[Federal Register Volume 81, Number 183 (Wednesday, September 21, 2016)]
[Proposed Rules]
[Pages 64787-64805]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-22284]


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DEPARTMENT OF COMMERCE

Economic Development Administration

13 CFR Part 311

[Docket No.: 150826785-5785-01]
RIN 0610-AA67


Innovative Technologies in Manufacturing Loan Guarantee Program

AGENCY: Economic Development Administration, U.S. Department of 
Commerce.

ACTION: Notice of proposed rulemaking; request for public comment.

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SUMMARY: Through this notice of proposed rulemaking (``NPRM''), the 
Economic Development Administration (``EDA,'' or ``the Agency''), U.S. 
Department of Commerce (``DOC''), proposes and requests comments on the 
Agency's implementation of section 26 of the Stevenson-Wydler 
Technology Innovation Act of 1980 (the ``Stevenson-Wydler Act''), 
enacted as part of the America COMPETES Reauthorization Act of 2010 
(``COMPETES Act''). The Stevenson-Wydler Act authorizes EDA to provide 
loan guarantees for obligations to small- and medium-sized 
manufacturers for the use or production of innovative technologies. 
These guarantees will enable innovative technology manufacturers to 
obtain capital otherwise unavailable to them.

DATES: Written comments on this NPRM must be received by EDA's Office 
of the Chief Counsel no later than 5 p.m. eastern time on December 20, 
2016.

ADDRESSES: Comments on the NPRM may be submitted through any of the 
following methods:
     Federal Rulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments. EDA will accept 
anonymous comments (enter ``N/A'' in the required fields if you wish to 
remain anonymous).
     Agency Web site: http://www.eda.gov/. EDA has created an 
online feature for submitting comments. Follow the instructions at 
http://www.eda.gov/.
     Mail: Economic Development Administration, Office of the 
Chief Counsel, U.S. Department of Commerce, 1401 Constitution Avenue 
NW., Suite 72023, Washington, DC 20230. Please indicate ``Comments on 
EDA's regulations'' and Docket No. 150826785-5785-01 on the envelope.
    All comments received are a part of the public record and will 
generally be posted for public viewing on www.regulations.gov without 
change. All personal identifying information (e.g., name, address, 
etc.), confidential business information, or otherwise sensitive 
information submitted voluntarily by the sender will be publicly 
accessible.

FOR FURTHER INFORMATION CONTACT: Rachel A. Wallace, Attorney-Advisor, 
Office of the Chief Counsel, Economic Development Administration, U.S. 
Department of Commerce, 1401 Constitution Avenue NW., Suite 72023, 
Washington, DC 20230; telephone: (202) 482-5443.

SUPPLEMENTARY INFORMATION:

Background

    Established under the Public Works and Economic Development Act of 
1965, as amended (42 U.S.C. 3121 et seq.) (``PWEDA''), EDA's mission is 
to lead the Federal economic development agenda by promoting innovation 
and

[[Page 64788]]

competitiveness, preparing American regions for growth and success in 
the worldwide economy. EDA makes investments in and provides technical 
assistance to economically distressed communities in order to 
facilitate job creation for U.S. workers, increase private sector 
investment, promote American innovation, and accelerate long-term 
sustainable economic growth. EDA's regulations, codified at 13 CFR 
parts 301 through 315, provide the framework through which the Agency 
administers its economic development assistance programs.
    As part of the COMPETES Act enacted on January 4, 2011, section 26 
of the Stevenson-Wydler Act (15 U.S.C. 3721) authorized the Secretary 
of Commerce ``to establish a program to provide loan guarantees for 
obligations to small- or medium-sized manufacturers for the use or 
production of innovative technologies.'' 15 U.S.C. 3721(a). In general, 
the Federal loan ``guarantee'' represents the portion of the loan that 
the Federal agency will repay to the lender if the borrower defaults on 
its loan payments. See 15 U.S.C. 3721(s)(4) (definition of ``Loan 
Guarantee''); and 3721(d) (``A loan guarantee shall not exceed an 
amount equal to 80 percent of the obligation . . .'').
    As required by the Stevenson-Wydler Act, a ``loan guarantee may be 
made under the program only for a project that re-equips, expands, or 
establishes a manufacturing facility in the United States--(1) to use 
an innovative technology or an innovative process in manufacturing; (2) 
to manufacture an innovative technology product or an integral 
component of such a product; or (3) to commercialize an innovative 
product, process, or idea that was developed by research funded in 
whole or in part by a grant from the Federal government.'' 15 U.S.C. 
3721(b). The Stevenson-Wydler Act defines an ``innovative technology'' 
as ``a technology that is significantly improved as compared to the 
technology in general use in the commercial marketplace in the United 
States at the time the loan guarantee is issued.'' 15 U.S.C. 
3721(s)(3). Similarly, the term ``innovative process'' is defined as 
``a process that is significantly improved as compared to the process 
in general use in the commercial marketplace in the United States at 
the time the loan guarantee is issued.'' 15 U.S.C. 3721(s)(2).
    The Secretary of Commerce has delegated the responsibility of 
implementing and administering the Innovative Technologies in 
Manufacturing (``ITM'') Program, which includes promulgating 
regulations as required by the Stevenson-Wydler Act (see 13 U.S.C. 
3721(l)), to EDA. EDA was appropriated the following amounts for the 
ITM Program: In fiscal year 2012, up to $5 million; in both of the 
fiscal years 2013 and 2014, $5 million; and in fiscal year 2015, $4 
million. These amounts are ``to remain available until expended,'' for 
section 26 loan guarantees ``to subsidize total loan principal, any 
part of which is to be guaranteed, not to exceed $70,000,000.'' See 
Public Law 112-55 (FY12); Public Law 113-6 (FY13); Public Law 113-76 
(FY14); Public Law 113-235 (FY15). Put another way, from FY12-FY15, EDA 
received a total of $14 million and up to $19 million in no-year, 
appropriated funds to support a maximum of $280 million in loans that 
would be subject to EDA's guarantee.
    Although EDA administered business loan programs in the past, it 
has been more than 30 years since the Agency has been actively engaged 
in the process of loan making. In 1965, Title II of PWEDA (former 42 
U.S.C. 3121-3246) authorized EDA to make direct loans and guarantee 
loans to businesses willing to establish and expand operations in 
economically distressed areas for the purpose of developing land and 
facilities for industrial or commercial use. In addition, under the 
Trade Act of 1974 (former 19 U.S.C. 2341-2374), businesses adversely 
affected by foreign imports could apply for EDA direct loans and loan 
guarantees. However, by the mid-1980s EDA had essentially stopped 
making direct loans and guaranteeing new loans under PWEDA. Similarly, 
EDA stopped administering loans under the Trade Act when the 
International Trade Administration's Office of Trade Assistance was 
created in 1982. Four years later, Congress rescinded the DOC's 
authority to make Trade Adjustment Assistance loans and loan guarantees 
in the Consolidated Omnibus Budget Reconciliation Act of 1985 (Pub. L. 
99-272). EDA's authority under PWEDA for making direct loans and loan 
guarantees was not eliminated until the enactment of the Economic 
Development Administration and Appalachian Regional Development Act of 
1998 (Pub. L. 105-393) which reauthorized EDA's programs for the first 
time since 1982.
    Given the loss of institutional knowledge over the years, the need 
to leverage existing staff resources and the unique requirements of the 
ITM Program, EDA adopted a multi-pronged approach to Program 
implementation. Seeking to gauge market demand and obtain input about 
how to structure the Program from the public and stakeholders, on April 
17, 2013, EDA published a ``Request for Comments on Developing a 
Program To Provide Loan Guarantees to Small- or Medium-Sized 
Manufacturers'' in the Federal Register (78 FR 22801). EDA received 
four comments, none from lenders. In general, the commenters noted that 
similar Federal programs already existed that were not being fully 
utilized and for the ITM Program to succeed, it needed to be easily 
accessible.
    At the same time, EDA sought out the expertise and experience of 
two Federal agencies with well-established business loan programs--the 
SBA (e.g., 7(a) loan guarantee program) and the Department of Energy 
(e.g., 1703 Program). Meeting with representatives of these agencies 
and closely examining the structure of another loan program (the 
Department of Agriculture's Business & Industry (B&I) Program), 
provided EDA with invaluable guidance and insight into best practices 
for standing up a loan guarantee program, including the development of 
program elements such as borrower eligibility standards and lender 
oversight, creation of program documents such as forms and operating 
manuals as well as administrative components such as staffing and 
electronic loan processing/servicing.
    In 2014, EDA hired a full-time attorney and procured a contractor 
with extensive Federal loan program expertise to support the Agency's 
implementation efforts. Equipped with the information gathered from its 
due diligence and the subsequent analysis, EDA modeled the structure of 
the ITM Program closely after SBA's 7(a) loan guarantee program 
(hereinafter, referred to as ``SBA's 7(a) program''). Similar to SBA's 
7(a) program, the ITM Program is designed to help certain creditworthy 
businesses--specifically, small and medium-sized manufacturers--acquire 
financing when they cannot otherwise obtain credit at reasonable terms. 
EDA, like SBA in the 7(a) context, will not make loans itself. Instead, 
EDA will guarantee a portion of the loan made by a participating 
lending institution. Thus, taxpayer funds are only paid out in the 
event of borrower default. This process reduces the risk to the lender 
(incentivizing the lender to make the loan), but not to the borrower, 
who remains obligated for the full debt, even in the event of default. 
The similarities in the two programs, as well as the significant 
differences attributable to EDA's own statutory requirements and policy 
priorities, are reflected in EDA's proposed regulatory framework, which 
is summarized below. EDA seeks public input through this NPRM on the

[[Page 64789]]

proposed regulatory framework. In particular EDA seeks comment on:
     The biggest impediments to small or medium-sized 
manufacturers receiving a loan from a lending institution.
     Whether the EDA's ITM loan program would make it more 
likely for lenders to lend to manufacturers, especially small or 
medium-sized manufacturers.
     What lending institutions should require for a borrower to 
demonstrate that a market exists for an innovative technology product.
     Whether there is an existing market for small to medium-
sized business loans in the innovative manufacturing sector that are 
not currently being met.
     What other requirements in a loan guarantee program would 
be necessary for a lender to offer such loans.
     The manufacturing size threshold and definition to be 
considered a medium-sized manufacturer.
     The typical loan size that a small-medium business in 
innovative manufacturing would apply for.
     Whether securing a loan through the EDA ITM program to 
support the use or production of innovative technologies would assist 
manufacturers with access to outside capital.
     Other activities and outcomes from the EDA ITM loan 
program that would best support innovation in the manufacturing sector.
    EDA also seeks comment on the proposed regulatory text, which is 
summarized below.

Subpart A--General Provisions

    Subpart A serves as the foundation of the ITM Program regulations, 
defining key terms and outlining core programmatic elements. For 
example, it includes borrower eligibility criteria, types of ineligible 
businesses, and permissible uses of loan proceeds by borrowers. In 
addition, lender ethical standards, creditworthiness criteria, 
additional loan requirements involving personal guarantees, collateral, 
and bonding are explained. It should be noted that the basic 
eligibility criteria for both Borrowers and Lenders are similar to 
SBA's, but have been modified to reflect the statutory requirements and 
program specific goals of the ITM Program, including the requirement 
that the applicant borrower be prospectively or currently engaged in an 
Innovative Technological Project. For the same reasons, eligible uses 
of ITM Program loan proceeds are different in key respects from SBA's 
7(a) program. One notable difference is that unlike SBA, EDA will not 
permit loan proceeds to be used for working capital. Some of the more 
significant terms defined in this subpart are highlighted below:
    (1) Associate: An associate is a person or entity with a close 
connection to an ITM Program lender or borrower, with this legal 
relationship established if specific criteria are met (e.g., an 
associate of a lender includes an officer, director, or holder of at 
least a 5 percent interest of the value of the lender's stock or debt 
instruments, or an agent involved in the loan process). As set forth in 
these regulations, the existence of an associate will have 
ramifications for the lender or borrower, such as affecting a 
borrower's size for eligibility purposes and having an associate's 
activities imputed to the lender for conflict of interest purposes.
    (2) Innovative Technological Project: This term captures the 
requirement in Stevenson-Wydler that a loan guarantee can only be used 
to finance certain types of projects, emphasizing that the project must 
be ``innovative,'' and ``Technological in nature,'' produce certain 
products or processes (e.g., a ``significantly improved product or 
process'') and result in one of four required actions (e.g., 
``utilizing this innovative technology in the process of manufacturing 
an existing product'').
    (3) Lender: Eligible lenders have been defined as lenders that are 
in good standing under the SBA Preferred Lenders Program (PLP). Under 
this program, SBA delegates the final credit decision and most 
servicing and liquidation authority and responsibility to carefully 
selected lenders. Lenders are considered for PLP status based on their 
record with SBA, and must have demonstrated a proficiency in processing 
and servicing SBA-guaranteed loans. EDA will require lenders to certify 
that they are in good standing under the PLP at the time a loan 
application is submitted. Failure by a lender to certify to its status 
under the PLP will be grounds for denial of its participation in the 
ITM Program. If it is determined that a lender is not in good standing 
at the time of certification or at any point after a loan guarantee is 
approved for that lender, EDA may deny liability on that loan 
guarantee.
    (4) Manufacturing: Manufacturing includes those activities 
associated with the relevant six-digit manufacturing NAICS codes 
(311111-333999).
    (5) Medium-sized Business: A medium-sized business is defined 
relative to SBA's definition of a small business; namely, a business 
that has a maximum size that is twice the maximum size of a small 
business using the same six-digit NAICS code and same measurement 
standards as the calculation for a small business.
    (6) Small Business: If a business is ``small'' under SBA's size 
standards, the business will likewise be considered a small business 
for purposes of the ITM Program.

