[Federal Register Volume 74, Number 108 (Monday, June 8, 2009)]
[Notices]
[Pages 27196-27199]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-13306]


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SMALL BUSINESS ADMINISTRATION


Business Loan Program Temporary Eliminations/Reductions in Fees

AGENCY: U.S. Small Business Administration (SBA).

ACTION: Notice and request for comments.

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SUMMARY: This Notice formalizes the implementation of Section 501 of 
the American Recovery and Reinvestment Act of 2009. Section 501 
authorizes SBA to temporarily reduce or eliminate certain SBA business 
loan program fees in the 7(a) Loan Program and the 504 Certified 
Development Company Program. These fee changes are intended to promote 
economic recovery by providing economic relief to America's small 
businesses and encouraging lenders to make small business loans. While 
these changes have been implemented and are under- way, this Notice 
contains the key provisions of SBA's implementation of Section 501 in 
formal guidance and requests public comment.

DATES: Effective Date: This Notice is effective June 8, 2009.
    Applicability Dates: This Notice applies to 7(a) loans approved by 
SBA or issued loan numbers for delegated lender loans by SBA, on or 
after February 17, 2009 and to 504 loans approved by SBA, pending 
approval at SBA, or issued loan numbers for delegated CDC loans by SBA, 
on or after February 17, 2009, until funds appropriated for Section 501 
are exhausted.
    Comment Date: Comments must be received on or before July 8, 2009.

ADDRESSES: You may submit comments, identified by SBA docket number 
SBA-2009-0001 by any of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Recovery Act Comments--Office of Financial 
Assistance, U.S. Small Business Administration, Suite 8300, 409 Third 
Street, SW., Washington, DC 20416.
     Hand Delivery/Courier: Grady Hedgespeth, Director, Office 
of Financial Assistance, U.S. Small Business Administration, 409 Third 
Street, SW., Washington, DC 20416.
    SBA will post all comments on www.regulations.gov. If you wish to 
submit confidential business information (CBI) as defined in the User 
Notice at www.regulations.gov, please submit the information to Grady 
Hedgespeth, Director, Office of Financial Assistance, U.S. Small

[[Page 27197]]

Business Administration, 409 Third Street, SW., Washington, DC 20416, 
or send an e-mail to [email protected]. Highlight the information 
that you consider to be CBI and explain why you believe SBA should hold 
this information as confidential. SBA will review the information and 
make the final determination whether it will publish the information.

FOR FURTHER INFORMATION CONTACT: The SBA district office nearest you; 
the list of offices can be found at http://www.sba.gov/localresources/index.html.

SUPPLEMENTARY INFORMATION: 

I. Background Information

    America's financial crisis has created adverse conditions that are 
affecting small businesses, including a lack of liquidity in the 
lending system, a reluctance of many lenders to extend new loans, 
tightened credit standards, weaker finances at small businesses, and 
uncertainty about taking on new debt on the part of many entrepreneurs.
    As a result, lending by SBA program participants has significantly 
declined and SBA's ability to ensure small business access to capital 
has been limited.
    On February 17, 2009, the President signed the American Recovery 
and Reinvestment Act of 2009 (the Recovery Act) (Pub. L. 111-5, 123 
Stat. 115 (February 17, 2009)) to promote economic recovery by 
preserving and creating jobs, and to assist those most affected by the 
severe economic conditions facing the nation. The SBA received funding 
and authority through the Recovery Act to modify existing loan programs 
and establish new loan programs to significantly stimulate small 
business lending. It is expected that SBA's actions will increase 
access to affordable credit for small businesses through the Agency's 
7(a) and 504 loan programs, unfreeze the secondary market for SBA 
guaranteed loans, help small businesses struggling with existing debt, 
and allow greater investment in high-growth small businesses.
    To this end, Section 501 of the Recovery Act provides for the 
temporary reduction or elimination of certain loan fees in the 7(a) and 
504 loan guarantee programs. The Recovery Act contemplates that these 
fee eliminations/reductions will flow to both borrowers and SBA's 
lending partners, consistent with an order of priority set forth in the 
Recovery Act. Relief from some borrower fees will make SBA guaranteed 
loans more affordable for small businesses hesitant to seek a loan 
during these difficult economic times. Relief from some lender fees 
will provide incentives to lenders to expand their SBA lending and make 
loans to America's small businesses with confidence.

II. Comments

    The intent of Section 501 of the Recovery Act is that SBA provide 
relief to America's small businesses effective immediately. This along 
with the current economic conditions provided good cause for SBA moving 
forward prior to receiving public comments. Although Section 501 has 
been implemented and this Notice is effective immediately, comments are 
solicited from interested members of the public on all aspects of the 
Notice including the formal guidance set forth in the section below. 
These comments must be submitted on or before July 8, 2009. The SBA 
will consider these comments and the need for making any revisions as a 
result of these comments.

