
loan authorization;
    (2) The CDC has failed to make or close the 504 loan or prepare the 
Debenture closing in a prudent or commercially reasonable manner;
    (3) The CDC's improper action or inaction places SBA at risk;
    (4) The CDC has failed to use required SBA forms or electronic 
versions of those forms;
    (5) The CDC, Third Party Lender or Borrower has failed to timely 
disclose

[[Page 314]]

to SBA a material fact regarding the Project or 504 loan;
    (6) The CDC, Third Party Lender or Borrower has misrepresented a 
material fact to SBA regarding the Project or 504 loan; or
    (7) SBA determines that there has been an unremedied material 
adverse change, such as deterioration in the Borrower's financial 
condition, since the 504 loan was approved, or that approving the 
closing of the Debenture will put SBA at unacceptable financial risk.

[68 FR 57988, Oct. 7, 2003]



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



Sec. 120.970  Servicing of 504 loans and Debentures.

    (a) In servicing 504 loans, CDCs must comply with Loan Program 
Requirements and in accordance with prudent and commercially reasonable 
lending standards.
    (b) The CDC is responsible for routine servicing including receipt 
and review of the Borrower's or Operating Company's financial statements 
on an annual or more frequent basis and monitoring the status of the 
Borrower and 504 loan collateral.
    (c) The CDC is responsible for assuring that the Borrower makes all 
required insurance premium payments and has paid all taxes when due.
    (d) The CDC is responsible for filing renewals and extensions of 
security interests on collateral for the 504 loan, as required.
    (e) The CDC must timely respond to Borrower requests for loan 
modifications.
    (f) For any 504 loan that is more than three months past due, the 
CDC must promptly request that SBA purchase the Debenture unless the 504 
loan has an SBA-approved deferment or is in compliance with an SBA-
approved plan to allow the Borrower to catch up on delinquent loan 
payments.
    (g) The CDC must cooperate with SBA to cure defaults and initiate 
workouts.
    (h) Additional servicing requirements are set forth in subpart E of 
this part.

[68 FR 57988, Oct. 7, 2003, as amended at 72 FR 18364, Apr. 12, 2007]

                                  Fees



Sec. 120.971  Allowable fees paid by Borrower.

    (a) CDC fees. The fees a CDC may charge the Borrower in connection 
with a 504 loan and Debenture are limited to the following:
    (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). 
Some closing costs may be funded out of the Debenture proceeds (see 
Sec. 120.883 for limitations);
    (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

[[Page 315]]

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; 68 
FR 57988, Oct. 7, 2003]



Sec. 120.972  Third Party Lender participation fee and CDC fee.

    (a) Participation fee. For loans approved by SBA after September 30, 
1996, SBA must collect a one-time fee equal to 50 basis points on the 
Third Party Lender's participation in a Project when the Third Party 
Lender occupies a senior credit position to SBA in the Project.
    (b) CDC 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 Borrower.

[68 FR 57988, Oct. 7, 2003]

 Authority of CDCs To Perform Liquidation and Debt Collection Litigation



Sec. 120.975  CDC Liquidation of loans and debt collection litigation.

    (a) PCLP CDCs. If a CDC is designated as a PCLP CDC under Sec. 
120.845, the CDC must liquidate and handle debt collection litigation 
with respect to all PCLP Loans in its portfolio on behalf of SBA as 
required by Sec. 120.848(f), in accordance with subpart E of this part. 
With respect to all other 504 loans that a PCLP CDC makes, the PCLP CDC 
is an Authorized CDC Liquidator and must exercise its delegated 
authority to liquidate and handle debt-collection litigation in 
accordance with subpart E of this part for such loans, if the PCLP CDC 
is notified by SBA that it meets either of the following requirements to 
be an Authorized CDC Liquidator, as determined by SBA:
    (1) The PCLP CDC has one or more employees who have not less than 
two years of substantive, decision-making experience in administering 
the liquidation and workout of defaulted or problem loans secured in a 
manner substantially similar to loans funded with 504 loan program 
debentures, and who have completed a training program on loan 
liquidation developed by the Agency in conjunction with qualified CDCs 
that meet the requirements of this section; or
    (2) The PCLP CDC has entered into a contract with a qualified third 
party for the performance of its liquidation responsibilities and 
obtains the approval of SBA with respect to the qualifications of the 
contractor and the terms and conditions of the contract.
    (b) All other CDCs. A CDC that is not authorized under paragraph (a) 
of this section may apply to become an Authorized CDC Liquidator with 
authority to liquidate and handle debt collection litigation with 
respect to 504 loans on behalf of SBA, in accordance with subpart E of 
this part, if the CDC meets the following requirements:

[[Page 316]]

    (1) The CDC meets either of the following criteria:
    (i) The CDC participated in the loan liquidation pilot program 
established by the Small Business Programs Improvement Act of 1996 prior 
to October 1, 2006; or
    (ii) During the three fiscal years immediately prior to seeking such 
authority, the CDC made an average of not less than ten 504 loans per 
year; and
    (2) The CDC meets either of the following requirements:
    (i) The CDC has one or more employees who have not less than two 
years of substantive, decision-making experience in administering the 
liquidation and workout of defaulted or problem loans secured in a 
manner substantially similar to loans funded with 504 loan program 
debentures, and who have completed a training program on loan 
liquidation developed by the Agency in conjunction with qualified CDCs 
that meet the requirements of this section; or
    (ii) The CDC has entered into a contract with a qualified third 
party for the performance of its liquidation responsibilities and 
obtains the approval of SBA with respect to the qualifications of the 
contractor and the terms and conditions of the contract.
    (c) CDC counsel. To perform debt collection litigation under 
paragraphs (a) or (b) of this section, a CDC must also have either in-
house counsel with adequate experience as approved by SBA or entered 
into a contract for the performance of debt collection litigation with 
an experienced attorney or law firm as approved by SBA.
    (d) Application for authority to liquidate and litigate. To seek 
authority to perform liquidation and debt collection litigation under 
paragraphs (b) and (c) of this section, a CDC other than a PCLP CDC must 
submit a written application to SBA and include documentation 
demonstrating that the CDC meets the requirements of paragraph (b) and 
(c) of this section. If a CDC intends to use a contractor to perform 
liquidation, it must obtain approval from SBA of both the qualifications 
of the contractor and the terms and conditions in the contract covering 
the CDC's retention of the contractor. SBA will notify a CDC in writing 
when the CDC can begin to perform liquidation and/or debt collection 
litigation under this section.

[72 FR 18365, Apr. 12, 2007]

         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.



                  Subpart I_Risk-Based Lender Oversight

    Source: 72 FR 25194, May 4, 2007, unless otherwise noted.

    Effective Date Note 1: At 73 FR 75519, Dec. 11, 2008, subpart I was 
amended by revising the heading, adding an undesignated center heading 
and Sec. Sec. 120.1000, 120.1005, 120.1010, 120.1015, 120.1025, 
120.1050, 120.1051, 120.1055, and 120.1060, effective Jan. 12, 2009.

    Effective Date Note 2: At 73 FR 75521, Dec. 11, 2008, subpart I was 
amended by adding an undesignated center heading and Sec. Sec. 
120.1400, 120.1425, 120.1500, 120.1510, 120.1511, 120.1540, and 
120.1600, effective Jan. 12, 2009.

                               Supervision



Sec. 120.1000  Risk-Based Lender Oversight.

    (a) Risk-Based Lender Oversight. SBA supervises, examines, and 
regulates, and enforces laws against, SBA Supervised Lenders and the SBA 
operations of SBA Lenders, Intermediaries, and NTAPs.
    (b) Scope. Most rules and standards set forth in this subpart apply 
to SBA Lenders as well as Intermediaries and NTAPs, However, SBA has 
separate

[[Page 317]]

regulations for enforcement grounds and enforcement actions for 
Intermediaries and NTAPs at Sec. 120.1425 and Sec. 120.1540.

[73 FR 75519, Dec. 11, 2008]



Sec. 120.1005  Bureau of PCLP Oversight.

    SBA's Bureau of PCLP Oversight within OCRM, monitors the 
capitalization of PCLP CDC pilot participants' LLRFs and performs other 
related functions.

[73 FR 75519, Dec. 11, 2008]



Sec. 120.1010  SBA access to SBA Lender, Intermediary, and NTAP files.

    An SBA Lender, Intermediary, and NTAP must allow SBA's authorized 
representatives, including representatives authorized by the SBA 
Inspector General, during normal business hours, access to its files to 
review, inspect, and copy all records and documents, relating to SBA 
guaranteed loans or as requested for SBA oversight.

[73 FR 75519, Dec. 11, 2008]



Sec. 120.1015  Risk Rating System.

    (a) Risk Rating. SBA may assign a Risk Rating to all SBA Lenders, 
Intermediaries, and NTAPs on a periodic basis. Risk Ratings are based on 
certain risk-related portfolio performance factors as set forth in 
notices or SBA's SOPs and as published from time to time.
    (b) Rating categories. Risk Ratings fall into one of two broad 
categories: Acceptable Risk Ratings or Less Than Acceptable Risk 
Ratings.

[73 FR 75519, Dec. 11, 2008]



Sec. 120.1025  Off-site reviews and monitoring.

    SBA may conduct off-site reviews and monitoring of SBA Lenders, 
Intermediaries, and NTAPs, including SBA Lenders', Intermediaries' or 
NTAPs' self-assessments.

[73 FR 75519, Dec. 11, 2008]



Sec. 120.1050  On-site reviews and examinations.

    (a) On-site reviews. SBA may conduct on-site reviews of the SBA loan 
operations of SBA Lenders. The on-site review may include, but is not 
limited to, an evaluation of the following:
    (1) Portfolio performance;
    (2) SBA operations management;
    (3) Credit administration; and
    (4) Compliance with Loan Program Requirements.
    (b) On-site examinations. SBA may conduct safety and soundness 
examinations of SBA Supervised Lenders, except SBA will not conduct 
safety and soundness examinations of Other Regulated SBLCs under Sec. 
Sec. 120.1510 and 1511. The on-site safety and soundness examination 
may include, but is not limited to, an evaluation of:
    (1) Capital adequacy;
    (2) Asset quality (including credit administration and allowance for 
loan losses);
    (3) Management quality (including internal controls, loan portfolio 
management, and asset/liability management);
    (4) Earnings;
    (5) Liquidity; and
    (6) Compliance with Loan Program Requirements.
    (c) On-site reviews/examinations of Intermediaries and NTAPs. SBA 
may perform on-site reviews or examinations of Intermediaries and NTAPs.
    (d) Other on-site reviews or examinations. SBA may perform other on-
site reviews/examinations as needed as determined by SBA in its 
discretion.

[73 FR 75519, Dec. 11, 2008]



Sec. 120.1051  Frequency of on-site reviews and examinations.

    SBA may conduct on-site reviews and examinations of SBA Lenders, 
Intermediaries, and NTAPs on a periodic basis. SBA may consider, but is 
not limited to, the following factors in determining frequency:
    (a) Off-site review/monitoring results, including an SBA Lender's, 
Intermediary's or NTAP's Risk Rating;
    (b) SBA loan portfolio size;
    (c) Previous review or examination findings;
    (d) Responsiveness in correcting deficiencies noted in prior reviews 
or examinations; and

[[Page 318]]

    (e) Such other risk-related information as SBA, in its discretion, 
determines to be appropriate.

[73 FR 75519, Dec. 11, 2008]



Sec. 120.1055  Review and examination results.

    (a) Written Reports. SBA will provide an SBA Lender, Intermediary, 
and NTAP a copy of SBA's written report prepared as a result of the SBA 
Lender review or examination (``Report''). The Report may contain 
findings, conclusions, corrective actions and recommendations. Each 
director (or manager, in the absence of a Board of Directors) of the SBA 
Lender, Intermediary, and NTAP, in keeping with his or her 
responsibilities, must become fully informed regarding the contents of 
the Report.
    (b) Response to review and examination Reports. SBA Lenders, 
Intermediaries, and NTAPs must respond to Report findings and corrective 
actions, if any, in writing to SBA and, if requested, submit proposed 
corrective actions and/or a capital restoration plan. An SBA Lender, 
Intermediary, or NTAP must respond within 30 days from the Report date 
unless SBA notifies the SBA Lender, Intermediary, or NTAP in writing 
that the response, proposed corrective actions or capital restoration 
plan is to be filed within a different time period. The SBA Lender, 
Intermediary, or NTAP response must address each finding and corrective 
action. In proposing a corrective action or capital restoration plan, 
the SBA Lender, Intermediary, or NTAP must detail: The steps it will 
take to correct the finding(s); the time within which each step will be 
taken; the timeframe for accomplishing the entire corrective action 
plan; and the person(s) or department at the SBA Lender, Intermediary, 
or NTAP charged with carrying out the corrective action or capital 
restoration plan, as applicable.
    (c) SBA response. SBA will provide written notice of whether the 
response and, if applicable, any corrective action or capital 
restoration plan, is approved, or whether SBA will seek additional 
information or require other action.
    (d) Failure to respond or to submit or implement an acceptable plan. 
If an SBA Lender, Intermediary, or NTAP fails to respond in writing to 
SBA, respond timely to SBA, or provide a response acceptable to SBA 
within SBA's discretion, or respond to all findings and required 
corrective actions in a Report, then SBA may take enforcement action 
under Subpart I. If an SBA Lender, Intermediary, or NTAP that is 
requested to submit a corrective action plan or capital restoration plan 
to SBA fails to do so in writing; fails to submit timely such plan to 
SBA; or fails to submit a plan acceptable to SBA within SBA's 
discretion, then SBA may take enforcement action under Sec. 120.1500 
through Sec. 120.1540. If an SBA Lender, Intermediary, or NTAP fails to 
implement in any material respect a corrective action or capital 
restoration plan within the required timeframe, then SBA may undertake 
enforcement action under Sec. 120.1500 through Sec. 120.1540.

[73 FR 75519, Dec. 11, 2008]



Sec. 120.1060  Confidentiality of Reports, Risk Ratings and related 
Confidential Information.

    (a) In general. Reports and other SBA prepared review or examination 
related documents are the property of SBA and are loaned to an SBA 
Lender, Intermediary, or NTAP for its confidential use only. The 
Reports, Risk Ratings, and related Confidential Information are 
privileged and confidential as more fully explained in paragraph (b) of 
this section. The Report, Risk Rating, and Confidential Information must 
not be relied upon for any purpose other than SBA's Lender oversight and 
SBA's portfolio management purposes. An SBA Lender, Intermediary, or 
NTAP must not make any representations concerning the Report (including 
its findings, conclusions, and recommendations), the Risk Rating, or the 
Confidential Information. For purposes of this regulation, Report means 
the review or examination report and related documents. For purposes of 
this regulation, Confidential Information is defined in the SBA Lender 
information portal and by notice issued from time to time. Access to the 
Lender information portal may be obtained by contacting the OCRM.

[[Page 319]]

    (b) Disclosure prohibition. Each SBA Lender, Intermediary, and NTAP 
is prohibited from disclosing its Report, Risk Rating, and Confidential 
Information, in full or in part, in any manner, without SBA's prior 
written permission. An SBA Lender, Intermediary, and NTAP may use the 
Report, Risk Rating, and Confidential Information for confidential use 
within its own immediate corporate organization. SBA Lenders, 
Intermediaries, and NTAPs must restrict access to their Report, Risk 
Rating and Confidential Information to those of its officers and 
employees who have a legitimate need to know such information for the 
purpose of assisting them in improving the SBA Lender's, Intermediary's, 
or NTAP's SBA program operations in conjunction with SBA's Lender 
Oversight Program and SBA's portfolio management (for purposes of this 
regulation, each referred to as a ``permitted party''), and to those for 
whom SBA has approved access by prior written consent, and to those for 
whom access is required by applicable law or legal process. If such law 
or process requires SBA Lender, Intermediary, or NTAP to disclose the 
Report, Risk Rating, or Confidential Information to any person other 
than a permitted party, SBA Lender, Intermediary, or NTAP will promptly 
notify SBA and SBA's Information Provider in writing so that SBA and the 
Information Provider have, within their discretion, the opportunity to 
seek appropriate relief such as an injunction or protective order prior 
to disclosure. For purposes of this regulation, ``Information Provider'' 
means any contractor that provides SBA with the Risk Rating. Each SBA 
Lender, Intermediary, and NTAP must ensure that each permitted party is 
aware of these regulatory requirements and must ensure that each such 
permitted party abides by them. Any disclosure of the Report, Risk 
Rating, or Confidential Information other than as permitted by this 
regulation may result in appropriate action as authorized by law. An SBA 
Lender, Intermediary, and NTAP will indemnify and hold harmless SBA from 
and against any and all claims, demands, suits, actions, and liabilities 
to any degree based upon or resulting from any unauthorized use or 
disclosure of the Report, Risk Rating, or Confidential Information. 
Information Provider contact information is available from the Office of 
Capital Access.

[73 FR 75519, Dec. 11, 2008]



Sec. 120.1070  Lender oversight fees.

    Lenders are required to pay to SBA fees to cover costs of 
examinations and reviews and, if assessed by SBA, other Lender oversight 
activities.
    (a) Fee components: The fees may cover the following:
    (1) On-site examinations. The costs of conducting on-site safety and 
soundness examinations of an SBA-Supervised Lender, including any 
expenses that are incurred in relation to the examination. For the 
purposes of this paragraph, the term ``SBA-Supervised Lender'' means a 
Small Business Lending Company or a Non-Federally Regulated Lender.
    (2) On-site reviews. The costs of conducting an on-site review of a 
Lender, including any expenses that are incurred in relation to the 
review.
    (3) Off-site reviews/monitoring. The costs of conducting off-site 
reviews/monitoring of a Lender, including any expenses that are incurred 
in relation to the review/monitoring activities. SBA will assess this 
charge based on each Lender's portion of the total dollar amount of SBA 
guarantees in SBA's portfolio. SBA may waive the assessment of this fee 
for all Lenders owing less than a threshold amount below which SBA 
determines that it is not cost effective to collect the fee.
    (4) Other lender oversight activities. The costs of additional 
expenses that SBA incurs in carrying out Lender oversight activities 
(for example, the salaries and travel expenses of SBA employees and 
equipment expenses that are directly related to carrying out Lender 
oversight activities). This charge will be based on each Lender's 
portion of the total dollar amount of SBA guarantees in SBA's portfolio.
    (b) Billing process. For the on-site examinations or reviews 
conducted under (a)(1) and (a)(2) above, SBA will bill each Lender for 
the amount owed following completion of the examination or review. For 
the off-site reviews/monitoring conducted under (a)(3) above

[[Page 320]]

and the other Lender oversight expenses incurred under (a)(4) above, SBA 
will bill each Lender for the amount owed on an annual basis. SBA will 
state in the bill the date by which payment is due SBA and the approved 
payment method(s). The payment due date will be no less than 30 calendar 
days from the bill date.
    (c) Delinquent payment and late-payment charges. Payments that are 
not received by the due date specified in the bill shall be considered 
delinquent. SBA will charge interest, and other applicable charges and 
penalties, on delinquent payments, as authorized by 31 U.S.C. 3717. SBA 
may waive or abate the collection of interest, charges and/or penalties 
if circumstances warrant. In addition, a Lender's failure to pay any of 
the fee components described in this section, or to pay interest, 
charges and penalties that have been charged, may result in a decision 
to suspend or revoke a participant's eligibility or to limit a 
participant's delegated authority.

                           Enforcement Actions



Sec. 120.1400  Grounds for enforcement actions--SBA Lenders.

    (a) Agreement. By making SBA 7(a) guaranteed loans or 504 loans, SBA 
Lenders automatically agree to the terms, conditions, and remedies in 
Loan Program Requirements, as promulgated or issued from time to time 
and as if fully set forth in the SBA Form 750, Loan Guaranty Agreement 
or other applicable participation, guaranty, or supplemental agreement.
    (b) Scope. SBA may undertake one or more of the enforcement actions 
listed in Sec. 120.1500 or as otherwise authorized by law, if SBA 
determines that the grounds applicable to the enforcement action exist. 
Paragraphs (c) through (e) of this section list the grounds that trigger 
enforcement actions against each type of SBA Lender. In general, the 
grounds listed in paragraph (c) apply to all SBA Lenders. However, 
certain enforcement actions against SBA Supervised Lenders require the 
existence of certain grounds, as set forth in paragraphs (d) and (e). In 
addition, paragraph (f) of this section lists two additional grounds for 
taking enforcement action against CDCs that do not apply to other SBA 
Lenders.
    (c) Grounds in general. Except as provided in paragraphs (d) and (e) 
of this section, the grounds that may trigger an enforcement action 
against any SBA Lender (regardless of its Risk Rating) include:
    (1) Failure to maintain eligibility requirements for specific SBA 
programs and delegated authorities, including but not limited to: 7(a), 
PLP, SBAExpress, 504, ALP, PCLP, the alternative loss reserve pilot 
program and any pilot loan program;
    (2) Failure to comply materially with any requirement imposed by 
Loan Program Requirements;
    (3) Making a material false statement or failure to disclose a 
material fact to SBA. (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.);
    (4) Not performing underwriting, closing, disbursing, servicing, 
liquidation, litigation or other actions in a commercially reasonable 
and prudent manner for 7(a) or 504 loans, respectively, as applicable. 
Evidence of such performance or actions may include, but is not limited 
to, the SBA Lender having a repeated Less Than Acceptable Risk Rating 
(generally in conjunction with other evidence) or an on-site review/
examination assessment which is Less Than Acceptable;
    (5) Failure within the time period specified to correct an 
underwriting, closing, disbursing, servicing, liquidation, litigation, 
or reporting deficiency, or failure in any material respect to take 
other corrective action, after receiving notice from SBA of a deficiency 
and the need to take corrective action;
    (6) Engaging in a pattern of uncooperative behavior or taking an 
action that SBA determines is detrimental to an SBA program, that 
undermines management or administration of a program, or that is not 
consistent with standards of good conduct. Prior to issuing a notice of 
a proposed enforcement action or immediate suspension under Sec. 
120.1500 based upon this paragraph, SBA must send prior written notice 
to the SBA Lender explaining why

[[Page 321]]

the SBA Lender's actions were uncooperative, detrimental to the program, 
undermined SBA's management of the program, or were not consistent with 
standards of good conduct. The prior notice must also state that the SBA 
Lender's actions could give rise to a specified enforcement action, and 
provide the SBA Lender with a reasonable time to cure the deficiency 
before any further action is taken;
    (7) Repeated failure to correct continuing deficiencies;
    (8) Unauthorized disclosure of Reports, Risk Rating, or Confidential 
Information;
    (9) Any other reason that SBA determines may increase SBA's 
financial risk (for example, repeated Less Than Acceptable Risk Ratings 
(generally in conjunction with other indicators of increased financial 
risk) or indictment on felony or fraud charges of an officer, key 
employee, or loan agent involved with SBA loans for the SBA Lender);
    (10) As otherwise authorized by law; and
    (11) For immediate suspension of all SBA Lenders from delegated 
authorities--upon a determination by SBA that one or more of the grounds 
in paragraph (c) or paragraph (f) of this section, as applicable, exist 
and that immediate action is needed to prevent significant impairment of 
the integrity of the 7(a) or 504 loan program.
    (12) For immediate suspension of all SBA Lenders except SBA 
Supervised Lenders from the authority to participate in the SBA loan 
program, including the authority to make, service, liquidate, or 
litigate 7(a) or 504 loans--upon a determination by SBA that one or more 
of the grounds in paragraph (c) or paragraph (f) of this section, as 
applicable, exist and that immediate action is needed to prevent 
significant impairment of the integrity of the 7(a) or 504 loan program.
    (d) Grounds required for certain enforcement actions against SBA 
Supervised Lenders (except Other Regulated SBLCs) or, as applicable, 
Other Persons. For purposes of Subpart I, Other Person means a 
Management Official, attorney, accountant, appraiser, Lender Service 
Provider or other individual involved in the SBA Supervised Lender's 
operations. For the below listed SBA Supervised Lender enforcement 
actions, the grounds that are required to take the enforcement action 
are:
    (1) For SBA program suspensions and revocations--
    (i) False statements knowingly made in any required written 
submission to SBA; or
    (ii) An omission of a material fact from any written submission 
required by SBA; or
    (iii) A willful or repeated violation of the Small Business Act (the 
Act) or SBA regulations; or
    (iv) A willful or repeated violation of any condition imposed by SBA 
with respect to any application, request, or agreement with SBA; or
    (v) A violation of any cease and desist order of SBA.
    (2) For SBA program immediate suspension--SBA may suspend an SBA 
Supervised Lender, effective immediately, if in addition to meeting the 
grounds set forth in paragraph (d)(1) of this section, the Administrator 
(or the Deputy Administrator, only if the Administrator is unavailable 
to take such action) finds extraordinary circumstances and takes such 
action in order to protect the financial or legal position of the United 
States.
    (3) For cease and desist orders--
    (i) A violation of the Act or SBA regulations, or
    (ii) Where an SBA Supervised Lender or Other Person engages in or is 
about to engage in any acts or practices that will violate the Act or 
SBA's regulations.
    (4) For an emergency cease and desist order--
    (i) Where grounds for cease and desist order are met,
    (ii) The Administrator (or the Deputy Administrator, only if the 
Administrator is unavailable to take such action) finds extraordinary 
circumstances, and
    (iii) In order to protect the financial or legal position of the 
United States.
    (5) For transfer of Loan portfolio--
    (i) Where a court has appointed a receiver; or
    (ii) The SBA Supervised Lender is either not in compliance with 
capital requirements or is insolvent. An SBA Supervised Lender is 
insolvent within the meaning of this provision when all of

[[Page 322]]

its capital, surplus, and undivided profits are absorbed in funding 
losses and the remaining assets are not sufficient to pay and discharge 
its contracts, debts, and other obligations as they come due.
    (6) For transfer of servicing activity--
    (i) Where grounds for transfer of Loan portfolio are met; or
    (ii) Where the SBA Supervised Lender is otherwise operating in an 
unsafe and unsound condition.
    (7) For order to remove Management Official--where, in the opinion 
of the Administrator or his/her delegatee, the Management Official--
    (i) Willfully and knowingly committed a substantial violation of the 
Act, SBA regulation, a final cease and desist order, or any agreement by 
the Management Official or the SBA Supervised Lender under the Act or 
SBA regulations, or
    (ii) Willfully and knowingly committed a substantial breach of a 
fiduciary duty of that person as a Management Official and the violation 
or breach of fiduciary duty is one involving personal dishonesty on the 
part of such Management Official, or
    (iii) The Management Official is convicted of a felony involving 
dishonesty or breach of trust and the conviction is no longer subject to 
further judicial review (excludes writ of habeas corpus).
    (8) For order to suspend or prohibit participation of Management 
Official (interim measure pending removal)--where SBA is undertaking 
enforcement action of removal of a Management Official.
    (9) For order to suspend or prohibit participation of Management 
Official due to criminal charges--where the Management Official is 
charged in any information, indictment or complaint authorized by a 
United States attorney with a felony involving dishonesty or breach of 
trust.
    (e) Grounds required for certain enforcement actions against SBLCs 
and Other Regulated SBLCs.
    (1) Capital directive. If the AA/CA determines that an SBLC is 
capitally impaired or is otherwise being operated in an imprudent 
manner, the AA/CA may, in addition to any other action authorized by 
law, issue a directive to the SBLC to increase capital consistent with 
Sec. 120.1500(d)(1).
    (2) Civil action for termination. If an SBLC violates the Act or SBA 
regulations, SBA may institute a civil action to terminate SBLC rights, 
privileges, and the franchise under Sec. 120.1500(d)(2).
    (f) Additional grounds specific to CDCs. In addition to the grounds 
set forth in paragraphs (b) and (c) of this section, SBA may take 
enforcement action against a CDC for:
    (1) Failure to receive SBA approval for at least four 504 loans 
during the last two consecutive fiscal years, or
    (2) For PCLP CDCs, failure to establish or maintain a LLRF as 
required by the PCLP.

[73 FR 75521, Dec. 11, 2008]



Sec. 120.1425  Grounds for enforcement actions--Intermediaries 
participating in the Microloan Program and NTAPs.

    (a) Agreement. By participating in the SBA Microloan or NTAP 
program, Intermediaries and NTAPs automatically agree to the terms, 
conditions, and remedies in this Part 120 as if fully set forth in their 
participation agreement and all other agreements jointly executed by the 
Intermediary or NTAP and SBA.
    (b) Scope. SBA may undertake one or more of the enforcement actions 
listed in Sec. 120.1540, or as otherwise authorized by law, if SBA 
determines that any of the grounds listed in paragraphs (c) through (e) 
of this section exist.
    (c) Grounds in general--For any Intermediary or NTAP, grounds that 
may trigger enforcement action against the Intermediary or NTAP 
(regardless of its Risk Rating) include:
    (1) Violation of any laws, regulations, or policies of the program; 
or
    (2) Failure to meet any one of the following performance standards:
    (i) Coverage of the service territory assigned by SBA, including 
honoring SBA's 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 within six months after beginning 
participation in program;

[[Page 323]]

    (v) Maintain a currency rate of 85% or more for the Intermediary's 
SBA Microloan portfolio (that is, loans that are no more than 30 days 
late in scheduled payments);
    (vi) Maintain a default rate in the Intermediary's Microloan 
portfolio of 15% or less of the cumulative dollars loaned under the 
program;
    (vii) Maintain a staff trained in Microloan program issues and 
requirements; or
    (viii) Any other reason that SBA determines may increase SBA's 
financial or program risk (for example, repeated Less Than Acceptable 
Risk Ratings (generally in conjunction with other indicators of 
increased risk) or indictment on felony or fraud charges of an officer, 
key employee, or loan agent involved with SBA programs for the 
Intermediary or NTAP).
    (d) Additional grounds specific to Intermediaries. In addition to 
the grounds set forth in paragraph (c) of this section, SBA may take 
enforcement action against an Intermediary for:
    (1) Failure to satisfactorily provide in-house technical assistance 
to Microloan clients and prospective Microloan clients; or
    (2) Failure to close and fund a minimum of four Microloans annually.
    (e) Additional grounds specific to NTAPs. In addition to grounds set 
forth in paragraph (c) of this section, SBA may take enforcement action 
against an NTAP for failure to show that, for every 30 clients for which 
the NTAP provided technical assistance, at least one client received a 
loan from the private sector.

[73 FR 75521, Dec. 11, 2008]



Sec. 120.1500  Types of enforcement actions--SBA Lenders.

    Upon a determination that the grounds set forth in Sec. 120.1400 
exist, SBA may undertake, in SBA's discretion, one or more of the 
following enforcement actions for each of the types of SBA Lenders 
listed. SBA will take such action in accordance with procedures set 
forth in Sec. 120.1600. If enforcement action is taken under this 
section and the SBA Lender fails to implement required corrective action 
in any material respect within the required timeframe in response to the 
enforcement action, SBA may take further enforcement action, as 
authorized by law. SBA's decision to take an enforcement action will 
not, by itself, invalidate a guaranty previously provided by SBA.
    (a) Enforcement actions for all SBA Lenders. (1) Imposition of 
portfolio guaranty dollar limit. SBA may limit the maximum dollar amount 
that SBA will guarantee on the SBA Lender's SBA loans or debentures.
    (2) Suspension or revocation of delegated authority. SBA may suspend 
or revoke an SBA Lender's delegated authority (including, but not 
limited to, PLP, SBA Express, or PCLP delegated authorities).
    (3) Suspension or revocation from SBA program. SBA may suspend or 
revoke an SBA Lender's authority to participate in the SBA loan program, 
including the authority to make, service, liquidate, or litigate 7(a) or 
504 loans. Section 120.1400(d)(1) sets forth the grounds for SBA program 
suspension or revocation of an SBA Supervised Lender (except Other 
Regulated SBLCs). The grounds for SBA program suspension or revocation 
for all other SBA Lenders are set forth in Sec. 120.1400(c) and, as 
applicable, paragraph (f) of Sec. 120.1400.
    (4) Immediate suspension. SBA may suspend, effective immediately, an 
SBA Lender's delegated authority or authority to participate in the SBA 
loan program, or the authority to make, service, liquidate, or litigate 
7(a) or 504 loans. Section 120.1400(d)(2) sets forth the grounds for SBA 
program immediate suspension of an SBA Supervised Lender (except Other 
Regulated SBLCs). The grounds for SBA program immediate suspension for 
all other SBA Lenders and the grounds for immediate suspension of 
delegated authority for all SBA Lenders are set forth in Sec. 
120.1400(c)(11) and Sec. 120.1400(c)(12).
    (5) Debarment. In accordance with 2 CFR Parts 180 and 2700, SBA may 
take any necessary action to debar a Person, as defined in Sec. 120.10, 
including but not limited to an officer, a director, a general partner, 
a manager, an employee, an agent or other participant in the affairs of 
an SBA Lender's SBA operations.

[[Page 324]]

    (6) Other actions available under law. SBA may take all other 
enforcement actions against SBA Lenders available under law.
    (b) Enforcement actions specific to 7(a) Lenders. In addition to 
those enforcement actions applicable to all SBA Lenders, SBA may suspend 
or revoke a 7(a) Lender's authority to sell or purchase loans or 
certificates in the Secondary Market.
    (c) Enforcement actions specific to SBA Supervised Lenders and Other 
Persons (except Other Regulated SBLCs). In addition to those enforcement 
actions listed in paragraphs (a) and (b) of this section, SBA may take 
any one or more of the following enforcement actions specific to SBA 
Supervised Lenders and as applicable, Other Persons:
    (1) Cease and desist order. SBA may issue a cease and desist order 
against the SBA Supervised Lender or Other Person. The Cease and Desist 
order may either require the SBA Supervised Lender or the Other Person 
to take a specific action, or to refrain from a specific action. The 
Cease and Desist Order may be issued as effective immediately (or as a 
proposal for Order). SBA may include in the cease and desist order the 
suspension of authority to lend.
    (2) Remove Management Official. SBA may issue an order to remove a 
Management Official from office. SBA may suspend a Management Official 
from office or prohibit a Management Official from participating in 
management of the SBA Supervised Lender or in reviewing, approving, 
closing, servicing, liquidating or litigating any 7(a) loan, or any 
other activities of the SBA Supervised Lender while the removal 
proceeding is pending in order to protect an SBA Supervised Lender or 
the interests of SBA or the United States.
    (3) Initiate request for appointment of receiver. The SBA may make 
application to a district court to take exclusive jurisdiction of an SBA 
Supervised Lender and appoint a trustee or receiver to hold or 
administer or liquidate the SBA Supervised Lender's assets under 
direction of the court. The receiver may take possession of the 
portfolio of 7(a) loans and sell such loans to a third party, and/or 
take possession of servicing activities of 7(a) loans and sell such 
servicing rights to a third party.
    (4) Civil monetary penalties for report filing failure. SBA may seek 
civil penalties, in accordance with Sec. 120.465, of not more than 
$5,000 a day against an SBA Supervised Lender that fails to file any 
regular or special report by its due date as specified by regulation or 
SBA written directive.
    (d) Enforcement actions specific to SBLCs. In addition to those 
supervisory actions listed in paragraphs (a), (b), and (c) of this 
section, SBA may take the following enforcement actions specific to 
SBLCs.
    (1) Capital directive. The AA/CA may issue a capital directive upon 
a determination that the grounds in Sec. 120.1400(e)(1) exist. A 
directive may order the SBLC to:
    (i) Achieve its minimum capital requirement applicable to it by a 
specified date;
    (ii) Adhere to a previously submitted capital restoration plan 
(provided under Sec. 120.462 or Sec. 120.1055) to achieve the 
applicable capital requirement;
    (iii) Submit and adhere to a capital restoration plan acceptable to 
SBA describing the means and time schedule by which the SBLC will 
achieve the applicable capital requirement (The SBLC must provide its 
capital restoration plan within 30 days from the date of the SBA order 
unless SBA notifies the SBLC that the plan is to be filed within a 
different time period. SBA may perform an on-site examination (generally 
within 90 days after the restoration plan is submitted) to verify the 
implementation of the plan and verify that the SBLC meets minimum 
capital requirements.);
    (iv) Refrain from taking certain actions without obtaining SBA's 
prior written approval (Such actions may include but are not limited to: 
paying any dividend; retiring any equity; maintaining a rate of growth 
that causes further deterioration in the capital percentage; 
securitizing any unguaranteed portion of its 7(a) loans; or selling 
participations in any of its 7(a) loans); or
    (v) Undertake a combination of any of these or similar actions.

[[Page 325]]

    (2) Civil action for termination. SBA may institute a civil action 
to terminate the rights, privileges, and franchises of an SBLC.
    (e) Enforcement actions specific to CDCs. In addition to those 
enforcement actions listed in paragraph (a) of this section, SBA may 
take any one or more of the following enforcement actions specific to 
CDCs:
    (1) Require the CDC to transfer part or all of its existing 504 loan 
portfolio and/or part or all of its pending 504 loan applications to 
SBA, another CDC, or any other entity designated by SBA. Any such 
transfer may be on a temporary or permanent basis, in SBA's discretion; 
or
    (2) Instruct the Central Servicing Agent to withhold payment of 
servicing, late and/or other fee(s) to the CDC.

[73 FR 75521, Dec. 11, 2008]



Sec. 120.1510  Other Regulated SBLCs.

    Other Regulated SBLCs are exempt from Sec. Sec. 120.465, 
120.1050(b), 120.1400(d), 120.1500(c), and 120.1600(b). This exemption 
is not intended to preclude SBA from seeking any other remedy authorized 
by law or equity.

[73 FR 75521, Dec. 11, 2008]



Sec. 120.1511  Certification and other reporting and notification 
requirements for Other Regulated SBLCs.

    (a) Certification. An SBLC seeking Other Regulated SBLC status must 
certify to SBA in writing that its lending activities are subject to 
regulation by a Federal Financial Institution Regulator or state banking 
regulator. This certification must be executed by the chair of the board 
of directors of the SBLC and submitted to SBA either:
    (1) Within 60 calendar days of the effective date of this section or
    (2) If the SBLC becomes subject to regulation by a Federal Financial 
Institution Regulator or state banking regulator after the effective 
date of this section for any reason (e.g. license transfers), within 60 
days of the date that the SBLC becomes directly examined and directly 
regulated by such regulator.
    (b) Contents of Certification: This certification must include:
    (1) The identity of the Federal Financial Institution Regulator or 
state banking regulator that regulates the lending activities of the 
SBLC;
    (2) A statement that the Federal Financial Institution Regulator or 
state banking regulator identified in paragraph (b)(1) of this section 
regularly conducts safety and soundness examinations on the SBLC itself 
and not only on the SBLC's parent company or affiliate, if any; and
    (3) The date of the most recent safety and soundness examination 
conducted on the SBLC by the Federal Financial Institution Regulator or 
state banking regulator. To qualify as an Other Regulated SBLC, the SBLC 
must have received this examination within the past 3 years of the date 
of certification.
    (c) Notification of examination. An Other Regulated SBLC must notify 
SBA in writing each time a Federal Financial Institution Regulator or 
state banking regulator conducts a safety and soundness examination, and 
this notification must be submitted to SBA within 30 calendar days of 
the SBLC receiving the results of the examination. To retain its status 
as an Other Regulated SBLC, the Other Regulated SBLC must receive such 
examination, and provide the written notification to SBA, at least once 
every two years following initial certification.
    (d) Report. An Other Regulated SBLC must report in writing to SBA on 
its interactions with other Federal Financial Institution Regulators or 
state banking regulator (e.g., the results of the safety and soundness 
examinations and any order issued against the Other Regulated SBLC), to 
the extent allowed by law.
    (e) Notification of change in status. If, for any reason, an Other 
Regulated SBLC becomes no longer subject to regulation by a Federal 
Financial Institution Regulator or state banking regulator, the Other 
Regulated SBLC must immediately notify SBA in writing, and the exemption 
provided in Sec. 120.1510 will immediately no longer apply.
    (f) Extension of timeframes. SBA may in its discretion extend any 
timeframe imposed on the SBLC under this section if the SBLC can show 
good cause

[[Page 326]]

for any delay in meeting the time requirement. The SBLC may appeal this 
decision to the AA/CA.
    (g) Failure to satisfy requirements. In the event that an SBLC fails 
to satisfy the requirements set forth in paragraphs (a), (b), and (c) of 
this section, then the exemption provided in Sec. 120.1510 will not 
apply to the SBLC.

[73 FR 75521, Dec. 11, 2008]



Sec. 120.1540  Types of enforcement actions--Intermediaries 
participating in the Microloan Program and NTAPs.

    Upon a determination that any ground set out in Sec. 120.1425 
exists, the SBA may take in its discretion, one or more of the following 
enforcement actions against an Intermediary or NTAP:
    (a) Suspension or pre-revocation sanctions which may include, but 
are not limited to:
    (1) Accelerated reporting requirements;
    (2) Accelerated loan repayment requirements for outstanding program 
debt to SBA, as applicable;
    (3) Imposition of a temporary lending moratorium, as applicable; or
    (4) Imposition of a temporary training moratorium.
    (b) Revocation of authority to participate in the Microloan program 
which will include:
    (1) Removal from the program;
    (2) Liquidation of Intermediary's Microloan Revolving Fund and Loan 
Loss Reserve Fund accounts by SBA, and application of the 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 repayments are met; or
    (6) Taking such other actions available under law.

[73 FR 75521, Dec. 11, 2008]



Sec. 120.1600  General procedures for enforcement actions against SBA 
Lenders, SBA Supervised Lenders, Other Regulated SBLCs, Management 

Officials, Other Persons, Intermediaries, and NTAPs.

    (a) In general. Except as otherwise set forth for the enforcement 
actions listed in paragraphs (b) and (c) of this section, SBA will 
follow the procedures listed below.
    (1) SBA's notice of enforcement action. (i) When undertaking an 
immediate suspension under Sec. 120.1500(a)(4), or prior to undertaking 
an enforcement action set forth in Sec. 120.1500(a), (b), and (e) and 
Sec. 120.1540, SBA will issue a written notice to the affected SBA 
Lender, Intermediary, or NTAP identifying the proposed enforcement 
action or notifying it of an immediate suspension. The notice will set 
forth in reasonable detail the underlying facts and reasons for the 
proposed action or immediate suspension. If the notice is for a proposed 
or immediate suspension, SBA will also state the scope and term of the 
proposed or immediate suspension.
    (ii) If a proposed enforcement action or immediate suspension is 
based upon information obtained from a third party other than the SBA 
Lender, Intermediary, NTAP or SBA, SBA's notice of proposed action or 
immediate suspension will provide copies of documentation received from 
such third party, or the name of the third party in case of oral 
information, unless SBA determines that there are compelling reasons not 
to provide such information. If compelling reasons exist, SBA will 
provide a summary of the information it received to the SBA Lender, 
Intermediary, or NTAP.
    (2) SBA Lender, Intermediary, or NTAP's opportunity to object. (i) 
An SBA Lender, Intermediary, or NTAP that desires to contest a proposed 
enforcement action or an immediate suspension must file, within 30 
calendar days of its receipt of the notice or within some other term 
established by SBA in its notice, a written objection with the 
appropriate Office of Capital Access official in accordance with 
Delegations of Authority or other SBA official identified in the notice. 
Notice will be presumed to have been received within

[[Page 327]]

five days of the date of the notice unless the SBA Lender, Intermediary, 
or NTAP can provide compelling evidence to the contrary.
    (ii) The objection must set forth in detail all grounds known to the 
SBA Lender, Intermediary, or NTAP to contest the proposed action or 
immediate suspension and all mitigating factors, and must include 
documentation that the SBA Lender, Intermediary, or NTAP believes is 
most supportive of its objection. An SBA Lender, Intermediary, or NTAP 
must exhaust this administrative remedy in order to preserve its 
objection to a proposed enforcement action or an immediate suspension.
    (iii) If an SBA Lender, Intermediary, or NTAP can show legitimate 
reasons as determined by SBA in SBA's discretion why it does not 
understand the reasons given by SBA in its notice of the action, the 
Agency will provide clarification. SBA will provide the requested 
clarification in writing to the SBA Lender, Intermediary, or NTAP or 
notify the SBA Lender, Intermediary, or NTAP in writing that SBA has 
determined that such clarification is not necessary. SBA, in its 
discretion, will further advise in writing whether the SBA Lender, 
Intermediary, or NTAP may have additional time to present its objection 
to the notice. Requests for clarification must be made to the 
appropriate Office of Capital Access official in accordance with 
Delegations of Authority in writing and received by SBA within the 30 
day timeframe or the timeframe given by the notice for response.
    (iv) An SBA Lender, Intermediary, or NTAP may request additional 
time to respond to SBA's notice if it can show that there are compelling 
reasons why it is not able to respond within the 30 day timeframe or the 
response timeframe given by the notice. If such requests are submitted 
to the Agency, SBA may, in its discretion, provide the SBA Lender, 
Intermediary, or NTAP with additional time to respond to the notice of 
proposed action or immediate suspension. Requests for additional time to 
respond must be made in writing to the appropriate Office of Capital 
Access official in accordance with Delegations of Authority or other 
official identified in the notice and received by SBA within the 30 day 
timeframe or the response timeframe given by the notice.
    (v) Prior to the issuance of a final decision by SBA, if an SBA 
Lender, Intermediary, or NTAP can show that there is newly discovered 
material evidence which, despite the SBA Lender, Intermediary, or NTAP's 
exercise of due diligence, could not have been discovered within the 
timeframe given by SBA to respond to a notice, or that there are 
compelling reasons beyond the SBA Lender, Intermediary, or NTAP's 
control as to why it was not able to present a material fact or argument 
to SBA, and that the SBA Lender, Intermediary, or NTAP has been 
prejudiced by not being able to present such information, the SBA 
Lender, Intermediary, or NTAP may submit such information to SBA and 
request that the Agency consider such information in its final decision.
    (3) SBA's notice of final agency decision where SBA Lender, 
Intermediary, or NTAP filed objection to the proposed action or 
immediate suspension. (i) If the affected SBA Lender, Intermediary, or 
NTAP files a timely written objection to a proposed enforcement action 
other than an immediate suspension in accordance with this section, SBA 
must issue a written notice of final decision to the affected SBA 
Lender, Intermediary, or NTAP advising whether SBA is undertaking the 
proposed enforcement action and setting forth the grounds for the 
decision. SBA will issue such a notice of decision within 90 days of 
either receiving the objection or from when additional information is 
provided under paragraph (a)(2)(v) or (a)(3)(iii) of this section, 
whichever is later, unless SBA provides notice that it requires 
additional time.
    (ii) If the affected SBA Lender, Intermediary, or NTAP files a 
timely written objection to a notice of immediate suspension, SBA must 
issue a written notice of final decision to the affected SBA Lender, 
Intermediary, or NTAP within 30 days of receiving the objection advising 
whether SBA is continuing with the immediate suspension, unless SBA 
provides notice that it requires additional time. If the SBA

[[Page 328]]

Lender, Intermediary, or NTAP submits additional information to SBA 
(under paragraph (a)(2)(v) or (a)(3)(iii) of this section) after 
submitting its objection but before SBA issues its final decision, SBA 
must issue its final decision within 30 days of receiving such 
information, unless SBA provides notice that it requires additional 
time.
    (iii) Prior to issuing a notice of decision, SBA in its discretion 
can request additional information from the affected SBA Lender, 
Intermediary, NTAP or other parties and conduct any other investigation 
it deems appropriate. If SBA determines, in its discretion, to consider 
an untimely objection, it must issue a notice of final decision pursuant 
to this paragraph (a)(3).
    (4) SBA's notice of final agency decision where no filed objection 
or untimely objection not considered. If SBA chooses not to consider an 
untimely objection or if the affected SBA Lender, Intermediary, or NTAP 
fails to file a written objection to a proposed enforcement action or an 
immediate suspension, and if SBA continues to believe that such proposed 
enforcement action or immediate suspension is appropriate, SBA must 
issue a written notice of final decision to the affected SBA Lender, 
Intermediary, or NTAP that SBA is undertaking one or more of the 
proposed enforcement actions against the SBA Lender, Intermediary, or 
NTAP or that an immediate suspension of the SBA Lender, Intermediary, or 
NTAP will continue. Such a notice of final decision need not state any 
grounds for the action other than to reference the SBA Lender, 
Intermediary, or NTAP's failure to file a timely objection, and 
represents the final agency decision.
    (5) Appeals. An SBA Lender, Intermediary, or NTAP may appeal the 
final agency decision only in the appropriate federal district court.
    (b) Procedures for certain enforcement actions against SBA 
Supervised Lenders (except Other Regulated SBLCs) and, where applicable, 
Management Officials and Other Persons. (1) Suspension and revocation 
actions and cease and desist orders. If SBA seeks to suspend or revoke 
loan program authority (including, the authority to make, service, 
liquidate, or litigate SBA loans), or issue a cease and desist order to 
an SBA Supervised Lender or, as applicable, Other Person, SBA will 
follow the procedures below in lieu of those in paragraph (a) of this 
section.
    (i) Show cause order and hearing. The Administrator will serve upon 
the SBA Supervised Lender or Other Person an order to show cause why an 
order suspending or revoking the authority or why a cease and desist 
order should not be issued. The show cause order will contain a 
statement of the matters of fact and law asserted by SBA, as well as the 
legal authority and jurisdiction under which an administrative hearing 
will be held, and will set forth the place and time of the 
administrative hearing. The hearing will be conducted by an 
administrative law judge in accordance with 5 U.S.C. 554-557, 15 U.S.C. 
650, and applicable sections of part 134 of this chapter. The 
Administrative Law Judge will issue a recommended decision based on the 
record.
    (ii) Witnesses. The party calling witnesses will pay the witness the 
same fees and mileage paid witnesses for their appearance in U.S. 
courts.
    (iii) Administrator finding and order issuance. If after the 
administrative hearing, or the SBA Supervised Lender's or Other Person's 
waiver of the administrative hearing, the Administrator determines that 
the order should be issued, the Administrator will issue an order to 
suspend or revoke authority or a cease and desist order, as applicable. 
The order will include a statement of findings, the grounds and reasons, 
and will specify the order's effective date. SBA will serve the order on 
the SBA Supervised Lender or Other Person. The Administrator may 
delegate the power to issue a cease and desist order or to suspend or 
revoke loan program authority only if the Administrator is unavailable 
and only to the Deputy Administrator.
    (iv) Judicial review. The order constitutes a final agency action. 
The SBA Supervised Lender or Other Person will have 20 days from the 
order issuance date to file an appeal in the appropriate federal 
district court.
    (2) Immediate suspension or immediate cease and desist order. If SBA 
undertakes an immediate suspension of authority to participate in the 
7(a) loan

[[Page 329]]

program or immediate cease and desist order against an SBA Supervised 
Lender or, as applicable, Other Person, SBA will within two business 
days follow the procedures set forth in paragraph (b)(1) of this 
section.
    (3) Removal of Management Official. If SBA undertakes the removal of 
a Management Official of an SBA Supervised Lender, SBA will follow the 
procedures below in lieu of those in paragraph (a) of this section.
    (i) Notice and hearing. SBA will serve upon the Management Official 
and the SBA Supervised Lender written notice of intention to remove that 
includes a statement of the facts constituting the grounds and the date, 
time, and place for an administrative hearing. The administrative 
hearing will be held between 30 and 60 days from the date notice is 
served, unless an earlier or later date is set at the request of the 
Management Official for good cause shown or at the request of the 
Attorney General. The hearing will be conducted in accordance with 5 
U.S.C. 554-557, 15 U.S.C. 650 and applicable sections of part 134 of 
this chapter. Failure of the Management Official to appear at the 
administrative hearing will constitute consent to the removal order. SBA 
will serve on the SBA Supervised Lender a copy of each notice that is 
served on a Management Official.
    (ii) Suspension from office or prohibition in participation, pending 
removal. The suspension or prohibition will take effect upon service of 
intention to remove the Management Official or such subsequent time as 
the Administrator or his/her delegate deems appropriate and serves 
notice. It will remain in effect pending the completion of the 
administrative proceedings to remove and until such time as either SBA 
dismisses the charges in the removal notice or, if an order to remove or 
prohibit participation is issued, until the effective date of an order 
to remove or prohibit. In the case of suspension or prohibition 
following criminal charges, it may remain in effect until the 
information, indictment, or complaint is finally disposed of, or until 
the suspension is terminated by SBA or by order of a district court. A 
Management Official may appeal to the appropriate federal district court 
for a stay of the suspension or prohibition pending completion of the 
administrative hearing not later than 10 days from the suspension or 
prohibition's effective date.
    (iii) Decision. SBA may issue the order of removal if the Management 
Official consents or is convicted of the criminal charges and the 
judgment is not subject to further judicial review (not including writ 
of habeas corpus), or if upon a record of a hearing, SBA finds that any 
of the notice grounds have been established. After the hearing, in the 
latter case, and within 30 days after SBA has notified the parties that 
the case has been submitted for final decision, SBA will render a 
decision (which includes findings of fact upon which the decision is 
predicated) and issue and serve an order upon each party to the 
proceeding. The decision will constitute final agency action.
    (iv) Effective date and judicial review. The removal order will take 
effect 30 days after date of service upon the SBA Supervised Lender and 
the Management Official except in case of consent which will be 
effective at the time specified in the order or in case of removal for 
conviction on criminal charges the order will be effective upon removal 
order service on the SBA Supervised Lender and the Management Official. 
The order will remain effective and enforceable, except to the extent it 
is stayed, modified, terminated, or set aside by Administrator or a 
reviewing court. The adversely affected party will have 20 days from the 
order issuance date to seek judicial review in the appropriate federal 
district court.
    (4) Receiverships, transfer of assets and servicing activities. If 
SBA undertakes the appointment of a receiver for, or the transfer of 
assets or servicing rights of, an SBA Supervised Lender, SBA will follow 
the applicable procedures in 15 U.S.C. 650.
    (5) Civil penalties for report filing failure. If SBA seeks to 
impose civil penalties against an SBA Supervised Lender for failure to 
file a report in accordance with SBA regulations or written directive, 
SBA will follow the procedures set forth for enforcement actions in 
Sec. 120.465.
    (c) Additional procedures for certain enforcement actions against 
SBLCs. Capital

[[Page 330]]

directive. (1) Notice of intent to issue capital directive. SBA will 
notify an SBLC in writing of its intention to issue a directive. The 
notice will state:
    (i) Reasons for issuance of the directive and
    (ii) The proposed contents of the directive.
    (2) Response to notice. (i) An SBLC may respond to the notice by 
stating why a capital directive should not be issued and/or by proposing 
alternative contents for the capital directive or seeking other 
appropriate relief. The response must include any information, 
mitigating circumstances, documentation, or other relevant evidence that 
supports its position. The response may include a plan for achieving the 
minimum capital requirement applicable to the SBLC. The response must be 
in writing and delivered to the SBA within 30 days after the date on 
which the SBLC received the notice. In its discretion, SBA may extend 
the time period for good cause. SBA may shorten the 30-day time period:
    (A) When, in the opinion of SBA, the condition of the SBLC so 
requires, provided that the SBLC will be informed promptly of the new 
time period;
    (B) With the consent of the SBLC; or
    (C) When the SBLC already has advised SBA that it cannot or will not 
achieve its applicable minimum capital requirement.
    (ii) Failure to respond within 30 days or such other time period as 
may be specified by SBA will constitute a waiver of any objections to 
the proposed capital directive.
    (3) Decision. After the closing date of the SBLC's response period, 
or receipt of the SBLC's response, if earlier, SBA may seek additional 
information or clarification of the response. Thereafter, SBA will 
determine whether or not to issue a capital directive, and if one is to 
be issued, whether it should be as originally proposed or in modified 
form.
    (4) Issuance of a capital directive. (i) A capital directive will be 
served by delivery to the SBLC. It will include, or be accompanied by, a 
statement of reasons for its issuance.
    (ii) A capital directive is effective immediately upon its receipt 
by the SBLC, or upon such later date as may be specified therein, and 
will remain effective and enforceable until it is stayed, modified, or 
terminated by SBA.
    (5) Reconsideration based on change in circumstances. Upon a change 
in circumstances, an SBLC may request SBA to reconsider the terms of its 
capital directive or may propose changes in the plan to achieve the 
SBLC's applicable minimum capital requirement. SBA also may take such 
action on its own initiative. SBA may decline to consider requests or 
proposals that are not based on a significant change in circumstances or 
are repetitive or frivolous. Pending a decision on reconsideration, the 
capital directive and plan will continue in full force and effect.
    (6) Relation to other administrative actions. A capital directive 
may be issued in addition to, or in lieu of, any other action authorized 
by law, including cease and desist proceedings. SBA also may, in its 
discretion, take any action authorized by law, in lieu of a capital 
directive, in response to an SBLC's failure to achieve or maintain the 
applicable minimum capital requirement.
    (7) Appeals. The capital directive constitutes a final agency 
action. An SBLC may appeal the final agency decision only in the 
appropriate federal district court.

[73 FR 75521, Dec. 11, 2008]



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 How does SBA determine 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?

[[Page 331]]

          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 financial 
          assistance 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 Federal Government 
          Contracting 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 8(a) 
          contracts?
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 [Reserved]

 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 8(a) Business Development Program

121.601 What is a small business for purposes of admission to SBA's 8(a) 
          Business Development program?
121.602 At what point in time must a 8(a) BD applicant be small?
121.603 How does SBA determine whether a Participant is small for a 
          particular 8(a) BD subcontract?
121.604 Are 8(a) BD 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?

[[Page 332]]

  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 occurs after SBA receives a size protest or 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?
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, 634(b)(6), 636(b), 637, 644, and 662(5); 
and Public Law 105-135, sec. 401 et seq., 111 Stat. 2592.

    Source: 61 FR 3286, Jan. 31, 1996, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 121 appear at 72 FR 
50039 and 50040, Aug. 30, 2007.



           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

[[Page 333]]

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 Division Chief, Office 
of 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  How does SBA determine affiliation?

    (a) General Principles of Affiliation. (1) Concerns and entities are 
affiliates of each other when one controls or has the power to control 
the other, or a third party or parties controls or has the power to 
control both. It does not matter whether control is exercised, so long 
as the power to control exists.
    (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) Control may be affirmative or negative. Negative control 
includes, but is not limited to, instances where a minority shareholder 
has the ability, under the concern's charter, by-laws, or shareholder's 
agreement, to prevent a quorum or otherwise block action by the board of 
directors or shareholders.
    (4) Affiliation may be found where an individual, concern, or entity 
exercises control indirectly through a third party.
    (5) In determining whether affiliation exists, SBA will consider the 
totality of the circumstances, and may find affiliation even though no 
single factor is sufficient to constitute affiliation.
    (6) In determining the concern's size, SBA counts the receipts, 
employees, or other measure of size of the concern whose size is at 
issue and all of its domestic and foreign affiliates, regardless of 
whether the affiliates are organized for profit.
    (b) Exceptions to 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)(i) Business concerns owned and controlled by Indian Tribes, 
Alaska Native Corporations (ANCs) organized pursuant to the Alaska 
Native Claims Settlement Act (43 U.S.C. 1601 et seq.), Native Hawaiian 
Organizations (NHOs), Community Development Corporations (CDCs) 
authorized by 42 U.S.C. 9805, or wholly-owned entities of Indian Tribes, 
ANCs, NHOs, or CDCs are not considered affiliates of such entities.
    (ii) Business concerns owned and controlled by Indian Tribes, ANCs, 
NHOs, CDCs, or wholly-owned entities of Indian Tribes, ANCs, NHOs, or 
CDCs are not considered to be affiliated with other concerns owned by 
these entities because of their common ownership or common management. 
In addition, affiliation will not be found based upon the performance of 
common administrative services, such as bookkeeping and payroll, so long 
as adequate payment is provided for those services. Affiliation may be 
found for other reasons.
    (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

[[Page 334]]

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. Affiliation may be found for other 
reasons.
    (7) The member shareholders of a small agricultural cooperative, as 
defined in the Agricultural Marketing Act (12 U.S.C. 1141j), are not 
considered affiliated with the cooperative by virtue of their membership 
in the cooperative.
    (c) Affiliation based on stock ownership. (1) A person (including 
any individual, concern or other entity) that owns, or has the power to 
control, 50 percent or more of a concern's voting stock, or a block of 
voting stock which is large compared to other outstanding blocks of 
voting stock, controls or has the power to control the concern.
    (2) If two or more persons (including any individual, concern or 
other entity) each owns, controls, or has the power to control less than 
50 percent of a concern's voting stock, and such minority holdings are 
equal or approximately equal in size, and the aggregate of these 
minority holdings is large as compared with any other stock holding, SBA 
presumes that each such person controls or has the power to control the 
concern whose size is at issue. This presumption may be rebutted by a 
showing that such control or power to control does not in fact exist.
    (3) If a concern's voting stock is widely held and no single block 
of stock is large as compared with all other stock holdings, the 
concern's Board of Directors and CEO or President will be deemed to have 
the power to control the concern in the absence of evidence to the 
contrary.
    (d) Affiliation arising under stock options, convertible securities, 
and agreements to merge. (1) In determining size, SBA considers stock 
options, convertible securities, and agreements to merge (including 
agreements in principle) to have a present effect on the power to 
control a concern. SBA treats such options, convertible securities, and 
agreements as though the rights granted have been exercised.
    (2) 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 are thus not given present 
effect.
    (3) Options, convertible securities, and agreements that are subject 
to

[[Page 335]]

conditions precedent which are incapable of fulfillment, speculative, 
conjectural, or unenforceable under state or Federal law, or where the 
probability of the transaction (or exercise of the rights) occurring is 
shown to be extremely remote, are not given present effect.
    (4) An individual, concern or other entity that controls one or more 
other concerns cannot use options, convertible securities, or agreements 
to appear to terminate such control before actually doing so. SBA will 
not give present effect to individuals', concerns' or other entities' 
ability to divest all or part of their ownership interest in order to 
avoid a finding of affiliation.
    (e) Affiliation based on common management. Affiliation arises where 
one or more officers, directors, managing members, or partners who 
control the board of directors and/or management of one concern also 
control the board of directors or management of one or more other 
concerns.
    (f) Affiliation based on identity of interest. Affiliation may arise 
among two or more persons with an identity of interest. Individuals or 
firms that have identical or substantially identical business or 
economic interests (such as family members, individuals or firms with 
common investments, or firms that are economically dependent through 
contractual or other relationships) may be treated as one party with 
such interests aggregated. Where SBA determines that such interests 
should be aggregated, an individual or firm may rebut that determination 
with evidence showing that the interests deemed to be one are in fact 
separate.
    (g) Affiliation based on the newly organized concern rule. 
Affiliation may arise where former officers, directors, principal 
stockholders, managing members, or key employees of one concern organize 
a new concern in the same or related industry or field of operation, and 
serve as the new concern's officers, directors, principal stockholders, 
managing members, or key employees, and the one concern is furnishing or 
will furnish the new concern with contracts, financial or technical 
assistance, indemnification on bid or performance bonds, and/or other 
facilities, whether for a fee or otherwise. A concern may rebut such an 
affiliation determination by demonstrating a clear line of fracture 
between the two concerns. A ``key employee'' is an employee who, because 
of his/her position in the concern, has a critical influence in or 
substantive control over the operations or management of the concern.
    (h) Affiliation based on joint ventures. A joint venture is an 
association of individuals and/or concerns with interests in any degree 
or proportion by way of contract, express or implied, consorting to 
engage in and carry out no more than three specific or limited-purpose 
business ventures for joint profit over a two year period, for which 
purpose they combine their efforts, property, money, skill, or 
knowledge, but not on a continuing or permanent basis for conducting 
business generally. This means that the joint venture entity cannot 
submit more than three offers over a two year period, starting from the 
date of the submission of the first offer. A joint venture may or may 
not be in the form of a separate legal entity. The joint venture is 
viewed as a business entity in determining power to control its 
management. SBA may also determine that the relationship between a prime 
contractor and its subcontractor is a joint venture, and that 
affiliation between the two exists, pursuant to paragraph (h)(4) of this 
section.
    (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 (h)(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) Exception to affiliation for certain joint ventures. (i) A joint 
venture of two or more business concerns may submit an offer as a small 
business for a Federal procurement without regard to affiliation under 
paragraph (h) of this section 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

[[Page 336]]

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 receipts 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 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 (h) of this 
section so long as the requirements of Sec. 124.513(b)(1) of this 
chapter are met.
    (iii) Two firms approved by SBA to be a mentor and 
prot[eacute]g[eacute] under 13 CFR 124.520 may joint venture as a small 
business for any Federal Government procurement, provided the 
prot[eacute]g[eacute] 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 its ostensible subcontractor are treated as 
joint venturers, and therefore affiliates, for size determination 
purposes. An ostensible subcontractor is a subcontractor that performs 
primary and vital requirements of a contract, or of an order under a 
multiple award schedule contract, or a subcontractor upon which the 
prime contractor is unusually reliant. All aspects of the relationship 
between the prime and subcontractor are considered, including, but not 
limited to, the terms of the proposal (such as contract management, 
technical responsibilities, and the percentage of subcontracted work), 
agreements between the prime and subcontractor (such as bonding 
assistance or the teaming agreement), and whether the subcontractor is 
the incumbent contractor and is ineligible to submit a proposal because 
it exceeds the applicable size standard for that solicitation.
    (5) For size purposes, a concern must include in its receipts its 
proportionate share of joint venture receipts, and in its total number 
of employees its proportionate share of joint venture employees.
    (i) 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 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; 69 FR 
29201, May 21, 2004; 70 FR 51248, Aug. 30, 2005]



Sec. 121.104  How does SBA calculate annual receipts?

    (a) Receipts means ``total income'' (or in the case of a sole 
proprietorship, ``gross income'') plus ``cost of goods sold'' as these 
terms are defined and reported on Internal Revenue Service (IRS) tax 
return forms (such as Form 1120 for corporations; Form 1120S and 
Schedule K for S corporations; Form 1120, Form 1065 or Form 1040 for 
LLCs; Form 1065 and Schedule K for partnerships; Form 1040, Schedule F 
for farms; Form 1040, Schedule C for other sole proprietorships). 
Receipts do not include net capital gains or losses; taxes collected for 
and remitted to a taxing authority if included in gross or total income, 
such as sales or other taxes collected from customers and excluding 
taxes levied on the concern or its employees; proceeds from transactions 
between a concern and its domestic or foreign affiliates; and amounts 
collected for another by a travel agent, real estate agent, advertising 
agent,

[[Page 337]]

conference management service provider, freight forwarder or customs 
broker. For size determination purposes, the only exclusions from 
receipts are those specifically provided for in this paragraph. All 
other items, such as subcontractor costs, reimbursements for purchases a 
contractor makes at a customer's request, and employee-based costs such 
as payroll taxes, may not be excluded from receipts.
    (1) The Federal income tax return and any amendments filed with the 
IRS on or before the date of self-certification must be used to 
determine the size status of a concern. SBA will not use tax returns or 
amendments filed with the IRS after the initiation of a size 
determination.
    (2) When a concern has not filed a Federal income tax return with 
the IRS for a fiscal year which must be included in the period of 
measurement, SBA will calculate the concern's annual receipts for that 
year using any other available information, such as the concern's 
regular books of account, audited financial statements, or information 
contained in an affidavit by a person with personal knowledge of the 
facts.
    (b) Completed fiscal year means a taxable year including any short 
year. ``Taxable year'' and ``short year'' have the meanings attributed 
to them by the IRS.
    (c) Period of measurement. (1) Annual receipts of a concern that has 
been in business for three or more completed fiscal years means the 
total receipts of the concern over its most recently completed three 
fiscal years divided by three.
    (2) Annual receipts of a concern which has been in business for less 
than three complete fiscal years means the total receipts for the period 
the concern has been in business divided by the number of weeks in 
business, multiplied by 52.
    (3) Where a concern has been in business three or more complete 
fiscal years but has a short year as one of the years within its period 
of measurement, annual receipts means the total receipts for the short 
year and the two full fiscal years divided by the total number of weeks 
in the short year and the two full fiscal years, multiplied by 52.
    (d) Annual receipts of affiliates. (1) The average annual receipts 
size of a business concern with affiliates is calculated by adding the 
average annual receipts of the business concern with the average annual 
receipts of each affiliate.
    (2) If a concern has acquired an affiliate or been acquired as an 
affiliate during the applicable period of measurement or before the date 
on which it self-certified as small, the annual receipts used in 
determining size status includes the receipts of the acquired or 
acquiring concern. Furthermore, this aggregation applies for the entire 
period of measurement, not just the period after the affiliation arose.
    (3) If the business concern or an affiliate has been in business for 
a period of less than three years, the receipts for the fiscal year with 
less than a 12 month period are annualized in accordance with paragraph 
(c)(2) of this section. Receipts are determined for the concern and its 
affiliates in accordance with paragraph (c) of this section even though 
this may result in using a different period of measurement to calculate 
an affiliate's annual receipts.
    (4) The annual receipts of a former affiliate are not included if 
affiliation ceased before the date used for determining size. This 
exclusion of annual receipts of a former affiliate applies during the 
entire period of measurement, rather than only for the period after 
which affiliation ceased.
    (e) Unless otherwise defined in this section, all terms shall have 
the meaning attributed to them by the IRS.

[61 FR 3286, Jan. 31, 1996, as amended at 65 FR 48604, Aug. 9, 2000; 69 
FR 29203, May 21, 2004]



Sec. 121.105  How does SBA define ``business concern or concern''?

    (a)(1) Except for small agricultural cooperatives, 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

[[Page 338]]

through payment of taxes or use of American products, materials or 
labor.
    (2) A small agricultural cooperative is an association (corporate or 
otherwise) acting pursuant to the provisions of the Agricultural 
Marketing Act (12 U.S.C.A. 1141j) whose size does not exceed the size 
standard established by SBA for other similar agricultural small 
business concerns. A small agricultural cooperative's member 
shareholders are not considered to be affiliates of the cooperative by 
virtue of their membership in the cooperative. However, a business 
concern or cooperative that does not qualify as small under this part 
may not be a member of a small agricultural cooperative.
    (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.

[61 FR 3286, Jan. 31, 1996, as amended at 70 FR 51248, Aug. 30, 2005]



Sec. 121.106  How does SBA calculate number of employees?

    (a) In determining a concern's number of employees, SBA counts all 
individuals employed on a full-time, part-time, or other basis. This 
includes employees obtained from a temporary employee agency, 
professional employee organization or leasing concern. SBA will consider 
the totality of the circumstances, including criteria used by the IRS 
for Federal income tax purposes, in determining whether individuals are 
employees of a concern. Volunteers (i.e., individuals who receive no 
compensation, including no in-kind compensation, for work performed) are 
not considered employees.
    (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)(i) The average number of employees of a business concern with 
affiliates is calculated by adding the average number of employees of 
the business concern with the average number of employees of each 
affiliate. If a concern has acquired an affiliate or been acquired as an 
affiliate during the applicable period of measurement or before the date 
on which it self-certified as small, the employees counted in 
determining size status include the employees of the acquired or 
acquiring concern. Furthermore, this aggregation applies for the entire 
period of measurement, not just the period after the affiliation arose.
    (ii) The employees of a former affiliate are not counted if 
affiliation ceased before the date used for determining size. This 
exclusion of employees of a former affiliate applies during the entire 
period of measurement, rather than only for the period after which 
affiliation ceased.

[61 FR 3286, Jan. 31, 1996, as amended at 69 FR 29203, May 21, 2004]



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.

[[Page 339]]



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.

                                 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........................           $2.00  ..............
112120.................................  Dairy Cattle and Milk Production.......           $0.75  ..............
112210.................................  Hog and Pig Farming....................           $0.75  ..............
112310.................................  Chicken Egg Production.................           $12.5  ..............
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  ..............

[[Page 340]]

 
112511.................................  Finfish Farming and Fish Hatcheries....           $0.75  ..............
112512.................................  Shellfish Farming......................           $0.75  ..............
112519.................................  Other 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................            $7.0  ..............
113210.................................  Forest Nurseries and Gathering of                  $7.0  ..............
                                          Forest Products.
113310.................................  Logging................................  ..............             500
----------------------------------------------------------------------------------------------------------------
                                  Subsector 114--Fishing, Hunting and Trapping
----------------------------------------------------------------------------------------------------------------
114111.................................  Finfish Fishing........................            $4.0  ..............
114112.................................  Shellfish Fishing......................            $4.0  ..............
114119.................................  Other Marine Fishing...................            $4.0  ..............
114210.................................  Hunting and Trapping...................            $4.0  ..............
----------------------------------------------------------------------------------------------------------------
                         Subsector 115--Support Activities for Agriculture and Forestry
----------------------------------------------------------------------------------------------------------------
115111.................................  Cotton Ginning.........................            $7.0  ..............
115112.................................  Soil Preparation, Planting, and                    $7.0  ..............
                                          Cultivating.
115113.................................  Crop Harvesting, Primarily by Machine..            $7.0  ..............
115114.................................  Postharvest Crop Activities (except                $7.0  ..............
                                          Cotton Ginning).
115115.................................  Farm Labor Contractors and Crew Leaders            $7.0  ..............
115116.................................  Farm Management Services...............            $7.0  ..............
115210.................................  Support Activities for Animal                      $7.0  ..............
                                          Production.
115310.................................  Support Activities for Forestry........            $7.0  ..............
Except,................................  Forest Fire Suppression \17\...........      \17\ $17.5  ..............
Except,................................  Fuels Management Services \17\.........      \17\ $17.5  ..............
----------------------------------------------------------------------------------------------------------------
                            Sector 21--Mining, Quarrying, and Oil and Gas Extraction
----------------------------------------------------------------------------------------------------------------
                                      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                 $7.0  ..............
                                          Operations.
213113.................................  Support Activities for Coal Mining.....            $7.0  ..............

