Intermediary Lending Pilot Program, 18007-18020 [2011-7741]

Agencies

• SMALL BUSINESS ADMINISTRATION

[Federal Register Volume 76, Number 63 (Friday, April 1, 2011)]
[Rules and Regulations]
[Pages 18007-18020]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-7741]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 109

[Docket No. SBA-2011-0002]
RIN 3245-AG18


Intermediary Lending Pilot Program

AGENCY: Small Business Administration (SBA).

ACTION: Interim final rule with request for comments.

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SUMMARY: This interim final rule implements section 1131 of the Small 
Business Jobs Act of 2010, which requires SBA to establish an 
Intermediary Lending Pilot (ILP) program. The ILP program is a three-
year pilot program in which SBA will make direct loans of up to $1 
million at an interest rate of 1 percent to up to 20 nonprofit lending 
intermediaries each year, subject to availability of funds. 
Intermediaries will then use the ILP loan funds to make loans of up to 
$200,000 to startup, newly established, or growing small business 
concerns.

DATES: Effective date: April 1, 2011.
    Comment date: Comments must be received on or before May 31, 2011.

ADDRESSES: You may submit comments, identified by docket number [SBA-
2011-0002] by any of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Grady Hedgespeth, Director of Financial Assistance, 
U.S. Small Business Administration, 409 3rd Street, SW., 8th floor, 
Washington, DC 20416.
     Hand Delivery/Courier: Grady Hedgespeth, Director of 
Financial Assistance, U.S. Small Business Administration, 409 3rd 
Street, SW., 8th floor, Washington, DC 20416.

All comments will be posted on www.Regulations.gov. If you wish to 
include within your comment, confidential business information (CBI) as 
defined in the Privacy and Use Notice/User Notice at 
www.Regulations.gov and you do not want that information disclosed, you 
must submit the comment by either Mail or Hand Delivery and you must 
address the comment to the attention of Grady Hedgespeth, Director of 
Financial

[[Page 18008]]

Assistance, U.S. Small Business Administration, 409 3rd Street, SW., 
8th Floor, Washington, DC 20416. In the submission, you must highlight 
the information that you consider is CBI and explain why you believe 
this information should be held confidential. SBA will make a final 
determination, in its sole discretion, of whether the information is 
CBI and, therefore, will be published or not.

FOR FURTHER INFORMATION CONTACT: Grady Hedgespeth, Director of 
Financial Assistance, at (202) 205-7562 or Grady.Hedgespeth@sba.gov.

SUPPLEMENTARY INFORMATION:

I. Background Information

    Section 1131 of the Small Business Jobs Act of 2010, Public Law 
111-240, enacted September 27, 2010 (the Act), requires SBA to 
implement a three year Intermediary Lending Pilot (ILP) program. Under 
the ILP program, SBA will provide loans to selected nonprofit 
intermediaries for the purpose of providing loans to small businesses. 
Eligible intermediaries, which include private, nonprofit community 
development corporations, must have at least one year of experience 
making loans to startup, newly established, or growing small 
businesses. SBA will use a competitive selection process to select ILP 
Intermediaries to participate in the program and will make ILP Loans of 
up to $1 million to no more than 20 in each of fiscal years 2011, 2012, 
and 2013 (depending on availability of funds). ILP Loans have a 20 year 
term and an interest rate of 1%, with the first payment deferred for 
two years from the date of the first disbursement. SBA collects no fees 
on the loan and requires no collateral. An ILP Intermediary must use 
the ILP Loan proceeds to make loans of up to $200,000 to startup, newly 
established, or growing small businesses. An ILP Intermediary will 
deposit the principal portion of all payments received on loans made to 
small businesses under the program into an ILP Relending Fund; the ILP 
Intermediary will then be required to lend 100% of the ILP Loan 
proceeds within two years of the date of the ILP Note. In addition, the 
ILP Intermediary will be required to continue making loans to small 
businesses from the ILP Relending Fund for as long as its loan from SBA 
remains outstanding.
    In order to implement this new loan program, SBA is adding a new 
part 109 to the Agency's regulations. Many provisions, such as ILP 
Intermediary reporting requirements, fees charged to small business 
borrowers, and restrictions on types of businesses eligible to receive 
loans under the ILP program, are based on existing requirements in 
SBA's other business loan programs under Part 120 of SBA's regulations.

