[Federal Register Volume 60, Number 43 (Monday, March 6, 1995)]
[Notices]
[Pages 12268-12275]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-5337]
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SMALL BUSINESS ADMINISTRATION
Preferred Lenders Program; FA$TRAK Pilot Program
AGENCY: Small Business Administration.
ACTION: Notice of pilot program ``FA$TRAK''.
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SUMMARY: the Small Business Administration (SBA) is establishing a
pilot program in which certain lenders will be permitted to use their
own documentation and procedures to approve loans to small businesses
using the Section 7(a) loan program in return for a reduced percentage
of guaranty and other modifications to SBA's normal lending practices.
This program will be called FA$TRAK and will be considered a part of
the Preferred Lenders Program.
DATES: This pilot will be effective on February 27, 1995 and will
remain in effect for 2 years.
FOR FURTHER INFORMATION CONTACT:
James W. Hammersley, Deputy Director, Office of Financing, U.S. Small
Business Administration, 8th floor, 409 3rd St., SW., Washington, DC
20416; 202-205-6493.
SUPPLEMENTARY INFORMATION: The Small Business Administration (SBA) is
establishing the FA$TRAK pilot program as part of the existing
Preferred Lenders Program. This program is designed to streamline the
process by which a lender receives a guaranty from SBA on a loan made
to a qualifying small business. It is SBA's goal to utilize, to the
maximum extent possible, existing documentation of participating
lenders. Therefore, for FA$TRAK loans lenders will be permitted to use
their own application form(s), internal credit memoranda, notes,
collateral documents, servicing documentation and liquidation
documentation. The SBA will limit the use of government-mandated forms
to those forms necessary to authorize the lender to disburse the loan
with a government guaranty, record the guaranteed balance and loan
status, and ensure that the borrower has agreed to those items required
by law and regulation. [[Page 12269]]
Lenders participating in this pilot program will be given the
ability to attach an SBA guaranty to an approved loan without having to
submit the loan application to an SBA field office for a credit
analysis or review. These loans will be sent to a single location for
assignment of an SBA loan number and a determination of borrower
eligibility.
In return for this flexibility and the ability to attach an SBA
guaranty to a loan without prior review by SBA, lenders will agree to:
limit the maximum loan amount to $100,000; accept a maximum guaranty of
50 percent; and, waive payment on defaulted loans until after the
lender has completed liquidation and SBA has reviewed the underlying
documentation supporting the loan. The payment of interest on defaulted
loans will be limited to 120 days. Lenders will be responsible for loan
servicing and liquidation and will be required to indemnify SBA against
any loss due to documentation drafting errors or negligent servicing
and liquidation.
Many aspects of the existing SBA guaranteed loan program will
continue to be utilized in FA$TRAK. Borrowers who are not eligible for
assistance under the existing program will not be eligible under
FA$TRAK. Lenders will be provided with general guidance on eligibility;
however, the SBA loan processing office will make an eligibility
determination. Lenders must negotiate interest rates that are within
the SBA maximum interest rate ceiling. The current SBA policy on fees
charged by the lender will remain in effect. SBA reserves the right to
review any fees charged by a lender that the applicant considers to be
unreasonable. If SBA determines that such fees are unreasonable, the
lender agrees to return the excess to the applicant.
During the pilot program, lenders will not be permitted to sell the
guaranteed portion of these loans into the secondary market because SBA
will not have reviewed the loan documentation for these loans prior to
such sale.
Lenders will be permitted to reduce their exposure to an existing
borrower of the bank by making a FA$TRAK loan only if the existing loan
has always been current (no payment more than 29 days late).
The pilot program is scheduled to last 2 years, beginning on
February 27, 1995. Prior to the termination date, SBA will review the
experience with the program and determine if final rules and
regulations will be developed.
The Rules and Regulations for the Preferred Lenders Program may be
found at 13 CFR 120.400. During this pilot, various sections of SBA
rules will be suspended only for FA$TRAK loans made by lenders
participating in the FA$TRAK program. The suspended sections include,
but are not limited to, Section 120.102-2, 120.402-2, 120.403-2 and
120.403-4. A copy of the FA$TRAK supplemental guaranty agreement and
the program guide are attached to this notice. These documents provide
more detailed information on the operation of the pilot program.
