[Federal Register Volume 74, Number 109 (Tuesday, June 9, 2009)]
[Rules and Regulations]
[Pages 27243-27248]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-13480]



 ========================================================================
 Rules and Regulations
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains regulatory documents 
 having general applicability and legal effect, most of which are keyed 
 to and codified in the Code of Federal Regulations, which is published 
 under 50 titles pursuant to 44 U.S.C. 1510.
 
 The Code of Federal Regulations is sold by the Superintendent of Documents. 
 Prices of new books are listed in the first FEDERAL REGISTER issue of each 
 week.
 
 ========================================================================
 

  Federal Register / Vol. 74, No. 109 / Tuesday, June 9, 2009 / Rules 
and Regulations  

[[Page 27243]]



SMALL BUSINESS ADMINISTRATION

13 CFR Part 120

RIN 3245-AF93


American Recovery and Reinvestment Act: America's Recovery 
Capital (Business Stabilization) Loan Program

AGENCY: U.S. Small Business Administration.

ACTION: Interim final rule with request for comments.

-----------------------------------------------------------------------

SUMMARY: This interim final rule implements section 506 of the American 
Recovery and Reinvestment Act of 2009, which authorizes SBA to 
establish a temporary program to guarantee loans to viable small 
business concerns that have a qualifying small business loan, and are 
experiencing immediate financial hardship. Loans made under this 
program, referred to as ``America's Recovery Capital Loan Program'' 
(ARC Loan Program) can be used to make principal and interest payments 
on existing qualifying small business loans.

DATES: Effective Date: This rule is effective June 9, 2009.
    Comment Date: Comments must be received on or before August 10, 
2009.

ADDRESSES: You may submit comments, identified by RIN: 3245-AF93 by any 
of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Janet A. Tasker, Office of Capital Access, Small 
Business Administration, 409 Third Street, SW., Washington, DC 20416.
     Hand Delivery/Courier: Janet A. Tasker, Office of Capital 
Access, 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 Janet 
A. Tasker, Office of Capital Access, Small 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 as to whether it will publish the information.

FOR FURTHER INFORMATION CONTACT: Janet A. Tasker, Office of Capital 
Access, Small Business Administration, 409 Third Street, SW., 
Washington, DC 20410 or via e-mail at [email protected].

SUPPLEMENTARY INFORMATION: 

I. Background Information

    The American Recovery and Reinvestment Act of 2009 (the Recovery 
Act), Public Law 111-5, 123 Stat. 115, was enacted on February 17, 
2009, to, among other things, promote economic recovery by preserving 
and creating jobs, and assisting those most impacted by the severe 
economic conditions facing the nation. SBA is one of several agencies 
that are intended to play a role in achieving these goals. SBA received 
funding and authority through the Recovery Act for several actions to 
help small business lending, including authority to establish a new 
temporary loan program to help troubled businesses.
    One provision included in the Recovery Act is to provide SBA with 
temporary authority to fully guarantee loans (ARC Loans) to viable 
small businesses that have a qualifying small business loan(s) and are 
experiencing immediate financial hardship. In order to implement this 
change, SBA will amend the business loan regulations in 13 CFR part 120 
to add the requirements which must be met by lenders and borrowers 
participating in the ARC Loan Program. The requirements for the ARC 
Loan Program will be promulgated under new Sec.  120.398.

II. Section by Section Analysis

    Sections 120.398(a) and (b) set forth the statutory purpose of the 
ARC Loan Program and define terms used in the regulation. The purpose 
of the ARC Loan Program is to enable SBA to guarantee loans to viable 
small businesses that are experiencing immediate financial hardship. 
SBA is applying the rules and other requirements of the 7(a) program to 
the ARC Loan Program except as specifically set forth in section 
120.398 of the regulations. Accordingly, only 7(a) lenders may make ARC 
Loans. Lenders who are not currently 7(a) lenders may apply to 
participate in this and the 7(a) program.
    The regulation defines an eligible borrower, a going concern, a 
viable small business, and a qualifying small business loan consistent 
with the requirements of the Recovery Act. The definition of eligible 
borrower includes the basic eligibility requirements and ineligibility 
provisions for small businesses contained in sections 120.100 and 
120.110, respectively, of this Part. Section 1604 of the Recovery Act 
states that no funds appropriated or otherwise made available in the 
Recovery Act may be used by any private entity for any casino or other 
gambling establishment, aquarium, zoo, golf course, or swimming pool. 
Casinos and gambling establishments are currently ineligible for SBA 
financial assistance under Sec.  120.110. Aquariums, zoos, golf courses 
and swimming pools are eligible for SBA financial assistance under the 
Small Business Act and the Small Business Investment Act; however, they 
are not eligible for assistance under the Recovery Act. For that 
reason, SBA has determined that small business concerns with the 
following primary industry North American Industry Classification 
System (NAICS) codes are ineligible for ARC Loans: (a) 713210 (Casinos 
(Except Casino Hotels)); (b) 721120 (Casino Hotels); (c) 713290 (Other 
Gambling Industries); (d) 713910 (Golf Courses and Country Clubs); and 
(e) 712130 (Zoos and Botanical Gardens). Applications submitted by 
small business concerns with a primary industry NAICS code of 713940 
(Fitness and Recreational Sports Centers), which includes both swimming 
pools and other types of fitness and recreational centers, will be 
identified and reviewed by SBA to determine eligibility in accordance 
with the Recovery Act statutory restriction on assistance to swimming 
pools. A ``going concern'' is defined as a small business that is 
actively engaging in business with the expectation of indefinite 
continuance.

