Rule2022-13483
Regulatory Reform Initiative: Streamlining and Modernizing the 7(a), Microloan, and 504 Loan Programs To Reduce Unnecessary Regulatory Burden
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 30, 2022
Effective
August 1, 2022
Issuing agencies
Small Business Administration
Abstract
This final rule removes or revises various regulations governing the agency's business loan programs that are obsolete, unnecessary, ineffective, or burdensome. This final rule also makes several technical amendments to incorporate recent statutory changes and other non-substantive changes. In addition, because this final rule removes a regulation that is cross-referenced in a regulation in SBA's Disaster Loan Program, this rule makes one conforming change to the regulation in the Disaster Loan Program.
Full Text
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[Federal Register Volume 87, Number 125 (Thursday, June 30, 2022)]
[Rules and Regulations]
[Pages 38900-38910]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-13483]
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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: Final rule.
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SUMMARY: This final rule removes or revises various regulations
governing the agency's business loan programs that are obsolete,
unnecessary, ineffective, or burdensome. This final rule also makes
several technical amendments to incorporate recent statutory changes
and other non-substantive changes. In addition, because this final rule
removes a regulation that is cross-referenced in a regulation in SBA's
Disaster Loan Program, this rule makes one conforming change to the
regulation in the Disaster Loan Program.
DATES: The effective date of this final rule will be August 1, 2022.
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)
604-5032; email address: <a href="/cdn-cgi/l/email-protection#036f6a6d67622d71666a6f6f7a437061622d646c75"><span class="__cf_email__" data-cfemail="3e5257505a5f104c5b575252477e4d5c5f10595148">[email protected]</span></a>. 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:
A. General Information
As part of its ongoing responsibility to ensure that the rules it
issues do not have an adverse economic impact on those affected by
those rules, the U.S. Small Business Administration (SBA) published a
proposed rule in the Federal Register on December 14, 2020 (85 FR
80676) to remove or revise various regulations in part 120 of title 13
of the Code of Federal Regulations that are obsolete, unnecessary,
ineffective, or burdensome. The rule also proposed to make several
technical amendments to regulations in part 120 to incorporate recent
statutory changes and other non-substantive changes. In addition,
because the rule proposed to remove a regulation that is cross-
referenced in a regulation in part 123 on SBA's Disaster Loan Program,
the rule proposed to make one conforming change to that regulation. The
comment period was open until February 12, 2021.
In response to the request for comments, SBA received 2,901
comments of which 234 were duplicative. Of the unique 2,667 comments
received, 1 was from a national trade association, 4 were from
government entities, 14 were from advocacy groups, 5 were from private
industries, and 2,643 were from individuals. Over 99% of the comments
received, 2,651, were in response to the proposed removal of 120.110(k)
from the regulations. This provision currently provides that businesses
principally engaged in teaching, instructing, counseling or
indoctrinating religion or religious beliefs are ineligible for SBA
financial assistance; all but one of the comments received expressed
opposition to its removal. The comments received on this issue and the
other comments received are summarized and addressed below in the
section-by-section analysis.
F. Section-by-Section Analysis
Section 120.2. SBA proposed 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, explaining that
it may be confusing to the public to refer to such loans when they are
not available from the agency. No comments were received on this
proposed change. However, SBA has decided not to move forward with the
removal of these provisions at this time in order to retain the option
for these programs should budget authority for direct lending or
immediate participation programs become available.
Section 120.10. SBA proposed 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. No comments were received on this proposed change and SBA
is adopting the change as proposed.
Section 120.103. SBA proposed 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
[[Page 38901]]
enterprises under sections 3(a)(1) and 7(a) of the Small Business Act
and Title V of the Small Business Investment Act. SBA received one
supporting comment from a trade association and no opposing comments.
SBA is adopting the change as proposed.
Section 120.110. This section lists the types of businesses that
are ineligible for SBA business loans. For clarity, SBA proposed to
make changes to three of the types of businesses on the list. First,
SBA proposed to 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. SBA received one supporting comment from a trade association
and no opposing comments SBA is adopting this change as proposed.
Second, SBA proposed 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''. SBA
explained that this provision, which was promulgated in 1996, could be
interpreted as impermissibly imposing a special disability on
organizations based on their religious status. In both Trinity Lutheran
Church of Columbia, Inc. v. Comer,__ U.S.__, 137 S. Ct. 2012, 198 L.