III. Business Loan Temporary Elimination/Reduction in Fees

Overview

    On February 17, 2009, President Obama signed the American Recovery 
and Reinvestment Act of 2009 (the Recovery Act). (Pub. L. 111-5, 123 
Stat. 115). The Recovery Act was enacted to promote economic recovery 
by preserving and creating jobs, and assisting those most impacted by 
the severe economic conditions facing the nation. Among the SBA 
provisions contained in the Recovery Act are provisions authorizing SBA 
to temporarily eliminate or reduce certain loan fees for borrowers and/
or lenders in SBA's 7(a) guaranteed loan program and the 504 Certified 
Development Company (CDC) loan program. The following outlines the key 
guidance of the Recovery Act Section 501 as implemented.

Applicability Date of Fee Relief Provisions

    Section 501 fee relief applies to 7(a) loan applications with a 
term greater than one year that are approved, or issued loan numbers 
for delegated lender loans, by SBA on or after February 17, 2009. This 
includes delegated authority loans, including but not limited to, SBA 
Express Loans. For SBA's 504 program, the fee relief applies to loan 
applications approved by SBA, loans issued loan numbers for delegated 
CDC loans by SBA, and loans pending approval at SBA, on or after 
February 17, 2009. The Recovery Act provides that fee relief will 
sunset on the earlier of September 30, 2010, or such date as 
appropriated funds are exhausted. Depending on the loan volume, SBA 
estimates that it will be able to eliminate the fees on loans approved 
through approximately December 31, 2009. SBA will notify the public 
when appropriated funds are exhausted.

7(a) Program Fees

    Section 501 of the Recovery Act authorizes SBA to temporarily 
eliminate or reduce certain 7(a) program loan fees, including all Small 
Business Act Section 7(a)(18)(A) fees (guaranty fees) to the extent 
such cost is offset by appropriations. Accordingly, SBA is eliminating 
such Section 7(a)(18)(A) guaranty fees, including clause (i) through 
(iv) fees, until funds set aside for this purpose are exhausted. While 
Section 7(a)(18)(A)(iv) fees are not specifically enumerated in the 
funding priority provision of Recovery Act Section 501(c), SBA is 
eliminating this fee consistent with its inclusion in Recovery Act 
Section 501(a) and with subsection 501(c) priority on borrower relief. 
With the elimination of Section 7(a)(18)(A) guaranty fees, there will 
be no guaranty fees that a lender might retain under 13 CFR 120.220(d) 
for loans with a maturity of more than twelve months where the total 
loan amount is no more than $150,000. The Recovery Act, however, does 
not cover SBA's \1/4\ point guaranty fee for loans with maturities of 
12 months or less. 13 CFR 120.220(a). Therefore, the \1/4\ point fee 
for loans with maturities of 12 months or less is still effective. The 
fee relief provisions in this Notice temporarily supersede any 
provisions that conflict in 13 CFR 120.220.
    While the Recovery Act also allows for the potential elimination/
reduction of Section 7(a)(23)(A) annual fees which are paid by the 
lender, SBA is unable to reduce these fees within the constraints of 
the Recovery Act. This is due to the Recovery Act's 7(a) loan program 
provisions that establish a clear priority for borrower relief. In 
addition, the Recovery Act fee elimination/reduction provisions are 
only available to the extent offset by appropriations. Finally, SBA in 
consultation with OMB determined that there was no periodic allocation 
methodology between the 7(a) fees that could be implemented without 
significant operational challenges. These challenges would be further 
complicated by the difficulty differentiating between small and large 
lenders on an ongoing basis as required by the statutory provision for 
``waterfall of benefits.''

[[Page 27198]]

504 Program Fees

    Section 501 of the Recovery Act also authorizes SBA to temporarily 
eliminate two 504 program fees: (i) Small Business Investment Act 
Section 503(d)(2) fees (Third-Party Participation Fees), codified at 13 
CFR 120.972(a) and (ii) 13 CFR Section 120.971(a)(1) fees (CDC 
Processing Fees). To implement this provision, SBA is eliminating these 
two 504 program fees. Consistent with the Recovery Act's temporary 
elimination of CDC Processing Fees and until further notice, CDCs will 
no longer be allowed to collect processing fee deposits from small 
business borrowers that would have gone towards payment of the CDC 
Processing Fee upon loan approval on or after February 17, 2009 under 
13 CFR 120.935. However, the Recovery Act provides for SBA 
reimbursement to CDCs for the waived CDC Processing Fees. Therefore, 
SBA will pay CDCs two-thirds of the estimated CDC Processing Fee at the 
time of loan approval and the remainder upon funding of the loan. The 
CDC Processing Fee reimbursed will be equal to 1.5% of net debenture 
proceeds for which a CDC does not collect the CDC Processing Fee. SBA, 
however, will not reimburse CDCs the CDC Processing Fee if the CDC had 
collected such a fee from the borrower on a prior 504 loan approved 
before February 17, 2009 and cancelled before disbursement. Fee relief 
provisions in this Notice temporarily supersede any provisions that 
conflict in 13 CFR 120.971 and 120.972.

