Rule2026-01797
Improving SBA Disaster Loan Ability To Provide Meaningful and Timely Assistance
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
January 29, 2026
Effective
January 29, 2026
Issuing agencies
Small Business Administration
Abstract
The U.S. Small Business Administration (SBA or Agency) is issuing this interim final rule (IFR) to ensure the timely and effective delivery of assistance under the Disaster Loan Program authorized under section 7(b) of the Small Business Act (15 U.S.C. 636(b)) ("Disaster Loan Program") following a Presidentially declared disaster. This rule preempts certain state and local requirements impacting the repair, rehabilitation, or replacement of damaged or destroyed property and associated activities financed by the Disaster Loan Program when such requirements cause delay in the use of SBA Disaster Loan Program proceeds. The rule is necessary to reconcile non- federal requirements that undermine Congress's objective of rapid housing and business recovery, public health and safety restoration, and economic stabilization after disasters.
Full Text
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<title>Federal Register, Volume 91 Issue 19 (Thursday, January 29, 2026)</title>
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[Federal Register Volume 91, Number 19 (Thursday, January 29, 2026)]
[Rules and Regulations]
[Pages 3813-3818]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-01797]
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 123
RIN 3245-AI71
Improving SBA Disaster Loan Ability To Provide Meaningful and
Timely Assistance
AGENCY: U.S. Small Business Administration.
ACTION: Interim final rule with request for comments.
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SUMMARY: The U.S. Small Business Administration (SBA or Agency) is
issuing this interim final rule (IFR) to ensure the timely and
effective delivery of assistance under the Disaster Loan Program
authorized under section 7(b) of the Small Business Act (15 U.S.C.
636(b)) (``Disaster Loan Program'') following a Presidentially declared
disaster. This rule preempts certain state and local requirements
impacting the repair, rehabilitation, or replacement of damaged or
destroyed property and associated activities financed by the Disaster
Loan Program when such requirements cause delay in the use of SBA
Disaster Loan Program proceeds. The rule is necessary to reconcile non-
federal requirements that undermine Congress's objective of rapid
housing and business recovery, public health and safety restoration,
and economic stabilization after disasters.
DATES:
Effective Date: This interim final rule is effective January 29,
2026. Comments must be received on or before March 2, 2026.
Applicability Date: This rule applies to disaster loans approved on
or after January 1, 2025.
ADDRESSES: You may submit comments, identified by RIN 3245-AI71, by any
of the following methods:
<bullet> Federal eRulemaking Portal: <a href="http://www.regulations.gov">http://www.regulations.gov</a> and
follow the instructions for submitting comments.
<bullet> Mail (for paper submissions): Eric Wall, Office of
Disaster Recovery and Resilience, Small Business Administration, 409
Third Street SW, Washington, DC 20416.
Instructions: All submissions received must include the agency name
and docket number or Regulatory Information Number (RIN) for this
[[Page 3814]]
rulemaking. All comments received will be posted on <a href="http://www.regulations.gov">http://www.regulations.gov</a>. If you wish to submit confidential business
information (CBI) as defined in the User Notice at <a href="http://www.regulations.gov">http://www.regulations.gov</a>, please submit the comments to Laura Maas and
highlight the information that you consider to be CBI and explain why
you believe this information should be held confidential. SBA will make
a final determination as to whether the comments will be published or
not.
FOR FURTHER INFORMATION CONTACT: Eric Wall, Office of Disaster Recovery
and Resilience, 409 3rd St. SW, Washington, DC 20416, (202) 205-6739.
SUPPLEMENTARY INFORMATION:
I. Background and Need for Rule
The disaster loan program authorized by section 7(b) of the Small
Business Act (15 U.S.C. 636(b)) is an important federal mechanism
established to provide rapid financial assistance to homeowners,
business owners, and other victims whose property is damaged or
destroyed as a result of declared disasters. Congress intended the
program to operate swiftly to mitigate the severe economic, housing,
and public health consequences resulting in the wake of such disasters.
In administering the program, SBA has identified recurring delays
to recovery caused by state and local permitting requirements or
similar conditions precedent to construction. These requirements have
materially delayed or prevented business owners, homeowners, and other
victims of disasters from using federally approved loan proceeds,
frustrating the core objectives of the Disaster Loan Program.