II. Section by Section Analysis

    Sections 109.10 and 109.20 describe the ILP program and define the 
terms used in Part 109. The definitions for Affiliate, Associate, Close 
Relative, ILP Program Requirements, and Native American Tribal 
Government are based on similar or identical terms used in other SBA 
programs. In addition, the definitions for the various reports (ILP 
Program Activities Report, Portfolio Identification Report, and 
Portfolio Status Report) and the Intermediary Lending Program 
Electronic Reporting System (ILPERS) are based on similar reports used 
in SBA's Microloan program. The remaining definitions describe terms 
unique to the ILP program.
    Sections 109.100 through 109.220 describe the qualifications for 
the ILP program, the application process, and the evaluation and 
selection of ILP Intermediaries. Section 109.100 sets forth the 
eligibility and continuing participation requirements for ILP 
Intermediaries. An applicant must meet these requirements in order to 
be eligible to become an ILP Intermediary and, if selected, must 
maintain compliance with these requirements. Under the Act, an 
applicant must be a private, nonprofit entity with not less than one 
year of experience making loans to startup, newly established, or 
growing small businesses to be eligible to become an ILP Intermediary. 
At time of application, the applicant must have a minimum of one year 
of internal experience making loans to startup, newly established, or 
growing small businesses. The applicant must have directly funded the 
loans and not simply provided referrals to, or guarantees against, 
loans made by another entity. If an applicant is made up of a 
consortium of organizations, each member of the consortium must be 
individually eligible or the entire consortium will be considered not 
eligible. The Act further defines an eligible private, nonprofit entity 
to include a private, nonprofit community development corporation, a 
consortium of private, nonprofit organizations or community development 
corporations, and an agency or nonprofit entity established by a Native 
American tribal government. Examples of nonprofit community development 
corporations include certified nonprofit Community Development Fund 
Institutions (CDFIs) participating in Treasury's CDFI Fund program and 
Certified Development Companies (CDCs) participating in SBA's 504 
lending program. Intermediaries that currently participate in SBA's 
Microloan program, as described in subpart G of part 120, are not 
eligible to become ILP Intermediaries; however, affiliates of Microloan 
intermediaries may apply. SBA is requiring that a Microloan 
intermediary establish an affiliate organization (or use an existing 
affiliate organization) for participation in the ILP program in order 
to maintain separation between SBA program funds and activities, as 
well as to facilitate adequate and proper oversight of both programs. 
The Act requires that applicants to the ILP Intermediary program have 
at least one year of experience making loans to startup, newly 
established, or growing small businesses. Therefore, newly established 
affiliates will not be eligible to apply for the ILP program for fiscal 
year 2011; however, such affiliates may apply for the second round of 
ILP Intermediary selections in fiscal year 2012 after they have 
established the one year of required lending experience.
    Paragraph (c) of section 109.100 includes additional requirements 
relating to an ILP Intermediary's management and operations. SBA 
modeled these requirements on existing lender participation 
requirements in its guaranteed loan programs.
    Section 109.200 describes the ILP Intermediary application process. 
There is a limited amount of funds available to make loans to ILP 
Intermediaries; therefore SBA will run a competition to select the most 
qualified applicants to become ILP Intermediaries and receive an ILP 
Loan of up to $1,000,000. SBA has authority to make ILP Loans to no 
more than 20 ILP Intermediaries in each of fiscal years 2011, 2012, and 
2013, for a maximum total of 60 ILP Intermediaries. SBA will select 20 
ILP Intermediaries through a competitive application process in fiscal 
year 2011 and another 20 ILP Intermediaries through a second 
competitive application round in fiscal year 2012, for a total of 40 
ILP Intermediaries. SBA currently has funding to make ILP Loans only in 
fiscal years 2011, and 2012. If additional funds are appropriated for 
the ILP program, SBA will select another 20 ILP Intermediaries in 
fiscal 2013 for a total of 60 ILP Intermediaries.
    As stated in Sec.  109.200(a), SBA will publish a Notice of Funds 
Availability (NOFA) in the Federal Register to advise potential 
applicants of when they may begin submitting applications to become an 
ILP Intermediary. SBA will only accept applications during the

[[Page 18009]]

