Regulatory Reform Initiative: Streamlining and Modernizing the 7(a), Microloan, and 504 Loan Programs To Reduce Unnecessary Regulatory Burden
| Published date | 14 December 2020 |
| Record Number | 2020-26446 |
| Section | Proposed rules |
| Court | Small Business Administration |
Federal Register, Volume 85 Issue 240 (Monday, December 14, 2020)
[Federal Register Volume 85, Number 240 (Monday, December 14, 2020)]
[Proposed Rules]
[Pages 80676-80686]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-26446]
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SMALL BUSINESS ADMINISTRATION
13 CFR Parts 120 and 123
RIN 3245-AG98
Regulatory Reform Initiative: Streamlining and Modernizing the
7(a), Microloan, and 504 Loan Programs To Reduce Unnecessary Regulatory
Burden
AGENCY: U.S. Small Business Administration.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Small Business Administration (SBA) is proposing to remove
or revise various regulations affecting its business loan programs
because these regulations are obsolete, unnecessary, ineffective, or
burdensome. In addition, one of the regulations that SBA is proposing
to remove is cross-referenced in a regulation in SBA's Disaster Loan
Program; SBA is proposing to make a conforming change to that
regulation. SBA also is making several technical amendments to the
regulations to incorporate recent statutory changes and other non-
substantive changes. These changes are being proposed to carry out the
mandate in various Executive Orders to reduce the number and costs of
the regulations that Federal agencies impose on the public.
DATES: Comments are requested on or before February 12, 2021.
ADDRESSES: You may submit comments, identified by RIN 3245-AG98, using
any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov. Search for
the rule by RIN number 3245-AG98 and follow the instructions for
submitting comments.
Mail: Linda Reilly, Chief, 504 Loan Program Division, Office of
Financial Assistance, U.S. Small Business Administration, 409 Third
Street SW, Washington, DC 20416.
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 to Linda Reilly, Chief, 504 Loan Program Division, U.S.
Small Business Administration, 409 Third Street SW, Washington, DC
20416. Highlight the information that you consider to be CBI and
explain why you believe this information should be held confidential.
SBA will review the information and make the final determination as to
whether to publish the information.
FOR FURTHER INFORMATION CONTACT: Linda Reilly, Chief, 504 Loan Program
Division, Office of Financial Assistance, U.S. Small Business
Administration, 409 Third Street SW, Washington, DC 20416; phone: (202)
205-9949; email address: [email protected].
SUPPLEMENTARY INFORMATION:
A. General Information
The mission of SBA is to maintain and strengthen the Nation's
economy by enabling the establishment and viability of small
businesses, and by assisting in economic recovery of communities after
disasters. In carrying out this mission, SBA has developed a regulatory
policy that is implemented primarily through several core program
offices: Office of Capital Access, Office of Disaster Assistance,
Office of Entrepreneurial Development, Office of Government Contracting
and Business Development, Office of International Trade, and Office of
Investment and Innovation. SBA's regulations are codified at title 13
of the Code of Federal Regulations (CFR),
[[Page 80677]]
chapter I, and consist of parts 100 through 199.
This rulemaking primarily addresses the regulations in part 120,
Business loans. The SBA programs that are governed by the regulations
contained in part 120 include the following: The 7(a) Loan Program
authorized pursuant to section 7(a) of the Small Business Act (the Act)
(15 U.S.C. 636(a)); the Microloan Program authorized pursuant to
section 7(m) of the Act (15 U.S.C. 636(m)); and the Development Company
Program (the 504 Loan Program) authorized pursuant to Title V of the
Small Business Investment Act of 1958, as amended (15 U.S.C. 695 et
seq.). Because this rulemaking proposes to remove a regulation that is
cross-referenced in SBA's Disaster Loan Program regulations, this rule
would also make one conforming change to a regulation in part 123,
Disaster loans. The Disaster Loan Program is authorized pursuant to
section 7(b) of the Act (15 U.S.C. 636(b)).
Federal agencies have an ongoing responsibility to ensure that the
regulations they issue do not have an adverse economic impact on those
affected by those rules. This responsibility has been reinforced over
the years in various executive orders that have expressly directed
agencies to review their regulations with an eye towards reducing the
time and money the public must spend to comply with the regulatory
requirements. The most recent of these executive orders are discussed
below; each of them provides the framework for SBA's efforts to reduce
the regulatory burden on the participants in the agency's programs. One
of SBA's primary objectives in carrying out these efforts is to
continue to promote economic growth, innovation, and job creation in
the small business sector, and to ensure that victims of disasters have
the clear policy and procedural guidance they need to quickly obtain
financial assistance to rebuild their lives.
B. Executive Order 13771
On January 30, 2017, President Trump signed Executive Order 13771,
Reducing Regulation and Controlling Regulatory Costs, which, among
other objectives, is intended to ensure that an agency's regulatory
costs are prudently managed and controlled so as to minimize the
compliance burden imposed on the public. For every new regulation an
agency proposes to implement, unless prohibited by law, this Executive
Order requires the agency to (i) identify at least two existing
regulations that the agency can cancel; and (ii) use the cost savings
from any cancelled regulations to offset the cost of the new
regulation, such that its net cost is no greater than zero.
C. Executive Order 13777
On February 24, 2017, the President issued Executive Order 13777,
Enforcing the Regulatory Reform Agenda, which further emphasized the
goal of the Administration to alleviate the regulatory burdens placed
on the public. Under Executive Order 13777, agencies must evaluate
their existing regulations to determine which ones should be repealed,
replaced, or modified. In doing so, agencies should focus on
identifying regulations that, among other things, eliminate jobs or
inhibit job creation; are outdated, unnecessary or ineffective; impose
costs that exceed benefits; create a serious inconsistency or otherwise
interfere with regulatory reform initiatives and policies; or are
associated with Executive Orders or other Presidential directives that
have been rescinded or substantially modified.
D. Executive Order 13563
Under Executive Order 13563, Improving Regulation and Regulatory
Review (January 18, 2011), agencies are obligated to conduct a
retrospective review of their regulations to seek more affordable, less
intrusive means to achieve policy goals, and to give careful
consideration to the benefits and costs of their regulations. Executive
Order 13563, similar to the mandates in Executive Order 13771 and
Executive Order 13777, also requires agencies to review existing rules
to remove outdated regulations that stifle job creation and make the
U.S. economy less competitive.
E. Comments Received in Response To Request for Information
On August 15, 2017, SBA published a request for information in the
Federal Register seeking input from the public in identifying those
regulations that affected parties believe impose unnecessary burdens or
costs that exceed their benefits, eliminate jobs or inhibit job
creation, or are ineffective or outdated. See 82 FR 38617. On October
13, 2017, SBA extended the period for public comments until November
15, 2017. See 82 FR 47645. SBA reviewed the comments submitted by the
public in response to that request. After considering these comments
and reviewing the regulations in 13 CFR part 120, SBA is proposing that
the regulations identified below in the section-by-section analysis be
either removed or revised. Except for the one conforming change to the
Disaster Loan Program in part 123, SBA is proposing the removal of
regulations in other parts of title 13 in separate rulemakings.
F. Section-by-Section Analysis
Section 120.2. SBA proposes to remove paragraphs (a)(1)(i) and (ii)
of this section because SBA has not received funding to make direct or
immediate participation 7(a) loans for over 30 years. SBA believes that
it may be confusing to the public to refer to such loans when they are
not available from the Agency.
Section 120.10. SBA is proposing to remove the references to non-
lending technical assistance providers (NTAPs) in the definition of
``Risk Rating'' because SBA has not issued grant funds to NTAPs for
many years.
