[Federal Register Volume 65, Number 115 (Wednesday, June 14, 2000)]
[Proposed Rules]
[Pages 37308-37311]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-13812]


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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121 and 123


Pre-Disaster Mitigation Loans

AGENCY: Small Business Administration (SBA).

ACTION: Proposed rule.

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SUMMARY: With this rule SBA proposes to amend its Pre-Disaster 
Mitigation Loan Program (program) regulations. This rule proposes 
amendments that will clarify program requirements and procedures. The 
Pre-Disaster Mitigation Loan Program is a pilot program that was 
authorized by Congress in 1999. It allows SBA to make low interest, 
fixed rate loans to small businesses for the purpose of implementing 
mitigation measures to protect their property from disaster related 
damage. The Pre-Disaster Mitigation Loan Program was developed in 
support of Project Impact, a formal mitigation program established by 
the Federal Emergency Management Agency (FEMA).

DATES: Submit comments on or before July 14, 2000.

ADDRESSES: Written comments should be sent to Bernard Kulik, Associate 
Administrator, Office of Disaster Assistance, U.S. Small Business 
Administration, 409 3rd Street, SW., Washington, DC 20416.

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

SUPPLEMENTARY INFORMATION: SBA proposes to amend its regulations 
dealing with the Pre-Disaster Mitigation Loan Program (program). This 
proposed rule would clarify the application and loan approval processes 
and will make plain language edits to support the Administration's 
efforts to communicate clearly with the public.
    The Pre-Disaster Mitigation Loan Program is a pilot program 
authorized by Congress at a level of 15 million dollars for each of 5 
fiscal years from 2000 through 2004. The program allows SBA to make low 
interest, fixed rate loans to small businesses for the purpose of 
implementing mitigation measures that will protect the small business 
from disaster related damage. The Pre-Disaster Mitigation Loan Program 
was developed in support of Project Impact, a formal mitigation program 
established by FEMA. These initiatives encourage preparedness rather 
than rely solely on a response and recovery approach to emergency 
management.

Compliance With Executive Orders 12866, 12988, and 13132, the 
Regulatory Flexibility Act (5 U.S.C. 601-612), and the Paperwork 
Reduction Act (44 U.S.C. Ch. 35)

    SBA has determined that this proposed rule is a significant rule 
within the meaning of Executive Order 12866. However, 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 has determined 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. 
Given that Congress has limited the funding level for this pilot 
program, the program can only serve a limited number of small 
businesses. With a maximum loan amount of $50,000, the number of small 
businesses affected under this program would be 300. Even if the loan 
amounts did not reach the maximum level, and amounted to only $25,000 
per loan, the number of small businesses affected would only be 600. 
This is not substantial, in view of the fact that there are some 13-16 
million small businesses across the country.
    For the purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, 
SBA has submitted the Pre-Disaster Mitigation Small Business Loan 
Application (application) to the Office of Management and Budget (OMB) 
for review. SBA is requesting that OMB approve or disapprove of this 
collection of information within 30 days of submission. This 
application will allow small businesses to apply for pre-disaster 
mitigation loans and will provide SBA with the information necessary to 
evaluate applicants. The application will request such information as 
name, address, location and type of mitigation project, type of 
business, management information, organization type, and financial 
information to permit SBA to determine repayment ability. The applicant 
will have to complete an application each time it applies for a pre-
disaster mitigation loan. SBA estimates that the time necessary to 
complete an application for the Pre-Disaster Mitigation Loan Program 
will average 2 hours.
    SBA is seeking comments on: (a) Whether the information SBA 
proposes to collect on the application is necessary for the proper 
performance of this program, (b) the accuracy of the burden estimate 
(time estimated to complete the application), (c) ways to minimize the 
burden estimate, and (d) ways to enhance the quality of the information 
being collected. Please send comments regarding this proposed 
collection to Bernard Kulik, Associate Administrator, Office of 
Disaster Assistance, 409 3rd Street, SW., Washington, DC 20416, and to 
David Rostker, Office of Management and Budget, Office of Information 
and Regulatory Affairs, 725 17th Street, NW., Washington, DC 20503.
    For purposes of Executive Order 13132, SBA has determined that this 
proposed rule has no federalism implications.
    For purposes of Executive Order 12988, SBA certifies that this 
proposed rule is drafted, to the extent practicable, to be in 
accordance 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 businesses.