specific application period set forth in the NOFA. Section 109.200(b) 
lists the contents of the ILP Intermediary application. As required by 
the Act, an applicant must describe the type of small businesses it 
will assist; the size and range of loans it will make; the interest 
rate and terms of the loans it will make; the geographic area to be 
served and the economic, poverty, and unemployment characteristics of 
the area; and the status of small businesses in the area to be served 
and an analysis of the availability of credit. SBA will provide further 
details regarding the contents of the application in the NOFA.
    Section 109.210 describes the evaluation and selection of ILP 
Intermediaries by SBA. SBA will consider only completed applications. 
Each complete application will be evaluated and scored based on the 
criteria stated in the NOFA. In general, eligible applications with the 
highest scores will be granted ILP Intermediary status. SBA reserves 
the right to select less than the maximum authorized number of ILP 
Intermediaries and to select ILP Intermediaries in such a way as to 
diversify geographic areas served. By allowing geographic diversity to 
serve as a possible selection criterion, SBA hopes to expand the impact 
of the ILP program.
    As required by the Act, Section 109.220 provides that no ILP 
Intermediary (including affiliates) may receive more than $1,000,000 in 
ILP Loans. Although SBA has authority to make ILP Loans of less than $1 
million, SBA anticipates making ILP Loans of $1 million to each ILP 
Intermediary in order to fully utilize all available loan funds. Each 
ILP Intermediary will only be eligible to receive one ILP Loan.
    Sections 109.300 through 109.360 describe the requirements of the 
ILP program. As stated in Section 109.300, an ILP Intermediary must 
maintain compliance with ILP Program Requirements until it has repaid 
its ILP Loan to SBA. In addition, ILP Intermediaries are subject to 
certain provisions in 13 CFR Part 120 that are applicable to all 
lenders that participate in SBA loan programs: Section 120.140, What 
ethical requirements apply to participants?, describes the ethical 
requirements of lenders participating in SBA programs and any 
associates of such lenders; Sec.  120.197, Notifying SBA's Office of 
Inspector General of suspected fraud, requires lenders to notify the 
SBA Office of Inspector General of any information which indicates that 
fraud may have occurred in connection with a loan made under the ILP 
program; Sec.  120.412, Other services Lenders may provide Borrowers, 
provides that lenders and associates of lenders may provide services to 
and contract for goods with a borrower only after full disbursement of 
the loan, and Sec.  120.413, Advertisement of relationship with SBA, 
describes how a lender may refer to SBA in its advertising.
    Section 109.310 provides the terms of SBA's ILP Loan to an ILP 
Intermediary. An ILP Loan must be fully repaid within 20 years from the 
date of the ILP Note. An ILP Intermediary may draw down ILP Loan funds 
as needed to fund loans to Eligible Small Business Concerns. SBA may 
place restrictions on disbursement, including the amount that may be 
disbursed to an ILP Intermediary at one time or conditions on 
subsequent disbursements. If SBA, in its sole discretion, finds that an 
ILP Intermediary is not complying with ILP Program Requirements, it may 
withhold any remaining disbursements of the ILP Loan until the ILP 
Intermediary comes into compliance.
    Sections 109.310 (c) and (d) provide that the interest rate on an 
ILP Loan will be fixed at 1%, and that payments of principal and 
interest must be made to SBA on a quarterly basis. SBA will defer the 
first payment on an ILP Loan for two years from the date of the first 
disbursement of ILP Loan proceeds, as required by the Act. Interest 
will accrue on all disbursed funds during the deferment period. Accrued 
interest will be added to the outstanding principal balance at the end 
of the deferment period and amortized over the remaining life of the 
loan. An ILP Intermediary may prepay an ILP Loan at any time without 
penalty. As required by the Act and set forth in Sec.  109.310(e) and 
(f), SBA will not require an ILP Intermediary to provide any collateral 
for an ILP loan, nor will SBA charge an ILP Intermediary any fees.
    Section 109.320 states that ILP Loan funds must only be used to 
provide direct loans to Eligible Small Business Concerns. An ILP 
Intermediary may not use ILP Loan funds for any other purpose, 
including maintenance of loan loss reserves or payment of 
administrative costs or expenses. SBA believes that these restrictions 
are appropriate in order to maximize the funds available for loans to 
Eligible Small Business Concerns. An ILP Intermediary may recoup the 
costs of making and servicing loans under this program from the 
interest spread between its ILP Loan and the loans to Eligible Small 
Business Concerns and from reasonable fees, as described in Sec.  
109.420(e).
    Section 109.330 provides that an ILP Intermediary must establish an 
ILP Relending Fund in an account separate and distinct from its other 
assets and financial activities, and maintain it for as long as its ILP 
Loan from SBA is outstanding. All ILP Loan funds disbursed from SBA to 
the ILP Intermediary must be deposited into the ILP Relending Fund, as 
well as all payments received from Eligible Small Business Concerns on 
loans made under this program. SBA does not require the ILP 
Intermediary to retain the interest portions of payments received from 
Eligible Small Business Concerns in the ILP Relending Fund. The ILP 
Intermediary must not commingle funds from any other public programs in 
this account. An ILP Intermediary must use the ILP Relending Fund to 
disburse loans made to Eligible Small Business Concerns under this 
program and to make payments to SBA on its ILP Loan, and may not use 
the ILP Relending Fund for any other purpose.
    Section 109.340 sets forth SBA's lending requirements for ILP Loan 
funds. In paragraph (a), SBA requires that an ILP Intermediary commit 
100% of its ILP Loan funds to Eligible Small Business Concerns within 
two years of the date of the ILP Note, unless it receives an extension 
from the Associate Administrator of Capital Access (AA/CA) or designee. 
SBA designed this requirement to prevent ILP Loans from remaining idle 
for extended periods of time, while also allowing an ILP Intermediary 
sufficient time to relend its ILP Loan funds in a prudent manner.
    After meeting the initial lending requirement, the ILP Intermediary 
must relend the funds in its ILP Relending Fund so that the total 
principal balance of loans outstanding to Eligible Small Business 
Concerns does not fall below 75% of the outstanding principal balance 
of the ILP Loan at any time. SBA based this relending model on current 
practices of intermediaries participating in similar programs, such as 
SBA's Microloan program and USDA's Intermediary Relending Program, 
which are referenced in the Act's legislative history as bases for the 
ILP program. Requiring ILP Intermediaries to relend ILP Loan funds 
maximizes the impact of the ILP program, and is consistent with 
statutory intent. SBA anticipates that an ILP Intermediary will relend 
its ILP Loan proceeds approximately 2.5 times over the 20 year term.
    Section 109.350 provides that the ILP Intermediary must maintain a 
reasonable loan loss reserve appropriate for the quality of the ILP 
Intermediary's portfolio in a federally insured depository account 
established by the ILP Intermediary at a well-capitalized

[[Page 18010]]

