[Federal Register Volume 85, Number 240 (Monday, December 14, 2020)]
[Rules and Regulations]
[Pages 80581-80589]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-26450]



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 Rules and Regulations
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  Federal Register / Vol. 85, No. 240 / Monday, December 14, 2020 / 
Rules and Regulations  

[[Page 80581]]


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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 103, 120, and 121

RIN 3245-AG74


Express Loan Programs; Affiliation Standards--Rescission

AGENCY: U.S. Small Business Administration.

ACTION: Final rule; rescission.

-----------------------------------------------------------------------

SUMMARY: The Small Business Administration (SBA) is publishing this 
rule to rescind the regulations published on February 10, 2020, in the 
interim final rule (IFR) titled, ``Express Loan Programs; Affiliation 
Standards'' (Express IFR). This action is necessary to implement 
section 1102 of the Coronavirus Aid, Relief, and Economic Security Act 
(CARES Act), which permanently rescinded the interim final rule 
effective March 27, 2020. As a result of the rescission, SBA is 
removing the amended regulations added by the Express IFR and 
reinstating the regulations that were in effect before the rule became 
effective on March 11, 2020.

DATES: This rule is effective on March 27, 2020, as authorized by 
Public Law 116-136, sec. 1102(e).

FOR FURTHER INFORMATION CONTACT: Rosemarie Drake, Chief, 7(a) Program, 
Office of Financial Assistance, Office of Capital Access, Small 
Business Administration, 409 Third Street SW, Washington, DC 20416; 
telephone: (202) 619-1674; email: [email protected].

SUPPLEMENTARY INFORMATION: 

I. Background Information

    The SBA programs affected by the rescission of the Express IFR are:
    1. The 7(a) Loan Program authorized pursuant to section 7(a) of the 
Small Business Act (the Act) (15 U.S.C. 636(a));
    2. The Business Disaster Loan Programs (collectively, Economic 
Injury Disaster Loans, Military Reservist Economic Injury Disaster 
Loans, and Physical Disaster Business Loans) authorized pursuant to 
section 7(b) of the Act (15 U.S.C. 636(b));
    3. The Microloan Program authorized pursuant to section 7(m) of the 
Act (15 U.S.C. 636(m));
    4. The Intermediary Lending Pilot (ILP) Program authorized pursuant 
to section 7(l) of the Act (15 U.S.C. 636(l));
    5. The Surety Bond Guarantee Program authorized pursuant to part B 
of title IV of the Small Business Investment Act of 1958 (15 U.S.C. 
694b et seq.); and
    6. The Development Company Program (the 504 Loan Program) 
authorized pursuant to title V of the Small Business Investment Act of 
1958 (15 U.S.C. 695 et seq.).
    (In this final rule, the 7(a), Microloan, ILP, and 504 Loan 
Programs are collectively referred to as the Business Loan Programs.)
    On September 28, 2018, SBA published a proposed rule with request 
for comments in the Federal Register to incorporate the requirements 
related to the SBA Express and Export Express Loan Programs; add a 
regulation pertaining to the 7(a) and Development Company (504) loan 
programs regarding when the owners of a small business Applicant are 
required to inject excess liquid assets into the project; amend certain 
regulations setting forth the affiliation principles applicable to SBA 
financial assistance programs; limit certain fees payable by loan 
Applicants to amounts deemed reasonable by SBA; clarify the 
responsibility of a Lender for the contingent liabilities associated 
with 7(a) loans purchased from the Federal Deposit Insurance 
Corporation; and, finally, amend certain regulations governing the use 
of microloan grant funds by Microloan Intermediaries and the maximum 
maturity of a microloan. (83 FR 49001) The original comment period was 
scheduled to end November 27, 2018. On November 16, 2018, SBA announced 
an extension of the public comment period for an additional 15 business 
days to December 18, 2018. (83 FR 57693)
    On February 10, 2020, SBA published the Express IFR with a request 
for comment to provide the public with an additional opportunity to 
comment on the modifications to the rule. (85 FR 7622). The interim 
final rule became effective on March 11, 2020, except that compliance 
with two of the regulatory provisions, 13 CFR 103.5(b) (Fees an Agent 
may charge a Borrower) and 13 CFR 120.221(a) (Fees a Lender may charge 
a Borrower) was delayed until October 1, 2020.
    On March 27, 2020, President Trump signed into law, the Coronavirus 
Aid, Relief, and Economic Security Act (CARES Act) (Pub. L. 116-136, 
134 Stat 281). Section 1102(e) of that Act permanently rescinded the 
Express IFR effective March 27, 2020. In light of this rescission, SBA 
is issuing the amendments identified below to remove all of the 
regulations that were added by the interim final rule and restore the 
regulations that were in effect prior to the effective date of the 
Express IFR. For loans made between March 11, 2020, and March 27, 2020, 
SBA Lenders should have complied with the regulations in effect during 
that period.

II. Waiver of Notice and Comment and Delayed Effective Date

    Agencies ordinarily publish a notice of proposed rulemaking in the 
Federal Register to provide a period for public comment before the rule 
takes effect in accordance with the Administrative Procedure Act (APA) 
(5 U.S.C. 553(b)). However, an agency can waive this notice and comment 
procedure if it finds, for good cause, that the notice and comment 
process is impracticable, unnecessary, or contrary to the public 
interest and incorporates a statement of its findings and reasons in 
the notice. 5 U.S.C. 553(b)(B).
    This rule is rescinding an interim final rule that was developed 
using the APA notice and comment procedures. Because Congress has 
rescinded those regulations, they no longer have any legal effect, and 
their continued inclusion in the Code of Federal Regulations would not 
only be in violation of a statutory mandate, it would lead to public 
confusion as well. It is also unnecessary and contrary to the public 
interest to subject the regulations that will be reinstated to APA 
notice and comment procedures, since they too were already subject to 
public scrutiny when they were initially codified in the Code of 
Federal Regulations. Therefore, SBA finds that good cause exists to 
forgo public notice and comment procedures because they

[[Page 80582]]

would be unnecessary and contrary to the public interest.
    In addition, section 553(d) of the APA generally requires a 30-day 
delay in the effective date of a final rule after the date of its 
publication in the Federal Register. This 30-day delay in effective 
date can also be waived as provided by the agency for good cause found 
and published with the rule. 5 U.S.C. 553(d)(3). Based on the language 
in section 1102(e) of the CARES Act, the rescission of the Express IFR 
was effective as of March 27, 2020. Thus, the rule cannot be delayed 
for 30 days; to do so would be an unauthorized extension of the 
rescission date. This statutorily determined effective date provides 
the good cause to waive the 30-day delay in effective date.