13 CFR Part 123

    Disaster assistance, Loan programs--business, Reporting and 
recordkeeping requirements, Small businesses.

    For the reasons stated in the preamble, SBA proposes to amend 13 
CFR parts 121 and 123 as follows:

PART 121--SMALL BUSINESS SIZE REGULATIONS

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

    Authority: 15 U.S.C. 632(a), 634(b)(6), 636(b), 636(c), 637(a), 
644(c); 42 U.S.C. 13556; and Sec. 601 et. seq., Pub. L. 105-135, 111 
Stat. 2592.

    2. In Sec. 121.302, remove the last sentence of paragraph (c) and 
add two new sentences in its place 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 a complete Pre-

[[Page 37309]]

Disaster Mitigation Small Business Loan Application for processing. 
Refer to Sec. 123.408 of this chapter to find out what SBA considers to 
be a complete Pre-Disaster Mitigation Small Business Loan Application.
* * * * *

PART 123--DISASTER LOAN PROGRAM

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

    Authority: 15 U.S.C. 634(b)(6), 636(b), and 636(c).

    2. Designate the undesignated center headings, Overview, Home 
Disaster Loans, Physical Disaster Business Loans, Economic Injury 
Disaster Loans, and Pre-Disaster Mitigation Loans and the sections 
under each as Subparts A, B, C, D, and E respectively.

Subpart A--Overview

    3. Redesignate Sec. 123.107 as Sec. 123.21, and transfer it to 
newly designated Subpart A, and revise it as follows:


Sec. 123.21  What is a mitigation measure?

    A mitigation measure is something done for the purpose of 
protecting real and personal property against disaster related damage. 
You may implement mitigation measures after a disaster occurs, to 
protect against recurring disaster related damage, or before a disaster 
occurs (pre-disaster), to protect against future disaster related 
damage. Sections 123.400 through 123.413 specifically address pre-
disaster mitigation. Examples of mitigation measures include retaining 
walls, sea walls, grading and contouring land, elevating flood prone 
structures, relocating utilities, retrofitting structures to protect 
against high winds, earthquakes, flood, wildfires, or other natural 
disasters.
    4. Add Sec. 123.22 to Subpart A to read as follows:


Sec. 123.22  How much can your business borrow for mitigation?

    For mitigation measures implemented after a disaster has occurred 
your business can borrow the lesser of the cost of mitigation measure, 
or 20 percent of the amount of your approved physical disaster loan to 
repair or replace your damaged primary residence, personal property, 
and business property. To find out how much your business can borrow 
for pre-disaster mitigation measures, see Sec. 123.405.
    5. Add Sec. 123.23 to Subpart A to read as follows:


Sec. 123.23  Can you request a loan increase to use for mitigation 
measures?

    Yes, you can request a loan increase to use for mitigation measures 
by sending SBA a written request before the final disbursement of your 
original disaster loan. The written request must detail the nature and 
expected cost of the mitigation measure. If you send a written request 
for a loan increase after the final disbursement of your original 
disaster loan, SBA will only accept this request if, as a part of the 
request, you demonstrate that the request was late because of 
substantial reasons beyond your control.
    6. Revise newly designated Subpart E to read as follows:

Subpart E--Pre-Disaster Mitigation Loans

Sec.
123.400   What is the Pre-Disaster Mitigation Loan Program?
123.401   What types of mitigating measures can your business 
include in an application for a pre-disaster mitigation loan?
123.402   Can your business include its relocation as a mitigation 
measure in an application for a pre-disaster mitigation loan?
123.403   When is your business eligible to apply for a pre-disaster 
mitigation loan?
123.404   When is your business ineligible to apply for a pre-
disaster mitigation loan?
123.405   How much can your business borrow with a pre-disaster 
mitigation loan?
123.406   What is the interest rate on a pre-disaster mitigation 
loan?
123.407   When does your business apply for a pre-disaster 
mitigation loan and where does your business get the application?
123.408   How does your business apply for a pre-disaster mitigation 
loan?
123.409   Which pre-disaster mitigation loan requests will SBA 
consider for funding?
123.410   When will SBA make funding decisions?
123.411   Which loan requests will SBA fund?
123.412   What if SBA determines that your business loan request 
meets the selection criteria of Sec. 123.409 but SBA is unable to 
fund it because SBA has already allocated all program funds?
123.413   What happens if SBA declines your business' pre-disaster 
loan request?

Subpart E--Pre-Disaster Mitigation Loans


Sec. 123.400  What is the Pre-Disaster Mitigation Loan Program?

    The Pre-Disaster Mitigation Loan Program allows SBA to make low 
interest, fixed rate loans to small businesses for the purpose of 
implementing mitigation measures to protect their commercial real 
property (building) or leasehold improvements from disaster related 
damage. This program supports Project Impact, a formal mitigation 
program established by the Federal Emergency Management Agency (FEMA). 
This pilot program is authorized for 5 fiscal years (October--
September), from 2000 through 2004, and has approved only limited 
program funding. Therefore, approved loan requests are funded on a 
first come, first serve basis up to the limit of program funds 
available (see Sec. 123.411).


Sec. 123.401  What types of mitigation measures can your business 
include in an application for a pre-disaster mitigation loan?

    To be included in a pre-disaster mitigation loan application, each 
of your business' mitigation measures must satisfy the following 
criteria:
    (a) The mitigation measure, as described in the application, must 
serve the purpose of protecting your commercial real property 
(building) or leasehold improvements from damage that may be caused by 
future disasters, and
    (b) The mitigation measure must conform with the priorities and 
goals of the Project Impact community in which the business subject to 
the measure is located. To show that this factor is satisfied your 
business must submit to SBA, as a part of your complete application, a 
letter from your business' local Project Impact coordinator confirming 
this fact. Contact your regional FEMA office for a list of Project 
Impact coordinators or visit the FEMA Website at www.fema.gov.


Sec. 123.402  Can your business include its relocation as a mitigation 
measure in an application for a pre-disaster mitigation loan?

    Yes, you may request a pre-disaster mitigation loan for the 
relocation of your business if: (a) Your commercial real property 
(building) is located in a SFHA (Special Flood Hazard Area), and (b) 
your business relocates outside the SFHA but remains in the same 
Project Impact community. Contact your regional FEMA office for a 
listing of Project Impact Communities and SFHAs or visit the FEMA 
Website at www.fema.gov.


Sec. 123.403  When is your business eligible to apply for a pre-
disaster mitigation loan?

    To be eligible to apply for a pre-disaster mitigation loan your 
business must meet each of the following criteria:
    (a) Your business, which is the subject of the pre-disaster 
mitigation measure, must be located in a Project Impact community. Each 
State, the District of Columbia, Puerto Rico, and the Virgin Islands 
have at least one Project Impact