Section 120.103. SBA proposes to remove this section on farm
enterprises, which refers to an outdated Memorandum of Understanding
between SBA and the United States Department of Agriculture (USDA),
because it is unnecessary. Although Federal financial assistance to
agricultural businesses is generally available from USDA, SBA is also
statutorily authorized to make non-disaster business loans to
agricultural enterprises under sections 3(a)(1) and 7(a) of the Small
Business Act and Title V of the Small Business Investment Act.
Sections 120.110. This section lists the types of businesses that
are ineligible for SBA business loans. For clarity, SBA is proposing to
make changes to two of the types of businesses on the list. First, SBA
would amend paragraph (h), which currently provides that businesses
``engaged in any illegal activity'' are ineligible, by revising it to
provide that the business is ineligible if it is ``engaged in any
activity that is illegal under Federal, State, or local law''. SBA
wants to make it clear, consistent with its longstanding interpretation
of this regulation, that the business is ineligible if it is engaged in
any activity that is illegal at any level of government in the
jurisdiction in which the business is operating.
Second, SBA is proposing to remove and reserve paragraph (k), which
currently provides that a business is ineligible if it is ``principally
engaged in teaching, instructing, counseling or indoctrinating religion
or religious beliefs, whether in a religious or secular setting''. This
provision, which was promulgated in 1996, is not consistent with
current Supreme Court jurisprudence in that it focuses on the nature of
the business and whether the business has a major religious component
instead of on how the loan proceeds from any SBA business loan
[[Page 80678]]
will be used. In both Trinity Lutheran Church of Columbia, Inc. v.
Comer, 137 S. Ct. 2012 (2017) and Espinoza v. Montana Department of
Revenue, __ U.S. __ (June 30, 2020), the Court held that the government
may not deny a public benefit to an entity solely because of its
religious status, character, or identity. Accordingly, to conform SBA's
regulations to current Supreme Court jurisprudence, SBA is proposing to
remove paragraph (k) from section 120.110, and will apply relevant case
law to assure that the intended use of the loan proceeds of SBA
business loans is consistent with the requirements of the First
Amendment's Establishment Clause..
Third, SBA proposes to revise paragraph (n), which currently
provides that a business is ineligible if an Associate ``is
incarcerated, on probation, on parole, or has been indicted for a
felony or a crime of moral turpitude''. With respect to ineligibility
based on indictment for a crime, SBA would change this paragraph to
provide that a business is ineligible if an Associate ``is under
indictment'' instead of ``has been indicted''. SBA wants to make clear,
consistent with its longstanding interpretation of this regulation,
that the business is not ineligible if an Associate has a history of
ever being indicted (but not convicted), but would be ineligible only
if an Associate is under indictment when the business submits a loan
application or prior to loan approval. In addition, SBA is proposing to
replace the phrase, ``a crime of moral turpitude'', which is not always
easily defined and can vary by State, with ``a crime involving or
related to financial misconduct or a false statement''. SBA believes
that the proposed standard is clearer and more relevant to SBA's
responsibility to carry out the business loan programs in a financially
prudent manner.
Section 120.111. SBA is proposing to revise this section by
removing a duplicative sentence at the end of the introductory text.
Section 120.120. This section describes the eligible uses of loan
proceeds. For clarity, SBA is proposing to revise paragraph (a)(1),
which currently provides that a Borrower may use loan proceeds to
``acquire land (by purchase or lease)'', to add that the land must be
``actively used in the applicant's business operations (except that a
Borrower may lease a portion of the property in accordance with 13 CFR
120.131 and 120.870(b))''. This change reflects SBA's prohibition
against financing passive activities other than Eligible Passive
Companies under 13 CFR 120.111.
Section 120.173. SBA proposes to remove this section, which
prohibits the use of lead-based paint if loan proceeds are for the
construction or rehabilitation of a residential structure. This
regulation is unnecessary because 16 CFR part 1303 already bans paint
containing a concentration of lead in excess of 0.009% (90 parts per
million) for use in residences, schools, hospitals, parks, playgrounds,
and public buildings or other areas where consumers will have direct
access to the painted surface.
Section 120.190. SBA proposes to remove the reference to immediate
participation loans in paragraph (a) and to remove paragraph (d), which
refers to direct loans, because SBA has not received funding for
immediate participation or direct loans for over 30 years and believes
that it may be confusing to the public to refer to such loans when they
are not available from the agency.
Section 120.192. This section states that loan applicants will
receive notice of approval or denial of the loan application by the
Lender, Certified Development Company (CDC), Microloan Intermediary, or
SBA, as appropriate. SBA provided notice to the applicant only when it
made direct loans. Because SBA has not received funding for direct
loans for over 30 years, it is no longer necessary to include the
reference to SBA in this section.
Section 120.211. SBA is proposing to remove this section, which
describes the statutory limits for direct loans and immediate
participation loans, because SBA has not received funding to make these
loans for over 30 years. SBA believes that it may be confusing to the
public to refer to such loans when they are not available from the
agency.
Section 120.212. This section establishes the maturities for a 7(a)
loan. Paragraph (b) of this section establishes the loan term at ten
years or less, unless the loan finances or refinances real estate or
equipment with a useful life exceeding ten years. When the loan is used
to finance equipment or leasehold improvements, SBA is proposing to
amend paragraph (b) to allow a Lender to add a reasonable period, not
to exceed 12 months, to the loan term when necessary to complete the
installation of the equipment and/or complete the leasehold
improvements.
Section 120.213. SBA is proposing to remove paragraph (b), which
describes the interest rate charged by SBA for direct loans, for which
SBA has not received funding for over 30 years. SBA believes that it
may be confusing to the public to refer to such loans when they are not
available from the Agency. The remainder of the section would be
revised accordingly.
Sections 120.214. Paragraph (c) of section 120.214 currently allows
Lenders to use one of three base rate options for calculating the
maximum variable interest rate for 7(a) and 504 loans: The prime rate
(Prime), the Optional Peg Rate, and the thirty-day London Interbank
Offered Rate (LIBOR) plus 3 percentage points. SBA is proposing to
remove the LIBOR option in paragraph (c)(ii). The U.K. Financial
Conduct Authority announced on July 27, 2017, that it would phase-out
LIBOR by the end of 2021, and no generally accepted replacement for
LIBOR has been identified or widely adopted at this time. To provide
certainty to SBA Lenders and Borrowers in advance of LIBOR's sunset in
2021, SBA is proposing to remove from the regulation the reference to
LIBOR as an optional base rate for variable rate 7(a) and 504 loans.
Lenders will only be able to use Prime or the Optional Peg Rate as
the base rate for any loan approved after the effective date of this
rule. In addition, for any loans outstanding with interest rates based
on LIBOR, SBA recommends that Lenders review their loan documents to
determine if the documents provide a fallback base rate (i.e., Prime or
the Optional Peg Rate) without having to modify the loan documents. If
there is no such flexibility, Lenders will need to work with Borrowers
to modify their loan documents on an individual basis before LIBOR
sunsets in 2021. Such modifications must be in compliance with the
procedures set forth in the current versions of SBA Standard Operating
Procedures 50 10 and 50 57. If such loans have been sold on the
secondary market, Lenders will need to obtain the consent of investors
to modify the base rate in the loan agreement. With only 3% of SBA's
total portfolio of non-disaster business loans using LIBOR as a base
rate, the process of phasing out LIBOR should not have a significant
economic impact on a substantial number of small entities in SBA's
business loan programs.
In addition, SBA is proposing to use loan amounts as the basis upon
which the variable interest rate is set, instead of loan maturities.
