[Federal Register Volume 64, Number 171 (Friday, September 3, 1999)]
[Rules and Regulations]
[Pages 48275-48277]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-23051]


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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121 and 123


Pre-Disaster Mitigation Loans

AGENCY: Small Business Administration (SBA).

ACTION: Final rule.

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SUMMARY: With this rule, SBA amends its disaster loan program 
regulations to implement a pilot program authorized by Congress in 
1999. The authorization covers five fiscal years (from 2000 to 2004) 
and will allow SBA to make low interest, fixed rate loans to small 
businesses to use mitigation measures in support of Project Impact, a 
formal mitigation program established by the Federal Emergency 
Management Agency (FEMA).

DATES: This rule is effective October 1, 1999.

FOR FURTHER INFORMATION CONTACT: Bernard Kulik, Associate 
Administrator, Office of Disaster Assistance, 202-205-6734.

SUPPLEMENTARY INFORMATION: SBA amends part 123 of its regulations 
regarding disaster loans, based upon a proposed rule which was 
published on July 7, 1999 (64 FR 36617). Comments were due by August 6, 
1999.
    The final rule allows small businesses to obtain low interest, 
fixed rate loans for mitigation measures in support of Project Impact. 
In response to the problems of increasing costs and personal 
devastation caused by disasters, Congress authorized a pilot program 
for 5 fiscal years from 2000 through 2004. The Administration launched 
an effort to substitute preparedness for the current reliance on 
response and recovery in emergency management.
    SBA supports this effort and wants to offer pre-disaster mitigation 
loans to assist with disaster preparedness. This final rule will allow 
SBA to provide such loans to small businesses within Project Impact 
communities identified by FEMA. Currently, SBA disaster loans may be 
used only to repair or replace what was destroyed or damaged by 
disaster and to provide an additional 20 percent for mitigation 
measures after a disaster. To promote preparedness, this final rule 
will amend SBA's regulations to provide pre-disaster mitigation loans 
for small businesses. Such pre-disaster mitigation loans will allow 
small businesses to install mitigation devices that may prevent future 
damage.
    SBA received several comments on the proposed rule. One comment 
requested that SBA modify its definition of mitigation in Sec. 123.107 
to include ``any action taken to reduce or eliminate the long-term risk 
to human life and property from natural hazards'' as defined by the 
Federal Emergency Management Agency in 44 CFR 206.401. SBA did not 
adopt this suggestion due to the difference in statutory language which 
authorizes the assistance provided by SBA and FEMA. However, SBA has 
included some of the mitigation examples suggested by the commenter in 
Sec. 123.107. SBA also clarifies in Sec. 123.107 that Sec. 123.400 
through Sec. 123.407 address pre-disaster mitigation, while the last 
two sentences of Sec. 123.107 address the amount of money that can be 
borrowed for mitigation after a disaster.
    Another comment suggested that SBA establish a date for when size 
status is determined. SBA has adopted the suggestion in Sec. 123.402, 
requiring that the applicant be a small business as of the date SBA 
accepts the application for processing. To clarify the conditions for 
eligibility, SBA moved portions of Sec. 123.403 and Sec. 123.406 in the 
proposed rule to Sec. 123.402 in the final rule so that eligibility 
conditions are all in one section.
    One of the conditions for eligibility is that a business, together 
with its affiliates, must be small as defined in part 121 of this 
Chapter. Section 121.302 sets forth criteria for when size status is 
determined for each of SBA's loan programs. Since the Pre-disaster 
Mitigation Loan Program will be a new pilot, Sec. 121.302 does not 
include it. Although SBA did not propose to amend this section, it is 
necessary to amend Sec. 121.302(c) to designate a date for determining 
size status for this pilot program.
    One comment proposed that SBA include homeowners. SBA did not adopt 
this suggestion because the authorizing legislation for this pilot 
program limits the assistance to small businesses.
    Another comment suggested that SBA require that a small business 
must have been in the Project Impact community for at least one year, 
under the same ownership, at the location where mitigation was proposed 
prior to submitting a loan application. SBA has not adopted this 
suggestion because it would unnecessarily limit assistance under the 
pilot.
    One comment suggested that SBA begin funding all approved loans on 
December 31, in the order that the applications were initially 
received. SBA did not adopt this suggestion because SBA is uncertain of 
the demand and does not want to limit the time period for approving and 
funding loans. SBA revised the text of Sec. 123.404 to clarify that a 
business may borrow up to $50,000 per year, and that approved loans 
will be funded in the order that SBA accepted the applications for 
processing. SBA also clarifies that it will consider projects that cost 
more than $50,000 per year if the business can identify sources that 
will fund the amount above $50,000.
    Another commenter asked that SBA clarify in Sec. 123.401 whether 
residential rental properties were eligible. The section has been 
changed to make it clear that SBA will accept applications from owners 
of commercial real estate (property primarily leased to business for 
commercial use). Owners of property held and leased primarily for 
residential use will not be eligible.
    One commenter was concerned that SBA's verification of a project 
might subject SBA to potential liability if a mitigation project failed 
to perform as expected. In response to this suggestion, SBA revised 
Sec. 123.401 to make it clear that SBA only verifies that the cost 
estimate is reasonable to accomplish the stated desired mitigation 
result, and that SBA does not guarantee that the mitigation measure 
will prevent damages from future disasters.
    Also, SBA amended Sec. 123.406 to clarify how and when it will 
provide notice of the availability of pre-disaster mitigation loans. 
Finally, SBA simplified language in subparagraph (c) of that section 
and Sec. 123.407 regarding application processing, loan funding, and 
the process for reconsideration or appeal.