[[Page 27244]]

The definition of ``qualifying small business loan'' incorporates the 
provisions of eligible uses of proceeds in Sec.  120.120, and 
ineligible uses of proceeds included in Sec. Sec.  120.130 and 
102.160(d), respectively. A ``viable small business'' is a going 
concern that is having difficulty making periodic payments of principal 
and interest on qualifying small business loans and/or meeting the 
operating expenses of the business, provided it can reasonably 
demonstrate its projected operation for a reasonable period beyond the 
six month period of payment assistance with an ARC Loan.
    Section 120.398(c) establishes that the ARC Loan Program terminates 
when appropriated funds are exhausted or on September 30, 2010, 
whichever is sooner.
    Section 120.398 (d) describes the permissible use of proceeds for 
an ARC Loan. It implements the Recovery Act requirement that an ARC 
Loan must be used to make periodic payments of principal and interest 
for up to six (6) months, on one or more existing qualifying small 
business loans. However, under the Recovery Act, an ARC Loan cannot be 
used to make payments on loans made or guaranteed by SBA prior to 
February 17, 2009. Loans excluded under this provision include 7(a) 
loans guaranteed by SBA, Development Company 504 loans/debentures 
guaranteed by SBA, SBA disaster loans made to small businesses, and SBA 
loans made to microloan intermediaries, in each case if made prior to 
February 17, 2009. Lenders are encouraged to defer, or, if appropriate, 
restructure these excluded loans to best assist the small businesses. 
ARC Loans may be used to make payments on loans made or guaranteed by 
SBA on or after February 17, 2009.
    Section 120.398(e) establishes basic loan terms for ARC Loans: SBA 
will guaranty 100% of each ARC Loan; the interest rate on an ARC Loan 
shall be published by the Agency in the Federal Register; the maximum 
amount of an ARC Loan shall not exceed $35,000; and the maturity shall 
be up to six and one-half years. In addition, a lender's disbursements 
of an ARC loan must be made during a period not exceeding six (6) 
consecutive months; the borrower will be responsible for all principal 
payments, but will not be required to make interest payments on the ARC 
Loan; SBA will make interest payments to the lender on the ARC Loan; a 
borrower of an ARC loan does not have to make any repayments during the 
disbursement period and for twelve (12) months after final 
disbursement; repayment of an ARC Loan shall commence no later than 
thirteen (13) months after final disbursement; and the loan balance 
shall be fully amortized over the next five (5) years. SBA will pay 
interest to the lender only until the date 120 days after the earliest 
uncured payment default on the ARC Loan. In addition, the amounts paid 
by SBA for interest and/or the guarantee at the time of purchase will 
be adjusted to reconcile for any over- or underpayments of interest 
identified throughout the life of the loan. To accommodate timing 
delays in disbursing the ARC Loan after approval, SBA will allow up to 
two months after approval to begin disbursement of the ARC Loan. Once 
the first disbursement of an ARC Loan is made, the disbursement period 
may not exceed six consecutive months.
    Section 120.398(f) provides that no small business may obtain more 
than one ARC Loan in order to ensure both a comprehensive analysis of a 
small business' viability as well as to ensure the availability of 
funding to support the maximum number of small businesses.
    Section 120.398(g) provides that a holder of at least 20 percent 
ownership of the small business must generally guarantee the ARC Loan. 
This requirement is identical to the 7(a) loan program requirement.
    Section 120.398(h) provides that a lender shall secure its ARC 
