[Federal Register Volume 80, Number 248 (Monday, December 28, 2015)]
[Notices]
[Pages 80872-80875]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-32583]


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SMALL BUSINESS ADMINISTRATION

[Docket No. SBA-2015-0013]


Community Advantage Pilot Program

AGENCY: U.S. Small Business Administration.

ACTION: Notice of extension of and changes to Community Advantage Pilot 
Program and request for comments.

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SUMMARY: The Community Advantage (``CA'') Pilot Program is a pilot 
program to increase SBA-guaranteed loans to small businesses in 
underserved areas. The Small Business Administration (``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 extend the term of the CA Pilot Program 
and lay out a plan for its evaluation regarding whether it should be 
made permanent, improve the effectiveness of the program, expand 
program eligibility to new organizations, and to revise other program 
requirements, including certain regulatory waivers.

DATES: Effective Date: The changes to the CA Pilot Program identified 
in this Notice will be effective December 28, 2015. The CA Pilot 
Program will remain in effect until March 31, 2020.
    Comment Date: Comments must be received on or before February 26, 
2016.

ADDRESSES: You may submit comments, identified by SBA docket number 
SBA-2015-0013 by any of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Community Advantage Pilot Program Comments--Office 
of Economic Opportunity, U.S. Small Business Administration, 409 Third

[[Page 80873]]

Street SW., Suite 8300, Washington, DC 20416.
     Hand Delivery/Courier: Grady B. Hedgespeth, Director, 
Office of Economic Opportunity, 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 
B. Hedgespeth, Director, Office of Economic Opportunity, U.S. Small 
Business Administration, 409 Third Street SW., 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 the information and 
make the final determination whether it will publish the information.

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

SUPPLEMENTARY INFORMATION:

1. Background

    On February 18, 2011, SBA issued a notice and request for comments 
introducing the CA Pilot Program (76 FR 9626). The CA Pilot Program was 
introduced to increase the number of SBA-guaranteed loans made 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.
    Subsequent notices have made changes to the CA Pilot Program to 
improve the program experience for participants, improve their ability 
to deliver capital to underserved markets, and appropriately manage 
risk to the Agency. These notices were issued on the following dates: 
September 12, 2011 (76 FR 56262), February 8, 2012 (77 FR 6619), and 
November 9, 2012 (77 FR 67433). 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 further revise 
program requirements as described more fully below.
    The CA Pilot Program is currently set to expire March 15, 2017. 
With this notice, SBA is extending the pilot program until March 31, 
2020. This extension will allow for additional time to evaluate the 
pilot, and if warranted, begin the process for it to be made permanent. 
SBA will evaluate the pilot in accordance with criteria that would be 
applicable to 7(a) pilot programs generally, including whether: the 
pilot is achieving its objective(s), the costs (including losses) of 
the pilot are within an acceptable range, sufficient numbers and types 
of lenders are using the pilot, and there is a continuing need for the 
pilot. SBA also will evaluate the CA Pilot Program to assess its effect 
along the following additional indices among others: success in 
reaching the CA underserved markets, impact on job creation and 
retention, portfolio performance based on initial projections and as it 
relates to other 7(a) programs, and impact on business creation and/or 
business expansion. Based on the findings of the evaluation, SBA will 
refine the program and undergo rulemaking to make the program 
permanent, if appropriate.

2. Comments

    Although the changes to the CA Pilot Program will be effective 
December 28, 2015, comments are solicited from interested members of 
the public on all aspects of the CA Pilot Program, including whether 
the pilot program should be made permanent. Comments must be submitted 
on or before the deadline for comments listed in the DATES section. The 
SBA will consider these comments and the need for making any revisions 
as a result of these comments.

3. Changes to the Community Advantage Pilot Program

    The Community Advantage Participant Guide is being updated to 
reflect the changes below and will be available on SBA's Web site at 
www.sba.gov.

a. 7(a) Small Loan Procedures & Delegated Authority Procedures

    On October 10, 2014, SBA issued Policy Notice 5000-1324, 
Streamlining CA Pilot Program. The Notice included: the adoption of the 
SBA 7(a) Small Loan credit standards that includes the use of a credit 
score upon submission of the application to SBA; the adoption of 7(a) 
Small Loan procedures when closing and disbursing CA loans; and the 
revision of the procedures to request delegated authority that more 
closely aligns with the procedures for 7(a) lenders to acquire 
Preferred Lenders Program (PLP) authority. The Notice also provided 
that CA Lenders could be authorized to begin processing applications 
under their delegated authority after making an initial disbursement on 
at least five CA loans. These policy changes are being incorporated 
into a revised Community Advantage Participant Guide (version 4.0), 
which will be issued upon publication of this Federal Register Notice.

