[Federal Register Volume 87, Number 214 (Monday, November 7, 2022)]
[Proposed Rules]
[Pages 66963-66971]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-23597]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 120

RIN 3245-AH92


Small Business Lending Company (SBLC) Moratorium Rescission and 
Removal of the Requirement for a Loan Authorization

AGENCY: U.S. Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: The U.S. Small Business Administration (SBA or Agency) is 
proposing to lift the moratorium on licensing new Small Business 
Lending Companies (SBLCs) and add a new type of entity called a 
Mission-Based SBLC. SBA is also proposing to remove the requirement for 
a Loan Authorization.

DATES: SBA must receive comments on this proposed rule on or before 
January 6, 2023.

ADDRESSES: You may submit comments, identified by RIN 3245-AH92, 
through the Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    SBA will post all comments on http://www.regulations.gov. If you 
wish to submit confidential business information (CBI) as defined in 
the User Notice at http://www.regulations.gov, please submit the 
information via 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 whether it will publish 
the information.

FOR FURTHER INFORMATION CONTACT: Dianna Seaborn, Director, Office of 
Financial Assistance, Office of Capital Access, Small Business 
Administration, at (202) 205-3645 or [email protected]. The phone 
number above may also be reached by individuals who are deaf or hard of 
hearing, or who have speech disabilities, through the Federal 
Communications Commission's TTY-Based Telecommunications Relay Service 
teletype service at 711.

SUPPLEMENTARY INFORMATION:

I. Background Information

    The mission of SBA is to ``aid, counsel, assist, and protect . . . 
the interests of small business concerns in order to preserve free 
competitive enterprise . . . and to maintain and strengthen the overall 
economy of our nation.'' 15 U.S.C. 631(a). SBA accomplishes this 
mission, in part, through programs that bridge the financing gap in the 
private market. One such program is the 7(a) Loan Program authorized by 
section 7(a) of the Small Business Act (15 U.S.C. 636(a)), which 
supports our nation's economy by providing SBA-guaranteed loans to 
small businesses that lack adequate access to capital on reasonable 
terms and conditions.
    Section 7(a)(17) of the Small Business Act states that SBA shall 
authorize lending institutions and other entities, in addition to 
banks, to make 7(a) loans. To this end, SBA has authorized Small 
Business Lending Companies (SBLCs) as defined in 13 CFR 120.10 to 
participate in the 7(a) Loan Program. SBLCs are non-depository lending 
institutions authorized by SBA only to make loans pursuant to section 
7(a) of the Small Business Act and loans to Intermediaries in SBA's 
Microloan program. Under current regulations, SBLCs may not be 
affiliated with another SBA Lender, including 7(a) Lenders or Certified 
Development Companies (CDCs) that participate in SBA's CDC/504 Loan 
Program. SBLCs are subject to all regulations pertaining to 7(a) loans 
and Loan Program Requirements (as defined in 13 CFR 120.10) regarding 
origination, servicing, and liquidation. Unlike the majority of 7(a) 
Lenders, which are Federally-regulated depository institutions, SBLCs 
are regulated, supervised, and examined solely by SBA. As SBA-regulated 
entities, SBLCs are subject to specific regulations regarding 
formation, capitalization, and enforcement actions.
    On August 17, 1981, SBA published a Proposed Rule (46 FR 41523) to, 
among other things, impose a moratorium on licensing new SBLCs, because 
the Agency did not have adequate resources to effectively service and 
supervise additional SBLCs. Subsequently, on January 4, 1982, SBA 
published a Final Rule (47 FR 9) repealing its authority to approve 
additional SBLCs as participating lenders. Since then, the number of 
SBLC Licenses has remained unchanged at 14. To become an SBLC under 
current regulations, an entity must acquire one of the existing 14 SBLC 
Licenses from an entity that is willing to sell its SBLC License and 
exit the 7(a) Loan Program.

[[Page 66964]]

    On February 18, 2011, SBA created the Community Advantage (CA) 
Pilot Program to provide 7(a) loans in underserved markets through 
mission-oriented lenders focused on economic development (76 FR 9626). 
SBA waived the moratorium on the licensing of new SBLCs to allow 
organizations that met the definition of an SBLC but that did not have 
an SBLC License to participate in the CA Pilot Program as CA Lenders. 
The CA Pilot Program was recently extended until September 30, 2024 (87 
FR 19165).
    SBA is also proposing to remove the requirement for a Loan 
Authorization. Both the 7(a) Loan Program and the 504 Loan Program 
currently require a Loan Authorization providing the terms and 
conditions under which SBA will make or guarantee business loans. 
Currently, under delegated processing methods, 7(a) Lenders and CDCs 
(SBA Lenders) must review a lengthy template that covers every 
potential loan requirement and lending scenario to select the 
requirements that pertain to the individual loan application. The SBA 
Lender then creates the Authorization, signs it, and uploads it into 
SBA's electronic transmission (E-Tran) system as a digital record. 
Under non-delegated processing methods, SBA's loan guaranty processing 
centers (SBA Centers) prepare the Authorization for the SBA Lender to 
sign and upload into E-Tran. Separately, the terms and conditions of 
each loan are also submitted into E-Tran by the SBA Lender through the 
submission of the loan application data and conditions. This dual entry 
of information is a duplication of effort and creates an opportunity 
for a mismatch of information between the two sources of the loan terms 
and conditions. SBA Lenders have provided feedback that the current 
process to capture the loan terms and conditions through the use of the 
Authorization is cumbersome, outdated, and is not necessary because the 
information can be captured through the submission of the terms and 
conditions into E-Tran through the normal course of submitting the loan 
application data and conditions. SBA proposes to eliminate the 
requirement to create a separate Authorization and to instead rely on 
the use of the terms and conditions of the loan application as 
submitted by the SBA Lender into E-Tran. These terms and conditions 
will reflect the agreement between the SBA and the SBA Lender providing 
the terms and conditions under which SBA will guarantee a business 
loan, subject to the Lender's compliance with all applicable Loan 
Program Requirements. SBA obligates funds to support the guaranty at 
the time SBA issues the SBA Loan Number. Currently, the Authorization 
is the written agreement that spells out the terms and conditions, 
which the SBA Lender is required to sign. The proposed change 
incorporates the terms and conditions in the E-Tran system, and SBA 
will continue to obligate funds to support the guaranty based on the 
terms and conditions in E-Tran. SBA's guaranty is conditioned upon the 
SBA Lender complying with Loan Program Requirements.