loans consistent with the collateral policies and procedures that it 
has established and implemented for its similarly-sized non-SBA 
guaranteed commercial loans. The Lender's collateral policies must be 
commercially reasonable and prudent. SBA will allow lenders to charge 
borrowers for the direct cost of securing and liquidating collateral 
and SBA will reimburse lenders for the direct costs of liquidating 
collateral that are not reimbursed by borrowers (consistent with SBA's 
established practices) in the event of default. However, SBA will limit 
reimbursement of the direct costs of liquidation to the amount of the 
recovery received on an ARC Loan.
    Section 120.398(i) provides that an applicant for an ARC Loan must 
be a creditworthy small business with a reasonable expectation of 
repayment, taking into consideration the following: (1) Character, 
reputation, and credit history of the applicant (and the Operating 
Company, if applicable) and its Associates; (2) experience and depth of 
management; (3) strength of the business; (4) past earnings, current 
earnings, and projected cash flow; and (5) ability to repay the loan 
with earnings from the business.
    Section 120.398(j) prescribes certification requirements for each 
ARC Loan. In addition to the certification requirements applicable to 
7(a) loans generally, including, for example, the certification that 
the borrower is current with all Federal, state and local taxes (or is 
current in making payments on an executed agreement with the 
appropriate taxing authority) and will stay current with all such tax 
obligations, borrowers must submit a statement certifying that they are 
experiencing immediate financial hardship and provide documentation to 
support the certification. SBA will provide additional guidance on what 
constitutes immediate financial hardship in the procedural guidance and 
forms developed to administer the ARC Loan Program.
    Section 120.398(k) was added to describe the content of an ARC Loan 
application. At a minimum, ARC Loan applications must include 
information on the nature and history of the small business, current 
and historical financial statements (or tax returns) and such 
additional information as SBA may require. The provisions of section 
120.191 do not apply to ARC Loans.
    Section 120.398(l) allows lenders to use the proceeds of an ARC 
Loan to make periodic payments of principal and interest on a loan held 
by the lender, without SBA's consent. This provision is consistent with 
the intention of Section 506 of the Recovery Act to assist viable small 
businesses facing immediate financial hardship to make periodic 
payments of principal and interest on existing loans, whether or not 
held by the same lender because it is reasonable to expect that the 
vast majority of lenders making ARC Loans will have an established 
lending relationship with the borrower. This subsection also provides 
that certain sections in Part 120 which prohibit preferences shall not 
be applicable to ARC Loans. These sections are 120.10, 120.536(a)(2) 
and 120.925. In addition, the provisions of section 120.201 restricting 
refinancing do not apply to ARC Loans. Section 120.201 provides that a 
borrower may not use 7(a) loan proceeds to pay any creditor in a 
position to sustain a loss.
    The Recovery Act prohibits SBA from charging any loan fees for ARC 
Loans. With the exception of charging borrowers for the direct costs of 
securing and liquidating collateral for ARC Loans, SBA has determined 
that lenders may not charge fees or other costs to borrowers who 
receive ARC Loans. Lenders are receiving 100% SBA guarantees on loans 
with reasonable interest rates that will be paid by SBA, made to small 
businesses that are experiencing financial hardships. Further, lenders 
are allowed to use the

