[Federal Register Volume 62, Number 2 (Friday, January 3, 1997)]
[Rules and Regulations]
[Pages 301-302]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-103]



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  Federal Register / Vol. 62, No. 2 / Friday, January 3, 1997 / Rules 
and Regulations  

[[Page 301]]



SMALL BUSINESS ADMINISTRATION

13 CFR Part 120


Business Loans

AGENCY: Small Business Administration (SBA).

ACTION: Interim final rule with request for comments.

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SUMMARY: Section 103(c) of the Small Business Programs Improvement Act 
of 1996 (1996 legislation), enacted on September 30, 1996, authorizes 
SBA to continue its Low Documentation (LowDoc) loan program through 
lenders with significant experience in making small business loans. The 
Act requires SBA to promulgate regulations by December 31, 1996. This 
interim final rule implements this requirement. SBA is soliciting and 
will consider any comments it receives with respect to this interim 
final rule in making future adjustments.

DATES: This rule is effective January 3, 1997. Comments may be made by 
February 3, 1997.

ADDRESSES: Comments should be sent to Jane Palsgrove Butler, Acting 
Associate Administrator for Financial Assistance, Small Business 
Administration, 409 Third Street, N.W., Washington, D.C. 20416.

FOR FURTHER INFORMATION CONTACT: Michael J. Dowd, Director, Office of 
Loan Programs, (202) 205-6570.

SUPPLEMENTARY INFORMATION: Section 103(c) of the 1996 legislation (Pub. 
L. 104-208) amends section 7(a) of the Small Business Act (15 U.S.C. 
636(a)) and authorizes SBA to continue its LowDoc loan program through 
lenders with significant experience in making small business loans. 
Under the LowDoc program, SBA may guaranty repayment of up to 80% of a 
loan of $100,000 or less made to a small business by a participating 
SBA lender. In the LowDoc program the SBA requires a lender to submit 
less documentation to support its guaranty request than SBA requires 
for other loans guaranteed under section 7(a) of the Small Business 
Act. The 1996 legislation requires SBA to promulgate regulations 
defining the experience necessary for a lender to be designated as 
experienced.
    SBA believes that an experienced lender should be an SBA qualified 
lender with significant current activity in making small loans to small 
businesses. SBA presently qualifies all of its participating lenders 
pursuant to section 410 of its regulations (13 CFR Sec. 120.410). Once 
qualified, lenders enter into a guarantee agreement (SBA Form 750) with 
SBA. A lender's qualification can be revoked for failure to maintain 
regulatory compliance. SBA is satisfied that this qualification process 
is satisfactory to assure that only experienced and capable lenders 
participate in its programs.
    SBA presently monitors the activity of lenders which participate in 
its programs and retains information regarding their SBA activity. In 
addition, while banking regulators do not require banks and thrift 
institutions to track or report lending activity with small businesses, 
they do require banks to report the number of small loans outstanding 
as of each ``call report'' date. SBA uses this data on commercial/
industrial loans and for commercial real estate loans made by banks and 
thrifts to supplement the information it retains regarding qualified 
lenders.
    SBA has reviewed the activity of its own portfolio of active 
lenders and that of the lending community at large to determine what 
constitutes a sufficient number of small loans for purposes of 
qualification as a LowDoc lender. It also reviewed its own requirements 
for the origination, servicing and liquidation capabilities of SBA 
guaranteed lenders. On the basis of that review, SBA is satisfied that 
a lender should qualify as having significant experience lending to 
small business concerns if it is: (1) a bank or thrift institution 
which has executed an SBA Form 750, Loan Guaranty Agreement, and which 
has at least 20 qualified loans outstanding as of the call report date 
closest to the date of its fiscal year end, or (2) an institution other 
than a bank or thrift institution which has executed a SBA Form 750, 
Loan Guaranty Agreement, and which has at least 20 qualified loans 
outstanding as of its latest fiscal year end. A qualified loan is one 
which was initially approved in the amount of $100,000 or less and is 
classified as a commercial, industrial, or commercial real estate loan 
for purposes of call reporting.
    SBA will consider good cause exceptions to this definition on a 
case by case basis. Lenders seeking an exception should make their 
requests directly to the Associate Administrator for Financial 
Assistance.

Compliance With Regulatory Flexibility Act, Executive Orders 12866, 
12612, and 12778, the Unfunded Mandates Act and the Paperwork 
Reduction Act

    SBA certifies that this interim final rule will not have a 
significant impact on a substantial number of small entities for 
purposes of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) This 
rule only affects those banks that make fewer than 20 qualified loans 
to small business and want to participate in the SBA's LowDoc Loan 
Program. A qualified loan is one which was initially approved in the 
amount of $100,000 or less and is classified as a commercial, 
industrial or commercial real estate loan for purposes of call 
reporting. Approximately 500 banks out of 10,000 will be affected by 
this rule.
    SBA certifies that this interim final rule is not a ``significant 
regulatory action'' under Executive Order 12866. It does not have an 
annual effect on the economy of $100 million or more and does not 
adversely affect in a material way the economy or any sector of the 
economy.
    SBA certifies that this interim final rule will not have federalism 
implications warranting a Federalism Assessment under Executive Order 
12612. SBA further certifies that this interim final rule will not add 
any new reporting or recordkeeping requirements under the Paperwork 
Reduction Act of 1980, 44 U.S.C., chapter 35. For purposes of Executive 
Order 12778, SBA certifies that this interim final rule is drafted, to 
the extent practicable, in accordance with the standards set forth in 
section 2 of that order.
    Because this final rule is required to be promulgated by December 
31, 1996, SBA is publishing it without opportunity for prior public 
comment pursuant to 5 U.S.C. 553(b)(A). However, SBA will consider any 
comments it receives with respect to

[[Page 302]]

this final rule in making future adjustments.

(Catalog of Federal Domestic Assistance Program No. 59.012)

List of Subjects in 13 CFR Part 120

    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 120, 
chapter I, title 13, Code of Federal Regulations, as follows:

PART 120--BUSINESS LOANS

    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. Section 120.410 is amended by removing ``; and'' at the end of 
paragraph (c), removing the period at the end of paragraph (d) and 
adding ``; and'' in its place, and adding a new paragraph (e) to read 
as follows:


Sec. 120.410  Requirements for all participating Lenders.

* * * * *
    (e) In order to make Low Documentation loans, be:
    (1) A bank or thrift institution which has executed an SBA Form 
750, Loan Guaranty Agreement, and which has at least 20 qualified loans 
outstanding as of the call report date closest to the date of its 
fiscal year end, or
    (2) An institution other than a bank or thrift institution which 
has executed an SBA Form 750, Loan Guaranty Agreement, and which has at 
least 20 qualified loans outstanding as of its latest fiscal year end. 
For purposes of this paragraph (e), a qualified loan is one which was 
initially approved in the amount of $100,000 or less and is classified 
as a commercial, industrial or commercial real estate loan for purposes 
of call reporting. A lender may request an exception to the 
requirements of this paragraph (e) from the SBA Associate Administrator 
for Financial Assistance.

    Dated: December 30, 1996.
Philip Lader,
Administrator.
[FR Doc. 97-103 Filed 1-2-97; 8:45 am]
BILLING CODE 8025-01-P