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 final rule is not a significant rule within 
the meaning of

[[Page 48276]]

Executive Order 12866, since 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 U.S. economy.
    SBA certifies that this final 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 final 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 
final rule has no federalism implications warranting preparation of a 
Federalism Assessment.
    For purposes of Executive Order 12988, SBA certifies that this 
final rule is drafted, to the extent practicable, to accord with the 
standards set forth in section 3 of that Order.

List of Subjects

13 CFR Part 121

    Government procurement, Government property, Grant programs--
business, Loan programs--business, Small business.

13 CFR Part 123

    Disaster assistance, Loan programs--business, Reporting and 
recordkeeping requirements, Small businesses.
    For the reasons stated in the preamble, SBA amends 13 CFR parts 121 
and 123 as follows:

PART 121--SMALL BUSINESS SIZE REGULATIONS

    1. The authority citation for part 121 continues to read as 
follows:

    Authority: Pub. L. 105-135 Sec. 601 et. seq., 111 Stat. 2592; 15 
U.S.C. 632(a), 634(b)(6), 637(a), and 644(c); and Pub. L. 102-486, 
106 Stat. 2776, 3133.

    2. Revise Sec. 121.302 to add a sentence at the end of paragraph 
(c) to read as follows:


Sec. 121.302  When does SBA determine the size status of an applicant?

* * * * *
    (c) * * * For pre-disaster mitigation loans, size status is 
determined as of the date SBA accepts the application for processing.
* * * * *

PART 123--DISASTER LOAN PROGRAM

    1. The authority citation for part 123 continues to read as 
follows:

    Authority: 15 U.S.C. 634(b)(6), 636(b), 636(c) and 636(f); Pub. 
L. 102-395, 106 Stat. 1828, 1864; and Pub. L. 103-75, 107 Stat. 739.

    2. In Sec. 123.107, revise the second sentence and add a sentence 
at the end to read as follows:


Sec. 123.107  What is mitigation?

    * * * Examples include elevation of flood prone structures, 
retaining walls, sea walls, grading and contouring land, relocating 
utilities, and retrofitting and strengthening structures to protect 
against high winds, earthquake, flood, wildfire, or other natural 
hazards. * * * Sections 123.400 through 123.407 address pre-disaster 
mitigation.
    3. Add an undesignated centerheading and Secs. 123.400 through 
123.407 to read as follows:

Pre-disaster Mitigation Loans

Sec.

123.400  What is a pre-disaster mitigation loan?
123.401  What types of mitigating measures are eligible for a pre-
disaster mitigation loan?
123.402  What businesses are eligible to apply for pre-disaster 
mitigation loans?
123.403  When would my business not be eligible to apply for a pre-
disaster mitigation loan?
123.404  How much can my business borrow with a pre-disaster 
mitigation loan?
123.405  What is the interest rate on a pre-disaster mitigation 
loan?
123.406  How do I apply for a pre-disaster mitigation loan and which 
loans will be funded?
123.407  What happens if SBA denies or withdraws my pre-disaster 
mitigation loan application?

Pre-disaster Mitigation Loans


Sec. 123.400  What is a pre-disaster mitigation loan?

    Congress has authorized a pilot program for 5 fiscal years from 
2000 through 2004 for SBA to make low interest, fixed rate loans to 
small businesses to use mitigation measures in support of Project 
Impact, a formal mitigation program established by the Federal 
Emergency Management Agency (FEMA).


Sec. 123.401  What types of mitigating measures are eligible for a pre-
disaster mitigation loan?