[[Page 27245]]

proceeds of ARC Loans to make periodic principal and interest payments 
on loans they hold and/or service, which improves their financial 
position relative to their original loan. This combination of factors 
led SBA to conclude that lender-charged fees are not appropriate for 
ARC Loans or consistent with the intent of the Recovery Act. Excluded 
fees include, but are not limited to, points, bonus points, prepayment 
penalties, brokerage fees, fees for processing, origination, or 
application, and out of pocket expenses other than the direct costs of 
securing and liquidating collateral. While the Recovery Act does not 
prohibit SBA from charging fees to lenders on ARC Loans, SBA has 
determined that in order to encourage program participation, SBA will 
not charge any fees to lenders making ARC Loans. These provisions are 
included in Sec.  120.398(m).
    Section 120.398 (n) provides that Lender reporting to SBA will be 
consistent with requirements established by SBA from time to time for 
7(a) loans and loans made under the Recovery Act.
    Sections 120.398(o) and (p) provide that ARC Loans will be serviced 
and liquidated by the lender originating the ARC Loan, in accordance 
with the practices and procedures that the Lender uses for its non-SBA 
guaranteed commercial loans. The practices must be commercially 
reasonable and consistent with prudent lending standards and in 
accordance with SBA Loan Program requirements defined in Section 
120.10. SBA will provide additional guidance on how lenders shall 
service and liquidate ARC Loans in the procedural guidance developed to 
administer the ARC Loan Program.
    Only the originating lender can request SBA to honor its guaranty 
if the ARC Loan goes into default. Section 120.398(q) establishes the 
standards for purchasing guarantees. Lenders may request SBA to 
purchase an ARC Loan when there has been an uncured payment default 
exceeding 60 days or when the borrower has declared bankruptcy. SBA 
requires Lenders to submit loans for purchase no later than 120 days 
after the earliest uncured payment default on the ARC Loan. 
Additionally, SBA may honor its guarantee and require a Lender to 
submit an ARC Loan for purchase at any time. Lenders are required to 
complete recovery actions on ARC Loans after purchase. SBA will provide 
additional guidance on how lenders shall request purchase of an ARC 
Loan in the procedural guidance developed to administer the ARC Loan 
Program.
    Section 120.398(r) provides that ARC Loans cannot be sold in the 
secondary market nor may a lender participate a portion of an ARC loan 
with another lender. As noted above, it is the originating lender who 
must make the request to SBA to honor its guaranty if an ARC Loan 
defaults.
    Funding for the ARC Loan Program is limited. In order to ensure 
that the ARC Loans are available to small businesses to the maximum 
extent possible, section 120.398(s) was included in the rule to inform 
ARC Loan Program participants that SBA has the right to allocate volume 
to providers of ARC Loans. With this provision, SBA will be able to 
ensure that all lenders have access to ARC Loans to support small 
businesses.
    Section 120.398(t) provides that SBA may allow lenders to use their 
delegated authority to process ARC Loans. SBA will provide additional 
guidance on how delegated and non-delegated lenders may participate in 
the procedural guidance developed to administer the ARC Loan Program.
    Given that the small businesses eligible for ARC Loans are 
experiencing immediate financial hardship, the availability of 
additional personal resources from alternative sources is considered 
remote. Section 120.398(u) was added stating that the provisions of 
section 120.102 requiring a personal resources test are not applicable 
to ARC Loans.
    Section 120.398(v) provides that the provisions of section 120.151 
which limit the aggregate amount of the SBA portions of all loans to a 
single borrower, including the borrower's affiliates, to a certain 
guaranty amount are not applicable to ARC Loans.

III. Justification for Publication as Interim Final Rule

    In general, before issuing a final rule, SBA publishes the rule for 
public comment in accordance with the Administrative Procedure Act 
(APA), 5 U.S.C. 553. The APA provides an exception from the general 
rule where the agency finds good cause to omit public participation. 5 
U.S.C. 553(c)(3)(B). The good cause requirement is satisfied when prior 
public participation can be shown to be impracticable, unnecessary, or 
contrary to the public interest. Under such circumstances, an agency 
may publish an interim final rule without first soliciting public 
comment.
    In enacting the good cause exception to standard rulemaking 
procedures, Congress recognized that emergency situations arise where 
an agency must issue a rule without public participation. The current 
turmoil in the financial markets is having a negative impact on the 
availability of financing for small businesses. There is an urgent need 
to assist viable small businesses that are experiencing financial 
hardships due to the current economic environment. The ARC Loan Program 
is designed to provide an immediate infusion of capital to small 
businesses to assist with making periodic payments of principal and 
interest. A delay in obtaining the financing needed by these small 
businesses will, in many cases, have a direct impact on their 
survivability.
    SBA finds that good cause exists to publish this rule as an interim 
final rule in light of the urgent need to help small businesses sustain 
and survive during this economic downturn. Advance solicitation of 
comments for this rulemaking would be impracticable, contrary to the 
public interest, and would harm those small businesses that need 
immediate relief on eligible debt. In addition, the Recovery Act 
mandates that the SBA issue emergency regulations to implement the ARC 
Loan Program and specifically exempts any such regulations from the 
notice and comment requirement of the APA.
    Although this rule is being published as an interim final rule, 
comments are solicited from interested members of the public. These 
comments must be submitted on or before August 10, 2009. The SBA will 
consider these comments and the need for making any amendments as a 
result of these comments.

