[Federal Register Volume 60, Number 212 (Thursday, November 2, 1995)]
[Rules and Regulations]
[Pages 55653-55655]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-27155]



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SMALL BUSINESS ADMINISTRATION

13 CFR Part 122


Business Loans; Microloans

AGENCY: Small Business Administration (SBA).

ACTION: Final rule.

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SUMMARY: Under this final rule, SBA is implementing certain provisions 
of the ``Small Business Administration Reauthorization and Amendments 
Act of 1994'', enacted on October 22, 1994, which are relevant to the 
SBA microloan financing program (Program). On a pilot basis, the rule 
authorizes SBA to guarantee up to 100 percent of loans made to 
intermediary lenders. It adds native American tribal governments as 
eligible intermediaries in the Program, authorizes SBA to provide 
additional grant assistance to an intermediary which by its lending 
assists residents in economically distressed areas, and extends the 
sunset date of the Program for an additional fiscal year.

EFFECTIVE DATE: This rule is effective November 2, 1995.

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

SUPPLEMENTARY INFORMATION: On January 24, 1995, SBA published in the 
Federal Register (60 FR 4574) a notice of proposed rulemaking with 
respect to amendments made by Pub. L. 103-403, enacted on October 22, 
1994 (1994 legislation), to subsection 7(m) of the Act (15 U.S.C. 
636(m)), relating to the Program. SBA received four favorable comments 
in response to the proposed rule. Accordingly, SBA is promulgating this 
final rule basically as proposed.
    Consistent with section 202 of the 1994 legislation, section 
122.61-2 of SBA's regulations (13 CFR 122.61-2) is amended by including 
in the definition of an intermediary eligible to participate in the 
Program as a microloan lender an agency or nonprofit entity established 
by a native American tribal government. Currently, only private, 
nonprofit entities or quasi-governmental entities can be microlenders.
    Consistent with section 203 of the 1994 legislation, section 
122.61-1 of SBA's regulations is amended to extend the sunset date for 
the Program an additional year, to October 1, 1997.
    Consistent with section 206 of the 1994 legislation, section 
122.61-6 of SBA's regulations is amended to increase the aggregate 
maximum amount of SBA lending available to an intermediary during the 
intermediary's participation in the Program. The previous limit was 
$1,250,000; the new aggregate maximum is $2,500,000.
    Consistent with section 207 of the 1994 legislation, section 
122.61-9 of SBA's regulations is amended to authorize (but not require) 
an intermediary to expend up to fifteen percent of any grant funds 
provided to it by the SBA for the provision of information and 
technical assistance to small businesses which are prospective 
borrowers. This final rule recognizes that intermediaries hold outreach 
seminars, perform screening analyses, and provide other assistance for 
prospective borrowers. It encourages them to continue these programs 
and to use their technical assistance grants efficiently and cost 
effectively.
    SBA presently ensures that at least one-half of its intermediaries 
provide 

[[Page 55654]]
microloans to small businesses in rural areas. Consistent with section 
205 of the 1994 legislation, section 122.61-3 of SBA's regulations is 
amended so that SBA now must select entities that will ensure 
availability of loans for small businesses in all industries located 
throughout the lender's jurisdiction in both rural and urban areas. The 
SBA is no longer required to meet numerical requirements based on 
intended borrowers in selecting entities to participate as 
intermediaries in the Program, but it will consider whether a proposed 
intermediary would provide assistance to a variety of industries.
    Under SBA's present rules, an intermediary seeking to qualify for 
an SBA grant must contribute matching funds equal to twenty-five 
percent of the amount of the grant. Consistent with section 208(a)(1) 
of the 1994 legislation, section 122.61-9 of SBA's regulations is 
amended to provide that this twenty-five percent requirement is 
inapplicable to an intermediary which provides more than half of its 
loans to small businesses located in or owned by residents of an 
economically distressed area. Thus, if an intermediary would make sixty 
percent of its loans in an economically distressed geographic area, it 
would not have to provide a twenty-five percent match to an SBA grant.
    Under current rules, each intermediary can receive an SBA grant 
equal to twenty-five percent of the outstanding balance of its loans 
from SBA. Consistent with section 208(a)(2) of the 1994 legislation, 
section 122.61-9 of SBA's regulations is amended to provide that an 
intermediary can receive an SBA grant of an additional five percent 
(which it is not required to match) if it will provide no less than 
twenty-five percent of its loans to small businesses located in or 
owned by residents of an economically distressed area.
    Consistent with section 208(b) of the 1994 legislation, section 
122.61-2 of SBA's regulations is amended to define ``economically 
distressed area'' to mean a county or equivalent division of local 
government in which not less than forty percent of the residents have 
an annual income that is at or below the poverty level. SBA will obtain 
this information from the Bureau of the Census.
    Consistent with section 201 of the 1994 legislation, new section 
122.61-13 of SBA's regulations implements a microloan financing pilot 
in which SBA can guarantee no less than ninety and no more than one 
hundred percent of a loan made to an intermediary by a for-profit or 
non-profit entity or by an alliance of such entities. This guaranty 
authority by SBA terminates on September 30, 1997. Under this pilot, 
SBA will guarantee loans to no more than ten intermediaries in urban 
areas and ten in rural areas. The loans will have a maturity of ten 
years, with interest calculated as set forth in section 122.61-6 of 
SBA's regulations (13 CFR 122.61-6). During the first year of the loan, 
interest accrues, but the intermediary will not be required to repay 
principal or interest. During the second through fifth years of the 
loan, the intermediary pays only interest. During the sixth through 
tenth years of the loan, the intermediary must make interest payments 
and fully amortize the principal. There are no balloon payments.
    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 does not have a significant 
economic impact on a substantial number of small entities.
    SBA certifies that this final rule does not constitute a 
significant regulatory action for the purposes of Executive Order 
12866, since it is not likely to result in an annual effect on the 
economy of $100 million or more.
    SBA certifies that this final rule does not impose additional 
reporting or recordkeeping requirements which would be subject to the 
Paperwork Reduction Act, 44 U.S.C. Chapter 35, and does not have 
federalism implications warranting the preparation of a Federalism 
Assessment in accordance with Executive Order 12612.
    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 in 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 amends part 122, 
chapter I, title 13, Code of Federal Regulations, as follows:

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 122.61-1(a) is amended by revising the last sentence to 
read as follows:

Sec. 122.61-1  Policy.

    (a) Program. * * * This Microloan Demonstration Program terminates 
on October 1, 1997.
* * * * *

    3. Section 122.61-2 is amended by republishing (d) introductory 
text, by removing the ``or'' at the end of paragraph (d)(3), by 
removing the period at the end of paragraph (d)(4) and adding ``; or'' 
in its place, and adding new paragraphs (d)(5) and (h) to read as 
follows:

Sec. 122.61-2  Definitions.

* * * * *
    (d) Intermediary means: * * *
    (5) An agency of or a nonprofit entity established by a Native 
American Tribal Government.
* * * * *

    (h) Economically distressed area means a county or equivalent 
division of local government of a state in which, according to the most 
recent data available from the United States Bureau of the Census, not 
less than 40 percent of residents have an annual income that is at or 
below the poverty level.

    4. Section 122.61-3 is amended by adding a new sentence at the end 
of paragraph (a) to read as follows:

Sec. 122.61-3  Participation of intermediary.

    (a) Eligibility. * * * In evaluating applications to become an 
intermediary, SBA shall select intermediaries that will ensure 
appropriate availability of loans for small business concerns in all 
industries located throughout each state, in both urban and in rural 
areas.

* * * * *

    5. Section 122.61-6 is amended by revising paragraph (e) to read as 
follows:


Sec. 122.61-6   Conditions on SBA loan to intermediary.

    * * *
    (e) Loan limits by SBA. No loan shall be made to an intermediary by 
SBA under this program if the total amount outstanding and committed 
(excluding outstanding grants) to the intermediary (and its affiliates, 
if any) from the business loan and investment fund established under 
section 4(c) of the Act would, as a result of such loan, exceed 
$750,000 in the first year of the intermediary's participation in the 
program, and $2,500,000 in the 

[[Page 55655]]
remaining years of the intermediary's participation in the program.
* * * * *
    6. Section 122.61-9 is amended by adding a new third sentence in 
paragraph (a), by revising paragraph (b)(1), and by adding a new 
sentence at the end of paragraph (b)(2) to read as follows:


Sec. 122.61-9  SBA grant to intermediary for marketing, management, and 
technical assistance.

    (a) General. * * * Each intermediary is authorized to expend up to 
15% of any SBA grant funds to provide information and technical 
assistance to small business concerns that are prospective borrowers 
under this program. * * *
    (b) Amount of grant. (1) Subject to the requirement of paragraph 
(b)(2) of this section, and the availability of appropriations, each 
intermediary under this program shall be eligible to receive a grant 
equal to 25% of the outstanding balance of loans made to it by SBA. If 
an intermediary provides no less than 25% of its loans to small 
business concerns located in or owned by one or more residents of an 
economically distressed area, it shall be eligible to receive an 
additional grant from SBA equal to 5% of the outstanding balance of SBA 
loans made to the intermediary (with no obligation to match this 
additional amount).
    (2) * * * This requirement for an intermediary contribution is 
inapplicable if the intermediary provides at least 50% of its loans to 
small business concerns located in or owned by one or more residents of 
an economically distressed area.
* * * * *
    7. A new Sec. 122.61-13 is added to read as follows:


Sec. 122.61-13  SBA guaranteed loans to intermediaries.

    (a) General. For up to 10 intermediaries in urban areas and 10 
intermediaries in rural areas, SBA may guarantee not less than 90 
percent nor more than 100 percent of a loan made by a for-profit or 
non-profit entity or by an alliance of such entities.
    (b) Maturity and repayment. Any SBA guaranteed loan made to an 
intermediary under this section shall have a maturity of 10 years. 
During the first year of the loan, interest shall accrue, but the 
intermediary shall not be required to repay any interest or principal. 
During the second through fifth years of the loan, the intermediary 
shall pay interest only. During the sixth through tenth years of the 
loan, the intermediary shall make interest payments and fully amortize 
the principal.
    (c) Interest rate. The interest rate on an SBA guaranteed loan to 
an intermediary shall be calculated as set forth in Sec. 122.61-6.
    (d) Termination of SBA authority to guarantee. The authority of SBA 
to guarantee loans to intermediaries under this Sec. 122.61-13 shall 
terminate on September 30, 1997.

    Dated: July 26, 1995.
Philip Lader,
Administrator.
[FR Doc. 95-27155 Filed 11-1-95; 8:45 am]
BILLING CODE 8025-01-U