[Federal Register Volume 65, Number 64 (Monday, April 3, 2000)]
[Rules and Regulations]
[Pages 17439-17440]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-8117]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 120


Business Loan Program

AGENCY: Small Business Administration (SBA).

ACTION: Final rule.

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SUMMARY: This final 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.

DATE: This rule is effective on April 3, 2000.

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.
    On July 26, 1999, SBA published a proposed rule in the Federal 
Register (64 FR 40310). Since SBA received no comments, it is 
publishing in final the rule as proposed and making it effective on the 
date of publication in the Federal Register.
    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 final 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 final 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 13132, 12988 and 12866, the 
Regulatory Flexibility Act (5 U.S.C. 601-612), and the Paperwork 
Reduction Act (44 U.S.C. Ch. 35)

    This final 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 has determined 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 
estimates that there are a total of 130 microintermediaries who are 
small entities that will be affected by this rule. However, SBA does 
not believe that this rule will have a significant economic impact 
because this rule relates only to Microloan Program intermediarie's 
internal accounting procedures and is not expected to have any economic 
effect.
    SBA has determined 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 13132, SBA has determined that this 
final rule has no federalism implications.
    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 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 amends 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. 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 Fund. After an Intermediary has 
been in the Microloan program for five years, it may request SBA's 
Associate Administrator for Financial Assistance (``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 Fund. The AA/FA has the 
authority to reduce the percentage of an Intermediary's Portfolio that 
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 LLRF to less than ten percent of the Portfolio.
    (e) What must an intermediary demonstrate to get a reduction in 
Loan Loss Reserve Fund? To get a reduction in its LLRF, an Intermediary 
must demonstrate to the satisfaction of the AA/FA that:

[[Page 17440]]

    (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: March 24, 2000.
Aida Alvarez,
Administrator.
[FR Doc. 00-8117 Filed 3-31-00; 8:45 am]
BILLING CODE 8025-01-P