financial institution. The loan loss reserve must be in an account 
separate and distinct from the ILP Intermediary's other assets and 
financial activities. The loss reserve may be established using the ILP 
Intermediary's own funds, interest income from loans made to Eligible 
Small Business Concerns, or proceeds from the application or 
origination fees described in Sec.  109.420(e). ILP Relending Fund 
proceeds may not be used to establish the loss reserve. In order to 
provide some protection against default, SBA will require an ILP 
Intermediary to maintain the loss reserve at not less than 5% of the 
principal balance of all outstanding loans to Eligible Small Business 
Concerns made from the ILP Relending Fund. The 5% requirement is 
intended as a floor. SBA recognizes that the appropriate level of 
reserves will vary depending on the ILP Intermediary's portfolio and 
current economic conditions; therefore SBA will allow ILP 
Intermediaries to determine their appropriate individual levels of 
reserves above the required 5%. If the AA/CA or designee determines 
that an ILP Intermediary's loss reserve level is potentially inadequate 
to protect SBA from loss, the AA/CA or designee may require the ILP 
Intermediary to maintain a larger loss reserve.
    Section 109.360 details the recordkeeping and reporting 
requirements for the ILP program. Section 109.360(a) states that the 
ILP Intermediary must maintain accurate and current financial records 
and all documents and supporting materials relating to the ILP 
Intermediary's activities in the ILP program. Section 109.360(b) lists 
the required reports the ILP Intermediary must submit: (1) Portfolio 
Identification Reports containing information on each loan made to 
Eligible Small Business Concerns that must be submitted within seven 
days of closing a loan; (2) quarterly Portfolio Status Reports that 
update payment and balance information on the ILP Intermediary's ILP 
portfolio; (3) quarterly ILP Program Activities Reports (with 
accompanying bank statements) that demonstrate the use and management 
of ILP program funds; (4) audited financial statements; and (5) reports 
of any changes in the ILP Intermediary's organization or financing. SBA 
based these reporting requirements on the reports required in the 
Microloan program. The Portfolio Identification Reports and Portfolio 
Status Reports will be submitted electronically through SBA's web-based 
Intermediary Lending Program Electronic Reporting System (ILPERS). 
Annually, the ILP Intermediary must submit audited financial statements 
prepared by an independent certified public accountant, except that ILP 
Intermediaries that are subject to the Single Audit Act under OMB 
Circular A-133 must instead submit audits prepared in accordance with 
that circular. SBA will provide further guidance on the application of 
the Single Audit Act and OMB Circular A-133 in the procedural guidance 
developed to administer the ILP program. An ILP Intermediary must 
submit its audited financial statements (or A-133 audit, as applicable) 
within four months after the close of the ILP Intermediary's fiscal 
year. SBA based this requirement on existing requirements in the 
Microloan program. The AA/CA or designee may provide extensions to the 
filing deadline.
    Sections 109.400 through 109.440 describe the requirements for the 
loans an ILP Intermediary makes to small businesses. Section 109.400 
provides the requirements a borrower must meet in order to receive a 
loan from an ILP Intermediary under this program. By statute, an ILP 
Intermediary must provide loans to startup, newly established, or 
growing small business concerns. In addition to these statutory 
requirements, paragraph (a) includes basic eligibility requirements 
that SBA requires for all of its business loans: the business must be 
organized for profit and located in the United States; it must meet SBA 
size standards; it must not have credit available elsewhere; and it 
must be creditworthy and demonstrate reasonable assurance of repayment 
of the loan. The business must be a small business as defined under the 
size requirements applicable to 7(a) business loans. The ILP 
Intermediary must also document that the small business borrower does 
not have credit available elsewhere and that the borrower demonstrates 
reasonable assurance or repayment. SBA will provide further guidance on 
the credit elsewhere test and what is required to demonstrate repayment 
ability in the procedural guidance developed to administer the ILP 
program.
    Paragraph (b), which lists the types of businesses that are not 
eligible for loans under the ILP program, is also based on the 
eligibility requirements applicable to SBA's existing business loan 
programs. (See 13 CFR 120.110)
    The Act provides that the maximum amount of a loan from an ILP 
Intermediary to a small business is $200,000. SBA has interpreted this 
restriction in Sec.  109.410 to mean that the total amount of all loans 
received by a small business under this program must not exceed 
$200,000 at any one time.
    Section 109.420 describes the terms of a loan from an ILP 
Intermediary to an Eligible Small Business Concern. The term of a loan 
to an Eligible Small Business Concern must be the shortest appropriate 
term. The maximum loan term is 10 years, unless the loan finances or 
refinances real estate or equipment with a useful life exceeding ten 
years, in which case the maximum term is 25 years. SBA modeled these 
loan maturity limits on the terms used in SBA's 7(a) guaranteed loan 
program. The maximum rate will depend on the size of the loan: Loans 
less than or equal to $50,000 have a maximum interest rate of 8.75 
percent; loans greater than $50,000 have a maximum interest rate of 7 
percent.
    SBA chose to differentiate between smaller and larger loan sizes 
because smaller loans generally carry more risk. SBA may adjust the 
maximum interest rates from time to time, and will publish any such 
change by Notice in the Federal Register. Changes to the maximum 
interest rate do not apply to loans made to Eligible Small Business 
Concerns prior to publication of the change in the Federal Register. 
SBA will publish these maximum rates in the Federal Register from time 
to time. Finally, paragraph (f) provides that an ILP Intermediary may 
not charge any fees on loans made under the program except for the 
reasonable direct costs of liquidation, necessary out-of-pocket 
expenses such as filing or recording fees, a late payment fee not to 
exceed 5 percent of the scheduled loan payment, and reasonable 
application and origination fees. The provisions on late payment fees, 
out-of-pocket expenses, and direct costs of liquidation are consistent 
with permissible fees in SBA's 7(a) guaranteed loan program. SBA 
decided to allow optional reasonable application and origination fees 
so that an ILP Intermediary may recoup some of its loan processing 
costs. The total amount of application and origination fees charged to 
an Eligible Small Business Concern must not exceed the maximum total 
fee cap, currently set at 1 percent of the amount of the loan to the 
Eligible Small Business Concern. SBA will publish a Notice in the 
Federal Register prior to implementing any changes to this fee cap.
    Section 109.430 describes the eligible purposes for loans from ILP 
Intermediaries, as required by the Act. An Eligible Small Business 
Concern may only use the proceeds of a loan received under this program 
for working capital; real estate; and the acquisition of materials, 
supplies, furniture,