Ed. 2d 551 (2017), and Espinoza v. Montana Department of Revenue,
__U.S.__, 140 S. Ct. 2246, 207 L. Ed. 2d 679 (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,
SBA proposed to remove paragraph (k) from section 120.110. Over 99% of
the total number of comments submitted, or 2,651, related to the
proposed removal of section 120.110(k), and all but one of these
comments (as discussed below) expressed opposition to the removal of
this provision. The vast majority of the commenters stated that they
oppose SBA providing Federal government assistance to religious
institutions or for religious purposes and stated that providing such
assistance violates the First Amendment and its Establishment Clause
and the First Amendment principle of separation of church and state.
They also expressed opposition to using taxpayer funds to support
religious institutions that already receive the benefit of tax-exempt
status. Other commenters stated that they did not want their taxes to
support faiths that promote bigotry or expressed concern that the
religious institution may misappropriate or misuse the funds provided
with government assistance.
As mentioned above, one commenter, a trade association, did not
object to the removal of paragraph (k) but suggested also amending 13
CFR 120.130 ``to add funding religious activities as an ineligible use
of loan proceeds.'' The commenter expressed their view that this
addition to the regulations would be consistent with the guidance that
SBA currently provides in its Standard Operating Procedure (SOP) 50 10
6 that ``[i]f it appears that the proceeds of a loan sought by an
Applicant may be used to fund religious activities, the SBA Lender must
complete SBA Form 1971, Religious Eligibility Worksheet.''
It therefore seems clear that the overriding concern of the
commenters was the continued adherence of SBA's business loan programs
to the demands of the Establishment Clause of the First Amendment. SBA
believes that the language of section 120.110(k) could be viewed as
being at odds with Trinity Lutheran and Espinoza. But, as stated in the
preamble to the proposed rule, SBA will apply relevant case law to
assure that the intended use of the loan proceeds of SBA business loans
is consistent with the First Amendment's Establishment Clause.
Accordingly, SBA has determined that: (1) paragraph (k) of section
120.110 should be removed from the Agency's regulations, and reserved;
(2) the Agency will continue to ensure that the proceeds of SBA
business loans are used in a manner consistent with the requirements of
the First Amendment of the U.S. Constitution; and (3) to assist SBA in
applying applicable case law, the guidance provided in the Agency's SOP
50 10 6, at page 146, regarding the submission of SBA Form 1971, will
remain in effect until further notice. If needed and appropriate, SBA
may subsequently propose additional regulatory language addressing
relevant constitutional requirements.
Third, SBA proposed 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 proposed to change the phrase to
``is under indictment'' from ``has been indicted''. SBA explained that
it 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
proposed 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 explained that it 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. SBA received one
supporting comment from a trade association and no opposing comments.
SBA is adopting the changes as proposed.
Section 120.111. SBA proposed to revise this section by removing a
duplicative sentence at the end of the introductory text. No comments
were received on this proposed change and SBA is adopting it as
proposed.
Section 120.120. This section describes the eligible uses of loan
proceeds. SBA proposed 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))''. SBA explained that this change reflects SBA's
prohibition against financing passive activities other than Eligible
Passive Companies under 13 CFR 120.111. SBA received one supporting
comment from a trade association and no opposing comments. However, SBA
has decided that more time is needed to review and study ``use of
proceeds'' and is not moving forward with this revision at this time.
Section 120.173. SBA proposed 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. SBA
explained that 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. No
comments were received on this proposed change and SBA is adopting it
as proposed.
[[Page 38902]]
Section 120.190. SBA proposed 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. No comments were received on these
proposed changes. However, SBA has decided not to move forward with the
removal of these provisions at this time in order to retain the option
for these programs should budget authority for direct lending or
immediate participation programs become available.
Section 120.192. SBA proposed to remove this section which 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 explained that it
was SBA's responsibility to provide notice to the applicant only when
it made direct loans, and that 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. No comments were received on this
proposed change. However, SBA has decided not to move forward with the
removal of these provisions at this time in order to retain the option
for these programs should budget authority for direct lending or
immediate participation programs become available.
