Rule2024-15313
7(a) Working Capital Pilot Program
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
July 15, 2024
Effective
August 1, 2024
Issuing agencies
Small Business Administration
Abstract
SBA is introducing a new pilot loan program within the 7(a) Loan Program called "7(a) Working Capital Pilot" (WCP) to provide SBA 7(a) guaranteed lines of credit up to $5 million that may be used to support domestic and international transactions with SBA fees due from the Lender that operate as a function of time, charging a proportional amount for each year the facility is in use.
Full Text
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<title>Federal Register, Volume 89 Issue 135 (Monday, July 15, 2024)</title>
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[Federal Register Volume 89, Number 135 (Monday, July 15, 2024)]
[Rules and Regulations]
[Pages 57353-57355]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-15313]
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Rules and Regulations
Federal Register
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This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
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Federal Register / Vol. 89, No. 135 / Monday, July 15, 2024 / Rules
and Regulations
[[Page 57353]]
SMALL BUSINESS ADMINISTRATION
13 CFR Part 120
[Agency Docket Number: SBA-2024-0005]
7(a) Working Capital Pilot Program
AGENCY: U.S. Small Business Administration.
ACTION: Notification of pilot program and request for comments.
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SUMMARY: SBA is introducing a new pilot loan program within the 7(a)
Loan Program called ``7(a) Working Capital Pilot'' (WCP) to provide SBA
7(a) guaranteed lines of credit up to $5 million that may be used to
support domestic and international transactions with SBA fees due from
the Lender that operate as a function of time, charging a proportional
amount for each year the facility is in use.
DATES:
Effective date: The WCP Program will be effective on August 1,
2024, and will remain in effect through July 31, 2027.
Comment date: Comments must be received on or before August 14,
2024.
ADDRESSES: You may submit comments, identified by SBA docket number
SBA-2024-0005, through the Federal eRulemaking Portal: <a href="https://www.regulations.gov/">https://www.regulations.gov/</a>. Follow the instructions for submitting comments.
SBA will post all comments on <a href="https://www.regulations.gov">https://www.regulations.gov</a>. If you
wish to submit confidential business information (CBI) as defined in
the User Notice at <a href="https://www.regulations.gov">https://www.regulations.gov</a>, please submit the
information via email to <a href="/cdn-cgi/l/email-protection#9addf3f4fdffe8b4dbf6f6fff4dae9f8fbb4fdf5ec"><span class="__cf_email__" data-cfemail="07406e6960627529466b6b62694774656629606871">[email protected]</span></a>. Highlight the
information that you consider to be CBI and explain why you believe SBA
should hold this information as confidential. SBA will review the
information and make the final determination whether it will publish
the information.
FOR FURTHER INFORMATION CONTACT: Specific WCP policy questions should
be directed to <a href="/cdn-cgi/l/email-protection#cafdab9d899a8ab9a8abe4ada5bc"><span class="__cf_email__" data-cfemail="7c4b1d2b3f2c3c0f1e1d521b130a">[email protected]</span></a>. For further information, contact Ginger
Allen, Chief, 7(a) Loan Policy Division, Office of Financial
Assistance, Office of Capital Access, Small Business Administration, at
(202) 205-7110 or <a href="/cdn-cgi/l/email-protection#cc8ba5a2aba9bee28da0a0a9a28cbfaeade2aba3ba"><span class="__cf_email__" data-cfemail="3077595e5755421e715c5c555e704352511e575f46">[email protected]</span></a>, or Daniel Pische, Director,
International Trade Finance, Office of International Trade, Small
Business Administration, at (202) 205-7119 or <a href="/cdn-cgi/l/email-protection#cf8baea1a6aaa3e19fa6bcaca7aa8fbcadaee1a8a0b9"><span class="__cf_email__" data-cfemail="a8ecc9c6c1cdc486f8c1dbcbc0cde8dbcac986cfc7de">[email protected]</span></a>.
The phone numbers above may also be reached by individuals who are deaf
or hard of hearing, or who have speech disabilities, through the
Federal Communications Commission's TTY-Based Telecommunications Relay
Service teletype service at 711.
SUPPLEMENTARY INFORMATION:
I. Background Information
As small businesses grow, they require access to working capital.