[[Page 341]]

 
213114.................................  Support Activities for Metal Mining....            $7.0  ..............
213115.................................  Support Activities for Nonmetallic                 $7.0  ..............
                                          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....            $7.0  ..............
221320.................................  Sewage Treatment Facilities............            $7.0  ..............
221330.................................  Steam and Air-Conditioning Supply......           $12.5  ..............
----------------------------------------------------------------------------------------------------------------
                                             Sector 23--Construction
----------------------------------------------------------------------------------------------------------------
                                    Subsector 236--Construction of Buildings
----------------------------------------------------------------------------------------------------------------
236115.................................  New Single-Family Housing Construction            $33.5  ..............
                                          (except Operative Builders).
236116.................................  New Multifamily Housing Construction              $33.5  ..............
                                          (except Operative Builders).
236117.................................  New Housing Operative Builders.........           $33.5  ..............
236118.................................  Residential Remodelers.................           $33.5  ..............
236210.................................  Industrial Building Construction.......           $33.5  ..............
236220.................................  Commercial and Institutional Building             $33.5  ..............
                                          Construction.
----------------------------------------------------------------------------------------------------------------
                             Subsector 237--Heavy and Civil Engineering Construction
----------------------------------------------------------------------------------------------------------------
237110.................................  Water and Sewer Line and Related                  $33.5  ..............
                                          Structures Construction.
237120.................................  Oil and Gas Pipeline and Related                  $33.5  ..............
                                          Structures Construction.
237130.................................  Power and Communication Line and                  $33.5  ..............
                                          Related Structures Construction.
237210.................................  Land Subdivision.......................            $7.0  ..............
237310.................................  Highway, Street, and Bridge                       $33.5  ..............
                                          Construction.
237990.................................  Other Heavy and Civil Engineering                 $33.5  ..............
                                          Construction.
Except,................................  Dredging and Surface Cleanup Activities       \2\ $20.0  ..............
                                          \2\.
----------------------------------------------------------------------------------------------------------------
                                   Subsector 238--Specialty Trade Contractors
----------------------------------------------------------------------------------------------------------------
238110.................................  Poured Concrete Foundation and                    $14.0  ..............
                                          Structure Contractors.
238120.................................  Structural Steel and Precast Concrete             $14.0  ..............
                                          Contractors.
238130.................................  Framing Contractors....................           $14.0  ..............
238140.................................  Masonry Contractors....................           $14.0  ..............
238150.................................  Glass and Glazing Contractors..........           $14.0  ..............
238160.................................  Roofing Contractors....................           $14.0  ..............
238170.................................  Siding Contractors.....................           $14.0  ..............
238190.................................  Other Foundation, Structure, and                  $14.0  ..............
                                          Building Exterior Contractors.
238210.................................  Electrical Contractors and Other Wiring           $14.0  ..............
                                          Installation Contractors.
238220.................................  Plumbing, Heating, and Air-Conditioning           $14.0  ..............
                                          Contractors.
238290.................................  Other Building Equipment Contractors...           $14.0  ..............
238310.................................  Drywall and Insulation Contractors.....           $14.0  ..............
238320.................................  Painting and Wall Covering Contractors.           $14.0  ..............
238330.................................  Flooring Contractors...................           $14.0  ..............
238340.................................  Tile and Terrazzo Contractors..........           $14.0  ..............
238350.................................  Finish Carpentry Contractors...........           $14.0  ..............
238390.................................  Other Building Finishing Contractors...           $14.0  ..............
238910.................................  Site Preparation Contractors...........           $14.0  ..............
238990.................................  All Other Specialty Trade Contractors..           $14.0  ..............
Except,................................  Building and Property Specialty Trade        \13\ $14.0  ..............
                                          Services \13\.
----------------------------------------------------------------------------------------------------------------
                                          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

[[Page 342]]

 
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.................................  Nonchocolate 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 Byproduct Processing  ..............             500
311615.................................  Poultry Processing.....................  ..............             500
311711.................................  Seafood Canning........................  ..............             500
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
----------------------------------------------------------------------------------------------------------------

[[Page 343]]

 
                                      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.
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 and Allied        ..............             500
                                          Product Manufacturing.
----------------------------------------------------------------------------------------------------------------
                                    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

[[Page 344]]

 
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
                                          Manufacturing.
322222.................................  Coated and Laminated Paper               ..............             500
                                          Manufacturing.
322223.................................  Coated Paper Bag and Pouch               ..............             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.
----------------------------------------------------------------------------------------------------------------
                             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.

[[Page 345]]

 
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.................................  Plastics Bag and Pouch Manufacturing...  ..............             500
326112.................................  Plastics Packaging Film and              ..............             500
                                          Sheet(including Laminated)
                                          Manufacturing.
326113.................................  Unlaminated Plastics Film and Sheet      ..............             500
                                          (except Packaging) Manufacturing.
326121.................................  Unlaminated Plastics Profile Shape       ..............             500
                                          Manufacturing.
326122.................................  Plastics Pipe and Pipe Fitting           ..............             500
                                          Manufacturing.
326130.................................  Laminated Plastics Plate, Sheet (except  ..............             500
                                          Packaging), and Shape Manufacturing.
326140.................................  Polystyrene Foam Product Manufacturing.  ..............             500
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.
----------------------------------------------------------------------------------------------------------------

[[Page 346]]

 
                                   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.................................  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
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

[[Page 347]]

 
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.
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 Manufacturing........  ..............             500
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

[[Page 348]]

 
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.
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.

[[Page 349]]

 
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.
----------------------------------------------------------------------------------------------------------------
                           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
----------------------------------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------------------------------

[[Page 350]]

 
                                           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.
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.

[[Page 351]]

 
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
425120.................................  Wholesale Trade Agents and Brokers.....  ..............             100
----------------------------------------------------------------------------------------------------------------
                                           Sector 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........................           $29.0  ..............
441120.................................  Used Car Dealers.......................           $23.0  ..............
441210.................................  Recreational Vehicle Dealers...........            $7.0  ..............
441221.................................  Motorcycle, ATV, and Personal                      $7.0  ..............
                                          Watercraft Dealers.
441222.................................  Boat Dealers...........................            $7.0  ..............
441229.................................  All Other Motor Vehicle Dealers........            $7.0  ..............
Except,................................  Aircraft Dealers, Retail...............           $10.0  ..............
441310.................................  Automotive Parts and Accessories Stores            $7.0  ..............
441320.................................  Tire Dealers...........................            $7.0  ..............
----------------------------------------------------------------------------------------------------------------
                              Subsector 442--Furniture and Home Furnishings Stores
----------------------------------------------------------------------------------------------------------------
442110.................................  Furniture Stores.......................            $7.0  ..............
442210.................................  Floor Covering Stores..................            $7.0  ..............
442291.................................  Window Treatment Stores................            $7.0  ..............
442299.................................  All Other Home Furnishings Stores......            $7.0  ..............
----------------------------------------------------------------------------------------------------------------
                                 Subsector 443--Electronics and Appliance Stores
----------------------------------------------------------------------------------------------------------------
443111.................................  Household Appliance Stores.............            $9.0  ..............
443112.................................  Radio, Television and Other Electronics            $9.0  ..............
                                          Stores.
443120.................................  Computer and Software Stores...........            $9.0  ..............
443130.................................  Camera and Photographic Supplies Stores            $7.0  ..............
----------------------------------------------------------------------------------------------------------------
                   Subsector 444--Building Material and Garden Equipment and Supplies Dealers
----------------------------------------------------------------------------------------------------------------
444110.................................  Home Centers...........................            $7.0  ..............
444120.................................  Paint and Wallpaper Stores.............            $7.0  ..............
444130.................................  Hardware Stores........................            $7.0  ..............
444190.................................  Other Building Material Dealers........            $7.0  ..............
444210.................................  Outdoor Power Equipment Stores.........            $7.0  ..............
444220.................................  Nursery and Garden Centers.............            $7.0  ..............
----------------------------------------------------------------------------------------------------------------
                                     Subsector 445--Food and Beverage Stores
----------------------------------------------------------------------------------------------------------------
445110.................................  Supermarkets and Other Grocery (except            $27.0  ..............
                                          Convenience) Stores.

[[Page 352]]

 
445120.................................  Convenience Stores.....................           $27.0  ..............
445210.................................  Meat Markets...........................            $7.0  ..............
445220.................................  Fish and Seafood Markets...............            $7.0  ..............
445230.................................  Fruit and Vegetable Markets............            $7.0  ..............
445291.................................  Baked Goods Stores.....................            $7.0  ..............
445292.................................  Confectionery and Nut Stores...........            $7.0  ..............
445299.................................  All Other Specialty Food Stores........            $7.0  ..............
445310.................................  Beer, Wine and Liquor Stores...........            $7.0  ..............
----------------------------------------------------------------------------------------------------------------
                                 Subsector 446--Health and Personal Care Stores
----------------------------------------------------------------------------------------------------------------
446110.................................  Pharmacies and Drug Stores.............            $7.0  ..............
446120.................................  Cosmetics, Beauty Supplies and Perfume             $7.0  ..............
                                          Stores.
446130.................................  Optical Goods Stores...................            $7.0  ..............
446191.................................  Food (Health) Supplement Stores........            $7.0  ..............
446199.................................  All Other Health and Personal Care                 $7.0  ..............
                                          Stores.
----------------------------------------------------------------------------------------------------------------
                                        Subsector 447--Gasoline Stations
----------------------------------------------------------------------------------------------------------------
447110.................................  Gasoline Stations with Convenience                $27.0  ..............
                                          Stores.
447190.................................  Other Gasoline Stations................            $9.0  ..............
----------------------------------------------------------------------------------------------------------------
                             Subsector 448--Clothing and Clothing Accessories Stores
----------------------------------------------------------------------------------------------------------------
448110.................................  Men's Clothing Stores..................            $9.0  ..............
448120.................................  Women's Clothing Stores................            $9.0  ..............
448130.................................  Children's and Infants' Clothing Stores            $7.0  ..............
448140.................................  Family Clothing Stores.................            $9.0  ..............
448150.................................  Clothing Accessories Stores............            $7.0  ..............
448190.................................  Other Clothing Stores..................            $7.0  ..............
448210.................................  Shoe Stores............................            $9.0  ..............
448310.................................  Jewelry Stores.........................            $7.0  ..............
448320.................................  Luggage and Leather Goods Stores.......            $7.0  ..............
----------------------------------------------------------------------------------------------------------------
                           Subsector 451--Sporting Good, Hobby, Book and Music Stores
----------------------------------------------------------------------------------------------------------------
451110.................................  Sporting Goods Stores..................            $7.0  ..............
451120.................................  Hobby, Toy and Game Stores.............            $7.0  ..............
451130.................................  Sewing, Needlework and Piece Goods                 $7.0  ..............
                                          Stores.
451140.................................  Musical Instrument and Supplies Stores.            $7.0  ..............
451211.................................  Book Stores............................            $7.0  ..............
451212.................................  News Dealers and Newsstands............            $7.0  ..............
451220.................................  Prerecorded Tape, Compact Disc and                 $7.0  ..............
                                          Record Stores.
----------------------------------------------------------------------------------------------------------------
                                    Subsector 452--General Merchandise Stores
----------------------------------------------------------------------------------------------------------------
452111.................................  Department Stores (except Discount                $27.0  ..............
                                          Department Stores).
452112.................................  Discount Department Stores.............           $27.0  ..............
452910.................................  Warehouse Clubs and Superstores........           $27.0  ..............
452990.................................  All Other General Merchandise Stores...           $11.0  ..............
----------------------------------------------------------------------------------------------------------------
                                  Subsector 453--Miscellaneous Store Retailers
----------------------------------------------------------------------------------------------------------------
453110.................................  Florists...............................            $7.0  ..............
453210.................................  Office Supplies and Stationery Stores..            $7.0  ..............
453220.................................  Gift, Novelty and Souvenir Stores......            $7.0  ..............
453310.................................  Used Merchandise Stores................            $7.0  ..............
453910.................................  Pet and Pet Supplies Stores............            $7.0  ..............
453920.................................  Art Dealers............................            $7.0  ..............
453930.................................  Manufactured (Mobile) Home Dealers.....           $13.0  ..............
453991.................................  Tobacco Stores.........................            $7.0  ..............
453998.................................  All Other Miscellaneous Store Retailers            $7.0  ..............
                                          (except Tobacco Stores).
----------------------------------------------------------------------------------------------------------------
                                        Subsector 454--Nonstore Retailers
----------------------------------------------------------------------------------------------------------------
454111.................................  Electronic Shopping....................           $25.0  ..............
454112.................................  Electronic Auctions....................           $25.0  ..............
454113.................................  Mail-Order Houses......................           $25.0  ..............
454210.................................  Vending Machine Operators..............            $7.0  ..............
454311.................................  Heating Oil Dealers....................  ..............              50
454312.................................  Liquefied Petroleum Gas (Bottled Gas)    ..............              50
                                          Dealers.

[[Page 353]]

 
454319.................................  Other Fuel Dealers.....................            $7.0  ..............
454390.................................  Other Direct Selling Establishments....            $7.0  ..............
----------------------------------------------------------------------------------------------------------------
                                  Sectors 48-49--Transportation and Warehousing
----------------------------------------------------------------------------------------------------------------
                                        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                $28.0  ..............
                                          Services.
481212.................................  Nonscheduled Chartered Freight Air       ..............           1,500
                                          Transportation.
Except,................................  Offshore Marine Air Transportation                $28.0  ..............
                                          Services.
481219.................................  Other Nonscheduled Air Transportation..            $7.0  ..............
                                       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
----------------------------------------------------------------------------------------------------------------
                                       Subsector 484--Truck Transportation
----------------------------------------------------------------------------------------------------------------
484110.................................  General Freight Trucking, Local........           $25.5  ..............
484121.................................  General Freight Trucking, Long-                   $25.5  ..............
                                          Distance, Truckload.
484122.................................  General Freight Trucking, Long-                   $25.5  ..............
                                          Distance, Less Than Truckload.
484210.................................  Used Household and Office Goods Moving.           $25.5  ..............
484220.................................  Specialized Freight (except Used Goods)           $25.5  ..............
                                          Trucking, Local.
484230.................................  Specialized Freight (except Used Goods)           $25.5  ..............
                                          Trucking, Long-Distance.
----------------------------------------------------------------------------------------------------------------
                           Subsector 485--Transit and Ground Passenger Transportation
----------------------------------------------------------------------------------------------------------------
485111.................................  Mixed Mode Transit Systems.............            $7.0  ..............
485112.................................  Commuter Rail Systems..................            $7.0  ..............
485113.................................  Bus and Motor Vehicle Transit Systems..            $7.0  ..............
485119.................................  Other Urban Transit Systems............            $7.0  ..............
485210.................................  Interurban and Rural Bus Transportation            $7.0  ..............
485310.................................  Taxi Service...........................            $7.0  ..............
485320.................................  Limousine Service......................            $7.0  ..............
485410.................................  School and Employee Bus Transportation.            $7.0  ..............
485510.................................  Charter Bus Industry...................            $7.0  ..............
485991.................................  Special Needs Transportation...........            $7.0  ..............
485999.................................  All Other Transit and Ground Passenger             $7.0  ..............
                                          Transportation.
----------------------------------------------------------------------------------------------------------------
                                     Subsector 486--Pipeline Transportation
----------------------------------------------------------------------------------------------------------------
486110.................................  Pipeline Transportation of Crude Oil...  ..............           1,500
486210.................................  Pipeline Transportation of Natural Gas.            $7.0  ..............
486910.................................  Pipeline Transportation of Refined       ..............           1,500
                                          Petroleum Products.
486990.................................  All Other Pipeline Transportation......           $34.5  ..............
----------------------------------------------------------------------------------------------------------------
                              Subsector 487--Scenic and Sightseeing Transportation
----------------------------------------------------------------------------------------------------------------
487110.................................  Scenic and Sightseeing Transportation,             $7.0  ..............
                                          Land.
487210.................................  Scenic and Sightseeing Transportation,             $7.0  ..............
                                          Water.
487990.................................  Scenic and Sightseeing Transportation,             $7.0  ..............
                                          Other.
----------------------------------------------------------------------------------------------------------------
                              Subsector 488--Support Activities for Transportation
----------------------------------------------------------------------------------------------------------------
488111.................................  Air Traffic Control....................            $7.0  ..............
488119.................................  Other Airport Operations...............            $7.0  ..............
488190.................................  Other Support Activities for Air                   $7.0  ..............
                                          Transportation.
488210.................................  Support Activities for Rail                        $7.0  ..............
                                          Transportation.
488310.................................  Port and Harbor Operations.............           $25.5  ..............

[[Page 354]]

 
488320.................................  Marine Cargo Handling..................           $25.5  ..............
488330.................................  Navigational Services to Shipping......            $7.0  ..............
488390.................................  Other Support Activities for Water                 $7.0  ..............
                                          Transportation.
488410.................................  Motor Vehicle Towing...................            $7.0  ..............
488490.................................  Other Support Activities for Road                  $7.0  ..............
                                          Transportation.
488510.................................  Freight Transportation Arrangement \10\       \10\ $7.0  ..............
Except,................................  Non-Vessel Owning Common Carriers and             $25.5  ..............
                                          Household Goods Forwarders.
488991.................................  Packing and Crating....................           $25.5  ..............
488999.................................  All Other Support Activities for                   $7.0  ..............
                                          Transportation.
----------------------------------------------------------------------------------------------------------------
                                          Subsector 491--Postal Service
----------------------------------------------------------------------------------------------------------------
491110.................................  Postal Service.........................            $7.0  ..............
----------------------------------------------------------------------------------------------------------------
                                     Subsector 492--Couriers and Messengers
----------------------------------------------------------------------------------------------------------------
492110.................................  Couriers and Express Delivery Services.  ..............           1,500
492210.................................  Local Messengers and Local Delivery....           $25.5  ..............
----------------------------------------------------------------------------------------------------------------
                                     Subsector 493--Warehousing and Storage
----------------------------------------------------------------------------------------------------------------
493110.................................  General Warehousing and Storage........           $25.5  ..............
493120.................................  Refrigerated Warehousing and Storage...           $25.5  ..............
493130.................................  Farm Product Warehousing and Storage...           $25.5  ..............
493190.................................  Other Warehousing and Storage..........           $25.5  ..............
----------------------------------------------------------------------------------------------------------------
                                             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....................           $25.0  ..............
----------------------------------------------------------------------------------------------------------------
                          Subsector 512--Motion Picture and Sound Recording Industries
----------------------------------------------------------------------------------------------------------------
512110.................................  Motion Picture and Video Production....           $29.5  ..............
512120.................................  Motion Picture and Video Distribution..           $29.5  ..............
512131.................................  Motion Picture Theaters (except Drive-             $7.0  ..............
                                          Ins).
512132.................................  Drive-In Motion Picture Theaters.......            $7.0  ..............
512191.................................  Teleproduction and Other Postproduction           $29.5  ..............
                                          Services.
512199.................................  Other Motion Picture and Video                     $7.0  ..............
                                          Industries.
512210.................................  Record Production......................            $7.0  ..............
512220.................................  Integrated Record Production/            ..............             750
                                          Distribution.
512230.................................  Music Publishers.......................  ..............             500
512240.................................  Sound Recording Studios................            $7.0  ..............
512290.................................  Other Sound Recording Industries.......            $7.0  ..............
----------------------------------------------------------------------------------------------------------------
                                  Subsector 515--Broadcasting (except Internet)
----------------------------------------------------------------------------------------------------------------
515111.................................  Radio Networks.........................            $7.0  ..............
515112.................................  Radio Stations.........................            $7.0  ..............
515120.................................  Television Broadcasting................           $14.0  ..............
515210.................................  Cable and Other Subscription                      $15.0  ..............
                                          Programming.
----------------------------------------------------------------------------------------------------------------
                                        Subsector 517--Telecommunications
----------------------------------------------------------------------------------------------------------------
517110.................................  Wired Telecommunications Carriers......  ..............           1,500
517210.................................  Wireless Telecommunications Carriers     ..............           1,500
                                          (except Satellite).
517410.................................  Satellite Telecommunications...........           $15.0  ..............
517911.................................  Telecommunications Resellers...........  ..............           1,500
517919.................................  All Other Telecommunications...........           $25.0  ..............
----------------------------------------------------------------------------------------------------------------
                          Subsector 518--Data Processing, Hosting, and Related Services
----------------------------------------------------------------------------------------------------------------
518210.................................  Data Processing, Hosting, and Related             $25.0  ..............
                                          Services.
----------------------------------------------------------------------------------------------------------------

[[Page 355]]

 
                                    Subsector 519--Other Information Services
----------------------------------------------------------------------------------------------------------------
519110.................................  News Syndicates........................            $7.0  ..............
519120.................................  Libraries and Archives.................            $7.0  ..............
519130.................................  Internet Publishing and Broadcasting     ..............             500
                                          and Web Search Portals.
519190.................................  All Other Information Services.........            $7.0  ..............
----------------------------------------------------------------------------------------------------------------
                                        Sector 52--Finance and Insurance
----------------------------------------------------------------------------------------------------------------
                           Subsector 522--Credit Intermediation and Related Activities
----------------------------------------------------------------------------------------------------------------
522110.................................  Commercial Banking \8\.................        \8\ $175  ..............
                                                                                      million in
                                                                                          assets
522120.................................  Savings Institutions \8\...............        \8\ $175  ..............
                                                                                      million in
                                                                                          assets
522130.................................  Credit Unions \8\......................        \8\ $175  ..............
                                                                                      million in
                                                                                          assets
522190.................................  Other Depository Credit Intermediation         \8\ $175  ..............
                                          \8\.                                        million in
                                                                                          assets
522210.................................  Credit Card Issuing \8\................        \8\ $175  ..............
                                                                                      million in
                                                                                          assets
522220.................................  Sales Financing........................            $7.0  ..............
522291.................................  Consumer Lending.......................            $7.0  ..............
522292.................................  Real Estate Credit.....................            $7.0  ..............
522293.................................  International Trade Financing \8\......        \8\ $175  ..............
                                                                                      million in
                                                                                          assets
522294.................................  Secondary Market Financing.............            $7.0  ..............
522298.................................  All Other Non-Depository Credit                    $7.0  ..............
                                          Intermediation.
522310.................................  Mortgage and Nonmortgage Loan Brokers..            $7.0  ..............
522320.................................  Financial Transactions Processing,                 $7.0  ..............
                                          Reserve, and Clearing House Activities.
522390.................................  Other Activities Related to Credit                 $7.0  ..............
                                          Intermediation.
----------------------------------------------------------------------------------------------------------------
     Subsector 523--Securities, Commodity Contracts, and Other Financial Investments and Related Activities
----------------------------------------------------------------------------------------------------------------
523110.................................  Investment Banking and Securities                  $7.0  ..............
                                          Dealing.
523120.................................  Securities Brokerage...................            $7.0  ..............
523130.................................  Commodity Contracts Dealing............            $7.0  ..............
523140.................................  Commodity Contracts Brokerage..........            $7.0  ..............
523210.................................  Securities and Commodity Exchanges.....            $7.0  ..............
523910.................................  Miscellaneous Intermediation...........            $7.0  ..............
523920.................................  Portfolio Management...................            $7.0  ..............
523930.................................  Investment Advice......................            $7.0  ..............
523991.................................  Trust, Fiduciary and Custody Activities            $7.0  ..............
523999.................................  Miscellaneous Financial Investment                 $7.0  ..............
                                          Activities.
----------------------------------------------------------------------------------------------------------------
                            Subsector 524--Insurance Carriers and Related Activities
----------------------------------------------------------------------------------------------------------------
524113.................................  Direct Life Insurance Carriers.........            $7.0  ..............
524114.................................  Direct Health and Medical Insurance                $7.0  ..............
                                          Carriers.
524126.................................  Direct Property and Casualty Insurance   ..............           1,500
                                          Carriers.
524127.................................  Direct Title Insurance Carriers........            $7.0  ..............
524128.................................  Other Direct Insurance (except Life,               $7.0  ..............
                                          Health and Medical) Carriers.
524130.................................  Reinsurance Carriers...................            $7.0  ..............
524210.................................  Insurance Agencies and Brokerages......            $7.0  ..............
524291.................................  Claims Adjusting.......................            $7.0  ..............
524292.................................  Third Party Administration of Insurance            $7.0  ..............
                                          and Pension Funds.
524298.................................  All Other Insurance Related Activities.            $7.0  ..............
----------------------------------------------------------------------------------------------------------------
                            Subsector 525--Funds, Trusts and Other Financial Vehicles
----------------------------------------------------------------------------------------------------------------
525110.................................  Pension Funds..........................            $7.0  ..............
525120.................................  Health and Welfare Funds...............            $7.0  ..............
525190.................................  Other Insurance Funds..................            $7.0  ..............
525910.................................  Open-End Investment Funds..............            $7.0  ..............
525920.................................  Trusts, Estates, and Agency Accounts...            $7.0  ..............
525930.................................  Real Estate Investment Trusts..........            $7.0  ..............
525990.................................  Other Financial Vehicles...............            $7.0  ..............
----------------------------------------------------------------------------------------------------------------

[[Page 356]]

 
                                  Sector 53--Real Estate and Rental and Leasing
----------------------------------------------------------------------------------------------------------------
                                           Subsector 531--Real Estate
----------------------------------------------------------------------------------------------------------------
531110.................................  Lessors of Residential Buildings and               $7.0  ..............
                                          Dwellings.
531120.................................  Lessors of Nonresidential Buildings                $7.0  ..............
                                          (except Miniwarehouses).
531130.................................  Lessors of Miniwarehouses and Self                $25.5  ..............
                                          Storage Units.
531190.................................  Lessors of Other Real Estate Property..            $7.0  ..............
Except,................................  Leasing of Building Space to Federal          \9\ $20.5  ..............
                                          Government by Owners \9\.
531210.................................  Offices of Real Estate Agents and             \10\ $2.0  ..............
                                          Brokers \10\.
531311.................................  Residential Property Managers..........            $2.0  ..............
531312.................................  Nonresidential Property Managers.......            $2.0  ..............
531320.................................  Offices of Real Estate Appraisers......            $2.0  ..............
531390.................................  Other Activities Related to Real Estate            $2.0  ..............
----------------------------------------------------------------------------------------------------------------
                                   Subsector 532--Rental and Leasing Services
----------------------------------------------------------------------------------------------------------------
532111.................................  Passenger Car Rental...................           $25.5  ..............
532112.................................  Passenger Car Leasing..................           $25.5  ..............
532120.................................  Truck, Utility Trailer, and RV                    $25.5  ..............
                                          (Recreational Vehicle) Rental and
                                          Leasing.
532210.................................  Consumer Electronics and Appliances                $7.0  ..............
                                          Rental.
532220.................................  Formal Wear and Costume Rental.........            $7.0  ..............
532230.................................  Video Tape and Disc Rental.............            $7.0  ..............
532291.................................  Home Health Equipment Rental...........            $7.0  ..............
532292.................................  Recreational Goods Rental..............            $7.0  ..............
532299.................................  All Other Consumer Goods Rental........            $7.0  ..............
532310.................................  General Rental Centers.................            $7.0  ..............
532411.................................  Commercial Air, Rail, and Water                    $7.0  ..............
                                          Transportation Equipment Rental and
                                          Leasing.
532412.................................  Construction, Mining and Forestry                  $7.0  ..............
                                          Machinery and Equipment Rental and
                                          Leasing.
532420.................................  Office Machinery and Equipment Rental             $25.0  ..............
                                          and Leasing.
532490.................................  Other Commercial and Industrial                    $7.0  ..............
                                          Machinery and Equipment Rental and
                                          Leasing.
----------------------------------------------------------------------------------------------------------------
               Subsector 533--Lessors of Nonfinancial Intangible Assets (except Copyrighted Works)
----------------------------------------------------------------------------------------------------------------
533110.................................  Lessors of Nonfinancial Intangible                 $7.0  ..............
                                          Assets (except Copyrighted Works).
----------------------------------------------------------------------------------------------------------------
                           Sector 54--Professional, Scientific and Technical Services
----------------------------------------------------------------------------------------------------------------
                         Subsector 541--Professional, Scientific and Technical Services
----------------------------------------------------------------------------------------------------------------
541110.................................  Offices of Lawyers.....................            $7.0  ..............
541191.................................  Title Abstract and Settlement Offices..            $7.0  ..............
541199.................................  All Other Legal Services...............            $7.0  ..............
541211.................................  Offices of Certified Public Accountants            $8.5  ..............
541213.................................  Tax Preparation Services...............            $7.0  ..............
541214.................................  Payroll Services.......................            $8.5  ..............
541219.................................  Other Accounting Services..............            $8.5  ..............
541310.................................  Architectural Services.................            $4.5  ..............
541320.................................  Landscape Architectural Services.......            $7.0  ..............
541330.................................  Engineering Services...................            $4.5  ..............
Except,................................  Military and Aerospace Equipment and              $27.0  ..............
                                          Military Weapons.
Except,................................  Contracts and Subcontracts for                    $27.0  ..............
                                          Engineering Services Awarded Under the
                                          National Energy Policy Act of 1992.
Except,................................  Marine Engineering and Naval                      $18.5  ..............
                                          Architecture.
541340.................................  Drafting Services......................            $7.0  ..............
Except,................................  Map Drafting...........................            $4.5  ..............
541350.................................  Building Inspection Services...........            $7.0  ..............
541360.................................  Geophysical Surveying and Mapping                  $4.5  ..............
                                          Services.
541370.................................  Surveying and Mapping (except                      $4.5  ..............
                                          Geophysical) Services.
541380.................................  Testing Laboratories...................           $12.0  ..............
541410.................................  Interior Design Services...............            $7.0  ..............
541420.................................  Industrial Design Services.............            $7.0  ..............
541430.................................  Graphic Design Services................            $7.0  ..............
541490.................................  Other Specialized Design Services......            $7.0  ..............
541511.................................  Custom Computer Programming Services...           $25.0  ..............
541512.................................  Computer Systems Design Services.......           $25.0  ..............

[[Page 357]]

 
541513.................................  Computer Facilities Management Services           $25.0  ..............
541519.................................  Other Computer Related Services........           $25.0  ..............
Except,................................  Information Technology Value Added       ..............        \18\ 150
                                          Resellers \18\.
541611.................................  Administrative Management and General              $7.0  ..............
                                          Management Consulting Services.
541612.................................  Human Resources Consulting Services....            $7.0  ..............
541613.................................  Marketing Consulting Services..........            $7.0  ..............
541614.................................  Process, Physical Distribution and                 $7.0  ..............
                                          Logistics Consulting Services.
541618.................................  Other Management Consulting Services...            $7.0  ..............
541620.................................  Environmental Consulting Services......            $7.0  ..............
541690.................................  Other Scientific and Technical                     $7.0  ..............
                                          Consulting Services.
541711.................................  Research and Development in              ..............         \11\500
                                          Biotechnology.\11\
541712.................................  Research and Development in the          ..............         \11\500
                                          Physical, Engineering, and Life
                                          Sciences (except Biotechnology).\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.
                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             $7.0  ..............
                                          Sciences and Humanities.
541810.................................  Advertising Agencies \10\..............       \10\ $7.0  ..............
541820.................................  Public Relations Agencies..............            $7.0  ..............
541830.................................  Media Buying Agencies..................            $7.0  ..............
541840.................................  Media Representatives..................            $7.0  ..............
541850.................................  Display Advertising....................            $7.0  ..............
541860.................................  Direct Mail Advertising................            $7.0  ..............
541870.................................  Advertising Material Distribution                  $7.0  ..............
                                          Services.
541890.................................  Other Services Related to Advertising..            $7.0  ..............
541910.................................  Marketing Research and Public Opinion              $7.0  ..............
                                          Polling.
541921.................................  Photography Studios, Portrait..........            $7.0  ..............
541922.................................  Commercial Photography.................            $7.0  ..............
541930.................................  Translation and Interpretation Services            $7.0  ..............
541940.................................  Veterinary Services....................            $7.0  ..............
541990.................................  All Other Professional, Scientific and             $7.0  ..............
                                          Technical Services.
----------------------------------------------------------------------------------------------------------------
                               Sector 55--Management of Companies and Enterprises
----------------------------------------------------------------------------------------------------------------
                             Subsector 551--Management of Companies and Enterprises
----------------------------------------------------------------------------------------------------------------
551111.................................  Offices of Bank Holding Companies......            $7.0  ..............
551112.................................  Offices of Other Holding Companies.....            $7.0  ..............
----------------------------------------------------------------------------------------------------------------
                Sector 56--Administrative and Support, Waste Management and Remediation Services
----------------------------------------------------------------------------------------------------------------
                               Subsector 561--Administrative and Support Services
----------------------------------------------------------------------------------------------------------------
561110.................................  Office Administrative Services.........            $7.0  ..............
561210.................................  Facilities Support Services \12\.......      \12\ $35.5  ..............
561311.................................  Employment Placement Agencies..........            $7.0  ..............
561312.................................  Executive Search Services..............            $7.0  ..............
561320.................................  Temporary Help Services................           $13.5  ..............
561330.................................  Professional Employer Organizations....           $13.5  ..............
561410.................................  Document Preparation Services..........            $7.0  ..............
561421.................................  Telephone Answering Services...........            $7.0  ..............
561422.................................  Telemarketing Bureaus and Other Contact            $7.0  ..............
                                          Centers.
561431.................................  Private Mail Centers...................            $7.0  ..............
561439.................................  Other Business Service Centers                     $7.0  ..............
                                          (including Copy Shops).
561440.................................  Collection Agencies....................            $7.0  ..............
561450.................................  Credit Bureaus.........................            $7.0  ..............
561491.................................  Repossession Services..................            $7.0  ..............
561492.................................  Court Reporting and Stenotype Services.            $7.0  ..............
561499.................................  All Other Business Support Services....            $7.0  ..............
561510.................................  Travel Agencies \10\...................       \10\ $3.5  ..............
561520.................................  Tour Operators \10\....................       \10\ $7.0  ..............
561591.................................  Convention and Visitors Bureaus........            $7.0  ..............
561599.................................  All Other Travel Arrangement and                   $7.0  ..............
                                          Reservation Services.
561611.................................  Investigation Services.................           $12.5  ..............
561612.................................  Security Guards and Patrol Services....           $18.5  ..............

[[Page 358]]

 
561613.................................  Armored Car Services...................           $12.5  ..............
561621.................................  Security Systems Services (except                 $12.5  ..............
                                          Locksmiths).
561622.................................  Locksmiths.............................            $7.0  ..............
561710.................................  Exterminating and Pest Control Services            $7.0  ..............
561720.................................  Janitorial Services....................           $16.5  ..............
561730.................................  Landscaping Services...................            $7.0  ..............
561740.................................  Carpet and Upholstery Cleaning Services            $4.5  ..............
561790.................................  Other Services to Buildings and                    $7.0  ..............
                                          Dwellings.
561910.................................  Packaging and Labeling Services........            $7.0  ..............
561920.................................  Convention and Trade Show Organizers          \10\ $7.0  ..............
                                          \10\.
561990.................................  All Other Support Services.............            $7.0  ..............
----------------------------------------------------------------------------------------------------------------
                            Subsector 562--Waste Management and Remediation Services
----------------------------------------------------------------------------------------------------------------
562111.................................  Solid Waste Collection.................           $12.5  ..............
562112.................................  Hazardous Waste Collection.............           $12.5  ..............
562119.................................  Other Waste Collection.................           $12.5  ..............
562211.................................  Hazardous Waste Treatment and Disposal.           $12.5  ..............
562212.................................  Solid Waste Landfill...................           $12.5  ..............
562213.................................  Solid Waste Combustors and Incinerators           $12.5  ..............
562219.................................  Other Nonhazardous Waste Treatment and            $12.5  ..............
                                          Disposal.
562910.................................  Remediation Services...................           $14.0  ..............
Except,................................  Environmental Remediation Services \14\  ..............        \14\ 500
562920.................................  Materials Recovery Facilities..........           $12.5  ..............
562991.................................  Septic Tank and Related Services.......            $7.0  ..............
562998.................................  All Other Miscellaneous Waste                      $7.0  ..............
                                          Management Services.
----------------------------------------------------------------------------------------------------------------
                                         Sector 61--Educational Services
----------------------------------------------------------------------------------------------------------------
                                       Subsector 611--Educational Services
----------------------------------------------------------------------------------------------------------------
611110.................................  Elementary and Secondary Schools.......            $7.0  ..............
611210.................................  Junior Colleges........................            $7.0  ..............
611310.................................  Colleges, Universities and Professional            $7.0  ..............
                                          Schools.
611410.................................  Business and Secretarial Schools.......            $7.0  ..............
611420.................................  Computer Training......................            $7.0  ..............
611430.................................  Professional and Management Development            $7.0  ..............
                                          Training.
611511.................................  Cosmetology and Barber Schools.........            $7.0  ..............
611512.................................  Flight Training........................           $25.5  ..............
611513.................................  Apprenticeship Training................            $7.0  ..............
611519.................................  Other Technical and Trade Schools......            $7.0  ..............
Except,................................  Job Corps Centers \16\.................      \16\ $35.5  ..............
611610.................................  Fine Arts Schools......................            $7.0  ..............
611620.................................  Sports and Recreation Instruction......            $7.0  ..............
611630.................................  Language Schools.......................            $7.0  ..............
611691.................................  Exam Preparation and Tutoring..........            $7.0  ..............
611692.................................  Automobile Driving Schools.............            $7.0  ..............
611699.................................  All Other Miscellaneous Schools and                $7.0  ..............
                                          Instruction.
611710.................................  Educational Support Services...........            $7.0  ..............
----------------------------------------------------------------------------------------------------------------
                                  Sector 62--Health Care and Social Assistance
----------------------------------------------------------------------------------------------------------------
                                 Subsector 621--Ambulatory Health Care Services
----------------------------------------------------------------------------------------------------------------
621111.................................  Offices of Physicians (except Mental              $10.0  ..............
                                          Health Specialists).
621112.................................  Offices of Physicians, Mental Health              $10.0  ..............
                                          Specialists.
621210.................................  Offices of Dentists....................            $7.0  ..............
621310.................................  Offices of Chiropractors...............            $7.0  ..............
621320.................................  Offices of Optometrists................            $7.0  ..............
621330.................................  Offices of Mental Health Practitioners             $7.0  ..............
                                          (except Physicians).
621340.................................  Offices of Physical, Occupational and              $7.0  ..............
                                          Speech Therapists and Audiologists.
621391.................................  Offices of Podiatrists.................            $7.0  ..............
621399.................................  Offices of All Other Miscellaneous                 $7.0  ..............
                                          Health Practitioners.
621410.................................  Family Planning Centers................           $10.0  ..............
621420.................................  Outpatient Mental Health and Substance            $10.0  ..............
                                          Abuse Centers.
621491.................................  HMO Medical Centers....................           $10.0  ..............
621492.................................  Kidney Dialysis Centers................           $34.5  ..............
621493.................................  Freestanding Ambulatory Surgical and              $10.0  ..............
                                          Emergency Centers.
621498.................................  All Other Outpatient Care Centers......           $10.0  ..............
621511.................................  Medical Laboratories...................           $13.5  ..............

[[Page 359]]

 
621512.................................  Diagnostic Imaging Centers.............           $13.5  ..............
621610.................................  Home Health Care Services..............           $13.5  ..............
621910.................................  Ambulance Services.....................            $7.0  ..............
621991.................................  Blood and Organ Banks..................           $10.0  ..............
621999.................................  All Other Miscellaneous Ambulatory                $10.0  ..............
                                          Health Care Services.
----------------------------------------------------------------------------------------------------------------
                                            Subsector 622--Hospitals
----------------------------------------------------------------------------------------------------------------
622110.................................  General Medical and Surgical Hospitals.           $34.5  ..............
622210.................................  Psychiatric and Substance Abuse                   $34.5  ..............
                                          Hospitals.
622310.................................  Specialty (except Psychiatric and                 $34.5  ..............
                                          Substance Abuse) Hospitals.
----------------------------------------------------------------------------------------------------------------
                             Subsector 623--Nursing and Residential Care Facilities
----------------------------------------------------------------------------------------------------------------
623110.................................  Nursing Care Facilities................           $13.5  ..............
623210.................................  Residential Mental Retardation                    $10.0  ..............
                                          Facilities.
623220.................................  Residential Mental Health and Substance            $7.0  ..............
                                          Abuse Facilities.
623311.................................  Continuing Care Retirement Communities.           $13.5  ..............
623312.................................  Homes for the Elderly..................            $7.0  ..............
623990.................................  Other Residential Care Facilities......            $7.0  ..............
----------------------------------------------------------------------------------------------------------------
                                        Subsector 624--Social Assistance
----------------------------------------------------------------------------------------------------------------
624110.................................  Child and Youth Services...............            $7.0  ..............
624120.................................  Services for the Elderly and Persons               $7.0  ..............
                                          with Disabilities.
624190.................................  Other Individual and Family Services...            $7.0  ..............
624210.................................  Community Food Services................            $7.0  ..............
624221.................................  Temporary Shelters.....................            $7.0  ..............
624229.................................  Other Community Housing Services.......            $7.0  ..............
624230.................................  Emergency and Other Relief Services....            $7.0  ..............
624310.................................  Vocational Rehabilitation Services.....            $7.0  ..............
624410.................................  Child Day Care Services................            $7.0  ..............
----------------------------------------------------------------------------------------------------------------
                                  Sector 71--Arts, Entertainment and Recreation
----------------------------------------------------------------------------------------------------------------
                     Subsector 711--Performing Arts, Spectator Sports and Related Industries
----------------------------------------------------------------------------------------------------------------
711110.................................  Theater Companies and Dinner Theaters..            $7.0  ..............
711120.................................  Dance Companies........................            $7.0  ..............
711130.................................  Musical Groups and Artists.............            $7.0  ..............
711190.................................  Other Performing Arts Companies........            $7.0  ..............
711211.................................  Sports Teams and Clubs.................            $7.0  ..............
711212.................................  Race Tracks............................            $7.0  ..............
711219.................................  Other Spectator Sports.................            $7.0  ..............
711310.................................  Promoters of Performing Arts, Sports               $7.0  ..............
                                          and Similar Events with Facilities.
711320.................................  Promoters of Performing Arts, Sports               $7.0  ..............
                                          and Similar Events without Facilities.
711410.................................  Agents and Managers for Artists,                   $7.0  ..............
                                          Athletes, Entertainers and Other
                                          Public Figures.
711510.................................  Independent Artists, Writers, and                  $7.0  ..............
                                          Performers.
----------------------------------------------------------------------------------------------------------------
                        Subsector 712--Museums, Historical Sites and Similar Institutions
----------------------------------------------------------------------------------------------------------------
712110.................................  Museums................................            $7.0  ..............
712120.................................  Historical Sites.......................            $7.0  ..............
712130.................................  Zoos and Botanical Gardens.............            $7.0  ..............
712190.................................  Nature Parks and Other Similar                     $7.0  ..............
                                          Institutions.
----------------------------------------------------------------------------------------------------------------
                          Subsector 713--Amusement, Gambling and Recreation Industries
----------------------------------------------------------------------------------------------------------------
713110.................................  Amusement and Theme Parks..............            $7.0  ..............
713120.................................  Amusement Arcades......................            $7.0  ..............
713210.................................  Casinos (except Casino Hotels).........            $7.0  ..............
713290.................................  Other Gambling Industries..............            $7.0  ..............
713910.................................  Golf Courses and Country Clubs.........            $7.0  ..............
713920.................................  Skiing Facilities......................            $7.0  ..............
713930.................................  Marinas................................            $7.0  ..............
713940.................................  Fitness and Recreational Sports Centers            $7.0  ..............
713950.................................  Bowling Centers........................            $7.0  ..............
713990.................................  All Other Amusement and Recreation                 $7.0  ..............
                                          Industries.
----------------------------------------------------------------------------------------------------------------

[[Page 360]]

 
                                   Sector 72--Accommodation and Food Services
----------------------------------------------------------------------------------------------------------------
                                          Subsector 721--Accommodation
----------------------------------------------------------------------------------------------------------------
721110.................................  Hotels (except Casino Hotels) and                  $7.0  ..............
                                          Motels.
721120.................................  Casino Hotels..........................            $7.0  ..............
721191.................................  Bed and Breakfast Inns.................            $7.0  ..............
721199.................................  All Other Traveler Accommodation.......            $7.0  ..............
721211.................................  RV (Recreational Vehicle) Parks and                $7.0  ..............
                                          Campgrounds.
721214.................................  Recreational and Vacation Camps (except            $7.0  ..............
                                          Campgrounds).
721310.................................  Rooming and Boarding Houses............            $7.0  ..............
----------------------------------------------------------------------------------------------------------------
                                Subsector 722--Food Services and Drinking Places
----------------------------------------------------------------------------------------------------------------
722110.................................  Full-Service Restaurants...............            $7.0  ..............
722211.................................  Limited-Service Restaurants............            $7.0  ..............
722212.................................  Cafeterias, Grill Buffets, and Buffets.            $7.0  ..............
722213.................................  Snack and Nonalcoholic Beverage Bars...            $7.0  ..............
722310.................................  Food Service Contractors...............           $20.5  ..............
722320.................................  Caterers...............................            $7.0  ..............
722330.................................  Mobile Food Services...................            $7.0  ..............
722410.................................  Drinking Places (Alcoholic Beverages)..            $7.0  ..............
----------------------------------------------------------------------------------------------------------------
                            Sector 81--Other Services (Except Public Administration)
----------------------------------------------------------------------------------------------------------------
                                      Subsector 811--Repair and Maintenance
----------------------------------------------------------------------------------------------------------------
811111.................................  General Automotive Repair..............            $7.0  ..............
811112.................................  Automotive Exhaust System Repair.......            $7.0  ..............
811113.................................  Automotive Transmission Repair.........            $7.0  ..............
811118.................................  Other Automotive Mechanical and                    $7.0  ..............
                                          Electrical Repair and Maintenance.
811121.................................  Automotive Body, Paint and Interior                $7.0  ..............
                                          Repair and Maintenance.
811122.................................  Automotive Glass Replacement Shops.....            $7.0  ..............
811191.................................  Automotive Oil Change and Lubrication              $7.0  ..............
                                          Shops.
811192.................................  Car Washes.............................            $7.0  ..............
811198.................................  All Other Automotive Repair and                    $7.0  ..............
                                          Maintenance.
811211.................................  Consumer Electronics Repair and                    $7.0  ..............
                                          Maintenance.
811212.................................  Computer and Office Machine Repair and            $25.0  ..............
                                          Maintenance.
811213.................................  Communication Equipment Repair and                 $7.0  ..............
                                          Maintenance.
811219.................................  Other Electronic and Precision                     $7.0  ..............
                                          Equipment Repair and Maintenance.
811310.................................  Commercial and Industrial Machinery and            $7.0  ..............
                                          Equipment (except Automotive and
                                          Electronic) Repair and Maintenance.
811411.................................  Home and Garden Equipment Repair and               $7.0  ..............
                                          Maintenance.
811412.................................  Appliance Repair and Maintenance.......            $7.0  ..............
811420.................................  Reupholstery and Furniture Repair......            $7.0  ..............
811430.................................  Footwear and Leather Goods Repair......            $7.0  ..............
811490.................................  Other Personal and Household Goods                 $7.0  ..............
                                          Repair and Maintenance.
----------------------------------------------------------------------------------------------------------------
                                  Subsector 812--Personal and Laundry Services
----------------------------------------------------------------------------------------------------------------
812111.................................  Barber Shops...........................            $7.0  ..............
812112.................................  Beauty Salons..........................            $7.0  ..............
812113.................................  Nail Salons............................            $7.0  ..............
812191.................................  Diet and Weight Reducing Centers.......            $7.0  ..............
812199.................................  Other Personal Care Services...........            $7.0  ..............
812210.................................  Funeral Homes and Funeral Services.....            $7.0  ..............
812220.................................  Cemeteries and Crematories.............            $7.0  ..............
812310.................................  Coin-Operated Laundries and Drycleaners            $7.0  ..............
812320.................................  Drycleaning and Laundry Services                   $4.5  ..............
                                          (except Coin-Operated).
812331.................................  Linen Supply...........................           $14.0  ..............
812332.................................  Industrial Launderers..................           $14.0  ..............
812910.................................  Pet Care (except Veterinary) Services..            $7.0  ..............
812921.................................  Photo Finishing Laboratories (except               $7.0  ..............
                                          One-Hour).
812922.................................  One-Hour Photo Finishing...............            $7.0  ..............
812930.................................  Parking Lots and Garages...............            $7.0  ..............
812990.................................  All Other Personal Services............            $7.0  ..............
----------------------------------------------------------------------------------------------------------------
              Subsector 813--Religious, Grantmaking, Civic, Professional and Similar Organizations
----------------------------------------------------------------------------------------------------------------
813110.................................  Religious Organizations................            $7.0  ..............
813211.................................  Grantmaking Foundations................            $7.0  ..............

[[Page 361]]

 
813212.................................  Voluntary Health Organizations.........            $7.0  ..............
813219.................................  Other Grantmaking and Giving Services..            $7.0  ..............
813311.................................  Human Rights Organizations.............            $7.0  ..............
813312.................................  Environment, Conservation and Wildlife             $7.0  ..............
                                          Organizations.
813319.................................  Other Social Advocacy Organizations....            $7.0  ..............
813410.................................  Civic and Social Organizations.........            $7.0  ..............
813910.................................  Business Associations..................            $7.0  ..............
813920.................................  Professional Organizations.............            $7.0  ..............
813930.................................  Labor Unions and Similar Labor                     $7.0  ..............
                                          Organizations.
813940.................................  Political Organizations................            $7.0  ..............
813990.................................  Other Similar Organizations (except                $7.0  ..............
                                          Business, Professional, Labor, and
                                          Political Organizations).
----------------------------------------------------------------------------------------------------------------
                              Sector 92--Public Administration \19\
----------------------------------------------------------------------------------------------------------------
 (Small business size standards are not established for this sector. Establishments in the Public Administration
  sector are Federal, state, and local government agencies which administer and oversee government programs and
                          activities that are not performed by private establishments.)
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------

                                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) of the Internal Revenue Code, 
26 U.S.C. 3306(k).
    4. NAICS code 324110--For purposes of Government procurement, the 
petroleum refiner must be a concern that has no more than 1,500 
employees nor more than 125,000 barrels per calendar day total Operable 
Atmospheric Crude Oil Distillation capacity. 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.

[[Page 362]]

    9. NAICS code 531190--Leasing of building space to the Federal 
Government by Owners: For Government procurement, a size standard of 
$20.5 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, 561520, 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 revenues.
    11. NAICS codes 541711 and 541712--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 Support Services:
    (a) If one or more activities of Facilities Support Services as 
defined in paragraph (b) (below in this footnote) can be identified with 
a specific industry and that industry accounts for 50% or more of the 
value of an entire procurement, then the proper classification of the 
procurement is that of the specific industry, not Facilities Support 
Services.
    (b) ``Facilities Support Services'' requires the performance of 
three or more separate activities in the areas of services or specialty 
trade contractors industries. If services are performed, these service 
activities must each be in a separate NAICS industry. If the procurement 
requires the use of specialty trade contractors (plumbing, painting, 
plastering, carpentry, etc.), all such specialty trade contractors 
activities are considered a single activity and classified as ``Building 
and Property Specialty Trade Services.'' Since ``Building and Property 
Specialty Trade Services'' is only one activity, two additional 
activities of separate NAICS industries are required for a procurement 
to be classified as ``Facilities Support Services.''
    13. NAICS code 238990--Building and Property Specialty Trade 
Services: If a procurement requires the use of multiple specialty trade 
contractors (i.e., plumbing, painting, plastering, carpentry, etc.), and 
no specialty trade accounts for 50% or more of the value of the 
procurement, all such specialty trade contractors activities are 
considered a single activity and classified as Building and Property 
Specialty Trade Services.
    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 or directly support the restoration of a 
contaminated environment (such as, preliminary assessment, site 
inspection, testing, remedial investigation, feasibility studies, 
remedial design, remediation services, containment, removal of 
contaminated materials, storage of contaminated materials or security 
and site closeouts), although the general purpose of the procurement 
need not necessarily include remedial actions. 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; Specialty Trade 
Contractors; Engineering Services; Architectural Services; Management 
Consulting Services; Hazardous and Other Waste Collection; Remediation 
Services, Testing Laboratories; and Research and Development in the 
Physical, Engineering and Life Sciences. 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.

[[Page 363]]

    15. Subsector 483--Water Transportation--Offshore Marine Services: 
The applicable size standard shall be $28.0 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.
    16. NAICS codes 611519--Job Corps Centers. For classifying a Federal 
procurement, the purpose of the solicitation must be for the management 
and operation of a U.S. Department of Labor Job Corps Center. The 
activities involved include admissions activities, life skills training, 
educational activities, comprehensive career preparation activities, 
career development activities, career transition activities, as well as 
the management and support functions and services needed to operate and 
maintain the facility. For SBA assistance as a small business concern, 
other than for Federal Government procurements, a concern must be 
primarily engaged in providing the services to operate and maintain 
Federal Job Corps Centers.
    17. NAICS code 115310 (Support Activities for Forestry)--Forest Fire 
Suppression and Fuels Management Services are two components of Support 
Activities for Forestry. Forest Fire Suppression includes establishments 
which provide services to fight forest fires. These firms usually have 
fire-fighting crews and equipment. Fuels Management Services firms 
provide services to clear land of hazardous materials that would fuel 
forest fires. The treatments used by these firms may include prescribed 
fire, mechanical removal, establishing fuel breaks, thinning, pruning, 
and piling.
    18. NAICS code 541519--An Information Technology Value Added 
Reseller provides a total solution to information technology 
acquisitions by providing multi-vendor hardware and software along with 
significant services. Significant value added services consist of, but 
are not limited to, configuration consulting and design, systems 
integration, installation of multi-vendor computer equipment, 
customization of hardware or software, training, product technical 
support, maintenance, and end user support. For purposes of Government 
procurement, an information technology procurement classified under this 
industry category must consist of at least 15% and not more than 50% of 
value added services as measured by the total price less the cost of 
information technology hardware, computer software, and profit. If the 
contract consists of less than 15% of value added services, then it must 
be classified under a NAICS manufacturing industry. If the contract 
consists of more than 50% of value added services, then it must be 
classified under the NAICS industry that best describes the predominate 
service of the procurement. To qualify as an Information Technology 
Value Added Reseller for purposes of SBA assistance, other than for 
Government procurement, a concern must be primarily engaged in providing 
information technology equipment and computer software and provide value 
added services which account for at least 15% of its receipts but not 
more than 50% of its receipts.
    19. NAICS Sector 92--Small business size standards are not 
established for this sector. Establishments in the Public Administration 
sector are Federal, State, and local government agencies which 
administer and oversee government programs and activities that are not 
performed by private establishments. Concerns performing operational 
services for the administration of a government program are classified 
under the NAICS private sector industry based on the activities 
performed. Similarly, procurements for these types of services are 
classified under the NAICS private sector industry that best describes 
the activities to be performed. For example, if a government agency 
issues a procurement for law enforcement services, the requirement would 
be classified using one of the NAICS industry codes under 56161, 
Investigation, Guard, and Armored Car Services.

[65 FR 30840, May 15, 2000]

    Editorial Note 1: For Federal Register citations affecting Sec. 
121.201, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.

    Editorial Note 2: At 73 FR 12870, Mar. 11, 2008, Sec. 121.201 was 
amended; however, several amendments could not be incorporated due to 
inaccurate amendatory instruction.

       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 business concern must satisfy two 
criteria:
    (1) The size of the applicant alone (without affiliates) must not 
exceed the size standard designated for the industry in which the 
applicant is primarily engaged; and
    (2) The size of the applicant combined with its affiliates must not 
exceed the size standard designated for either the primary industry of 
the applicant alone or the primary industry of the applicant and its 
affiliates, which ever is higher. These size standards are set forth in 
Sec. 121.201.

[[Page 364]]

    (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 
$8.5 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 $3.0 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:
    (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, together with its 
affiliates, its average annual receipts do not exceed $7.0 million, 
except as provided in Sec. 121.301(d)(3).
    (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.
    (3) For any contract or subcontract, public or private, to be 
performed in the Presidentially-declared disaster areas resulting from 
the 2005 Hurricanes Katrina, Rita or Wilma, a construction (general or 
special trade) concern or concern performing a contract for services is 
small if, together with its affiliates, it meets the size standard for 
the primary industry in which it, together with its affiliates, is 
engaged, or if it meets the size standard set forth in paragraph (d)(1), 
whichever is higher.
    (e) The applicable size standards for purposes of SBA's financial 
assistance programs, excluding the Surety Bond Guarantee assistance 
program, are increased by 25% whenever the applicant agrees to use all 
of the financial assistance within a labor surplus area. Labor surplus 
areas are listed monthly in the Department of Labor publication ``Area 
Trends in Employment and Unemployment.''

[61 FR 3286, Jan. 31, 1996, as amended at 66 FR 30648, June 7, 2001; 67 
FR 3056, Jan. 23, 2002; 69 FR 29204, May 21, 2004; 70 FR 69047, 69052, 
Nov. 14, 2005; 70 FR 72594, Dec. 6, 2005; 71 FR 62208, Oct. 24, 2006; 73 
FR 41254, July 18, 2008]



Sec. 121.302  When does SBA determine the size status of an applicant?

    (a) The size status of an applicant for SBA financial assistance is 
determined as of the date the application for financial assistance is 
accepted for processing by SBA, except for applications under the 
Preferred Lenders Program (PLP), the Disaster Loan program, the

[[Page 365]]

SBIC program, and the New Markets Venture Capital (NMCV) program.
    (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 economic injury disaster 
loan assistance under disaster declarations for Hurricanes Katrina, 
Rita, and Wilma, size status is determined as of the date SBA accepts 
the application for processing, and for applications submitted before 
December 6, 2005, whether denied because of size status or pending, such 
applications shall be deemed resubmitted on December 6, 2005. 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 Mitigation 
Small Business Loan Application.
    (d) For financial assistance from an SBIC licensee or an NMVC 
company, size is determined as of the date a concern's application is 
accepted for processing by the SBIC or the NMVC company.
    (e) Changes in size after 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; 69 FR 29204, May 21, 
2004; 70 FR 72594, Dec. 6, 2005; 73 FR 41254, July 18, 2008]



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.

[[Page 366]]



Sec. 121.305  What size eligibility requirements exist for obtaining 
financial assistance 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 rules set forth in Sec. Sec. 121.401 through 121.413 apply to 
all Federal procurement programs for which status as a small business is 
required or advantageous, including the small business set-aside 
program, SBA's Certificate of Competency program, SBA's 8(a) Business 
Development program, SBA's HUBZone program, the Women-Owned Small 
Business (WOSB) Federal Contract Assistance Procedures, SBA's Service-
Disabled Veteran-Owned Small Business program, the Small Business 
Subcontracting program, and the Federal Small Disadvantaged Business 
(SDB) program.

[70 FR 56814, Sept. 29, 2005, as amended at 73 FR 56947, Oct. 1, 2008]



Sec. 121.402  What size standards are applicable to Federal Government 
Contracting programs?

    (a) A concern must not exceed the size standard for the NAICS code 
specified in the solicitation. The contracting officer must specify the 
size standard in effect on the date the solicitation is issued. If SBA 
amends the size standard and it becomes effective before the date 
initial offers (including price) are due, the contracting officer may 
amend the solicitation and use the new size standard.
    (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. Procurements for supplies must be 
classified under the appropriate manufacturing NAICS code, not under the 
wholesale trade NAICS code.
    (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; 69 
FR 29205, May 21, 2004]



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]

[[Page 367]]



Sec. 121.404  When does SBA determine the size status of a business 
concern?

    (a) 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 activity as part of its 
initial offer (or other formal response to a solicitation) which 
includes price. Where an agency modifies a solicitation so that initial 
offers are no longer responsive to the solicitation, a concern must 
recertify that it is a small business at the time it submits a 
responsive offer, which includes price, to the modified solicitation.
    (b) A concern applying to be certified as a Participant in SBA's 
8(a) Business Development program (under part 124, subpart A, of this 
chapter), as a small disadvantaged business (under part 124, subpart B, 
of this chapter), or as a HUBZone small business (under part 126 of this 
chapter) must qualify as a small business for its primary industry 
classification as of the date of its application and the date of 
certification by SBA.
    (c) 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.
    (d) 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(h)(4) is determined as of the date of 
the final proposal revision for negotiated acquisitions and final bid 
for sealed bidding.
    (e) For subcontracting purposes, a concern must qualify as small as 
of the date that it certifies that it is small for the subcontract. The 
applicable size standard is that which is set forth in Sec. 121.410 and 
which is in effect at the time the concern self-certifies that it is 
small for the subcontract.
    (f) For purposes of two-step sealed bidding under subpart 14.5 of 
the FAR, 48 CFR, a concern must qualify as small as of the date that it 
certifies that it is small as part of its step one proposal.
    (g) A concern that qualified as a small business at the time it 
receives a contract is considered a small business throughout the life 
of that contract. Where a concern grows to be other than small, the 
procuring agency may exercise options and still count the award as an 
award to a small business. However, the following exceptions apply:
    (1) Within 30 days of an approved contract novation, a contractor 
must recertify its small business size status to the procuring agency, 
or inform the procuring agency that it is other than small. If the 
contractor is other than small, the agency can no longer count the 
options or orders issued pursuant to the contract, from that point 
forward, towards its small business goals.
    (2) In the case of a merger or acquisition, where contract novation 
is not required, the contractor must, within 30 days of the transaction 
becoming final, recertify its small business size status to the 
procuring agency, or inform the procuring agency that it is other than 
small. If the contractor is other than small, the agency can no longer 
count the options or orders issued pursuant to the contract, from that 
point forward, towards its small business goals. The agency and the 
contractor must immediately revise all applicable Federal contract 
databases to reflect the new size status.
    (3) For the purposes of contracts with durations of more than five 
years (including options), including Multiple Award Schedule (MAS) 
Contracts, Multiple Agency Contracts (MACs) and Government-wide 
Acquisition Contracts (GWACs), a contracting officer must request that a 
business concern re-certify its small business size status no more than 
120 days prior to the end of the fifth year of the contract, and no more 
than 120 days prior to exercising any option thereafter. If the 
contractor certifies that it is other than small, the agency can no 
longer count the options or orders issued pursuant to the contract 
towards its small business prime contracting goals. The agency and the 
contractor must immediately revise all applicable Federal contract 
databases to reflect the new size status.
    (i) A business concern that certified itself as other than small, 
either initially or prior to an option being exercised, may recertify 
itself as small for

[[Page 368]]

a subsequent option period if it meets the applicable size standard.
    (ii) Re-certification does not change the terms and conditions of 
the contract. The limitations on subcontracting, non-manufacturer and 
subcontracting plan requirements in effect at the time of contract award 
remain in effect throughout the life of the contract.
    (iii) A request for a size re-certification shall include the size 
standard in effect at the time of re-certification that corresponds to 
the NAICS code that that was initially assigned to the contract.
    (iv) A contracting officer must assign a NAICS code and size 
standard to each order under a long-term contract. The NAICS code and 
size standard assigned to an order must correspond to a NAICS code and 
size standard assigned to the underlying long-term contract. A concern 
will be considered small for that order only if it certified itself as 
small under the same or lower size standard.
    (v) Where the contracting officer explicitly requires concerns to 
recertify their size status in response to a solicitation for an order, 
SBA will determine size as of the date the concern submits its self-
representation as part of its response to the solicitation for the 
order.
    (vi) A Blanket Purchase Agreement (BPA) is not a contract. Goods and 
services are acquired under a BPA when an order is issued. Thus, a 
concern's size may not be determined based on its size at the time of a 
response to a solicitation for a BPA.
    (h) A follow-on or renewal contract is a new contracting action. As 
such, size is determined 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 for the follow-on or renewal contract.

[69 FR 29205, May 21, 2004, as amended at 71 FR 19813, Apr. 18, 2006; 71 
FR 66443, Nov. 15, 2006]



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 Sec. Sec. 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 8(a) contracts?

    (a) General. In order to qualify as a small business concern for a 
small business set-aside or 8(a) contract to 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 retail or wholesale trade and 
normally sells the type of item being supplied; 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

[[Page 369]]

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. 
Firms that add substances, parts, or components to an existing end item 
to modify its performance will not be considered the end item 
manufacturer where those identical modifications can be performed by and 
are available from the manufacturer of the existing end item:
    (i) SBA will evaluate the following factors in determining whether a 
concern is the manufacturer of the end item:
    (A) 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;
    (B) The importance of the elements added by the concern to the 
function of the end item, regardless of their relative value; and
    (C) The concern's technical capabilities; plant, facilities and 
equipment; production or assembly line processes; packaging and boxing 
operations; labeling of products; and product warranties.
    (ii) Firms that provide computer and other information technology 
equipment primarily consisting of component parts (such as motherboards, 
video cards, network cards, memory, power supplies, storage devices, and 
similar items) who install components totaling less than 50% of the 
value of the end item are generally not considered the manufacturer of 
the end item.
    (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 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.
    (e) These requirements do not apply to small business concern 
subcontractors.

[61 FR 3286, Jan. 31, 1996; 61 FR 7986, Mar. 1, 1996, as amended at 65 
FR 30863, May 15, 2000; 69 FR 29205, May 21, 2004]

[[Page 370]]



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 sections 8(d) of the Small 
Business Act, a concern is small for subcontracts which relate to 
Government procurements if it does not exceed the size standard for the 
NAICS code that the prime contractor believes best describes the product 
or service being acquired by the subcontract. 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 541213.

[61 FR 3286, Jan. 31, 1996, as amended at 65 FR 30863, May 15, 2000; 69 
FR 29205, May 21, 2004]



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 the 
Central Contractor Registration (CCR), 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 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.

[61 FR 3286, Jan. 31, 1996, as amended at 69 FR 29205, May 21, 2004]

[[Page 371]]



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  [Reserved]

 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 $7.0 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; 70 
FR 72594, Dec. 6, 2005; 73 FR 41254, July 18, 2008]



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 Sec. Sec. 121.1001 through 121.1009.



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

[[Page 372]]

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 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.

[[Page 373]]



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 
$57.5 million.

[61 FR 3286, Jan. 31, 1996, as amended at 67 FR 3056, Jan. 23, 2002; 70 
FR 72594, Dec. 6, 2005; 73 FR 41254, July 18, 2008]

 Size Eligibility Requirements for the 8(a) Business Development Program



Sec. 121.601  What is a small business for purposes of admission to 
SBA's 8(a) Business Development program?

    An applicant must not exceed the size standard corresponding to its 
primary industry classification in order to qualify for admission to 
SBA's 8(a) Business Development Program.

[69 FR 29205, May 21, 2004]



Sec. 121.602  At what point in time must a 8(a) BD applicant be small?

    A 8(a) BD applicant must be small for its primary industry at the 
time SBA certifies it for admission into the program.

[61 FR 3286, Jan. 31, 1996, as amended at 69 FR 29206, May 21, 2004]



Sec. 121.603  How does SBA determine whether a Participant is small 
for a particular 8(a) BD subcontract?

    (a) Self certification by Participant. A 8(a) BD Participant must 
certify that it qualifies as a small business under the NAICS code 
assigned to a particular 8(a) BD 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, 8(a) BD procurements.
    (b) Verification of size by SBA. Within 30 days of its receipt of a 
Participant's size self-certification for a particular 8(a) BD 
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 
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.

[[Page 374]]

    (d) Finding Participant to be other than small. (1) A Participant 
may request a formal size determination (pursuant to Sec. Sec. 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 8(a) 
BD 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 8(a) BD 
program, as appropriate.

[61 FR 3286, Jan. 31, 1996, as amended at 65 FR 30863, May 15, 2000; 69 
FR 29206, May 21, 2004]



Sec. 121.604  Are 8(a) BD Participants considered small for purposes 
of other SBA assistance?

    A concern which SBA determines to be a small business for the award 
of a 8(a) BD 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 8(a) BD 
subcontract in question.

[61 FR 3286, Jan. 31, 1996, as amended at 69 FR 29206, May 21, 2004]

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 for award of funding agreements in the SBA's Small 
Business Innovation Research (SBIR) program, a business concern must 
meet the requirements of paragraphs (a) and (b) below:
    (a) Ownership and control. (1) An SBIR awardee must (i) be a concern 
which is at least 51% owned and controlled by one or more individuals 
who are citizens of the United States, or permanent resident aliens in 
the United States; or
    (ii) Be a concern which is at least 51% owned and controlled by 
another business concern that is itself at least 51% owned and 
controlled by individuals who are citizens of, or permanent resident 
aliens in the United States; or
    (iii) Be a joint venture in which each entity to the venture must 
meet the requirements set forth in either paragraphs (a)(1)(i) or 
(a)(1)(ii) of this section.
    (2) If an Employee Stock Ownership Plan owns all or part of the 
concern, SBA considers each stock trustee and plan member to be an 
owner.
    (3) If a trust owns all or part of the concern, SBA considers each 
trustee and trust beneficiary to be an owner.
    (b) Size. An SBIR awardee, together with its affiliates, not have 
more than 500 employees.

[69 FR 70185, Dec. 3, 2004, as amended at 71 FR 69183, Nov. 30, 2006]



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

[[Page 375]]

SBA opinions provided to funding 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 or on the date of the request for 
a size determination, if an award is pending.

[69 FR 29206, May 21, 2004]



Sec. 121.705  Must a business concern self-certify its size status?

    (a) A firm must self-certify that it currently meets the eligibility 
requirements set forth in Sec. 121.702 of this title or will meet those 
eligibility requirements on the date of award of a funding agreement for 
a Phase I or Phase II SBIR award.
    (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 Sec. Sec. 121.1001 through 121.1009.

[61 FR 3286, Jan. 31, 1996, as amended at 69 FR 29206, May 21, 2004]

      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.

[[Page 376]]

  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.



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 Division Chief, 
office of 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 Division Chief, Office of 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]

[[Page 377]]



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]

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, or any instance in which 
a procurement or order has been restricted to or reserved for small 
business or a particular group of small business, the following entities 
may file a size protest in connection with a particular procurement, 
sale or order:
    (i) Any offeror whom the contracting officer has not eliminated for 
reasons unrelated to size;
    (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 Director, Office of 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 whom the contracting officer has not eliminated for 
reasons unrelated to size;
    (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 Director, office of 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 
Director, Office of 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 Division Chief, Office of 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 whom the 
contracting officer has not eliminated for reasons unrelated to size;
    (ii) The contracting officer; and
    (iii) The responsible SBA Area Director for Government Contracting, 
the SBA Director, Office of Government Contracting, or the SBA Director, 
Office of Business Development;
    (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 procurement that the contracting officer has not eliminated for 
reasons unrelated to size;
    (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 SBA Director, Office of HUBZone, or designee.

[[Page 378]]

    (7) For any unrestricted Government procurement in which a business 
concern has represented itself as a small business concern, 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 
Director, Office of Government Contracting, or the Director, Office of 
Business Development.
    (8) For SBA's Service Disabled Veteran-Owned Small Business Concern 
program, the following entities may protest in connection with a 
particular service-disabled veteran-owned procurement:
    (i) Any concern that submits an offer for a specific service-
disabled veteran-owned small business set-aside contract;
    (ii) The contracting officer;
    (iii) The SBA Government Contracting Area Director; and
    (iv) The Director, Office of Government Contracting, or designee.
    (9) For SBA's WOSB Federal Contracting Assistance Procedures, the 
following entities may protest:
    (i) Any concern that submits an offer for a specific requirement set 
aside for WOSBs or WOSBs owned by one or more women who are economically 
disadvantaged (EDWOSB) pursuant to part 127;
    (ii) The contracting officer;
    (iii) The SBA Government Contracting Area Director; and
    (iv) The Director for Government Contracting, or designee.
    (b) Request for Size Determinations. (1) For SBA's Financial 
Assistance Programs, the following entities may request a formal size 
determination:
    (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.
    (iii) The SBA Associate Administrator for Investment or designee may 
request a formal size determination for any purpose relating to the SBIC 
program (see part 107 of this chapter) or the NMVC program (see part 108 
of this chapter). A formal size determination includes a request to 
determine whether or not affiliation exists between two or more entities 
for any purpose relating to the SBIC program.
    (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 Director, Office of Business 
Development.
    (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, where applicable, the procuring activity contracting 
officer who has been delegated SBA's 8(a) contract execution functions; 
or
    (C) The SBA District Director in the district office that services 
the Participant, or the Director, Office of Business Development.
    (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 
Director, Office of 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 
Director, Office of Government Contracting; and

[[Page 379]]

    (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.
    (7) In connection with initial or continued eligibility for the 
Small Disadvantaged Business (SDB) program, the following may request a 
formal size determination:
    (i) The applicant or SDB concern; or
    (ii) The Assistant Administrator of the Division of Program 
Certification and Eligibility or the Director, Office of Business 
Development.
    (8) In connection with initial or continued eligibility for the 
HUBZone program, the following may request a formal size determination:
    (i) The applicant or qualified HUBZone business concern; or
    (ii) The Director, Office of HUBZone, or designee.
    (9) For purposes of validating that firms listed in the Central 
Contractor Registration database are small, the Government Contracting 
Area Director or the Director, Office of Government Contracting may 
initiate a formal size determination when sufficient information exists 
that calls into question a firm's small business status. The current 
date will be used to determine size, and SBA will initiate the process 
to remove from the database the small business designation of any firm 
found to be other than small.

[61 FR 3286, Jan. 31, 1996, as amended at 63 FR 31907, June 11, 1998; 63 
FR 35739, June 30, 1998; 69 FR 25266, May 5, 2004; 69 FR 29206, May 21, 
2004; 69 FR 29420, May 24, 2004; 69 FR 44461, July 26, 2004; 73 FR 
56947, Oct. 1, 2008]



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, Sundays, and legal holidays, after the 
contracting officer has notified the protestor of the identity of the 
prospective awardee.
    (3) Long-term contracts. For contracts with durations greater than 
five years (including options), including all existing long-term 
contracts, Multiple Award Schedule (MAS) Contracts, Multiple Agency 
Contracts (MACs), and Government-wide Acquisition Contracts (GWACs):
    (i) Protests regarding size certifications made for contracts 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 
receipt of notice (including notice received in writing, orally, or via 
electronic posting) of the identity of the prospective awardee or award.

[[Page 380]]

    (ii) Protests regarding size certifications made for an option 
period 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 receipt of notice (including notice received in writing, 
orally, or via electronic posting) of the size certification made by the 
protested concern.
    (A) A contracting officer is not required to terminate a contract 
where a concern is found to be other than small pursuant to a size 
protest concerning a size certification made for an option period.
    (B) [Reserved]
    (iii) Protests relating to size certifications made in response to a 
contracting officer's request for size certifications in connection with 
an individual order 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 receipt of notice (including notice received 
in writing, orally, or via electronic posting) of the identity of the 
prospective awardee or award.
    (4) Electronic notification of award. Where notification of award is 
made electronically, such as posting on the Internet under Simplified 
Acquisition Procedures, a protest must be received by the contracting 
officer before close of business on the fifth day, exclusive of 
Saturdays, Sundays, and legal holidays, after the electronic posting.
    (5) No notice of award. Where there is no requirement for written 
pre-award notice or notice of award, or where the contracting officer 
has failed to provide written notification of award, the 5-day protest 
period will commence upon oral notification by the contracting officer 
or authorized representative or another means (such as public 
announcements or other oral communications) of the identity of the 
apparent successful offeror.
    (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. Notwithstanding 
paragraph (e), for purposes of the SBIR program the contracting officer 
and SBA may file a protest in anticipation of award.
    (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.