Specifically, SBA has identified instances where existing victims of
Presidentially-declared disasters have suffered undue delays in their
ability to use approved loan proceeds because local and state
authorities are delaying approvals and permits necessary to repair,
rehabilitate, or replace their homes and businesses. Some of these
victims have delayed disbursement of their SBA loans, while others who
have received loan proceeds cannot use them and will soon begin
accruing interest and payment obligations, adding insult to injury.
Every day counts in recovering from a disaster, a fact Congress
recognized in 2007 when it criticized SBA for failing to deliver relief
to disaster victims within 30 days.\1\
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\1\ For instance, a 2007 Senate Report criticizes the SBA for
``fail[ing] in its mission to respond quickly and effectively to
victims' needs in the weeks and months following the hurricanes
[Rita and Katrina]. In some instances, disaster victims waited three
months or more for loans to be processed.'' S. Rept. 110-64 (2007)
at 1. The report emphasized that disaster victims, particularly
businesses, needed ``immediate access to capital and technical
assistance within the first 30 days following a disaster to ensure
their full recovery.'' Id. at 1, 7 (emphasis added). This imperative
contrasted with the ``burdensome and slow'' average timeline of 74
days to process loans during hurricanes Rita and Katrina that
propelled the contemplated legislative changes. Id. at 6-7.
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This interim final rule establishes clear federal standards
governing use of Disaster Loan Program proceeds when interacting with
non-federal governmental authorities and preempts state and local
permitting and approval requirements to the extent such requirements
delay the use of Disaster Loan Program proceeds in contravention of
Congressional objectives. The rule does not preempt any substantive
state and local building requirements (e.g., building standards, health
and safety requirements, inspections, or certificates of occupancy),
but rather applies only where state or local permits or other approvals
stand as obstacles to accomplishing the federal goal of rapid relief
after a Presidentially declared disaster. Substantive state and local
standards and requirements are preserved in that builders must certify
that they have, and will, otherwise comply with all such substantive
local and state standards and requirements.
II. Legal Authority
SBA is issuing this rule pursuant to its authority under section
5(b)(6) of the Small Business Act (15 U.S.C. 634(b)(6)), which
authorizes the Administrator to make such rules and regulations as
deemed necessary to carry out the functions and purposes of the Small
Business Act. The Supremacy Clause of the United States Constitution
provides that valid federal regulations preempt state and local laws
when the latter stand as an obstacle to the accomplishment and
execution of the full purposes and objectives of Congress. (U.S. Const.
art. VI, cl. 2; see also Arizona v. United States, 567 U.S. 387, 399,
132 S. Ct. 2492, 2501 (2012)). Congress intended the Small Business
Act's Disaster Loan Program to provide rapid, effective deployment of
assistance in the wake of a disaster to avoid additional harms to
victims of disasters.\2\ Frustration of this goal frustrates a federal
purpose, justifying preemption.
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\2\ See footnote 1.
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III. Justification for Interim Final Rule and Good Cause Exception
Under 5 U.S.C. 553(b)(B) and 553(d)(3), SBA finds good cause to
issue this rule as an interim final rule without prior written notice
and comment and with an immediate effective date. Because SBA finds
good cause to issue an interim final rule under relevant statutory
authority, SBA has complied with the maximum procedural requirements
required by Congress. Regardless, the SBA is inviting post-promulgation
comment for agency consideration.
Delaying implementation to allow for advance notice and comment and
delaying the effective date would be impracticable and contrary to the
public interest because:
1. Disaster recovery efforts are ongoing and currently being
impeded;
2. Borrowers are currently experiencing undue delays in the repair,
rehabilitation, and replacement of their homes and businesses,
frustrating the effectiveness of SBA loans in promptly providing needed
federal assistance following a Presidentially-declared disaster; by way
of example, in the last year, SBA has authorized over $3 billion with
respect to the January 2025 wildfires in California ($2 billion of
which was approved within the first 75 days of the disaster
declaration), yet approximately only $600 million has been disbursed;
3. Continued delay of assistance would exacerbate housing and
business instability, economic harm, and public safety and health risks
in current and future disaster areas;
4. Continued delay preventing the use of assistance proceeds will
further harm victims--many of whom will soon begin accruing interest
and payment obligations on disbursed loans--despite not being able to
commence repair, rehabilitation, or replacement of the destroyed or
damaged home or building;
5. The immediate problems faced by borrowers, if not addressed,
will be repeated by inevitable and unpredictable future disasters;
6. The ongoing delay of assistance to many borrowers poses a threat
of rendering the Disaster Loan Program ineffective in a time of crisis;
and
7. Immediate regulatory clarity is necessary to ensure uniform
administration of the SBA Disaster Loan Program nationwide.