Working capital is most economically delivered through a line of credit
and allows businesses to take on new opportunities in a way that a term
loan cannot. For example, manufacturers require a revolving line of
credit to build a resilient inventory position, and a contractor
requires access to a transaction-based project line to successfully
secure a multi-year government contract. In both examples, the
revolving nature of a line of credit provides the most efficient means
for the business to control its cash flow and manage the associated
interest expense in a dynamic rate environment. For example, for a
permanent term (non-revolving) loan that provides working capital, the
borrower receives one lump sum of money and interest immediately begins
accruing on the entire sum. In contrast, with a revolving line of
credit, the borrower only borrows money as needed and pays interest
only on the time the funds are being used.
SBA's flagship business loan program is the 7(a) Loan Program,
which currently offers four delivery methods for making SBA 7(a)
guaranteed lines of credit. These delivery methods are the 7(a) SBA
Express, CAPLine, Export Express, and the Export Working Capital
Program (EWCP) programs. While the existing 7(a) line of credit
delivery methods serve a similar working capital function, each has its
own unique rules and limitations. For example, 7(a) SBA Express and
Export Express loans are limited to a maximum loan size of $500,000,
while CAPLines and EWCP loans can be approved up to $5 million. Lenders
appreciate the flexibility offered by the CAPLines Program; however,
the four subprograms within CAPLines can be confusing to administer,
and the fee structure makes these types of loans expensive when
compared to EWCP. Lenders find the EWCP Program to be more similarly
structured to their conventional asset-based lending norms than the
CAPLine Program, and Lenders prefer EWCP's fee structure over CAPLine's
fee structure; however, EWCP loan proceeds may only be used to finance
export transactions. The difference in rules creates a challenge for
Lenders, who must learn and manage four separate programs for the
delivery of their small business working capital, which negatively
affects Lender participation while also reducing the availability of
working capital for small businesses. For these reasons, SBA is
establishing the new 7(a) Working Capital Pilot Program to allow
participating 7(a) Lenders to make working capital loans more
efficiently and effectively.
II. 7(a) Working Capital Pilot Program Overview
Per 13 CFR 120.3, SBA is establishing the WCP Program as a pilot
program within the 7(a) Loan Program. The WCP will be effective August
1, 2024, and continue through July 31, 2027. The purpose of the WCP
Program is to allow participating 7(a) Lenders to make working capital
lines of credit through asset-based and transaction-based lines of
credit. Lenders making WCP loans $150,000 or less will have an 85
percent SBA guaranty, and WCP loans greater than $150,000 will have a
75 percent SBA guaranty. WCP Program requirements will be built around
established industry norms. SBA intends to make program enhancements
based on Lender feedback during the duration of the pilot program.
WCP loans may be approved up to $5 million and may be used to
support domestic and international transactions. Lenders may authorize
a loan term up to 60 months. Lenders set interest rates that must
comply with 13 CFR 120.213 and 120.214.
In compliance with Sec. 120.214(c), SBA is providing notice in
this Federal Register Notice that for the WCP Program, SBA is allowing
Lenders to use the Secured Overnight Financing
[[Page 57354]]
Rate (SOFR) plus 3 percent as a base interest rate in addition to Prime
and SBA's Optional Peg Rate. SBA recognizes that financial institutions
use a range of SOFR products to deliver an equivalent reference rate
(e.g., 30-day term SOFR and 30-Day Average SOFR). Lenders may continue
to use their established in-house SOFR reference rates of 30 days or
less as these rates closely correlate with the daily SOFR rate. The
amount of interest SBA will pay to a Lender following the default of a
WCP loan will be calculated based on the daily SOFR rate as reported by
the Federal Reserve Bank of New York.
Lenders must pay a guaranty fee to SBA for each loan made, and the
guaranty fee due to SBA upon initial loan approval is called the SBA
Upfront Fee. The SBA Upfront Fee for WCP is modeled after SBA's 7(a)
EWCP Program, which has a guaranty fee that operates as a function of
time, charging a proportional amount for each year the facility is in
use. For example, a loan with a 36-month loan term pays an SBA Upfront
Fee established for loans with a 36-month term, while loans with a 60-
month loan term pay an SBA Upfront Fee that is proportionally higher
based on the longer term.