Subpart B--Requirements Imposed Under Other Laws and Orders

    Subpart B discusses various laws and orders applicable to 
borrowers, lenders and the use of ITM Program loan proceeds. 
Specifically, flood insurance requirements, child support obligation 
compliance, flood-plain and wetlands management, lead-based paint 
requirements, earthquake hazard management, and coastal barrier island 
restrictions are addressed. In addition, this subpart emphasizes that 
compliance with all other generally applicable laws such as 
environmental, civil rights and anti-discrimination laws, is required.

Subpart C--Applicability and Enforceability of Loan Program 
Requirements

    Subpart C details the nature of a lender's obligation to comply 
with the ITM Program requirements. Further, it emphasizes that, because 
of the status of lenders and borrowers as independent entities, EDA is 
not liable for any injury suffered as a result of a lender's or 
borrower's wrong-doing with respect to a loan.

Subpart D--Loan Applications

    Closely mirroring SBA's 7(a) program regulations and process, 
subpart D describes the application process for an ITM Program loan, 
including the required contents of a loan application. In addition, 
this subpart discusses how lenders and applicants are notified of 
approval or denial of an application, as well as the procedures 
involved when a lender is seeking reconsideration of EDA's decision to 
reject an application.

Subpart E--Reporting

    Subpart E outlines lender reporting requirements. In addition, it 
affirms the applicant's duty to disclose any fees paid to agents 
assisting the applicant in obtaining the loan as well as the obligation 
of lenders, borrowers and EDA employees to notify the DOC Inspector 
General of any suspected fraud regarding an ITM Program loan.

Subpart F--Limitations on Use of Proceeds

    To prevent a potential loss-shift to EDA from an existing borrower 
obligation, subpart F prohibits a borrower's use of loan proceeds to 
refinance unsecured or under-secured loans.

[[Page 64790]]

Subpart G--Maturities; Interest Rates; Loan and Guarantee Amounts

    Subpart G delineates the key parameters for loan guarantees made 
under the ITM Program, including the statutory maximum percentage of a 
loan eligible for a guarantee, which is 80 percent. The ITM Program 
regulations impose a loan size limit of $10 million or, if written 
approval is obtained from EDA, $15 million. This subpart also addresses 
loan maturities, providing that the term of a loan shall be the lesser 
of 30 years or 90% of the projected useful life of the financed 
physical asset. In addition, while covering fixed interest rate loans, 
this subpart provides that a lender may use a variable rate of 
interest, upon EDA approval after the lender's satisfaction of certain 
conditions with respect to the base rate, changes to the rate, amount 
of fluctuation from the base rate, maximum spreads and amortization.

Subpart H--Fees

    Subpart H discusses fees that can be properly charged under the ITM 
Program. These regulatory provisions authorize EDA to charge lenders a 
guarantee fee as well as a monthly servicing fee. Note that the 
guarantee fee may be increased if the guaranteed portion of the loan 
increases. Also discussed in this subpart are the fees that a lender is 
permitted to charge the borrower, which includes the guarantee fee 
after the first disbursement as well as service and late payment fees.

Subpart I--Participation Criteria

    Subpart I discusses requirements for a lender's initial and 
continued eligibility for participation in the ITM Program. At the 
outset, this subpart makes clear that EDA may enter into an 
authorization with a lender to make ITM program loans, which may 
include terms to allow for the patents and technology needed for the 
Innovative Technological Project to be available to complete and 
operate the Innovative Technological Project for any borrower, 
including EDA pursuant to its rights of subrogation. Among other 
requirements, the lender must be in good standing under the SBA 
Preferred Lenders Program at all times and must maintain its ability to 
evaluate, process, close, disburse, service, liquidate, and litigate 
loans in its portfolio. One notable difference between the ITM Program 
and SBA's 7(a) program is that EDA does not allow a lender to 
securitize or otherwise sell or transfer an ITM Program loan without 
prior approval from EDA and the execution of a separate securitization 
agreement with EDA.

Subpart J--Loan Modifications and Servicing Actions

    Subpart J underscores that a lender may defer payments on a loan 
and can extend the maturity of a loan only with the prior written 
consent of EDA. With respect to loan modifications, this subpart 
addresses standards to which lenders must adhere (e.g., commercially 
reasonable manner consistent with prudent lending standards) when 
engaging in loan servicing, liquidation, and debt collection litigation 
activities. In addition, those servicing and liquidation actions that 
require the prior written consent of EDA (e.g., compromise of the loan 
principal balance; accelerating the maturity of the note) are listed.

Subpart K--EDA Purchase of Guaranteed Portion

    Subpart K applies when a lender requests that EDA honor its 
guarantee in a default situation. These provisions make clear that as a 
threshold matter such a demand will be summarily rejected by EDA unless 
a lender establishes, with sufficient supporting documentation, that 
the borrower is in uncured default on any installment for more than 60 
calendar days, all reasonable workout attempts have failed, and all 
business personal property securing the defaulted ITM Program loan has 
been liquidated. With respect to a lender's debt collection efforts, 
this subpart sets forth the requirements for a lender's liquidation and 
litigation plans that must be submitted before the lender undertakes 
such actions, outlines EDA's policies regarding a lender's liquidation 
of collateral and sale of ITM Program loans, and covers circumstances 
when EDA will pay its pro rata share of authorized legal fees and 
expenses. If EDA does purchase the guaranteed portion of an ITM Program 
loan from the lender, this subpart provides details about accrued 
interest payments and the applicable interest rate post-EDA purchase. 
Finally, similar to the SBA 7(a) program's ``denial of liability'' 
regulations, these regulations provide that, despite a lender's demand, 
EDA will be released from liability on a loan guarantee if EDA 
determines that one or more of ten events have occurred. Such events 
include a lender's failure to materially comply with any ITM Program 
requirement, a lender's misrepresentation (or failure to disclose) of a 
material fact regarding a guaranteed loan, and where a lender's 
improper action has put EDA at risk.

Subpart L--Enforcement Actions

    Subpart L focuses on enforcement actions that EDA can take against 
lenders. Discussed are proper grounds for an enforcement action (e.g., 
failure to maintain eligibility requirements for the SBA Preferred 
Lenders Program), types of enforcement actions that EDA may take (e.g., 
suspension or revocation from the ITM Program), and general procedures 
for enforcement actions against lenders (e.g., notice of action, 
Lender's opportunity to object, final agency decision).

Regulatory Flexibility Act

    The Chief Counsel for Regulation of the Department of Commerce 
certified to the Chief Counsel for Advocacy of the Small Business 
Administration that this proposed rule, if adopted, would not have a 
significant economic impact on a substantial number of small entities, 
for the following reasons: First, the Agency emphasizes that possible 
participation in the ITM program by small entities, whether from the 
lending or borrowing side, is entirely voluntary. Second, this 
rulemaking is not projected to adversely impact small lenders or 
borrowers since it does not impose any greater burden with respect to 
forms, fees, due diligence, or servicing than any other Federal loan 
guarantee program. The application forms closely match those of already 
existing loan guarantee programs, most notably SBA's 7(a) loan 
guarantee program, and the fees are similarly commensurate. As 
evidenced by these proposed regulations and forthcoming ITM program 
procedure manuals, reporting, due diligence, and other processes will 
be a stream-lined version of existing programs which will make the ITM 
program less burdensome for small entities to use than other programs. 
As such, the Chief Counsel certifies that this proposed rule will not 
have a significant impact on a substantial number of small entities.

Executive Orders No. 12866 and No. 13563

    This proposed rule was drafted in accordance with Executive Orders 
12866 and 13563. It was reviewed by the Office of Management and Budget 
(OMB), which found the proposed rule to be ``significant'' as that term 
is defined in Executive Order 12866 and Executive Order 13563. 
Accordingly, the proposed rule has undergone interagency review.

Congressional Review Act

    This proposed rule is not major under the Congressional Review Act 
(5 U.S.C. 801 et seq.).

[[Page 64791]]

Executive Order No. 13132

    It has been determined that this proposed rule does not contain 
policies with federalism implications as that term is defined in under 
Executive Order 13132.

Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) 
(``PRA'') requires that a Federal agency consider the impact of 
paperwork and other information collection burdens imposed on the 
public and, under the provisions of PRA section 3507(d), obtain 
approval from OMB for each collection of information it conducts, 
sponsors, or requires through regulations. Notwithstanding any other 
provision of law, no person is required to respond to, nor shall any 
person be subject to a penalty for failure to comply with a collection 
of information subject to the PRA unless that collection displays a 
currently valid OMB Control Number.
    The following table provides a complete list of the collections of 
information (and corresponding OMB Control Numbers) set forth in this 
proposed rule. These collections of information are necessary for the 
proper performance and functions of EDA.

------------------------------------------------------------------------
 Part or section of this final                           Form/title/OMB
             rule                  Nature of request       control No.
------------------------------------------------------------------------
311.4; 311.5; 311.6...........  An applicant must       ED-1920,
                                 provide information     Lender's
                                 to demonstrate that     Application.
                                 it meets the
                                 eligibility criteria
                                 including credit
                                 availability.
311.8; 311.9; 311.501.........  An applicant must       ED-1920,
                                 provide information     Lender's
                                 to show that the        Application; ED-
                                 proceeds will be used   1050,
                                 for an eligible use.    Settlement
                                                         Sheet; ED-172,
                                                         Account
                                                         Transcripts.
311.10........................  For property that is    ED-1920,
                                 purchased with          Lender's
                                 guaranteed funds, an    Application.
                                 applicant must supply
                                 information
                                 indicating that the
                                 criteria for leasing
                                 or renting a property
                                 is met before leasing
                                 or renting it.
311.11; 311.801...............  A Lender must supply    ED-1920,
                                 written assurances to   Lender's
                                 EDA that it will        Application.
                                 abide by certain
                                 ethical requirements.
311.6(n); 311.6(o); 311.11(b).  An applicant must       ED-1919,
                                 supply information      Borrower's
                                 and certify that        Information
                                 there are not any       Form; ED-1920,
                                 conflicts of interest   Lender's
                                 between the Lender,     Application.
                                 Borrower, and EDA.
311.6(m); 311.11(d);            An applicant must       ED-1919,
 311.11(g); 311.12(a).           supply information      Borrower's
                                 and certify that it     Information
                                 does not have any       Form; ED-1920,
                                 Associates who render   Lender's
                                 the applicant           Application; ED-
                                 ineligible by being     912, Statement
                                 incarcerated, on        of Personal
                                 probation, or on        History.
                                 parole or have been
                                 indicted for a felony
                                 or a crime of moral
                                 turpitude.
311.12; 311.13(a).............  An applicant must       ED-1920,
                                 supply adequate         Lender's
                                 information to show     Application; ED-
                                 that the Borrower       413, Personal
                                 (including an           Financial
                                 Operating Entity) is    Statement.
                                 creditworthy and all
                                 loans are
                                 sufficiently sound as
                                 to reasonably assure
                                 repayment. A personal
                                 guarantee may be
                                 required of a
                                 Borrower's Associates.
311.100; 311.101; 311.102;      Applicants must supply  ED-1919,
 311.103; 311.104; 311.105;      written assurances to   Borrower's
 311.106.                        EDA that it will        Information
                                 abide by the            Form; ED-413,
                                 requirements imposed    Personal
                                 under other laws,       Financial
                                 restrictions, and       Statement.
                                 orders.
311.300; 311.801(e)...........  Lenders must provide    ED-1920,
                                 information             Lender's
                                 demonstrating that      Application.
                                 they are SBA
                                 Preferred Lenders in
                                 good standing.
311.400.......................  Lenders must agree to   ED-1502, Monthly
                                 submit servicing        Servicing
                                 reports to EDA on a     Report.
                                 monthly basis for
                                 every outstanding
                                 loan.
311.401; 311.702; 311.703;      Applicants for ITM      ED-159, Fee
 311.803.                        Program loans must      Disclosure and
                                 identify to EDA the     Compensation
                                 name of each agent      Agreement; ED-
                                 that helped the         1050,
                                 applicant obtain the    Settlement
                                 loan, describing the    Sheet.
                                 services performed,
                                 and disclosing the
                                 amount of each fee
                                 paid or to be paid by
                                 the applicant to the
                                 agent in conjunction
                                 with the performance
                                 of those services.
311.600.......................  Applicants must supply  ED-1920,
                                 adequate information    Lender's
                                 to certify that the     Application.
                                 guarantee percentage
                                 is 80 percent or less
                                 of the entire loan
                                 obligation.
311.601.......................  An applicant must       ED-1920,
                                 supply information      Lender's
                                 and certify that the    Application.
                                 entire loan
                                 obligation is $10
                                 million or less
                                 unless a loan amount
                                 of up to $15 million
                                 is approved by the
                                 Deputy Assistant
                                 Secretary on a an
                                 individual case-by-
                                 case basis.
311.602.......................  The applicant must      ED-1920,
                                 supply information to   Lender's
                                 indicate that the       Application.
                                 loan term is the
                                 lesser of 30 years or
                                 90% of the projected
                                 useful life of the
                                 physical asset to be
                                 financed by the
                                 obligation, as
                                 determined by the
                                 Deputy Assistant
                                 Secretary.
311.603; 311.604..............  The Lender must supply  ED-1920,
                                 written certification   Lender's
                                 that it agrees to       Application.
                                 certain interest
                                 rates limits.
311.700(a); 311.700(c)........  If the Borrower seeks   ED-2237,
                                 to increase or          Approval Action
                                 decrease the total      Modification
                                 loan amount or change   Form.
                                 the guarantee
                                 percentage of an ITM
                                 Program loan, the
                                 Borrower must have
                                 supplied information
                                 that indicates
                                 agreement to an
                                 increase in the
                                 guarantee fee. A
                                 Borrower must further
                                 supply written
                                 documentation that
                                 indicates
                                 acknowledgment that a
                                 refund of the
                                 guarantee fee will
                                 occur only if the
                                 decrease in the loan
                                 amount happens before
                                 the first
                                 disbursement.
311.701.......................  Lender must supply      ED-1502, Monthly
                                 information that        Servicing
                                 shows it agrees to      Report.
                                 pay the servicing fee
                                 on a monthly basis
                                 while submitting the
                                 monthly servicing
                                 report.
311.801(a)(2).................  Lenders must supply     ED-1502, Monthly
                                 loan transaction data   Servicing
                                 to EDA and maintain     Report.
                                 satisfactory
                                 performance as
                                 determined by EDA
                                 through analysis of
                                 that data.