Compliance With Executive Orders 12866, 12988, 13132, and 13771, the 
Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory 
Flexibility Act (5 U.S.C. 601-612)

Executive Order 12866
    OMB determined that the interim final rule, entitled Express Loan 
Programs; Affiliation Standards, was a significant rule for purposes of 
this Executive order. Accordingly, SBA prepared the requisite 
regulatory impact analysis, which was published with the rule. OMB has 
determined that this rescission of the interim final rule is also a 
``significant'' rulemaking. Accordingly, the next section contains 
SBA's Regulatory Impact Analysis. However, this is not a major rule 
under the Congressional Review Act, 5 U.S.C. 800.
Regulatory Impact Analysis
    The rescission of the interim final rule removes the regulations 
that were added by the interim final rule, including those pertaining 
to the SBA Express and Export Express Loan Programs, in compliance with 
section 1102(e) of the CARES Act, which permanently rescinded the 
interim final rule effective March 27, 2020.
    The primary objective of the interim final rule was to incorporate 
into the regulations governing the 7(a) Loan Program the requirements 
specifically applicable to the SBA Express and Export Express Loan 
Programs in order to provide additional clarity for SBA Express and 
Export Express Lenders. The interim final rule provided a bright-line 
test for SBA Lenders on how to adequately determine whether a small 
business had access to credit elsewhere based on personal liquid 
assets. It modified regulatory provisions related to allowable fees 
that a Lender or an Agent may collect from an Applicant for financial 
assistance. The interim final rule also revised affiliation principles 
for the financial assistance programs. SBA expected that the additional 
detailed clarity on the requirements for program delivery in the 
subject areas of the interim final rule would have increased 
understanding for program users, decreased time spent evaluating small 
business Applicants, and resulted in a reduction of overall cost to 
participants. SBA did not expect, however, that the interim final rule 
would affect loan volume significantly. The interim final rule changes 
for affiliation determinations provided detailed guidance for the SBA 
Lender charged with determining the size of a small business Applicant, 
with an expected benefit for the SBA Lender from the time savings in 
making the eligibility determination. These changes are rescinded with 
this rule.
    This rescission rule transforms the benefits of the interim final 
rule into forgone benefits and the costs of the interim final rule into 
forgone costs.
Forgone Benefits to SBA Lenders, Applicants, and Agents
    The greatest benefit from the interim final rule to all program 
participants, including SBA Lenders, Applicants, and Agents, was clear 
regulatory guidance and bright-line tests to increase efficiency, 
including bright-line tests for making certain determinations about 
eligibility which would have eliminated the ambiguity and uncertainty 
that had hindered some SBA Lenders in recent years. SBA estimated that 
the reinstatement of the personal resources test at Sec.  120.102 would 
have saved SBA Lenders a total of approximately 67,000 hours annually, 
monetized to $2,456,890 per year. This estimated annual benefit is 
forgone with the rescission of the interim final rule.

Table 1--Estimated Annual Benefit to SBA Lenders From Personal Resources Test in the Interim Final Rule, Forgone
                                                 With Rescission
----------------------------------------------------------------------------------------------------------------
                                               Number of     Average time
                                               expected        saved per
                 Outcomes                     occurrences     occurrence            Total forgone benefit
                                               per year         (hours)
----------------------------------------------------------------------------------------------------------------
Increased efficiency in determining credit          67,000             1-2  67,000-134,000 hours, $2,456,890-
 elsewhere.                                                                  $4,913,780.
                                           ---------------------------------------------------------------------
    Estimated Forgone Annual Benefit......................................  67,000-134,000 hours, $2,456,890-
                                                                             $4,913,780.\1\
----------------------------------------------------------------------------------------------------------------

    The interim final rule set clear limitations on fees that an Agent 
or

[[Page 80583]]

Lender could have charged an Applicant and left no question as to what 
fees SBA considered to be reasonable. Further, the interim final rule's 
revisions to the definitions of Agents and Associates of Lenders and 
CDCs provided clarity for SBA's determination of an Agent and what 
services the different types of Agents may have performed for 
compensation by the Applicant or the SBA Lender. This would have saved 
SBA Lenders and Agents time in making these determinations for each 
loan. In addition, the rule changed requirements for 7(a) Lenders to 
itemize fees and submit the itemization to SBA, which also would have 
saved these Lenders time. Applicants would have benefitted from 
protection against impermissible or unreasonable costs for assistance 
with obtaining an SBA-guaranteed loan. Benefits from these changes are 
forgone with the rescission of the interim final rule.
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    \1\ SBA arrived at this estimate by inquiring with various SBA 
Lenders as to the average time required to determine an Applicant's 
access to credit elsewhere. SBA calculated the average of the 
timeframes provided to estimate the range of time the personal 
resources test would have saved SBA Lenders, on average, in their 
analysis. Since each loan is required to address an Applicant's 
access to credit elsewhere, the number of expected occurrences per 
year was estimated by using the average number of 7(a) and 504 loans 
guaranteed in the most recent five fiscal years (2014-2018), 
according to SBA's 7(a) and 504 loan data reports. The number of 
expected occurrences per year was multiplied by the average time 
saved per occurrence to estimate the total hourly benefit. The cost 
benefit was estimated by multiplying the hours saved by the mean 
hourly wage for a loan officer, as reported by the U.S. Department 
of Labor's Bureau of Labor Statistics as of May 2018 ($36.67).
    \2\ SBA arrived at this estimate by inquiring with various SBA 
Lenders as to the average time required to determine the 
reasonableness and permissibility of all fees charged to an 
Applicant for assistance with obtaining an SBA-guaranteed loan. SBA 
calculated the average of the timeframes provided to estimate the 
range of time SBA Lenders would have saved, on average, in 
determining permissible and reasonable fees with the bright-line 
tests included in the interim final rule, which SBA estimated would 
be the same for an Agent. The number of expected occurrences per 
year for SBA Lenders was estimated based on the average number of 
7(a) and 504 loans guaranteed in the most recent five fiscal years 
(2014-2018), according to SBA's 7(a) and 504 loan data reports. The 
total number of guaranteed loans was used, versus the number of 
loans identified to have charged fees as discussed in the preamble 
of the interim final rule, because SBA Lenders must review every 
loan application to determine whether any fees were charged to an 
Applicant and, if so, whether the fees are permissible and 
reasonable. Because Agents are not involved in every SBA-guaranteed 
loan, the number of expected occurrences per year for Agents was 
estimated based on averaging the total number of loans identified to 
have used an Agent (other than the participating Lender) in fiscal 
years 2013-2017. The number of expected occurrences per year for 
7(a) Lenders no longer being required to itemize fees was based on 
the average number of 7(a) loans guaranteed over the most recent 
five fiscal years. The number of expected occurrences per year for 
each outcome was multiplied by the average time saved per occurrence 
to estimate the total hourly benefit. The cost benefit was estimated 
by multiplying the hours saved by the mean hourly wage for a loan 
officer, as reported by the U.S. Department of Labor's Bureau of 
Labor Statistics as of May 2018 ($36.67).

