[Federal Register Volume 85, Number 41 (Monday, March 2, 2020)]
[Notices]
[Pages 12369-12370]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-03241]



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SMALL BUSINESS ADMINISTRATION

[Docket No. SBA-2020-0006]


Community Advantage Pilot Program

AGENCY: U.S. Small Business Administration.

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

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SUMMARY: The Community Advantage (``CA'') Pilot Program is a pilot 
program to increase SBA-guaranteed loans to small businesses in 
underserved areas. The Small Business Administration (``SBA'' or 
``Agency'') continues to refine and improve the design of the CA Pilot 
Program. To support SBA's commitment to expanding access to capital for 
small businesses and entrepreneurs in underserved markets, SBA is 
issuing this Notice to revise the requirements for refinancing non-SBA 
guaranteed, same institution debt in certain circumstances. Further, 
SBA is revising the number of loans a CA Lender must make before it can 
begin processing loans under its delegated authority. Finally, SBA is 
providing guidance on the expiration and process for renewal of CA 
Lenders' Loan Guaranty Agreements (SBA Form 750CA).

DATES: The changes take effect March 2, 2020. The CA Pilot Program will 
remain in effect until September 30, 2022.
    Comment Date: Comments must be received on or before April 1, 2020.

ADDRESSES: You may submit comments, identified by SBA docket number 
SBA-2020-0006, by any of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov/. 
Follow the instructions for submitting comments.
     Mail: Daniel Upham, Chief, Microenterprise Development 
Division, Office of Financial Assistance, U.S. Small Business 
Administration, 409 Third Street SW, Washington, DC 20416.
     Hand Delivery/Courier: Daniel Upham, Chief, 
Microenterprise Development Division, Office of Financial Assistance, 
U.S. Small Business Administration, 409 Third Street SW, Washington, DC 
20416.
    SBA will post all comments on https://www.regulations.gov. If you 
wish to submit confidential business information (``CBI'') as defined 
in the User Notice at https://www.regulations.gov, please submit the 
information to Daniel Upham, Chief, Microenterprise Development 
Division, Office of Financial Assistance, U.S. Small Business 
Administration, 409 Third Street SW, Washington, DC 20416; or send an 
email to [email protected]. Highlight the information that you 
consider to be CBI and explain why you believe SBA should hold this 
information as confidential. SBA will review the information and make 
the final determination as to whether it will publish the information.

FOR FURTHER INFORMATION CONTACT: Daniel Upham, Chief, Microenterprise 
Development Division, Office of Financial Assistance, U.S. Small 
Business Administration, 409 Third Street SW, Washington, DC 20416, 
(202) 205-7001, [email protected].

SUPPLEMENTARY INFORMATION: 

1. Background

    As part of its efforts to increase the number of SBA-guaranteed 
7(a) loans made to small businesses in underserved markets, on February 
18, 2011, SBA issued a notice and request for comments introducing the 
CA Pilot Program (76 FR 9626). That notice provided an overview of the 
CA Pilot Program requirements and, pursuant to the authority provided 
to SBA under 13 CFR 120.3 to suspend, modify or waive certain 
regulations in establishing and testing pilot loan initiatives, SBA 
modified or waived as appropriate certain regulations which otherwise 
apply to 7(a) loans for the CA Pilot Program.
    Subsequent notices have made changes to the CA Pilot Program to 
improve the program experience for participants, improve their ability 
to deliver capital to underserved markets, and appropriately manage 
risk to the Agency. These notices were issued on the following dates: 
September 12, 2011 (76 FR 56262), February 8, 2012 (77 FR 6619), 
November 9, 2012 (77 FR 67433), December 28, 2015 (80 FR 80872), and 
September 12, 2018 (83 FR 46237). In the notice published September 12, 
2018 (the ``September 2018 Notice''), SBA extended the pilot program to 
September 30, 2022, placed a moratorium on the acceptance of 
applications for new Community Advantage Lenders (``CA Lenders''), 
modified the requirements for refinancing non-SBA guaranteed, same 
institution debt, and revised other program requirements. SBA is 
issuing this Notice to further revise program requirements as described 
more fully below.

2. Comments

    Although the changes are effective March 2, 2020, comments are 
solicited from interested members of the public on all aspects of the 
CA Pilot Program. Comments must be submitted on or before the deadline 
for comments listed in the DATES section. SBA will consider these 
comments and the need for making any revisions as a result of these 
comments.

3. Changes to the Community Advantage Pilot Program

(a) Non-SBA Guaranteed, Same Institution Debt Refinancing Requirements

    Based on comments received in response to the September 2018 
Notice, SBA is modifying the requirements for refinancing non-SBA 
guaranteed, same institution debt. SBA has learned that the applicants 
for refinancing are often small businesses that, for one reason or 
another, have obtained financing with terms that are onerous and 
unsustainable for the applicant, such as loans with high compound 
interest rates, draw fees, late fees, and/or substantial prepayment 
penalties. When a CA Lender receives such an application for 
refinancing, the CA Lender may opt to make an interim, non-SBA 
guaranteed loan to immediately restructure the financing on more 
reasonable terms, in anticipation of providing a permanent solution. 
SBA recognizes the importance of improving cash flow to a small 
business as soon as possible with a loan on more reasonable terms, and 
of providing a small business applicant with the additional time and 
technical assistance it may need to complete a successful SBA-
guaranteed loan application. Therefore, SBA is modifying the 
restrictions on refinancing non-SBA guaranteed, same institution debt 
to permit the CA Lender to pay off certain interim loans with an SBA-
guaranteed CA loan when beneficial to the small business applicant 
under certain circumstances. (It is important to note, however, that 
extension of an interim loan by a CA Lender is made entirely at the CA 
Lender's risk as there is no assurance that the interim loan will be 
eligible to be refinanced with a CA loan.)
    In order to refinance its own interim, non-SBA guaranteed same 
institution loan with a CA loan, the CA Lender must comply with all of 
the following:
    i. The sole purpose of the interim loan must have been to refinance 
debt that was on onerous terms (e.g., the refinancing will improve the 
Applicant's cash flow by at least 15%), including necessary out-of-
pocket costs.
    ii. The Annual Percentage Rate (``APR'') on the interim loan must 
not

