[Federal Register Volume 85, Number 136 (Wednesday, July 15, 2020)]
[Notices]
[Pages 42964-42966]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14852]
=======================================================================
-----------------------------------------------------------------------
SMALL BUSINESS ADMINISTRATION
[Docket No. SBA-2020-0041]
Community Advantage Pilot Program Temporary Changes--Community
Advantage Recovery Loans
AGENCY: U.S. Small Business Administration.
ACTION: Temporary changes to Community Advantage Pilot Program and
request for comments.
-----------------------------------------------------------------------
SUMMARY: The Community Advantage (CA) Pilot Program is a pilot program
to increase SBA-guaranteed loans to small businesses in underserved
areas. In response to the Coronavirus Disease 2019 (COVID-19) pandemic,
SBA has developed a new, temporary CA loan product titled ``Community
Advantage Recovery Loans'' (CA Recovery Loans) for eligible CA Lenders
to provide technical and financial assistance to assist small
businesses located in underserved areas with retooling their business
models for the COVID-19 environment and building financial resiliency
against potential future disruptions. SBA is issuing this document to
provide the specific requirements for CA Recovery Loans.
DATES: The changes to the CA Pilot program identified in this document
take effect July 15, 2020. CA Recovery Loans can be approved through
September 27, 2020 and must be fully disbursed no later than October 1,
2020.
Comment Date: Comments must be received on or before August 14,
2020.
ADDRESSES: You may submit comments, identified by SBA docket number
SBA- 2020-0041 through the Federal eRulemaking Portal: https://www.regulations.gov/. Follow the instructions for submitting comments.
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 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, or Rosemarie Drake, Chief, 7(a) Loan Division,
Office of Financial Assistance, U.S. Small Business Administration, 409
Third Street SW, Washington, DC 20416, (202) 205-7001,
[email protected] or (202) 619-1674, [email protected]:.
SUPPLEMENTARY INFORMATION:
1. Background
On March 13, 2020, President Trump declared the ongoing COVID-19
pandemic of sufficient severity and magnitude to warrant an emergency
declaration for all states, territories, and the District of Columbia.
With the COVID-19 emergency, many small businesses nationwide are
experiencing economic hardship as a direct result of the Federal,
State, and local public health measures that are being taken to
minimize the public's exposure to the virus. These measures, some of
which are government-mandated, have been implemented nationwide and
include the closures of restaurants, bars, and gyms. In addition, based
on the advice of public health officials, other measures, such as
keeping a safe distance from others or even stay-at-home orders, have
been implemented, resulting in a dramatic decrease in economic activity
as the public avoids malls, retail stores, and other businesses.
On March 27, 2020, the President signed the Coronavirus Aid,
Relief, and Economic Security Act (the CARES Act or the Act) (Pub. L.
116-136) to provide emergency assistance and health care response for
individuals, families, and businesses affected by the coronavirus
pandemic. The Small Business Administration (SBA) received funding and
authority through the Act to modify existing loan programs to assist
small businesses nationwide adversely impacted by the COVID-19
emergency.
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),
September 12, 2018 (83 FR 46237), and March 2, 2020 (85 FR 12369).
SBA is issuing this document to establish a new, temporary CA loan
product in response to the COVID-19 emergency. CA Recovery Loans will
be available to small businesses located in underserved markets from
certain existing CA Lenders through September 27, 2020. CA policies and
regulatory waivers apply to CA Recovery Loans, except as outlined in
this Notice. The policies and regulatory waivers described below apply
only to CA Recovery Loans. Other CA loans continue to be governed by
the existing CA Loan Program Requirements.\1\
---------------------------------------------------------------------------
\1\ ``CA Loan Program Requirements'' means Loan Program
Requirements as defined in 13 CFR 120.10, and the requirements
contained in the Federal Register notices governing the pilot and
the Community Advantage Participant Guide, as amended from time to
time.
---------------------------------------------------------------------------
2. Comments
Although the changes are effective July 15, 2020, comments are
solicited from interested members of the public. 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. Community Advantage Recovery Loans
a. Overview
The CARES Act was enacted to provide immediate assistance to
individuals, families, and businesses affected by the COVID-19
emergency. Under section 1112 of the CARES Act, SBA will provide debt
relief to borrowers in the 7(a) (including the CA Pilot Program), 504,
and Microloan Programs. As discussed more fully below, through the CA
Recovery Loans, SBA intends to leverage this authority to provide debt
relief to borrowers with technical and financial assistance to maximize
the assistance available to borrowers in underserved markets.
