[Federal Register Volume 68, Number 190 (Wednesday, October 1, 2003)]
[Rules and Regulations]
[Pages 56553-56554]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-24728]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 120

RIN 3245-AF09


Business Loans

AGENCY: Small Business Administration (SBA).

ACTION: Direct final rule.

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SUMMARY: Statutory amendments to the Small Business Act require changes 
to SBA rules concerning guarantee fees and ongoing service fees paid by 
SBA participating lenders in SBA's 7(a) loan program. This direct final 
rule implements the statutory changes.

DATES: This rule is effective November 17, 2003, without further 
action, unless adverse comment is received by October 31, 2003. If 
adverse comment is received, SBA will publish a timely withdrawal of 
the rule in the Federal Register.

ADDRESSES: Address written comments to LeAnn Oliver, Deputy Associate 
Administrator for Financial Assistance, Small Business Administration, 
409 Third Street, SW., Washington, DC 20416 or to [email protected]. 
You also may submit comments electronically to http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Charles W. Thomas, Acting Director, 
Office of Loan Programs, Office of Financial Assistance, (202) 205-
6656, [email protected].

SUPPLEMENTARY INFORMATION: The Small Business Investment Company 
Amendments Act of 2001, Public Law 107-100, 115 Stat. 966 (2001 Act) 
became effective on December 21, 2001. This direct final rule is 
necessary to amend SBA regulations in order to incorporate changes made 
by the 2001 Act to the Small Business Act (the Act) concerning SBA's 
7(a) business loan program.
    Section 6(b)(a)(1) of the 2001 Act adds section 7(a)(18)(C) to the 
Act, 15 U.S.C. 636(a)(18)(C), to provide for a temporary reduction in 
the guarantee fee payable to SBA by participating lenders in the 7(a) 
loan program for all 7(a) loans with a maturity over 12 months as set 
forth in this final rule.

                 Temporary Reduction in SBA Guaranty Fee
                      (Effective 10/01/02-9/30/04)
------------------------------------------------------------------------
                                                     SBA's guaranty fee
    SBA loan SBA's amount        SBA's standard         under 2 year
                                  guaranty fee            reduction
------------------------------------------------------------------------
Up To $150,000..............  2% of SBA's Guaranty  1% of SBA's Guaranty
                               Portion.              Portion.
More Than $150,000 Up to      3% of SBA Guaranty    2.5% of SBA's
 $700,000.                     Portion.              Guaranty Portion.
More Than $700,000..........  3.5% of SBA's         3.5% of SBA's
                               Guaranty Portion.     Guaranty Portion
                                                     (No Change).
------------------------------------------------------------------------

    The 2001 Act does not change the existing authority of a lender to 
pass the guarantee fee on to the borrower pursuant to section 
7(a)(18)(A) of the Act, 15 U.S.C. 636(a)(18)(A), nor does it change the 
provision whereby the lender can retain 25 percent of the guaranty fee 
for loans of $150,000 or less.
    Section 6(a)(2) of the 2001 Act also amended section 7(a)(23)(A) of 
the Act, 15 U.S.C. 636(a)(23)(A), to provide for a temporary reduction 
to the annual fee (lender's annual service fee) payable to SBA by 
participating lenders. Pursuant to the 2001 Act, the temporary 
reduction to the annual service fee that the lender must pay SBA is 
equal to 0.25 percent (reduced from 0.5 percent) of the outstanding 
balance of the SBA guaranteed portion of a loan. The 2001 Act does not 
change the prohibition under section 7(a)(23)(B) of the Act, 15 
U.S.C.636(a)(23)(B), against the lender charging the borrower for the 
lender's annual service fee.
    These two fee reductions are temporary and are applicable only to 
7(a) loans approved on or after October 1, 2002, through September 30, 
2004.
    SBA is revising Sec.  120.220 of its regulations to implement these 
provisions. Because the 2001 Act provisions are temporary, the 
regulations implementing these provisions are temporary and will be 
promulgated as separate paragraphs in order to make clear which 
regulatory provisions will continue to apply after the temporary 
regulations sunset on September 30, 2004. Thus, paragraph (a)(2) covers 
the amount of the guarantee fee payable to SBA for loans approved from 
October 1, 2002, through September 30, 2004. Paragraph (f)(2) covers a 
lender's annual service fee payable to SBA for loans approved from 
October 1, 2002, through September 30, 2004.