[[Page 64792]]

 
311.900; 311.901; 311.904.....  Before modifying loan   ED-2237,
                                 terms, Lenders must     Approval Action
                                 supply the proposed     Modification
                                 modification            Form.
                                 information to EDA
                                 and request
                                 authorization from
                                 EDA to changes to
                                 loan terms including
                                 but not limited to
                                 changes in the loan
                                 amount, an extension
                                 of maturity, and any
                                 other changes to the
                                 loan that effect
                                 EDA's risk.
311.1000(a); 311.1000(b)......  A Lender must supply    ED-1149,
                                 written confirmation    Transcript of
                                 that it agrees to       Account.
                                 refrain from
                                 requesting a purchase
                                 of a defaulted loan
                                 by EDA until the
                                 Borrower has been in
                                 default for a minimum
                                 of 60 days.
311.1000(b); 311.1004(a)......  The Lender must         ED-159, Fee
                                 provide the             Disclosure and
                                 documentation to        Compensation
                                 prove the loan has      Agreement; ED-
                                 been closed,            1050,
                                 serviced, and           Settlement
                                 liquidated in a         Sheet; ED-1149,
                                 prudent manner and in   Transcript of
                                 compliance with ITM     Account.
                                 program regulations.
------------------------------------------------------------------------

Regulatory Text

    For the reasons set forth in the preamble, EDA proposes to amend 
title 13, chapter III of the Code of Federal Regulations by adding part 
311 to read as follows:

PART 311--INNOVATIVE TECHNOLOGIES IN MANUFACTURING LOAN GUARANTEE 
PROGRAM

Subpart A--General Provisions
Sec.
311.1 Purpose and scope of the Innovative Technologies in 
Manufacturing Loan Guarantee Program.
311.2 Description of Innovative Technologies in Manufacturing Loan 
Guarantee Program.
311.3 Definitions.
311.4 Basic eligibility criteria.
311.5 Credit unavailable elsewhere.
311.6 Ineligible types of businesses.
311.7 Conditions required of an eligible passive entity.
311.8 Eligible uses of proceeds.
311.9 Restrictions on uses of proceeds.
311.10 Leasing part of a building to another business.
311.11 Lender ethical requirements.
311.12 Lending criteria.
311.13 Loan conditions.
Subpart B--Requirements Imposed Under Other Laws and Orders
311.100 Flood insurance.
311.101 Compliance with child support obligations.
311.102 Flood-plain and wetlands management.
311.103 Lead-based paint.
311.104 Earthquake hazards.
311.105 Coastal barrier islands.
311.106 Compliance with other laws.
Subpart C--Applicability and Enforceability of Loan Program 
Requirements
311.200 Lender compliance with loan program requirements.
311.201 Status of lenders.
311.202 Status of borrowers.
Subpart D--Loan Applications
311.300 Applying for a loan.
311.301 The contents of an ITM Program application.
311.302 Approval or denial.
311.303 Reconsideration after rejection.
Subpart E--Reporting
311.400 Monthly servicing report
311.401 Disclosure of fees.
311.402 Notifying DOC's Office of Inspector General of suspected 
fraud.
Subpart F--Limitations on Use of Proceeds
311.500 Refinancing unsecured or under-secured loans.
Subpart G--Maturities; Interest Rates; Loan and Guarantee Amounts
311.600 Percentage of a loan eligible for an ITM Program guarantee.
311.601 Loan size limits.
311.602 Limits on loan maturities.
311.603 Fixed interest rate loans.
311.604 Variable interest rate loans.
Subpart H--Fees
311.700 Guarantee fee.
311.701 Monthly servicing fee.
311.702 Fees the lender may collect from a loan applicant.
311.703 Fees that the lender or associate may not collect from the 
borrower or share with third parties.
Subpart I--Participation Criteria
311.800 Authorization terms.
311.801 Requirements for all participating lenders.
311.802 Preferences.
311.803 Other services lenders may provide borrowers.
311.804 Advertisement of relationship with EDA.
311.805 Securitization and transfer.
Subpart J--Loan Modifications and Servicing Actions
311.900 Deferment of payment.
311.901 Extension of maturity.
311.902 Loan moratoriums..
311.903 Standards for lender loan servicing, loan liquidation, and 
debt collection litigation.
311.904 Servicing and liquidation actions that require the prior 
written consent of EDA.
Subpart K--EDA Purchase of a Guaranteed Portion
311.1000 Purchase of loan guarantees.
311.1001 Applicable interest rate after EDA purchases the guranteed 
portion of an ITM Program loan.
311.1002 Payment of accrued interest to the lender when EDA 
purchases the guaranteed portion.
311.1003 Earliest uncured payment default.
311.1004 Release of EDA's liability.
311.1005 Liquidation and litigation plans.
311.1006 Payment by EDA of legal fees and other expenses.
311.1007 EDA's policies concerning the liquidation of collateral and 
the sale of ITM Program loans.
311.1008 Loan asset sales.
Subpart L--Enforcement Actions
311.1100 Grounds for enforcement actions.
311.1101 Types of enforcement actions--lenders.
311.1102 General procedures for enforcement actions against lenders.

    Authority:  15 U.S.C. 3701 et seq.; Department of Commerce 
Organization Order 10-4.

Subpart A--General Provisions


Sec.  311.1  Purpose and Scope of the Innovative Technologies in 
Manufacturing Loan Guarantee Program.

    (a) As required by the Stevenson-Wydler Technology Innovation Act 
of 1980, a loan guarantee may be made under the Innovative Technologies 
in Manufacturing Loan Guarantee Program only for a project that re-
equips, expands, or establishes a manufacturing facility in the United 
States: To use an innovative technology or an innovative process in 
manufacturing; to manufacture an innovative technology product or an 
integral component of such a product; or to commercialize an innovative 
product, process, or idea that was developed by research funded in 
whole or in part by a grant from the Federal government. See 15 U.S.C. 
3721(b). The Stevenson-Wydler Technology Innovation Act of 1980 defines 
an ``innovative technology'' as a technology that is significantly 
improved as compared to the technology in general use in the commercial 
marketplace in the United States at the time the loan guarantee is 
issued. See 15 U.S.C. 3721(s)(3). Similarly, the term ``innovative 
process'' is defined as a process that is significantly improved as 
compared to the process in general use in the commercial marketplace in 
the United

[[Page 64793]]

States at the time the loan guarantee is issued. See 15 U.S.C. 
3721(s)(2).
    (b) The Secretary of Commerce has delegated the responsibility of 
implementing and administering the Innovative Technologies in 
Manufacturing (``ITM'') Program, which includes promulgating 
regulations as required by the Stevenson-Wydler Technology Innovation 
Act of 1980 (see 13 U.S.C. 3721(l)), to EDA.


Sec.  311.2  Description of Innovative Technologies in Manufacturing 
Loan Guarantee Program.

    A loan is initiated by a Lender agreeing to make an ITM Program-
qualifying loan to a borrower. The lender applies to the ITM Program on 
a loan-by-loan basis. If EDA agrees to guarantee a portion of the loan, 
the lender funds and services the loan. If the borrower defaults on the 
loan, EDA's guarantee requires EDA to purchase its portion of the 
outstanding balance upon demand by the lender and subject to 
verification that program requirements have been met.


Sec.  311.3  Definitions.

    As used in this part, the following terms shall have the following 
meanings:
    Act means section 26 of the Stevenson-Wydler Technology Innovation 
Act of 1980 (15 U.S.C. 3721 et seq.).
    Agency means the Economic Development Administration within the 
U.S. Department of Commerce.
    Assistant Secretary means the Assistant Secretary of Commerce for 
Economic Development.
    Associate means the following:
    (1) An associate of a lender means:
    (i) An officer, director, or holder of 5 percent or more of the 
value of the lender's stock or debt instruments, or an agent involved 
in the loan process; or
    (ii) Any entity in which one or more individuals referred to in 
paragraph (1)(i) of this definition or a close relative of any such 
individual owns or controls at least 5 percent.
    (2) An associate of a borrower means:
    (i) An officer, director, designated representative, or owner of 
more than 5 percent of the borrower's equity;
    (ii) Any entity in which one or more individuals referred to in 
paragraph (2)(i) of this definition or a close relative of any such 
individual owns or controls at least 5 percent of the borrower's 
equity;
    (iii) Any entity in which the borrower owns or controls at least 5 
percent; or
    (iv) Any entity holding convertible debt that could result in 
ownership of at least 5 percent of the borrower wherein the convertible 
debt is eligible for conversion during the time period discussed in 
paragraph (3) of this definition.
    (3) For purposes of this definition, the time during which an 
associate relationship exists commences six months before the following 
dates and continues as long as the certification, participation 
agreement, or loan is outstanding:
    (i) For a lender, the date of application for a loan guarantee on 
behalf of an applicant; or
    (ii) For a borrower, the date of the loan application to EDA, or 
the lender.
    Bank regulatory agencies means the Federal Deposit Insurance 
Corporation, the Federal Reserve Board, and the Office of the 
Comptroller of the Currency.
    Borrower means the person or persons who executed the loan 
instruments evidencing ITM Program-guaranteed loan.
    Chief Counsel means the Chief Counsel of EDA.
    Close relative means a spouse or partner; a lineal descendent, a 
lineal ascendant; a sibling; or the spouse of any such person.
    Department of Commerce, Department, or DOC means the U.S. 
Department of Commerce.
    Eligible passive entity means an entity or trust that does not 
engage in regular and continuous business activity, but does lease or 
otherwise provide real or personal property to an operating entity for 
use in the operating entity's business, and complies with the 
conditions set forth in Sec.  311.7.
    Guarantor means a person who executed a guarantee as security for a 
loan instrument executed by a borrower.
    ITM Program loan proceeds means the proceeds paid to a borrower 
from a lender pursuant to an ITM Program loan.
    Innovative technological project or project is defined as having 
all of the following criteria:
    (1) Innovative, which is defined as:
    (i) A significant improvement in function, performance, 
reliability, or quality of a product or service in comparison to 
commercial technologies currently in use; and
    (ii) The ability for such products or services to be sold based on 
those improvements.
    (2) Technological in nature, which is defined as relying on the 
principles of one of the following sciences: engineering, physical 
sciences, computer sciences, or biological sciences.
    (3) Producing one of the following:
    (i) A significantly improved product or process; or
    (ii) A combination of existing products or processes that result in 
significantly reduced factor inputs without sacrificing product 
quality, production throughput, or economies of production.
    (4) Resulting in one of the following actions:
    (i) Utilizing this innovative technology in the process of 
manufacturing an existing product;
    (ii) Utilizing an existing product where the delivery is the 
innovative technology;
    (iii) Manufacturing a new innovative technology; or
    (iv) Commercializing an innovative technology that was developed by 
research funded in part or in whole by Federal grant funding.
    Lender means an institution that is a lender in good standing under 
the SBA Preferred Lenders Program. Additional eligible institutions may 
be permitted from time to time at the discretion of the Assistant 
Secretary.
    Loan instruments means the authorization, note, instruments of 
hypothecation, and all other agreements and documents related to a 
loan.
    Loan program requirements means requirements imposed upon lenders 
by statute, EDA regulations, any agreement executed between the lender 
and EDA, official EDA notices and forms applicable to the ITM Program, 
and loan instruments; as such requirements are issued and revised by 
EDA from time to time.
    Manufacturing means a business with a six-digit NAICS code between 
311111-333999, and as such other codes as the Assistant Secretary may 
provide and publish in the Federal Register.
    Management official means an officer, director, general partner, 
manager, employee participating in management, agent, or other 
participant in the management of the affairs of the lender's 
activities.
    Medium-sized business means a business that has a maximum size that 
is twice the maximum size of a small business using the same six-digit 
NAICS code and same measurement standards as the calculation for a 
small business.
    Obligor means a person with direct liability for repaying the loan 
such as the borrower and any assumptor, and every person with 
contingent liability such as the guarantor.
    Operating entity means an eligible small or medium-sized business 
actively involved in conducting business operations currently or about 
to be located on real property owned by an eligible passive entity, or 
using or about to use in its business operations

[[Page 64794]]

personal property owned by an eligible passive entity.
    Person means any individual, corporation, partnership, association, 
unit of government, or legal entity, however organized.
    Preference means any arrangement giving a lender a preferred 
position compared to EDA relating to the making, servicing, or 
liquidation of a loan with respect to such things as repayment, 
collateral, guarantees, control, maintenance of a compensating balance, 
purchase of a certificate of deposit or acceptance of a separate or 
companion loan, without EDA's consent.
    Project means an Innovative Technological Project as defined in 
this section.
    Rentable property means the total square footage of all buildings 
or facilities used for business operations.
    SBA or Small Business Administration means the U.S. Small Business 
Administration.
    SBA Preferred Lenders Program means the SBA Preferred Lenders 
Program under 13 CFR 120.450 through 120.453.
    Service provider means an entity that contracts with a lender to 
perform management, marketing, legal or other services.
    Small business means a business that is small in size by the most 
current SBA size standards in effect at the time of the application 
under 13 CFR 121.101 and 121.102 and clarified by any EDA SOPs in 
effect at the time.
    Small or medium-sized business means, collectively, all small 
businesses and all medium-sized businesses.
    SOPs means EDA Standard Operating Procedures, as may be issued and 
revised by EDA from time to time.