Section 120.211. SBA proposed 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 explained that it believes that it may be
confusing to the public to refer to such loans when they are not
available from the agency. No comments were received on this proposed
change. However, SBA has decided not to move forward with the removal
of this section at this time in order to retain the option for these
programs should budget authority for direct lending or immediate
participation programs become available.
Section 120.212. SBA proposed to amend this section which
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 proposed 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. SBA received one supporting
comment from a trade association and no opposing comments. SBA is
adopting this change as proposed.
Section 120.213. SBA proposed 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 explained 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 have also
been revised accordingly. No comments were received on this proposed
change. However, SBA has decided not to move forward with the removal
of this provision at this time in order to retain the option for this
program should budget authority for direct lending become available.
Sections 120.214. SBA proposed to amend paragraph (c) of section
120.214 by removing the thirty-day London Interbank Offered Rate
(LIBOR) as a base rate option for calculating the maximum variable
interest rate for a 7(a) loan in paragraph (c)(ii). SBA explained that
the U.K. Financial Conduct Authority announced on July 27, 2017, that
it would phase-out LIBOR completely by the end of 2021 (since revised
to June 30, 2023), 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 2023, SBA
proposed to remove from the regulation the reference to LIBOR as an
optional base rate for variable rate 7(a) loans.
Until such time as an alternative reference rate becomes widely
adopted for small business commercial lending, 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 final 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 2023.
Such modifications must be in compliance with the procedures set forth
in the current versions of SBA SOPs 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.
SBA received one comment from a trade association expressing
support for the deletion of LIBOR as an optional base rate since it is
being phased out by June 30, 2023, and SBA is adopting this change as
proposed with the addition of a sentence that provides that, if an
alternative reference rate subsequently becomes widely adopted for
small business commercial lending, SBA will provide notice of this rate
as an additional base rate option through publication in the Federal
Register.
In addition, SBA proposed to use loan amounts as the basis upon
which the variable interest rate is set, instead of loan maturities. To
implement this change, SBA proposed to remove paragraph (e) and revise
paragraph (d) 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;
(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.
In addition, 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
[[Page 38903]]
Lenders. Upon the effective date of this rule, 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 similarlysized,
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, under this final
rule, Community Advantage Lenders are allowed 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).
Two other changes that SBA proposed 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 and amending 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.
SBA received two comments with respect to these changes, including
one from a trade association, which expressed support for the changes,
and one from an individual, who expressed support for the new interest
rates. The commenters agreed that providing a higher interest rate on
smaller loans is a great incentive for lenders to provide such loans to
borrowers.
SBA is adopting these changes as proposed.
Section 120.215. SBA proposed to remove this section, which
establishes the interest rates for smaller loans. The interest rates
for all 7(a) loans will now be covered by Sec. 120.213 and the
proposed amendments to Sec. 120.214. SBA received one supporting
comment from a trade association and no opposing comments; the Agency
is removing this section as proposed.
Section 120.220. SBA proposed to revise this section with two
changes. 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 proposed to remove it from section 120.220(a)(3).
SBA received one comment in support of this change and is adopting this
change as proposed.
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 has historically required 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 proposed to require that the fee
be paid within 45 days after loan approval. If the fee is not paid by
the 45th day, SBA proposed to give the Lender a grace period of an
additional 30 days and if the fee is not paid by the 75th day, SBA
would cancel the guarantee. For loans with a maturity of 12 months or
less, SBA proposed to continue to cancel the guarantee if the fee is
not paid by the 10th business day after the Lender receives SBA loan
approval. SBA received two comments opposing this change, one from a
trade association and one from a member of the general public. Both
commenters objected to shortening the time frame for paying the
guaranty fee on 7(a) loans with a maturity date of more than one year
from 90 days to 45. The trade association reasons that SBA has
historically not terminated its guaranty unless the fee remained unpaid
on the 121st day after loan approval. In addition, both commenters note
that the period between loan approval and loan disbursement may be
longer than 45 days. Since the guaranty fee may not be paid until after
the borrower's first disbursement, the trade association argues that
maintaining the timeframe at 90 days would avoid stressing lender
liquidity.
After considering these comments, SBA has decided to conduct
further study on the timing of guarantee fee payment by lenders and is
not adopting this change at this time.
Section 120.222. SBA proposed to revise this section with a minor
technical correction to Sec. 120.222 to remove an extra word (``in'')
that was inserted in error. No comments were received on this proposed
change and SBA is adopting it as proposed.
