[Federal Register Volume 79, Number 80 (Friday, April 25, 2014)]
[Rules and Regulations]
[Pages 22859-22862]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-09183]


=======================================================================
-----------------------------------------------------------------------

SMALL BUSINESS ADMINISTRATION

13 CFR Part 123

RIN 3245-AG61


Disaster Assistance Loan Program; Disaster Loan Credit and 
Collateral Requirements.

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

ACTION: Interim Final Rule with request for comments.

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

SUMMARY: SBA is amending its disaster loan program regulations in 
response to Hurricane Sandy Rebuilding Task Force recommendations. One 
change allows SBA to rely on the disaster loan applicant's credit, 
including credit score, rather than personal or business cash flow in 
order to assess repayment ability for those applicants with strong 
credit.
    Another change will increase the amount of disaster assistance 
funds that can be immediately disbursed to borrowers by raising the 
unsecured threshold for economic injury loans for all disasters and for 
physical damage loans for major disasters. Both of these changes will 
enable SBA to provide disaster assistance more quickly and efficiently.

DATES: Effective date: April 25, 2014.
    Applicability date: This rule is applicable for disasters declared 
on or after April 25, 2014.
    Comment date: Comments must be received on or before June 23, 2014.

ADDRESSES: You may submit comments, identified by RIN 3245-AG61, by any 
of the following methods: (1) Federal Rulemaking Portal: http://www.regulations.gov, following the specific instructions for submitting 
comments; (2) Fax: (202) 481-2336; or Email: [email protected]; or 
(3) Mail/Hand Delivery/Courier: James E. Rivera, Associate 
Administrator for Disaster Assistance, 409 3rd Street SW., Washington, 
DC 20416.
    SBA will post all comments to this interim final rule on 
www.regulations.gov. If you wish to submit confidential business 
information (CBI) as defined in the User Notice at www.regulations.gov, 
you must submit such information to U.S. Small Business Administration, 
Bartie J. Larsen, Office of Disaster Assistance, 409 Third Street SW., 
Mail Code 6530, Washington, DC 20416, or send an email 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 your information and determine whether it 
will make the information public.

FOR FURTHER INFORMATION CONTACT: Bartie J. Larsen, Office of Disaster 
Assistance, 202-205-6734 or [email protected].

SUPPLEMENTARY INFORMATION:

I. Background

    The Hurricane Sandy Rebuilding Task Force was established pursuant 
to an Executive Order issued on December 7, 2012, E.O. 13632, 
Establishing the Hurricane Sandy Task Force (December 7, 2012). This 
Task Force was established to ensure the recovery effort benefitted 
from cabinet-level focus and coordination, and was charged with 
establishing guidelines for the investment of Federal funds made 
available for the recovery.
    With the Secretary of Housing and Urban Development as its Chair, 
the Task Force consisted of the heads of twenty-three executive 
department agencies and offices. As a member of this task force, SBA 
collaborated with these executive agencies and offices to identify and 
work to remove obstacles to resilient rebuilding while taking into 
account existing and future risks and promoting the long-term 
sustainability of communities and ecosystems in the Sandy-affected 
region. The resultant Rebuilding Strategy developed by the Task Force 
included recommendations across several policy areas. See http://portal.hud.gov/hud portal/documents/huddoc?id=HSRebuildingStrategy.pdf. 
The Task Force recommended that SBA, among other recommendations, (a) 
institute new and innovated process improvements to SBA's Disaster Loan 
program, and (b) increase SBA's unsecured disaster loan limits in order 
to expedite the disbursement of small dollar loans.

II. Explanation of Changes

    SBA is incorporating the Task Force's recommendation to institute 
new and

[[Page 22860]]