Sec.  311.4   Basic eligibility criteria.

    To be an eligible borrower, an applicant must:
    (a) Be an operating business (except for loans to eligible passive 
entities);
    (b) Be organized as a for profit entity;
    (c) Be located in the United States (includes territories and 
possessions);
    (d) Be a small or medium-sized business, when including associates;
    (e) Be prospectively or currently engaged in the manufacture of an 
Innovative Technological Project (except for loans to eligible passive 
entities);
    (f) Be able to demonstrate a need for the desired credit per Sec.  
311.5; and
    (g) Agree to use a federally-approved electronic employment 
eligibility verification system to verify the employment eligibility 
of:
    (1) All persons hired during the contract term or by the borrower 
to perform employment duties within the United States; and
    (2) All persons assigned by the borrower to perform work within the 
United States on the project.


Sec.  311.5   Credit unavailable elsewhere.

    EDA provides loan assistance only to applicants for whom the 
desired credit is not otherwise available on reasonable terms from non-
Federal sources. EDA requires the lender to certify or otherwise show 
that the desired credit is unavailable to the applicant on reasonable 
terms and conditions from non-Federal sources without EDA assistance, 
taking into consideration the prevailing rates and terms in the 
community in or near where the applicant conducts business, for similar 
purposes and periods of time. Submission of an application to EDA by a 
lender constitutes certification by the lender that it has examined the 
credit-worthiness of the applicant, has based its certification upon 
that examination, and has justification in its file to support the 
certification.


Sec.  311.6   Ineligible types of businesses.

    For those businesses that satisfy basic eligibility criteria under 
Sec.  311.304, the following types of businesses are still deemed 
ineligible:
    (a) Non-profit entities (for-profit subsidiaries are eligible);
    (b) Financial businesses primarily engaged in the business of 
lending, such as banks, finance companies, and factors;
    (c) Passive businesses owned by developers and landlords that do 
not actively use or occupy the assets acquired or improved with the 
loan proceeds (except eligible passive entities under Sec.  311.7);
    (d) Life insurance companies;
    (e) Businesses located in a foreign country (businesses in the U.S. 
owned by aliens may qualify);
    (f) Pyramid sale distribution plans;
    (g) Businesses deriving more than one-third of gross annual revenue 
from legal gambling activities;
    (h) Businesses engaged in any illegal activity;
    (i) Private clubs and businesses which limit the number of 
memberships for reasons other than capacity;
    (j) Government-owned entities (except for businesses owned or 
controlled by a Native American tribe);
    (k) Businesses principally engaged in teaching, instructing, 
counseling or indoctrinating religion or religious beliefs, whether in 
a religious or secular setting;
    (l) Consumer and marketing cooperatives (producer cooperatives are 
eligible);
    (m) Businesses with an associate who is incarcerated, on probation, 
on parole, or has been indicted for a felony or a crime of moral 
turpitude;
    (n) Businesses in which the lender, or any of its associates owns 
an equity interest;
    (o) Businesses for which common ownership between the borrower and 
lender:
    (1) Existed within six months of the submission of any of the loan 
instruments by the borrower and lender; or
    (2) Commences existence between the borrower and lender at any time 
during the loan term;
    (p) Businesses that:
    (1) Present live performances of a prurient sexual nature; or
    (2) Derive directly or indirectly more than de minimis gross 
revenue through the sale of products or services, or the presentation 
of any depictions or displays, of a prurient sexual nature;
    (q) Unless waived by EDA for good cause:
    (1) Business that have previously defaulted on a Federal loan or 
federally assisted financing, resulting in the Federal Government or 
any of its agencies or departments sustaining a loss in any of its 
programs, and businesses owned or controlled by an applicant or any of 
its associates which previously owned, operated, or controlled a 
business that defaulted on a Federal loan (or guaranteed a loan that 
was defaulted) and caused the Federal Government or any of its agencies 
or departments to sustain a loss in any of its programs. EDA reserves 
the right to waive this exception for a good cause, including any cases 
where the loss was paid in full. If a loss is paid in full then the 
loss may be processed using standard procedures. For purposes of this 
section, a compromise agreement shall also be considered a loss; or
    (2) Business that have an outstanding delinquent Federal debt;
    (r) Businesses primarily engaged in political or lobbying 
activities; and
    (s) Business not prospectively or currently engaged in the 
manufacture of an Innovative Technological Project (except for loans to 
eligible passive entities).


Sec.  311.7   Conditions required of an eligible passive entity.

    An eligible passive entity must 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 entities 
for conducting the operating entity's business (references to operating 
entity in

[[Page 64795]]

paragraphs (a) and (b) of this section mean each operating entity). Any 
ownership structure or legal form may qualify as an eligible passive 
entity.
    (a) Conditions that apply to all legal forms:
    (1) The operating entity must be an eligible small or medium-sized 
business, and the proposed use of the proceeds must be an eligible use 
if the operating entity were obtaining the financing directly;
    (2) The eligible passive entity (with the exception of a trust) and 
the operating entity each must be a small or medium-sized business 
under the appropriate size standards defined in Sec.  311.3;
    (3) The lease between the eligible passive entity and the operating 
entity must be in writing and must be subordinated to any security 
interest EDA may have on the property. Also, the eligible passive 
entity (as landlord) must furnish as collateral for the loan an 
assignment of all rents paid under the lease;
    (4) The lease between the eligible passive entity and the operating 
entity, including options to renew exercisable solely by the operating 
entity, must have a remaining term at least equal to the term of the 
loan;
    (5) The operating entity must be a guarantor or co-borrower with 
the eligible passive entity. In an ITM Program loan that includes the 
purchase of other assets, including intangible assets, for the 
operating entity's use, the operating entity must be a co-borrower; and
    (6) The eligible passive entity and the operating entity must 
guarantee the loan (the trustee shall execute the guarantee on behalf 
of any trust).
    (b) Additional conditions that apply to trusts. The eligibility 
status of the trustor will determine trust eligibility. All donors to 
the trust will be deemed to have trustor status for eligibility 
purposes. A trust qualifying as an eligible passive entity may engage 
in other activities as authorized by its trust agreement. The trustee 
must warrant and certify that the trust will not be revoked or 
substantially amended for the term of the loan without the consent of 
EDA. The trustor must guarantee the loan. For purposes of this section, 
the trustee shall certify to EDA that:
    (1) The trustee has authority to act;
    (2) The trust has the authority to borrow funds, pledge trust 
assets, and lease the property to the operating entity;
    (3) The trustee has provided accurate, pertinent language from the 
trust agreement confirming the above; and
    (4) The trustee has provided and will continue to provide EDA with 
a true and complete list of all trustors and donors.


Sec.  311.8   Eligible uses of proceeds.

    A borrower must use an ITM Program loan for sound business 
purposes. The uses of proceeds are prescribed in each loan's loan 
instruments. A borrower may use ITM Program loan proceeds to:
    (a) Acquire land (by purchase or lease);
    (b) Improve a site (e.g., grading, streets, parking lots, 
landscaping), including up to 5 percent for community improvements such 
as curbs and sidewalks;
    (c) Purchase one or more existing buildings;
    (d) Convert, expand, or renovate one or more existing buildings;
    (e) Construct one or more new buildings;
    (f) Acquire (by purchase or lease) and install fixed assets;
    (g) Refinance existing debt for eligible uses;
    (h) Purchase inventory, supplies, and/or raw materials; and/or
    (i) License or purchase licenses to the necessary intellectual 
property related to the Innovative Technological Project such as 
patents, trademarks, etc., as long as the licensure or purchased 
license will be used to make a product or improve a process consistent 
with an Innovative Technological Project.


Sec.  311.9  Restrictions on uses of proceeds.

    EDA will not authorize nor may a borrower use loan proceeds for the 
following purposes (including the replacement of funds used for any 
such purpose):
    (a) Payments, distributions, or loans to associates of the borrower 
(except for ordinary compensation for services rendered);
    (b) Refinancing a debt that was not incurred for uses indicated in 
Sec.  311.8;
    (c) Floor plan financing or other revolving line of credit;
    (d) Investments in real or personal property acquired and held 
primarily for sale, lease, or investment;
    (e) A purpose that does not benefit the small or medium-sized 
business;
    (f) Operating working capital;
    (g) Paying past-due Federal, State, and local payroll taxes; or
    (h) Any use restricted by any provision under this part.


Sec.  311.10   Leasing part of a building to another business.

    A borrower may permanently lease up to 49 percent of the rentable 
property to one or more tenants if the borrower permanently occupies 
and uses no less than 51 percent of the rentable property for the 
Innovative Technological Project or Projects. The Projects need not be 
owned solely by the borrower as long as they are bona fide Projects. If 
the borrower is an eligible passive entity that leases 100 percent of 
the new building's space to one or more operating entities, the 
operating entity, or operating entities together, must follow the same 
rule set forth in this paragraph.


Sec.  311.11   Lender ethical requirements.

    Lenders must act ethically and exhibit good character. Ethical 
indiscretion of an associate of a lender will be attributed to the 
lender. A lender must promptly notify EDA if it obtains information 
concerning the unethical behavior of an associate. The following are 
examples of such unethical behavior. A lender may not:
    (a) Self-deal;
    (b) Have a real or apparent conflict of interest with a business 
with which it is dealing (including any of its associates or an 
associate's close relatives) or EDA;
    (c) Own an equity interest in a business that has received or is 
applying to receive EDA credit support (during the term of the loan or 
within 6 months prior to the loan application);
    (d) Be incarcerated, on parole, or on probation;
    (e) Knowingly misrepresent or make a false statement to EDA;
    (f) Engage in conduct reflecting a lack of business integrity or 
honesty;
    (g) Be a convicted felon, or have an adverse final civil judgment 
(in a case involving fraud, breach of trust, or other similar conduct) 
that would cause the public to question the lender's business 
integrity, taking into consideration such factors as the magnitude, 
repetition, harm caused, and remoteness in time of the activity or 
activities in question;
    (h) Accept funding from any source that restricts, prioritizes, or 
conditions the types of businesses that the lender may assist under an 
EDA program;
    (i) Fail to disclose to EDA all relationships between the business 
and its associates (including close relatives of associates), the 
lender, and/or the lenders financing the Innovative Technological 
Project of which the lender is aware or should be aware;
    (j) Fail to disclose to EDA whether the loan will:
    (1) Reduce the exposure of a lender or an associate of a lender in 
a position to sustain a loss;
    (2) Directly or indirectly finance the purchase of real estate, 
personal property or services (including insurance) from the lender or 
an associate of the lender;

[[Page 64796]]

    (3) Repay or refinance a debt due a lender or an associate of a 
lender; or
    (4) Require the business or an associate (including close relatives 
of associates), to invest in the borrower (except for institutions 
which require an investment from all members as a condition of 
membership, such as a Production Credit Association);
    (k) Issue a real estate forward commitment to a builder or 
developer;
    (l) Cease being prospectively or currently engaged in the 
manufacture of an Innovative Technological Project (except for loans to 
eligible passive entities); or
    (m) Engage in any activity that impairs, restricts, or otherwise 
limits the lender's objective judgment in evaluating the loan.


Sec.  311.12   Lending criteria.

    The borrower (including an operating entity) must be creditworthy. 
Loans must be sufficiently sound as to reasonably assure repayment. 
When reviewing ITM Program applications, EDA will consider the follow 
factors of an applicant's, an applicant's associates, and any 
guarantors of the applicant:
    (a) Character, reputation, and credit history;
    (b) Experience and depth of management;
    (c) Strength of the business;
    (d) Past earnings, projected cash flow, and future prospects;
    (e) Ability to repay the loan with earnings from the business;
    (f) Sufficient invested equity to operate on a sound financial 
basis;
    (g) Potential for long-term success;
    (h) Nature and value of collateral (although inadequate collateral 
will not be the sole reason for denial of a loan request); and
    (i) The effect any associates may have on the ultimate repayment 
ability of the applicant.


Sec.  311.13  Loan conditions.

    The following requirements are normally required for all ITM 
Program loans:
    (a) Personal guarantees. Holders of at least a 5 percent ownership 
interest must guarantee a percentage of the loan, as determined by the 
lender. For loans over $10 million, a personal guarantee will be 
determined by EDA. EDA, in its discretion, consulting with the lender, 
may require other appropriate individuals to guarantee the loan as 
well.
    (b) Appraisals. Lenders shall use a prudent policy that is 
substantially comparable to non-guaranteed commercial loans.
    (c) Hazard Insurance. EDA requires hazard insurance on all 
collateral. Lenders may use prudent policy that is similar to those 
requirements for substantially comparable non-guaranteed commercial 
loans.
    (d) Collateral. Lenders shall use a prudent policy that is 
substantially comparable to non-guaranteed commercial loans.
    (e) Bonding requirements. On loans that finance construction, the 
lender must use a construction management company or the borrower must 
supply a 100 percent payment and performance bond and builder's risk 
insurance, unless waived by EDA.

