[Federal Register Volume 81, Number 153 (Tuesday, August 9, 2016)]
[Proposed Rules]
[Pages 52595-52608]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-18044]
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SMALL BUSINESS ADMINISTRATION
13 CFR Parts 115 and 120
RIN 3245-AF85
Miscellaneous Amendments to Business Loan Programs and Surety
Bond Guarantee Program
AGENCY: U.S. Small Business Administration.
ACTION: Proposed rule.
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SUMMARY: The U.S. Small Business Administration (SBA) continues to
review the regulations governing the delivery and oversight of its
business lending programs. SBA is proposing changes to some of these
regulations for clarity and to increase participation in: The Surety
Bond Guarantee (SBG) Program, the 7(a) Loan Program, the Microloan
Program, and the Development Company Loan Program (504 Loan Program).
In addition, the proposed changes will streamline the regulations by
removing or revising any outdated regulations.
DATES: SBA must receive comments to the proposed rule on or before
October 11, 2016.
ADDRESSES: You may submit comments, identified by RIN 3245-AF85, by any
of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Mail: Mary Frias, Office of Financial Assistance, Office
of Capital Access, Small Business Administration, 409 Third Street SW.,
Washington, DC 20416.
Hand Delivery/Courier: Mary Frias, Office of Financial
Assistance, 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 Office
of Financial Assistance, Office of Capital Access, 409 Third Street
SW., Washington, DC 20416. 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: Robert Carpenter, Financial Analyst,
Office of Financial Assistance, Office of Capital Access, Small
Business Administration, 409 Third Street SW., Washington, DC 20416;
telephone: (202) 205-7654; email: [email protected].
SUPPLEMENTARY INFORMATION:
I. Background Information
Executive Order 13563, Improving Regulation and Regulatory Review,
76 FR 3821 (January 21, 2011), directs agencies to ensure that
regulations are accessible, consistent, written in plain language, and
easy to understand in order to foster economic growth and job creation.
Executive Order 13563 provides that our regulatory system ``must
identify and use the best, most innovative and least burdensome tools
for achieving regulatory ends.'' Executive Order 13563 further provides
that ``[t]o facilitate the periodic review of existing significant
regulations, agencies shall consider how best to promote retrospective
analysis of rules that may be outmoded, ineffective, insufficient, or
excessively burdensome, and to modify, streamline, expand, or repeal
them in accordance with what has been learned.'' SBA has reviewed its
regulations with regard to the Business Loan Programs, as defined
below, and is proposing a number of amendments and revisions to
accomplish this goal.
The SBA programs affected by this proposed rule are the 7(a) Loan
Program authorized pursuant to section 7(a) of the Small Business Act
(the Act) (15 U.S.C. 636(a)), the Microloan Program authorized pursuant
to section 7(m) of the Act (15 U.S.C. 636(m)), the Surety Bond
Guarantee Program authorized pursuant to part B of title IV of the
Small Business Investment Act of 1958 (15 U.S.C. 694b et seq.), and the
Development Company Program (the 504 Loan Program) authorized pursuant
to title V of the Small Business Investment Act of 1958 (15 U.S.C. 695
et seq.) (collectively referred to as the Business Loan Programs).
The Agency requests comments on all aspects of the regulatory
revisions in this proposed rule and on any related issues affecting the
Business Loan Programs.
II. Summary of Proposed Business Loan Program Changes
SBA's proposed changes are described in this section, with
additional details on each located in the section-by-section analysis
that follows:
A. Surety Bond Guarantee Program
1. Threshold Change. SBA proposes to change the threshold amounts
set forth in Sec. Sec. 115.19, 115.32, and 115.67 under which Sureties
are required to notify SBA, or obtain SBA's prior written approval, of
changes in the
[[Page 52596]]
contract or bond amounts for which an SBA bond guarantee has been
issued. This change would remove the $100,000 threshold and rely solely
on the 25% threshold.
2. Quarterly Contract Completion Notification. SBA proposes to add
a requirement that all participating sureties must notify SBA of all
contracts successfully completed on a quarterly basis through the
submission of a quarterly contract completion report identifying all
contracts successfully completed and any changes in the contract amount
and related fees during the preceding fiscal quarter. This new
requirement will be addressed in a new section at Sec. 115.22,
Quarterly Contract Completion Report.
3. Quick Bond Guarantee Application and Agreement (SBA Form 990A)
Increased Contract Limit. SBA proposes to allow Sureties participating
in the Prior Approval Program to use the Quick Bond Guarantee
Application and Agreement (SBA Form 990A), authorized by 13 CFR
115.30(d)(2), for contracts that do not exceed $400,000. The current
contract limit for use of this form is $250,000.
4. Preferred Surety Bond Guarantee Program. SBA was recently
authorized to increase its guarantee percentage for bonds issued in the
Preferred Surety Bond (PSB) Guarantee Program from ``not to exceed 70
per centum'' to ``not to exceed 90 per centum'' by section 874 of title
VIII of Division A of the National Defense Authorization Act (NDAA),
2016, Public Law 114-92, 129 Stat. 726. This increase will become
effective on November 25, 2016. Accordingly, SBA is proposing to amend
its regulations to implement this change, including increasing the
guarantee percentages in the PSB Program and requiring that, for a
period of at least nine months following the admission of new Sureties
into the PSB Program, Sureties obtain SBA's prior written approval
before executing a bond greater than $2 million.
B. 7(a) and 504 Loan Programs and Microloan Program
1. Consumer and Marketing Cooperatives. SBA proposes to remove
consumer and marketing cooperatives from the ineligible types of
businesses identified in Sec. 120.110.
2. Change of Ownership Among Existing Owners in Eligible Passive
Companies (EPC) and Operating Companies (OC). SBA proposes to revise
the regulation at Sec. 120.111 to permit loans to finance a change of
ownership when an existing owner of the Eligible Passive Company (EPC)
is purchasing a departing co-owner's interest in the EPC for the
benefit of an eligible OC. SBA also proposes to revise Sec.
120.111(a)(3) to clarify that rent or lease payments cannot exceed the
amount necessary to make the loan payment to the lender, and an
additional amount to cover the EPC's direct expenses of holding the
property, such as maintenance, insurance and property taxes.
3. Personal Guarantee Conditions for Eligible Passive Companies
(EPCs) and Operating Companies (OCs). For consistency with Sec.
120.160(a), SBA proposes to add language in Sec. 120.111(a)(6) to
state that SBA may require the personal guarantee of those owning less
than 20 percent of the EPC or the OC. Additionally, SBA proposes to add
language to provide that SBA may require the personal guarantee of
those owning less than 5 percent ownership when circumstances warrant.
Finally, SBA proposes to clarify that the personal guarantee
requirements apply when an individual has an ownership interest in
either the EPC or the OC.
4. Restrictions on uses of proceeds. SBA proposes to revise Sec.
120.130 to add a new paragraph (e) and redesignate paragraphs (e) and
(f) as paragraphs (f) and (g), respectively. The new paragraph (e) will
include the text currently found in Sec. 120.160(d), Taxes, which
prohibits the use of loan proceeds to pay past-due Federal or state
payroll taxes. SBA also proposes to revise paragraph (g) to remove the
reference to ``Sec. 120.203'' and replace it with ``Sec. 120.202''.
5. Personal Guarantees (for loans other than to EPCs/OCs). SBA
proposes to modify the language in Sec. 120.160(a) to clarify that SBA
may require the personal guarantee of those owning less than 5 percent
ownership when circumstances warrant.
6. Use of Computer Forms. SBA proposes to remove Sec. 120.194 as
it is outdated and no longer necessary.
7. Variable Interest Rates on 7(a) Loans. SBA proposes to revise
the language in Sec. 120.214 with respect to when the allowable base
rate is determined and when adjustments in the variable interest rate
will be permitted.
8. Fees that Lender pays SBA. SBA proposes to add a new Sec.
120.220(a)(3) to incorporate the provision under Public Law 114-38,
section 2 (Veterans Entrepreneurship Act of 2015), which waives the up-
front guaranty fee for SBA Express loans provided to businesses owned
and controlled by veterans or spouses of veterans under certain
circumstances. In order to incorporate advances in technology, SBA also
proposes to update the regulation at Sec. 120.220(b) to provide for
the electronic payment of the up-front guaranty fee on all loans and to
modify the timing of that payment on certain loans. Finally, SBA
proposes corresponding changes to Sec. 120.220(c) governing when SBA
will refund the guaranty fee on certain loans.
9. Fees which a Lender May Collect from an Applicant. SBA proposes
to add clarifying language to this section in an introductory paragraph
explaining that the fees listed in Sec. 120.221 are the only fees a
Lender is permitted to collect from an applicant in connection with the
loan application. SBA also proposes to remove the current language in
Sec. 120.221(e), which prohibits a Lender from charging a Borrower a
pre-payment fee, and replace that language with the current language
found in Sec. 120.222(e), which permits a Lender to charge an
Applicant for certain legal fees.
10. Fees which the Lender or Associate May Not Collect from the
Borrower or Share with Third Parties. SBA proposes to revise Sec.
120.222 to remove all of the text except the prohibition on sharing
premiums for secondary market sales. In conjunction with the proposed
changes to Sec. 120.221, SBA proposes to include the fees a Lender may
charge an Applicant or Borrower in one regulation; unless otherwise
permitted by SBA Loan Program Requirements, any fees not included in
Sec. 120.221 will be prohibited.
11. Use of Proceeds in the Builders Loan Program. In Sec. 120.394,
SBA proposes to increase the limit on loan proceeds being used to
acquire land under a line of credit under the Builder's Loan Program.
12. On-Site/Off-Site Reviews for 7(a) Lenders, CDCs and Microloan
Intermediaries (Intermediaries). Due to SBA's improved electronic
methods, virtual reviews, such as Analytical and Targeted Reviews, may
cover much of what was previously performed in the scope of ``on-site''
reviews, diminishing the distinction between ``off-site'' and ``on-
site'' reviews. Accordingly, SBA proposes to remove all references to
``on-site'' reviews in Sec. Sec. 120.410(a)(2), 120.424(b),
120.433(b), 120.434(c), 120.630(a)(5), 120.710(e)(1), 120.812(c),
120.816(c), 120.839, 120.841(c), 120.1050, 120.1051, 120.1070 and
120.1400(c)(4). SBA will, however, retain the term ``review/examination
assessments'' in these regulations. SBA is also proposing to replace
references to ``off-site'' reviews and monitoring with ``monitoring''
in Sec. Sec. 120.1025 and 120.1051(a).