innovated process improvements to SBA's Disaster Loan Program by 
amending 13 CFR 123.6 of SBA regulations to allow SBA to rely on a 
disaster applicant's credit, including score, as evidence of repayment 
ability. The current language of Sec.  123.6 requires SBA to analyze 
every applicant's personal or business cash flow, which is a time 
consuming process. The interim final rule revises Sec.  123.6 to allow 
SBA to base its repayment ability determination on either the 
applicant's cash flow or credit, including credit score. The repayment 
analysis will still include the verification of income/employment 
through Federal income tax returns. SBA also still plans to analyze 
personal or business cash flow to determine repayment ability for those 
applicants that do not have strong credit, as determined by SBA. 
However, removing the requirement to analyze cash flow for all loans 
allows SBA to expedite processing of applications from disaster victims 
with strong credit. Expediting the approval of disaster loan 
applications with strong credit will make processing more efficient 
because SBA can then dedicate additional staff to applications that do 
not have strong credit, thereby reducing overall processing time for 
all loans. This change is also a result of SBA's Retrospective 
Regulatory Review efforts, specifically the ``Accelerated Approval 
Disaster Loans Based on Credit Scores'' project in SBA's Final Plan for 
Retrospective Analysis of Existing Rules (available at http://www.sba.gov/about-Sba/sba_performance/strategic planning/sba--final --
plan--for--retrospective--analysis--of--existing--rules).
    SBA is also revising 13 CFR 123.11 to incorporate the Task Force's 
recommendation to increase SBA's unsecured disaster loan limits. SBA's 
current limits on unsecured disaster loans, which do not require 
collateral, are $14,000 for physical damage and $5,000 for economic 
injury. The revised regulations will raise the unsecured limit to 
$25,000 for economic injury loans for all disasters and for physical 
damage loans for major disasters. The unsecured limit for physical 
damage loans for non-major disasters will continue to be $14,000, in 
accordance with the Small Business Act. With these increased limits, 
more businesses, homeowners, and other potential victims that may be 
impacted by future disasters will receive much-needed small dollar 
loans more quickly following a disaster.
    The above changes apply to all eligible recipients of SBA disaster 
loans for disasters declared on or after April 25, 2014.

III. Justification for Interim Final Rule

    In general, SBA publishes a rule for public comment before issuing 
a final rule, in accordance with the Administrative Procedure Act, 5 
U.S.C. 553. The Administrative Procedure Act provides an exception to 
this standard rulemaking process, however, where an agency finds good 
cause to adopt a rule without prior public participation. 5 U.S.C. 
553(b)(3)(B). The good cause requirement is satisfied when prior public 
participation is impracticable, unnecessary, or contrary to the public 
interest. Under such circumstances, an agency may publish an interim 
final rule without soliciting public comment.
    Disasters are unpredictable and can happen with very little notice. 
Since SBA cannot predict the occurrence or magnitude of disasters, it 
reserves the right to change the rules governing SBA disaster 
assistance loans without advance notice, by publishing interim 
regulations in the Federal Register. 13 CFR 123.1. Advance solicitation 
of comments for this rulemaking would be impracticable and contrary to 
the public interest as it would prevent expedited processing and 
disbursement of disaster loans. Any such delay may cause undue hardship 
to homeowners, businesses and their communities as they struggle to 
recover from future disasters.
    SBA invites comments from all interested members of the public. 
These comments must be received on or before the close of the comment 
period noted in the DATES section of this interim final rule. SBA will 
then consider these comments in making any necessary revisions to these 
regulations.

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.
    SBA's disaster loan program offers low interest, fixed rate loans 
to disaster victims, enabling them to replace property damaged or 
destroyed in declared disasters. It also offers such loans to affected 
small businesses and non-profits to help them recover from economic 
injury caused by such disasters. The changes in this interim final rule 
will not require members of the public to adjust their behavior. 
Rather, the changes will benefit the public by expediting the 
processing and disbursement of SBA disaster loans.
    In light of the urgent need to assist disaster victims, 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. While this interim final rule is effective immediately 
upon publication, SBA is inviting public comment on the rule during a 
60-day period and will consider the comments in developing a final 
rule. SBA has included an applicability date to make clear that the 
rule is applicable for disasters declared on or after the date of 
publication in the Federal Register in order to make these changes 
available to future disaster victims as soon as possible.

Compliance With Executive Orders 12866, 12988, 13132, and 13563 and 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 
interim final rule is a significant regulatory action for the purposes 
of Executive Order 12866. Accordingly, the next section contains SBA's 
Regulatory Impact Analysis. However, this is not a major rule under the 
Congressional Review Act, 5 U.S.C. 800.
A. Regulatory Objective of the Proposal
    SBA is amending its disaster loan program regulations in response 
to Hurricane Sandy Rebuilding Task Force recommendations to (a) 
institute new and innovative process improvements to SBA's Disaster 
Loan program; and (b) increase SBA's unsecured disaster loan limits in 
order to expedite the disbursement of small dollar loans. Amending 
Sec.  123.6 of SBA regulations will allow SBA to rely on a disaster 
loan applicant's credit, including credit score, in order to assess 
repayment ability. Amending Sec.  123.11 will raise SBA's limits on 
unsecured disaster loans (currently $14,000 for physical damage and 
$5,000 for economic injury) to $25,000 for economic injury loans for 
all disasters and for physical damage loans for major disasters.
B. Benefits of the Rule
    This interim final rule will directly benefit disaster victims by 
decreasing the amount of time required by SBA to process disaster loan 
applications and increasing the amount of loan proceeds available for 
disbursement without collateral. Credit scoring will allow for

