[Federal Register Volume 64, Number 154 (Wednesday, August 11, 1999)]
[Proposed Rules]
[Pages 43636-43638]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-20324]


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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 64, No. 154 / Wednesday, August 11, 1999 / 
Proposed Rules  

[[Page 43636]]


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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: SBA proposes to implement changes in the microloan program 
required by the Small Business Reauthorization Act of 1997, enacted on 
December 2, 1997. The proposed rule would terminate the designation of 
the microloan program as a ``demonstration,'' add a welfare-to-work 
microloan initiative, allow a nonprofit child care business to qualify 
for the microloan program, and authorize a microloan intermediary to 
use up to 25 percent of grant funds for technical assistance to 
prospective microloan borrowers. The proposed rule would also establish 
procedures for SBA to suspend or revoke the status of an intermediary 
lender or non-lending technical assistance provider from the microloan 
program for its failure to meet certain minimum performance standards.

DATES: Submit comments on or before September 10, 1999.

ADDRESSES: Comments should be mailed to Small Business Administration, 
409 Third Street, SW, Washington, DC 20416.

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

SUPPLEMENTARY INFORMATION: Section 201 of Pub. L. 105-135, enacted on 
December 2, 1997, (1997 legislation) amends SBA's microloan program in 
section 7(m) of the Small Business Act (15 USC 636(m)) (Act). Section 
202 of the 1997 legislation adds a welfare-to-work microloan 
initiative. These proposed rules would implement the statutory changes.
    The 1997 legislation terminated the designation of the microloan 
program as a ``demonstration.'' This proposed rule deletes that 
designation wherever it was in SBA's rules, including the heading for 
subpart G of this part.
    SBA proposes to amend Sec. 120.706 of its regulations (13 CFR 
120.706) to increase the aggregate amount which a microloan 
intermediary may borrow from SBA from the previous statutory limit of 
$2.5 million to the new statutory limit of $3.5 million.
    Generally, microloan borrowers must engage in for profit 
activities. However, SBA proposes to amend Sec. 120.707(a) of its 
regulations to implement the 1997 legislation authorizing microloan 
assistance to a borrower to establish a nonprofit child care business.
    The 1997 legislation increases, from 15 percent to 25 percent, the 
amount of grant funds a microloan intermediary may use for technical 
assistance to prospective microloan borrowers. This proposed rule would 
amend Sec. 120.712 to reflect the increased percentage. SBA will also 
implement a new provision in the 1997 legislation by amending 
Sec. 120.712 to allow an intermediary to use up to 25 percent of the 
grant funds it receives from SBA to contract to enable third parties to 
provide technical assistance to microloan borrowers.
    Under section 7(m) of the Act, SBA may give grants to a maximum of 
25 non-lending technical assistance providers. Under prior rules, SBA 
could provide the 25 grants for a maximum of 5 annual terms. The 
proposed rule would amend Sec. 120.714 of SBA's regulations to reflect 
the changes in the 1997 legislation that authorize SBA to provide the 
annual grants without any maximum term limits.
    Section 7(m)(12) of the Act authorizes SBA, on a pilot basis, to 
guarantee loans made to microloan intermediaries. Currently, 
Sec. 120.715 of SBA's regulations incorrectly places a limit on the 
number of loans to intermediaries which SBA may guarantee. SBA proposes 
to amend Sec. 120.715 of its regulations to clarify that there is no 
statutorily prescribed limit on the number of loans which SBA is 
authorized to guarantee to microloan intermediaries.
    SBA proposes to add Sec. 120.716 to its regulations to implement 
the 1997 legislation's welfare-to-work initiative. The initiative will 
give supplemental technical assistance grants to existing program 
participants for low-income individuals who get assistance under a 
State program funded under part A of title IV of the Social Security 
Act, or under any comparable State funded means tested program (``State 
Program''). The supplemental grants would be used to help new small 
businesses eliminate their dependence on State Programs. SBA would 
obtain funds to provide these supplemental grants from other 
departments and agencies of the federal government. To get such funds, 
SBA would enter into memoranda of understanding with the departments 
and agencies specifying the terms and conditions of the supplemental 
grants and providing for monitoring of expenditures by each grantee and 
each recipient.
    Under the welfare-to-work initiative, SBA would select from its 
participating intermediaries and non-lending technical assistance 
providers up to 20 grantees in fiscal year 1998, 25 grantees in fiscal 
year 1999, and 30 grantees in fiscal year 2000. Each selected 
intermediary and non-lending technical assistance provider would be 
eligible to receive a supplemental grant from SBA of up to $200,000 a 
year, which SBA has the sole authority to determine.
    A grantee who gets a supplemental grant under this initiative would 
not have to match the grant. A grantee could use the supplemental grant 
to pay or reimburse a portion of child care and transportation costs of 
the recipients of State Programs if the recipients certify that they 
are not being paid for such costs under state block grants under the 
Child Care Development Block Grant Act of 1990 or under part A, title 
IV of the Social Security Act. A grantee also could use the 
supplemental grants for marketing, management, and technical assistance 
to recipients of State Programs. SBA may use up to 5 percent of the 
grant amounts it provides under the welfare-to-work microloan 
initiative in any fiscal year for technical assistance to the grantees 
to ensure that they have the knowledge, skills, and understanding of 
making microloans and operating a welfare-to-work microloan program.
    SBA also proposes to add a new Sec. 120.717 to authorize the SBA 
Associate Administrator for Financial Assistance (AA/FA) to terminate 
or otherwise act regarding an intermediary lender or non-lending 
technical assistance provider that fails to meet certain minimum 
performance standards. This authority is similar to that held by the