Paragraph (e) would be removed and paragraph (d) would be revised to
reflect the maximum variable interest rates for all 7(a) loans as
follows:
(1) For all 7(a) loans of $50,000 and less, the maximum interest
rate shall not exceed six and a half (6.5) percentage points over the
base rate;
[[Page 80679]]
(2) For all 7(a) loans greater than $50,000 and up to and including
$250,000, the maximum interest rate shall not exceed six (6.0)
percentage points over the base rate;
(3) For all 7(a) loans greater than $250,000 and up to and
including $350,000, the maximum interest rate shall not exceed four and
a half (4.5) percentage points over the base rate; and
(4) For all 7(a) loans greater than $350,000, the maximum interest
rate shall not exceed three (3.0) percentage points over the base rate.
By basing the rates on loan amounts and allowing Lenders to charge
higher rates for smaller loans, Lenders would have more incentive to
make smaller loans to businesses in need of credit on reasonable terms.
Recent data shows that SBA loans up to $150,000 have been declining
over the last four years, and yet it is not uncommon for small
businesses to max out their credit on credit cards or through financial
technology companies (Fintech) where interest rates can range between
19-21% for credit cards and can exceed 45% for Fintech. Currently, the
maximum variable interest rate that Lenders may charge is 2.25
percentage points over the base rate for loans with maturities of less
than seven years and 2.75 percentage points over the base rate for
loans with maturities of seven years or more, with an additional 2%
more than these maximums for loans of $25,000 or less and an additional
1% more than these maximums for loans over $25,000 but not exceeding
$50,000. SBA expects that the incentive created by allowing Lenders to
charge the higher interest rates proposed above, particularly for
smaller loans, will encourage Lenders to make loans that they would not
otherwise make, thereby increasing the availability to small businesses
of needed credit at a more reasonable interest rate with an SBA
participating Lender. The proposed changes also recognize that,
historically, smaller loans are riskier and have a higher default rate
and, therefore, a higher maximum interest rate is warranted.
The maximum variable interest rates described above would apply to
all types of 7(a) loans. Currently, the maximum variable interest rate
that Lenders are permitted to charge may vary depending upon the type
of 7(a) loan the Lender is making, i.e., SBA Express, Export Express,
Community Advantage Pilot, or regular 7(a). By standardizing the
maximum variable interest rates for all 7(a) loans, SBA is streamlining
and simplifying its regulations, and reducing the burden on Lenders. If
this rule is adopted, SBA Express and Export Express Lenders may
continue to use, in accordance with the statutory authority of section
7(a)(31) and 7(a)(34) of the Small Business Act, respectively, the same
base rates they use on their similarly-sized, non-SBA guaranteed
commercial loans, as well as their established change intervals,
payment accruals, and other interest rate terms. However, the interest
rate must never exceed the maximum allowable interest rate stated in
paragraph (d) of this section and these loans may be sold on the
Secondary Market only if the base rate is one of the base rates allowed
in Sec. 120.214(c). In addition, if this rule is adopted, SBA will
allow Community Advantage Lenders to charge the higher interest rate in
paragraph (1) above for loans of $50,000 or less (such Lenders can
already charge 6 percentage points over the Prime rate for loans up to
$250,000, the maximum loan amount under the Community Advantage Pilot).
Other proposed changes to this section include removing the
requirement in the introductory paragraph of Sec. 120.214 that SBA's
approval is required for a Lender to use a variable rate of interest.
By removing this approval requirement, SBA is further streamlining its
regulations. SBA is also proposing to amend the second sentence of the
introductory paragraph of Sec. 120.214 by moving it to Sec.
120.214(d) and revising it to clearly state that the initial maximum
variable interest rate is determined as of the date that SBA received
the loan application.
Section 120.215. SBA is proposing to remove this section, which
establishes the interest rates for smaller loans. The interest rates
for all 7(a) loans would be covered by Sec. 120.213 and the proposed
amendments to Sec. 120.214.
Section 120.220. SBA is proposing two changes to this section.
First, paragraph (a)(3) currently states that ``[i]n fiscal years when
the 7(a) program is at zero subsidy, SBA will not collect a guarantee
fee in connection with a loan made under section 7(a)(31) of the Small
Business Act to a business owned and controlled by a veteran or the
spouse of a veteran.'' This regulatory paragraph implements section
7(a)(31)(G) of the Small Business Act, which provides that the
guarantee fee imposed by section 7(a)(18) of the Small Business Act is
waived in connection with a loan made under the SBA Express Loan
Program to a veteran or the spouse of a veteran except in any fiscal
year in which the 7(a) program is not operating at zero subsidy.
However, section 1102(d) of the Coronavirus Aid, Relief, and Economic
Security Act (Pub. L. 116-136, 134 Stat. 281) removed the exception
and, accordingly, SBA proposes to remove it from section 120.220(a)(3).
Second, paragraph (b) of this regulation establishes the deadlines
for paying the SBA guaranty fee. For a loan with a maturity in excess
of 12 months, this provision currently requires the Lender to pay the
fee electronically within 90 days after SBA approval of the loan. In
practice, SBA has been giving Lenders an additional 30 days to pay this
fee, for a total of 120 calendar days after SBA loan approval, before
cancelling the guarantee. With the efficiencies that have been created
by electronic banking, SBA believes that these payments should be made
in less time than 120 days and is proposing to require that the fee be
paid within 45 days after loan approval. If the fee is not paid by the
45th day, SBA will give the Lender a grace period of an additional 30
days. If the fee is not paid by the 75th day, SBA will cancel the
guarantee. For loans with a maturity of 12 months or less, SBA will
continue to cancel the guarantee if the fee is not paid by the 10th
business day after the Lender receives SBA loan approval.
Section 120.222. SBA is proposing a technical correction to Sec.
120.222 to remove an extra word (``in'') that was inserted in error.
Section 120.310. SBA is proposing to remove the reference to direct
loans in this provision, which governs the Disabled Assistance Loan
Program (``DAL''), to make this regulation consistent with section
7(a)(10) of the Small Business Act, which authorizes ``guaranteed''
loans under the DAL program, but not direct loans.
Section 120.315. SBA is proposing to remove this section in its
entirety, which establishes the interest rate and limit on the loan
amount with respect to direct DAL loans, to make this regulation
consistent with section 7(a)(10) of the Small Business Act, which
authorizes guaranteed loans only and not direct loans.
Section 120.320. SBA is proposing to remove this provision in its
entirety. It references SBA's authority under section 7(a)(11) of the
Small Business Act to guarantee or make direct loans to businesses
owned by low income individuals. However, direct loans have not been
funded for over 30 years and this provision does not add anything to
the general authority that SBA has under section 7(a) of the Small
Business Act to make guaranteed loans to businesses owned by low income
individuals.
Section 120.330. SBA is proposing to remove the reference to direct
loans in this section because SBA has not
[[Page 80680]]
received funding to make these loans for over 30 years. SBA believes
that it may be confusing to the public to refer to such loans when they
are not available from the Agency.
Sections 120.350 and 120.352. The regulations governing SBA
guaranteed loans to qualified employee trusts or ``Employee Stock
Ownership Plans'' (ESOPs) are set forth in Sec. Sec. 120.350 through
120.354. SBA is proposing a technical amendment to both Sec. 120.350
and Sec. 120.352 to incorporate the statutory change made in Section
862 of the John S. McCain National Defense Authorization Act for Fiscal
Year 2019 (Pub. L. 115-232) that permits SBA to guarantee a loan to the
small business concern (rather than the qualified employee trust), if
the proceeds from the loan are used only to make a loan to a qualified
employee trust that results in the qualified employee trust owning at
least 51 percent of the small business concern. SBA is proposing this
technical amendment in order to ensure that the regulations are
consistent with the statute and to provide clarity to SBA Lenders and
SBA employees with respect to guaranteed loans involving ESOPs.
Additional guidance governing these loans will be provided in SOP 50
10.