Subpart B--Requirements Imposed Under Other Laws and Orders


Sec.  311.100  Flood insurance.

    Under the Flood Disaster Protection Act of 1973 (Sec. 205(b) of 
Pub. L. 93-234 (42 U.S.C. 4000 et seq.)), a loan recipient must obtain 
flood insurance if any building (including mobile homes), machinery, or 
equipment acquired, installed, improved, constructed, or renovated with 
the ITM Program loan proceeds is located in a special flood hazard 
area. The requirement applies also to any inventory, fixtures, or 
furnishings contained or to be contained in the building. Mobile homes 
on a foundation are buildings. If required, lenders must notify 
borrowers that flood insurance must be maintained.


Sec.  311.101  Compliance with child support obligations.

    Any holder of 50% or more of the ownership interest in the borrower 
must certify that he or she is not more than 60 days delinquent on any 
obligation to pay child support arising under:
    (a) An administrative order;
    (b) A court order;
    (c) A repayment agreement between the holder and a custodial 
parent; or
    (d) A repayment agreement between the holder and a State agency 
providing child support enforcement services.


Sec.  311.102  Flood-plain and wetlands management.

    (a) All loans must conform to requirements of Executive Orders 
11988, ``Flood Plain Management'' (3 CFR, 1977 Comp., p. 117) and 
11990, ``Protection of Wetlands'' (3 CFR, 1977 Comp., p. 121). Lenders 
must comply with requirements applicable to them. Applicants must show:
    (1) Whether the location for which financial assistance is proposed 
is in a floodplain or wetland;
    (2) If it is in a floodplain, that the assistance is in compliance 
with local land use plans; and
    (3) That any necessary construction or use permits will be issued.
    (b) Generally, there is an 8-step decision making process with 
respect to:
    (1) Construction or acquisition, other than of a building;
    (2) Repair and restoration equal to more than 50% of the market 
value of a building; or
    (3) Replacement of destroyed structures.
    (c) EDA may determine for the following types of actions, on a 
case-by-case basis, that the full 8-step process is not warranted and 
that only the first step (determining if a proposed action is in the 
base floodplain) need be completed:
    (1) Actions located outside the base floodplain;
    (2) Repairs, other than to buildings, that are less than 50% of the 
market value of the building;
    (3) Replacement of building contents, materials, and equipment;
    (4) Hazard mitigation measures; or
    (5) EDA loan assistance of $1,500,000 or less, including ITM 
Program loans.


Sec.  311.103   Lead-based paint.

    If loan proceeds are for the construction or rehabilitation of a 
residential structure, lead-based paint may not be used on any interior 
surface, or on any exterior surface that is readily accessible to 
children under the age of seven years.


Sec.  311.104   Earthquake hazards.

    When loan proceeds are used to construct a new building or an 
addition to an existing building, the construction must conform with 
the ``National Earthquake Hazards Reduction Program (``NEHRP'') 
Recommended Provisions for the Development of Seismic Regulations for 
New Buildings'' (which can be obtained from the Federal Emergency 
Management Agency, Publications Office, Washington, DC) or a code 
identified by EDA as being substantially equivalent.


Sec.  311.105   Coastal barrier islands.

    Neither lenders nor EDA may make or guarantee any loan within the 
Coastal Barrier Resource System as a part of the ITM Program.


Sec.  311.106  Compliance with other laws.

    All ITM Program loans are subject to all applicable laws, including 
(without limitation) all applicable environmental laws as well as civil 
rights laws and laws prohibiting discrimination on the grounds of race, 
color, national origin, religion, sex, marital status, disability or 
age. EDA may request agreements or evidence to support or document 
compliance with these laws, including reports required by applicable 
statutes or the regulations in this chapter.

[[Page 64797]]

Subpart C--Applicability and Enforceability of Loan Program 
Requirements


Sec.  311.200  Lender compliance with loan program requirements.

    Lenders must comply and maintain familiarity with loan program 
requirements for the ITM Program, as such requirements are revised from 
time to time. Loan program requirements in effect at the time that a 
lender takes an action in connection with a particular loan govern that 
specific action. For example, although loan closing requirements in 
effect when a lender closes a loan will govern the closing actions, a 
lender's liquidation actions on the same loan are subject to the 
liquidation requirements in effect at the time that a liquidation 
action is taken.


Sec.  311.201   Status of lenders.

    Lenders and their contractors are independent entities that are 
responsible for their own actions with respect to a loan. EDA has no 
responsibility or liability for any claim by a borrower, guarantor or 
other party alleging injury as a result of any allegedly wrongful 
action taken by a lender, an employee, an agent, or a contractor of a 
lender.


Sec.  311.202   Status of borrowers.

    Borrowers and their contractors are independent entities that are 
responsible for their own actions with respect to a loan. EDA has no 
responsibility or liability for any claim by any entity alleging injury 
as a result of any allegedly wrongful action taken by a borrower, an 
employee, an agent, or a contractor of a borrower.

Subpart D--Loan Applications


Sec.  311.300   Applying for a loan.

    An applicant for a loan seeking to participate in the ITM Program 
should apply to a lender who is an SBA preferred lender.


Sec.  311.301  The contents of an ITM Program application.

    For most ITM Program loans, EDA requires that an ITM Program 
application contain, among other things, a description of the history 
and nature of the business, the amount and purpose of the loan, the 
lender's credit memorandum, the collateral offered for the loan, 
current financial statements, historical financial statements (or tax 
returns if appropriate) for the past three fiscal years, IRS tax 
verification, and a business plan, when applicable. Personal histories 
and financial statements may be required from the applicant and 
associates of the applicant (and the operating entity, if applicable).


Sec.  311.302  Approval or denial.

    The lender will receive written notice of acceptance or rejection 
for participation in the ITM Program by EDA, and will pass the decision 
on to the applicant. Notice of rejection will include the reasons for 
rejection.


Sec.  311.303   Reconsideration after rejection.

    If a lender believes the reasons for rejection have been overcome, 
the lender may submit a request for reconsideration to EDA along with a 
detailed written explanation of how the loan applicant has overcome the 
reason(s) for the rejection. The request must be submitted to EDA 
within 6 months of the rejection. Any request submitted more than 90 
days after the date of the rejection must include current financial 
statements. The request for reconsideration will be reviewed by two 
officials designated by the Assistant Secretary. If the two officials 
agree on a decision (acceptance or rejection), the decision will be 
final. If the two officials do not agree, the Assistant Secretary will 
make the final decision. In either case, EDA will inform the lender, in 
writing, of the final decision.

Subpart E--Reporting


Sec.  311.400  Monthly servicing report.

    Lenders must submit a servicing report to EDA on a monthly basis 
for every loan outstanding. EDA may request such loan servicing 
information including principal and interest payments, fee payments, 
loan status, and any additional information as the Assistant Secretary 
sees fit. Lenders may collect and store loan data using a prudent 
policy similar to their policy for non-guaranteed commercial loans.


Sec.  311.401  Disclosure of fees.

    An applicant for an ITM Program loan must identify to EDA the name 
of each agent that helped the applicant obtain the loan, describing the 
services performed, and disclosing the amount of each fee paid or to be 
paid by the applicant to the agent in conjunction with the performance 
of those services. Form ED-159 provides full limitations on fee amounts 
and eligible services.


Sec.  311.402  Notifying DOC's Office of Inspector General of suspected 
fraud.

    Lenders, borrowers, and EDA employees must notify the Department's 
Office of Inspector General of any information of which they are aware 
indicating that fraud may have occurred in connection with an ITM 
Program loan. Send the notification to the U.S. Department of Commerce, 
Office of Inspector General, 1401 Constitution Avenue NW., Washington, 
DC 20230, telephone (202) 482-4661.

Subpart F--Limitations on Use of Proceeds


Sec.  311.500  Refinancing unsecured or under-secured loans.

    A borrower may not use ITM Program loan proceeds to pay any 
creditor in a position to sustain a loss causing a shift to EDA of all 
or part of a potential loss from an existing debt.

Subpart G--Maturities; Interest Rates; Loan and Guarantee Amounts


Sec.  311.600  Percentage of a loan eligible for an ITM Program 
guarantee.

    EDA's guarantee percentage must not exceed the applicable 
percentage established in the Act. The maximum allowable guarantee 
percentage on a loan shall not exceed an amount equal to 80 percent of 
the obligation, as determined at the time at which the loan guarantee 
is issued.


Sec.  311.601  Loan size limits.

    The maximum size for a loan that is eligible for the ITM Program is 
$10 million; however, loans as large as $15 million may be approved by 
the Assistant Secretary on a case-by-case basis.


Sec.  311.602  Limits on loan maturities.

    The term of a loan shall be the lesser of 30 years or 90% of the 
projected useful life, as determined by the Assistant Secretary or 
designee, of the physical asset to be financed by the obligation.


Sec.  311.603  Fixed interest rate loans.

    A loan may have a fixed interest rate based on EDA's maximum 
allowable rates as published periodically in the Federal Register.


Sec.  311.604  Variable interest rate loans.

    A Lender may use a variable rate of interest, upon EDA's approval. 
EDA shall approve the use of a variable interest rate under the 
following conditions:
    (a) Frequency. Any change in the interest rate may only occur on 
the first calendar day of a month, with the first change allowed in the 
first month following initial disbursement. The new rate will use the 
base rate (see paragraph (c) of this section) in effect on the first 
business day of the month.
    (b) Range of fluctuation. The amount of fluctuation shall be equal 
to the movement in the base rate. The

[[Page 64798]]

difference between the initial rate and the ceiling rate may be no 
greater than the difference between the initial rate and the floor 
rate.
    (c) Base rate. The base rate will be one of the following:
    (i) The prime rate as printed in a national financial newspaper 
published each business day;
    (ii) The 3-month London Interbank Offered Rate (LIBOR) as printed 
in a national financial newspaper published each business day; or
    (iii) Five-year Treasuries as printed in the Federal Reserve's H.15 
release, as in effect on the first business day of the month.
    (d) Maximum spreads. The maximum spread will be defined based on 
the base rate. A spread of 2.75 percentage points for prime rate, 5.75 
percentage points for LIBOR rate, or 4.75 percentage points for 
Treasury rate will be the maximum allowed, unless otherwise decided by 
the Assistant Secretary and published in the Federal Register.
    (e) Amortization. A lender is required to reamortize the loan on 
the first calendar day of the month following an interest rate change 
so that the loan will be paid off by the maturity date of the note, as 
amended. With prior approval of EDA, the lender may use a different 
amortization schedule; however, EDA does not permit amortization 
schedules that involve balloon notes or balloon payments.
    (f) Accrual method. Lenders may use either a 30/360 or actual/365 
accrual method for ITM Program loans (actual/366 in leap years). 
Actual/360 and other methods may not be used.

Subpart H--Fees


Sec.  311.700  Guarantee fee.

    (a) Amount of guarantee fee. The guarantee fee that the lender must 
pay to EDA shall be published in the Federal Register prior to the 
first day of a fiscal year. Should the loan guarantee amount increase, 
the amount of the guarantee fee will correspondingly increase.
    (b) When the guarantee fee is payable. The Lender must pay the 
guarantee fee to EDA within 90 days after EDA gives its loan approval. 
The lender may charge the borrower the fee after the lender has made 
the first disbursement of the loan. The borrower may use the loan 
proceeds to pay the guarantee fee. The first disbursement, however, 
must not be made solely or primarily to pay the guarantee fee.
    (c) Refund of guarantee fee. EDA will refund the guarantee fee if 
the lender has not made any disbursement and the lender requests in 
writing the refund and cancellation of the EDA guarantee. If any 
disbursements have been made, the entire fee will be retained.
    (d) Payment of the guarantee fee. The borrower may use non-
revolving working capital loan proceeds to reimburse the lender for the 
guarantee fee. If the guarantee fee is not paid, EDA may terminate the 
guarantee.
    (e) Acceptance of the guarantee fee. Acceptance of the guarantee 
fee by EDA shall not waive any right of EDA arising from the lender's 
misconduct or violation of any provision of this part, the guarantee 
agreement, the authorization, or other loan documents.


Sec.  311.701  Monthly servicing fee.

    A lender must pay an on-going monthly servicing fee to EDA for each 
guaranteed loan it makes. If the servicing fee is not paid, EDA may 
terminate the guarantee. Acceptance of the servicing fee by EDA does 
not waive any right of EDA arising from a lender's or borrower's 
negligence, misconduct or violation of any provision of these 
regulations or the loan instruments. The servicing fee that the lender 
must pay to EDA shall be published in the Federal Register prior to the 
first day of a fiscal year and is due at the time of the monthly 
servicing report. Fees collected on a loan in which EDA refuses to pay 
the guarantee will not be refunded. The servicing fee cannot be charged 
to the borrower. EDA may institute a late fee charge for delinquent 
payments of the servicing fee to cover administrative costs associated 
with collecting delinquent fees.


Sec.  311.702  Fees the lender may collect from a loan applicant.

    The lender may charge borrowers fees that are consistent with 
prudent policy and similar in all material respects to the fees 
assessed against non-guaranteed commercial loans. The fees contemplated 
in this section may include service and packaging fees, extraordinary 
servicing fees, out-of-pocket expenses, late payment fees, and 
prepayment fees, among others.