SBA nonetheless invites post-promulgation public comment and will
consider all timely submissions in determining whether revisions to
this rule are warranted.
[[Page 3815]]
Compliance With Executive Orders 12866, 12988, 13132, 13563, and 14192,
the Regulatory Flexibility Act (5 U.S.C. 601-612), the Congressional
Review Act (5 U.S.C. 801-808), and the Paperwork Reduction Act (44
U.S.C. Ch. 35)
Executive Order 13132
This rule has federalism implications under Executive Order 13132.
SBA has determined that this rule is consistent with the principles of
federalism because it preempts state and local law only to the limited
extent necessary to resolve conflicts with well-established federal
objectives. The rule does not displace state or local health and safety
standards and preserves traditional areas of state and local permitting
authority except where such requirements obstruct federally authorized
disaster assistance from achieving federal objectives through delay in
granting and providing approvals which are a condition precedent to
construction. The policymaking discretion of state and local
authorities is preserved because preemption of state or local
requirements would occur only when state and local requirements cause
delay and thus interference with statutorily authorized and clearly
expressed federal objectives. State and local requirements are also
preserved in that builders still must certify compliance with all
substantive local and state requirements. Further, SBA has determined
that prior consultation with State and local officials is impracticable
given the emergency nature of this interim final rule.
Executive Orders 12866 and 13563
Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). E.O.
13563 emphasizes the importance of quantifying both costs and benefits,
of reducing costs, of harmonizing rules, and of promoting flexibility.
The Office of Management and Budget has determined that this rule is a
significant regulatory action and, therefore, was subject to review
under section 6(b) of E.O. 12866, Regulatory Planning and Review, dated
September 30, 1993. SBA invites comment on its Regulatory Impact
Analysis and Regulatory Flexibility Analysis.
Regulatory Impact Analysis
SBA has drafted the following Regulatory Impact Analysis for the
public's information. The disaster loan program authorized under
Section 7(b) of the Small Business Act (15 U.S.C. 636(b)) is an
important federal mechanism established to provide rapid financial
assistance to homeowners, business owners, and other victims whose
properties are damaged or destroyed as a result of declared disasters.
Congress intended the program to operate swiftly to mitigate the severe
economic, housing, and public health consequences resulting in the wake
of disasters.
In administering the program, SBA has identified recurring delays
to recovery caused by state and local requirements. This interim final
rule establishes clear federal standards governing use of Disaster Loan
Program proceeds when interacting with non-federal governmental
authorities and preempts state and local requirements to the extent
such requirements delay the use of SBA Disaster Loan Program proceeds.
The rule applies where state or local permits or other approvals stand
as an obstacle to accomplishing the federal goal of rapid relief.
A. Benefits of the Rule
A natural disaster reduces economic activity on impact as it
destroys and injures persons and property. A period of recovery
involves growing incomes and GDP in the area as physical assets are
rebuilt. By accelerating the pace of recovery from natural disaster,
the rule would increase GDP and incomes during the recovery period. The
rule does not change the amount lent.
SBA acknowledges that GDP and incomes are not pure benefits because
the persons and assets involved have opportunity costs. However, in the
disaster context, the outside options for workers and owners of
destroyed businesses and homes are relatively low because the timing
and precise location of natural disasters is unpredictable. The RIA
therefore assumes that a fraction of net production and incomes is a
benefit, using the fraction of 0.34 estimated in the pandemic economics
literature.\3\ That is, each $100 million added to GDP by accelerating
the recovery would represent a net benefit of $34 million.
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\3\ See page 11 of Casey B. Mulligan, Economic Activity and the
Value of Medical Innovation during a Pandemic, 12 J. Benefit-Cost
Analysis 420 (2021). The net-of-opportunity-cost loss is assumed to
be entirely labor, which is 70 percent of the factors of production.
The paper estimates that 48 percent of the contribution of labor to
production is a net surplus in the aggregate that is closely
associated with taxation. 0.34 = 0.7 * 0.48.