[[Page 37310]]

community. Contact your regional FEMA office to find out the locations 
of Project Impact communities or visit the FEMA Website at 
www.fema.gov.
    (b) If your business is proposing a mitigation measure that 
protects against a flood hazard, the location of your business which is 
the subject of the mitigation measure must be located in a Special 
Flood Hazard Area (SFHA). Contact your FEMA regional office to find out 
the locations of SFHAs or visit the FEMA Website at www.fema.gov.
    (c) As of the date your business submits a complete Pre-Disaster 
Mitigation Small Business Loan Application to SBA (see Sec. 123.408 for 
what SBA considers to be a complete application), your business, along 
with its affiliates, must be a small business concern as defined in 
part 121 of this chapter. The definition of small business concern 
encompasses sole proprietorships, partnerships, corporations, limited 
liability companies, and other legal entities recognized under State 
law.
    (d) Your business, which is the subject of the mitigation measure, 
must have operated as a business in its present location for at least 
one year before submitting its application.
    (e) Your business, along with its affiliates and owners, must not 
have the financial resources to fund the proposed mitigation measures 
without undue hardship. SBA makes this determination based on the 
information your business submits as a part of its application.
    (f) If your business is owning and leasing out real property, the 
mitigation measures must be for protection of a building leased 
primarily for commercial rather than residential purposes (SBA will 
determine this based upon a comparative square footage basis).


Sec. 123.404  When is your business ineligible to apply for a pre-
disaster mitigation loan?

    Your business is ineligible to apply for a pre-disaster mitigation 
loan if your business (including its affiliates) satisfies any of the 
following conditions:
    (a) Any of your business' principal owners is presently 
incarcerated, or on probation or parole following conviction of a 
serious criminal offense, or has been indicted for a felony or a crime 
of moral turpitude;
    (b) Your business' only interest in the business property is in the 
form of a security interest, mortgage, or deed of trust;
    (c) The building, which is the subject of the mitigation measure, 
was newly constructed or substantially improved on or after February 9, 
1989, and (without significant business justification) is located 
seaward of mean high tide or entirely in or over water;
    (d) Your business is an agricultural enterprise. Agricultural 
enterprise means a business primarily engaged (see Sec. 121.107) in the 
production of food and fiber, ranching and raising of livestock, 
aquaculture and all other farming and agriculture-related industries. 
Sometimes a business is engaged in both agricultural and non-
agricultural business activities. If the primary business activity of 
your business is not an agricultural enterprise, it may apply for a 
pre-disaster mitigation loan, but loan proceeds may not be used, 
directly or indirectly, for the benefit of the agricultural 
enterprises;
    (e) Your business is engaged in any illegal activity;
    (f) Your business is a government owned entity (except for a 
business owned or controlled by a Native American tribe);
    (g) Your business presents live performances of a prurient sexual 
nature or derives directly or indirectly more than de minimis gross 
revenue through the sale of products or services, or the presentation 
of any depictions or displays, of a prurient sexual nature;
    (h) Your business engages in lending, multi-level sales 
distribution, speculation, or investment (except for real estate 
investment with property held for commercial rental);
    (i) Your business is a non-profit or charitable concern;
    (j) Your business is a consumer or marketing cooperative;
    (k) Your business derives more than one-third of its gross annual 
revenue from legal gambling activities;
    (l) Your business is a loan packager that earns more than one-third 
of its gross annual revenue from packaging SBA loans;
    (m) Your business principally engages in teaching, instructing, 
counseling, or indoctrinating religion or religious beliefs, whether in 
a religious or secular setting; or
    (n) Your business is primarily engaged in political or lobbying 
activities.


Sec. 123.405  How much can your business borrow with a pre-disaster 
mitigation loan?

    Your business, together with its affiliates, may borrow up to 
$50,000 each fiscal year. This loan amount may be used to fund only 
those projects that were a part of your business' approved loan 
request. SBA will consider mitigation measures costing more than 
$50,000 per year if your business can identify, as a part of its Pre-
Disaster Mitigation Small Business Loan Application, sources that will 
fund the cost above $50,000.


Sec. 123.406  What is the interest rate on a pre-disaster mitigation 
loan?

    The interest rate on a pre-disaster mitigation loan will be fixed 
at 4 percent per annum or less. The exact interest rate will be stated 
in the Federal Register notice announcing each filing period (see 
Sec. 123.407).