Sections 120.360 and 120.361. SBA is proposing to remove these
sections, which describe an outdated veteran's loan program for direct
and guaranteed loans to Vietnam-era veterans and certain disabled
veterans. SBA has not received funding to make direct 7(a) loans in the
Veterans Loan Program for over 30 years and SBA's existing Loan Program
Requirements provide special consideration for veteran-owned
businesses. These regulations are, therefore, obsolete.
Section 120.370. SBA is proposing to remove this section, which
describes SBA's authority under section 7(a)(12) of the Small Business
Act to finance pollution control facilities, because the $1 million cap
set forth in section 7(a)(12)(B) for these pollution control loans was
superseded when Congress raised the guaranty limit in section 7(a)(3)
to $3.75 million. In addition, this provision is otherwise unnecessary
because SBA is authorized under the general authority of section 7(a)
to make guaranteed loans for pollution control facilities.
Section 120.375. SBA is proposing to remove this section's
reference to direct loans to firms participating in the 8(a) Program
because direct loans have not been funded for over 30 years. SBA
believes that it may be confusing to the public to refer to such loans
when they are not available from the Agency.
Section 120.376. SBA is proposing to remove paragraph (a), the
second sentence of paragraph (c), and paragraph (d), all of which
describe requirements for direct loans or an immediate participation
loan related to the loan program for participants in the 8(a) Program,
for the same reasons expressed under the discussion of section 120.375
above. The remaining paragraphs would be redesignated accordingly.
Sections 120.380 through 120.383. SBA is proposing to remove these
sections, which govern the program to provide defense economic
transition assistance, because this program is no longer being funded.
SBA believes that it may be confusing to the public to refer to such
loans when they are not available from the Agency.
Section 120.420. SBA is proposing to remove paragraph (b), which
defines ``Bank Regulatory Agencies,'' because this term is no longer
used in part 120, and the term ``Federal Financial Institution
Regulator,'' which is used instead, is defined in 13 CFR 120.10. The
remaining paragraphs would be redesignated accordingly.
Section 120.432. SBA is proposing to amend Sec. 120.432(a) to
implement its longstanding policy of holding Assuming Institutions and
investors responsible for the contingent liabilities (including repairs
and denials) associated with 7(a) loans originated by failed insured
depository institutions, whether the 7(a) loans are purchased by a
Lender through a Federal Deposit Insurance Corporation (FDIC) loan sale
or transferred to an Assuming Institution through a whole bank
transfer.
SBA is proposing this modification to ensure consistent treatment
of all portfolio loan transfers whether through voluntary bank mergers
or asset sales, or through FDIC-led portfolio transfers following the
failure of a Lender. SBA is also proposing to modify the regulatory
language to include a statement that clarifies the applicability of the
paragraph and the ability for the Agency to agree otherwise in writing
(i.e., to affirm the validity of the guaranties). SBA also is proposing
to modify the regulatory language to remove the specific reference to
the FDIC and make it applicable to all 7(a) loans purchased from any
Federal or state banking regulator, any receiver, or any conservator.
Section 120.453. SBA is proposing to remove this section, which
states that servicing and liquidation responsibilities for PLP Lenders
are set forth in subpart E of part 120, as unnecessary. PLP Lenders are
required to service and liquidate their loans in accordance with the
same standards set forth in subpart E that are applied to non-delegated
Lenders.
Section 120.470. SBA is proposing to revise paragraph (d)(1) of
this provision by increasing the dollar amount that a small business
lending company (SBLC) may disburse with the signature of only one
bonded officer from $1,000 to $10,000, provided that such action is
covered under the SBLC's fidelity bond. SBA believes this change would
reduce burden on SBLCs without introducing significant risk to the
program.
Section 120.532. SBA is proposing to remove this section, which
refers to SBA's authority to assume a Borrower's obligation under terms
and conditions set by SBA (see section 5(e) of the Small Business Act),
because SBA does not use this authority and believes it may be
confusing to the public for the regulations to refer to the
availability of a loan moratorium under this section when it is not
available from the Agency.
Section 120.540. Paragraph (g) of this section provides that a
Lender may appeal an SBA office's decision, pertaining to an original
or amended liquidation plan, to the Director of the Office of Financial
Assistance (D/FA) within 30 days of the decision. The office within SBA
that is now responsible for considering these appeals is the Office of
Financial Program Operations (OFPO). Accordingly, SBA is proposing to
amend this paragraph by replacing ``D/FA'' with ``Director/Office of
Financial Program Operations (D/OFPO)'' where it first appears and with
``D/OFPO'' thereafter.
Section 120.542. Paragraph (d) of this section provides that a
Lender may appeal an SBA decision to decline to reimburse all, or a
portion, of the fees and/or costs incurred in conducting liquidation to
the D/FA, and that the decision of the D/FA (or designee) will be made
in consultation with the Associate General Counsel for Litigation. The
office within SBA that is now responsible for considering these appeals
is OFPO. Accordingly, SBA is proposing to amend this paragraph by
replacing ``D/FA'' with ``D/OFPO'' wherever it appears.
In addition, paragraph (e) of this section provides that a Lender
may appeal a decision by SBA to decline to reimburse all, or a portion,
of the legal fees and/or costs incurred in conducting debt collection
litigation to the Associate General Counsel for Litigation. It further
provides that the Associate General Counsel makes this decision in
consultation with the D/FA. The office within SBA that is now
[[Page 80681]]
responsible for consulting with the Associate General Counsel is OFPO.
Accordingly, SBA is proposing to amend this paragraph by replacing ``D/
FA'' with ``D/OFPO''.
Section 120.701. SBA is proposing to remove paragraph (g) of this
section, which defines ``Non-lending technical assistance provider,''
(NTAP) because SBA has not issued grant funds to NTAPs for many years.
The remaining paragraph (h) would be redesignated accordingly.
Section 120.706. SBA proposes to revise paragraph (a) of this
section to increase the maximum outstanding amount of loans that an
Intermediary may borrow from SBA from $5 million to $6 million. This
change incorporates the increase made by section 853(b) of the John S.
McCain National Defense Authorization Act for Fiscal Year 2019, 15
U.S.C. 636(m)(3)(C).
Section 120.707. SBA is proposing to revise the regulation at Sec.
120.707(b) to increase the maximum maturity of a loan from an
Intermediary to a Microloan borrower from 6 years to 7 years. This
change would allow for a longer repayment period for these small loans.
Section 120.712. In Sec. 120.712(b), SBA is proposing to
incorporate a recent statutory change to the percentage of grant funds
that may be used by the Intermediary for marketing, managerial, and
technical assistance to prospective Microloan borrowers. In Sec.
120.712(d), SBA is proposing to incorporate a recent statutory change
to the percentage of grant funds the Intermediary may use to contract
with third parties to provide technical assistance to Microloan
borrowers.
Section 120.714. SBA proposes to remove Sec. 120.714, which
describes how grants are made to non-lending technical assistance
providers. SBA no longer makes such grants and there are no NTAPs
currently participating in the Microloan Program. SBA is therefore
proposing to eliminate this section to reduce confusion.
Section 120.715. SBA is proposing to remove this section, which
describes the Deferred Participation Loan Pilot, under which SBA was
authorized to guarantee a loan that an Intermediary in the Microloan
Program obtained from another source. SBA proposes to remove Sec.
120.715 in its entirety as this pilot expired in Fiscal Year 2000 and
SBA no longer has the authority to guarantee such loans.
Section 120.800. SBA is proposing to remove this section, which
describes the purpose of the 504 program, because it is unnecessary.
The 504 Loan Program is described in Sec. 120.2(c).