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In fiscal year 2024, SBA loaned $1.5 billion for disasters to about
18,000 borrowers. SBA expects that, while this rule is in effect, one-
third of its disaster loans (about 6,000 annually) and two-thirds of
its disaster dollars (about $500 million annually) will be during
Presidentially-declared disasters.
This RIA takes loan amounts as an estimate of the value of assets
destroyed at the businesses and homes participating in the program.
Assuming a capital-output ratio of 3, the businesses and households
participating in the program had output of $333 million annually
associated with the assets destroyed in Presidentially-declared
disasters.
Natural disaster recovery times for businesses and households can
exceed a year. The average for major hurricanes is 14 months.
California's experience with the 2025 Los Angeles wildfires
demonstrates variability by region: despite over $3 billion in approved
SBA loans, only 15% of destroyed structures received rebuild permits
within one year. The potential for permit-speed improvements is further
illustrated by the building-permit time differential between Denver of
almost ten months and Dallas where the approval time averages about two
months.\4\
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\4\ See <a href="https://hoverarchitecture.com/building-permit-timelines-explained-how-long-does-it-really-take/">https://hoverarchitecture.com/building-permit-timelines-explained-how-long-does-it-really-take/</a>.
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Based on these observations, this RIA assumes two scenarios: one in
which the average recovery time is reduced by 2 months and the other by
4 months. SBA notes that the average includes both states that already
support rapid recoveries and states that do not. The businesses and
households participating in the program during Presidentially-declared
disasters had output averaging $333 million annually, which is $56
million for two months and $111 million for four months. Converting the
output to net (of opportunity cost) benefits with the 0.34 factor puts
the net benefits at $19 million to $37 million per year that the rule
is in effect. Note that these effects are considered cost savings for
purposes of Executive Order 14192 accounting. These output-related net
benefits would be somewhat less if they are partially offset by delays
in rebuilding by property owners that do not participate in in the
Disaster Program.
B. Costs of the Rule
Depending on the situation, state and local governments with the
preempted permitting or approval requirements
[[Page 3816]]
may adjust staffing or change permitting priorities so that properties
that are part of SBA Disaster Programs are more likely to receive their
permits/approvals on the SBA timeline. If state and local governments
increased permitting/approval staff time by one day per SBA Disaster
Loan per year, that would be 48,000 additional staff hours supplied by
state and local permitting agencies involved with recoveries from
Presidentially-declared disasters. To acknowledge both the capital and
labor requirements of paperwork, SBA applies an average dollar cost of
an hour of $84.76, which is national income per hour.\5\ Therefore, the
projected staffing cost to state and local governments is $4 million
annually.
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\5\ Hours worked: <a href="https://www.bls.gov/productivity/tables/additional-requests/usa-annual-hours-and-employment-for-total-economy.xlsx">https://www.bls.gov/productivity/tables/additional-requests/usa-annual-hours-and-employment-for-total-economy.xlsx</a>; National income: National income (A032RC1A027NBEA)
[verbar] FRED [verbar] St. Louis Fed.
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Alternatively, state and local governments might not adjust their
staff time at all, or may even reduce it relative to what would be
spent without the rule following a disaster.
C. Annualized and Net Present Values
Accounting for the costs of state and local government staff time,
the net benefits of the rule are expected to be $15 million to $33
million annually. At a three percent discount rate, the midpoint net
present value benefits over a twenty-year horizon would be $368
million. At a seven percent discount rate, the net benefits would be
$272 million in net present value.
Executive Order 14192
This interim final rule is considered to be an Executive Order
14192 deregulatory action. We estimate that this rule generates $15
million to $33 million in annualized cost savings. Taking the midpoint
and discounting at seven percent relative to year 2024, this implies
annualized net savings of $19.9 million over a perpetual time horizon.
Executive Order 12988
This action meets the standards set forth in sections 3(a) and
3(b)(2) of Executive Order 12988, Civil Justice Reform. SBA has taken
the necessary steps to minimize litigation, eliminate drafting errors
and ambiguity, reduce burden, and provide a clear legal standard for
affected conduct, and has ``specifie[d] in clear language the
preemptive effect . . . to be given to the law.''