IV. Justification for Immediate Effective Date

    The APA requires that ``publication or service of a substantive 
rule shall be made not less than 30 days before its effective date, 
except * * * as otherwise provided by the agency for good cause found 
and published with the rule.'' 5 U.S.C. 553(d)(3). The purpose of this 
provision is to provide interested and affected members of the public 
sufficient time to adjust their behavior before the rule takes effect.
    The ARC Loan Program is designed to provide an immediate infusion 
of capital to small businesses to assist with making periodic payments 
of principal and interest. A delay in obtaining the financing needed by 
these small businesses will, in many cases, have a direct impact on 
their survivability making it necessary to implement this rule 
immediately. Lenders making ARC Loans might need time to make system 
adjustments; however this time is mitigated by the benefits to lenders 
and small businesses from immediate

[[Page 27246]]

implementation of the ARC Loan Program.
    In light of the urgent need to help small businesses sustain and 
survive during this economic downturn, SBA finds that there is good 
cause for making this rule effective immediately instead of observing 
the 30-day period between publication and effective date. Delaying 
implementation of the rule would have a serious adverse impact on the 
nation's small businesses.

Compliance With Executive Orders 12866, 12988, 13175 and 13132, the 
Paperwork Reduction Act (44 U.S.C., Ch. 35), and the Regulatory 
Flexibility Act (5 U.S.C. 601-612)

Executive Order 12866

    The Office of Management and Budget (OMB) has determined that this 
rule constitutes a significant regulatory action for purposes of 
Executive Order 12866.

Executive Order 12988

    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.

Executive Order 13132

    This rule does not have federalism implications as defined in 
Executive Order 13132. It 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, as specified in the Executive Order. As 
such it does not warrant the preparation of a Federalism Assessment.

Paperwork Reduction Act

    The SBA has determined that this interim final rule imposes 
reporting and recordkeeping requirements as defined under the Paperwork 
Reduction Act, 44 U.S.C. Chapter 35. This additional information 
consists of the four forms described below that are necessary to 
process applications for assistance under the ARC Loan Program. SBA has 
submitted these information collections to OMB for review under the 
emergency review proceedings. Emergency review and approval will 
facilitate urgent implementation of the ARC Loan Program, which is 
expected to provide debt relief to small businesses that are currently 
facing financial hardship, including difficulties repaying existing 
debt. Delay in implementing the loan program would only exacerbate the 
already critical economic conditions facing these eligible small 
business concerns.
    A. Title and Description of Information Collection: SBA Form 2315: 
America's Recovery Capital (ARC) Borrower Information Form.
    Purpose: The information collected on this form is modeled on two 
currently approved information collections: OMB Control 3245-
0016, SBA's 7(a) loan application, and OMB Control 3245-0178, 
Statement of Personal History, which is used to collect personal 
information on the individuals associated with the small business loan 
applicant. Those two collections of information will not be 
discontinued; they will continue to be used for their approved 
purposes. The application information requested includes identifying 
information regarding the applicant and its principals, including 
indebtedness; current or previous government financing; suspension or 
debarment history; and certain other disclosures regarding principals' 
criminal history. The personal information facilitates borrower 
background checks as authorized by Section 7(a)(1)(B) of the Small 
Business Act, 15 U.S.C. 636(a)(1)(B).
    OMB Control Number: New collection.
    Description of and Estimated Number of Respondents: This 
information will be collected from the small business concerns that are 
applying for financial assistance under the ARC program. SBA estimates 
12,000 small businesses will submit applications over the course of a 
year.
    Estimated Number of Responses: Each small business concern can 
submit only one application under the ARC loan program; therefore the 
estimated number of responses is 12,000.
    Estimated Response Time: 10 minutes.
    Total Estimated Annual Hour Burden: 2,000 hours.
    B. Title and Description: Form 2316 (Part A): America's Recovery 
Capital (ARC) Loan Guaranty Request.
    Purpose: This information collection is submitted by approximately 
non-delegated lenders seeking SBA's guarantee on an ARC loan. The 
information is provided along with Forms 2316 (Part B) and (Part C) to 
the SBA's 7(a) Loan Processing Centers.
    OMB Control Number: New collection.
    Description of and Estimated Number of Respondents: 400 non-
delegated lenders (these lenders are a subset of the total estimated 
2,000 lenders who will participate in the ARC program) who will not 
submit information through E-Tran.
    Estimated Number of Responses: 840.
    Estimated Response Time: 5 minutes per response.
    Estimated Annual Hour Burden: 70 hours.
    C. Title and Description: Form 2316 (Part B): Supplemental 
Information for America's Recovery Capital (ARC) Loan Guaranty Request.
    Purpose: Since ARC loans are specifically to be used to make 
payments on existing business loans, the form is designed to more 
easily identify which debt(s) have been reduced through the use of ARC 
loan proceeds. In addition, in order to facilitate required reporting 
under the Recovery Act, this form also collects information on the 
number of jobs created or retained as a result of the ARC loan 
financing.
    OMB Control Number: New collection.
    Description of and Estimated Number of Respondents: This form may 
be submitted by all lenders participating in the SBA's 7(a) loan 
program. We estimate that a total of 2,000 lenders will submit this 
information collection.
    Estimated Number of Responses: 12,000.
    Estimated Response Time: 15 minutes.
    Total Estimated Annual Hour Burden: 3,000 hours.
    D. Title and Description: Form 2316 (Part C), Eligibility 
Information Required for America's Recovery Capital (ARC) Loan 
Submission.
    Purpose: The information will be used to determine whether the loan 
application meets the eligibility criteria for an ARC Loan, as stated 
in this regulation.
    OMB Control Number: New collection.
    Description of and Estimated Number of Respondents: This form may 
be submitted by all lenders participating in the SBA's 7(a) loan 
program. We estimate that a total of 2,000 lenders will submit this 
information collection.
    Estimated Number of Responses: 12,000.
    Estimated Response Time: 10 minutes.
    Total Estimated Annual Hour Burden: 2,000 hours.
    SBA invites comments on these information collections, particularly 
on: (1) Whether the proposed collection of information is necessary for 
the proper performance of SBA's functions, including whether the 
information will have a practical utility; (2) the accuracy of SBA's 
estimate of the burden of the proposed collections of information; (3)