[61 FR 3286, Jan. 31, 1996, as amended at 69 FR 29206, May 21, 2004; 71 
FR 66444, Nov. 15, 2006]



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, facsimile, Federal Express or other overnight delivery 
service, e-mail, 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.

[61 FR 3286, Jan. 31, 1996, as amended at 69 FR 29206, May 21, 2004]



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;

[[Page 381]]

    (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. The following 
are examples of allegation specificity:

    Example 1: An allegation that concern X is large because it employs 
more than 500 employees (where 500 employees is the applicable size 
standard) without setting forth a basis for the allegation is non-
specific.
    Example 2: An allegation that concern X is large because it exceeds 
the 500 employee size standard (where 500 employees is the applicable 
size standard) because a higher employment figure was published in 
publication Y is sufficiently specific.
    Example 3: An allegation that concern X is affiliated with concern Y 
without setting forth any basis for the allegation is non-specific.
    Example 4: An allegation that concern X is affiliated with concern Y 
because Mr. A is the majority shareholder in both concerns is 
sufficiently specific.
    Example 5: An allegation that concern X has revenues in excess of $5 
million (where $5 million is the applicable size standard) without 
setting forth a basis for the allegation is non-specific.
    Example 6: An allegation that concern X exceeds the size standard 
(where the applicable size standard is $5 million) because it received 
Government contracts in excess of $5 million last year is sufficiently 
specific.

[61 FR 3286, Jan. 31, 1996, as amended at 69 FR 29206, May 21, 2004]



Sec. 121.1008  What occurs after SBA receives a size protest or 
request for a formal size determination?

    (a) When SBA receives a size protest, the SBA Area Director for 
Government Contracting, or designee, will notify the contracting 
officer, the protested concern, and the protestor that the protest has 
been received. If the protest pertains to a requirement involving SBA's 
HUBZone program, the Area Director will also notify the D/HUB of the 
protest. If the protest pertains to a requirement set aside for WOSBs or 
EDWOSBs, the Area Director will also notify SBA's Director for 
Government Contracting of the protest. If the protest pertains to a 
requirement involving SBA's SBIR Program, the Area Director will also 
notify the Division Chief, Office of Technology. If the protest involves 
the size status of a concern that SBA has certified as a small 
disadvantaged business (SDB) (see part 124, subpart B of this chapter) 
the Area Director will notify SBA's Director, Office of Business 
Development. If the protest pertains to a requirement that has been 
reserved for competition among eligible 8(a) BD program participants, 
the Area Director will notify the SBA district office servicing the 8(a) 
concern whose size status has been protested. SBA will provide a copy of 
the protest to the protested concern together with SBA Form 355, 
Application for Small Business Size Determination, by certified mail, 
return receipt requested, or by any overnight delivery service that 
provides proof of receipt. SBA will ask the protested concern to 
complete the form and respond to the allegations in the protest.
    (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

[[Page 382]]

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 whose size status is at issue fails to submit a 
completed SBA Form 355, responses to the allegations of the protest, or 
other requested information within the time allowed by SBA, or if it 
submits incomplete information, SBA may presume that disclosure of the 
information required by the form or other missing information would 
demonstrate that the concern is other than a small business. A concern 
whose size status is at issue must furnish information about its alleged 
affiliates to SBA, despite any third party claims of privacy or 
confidentiality, because SBA will not disclose information obtained in 
the course of a size determination except as permitted by Federal law.

[61 FR 3286, Jan. 31, 1996, as amended at 63 FR 31908, June 11, 1998; 69 
FR 29207, May 21, 2004; 73 FR 56948, Oct. 1, 2008]



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 the information supplied by the protestor or the entity 
requesting the size determination and that provided by the concern whose 
size status is at issue. The determination, however, may also be based 
on grounds not raised in the protest or request for size determination. 
SBA may use other information and may make requests for additional 
information to the protestor, the concern whose size status is at issue 
and any alleged affiliates, or other parties.
    (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) A contracting officer may award a contract based on SBA's formal 
size determination.
    (3) If the formal size determination is appealed to OHA, the OHA 
decision on appeal will apply to the pending procurement or sale if the 
decision is received before award. OHA decisions received after contract 
award will not apply to that procurement or sale, but will have future 
effect, unless the contracting officer agrees to apply the OHA decision 
to the procurement or sale.
    (4) 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.
    (5) A concern determined to be other than small under a particular 
size standard is ineligible for any procurement or any assistance 
authorized by the Small Business Act or the Small Business Investment 
Act of 1958 which requires the same or a lower size standard, unless SBA 
recertifies the concern to be small pursuant to Sec. 121.1010 or OHA 
reverses the adverse size determination. After an adverse size 
determination, a concern cannot self-certify

[[Page 383]]

as small under the same or lower size standard unless it is first 
recertified as small by SBA. If a concern 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 an application for SBA 
assistance, the concern must immediately inform the officials 
responsible for the pending procurement or 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; 69 
FR 29207, May 21, 2004]



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) Appeals from formal size determinations may be made to OHA. 
Unless an appeal is made to OHA, the size determination made by a SBA 
Government Contracting Area Office or Disaster Area Office is the final 
decision of the agency. The procedures for appealing a formal size 
determination to OHA 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.
    (b) OHA will not review a formal size determination where the 
contract has been awarded and the issue(s) raised in a petition for 
review are contract specific, such as compliance with the 
nonmanufacturer rule (see Sec. 121.406(b)), or joint venture or 
ostensible subcontractor rule (see Sec. 121.103(h)).

[69 FR 29207, May 21, 2004]



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 a NAICS code 
designation?

    (a) Any interested party adversely affected by a NAICS code 
designation may appeal the designation to OHA. The only exception is 
that, for a sole source contract reserved under SBA's 8(a) Business 
Development program

[[Page 384]]

(see part 124 of this chapter), only SBA's Director, Office of Business 
Development may appeal the NAICS code designation.
    (b) The contracting officer's determination of the applicable NAICS 
code is final unless appealed as follows:
    (1) An appeal from a contracting officer's NAICS code designation 
and applicable size standard must be served and filed within 10 calendar 
days after the issuance of the initial solicitation. OHA will summarily 
dismiss an untimely NAICS code appeal.
    (2)(i) The appeal petition must be in writing and must be sent to 
the Office of Hearings & Appeals, U.S. Small Business Administration, 
409 3rd Street, SW., Suite 5900, Washington, DC 20416.
    (ii) There is no required format for a NAICS code appeal, but an 
appeal must include the following information: the solicitation or 
contract number; the name, address, and telephone number of the 
contracting officer; a full and specific statement as to why the NAICS 
code designation is erroneous, and argument in support thereof; and the 
name, address and telephone number of the appellant or its attorney.
    (3) The appellant must serve the appeal petition upon the 
contracting officer who assigned the NAICS code to the acquisition and 
SBA's Office of General Counsel, Associate General Counsel for 
Procurement Law, 409 3rd Street, SW., Washington, DC 20416.
    (4) Upon receipt of a NAICS code appeal, OHA will notify the 
contracting officer by notice and order of the date OHA received the 
appeal, the docket number, and the Judge assigned to the case. The 
contracting officer's response to the appeal must include argument and 
supporting evidence (see part 134, subpart C, of this chapter) and must 
be received by OHA within 10 calendar days from the date of the 
docketing notice and order, unless otherwise specified by the Judge. 
Upon receipt of OHA's docketing notice and order, the contracting 
officer must immediately send to OHA a copy of the solicitation relating 
to the NAICS code appeal.
    (5) After close of the record, OHA will issue a decision and inform 
all interested parties, including the appellant and contracting officer. 
If OHA's decision is received by the contracting officer before the date 
offers are due, the solicitation must be amended if the contracting 
officer's designation of the NAICS code is reversed. If OHA's decision 
is received by the contracting officer after the due date of initial 
offers, the decision will not apply to the pending procurement, but will 
apply to future solicitations for the same products or services.

[69 FR 29207, May 21, 2004]



                  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

[[Page 385]]

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 Director, Office of 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 the Director, Office 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 Director, Office of 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

[[Page 386]]

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 Director, Office of 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 Director, Office 
of 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 
(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 Director, Office of 
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 Director, 
Office of 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 is maintained in SBA's Web site 
at www.sba.gov/GC/approved.html. A list of such waivers may also be 
obtained by contacting the Office of Government Contracting, U.S. Small 
Business Administration, 409 3rd Street, SW., Washington, DC 20416, or

[[Page 387]]

the nearest SBA Government Contracting Area Office.

[69 FR 29208, May 21, 2004]



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?
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

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 Under what circumstances is your business eligible to be 
          considered for a

[[Page 388]]

          Military Reservist Economic Injury Disaster Loan?
123.502 Under what circumstances is your business ineligible to be 
          considered for a Military Reservist Economic Injury Disaster 
          Loan?
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 $2 
          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?
123.513 Does SBA require collateral on its 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; and Pub. L. 110-186.

    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.



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. However, for purposes of economic 
injury disaster loans only, they do include droughts and below average 
water levels in the Great Lakes or on any body of water in the United 
States that supports commerce by small businesses. 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.

[61 FR 3304, Jan. 31, 1996, as amended at 71 FR 75409, Dec. 15, 2007]



Sec. 123.3  How are disaster declarations made?

    (a) There are five ways in which disaster declarations are issued 
which make SBA disaster loans possible:

[[Page 389]]

    (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 Disaster Assistance Field Operations Center serving the jurisdiction 
within 60 days of the date of the disaster. The addresses, phone 
numbers, and jurisdictions served by the field operations centers are 
published in the Federal Register.
    (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 five 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 
subdivision in which the disaster occurred, and must be delivered (with 
supporting documentation) to the Disaster Assistance Field Operations 
Center serving the jurisdiction within 120 days of the disaster 
occurrence. When a Governor certifies with respect to a drought or to 
below average water levels, the supporting documentation must include 
findings which show that conditions during the incident period meet or 
exceed the U.S. Drought Monitor (USDM) standard of ``severe'' (Intensity 
level D-2 to D-4). The USDM may be found at http://drought.unl.edu/dm/
monitor. With respect to below average water levels, the supplementary 
information accompanying the certification must include findings which 
establish long-term average water levels based on recorded historical 
data, show that current water levels are below long-term average levels, 
and demonstrate that economic injury has occurred as a direct result of 
the low water levels. Not later than 30 days after SBA receives a 
certification by a Governor, it shall respond in writing with its 
decision and its reasons.
    (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 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

[[Page 390]]

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; 71 FR 63676, Oct. 31, 2006; 71 FR 75409, Dec. 
15, 2006; 73 FR 54675, Sept. 23, 2008]



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 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

[[Page 391]]

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. However, 
for the purposes of the Military Reservist EIDL only, as described in 
section 123.513, SBA will not generally require that you pledge 
collateral to secure a loan of $50,000 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.

[61 FR 3304, Jan. 31, 1996, as amended at 73 FR 54675, Sept. 23, 2008]



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 392]]

    (c) Any request for reconsideration must be received by SBA's 
Disaster Assistance Processing and Disbursement Center (DAPDC) within 
six months of the date of the decline 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 Director, Disaster Assistance 
Processing and Disbursement Center. All appeals must be received by the 
processing center 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 Director, DAPDC, is final unless:
    (1) The Director, DAPDC, does not have the authority to approve the 
requested loan;
    (2) The Director, DAPDC, refers the matter to the AA/DA; or
    (3) The AA/DA, upon a showing of special circumstances, requests 
that the Director, DAPDC, forward the matter to him or her for final 
consideration. Special circumstances may include, but are not limited 
to, policy considerations or alleged improper acts by SBA personnel or 
others in processing the application.

[61 FR 3304, Jan. 31, 1996, as amended at 71 FR 63676, Oct. 31, 2006]



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 393]]



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 Sec. Sec. 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 to your personal property. Family

[[Page 394]]

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 395]]

    (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 396]]



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 397]]

    (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 398]]



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 Hurricanes 
Katrina, Rita and Wilma, for which size status is determined as of the 
date SBA accepts the application for processing, and for applications 
submitted before December 6, 2005, whether denied because of size status 
or pending, such applications shall be deemed resubmitted on December 6, 
2005), you and your affiliates and principle 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; 70 
FR 72595, Dec. 6, 2005; 73 FR 41254, July 18, 2008]



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 
Sec. Sec. 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 399]]

    (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 400]]



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 401]]

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

[[Page 402]]

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 Sec. Sec. 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,

[[Page 403]]

    (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  Under what circumstances is your business eligible to be 
considered 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  Under what circumstances is your business ineligible to be 
considered for a Military Reservist Economic Injury Disaster Loan?

    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;

[[Page 404]]

    (k) Your business is not a small business concern;
    (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 notice of 
expected call-up and ending one year after the date the essential 
employee is discharged or released from active duty. The Associate 
Administrator for Disaster Assistance (AA/DA) or designee may extend the 
one year limit by no more then one additional year after finding 
extraordinary or unforeseeable circumstances.

[73 FR 54675, Sept. 23, 2008]



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. For an essential employee who expects to be 
called up and who has not received official call-up orders, the 
application shall include the notice of the expected call-up including, 
if known, the expected date of call-up and expected 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.

[61 FR 3304, Jan. 31, 1996, as amended at 73 FR 54675, Sept. 23, 2008]



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 $2 million.

[73 FR 54675, Sept. 23, 2008]



Sec. 123.507  Under what circumstances will SBA consider waiving the 
$2 million loan limit?

    SBA will consider waiving the $2 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:

[[Page 405]]

    (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 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 $2 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.

[61 FR 3304, Jan. 31, 1996, as amended at 73 FR 54675, Sept. 23, 2008]



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?

    Funds will be disbursed only after the essential employee has been 
called to active duty, and you have provided a copy of the essential 
employee's official call-up orders for active duty showing the date of 
the call-up. 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.

[73 FR 54675, Sept. 23, 2008]



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.



Sec. 123.513  Does SBA require collateral on its Military Reservist 
EIDL?

    SBA will not generally require you to pledge collateral to secure a 
Military

[[Page 406]]

Reservist EIDL of $50,000 or less. For loans larger than $50,000, you 
will be required to provide available collateral such as a lien on 
business property, a security interest in personal property, or both. 
SBA will not decline a loan if you do not have a particular amount of 
collateral so long as SBA is reasonably sure that you can repay the 
loan. If you refuse to pledge the available collateral when requested by 
SBA, however, SBA may decline or cancel your loan.

[73 FR 54675, Sept. 23, 2008]



 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 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 Sec. Sec. 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.

[[Page 407]]



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 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?

[[Page 408]]

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?
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 How does a firm become certified as an SDB?
124.1004 What is a misrepresentation of SDB status?
124.1005 How long does an SDB certification last?
124.1006 Can SBA initiate a review of the SDB status of a firm claiming 
          to be an SDB?
124.1007 Who may protest the disadvantaged status of a concern?
124.1008 When will SBA not decide an SDB protest?
124.1009 Who decides disadvantaged status protests?
124.1010 What procedures apply to disadvantaged status protests?

[[Page 409]]

124.1011 What format, degree of specificity, and basis does SBA require 
          to consider an SDB protest?
124.1012 What will SBA do when it receives an SDB protest?
124.1013 How does SBA make disadvantaged status determinations in 
          considering an SDB protest?
124.1014 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. 100-656, 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.

    Editorial Note: Nomenclature changes to part 124 appear at 72 FR 
50040 and 50041, Aug. 30, 2007.

                   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 
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,

[[Page 410]]

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 
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.

[[Page 411]]



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 Sec. Sec. 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 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 Director, 
Office of Business Development 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

[[Page 412]]

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 channeled 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.
    (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

[[Page 413]]

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 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 Sec. Sec. 124.109,

[[Page 414]]

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 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 
Sec. Sec. 124.303 and 124.304) may have an equity ownership interest of 
up to 20 percent in a current Participant

[[Page 415]]

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 Director, Office of 
Business Development. The decision of the AA/8(a)BD is the final 
decision of the Agency. The Director, Office of Business Development 
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 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

[[Page 416]]

conducted by one or more disadvantaged individuals, except for concerns 
owned by Indian tribes, ANCs, Native Hawaiian Organizations, or 
Community Development Corporations (CDCs). (See Sec. Sec. 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.
    (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

[[Page 417]]

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;
    (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 Director, Office of Business Development 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 Director, 
Office of Business Development 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

[[Page 418]]

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 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.

[[Page 419]]

    (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.



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 Director, Office 
of Business Development 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 Director, Office of Business 
Development 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 Sec. Sec. 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 
Sec. Sec. 124.105 and 124.106.
    (4) When at least 50% of the assets of a concern are the same as 
those of a

[[Page 420]]

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 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.

[[Page 421]]

    (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 
Director, Office of Business Development 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 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.

[[Page 422]]

    (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.
    (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:

[[Page 423]]

    (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% 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 Sec. Sec. 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.

[[Page 424]]



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 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

[[Page 425]]

that fails to meet the eligibility requirements after being admitted to 
the program will be subject to termination or early graduation under 
Sec. Sec. 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 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 Sec. Sec. 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 Sec. Sec. 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 Sec. Sec. 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.

[[Page 426]]

    (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 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 Director, Office of Business Development 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 
Director, Office of Business Development 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 Director, Office of Business Development to 
approve or deny an application will be in writing. A decision to deny 
admission

[[Page 427]]

will state the specific reasons for denial, and will inform the 
applicant of any appeal rights.
    (f) If the Director, Office of Business Development 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, 
facsimile 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 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 Director, 
Office of Business Development without requesting reconsideration, or 
may appeal the decision of the Director, Office of Business Development 
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 Director, Office of 
Business Development is the final Agency decision.

[63 FR 35739, June 30, 1998, as amended at 67 FR 47246, 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 Sec. Sec. 
124.302 and 124.304; or
    (d) Termination pursuant to the provisions of Sec. Sec. 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

[[Page 428]]

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 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 Sec. Sec. 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.

[[Page 429]]

    (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 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 Director, Office of Business Development, 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 Director, Office of Business Development 
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 Director, Office of Business Development is

[[Page 430]]

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 Director, Office of Business Development 
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 Director, Office of Business 
Development 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.
    (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 Director, Office of Business Development makes a final 
determination regarding the termination action.
    (1) The term ``adequate evidence'' means information contained in 
the record before the Director, Office of Business Development 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

[[Page 431]]

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 Director, Office of Business Development 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 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;

[[Page 432]]

    (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;
    (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

[[Page 433]]

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;
    (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.

[[Page 434]]

    (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 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

[[Page 435]]

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 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

[[Page 436]]

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 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

[[Page 437]]

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 Director, Office of Business Development. The 
procuring activity may assume that SBA accepts its offer for the 8(a) 
program if it does not receive a reply from the Director, Office of 
Business Development 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 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

[[Page 438]]

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;
    (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) Task and delivery order contracts. If a task or delivery order 
contract was previously offered to and accepted into the 8(a) BD 
program, task and delivery orders under the contract are not to be 
offered to or accepted into the 8(a) BD program. See Sec. 121.404(g)(3) 
for rules concerning size re-certifications in connection with long-term 
contracts.
    (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.
    (j) The contracting officer should consider setting aside the 
requirement for HUBZone, 8(a) or SDVO SBC participation before 
considering to set aside the requirement as a small business set-aside.

[63 FR 35739, June 30, 1998, as amended at 70 FR 51248, Aug. 30, 2005; 
71 FR 66444, Nov. 15, 2006]

[[Page 439]]



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 Director, Office of Business 
Development 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 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

[[Page 440]]

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 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

[[Page 441]]

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.
    (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 Director, Office of Business 
Development, 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 Director, Office of Business Development 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 Director, Office of Business Development 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

[[Page 442]]

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 Director, Office of Business Development 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:
    (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

[[Page 443]]

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 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

[[Page 444]]

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 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)

[[Page 445]]

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 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 Director, Office of 
Business Development, 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

[[Page 446]]

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 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.

[[Page 447]]

    (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.



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 one or 
more specific 8(a) contracts.
    (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;

[[Page 448]]

    (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;
    (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.

[63 FR 35739, June 30, 1998, as amended at 69 FR 29208, May 21, 2004]



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.

[[Page 449]]

    (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
    (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

[[Page 450]]

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]



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 Director, Office of Business Development 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

[[Page 451]]

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) 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;

[[Page 452]]

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 Director, Office of Business Development 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 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 prot[eacute]g[eacute] may joint 
venture as a small business for any government procurement, including 
procurements with a dollar value less than half the size standard 
corresponding to the assigned NAICS code and 8(a) sole source contracts, 
provided the prot[eacute]g[eacute] qualifies as small for the 
procurement and, for purposes of 8(a) sole source requirements, the 
prot[eacute]g[eacute] has not reached the dollar limit set forth in 
Sec. 124.519.
    (2) Notwithstanding the requirements set forth in Sec. Sec. 
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 Director, Office 
of Business Development. The agreement will not be approved if SBA 
determines that the assistance to be provided is

[[Page 453]]

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.
    (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.

[63 FR 35739, June 30, 1998, as amended at 69 FR 29208, May 21, 2004]

                  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 Sec. Sec. 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.

[[Page 454]]

    (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, 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.

[[Page 455]]



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 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, Indian tribes, ANCs, CDCs, and NHOs.
    (b) In order for a concern to represent that it is an SDB in order 
to receive a benefit as a prime contractor on a Federal Government 
procurement, it must:
    (1) Be a current Participant, as defined in Sec. 124.3 of this 
part, in SBA's 8(a) BD as described in Sec. 124.1 of this part, 
program;
    (2) Have been certified by SBA as an SDB within three years of the 
date it seeks to certify as an SDB;
    (3) Have received certification from the procuring agency that it 
qualifies as an SDB; or
    (4) Have submitted an application for SDB certification to the 
procuring agency and must not have received a negative determination 
regarding that application.
    (c) A firm may represent that it qualifies as an SDB for any Federal 
subcontracting program if it believes in good faith that it is owned and 
controlled by one or more socially and economically disadvantaged 
individuals.

[73 FR 57494, Oct. 3, 2008]



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 Sec. Sec. 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.

[[Page 456]]

For the requirements relating to tribes and ANCs, NHOs, or CDCs, see 
Sec. Sec. 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.
    (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(h)(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.

[63 FR 35772, June 30, 1998, as amended at 69 FR 29208, May 21, 2004]



Sec. 124.1003  How does a firm become certified as an SDB?

    (a) All firms that are current Participants in SBA's 8(a) BD program 
are automatically deemed to be certified SDBs.
    (b) Any firm seeking to be certified as an SDB in order to represent 
that it qualifies and is eligible to obtain a benefit on a federal prime 
contract as an SDB may apply to the procuring agency for such 
certification.
    (c) A procuring agency may accept a certification from another 
entity (e.g., a private certifying entity, or a state

[[Page 457]]

or local government) that a firm qualifies as an SDB if the agency deems 
it appropriate.

[73 FR 57494, Oct. 3, 2008]



Sec. 124.1004  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)(1) A representation of SDB status on a federal prime contract 
will be deemed a misrepresentation of SDB status if the firm does not 
meet the requirements of Sec. 124.1001(b).
    (2) A representation of SDB status on a subcontract to a federal 
prime contract will be deemed a misrepresentation of SDB status if the 
firm does not have a good faith belief that it is owned and controlled 
by one or more socially and economically disadvantaged individuals. Any 
certification by a firm that SBA found not to qualify as an SDB in 
connection with an SDB protest or otherwise will be deemed a 
misrepresentation of SDB status if the firm has not overcome the 
reason(s) for the negative determination.
    (3) Any representation of SDB status by a firm that SBA has found 
not to qualify as an SDB in connection with a protest or SBA-initiated 
SDB determination will be deemed a misrepresentation of SDB status if 
the firm has not overcome the reason(s) set forth in SBA's written 
decision.

[73 FR 57494, Oct. 3, 2008]



Sec. 124.1005  How long does an SDB certification last?

    (a) A firm that is certified to be an SDB will generally be 
certified for a period of three years from the date of the 
certification.
    (b) A firm's SDB certification will extend beyond three years where 
SBA finds the firm to be an SDB:
    (1) In connection with a protest challenging the firm's SDB status 
(see Sec. 124.1013(h)(2));
    (2) In connection with an SBA-initiated SDB determination (see Sec. 
124.1006); or
    (3) As part of an 8(a) BD annual review.
    (c) A firm that completes its nine-year program term in the 8(a) BD 
program will continue to be deemed a certified SDB firm for a period of 
three years from the date of its last 8(a) annual review.

[73 FR 57494, Oct. 3, 2008]



Sec. 124.1006  Can SBA initiate a review of the SDB status of a 
firm claiming to be an SDB?

    SBA may initiate an SDB determination on any firm that has been 
certified to be an SDB by a procuring agency or that has represented 
itself to be an SDB on a subcontract to a federal prime contract 
whenever it receives credible information calling into question the SDB 
status of the firm. Upon its completion of an SDB determination, SBA 
will issue a written decision regarding the SDB status of the questioned 
firm. 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.

[73 FR 57494, Oct. 3, 2008]



Sec. 124.1007  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

[[Page 458]]

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.

[63 FR 35772, June 30, 1998. Redesignated at 73 FR 57495, Oct. 3, 2008]



Sec. 124.1008  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)).
    (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 Associate Administrator for Government and Business 
Development (AA/GC&BD) pursuant to Sec. 124.1024.

[63 FR 35772, June 30, 1998. Redesignated at 73 FR 57495, Oct. 3, 2008]



Sec. 124.1009  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.

[63 FR 35772, June 30, 1998. Redesignated at 73 FR 57495, Oct. 3, 2008]



Sec. 124.1010  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 DC/SDBCE and notification provided in accord 
with Sec. 124.1022(a).
    (c) Timeliness of protest--(1) SDB evaluation adjustment and set-
aside protests--(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

[[Page 459]]

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 DC/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 DC/
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;
    (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.

[63 FR 35772, June 30, 1998. Redesignated at 73 FR 57495, Oct. 3, 2008]



Sec. 124.1011  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.

[63 FR 35772, June 30, 1998. Redesignated at 73 FR 57495, Oct. 3, 2008]



Sec. 124.1012  What will SBA do when it receives an SDB protest?

    (a) Upon receipt of a protest challenging the disadvantaged status 
of a concern, the DC/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 DC/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 DC/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;

[[Page 460]]

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 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 DC/SDBCE or designee, the protested 
concern must submit to the DC/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.

[63 FR 35772, June 30, 1998. Redesignated at 73 FR 57495, Oct. 3, 2008]



Sec. 124.1013  How does SBA make disadvantaged status determinations 
in considering an SDB protest?

    (a) General. The DC/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.

[[Page 461]]

    (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 Sec. Sec. 
124.103 and 124.104. As provided in Sec. 124.1002(c), individuals 
claiming disadvantaged status must have a 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 AA/GC&BD, 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 AA/GC&BD, 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 AA/GC&BD, or designee, pursuant to Sec. 124.1024. A final 
Agency decision (whether by the AA/SDBCE, or designee, without an 
appeal, or by the AA/GC&BD, 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.

[63 FR 35772, June 30, 1998. Redesignated at 73 FR 57495, Oct. 3, 2008]



Sec. 124.1014  Appeals of disadvantaged status determinations.

    (a) Who may appeal. Appeals of protest determinations may be filed 
with the SBA's AA/GC&BD 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 AA/GC&BD 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.

[[Page 462]]

    (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 DC/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 DC/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.
    (g) The appeal will be decided by the AA/GC&BD, 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 AA/GC&BD, is the final decision of the SBA, 
and cannot be further appealed to OHA.

[63 FR 35772, June 30, 1998. Redesignated at 73 FR 57495, Oct. 3, 2008]



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 [Reserved]

   Subpart A_Definitions for the Service-Disabled Veteran-Owned Small 
                        Business Concern Program

125.8 What definitions are important in the Service-Disabled Veteran-
          Owned (SDVO) Small Business Concern (SBC) Program?

       Subpart B_Eligibility Requirements for the SDVO SBC Program

125.9 Who does SBA consider to own an SDVO SBC?
125.10 Who does SBA consider to control an SDVO SBC?
125.11 What size standards apply to SDVO SBCs?
125.12 May an SDVO SBC have affiliates?
125.13 May 8(a) Program participants, HUBZone SBCs, Small and 
          Disadvantaged Businesses, or Women-Owned Small Businesses 
          qualify as SDVO SBCs?

                  Subpart C_Contracting with SDVO SBCs

125.14 What are SDVO contracts?
125.15 What requirements must an SDVO SBC meet to submit an offer on a 
          contract?
125.16 Does SDVO SBC status guarantee receipt of a contract?
125.17 Who decides if a contract opportunity for SDVO competition 
          exists?
125.18 What requirements are not available for SDVO contracts?
125.19 When may a contracting officer set-aside a procurement for SDVO 
          SBCs?
125.20 When may a contracting officer award sole source contracts to 
          SDVO SBCs?

[[Page 463]]

125.21 Are there SDVO contracting opportunities at or below the 
          simplified acquisition threshold?
125.22 May SBA appeal a contracting officer's decision not to reserve a 
          procurement for award as an SDVO contract?
125.23 What is the process for such as appeal?

                 Subpart D_Protests Concerning SDVO SBCs

125.24 Who may protest the status of an SDVO SBC?
125.25 How does one file a service disabled veteran-owned status 
          protest?
125.26 What are the grounds for filing an SDVO SBC protest?
125.27 How will SBA process an SDVO protest?
125.28 What are the procedures for appealing an SDVO status protest?

              Subpart E_Penalties and Retention of Records

125.29 What penalties may be imposed under this part?

    Authority: 15 U.S.C. 632(p), (q); 634(b)(6); 637; 644 and 657(f).

    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 five main programs: Prime 
contracting assistance; Subcontracting assistance; Government property 
sales assistance; the Certificate of Competency program; and Service-
Disabled Veteran-Owned Small Business Concern contracting assistance. 
The objective of the programs is to assist small businesses in obtaining 
a fair share of Federal Government contracts, subcontracts, and property 
sales.

[61 FR 3312, Jan. 31, 1996, as amended at 69 FR 25266, May 5, 2004]



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) Responsibilities in the acquisition planning process. (1) SBA 
Procurement Center Representatives (PCRs) are generally located at 
Federal agencies and buying activities which have major contracting 
programs. PCRs are responsible for reviewing all acquisitions not set-
aside for small businesses to determine whether a set-aside is 
appropriate and to identify alternative strategies to maximize the 
participation of small businesses in the procurement.
    (2) As early in the acquisition planning process as practicable, but 
no later than 30 days before the issuance of a solicitation, or prior to 
placing an order without a solicitation, the procuring activity must 
coordinate with the procuring activity's Small Business Specialist (SBS) 
when the acquisition strategy contemplates an acquisition meeting the 
dollar amounts in paragraph (b)(2)(i) of this section, unless the 
contract or order is entirely reserved or set-aside for small business 
concerns as authorized under the Small Business Act. The SBS must notify 
the agency Office of Small and Disadvantaged Business Utilization 
(OSDBU) if the strategy or plan includes bundled requirements that the 
agency has not identified as bundled or includes unnecessary or 
unjustified bundling of requirements. If the strategy involves 
substantial bundling, the SBS shall assist in identifying alternative 
strategies that would reduce or minimize the scope of the bundling.
    (i) The procuring activity must coordinate the acquisition strategy 
with the cognizant SBS in accordance with paragraph (b)(2) of this 
section if the estimated acquisition, contract or order value is:
    (A) $7 million or more for the Department of Defense;

[[Page 464]]

    (B) $5 million or more for the National Aeronautics and Space 
Administration, the General Services Administration, and the Department 
of Energy; and
    (C) $2 million or more for all other agencies.
    (ii) If the strategy contemplates multiple award contracts or 
multiple award orders under the Federal Supply Schedule or a task or 
delivery order contract awarded by another agency, the thresholds in 
paragraph (b)(2)(i) of this section apply to the cumulative estimated 
value of the multiple award contracts or orders, including options.
    (3) 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.
    (4) 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
    (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.
    (5) 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).
    (6)(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 teaming arrangements and 
subcontracting opportunities. This may include:

[[Page 465]]

    (A) Recommending that the solicitation and resultant contract 
specifically state the small business subcontracting goals, which are 
expected of the contractor awardee;
    (B) Recommending that the small business subcontracting goals be 
based on total contract dollars instead of subcontract dollars;
    (C) Reviewing an agency's oversight of its subcontracting program, 
including its overall and individual assessment of a contractor's 
compliance with its small business subcontracting plans. The PCR will 
furnish a copy of the information to the SBA Commercial Market 
Representative (CMR) servicing the contractor; and
    (D) Recommending that a separate evaluation factor with significant 
weight is established for the extent to which offerors attained their 
subcontracting goals on previous contracts.
    (7) 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).
    (8) PCRs will work with the cognizant SBS and agency OSDBU as early 
in the acquisition process as practicable 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 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) Single contract, as used in this definition, includes:
    (A) Multiple awards of indefinite-quantity contracts under a single 
solicitation for the same or similar supplies or services to two or more 
sources; and

[[Page 466]]

    (B) An order placed against an indefinite quantity contract under a 
Federal Supply Schedule contract or a task or delivery order contract 
awarded by another agency (i.e., Government-wide acquisition contract or 
multi-agency contract).
    (iv) Substantial bundling means any bundling that meets the dollar 
amounts specified in paragraph (b)(2)(i) of this section.
    (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 business concerns 
owned and controlled by veterans, small business concerns owned and 
controlled by service-disabled veterans, qualified HUBZone small 
business concerns, small business concerns owned and controlled by 
socially and economically disadvantaged individuals and small business 
concerns owned and controlled by women; 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 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 or order value 
(including options) where the contract or order value is $75 million or 
less; or
    (B) Benefits equivalent to 5 percent of the contract or order value 
(including options) or $7.5 million, whichever is greater, where the 
contract or order 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

[[Page 467]]

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. (i) 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:
    (A) The analysis for bundled requirements set forth in paragraph 
(d)(5)(i) of this section;
    (B) An assessment of the specific impediments to participation by 
small business concerns as prime contractors that will result from the 
substantial bundling;
    (C) Actions designed to maximize small business participation as 
prime contractors, including provisions that encourage small business 
teaming for the substantially bundled requirement;
    (D) 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; and
    (E) The identification of the alternative strategies that would 
reduce or minimize the scope of the bundling, and the rationale for not 
choosing those alternatives (i.e., consider the strategies under 
paragraphs (b)(6) (i) and (d) of this section).
    (ii) At least 30 days prior to the solicitation release, the 
procuring activity shall provide the PCR and the agency OSDBU a copy of 
the proposed acquisition, including the analysis required by paragraph 
(d)(7) of this section, the acquisition plan, any bundling information 
required under paragraph (b)(3) of this section, and any other relevant 
information. The PCR and agency OSDBU or SBS, as applicable, shall work 
together to develop alternative acquisition strategies identified in 
paragraph (b)(6) of this section to enhance small business 
participation.
    (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 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

[[Page 468]]

score possible for the evaluation factors identified in paragraph 
(d)(5)(i) of this section.
    (e) OSDBU Oversight Functions. The Agency OSDBU must:
    (1) Conduct annual reviews to assess the:
    (i) Extent to which small businesses are receiving their fair share 
of Federal procurements, including contract opportunities under programs 
administered under the Small Business Act;
    (ii) Adequacy of the bundling documentation and justification; and
    (iii) Adequacy of actions taken to mitigate the effects of necessary 
and justified contract bundling on small businesses (e.g., review agency 
oversight of prime contractor subcontracting plan compliance under the 
subcontracting program).
    (2) Provide a copy of the assessment under paragraph (e)(1) of this 
section to the Agency Head and SBA Administrator.

[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; 68 FR 60012, Oct. 
20, 2003]



Sec. 125.3  Subcontracting assistance.

    (a) General. The purpose of the subcontracting assistance program is 
to provide the maximum practicable subcontracting opportunities for 
small business concerns, including small business concerns owned and 
controlled by veterans, small business concerns owned and controlled by 
service-disabled veterans, certified HUBZone small business concerns, 
certified small business concerns owned and controlled by socially and 
economically disadvantaged individuals, and small business concerns 
owned and controlled by women. The subcontracting assistance program 
implements section 8(d) of the Small Business Act, which includes the 
requirement that, unless otherwise exempt, other-than-small business 
concerns awarded contracts that offer subcontracting possibilities by 
the Federal Government in excess of $500,000, or in excess of $1,000,000 
for construction of a public facility, must submit a subcontracting plan 
to the appropriate contracting agency. The Federal Acquisition 
Regulation sets forth the requirements for subcontracting plans in 48 
CFR 19.7, and the clause at 48 CFR 52.219-9.
    (b) Responsibilities of prime contractors. (1) Prime contractors 
(including small business prime contractors) selected to receive a 
Federal contract that exceeds the traditional simplified acquisition 
threshold of $100,000, that will not be performed entirely outside of 
any state, territory, or possession of the United States, the District 
of Columbia, or the Commonwealth of Puerto Rico, and that is not for 
services which are personal in nature, are responsible for ensuring that 
small business concerns have the maximum practicable opportunity to 
participate in the performance of the contract, including subcontracts 
for subsystems, assemblies, components, and related services for major 
systems, consistent with the efficient performance of the contract.
    (2) A small business cannot be required to submit a formal 
subcontracting plan or be asked to submit a formal subcontracting plan, 
a small-business prime contractor is encouraged to provide maximum 
practicable opportunity to other small businesses to participate in the 
performance of the contract, consistent with the efficient performance 
of the contract.
    (3) Efforts to provide the maximum practicable subcontracting 
opportunities for small business concern may include, as appropriate for 
the procurement, one or more of the following actions:
    (i) Breaking out contract work items into economically feasible 
units, as appropriate, to facilitate small business participation;
    (ii) Conducting market research to identify small business 
subcontractors and suppliers through all reasonable means, such as 
performing on-line searches on the Central Contractor Registration 
(NCR), posting Notices of Sources Sought and/or Requests for Proposal on 
SBA's SUB-Net, participating in Business Matchmaking events, and 
attending pre-bid conferences;
    (iii) Soliciting small business concerns as early in the acquisition 
process as practicable to allow them sufficient time to submit a timely 
offer for the subcontract;

[[Page 469]]

    (iv) Providing interested small businesses with adequate and timely 
information about the plans, specifications, and requirements for 
performance of the prime contract to assist them in submitting a timely 
offer for the subcontract;
    (v) Negotiating in good faith with interested small businesses;
    (vi) Directing small businesses that need additional assistance to 
SBA;
    (vii) Assisting interested small businesses in obtaining bonding, 
lines of credit, required insurance, necessary equipment, supplies, 
materials, or services;
    (viii) Utilizing the available services of small business 
associations; local, state, and Federal small business assistance 
offices; and other organizations; and
    (ix) Participating in a formal mentor-prot[eacute]g[eacute] program 
with one or more small-business prot[eacute]g[eacute]s that results in 
developmental assistance to the prot[eacute]g[eacute]s.
    (c) Additional responsibilities of large prime contractors. (1) In 
addition to the responsibilities provided in paragraph (b) of this 
section, a prime contractor selected for award of a contract or contract 
modification that exceeds $500,000, or $1,000,000 in the case of 
construction of a public facility, is responsible for:
    (i) Submitting and negotiating before award an acceptable 
subcontracting plan that reflects maximum practicable opportunities for 
small businesses in the performance of the contract as subcontractors or 
suppliers. A prime contractor may submit a commercial plan, described in 
paragraph (c)(2) of this section, instead of an individual 
subcontracting plan, when the product or service being furnished to the 
Government meets the definition of a commercial item under 48 CFR 2.101;
    (ii) Making a good-faith effort to achieve the dollar and percentage 
goals and other elements in its subcontracting plan;
    (iii) Submitting a timely, accurate, and complete SF-294, 
Subcontracting Report for Individual Contract, and SF-295, Summary 
Subcontract Report; or entering the same information into an electronic 
database approved by SBA;
    (iv) Cooperating in the reviews of subcontracting plan compliance, 
including providing requested information and supporting documentation 
reflecting actual achievements and good-faith efforts to meet the goals 
and other elements in the subcontracting plan;
    (v) Providing pre-award written notification to unsuccessful small 
business offerors on all subcontracts over $100,000 for which a small 
business concern received a preference. The written notification must 
include the name and location of the apparent successful offeror and if 
the successful offeror is a small business, veteran-owned small 
business, service-disabled veteran-owned small business, HUBZone small 
business, small disadvantaged business, or women-owned small business; 
and
    (vi) As a best practice, providing the pre-award written 
notification cited in paragraph (c)(1)(v) of this section to 
unsuccessful and small business offerors on subcontracts at or below 
$100,000 whenever it is practical to do so.
    (2) A commercial plan, also referred to as an annual plan or 
company-wide plan, is the preferred type of subcontracting plan for 
contractors furnishing commercial items. A commercial plan covers the 
offeror's fiscal year and applies to the entire production of commercial 
items sold by either the entire company or a portion thereof (e.g., 
division, plant, or product line). Once approved, the plan remains in 
effect during the contractor's fiscal year for all Federal government 
contracts in effect during that period. The contracting officer of the 
agency that originally approved the commercial plan will exercise the 
functions of the contracting officer on behalf of all agencies that 
award contracts covered by the plan.
    (3) The additional prime contractor responsibilities described in 
paragraph (c)(1) of this section do not apply if:
    (i) The prime contractor is a small business concern;
    (ii) The prime contract or contract modification is a personal 
services contract; or
    (iii) The prime contract or contract modification will be performed 
entirely

[[Page 470]]

outside of any state, territory, or possession of the United States, the 
District of Columbia, or the Commonwealth of Puerto Rico.
    (d) Determination of good-faith efforts. Evidence that a large 
business prime contractor has made a good-faith effort to comply with 
its subcontracting plan or other subcontracting responsibilities 
includes supporting documentation that:
    (1) The contractor performed one or more of the actions described in 
paragraph (b) of this section, as appropriate for the procurement;
    (2) Although the contractor may have failed to achieve its goal in 
one socio-economic category, it over-achieved its goal by an equal or 
greater amount in one or more of the other categories; or
    (3) The contractor fulfilled all of the requirements of its 
subcontracting plan.
    (e) CMR Responsibilities. Commercial Market Representatives (CMRs) 
are SBA's subcontracting specialists. CMRs are responsible for:
    (1) Facilitating the matching of large prime contractors with small 
business concerns;
    (2) Counseling large prime contractors on their responsibilities to 
maximize subcontracting opportunities for small business concerns;
    (3) Instructing large prime contractors on identifying small 
business concerns by means of the CCR, SUB-Net, Business Matchmaking 
events, and other resources and tools;
    (4) Counseling small business concerns on how to market themselves 
to large prime contractors;
    (5) Maintaining a portfolio of large prime contractors and 
conducting Subcontracting Orientation and Assistance Reviews (SOARs). 
SOARs are conducted for the purpose of assisting prime contractors in 
understanding and complying with their small business subcontracting 
responsibilities, including developing subcontracting goals that reflect 
maximum practicable opportunity for small business; maintaining 
acceptable books and records; and periodically submitting reports to the 
Federal government; and
    (6) Conducting periodic reviews, including compliance reviews in 
accordance with paragraph (f) of this section.
    (f) Compliance reviews. A prime contractor's performance under its 
subcontracting plan is evaluated by means of on-site compliance reviews 
and follow-up reviews. A compliance review is a surveillance review that 
determines a contractor's achievements in meeting the goals and other 
elements in its subcontracting plan for both open contracts and 
contracts completed during the previous twelve months. A follow-up 
review is done after a compliance review, generally within six to eight 
months, to determine if the contractor has implemented SBA's 
recommendations.
    (2) All compliance reviews begin with a validation of the 
contractor's most recent SF-295, Summary Subcontract Report, and SF-294, 
Subcontracting Report for Individual Contracts, if applicable. The 
validation includes a review of the contractor's methodology for 
completing these reports and a sampling of specific documentation to 
substantiate small business status.
    (3) Upon completion of the review and evaluation of a contractor's 
performance and efforts to achieve the requirements in its 
subcontracting plans, the contractor's performance will be assigned one 
of the following ratings: Outstanding, Highly Successful, Acceptable, 
Marginal, or Unsatisfactory. The factors listed in paragraph (c) of this 
section will be taken into consideration, where applicable, in 
determining the contractor's rating. However, a contractor may be found 
Unsatisfactory, regardless of other factors, if it cannot substantiate 
the claimed achievements under its subcontracting plan.
    (4) Any contractor that receives a marginal or unsatisfactory rating 
must provide a written corrective action plan to SBA, or to both SBA and 
the agency that conducted the compliance review if the agency conducting 
the review has an agreement with SBA, within 30 days of its receipt of 
the official compliance report.
    (5) Any contractor that fails to comply with paragraph (f)(4) of 
this section, or any contractor that fails to demonstrate a good-faith 
effort, as set

[[Page 471]]

forth in paragraph (d) of this section, may be considered for liquidated 
damages under the procedures in 48 CFR 19.705-7 and the clause at 
52.219-16. This action shall be considered by the contracting officer 
upon receipt of a written recommendation to that effect from the CMR. 
The CMR's recommendation must include a copy of the compliance report 
and any other relevant correspondence or supporting documentation.
    (6) Reviews and evaluations of contractors with commercial plans are 
identical to reviews and evaluations of other contractors, except that 
contractors with commercial subcontracting plans do not submit the SF-
294, Subcontracting Report for Individual Contracts. Instead, goal 
achievement is determined by comparing the goals in the approved 
commercial subcontracting plan against the cumulative achievements on 
the SF-295, Summary Subcontract Report, for the same period. The same 
ratings criteria set forth in paragraph (f)(3) of this section apply to 
contractors with commercial plans.
    (7) SBA is authorized to enter into agreements with other Federal 
agencies or entities to conduct compliance reviews and otherwise further 
the objectives of the subcontracting program. Copies of these agreements 
will be published on http://www.sba.gov/GC. SBA is the lead agency on 
all joint compliance reviews with other agencies.
    (g) Subcontracting consideration in source selection. When an 
ordering agency anticipates placing an order against a Federal Supply 
Schedule, government-wide acquisition contract (GWAC), or multi-agency 
contract (MAC), the ordering agency may evaluate subcontracting as a 
significant factor in its source selection process. In addition, the 
ordering agency may also evaluate subcontracting as a significant factor 
in source selection when entering into a blanket purchase agreement. At 
the time of contract award, the contracting officer must disclose to all 
competitors which one (or more) of these three elements will be 
evaluated as an important source selection evaluation factor in any 
subsequent procurement action. A small-business offeror automatically 
receives the maximum possible score or credit on this evaluation factor 
without having to submit a subcontracting plan and without having to 
demonstrate subcontracting past performance. The factors that may be 
evaluated, individually or in combination, are:
    (1) The subcontracting to be performed on the specific requirement;
    (2) The goals negotiated in previous subcontracting plans; and
    (3) The contractor's past performance in meeting the subcontracting 
goals contained in previous subcontracting plans.

[69 FR 75824, Dec. 20, 2004]



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

[[Page 472]]

provisions are contained in Sec. Sec. 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 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 Sec. Sec. 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 Sec. Sec. 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.

[[Page 473]]

    (c) Referral of nonresponsibility determination to SBA. (1) A 
contracting officer who determines that an apparently successful offeror 
that has certified 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

[[Page 474]]

submitted by the applicant and the information gathered by SBA, the Area 
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 Director, Office of Government Contracting (D/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 475]]

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, as amended at 72 
FR 50041, Aug. 30, 2007]



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, a WOSB or EDWOSB contract pursuant to 
part 127 of this chapter, 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

[[Page 476]]

perform at least 50 percent of the cost 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) An SDVO SBC prime contractor can subcontract part of an SDVO 
contract (as defined in Sec. 125.15) provided:
    (1) In the case of a contract for services (except construction), 
the SDVO SBC spends at least 50% of the cost of the contract performance 
incurred for personnel on the concern's employees or on the employees of 
other SDVO SBCs;
    (2) In the case of a contract for general construction, the SDVO SBC 
spends at least 15% of the cost of contract performance incurred for 
personnel on the concern's employees or the employees of other SDVO 
SBCs;
    (3) In the case of a contract for construction by special trade 
contractors, the SDVO SBC spends at least 25% of the cost of contract 
performance incurred for personnel on the concern's employees or the 
employees of other SDVO SBCs; and
    (4) In the case of a contract for procurement of supplies or 
products (other than procurement from a non-manufacturer in such 
supplies or products), at least 50% of the cost of manufacturing the 
supplies or products (not including the costs of materials), will be 
performed by the SDVO SBC prime contractor or other SDVO SBCs.
    (5) In accordance with Sec. 125.15(b)(3), the SDVO SBC joint 
venture must perform the applicable percentage of work.
    (c) A qualified HUBZone SBC prime contractor can subcontract part of 
a HUBZone contract (as defined in Sec. 126.600 of this chapter) 
provided:
    (1) In the case of a contract for services (except construction), 
the qualified HUBZone SBC spends at least 50% 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% of the cost of contract 
performance incurred for personnel on the concern's employees;
    (3) In the case of a contract for construction by special trade 
contractors, the qualified HUBZone SBC spends at least 25% of the cost 
of contract performance incurred for personnel on the concern's 
employees;
    (4) In the case of a contract for procurement of supplies (other 
than procurement from a regular dealer in such supplies), the qualified 
HUBZone SBC spends at least 50% 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; and
    (5) In the case of a contract for the procurement by the Secretary 
of Agriculture of agricultural commodities, the qualified HUBZone SBC 
may not purchase the commodity from a subcontractor if the subcontractor 
will supply the commodity in substantially the final form in which it is 
to be supplied to the Government.
    (d) SBA may use different percentages if the Administrator 
determines that such action is necessary to reflect conventional 
industry practices among small business concerns that are below the 
numerical size standard for businesses in that industry group. 
Representatives of a national trade or industry group or any interested 
SBC may request a change in subcontracting percentage requirements for 
the categories defined by six digit industry codes in the North American 
Industry Classification System (NAICS) pursuant to the following 
procedures.
    (1) Format of request. Requests from representatives of a trade or 
industry group and interested SBCs should be in writing and sent or 
delivered to the Director, Office of Government Contracting, U.S. Small 
Business Administration, 409 3rd Street, SW., Washington, DC 20416. The 
requester must demonstrate to SBA that a change in

[[Page 477]]

percentage is necessary to reflect conventional industry practices among 
small business concerns that are below the numerical size standard for 
businesses in that industry category, and must support its request with 
information including, but not limited to:
    (i) Information relative to the economic conditions and structure of 
the entire national industry;
    (ii) Market data, technical changes in the industry and industry 
trends;
    (iii) Specific reasons and justifications for the change in the 
subcontracting percentage;
    (iv) The effect such a change would have on the Federal procurement 
process; and
    (v) Information demonstrating how the proposed change would promote 
the purposes of the small business, 8(a), SDB, woman-owned business, or 
HUBZone programs.
    (2) 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 considers a change in the subcontracting percentage 
requirements for a particular industry. The notice will identify the 
group making the request, and give the public an opportunity to submit 
information and arguments in both support and opposition.
    (3) Comments. SBA will provide a period of not less than 30 days for 
public comment in response to the Federal Register notice.
    (4) Decision. SBA will render its decision after the close of the 
comment period. If SBA decides against a change, SBA 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 SBA decides in 
favor of a change, SBA will propose an appropriate change to this part.
    (e) 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 except for purposes of the HUBZone program, where the 
definition of ``employee'' is found in Sec. 126.103 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

[[Page 478]]

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.
    (f) Compliance will be considered an element of responsibility and 
not a component of size eligibility.
    (g) 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.
    (h) 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.
    (i) Where an offeror is exempt from affiliation under Sec. 
121.103(h)(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 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; 69 FR 25266, May 5, 
2004; 69 FR 29208, May 21, 2004; 69 FR 29420, May 24, 2004; 70 FR 14527, 
Mar. 23, 2005; 70 FR 51248, Aug. 30, 2005; 72 FR 3040, Jan. 24, 2007, 72 
FR 50041, Aug. 30, 2007; 73 FR 56948, Oct. 1, 2008]



Sec. 125.7  [Reserved]



   Subpart A_Definitions for the Service-Disabled Veteran-Owned Small 
                        Business Concern Program

    Source: 69 FR 25267, May 5, 2004, unless otherwise noted.



Sec. 125.8  What definitions are important in the Service-Disabled 
Veteran-Owned (SDVO) Small Business Concern (SBC) Program?

    (a) Contracting Officer has the meaning given such term in section 
27(f)(5) of the Office of Federal Procurement Policy Act (41 U.S.C. 
423(f)(5)).
    (b) Interested Party means the contracting activity's contracting 
officer, the SBA or any concern that submits an offer for a specific 
SDVO contract.
    (c) Permanent caregiver is the spouse, or an individual, 18 years of 
age or older, who is legally designated, in writing, to undertake 
responsibility for managing the well-being of the service-disabled 
veteran with a permanent and severe disability, to include housing, 
health and safety. A permanent caregiver may, but does not need to, 
reside in the same household as the service-disabled veteran with a 
permanent and severe disability. In the case of a service-disabled 
veteran with a permanent and severe disability lacking legal capacity, 
the permanent caregiver shall be a parent, guardian, or person having 
legal custody. There may be no more than one permanent caregiver per 
service-disabled veteran with a permanent and severe disability.
    (d) Service-Disabled Veteran with a Permanent and Severe Disability 
means a veteran with a service-connected disability that has been 
determined by the VA, in writing, to have a permanent and total service-
connected disability as set forth in 38 CFR 3.340 for purposes of 
receiving disability compensation or a disability pension.
    (e) Service-Connected has the meaning given that term in section 
101(16) of Title 38, United States Code.
    (f) Service-disabled veteran is a veteran with a disability that is 
service-connected.
    (g) SBC owned and controlled by service-disabled veterans (also 
known as a Service-Disabled Veteran-Owned SBC) is a concern--
    (1) Not less than 51% of which is owned by one or more service-
disabled veterans or, in the case of any publicly owned business, not 
less than 51% of the stock of which is owned by one or more service-
disabled veterans;
    (2) The management and daily business operations of which are 
controlled

[[Page 479]]

by one or more service-disabled veterans or, in the case of a service-
disabled veteran with permanent and severe disability, the spouse or 
permanent caregiver of such veteran; and
    (3) That is small as defined by Sec. 125.11.
    (h) Spouse has the meaning given the term in section 101(31) of 
Title 38, United States Code.
    (i) Veteran has the meaning given the term in section 101(2) of 
Title 38, United States Code.

[69 FR 25267, May 5, 2004, as amended at 70 FR 14527, Mar. 23, 2005]



       Subpart B_Eligibility Requirements for the SDVO SBC Program

    Source: 69 FR 25267, May 5, 2004, unless otherwise noted.



Sec. 125.9  Who does SBA consider to own an SDVO SBC?

    A concern must be at least 51% unconditionally and directly owned by 
one or more service-disabled veterans. More specifically:
    (a) Ownership must be direct. Ownership by one or more service 
disabled veterans must be direct ownership. A concern owned principally 
by another business entity that is in turn owned and controlled by one 
or more service-disabled veterans does not meet this requirement. 
Ownership by a trust, such as a living trust, may be treated as the 
functional equivalent of ownership by service-disabled veterans where 
the trust is revocable, and service-disabled veterans are the grantors, 
trustees, and the current beneficiaries of the trust.
    (b) Ownership of a partnership. In the case of a concern which is a 
partnership, at least 51% of every class of partnership interest must be 
unconditionally owned by one or more service-disabled veterans. 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% of each class 
of member interest must be unconditionally owned by one or more service-
disabled veterans.
    (d) Ownership of a corporation. In the case of a concern which is a 
corporation, at least 51% of the aggregate of all stock outstanding and 
at least 51% of each class of voting stock outstanding must be 
unconditionally owned by one or more service-disabled veterans.
    (e) Stock options' effect on ownership. In determining unconditional 
ownership, SBA will disregard any unexercised stock options or similar 
agreements held by service-disabled veterans. However, any unexercised 
stock options or similar agreements (including rights to convert non-
voting stock or debentures into voting stock) held by non-service-
disabled veterans sill 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) Change of ownership. A concern may change its ownership or 
business structure so long as one or more service-disabled veterans own 
and control it after the change.



Sec. 125.10  Who does SBA consider to control an SDVO SBC?

    (a) General. To be an eligible SDVO SBC, the management and daily 
business operations of the concern must be controlled by one or more 
service-disabled veterans (or in the case of a veteran with permanent 
and severe disability, the spouse or permanent caregiver of such 
veteran). Control by one or more service-disabled veterans means that 
both the long-term decisions making and the day-to-day management and 
administration of the business operations must be conducted by one or 
more service-disabled veterans (or in the case of a veteran with 
permanent and severe disability, the spouse or permanent caregiver of 
such veteran).
    (b) Managerial position and experience. A service-disabled veteran 
(or in the case of a service-disabled veteran with permanent and severe 
disability, the spouse or permanent caregiver of such veteran) must hold 
the highest officer position in the concern (usually President or Chief 
Executive Officer) and must have managerial experience of the extent and 
complexity needed to run the concern. The service-disabled veteran 
manager (or in the case of a

[[Page 480]]

veteran with permanent and severe disability, the spouse or permanent 
caregiver of such veteran) need not have the technical expertise or 
possess the required license to be found to control the concern if the 
service-disabled veteran can demonstrate that he or she has ultimate 
managerial and supervisory control over those who possess the required 
licenses or technical expertise.
    (c) Control over a partnership. In the case of a partnership, one or 
more service-disabled veterans (or in the case of a veteran with 
permanent and severe disability, the spouse or permanent caregiver of 
such veteran) must serve as general partners, with control over all 
partnership decisions.
    (d) Control over a limited liability company. In the case of a 
limited liability company, one or more service-disabled veterans (or in 
the case of a veteran with permanent or severe disability, the spouse or 
permanent caregiver of such veteran) must serve as managing members, 
with control over all decisions of the limited liability company.
    (e) Control over a corporation. One or more service-disabled 
veterans (or in the case of a veteran with permanent and severe 
disability, the spouse or permanent caregiver of such veteran) must 
control the Board of Directors of the concern. Service-disabled veterans 
are considered to control the Board of Directors when either:
    (1) One of more service-disabled veterans own at least 51% of all 
voting stock of the concern, are on the Board of Directors and have the 
percentage of voting stock necessary to overcome any super majority 
voting requirements; or
    (2) Service-disabled veterans comprise the majority of voting 
directors through actual numbers or, where permitted by state law, 
through weighted voting.



Sec. 125.11  What size standards apply to SDVO SBCs?

    (a) At time of contract offer, an SDVO SBC must be small within the 
size standard corresponding to the NAICS code assigned to the contract.
    (b) If the contracting officer is unable to verify that the SDVO SBC 
is small, the concern shall be referred to the responsible SBA 
Government Contracting Area Director for a formal size determination in 
accordance with part 121 of this chapter.



Sec. 125.12  May an SDVO 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 chapter.



Sec. 125.13  May 8(a) Program participants, HUBZone SBCs, Small and 
Disadvantaged Businesses, or Women-Owned Small Businesses qualify 

as SDVO SBCs?

    Yes, 8(a) Program participants, HUBZone SBCs, Small and 
Disadvantaged Businesses, and Women-Owned SBCs, may also qualify as SDVO 
SBCs if they meet the requirements in this subject.

[70 FR 56814, Sept. 29, 2005]



                  Subpart C_Contracting with SDVO SBCs

    Source: 69 FR 25268, May 5, 2004, unless otherwise noted.



Sec. 125.14  What are SDVO contracts?

    SDVO contracts are contracts awarded to an SDVO SBC through a sole 
source award or a set-aside award based on competition restricted to 
SDVO SBCs.



Sec. 125.15  What requirements must an SDVO SBC meet to submit an 
offer on a contract?

    (a) Representation of SDVO SBC status. An SDVO SBC must submit the 
following representations with its initial offer (which includes price) 
on a specific contract:
    (1) It is an SDVO SBC;
    (2) It is small under the NAICS code assigned to the procurement;
    (3) It will meet the percentage of work requirements set forth in 
Sec. 125.6;
    (4) If applicable, it is an eligible joint venture; and
    (5) If applicable, it is an eligible nonmanufacturer.
    (b) Joint ventures. An SDVO SBC may enter into a joint venture 
agreement with one or more other SBCs for the

[[Page 481]]

purpose of performing an SDVO contract.
    (1) Size of concerns to an SDVO SBC joint venture.
    (i) A joint venture of at least one SDVO SBC and one or more other 
business concerns may submit an offer as a small business for a 
competitive SDVO SBC procurement so long as each concern is small under 
the size standard corresponding to the NAICS code assigned to the 
contract, provided:
    (A) For a procurement having a revenue-based size standard, the 
procurement exceeds half the size standard corresponding to the NAICS 
code assigned to the contract; or
    (B) For a procurement having an employee-based size standard, the 
procurement exceeds $10 million;
    (ii) For sole source and competitive SDVO SBC procurements that do 
not exceed the dollar levels identified in paragraphs (b)(1)(i)(A) and 
(B) of this section, an SDVO SBC 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 SDVO contract. 
The combined annual receipts or employees of the concerns entering into 
the joint venture must meet the size standard for the NAICS code 
assigned to the SDVO contract.
    (2) Contents of joint venture agreement. Every joint venture 
agreement to perform an SDVO contract must contain a provision:
    (i) Setting forth the purpose of the joint venture;
    (ii) Designating an SDVO SBC as the managing venturer of the joint 
venture, and an employee of the managing venturer as the project manager 
responsible for performance of the SDVO contract;
    (iii) Stating that not less than 51% of the net profits earned by 
the joint venture will be distributed to the SDVO SBC(s);
    (iv) Specifying the responsibilities of the parties with regard to 
contract performance, source of labor and negotiation of the SDVO 
contract;
    (v) Obligating all parties to the joint venture to ensure 
performance of the SDVO contract and to complete performance despite the 
withdrawal of any member;
    (vi) Requiring the final original records be retained by the 
managing venturer upon completion of the SDVO contract performed by the 
joint venture;
    (3) Performance of work. For any SDVO contract, the joint venture 
must perform the applicable percentage of work required by Sec. 124.510 
of this chapter.
    (4) Contract execution. The procuring activity will execute an SDVO 
contract in the name of the joint venture entity or SDVO SBC.
    (5) Inspection of records. SBA may inspect the records of the joint 
venture without notice at any time deemed necessary.
    (c) Non-manufacturers. An SDVO SBC which is a non-manufacturer may 
submit an offer on an SDVO contract for supplies if it meets the 
requirements of the non-manufacturer rule set forth at Sec. 
121.406(b)(1) of this chapter.

[69 FR 25268, May 5, 2004, as amended at 70 FR 14527, Mar. 23, 2005]



Sec. 125.16  Does SDVO SBC status guarantee receipt of a contract?

    No, SDVO SBCs should market their capabilities to appropriate 
procuring agencies in order to increase their prospects of having a 
procurement set-aside for SDVO contract award.



Sec. 125.17  Who decides if a contract opportunity for SDVO competition 
exists?

    The contracting officer for the contracting activity decides if a 
contract opportunity for SDVO competition exists.



Sec. 125.18  What requirements are not available for SDVO contracts?

    A contracting activity may not make a requirement available for a 
SDVO 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

[[Page 482]]

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.



Sec. 125.19  When may a contracting officer set-aside a procurement 
for SDVO SBCs?

    (a) The contracting officer first must review a requirement to 
determine whether it is excluded from SDVO contracting pursuant to Sec. 
125.18.
    (b) If the contracting officer determines that Sec. 125.18 does not 
apply, the contracting officer should consider setting aside the 
requirement for 8(a), HUBZone, or SDVO SBC participation before 
considering setting aside the requirement as a small business set-aside.
    (c) If the CO decides to set-aside the requirement for competition 
restricted to SDVO SBCs, the CO must:
    (1) Have a reasonable expectation that at least two responsible SDVO 
SBCs will submit offers; and
    (2) Determine that award can be made at fair market price.



Sec. 125.20  When may a contracting officer award sole source contracts 
to SDVO SBCs?

    A contracting officer may award a sole source contract to an SDVO 
SBC only when the contracting officer determines that:
    (a) None of the provisions of Sec. Sec. 125.18 or 125.19 apply;
    (b) The anticipated award price of the contract, including options, 
will not exceed:
    (1) $5,000,000 for a requirement within the NAICS codes for 
manufacturing, or
    (2) $3,000,000 for a requirement within all other NAICS codes;
    (c) A SDVO SBC is a responsible contractor able to perform the 
contract; and
    (d) Contract award can be made at a fair and reasonable price.



Sec. 125.21  Are there SDVO contracting opportunities at or below the 
simplified acquisition threshold?

    Yes, if the requirement is at or below the simplified acquisition 
threshold, the contracting officer may set-aside the requirement for 
consideration among SDVO SBCs using simplified acquisition procedures or 
may award a sole source contact to an SDVO SBC.



Sec. 125.22  May SBA appeal a contracting officer's decision not to 
reserve a procurement for award as an SDVO contract?

    The Administrator may appeal a contracting officer's decision not to 
make a particular requirement available for award as an SDVO sole source 
or a SDVO set-aside contact at or above the simplified acquisition 
threshold.



Sec. 125.23  What is the process for such an appeal?

    (a) Notice of appeal. When the contacting officer rejects a 
recommendation by SBA's Procurement Center Representative to make a 
requirement available for award as an SDVO 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 Secretary of the department or head of the 
agency issues a written decision on the appeal, unless the Secretary of 
the department or head of the agency 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 CO, SBA must file its formal appeal with the 
Secretary of the department or head of the agency, or the appeal will be 
deemed withdrawn.
    (d) Decision. The Secretary of the department or head of the agency 
must specify in writing the reasons for a denial of an appeal brought 
under this section.



                 Subpart D_Protests Concerning SDVO SBCs

    Source: 69 FR 25269, May 5, 2004, unless otherwise noted.

[[Page 483]]



Sec. 125.24  Who may protest the status of an SDVO SBC?

    (a) For Sole Source Procurements. SBA or the contracting officer may 
protest the proposed awardee's service-disabled veteran status.
    (b) For Competitive Set-Asides. Any interested party may protest the 
apparent successful offeror's SDVO SBC status.



Sec. 125.25  How does one file a service disabled veteran-owned 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 an eligible SDVO SBC is a ``small'' business for 
purposes of any Federal program are subject to part 121 of this chapter 
and must be filed in accordance with that part. If a protester protests 
both the size of the SDVO SBC and whether the concern meets the SDVO SBC 
requirements set forth in Sec. 125.15(a), SBA will process each protest 
concurrently, under the procedures set forth in part 121 of this chapter 
and this part. SBA does not review issues concerning the administration 
of an SDVO contract.
    (b) Format. Protests must be in writing and must specify all the 
grounds upon which the protest is based. A protest merely asserting that 
the protested concern is not an eligible SDVO SBC, without setting forth 
specific facts or allegations is insufficient. Example: A protester 
submits a protest stating that the awardee's owner is not a service-
disabled veteran. The protest does not state any basis for this 
assertion. The protest allegation is insufficient.
    (c) Filing. An interested party, other than the contracting officer 
or SBA, must deliver their protests in person, by facsimile, by express 
delivery service, or by U.S. mail (postmarked within the applicable time 
period) to the contracting officer. The contracting officer or SBA must 
submit their written protest directly to the Director, Office of 
Government Contracting.
    (d) Timeliness. (1) For negotiated acquisitions, an interested party 
must submit its protest by close of business on the fifth business day 
after notification by the contracting officer of the apparent successful 
offeror.
    (2) For sealed bid acquisitions, an interested party must submit its 
protest by close of business on the fifth business day after bid 
opening.
    (3) Any protest submitted after the time limits is untimely, unless 
it is from SBA or the CO.
    (4) Any protest received prior to bid opening or notification of 
intended awardee, 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 all protests, along with a referral letter, directly to the 
Director, Office of Government Contracting, U.S. Small Business 
Administration, 409 Third Street, SW., Washington, DC 20416 or by fax to 
(202) 205-6390, marked Attn: Service-Disabled Veteran Status Protest. 
The CO's referral letter must include information pertaining to the 
solicitation that may be necessary for SBA to determine timeliness and 
standing, including: the solicitation number; the name, address, 
telephone number and facsimile number of the CO; whether the contract 
was sole source or set-aside; whether the protester submitted an offer; 
whether the protested concern was the apparent successful offeror; when 
the protested concern submitted its offer (i.e., made the self-
representation that it was a SDVO SBC); whether the procurement was 
conducted using sealed bid or negotiated procedures; the bid opening 
date, if applicable; when the protest was submitted to the CO; when the 
protester received notification about the apparent successful offeror, 
if applicable; and whether a contract has been awarded.

[69 FR 25269, May 5, 2004, as amended at 70 FR 14527, Mar. 23, 2005; 72 
FR 50041, Aug. 30, 2007]



Sec. 125.26  What are the grounds for filing an SDVO SBC protest?

    (a) Status. In cases where the protest is based on service-connected 
disability, permanent and severe disability, or veteran status, the 
Director, Office of Government Contracting will

[[Page 484]]

only consider a protest that presents specific allegations supporting 
the contention that the owner(s) cannot provide documentation from the 
VA, DoD, or the U.S. National Archives and Records Administration to 
show that they meet the definition of service-disabled veteran or 
service disabled veteran with a permanent and severe disability as set 
forth in Sec. 125.8.
    (b) Ownership and control. In cases where the protest is based on 
ownership and control, the Associate Administrator for Government 
Contracting will consider a protest only if the protester presents 
credible evidence that the concern is not 51% owned and controlled by 
one or more service-disabled veterans. In the case of a veteran with a 
permanent and severe disability, the protester must present credible 
evidence that the concern is not controlled by the veteran, spouse or 
permanent caregiver of such veteran.

[70 FR 14527, Mar. 23, 2005, as amended at 72 FR 50041, Aug. 30, 2007]



Sec. 125.27  How will SBA process an SDVO protest?

    (a) Notice of receipt of protest. Upon receipt of the protest, SBA 
will notify the contracting officer and the protester of the date SBA 
received the protest and whether SBA will process the protest or dismiss 
it under paragraph (b) of this section.
    (b) Dismissal of protest. If SBA determines that the protest is 
premature, untimely, nonspecific, or is based on non-protestable 
allegations, SBA will dismiss the protest and will send the contracting 
officer and the protester a notice of dismissal, citing the reason(s) 
for the dismissal. The dismissal notice must also advise the protester 
of his/her right to appeal the dismissal to SBA's Office of Hearings and 
Appeals (OHA) in accordance with part 134 of this chapter.
    (c) Notice to protested concern. If SBA determines that the protest 
is timely, sufficiently specific and is based upon protestable 
allegations, SBA will:
    (1) Notify the protested concern of the protest and of its right to 
submit information responding to the protest within ten business days 
from the date of the notice; and
    (2) Forward a copy of the protest to the protested concern, with a 
copy to the contracting officer if one has not already been made 
available.
    (d) Time period for determination. SBA will determine the SDVO SBC 
status of the protested concern within 15 business days after receipt of 
the protest, or within any extension of that time which the contracting 
officer may grant SBA. If SBA does not issue its determination within 
the 15-day period, the contracting officer may award the contract, 
unless the contracting officer has granted SBA an extension.
    (e) Award of contract. The CO 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.
    (f) Notification of determination. SBA will notify the contracting 
officer, the protester, and the protested concern in writing of its 
determination.
    (g) Effect of determination. SBA's determination is effective 
immediately and is final unless overturned by OHA on appeal. If SBA 
sustains the protest, and the contract has not yet been awarded, then 
the protested concern is ineligible for an SDVO SBC contract award. If a 
contract has already been awarded, and SBA sustains the protest, then 
the contracting officer cannot count the award as an award to an SDVO 
SBC and the concern cannot submit another offer as an SDVO SBC on a 
future SDVO SBC procurement unless it overcomes the reasons for the 
protest (e.g., it changes its ownership to satisfy the definition of an 
SDVO SBC set forth in Sec. 125.8).

[70 FR 14528, Mar. 23, 2005]



Sec. 125.28  What are the procedures for appealing an SDVO status 
protest?

    The protested concern, the protester, or the contracting officer may 
file an appeal of an SDVO status protest determination with OHA in 
accordance with part 134 of this chapter. If the contract has already 
been awarded and on appeal, the OHA Judge affirms that the SDVO SBC does 
not meet a status or ownership and control requirement set forth in 
these regulations, then the procuring agency cannot count the award as 
an award to a SDVO SBC. In addition, the protested concern cannot

[[Page 485]]

self-represent its status for another procurement until it has cured the 
eligibility issue. If a contract has not yet been awarded and on appeal 
the OHA Judge affirms that the protested concern does not meet the 
status or ownership and control requirement set forth in this part, then 
the protested concern is ineligible for an SDVO SBC contract award.

[70 FR 14528, Mar. 23, 2005]



              Subpart E_Penalties and Retention of Records

    Source: 69 FR 25270, May 5, 2004, unless otherwise noted.



Sec. 125.29  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 chapter. 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 severe civil 
penalties under the False Claims Act, 31 U.S.C. 3729-3733, and under the 
Program Fraud Civil Remedies Act, 331 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 SDVO status of a 
SBC in connection with procurement programs pursuant to section 16 of 
the Small Business Act, 15 U.S.C. 645, 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 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 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 participants in other SBA programs be certified as 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 and 
          what information will SBA consider?
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 submit its application and 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 this 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 May a declined or de-certified concern seek certification at a 
          later date?

[[Page 486]]

                     Subpart D_Program Examinations

126.400 Who will conduct program examinations?
126.401 What is a program examination and what will SBA examine?
126.402 When may SBA conduct program examinations?
126.403 May SBA require additional information from a HUBZone SBC?

                  Subpart E_Maintaining HUBZone Status

126.500 How does a qualified HUBZone SBC maintain HUBZone certification?
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 What happens if SBA is unable to verify a qualified HUBZone 
          SBC's eligibility or determines that the concern is no longer 
          eligible for the program?
126.504 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 CO request that SBA release a requirement from the 8(a)BD 
          program 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 contract opportunities at or below the 
          simplified acquisition threshold or micropurchase 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 CO award sole source contracts to qualified HUBZone 
          SBCs?
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 CO apply HUBZone and SDB price evaluation preferences 
          in 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 submit an 
          offer on a HUBZone contract?
126.617 Who decides contract disputes arising between a qualified 
          HUBZone SBC and a contracting activity after the award of a 
          HUBZone contract?
126.618 How does a HUBZone SBC's participation in a Mentor-
          Prote[eacute]g[eacute] relationship affect its participation 
          in the HUBZone Program?