[[Page 18011]]

fixtures, or equipment. Loan proceeds must not be used to acquire real 
estate held primarily for sale, lease or investment. This restriction 
is consistent with SBA's policies against speculative uses of proceeds 
in its other business loan programs.
    Section 109.440 describes requirements of ILP Intermediaries 
imposed under other laws and orders. These requirements apply 
government-wide to all programs that provide Federal financial 
assistance, and are applicable to all of SBA's loan programs. Section 
120.170 (Flood insurance) states that a loan recipient must obtain 
flood insurance if any building, machinery, or equipment acquired, 
installed, improved, constructed, or renovated with the proceeds of SBA 
financial assistance is located in a special flood hazard area. ILP 
Intermediaries are responsible for notifying borrowers that flood 
insurance must be maintained. Section 120.172 (Flood-plain and wetlands 
management) details the steps an ILP Intermediary must follow if the 
location for which financial assistance is proposed is in a floodplain 
or wetland. Section 120.173 (Lead-based paint) states that if loan 
proceeds are for the construction or rehabilitation of a residential 
structure, lead-based paint may not be used on any interior surface, or 
on any exterior surface that is readily accessible to children under 
the age of seven. Section 120.173 (Earthquake hazards) provides that 
when loan proceeds are used to construct a new building or an addition 
to an existing building, the construction must conform with the 
National Earthquake Hazards Reduction Program (NEHRP) Recommended 
Provisions for the Development of Seismic Regulations for New 
Buildings. Finally, ILP Intermediaries must comply with the civil 
rights laws in parts 112, 113, 117, and 136 of this chapter prohibiting 
discrimination on the grounds of race, color, national origin, 
religion, sex, marital status, disability or age.
    As required by the Act, section 109.450 provides that SBA will not 
review a loan made under this program prior to approval of the loan by 
the ILP Intermediary. An ILP Intermediary is responsible for all loan 
decisions regarding eligibility (including size). If SBA discovers that 
an ILP Intermediary has made a loan under this program to an ineligible 
business or for an ineligible purpose, SBA will require the ILP 
Intermediary to refinance the ineligible loan with non-ILP program 
funds and to deposit into its ILP Relending Fund an amount equal to the 
outstanding principal balance on the ineligible loan.
    Section 109.460 provides that an ILP Intermediary may not sell all 
or any portion of a loan made to an Eligible Small Business Concern 
without prior written consent from the AA/CA or designee. SBA wants to 
prevent small business loans made under the ILP program from being sold 
to entities that have not been vetted and approved by SBA. SBA 
anticipates approving loan sales only in unusual circumstances.
    Finally, Sections 109.500 to 109.530 set forth SBA's oversight of 
ILP Intermediaries. Section 109.500 requires the ILP Intermediary to 
allow SBA access to its files to review, inspect, and copy all records 
and documents relating to loans made from the ILP Relending Fund or as 
requested for SBA oversight. Section 109.510 states that SBA may 
conduct off-site reviews and monitoring of ILP Intermediaries and on-
site reviews as needed. SBA may require an ILP Intermediary to take 
corrective actions to address findings from on-site or off-site 
reviews. Failure to take required corrective actions may constitute an 
event of default, as described in Sec.  109.520(c). Any reports and 
other SBA prepared review related documents generated as a result of 
such reviews are subject to the confidentiality requirements of Sec.  
120.1060. These provisions are based on SBA's lender oversight 
regulations applicable to its other business loan programs. Reviews may 
include analysis of ILP Intermediaries' quarterly Portfolio Status 
Reports and ILP Program Activities Reports, annual audited financial 
statements, and loan information entered electronically into ILPERS. In 
addition, SBA may conduct on-site reviews of ILP Intermediaries at 
SBA's discretion. SBA may also review selected ILP loan files of those 
ILP Intermediaries that receive on-site reviews as part of their 
participation in other SBA programs (e.g., SBA's 504 program) as a part 
of those reviews. Loans made under the ILP program will not affect a 
lender's risk rating in other SBA programs.
    Section 109.520 describes events of default on an ILP Loan and 
SBA's remedies for an ILP Intermediary's noncompliance with ILP Program 
Requirements. This section provides three categories of events of 
default: automatic events of default, events of default with notice, 
and events of default with opportunity to cure. SBA based this 
provision on default provisions used in its Small Business Investment 
Company (SBIC) and New Markets Venture Capital (NMVC) programs. 
Finally, Sec.  109.530 provides that SBA may debar or suspend an ILP 
Intermediary or any participant in the affairs of an ILP Intermediary's 
SBA operations in accordance with the government-wide nonprocurement 
debarment and suspension provisions in 2 CFR Parts 180 and 2700. SBA 
will provide further guidance on its oversight of ILP Intermediaries in 
the procedural guidance developed to administer the ILP program.

III. Justification for Interim Final Rule

    In general, SBA publishes a rule for public comment before issuing 
a final rule, in accordance with the Administrative Procedure Act 
(APA), 5 U.S.C. 553 and SBA regulations at 13 CFR 101.108. The APA 
provides an exception to this standard rulemaking process, however, 
where an agency finds good cause to adopt a rule without prior public 
participation. 5 U.S.C. 553(b)(3)(B). The good cause requirement is 
satisfied when prior public participation is impracticable, 
unnecessary, or contrary to the public interest. Under such 
circumstances, an agency may publish an interim final rule without 
soliciting prior 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 prior public participation. 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 during this 
economic downturn and the short-term nature of the funding for this new 
pilot program. The ILP program will offer a significant opportunity for 
nonprofit intermediaries to provide loans to startup, newly 
established, or growing small businesses. In order to select the 20 
most qualified participants for the ILP program, SBA must run a 
competition. Under current appropriations, SBA can provide loans to 20 
ILP Intermediaries in each of fiscal years 2011 and 2012; however, the 
2011 appropriations for the ILP program are only available for loans 
made in fiscal year 2011. Furthermore, SBA must run a competition to 
select the ILP Intermediaries that will receive loans in fiscal year 
2011. Advance solicitation of comments for this rulemaking would be 
impracticable and contrary to the public interest, as it would probably 
delay the delivery of the ILP program until fiscal year 2012 and 
prevent the Agency from maximizing the funds available for loans in 
fiscal year 2011. In addition, the Act included a deadline to publish 
regulations by March 26, 2011. In order to meet this statutory deadline 
and to maximize the use of available program funds, SBA needs to 
implement this

[[Page 18012]]

program without advance solicitation of comments.
    SBA invites comments from all interested members of the public. 
These comments must be received on or before the close of the comment 
period noted in the DATES section of this interim final rule. SBA may 
then consider these comments in making any necessary revisions to these 
regulations.