Philip Lader,
Administrator.
Small Business Administration
Supplemental Guaranty Agreement FA$TRAK
This agreement is made this ________ day of ________, 19____ (``the
effective date'') by and between the ________ (``Lender'') and the U.S.
Small Business Administration (``SBA''), an agency of the United States
Government.
Whereas, this is a Supplemental Guaranty Agreement (``Supplemental
Agreement'') to the Loan Guaranty Agreement (SBA Form 750, dated 10-83)
between the parties hereto, dated ________, (``the Guarantee
Agreement'') all the provisions of that SBA Form 750 are applicable to
loans made by lender to small business concerns under the FA$TRAK
program, which is a process for approving, servicing and liquidating
loans made under the Preferred Lenders Program (PLP), except as
otherwise provided herein.
Whereas, the parties intend under this Supplemental Agreement for
the Lender to perform the processing and most of the servicing and
liquidating tasks associated with loans of $100,000 or less in
principal amount under the FA$TRAK portion of the Preferred Lenders
Program;
The parties agree as follows:
1. Under this Supplemental Agreement, Lender will be permitted to
issue an SBA guaranty for any loan of $100,000 or less in principal
amount approved under FA$TRAK procedures which meets the requirements
and standards for FA$TRAK loans. Except as specifically provided herein
or in the Program Guide for FA$TRAK, such loans are subject to all PLP
Rules and Regulations as promulgated from time to time. Lender shall
have the authority to issue a loan guaranty agreement and such other
loan approval forms as may be necessary in order to permit a small
business to receive a FA$TRAK loan from the Lender.
2. In conjunction with each FA$TRAK loan, the Lender shall be
permitted to use its own application forms and other credit documents
normally required by it for approving loans, and its own note and other
forms of loan documentation specifically including a settlement sheet
and all other instruments which it uses to make, service and liquidate
similar loans in a manner consistent with prudent lending practices and
loan documentation. After Lender performs a thorough credit analysis
relative to an application for a FA$TRAK loan, it will forward such
summary information as SBA requires in the Program Guide for FA$TRAK to
the SBA's FA$TRAK Processing Center. SBA will endeavor to provide
Lender with an SBA loan number within one working day of receipt of the
summary information.
3. Lender assumes the responsibility for the completeness of each
FA$TRAK application package and all documentation it has relieved upon
to make a credit judgment for a FA$TRAK loan. Lender agrees to require
approved borrowers to execute SBA Form 1920 prior to first disbursement
{this form contains requirements that are mandated by Congress as a
condition for receiving federal financial assistance}.
4. The percentage of SBA's guaranty of a loan guaranteed under this
Supplemental Agreement shall not exceed fifty percent (50%) of the
outstanding principal amount of the loan at the time of disbursement.
5. Approval of a loan under procedures established by this
Supplemental Agreement shall constitute certification by the Lender, to
the best of its professional knowledge and judgment at the time of loan
approval, and in accordance with standard and prudent lending
practices, that:
a. The partners, principal owners, officers, and management of the
applicant are of good charter;
b. There is a reasonable assurance of repayment by the borrower
according to the terms determined by the lender;
c. Without the guaranty of the SBA, the loan funds would not
otherwise be available on reasonable terms to the applicant, or from
the personal resources of the principal owner of the applicant; and
d. The Lender is not and will not be in a superior lien position on
any collateral securing the FA$TRAK loan, unless the application file
contains an explanation leading to the necessity of the subordinated
lien position and a complete description of the lien positions as a
result of the subordination.
6. Lender agrees that it will not approve any FA$TRAK loan
application on which the Applicant has noted any outstanding SBA
business, disaster or development company loans
[[Page 12270]] (guaranteed or otherwise), unless the outstanding SBA
loans are current at the time of approval of the FA$TRAK loan and the
Lender does not possess any information that could indicate impending
default on any such loan.
7. Lender shall service loans made under this Supplemental
Agreement in accordance with the provisions of 13 C.F.R. Sec. 120.404
{copy attached} of the PLP regulations and the Guarantee Agreement.