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601, requires
administrative agencies to consider the effect of their actions on
small entities, small nonprofit enterprises, and small local
governments. Pursuant to the RFA, when an agency issues a rulemaking,
the agency must prepare a regulatory flexibility analysis which
describes the impact of the rule on small entities. However, the RFA
requires such analysis only where notice and comment rulemaking is
required, which, as discussed above, is not the case here. Accordingly,
SBA is not required to conduct a regulatory flexibility analysis and is
publishing this rule as an interim final rule without advance notice
and public comment. Nonetheless, SBA has prepared a Regulatory
Flexibility Analysis for public review and comment.
This interim final rule may have a significant impact on a
substantial number of small businesses participating in SBA's Disaster
Program. This rule would benefit small businesses by accelerating their
rebuilding after a disaster. Small governmental jurisdictions would
benefit from more rapid rebuilding in the jurisdictions but may incur
additional staffing costs so that properties in their jurisdictions
that are part of SBA Disaster Program are more likely to receive their
permits/approvals on the SBA timeline.
Initial Regulatory Flexibility Analysis
Immediately below, SBA sets forth a regulatory flexibility analysis
(RFA) of this interim final rule addressing the following questions:
(1) What are the reasons for the rule? (2) What are SBA's objectives
and legal basis for, the rule? (3) What small entities are regulated?
(4) What is the economic impact? (5) Does the rule duplicate, overlap
or conflict with other Federal Rules? and (6) What significant
alternatives might exist that will allow the Agency to accomplish its
regulatory objectives while minimizing the costs on, or maximizing the
benefits for, small entities?
Pursuant to 5 U.S.C. 603(a), SBA has transmitted a copy of this
regulatory flexibility analysis to the Chief Counsel for Advocacy and
received his comments.
1. What are the reasons for the rule?
The Disaster Loan Program authorized under Section 7(b) of the
Small Business Act (15 U.S.C. 636(b)) is an important federal mechanism
established to provide rapid financial assistance to homeowners,
business owners and other victims whose properties are damaged or
destroyed as a result of declared disasters. Congress intended the
program to operate swiftly to mitigate the severe economic, housing,
and public health consequences resulting in the wake of disasters.
In administering the program, SBA has identified recurring delays
to recovery caused by state and local requirements. This interim final
rule establishes clear federal standards governing use of Disaster Loan
Program proceeds when interacting with non-federal governmental
authorities and preempts state and local requirements to the extent
such requirements delay the use of SBA Disaster Loan Program proceeds.
The rule applies where state or local permits or other approvals stand
as an obstacle to accomplishing the federal goal of rapid relief--
returning victims to their pre-disaster lives.
2. What are SBA's objectives and legal basis for, the rule?
SBA issued this rule pursuant to its authority under section
5(b)(6) of the Small Business Act (15 U.S.C. 634(b)(6)), which
authorizes the Administrator to make such rules and regulations as
deemed necessary to carry out the functions and purposes of the Small
Business Act. The Supremacy Clause of the United States Constitution
provides that valid federal regulations preempt state and local laws
when the latter stand as an obstacle to the accomplishment and
execution of the full purposes and objectives of Congress.
3. What small entities are regulated?
The additions to 13 CFR 123 will regulate (1) small business
borrowers participating in the SBA Disaster Program and (2) small
governmental jurisdictions that have preempted requirements.
Approximately 18,000 borrowers participate in the SBA Disaster
Program each year, approximately 3,000 of which are small businesses.
They are regulated in the sense that the interim final rule directs
them to provide a builder's self-certification of compliance with the
preempted state and local requirements rather than waiting for approval
from the state and local authorities. Because the exact timing and
location of natural disasters are unpredictable, the range of
industries likely to be affected resembles the range of industries
nationwide.
SBA estimates that less than 100 small government jurisdictions
have small businesses in the SBA Disaster Program in any given year.
SBA estimates that there are fewer than 90,000 local governments
nationwide, some of which are not small government jurisdictions
because they have population exceeding 50,000. Because less than one
out of 900 small employers nationwide participates in the SBA disaster
loan program during
[[Page 3817]]
Presidentially-declared disasters and natural disasters are
geographically concentrated, an even smaller fraction of small
governmental jurisdictions has a participating business in their
jurisdiction.
Only a fraction of these will have preempted requirements. The
number of small governmental jurisdictions directly affected may in a
year well be fewer than 50.
Builders and other contractors retained by borrowers may be small
businesses but are not directly regulated by this rule.
