[Federal Register Volume 59, Number 143 (Wednesday, July 27, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: X94-10727]


[[Page Unknown]]

[Federal Register: July 27, 1994]


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SMALL BUSINESS ADMINISTRATION
 

Nationwide Implementation of a Revolving Line of Credit Program

AGENCY: Small Business Administration (SBA).

ACTION: Notice.

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SUMMARY: The Small Business Administration (SBA) is issuing notice to 
advise the public it is implementing a new revolving line of credit 
loan guaranty program on a national basis to be called the GreenLine 
Revolving Line of Credit Loan Guaranty Program (GreenLine). This 
program authorizes SBA to use its guaranty authority to provide the 
Agency's full faith and credit support to loans made by approved 
lenders that finance the short term, cyclical working capital needs of 
small businesses.
    The establishment of GreenLine is in response to information 
obtained over a two year period demonstrating the need for a nationwide 
revolving line of credit loan guaranty program. Many lenders 
acknowledged that this type of financing was generally available in the 
commercial marketplace to only larger businesses with a need for larger 
lines of credit. Small businesses would require the guaranty from SBA 
in order for lenders to provide them with the same opportunity.
    GreenLine shall serve as the umbrella for all the Agency's short 
term lending programs with the exception of the Export Revolving Line 
of Credit (ERLC) and the Export Co-Guaranty programs. Under GreenLine, 
authority to provide a revolving feature to the Agency's traditional 
Contract, Seasonal, and Contractors loan programs is added.

EFFECTIVE DATE: July 22, 1994.

FOR FURTHER INFORMATION CONTACT: Michael J. Dowd, Chief Loan Policy & 
Procedures Branch, (202) 205-6490.

SUPPLEMENTARY INFORMATION: The predecessor for this program was tested 
on a pilot basis in selected local markets beginning on October 1, 1992 
when SBA began piloting two revolving line of credit loan programs. 
Both Programs were designed to assist small business in obtaining 
cyclical working capital financing through the authority of SBA's 7(a) 
guaranty loan program.
    The first pilot, called the Green Line Revolving Line of Credit 
Program (GRLC), was implemented in the Agency's South East and South 
Central Regions, while the second, called the Domestic Revolving Line 
of Credit Program (DRLC) was tested in all SBA Regions not served by 
the Green Line pilot. The predominant distinction between the programs 
dealt with the maximum maturity permitted on the loans: GRLC loans had 
a maturity of up to five years, while the DRLC loans had a maturity of 
only one year.
    Case files were collected from field offices active in the two 
pilot programs which were reviewed in order to determine the 
creditworthiness of the businesses seeking this financing, as well as 
to identify various terms and conditions which would be prudent for 
inclusion in the new loan program's approval documents. The reviews and 
program formation meetings also revealed that the new program would 
need servicing guidelines designed to provide maximum assurances that 
the line would revolve and the losses minimized.
    Since October 1, 1992, 531 loans have been approved under the GRLC 
pilot for a total of $130.0 million, while for the same period, 327 
loans have been approved under the DRLC pilot for a total of $71.0 
million. It is important to note that this volume of GRLC activity was 
generated in only two regions, while the DRLC volume was generated in 
eight. This activity indicated that a much keener interest exists for 
the extended terms available under Pilot GRLC than under the Pilot DRLC 
Program.
    Under this program, advances will generally be made against a 
borrower's certified level of inventory and accounts receivable, while 
repayment will be derived from the sale of that inventory and the 
collection of any resulting accounts receivable. Participating lenders 
will be expected to monitor the disbursements of funds from the line 
and control the payment of funds back to the line. Primary collateral 
will consist of a senior lien position on the assets being financed.

Implementation

    SBA will consider all applications submitted by approved GreenLine 
lenders which seek up to a 75% SBA guaranty of the GreenLine financing, 
not to exceed $750,000. Lender's desiring to participate need to 
complete a Lender's Qualification Survey which can be obtained from 
their local SBA District Office. The processing of GreenLine 
applications can only be done by SBA personnel from offices which have 
completed SBA sponsored training, and received approval from SBA's 
Office of Financial Assistance (OFA). Training material has been 
developed and the training schedule set. Once the staff in a field 
office completes the required training, and is designated by OFA, it 
will be eligible to process GreenLine applications received from 
approved participating lenders.
    All field offices which have processed either GRLC or DRLC loans 
under the respective regional pilots will continue to be able to accept 
and process these loans under their existing pilot guidelines until 
training has been offered to their office by the SBA Associate 
Administrator for Financial Assistance (AA/FA), but in no event later 
than August 30, 1994. After this date, offices will only be able to 
accept GreenLine applications.