Section 120.812. SBA is proposing to revise paragraph (a)(2) to
provide that a newly certified CDC may petition for more than a single
one-year extension of probation. In addition, SBA is proposing to
revise paragraph (d) to clarify that, if SBA declines the CDC's
petition for permanent status, the CDC will no longer have authority to
participate in the 504 Loan Program and SBA will direct the CDC to
transfer all funded and/or approved loans to another CDC, SBA, or
another servicer approved by SBA.
Section 120.840. SBA is proposing to make a technical correction to
Sec. 120.840(b) by replacing the reference in this section to the
Director, Office of Financial Assistance with ``appropriate SBA
official in accordance with Delegations of Authority.'' In addition,
SBA is proposing to revise Sec. 120.840(b) to reflect the modernized
application submission process for ALP, which will allow CDCs to submit
ALP applications electronically into the Corporate Governance
Repository, rather than apply to the Lead SBA Office.
Section 120.845. Paragraph (c)(1) of this section, which sets forth
the eligibility criteria for the Premier Certified Lenders Program,
refers to the criteria that are listed for the Accredited Lenders
Program in Sec. 120.841(a) through (h). However, the criteria are
listed only in Sec. 120.841(a) through (f). SBA is proposing,
therefore, to amend paragraph (c)(1) by removing ``through (h)'' at the
end of the sentence and adding ``through (f)'' in its place.
Section 120.850. SBA is proposing to remove this section because
the designation of Associate Development Company ceased to exist on
January 1, 2004.
Section 120.862. SBA is proposing to amend paragraph (b) by adding
the three energy public policy goals described in paragraphs (I), (J)
and (K) of section 501(d)(3) of the Small Business Investment Act of
1958, as amended, to the list of economic development objectives. These
three goals relate to the reduction of energy consumption by at least
10 percent, the increased use of sustainable design, and plant,
equipment and process upgrades of renewable energy sources. This change
would make the regulations consistent with the statute.
Section 120.1400. Under current 13 CFR 120.1400(a), a CDC that
obtains approval for 504 loans after October 20, 2017, and an SBA
Supervised Lender that makes 7(a) guaranteed loans after October 20,
2017, consent to the applicable receivership remedies in 13 CFR
120.1500(c). Pursuant to SOP 50 10 5(J), SBA deemed the consent by a
CDC under 13 CFR 120.1400(a)(1), and the consent by an SBA Supervised
Lender under 13 CFR 120.1400(a)(2), to take effect on January 1, 2018,
which was the effective date of the SOP 50 10 5(J). The proposed
amendments to this rule would codify the SOP provision into the rule.
The amendments to these paragraphs would also clarify that the CDC's or
the SBA Supervised Lender's consent does not preclude them from
contesting whether or not SBA has established the grounds for seeking
the remedy of a receivership.
Section 120.1500. SBA is proposing to amend paragraphs (c)(3) and
(e)(3) to incorporate into the regulations the factors set forth in the
current SOP 50 10 that SBA considers when seeking the appointment of a
receiver and the scope of the receivership. The appointment of a
receiver is only one of several types of enforcement actions set forth
in 13 CFR 120.1500, and typically, SBA will use its receivership
authority as a remedy of last resort. The proposed factors vary
slightly depending upon the type of SBA Lender and whether the SBA
Lender has assets unrelated to SBA loan program activities.
Section 123.17. SBA is proposing to amend this section to remove
the reference to lead-based paint. As stated above, SBA is proposing to
remove Sec. 120.173, Lead-based paint, which prohibits the use of
lead-based paint if loan proceeds are for the construction or
rehabilitation of a residential structure. That section is unnecessary
because 16 CFR part 1303 already bans paint containing a concentration
of lead in excess of 0.009% (90 parts per million) for use in
residences, schools, hospitals, parks, playgrounds, and public
buildings or other areas where consumers will have direct access to the
painted surface. Removing the reference to lead-based paint in Sec.
123.17 conforms this regulation to the removal of Sec. 120.173 and
will avoid confusion.
Compliance With Executive Orders 12866, 12988, 13132, 13563, 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
The Office of Management and Budget has determined that this
proposed rule does not constitute a ``significant regulatory action''
under Executive Order 12866. This rule is also not a major rule under
the Congressional Review Act.
Executive Order 12988
This action meets applicable standards set forth in sections 3(a)
and
[[Page 80682]]
3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize
litigation, eliminate ambiguity, and reduce burden. This action does
not have preemptive effect or retroactive effect.
Executive Order 13132
SBA has determined that this proposed rule would not have
federalism implications as defined in Executive Order 13132. It would
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. Therefore, for the purposes of
Executive Order 13132, SBA has determined that this proposed rule does
not warrant the preparation of a Federalism Assessment.
Executive Order 13563
As discussed above, SBA received a significant number of public
comments in response to the Federal Register document requesting the
public's input.
Executive Order 13771
The designation, as regulatory or deregulatory under E.O. 13771, of
any final rule resulting from the notice of proposed rulemaking will be
informed by comments received. Details on the preliminary estimates of
costs and cost savings are below.
This proposed rule is expected to be an Executive Order 13771
deregulatory action with an annualized net savings of $358,724 and a
net present value of $5,125,645 in savings, both in 2016 dollars.\1\
This rule is a comprehensive effort to remove regulations that are
confusing, misleading, or unnecessary, as well as to make various
technical amendments and other changes to clarify and streamline the
program, including: Removing language about immediate participation
loans and direct loans because SBA has not received funding for
immediate participation or direct loans for over 30 years, removing
information about a pilot program that has expired, removing references
to grant funds that are no longer provided, and removing the reference
to SBA's authority to assume a Borrower's loan obligations under a loan
moratorium. The removal of these regulations will save Lenders and loan
applicants time reading, researching, and inquiring about these
obsolete or inactive programs and reduce confusion around whether they
exist.
---------------------------------------------------------------------------
\1\ The net present value was calculated using the annualized
savings discounted by 7% over a perpetual time horizon based in 2016
dollars.
---------------------------------------------------------------------------
For each year between FY 2015 and FY 2019, SBA estimates that
approximately 2,161 active 7(a) Lenders, CDCs, and Microloan
Intermediaries could have potentially read about these programs in the
regulations. Assuming that 20 percent (432) of these Lenders would read
about the program in the regulations and that each would save two hours
from not reading the removed information or researching/inquiring about
obsolete programs, this would be 864 reduced hours of burden. Valuing
this time at $124.90 per hour (the median wage of a financial manager
based on 2019 Bureau of Labor Statistics (BLS) data and adding 100%
more for benefits and overhead), this produces total savings per year
of $107,914 in current dollars. These savings would be expected to
continue into perpetuity.
In addition, some percentage of Borrowers would read about the
program in the regulation and each would save approximately two hours
from not reading the removed information, researching, or inquiring
about the program. Assuming 2 percent of the 331,533 Borrowers with
active loans would read the regulation (or about 6,630), this
represents a total of 13,260 hours of burden reduced. Valuing this time
at $38.28 per hour (the median wage of the general population based on
2019 BLS data and adding 100% more for benefits and overhead), this
produces total savings per year of $507,593 in current dollars. These
savings would be expected to continue into perpetuity.
In addition to these quantifiable benefits, there are several
benefits of this rule that are unquantifiable. For instance, SBA is
proposing to increase the dollar amount that an SBLC may disburse with
the signature of only one bonded officer from $1,000 to $10,000,
provided that such action is covered under the SBLC's fidelity bond.
SBA believes this change would reduce burden on SBLCs without
introducing significant risk to the program.
Further, SBA is proposing to allow a Lender to add a reasonable
period, not to exceed 12 months, to the loan term when necessary to
complete the installation of equipment and/or complete leasehold
improvements. It is difficult to estimate how many Lenders will utilize
this flexibility or how many Borrowers will require it, but the added
flexibility is a benefit to Borrowers.