               Subpart G_Contract Performance Requirements

126.700 What are the performance of work requirements for HUBZone 
          contracts?
126.701 Can these subcontracting percentages requirements change?
126.702 How can the subcontracting percentage requirements be changed?

                           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), 632(j), 632(p) and 657a.

    Source: 63 FR 31908, June 11, 1998, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 126 appear at 72 FR 
50041, Aug. 30, 2007.



              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

[[Page 487]]

opportunities, investment, and economic development in such areas.



Sec. 126.101  Which government departments or agencies are affected 
directly by the HUBZone program?

    (a) The HUBZone Program applies to all federal departments or 
agencies that employ one or more contracting officers.
    (b) 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; 69 
FR 29420, May 24, 2004]



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/GC&BD means Associate Administrator, Office of Government 
Contracting & Business Development.
    ADA/GC&BD means SBA's Associate Deputy Administrator for Government 
Contracting and Business Development.
    Agricultural commodity has the same meaning as in section 102 of the 
Agricultural Trade Act of 1978 (7 U.S.C. 5602).
    Alaska Native Corporation (ANC) has the same meaning as the term 
``Native Corporation'' in section 3 of the ANCSA, 43 U.S.C. 1602.
    Alaska Native Village has the same meaning as the term ``Native 
village'' in section 3 of the ANCSA, 43 U.S.C. 1602.
    ANCSA means the Alaska Native Claims Settlement Act, as amended.
    Attempt to maintain means making substantive and documented efforts 
such as written offers of employment, published advertisements seeking 
employees, and attendance at job fairs.
    Base closure area means lands within the external boundaries of a 
military installation that were closed through a privatization process 
under the authority of:
    (1) The Defense Base Closure and Realignment Act of 1990 (part A of 
title XXIX of division B of Public Law 101-510; 10 U.S.C. 2687 note);
    (2) Title II of the Defense Authorization Amendments and Base 
Closure and Realignment Act (Pub. L. 100-526; 10 U.S.C. 2687 note);
    (3) 10 U.S.C. 2687; or
    (4) Any other provision of law authorizing or directing the 
Secretary of Defense or the Secretary of a military department to 
dispose of real property at the military installation for purposes 
relating to base closures of redevelopment, while retaining the 
authority to enter into a leaseback of all or a portion of the property 
for military use.
    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.
    Community Development Corporation (CDC) means a corporation that has 
received financial assistance under Part 1 of Subchapter A of the 
Community Economic Development Act of 1981, 42 U.S.C. 9805-9808.
    Concern means a firm which satisfies the requirements in Sec. Sec. 
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.
    Contracting Officer (CO) has the meaning given that term in 41 
U.S.C. 423(f)(5), which defines a CO as a person who, by appointment in 
accordance with applicable regulations, has the authority to enter into 
a Federal agency procurement contract on behalf of the

[[Page 488]]

Government and to make determinations and findings with respect to such 
a contract.
    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.
    D/BD means SBA's Director, Office of Business Development;
    D/HUB means SBA's Director Office of HUBZone;
    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 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:
    (1) Qualified census tracts;
    (2) Qualified non-metropolitan counties;
    (3) Lands within the external boundaries of an Indian reservation;
    (4) Qualified base closure area; or
    (5) Redesignated area.
    HUBZone small business concern (HUBZone SBC) means an SBC that is:
    (1) At least 51% owned and controlled by 1 or more persons, each of 
whom is a United States citizen;
    (2) An ANC owned and controlled by Natives (as determined pursuant 
to section 29(e)(1) of the ANCSA, 43 U.S.C. 1626(e)(1));
    (3) A direct or indirect subsidiary corporation, joint venture, or 
partnership of an ANC qualifying pursuant to section 29(e)(1) of the 
ANCSA, 43 U.S.C. 1626(e)(1)), if that subsidiary, joint venture, or 
partnership is owned and controlled by Natives (as determined pursuant 
to section 29(e)(2) of the ANCSA, 43 U.S.C. 1626(e)(2));
    (4) Wholly owned by one or more Indian Tribal Governments, or by a 
corporation that is wholly owned by one or more Indian Tribal 
Governments;
    (5) An SBC that is owned in part by one or more Indian Tribal 
Governments or in part by a corporation that is wholly owned by one or 
more Indian Tribal Governments, if all other owners are either United 
States citizens or SBCs;
    (6) An SBC that is wholly owned by a CDC or owned in part by one or 
more CDCs, if all other owners are either United States citizens or 
SBCs; or
    (7) An SBC that is a small agricultural cooperative organized or 
incorporated in the United States, wholly owned by one or more small 
agricultural cooperatives organized or incorporated in the United States 
or owned

[[Page 489]]

in part by one or more small agricultural cooperatives organized or 
incorporated in the United States, provided that all other owners are 
small business concerns or United States citizens.
    Indian reservation (1) Has the same meaning as the term ``Indian 
country'' in 18 U.S.C. 1151, except that such term does not include:
    (i) Any lands that are located within a State in which a tribe did 
not exercise governmental jurisdiction as of December 21, 2000, unless 
that tribe is recognized after that date by either an Act of Congress or 
pursuant to regulations of the Secretary of the Interior for the 
administrative recognition that an Indian group exists as an Indian 
tribe (25 CFR part 83); and
    (ii) Lands taken into trust or acquired by an Indian tribe after 
December 21, 2000 if such lands are not located within the external 
boundaries of an Indian reservation or former reservation or are not 
contiguous to the lands held in trust or restricted status as of 
December 21, 2000; and
    (2) In the State of Oklahoma, means lands that:
    (i) Are within the jurisdictional areas of an Oklahoma Indian tribe 
(as determined by the Secretary of the Interior); and
    (ii) Are recognized by the Secretary of the Interior as of December 
21, 2000, as eligible for trust land status under 25 CFR part 151.
    Indian Tribal Government means the governing body of any Indian 
tribe, band, nation, pueblo, or other organized group or community which 
is recognized as eligible for the special programs and services provided 
by the United States to Indians because of their status as Indians.
    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 
include all lands within the perimeter of an Indian reservation, whether 
tribally owned and governed or not. For example, land that is 
individually owned and located within the 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.
    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

[[Page 490]]

locations to fulfill specific contract obligations.
    Qualified base closure area means a base closure area for a period 
of 5 years either from December 8, 2004, or from the date of final base 
closure, whichever is later.
    Qualified census tract has the meaning given that term in section 
42(d)(5)(C)(ii) of the Internal Revenue Code of 1986.
    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 was not 
located in a metropolitan statistical area at the time of the most 
recent census taken for purposes of selecting qualified census tracts 
under section 42(d)(5)(C)(ii) of the Internal Revenue Code of 1986, and 
in which:
    (i) The median household income is less than 80% of the non-
metropolitan State median household income, based on the most recent 
data available from the Bureau of the Census of the Department of 
Commerce; or
    (ii) The unemployment rate is not less than 140 percent of the 
average unemployment rate for the United States or for the State in 
which such county is located, whichever is less, based on the most 
recent data available from the Secretary of Labor.
    Redesignated area means any census tract or any non-metropolitan 
county that ceases to be a qualified HUBZone, except that such census 
tracts or non-metropolitan counties may be ``redesignated areas'' only 
until the later of:
    (1) The date on which the Census Bureau publicly releases the first 
results from the 2010 decennial census; or
    (2) Three years after the date on which the census tract or non-
metropolitan county ceased to be so qualified. The date on which the 
census tract or non-metropolitan county ceases to be qualified is the 
date that the official government data, which affects the eligibility of 
the HUBZone, is released to the public.
    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 agricultural cooperative means an association (corporate or 
otherwise), comprised exclusively of other small agricultural 
cooperatives, small business concerns, or U.S. citizens, pursuant to the 
provisions of the Agricultural Marketing Act, 12 U.S.C. 1141j, whose 
size does not exceed the applicable size standard pursuant to part 121 
of this chapter. In determining such size, an agricultural cooperative 
is treated as a ``business concern'' and its member shareholders are not 
considered affiliated with the cooperative by virtue of their membership 
in the cooperative.
    Small business concern (SBC) means a concern that, with its 
affiliates, meets the size standard for its primary industry, pursuant 
to part 121 of this chapter.
    Small disadvantaged business (SDB) means a concern that is small 
pursuant to part 121 of this chapter, is owned and controlled by one or 
more socially and economically disadvantaged individuals, tribes, ANCs, 
Native Hawaiian Organizations, or CDCs and has been certified pursuant 
to subpart A or B, part 124 of this chapter.
    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.

[63 FR 31908, June 11, 1998, as amended at 66 FR 4645, Jan. 18, 2001; 69 
FR 29421, May 24, 2004; 70 FR 51248, Aug. 30, 2005; 72 FR 50041, Aug. 
30, 2007]



          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) Concerns owned by Indian Tribal Governments--(1) Ownership. (i) 
The concern must be wholly owned by one or more Indian Tribal 
Governments;
    (ii) The concern must be wholly owned by a corporation that is 
wholly

[[Page 491]]

owned by one or more Indian Tribal Governments;
    (iii) The concern must be owned in part by one or more Indian Tribal 
Governments and all other owners are either United States citizens or 
SBCs; or
    (iv) The concern must be owned in part by a corporation, which is 
wholly owned by one or more Indian Tribal Governments, and all other 
owners are either United States citizens or SBCs.
    (2) Size. The concern, with its affiliates, must meet the size 
standard corresponding to its primary industry classification as defined 
in part 121 of this chapter.
    (3) Other Requirements. The concern must either:
    (i) Maintain a principal office located in a HUBZone and ensure that 
at least 35% of its employees reside in a HUBZone as provided in 
paragraph (b)(4) of this section; or
    (ii) Certify that when performing a HUBZone contract, at least 35% 
of its employees engaged in performing that contract will reside within 
any Indian reservation governed by one or more of the Indian Tribal 
Government owners, or reside within any HUBZone adjoining such Indian 
reservation. A HUBZone and Indian reservation are adjoining when the two 
areas are next to and in contact with each other; and
    (iii) The concern will ``attempt to maintain'' (see Sec. 126.103) 
that applicable employment percentage stated above during the 
performance of any HUBZone contract it receives.
    (b) Concerns owned by U.S. citizens, ANCs or CDCs--(1) Ownership. 
(i) The concern must be at least 51% unconditionally and directly owned 
and controlled by persons who are United States citizens;

    Example: A concern that is a partnership owned 50% by an individual 
who is a United States citizen and 50% by someone who is not, is not an 
eligible concern because it is not at least 51% owned by United States 
citizens.

    (ii) The concern must be an ANC owned and controlled by Natives 
(determined pursuant to section 29(e)(1) of the ANCSA); or a direct or 
indirect subsidiary corporation, joint venture, or partnership of an ANC 
qualifying pursuant to section 29(e)(1) of ANCSA, if that subsidiary, 
joint venture, or partnership is owned and controlled by Natives 
(determined pursuant to section 29(e)(2)) of the ANCSA); or
    (iii) The concern must be wholly owned by a CDC, or owned in part by 
one or more CDCs, if all other owners are either United States citizens 
or SBCs;
    (2) Size. The concern, together with its affiliates, must qualify as 
a small business under the size standard corresponding to its primary 
industry classification as defined in part 121 of this chapter.
    (3) Principal office. The concern's principal office must be located 
in a HUBZone.
    (4) Employees. At least 35% of the concern's employees must reside 
in a HUBZone. 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% 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% or 33.25 employees must 
reside in a HUBZone. Thus, 34 employees must reside in a HUBZone.

    (5) Contract Performance. The concern must represent, as provided in 
the application, that it will ``attempt to maintain'' (see Sec. 
126.103) having 35% of its employees reside in a HUBZone during the 
performance of any HUBZone contract it receives.
    (6) Subcontracting. The concern must represent, as provided in the 
application, 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.
    (c) Concerns owned by small agricultural cooperatives--(1) 
Ownership. (i) A small agricultural cooperative organized or 
incorporated in the United States;
    (ii) A small business concern wholly owned by one or more small 
agricultural cooperatives organized or incorporated in the United 
States; or
    (iii) A small business concern owned in part by one or more small 
agricultural cooperatives organized or incorporated in the United 
States, provided

[[Page 492]]

that all other owners are small business concerns or United States 
citizens.
    (2) Size. The small agricultural cooperative must meet the size 
standard corresponding to its primary industry classification as defined 
in part 121 of this chapter. However, in determining such size, an 
agricultural cooperative is treated as a ``business concern'' and its 
member shareholders are not considered affiliated with the cooperative 
by virtue of their membership in the cooperative.
    (3) Principal office. The cooperative's principal office must be 
located in a HUBZone.
    (4) Employees. At least 35% of the cooperative's employees must 
reside in a HUBZone. 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.
    (5) Contract Performance. The concern must represent, as provided in 
the application, that it will ``attempt to maintain'' (see Sec. 
126.103) having 35% of its employees reside in a HUBZone during the 
performance of any HUBZone contract it receives.
    (d) Subcontracting. The concern must represent, as provided in the 
application, 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.

[69 FR 29422, May 24, 2004, as amended at 70 FR 51249, Aug. 30, 2005]



Sec. 126.201  Who does SBA consider to own a HUBZone SBC?

    An owner of a SBC seeking HUBZone certification or a qualified 
HUBZone SBC is a person who owns any legal or equitable interest in such 
SBC. If an Employee Stock Ownership Plan owns all or part of the 
concern, SBA considers each stock trustee and plan member to be an 
owner. If a trust owns all or part of the concern, SBA considers each 
trustee and trust beneficiary to be an owner. In addition:
    (a) Corporations. SBA considers any person who owns stock, whether 
voting or non-voting, to be an owner. SBA considers options to purchase 
stock and the right to convert debentures into voting stock to have been 
exercised.

    Example: U.S. citizens own all of the stock of a corporation. A 
corporate officer, a non-U.S. citizen, owns no stock in the corporation 
but owns options to purchase stock in the corporation. SBA will consider 
the options exercised and the individual to be an owner. Therefore, if 
that corporate officer has options to purchase 50% or more of the 
corporate stock, pursuant to Sec. 126.200, the corporation would not be 
eligible to be a qualified HUBZone SBC because it is not at least 51% 
owned and controlled by persons who are U.S. citizens.

    (b) Partnerships. SBA considers all partners, whether general or 
limited, to be owners in a partnership.
    (c) Sole proprietorships. The proprietor is the owner.
    (d) Limited liability companies. SBA considers each member to be an 
owner of a limited liability company.

[69 FR 29422, May 24, 2004, as amended at 70 FR 51249, Aug. 30, 2005; 71 
FR 69183, Nov. 30, 2006]



Sec. 126.202  Who does SBA consider to control a HUBZone SBC?

    Control means both the day-to-day management and long-term decision-
making 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, managing member 
and manager. In addition, key employees who possess 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.

[69 FR 29422, May 24, 2004]



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.

[[Page 493]]

    (b) At time of initial contract offer. A HUBZone SBC must be small 
for the size standard corresponding to the NAICS code assigned to the 
contract.

[63 FR 31908, June 11, 1998, as amended at 69 FR 29422, May 24, 2004]



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 of its affiliates is small as defined in part 121 of 
this title, except as otherwise provided for small agricultural 
cooperatives in Sec. 126.103.

[70 FR 51249, Aug. 30, 2005]



Sec. 126.205  May participants in other SBA programs be certified as 
qualified HUBZone SBCs?

    Participants in other SBA programs may be certified as qualified 
HUBZone SBCs if they meet all of the requirements set forth in this 
part. Participation in other SBA Programs is not a requirement for 
participation in the HUBZone Program.

[69 FR 29422, May 24, 2004]



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?

    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 be certified as a qualified HUBZone SBC and if 
required by Sec. 126.200, the concern's principal office must be 
located in a HUBZone.

[69 FR 29423, May 24, 2004]



                         Subpart C_Certification



Sec. 126.300  How may a concern be certified as a qualified HUBZone 
SBC and what information will SBA consider?

    A concern must apply to SBA for certification. SBA will consider the 
information provided by the concern in order to determine whether the 
concern qualifies. SBA, in its discretion, may rely solely upon the 
information submitted to establish eligibility, may request additional 
information, or may verify the information before making a 
determination. SBA may draw an adverse inference and deny the 
certification where a concern fails to cooperate with SBA or submit 
information requested by SBA. 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.

[69 FR 29423, May 24, 2004]



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 submit its application and 
certification?

    A concern seeking certification as a HUBZone SBC must submit either 
an electronic application to SBA via https://eweb1.sba.gov/hubzone/
internet/ or a written application to the D/HUB, U.S. Small Business 
Administration, 409 3rd Street, SW., Washington, DC

[[Page 494]]

20416. Certification pages must be validated electronically or signed by 
a person authorized to represent the concern.

[69 FR 29423, May 24, 2004]



Sec. 126.304  What must a concern submit to SBA?

    (a) To be certified by SBA as a qualified HUBZone SBC, a concern 
must submit a completed application and represent to SBA that it meets 
the requirements set forth in Sec. 126.200. After submitting the 
application, applicants must notify SBA of any material changes that 
could affect its eligibility. The concern must also submit any 
additional information required by SBA.
    (b) Concerns applying for HUBZone status based on a location within 
the external boundaries of an Indian reservation must use SBA's maps 
(located at https://eweb1.sba.gov/hubzone/internet/) to verify that the 
location is within the external boundaries of an Indian reservation. If, 
however, SBA's maps indicate that the location is not within the 
external boundaries of an Indian reservation and the concern disagrees, 
then the concern must submit 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.
    (c) Concerns applying for HUBZone status based on a location within 
a qualified base closure area must use SBA's List of Qualified Base 
Closure Areas (located at http://www.sba.gov/hubzone) to verify that the 
location is within a qualified base closure area. If a concern disagrees 
with the failure of SBA's List of Qualified Base Closure Areas to 
include a particular area as a qualified base closure area, then the 
concern must submit relevant documentation from the Department of 
Defense, Office of Economic Adjustment, or the military department 
responsible for closing that installation.
    (d) If the concern was decertified for failure to notify SBA of a 
material change affecting its eligibility pursuant to Sec. 126.501, it 
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.

[69 FR 29423, May 24, 2004, as amended at 70 FR 51249, Aug. 30, 2005]



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 D/HUB or designee 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 D/HUB or designee is the final agency 
decision.
    (b) SBA may request additional information or clarification of 
information contained in an application submission at any time.
    (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.

[63 FR 31908, June 11, 1998, as amended at 69 FR 29423, May 24, 2004; 70 
FR 58974, Oct. 11, 2005]



Sec. 126.307  Where will SBA maintain the List of qualified HUBZone 
SBCs?

    Qualified HUBZone SBCs are identified by running a search on CCR/
DSBS (http://dsbs.sba.gov/dsbs/dsp--dsbs.cfm) and are listed on the 
HUBZone Web page at https://eweb1.sba.gov/hubzone/internet/general/
approved-firms.cfm. In addition, requesters may obtain a copy of the 
List by writing to the D/HUB at U.S. Small Business Administration,

[[Page 495]]

409 3rd Street, SW., Washington, DC 20416 or at [email protected].

[69 FR 29423, May 24, 2004]



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 D/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.

[69 FR 29423, May 24, 2004]



Sec. 126.309  May a declined or decertified concern seek certification 
at a later date?

    A concern that SBA has declined or decertified may seek 
certification no sooner than one year from the date of decline or 
decertification if it believes that it has overcome all reasons for 
decline or decertification through changed circumstances and is 
currently eligible. See Sec. 126.304(c).

[69 FR 29423, May 24, 2004]



                     Subpart D_Program Examinations



Sec. 126.400  Who will conduct program examinations?

    SBA field staff or others designated by the D/HUB will conduct 
program examinations.



Sec. 126.401  What is a program examination and what will SBA examine?

    (a) General. A program examination is an investigation by SBA 
officials, which verifies the accuracy of any certification made or 
information provided as part of the HUBZone application process or in 
connection with a HUBZone contract. Thus, examiners may verify that the 
concern currently meets the program's eligibility requirements, and that 
it met such requirements at the time of its application for 
certification, its most recent recertification, or its certification in 
connection with a HUBZone contract.
    (b) Scope of review. Examiners may conduct the review, or parts of 
the review, at one or all of the concern's offices. SBA will determine 
the location of the examination. Examiners may review any information 
related to the concern's eligibility requirements including, but not 
limited to, documentation related to the location and ownership of the 
concern, the employee percentage requirements, and the concern's 
``attempt to maintain'' (see Sec. 126.103) this percentage. The concern 
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 of the 
application and any recertifications issued to SBA.

[69 FR 29423, May 24, 2004]



Sec. 126.402  When may SBA conduct program examinations?

    SBA may conduct a program examination at any time after the concern 
submits its application, during the processing of the application, and 
at any time while the concern is certified as a qualified HUBZone SBC.

[69 FR 29423, May 24, 2004]



Sec. 126.403  May SBA require additional information from a HUBZone SBC?

    (a) At the discretion of the D/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. SBA may draw an 
adverse inference from the failure of a HUBZone SBC to cooperate with a 
program examination or provide requested information.
    (b) In order to gauge the success of the program, SBA requires that 
a HUBZone SBC submit updated financial information and information 
relating to the number of its employees.

[69 FR 29424, May 24, 2004]

[[Page 496]]



                  Subpart E_Maintaining HUBZone Status



Sec. 126.500  How does a qualified HUBZone SBC maintain HUBZone 
certification?

    Any qualified HUBZone SBC seeking to remain on the List must 
recertify every three years to SBA that it remains a qualified HUBZone 
SBC (See Sec. 126.501 for ongoing obligations). Concerns wishing to 
remain in the program without any interruption must recertify their 
continued eligibility to SBA within 30 calendar days after the third 
anniversary of their date of certification and each subsequent three-
year period. Failure to do so will result in SBA initiating 
decertification proceedings. Once decertified, the concern then would 
have to submit a new application for certification pursuant to Sec. 
126.309. The recertification to SBA must be in writing and must 
represent that the circumstances relative to eligibility that existed on 
the date of certification showing on the List have not materially 
changed and that the concern meets any new eligibility requirements.

[69 FR 29424, May 24, 2004]



Sec. 126.501  What are a qualified HUBZone SBC's ongoing obligations 
to SBA?

    A qualified HUBZone SBC must immediately notify SBA of any material 
change that could affect its eligibility. Material change includes, but 
is not limited to, a change in the ownership, business structure, or 
principal office of the concern, or a failure to meet the 35% HUBZone 
residency requirement (See Sec. 126.200 for certain eligibility 
requirements). The notification must be in writing, and must be sent or 
delivered to the D/HUB to comply with this requirement. Failure of a 
qualified HUBZone SBC to notify SBA of such a material change may result 
in decertification and removal from the List pursuant to Sec. 126.504. 
In addition, SBA may seek the imposition of penalties under Sec. 
126.900. If the concern later becomes eligible for the program, it must 
apply for certification pursuant to Sec. Sec. 126.300 through 126.306.

[69 FR 29424, May 24, 2004]



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 
Sec. Sec. 126.200, 126.500, and 126.501.



Sec. 126.503  What happens if SBA is unable to verify a qualified 
HUBZone SBC's eligibility or determines that the concern is no longer 

eligible for the program?

    If SBA is unable to verify a qualified HUBZone SBC's eligibility or 
determines it is not eligible for the program, SBA may propose 
decertification of the concern.
    (a) Proposing Decertification. Except as set forth in paragraph (c) 
of this section, the Deputy D/HUB or designee will first notify the 
qualified HUBZone SBC in writing that SBA is proposing to decertify it, 
the reasons for the proposed de-certification, and that the SBC must 
rebut each of the reasons SBA sets forth. The qualified HUBZone SBC will 
have 30 calendar days from the date that it receives SBA's notification 
to respond, in writing, to the D/HUB or designee.
    (b) SBA's Decision. The D/HUB or designee will consider the reasons 
for proposed decertification and the qualified HUBZone SBC's response 
before making a written decision whether to decertify. The D/HUB may 
draw an adverse inference where a qualified HUBZone SBC fails to 
cooperate with SBA or provide the information requested. The D/HUB's 
decision is the final agency decision.
    (c) Decertifying Pursuant to a Protest. SBA will decertify a 
qualified HUBZone SBC and remove its name from the List without first 
proposing it for decertification if the D/HUB upholds a protest pursuant 
to Sec. 126.803 and the D/HUB's decision is not overturned pursuant to 
Sec. 126.805.

[69 FR 29424, May 24, 2004, as amended at 70 FR 51250, Aug. 30, 2005]



Sec. 126.504  When is a concern removed from the List?

    If SBA determines at any time that a HUBZone SBC is not qualified, 
SBA

[[Page 497]]

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.

[63 FR 31908, June 11, 1998. Redesignated at 69 FR 29424, May 24, 2004]



                    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
    (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, the 
qualified HUBZone SBC, together with its affiliates, must be small under 
the size standard corresponding to the NAICS code assigned to the 
contract.
    (b) A firm must be a qualified HUBZone SBC both at the time of its 
initial offer and at the time of award in order to be eligible for a 
HUBZone contract.
    (c) At the time a qualified HUBZone SBC submits its initial offer, 
and where applicable its final offer, on a specific HUBZone contract, it 
must certify to the CO that:
    (1) It is a qualified HUBZone SBC that appears on SBA's List;
    (2) There has been no material change in its circumstances since the 
date of certification shown on the List that could affect its HUBZone 
eligibility;
    (3) It is small under the NAICS code assigned to the procurement; 
and
    (4) If the qualified HUBZone SBC was certified pursuant to Sec. 
126.200(b), it must represent that it will ``attempt to maintain'' (See 
Sec. 126.103) the required percentage of employees who are HUBZone 
residents during the performance of a HUBZone contract. If the qualified 
HUBZone SBC was certified pursuant to Sec. 126.200(a), then it must 
represent that at least 35% of its employees engaged in performing the 
HUBZone contract reside within any Indian reservation governed by one or 
more of its Indian Tribal Government owners or reside within any HUBZone 
adjoining any such Indian reservation.
    (d) If submitting an offer as a joint venture, each qualified 
HUBZone SBC must make the certifications in paragraph (c) of this 
section separately under its own name.
    (e) A qualified HUBZone SBC may submit an offer on a HUBZone 
contract for supplies as a nonmanufacturer if it meets the requirements 
of the nonmanufacturer rule set forth at Sec. 121.406(b)(1) of this 
chapter, and if the small manufacturer providing the end item for the 
contact is also a qualified HUBZone SBC.
    (1) There are no waivers to the nonmanufacturer rule for HUBZone 
contracts.
    (i) SBA will not issue contract-specific waivers as it does for 
small business set-aside and 8(a) contracts under Sec. 121.406(b)(3)(i) 
of this chapter.
    (ii) Class waivers issued under Sec. 121.406(b)(3)(ii) of this 
chapter do not apply to HUBZone contracts.
    (2) 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, so long as the product acquired is 
manufactured or produced in the United States.

[69 FR 29424, May 24, 2004]



Sec. 126.602  Must a qualified HUBZone SBC maintain the employee 
residency percentage during contract performance?

    Qualified HUBZone SBCs eligible for the program pursuant to Sec. 
126.200(b)

[[Page 498]]

must ``attempt to maintain'' (See Sec. 126.103) the required percentage 
of employees who reside in a HUBZone during the performance of any 
contract awarded to the concern on the basis of its HUBZone status. 
Qualified HUBZone SBCs eligible for the program pursuant to Sec. 
126.200(a) must have at least 35% of its employees engaged in performing 
a HUBZone contract residing within any Indian reservation governed by 
one or more of the concern's Indian Tribal Government owners, or 
residing within any HUBZone adjoining any such Indian reservation. To 
monitor compliance, SBA will conduct program examinations, pursuant to 
Sec. Sec. 126.400 through 126.403, where appropriate.

[69 FR 29425, May 24, 2004]



Sec. 126.603  Does HUBZone certification guarantee receipt of HUBZone 
contracts?

    HUBZone certification does not guarantee that a qualified HUBZone 
SBC will receive HUBZone contracts. Qualified HUBZone SBCs should market 
their capabilities to appropriate contracting activities in order to 
increase the prospect that the contracting activity will adopt an 
acquisition strategy that includes HUBZone contract opportunities.

[69 FR 29425, May 24, 2004]



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 the requirement 
through the 8(a)BD program or SBA has accepted the requirement for award 
through the 8(a)BD program, unless SBA has consented to release the 
requirement from the 8(a)BD program.

[63 FR 31908, June 11, 1998, as amended at 69 FR 29425, May 24, 2004]



Sec. 126.606  May a CO request that SBA release a requirement from 
the 8(a)BD program for award as a HUBZone contract?

    A CO may request that SBA release an 8(a) requirement for award as a 
HUBZone contract. However, SBA will grant its consent only where neither 
the incumbent nor any other 8(a) participant can perform the 
requirement. The request must be made to the D/BD, who will make a 
determination after consulting with the D/HUB.

[69 FR 29425, May 24, 2004]



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) If the contracting officer determines that Sec. 126.605 does 
not apply, the contracting officer shall set aside the requirement for 
HUBZone, 8(a) or SDVO SBC contracting before setting aside the 
requirement as a small business set-aside.
    (c) If the contracting officer decides to set aside the requirement 
for competition restricted to qualified HUBZone SBCs, the contracting 
officer must:
    (1) Have 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) Determine that award can be made at fair market price.

[63 FR 31908, June 11, 1998, as amended at 70 FR 51250, Aug. 30, 2005]



Sec. 126.608  Are there HUBZone contract opportunities at or below 
the simplified acquisition threshold or micropurchase threshold?

    A CO may make a requirement available as a HUBZone set-aside if it 
is at or below the simplified acquisition threshold. In addition, a CO 
may award a requirement as a HUBZone contract

[[Page 499]]

to a qualified HUBZone SBC at or below the micropurchase threshold.

[69 FR 29425, May 24, 2004]



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?

    (a) The Administrator may appeal a CO's decision not to make a 
particular requirement available for award as a HUBZone contract to the 
Secretary of the department or head of the agency.
    (b) An appeal is initiated by SBA's Procurement Center 
Representative to the CO, and may be in response to information supplied 
by the D/HUB, his or her designee, or other interested parties.

[69 FR 29425, May 24, 2004]



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 CO, SBA must file its formal appeal with the 
Secretary of the department or head of the agency, or the appeal will be 
deemed withdrawn.
    (d) Decision. The contracting activity must specify in writing the 
reasons for a denial of an appeal brought under this section.

[63 FR 31908, June 11, 1998, as amended at 69 FR 29425, May 24, 2004]



Sec. 126.612  When may a CO award sole source contracts to qualified 
HUBZone SBCs?

    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 Sec. Sec. 126.605 or 126.607 apply;
    (b) The anticipated award price of the contract, including options, 
will not exceed:
    (1) $5,000,000 for a requirement within the NAICS codes for 
manufacturing; or
    (2) $3,000,000 for a requirement within all other NAICS 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) In the estimation of the CO, contract award can be made at a 
fair and reasonable price.

[63 FR 31908, June 11, 1998, as amended at 69 FR 29425, May 24, 2004]



Sec. 126.613  How does a price evaluation preference affect the bid of a 
qualified HUBZone SBC in full and open competition?

    (a)(1) Where a CO will award a contract on the basis of full and 
open competition, the CO must deem the price offered by a qualified 
HUBZone SBC to be lower than the price offered by another offeror (other 
than another SBC)

[[Page 500]]

if the price offered by the qualified HUBZone SBC is not more than 10% 
higher than the price offered by the otherwise lowest, responsive, and 
responsible offeror. For a best value procurement, the CO must apply the 
10% preference to the otherwise successful offer of a large business and 
then determine which offeror represents the best value to the 
Government, in accordance with the terms of the solicitation.
    (2) Where, after considering the price evaluation adjustment, the 
price offered by a qualified HUBZone SBC is equal to the price offered 
by a large business (or, in a best value procurement, the total 
evaluation points received by a qualified HUBZone SBC is equal to the 
total evaluation points received by a large business), award shall be 
made to the qualified HUBZone SBC.

    Example 1: In a full and open competition, a qualified HUBZone SBC 
submits an offer of $98, a non-HUBZone SBC submits an offer of $95, and 
a large business submits an offer of $93. The lowest, responsive, 
responsible offeror would be the large business. However, the CO must 
apply the HUBZone price evaluation preference. In this example, the 
qualified HUBZone SBC's offer is not more than 10% higher than the large 
business' offer and, consequently, the qualified HUBZone SBC displaces 
the large business as the lowest, responsive, and responsible offeror.
    Example 2: In a full and open competition, a qualified HUBZone SBC 
submits an offer of $103, a non-HUBZone SBC submits an offer of $100, 
and a large business submits an offer of $93. The lowest, responsive, 
responsible offeror would be from the large business. The CO must then 
apply the HUBZone price evaluation preference. In this example, the 
qualified HUBZone SBC's offer is more than 10% higher than the large 
business' offer and, consequently, the qualified HUBZone SBC does not 
displace the large business as the lowest, responsive, and responsible 
offeror. In addition, the non-HUBZone SBC's offer at $100 does not 
displace the large business' offer because a price evaluation preference 
is not applied to change an offer and benefit a non-HUBZone SBC.
    Example 3: In a full and open competition, a qualified HUBZone SBC 
submits an offer of $98 and a non-HUBZone SBC submits an offer of $93. 
The CO would not apply the price evaluation preference in this 
procurement because the lowest, responsive, responsible offeror is a 
SBC.

    (b)(1) For purchases by the Secretary of Agriculture of agricultural 
commodities, the price evaluation preferences shall be:
    (i) 10%, for the portion of a contract to be awarded that is not 
greater than 25% of the total volume being procured for each commodity 
in a single invitation for bids (IFB);
    (ii) 5%, for the portion of a contract to be awarded that is greater 
than 25%, but not greater than 40%, of the total volume being procured 
for each commodity in a single IFB; and
    (iii) Zero, for the portion of a contract to be awarded that is 
greater than 40% of the total volume being procured for each commodity 
in a single IFB.
    (2) The 10% and 5% price evaluation preferences for agricultural 
commodities apply to all offers from qualified HUBZone SBCs up to the 
25% and 40% volume limits specified in paragraph (b)(1) of this section. 
As such, more than one qualified HUBZone SBC may receive a price 
evaluation preference for any given commodity in a single IFB.

    Example: There is an IFB for 100,000 pounds of wheat. Bid 1 (from a 
large business) is $1/pound for 100,000 pounds of wheat. Bid 2 (from a 
HUBZone SBC) is $1.05/pound for 20,000 pounds of wheat. Bid 3 (from a 
HUBZone SBC) is $1.04/pound for 20,000 pounds. Bid 3 receives a 10% 
price evaluation adjustment for 20,000 pounds, since 20,000 is less than 
25% of 100,000 pounds. With the 10% price evaluation adjustment, Bid 1 
changes from $20,000 for the first 20,000 pounds to $22,000. Bid 3's 
price of $20,800 ($1.04 x 20,000) is now lower than any other bid for 
20,000 pounds. Thus, Bid 3 will be accepted for the full 20,000 pounds. 
Bid 2 receives a 10% price evaluation adjustment for that amount of its 
bid when added to the volume in Bid 3 that does not exceed 25% of the 
total volume being procured. Since 25,000 pounds is 25% of the total 
volume of wheat under the IFB, and Bid 3 totaled 20,000 pounds, a 10% 
price evaluation adjustment will be applied to the first 5,000 pounds of 
Bid 2. With the price evaluation adjustment, the price for Bid 1, as 
measured against Bid 2, for 5,000 pounds changes from $5,000 to $5,500. 
Bid 2's price of $5,250 ($1.05 x 5,000) is lower than Bid 1 for 5,000 
pounds. Bid 2 will then receive a 5% price evaluation adjustment for the 
remaining 15,000 pounds, since the total volume of Bids 3 and 2 
receiving an adjustment does not exceed 40% of the total volume of wheat 
under the IFB (i.e., 40,000 pounds). With the 5% price evaluation 
adjustment, Bid 1's price for the next 15,000 pounds changes from 
$15,000 to $15,750. Bid 2's price for that 15,000

[[Page 501]]

pounds is also $15, 750 ($1.05 x 15,000). Because the evaluation price 
for Bid 2 is not more than 10% higher than the price offered by Bid 1, 
Bid 2's price is deemed to be lower than the price offered by Bid 1. 
Since the evaluation price for both the first 5,000 pounds (receiving a 
10% price evaluation adjustment) and the remaining 15,000 pounds 
(receiving a 5% price evaluation adjustment) is less than Bid 1, Bid 2 
will be accepted for the full 20,000 pounds.

    (c) For purchases by the Secretary of Agriculture of agricultural 
commodities for export operations through international food aid 
programs administered by the Farm Service Agency, the price evaluation 
preference shall be 5% on the first portion of a contract to be awarded 
that is not greater than 20% of the total volume being procured for each 
commodity in a single IFB.
    (d) A contract awarded to a qualified HUBZone SBC under a preference 
described in paragraph (b) of this section shall not be counted toward 
the fulfillment of any requirement partially set aside for competition 
restricted to SBCs.

[69 FR 29425, May 24, 2004, as amended at 70 FR 51250, Aug. 30, 2005]



Sec. 126.614  How does a CO apply HUBZone and SDB price evaluation 
preferences in full and open competition?

    A CO may receive offers from both qualified HUBZone SBCs and SDB 
concerns, or from concerns that qualify as both, during a full and open 
competition. The CO must first apply the SDB price evaluation preference 
described in 10 U.S.C. 2323 to all appropriate offerors. The CO must 
then apply the HUBZone price evaluation preference as described in Sec. 
126.613 to all appropriate offerors. 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. 126.613 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.

    Example 1: In a full and open competition, a qualified HUBZone SBC 
(but not an SDB) submits an offer of $102; an SDB (but not a qualified 
HUBZone SBC) submits an offer of $107; and a large business submits an 
offer of $93. The CO first applies the SDB price evaluation preference 
and adds 10% to the qualified HUBZone SBC's offer thereby making that 
offer $112.2, and to the large business's offer thereby making that 
offer $102.3. As a result, the large business is the lowest, responsive, 
and responsible offeror. Next, the CO applies the HUBZone preference 
and, since the qualified HUBZone SBC's offer is not more than 10% higher 
than the large business's offer, the CO must deem the price offered by 
the qualified HUBZone SBC to be lower than the price offered by the 
large business.
    Example 2: A qualified HUBZone SBC (but not an SDB) submits an offer 
of $102; a qualified HUBZone SBC that is also an SDB submits an offer of 
$105; an SDB (but not a qualified HUBZone SBC) submits an offer of $107; 
a small business concern (but not a qualified HUBZone SBC or an SDB) 
submits an offer of $100; and a large business submits an offer of $93. 
The CO must first apply the SDB price evaluation preference to establish 
the lowest, responsive, and responsible offeror. Thus, the qualified 
HUBZone SBC's offer becomes $112.2; the qualified HUBZone SBC/SDB's 
offer remains $105; the SDB's offer remains $107; the small business 
concern's offer becomes $110; and the large business's offer becomes 
$102.3. As a result of the SDB price evaluation preference, the large 
business is the lowest, responsive, and responsible offeror. Next, the 
CO must apply the HUBZone price evaluation preference and if a qualified 
HUBZone SBC's price is not more than 10% higher than the large 
business's price, the CO must deem its price to be lower than the large 
business's price. In this example, the qualified HUBZone price of $112.2 
is not more than 10% higher than the large business's price, however, 
the qualified HUBZone/SDB's price of $105 is also not more than 10% 
higher than the large business's price and is lower than the qualified 
HUBZone SBC's price. Consequently, the CO must deem the price of the 
qualified HUBZone/SDB as the lowest, responsive, and responsible 
offeror.

[69 FR 29426, May 24, 2004]



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.

[[Page 502]]



Sec. 126.616  What requirements must a joint venture satisfy to submit 
an offer on a HUBZone contract?

    A joint venture may submit an offer 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 another qualified HUBZone SBC for the purpose of 
submitting an offer for a HUBZone contract. The joint venture itself 
need not be certified as a qualified HUBZone SBC.
    (b) Size of concerns. (1) A joint venture of two or more qualified 
HUBZone SBCs may submit an offer for a HUBZone contract so long as each 
concern is small under the size standard corresponding to the NAICS code 
assigned to the contract and the HUBZone joint venture in the aggregate 
may exceed the size standard provided the procurement meets the 
following conditions:
    (i) For a procurement having a revenue-based size standard, the 
procurement exceeds half the size standard corresponding to the NAICS 
code assigned to the contract; and
    (ii) For a procurement having an employee-based size standard, the 
procurement exceeds $10 million.
    (2) For a procurement that does not exceed the applicable dollar 
amount specified in paragraph (b)(1) of this section, a joint venture of 
two or more qualified HUBZone SBCs may submit an offer for a HUBZone 
contract so long as the qualified HUBZone SBCs in the aggregate are 
small under the size standard corresponding to the NAICS code assigned 
to the contract.
    (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 13 CFR 125.6.

[69 FR 29426, May 24, 2004]



Sec. 126.617  Who decides contract disputes arising between a qualified 
HUBZone SBC and a contracting activity after the award of a HUBZone 

contract?

    For purposes of the Disputes Clause of a specific HUBZone contract, 
the contracting activity will decide disputes arising between a 
qualified HUBZone SBC and the contracting activity.

[69 FR 29426, May 24, 2004]



Sec. 126.618  How does a HUBZone SBC's participation in a 
Mentor-Prot[eacute]g[eacute] relationship affect its participation 

in the HUBZone Program?

    (a) Qualified HUBZone SBCs may enter into Mentor-
Prot[eacute]g[eacute] relationships in connection with other Federal 
programs, provided that such relationships do not conflict with the 
underlying HUBZone requirements.
    (b) For purposes of determining whether an applicant to the HUBZone 
Program or a HUBZone SBC qualifies as small under part 121 of this 
chapter, SBA will not find affiliation between the applicant or 
qualified HUBZone SBC and the firm that is its mentor in a Federally-
approved mentor-Prot[eacute]g[eacute] relationship (including a mentor 
that is other than small) on the basis of the mentor-
Prot[eacute]g[eacute] agreement.
    (c)(1) A qualified HUBZone SBC that is a prime contractor on a 
HUBZone contract may team with and subcontract work to its mentor.
    (i) The HUBZone SBC must meet the applicable performance of work 
requirement set forth in Sec. 125.6(b) of this chapter.
    (ii) SBA may find affiliation between a prime HUBZone contractor and 
its mentor subcontractor where the mentor will perform primary and vital 
requirements of the contract. See Sec. 121.103(f)(4) of this chapter.
    (2) A qualified HUBZone SBC may not joint venture with its mentor on 
a HUBZone contract unless the mentor is also a qualified HUBZone SBC.

[69 FR 29427, May 24, 2004]



               Subpart G_Contract Performance Requirements



Sec. 126.700  What are the performance of work requirements for 
HUBZone contracts?

    (a) A prime contractor receiving an award as a qualified HUBZone SBC 
must meet the performance of work requirements set forth in Sec. 
125.6(c) of this chapter.

[[Page 503]]

    (b) In addition to the requirements set forth in Sec. 125.6(c), one 
or more qualified HUBZone SBCs must spend at least 50% of the cost of 
the contract incurred for personnel on its own employees or employees of 
other qualified HUBZone SBCs.
    (1) A qualified HUBZone SBC prime contractor receiving a HUBZone 
contract for general construction may meet this requirement itself by 
expending at least 50% of the cost of the contract incurred for 
personnel on its employees or it may subcontract at least 35% of the 
cost of the contract performance incurred for personnel to one or more 
qualified HUBZone SBCs. A qualified HUBZone SBC prime contractor may 
not, however, subcontract more than 50% of the cost of the contract 
incurred for personnel to non-qualified HUBZone SBCs.
    (2) A qualified HUBZone SBC prime contractor receiving a HUBZone 
contract for specialty construction may meet this requirement itself by 
expending at least 50% of the cost of the contract incurred for 
personnel on its employees or it may subcontract at least 25% of the 
cost of the contract performance incurred for personnel to one or more 
qualified HUBZone SBCs. A qualified HUBZone SBC prime contractor may 
not, however, subcontract more than 50% of the cost of the contract 
incurred for personnel to non-qualified HUBZone SBCs.
    (c) A contracting officer may waive the 50% requirement set forth in 
paragraph (b) of this section for a particular procurement after 
determining that at least two qualified HUBZone SBCs cannot meet the 
requirement. Where a waiver is granted, the qualified HUBZone SBC prime 
contractor must still meet the performance of work requirements set 
forth in Sec. 125.6(c) of this chapter.

[70 FR 51250, Aug. 30, 2005]



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?

    SBA may change the required subcontracting percentage for a specific 
industry if the Administrator determines that such action is necessary 
to reflect conventional industry practices among SBCs that are below the 
numerical size standard for businesses in that industry group. The 
procedures for requesting changes in subcontracting percentages are set 
forth in Sec. 125.6 of this chapter.

[69 FR 29427, May 24, 2004]



                           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. SBA, the CO, or any other interested 
party may protest the apparent successful offeror's qualified HUBZone 
SBC status.

[63 FR 31908, June 11, 1998, as amended at 69 FR 29427, May 24, 2004]



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 other than small for 
purposes of any Federal program are subject to part 121 of this chapter 
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 protests concurrently, under the procedures set forth in part 
121 of this chapter and this part. SBA does not review issues concerning 
the administration of a HUBZone contract.
    (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

[[Page 504]]

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 
D/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) For negotiated acquisitions, an interested party 
must submit its protest by close of business on the fifth business day 
after notification by the contracting officer of the apparent successful 
offeror.
    (2) For sealed bid acquisitions:
    (i) An interested party must submit its protest by close of business 
on the fifth business day after bid opening, or
    (ii) If the price evaluation preference was not applied at the time 
of bid opening, by close of business on the fifth business day from the 
date of identification of the apparent successful offeror.
    (3) Any protest submitted after the time limits is untimely, unless 
it is from SBA or the CO.
    (4) Any protest received prior to bid opening or notification of 
intended award, whichever applies, is premature.
    (e) Referral to SBA. The CO must forward to SBA any non-premature 
protest received, notwithstanding whether he or she believes it is 
sufficiently specific or timely. The CO must send the protests, along 
with a referral letter, to D/HUB, U.S. Small Business Administration, 
409 3rd Street, SW, Washington, DC 20416. The CO's referral letter must 
include information pertaining to the solicitation that may be necessary 
for SBA to determine timeliness and standing, including: the 
solicitation number; the name, address, telephone number and facsimile 
number of the CO; the type of HUBZone contract at issue; if the 
procurement was conducted using full and open competition with a HUBZone 
price evaluation preference, and whether the protester's opportunity for 
award was affected by the preference; if the procurement was a HUBZone 
set-aside, whether the protester submitted an offer; whether the 
protested concern was the apparent successful offeror; whether the 
procurement was conducted using sealed bid or negotiated procedures; the 
bid opening date, if applicable; when the protest was submitted to the 
CO; and whether a contract has been awarded.

[63 FR 31908, June 11, 1998, as amended at 69 FR 29427, May 24, 2004]



Sec. 126.802  Who decides a HUBZone status protest?

    The D/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.
    (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 AA/GC&BD, 
pursuant to Sec. 126.805. If

[[Page 505]]

SBA upholds the protest, SBA will decertify the concern.

[63 FR 31908, June 11, 1998, as amended at 69 FR 29427, May 24, 2004]



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 
CO may file appeals of protest determinations with the ADA/GC&BD.
    (b) Timeliness of appeal. The ADA/GC&BD must receive the appeal no 
later than five 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&BD will make a decision within five 
business days of receipt of the appeal, if practicable, and will base 
his or her 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 CO, the protestor, and the protested HUBZone SBC, 
consistent with law. The ADA/GC&BD's decision is the final agency 
decision.

[63 FR 31908, June 11, 1998, as amended at 69 FR 29427, May 24, 2004]



                           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 
penalties under the False Claims Act, 31 U.S.C. 3729-3733, 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

[[Page 506]]

failure to correct ``continuing representations'' that are no longer 
true.

[63 FR 31908, June 11, 1998, as amended at 69 FR 29428, May 24, 2004]



PART 127_WOMEN	OWNED SMALL BUSINESS FEDERAL CONTRACT ASSISTANCE 
PROCEDURES--Table of Contents




                      Subpart A_General Provisions

Sec.
127.100 What is the purpose of this part?
127.101 What type of assistance is available under this part?
127.102 What are the definitions of the terms used in this part?

   Subpart B_Eligibility Requirements To Qualify as an EDWOSB or WOSB

127.200 What are the requirements a concern must meet to qualify as an 
          EDWOSB or WOSB?
127.201 What are the requirements for ownership of an EDWOSB and WOSB?
127.202 What are the requirements for control of an EDWOSB or WOSB?
127.203 What are the rules governing the requirement that economically 
          disadvantaged women must own EDWOSBs?

            Subpart C_Certification of EDWOSB or WOSB Status

127.300 How is a concern certified as an EDWOSB or WOSB?
127.301 When may a contracting officer accept a concern's self-
          certification?
127.302 What third-party certifications may a concern use as evidence of 
          its status as a qualified EDWOSB or WOSB?
127.303 How will SBA select and identify approved certifiers?
127.304 How does a concern obtain certification from an approved 
          certifier?
127.305 May a concern determined not to qualify as an EDWOSB or WOSB 
          submit a self-certification for a particular EDWOSB or WOSB 
          requirement?

                   Subpart D_Eligibility Examinations

127.400 What is an eligibility examination?
127.401 What is the difference between an eligibility examination and an 
          EDOWSB or WOSB status protest pursuant to subpart F of this 
          part?
127.402 How will SBA conduct an eligibility examination?
127.403 What happens if SBA verifies the concern's eligibility?
127.404 What happens if SBA is unable to verify a concern's eligibility?
127.405 What is the process for requesting an eligibility examination?

                  Subpart E_Federal Contract Assistance

127.500 In what industries is a contracting officer authorized to 
          restrict competition under this part?
127.501 How will SBA and the agencies determine the industries that are 
          eligible for EDWOSB or WOSB requirements.
127.502 How will SBA identify and provide notice of the designated 
          industries?
127.503 When is a contracting officer authorized to restrict competition 
          under this part?
127.504 What additional requirements must a concern satisfy to submit an 
          offer on an EDWOSB or WOSB requirement?
127.505 May a non-manufacturer submit an offer on an EDWOSB or WOSB 
          requirement for supplies?
127.506 May a joint venture submit an offer on an EDWOSB or WOSB 
          requirement?

                           Subpart F_Protests

127.600 Who may protest the status of a concern as an EDWOSB or WOSB?
127.601 May a protest challenging the size and status of a concern as an 
          EDWOSB or WOSB be filed together?
127.602 What are the grounds for filing an EDWOSB or WOSB status 
          protest?
127.603 What are the requirements for filing an EDWOSB or WOSB protest?
127.604 How will SBA process an EDWOSB or WOSB status protest?
127.605 What are the procedures for appealing an EDWOSB or WOSB status 
          protest decision?

                           Subpart G_Penalties

127.700 What penalties may be imposed under this part?

    Authority: 15 U.S.C. 632, 634(b)(6), 637(m), and 644.

    Source: 73 FR 56948, Oct. 31, 2008, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 127.100  What is the purpose of this part?

    Section 8(m) of the Small Business Act authorizes certain 
procurement mechanisms to increase Federal contracting opportunities for 
women-owned small businesses (WOSBs) and to assist agencies in achieving 
their WOSB participation goals established under Section 15(g) of the 
Small Business Act.

[[Page 507]]



Sec. 127.101  What type of assistance is available under this part?

    This part authorizes contracting officers to restrict competition to 
eligible WOSBs for certain Federal contracts in industries in which the 
Small Business Administration (SBA) determines that WOSBs are 
underrepresented or substantially underrepresented in Federal 
procurement and in which the procuring agency has satisfied itself 
through appropriate analysis (including analysis of its own procurement 
history), that the set-aside would meet all applicable legal 
requirements, including the equal protection requirements of the Due 
Process Clause of the Fifth Amendment of the Constitution.



Sec. 127.102  What are the definitions of the terms used in this part?

    For purposes of this part:
    8(a) Business Development (8(a) BD) concern means a concern that SBA 
has certified as an 8(a) BD program participant.
    AA/GC&BD means SBA's Associate Administrator for Government 
Contracting and Business Development.
    Central Contractor Registration (CCR) means the system that 
functions as the central registration and repository of contractor data 
for the Federal government. CCR also serves as the single portal for 
conducting searches of small business contractors. Prospective Federal 
contractors must be registered in CCR prior to award of a contract or 
purchase agreement, unless the award results from a solicitation issued 
on or before May 31, 1998.
    Citizen means a person born or naturalized in the United States. 
Resident aliens and holders of permanent visas are not considered to be 
citizens.
    Concern means a firm that satisfies the requirements in Sec. 
121.105 this chapter.
    Contracting officer has the meaning given to that term in Section 
27(f)(5) of the Office of Federal Procurement Policy Act (codified at 41 
U.S.C. 423(f)(5)).
    D/GC means SBA's Director for Government Contracting.
    Economically disadvantaged WOSB (EDWOSB) means a concern that is 
small pursuant to part 121 of this title and that is at least 51% owned 
and controlled by one or more women who are U.S. citizens and who are 
economically disadvantaged in accordance with Sec. Sec. 127.200, 
127.201, 127.202 and 127.203. An EDWOSB automatically qualifies as a 
WOSB.
    EDWOSB requirement means a Federal requirement for services or 
supplies for which a contracting officer has restricted competition to 
EDWOSBs.
    Immediate family member means father, mother, husband, wife, son, 
daughter, brother, sister, grandfather, grandmother, grandson, 
granddaughter, father-in-law, mother-in-law, son-in-law, and daughter-
in-law.
    Interested party means any concern that submits an offer for a 
specific EDWOSB or WOSB requirement, the contracting activity's 
contracting officer, or SBA.
    ORCA means the Online Representations and Certifications Application 
at https://orca.bpn.gov, a required registration for contractors 
interested in bidding on most Federal contracts.
    Primary industry classification means the six-digit North American 
Industry Classification System (NAICS) code designation that best 
describes the primary business activity of the concern. The NAICS code 
designations are described in the NAICS manual available via the 
Internet at http://www.census.gov/NAICS. In determining the primary 
industry in which a concern is engaged, SBA will consider the factors 
set forth in Sec. 121.107 of this chapter.
    Small disadvantaged business (SDB) means a concern that SBA has 
certified in accordance with subpart B of part 124 of this chapter, and 
is designated on CCR as an SDB.
    Substantial underrepresentation means a disparity ratio between 0.0 
and 0.5; i.e., the ratio representing the WOSB share of Federal prime 
contract dollars divided by the WOSB share of total business receipts.
    Underrepresentation means a disparity ratio between 0.5 and 0.8; 
i.e., the ratio representing the WOSB share of Federal prime contract 
dollars divided by the WOSB share of total business receipts.
    WOSB means a concern that is small pursuant to part 121 of this 
chapter,

[[Page 508]]

and that is at least 51% owned and controlled by one or more women in 
accordance with Sec. Sec. 127.200, 127.201 and 127.202.
    WOSB requirement means a Federal requirement for services or 
supplies for which a contracting officer has restricted competition to 
eligible WOSBs.



   Subpart B_Eligibility Requirements To Qualify as an EDWOSB or WOSB



Sec. 127.200  What are the requirements a concern must meet to qualify 
as an EDWOSB or WOSB?

    (a) Qualification as an EDWOSB. To qualify as an EDWOSB, a concern 
must be:
    (1) A small business as defined in part 121 of this chapter; and
    (2) Not less than 51 percent unconditionally and directly owned and 
controlled by one or more women who are United States citizens and are 
economically disadvantaged.
    (b) Qualification as a WOSB. To qualify as a WOSB, a concern must 
be:
    (1) A small business as defined in part 121 of this chapter; and
    (2) Not less than 51 percent unconditionally and directly owned and 
controlled by one or more women who are United States citizens.



Sec. 127.201  What are the requirements for ownership of an EDWOSB and 
WOSB?

    (a) General. To qualify as an EDWOSB or WOSB, one or more women must 
unconditionally and directly own at least 51 percent of the concern. 
Ownership will be determined without regard to community property laws.
    (b) Requirement for unconditional ownership. To be considered 
unconditional, the ownership must not be subject to any conditions, 
executory agreements, voting trusts, or other arrangements that cause or 
potentially cause ownership benefits to go to another. 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.
    (c) Requirement for direct ownership. To be considered direct, the 
qualifying women must own 51 percent of the concern directly. The 51 
percent ownership may not be through another business entity or a trust 
(including employee stock ownership trusts) that is, in turn, owned and 
controlled by one or more women or economically disadvantaged women. 
However, ownership by a trust, such as a living trust, may be treated as 
the functional equivalent of ownership by a woman or economically 
disadvantaged woman where the trust is revocable, and the woman is the 
grantor, a trustee, and the sole current beneficiary of the trust.
    (d) Ownership of a partnership. In the case of a concern that is a 
partnership, at least 51 percent of each class of partnership interest 
must be unconditionally owned by one or more women. The ownership must 
be reflected in the concern's partnership agreement. For purposes of 
this requirement, general and limited partnership interests are 
considered different classes of partnership interest.
    (e) Ownership of a limited liability company. In the case of a 
concern that is a limited liability company, at least 51 percent of each 
class of member interest must be unconditionally owned by one or more 
women.
    (f) Ownership of a corporation. In the case of a concern that 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 women. In determining 
unconditional ownership of the concern, any unexercised stock options or 
similar agreements held by a woman will be disregarded. However, any 
unexercised stock option or other agreement, including the right to 
convert non-voting stock or debentures into voting stock, held by any 
other individual or entity will be treated as having been exercised.



Sec. 127.202  What are the requirements for control of an EDWOSB or 
WOSB?

    (a) General. To qualify as an EDWOSB or WOSB, the management and 
daily business operations of the concern must be controlled by one or

[[Page 509]]

more women. Control by one or more women means that both the long-term 
decision making and the day-to-day management and administration of the 
business operations must be conducted by one or more women.
    (b) Managerial position and experience. A woman must hold the 
highest officer position in the concern (usually President or Chief 
Executive Officer) and must have managerial experience of the extent and 
complexity needed to run the concern. The woman manager need not have 
the technical expertise or possess the required license to be found to 
control the concern if she can demonstrate that she has ultimate 
managerial and supervisory control over those who possess the required 
licenses or technical expertise. However, if a man possesses the 
required license and has an equity interest in the concern, he may be 
found to control the concern.
    (c) Limitation on outside employment. The woman who holds the 
highest officer position of the concern may not engage in outside 
employment that prevents her from devoting sufficient time and attention 
to the daily affairs of the concern to control its management and daily 
business operations.
    (d) Control over a partnership. In the case of a partnership, one or 
more women must serve as general partners, with control over all 
partnership decisions.
    (e) Control over a limited liability company. In the case of a 
limited liability company, one or more women must serve as management 
members, with control over all decisions of the limited liability 
company.
    (f) Control over a corporation. One or more women must control the 
Board of Directors of the concern. Women are considered to control the 
Board of Directors when either:
    (1) One or more women own at least 51 percent of all voting stock of 
the concern, are on the Board of Directors and have the percentage of 
voting stock necessary to overcome any super majority voting 
requirements; or
    (2) Women comprise the majority of voting directors through actual 
numbers or, where permitted by state law, through weighted voting.
    (g) Involvement in the concern by other individuals or entities. Men 
or other entities may be involved in the management of the concern and 
may be stockholders, partners or limited liability members of the 
concern. However, no males or other entity may exercise actual control 
or have the power to control the concern.



Sec. 127.203  What are the rules governing the requirement that 
economically disadvantaged women must own EDWOSBs?

    (a) General. To qualify as an EDWOSB, the concern must be at least 
51% owned by one or more women who are economically disadvantaged. A 
woman is economically disadvantaged if she can demonstrate that her 
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.
    (b) Limitation on personal net worth. In order to be considered 
economically disadvantaged, the woman's personal net worth must be less 
than $750,000, excluding her ownership interest in the concern and 
equity in her primary personal residence.
    (c) Factors that may be considered. The personal financial condition 
of the woman claiming economic disadvantage, including her personal 
income for the past two years (including bonuses, and the value of 
company stock given in lieu of cash), her personal net worth and the 
fair market value of all of her assets, whether encumbered or not, may 
be considered in determining whether she is economically disadvantaged.
    (d) Transfers within two years. Assets that a woman claiming 
economic disadvantage transferred within two years of the date of the 
concern's certification will be attributed to the woman claiming 
economic disadvantage if the assets were transferred to an immediate 
family member, or to a trust that has as a beneficiary an immediate 
family member. The transferred assets within the two-year period will 
not be attributed to the woman if the transfer was:
    (1) To or on behalf of an immediate family member for that 
individual's

[[Page 510]]

education, medical expenses, or some other form of essential support; or
    (2) To an immediate family member in recognition of a special 
occasion, such as a birthday, graduation, anniversary, or retirement.



            Subpart C_Certification of EDWOSB or WOSB Status



Sec. 127.300  How is a concern certified as an EDWOSB or WOSB?

    (a) General. At the time a concern submits an offer on a specific 
contract reserved for competition under this Part, it must be registered 
in the Central Contractor Registration (CCR) and have a current self-
certification posted on the Online Representations and Certifications 
Application (ORCA) that it qualifies as an EDWOSB or WOSB.
    (b) Form of certification. In conjunction with its required 
registration in the CCR database, the concern must submit a self-
certification to the electronic annual representations and 
certifications at http://orca.bpn.gov, that it is a qualified EDWOSB or 
WOSB. The self-certification must include a representation, subject to 
penalties for mispresentation, that:
    (1) The concern is certified as a EDWOSB or WOSB by a certifying 
entity approved by SBA and there have been no changes in its 
circumstances affecting its eligibility since certification; or
    (2) The concern meets each of the applicable individual eligibility 
requirements described in subpart B of this part, including that:
    (i) It is a small business concern under the size standard assigned 
to the particular procurement;
    (ii) It is at least 51 percent owned and controlled by one or more 
women who are United States citizens, or it is at least 51 percent owned 
and controlled by one or more women who are United States citizens and 
are economically disadvantaged; and
    (iii) Neither SBA, in connection with an examination or protest, nor 
an SBA-approved certifier has issued a decision currently in effect 
finding that it does not qualify as a EDWOSB or WOSB.
    (c) Update of certification. The concern must update its EDWOSB and 
WOSB representations and self-certification on ORCA as necessary, but at 
least annually, to ensure they are kept current, accurate, and complete. 
The representations and self-certification are effective for a period of 
one year from the date of submission or update to ORCA.



Sec. 127.301  When may a contracting officer accept a concern's 
self-certification?

    (a) General. A contracting officer may accept a concern's self-
certification on ORCA as accurate for a specific procurement reserved 
for award under this Part in the absence of a protest or other credible 
information that calls into question the concern's eligibility as a 
EDWOSB or WOSB. An example of such credible evidence includes 
information that the concern was determined by SBA or an SBA-approved 
certifier not to qualify as an EDWOSB or WOSB.
    (b) Referral to SBA. When the contracting officer has information 
that calls into question the eligibility of a concern as an EDWOSB or 
WOSB, the contracting officer must refer the concern's self-
certification to SBA for verification of the concern's eligibility by 
filing an EDWOSB or WOSB status protest pursuant to subpart F of this 
Part.



Sec. 127.302  What third-party certifications may a concern use as 
evidence of its status as a qualified EDWOSB or WOSB?

    (a) General. In order for a concern to use a certification by 
another entity as evidence of its status as a qualified EDWOSB or WOSB 
in support of its representations in ORCA pursuant to Sec. 127.300(b), 
the concern must have a current, valid certification from:
    (1) SBA as an 8(a) BD or SDB women-owned concern in good standing;
    (2) The Department of Transportation as a disadvantaged business 
enterprise (DBE) that is at least 51 percent owned and controlled by one 
or more women; or
    (3) An entity designated as an SBA-approved certifier on SBA's Web 
site located at http://www.sba.gov/GC.
    (b) [Reserved]

[[Page 511]]



Sec. 127.303  How will SBA select and identify approved certifiers?

    (a) General. SBA may enter into written agreements to accept the 
EDWOSB or WOSB certification of a Federal agency or national certifying 
entity if SBA determines that the entity's certification process 
complies with SBA-approved certification standards and is based upon the 
same EDWOSB or WOSB eligibility requirements set forth in subpart B of 
this part. The written agreement will include a provision authorizing 
SBA to terminate the agreement if SBA subsequently determines that the 
entity's certification process does not comply with SBA-approved 
certification standards or is not based on the same EDWOSB or WOSB 
eligibility requirements as set forth in subpart B of this part.
    (b) Required certification standards. In order for SBA to enter into 
an agreement to accept the EDWOSB or WOSB certification of a Federal 
agency, state government, or national certifying entity, the entity must 
establish the following:
    (1) It will render fair and impartial EDWOSB or WOSB eligibility 
determinations.
    (2) Its certification process will require applicant concerns to 
pre-register on CCR and submit sufficient information to enable it to 
determine whether the concern qualifies as an EDWOSB or WOSB. This 
information must include documentation demonstrating whether the concern 
is:
    (i) A small business concern under SBA's size standards for its 
primary industry classification;
    (ii) At least 51 percent owned and controlled by one or more women 
who are United States citizens; and
    (iii) In the case of a concern applying for EDWOSB certification, at 
least 51 percent owned and controlled by one or more women who are 
United States citizens and economically disadvantaged.
    (3) It will not decline to accept a concern's application for EDWOSB 
or WOSB certification on the basis of race, color, national origin, 
religion, age, disability, sexual orientation, or marital or family 
status.
    (c) List of SBA-approved certifiers. SBA will maintain a list of 
approved certifiers on SBA's Internet Web site at http://www.sba.gov/GC. 
Any interested person may also obtain a copy of the list from the local 
SBA district office.



Sec. 127.304  How does a concern obtain certification from an approved 
certifier?

    A concern that seeks EDWOSB or WOSB certification from an SBA-
approved certifier must submit its application directly to the approved 
certifier in accordance with the specific application procedures of the 
particular certifier. Any interested party may obtain such certification 
information and application by contacting the approved certifier at the 
address provided on SBA's list of approved certifiers.



Sec. 127.305  May a concern determined not to qualify as an EDWOSB or 
WOSB submit a self-certification for a particular EDWOSB or WOSB 

requirement?

    A concern that SBA or an SBA-approved certifier determines does not 
qualify as an EDWOSB or WOSB may not represent itself to be an EDWOSB or 
WOSB, as applicable, unless SBA subsequently determines that it is an 
eligible EDWOSB or WOSB pursuant to the examination procedures under 
Sec. 127.405 of subpart D, and there have been no material changes in 
its circumstances affecting its eligibility since SBA's eligibility 
determination. Any concern determined not to be a qualified EDWOSB or 
WOSB may request that SBA conduct an examination to determine its EDWOSB 
or WOSB eligibility at any time once it believes in good faith that it 
satisfies all of the eligibility requirements to qualify as an EDWOSB or 
WOSB.



                   Subpart D_Eligibility Examinations



Sec. 127.400  What is an eligibility examination?

    An eligibility examination is an investigation by SBA to verify that 
a concern meets the EDWOSB or WOSB eligibility requirements at the time 
of the examination. SBA may, in its sole discretion, perform an 
examination at any time after a concern self-certifies

[[Page 512]]

in CCR or ORCA that it is an EDWOSB or WOSB.



Sec. 127.401  What is the difference between an eligibility examination 
and an EDWOSB or WOSB status protest pursuant to subpart F of this part?

    (a) Eligibility examination. An eligibility examination is the 
formal process through which SBA verifies and monitors the continuing 
eligibility of a concern that is designated on CCR or ORCA as an EDWOSB 
or WOSB. For purposes of an examination, the D/GC will determine the 
eligibility of a concern as of the date SBA notifies the concern that it 
will conduct the examination. The D/GC's eligibility decision 
constitutes the final agency decision and will be effective and apply to 
all solicitations issued on or after the date of the decision issued 
pursuant to Sec. Sec. 127.403, 127.404(b), or 127.405(e). If SBA is 
conducting an eligibility examination on a concern that has submitted an 
offer on a pending EDWOSB or WOSB procurement and SBA has credible 
information that the concern may not qualify as an EDWOSB or WOSB, then 
SBA may initiate a protest pursuant to Sec. 127.600, to suspend award 
of the contract for 15 business days pending SBA's determination of the 
concern's eligibility.
    (b) EDWOSB or WOSB protests. An EDWOSB or WOSB status protest 
provides a mechanism for challenging or verifying the EDWOSB or WOSB 
eligibility of a concern in connection with a specific EDWOSB or WOSB 
requirement. SBA will process EDWOSB or WOSB protests in accordance with 
the procedures and timeframe set forth in subpart F, and will determine 
the EDWOSB or WOSB eligibility of the protested concern as of the date 
the concern represented its EDWOSB or WOSB status as part of its initial 
offer including price. SBA's protest determination will apply to the 
specific procurement to which the protest relates and to future 
procurements.



Sec. 127.402  How will SBA conduct an examination?

    (a) Notification. No less than 5 business days before commencing an 
examination, SBA will notify the concern in writing that it will conduct 
an examination to determine the status of the concern as an EDWOSB or 
WOSB. The notification also will advise the concern that its EDWOSB or 
WOSB eligibility will be determined based on the status of the concern 
on the date of the notification.
    (b) Request for information. SBA may request that the concern 
provide documentation and information related to the concern's EDWOSB or 
WOSB eligibility. SBA may draw an adverse inference where a concern 
fails to cooperate in providing the requested information.



Sec. 127.403  What happens if SBA verifies the concern's eligibility?

    If SBA verifies that the concern satisfies the applicable EDWOSB or 
WOSB eligibility requirements at the time of the eligibility 
examination, then the D/GC will send the concern a written decision to 
that effect and will allow the concern's EDWOSB or WOSB designation in 
CCR and ORCA to stand.



Sec. 127.404  What happens if SBA is unable to verify a concern's 
eligibility?

    (a) Notice of proposed determination of ineligibility. If SBA is 
unable to verify that the concern qualifies as an EDWOSB or WOSB at the 
time of the examination, then the D/GC will send the concern a written 
notice explaining the reasons SBA believes the concern does not qualify 
as an EDWOSB or WOSB. The notice will advise the concern that it has 15 
calendar days from the date it receives the notice to respond.
    (b) SBA determination. Following the 15-day response period, the D/
GC or designee will consider the reasons of proposed ineligibility and 
any information the concern submitted in response, and will send the 
concern a written decision finding that it either qualifies or does not 
qualify as an EDWOSB or WOSB.
    (1) If SBA verifies that the concern qualifies as an EDWOSB or WOSB 
at the time of the examination, then the D/GC will send the concern a 
decision to that effect and will allow the concern to continue to self-
certify its EDWOSB or WOSB status.
    (2) If SBA determines that the concern does not qualify as an EDWOSB 
or

[[Page 513]]

WOSB, then the D/GC will send the concern a written decision explaining 
the basis of ineligibility, and will require that the concern remove its 
EDWOSB or WOSB designation in the CCR and ORCA within five business days 
after the date of the decision.



Sec. 127.405  What is the process for requesting an eligibility 
examination?

    (a) General. A concern may request that SBA conduct an examination 
to verify its eligibility as an EDWOSB or WOSB at any time after it is 
determined by SBA or an SBA-approved certifier not to qualify as an 
EDWOSB or WOSB, if the concern believes in good faith that it satisfies 
all of the EDWOSB or WOSB eligibility requirements under subpart B of 
this part.
    (b) Format. The request for an examination must be in writing and 
must specify the particular reasons the concern was determined not to 
qualify as an EDWOSB or WOSB.
    (c) Submission of request. The concern must submit its request 
directly to the Director for Government Contracting, U.S. Small Business 
Administration, 409 Third Street, SW., Washington, DC 20416, or by fax 
to (202) 205-6390, marked ``Attn: Request for Women-Owned Small Business 
Procedures Examination.''
    (d) Notice of receipt of request. SBA will immediately notify the 
concern in writing once SBA receives its request for an examination. The 
notification will advise the concern that its eligibility will be 
determined based on the status of the concern on the date of the 
notification. SBA may request that the concern provide documentation and 
information related to the concern's EDWOSB or WOSB eligibility and may 
draw an adverse inference if the concern fails to cooperate in providing 
the requested information.
    (e) Determination of eligibility. The D/GC will send the concern a 
written decision finding that it either qualifies or does not qualify as 
an EDWOSB or WOSB.
    (1) If the D/GC determines that the concern does not qualify as an 
EDWOSB or WOSB, the decision will explain the specific reasons for the 
adverse determination and advise the concern that it is prohibited from 
self-certifying as an EDWOSB or WOSB. If the concern self-certifies as 
an EDWOSB or WOSB notwithstanding SBA's adverse determination, the 
concern will be subject to the penalties under subpart F of this part.
    (2) If the D/GC determines that the concern qualifies as an EDWOSB 
or WOSB, then the D/GC will send the concern a written decision to that 
effect and will advise the concern that it may self-certify as an EDWOSB 
or WOSB, as applicable.
    (f) Effect of decision. The D/GC's decision is effective as of the 
date of the decision and applies to all solicitations issued on or after 
the effective date.



                  Subpart E_Federal Contract Assistance



Sec. 127.500  In what industries is a contracting officer authorized 
to restrict competition under this part?

    A contracting officer may restrict competition under this part only 
in those industries in which SBA has determined that WOSBs are 
underrepresented or substantially underrepresented in Federal 
procurement, as specified in Sec. 127.501(a), and the procuring agency 
finds, pursuant to the method specified in Sec. 127.501(b), that a set-
aside in that industry would be consistent with the equal protection 
requirements of the Due Process Clause of the Fifth Amendment of the 
Constitution.



Sec. 127.501  How will SBA and the agencies determine the industries 
that are eligible for EDWOSB or WOSB requirements?