Sec.  311.703  Fees that the lender or associate may not collect from 
the borrower or share with third parties.

    The lender or its associates may not:
    (a) Require the applicant or borrower to pay the lender, an 
associate, or any party designated by either, any fees or charges for 
goods or services, including insurance, as a condition for obtaining an 
ITM Program loan (unless permitted by this part);
    (b) Charge an applicant any commitment, bonus, broker, commission, 
referral or similar fee;
    (c) Charge points or add-on interest; or
    (d) Charge the borrower for legal services, unless they are hourly 
charges for requested services actually rendered.

Subpart I--Participation Criteria


Sec.  311.800  Authorization terms.

    EDA may enter into an authorization with a lender to make ITM 
Program loans. Such an authorization does not obligate EDA to 
participate in any specific proposed loan that a lender may submit. The 
existence of an authorization does not limit EDA's rights to refuse to 
guarantee a specific loan or establish general ITM Program policies. An 
authorization shall include such detailed terms and conditions as the 
Assistant Secretary determines appropriate to:
    (a) Protect the interests of the United States in the event of 
default; and
    (b) Ensure all the patents and technology necessary are available 
to complete and operate the Innovative Technological Project for any 
borrower, including EDA in subrogation of the borrower as discussed in 
Sec.  311.1000.


Sec.  311.801   Requirements for all participating lenders.

    A lender must be in good standing under the SBA Preferred Lenders 
Program at all times to have any loans be eligible for the ITM Program. 
In addition, the lender must:
    (a) Have a continuing ability to evaluate, process, close, 
disburse, service, liquidate, and litigate loans in its portfolio 
including, but not limited to:
    (1) Not being under any capital limitations by the FDIC to support 
ITM Program lending activities (for lenders with a Federal Financial 
Institution Regulator, meeting capital requirements for an adequately 
capitalized financial institution is considered sufficient); and
    (2) Maintaining satisfactory performance, as determined by EDA in 
its discretion. Factors may include, but are not limited to historical 
performance measures (such as default rate, purchase rate, and loss 
rate), timely and accurate remittance of fees and monthly servicing 
reports, loan volume to the extent it impacts performance measures, and 
other performance-related measurements and information (such as 
contribution toward EDA's ITM Program mission);
    (b) Be open to the public for the making of such loans (not be a 
financing subsidiary, engaged primarily in financing the operations of 
an affiliate);
    (c) Have continuing good character and reputation, and otherwise 
meet and

[[Page 64799]]

maintain the ethical requirements of Sec.  311.11;
    (d) Be supervised and examined by:
    (1) A Federal Financial Institution Regulator,
    (2) A state banking regulator satisfactory to the SBA Preferred 
Lenders Program, or
    (3) SBA in its capacity under the SBA Preferred Lenders Program;
    (e) Certify that it is in good standing with SBA Preferred Lenders 
Program and, as applicable, with an SBA lender's state regulator 
satisfactory to the SBA Preferred Lenders Program and Federal Financial 
Institution Regulator;
    (f) Operate in a safe and sound condition using commercially 
reasonable lending policies, procedures, and standards employed by 
prudent lenders in the SBA Preferred Lenders Program; and
    (g) Allow the Assistant Secretary and the Comptroller General of 
the United States, or their duly authorized representatives, access to 
records and other pertinent documents for the purpose of conducting an 
audit in a reasonable and timely manner.


Sec.  311.802   Preferences.

    An agreement to participate under the Act may not establish any 
preferences in favor of the lender.


Sec.  311.803   Other services lenders may provide borrowers.

    Subject to Sec.  311.11 lenders, their associates, or the designees 
of either may provide services to and contract for goods with a 
borrower only after full disbursement of the loan to the business or to 
an account not controlled by the lender, its associate, or the 
designee. A lender, an associate, or a designee providing such services 
must do so under a written contract with the borrower, based on time 
and hourly, or fee for service charges, and must maintain time and 
billing records for examination by EDA. Fees cannot exceed those 
charged by established professional consultants providing similar 
services.


Sec.  311.804  Advertisement of relationship with EDA.

    A Lender may refer in its advertising to its participation with 
EDA. The advertising may not:
    (a) State or imply that the lender, or any of its borrowers, has or 
will receive preferential treatment from EDA;
    (b) Be false or misleading; or
    (c) Make use of DOC's or EDA's seals, emblems, insignias, or logos.


Sec.  311.805   Securitization and transfer.

    No participating lender may securitize or otherwise, sell all or a 
participating portion of an ITM Program loan, or pledge an ITM Program 
loan without seeking and obtaining approval from the Assistant 
Secretary and executing a separate securitization agreement with EDA 
prior to securitizing. Securitization is governed by the provisions of 
that agreement, any related SOPs, and EDA's relevant regulations.

Subpart J--Loan Modifications and Servicing Actions


Sec.  311.900  Deferment of payment.

    The lender may request, and EDA may agree, to defer principal, 
interest, or both principal and interest payments on a loan for a 
stated period of time, and use such other methods as it considers 
necessary and appropriate to help in the successful operation of the 
borrower.


Sec.  311.901  Extension of maturity.

    EDA may agree to extend the maturity of a loan for up to 10 years 
beyond its original maturity if the extension will aid in the orderly 
repayment of the loan provided that the borrower maintains sufficient 
collateral.


Sec.  311.902   Loan moratoriums.

    EDA may assume a borrower's obligation to repay principal and 
interest on a loan by agreeing to make the payments to the Lender on 
behalf of the borrower under terms and conditions set by EDA. This 
relief is called a ``moratorium.'' Complete information concerning this 
program may be obtained from EDA.


Sec.  311.903  Standards for lender loan servicing, loan liquidation, 
and debt collection litigation.

    (a) Service using prudent lending standards. Lenders must service 
ITM Program loans in their portfolio no less diligently than their non-
ITM Program portfolio, and in a commercially reasonable manner, 
consistent with prudent lending standards, and in accordance with loan 
program requirements. Lenders that maintain an ITM Program loan 
portfolio must adhere to the same prudent lending standards for loan 
servicing followed by commercial lenders on loans without a government 
guarantee.
    (b) Liquidate using prudent lending standards. Lenders must 
liquidate and conduct debt-collection litigation for ITM Program loans 
in their portfolio no less diligently than for their non-ITM Program 
portfolio. Lenders must do so in a prompt, cost-effective and 
commercially reasonable manner, consistent with prudent lending 
standards, and in accordance with loan program requirements and with 
any EDA approval of either a liquidation or litigation plan or any 
amendment of such a plan. Lenders that do not maintain a non-ITM 
Program loan portfolio must adhere to the same prudent lending 
standards followed by commercial lenders that liquidate loans without a 
government guarantee. They must also agree to operate in accordance 
with loan program requirements and with any EDA approval of either a 
liquidation or litigation plan or any amendment of such a plan.
    (c) EDA rights to take over servicing or liquidation. EDA may, in 
its sole discretion, undertake the servicing, liquidation and/or 
litigation of any ITM Program loan. If EDA elects to service, 
liquidate, and/or litigate a loan, it will notify the relevant lender 
in writing, and, upon receiving such notice, the lender must assign the 
loan instruments to EDA and provide any needed assistance to allow EDA 
to service, liquidate, and/or litigate the loan. EDA will notify the 
borrower of the change in servicing. EDA may use contractors to perform 
these actions.


Sec.  311.904  Servicing and liquidation actions that require the prior 
written consent of EDA.

    (a) Actions by lenders. Except as otherwise provided in a 
supplemental authorization with a lender, EDA must give its prior 
written consent before a lender takes any of the following actions:
    (1) Increases the principal amount of a loan above that authorized 
by EDA at loan origination.
    (2) Confers a preference on the lender or engages in an activity 
that creates a conflict of interest.
    (3) Compromises the principal balance of a loan.
    (4) Takes title to any property in the name of EDA.
    (5) Takes title to environmentally contaminated property, or takes 
over operation and control of a business that handles hazardous 
substances or hazardous wastes.
    (6) Transfers, sells or pledges a loan.
    (7) Substantially alters the terms or conditions of any loan 
instrument.
    (8) Releases collateral so as to cause the liquidation value of the 
remaining collateral to be less than 110% of the remaining outstanding 
balance of the loan.
    (9) Accelerates the maturity of the note.
    (10) Compromises or releases any claim against any borrower or 
obligor, or against any guarantor, standby creditor, or any other 
person that is contingently liable for moneys owed on the loan.
    (11) Accepts a workout plan to restructure the material terms and

[[Page 64800]]

conditions of a loan that is in default or liquidation.
    (12) Takes any action for which prior written consent is required 
by a loan program requirement.
    (b) Documentation requirements. For all servicing/liquidation 
actions not requiring EDA's prior written consent, Lenders must 
document the justifications for their decisions and retain those and 
any supporting documents in their file for future EDA review to 
determine if the actions taken by the lender were prudent, commercially 
reasonable, and compliant with all ITM Loan Program Requirements.

Subpart K--EDA Purchase of a Guaranteed Portion


Sec.  311.1000   Purchase of loan guarantees.

    (a) When EDA will purchase. A lender may demand in writing that EDA 
honor its guarantee if the Borrower is in uncured default on any 
installment for more than 60 calendar days (or less if EDA agrees), all 
reasonable workout attempts have failed, and all business personal 
property securing the defaulted ITM Program loan has been liquidated. 
The borrower must be in uncured default for at least 60 days prior to 
the lender beginning any liquidation. A lender may also submit a 
request for purchase of a defaulted ITM Program loan when a borrower 
files for Federal bankruptcy as long as a period of at least 60 days 
has elapsed since the last full installment payment. If a borrower 
cures a default before a lender requests purchase by EDA, the lender's 
right to request purchase on that default lapses. EDA considers 
liquidation of business personal property collateral to be completed 
when a lender has exhausted all prudent and commercially reasonable 
efforts to collect upon these assets. In addition, EDA, in its sole 
discretion, may purchase the guaranteed portion of a loan at any time 
whether in default or not, with or without the request from a lender.
    (b) Documentation for purchase. EDA will not purchase its 
guaranteed portion of a loan from a lender unless the lender has 
submitted to EDA documentation that EDA deems sufficient to allow EDA 
to determine whether purchase of the guarantee is warranted under Sec.  
311.1004.
    (c) No waiver of EDA's rights. Purchase by EDA of the guaranteed 
portion of a loan, or of a portion of EDA's guarantee of a loan, either 
through a negotiated agreement with a lender or otherwise, does not 
waive any of EDA's rights to recover from the responsible lender any 
money paid on the guarantee based upon the occurrence of any of the 
events set forth in Sec.  311.1004 in connection with that loan.
    (d) EDA's rights of subrogation. If EDA makes a payment under Sec.  
311.1000, EDA shall be subrogated to the rights, as specified in the 
loan instruments, of the recipient of the payment or related 
agreements. EDA's rights with respect to any property acquired pursuant 
to the loan instruments or related agreement shall be superior to the 
rights of any other person with respect to that property. These rights 
include, if appropriate, the authority (notwithstanding any other 
provisions of the law):
    (1) To complete, maintain, operate, lease, or otherwise dispose of 
any property acquired pursuant to such loan guarantee or related 
agreement; or
    (2) To permit the borrower, pursuant to an agreement with EDA, to 
continue to pursue the purposes of the project if the Assistant 
Secretary determines that such an agreement is in the public interest.


Sec.  311.1001  Applicable interest rate after EDA purchases the 
guaranteed portion of an ITM Program loan.

    When EDA purchases the guaranteed portion of a fixed interest rate 
loan, the rate of interest remains as stated in the note. On loans with 
a variable interest rate, the interest rate that the Borrower owes will 
be at the rate in effect at the time of the earliest uncured payment 
default, or the rate in effect at the time of purchase if no default 
has occurred.


Sec.  311.1002   Payment of accrued interest to the lender when EDA 
purchases the guaranteed portion.

    (a) Rate of interest. If EDA purchases the guaranteed portion from 
a lender, it will pay accrued interest at:
    (1) The rate in the note if it is a fixed rate loan; or
    (2) The rate in effect on the date of the earliest uncured payment 
default, or of EDA's purchase (if there has been no default).
    (b) Payment to lender. EDA will pay up to a maximum of 180 days 
interest to a lender at the time of guarantee purchase.


Sec.  311.1003   Earliest uncured payment default.

    The earliest uncured payment default is the date of the earliest 
failure by a borrower to pay a regular installment of principal and/or 
interest when due. Payments made by the borrower before a lender makes 
its request to EDA to purchase are applied to the earliest uncured 
payment default with payment first applied to outstanding accrued 
interest then principal. If the installment is paid in full, the 
earliest uncured payment default date will advance to the next unpaid 
installment date. If a borrower makes any payment after the lender 
makes its request to EDA to purchase, the earliest uncured payment 
default date does not change because the lender has already exercised 
its right to request purchase.


Sec.  311.1004   Release of EDA's liability.

