[Title 13 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2019 Edition]
[From the U.S. Government Publishing Office]
[[Page i]]
Title 13
Business Credit and Assistance
Revised as of January 1, 2019
Containing a codification of documents of general
applicability and future effect
As of January 1, 2019
Published by the Office of the Federal Register
National Archives and Records Administration as a
Special Edition of the Federal Register
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Table of Contents
Page
Explanation................................................. v
Title 13:
Chapter I--Small Business Administration 3
Chapter III--Economic Development Administration,
Department of Commerce 739
Chapter IV--Emergency Steel Guarantee Loan Board 807
Chapter V--Emergency Oil and Gas Guaranteed Loan
Board 831
Finding Aids:
Table of CFR Titles and Chapters........................ 857
Alphabetical List of Agencies Appearing in the CFR...... 877
List of CFR Sections Affected........................... 887
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Cite this Code: CFR
To cite the regulations in
this volume use title,
part and section number.
Thus, 13 CFR 101.100
refers to title 13, part
101, section 100.
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[[Page v]]
EXPLANATION
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Each volume of the Code is revised at least once each calendar year
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[[Page vi]]
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[[Page vii]]
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Oliver A. Potts,
Director,
Office of the Federal Register
January 1, 2019.
[[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 Loan Board, and chapter V--
Emergency Oil and Gas Guaranteed Loan Board. The contents of this volume
represent all current regulations codified under this title of the CFR
as of January 1, 2019.
For this volume, Susannah C. Hurley was Chief Editor. The Code of
Federal Regulations publication program is under the direction of John
Hyrum Martinez, assisted by Stephen J. Frattini.
[[Page 1]]
TITLE 13--BUSINESS CREDIT AND ASSISTANCE
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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
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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.. 39
105 Standards of conduct and employee
restrictions and responsibilities....... 41
106 Cosponsorships, fee and non-fee based SBA-
sponsored activities and gifts.......... 44
107 Small business investment companies......... 49
108 New Markets Venture Capital (``NMVC'')
Program................................. 127
109 Intermediary Lending Pilot Program.......... 170
112 Nondiscrimination in federally assisted
programs of SBA--effectuation of Title
VI of the Civil Rights Act of 1964...... 179
113 Nondiscrimination in financial assistance
programs of SBA--effectuation of
policies of Federal Government and SBA
Administrator........................... 185
114 Administrative claims under the Federal Tort
Claims Act and representation and
indemnification of SBA employees........ 210
115 Surety bond guarantee....................... 214
117 Nondiscrimination in federally assisted
programs or activities of SBA--
effectuation of the Age Discrimination
Act of 1975, as amended................. 234
119 Program for Investment in Microentrepreneurs
(``PRIME'' or ``The Act'').............. 245
120 Business loans.............................. 253
121 Small business size regulations............. 370
123 Disaster loan program....................... 440
124 8(a) Business Development/Small
Disadvantaged Business status
determinations.......................... 469
125 Government contracting programs............. 542
126 HUBZone Program............................. 598
127 Women-Owned Small Business Federal contract
program................................. 624
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130 Small Business Development Centers.......... 646
134 Rules of procedure governing cases before
the Office of Hearings and Appeals...... 658
136 Enforcement of nondiscrimination on the
basis of handicap in programs or
activities conducted by the Small
Business Administration................. 697
140 Debt collection............................. 705
142 Program Fraud Civil Remedies Act regulations 712
143 [Reserved]
146 New restrictions on lobbying................ 721
147 Governmentwide requirements for drug-free
workplace (nonprocurement).............. 732
148-199 [Reserved]
[[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 Proactive disclosure of records.
102.3 Requirements pertaining to the submission of requests.
102.4 Responsibility for responding to requests.
102.5 Timing of responses to requests.
102.6 Responses to requests.
102.7 Confidential commercial information.
102.8 Fees.
102.9 Administrative appeals.
102.10 Preservation of records.
102.11 Subpoenas.
Appendix A to Subpart A--Records Maintained by SBA
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. 3717, 9701; 44 U.S.C.
3501.
Source: 61 FR 2673, Jan. 29, 1996, unless otherwise noted.
Subpart A_Disclosure of Information
Source: 82 FR 46371, Oct. 5, 2017, unless otherwise noted.
Sec.102.1 General provisions.
(a) This subpart contains the rules that SBA follows in processing
requests for records under the Freedom of Information Act (``FOIA''), 5
U.S.C. 552. The rules in this subpart should be read in conjunction with
the text of the FOIA and the Uniform Freedom of Information Fee Schedule
and Guidelines published by the Office of Management and Budget (``OMB
Guidelines''). Requests made by individuals for records about themselves
under the Privacy Act of 1974, 5 U.S.C. 552a, are processed under
subpart B of this part as well as under this subpart.
(b) As referenced in this subpart, ``component'' means each separate
bureau, office, division, district office, regional office, area office,
service center, loan processing center or central office duty location
within the SBA that is responsible for processing FOIA requests. See
appendix A to this subpart for a list of information generally exempt
from disclosure. For contact information for each office visit https://
www.sba.gov/foia and for a detailed description of the function of each
office to help ascertain the types of records maintained by each
component, please visit https://www.sba.gov/about-sba. The rules
described in this regulation that apply to SBA also apply to its
components.
(c) The SBA has a decentralized system for processing requests, with
each component handling requests for its records.
(d) The term record means:
(1) Any information that would be an agency record subject to the
requirements of this section when maintained by SBA in any format,
including written or electronic format; and
(2) Any information described under paragraph (d)(1) of this section
that is maintained for SBA by an entity under Government contract, for
purposes of records management.
Sec.102.2 Proactive disclosure of records.
Records that are required by the FOIA to be made available for
public inspection in an electronic format may be accessed through the
SBA's Web site at https://www.sba.gov/foia. Each component of SBA is
responsible for determining which of its records are required to be made
publicly available, as well as for identifying additional records of
interest to the public that are appropriate for public disclosure, and
for posting and indexing such records. Each component shall ensure that
its Web site of posted records and indices is reviewed and updated on an
ongoing basis. Each component has a FOIA Public Liaison who can assist
individuals in locating records particular to a component. A list of the
SBA's FOIA Public Liaisons is available at https://www.sba.gov/foia.
Sec.102.3 Requirements pertaining to the submission of requests.
(a) General information. (1) The SBA has a decentralized system for
responding to FOIA requests, with each component handling requests for
its records. All components have the capability to receive requests
electronically either through email or a web portal. To make a request
for records, a requester should write directly to the Freedom of
Information/Privacy Acts (FOI/PA) Office by mail to 409 3rd St SW.,
Washington, DC 20416 or submit a fax to 202-205-7059 or email to
[email protected]. Requesters may also submit their request through the FOIA
online portal at
[[Page 13]]
https://foiaonline.regulations.gov/foia/action/public/home. Additional
information for submitting a request to SBA is listed at https://
www.sba.gov/foia. However, a request will receive the quickest possible
response if it is addressed to the component that maintains the records
sought.
(2) A requester who is making a request for records about himself or
herself must comply with the verification of identity provision set
forth in subpart B of this part. The Certification of Identity form,
available at http://www.justice.gov/oip/forms/cert_ind.pdf, may be used
by individuals who are making requests for records pertaining to
themselves.
(3) Where a request for records pertains to another individual, a
requester may receive greater access by submitting either a notarized
authorization signed by that individual or a declaration made in
compliance with the requirements set forth in 28 U.S.C. 1746 by that
individual authorizing disclosure of the records to the requester, or by
submitting proof that the individual is deceased (e.g., a copy of a
death certificate or an obituary). As an exercise of administrative
discretion, each component can require a requester to supply additional
information if necessary in order to verify that a particular individual
has consented to disclosure.
(b) Description of records sought. Requesters must describe the
records sought in sufficient detail to enable agency personnel to locate
them with a reasonable amount of effort. To the extent possible,
requesters should include specific information that may help the
component in identifying the requested records, such as the date, title
or name, author, recipient, subject matter of the record, case number,
file designation, reference number, the timeframe for which the records
are sought, the office that created the records, or any other
information that will assist the component in locating documents
responsive to the request. Before submitting their requests, requesters
may contact the component's FOIA Contact or FOIA Public Liaison to
discuss the records they are seeking and to receive assistance in
describing the records. If, after receiving a request, a component
determines that the request does not adequately describe the records
sought, the component will inform the requester what additional
information is needed or why the request is otherwise insufficient. The
component will also notify the requester that it will not be able to
comply with their request unless the additional information it has
requested is received from them in writing within 20 working days after
the component has requested it. If this type of notification is
received, a requester may wish to discuss it with the FOIA Public
Liaison. If the component does not receive a written response containing
the additional information within 20 working days after it has been
requested, the SBA will presume that the requester is no longer
interested in the records and will close the file on the request.
Requesters who are attempting to reformulate or modify such a request
may discuss their request with the component's designated FOIA Contact
or its FOIA Public Liaison, or a representative of the FOI/PA Office,
each of whom is available to assist the requester in reasonably
describing the records sought. If a request does not reasonably describe
the records sought, the SBA's response to the request may be delayed.
(c) Form or format. Requests may specify the preferred form or
format (including electronic formats) for the records sought. The SBA
will accommodate the request if the record is readily reproducible in
that form or format.
(d) Contact information. Requesters must provide contact
information, such as their phone number, email address, and mailing
address, to assist the SBA in communicating with the requester and
providing the released records.
Sec.102.4 Responsibility for responding to requests.
(a) In general. Except in the instances described in paragraphs (c)
and (d) of this section, the component that first receives a request for
a record and maintains that record is the component responsible for
responding to the request. In determining which records are responsive
to a request, a component ordinarily will include only records in its
possession as of the date
[[Page 14]]
that it begins its search. If any other date is used, the component
shall inform the requester of that date. A record that is excluded from
the requirements of the FOIA pursuant to 5 U.S.C. 552(c) is not
considered responsive to a request.
(b) Authority to grant or deny requests. The head of a component, or
designee, is authorized to grant or to deny any requests for records
that are maintained by that component.
(c) Re-routing of misdirected requests. Where a component determines
that a request was misdirected within the SBA, the receiving component
shall route the request to the proper component(s).
(d) Consultation, referral, and coordination. When reviewing records
located by a component in response to a request, the component shall
determine whether another component of SBA or another agency of the
Federal Government is better able to determine whether the record is
exempt from disclosure under the FOIA. As to any such record, the
component shall proceed in one of the following ways:
(1) Consultation. When records originated with the component
processing the request, but contain within them information of interest
to another component, agency, or other Federal Government office, the
component processing the request should typically consult with that
other component or agency prior to making a release determination.
(2) Referral. (i) When the component processing the request believes
that a different component, agency, or other Federal Government office
is best able to determine whether to disclose the record, the component
typically should refer the responsibility for responding to the request
regarding that record, as long as the referral is to a component or
agency that is subject to the FOIA. Ordinarily, the component or agency
that originated the record will be presumed to be best able to make the
disclosure determination. However, if the component processing the
request and the originating component or agency jointly agrees that the
former is in the best position to respond regarding the record, then the
record may be handled as a consultation.
(ii) Whenever a component refers any part of the responsibility for
responding to a request to another component or agency, it shall
document the referral, maintain a copy of the record that it refers, and
notify the requester of the referral and inform the requester of the
name(s) of the component or agency to which the record was referred,
including that component's or agency's FOIA Contact information.
(3) Coordination. The standard referral procedure is not appropriate
where disclosure of the identity of the component or agency to which the
referral would be made could harm an interest protected by an applicable
exemption, such as the exemptions that protect personal privacy or
national security interests. For example, if a non-law enforcement
component responding to a request for records on a living third party
locates within its files records originating with a law enforcement
agency, and if the existence of that law enforcement interest in the
third party was not publicly known, then to disclose that law
enforcement interest could cause an unwarranted invasion of the personal
privacy of the third party. Similarly, if a component locates within its
files material originating with an Intelligence Community agency and the
involvement of that agency in the matter is classified and not publicly
acknowledged, then to disclose or give attribution to the involvement of
that Intelligence Community agency could cause national security harms.
In such instances, in order to avoid harm to an interest protected by an
applicable exemption, the component that received the request should
coordinate with the originating component or agency to seek its views on
the disclosure of the record. The release determination for the record
that is the subject of the coordination should then be conveyed to the
requester by the component that originally received the request.
(e) Classified information. On receipt of any request involving
classified information, the component shall determine whether the
information is currently and properly classified and take appropriate
action to ensure compliance. Whenever a request involves a record
containing information that has been classified or may be appropriate
[[Page 15]]
for classification by another component or agency under any applicable
executive order concerning the classification of records, the receiving
component shall refer the responsibility for responding to the request
regarding that information to the component or agency that classified
the information, or that should consider the information for
classification. Whenever a component's record contains information that
has been derivatively classified (for example, when it contains
information classified by another component or agency), the component
shall refer the responsibility for responding to that portion of the
request to the component or agency that classified the underlying
information.
(f) Agreements regarding consultations and referrals. Components of
SBA may establish agreements with other components of SBA or other
Federal agencies to eliminate the need for consultations or referrals
with respect to particular types of records.
(g) Timing of responses to consultations and referrals. All
consultations and referrals received by the SBA will be handled
according to the date that the FOIA request initially was received by
the first component or agency.
Sec.102.5 Timing of responses to requests.
(a) In general. Components ordinarily will respond to requests
according to their order of receipt. In instances involving misdirected
requests that are re-routed pursuant to Sec.102.4(c), the response
time will commence on the date that the request is received by the
proper component's office that is designated to receive requests, but in
any event not later than 10 working days after the request is first
received by any component's office that is designated by these
regulations to receive requests.
(b) Multitrack processing. All components will designate a specific
track for requests that are granted expedited processing, in accordance
with the standards set forth in paragraph (e) of this section. A
component may also designate additional processing tracks that
distinguish between simple and more complex requests based on the
estimated amount of work or time needed to process the request. Among
the factors that may be considered are the number of records requested,
the number of pages involved in processing the request and the need for
consultations or referrals. Components shall advise requesters of the
track into which their request falls and, when appropriate, should offer
the requester an opportunity to narrow or modify the request so that it
can be placed in a different processing track.
(c) Unusual circumstances. Whenever the statutory time limit for
processing a request cannot be met because of ``unusual circumstances,''
as defined in the FOIA, and the component extends the time limit on that
basis, the component shall, before expiration of the 20-working day
period to respond, notify the requester in writing of the unusual
circumstances involved and of the date by which the component estimates
processing of the request will be completed. Where the extension exceeds
10 working days, the component shall, as prescribed by the FOIA, provide
the requester with an opportunity to modify the request or to arrange an
alternative time period for processing the original or modified request.
The component shall make available its designated FOIA Contact or its
FOIA Public Liaison for this purpose. The component must also alert
requesters to the availability of the Office of Government Information
Services (OGIS) to provide dispute resolution services.
(d) Aggregating requests. For the purposes of determining unusual
circumstances under the FOIA, components may aggregate requests in cases
where it reasonably appears that multiple requests, submitted either by
a requester or by a group of requesters acting in concert, constitute a
single request that would otherwise involve unusual circumstances.
Components shall not aggregate multiple requests that involve unrelated
matters.
(e) Expedited processing. (1) Requests and appeals shall be
processed on an expedited basis whenever it is determined that they
involve:
(i) Circumstances in which the lack of expedited processing could
reasonably be expected to pose an imminent threat to the life or
physical safety of an individual;
[[Page 16]]
(ii) An urgency to inform the public about an actual or alleged
Federal Government activity, if made by a person who is primarily
engaged in disseminating information.
(iii) The loss of substantial due process rights; or
(iv) A matter of widespread and exceptional media interest in which
there exist possible questions about the government's integrity that
affect public confidence.
(2) A request for expedited processing may be made at any time.
Requests based on paragraphs (e)(1)(i) through (iii) of this section
must be submitted to the component that maintains the records requested.
When making a request for expedited processing of an administrative
appeal, the request should be submitted to the FOI/PA Office. Requests
for expedited processing that are based on paragraph (e)(1)(iv) of this
section must be submitted to the component processing the request. A
component that receives a misdirected request for expedited processing
under the standard set forth in paragraph (e)(1)(iv) of this section
shall forward it immediately to the FOI/PA Office for its determination.