SBA proposes to increase the maximum outstanding amount of SBA
loans that an Intermediary may borrow from $5 million to $6 million.
This change incorporates the increase made by section 853(b) of the
John S. McCain National Defense Authorization Act for Fiscal Year 2019,
15 U.S.C. 636(m)(3)(C) and is a benefit for Intermediaries.
SBA does not anticipate many Borrowers will be affected by the
removal of LIBOR as an optional base rate for variable rate SBA
business loans, but there will be some unavoidable cost associated with
its sunset. SBA estimates the percentage of loans affected by the
change to be 3% of the approximately 331,533 active SBA business loans,
or about 9,946 loans. We assume the terms of all these loans will need
to be updated, which is a conservative estimate, and that this will
create an hour of burden for both a financial manager and a Borrower.
Estimating the value of the financial manager's time at $124.90 per
hour (the median wage of a financial manager based on 2019 BLS wage
data and adding 100% for benefits and overhead) and valuing the
Borrower's time at $38.28 per hour (the median wage of the general
population based on 2018 BLS data and adding 100% more for benefits and
overhead), this produces a burden of $1,622,988 in the first year that
LIBOR is discontinued and would not be repeated in subsequent years. It
is important to note that, because LIBOR is being phased-out by the
U.K. Financial Conduct Authority, these costs will be incurred
regardless of whether or not SBA removes the reference to LIBOR in its
regulations.
Additionally, SBA is proposing to use loan amounts as the basis
upon which the variable interest rate is set instead of using loan
maturities for all 7(a) loans. SBA is proposing to apply the new
variable interest rate maximums to all 7(a) loans. Currently,
approximately 22% of 7(a) loans charge the maximum variable interest
rate so increasing the maximum allowable interest rate is unlikely to
cause the other 78% to increase their rates. It is difficult to
speculate what proportion of the 22% that currently charge the maximum
allowable interest rate will increase their rates, but the forces of
the competitive marketplace will limit their ability to charge
significantly higher rates, making the new rate maximums unlikely to
create a significant cost for Borrowers. Also, it is not uncommon for
small businesses to max out their credit on credit cards or through
financial technology companies (Fintech) where interest rates can range
between 19-21% for credit cards and can exceed 45% for Fintech, and SBA
loans would be a more reasonable alternative with the proposed maximum
rates in this rule.
[[Page 80683]]
Due to efficiencies that have been created by electronic banking,
SBA believes that payments should be made in less time and is proposing
to require that the SBA guaranty fee be paid within 45 days after loan
approval. This change is not expected to create any additional burden
for Lenders since they make electronic payments now and should be able
to easily comply with the proposed timeframe.
Lastly, SBA is proposing to remove the exception related to the
guarantee fee that is collected from veterans or from the spouse of a
veteran on Express Loans. The guarantee fee on these loans is waived
for veterans and their spouses in fiscal years when the 7(a) program is
at zero subsidy, but there was a statutory exception to this waiver for
fiscal years when the 7(a) program is not at zero subsidy. Section
1102(d) of the CARES Act eliminated this exception and, accordingly,
SBA is proposing to remove this exception to conform the regulations to
the statutory change. SBA considers this proposed change a transfer of
the cost for the 7(a) loan program which will not affect the total
resources available to loan participants. The fees collected from
participants in the loan program are set at the amounts needed to cover
the cost of the program, but are capped at a statutory limit which can
result in periods when the program is operating in positive subsidy.
The proposed change will transfer the cost of the service away from
veterans and their spouses to non-veteran participants or SBA,
resulting in either increased fees for nonveterans, or will require
appropriations to subsidize the operations of the program. Thus, the
elimination of guarantee fees for veterans and their spouses will
result in a distributional shift and will not cause a new cost to
society.
Table 1 displays the savings and costs of this rule over the first
two years it is effective, with the savings and costs in the second
year expected to continue into perpetuity. Table 2 presents the
annualized net savings in 2016 dollars.
Table 1--Schedule of Costs/(Savings) Over 2 Year Horizon
[Current dollars]
------------------------------------------------------------------------
Savings Costs
------------------------------------------------------------------------
Year 1.................................. $ (615,506) $1,622,988
-------------------------------
Year 2.................................. (615,506) 0
------------------------------------------------------------------------
Table 2--Annualized Savings in Perpetuity with 7% Discount Rate
[2016 Dollars]
------------------------------------------------------------------------
Estimate
------------------------------------------------------------------------
Annualized Savings...................................... $ (433,505)
Annualized Costs........................................ 74,781
---------------
Annualized Net Savings.............................. (358,724)
------------------------------------------------------------------------
Paperwork Reduction Act, 44 U.S.C., Ch. 35
SBA has determined that this proposed rule would not impose any
additional reporting or recordkeeping requirements under the Paperwork
Reduction Act.
Regulatory Flexibility Act, 5 U.S.C. 601-612
When an agency issues a proposed rule, the Regulatory Flexibility
Act (RFA) requires the agency to ``prepare and make available for
public comment an initial regulatory flexibility analysis'' which will
``describe the impact of the proposed rule on small entities.'' (5
U.S.C. 603(a)). However, section 605 of the RFA allows an agency to
certify a rule, in lieu of preparing an analysis, if the proposed
rulemaking is not expected to have a significant economic impact on a
substantial number of small entities.
This rule is a comprehensive effort to remove information from the
regulations that are confusing and misleading, which would save Lenders
and Borrowers time in reading and inquiring about obsolete or
inaccurate information. SBA estimates the total annual savings to
Lenders and Borrowers to be $615,506 in current dollars, as detailed in
the Executive Order 13771 section above.
In addition, there are some costs associated with this rule that
could impact small businesses. The removal of LIBOR as an optional base
rate for variable rate 7(a) loans will cause some Borrowers to modify
their loan documents to specify a new base rate. Any costs associated
with modifying loan documents are an unavoidable result of the phase-
out of LIBOR that will occur in 2021. SBA estimates only 3% of active
SBA business loans could be affected by this change and that the burden
created would be $1,622,988 in the first year that LIBOR is
discontinued and would not be repeated in subsequent years, as detailed
in the Executive Order 13771 section above.
The annualized net savings of this rule is estimated to be $358,724
in 2016 dollars. Given that savings would be spread out to
approximately 7,000 beneficiaries (Lenders and Borrowers), this does
not create a significant savings per beneficiary.
Based on the foregoing, the Administrator of the SBA hereby
certifies that this rule will not have a significant economic impact on
a substantial number of small entities. The SBA invites comments from
the public on this certification.
List of Subjects
13 CFR Part 120
Loan programs-business, Reporting and recordkeeping requirements,
Small businesses, Veterans.
13 CFR Part 123
Disaster assistance, Loan programs-business, Small businesses.
For the reasons stated in the preamble, SBA proposes to amend 13
CFR parts 120 and 123 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, 650, 657t, and note, 657u, and
note, 687(f), 696(3) and (7), and note, and 697(a) and (e), and
note.
0
2. Amend Sec. 120.2 by revising paragraph (a)(1) to read as follows:
Sec. 120.2 Descriptions of the business loan programs.
(a) * * *
(1) SBA makes a guaranteed (deferred participation) loan by which
SBA guarantees a portion of a loan made by a Lender to provide
financing for general business purposes.
* * * * *
0
3. Amend Sec. 120.10 by revising the first sentence of the definition
of ``Risk Rating'' to read as follows:
Sec. 120.10 Definitions.
* * * * *
Risk Rating is an SBA internal composite rating assigned to
individual SBA Lenders and Intermediaries that reflects the risk
associated with the SBA Lender's or Intermediary's portfolio of SBA
loans. * * *
* * * * *
Sec. 120.103 [Removed]
0
4. Remove Sec. 120.103.
0
5. Amend Sec. 120.110 by revising paragraph (h), removing and
reserving paragraph (k), and revising paragraph (n).