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 regulation will not have substantial direct effects on the 
States, on the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government. Therefore, for the purposes of Executive 
Order 13132, SBA determines that this direct final rule has no 
federalism implications warranting preparation of a federalism 
assessment.
    The Office of Management and Budget (OMB) has determined that this 
rule does not constitute a significant regulatory action under 
Executive Order 12866.
    This action meets applicable standards set forth in sections 3(a) 
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize 
litigation, eliminate ambiguity, and reduce burden. The action does not 
have retroactive or preemptive effect.
    SBA has determined that this direct final rule does not impose 
additional reporting or recordkeeping requirements under the Paperwork 
Reduction Act, 44 U.S.C., chapter 35.
    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601, requires 
administrative agencies to consider the effect of their actions on 
small entities, including small businesses, small non-profit 
enterprises, and small local governments. Pursuant to the RFA, when an 
agency issues a rulemaking, the agency must prepare a regulatory 
flexibility analysis which describes the impact of the rule on small 
entities.

[[Page 56554]]

However, section 605 of the RFA allows an agency to certify a rule, in 
lieu of preparing an analysis, if the rulemaking is not expected to 
have a significant economic impact on a substantial number of small 
entities. If the head of the agency makes such a certification, that 
certification must be published along with a statement providing the 
factual basis for such certification. Within the meaning of RFA, and 
based on the following facts, SBA certifies that this rule will not 
have a significant economic impact on a substantial number of small 
entities.
    Section 6 of the 2001 Act provides for a two-year reduction in the 
guarantee fee paid by lenders to SBA for loans equal to or less than 
$700,000 and with a maturity of greater than 12 months. The SBA has 
determined that approximately 4,500 lenders made SBA-guaranteed 7(a) 
loans in FY 2002 and were thus impacted by the reduced guarantee fee.
    Based on SBA's size standards, lenders with $150 million or less in 
assets are considered small. However, while the SBA does develop and 
maintain data on the number and dollar volume of SBA lending by 
participating lender, it does not maintain the data by the relative 
asset size of the lender. Thus, based on an analysis of SBA loan volume 
by lender, SBA, as part of its lender oversight responsibilities, 
generally considers lenders with SBA assets of $10 million or more as 
large lenders, and SBA believes that classification is reasonably 
consistent with SBA size standards centered on total lender assets. 
(SBA invites comment on the use of $10 million or more in SBA assets in 
this context as a reasonable determinant of lender size.) As a result 
of this analysis, SBA estimates that about 4,250 of its 4,500 lending 
participants have SBA assets of less than $10 million and, for the 
purposes of RFA, may be considered small lenders and could potentially 
benefit annually from SBA's reduced guaranty fees. However, SBA notes 
that these 4,250 small lenders approved only about 11,000 SBA loans in 
FY 2002 or an average of about 2.6 each. (SBA's analysis indicates that 
its 250 largest lenders accounted for approximately 41,000 loans or 84 
percent of SBA's loan volume.)
    For loans of $150,000 or less, SBA estimates that the one percent 
reduction in SBA's guarantee fee in FY 2002 saved the 4,250 small 
lending entities about $3.9 million in the aggregate or an average of 
about $900 each. For loans greater than $150,000 up to $700,000, SBA 
estimates that the .5 percent reduction in SBA's guarantee fee in FY 
2002 saved small lending entities about $9.3 million in the aggregate 
or an average of about $2,200 each. However, while the potential total 
savings to these entities as a result of the reductions in the SBA 
guarantee fee in FY 2002 was approximately $13 million, or about $3,100 
each, lenders generally pass the cost of the SBA guarantee fee on to 
the small business borrowers. As a consequence, SBA anticipates that 
its reduced guarantee fee also generally is passed on to borrowers. As 
a result, SBA estimates the actual monetary impact on small lending 
entities due to the reduced SBA guarantee fee will not be significant. 
(The SBA estimates that approximately 47,000 of its 52,000 borrowers in 
FY 2002 benefited from the reduced guarantee fee with savings that 
ranged from less than $100 up to several thousand dollars each, 
depending on the size of the loan.)
    Section 6 also reduces SBA's annual servicing fee from 0.5 percent 
to .25 percent of the outstanding balance of the SBA guaranteed portion 
of a loan, which is a fee paid by lenders and cannot be passed on to 
SBA borrowers. The SBA thus estimates that the approximately 4,250 
small lending entities that approved about 11,000 SBA loans in FY 2002 
saved an estimated total of $3.8 million in SBA servicing fees as a 
result of the reduced servicing fee, which comes to an average savings 
of about $900 each.
    Based on this analysis, SBA certifies that within the meaning of 
RFA, this rule will not have a significant economic impact on a 
substantial number of small entities.