SBA will publish the WCP Upfront Fee on SBA's website at <a href="https://www.sba.gov/documents">https://www.sba.gov/documents</a>. To provide an idea of how the WCP fee structure
may look, the Upfront Fee for SBA's 7(a) EWCP Program in fiscal year
(FY) 24 is: For loans of $1 million or less: 0%. For loans greater than
$1 million with a maturity of 12 months or less: 0.25% of the
guaranteed portion. For loans greater than $1 million with a maturity
of 13 up to 24 months: 0.525% of the guaranteed portion. For loans
greater than $1 million with a maturity of 25 up to 36 months: 0.8% of
the guaranteed portion.
Lenders and Agents may collect fees from borrowers. Fees, including
extraordinary servicing fees, are capped in accordance with 13 CFR
120.221 and Standard Operating Procedure (SOP 50 10). Extraordinary
servicing fees are capped at 2 percent per year on the outstanding
balance of the part requiring special servicing.
WCP loan proceeds may be used to provide a temporary advance
against Federal and state tax credits and/or rebates in addition to
certain other common uses for asset-based lines. The purpose for
allowing WCP loan proceeds to be used to provide a temporary advance
against Federal and or state tax credits and/or rebates is to provide
immediate access to a portion of the funds once they are earned by the
business and have been confirmed by the Lender.
More detailed guidance on the WCP will be provided in a 7(a)
Working Capital Pilot Program Guide (Program Guide) published on SBA's
website at <a href="https://www.sba.gov/documents">https://www.sba.gov/documents</a>. Except where the Program
Guide provides other guidance, Lenders and loans must comply with the
regulations outlined in parts 103, 105, 120, 121, and 134 of title 13
of the Code of Federal Regulations, and SOPs 50 10, ``Lender and
Development Company Loan Programs'', which provides 7(a) loan
origination policy, 50 56, ``Lender Participation Requirements'', which
provides Lender participation and oversight requirements, and 50 57,
``7(a) Loan Servicing and Liquidation''. SBA will provide recorded
training and downloadable slide decks on its Training on Demand page at
<a href="https://www.sba.gov/partners/lenders/training-demand">https://www.sba.gov/partners/lenders/training-demand</a>. SBA will also
provide live training and one-on-one help from SBA subject matter
experts. Lenders may sign up for notifications of training and ask WCP
policy questions at <a href="/cdn-cgi/l/email-protection#7b4c1a2c382b3b08191a551c140d"><span class="__cf_email__" data-cfemail="fec99fa9bdaebe8d9c9fd0999188">[email protected]</span></a>.
III. Eligible Lenders and Delegated Loan Processing
All participating 7(a) Lenders in good standing with a signed Loan
Guaranty Agreement (Form 750) are eligible to participate in the WCP.
The process for lenders to apply to participate with SBA as a 7(a)
Lender is provided in SOP 50 56. If the 7(a) Working Capital Pilot is
not extended, each Lender must continue to service and liquidate its
WCP loans under the terms of the Pilot but will not be able to make any
new WCP loans. If the WCP is extended or made permanent, each WCP
Lender's authority to participate will be renewed based on the WCP
Lender's compliance with the program requirements.
Under SBA's sole discretion, SBA may grant delegated authority to
certain qualified Lenders with experience in asset-based lending to
process, close, service, and liquidate WCP loans without prior SBA
review. 7(a) Lenders with existing Preferred Lenders Program (PLP)
delegated authority will not automatically have authority to make WCP
loans using delegated authority. However, SBA will automatically
approve Lenders in good standing that have PLP-EWCP delegated authority
for PLP-WCP delegated authority with no action required by the PLP-EWCP
Lender. Lenders in good standing with SBA that have delegated authority
in the Export-Import Bank of the United States Working Capital Guaranty
Program are immediately eligible for PLP-EWCP delegated authority.