Sec. 123.407  When does your business apply for a pre-disaster 
mitigation loan and where does your business get an application?

    At the beginning of each of 5 fiscal years (October through 
September) commencing in fiscal year 2000, SBA will publish a notice in 
the Federal Register announcing the availability of pre-disaster 
mitigation loans. The notice will designate a 30-day application filing 
period with a specific opening date and filing deadline, as well as the 
locations for obtaining and filing loan applications. In addition to 
the Federal Register, SBA will use FEMA, and will issue press releases 
to the local media to inform potential loan applicants where to obtain 
loan applications. SBA will not accept any applications after the 
filing deadline; however, SBA may announce additional application 
periods each year depending on the availability of program funds.


Sec. 123.408  How does your business apply for a pre-disaster 
mitigation loan?

    To apply for a pre-disaster mitigation loan your business must 
submit a complete Pre-Disaster Mitigation Small Business Loan 
Application (application) within the announced filing period. The 
complete application serves as your business' loan request. A complete 
application supplies all of the filing requirements specified on the 
application form including a written statement from the local Project 
Impact coordinator confirming:
    (a) The business that is the subject of the mitigation measure is 
located within the Project Impact community, and
    (b) The mitigation measure is in accordance with the specific 
priorities and goals of the local Project Impact community in which the 
business is located.


Sec. 123.409  Which pre-disaster mitigation loan requests will SBA 
consider for funding?

    SBA will consider a loan request for funding if, after reviewing a 
complete application, SBA determines that it meets the following 
selection criteria:
    (a) Your business satisfies the requirements of Secs. 123.401, 
123.402 and 123.403,
    (b) None of the conditions specified in Sec. 123.404 apply to your 
business, its affiliates, or principal owners,

[[Page 37311]]

    (c) Your business has submitted a reasonable cost estimate for the 
proposed mitigation measure and has chosen to undertake a mitigation 
measure that is likely to accomplish the desired mitigation result 
(SBA's determination of this point is not a guaranty that the project 
will prevent damage in future disasters),
    (d) Your business is credit worthy, and
    (e) There is a reasonable assurance of loan repayment in accordance 
with the terms of a loan agreement.


Sec. 123.410  When will SBA make funding decisions?

    SBA will not make funding decisions until sixty calendar days after 
the announced opening of the application filing period (as published in 
the Federal Register). SBA will notify you in writing if your loan 
request doesn't meet the criteria specified in Sec. 123.409.


Sec. 123.411  Which loan requests will SBA fund?

    SBA will date and time stamp each application (loan request) when 
we determine that it is complete. SBA will fund loan requests meeting 
the selection criteria specified in Sec. 123.409 on a first come, first 
served basis using this date and time stamp. SBA will fund loan 
requests in this order until it allocates all program funds. SBA will 
notify you in writing of its funding decision.


Sec. 123.412  What if SBA determines that your business loan request 
meets the selection criteria of Sec. 123.409 but SBA is unable to fund 
it because SBA has already allocated all program funds?

    If SBA determines that your business' loan request meets the 
selection criteria of Sec. 123.409 but we are unable to fund it because 
we have already allocated all program funds, your request will be given 
priority status, based on the original filing date, once more program 
funds become available. However, if more than 6 months pass since SBA 
determined to fund your request, SBA may request updated or additional 
financial information.


Sec. 123.413  What happens if SBA declines your business' pre-disaster 
mitigation loan request?

    If SBA declines your business' loan request, SBA will notify your 
business in writing giving specific reasons for decline. If your 
business disagrees with SBA's decision, it may respond in accordance 
with Sec. 123.13. If SBA reverses its decision, SBA will use the date 
it accepted your business' request for reconsideration or appeal as the 
basis for determining the order of funding.

    Dated: May 25, 2000.
Aida Alvarez,
Administrator.
[FR Doc. 00-13812 Filed 6-13-00; 8:45 am]
BILLING CODE 8025-01-U