American Recovery and Reinvestment Act: 504 Loan Program Debt Refinancing, 29589-29592 [E9-14886]

Agencies

• SMALL BUSINESS ADMINISTRATION

[Federal Register Volume 74, Number 119 (Tuesday, June 23, 2009)]
[Rules and Regulations]
[Pages 29589-29592]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-14886]



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Federal Register / Vol. 74, No. 119 / Tuesday, June 23, 2009 / Rules 
and Regulations

[[Page 29589]]



SMALL BUSINESS ADMINISTRATION

13 CFR Part 120

RIN 3245-AF91


American Recovery and Reinvestment Act: 504 Loan Program Debt 
Refinancing

AGENCY: U.S. Small Business Administration.

ACTION: Interim final rule with request for comments.

-----------------------------------------------------------------------

SUMMARY: This interim final rule implements section 504 of the American 
Recovery and Reinvestment Act of 2009 (Recovery Act), which authorizes 
projects approved for financing under Title V of the Small Business 
Investment Act to include a limited amount of debt refinancing if the 
project involves the expansion of a small business concern and meets 
certain other conditions. This interim final rule makes the existing 
504 Loan Program rules consistent with section 504 of the Recovery Act.

DATES: Effective Date: This rule is effective June 23, 2009.
    Comment Date: Comments must be received on or before July 23, 2009.

ADDRESSES: You may submit comments, identified by RIN 3245-AF91 by any 
of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Andrew B. McConnell Jr., Small Business 
Administration, Office of Financial Assistance, 409 Third Street, SW., 
8th Floor, Washington, DC 20416.
     Hand Delivery/Courier: Andrew B. McConnell Jr., Small 
Business Administration, Office of Financial Assistance, 409 Third 
Street, SW., 8th Floor, Washington, DC 20416.
    SBA will post all comments on https://www.regulations.gov.
    If you wish to submit confidential business information (CBI) as 
defined in the User Notice at https://www.regulations.gov, please submit 
the information to Kelly Wilcox, Office of Performance Management, 409 
Third Street, SW., 6th Floor, Washington, DC 20416, or send an e-mail 
to Andrew B. McConnell, Jr. at recoveryact504debtrefi@sba.gov. 
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: Andrew B. McConnell, Jr. at 
recoveryact504debtrefi@sba.gov or 202-205-7238.

SUPPLEMENTARY INFORMATION:

I. Background Information

    The American Recovery and Reinvestment Act of 2009, Public Law 111-
05, 123 Stat. 115 was enacted on February 17, 2009, to among other 
things, promote economic recovery by preserving and creating jobs, and 
assisting those most impacted by the severe economic conditions facing 
the nation. The U.S. Small Business Administration is one of several 
agencies that are intended to play a role in achieving these goals. The 
SBA received funding and authority through the Recovery Act to modify 
existing loan programs or establish new loan programs to help re-
invigorate small business lending.
    One of the provisions included in the Recovery Act provided new, 
permanent authority for refinancing community development loans under 
the 504 program. As amended by the Recovery Act, section 502(7)(A) of 
the Small Business Investment Act of 1958 (SBIA) allows financing 
approved for a 504 loan to include a limited amount of qualified debt 
refinancing, and section 502(7)(B) of the SBIA provides that the 
limited amount of qualified refinancing may not exceed 50 percent of 
the project cost of the expansion of a small business concern. As the 
504 program is intended to assist the small business concern in 
expanding its business, this interim final rule broadly defines the 
phrase ``project involves expansion of a small business concern'' to 
include any project that involves the acquisition, construction or 
improvement of land, building or equipment for use by the small 
business concern. Section 502(7)(B) also sets forth certain conditions 
that a project must meet in order to be eligible for debt refinancing, 
and these conditions are included in this interim final rule with some 
additional definitions.
    In addition, to protect the integrity of the 504 program and to 
minimize the risk to SBA of this new refinancing authority, SBA is 
amending the regulations to provide that certain loans cannot be 
approved under the authority delegated to Certified Development 
Companies (CDCs) under the Premier Certified Lenders Program (PCLP), if 
the applications include: (1) Waiving the requirement set forth in new 
section 120.882(e)(2) that the collateral securing refinanced debt must 
also secure the 504 loan; (2) approving a good cause exception to the 
general requirement set forth in the new section 120.882(e)(5) that 
there be at least a 10 percent reduction in the installment amount 
attributable to the debt being refinanced; and (3) refinancing loans 
held by the same CDC, the Third Party Lender financing the new project, 
or affiliates of either.
    The debt refinancing authorized by the Recovery Act is available 
for loan applications received by SBA on or after the effective date of 
this rulemaking. Applications received or loans approved prior to that 
date may be modified to include debt refinancing provided that the 
related debenture has not been funded.