The time period for making the determination on the request for
expedited processing under paragraph (e)(1)(iv) of this section shall
commence on the date that the FOI/PA Office receives the request,
provided that it is routed within 10 working days.
(3) A requester who seeks expedited processing must submit a
notarized statement, such as an affidavit or declaration, certified to
be true and correct, explaining in detail the basis for making the
request for expedited processing. For example, under paragraph
(e)(1)(ii) of this section, a requester who is not a full-time member of
the news media must establish that the requester is a person whose
primary professional activity or occupation is information
dissemination, though it need not be the requester's sole occupation.
Such a requester also must establish a particular urgency to inform the
public about the government activity involved in the request--one that
extends beyond the public's right to know about government activity
generally. The existence of numerous articles published on a given
subject can be helpful in establishing the requirement that there be an
``urgency to inform'' the public on the topic. As a matter of
administrative discretion, the SBA may waive the formal certification
requirement.
(4) A component shall notify the requester within 10 working days of
the receipt of a request for expedited processing of its decision
whether to grant or deny expedited processing. If expedited processing
is granted, the request must be given priority, placed in the processing
track for expedited requests, and must be processed as soon as
practicable. If a request for expedited processing is denied, any appeal
of that decision shall be acted on expeditiously.
Sec.102.6 Responses to requests.
(a) In general. Components should, to the extent practicable,
communicate with requesters having access to the Internet using
electronic means, such as email or web portal.
(b) Acknowledgments of requests. A component shall acknowledge the
request in writing and assign it an individualized tracking number.
Components shall include in the acknowledgment a brief description of
the records sought to allow requesters to more easily keep track of
their requests.
(c) Estimated dates of completion and interim responses. Upon
request, components shall provide an estimated date by which they expect
to provide a response to the requester. If a request involves a
voluminous amount of material, or searches in multiple locations, the
SBA or component may provide interim responses, releasing the records on
a rolling basis.
(d) Grants of requests. Once a component determines it will grant a
request in full or in part, it will notify the requester in writing. The
component shall inform the requester of any fees charged under Sec.
102.8 and shall disclose the requested records to the requester promptly
upon payment of any applicable fees. The component must inform the
requester of the availability of its FOIA Public Liaison to offer
assistance.
[[Page 17]]
(e) Adverse determinations of requests. A component making an
adverse determination denying a request in any respect shall notify the
requester of that determination in writing. Adverse determinations, or
denials of requests, include denials involving fees or fee waiver
matters, denials of requests for expedited processing, and decisions
where:
(1) The requested record is exempt, in whole or in part;
(2) The request does not reasonably describe the records sought;
(3) The information requested is not a record subject to the FOIA;
(4) The requested record does not exist, cannot be located, or has
been destroyed; or
(5) The requested record is not readily reproducible in the form or
format sought by the requester.
(f) Content of denial. The denial must be signed by the head of the
component or designee and must include:
(1) The name and title or position of the person responsible for the
denial;
(2) A brief statement of the reasons for the denial, including any
FOIA exemption applied by the component in denying the request;
(3) An estimate of the volume of any records or information
withheld, such as the number of pages or some other reasonable form of
estimation, although such an estimate is not required if the volume is
otherwise indicated by deletions marked on records that are disclosed in
part or if providing an estimate would harm an interest protected by an
applicable exemption;
(4) A statement that the denial may be appealed under Sec.102.9,
and a description of the appeal requirements; and
(5) A statement notifying the requester of the assistance available
from the component's FOIA Public Liaison or designee, and the dispute
resolution services offered by OGIS.
(g) Markings on released documents. Records disclosed in part must
be marked clearly to show the amount of information deleted and the
exemption under which the deletion was made unless doing so would harm
an interest protected by an applicable exemption.
Sec.102.7 Confidential commercial information.
(a) Definitions. For purposes of this section:
Confidential commercial information means commercial or financial
information obtained by the SBA from a submitter that may be protected
from disclosure under Exemption 4 of the FOIA, 5 U.S.C. 552(b)(4).
Submitter means any person or entity, including a corporation,
State, or foreign government, but not including another Federal
Government entity, that provides information, either directly or
indirectly to the Federal Government.
(b) Designation of confidential commercial information. A submitter
of confidential commercial information must use good faith efforts to
designate by appropriate markings, either at the time of submission or
within a reasonable time thereafter, any portion of its submission that
it considers to be protected from disclosure under Exemption 4. These
designations shall expire 10 years after the date of the submission
unless the submitter requests and provides justification for a longer
designation period.
(c) When notice to submitters is required. (1) A component shall
promptly provide written notice to a submitter of confidential
commercial information whenever records containing such information are
requested under the FOIA if, after reviewing the request, the responsive
records, and any appeal by the requester, the component determines that
it may be required to disclose the records, provided:
(i) The requested information has been designated in good faith by
the submitter as information considered protected from disclosure under
Exemption 4; or
(ii) The component has a reason to believe that the requested
information may be protected from disclosure under Exemption 4, but has
not yet determined whether the information is protected from disclosure
under that exemption or any other applicable exemption.
(2) The notice shall either describe the commercial information
requested or include a copy of the requested
[[Page 18]]
records or portions of records containing the information. In cases
involving a voluminous number of submitters, notice may be made by
posting or publishing the notice in a place or manner reasonably likely
to accomplish it.
(d) Exceptions to submitter notice requirements. The notice
requirements of this section shall not apply if:
(1) The component determines that the information is exempt under
the FOIA;
(2) The information has been lawfully published or has been
officially made available to the public;
(3) Disclosure of the information is required by a statute other
than the FOIA or by a regulation issued in accordance with the
requirements of Executive Order 12600 of June 23, 1987; or
(4) The designation made by the submitter under paragraph (b) of
this section appears obviously frivolous, except that, in such a case,
the component shall give the submitter written notice of any final
decision to disclose the information and must provide that notice within
a reasonable number of days prior to a specified disclosure date.
(e) Opportunity to object to disclosure. (1) A component shall
specify a reasonable time period within which the submitter must respond
to the notice referenced above. If the submitter has any objections to
disclosure, it should provide the component a detailed written statement
that specifies all grounds for withholding the particular information
under any exemption of the FOIA. In order to rely on Exemption 4 as the
basis for nondisclosure, the submitter must explain why the information
constitutes a trade secret or commercial or financial information that
is privileged or confidential.
(2) A submitter who fails to respond within the time period
specified in the notice shall be considered to have no objection to
disclosure of the information. Information received by the component
after the date of any disclosure decision shall not be considered by the
component. Any information provided by a submitter under this subpart
may itself be subject to disclosure under the FOIA.
(f) Analysis of objections. A component shall consider a submitter's
objections and specific grounds for nondisclosure in deciding whether to
disclose the requested information.
(g) Notice of intent to disclose. Whenever a component decides to
disclose information over the objection of a submitter, the component
shall provide the submitter written notice, which shall include:
(1) A statement of the reasons why each of the submitter's
disclosure objections was not sustained;
(2) A description of the information to be disclosed; and
(3) A specified disclosure date, which shall be a reasonable time
subsequent to the notice.
Sec.102.8 Fees.
(a) In general. Components shall charge for processing requests
under the FOIA in accordance with the provisions of this section and
with the OMB Guidelines. In order to resolve any fee issues that arise
under this section, a component may contact a requester for additional
information. Components shall ensure that searches, review, and
duplication are conducted in the most efficient and the least expensive
manner. A component ordinarily will collect all applicable fees before
sending copies of records to a requester. Requesters must pay fees by
check or money order made payable to the Small Business Administration,
addressed to the component assessing the fee.
(b) Categories of requesters. Different fees are assessed depending
on the requester category. Requesters may seek a fee waiver. Requests
for fee waivers will be considered in accordance with the requirements
in paragraph (l) of this section. For purposes of assessing fees, the
FOIA establishes four categories of requesters:
(1) Commercial use requesters;
(2) Non-commercial scientific/educational institutions requesters;
(3) News media requesters, and;
(4) All other requesters.
(c) Definitions. For purposes of this section:
(1) Commercial use request is a request that asks for information
for a use or a purpose that furthers a commercial,
[[Page 19]]
trade, or profit interest, which can include furthering those interests
through litigation. A component's decision to place a requester in the
commercial use category will be made on a case-by-case basis based on
the requester's intended use of the information.
(2) Direct costs are those expenses that the SBA incurs in searching
for and duplicating (and, in the case of commercial use requests,
reviewing) records in order to respond to a FOIA request. For example,
direct costs include the salary of the employee performing the work
(i.e., the basic rate of pay for the employee, plus 16 percent of that
rate to cover benefits) and the cost of operating computers and other
electronic equipment, such as photocopiers and scanners. Direct costs do
not include overhead expenses such as the costs of space, and of heating
or lighting a facility. This will be in addition to search, review, and
duplication fees, and shall be paid by requesters categorized as
commercial and other.
(3) Duplication is reproducing a copy of a record, or of the
information contained in it, necessary to respond to a FOIA request.
Copies can take the form of paper, audiovisual materials, or electronic
records, among others.
(4) Educational institution is any school that operates a program of
scholarly research. A requester in this fee category must show that the
request is made in connection with his or her role at the educational
institution. Components may seek verification from the requester that
the request is in furtherance of scholarly research and will advise
requesters of their placement in this category.
Example 1 to paragraph (c)(4). A request from a professor of geology
at a university for records relating to soil erosion, written on
letterhead of the Department of Geology, would be presumed to be from an
educational institution.
Example 2 to paragraph (c)(4). A request from the same professor of
geology seeking drug information from the Food and Drug Administration
in furtherance of a murder mystery he is writing would not be presumed
to be an institutional request, regardless of whether it was written on
institutional stationery.
Example 3 to paragraph (c)(4). A student, who makes a request in
furtherance of their coursework or other school-sponsored activities and
provides a copy of a course syllabus or other reasonable documentation
to indicate the research purpose for the request, would qualify as part
of this fee category.
(5) Noncommercial scientific institution is an institution that is
not operated on a ``commercial'' basis, as defined in paragraph (c)(1)
of this section 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 requester in this category
must show that the request is authorized by and is made under the
auspices of a qualifying institution and that the records are sought to
further scientific research and are not for a commercial use.
(6) Representative of the news media is any person or entity that
gathers information of potential interest to a segment of the public,
uses its editorial skills to turn the raw materials into a distinct
work, and distributes that work to an audience. The term ``news'' means
information that is about current events or that would be of current
interest to the public. Examples of news media entities include
television or radio stations that broadcast ``news'' to the public at
large and publishers of periodicals that disseminate ``news'' and make
their products available through a variety of means to the general
public, including news organizations that disseminate solely on the
Internet. A request for records supporting the news-dissemination
function of the requester will not be considered to be for a commercial
use. ``Freelance'' journalists who demonstrate a solid basis for
expecting publication through a news media entity will be considered as
a representative of the news media. A publishing contract would provide
the clearest evidence that publication is expected; however, a
requester's past publication record will be considered in making a
determination.
(7) Review is the examination of a record located in response to a
request in order to determine whether any portion of it is exempt from
disclosure. Review time includes processing any record for disclosure,
such as doing all that is necessary to prepare the record for
disclosure, including the process of
[[Page 20]]
redacting the record and marking the appropriate exemptions. Review
costs are properly charged even if a record ultimately is not disclosed.
Review time also includes time spent both obtaining and considering any
formal objection to disclosure made by a confidential commercial
information submitter under Sec.102.7, but it does not include time
spent resolving general legal or policy issues regarding the application
of exemptions.
(8) Search is the process of looking for and retrieving records or
information responsive to a request. Search time includes page-by-page
or line-by-line identification of information within records and the
reasonable efforts expended to locate and retrieve information from
electronic records.
(d) Charging fees. In responding to FOIA requests, components will
charge the following fees unless a waiver or reduction of fees has been
granted under paragraph (l) of this section. Because the fee amounts
provided below already account for the direct costs associated with a
given fee type, components will not add any additional costs to charges
calculated under this section.
(1) Search. (i) Requests made by educational institutions,
noncommercial scientific institutions, or representatives of the news
media are not subject to search fees. Search fees shall be charged for
all other requesters, subject to the restrictions of paragraph (e) of
this section. Components may properly charge for time spent searching
even if they do not locate any responsive records or if they determine
that the records are entirely exempt from disclosure.
(ii) For each hour spent by personnel searching for requested
records, including electronic searches that do not require new
programming, the fees will be charged as follows: Professional (GS 9-
14)--$46; and managerial (GS 15 and above)--$83.
(iii) Requesters shall be charged the direct costs associated with
conducting any search that requires the creation of a new computer
program to locate the requested records. Requesters shall be notified of
the costs associated with creating such a program and must agree to pay
the associated costs before the costs may be incurred.
(iv) For requests that require the retrieval of records stored by
SBA at a Federal Records Center operated by the National Archives and
Records Administration (NARA), additional costs shall be charged in
accordance with the Transactional Billing Rate Schedule established by
NARA.
(2) Duplication. Duplication fees will be assessed to all
requesters, subject to the restrictions of paragraph (e) of this
section. A component shall honor a requester's preference for receiving
a record in a particular form or format where it can be readily
reproduced in the form or format requested. Where photocopies are
supplied, SBA will provide one copy per request at the cost of $.10 per
page. For copies of records produced on tapes, disks, or other media,
SBA will charge the direct costs of producing the copy, including
operator time. Where paper documents must be scanned in order to comply
with a requester's preference to receive the records in an electronic
format, the requester must also pay the direct costs associated with
scanning those materials. For other forms of duplication, components
shall charge the direct costs.
(3) Review. (i) Review fees will be assessed to requesters who make
commercial use requests. Review fees will be assessed in connection with
the initial review of the record, i.e., the review conducted by a
component to determine whether an exemption applies to a particular
record or portion of a record. No charge will be made for review at the
administrative appeal stage of exemptions applied at the initial review
stage. However, if a particular exemption is deemed to no longer apply,
any costs associated with SBA's re-review of the records in order to
consider the use of other exemptions may be assessed as review fees.
Review fees will be charged at the same rates as those charged for a
search under paragraph (d)(1)(ii) of this section.
(ii) The following table summarizes the fees for each type of
requester.
[[Page 21]]
Table 1 to Sec. 102.8--Summary of Fees
----------------------------------------------------------------------------------------------------------------
Requester category Search Review Duplication fees Direct costs
----------------------------------------------------------------------------------------------------------------
Commercial Use................... Yes................. Yes................. Yes................ Yes.
Educational/Noncommercial No.................. No.................. Yes (first 100 No.
Scientific Institutions. pages, or
equivalent volume
free).
News Media....................... No.................. No.................. Yes (first 100 No.
pages, or
equivalent volume
free).
All Others....................... Yes (first 2 hours No.................. Yes (first 100 Yes.
free). pages, or
equivalent volume
free).
----------------------------------------------------------------------------------------------------------------
(e) Restrictions on charging fees. (1) When a component determines
that a requester is an educational institution, non-commercial
scientific institution, or representative of the news media, and the
records are not sought for commercial use, it will not charge search
fees.
(i) If a component fails to comply with the time limits in which to
respond to a request, it may not charge search fees, or, in the
instances of requests from requesters described in paragraph (c)(1) of
this section, may not charge duplication fees, except as described in
paragraphs (d)(1)(ii) through (iv) of this section.
(ii) If a component has determined that unusual circumstances as
defined by the FOIA apply and SBA provided timely written notice to the
requester in accordance with the FOIA, a failure to comply with the time
limit shall be excused for an additional 10 working days.
(iii) If a component has determined that unusual circumstances, as
defined by the FOIA, apply and more than 5,000 pages are necessary to
respond to the request, the component may charge search fees, or, in the
case of requesters described in paragraph (c)(1) of this section, may
charge duplication fees, if the following steps are taken. The component
shall provide a timely written notice of unusual circumstances to the
requester in accordance with the FOIA and SBA must have discussed with
the requester via written mail, email, or telephone (or made not less
than three good-faith attempts to do so) how the requester could
effectively limit the scope of the request in accordance with 5 U.S.C.