[[Page 27247]]

ways to enhance the quality, utility, and clarity of the information to 
be collected; and (4) ways to minimize the burden of the collection of 
information on respondents, including through the use of automated 
collection techniques, when appropriate, and other forms of information 
technology.
    Please send comments by the closing date for comment for this 
interim final rule to SBA Desk Officer, Office of Management and 
Budget, Office of Information and Regulatory Affairs, 725 17th Street, 
NW., Washington, DC 20503 and to Janet A. Tasker, Office of Capital 
Access, Small Business Administration, 409 Third Street, SW., 
Washington, DC 20416.

Regulatory Flexibility Act

    Because this rule is an interim final rule, there is no requirement 
for SBA to prepare a Regulatory Flexibility Act (RFA) analysis. The RFA 
requires administrative agencies to consider the effect of their 
actions on small entities, small non-profit businesses, and small local 
governments. Pursuant to the RFA, when an agency issues a rule, the 
agency must prepare analysis that describes whether the impact of the 
rule will have a significant economic impact on a substantial number of 
small entities. However, the RFA requires such analysis only where 
notice and comment rulemaking is required.

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--BUSINESS LOANS

0
1. The authority citation for 13 CFR part 120 is revised to read as 
follows:

    Authority:  15 U.S.C. 634(b)(6), (b)(7), (b)(14), (h), and note, 
636(a), (h) and (m), 650, 687(f), 696(3), and 697(a) and (e); Public 
Law 111-5, 123 Stat. 115.


0
2. Add a new undesignated center heading and new Sec.  120.398 to 
subpart C to read as follows:

America's Recovery Capital (Business Stabilization) Loan Program--ARC 
Loan Program


Sec.  120.398  America's Recovery Capital (ARC) Loan Program.