 Table 2--Estimated Annual Benefit to SBA Lenders and Agents From Fee Limits in the Interim Final Rule, Forgone
                                                 With Rescission
----------------------------------------------------------------------------------------------------------------
                                               Number of     Average time
                                               expected        saved per
                 Outcomes                     occurrences     occurrence                Total benefit
                                               per year         (hours)
----------------------------------------------------------------------------------------------------------------
Increased efficiency for SBA Lenders when           67,000           0.5-1  33,500-67,000 hours, $1,228,445-
 determining permissibility and                                              $2,456,890.
 reasonableness of fees.
Increased efficiency for Agents when                 1,605           0.5-1  803-1,605 hours, $29,446-$58,855.
 determining permissibility and
 reasonableness of fees.
Increased efficiency for 7(a) Lenders no            60,951           0.5-1  30,476-60,951 hours, $1,117,555-
 longer required to itemize fees.                                            $2,235,073.
                                           ---------------------------------------------------------------------
    Estimated Forgone Annual Benefit......................................  64,779-129,556 hours, $2,375,446-
                                                                             $4,750,818.\2\
----------------------------------------------------------------------------------------------------------------

    The interim final rule modified principles of affiliation for the 
financial assistance programs, increasing efficiency for the Agency and 
SBA Lenders in providing financial assistance only to businesses 
determined to be small. The benefits from this modification are forgone 
with rescission of the interim final rule.

  Table 3--Estimated Annual Benefit to SBA Lenders and Sureties From Modified Principles of Affiliation in the
                                   Interim Final Rule, Forgone With Rescission
----------------------------------------------------------------------------------------------------------------
                                               Number of     Average time
                                               expected        saved per
                 Outcomes                     occurrences     occurrence            Total forgone benefit
                                               per year         (hours)
----------------------------------------------------------------------------------------------------------------
    Increased efficiency in determining             77,000             2-4  154,000-308,000 hours, $5,647,180-
     affiliation.                                                            $11,294,360.
                                           ---------------------------------------------------------------------
    Estimated Forgone Annual Benefit......................................  154,000-308,000 hours, $5,647,180-
                                                                             $11,294,360.\3\
----------------------------------------------------------------------------------------------------------------

    SBA expected these benefits to have been realized upon enactment of 
the interim final rule and to have remained the same each year 
thereafter, subject to changes in number of loans and hourly rates. 
These benefits are forgone with rescission of the interim final rule.
---------------------------------------------------------------------------

    \3\ SBA arrived at this estimate by inquiring with various 
Lenders as to the average time required to determine affiliation. 
SBA calculated the average of the timeframes provided to estimate 
the range of time SBA Lenders will save, on average, in determining 
affiliation based on the guidance provided in the interim final 
rule. Since an affiliation determination must be made for each 
application for SBA financial assistance, the number of expected 
occurrences per year for SBA Lenders and Sureties was estimated by 
using the average number of 7(a) and 504 loans and the average 
number of Bid and Final Bonds guaranteed during the most recent five 
fiscal years (2014-2018), according to SBA's 7(a) and 504 loan data 
reports and information on surety bonds entered into SBA's Capital 
Access Finance System. The total number of expected occurrences for 
loans and surety bonds per year was multiplied by the average time 
saved per occurrence to estimate the total hourly benefit. The cost 
benefit was estimated by multiplying the hours saved by the mean 
hourly wage for a loan officer, as reported by the U.S. Department 
of Labor's Bureau of Labor Statistics as of May 2018 ($36.67).
---------------------------------------------------------------------------

    Like the program participants, SBA would have benefitted from the 
clear regulatory guidance and bright-line tests included in the interim 
final rule, especially when performing lender oversight activities. 
Specifically, the Office of Credit Risk Management (OCRM) would have 
realized increased efficiencies in conducting loan file reviews of SBA 
Lenders. With the reinstatement of the personal resources test, clear 
limitations on fees an Agent or Lender could have charged an Applicant, 
revised definitions of Agents and Associates of Lenders and CDCs, and 
revised affiliation principles, SBA had removed the subjectivity of a 
Lender's assessment of these issues in the interim final rule, which 
would have improved SBA Lenders' compliance and allowed OCRM to develop 
more efficient methods of testing SBA Lenders' compliance. In addition, 
the removal of the requirement that a Lender itemize fees charged to an 
Applicant when the fee is over $2,500 would have reduced the burden on 
OCRM of reviewing these additional documents.