Fee Refunds

    If fees have already been paid to SBA on eligible loans, SBA will 
refund to lenders the eligible fees. If borrowers have already paid 
lenders for the fees, lenders must refund the borrowers from the SBA 
refund within 14 days of the date that SBA forwards the refund to 
lender's account or the date of the SBA refund check. If, however, 
lenders have received the refunds before the date of publication of the 
Notice, lenders must refund the fees to the borrowers within 14 days 
from the publication date of this Notice. In addition, if lender 
retained any fees under 13 CFR 120.220(d) (loans with a maturity of 
more than 12 months that are $150,000 or less) on an eligible loan, 
lender must similarly return those fees to borrowers. Lenders must 
document borrower receipt of the refund and be prepared to produce such 
documentation to SBA upon request. Failure to produce such 
documentation may result in SBA taking any action available under law. 
SBA has already processed most refunds. The Agency moved quickly to 
reimburse all fees waived as a result of the Recovery Act ensuring that 
it could adequately modify systems and account for and report on these 
funds.

Conversion of Short-Term Loans Approved After 2/17/09 to Long-Term 
Loans

    If a borrower seeks to convert a short-term loan approved after 
February 17, 2009 to a Recovery Act eligible long-term loan, the 
borrower will have to cancel that loan and resubmit the loan as a new 
long-term loan to be eligible for the Recovery Act guaranty fee 
reduction. In these cases, SBA will not be able to refund the original 
short-term loan \1/4\ point fee.

Loan Cancellations for Approvals Prior to 2/17/09

    SBA will not allow loans approved prior to 2/17/09 to be cancelled 
and then resubmitted as a new loan for approval under the Recovery Act 
to avoid fees, unless the resubmitted loan is not a replacement for the 
original loan, as determined by SBA on a case by case basis. The 
intention of the fee elimination/reduction is to stimulate new lending. 
A loan cancelled and then resubmitted to avoid fees does not stimulate 
new lending and, therefore, is ineligible for Recovery Act treatment. 
Requests for such case by case consideration must be submitted by the 
lender to the Standard 7(a) Loan Guaranty Processing Center in Citrus 
Heights, California. The request will be reviewed and a recommendation 
forwarded to the Director/Office of Financial Assistance for approval.
    In making a case by case determination on resubmitted loans, the 
existence of one or more of the following factors will make it more 
likely that SBA will approve the request: (i) The loan was cancelled 
for reasons other than the passage of the Recovery Act (e.g., the loan 
was cancelled because the location for the new business was not 
available, subsequently another location became available and a new 
loan was requested); (ii) the new loan is for a different purpose 
(e.g., the original loan was for working capital but the new loan is 
for the acquisition of real estate); (iii) the new loan is likely to 
achieve additional economic stimulus (e.g., the previous loan would 
have preserved jobs but the new loan will also create new jobs); or 
(iv) the new loan would not be made but for the provisions of the 
Recovery Act (e.g., the loan was cancelled because the borrower failed 
to meet a key provision (e.g., appraisal value) in the original loan 
authorization and, therefore, the lender would not make the loan now 
but for the higher guaranty level). Based on past cancellation 
experience in SBA's loan programs, SBA expects that only a limited 
number of borrowers with cancelled/resubmitted loans will meet the 
criteria for a new loan with reduced fees and/or a higher guaranty.
    In general, changes to loans approved prior to February 17, 2009, 
including loan increases, will be processed as changes to the original 
loan in accordance with SBA's standard practice, and loan fees will be 
assessed under the rules in effect at the original approval date. For 
504 loans approved prior to 2/17/09 that seek to add allowable 
refinancing under the Recovery Act, a servicing provision will be 
created that will accommodate this modification without the need to 
cancel the original loan.

Funding

    Under the Recovery Act, Congress appropriated $375,000,000 for 
reimbursements, loan subsidies and loan modifications for 7(a) and 504 
loans as described in Section 501 of the Recovery Act. In addition, 
these funds also support the higher guarantee levels (up to 90% on 
qualifying 7(a) loans) in Section 502 of the Recovery Act. The Recovery 
Act does not provide an allocation of the funds between the 7(a) and 
504 programs. SBA has decided to allocate the funds so as to result in 
fee eliminations for roughly the same period of time for the two 
programs. This allocation will support a program level of approximately 
$8.7 billion for the 7(a) program and approximately $3.6 billion for 
the 504 program with fee elimination/reduction under the Act.