SBA's authority under section 1112, as further described below, is
in effect for loans made through September 27, 2020, which will be the
final day for the approval of CA Recovery Loans.
[[Page 42965]]
b. Eligible Lenders
In light of the potential risks associated with CA Recovery Loans
and the short period of time during which CA Recovery Loans may be
made, only certain lenders that are already participating in the CA
Pilot Program will be eligible to make CA Recovery Loans. Several key
metrics have been used to identify eligible lenders, including CA loan
volume, portfolio performance metrics and most recent lender review
results. Within 5 business days of the publication of this document,
SBA will notify existing CA Lenders that are eligible to make CA
Recovery Loans (referred to in this Notice as ``CA Recovery Lenders'')
and provide instructions on how to opt in if they choose to
participate. Once a CA Recovery Lender has opted in, it will be able to
enter loans in ETRAN as a CA Recovery Loan. Other CA Lenders may refer
and/or package loans for CA Recovery Lenders for a fee, as described in
paragraph e. below.
c. CA Recovery Loan Terms and Conditions
All CA Recovery Loans must be made to small businesses located in
underserved markets, as defined in the CA Participant Guide available
on SBA's website at https://www.sba.gov/sites/default/files/2020-06/CA%20Guide%20Version%206%20FINAL%20508%2006-01-20.pdf, and must be
accompanied by technical assistance (TA) provided to the borrower by or
on behalf of the CA Recovery Lender. The TA is for the purpose of
assisting the borrower to build financial resiliency against future
business disruptions and must be for a minimum of 15 hours. The TA may
begin 30 days before loan approval and must be completed during the
first six months of the CA Recovery Loan term. The cost of the
technical assistance is to be paid out of the extraordinary servicing
fee described in paragraph d. below. No other fees may be charged by
the lender on CA Recovery Loans, except for necessary out-of-pocket
expenses, such as filing or recording fees, under 13 CFR 120.221(c).
All CA Recovery Loans must be approved by September 27, 2020 and
must be fully disbursed no later than October 1, 2020. The minimum loan
term for a CA Recovery Loan is five years.
All other loan terms and conditions for CA Recovery Loans are the
same as the terms and conditions for other CA loans, as set forth in
the CA Loan Program Requirements. CA Recovery Lenders are reminded that
they must maintain adequate loan loss reserves to cover potential
losses arising from defaulted CA loans, including any CA Recovery
Loans.\2\
---------------------------------------------------------------------------
\2\ As set forth in section VI of the CA Participant Guide (ver.
6.0, effective June 15, 2020), the Loan Loss Reserve Account must
equal no less than 5% of the outstanding balance of the unguaranteed
portion of the CA Lender's CA loan portfolio and an additional 5%
reserve amount is required to be maintained on the guaranteed
portion of each CA loan that is sold into the secondary market.
---------------------------------------------------------------------------
d. Allowable Extraordinary Servicing Fee for CA Recovery Loans and
Technical Assistance Requirement
For CA Recovery Loans only, SBA is modifying the requirements of 13
CFR 120.221(b) to permit a CA Recovery Lender to charge up to $2,500 or
nine percent of the amount of the CA Recovery Loan, whichever is
greater, as an extraordinary servicing fee to cover the cost of the
required technical assistance provided by or on behalf of the CA
Recovery Lender to each CA Recovery Loan borrower. Such TA is to be
tailored to the needs of the particular borrower and may include
retooling the borrower's business model for a COVID-19 environment,
shifting to an online presence, building cash reserves, and expense
reduction strategies. As indicated above, the CA Recovery Lender must
ensure that each CA Recovery Loan borrower receives, at a minimum, 15
hours of TA, which may begin 30 days prior to loan approval and must be
completed during the first six months of the CA Recovery Loan term.
While SBA will not require the CA Recovery Lender to obtain SBA's
prior written approval of these extraordinary servicing fees as is
normally required under 13 CFR 120.221(b), the CA Recovery Lender must
document all TA provided to a CA Recovery Loan borrower in the loan
file. SBA will review this documentation when conducting lender
oversight activities or, in the event of default, at time of guaranty
purchase. SBA may deny liability on the guaranty if the TA is not
provided or the CA Recovery Lender is unable to document that the TA
was provided. In addition, SBA may seek repayment of the extraordinary
servicing fee from the CA Recovery Lender if the TA was not provided or
the CA Recovery Lender is unable to document that the TA was provided.
No additional service and packaging fees will be permitted to be
charged under section 120.221(a) on CA Recovery Loans.