13. ``Good Standing'' now referred to as being ``Satisfactory.''
SBA proposes
[[Page 52597]]
to replace the term ``Good Standing'' as it relates to a Lender's
status with its Federal Financial Institution Regulator (FFIR) with
``Satisfactory'' in Sec. Sec. 120.410(e), 120.630(a)(4), and
120.1703(a)(4).
14. The Certified Lenders Program. SBA proposes to remove
regulations pertaining to SBA's Certified Lenders Program (CLP).
Section 120.440 will be replaced with a new regulation (see discussion
immediately below), and Sec. 120.441 will be reserved for future use.
15. Delegated Authority Criteria. SBA proposes to add a new title
and text in place of Sec. 120.440 to include in the regulations the
criteria for delegated authority in the 7(a) Loan Program. With the
addition of this regulation on delegated authority in general, the
specific regulation at Sec. 120.451, How does a Lender become a PLP
Lender, is no longer necessary and will be removed and reserved for
future use.
16. When is SBA Released from Liability on its Guarantee? SBA
proposes to revise Sec. 120.524(b) to allow SBA to utilize all legal
means available when recovering any moneys paid on the guarantee plus
interest, including administrative offset and judicial remedies.
17. Suspension or Revocation from SBA's Secondary Market. SBA
proposes to revise Sec. 120.660 to require that any action taken under
this section be approved by both the Director, Office of Financial
Assistance (D/FA) and the Director, Office of Credit Risk Management
(D/OCRM). Authority is also proposed for suspension or revocation of a
Lender participating in SBA's Secondary Market based upon specific
regulatory action issued by a Lender's primary regulator or a going
concern opinion issued by the Lender's auditor. Finally, SBA proposes
to remove the reference to an obsolete form.
18. Removal of Board Overlap Restriction. SBA proposes to remove
language from Sec. 120.823(c)(5) that prohibits a CDC from having more
than one of its Directors employed by, or serving on, the Board of
Directors of any other non-CDC entity.
19. Removal of Reference to Members for CDC Boards of Directors.
SBA proposes to replace the term ``members'' with the term
``individuals'' in Sec. 120.823(d)(4)(ii), Loan Committee.
20. Case-by-Case Application to Make a 504 Loan Outside of a CDC's
Area of Operations. SBA proposes to replace the term ``District
Office'' in Sec. 120.839 with the term ``504 loan processing center.''
SBA also proposes to streamline the text in the introductory paragraph
of this section.
21. Ineligible Costs for 504 Loans. SBA proposes to replace the
term ``meeting the IRS definition of capital equipment'' in Sec.
120.884(e)(3) with ``having a remaining useful life of at least 10
years.''
22. Confidentiality of Reports, Risk Ratings and related
Confidential Information Disclosure Prohibitions. SBA proposes a
limited expansion of parties identified in Sec. 120.1060 as
``permitted parties'' who should be afforded access to, a lender's
Review/Exam Report information, Risk Rating, and Confidential
Information. Access to these permitted parties is granted only for the
purpose of assisting a lender in improving the SBA Lender's,
Intermediary's or Non-lending Technical Assistance Provider's (NTAP's)
SBA program operation in conjunction with SBA's Lender Oversight
Program and SBA's portfolio management.
23. Lender Oversight Fees. Due to the SBA's improved electronic
methods for oversight that allows for virtual Reviews and other
oversight activities to be conducted without an ``on-site'' visit, SBA
proposes to eliminate the distinction between ``on-site'' and ``off-
site'' in the fee components set forth in Sec. 120.1070. Consistent
with eliminating this distinction, the proposed rule would also provide
flexibility in how SBA allocates its costs for Reviews, Examinations,
Monitoring, or Other Lender Oversight Activities (e.g., allocating
actual costs assessed to each Lender versus apportioning costs by
portfolio size).
24. Grounds for Enforcement Actions--SBA Lenders. SBA proposes to
revise language to provide for consent to the appointment of a Receiver
and/or other relief by SBA Supervised Lenders (except Other Regulated
SBLCs) and by CDCs in Sec. 120.1400(a).
25. Types of Enforcement Actions--SBA Lenders. SBA proposes to
revise the language permitting SBA to initiate a request for
appointment of a Receiver of an SBA Supervised Lender in Sec.
120.1500(c)(3) and add language permitting SBA to initiate a request
for appointment of a Receiver of a CDC in Sec. 120.1500(e)(3).
26. General Procedures for Enforcement Actions Against SBA Lenders,
SBA Supervised Lenders, Other Regulated SBLCs, Management Officials,
Other Persons, Intermediaries, and NTAPs. SBA proposes to add language
regarding the procedures for appointment of a Receiver over a CDC or an
SBA Supervised Lender in Sec. Sec. 120.1600(a), 120.1600(a)(6), and
120.1600(b)(4).
27. First Lien Position 504 Loan (``FMLP'') Program. SBA proposes
to add language to Sec. 120.1707 to ensure that an allonge to the
First Lien Position 504 Loan Pool Guarantee Agreement, in form
acceptable to SBA, is executed with a transfer of a Seller's retained
interest in an FMLP Pool Loan.
28. Systemically Important Secondary Market Broker-Dealers (SISMBD)
Loan Program. SBA proposes to remove Sec. Sec. 120.1800-1900, Subpart
K, in its entirety to remove all references to the SISMBD Loan Program.
The program was established under the American Recovery and
Reinvestment Act (ARRA) in 2009 and the program authority expired on
February 16, 2013.
III. Section by Section Analysis
1. Section 115.19 Denial of liability. Under the current
regulation, the dollar threshold for determining when an increase in
the Contract or bond amounts may result in denial of liability as the
result of a material breach or a substantial regulatory violation is
25% or $100,000, whichever is less. Based on feedback from the surety
industry and other stakeholders, SBA has determined that the existing
threshold is outdated, and no longer reflects current industry
practices and this change is being made to align SBA requirements with
the prevailing industry practice, while managing the increased bond
liability to the Government. Currently, under Sec. 115.32(d), the
surety is required to notify SBA if any contract or bond increases in
the aggregate by 25% or $100,000, whichever is less. Further, if the
bond increases as a result of a single change order by 25% or $100,000,
whichever is less, the surety is required to obtain SBA's prior written
approval of the increase. Prevailing industry practice allows increases
to the contract and bond without prior notification to the surety. To
better align SBA requirements with that of the industry, while managing
the increased bond liability to the Government, this change would
eliminate the dollar threshold of $100,000, while retaining the 25%
threshold for purposes of denying liability under paragraphs (c)(1),
(d), and (e)(2) of Sec. 115.19.
2. Section 115.22 Quarterly Contract Completion Report. At present,
SBA does not receive a final accounting of fees due and paid by the
surety and principal on contracts that are successfully completed.
Consequently, SBA is unable to ensure that fees due the Government as a
result of an increase in the contract amount are paid in a timely
manner on contracts that do not default. To better track fee payments
and complement periodic on-site audits
[[Page 52598]]
at surety company locations, sureties participating in the SBA Surety
Bond Guarantee Program would be required under this provision to submit
a quarterly contract completion report within 45 days of the close of
each quarter, identifying completed contracts, any changes in contract
amount, and any related fees.
3. Section 115.30 Submission of Surety's guarantee application.
Section 115.30(d)(2) provides a streamlined Quick Bond Guarantee
Application and Agreement (SBA Form 990A) (Quick Bond) that is used in
the Prior Approval Program for smaller contract amounts. It complements
the surety industry practice of providing a shorter application for
smaller contract amounts, and has helped to address sureties'
perceptions about excessive paperwork in SBA's bond guarantee
application process. The Quick Bond has been widely accepted by
participating sureties.
The proposed rule would increase the Quick Bond eligible contract
limit from $250,000 to $400,000. Implementation of the higher contract
limit would increase the use of the Quick Bond and would provide access
to bonding for more small contractors. It would more closely conform to
the contract limits allowed in the abbreviated applications offered in
the surety industry, and would respond to sureties' requests to raise
the current limit.
Experience with the Quick Bond has been favorable at the $250,000
limit. Since its implementation in August of 2012, SBA has guaranteed
more than 1,500 bonds and only 27 defaults have occurred. If the
contract amount is increased, SBA would continue to closely monitor its
experience with the Quick Bond.
4. Section 115.32(d)(1) Notification and Approval. Under the
current regulation, a Prior Approval Surety must notify SBA of any
increases or decreases in the Contract or bond amount that aggregate
25% of $100,000, whichever is less, as soon as the Surety acquires
knowledge of the change, and also must obtain SBA's prior written
approval of an increase in the original bond amount as a result of a
single change order of at least 25% or $100,000, whichever is less. As
discussed above under Sec. 115.19, prevailing industry practice allows
increases to the contract and bond without prior notification to the
surety. To better align SBA requirements with that of the industry,
while managing the increased bond liability to the Government, this
change would eliminate the dollar threshold of $100,000 while retaining
the 25% threshold.
5. Section 115.60 Selection and admission of PSB Sureties. SBA is
proposing to amend this provision to provide that, for a period of nine
months following admission into the PSB Program, the Surety must obtain
SBA's prior written approval before executing a bond greater than $2
million. With the increase in the guarantee percentage to up to 90% (as
discussed below), SBA wants the opportunity to evaluate the Surety's
underwriting and claims and recovery processes to be assured that the
PSB Surety has demonstrated a successful period of operations. At its
discretion, SBA may extend this period to further evaluate the Surety.
6. Section 115.67(a) Increases. Under the current regulation, a
Preferred Surety Bond Surety must pay the additional fees due from the
Principal and the Surety on increases aggregating 25% of the contract
or bond amount or $100,000, whichever is less. For consistency with the
changes proposed to Sec. Sec. 115.19 and 115.32, the proposed rule
would eliminate the dollar threshold while retaining the 25% threshold.
7. Section 115.68 Guarantee Percentage. There are two SBA surety
bond guarantee programs: The Prior Approval Program and the Preferred
Surety Bond (PSB) Program. Under the Prior Approval Program, SBA
approves each bond guarantee individually, and guarantees between 80%
and 90% of a bond issued, depending on the status of the contractor or
the amount of the Contract at the time the bond was executed. Under the
PSB Program, sureties are authorized to issue, monitor and service
bonds without prior SBA approval, but the SBA currently guarantees only
up to 70% of the bond. Over the past several years, SBA has experienced
a sharp decline in the PSB Program activity due to the lower guarantee
rate. To increase participation in the PSB Program, and thereby assist
more small businesses, Congress amended section 411(c)(1) of the Small
Business Investment Act of 1958 (15 U.S.C. 694b(c)(1)), to authorize
SBA to guarantee up to 90% in the PSB Program. The effective date of
this increase was delayed until November 25, 2016, to allow time for
the necessary rulemaking.