Additional Fees Permitted

    In recognition of the additional servicing and monitoring required 
to adequately protect the interest of the lender and SBA, the Agency is 
temporarily waiving its limitations on service related fees in order to 
permit the lender to offset the costs associated with increased 
servicing required to prudently monitor the lines, and to provide a 
program that relates to the lending practices of the private sector.
    All of SBA's Regulations presently in effect relative to 7(a) 
guaranteed business loans (see 13 CFR, paragraphs 120 and 122) will 
also govern the implementation of GreenLine, provided, however, that 
the limitation on processing and servicing fees as found in 
Secs. 120.104-2(a)(3) and 120.104-2(e) of SBA regulations (13 CFR 
120.104-2(a)(3) and 120.104-2(e)) will be waived for a maximum two year 
pilot period. Notice of this pilot is issued pursuant to Sec. 120.1-2 
of SBA regulations (13 CFR 120.1-2). In addition, SBA will ascertain 
whether this type of loan can be sold on the secondary market.
    SBA will require that participating lenders fully disclose to both 
the borrower and SBA the fees they intend to charge the borrower, and 
that the borrower acknowledge these fees in writing to the lender and 
SBA prior to the time the guaranty of the loan is authorized by SBA, 
and every six months thereafter.
    SBA is waiving the fee restriction for GreenLine for up to two 
years provided the Lender charges their SBA supported borrowers the 
same fees and charges for services they would normally charge their 
non-SBA borrowers with similar types of revolving lines of credit for 
similar services.

Outside Servicing Contractors Permitted

    GreenLine will require a greater servicing effort by lenders than 
the Agency's other business loan programs and two existing pilot 
programs. SBA recognizes that the extent of these servicing 
requirements may potentially inhibit the willingness of small 
community-based, rural, and independent banks from participating in the 
program. This may, in turn, have the undesirable effect of limiting 
access of creditworthy small businesses to the program in the areas 
serviced by such lenders. Therefore, the Agency is authorizing lenders 
to contract out for the servicing functions they do not perform 
themselves. Contracting does not relieve the lender of its 
responsibilities contained in SBA Form 750 (or 750 B) or any individual 
loan authorization issued by SBA. The lenders will be held responsible 
by SBA for the activities of their contractors. Every contractor must 
meet the minimum requirements, as specified below.
    To assure that each GreenLine maintains its revolving feature, 
lenders agree to make initial and periodic examinations of the 
borrower's current assets which serve as collateral and forms the basis 
for disbursements. Lenders also agree to continually monitor the 
financial data and control of the cash generated by the borrower as a 
result of their having the use of the GreenLine proceeds. At a minimum, 
a borrower's generated cash must go to an operating account where the 
business can not make withdrawals without the concurrence of the 
Lender.
    Considering the volatility of the collateral securing revolving 
lines of credit, lenders shall agree as a condition for approval that 
they will liquidate a GreenLine borrower's current assets prior to 
seeking SBA's purchase of any guaranty.

Third Party Service Providers

Minimum Requirements

    The following standards have been formulated as guidelines for 
lenders participating in SBA's GreenLine Program for use when 
evaluating and selecting an outside or third party service provider 
(Provider) who may perform those examination, monitoring, or control 
functions required to prudently administer GreenLine loans guaranteed 
by the SBA: Experience; Competence; Character; Equal Opportunity; 
Financial Responsibility; Coverage; Business Authorities; and 
Confirmation. These standards are numerically arranged from 1 to 8. 
Those standards noted by an ``a'' after the number are required for 
lender approval of Providers who will perform examination services. The 
standards noted with a ``b'' are required for lender approval of 
Providers who will perform monitoring or control services.
    The lender shall have the responsibility for providing the required 
examination, monitoring, or control functions. Under this program, the 
lender may contract with a Provider who meets these standards to assist 
the lender with the examination, monitoring, or control functions. SBA 
takes no position on the approvability or quality of any Provider.