II. Section-by-Section Analysis

    Section 120.882. SBA adds new paragraphs (e) and (f) to 120.882 to 
implement the new authority for refinancing existing eligible debt 
under the 504 loan program. These new provisions set forth the terms 
and conditions under which refinancing will be permitted in the 504 
program, and define the phrase ``project involves expansion of a small 
business concern'' to include any project that involves the 
acquisition, construction or improvement of land, building or equipment 
for use by the small business concern.
    Section 120.884. SBA amends Sec.  120.884(a) to provide an 
exception to the general prohibition against using proceeds of the 504 
loan for debt refinancing. In addition, current

[[Page 29590]]

paragraphs (b) and (c) will be redesignated as (c) and (d), 
respectively, and a new paragraph (b) will be added to provide that a 
CDC may not use 504 loan proceeds to pay any creditor in a position to 
sustain a loss causing a shift to SBA of all or part of a potential 
loss from an existing debt.

III. Justification for Publication as Interim Final Rule

    In general, before issuing a final rule, SBA publishes the rule for 
public comment in accordance with the Administrative Procedure Act 
(APA), 5 U.S.C. 553. The APA provides an exception from the general 
rule where the agency finds good cause to omit public participation. 5 
U.S.C. 553(c)(3)(B). The good cause requirement is satisfied when prior 
public participation can be shown to be impracticable, unnecessary, or 
contrary to the public interest. Under such circumstances, an agency 
may publish an interim final rule without soliciting public comment.
    In enacting the good cause exception to standard rulemaking 
procedures, Congress recognized that emergency situations arise where 
an agency must issue a rule without public participation. The current 
turmoil in the financial markets is having a negative impact on the 
availability of financing for small businesses. SBA finds that good 
cause exists to publish this rule as an interim final rule in light of 
the urgent need to help small businesses sustain and survive during 
this economic downturn. This new refinancing authority will offer a 
significant opportunity for expanding businesses, allowing them to 
restructure existing debt into new 504 guaranteed loans that will 
expand their businesses and create jobs. It also has the potential to 
quickly free up critical capital for small business owners across the 
country, allowing them to continue to expand and stimulate the economy. 
This rule also amends the existing rules to make them consistent with 
section 504 of the Recovery Act, which was enacted and took effect on 
February 17, 2009. Advance solicitation of comments for this rulemaking 
would be unnecessary, impracticable, contrary to the public interest, 
and would harm those small businesses that need immediate access to 
capital.
    Although this rule is being published as an interim final rule, 
comments are solicited from interested members of the public. These 
comments must be submitted on or before July 23, 2009. The SBA will 
consider these comments and the need for making any amendments as a 
result of these comments.

IV. Justification for Immediate Effective Date

    The APA requires that ``publication or service of a substantive 
rule shall be made not less than 30 days before its effective date, 
except * * * as otherwise provided by the agency for good cause found 
and published with the rule.'' 5 U.S.C. 553(d)(3). The purpose of this 
provision is to provide interested and affected members of the public 
sufficient time to adjust their behavior before the rule takes effect. 
As this rule is implementing new authority and is expanding the 504 
program's current requirements, there is no need for the public to 
adjust its behavior before the rule takes effect. SBA therefore finds 
that there is good cause for making this rule effective immediately 
instead of observing the 30-day period between publication and 
effective date.

Compliance With Executive Orders 12866, 12988, 13175 and 13132, 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 (OMB) has determined that this 
rule constitutes a significant regulatory action for purposes of 
Executive Order 12866.

Executive Order 12988

    This action meets applicable standards set forth in sections 3(a) 
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize 
litigation, eliminate ambiguity, and reduce burden. The action does not 
have preemptive effect, and has retroactive effect only to the extent 
that the new debt refinancing authority will be made available to loan 
applications received, or loans approved, prior to the effective date 
of this rulemaking provided that the related debenture has not been 
funded.

Executive Order 13132

    This rule does not have federalism implications as defined in 
Executive Order 13132. It will not have substantial direct effects on 
the States, on the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government, as specified in the Executive Order. As 
such it does not warrant the preparation of a Federalism Assessment.