Accordingly, SBA is proposing to amend Sec. 115.68 to adopt the
same guarantee percentages for the PSB Program that are provided in the
Prior Approval Program under Sec. 115.31:
(1) SBA would reimburse a PSB Surety for 90% of the Loss incurred
and paid if: (i) The total amount of the Contract at the time of
Execution of the bond is $100,000 or less. Like the Prior Approval
Program, when the Contract amount increases to more than $100,000 after
bond Execution, the guarantee percentage would decrease by one
percentage point for each $5,000 of increase or part thereof, but would
not decrease below 80%. If the Contract decreases to $100,000, or less,
after bond Execution, the guarantee percentage would increase to 90% if
the Surety provides SBA with evidence supporting the decrease and any
other information or documents requested; or (ii) the bond was issued
on behalf of a small business owned and controlled by socially and
economically disadvantaged individuals, on behalf of a qualified
HUBZone small business concern, or on behalf of a small business owned
and controlled by Veterans or a small business owned and controlled by
Service-Disabled Veterans;
(2) SBA would reimburse a PSB Surety in an amount not to exceed 80%
of the Loss incurred and paid on bond for Contracts in excess of
$100,000 which are executed on behalf of non-disadvantaged concerns;
and
(3) If the Contract or Order amount is increased above the
Applicable Statutory Limit (as defined in Sec. 115.10) after bond
Execution, SBA's share of the Loss is limited to that percentage of the
increased Contract or Order amount that the Applicable Statutory Limit
represents multiplied by the guarantee percentage approved by SBA. For
example, if a contract amount increases to $6,800,000, SBA's share of
the loss under an 80% guarantee is limited to 76.5% (6,500,000/
6,800,000 = 95.6% x 80% = 76.5%.)
8. Section 120.110 What businesses are ineligible for SBA business
loans? SBA proposes to remove the existing Sec. 120.110(l) that
identifies consumer and marketing cooperatives as ineligible types of
businesses for SBA financial assistance. Cooperatives are a form of
organization and there is no reason why cooperatives should be excluded
from eligibility. As such, all cooperatives may be eligible for SBA
financing, provided they comply with all other Loan Program
Requirements.
9. Section 120.111 What conditions must an Eligible Passive Company
satisfy? SBA proposes to amend two paragraphs in Sec. 120.111:
(1) Introductory paragraph. Presently, the Eligible Passive Company
(EPC) may only use loan proceeds ``to acquire or lease, and/or improve
or renovate, real or personal property (including eligible
refinancing), that it leases to one or more Operating Companies for
[[Page 52599]]
conducting the Operating Company's business.'' SBA proposes to include
language to permit SBA loan proceeds to be used to finance a change of
ownership between existing owners of the Eligible Passive Company
(EPC), provided the transaction meets all conditions described in Sec.
120.111.
(2) Paragraph (a)(3). The lease between the EPC and the OC. SBA
proposes to clarify that rent or lease payments made by the OC to the
EPC cannot exceed the amount necessary to make the loan payment to the
lender, and an additional amount to cover the EPC's direct expenses of
holding the property, such as maintenance, insurance and property
taxes.
(3) Paragraph (a)(6). Who must guarantee the loan. SBA proposes to
clarify that owners of 20 percent or more of either the EPC or the OC
are required to personally guarantee the loan. Also, for consistency
with Sec. 120.160(a), SBA proposes to add language to Sec.
120.111(a)(6) to provide that SBA may, in its discretion and in
consultation with the Lender, require the personal guarantee of owners
with less than 20% ownership of the EPC or the OC. Additionally, SBA
proposes to add language to provide that SBA may require the personal
guarantee of those owning less than 5% ownership when circumstances
warrant.
10. Section 120.130 Restrictions on uses of proceeds. SBA proposes
to revise Sec. 120.130 to add a new paragraph (e) and redesignate
paragraphs (e) and (f) as paragraphs (f) and (g), respectively. The new
paragraph (e) will include the text currently found in Sec.
120.160(d), Taxes. The current text in Sec. 120.160(d) prohibit the
use of proceeds for payment of past-due Federal or state withholding
taxes, which is more applicable to Sec. 120.130. SBA also proposes
some minor modifications to the language to clarify the restriction.
SBA also proposes to revise newly designated paragraph (g) to remove
the reference ``Sec. 120.203'' and replace it with ``Sec. 120.202''.
The regulation Sec. 120.203 cited in this section was removed in 1996.
The correction to remove the reference to Sec. 120.203 and replace it
with the reference to Sec. 120.202 in Sec. 120.130(f) was not made at
the time and this oversight is being corrected here. The redesignation
of paragraphs (e) and (f) to (f) and (g) in the section improves the
flow with the inclusion of the new Sec. 120.130(e).
11. Section 120.160(a) Loan conditions. SBA proposes to add the
word ``generally'' to the last sentence of Sec. 120.160(a) to clarify
that SBA may require a personal guarantee of an owner who holds less
than 5% when the circumstances warrant, such as Cooperatives where no
one member may have an ownership interest of at least 5%.
12. Section 120.194 Use of computer forms. SBA proposes to remove
the regulation at Sec. 120.194 in its entirety as it is outdated. The
regulation will be reserved for future use.
13. Section 120.214 What conditions apply for variable interest
rates? The current regulation governing variable interest rates in
Sec. 120.214 provides that, when a Lender uses the prime or London
Interbank Offered Rate (LIBOR) rate as the base rate in a variable
interest rate loan, the base rate will be ``that which is in effect on
the first business day of the month, as printed in a national financial
newspaper published each business day.'' (Sec. 120.214(c)) Further,
the current regulation also provides that the ``first change in the
variable rate may occur on the first calendar day of the month
following initial disbursement using the base rate (see paragraph (c)
of this section) in effect on the first business day of the month.''
(Sec. 120.214(a)) SBA proposes to revise the language in Sec. Sec.
120.214(a) and (c) to change when the base rate is determined and to
permit adjustments in the variable interest rate other than just on the
first business day of the month, provided the changes occur no more
frequently than monthly.
14. Section 120.220 Fees that Lender pays SBA. SBA proposes to add
a new paragraph Sec. 120.220(a)(3) to incorporate into the regulations
the statutory waiver of the up-front guaranty fee for SBA Express loans
made to businesses owned and controlled by veterans and/or spouses of
veterans in fiscal years when the subsidy rate for the 7(a) program is
zero, as set forth in section 7(a)(31) of the Small Business Act (15
U.S.C. 636(a)(31)). The conditions a business must meet to qualify for
this fee waiver will be explained in SBA Loan Program Requirements.
In Sec. 120.220(b), in an effort to incorporate advances in
technology, SBA proposes to update the regulation to advise Lenders to
pay the guaranty fee electronically and to revise the timeframe within
which a Lender must pay the guaranty fee to SBA for loans with a
maturity of 12 months or less (``short-term loans''). SBA proposes to
revise the timing of payment of the fee on a short-term loan from the
time of application to within ten business days of SBA's approval of
the loan. The current requirement was implemented when Lenders paid
fees using checks. Currently, fees are paid electronically through
Pay.gov. Requiring payment of the fee with the application for guaranty
on short-term loans creates a bottleneck that delays the processing
center's turn-around time for these loans.
Given the longer timeframe for the Lender to pay the fee, SBA also
proposes to remove the first two sentences of Sec. 120.220(c), which
state when SBA will refund the guaranty fee paid on a short-term loan.
With the additional time provided for payment of the fee, there will be
no need for refunds.
15. Section 120.221 Fees which the Lender may collect from a loan
applicant. SBA proposes to add clarifying language to this section in
an introductory paragraph explaining that, unless otherwise permitted
by SBA Loan Program Requirements (e.g., the guaranty fee under Sec.
120.220), the fees listed in Sec. 120.221 are the only fees a lender
is permitted to charge and collect from an Applicant or Borrower. SBA
also proposes to remove the current language in Sec. 120.221(e)
because it incorrectly refers to a prohibited fee (``pre-payment
fees''). SBA proposes to move the language that permits Lenders to
collect fees for legal services presently found in Sec. 120.222(e) to
Sec. 120.221(e). By making these changes, the guidance on permissible
fees a Lender may charge and collect from an Applicant or Borrower will
be contained in one regulation in an effort to reduce confusion.
16. Section 120.222 Fees which the Lender or Associate may not
collect from the Borrower or share with third parties. SBA proposes to
retitle Sec. 120.222 to read ``Prohibition on sharing premiums for
secondary market sales.'' SBA also proposes to remove paragraphs (a),
(b), (c), and (e), and revise the text of paragraph (d). The removal of
the fees currently included in Sec. 120.222(a), (b), and (c) does not
mean that Lenders will now be permitted to charge these fees. On the
contrary, the proposal to remove the fees from Sec. 120.222 in
conjunction with the proposed changes to Sec. 120.221 are intended to
place the guidance on allowable fees in a single regulation. Unless
otherwise permitted by SBA Loan Program Requirements, any fee not
identified in Sec. 120.221 is prohibited. SBA proposes to retain the
prohibition on the sharing of secondary market fees in Sec. 120.222
for consistency with 13 CFR 103.5(c), which prohibits a lender from
sharing any secondary market premium with a lender service provider.
17. Section 120.394 What are the eligible uses of proceeds? SBA
proposes to increase the regulatory limitation on how much of the
proceeds of a line of credit under the Builder's Loan Program can be
used for land acquisition from
[[Page 52600]]
20% to 33%. SBA recognizes that the current limitation is reflective of
limits imposed in 1977, and has not allowed for increases due to the
passage of time and increases in land and development costs.
18. Section 120.410 Requirements for all participating Lenders. SBA
proposes to replace the term ``Good Standing,'' as it relates to a
Lender's status with its Federal Financial Institution Regulator, with
``considered Satisfactory by its Federal Financial Institution
Regulator'' (FFIR) in paragraph (e) to better align with terminology
used by the FFIRs. Finally, given the diminished distinction between
``on-site'' and ``off-site'' reviews due to incorporation of virtual
methods for oversight in SBA's Revised Risk-Based Review Protocol, SBA
proposes to remove the references to ``on-site'' reviews/examinations
in Sec. 120.410(a)(2) (and in all other regulations) while retaining
the term ``review/examination assessments.''