Lender is permitted to perform any servicing action on any FA$TRAK loan
in its portfolio that does not confer a preference on the lender except
that the Lender may not unilaterally compromise or sell the borrower's
obligation for less than the amount owned on that obligation. Lender
may use its own documents to record servicing changes as necessary.
8. Lender agrees to liquidate all SBA loans made under this
Supplemental Agreement unless written instructions to the contrary are
received from SBA. Liquidation will be conducted in a commercially
reasonable manner and will be consistent with SBA's regulations and the
Guarantee Agreement.
9. Lender agrees that interest on any FA$TRAK loan made under this
agreement will cease to accrue after 120 days from the date of the
earliest uncured default. Further, Lender agrees to withhold a request
for SBA to honor its guaranty on any loan made hereunder until final
liquidation of the loan is completed by lender, including liquidation
of all worthwhile collateral and recovery from any collectible
obligor(s). Payment will be made after SBA has reviewed and approved
all documentation supporting the making, closing, servicing and
liquidating of the loan.
10. Lender agrees to provide SBA with a notification of loan status
on an as requested basis (requests will initially be quarterly but may
be changed to monthly after an electronic reporting mechanism is
developed).
11. (a) Lender authorizes SBA to make periodic reviews and audits
of all loans made under this Supplemental Agreement, including making
copies and extracts from, all files, records, papers, or other relevant
information. Lender authorizes all Federal, State and municipal
authorities to furnish reports of examination, records and other
information relating to the condition and affairs of the Lender and any
desired information from reports, returns, files, and records of such
authorities upon request by SBA.
(b) Lender agrees to photocopy a representative sample, as defined
by SBA, of its FA$TRAK loan files on an occasional basis, as determined
by SBA and to send these copies to SBA.
12. The SBA guaranty on any loan made under this Supplemental
Agreement shall commence immediately upon first disbursement by the
Lender. After that time, denial of liability on the guaranty shall take
place only upon the determination by SBA that the Lender is guilty of
fraud, negligence, misrepresentation or other misconduct, or violation
of any provision of this Supplemental Agreement, the Guaranty Agreement
(SBA Form 750), SBA's Rules and Regulations, or the Program Guide for
FA$TRAK.
13. This agreement shall be effective for two years from the
Effective Date, unless both parties agree in writing to a renewal prior
to the expiration of the two-year period. Either party may terminate
this agreement without cause upon not less than ten (10) business days
written notice by certified mail to the other party. Termination shall
not affect the guaranty of any loan approved by the lender pursuant to
this Supplemental Agreement.
14. The provisions of the Program Guide for FA$TRAK are an integral
part of this Supplemental Agreement and are incorporated herein by
reference. Lender represents to SBA that it fully understands the
Program Guide.
15. The guaranteed portion of loans approved pursuant to this
Supplemental Agreement may not be sold in the Secondary Market.
16. All of the terms and conditions of the Guaranty Agreement (SBA
Form 750) not expressly modified by this Supplemental Agreement shall
remain in full force and effect.
IN WITNESS WHEREOF, Lender and SBA have caused this agreement to be
duly executed as of the date written above.
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Institution
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City, State, Zip Code
U.S. Small Business Administration
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Title
BILLING CODE 8025-01-M
[[Page 12271]]
[GRAPHIC][TIFF OMITTED]TN06MR95.006
BILLING CODE 8025-01-C [[Page 12272]]
I. Introduction
This program guide contains the policies, procedures and guidelines
for implementation of FA$TRACK. This guide is an integral part of the
``Supplemental Guaranty Agreement for FA$TRACK'' and has been
incorporated therein by reference. Participation in FA$TRACK is limited
to those lenders which have been approved by SBA for FA$TRACK program
participation and have executed the supplemental guaranty agreement.
FA$TRACK is intended to increase the capital available to those
businesses seeking loans of $100,000 or less by permitting lenders to
use their existing documentation and procedures and receive an SBA
guaranty on the loan. Eliminating the requirement that SBA forms be
used and application procedures be followed will allow lenders to
reduce the cost of processing an SBA guaranteed loan. SBA hopes that
reducing the cost of providing credit will encourage lenders to make
smaller loans. To further reduce the lender's cost of doing business
with SBA, lenders participating in FA$TRACK will be permitted to use
their own internal documentation for servicing actions and will be
permitted to use their existing procedures for loan liquidation.