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.
    Under current appropriations, SBA can provide loans to 20 ILP 
Intermediaries in each of fiscal years 2011 and 2012; however, the 2011 
appropriations for the ILP program are only available for loans made in 
fiscal year 2011. As stated above, SBA must run a competition to select 
the most qualified applicants to become ILP Intermediaries and receive 
ILP Loans. An immediate effective date is necessary to ensure that 
there is sufficient time to select ILP Intermediaries and make ILP 
Loans before the end of this fiscal year; therefore, SBA finds that 
there is good cause for making this rule effective immediately instead 
of observing the 30-day period between publication and effective date. 
While this rule is effective immediately upon publication, the SBA is 
inviting public comment on the rule during a 60-day period and will 
consider comments in developing a final rule.

Compliance With Executive Orders 12866, 12988, 13132, 13175, and 13563, 
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 rule 
constitutes a ``significant regulatory action'' under Executive Order 
12866, thus requiring a Regulatory Impact Analysis, as set forth below.

A. Regulatory Objective of the Proposal

    Under the ILP program, SBA will provide direct loans of up to 
$1,000,000 to eligible nonprofit intermediaries. These direct loans 
will enable the nonprofit intermediaries to provide loans of up to 
$200,000 to startup, newly established, or growing small business 
concerns for working capital, real estate, or the acquisitions of 
materials, supplies, furniture, fixtures, or equipment. The ILP program 
addresses current financing gaps including the limited availability of 
commercial loans of $200,000 or less.

B. Benefits of the Rule

    The Eligible Small Business Concerns that receive loans from ILP 
Intermediaries directly benefit from the ILP program. In monetary 
terms, these direct benefits total approximately $150 million, as 
described below. An ILP Intermediary must use the proceeds of an ILP 
Loan to make loans to Eligible Small Business Concerns, and must 
continue to relend the principal portion of payments received on those 
loans while the ILP Loan remains outstanding to SBA. SBA anticipates 
that each ILP Intermediary will relend its ILP Loan proceeds 
approximately 2.5 times before it has fully repaid its ILP Loan to SBA. 
SBA is authorized to make loans of $1 million to 20 ILP Intermediaries 
in each of fiscal years 2011, 2012, and 2013, subject to the 
availability of appropriations (current appropriations allow SBA to 
make $20 million in ILP Loans in each of fiscal years 2011 and 2012). 
Therefore, each ILP Intermediary will make approximately $2.5 million 
in loans to Eligible Small Business Concerns. Assuming that SBA 
receives the same funding for the ILP program in fiscal year 2013, SBA 
anticipates that the total benefit of the ILP program to Eligible Small 
Business Concerns will be approximately $150 million (60 ILP 
Intermediaries at $2.5 million in loans to Eligible Small Business 
Concerns per ILP Intermediary).
    The ILP Intermediaries will also benefit from the ILP program 
because the favorable ILP Loan terms will enable an ILP Intermediary to 
participate in the ILP program at little to no cost to the ILP 
Intermediary. By statute, an ILP Loan has a 20 year term, no 
collateral, no fees, a 2 year payment deferral, and a 1% fixed interest 
rate. In addition, the regulations would permit ILP Intermediaries to 
charge Eligible Small Business Concerns a reasonable interest rate, 
application and origination fees and closing costs for loans made under 
the ILP program. SBA anticipates that most ILP Intermediaries will be 
able to fund the operations of their ILP programs through these fees 
and the interest spread on loans to Eligible Small Business Concerns.

C. Costs of the Rule

    The bulk of the immediate costs of the ILP program are borne by the 
U.S. taxpayers due to the current subsidy appropriations of $8 million 
for fiscal years 2011 and 2012. Based on current subsidy models, 
however, SBA anticipates using only $6,115,129 in FY 2011 and 
$5,145,704 in FY 2012 to carry out the ILP program. In addition to the 
subsidy costs, the SBA and U.S. taxpayers will incur costs associated 
with launching and operating the ILP program, for which Congress has 
appropriated $6.5 million. The agency will use this funding for program 
development, implementation and support.
    The small business borrowers that receive loans from ILP 
Intermediaries will have some costs associated with the loan. As stated 
above, the regulations would permit ILP Intermediaries to charge a 
reasonable interest rate, application fee, origination fee and closing 
costs for loans to Eligible Small Business Concerns. These fees are 
necessary to cover the ILP Intermediaries' administrative costs of 
running the ILP program. In addition, the regulations would allow ILP 
Intermediaries to charge the Eligible Small Business Concerns for 
direct costs of liquidation and a late payment fee of less than 5 
percent of the scheduled loan payment. These fees safeguard the ILP 
Intermediary in the case of default or delinquency by an Eligible Small 
Business Concern.
    Finally, ILP Intermediaries will incur some costs of administering 
this program. For instance, ILP Intermediaries must maintain the 
ability to administer, monitor, and service the small business loans 
through adequate staffing, capital, and other resources. Also, the 
regulations mandate certain reporting requirements: ILP Intermediaries 
must report each loan transaction in an electronic reporting system; 
submit quarterly reports; and annual audited financial statements. In 
addition, ILP Intermediaries will incur costs to maintain required loan 
loss reserves. The regulations would require ILP Intermediaries to 
maintain a loan loss reserve fund of not less than 5 percent of the 
principal balance of outstanding loans to Eligible Small Business 
Concerns under the program. While the loan loss reserve fund and 
reporting requirements represent a cost to ILP Intermediaries, SBA 
finds these costs necessary to facilitate the ILP program and to ensure 
prudent lending practices.