[[Page 43637]]

AA/FA regarding the termination or suspension of lenders or pool 
assemblers in the agency's 7(a) business loan program. It is important 
for SBA to be able to terminate the services of, or impose other 
sanctions on, a microloan entity which operates to bring discredit on 
the program. SBA must be able to discipline an intermediary or non-
lending technical assistance provider whose failure to operate properly 
may adversely affect microloan borrowers or imperil the safety and 
soundness of 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 is not a significant rule 
within the meaning of Executive Order 12866 and does not have 
significant impact on a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601-612. It is not 
likely to have an annual economic effect of $100 million or more, 
result in a major increase in costs or prices, or have a significant 
adverse effect on competition or the United States economy.
    For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch 35, SBA 
certifies that this proposed rule requires the microloan intermediaries 
and technical assistance providers to formally count, and account for, 
welfare clients and expenditures for those clients.
    For purposes of Executive Order 12612, SBA certifies that this 
proposed rule has no federalism implications requiring a Federalism 
Assessment.
    For purposes of Executive Order 12988, SBA certifies that this rule 
is drafted, to the extent practicable, in accordance with the standards 
set forth in section 3 of that Order.

(Catalog of Federal Domestic Assistance Programs, Nos. 59.012 and 
59.013)

List of Subjects in 13 CFR Part 120

    Loan programs--business, Small businesses.

    For the reasons stated in the preamble, SBA 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).

    2. Revise the heading for subpart G of part 120, title 13, Code of 
Federal Regulations to read as follows:

Subpart G--Microloan Program

    3. In 120.700, revise the first sentence to read as follows:


Sec. 120.700  What is the Microloan Program?

    The Microloan Program assists women, low income individuals, 
minority entrepreneurs, and other small businesses which need small 
amounts of financial assistance. * * *
    4. In 120.706, revise the section heading and last sentence to read 
as follows:


Sec. 120.706  What are the terms and conditions of an SBA loan to an 
Intermediary?

    (a) * * * In later years, the Intermediary's obligation to SBA may 
not exceed an aggregate of $3.5 million, subject to statutory 
limitations on the total amount of funds available per state.
* * * * *
    5. In Sec. 120.707(a), remove the first sentence and add two new 
sentences in its place to read as follows:


Sec. 120.707  What conditions apply to loans by Intermediaries to 
Microloan borrowers?

    (a) General. An intermediary may make Microloans to any small 
business eligible to receive financial assistance under this part. A 
borrower may also use Microloan proceeds to establish a nonprofit child 
care business. * * *
* * * * *
    6. In Sec. 120.712, revise paragraphs (b)(1) and (e) to read as 
follows:


Sec. 120.712  How does an Intermediary get a grant to assist Microloan 
borrowers?

* * * * *
    (b) * * *
    (1) Up to 25 percent of the grant funds may be used to provide 
information and technical assistance to prospective Microloan 
borrowers; and
* * * * *
    (e) Third party contracts for technical assistance. An Intermediary 
may use no more than 25 percent of the grant funds it receives from SBA 
for contracts with third parties for the latter to provide technical 
assistance to Microloan borrowers.
    7. In Sec. 120.714, revise the section heading, add an introductory 
text, and revise paragraph (b) to read as follows:


Sec. 120.714  How are grants made to non-lending technical assistance 
providers?

    SBA selects non-lending technical assistance providers (NTAP) to 
receive grant funds for technical assistance to Microloan borrowers.
* * * * *
    (b) Number and amount of grants. In each year of the Microloan 
Program, SBA may make no more than 25 grants to NTAPs. A grant may not 
exceed $125,000.
* * * * *
    8. In Sec. 120.715, revise paragraph (a) to read as follows:


Sec. 120.715  Does SBA guarantee any loans an Intermediary obtains from 
another source?

    (a) SBA may guarantee not less than 90 percent of loans made by 
for-profit or nonprofit entities (or an alliance of such entities) to 
no more than 10 Intermediaries in urban areas and 10 Intermediaries in 
Rural Areas (as defined in section 120.10).
* * * * *
    9. Add Sec. 120.716 to read as follows:


Sec. 120.716  Welfare-to-work initiative.