In exchange for the authorities described above and in recognition
of the increased risk assumed by SBA, lenders participating in FA$TRACK
agree to accept a maximum guaranty of 50% on each loan. The guaranty of
50% is designed to give participating lenders the credit enhancement
needed to approve certain applications while recognizing that SBA has
not reviewed the credit or the documentation of the participating
lender. Lenders desiring a guaranty higher than 50% for a specific case
are permitted to use regular SBA procedures and forms to submit a loan
to SBA for a guaranty up to 90%.
II. Eligibility Requirements for FA$TRACK
The Small Business Act provides certain requirements and
restrictions on businesses which are entitled to government financial
assistance. These considerations are described below.
A. Size Standards
While the $100,000 maximum loan amount will tend to limit the size
of business interested in this type of loan, SBA's existing size
standards which are described in Part 121 of Title 13 of the Code of
Federal Regulations apply to all loans approved under FA$TRACK. These
size standards refer to the applicant and any affiliates.
B. Eligible Loan Recipients
Lenders may not obtain a guaranty for loans to certain types of
businesses. SBA rules on applicant eligibility are located in Section
120.101 and 120.102 of Title 13 of the Code of Federal Regulations. A
copy is included as Appendix 1 to this guide. These rules are subject
to change. Any questions regarding eligibility may be directed to the
Sacramento FA$TRAK Processing Center. The names and telephone numbers
for the Processing Center staff are located in Appendix 2.
C. Conflict of Interest
Lender may not use FA$TRAK procedures to approve a loan to a firm
in which any of the owners or managers are also an employee of the
lender or SBA or own 10% or more of the stock of the lender.
Furthermore, FA$TRAK may not be used to make a loan to an associate or
close relative (See 13 CFR 120.2-2, Appendix 3.) of either of the above
described individuals.
D. Ineligible Uses of Loan Proceeds
In general, loan proceeds may be used for the same purposes as
loans approved without an SBA guaranty. Loan proceeds may not be used
for the following purposes:
a. To pay off inadequately secured creditors.
b. To provide funds for distribution to the owners of a business
unless these funds fully change the ownership of a business. Loans for
a change of ownership are eligible provided there is a 100% change of
ownership and the transfer is not between family members.
c. To refund any debt owed to a Small Business Investment Company.
d. To fund a gambling operation, except that businesses that
receive less than one-third of their revenue from the commissions on
the sale of state lottery tickets or businesses involved in state
supervised gambling operations are eligible.
e. To finance real estate held for investment, purchases of stock
for investment, or to make loans to non-profit entities.
f. To fund a loan that would reduce lender's own or an affiliate's
exposure to a business, unless the existing debt has always been
current (no payments more than 29 days past due during the life of the
credit). Refinancing of the debt owed to another lender is allowed,
however, the FA$TRAK participant must insure that the refinancing is
beneficial for the borrower due to more reasonable terms or the
transfer of a borrower's account relationship from other sources to the
FA$TRAK participant. Care should be taken to avoid the appearance that
the lender is using FA$TRAK to bail itself out of an inadequately
secured or poorly performing credit.
g. To fund a loan when funds are available from other sources on
reasonable terms including disposal of unneeded business assets and use
of personal resources provided there is no undue hardship involved in
the use of personal funds. A self certification by the lender that
funds would not otherwise be available on reasonable terms, as
determined by the lender, is part of SBA Form 1920, FA$TRAK
Authorization and Request for Loan Number.
h. To fund a loan for the purchase or construction of real estate,
the purchase or repair of equipment, or the refinancing of a loan used
for those purposes, when the applicant business is not a 100% owner
operator of the real estate or personal property being financed. In
cases where the applicant is not a 100% owner operator, the loan may be
submitted to SBA using regular 7(a) procedures. Loan proceeds may be
used to finance real property with residential or rental space provided
that in purchasing an existing building, residential and/or rental
space must be less than 50% of total space, location must be conducive
to the success of the business and other facilities must not be
reasonably available and in constructing a building, the business must
need a resident owner or manager and residential space must not exceed
33\1/3\% of the total or business growth is reasonably projected to
indicate need for space in the reasonably near future, later additions
are not feasible, and residential space does not exceed 33\1/3\% of
total space.
i. To make a loan to a recreational or amusement enterprise that is
not open to the public and properly licensed.
j. To replenish working capital funds used for any of the above
purposes.