[[Page 18013]]

D. Alternatives

    Given that the program is the result of a Congressional mandate, 
SBA had little leeway in providing alternatives for the basic 
programmatic structure. However, SBA did consider various alternative 
ways of implementing the specific statutory requirements. For example, 
SBA considered prohibiting loans to Eligible Small Business Concerns of 
less than $50,000 in order to avoid any risk of overlap with SBA's 
Microloan program, but decided that such a restriction would unduly 
restrict the ILP program and possibly lead to artificial inflation of 
loan amounts to meet program requirements. Furthermore, SBA plans to 
select ILP Intermediaries with demonstrated experience in making loans 
between $50,000 and $200,000; therefore, SBA anticipates that the 
majority of loans made to small businesses through the ILP program will 
exceed $50,000.
    SBA also considered restricting the application and origination 
fees an ILP Intermediary can charge to a nominal amount. SBA decided 
that it will allow ILP Intermediaries to charge reasonable application 
and origination fees totaling up to 1% of the amount of the loan to the 
small business borrower in order to recoup some of the administrative 
costs associated with making loans under the ILP program. In addition, 
SBA considered requiring monthly payments on the ILP Loan and 
submission of monthly reports. However, SBA decided that while more 
frequent loan payments and reporting would benefit the agency, 
quarterly payments and reporting imposed a less stringent requirement 
for the ILP Intermediaries without adding much additional risk.
    Having considered these alternatives, SBA believes that this rule 
is SBA's best available means for achieving its regulatory objective of 
implementing the ILP program and incorporating the provisions of the 
Small Business Jobs Act of 2010.
Executive Order 12988
    For the purposes of Executive Order 12988, Civil Justice Reform, 
SBA has determined that this rule is crafted, to the extent 
practicable, in accordance with the standards set forth in sections 
3(a) and 3(b)(2), to minimize litigation, eliminate ambiguity, and 
reduce burden. This rule does not have retroactive or pre-emptive 
effect.
Executive Order 13132
    For the purposes of Executive Order 13132, the SBA determined that 
this rule has no federalism implications warranting preparation of a 
federalism assessment.
Executive Order 13175
    Executive Order 13175, Consultation and Coordination with Indian 
Tribal Governments, requires agencies to consult with tribal officials 
in the development of Federal policies that have tribal implications. 
As defined in the order, policies that have tribal implications refers 
to regulations that have substantial direct effects on one or more 
Indian tribes, on the relationship between the Federal Government and 
the Indian tribes, or on the distribution of power and responsibilities 
between the Federal Government and Indian tribes.
    In these regulations, SBA has defined Native American Tribal 
Governments to include the governing body of any Native American tribe, 
band, nation, or other organized group or community, including any 
Alaska Native village or regional or village corporation as defined in 
or established pursuant to the Alaska Native Claims Settlement Act (43 
U.S.C.A. 1601 et seq.), which is recognized as eligible for the special 
programs and services provided by the United States to Native Americans 
because of their status as Native Americans. This definition is based 
on the definition of ``qualified Indian tribe'' in the Small Business 
Act (15 U.S.C. 632), which is in turn based on the definition of 
``Indian tribe'' in the Indian Self-Determination and Education 
Assistance Act (25 U.S.C. 450b).
    As set forth in section 1131 of the Act, the ILP program provides 
an opportunity for agencies of a Native American Tribal Government or 
nonprofit entities established by a Native American Tribal Government 
to apply to become ILP Intermediaries. SBA welcomes the opportunity to 
discuss the ILP program with the tribal and ANC communities during the 
public comment period.
Executive Orders 12866 and 13563
    A description of the need for this regulatory action and benefits 
and costs associated with this action is included above in the 
Regulatory Impact Analysis under Executive Order 12866.
    As further described above, SBA needs to implement this program 
without advance solicitation of comments in order to maximize the use 
of available program funds. Under current appropriations, SBA can 
provide loans to 20 ILP Intermediaries in each of fiscal years 2011 and 
2012; however, the 2011 appropriations for the ILP program are only 
available for loans made in fiscal year 2011.
    The requirements imposed on ILP Intermediaries are designed to 
maximize net benefits of the ILP program. In order to minimize the 
burdens on the ILP Intermediaries while also ensuring protection of 
taxpayer dollars, SBA compared requirements in similar programs (such 
as SBA's Microloan program and USDA's Intermediary Relending Program) 
and conducted market research. For example, SBA sought information from 
several non-profit lenders currently participating in similar lending 
programs regarding their average loss reserve rates and their 
experiences in relending loan funds. SBA used this information in 
formulating the relending and loss reserve requirements for the ILP 
program.
    In addition, SBA sought to use flexible approaches in designing ILP 
program requirements. For example, ILP Intermediaries may use their own 
forms and underwriting processes for selecting small business 
borrowers.
    As the ILP program is a new lending program, retrospective analyses 
of existing significant regulations is not applicable to this program.
Paperwork Reduction Act, 44 U.S.C., Ch. 35
    SBA has determined that this rule imposes new reporting and 
recordkeeping requirements under the Paperwork Reduction Act, 44 U.S.C. 
Chapter 35. This new information collection requires that interested 
nonprofit intermediaries submit an application and exhibits to SBA to 
facilitate an application selection process. This new information 
collection also requires certain reporting requirements that selected 
ILP Intermediaries must fulfill to maintain participation in the ILP 
Program. SBA is submitting this set of information collections as 
described below to OMB for review and approval together with the 
interim final rule.
    1. Title and Description: Recordkeeping requirements.
    Purpose: Section 109.360(a) requires the ILP Intermediary to 
maintain accurate and current financial records, including books of 
accounts, and all documents and supporting materials relating to the 
ILP Intermediary's activities in the ILP program, including files on 
loan made to Eligible Small Business Concerns. Records may be preserved 
electronically if the original is available for retrieval within 15 
calendar days.
    OMB Control Number: New collection.
    Description of, and Estimated Number of Respondents: All ILP 
Intermediaries will be required to maintain records of their activities 
in the ILP program.