b. Expanded CA Program Eligibility

    The original February 18, 2011, Notice (76 FR 9626) introducing the 
CA Pilot Program limited program eligibility to three types of 
entities: SBA Microloan Intermediaries, SBA Certified Development 
Companies (``CDCs'') and non-federally regulated Community Development 
Financial Institutions (``CDFIs'') certified by the U.S. Treasury. SBA 
is expanding the eligible organizations to include SBA Intermediary 
Lending Pilot (ILP) Program Intermediaries authorized under Section 
7(l) of the Small Business Act (15 U.S.C. 636(l)).

c. CA Loan Sales

    The February 18, 2011 Notice (76 FR 9626) introducing the CA Pilot 
Program prohibited CA Lenders from including CA loans in certain 
participant lender financings such as loan participations and 
securitizations. In order to implement this prohibition, SBA waived the 
regulations at 13 CFR 120.420 through 120.435.
    In a subsequent Federal Register Notice published on September 12, 
2011 (76 FR 56262), SBA recognized that these prohibitions can restrict 
the ability of CA Lenders to obtain access to capital or other streams 
of revenue necessary to support their CA lending. Therefore, in order 
to permit CA Lenders to pledge loans as collateral for certain lender 
financings, SBA discontinued the waiver of the regulations at 13 CFR 
120.420, 120.430-120.431 (only with respect to pledges), and 120.434.
    SBA will now allow CA Lenders to sell entire CA loans or an entire 
CA loan portfolio under limited circumstances. Therefore, SBA is no 
longer waiving 13 CFR 120.430, 120.431, 120.432(a), and 120.433 (only 
with respect to the sale of an entire CA loan). SBA will continue to 
waive 13 CFR 120.432(b) & (c), and therefore, CA Lenders may not sell, 
or sell a participating interest in, a part of a CA loan. CA Lenders 
must follow the same regulations and SOP requirements as 7(a) lenders 
with respect to loan sales with the following important

[[Page 80874]]

modification: the sale of an entire CA Loan or CA loan portfolio 
requires the approval of the Director of SBA's Office of Credit Risk 
Management (D/OCRM). Although sales of a CA loan or CA loan portfolio 
are not permitted as a normal course of business in CA lending, in the 
event that a sale is necessary as part of a lender's withdrawal from 
the CA Pilot Program for example, the CA Lender must make a concerted 
effort to sell such loans to a capable and financially viable CA 
Lender. If no CA Lender is interested, capable or financially viable to 
purchase the CA loan(s), then the loan(s) may be sold to a 7(a) Lender 
with SBA's prior written consent, which SBA may withhold in its sole 
discretion. The D/OCRM will make the final determination on whether to 
approve such transactions. No changes are being made to the 
requirements for CA Lenders to sell the guaranteed portion of a CA Loan 
on SBA's Secondary Market.

d. Debt Refinancing

    All debt refinancing in the CA Pilot Program must meet the 
requirements for refinancing set forth in SOP 50 10 5(H), Subpart B, 
Chapter 2, Paragraph IV.E., with two modifications discussed below.
    1. Under SOP 50 10 5(H), Subpart B, Chapter 2, Paragraph IV. E. 3, 
in order to refinance certain debts, the lender must demonstrate that 
the new loan will result in a 10 percent improvement in the Small 
Business Applicant's cash flow. For CA loans, however, the lender must 
demonstrate either:
    (a) a 10 percent improvement in cash flow; or
    (b) that the CA loan exceeds the amount being refinanced by at 
least $5,000 or 25 percent, whichever is greater.
    2. Under SOP 50 10 5(H), Subpart B, Chapter 2, Paragraph IV. E. 5, 
when a lender seeks to use SBA-guaranteed loan proceeds to refinance 
non-SBA guaranteed, same institution debt, it must include a transcript 
showing the due dates and when payments were received as part of its 
analysis and recommendation for the prior 36 months, or the life of the 
loan, whichever is less. In addition, the lender must explain in 
writing any late payments and late charges that have occurred during 
the last 36 months. However, for CA loans refinancing non-SBA 
guaranteed, same institution debt, the lender must instead include a 
transcript showing due dates and six months of timely payments for the 
most recent six month period. If there are any late payments in the 
most recent six month period, the debt may not be refinanced with a CA 
loan. Late payments are defined as any payment made beyond 29 days of 
the due date.