19. Section 120.424 What are basic conditions a Lender must meet to
securitize? In paragraph (b), SBA proposes to remove the term ``on-
site'' while retaining the term ``review/examination assessments'' in
this section.
20. Section 120.433 What are SBA's other requirements for sales and
sales of participating interests? In paragraph (b), SBA proposes to
remove the term ``on-site'' while retaining the term ``review/
examination assessments'' in this section.
21. Section 120.434 What are SBA's requirements for loan pledges?
In paragraph (c), SBA proposes to remove the term ``on-site'' while
retaining the term ``review/examination assessments'' in this section.
22. Sections 120.440 and 120.441 The Certified Lenders Program
(``CLP''); replaced with new Delegated Authority section. SBA proposes
to remove the title and all language in Sec. Sec. 120.440 and 120.441,
The Certified Lenders Program, as implementation of newer, more
efficient methods of processing, closing, servicing, and liquidating
have made this program unnecessary and obsolete. Beginning on the
effective date of the final rule, the CLP would be terminated.
SBA also proposes to add a new heading before Sec. 120.440 that
reads ``Delegated Authority Criteria'' and to add new language in Sec.
120.440 that sets forth the criteria for Lenders when applying for
initial approval or renewal of delegated authority in the 7(a) Loan
Program. These criteria are essentially identical to the criteria
currently included in SBA's Standard Operating Procedure (SOP) 50 10
5(H), subpart A for the PLP, SBA Express and Export Express Programs.
Under this new provision, SBA, in its discretion, would consider
whether the Lender:
(a) Has the continuing ability to evaluate, process, close,
disburse, service, liquidate and litigate SBA loans. This includes the
ability to develop and analyze complete loan packages. SBA may consider
the experience and capability of Lender's management and staff.
(b) Has satisfactory SBA performance (as defined in Sec.
120.410(a)(2));
(c) Is in compliance with SBA Loan Program Requirements (e.g., Form
1502 reporting, timely payment of all fees to SBA);
(d) Has completed to SBA's satisfaction all required corrective
actions;
(e) Is subject to any enforcement action, order or agreement with
other regulators or the presence of other regulatory concerns as
determined by SBA; and
(f) Whether Lender exhibits other risk factors (e.g., has rapid
growth; low SBA activity; SBA loan volume; Lender, an officer or
director is under investigation or indictment).
With respect to ``low SBA activity,'' SBA considers making 5 SBA-
guaranteed loans or less in a 2 year period to be low activity.
Additionally, with respect to SBA loan volume, SBA would look at the
Lender's proportion of SBA lending relative to the Lender's total loan
portfolio.
Section 120.441 will be reserved for future use.
23. Section 120.451 How does a Lender become a PLP Lender? As a
result of replacing Sec. 120.440 with a new regulation setting out the
criteria for delegated authority, the existing regulation at Sec.
120.451 would no longer be necessary and would be removed and reserved
for future use.
24. Section 120.524 When is SBA released from liability on its
guarantee? SBA proposes to clarify that its rights to collect monies
paid on a guarantee from which SBA determines it has been released of
liability include judicial remedies and the right to offset funds due
the Lender for the guaranty purchase of another loan. SBA's right to
seek these remedies arises under contract law as interpreted by the
courts.
25. Section 120.630 Qualifications to be a Pool Assembler. In
paragraph (a)(4) SBA proposes to replace the term ``good standing''
with ``satisfactory'' when it relates to other federal regulators and
SBA proposes to update the reference to the National Association of
Securities Dealers (NASD) and replace it with the Financial Industry
Regulatory Authority (FINRA), as NASD no longer exists. SBA also
proposes to remove the term ``on-site'' while retaining the term
``review/examination assessments'' in subparagraph (a)(5).
26. Section 120.660 Suspension or revocation. SBA proposes to
revise Sec. 120.660 to require that any action taken under this
section be approved by both the D/FA and the D/OCRM. SBA proposes to
add a 120-day limit to the proposed suspension period to give
participants sufficient time to resolve any correctable issues.
Additionally, SBA proposes to reduce the timeframe for a revocation
under this section to no more than two (2) years. SBA also proposes to
identify regulatory orders or supervisory actions brought by a Lender's
primary regulator or by SBA or a going concern opinion by the Lender's
auditor as additional reasons for which SBA may suspend or revoke a
Lender's privilege to participate in SBA's Secondary Market. The
issuance of any regulatory order or supervisory action by the Lender's
primary regulator will require notice to SBA within 5 business days (or
as soon as practicable thereafter) to the D/OCRM and D/FA. In addition,
SBA proposes to add a new paragraph (d) to this regulation to provide
for early termination of a suspension or revocation under this section,
in the D/FA and the D/OCRM's discretion, if termination is warranted.
SBA also proposes to eliminate the reference to SBA Form 1085
within this section as SBA Form 1085 is obsolete.
27. Section 120.710(e)(1) What Must an Intermediary Demonstrate to
Get a Reduction in the Loan Loss Reserve Fund? SBA proposes to remove
the reference to ``on-site'' reviews or examinations, while retaining
the term ``review/examination assessments.'' As SBA increases its use
and application of electronic technology in lender oversight and
reviews and examinations, the ``on-site'' review language is no longer
generally applicable. The proposed language reflects a more current
representation of reviews and examinations.
28. Section 120.812 Probationary period for newly certified CDCs.
In paragraph (c), SBA proposes to remove the term ``on-site'' while
retaining the term ``review/examination assessments.''
29. Section 120.816 CDC non-profit status and good standing. SBA
proposes to remove the term ``on-site'' while retaining the term
``review/examination assessments'' in paragraph (c).
30. Section 120.823 CDC Board of Directors. SBA proposes to revise
[[Page 52601]]
Sec. 120.823(c)(5) to eliminate the language in this rule that
currently prevents more than one Board member of a CDC from being
employed by, or serving as a Director on the Board of, other entities,
except for civic or charitable organizations not involved in financial
services or economic development activities. This provision was
intended to apply to associations not covered by 13 CFR 120.820, under
which a CDC may be affiliated, including through common board members,
with the entities described in that section. However, Sec.
120.823(c)(5) has created confusion among the CDCs with respect to what
other entities a CDC Director may be employed by or associated with as
a Director. SBA has reconsidered this provision and determined that the
affiliation restrictions set forth in Sec. 120.820 sufficiently limit
the ability of another entity to control the CDC. SBA will retain the
sentence in this provision that references Sec. 120.851(b) to
reinforce the prohibition against a CDC Board member from serving on
the Board of another CDC.
SBA also proposes to insert the word ``individuals'' in place of
``members'' to clarify in Sec. 120.823(d)(4)(ii)(C) that individuals
serving on the loan committee of a CDC do not have to be Members of the
CDC or the CDC's Board. SBA no longer requires a CDC to have a
membership and some CDC's were confused by the use of the term
``member'' in this section. Therefore, SBA intends to change the word
``member'' to ``individual''.
31. Section 120.839 Case-by-case application to make a 504 loan
outside of a CDC's Area of Operations. SBA proposes to replace the term
``District Offices'' in this Section with ``504 loan processing
center'' to reflect the SBA office that processes 504 loan
applications. A revision to the regulation is needed in order to
reflect the current protocol that the 504 loan processing center, not
the District Office, submits its recommendation to the D/FA or
designee, along with the application and supporting materials for the
final decision if the applicant CDC meets the specific criteria to be
authorized to make a loan outside of its stated Area of Operations. SBA
also proposes to remove the term ``on-site'' while retaining ``review/
examination assessments'' in this section.
32. Section 120.841(c) CDC Reviews. SBA proposes to remove the term
``on-site'' while retaining the term ``review/examination assessments''
in Sec. 120.841(c).
33. Section 120.884 Ineligible costs for 504 loans. SBA proposes to
define heavy duty construction equipment in Sec. 120.884(e)(3) without
reference to the IRS definition and to add the requirement that the
equipment have a remaining useful life of at least 10 years. SBA
currently requires that heavy duty construction equipment must be
integral to the business' operations and meet the IRS definition of
capital equipment. IRS no longer publishes a definition for ``capital
equipment.''
34. Section 120.1025 Off-site reviews and monitoring. SBA proposes
to remove specific reference to ``off-site'' regarding reviews and
monitoring in Sec. 120.1025, including in the title, and replace it
with ``monitoring''.
35. Section 120.1050 On-site reviews and examinations. SBA proposes
to remove specific reference to ``on-site'' regarding reviews and
examinations in Sec. 120.1050, including in the title.
36. Section 120.1051 Frequency of on-site reviews and examinations.
SBA proposes to remove specific reference to ``on-site'' regarding
reviews and examinations in Sec. 120.1051, including in the title. SBA
proposes to remove specific reference to ``off-site review/monitoring''
in paragraph (a) and replace it with ``results of monitoring''.
37. Section 120.1060 Confidentiality of Reports, Risk Ratings and
related Confidential Information. SBA proposes a limited expansion of
its definition in Sec. 120.1060 of ``permitted parties'' who
demonstrate a legitimate need to know a lender's Review/Exam Report
information, Risk Rating, and Confidential Information for the purpose
of assisting a lender in improving the SBA Lender's, Intermediary's or
NTAP's SBA program operations in conjunction with SBA's Lender
Oversight Program and SBA's portfolio management. This limited
expansion of permitted parties may include the lender's parent entity,
directors, auditors and those lender consultants under written contract
specifically to assist the Lender in addressing SBA Findings and
Corrective Actions Required to SBA's satisfaction. Consultants do not
include Lender Service Providers. The consultant contract must provide
for both (1) the consultant's agreement to abide by the disclosure
prohibition in Sec. 120.1060(b); and (2) agreement not to use the
Report, Risk Rating, and Confidential Information for any other purpose
than to assist Lender in addressing SBA Findings and Corrective
Actions. This expansion may improve an SBA Lender's, Intermediary's or
NTAP's ability to address SBA Findings and Corrective Actions or make
other necessary improvements within their SBA operations. The change
codifies SBA practice of approving disclosure of a lender's Report,
Risk Rating, and Confidential Information for this group, obviating the
need for case-by-case approval for these parties going forward.