Section 120.310. SBA proposed 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. No comments were
received on this proposed change. However, SBA has decided not to move
forward with the removal of the reference to direct loans in this
provision at this time in order to retain the option for this program
should budget authority for direct lending become available.
Section 120.315. SBA proposed 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. No comments were
received on this proposed change. However, SBA has decided not to move
forward with the removal of this section at this time in order to
retain the option for direct lending should budget authority become
available.
Section 120.320. SBA proposed 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. SBA explained that direct loans have
not been funded for over 30 years and that this provision did 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. No comments were received on this proposed
change. However, SBA has decided not to move forward with the removal
of this section at this time in order to retain the option for direct
lending should budget authority become available.
Section 120.330. SBA proposed to remove the reference to direct
loans in this section because SBA has not received funding to make
these loans for over 30 years. SBA explained that it may be confusing
to the public to refer to such loans when they are not
[[Page 38904]]
available from the agency. No comments were received on this proposed
change. However, SBA has decided not to move forward with the removal
of the reference to direct loans in this provision at this time in
order to retain the option for direct lending should budget authority
become available.
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 proposed to include 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 proposed
this amendment 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. SBA received one
supporting comment from a trade association and no opposing comments.
SBA is adopting the amendments as proposed.
Sections 120.360 and 120.361. SBA proposed 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 explained that it 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. No comments were received on these proposed
changes. However, SBA has decided not to move forward with the removal
of these sections at this time in order to retain the option for direct
lending should budget authority become available.
Section 120.370. SBA proposed 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. This provision is also unnecessary because SBA is
authorized under the general authority of section 7(a) to make
guaranteed loans for pollution control facilities. SBA received one
supporting comment from a trade association and no opposing comments.
SBA is removing this section as proposed.
Section 120.375. SBA proposed 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 explained that it may
be confusing to the public to refer to such loans when they are not
available from the agency. No comments were received on this proposed
change. However, SBA has decided not to move forward with the removal
of the reference to direct loans at this time in order to retain the
option for direct lending should budget authority become available.
Section 120.376. SBA proposed 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, with the remaining paragraphs redesignated accordingly. No
comments were received on these proposed changes. However, SBA has
decided not to move forward with the removal of these provisions at
this time in order to retain the option for these programs should
budget authority for direct lending or immediate participation programs
become available.
Sections 120.380 through 120.383. SBA proposed 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. SBA received one
supporting comment from a trade association and no opposing comments.
SBA is removing these sections as proposed.
Section 120.420. SBA proposed 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, with
the remaining paragraphs redesignated accordingly. SBA received one
supporting comment from a trade association and no opposing comments.
SBA is adopting this change as proposed.
Section 120.432. SBA proposed to amend Sec. 120.432(a) to
implement SBA's 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 proposed to make 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 also proposed 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).
In addition, SBA proposed 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. SBA received one supporting comment from
a trade association and no opposing comments. SBA is adopting these
changes as proposed.
Section 120.453. SBA proposed 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. SBA received one supporting comment from a trade association
and no opposing comments. SBA is removing this section as proposed.
Section 120.470. SBA proposed 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.
SBA received one supporting comment from a trade association and no
opposing comments. SBA is adopting this change as proposed.
Section 120.532. SBA proposed to remove this section, which refers
to SBA's authority to assume a Borrower's
[[Page 38905]]
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. SBA received one supporting comment from
a trade association and no opposing comments. SBA is adopting this
change as proposed.
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 proposed 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. SBA received one comment supporting this change
and no opposing comments.
The commenter also recommended that SBA amend paragraph (b) of this
section to delete the requirement of prior SBA approval for the
liquidation plan on a loan processed under a 7(a) lender's Certified
Lender Program (CLP) authority. The trade association argues that this
change is appropriate since SBA discontinued CLP authority years ago.
However, section 7(a)(19)(C) of the Small Business Act requires SBA's
prior approval of liquidation plans for CLP loans and so long as CLP
loans are outstanding, this requirement needs to remain in the
regulation.
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 proposed 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
responsible for consulting with the Associate General Counsel is OFPO.
Accordingly, SBA proposed to amend this paragraph by replacing ``D/FA''
with ``D/OFPO''. SBA received one supporting comment from a trade
association on these changes and no opposing comments. SBA is adopting
these changes as proposed.