e. Revised Oversight Strategy

    SBA is revising the oversight strategy for CA Lenders to better 
align with the PARRiS analytical review protocol introduced in SBA 
Policy Notice 5000-1332 on December 29, 2014. Components of PARRiS 
include Portfolio performance, Asset management, Regulatory compliance, 
Risk management, and Special items. SBA's reviews for CA Lenders 
include quarterly compliance reviews, lender profile assessments, 
analytical reviews, targeted reviews and/or full reviews. SBA conducts 
reviews and examinations of CA Lenders in accordance with 13 CFR 
120.1025 through 120.1060 and SOPs 50 53(A), 51 00, and 50 10 5(H), as 
revised from time to time. The type of review or whether a safety and 
soundness examination is performed may depend on the risk associated 
with the CA Lender and its SBA portfolio.

f. Revised Deadline for Annual Report

    Currently, all SBA Supervised Lenders are required by 13 CFR 
120.464(a)(1) to submit an annual report with audited financial 
statements within 90 days of the end of the fiscal year. SBA is 
revising this reporting deadline for CA Lenders and requiring that this 
report instead be submitted within 120 days after the end of the CA 
Lender's fiscal year. In order to accomplish this change, SBA is 
modifying 13 CFR 120.464(a)(1), but only with respect to timing, to 
require submission of the annual report within 120 days after the end 
of the CA Lender's fiscal year.

g. Expanded Underserved Market Definition

    The original February 18, 2011, Notice (76 FR 9626) introducing the 
CA Pilot Program defined underserved markets to include: Low-to-
moderate income communities; Empowerment Zones and Enterprise 
Communities; HUBZones; New businesses; Businesses eligible for Patriot 
Express, including Veteran-owned businesses; and Firms where more than 
50% of their full time workforce is low-income or resides in LMI census 
tracts. SBA is revising this program definition to include designated 
Promise Zones \1\ as an underserved market.
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    \1\ The Promise Zone Initiative is a Presidential plan that 
seeks to partner with local communities and businesses to create 
jobs, increase economic security, expand educational opportunities, 
increase access to quality, affordable housing and improve public 
safety. The first five Zones, located in San Antonio, Philadelphia, 
Los Angeles, Southeastern Kentucky, and the Choctaw Nation of 
Oklahoma, have each put forward a plan on how they will partner with 
local business and community leaders to make investments that reward 
hard work and expand opportunity. (https://www.whitehouse.gov/the-press-office/2014/01/08/fact-sheet-president-obama-s-promise-zones-initiative).
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    In addition, the original February 18, 2011 Notice (79 FR 9626) 
identified businesses eligible for SBA's Patriot Express Pilot Loan 
Initiative as an eligible underserved market. The Patriot Express Pilot 
Loan Initiative expired December 31, 2013; therefore, the applicable 
language in the revised Community Advantage Participant Guide has been 
changed to read ``businesses eligible for SBA Veterans Advantage.'' 
(For information on SBA Veteran's Advantage, see SBA's Web site at 
www.sba.gov.)

h. Correction of Regulatory Waiver

    The original February 18, 2011 Notice (76 FR 9626) included a 
waiver of 13 CFR 120.852(a). That regulation, which prohibits a CDC 
from investing in or being an affiliate of a lender participating in 
the 7(a) loan program, was moved to 13 CFR 120.820(c) effective April 
21, 2014 (79 FR 15641). Therefore, in order to continue allowing CDCs 
or their affiliates to participate in the CA Pilot Program, SBA is 
waiving 13 CFR 120.820(c).

i. Application Forms

    The original Notice required that CA Lenders utilize the 
application forms required of the Small/Rural Lenders Advantage (S/RLA) 
process, as set forth in SOP 50 10 5(C). As of October 1, 2013, that 
process ceased to exist. CA lenders now utilize the forms used for all 
SBA 7(a) lending processing methods: SBA Form 1919 (``Borrower 
Information Form'') and SBA Form 1920 (``Lender's Application for 
Guaranty for All 7(a) Programs''). In addition, CA Lenders must also 
submit the CA Addendum (SBA Form 2449) with all CA loan applications.

4. General Information

    The changes in this notice are limited to the CA Pilot Program 
only. All other SBA guidelines and regulatory waivers related to the CA 
Pilot Program remain unchanged.
    SBA has provided more detailed guidance in the form of a 
Participant Guide which is being updated and is available on SBA's Web 
site at www.sba.gov. 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-

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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.

    Dated: December 17, 2015.
Maria Contreras-Sweet,
Administrator.
[FR Doc. 2015-32583 Filed 12-24-15; 8:45 am]
 BILLING CODE 8025-01-P