[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