38. Section 120.1070 Lender oversight fees. With the advent of new
technologies, generally less costly and less burdensome virtual reviews
such as Analytical and Targeted Reviews may cover much of what was
previously performed within the scope of on-site reviews, diminishing
the distinction between ``off-site'' and ``on-site'' reviews.
Therefore, SBA is proposing to refine Sec. 120.1070 to delete the
distinctions based on ``on-site'' and ``off-site,'' and to categorize
the fee components only as Examinations, Reviews, Monitoring, and Other
Lender Oversight Activities.
With respect to Reviews, under current regulations, SBA charges
Lenders a fee for the following types of Reviews, including but not
limited to, PARRiS Full Reviews, PARRiS Analytical Reviews, Targeted
Reviews, and Delegated Authority Reviews. This fee is assessed based on
the cost that SBA incurs under its contract for these Reviews. Under
the proposed rule, SBA is specifying that SBA can charge a Lender the
actual cost for Lender Loan Reviews (e.g., Secondary Market Loan
Reviews) and corrective action assessments, which is consistent with
SBA's policy that Lenders that represent increased risk and warrant
additional oversight should bear the expense of that oversight rather
than that expense being apportioned to all Lenders.
The proposed section would also provide that SBA has discretion in
how it allocates the costs to Lenders to allow contracting flexibility
in how SBA pays for this cost. It would specify, consistent with SBA's
current practice and current contracts, that in general, where the
costs that SBA incurs for the oversight activity are specific to a
Lender, SBA will charge that Lender for the actual costs and, where the
costs that SBA incurs for the oversight activity are not sufficiently
specific to a particular Lender but may be a flat fee paid to a vendor,
SBA will charge a Lender based on that Lender's portion of SBA
guarantees in the portfolio or segment of the portfolio the activity
covers. For example, under its current review contract, SBA pays its
contractor for each specific Lender's Full Review and SBA passes that
cost along to the Lender for which the Review was conducted. Under the
L/LMS contract, SBA pays its contractor a flat fee for providing L/LMS
services that cover all Lenders and this amount is apportioned among
all Lenders based on portfolio size.
[[Page 52602]]
39. Section 120.1400(a) Grounds for enforcement actions--SBA
Lenders. SBA proposes to amend Sec. 120.1400(a) to provide that by
making SBA 7(a) guaranteed loans or SBA 504 loans after a certain date,
SBA Supervised Lenders (except Other Regulated SBLCs) or CDCs, as
applicable, consent to the appointment of a Receiver and such
injunctive or other equitable relief as appropriate, and waive in
advance any defenses to such relief as sought by SBA, in connection
with an enforcement action. SBA is conditioning its guarantee of 7(a)
loans made by SBA Supervised Lenders (except Other Regulated SBLCs) and
504 debentures after a certain date on consent to this relief in an
enforcement action because the injury to SBA and its supervision and
regulatory oversight of the SBA Supervised Lender or CDC due to the SBA
Supervised Lender's or CDC's default under its agreement(s) with SBA
would be irreparable and the amount of damage would be difficult to
ascertain, making this relief necessary and required. A consent to
receivership is not without precedent in other federal agency practice
and has been upheld by the courts as valid and legally enforceable.
See, e.g., U.S. v. Mountain Village Company, 424 F. Supp. 822 (D. Mass.
1976).
40. Section 120.1500 Types of enforcement actions--SBA Lenders. SBA
proposes to revise Sec. 120.1500(c)(3) and to add Sec. 120.1500(e)(3)
to clarify when SBA may initiate a request for appointment of a
Receiver to administer and operate an SBA Supervised Lender and to
permit SBA to initiate a request for appointment of a Receiver of a
CDC.
41. Section 120.1600 General procedures for enforcement actions
against SBA Lenders, SBA Supervised Lenders, Other Regulated Small
Business Lending Companies (SBLCs), Management Officials, Other
Persons, Intermediaries, and Non-Lending Technical Assistance Providers
(NTAPs). SBA proposes to add language into Sec. Sec. 120.1600(a),
120.1600(a)(6) and 120.1600(b)(4) providing that if SBA undertakes the
appointment of a Receiver for a CDC or an SBA Supervised Lender, SBA
will follow the applicable procedures under federal law to obtain such
remedies and to enforce the CDC's or SBA Supervised Lender's consent
and waiver in advance to those remedies.
42. Section 120.1703 Qualifications to be a Pool Originator. In
paragraph (a)(4) SBA proposes to replace the term ``good standing''
with ``Satisfactory'' when it relates to other federal regulators.
43. Section 120.1707 Seller's retained Loan Interest. SBA is
currently using an allonge to the First Lien Position 504 Loan Pool
Guarantee Agreement, as opposed to requiring the execution of a new
First Lien Position 504 Loan Pool Guarantee Agreement, to substantiate
the transfer of a Seller's interest in an FMLP Pool Loan. The use of an
allonge will require the purchaser of a Seller's retained interest to
assume the original responsibilities of the Seller with regard to the
FMLP Pool Loan. The allonge must be in form acceptable to SBA and the
purchaser must acknowledge, assume and accept all of the original
obligations and responsibilities of the Seller under the initial or
subsequent First Lien Position 504 Loan Pool Guarantee Agreement. The
proposed change will conform the rule to the current practice.
44. Subpart K--Establishment of an SBA Direct Loan Program for
Systemically Important Secondary Market Broker-Dealers (SISMBD Loan
Program). Since the SISMBD Loan Program expired on February 16, 2013,
and was not extended by statute, SBA proposes to remove this subpart in
its entirety.
Compliance With Executive Orders 13563, 12866, 12988, 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
proposed rule is not a ``significant'' regulatory action for the
purposes of Executive Order 12866. In the interest of transparency,
however, SBA has drafted a Regulatory Impact Analysis for the public's
information in the next section. This is not a major rule under the
Congressional Review Act, 5 U.S.C. 800.
Regulatory Impact Analysis
1. Is there a need for this regulatory action?
The Agency believes it needs to streamline and reduce regulatory
burdens to facilitate robust participation in the business loan and
surety bond programs that assist small and underserved U.S. businesses.
2. What are the potential benefits and costs of this regulatory
action?
As stated above, the potential benefits of this proposed rule are
based on its elimination of unnecessary participation burdens.
Participants will benefit from clear and simpler regulatory directions
that enable them to provide small business loans and bonds in a more
efficient and cost effective manner.
3. What alternatives have been considered?
One ``alternative'' would be to eliminate even more regulatory
burdens. The Agency will consider public comment and suggestions on how
that can be done responsibly without substantially increasing the risk
of waste, fraud, or abuse of the programs.
Executive Order 13563
A description of the need for this regulatory action and benefits
and costs associated with this action, including possible
distributional impacts that relate to Executive Order 13563, are
included above in the Regulatory Impact Analysis under Executive Order
12866.
SBA's Business Loan Programs operate through the Agency's lending
partners, which are Surety Bond Companies for the Surety Bond Guarantee
Program, 7(a) Lenders for the 7(a) Loan Program, third party lenders,
CDCs for the 504 Loan Program, and Microloan Intermediaries for the
Microloan Program. The Agency has participated in public forums and
meetings which have included outreach to hundreds of its lending
partners to seek valuable insight, guidance, and suggestions for
program reform.
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, eliminates ambiguity, and reduce burden. The action does
not have retroactive or preemptive effect.
Executive Order 13132
SBA has determined that this proposed rule 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. Therefore,
for the purposes of Executive Order 13132, SBA has determined that this
proposed rule has no federalism implications warranting preparation of
a federalism assessment.
Paperwork Reduction Act, 44 U.S.C., Ch. 35
SBA has determined that this proposed rule imposes additional
reporting requirements under the Paperwork Reduction Act (PRA). As
described above, SBA proposes to require all participating sureties to
notify SBA of all contracts that were successfully completed on a
quarterly basis. The public is invited to comment on this proposed new
report and to
[[Page 52603]]
submit any comments by the deadline stated in the DATES section of this
document to: SBA Desk Officer, Office of Information and Regulatory
Affairs, Office of Management and Budget, Room 10202, 725 17th Street
NW., Washington, DC 20503.
SBA invites comments 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 collection
of information, including the validity of the methodology and
assumptions used; (3) 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. SBA will submit the proposed form and
other documents required under the Paperwork Reduction Act to OMB for
review and approval.
A summary description of this information collection, the
respondents, and the estimate of the annual hour burden resulting from
this new process is provided below. Included in the estimate is the
time for reviewing instructions, searching existing data sources,
gathering information needed, and completing and reviewing the
responses.
Title: Quarterly Contract Completion Report.
Description: The Quarterly Contract Completion Report would be
submitted by all participating surety companies to provide SBA with
information about successfully completed contracts. The information
reported would include the Surety Bond Guarantee number, the name of
the Principal, the original Contract dollar amount, the revised
Contract dollar amount (if applicable), the date of Contract
completion, and a fee recap. Reports would be due to SBA within 45 days
of each fiscal quarter.
OMB Control Number: New Collection.
Description of and Estimated Number of Respondents: The proposed
new collection would be submitted by the surety companies that
participate in the SBG Program. The burden estimate for this
requirement is based on the 23 current participants.
Estimated Number of Responses: Each of the estimated 23 sureties
would be required to submit the report to SBA 4 times per year, for a
total of 92 responses.
Estimated Response Time: It is estimated that each surety would
need approximately 1 hour to complete the proposed report.
Total Estimated Annual Hour Burden: 92 hours.
Estimated Annual Cost Burden: $4,604.
Regulatory Flexibility Act, 5 U.S.C. 601-612
When an agency issues a rulemaking proposal, the Regulatory
Flexibility Act (RFA), 5 U.S.C. 601-612, requires the agency to
``prepare and make available for public comment an initial regulatory
analysis'' which will ``describe the impact of the proposed rule on
small entities.'' Section 605 of the RFA allows an agency to certify a
rule, in lieu of preparing an analysis, if the proposed rulemaking is
not expected to have a significant economic impact on a substantial
number of small entities. There are 23 sureties (none of them small
entities) that participate in the SBG Program, and no part of this rule
would impose any significant cost or burden on them. Although the
rulemaking will impact all of the approximately 5,000 7(a) Lenders
(some of which are small), all of the approximately 250 CDCs (all of
which are small), and 145 Microloan Intermediaries (most of which are
small) SBA does not believe the impact will be significant. The
proposed rule will reduce the burden of the Agency's lending partners
because they choose their own level of program participation (i.e.,
7(a) Lenders and CDCs are not required to process more loan
applications simply because there is a reduced burden for small
businesses to apply for a business loan). Therefore the proposed
modernization of certain program participation requirements would not
have a substantial economic impact or cost on the small business
borrower, lender, or CDC, and in fact, may reduce costs to lender
participants.