An extraordinary servicing fee of up to $2,500 or nine percent of
the CA Recovery Loan amount, whichever is greater, is in recognition
that CA Recovery Loans will require more engagement and resources on
the part of the lender than other loans,\3\ including other CA loans.
This extraordinary servicing fee would ordinarily be the responsibility
of the borrower but will be paid by SBA under section 1112 of the CARES
Act instead of the borrower (see paragraph f. below). In accordance
with the requirements of section 1112, SBA will only pay the CA
Recovery Lender an extraordinary servicing fee on CA Recovery Loans
that are fully disbursed and are in regular servicing. After a loan is
fully disbursed and reported to the Fiscal Transfer Agent on the 1502
report, SBA will pay the extraordinary servicing fee to the CA Recovery
Lender. SBA will provide additional guidance with details on the method
of payment.
---------------------------------------------------------------------------
\3\ Under the Paycheck Protection Program (PPP) authorized by
section 1102 of the CARES Act, lenders are paid a 5% processing fee
on PPP loans of up to $350,000, with no technical assistance
required on the part of the lender.
---------------------------------------------------------------------------
e. CA Recovery Lenders and Use of Agents
CA Recovery Lenders may enter into agreements with other mission-
oriented organizations (including CA Lenders that are not eligible to
make CA Recovery Loans), as well as depository and non-depository
financial institutions, to act as loan referral agents and/or
packagers, but may not use agents for other services (such as
underwriting) on CA Recovery Loans. For CA Loan Program Requirements
concerning the use of referral agents and packagers, see the CA
Participant Guide, which can be found at https://www.sba.gov/sites/default/files/2020-06/CA%20Guide%20Version%206%20FINAL%20508%2006-01-20.pdf.
For CA Recovery Loans, SBA is modifying 13 CFR 103.5 to clarify the
fees that a CA Recovery Lender may pay to an agent in connection with
assistance provided on a CA Recovery Loan. As modified, an agent will
be permitted to receive reasonable compensation from a CA Recovery
Lender for referring and/or packaging a CA Recovery Loan application to
the CA Recovery Lender, and the compensation may be contingent upon
funding of the CA Recovery Loan. Referral and/or packaging fees paid by
a CA Recovery Lender in connection with a CA Recovery Loan will not be
permitted to exceed $3,000 for all agent services provided in
connection with the CA Recovery Loan. Based on the fact that only
referral and/or packaging services will be provided to a CA Recovery
Lender who will perform its own
[[Page 42966]]
underwriting, SBA has determined that a ceiling of $3,000 is reasonable
for such services. The compensation paid for referral and/or packaging
services must be paid by the CA Recovery Lender and may not be charged
to the borrower. Any payment for referral and/or packaging must be
reported by the CA Recovery Lender on SBA Form 159.
f. Application of CARES Act Sec. 1112 Payments
Under Section 1112 of the CARES Act, SBA will pay the principal,
interest, and any ``associated fees'' that Borrowers owe on a covered
loan in a regular servicing status to CA Lenders for a 6-month period.
SBA issued two procedural notices to implement Section 1112: SBA
Procedural Notice 5000-20020, effective April 16, 2020, and SBA
Procedural Notice 5000-20023, effective April 29, 2020. In SBA
Procedural Notice 5000-20020, SBA defined ``associated fees'' to
include the extraordinary servicing fee authorized by 13 CFR
120.221(b). For CA Recovery Loans, SBA ``associated fees'' will include
the extraordinary servicing fee paid to the CA Recovery Lender for
technical assistance as described above in paragraph d. SBA believes
that the technical assistance provided by or on behalf of the CA
Recovery Lender to the borrower on a CA Recovery Loan, which must be
completed by the end of the first six months of the loan term, is
similar to the services for which an extraordinary servicing fee is
paid on other 7(a) loans under section 1112 of the CARES Act. All other
provisions relating to Section 1112 payments apply to CA Recovery Loans
as set forth in SBA Procedural Notices 5000-20020 and 5000-20023, and
any applicable amendments or future notices.
4. General Information
The changes in this document are limited to CA Recovery Loans made
under the CA Pilot Program only; they do not apply to other CA loans.
Except as provided in this document, all other CA Loan Program
Requirements, including regulatory waivers or modifications related to
the CA Pilot Program, also apply to CA Recovery Loans. 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); Coronavirus Aid, Relief, and
Economic Security Act, Publ. L. 116-136, and 13 CFR 120.3.
Dated: July 6, 2020.
Jovita Carranza,
Administrator.
[FR Doc. 2020-14852 Filed 7-14-20; 8:45 am]
BILLING CODE 8026-03-P