[[Page 22861]]

a more expeditious approval process because SBA will not be constrained 
by the requirement to conduct a complete cash flow analysis for every 
loan (which includes debt reconciliation and a repayment analysis to 
determine if there are funds available for both loan payments and day-
to-day living expenses). Removing the requirement to analyze cash flow 
for all loans allows SBA to expedite processing of applications from 
disaster victims with strong credit, which will allow SBA to dedicate 
more staff to more time-consuming applications, thereby reducing 
overall processing time for all loans. This change is also a result of 
SBA's Retrospective Regulatory Review efforts, specifically the 
``Accelerated Approval Disaster Loans Based on Credit Scores'' project 
in SBA's Final Plan for Retrospective Analysis of Existing Rules 
(available at http://www.sba.gov/about-Sba/sba_performance/strategic--
planning/sba--final--plan--for--retrospective--analysis--of existing 
rules).
    Increasing the unsecured loan threshold for economic injury loans 
for all disasters and for physical damage loans for major disasters to 
$25,000 will also benefit disaster victims. Currently, SBA can only 
disburse up to $5,000 for economic injury loans and up to $14,000 for 
physical damage loans prior to obtaining the appropriate security 
instruments. This increase will allow SBA to quickly disburse more 
funds to disaster victims. For example, under certain circumstances SBA 
may require additional documentation to disburse funds above the 
unsecured limit (e.g., a building permit is required prior to any 
disbursement for repairs above $14,000 to property that secures the 
Joan). Unsecured loans, however, require only limited documentation: An 
executed note, loan authorization and agreement, and proof of flood 
insurance if the property is located in a Special Flood Hazard Zone. 
Because there is less documentation to collect and review, SBA can 
disburse funds below the unsecured loan threshold much more quickly.
C. Costs of the Rule
    The calculated subsidy from the proposed changes has no significant 
impact on the overall subsidy rate. In addition, the rule will not 
result in any additional costs to disaster victims. Although SBA will 
use expedited processing to approve loan applications from disaster 
victims with strong credit, loan applications will not be declined 
based solely on credit scores. SBA still plans to analyze personal or 
business cash flow to determine repayment ability for those applicants 
who do not have strong credit.
D. Alternatives
    Working with the other members of the Hurricane Sandy Rebuilding 
Task Force, SBA determined that these regulatory changes are the best 
available means of achieving the Task Force's goals of instituting new 
and innovated process improvements to SBA's Disaster Loan program and 
increasing SBA's unsecured disaster loan limits.
    SBA has already made several non-regulatory changes to implement 
the Sandy Task Force's recommendation to institute new and innovated 
process improvements to the disaster loan program. For example, SBA has 
implemented a process of separate application tracks for business and 
home disaster loans, which allows SBA to process business disaster 
loans more quickly. In addition, SBA has established a new training 
module for reserve disaster loan officers based on efficiencies and 
improvements identified in an analysis of the Hurricane Sandy response 
to ensure that a trained reserve staff is in place for future 
disasters. However, in order to fully implement the recommendations of 
the Task Force, SBA must revise its regulations to allow SBA to base 
its repayment ability determination on either the applicant's cash flow 
or credit, including credit score, and to increase the unsecured 
disaster loan limits.

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 preemptive effect. The final rule will not have retroactive effect 
and will not apply to disasters declared before April 25, 2014.

Executive Order 13132

    SBA has determined that this interim final rule will not have 
substantial direct effects on the States, on the relationship between 
the national government and the States, or the distribution of power 
and responsibilities among the various levels of government. Therefore, 
for the purposes of Executive Order 13132, SBA has determined that this 
interim final rule has no federalism implications warranting 
preparation of a federalism assessment.