    (a) Purpose. The purpose of the welfare-to-work initiative is to 
supplement the technical assistance grants provided under the microloan 
program for the purpose of helping low-income individuals who receive 
assistance under a State program funded under Part A of title IV of the 
Social Security Act (42 U.S.C. 601), or under any comparable State 
funded means tested program of assistance (State Program). These 
supplemental grants are to be used to help the individuals to establish 
small businesses and eliminate their dependence on such State Programs.
    (b) Supplemental grant. SBA may accept funds transferred to it from 
other agencies or departments of the Federal government to make the 
supplemental grants under the welfare-to-work initiative. SBA will make 
such grants to microloan Intermediaries and NTAPs (as defined in 
Sec. 120.714) in order to provide technical assistance and related 
services to individuals receiving State Program aid at the time they 
initially apply for a microloan.
    (c) Number of Intermediaries and NTAPs. SBA may give supplemental 
grants to no more than 20 participating microloan Intermediaries and 
NTAPs in fiscal year 1998, no more than 25 grantees in fiscal year 
1999, and no more than 30 grantees in fiscal year 2000.
    (d) Amount of supplemental grant. Each of the selected 
Intermediaries and NTAPs may receive a supplemental grant from SBA of 
no more than $200,000 a year.
    (e) Supplemental grant needs no matching. A supplemental grant made 
by SBA under this initiative does not have to be matched by the grantee 
Intermediary or NTAP.
    (f) Use of supplemental grant. A grantee may use the supplemental 
grant:

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    (1) To pay or reimburse a portion of child care and transportation 
costs of recipients of State Programs, if the recipients certify that 
they are not being paid for such costs under State block grants under 
the Child Care Development Block Grant Act of 1990 (42 U.S.C. 9858) or 
under part A, title IV of the Social Security Act (42 U.S.C. 601); and
    (2) For marketing, management, and technical assistance to the 
recipients of State Programs.
    (g) Memorandum of understanding. Before SBA accepts a transfer of 
funds from an agency or department of the Federal government, under 
this initiative, it must enter into a memorandum of understanding with 
the agency or department which will specify the terms and conditions of 
the supplemental grants, including monitoring of expenditures.
    (h) Additional condition for welfare-to-work supplemental grant. 
SBA may use up to 5 percent of the grant amounts it provides under the 
welfare-to-work microloan initiative in any fiscal year for technical 
assistance to the grantees to ensure that the grantees have the 
knowledge, skills, and understanding of making microloans and operating 
a welfare-to-work microloan program.
    10. Add Sec. 120.717 to read as follows:


Sec. 120.717   Suspension or revocation of an Intermediary or NTAP.

    (a) The AA/FA may suspend or revoke the participation status of an 
Intermediary or NTAP from the Microloan Program, or may impose other 
sanctions in the best interests of the program, if it fails to comply 
with the laws, regulations, and policies governing the program or if it 
fails to meet any one of the following minimum performance standards.
    (1) For Intermediaries only--An Intermediary must:
    (i) Close and fund a minimum of four microloans per year; and
    (ii) Satisfactorily provide in-house technical assistance to 
microloan clients and prospective microloan clients.
    (2) For NTAPs only--An NTAP must show that, for every thirty 
clients for which it provided technical assistance, one client received 
a loan from the private sector.
    (3) For Intermediaries and NTAPs--An Intermediary and an NTAP must:
    (i) Cover the service territory assigned by SBA, including honoring 
the SBA determined boundaries of neighboring Intermediaries and NTAPs;
    (ii) Fulfill reporting requirements;
    (iii) Manage program funds and matching funds in a satisfactory and 
financially sound manner;
    (iv) Communicate and file reports via the internet within six 
months after beginning participation in the program;
    (v) Maintain a currency rate of 85 percent or more (that is loans 
that are no more than 30 days late in scheduled payments);
    (vi) Maintain a default rate of 15 percent or less of the 
cumulative dollars loaned under the program; and
    (vii) Attend Microloan Program training conferences offered by SBA, 
or such substitute training as may be approved by SBA on a case-by-case 
basis.
    (b) The AA/FA, on a case by case basis, may impose pre-suspension 
or revocation sanctions which may include, but are not limited to, the 
following:
    (1) Accelerated reporting requirements;
    (2) Accelerated loan repayment requirements for outstanding program 
debt to SBA; and
    (3) Imposition of a temporary lending and/or training moratorium.
    (c) Revocation from the Microloan Program will include:
    (1) Removal from the program;
    (2) Liquidation of MRF and LLRF accounts, by SBA, and application 
of liquidated funds to any outstanding balance owed to SBA;
    (3) Payment of outstanding debt to SBA by the Intermediary;
    (4) Forfeiture or repayment of any unused grant funds by the 
Intermediary or NTAP; and
    (5) Debarment of the organization from receipt of Federal funds 
until loan and grant repayment requirements are met.
    (d) An Intermediary or NTAP may appeal a suspension or revocation 
under procedures found in part 134 of this chapter. The action of the 
AA/FA remains in effect pending resolution of the appeal.

    Dated: July 30, 1999.
Aida Alvarez,
Administrator.
[FR Doc. 99-20324 Filed 8-10-99; 8:45 am]
BILLING CODE 8025-01-P