4. What is the economic impact of the rule?
The RIA section of this rule explains exactly how SBA estimates
that the interim final rule would increase the output, including
housing services, of borrowers' properties by $56 million to $111
million annually. Assuming that 17 percent of the properties are small
businesses rather than residential, small business revenue increases by
$10 million to $19 million annually. These small businesses experience
benefits rather than costs.
Fewer than 100 small government jurisdictions may have preempted
requirements. They may not incur costs, or even save on staffing time,
if they are satisfied with self-certification. Otherwise, they may (1)
add some staff time in order to attain the timelines established in
this rule or (2) reprioritize their permit queues so that SBA Disaster
Program participants receive priority.
5. What are the relevant Federal rules, which may duplicate,
overlap or conflict with the rule?
SBA is not aware of any other Federal rule that would duplicate or
conflict with requiring borrowers to provide their builder(s)'s self-
certification that they have complied, and will continue to comply,
with substantive state and local requirements.
6. What alternatives will allow the Agency to accomplish its
regulatory objectives while minimizing the costs on, or maximizing the
benefits for, small entities?
The SBA has considered alternative timelines for 13 CFR 123.803.
Shorter timelines would not be consistent with the goal of preempting
state and local processes to the minimum extent necessary to achieve
federal objectives. Longer timelines would not maximize the benefits
for the small businesses participating in the Disaster Loan Program or
achieve federal objectives of rapid recovery.
Congressional Review Act
OIRA has determined that this rule is a major rule under Subtitle E
of the Small Business Regulatory Enforcement Fairness Act of 1996 (also
known as the Congressional Review Act or CRA), 5 U.S.C. 804(2). If a
rule is deemed major, the CRA generally provides that the rule may not
take effect until at least 60 days following its publication unless the
agency for good cause finds that notice and public procedure are
impracticable, unnecessary, or contrary to the public interest. 5
U.S.C. 808(2). For the reasons discussed in Section III above, SBA
finds that there is good cause to dispense with the CRA effective date
requirement. The agency believes that delaying the effective date of
this final rule would be impracticable and contrary to the public
interest.
Paperwork Reduction Act
The SBA has determined that this interim final rule would impose
additional reporting and recordkeeping requirements under the Paperwork
Reduction Act, 44 U.S.C. Chapter 35. As a result of this interim final
rule, a borrower who relies on preemption under Sec. 123.803 will be
required to provide a builder's self-certification that the builder has
complied with all substantive requirements. As a result of these new
requirements, SBA is requesting approval of a new information
collection identified below:
Summary of Information Collection
OMB Control No.: To be assigned.
Title: Certification as to State and Local Compliance.
Description of Respondents: Disaster loan borrowers and any
contractors, subcontractors, or agents of such borrower.
Form Number: To be assigned.
Total Estimated Annual Responses: 18,000.
Total Estimated Annual Hour Burden: 9,000.
Request for Comments
SBA invites public comment on all aspects of this interim final
rule, including the scope of the preemption, implementation experience
in disaster affected jurisdictions, and any unintended consequences.
Comments received will inform any future revisions to the regulation.
List of Subjects in 13 CFR Part 123
Disaster assistance, Loan programs--business, Reporting and
recordkeeping requirements, Small businesses, Terrorism.
Accordingly, for the reasons stated in the preamble, SBA is
amending 13 CFR part 123 as follows:
PART 123--DISASTER LOAN PROGRAM
0
1. The authority for 13 CFR part 123 is revised to read as follows:
Authority: 15 U.S.C. 632, 634(b)(6), 636(b), 636(d), 657n, 9009,
and U.S. Const. art. VI, cl. 10.
0
2. Add Subpart I to Part 123 to read as follows:
Subpart I--Interaction With Non-Federal Requirements
123.800 Purpose.
123.801 Definitions.
123.802 Scope and applicability.
123.803 Federal preemption.
123.804 Supersession of State or Local Requirements.
123.805 Certification as to State and Local Compliance.
123.806 Interference with SBA Disaster Loan Usage.
123.807 Severability.
123.808 Applicability date.
Sec. 123.800 Purpose.
(a) Purpose. The purpose of this subpart is to ensure SBA Disaster
Loans issued pursuant to 15 U.S.C. 636(b) achieve their Congressionally
intended goal of rapid repair, rehabilitation and replacement of
disaster-damaged real property financed through such loans; to prevent
State or Local Requirements (hereafter defined) from delaying and thus
frustrating the SBA Disaster Loan program's objective of timely, rapid
assistance to and recovery for disaster victims; and to clarify the
applicability of certain non-federal laws, codes, ordinances,
regulations, permitting requirements, and other administrative
practices to federally authorized disaster assistance.