II. Section-by-Section Analysis

SBLC Moratorium Recission

Section 120.10--Definitions
    SBA has determined that certain markets where there are capital 
market gaps continue to struggle to obtain financing on non-predatory 
terms. Therefore, SBA is proposing to lift the moratorium on licensing 
new Small Business Lending Companies (SBLC) and create a new type of 
Mission-Based SBLC to help bridge this financing gap.
    SBA is proposing to add a new definition for Mission-Based SBLC. 
SBA proposes to define a Mission-Based SBLC as a specific type of SBLC 
that is a nonprofit organization whose purpose is to fill an identified 
capital market gap. Similar to regular SBLCs, SBA will license these 
Mission-Based SBLCs for the sole purpose of making 7(a) loans.
    Mission-Based SBLCs will allow SBA to better meet the needs of 
underserved communities. Mission-Based SBLCs will increase 
opportunities for access to capital in precisely targeted capital 
market gaps as described more fully below in proposed revisions to 
section 120.470. SBA is proposing for Mission-Based SBLCs to be 
nonprofit entities because nonprofit lending organizations often 
specifically target the capital market gaps SBA intends to fill, yet 
nonprofits may be unable to meet SBA's current requirements for SBLCs, 
which are typically for-profit. Adding Mission-Based SBLCs to the 
possible types of 7(a) Lenders will also allow CA Lenders an 
opportunity to apply to permanently participate in the 7(a) Loan 
Program as a Mission-Based SBLC while continuing to meet the needs of 
underserved communities. When SBA authorizes an additional Mission-
Based SBLC License to a CA Lender, the CA Lender will transition from 
making 7(a) loans in a temporary pilot program to instead making 7(a) 
loans under a permanent license in the permanent 7(a) loan program.
    Within this definition, SBA proposes to state that it will accept 
applications for new Mission-Based SBLCs from time to time as published 
in the Federal Register. SBA plans to issue Federal Register Notices 
when application periods for new Mission-Based SBLC Licenses will open, 
with information regarding the number of applications that will be 
accepted, the time period applications will be open, and/or the number 
of Licenses that will be issued. As with current SBLC Licenses and the 
CA Pilot Program, SBA's ability to accept new program participants is 
tied to market conditions and SBA's capacity to supervise and oversee 
additional lenders. Rather than authorizing a certain number of lenders 
at the outset and then imposing a moratorium and foreclosing 
opportunities for new lenders, SBA intends to build in the flexibility 
for SBA to issue Federal Register Notices to open and close application 
periods. This will allow SBA to respond more quickly to needs in 
underserved markets based on its oversight capacity and provide notice 
to the public so potential lenders may begin to prepare applications.
    To accomplish the goal of expanding capital opportunities for 
underserved businesses and allowing Mission-Based SBLCs and regular 
SBLCs to increase the availability of 7(a) loans to small businesses, 
SBA must remove the moratorium on licensing new SBLCs. Current section 
120.10 definition of Small Business Lending Company (SBLC) states that 
SBA has imposed a moratorium on licensing new SBLCs since January 1982, 
and the number of licensed SBLCs has remained at 14 ever since. SBA 
proposes revising this definition to remove the statement that SBA has 
imposed a moratorium on licensing new SBLCs. Not only will this allow 
SBA to license Mission-Based SBLCs, but it will allow SBA to increase 
the number of regular SBLCs as well. As with SBA's proposed definition 
of Mission-Based SBLCs above, SBA proposes to accept applications for 
SBLC Licenses from time to time as published in the Federal Register. 
For the same reasons described above, this will allow SBA the 
flexibility to respond to market conditions and oversight capacity 
while providing the public notice to allow interested parties to 
prepare applications. Based on current oversight capacity, and as 
described in the cost-benefit analysis below, SBA anticipates that it 
has the ability to license and supervise three new additional SBLCs. 
SBA anticipates that current CA Lenders in good standing may apply and 
will be immediately approved as Mission-Based SBLCs, which will not 
increase the number of

[[Page 66965]]