    (a) SBA determination of underrepresented or substantially 
underrepresented industries.
    (1) Approximately every five years, SBA will conduct a study to 
identify the industries in which WOSBs are underrepresented or 
substantially underrepresented in Federal contracting. The study will 
include an analysis of the extent of disparity of WOSBs in Federal 
contracting.
    (2) Data collection. In determining the extent of disparity of WOSBs 
in Federal contracting, SBA may request that the head of any Federal 
department or agency provide SBA, or other

[[Page 514]]

designated entity, data or information necessary to analyze the extent 
of disparity of WOSBs in Federal contracting.
    (3) Based upon its analysis, SBA will designate by 4-digit NAICS 
Industry Subsector industries in which WOSBs are underrepresented or 
substantially underrepresented.
    (b) Agency determination of discrimination. Each agency that is 
considering restricting competition with respect to a contract in an 
industry pursuant to this rule is responsible for carrying out a 
relevant analysis that would justify a restriction on competition under 
the equal protection requirements of the Due Process Clause of the Fifth 
Amendment of the Constitution. Where an agency seeks to reserve a 
procurement for competition exclusively among WOSBs or EDWOSBs within an 
industry designated by SBA in paragraph (a)(3) of this section, the 
agency must conduct an appropriate analysis of the agency's procurement 
history and make a determination of whether there is evidence of 
relevant discrimination in that industry by that agency.



Sec. 127.502  How will SBA identify and provide notice of the 
designated industries?

    SBA will post on its Internet Web site a list of 4-digit NAICS 
Industry Subsector industries it designates under Sec. 127.501(a). The 
list of designated industries also may be obtained from the local SBA 
district office and may be posted on the General Services Administration 
Internet Web site.



Sec. 127.503  When is a contracting officer authorized to restrict 
competition under this part?

    (a) EDWOSB requirements. For requirements in industries designated 
by SBA pursuant to Sec. 127.501, a contracting officer may restrict 
competition to EDWOSBs if the contracting officer has a reasonable 
expectation based on market research that:
    (1) Two or more EDWOSBs will submit offers for the contract;
    (2) The anticipated award price of the contract (including options) 
does not exceed $5,000,000, in the case of a contract assigned an NAICS 
code for manufacturing; or $3,000,000, in the case of all other 
contracts; and
    (3) Contract award may be made at a fair and reasonable price.
    (b) WOSB requirements. If market research indicates that the 
criteria in paragraph (a) are not met for restricting competition to 
EDWOSBs, then the contracting officer may restrict competition to WOSBs 
if:
    (1) The requirement is in an industry that SBA has designated as 
substantially underrepresented with respect to WOSBs; and
    (2) The contracting officer has a reasonable expectation based on 
market research that--
    (i) Two or more WOSBs will submit offers;
    (ii) The anticipated award price of the contract (including options) 
will not exceed $5,000,000, in the case of a contract assigned an NAICS 
code for manufacturing, or $3,000,000 in the case of all other 
contracts; and
    (iii) Contract award may be made at a fair and reasonable price.
    (c) 8(a) BD requirements. A contracting officer may not restrict 
competition to eligible EDWOSBs or WOSBs if an 8(a) BD Participant is 
currently performing the requirement under the 8(a) BD Program or SBA 
has accepted the requirement for performance under the authority of the 
8(a) BD program, unless SBA consented to release the requirement from 
the 8(a) BD program.
    (d) Contract file. When restricting competition to WOSBs in 
accordance with Sec. 127.503(b), the contracting officer must document 
the contract file accordingly, including the type and extent of market 
research and the fact that the NAICS code assigned to the contract is 
for an industry that SBA has designated as a substantially 
underrepresented industry with respect to WOSBs.



Sec. 127.504  What additional requirements must a concern satisfy to 
submit an offer on an EDWOSB or WOSB requirement?

    In order for a concern to submit an offer on a specific EDWOSB or 
WOSB requirement, the concern must ensure that the appropriate 
representations

[[Page 515]]

and certifications on ORCA are accurate and complete at the time it 
submits its offer to the contracting officer, including, but not limited 
to, the fact that:
    (a) It is small under the size standard corresponding to the NAICS 
code assigned to the contract;
    (b) It is listed on CCR and ORCA as an EDWOSB or WOSB;
    (c) There has been no material change in any of its circumstances 
affecting its EDWOSB or WOSB eligibility; and
    (d) It will meet the applicable percentages of work requirement as 
set forth in Sec. 125.6 of this chapter (limitations on subcontracting 
rule).



Sec. 127.505  May a non-manufacturer submit an offer on an EDWOSB or 
WOSB requirement for supplies?

    An EDWOSB or WOSB that is a non-manufacturer, as defined in Sec. 
121.406(b) of this chapter, may submit an offer on an EDWOSB or WOSB 
contract for supplies, if it meets the requirements under the non-
manufacturer rule set forth in Sec. 121.406(b).



Sec. 127.506  May a joint venture submit an offer on an EDWOSB or 
WOSB requirement?

    A joint venture may submit an offer on an EDWOSB or WOSB contract if 
the joint venture meets all of the following requirements:
    (a) Except as provided in Sec. 121.103(h)(3) of this chapter, the 
combined annual receipts or employees of the concerns entering into the 
joint venture must meet the applicable size standard corresponding to 
the NAICS code assigned to the contract;
    (b) The EDWOSB or WOSB participant of the joint venture must be 
designated on the CCR and the ORCA as an EDWOSB or WOSB;
    (c) The EDWOSB or WOSB must be the managing venturer of the joint 
venture, and an employee of the managing venturer must be the project 
manager responsible for the performance of the contract;
    (d) The joint venture must perform the applicable percentage of work 
required of the EDWOSB or WOSB offerors in accordance with Sec. 125.6 
of this chapter (limitations on subcontracting rule); and
    (e) The EDWOSB or WOSB venturer must perform a significant portion 
of the contract.



                           Subpart F_Protests



Sec. 127.600  Who may protest the status of a concern as an EDWOSB or 
WOSB?

    An interested party may protest the EDWOSB or WOSB status of an 
apparent successful offeror on an EDWOSB or WOSB contract. Any other 
party or individual may submit information to the contracting officer or 
SBA in an effort to persuade them to initiate a protest or to persuade 
SBA to conduct an examination pursuant to subpart D of this part.



Sec. 127.601  May a protest challenging the size and status of a 
concern as an EDWOSB or WOSB be filed together?

    An interested party seeking to protest both the size and the EDWOSB 
or WOSB status of an apparent successful offeror on an EDWOSB or WOSB 
requirement must file two separate protests, one size protest pursuant 
to part 121 of this chapter and one EDWOSB or WOSB status protest 
pursuant to this subpart. An interested party seeking to protest only 
the size of an apparent successful EDWOSB or WOSB offeror must file a 
size protest to the contracting officer pursuant to part 121 of this 
chapter.



Sec. 127.602  What are the grounds for filing an EDWOSB or WOSB 
status protest?

    SBA will consider a protest challenging the status of a concern as 
an EDWOSB or WOSB if the protest presents credible evidence that the 
concern is not owned and controlled by one or more women who are United 
States citizens and, if the protest is in connection with an EDWOSB 
contract, that the concern is not at least 51% owned and controlled by 
one or more women who are economically disadvantaged.

[[Page 516]]



Sec. 127.603  What are the requirements for filing an EDWOSB or 
WOSB protest?

    (a) Format. Protests must be in writing and must specify all the 
grounds upon which the protest is based. A protest merely asserting that 
the protested concern is not an eligible EDWOSB or WOSB, without setting 
forth specific facts or allegations, is insufficient.
    (b) Filing. Protestors may deliver their written protests in person, 
by facsimile, by express delivery service, or by U.S. mail (postmarked 
within the applicable time period) to the following:
    (1) To the contracting officer, if the protestor is an offeror for 
the specific contract; or
    (2) To the D/GC, if the protest is initiated by the contracting 
officer or SBA.
    (c) Timeliness. (1) For negotiated acquisitions, an interested party 
must submit its protest by the close of business on the fifth business 
day after notification by the contracting officer of the apparent 
successful offeror or notification of award.
    (2) For sealed bid acquisitions, an interested party must submit its 
protest by close of business on the fifth business day after bid 
opening.
    (3) Any protest submitted after the time limits is untimely, unless 
it is from SBA or the contracting officer. A contracting officer or SBA 
may file an EDWOSB or WOSB protest at any time after bid opening or 
notification of intended awardee, whichever applies.
    (4) Any protest received prior to bid opening or notification of 
intended awardee, whichever applies, is premature.
    (5) A timely filed protest applies to the procurement in question 
even if filed after award.
    (d) Referral to SBA. The contracting officer must forward to SBA any 
protest received, notwithstanding whether he or she believes it is 
premature, sufficiently specific, or timely. The contracting officer 
must send all protests, along with a referral letter, directly to the 
Director for Government Contracting, U.S. Small Business Administration, 
409 Third Street, SW., Washington, DC 20416, or by fax to (202) 205-
6390, Attn: Women-Owned Small Business Status Protest. The contracting 
officer's referral letter must include information pertaining to the 
solicitation that may be necessary for SBA to determine timeliness and 
standing, including: The solicitation number; the name, address, 
telephone number and facsimile number of the contracting officer; 
whether the protestor submitted an offer; whether the protested concern 
was the apparent successful offeror; when the protested concern 
submitted its offer; whether the procurement was conducted using sealed 
bid or negotiated procedures; the bid opening date, if applicable; when 
the protest was submitted to the contracting officer; when the protestor 
received notification about the apparent successful offeror, if 
applicable; and whether a contract has been awarded. The D/GC or 
designee will decide the merits of EDWOSB or WOSB status protests.



Sec. 127.604  How will SBA process an EDWOSB or WOSB status protest?

    (a) Notice of receipt of protest. Upon receipt of the protest, SBA 
will notify the contracting officer and the protestor of the date SBA 
received the protest and whether SBA will process the protest or dismiss 
it under paragraph (b) of this section.
    (b) Dismissal of protest. If SBA determines that the protest is 
premature, untimely, nonspecific, or is based on nonprotestable 
allegations, SBA will dismiss the protest and will send the contracting 
officer and the protestor a notice of dismissal, citing the reason(s) 
for the dismissal. Notwithstanding SBA's dismissal of the protest, SBA 
may, in its sole discretion, consider the protest allegations in 
determining whether to conduct an examination of the protested concern 
pursuant to subpart D of this part.
    (c) Notice to protested concern. If SBA determines that the protest 
is timely, sufficiently specific and is based upon protestable 
allegations, SBA will:
    (1) Notify the protested concern of the protest and of its right to 
submit information responding to the protest within five business days 
from the date of the notice; and
    (2) Forward a copy of the protest to the protested concern.

[[Page 517]]

    (d) Time period for determination. SBA will determine the EDWOSB or 
WOSB status of the protested concern within 15 business days after 
receipt of the protest, or within any extension of that time that the 
contracting officer may grant SBA. If SBA does not issue its 
determination within the 15-day period, the contracting officer may 
award the contract, unless the contracting officer has granted SBA an 
extension. The contracting officer may award the contract or begin 
performance after receipt of a protest if the contracting officer 
determines in writing that an award must be made to protect the public 
interest.
    (e) Notification of determination. SBA will notify the contracting 
officer, the protestor, and the protested concern in writing of its 
determination. If SBA sustains the protest, SBA will issue a decision 
explaining the basis of its determination and requiring that the concern 
remove its designation on the CCR and ORCA as an EDWOSB or WOSB, as 
appropriate.
    (f) Effect of determination. SBA's determination is effective 
immediately and is final unless overturned by OHA on appeal pursuant to 
Sec. 127.605 of this part.
    (1) The purpose of the protest process is to ensure that contracts 
are awarded to, and performed by, eligible WOSB and EDWOSB concerns. A 
contracting officer shall not award a contract to an ineligible concern, 
and shall not authorize an ineligible concern to begin performance.
    (2) Where award was made and performance commenced before receipt of 
a negative final agency decision, the contracting officer may terminate 
the contract, not exercise any option, or not award further task or 
delivery orders.
    (3) Whether or not a contracting officer decides to not allow an 
ineligible concern to fully perform a contract under paragraph (f)(2) of 
this section or under Sec. 134.704 of this title, the contracting 
officer cannot count the award as one to an EDWOSB or WOSB and must 
update the Federal Procurement Data System-Next Generation (FPDS-NG) and 
other databases from the date of award accordingly.
    (4) A concern that has been found to be ineligible may not represent 
itself as a WOSB or EDWOSB on another procurement until it cures the 
reason for its ineligibility. A concern that believes in good faith that 
it has cured the reason(s) for its ineligibility may request an 
examination under the procedures set forth in Sec. 127.405.



Sec. 127.605  What are the procedures for appealing an EDWOSB or 
WOSB status protest decision?

    The protested concern, the protestor, or the contracting officer may 
file an appeal of a WOSB or EDWOSB status protest determination with the 
SBA's Office of Hearings and Appeals (OHA) in accordance with part 134 
of this chapter.



                           Subpart G_Penalties



Sec. 127.700  What penalties may be imposed under this part?

    Persons or concerns that falsely self-certify or otherwise 
misrepresent a concern's status as an EDWOSB or WOSB for purposes of 
receiving Federal contract assistance under this part are subject to:
    (a) Suspension and Debarment pursuant to the procedures set forth in 
the Federal Acquisition Regulations, subpart 9.4 of title 48 of the Code 
of Federal Regulations;
    (b) Administrative and civil remedies prescribed by the False Claims 
Act, 31 U.S.C. 3729-3733 and under the Program Fraud Civil Remedies Act, 
31 U.S.C. 3801-3812;
    (c) Administrative and criminal remedies as described at Sections 
16(a) and (d) of the Small Business Act, 15 U.S.C. 645(a) and (d), as 
amended;
    (d) Criminal penalties under 18 U.S.C. 1001; and
    (e) Any other penalties as may be available under law.



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.

[[Page 518]]

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. 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.

[[Page 519]]

    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.
    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.

[[Page 520]]



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.



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.

[[Page 521]]

    (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 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.

[[Page 522]]

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.



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

[[Page 523]]

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;
    (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

[[Page 524]]

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.
    (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

[[Page 525]]

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 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

[[Page 526]]

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:
    (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

[[Page 527]]

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;
    (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.

[[Page 528]]

    (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 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.

[[Page 529]]

    (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.
    (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.

[[Page 530]]

               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 and burden of proof.
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_Rules of Practice for Appeals From Service-Disabled Veteran 
                  Owned Small Business Concern Protests

134.501 What is the scope of the rules in this subpart E?
134.502 Who may appeal?
134.503 When must a person file an appeal from an SDVO SBC protest 
          determination?
134.504 What are the effects of the appeal on the procurement at issue?
134.505 What are the requirements for an appeal petition?
134.506 What are the service and filing requirements?
134.507 When does the D/GC transmit the protest file and to whom?
134.508 What is the standard of review?
134.509 When will a Judge dismiss an appeal?
134.510 Who can file a response to an appeal petition and when must such 
          a response be filed?
134.511 Will the Judge permit discovery and oral hearings?
134.512 What are the limitations on new evidence?
134.513 When is the record closed?
134.514 When must the Judge issue his or her decision?
134.515 What are the effects of the Judge's decision?

       Subpart F_Implementation of the Equal Access to Justice Act

134.601 What is the purpose of this subpart?
134.602 Under what circumstances may I apply for reimbursement?
134.603 What is an adversary adjudication?
134.604 What benefits may I claim?
134.605 Under what circumstances are fees and expenses reimbursable?
134.606 Who is eligible for possible reimbursement?
134.607 How do I know which eligibility requirement applies to me?
134.608 What are the special rules for calculating net worth and number 
          of employees?

[[Page 531]]

134.609 What is the difference between a fee and an expense?
134.610 Are there limitations on reimbursement for fees and expenses?
134.611 What should I include in my application for an award?
134.612 What must a net worth exhibit contain?
134.613 What documentation do I need for fees and expenses?
134.614 What deadlines apply to my application for an award and where do 
          I send it?
134.615 How will proceedings relating to my application for fees and 
          expenses be conducted?
134.616 How will I know if I receive an award?
134.617 May I seek review of the ALJ's decision on my award?
134.618 How are awards paid?

Subpart G_Rules of Practice for Appeals From Women-Owned Small Business 
  Concern (WOSB) and Economically Disadvantaged WOSB Concern (EDWOSB) 
                                Protests

134.701 What is the scope of the rules in this subpart G?
134.702 Who may appeal?
134.703 When must a person file an appeal from an WOSB or EDWOSB protest 
          determination?
134.704 What are the effects of the appeal on the procurement at issue?
134.705 What are the requirements for an appeal petition?
134.706 What are the service and filing requirements?
134.707 When does the D/GC transmit the protest file and to whom?
134.708 What is the standard of review?
134.709 When will a Judge dismiss an appeal?
134.710 Who can file a response to an appeal petition and when must such 
          a response be filed?
134.711 Will the Judge permit discovery and oral hearings?
134.712 What are the limitations on new evidence?
134.713 When is the record closed?
134.714 When must the Judge issue his or her decision?
134.715 Can a Judge reconsider his decision?

    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.

    Editorial Note: Nomenclature changes to part 134 appear at 72 FR 
50042, Aug. 30, 2007.



                         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

[[Page 532]]

and includes decisions by Government Contracting Area Directors that 
determine whether two or more concerns are affiliated for purposes of 
SBA's financial assistance programs, or other programs for which an 
appropriate SBA official requested an affiliation determination.

[61 FR 2683, Jan. 29, 1996, as amended at 67 FR 47246, July 18, 2002; 69 
FR 29208, May 21, 2004]



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;
    (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, the Debt Collection Improvement Act of 
1996, 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. ``Size determinations'' include 
decisions by Government Contracting Area Directors that determine 
whether two or more concerns are affiliated for purposes of SBA's 
financial assistance programs, or other programs for which an 
appropriate SBA official requested an affiliation determination;
    (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 2 CFR 
parts 180 and 2700;
    (q) Appeals from the Service-Disabled Veteran-owned SBC Program 
ownership and control status under part 125 of this chapter;

[[Page 533]]

    (r) 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
    (s) Appeals from Women-Owned Small Business or Economically-
Disadvantaged Women-Owned Small Business protest determinations under 
Part 127 of this chapter;
    (t) 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; 69 FR 25271, May 5, 2004; 69 FR 29208, May 
21, 2004; 70 FR 17587, Apr. 7, 2005; 72 FR 39730, July 20, 2007; 73 FR 
56954, Oct. 1, 2008]



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]



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 proceedings for debt collection 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; 
in accordance with the time frames specified in Sec. 140.11 of this 
chapter with respect to administrative wage garnishment;
    (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 47246, July 18, 2002, as amended at 70 FR 17587, Apr. 7, 2005]



Sec. 134.203  The petition.

    (a) A petition must contain the following:
    (1) The basis of OHA's jurisdiction;

[[Page 534]]

    (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 3rd 
Street, SW., Washington, DC 20416. 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.
    (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

[[Page 535]]

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; 70 
FR 29937, May 25, 2005]



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 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,

[[Page 536]]

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]



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

[[Page 537]]

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 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

[[Page 538]]

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.
    (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

[[Page 539]]

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 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.
    (3) The Judge determines that an oral hearing is necessary in 
administrative wage garnishment proceedings conducted pursuant to Sec. 
140.11 of this chapter.
    (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; 70 
FR 17587, Apr. 7, 2005]

[[Page 540]]



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, 
the Debt Collection Improvement Act of 1996, and Part 140 of this 
chapter must be made 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; 70 
FR 17587, Apr. 7, 2005]



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, 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, Debt Collection Improvement Act of 1996, 
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, as amended at 70 FR 17587, Apr. 7, 2005]

[[Page 541]]



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 
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 Director, Office of Business Development 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]

[[Page 542]]



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 and SBA's Office 
of General Counsel, Associate General Counsel for Procurement Law, 409 
3rd Street, SW., Washington, DC 20416.
    (d) Certificate of service. The appellant must attach to the appeal 
petition a 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 47250, July 18, 2002; 69 FR 29208, May 21, 2004]



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]

[[Page 543]]



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]



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 and burden of proof.

    The standard of review is whether the size determination or NAICS 
code designation was based on clear error of fact or law. The appellant 
has the burden of proof, by a preponderance of the evidence, in both 
size and NAICS code appeals.

[61 FR 2683, Jan. 29, 1996, as amended at 67 FR 47250, July 18, 2002; 69 
FR 29209, May 21, 2004]

[[Page 544]]



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. The Judge 
will not decide substantive issues raised for the first time on appeal, 
or which have been abandoned or become moot.
    (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; 69 
FR 29209, May 21, 2004]



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 Sec. Sec. 124.302 and 124.304;
    (c) Termination pursuant to Sec. Sec. 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 Director, Office of Business Development 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.
    (2) For appeals relating to early graduation pursuant to Sec. Sec. 
124.302 and 124.304 or termination pursuant to Sec. Sec. 124.303 and 
124.304, a petitioner must serve the SBA's Associate General Counsel for 
Litigation.
    (b) Serve the Director, Office of Business Development 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]

[[Page 545]]



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 decision solely on 
a review of the administrative record.
    (e) The Administrative Law Judge may remand a case to the Director, 
Office of Business Development (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

[[Page 546]]

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 Director, Office of Business 
Development (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 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

[[Page 547]]

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_Rules of Practice for Appeals From Service-Disabled Veteran 
                  Owned Small Business Concern Protests

    Source: 70 FR 8927, Feb. 24, 2005, unless otherwise noted.



Sec. 134.501  What is the scope of the rules in this subpart E?

    (a) The rules of practice in this subpart E apply to all appeals to 
OHA from formal protest determinations made by the Director, Office of 
Government Contracting (D/GC) in connection with a Service-Disabled 
Veteran-Owned Small Business Concern (SDVO SBC) protest relating to the 
status or ownership or control of the SDVO SBC, as set forth in Sec. 
125.26 of this chapter. This includes appeals from determinations by the 
D/GC that the protest was premature, untimely, nonspecific, or not based 
upon protestable allegations.
    (b) Except where inconsistent with this subpart, the provisions of 
Subpart A and B of this part apply to appeals listed in paragraph (a) of 
this section.
    (c) Appeals relating to formal size determinations and NAICS Code 
designations are governed by Subpart C of this part.



Sec. 134.502  Who may appeal?

    Appeals from SDVO SBC protest determinations may be filed with OHA 
by the protested concern, the protester, or the contracting officer 
responsible for the procurement affected by the protest determination.



Sec. 134.503  When must a person file an appeal from an SDVO SBC protest 
determination?

    Appeals from an SDVO SBC protest determination must be commenced by 
filing and serving an appeal petition within 10 business days after the 
appellant receives the SDVO SBC protest determination (see Sec. 134.204 
for filing and service requirements). An untimely appeal will be 
dismissed.



Sec. 134.504  What are the effects of the appeal on the procurement at 
issue?

    The filing of an SDVO SBC appeal with OHA stays the procurement. 
However, the contracting officer may award the contract after receipt of 
an appeal if the contracting officer determines in writing that an award 
must be made to protect the public interest. A timely filed appeal 
applies to the procurement in question even though a contracting officer 
awarded the contract prior to receipt of the appeal.



Sec. 134.505  What are the requirements for an appeal petition?

    (a) Format. There is no required format for an appeal petition. 
However, it must include the following information:
    (1) The solicitation or contract number, and the name, address, and 
telephone number of the contracting officer;
    (2) A statement that the petition is appealing an SDVO SBC protest 
determination issued by the D/GC and the date the petitioner received 
the SDVO SBC protest determination;
    (3) A full and specific statement as to why the SDVO SBC protest 
determination is alleged to be based on a clear error of fact or law, 
together with an argument supporting such allegation; and
    (4) The name, address, telephone number, facsimile number, and 
signature of the appellant or its attorney.
    (b) Service of appeal. The appellant must serve the appeal petition 
upon each of the following:
    (1) The D/GC at U.S. Small Business Administration, 409 3rd Street, 
SW., Washington, DC 20416, facsimile (202) 205-6390;
    (2) The contracting officer responsible for the procurement affected 
by an SDVO SBC determination;
    (3) The protested concern (the business concern whose SDVO SBC 
status is at issue) or the protester; and
    (4) SBA's Office of General Counsel, Associate General Counsel for 
Procurement Law, U.S. Small Business Administration, 409 3rd Street, 
SW., Washington, DC 20416, facsimile number (202) 205-6873.

[[Page 548]]

    (c) Certificate of Service. The appellant must attach to the appeal 
petition a signed certificate of service meeting the requirements of 
Sec. 134.204(d).



Sec. 134.506  What are the 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 unless 
otherwise indicated in this subpart.



Sec. 134.507  When does the D/GC transmit the protest file and to whom?

    Upon receipt of an appeal petition, the D/GC will send to OHA a copy 
of the protest file relating to that determination. The D/GC will 
certify and authenticate that the protest file, to the best of his or 
her knowledge, is a true and correct copy of the protest file.



Sec. 134.508  What is the standard of review?

    The standard of review for an appeal of a SDVO SBC protest 
determination is whether the D/GC's determination was based on clear 
error of fact or law. With respect to status determinations on whether 
the owner is a veteran, service-disabled veteran, or veteran with a 
permanent and severe disability, the Judge will not review the 
determinations made by the U.S. Department of Veteran's Affairs, U.S. 
Department of Defense, or such determinations identified by documents 
provided by the U.S. National Archives and Records Administration.



Sec. 134.509  When will a Judge dismiss an appeal?

    (a) The Judge selected to preside over a protest appeal shall 
dismiss the appeal, if:
    (1) The appeal does not, on its face, allege facts that if proven to 
be true, warrant reversal or modification of the determination;
    (2) The appeal petition does not contain all of the information 
required in Sec. 134.505;
    (3) The appeal is untimely filed pursuant to Sec. 134.503 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
    (4) The matter has been decided or is the subject of an adjudication 
before a court of competent jurisdiction over such matters.
    (b) Once Appellant files an appeal, subsequent initiation of 
litigation of the matter in a court of competent jurisdiction will not 
preclude the Judge from rendering a final decision on the matter.



Sec. 134.510  Who can file a response to an appeal petition and when 
must such a response be filed?

    Although not required, any person served with an appeal petition may 
file and serve a response supporting or opposing the appeal if he or she 
wishes to do so. If a person decides to file a response, the response 
must be filed within 7 business days after service of the appeal 
petition. The response should present argument.



Sec. 134.511  Will the Judge permit discovery and oral hearings?

    Discovery will not be permitted and oral hearings will not be held.



Sec. 134.512  What are the limitations on new evidence?

    The Judge may not admit evidence beyond the written protest file nor 
permit any form of discovery. All appeals under this subpart will be 
decided solely on a review of the evidence in the written protest file, 
arguments made in the appeal petition and response(s) filed thereto.



Sec. 134.513  When is the record closed?

    The record will close when the time to file a response to an appeal 
petition expires pursuant to 13 CFR 134.510.



Sec. 134.514  When must the Judge issue his or her decision?

    The Judge shall issue a decision, insofar as practicable, within 15 
business days after close of the record. If OHA does not issue its 
determination within the 15-day period, the contracting officer may 
award the contract, unless the contracting officer has agreed to wait 
for a final determination from the Judge.

[[Page 549]]



Sec. 134.515  What are the effects of the Judge's decision?

    (a) A decision of the Judge under this subpart is the final agency 
decision and is binding on the parties. For the effects of the decision 
on the contract or procurement at issue, please see 13 CFR 125.28.
    (b) The Judge may reconsider an appeal decision within 20 calendar 
days after issuance of the written decision. Any party who has appeared 
in the proceeding, or SBA, may request reconsideration by filing with 
the Judge and serving a petition for reconsideration on all the parties 
to the appeal within 20 calendar days after service of the written 
decision. The request for reconsideration must clearly show an error of 
fact or law material to the decision. The Judge may also reconsider a 
decision on his or her own initiative.
    (c) The Judge may remand a proceeding to the D/GC for a new SDVO SBC 
determination if the latter fails to address issues of decisional 
significance sufficiently, does not address all the relevant evidence, 
or does not identify specifically the evidence upon which it relied. 
Once remanded, OHA no longer has jurisdiction over the matter, unless a 
new appeal is filed as a result of the new SDVO SBC determination.

[70 FR 8927, Feb. 24, 2005, as amended at 73 FR 56955, Oct. 1, 2008]



       Subpart F_Implementation of the Equal Access to Justice Act

    Source: 61 FR 2683, Jan. 29, 1996, unless otherwise noted. 
Redesignated at 63 FR 35766, June 30, 1998, and 70 FR 8927, Feb. 24, 
2005.



Sec. 134.601  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. 134.602  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. 134.603  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. 134.604  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. 134.605  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

[[Page 550]]

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 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. 134.606  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. 134.607  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. 134.608  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

[[Page 551]]

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. 134.609  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. 134.610  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 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. 134.611  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:

[[Page 552]]



------------------------------------------------------------------------
                 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.
------------------------------------------------------------------------



Sec. 134.612  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. 134.613  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. 134.614  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. 134.615  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. 134.616  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

[[Page 553]]

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. 134.617  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. 134.618  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 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.



Subpart G_Rules of Practice for Appeals From Women-Owned Small Business 
  Concern (WOSB) and Economically Disadvantaged WOSB Concern (EDWOSB) 
                                Protests

    Source: 73 FR 56955, Oct. 1, 2008, unless otherwise noted.



Sec. 134.701  What is the scope of the rules in this subpart G?

    (a) The rules of practice in this subpart G apply to all appeals to 
OHA from formal protest determinations made by the Director for 
Government Contracting (D/GC) in connection with a Women-Owned Small 
Business (WOSB) or Economically Disadvantaged WOSB (EDWOSB) status 
protest issued pursuant to part 127 of this chapter. Appeals under this 
subpart include issues related to whether the concern is owned and 
controlled by one or more women who are United States citizens and, if 
the appeal is in connection with an EDWOSB contract, that the concern is 
at least 51% owned and controlled by one or more women who are 
economically disadvantaged. This includes appeals from determinations by 
the D/GC that the protest was premature, untimely, nonspecific, or not 
based upon protestable allegations.
    (b) Except where inconsistent with this subpart, the provisions of 
Subpart A and B of this part apply to appeals listed in paragraph (a) of 
this section.
    (c) Appeals relating to formal size determinations and NAICS Code 
designations are governed by subpart C of this part.



Sec. 134.702  Who may appeal?

    Appeals from WOSB or EDWOSB protest determinations may be filed with 
OHA by the protested concern, the protestor, or the contracting officer 
responsible for the procurement affected by the protest determination.



Sec. 134.703  When must a person file an appeal from an WOSB or EDWOSB 
protest determination?

    Appeals from a WOSB or EDWOSB protest determination must be 
commenced by filing and serving an appeal petition within 10 business 
days after the appellant receives the WOSB or EDWOSB protest 
determination (see Sec. 134.204 for filing and service requirements). 
An untimely appeal will be dismissed.



Sec. 134.704  What are the effects of the appeal on the procurement 
at issue?

    Appellate decisions apply to the procurement in question. If the 
contracting officer awarded the contract to a concern that OHA finds to 
be ineligible, then the contracting officer may terminate the contract, 
not exercise any options, or not award further task or delivery orders.



Sec. 134.705  What are the requirements for an appeal petition?

    (a) Format. There is no required format for an appeal petition. 
However, it

[[Page 554]]

must include the following information:
    (1) The solicitation or contract number, and the name, address, and 
telephone number of the contracting officer;
    (2) A statement that the petitioner is appealing a WOSB or EDWOSB 
protest determination issued by the D/GC and the date that the 
petitioner received it;
    (3) A full and specific statement as to why the WOSB or EDWOSB 
protest determination is alleged to be based on a clear error of fact or 
law, together with an argument supporting such allegation; and
    (4) The name, address, telephone number, facsimile number, and 
signature of the appellant or its attorney.
    (b) Service of appeal. The appellant must serve the appeal petition 
upon each of the following:
    (1) The D/GC at U.S. Small Business Administration, 409 3rd Street, 
SW., Washington, DC 20416, facsimile (202) 205-6390;
    (2) The contracting officer responsible for the procurement affected 
by a WOSB or EDWOSB determination;
    (3) The protested concern (the business concern whose WOSB or EDWOSB 
status is at issue) or the protester; and
    (4) SBA's Office of General Counsel, Associate General Counsel for 
Procurement Law, U.S. Small Business Administration, 409 3rd Street, 
SW., Washington, DC 20416, facsimile number (202) 205-6873.
    (c) Certificate of Service. The appellant must attach to the appeal 
petition a signed certificate of service meeting the requirements of 
Sec. 134.204(d).



Sec. 134.706  What are the 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 unless 
otherwise indicated in this subpart.



Sec. 134.707  When does the D/GC transmit the protest file and to whom?

    Upon receipt of an appeal petition, the D/GC will send to OHA a copy 
of the protest file relating to that determination. The D/GC will 
certify and authenticate that the protest file, to the best of his or 
her knowledge, is a true and correct copy of the protest file.



Sec. 134.708  What is the standard of review?

    The standard of review for an appeal of a WOSB or EDWOSB protest 
determination is whether the D/GC's determination was based on clear 
error of fact or law.



Sec. 134.709  When will a Judge dismiss an appeal?

    (a) The presiding Judge will dismiss the appeal if the appeal is 
untimely filed under Sec. 134.703.
    (b) The matter has been decided or is the subject of adjudication 
before a court of competent jurisdiction over such matters. However, 
once an appeal has been filed, initiation of litigation of the matter in 
a court of competent jurisdiction will not preclude the Judge from 
rendering a final decision on the matter.



Sec. 134.710  Who can file a response to an appeal petition and when 



must such a response be filed?

    Although not required, any person served with an appeal petition may 
file and serve a response supporting or opposing the appeal if he or she 
wishes to do so. If a person decides to file a response, the response 
must be filed within 7 business days after service of the appeal 
petition. The response should present argument.



Sec. 134.711  Will the Judge permit discovery and oral hearings?

    Discovery will not be permitted, and oral hearings will not be held.



Sec. 134.712  What are the limitations on new evidence?

    The Judge may not admit evidence beyond the written protest file nor 
permit any form of discovery. All appeals under this subpart will be 
decided solely on a review of the evidence in the written protest file, 
arguments made in the appeal petition, and response(s) filed thereto.



Sec. 134.713  When is the record closed?

    The record will close when the time to file a response to an appeal 
petition expires pursuant to 13 CFR 134.710.

[[Page 555]]



Sec. 134.714  When must the Judge issue his or her decision?

    The Judge shall issue a decision, insofar as practicable, within 15 
business days after close of the record.



Sec. 134.715  Can a Judge reconsider his decision?

    (a) The Judge may reconsider an appeal decision within 20 calendar 
days after issuance of the written decision. Any party who has appeared 
in the proceeding, or SBA, may request reconsideration by filing with 
the Judge and serving a petition for reconsideration on all the parties 
to the appeal within 20 calendar days after service of the written 
decision. The request for reconsideration must clearly show an error of 
fact or law material to the decision. The Judge may also reconsider a 
decision on his or her own initiative.
    (b) The Judge may remand a proceeding to the D/GC for a new WOSB or 
EDWOSB determination if the D/GC fails to address issues of decisional 
significance sufficiently, does not address all the relevant evidence, 
or does not identify specifically the evidence upon which it relied. 
Once remanded, OHA no longer has jurisdiction over the matter, unless a 
new appeal is filed as a result of the new WOSB or EDWOSB determination.



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.

[[Page 556]]

    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--
    (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

[[Page 557]]

only to programs or activities conducted by SBA and not to activities of 
recipients of assistance from SBA.



Sec. Sec. 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
    (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.



Sec. Sec. 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

[[Page 558]]

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 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.



Sec. Sec. 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.



Sec. Sec. 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

[[Page 559]]

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 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.



Sec. Sec. 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.

[[Page 560]]

    (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 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.



Sec. Sec. 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, Assistant Administrator, Office of 
Equal Employment Opportunity & Civil Rights Compliance (AA/EEOCCR), 
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 AA/EEOCCR 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

[[Page 561]]

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 AA/
EEOCCR 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 AA/EEOCCR.
    (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 AA/EEOCCR shall accept a 
complete complaint that is filed in accordance with paragraph (c) of 
this section and over which the Agency has jurisdiction. The AA/EEOCCR 
shall notify the complainant and the respondent of receipt and 
acceptance of the complaint.
    (2) If the AA/EEOCCR receives a complaint that is not complete, he 
or 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 AA/EEOCCR shall dismiss the complaint 
without prejudice.
    (3) If the AA/EEOCCR 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 AA/EEOCCR shall complete the investigation 
of the complaint and attempt informal resolution. If no informal 
resolution is achieved, the AA/EEOCCR shall issue a letter of findings.
    (2) The AA/EEOCCR 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 AA/EEOCCR 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 AA/EEOCCR 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 AA/EEOCCR 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 AA/EEOCCR within 30 
days of receipt from him or her of the letter required by

[[Page 562]]

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 AA/
EEOCCR 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 AA/EEOCCR from a decision of the AA/
EEOCCR that an appeal is untimely. This appeal shall be filed with the 
AA/EEOCCR within 15 days of receipt of the decision from the AA/EEOCCR.
    (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 AA/EEOCCR in connection with his or her 
notice of appeal.
    (i) Acceptance of appeal. The AA/EEOCCR shall accept and process any 
timely filed appeal.
    (1) If a notice of appeal is filed but no party requests a hearing, 
the AA/EEOCCR shall promptly transmit the complaint file, the letter of 
findings and the notice of appeal to the AA/EEOCCR.
    (2) If a notice of appeal if filed and a party makes a timely 
request for a hearing, the AA/EEOCCR 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 AA/
EEOCCR 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 AA/EEOCCR 
shall have 60 days from receipt of the additional information or 
responses to such additional information, whichever is later, to make 
the decision. The AA/EEOCCR 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 AA/EEOCCR 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 AA/EEOCCR. 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 AA/EEOCCR 
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 AA/EEOCCR the AA/EEOCCR 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 AA/EEOCCR 
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 AA/EEOCCR 
shall have

[[Page 563]]

60 days from receipt of the additional information or responses to such 
additional information, whichever is later, to make the decision. The 
AA/EEOCCR 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 AA/EEOCCR 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 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; 72 
FR 50042, Aug. 30, 2007]



PART 140_DEBT COLLECTION--Table of Contents




                           Subpart A_Overview

Sec.
140.1 What does this part cover?

                            Subpart B_Offset

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?

                Subpart C_Administrative Wage Garnishment

140.11 What type of debt is subject to administrative wage garnishment, 
          and how can SBA administratively garnish your pay?

    Authority: 5 U.S.C. 5514; 15 U.S.C. 634(b)(6); 31 U.S.C. 3711, 3716, 
3720, 3720A and 3720D.

    Source: 60 FR 62191, Dec. 5, 1995, unless otherwise noted.



                           Subpart A_Overview



Sec. 140.1  What does this part cover?

    This part establishes procedures which SBA may use in the 
collection, through offset or administrative wage garnishment, of 
delinquent debts owed to the United States. 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 or otherwise.

[70 FR 17587, Apr. 7, 2005]



                            Subpart B_Offset



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

[[Page 564]]

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 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

[[Page 565]]

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.
    (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.



                Subpart C_Administrative Wage Garnishment



Sec. 140.11  What type of debt is subject to administrative wage 
garnishment, and how can SBA administratively garnish your pay?

    (a) General. SBA may order your employer to pay SBA a portion of 
your disposable pay to satisfy delinquent non-tax debt you owe to the 
United States. This process is called ``administrative wage 
garnishment'' and is authorized by 31 U.S.C. 3720D.
    (b) Scope. (1) This section provides procedures for SBA to collect 
delinquent non-tax debts through administrative wage garnishment.
    (2) This section applies despite any State law.
    (3) Nothing in this section prevents SBA from settling for less than 
the full amount of a debt. See, for example, the Federal Claims 
Collection Standards (FCCS), 31 CFR parts 900-904.
    (4) SBA's receipt of payments under this section does not prevent 
SBA from pursuing other debt collection remedies. SBA may pursue debt 
collection remedies separately or together with administrative wage 
garnishment.
    (5) This section does not apply to the collection of delinquent non-
tax debt owed to the United States from the wages of Federal employees. 
Federal pay is subject to the Federal salary offset procedures set forth 
in 5 U.S.C. 5514 and other laws, including subpart B of this part.
    (6) Nothing in this section requires SBA to duplicate notices or 
administrative proceedings required by contract, other laws, or 
regulations.
    (c) Definitions. In this section the following definitions apply:
    Agency means the SBA or any entity, public or private, that pursues 
recovery of the debt on SBA's behalf.

[[Page 566]]

    Business day means Monday through Friday excluding Federal legal 
holidays.
    Day means calendar day. For purposes of computation, the last day of 
the period will be included unless it is a Saturday, a Sunday, or a 
Federal legal holiday.
    Debt or claim means any amount of money, funds or property that has 
been determined by an appropriate official of the Federal Government to 
be owed to the United States by an individual, including debt 
administered by a third party as an agent for the Federal Government. 
Debt also includes accrued interest, administrative costs incurred in 
collection efforts by SBA or a lender participating in an SBA loan 
program, and penalties imposed pursuant to law or contract.
    Debtor or you means an individual who owes a delinquent non-tax debt 
to the United States.
    Delinquent non-tax debt means any debt not related to an obligation 
under the Internal Revenue Code of 1986, as amended, that has not been 
paid by the date specified in SBA's initial written demand for payment, 
or applicable agreement, unless other satisfactory payment arrangements 
have been made. For purposes of this section, the terms ``debt'' and 
``claim'' are synonymous and refer to delinquent non-tax debt.
    Disposable pay means that part of the debtor's compensation 
(including, but not limited to, salary, bonuses, commissions, and 
vacation pay) from an employer remaining after the deduction of health 
insurance premiums and any amounts required by law to be withheld. For 
purposes of this section, ``amounts required by law to be withheld'' 
include amounts for deductions such as social security taxes and 
withholding taxes, but do not include any amount withheld pursuant to a 
court order.
    Employer means a person or entity that employs the services of 
others and that pays their wages or salaries. The term employer 
includes, but is not limited to, State and local Governments, but does 
not include an agency of the Federal Government.
    Evidence of service means information retained by the Agency 
indicating the nature of the document to which it pertains, the date of 
mailing of the document, and to whom the document is being sent. 
Evidence of service may be retained electronically so long as the manner 
of retention is sufficient for evidentiary purposes.
    Garnishment means the process of withholding amounts from an 
employee's disposable pay and the paying of those amounts to a creditor 
in satisfaction of a withholding order.
    Withholding order means any order for withholding or garnishment of 
pay issued by an agency, or judicial or administrative body. For 
purposes of this section, the terms ``wage garnishment order'' and 
``garnishment order'' have the same meaning as ``withholding order.''
    (d) When may the Agency initiate administrative wage garnishment 
proceedings? Whenever the Agency determines you owe a delinquent non-tax 
debt, the Agency may initiate administrative wage garnishment 
proceedings to withhold a portion of your wages to satisfy the debt.
    (e)  Notice Requirements. (1) The Agency will send a written notice 
by first-class mail to your last known address at least 30 days before 
initiating garnishment. This pre-garnishment notice will inform you of:
    (i) The type and amount of the debt;
    (ii) The Agency's intent to collect the debt by making deductions 
from your pay until the debt is paid in full;
    (iii) An explanation of your rights, including those listed below, 
and the timeframe within which you may exercise your rights.
    (2) You have the right to:
    (i) Inspect and copy non-privileged SBA records related to the debt;
    (ii) Enter into a written repayment agreement with SBA under terms 
agreeable to SBA; and
    (iii) Have a hearing before an SBA hearing official in accordance 
with paragraph (f) of this section concerning the existence or the 
amount of the debt or the terms of the proposed repayment schedule under 
the garnishment order. However, you are not entitled to a hearing 
concerning the terms of the proposed repayment schedule if those terms 
have been established by written

[[Page 567]]

agreement under paragraph (e)(2)(ii) of this section.
    (3) The Agency will retain evidence of service showing when the 
Agency mailed the pre-garnishment notice.
    (f) What type of hearing must SBA give me?--(1) Procedural rules. 
Procedural rules for the conduct of administrative wage garnishment 
hearings are established in this section.
    (2) Request for hearing. You will be provided with a hearing, if you 
request one in writing disputing either the existence or amount of the 
debt or the terms of the repayment schedule (except a repayment schedule 
you and SBA agreed to in writing).
    (3) Type of hearing or review. (i) You will have the right to an 
oral hearing only if the Hearing Official determines that the issues in 
dispute cannot be resolved solely by review of the documentary evidence, 
for example, when the Hearing Official finds that the validity of the 
claim turns on the issue of credibility or veracity.
    (ii) If the Hearing Official determines an oral hearing is needed, 
he or she will set the time and location. You may choose whether the 
oral hearing is conducted in person or by telephone. You must pay all 
travel expenses for yourself and your witnesses to attend an in-person 
hearing. SBA will pay telephone charges for telephone hearings.
    (iii) If no oral hearing is needed, the Hearing Official will accord 
you a ``paper hearing,'' that is, the Hearing Official will decide the 
issues in dispute based upon a review of the written record. The Hearing 
Official will set a reasonable deadline for the submission of evidence.
    (4) Effect of timely request for hearing. Subject to paragraph 
(f)(13) of this section (failure to appear), if the Hearing Official 
determines your written request for a hearing was received by the 
Hearing Official by the 15th business day after the Agency mailed the 
pre-garnishment notice, the Agency will not issue a garnishment order 
before the Hearing Official renders a decision.
    (5) Untimely request for hearing. If the Hearing Official determines 
your written request for a hearing was not received by the Hearing 
Official by the 15th business day after the Agency mailed the pre-
garnishment notice, the Agency will provide a hearing to you. However, 
the Agency may proceed with the issuance of a garnishment order and 
acceptance of payments unless the Hearing Official determines that the 
delay in filing the request was caused by factors over which you had no 
control, or that information received justifies a delay or cancellation 
of the garnishment order.
    (6) Hearing official. A hearing official may be any qualified 
individual designated in the pre-garnishment notice.
    (7) Procedure. After you request a hearing, the Hearing Official 
will decide what type of hearing to hold and will notify you and the SBA 
of:
    (i) The date and time of a telephonic hearing;
    (ii) The date, time, and location of an in-person oral hearing; or
    (iii) The deadline for the submission of evidence for a written 
hearing.
    (8) Burden of proof. (i) The SBA will have the burden of going 
forward to prove the existence or amount of the debt.
    (ii) Thereafter, if you dispute the existence or amount of the debt, 
you must establish by a preponderance of the evidence that no debt 
exists or that the amount of the debt is incorrect. In addition, you may 
present evidence that the terms of the repayment schedule are unlawful, 
would cause you a financial hardship, or that collection of the debt may 
not be pursued due to operation of law.
    (9) Record. The Hearing Official must maintain a summary record of 
any hearing provided under this section. A hearing is not required to be 
a formal evidentiary-type hearing; however, witnesses who testify in 
oral hearings will do so under oath or affirmation.
    (10) Date of decision. The Hearing Official must render a written 
decision within 60 days of the date on which your request for a hearing 
was received by OHA. If the Hearing Official's decision is not rendered 
within that time, and the Agency had previously issued a garnishment 
order, the Agency must suspend garnishment beginning on the 61st day. 
This suspension must continue until the Hearing Official renders a 
decision.
    (11) Content of decision. The written decision shall include:

[[Page 568]]

    (i) A summary of the facts presented;
    (ii) The Hearing Official's findings, analysis and conclusions; and
    (iii) The terms of any repayment schedule, if applicable.
    (12) Final agency action. The decision of the hearing official is 
the final agency decision for the purposes of judicial review under the 
Administrative Procedure Act (5 U.S.C. 701 et seq.).
    (13) Failure to appear. In the absence of good cause shown, a debtor 
who fails to appear at an oral hearing will be deemed as not having 
timely filed a request for a hearing.
    (g) Garnishment order. (1) Unless the Agency receives an adverse 
decision from the Hearing Official or information it believes justifies 
delaying or canceling garnishment, the Agency will send the garnishment 
order to your employer by first-class mail, within the following time 
frames:
    (i) If you did not make a timely request for a pre-garnishment 
hearing, within 30 days following the 15th business day after the Agency 
mailed the pre-garnishment notice;
    (ii) If you did make a timely request for a pre-garnishment hearing, 
within 30 days after the final agency decision to proceed with 
garnishment; or,
    (iii) As soon as reasonably possible thereafter.
    (2) The garnishment order will be in a form prescribed by the 
Secretary of the Treasury, and will contain the signature of, or the 
image of the signature of, SBA's Administrator or his/her delegatee. The 
garnishment order will contain only the information necessary for 
compliance, including your name, address, and social security number, 
the instructions for garnishing your pay, and the address for sending 
payments.
    (3) The Agency will retain evidence of service showing when it 
mailed the garnishment order.
    (h) Certification by employer. Along with the garnishment order, the 
Agency will send your employer a certification, in a form determined by 
the Secretary of the Treasury. Your employer must complete and return 
this certification to us within the time stated in the certification 
instructions. The certification will include information about your 
employment status and the amount of your disposable pay available for 
garnishment.
    (i) Amounts withheld. (1) Your employer must deduct the garnishment 
amount from your disposable pay during each pay period.
    (2) Except as shown in paragraphs (i)(3) and (i)(4) of this section, 
the amount of garnishment will be the lesser of:
    (i) The amount stated on the garnishment order, not to exceed 15% of 
your disposable pay; or,
    (ii) The amount in 15 U.S.C. 1673(a)(2) (Restriction on 
Garnishment). This is the amount by which your disposable pay exceeds an 
amount equivalent to thirty times the minimum wage. See 29 CFR 870.10.
    (3) If your pay is subject to other garnishment orders, the 
following applies:
    (i) Unless otherwise provided by Federal law, the Agency garnishment 
orders must be paid in the amounts in paragraph (i)(2) of this section, 
and will have priority over other garnishment orders issued later. 
However, withholding orders for family support have priority over the 
Agency garnishment orders.
    (ii) If amounts are being withheld from your pay because of a 
garnishment order issued before the Agency's garnishment order, or 
because of a garnishment order for family support issued at any time, 
the earlier or family support order will have priority, and the amount 
withheld because of the SBA garnishment order will be the lesser of:
    (A) The amount calculated under paragraph (i)(2) of this section, or
    (B) An amount equal to 25% of your disposable pay minus the amount 
withheld under the garnishment order(s) with priority.
    (iii) If you owe more than one delinquent non-tax debt, the Agency 
may issue multiple garnishment orders if the amount withheld from your 
pay does not exceed the amount in paragraph (i)(2) of this section.
    (4) You may give written consent for the Agency to garnish from your 
pay an amount greater than that in paragraphs (i)(2) and (i)(3) of this 
section.
    (5) Your employer must promptly pay to the Agency all amounts 
withheld under a withholding order.

[[Page 569]]

    (6) Your employer is not required to change normal pay cycles to 
comply with the garnishment order.
    (7) No assignment or allotment of your earnings that you have 
requested may interfere with or prohibit execution of the Agency 's 
garnishment order. The one exception to this rule is that you may assign 
or allot earnings because of a family support judgment or order.
    (8) The garnishment order will state a reasonable time period within 
which your employer must begin wage garnishment. Your employer must 
withhold the designated amount from your wages each pay period until the 
Agency notifies your employer to stop wage garnishment.
    (j ) Exclusions from garnishment. The Agency may not garnish your 
wages if the Agency knows you have been involuntarily unemployed at any 
time during the last 12 months. You are responsible for informing the 
Agency of the facts and circumstances of your unemployment.
    (k) Financial hardship. (1) If your wages are subject to a 
garnishment order issued by the Agency, you may, at any time, request a 
review of the amount being withheld from your wages based on a material 
change in circumstances that causes you financial hardship, such as 
disability, divorce, or catastrophic illness. You may send your request 
to the Director of SBA's loan servicing center in Birmingham, Alabama.
    (2) If you request review under paragraph (k)(1) of this section, 
you must specifically state why the current amount of garnishment causes 
you financial hardship and you must send documentation supporting your 
claim.
    (3) If the Agency finds financial hardship, the Agency will decide 
how much and how long to reduce the amount garnished from your pay. The 
Agency will notify your employer of any reductions.
    (l) Ending garnishment. (1) After the Agency has recovered the 
amount you owe, including interest, penalties, and administrative costs 
consistent with the FCCS, the Agency will send a notice to your employer 
to stop wage garnishment with a copy to you.
    (2) The Agency will review your account to ensure that garnishment 
has stopped if you have paid your debt in full.
    (m) Prohibited actions. No employer may fire, refuse to employ, or 
take disciplinary action against you because of a withholding order 
issued by the Agency.
    (n) Refunds. (1) The Agency must promptly refund any amount 
collected by administrative wage garnishment if either--
    (i) A Judge, after a hearing held under paragraph (f) of this 
section, determines you do not owe a debt to the United States; or
    (ii) The Agency determines that your employer continued submitting 
to the Agency withheld wages after you had paid your debt in full.
    (2) Refunds of amounts collected will not earn interest unless 
required by federal law or contract.
    (o) Right of action. The Agency may sue your employer for any amount 
that the employer fails to withhold from wages owed and payable to you 
in accordance with paragraphs (g) and (i) of this section. However, the 
Agency may not file such a suit until the collection action involving 
you has ended unless earlier filing is necessary to avoid expiration of 
any applicable statute of limitations period. For purposes of this 
section, the collection action involving you ends when the Agency stops 
the collection action in accordance with the FCCS or other applicable 
standards. In any event, the collection action involving you will be 
deemed ended if the Agency has not received any payments from you to 
satisfy your debt, in whole or in part, for a period of one (1) year.

[70 FR 17587, Apr. 7, 2005, as amended at 73 FR 63628, Oct. 27, 2008]



PART 142_PROGRAM FRAUD CIVIL REMEDIES ACT REGULATIONS--Table of 
Contents




                        Overview and Definitions

Sec.
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?

[[Page 570]]

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 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

[[Page 571]]

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
    (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.

[[Page 572]]

              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 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;

[[Page 573]]

    (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 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.

[[Page 574]]

    (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.
    (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.

[[Page 575]]



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 
Sec. Sec. 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.
    (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.

[[Page 576]]

    (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.

                          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.

[[Page 577]]

    (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 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

[[Page 578]]

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;
    (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.

[[Page 579]]



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.



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

[[Page 580]]

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 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.

[[Page 581]]

    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 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

[[Page 582]]

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:
    (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),

[[Page 583]]

    (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 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.

[[Page 584]]

    (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.



                    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.

[[Page 585]]

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 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.

[[Page 586]]

    (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 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

[[Page 587]]

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).)
    (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

[[Page 588]]

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 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

[[Page 589]]

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 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 Sec. Sec. 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

[[Page 590]]

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
    (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]

[[Page 591]]

                    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 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

[[Page 592]]

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 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

[[Page 593]]

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, 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

[[Page 594]]

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 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

[[Page 595]]

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 analysis 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 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

[[Page 596]]

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;
    (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

[[Page 597]]

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;
    (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.

[[Page 598]]

    (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 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

[[Page 599]]

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). (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

[[Page 600]]

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 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

[[Page 601]]

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 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

[[Page 602]]

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 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

[[Page 603]]

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.
    (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

[[Page 604]]

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
    (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.

[[Page 605]]

    (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 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;

[[Page 606]]

    (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 Sec. Sec. 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 administrative 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 146_NEW RESTRICTIONS ON LOBBYING--Table of Contents




                            Subpart A_General

Sec.
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 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, 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

[[Page 607]]

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 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.

[[Page 608]]

    (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 professional 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:
    (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

[[Page 609]]

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 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

[[Page 610]]

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 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

[[Page 611]]

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 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

[[Page 612]]

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 
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

[[Page 613]]

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.



      Sec. 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 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 614]]



     Sec. Appendix B to Part 146--Disclosure Form To Report Lobbying
[GRAPHIC] [TIFF OMITTED] TC08SE91.000


[[Page 615]]


[GRAPHIC] [TIFF OMITTED] TC08SE91.001


[[Page 616]]


[GRAPHIC] [TIFF OMITTED] TC08SE91.002


[[Page 617]]





PART 147_GOVERNMENTWIDE REQUIREMENTS FOR DRUG-FREE WORKPLACE 
(NONPROCUREMENT)--Table of Contents




                     Subpart A_Purpose and Coverage

Sec.
147.100 What does this part do?
147.105 Does this part apply to me?
147.110 Are any of my Federal assistance awards exempt from this part?
147.115 Does this part affect the Federal contracts that I receive?

      Subpart B_Requirements for Recipients Other Than Individuals

147.200 What must I do to comply with this part?
147.205 What must I include in my drug-free workplace statement?
147.210 To whom must I distribute my drug-free workplace statement?
147.215 What must I include in my drug-free awareness program?
147.220 By when must I publish my drug-free workplace statement and 
          establish my drug-free awareness program?
147.225 What actions must I take concerning employees who are convicted 
          of drug violations in the workplace?
147.230 How and when must I identify workplaces?

        Subpart C_Requirements for Recipients Who Are Individuals

147.300 What must I do to comply with this part if I am an individual 
          recipient?
147.301 [Reserved]

          Subpart D_Responsibilities of SBA Awarding Officials

147.400 What are my responsibilities as an SBA awarding official?

           Subpart E_Violations of This Part and Consequences

147.500 How are violations of this part determined for recipients other 
          than individuals?
147.505 How are violations of this part determined for recipients who 
          are individuals?
147.510 What actions will the Federal Government take against a 
          recipient determined to have violated this part?
147.515 Are there any exceptions to those actions?

                          Subpart F_Definitions

147.605 Award.
147.610 Controlled substance.
147.615 Conviction.
147.620 Cooperative agreement.
147.625 Criminal drug statute.
147.630 Debarment.
147.635 Drug-free workplace.
147.640 Employee.
147.645 Federal agency or agency.
147.650 Grant.
147.655 Individual.
147.660 Recipient.
147.665 State.
147.670 Suspension.

    Authority: 41 U.S.C. 701-707.

    Source: 68 FR 66557, 66572, Nov. 26, 2003, unless otherwise noted.



                     Subpart A_Purpose and Coverage



Sec. 147.100  What does this part do?

    This part carries out the portion of the Drug-Free Workplace Act of 
1988 (41 U.S.C. 701 et seq., as amended) that applies to grants. It also 
applies the provisions of the Act to cooperative agreements and other 
financial assistance awards, as a matter of Federal Government policy.



Sec. 147.105  Does this part apply to me?

    (a) Portions of this part apply to you if you are either--
    (1) A recipient of an assistance award from the SBA; or
    (2) A(n) SBA awarding official. (See definitions of award and 
recipient in Sec. Sec. 147.605 and 147.660, respectively.)
    (b) The following table shows the subparts that apply to you:

------------------------------------------------------------------------
             If you are . . .                    see subparts . . .
------------------------------------------------------------------------
(1) A recipient who is not an individual..  A, B and E.
(2) A recipient who is an individual......  A, C and E.
(3) A(n) SBA awarding official............  A, D and E.
------------------------------------------------------------------------



Sec. 147.110  Are any of my Federal assistance awards exempt from this 
part?

    This part does not apply to any award that the SBA Administrator or 
designee determines that the application of this part would be 
inconsistent with the international obligations of the United States or 
the laws or regulations of a foreign government.

[[Page 618]]



Sec. 147.115  Does this part affect the Federal contracts that I receive?

    It will affect future contract awards indirectly if you are debarred 
or suspended for a violation of the requirements of this part, as 
described in Sec. 147. 510(c). However, this part does not apply 
directly to procurement contracts. The portion of the Drug-Free 
Workplace Act of 1988 that applies to Federal procurement contracts is 
carried out through the Federal Acquisition Regulation in chapter 1 of 
Title 48 of the Code of Federal Regulations (the drug-free workplace 
coverage currently is in 48 CFR part 23, subpart 23.5).



      Subpart B_Requirements for Recipients Other Than Individuals



Sec. 147.200  What must I do to comply with this part?

    There are two general requirements if you are a recipient other than 
an individual.
    (a) First, you must make a good faith effort, on a continuing basis, 
to maintain a drug-free workplace. You must agree to do so as a 
condition for receiving any award covered by this part. The specific 
measures that you must take in this regard are described in more detail 
in subsequent sections of this subpart. Briefly, those measures are to--
    (1) Publish a drug-free workplace statement and establish a drug-
free awareness program for your employees (see Sec. Sec. 147.205 
through 147.220); and
    (2) Take actions concerning employees who are convicted of violating 
drug statutes in the workplace (see Sec. 147.225).
    (b) Second, you must identify all known workplaces under your 
Federal awards (see Sec. 147.230).



Sec. 147.205  What must I include in my drug-free workplace statement?

    You must publish a statement that--
    (a) Tells your employees that the unlawful manufacture, 
distribution, dispensing, possession, or use of a controlled substance 
is prohibited in your workplace;
    (b) Specifies the actions that you will take against employees for 
violating that prohibition; and
    (c) Lets each employee know that, as a condition of employment under 
any award, he or she:
    (1) Will abide by the terms of the statement; and
    (2) Must notify you in writing if he or she is convicted for a 
violation of a criminal drug statute occurring in the workplace and must 
do so no more than five calendar days after the conviction.



Sec. 147.210  To whom must I distribute my drug-free workplace 
statement?

    You must require that a copy of the statement described in Sec. 
147.205 be given to each employee who will be engaged in the performance 
of any Federal award.



Sec. 147.215  What must I include in my drug-free awareness program?

    You must establish an ongoing drug-free awareness program to inform 
employees about--
    (a) The dangers of drug abuse in the workplace;
    (b) Your policy of maintaining a drug-free workplace;
    (c) Any available drug counseling, rehabilitation, and employee 
assistance programs; and
    (d) The penalties that you may impose upon them for drug abuse 
violations occurring in the workplace.



Sec. 147.220  By when must I publish my drug-free workplace statement 
and establish my drug-free awareness program?

    If you are a new recipient that does not already have a policy 
statement as described in Sec. 147.205 and an ongoing awareness program 
as described in Sec. 147.215, you must publish the statement and 
establish the program by the time given in the following table:

------------------------------------------------------------------------
                 If . . .                          then you . . .
------------------------------------------------------------------------
(a) The performance period of the award is  must have the policy
 less than 30 days.                          statement and program in
                                             place as soon as possible,
                                             but before the date on
                                             which performance is
                                             expected to be completed.
(b) The performance period of the award is  must have the policy
 30 days or more.                            statement and program in
                                             place within 30 days after
                                             award.

[[Page 619]]

 
(c) You believe there are extraordinary     may ask the SBA awarding
 circumstances that will require more than   official to give you more
 30 days for you to publish the policy       time to do so. The amount
 statement and establish the awareness       of additional time, if any,
 program.                                    to be given is at the
                                             discretion of the awarding
                                             official.
------------------------------------------------------------------------



Sec. 147.225  What actions must I take concerning employees who are 
convicted of drug violations in the workplace?

    There are two actions you must take if an employee is convicted of a 
drug violation in the workplace:
    (a) First, you must notify Federal agencies if an employee who is 
engaged in the performance of an award informs you about a conviction, 
as required by Sec. 147.205(c)(2), or you otherwise learn of the 
conviction. Your notification to the Federal agencies must--
    (1) Be in writing;
    (2) Include the employee's position title;
    (3) Include the identification number(s) of each affected award;
    (4) Be sent within ten calendar days after you learn of the 
conviction; and
    (5) Be sent to every Federal agency on whose award the convicted 
employee was working. It must be sent to every awarding official or his 
or her official designee, unless the Federal agency has specified a 
central point for the receipt of the notices.
    (b) Second, within 30 calendar days of learning about an employee's 
conviction, you must either--
    (1) Take appropriate personnel action against the employee, up to 
and including termination, consistent with the requirements of the 
Rehabilitation Act of 1973 (29 U.S.C. 794), as amended; or
    (2) Require the employee to participate satisfactorily in a drug 
abuse assistance or rehabilitation program approved for these purposes 
by a Federal, State or local health, law enforcement, or other 
appropriate agency.



Sec. 147.230  How and when must I identify workplaces?

    (a) You must identify all known workplaces under each SBA award. A 
failure to do so is a violation of your drug-free workplace 
requirements. You may identify the workplaces--
    (1) To the SBA official that is making the award, either at the time 
of application or upon award; or
    (2) In documents that you keep on file in your offices during the 
performance of the award, in which case you must make the information 
available for inspection upon request by SBA officials or their 
designated representatives.
    (b) Your workplace identification for an award must include the 
actual address of buildings (or parts of buildings) or other sites where 
work under the award 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).
    (c) If you identified workplaces to the SBA awarding official at the 
time of application or award, as described in paragraph (a)(1) of this 
section, and any workplace that you identified changes during the 
performance of the award, you must inform the SBA awarding official.



        Subpart C_Requirements for Recipients Who Are Individuals



Sec. 147.300  What must I do to comply with this part if I am an 
individual recipient?

    As a condition of receiving a(n) SBA award, if you are an individual 
recipient, you must agree that--
    (a) You will not engage in the unlawful manufacture, distribution, 
dispensing, possession, or use of a controlled substance in conducting 
any activity related to the award; and
    (b) If you are convicted of a criminal drug offense resulting from a 
violation occurring during the conduct of any award activity, you will 
report the conviction:
    (1) In writing.
    (2) Within 10 calendar days of the conviction.
    (3) To the SBA awarding official or other designee for each award 
that you currently have, unless Sec. 147.301 or the award document 
designates a central point for the receipt of the notices. When notice 
is made to a central point,

[[Page 620]]

it must include the identification number(s) of each affected award.



Sec. 147.301  [Reserved]



          Subpart D_Responsibilities of SBA Awarding Officials



Sec. 147.400  What are my responsibilities as a(n) SBA awarding 
official?

    As a(n) SBA awarding official, you must obtain each recipient's 
agreement, as a condition of the award, to comply with the requirements 
in--
    (a) Subpart B of this part, if the recipient is not an individual; 
or
    (b) Subpart C of this part, if the recipient is an individual.



           Subpart E_Violations of this Part and Consequences



Sec. 147.500  How are violations of this part determined for recipients 
other than individuals?

    A recipient other than an individual is in violation of the 
requirements of this part if the SBA Administrator or designee 
determines, in writing, that--
    (a) The recipient has violated the requirements of subpart B of this 
part; or
    (b) The number of convictions of the recipient's employees for 
violating criminal drug statutes in the workplace is large enough to 
indicate that the recipient has failed to make a good faith effort to 
provide a drug-free workplace.



Sec. 147.505  How are violations of this part determined for recipients 
who are individuals?

    An individual recipient is in violation of the requirements of this 
part if the SBA Administrator or designee determines, in writing, that--
    (a) The recipient has violated the requirements of subpart C of this 
part; or
    (b) The recipient is convicted of a criminal drug offense resulting 
from a violation occurring during the conduct of any award activity.



Sec. 147.510  What actions will the Federal Government take against a 
recipient determined to have violated this part?

    If a recipient is determined to have violated this part, as 
described in Sec. 147.500 or Sec. 147.505, the SBA may take one or 
more of the following actions--
    (a) Suspension of payments under the award;
    (b) Suspension or termination of the award; and
    (c) Suspension or debarment of the recipient under 13 CFR Part 145, 
for a period not to exceed five years.



Sec. 147.515  Are there any exceptions to those actions?

    The SBA Administrator may waive with respect to a particular award, 
in writing, a suspension of payments under an award, suspension or 
termination of an award, or suspension or debarment of a recipient if 
the SBA Administrator determines that such a waiver would be in the 
public interest. This exception authority cannot be delegated to any 
other official.



                          Subpart F_Definitions



Sec. 147.605  Award.

    Award means an award of financial assistance by the SBA or other 
Federal agency directly to a recipient.
    (a) The term award includes:
    (1) A Federal grant or cooperative agreement, in the form of money 
or property in lieu of money.
    (2) A block grant or a grant in an entitlement program, whether or 
not the grant is exempted from coverage under the Governmentwide rule 13 
CFR Part 147 that implements OMB Circular A-102 (for availability, see 5 
CFR 1310.3) and specifies uniform administrative requirements.
    (b) The term award does not include:
    (1) Technical assistance that provides services instead of money.
    (2) Loans.
    (3) Loan guarantees.
    (4) Interest subsidies.
    (5) Insurance.
    (6) Direct appropriations.
    (7) 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).



Sec. 147.610  Controlled substance.

    Controlled substance means a controlled substance in schedules I 
through V of the Controlled Substances

[[Page 621]]

Act (21 U.S.C. 812), and as further defined by regulation at 21 CFR 
1308.11 through 1308.15.



Sec. 147.615  Conviction.

    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.



Sec. 147.620  Cooperative agreement.

    Cooperative agreement means an award of financial assistance that, 
consistent with 31 U.S.C. 6305, is used to enter into the same kind of 
relationship as a grant (see definition of grant in Sec. 147.650), 
except that substantial involvement is expected between the Federal 
agency and the recipient when carrying out the activity contemplated by 
the award. The term does not include cooperative research and 
development agreements as defined in 15 U.S.C. 3710a.



Sec. 147.625  Criminal drug statute.

    Criminal drug statute means a Federal or non-Federal criminal 
statute involving the manufacture, distribution, dispensing, use, or 
possession of any controlled substance.



Sec. 147.630  Debarment.

    Debarment means an action taken by a Federal agency to prohibit a 
recipient from participating in Federal Government procurement contracts 
and covered nonprocurement transactions. A recipient so prohibited is 
debarred, in accordance with the Federal Acquisition Regulation for 
procurement contracts (48 CFR part 9, subpart 9.4) and the common rule, 
Government-wide Debarment and Suspension (Nonprocurement), that 
implements Executive Order 12549 and Executive Order 12689.



Sec. 147.635  Drug-free workplace.

    Drug-free workplace means a site for the performance of work done in 
connection with a specific award at which employees of the recipient are 
prohibited from engaging in the unlawful manufacture, distribution, 
dispensing, possession, or use of a controlled substance.



Sec. 147.640  Employee.

    (a) Employee means the employee of a recipient directly engaged in 
the performance of work under the award, including--
    (1) All direct charge employees;
    (2) All indirect charge employees, unless their impact or 
involvement in the performance of work under the award is insignificant 
to the performance of the award; and
    (3) Temporary personnel and consultants who are directly engaged in 
the performance of work under the award and who are on the recipient's 
payroll.
    (b) This definition does not include workers not on the payroll of 
the recipient (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).



Sec. 147.645  Federal agency or agency.

    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.



Sec. 147.650  Grant.

    Grant means an award of financial assistance that, consistent with 
31 U.S.C. 6304, is used to enter into a relationship--
    (a) The principal purpose of which is to transfer a thing of value 
to the recipient to carry out a public purpose of support or stimulation 
authorized by a law of the United States, rather than to acquire 
property or services for the Federal Government's direct benefit or use; 
and
    (b) In which substantial involvement is not expected between the 
Federal agency and the recipient when carrying out the activity 
contemplated by the award.



Sec. 147.655  Individual.

    Individual means a natural person.

[[Page 622]]



Sec. 147.660  Recipient.

    Recipient means any individual, corporation, partnership, 
association, unit of government (except a Federal agency) or legal 
entity, however organized, that receives an award directly from a 
Federal agency.



Sec. 147.665  State.

    State means any of the States of the United States, the District of 
Columbia, the Commonwealth of Puerto Rico, or any territory or 
possession of the United States.



Sec. 147.670  Suspension.

    Suspension means an action taken by a Federal agency that 
immediately prohibits a recipient from participating in Federal 
Government procurement contracts and covered nonprocurement transactions 
for a temporary period, pending completion of an investigation and any 
judicial or administrative proceedings that may ensue. A recipient so 
prohibited is suspended, in accordance with the Federal Acquisition 
Regulation for procurement contracts (48 CFR part 9, subpart 9.4) and 
the common rule, Government-wide Debarment and Suspension 
(Nonprocurement), that implements Executive Order 12549 and Executive 
Order 12689. Suspension of a recipient is a distinct and separate action 
from suspension of an award or suspension of payments under an award.

[[Page 623]]



CHAPTER III--ECONOMIC DEVELOPMENT ADMINISTRATION, DEPARTMENT OF COMMERCE




  --------------------------------------------------------------------
Part                                                                Page
300             General information.........................         625
301             Eligibility, investment rate and proposal 
                    and application requirements............         628
302             General terms and conditions for Investment 
                    Assistance..............................         633
303             Planning Investments and Comprehensive 
                    Economic Development Strategies.........         639
304             Economic Development Districts..............         642
305             Public Works and Economic Development 
                    Investments.............................         644
306             Training, Research and Technical Assistance 
                    Investments.............................         648
307             Economic Adjustment Assistance Investments..         650
308             Performance incentives......................         662
309             Redistributions of Investment Assistance....         663
310             Special Impact Areas........................         663
311-313

 [Reserved]

314             Property....................................         664
315             Trade Adjustment Assistance for firms.......         671

[[Page 625]]



PART 300_GENERAL INFORMATION--Table of Contents




Sec.
300.1 Introduction and mission.
300.2 EDA Headquarters and regional offices.
300.3 Definitions.

    Authority: 42 U.S.C. 3121; 42 U.S.C. 3122; 42 U.S.C. 3211; 
Department of Commerce Organization Order 10-4.

    Source: 71 FR 56675, Sept. 27, 2006, unless otherwise noted.



Sec. 300.1  Introduction and mission.

    EDA was created by Congress pursuant to the Public Works and 
Economic Development Act of 1965 to provide financial assistance to both 
rural and urban distressed communities. EDA's mission is to lead the 
Federal economic development agenda by promoting innovation and 
competitiveness, preparing American regions for growth and success in 
the worldwide economy. EDA will fulfill its mission by fostering 
entrepreneurship, innovation and productivity through Investments in 
infrastructure development, capacity building and business development 
in order to attract private capital investments and higher-skill, 
higher-wage jobs to Regions experiencing substantial and persistent 
economic distress. EDA works in partnership with distressed Regions to 
address problems associated with long-term economic distress as well as 
to assist those Regions experiencing sudden and severe economic 
dislocations, such as those resulting from natural disasters, 
conversions of military installations, changing trade patterns and the 
depletion of natural resources. EDA Investments generally take the form 
of Grants to or Cooperative Agreements with Eligible Recipients.



Sec. 300.2  EDA Headquarters and regional offices.

    (a) EDA's Headquarters Office is located at: U.S. Department of 
Commerce, Economic Development Administration, 14th Street and 
Constitution Avenue, NW., Washington, DC 20230.
    (b) EDA has regional offices throughout the United States and each 
regional office's contact information may be found on EDA's Internet Web 
site at http://www.eda.gov or in the notice of Federal Funding 
Opportunity published annually by EDA. Please contact the appropriate 
regional office to learn about EDA Investment opportunities in your 
Region.



Sec. 300.3  Definitions.