    (a) EDA is released from liability on a loan guarantee (in whole or 
in part, within EDA's exclusive discretion), if any of the events below 
occur:
    (1) The lender has failed to comply materially with any loan 
program requirement for ITM Program loans.
    (2) The lender has failed to make, close, service, or liquidate a 
loan in a prudent manner;
    (3) The lender's improper action or inaction has placed EDA at 
risk;
    (4) The lender has failed to disclose a material fact to EDA 
regarding a guaranteed loan in a timely manner;
    (5) The lender has misrepresented a material fact to EDA regarding 
a guaranteed loan;
    (6) EDA has received a written request from the lender to terminate 
the guarantee;
    (7) The lender has not paid the guarantee fee within the period 
required under EDA rules and regulations;
    (8) The lender has failed to request that EDA purchase a guarantee 
within 180 days after the maturity date of the loan. Notwithstanding, 
if the lender is conducting liquidation or debt collection litigation 
in connection with a loan that has matured, EDA will be released from 
its guarantee only if the lender fails to request that EDA purchase the 
guarantee within 180 days after the completion of the liquidation or 
debt collection litigation;
    (9) The lender has failed to use required EDA forms or exact 
electronic copies; or
    (10) The borrower has paid the loan in full.
    (b) If EDA determines, at any time, that any of the events set 
forth in paragraph (a) of this section occurred in connection with that 
loan, EDA is entitled to recover any moneys paid on the guarantee plus 
interest from the lender responsible for those events.
    (c) If the lender's loan documentation or other information 
indicates that one or more of the events in paragraph (a) of this 
section occurred, EDA may undertake such investigation as it deems 
necessary to determine whether to honor or deny the guarantee, and may 
withhold a decision on whether to honor the guarantee until the 
completion of such investigation.

[[Page 64801]]

    (d) Any information provided to EDA by a lender or other party will 
not prejudice, or be construed as any waiver of, EDA's right to deny 
liability for a guarantee if one or more of the events listed in 
paragraph (a) of this section occur.
    (e) Unless EDA provides written notice to the contrary, the lender 
remains responsible for all loan servicing and liquidation actions 
until EDA honors its guarantee in full.


Sec.  311.1005   Liquidation and litigation plans.

    (a) EDA oversight. EDA may monitor or review liquidation through 
the review of liquidation plans that lenders must submit to EDA for 
approval prior to undertaking liquidation, and through liquidation 
wrap-up reports that lenders must submit to EDA at the completion of 
liquidation. EDA will monitor debt collection litigation, such as 
judicial foreclosures, bankruptcy proceedings and other state and 
Federal insolvency proceedings, through the review of litigation plans, 
as set forth in this section.
    (b) Liquidation plan. A lender must, prior to undertaking any 
liquidation, submit a written proposed liquidation plan to EDA and 
receive EDA's written approval of that plan.
    (c) Litigation plan. A lender must obtain EDA's prior approval of a 
litigation plan before proceeding with any Non-Routine Litigation, as 
defined in paragraph (c)(1) of this section. EDA's prior approval is 
not required for routine litigation, as defined in paragraph (c)(2) of 
this section.
    (1) Non-routine litigation includes:
    (i) All litigation where factual or legal issues are in dispute and 
require resolution through adjudication;
    (ii) Any litigation where legal fees are estimated to exceed 
$10,000;
    (iii) Any litigation involving a loan where a lender has an actual 
or potential conflict of interest with EDA; and
    (iv) Any litigation involving an ITM Program loan where the lender 
has made or is servicing a separate loan to the same borrower or an 
associate of the borrower that is not an ITM Program loan.
    (2) Routine litigation means uncontested litigation, such as non-
adversarial matters in bankruptcy and undisputed foreclosure actions, 
having estimated legal fees not exceeding $10,000.
    (d) Decision by EDA to take over litigation. If a lender is 
conducting, or proposes to conduct, debt collection litigation on an 
ITM Program loan, EDA may take over the litigation if EDA determines 
that the outcome of the litigation could adversely affect EDA's 
administration of the ITM Program or that the Government is entitled to 
legal remedies that are not available to the Lender. Examples of cases 
that could adversely affect EDA's administration of the ITM Program 
include, but are not limited to, situations where EDA determines that:
    (1) The litigation involves important governmental policy or 
program issues;
    (2) The case is potentially of great precedential value or there is 
a risk of adverse precedent to the Government;
    (3) The lender has an actual or potential conflict of interest with 
EDA;
    (4) The legal fees of the lender's outside counsel are unnecessary, 
unreasonable, or not customary in the locality; or
    (5) The litigation adversely affects EDA's financial interest in 
the loan.
    (e) Amendments to a liquidation or litigation plan. Lenders must 
submit an amended liquidation or litigation plan to address any 
material changes arising during the course of the liquidation or 
litigation that were not addressed in the original plan or an amended 
plan. Lenders must obtain EDA's written approval of the amended plan 
prior to taking any further liquidation or litigation action. Examples 
of such material changes that would require the approval of an amended 
plan include, but are not limited to:
    (1) Changes arising during the course of routine litigation that 
transform the litigation into non-routine litigation, such as when the 
debtor contests a foreclosure or when the actual legal fees incurred 
exceed $10,000;
    (2) If EDA has approved a litigation plan where anticipated legal 
fees exceed $10,000, or has approved an amended plan, and thereafter 
the anticipated or actual legal fees increase by more than 15 percent 
of the amount in the plan most recently approved by EDA; or
    (3) If EDA has approved a liquidation plan, or an amended plan, and 
thereafter the anticipated or actual costs of conducting the 
liquidation increase by more than 15 percent of the amount in the plan 
most recently approved by EDA.
    (f) Limited waiver of need for a written liquidation or litigation 
plan. EDA may, in its sole discretion, and upon request by a Lender, 
waive the requirements of paragraphs (b), (c), or (e) of this section 
if the following conditions are met:
    (1) One of the following extraordinary circumstances exists to 
warrant such a waiver:
    (i) Expeditious action is needed to avoid the potential risk of 
loss on the loan or dissipation of collateral exists;
    (ii) An immediate response is required to litigation by a borrower, 
guarantor or third party; or
    (iii) Any other urgent reason as determined by EDA arises;
    (2) The lender obtains EDA's written consent to such waiver before 
undertaking the palliative emergency action, if at all practicable;
    (3) EDA's waiver will apply only to the specific action(s) that the 
lender has identified to EDA as being necessary to address the 
emergency; and
    (4) The lender, as soon after the emergency as is practicable, 
submits a written liquidation or litigation plan to EDA or, if 
appropriate, a written amended plan, and may not take further 
liquidation or litigation action without written approval of such plan 
or amendment by EDA.
    (g) Appeals. A lender that made loans under its authority that 
disagrees with EDA's decision pertaining to an original or amended 
liquidation plan, other than such portions of the plan that address 
litigation matters, may appeal this decision in writing within 30 days 
of the decision to an official designated by the Assistant Secretary. 
That official will review the original decision and make a final 
decision based on the information submitted with the original request 
and any additional information provided by the lender. The additional 
information should address any concerns identified by the initial 
reviewing official. If the issue under discussion is part of a 
litigation plan, the Chief Counsel for EDA will review the initial 
decision and any additional information submitted by the bank and make 
a final decision on the appeal.


Sec.  311.1006   Payment by EDA of legal fees and other expenses.

    (a) Legal fees EDA will not pay. (1) EDA will not pay legal fees or 
other costs that a Lender incurs:
    (i) In asserting a claim, cross claim, counterclaim, or third-party 
claim against EDA or in defense of an action brought by EDA, unless 
payment of such fees or costs is otherwise required by Federal law.
    (ii) In connection with actions of a lender's outside counsel for 
performing non-legal liquidation services, unless authorized by EDA 
prior to the action.
    (iii) In taking actions that solely benefit a lender and that do 
not benefit EDA, as determined by EDA.
    (2) EDA will not pay legal fees or other costs a lender incurs in 
the defense of, or pay for any settlement or adverse judgment resulting 
from, a suit, counterclaim, or other claim by any borrower, guarantor, 
or other party that seeks damages based upon a claim that

[[Page 64802]]

the lender breached any duty or engaged in any wrongful actions, unless 
EDA expressly directed the lender to undertake the allegedly wrongful 
action that is the subject of the suit, counterclaim or other claim.
    (b) Legal fees EDA may decline to pay. In addition to any right or 
authority EDA may have under law or contract, EDA may, in its 
discretion, decline to pay a lender for all, or a portion, of legal 
fees and/or other costs incurred in connection with the liquidation 
and/or litigation of an ITM Program loan under any of the following 
circumstances:
    (1) EDA determines that the lender failed to perform liquidation or 
litigation promptly and in accordance with commercially reasonable 
standards, in a prudent manner, or in accordance with any loan program 
requirement or EDA approvals of either a liquidation or litigation plan 
or any amendment of such a plan.
    (2) A lender fails to obtain prior written approval from EDA for 
any liquidation or litigation plan, or for any amended liquidation or 
litigation plan, or for any action set forth in Sec.  311.902, when 
such approval is required by these regulations or a loan program 
requirement.
    (3) If EDA has not specifically approved fees or costs identified 
in an original or amended liquidation or litigation plan under Sec.  
311.1005, and EDA determines that such fees or costs are not 
reasonable, customary or necessary in the locality in question. In such 
cases, EDA will pay only such fees as it deems are necessary, customary 
and reasonable in the locality in question.
    (c) Appeals--liquidation costs. A lender that disagrees with a 
decision by EDA to decline to reimburse all, or a portion, of the fees 
and/or costs incurred in conducting liquidation may appeal this 
decision in writing within 30-calendar days of the decision to an 
official designated by the Assistant Secretary. The official designated 
by the Assistant Secretary will make the final decision. If the issue 
under discussion involves litigation expenses, the decision-making 
official will consult with the Chief Counsel prior to making a final 
determination.
    (d) Appeals--litigation costs. A lender that disagrees with a 
decision by EDA to decline to reimburse all, or a portion, of the legal 
fees and/or costs incurred in conducting debt collection litigation may 
appeal this decision in writing within 30 calendar days of the decision 
to an official designated by the Assistant Secretary. The appeal may 
include additional information to assist in reaching a final decision. 
The final decision will be made by an official designated by the 
Assistant Secretary who was not involved in the initial decision. This 
official will consult with the Chief Counsel prior to making a final 
determination.


Sec.  311.1007   EDA's policies concerning the liquidation of 
collateral and the sale of ITM Program loans.

    (a) Liquidation policy. EDA or the lender, with approval of EDA, 
may liquidate collateral securing a loan if the loan is in default.
    (b) Sale and conversion of loans. Without the consent of the 
borrower, EDA may sell ITM Program loans to qualified bidders by means 
of competitive procedures at publicly advertised sales. Bidder 
qualifications will be set for each sale in accordance with the terms 
and conditions of each sale.
    (c) Disposal of collateral and assets acquired through foreclosure 
or conveyance. EDA or the lender, with the consent of EDA, may sell 
real and personal property (including contracts and claims) pledged to 
secure a loan that is in default in accordance with the provisions of 
the related security instrument.
    (1) Competitive bids or negotiated sales. Generally, EDA will offer 
loan collateral and acquired assets for public sale through competitive 
bids at auctions or sealed bid sales. The lender may use negotiated 
sales if consistent with its usual practice for similar non-EDA assets.
    (2) Lease of acquired property. EDA and the lender will consider 
proposals for a lease if it appears a property cannot be sold 
advantageously and the lease may be terminated on reasonable notice 
upon receipt of a favorable purchase offer.
    (d) Recoveries and security interests shared. EDA and the lender 
will share pro rata (in accordance with their respective interests in a 
loan) all loan payments or recoveries, including proceeds from asset 
sales, all reasonable expenses (including advances for the care, 
preservation, and maintenance of collateral securing the loan and the 
payment of senior lienholders), and any security interest or guarantee 
(excluding EDA's guarantee) which the lender or EDA may hold or receive 
in connection with a loan.
    (e) Guarantors. Guarantors of financial assistance have no rights 
of contribution against EDA on an ITM Program loan. EDA is not deemed 
to be a co-guarantor with any other guarantors.


Sec.  311.1008  Loan asset sales.

    (a) General. Loan asset sales are governed by this section.
    (b) The lender will be deemed to have consented to EDA's sale of 
the loan (guaranteed and unguaranteed portions) in an asset sale 
conducted or overseen by EDA upon the occurrence of:
    (1) EDA's purchase of the guaranteed portion from the lender, 
provided however, that if EDA purchased the guaranteed portion pursuant 
to Sec. Sec.  311.1000 through 311.1003 prior to the lender's 
completion of all liquidation actions with respect to the loan, then 
EDA will not sell such loan in an asset sale until nine months from the 
date of EDA's purchase; or
    (2) EDA receives written consent from the lender.
    (c) For loans identified in paragraph (b)(1) of this section, the 
lender may request that EDA withhold the loan from an asset sale if the 
lender submits a written request to EDA within 15 business days of 
EDA's purchase of the guaranteed portion of the loan from the 
registered holder and if such request addresses the issues described in 
this subparagraph. The lender's written request must advise EDA of the 
status of the loan, the lender's plans for workout and/or liquidation, 
including any pending sale of loan collateral or foreclosure 
proceedings arranged prior to EDA's purchase that already are underway, 
and the lender's estimated schedule for restructuring the loan or 
liquidating the collateral. EDA will consider the lender's request and, 
based on the circumstances, EDA in its sole discretion may elect to 
defer including the loan in an asset sale in order to provide the 
lender additional time to complete the planned restructuring and/or 
liquidation actions.
    (d) After EDA has purchased the guaranteed portion of a loan from 
the lender, the lender must continue to perform all necessary servicing 
and liquidation actions for the loan up to the point the loan is 
transferred to the purchaser in an asset sale. The lender also must 
cooperate and take all necessary actions to effectuate both the asset 
sale and the transfer of the loan to the purchaser in the asset sale.

Subpart L--Enforcement Actions


Sec.  311.1100   Grounds for enforcement actions.