Use of Proceeds Restriction

    Finally, the Recovery Act provides that none of the funds 
appropriated or otherwise made available in the Recovery Act may be 
used by any State or local government, or any private entity, for any 
casino or other gambling establishment, aquarium, zoo, golf course, or 
swimming pool. For otherwise eligible loans to these small businesses 
or for these uses, lenders and CDCs may continue to submit applications 
in accordance with SOP 50 10 5(A); however, all regular fees will 
apply. For Recovery Act loan guaranties, it will be the responsibility 
of the lender or CDC to document in the credit memorandum that the 
borrower's use of proceeds does not include a restricted use or, if 
there is a restricted use component, the lender must document the other 
resources that the borrower has obtained to pay the costs allocable to 
the restricted use component.

[[Page 27199]]

Lenders and CDCs also will be expected to certify on the applicable 
eligibility checklist that no loan proceeds will be used for a 
restricted use. In addition, on 7(a) Recovery Act loan guaranties it 
will be the responsibility of the borrower to certify that it will not 
use any working capital loan proceeds for any restricted use. For all 
Recovery Act loan guaranties for the construction, acquisition or 
renovation of any business that has a restricted use, it will be the 
responsibility of the borrower to certify that it has obtained 
alternate funding which may come from the borrower's equity injection 
to pay the costs reasonably and in good faith estimated to be allocable 
to the restricted use. Failure by a lender to accurately identify a 
restricted use for a Recovery Act loan and remit appropriate fees 
within 90 days of loan approval or within 90 days of publication of 
this Notice, whichever is later, may result in SBA's denial of 
liability on the loan. Please refer to SBA Policy Notice 5000-1105 for 
further guidance on restricted uses of Recovery Act loan proceeds.
    For 7(a) loans, the eligibility questionnaire and checklists for 
the Standard 7(a), Small/Rural Lender Advantage, PLP, SBA Express and 
Pilot Loan Programs have been modified to include an additional 
statement that, for loans made under the Recovery Act, no proceeds will 
be used for a restricted use. (The Standard 7(a) Eligibility 
Questionnaire can be found at http://www.sba.gov/aboutsba/sbaprograms/elending/lgpc/forms/index.html. The Small/Rural Lender Advantage (S/
RLA) eligibility checklist (SBA Form 2301-C) can be found at http://www.sba.gov/tools/Forms/smallbusinessforms/fsforms/index.html.
    The PLP Eligibility Checklist can be found at http://www.sba.gov/idc/groups/public/documents/sba_program_office/bank_plpchcklist.pdf. 
The SBA Express and Pilot Loan Program checklists (SBA Form 1920SX, 
Part C) can be found at http://www.sba.gov/tools/Forms/smallbusinessforms/fsforms/index.html.) In addition, for eligibility 
authorized SBA Express loans, SBA Form 2238 has been modified to 
include an additional statement that, for loans made under the Recovery 
Act, no proceeds will be used for a restricted use. (SBA Form 2238, SBA 
Express/Patriot Express Guarantee Request (Eligibility Authorized) can 
be found at http://www.sba.gov/idc/groups/public/documents/sba_homepage/sba_forms_2238.pdf.)
    For 504 loans, the 504 and PCLP eligibility checklists have been 
modified to include an additional statement that, for loans made under 
the Recovery Act, no proceeds will be used for a restricted use. (The 
504 Eligibility Checklist can be found at http://www.sba.gov/idc/groups/public/documents/sba_program_office/bank_504checklist_submission.pdf. The PCLP Eligibility Information (Form 2234) can be 
found at http://www.sba.gov/idc/groups/public/documents/sba_program_office/bank_pclpchecklist2234c.doc.)

Additional Requirements

    All other provisions of the Small Business Act and the Small 
Business Investment Act applicable to the 7(a) and 504 programs and the 
regulations promulgated thereunder that are not superseded by the 
relevant provisions of the Recovery Act will continue to apply to loans 
made under the Recovery Act.
    Lenders, CDCs, and/or borrowers may be subject to additional 
reporting or recordkeeping requirements in connection with loans under 
the Recovery Act. Lenders completing Form 1086 for the sale of Recovery 
Act loans on the secondary market are advised to use the loan approval 
date for the guaranty fee ``paid on'' date.
    SBA may provide further guidance, if needed, through SBA notices 
published on SBA's Web site, www.sba.gov.

    Authority:  Public Law 111-5, Div. A, Title V, Section 501, 123 
Stat. 115.

Karen G. Mills,
Administrator.
[FR Doc. E9-13306 Filed 6-5-09; 8:45 am]
BILLING CODE 8025-01-P