Providers Who Will Perform Examination Services

1a. Experience
    Provider must demonstrate that it has successfully been in business 
continuously as an individual, partnership, or corporation for not less 
than three (3) years. This experience must substantially consist of 
examining, auditing, analyzing or reviewing supporting documents and 
physical quantification of accounts receivable, inventory or their 
equivalents. Experience is not limited to accounting firms, collateral 
control companies or asset based lenders, provided however, the 
applicant's experience has been directly related to asset based 
lending.
2a. Competence
    Provider must be capable of submitting a description or outline of 
services offered, methodology in delivering and documentation 
supporting, together with at least two (2) examples of past engagements 
performed in the last two (2) years.
3a. Character
    Provider shall certify in writing to the lender that:
     During its business career that it or its parent 
organizations, partnerships or venture partners, have not been 
convicted of a violation of any federal or state criminal laws.
     It has never been in litigation with the SBA or with any 
SBA participating lender in connection with SBA lending.
     It is in compliance with Internal Revenue Service (IRS) 
reporting requirements and must not be subject to IRS enforcement 
procedures when it applies to become a Provider.
4a. Equal Opportunity
    Provider must certify in writing that:
     It does not discriminate, nor will it discriminate, in its 
hiring practices with respect to race, creed, age, gender, or national 
origin.
     It is in compliance with all federal, state and local 
regulations governing employee safety and workman's compensation, as 
applicable.
5a. Financial Responsibility
    Provider must furnish proof that:
     It maintains at least $500,000 of unencumbered 
professional liability coverage from a reputable insurance carrier, or 
financially provided by an equivalent source. Coverage amount must 
insure each incident and on an aggregate annual basis.
     Such insurance covers employees, agents and subcontractors 
for principal loss as a result of errors, omissions or negligence in 
quantifying accounts receivable, or inventory.
     Coverage extends to the geographic area Provider is 
requesting to service.
6a. Coverage
    Provider must indicate whether it is applying for a specific 
state[s], region[s], or locale[s] and support this by explanation of 
staffing.
7a. Business Authorities
    Provider must be legally permitted to conduct its services in 
whatever area it is applying to serve. Such legal authority may be 
evidenced by, but is not limited to, occupations permits, federal or 
state registration, or any other legal requirements.
8a. Confirmation
    Provider shall submit the company names, addresses, and authorized 
phone contacts of not less than three (3) references which can support 
the Approved Examination Servicer (AES) application by offering 
opinions relating to present or past services rendered. The services 
must generally equate to those for which the applicant seeks AES 
status.

Providers Who Will Perform Monitoring & Control Services

1b. Experience
    Provider must demonstrate that it has successfully been in business 
continuously as an individual, partnership, or corporation for not less 
than three (3) years. The experience must substantially consist of 
examining, auditing, analyzing or reviewing documents supporting, and 
physical quantification of, accounts receivable, inventory or their 
equivalents. Experience is limited to providers which can further 
demonstrate experience in obtaining actual or contingent dominion over 
collateral assets including: bank lock boxes, postal block boxes, 
segregation of inventories and raw materials utilizing elements of, or 
actual use of legal bailment in connection with asset based lending. 
Further, applicant should also demonstrate experience in supervising 
movement of accounts receivable and inventory in and out of the 
borrowing base, independent of the borrower or its physical location.
2b. Competence
    Provider must be capable of submitting a description or outline of 
services offered, methodology in delivering and documentation 
supporting, together with at least two (2) examples of past engagements 
performed in the last two (2) years. An Approved Monitoring & Control 
Servicer (AMCS) Contractor must offer examples covering: 1.) 
Examinations; 2.) Information Monitoring with Examinations and 3.) 
Collateral Control Services performed. This includes administration of 
lock boxes, postal block boxes, bailment, or its elements and 
continuous monitoring of collateral assets, independent of borrower or 
its physical location.
3b. Character
    Provider shall certify in writing to the lender that:
     Since its inception, the Provider and its parent (if any), 
affiliated partnerships or venture partners, have not been convicted of 
a violation of any federal or state criminal laws.
     It has not been engaged in litigation with the SBA or with 
any SBA participating lender in connection with SBA lending.
    It is in compliance with Internal Revenue Service (IRS) 
reporting reqirments and must not be subject to IRS enforcement 
procedures when it applied to become a Provider.
4b. Equal Opportunity
    Provider must certify that:
     It has not discriminated, nor will it discriminate, in its 
hiring practices with respect to race, creed, age, gender, or national 
origin.
     It is presently in compliance with all federal, state and 
local regulations governing employee safety and workman's compensation, 
as applicable.
5b. Financial Responsibility
    Provider must provide proof that it maintains at least $1,000,000 
of unencumbered professional liability coverage from a reputable 
insurance carrier, or financially provided by an equivalent source. 
Coverage amount would insure each incident and on an aggregate annual 
basis. It must cover employees, agents and subcontractors for principal 
loss as a result of errors, omissions, or negligence in examining, 
monitoring and controlling collateral assets such as accounts 
receivable, inventory and their equivalents. Moreover, coverage should 
extend to the establishment of any aspect of baliment, in controllng 
borrower inventories. All coverage must extend to the geographic area 
the Provider is requesting to service.
6b. Coverage
    Provider must indicate whether it is applying for a specific 
state[s]. region[s], including an explanation of staffing and methods 
of quality control.
7b. Business Authorities
    Provider must be legally permitted to conduct its services in 
whatever area it is applying to serve. Such legal authority may be 
evidenced by, but is not limited to, occupational permits, federal or 
state registration, or any other legal requirements to conduct 
business.
8b. Confirmation
    Provider shall submit the company names, addresses, and authorized 
phone contracts of not less than three (3) references which can support 
the AMCS application by offering opinions relating to present or past 
services renderd. The services must generally equate to those for which 
the applicant seeks AMCS status.

    Dated: July 8, 1994.
John R. Cox,
Associate Administrator for Financial Assistance.
[FR Doc. 18241 Filed 7-26-94; 8:45 am]
BILLING CODE 8025-01-M