III. Eligible Loan Types
FA$TRAK procedures may be used for term loans or revolving credits
made by the lender. Revolving credits must have a termination date that
cannot exceed five years from the date of first disbursement. If the
borrower remains creditworthy, a new revolving FA$TRAK loan can be
approved.
IV. Terms and Conditions
A. Loan Amount
The maximum loan amount that may be approved using the FA$TRAK
procedure is $100,000. [[Page 12273]]
B. Percentage of SBA's Guaranty
The guaranty on loans approved under FA$TRAK will be limited to a
maximum of 50%.
C. Interest Rates
(1) Loans approved using the FA$TRAK procedure are subject to the
same maximum interest rate as all SBA loans. For loans in excess of
$50,000 the maximum interest rate is 2.25 percentage points above the
prime rate as published in the Wall Street Journal (WSJ) for loans with
a maturity of less than seven years and 2.75 percentage points above
the WSJ prime rate for loans with a maturity of seven years or longer.
FA$TRAK participants may use the additional interest rate spread
authorized by 13 CFR 122.8-4(g) for loans approved using the FA$TRAK
procedure. Thus for loans of $25,000 or less, the maximum rate is the
WSJ prime plus 4.25 and 4.75 depending on the maturity and for loans
over $25,000 but not exceeding $50,000 the maximum rate is the WSJ
prime rate plus 3.25 and 3.75 depending on the maturity.
(2) Loans may have a fixed or variable rate of interest. If a
variable interest rate is used, the lender may use the same base rate
of interest used on similar loans made without an SBA guaranty.
V. Fees
A. Guaranty Fee
The guaranty fee will be 2% of the amount guaranteed for any loan
with a maturity greater than one year. If the maturity is less than one
year, the guaranty fee will be \1/4\ of one percent. The fee splitting
arrangement accorded lenders using regular procedures for loans under
$200,000 will not apply to FA$TRAK. The guaranty fee must be paid
within 90 days of the loan approval date or immediately after first
disbursement, whichever is earlier for loans with a maturity of one
year or greater. If the maturity is less than one year, the guaranty
fee must be submitted with the application for an SBA loan number.
Lender may charge Borrower for the guaranty fee only after Lender has
paid the fee and an initial disbursement was made on the loan. This fee
may be collected at the time of loan closing if there is a disbursement
at closing.
B. Late Payment Fee
Lenders are permitted to charge borrowers a late payment fee of up
to 5% of the payment amount for payments not received within 10 days of
the due date.
C. Extraordinary Servicing Fee
An extraordinary servicing fee of up to 2% of the outstanding
balance may be collected in cases involving construction, or using
accounts receivable or inventory for collateral.
D. Other Fees
Application fees, commitment fees or prepayment fees are not
permitted on term credits.
E. Revolving Credit Fees
Lenders will be permitted to use the same fee schedule for
revolving credits approved by the lender without an SBA guaranty. These
fees must be reasonable and are subject to review by SBA. Fees
determined by SBA to be unreasonable must be returned by the lender to
the borrower.
VI. Loan Making, Servicing and Liquidation
A. Application Forms
(1) Lenders are permitted to use their own application forms,
internal credit memoranda and any other documentation necessary to make
a credit determination. Lenders must insure that their application form
includes language in which the applicant certifies that the information
supplied is true and complete. This language must appear on the
application form or on the financial statement from the applicant if a
specific application form is not used. The form including this
certification must be signed by the borrower.
(2) Lender will be required to obtain a signed copy of SBA Form
1919, FA$TRAK Borrower Information Form from a sole proprietor, all
partners, or each officer, director, or each holder of 20% or more of
the voting stock of a corporate applicant, and any other person,
including a hired manager, who has authority to speak for and commit
the borrower in the management of the business. The form must be part
of the loan file, but does not have to be sent to the Processing
Center. If the applicant answers ``yes'' to either of questions 1, 2,
or 3, the loan may not be submitted under FA$TRAK. It may be submitted
to the local SBA office using regular processing procedures.