Section 120.701. SBA proposed 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.
SBA also proposed to redesignate the remaining paragraph (h)
accordingly. No comments were received on this proposed rule change and
SBA is adopting it as proposed.
Section 120.706. SBA proposed 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). No comments were received on this proposed rule
change and SBA is adopting it as proposed.
Section 120.707. SBA proposed 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,
explaining that this change would allow for a longer repayment period
for these small loans. No comments were received on this proposed rule
change and SBA is adopting it as proposed.
Section 120.712. In Sec. 120.712(b), SBA proposed 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 addition, in Sec.
120.712(d), SBA proposed 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.
No comments were received on these proposed rule changes and SBA is
adopting them as proposed.
Section 120.714. SBA proposed to remove Sec. 120.714, which
describes how grants are made to non-lending technical assistance
providers (NTAPs). SBA no longer makes such grants and there are no
NTAPs currently participating in the Microloan Program. SBA therefore
proposed to eliminate this section to reduce confusion. No comments
were received on this proposed rule change and SBA is adopting it as
proposed.
Section 120.715. SBA proposed 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 proposed 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. No comments
were received on this proposed rule change and SBA is adopting it as
proposed.
Section 120.800. SBA proposed 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). No comments were
received on this proposed rule change and SBA is adopting it as
proposed.
Section 120.812. SBA proposed 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 proposed 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. No comments were received on these changes and SBA is adopting
them as proposed.
Section 120.840. SBA proposed 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 proposed to revise Sec. 120.840(b) to reflect the modernized
application submission process for the Accredited Lenders Program
(ALP), which will allow CDCs to submit ALP applications electronically
into the Corporate Governance Repository, rather than apply to the Lead
SBA Office. No comments were received on these proposed changes and SBA
is adopting them as proposed.
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
[[Page 38906]]
proposed to amend paragraph (c)(1) by removing ``through (h)'' at the
end of the sentence and adding ``through (f)'' in its place. No
comments were received on this proposed rule change and SBA is adopting
it as proposed.
Section 120.850. SBA proposed to remove this section because the
designation of Associate Development Company ceased to exist on January
1, 2004. No comments were received on this proposed rule change and SBA
is adopting it as proposed.
Section 120.862. SBA proposed 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. No comments were
received for this proposed rule change and SBA is adopting it as
proposed.
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). As proposed, the
amendments to this rule would codify the SOP provision into the rule
and 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. No
comments were received on this proposed rule change and SBA is adopting
it as proposed.
Section 120.1500. SBA proposed 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 factors vary slightly
depending upon the type of SBA Lender and whether the SBA Lender has
assets unrelated to SBA loan program activities. No comments were
received for this proposed rule change and SBA is adopting it as
proposed.
Section 123.17. SBA proposed to amend this section to remove the
reference to lead-based paint. As stated above, with the proposed
removal of 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, the removal of the reference
to lead-based paint in Sec. 123.17 conforms this regulation to the
removal of Sec. 120.173 and will avoid confusion. No comments were
received on this proposed rule change and SBA is adopting it as
proposed.
Compliance With Executive Orders 12866, 12988, 13132, 13563, the
Congressional Review Act (5 U.S.C. 801-808), 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 final
rule is considered a ``significant regulatory action'' under Executive
Order 12866. It is important to note that, while OMB has determined
that this rule is considered a ``significant regulatory action,'' OMB
did not determine that this final rule is economically significant. The
next section contains SBA's Regulatory Impact Analysis.
Regulatory Impact Analysis
1. Is there a need for this regulatory action?
This final rule removes or revises various regulations governing
the Agency's business loan programs that are obsolete, unnecessary,
ineffective, or burdensome. This final rule also makes several
technical amendments to incorporate recent statutory changes and other
non-substantive changes. In addition, because this final rule removes a
regulation that is cross-referenced in a regulation in SBA's Disaster
Loan Program, this rule makes one conforming change to a regulation in
the Disaster Loan Program. SBA believes it is necessary to provide
clear regulatory guidance for Lenders to encourage participation in
extending loans, particularly smaller dollar loans, to eligible small
businesses, and to enable participating Lenders to extend credit with
confidence in their ability to rely on payment by SBA of the guaranty,
if necessary. As identified more specifically in the identified
benefits below, the change to Sec. 120.110(k) is needed to align SBA's
regulations with Supreme Court precedent and eliminate the uncertainty
and confusion caused by the perceived inconsistency between that
precedent and the current regulatory text.