SBA believes that this proposed rule encompasses best practice
guidance that aligns with the Agency's mission to increase access to
capital for small businesses and facilitate American job preservation
and creation with the removal of unnecessary regulatory requirements. A
review of the summary and preamble above will provide more detailed
explanations discussing the specific improvements that will reduce
regulatory burdens and encourage increased program participation. For
these reasons, SBA has determined that there is no negative impact on a
substantial number of small entities. SBA invites comment from members
of the public who believe there will be a significant impact on
sureties, microloan intermediaries, participant lenders, CDCs, or small
businesses.
List of Subjects
13 CFR Part 115
Claims, Reporting and recordkeeping requirements, Small businesses,
Surety bonds.
13 CFR Part 120
Community development, Equal employment opportunity, Loan
programs--business, Reporting and recordkeeping requirements, Small
businesses.
For the reasons stated in the preamble, SBA proposes to amend 13
CFR parts 115 and 120 as follows:
PART 115--SURETY BOND GUARANTEE
0
1. The authority citation for part 115 continues to read as follows:
Authority: 5 U.S.C. app 3; 15 U.S.C. 687b, 687c, 694a, 694b
note; and Pub. L. 110-246, Sec. 12079, 122 Stat. 1651.
Sec. 115.19 [Amended]
0
2. Amend Sec. 115.19 by removing the phrase ``or $100,000, whichever
is less'' in paragraph (c)(1), the second sentence of paragraph (d),
and paragraph (e)(2).
0
3. Add Sec. 115.22 to subpart A to read as follows:
Sec. 115.22 Quarterly Contract Completion Report.
The Surety must submit a Quarterly Contract Completion Report
within 45 days after the close of each fiscal year quarter ending
December 31, March 31, June 30, and September 30, that identifies each
contract successfully completed during the quarter.
The report shall include:
(a) The SBA Surety Bond Guarantee Number,
(b) Name of the Principal,
(c) The original Contract Dollar Amount,
(d) The revised Contract Dollar Amount (if applicable),
(e) The date of Contract completion, and
(f) A summary specifying the fee amounts paid to SBA by the Surety
and Principal, the fee amounts due to SBA as a result of any increases
in the Contract amount, and the fee amounts to be refunded to the
Principal or rebated to the Surety as a result of any decreases in the
Contract amount.
Sec. 115.30 [Amended]
0
4. Amend Sec. 115.30 by removing ``$250,000'' from the second sentence
of paragraph (d)(2)(i) and adding in its place ``$400,000''.
[[Page 52604]]
Sec. 115.32 [Amended]
0
5. Amend Sec. 115.32 by removing ``or $100,000, whichever is less''
from the first and second sentences of paragraph (d)(1).
0
6. Amend Sec. 115.60 by adding third and fourth sentences at the end
of paragraph (b) to read as follows:
Sec. 115.60 Selection and admission of PSB Sureties.
* * * * *
(b) * * * For a period of nine months following admission to the
PSB program, the Surety must obtain SBA's prior written approval before
executing a bond greater than $2 million so that SBA may evaluate the
Surety's performance in its underwriting and claims and recovery
functions. At the end of this nine month period, SBA may in its
discretion extend this period to allow SBA to further evaluate the
Surety's performance.
Sec. 115.67 [Amended]
0
7. Amend Sec. 115.67 by removing the phrase ``or $100,000, whichever
is less'' from the second sentence of paragraph (a).
0
8. Revise Sec. 115.68 to read as follows:
Sec. 115.68 Guarantee percentage.
SBA reimburses a PSB Surety in the same percentages and under the
same terms as set forth in Sec. 115.31.
PART 120--BUSINESS LOANS
0
9. The authority citation for 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); Pub. L.
111-5, 123 Stat. 115; Pub. L. 111-240, 124 Stat. 2504; Pub. L. 114-
38, 129 Stat. 437.
Sec. 120.110 [Amended]
0
10. Remove and reserve Sec. 120.110(l).
0
11. Amend Sec. 120.111 by revising the introductory text and
paragraphs (a)(3) and (6) to read as follows:
Sec. 120.111 What conditions must an Eligible Passive Company
satisfy?
An Eligible Passive Company must use loan proceeds to either
acquire or lease, and/or improve or renovate, real or personal property
(including eligible refinancing), that it leases to one or more
Operating Companies for conducting the Operating Company's business
(references to Operating Company in paragraphs (a) and (b) of this
section mean each Operating Company) or to finance a change of
ownership between the existing owners of the Eligible Passive Company.
Any ownership structure or legal form may qualify as an Eligible
Passive Company.
(a) * * *
(3) The lease between the Eligible Passive Company and the
Operating Company must be in writing and must be subordinated to SBA's
mortgage, trust deed lien, or security interest on the property. Also,
the Eligible Passive Company (as landlord) must furnish as collateral
for the loan an assignment of all rents paid under the lease. The rent
or lease payments cannot exceed the amount necessary to make the loan
payment to the lender, and an additional amount to cover the EPC's
direct expenses of holding the property, such as maintenance, insurance
and property taxes;
* * * * *
(6) Each holder of an ownership interest constituting at least 20
percent of either the Eligible Passive Company or the Operating Company
must guarantee the loan (the trustee shall execute the guaranty on
behalf of any trust). SBA, in its discretion, consulting with the
Participating Lender, may require other appropriate individuals to
guarantee the loan as well, except SBA generally will not require
personal guarantees from those owning less than 5 percent ownership.
* * * * *
0
12. Amend Sec. 120.130 by redesignating paragraphs (e) and (f) as
paragraphs (f) and (g) respectively, adding new paragraph (e), and
revising newly redesignated paragraph (g).
The addition and revisions read as follows:
Sec. 120.130 Restrictions on uses of proceeds.
* * * * *
(e) The applicant may not use any of the proceeds to pay past-due
Federal or state payroll taxes;
* * * * *
(g) Any use restricted by Sec. Sec. 120.201, 120.202, and 120.884
(specific to 7(a) loans and 504 loans respectively).
0
13. Amend Sec. 120.160 by revising the second sentence of paragraph
(a) and by removing paragraph (d).
The revision reads as follows:
Sec. 120.160 Loan conditions.
* * * * *
(a) * * * SBA, in its discretion, consulting with the Participating
Lender, may require other appropriate individuals to guarantee the loan
as well, except SBA generally will not require personal guarantees from
those owning less than 5 percent ownership.
* * * * *
Sec. 120.194 [Removed and reserved]
0
14. Remove and reserve Sec. 120.194.
0
15. Amend Sec. 120.214 by revising the second sentence in paragraph
(a) and revising paragraph (c) to read as follows:
Sec. 120.214 What conditions apply for variable interest rates?
* * * * *
(a) * * * Subsequent changes may occur 2 business days (or more)
after a change in the identified base rate; however, such changes may
not occur more often than monthly.
* * * * *
(c) Base rate. (1) The base rate will be one of the following:
(i) The prime rate;
(ii) The thirty-day (1-month) London Interbank Offered Rate (LIBOR)
plus 3 percentage points; or
(iii) The Optional Peg Rate.
(2) The prime or LIBOR rate will be that which is in effect on the
date SBA receives a complete loan application. The initial prime or
LIBOR base rate and subsequent changes to the prime or LIBOR base rate
must follow the rates as printed in a national financial newspaper or
Web site published each business day.
* * * * *
0
16. Amend Sec. 120.220 by adding paragraph (a)(3), revising the first
and third sentences of paragraph (b), and removing the first two
sentences of paragraph (c).
The additions and revisions read as follows:
Sec. 120.220 Fees that Lender pays SBA.
* * * * *
(a) * * *
(3) For loans approved under section 7(a)(31) of the Small Business
Act to veterans and/or the spouse of a veteran. In fiscal years when
the 7(a) program is at zero subsidy, SBA will not collect a guarantee
fee in connection with a loan made under section 7(a)(31) of the Small
Business Act to a business owned and controlled by a veteran or the
spouse of a veteran.
(b) * * * For a loan with a maturity of twelve (12) months or less,
the Lender must pay the guaranty fee to SBA electronically within 10
business days after SBA gives its loan approval. * * * For a loan with
a maturity in excess of twelve (12) months, the Lender must pay the
guaranty fee to SBA electronically within 90 days after SBA gives its
loan approval. * * *
* * * * *
0
17. Amend Sec. 120.221 by revising the section heading, adding
introductory text, and revising paragraph (e) to read as follows:
[[Page 52605]]
Sec. 120.221 Fees and expenses which the Lender may collect from a
loan applicant or Borrower.
Unless otherwise allowed by SBA Loan Program Requirements, the
Lender may charge and collect from the applicant or Borrower only the
following fees and expenses:
* * * * *
(e) Legal services. Lender may charge the Borrower for legal
services, but only for hourly charges for requested services actually
rendered.
0
18. Revise Sec. 120.222 to read as follows:
Sec. 120.222 Prohibition on sharing premiums for secondary market
sales.
The Lender or its Associates may not share in any premium received
from the sale of an SBA guaranteed loan in the secondary market with a
Service Provider, packager, or other loan-referral source.
Sec. 120.394 [Amended]
0
19. Amend Sec. 120.394 in the third sentence by removing the term
``20'' and adding in its place the term ``33''.
0
20. Amend Sec. 120.410 in paragraph (a)(2) by removing the term ``on-
site'' from the third sentence and by revising paragraph (e) to read as
follows:
Sec. 120.410 Requirements for all participating Lenders.
* * * * *
(e) Be in good standing with SBA, as defined in Sec. 120.420(f)
(and determined by SBA in its discretion), and, as applicable, with its
state regulator and be considered satisfactory by its Federal Financial
Institution Regulator (as determined by SBA and based on, for example,
information in published orders/agreements and call reports); and
* * * * *
Sec. 120.424 [Amended]
0
21. Amend Sec. 120.424(b) by removing the term ``on-site'' from the
third sentence.
Sec. 120.433 [Amended]
0
22. Amend Sec. 120.433(b) by removing the term ``on-site'' from the
third sentence.