    Mitigation means specific measures taken by you to protect your 
real property or leasehold improvements from future disasters in 
Project Impact communities. If you are a landlord, the measures must be 
for protection of property leased primarily for commercial rather than 
residential purposes, to be determined on a comparative square footage 
basis. Additionally, SBA will consider providing a pre-disaster 
mitigation loan for relocation if your commercial real property is 
located in a SFHA (Special Flood Hazard Area) and you relocate outside 
the SFHA but remain in the same Project Impact community. If the 
mitigation measures protect against a flood hazard, the applicant small 
business must be located in an existing structure in a SFHA. The local 
Project Impact coordinator will confirm that your proposed project is 
in accordance with specific Project Impact priorities and goals of that 
community. SBA will verify that the cost estimate is reasonable to 
accomplish each project to determine if the project is likely to 
accomplish the stated desired mitigation results. SBA verification and 
subsequent loan approval are not a guarantee that the project will 
prevent damages in future disasters.


Sec. 123.402  What businesses are eligible to apply for pre-disaster 
mitigation loans?

    Each State, the District of Columbia, Puerto Rico, and the Virgin 
Islands have at least one FEMA Project Impact community. Only those 
small businesses located in Project Impact communities are eligible to 
apply for a pre-disaster mitigation loan. Your small business may be a 
sole proprietorship, partnership, corporation, limited liability 
company, or other legal entity recognized under State law. Your small 
business must have been in existence for at least one year prior to 
submitting an application for this loan. Your business (together with 
its affiliates) must be small (as defined in part 121 of this chapter) 
as of the date SBA accepts the application for processing, and SBA must 
also determine that the business, its affiliates and its owners do not 
have the financial resources to fund the mitigation measures without 
undue hardship.


Sec. 123.403  When would my business not be eligible to apply for a 
pre-disaster mitigation loan?

    Your business is not eligible for a pre-disaster mitigation loan if 
it, together with its affiliates, fits into any of the categories in 
Secs. 123.101, 123.201, and 123.301.


Sec. 123.404  How much can my business borrow with a pre-disaster 
mitigation loan?

    Each borrower, together with its affiliates, may borrow up to 
$50,000 per year. SBA will fund approved loans in the order in which 
SBA accepted the application for processing. SBA will consider 
mitigation measures that cost more than $50,000 per year if the

[[Page 48277]]

business can identify sources that will fund the cost above $50,000.


Sec. 123.405  What is the interest rate on a pre-disaster mitigation 
loan?

    Your pre-disaster mitigation loan will have an interest rate of 4 
percent per annum or less.


Sec. 123.406  How do I apply for a pre-disaster mitigation loan and 
which loans will be funded?

    (a) At the beginning of each fiscal year commencing October 1st 
1999, SBA will publish a declaration in the Federal Register announcing 
the availability of pre-disaster mitigation loans. The declaration will 
designate at least a 30 day application filing period in the first six 
months of the fiscal year, the application filing deadline, and the 
locations for obtaining and filing loan applications. Additional 
application periods may be announced each year depending on the 
availability of funds. In addition to the Federal Register, SBA will 
use FEMA and the local media to inform potential loan applicants where 
to obtain loan applications. SBA will not accept any applications after 
the announced deadline unless SBA reopens the application filing 
period.
    (b) Complete an SBA pre-disaster mitigation loan application 
package which includes a written statement from the local Project 
Impact coordinator that the project is in accordance with the specific 
priorities and goals of the local community. The application must be 
filed during the announced filing period.
    (c) An SBA Disaster Area Office will notify the Office of Disaster 
Assistance (ODA) when it has accepted a complete application for 
processing. The Area Office will approve, decline, or withdraw (stop 
processing) the application if the applicant does not give SBA required 
information. The Area Office will notify ODA of its decision. ODA will 
then direct the Area Office to make the loan based on availability of 
loan funds and the date SBA accepted the complete application package.


Sec. 123.407  What happens if SBA denies or withdraws my pre-disaster 
mitigation loan application?

    (a) If SBA denies your loan application, SBA will notify you in 
writing and give you the specific reasons for the denial. If you 
disagree with SBA's decision, you may respond under Sec. 123.13. If SBA 
approves your application after reconsideration or appeal, SBA will use 
the date the Area Office received the request for reconsideration or 
appeal to determine the order of funding.
    (b) If SBA withdraws your loan application and you later submit the 
missing information, and SBA approves the loan, SBA will use the date 
it reaccepts the application to determine the order of funding.

    Dated: August 27, 1999.
Aida Alvarez,
Administrator.
[FR Doc. 99-23051 Filed 9-2-99; 8:45 am]
BILLING CODE 8025-01-P