[[Page 80584]]



          Table 4--Estimated Annual Benefit to SBA From the Interim Final Rule, Forgone With Rescission
----------------------------------------------------------------------------------------------------------------
                                               Number of     Average time
                                               expected        saved per
                 Outcomes                     occurrences     occurrence            Total forgone benefit
                                               per year         (hours)
----------------------------------------------------------------------------------------------------------------
Increased efficiency in reviewing credit             2,000        0.25-0.5  500-1,000 hours, $18,375-$36,750.
 elsewhere assessment.
Increased efficiency in reviewing fees               1,300           0.5-1  650-1,300 hours, $23,888-$47,775.
 charged to Applicants.
Increased efficiency in reviewing Lender's           2,000        0.25-0.5  500-1,000 hours, $18,375-$36,750.
 affiliation determination.
                                           ---------------------------------------------------------------------
    Estimated Forgone Annual Benefit......................................  1,650-3,300 hours, $60,638-
                                                                             $121,275.\4\
----------------------------------------------------------------------------------------------------------------

    SBA expected these benefits to be realized immediately upon 
enactment of the rule and to have remained the same each year 
thereafter, subject to changes in the number of loan files reviewed and 
hourly rates. These benefits are forgone with rescission of the interim 
final rule.
---------------------------------------------------------------------------

    \4\ SBA developed this estimated annual benefit based on an 
estimate from OCRM on the range of time that the guidance and 
bright-line tests included in the interim final rule would have 
saved a Financial Analyst, on average, in reviewing each relevant 
element of an SBA Lender's analysis during OCRM-conducted loan file 
reviews. The number of expected occurrences per year was based on 
the approximately 2,000 loan files reviewed by OCRM annually. The 
SBA Lender is required to address credit elsewhere and affiliation 
on every loan, but fees are not charged in connection with every 
loan. OCRM estimates that in approximately 65 percent of the 2,000 
loans reviewed annually, OCRM identifies an issue related to fees 
charged to Applicants by SBA Lenders and/or Agents, including 
underreporting, inaccurate reporting, or impermissible fees. The 
number of expected occurrences per year for each outcome was 
multiplied by the average time saved per occurrence to estimate the 
total hourly benefit. The cost estimate was obtained by multiplying 
the hourly rate of a GS-13, Step 1 ($36.75 per hour) by the number 
of expected occurrences per year and the average time saved per 
occurrence.
---------------------------------------------------------------------------

Costs to SBA Lenders, Applicants, and Agents
    For purposes of the Regulatory Impact Analysis (RIA), the only 
costs to program participants and relevant stakeholders necessary to 
comply with the interim final rule were administrative costs. 
Administrative costs considered included estimations on reading and 
interpreting the regulation, developing and revising internal policies 
and procedures, and training. It is noted that program participants are 
presumed to incur such administrative costs continuously in order to 
maintain familiarity with SBA Loan Program Requirements, as required by 
13 CFR 120.180, and to remain in good standing with SBA as defined in 
13 CFR 120.420(f). The Table below shows the estimated administrative 
costs attributable to the interim final rule, which were expected to 
occur mainly in the first year of implementation, decrease by half in 
the second year, and be eliminated by the third year. These costs are 
forgone with rescission of the interim final rule.

   Table 5--Estimates of Administrative Compliance Costs to SBA Lenders and Agents in the Interim Final Rule,
                                             Forgone With Rescission
----------------------------------------------------------------------------------------------------------------
                                                                                 Number of SBA
                                Amount of time                   Frequency for     lenders/       Total forgone
                                   required      Value of time    first year        agents            cost
                                    (hours)                                        affected
----------------------------------------------------------------------------------------------------------------
Read and interpret the                     2-3          $36.67             5-7           3,500  35,000-73,500
 regulation.                                                                                     hours,
                                                                                                 $1,283,450-$2,6
                                                                                                 95,245.
Develop or Revise Internal                 5-7          $36.67             5-6           3,500  87,500-147,000
 Policies and Procedures.                                                                        hours,
                                                                                                 $3,208,625-$5,3
                                                                                                 90,490.
Training......................             5-8          $36.67           10-12           3,500  175,000-336,000
                                                                                                 hours,
                                                                                                 $6,417,250-$12,
                                                                                                 321,120.
                               ---------------------------------------------------------------------------------
    Estimated First Year Forgone Administrative Costs.........................................  297,500-556,500
                                                                                                 hours,
                                                                                                 $10,909,325-$20
                                                                                                 ,406,855.\5\
----------------------------------------------------------------------------------------------------------------

Costs to SBA
---------------------------------------------------------------------------

    \5\ SBA developed the estimate for the administrative costs in 
the first year of the final rule based on the approximate number of 
active SBA Lenders and Agents. Although approximately 4,500 Lenders 
have executed agreements to participate as a 7(a) Lender, over the 
past two fiscal years, the average number of active Lenders has 
totaled only 1,958. (A 7(a) Lender is considered to be ``active'' if 
it has approved at least one 7(a) loan in that fiscal year.) SBA 
estimated that only those Lenders actively participating in the 
program would have been affected by the costs of the interim final 
rule since the estimated costs are strictly administrative. The 
number of SBA Lenders and Agents affected included approximately 
2,474 active SBA Lenders (including approximately 2,061 active 7(a) 
Lenders, 213 CDCs, 135 Microloan Intermediaries, 33 ILP 
Intermediaries, and 32 Sureties), plus approximately 1,018 Agents 
identified as having conducted business with SBA during fiscal years 
2013-2017, rounded up to the next hundred to account for trade 
associations, and other resource partners. SBA estimated that on 
average between 5-7 employees at each SBA Lending institution or 
Agent entity may have spent between 2-3 hours each reading and 
interpreting the rule in the first year and that these employees are 
compensated at the mean hourly wage for a loan officer, as reported 
by the U.S. Department of Labor's Bureau of Labor Statistics 
($36.67). SBA also estimated that 5-6 employees on average may have 
been involved in developing or revising the internal policies of the 
respective program participant and would likely have spent between 
5-7 hours updating policies specifically related to the interim 
final rule. Finally, SBA estimated that between 10-12 employees on 
average for each program participant would have spent between 5-8 
hours on training related to updates and modifications made by the 
interim final rule. Applicants were not included as an entity 
affected by the administrative costs of the rule, as the Applicant 
relies on the SBA Lender or third-party Agent to inform them of SBA 
policy and procedure.
---------------------------------------------------------------------------