552(a)(6)(B)(ii). If this exception is satisfied, the component may
charge all applicable fees incurred in the processing of the request.
(iv) If a court has determined that exceptional circumstances exist,
as defined by the FOIA, a failure to comply with the time limits shall
be excused for the length of time provided by the court order.
(2) No search or review fees will be charged for a quarter-hour
period unless more than half of that period is required for search or
review.
(3) Except for requesters seeking records for a commercial use,
components shall provide without charge:
(i) The first 100 pages of duplication (or the cost equivalent for
other media); and
(ii) The first two hours of search.
(4) No fee will be charged when the total fee, after deducting the
100 free pages (or its cost equivalent) and the first two hours of
search, is equal to or less than $46.00.
(f) Notice of anticipated fees in excess of $46.00. (1) When a
component determines or estimates that the fees to be assessed in
accordance with this section will exceed $46.00, the component shall
notify the requester of the actual or estimated amount of the fees,
including a breakdown of the fees for search, review, or duplication,
unless the requester has indicated a willingness to pay fees as high as
those anticipated. If only a portion of the fee can be estimated
readily, the component shall advise the requester accordingly. If the
request is not for noncommercial use, the notice will specify that the
requester is entitled to the statutory entitlements of 100 pages of
duplication at no charge and, if the requester is charged search fees,
two hours of search time at no charge, and will advise the requester
whether those entitlements have been provided.
(2) In cases in which a requester has been notified that the actual
or estimated fees are in excess of $46.00, the
[[Page 22]]
request shall not be considered received and further work will not be
completed until the requester commits in writing to pay the actual or
estimated total fee, or designates some amount of fees the requester is
willing to pay, or in the case of a noncommercial use requester who has
not yet been provided with the requester's statutory entitlements,
designates that the requester seeks only that which can be provided by
the statutory entitlements. The requester must provide the commitment or
designation in writing, and must, when applicable, designate an exact
dollar amount the requester is willing to pay. Components are not
required to accept payments in installments.
(3) If the requester has indicated a willingness to pay some
designated amount of fees, but the component estimates that the total
fee will exceed that amount, the component will toll the processing of
the request when it notifies the requester of the estimated fees in
excess of the amount the requester has indicated a willingness to pay.
The component shall inquire whether the requester wishes to revise the
amount of fees the requester is willing to pay or modify the request.
Once the requester responds, the time to respond will resume from where
it was at the date of the notification.
(4) Components shall make available their FOIA Public Liaison or
other designee to assist any requester in reformulating a request to
meet the requester's needs at a lower cost.
(g) Charges for other services. Although not required to provide
special services, if a component chooses to do so as a matter of
administrative discretion, the direct costs of providing the service
will be charged. Examples of such services include certifying that
records are true copies, providing multiple copies of the same document,
or sending records by means other than first class mail.
(h) Charging interest. Components may charge interest on any unpaid
bill starting on the 31st day following the date of billing the
requester. Interest charges will be assessed at the rate provided in 31
U.S.C. 3717 and will accrue from the billing date until payment is
received by the component. Components shall follow the provisions of the
Debt Collection Act of 1982 (Pub. L. 97-365, 96 Stat. 1749), as amended,
and its administrative procedures, including the use of consumer
reporting agencies, collection agencies, and offset.
(i) Aggregating requests. When a component reasonably believes that
a requester or a group of requesters acting in concert is attempting to
divide a single request into a series of requests for the purpose of
avoiding fees, the component may aggregate those requests and charge
accordingly. Components may presume that multiple requests of this type
made within a 30-day period have been made in order to avoid fees. For
requests separated by a longer period, components shall aggregate them
only where there is a reasonable basis for determining that aggregation
is warranted in view of all the circumstances involved. Multiple
requests involving unrelated matters cannot be aggregated.
(j) Advance payments. (1) For requests other than those described in
paragraphs (j)(2) or (j)(3) of this section, components cannot require
the requester to make an advance payment before work is commenced or
continued on a request. Payment owed for work already completed (i.e.,
payment before copies are sent to a requester) is not an advance
payment.
(2) When a component determines or estimates that a total fee to be
charged under this section will exceed $250.00, it may require that the
requester make an advance payment up to the amount of the entire
anticipated fee before beginning to process the request. Components may
elect to process the request prior to collecting fees when it receives a
satisfactory assurance of full payment from a requester with a history
of prompt payment.
(3) Where a requester has previously failed to pay a properly
charged FOIA fee to any component or SBA within 30 working days of the
billing date, a component may require that the requester pay the full
amount due, plus any applicable interest on that prior request, and the
component may require that the requester make an advance payment of the
full amount of any anticipated fee before SBA begins
[[Page 23]]
to process a new request or continues to process a pending request or
any pending appeal. When a component has a reasonable basis to believe
that a requester has misrepresented the requester's identity in order to
avoid paying outstanding fees, it may require that the requester provide
proof of identity.
(4) In cases in which advanced payment is required, the request will
not be considered received and further work will not be completed until
the required payment is received. If the requester does not pay the
advance payment within 30 working days after the date of the fee
determination, the request will be closed.
(k) Other statutes specifically providing for fees. The fee schedule
of this section does not apply to fees charged under any statute that
specifically requires SBA to set and collect fees for particular types
of records. In instances where records responsive to a request are
subject to a statutorily-based fee schedule program, the requester will
be informed of the contact information for that program.
(l) Requirements for waiver or reduction of fees. (1) Requesters may
seek a waiver of fees by submitting written correspondence demonstrating
how disclosure of the requested 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. Records responsive to a
request shall be furnished without charge or at a reduced rate below the
rate established under paragraph (d) of this section, where a component
determines, based on all available information, that the requester has
demonstrated that:
(i) Disclosure of the requested 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
(ii) Disclosure of the information is not primarily in the
commercial interest of the requester.
(2) Components shall furnish records responsive to a request without
charge or at a reduced rate when it determines, based on all available
information, that the factors described in paragraphs (l)(2)(i) through
(iii) of this section are satisfied:
(i) Disclosure of the requested information would shed light on the
operations or activities of the government. The subject of the request
must concern identifiable operations or activities of the Federal
Government with a connection that is direct and clear, not remote or
attenuated.
(ii) Disclosure of the requested information is likely to contribute
significantly to public understanding of those operations or activities.
This factor is satisfied when the following criteria are met:
(A) Disclosure of the requested records must be meaningfully
informative about government operations or activities. The disclosure of
information that already is in the public domain, in either the same or
a substantially identical form, would not be meaningfully informative if
nothing new would be added to the public's understanding.
(B) The disclosure must contribute to the understanding of a
reasonably broad audience of persons interested in the subject, as
opposed to the individual understanding of the requester. A requester's
expertise in the subject area as well as the requester's ability and
intention to effectively convey information to the public must be
considered. Components shall presume that a representative of the news
media will satisfy this consideration.
(iii) The disclosure must not be primarily in the commercial
interest of the requester. To determine whether disclosure of the
requested information is primarily in the commercial interest of the
requester, the following criteria will be considered:
(A) Identify whether the requester has any commercial interest that
would be furthered by the requested disclosure. A commercial interest
includes any commercial, trade, or profit interest. Requesters must be
given an opportunity to provide explanatory information regarding this
consideration.
(B) If there is an identified commercial interest, a determination
will be made whether the primary interest is furthered by the request. A
waiver or
[[Page 24]]
reduction of fees is justified when the requirements of paragraphs
(l)(2)(i) and (ii) of this section are satisfied and any commercial
interest is not the primary interest furthered by the request.
Ordinarily there will be a presumption, that when a news media requester
has satisfied factors (l)(2)(i) and (ii) of this section, the request is
not primarily in the commercial interest of the requester. Disclosure to
data brokers or others who merely compile and market government
information for direct economic return will not be presumed to primarily
serve the public interest.
(3) Where only some of the records to be released satisfy the
requirements for a waiver of fees, a waiver must be granted for those
records.
(4) Requests for a waiver or reduction of fees should be made when
the request is first submitted and should address the criteria
referenced above. A requester may submit a fee waiver request at a later
time so long as the underlying record request is pending or on
administrative appeal. When a requester who has committed to pay fees
subsequently asks for a waiver of those fees and that waiver is denied,
the requester must pay any costs incurred up to the date the fee waiver
request was received.
Sec.102.9 Administrative appeals.
(a) Requirements for making an appeal. A requester may appeal any
adverse determinations to the FOI/PA Office. The contact information is
contained in Sec.102.3(a)(1). Examples of adverse determinations are
provided in Sec.102.6(e). The requester must make the appeal in
writing and to be considered timely it must be postmarked, or in the
case of electronic submissions, transmitted, within 90 working days
after the date of the response. The appeal should clearly identify the
component's determination that is being appealed and the assigned
request number. To facilitate handling, the requester should mark both
the appeal letter and envelope, or subject line of the electronic
transmission, ``Freedom of Information Act Appeal.''
(b) Adjudication of appeals. (1) The Chief, FOI/PA or designee will
act on behalf of the SBA on all appeals under this section.
(2) An appeal ordinarily will not be adjudicated if the request
becomes a matter of FOIA litigation.
(3) On receipt of any appeal involving classified information, the
FOI/PA Office shall take appropriate action to ensure compliance with
Executive Orders 13467 and 13526.
(c) Decisions on appeals. A decision on an appeal will be made in
writing. A decision that upholds a component's determination will
contain a statement that identifies the reasons for the affirmance,
including any FOIA exemptions applied. The decision will provide the
requester with notification of the statutory right to file a lawsuit and
will inform the requester of the mediation services offered by OGIS as a
non-exclusive alternative to litigation. If a component's decision is
remanded or modified on appeal, the requester will be notified of that
determination in writing. The component will thereafter, further process
the request in accordance with that appeal determination and respond
directly to the requester.
(d) Time limit for issuing appeal decision. The statutory time limit
for responding to appeals is generally 20 working days after receipt.
However, the Appeals Officer may extend the time limit for responding to
an appeal provided the circumstances set forth in 5 U.S.C.
552(a)(6)(B)(i) are met.
(e) Engaging in dispute resolution services provided by OGIS.
Mediation is a voluntary process. If a component agrees to participate
in the mediation services provided by OGIS, it will actively engage as a
partner to the process in an attempt to resolve the dispute.
(f) When an appeal is required. Before seeking review by a court of
a component's adverse determination, a requester generally must first
submit a timely administrative appeal.
Sec.102.10 Preservation of records.
Each component shall 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
pursuant to title 44
[[Page 25]]
of the United States Code or the General Records Schedule 14 of the
National Archives and Records Administration. Records shall not be
disposed of or destroyed while they are the subject of a pending
request, appeal, or lawsuit under the FOIA.
Sec.102.11 Subpoenas.
(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.
Sec. Appendix A to Subpart A of Part 102--Records Maintained by SBA
I. Information Generally Exempt From Disclosure
a. Non-statistical information on pending, declined, withdrawn, or
canceled applications.
b. Non-statistical information on defaults, delinquencies, losses
etc.
c. Loan status, other than charged-off or paid-in-full.
d. Home disaster loan status and interest rate.
e. Financial statements, credit reports, business plans, plant lay-
outs, marketing strategy, advertising plans, fiscal projections, pricing
information, payroll information, private sector experience and
contracts, IRS forms, purchase information, banking information,
corporate structure, research plans and client list of applicant/
recipient.
f. Portions of: Certificate of Competency records, Requests for Size
Determinations, 8(a) Business Development Plans, loan applications, SBIC
applications, loan officer's reports.
g. Internal documents not incorporated into final Agency action,
pending internal recommendations on applications for assistance, SBA/
attorney-client communications, pending litigation documents and
investigatory documents. Discretionary disclosure policy must be
utilized.
h. Personal history and financial statements, tax forms, resumes,
all non-government career experience, communications regarding
applicant's character, home addresses and telephone numbers, social
security numbers, birth dates and medical records. Portions of Inspector
General (IG) reports, audit reports, program investigation records and
any other records which, if released, would interfere with the
Government's law enforcement proceedings and/or would reveal the
identity of a confidential source and documents relating to pending
litigation and investigations. Requests for IG documents must be
referred to the Office of the Inspector General, Counsel Division.
i. Financial information on portfolio companies.
j. Information originating from other agencies should be referred to
those agencies for disclosure determinations.
II. Information Generally Disclosed
a. Names and business addresses of recipients of approved loans,
SBIC licenses, Certificates of Competency, lease guarantees, surety bond
guarantees and requests for counseling.
b. Names of officers, directors, stockholders or partners of
recipient firms.
c. Kinds and amounts of loans, loan terms, interest rates (except on
home disaster loans), maturity dates, general purpose, etc.
d. Statistical data on assistance, loans, defaults, contracts,
counseling, etc.
e. Decisions, rulings and records showing final Agency actions in
specific factual situations if identifying details exempt from
disclosure are first deleted.
f. Awarded contracts: names, amounts, dates, contracting agencies.
g. Identity of participating banks.
h. List of 8(a) participants, date of entry, FPPT dates and NAICS
codes.
i. OHA opinions and decisions.
j. Names of SBA employees, grades, titles, and duty stations.
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.
[[Page 26]]
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 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
[[Page 27]]
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 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
[[Page 28]]
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
(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
[[Page 29]]
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, 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
[[Page 30]]
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 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
[[Page 31]]
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 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.
[[Page 32]]
(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 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
[[Page 33]]
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 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
[[Page 34]]
(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:
(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,
[[Page 35]]
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, 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.
[[Page 36]]
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 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
[[Page 37]]
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.
(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,
[[Page 38]]
(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;
(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
[[Page 39]]
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?
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
[[Page 40]]
pendency of any administrative proceedings under part 134 of this
chapter.
Sec.103.4 What is ``good cause'' for suspension or revocation?
Any unlawful or unethical activity is good cause for suspension or
revocation of the privilege to conduct business. This includes:
(a) Attempting to influence any employee of SBA or a lender, by
gifts, bribes or other unlawful or unethical activity, with respect to
any matter involving SBA assistance.
(b) Soliciting for the provision of services to an Applicant by
another entity when there is an undisclosed business relationship
between the two parties.
(c) Violating ethical guidelines which govern the profession or
business of the Agent or which are published at any time by SBA.
(d) Implying or stating that the work to be performed for an
Applicant will include use of political or other special influence with
SBA. Examples include indicating that the entity is affiliated with or
paid, endorsed or employed by SBA, advertising using the words Small
Business Administration or SBA in a manner that implies SBA's
endorsement or sponsorship, use of SBA's seal or symbol, and giving a
``guaranty'' to 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
[[Page 41]]
agreements. Such agreements need not contain each and every provision
found in the SBA's suggested form of agreement. However, each agreement
must indicate that both parties agree not to engage in any sharing of
secondary market premiums, that the services to be provided are
accurately described, and that the agreement is otherwise consistent
with SBA requirements. Subject to the prohibition on splitting premiums,
lenders have reasonable discretion in setting compensation for Lender
Service Providers. However, such compensation may not be directly
charged to an Applicant or borrower.
PART 105_STANDARDS OF CONDUCT AND EMPLOYEE RESTRICTIONS
AND RESPONSIBILITIES--Table of Contents
Standards of Conduct
Sec.
105.101 Cross-reference to employee ethical conduct standards and
financial disclosure regulations.
Restrictions and Responsibilities Related to SBA Employees and Former
Employees
105.201 Definitions.
105.202 Employment of former employee by person previously the recipient
of SBA Assistance.
105.203 SBA Assistance to person employing former SBA employee.
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.
[[Page 42]]
Sec.105.202 Employment of former employee by person previously
the recipient of SBA Assistance.
(a) No former employee, who occupied a position involving discretion
over, or who exercised discretion with respect to, the granting or
administration of SBA Assistance may occupy a position as employee,
partner, agent, attorney or other representative of a concern which has
received this SBA Assistance for a period of two years following the
date of granting or administering such SBA Assistance if--
(1) The date of granting or administering such SBA Assistance was
within the period of the employee's term of employment; or
(2) The date of granting or administering such SBA Assistance was
within one year following the termination of such employment.
(b) Failure of a recipient of SBA Assistance to comply with these
provisions may result, in the discretion of SBA, in the requirement for
immediate repayment of SBA financial Assistance, the immediate
termination of other SBA Assistance involved or other appropriate
action.