    As used in this chapter, the following terms shall have the 
following meanings:
    Assistant Secretary means the Assistant Secretary for Economic 
Development within the Department.
    Comprehensive Economic Development Strategy or CEDS means a strategy 
that meets the requirements of Sec. 303.7 of this chapter.
    Cooperative Agreement means the financial assistance award of EDA 
funds to an Eligible Recipient under PWEDA, where substantial 
involvement is expected between EDA and the Eligible Recipient in 
carrying out the activities contemplated in an agreement between the 
parties. See 31 U.S.C. 6305.
    Department means the U.S. Department of Commerce.
    District Organization means an organization meeting the requirements 
of Sec. 304.2 of this chapter.
    Economic Development District or District or EDD means any Region in 
the United States designated by EDA as an Economic Development District 
under Sec. 304.1 of this chapter (or such regulation as was previously 
in effect before the effective date of this section) and also includes 
any economic development district designated as such under section 403 
of PWEDA, as in effect on February 10, 1999.
    EDA means the Economic Development Administration within the 
Department.
    Eligible Applicant means an entity qualified to be an Eligible 
Recipient or its authorized representative.
    Eligible Recipient means any of the following:
    (1) City or other political subdivision of a State, including a 
special purpose unit of State or local government engaged in economic or 
infrastructure development activities, or a consortium of political 
subdivisions;
    (2) State;

[[Page 626]]

    (3) Institution of higher education or a consortium of institutions 
of higher education;
    (4) Public or private non-profit organization or association, 
including a community or faith-based non-profit organization, acting in 
cooperation with officials of a political subdivision of a State;
    (5) District Organization;
    (6) Indian Tribe or a consortium of Indian Tribes; or
    (7) Private individual or for-profit organization, but only for 
Training, Research and Technical Assistance Investments pursuant to 
Sec. 306.1(d)(3) of part 306 of this chapter.
    Federal Agency means a department, agency or instrumentality of the 
United States government.
    Federal Funding Opportunity or FFO means the notice EDA publishes 
annually at http://www.grants.gov and on EDA's Internet Web site at 
http://www.eda.gov that describes the amounts, particular application 
procedures, funding priorities, special circumstances and other relevant 
information concerning EDA's Investment programs for the year. EDA may 
also periodically publish FFOs on specific programs or initiatives.
    Federally-Declared Disaster means a Presidentially-Declared 
Disaster, a fisheries resource disaster pursuant to section 312(a) of 
the Magnuson-Stevens Fishery Conservation and Management Act, as amended 
(16 U.S.C. 1861a(a)), or other federally-declared disasters pursuant to 
applicable law.
    Grant means the financial assistance award of EDA funds to an 
Eligible Recipient under PWEDA, where the Eligible Recipient bears 
responsibility for carrying out the activities contemplated in an 
agreement between the parties. See 31 U.S.C. 6304.
    Immediate Family means a person's spouse (or domestic partner or 
significant other), parents, grandparents, siblings, children and 
grandchildren, but does not include distant relatives, such as cousins, 
unless the distant relative lives in the same household as the person.
    In-Kind Contribution(s) means non-cash contributions, which may 
include contributions of space, equipment, services and assumptions of 
debt that are fairly evaluated by EDA and that satisfy applicable 
Federal cost principles and the requirements of 15 CFR parts 14 or 24, 
as applicable.
    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, as amended (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. This 
term includes the governing body of an Indian tribe, non-profit Indian 
corporation (restricted to Indians), Indian authority, or other non-
profit Indian tribal organization or entity; provided that the Indian 
tribal organization or entity is wholly owned by, and established for 
the benefit of, the Indian tribe or Alaska Native Village.
    Interested Party means any officer, employee or member of the board 
of directors or other governing board of the Recipient, including any 
other parties that advise, approve, recommend or otherwise participate 
in the business decisions of the Recipient, such as agents, advisors, 
consultants, attorneys, accountants or shareholders. An Interested Party 
also includes the Interested Party's Immediate Family and other persons 
directly connected to the Interested Party by law or through a business 
arrangement.
    Investment or Investment Assistance means an EDA Grant or 
Cooperative Agreement entered into by EDA and a Recipient.
    Investment Rate means, as set forth in Sec. 301.4 of this chapter, 
the amount of the EDA Investment in a particular Project expressed as a 
percentage of the total Project costs.
    Local Share or Matching Share means the non-EDA funds and any In-
Kind Contributions that are approved by EDA and provided by Recipients 
or third parties as a condition of an Investment. The Matching Share may 
include funds from other Federal Agencies only if authorized by statute 
that allows such use, which may be determined by EDA's reasonable 
interpretation of such authority.

[[Page 627]]

    Presidentially-Declared Disaster means a major disaster or emergency 
declared under the Robert T. Stafford Disaster Relief and Emergency 
Assistance Act, as amended (42 U.S.C. 5121 et seq.).
    Private Sector Representative means, with respect to any for-profit 
enterprise, any senior management official or executive holding a key 
decision-making position, or that person's designee.
    Project means the proposed or authorized activity (or activities) 
the purpose of which fulfills EDA's mission and program requirements as 
set forth in PWEDA and this chapter and which may be funded in whole or 
in part by EDA Investment Assistance.
    PWEDA means the Public Works and Economic Development Act of 1965, 
as amended (42 U.S.C. 3121 et seq.), including the comprehensive 
amendments made by the Economic Development Administration 
Reauthorization Act of 2004 (Pub. L. 108-373, 118 Stat. 1756).
    Recipient means an entity receiving EDA Investment Assistance, 
including any EDA-approved successor to the entity.
    Region or Regional means an economic unit of human, natural, 
technological, capital or other resources, defined geographically. 
Geographic areas comprising a Region need not be contiguous or defined 
by political boundaries, but should constitute a cohesive area capable 
of undertaking self-sustained economic development. For the limited 
purposes of determining economic distress levels and Investment Rates 
pursuant to part 301 of this chapter, a Region may also comprise a 
specific geographic area defined solely by its level of economic 
distress, as set forth in Sec. Sec. 301.3(a)(2) and 301.3(a)(3) of this 
chapter.
    Regional Commission means any of the following:
    (1) The Appalachian Regional Commission established under chapter 
143 of title 40, United States Code;
    (2) The Delta Regional Authority established under subtitle F of the 
Consolidated Farm and Rural Development Act (7 U.S.C. 2009aa et seq.);
    (3) The Denali Commission established under the Denali Commission 
Act of 1998 (42 U.S.C. 3121 note; 112 Stat. 2681-637 et seq.); or
    (4) The Northern Great Plains Regional Authority established under 
subtitle G of the Consolidated Farm and Rural Development Act (7 U.S.C. 
2009bb et seq.).
    Special Impact Area means a Region served by a Project for which the 
requirements of section 302 of PWEDA and Sec. 303.7 of this chapter 
have, upon an application filed by an Eligible Recipient pursuant to 
section 214 of PWEDA and part 310 of this chapter, been waived in whole 
or in part by the Assistant Secretary.
    Special Need means a circumstance or legal status arising from 
actual or threatened severe unemployment or economic adjustment problems 
resulting from severe short-term or long-term changes in economic 
conditions, including:
    (1) Substantial outmigration or population loss;
    (2) Underemployment; that is, employment of workers at less than 
full-time or at less skilled tasks than their training or abilities 
permit;
    (3) Military base closures or realignments, defense contractor 
reductions-in-force, or U.S. Department of Energy defense-related 
funding reductions;
    (4) Natural or other major disasters or emergencies;
    (5) Extraordinary depletion of natural resources;
    (6) Closing or restructuring of an industrial firm or loss of a 
major employer;
    (7) Negative effects of changing trade patterns; or
    (8) Other circumstances set forth in an FFO.
    State means a State of the United States, 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.
    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.

[71 FR 56675, Sept. 27, 2006, as amended at 73 FR 62865, Oct. 22, 2008]

[[Page 628]]



PART 301_ELIGIBILITY, INVESTMENT RATE AND PROPOSAL AND APPLICATION 
REQUIREMENTS--Table of Contents




                            Subpart A_General

Sec.
301.1 Overview of eligibility requirements.

                     Subpart B_Applicant Eligibility

301.2 Applicant eligibility.

                  Subpart C_Economic Distress Criteria

301.3 Economic distress levels.

       Subpart D_Investment Rates and Matching Share Requirements

301.4 Investment rates.
301.5 Matching share requirements.
301.6 Supplementary investment assistance.

  Subpart E_Proposal and Application Requirements; Evaluation Criteria

301.7 Investment assistance proposal.
301.8 Proposal evaluation criteria.
301.9 Proposal selection criteria.
301.10 Formal application requirements.

    Authority: 42 U.S.C. 3121; 42 U.S.C. 3141-3147; 42 U.S.C. 3149; 42 
U.S.C. 3161; 42 U.S.C. 3175; 42 U.S.C. 3192; 42 U.S.C. 3194; 42 U.S.C. 
3211; 42 U.S.C. 3233; Department of Commerce Delegation Order 10-4.

    Source: 71 FR 56675, Sept. 27, 2006, unless otherwise noted.



                            Subpart A_General



Sec. 301.1  Overview of eligibility requirements.

    In order to receive EDA Investment Assistance, an applicant and the 
Project proposed by the applicant must satisfy each of the following 
requirements:
    (a) The applicant must be an Eligible Applicant as set forth in 
subpart B of this part;
    (b) The Region in which the Project will be located must meet the 
economic distress criteria set forth in subpart C of this part;
    (c) The sources of funding for the Project must fulfill the 
Investment Rate and Matching Share requirements set forth in subpart D 
of this part;
    (d) EDA must select the Eligible Applicant's Project and the 
Eligible Applicant must satisfy the formal application requirements set 
forth in subpart E of this part; and
    (e) The Project must meet the general requirements set forth in part 
302 (General Terms and Conditions for Investment Assistance) and the 
specific program requirements (as applicable) set forth in part 303 
(Planning Investments and Comprehensive Economic Development 
Strategies), part 304 (Economic Development Districts), part 305 (Public 
Works and Economic Development Investments), part 306 (Training, 
Research and Technical Assistance Investments), or part 307 (Economic 
Adjustment Assistance Investments) of this chapter.



                     Subpart B_Applicant Eligibility



Sec. 301.2  Applicant eligibility.

    (a) An Eligible Applicant for EDA Investment Assistance is defined 
in Sec. 300.3 of this chapter.
    (b) An Eligible Applicant that is a non-profit organization must 
include in its application for Investment Assistance a resolution passed 
by (or a letter signed by) an authorized representative of a general 
purpose political subdivision of a State, acknowledging that it is 
acting in cooperation with officials of such political subdivision. EDA 
may waive this cooperation requirement for certain Projects of a 
significant Regional or national scope under parts 306 or 307 of this 
chapter. See Sec. Sec. 306.3(b), 306.6(b) and 307.5(b) of this chapter.



                  Subpart C_Economic Distress Criteria



Sec. 301.3  Economic distress levels.

    (a) Part 305 (Public Works and Economic Development Investments) and 
part 307 (Economic Adjustment Assistance Investments).
    (1) Except as otherwise provided by this paragraph (a), for a 
Project to be eligible for Investment Assistance under parts 305 or 307 
of this chapter, the Project must be located in a Region that, on the 
date EDA receives an application for Investment Assistance, is subject 
to one (or more) of the following economic distress criteria:
    (i) An unemployment rate that is, for the most recent twenty-four 
(24) month

[[Page 629]]

period for which data are available, at least one (1) percentage point 
greater than the national average unemployment rate;
    (ii) Per capita income that is, for the most recent period for which 
data are available, eighty (80) percent or less of the national average 
per capita income; or
    (iii) A Special Need, as determined by EDA.
    (2) A Project located within an Economic Development District, which 
is located in a Region that does not meet the economic distress criteria 
of paragraph (a)(1) of this section, is also eligible for Investment 
Assistance under parts 305 or 307 of this chapter if EDA determines that 
the Project will be of ``substantial direct benefit'' to a geographic 
area within the District that meets the criteria of paragraph (a)(1) of 
this section. For this purpose, a Project provides a ``substantial 
direct benefit'' if it provides significant employment opportunities for 
unemployed, underemployed or low-income residents of the geographic area 
within the District.
    (3) A Project located in a geographic area of poverty or high 
unemployment that meets the requirements of paragraph (a)(1) of this 
section, but which is located in a Region that overall does not meet the 
requirements of paragraph (a)(1) of this section, is eligible for 
Investment Assistance under parts 305 or 307 of this chapter without 
regard to political or other subdivisions or boundaries.
    (4) EDA will determine the economic distress levels pursuant to this 
subsection at the time EDA receives an application for Investment 
Assistance as follows:
    (i) For economic distress levels based upon the unemployment rate or 
per capita income requirements, EDA will base its determination upon the 
most recent American Community Survey (``ACS'') published by the U.S. 
Census Bureau for either: The Region where the Project will be located 
(paragraph (a)(1) of this section), the geographic area where 
substantial direct Project benefits will occur (paragraph (a)(2) of this 
section), or the geographic area of poverty or high unemployment 
(paragraph (a)(3) of this section), as applicable. Where a recent ACS is 
not available, EDA will base its decision upon the most recent Federal 
data from other sources (including data available from the Census Bureau 
and the Bureaus of Economic Analysis, Labor Statistics, Indian Affairs 
or any other Federal source determined by EDA to be appropriate). If no 
Federal data are available, an Eligible Applicant must submit to EDA the 
most recent data available from the State.
    (ii) For economic distress based upon a Special Need, EDA will 
conduct the independent analysis it deems necessary under the facts and 
circumstances of a given case. Eligible Applicants are encouraged to 
submit reliable data substantiating their claim of a Special Need.
    (b) Part 303 (Planning Investments) and part 306 (Training, Research 
and Technical Assistance Investments). There are no minimum economic 
distress level requirements for Investment Assistance awarded to 
Projects under parts 303 or 306 of this chapter.
    (c) Part 304 (Economic Development Districts). For EDA to designate 
a Region as an Economic Development District under part 304 of this 
chapter, such Region must:
    (1) Contain at least one (1) geographic area that fulfills the 
economic distress criteria set forth in paragraph (a)(1) of this section 
and is identified in an approved CEDS; and
    (2) Meet the Regional eligibility requirements set forth in Sec. 
304.1 of this chapter.
    (d) EDA reserves the right to reject any documentation of Project 
eligibility that it determines is inaccurate or otherwise unreliable.

[71 FR 56675, Sept. 27, 2006, as amended at 73 FR 62865, Oct. 22, 2008]



       Subpart D_Investment Rates and Matching Share Requirements



Sec. 301.4  Investment rates.

    (a) Minimum Investment Rate. There is no minimum Investment Rate for 
a Project.
    (b) Maximum Investment Rate.
    (1) General rule. Except as otherwise provided by this paragraph (b) 
or paragraph (c) of this section, the maximum

[[Page 630]]

EDA Investment Rate for all Projects shall, after the application of 
Table 1 in paragraph (b)(1)(ii) of this subsection, not exceed the sum 
of: (x) Fifty (50) percent, plus (y) up to an additional thirty (30) 
percent based on the relative needs of the Region in which the Project 
is located, as determined by EDA.
    (i)(A) Relative needs. In determining the relative needs of the 
Region in which the Project is located, EDA will prioritize allocations 
of its Investment Assistance to ensure that the level of economic 
distress of a Region, rather than a preference for a specific geographic 
area or a specific type of economic distress, is the primary factor in 
allocating its Investment Assistance. In making this determination, EDA 
will take into consideration the following measures of economic 
distress:
    (1) The severity of the unemployment rate and the duration of the 
unemployment in the Region;
    (2) The per capita income levels and the extent of underemployment 
in the Region;
    (3) The outmigration of population and the extent to which such 
outmigration is causing economic injury in the Region; and
    (4) Such other factors as EDA deems relevant in determining the 
relative needs of the Region in which the Project is located.
    (B) A Project is eligible for the maximum allowable Investment Rate 
as determined by EDA between the time EDA receives the application for 
Investment Assistance and the time that EDA awards Investment Assistance 
to the Project; however, the burden is on the Eligible Applicant to 
establish the relative needs of the Region in which the Project is 
located.
    (ii) Table 1. Table 1 of this paragraph sets forth the maximum 
allowable Investment Rate for Projects located in Regions subject to 
certain levels of economic distress. In cases where Table 1 produces 
divergent results (i.e., where Table 1 produces more than one (1) 
maximum allowable Investment Rate based on the Region's levels of 
economic distress), the higher Investment Rate produced by Table 1 shall 
be the maximum allowable Investment Rate for the Project.

                                 Table 1
------------------------------------------------------------------------
                                                              Maximum
                                                             allowable
          Projects located in regions in which:             investment
                                                               rates
                                                           (percentage)
------------------------------------------------------------------------
(A) The twenty-four (24) month unemployment rate is at                80
 least 225% of the national average; or.................
(B) The per capita income is not more than 50% of the                 80
 national average.......................................
(C) The twenty-four (24) month unemployment rate is at                70
 least 200% of the national average; or.................
(D) The per capita income is not more than 60% of the                 70
 national average.......................................
(E) The twenty-four (24) month unemployment rate is at                60
 least 175% of the national average; or.................
(F) The per capita income is not more than 65% of the                 60
 national average.......................................
(G) The twenty-four (24) month unemployment rate is at                50
 least 1 percentage point greater than the national
 average; or............................................
(H) The per capita income is not more than 80% of the                 50
 national average.......................................
------------------------------------------------------------------------

    (2) Projects subject to a Special Need. EDA shall determine the 
maximum allowable Investment Rate for Projects subject to a Special Need 
(as determined by EDA pursuant to Sec. 301.3(a)(1)(iii)) based on the 
actual or threatened overall economic situation of the Region in which 
the Project is located. However, unless the Project is eligible for a 
higher Investment Rate pursuant to paragraph (b)(5) of this section, the 
maximum allowable Investment Rate for any Project subject to a Special 
Need shall be eighty (80) percent.
    (3) Projects under part 303.
    (i) The minimum Investment Rate for Projects under part 303 of this 
chapter shall be fifty (50) percent.
    (ii) Except as otherwise provided in paragraph (b)(3)(iii) of this 
section or in paragraph (b)(5) of this section, the maximum allowable 
Investment Rate for Projects under part 303 of this chapter shall be the 
maximum allowable Investment Rate set forth in Table 1 for

[[Page 631]]

the most economically distressed county or other equivalent political 
unit (e.g., parish) within the Region. The maximum allowable Investment 
Rate shall not exceed eighty (80) percent.
    (iii) In compelling circumstances, the Assistant Secretary may waive 
the application of the first sentence in paragraph (b)(3)(ii) of this 
section. The Assistant Secretary shall not delegate the authority to 
grant a waiver under this paragraph.
    (4) Projects under part 306. Except as otherwise provided in 
paragraph (b)(5) of this section, the maximum allowable Investment Rate 
for Projects under part 306 of this chapter shall generally be 
determined based on the relative needs (as determined under paragraph 
(b)(1) of this section) of the Region which the Project will serve. As 
specified in section 207 of PWEDA, the Assistant Secretary has the 
discretion to establish a maximum Investment Rate of up to one hundred 
(100) percent where the Project:
    (i) Merits, and is not otherwise feasible without, an increase to 
the Investment Rate; or
    (ii) Will be of no or only incidental benefit to the Eligible 
Recipient.
    (5) Special Projects. Table 2 of this paragraph sets forth the 
maximum allowable Investment Rate for certain special Projects as 
follows:

                                 Table 2
------------------------------------------------------------------------
                                                              Maximum
                                                             allowable
                        Projects                            investment
                                                               rates
                                                           (percentage)
------------------------------------------------------------------------
Projects of Indian Tribes...............................             100
Projects under part 307 of this chapter located in                   100
 Presidentially-Declared Disaster areas for which EDA
 receives an application for Investment Assistance for
 post-disaster economic recovery efforts pursuant to a
 supplemental appropriation within eighteen (18) months
 of the date of such declaration........................
Projects of States or political subdivisions of States               100
 that the Assistant Secretary determines have exhausted
 their effective taxing and borrowing capacity, or
 Projects of non-profit organizations that the Assistant
 Secretary determines have exhausted their effective
 borrowing capacity.....................................
Projects under parts 305 or 307 that receive performance             100
 awards pursuant to Sec. 308.2 of this chapter........
Projects located in a District that receive planning                 100
 performance awards pursuant to Sec. 308.3 of this
 chapter................................................
------------------------------------------------------------------------

    (c) Federal Funding Opportunity notices may provide additional 
Investment Rate criteria and standards to ensure that the level of 
economic distress of a Region, rather than a preference for a geographic 
area or a specific type of economic distress, is the primary factor in 
allocating Investment Assistance.

[71 FR 56675, Sept. 27, 2006, as amended at 73 FR 62865, Oct. 22, 2008]



Sec. 301.5  Matching share requirements.

    The required Matching Share of a Project's eligible costs may 
consist of cash or In-Kind Contributions. In addition, the Eligible 
Applicant must show that the Matching Share is committed to the Project, 
will be available as needed and is not or will not be conditioned or 
encumbered in any way that would preclude its use consistent with the 
requirements of the Investment Assistance.



Sec. 301.6  Supplementary investment assistance.

    (a) Pursuant to a request by an Eligible Applicant, EDA Investment 
Assistance may supplement grants awarded in another ``designated Federal 
grant program,'' if the Eligible Applicant qualifies for financial 
assistance under such program, but is unable to provide the required 
non-Federal share because of the Eligible Applicant's economic 
situation. For purposes of this section, a ``designated Federal grant 
program'' means any Federal grant program that:
    (1) Provides assistance in the construction or equipping of public 
works, public service or development facilities;
    (2) Is designated by EDA as eligible for supplementary Investment 
Assistance under this section; and
    (3) Assists Projects that are otherwise eligible for Investment 
Assistance and consistent with the Eligible Applicant's CEDS.

[[Page 632]]

    (b) For Projects located in Regions meeting the criteria of Sec. 
301.3(a), the EDA Investment Assistance, combined with funds from a 
designated Federal grant program, may be at the maximum allowable 
Investment Rate, even if the designated Federal grant program has a 
lower grant rate. If the designated Federal grant program has a grant 
rate higher than the maximum EDA Investment Rate, the combination of EDA 
Investment and other Federal funds may exceed the EDA Investment Rate; 
provided, the EDA share of total funding does not exceed the maximum 
allowable Investment Rate.



  Subpart E_Proposal and Application Requirements; Evaluation Criteria



Sec. 301.7  Investment Assistance proposal.

    (a) The EDA Investment Assistance process begins with the submission 
of an Investment Assistance proposal. Investment proposals are submitted 
on a Pre-application for Investment Assistance (Form ED-900P or any 
successor form) that may be obtained from EDA's Internet Web site at 
http://www.eda.gov or from the appropriate regional office. EDA 
generally accepts proposals on a competitive and continuing basis to 
respond to market forces in Regional economies. The timing with which 
competitive investment opportunities arise, as determined by the 
criteria set forth in Sec. 301.8, paired with the availability of funds 
in a given fiscal year, will affect EDA's ability to participate in any 
given Project. EDA will evaluate all proposals using the criteria set 
forth in Sec. 301.8 and will:
    (1) Solicit a formal application from the proponent;
    (2) Return the proposal to the proponent for specified deficiencies 
and suggest resubmission upon corrections; or
    (3) Deny the proposal for specifically stated reasons and notify the 
proponent.
    (b) For certain programs, EDA may instruct an Eligible Applicant to 
submit an Application for Investment Assistance (Form ED-900A or any 
successor form) in lieu of the Pre-application for Investment Assistance 
(Form ED-900P or any successor form).



Sec. 301.8  Proposal evaluation criteria.

    EDA will screen all proposals for the feasibility of the budget 
presented and conformance with EDA statutory and regulatory 
requirements. EDA will assess the economic development needs of the 
affected Region in which the proposed Project will be located (or will 
service), as well as the capability of the proponent to implement the 
proposed Project. EDA will also consider the degree to which an 
Investment in the proposed Project will satisfy one (1) or more of the 
following criteria:
    (a) Is market-based and results driven. An Investment will 
capitalize on a Region's competitive strengths and will positively move 
a Regional economic indicator measured and evaluated by EDA on a 
performance matrix system, such as EDA's Balanced Scorecard or other 
performance matrix. These Regional economic indicators include measures 
such as an increased number of higher-skill, higher-wage jobs, increased 
tax revenue, or increased private sector investment resulting from an 
Investment.
    (b) Has strong organizational leadership. An Investment will have 
strong leadership, relevant Project management experience and a 
significant commitment of human resources talent to ensure a Project's 
successful execution.
    (c) Advances productivity, innovation and entrepreneurship. An 
Investment will embrace the principles of entrepreneurship, enhance 
Regional industry clusters and leverage and link technology innovators 
and local universities to the private sector to create the conditions 
for greater productivity, innovation, and job creation.
    (d) Looks beyond the immediate economic horizon, anticipates 
economic changes and diversifies the local and Regional economy. An 
Investment will be part of an overarching, long-term Comprehensive 
Economic Development Strategy that enhances a Region's success in 
achieving a rising standard of living by supporting existing industry 
clusters, developing emerging new clusters or attracting new Regional 
economic drivers.

[[Page 633]]

    (e) Demonstrates a high degree of local commitment. An Investment 
will exhibit:
    (1) High levels of local government or non-profit Matching Share and 
private sector leverage;
    (2) Clear and unified leadership and support by local elected 
officials; and
    (3) Strong cooperation among the business sector, relevant Regional 
partners and Federal, State and local governments.
    (f) Other criteria as set forth in the applicable FFO.



Sec. 301.9  Proposal selection criteria.

    (a) EDA will review completed proposal materials for compliance with 
the requirements set forth in PWEDA, this chapter, the applicable FFO 
and other applicable Federal statutes and regulations. From those 
proposals that meet EDA's technical and legal requirements, EDA will 
select proposals for further consideration based on:
    (1) The availability of funds;
    (2) The competitiveness of the proposals based on the criteria set 
forth in Sec. 301.8; and
    (3) The funding priority considerations identified in the applicable 
FFO.
    (b) EDA will endeavor to notify proponents regarding whether their 
proposals are selected as soon as practicable.



Sec. 301.10  Formal application requirements.

    (a) General. For Projects selected from successful proposals, EDA 
will invite the proponents to submit a formal application for Investment 
Assistance. The appropriate regional office will provide application 
materials and guidance in completing them. The applicant will generally 
have thirty (30) days to submit the completed application materials to 
the applicable regional office. EDA staff will work with the applicant 
to resolve application deficiencies. PWEDA does not require nor does EDA 
provide an appeals process for an applicant whose application for 
Investment Assistance is denied.
    (b) Formal application. Each formal application for EDA Investment 
Assistance must:
    (1) Include evidence of applicant eligibility (as set forth in Sec. 
301.2) and of economic distress (as set forth in Sec. 301.3);
    (2) Identify the sources of funds, both eligible Federal and non-
EDA, and In-Kind Contributions that will constitute the required 
Matching Share for the Project (see the Matching Share requirements 
under Sec. 301.5); and
    (3) For construction Projects under parts 305 or 307 of this 
chapter, include a CEDS acceptable to EDA pursuant to part 303 of this 
chapter or otherwise incorporate by reference a current CEDS that EDA 
approves for the Project. The requirements of the preceding sentence 
shall not apply to:
    (i) Strategy Grants, as defined in Sec. 307.3 of this chapter; and
    (ii) Projects located in a Region designated as a Special Impact 
Area pursuant to part 310 of this chapter.

[71 FR 56675, Sept. 27, 2006, as amended at 73 FR 62866, Oct. 22, 2008]



PART 302_GENERAL TERMS AND CONDITIONS FOR INVESTMENT ASSISTANCE--Table 
of Contents




Sec.
302.1 Environment.
302.2 Procedures in disaster areas.
302.3 Project servicing for loans, loan guaranties and Investment 
          Assistance.
302.4 Public information.
302.5 Relocation assistance and land acquisition policies.
302.6 Additional requirements; Federal policies and procedures.
302.7 Amendments and changes.
302.8 Pre-approval Investment Assistance costs.
302.9 Inter-governmental review of Projects.
302.10 Attorneys' and consultants' fees; employment of expediters and 
          administrative employees.
302.11 Economic development information clearinghouse.
302.12 Project administration, operation and maintenance.
302.13 Maintenance of standards.
302.14 Records.
302.15 Acceptance of certifications by Eligible Applicants.
302.16 Reports by recipients.
302.17 Conflicts of interest.
302.18 Post-approval requirements.
302.19 Indemnification.
302.20 Civil rights.

    Authority: 19 U.S.C. 2341 et seq.; 42 U.S.C. 3150; 42 U.S.C. 3152; 
42 U.S.C. 3153; 42 U.S.C. 3192; 42 U.S.C. 3193; 42 U.S.C. 3194; 42 
U.S.C. 3211; 42 U.S.C. 3212; 42 U.S.C. 3216; 42 U.S.C.

[[Page 634]]

3218; 42 U.S.C. 3220; 42 U.S.C. 5141; Department of Commerce Delegation 
Order 10-4.

    Source: 71 FR 56675, Sept. 27, 2006, unless otherwise noted.



Sec. 302.1  Environment.

    EDA will undertake environmental reviews of Projects in accordance 
with the requirements of the National Environmental Policy Act of 1969, 
as amended (Pub. L. 91-190; 42 U.S.C. 4321 et seq., as implemented under 
40 CFR chapter V) (``NEPA''), and all applicable Federal environmental 
statutes, regulations and Executive Orders. These authorities include 
the implementing regulations of NEPA requiring 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, and records of decision, to the 
affected or interested public, as specified in 40 CFR 1506.6(b). 
Depending on the Project's location, environmental information 
concerning specific Projects can be obtained from the Environmental 
Officer in the appropriate EDA regional office as listed in the 
applicable FFO.



Sec. 302.2  Procedures in disaster areas.

    When non-statutory EDA administrative or procedural conditions for 
Investment Assistance awards under PWEDA cannot be met by an Eligible 
Applicant as the result of a disaster, EDA may waive such conditions.



Sec. 302.3  Project servicing for loans, loan guaranties and 
Investment Assistance.

    EDA will provide Project servicing to borrowers who received EDA 
loans or EDA-guaranteed loans and to lenders who received EDA loan 
guaranties under any EDA-administered program. Project servicing 
includes but is not limited to loans made under PWEDA prior to the 
effective date of the Economic Development Administration Reform Act of 
1998, the Trade Act and the Community Emergency Drought Relief Act of 
1977 (Pub. L. 95-31; 42 U.S.C. 5184 note).
    (a) EDA will continue to monitor such loans and loan guaranties in 
accordance with the applicable loans or loan guaranty program(s).
    (b) Borrowers and lenders shall submit to EDA any requests for 
modifications of their loan or loan guaranty agreements with EDA, as 
applicable. EDA shall consider and respond to such modification requests 
in accordance with applicable laws and policies, including the budgetary 
constraints imposed by the Federal Credit Reform Act of 1990, as amended 
(2 U.S.C. 661c(e)).
    (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, loan guaranties or evidence of purchased debt, 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 any EDA loans, EDA-guaranteed loans or Investment 
Assistance extended under PWEDA;
    (2) Collect or compromise all obligations assigned to or held by it 
in connection with any EDA loans, EDA-guaranteed loans or Investment 
Assistance awarded under PWEDA until such time as such obligations may 
be referred to the Attorney General of the United States for suit or 
collection; and
    (3) Take any and all other actions determined to be necessary or 
desirable in purchasing, servicing, compromising, modifying, 
liquidating, or otherwise administratively processing or disposing of 
loans or loan guaranties made or evidence of purchased debt in 
connection with any EDA loans, EDA-guaranteed loans or Investment 
Assistance awarded under PWEDA.



Sec. 302.4  Public information.

    The rules and procedures regarding public access to EDA's records 
pursuant to the Freedom of Information Act of 1967, as amended (5 U.S.C. 
552), and the Privacy Act of 1974, as amended (5 U.S.C. 552a), are at 15 
CFR part 4.

[[Page 635]]



Sec. 302.5  Relocation assistance and land acquisition policies.

    Recipients of EDA Investment Assistance under PWEDA and the Trade 
Act (States and political subdivisions of States and non-profits 
organizations, as applicable) are subject to the Uniform Relocation 
Assistance and Real Property Acquisition Policies Act of 1970, as 
amended (Pub. L. 91-646; 42 U.S.C. 4601 et seq.). See 15 CFR part 11 and 
49 CFR part 24 for specific compliance requirements.



Sec. 302.6  Additional requirements; Federal policies and procedures.

    Recipients are subject to all Federal laws and to Federal, 
Department and EDA policies, regulations and procedures applicable to 
Federal financial assistance awards, including but not limited to 15 CFR 
part 14, the Uniform Administrative Requirements for Grants and 
Cooperative Agreements with Institutions of Higher Education, Hospitals, 
other Non-Profit and Commercial Organizations, and 15 CFR part 24, the 
Uniform Administrative Requirements for Grants and Cooperative 
Agreements to State and Local Governments, as applicable.



Sec. 302.7  Amendments and changes.

    (a) Recipients shall submit requests for amendments to Investment 
awards in writing to EDA for approval and shall provide such information 
and documentation as EDA deems necessary to justify the request.
    (b) Any changes to Projects made without EDA's approval are made at 
the Recipient's risk of non-payment of costs, suspension, termination or 
other applicable EDA action with respect to the Investment.



Sec. 302.8  Pre-approval Investment Assistance costs.

    Project activities carried out before approval of Investment 
Assistance shall be carried out at the sole risk of the Eligible 
Applicant. Such activity is subject to the rejection of the application, 
the disallowance of costs, or other adverse consequences as a result of 
non-compliance with EDA or Federal requirements, including but not 
limited to procurement requirements, civil rights requirements, Federal 
labor standards, or Federal environmental, historic preservation and 
related requirements.



Sec. 302.9  Inter-governmental review of projects.

    (a) When an Eligible Applicant is not a State, Indian Tribe or other 
general purpose governmental authority, the Eligible Applicant must 
afford the appropriate general purpose local governmental authority (the 
``Authority'') in the Region a minimum of fifteen (15) days to review 
and comment on a proposed Project under EDA's Public Works and Economic 
Development program or a proposed construction Project or RLF Grant 
under EDA's Economic Adjustment Assistance program. Under these 
programs, Eligible Applicants shall furnish the following with their 
applications: If no comments are received from the Authority, a 
statement of efforts made to obtain such comments; or, if comments are 
received from the Authority, a copy of the comments and a statement of 
any actions taken to address such comments.
    (b) As required by 15 CFR part 13 and Executive Order 12372, 
``Intergovernmental Review of Federal Programs,'' as amended, if a State 
has adopted a process under Executive Order 12372 to review and 
coordinate proposed Federal financial assistance and direct Federal 
development (commonly referred to as the ``single point of contact 
review process''), all Eligible Applicants must also give State and 
local governments a reasonable opportunity to review and comment on the 
proposed Project, including review and comment from area-wide planning 
organizations in metropolitan areas, as provided for in 15 CFR part 13.



Sec. 302.10  Attorneys' and consultants' fees; employment of 
expediters and administrative employees.

    (a) General. Investment Assistance awarded under PWEDA shall not 
directly or indirectly reimburse any attorneys' or consultants' fees 
incurred in connection with obtaining Investment Assistance and 
contracts under PWEDA.

[[Page 636]]

    (b) Employment of expediters and administrative employees. 
Investment Assistance under PWEDA shall not be awarded to any Eligible 
Applicant, unless the owners, partners or officers of the Eligible 
Applicant:
    (1) Certify to EDA the names of any attorneys, agents and other 
persons engaged by or on behalf of the Eligible Applicant for the 
purpose of expediting applications made to EDA in connection with 
obtaining Investment Assistance under PWEDA and the fees paid or to be 
paid to the person for expediting the applications; and
    (2) Upon EDA's request, execute an agreement binding the Eligible 
Applicant, for the two-year (2) period beginning on the date on which 
the Investment Assistance is awarded to the Eligible Applicant, to 
refrain from employing, offering any office or employment to or 
retaining for professional services any person who, on the date on which 
the Investment Assistance is awarded or within the one-year (1) period 
ending on that date:
    (i) Served as an officer, attorney, agent or employee of the 
Department; and
    (ii) Occupied a position or engaged in activities that the Assistant 
Secretary determines involved discretion with respect to the award of 
Investment Assistance under PWEDA.



Sec. 302.11  Economic development information clearinghouse.

    Pursuant to section 502 of PWEDA, EDA maintains an economic 
development information clearinghouse on its Internet Web site at http:/
/www.eda.gov.



Sec. 302.12  Project administration, operation and maintenance.

    EDA shall approve Investment Assistance awards only if, as 
determined in its sole discretion, the Project for which such Investment 
Assistance is awarded will be properly and efficiently administered, 
operated and maintained.



Sec. 302.13  Maintenance of standards.

    All laborers and mechanics employed by contractors or subcontractors 
on Projects receiving Investment Assistance under PWEDA shall be paid 
wages at rates not less than those prevailing on similar construction in 
the locality, as determined by the U.S. Secretary of Labor in accordance 
with subchapter IV of chapter 31 of title 40, United States Code. EDA 
shall not extend any Investment Assistance under this chapter for a 
Project without first obtaining adequate assurance that these labor 
standards will be maintained upon the construction work. The U.S. 
Secretary of Labor shall have, with respect to the labor standards 
specified in this provision, the authority and functions set forth in 
Reorganization Plan No. 14 of 1950 (15 FR 3176 (May 25, 1950); 64 Stat. 
1267) and section 3145 of title 40, United States Code.



Sec. 302.14  Records.

    (a) Records. Recipients of Investment Assistance under PWEDA shall 
keep such records as EDA shall require, including records that fully 
disclose:
    (1) The total cost of the Project;
    (2) The amount and disposition by the Recipient of the Investment 
Assistance;
    (3) The amount and nature of the portion of Project costs provided 
by other sources; and
    (4) Such other information as EDA determines will facilitate an 
effective audit.
    (b) Access to records. The Recipient shall permit the Assistant 
Secretary, the Inspector General of the Department, the Comptroller 
General of the United States or any of their respective agents or 
representatives access to its properties in order to examine all books, 
correspondence, and records, including without limitation computer 
programs and data processing software, to verify the Recipient's 
compliance with Investment Assistance requirements.

[73 FR 62865, Oct. 22, 2008]



Sec. 302.15  Acceptance of certifications by Eligible Applicants.

    EDA will accept an Eligible Applicant's certifications, accompanied 
by evidence satisfactory to EDA, that the Eligible Applicant meets the 
requirements for receiving Investment Assistance.

[[Page 637]]



Sec. 302.16  Reports by Recipients.

    (a) In general, each Recipient must submit reports to EDA at 
intervals and in the manner that EDA shall require, except that EDA 
shall not require any report to be submitted more than ten (10) years 
after the date of closeout of the Investment Assistance.
    (b) Each report must contain a data-specific evaluation of the 
effectiveness of the Investment Assistance provided in fulfilling the 
Project's purpose (including alleviation of economic distress) and in 
meeting the objectives of PWEDA. Data used by a Recipient in preparing 
reports shall be accurate and verifiable as determined by EDA, and from 
independent sources (whenever possible). EDA will use the data and 
reports to fulfill its performance measurement reporting requirements 
under the Government Performance and Results Act of 1993 and to monitor 
internal, Investment and Project performance through an internal 
performance measurement system, such as the EDA Balanced Scorecard or 
other system.
    (c) To enable EDA to determine the economic development effect of a 
Project that provides service benefits, EDA may require the Recipient to 
submit a Project service map and information from which to determine 
whether services are provided to all segments of the Region being 
assisted.

[71 FR 56675, Sept. 27, 2006, as amended at 73 FR 62866, Oct. 22, 2008]



Sec. 302.17  Conflicts of interest.

    (a) General. It is EDA's and the Department's policy to maintain the 
highest standards of conduct to prevent conflicts of interest in 
connection with the award of Investment Assistance or its use for 
reimbursement or payment of costs (e.g., procurement of goods or 
services) by or to the Recipient. A conflict of interest generally 
exists when an Interested Party participates in a matter that has a 
direct and predictable effect on the Interested Party's personal or 
financial interests. A conflict may also exist where there is an 
appearance that an Interested Party's objectivity in performing his or 
her responsibilities under the Project is impaired. For example, an 
appearance of impairment of objectivity may result from an 
organizational conflict where, because of other activities or 
relationships with other persons or entities, an Interested Party is 
unable to render impartial assistance, services or advice to the 
Recipient, a participant in the Project or to the Federal government. 
Additionally, a conflict of interest may result from non-financial gain 
to an Interested Party, such as benefit to reputation or prestige in a 
professional field.
    (b) Prohibition on direct or indirect financial or personal 
benefits. (1) An Interested Party shall not receive any direct or 
indirect financial or personal benefits in connection with the award of 
Investment Assistance or its use for payment or reimbursement of costs 
by or to the Recipient.
    (2) An Interested Party shall also not, directly or indirectly, 
solicit or accept any gift, gratuity, favor, entertainment or other 
benefit having monetary value, for himself or herself or for another 
person or entity, from any person or organization which has obtained or 
seeks to obtain Investment Assistance from EDA.
    (3) Costs incurred in violation of any conflicts of interest rules 
contained in this chapter or in violation of any assurances by the 
Recipient may be denied reimbursement.
    (4) See Sec. 315.15 of this chapter for special conflicts of 
interest rules for Trade Adjustment Assistance Investments.
    (c) Special rules for Revolving Loan Fund (``RLF'') Grants. In 
addition to the rules set forth in this section:
    (1) An Interested Party of a Recipient of an RLF Grant shall not 
receive, directly or indirectly, any personal or financial benefits 
resulting from the disbursement of RLF loans;
    (2) A Recipient of an RLF Grant shall also not lend RLF funds to an 
Interested Party; and
    (3) Former board members of a Recipient of an RLF Grant and members 
of his or her Immediate Family shall not receive a loan from such RLF 
for a period of two (2) years from the date that the board member last 
served on the RLF's board of directors.

[71 FR 56675, Sept. 27, 2006, as amended at 73 FR 62866, Oct. 22, 2008]

[[Page 638]]



Sec. 302.18  Post-approval requirements.

    (a) General. A Recipient must comply with all financial, 
performance, progress report and other requirements set forth in the 
terms and conditions of the Investment Assistance, including any special 
terms and applicable Federal cost principles (collectively, ``Post-
Approval Requirements''). A Recipient's failure to comply with Post-
Approval Requirements may result in the disallowance of costs, 
termination of the Investment Assistance award, or other adverse 
consequences to the Recipient.
    (b) Part 307 (Economic Adjustment Assistance Investments). 
Recipients of Economic Adjustment Assistance Investments under part 307 
of this chapter must comply with the Post-Approval Requirements set 
forth in Sec. 307.6 of this chapter.



Sec. 302.19  Indemnification.

    To the maximum extent permitted by law, a Recipient shall indemnify 
and hold EDA harmless from any liability that EDA may incur due to the 
actions or omissions of the Recipient.



Sec. 302.20  Civil rights.

    (a) Discrimination is prohibited by a Recipient or Other Party (as 
defined in paragraph (b) of this section) with respect to a Project 
receiving Investment Assistance under PWEDA or by an entity receiving 
Adjustment Assistance (as defined in Sec. 315.2 of this chapter) under 
the Trade Act, in accordance with the following authorities:
    (1) Section 601 of Title VI of the Civil Rights Act of 1964, as 
amended (42 U.S.C. 2000d et seq.) (proscribing discrimination on the 
basis of race, color, or national origin), and the Department's 
implementing regulations found at 15 CFR part 8;
    (2) 42 U.S.C. 3123 (proscribing discrimination on the basis of sex 
in Investment Assistance provided under PWEDA) and 42 U.S.C. 6709 
(proscribing discrimination on the basis of sex under the Local Public 
Works Program), and the Department's implementing regulations found at 
15 CFR 8.7 through 8.15;
    (3) Section 504 of the Rehabilitation Act of 1973, as amended (29 
U.S.C. 794) (proscribing discrimination on the basis of disabilities), 
and the Department's implementing regulations found at 15 CFR part 8b;
    (4) The Age Discrimination Act of 1975, as amended (42 U.S.C. 6101 
et seq.) (proscribing discrimination on the basis of age), and the 
Department's implementing regulations found at 15 CFR part 20; and
    (5) Other Federal statutes, regulations and Executive Orders, as 
applicable.
    (b) Definitions. (1) For purposes of this section, an ``Other 
Party'' means an ``other party subject to this part,'' as defined in 15 
CFR 8.3(l), and includes an entity which (or which is intended to) 
creates and/or saves fifteen (15) or more permanent jobs as a result of 
Investment Assistance; provided that such entity is also either 
specifically named in the application as benefiting from the Project, or 
is or will be located in an EDA building, port, facility, or industrial, 
commercial or business park constructed or improved in whole or in part 
with Investment Assistance prior to EDA's final disbursement of 
Investment Assistance funds.
    (2) Additional applicable definitions are provided in 15 CFR part 8.
    (c) 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 42 U.S.C. 3123 or 42 U.S.C. 6709, or 
because the person has made a complaint, testified, assisted or 
participated in any manner in an investigation, proceeding or hearing 
under this section.
    (d) All Recipients of Investment Assistance under PWEDA, all Other 
Parties and all entities receiving Adjustment Assistance under the Trade 
Act must submit to EDA written assurances that they will comply with 
applicable laws, EDA regulations, Department regulations, and such other 
requirements as may be applicable, prohibiting discrimination.
    (e) Reporting and other procedural matters are set forth in 15 CFR 
parts 8, 8a, 8b, 8c and 20.

[[Page 639]]



PART 303_PLANNING INVESTMENTS AND COMPREHENSIVE ECONOMIC DEVELOPMENT 
STRATEGIES--Table of Contents




Sec.
303.1 Purpose and scope.
303.2 Definitions.
303.3 Application requirements and evaluation criteria.
303.4 Award requirements.
303.5 Eligible administrative expenses.
303.6 EDA-funded CEDS process.
303.7 Requirements for Comprehensive Economic Development Strategies.
303.8 Requirements for State plans.
303.9 Requirements for short-term Planning Investments.

    Authority: 42 U.S.C. 3143; 42 U.S.C. 3162; 42 U.S.C. 3174; 42 U.S.C. 
3211; Department of Commerce Organization Order 10-4.

    Source: 71 FR 56675, Sept. 27, 2006, unless otherwise noted.



Sec. 303.1  Purpose and scope.

    The purpose of EDA Planning Investments is to provide support to 
Planning Organizations for the development, implementation, revision or 
replacement of Comprehensive Economic Development Strategies, and for 
related short-term Planning Investments and State plans designed to 
create and retain higher-skill, higher-wage jobs, particularly for the 
unemployed and underemployed in the nation's most economically 
distressed Regions. EDA's Planning Investments support partnerships with 
District Organizations, Indian Tribes, community development 
corporations, non-profit regional planning organizations and other 
Eligible Recipients. Planning activities supported by these Investments 
must be part of a continuous process involving the active participation 
of Private Sector Representatives, public officials and private 
citizens, and include:
    (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.



Sec. 303.2  Definitions.

    In addition to the defined terms set forth in Sec. 300.3 of this 
chapter, the following terms used in this part shall have the following 
meanings:
    Planning Investment means the award of EDA Investment Assistance 
under section 203 of PWEDA and this part.
    Planning Organization means a Recipient whose purpose is to develop 
and implement a CEDS for a specific EDA-approved Region under section 
203 of PWEDA.
    Strategy Committee means the committee or other entity identified by 
the Planning Organization as responsible for the development, 
implementation, revision or replacement of the CEDS for the Planning 
Organization.



Sec. 303.3  Application requirements and evaluation criteria.

    (a) For Planning Investment awards, EDA uses the general application 
evaluation criteria set forth in Sec. 301.8 of this chapter. In 
addition, applications for Planning Investments must include information 
about the following:
    (1) The proposed scope of work for the development, implementation, 
revision or replacement of the CEDS, or the relation of the CEDS to the 
proposed short-term planning activities or the State plan;
    (2) Qualifications of the Eligible Applicant to implement the goals 
and objectives resulting from the CEDS, short-term planning activities 
or the State plan;
    (3) The involvement of the Region's business leadership at each 
stage of the preparation of the CEDS, short-term planning activities or 
State plan;
    (4) Extent of broad-based representation and involvement of the 
Region's civic, business, labor, minority and other interests in the 
Eligible Applicant's economic development activities; and
    (5) Feasibility of the proposed scope of work to create and retain 
higher-skill, higher-wage jobs through implementation of the CEDS.
    (b) In addition to the criteria set forth in paragraph (a) of this 
section, funded Recipients are evaluated on the basis of the extent of 
continuing economic distress within the Region, their

[[Page 640]]

past performance, and the overall effectiveness of their CEDS.
    (c) For Planning Investment awards to a State, the Assistant 
Secretary shall also consider the extent to which the State will 
integrate and coordinate its CEDS with local and Economic Development 
District plans.
    (d) The Investment Rates for Planning Investments will be determined 
in accordance with Sec. 301.4 of this chapter.



Sec. 303.4  Award requirements.

    (a) Planning Investments shall function in conjunction with any 
other available Federal, State or local planning assistance to ensure 
adequate and effective planning and economical use of funds.
    (b) Except in compelling circumstances as determined by the 
Assistant Secretary, EDA will not provide Planning Investments for 
multiple CEDS that address the needs of an identical or substantially 
similar Region.
    (c) EDA will provide a Planning Investment for the period of time 
required to develop, revise or replace, and implement a CEDS, generally 
in thirty-six (36) month renewable Investment project periods.

[71 FR 56675, Sept. 27, 2006, as amended at 73 FR 62866, Oct. 22, 2008]



Sec. 303.5  Eligible administrative expenses.

    In accordance with applicable Federal cost principles, Planning 
Investments may be used to pay the direct and indirect costs incurred by 
a Planning Organization in the development, implementation, revision or 
replacement of a CEDS and for related short-term planning activities.



Sec. 303.6  EDA-funded CEDS process.

    If EDA awards Investment Assistance to a Planning Organization to 
develop, revise or replace a CEDS, the Planning Organization must follow 
the procedures set forth in this section:
    (a) The Planning Organization must appoint a Strategy Committee. The 
Strategy Committee must represent the main economic interests of the 
Region and must include Private Sector Representatives as a majority of 
its membership. In addition, the Planning Organization should ensure 
that the Strategy Committee includes public officials, community 
leaders, representatives of workforce development boards, institutions 
of higher education, minority and labor groups, and private individuals. 
The Strategy Committee representing Indian Tribes or States may vary.
    (b) The Planning Organization must develop and submit to EDA a CEDS 
that:
    (1) Complies with the requirements of Sec. 303.7; and
    (2) Was made available for review and comment by the public for a 
period of at least thirty (30) days prior to submission to EDA.
    (c)(1) After obtaining EDA approval of the CEDS, the Planning 
Organization must submit annually an updated CEDS performance report to 
EDA.
    (2) The Planning Organization must submit a new or revised CEDS to 
EDA at least every five (5) years, unless EDA or the Planning 
Organization determines that a new or revised CEDS is required earlier 
due to changed circumstances.
    (3) Any updated CEDS performance report that results in a change of 
the requirements set forth in Sec. 303.7(b)(3) of the EDA-accepted CEDS 
or any new or revised CEDS, must be available for review and comment by 
the public in accordance with paragraph (b)(2) of this section.
    (d) If EDA determines that implementation of the CEDS is inadequate, 
it will notify the Planning Organization in writing and the Planning 
Organization shall submit to EDA a new or revised CEDS.
    (e) If any part of a Region is covered by one or more of the 
Regional Commissions as set forth in section 404 of PWEDA, the Planning 
Organization shall ensure that a copy of the CEDS is provided to the 
Regional Commission(s).



Sec. 303.7  Requirements for Comprehensive Economic Development 
Strategies.

    (a) General. CEDS are designed to bring together the public and 
private sectors in the creation of an economic roadmap to diversify and 
strengthen Regional economies. The CEDS should

[[Page 641]]

analyze the Regional economy and serve as a guide for establishing 
Regional goals and objectives, developing and implementing a Regional 
plan of action, and identifying investment priorities and funding 
sources. Public and private sector partnerships are critical to the 
implementation of the integral elements of a CEDS set forth in paragraph 
(b) of this section. As a performance-based plan, the CEDS will serve a 
critical role in a Region's efforts to defend against economic 
dislocations due to global trade, competition and other events resulting 
in the loss of jobs and private investment.
    (b) Technical requirements. A CEDS must be the result of a 
continuing economic development planning process, developed with broad-
based and diverse public and private sector participation, and shall 
contain the following:
    (1) A background of the economic development situation of the Region 
with a discussion of the economy, population, geography, workforce 
development and use, transportation access, resources, environment and 
other pertinent information;
    (2) An in-depth analysis of economic and community development 
problems and opportunities, including:
    (i) Incorporation of relevant material from other government-
sponsored or supported plans and consistency with applicable State and 
local workforce investment strategies; and
    (ii) An identification of past, present and projected future 
economic development investments in the Region covered;
    (3) A section setting forth goals and objectives necessary to solve 
the economic development problems of the Region;
    (4) A discussion of community and private sector participation in 
the CEDS effort;
    (5) A section listing all suggested Projects and the projected 
numbers of jobs to be created as a result thereof;
    (6) A section identifying and prioritizing vital Projects, programs 
and activities that address the Region's greatest needs or that will 
best enhance the Region's competitiveness, including sources of funding 
for past and potential future Investments;
    (7) A section identifying economic clusters within the Region, 
focusing on those that are growing or in decline;
    (8) A plan of action to implement the goals and objectives of the 
CEDS, including:
    (i) Promoting economic development and opportunity;
    (ii) Fostering effective transportation access;
    (iii) Enhancing and protecting the environment;
    (iv) Maximizing effective development and use of the workforce 
consistent with any applicable State or local workforce investment 
strategy;
    (v) Promoting the use of technology in economic development, 
including access to high-speed telecommunications;
    (vi) Balancing resources through sound management of physical 
development; and
    (vii) Obtaining and utilizing adequate funds and other resources; 
and
    (9) A list of performance measures used to evaluate the Planning 
Organization's successful development and implementation of the CEDS, 
including but not limited to the following:
    (i) Number of jobs created after implementation of the CEDS;
    (ii) Number and types of investments undertaken in the Region;
    (iii) Number of jobs retained in the Region;
    (iv) Amount of private sector investment in the Region after 
implementation of the CEDS; and
    (v) Changes in the economic environment of the Region; and
    (10) A section outlining the methodology for cooperating and 
integrating the CEDS with a State's economic development priorities.
    (c) Consideration of non-EDA funded CEDS. (1) In determining the 
acceptability of a CEDS prepared independently of EDA Investment 
Assistance or oversight for Projects under parts 305 and 307 of this 
chapter, EDA may in its discretion determine that the CEDS is acceptable 
without fulfilling all the requirements of paragraph (b) of this 
section. In doing so, EDA shall consider the circumstances surrounding 
the application for Investment Assistance, including emergencies or 
natural disasters and the fulfillment of the requirements of section 302 
of PWEDA.

[[Page 642]]

    (2) If the CEDS for a Project under parts 305 and 307 of this 
chapter is developed under another federally-supported program, it must 
include acceptable performance measures similar to those set forth in 
paragraph (b) of this section and information on the state of the 
Regional economy. To the maximum extent practicable, the CEDS shall be 
consistent and coordinated with any existing economic development plan 
for the Region.



Sec. 303.8  Requirements for State plans.

    (a) As a condition of a State receiving a Planning Investment:
    (1) The State must have or develop a CEDS that meets the 
requirements of Sec. 303.7;
    (2) Any State plan developed with Planning Investment Assistance 
must, to the maximum extent practicable, be developed cooperatively by 
the State, political subdivisions of the State, and the Economic 
Development Districts located wholly or partially in the State; and
    (3) The State must submit to EDA an annual report on any State plan 
receiving Planning Investment Assistance.
    (b) Before awarding a Planning Investment to a State, EDA shall 
consider the extent to which the State will take into account local and 
District economic development plans.



Sec. 303.9  Requirements for short-term Planning Investments.

    (a) In addition to providing support for CEDS and State plans, EDA 
may also provide Investment Assistance to support short-term planning 
activities. EDA may provide such Investment Assistance to:
    (1) Develop the economic development planning capacity of States, 
cities and other Eligible Applicants experiencing economic distress;
    (2) Assist in institutional capacity building; or
    (3) Undertake innovative approaches to economic development.
    (b) Eligible activities may include but are not limited to updating 
a portion of a CEDS, economic analysis, development of economic 
development policies and procedures, and development of economic 
development goals.
    (c) Applicants for short-term Planning Investments must provide 
performance measures acceptable to EDA that can be used to evaluate the 
success of the program and provide EDA with progress reports during the 
term of the Planning Investment, as set forth in the Investment 
agreement.



PART 304_ECONOMIC DEVELOPMENT DISTRICTS--Table of Contents




Sec.
304.1 Designation of Economic Development Districts: Regional 
          eligibility.
304.2 District Organizations: Formation, organizational requirements and 
          operations.
304.3 District modification and termination.
304.4 Performance evaluations.

    Authority: 42 U.S.C. 3122; 42 U.S.C. 3171; 42 U.S.C. 3172; 42 U.S.C. 
3196; Department of Commerce Organization Order 10-4.

    Source: 71 FR 56675, Sept. 27, 2006, unless otherwise noted.



Sec. 304.1  Designation of Economic Development Districts: Regional 
eligibility.

    Upon the request of a District Organization (as defined in Sec. 
304.2), EDA may designate a Region as an Economic Development District 
if such Region:
    (a) Contains at least one (1) geographic area that is subject to the 
economic distress criteria set forth in Sec. 301.3(a)(1) of this 
chapter and is identified in an approved CEDS;
    (b) Is of sufficient size or population and contains sufficient 
resources to foster economic development on a scale involving more than 
a single geographic area subject to the economic distress criteria set 
forth in Sec. 301.3(a)(1) of this chapter;
    (c) Has an EDA-approved CEDS that
    (1) Meets the requirements under Sec. 303.7 of this chapter;
    (2) Contains a specific program for intra-District cooperation, 
self-help, and public investment; and
    (3) Is approved by each affected State and by the Assistant 
Secretary;
    (d) Obtains commitments from at least a majority of the counties or 
other areas within the proposed District, as determined by EDA, to 
support the economic development activities of the District; and

[[Page 643]]

    (e) Obtains the concurrence with the designation request from the 
State (or States) in which the proposed District will be wholly or 
partially located.



Sec. 304.2  District Organizations: Formation, organizational 
requirements and operations.

    (a) General. A ``District Organization'' is an entity that satisfies 
the formation and organizational requirements under paragraphs (b) and 
(c) of this section.
    (b) Formation. A District Organization must be organized as one of 
the following:
    (1) A public organization formed through an inter-governmental 
agreement providing for the joint exercise of local government powers; 
or
    (2) A public organization established under State-enabling 
legislation for the creation of multi-jurisdictional area-wide planning 
organizations; or
    (3) A non-profit organization incorporated under the applicable non-
profit statutes of the State in which it is incorporated.
    (c) Organization and governance.
    (1) Each District Organization must meet the requirements of this 
paragraph (c) concerning membership composition, the maintenance of 
adequate staff support to perform its economic development functions, 
and its authorities and responsibilities for carrying out economic 
development functions. The District Organization's board of directors 
(or other governing body) must also meet these requirements.
    (2) The District Organization must demonstrate that its governing 
body is broadly representative of the principal economic interests of 
the Region, and, unless otherwise prohibited by applicable State or 
local law, must include at least one (1) Private Sector Representative 
and one (1) or more of the following: Executive Directors of Chambers of 
Commerce, or representatives of institutions of post-secondary 
education, workforce development groups or labor groups, all of which 
must comprise in the aggregate a minimum of thirty-five (35) percent of 
the District Organization's governing body. The governing body shall 
also have at least a simple majority of its membership who are elected 
officials and/or employees of a general purpose unit of State, local or 
Indian tribal government who have been appointed to represent the 
government. Upon the District Organization's showing of its inability to 
locate a Private Sector Representative to serve on its governing body 
following extensive due diligence, the Assistant Secretary may waive the 
Private Sector Representative requirement. The Assistant Secretary shall 
not delegate the authority to grant a waiver under this paragraph.
    (3) The District Organization must be assisted by a professional 
staff drawn from qualified persons in economic development, planning, 
business development or related disciplines.
    (4) The governing bodies of District Organizations must provide 
access for persons who are not members to make their views known 
concerning ongoing and proposed District activities in accordance with 
the following requirements:
    (i) The District Organization must hold meetings open to the public 
at least once a year and shall also publish the date and agenda of such 
meetings sufficiently in advance to allow the public a reasonable time 
to prepare in order to participate effectively.
    (ii) The District Organization shall adopt a system of parliamentary 
procedures to assure that board members and others have access to an 
effective opportunity to participate in the affairs of the District.
    (iii) The District Organization shall provide information 
sufficiently in advance of decisions to give the public adequate 
opportunity to review and react to proposals. District Organizations 
should communicate technical data and other material to the public so 
they may understand the impact of public programs, available options and 
alternative decisions.
    (iv) The District Organization must make available to the public 
such audited statements, annual budgets and minutes of public meetings, 
as may be reasonably requested.
    (v) The District Organization and its board of directors must comply 
with all Federal and State financial assistance reporting requirements 
and the conflicts of interest provisions set forth in Sec. 302.17 of 
this chapter.

[[Page 644]]

    (d) Operations. (1) The District Organization shall engage in the 
full range of economic development activities listed in its EDA-approved 
CEDS. These activities may include:
    (i) Coordinating and implementing economic development activities in 
the District;
    (ii) Carrying out economic development research, planning, 
implementation and advisory functions identified in the CEDS; and
    (iii) Coordinating the development and implementation of the CEDS 
with other local, State, Federal and private organizations.
    (2) The District Organization may at its option contract for 
services to accomplish the activities listed in paragraphs (d)(1)(i) 
through (iii) of this section.



Sec. 304.3  District modification and termination.

    (a) Modification. Upon the request of a District Organization and 
with the concurrence of the State or States affected (unless such 
concurrence is waived by the Assistant Secretary), EDA may modify the 
geographic boundaries of a District, if it determines that such 
modification will contribute to a more effective program for economic 
development.
    (b) Termination. EDA may, upon sixty (60) days prior written notice 
to the District Organization, member counties and other areas determined 
by EDA and each affected State, terminate a Region's designation as an 
Economic Development District when:
    (1) A District or District Organization no longer meets the 
requirements of Sec. Sec. 304.1 or 304.2; or
    (2) EDA determines that the District Organization fails to execute 
its CEDS according to the development, implementation and other 
performance measures set forth therein; or
    (3) A District Organization has requested termination.
    (c) Prior to terminating a District Organization under paragraph 
(b)(2) of this section, EDA will consult with the District Organization 
and consider all facts and circumstances regarding the District 
Organization's operations. EDA will not terminate a District's 
designation based on circumstances beyond the control of the District 
Organization (e.g., natural disaster, plant closure, overall economic 
downturn, sudden and severe economic dislocation, or other situation).
    (d) EDA may further modify or terminate a Region's designation as a 
District according to the standards set forth in an FFO.



Sec. 304.4  Performance evaluations.

    (a) EDA shall evaluate the management standards, financial 
accountability and program performance of each District Organization 
within three (3) years after the initial Investment award and at least 
once every three (3) years thereafter, so long as the District 
Organization continues to receive Investment Assistance. EDA's 
evaluation shall assess:
    (1) The continuing Regional eligibility of the District, as set 
forth in Sec. 304.1;
    (2) The management of the District Organization, as set forth in 
Sec. 304.2; and
    (3) The implementation of the CEDS, including the District 
Organization's performance and contribution towards the retention and 
creation of employment, as set forth in Sec. 303.7 on this chapter.
    (b) For peer review, EDA shall ensure the participation of at least 
one (1) other District Organization in the performance evaluation on a 
cost-reimbursement basis.



PART 305_PUBLIC WORKS AND ECONOMIC DEVELOPMENT INVESTMENTS--Table of 
Contents




                            Subpart A_General

Sec.
305.1 Purpose and scope.
305.2 Award requirements.
305.3 Application requirements.
305.4 Projects for design and engineering work.

              Subpart B_Requirements for Approved Projects

305.5 Project administration by District Organization.
305.6 Allowable methods of procurement for construction services.
305.7 Services performed by the Recipient's own forces.

[[Page 645]]

305.8 Recipient-furnished equipment and materials.
305.9 Project phasing and Investment disbursement.
305.10 Bid underrun.
305.11 Contract awards; early construction start.
305.12 Project sign.
305.13 Contract change orders.
305.14 Occupancy prior to completion.

    Authority: 42 U.S.C. 3211; 42 U.S.C. 3141; Department of Commerce 
Organization Order 10-4.

    Source: 71 FR 56675, Sept. 27, 2006, unless otherwise noted.



                            Subpart A_General



Sec. 305.1  Purpose and scope.

    Public Works and Economic Development Investments (``Public Works 
Investments'') intend to help the nation's most distressed communities 
revitalize, expand and upgrade their physical infrastructure to attract 
new industry, encourage business expansion, diversify local economies 
and generate or retain long-term private sector jobs and investments. 
The primary goal of these Investments is the creation of new, or the 
retention of existing, long-term private sector job opportunities in 
communities experiencing significant economic distress as evidenced by 
chronic high unemployment, underemployment, low per capita income, 
outmigration, or a Special Need. These Investments also intend to assist 
communities in attracting private capital investment and higher-skill, 
higher-wage job opportunities and to promote the successful long-term 
economic recovery of a Region.



Sec. 305.2  Award requirements.

    (a) Project scope. Public Works Investments may fund the following 
activities:
    (1) Acquisition or development of land and improvements for use in a 
public works, public service or other type of development facility; or
    (2) Acquisition, design and engineering, construction, 
rehabilitation, alteration, expansion, or improvement of such a 
facility, including related machinery and equipment.
    (b) Requirements. A Public Works Investment may be made if EDA 
determines that:
    (1) The Project will, directly or indirectly:
    (i) Improve the opportunities for the successful establishment or 
expansion of industrial or commercial plants or facilities in the Region 
where the Project is located;
    (ii) Assist in the creation of additional long-term employment 
opportunities in the Region; or
    (iii) Primarily benefit the long-term unemployed and members of low-
income families in the Region;
    (2) The Project will fulfill a pressing need of the Region, or a 
part of the Region, in which the Project is located; and
    (3) The Region in which the Project is located has a CEDS and the 
Project is consistent with the CEDS.
    (c) Not more than fifteen (15) percent of the annual appropriations 
made available to EDA to fund Public Works Investments may be made in 
any one (1) State.



Sec. 305.3  Application requirements.

    (a) Each application for Public Works Investment Assistance must:
    (1) Include evidence of eligibility, as provided in part 301 of this 
chapter;
    (2) Include, or incorporate by reference, a CEDS (as provided in 
Sec. 303.7 of this chapter);
    (3) Demonstrate how the proposed Project meets the criteria of Sec. 
305.2; and
    (4) Demonstrate how the proposed Project meets the proposal 
evaluation criteria set forth in Sec. 301.8 of this chapter.
    (b) The Investment Rate for Public Works Investments will be 
determined in accordance with Sec. 301.4 of this chapter.



Sec. 305.4  Projects for design and engineering work.

    In the case of Public Works Investment Assistance awarded solely for 
design and engineering work, the following additional application 
requirements and terms shall apply:
    (a) EDA may determine that a separate Investment for design and 
engineering is warranted due to the technical complexity or 
environmental sensitivity of the construction Project;
    (b) The purpose of the Investment may be limited to the development 
and

[[Page 646]]

production of all documents required for the construction of the 
proposed construction Project in a format and in sufficient quantity to 
permit advertisement and award of a construction contract soon after 
securing construction financing for the Project;
    (c) EDA will not disburse any portion of the Investment Assistance 
until it receives and certifies compliance with the Investment award of 
all design and engineering contracts; and
    (d) EDA's funding of the Project for design and engineering work 
does not in any way commit EDA to fund construction of the Project.



              Subpart B_Requirements for Approved Projects



Sec. 305.5  Project administration by District Organization.

    (a) When a District Organization is not the Recipient or co-
Recipient of Investment Assistance, the District Organization may 
administer the Project for the Recipient if EDA determines fulfillment 
of the following conditions:
    (1) The Recipient has requested (either in the application or by 
separate written request) that the District Organization for the Region 
in which the Project is located administer the Project;
    (2) The Recipient certifies and EDA finds that:
    (i) Administration of the Project is beyond the capacity of the 
Recipient's current staff and would require hiring additional staff or 
contracting for such services;
    (ii) No local organization or business exists that could administer 
the Project in a more efficient or cost-effective manner than the staff 
of the District Organization; and
    (iii) The staff of the District Organization would administer the 
Project without sub-contracting the work; and
    (3) The allowable costs for the administration of the Project by the 
District Organization's staff will not exceed the amount that would be 
allowable to the Recipient.
    (b) EDA must approve the request either by approving the application 
in which the request is made or by separate specific written approval.



Sec. 305.6  Allowable methods of procurement for construction services.

    (a) Recipients may use alternate construction procurement methods to 
the traditional design/bid/build procedures (including lump sum or unit 
price-type construction contracts). These methods include but are not 
limited to design/build, construction management at risk and force 
account. If an alternate method is used, the Recipient shall submit to 
EDA for approval a construction services procurement plan and the 
Recipient must use a design professional to oversee the process. The 
Recipient shall submit the plan to EDA prior to advertisement for bids 
and shall include the following, as applicable:
    (1) Justification for the proposed method for procurement of 
construction services;
    (2) The scope of work with cost estimates and schedules;
    (3) A copy of the proposed construction contract;
    (4) The name and qualifications of the selected design professional; 
and
    (5) Procedures to be used to ensure full and open competition, 
including the selection criteria.
    (b) For all procurement methods, the Recipient must comply with the 
procurement standards set forth in 15 CFR parts 14 or 24, as applicable.

[71 FR 56675, Sept. 27, 2006, as amended at 73 FR 62866, Oct. 22, 2008]



Sec. 305.7  Services performed by the Recipient's own forces.

    In certain circumstances, the Recipient may wish to consider having 
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-time or part-
time. EDA may approve the use of such ``in-house forces'' if:
    (a) The services are routinely performed by the Recipient for all 
construction Projects performed by the Recipient (for example, 
inspection or legal); or
    (b) The Recipient has a special skill required for the construction 
of the Project (for example, construction of unique Indian structures); 
or

[[Page 647]]

    (c) 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 Region; or
    (d) The Recipient demonstrates substantial cost savings.



Sec. 305.8  Recipient-furnished equipment and materials.

    The Recipient may wish to incorporate into the Project equipment or 
materials that it will secure through its own efforts, subject to the 
following requirements:
    (a) EDA must approve any use of Recipient-furnished equipment and 
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 of such equipment;
    (b) EDA may require the Recipient to establish that the expense 
claimed for such equipment or materials is competitive with current 
local market costs; and
    (c) Acquisition of Recipient-furnished equipment and/or materials 
under this section is also subject to the requirements of 15 CFR parts 
14 or 24, as applicable.



Sec. 305.9  Project phasing and Investment disbursement.

    (a) EDA may authorize in advance the award of construction contracts 
in phases, provided the Recipient submits a request that includes each 
of the following:
    (1) Valid reasons justifying why the Project must be phased;
    (2) Description of the specific elements to be completed in each 
phase;
    (3) Detailed construction cost estimates for each phase;
    (4) Time schedules for completing all phases of the Project;
    (5) Certification that the Recipient can and will fund any 
overrun(s); and
    (6) Certification that the Recipient is capable of paying incurred 
costs prior to the first disbursement of EDA funds.
    (b) EDA will begin disbursement of funds after receipt of evidence 
sufficient to EDA of compliance with all Investment award conditions. 
EDA may approve the disbursement of funds prior to the tender of all 
construction contracts if the Recipient can demonstrate to EDA's 
satisfaction that a severe financial hardship will result without such 
approval.



Sec. 305.10  Bid underrun.

    If at the construction contract bid opening, the lowest responsive 
bid is less than the total Project cost, the Recipient will notify EDA 
to determine whether Investment funds should be deobligated from the 
Project.



Sec. 305.11  Contract awards; early construction start.

    EDA must determine that the award of all contracts necessary for 
design and construction of the Project facilities is in compliance with 
the terms and conditions of the Investment award in order for the costs 
to be eligible for EDA reimbursement. Pending this determination, the 
Recipient may issue a notice permitting construction under the contract 
to commence. If construction commences prior to EDA's determination, the 
Recipient proceeds at its own risk until EDA review and concurrence. The 
EDA regional office will advise the Recipient of the requirements 
necessary to obtain EDA's determination.



Sec. 305.12  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 at a conspicuous place at the Project site indicating 
that the Federal government is participating in the Project. The EDA 
regional office will provide mandatory specifications for the signage.



Sec. 305.13  Contract change orders.

    (a) If it becomes necessary to alter the construction contracts 
post-execution, the Recipient and contractor shall agree to a formal 
contract change order.
    (b) All contract change orders must receive EDA review for 
compliance with the terms and conditions of the

[[Page 648]]

Investment award, even if the Recipient is to pay for all additional 
costs resulting from the change or the change order reduces the contract 
price.
    (c) Work on the Project may continue pending EDA review of the 
contract change order, but all such work will be at the Recipient's risk 
until EDA completes its review.



Sec. 305.14  Occupancy prior to completion.

    Occupancy of any part of the Project prior to final acceptance is 
entirely at the Recipient's risk and must follow the requirements of 
local and State law.



PART 306_TRAINING, RESEARCH AND TECHNICAL ASSISTANCE INVESTMENTS--
Table of Contents




            Subpart A_Local and National Technical Assistance

Sec.
306.1 Purpose and scope.
306.2 Award requirements.
306.3 Application requirements.

        Subpart B_University Center Economic Development Program

306.4 Purpose and scope.
306.5 Award requirements.
306.6 Application requirements.
306.7 Performance evaluations of University Centers.

    Authority: 42 U.S.C. 3147; 42 U.S.C. 3196; 42 U.S.C. 3211; 
Department of Commerce Organization Order 10-4.

    Source: 71 FR 56675, Sept. 27, 2006, unless otherwise noted.



            Subpart A_Local and National Technical Assistance



Sec. 306.1  Purpose and scope.