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exceed the maximum interest rate allowable under the CA Pilot Program.
    iii. The interim loan must not have been made more than 6 months 
prior to the submission in E-TRAN of the SBA-guaranteed CA loan 
application.
    iv. The CA Lender must provide a transcript showing the due dates 
and when payments were received for the entire term of the interim 
loan. If there are any late payments and/or late charges on the interim 
loan, the CA Lender must explain in its credit memorandum the late 
payments and late charges and substantiate how the CA Lender has 
determined that SBA will not be in a position to sustain a loss from 
refinancing the interim loan.
    v. The CA Lender may not charge any fees on the interim loan except 
for necessary out-of-pocket costs associated with closing the loan, 
such as filing or recording fees. There must be no prepayment penalty 
or other charge for prepayment of the interim loan.
    vi. The CA loan that refinances the interim loan must be submitted 
to SBA for non-delegated processing and may not be approved under a CA 
Lender's delegated authority.
    vii. The CA Lender must address in its credit memorandum how the 
original debt meets the requirements set forth in SOP 50 10 for debt 
refinancing (currently, Subpart B, Chapter 2, Paragraph V.E.).

(b) Delegated Authority

    Currently, a CA Lender that is determined to be eligible for 
delegated authority may not process loans using its delegated authority 
until (i) it closes and makes an initial disbursement on at least seven 
non-delegated CA loans, and (ii) the Office of Credit Risk Management 
(``OCRM'') determines, in consultation with the Loan Guaranty 
Processing Center (``LGPC''), that it has satisfactory knowledge of SBA 
Loan Program Requirements. SBA is increasing the number of CA loans 
that must be initially disbursed before a CA Lender may receive 
approval to process applications under delegated authority. Effective 
March 2, 2020, the number of loans is increased to ten.

(c) Loan Guaranty Agreement (SBA Form 750CA) Expiration and Renewal

    On September 12, 2018, SBA extended the Community Advantage Pilot 
Program from March 31, 2020, to September 30, 2022. Currently, most CA 
Lenders have a Loan Guaranty Agreement (SBA Form 750CA) that expires on 
March 31, 2020. As set forth in the CA Participant Guide, OCRM will 
conduct a review of each CA Lender prior to March 31, 2020. The review 
will include, but not be limited to, an assessment of the CA Lender's 
compliance with SBA Loan Program Requirements, including the 
requirement to make 60 percent of its loans to small businesses in the 
CA underserved markets, satisfactory SBA performance as determined by 
SBA in its discretion, and other risk-related criteria. Based on the 
results of a CA Lender's review, OCRM may: (1) Renew the CA Lender's 
SBA Form 750CA until the expiration date of the pilot program 
(September 30, 2022); (2) renew the CA Lender's SBA Form 750CA for a 
shorter period; or (3) not renew the CA Lender's SBA Form 750CA beyond 
March 31, 2020. In the latter two cases, OCRM will provide an 
explanation for the shortened renewal or non-renewal, as appropriate.

(d) Limited Moratorium Exception

    As stated in the September 2018 Notice, SBA believes there are a 
sufficient number of CA Lenders for SBA to perform a proper evaluation 
of the pilot program. In order to maintain a sufficient number of CA 
Lenders, SBA will accept new applications from qualified eligible 
entities to replace CA Lenders that voluntarily withdraw from the 
program, are not renewed, or are otherwise removed from the pilot 
program. SBA will provide further information on this process after 
March 31, 2020, when it expects to know the number of CA Lenders that 
will not be continuing in the pilot program. In accordance with the 
September 2018 Notice, SBA is not increasing the total number of CA 
Lenders.

4. General Information

    The changes in this Notice are limited to the CA Pilot Program 
only. All other SBA Loan Program Requirements and regulatory waivers or 
modifications related to the CA Pilot Program remain unchanged.
    SBA has provided more detailed guidance in the form of a 
Participant Guide, which will be updated to reflect these changes and 
will be available on SBA's website at http://www.sba.gov. SBA may 
provide additional guidance, through SBA notices, which may also be 
published on SBA's website at http://www.sba.gov/category/lender-navigation/forms-notices-sops/notices. Questions regarding the CA Pilot 
Program may be directed to the Lender Relations Specialist in the local 
SBA district office. The local SBA district office may be found at 
http://www.sba.gov/about-offices-list/2.

    Authority: 15 U.S.C. 636(a)(25) and 13 CFR 120.3.

    Dated: February 11, 2020.
Jovita Carranza,
Administrator.
[FR Doc. 2020-03241 Filed 2-28-20; 8:45 am]
 BILLING CODE P