    (a) Purpose. The purpose of the ARC Loan Program is to enable SBA 
to guarantee certain loans to viable small businesses that are 
experiencing immediate financial hardship. Loans made under this loan 
program are referred to as ARC Loans and are subject to the 
requirements set forth in this Part for 7(a) loans except as noted in 
this section.
    (b) Definitions.
    (1) (i) Eligible Borrower is a small business concern as defined in 
Section 3 of the Small Business Act and Sec.  120.100. Eligible 
Borrower does not include:
    (A) Ineligible small businesses as listed in Sec.  120.110; and
    (B) Small business concerns with the following primary industry 
North American Industry Classification System (NAICS) codes:
    (1) 713210 (Casinos (Except Casino Hotels));
    (2) 721120 (Casino Hotels);
    (3) 713290 (Other Gambling Industries);
    (4) 713910 (Golf Courses and Country Clubs); and
    (5) 712130 (Zoos and Botanical Gardens).
    (ii) Applications submitted by small business concerns with a 
primary industry NAICS code of 713940 (Fitness and Recreational Sports 
Centers) will be identified and reviewed by SBA to determine 
eligibility in accordance with the statutory restriction on assistance 
to swimming pools.
    (2) Going Concern is a small business concern actively engaging in 
business with the expectation of indefinite continuance.
    (3) Qualifying Small Business Loan is a loan previously made to an 
Eligible Borrower for any of the purposes set forth in Sec.  120.120 
and not for any of the purposes set forth in Sec.  120.130 or 
120.160(d). Qualifying Small Business Loans may include credit card 
obligations, capital leases for major equipment and vehicles, notes 
payable to vendors or suppliers, loans in the first lien position made 
by commercial lenders in connection with the Development Company Loan 
Program (504), home equity loans used to finance business operations, 
other loans to small businesses made without an SBA guaranty, and loans 
made by or with an SBA guaranty on or after February 17, 2009. Loans 
made or guaranteed by SBA before February 17, 2009 are not Qualifying 
Small Business Loans for the purposes of the ARC Loan Program. A 
Qualifying Small Business Loan may not be used as the basis for more 
than one ARC Loan but ARC Loans may be used to pay multiple Qualifying 
Small Business Loans.
    (4) Viable small business is a small business that is a Going 
Concern but which is having difficulty making periodic payments of 
principal and interest on Qualifying Small Business Loan(s) and/or 
meeting operating expenses of the business although it can reasonably 
demonstrate its projected continued operation for a reasonable period 
beyond the six month period of payment assistance with an ARC Loan.
    (c) Period of program. The ARC Loan Program is authorized through 
September 30, 2010, or until appropriated funds are exhausted, 
whichever is sooner.
    (d) Use of proceeds. Loans made under the ARC Loan Program are for 
the sole purpose of making periodic payments of principal and interest 
(including default interest), in full or in part, for up to six (6) 
months, on one or more existing Qualifying Small Business Loans. ARC 
Loan proceeds cannot be used to make payments on loans made or 
guaranteed by SBA prior to February 17, 2009.
    (e) Loan terms.
    (1) Guaranty percentage. ARC Loans are 100% guaranteed by SBA.
    (2) Maximum loan size. An ARC Loan may not exceed $35,000.
    (3) Interest rate. The interest rate for ARC Loans will be 
published by SBA in the Federal Register.
    (4) Loan maturity. An ARC Loan may be made with a maturity of up to 
six and one-half years.
    (5) Disbursement period. The disbursement period for an ARC Loan is 
up to six consecutive months.
    (6) Loan payments.
    (i) Borrower's payments. The borrower will be responsible for all 
principal payments.
    (ii) Payment of interest by SBA. SBA will make periodic interest 
payments to the lender on ARC Loans. Interest will accrue only until 
the date 120 days after the earliest uncured payment default on the ARC 
Loan. However, the amount paid by SBA on a defaulted ARC Loan, when it 
honors its guarantee, will be adjusted to reconcile for any 
overpayments or underpayments of interest previously paid to the 
Lender. Interim adjustments to interest paid by SBA to lenders may be 
made during the term of the ARC Loan and interest payments due the 
Lender will be adjusted to accommodate the interim interest 
adjustments.
    (iii) Deferral period. No principal repayment is required during 
the disbursement period or for 12 months following the final loan 
disbursement.
    (iv) Repayment period. The borrower will be required to pay the 
loan principal over five years beginning in the 13th month following 
the final loan disbursement. The ARC Loan balance will be fully 
amortized over the five year repayment period. Balloon payments may not 
be required by lenders. The borrower may prepay all or

[[Page 27248]]