    (a) Local and National Technical Assistance Investments may:
    (1) Determine the causes of excessive unemployment, underemployment, 
low per capita income, outmigration or other problems throughout the 
nation;
    (2) Formulate and implement economic development tools, models, and 
innovative techniques that will alleviate or prevent conditions of 
excessive unemployment or underemployment;
    (3) Formulate and implement economic development programs to 
increase local, regional and national capacity;
    (4) Evaluate the effectiveness and economic impact of programs, 
projects and techniques to alleviate economic distress and promote 
economic development;
    (5) Conduct project planning and feasibility studies;
    (6) Provide management and operational assistance;
    (7) Establish business outreach centers;
    (8) Disseminate information about effective programs, projects and 
techniques that alleviate conditions of economic distress and promote 
economic development;
    (9) Assess, market and establish business clusters and associations; 
or
    (10) Perform other activities determined by EDA to be appropriate 
under the Local and National Technical Assistance program.
    (b) Investment Assistance may not be used to start or expand a 
private business.
    (c) EDA may identify specific training, research or technical 
assistance Projects it will fund, which will be subject to competition. 
Ordinarily, these Projects are specified in an FFO, which will provide 
the specific requirements, timelines and the appropriate points of 
contact and addresses.
    (d) In providing Local and National Technical Assistance under this 
subpart, EDA, in addition to making Investments, may:
    (1) Provide Local and National Technical Assistance through officers 
or employees of the Department;
    (2) Pay funds made available to carry out this subpart to Federal 
Agencies; or
    (3) Employ private individuals, partnerships, businesses, 
corporations, or appropriate institutions under contracts entered into 
for this purpose.



Sec. 306.2  Award requirements.

    EDA selects Projects for Local and National Technical Assistance 
Investments in accordance with the general evaluation and selection 
criteria set forth in part 301 of this chapter and the extent to which 
the Project:

[[Page 649]]

    (a) Strengthens the capacity of local, State or national 
organizations and institutions to undertake and promote effective 
economic development programs targeted to Regions of distress;
    (b) Benefits distressed Regions;
    (c) Demonstrates innovative approaches to stimulate economic 
development in distressed Regions;
    (d) Is consistent with an EDA-approved CEDS, as applicable, for the 
Region in which the Project is located; and
    (e) Meets the criteria outlined in the applicable FFO.



Sec. 306.3  Application requirements.

    (a) EDA will provide Investment Assistance under this subpart for 
the period of time required to complete the Project's scope of work, 
generally not to exceed twelve (12) to eighteen (18) months.
    (b) For a Project of significant Regional or national scope, EDA may 
waive the requirement set forth in Sec. 301.2(b) of this chapter that 
the non-profit organization act in cooperation with officials of a 
political subdivision of a State.
    (c) The Investment Rate for Investments under this subpart shall be 
determined in accordance with Sec. 301.4(b)(4) of this chapter.



        Subpart B_University Center Economic Development Program



Sec. 306.4  Purpose and scope.

    The University Center Economic Development Program is intended to 
help improve the economies of distressed Regions. Institutions of higher 
education have many assets, such as faculty, staff, libraries, 
laboratories and computer systems that can address local economic 
problems and opportunities. With Investment Assistance, institutions of 
higher education establish and operate research centers (``University 
Centers'') that provide technical assistance to public and private 
sector organizations with the goal of enhancing local economic 
development.



Sec. 306.5  Award requirements.

    EDA provides Investment Assistance to University Center Projects in 
accordance with the general evaluation and selection criteria set forth 
in part 301 of this chapter, the competitive selection process outlined 
in the applicable FFO, and the extent to which the Project:
    (a) Addresses the economic development needs, issues and 
opportunities of the Region and will benefit distressed areas in the 
Region;
    (b) Provides service and value that are unique and will maximize 
coordination with other organizations in the Region;
    (c) Has the commitment and support (both financial and non-
financial) of the highest management levels of the sponsoring 
institution;
    (d) Outlines activities consistent with the expertise of the 
proposed staff, academic programs and other resources available within 
the sponsoring institution; and
    (e) Documents past experience of the sponsoring institution in 
operating technical assistance programs.



Sec. 306.6  Application requirements.

    (a) EDA will provide Investment Assistance under this subpart for 
the period of time required to complete the Project's scope of work, as 
specifically outlined in the applicable FFO.
    (b) For a Project of significant Regional or national scope, EDA may 
waive the requirement set forth in Sec. 301.2(b) of this chapter that 
the non-profit organization act in cooperation with officials of a 
political subdivision of a State.
    (c) The Investment Rate for Investments under this subpart shall be 
determined in accordance with Sec. 301.4(b)(4) of this chapter.
    (d) At least eighty (80) percent of EDA funding must be allocated to 
direct costs of program delivery.



Sec. 306.7  Performance evaluations of University Centers.

    (a) EDA will:
    (1) Evaluate each University Center within three (3) years after the 
initial Investment award and at least once every three (3) years 
thereafter, so long as such University Center continues to receive 
Investment Assistance; and
    (2) Assess the University Center's contribution to providing 
technical assistance, conducting applied research,

[[Page 650]]

meeting program performance objectives (as evidenced by retention and 
creation of employment opportunities) and disseminating Project results 
in accordance with the scope of work funded during the evaluation 
period.
    (b) The performance evaluation will determine in part whether a 
University Center can compete to receive Investment Assistance under the 
University Center Economic Development Program for the following 
Investment Assistance cycle.
    (c) For peer review, EDA shall ensure the participation of at least 
one (1) other University Center in the performance evaluation on a cost-
reimbursement basis.



PART 307_ECONOMIC ADJUSTMENT ASSISTANCE INVESTMENTS--Table of Contents




                            Subpart A_General

Sec.
307.1 Purpose.
307.2 Criteria for Economic Adjustment Assistance Investments.
307.3 Use of Economic Adjustment Assistance Investments.
307.4 Award requirements.
307.5 Application requirements.
307.6 Economic Adjustment Assistance post-approval requirements.

Subpart B_Special Requirements for Revolving Loan Funds and Use of Grant 
                                  Funds

307.7 Revolving Loan Funds established for business lending.
307.8 Definitions.
307.9 Revolving Loan Fund Plan.
307.10 Pre-loan requirements.
307.11 Disbursement of funds to Revolving Loan Funds.
307.12 Revolving Loan Fund Income.
307.13 Records and retention.
307.14 Revolving Loan Fund semi-annual report and Income and Expense 
          Statement.
307.15 Prudent management of Revolving Loan Funds.
307.16 Effective utilization of Revolving Loan Funds.
307.17 Uses of capital.
307.18 Addition of lending areas; merger of RLFs.
307.19 RLF loan portfolio Sales and Securitizations.
307.20 Partial liquidation; liquidation upon termination.
307.21 Termination of Revolving Loan Funds.
307.22 Variances.

    Authority: 42 U.S.C. 3211; 42 U.S.C. 3149; 42 U.S.C. 3161; 42 U.S.C. 
3162; 42 U.S.C. 3233; Department of Commerce Organization Order 10-4.

    Source: 71 FR 56675, Sept. 27, 2006, unless otherwise noted.



                            Subpart A_General



Sec. 307.1  Purpose.

    The purpose of Economic Adjustment Assistance Investments 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:
    (a) Military base closures or realignments, defense contractor 
reductions in force, or U.S. Department of Energy defense-related 
funding reductions;
    (b) Federally-Declared Disasters;
    (c) International trade;
    (d) Long-term economic deterioration;
    (e) Loss of a major community employer; or
    (f) Loss of manufacturing jobs.



Sec. 307.2  Criteria for Economic Adjustment Assistance Investments.

    (a) Economic Adjustment Assistance Investments 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 develop and implement 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 CEDS;
    (4) Enable communities to plan and coordinate the use of Federal 
resources and other resources available to support economic recovery, 
development of Regional economies, or recovery from natural or other 
disasters; or
    (5) Encourage the development of innovative public and private 
approaches to economic restructuring and revitalization.
    (b) Economic Adjustment Assistance Investments may be made when the 
Project funded by the Investment will help the Region meet a Special 
Need.

[[Page 651]]

The Region in which a Project is located must have a CEDS with which the 
Project is consistent (except that this requirement shall not apply to 
Strategy Grants described in Sec. 307.3).



Sec. 307.3  Use of Economic Adjustment Assistance Investments.

    Economic Adjustment Assistance Investments may be used to develop a 
CEDS to alleviate long-term economic deterioration or a sudden and 
severe economic dislocation (a ``Strategy Grant''), or to fund a Project 
implementing such a CEDS (an ``Implementation Grant'').
    (a) Strategy Grants support developing, updating or refining a CEDS.
    (b) Implementation Grants support the execution of activities 
identified in a CEDS. Specific activities may be funded as separate 
Investments or as multiple elements of a single Investment. Examples of 
Implementation Grant activities include:
    (1) Infrastructure improvements, such as site acquisition, site 
preparation, construction, rehabilitation and equipping of facilities;
    (2) Provision of business or infrastructure financing through the 
capitalization of Recipient-administered Revolving Loan Funds 
(``RLFs''), which may include loans, loan guaranties and interest rate 
buy-downs to facilitate business lending activities;
    (3) Market or industry research and analysis;
    (4) Technical assistance, including organizational development such 
as business networking, restructuring or improving the delivery of 
business services, or feasibility studies;
    (5) Public services;
    (6) Training; and
    (7) Other activities justified by the CEDS that satisfy applicable 
statutory and regulatory requirements.



Sec. 307.4  Award requirements.

    (a) General. EDA will select Economic Adjustment Assistance Projects 
in accordance with part 301 of this chapter and the additional criteria 
provided in paragraphs (b) and (c) of this section, as applicable.
    (b) Strategy Grants. EDA will review Strategy Grant proposals to 
ensure that the proposed activities conform to the CEDS requirements set 
forth in Sec. 303.7 of this chapter.
    (c) Implementation Grants.
    (1) EDA will review Implementation Grant proposals for the extent to 
which:
    (i) The applicable CEDS meets the requirements in Sec. 303.7 of 
this chapter; and
    (ii) The proposed Project is identified as a necessary element of or 
consistent with the applicable CEDS.
    (2) Revolving Loan Fund Grants. For Eligible Applicants seeking to 
capitalize or recapitalize an RLF, EDA will review the proposals for:
    (i) The need for a new or expanded public financing tool to enhance 
other business assistance programs and services targeting economic 
sectors and locations described in the CEDS;
    (ii) The types of financing activities anticipated; and
    (iii) The capacity of the RLF organization to manage lending 
activities, create networks between the business community and other 
financial providers, and implement the CEDS.
    (d) Funding priority considerations for Economic Adjustment 
Assistance may be set forth in an FFO.



Sec. 307.5  Application requirements.

    (a) Each application for Economic Adjustment Assistance must:
    (1) Include or incorporate by reference (if so approved by EDA) a 
CEDS, except that a CEDS is not required when applying for a Strategy 
Grant; and
    (2) Explain how the proposed Project meets the criteria set forth in 
Sec. 307.2.
    (b) For a technical assistance Project of significant Regional or 
national scope under this subpart, EDA may waive the requirement set 
forth in Sec. 301.2(b) of this chapter that the non-profit organization 
act in cooperation with officials of a political subdivision of a State.



Sec. 307.6  Economic Adjustment Assistance post-approval requirements.

    In addition to the post-approval requirements set forth in Sec. 
302.18 of this chapter:
    (a) Strategy Grants shall comply with the applicable provisions of 
part 303 of this chapter;

[[Page 652]]

    (b) Implementation Grants involving construction shall comply with 
the provisions of subpart B of part 305 of this chapter;
    (c) Implementation Grants not involving construction shall comply 
with the applicable provisions of subpart A of part 306 of this chapter; 
and
    (d) RLF Grants shall comply with the requirements set forth in this 
part and in the following publications:
    (1) EDA's RLF Standard Terms and Conditions; and
    (2) The compliance supplement to OMB Circular A-133 (the 
``Compliance Supplement''). The Compliance Supplement is available via 
the Internet at http://www.omb.gov.



Subpart B_Special Requirements for Revolving Loan Funds and Use of Grant 
                                  Funds



Sec. 307.7  Revolving Loan Funds established for business lending.

    Economic Adjustment Assistance Grants to capitalize or recapitalize 
RLFs most commonly fund business lending, but may also fund public 
infrastructure or other authorized lending activities. The requirements 
in this subpart B apply to RLFs established for business lending 
activities. Special award conditions may contain appropriate 
modifications of these requirements to accommodate non-business RLF 
awards.



Sec. 307.8  Definitions.

    In addition to the defined terms set forth in Sec. 300.3 of this 
chapter, the following terms used in this part shall have the following 
meanings:
    Closed Loan means any loan for which all required documentation has 
been received, reviewed and executed by an RLF Recipient.
    Exempt Security means a Security that is not subject to certain SEC 
or Federal Reserve Board rules.
    Prudent Lending Practices means generally accepted underwriting and 
lending practices for public loan programs, based on sound judgment to 
protect Federal and lender interests. Prudent Lending Practices include 
loan processing, documentation, loan approval, collections, servicing, 
administrative procedures, collateral protection and recovery actions. 
Prudent Lending Practices provide for compliance with local laws and 
filing requirements to perfect and maintain a security interest in RLF 
collateral.
    Recapitalization Grants are Investments of additional Grant funds to 
increase the capital base of an RLF.
    Reporting Period, for purposes of this subpart B only, means the 
period from April 1st to September 30th or the period from October 1st 
to March 31st.
    Revolving Phase means that stage of the RLF's business lending 
activities that commences immediately after all Grant funds have been 
disbursed to the RLF Recipient.
    RLF Capital means, at any point in time, the aggregate amount of 
cash held by the RLF Recipient from any of the following sources: Grant 
funds; Local Share; repayments of principal from RLF loans; and RLF 
Income. The initial RLF capital base is normally comprised of EDA funds 
and the cash Local Share.
    RLF Income means interest earned on outstanding loan principal and 
RLF accounts holding RLF funds (excluding interest earned on excess 
funds pursuant to Sec. 307.16(c)(2)), all fees and charges received by 
the RLF, and other income generated from RLF operations. An RLF 
Recipient may use RLF Income only to capitalize the RLF for financing 
activities and 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 repayments of 
principal and any interest remitted to the U.S. Treasury pursuant to 
Sec. 307.16(c)(2)(i).
    RLF Third Party, for purposes of this subpart B only, means an 
Eligible Recipient or for-profit entity selected by EDA through a 
request for proposals or Cooperative Agreement to facilitate and/or 
manage the intended liquidation of an RLF.
    Sale means an EDA-approved sale by an RLF Recipient of its RLF loan 
portfolio (or a portion thereof) to a third party. A third party may 
participate in a subsequent Securitization offered in a secondary market 
transaction and collateralized by the underlying RLF loan portfolio (or 
a portion thereof).

[[Page 653]]

    SEC or the Commission means the U.S. Securities and Exchange 
Commission.
    Securitization refers to the financing technique of securing an 
investment of new capital with a stream of income generated by 
aggregating similar instruments such as loans or mortgages into a new 
transferable Security.
    Security means any investment instrument issued by a corporation, 
government or other organization which offers evidence of debt or 
equity.

[71 FR 56675, Sept. 27, 2006, as amended at 73 FR 62867, Oct. 22, 2008]



Sec. 307.9  Revolving Loan Fund Plan.

    All RLF Recipients shall manage RLFs in accordance with an RLF plan 
(the ``RLF Plan'' or ``Plan'') as described in this section. The Plan 
shall be submitted in electronic format to EDA for approval, unless EDA 
approves a paper submission.
    (a) Format and content.
    (1) Part I of the Plan titled ``Revolving Loan Fund Strategy'' shall 
summarize the Region's CEDS or EDA-approved economic development plan, 
if applicable, and business development objectives, and shall describe 
the RLF's financing strategy, policy and portfolio standards.
    (2) Part II of the Plan titled ``Operational Procedures'' shall 
serve as the internal operating manual for the RLF Recipient. The 
administrative procedures for operating the RLF must be consistent with 
Prudent Lending Practices.
    (b) Evaluation of RLF Plans. EDA will use the following criteria in 
evaluating Plans:
    (1) The Plan must be consistent with the CEDS or EDA-approved 
economic development plan, if applicable, for the Region.
    (2) The Plan must identify the strategic purpose of the RLF and must 
describe the selection of the financing strategy and lending criteria, 
including:
    (i) An 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; and
    (3) The Plan must demonstrate an adequate understanding of 
commercial loan portfolio management procedures, including loan 
processing, underwriting, closing, disbursements, collections, 
monitoring, and foreclosures. It shall also provide sufficient 
administrative procedures to prevent conflicts of interest and to ensure 
accountability, safeguarding of assets and compliance with Federal and 
local laws.
    (c) Revision and Modification of RLF Plans.
    (1) An RLF Recipient must update its Plan as necessary in accordance 
with changing economic conditions in the Region; however, at a minimum, 
an RLF Recipient must submit an updated Plan to EDA every five (5) 
years.
    (2) An RLF Recipient must notify EDA of any change(s) to its Plan. 
Any material modification, such as a merger or change in the EDA-
approved lending area under Sec. 307.18, a change in critical 
management staff, or a change to the strategic purpose of the RLF, must 
be submitted to EDA for approval prior to any revision of the Plan. If 
EDA approves the modification, the RLF Recipient must submit an updated 
Plan to EDA in electronic format, unless EDA approves a paper 
submission.

[71 FR 56675, Sept. 27, 2006, as amended at 73 FR 62867, Oct. 22, 2008]



Sec. 307.10  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 compliance with applicable environmental laws and other 
regulations, including but not limited to parts 302 and 314 of this 
chapter. The RLF Recipient must also adopt procedures to comply, and 
ensure that potential borrowers comply, with applicable environmental 
laws and regulations.
    (b) RLF Recipients must ensure 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 loan agreements shall include applicable Federal 
requirements to ensure compliance and RLF Recipients must adopt 
procedures to diligently correct instances of non-compliance, including 
loan call stipulations.

[[Page 654]]

    (c) All RLF loan documents and procedures must protect and hold the 
Federal government harmless from and against all liabilities that the 
Federal government may incur as a result of providing an RLF Grant to 
assist directly or indirectly in site preparation or construction, as 
well as the direct or indirect renovation or repair of any facility or 
site. These protections apply to the extent that the Federal government 
may become potentially liable as a result of ground water, surface, soil 
or other natural or man-made conditions on the property caused by 
operations of the RLF Recipient or any of its borrowers, predecessors or 
successors.



Sec. 307.11  Disbursement of funds to Revolving Loan Funds.

    (a) Pre-disbursement requirements. Prior to any disbursement of EDA 
funds, RLF Recipients are required to provide in a form acceptable to 
EDA:
    (1) Evidence of 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. Such insurance coverage must exist at 
all times during the duration of the RLF's operation; and
    (2) Evidence of certification in accordance with Sec. 307.15(b)(1).
    (b) Timing of request for disbursements. An RLF Recipient shall 
request disbursements of Grant funds only to close a loan or disburse 
RLF funds to a borrower. The RLF Recipient must disburse the RLF funds 
to a borrower within thirty (30) days of receipt of the Grant funds. Any 
Grant funds not disbursed within the thirty (30) day period shall be 
refunded to EDA pursuant to paragraph (e) of this section.
    (c) Amount of disbursement. The amount of a disbursement of Grant 
funds shall not exceed the difference, if any, between the RLF Capital 
and the amount of a new RLF loan, less the amount, if any, of the Local 
Share required to be disbursed concurrent with the Grant funds. However, 
RLF Income held to reimburse eligible administrative costs need not be 
disbursed in order to draw additional Grant funds.
    (d) EDA funds account. The RLF Recipient shall establish and 
maintain an interest-bearing account designated as the ``EDA funds 
account,'' indicating that monies deposited therein are held for funding 
approved Closed Loans. The RLF Recipient shall withdraw funds or order a 
transfer from the EDA funds account for lending to eligible borrowers or 
return of funds to EDA.
    (e) Delays. If the RLF Recipient receives Grant funds and the RLF 
loan disbursement is subsequently delayed beyond thirty (30) days, the 
RLF Recipient must notify the applicable grants officer and return such 
non-disbursed funds to EDA. Grant funds returned to EDA shall be 
available to the RLF Recipient for future draw-downs. When returning 
prematurely drawn Grant funds, the RLF Recipient must clearly identify 
on the face of the check or in the written notification to the 
applicable grants officer ``EDA,'' the Grant award number, the words 
``Premature Draw,'' and a brief description of the reason for returning 
the Grant funds.
    (f) Local Share. (1) Cash Local Share of the RLF may only be used 
for lending purposes. The cash Local Share must be used either in 
proportion to the Grant funds or at a faster rate than the Grant funds.
    (2) When an RLF has a combination of In-Kind Contributions and cash 
Local Share, the cash Local Share and the Grant funds will be disbursed 
proportionately as needed for lending activities, provided that the last 
twenty (20) percent of the Grant funds may not be disbursed until all 
cash Local Share has been expended. The full amount of the cash Local 
Share shall remain for use in the RLF.



Sec. 307.12  Revolving Loan Fund Income.

    (a) General requirements. RLF Income must be placed into the RLF 
Capital base for the purpose of making loans or paying for eligible and 
reasonable administrative costs associated with the RLF's operations. 
RLF Income may fund administrative costs, provided:
    (1) Such RLF Income and the administrative costs are incurred in the 
same six-month (6) Reporting Period;
    (2) RLF Income that is not used for administrative costs during the 
six-month (6) Reporting Period is made available for lending activities;

[[Page 655]]

    (3) RLF Income shall not be withdrawn from the RLF Capital base in a 
subsequent Reporting Period for any purpose other than lending without 
the prior written consent of EDA; and
    (4) The RLF Recipient completes an RLF Income and Expense Statement 
(the ``Income and Expense Statement'') as required under Sec. 
307.14(c).
    (b) Compliance guidance. When charging costs against RLF Income, RLF 
Recipients must comply with applicable federal cost principles and audit 
requirements as found in:
    (1) 2 CFR part 225 (OMB Circular A-87 for State, local, and Indian 
tribal governments), 2 CFR part 230 (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 such 
Circular), and 2 CFR part 220 (OMB Circular A-21 for educational 
institutions); and
    (2) OMB Circular A-133 for Single Audit Act requirements for States, 
local governments, and non-profit organizations and the Compliance 
Supplement, as appropriate.
    (c) Priority of payments on defaulted RLF loans. When an RLF 
Recipient receives proceeds on a defaulted RLF loan that is not subject 
to liquidation pursuant to Sec. 307.20, such proceeds shall be applied 
in the following order of priority:
    (1) First, towards any costs of collection;
    (2) Second, towards outstanding penalties and fees;
    (3) Third, towards any accrued interest to the extent due and 
payable; and
    (4) Fourth, towards any outstanding principal balance.

[71 FR 56675, Sept. 27, 2006, as amended at 73 FR 62867, Oct. 22, 2008]



Sec. 307.13  Records and retention.

    (a) Closed Loan files and related documents. The RLF Recipient shall 
maintain Closed Loan files and all related documents, books of account, 
computer data files and other records over the term of the Closed Loan 
and for a three-year (3) period from the date of final disposition of 
such Closed Loan. The date of final disposition of a Closed Loan is the 
date:
    (1) Principal, interest, fees, penalties and all other costs 
associated with the Closed Loan have been paid in full; or
    (2) Final settlement or discharge and cessation of collection 
efforts of any unpaid amounts associated with the Closed Loan have 
occurred.
    (b) Administrative records. RLF Recipients must at all times:
    (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 expenses incurred for 
activities and equipment relating to the operation of the RLF for three 
(3) years from the actual submission date of the last semi-annual report 
that covers the Reporting Period in which such costs were claimed.
    (3) Make available for inspection retained records, including those 
retained for longer than the required period. The record retention 
periods described in this section are minimum periods and such 
prescription does not limit any other record retention requirement of 
law or agreement. In no event will EDA question claimed administrative 
costs that are more than three (3) years old, unless fraud is at issue.

[71 FR 56675, Sept. 27, 2006, as amended at 73 FR 62867, Oct. 22, 2008]



Sec. 307.14  Revolving Loan Fund semi-annual report and Income and 
Expense Statement.

    (a) Frequency of reports. All RLF Recipients, including those 
receiving Recapitalization Grants for existing RLFs, must complete and 
submit a semi-annual report (Form ED-209 or any successor form) in 
electronic format, unless EDA approves a paper submission.
    (b) Report contents. RLF Recipients must certify as part of the 
semi-annual report to EDA that the RLF is operating in accordance with 
the applicable RLF Plan. RLF Recipients also must describe (and propose 
pursuant to Sec. 307.9) any modifications to the RLF Plan to ensure 
effective use of the RLF as a strategic financing tool.
    (c) RLF Income and Expense Statement. An RLF Recipient using either 
fifty

[[Page 656]]

(50) percent or more (or more than $100,000) of RLF Income for 
administrative costs in a six-month (6) Reporting Period must submit to 
EDA a completed Income and Expense Statement (Form ED-209I or any 
successor form) for that Reporting Period in electronic format, unless 
EDA approves a paper submission.

[73 FR 62867, Oct. 22, 2008]



Sec. 307.15  Prudent management of Revolving Loan Funds.

    (a) Accounting principles. (1) RLFs shall operate in accordance with 
generally accepted accounting principles (``GAAP'') as in effect from 
time to time in the United States and the provisions outlined in OMB 
Circular A-133 and the Compliance Supplement, as applicable.
    (2) In accordance with GAAP, a loan loss reserve may be recorded in 
the RLF Recipient's financial statements to show the fair market value 
of an RLF's loan portfolio, provided this loan loss reserve is non-
funded and represents non-cash entries.
    (b) Loan and accounting system documents. (1) Within sixty (60) days 
prior to the initial disbursement of EDA funds, an independent 
accountant familiar with the RLF Recipient's accounting system shall 
certify to EDA and the RLF Recipient that such system is adequate to 
identify, safeguard and account for all RLF Capital, outstanding RLF 
loans and other RLF operations.
    (2) Prior to the disbursement of any EDA funds, the RLF Recipient 
shall certify that standard RLF loan documents reasonably necessary or 
advisable 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 law. The 
standard loan documents must include, at a minimum, the following:
    (i) Loan application;
    (ii) Loan agreement;
    (iii) Board of directors' meeting minutes approving the RLF loan;
    (iv) Promissory note;
    (v) Security agreement(s);
    (vi) Deed of trust or mortgage (as applicable);
    (vii) Agreement of prior lien holder (as applicable); and
    (viii) Signed bank turn-down letter demonstrating that credit is not 
otherwise available on terms and conditions that permit the completion 
or successful operation of the activity to be financed. EDA will accept 
alternate documentation only if such documentation is allowed in the RLF 
Recipient's EDA-approved RLF Plan.
    (c) Interest rates--
    (1) General rule. An RLF Recipient may make loans to eligible 
borrowers at interest rates and under conditions determined by the RLF 
Recipient to be appropriate in achieving the goals of the RLF. The 
minimum interest rate an RLF Recipient may charge is four (4) percentage 
points below the lesser of the current money center prime interest rate 
quoted in the Wall Street Journal, or the maximum interest rate allowed 
under State law. In no event shall the interest rate be less than the 
lower of four (4) percent or 75 percent of the prime interest rate 
listed in the Wall Street Journal.
    (2) Exception. Should the prime interest rate listed in the Wall 
Street Journal 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 leverage private 
investment of at least two dollars for every one dollar of such RLF 
loans. This leveraging requirement applies to the RLF portfolio as a 
whole rather than to individual loans and is effective for the duration 
of the RLF's operation. To be classified as leveraged, private 
investment must be made within twelve (12) months prior to approval of 
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 non-guaranteed portions and ninety (90) percent of the 
guaranteed portions of the U.S. Small Business Administration's 7(A) 
loans and 504 debenture loans.

[[Page 657]]

    (2) Private investments shall not include accrued equity in a 
borrower's assets.
    (e) RLF certification course. EDA may establish a mandatory RLF 
certification program to enhance RLF Recipients' ability to administer 
RLF Grants in a prudent manner. If so required by EDA, the RLF Recipient 
must satisfactorily complete this program, and may consider the cost of 
attending the certification courses as an administrative cost, provided 
the requirements set forth in Sec. 307.12 are satisfied.

[71 FR 56675, Sept. 27, 2006, as amended at 73 FR 62868, Oct. 22, 2008]



Sec. 307.16  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 
schedule prescribed in the award conditions for loan closings and 
disbursements to eligible RLF borrowers. The schedule usually requires 
that the RLF Recipient lend the entire amount of the initial RLF Capital 
base within three (3) years of the Grant award.
    (2) If an RLF Recipient fails to meet the prescribed lending 
schedule, EDA may de-obligate the non-disbursed balance of the RLF 
Grant. EDA may allow exceptions where:
    (i) Closed Loans approved prior to the schedule deadline will 
commence and complete disbursements within forty-five (45) days of the 
deadline;
    (ii) Closed Loans have commenced (but not completed) disbursement 
obligations prior to the deadline; or
    (iii) EDA has approved a time schedule extension pursuant to Sec. 
307.16(b).
    (b) Time schedule extensions. (1) RLF Recipients shall promptly 
inform EDA in writing of any condition that may adversely affect their 
ability to meet the prescribed schedule deadlines. RLF Recipients must 
submit a written request to EDA for continued use of Grant funds beyond 
a missed deadline for disbursement of RLF funds. RLF Recipients must 
provide good reason for the delay in their extension requests by 
demonstrating that:
    (i) The delay was unforeseen or beyond the control of the RLF 
Recipient;
    (ii) The financial 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; 
and
    (iv) The proposal of a revised time schedule is reasonable. An 
extension request must also provide an explanation as to why no further 
delays are anticipated.
    (2) EDA is under no obligation to grant a time extension and in the 
event an extension is denied, EDA may deobligate all or part of the 
unused Grant funds and terminate the Grant.
    (c) Capital utilization standard. (1) During the Revolving Phase, 
RLF Recipients must manage their repayment and lending schedules to 
provide that at all times at least seventy-five (75) percent of the RLF 
Capital is loaned or committed. The following exceptions apply:
    (i) An RLF Recipient that anticipates making large loans relative to 
the size of its RLF Capital base may propose a Plan that provides for 
maintaining a capital utilization percentage greater than twenty-five 
(25) percent; and
    (ii) EDA may require an RLF Recipient with an RLF Capital base in 
excess of $4 million to adopt a Plan that maintains a proportionately 
higher percentage of its funds loaned.
    (2) When the percentage of loaned RLF Capital falls below the 
applicable capital utilization percentage, the dollar amount of the RLF 
funds equivalent to the difference between the actual percentage of RLF 
Capital loaned and the applicable capital utilization percentage is 
referred to as ``excess funds.''
    (i) Sequestration of excess funds. If the RLF Recipient fails to 
satisfy the applicable capital utilization percentage requirement for 
two (2) consecutive Reporting Periods, EDA may require the RLF Recipient 
to deposit excess funds in an interest-bearing account. The portion of 
interest earned on the account holding excess funds attributable to the 
Federal Share (as defined in Sec. 314.5 of this chapter) of the RLF 
Grant shall be remitted to the U.S. Treasury. The RLF Recipient must 
obtain EDA's

[[Page 658]]

written authorization to withdraw any sequestered funds.
    (ii) Persistent non-compliance. An RLF Recipient will generally be 
allowed a reasonable period of time to lend excess funds and achieve the 
applicable capital utilization percentage. However, if an RLF Recipient 
fails to achieve the applicable capital utilization percentage after a 
reasonable period of time, as determined by EDA, it may be subject to 
sanctions such as suspension or termination.
    (d) Loan default rates. (1) EDA shall monitor the RLF Recipient's 
loan default rate to ensure proper protection of the Federal Share (as 
defined in Sec. 314.5 of this chapter) of the RLF property, and request 
information from the RLF Recipient as necessary to determine whether it 
is collecting loan repayments and complying with the financial 
obligations under the RLF Grant. Such information may include:
    (i) A written analysis of the RLF Recipient's portfolio, which shall 
consider the Recipient's business plan, loan and collateral policies, 
loan servicing and collection policies and procedures, the rate of 
growth of the RLF Capital base, and detailed information on any loan in 
default; and
    (ii) A corrective action plan subject to EDA's approval, which shall 
include specific actions the RLF Recipient must take to reduce the loan 
default rate; and
    (iii) A quarterly status report indicating the RLF Recipient's 
progress on achieving the milestones outlined in the corrective action 
plan.
    (2) Failure to provide the information requested and to take steps 
to protect the Federal Share may subject the RLF Recipient to 
enforcement action under Sec. 307.21 and the terms and conditions of 
the Grant.

[71 FR 56675, Sept. 27, 2006, as amended at 73 FR 62868, Oct. 22, 2008]



Sec. 307.17  Uses of capital.

    (a) General. RLF Capital shall be used for the purpose of making RLF 
loans that are consistent with an RLF Plan or such other purposes 
approved by EDA. To ensure that RLF funds are used as intended, each 
loan agreement must clearly state the purpose of each loan.
    (b) Restrictions on use of RLF Capital. RLF Capital shall not be 
used to:
    (1) Acquire an equity position in a private business;
    (2) Subsidize interest payments on an existing RLF loan;
    (3) Provide for borrowers' required equity contributions under other 
Federal Agencies' loan programs;
    (4) Enable borrowers to acquire an interest in a business either 
through the purchase of stock or through the acquisition of assets, 
unless sufficient justification is provided in the loan documentation. 
Sufficient justification may include acquiring a business to save it 
from imminent closure or to acquire a business to facilitate a 
significant expansion or increase in investment with a significant 
increase in jobs. The potential economic benefits must be clearly 
consistent with the strategic objectives of the RLF;
    (5) Provide RLF loans to a borrower for the purpose of investing in 
interest-bearing accounts, certificates of deposit or any investment 
unrelated to the RLF; or
    (6) Refinance existing debt, unless:
    (i) The RLF Recipient sufficiently demonstrates in the loan 
documentation a ``sound economic justification'' for the refinancing 
(e.g., the refinancing will support additional capital investment 
intended to increase business activities). For this purpose, reducing 
the risk of loss to an existing lender(s) or lowering the cost of 
financing to a borrower shall not, without other indicia, constitute a 
sound economic justification; or
    (ii) RLF Capital will finance the purchase of the rights of a prior 
lien holder during a foreclosure action which is necessary to preclude a 
significant loss on an RLF loan. RLF Capital may be used for this 
purpose only if there is a high probability of receiving compensation 
from the sale of assets sufficient to cover an RLF's costs plus a 
reasonable portion of the outstanding RLF loan within eighteen (18) 
months following the date of refinancing.
    (c) Compliance and Loan Quality Review. To ensure that the RLF 
Recipient makes eligible RLF loans consistent with its RLF Plan or such 
other purposes approved by EDA, EDA shall require an independent third 
party to

[[Page 659]]

conduct a compliance and loan quality review for the RLF Grant every (3) 
three years. The RLF Recipient may undertake this review as an 
administrative cost associated with the RLF's operations, provided the 
requirements set forth in Sec. 307.12 are satisfied.
    (d) Use of In-Kind Contributions. In-Kind Contributions may satisfy 
Matching Share requirements when specifically authorized in the terms 
and conditions of the RLF Grant and may be used to provide technical 
assistance to borrowers or for eligible RLF administrative costs.

[73 FR 62868, Oct. 22, 2008]



Sec. 307.18  Addition of lending areas; merger of RLFs.

    (a)(1) Addition of Lending Areas. An RLF Recipient shall make loans 
to implement and assist economic activity only within its EDA-approved 
lending area, as set forth and defined in the RLF Grant and the Plan. An 
RLF Recipient may add an additional lending area (an ``Additional 
Lending Area'') to its existing lending area to create a new merged 
lending area (the ``New Lending Area'') only with EDA's prior written 
approval and subject to the following provisions and conditions:
    (i) EDA shall have disbursed the full amount of its Investment 
Assistance to the RLF Recipient;
    (ii) The Additional Lending Area must fulfill the economic distress 
criteria for Economic Adjustment Investments under this part and in 
accordance with Sec. 301.3(a) of this chapter;
    (iii) Prior to EDA's disbursement of additional funds to the RLF 
Recipient (for example, through a recapitalization), EDA shall determine 
a new Investment Rate for the New Lending Area based on the criteria set 
forth in Sec. 301.4 of this chapter;
    (iv) The RLF Recipient must demonstrate that the Additional Lending 
Area is consistent with its CEDS, or modify its CEDS for any such 
Additional Lending Area, in accordance with Sec. 307.9(b)(1);
    (v) The RLF Recipient shall modify its Plan to incorporate the 
Additional Lending Area and revise its lending strategy, as necessary;
    (vi) The RLF Recipient shall execute an amended RLF Grant award 
agreement, as necessary; and
    (vii) The RLF Recipient fulfills any other conditions reasonably 
requested by EDA.
    (2) The New Lending Area designation shall remain in place 
indefinitely following EDA approval.
    (b) Merger of RLFs--(1) Single RLF Recipient. An RLF Recipient with 
more than one (1) EDA-funded RLF Grant may consolidate two (2) or more 
EDA-funded RLFs into one (1) surviving RLF with EDA's prior written 
approval and provided:
    (i) It is up-to-date with all semi-annual reports in accordance with 
Sec. 307.14;
    (ii) It demonstrates a rational basis for undertaking the merger 
(for example, the lending area(s) and borrower criteria identified in 
different RLF Plans are compatible, or will be compatible, for all RLFs 
to be consolidated);
    (iii) It amends and consolidates its Plan to account for the merger 
of RLFs, including items such as the New Lending Area (including any 
Additional Lending Area(s)), its lending strategy and borrower criteria;
    (iv) Prior to EDA's disbursement of additional funds to the RLF 
Recipient (for example, through a recapitalization), EDA shall determine 
a new Investment Rate for the New Lending Area based on the criteria set 
forth in Sec. 301.4 of this chapter; and
    (v) The RLF Recipient fulfills any other conditions reasonably 
requested by EDA.
    (2) Multiple RLF Recipients. Two (2) or more RLF Recipients may 
consolidate their EDA-funded RLFs into one (1) surviving RLF with EDA's 
prior written approval and provided:
    (i) The surviving RLF Recipient is up-to-date with all semi-annual 
reports in accordance with Sec. 307.14;
    (ii) The surviving RLF Recipient amends and consolidates its Plan to 
account for the merger of RLFs, including items such as the New Lending 
Area (including any Additional Lending Area(s)), its lending strategy 
and borrower criteria;
    (iii) Prior to EDA's disbursement of additional funds to the 
surviving RLF

[[Page 660]]

Recipient (for example, through a recapitalization), EDA shall determine 
a new Investment Rate for the New Lending Area based on the criteria set 
forth in Sec. 301.4 of this chapter;
    (iv) EDA must provide written approval of the merger agreement(s), 
modifications and revisions to the Plans and any other related 
amendments thereto;
    (v) All applicable RLF Grant assets of the discharging RLF 
Recipient(s) transfer to the surviving RLF Recipient as of the merger's 
effective date; and
    (vi) The surviving RLF Recipient becomes fully responsible for 
administration of the RLF Grant assets transferred and fulfills all 
surviving RLF Grant requirements and any other conditions reasonably 
requested by EDA.

[71 FR 56675, Sept. 27, 2006, as amended at 73 FR 62869, Oct. 22, 2008]



Sec. 307.19  RLF loan portfolio Sales and Securitizations.

    EDA may take such actions as appropriate to enable an RLF Recipient 
to sell or securitize RLF loans, except that EDA may not issue a Federal 
guaranty covering any issued Security. With prior approval from EDA, an 
RLF Recipient may enter into a Sale or a Securitization of all or a 
portion of its RLF loan portfolio, provided:
    (a) An RLF Recipient must use all proceeds from any Sale or 
Securitization (net of reasonable transaction costs) to make additional 
RLF loans;
    (b) An RLF Recipient must request EDA to subordinate its interest in 
all or a portion of any RLF loan portfolio sold or securitized;
    (c) No Security collateralized by RLF loans and other RLF property 
and offered in a secondary market transaction pursuant to a 
Securitization shall be treated as an Exempt Security for purposes of 
the Securities Act of 1933, as amended (15 U.S.C. 77a et seq.), or the 
Securities Exchange Act of 1934, as amended (15 U.S.C. 78a et seq.) (the 
``Exchange Act''), unless exempted by a rule or regulation issued by the 
Commission; and
    (d) Except as provided in paragraph (c), no provision of this 
section supersedes or otherwise affects the application of the 
``securities laws'' (as such term is defined in section 3(a)(47) of the 
Exchange Act) or the rules, regulations or orders issued by the 
Commission or a self-regulatory organization under the Commission.



Sec. 307.20  Partial liquidation; liquidation upon termination.

    (a) Partial liquidation or disallowance of a portion of an RLF 
Grant. If the RLF Recipient engages in certain problematic practices, 
EDA may disallow a corresponding proportion of the Grant or direct the 
RLF Recipient to transfer loans to an RLF Third Party for liquidation. 
Problematic practices for which EDA may disallow a portion of an RLF 
Grant and recover the pro-rata Federal Share (as defined in Sec. 314.5 
of this chapter) include but are not limited to the RLF Recipient:
    (1) Having RLF loans that are more than one hundred and twenty (120) 
days delinquent;
    (2) Having excess cash sequestered for twelve (12) months or longer 
and EDA has not approved an extension request;
    (3) Making an ineligible loan;
    (4) Failing to disburse the EDA funds in accordance with the time 
schedule prescribed in the RLF Grant; or
    (5) Determining that it does not wish to further invest in the RLF 
or cannot maintain operations at the degree originally contemplated upon 
receipt of the RLF Grant and requests that a portion of the RLF Grant be 
disallowed, and EDA agrees to allow the disallowance.
    (b) Liquidation upon termination. When EDA approves the termination 
of an RLF Grant, EDA may assign or transfer assets of the RLF to an RLF 
Third Party for liquidation.
    (c) Terms. The following terms will govern any liquidation:
    (1) EDA shall have sole discretion in choosing the RLF Third Party;
    (2) The RLF Third Party may be an Eligible Applicant or a for-profit 
organization not otherwise eligible for Investment Assistance;
    (3) EDA may enter into an agreement with the RLF Third Party to 
liquidate the assets of one (1) or more RLFs or RLF Recipients;
    (4) EDA may allow the RLF Third Party to retain a portion of the RLF

[[Page 661]]

assets, consistent with the agreement referenced in paragraph (c)(3) of 
this section, as reasonable compensation for services rendered in the 
liquidation; and
    (5) EDA may require additional reasonable terms and conditions.
    (d) Distribution of proceeds. The proceeds resulting from any 
liquidation upon termination shall be distributed in the following order 
of priority:
    (1) First, for any third party liquidation costs;
    (2) Second, for the payment of EDA's Federal Share; and
    (3) Third, if any proceeds remain, to the RLF Recipient.

[71 FR 56675, Sept. 27, 2006, as amended at 73 FR 62869, Oct. 22, 2008]



Sec. 307.21  Termination of Revolving Loan Funds.

    (a)(1) EDA may suspend or terminate an RLF Grant for cause, 
including but not limited to the RLF Recipient's failure to:
    (i) Operate the RLF in accordance with the Plan, the RLF Grant or 
this part;
    (ii) Obtain prior EDA approval for material changes to the Plan, 
including provisions for administering the RLF;
    (iii) Submit an updated Plan to EDA in accordance with Sec. 
307.9(c);
    (iv) Submit timely progress, financial and audit reports in the 
format required by the RLF Grant and Sec. 307.14, including the semi-
annual report and the Income and Expense Statement (if applicable);
    (v) Manage the RLF Grant in accordance with Prudent Lending 
Practices, as defined in Sec. 307.8;
    (vi) Sequester excess funds or remit the interest on EDA's portion 
of the sequestered funds to the U.S. Treasury, as directed by EDA;
    (vii) Submit the documentation requested by EDA regarding a high 
loan default rate and collection efforts, or correct a high loan default 
rate, as determined by EDA;
    (viii) Comply with the audit requirements set forth in OMB Circular 
A-133 and the Compliance Supplement, including timely submission of 
audit reports to the Federal Audit Clearinghouse and the correct 
designation of the RLF as a major program (as defined in OMB Circular A-
133), as applicable;
    (ix) Comply with an EDA-approved corrective action plan to remedy 
RLF-related audit findings; and
    (x) Comply with the conflicts of interest provisions set forth in 
Sec. 302.17.
    (2) To maintain effective control over and accountability of RLF 
Grant funds and assets, EDA shall determine the manner and timing of any 
suspension or termination action. EDA may require the RLF Recipient to 
repay the Federal Share in a lump-sum payment or enter into a Sale, or 
EDA may agree to enter into a repayment agreement with the RLF Recipient 
for repayment of the Federal Share.
    (b) EDA may approve a request from an RLF Recipient to terminate an 
RLF Grant. The RLF Recipient must compensate the Federal government for 
the Federal Share of the RLF property, including the current value of 
all outstanding RLF loans. However, with EDA's prior approval, upon a 
showing of compelling circumstances, the RLF Recipient may use for other 
economic development activities a portion of RLF property that EDA 
determines is attributable to RLF Income.
    (c) Upon termination, distribution of proceeds shall occur in 
accordance with Sec. 307.20(d).

[71 FR 56675, Sept. 27, 2006, as amended at 73 FR 62869, Oct. 22, 2008]



Sec. 307.22  Variances.

    EDA may approve variances to the requirements contained in this 
subpart, provided such variances:
    (a) Are consistent with the goals of the Economic Adjustment 
Assistance program and with an RLF Plan;
    (b) Are necessary and reasonable for the effective implementation of 
the RLF;
    (c) Are economically and financially sound; and
    (d) Do not conflict with any applicable legal requirements, 
including Federal, State and local law.

[[Page 662]]



PART 308_PERFORMANCE INCENTIVES--Table of Contents




Sec.
308.1 Use of funds in Projects constructed under projected cost.
308.2 Performance awards.
308.3 Planning performance awards.

    Authority: 42 U.S.C. 3151; 42 U.S.C. 3154a; 42 U.S.C. 3154b; 
Department of Commerce Delegation Order 10-4.

    Source: 71 FR 56675, Sept. 27, 2006, unless otherwise noted.



Sec. 308.1  Use of funds in Projects constructed under projected cost.

    (a) If the Assistant Secretary determines before closeout of a 
construction Project funded under parts 305 or 307 of this chapter that 
the cost of the Project, based on the designs and specifications that 
were the basis of the Investment Assistance, has decreased because of a 
decrease in costs, EDA may in its discretion approve the use of the 
excess funds (or a portion of the excess funds) by the Recipient to:
    (1) Increase the Investment Rate of the Project to the maximum 
percentage allowable under Sec. 301.4 of this chapter for which the 
Project was eligible at the time of the Investment award; or
    (2) Further improve the Project consistent with its purpose.
    (b) EDA, in its sole discretion, may use any amount of excess funds 
remaining after application of paragraph (a) of this section for other 
eligible Investments.
    (c) In the case of Projects involving funds transferred from other 
Federal Agencies, EDA will consult with the transferring Agency 
regarding the use of any excess funds.



Sec. 308.2  Performance awards.

    (a) A Recipient of Investment Assistance under parts 305 or 307 of 
this chapter may receive a performance award in connection with an 
Investment made on or after the date of enactment of section 215 of 
PWEDA in an amount not to exceed ten (10) percent of the amount of the 
Investment award.
    (b) To receive a performance award, a Recipient must demonstrate 
Project performance in one (1) or more of the areas listed in this 
paragraph, weighted at the discretion of the Assistant Secretary:
    (1) Meet or exceed the Recipient's projection of jobs created;
    (2) Meet or exceed the Recipient's projection of private sector 
capital invested;
    (3) Meet or exceed target dates for Project start and completion 
stated at the time of Investment approval;
    (4) Fulfill the proposal evaluation criteria set forth in Sec. 
301.8 of this chapter; or
    (5) Demonstrate other unique Project performance characteristics as 
determined by the Assistant Secretary.
    (c) A Recipient may receive a performance award no later than three 
(3) years following the Project's closeout.
    (d) A performance award may fund up to one hundred (100) percent of 
the cost of an eligible Project or any other authorized activity under 
PWEDA. For the purpose of meeting the non-Federal share requirement of 
PWEDA or any other statute, the amount of a performance award shall be 
treated as non-Federal funds.
    (e) The applicable FFO will set forth the requirements, 
qualifications, guidelines and procedures for performance awards to be 
made during the applicable fiscal year, with all performance awards 
being subject to the availability of funds.



Sec. 308.3  Planning performance awards.

    (a) A Recipient of Investment Assistance awarded on or after the 
date of enactment of section 216 of PWEDA for a Project located in an 
EDA-funded Economic Development District may, at the discretion of the 
Assistant Secretary, receive a planning performance award in an amount 
not to exceed five (5) percent of the amount of the applicable 
Investment award if EDA determines before closeout of the Project that:
    (1) The Recipient, through the Project, actively participated in the 
economic development activities of the District;
    (2) The Project demonstrated exceptional fulfillment of one (1) or 
more components of, and is otherwise in accordance with, the applicable 
CEDS, including any job creation or job retention requirements; and

[[Page 663]]

    (3) The Recipient demonstrated exceptional collaboration with 
federal, State and local economic development entities throughout the 
development of the Project.
    (b) The Recipient shall use the planning performance award to 
increase, up to one hundred (100) percent, the Federal share of the cost 
of a Project under this chapter.
    (c) The applicable FFO may set forth additional requirements, 
qualifications and guidelines for planning performance awards.

[71 FR 56675, Sept. 27, 2006, as amended at 73 FR 62869, Oct. 22, 2008]



PART 309_REDISTRIBUTIONS OF INVESTMENT ASSISTANCE--Table of Contents




Sec.
309.1 Redistributions under parts 303, 305 and 306.
309.2 Redistributions under part 307.

    Authority: 42 U.S.C. 3154c; 42 U.S.C. 3211; Department of Commerce 
Delegation Order 10-4.

    Source: 71 FR 56675, Sept. 27, 2006, unless otherwise noted.



Sec. 309.1  Redistributions under parts 303, 305 and 306.

    (a) General. Except as provided in paragraph (b) of this section, a 
Recipient of Investment Assistance under parts 303, 305 or 306 of this 
chapter may directly expend such Investment Assistance or, with prior 
EDA approval, may redistribute such Investment Assistance in the form of 
a subgrant to another Eligible Recipient that qualifies for Investment 
Assistance under the same part of this chapter as the Recipient, to fund 
required components of the scope of work approved for the Project. All 
subgrants made pursuant to this section shall be subject to the same 
terms and conditions applicable to the Recipient under the original 
Investment Assistance award and must satisfy the requirements of PWEDA 
and of this chapter.
    (b) Exception. A Recipient may not make a subgrant of Investment 
Assistance received under parts 303 or 305 of this chapter to a for-
profit entity.



Sec. 309.2  Redistributions under part 307.

    (a) A Recipient of Investment Assistance under part 307 of this 
chapter may directly expend such Investment Assistance or, with prior 
EDA approval, may redistribute such Investment Assistance in the form 
of:
    (1) A subgrant to another Eligible Recipient that qualifies for 
Investment Assistance under part 307 of this chapter; or
    (2) Pursuant to part 307, subpart B, a loan or other appropriate 
assistance to non-profit and private for-profit entities.
    (b) All redistributions of Investment Assistance made pursuant to 
this section shall be subject to the same terms and conditions 
applicable to the Recipient under the original Investment Assistance 
award and must satisfy the requirements of PWEDA and of this chapter.



PART 310_SPECIAL IMPACT AREAS--Table of Contents




Sec.
310.1 Special Impact Area.
310.2 Pressing need; alleviation of unemployment or underemployment.

    Authority: 42 U.S.C. 3154; Department of Commerce Organization Order 
10-4.

    Source: 71 FR 56675, Sept. 27, 2006, unless otherwise noted.



Sec. 310.1  Special Impact Area.

    Upon the application of an Eligible Recipient, and with respect to 
that Eligible Recipient's Project only, the Assistant Secretary may 
designate the Region which the Project will serve as a Special Impact 
Area if the Eligible Recipient demonstrates that its proposed Project 
will:
    (a) Directly fulfill a pressing need; and
    (b) Be useful in alleviating or preventing conditions of excessive 
unemployment or underemployment, or assist in providing useful 
employment opportunities for the unemployed or underemployed residents 
of the Region.

[73 FR 62869, Oct. 22, 2008]

[[Page 664]]



Sec. 310.2  Pressing need; alleviation of unemployment or underemployment.

    (a) The Assistant Secretary may find a pressing need to exist if the 
Region which the Project will serve:
    (1) Has a unique or urgent circumstance that would necessitate 
waiver of the CEDS requirements of Sec. 303.7 of this chapter;
    (2) Involves a Project undertaken by an Indian Tribe;
    (3) Is rural and severely distressed;
    (4) Is undergoing a transition in its economic base as a result of 
changing trade patterns (e.g., the Region is certified as eligible by 
the North American Development Bank Program or the Community Adjustment 
and Investment Program);
    (5) Exhibits a substantial reliance on a natural resource for its 
economic well-being;
    (6) Has been designated as a Federally-Declared Disaster area; or
    (7) Has a Special Need.
    (b) For purposes of this part, excessive unemployment exists if the 
twenty-four (24) month unemployment rate is at least 225% of the 
national average or the per capita income is not more than 50% of the 
national average. A Region demonstrates excessive underemployment if the 
employment of a substantial percentage of workers in the Region is less 
than full-time or at less skilled tasks than their training or abilities 
would otherwise permit. Eligible Recipients seeking a Special Impact 
Area designation under this criterion must present appropriate and 
compelling economic and demographic data.
    (c) Eligible Recipients may demonstrate the provision of useful 
employment opportunities by quantifying and evidencing the Project's 
prospective:
    (1) Creation of jobs;
    (2) Commitment of financial investment by private entities; or
    (3) Application of innovative technology that will lead to the 
creation of jobs or the commitment of financial investment by private 
entities.

                        PARTS 311	313 [RESERVED]



PART 314_PROPERTY--Table of Contents




                            Subpart A_General

Sec.
314.1 Definitions.
314.2 Federal Interest.
314.3 Authorized use of Property.
314.4 Unauthorized Use of Property.
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.

              Subpart D_Release of EDA's Property Interest

314.10 Procedures for release of EDA's Property interest.

    Authority: 42 U.S.C. 3211; Department of Commerce Organization Order 
10-4.

    Source: 71 FR 56675, Sept. 27, 2006, unless otherwise noted.



                            Subpart A_General



Sec. 314.1  Definitions.

    In addition to the defined terms set forth in Sec. 300.3 of this 
chapter, the following terms shall have the following meanings:
    Adequate Consideration means the fair market value at the time of 
sale or lease of any Property, as adjusted, in EDA's sole discretion, by 
any services, property exchanges, contractual commitments, acts of 
forbearance or other considerations that are in furtherance of the 
authorized purposes of the Investment Assistance, which are received by 
the Recipient or Owner in exchange for such Property.
    Disposition or Dispose means the sale, lease, abandonment or other 
disposition of any Property and also includes the Unauthorized Use of 
such Property.
    Estimated Useful Life, as used in this part, means the period of 
years that constitutes the expected useful lifespan of a Project, as 
determined by EDA, during which EDA anticipates obtaining the economic 
development benefits of its Investment.
    Federal Interest has the definition ascribed to it in Sec. 
314.2(a).

[[Page 665]]

    Federal Share has the definition ascribed to it in Sec. 314.5.
    Owner means a fee owner, transferee, lessee or optionee of any 
Property. The term Owner also includes the holder of other interests in 
a Property where the interests are such that the holder effectively 
controls the use of such Property.
    Personal Property means all tangible and intangible property other 
than Real Property.
    Property means Real Property, Personal Property and mixed property.
    Real Property means any land, whether raw or improved, and includes 
structures, fixtures, appurtenances and other permanent improvements, 
excluding moveable machinery and equipment. Real Property includes land 
that is improved by the construction of Project infrastructure such as, 
but not limited to, roads, sewers and water lines that are not situated 
on or under the land, where the infrastructure contributes to the value 
of such land as a specific purpose of the Project.
    Successor Recipient means an EDA-approved transferee of Property 
pursuant to Sec. 314.3(d). A Successor Recipient must be an Eligible 
Recipient of Investment Assistance.
    Unauthorized Use means any use of Property acquired or improved in 
whole or in part for purposes not authorized by EDA Investment 
Assistance, PWEDA or this chapter, as set forth in Sec. 314.4.



Sec. 314.2  Federal Interest.

    (a) Property that is acquired or improved, in whole or in part, with 
Investment Assistance shall be held in trust by the Recipient for the 
benefit of the Project for the Estimated Useful Life of the Project, 
during which period EDA retains an undivided equitable reversionary 
interest in the Property (the ``Federal Interest''). The Federal 
Interest secures compliance with matters such as the purpose, scope and 
use of a Project and is often reflected by a recorded lien, statement or 
other recordable instrument setting forth EDA's Property interest in a 
Project (e.g., a mortgage, covenant, or other statement of EDA's Real 
Property interest in the case of a Project involving the acquisition, 
construction or improvement of a building. See Sec. 314.8.)
    (b) When the Federal government is fully compensated for the Federal 
Share of Property acquired or improved, in whole or in part, with 
Investment Assistance, the Federal Interest is extinguished and the 
Federal government has no further interest in the Property.



Sec. 314.3  Authorized Use of Property.

    (a) The Recipient or Owner must use any Property acquired or 
improved in whole or in part with Investment Assistance only for the 
authorized purpose of the Project and such Property must not be Disposed 
of or encumbered without EDA's prior written authorization.
    (b) Where EDA and the Recipient determine that Property acquired or 
improved in whole or in part with Investment Assistance is no longer 
needed for the original purpose of the Investment Assistance, EDA, in 
its sole discretion, may approve the use of such Property in other 
Federal grant programs or in programs that have purposes consistent with 
those authorized by PWEDA and by this chapter.
    (c) Where EDA determines that the authorized purpose of the 
Investment Assistance is to develop Real Property to be leased or sold, 
such sale or lease is permitted provided it is for Adequate 
Consideration and the sale is consistent with the authorized purpose of 
the Investment Assistance and with all applicable Investment Assistance 
requirements including but not limited to nondiscrimination and 
environmental compliance.
    (d) EDA, in its sole discretion, may approve the transfer of any 
Property from a Recipient to a Successor Recipient (or from one 
Successor Recipient to another Successor Recipient). The Recipient will 
remain responsible for complying with the rules of this part and the 
terms and conditions of the Investment Assistance for the period in 
which it is the Recipient. Thereafter, the Successor Recipient must 
comply with the rules of this part and with the same terms and 
conditions as were applicable to the Recipient (unless such terms and 
conditions are otherwise amended by EDA). The same rules

[[Page 666]]

apply to EDA-approved transfers of Property between Successor 
Recipients.
    (e) When acquiring replacement Personal Property of equal or greater 
value than Personal Property originally acquired with Investment 
Assistance, the Recipient may, with EDA's approval, trade in such 
Personal Property originally acquired or sell the original Personal 
Property and use the proceeds for the acquisition of the replacement 
Personal Property; provided that the replacement Personal Property is 
for use in the Project. The replacement Personal Property is subject to 
the same requirements as the original Personal Property. In 
extraordinary and compelling circumstances, the Assistant Secretary may 
approve the replacement of Real Property used in a Project.
    (f) With EDA's prior written approval, a Recipient may undertake an 
incidental use of Property that does not interfere with the scope of the 
Project or the economic purpose for which the Investment was made; 
provided that the Recipient is in compliance with applicable law and the 
terms and conditions of the Investment Assistance, and the incidental 
use of the Property will not violate the terms and conditions of the 
Investment Assistance or otherwise adversely affect the economic useful 
life of the Property. Eligible Applicants and Recipients should contact 
the appropriate regional office (whose contact information is available 
via the Internet at http://www.eda.gov) for guidelines on obtaining 
approval for incidental use of Property under this section.



Sec. 314.4  Unauthorized Use of Property.

    (a) Except as provided in Sec. Sec. 314.3 (regarding the authorized 
use of Property) or 314.10 (regarding the release of EDA's interest in 
certain Property), or as otherwise authorized by EDA, the Federal 
government must be compensated by the Recipient for the Federal Share 
whenever, during the Estimated Useful Life of the Project, any Property 
acquired or improved in whole or in part with Investment Assistance is 
Disposed of, encumbered, or no longer used for the purpose of the 
Project; provided that for equipment and supplies, the requirements at 
15 CFR parts 14 or 24, as applicable, including any supplements or 
amendments thereto, shall apply.
    (b) Additionally, prior to the release of EDA's interest, Real 
Property or tangible Personal Property acquired or improved with EDA 
Investment Assistance may not be used:
    (1) In violation of the nondiscrimination requirements of Sec. 
302.20 of this chapter or in violation of the terms and conditions of 
the Investment Assistance; or
    (2) For any purpose prohibited by applicable law.
    (c) Where the Disposition, encumbrance or use of any Property 
violates paragraphs (a) or (b) of this section, EDA may assert its 
interest in the Property to recover the Federal Share for the Federal 
government and may take such actions as authorized by PWEDA and this 
chapter, including but not limited to the actions provided in Sec. Sec. 
302.3 and 307.21 of this chapter. EDA may pursue its rights under 
paragraph (a) of this section and this paragraph (c) to recover the 
Federal Share, plus costs and interest. When the Federal government is 
fully compensated for the Federal Share, the Federal Interest is 
extinguished as provided in Sec. 314.2(b), and EDA will have no further 
interest in the ownership, use or Disposition of the Property.



Sec. 314.5  Federal Share.

    (a) For purposes of this part, ``Federal Share'' means that portion 
of the current fair market value of any Property attributable to EDA's 
participation in the Project. The Federal Share shall be the current 
fair market value of the Property after deducting:
    (1) Reasonable repair expenses, if any, incurred to put the Property 
into marketable condition; and
    (2) Sales, commission and marketing costs.
    (b) The Federal Share excludes that portion of the current fair 
market value of the Property attributable to acquisition or improvements 
before or after EDA's participation in the Project, which are not 
included in the total Project costs. For example, if the total Project 
costs are $100, consisting of $50 of Investment Assistance and $50

[[Page 667]]

of Matching Share, the Federal Share is fifty (50) percent. If the 
Property is disposed of when its current fair market is $250, the 
Federal Share is $125 (i.e., fifty (50) percent of $250). If $10 is 
spent to put the Property into salable condition, the Federal Share is 
$120 (i.e., fifty (50) percent of ($250-$10)).

[73 FR 62870, Oct. 22, 2008]



Sec. 314.6  Encumbrances.

    (a) General. Except as provided in paragraph (b) of this section or 
as otherwise authorized by EDA, Recipient-owned Property acquired or 
improved in whole or in part with Investment Assistance must not be used 
to secure a mortgage or deed of trust or in any way otherwise 
encumbered, except to secure a grant or loan made by a Federal Agency or 
State agency or other public body participating in the same Project.
    (b) Exceptions. Subject to EDA's approval, which will not be 
unreasonably withheld or unduly delayed, paragraph (a) of this section 
does not apply to:
    (1) Recipient-owned Property that is subject to an encumbrance at 
the time EDA approves the Project, where EDA determines that the 
requirements of Sec. 314.7(b) are met;
    (2) Encumbrances arising solely from the requirements of a pre-
existing water or sewer facility or other utility encumbrances, which by 
their terms extend to additional Property connected to such facilities; 
and
    (3) Encumbrances in cases where all of the following are met:
    (i) EDA, in its sole discretion, determines that there is good cause 
for a waiver of paragraph (a) of this section;
    (ii) All proceeds secured by the encumbrance on the Property shall 
be available only to the Recipient and shall be used only for the 
Project for which the Investment Assistance applies or for related 
activities of which the Project is an essential part;
    (iii) A grantor/lender will not provide funds without the security 
of a lien on the Property; and
    (iv) There is a reasonable expectation, as determined by EDA, that 
the Recipient will not default on its obligations. In determining 
whether an expectation is reasonable for purposes of this paragraph, EDA 
shall take into account whether a Recipient that is a non-profit 
organization is joined in the Project with a co-Recipient that is a 
public body, whether the non-profit organization has demonstrated 
stability over time, and such other factors as EDA deems appropriate.
    (c) Encumbering Recipient-owned Property, other than as permitted in 
this section, is an Unauthorized Use of the Property under Sec. 314.4.

[71 FR 56675, Sept. 27, 2006, as amended at 73 FR 62870, Oct. 22, 2008]



                         Subpart B_Real Property



Sec. 314.7  Title.

    (a) General. The Recipient must hold title to the Real Property 
required for a Project at the time the Investment Assistance is awarded 
or as provided by paragraph (c) of this section and must maintain title 
at all times during the Estimated Useful Life of the Project, except in 
those limited circumstances as provided in paragraph (c) of this 
section. The Recipient must also 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 any easements, rights-of-way, State or local government 
permits, long-term leases or other items 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 encumbrances, 
including but not limited to the following:
    (i) Liens;
    (ii) Mortgages;
    (iii) Reservations;
    (iv) Reversionary interests; and
    (v) Other restrictions on title or on the Recipient's interest in 
the Property.
    (2) No encumbrance will be acceptable if, as determined by EDA, the 
encumbrance interferes with the construction, use, operation or 
maintenance of the Project during its Estimated Useful Life.
    (c) Exceptions. The following are exceptions to the requirements of 
paragraph (a) of this section that the Recipient hold title to the Real 
Property required for a Project.

[[Page 668]]

    (1) Where the acquisition of Real Property required for a Project is 
contemplated as part of an Investment Assistance award, EDA may 
determine that an agreement for the Recipient to purchase the Real 
Property will be acceptable for purposes of paragraph (a) of this 
section if:
    (i) The Recipient provides EDA with reasonable assurances that it 
will obtain fee title to the Real Property prior to or concurrent with 
the initial disbursement of the Investment Assistance; and
    (ii) EDA, in its sole discretion, determines that the terms and 
conditions of the purchase agreement adequately safeguard the Federal 
government's interest in the Real Property.
    (2) EDA may determine that a long-term leasehold interest for a 
period not less than the Estimated Useful Life of the Real Property 
required for a Project will be acceptable for purposes of paragraph (a) 
of this section if:
    (i) Fee title to the Real Property is not otherwise obtainable; and
    (ii) EDA, in its sole discretion, determines that the terms and 
conditions of the lease adequately safeguard the Federal government's 
interest in the Real Property and demonstrate the economic development 
and public benefits of the leasehold transaction.
    (3) When a Project includes construction within a railroad's right-
of-way or over a railroad crossing, EDA may find it 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, the construction is a minor but 
essential component of the Project.
    (4) When the Project includes construction on a public highway the 
owner of which is not the Recipient, EDA may allow the Project to be 
constructed in whole or in part in the right-of-way of such public 
highway, provided that:
    (i) All EDA-funded construction is completed in accordance with EDA 
requirements;
    (ii) The Recipient confirms in writing to EDA, satisfactory to EDA, 
that:
    (A) The Recipient is committed during the Estimated Useful Life of 
the Project to operate, maintain and repair all improvements for the 
Project consistent with the Investment Assistance; and
    (B) If at any time during the Estimated Useful Life of the Project 
any or all of the improvements in the Project within the public highway 
are relocated for any reason pursuant to requirements of the owner of 
the public highway, the Recipient shall be responsible for accomplishing 
such relocation, including as necessary expending the Recipient's own 
funds, so that the Project continues as authorized by the Investment 
Assistance; and
    (iii) The Recipient obtains all written authorizations (i.e., State 
or county permit(s)) necessary for the Project to be constructed within 
the public highway, copies of which shall be submitted to EDA. Such 
authorizations shall contain no time limits that EDA determines 
substantially restrict the use of the public highway for the Project 
during the Estimated Useful Life of the Project.
    (5)(i) When an authorized purpose of the Project is to construct 
facilities to serve Real Property owned by the Recipient, including but 
not limited to industrial or commercial parks, for sale or lease to 
private parties, such sale or lease is permitted so long as:
    (A) In cases where an authorized purpose of the Project is to sell 
Real Property, the Recipient provides evidence sufficient to EDA that it 
holds title to the Real Property required for such Project prior to the 
disbursement of any portion of the Investment Assistance and will retain 
title until the sale of the Property;
    (B) In cases where an authorized purpose of the Project is to lease 
Real Property, the Recipient provides evidence sufficient to EDA that it 
holds title to the Real Property required for such Project prior to the 
EDA disbursement of any portion of the Investment Assistance and will 
retain title for the entire Estimated Useful Life of the Project;
    (C) The Recipient completes the Project according to the terms of 
the Investment Assistance;
    (D) The sale or lease of any portion of the Project during its 
Estimated Useful Life must be for Adequate Consideration and the terms 
and conditions of

[[Page 669]]

the Investment Assistance and the purpose(s) of the Project must 
continue to be fulfilled after such sale or lease; provided, however, 
that EDA may waive this provision for any sale or lease occurring after 
the ten (10) year anniversary of the award date of the Investment 
Assistance;
    (E) The Recipient agrees that the termination, cessation, 
abandonment or other failure on behalf of the Recipient, purchaser or 
lessee to complete the Project by the five (5) year anniversary of the 
award date of the Investment Assistance constitutes a failure on behalf 
of the Recipient to use the Real Property for the economic purposes 
justifying the Project; and
    (F) The Recipient agrees that a violation of this paragraph by the 
Recipient, purchaser or lessee constitutes an Unauthorized Use of the 
Real Property and the Recipient must further agree to compensate EDA for 
the Federal government's Federal Share of the Project in the case of 
such Unauthorized Use.
    (ii) EDA may also condition the sale or lease on the satisfaction by 
the Recipient, purchaser or lessee (as the case may be) of any 
additional requirements that EDA may impose, including but not limited 
to EDA's pre-approval of the sale or lease.
    (6)(i) When an authorized purpose of the Project is to construct 
facilities to serve privately-owned Real Property, including but not 
limited to industrial or commercial parks, the ownership, sale or lease 
of such Real Property is permitted so long as:
    (A) The Owner provides evidence sufficient to EDA that it holds 
title to the Real Property improved or benefited by the EDA Investment 
Assistance prior to the disbursement of any portion of the Investment 
Assistance and will retain title to the Real Property for the entire 
Estimated Useful Life of the Property or until the sale of such Real 
Property;
    (B) The Recipient and the Owner agree to use Real Property improved 
or benefited by the EDA Investment Assistance only for the authorized 
purposes of the Project and in manner consistent with the terms and 
conditions of the EDA Investment Assistance for the Estimated Useful 
Life of the Project;
    (C) The Recipient must provide adequate assurances that the Owner 
will complete the Project according to the terms of the Investment 
Assistance;
    (D) The sale or lease of any portion of the Project during its 
Estimated Useful Life must be for Adequate Consideration and the terms 
and conditions of the Investment Assistance and the purpose(s) of the 
Project must continue to be fulfilled after such sale or lease; 
provided, however, that EDA may waive this provision for any sale or 
lease occurring after the ten (10) year anniversary of the award date of 
the Investment Assistance;
    (E) The Recipient agrees that the termination, cessation, 
abandonment or other failure on behalf of the Recipient, Owner, 
purchaser or lessee to complete the Project by the five (5) year 
anniversary of the award date of the Investment Assistance constitutes a 
failure on behalf of the Recipient to use the Real Property for the 
economic purposes justifying the Project; and
    (F) The Recipient further agrees that a violation of this paragraph 
by the Owner, purchaser or lessee constitutes an Unauthorized Use of the 
Real Property and the Recipient must further agree to compensate EDA for 
the Federal government's Federal Share of the Project in the case of 
such Unauthorized Use.
    (ii) EDA may also condition its Investment Assistance on the 
satisfaction by the Recipient, Owner or by the purchaser or lessee (as 
the case may be) of any additional requirements that EDA may impose, 
including but not limited to EDA's pre-approval of a sale or lease.

[71 FR 56675, Sept. 27, 2006, as amended at 73 FR 62870, Oct. 22, 2008]



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

[[Page 670]]

EDA Investment Assistance. The statement shall specify the Estimated 
Useful Life of the Project and shall include, but not be limited to, the 
Disposition, encumbrance and Federal Share requirements. 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 
Real Property is located, all in accordance with applicable 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 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 Personal Property, 
acceptable in form and substance to EDA, which statement must be 
perfected and placed of record in accordance with applicable law, with 
continuances re-filed 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.



              Subpart D_Release of EDA's Property Interest



Sec. 314.10  Procedures for release of EDA's Property interest.

    (a) General. Upon the request of a Recipient and before the 
expiration of the Estimated Useful Life of a Project, EDA may release 
any Real Property or tangible Personal Property interest held by EDA, in 
connection with Investment Assistance after the date that is twenty (20) 
years after the date on which the Investment Assistance was awarded.
    (b) Exception. EDA releases all of its Real Property and tangible 
Personal Property interests in Projects awarded under the Public Works 
Employment Act of 1976 (Pub. L. 94-369), as amended by the Public Works 
Employment Act of 1977 (Pub. L. 95-28).
    (c)(1) Unauthorized Use. Notwithstanding the release of EDA's 
interest pursuant to paragraphs (a) or (b) of this section, Real 
Property or tangible Personal Property acquired or improved with 
Investment Assistance may not be used:
    (i) In violation of the nondiscrimination requirements set forth in 
Sec. 302.20 of this chapter; or
    (ii) For inherently religious activities prohibited by applicable 
Federal law.
    (2) Violation of this paragraph (c) constitutes an Unauthorized Use 
of the Real Property or of the tangible Personal Property.
    (d) Release.
    (1) Except as provided in paragraph (b) of this section, the release 
of EDA's interest pursuant to this section is not automatic; it requires 
EDA's approval, which will not be withheld except for good cause, as 
determined in EDA's sole discretion. In addition to the restrictions set 
forth in paragraph (c) of this section, the release may be conditioned 
upon some activity of the Recipient intended to be pursued as a 
consequence of the release.
    (2) When requesting a release of EDA's interest pursuant to 
paragraph (a) of this section, the Recipient will be required to 
disclose to EDA the intended future use of the Real Property or the 
tangible Personal Property for which the release is requested.
    (i) A Recipient not intending to use the Real Property or tangible 
Personal Property for inherently religious activities following EDA's 
release will be required to execute a covenant of use. A covenant of use 
with respect to Real Property shall be recorded in the jurisdiction 
where the Real Property is located in accordance with Sec. 314.8. A 
covenant of use with respect to items of tangible Personal Property 
shall be perfected and recorded in accordance with applicable law, with 
continuances re-filed as appropriate. See Sec. 314.9. A covenant of use 
shall (at a minimum)

[[Page 671]]

prohibit the use of the Real Property or the tangible Personal Property:
    (A) For inherently religious activities in violation of applicable 
Federal law; and
    (B) For any purpose that would violate the nondiscrimination 
requirements set forth in Sec. 302.20 of this chapter.
    (ii) EDA may require a Recipient (or its successors in interest) who 
intends or foresees the use of Real Property or tangible Personal 
Property for inherently religious activities following the release of 
EDA's interest to compensate EDA for the Federal Share of such Property. 
EDA recommends that a Recipient who intends or foresees the use of Real 
Property or tangible Personal Property (including by successors of the 
Recipient) for inherently religious activities to contact EDA well in 
advance of requesting a release pursuant to this section.



