[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