The revisions read as follows:
Sec. 120.110 What businesses are ineligible for SBA business loans?
* * * * *
[[Page 80684]]
(h) Businesses engaged in any activity that is illegal under
Federal, State, or local law;
* * * * *
(n) Businesses with an Associate who is incarcerated, on probation,
on parole, or is under indictment for a felony or any crime involving
or relating to financial misconduct or a false statement;
* * * * *
Sec. 120.111 [Amended]
0
6. Amend Sec. 120.111 by removing the last sentence of the
introductory text.
0
7. Amend Sec. 120.120 by revising paragraph (a)(1) to read as follows:
Sec. 120.120 What are eligible uses of proceeds?
* * * * *
(a) * * *
(1) Acquire land (by purchase or lease) that will be actively used
in the applicant's business operations (except that a Borrower may
lease a portion of the property in accordance with 13 CFR 120.131 and
120.870(b));
* * * * *
Sec. 120.173 [Removed and Reserved]
0
8. Remove and reserve Sec. 120.173.
Sec. 120.190 [Amended]
0
9. Amend Sec. 120.190 by:
0
a. Removing ``or immediate participation'' from paragraph (a);
0
b. Adding ``or'' at the end of paragraph (b);
0
c. Removing ``; or'' at the end of paragraph (c) and adding in its
place a period; and
0
d. Removing paragraph (d).
Sec. 120.192 [Amended]
0
10. Amend Sec. 120.192 by removing the phrase ``CDC, Intermediary, or
SBA,'' and adding in its place the phrase ``CDC or Intermediary,''.
Sec. 120.211 [Removed and Reserved]
0
11. Remove and reserve Sec. 120.211.
0
12. Amend Sec. 120.212 by revising paragraph (b) to read as follows:
Sec. 120.212 What limits are there on loan maturities?
* * * * *
(b) Ten years or less, unless it finances or refinances real estate
or equipment with a useful life exceeding ten years. The term for a
loan to finance equipment and/or leasehold improvements may include an
additional reasonable period, not to exceed 12 months, when necessary
to complete the installation of the equipment and/or complete the
leasehold improvements.
* * * * *
0
13. Revise Sec. 120.213 to read as follows:
Sec. 120.213 What fixed interest rates may a Lender charge?
A guaranteed loan may have a reasonable fixed interest rate, but in
no event may the rate exceed the maximum allowable rate periodically
published by SBA in the Federal Register.
0
14. Amend Sec. 120.214 by:
0
a. Revising the introductory text, the first and second sentences of
paragraph (c), and paragraph (d);
0
b. Removing paragraph (e); and
0
c. Redesignating paragraph (f) as paragraph (e).
The revisions read as follows:
Sec. 120.214 What conditions apply for variable interest rates?
A Lender may use a variable rate of interest for guaranteed loans
under the following conditions:
* * * * *
(c) * * * The base rate will be one of the following: the prime
rate or the Optional Peg Rate. The prime rate will be that which is in
effect on the first business day of the month, as printed in a national
financial newspaper published each business day. * * *
(d) Maximum allowable variable interest rates. The maximum
allowable variable interest rates are set forth in this paragraph (d),
with the initial maximum allowable rate for the loan determined as of
the date SBA receives the loan application:
(1) For all 7(a) loans of $50,000 and less, the interest rate shall
not exceed six and a half (6.5) percentage points over the base rate;
(2) For all 7(a) loans of more than $50,000 and up to and including
$250,000, the maximum interest rate shall not exceed six (6.0)
percentage points over the base rate;
(3) For all 7(a) loans of more than $250,000 and up to and
including $350,000, the maximum interest rate shall not exceed four and
a half (4.5) percentage points over the base rate; and
(4) For all 7(a) loans of more than $350,000, the maximum interest
rate shall not exceed three (3.0) percentage points over the base rate.
* * * * *
Sec. 120.215 [Removed]
0
15. Remove Sec. 120.215.
0
16. Amend Sec. 120.220 by:
0
a. Removing the phrase ``In fiscal years when the 7(a) program is at
zero subsidy,'' in paragraph (a)(3).
0
b. Removing the number ``90'' and add in its place the number ``45'' in
paragraph (b); and
0
c. Adding a subject heading and revising the first sentence of
paragraph (e).
The revision to read as follows:
Sec. 120.220 Fees that Lender pays SBA.
* * * * *
(e) Termination of guarantee for nonpayment of fee and other
matters. If the guarantee fee is not paid by the 75th calendar day
after loan approval for a loan with a maturity in excess of twelve (12)
months, or is not paid by the 10th business day after loan approval for
a loan with a maturity of twelve (12) months or less, SBA will
terminate the guarantee. * * *
* * * * *
Sec. 120.222 [Amended]
0
17. Amend Sec. 120.222 by removing the word ``in'' before the words
``any premium received''.
Sec. 120.310 [Amended]
0
18. Amend Sec. 120.310 in the introductory text by removing the phrase
``or make direct''.
Sec. 120.315 [Removed]
0
19. Remove Sec. 120.315.
Sec. 120.320 [Removed]
0
20. Remove the undesignated center heading ``Businesses Owned by Low
Income Individuals'' and Sec. 120.320.
Sec. 120.330 [Amended]
0
21. Amend Sec. 120.330 by removing the phrase ``make or''.
0
22. 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:
(a) Qualified employee trust (``ESOP'') to:
(1) Help finance the growth of its employer's small business; or
(2) Purchase ownership or voting control of the employer; and a
(b) Small business concern, if the proceeds from the loan are only
used to make a loan to a qualified employee trust that results in the
qualified employee trust owning at least 51 percent of the small
business concern.
0
23. Revise Sec. 120.352 to read as follows:
Sec. 120.352 Use of proceeds.
Loan proceeds may be used for:
(a) Qualified employee trust. A qualified employee trust may use
loan proceeds for two purposes:
(1) Qualified employer securities. A qualified employee trust may
relend loan proceeds to the employer by purchasing qualified employer
[[Page 80685]]
securities. The small business concern may use these funds for any
general 7(a) purpose.
(2) 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.
(b) Small business concern. A small business concern may only use
loan proceeds to make a loan to a qualified employee trust that results
in the qualified employee trust owning at least 51 percent of the small
business concern.
Sec. Sec. 120.360, 120.361 and 120.370 [Removed]
24. Remove the undesignated center heading ``Veterans Loan
Program'', Sec. Sec. 120.360 and 120.361, the undesignated center
heading ``Pollution Control Program'', and Sec. 120.370.
Sec. 120.375 [Amended]
0
25. Amend Sec. 120.375 by removing the phrase ``direct (unilaterally
or together with Lenders) or''.
Sec. 120.376 [Amended]
0
26. Amend Sec. 120.376 by:
0
a. Removing paragraph (a);
0
b. Redesignating paragraphs (b) and (c) as paragraphs (a) and (b);
0
c. Removing the second sentence of newly redesignated paragraph (b);
and
0
d. Removing paragraph (d).
Sec. Sec. 120.380 through 120.383 [Removed]
0
27. Remove the undesignated center heading ``Defense Economic
Transition Assistance'' and Sec. Sec. 120.380 through 120.383.
Sec. 120.420 [Amended]
0
28. Amend Sec. 120.420 by removing paragraph (b) and redesignating
paragraphs (c) through (k) as paragraphs (b) through (j).
0
29. Amend Sec. 120.432 by adding a sentence at the end of paragraph
(a) to read as follows:
Sec. 120.432 Under what circumstances does this subpart permit sales
of, or sales of participating interests in, 7(a) loans?