List of Subjects in 13 CFR Part 120

    Loan programs-business, Small businesses.

0
For the reasons stated in the preamble, SBA amends 13 CFR part 120 as 
follows:

PART 120--[AMENDED]

0
1. The authority citation for part 120 continues to read as follows:

    Authority: 15 U.S.C. 634(b)(6), 636(a) and (h), 696(3), and 
697(a)(2).


0
2. Amend Sec.  120.220 by redesignating paragraphs (a) and (f) as 
(a)(1) and (f)(1), revise newly designated paragraphs (a)(1) and 
(f)(1), and by adding paragraphs (a)(2) and (f)(2) to read as follows:


Sec.  120.220  Fees that Lender pays SBA.

* * * * *
    (a) Amount of guarantee fee.
    (1) In general. Except to the extent paragraph (a)(2) of this 
section applies, for a loan with a maturity of twelve (12) months or 
less, the guarantee fee which the Lender must pay to SBA is one-quarter 
(\1/4\) of one percent of the guaranteed portion of the loan. For a 
loan with a maturity of more than twelve (12) months, the guarantee fee 
is:
    (i) 2 percent of the guaranteed portion of a loan if the total 
amount of the loan is not more than $150,000,
    (ii) 3 percent of the guaranteed portion of a loan if the total 
amount is more than $150,000 but not more than $700,000, and
    (iii) 3.5 percent of the guaranteed portion of a loan if the total 
loan amount is more than $700,000.
    (2) For loans approved October 1, 2002, through September 30, 2004. 
For a loan with a maturity of twelve (12) months or less, the guarantee 
fee which the Lender must pay to SBA is one-quarter (\1/4\) of one 
percent of the guaranteed portion of the loan. For a loan with a 
maturity of more than twelve (12) months, the guarantee fee is:
    (i) 1 percent of the guaranteed portion of the loan if the total 
loan amount is not more than $150,000,
    (ii) 2.5 percent of the guaranteed portion of a loan if the total 
loan amount is more than $150,000, but not more than $700,000, and
    (iii) 3.5 percent of the guaranteed portion if the total loan 
amount is more than $700,000.
* * * * *
    (f) Lender's annual service fee payable to SBA.
    (1) In general. Except to the extent paragraph (f)(2) of this 
section applies, the lender shall pay SBA an annual service fee equal 
to 0.5 percent of the outstanding balance of the guaranteed portion of 
each loan. The service fee cannot be charged to the Borrower. SBA may 
institute a late fee charge for delinquent payments of the annual 
service fee to cover administrative costs associated with collecting 
delinquent fees.
    (2) For loans approved from October 1, 2002, through September 30, 
2004. The lender shall pay SBA an annual service fee equal to 0.25 
percent of the outstanding balance of the guaranteed portion of each 
loan. The service fee cannot be charged to the Borrower. SBA may 
institute a late fee charge for delinquent payments of the annual 
service fee to cover administrative costs associated with collecting 
delinquent fees.

    Dated: September 24, 2003.
Hector V. Barreto,
Administrator.
[FR Doc. 03-24728 Filed 9-30-03; 8:45 am]
BILLING CODE 8025-01-P