[Federal Register Volume 60, Number 159 (Thursday, August 17, 1995)]
[Rules and Regulations]
[Pages 42779-42781]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-20434]



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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 120 and 122


Business Loan Policy and Business Loans; Facsimiles of SBA Forms

AGENCY: Small Business Administration (SBA).

ACTION: Final rule.

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SUMMARY: This final rule authorizes SBA participating lenders to use 
computer generated facsimile exact copies of SBA application and 
closing forms in making SBA guaranteed loans. SBA lenders, under this 
final rule, agree to accept liability for a substantial SBA loss 
attributable to deficiencies in such forms. Under the final rule, SBA 
could deny liability to a lender which fails to use SBA provided forms 
or computerized facsimile exact copies of the SBA forms if this failure 
would contribute to a substantial loss by the SBA on the guaranteed 
loan.

EFFECTIVE DATE: This rule is effective August 17, 1995.

FOR FURTHER INFORMATION CONTACT: John R. Cox, 202/205-6490.

SUPPLEMENTARY INFORMATION: On March 3, 1995, SBA published in the 
Federal Register (42 FR 11941) a proposed rule which would authorize 
SBA participating lenders to use computerized exact replicas of SBA 
application and closing forms in making SBA guaranteed loans under 
section 7(a) of the Small Business Act (15 U.S.C. 636(a)). There were 
46 public comments received in response to the publication and all 
favored the proposal. SBA will discuss the comments made in detail 
herein.
    For many years, the SBA has required that its participating lenders 
use SBA provided application and closing forms in the SBA guaranteed 
business loan program. With advances in technology, SBA recognizes that 
these forms may be reproduced as mirror image facsimiles by computer 
and that permitting such reproductions to be used by participating 
lenders may be in the best interest of the SBA guaranteed loan program. 
Therefore, SBA proposed to permit SBA participating lenders to use 
computer generated facsimile exact copies of SBA application and 
closing forms in making SBA guaranteed loans. In this context, several 
commenters suggested that the SBA clarify what is meant by the term 
``exact computerized facsimile copies'', as used in the proposed 
regulation. The Agency does not intend by this language that the type, 
font, line and spacing be exactly duplicated in an exact computer 
generated facsimile since variations in those aspects of a form do not 
affect the substantive nature of the documentation. The Agency is 
concerned with exact duplication of the language in the forms. In that 
regard, the regulation intends that the language represented on a 
permissible computer generated facsimile be exactly the same as that in 
the SBA form it is intended to portray. In order to avoid confusion as 
to which edition of a form is being reproduced, under the rule, 

[[Page 42780]]
computerized copies must show the SBA form number, the Office of 
Management and Budget (OMB) number, and expiration date.
    Several commenters suggested the possibility that SBA certify or 
otherwise qualify the preparers of computer generated facsimile forms 
or software which would be used to prepare such forms. SBA has no plans 
to furnish participating lenders with approved third party vendors 
which provide forms or software used to generate forms which are 
acceptable under the regulation. The Agency is in no position to 
evaluate, analyze and qualify vendors. Neither does SBA plan to provide 
such third party vendors with CD-Roms, diskettes or preprinted forms. 
Any participating lender or third party vendor interested in the 
implications of this regulation may obtain SBA preprinted forms from 
SBA's district offices which are located in every state.
    One of the commenters suggested that if the Agency reviews a loan 
package prior to issuing its guaranty, a lender should not be held 
liable for a subsequent loss directly attributable to an error or 
omission in the computer generated forms it used to make or close the 
loan. It has been the Agency position for many years that it may deny 
liability to a lender for failure to prudently make or close an SBA 
guaranteed loan. Such a failure includes the utilization of incomplete 
or inaccurate documentation supporting the making and closing of the 
loan, regardless of SBA's review of a loan package.
    In this regard, SBA's guaranty to a participating lender with 
respect to an SBA guaranteed business loan is conditionally based upon 
the lender's actions in prudently making and closing loans consistent 
with SBA's regulatory requirements. Accordingly, SBA's rules release 
the Agency from its obligation to a lender to purchase the guaranteed 
portion of a business loan under conditions prescribed in those 
regulations. Such conditions will now include compliance with this 
final regulation. SBA is confident that this approach is legally 
supportable based on its past experience, and it will administer the 
implementation of this regulation in a fashion consistent with that 
experience.
    Therefore, SBA is amending section 120.202-5 of its regulations so 
that it is released from an obligation to a participating lender to 
purchase the guaranteed portion of a loan if the lender fails to 
utilize SBA provided forms or computerized exact facsimile copies 
thereof, and this failure contributes or may contribute to a 
substantial loss on the loan guaranty by the SBA. This means that if 
the computer generated forms used by a lender are not exact facsimile 
copies of SBA's forms, and such lack of conformity contributes or may 
contribute to a substantial loss by SBA on its guaranty of the loan, 
SBA could refuse to honor its guaranty.
    In this regard, a commenter suggested that the SBA define what is 
meant by ``substantial'' loss as used in the regulation. It is the 
Agency's position that the term is not susceptible to precise 
definition. It is a standard which has evolved out of decided decisions 
on a case by case basis. Note that section 120.202-5 of the SBA 
regulations also requires that the participating lender 
``substantially'' comply with all the provisions of the regulations, 
guaranty agreement, and the loan authorization, with no specificity 
possible in that case either.
    Finally, under this final rule, lenders participating in the SBA 
guaranteed business loan program are authorized to use SBA application 
and closing forms which are computer generated by the lenders 
themselves or generated from software prepared by third parties with 
whom they have contracted. Because SBA in the past has withheld 
permission to computerize some identified SBA forms, new section 122.5-
6 of the regulations specifically lists the forms which may be computer 
generated, although the rule is intended to permit computer generation 
of exact facsimiles of all SBA application and closing forms used in 
the guaranteed loan program.
    In light of the foregoing, SBA is promulgating this final rule as 
proposed.