a portion of the principal during the life of the loan without penalty.
    (f) Number of ARC Loans per small business. No small business may 
obtain more than one ARC Loan, but the proceeds of the ARC loan may be 
used to pay more than one Qualifying Small Business Loan.
    (g) Personal guarantees. Holders of at least a 20 percent ownership 
interest in the borrower generally must guarantee the ARC Loan.
    (h) Collateral. SBA requires each lender to follow the collateral 
policies and procedures that it has established and implemented for 
similarly-sized non-SBA guaranteed commercial loans. The lender's 
collateral policies must be commercially reasonable and prudent. 
Lenders will certify that the collateral policies applied to the ARC 
Loan meet this standard. Lenders may charge borrowers the direct cost 
of securing and liquidating collateral for ARC Loans. SBA will 
reimburse Lenders for the direct cost of liquidating collateral that 
are not reimbursed by the borrower in the event of default. 
Reimbursement of the direct costs of liquidation by SBA to the Lender 
is limited to the amount of the recovery received on the ARC Loan.
    (i) Credit criteria. To be approved for an ARC Loan, the applicant 
must be a creditworthy small business with a reasonable expectation of 
repayment, taking into consideration the following:
    (1) Character, reputation, and credit history of the applicant (and 
the Operating Company, if applicable) and its Associates;
    (2) Experience and depth of management;
    (3) Strength of the business;
    (4) Past earnings, current earnings, and projected cash flow; and
    (5) Ability to repay the loan with earnings from the business.
    (j) Statement of hardship. In addition to the certifications 
required for 7(a) loans generally, ARC Loan recipients must submit a 
statement certifying that they are experiencing immediate financial 
hardship and provide documentation to support the certification.
    (k) Loan application. The provisions of Sec.  120.191 do not apply 
for ARC Loans. A lender making an ARC Loan will provide an application 
with information on the small business that includes the nature and 
history of the business, current and historical financial statements 
(or tax returns), and other information that SBA may require.
    (l) Preferences and refinancing. A lender may make an ARC Loan to 
an Eligible Borrower that intends to use the proceeds of the ARC Loan 
to make periodic payments of principal and interest on a Qualifying 
Small Business Loan that is owned or serviced by that same lender. The 
provisions of Sec. Sec.  120.10, 120.536(a)(2) and 120.925 with regard 
to Preference for repayments without prior SBA approval do not apply to 
ARC Loans. The provisions of Sec.  120.201 restricting refinancing also 
do not apply to ARC Loans.
    (m) Loan fees. Neither the lender nor SBA shall impose any fees or 
direct costs on a borrower of an ARC Loan, except that lenders may 
charge borrowers for the direct costs of securing and liquidating 
collateral for the ARC Loan. Fees include, but are not limited to, 
points, bonus points, prepayment penalties, brokerage fees, fees for 
processing, origination, or application, and out of pocket expenses 
(other than the direct costs of securing and liquidating collateral). 
SBA will not impose any fees on a lender making an ARC Loan.
    (n) Lender reporting. Lenders shall report on its ARC Loans in 
accordance with requirements established by SBA from time to time for 
7a loans and loans made under the American Recovery and Reinvestment 
Act of 2009.
    (o) Loan servicing. Each originating lender shall service all of 
its ARC Loans in accordance with the existing practices and procedures 
that the Lender uses for its non-SBA guaranteed commercial loans. In 
all circumstances, such practices and procedures must be commercially 
reasonable and consistent with prudent lending standards and in 
accordance with SBA Loan Program Requirements as defined in Sec.  
120.10. SBA's prior written consent is required for servicing actions 
that may have significant exposure implications for SBA. SBA may 
require written notice of other servicing actions it considers 
necessary for portfolio management purposes.
    (p) Liquidations. Each Lender shall be responsible for liquidating 
any defaulted ARC Loan originated by the Lender. ARC Loans will be 
liquidated in accordance with the existing practices and procedures 
that the Lender uses for its non-SBA guaranteed commercial loans. In 
all circumstances, such practices and procedures must be commercially 
reasonable and consistent with prudent lending standards and in 
accordance with SBA Loan Program Requirements as defined in Section 
120.10. Loans with de minimis value may, at the Lender's request and 
with SBA's approval, be liquidated by SBA or its agent(s). Significant 
liquidation actions taken on ARC Loans must be documented. The 
reimbursement of liquidation related fees by SBA to the Lender is 
limited to the amount of the recovery on the ARC Loan.
    (q) Purchase requests. Any purchase request to SBA to honor its 
guaranty on a defaulted ARC Loan shall be made by the originating 
lender. Lenders may request SBA to purchase an ARC Loan when there has 
been an uncured payment default exceeding 60 days or when the borrower 
has declared bankruptcy. SBA requires Lenders to submit loans for 
purchase no later than 120 days after the earliest uncured payment 
default on the ARC Loan. Additionally, SBA may honor its guarantee and 
require a Lender to submit an ARC Loan for purchase at any time. Except 
as noted above, the Lender is required to complete all recovery actions 
on the ARC Loan after purchase.
    (r) Prohibition on secondary market sales and loan participations. 
A lender may not sell an ARC loan into the secondary market nor may a 
lender participate a portion of an ARC loan with another lender.
    (s) Loan volume. SBA reserves the right to allocate loan volume 
under the ARC Loan Program among Lenders (as defined in Sec.  120.10).
    (t) Delegated authority. SBA may allow lenders to use their 
delegated authority to process ARC Loans.
    (u) Personal resources test. The personal resources test provisions 
of Sec.  120.102 do not apply to ARC Loans.
    (v) Statutory loan limit. The provisions of Sec.  120.151 do not 
apply to ARC Loans.

Karen G. Mills,
Administrator.
[FR Doc. E9-13480 Filed 6-8-09; 8:45 am]
BILLING CODE 8025-01-P