[Federal Register Volume 77, Number 26 (Wednesday, February 8, 2012)]
[Notices]
[Pages 6619-6620]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-2798]


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SMALL BUSINESS ADMINISTRATION


Community Advantage Pilot Program

AGENCY: U.S. Small Business Administration.

ACTION: Notice of changes to Community Advantage Pilot Program.

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SUMMARY: On February 18, 2011, SBA published a notice introducing the 
Community Advantage Pilot Program. In that notice, SBA provided an 
overview of the Community Advantage Pilot Program requirements, 
including the application process to participate, and SBA modified or 
waived as appropriate certain regulations, which otherwise apply to the 
7(a) loan program, for the Community Advantage Pilot Program. SBA 
continues to refine and improve the design of the Community Advantage 
Pilot Program. To support SBA's commitment to expanding access to 
capital for small businesses and entrepreneurs in underserved markets, 
SBA is issuing this Notice to revise certain program requirements, 
including certain of the regulatory waivers.

DATES: Effective Date: This Notice is effective February 8, 2012.
    Applicability Date: This Notice applies to Community Advantage 
Pilot Program loan applications (or requests for loan numbers submitted 
under a lender's delegated authority) approved by SBA on or after 
February 8, 2012.

FOR FURTHER INFORMATION CONTACT: Grady B. Hedgespeth, Director, Office 
of Financial Assistance, U.S. Small Business Administration, 409 Third 
Street SW., Washington DC 20416; (202) 205-7562; 
[email protected].

SUPPLEMENTARY INFORMATION: On February 18, 2011, SBA issued a notice 
and request for comments introducing the Community Advantage Pilot 
Program (``CA Pilot Program'') (76 FR 9626). The CA Pilot Program was 
introduced to increase SBA-guaranteed loans to small businesses in 
underserved markets. The February 18, 2011 notice provided an overview 
of the CA Pilot Program requirements and, pursuant to the authority 
provided to SBA under 13 CFR 120.3 to suspend, modify or waive certain 
regulations in establishing and testing pilot loan initiatives, SBA 
modified or waived as appropriate certain regulations which otherwise 
apply to 7(a) loans for the CA Pilot Program. SBA continues to refine 
and improve the design of the CA Pilot Program and, on September 12, 
2011, SBA issued a notice modifying certain of those regulatory waivers 
in order to permit Community Advantage Lenders (``CA Lenders'') to 
pledge loans made under the CA Pilot Program (``CA loans'') as 
collateral for certain lender financings that are approved by SBA. (76 
FR 56262) In response to comments received on the CA Pilot Program and 
to further support SBA's commitment to expanding access to capital for 
small businesses and entrepreneurs in underserved markets, SBA is 
issuing this Notice to revise several of the original program 
requirements, including certain regulatory waivers, as described more 
fully below.
    In the February 18, 2011 notice, SBA waived the regulations at 13 
CFR 120.213, 120.214 and 120.215 and set the maximum allowable interest 
rate that CA Lenders may charge for CA loans at prime + 4%. SBA is now 
increasing the maximum allowable rate that a CA Lender may charge a 
borrower to prime + 6%. Therefore, SBA is continuing to waive the 
regulations at 13 CFR 120.213, 120.214 and 120.215 to allow CA Lenders 
to charge prime + 6% on CA Loans.
    Additionally, in response to comments received on the initial 
notice announcing the CA Pilot Program, SBA is modifying the program 
requirements to allow participating CA Lenders to contract with Lender 
Service Providers (LSPs) as defined at 13 CFR 103.1(d). In accordance 
with Agency regulations at 13 CFR 120.410, a CA Lender must have a 
continuing ability to evaluate, process, close, disburse, service, 
liquidate and litigate small business loans. A CA Lender may contract 
with a third party (an LSP) to assist with one or more of these 
functions. However, the CA Lender itself, not the LSP, has ultimate 
responsibility for evaluating, processing, closing, and liquidating its 
SBA loan portfolio.
    SBA is also removing ``Tier Two--Conditional Delegation'' from the 
levels of delegated authority that a CA Lender may receive. Thus, there 
will only be two distinct categories: delegated authority and non-
delegated authority. The remaining pilot program requirements 
pertaining to delegated authority, including how to request delegated 
authority and when a CA Lender can begin processing CA loans using 
delegated authority, remain unchanged.
    SBA is further modifying the requirements for CA Lenders to sell 
loans in the secondary market by allowing CA Lenders to request 
authority either at the time of application or after one year of 
participation. CA Lenders granted permission for secondary market sales 
must have additional reserves and must complete additional training 
related to secondary market activities and requirements before they are 
allowed to initiate secondary market sales.
    Finally, in response to comments received on the initial notice 
announcing the CA Pilot Program, SBA is revising the original lender 
oversight strategy to better clarify the expected costs and schedule of 
oversight. The February 18, 2011 notice provided that all participating 
lenders will receive an examination or review after the first year of 
operation. The revised strategy removes this requirement and explains 
that SBA will monitor CA Lenders using various oversight tools, 
including but not limited to Off-Site Reviews, Desk Reviews, Agreed 
Upon Procedures On-site Reviews, On-site Risk Based Reviews and On-Site 
Examinations. SBA's Office of Credit Risk Management (OCRM) will 
evaluate the CA Lender's level of activity, performance metrics, risk 
rating, effectiveness in reaching SBA targeted underserved market 
segments and other relevant information to determine the appropriate 
oversight tool(s) to employ. Lender risk evaluations will also include 
a review of information from SBA's processing, servicing and 
liquidation/guaranty purchase centers. SBA anticipates that the cost 
for off-site monitoring through desk reviews conducted by OCRM will be 
approximately $150 per $1 million in loans outstanding. Additional 
costs for more extensive reviews and examinations will vary based on 
the CA Lender's portfolio size and performance, as well as OCRM's 
assessment of the CA Lender.

[[Page 6620]]

    All other SBA guidelines and regulatory waivers related to the CA 
Pilot Program remain unchanged.
    In connection with the CA Pilot Program, SBA also issued a 
Community Advantage Participant Guide to provide more detailed guidance 
on the CA Pilot Program requirements. This guide was posted on SBA's 
Web site at http://www.sba.gov. SBA has issued a revised Community 
Advantage Participant Guide that incorporates all of these changes. The 
revised Community Advantage Participant Guide is available on SBA's Web 
site at http://www.sba.gov/sites/default/files/files/CA%20-%20Participants%20Guide.pdf. In addition to issuing this Notice and the 
revised CA Participant Guide, SBA will modify SBA Forms 2301, Parts A, 
B, C and D to reflect these changes. Finally, SBA will modify the 
Community Advantage Lender Participation Application (SBA Form 2301, 
Part E). The application form also may be found on SBA's Web site at 
http://www.sba.gov/sites/default/files/tools_sbf_forms_2301e.pdf.
    SBA may provide additional guidance, through SBA notices, which may 
also be published on SBA's Web site at http://www.sba.gov/category/lender-navigation/forms-notices-sops/notices. Questions regarding the 
CA Pilot Program may be directed to the Lender Relations Specialist in 
the local SBA district office. The local SBA district office may be 
found at http://www.sba.gov/about-offices-list/2.

    Authority: 15 U.S.C. 636(a)(25) and 13 CFR 120.3.

Karen G. Mills,
Administrator.
[FR Doc. 2012-2798 Filed 2-7-12; 8:45 am]
BILLING CODE 8025-01-P