entities supervised and overseen by SBA.
Section 120.466--SBA Supervised Lender Application
    Current section 120.466, paragraph (a)(6), states that in 
connection with any application to become an SBLC, the applicant must 
include a letter agreement from the existing SBLC stating that the SBLC 
is seeking to transfer its lending authority. SBA is proposing to 
revise this section because the lifting of the moratorium on new SBLC 
Licenses will no longer require that an applicant show that an existing 
lender is transferring its authority. However, as SBA is proposing to 
accept applications for new SBLCs from time to time in section 120.10, 
there may be periods when new SBLC Licenses are not being issued and 
existing Licenses will be acquired and transferred. Therefore, SBA is 
proposing to revise this section to state that an applicant to become 
an SBLC must show a letter agreement from an existing SBLC if it is 
acquiring an existing License.
Section 120.470--What are SBA's additional requirements for SBLCs?
    SBA is proposing to revise section 120.470 to reference and include 
additional requirements for its proposed new type of SBLC, Mission-
Based SBLCs. As a type of SBLC, except where otherwise explicitly 
mentioned in regulations, all requirements imposed on SBLCs and SBA 
Supervised Lenders will apply to Mission-Based SBLCs as well.
    For the reasons discussed above, Mission-Based SBLCs must be 
nonprofit organizations. SBA is proposing to revise paragraph (b) to 
reflect this requirement for a Mission-Based SBLC's business structure. 
Regular SBLCs may continue to be for-profit or nonprofit corporations, 
limited liability companies, or limited partnerships.
    To ensure that Mission-Based SBLCs fill identified capital market 
gaps and provide targeted financial assistance to underserved 
communities, SBA has determined that it is necessary to impose 
additional restrictions on Mission-Based SBLCs. To this end, SBA is 
proposing to add a new paragraph (h) to describe the requirements 
Mission-Based SBLCs must meet.
    Proposed subparagraph (h)(1) discusses the requirements for a 
Mission-Based SBLC related to the identified capital market gap the 
lender will fill. SBA proposes to require that a Mission-Based SBLC 
must make a certain percentage of the total number of loans in its 
identified capital market gap. This is similar to the requirement in 
the existing CA Pilot Program, where CA Lenders must make at least 60% 
of their total loans to certain communities or businesses. To ensure 
that the needs of the identified capital market gap are being met while 
keeping in mind each Mission-Based SBLC's individual risk tolerance, 
SBA has determined that it will not impose a specific percentage-based 
requirement on all Mission-Based SBLCs in regulation. Instead, the 
minimum acceptable percentage of loans made to an identified capital 
market gap will be individualized based on the Mission-Based SBLC's 
target market, risk tolerance, financing needs, or other factors 
identified by the lender in their proposed business plan upon 
application.
    The proposed regulation states that when an entity applies to 
become a Mission-Based SBLC, it will include in its business plan an 
identified capital market gap that it proposes to fill and the 
percentage of its total loans that it proposes to make in this market. 
An identified capital market gap may include a geographic area, startup 
businesses, business sector (such as certain NAICS codes), demographic 
(such as veteran-owned businesses), or other underserved market as 
described in the business plan. SBA will determine, in its sole 
discretion, whether the proposed capital market gap is acceptable and 
the percentage of loans made in that market on the basis of whether SBA 
agrees there is a need in the target market. For example, SBA may 
determine that 7(a) loans are widely available in a large metropolitan 
area by examining historical loan data and the number of active lenders 
in the area and be less likely to approve an applicant to become a 
Mission-Based SBLC without a strong showing that there is a capital 
market gap and a thorough business plan to meet that gap. In another 
example, SBA's historical data indicates that there are comparatively 
fewer 7(a) Lenders and 7(a) loans made in certain rural areas, and an 
applicant to become a Mission-Based SBLC may be more likely to show 
that such areas have a capital market gap that can be filled by the 
lender.
    Proposed subparagraph (h)(2) states that SBA will determine in its 
sole discretion a Mission-Based SBLC's minimum acceptable percentage of 
total loans that it must make in its identified capital market gap, 
maximum loan size, geographic area of operation, and capitalization. 
SBA will make this determination on the basis of the applicant's 
proposed identified capital market gap, proposed capitalization, 
business plan, experience of staff, or lending history, among other 
things included in the application. SBA believes that such 
determinations are necessary when authorizing Mission-Based SBLCs to 
ensure that the needs of identified capital market gaps are addressed, 
allow flexibility for individualization of lenders' operations, and 
ensure limits on SBA's risk exposure. For example, an experienced and 
well-capitalized applicant to become a Mission-Based SBLC may propose 
an identified capital market gap in a comparatively expensive business 
sector, therefore, SBA may accept a larger than average maximum loan 
size. Alternatively, a Lender with comparatively little experience may 
propose to operate in a relatively inexpensive geographic area of 
operation, and SBA may determine that a lower maximum loan size is 
necessary. Additionally, a nonprofit organization that is not as well 
capitalized but that targets a highly underserved area may be licensed 
as a Mission-Based SBLC but SBA may determine that a lower maximum loan 
size is necessary. SBA intends to allow Mission-Based SBLCs to request 
higher loan amounts and expansions to geographic areas as their lending 
history, capitalization, and other factors indicate the risk is 
acceptable. Allowing individualization for Mission-Based SBLCs will 
allow SBA and lenders flexibility to more precisely target underserved 
communities.
Section 120.471--What are the minimum capital requirements for SBLCs?
    Current section 120.471, subparagraph (a)(1) addresses minimum 
capital requirements for SBLCs and states that beginning on January 4, 
2024, each SBLC that makes or acquires a 7(a) loan must maintain, at a 
minimum, unencumbered paid-in capital and paid-in surplus of at least 
$5,000,000, or 10 percent of the aggregate of its share of all 
outstanding loans, whichever is greater. SBA proposes to revise this 
paragraph by adding a new subparagraph (4) that will state that, a 
Mission-Based SBLC must maintain a minimum amount of capital at the 
discretion of the Administrator in consultation with SBA's Associate 
Administrator for SBA's Office of Capital Access (AA/OCA), to ensure 
sufficient risk protection for SBA and lenders while not burdening 
smaller lenders with large capital requirements. This proposal will 
allow SBA to license Mission-Based SBLCs that are nonprofit mission-
oriented lenders that target capital market gaps identified by SBA when 
these entities would otherwise not

[[Page 66966]]

be able to meet SBA's minimum capital requirements.
Section 120.820--CDC Affiliation
    Current section 120.820 limits the entities with which CDCs may be 
affiliated. SBA proposes to add a new subparagraph (g), which states 
notwithstanding subparagraphs (b), (c), and (e), a CDC may be 
affiliated with a Mission-Based SBLC. This revision will allow CDCs to 
form the required entity whose sole purpose is to make 7(a) loans as a 
Mission-Based SBLC that targets capital market gaps identified by SBA. 
This revision is consistent with the CA Pilot Program, which allows 
CDCs to be affiliated with CA Lenders, and allows such CA Lenders to 
apply to become permanent participants in the 7(a) Loan Program as 
Mission-Based SBLCs.