PART 315_TRADE 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 TAAC scope, selection, evaluation and awards.
315.6 Firm eligibility for Adjustment Assistance.

                    Subpart B_Certification of Firms

315.7 Certification requirements.
315.8 Processing petitions for certification.
315.9 Hearings.
315.10 Loss of certification benefits.
315.11 Appeals, final determinations and termination of certification.

                     Subpart C_Protective Provisions

315.12 Recordkeeping.
315.13 Audit and examination.
315.14 Certifications.
315.15 Conflicts of interest.

                     Subpart D_Adjustment Proposals

315.16 Adjustment Proposal Requirements.

                   Subpart E_Assistance to Industries

315.17 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: 71 FR 56675, Sept. 27, 2006, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 315.1  Purpose and scope.

    The regulations in this part set forth the responsibilities of the 
Secretary of Commerce under chapter 3 of title II of the Trade Act 
concerning Trade Adjustment Assistance for Firms. The statutory 
authority and responsibilities of the Secretary of Commerce relating to 
Adjustment Assistance are delegated to EDA. EDA certifies Firms as 
eligible to apply for Adjustment Assistance, provides technical 
Adjustment Assistance to Firms and other recipients, and provides 
assistance to organizations representing trade injured industries.



Sec. 315.2  Definitions.

    In addition to the defined terms set forth in Sec. 300.3 of this 
chapter, the following terms used in this part shall have the following 
meanings:
    Adjustment Assistance means 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 any information submitted to 
EDA or a TAAC by a Firm 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.
    Contributed Importantly, with respect to an Increase in Imports, 
refers to a cause which is important but not necessarily more important 
than any other cause. 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

[[Page 672]]

have been essentially the same, irrespective of the influence of 
imports.
    Decreased Absolutely means a Firm's sales or production has declined 
by a minimum of five (5) percent relative to its sales or production 
during the applicable prior time period,
    (1) Irrespective of industry or market fluctuations; and
    (2) Relative only to the previous performance of the Firm, unless 
EDA determines that these limitations in a given case would not be 
consistent with the purposes of the Trade Act.
    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 includes fishing, agricultural entities and those which explore, 
drill or otherwise produce oil or natural gas. Pursuant to section 261 
of chapter 3 of title II of the Trade Act (19 U.S.C. 2351), a Firm, 
together with any predecessor or successor firm, or any affiliated firm 
controlled or substantially beneficially owned by substantially the same 
person, may be considered a single Firm where necessary to prevent 
unjustifiable benefits. For purposes of receiving benefits under this 
part, when a Firm owns or controls other Firms, 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. Accordingly, such other Firms may include 
a(n):
    (1) Predecessor--see the following definition for Successor;
    (2) Successor--a newly established Firm (that has been in business 
less than two years) which has purchased substantially all of the assets 
of a previously operating company (or in some cases a whole distinct 
division) (such prior company, unit or division, a ``Predecessor'') and 
is able to demonstrate that it continued the operations of the 
Predecessor which has operated as an autonomous unit, provided that 
there were no significant transactions between the Predecessor unit and 
any related parent, subsidiary, or affiliate that would have affected 
its past performance, and that separate records are available for the 
Predecessor's operations for at least two years before the petition is 
submitted. The Successor Firm must have continued virtually all of the 
Predecessor Firm's operations by producing the same type of products, in 
the same plant, utilizing most of the same machinery and equipment and 
most of its former workers, and the Predecessor Firm must no longer be 
in existence;
    (3) Affiliate--a company (either foreign or domestic) controlled or 
substantially beneficially owned by substantially the same person or 
persons that own or control the Firm filing the petition; or
    (4) Subsidiary--a company (either foreign or domestic) that is 
wholly owned or effectively controlled by another company.
    Increase in Imports means an increase of imports of Directly 
Competitive or Like Articles with articles produced by such Firm that 
Contributed Importantly to the applicable Total or Partial Separation or 
threat thereof, and to the applicable decline in sales or production.
    Like Articles means any articles which are substantially identical 
in their intrinsic characteristics.
    Partial Separation means, with respect to any employment in a Firm, 
either:
    (1) A reduction in an employee's work hours to eighty (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 eighty (80) percent 
or less of his/her average weekly wage during the year of such reduction 
as compared to the preceding year.
    Person means an individual, organization or group.
    Record means any of the following:

[[Page 673]]

    (1) A petition for certification of eligibility to qualify for 
Adjustment Assistance;
    (2) Any supporting information submitted by a petitioner;
    (3) The report of an EDA investigation with respect to petition; and
    (4) Any information developed during an investigation or in 
connection with any public hearing held on a petition.
    Significant Number or Proportion of Workers means five (5) percent 
of a Firm's work force or fifty (50) workers, whichever is less, unless 
EDA determines that these limitations in a given case would not be 
consistent with the purposes of the Trade Act. An individual farmer or 
fisherman is considered a Significant Number or Proportion of Workers.
    Substantial Interest means a direct material economic interest in 
the certification or non-certification of the petitioner.
    TAAC means a Trade Adjustment Assistance Center, as more fully 
described in Sec. 315.5.
    Threat of Total or Partial Separation means, with respect to any 
group of workers, one or more events or circumstances clearly 
demonstrating that a Total or Partial Separation is imminent.
    Total Separation means, with respect to any employment in a Firm, 
the laying off or termination of employment of an employee for lack of 
work.

[71 FR 56675, Sept. 27, 2006, as amended at 73 FR 62870, Oct. 22, 2008]



Sec. 315.3  Confidential Business Information.

    EDA will follow the procedures set forth in 15 CFR 4.9 for the 
submission of Confidential Business Information. Submitters should 
clearly mark and designate as confidential any Confidential Business 
Information.



Sec. 315.4  Eligible applicants.

    (a) The following entities may apply for assistance to operate a 
TAAC:
    (1) Universities or affiliated organizations;
    (2) States or local governments; or
    (3) Non-profit organizations.
    (b) For purposes of Sec. 315.17, and to the extent funds are 
appropriated to implement section 265 of the Trade Act, 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:
    (1) Existing agencies;
    (2) Private individuals;
    (3) Firms;
    (4) Universities;
    (5) Institutions;
    (6) Associations;
    (7) Unions; or
    (8) Other non-profit industry organizations.

[73 FR 62870, Oct. 22, 2008]



Sec. 315.5  TAAC scope, selection, evaluation and awards.

    (a) TAAC purpose and scope. (1) TAACs are available to assist Firms 
in obtaining Adjustment Assistance in all fifty (50) U.S. States, the 
District of Columbia and the Commonwealth of Puerto Rico. TAACs provide 
Adjustment Assistance in accordance with this part either through their 
own staffs or by arrangements with outside consultants. Information 
concerning TAACs serving particular areas may be obtained from the TAAC 
Web site at http://www.taacenters.org or from EDA. See the applicable 
FFO for the appropriate points of contact and addresses.
    (2) Prior to submitting a petition for Adjustment Assistance to EDA, 
a Firm should determine the extent to which a TAAC can provide the 
required Adjustment Assistance. EDA will provide Adjustment Assistance 
through TAACs whenever EDA determines that such assistance can be 
provided most effectively in this manner. Requests for Adjustment 
Assistance will normally be made through TAACs.
    (3) A TAAC generally provides Adjustment Assistance by providing 
assistance to a:
    (i) Firm in preparing its petition for eligibility certification; 
and
    (ii) Certified Firm in diagnosing its strengths and weaknesses, and 
developing and implementing an Adjustment Proposal.

[[Page 674]]

    (b) TAAC selection. (1) EDA invites currently funded TAACs 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 
ensure funding by EDA.
    (2) EDA may invite new TAAC proposals through an FFO. If such a 
proposal is acceptable, EDA will invite an application on a form 
approved by OMB. An application will require a narrative scope of work, 
proposed budget and such other information as requested by EDA. 
Acceptance of an application does not ensure funding by EDA.
    (c) TAAC evaluation. (1) EDA generally evaluates currently funded 
TAACs based on:
    (i) Performance under Cooperative Agreements with EDA and compliance 
with the terms and conditions of such Cooperative Agreements;
    (ii) Proposed scope of work, budget and application or amended 
application; and
    (iii) Availability of funds.
    (2) EDA generally evaluates new TAACs based on:
    (i) Competence in administering business assistance programs;
    (ii) Background and experience of staff;
    (iii) Proposed scope of work, budget and application; and
    (iv) Availability of funding.
    (d) TAAC award requirements. (1) EDA generally funds TAACs for 
twelve (12) months.
    (2) There are no Matching Share requirements for Adjustment 
Assistance provided by the TAACs to Firms for certification or for 
administrative expenses of the TAACs.

[71 FR 56675, Sept. 27, 2006, as amended at 73 FR 62871, Oct. 22, 2008]



Sec. 315.6  Firm eligibility for Adjustment Assistance.

    (a) Firms participate in the Trade Adjustment Assistance for Firms 
program in accordance with the following:
    (1) Firms apply for certification through a TAAC by completing a 
petition for certification. The TAAC will assist Firms in completing 
such petitions (at no cost to the Firms);
    (2) Firms certified in accordance with the procedures described in 
Sec. Sec. 315.7 and 315.8 must prepare an Adjustment Proposal for 
Adjustment Assistance from the TAAC, and submit it to EDA for approval; 
and
    (3) EDA determines whether the Adjustment Assistance requested in 
the Adjustment Proposal is eligible based upon the evaluation criteria 
set forth in subpart D of this part. A Certified Firm may submit a 
request to the TAAC for Adjustment Assistance to implement an approved 
Adjustment Proposal.
    (b) For certification, EDA evaluates Firms' petitions strictly on 
the basis of fulfillment of the requirements set forth in Sec. 315.7.
    (c) (1) Certified Firms generally receive Adjustment Assistance over 
a two-year (2) period.
    (2) The matching share requirements are as follows:
    (i) Each Certified Firm must pay at least twenty-five (25) percent 
of the cost of preparing its Adjustment Proposal. Each Certified Firm 
requesting $30,000 or less in total Adjustment Assistance in its 
approved Adjustment Proposal must pay at least twenty-five (25) percent 
of the cost of that Adjustment Assistance. Each Certified Firm 
requesting more than $30,000 in total Adjustment Assistance in its 
approved Adjustment Proposal must pay at least fifty (50) percent of the 
cost of that Adjustment Assistance.
    (ii) Organizations representing trade-injured industries must pay at 
least fifty (50) percent of the total cash cost of the Adjustment 
Assistance, in addition to appropriate in-kind contributions.

[71 FR 56675, Sept. 27, 2006, as amended at 73 FR 62871, Oct. 22, 2008]

[[Page 675]]



                    Subpart B_Certification of Firms



Sec. 315.7  Certification requirements.

    (a) EDA may certify a Firm as eligible to apply for Adjustment 
Assistance under section 251(c) of the Trade Act if it determines that 
the petition for certification meets one of the requirements set forth 
in paragraph (b) of this section. In order to be certified, a Firm must 
meet the criteria listed under any one of the three (3) circumstances in 
paragraph (b) of this section.
    (b)(1) Twelve-month (12) decline. Based upon a comparison of the 
most recent twelve-month (12) period for which data are available and 
the immediately preceding twelve-month (12) period:
    (i) A Significant Number or Proportion of Workers in the Firm has 
undergone Total or Partial Separation or a Threat of Total or Partial 
Separation;
    (ii) Either sales or production of the Firm has Decreased 
Absolutely; or sales or production, or both, of any article that 
accounted for not less than twenty-five (25) percent of the total 
production or sales of the Firm during the twelve-month (12) period 
preceding the most recent twelve-month (12) period for which data are 
available have Decreased Absolutely; and
    (iii) An Increase in Imports has occurred; or
    (2) Interim sales or production decline. Based upon an interim sales 
or production decline:
    (i) Sales or production has Decreased Absolutely for, at minimum, 
the most recent six-month (6) period during the most recent twelve-month 
(12) period for which data are available as compared to the same six-
month (6) period during the immediately preceding twelve-month (12) 
period;
    (ii) During the same base and comparative period of time as sales or 
production has Decreased Absolutely, a Significant Number or Proportion 
of Workers in such Firm has undergone Total or Partial Separation or a 
Threat of Total or Partial Separation; and
    (iii) During the same base and comparative period of time as sales 
or production has Decreased Absolutely, an Increase in Imports has 
occurred; or
    (3) Interim employment decline. Based upon an interim employment 
decline:
    (i) A Significant Number or Proportion of Workers in such Firm has 
undergone Total or Partial Separation or a Threat of Total or Partial 
Separation during, at a minimum, the most recent six-month (6) period 
during the most recent twelve-month (12) period for which data are 
available as compared to the same six-month (6) period during the 
immediately preceding twelve-month (12) period; and
    (ii) Either sales or production of the Firm has Decreased Absolutely 
during the twelve-month (12) period preceding the most recent twelve-
month (12) period for which data are available; and
    (iii) An Increase in Imports has occurred.



Sec. 315.8  Processing petitions for certification.

    (a) Firms shall consult with a TAAC for guidance and assistance in 
the preparation of their petitions for certification.
    (b) A Firm seeking certification shall complete a Petition by a Firm 
for Certification of Eligibility to Apply for Trade Adjustment 
Assistance (Form ED-840P or any successor form) 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 Directly Competitive or Like Articles 
with those produced;
    (4) Data on its sales, production and employment for the two most 
recent years;
    (5) One (1) copy of a complete auditor's certified financial report 
for the entire period covering the petition, or if not available, one 
(1) copy of the complete profit and loss statements, balance sheets and 
supporting statements prepared by the Firm's accountants for the entire 
period covered by the petition; publicly-owned corporations should 
submit copies of the most recent Form 10-K annual reports (or

[[Page 676]]

Form 10-Q quarterly reports, as appropriate) filed with the U.S. 
Securities and Exchange Commission for the entire period covered by the 
petition;
    (6) Information concerning its major customers and their purchases 
(or its bids, if there are no major customers); and
    (7) Such other information as EDA considers material.
    (c) EDA shall determine whether the petition has been properly 
prepared and can be accepted. Promptly thereafter, EDA shall notify the 
petitioner that the petition has been accepted or advise the TAAC that 
the petition has not been accepted, but may be resubmitted at any time 
without prejudice when the specified deficiencies have been corrected. 
Any resubmission will be treated as a new petition.
    (d) EDA will publish a notice of acceptance of a petition in the 
Federal Register.
    (e) EDA will initiate an investigation to determine whether the 
petitioner meets the requirements set forth in section 251(c) of the 
Trade Act and Sec. 315.7.
    (f) A petitioner may withdraw a petition for certification if EDA 
receives a request for withdrawal before it makes a certification 
determination or denial. A Firm may submit a new petition at any time 
thereafter in accordance with the requirements of this section and Sec. 
315.7.
    (g) Following acceptance of a petition, EDA will:
    (1) Make a determination based on the Record as soon as possible 
after the petitioning Firm or TAAC has submitted all material. In no 
event may the determination period exceed sixty (60) days from the date 
on which EDA accepted the petition; and
    (2) Either certify the petitioner as eligible to apply for 
Adjustment Assistance or deny the petition. In either event, EDA shall 
promptly give written notice of action to the petitioner. Any written 
notice to the petitioner of a denial of a petition shall specify the 
reason(s) for the denial. A petitioner shall not be entitled to resubmit 
a petition within one (1) year from the date of denial, provided, EDA 
may waive the one-year (1) limitation for good cause.

[71 FR 56675, Sept. 27, 2006, as amended at 73 FR 62871, Oct. 22, 2008]



Sec. 315.9  Hearings.

    EDA will hold a public hearing on an accepted petition if the 
petitioner or any interested Person found by EDA to have a Substantial 
Interest in the proceedings submits a request for a hearing no later 
than ten (10) days after the date of publication of the notice of 
acceptance in the Federal Register, under the following procedures:
    (a) The petitioner or any interested Person(s) shall have an 
opportunity to be present, to produce evidence and to be heard;
    (b) 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:
    (1) The name, address and telephone number of the Person requesting 
the hearing; and
    (2) 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.
    (c) 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;
    (d) 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 the hearing; and
    (e) EDA shall appoint a presiding officer for the hearing who shall 
respond to all procedural questions.

[71 FR 56675, Sept. 27, 2006, as amended at 73 FR 62871, Oct. 22, 2008]



Sec. 315.10  Loss of certification benefits.

    EDA may terminate a Firm's certification or refuse to extend 
Adjustment Assistance to a Firm for any of the following reasons:
    (a) Failure to submit an acceptable Adjustment Proposal within two 
(2) years after date of certification. While approval of an Adjustment 
Proposal

[[Page 677]]

may occur after the expiration of such two-year (2) period, a Firm must 
submit an acceptable Adjustment Proposal 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 six (6) months after 
approval of the Adjustment Proposal, where two (2) years have elapsed 
since the date of certification. If the Firm anticipates needing a 
longer period to submit documentation, it should indicate the longer 
period in its Adjustment Proposal. If the Firm is 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) EDA has denied the Firm's request for Adjustment Assistance, the 
time period allowed for the submission of any documentation in support 
of such request has expired, and two (2) years have elapsed since the 
date of certification; or
    (d) Failure to diligently pursue an approved Adjustment Proposal 
where two (2) years have elapsed since the date of certification.

[71 FR 56675, Sept. 27, 2006, as amended at 73 FR 62871, Oct. 22, 2008]



Sec. 315.11  Appeals, final determinations and termination of certification.

    (a) Any petitioner may appeal in writing to EDA from a denial of 
certification, provided that EDA receives the appeal by personal 
delivery or by registered mail within sixty (60) days from the date of 
notice of denial under Sec. 315.8(g). The appeal must state the grounds 
on which the appeal is based, including a concise statement of the 
supporting facts and applicable law. The decision of EDA on the appeal 
shall be the final determination within the Department. In the absence 
of an appeal by the petitioner under this paragraph, the determination 
under Sec. 315.8(g) shall be final.
    (b) A Firm, its representative or any other interested domestic 
party aggrieved by a final determination under paragraph (a) of this 
section may, within sixty (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.
    (c) 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 published notice.
    (d) EDA shall immediately notify the petitioner and shall state the 
reasons for any termination.

[71 FR 56675, Sept. 27, 2006, as amended at 73 FR 62871, Oct. 22, 2008]



                     Subpart C_Protective Provisions



Sec. 315.12  Recordkeeping.

    Each TAAC shall keep records that fully disclose the amount and 
disposition of Trade Adjustment Assistance for Firms program funds so as 
to facilitate an effective audit.

[73 FR 62871, Oct. 22, 2008]



Sec. 315.13  Audit and examination.

    EDA and the Comptroller General of the United States shall have 
access for the purpose of audit and examination to any books, documents, 
papers, and records of a Firm, TAAC or other recipient of Adjustment 
Assistance pertaining to the award of Adjustment Assistance.



Sec. 315.14  Certifications.

    EDA will provide no Adjustment Assistance to any Firm unless the 
owners, partners, members, directors or officers thereof certify:
    (a) The names of any attorneys, agents, and other Persons engaged by 
or on behalf of the Firm for the purpose of expediting applications for 
such Adjustment Assistance; and
    (b) The fees paid or to be paid to any such Person.



Sec. 315.15  Conflicts of interest.

    EDA will provide no Adjustment Assistance to any Firm under this 
part unless the owners, partners, or officers execute an agreement 
binding them

[[Page 678]]

and the Firm for a period of two (2) years after such Adjustment 
Assistance is provided, to refrain from employing, tendering any office 
or employment to, or retaining for professional services any Person who, 
on the date such assistance or any part thereof was provided, or within 
one (1) year prior thereto, shall have served as an officer, attorney, 
agent, or employee occupying a position or engaging in activities which 
involved discretion with respect to the provision of such Adjustment 
Assistance.



                     Subpart D_Adjustment Proposals



Sec. 315.16  Adjustment Proposal Requirements.

    EDA evaluates Adjustment Proposals based on the following:
    (a) EDA must receive the Adjustment Proposal within two (2) years 
after the date of the certification of the Firm;
    (b) The Adjustment Proposal must include a description of any 
Adjustment Assistance requested to implement such proposal, including 
financial and other supporting documentation as EDA determines is 
necessary, based upon either:
    (1) An analysis of the Firm's problems, strengths and weaknesses and 
an assessment of its prospects for recovery; or
    (2) If EDA so determines, other available information;
    (c) The Adjustment Proposal must:
    (1) Be reasonably calculated to contribute materially to the 
economic adjustment of the Firm (i.e., that such proposal will 
constructively assist the Firm to establish a competitive position in 
the same or a different industry);
    (2) Give adequate consideration to the interests of a sufficient 
number of separated workers of the Firm, by providing, for example, that 
the Firm will:
    (i) Give a rehiring preference to such workers;
    (ii) Make efforts to find new work for a number of such workers; and
    (iii) Assist such workers in obtaining benefits under available 
programs; and
    (3) Demonstrate that the Firm will make all reasonable efforts to 
use its own resources for its recovery, though under certain 
circumstances, resources of related Firms or major stockholders will 
also be considered; and
    (d) The Adjustment Assistance identified in the Adjustment Proposal 
must consist of specialized consulting services designed to assist the 
Firm in becoming more competitive in the global marketplace. For this 
purpose, Adjustment Assistance generally consists of knowledge-based 
services such as market penetration studies, customized business 
improvements, and designs for new products. Adjustment Assistance does 
not include expenditures for capital improvements or for the purchase of 
business machinery or supplies.



                   Subpart E_Assistance to Industries



Sec. 315.17  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 Adjustment Assistance, on such terms and 
conditions as EDA deems appropriate, for the establishment of industry-
wide programs for new product development, new process development, 
export development or other uses consistent with the purposes of the 
Trade Act and this part.
    (c) Expenditures for Adjustment Assistance under this section may be 
up to $10,000,000 annually per industry, subject to availability of 
funds, and shall be made under such terms and conditions as EDA deems 
appropriate.

[[Page 679]]



            CHAPTER IV--EMERGENCY STEEL GUARANTEE LOAN BOARD




  --------------------------------------------------------------------
Part                                                                Page
400             Emergency Steel Guarantee Loan Program......         681

[[Page 681]]



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 682]]

    (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 in the U.S. Department of 
Commerce, Washington, DC 20230.

[72 FR 63976, Nov. 14, 2007]



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 683]]

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 684]]

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 685]]

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 686]]

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 687]]

    (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 688]]

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 689]]

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 690]]

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 691]]

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 692]]

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 693]]

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 694]]

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 695]]

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 696]]

    (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 697]]

    (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 698]]

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 699]]

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 700]]

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 701]]

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 702]]

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 703]]



         CHAPTER V--EMERGENCY OIL AND GAS GUARANTEED LOAN BOARD




  --------------------------------------------------------------------
Part                                                                Page
500             Emergency Oil and Gas Guaranteed Loan 
                    Program.................................         705

[[Page 705]]



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 706]]

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 707]]

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 708]]

    (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 709]]

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 710]]

    (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 711]]

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 712]]

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 713]]

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 714]]

    (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 715]]

    (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 716]]

    (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 717]]

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 718]]

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 719]]

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 720]]

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 721]]

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 722]]

    (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 723]]

    (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 724]]

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 725]]

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 726]]

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 727]]



                              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.

  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  List of CFR Sections Affected

[[Page 729]]



                    Table of CFR Titles and Chapters




                     (Revised as of January 1, 2009)

                      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--Grants and Agreements

            Subtitle A--Office of Management and Budget Guidance 
                for Grants and Agreements
         I  Office of Management and Budget Governmentwide 
                Guidance for Grants and Agreements (Parts 100--
                199)
        II  Office of Management and Budget Circulars and Guidance 
                (200--299)
            Subtitle B--Federal Agency Regulations for Grants and 
                Agreements
       III  Department of Health and Human Services (Parts 300-- 
                399)
        VI  Department of State (Parts 600--699)
      VIII  Department of Veterans Affairs (Parts 800--899)
        IX  Department of Energy (Parts 900--999)
        XI  Department of Defense (Parts 1100--1199)
       XII  Department of Transportation (Parts 1200--1299)
       XIV  Department of the Interior (Parts 1400--1499)
        XV  Environmental Protection Agency (Parts 1500--1599)
     XVIII  National Aeronautics and Space Administration (Parts 
                1880--1899)
      XXII  Corporation for National and Community Service (Parts 
                2200--2299)
     XXIII  Social Security Administration (Parts 2300--2399)
      XXIV  Housing and Urban Development (Parts 2400--2499)
       XXV  National Science Foundation (Parts 2500--2599)
      XXVI  National Archives and Records Administration (Parts 
                2600--2699)
     XXVII  Small Business Administration (Parts 2700--2799)
    XXVIII  Department of Justice (Parts 2800--2899)
      XXXI  Institute of Museum and Library Services (Parts 3100--
                3199)
     XXXII  National Endowment for the Arts (Parts 3200--3299)
    XXXIII  National Endowment for the Humanities (Parts 3300--
                3399)
      XXXV  Export-Import Bank of the United States (Parts 3500--
                3599)
    XXXVII  Peace Corps (Parts 3700--3799)

[[Page 730]]

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  Government Accountability 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 (Parts 2100--2199)
       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 (Parts 3200--
                3299)
     XXIII  Department of Energy (Parts 3300--3399)
      XXIV  Federal Energy Regulatory Commission (Parts 3400--
                3499)
       XXV  Department of the Interior (Parts 3500--3599)
      XXVI  Department of Defense (Parts 3600-- 3699)
    XXVIII  Department of Justice (Parts 3800--3899)
      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 (Parts 4300--
                4399)
      XXXV  Office of Personnel Management (Parts 4500--4599)
        XL  Interstate Commerce Commission (Parts 5000--5099)
       XLI  Commodity Futures Trading Commission (Parts 5100--
                5199)
      XLII  Department of Labor (Parts 5200--5299)
     XLIII  National Science Foundation (Parts 5300--5399)
       XLV  Department of Health and Human Services (Parts 5500--
                5599)
      XLVI  Postal Rate Commission (Parts 5600--5699)
     XLVII  Federal Trade Commission (Parts 5700--5799)
    XLVIII  Nuclear Regulatory Commission (Parts 5800--5899)
         L  Department of Transportation (Parts 6000--6099)
       LII  Export-Import Bank of the United States (Parts 6200--
                6299)
      LIII  Department of Education (Parts 6300--6399)

[[Page 731]]

       LIV  Environmental Protection Agency (Parts 6400--6499)
        LV  National Endowment for the Arts (Parts 6500--6599)
       LVI  National Endowment for the Humanities (Parts 6600--
                6699)
      LVII  General Services Administration (Parts 6700--6799)
     LVIII  Board of Governors of the Federal Reserve System 
                (Parts 6800--6899)
       LIX  National Aeronautics and Space Administration (Parts 
                6900--6999)
        LX  United States Postal Service (Parts 7000--7099)
       LXI  National Labor Relations Board (Parts 7100--7199)
      LXII  Equal Employment Opportunity Commission (Parts 7200--
                7299)
     LXIII  Inter-American Foundation (Parts 7300--7399)
      LXIV  Merit Systems Protection Board (Parts 7400--7499)
       LXV  Department of Housing and Urban Development (Parts 
                7500--7599)
      LXVI  National Archives and Records Administration (Parts 
                7600--7699)
     LXVII  Institute of Museum and Library Services (Parts 7700--
                7799)
    LXVIII  Commission on Civil Rights (Parts 7800--7899)
      LXIX  Tennessee Valley Authority (Parts 7900--7999)
      LXXI  Consumer Product Safety Commission (Parts 8100--8199)
    LXXIII  Department of Agriculture (Parts 8300--8399)
     LXXIV  Federal Mine Safety and Health Review Commission 
                (Parts 8400--8499)
     LXXVI  Federal Retirement Thrift Investment Board (Parts 
                8600--8699)
    LXXVII  Office of Management and Budget (Parts 8700--8799)
     XCVII  Department of Homeland Security Human Resources 
                Management System (Department of Homeland 
                Security--Office of Personnel Management) (Parts 
                9700--9799)
      XCIX  Department of Defense Human Resources Management and 
                Labor Relations Systems (Department of Defense--
                Office of Personnel Management) (Parts 9900--9999)

                      Title 6--Domestic Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 0--99)
         X  Privacy and Civil Liberties Oversight Board (Parts 
                1000--1099)

                         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)
        II  Food and Nutrition Service, Department of Agriculture 
                (Parts 210--299)

[[Page 732]]

       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 Policy and New Uses, 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)
     XXXIV  Cooperative State Research, Education, and Extension 
                Service, Department of Agriculture (Parts 3400--
                3499)

[[Page 733]]

      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)
         L  Rural Business-Cooperative Service, Rurual Housing 
                Service, and Rural Utilities Service, Department 
                of Agriculture (Parts 5000--5099)

                    Title 8--Aliens and Nationality

         I  Department of Homeland Security (Immigration and 
                Naturalization) (Parts 1--499)
         V  Executive Office for Immigration Review, Department of 
                Justice (Parts 1000--1399)

                 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)
      XIII  Nuclear Waste Technical Review Board (Parts 1303--
                1399)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Parts 1800--1899)

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)
        II  Election Assistance Commission (Parts9400--9499)

[[Page 734]]

                      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)
        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)
       XII  Federal Housing Finance Agency (Parts 1200--1299)
       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)

[[Page 735]]

        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        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  Bureau of Customs and Border Protection, Department of 
                Homeland Security; Department of the Treasury 
                (Parts 0--199)

[[Page 736]]

        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Bureau of Immigration and Customs Enforcement, 
                Department of Homeland Security (Parts 400--599)

                     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 Service, 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)
      XIII  Millenium Challenge Corporation (Parts 1300--1399)

[[Page 737]]

       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)

                          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 
                HousingCommissioner, 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)

[[Page 738]]

         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)

                           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 (Parts 1200--1299)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--899)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Alcohol and Tobacco Tax and Trade Bureau, Department 
                of the Treasury (Parts 1--399)
        II  Bureau of Alcohol, Tobacco, Firearms, and Explosives, 
                Department of Justice (Parts 400--699)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--299)
       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)

[[Page 739]]

      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)
        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  Employee Benefits Security 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)

[[Page 740]]

            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)

                      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)
      XVII  Office of the Director of National Intelligence (Parts 
                1700--1799)
     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 Homeland Security (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)

[[Page 741]]

            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)
       VII  Office of Educational Research and Improvmeent, 
                Department of Education [Reserved]
        XI  National Institute for Literacy (Parts 1100--1199)
            Subtitle C--Regulations Relating to Education
       XII  National Council on Disability (Parts 1200--1299)

                          Title 35 [Reserved]

             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)
        VI  [Reserved]
       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 (Parts 1500--
                1599)
       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)
       III  Copyright Royalty Board, Library of Congress (Parts 
                301--399)

[[Page 742]]

        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 Regulatory Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--1099)
        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)
       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)
            Chapters 62--100 [Reserved]
            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)
            Chapters 103--104 [Reserved]
       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)

[[Page 743]]

            Chapters 129--200 [Reserved]
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]
            Subtitle E--Federal Information Resources Management 
                Regulations System [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 303-1--303-99)
       304  Payment of Travel Expenses from a Non-Federal Source 
                (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)

                   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--10010)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency, Department of 
                Homeland Security (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

[[Page 744]]

        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) 
                [Reserved]
         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)
     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 Homeland Security (Parts 
                1--199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
       III  Coast Guard (Great Lakes Pilotage), Department of 
                Homeland Security (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)

[[Page 745]]

       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  Defense Acquisition Regulations System, 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  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)
        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)
        30  Department of Homeland Security, Homeland Security 
                Acquisition Regulation (HSAR) (Parts 3000--3099)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        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 [Reserved]
        54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)

[[Page 746]]

        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  Pipeline and Hazardous Materials Safety 
                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 Homeland Security (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)
        XI  Research and Innovative Technology Administration, 
                Department of Transportation [Reserved]
       XII  Transportation Security Administration, Department of 
                Homeland Security (Parts 1500--1699)

                   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)

[[Page 747]]

        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 749]]





           Alphabetical List of Agencies Appearing in the CFR




                     (Revised as of January 1, 2009)

                                                  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              22, II
  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                               2, IX; 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, L
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV, L
  Rural Telephone Bank                            7, XVI
  Rural Utilities Service                         7, XVII, XVIII, XLII, L
  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
Air Transportation Stabilization Board            14, VI
Alcohol and Tobacco Tax and Trade Bureau          27, I
Alcohol, Tobacco, Firearms, and Explosives,       27, II
     Bureau of
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

[[Page 750]]

Architectural and Transportation Barriers         36, XI
     Compliance Board
Arctic Research Commission                        45, XXIII
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                       5, LXVIII; 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
Copyright Royalty Board                           37, III
Corporation for National and Community Service    2, XXII; 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 and Border Protection Bureau              19, I
Defense Contract Audit Agency                     32, I
Defense Department                                5, XXVI; 32, Subtitle A; 
                                                  40, VII

[[Page 751]]

  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III, 
                                                  48, 51
  Defense Acquisition Regulations System          48, 2
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  National Imagery and Mapping Agency             32, I
  Navy Department                                 32, VI; 48, 52
  Secretary of Defense, Office of                 2, XI; 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
Election Assistance Commission                    11, II
Elementary and Secondary Education, Office of     34, II
Emergency Oil and Gas Guaranteed Loan Board       13, V
Emergency Steel Guarantee Loan Board              13, IV
Employee Benefits Security Administration         29, XXV
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                   2, XV; 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

[[Page 752]]

  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           2, XXXV; 5, LII; 12, IV
Family Assistance, Office of                      45, II
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 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 Agency                    12, XII
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 Services Administration                   5, LVII; 41, 105
  Contract Appeals, Board of                      48, 61

[[Page 753]]

  Federal Acquisition Regulation                  48, 5
  Federal Management Regulation                   41, 102
  Federal Property Management Regulations         41, 101
  Federal Travel Regulation System                41, Subtitle F
  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 Accountability Office                  4, I
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          2, III; 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
Homeland Security, Department of                  6, I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection Bureau            19, I
  Federal Emergency Management Agency             44, I
  Immigration and Customs Enforcement Bureau      19, IV
  Immigration and Naturalization                  8, I
  Transportation Security Administration          49, XII
HOPE for Homeowners Program, Board of Directors   24, XXIV
     of
Housing and Urban Development, Department of      2, XXIV; 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 Customs Enforcement Bureau        19, IV
Immigration and Naturalization                    8, I
Immigration Review, Executive Office for          8, V
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

[[Page 754]]

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
  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            2, XIV; 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 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
Investment Security, Office of                    31, VIII
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                                2, XXVII; 5, XXVIII; 28, 
                                                  I, XI; 40, IV
  Alcohol, Tobacco, Firearms, and Explosives,     27, II
       Bureau of
  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 Review, Executive Office for        8, V
  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
  Employee Benefits Security Administration       29, XXV
  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

[[Page 755]]

  Labor-Management Standards, Office of           29, II, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  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
  Copyright Royalty Board                         37, III
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
Merit Systems Protection Board                    5, II, LXIV
Micronesian Status Negotiations, Office for       32, XXVII
Millenium Challenge Corporation                   22, XIII
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
Museum and Library Services, Institute of         2, XXXI
National Aeronautics and Space Administration     2, XVIII; 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      2, XXVI; 5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
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 Endowment for the Arts                   2, XXXII
National Endowment for the Humanities             2, XXXIII
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 Intelligence, Office of Director of      32, XVII
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                       2, XXV; 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
[[Page 756]]

National Telecommunications and Information       15, XXIII; 47, III
     Administration
National Transportation Safety Board              49, VIII
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
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
Peace Corps                                       22, III
Pennsylvania Avenue Development Corporation       36, IX
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
Pipeline and Hazardous Materials Safety           49, I
     Administration
Postal Regulatory 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
Privacy and Civil Liberties Oversight Board       6, X
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
Relocation Allowances                             41, 302
Research and Innovative Technology                49, XI
     Administration
Rural Business-Cooperative Service                7, XVIII, XLII, L
Rural Development Administration                  7, XLII
Rural Housing Service                             7, XVIII, XXXV, L
Rural Telephone Bank                              7, XVI
Rural Utilities Service                           7, XVII, XVIII, XLII, L
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                     2, XXVII; 13, I
Smithsonian Institution                           36, V
Social Security Administration                    2, XXIII; 20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI
Special Counsel, Office of                        5, VIII

[[Page 757]]

Special Education and Rehabilitative Services,    34, III
     Office of
State Department                                  2, VI; 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                     2, XII; 5, L
  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
  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
  Pipeline and Hazardous Materials Safety         49, I
       Administration
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Surface Transportation Board                    49, X
  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 and Tobacco Tax and Trade Bureau        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs and Border Protection Bureau            19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Claims Collection Standards             31, IX
  Federal Law Enforcement Training Center         31, VII
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  Investment Security, 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                       2, VIII; 38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training Service,        41, 61; 20, IX
     Office of the Assistant Secretary for
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                       2, VIII; 38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training Service,        41, 61; 20, IX
   Office of the Assistant Secretary for
[[Page 758]]

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 759]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations that 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 760]]

    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

[[Page 761]]

123.101 (c) revised; interim.......................................64519
123.107 Redesignated as 123.21; new 123.107 added..................62337
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), and (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

                                  2003

13 CFR
                                                                   68 FR
                                                                    Page
Chapter I
102.1--102.9 (Subpart A) Revised...................................59092
112.2 (e) added....................................................51348
    (a) amended....................................................51349
112.3 (b)(3) amended...............................................51349
112.8 Amended......................................................51349
112 Appendix A amended......................................51348, 51349
117 Heading revised................................................51349
117.1 Amended......................................................51349
117.2 (a) revised..................................................51349
117.3 (j) through (m) redesignated as (k) through (n); new (j) 
        added; new (k) amended.....................................51349
117.4 (b)(2) amended...............................................51349
117.5 (b) amended..................................................51349
117.6 (b) and (c) amended..........................................51349
117.7 Amended......................................................51349
117.8 (a) and (c) amended..........................................51349
117.15 (a)(3) amended..............................................51349
117.17 (f) amended.................................................51349

[[Page 762]]

117.19 (a)(9) amended..............................................51349
117.20 Amended.....................................................51349
117 Appendix A amended.............................................51349
120.10 Amended.....................................................57980
120.131 Revised....................................................51679
120.140 Introductory text amended..................................57980
120.151 Amended....................................................51680
120.210 Amended....................................................51680
120.220 (a) revised; (b) and (c) redesignated as (e) and (f); 
        introductory text, new (b), (c) and (d) added..............51680
    (a) and (f) redesignated as (a)(1) and (f)(1); new (a)(1) and 
(f)(1) revised; (a)(2) and (f)(2) added............................56554
120.223 Added......................................................51680
120.540 (f) added..................................................51680
120.613 (b) revised................................................51680
120.800 Heading revised............................................57980
120.801 Heading revised............................................57980
120.802 Amended....................................................57980
120.810 Revised....................................................57980
120.811 Removed....................................................57980
120.812 Revised....................................................57980
120.820 Revised....................................................57980
120.821 Revised....................................................57980
120.822 Revised....................................................57980
120.823 (b) revised................................................57981
120.824 Introductory text amended; (a) revised.....................57981
120.826 Revised....................................................57981
120.827 Revised....................................................57981
120.828 Revised....................................................57981
120.829 (a) revised................................................57981
120.830 (a) and (b) revised; (g) added.............................57981
120.835 Revised....................................................57981
120.836 Removed....................................................57981
120.837 (b) revised; (c) added.....................................57981
120.838 Removed....................................................57982
120.839 Revised....................................................57982
120.840 Revised....................................................57982
120.841 Added......................................................57982
120.845 Revised....................................................57982
120.846 Added......................................................57983
120.847 Added......................................................57983
120.848 Added......................................................57983
120.850 Revised....................................................57984
120.851 Undesignated center heading added; section revised.........57984
120.852 Revised....................................................57985
120.853 Undesignated center heading added; redesignated from 
        120.973 and revised........................................57985
120.854 Undesignated center heading and section added..............57985
120.855 Removed; new section added.................................57985
120.856 Added......................................................57986
120.857 Redesignated from 120.981..................................57987
120.861 Revised....................................................57987
120.862 (a)(4) amended; (b)(3) through (7) redesignated as (b)(5) 
        through (9); (b)(2) and new (5) revised; new (b)(3) and 
        (4) added..................................................57987
120.870 (a) introductory text revised; (b) removed; (c) 
        redesignated as (b)........................................57987
120.871 Heading revised............................................57987
120.880 (b) revised................................................57987
120.882 (c) revised................................................57987
120.883 (d) revised................................................57987
120.892 (b) amended................................................57987
120.900 Heading revised............................................57987
120.910 Heading revised............................................57987
120.911 Revised....................................................57987
120.913 Revised....................................................57987
120.923 Heading revised; (c) redesignated from 120.924.............57988
120.924 Redesignated as 120.923 (c)................................57988
120.925 Amended....................................................57988
120.926 Revised....................................................57988
120.930 (b) revised................................................57988
120.931 Revised....................................................57988
120.933 Revised....................................................57988
120.934 Revised....................................................57988
120.935 Heading revised............................................57988
120.936 Removed....................................................57988
120.960 Revised....................................................57988
120.970 Undesignated center heading and section revised............57988
120.971 Undesignated center heading added; (a) introductory text 
        and (2) revised............................................57988
120.972 Revised....................................................57988
120.973 Redesignated as 120.853 and revised........................57985
120.980 Undesignated center heading and section removed............57989
120.981 Redesignated as 120.857....................................57987
120.982 Removed....................................................57989
120.983 Removed....................................................57989
120.984 Removed....................................................57989
121 Policy statement...............................................35285
    Actions on petitions....................................39448, 61097

[[Page 763]]

121.201 Table amended..................13811, 15050, 16408, 33354, 59314
    Table amended; eff. 1-28-04......................74841, 74842, 74847
125.2 (b) heading, (1), (d)(1)(iii), (2)(i), (ii), (5)(i)(A), (B) 
        and (d)(7) revised; (b)(2) through (7) redesignated as 
        (b)(3) through (8); (b)(3) introductory text, (6)(iii) and 
        (8) revised; new (b)(2), (d)(1)(v) and (e) added...........60012
    Regulation at 68 FR 60012 eff. date corrected..................61097
145 Revised.................................................66544, 66570
145.220 (c) added..................................................66572
145.440 Added......................................................66572
145.765 Added......................................................66572
145.890 Added......................................................66572
145.935 (b) added..................................................66572
145.995 (c) added..................................................66572
145.1010 (b) added.................................................66572
147 Added...................................................66557, 66572
147.510 (c) amended................................................66573
147.605 (a)(2) amended.............................................66573

                                  2004

13 CFR
                                                                   69 FR
                                                                    Page
Chapter I
102.10 Correctly added.............................................21952
105.101 Revised; eff. 1-3-05.......................................63922
105.402 (b)(2) and (3) revised; (b)(4) removed; eff. 1-3-05........63922
107 Authority citation revised......................................8098
107.50 Amended......................................................8098
107.830 (b) removed; (c) and (d) redesignated as (b) and (c); (a), 
        new (b), (c)(2) and (3) revised.............................8098
107.835 Introductory text revised; (a) amended; (d) removed; (e) 
        redesignated as (d).........................................8098
107.845 Revised.....................................................8098
107.850 (a) introductory text and (2) revised.......................8098
121 Policy statement................................................4057
    Authority citation revised..............................25266, 29420
121 Technical correction...........................................45557
121.103 Heading, (a)(1), (3), (4), (b) heading, (2), (c), (d), (e) 
        and (f) revised; (f) and (g) redesignated as (h) and (i); 
        (a)(5) and (6) and new (f) and (g) added...................29201
121.104 (c) removed; (a)(3) and (b) redesignated as new (e) and 
        (c); (a), new (c) and (d) revised; new (b) added...........29203
121.106 (a) and (b)(4) revised.....................................29203
121.201 Table amended..............................................29203
121.301 (a), (d)(1) and (e) revised................................29204
121.302 (d) redesignated as (e); (a) and new (e) revised; new (d) 
        added......................................................29204
121.305 Heading revised............................................29204
121.401 Amended....................................................25266
    Revised........................................................29204
121.402 Heading and (a) revised; (b) amended.......................29205
121.404 Revised....................................................29205
121.406 Heading and (b)(1)(ii) revised; (b)(2)(i) and (ii) 
        redesignated as (b)(1)(ii)(A) and (B); new (b)(2)(i) 
        introductory text added; (b)(2) introductory text, new 
        (i)(A) and (B) amended; (b)(2)(i)(C), (ii) and (e) added 
                                                                   29205
121.410 Introductory text revised; (a), (b) and (d) removed........29205
121.411 (a) amended................................................29205
121.601 Undesignated center heading and section revised............29205
121.602 Amended....................................................29206
121.603 Heading, (a), (b) and (d) amended..........................29206
121.604 Amended....................................................29206
121.702 Revised; eff. 1-3-05.......................................70185
121.704 Revised....................................................29206
121.705 (a) revised................................................29206
121.1001 (a)(8) added..............................................25266
    (a)(1) introductory text, (i), (2)(i), (5)(i), (iii), (6)(i), 
(7) introductory text and (b)(2)(ii)(B) revised; (b)(1)(iii), (7), 
(8) and (9) revised................................................29206
    (a)(6)(iv) revised; (b)(7) added...............................29420
    (b)(7) and (8) correctly revised...............................44461
121.1004 (a)(4) and (5) added; (b) amended.........................29206
121.1005 Amended...................................................29206
121.1007 (c) amended; Examples 1--6 added..........................29206
121.1008 Heading, (a) and (d) revised..............................29207
121.1009 (b) and (g) revised.......................................29207
121.1101 Revised...................................................29207
121.1103 Revised...................................................29207
121.1205 Revised...................................................29208

[[Page 764]]

124 Authority citation revised.....................................29208
124.513 (a)(1) revised.............................................29208
124.520 (d)(1) revised.............................................29208
124.1002 (f)(3) amended............................................29208
125 Authority citation revised.....................................25266
125.1 Amended......................................................25266
125.3 Revised......................................................75824
125.6 (b) through (g) redesignated as new (c) through (h); new (b) 
        added......................................................25266
    (g) revised....................................................29208
    (c) through (h) redesignated as (e) through (j); new (c) and 
(d) added..........................................................29420
125.8 (Subpart A) Added............................................25267
125.9--125.13 (Subpart B) Added....................................25267
125.14--125.23 (Subpart C) Added...................................25268
125.24--125.28 (Subpart D) Added...................................25269
125.29 (Subpart E) Added...........................................25270
126 Authority citation revised.....................................29420
126.101 (a) revised; (b) removed; (c) redesignated as new (b)......29420
126.103 Amended....................................................29421
126.200 Revised....................................................29422
126.201 Revised....................................................29422
126.202 Revised....................................................29422
126.203 (b) revised................................................29422
126.205 Revised....................................................29422
126.207 Revised....................................................29423
126.300 Revised....................................................29423
126.303 Revised....................................................29423
126.304 Revised....................................................29423
126.306 (b) revised................................................29423
126.307 Revised....................................................29423
126.308 Revised....................................................29423
126.309 Revised....................................................29423
126.401 Revised....................................................29423
126.402 Revised....................................................29423
126.403 Revised....................................................29424
126.404 Removed....................................................29424
126.405 Removed....................................................29424
126.500 Revised....................................................29424
126.501 Revised....................................................29424
126.503 Redesignated as 126.504; new 126.503 added.................29424
126.504 Redesignated from 126.503..................................29424
126.601 Revised....................................................29424
126.602 Revised....................................................29425
126.603 Revised....................................................29425
126.605 (b) revised; (c) removed...................................29425
126.606 Revised....................................................29425
126.608 Revised....................................................29425
126.610 Revised....................................................29425
126.611 (c) revised................................................29425
126.612 Heading, (b)(1), (2) and (e) revised.......................29425
126.613 Revised....................................................29425
126.614 Revised....................................................29426
126.616 Revised....................................................29426
126.617 Added......................................................29426
126.618 Added......................................................29427
126.700 Revised....................................................29427
126.702 Revised....................................................29427
126.703 Removed....................................................29427
126.800 (b) revised................................................29427
126.801 (a), (d)(1), (2) and (e) revised; (d)(3) redesignated as 
        (d)(4); new (d)(3) added...................................29427
126.803 (d) revised................................................29427
126.805 (a), (b) and (h) revised...................................29427
126.900 (b) revised................................................29428
134.101 Amended....................................................29208
134.102 (q) and (r) redesignated as new (r) and (s); new (q) added
                                                                   25271
    (k) revised....................................................29208
134.305 (c) revised................................................29208
134.314 Amended....................................................29209
134.316 (a) amended................................................29209

                                  2005

13 CFR
                                                                   70 FR
                                                                    Page
Chapter I
102.30 Amended.....................................................29937
106 Added..........................................................70704
    Technical correction...........................................75932
120 Policy statement...............................................69645
121 Authority citation revised................51248, 56814, 69047, 69052
121.103 (b)(7) added; interim......................................51248
121.105 (a) revised; interim.......................................51248
121.201 Table amended; interim.....................................72583
121.301 (a) revised; interim.......................................69047
    (d)(1) revised; (d)(3) added; interim..........................69052
    (a) and (d)(1) revised; (b)(2) introductory text amended; 
interim............................................................72594
121.302 (c) revised; interim.......................................72594
121.401 Revised....................................................56814
121.413 Removed....................................................56814
121.502 (a)(2) revised; interim....................................72594
121.512 (b) revised; interim.......................................72594
123.300 (b) revised; interim.......................................72595
124.503 (j) added; interim.........................................51248
125 Authority citation revised.....................................56814

[[Page 765]]

125.3 Regulation at 69 FR 75824 eff. date corrected to 2-18-05......1655
     Regulation at 69 FR 75824 eff. date delayed to 3-14-05.........5568
125.6 (b)(5) added.................................................14527
    (e)(6) revised; interim........................................51248
125.7 Removed......................................................56814
125.8 (c), (d) and (h) revised.....................................14527
125.13 Revised.....................................................56814
125.14--125.23 (Subpart C) Table of Contents corrected.............14527
125.15 (a) introductory text revised...............................14527
125.25 (a), (b) and (e) revised....................................14527
125.26 Revised.....................................................14528
125.27 Revised.....................................................14528
125.28 Revised.....................................................14528
126 Authority citation revised.....................................51248
126.103 Amended; interim...........................................51248
126.200 (a)(3) and (b)(1)(i) revised; (c) and (d) added; interim 
                                                                   51249
126.201 (a) amended; interim.......................................51249
126.204 Revised; interim...........................................51249
126.304 (c) redesignated as (d); new (c) added; interim............51249
126.306 Revised; interim...........................................51250
    (a) amended....................................................58974
126.503 (c) revised; interim.......................................51250
126.607 (b) and (c) revised; interim...............................51250
126.613 (c) redesignated as (d); new (c) added; interim............51250
126.700 Revised; interim...........................................51250
134.102 (i) revised................................................17587
134.202 (a)(2) revised.............................................17587
134.204 (b)(1) amended.............................................29937
134.222 (a)(3) added...............................................17587
134.226 (b) revised................................................17587
134.227 (b)(1) revised.............................................17587
134.501--134.518 (Subpart E) Redesignated as 134.601--134.618 
        (Subpart F); interim........................................8927
134.501--134.515 (Subpart E) Added; interim.........................8927
134.601--134.618 (Subpart F) Redesignated from 134.501--134.518 
        (Subpart E); interim........................................8927
140 Heading revised................................................17587
140 Authority citation revised.....................................17587
140.1 (Subpart A) Subpart designation added........................17587
140.1 Revised......................................................17587
140.2--140.3 (Subpart B) Subpart designation added.................17587
140.11 (Subpart C) Added...........................................17587
Chapter III
Chapter III Revised; interim.......................................47019
300.3 Amended; interim.............................................74195
301.4 Eff. date delayed............................................57124
    Regulation at 70 FR 47022 eff. date delayed to 1-31-06.........69053
    (b)(1)(ii) revised; (b)(3) and (4) redesignated as (b)(4) and 
(5); new (b)(3) added; interim.....................................74195
    Regulation delayed at 70 FR 57124 confirmed; regulation at 70 
FR 69053 revoked...................................................74196
304.2 (c)(2) eff. date delayed.....................................57124
    Regulation at 70 FR 47022 eff. date delayed to 1-31-06.........69053
    (c)(2) and (d) revised; interim................................74195
    Regulation delayed at 70 FR 57124 confirmed; regulation at 70 
FR 69053 revoked...................................................74196
304.3 (c) redesignated as (d); new (c) added; interim..............74196
308.2 Revised; interim.............................................74196

                                  2006

13 CFR
                                                                   71 FR
                                                                    Page
Chapter I
101.104 (d) revised................................................63676
    Regulation at 71 FR 63676 eff. date corrected to 12-15-06......65713
120 Waiver.........................................................57397
121.201 Table amended..............................................37491
    Table correctly amended; interim...............................63064
121.301 (d)(1) and (3) revised.....................................62208
121.404 (i) correctly revised......................................19813
    (g) introductory text amended; (g)(1), (2) and (3) added; (i) 
removed; eff. 6-30-07..............................................66443
121.702 (a)(2) correctly revised...................................69183
121.1004 (a)(3) revised; eff. 6-30-07..............................66444
123.2 Amended; interim; eff. 1-16-07...............................75409
123.3 (a)(3)(iii) and (5) revised..................................63676
    Regulation at 71 FR 63676 eff. date corrected to 12-15-06......65713
    (a)(5) amended; interim; eff. 1-16-07..........................75409
123.13 (c), (e) and (f) revised....................................63676
    Regulation at 71 FR 63676 eff. date corrected to 12-15-06......65713
124.503 (h) revised; eff. 6-30-07..................................66444
126.201 Introductory text correctly amended........................69183

[[Page 766]]

Chapter III
Chapter III Revised................................................56675

                                  2007

13 CFR
                                                                   72 FR
                                                                    Page
Chapter I
101.105 (b) amended................................................50038
101.107 (b) amended................................................50038
102 Authority citation revised.....................................17368
102.20--102.41 (Subpart B) Revised.................................17369
105.401 (b)(2) and (3) amended.....................................50038
115 Authority citation revised.....................................34599
115.10 Amended..............................................34599, 50038
115.11 Amended.....................................................50038
115.18 (d) amended.................................................50038
115.19 (g) revised.................................................34599
115.21 (a)(2) revised..............................................34599
115.30 (c) amended.................................................50038
115.31 (a)(2) revised..............................................34599
115.32 (c) and (d)(2) revised......................................34599
115.60 (a)(2) revised..............................................34600
    (b) amended....................................................50038
115.61 Removed.....................................................34600
115.62 Revised.....................................................34600
115.64 Amended.....................................................50038
117.11 (b) and (d)(4) amended......................................50038
117.15 (a)(3) amended..............................................50038
120 Authority citation revised..............................18360, 25194
120.10 Amended.....................................................18360
120.180 Undesignated center heading and section revised............18360
120.181 Added......................................................18360
120.193 Amended....................................................50039
120.195 Undesignated center heading revised........................18360
120.197 Added......................................................18360
120.211 (a), (b) and (c) amended...................................50039
120.376 (a) amended................................................50039
120.424 (a) amended................................................50039
120.434 (b) amended................................................50039
120.440 Amended....................................................18360
120.441 (b) amended................................................50039
120.442 Amended....................................................50039
120.451 (a), (c), (e) and (f) amended..............................50039
120.453 Revised....................................................18360
120.454 Revised....................................................25194
120.455 Amended....................................................50039
120.500--120.554 (Subpart E) Heading revised.......................18360
120.500 Removed....................................................18360
120.510--120.513 Undesignated center heading and sections removed 
                                                                   18360
120.520 Revised....................................................18360
120.522 Heading and (b) revised; (d) removed.......................18361
120.524 (a)(1), (8), (b), (c) and (d) revised......................18361
120.530 Undesignated center heading removed........................18361
120.535 Added......................................................18361
120.536 Added......................................................18361
120.540 Undesignated center heading removed; 120.540 redesignated 
        as 120.545; new 120.540 added..............................18362
120.541 Added......................................................18362
120.542 Added......................................................18362
120.545 Redesignated from 120.540; (f) removed.....................18362
120.546 Added......................................................18364
120.553 Amended....................................................50039
120.630 (a) introductory text and (4) amended......................50039
120.631 (a) introductory text, (b) and (c) amended.................50039
120.660 (a) and (b) introductory text amended; (c) amended.........50039
120.702 (b) amended................................................50039
120.710 (c), (d) and (e) introductory text amended.................50039
120.716 (a) introductory text, (b) introductory text and (d) 
        amended....................................................50039
120.810 (d) amended................................................50039
120.812 (c) amended................................................50039
120.826 Revised....................................................18364
120.837 (a) amended................................................50039
120.840 (b) amended................................................50039
120.841 (c) revised................................................18364
120.845 (c)(1) amended.............................................18364
    (b) amended....................................................50039
120.846 (a)(3) revised.............................................18364
120.847 (h)(2) and (i) amended.....................................50039
120.848 (a) and (f) revised........................................18364
120.854 (a)(2) revised.............................................18364
    (a) introductory text, (b) introductory text and (c) 
introductory text amended..........................................50039
120.855 (a) introductory text, (b), (c) and (d) amended............50039
120.856 (a)(1), (2), (b)(1), (5), (c)(1), (2), (d), (e)(2) and (3) 
        amended....................................................50039
120.956 Amended....................................................50039
120.970 (a) and (h) revised........................................18364
120.975 Undesignated center heading and section added..............18365
120.1070 (Subpart I) Added.........................................25194

[[Page 767]]

121.102 (d) amended................................................50039
121.201 Table amended..............................................49645
121.903 (a)(2) introductory text and (4) amended...................50039
121.1001 (a)(1)(iii), (2)(iii), (3)(iv), (4)(iii), (5)(iii), 
        (6)(iv), (7)(iii), (8)(iv), (b)(2)(i)(B), (ii)(C), 
        (3)(ii), (4)(i), (7)(ii), (8)(ii) and (9) amended..........50040
121.1008 (a) amended...............................................50040
121.1103 (a) amended...............................................50040
121.1203 Amended...................................................50040
121.1204 (a)(2), (5), (6), (7)(i), (b)(2) and (3) amended..........50040
123.2 Regulation at 71 FR 75409 comment period extended.............5607
123.3 Regulation at 71 FR 75409 comment period extended.............5607
124 Authority citation revised.....................................50040
124.103 (b)(3) amended.............................................50040
124.105 (i) amended................................................50040
124.106 (e)(2) and (3) amended.....................................50040
124.108 (a)(1) and (2) amended.....................................50040
124.109 (b) amended................................................50040
124.204 (a), (e) and (f) amended...................................50040
124.206 (b) and (d) amended........................................50040
124.304 (c), (d) and (e) amended...................................50040
124.305 (a), (d) and (e) amended...................................50040
124.503 (a)(5) amended.............................................50040
124.504 (a) amended................................................50040
124.506 (c) introductory text amended, (c)(2), (3) and (d) amended
                                                                   50040
124.509 (e)(1) amended.............................................50040
124.517 (d)(1) amended.............................................50040
124.520 (b)(2) and (e)(2) amended..................................50040
124.1008 (a), (f), (1), (2), (3)(i), (ii) and (4) amended..........50040
124.1010 (b) introductory text amended.............................50041
124.1016 (b) amended...............................................50041
124.1018 (e) amended...............................................50041
124.1020 (b)(3), (c)(2) and (d)(1) amended.........................50041
124.1022 (a), (b) introductory text, (1) and (c) introductory text 
        amended....................................................50041
124.1023 (a), (h)(1) and (2) amended...............................50041
124.1024 (a), (b), (d), (g) and (i) amended........................50041
125.5 (i)(3) and (j)(2) amended....................................50041
125.6 (j) correctly removed.........................................3040
    (d)(1) amended.................................................50041
125.25 (c) and (e) amended.........................................50041
125.26 (a) amended.................................................50041
126.103 Amended....................................................50041
126.303 Amended....................................................50041
126.306 (a) amended................................................50041
126.307 Amended....................................................50041
126.308 Amended....................................................50041
126.400 Amended....................................................50041
126.403 (a) amended................................................50041
126.501 Amended....................................................50041
126.503 (a), (b) and (c) amended...................................50041
126.606 Amended....................................................50041
126.610 (b) amended................................................50041
126.801 (c)(2) and (e) amended.....................................50041
126.802 Amended....................................................50041
126.803 (d) amended................................................50041
134.102 (p) amended................................................39730
134.302 (b) amended................................................50042
134.403 (a) and (b) amended........................................50042
134.406 (e) amended................................................50042
134.501 Amended....................................................50042
134.505 (a)(2) and (b)(1) amended..................................50042
134.507 Amended....................................................50042
134.508 Amended....................................................50042
134.515 (c) amended................................................50042
136.170 (c)(2), (3), (4), (e)(1) introductory text, (2) 
        introductory text, (3) introductory text, (f)(1), (2), 
        (3), (g) introductory text, (4), (h)(1), (3), (4), (i) 
        introductory text, (1), (2) and (j)(1) through (4) amended
                                                                   50042
145 Removed........................................................39730
145.935 (b) amended................................................50042
145.1010 (b) amended...............................................50042
Chapter IV
400.103 Revised....................................................63976

                                  2008

13 CFR
                                                                   73 FR
                                                                    Page
Chapter I
101 Authority citation revised.....................................61666
101.105 Revised.....................................................1963
101.500 (Subpart E) Added..........................................61666
120 Authority citation revised.....................................75510
120.10 Amended; interim; eff. 1-12-09..............................75510
120.214 (c) revised; interim.......................................67101
120.410 (a), (d) and (e) revised; (f) added; interim; eff. 1-12-09
                                                                   75510
120.414 Undesignated center heading and section removed; interim; 
        eff. 1-12-09...............................................75511

[[Page 768]]

120.415 Removed; interim; eff. 1-12-09.............................75511
120.420 (f) introductory text, (3) and (4) revised; interim; eff. 
        1-12-09....................................................75511
120.424 (a) revised; (b) through (e) redesignated as (c) through 
        (f); new (b) added; interim; eff. 1-12-09..................75511
120.425 (c)(2) amended; interim; eff. 1-12-09......................75511
120.426 Amended; interim; eff. 1-12-09.............................75511
120.433 (a) revised; (b) redesignated as (c); new (b) added; 
        interim; eff. 1-12-09......................................75511
120.434 (b) revised; (c) through (g) redesignated as (d) through 
        (h); new (c) added; interim; eff. 1-12-09..................75511
120.435 Introductory text revised; interim; eff. 1-12-09...........75511
120.442 Removed; interim; eff. 1-12-09.............................75511
120.451 (b)(3) revised; (c) removed; (d) and (e) redesignated as 
        new (c) and (d); (a) and new (d) amended; new (e) added; 
        interim; eff. 1-12-09......................................75511
120.454 Removed; interim; eff. 1-12-09.............................75512
120.455 Removed; interim; eff. 1-12-09.............................75512
120.460 Undesignated center heading and section added; interim; 
        eff. 1-12-09...............................................75512
120.461 Added; interim; eff. 1-12-09...............................75512
120.462 Added; interim; eff. 1-12-09...............................75512
120.463 Added; interim; eff. 1-12-09...............................75513
120.464 Added; interim; eff. 1-12-09...............................75514
120.465 Added; interim; eff. 1-12-09...............................75515
120.470 Revised; interim; eff. 1-12-09.............................75515
120.471 Revised; interim; eff. 1-12-09.............................75516
120.472 Revised; interim; eff. 1-12-09.............................75516
120.473 Redesignated as 120.475; new 120.473 added; interim; eff. 
        1-12-09....................................................75516
120.474 Redesignated as 120.476; interim; eff. 1-12-09.............75516
    Added; interim; eff. 1-12-09...................................75517
120.475 Redesignated as 120.490; new 120.475 redesignated from 
        120.473; (a) introductory text amended; (b) revised; 
        interim; eff. 1-12-09......................................75516
120.476 Removed; new 120.476 redesignated from 120.474; interim; 
        eff. 1-12-09...............................................75516
120.490 Redesignated from 120.475; interim; eff. 1-12-09...........75516
120.600 (c) through (j) redesignated as (d) through (k); new (c) 
        and (l) added; interim.....................................67102
120.610 (e) revised; interim.......................................67102
120.611 (a)(5) and (6) revised; (a)(7) added; interim..............67102
120.630 (a)(5) added; interim; eff. 1-12-09........................75517
120.702 (b) revised; interim; eff. 1-12-09.........................75517
120.710 (c), (d), (e) introductory text and (1) revised; interim; 
        eff. 1-12-09...............................................75517
120.716 Removed; interim; eff. 1-12-09.............................75517
120.812 (c) amended; interim; eff. 1-12-09.........................75517
120.820 (c) added; interim; eff. 1-12-09...........................75518
120.826 Revised; interim; eff. 1-12-09.............................75518
120.830 (a) revised; interim; eff. 1-12-09.........................75518
120.839 Introductory text amended; interim; eff. 1-12-09...........75518
120.841 (c) revised; interim; eff. 1-12-09.........................75519
120.845 (b) revised; interim; eff. 1-12-09.........................75519
120.853 Undesignated center heading removed; section amended; 
        interim; eff. 1-12-09......................................75519
120.854 Undesignated center heading and section removed; interim; 
        eff. 1-12-09...............................................75519
120.855 Removed; interim; eff. 1-12-09.............................75519
120.856 Removed; interim; eff. 1-12-09.............................75519
120.956 Revised; interim; eff. 1-12-09.............................75519

[[Page 769]]

120.1000--120.1600 (Subpart I) Heading revised; interim; eff. 1-
        12-09......................................................75519
120.1000 Undesignated center heading and section added; interim; 
        eff. 1-12-09...............................................75519
120.1005 Added; interim; eff. 1-12-09..............................75519
120.1010 Added; interim; eff. 1-12-09..............................75519
120.1015 Added; interim; eff. 1-12-09..............................75519
120.1025 Added; interim; eff. 1-12-09..............................75519
120.1050 Added; interim; eff. 1-12-09..............................75519
120.1051 Added; interim; eff. 1-12-09..............................75519
120.1055 Added; interim; eff. 1-12-09..............................75519
120.1060 Added; interim; eff. 1-12-09..............................75519
120.1400 Undesignated center heading and section added; interim; 
        eff. 1-12-09...............................................75521
120.1425 Added; interim; eff. 1-12-09..............................75521
120.1500 Added; interim; eff. 1-12-09..............................75521
120.1510 Added; interim; eff. 1-12-09..............................75521
120.1511 Added; interim; eff. 1-12-09..............................75521
120.1540 Added; interim; eff. 1-12-09..............................75521
120.1600 Added; interim; eff. 1-12-09..............................75521
121 Authority citation revised.....................................56947
    Technical correction...........................................61336
121.201 Table correctly amended....................................12870
    Table amended...........................................41241, 42519
121.301 (a), (b)(2) and (d)(1) revised.............................41254
121.302 (c) revised................................................41254
121.401 Amended....................................................56947
121.502 (a)(2) revised.............................................41254
121.512 (b) revised................................................41254
121.1001 (a)(9) added..............................................56947
121.1008 (a) amended...............................................56948
123 Authority citation revised.....................................54675
123.3 (a) amended..................................................54675
123.11 Introductory text revised...................................54675
123.300 (b) revised................................................41254
123.501 Heading revised............................................54675
123.502 Heading revised............................................54675
123.503 Revised....................................................54675
123.504 (a) revised................................................54675
123.506 Revised....................................................54675
123.507 Heading, introductory text and (b) revised.................54675
123.511 Revised....................................................54675
123.513 Added......................................................54675
124.1001 Revised; interim..........................................57494
124.1003 Revised; interim..........................................57494
124.1004 Revised; interim..........................................57494
124.1005 Revised; interim..........................................57494
124.1006 Revised; interim..........................................57494
124.1007 Removed; new 124.1007 redesignated from 124.1017; interim
                                                                   57495
124.1008 Removed; new 124.1008 redesignated from 124.1018; interim
                                                                   57495
124.1009 Removed; new 124.1009 redesignated from 124.1019; interim
                                                                   57495
124.1010 Removed; new 124.1010 redesignated from 124.1020; interim
                                                                   57495
124.1011 Removed; new 124.1011 redesignated from 124.1021; interim
                                                                   57495
124.1012 Removed; new 124.1012 redesignated from 124.1022; interim
                                                                   57495
124.1013 Removed; new 124.1013 redesignated from 124.1023; interim
                                                                   57495
124.1014 Removed; new 124.1014 redesignated from 124.1024; interim
                                                                   57495
124.1015 Removed; interim..........................................57495
124.1016 Removed; interim..........................................57495
124.1017 Redesignated as new 124.1007; interim.....................57495
124.1018 Redesignated as new 124.1008; interim.....................57495
124.1019 Redesignated as new 124.1009; interim.....................57495
124.1020 Redesignated as new 124.1010; interim.....................57495
124.1021 Redesignated as new 124.1011; interim.....................57495
124.1022 Redesignated as new 124.1012; interim.....................57495
124.1023 Redesignated as new 124.1013; interim.....................57495
124.1024 Redesignated as new 124.1014; interim.....................57495
125 Technical correction...........................................61336

[[Page 770]]

125.6 (a) introductory text revised................................56948
127 Added..........................................................56948
    Technical correction...........................................61336
134 Technical correction...........................................61336
134.102 (s) redesignated as (t); new (s) added.....................56954
134.515 (b) revised................................................56955
134.701--134.715 (Subpart G) Added.................................56955
140.11 (c), (d), (e) heading, introductory text, (1) introductory 
        text, (ii), (2)(iii), (3), (f)(1), (f)(3)(i), (ii), (iii), 
        (4), (5), (7), (9), (10), (11)(ii), (g), (1) introductory 
        text, (i), (ii), (3), (h), (i)(3)(i), (ii), (iii), (4), 
        (5), (7), (8), (j), (k)(1), (3), (l)(1), (2), (m), (n)(1) 
        introductory text, (ii) and (o) amended; (f)(6) and (12) 
        revised....................................................63628
Chapter III
300.3 Amended; interim.............................................62865
    Regulation at 73 FR 62865 comment period extended..............76194
301.3 (a)(1)(i) revised; interim...................................62865
    Regulation at 73 FR 62865 comment period extended..............76194
301.4 (b)(1)(iii) Table 1, (2) and (4) revised; interim............62865
    Regulation at 73 FR 62865 comment period extended..............76194
301.10 (a) revised; interim........................................62866
    Regulation at 73 FR 62866 comment period extended..............76194
302.14 Revised; interim............................................62866
    Regulation at 73 FR 62866 comment period extended..............76194
302.16 (b) and (c) revised; interim................................62866
    Regulation at 73 FR 62866 comment period extended..............76194
302.17 (b)(1) revised; interim.....................................62866
    Regulation at 73 FR 62866 comment period extended..............76194
303.4 (c) revised; interim.........................................62866
    Regulation at 73 FR 62866 comment period extended..............76194
305.6 (a) revised; interim.........................................62867
    Regulation at 73 FR 62867 comment period extended..............76194
307.8 Amended; interim.............................................62867
    Regulation at 73 FR 62867 comment period extended..............76194
307.9 Introductory text, (a)(1), (b)(1) and (c) revised; interim 
                                                                   62867
    Regulation at 73 FR 62867 comment period extended..............76194
307.12 (a)(1), (2), (3), (b) introductory text and (1) revised; 
        interim....................................................62867
    Regulation at 73 FR 62867 comment period extended..............76194
307.13 (b)(2) revised; interim.....................................62867
    Regulation at 73 FR 62867 comment period extended..............76194
307.14 Revised; interim............................................62867
    Regulation at 73 FR 62867 comment period extended..............76194
307.15 (b)(2) and (c) revised; (e) added; interim..................62868
    Regulation at 73 FR 62868 comment period extended..............76194
307.16 (c)(2)(i) revised; (d) added; interim.......................62868
    Regulation at 73 FR 62868 comment period extended..............76194
307.17 Revised; interim............................................62868
    Regulation at 73 FR 62868 comment period extended..............76194
307.18 (b)(1)(i) and (2)(i) revised; interim.......................62869
    Regulation at 73 FR 62869 comment period extended..............76194
307.20 Heading, (a) and (d)(2) revised; interim....................62869
    Regulation at 73 FR 62869 comment period extended..............76194
307.21 (a) revised; interim........................................62869
    Regulation at 73 FR 62869 comment period extended..............76194
308.3 (a) revised; interim.........................................62869
    Regulation at 73 FR 62869 comment period extended..............76194
310.1 Revised; interim.............................................62869
    Regulation at 73 FR 62869 comment period extended..............76194
314.5 Revised; interim.............................................62870
    Regulation at 73 FR 62870 comment period extended..............76194
314.6 (a) and (b)(3)(iv) revised; interim..........................62870
    Regulation at 73 FR 62870 comment period extended..............76194
314.7 (c)(2)(ii) and (4) revised; interim..........................62870
    Regulation at 73 FR 62870 comment period extended..............76194
315.2 Amended; interim.............................................62870

[[Page 771]]

    Regulation at 73 FR 62870 comment period extended..............76194
315.4 Revised; interim.............................................62870
    Regulation at 73 FR 62870 comment period extended..............76194
315.5 (a)(3), (b)(1) and (2) revised; interim......................62871
    Regulation at 73 FR 62871 comment period extended..............76194
315.6 (c)(1) and (2)(i) revised; interim...........................62871
    Regulation at 73 FR 62871 comment period extended..............76194
315.8 (d) and (g)(2) revised; interim..............................62871
    Regulation at 73 FR 62871 comment period extended..............76194
315.9 Introductory text, (a) and (d) revised; interim..............62871
    Regulation at 73 FR 62871 comment period extended..............76194
315.10 Introductory text revised; interim..........................62871
    Regulation at 73 FR 62871 comment period extended..............76194
315.11 (c) revised; interim........................................62871
    Regulation at 73 FR 62871 comment period extended..............76194
315.12 Revised; interim............................................62871
    Regulation at 73 FR 62871 comment period extended..............76194


                                  [all]