Executive Order 12866 and 13563

    Executive Order 13563 reaffirms the principles of E.O. 12866 while 
calling for improvements in the nation's regulatory system to promote 
predictability, to reduce uncertainty, and to use the best, most 
innovative, and least burdensome tools for achieving regulatory ends. 
The executive order directs agencies to consider regulatory approaches 
that reduce burdens and maintain flexibility and freedom of choice for 
the public where these approaches are relevant, feasible, and 
consistent with regulatory objectives. E.O. 13563 also requires that 
regulations be based on the open exchange of information and 
perspectives among state and local officials, affected stakeholders in 
the private sector, and the public as a whole.
    In developing this rule, SBA collaborated with multiple agencies 
through its participation on Hurricane Sandy Rebuilding Task Force. The 
Task Force was led by the Secretary of Housing and Urban Development, 
and included twenty-three executive department agencies and offices. 
The Task Force worked with these Federal agency members as well as 
state and local officials to identify areas where immediate steps could 
be taken to help communities recovering from Hurricane Sandy. SBA 
continues to communicate with the other members of the Task Force via 
monthly progress reports.
    Executive Order 13563 also recognizes the importance of maintaining 
a consistent culture of retrospective review and analysis throughout 
the executive branch. SBA had identified revisions to Sec.  123.6 to 
expedite approval of disaster loans based on credit score as a part of 
its retrospective review. As stated in that report, an analysis of the 
performance of disaster loans to borrowers with strong credit indicated 
limited risk.
    Changing the current process of requiring a cash flow analysis for 
all loan applications would allow SBA more flexibility to design a loan 
approval that is in line with current private sector practices and 
reduce the processing cost for disaster loans.

Paperwork Reduction Act (44 U.S.C. Ch. 35)

    For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, 
SBA has determined that this interim final rule would not impose any 
new reporting or recordkeeping requirements.

[[Page 22862]]

Regulatory Flexibility Act (5 U.S.C. 601-612)

    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.
    According to the RFA, when an agency issues a rule, the agency must 
prepare an analysis to determine 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. Rules are exempt from the APA notice 
and comment requirements when the agency for good cause finds that 
notice and public procedure thereon is impracticable, unnecessary, or 
contrary to the public interest. SBA has determined that there is good 
cause to adopt this interim final rule without prior public 
participation; therefore, the rule is also exempt from the RFA 
requirements. SBA invites comments on this determination.

List of Subjects in 13 CFR Part 123

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

    For reasons set forth in the preamble, SBA amends 13 CFR part 123 
as follows:

PART 123--DISASTER LOAN PROGRAM

0
1. The authority citation for part 123 continues to read as follows:

    Authority:  15 U.S.C. 632, 634(b) (6), 636(b), 636(d), 657n; 
Pub. L. 102-395, 106 Stat. 1828, 1864; Pub. L. 103-75, 107 Stat. 
739; and Pub. L. 106-50, 113 Stat. 245.


0
2. Amend Sec.  123.6 by revising the first sentence to read as follows:


Sec.  123.6  What does SBA look for when considering a disaster loan 
applicant?

    There must be reasonable assurance that you can repay your loan 
based on SBA's analysis of your credit or your personal or business 
cash flow, and you must also have satisfactory character.* * *

0
3. Amend Sec.  123.11 as follows:
0
a. Remove the introductory text and paragraph (c);
0
b. Redesignate paragraphs (a) and (b) as (c) and (d)
0
c. Add new paragraphs (a) and (b); and
0
d. Revise the second sentence of newly redesignated paragraph (c) to 
read as follows.


Sec.  123.11  Does SBA require collateral for any of its disaster 
loans?

    (a) When collateral is not required:
    (1) Economic injury disaster loans. Generally, SBA will not require 
that you pledge collateral to secure an economic injury disaster loan 
of $25,000 or less.
    (2) Physical disaster home and physical disaster business loans. 
SBA will not require that you pledge collateral to secure a physical 
disaster home or physical disaster business loan of $14,000 or less. In 
addition, under a Major Disaster, SBA generally will not require that 
you pledge collateral to secure a physical disaster home or physical 
disaster business loan of $25,000 or less.
    (3) IDAP loans. Collateral requirements for IDAP loans are set 
forth in Subpart H of this part.
    (4) Military Reservist EIDL. For the purposes of the Military 
Reservist EIDL only, as described in section 123.513, SBA will not 
generally require that you pledge collateral to secure a loan of 
$50,000 or less.
    (b) For loans larger than the amounts outlined in paragraph (a) of 
this section, you will be required to provide available collateral such 
as a lien on the damaged or replacement property, a security interest 
in personal/business property, or both.
    (c) * * * In deciding whether collateral is required, SBA will add 
up all physical disaster loans to see if they exceed the applicable 
unsecured threshold outlined in paragraph (a)(2) of this section and 
all economic injury disaster loans to see if they exceed $25,000.
* * * * *

    Dated: April 16, 2014.
Maria Contreras-Sweet,
Administrator.
[FR Doc. 2014-09183 Filed 4-24-14; 8:45 am]
BILLING CODE 8025-01-P