Sec.105.203 SBA Assistance to person employing former SBA employee.
(a) SBA will not provide SBA Assistance to any person who has, as an
employee, owner, partner, attorney, agent, owner of stock, officer,
director, 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.
[[Page 43]]
(c) This section shall not apply to any action taken as a penalty or
other enforcement of a violation of any law, rule, or regulation
prohibiting or restricting political activity.
(d) The prohibitions in and remedial measures provided for under
this section with regard to such prohibitions, shall be in addition to,
and not in lieu of, any other prohibitions, measures or liabilities that
may arise under any other provision of law.
Sec.105.208 Penalties.
Any employee guilty of violating any of the provisions in this part
may be disciplined, including removal or suspension from SBA employment.
Restrictions on SBA Assistance to Other Individuals
Sec.105.301 Assistance to officers or employees of other Government
organizations.
(a) SBA must receive a written statement of no objection by the
pertinent Department or military service before it gives any SBA
Assistance, other than Disaster loans under subparagraphs (1) and (2) of
section 7(b) of the Small Business Act, to a person when 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
[[Page 44]]
(3) The Chief Human Capital Officer, or in his or her absence, the
Deputy Chief Human Capital Officer.
[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 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).
[[Page 45]]
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 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
[[Page 46]]
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. 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
[[Page 47]]
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 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:
[[Page 48]]
(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.
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;
[[Page 49]]
(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 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.
107.305 Evaluation of license applicants.
107.310 When and how to apply for licensing as an Early Stage SBIC.
107.320 Evaluation of Early Stage SBICs.
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.
[[Page 50]]
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.
107.506 Safeguarding Licensee's assets/Internal controls.
107.507 Violations based on false filings and nonperformance of
agreements with SBA.
107.509 Employment of SBA officials.
Management and Compensation
107.510 SBA approval of Licensee's Investment Adviser/Manager.
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.
107.565 Restrictions on third-party debt of Early Stage SBICs.
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.
107.665 Civil penalties.
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.
[[Page 51]]
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.
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.
Special Rules for Leverage Issued by an Early Stage SBIC
107.1180 Required distributions to SBA by Early Stage SBICs.
107.1181 Interest reserve requirements for Early Stage SBICs.
107.1182 Valuation requirements for Early Stage SBICs based on Capital
Impairment Percentage.
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.
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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.
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.
107.1845 Determination of Capital Impairment Percentage for Early Stage
SBICs.
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, 683, 687(c), 687b, 687d, 687g, 687m.
Source: 61 FR 3189, Jan. 31, 1996, unless otherwise noted.
Subpart A_Introduction to Part 107
Sec.107.20 Legal basis and applicability of this part 107.
(a) The regulations in this part implement Title III of the Small
Business Investment Act of 1958, as amended. All Licensees must comply
with all applicable regulations, accounting guidelines and valuation
guidelines for Licensees.
(b) Provisions of this part which are not mandated by the Act shall
not supersede existing State law. A party claiming that a conflict
exists shall submit an opinion of independent counsel, citing
authorities, for SBA's resolution of the issues involved.
Sec.107.30 Amendments to Act and regulations.
A Licensee shall be subject to all existing and future provisions of
the Act and parts 107 and 112 of title 13 of the Code of Federal
Regulations.
Sec.107.40 How to read this part 107.
(a) Center Headings. All references in this part to SBA forms, and
instructions for their preparation, are to the current issue of such
forms. Center headings are descriptive and are used for convenience
only. They have no regulatory effect.
(b) Capitalizing defined terms. Terms defined in Sec.107.50 are
capitalized in this part 107.
(c) The pronoun ``you'' as used in this part 107 means a Licensee or
license applicant, as appropriate, unless otherwise noted.
Subpart B_Definition of Terms Used in Part 107
Sec.107.50 Definition of terms.
Accumulated Prioritized Payments has the meaning set forth in Sec.
107.1520.
Act means the Small Business Investment Act of 1958, as amended.
Adjustments has the meaning set forth in Sec.107.1520.
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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 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;
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(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 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
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(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.
Early Stage SBIC means a Section 301(c) Partnership Licensee,
licensed pursuant to Sec.107.310 of this part, in which at least 50
percent of all Loans and Investments (in dollars) must be made to Small
Businesses that are ``early stage'' companies at the time of the
Licensee's initial Financing (see also Sec.107.1810(f)(11)). For the
purposes of this definition, an ``early stage'' company is one that has
never achieved positive cash flow from operations in any fiscal year.
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.
Energy Saving Activities means any of the following:
(1) Manufacturing or research and development of products, integral
product components, integral material, or related software that meet one
or more of the following:
(i) Improves residential energy efficiency as demonstrated by
meeting Department of Energy or Environmental Protection Agency criteria
for use of the Energy Star trademark label;
(ii) Improves commercial energy efficiency as demonstrated by being
in the upper 25% of efficiency for all similar products as designated by
the Department of Energy's Federal Energy Management Program;
(iii) Improves automobile efficiency or reduces consumption of non-
renewable fuels through the use of advanced batteries, power
electronics, or electric motors; advanced combustion engine technology;
alternative fuels; or advanced materials technologies, such as
lightweighting;
(iv) Improves industrial energy efficiency through combined heat and
power (CHP) prime mover or power generation technologies, heat recovery
units, absorption chillers, desiccant dehumidifiers, packaged CHP
systems, more efficient process heating equipment, more efficient steam
generation equipment, heat recovery steam generators, or more efficient
use of water recapture, purification and reuse for industrial
application;
(v) Advances commercialization of technologies developed by
recipients of awards from the Department of Energy under the Advanced
Research Projects Agency--Energy, Small Business Innovation Research, or
Small Business Technology Transfer programs;
(vi) Reduces the consumption of non-renewable energy by providing
renewable energy sources, as demonstrated by meeting the standards,
applicable to the year in which the investment is made, for receiving a
Renewable Electricity Production Tax Credit as defined in Internal
Revenue Code Section 45 or an Energy Credit as defined in Internal
Revenue Code Section 48;
(vii) Reduces the consumption of non-renewable energy for electric
power generation as described in Internal Revenue Code Section
48(c)(1)(A) by providing highly efficient energy conversion systems that
can use renewable or non-renewable fuel through fuel cells; or
(viii) Improves electricity delivery efficiency by supporting one or
more of the smart grid functions as identified in 42 U.S.C. 17386(d), by
means of a product, service, or functionality that serves one or more of
the following smart grid operational domains: Equipment manufacturing,
customer systems, advanced metering infrastructure, electric
distribution systems, electric transmission systems, storage systems,
and cyber security.
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(2) Installation and/or inspection services associated with the
deployment of energy saving products as identified by meeting one or
more of the following standards:
(i) Deploys products that qualify, in the year in which the
investment is made, for installation-related Federal Tax Credits for
Residential Consumer Energy Efficiency;
(ii) Deploys products related to commercial energy efficiency as
demonstrated by deploying commercial equipment that is in the upper 25%
of efficiency for all similar products as designated by the Department
of Energy's Federal Energy Management Program;
(iii) Deploys combined heat and power products, goods, or services;
(iv) Deploys products that qualify, in the year in which the
investment is made, for receiving a Renewable Electricity Production Tax
Credit as defined in Internal Revenue Code Section 45 or an Energy
Credit as defined in Internal Revenue Code Section 48; or
(v) Deploys a product, service, or functionality that improves
electricity delivery efficiency by supporting one or more of the smart
grid functions as identified in 42 U.S.C. 17386(d), and that serves one
or more of the following smart grid operational domains: Equipment
manufacturing, customer systems, advanced metering infrastructure,
electric distribution systems, electric transmission systems, or grid
cyber security.
(3) Auditing or consulting services performed with the objective of
identifying potential improvements of the type described in paragraph
(1) or (2) of this definition.
(4) Other manufacturing, service, or research and development
activities that use less energy to provide the same level of energy
service or reduce the consumption of non-renewable energy by providing
renewable energy sources, as determined by SBA. A Licensee must obtain
such determination in writing prior to providing Financing to a Small
Business. SBA will consider factors including but not limited to:
(i) Results of energy efficiency testing performed in accordance
with recognized professional standards, preferably by a qualified third-
party professional, such as a certified energy assessor, energy auditor,
or energy engineer;
(ii) Patents or grants awarded to or licenses held by the Small
Business related to Energy Saving Activities listed in subsection (1) or
(2) above;
(iii) For research and development of products or services that are
anticipated to reduce the consumption of non-renewable energy, written
evidence from an independent, certified third-party professional of the
feasibility, commercial potential, and projected energy savings of such
products or services; and
(iv) Eligibility of the product or service for a Federal tax credit
cited in this definition that is not available in the year in which the
investment is made, but was available in a previous year.
Energy Saving Qualified Investment means a Financing which:
(1) Is made by a Licensee licensed after September 30, 2008;
(2) Is in the form of a Loan, Debt Security, or Equity Security,
each as defined in this section;
(3) Is made to a Small Business that is primarily engaged in Energy
Saving Activities. A Licensee must obtain a determination from SBA prior
to the provision of Financing as to whether a Small Business is
primarily engaged in Energy Saving Activities. SBA will consider the
distribution of revenues, employees and expenditures, intellectual
property rights held, and Energy Saving Activities described in a
business plan presented to investors as part of a formal solicitation in
making its determination. However, a Small Business is presumed to be
primarily engaged in Energy Saving Activities, and no pre-Financing
determination by SBA is required, if:
(i) The Small Business derived at least 50% of its revenues during
its most recently completed fiscal year from Energy Saving Activities;
or
(ii) The Small Business will utilize 100% of the Financing proceeds
received from a Licensee to engage in Energy Saving Activities.
Equity Capital Investments means investments in a Small Business in
the form of common or preferred stock, limited partnership interests,
options,
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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; 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.
Inflation Adjustment is the methodology used to increase SBIC
administrative fees using the Consumer Price Index for Urban Consumers
(CPI-U), calculated by the U.S. Bureau of Labor and Statistics (BLS),
using the U.S. city average for all items, not seasonally adjusted, with
the base period of 1982 - 84 = 100. To calculate the Inflation
Adjustment, each year, SBA will divide the CPI-U from the most recent
June by the CPI-U from June of the preceding year. If the result is
greater than 1, SBA will increase the relevant fees as follows:
(1) Multiply the result by the current fee; and
(2) Round to the nearest $100.
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.
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(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 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
Associate'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
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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
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:
(1) For a Participating Securities issuer, each February 1, May 1,
August 1, and November 1 during the term of a Participating Security, or
(2) For an Early Stage SBIC, each March 1, June 1, September 1, and
December 1 during the term of a Debenture.
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
[[Page 60]]
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 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.
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
[[Page 61]]
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.
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; 77 FR
23378, Apr. 19, 2012; 77 FR 25051, Apr. 27, 2012; 79 FR 62823, Oct. 21,
2014; 82 FR 39340, Aug. 18, 2017; 82 FR 52184, Nov. 13, 2017]
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, and while you have a license, you must
show, to the satisfaction of SBA, that your current or proposed
management team 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 107, and your
business plan. You must designate at least one individual as the
official responsible for contact with SBA.
[61 FR 3189, Jan. 31, 1996, as amended at 77 FR 25051, Apr. 27, 2012]
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:
[[Page 62]]
(1) In order to obtain an SBIC license (unless you do not plan to
obtain Leverage),
(2) If at the time you were licensed you did not plan to obtain
Leverage, but you now wish to be eligible for Leverage, or
(3) If SBA so requires as a condition of approval of your transfer
of Control under Sec.107.440.
(b) Percentage ownership requirement. (1) Except as provided in
paragraph (b)(2) of this section, no Person or group of Persons who are
Affiliates of one another may own or control, directly or indirectly,
more than 70 percent of your Regulatory Capital or your Leverageable
Capital.
(2) Exception. An investor that is a traditional investment company,
as determined by SBA, may own and control more than 70 percent of your
Regulatory Capital and your Leverageable Capital. For purposes of this
section, a traditional investment company must be a professionally
managed firm organized exclusively to pool capital from 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.
[[Page 63]]
(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]
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
[[Page 64]]
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, 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 in this paragraph (a), unless lower Leverageable
Capital and Regulatory Capital amounts are approved by SBA as part of a
Wind-Up Plan in accordance with Sec.107.590(c):
(1) Licensees other than Participating Securities issuers and Early
Stage SBICs. Except for Participating Securities issuers and Early Stage
SBICs, a Licensee 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.
(3) Early Stage SBICs. An Early Stage SBIC must have Regulatory
Capital of at least $20 million.
(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, as amended at 77 FR 25051, Apr. 27, 2012; 82
FR 39340, Aug. 18, 2017]
[[Page 65]]
Sec.107.230 Permitted sources of Private Capital for Licensees.
Private Capital means the contributed capital of a Licensee, plus
unfunded binding commitments by Institutional Investors (including
commitments evidenced by a promissory note) to contribute capital to a
Licensee.
(a) Contributed capital. For purposes of this section, contributed
capital means the paid-in capital and paid-in surplus of a Corporate
Licensee, or the partners' contributed capital of a Partnership
Licensee, in either case subject to the limitations in paragraph (b) of
this section.
(b) Exclusions from Private Capital. Private Capital does not
include:
(1) Funds borrowed by a Licensee from any source.
(2) Funds obtained through the issuance of Leverage.
(3) Funds obtained directly or indirectly from any Federal, State,
or local government agency or instrumentality, except for:
(i) Funds invested by a public pension fund;
(ii) Funds obtained from the business revenues (excluding any
governmental appropriation) of any federally chartered or government-
sponsored corporation established before October 1, 1987, to the extent
that such revenues are reflected in the retained earnings of the
corporation; and
(iii) ``Qualified Non-private Funds'' as defined in paragraph (d) of
this section.
(4) Any portion of a commitment from an Institutional Investor with
a net worth of less than $10 million that exceeds 10 percent of such
Institutional 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
[[Page 66]]
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.
SBA evaluates license applicants in two review phases (initial
review and final licensing), as follows:
(a) Initial review. Except as provided in this paragraph, SBIC
applicants must submit a MAQ and the Initial Licensing Fee. MAQ means
the Management Assessment Questionnaire in the form approved by SBA and
available on SBA's Web site at www.sba.gov/sbic. Initial Licensing Fee
means a non-refundable fee of $10,000. An applicant under Common Control
with one or more Licensees must submit a written request to SBA, and the
Initial Licensing Fee, to be considered for a license and is exempt from
the requirement in this paragraph to submit a MAQ unless otherwise
determined by SBA in SBA's discretion.
(b) Final licensing. (1) An applicant may proceed to the final
licensing phase only if notified in writing by SBA that it may do so.
Following receipt of such notice, in order to proceed to the final
licensing phase, the applicant must submit a complete license
application, in the form approved by SBA and available on SBA's Web site
at www.sba.gov/sbic, within the timeframe identified by SBA; and the
Final Licensing Fee. The Final Licensing Fee means a non-refundable fee
(determined as of the date SBA accepts the application) adjusted
annually as follows:
------------------------------------------------------------------------
Final licensing
Time period fee
------------------------------------------------------------------------
December 13, 2017 to September 30, 2018.............. $20,000
October 1, 2018 to September 30, 2019................ 25,000
October 1, 2019 to September 30, 2020................ 30,000
October 1, 2020 to September 30, 2021................ 35,000
------------------------------------------------------------------------
(2) Beginning on October 1, 2021, SBA will annually adjust both the
Initial Licensing Fee and Final Licensing Fee using the Inflation
Adjustment and will publish a Notice prior to such adjustment in the
Federal Register identifying the amount of the fee.
[82 FR 52184, Nov. 13, 2017]
Sec.107.305 Evaluation of license applicants.
SBA will evaluate a license applicant based on the submitted
application materials, any interviews with the applicant's management
team, and the results of background investigations, public record
searches, and other due diligence conducted by SBA and other Federal
agencies. SBA's evaluation will consider factors including the
following:
(a) Management qualifications, including demonstrated investment
skills and experience as a principal investor; business reputation;
adherence to legal and ethical standards; record of active involvement
in making and monitoring investments and assisting portfolio companies;
successful history of working as a team; and experience in developing
appropriate processes for evaluating investments and implementing best
practices for investment firms.