B. Credit Decision
(1) Lenders approved to use the FA$TRAK procedure are responsible
for a thorough and complete credit analysis. This analysis should be in
the loan file and is subject to SBA review. An analysis for a loan that
is approved should demonstrate that the loan can be repaid from the
cash flow of the business and that the applicant is of good character.
(2) Applications that are declined by the lender should be handled
in the same manner the lender handles declined applications for
conventional loans. These applications will not be considered
applications for an SBA guaranteed loan.
C. Notification to SBA
(1) FA$TRAK lenders may request a loan number from SBA by
submitting an executed SBA Form 1920, FA$TRAK Authorization and Request
for Loan Number. This document serves both as an Authorization by the
FA$TRAK lender for the loan and a request to SBA to issue the loan
number. This form will contain the information necessary for SBA to
issue loan number and a certification that the funds are not available
elsewhere on reasonable terms. This form may be faxed or sent to the
Processing Center in Sacramento, California. The Processing Center is
set up to provide a loan number to the FA$TRAK lender by fax.
(2) SBA's budget is determined by Congress on an annual basis. SBA
does not have authority to guaranty loans if it has run out of
authority. While loan approval authority has been delegated to the
FA$TRAK lender, the loan does not have an SBA guaranty until the SBA
Processing Center has issued a loan number. The processing center will
not issue a loan number if funds are not available.
D. Closing and Disbursement
(1) FA$TRAK participating lenders will use the same closing and
disbursement procedures for FA$TRAK loans as are used for their
conventional loans. Loans may be closed by the lender's attorney and
lenders are permitted to use their own closing documentation. This
documentation includes, but is not limited to the lender's note,
personal guaranty statements, mortgage, deed of trust or other security
agreements, resolutions of the Borrower's Board of Directors, and a
review of insurance requirements.
(2) FA$TRAK participants must use the FA$TRAK Authorization and
Loan Agreement (SBA Form 1920) for all loans approved using the FA$TRAK
procedure. The signature block of the Form must contain the following
language: ``As a participant in the FA$TRAK portion of the Preferred
Lenders Program and agent of and on behalf of SBA.''
(3) Lender must do the following prior to disbursement for each
loan for which it issues an SBA guaranty: [[Page 12274]]
A. Receive satisfactory evidence that there has been no unremedied
adverse change since the date of the Application, or since any of the
preceding disbursements, in the financial or any other condition of
Borrower which would warrant withholding or not making any such
disbursement or any further disbursement.
B. Receive evidence of the kind described below from an independent
authoritative source which is sufficient to indicate to Lender that any
collateral property is not in a special flood hazard area. If such
evidence is not provided to Lender, Lender must obtain from Borrower
agreement to obtain, and maintain, a Standard Flood Insurance Policy or
other appropriate special flood hazard insurance in an amount and
coverage equal to the lesser of (1) the insurable value of the property
or (2) the maximum limit of coverage available. The Borrower can show
that special flood hazard insurance has been acquired by submitting a
copy of the policy or providing evidence of premium payment for the
appropriate coverage to a licensed insurance agent. Borrower will not
be eligible for either any future disaster assistance or SBA business
loan assistance if the special flood hazard insurance is not maintained
as stipulated herein throughout the entire term of its loan.
As evidence that the property is not located within a special
hazard area subject to flooding, mudslides, or erosion, Lender may rely
on a determination of special flood hazard area status by the
applicant's property & casualty insurance company, real estate
appraiser, title insurance company, a local government agency or other
authoritative source acceptable to SBA which would ordinarily have
knowledge of the special flood hazard area status for the property.
C. In the construction of a new building or an addition to a
building, obtain agreement from the Borrower that the construction will
conform with the ``National Earthquake Hazards Reduction Program
Recommended Provisions for the Development of Seismic Regulations for
New Buildings.'' Compliance with these requirements shall be evidenced
by a certificate issued by a licensed building architect, construction
engineer or similar professional, or a letter from a state or local
government agency stating that the issuance of an occupancy permit is
required and is subject to conformance with building codes and that the
local building codes include the Seismic standards.