Removal of Requirement for Loan Authorization

Section 120.10--Definitions
    SBA is proposing to remove the definition for Authorization. For 
the reasons stated above, SBA will continue to rely on the SBA Form 
750, which is a written agreement executed by all participating lenders 
requiring that those same lenders comply with all statutes and 
regulations. For loan accounting purposes, lenders will continue, as 
they do today, to electronically submit their request for a loan 
guaranty authorization from the Agency's loan accounting system of 
record--E-Tran.
    SBA is proposing to amend the definition of Loan Instruments to 
remove the word Authorization. The amended definition will state that 
Loan Instruments are the note, instruments of hypothecation, and all 
other agreements and documents related to a loan.
    SBA is proposing to amend the definition of Loan Program 
Requirements or SBA Loan Program Requirements to remove the word 
Authorization. The amended definition will state that Loan Program 
Requirements or SBA Loan Program Requirements are requirements imposed 
upon Lenders, CDCs, or Intermediaries by statute; SBA and applicable 
government-wide regulations; any agreement the Lender, CDC, or 
Intermediary has executed with SBA or to which the Lender or CDC is 
subject; SBA Standard Operating Procedures (SOPs); Federal Register 
notices; and official SBA notices and forms applicable to the 7(a) Loan 
Program, 504 Loan Program or Microloan Program; as such requirements 
are issued and revised by SBA from time to time. For CDCs, this term 
also includes requirements imposed by Debentures, as that term is 
defined in Sec.  120.802. For Intermediaries, this term also includes 
requirements imposed by promissory notes, collateral documents, and 
grant agreements.
Section 120.120--What are eligible uses of proceeds?
    Current section 120.120 states that a small business must use an 
SBA business loan for sound business purposes, and the uses of proceeds 
are prescribed in each loan's Authorization. The section goes on to 
describe the various ways in which a borrower may use SBA loan 
proceeds. SBA proposes to amend this section to remove the sentence 
that states ``The uses of proceeds are prescribed in each loan's 
Authorization.'' SBA already captures the uses of proceeds of the SBA-
guaranteed loan through the loan application data and conditions the 
SBA Lender enters into ETRAN; therefore, it is not necessary to include 
the information in a separate Authorization.
Section 120.192--Approval or Denial
    Current section 120.192 states that Applicants receive notice of 
approval or denial by the Lender, CDC, Intermediary, or SBA, as 
appropriate. Notice of denial will include the reasons. If a loan is 
approved, an Authorization will be issued. SBA proposes to amend 
section 120.192 to remove the sentence that states ``If a loan is 
approved, an Authorization will be issued.'' SBA's current practice is 
to review an Authorization and issue an SBA Loan Number when the 
Authorization is considered satisfactory to SBA. SBA considers the 
issuance of the loan number to indicate loan approval by SBA. The 
proposed rule to no longer require an Authorization will only slightly 
modify the current process. Under the proposed rule, SBA will indicate 
loan approval by issuing a loan number.
Section 120.220--Fees That Lender Pays SBA
    Section 120.220 states the requirements for the fees that 7(a) Loan 
Program Lenders pay SBA. The preamble of section 120.220 states in part 
``Acceptance of the guaranty fee by SBA does not waive any right of SBA 
arising from a Lender's negligence, misconduct or violation of any 
provision of these regulations, the guaranty agreement, or the loan 
authorization.'' For the reasons stated above, SBA proposes to remove 
the reference to the loan Authorization so that the sentence states 
``Acceptance of the guaranty fee by SBA does not waive any right of SBA 
arising from a Lender's negligence, misconduct or violation of any 
provision of these regulations, or the guaranty agreement.''
    Current section 120.220(e) states in part ``Acceptance of the 
guarantee fee by SBA shall not waive any right of SBA arising from the 
[7(a)] Lender's misconduct or violation of any provision of this part, 
the guarantee agreement, the Authorization, or other loan documents.'' 
For the reasons stated above, SBA proposes to remove the reference to 
the loan Authorization so that the revised section 120.220(e) will 
state ``Acceptance of the guarantee fee by SBA shall not waive any 
right of SBA arising from the [7(a)] Lender's misconduct or violation 
of any provision of this part, the guarantee agreement, or other loan 
documents.''
Section 120.801--How a 504 Project Is Financed
    Current section 120.801(a) applies to the 504 Loan Program and 
states ``One or more small businesses may apply for 504 financing 
through a CDC serving the area where the 504 Project is located. SBA 
issues an Authorization if it agrees to guarantee part of the funding 
for a Project.'' For the reasons stated above, SBA proposes to remove 
the sentence that references the Authorization.
Section 120.842--ALP Express Loans
    Current section 120.842(b)(4) states the requirements for 
submission of loan documents for 504 Loan Program ALP Express loans and 
states in part ``If approved, SBA will notify the ALP CDC of the loan 
number assigned to the loan and provide the CDC with a signed copy of 
the Loan Authorization.'' SBA's current practice is to review an 
Authorization and issue a loan number when the Authorization is 
considered satisfactory to SBA. Under the proposed rule, SBA will 
indicate loan approval by issuing a loan number. Therefore, SBA 
proposes to remove the reference to the Loan Authorization so the 
sentence will state ``If approved, SBA will notify the ALP CDC of the 
loan number assigned to the loan.''
    Current section 120.842(b)(5) states the requirements for loan and 
debenture closing for 504 Loan Program ALP Express loans and states 
``After receiving notification of the loan number and a signed copy of 
the Loan Authorization from SBA, the ALP CDC is responsible for 
properly undertaking all actions necessary to close the ALP Express 
Loan and Debenture in accordance with the expedited loan closing 
procedures applicable to a Priority CDC and with Sec.  120.960.'' For

[[Page 66967]]

the reasons stated above, SBA proposes to remove the reference to the 
loan Authorization so that section 120.842(b)(5) will state ``After 
receiving notification of the loan number, the ALP CDC is responsible 
for properly undertaking all actions necessary to close the ALP Express 
Loan and Debenture in accordance with the expedited loan closing 
procedures applicable to a Priority CDC and with Sec.  120.960.''
Section 120.921--Terms of Third Party Loans
    Current section 120.921(a) states the requirements for the loan 
maturity of the 504 Loan Program Third Party Lender loan. Section 
120.921(a) states ``A Third Party Loan must have a term of at least 7 
years when the 504 loan is for a term of 10 years and 10 years when the 
504 loan is for 20 years. If there is more than one Third Party Loan, 
an overall loan maturity must be calculated, taking into account the 
maturities and amounts of each loan. If there is a balloon payment, it 
must be justified in the loan report and clearly identified in the Loan 
Authorization.'' For the reasons stated above, SBA proposes to remove 
the last sentence in section 120.921(a) in its entirety so that it 
states ``A Third Party Loan must have a term of at least 7 years when 
the 504 loan is for a term of 10 years and 10 years when the 504 loan 
is for 20 years. If there is more than one Third Party Loan, an overall 
loan maturity must be calculated, taking into account the maturities 
and amounts of each loan.''
Section 120.960--Responsibility for Closing
    Current section 120.960(c)(1) states that SBA may, within its sole 
discretion, decline to close a 504 Loan Program Debenture; direct the 
transfer of the 504 loan to another CDC; or cancel its guarantee of the 
Debenture, prior to sale, if the CDC has failed to comply materially 
with any requirement imposed by statute, regulation, SOP, policy and 
procedural notice, any agreement the CDC has executed with SBA, or the 
terms of a Debenture or loan authorization. For the reasons stated 
above, SBA proposes to remove the reference to the loan Authorization.
Section 120.971--Allowable Fees Paid by Borrower
    Section 120.971 states the requirements for the allowable fees that 
a 504 Loan Program Certified Development Company (CDC) may charge the 
Borrower in connection with a 504 loan and Debenture. Section 
120.971(a)(1) describes the Processing fee and states ``The CDC may 
charge up to 1.5 percent of the net Debenture proceeds to process the 
financing. Two-thirds of this fee will be considered earned and may be 
collected by the CDC when the Authorization for the Debenture is issued 
by SBA. The portion of the processing fee paid by the Borrower may be 
reimbursed from the Debenture proceeds;'' For the reasons stated above, 
SBA proposes to remove the reference to the Authorization for the 
Debenture and to instead refer to the issuance of the loan number so 
that the amended section 120.971(a)(1) will state ``The CDC may charge 
up to 1.5 percent of the net Debenture proceeds to process the 
financing. Two-thirds of this fee will be considered earned and may be 
collected by the CDC when the loan number is issued by SBA. The portion 
of the processing fee paid by the Borrower may be reimbursed from the 
Debenture proceeds;''

Compliance With Executive Orders 12866, 12988, 13132, and 13563, the 
Paperwork Reduction Act (44 U.S.C., Ch. 35), the Congressional Review 
Act (5 U.S.C. 801-808), and the Regulatory Flexibility Act (5 U.S.C. 
601-612)