Sec. 120.434 [Amended]
0
23. Amend Sec. 120.434(c) by removing the term ``on-site'' from the
third sentence.
0
24. Revise the undesignated center heading following Sec. 120.435 to
read ``Delegated Authority Criteria''.
0
25. Revise Sec. 120.440 to read as follows:
Sec. 120.440 How does a Lender obtain delegated authority?
(a) In making its decision to grant or renew a delegated authority,
SBA considers whether the Lender, as determined by SBA in its
discretion:
(1) Has the continuing ability to evaluate, process, close,
disburse, service, liquidate and litigate SBA loans. This includes the
ability to develop and analyze complete loan packages. SBA may consider
the experience and capability of Lender's management and staff.
(2) Has satisfactory SBA performance (as defined in Sec.
120.410(a)(2));
(3) Is in compliance with SBA Loan Program Requirements (e.g., Form
1502 reporting, timely payment of all fees to SBA);
(4) Has completed to SBA's satisfaction all required corrective
actions;
(5) Is subject to any enforcement action, order or agreement with a
regulator or the presence of other regulatory concerns as determined by
SBA; and
(6) Whether Lender exhibits other risk factors (e.g., has rapid
growth; low SBA activity; SBA loan volume; Lender, an officer or
director is under investigation or indictment).
(b) Delegated authority decisions are made by the appropriate SBA
official in accordance with Delegations of Authority, and are final.
(c) If delegated authority is approved or renewed, Lender must
execute a Supplemental Guarantee Agreement, which will specify a term
not to exceed two years. SBA may grant shortened renewals based on risk
or any of the other delegated authority criteria. Lenders with less
than 3 years of SBA lending experience will be limited to a term of 1
year or less.
Sec. 120.441 [Removed and reserved]
0
26. Remove and reserve Sec. 120.441.
Sec. 120.451 [Removed and reserved]
0
27. Remove and reserve Sec. 120.451.
0
28. Amend Sec. 120.524 by revising paragraph (b) to read as follows:
Sec. 120.524 When is SBA released from liability on its guarantee?
* * * * *
(b) If SBA determines, at any time, that any of the events set
forth in paragraph (a) of this section occurred in connection with that
loan, SBA is entitled to recover any moneys paid on the guarantee plus
interest from the Lender. In the exercise of its rights, SBA may
utilize all legal means available, including offset and judicial
remedies.
* * * * *
0
29. Amend Sec. 120.630 by revising paragraph (a)(4) to read as follows
and paragraph (a)(5) by removing the term ``on-site'' from the third
sentence:
Sec. 120.630 Qualifications to be a Pool Assembler.
(a) * * *
(4) Is in good standing with SBA (as the D/FA determines in his or
her discretion), and is Satisfactory with the Office of the Comptroller
of the Currency (``OCC'') if it is a national bank, the Federal Deposit
Insurance Corporation if it is a bank not regulated by the OCC, or the
Financial Industry Regulatory Authority (``FINRA'') if it is a member
as determined by SBA.
* * * * *
0
30. Amend Sec. 120.660 by:
0
a. Revising paragraph (a) introductory text and paragraphs (a)(1)(ii)
and (a)(2);
0
b. Adding paragraph (a)(3);
0
c. Revising paragraph (c); and
0
d. Adding paragraph (d) to read as follows:
Sec. 120.660 Suspension or revocation.
(a) Temporary suspension or revocation of Lender, broker, dealer,
or Registered Holder for violation of Secondary Market rules and
regulations. The D/FA together with the Director, Office of Credit Risk
Management (D/OCRM) may suspend for a period of no more than 120
calendar days or revoke for a period of no more than two (2) years, the
privilege of a Lender, broker, dealer, or Registered Holder to sell,
purchase, broker, or deal in loans or Certificates for:
(1) * * *
(ii) Any provisions in the contracts entered into by the parties,
including SBA Forms 1086, 1088 and 1454;
(2) Knowingly submitting false or fraudulent information to the SBA
or FTA; or
(3) A Lender's receipt, from its primary regulator, of a cease and
desist order, a consent agreement affecting capital or commercial
lending issues, a supervisory action citing unsafe or unsound banking
practices or other items of concern to SBA and its potential risk to
SBA through loan sales; or a going concern opinion issued by the
Lender's auditor. A Lender subject to such action or opinion must
notify the D/FA and the D/OCRM within five business days (or as soon as
practicable thereafter) of the issuance of any such action or opinion,
including providing copies of the relevant documents for review.
* * * * *
(c) Notice to suspend or revoke. The D/FA and the D/OCRM shall
notify the affected party in writing, providing the
[[Page 52606]]
reasons therefore, at least 10 business days prior to the effective
date of the suspension or revocation. The affected party may appeal the
suspension or revocation made under this section pursuant to the
procedures set forth in part 134 of this chapter. The action taken by
the D/FA and the D/OCRM will remain in effect pending resolution of the
appeal.
(d) Early termination of suspension or revocation. SBA may, by
written notice, terminate a secondary market suspension or revocation
under this section, if the D/FA and the D/OCRM, in their sole
discretion, determine that such termination is warranted for good
cause.
Sec. 120.710 [Amended]
0
31. Amend Sec. 120.710 by removing the term ``on-site'' from the third
sentence of paragraph (e)(1).
0
32. Amend Sec. 120.812 by revising the last sentence of paragraph (c)
to read as follows:
Sec. 120.812 Probationary period for newly certified CDCs.
* * * * *
(c) * * * Other factors may include, but are not limited to review/
examination assessments, historical performance measures, loan volume
to the extent that it impacts performance measures, and other
performance related measurements and information (such as contribution
toward SBA mission).
* * * * *
0
33. Amend Sec. 120.816 by revising the last sentence of paragraph (c)
to read as follows:
Sec. 120.816 CDC non-profit status and good standing.
* * * * *
(c) * * * Other factors may include, but are not limited to,
review/examination assessments, historical performance measures, loan
volume to the extent that it impacts performance measures, and other
performance related measurements and information (such as contribution
toward SBA mission).
* * * * *
0
34. Amend Sec. 120.823 by revising paragraphs (c)(5) and (d)(4)(ii)(C)
to read as follows:
Sec. 120.823 CDC Board of Directors.
* * * * *
(c) * * *
(5) No CDC Board member may serve on the Board of another CDC in
accordance with Sec. 120.851(b).
(d) * * *
(4) * * *
(ii) * * *
(C) Have at least two individuals with commercial lending
experience satisfactory to SBA; and
* * * * *
0
35. Amend Sec. 120.839 by revising the introductory text to read as
follows:
Sec. 120.839 Case-by-case application to make a 504 loan outside of a
CDC's Area of Operations.
A CDC may apply to make a 504 loan for a Project outside its Area
of Operations by submitting a request to the 504 loan processing
center. The applicant CDC must demonstrate that it can adequately
fulfill its 504 program responsibilities for the 504 loan, including
proper servicing. In addition, the CDC must have satisfactory SBA
performance, as determined by SBA in its discretion. The CDC's Risk
Rating, among other factors, will be considered in determining
satisfactory SBA performance. Other factors may include, but are not
limited to, review/examination assessments, historical performance
measures, loan volume to the extent that it impacts performance
measures, and other performance related measurements and information
(such as contribution toward SBA mission). The 504 loan processing
center may approve the application if:
* * * * *
0
36. Amend Sec. 120.841 by revising the last sentence of paragraph (c)
to read as follows:
Sec. 120.841 Qualifications for the ALP.
* * * * *
(c) * * * Other factors may include, but are not limited to review/
examination assessments, historical performance measures, loan volume
to the extent that it impacts performance measures, and other
performance related measurements and information (such as contribution
toward SBA mission);
* * * * *
0
37. Amend Sec. 120.884 by revising paragraph (e)(3) to read as
follows:
Sec. 120.884 Ineligible costs for 504 loans.
* * * * *
(e) * * *
(3) Construction equipment (except for heavy duty construction
equipment integral to the business' operations with a remaining useful
life of a minimum of 10 years).
0
38. Amend Sec. 120.1025 by revising the section heading and removing
``off-site reviews and monitoring'' and adding in its place
``monitoring''.
The revision reads as follows:
Sec. 120.1025 Monitoring.
* * * * *
0
39. Amend Sec. 120.1050 by revising the section heading and removing
the phrase ``on-site'' wherever it occurs.
The revision reads as follows:
Sec. 120.1050 Reviews and examinations.
* * * * *
0
40. Amend Sec. 120.1051 by revising the section heading and paragraph
(a) and removing the phrase ``on-site'' wherever it occurs.
The revisions read as follows:
Sec. 120.1051 Frequency of reviews and examinations.
* * * * *
(a) Results of monitoring, including an SBA Lender's,
Intermediary's or NTAP's Risk Rating;
* * * * *
0
41. Revise Sec. 120.1060(b) to read as follows:
Sec. 120.1060 Confidentiality of Reports, Risk Ratings and related
Confidential Information.
* * * * *
(b) Disclosure prohibition. Each SBA Lender, Intermediary, and NTAP
is prohibited from disclosing its Report, Risk Rating, and Confidential
Information, in full or in part, in any manner, without SBA's prior
written permission. An SBA Lender, Intermediary, and NTAP may use the
Report, Risk Rating, and Confidential Information for confidential use
within its own immediate corporate organization. SBA Lenders,
Intermediaries, and NTAPs must restrict access to their Report, Risk
Rating and Confidential Information to their respective parent
entities, officers, directors, employees, auditors and consultants, in
each case who demonstrate a legitimate need to know such information
for the purpose of assisting in improving the SBA Lender's,
Intermediary's, or NTAP's SBA program operations in conjunction with
SBA's Program and SBA's portfolio management (for purposes of this
regulation, each referred to as a ``permitted party''), and to those
for whom SBA has approved access by prior written consent, and those
for whom access is required by applicable law or legal process. If such
law or process requires SBA Lender, Intermediary, or NTAP to disclose
the Report, Risk Rating, or Confidential Information to any person
other than a permitted party, SBA Lender, Intermediary, or NTAP will
promptly notify SBA and SBA's Information Provider in writing and in
advance of such disclosure so that SBA and the Information Provider
have, within their discretion, the opportunity to seek
[[Page 52607]]
appropriate relief such as an injunction or protective order prior to
disclosure. For purposes of this regulation, ``consultants'' means only
those consultants that are under written contract with an SBA Lender,
Intermediary or NTAP specifically to assist with addressing its Report
Findings and Corrective Actions to SBA's satisfaction. The consultant
contract must provide for both the consultant's agreement to abide by
the disclosure prohibition in this paragraph and the consultant's
agreement not to use the Report, Risk Rating, and Confidential
Information for any purpose other than to assist with addressing the
Report Findings and Corrective Actions. ``Information Provider'' means
any contractor that provides SBA with the Risk Rating. Each SBA Lender,
Intermediary, and NTAP must ensure that each permitted party is aware
of and agrees to these regulatory requirements and must ensure that
each such permitted party abides by them. Any disclosure of the Report,
Risk Rating, or Confidential Information other than as permitted by
this regulation may result in appropriate action as authorized by law.