    There were no expected additional costs to the Agency required to 
achieve

[[Page 80585]]

the outcomes of the interim final rule. The administrative costs 
considered for the loan program participants, including reading and 
interpreting the regulation, developing and revising internal policies 
and procedures, and training are already inherent requirements of SBA 
employees and therefore, the publication of this interim final rule had 
no additional bearing on the responsibilities of relevant SBA employees 
involved in the Agency's loan programs. SBA determines that the Agency 
bears no costs from rescission of the interim final rule.
Transfers
    SBA identified a transfer of costs, due to the limits on 
permissible fees charged to an Applicant by Agents and Lenders, as well 
as the prohibition against Agents providing services to both an 
Applicant and an SBA Lender in connection with the same SBA loan 
application. These changes in the interim final rule would have 
provided a cost savings to Applicants; however, the Agency acknowledged 
that this savings to the Applicant would have resulted in a cost 
(``transfer'') to the small number of Agents and Lenders that reported 
charging fees in excess of the limits imposed by the interim final 
rule. This transfer is forgone with the rescission of the interim final 
rule.

            Table 6--Estimated Transfers of Costs in the Interim Final Rule, Forgone With Rescission
----------------------------------------------------------------------------------------------------------------
                                                                  Number of
                                                                  expected      Average money    Total forgone
                           Outcomes                              occurrences      saved per         transfer
                                                                  per year       occurrence
----------------------------------------------------------------------------------------------------------------
Elimination of fees exceeding set limits.....................             746       $2,380.75      $1,776,042.63
                                                              --------------------------------------------------
    Estimated Forgone Annual Transfer........................................................   1,776,042.63 \6\
----------------------------------------------------------------------------------------------------------------

    Below is a table showing an estimation of the total forgone costs 
and forgone benefits of the interim rule over three years.
---------------------------------------------------------------------------

    \6\ SBA arrived at this estimate based on the total number of 
loans guaranteed between FY2013 and FY2017 that reported fees 
charged to an Applicant by an Agent or Lender over the limits 
imposed in the interim final rule and the total amount that those 
fees on those loans exceeded the imposed limit for each threshold.

 Table 7--Estimated Undiscounted Benefits and Costs Schedule in the Interim Final Rule, Forgone With Rescission
----------------------------------------------------------------------------------------------------------------
                      Forgone benefits                                           Forgone costs
----------------------------------------------------------------------------------------------------------------
           Low estimate                  High estimate              Low estimate              High estimate
----------------------------------------------------------------------------------------------------------------
Year 1
----------------------------------------------------------------------------------------------------------------
267,429 hours, $9,806,754........  534,856 hours,             297,500 hours,            556,500 hours,
                                    $19,613,433.               $10,909,325.              $20,406,855.
----------------------------------------------------------------------------------------------------------------
Year 2
----------------------------------------------------------------------------------------------------------------
267,429 hours, $9,806,754........  534,856 hours,             148,750 hours,            278,250 hours,
                                    $19,613,433.               $5,454,662.50.            $10,203,427.50.
----------------------------------------------------------------------------------------------------------------
Year 3
----------------------------------------------------------------------------------------------------------------
267,429 hours, $9,806,754........  534,856 hours,             0 hours, $0.............  0 hours, $0.
                                    $19,613,433.
----------------------------------------------------------------------------------------------------------------

    Below is a table showing the annualized values of the forgone 
estimated costs and cost savings, as of 2016, over an infinite horizon, 
based on the interim final rule's estimates of these annualized values.

                         Table 8--Annualized Values as of 2016 Over an Infinite Horizon
----------------------------------------------------------------------------------------------------------------
                                                                         Primary estimate
                                                 ---------------------------------------------------------------
                                                         3% discount rate                7% discount rate
                                                 ---------------------------------------------------------------
                                                   Low estimate    High estimate   Low estimate    High estimate
----------------------------------------------------------------------------------------------------------------
Forgone Annualized Cost Savings.................      $9,806,751     $19,613,433      $9,806,754     $19,613,433
Forgone Annualized Costs........................         485,479         908,132       1,077,116       2,014,841
                                                 ---------------------------------------------------------------
    Forgone Annualized Net Cost Savings.........       9,321,272      18,705,301       8,729,638      17,598,592
----------------------------------------------------------------------------------------------------------------


[[Page 80586]]

