[Federal Register Volume 83, Number 139 (Thursday, July 19, 2018)]
[Rules and Regulations]
[Pages 34021-34022]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-15312]



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 Rules and Regulations
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  Federal Register / Vol. 83, No. 139 / Thursday, July 19, 2018 / Rules 
and Regulations  

[[Page 34021]]



SMALL BUSINESS ADMINISTRATION

13 CFR Part 120


504 Loan Program Rural Initiative--Waiver of Limitation on 
Lending Authority

AGENCY: U.S. Small Business Administration.

ACTION: Notification of 504 Loan Program Rural Initiative Pilot Program 
and impact on regulatory provisions.

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SUMMARY: The U.S. Small Business Administration (SBA) announces the 504 
Loan Program Rural Initiative Pilot Program (504 Rural Pilot), as 
described in this document, and its impact on Agency regulations. The 
504 Rural Pilot waives the restrictions on the authority of Certified 
Development Companies (CDCs) to make 504 loans outside their Area of 
Operations to allow each CDC to make loans for 504 Projects with an 
address located in any rural county if the 504 Project is located in 
the same SBA Region in which the CDC is incorporated. This pilot will 
provide rural small businesses with increased opportunities to access 
capital and will further the statutory public policy goal of the 504 
Loan Program to achieve rural development impact.

DATES: The 504 Rural Pilot, including the waiver of the restrictions in 
13 CFR 120.839 on CDCs' authority to make loans outside their Area of 
Operations, will be available from July 19, 2018, through July 20, 
2020.

FOR FURTHER INFORMATION CONTACT: Linda Reilly, Chief, 504 Program 
Branch, Office of Financial Assistance, U.S. Small Business 
Administration, 409 Third Street SW, Washington, DC 20416; Telephone 
(202) 205-9949; email address: [email protected].

SUPPLEMENTARY INFORMATION: The 504 Loan Program is a financing tool 
authorized under title V of the Small Business Investment Act of 1958 
(SBIAct) to provide small businesses with long-term, fixed-rate 
financing to help acquire major fixed assets for expansion or 
modernization. A Certified Development Company (CDC) is typically a 
private, nonprofit corporation set up to contribute to the economic 
development of its community. CDCs work with SBA and private sector 
lenders to provide financing to small businesses under the 504 Loan 
Program. In general, a 504 project includes: A loan obtained from a 
private sector lender with a senior lien covering at least 50 percent 
of the project cost; a loan obtained from a CDC with a junior lien 
covering up to 40 percent of the project cost (backed by a 100 percent 
SBA-guaranteed debenture); and a contribution from the Borrower of at 
least 10 percent of the project cost.
    Under 13 CFR 120.821, a CDC is required to operate only within its 
designated Area of Operations approved by SBA, except as provided in 13 
CFR 120.839. Each CDC's approved Area of Operations includes the entire 
State in which it is incorporated (see 13 CFR 120.810(b)). A CDC also 
may apply and be approved to expand its Area of Operations into a Local 
Economic Area under 13 CFR 120.835(b) or by becoming a Multi-State CDC 
under 13 CFR 120.835(c). Under 13 CFR 120.839, a CDC may submit a 
request to the Sacramento Loan Processing Center (SLPC) to make a 504 
loan for a 504 Project outside its Area of Operations. In such case, 
the CDC must demonstrate that it can adequately fulfill its 504 program 
responsibilities for the 504 loan, including proper servicing, and have 
satisfactory SBA performance, as determined by SBA in its discretion. 
The SLPC may approve the application if, in addition to other 
requirements, (1) the CDC has previously assisted the business to 
obtain a 504 loan, (2) the existing CDC or CDCs serving the area agree 
to permit the applicant CDC to make the 504 loan, or (3) there is no 
CDC within the Area of Operations in which the 504 Project is located.
    One of the statutory public policy goals of the 504 Loan Program is 
to achieve rural development. See section 501(d)(3)(D) of the SBIAct. 
Since 2013, a significant number of rural CDCs have voluntarily 
decertified, while SBA has approved only two new rural CDCs. SBA has 
historically found that increasing the CDC operating service area 
results in more 504 loan activity. However, in accordance with 13 CFR 
120.835, CDCs are only permitted to expand their Area of Operations by 
requesting Local Economic Area expansion or Multi-State authority. This 
authority limits CDC expansion to areas and States contiguous to a 
CDC's Area of Operations.
    In order to address this issue and increase lending in rural areas, 
SBA has developed the 504 Rural Pilot. This Pilot allows CDCs to make 
loans for 504 Projects with an address located in any county classified 
as ``rural'' by the U.S. Census Bureau if the 504 Project is located in 
the same SBA Region in which the CDC is incorporated. SBA expects that 
the expansion of a CDC's authority to process rural loans anywhere 
within their SBA-defined Region will result in increased lending and 
economic growth in rural markets.
    Specifically, for purposes of the 504 Rural Pilot, SBA is waiving 
the following requirements in 13 CFR 120.839 (i.e., these requirements 
will not apply to 504 Rural Pilot loans):
    (1) The CDC must apply to the Sacramento Loan Processing Center in 
order to make the 504 loan for the 504 Project outside of its Area of 
Operation;
    (2) The CDC must demonstrate that it can adequately fulfill its 504 
program responsibilities for the 504 loan;
    (3) SBA must determine that the CDC has satisfactory SBA 
performance; and
    (4) The CDC must have previously assisted the business to obtain a 
504 loan, the existing CDC or CDCs serving the area agree to permit the 
outside CDC to make the 504 loan, or there is no CDC within the Area of 
Operations in which the 504 Project is located.
    Under the 504 Rural Pilot, a CDC may make a 504 loan for a 504 
Project located outside the CDC's Area of Operations only if the 504 
Project address is located in a rural county that is in the same SBA 
Region in which the CDC is incorporated. For purposes of the 504 Rural 
Pilot, rural counties are those counties classified as ``mostly rural'' 
or ``completely rural'' by the U.S. Census Bureau in its most recent 
decennial census report, and are identified in the County 
Classification Lookup Table that can be downloaded at www.sba.gov/about-sba/sba-initiatives/sba-rural-lending-initiative or on the 
Welcome Screen for the Capital Access Financial System (CAFS). (CDCs 
must use the U.S. Census Bureau table for purposes of identifying rural