The following codes have been identified as being substantially
equivalent to the National Earthquake Hazards Reduction Program (NEHRP)
Recommended Provisions: 1991 Uniform Building Code of the International
Congress of Building Officials (ICBO); 1992 Supplement to the Building
Officials and Code Administrators (BOCA) National Building Code; 1992
Amendments to the Southern Building Code Congress (SBCC) Standard
Building Code.
D. Obtain agreement from the Borrower that it will, to the extent
feasible purchase only American-made equipment and products with the
proceeds of this loan.
E. For any loan involving construction of more than $10,000,
require borrower and contractor to execute SBA Form 601, Applicant's
Agreement of Compliance. Appendix 4 is a copy of Form 601. This form
must be retained in the loan file, but does not have to be submitted to
the FA$TRAK Processing Center.
(4) The Small Business Act requires that all borrowers supply
information regarding payments to loan packagers, accountants,
appraisers, lawyers, or any other individual or entity that assisted
the borrower in obtaining the loan. SBA Form 159 may be used for this
purpose or the lender may use its own form as long as the information
required by SBA Form 159 is supplied by the borrower and the service
provider. Appendix 5 is a copy of Form 159. This form must be retained
in the loan file, but does not have to be submitted to the FA$TRAK
Processing Center. If the applicant did not pay anyone to assist in the
preparation of the loan, a written certification to that effect is
sufficient to meet this requirement.
VII. Loan Servicing
A. Lenders will be permitted to service loans approved under
FA$TRAK using the same policies and procedures used for the lender's
conventional loan portfolio. These policies and procedures must be
based on prudent lending practices and the FA$TRAK lender should be
prepared to demonstrate to SBA that a servicing action taken on a
FA$TRAK loan is consistent with actions taken on loans in the lender's
unguaranteed portfolio.
B. There are two actions that cannot be delegated to the FA$TRAK
participating lender. They are:
(1) Selling or accepting a compromise settlement of any
indebtedness guaranteed by SBA for a sum less than the total amount due
on the loan, and
(2) Enforcing compliance by the borrower with non-discrimination
regulations (13 CFR Part 113). This enforcement shall be subject to
action by SBA.
C. SBA must be notified of any servicing action that alters any of
the repayment terms of the loan. This includes, but is not limited to,
changes in the interest rate on fixed rate loans or the interest rate
spread on variable rate loans, maturity, or payment schedule.
Notification should be sent to the servicing office responsible for the
loan. The servicing office address will be provided to the FA$TRAK
lender along with the loan number.
D. Lender may release collateral as necessary. Due to the
perception of a preference for the FA$TRAK lender, care should be taken
to fully document and justify any release of collateral for an SBA
guaranteed loan that will subsequently be pledged for a conventional
loan from the lender.
VIII. Loan Liquidation
A. A participating lender will be expected to fully liquidate any
loan approved using FA$TRAK. The lender must follow the same policies
and procedures it uses for its non-guaranteed portfolio and should be
prepared to demonstrate that it has done so. All liquidations of
FA$TRAK loans must be commercially reasonable.
B. Proceeds from the sale of collateral shall be applied first to
the expenses associated with the liquidation, secondly, to the 120 days
of interest permitted on the balance as of the earliest uncured default
and finally to the principal balance. SBA will not pay to the lender an
amount in excess of 50% of the loan balance at the time of default plus
120 days of interest at the rate in effect on the date of default. The
Lender must absorb any expenses that exceed this amount.
C. Any action taken during the liquidation of a loan must be fully
documented. SBA will review liquidation actions as part of the general
review of a lender's use of the FA$TRAK program. It is not necessary to
provide a liquidation plan to SBA.
D. SBA reserves the right to purchase its guaranty prior to
liquidation and to liquidate the loan using SBA personnel, however, it
is expected that this right will be used only in very unusual
circumstances.
E. Lender is permitted to take back a Note Receivable on the sale
of collateral on any terms negotiated between the lender and the buyer.
The Note Receivable will not have an SBA guaranty.
F. Lender is to insure that ordinary protective measures are taken.
Expenses associated with the protection of [[Page 12275]] collateral
may be recovered from the proceeds of the sale of collateral.
G. Collateral sales to the Lender's officers, directors, employees
or stockholders (10% or greater) or a close relative of either are not
permitted.