Executive Order 12866

    The Office of Management and Budget anticipates that this rule will 
be a ``significant regulatory action'' under Executive Order 12866. SBA 
has drafted a Regulatory Impact Analysis for the public's information 
in the next section. Each section begins with a core question.
A. Regulatory Objective of the Proposal
Is there a need for this regulatory action?
1. SBLC Moratorium Recission
    Access to capital is one of the primary factors indicating whether 
a small business will startup, grow, and survive. However, many small 
businesses experience significant challenges securing the financing 
they need to sustain their businesses. In a 2019 report on minority-
owned firms, financial challenges due to lack of credit availability 
was cited by 51% of Black-owned businesses, 40% of Hispanic-owned 
businesses, 36% of Asian-owned businesses, and 30% of White-owned 
businesses.\1\ Further, according to a 2020 report on small business 
employer firms, nearly half of recent credit applicants experienced 
funding gaps,\2\ and only 51% of applicants received the full amount of 
financing sought.\3\
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    \1\ Federal Reserve Bank of Atlanta, ``Small Business Credit 
Survey Report on Minority-Owned Firms,'' December 2019, page 3 at 
20191211-ced-minority-owned-firms-report.pdf (fedsmallbusiness.org).
    \2\ Federal Reserve Banks of Atlanta, Boston, Chicago, 
Cleveland, Dallas, Kansas City, Minneapolis, New York, Philadelphia, 
St. Louis, San Francisco ``Small Business Credit Survey 2020 Report 
on Employer Firms,'' page ii at 2020-sbcs-employer-firms-report 
(fedsmallbusiness.org).
    \3\ Ibid, page ii.
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    SBA's existing loan programs serve an important role in credit 
markets for small businesses by providing financing to businesses that 
do not have credit available elsewhere from conventional sources on 
reasonable terms. However, there are still gaps in capital for 
underserved communities that require policies targeted to meeting their 
needs. The proposed revisions will increase lending activity in 
identified capital market gaps, resulting in the expansion of business 
opportunities and the creation of more jobs in underserved communities.
    SBA's CA Pilot Program, which currently expires September 30, 2024, 
was specifically created to increase access to capital to small 
businesses located in underserved markets. SBA has learned that CA 
Lenders are able to routinely make at least 60 percent of their loans 
to small businesses located in underserved markets; therefore, SBA is 
onboarding more lenders to participate in 7(a) lending to increase the 
number of mission-based lenders that use the program. Licensing new 
SBLCs and Mission-Based SBLCs will provide a path for successful CA 
Lenders to become participants in the 7(a) Loan Program long-term. In 
addition, many non-traditional lenders participated in SBA's Paycheck 
Protection Program (PPP), which provided billions of dollars to small 
businesses during the economic upheaval caused by the COVID-19 
pandemic. Based on the success of the PPP, removing the moratorium on 
licensing new SBLCs and Mission-Based SBLCs opens opportunities for 
more non-traditional lenders to participate in the 7(a) Loan Program, 
providing additional sources of capital to America's small businesses 
and targeting gaps in the credit market.
2. Removal of the Requirement for a Loan Authorization
    SBA's current policy of requiring a separate Loan Authorization 
document that contains the loan terms and conditions in addition to the 
loan terms and conditions that the SBA Lender also submits to SBA with 
its guaranty application is cumbersome, outdated, and duplicative. SBA 
is proposing to revise its regulations to eliminate the

[[Page 66968]]

duplication of effort and opportunity for a mismatch of information 
between the two sources of the loan terms and conditions.
B. Benefits and Costs of the Rule
What are the potential benefits and costs of this regulatory action?
1. SBLC Moratorium Rescission
    SBA anticipates minor additional costs or impact on the subsidy to 
operate the 7(a) Loan Program in the first 5 years under these proposed 
regulations resulting from an anticipated modest increase in 7(a) loan 
activity due to additional SBLCs, as newly established SBLCs take up to 
five years to reach the current lending activity sustained by 
established SBLC license holders. SBA has confirmed that there will be 
no subsidy impact in FY 2024.
    The existing 14 licensed SBLCs each approve an average of 125 loans 
per year. SBA anticipates new SBLCs will require a ramp-up period over 
the course of their first several years after they are licensed to 
reach this level of 7(a) lending activity. Over the course of the past 
four fiscal years, the majority of new 7(a) lenders have made between 1 
and 26 7(a) loans in their first year of activity, with the average 
number of loans from each new 7(a) lender of less than three loans in 
their first year of 7(a) loan activity. Over the fiscal years 2018 
through 2021, there were three new SBLC's that acquired SBLC Licenses, 
and those new SBLCs approved a total of 40 7(a) loans in their first 
years of operation, for an average of approximately 13 7(a) loans for 
each SBLC in their first year. Based on loan volume for other new 7(a) 
lenders between FY 2018 and FY 2021, SBA anticipates new SBLCs, 
including Mission-Based SBLCs, to make approximately eight 7(a) loans 
in their first year after they become fully operational because of the 
targeted markets of Mission-based SBLCs. The three new SBLCs have the 
potential to increase 7(a) lending by the approximately 425 loans per 
year over the next four years.\4\
---------------------------------------------------------------------------

    \4\ This estimate is from the average number of 7(a) loans each 
year based on the 1,694 new 7(a) loans approved by all new SBA 7(a) 
Lenders in the four-year period of fiscal year 2018 through fiscal 
year 2022
---------------------------------------------------------------------------

    The rate and capacity at which SBA will authorize new SBLC Licenses 
is dependent on SBA having adequate staffing and funding to conduct 
oversight activities and initial screening of applications. Based on 
current staffing levels, SBA has the capacity to authorize three new 
SBLC Licenses in total, which does not include the conversion of 
existing CA Lenders to Mission-Based SBLCs. SBA's Office of Credit Risk 
Management (OCRM), which supervises and examines SBA Lenders, will 
require one new GS-13/14 Risk Management Analyst full-time equivalent 
employee for every seven new SBLC Licenses issued. For purposes of the 
cost estimates, the costs associated with each Risk Management Analyst 
position is based on the Federal wage scale for the Washington, DC area 
for a GS 14, Step 10, at $164,102 per year, with an additional cost of 
100 percent (an additional $164,102 per year) added for overhead and 
benefits costs to yield an annual risk management staffing cost to the 
Agency of approximately $328,204 for every seven new SBLC Licenses 
issued.
    SBA anticipates that all CA Lenders in good standing participating 
in the CA Pilot Program may apply to become Mission-Based SBLCs. When 
SBA authorizes an additional Mission-Based SBLC License to a CA Lender, 
the CA Lender will transition from making 7(a) loans in a temporary 
pilot program to instead making 7(a) loans under a permanent license in 
the regular 7(a) program. This means a CA Lender transitioning to a 
Mission-Based SBLC will not increase the total number of entities 
overseen and supervised by SBA or the cost to SBA.
    SBA is authorized \5\ to charge a fee for conducting oversight 
activities, including safety and soundness examinations of SBA-
Supervised Lenders. All entities applying to participate as an SBLC 
(including a Mission-Based SBLC) will undergo an initial safety and 
soundness examination at the time of application. SBA estimates the fee 
for completing the initial safety and soundness examination will be a 
minimum of $10,000 per applicant. The fees charged by SBA for 
conducting oversight activities support the contractors necessary to 
work with SBA staff on the oversight and examination activities. 
Additional full-time employees will be necessary dependent upon the 
number of additional SBA-Supervised non-regulated entities onboarded.
---------------------------------------------------------------------------