[[Page 34022]]

counties for the 504 Rural Pilot, which may not be the same as the 
rural areas identified by the U.S. Department of Agriculture.) SBA 
Regions are defined as follows:

 Region I: Connecticut, Maine, Massachusetts, New Hampshire, 
Rhode Island, and Vermont
 Region II: New York, New Jersey, Puerto Rico, and The U.S. 
Virgin Islands
 Region III: Delaware, Maryland, Pennsylvania, Virginia, 
Washington, DC, and West Virginia
 Region IV: Alabama, Florida, Georgia, Kentucky, Mississippi, 
North Carolina, South Carolina, and Tennessee
 Region V: Illinois, Indiana, Michigan, Minnesota, Ohio, and 
Wisconsin
 Region VI: Arkansas, Louisiana, New Mexico, Oklahoma, and 
Texas
 Region VII: Iowa, Kansas, Missouri, and Nebraska
 Region VIII: Colorado, Montana, North Dakota, South Dakota, 
Utah, and Wyoming
 Region IX: Arizona, California, Guam, Hawaii, and Nevada
 Region X: Alaska, Idaho, Oregon, and Washington.

    In making, closing, servicing, or liquidating a 504 Rural Pilot 
loan, CDCs must follow all other Loan Program Requirements under the 
504 Loan Program, except that 504 Rural Pilot loans cannot be made 
using the CDC's delegated authority (i.e., PCLP or ALP authority). 
Although, as described above, CDCs will not be required ``to 
demonstrate'' that they can adequately fulfill their 504 program 
responsibilities for each 504 Rural Pilot loan before making the loan, 
CDCs will still be expected to fulfill all such program 
responsibilities with respect to these loans.
    Unlike a Multi-State CDC, a CDC making a loan under this pilot will 
not be required to establish a separate loan committee to cover the 
State in which the rural 504 Project is located. In addition, the CDC 
must advise the local District Counsel where the 504 Project is located 
which Designated Attorney, or other attorney, will be closing the loan. 
(The attorney must be licensed in the State where the loan is being 
made.) CDCs should note that the CDC may not close the loan as an 
expedited loan unless the attorney is a Designated Attorney licensed to 
practice in the State where the 504 Project is located. The CDC is 
responsible for notifying the SLPC that a 504 loan application is being 
submitted under the 504 Rural Pilot.
    SBA's waiver of the above requirements is authorized by 13 CFR 
120.3 of its regulations, which provides that the SBA Administrator may 
suspend, modify or waive rules for a limited period of time to test new 
programs or ideas. The 504 Rural Pilot will be available for a two year 
period beginning today.
    SBA will limit the number of loans made under the 504 Rural Pilot 
to not more than ten percent of the total number of 504 loans 
guaranteed by SBA in any fiscal year. While SBA does not expect the 
number of 504 Rural Pilot loans to reach that limit, SBA will provide 
public notice of the need to suspend lending under the 504 Rural Pilot 
for the remainder of the fiscal year if SBA determines that the number 
of pilot loans is approaching the limit.
    SBA will be using the following criteria to evaluate the 504 Rural 
Pilot to determine how well it is achieving its objectives and other 
aspects of performance: (1) The measurable objectives to be achieved 
through the 504 Rural Pilot, including the number of small business 
concerns served, and the delinquency and default rates on the 504 Rural 
Pilot loans compared to regular 504 loans; (2) the number of CDCs that 
participate in the 504 Rural Pilot and their performance in making and 
servicing 504 Rural Pilot loans; and (3) the costs and standards of 
performance which, in order to be acceptable, must not impact the 
overall subsidy rate for the 504 Loan Program. For data collections to 
evaluate the effectiveness of this pilot, SBA will use ETran, SBA's 
electronic system for loan submission and servicing.

    Authority:  13 CFR 120.3.

    Dated: July 6, 2018.
Linda E. McMahon,
Administrator.
[FR Doc. 2018-15312 Filed 7-18-18; 8:45 am]
 BILLING CODE 8025-01-P