H. The selection of firms owned by officers, directors, employees
or stockholders (10% or greater) to provide care and preservation
services, legal assistance, or other services associated with the
liquidation should be avoided. If it cannot be avoided, the lender must
be prepared to justify the benefit to SBA of using the particular firm.
IX. Payment of the SBA Guaranty
A. Payment of the SBA guaranty will be made after the lender has
fully liquidated all collateral and pursued all obligors and after SBA
has reviewed the documentation that supports the loan. Payment will
consist of the SBA guaranteed percentage of the balance remaining after
liquidation plus up to 120 days of interest based on the balance
outstanding at the time of the earliest uncured default if liquidation
proceeds were insufficient to cover a full 120 days of interest.
B. To receive payment, lender must submit a transcript of account,
a summary of liquidation activities, a detail of liquidation expenses,
and a copy of the Note and relevant loan documents to the SBA office
servicing the loan. The servicing office will review the account and
prepare the paperwork required to wire SBA's portion of the loss to the
lender.
X. Lender Selection and Review
A. Lenders will be selected for participation in FA$TRAK based on
their desire to increase lending under $100,000 to small businesses,
especially minority and women owned businesses. An SBA district office
shall make a nomination to the Central Office, which will make a
decision. A lender will receive the FA$TRAK designation for its entire
system. This may involve executing multiple copies of the supplemental
guaranty agreement depending on the legal structure of the lender.
B. The loan approval authority in the supplemental guaranty
agreement for FA$TRAK will last for two years. At the end of two years,
the activity will be reviewed and may be renewed for either one or two
years. The servicing and liquidation provisions will last for the life
of any loan approved using FA$TRAK.
C. SBA will monitor the progress of the FA$TRAK loans approved by
each other. We will use the performance of loans approved under FA$TRAK
to determine if a lender may continue to participate in FA$TRAK.
Lenders that violate the terms of the supplemental guaranty agreement,
this guidebook, or SBA regulations as determined by SBA shall be
removed from the program.
D. SBA reserves the right to make a periodic on-site review of the
loan files for FA$TRAK loans. SBA may, from time to time, ask FA$TRAK
lenders to photocopy documents in a file selected by SBA and send the
copy to SBA for review. This procedure is intended to limit the
intrusion on the lender by SBA reviewers and to reduce the cost to SBA
of program monitoring. Lender acknowledges that the SBA review does not
give rise to any estoppel claim, right or defense if SBA should
determine that it will not honor its guaranty on a loan approved using
FA$TRAK.
E. If a problem develops with part of a lender's operation in one
location, the lender will be notified and given a reasonable time to
correct the problem. If the problem is not corrected, the lender's
entire organization will be removed from FA$TRAK.
XI. Lender Reporting
Lenders will be required to report the status and outstanding
balance of each loan approved under FA$TRAK on SBA form 1175. This form
is submitted on a quarterly basis to the SBA field office. SBA is in
the process of developing an electronic data interchange (EDI) system
for lender reporting. FA$TRAK lenders will be expected to use EDI after
it has been implemented for SBA reporting.
XII. Secondary Market
Loans approved using the FA$TRAK procedure may not be sold in the
secondary market.
XIII. Lender Mergers
A lender's status as a participant in the FA$TRAK will be reviewed
at the time of a merger and a decision will be made regarding whether
the new entity will be a participant in FA$TRAK.
XIV. IRS Tax Verification
Lenders must verify tax returns of the business prior to
disbursement of a FA$TRAK loan. Tax verification procedures are
included in Appendix 6. SBA has a cooperative agreement with the IRS to
provide information within ten days. The key to a quick reply from the
IRS is to ask for a transcript of the tax return, not a copy of the
return and to write the words ``SBA Loan Application'' at the top of
the form. Please report any problems with the tax verification system
to the FA$TRAK Processing Center or your local SBA district office.
Lenders are reminded that the letters ``SBA'' must be placed at the top
of each request to insure expedited processing and that sole
proprietorship information is obtained from a different SBA location
than partnership or corporate tax information.
[FR Doc. 95-5337 Filed 3-3-95; 8:45 am]
BILLING CODE 8025-01-M