Paperwork Reduction Act

    The SBA has determined that this rule imposes additional reporting 
and recordkeeping requirements under the Paperwork Reduction Act, 44 
U.S.C. Chapter 35. In order to make debt refinancing available as 
quickly as possible to assist those most impacted by the severe 
economic conditions facing the Nation, the agency has submitted three 
amended information collections to Office of Management and Budget 
(OMB) for review and approval under the emergency processing procedures 
in 5 CFR 1320.13. Respondents will be required to collect and provide 
to SBA certain information to support an application for debt 
refinancing under the section 504 loan program. This information is 
necessary to determine whether the application satisfies the conditions 
set forth in the Recovery Act and the implementing regulations and 
policies. The respondents also will be required to note on a closing 
document the amount approved for refinancing under the new regulations. 
The title, description and number of respondents, estimated annual cost 
and hour burdens imposed on the respondents, as a result of this 
collection of information, are outlined below.

    I. Title: Application for Section 504 Loan (SBA Form 1244).
    OMB Control Number: 3245-0071.
    Description and Estimated Number of Respondents: This information 
collection will be submitted by the small businesses seeking to obtain 
financing, including the debt refinancing loans available as a result 
of the Recovery Act. SBA estimates a total of 9,100 small businesses 
will use this information collection.
    Estimated Number of Responses: SBA estimates one application per 
small business concern; therefore this estimated total is also 9,100.
    Estimated Time per Response: For applications submitted through the 
Abridged Standard Method, the current estimate is 2.08 hours per 
response; and for non-Abridged Standard method, 2.25 hours. As a result 
of the additional underwriting burden for the debt refinancing option 
SBA estimates these burdens to increase to 2.25 and 2.45 hours 
respectively.
    Total Estimated Hour Burden: 21,210.

    II. Title: Eligibility Information Required for PCLP Submission 
(SBA Form 2234C).
    OMB Control Number: 3245-0346.
    Description and Estimated Number of Respondents: Lenders in the 
Certified Development Company (CDC) Program (also referred to as the 
504 Loan

[[Page 29591]]

Program). There are currently 27 of these lenders.
    Estimated Number of Responses: 1700.
    Estimated Time per Response: The current estimated burden is 40 
minutes per response. As a result of the Recovery Act, the Agency 
estimates this burden to increase to 55 minutes.
    Total Estimated Annual Hour Burden: 1275 hours.

    III. Title: Servicing Agent Agreement (SBA Form 1506).
    OMB Control Number: 3245-0193.
    Description and Estimated Number of Respondents: This information 
is provided by the borrower, and Certified Development Company. Based 
on historical use of this form, SBA estimates 8,779 respondents 
annually.
    Estimated Number of Responses: 8,403.
    Estimated Time per Response: 1 hour based on current burden 
response rate; only de minis increase is expected as a result of the 
Recovery Act changes, since they require little or no additional effort 
from lenders.
    Total Estimated Annual Hour Burden: 8,403.

    SBA invites comments on: (1) Whether the proposed collection of 
information is necessary for the proper performance of SBA's functions, 
including whether the information will have a practical utility; (2) 
the accuracy of SBA's estimate of the burden of the proposed 
collections of information; (3) ways to enhance the quality, utility, 
and clarity of the information to be collected; and (4) ways to 
minimize the burden of the collection of information on respondents, 
including through the use of automated collection techniques, when 
appropriate, and other forms of information technology.
    Please send comments by the closing date for comment for this 
interim final rule to SBA Desk Officer, Office of Management and 
Budget, Office of Information and Regulatory Affairs, 725 17th Street, 
NW., Washington, DC 20503 and to Andrew B. McConnell Jr., Small 
Business Administration, Office of Financial Assistance, 409 Third 
Street, SW., 8th Floor, Washington, DC 20416. If SBA receives approval 
for its emergency approval request, it will be followed by a request 
for clearance under normal procedures in accordance with 5 CFR 1320.10. 
Any comments received will be addressed at that time.

Regulatory Flexibility Act

    Because this rule is an interim final rule, there is no requirement 
for SBA to prepare a Regulatory Flexibility Act (RFA) analysis. The RFA 
requires administrative agencies to consider the effect of their 
actions on small entities, small non-profit businesses, and small local 
governments. Pursuant to the RFA, when an agency issues a rule, the 
agency must prepare analysis that describes whether the impact of the 
rule will have a significant economic impact on a substantial number of 
small entities. However, the RFA requires such analysis only where 
notice and comment rulemaking is required.