(a) * * * This paragraph (a) applies to all 7(a) loans purchased
from any Federal or state banking regulator, any receiver, or any
conservator, unless SBA agrees otherwise in writing.
* * * * *
Sec. 120.453 [Removed]
0
30. Remove Sec. 120.453.
Sec. 120.470 [Amended]
0
31. Amend Sec. 120.470 in paragraph (d)(1) by removing the number
``$1,000'' and adding the number ``$10,000'' in its place.
Sec. 120.532 [Removed]
0
32. Remove Sec. 120.532.
Sec. 120.540 [Amended]
0
33. Amend Sec. 120.540 in paragraph (g) by removing the term ``D/FA''
from the first sentence and adding in its place the phrase ``Director/
Office of Financial Program Operations (D/OFPO)'' and by removing the
term ``D/FA'' from the second and fourth sentences and adding in its
place the term ``D/OFPO''.
Sec. 120.542 [Amended]
0
34. Amend Sec. 120.542 in paragraphs (d) and (e) by removing the term
``D/FA'' wherever it appears and adding in its place the term ``D/
OFPO''.
Sec. 120.701 [Amended]
0
35. Amend Sec. 120.701 by removing the paragraph designations (a)
through (h), leaving the definitions in alphabetical order, and
removing the definition of ``Non-lending technical assistance
provider''.
Sec. 120.706 [Amended]
0
36. Amend Sec. 120.706 in the last sentence of paragraph (a) by
removing ``$5 million'' and adding in its place ``$6 million''.
Sec. 120.707 [Amended]
0
37. Amend Sec. 120.707 in the last sentence of paragraph (b) by
removing the word ``six'' and adding in its place the word ``seven''.
0
38. Amend Sec. 120.712 by:
0
a. Revising paragraph (b)(1); and
0
b. Removing the number ``30'' and adding in its place the number ``50''
in paragraph (d).
The revision reads as follows:
Sec. 120.712 How does an Intermediary get a grant to assist Microloan
borrowers?
* * * * *
(b) * * *
(1) Up to 50 percent of the grant funds may be used to provide
information and technical assistance to prospective Microloan
borrowers; provided, however, that no more than 5 percent of the grant
funds may be used to market or advertise the products and services of
the Microloan Intermediary directly related to the Microloan Program;
and
* * * * *
Sec. Sec. 120.714 and 120.715 [Removed]
0
39. Remove and reserve Sec. Sec. 120.714 and 120.715.
Sec. 120.800 [Removed]
0
40. Remove Sec. 120.800.
0
41. Amend Sec. 120.812 by revising paragraph (a)(2) and by adding a
sentence at the end of paragraph (d) to read as follows:
Sec. 120.812 Probationary period for newly certified CDCs.
(a) * * *
(2) A one-year extension of probation. If a one-year extension of
probation is granted, at the end of this extension period, the CDC must
petition the Lead SBA Office for permanent CDC status or an additional
one-year extension of probation.
* * * * *
(d) * * * If SBA declines the petition, the CDC will no longer have
authority to participate in the 504 Loan Program and SBA will direct
the CDC to transfer all funded and/or approved loans to another CDC,
SBA, or another servicer approved by SBA.
0
42. 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 by submitting an
application in accordance with SBA's Standard Operating Procedure 50
10, available at http://www.sba.gov. A final decision will be made by
the appropriate SBA official in accordance with Delegations of
Authority.
* * * * *
Sec. 120.845 [Amended]
0
43. Amend Sec. 120.845 in paragraph (c)(1) by removing the phrase
``through (h)'' and adding in its place the phrase ``through (f)''.
Sec. 120.850 [Removed]
0
44. Remove the undesignated center heading ``Associate Development
Companies (ADCs)'' and Sec. 120.850.
0
45. Amend Sec. 120.862 by:
0
a. Removing ``or'' at the end of paragraph (b)(9);
0
b. Removing the period at the end of paragraph (b)(10) and adding ``;''
in its place; and
0
c. Adding paragraphs (b)(11) through (13).
The additions read as follows:
Sec. 120.862 Other economic development objectives.
* * * * *
(b) * * *
(11) Reduction of energy consumption by at least 10 percent;
(12) Increased use of sustainable design, including designs that
reduce the use of greenhouse gas emitting fossil fuels, or low-impact
design to produce buildings that reduce the use of non-renewable
resources and minimize environmental impact; or
[[Page 80686]]
(13) Plant, equipment and process upgrades of renewable energy
sources such as the small-scale production of energy for individual
buildings' or communities' consumption, commonly known as micropower,
or renewable fuels producers including biodiesel and ethanol producers.
0
46. Amend 120.1400 by:
0
a. Removing the date ``October 20, 2017'' in paragraphs (a)(1) and (2)
and adding in their place the date ``January 1, 2018''; and
0
b. Adding two sentences to the end of paragraphs (a)(1) and (2).
The additions read as follows:
Sec. 120.1400 Grounds for enforcement actions--SBA Lenders.
(a) * * *
(1) * * * The CDC's consent does not preclude the CDC from
contesting whether or not SBA has established the grounds for seeking
the remedy of a receivership. A CDC's consent to receivership as a
remedy does not require SBA to seek appointment of a receiver in any
particular SBA enforcement action.
(2) * * * The SBA Supervised Lender's consent does not preclude
such Lender from contesting whether or not SBA has established the
grounds for seeking the remedy of a receivership. The SBA Supervised
Lender's consent to receivership as a remedy does not require SBA to
seek appointment of a receiver in any particular SBA enforcement
action.
* * * * *
0
47. Amend Sec. 120.1500 by adding a sentence at the end of paragraph
(c)(3), adding paragraphs (c)(3)(i) and (ii), and adding two sentences
after the first sentence of paragraph (e)(3) to read as follows:
Sec. 120.1500 Types of enforcement actions--SBA Lenders.
* * * * *
(c) * * *
(3) * * * In deciding whether to seek the appointment of a receiver
and in determining the scope of a receivership, SBA will consider the
following factors, in its discretion:
(i) For NFRLs:
(A) The existence of fraud or false statements;
(B) The NFRL's refusal to cooperate with SBA enforcement action
instructions or orders;
(C) The NFRL's insolvency (legal or equitable);
(D) The size of the NFRL's SBA loan portfolio(s) in relation to
other activities of the NFRL;
(E) The dollar amount of any claims SBA may have against the NFRL;
(F) The NFRL's failure to comply materially with any requirement
imposed by Loan Program Requirements; and/or
(G) The existence of other non-SBA enforcement actions against the
NFRL;
(ii) For SBLCs:
(A) The existence of fraud or false statements;
(B) The SBLC's refusal to cooperate with SBA enforcement action
instructions or orders;
(C) The SBLC's insolvency (legal or equitable);
(D) The dollar amount of any claims SBA may have against the SBLC;
and/or
(E) The SBLC's failure to comply materially with any requirement
imposed by Loan Program Requirements.
* * * * *
(e) * * *
(3) * * * SBA will limit the scope of the receivership to the CDC's
assets related to the SBA loan program(s) except where the CDC's
business is almost exclusively SBA-related. SBA will only seek a
receivership if there is either the existence of fraud or false
statements, or if the CDC has refused to cooperate with SBA enforcement
action instructions or orders. * * *
PART 123--DISASTER LOAN PROGRAM
0
48. The authority citation for part 123 continues to read as follows:
Authority: 15 U.S.C. 632, 634(b)(6), 636(b), 636(d), and 657n.
Sec. 123.17 [Amended]
0
49. Amend Sec. 123.17 by removing the words ``lead-based paint,''.
Jovita Carranza,
Administrator.
[FR Doc. 2020-26446 Filed 12-11-20; 8:45 am]
BILLING CODE 8026-03-P
