[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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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