[Federal Register Volume 64, Number 142 (Monday, July 26, 1999)]
[Proposed Rules]
[Pages 40310-40311]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-18956]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 120


Business Loan Program

AGENCY: Small Business Administration (SBA).

ACTION: Proposed rule.

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SUMMARY: This proposed rule would implement Public Law 106-22, enacted 
on April 27, 1999, which establishes new rules for the loan loss 
reserve fund which an intermediary must maintain to participate in 
SBA's microloan program.

DATES: Comments must be submitted on or before August 25, 1999.

ADDRESSES: Comments should be mailed to Jane Palsgrove Butler, 
Associate Administrator for Financial Assistance, Small Business 
Administration, 409 Third Street, SW., Washington, DC. 20416.

FOR FURTHER INFORMATION CONTACT: Jody Raskind, 202-205-6497.

SUPPLEMENTARY INFORMATION: Public Law 106-22, enacted on April 27, 
1999, amended section 7(m) of the Small Business Act (15 U.S.C. 
636(7)(m)) in order to change the requirements for the loan loss 
reserve fund (LLRF) which each intermediary in the SBA's microloan 
program must maintain. The LLRF is an interest-bearing deposit account 
at a bank. An intermediary must establish an LLRF to pay any shortage 
in its day-to-day revolving account caused by delinquencies or losses 
on microloans it makes to qualified small business borrowers. An 
intermediary must maintain the LLRF until it repays all obligations it 
owes to the SBA.
    Under the present rule, an intermediary, during its first year in 
the microloan program, must maintain its LLRF at a level equal to at 
least 15 percent of the total outstanding balance of notes receivable 
owed to it by its microloan borrowers (Portfolio). Thereafter, the 
minimum balance that an intermediary must maintain in its LLRF must be 
the percent of its Portfolio equal to its actual average loan loss rate 
after its first year in the microloan program. The maximum level of the 
LLRF, under the present rule, cannot exceed 15 percent of the 
Portfolio. There is no prescribed minimum level.
    Under the proposed rule, until the intermediary is in the microloan 
program for at least five years, it would be required to maintain a 
balance on deposit in its LLRF equal to 15 percent of its Portfolio. 
After an intermediary is in the microloan program for five years, it 
may request SBA's Associate Administrator for Financial Assistance (AA/
FA) to grant the intermediary's request to reduce the percentage of its 
Portfolio which it must maintain in its LLRF to an amount equal to its 
actual average loan loss rate during the preceding five year period. 
The AA/FA would review the intermediary's annual loss rate for that 
five year period and determine whether he or she should grant the 
intermediary's request. The AA/FA could not reduce the loan loss 
reserve to under ten percent of the Portfolio.
    Under the proposed rule, to get a reduction in its loan loss 
reserve, an intermediary must demonstrate to the satisfaction of the 
AA/FA that (1) its average annual loss rate during the preceding five 
years is under fifteen percent, and (2) no other factors exist that 
might impair its ability to repay all obligations which it may owe to 
SBA under the microloan program.

Compliance With Executive Orders 12612, 12988 and 12866, the 
Regulatory Flexibility Act ( 5 U.S.C. 601-612), and the Paperwork 
Reduction Act (44 U.S.C. Ch. 35)

    SBA certifies that this proposed rule does not constitute a 
significant rule within the meaning of Executive Order 12866, since it 
is not likely to have an annual effect on the economy of $100 million 
or more, result in a major increase in costs or prices, or have a 
significant adverse effect on competition or the U.S. economy.
    SBA certifies that this proposed rule will not have a significant 
economic impact on a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601-612.
    SBA certifies that this proposed rule does not impose any 
additional reporting or recordkeeping requirements under the Paperwork 
Reduction Act, 44 U.S.C. chapter 35.
    For purposes of Executive Order 12612, SBA certifies that this 
proposed rule has no federalism implications warranting preparation of 
a Federalism Assessment.
    For purposes of Executive Order 12988, SBA certifies that this 
proposed rule is drafted, to the extent practicable, to accord with the 
standards set forth in section 3 of that Order.

List of Subjects in 13 CFR Part 120

    Loan programs-business.

    For the reasons stated in the preamble, under the authority in 
section 5(b)(6) of the Small Business Act (15 U.S.C. 634(b)(6), the 
Small Business Administration proposes to amend 13 CFR part 120 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).


[[Page 40311]]


    2. Amend Sec. 120.710 by revising paragraphs (b) and (c) and by 
adding paragraphs (d) and (e) to read as follows:


Sec. 120.710  What is the Loan Loss Reserve Fund?

* * * * *
    (b) Level of Loan Loss Reserve Fund. Until it is in the Microloan 
program for at least five years, an Intermediary must maintain a 
balance on deposit in its LLRF equal to 15 percent of the outstanding 
balance of the notes receivable owed to it by its Microloan borrowers 
(``Portfolio'').
    (c) SBA Review of Loan Loss Reserve. After an Intermediary has been 
in the Microloan program for five years, it may request the SBA's AA/FA 
to reduce the percentage of its Portfolio which it must maintain in its 
LLRF to an amount equal to the actual average loan loss rate during the 
preceding five year period. Upon receipt of such request, the AA/FA 
will review the Intermediary's annual loss rate for the most recent 
five-year period preceding the request.
    (d) Reduction of Loan Loss Reserve. The AA/FA has the authority to 
reduce the percentage of an Intermediary's Portfolio which it must 
maintain in its LLRF to an amount equal to the actual average loan loss 
rate during the preceding five year period. The AA/FA can not reduce 
the loan loss reserve to less than ten percent of the Portfolio.
    (e) What Intermediary Must Demonstrate to Get a Reduction in Loan 
Loss Reserve. To get a reduction in its loan loss reserve, an 
Intermediary must demonstrate to the satisfaction of the AA/FA that
    (1) Its average annual loss rate during the preceding five years is 
less than fifteen percent, and
    (2) No other factors exist that may impair the Intermediary's 
ability to repay all obligations which it owes to the SBA under the 
Microloan program.

    Dated: July 20, 1999.
Aida Alvarez,
Administrator.
[FR Doc. 99-18956 Filed 7-23-99; 8:45 am]
BILLING CODE 8025-01-P