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

    For purposes of the Regulatory Flexibility Act, 5 U.S.C. 601 et 
seq., SBA certifies that this final rule will not have a significant 
economic impact on a substantial number of small entities.
    The SBA certifies that this final rule will not constitute a 
significant regulatory action for the purposes of Executive Order 
12866, since the change is not likely to result in an annual effect on 
the economy of $100 million or more.
    The SBA certifies that this final rule would not impose additional 
reporting or recordkeeping requirements which would be subject to the 
Paperwork Reduction Act, 44 U.S.C. Chapter 35.
    The SBA certifies that this final rule would not have federalism 
implications warranting the preparation of a Federalism Assessment in 
accordance with Executive Order 12612.
    Further, for purposes of Executive Order 12778, SBA certifies that 
this final rule is drafted, to the extent practicable, in accordance 
with the standards set forth in section 2 of that Order.

(Catalog of Federal Domestic Assistance Programs, No. 59.012)

List of Subjects

13 CFR Part 120

    Loan programs--business, Small businesses.

13 CFR Part 122

    Loan programs--business, Small businesses.

    Accordingly, pursuant to the authority contained in section 5(b)(6) 
of the Small Business Act (15 U.S.C. 634(b)(6)), SBA hereby amends 
parts 120 and 122, chapter I, title 13, Code of Federal Regulations, as 
follows:

PART 120--BUSINESS LOAN POLICY

    1. The authority citation for Part 120 continues to read as 
follows:

    Authority: 15 U.S.C. 634(b)(6) and 636(a) and (h).

    2. The introductory text of Sec. 120.202-5 is revised to read as 
follows:


Sec. 120.202-5  When SBA does not purchase.

    SBA shall be released from its obligation to purchase its share of 
the guaranteed loan if the Lender has not substantially complied with 
all of the provisions of these regulations, the Guaranty Agreement and 
the Loan Authorization; has failed to disclose material facts; has made 
material misrepresentations to SBA with respect to the loan; or has 
failed to utilize SBA provided forms or exact computerized facsimile 
copies thereof; provided that any of these failures contributes or may 
contribute to a substantial loss on the loan by SBA; or upon the 
happening of any one or more the following events:
* * * * *

PART 122--BUSINESS LOANS

    1. The authority citation for part 122 continues to read as 
follows:

    Authority: 15 U.S.C. 634(b)(6), 636(a), 636(m).

    2. Section 122.5-6 is added to read as follows: 

[[Page 42781]]



Sec. 122.5-6  Facsimile Copies of SBA Application Forms.

    For guaranteed loans, a Participating Lender may use computer 
generated SBA application or closing forms which are exact facsimile 
reproductions of SBA's forms. Lenders which use computer generated 
application or closing forms agree to accept liability for a 
substantial SBA loss due to deficiencies in the use of these forms. 
(See Sec. 120.202-5 of this chapter). All SBA business loan forms, 
including the following, may be computer generated: 147 (Note), 148 
(Guaranty), 155 (Standby Agreement), 601 (Applicant's Agreement of 
Compliance), 928 (Mortgage), 1050 (Settlement Sheet), 1059 (Security 
Agreement).

    Dated: June 29, 1995.
Philip Lader,
Administrator.
[FR Doc. 95-20434 Filed 8-16-95; 8:45 am]
BILLING CODE 8025-01-P