Executive Order 12988
    This rule meets applicable standards set forth in sections 3(a) and 
3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize 
litigation, eliminate ambiguity, and reduce burden. The rule has no 
preemptive effect but consistent with section 1102(e) of the CARES Act, 
which made the rescission of the regulations effective on March 27, 
2020, the rule necessarily has retroactive effect.
Executive Order 13132
    SBA has determined that this rule will not have substantial, direct 
effects on the States, on the relationship between the National 
Government and the States, or on the distribution of power and 
responsibilities among the various levels of government. Therefore, for 
the purposes of Executive Order 13132, SBA has determined that this 
rule has no federalism implications warranting preparation of a 
federalism assessment.
Executive Order 13771
    This rescission is considered an E.O. 13771 regulatory action. SBA 
determines that the estimated $12,633,634 in annualized savings from 
the interim final rule using a 7% discount rate in perpetuity in 2016 
dollars is forgone with this rescission. In addition, SBA determines 
that the estimated present value of savings in perpetuity from the 
interim final rule of $180,480,486 is forgone with this rescission. 
Details on the breakdown of the estimated cost savings of this interim 
final rule can be found in the rule's economic analysis.
Paperwork Reduction Act, 44 U.S.C. 3501-3521
    The Express IFR required modification to reporting or recordkeeping 
requirements contained in several SBA forms: Form 1920, Lender's 
Application for Guaranty (OMB Control number 3245-0348); Form 2450, 
Eligibility Information Required for 504 Submission (Non-PCLP) (OMB 
Control number 3245-0071); Form 2234 (Part C), Eligibility Information 
Required for 504 Submission (PCLP) (OMB Control number 3245-0346); and 
Form 159, Fee Disclosure and Compensation Agreement (OMB Control number 
3245-0201).
    Since publication of the Express IFR, SBA has cancelled Form 2234 
and Form 2450. With respect to Form 1920 and Form 159, none of the 
proposed changes had been finalized and submitted to OMB for approval 
prior to enactment of the CARES Act; therefore, no action is required 
as a result of the rescission of the Express IFR. In addition, the 
Express IFR codified an existing requirement for Small Business Lending 
Companies (SBLCs) to annually submit to SBA the validation of any 
credit scoring model they use in connection with SBA Express and Export 
Express loans. Since the reporting requirement was already included in 
an approved information collection, SBA Lender Reporting Requirements 
(OMB Control Number 3245-0365), no amendment was required. As a result, 
the rescission of the rule does not impact SBLCs' duty to report.
Regulatory Flexibility Act, 5 U.S.C. 601-612
    When an agency issues a rule, the Regulatory Flexibility Act (RFA), 
5 U.S.C. 601-612, requires the agency to ``prepare and make available 
for public comment a final regulatory analysis'' which will ``describe 
the impact of the proposed rule on small entities.'' Section 605 of the 
RFA allows the head of an agency to certify a rule will not, if 
promulgated, have a significant economic impact on a substantial number 
of small entities, in lieu of preparing an analysis.
    Small entities likely to be affected by the rescission of the 
interim final rule include small SBA Lenders and small Agents who 
assist small business Applicants with obtaining SBA-guaranteed 
financing. Other entities that provide services to an Applicant for 
obtaining SBA-guaranteed financing include individuals who may assist 
with packaging a loan application or assisting the Applicant with 
finding an SBA Lender, entities formed for the purpose of providing 
such assistance, attorneys, and Certified Public Accountants. The RIA 
of the interim final rule estimated that approximately 3,207 small 
entities would be affected. The rescission of the interim final rule 
also affects these 3,207 small entities.
    As described more fully in the RIA, SBA determined that the only 
costs to program participants and relevant stakeholders necessary to 
comply with the interim final rule were administrative costs, which are 
forgone with the rescission. Administrative costs considered include 
estimations on reading and interpreting the regulation, developing and 
revising internal policies and procedures, and training. Although these 
costs were estimated for the purposes of the Regulatory Flexibility Act 
for the interim final rule, it is important to note that, regardless of 
any new rulemaking, program participants are presumed to incur 
administrative costs related to reading and interpreting SBA Loan 
Program Requirements, revising and updating internal policies, and 
training staff continuously in order to maintain familiarity with SBA 
Loan Program Requirements, as required by 13 CFR 120.180, and to remain 
in good standing with SBA as defined in 13 CFR 120.420(f). SBA 
determines that the rescission of the interim final rule causes these 
costs to be forgone.
    The RIA for the interim final rule identified an estimated transfer 
of costs due to the limits on permissible fees charged to an Applicant 
by Agents and Lenders, as well as the prohibition against an Agent 
providing services to both an Applicant and an SBA Lender in connection 
with the same SBA loan application. The Agency acknowledged that any 
savings to the Applicant from these limitations in the interim final 
rule would have resulted in a potential loss of revenue to the small 
number of Agents and Lenders that reported charging fees in excess of 
the limits. With the rescission of the interim final rule, these 
transfers are forgone.
    To estimate the average annualized forgone cost per small entity in 
the interim final rule, SBA annualized the sum of all administrative 
costs plus the estimated potential loss of revenue (e.g., the total 
transfer amount of $1,776,042.63) identified in the RIA (see Table 6 in 
the RIA). The estimated total annualized costs, which are forgone with 
the rescission, over 10 years at a 7 percent discount rate range from a 
low estimate of $2,773,295.70 to a high estimate of $4,331,035. 
Dividing the total estimated annualized costs by the 3,207 estimated 
small entities affected, the forgone annualized cost per entity with 
the rescission is estimated to be between approximately $864.76 and 
$1,350.49. Although SBA was unable to ascertain the NAICS codes of all 
types of entities considered to be Agents for estimation purposes in 
the interim final rule, SBA used data from the 2012 U.S. Census 
Bureau's SUSB for NAICS code 522310 for Mortgage and Nonmortgage Loan 
Brokers as an example to examine the annualized compliance cost as a 
percentage of annual receipts for small entities classified by this 
NAICS code. For the purposes of this estimation in the interim final 
rule, SBA averaged the high and low estimates of the annualized cost 
for a mid-point total of $388 per entity. This annualized cost per 
entity is forgone with the rescission of the interim final rule.

[[Page 80587]]



                 Mortgage and Nonmortgage Loan Brokers (NAICS 522310)--$7.5 Million Size Standard
----------------------------------------------------------------------------------------------------------------
                                      Average       Annualized
    Firm size  (by receipts)          annual       forgone cost     # of  firms     % of  small    Revenue  test
                                     receipts        per firm                          firms          *  (%)
----------------------------------------------------------------------------------------------------------------
All Firms.......................       1,005,967             388           7,007             N/A             0.0
Small Firms.....................         549,802             388           6,817             100             0.1
<$100K..........................          48,038             388           1,533              22             0.8
100K-499,999....................         250,730             388           3,233              47             0.2
500,000-999,999.................         693,276             388           1,042              15             0.1
1,000,000-2,499,999.............       1,482,997             388             721              12             0.0
2,500,000-4,999,999.............       3,244,231             388             216               3             0.0
5,000,000-7,499,999.............       5,157,764             388              72               1             0.0
----------------------------------------------------------------------------------------------------------------
* Annualized compliance costs as a percentage of annual receipts.