    \5\ See section 23(a) of the Small Business Act. 15 U.S.C. 
650(a), 15 U.S.C. 634(b)(6), (7), (14), and 13 CFR 120.1070.
---------------------------------------------------------------------------

    The fees imposed on the new SBLCs, including Mission-Based SBLCs, 
will be consistent with the oversight fees for the 7(a) Loan Program 
published annually by OCRM.\6\ SBA conducts safety and soundness exams 
on SBLCs at least once every two years. Additionally, SBA conducts 
targeted reviews of loan files in between regularly scheduled safety 
and soundness exams. The total biennial cost of these risk-based 
reviews is currently $50,000 to $150,000 per institution, with review 
costs correlated to the size of the SBLC's loan portfolio. For FY 2022, 
the annual fee for monitoring and Other Lender Oversight Activities for 
SBA Supervised Lenders, which includes SBLCs, is $161.16 for every $1 
million in 7(a) guaranteed dollars a 7(a) Lender has outstanding. For 
FY 2022, the additional fee for Delegated Authority Lenders is 
approximately $13.11 for every $1 million in 7(a) guaranteed dollars a 
delegated Lender has outstanding. This fee covers the costs of 
Delegated Authority Reviews and is assessed annually based on each 
delegated 7(a) Lender's portion of the total dollar amount of 7(a) 
guarantees in the SBA loan portfolio for all delegated 7(a) Lenders as 
of the end of the prior fiscal year. For this calculation, 7(a) 
guaranteed dollars does not include loans originated under PPP.
---------------------------------------------------------------------------

    \6\ SBA Information Notice 5000-828947, FY 2022 Updated Fee 
Schedule for SBA Oversight of 7(a) Lenders, March 3, 2022. (https://www.sba.gov/document/information-notice-5000-828947-fy-2022-updated-fee-schedule-sba-oversight-7a-lenders).
---------------------------------------------------------------------------

    SBA also charges 7(a) Lenders fees for monitoring, including the 
quarterly off-site/monitoring reviews conducted through the Loan and 
Lender Monitoring System (L/LMS). SBA's oversight fees include costs 
related to Other Lender Oversight Activities (e.g., technical 
assistance and analytics, a portion of OCRM salaries for 7(a) Lender 
oversight activities, supervision and enforcement activities, and 
similar costs to support SBA's lender oversight program). These 
oversight fees are based on SBA's costs. The fees for monitoring (e.g., 
L/LMS and subscription services), Other Lender Oversight Activities, 
and Delegated Authority Reviews are assessed annually based on each 
7(a) Lender's portion of the total dollar amount of 7(a) guarantees in 
SBA's portfolio or, as applicable, the relevant portfolio segment the 
activity covers. Oversight fees are assessed on a per-loan basis and 
range from $161 to $174 per loan based on whether the lender is a non-
delegated or holds delegated lender authority.
    Lifting the moratorium on licensing new SBLCs and authorizing 
Mission-Based SBLCs will benefit the approximately 51% of small 
employer firms that do not have their financing needs met,\7\ either 
because they did not receive all the financing for which they applied, 
or because they did not apply

[[Page 66969]]

due to a variety of reasons, including the belief they would be turned 
down.
---------------------------------------------------------------------------

    \7\ Ibid, page 11.
---------------------------------------------------------------------------

    The proposed revisions may have a negative impact to the 14 
existing SBLCs by destabilizing the value of their licenses due to 
increased competition and issuance of new SBLC Licenses. The value of 
SBLC Licenses may periodically fluctuate based on whether SBA is or is 
not accepting applications for new SBLCs and entities interested in the 
program must acquire existing SBLC License.
C. What alternatives have been considered?
1. SBLC Moratorium Rescission
    SBA considered leaving the regulations unchanged and relying upon 
the CA Pilot Loan Program to address the needs of access to capital in 
underserved markets; however, the low historic loan volume and lack of 
any CA loan activity in some rural and underserved geographic areas 
makes this an unviable alternative.
    SBA also considered requiring mission-based lenders to meet the $5 
million capitalization requirements currently in place for all SBLC 
license holders; however, SBA determined many of these lending entities 
would be unable to qualify for SBA's program based on such a 
requirement.
2. Removal of the Requirement for a Loan Authorization
    SBA considered leaving the requirements for the Loan Authorization 
intact. SBA does not have quantitative data on the effects of removing 
or retaining the requirements for the Loan Authorization. However, SBA 
Lenders struggle under the burden of the existing lengthy Loan 
Authorization requirement, and they have and continue to request relief 
from this requirement. In the interest of reducing duplicative effort 
and making better use of existing technology and processes, SBA 
determined it is in the interest of SBA and SBA Lenders to revise the 
requirement for a Loan Authorization as proposed.
    SBA also considered facilitating electronic entry of the Loan 
Authorization for the subject SBA loans. However, electronic entry of 
the Loan Authorization form would not address the duplicative effort 
resulting from subsequent entry in E-Tran. This, therefore, would also 
not be a viable alternative.

Executive Order 12988

    This action 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 action does not 
have preemptive effect or retroactive effect.

Executive Order 13132

    This rule does not have federalism implications as defined in 
Executive Order 13132. It 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, as specified in the Executive Order. As 
such it does not warrant the preparation of a Federalism Assessment.

Executive Order 13563

    A description of the need for this regulatory action and benefits 
and costs associated with this action, including possible 
distributional impacts that relate to Executive Order 13563, are 
included above in the Regulatory Impact Analysis under Executive Order 
12866.

Paperwork Reduction Act, 44 U.S.C. Ch. 35

    The portions of the proposed rule on the SBLC moratorium rescission 
would require SBA Form 2498, ``SBA Supervised Lender Assessment Plan,'' 
to be revised to edit the requirement that an applicant to become an 
SBLC must include a letter from an existing SBLC evidencing intent to 
transfer lending authority to conform with revisions to 13 CFR 120.466. 
The portion of this rule on removing the requirement for a Loan 
Authorization is not subject to the Paperwork Reduction Act because the 
Loan Authorization is not an information collection. Removal of the 
Loan Authorization may require revision to OMB-approved forms, and such 
revisions will be submitted to OMB in accordance with the requirements 
of the PRA when the rule is finalized.