These Lenders should apply for PLP-EWCP status in accordance with SBA's
SOP 50 56. Other participating 7(a) Lenders may apply for PLP-WCP
delegated authority based on criteria listed in SOP 50 56 as well as
specific criteria found in SBA 7(a) Working Capital Pilot Program Guide
published on SBA's website at <a href="https://www.sba.gov/documents">https://www.sba.gov/documents</a>. Lenders
with delegated authority may elect on a case-by-case basis to process
certain loans under non-delegated authority.
IV. Budget Impact of WCP on 7(a) Loan Program
In FY25, SBA estimates it will approve approximately 270 WCP loans
totaling $337 million. Half of that volume will be from loans that
would have otherwise been approved as an SBA 7(a) Export Working
Capital Program loan or SBA 7(a) CAPLines loan, and the other half will
be new volume. The WCP is included in the 7(a) Loan Program budget
estimate. The performance of these loans will be considered when
calculating budget costs and any need for appropriations.
SBA analyzed the budget impact of WCP loans on the 7(a) Loan
Program. The current estimates for FY24 and FY25 support the continued
execution of the 7a Loan Program without needing an appropriation, and
this will be reassessed annually.
V. Program Guide and Notices From SBA, Including Training
Inquiries on specific WCP policies may be sent to <a href="/cdn-cgi/l/email-protection#6c5b0d3b2f3c2c1f0e0d420b031a"><span class="__cf_email__" data-cfemail="241345736774645746450a434b52">[email protected]</span></a>.
SBA will publish detailed WCP requirements in a Program Guide, which
will be available on SBA's website at <a href="https://www.sba.gov/documents">https://www.sba.gov/documents</a>.
SBA may also provide additional guidance through SBA notices on the
same website. Lenders, SBA staff, and interested stakeholders may sign
up for notification of upcoming training and program updates by copying
the following text into a web browser, which will then create an email
that can be sent without any further text entry: <a href="https://outlook.office365.com/mail/deeplink/compose?mailtouri=mailto%3AOFANotifications%40sba.gov%3Fsubject%3D%2520REQUEST%2520TO%2520SUBSCRIBE%3A%2520OFA%25207">https://outlook.office365.com/mail/deeplink/compose?mailtouri=mailto%3AOFANotifications%40sba.gov%3Fsubject%3D%2520REQUEST%2520TO%2520SUBSCRIBE%3A%2520OFA%25207</a>(a)%2520Working%2520Capital%
2520Pilot%2520Program%2520%26body%3DPlease%2520add%2520me%2520to%2520thi
s%2520newsletter.
VI. Regulation Waivers
Pursuant to the authority provided to SBA under 13 CFR 120.3 to
suspend,
[[Page 57355]]
modify or waive certain regulations in establishing and testing pilot
loan initiatives for a limited period of time, for the WCP Program SBA
will waive the following regulations. SBA is waiving the regulation at
13 CFR 120.130(c) that prohibits loan proceeds to be used for revolving
lines of credit except under SBA's 7(a) CAPLines and EWCP delivery
methods. Because WCP is a program for delivering revolving lines of
credit, the program is not feasible without waiving this regulation.
SBA is also waiving 13 CFR 120.452(a)(2) that prohibits Lenders
from making a PLP 7(a) loan that reduces its existing credit exposure
for any Borrower to permit 7(a) Lenders to use their PLP-WCP delegated
authority to refinance an existing same-institution SBA Express loan
into a WCP loan to provide growing small businesses the ability to
transition from an SBA Express line of credit to a monitored WCP line
of credit.
VII. Program Evaluation
SBA will evaluate the WCP Program periodically and prior to the
initial end of the authorization period on July 31, 2027, to refine the
program and to determine whether it should be made permanent.
Evaluation criteria will include, but is not limited to, number of WCP
loans approved, adoption rate (number of lenders making WCP loans),
comparison of number of loans approved and adoption rate versus the
same in 7(a) CAPLine and EWCP programs and among the top SBA Lenders,
whether the costs (including losses) of the pilot are within an
acceptable range, and portfolio performance as it relates to other 7(a)
programs.
Authority: 15 U.S.C. 636(a)(25) and 13 CFR 120.3.
Isabella Casillas Guzman,
Administrator.
[FR Doc. 2024-15313 Filed 7-12-24; 8:45 am]
BILLING CODE 8026-09-P
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