List of Subjects in 13 CFR Part 120

    Loan programs--business, Small businesses.


0
For the reasons stated in the preamble, SBA amends 13 CFR part 120 as 
follows:

PART 120--BUSINESS LOANS

0
1. The authority for 13 CFR part 120 is revised to read as follows:

    Authority: 15 U.S.C. 634(b) (6), (b) (7), (b) (14), (h), and 
note, 636(a), (h) and (m), 650, 687(f), 696(3), and 697(a) and (e); 
Public Law 111-5, 123 Stat. 115.


0
2. Amend Sec.  120.882 by adding new paragraphs (e) and (f) to read as 
follows:


Sec.  120.882  Eligible Project costs for 504 loans.

* * * * *
    (e) If the project involves expansion of a small business concern, 
any amount of existing indebtedness that does not exceed 50 percent of 
the project cost of the expansion may be refinanced and added to the 
expansion cost if:
    (1) The proceeds of the indebtedness were used to acquire land, 
including a building situated thereon, to construct a building thereon, 
or to purchase equipment. The assets acquired must be eligible for 
financing under the 504 loan program;
    (2) The existing indebtedness is collateralized by fixed assets. 
The 504 eligible fixed assets collateralizing any debt to be refinanced 
or relating to the portion of debt being refinanced in the case of a 
partial refinance must also collateralize the 504 Loan unless SBA 
approves a waiver due to extraordinary circumstances. PCLP CDCs may not 
use their delegated authority to approve a loan requiring this waiver;
    (3) The existing indebtedness was incurred for the benefit of the 
small business concern for which any new Project costs are incurred. 
Existing 7(a) and 504 loans may be refinanced under this section in 
accordance with SBA policies or procedures;
    (4) The financing will be used only for refinancing existing 
indebtedness or costs relating to the project financed;
    (5) The financing will provide a substantial benefit to the 
borrower when prepayment penalties, financing fees, and other financing 
costs are accounted for. For purposes of this paragraph, ``substantial 
benefit'' means that the portion of the new installment amount 
attributable to the debt being refinanced must be at least 10 percent 
less than the existing installment amount(s). Prepayment penalties, 
financing fees, and other financing costs must also be added to the 
amount being refinanced in calculating the percentage reduction in the 
new installment payment. Exceptions to the 10% reduction requirement 
may be approved by the D/FA or designee for good cause. PCLP CDCs may 
not use their delegated authority to approve a loan requiring this 
exception;
    (6) The borrower has been current on all payments due on the 
existing debt for not less than 1 year preceding the date of 
refinancing. For purposes of this section, ``date of refinancing'' 
refers to the date the 504 loan is approved by SBA. Any unremedied 
delinquency after approval must be reported to SBA as an adverse 
change;
    (7) The financing under section 504 will provide better terms or 
rate of interest than the existing indebtedness on the date of 
refinancing. For purposes of this paragraph, ``better terms or rate of 
interest'' may include longer maturity (but always commensurate with 
the assets' useful life), a lower interest rate committed on the Third 
Party Lender Loan or projected on the 504 loan, improved collateral 
conditions, or less restrictive loan covenants.
    (8) The authority to approve the refinancing of same institution 
debt must be approved by SBA and is not delegated to the PCLP CDCs. For 
the purposes of this paragraph, ``same institution debt'' means any 
debt of the CDC or the Third Party Lender financing the new project, or 
of affiliates of either.
    (f) For the purposes of paragraph (e), the phrase ``project 
involves expansion of a small business concern'' includes any project 
that involves the acquisition, construction or improvement of land, 
building or equipment for use by the small business concern.

0
3. Amend Sec.  120.884 as follows:
0
a. Revise paragraph (a);
0
b. Redesignate paragraphs (b) through (d) as (c) through (e) 
respectively; and
0
c. Add new paragraph (b).


Sec.  120.884  Ineligible costs for 504 loans.

* * * * *
    (a) Debt refinancing (other than interim financing), except as 
provided in Sec.  120.882(e).

[[Page 29592]]

    (b) A CDC may not use 504 loan proceeds to pay any creditor in a 
position to sustain a loss causing a shift to SBA of all or part of a 
potential loss from an existing debt.
* * * * *

    Dated: June 19, 2009.
Karen G. Mills,
Administrator.
[FR Doc. E9-14886 Filed 6-22-09; 8:45 am]
BILLING CODE 8025-01-P