Further, the Agency believes it needs to streamline Loan Program
Requirements and reduce regulatory burdens to facilitate robust
participation in the business loan programs that assist small U.S.
businesses, particularly those businesses in underserved markets.
2. What are the potential benefits and costs of this regulatory action?
As stated above, this final rule is a comprehensive effort to
remove or revise regulations governing the Agency's business loan
programs that are obsolete, unnecessary, ineffective, or burdensome. In
addition, this final rule removes information from the regulations that
is confusing, misleading, or obsolete. SBA believes the removal or
revision of these regulations will make the regulations easier to
understand and use and will benefit Lenders and Borrowers by saving
them time in reading and inquiring about obsolete, confusing, or
inaccurate information.
Further, several of the changes will provide clarity and certainty
to both Lenders and Borrowers in determining eligibility for SBA
financial assistance. Section 120.110 of the regulations lists the
types of businesses that are ineligible for SBA business loans. For
clarity, SBA proposed to make changes to three of the types of
businesses on the list. First, SBA proposed to 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 proposed 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''. SBA
explained that this provision, which was promulgated in 1996, could be
interpreted as impermissibly imposing a special disability on
organizations based on their religious status. Thus, the regulation may
have caused uncertainty for Lenders and Borrowers in
[[Page 38907]]
determining the eligibility of an applicant for an SBA business loan.
In order ensure that the proceeds of SBA business loans are used in
a manner consistent with the requirements of the First Amendment to the
U.S. Constitution, SBA's practice has been to apply relevant Supreme
Court caselaw to the facts of each individual case. The removal of
section 120.110(k) will eliminate uncertainty for Lenders and Borrowers
and, as explained in the preamble to the proposed rule and this final
rule, SBA will continue to apply relevant Supreme Court caselaw to
ensure that the proceeds of SBA business loans are used in a manner
consistent with the First Amendment to the U.S. Constitution. Although
this change is beneficial to increase clarity and remove uncertainty,
it will not result in any specific change in the way SBA implements
this provision. SBA is currently following the Supreme Court precedent
when analyzing eligibility for SBA financial assistance as it believes
that any regulation which may be inconsistent with that precedent
cannot be given effect.
Third, SBA proposed 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 proposed to change the phrase to
``is under indictment'' from ``has been indicted''. SBA explained that
it 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
proposed 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 explained that it 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. As stated above, SBA
believes it is necessary to provide clear guidance to enable Lenders to
extend credit to eligible small businesses and these regulatory changes
will help provide that clarity for Lenders and Borrowers.
In addition to the benefits described above, 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
2023, and the loan documents will need to be modified whether or not
this rule is promulgated.
In addition, SBA proposed to use loan amounts as the basis upon
which the variable interest rate is set, instead of loan maturities. 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. In
addition, 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.
3. What are the alternatives to this final rule?
The alternative to issuing this final rule is to not make any
changes to the regulations at all. However, that alternative would
leave obsolete, unnecessary, confusing, and inaccurate or misleading
information in the Agency's regulations governing its business loan
programs, which would create uncertainty and confusion for both Lenders
and Borrowers. SBA chose to proceed with this final rule in order to
reduce the burden on Lenders in order to encourage participation in SBA
lending programs, and to provide clarity and certainty for both Lenders
and Borrowers.
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. This action does
not have preemptive effect or retroactive effect.
Executive Order 13132
SBA has determined that this final 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 final 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.
Congressional Review Act, 5 U.S.C. 801-808
OMB's Office of Information and Regulatory Affairs has determined
that this rule is not a major rule under subtitle E of the Small
Business Regulatory Enforcement Fairness Act of 1996 (also known as the
Congressional Review Act), 5 U.S.C. 804(2). 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.
Paperwork Reduction Act, 44 U.S.C., Ch. 35
SBA has determined that this final 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 final rule, the Regulatory Flexibility Act
(RFA) requires the agency to address public comments and ``describe the
impact of the proposed rule on small entities.'' (5 U.S.C. 603(a)). SBA
has complied with these requirements. Furthermore, section 605 of the
RFA allows an agency to certify a rule, in lieu of preparing an
analysis, if the final rulemaking is not expected to have a significant
economic impact on a substantial number of small entities.