(b) Performance of managers' prior investments, including investment
returns measured both in percentage terms and in comparison to
appropriate industry benchmarks; the extent to which investments have
been realized as a result of sales, repayments, or
[[Page 67]]
other exit mechanisms; and the contribution of prior investments to the
growth of portfolio company revenues and number of employees.
(c) Applicant's proposed investment strategy, including clarity of
objectives; strength of management's rationale for pursuing the selected
strategy; compliance with this part 107 and applicable provisions of
part 121 of this chapter; fit with management's skills and experience;
and the availability of sufficient resources to carry out the proposed
strategy.
(d) Applicant's proposed organizational structure and fund
economics, including compliance with this part 107; soundness of
financial projections and underlying assumptions; a compensation plan
that provides managers with appropriate economic incentives; a
reasonable basis for allocations of profits and fees to Persons not
involved in management; and governance procedures that provide
appropriate checks and balances.
[77 FR 25052, Apr. 27, 2012]
Sec.107.310 When and how to apply for licensing as an Early Stage
SBIC.
From time to time, SBA will publish a Notice in the Federal
Register, inviting the submission of applications for licensing as an
Early Stage SBIC. SBA will not consider an application from an Early
Stage SBIC applicant that is under Common Control with another Early
Stage SBIC applicant or an existing Early Stage SBIC (unless it has no
outstanding Leverage or Leverage commitments and will not seek
additional Leverage in the future). Applicants must comply with both the
regulations in this part 107 and any requirements specified in the
Notice, including submission deadlines. The Notice will specify
procedures for a particular application period.
[77 FR 25052, Apr. 27, 2012]
Sec.107.320 Evaluation of Early Stage SBICs.
SBA will evaluate an Early Stage SBIC license applicant based on the
same factors applicable to other license applicants, as set forth in
Sec.107.305, with particular emphasis on managers' skills and
experience in evaluating and investing in early stage companies. In
addition, SBA reserves the right to maintain diversification among Early
Stage SBICs with respect to:
(a) The year in which they commence operations, and
(b) Their geographic location.
[77 FR 25052, Apr. 27, 2012]
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 equal to the combined Licensing Fee
(Initial Licensing Fee plus the Final Licensing Fee then in effect)
defined in Sec.107.300 must accompany any application for approval of
one or more transactions or events that will result in a transfer of
Control.
[61 FR 3189, Jan. 31, 1996, as amended at 82 FR 52185, Nov. 13, 2017]
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
[[Page 68]]
take effect and no officer, director, employee or other Person acting on
your behalf shall:
(a) Register on your books any transfer of ownership interest to the
proposed new owner(s);
(b) Permit the proposed new owner(s) to exercise voting rights with
respect to such ownership interest (including directly or indirectly
procuring or voting any proxy, consent or authorization as to such
voting rights at any shareholders' or partnership meeting);
(c) Permit the proposed new owner(s) to participate in any manner in
the conduct of your affairs (including exercising control over your
books, records, funds or other assets; participating directly or
indirectly in any disposition thereof; or serving as an officer,
director, partner, employee or agent); or
(d) Allow ownership or Control to pass to another Person.
Sec.107.430 Notification to SBA of transactions that may change
ownership or Control.
You must promptly notify SBA as soon as you have knowledge of
transactions or events that may result in a transfer of Control or
ownership of at least 10 percent of your capital. If there is any doubt
as to whether a particular transaction or event will result in such a
change, report the facts to SBA.
Sec.107.440 Standards governing prior SBA approval for a proposed
transfer of Control.
SBA approval is contingent upon full disclosure of the real parties
in interest, the source of funds for the new owners' interest, and other
data requested by SBA. As a condition of approving a proposed transfer
of control, SBA may:
(a) Require an increase in your Regulatory Capital;
(b) Require the new owners or the transferee's Control Person(s) to
assume, in writing, personal liability for your Leverage, effective only
in the event of their direct or indirect participation in any transfer
of Control not approved by SBA; or
(c) Require compliance with any other conditions set by SBA,
including compliance with the requirements for minimum capital and
management-ownership diversity as in effect at such time for new license
applicants.
[61 FR 3189, Jan. 31, 1996]
Sec.107.450 Notification to SBA of pledge of Licensee's shares.
(a) You must notify SBA in writing, within 30 calendar days, of the
terms of any transaction in which:
(1) Any Person, or group of Persons acting in concert, pledges
shares of 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
[[Page 69]]
form of organization (corporation or partnership) or reorganize without
SBA's prior written approval. Any such merger or consolidation will be
subject to Sec.107.440.
(b) Fee. A processing fee of $5,000 must accompany any application
for approval of a change in your form of organization (from corporation
to partnership or partnership to corporation).
Transfer of License
Sec.107.475 Transfer of license.
You may not transfer your license in any manner without SBA's prior
written approval.
Subpart E_Managing the Operations of a Licensee
General Requirements
Sec.107.500 Lawful operations under the Act.
You must engage only in the activities contemplated by the Act and
in no other activities.
Sec.107.501 Identification as a Licensee.
You must display your SBIC license in a prominent location. You must
also have a listed telephone number. Before collecting an application
fee or extending Financing to a Small Business, you must obtain a
written statement from the concern acknowledging its awareness that you
are ``a Federal licensee under the Small Business Investment Act of
1958, as amended.''
Sec.107.502 Representations to the public.
You may not represent or imply to anyone that the SBA, the U.S.
Government or any of its agencies or officers has approved any ownership
interests you have issued or obligations you have incurred. Be certain
to include a statement to this effect in any solicitation to investors.
Example: You may not represent or imply that ``SBA stands behind the
Licensee'' or that ``Your capital is safe because SBA's experts review
proposed investments to make sure they are safe for the Licensee.''
Sec.107.503 Licensee's adoption of an approved valuation policy.
(a) Valuation guidelines. You must prepare, document and report the
valuations of your Loans and Investments in accordance with the
Valuation Guidelines for SBICs issued by SBA. These guidelines may be
obtained from SBA's SBIC Web site at www.sba.gov/sbic.
(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.
[[Page 70]]
(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; 82
FR 39340, Aug. 18, 2017]
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.107.506 Safeguarding Licensee's assets/Internal controls.
You must adopt a plan to safeguard your assets and monitor the
reliability of your financial data, personnel, Portfolio, funds and
equipment. You must provide your bank and custodian with a certified
copy of your resolution or other formal document describing your control
procedures.
Sec.107.507 Violations based on false filings and nonperformance
of agreements with SBA.
The following shall constitute a violation of this part:
(a) Nonperformance. Nonperformance of any of the requirements of any
Debenture, Participating Security or Preferred Security, or of any
written agreement with SBA.
(b) False statement. In any document submitted to SBA:
(1) Any false statement knowingly made; or
(2) Any misrepresentation of a material fact; or
(3) Any failure to state a material fact. A material fact is any
fact which is necessary to make a statement not misleading in light of
the circumstances under which the statement was made.
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
[[Page 71]]
outstanding Leverage or Earmarked Assets.
(a) Definition of Management Expenses. Management Expenses include:
(1) Salaries;
(2) Office expenses;
(3) Travel;
(4) Business development;
(5) Office and equipment rental;
(6) Bookkeeping; and
(7) Expenses related to developing, investigating and monitoring
investments.
(b) Management Expenses do not include services provided by
specialized outside consultants, outside lawyers and independent public
accountants, if they perform services not generally performed by a
venture capital company.
(c) If your Management Expenses have not already been approved by
SBA, you must submit such expenses for approval with your SBA Form 468
for your first fiscal year ending after January 31, 1996.
Cash Management by a Licensee
Sec.107.530 Restrictions on investments of idle funds by leveraged
Licensees.
(a) Applicability of this section. This Sec.107.530 applies if you
have outstanding Leverage or if you have applied for Leverage.
(b) Permitted investments of idle funds. Funds not invested in Small
Businesses must be maintained in:
(1) Direct obligations of, or obligations guaranteed as to principal
and interest by, the United States, which mature within 15 months from
the date of the investment; or
(2) Repurchase agreements with federally insured institutions, with
a maturity of seven days or less. The securities underlying the
repurchase agreements must be direct obligations of, or obligations
guaranteed as to principal and interest by, the United States. The
securities must be maintained in a custodial account at a federally
insured institution; or
(3) Mutual funds, securities, or other instruments that exclusively
consist of, or represent pooled assets of, investments described in
paragraphs (b)(1) or (b)(2) of this section; or
(4) Certificates of deposit with a maturity of one year or less,
issued by a federally insured institution; or
(5) A deposit account in a federally insured institution, subject to
a withdrawal restriction of one year or less; or
(6) A checking account in a federally insured institution; or
(7) 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.
[61 FR 3189, Jan. 31, 1996, as amended at 77 FR 20294, Apr. 4, 2012]
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,
[[Page 72]]
including any renewal of a secured line of credit, increase in the
maximum amount available under a secured line of credit, or expansion of
the scope of a security interest or lien. For purposes of this paragraph
(b), ``expansion of the scope of a security interest or lien'' does not
include the substitution of one asset or group of assets for another,
provided the asset values (as reported on your most recent annual Form
468) are comparable.
(c) Additional rule for secured lines of credit in existence on
April 8, 1994. If you have outstanding Leverage and you have a secured
line of credit that was created on or before April 8, 1994, you must
receive SBA's written approval of the line before you increase the
amounts outstanding thereunder.
(d) Conditions for SBA approval. As a condition of granting its
approval under this Sec.107.550, SBA may impose such restrictions or
limitations as it deems appropriate, taking into account your historical
performance, current financial position, proposed terms of the secured
debt and amount of aggregate debt you will have outstanding (including
Leverage). SBA will not favorably consider any requests for approval
which include a blanket lien on all your assets, or a security interest
in your investor commitments in excess of 125 percent of the proposed
borrowing.
(e) Thirty day approval. Unless SBA notifies you otherwise within 30
days after it receives your request, you may consider your request
automatically approved if:
(1) You are in regulatory compliance;
(2) The security interest in your assets is limited to either those
assets being acquired with the borrowed funds or an asset coverage ratio
of no more than 2:1;
(3) Your Leverage does not exceed 150 percent of your Leverageable
Capital; and
(4) Your request is for approval of a secured line of credit that
would not cause your total outstanding borrowings (not including
Leverage) to exceed 50 percent of your Leverageable Capital.
Sec.107.560 Subordination of SBA's creditor position.
(a) Debentures purchased or guaranteed on or before July 1, 1991.
Under the terms of any Debenture purchased or guaranteed by SBA on or
before July 1, 1991, SBA's unsecured claims against you, as a Debenture-
holder or as subrogee, are subordinated in favor of all your other
creditors, except to the extent that such claims may be subject to
equitable subordination in SBA's favor.
(b) Debentures purchased or guaranteed after July 1, 1991, including
refinancings of Debentures previously purchased or guaranteed. (1) Under
the terms of any 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.107.565 Restrictions on third-party debt of Early Stage SBICs.
If you are an Early Stage SBIC and you have outstanding Leverage or
a Leverage commitment, you must get SBA's prior written approval to
have, incur, or refinance any third-party
[[Page 73]]
debt other than accounts payable from routine business operations.
[77 FR 25052, Apr. 27, 2012]
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, provided
however, that if you are an Early Stage SBIC, you must obtain SBA's
prior written approval for any reduction of your Regulatory Capital,
including any reduction pursuant to a Distribution under Sec.107.1180
of this part. 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.
[61 FR 3189, Jan. 31, 1996, as amended at 77 FR 25052, Apr. 27, 2012]
Requirement To Conduct Active Investment Operations
Sec.107.590 Licensee's requirement to maintain active operations.
(a) Activity test. You must conduct active operations, as determined
under this Sec.107.590, as a condition of your license. You will be
considered active if:
(1) During the eighteen months preceding your most recent fiscal
year end, you made Financings totaling at least 20 percent of your
Regulatory Capital; or
(2) Your idle funds did not exceed 20 percent of your total assets
(at cost) at your most recent fiscal year end.
(b) Permitted exceptions to activity requirements. You are
considered active if your failure to meet the requirements in paragraph
(a) of this section is the result of one or more of the following
factors:
(1) Your excess idle funds are the result of the receipt, within the
previous nine months, of realized gains, repayments, additional capital
contributions, or Leverage.
(2) It is necessary for you to maintain excess idle funds to conduct
your operations because:
(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
[[Page 74]]
when you decide that you will no longer make any Financings other than
follow-on investments, and that you update annually when you file your
SBA Form 468. The plan must contain your best estimates of the
following:
(1) The remaining number of years you expect to operate.
(2) For each of your Loans and Investments, the expected liquidation
date and anticipated proceeds.
(3) The timing of your repayment of obligations to SBA.
(4) The timing and amount of any planned reductions in your
Management Expenses.
(d) Phase-in of activity requirements--(1) General rule. You must
meet the activity requirements in this Sec.107.590 as of the end of
your first full fiscal year beginning after January 31, 1996. Until
then, you will be considered active if you meet the activity
requirements in effect on January 30, 1996.
(2) Rule for new Licensees. If you received your license after
January 31, 1996, or if you received your license less than eighteen
months before the fiscal year end determined under paragraph (d)(1) of
this section, you must meet the activity requirements in this Sec.
107.590 as of the end of your second full fiscal year beginning after
the date you received your license.
Subpart F_Recordkeeping, Reporting, and Examination Requirements for
Licensees
Recordkeeping Requirements for Licensees
Sec.107.600 General requirement for Licensee to maintain
and preserve records.
(a) Maintaining your accounting records. You must establish and
maintain your accounting records using SBA's standard chart of accounts
for Licensees, unless SBA approves otherwise.
(b) Location of records. You must keep the following records at your
principal place of business or, in the case of paragraph (b)(3) of this
section, at the branch office that is primarily responsible for the
transaction:
(1) All your accounting and other financial records;
(2) All minutes of meetings of directors, stockholders, executive
committees, partners, or other officials; and
(3) All documents and supporting materials related to your business
transactions, except for any items held by a custodian under a written
agreement between you and a Portfolio Concern or non-SBA lender, or any
securities held in a safe deposit box, or by a licensed securities
broker in an amount not exceeding the broker's per-account insurance
coverage.
(c) Preservation of records. You must retain all the records that
are the basis for your financial reports. Such records must be preserved
for the periods specified in this paragraph (c), and must remain
accessible for the first two years of the preservation period.
(1) You must preserve for at least 15 years or, in the case of a
Partnership Licensee, at least two years beyond the date of liquidation:
(i) All your accounting ledgers and journals, and any other records
of assets, asset valuations, liabilities, equity, income, and expenses.
(ii) Your Articles, bylaws, minute books, and license application.
(iii) All documents evidencing ownership of the Licensee including
ownership ledgers, and ownership transfer registers.
(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.
[[Page 75]]
(4) You may substitute a computer-scanned or generated copy for the
original of any record covered by this paragraph (c).
[61 FR 3189, Jan. 31, 1996, as amended at 79 FR 62823, Oct. 21, 2014]
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. Except for information and documentation
prepared under paragraphs (f)(2) and (3) of 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.
(f) For each Energy Saving Qualified Investment:
(1) If a pre-Financing determination of eligibility by SBA is not
required under the definition of Energy Saving Activities or Energy
Saving Qualified Investment:
(i) A certification by you, dated as of the closing date of the
Financing, as to the basis for the qualification of the Financing as an
Energy Saving Qualified Investment;
(ii) Supporting documentation of the Energy Saving Activities
engaged in by the concern;
(iii) Supporting documentation of either the percentage of its
revenues derived from Energy Saving Activities during the concern's most
recently completed fiscal year, which must be at least 50 percent, or
the concern's intended use of the Financing proceeds, all of which must
be used for Energy Saving Activities; and
(iv) A certification by the concern, dated as of the closing date of
the Financing, that any information it provided to you in connection
with this paragraph (f)(1) is true and correct to the best of its
knowledge.
