[Federal Register Volume 59, Number 46 (Wednesday, March 9, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-5433]


[[Page Unknown]]

[Federal Register: March 9, 1994]


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SMALL BUSINESS ADMINISTRATION
13 CFR Part 123

 

Disaster--Physical Disaster and Economic Injury Loans

AGENCY: Small Business Administration.

ACTION: Final rule.

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SUMMARY: The Small Business Administration (SBA) is revising on an 
immediate basis its present prohibition on making economic injury 
disaster loans available to small business concerns engaged in 
investing in real or personal property (see 13 CFR 123.41(b)(2). This 
regulation would provide a limited exception to that prohibition which 
would permit economic injury assistance to be made available to 
concerns investing in either commercial or residential real property 
which is rented to a third party or intended to be rented to a third 
party. This revision is being undertaken on an emergency basis and is 
therefore published as a final rule.

DATES: This rule is effective March 9, 1994.

ADDRESSES: Comments should be submitted to Bernard Kulik, Assistant 
Administrator for Disaster Assistance, U.S. Small Business 
Administration, 409 Third Street SW., 8th Floor, Washington, DC 20416.

FOR FURTHER INFORMATION CONTACT:
Michael E. Deegan, Office of Disaster Assistance, (202) 205-6734.

SUPPLEMENTARY INFORMATION: Pursuant to section 7(b)(2) of the Small 
Business Act, 15 U.S.C. 636(b)(2), SBA is authorized to make disaster 
loans available as it may determine to be necessary or appropriate to 
any small business concern located in an area affected by a disaster, 
if SBA determines that the concern has suffered a substantial economic 
injury as a result of such disaster.
    In implementing this statutory mandate, SBA has promulgated 
regulations (see 13 CFR 123.40 et seq.), among which is 13 CFR 
123.41(b)(2) which enumerates a number of types of business concerns 
which are ineligible for economic injury assistance. Among such 
concerns are those which invest in commercial or residential real 
property that is to be held for the purpose of obtaining rental income. 
These types of businesses have historically been ruled ineligible for 
SBA's business loan and economic injury disaster loan assistance 
because they have been viewed, as a matter of policy, to be passive 
investment businesses not involved in the operation of a going 
commercial business activity.
    SBA has determined that this restriction on the eligibility of 
businesses engaged in the rental of real property is no longer 
warranted for economic injury disaster assistance because of the unique 
practical implications on real estate rental that flow from disaster 
situations, notwithstanding the passive nature of the business activity 
of such concerns. In this regard, disasters commonly damage a 
significant share of the rental real properties in a disaster area, 
causing shortages of available residential and commercial rental space. 
At the same time, disaster victims (including homeowners, renters and 
businesses) displaced from their own damaged properties are forced to 
hastily seek rental of suitable alternatives. They enter a market with 
a suddenly constricted supply of rental properties due to the disaster. 
The combination of these factors often leads owners of vacant, 
undamaged rental property to increase rents, which in turn forces 
residential and commercial renters to pay rental rates above what their 
budgets can reasonably afford.
    Under SBA's physical disaster assistance program, the owners of 
disaster damaged rental real property can borrow the amount of their 
uninsured losses from SBA to help fund repairs of physical damages. 
However, until the repairs are completed and the tenants return, the 
landlords experience a period of negative cash flow while mortgage 
payments and operating expenses continue without rental receipts. Many 
landlords, especially the small ones, cannot maintain solvency through 
such a period.
    Notwithstanding these circumstances, unlike most other businesses, 
such landlords are not presently eligible for SBA economic injury 
disaster loans, which are intended by law to help small businesses meet 
ordinary and necessary operating expenses and pay fixed debts until 
resumption of normal operations after a disaster. Because the inability 
of small landlords to obtain economic injury assistance from SBA poses 
a direct obstacle to their ability to return their disaster damaged 
rental units to the residential and commercial market, it also 
compounds the difficulties faced by renters in the aftermath of 
disasters. This practical reality along with the acute needs within a 
disaster area for an adequate supply of affordable residential and 
commercial rental property justify extending economic injury 
eligibility to rental real property owners.
    This amendment provides a limited exception to the present rule 
which prohibits economic injury disaster assistance to all concerns 
investing in real property. It does not affect the provisions of SBA's 
present regulations (13 CFR 120.102-8) which prohibit eligibility for 
business loan assistance for such businesses and, it does not permit 
economic injury disaster assistance for businesses which merely invest 
in real property for sale and investment. Only concerns which invest in 
real property for rental purposes will be eligible for SBA economic 
injury disaster assistance under this revision. Those who cannot 
demonstrate that their property was rented or intended to be rented at 
the time of the occurrence of the disaster will continue to be 
ineligible for the assistance. In reviewing applications for economic 
injury assistance for rental property owners, the remaining SBA 
eligibility and credit standards that currently apply to all other 
small businesses eligible for an economic injury disaster loan will be 
used.
    SBA is establishing this limited exception effective upon 
publication pursuant to 13 CFR 123.1(b) which authorizes emergency 
changes in the regulations governing its disaster assistance program, 
and 5 U.S.C. 553(b)(B) which permits publication of regulations in 
final form without notice of comment when an agency finds that good 
cause exists for publication in final form on an emergency basis, and 
that notice and comment is impracticable, unnecessary or contrary to 
the public interest. In this regard, the public interest in seeing to 
it that the new limitations are effective as to the recent California 
earthquake disaster makes the utilization of notice and comment 
rulemaking impracticable.