Congressional Review Act, 5 U.S.C. Ch. 8

    Subtitle E of the Small Business Regulatory Enforcement Fairness 
Act of 1996, also known as the Congressional Review Act or CRA, 
generally provides that before a rule may take effect, the agency 
promulgating the rule must submit a rule report, which includes a copy 
of the rule, to each House of the Congress and to the Comptroller 
General of the United States. SBA will submit a report containing this 
rule and other required information to the U.S. Senate, the U.S. House 
of Representatives, and the Comptroller General of the United States. A 
major rule under the CRA cannot take effect until 60 days after it is 
published in the Federal Register. The Office of Information and 
Regulatory Affairs anticipatesanticipates that this rule is not a 
``major rule'' as defined by 5 U.S.C. 804(2). Therefore, this rule is 
not subject to the 60-day restriction.

Regulatory Flexibility Act, 5 U.S.C. 601-612

    When an agency issues a rulemaking proposal, the Regulatory 
Flexibility Act (RFA), 5 U.S.C. 601-612, requires the agency to 
``prepare and make available for public comment an initial regulatory 
analysis'' which will ``describe the impact of the proposed rule on 
small entities.'' SBA does not anticipate the rulemaking will have a 
significant impact to the approximately existing 2,897 7(a) Lenders 
participating in the 7(a) Loan Program.
    Of the 182 new 7(a) Lenders onboarded since FY 2018, only four were 
new SBLCs that acquired an SBLC License after receiving SBA's approval 
for the SBLC License transfer. SBA does not require SBLCs to provide 
SBA with the financial statements of the SBLC parent company, if 
applicable, or affiliates; therefore, SBA is not able to determine 
whether the SBLCs are small businesses in accordance with SBA size 
standards. SBA anticipates approving three SBLCs, including Mission-
Based SBLCs, in the full first year after this proposed rule becomes 
effective.
    Because some SBLC applicants may be considered small businesses per 
size standards in 13 CFR 121.201,\8\ SBA must address the cost of 
preparing and submitting an SBLC application to SBA. The 2021 annual 
revenues (including revenues of any Parent Company) for the 13 active 
SBLCs (one inactive SBLC is in the process of transferring their 
license and their 2021 revenues were not available) range from a low of 
$5.1 million to a high of $910.8 million, with average annual revenues 
of $81.3 million. These revenues are well above the SBA small business 
size standard of $41.5 million in annual revenues for the North 
American Industry Classification System (NAICS) industry 522298, ``All 
Other Nondepository Credit Intermediation'' average revenue threshold 
to be considered a ``small business'', which includes revenue from 
affiliates such as parent companies. SBA does not require an SBLC to be 
a small business in order to participate as a 7(a)

[[Page 66970]]

Lender, therefore SBA does not review the SBLC applicant for size when 
evaluating an SBLC application. SBA also does not collect financial 
information on any SBLC affiliates, which would be necessary to make a 
size determination for an SBLC; therefore, it is not feasible for SBA 
to determine if any of the SBLCs are small businesses.
---------------------------------------------------------------------------

    \8\ Based on the Size Standard for NAICS Code 522298, All Other 
Nondepository Credit Intermediation, of $41.5 million gross revenues 
averaged over the last five years--13 CFR 121.201 https://www.ecfr.gov/current/title-13/chapter-I/part-121/subpart-A/subject-group-ECFRf12a11421b08a31/section-121.201.
---------------------------------------------------------------------------

    Based on SBA's experience with similar data collections, an 
organization applying to become an SBA Supervised Lender would 
typically employ the services of a financial manager, an accountant, an 
attorney, and an administrative assistant when preparing a complete 
application for submission to SBA. SBA also anticipates a minor 
increase of additional 7(a) loan approvals each year based on the 
approximately three new SBLC and Mission-Based SBLC lenders per year.
    The cost estimate for an SBLC applicant to complete an SBA SBLC 
application is based on the estimated time to complete the application 
multiplied by the median hourly wage by job position wages published by 
the U.S. Department of Labor's Bureau of Labor Statistics for 2021 \9\ 
and increased by 100% to account for overhead benefit costs. The cost 
breakdown is as follows: Financial Manager (30 hours times an hourly 
rate of $63.32 plus overhead and benefit costs of $63.32 per hour = 
$3,799.20); plus Accountant (10 hours times an hourly rate of $37.14, 
plus overhead and benefit costs of $37.14 per hour = $742.80); plus 
Lawyers (5 hours times an hourly rate of $61.54, plus overhead and 
benefit costs of $61.54 per hour = $615.40); plus Administrative 
Assistant (5 hours times an hourly rate of $19.08, plus overhead and 
benefit costs of $19.08 per hour = $190.80); for a total anticipated 
cost to complete the SBLC application for each SBLC applicant of 
$5,348. As stated elsewhere, SBA estimates the fee for completing the 
initial safety and soundness examination will be a minimum of $10,000 
per applicant, which would increase the cost burden for each of the 
three SBLC applicants to $15,348.
---------------------------------------------------------------------------

    \9\ https://www.bls.gov/oes/current/oes_nat.htm.
---------------------------------------------------------------------------

    SBA believes the one-time estimated cost burden of $15,348 does not 
represent a significant economic impact to a potential SBLC applicant 
in comparison to the average annual revenue of existing SBLCs of $81.3 
million per SBLC.
    For the above reasons, SBA certifies that the proposed rule will 
not have a significant economic impact on a substantial number of small 
entities. SBA specifically requests comments on whether the number of 
hours estimated to prepare a complete application is appropriate.

List of Subjects in 13 CFR Part 120

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

    For the reasons stated in the preamble, SBA proposes to amend 13 
CFR part 120 as follows:

PART 120--BUSINESS LOANS

0
1. The authority citation for 13 CFR 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, 636m, 650, 657t, and note, 657u, and 
note, 687(f), 696(3), and (7), and note, 697, 697a and e, and note; 
Pub. L. 116-260, 134 Stat. 1182.

0
2. Amend Sec.  120.10 by:
0
a. Removing the definition for ``Authorization'';
0
b. Revising the definitions for ``Loan Instruments'' and ``Loan Program 
Requirements or SBA Loan Program requirements'';
0
c. Adding a definition for ``Mission-Based Small Business Lending 
Company (MISSION-BASED SBLC)'' in alphabetical order; and
0
d. Revising the definition for ``Small Business Lending Company 
(SBLC)''.
    The revisions and addition read as follows:


Sec.  120.10   Definitions

* * * * *
    Loan Instruments are the note, instruments of hypothecation, and 
all other agreements and documents related to a loan.
    Loan Program Requirements or SBA Loan Program Requirements are 
requirements imposed upon Lenders, CDCs, or Intermediaries by statute; 
SBA and applicable government-wide regulations; any agreement the 
Lender, CDC, or Intermediary has executed with SBA or to which the 
Lender or CDC is subject; SBA Standard Operating Procedures (SOPs); 
Federal Register notices; and official SBA notices and forms applicable 
to the 7(a) Loan Program, 504 Loan Program or Microloan Program, as 
such requirements are issued and revised by SBA from time to time. For 
CDCs, this term also includes requirements imposed by Debentures, as 
that term is defined in Sec.  120.802. For Intermediaries, this term 
also includes requirements imposed by promissory notes, collateral 
documents, and grant agreements.
* * * * *
    Mission-Based Small Business Lending Company (Mission-Based SBLC) 
is a type of SBLC that is a nonprofit lending institution licensed and 
authorized by SBA only to make loans pursuant to section 7(a) of the 
Small Business Act to fill an identified capital market gap. SBA 
accepts applications for Mission-Based SBLCs from time to time as 
published in the Federal Register.
* * * * *
    Small Business Lending Company (SBLC) is a non-depository lending 
institution that is SBA-licensed and is authorized by SBA to only make 
loans pursuant to section 7(a) of the Small Business Act and loans to 
Intermediaries in SBA's Microloan program. SBA accepts applications for 
SBLCs from time to time as published in the Federal Register.
* * * * *


Sec.  120.120   [Amended]

0
3. Amend Sec.  120.120 introductory paragraph by removing the last 
sentence.


Sec.  120.192   [Amended]

0
4. Amend Sec.  120.192 by removing the last sentence.
0
5. Amend Sec.  120.220 by revising the last sentence of the 
introductory paragraph and the last sentence of paragraph (e) to read 
as follows:


Sec.  120.220   Fees that Lender pays SBA.

    * * * Acceptance of the guaranty fee by SBA does not waive any 
right of SBA arising from a Lender's negligence, misconduct or 
violation of any provision of these regulations or the guaranty 
agreement.
* * * * *
    (e) * * * Acceptance of the guarantee fee by SBA shall not waive 
any right of SBA arising from the Lender's misconduct or violation of 
any provision of this part, the guarantee agreement or other loan 
documents.
* * * * *
0
6. Amend Sec.  120.466 by revising paragraph (a)(6) to read as follows:


Sec.  120.466   SBA Supervised Lender application.

* * * * *
    (a) * * *
    (6) In connection with any application to acquire an existing SBLC 
License, the applicant must include a letter agreement signed by an 
authorized official of the SBLC whose License is to be acquired 
certifying that the SBLC is seeking to transfer its SBA lending 
authority to the applicant;
* * * * *

[[Page 66971]]

0
7. Amend Sec.  120.470 by revising the introductory paragraph and 
paragraph (b) and by adding a paragraph (h) to read as follows:


Sec.  120.470   What are SBA's additional requirements for SBLCs?

    In addition to complying with SBA's requirements for SBA Lenders 
and SBA Supervised Lenders, an SBLC (including a Mission-Based SBLC) 
must meet the requirements contained in this regulation and the SBLC 
regulations that follow.
* * * * *
    (b) * * * An SBLC must be a corporation (profit or nonprofit) or a 
limited liability company or limited partnership, except for a Mission-
Based SBLC, which must be a nonprofit corporation.
* * * * *
    (h) Mission-Based SBLCs. (1) A Mission-Based SBLC must make a 
certain percentage of the total number of its loans in an identified 
capital market gap. An entity applying to become a Mission-Based SBLC 
must identify in its business plan the capital market gap it will 
target and the percentage of its total loans it proposes to make in 
that market. The identified capital market gap may include a geographic 
area, startup businesses, business sector, demographic, or other 
underserved market. An identified capital market gap and the percentage 
of loans made in that market is accepted by SBA, in SBA's sole 
discretion, based on whether SBA agrees there is a need in the targeted 
market and whether the applicant can meet that need.
    (2) SBA determines, in its sole discretion, a Mission-Based SBLC's 
minimum acceptable lender capitalization, percentage of total loans 
that it will make in its identified capital market gap, maximum loan 
size, and geographic area of operation. SBA may make these 
determinations on the basis of the Mission-Based SBLC's proposed lender 
capitalization, proposed identified capital market gap, Loan Loss 
Reserve Account, business plan, experience of staff, or lending 
history, among other things.
0
8. Amend Sec.  120.471 by adding paragraph (a)(4) to read as follows:


Sec.  120.471   What are the minimum capital requirements for SBLCs?

    (a) * * *
    (4) A Mission-Based SBLC must maintain a minimum amount of capital 
as determined at the discretion of the Administrator in consultation 
with SBA's Associate Administrator for the Office of Capital Access 
(AA/OCA). The capital requirement will ensure sufficient risk 
protection for SBA and lenders while not burdening smaller lenders with 
large capital requirements.
* * * * *
0
9. Amend Sec.  120.801 by revising the last sentence of paragraph (a) 
to read as follows:


Sec.  120.801   How a 504 Project is financed.

    (a) * * * SBA issues a loan number if it agrees to guarantee part 
of the funding for a Project.
* * * * *
0
10. Amend Sec.  120.820 by adding paragraph (g) to read as follows:


Sec.  120.820   CDC Affiliation.

* * * * *
    (g) Notwithstanding paragraphs (b), (c), and (e) of this section, a 
CDC may be affiliated with a Mission-Based SBLC.
0
11. Amend Sec.  120.842 by revising the last sentence of paragraph 
(b)(4) and paragraph (b)(5) to read as follows:


Sec.  120.842   ALP Express Loans.

* * * * *
    (b) * * *
    (4) * * * If approved, SBA will notify the ALP CDC of the loan 
number assigned to the loan.
    (5) * * * After receiving notification of the loan number from SBA, 
the ALP CDC is responsible for properly undertaking all actions 
necessary to close the ALP Express Loan and Debenture in accordance 
with the expedited loan closing procedures applicable to a Priority CDC 
and with Sec.  120.960, and in compliance with all applicable Loan 
Program Requirements.
* * * * *


Sec.  120.921   [Amended]

0
12. Amend Sec.  120.921 by removing the last sentence in paragraph (a).
0
13. Amend Sec.  120.960 by revising paragraph (c)(1) to read as 
follows:


Sec.  120.960   Responsibility for closing.

* * * * *
    (c) * * *
    (1) The CDC has failed to comply materially with any Loan Program 
Requirement as defined in Sec.  120.10;
* * * * *
0
14. Amend Sec.  120.971 by revising paragraph (a)(1) to read as 
follows:


Sec.  120.971   Allowable fees paid by Borrower.

    (a) * * *
    (1) Processing fee. The CDC may charge up to 1.5 percent of the net 
Debenture proceeds to process the financing. Two-thirds of this fee 
will be considered earned and may be collected by the CDC when the loan 
number is issued by SBA. The portion of the processing fee paid by the 
Borrower may be reimbursed from the Debenture proceeds;
* * * * *

Isabella Casillas Guzman,
Administrator.
[FR Doc. 2022-23597 Filed 11-4-22; 8:45 am]
BILLING CODE 8026-09-P