(2) If, prior to providing Financing, you must obtain a
determination from SBA that the activities in which a concern is engaged
are Energy Saving Activities, submit to SBA in writing a description of
the product or service being provided or developed, including all
available documentation of the energy savings produced or anticipated,
addressing the factors considered under paragraph (4) of the definition
of ``Energy Saving Activities'' in Sec.107.50 and certified by the
concern to be true and correct to the best of its knowledge.
(3) If, prior to providing Financing, you must obtain a
determination from SBA that the concern is ``primarily engaged'' in
Energy Saving Activities, submit to SBA in writing all available
information concerning the factors considered under paragraph (3) of the
definition of ``Energy Saving Qualified
[[Page 76]]
Investment'' in Sec.107.50, certified by the concern to be true and
correct to the best of its knowledge.
(4) For each Financing closed after you obtain a determination from
SBA under paragraph (f)(2) or (3) of this section, a certification by
you, dated as of the closing date of the Financing, that to the best of
your knowledge, you have no reason to believe that the materials
submitted are incorrect.
(5) For each Financing closed based on supporting documentation of
the concern's intended use of proceeds for Energy Saving Activities
under paragraph (f)(1)(iii) of this section:
(i) Documentation by the concern, dated no later than six months
after the closing of the Financing, of the proceeds used to date for
Energy Saving Activities, with further updates provided at six month
intervals until 100 percent of the Financing proceeds have been
accounted for; and
(ii) Documentation that you have reviewed the information submitted
by the concern under paragraph (f)(5)(i) of this section and have
reasonably determined that 100 percent of the Financing proceeds were
used for Energy Saving Activities.
(g) For each passive business financed under Sec.107.720(b)(3), a
certification by you, dated as of the closing date of the Financing, as
to the basis for the qualification of the Financing under Sec.
107.720(b)(3) and identifying one or more limited partners for which a
direct Financing would cause those investors:
(1) To incur ``unrelated business taxable income'' under section 511
of the Internal Revenue Code (26 U.S.C. 511); or
(2) To incur ``effectively connected income'' to foreign investors
under sections 871 and 882 of the Internal Revenue Code (26 U.S.C. 871
and 882).
[61 FR 3189, Jan. 31, 1996, as amended at 64 FR 52646, Sept. 30, 1999;
77 FR 23379, Apr. 19, 2012; 82 FR 39340, Aug. 18, 2017]
Sec.107.620 Requirements to obtain information from Portfolio
Concerns.
All the information required by this section is subject to the
requirements of Sec.107.600 and must be in English.
(a) Information for initial Financing decision. Before extending any
Financing, you must require the applicant to submit such financial
statements, plans of operation (including intended use of financing
proceeds), cash flow analyses and projections as are necessary to
support your investment decision. The information submitted must be
consistent with the size and type of the business and the amount of the
proposed Financing.
(b) Updated financial information. (1) The terms of each Financing
must require the Portfolio Concern to provide, at least annually,
sufficient financial information to enable you to perform the following
required procedures:
(i) Evaluate the financial condition of the Portfolio Concern for
the purpose of valuing your investment;
(ii) Determine the continued eligibility of the Portfolio Concern;
and
(iii) Verify the use of Financing proceeds.
(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.
[[Page 77]]
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) 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.
[61 FR 3189, Jan. 31, 1996, as amended at 82 FR 39340, Aug. 18, 2017]
Sec.107.640 Requirement to file Portfolio Financing Reports
(SBA Form 1031).
For each Financing of a Small Business (excluding guarantees), you
must submit a Portfolio Financing Report on SBA Form 1031 within 30 days
of the closing date.
Sec.107.650 Requirement to report portfolio valuations to SBA.
You must determine the value of your Loans and Investments in
accordance with Sec.107.503. You must report such valuations to SBA
within 90 days of the end of the fiscal year in the case of annual
valuations, and within 30 days following the close of other reporting
periods. You must report material adverse changes in valuations at least
quarterly, within thirty days following the close of the quarter.
Sec.107.660 Other items required to be filed by Licensee with SBA.
(a) Reports to owners. You must give SBA a copy of any report you
furnish 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.
[[Page 78]]
(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.107.665 Civil penalties.
Except as provided in Sec.107.670, a Licensee that violates any
regulation or written directive issued by SBA, requiring the filing of
any regular or special report pursuant to this part, shall be fined a
civil penalty of not more than $259 for each day the Licensee fails to
file such report. The civil penalties provided for in this section shall
accrue to the United States and may be recovered in a civil action
brought by the SBA.
[81 FR 31491, May 19, 2016, as amended at 82 FR 9969, Feb. 9, 2017; 83
FR 7363, Feb. 21, 2018]
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 stated in Sec.107.665, in such manner and under such
conditions as SBA determines.
[61 FR 3189, Jan. 31, 1996, as amended at 81 FR 31491, May 19, 2016]
Sec.107.680 Reporting changes in Licensee not subject to prior SBA
approval.
(a) Changes to be reported for post approval. (1) This section
applies to any changes in your Articles, ownership, capitalization,
management, operating area, or investment policies that do not require
SBA's prior approval. You must report such changes to SBA within 30 days
for post approval. A processing fee of $200 must accompany each request
for post approval of new officers, directors, or Control Persons.
(2) Exception for non-leveraged Licensees. If you do not have
outstanding Leverage or Earmarked Assets, you are not required to obtain
post approval of new directors or new officers other than your chief
operating officer; however, you must notify SBA of the new directors or
officers within 30 days.
(b) Approval by SBA. You may consider any change submitted under
this section Sec.107.680 to be approved unless SBA notifies you to the
contrary within 90 days after receiving it. SBA's approval is contingent
upon your full disclosure of all relevant facts and is subject to any
conditions SBA may prescribe.
Examinations of Licensees by SBA for Regulatory Compliance
Sec.107.690 Examinations.
SBA will examine all Licensees for the purpose of evaluating
regulatory compliance.
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.
[[Page 79]]
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. (1) The Base Fee will be assessed based on your total
assets (at cost) as of the date of your latest certified financial
statement, including if requested by SBA in connection with the
examination, a more recently submitted interim statement. For purposes
of this section, Base Fee means the Minimum Base Fee plus 0.024% of
assets at cost, rounded to the nearest $100, not to exceed the Maximum
Base Fee. The Minimum and Maximum Base Fees are adjusted annually as
follows:
------------------------------------------------------------------------
Maximum Maximum
base fee base fee
Time period (Based on the Minimum for non- for
examination start date) base fee leveraged leveraged
SBICs SBICs
------------------------------------------------------------------------
December 13, 2017 to September $6,000 $22,500 $26,000
30, 2018........................
October 1, 2018 to September 30, 7,000 25,000 32,000
2019............................
October 1, 2019 to September 30, 8,000 27,500 38,000
2020............................
October 1, 2020 to September 30, 9,000 30,000 44,000
2021............................
------------------------------------------------------------------------
(2) In the table in paragraph (b)(1) of this section, a Non-
leveraged SBIC means any SBIC that, as of the date of the examination,
has no outstanding Leverage or Leverage commitment, has no Earmarked
Assets, and certifies to SBA that it will not seek Leverage in the
future. Beginning on October 1, 2021, SBA will annually adjust the
Minimum Base Fee and Maximum Base Fees using the Inflation Adjustment
and will publish a Notice prior to such adjustment in the Federal
Register identifying the amount of the fees.
(c) Adjustments to Base Fee. In order to determine the amount of
your examination fee, your Base Fee, as determined in paragraph (b) of
this section, will be increased based on the following criteria:
(1) If you were not fully responsive to the letter of notification
of examination (that is, you did not provide all requested documents and
information within the time period stipulated in the notification letter
in a complete and accurate manner, or you did not prepare or did not
have available all information requested by the examiner for on-site
review) after a written warning by the SBA, you will pay an additional
charge equal to 15% of your Base Fee;
(2) 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; and
(3) For any regulatory violation that remains unresolved 90 days
from the date SBA notified you that you must take corrective action (as
established by the date of the notification letter) or such later date
as SBA sets forth in the notice, you will pay an additional charge equal
to 5% of the Base Fee for every 30 days or portion thereof that the
violation remains unresolved after the cure period, unless SBA resolves
the finding in your favor.
(d) Fee additions table. The following table summarizes the
additions noted in paragraph (c) of this section:
------------------------------------------------------------------------
Amount of addition - % of base
Examination fee additions fee
------------------------------------------------------------------------
Non-responsive......................... 15%.
Records/Files at multiple locations.... 10%.
Unresolved Findings.................... 5% of Base Fee for every 30
days or portion thereof beyond
the 90 day cure period or such
later date as SBA sets forth
in the notice for each
unresolved finding.
------------------------------------------------------------------------
(e) 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 $700
per day. Beginning on October 1, 2021, SBA will annually adjust this fee
using the Inflation Adjustment and will publish a Notice
[[Page 80]]
prior to such adjustment in the Federal Register identifying the amount
of the fee.
[62 FR 23338, Apr. 30, 1997, as amended at 77 FR 25052, Apr. 27, 2012;
82 FR 52185, Nov. 13, 2017]
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)(2) 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)(1) of this chapter.
[61 FR 3189, Jan. 31, 1996, as amended at 74 FR 33915, July 14, 2009]
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. At the close or each of your
fiscal years, and at the time of any application to draw Leverage, you
must satisfy the Smaller Enterprise financing requirement in this
paragraph (b) that applies to you.
(1) If you were licensed after February 17, 2009, at least 25
percent (in dollars) of your Financings must have been invested in
Smaller Enterprises.
(2) If you were licensed on or before February 17, 2009, and you
have received no SBA Leverage commitment issued after February 17, 2009,
at least 20 percent (in dollars) of your Financings, excluding
Financings made in whole or in part with Leverage in excess of $90
million, must have been invested in Smaller Enterprises. In addition,
100 percent of all Financings made in whole or in part with Leverage in
excess of $90 million (including aggregate Leverage over $90 million
issued by two or more Licensees under Common Control) must have been
invested in Smaller Enterprises.
(3) If you were licensed on or before February 17, 2009, and you
have received an SBA Leverage commitment after February 17, 2009:
(i) For all Financings made after the date of the first Leverage
commitment issued after February 17, 2009, at least 25 percent (in
dollars) of your Financings must have been invested in Smaller
Enterprises, and
(ii) For all Financings made before February 17, 2009, at least 20
percent (in dollars) of your Financings, excluding Financings made in
whole or in part with Leverage in excess of $90 million, must have been
invested in Smaller
[[Page 81]]
Enterprises. In addition, 100 percent of all Financings made in whole or
in part with Leverage in excess of $90 million (including aggregate
Leverage over $90 million issued by two or more Licensees under Common
Control) must have been invested in Smaller Enterprises.
(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) 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.
(e) 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) and (g)).
[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; 74 FR 33915, July
14, 2009]
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
provide Financing directly to a passive business, including a passive
business that you have formed, if it is a Small Business and it passes
substantially all the proceeds through to (or uses substantially all the
proceeds to acquire) 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 the
financed passive business either:
(i) Directly owns, or will own as a result of the Financing, at
least 50 percent of the outstanding voting securities; or
(ii) Indirectly owns, or will own as a result of the Financing, at
least 50 percent of the outstanding voting securities (by directly
owning the outstanding voting securities of another passive Small
Business that is the direct owner of the outstanding voting securities
of the subsidiary company).
[[Page 82]]
(3) Exception for certain Partnership Licensees. If you are a
Partnership Licensee, you may form one or more blocker entities in
accordance with this paragraph (b)(3). For the purposes of this
paragraph, a ``blocker entity'' means a corporation or a limited
liability company that elects to be taxed as a corporation for Federal
income tax purposes. The sole purpose of a blocker entity must be to
provide Financing to one or more eligible, unincorporated Small
Businesses. You may form such blocker entities 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 (26 U.S.C. 511) or to incur ``effectively
connected income'' to foreign investors under sections 871 and 882 of
the Internal Revenue Code (26 U.S.C. 871 and 882). Your ownership and
investment of funds in such blocker entities will not constitute a
violation of Sec.107.730(a). For each passive business financed under
this section 107.720(b)(3), you must provide a certification to SBA as
required under Sec.107.610(g). A blocker entity formed under this
paragraph may provide Financing:
(i) Directly to one or more eligible non-passive Small Businesses;
or
(ii) Directly to a passive Small Business that passes substantially
all the proceeds directly to (or uses substantially all the proceeds to
acquire) one or more eligible non-passive Small Businesses in which the
passive Small Business directly owns, or will own as a result of the
Financing, at least 50% of the outstanding voting securities.
(4) Additional conditions for permitted passive business financings.
Financings permitted under paragraphs (b)(2) or (3) of this section must
meet all of the following conditions:
(i) For the purposes of this paragraph (b), ``substantially all''
means at least 99 percent of the Financing proceeds after deduction of
actual application fees, closing fees, and expense reimbursements, which
may not exceed those permitted by Sec.107.860.
(ii) If you and/or your Associate charge fees permitted by Sec.
107.860 and/or Sec.107.900, the total amount of such fees charged to
all passive and non-passive businesses that are part of the same
Financing may not exceed the fees that would have been permitted if the
Financing had been provided directly to a non-passive Small Business.
Any such fees received by your Associate must be paid to you in cash
within 30 days of the receipt of such fees.
(iii) For the purposes of this part 107, each passive and non-
passive business included in the Financing is a Portfolio Concern. The
terms of the financing must provide SBA with access to Portfolio Concern
information in compliance with this part 107, including without
limitation Sec. Sec.107.600 and 107.620.
(c) Real Estate Businesses. (1) You are not permitted to finance any
business classified under North American Industry Classification System
(NAICS) codes 531110 (lessors of residential buildings and dwellings),
531120 (lessors of nonresidential buildings except miniwarehouses),
531190 (lessors of other real estate property), 237210 (land
subdivision), or 236117 (new housing for-sale builders). You are not
permitted to finance any business classified under NAICS codes 236118
(residential remodelers), 236210 (industrial building construction), or
236220 (commercial and institutional building construction), if such
business is primarily engaged in construction or renovation of
properties on its own account rather than as a hired contractor. You are
permitted to finance a business classified under NAICS codes 531210
(offices of real estate agents and brokers), 531311 (residential
property managers), 531312 (nonresidential property managers), 531320
(offices of real estate appraisers), or 531390 (other activities related
to real estate), only if such business derives at least 80 percent of
its revenue from non-Affiliate sources.
(2) You are not permitted to finance a Small 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
[[Page 83]]
(iii) Occupies the subject property and uses at least 67 percent of
the usable square footage for an eligible business purpose.
(d) Project Financing. You are not permitted to finance a business
if:
(1) The assets of the business are to be reduced or consumed,
generally without replacement, as the life of the business progresses,
and the nature of the business requires that a stream of cash payments
be made to the business's financing sources, on a basis associated with
the continuing sale of assets. Examples include real estate development
projects and oil and gas wells; or
(2) The primary purpose of the Financing is to fund production of a
single item or defined limited number of items, generally over a defined
production period, and such production will constitute the majority of
the activities of the Small Business. Examples include motion pictures
and electric generating plants.
(e) Farm land purchases. You are not permitted to finance the
acquisition of farm land. Farm land means land which is or is intended
to be used for agricultural or forestry purposes, such as the production
of food, fiber, or wood, or is so taxed or zoned.
(f) Public interest. You are not permitted to finance any business
if the proceeds are to be used for purposes contrary to the public
interest, including but not limited to activities which are in violation
of law, or inconsistent with free competitive enterprise.
(g) Foreign investment--(1) General rule. You are not permitted to
finance a business if:
(i) The funds will be used substantially for a foreign operation; or
(ii) At the time of the Financing or within one year thereafter,
more than 49 percent of the employees or tangible assets of the Small
Business are located outside the United States (unless you can show, to
SBA's satisfaction, that the Financing was used for a specific domestic
purpose).
(2) Exception. This paragraph (g) does not prohibit a Financing used
to acquire foreign materials and equipment or foreign property rights
for use or sale in the United States.
(h) Associated supplier. You are not permitted to finance a business
that purchases, or will purchase, goods or services from a supplier who
is your Associate, except under the following conditions:
(1) The amount of goods and services purchased (or to be purchased)
from your Associate with the proceeds of the Financing, or with funds
released as a result of the Financing, is less than 50 percent of the
total amount of the Financing (75 percent for a Section 301(d)
Licensee);
(2) The price of such goods and services is no higher than that
charged other customers of your Associate; and
(3) The Small Business purchases no capital goods from your
Associate.