Compliance With Executive Orders 12866, 12612, and 12778; Regulatory 
Flexibility Act, 5 U.S.C. 601, et seq.; and the Paperwork Reduction 
Act, 44 U.S.C. ch. 35

    For purposes of Executive Order 12866, SBA certifies that this rule 
will not have an annual economic effect in excess of $100 million, 
result in a major increase in costs for individuals or governments, or 
have a significant adverse effect on competition and, therefore, would 
not constitute a major or significant rule. SBA has made this 
determination based upon the fact that even though this rule would 
potentially increase the universe of eligible applicants for economic 
injury disaster assistance, it would not, in and of itself, increase 
the gross amount of disaster assistance available to those who are 
eligible. Individual applicants will still be governed by all other 
eligibility requirements for SBA economic injury disaster assistance 
and will remain eligible for assistance to the extent of verifiable 
loss as present regulations provide.
    For purposes of Executive Order 12612, SBA certifies that this rule 
will not have federalism implications warranting the preparation of a 
Federalism assessment.
    For purposes of Executive Order 12778, SBA certifies that this rule 
is drafted, to the extent practicable, in accordance with the standards 
set forth in section 2 of that Order.
    For purposes of the Regulatory Flexibility Act, SBA certifies that 
this rule will not have a significant economic effect on a substantial 
number of small entities for the same reason that it is not a major or 
significant rule.
    For purposes of the Paperwork Reduction Act, SBA certifies that 
this rule will not impose a new recordkeeping or reporting requirement.

List of Subjects in 13 CFR Part 123

    Disaster, Physical disaster and economic injury loans.

    For the reasons set out above, pursuant to sections 5(b)(6) and 
7(b)(2) of the Small Business Act, title 13, part 123 of the Code of 
Federal Regulations, is amended to read as follows:
    1. The authority citation for part 123 continues to read as 
follows:

    Authority: Sec. 5(b)(6), 7(b), (c), (f) of the Small Business 
Act, 15 U.S.C. 634(b)(6), 636 (b), (c,) (f); Pub. L. 102-395, 106 
Stat. 1828, 1864; and Pub. L. 103-75, 107 Stat. 739.

    2. Section 123.41(b)(2)(ix) is revised to read as follows:


Sec. 123.41  General provisions.

* * * * *
    (b) * * *
    (2) * * * (ix) concerns investing in property--see Sec. 120.102-8; 
Provided however, that for any disaster occurring on or after January 
1, 1994, concerns investing in real property that was being held for 
rental at the time of the occurrence of the disaster are eligible to 
apply for these loans.
* * * * *
    Dated: February 22, 1994.
Erskine B. Bowles,
Administrator.
[FR Doc. 94-5433 Filed 3-8-94; 8:45 am]
BILLING CODE 8025-01-M