    SBA has determined that forgoing the annualized cost per entity of 
the interim final rule by its rescission will not have a significant 
economic impact on a substantial number of small entities. The average 
annualized cost in the example above is not a significant percentage of 
each entity's average annual revenue for any size firm considered to be 
small. It is also noted that these forgone annualized costs are set 
against forgone annualized benefits ranging from a low estimate of 
$9,806,754 to a high estimate of $19,613,433 (or approximately $3,056-
$6,116 per entity). Also, the number of small entities affected is not 
substantial. SBA estimated that from FY2013 through FY2017, 213 small 
entities (83 small Lenders and 130 small Agents) reported charging fees 
in excess of the limits imposed in the interim final rule. SBA does not 
consider 83 small Lenders to be a substantial number when compared to 
the overall number of small Lenders, which is approximately 2,000. With 
respect to small Agents, SBA does not consider 130 Agents to be a 
substantial number when compared to the overall number of small Agents. 
SBA believes the number of small entities acting as Agents in 
connection with the SBA loan programs is most likely much larger when 
taking into consideration the attorneys, accountants, business 
consultants and others that act as Agents. As SBA noted above, the 
NAICS Code for Mortgage and Nonmortgage Loan Brokers is only one of 
numerous NAICS codes under which Agents may be classified. Many 
different types of individuals and entities, including attorneys, 
accountants, and business consultants, act as Agents and assist 
Applicants in obtaining SBA-guaranteed loans. Thus, SBA believes that 
the actual universe of small Agents may be considerably larger than 
602. When all of the potentially relevant NAICS codes are considered, 
SBA believes that the number of small entities affected by the 
rescission of the interim final rule would be even smaller than the 8% 
noted above.
    SBA determined that the interim final rule did not have a 
significant impact on a substantial number of small entities. The 
Administrator of SBA likewise certifies that the rescission of the 
interim final rule has no significant impact on a substantial number of 
small entities.

List of Subjects

13 CFR Part 103

    Administrative practice and procedure.

13 CFR Part 120

    Community development, Environmental protection, Equal employment 
opportunity, Exports, Loan programs--business, Reporting and 
recordkeeping requirements, Small businesses.

13 CFR Part 121

    Loan programs--business, Reporting and recordkeeping requirements, 
Small businesses.

    For the reasons stated in the preamble, SBA is amending 13 CFR 
parts 103, 120, and 121 as follows:

PART 103--STANDARDS FOR CONDUCTING BUSINESS WITH SBA

0
1. The authority citation for part 103 continues to read as follows:

    Authority: 15 U.S.C. 634, 642.


0
2. Amend Sec.  103.1 by:
0
a. Revising paragraph (a);
0
b. Redesignating paragraph (d) as paragraph (g); and
0
c. Adding a new paragraph (d) and paragraphs (e) and (f).
    The revision and additions read as follows:


Sec.  103.1  Key definitions.

    (a) Agent means an authorized representative, including an 
attorney, accountant, consultant, packager, lender service provider, or 
any other person representing an Applicant or Participant by conducting 
business with SBA.
* * * * *
    (d) Lender Service Provider means an Agent who carries out lender 
functions in originating, disbursing, servicing, or liquidating a 
specific SBA business loan or loan portfolio for compensation from the 
lender. SBA determines whether or not one is a ``Lender Service 
Provider'' on a loan-by-loan basis.
    (e) Packager means an Agent who is employed and compensated by an 
Applicant or lender to prepare the Applicant's application for 
financial assistance from SBA. SBA determines whether or not one is a 
``Packager'' on a loan-by-loan basis.
    (f) Referral Agent means a person or entity who identifies and 
refers an Applicant to a lender or a lender to an Applicant. The 
Referral Agent may be employed and compensated by either an Applicant 
or a lender.
* * * * *

0
3. Amend Sec.  103.4 by revising paragraph (g) to read as follows:


Sec.  103.4  What is ``good cause'' for suspension or revocation?

* * * * *
    (g) Acting as both a Lender Service Provider or Referral Agent and 
a Packager for an Applicant on the same SBA business loan and receiving 
compensation for such activity from both the Applicant and lender. A 
limited exception to the ``two master'' prohibition in this paragraph 
(g) exists when an Agent acts as a Packager and is compensated by the 
Applicant for packaging services; also acts as a Referral Agent and is 
compensated by the lender for those activities; discloses the referral 
activities to the Applicant; and discloses the packaging activities to 
the lender.
* * * * *

0
4. Amend Sec.  103.5 by revising paragraph (b) and the last sentence of 
paragraph (c) to read as follows:

[[Page 80588]]

Sec.  103.5  How does SBA regulate an Agent's fees and provision of 
service?

* * * * *
    (b) Compensation agreements must provide that in cases where SBA 
deems the compensation unreasonable, the Agent or Packager must: Reduce 
the charge to an amount SBA deems reasonable, refund any sum in excess 
of the amount SBA deems reasonable to the Applicant, and refrain from 
charging or collecting, directly or indirectly, from the Applicant an 
amount in excess of the amount SBA deems reasonable.
    (c) * * * However, such compensation may not be directly charged to 
an Applicant or Borrower.

PART 120--BUSINESS LOANS

0
5. The authority citation for part 120 continues to read as follows:

    Authority:  15 U.S.C. 634(b) (6), (b) (7), (b) (14), (h), and 
note, 636(a), (h) and (m), and note, 650, 657t, and note, 657u, and 
note, 687(f), 696(3) and (7), and note, and 697(a) and (e), and 
note.


0
6. Amend Sec.  120.10 by revising paragraph (1)(i) of the defined term 
``Associate'' to read as follows:


Sec.  120.10  Definitions.

* * * * *
    Associate. (1) * * *
    (i) An officer, director, key employee, or holder of 20 percent or 
more of the value of the Lender's or CDC's stock or debt instruments, 
or an agent involved in the loan process; or
* * * * *


Sec.  120.102  [Removed and Reserved]

0
7. Remove and reserve Sec.  120.102.

0
8. Amend Sec.  120.130 by revising paragraph (c) to read as follows:


Sec.  120.130  Restrictions on uses of proceeds.

* * * * *
    (c) Floor plan financing or other revolving line of credit, except 
under Sec.  120.340 or Sec.  120.390;
* * * * *

0
9. Amend Sec.  120.221 by:
0
a. Revising the section heading and paragraph (a); and
0
b. Removing the last sentence of paragraph (b).
    The revisions read as follows:


Sec.  120.221  Fees and expenses that the Lender may collect from a 
loan applicant or Borrower.