(i) Financing Licensees. You are not permitted to provide funds,
directly or indirectly, that the Small Business will use:
(1) To purchase stock in or provide capital to a Licensee; or
(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; 79 FR 62823, Oct. 21, 2014; 82 FR 39340, Aug.
18, 2017]
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, except for a
Financing to an Associate that meets all of the following conditions:
(i) The Small Business that receives the Financing is your
Associate, pursuant to paragraph (8)(ii) of the Associate definition in
Sec.107.50, only because an investment fund that is your Associate
holds a 10% or greater equity interest in the Small Business.
(ii) You and the Associate investment fund previously invested in
the Small Business at the same time and on the same terms and
conditions.
[[Page 84]]
(iii) You and the Associate investment fund are providing follow-on
financing to the Small Business at the same time, on the same terms and
conditions, and in the same proportionate dollar amounts as your
respective investments in the previous round(s) of financing (for
example, if you invested $2 million and your Associate invested $1
million in the previous round, your respective follow-on investments
would be in the same 2:1 ratio).
(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 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.
[[Page 85]]
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 granting an exemption under this Sec.
107.730, SBA will publish notice of the transaction 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; 77 FR 20294, Apr. 4, 2012]
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. Unless SBA approved
your license application based upon a plan to issue less than two tiers
of Leverage, you may provide Financing or a Commitment to a Small
Business if the resulting amount of your aggregate Financings and
Commitments to such Small Business and its Affiliates does not exceed 30
percent of the sum of:
(1) Your Regulatory Capital as of the date of the Financing or
Commitment; plus
(2) 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
(3) 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).
(b) Lower overline limit. If SBA approved your license application
based upon a plan to issue less than two tiers of Leverage, the
applicable percentage of the amount computed in paragraphs (a)(1) though
(a)(3) of this section will be:
(1) 20 percent if the plan contemplates one tier of Leverage.
(2) 25 percent if the plan contemplates 1.5 tiers of Leverage.
(c) Outstanding Financings. For the purposes of paragraphs (a) and
(b) of this section, you must measure each outstanding Financing at its
original cost (including any amount of the Financing that was previously
written off).
[74 FR 33915, July 14, 2009]
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.
[[Page 86]]
(c) Definitions. (1) The ``Resulting Concern'' is determined by
viewing the business as though the change of ownership had already
occurred, giving effect to all contemplated financing, mergers, and
acquisitions.
(2) For purposes of this section, ``debt'' means long-term debt,
including contingent liabilities, but excluding accounts payable,
operating leases, letters of credit, subordinated notes payable to the
seller, any other liabilities approved for exclusion by SBA and short-
term working capital loans (so long as the loans carry a zero balance
for 30 consecutive days during the concern's fiscal year).
(3) For purposes of this section, ``equity'' means common and
preferred stock (corporation), contributed capital (partnership), or
membership interests (limited liability company).
Sec.107.760 How a change in size or activity of a Portfolio Concern
affects the Licensee and the Portfolio Concern.
(a) Effect on Licensee of a change in size of a Portfolio Concern.
If a Portfolio Concern no longer qualifies as a Small Business you may
keep your investment in the concern and:
(1) Subject to the overline limitations of Sec.107.740, you may
provide additional Financing to the concern up to the time it makes a
public offering of its securities.
(2) Even after the concern makes a public offering, you may exercise
any stock options, warrants, or other rights to purchase Equity
Securities which you acquired before the public offering, 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 and Sec.
107.1150(c)(1).
[61 FR 3189, Jan. 31, 1996, as amended at 74 FR 33915, July 14, 2009]
[[Page 87]]
Sec.107.810 Financings in the form of Loans.
You may make Loans to Small Businesses. A Loan means a transaction
evidenced by a debt instrument with no provision for you to acquire
Equity Securities.
Sec.107.815 Financings in the form of Debt Securities.
You may purchase Debt Securities from Small Businesses.
(a) Definitions. Debt Securities are instruments evidencing a loan
with an option or any other right to acquire Equity Securities in a
Small Business or its Affiliates, or a loan which by its terms is
convertible into an equity position, or a loan with a right to receive
royalties that are excluded from the Cost of Money pursuant to Sec.
107.855(g)(12). Consideration must be paid for all options that you
acquire.
(b) Restriction on options obtained by Licensee's management and
employees. If you have outstanding Leverage or plan to obtain Leverage,
your employees, officers, directors or general partners, or the general
partners of the management company that is providing services to you or
to your general partner, may obtain options in a Financed Small Business
only if:
(1) They participate in the Financing on a pari passu basis with
you; or
(2) SBA gives its prior written approval; or
(3) The options received are compensation for service as a member of
the board of directors of the Small Business, and such compensation does
not exceed that paid to other outside directors. In the absence of such
directors, fees must be reasonable when 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,
[[Page 88]]
provided it is no more than 25 percent of the total offering. If you buy
more than 25 percent of the offering, the amount you pay to the
Associate underwriter must not exceed the total of the application and
closing fees and reimbursable expenses permitted by Sec.107.860.
(d) Securities purchased from another Licensee or from SBA. You may
purchase from, or exchange with, another Licensee, Portfolio securities
(or any interest therein). Such purchase or exchange may only be made on
a non-recourse basis. You may not have more than one-third of your total
assets(valued at cost) invested in such securities. If you have
previously sold Portfolio Securities (or any interest therein) on a
recourse basis, you shall include the amount for which you may be
contingently liable in your overline computation.
(e) Purchases of securities from other non-issuers. You may purchase
securities of a Small Business from a non-issuer not previously
described in this Sec.107.825 if:
(1) Such acquisition is a reasonably necessary part of the overall
sound Financing of the Small Business under the Act; or
(2) The securities are acquired to finance a change of ownership
under Sec.107.750.
Structuring Licensee's Financing of an Eligible Small Business: Terms
and Conditions of Financing
Sec.107.830 Minimum duration/term of financing.
(a) General rule. 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.
[[Page 89]]
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
(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
[[Page 90]]
(iii) The weighted average of the Cost of Capital for all Licensees
participating in the Financing.
(d) How to determine your Cost of Capital. ``Cost of Capital'' is an
optional computation of the weighted average interest rate you pay on
your ``qualified borrowings''. ``Qualified borrowings'' means your
Debentures together with your borrowings at or below the usual interest
rate charged by banks in your locality on the date your loan was made.
(1) For any fiscal year, you may compute your Cost of Capital:
(i) As of the first day of your fiscal year, to remain in effect for
the entire year; or
(ii) As of the first day of every fiscal quarter during the fiscal
year, to remain in effect for the duration of the quarter.
(2) For each qualified borrowing outstanding at your last fiscal
year or fiscal quarter end, multiply the ending principal balance (net
of related unamortized fees) by the number of days during the past four
fiscal quarters that the borrowing was outstanding, and divide the
result by 365.
(3) Add together the amounts computed for all borrowings under
paragraph (d)(2) of this section. The result is your weighted average
borrowings.
(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).
[[Page 91]]
(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) 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.
(11) Royalty payments based on improvement in the performance of the
Small Business after the date of the Financing.
(12) 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; 77 FR 20294, Apr.
4, 2012]
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.
[[Page 92]]
(f) Expense reimbursements. You may charge a Small Business for the
reasonable out-of-pocket expenses, other than Management Expenses, that
you incur to process its Financing application. If SBA determines that
any of your reimbursed expenses are unreasonable or are Management
Expenses, SBA will require you to include such amounts in the Cost of
Money or refund them to the Small Business.
(g) Breakup fee. If a Small Business accepts your Commitment and
then fails to close the Financing because it has accepted funds from
another source, you may charge a ``breakup fee'' equal to the closing
fee that you would have been permitted to charge under paragraph (c) or
(d) of this section.
[61 FR 3189, Jan. 31, 1996; 61 FR 41496, Aug. 9, 1996]
Sec.107.865 Control of a Small Business by a Licensee.
(a) In general. You, or you and your Associates (in the latter case,
the ``Investor Group''), may exercise Control over a Small Business for
purposes connected to your investment, through ownership of voting
securities, management agreements, voting trusts, majority
representation on the board of directors, or otherwise. The period of
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.
[[Page 93]]
(c) SBA approval of expenditures. This paragraph (c) applies if you
have outstanding Leverage or are applying for Leverage. Any application
for SBA approval under this paragraph must specify all expenses
estimated to be necessary pending disposal of the assets. Without SBA's
prior written approval:
(1) Your total expenditures under paragraphs (b)(1) and (b)(2) of
this section plus your total Financing(s) to the Small Business must not
exceed your overline limit under Sec.107.740; and
(2) Your total expenditures under paragraph (b) of this section plus
your total Financing(s) to the Small Business must not exceed 35 percent
of your Regulatory Capital.
Limitations on Disposition of Assets
Sec.107.885 Disposition of assets to Licensee's Associates or
to competitors of Portfolio Concern.
Sale of assets to Associate. Except with SBA's prior written
approval, you are not permitted to dispose of assets (including assets
acquired in liquidation) to any Associate if you have outstanding
Leverage or Earmarked Assets. As a prerequisite to such approval, you
must demonstrate that the proposed terms of disposal are at least 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.
[[Page 94]]
(a) You are exempt from the following provisions (but you must come
into compliance with them to become eligible for Leverage):
(1) The overline limitation in Sec.107.740.
(2) The restrictions in Sec.107.530 on investments of idle funds,
provided you do not engage in activities not contemplated by the Act.
(3) The restrictions in Sec.107.550 on third-party debt.
(4) The restrictions in Sec.107.880 on expenses incurred to
maintain or improve assets acquired in liquidation of Portfolio
securities.
(5) The recordkeeping requirements and fee limitations in Sec.
107.825 (b) and (c), respectively, for securities purchased through or
from an underwriter.
(b) You are exempt from the requirements to obtain SBA's prior
approval for:
(1) A decrease in your Regulatory Capital of more than two percent
under Sec.107.585 (but not below the minimum required under the Act or
these regulations). You must report the reduction to SBA within 30 days.
(2) Disposition of any asset to your Associate under Sec.107.885.
(3) A contract to employ an Investment Adviser/Manager under Sec.
107.510. However, you must notify SBA of the Management Expenses to be
incurred 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. You may then apply to
draw down Leverage against the commitment. See Sec. Sec.107.1200
through 107.1240.
[63 FR 5868, Feb. 5, 1998, as amended at 64 FR 70996, Dec. 20, 1999; 82
FR 39341, Aug. 18, 2017]
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):
[[Page 95]]
(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) For any Leverage draw that would cause you and any other
Licensees under Common Control to have aggregate outstanding Leverage in
excess of $150 million, certify that none of the Licensees has a
condition of Capital Impairment. See also Sec.107.1150(b).
(e) For any Leverage request pursuant to Sec.107.1150(d)(2)(i),
certify that at least 50 percent (in dollars) of your Financings made on
or after the date of such request will be invested in Small Businesses
located in low-income geographic areas.
(f) For any Leverage request pursuant to Sec.107.1150(d)(2)(ii),
certify that at least 50 percent (in dollars) of the Financings made by
each Licensee under Common Control on or after the date of such request
will be invested in Small Businesses located in low-income geographic
areas.
(g) Certify in writing that you are in compliance with the
requirement to finance Smaller Enterprises in Sec.107.710(b).
(h) 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.
(i) Be in compliance with the regulations in this part.
(j) 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.
(k) If you are an Early Stage SBIC, certify in writing that in
accordance with Sec.107.1810(f)(11), at least 50 percent of the
aggregate dollar amount of your Financings will be provided to ``early
stage'' companies as defined under the definition of Early Stage SBIC in
Sec.107.50 of this part.
[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5868, Feb. 5, 1998; 64
FR 70996, Dec. 20, 1999; 74 FR 33916, July 14, 2009; 77 FR 25053, Apr.
27, 2012; 79 FR 62824, Oct. 21, 2014]
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, not to exceed 1.38 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, not to
exceed 1.46 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.
[[Page 96]]
(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; 77
FR 25053, Apr. 27, 2012]
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 Section 301(c) Licensee, other than an Early Stage SBIC, may have
maximum outstanding Leverage as set forth in paragraphs (a), (b), (d),
and (e) of this section. An Early Stage SBIC may have maximum
outstanding Leverage as set forth in paragraph (c) of this section. In
general, SBA will approve Leverage commitment requests in excess of 200
percent of Regulatory Capital and draw requests in excess of 200 percent
of Leverageable Capital only after a Licensee has demonstrated
consistent, sustainable profitability based on a conservative investment
strategy that limits downside risk. Any such Leverage request must be
supported by an up-to-date business plan that reflects continuation of
the Licensee's successful investment strategy and demonstrates the
Licensee's ability to pay all SBA obligations in accordance with their
terms.
(a) Individual Licensee. Subject to SBA's credit policies, if you
are a Section 301(c) Licensee, the maximum amount of Leverage you may
have outstanding at any time is the lesser of:
(1) 300 percent of your Leverageable Capital, or
(2) $150 million.
(b) Multiple Licensees under Common Control. Subject to SBA's credit
policies, two or more Licenses under Common Control may have maximum
aggregate outstanding Leverage of $350 million. However, for any
Leverage draw(s) by one or more such Licensees that would cause the
aggregate outstanding Leverage to exceed $150 million, each of the
Licensees under Common Control must certify that it does not have a
condition of Capital Impairment. See also Sec.107.1120(d).
(c) Early Stage SBICs. Subject to SBA's credit policies, if you are
an Early Stage SBIC:
(1) The total amount of any and all Leverage commitments you receive
from SBA shall not exceed 100 percent of your highest Regulatory Capital
or $50 million, whichever is less;
(2) On a cumulative basis, the total amount of Leverage you have
issued shall not exceed the total amount of capital paid in by your
investors; and
(3) The maximum amount of Leverage you may have outstanding at any
time is the lesser of:
(i) 100 percent of your Leverageable Capital, or
(ii) $50 million.
(d) Additional Leverage based on investment in low-income geographic
areas. Subject to SBA's credit policies, you may have outstanding
Leverage in excess of the amounts permitted by paragraphs (a) and (b) of
this section in accordance with this paragraph (d). If you were licensed
before October 1, 2009, you may seek additional Leverage under paragraph
(d)(1) only. If you were licensed on or after October 1, 2009, you may
seek additional Leverage under paragraph (d)(1) or (2), but not both. In
this paragraph (d), ``low income geographic areas'' are as defined in
Sec.108.50 of this chapter. Any investment that you use as a basis to
seek additional leverage under this paragraph (d) cannot also be used to
seek additional leverage under paragraph (e) of this section.
(1) Investment in Smaller Enterprises located in low-income
geographic areas. To determine whether you may request a draw that would
cause you to have outstanding Leverage in excess of the amount
determined under paragraph (a) of this section:
(i) Determine the cost basis, as reported on your most recent filing
of SBA Form 468, of any investments in
[[Page 97]]
the Equity Securities of a Smaller Enterprise located in a low-income
geographic area.
(ii) Calculate the amount that equals 50 percent of your
Leverageable Capital.
(iii) Subtract from your outstanding Leverage the lesser of
paragraph (d)(1)(i) or (ii).
(iv) If the amount calculated in paragraph (d)(1)(iii) is less than
the maximum leverage determined under paragraph (a) of this section, the
difference between the two amounts equals your additional Leverage
availability.
(2) Investment in Small Businesses located in low-income geographic
areas. This paragraph (d)(2) applies only to Licensees licensed on or
after October 1, 2009. You may substitute a maximum Leverage amount of
$175,000,000 for the $150,000,000 set forth in paragraph (a)(2) of this
section, and a maximum Leverage amount of $250,000,000 for the
$225,000,000 set forth in paragraph (b) of this section, if you satisfy
the following conditions:
(i) At least 50 percent (in dollars) of your Financings preceding
the date of such request must have been invested in Small Businesses
located in low-income geographic areas. In addition, you must certify
that at least 50 percent (in dollars) of your Financings on or after the
date of such request will be invested in Small Businesses located in
low-income geographic areas.