An SBA Lender, Intermediary, and NTAP will indemnify and hold harmless
SBA from and against any and all claims, demands, suits, actions, and
liabilities to any degree based upon or resulting from any unauthorized
use or disclosure of the Report, Risk Rating, or Confidential
Information. Information Provider contact information is available from
the Office of Capital Access.
0
42. Amend Sec. 120.1070 by:
0
a. Revising paragraphs (a)(1) through (4);
0
b. Redesignating paragraphs (b) and (c) as paragraphs (c) and (d),
respectively;
0
c. Adding a new paragraph (b);
0
d. Revising the first and second sentences of newly redesignated
paragraph (c); and
0
e. Revising the final sentence of newly redesignated paragraph (d).
The additions and revisions read as follows:
Sec. 120.1070 Lender oversight fees.
* * * * *
(a) * * *
(1) Examinations. The costs of conducting a safety and soundness
examination and related activities of an SBA-Supervised Lender,
including any expenses that are incurred in relation to the examination
and such activities.
(2) Reviews. The costs of conducting a review of a Lender or a
Lender's loans, and related review activities (e.g., corrective action
assessments, delegated loan reviews), including any expenses that are
incurred in relation to the review and such activities.
(3) Monitoring. The costs of conducting monitoring reviews of a
Lender, including any expenses that are incurred in relation to the
monitoring review activities.
(4) Other lender oversight activities. The costs of additional
expenses that SBA incurs in carrying out other lender oversight
activities (for example, the salaries and travel expenses of SBA
employees and equipment expenses that are directly related to carrying
out lender oversight activities, technical assistance and analytics to
support the monitoring and review program, and supervision and
enforcement activity costs).
(b) Allocation. SBA will assess to Lender(s) the costs associated
with the review, examination, monitoring, or other lender oversight
activity, as determined by SBA in its discretion.
(1) In general:
(i) Where the costs that SBA incurs for a review, exam, or other
lender oversight activity are specific to a particular Lender, SBA will
charge that Lender a fee for the actual costs of conducting the review,
exam, or other lender oversight activity; and
(ii) Where the costs that SBA incurs for the lender oversight
activity are not sufficiently specific to a particular Lender, SBA will
assess a fee based on each Lender's portion of the total dollar amount
of SBA guarantees in SBA's total portfolio or in the relevant portfolio
segment being reviewed or examined, to cover the costs of such
activity.
(2) SBA may waive the assessment of this fee for all Lenders owing
less than a threshold amount below which SBA determines that it is not
cost effective to collect the fee.
(c) * * * For the examinations or reviews conducted under
paragraphs (a)(1) and (2) of this section, SBA will bill each Lender
for the amount owed following completion of the examination, review or
related activity. For monitoring conducted under paragraph (a)(3) of
this section and the other lender oversight activity expenses incurred
under paragraph (a)(4) of this section, SBA will bill each Lender for
the amount owed on an annual basis. * * *
(d) * * * In addition, a Lender's failure to pay any of the fee
components described in this section, or to pay interest, charges and
penalties that have been charged, may result in a decision to suspend
or revoke a participant's eligibility, limit a participant's delegated
authority, or other remedy available under law.
0
43. Amend Sec. 120.1400 by revising paragraph (a) to read as follows:
Sec. 120.1400 Grounds for enforcement actions--SBA Lenders.
(a) Agreements. By making SBA 7(a) guaranteed loans or 504 loans,
SBA Lenders automatically agree to the terms, conditions, and remedies
in Loan Program Requirements, as promulgated or issued from time to
time and as if fully set forth in the SBA Form 750 (Loan Guaranty
Agreement), Development Company 504 Debenture, CDC Certification,
Servicing Agent Agreement, or other applicable participation, guaranty,
or supplemental agreement. SBA Lenders further agree that a violation
of Loan Program Requirements constitutes default under their respective
agreements with SBA.
(1) Additional agreements by CDCs. By obtaining approval for 504
loans after [date 60 days from publication of final rule in the Federal
Register], a CDC consents to the remedies in Sec. 120.1500(e)(3) and
waives in advance any defenses to such relief as sought by SBA. The CDC
agrees that its consent to SBA's application to a federal court of
competent jurisdiction for appointment of a receiver of SBA's choosing,
an injunction or other equitable relief, and the CDC's consent in
advance to the court's granting of SBA's application, includes a waiver
of objection to a receiver or other such relief and may be enforced
upon any basis in law or equity recognized by the court.
(2) Additional agreements by SBA Supervised Lenders (except Other
Regulated SBLCs). By making SBA 7(a) guaranteed loans after [date 60
days from publication of final rule in the Federal Register], an SBA
Supervised Lender (except an Other Regulated SBLC) consents to the
remedies in Sec. 120.1500(c)(3) and waives in advance any defenses to
such relief as sought by SBA. The SBA Supervised Lender agrees that its
consent to SBA's application to a federal court of competent
jurisdiction for appointment of a receiver of SBA's choosing, an
injunction or other equitable relief, and the SBA Supervised Lender's
consent in advance to the court's granting of SBA's application,
includes a waiver of objection to a receiver or other such relief and
may be enforced upon any basis in law or equity recognized by the
court.
* * * * *
0
44. Amend Sec. 120.1500 by revising paragraph (c)(3) and adding
paragraph (e)(3) to read as follows:
[[Page 52608]]
Sec. 120.1500 Types of enforcement actions--SBA Lenders.
* * * * *
(c) * * *
(3) Initiate request for appointment of receiver and/or other
relief. The SBA may make application to any federal court of competent
jurisdiction for the court to take exclusive jurisdiction, without
notice, of an SBA Supervised Lender, and SBA shall be entitled to the
appointment of a receiver of SBA's choosing to hold, administer,
operate, and/or liquidate the SBA Supervised Lender; and to such
injunctive or other equitable relief as may be appropriate. Without
limiting the foregoing and with SBA's written consent, the receiver may
take possession of the portfolio of 7(a) loans and sell such loans to a
third party, and/or take possession of servicing activities of 7(a)
loans and sell such servicing rights to a third party.
* * * * *
(e) * * *
(3) Apply to any federal court of competent jurisdiction for the
court to take exclusive jurisdiction, without notice, of the CDC, and
SBA shall be entitled to the appointment of a receiver of SBA's
choosing to hold, administer, operate and/or liquidate the CDC; and to
such injunctive or other equitable relief as may be appropriate.
Without limiting the foregoing and with SBA's consent, the receiver may
take possession of the portfolio of 504 loans and/or pending 504 loan
applications, including for the purpose of carrying out an enforcement
order under paragraph (e)(1) of this section.
0
45. Amend Sec. 120.1600 by:
0
a. Revising paragraph (a) introductory text;
0
b. Adding paragraph (a)(6); and
0
c. Revising paragraph (b)(4).
The revisions and additions read as follows:
Sec. 120.1600 General procedures for enforcement actions against SBA
Lenders, SBA Supervised Lenders, Other Regulated Small Business Lending
Companies (SBLCs), Management Officials, Other Persons, Intermediaries,
and Non-Lending Technical Assistance Providers (NTAPs).
(a) In general. Except as otherwise set forth for the enforcement
actions listed in paragraphs (a)(6), (b) and (c) of this section, SBA
will follow the procedures listed below.* * *
* * * * *
(6) Receiverships of Certified Development Companies and/or other
relief. If SBA undertakes the appointment of a receiver for a Certified
Development Company and/or injunctive or other equitable relief,
paragraphs (a)(1) through (5) of this section will not apply and SBA
will follow the applicable procedures under federal law to obtain such
remedies and to enforce the Certified Development Company's consent and
waiver in advance to those remedies.
(b) * * *
(4) Receiverships, transfer of assets and servicing activities. If
SBA undertakes the appointment of a receiver for, or the transfer of
assets or servicing rights of an SBA Supervised Lender and/or
injunctive or other equitable relief, SBA will follow the applicable
procedures under federal law to obtain such remedies and to enforce the
SBA Supervised Lender's consent and waiver in advance to those
remedies.
* * * * *
0
46. Amend Sec. 120.1703 by revising paragraph (a)(4) to read as
follows:
Sec. 120.1703 Qualifications to be a Pool Originator.
(a) * * *
(4) Is in good standing with SBA (as the SBA determines), and is
Satisfactory with the Office of the Comptroller of the Currency (OCC)
if it is a national bank, the Federal Deposit Insurance Corporation if
it is a bank not regulated by the OCC, the Financial Institutions
Regulatory Authority, if it is a member, the National Credit Union
Administration if it is a credit union, as determined by SBA; and
* * * * *
0
47. Revise Sec. 120.1707 by revising the fifth sentence and adding a
sixth sentence to read as follows:
Sec. 120.1707 Seller's retained Loan Interest.
* * * In addition, in order to complete such sale, Seller must have
the purchaser of its rights to the Pool Loan execute an allonge to the
Seller's First Lien Position 504 Loan Pool Guarantee Agreement in form
acceptable to SBA, acknowledging and accepting all terms of the
Seller's First Lien Position 504 Loan Pool Guarantee Agreement, and
deliver the executed original allonge and a copy of the corresponding
First Lien Position 504 Loan Pool Guarantee Agreement to the CSA. All
Pool Loan payments related to a Seller Receipt and Servicing Retention
Amount proposed for sale will be withheld by the CSA pending SBA
acknowledgement of receipt of all executed documents required to
complete the transfer.
Subpart K--[Removed and Reserved]
0
48. Remove and reserve subpart K, consisting of Sec. Sec. 120.1800
through 120.1900.
Dated: July 21, 2016.
Maria Contreras-Sweet,
Administrator.
[FR Doc. 2016-18044 Filed 8-8-16; 8:45 am]
BILLING CODE 8025-01-P