* * * * *
    (a) Service and packaging fees. The Lender may charge an applicant 
reasonable fees (customary for similar Lenders in the geographic area 
where the loan is being made) for packaging and other services. The 
Lender must advise the applicant in writing that the applicant is not 
required to obtain or pay for unwanted services. The applicant is 
responsible for deciding whether fees are reasonable. SBA may review 
these fees at any time. Lender must refund any such fee considered 
unreasonable by SBA.
* * * * *


Sec.  120.222  [Amended]

0
10. Amend Sec.  120.222 by adding the word ``in'' before the words 
``any premium received''.

0
11. Revise Sec.  120.344(b) to read as follows:


Sec.  120.344  Unique requirements of the EWCP.

* * * * *
    (b) SBA does not limit the amount of extraordinary servicing fees, 
as referenced in Sec.  120.221(b), under the EWCP.
* * * * *

0
12. Revise Sec.  120.350 to read as follows:


Sec.  120.350   Policy.

    Section 7(a)(15) of the Act authorizes SBA to guarantee a loan to a 
qualified employee trust (``ESOP'') to:
    (a) Help finance the growth of its employer's small business; or
    (b) Purchase ownership or voting control of the employer.

0
13. Revise Sec.  120.352 to read as follows:


 Sec.  120.352  Use of proceeds.

    Loan proceeds may be used for two purposes.
    (a) Qualified employer securities. A qualified employee trust may 
relend loan proceeds to the employer by purchasing qualified employer 
securities. The small business concern may use these funds for any 
general purpose under section 7(a) of the Act.
    (b) Control of employer. A qualified employee trust may use loan 
proceeds to purchase a controlling interest (51 percent) in the 
employer. Ownership and control must vest in the trust by the time the 
loan is repaid.


Sec.  120.432  [Amended]

0
14. Amend Sec.  120.432(a) by removing the last sentence.

0
15. Amend Sec.  120.440 by revising paragraph (c) to read as follows:


Sec.  120.440  How does a 7(a) Lender obtain delegated authority?

* * * * *
    (c) If delegated authority is approved or renewed, Lender must 
execute a Supplemental Guarantee Agreement, which will specify a term 
not to exceed two years. SBA may grant shortened renewals based on risk 
or any of the other delegated authority criteria. Lenders with less 
than 3 years of SBA lending experience will be limited to a term of 1 
year or less.

0
16. Remove the undesignated center heading ``SBA Express and Export 
Express Loan Programs'' that appears before Sec.  120.441.


Sec.  Sec.  120.441  through 120.447 [Removed and Reserved]

0
17. Remove and reserve Sec. Sec.  120.441 through 120.447.


Sec.  120.707  [Amended]

0
18. Amend Sec.  120.707(b) by removing the word ``seven'' and adding in 
its place the word ``six.''

0
19. Amend Sec.  120.712 by:
0
a. Revising paragraph (b)(1); and
0
b. In paragraph (d), removing the number ``30'' and adding in its place 
the number ``25.''
    The revision reads as follows:


Sec.  120.712  How does an Intermediary get a grant to assist Microloan 
borrowers?

* * * * *
    (b) * * *
    (1) Up to 25 percent of the grant funds may be used to provide 
information and technical assistance to prospective Microloan 
borrowers; and
* * * * *

0
20. Amend Sec.  120.840 by revising paragraph (b) to read as follows:


Sec.  120.840  Accredited Lenders Program (ALP).

* * * * *
    (b) Application. A CDC must apply for ALP status to the Lead SBA 
Office. The Lead SBA Office will send its recommendation and the 
application to the D/FA for final decision.
* * * * *

PART 121--SMALL BUSINESS SIZE REGULATIONS

0
21. The authority citation for part 121 continues to read as follows:

    Authority:  15 U.S.C. 632, 634(b)(6), 636(a)(36), 662, and 
694a(9); Public Law 116-136, Section 1114.


0
22. Amend Sec.  121.301 by:
0
a. Revising paragraph (f)(4);
0
b. Removing paragraphs (f)(5) and (6);
0
c. Redesignating paragraphs (f)(7) through (9) as paragraphs (f)(5) 
through (7), respectively; and
0
d. Revising newly redesignated paragraph (f)(5).
    The revisions to read as follows:

[[Page 80589]]

Sec.  121.301  What size standards and affiliation principles are 
applicable to financial assistance programs?

* * * * *
    (f) * * *
    (4) Affiliation based on identity of interest. Affiliation arises 
when there is an identity of interest between close relatives, as 
defined in 13 CFR 120.10, with identical or substantially identical 
business or economic interests (such as where the close relatives 
operate concerns in the same or similar industry in the same geographic 
area). Where SBA determines that interests should be aggregated, an 
individual or firm may rebut that determination with evidence showing 
that the interests deemed to be one are in fact separate.
    (5) Affiliation based on franchise and license agreements. The 
restraints imposed on a franchisee or licensee by its franchise or 
license agreement generally will not be considered in determining 
whether the franchisor or licensor is affiliated with an applicant 
franchisee or licensee provided the applicant franchisee or licensee 
has the right to profit from its efforts and bears the risk of loss 
commensurate with ownership. SBA will only consider the franchise or 
license agreements of the applicant concern.
* * * * *

0
23. Amend Sec.  121.302 by revising paragraphs (a) and (b) to read as 
follows:


Sec.  121.302  When does SBA determine the size status of an applicant?

    (a) The size status of an applicant for SBA financial assistance is 
determined as of the date the application for financial assistance is 
accepted for processing by SBA, except for applications under the 
Preferred Lenders Program (PLP), the Disaster Loan program, the SBIC 
program, and the New Markets Venture Capital (NMCV) program.
    (b) For the Preferred Lenders Program, size is determined as of the 
date of approval of the loan by the Preferred Lender.
* * * * *

Jovita Carranza,
Administrator.
[FR Doc. 2020-26450 Filed 12-11-20; 8:45 am]
BILLING CODE 8026-03-P