(ii) If you are requesting a draw that would cause you and any other
Licensees under Common Control to have aggregate outstanding Leverage in
excess of $225,000,000, at least 50 percent (in dollars) of the
Financings made by each Licensee under Common Control preceding the date
of such request must have been invested in Small Businesses located in
low-income geographic areas. In addition, each such Licensee must
certify that at least 50 percent (in dollars) of its Financings on or
after the date of such request will be invested in Small Businesses
located in low-income geographic areas.
(e) Additional Leverage based on Energy Saving Qualified Investments
in Smaller Enterprises. (1) Subject to SBA's credit policies, if you
were licensed on or after October 1, 2008, you may have outstanding
Leverage in excess of the amounts permitted by paragraphs (a) and (b) of
this section in accordance with this paragraph (e). Any investment that
you use as a basis to seek additional Leverage under this paragraph (e)
cannot also be used to seek additional Leverage under paragraph (d) of
this section.
(2) To determine whether you may request a draw that would cause you
to have outstanding Leverage in excess of the amount determined under
paragraph (a) of this section:
(i) Determine the cost basis, as reported on your most recent filing
of SBA Form 468, of any Energy Saving Qualified Investments in a Smaller
Enterprise that individually do not exceed 20% of your Regulatory
Capital.
(ii) Calculate the amount that equals 33% of your Leverageable
Capital.
(iii) Subtract from your outstanding Leverage the lesser of
paragraph (e)(2)(i) or (ii).
(iv) If the amount calculated in paragraph (e)(2)(iii) is less than
the maximum Leverage determined under paragraph (a) of this section, the
difference between the two amounts equals your additional Leverage
availability.
[74 FR 33916, July 14, 2009, as amended at 77 FR 23380, Apr. 19, 2012;
77 FR 25053, Apr. 27, 2012; 79 FR 62824, Oct. 21, 2014; 82 FR 39341,
Aug. 18, 2017]
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.
[[Page 98]]
(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 to
determine your maximum amount of Leverage as if you were a Section
301(c) Licensee. If the result is more than your maximum subsidized
Leverage, then this is your maximum total (subsidized plus non-
subsidized) Leverage. Otherwise, your maximum total Leverage is the same
as your maximum subsidized Leverage. For Participating Securities, see
Sec.107.1170.
(c) Special eligibility requirements for fourth tier of Leverage. A
``fourth tier of Leverage'' is any amount of outstanding Leverage in
excess of 300 percent of your Leverageable Capital.
(1) To qualify for a fourth tier of Leverage, you must have invested
(or have Commitments to invest) at least 30 percent of your ``Total
Funds Available for Investment'' in ``Venture Capital Financings'' (see
the definitions in paragraphs (e) and (f) of this section).
(2) While you have a fourth tier of Leverage, you must maintain
Venture Capital Financings (at cost) that equal at least 30 percent of
your Total Funds Available for Investment.
(d) Special eligibility requirements for second tier of Preferred
Securities. A ``second tier of Preferred Securities'' is any amount of
outstanding Preferred Securities in excess of 100 percent of your
Leverageable Capital.
(1) To qualify for a second tier of Preferred Securities:
(i) If your license was issued after October 13, 1971, you must have
at least $500,000 of Leverageable Capital.
(ii) You must have invested (or have Commitments to invest) at least
the same dollar amount in Venture Capital Financings.
(2) While you have a second tier of Preferred Securities, you must
maintain at least the same dollar amount of Venture Capital Financings
(at cost).
(e) Definition of ``Total Funds Available for Investment''. Total
Funds Available for Investment means the result obtained from the
following formula:
T = .90 x (CA + LI)
Where:
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; 74
FR 33916, July 14, 2009]
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.
Special Rules for Leverage Issued by an Early Stage SBIC
Sec.107.1180 Required distributions to SBA by Early Stage SBICs.
(a) Distribution requirement. If you are an Early Stage SBIC with
outstanding Leverage, you may make Distributions
[[Page 99]]
to your investors and to SBA only as permitted under this section. See
also Sec.107.585. For the purposes of this section, ``Distributions''
do not include required payments to SBA of interest and Charges and
payments of Leverage principal at maturity, all of which shall be paid
in accordance with the terms of the Leverage. You may make a
Distribution on any Payment Date. Unless SBA permits otherwise, you must
notify SBA in writing of any planned distribution under this section,
including computations of the amounts distributable to SBA and your
investors, at least 10 business days before the distribution date.
(b) How SBA will apply Distributions. Any amounts you distribute to
SBA, or its designated agent or Trustee, under this section will be
applied to repayment of principal of outstanding Debentures in order of
issue. You may prepay any Debenture in whole, but not in part, on any
Payment Date without penalty.
(c) Condition for making a Distribution. You may make a Distribution
under this section only if you have paid all interest and Charges on
your outstanding Debentures that are due and payable, or will pay such
interest and Charges simultaneously with your Distribution.
(d) SBA's share of Distribution. For each proposed Distribution,
determine SBA's share of the Distribution as follows:
(1) Determine the highest ratio of outstanding Leverage to
Leverageable Capital that you have ever attained (your ``Highest
Leverage Ratio''). For the purpose of determining your Highest Leverage
Ratio, any deferred interest Debentures issued at a discount must be
included in the computation at their face value.
(2) Determine SBA's percentage share of cumulative Distributions:
(i) If your Capital Impairment Percentage under Sec.107.1840 is
less than 50 percent as of the Distribution date or your Highest
Leverage Ratio equals 0.5 or less, except as provided in paragraph
(d)(2)(iii) of this section, SBA's percentage share of cumulative
Distributions equals:
[Highest Leverage Ratio/(Highest Leverage Ratio + 1)] x 100
For example, if your Highest Leverage Ratio equals 1, then SBA's share
of any distribution you make will be 50 percent.
(ii) If your Capital Impairment Percentage under Sec.107.1840 is
50 percent or greater as of the Distribution date and your Highest
Leverage Ratio is greater than 0.5, SBA's percentage share of cumulative
Distributions equals 100 percent.
(iii) If you have a condition of Capital Impairment under Sec.
107.1830 and your Highest Leverage Ratio equals 0.5 or less as of the
Distribution date, SBA's percentage share of cumulative Distributions
equals 100 percent.
(3) Multiply the sum of all your prior Distributions and your
current proposed Distribution (including Distributions to SBA, your
limited partners and your General Partner) by SBA's percentage share of
cumulative Distributions as determined in paragraph (d)(2) of this
section.
(4) From the result in paragraph (d)(3) of this section, subtract
the sum of all your prior Distributions to SBA under this Sec.
107.1180.
(5) The amount of your Distribution to SBA will be the least of:
(i) The result in paragraph (d)(4) of this section;
(ii) Your current proposed Distribution; or
(iii) Your outstanding Leverage.
(e) Additional Leverage prepayment. On any Payment Date, subject to
the terms of your Leverage, you may make a payment to SBA to be applied
to repayment of the principal of one or more outstanding Debentures in
order of issue, without making any Distribution to your investors.
[77 FR 25053, Apr. 27, 2012]
Sec.107.1181 Interest reserve requirements for Early Stage SBICs.
(a) Reserve requirement. If you are an Early Stage SBIC with
outstanding Leverage, for each Debenture which requires periodic
interest payments to SBA during the first five years of its term, you
must maintain a reserve sufficient to pay the interest and Charges on
such Debenture for the first 21 Payment Dates following the date of
issuance. This reserve may consist of any combination of the following:
[[Page 100]]
(1) Binding unfunded commitments from your Institutional Investors
that cannot be called for any purpose other than the payment of interest
and Charges to SBA, or the payment of any amounts due to SBA; and
(2) Cash maintained in a separate bank account or separate
investment account permitted under Sec.107.530 of this part and
separately identified in your financial statements as ``restricted
cash'' available only for the purpose of paying interest and Charges to
SBA, or for the payment of any amounts due to SBA.
(b) The required reserve associated with an individual Debenture
shall be reduced on each Payment Date upon payment of the required
interest and Charges. If you prepay a Debenture prior to the 21st
Payment Date following its date of issuance, the reserve requirement
associated with that Debenture shall be correspondingly eliminated.
(c) Your limited partnership agreement must incorporate the reserve
requirement in paragraph (a) of this section.
[77 FR 25053, Apr. 27, 2012]
Sec.107.1182 Valuation requirements for Early Stage SBICs based
on Capital Impairment Percentage.
(a) If you are an Early Stage SBIC, you must compute your Capital
Impairment Percentage and determine whether you have a condition of
Capital Impairment in accordance with Sec. Sec.107.1830 and 107.1840
of this part.
(b) You must promptly notify SBA in writing if your Capital
Impairment Percentage is at least 50 percent, even if your maximum
permitted Capital Impairment Percentage is higher.
(c) Upon receipt of your notification under paragraph (b) of this
section, or upon making its own determination that your Capital
Impairment Percentage is at least 50 percent, SBA has the right to
require you to engage, at your expense, an independent third party,
acceptable to SBA, to prepare valuations of some or all of your Loans
and Investments, as designated by SBA.
[77 FR 25053, Apr. 27, 2012]
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 101]]
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 102]]
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 103]]
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 104]]
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
Financial account form 468 Weight Weighted amount
----------------------------------------------------------------------------------------------------------------
(1) Cash and invested idle funds...... .......................... x 1.00
(2) Commitments from investors........ .......................... x 1.00
(3) Current maturities................ .......................... x 0.50
(4) Other current assets.............. .......................... x 1.00
(5) Publicly Traded and Marketable .......................... x 1.00
Securities.
(6) Anticipated operating revenue for \1\ x 1.00
next 12 months.
(7) Total Current Funds Available..... .......................... ................. A
(8) Current liabilities............... .......................... x 1.00
(9) Commitments to Small Businesses... .......................... x 0.75
(10) Anticipated operating expense for \1\ x 1.00
next 12 months.
[[Page 105]]
(11) Anticipated interest expense for \1\ x 1.00
next 12 months.
(12) Contingent liabilities .......................... x 0.25
(guarantees).
(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
[[Page 106]]
$125,000 if Combined Capital is below $20,000,000; or
(B) Your Management Expenses approved by SBA.
(ii) For less than a full fiscal year, you must prorate the annual
amounts in paragraph (d)(2)(i) of this section to determine the limit.
(e) How to compute your Earmarked Profit (Loss) if Earmarked Asset
Ratio is less than 100 percent. If your Earmarked Asset Ratio is less
than 100 percent, compute your Earmarked Profit (Loss) as follows:
(1) Do the Earmarked Profit (Loss) computation in paragraph (d) of
this section.
(2) Subtract your net realized gain (loss) (as reported on SBA Form
468) on Loans and Investments that are not Earmarked Assets.
(3) Separate the result from paragraph (e)(2) of this section into:
(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
[[Page 107]]
Prioritized Payments, earned Adjustments and earned Charges.
(d) How to determine your profit for Prioritized Payment purposes.
As of the end of each fiscal year and any interim period for which you
want to make a Distribution:
(1) Bring the Accumulation Account up to date by adding to it all
Prioritized Payments and Charges through the end of the appropriate
fiscal period.
(2) Determine whether you have profit for the purposes of this
section by doing the following computation:
(i) Cumulative Earmarked Profit (Loss) under Sec.107.1510(f);
minus
(ii) The Earned Payments Account balance; minus
(iii) All Distributions previously made under 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
[[Page 108]]
computations under this section and payments under Sec. Sec.107.1550
and 107.1560. Its balance represents your unpaid Profit Participation.
(c) How to compute the Base. As of the end of each fiscal year and
any year-to-date interim period for which you want to make a
Distribution, compute your Base using the following formula:
B = EP - PPA - UL
where:
B = Base.
EP = Earmarked Profit (Loss) for the period from Sec.107.1510.
PPA = Prioritized Payments for the period from Sec.107.1520(a)(1),
Adjustments (if applicable) from Sec.107.1520(f), and
Charges (if applicable) from Sec.107.1130(d)(2).
UL = ``Unused Loss'' from prior periods as determined in this paragraph
(c).
(1) If the Base computed as of the end of your previous fiscal year
(your ``Previous Base'') was less than zero, your Unused Loss equals
your Previous Base.
(2) If your Previous Base was zero or greater, your Unused Loss
equals zero, with the following exception: If you made an interim
Distribution of Profit Participation during your previous fiscal year,
and your Previous Base was lower than the interim Base on which your
Distribution was computed, then your Unused Loss equals the difference
between the interim Base and the Previous Base. For example, assume you
are computing your Base as of December 31, 1997, your fiscal year end.
Your Previous Base, computed as of December 31, 1996, was $3,000,000.
During 1996, you made an interim Distribution which was computed on a
Base of $3,500,000 as of June 30, 1996. The $500,000 difference between
the 1996 interim and year-end Bases would be carried forward as Unused
Loss in the computation of your Base as of December 31, 1997.
(3) If you had no Participating Securities outstanding as of the end
of your last fiscal year, you may request SBA's approval to treat your
Undistributed Net Realized Loss, as reported on SBA Form 468 for that
year, as Unused Loss. If you did not file SBA Form 468 because you were
not yet licensed as of the end of your last fiscal year, you may request
SBA's approval to treat pre-licensing losses as Unused Loss.
(d) How to compute the Profit Participation Rate. You must determine
your Profit Participation Rate each time you compute a Base that is
greater than zero. Compute the Rate by following the steps in paragraphs
(e) through (g) of this section.
(e) Compute the ``PLC ratio''--(1) General rule. The ``PLC ratio''
is the highest ratio of outstanding Participating Securities to
Leverageable Capital that you have ever attained.
(2) Exception. You may reduce the ratio computed under paragraph
(e)(1) of this section if you have increased your Leverageable Capital
above its highest previous level. The increase must have taken place at
least 120 days before the date as of which your Base is computed. In
addition, the increase must have been expressly provided for in a plan
of operations submitted to and approved by SBA in writing, or must be
the result of the takedown of commitments or the conversion of non-cash
assets that were included in your Private Capital. If these conditions
are satisfied, compute your reduced PLC ratio as follows:
(i) Divide the highest dollar amount of Participating Securities you
have ever had outstanding by your increased Leverageable Capital.
(ii) If the result in paragraph (e)(2)(i) of this section is lower
than your PLC ratio currently in effect, such result will become your
new PLC ratio.
(f) Compute the Profit Participation Rate (before indexing). Compute
the Profit Participation Rate (before indexing) using the table in this
paragraph (f). Then go to paragraph (g) of this section to determine
whether to index the Profit Participation Rate.
------------------------------------------------------------------------
If your PLC ratio is: Then your Profit Participation Rate is:
------------------------------------------------------------------------
1 or less...................... 9% x PLC 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.
[[Page 109]]
(1) Licensees that have issued Participating Securities on only one
occasion. Determine the Treasury Rate for the date you issued your
Participating Security. Adjust the Profit Participation Rate from
paragraph (f) of this section by the percentage difference between the
Treasury Rate and 8 percent. For example, assume that you issued
Participating Securities when the Treasury Rate was 10 percent. The
percentage difference between 10 percent and 8 percent is 25 percent. If
you had a PLC ratio of 1, the Profit Participation Rate before indexing
would be 9 percent. You would increase this rate by 25 percent, giving
you a Profit Participation Rate of 11.25 percent.
(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,
[[Page 110]]
you must distribute them in accordance with this Sec.107.1540. You
must notify SBA of any planned distribution under this section 10
business days before the distribution date, unless SBA permits
otherwise.
(a) Requirement to distribute Prioritized Payments and Adjustments.
This paragraph (a) applies only if you satisfy the liquidity requirement
in Sec.107.1505. All Distributions under this paragraph (a) go to SBA
or its designated agent or trustee.
(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.
[[Page 111]]
(3) In determining the combined Federal and State income tax rate,
you must assume that State income taxes are deductible from Federal
income taxes. For example, if the Federal tax rate was 35 percent and
the State tax rate was 5 percent, the combined tax rate would be [35% x
(1-.05)] + 5% = 38.25%.
(4) For purposes of this paragraph (b), the ``State income tax'' is
that of the State where your principal place of business is located, and
does not include any local income taxes.
(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 112]]
(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 113]]
(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 114]]
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 115]]
(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 116]]
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]