This final 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.
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
[[Page 38908]]
loan documents are an unavoidable result of the phase-out of LIBOR that
will occur in 2023, and the loan documents will need to be modified
whether or not this rule is promulgated. 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.
Based on the foregoing, the Administrator of the SBA hereby
certifies that this final 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 amends 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, 636m, 650, 657t, and note, 657u, and
note, 687(f), 696(3), and (7), and note, and 697, 697a and e, and
note; Public Law 116-260, 134 Stat. 1182.
0
2. 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
3. Remove Sec. 120.103.
0
4. 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?
* * * * *
(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
5. Amend Sec. 120.111 by removing the last sentence of the
introductory text.
Sec. 120.173 [Removed]
0
6. Remove Sec. 120.173.
0
7. 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
8. Amend Sec. 120.214 by:
0
a. Revising the introductory paragraph and paragraphs (c) and (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) Base rate. 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. SBA may from
time to time permit the use of alternative base rate options that are
widely adopted for small business commercial lending and will publish
notice of such alternative options in the Federal Register. SBA
publishes the Optional Peg Rate quarterly in the Federal Register.
(d) Maximum Allowable Variable Interest Rates. The maximum
allowable variable interest rates are set forth below, 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
9. Remove Sec. 120.215.
Sec. 120.220 [Amended]
0
10. Amend Sec. 120.220(a)(3) by removing the phrase ``In fiscal years
when the 7(a) program is at zero subsidy,''.
Sec. 120.222 [Amended]
0
11. Amend Sec. 120.222 by removing the word ``in'' before the words
``any premium received''.
0
12. Revise Sec. 120.350 to read as follows:
Sec. 120.350 Policy.
Section 7(a)(15) of the Act authorizes SBA to guarantee a loan to
a:
(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
13. 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
securities. The small business concern
[[Page 38909]]
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. 120.370 and 120.380 through 120.383 [Removed]
0
14. Remove Sec. Sec. 120.370 and 120.380 through 120.383.
Sec. 120.420 [Amended]
0
15. Amend Sec. 120.420 by removing paragraph (b) and redesignating
paragraphs (c) through (k) as paragraphs (b) through (j).
0
16. 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
17. Remove Sec. 120.453.
Sec. 120.470 [Amended]
0
18. 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
19. Remove Sec. 120.532.
Sec. 120.540 [Amended]
0
20. 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
21. In Sec. 120.542, amend 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
22. Amend Sec. 120.701 by removing paragraph (g) and redesignating
paragraph (h) as paragraph (g).
Sec. 120.706 [Amended]
0
23. 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
24. 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
25. Amend Sec. 120.712 by:
0
a. Revising paragraph (b)(1); and
0
b. Removing the number ``25'' and adding in its place the number ``50''
in paragraph (d).
The revision to read 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, 120.715, and 120.800 [Removed]
0
26. Remove and reserve Sec. Sec. 120.714, 120.715, and 120.800.
0
27. 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
28. 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 <a href="http://www.sba.gov">http://www.sba.gov</a>. A final decision will be made by
the appropriate SBA official in accordance with Delegations of
Authority.
* * * * *
Sec. 120.845 [Amended]
0
29. 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
30. Remove the undesignated center heading ``Associate Development
Companies (ADCs)'' and Sec. 120.850.
0
31. Amend Sec. 120.862(b) by:
0
a. Removing ``or'' at the end of paragraph (9);
0
b. Removing the period at the end of paragraph (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
(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
32. Amend Sec. 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
[[Page 38910]]
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
33. 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
34. 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;
Section 1110, Pub. L. 116-136, 134 Stat. 281; and Section 331, Pub.
L. 116-260, 134 Stat. 1182.
Sec. 123.17 [Amended]
0
35. Amend Sec. 123.17 by removing the words ``lead-based paint,'' and
removing the words ``Sec. Sec. 120.170 through 120.175'' and inserting
``Sec. Sec. 120.170 through 120.172, 120.174 and 120.175'' in their
place.
Isabella Casillas Guzman,
Administrator.
[FR Doc. 2022-13483 Filed 6-29-22; 8:45 am]
BILLING CODE 8026-03-P
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</html>Indexed from Federal Register on June 30, 2022.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.