Sec. 123.801 Definitions.
(a) Disaster-Related Activities are any real property repairs,
rehabilitations, replacements, or any associated activities financed in
whole or in part by an approved SBA Disaster Loan.
(b) SBA Disaster Loan is a loan authorized under 15 U.S.C. 636(b)
pursuant to a major disaster declaration under 15 U.S.C. 636(b)(2)(A).
(c) State or Local Requirement is any provision of any state or
local law, regulation, ordinance, code, or administrative practice that
imposes a requirement to have a permit or imposes another approval
requirement as a condition precedent to conducting Disaster-Related
Activities, but does not include, for the avoidance of doubt, any
substantive underlying requirements that would form the basis of the
permit or approval.
[[Page 3818]]
Sec. 123.802 Scope and applicability.
This subpart applies to Disaster-Related Activities and all SBA
Disaster Loan borrowers, including any contractors, subcontractors, and
agents of such borrowers conducting Disaster-Related Activities.
Sec. 123.803 Federal preemption.
Preemption. Any State or Local Requirement shall be preempted where
it is the but-for cause of a delay in conducting Disaster-Related
Activities that lasts more than sixty (60) days following the date of
the borrower's, or any contractor, subcontractor, or agent of such
borrower's, submission of all applicable complete applications or
requests for approval to the applicable State or local authorities to
proceed with Disaster-Related Activities.
Sec. 123.804 Supersession of State or Local Requirements.
(a) For Disaster-Related Activities, compliance with State or Local
Requirements shall not be required to the extent that such State or
Local Requirement creates the condition identified by Sec. 123.803.
(b) Compliance with this subpart and other applicable federal
requirements, including the certification under Sec. 123.805, shall be
deemed sufficient authorization to proceed with Disaster-Related
Activities and the borrower, contractor, subcontractor, or agent of
such borrower may proceed with such Disaster-Related Activities without
obtaining or complying with the preempted State or Local Requirement.
(c) State and local governments may not enforce stop-work orders,
penalties, or enforcement actions against a borrower of an SBA Disaster
Loan or any contractor, subcontractor, or agent of such borrower based
on failing to meet a preempted State or Local Requirement.
Sec. 123.805 Certifications as to State and Local Compliance.
An SBA Disaster Loan borrower and any contractors, subcontractors,
or agents of such borrower, who seek to engage in Disaster-Related
Activities without complying with a State or Local Requirement
preempted under Sec. 123.803 may only do so where the SBA Disaster
Loan borrower has provided to SBA, prior to commencement of Disaster-
Related Activities, through loan closing documentation modifications or
other documents provided to the borrower by SBA, a certification by the
borrower's builder(s) that the builder has so far, and will in the
future, comply with and adhere to any applicable state and local rules
and regulations not preempted under Sec. 123.803. Such non-preempted
rules and regulations include, but are not limited to, building codes,
health and safety requirements, inspection requirements (which may be
conducted by local government inspectors or qualified, independent
third-party inspectors), and any other processes required to obtain a
certificate of occupancy at the completion of Disaster-Related
Activities. A borrower relying on preemption under this subpart shall
be considered to be in default of the borrower's SBA Disaster Loan if
the borrower fails to comply with the provisions of Sec. 123.805 and
shall be considered a violation of Sec. 123.9.
Sec. 123.806 Interference with SBA Disaster Loan Usage.
(a) State or local government officials must not unlawfully
interfere with, impede, or disrupt the otherwise lawful use of SBA
Disaster Loan proceeds under this Part in the name of enforcing a
preempted State or Local Requirement.
(b) State or Local Requirements are preempted only to the extent
that they result in a condition identified by Sec. 123.803.
Sec. 123.807 Severability.
If any provision of this subpart is held invalid, the remainder of
the subpart shall not be affected.
Sec. 123.808 Applicability date.
This rule applies to disaster loans approved on or after January 1,
2025.
Kelly Loeffler,
Administrator.
[FR Doc. 2026-01797 Filed 1-28-26; 8:45 am]
BILLING CODE 8026-09-P
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</html>Indexed from Federal Register on January 29, 2026.
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.