    (a) Agreement. By making ITM Program loans, EDA lenders 
automatically agree to the terms, conditions, and remedies in the loan 
program requirements, as promulgated or issued from time to time and as 
fully set forth in the authorization or other

[[Page 64803]]

applicable participation, guaranty, or supplemental agreement.
    (b) Scope. Upon determination that the grounds applicable to an 
enforcement action exist, EDA may undertake one or more of the actions 
listed in Sec.  311.1101 or as otherwise authorized by law.
    (c) General grounds for enforcement actions. Except as provided in 
paragraphs (d) and (e) of this section, the grounds that may trigger an 
enforcement action against a lender include:
    (1) Failure to maintain eligibility requirements for SBA Preferred 
Lenders Program;
    (2) Failure to comply materially with any requirement imposed by 
ITM Program requirements;
    (3) Making a material false statement or failure to disclose a 
material fact to EDA. A material fact includes but is not limited to 
any fact that is necessary to make a statement not misleading in light 
of the circumstances under which the statement was made;
    (4) Not performing underwriting, closing, disbursing, servicing, 
liquidation, litigation or other actions in a commercially reasonable 
and prudent manner for an ITM Program loan;
    (5) Failure within the time period specified to correct an 
underwriting, closing, disbursing, servicing, liquidation, litigation, 
or reporting deficiency, or failure in any material respect to take 
other corrective action, after receiving notice from EDA of a 
deficiency and the need to take corrective action;
    (6) Engaging in a pattern of uncooperative behavior or taking an 
action that EDA determines is detrimental to an EDA program, that 
undermines management or administration of a program, or that is not 
consistent with standards of good conduct. Prior to issuing a notice of 
a proposed enforcement action or immediate suspension under Sec.  
311.1101 based upon this paragraph, EDA must send prior written notice 
to the Lender explaining why the lender's actions were uncooperative, 
detrimental to the program, undermined EDA's management of the program, 
or were not consistent with standards of good conduct. The prior notice 
must also state that the lender's actions could give rise to a 
specified enforcement action, and provide the Lender with a reasonable 
time to cure the deficiency before any further action is taken;
    (7) Repeated failure to correct continuing deficiencies;
    (8) Unauthorized disclosure of reports, any ratings assigned to the 
lender by EDA, or confidential information;
    (9) Indictment on felony or fraud charges of an officer, or loan 
agent involved with ITM Program loans for the lender;
    (10) As otherwise authorized by law;
    (11) Upon a determination by EDA that one or more of the grounds in 
paragraph (c) of this section, as applicable, exist and that immediate 
action is needed to prevent significant impairment of the integrity of 
the ITM Program;
    (12) Upon a determination by EDA that one or more of the grounds in 
paragraph (c) of this section exists and that immediate action is 
needed to prevent significant impairment of the integrity of the ITM 
Program; and
    (13) Any other reason that EDA determines may increase EDA's 
financial risk.
    (d) Grounds required for certain enforcement actions against 
lenders. The grounds that are required to take enforcement action are:
    (1) For ITM Program suspensions and revocations--
    (i) False statements knowingly made in any required written 
submission to EDA; or
    (ii) An omission of a material fact from any written submission 
required by EDA; or
    (iii) A willful or repeated violation of EDA regulations; or
    (iv) A willful or repeated violation of any condition imposed by 
EDA with respect to any application, request, or agreement with EDA; or
    (v) A violation of any cease and desist order of EDA.
    (2) For ITM Program immediate suspension--EDA may suspend a lender, 
effective immediately, if in addition to meeting the grounds set forth 
in paragraph (d)(1) of this section, the Assistant Secretary finds 
extraordinary circumstances requiring immediate action in order to 
protect the financial or legal position of the United States.
    (3) For cease and desist orders--
    (i) A violation of EDA regulations, or
    (ii) Where a lender is or is about to engage in any acts or 
practices that will violate EDA's regulations.
    (4) For an emergency cease and desist order--
    (i) Where grounds for cease and desist order are met,
    (ii) The Assistant Secretary finds extraordinary circumstances, and
    (iii) EDA must act expeditiously to protect the financial or legal 
position of the United States.
    (5) For transfer of loan portfolio--
    (i) Where a court has appointed a receiver; or
    (ii) The lender is either not in compliance with capital 
requirements or is insolvent. A lender is insolvent within the meaning 
of this provision when all of its capital, surplus, and undivided 
profits are absorbed in funding losses and the remaining assets are not 
sufficient to pay and discharge its contracts, debts, and other 
obligations as they come due.
    (6) For transfer of servicing activity--(i) Where grounds for 
transfer of loan portfolio are met; or
    (ii) Where the lender is otherwise operating in an unsafe and 
unsound condition.


Sec.  311.1101  Types of enforcement actions--lenders.

    Upon a determination that the grounds set forth in Sec.  311.110 
exist, EDA may undertake, in its discretion, one or more of the 
following enforcement actions for each of the types of lenders listed. 
EDA will take such action in accordance with procedures set forth in 
Sec.  311.1102. If enforcement action is taken under this section and 
the lender fails to implement required corrective action in any 
material respect within the required timeframe in response to the 
enforcement action, EDA may take further enforcement action, as 
authorized by law. EDA's decision to take an enforcement action will 
not, by itself, invalidate a guarantee previously provided by EDA.
    (a) Enforcement actions against lenders--(1) Imposition of 
portfolio guarantee dollar limit. EDA may limit the maximum dollar 
amount that EDA will guarantee on the lender's ITM Program loans.
    (2) Suspension or revocation from EDA program. EDA may suspend or 
revoke a lender's authority to participate in the ITM Program, 
including the authority to make, service, liquidate, or litigate ITM 
Program loans. Section 311.1100(d)(1) sets forth the grounds for EDA 
program suspension or revocation of a lender.
    (3) Immediate suspension. EDA may suspend, effective immediately, a 
lender's authority to participate in the ITM Program, or the authority 
to make, service, liquidate, or litigate ITM Program loans. Section 
311.1100(d)(2) sets forth both the grounds for immediate suspension of 
delegated authority for all lenders and grounds for immediate 
suspension of a lender.
    (4) Debarment. In accordance with 2 CFR parts 180 and 2700, EDA may 
take any necessary action to debar a person, as defined in Sec.  311.3, 
including but not limited to an officer, a director, a general partner, 
a manager, an

[[Page 64804]]

employee, an agent, or other participant in the affairs of a lender's 
ITM Program-related operations.
    (5) Other actions available under law. EDA may take all other 
enforcement actions against lenders available under law.
    (b) Enforcement actions specific to lenders. In addition to those 
enforcement actions listed in paragraph (a) of this section, EDA may 
take any one or more of the following enforcement actions specific to 
lenders:
    (1) Cease and desist order. EDA may issue a cease and desist order 
against the lender. The cease and desist order may either require the 
lender to take a specific action, or to refrain from a specific action. 
The cease and desist order may be issued as effective immediately (or 
as a proposal for order).
    (2) Prohibited actions. EDA may prohibit a management official from 
participating in management of the ITM Program loan or from reviewing, 
approving, closing, servicing, liquidating or litigating any ITM 
Program loan, or any other activities of the lender while the removal 
proceeding is pending in order to protect a lender or the interests of 
EDA.
    (3) Initiate request for appointment of receiver. EDA may make 
application to a district court to take exclusive jurisdiction of a 
lender and appoint a trustee or receiver to hold or administer the 
portfolio of ITM Program loans and sell such loans to a third party, 
and/or take possession of servicing activities of ITM Program loans and 
sell such servicing rights to a third party.
    (4) Civil monetary penalties for report filing failure. EDA may 
seek civil penalties of not more than $5,000 a day against a lender 
that fails to file any regular or special report by its due date as 
specified by regulation or EDA written directive.


Sec.  311.1102  General procedures for enforcement actions against 
lenders.

    (a) In general. Except as otherwise set forth for the enforcement 
actions listed in paragraphs (b) and (c) of this section, EDA will 
follow the procedures listed below.
    (1) EDA's notice of enforcement action. (i) When undertaking an 
immediate suspension under Sec.  311.1101 or prior to undertaking an 
enforcement action set forth in Sec.  311.1101, EDA will issue a 
written notice to the affected lender identifying the proposed 
enforcement action or notifying it of an immediate suspension. The 
notice will set forth in reasonable detail the underlying facts and 
reasons for the proposed action or immediate suspension. If the notice 
is for a proposed or immediate suspension, EDA will also state the 
scope and term of the proposed or immediate suspension.
    (ii) If a proposed enforcement action or immediate suspension is 
based upon information obtained from a third party other than the 
lender, EDA's notice of proposed action or immediate suspension will 
provide copies of documentation received from such third party, or the 
name of the third party in case of oral information, unless EDA 
determines that there are compelling reasons not to provide such 
information. If compelling reasons exist, EDA will provide a summary of 
the information it received to the lender.
    (2) Lender's opportunity to object. (i) A lender that desires to 
contest a proposed enforcement action or an immediate suspension must 
file, within 30 calendar days of its receipt of the notice or within 
some other term established by EDA in its notice, a written appeal to 
the appropriate EDA official identified in the notice. Notice will be 
presumed to have been received within five calendar days of the date of 
the notice unless the Lender can provide compelling evidence to the 
contrary.
    (ii) The lender's appeal must set forth in detail all grounds known 
to the Lender to contest the proposed action or immediate suspension 
and all mitigating factors, and must include documentation that the 
lender believes is most supportive of its appeal. A lender must exhaust 
this administrative remedy in order to preserve its appeal to a 
proposed enforcement action or an immediate suspension.
    (iii) If a lender can reasonably demonstrate, as determined by EDA, 
that the lender does not understand the justification given by EDA in 
its notice of the action, the agency will provide clarification. EDA 
will provide the requested clarification in writing to the lender or 
notify the lender in writing that EDA has determined that such 
clarification is not necessary. EDA, in its sole discretion, will 
further advise in writing whether the lender may have additional time 
to present its appeal to the notice. Requests for clarification must be 
made to the appropriate EDA official identified in the notice in 
writing and received by EDA within the 30 calendar day timeframe or the 
timeframe given by the notice for response.
    (iv) A lender may request additional time to respond to EDA's 
notice if it can show that there are compelling reasons why it is not 
able to respond within the 30-day timeframe or the response timeframe 
given by the notice. If such requests are submitted to the agency, EDA 
may, in its sole discretion, provide the requesting lender with 
additional time to respond to the notice of proposed action or 
immediate suspension. Requests for additional time to respond must be 
made in writing to the appropriate EDA official identified in the 
notice and received by EDA within the 30 calendar day timeframe or the 
response timeframe given by the notice.
    (v) Prior to the issuance of a final decision by EDA, if a lender 
can show that there is newly discovered material evidence that, despite 
the lender's exercise of due diligence, could not have been discovered 
within the timeframe given by EDA to respond to a notice, or that there 
are compelling reasons beyond the lender's control as to why it was not 
able to present a material fact or argument to EDA, and that the lender 
has been prejudiced by not being able to present such information, the 
lender may submit such information to EDA and request that the Agency 
consider such information in its final decision.
    (3) EDA's notice of final agency decision where lender filed 
appealed the proposed action or immediate suspension.
    (i) If the affected lender timely appeals a proposed enforcement 
action other than an immediate suspension in accordance with this 
section, EDA must issue a written notice of final decision to the 
affected lender advising whether EDA is undertaking the proposed 
enforcement action and setting forth the grounds for the decision. EDA 
will issue such a notice of decision within 90 calendar days of either 
receiving the appeal or from when additional information is provided 
under paragraph (a)(2)(v) or (a)(3)(iii) of this section, whichever is 
later, unless EDA provides notice that it requires additional time.
    (ii) If the affected lender timely appeals a notice of immediate 
suspension, EDA must issue a written notice of final decision to the 
affected lender within 30 calendar days of receiving the appeal 
advising whether EDA is continuing with the immediate suspension, 
unless EDA provides notice that it requires additional time. If the 
lender submits additional information to EDA (under paragraph (a)(2)(v) 
or (a)(3)(iii) of this section) after submitting its appeal but before 
EDA issues its final decision, EDA must issue its final decision within 
30 calendar days of receiving such information, unless EDA provides 
notice that it requires additional time.

[[Page 64805]]

    (iii) Prior to issuing a notice of decision, EDA may request 
additional information from the affected lender or other parties and 
conduct any other investigation it deems appropriate. If EDA 
determines, in its sole discretion, to consider an untimely appeal, it 
must issue a notice of final decision pursuant to this paragraph 
(a)(3).
    (4) EDA's notice of final agency decision where no appeal was filed 
or an untimely appeal was not considered. If EDA chooses not to 
consider an untimely appeal or if the affected lender fails to file a 
written appeal to a proposed enforcement action or an immediate 
suspension, and if EDA continues to believe that such proposed 
enforcement action or immediate suspension is appropriate, EDA must 
issue a written notice of final decision to the affected lender that 
EDA is undertaking one or more of the proposed enforcement actions 
against the lender or that an immediate suspension of the lender will 
continue. Such a notice of final decision need not state any grounds 
for the action other than to reference the lender's failure to file a 
timely appeal, and represents the final agency decision.
    (5) Appeals. A lender may appeal the final agency decision only in 
the appropriate Federal District Court.

    Dated: August 30, 2016.
Roy K.J. Williams,
Assistant Secretary of Commerce for Economic Development.
[FR Doc. 2016-22284 Filed 9-20-16; 8:45 am]
 BILLING CODE 3510-24-P