[[Page 18014]]

Given the current appropriated funds, SBA anticipates making loans to 
20 ILP Intermediaries in fiscal year 2011 and 20 additional ILP 
Intermediaries in fiscal year 2012, for a total of 40 ILP 
Intermediaries.
    Estimated Number of Responses: No responses are required.
    Estimated Response Time: No responses are required.
    Estimated Annual Hour Burden: The annual hour burden is de minimis, 
because ILP Intermediaries would maintain such records in the ordinary 
course of business.
    2. Title and Description of Information Collection: SBA Form XX: 
Intermediary Lending Pilot Program Application--Part I, Management 
Assessment Questionnaire and Part II, Exhibits.
    Purpose: Part I of this form collects identifying information 
regarding the intermediary applicant and its Officers, the loan 
request, lending history, projected lending activity, information 
regarding current or previous government financing, and the 
intermediary's financial health and viability. Part II of this form 
collects supplemental information from the intermediary applicant and 
its principals such as resumes, organizational charts, loan policies 
and procedures, one year of financial statements, and Employer 
Identification Number documentation.
    OMB Control Number: New collection.
    Description of, and Estimated Number of Respondents: SBA 
anticipates 200 ILP Intermediary Applicants will respond to this 
information collection.
    Estimated Number of Responses: 200 estimated responses.
    Estimated Response Time: 35 hours estimated response time per 
applicant.
    Total Estimated Annual Hour Burden: 7,000 hours estimated annual 
hour burden.
    3. Title and Description: SBA Form XX: ILP Program Activities 
Report.
    Purpose: This electronic form collects quarterly account activity 
information in the ILP Program Relending Fund and the ILP loan loss 
reserve account. ILP Intermediaries must use this account to receive 
ILP loan proceeds from the SBA and to disburse small business loan 
proceeds to the small business borrower, and to maintain adequate loan 
loss reserves. The form collects information such as principal 
repayment from borrowers, interest paid by borrowers, interest earned, 
disbursements to small business borrowers, and repayments to SBA. 
Intermediaries must also submit accompanying bank statements (3 months) 
to support the data reported in the ILP Relending Fund and the ILP loan 
loss reserve account.
    OMB Control Number: New collection.
    Description of, and Estimated Number of Respondents: SBA 
anticipates 40 ILP Intermediaries to respond to this information 
collection per quarter.
    Estimated Number of Responses: One response per intermediary per 
quarter, or 160 total estimated responses.
    Estimated Response Time: 1 hour estimated response time per 
quarter.
    Estimated Annual Hour Burden: 160 hours estimated annual hour 
burden.
    4. Title and Description: Intermediary Lending Program Electronic 
Reporting System (ILPERS), Portfolio Identification Reports.
    Purpose: This electronic submission collects identifying 
information on each small business borrower such as demographic 
information, use of proceeds, payment terms, and jobs created and 
retained.
    OMB Control Number: New collection.
    Description of, and Estimated Number of Respondents: SBA 
anticipates 40 ILP Intermediaries to respond to this information 
collection.
    Estimated Number of Responses: 6 estimated annual responses per 
intermediary, or 240 total estimated responses.
    Estimated Response Time: 15 minutes estimated response time.
    Estimated Annual Hour Burden: 60 hours estimated annual hour 
burden.
    5. Title and Description: Intermediary Lending Program Electronic 
Reporting System (ILPERS), Portfolio Status Report.
    Purpose: This form collects the payment status and outstanding 
principal balance of loans to small business borrowers on a quarterly 
basis.
    OMB Control Number: New collection.
    Description of, and Estimated Number of Respondents: SBA 
anticipates 40 ILP Intermediaries to respond to this information 
collection per quarter.
    Estimated Number of Responses: One response per intermediary per 
quarter, or 160 total estimated responses.
    Estimated Response Time: 30 minutes estimated response time.
    Estimated Annual Hour Burden: 2 hours per intermediary annually, or 
80 total hours estimated annual hour burden.
    7. Title and Description: Audited Financial Statements.
    Purpose: ILP Intermediaries are required to submit audited 
financial statements as prepared by an independent certified public 
accountant. ILP Intermediaries subject to OMB Circular A-133 must 
submit audits in accordance with that circular.
    OMB Control Number: New collection.
    Description of, and Estimated Number of Respondents: SBA 
anticipates 40 ILP Intermediaries to respond to this information 
collection.
    Estimated Number of Responses: 40 estimated responses.
    Estimated Response Time: 80 hours estimated response time per 
intermediary per year. SBA believes that this burden will be reduced to 
the extent that many intermediaries already maintain this information 
for other purposes, and thus any costs resulting from this requirement 
may be de minimis.
    Estimated Annual Hour Burden: 3,200 hours estimated annual hour 
burden.
    8. Title and Description: Reports of Changes.
    Purpose: ILP Intermediaries must submit ad hoc summaries of any 
changes in the ILP Intermediary's organization or financing (within 30 
calendar days of the change).
    OMB Control Number: New collection.
    Description of, and Estimated Number of Respondents: SBA 
anticipates 40 ILP Intermediaries to respond to this information 
collection.
    Estimated Number of Responses: 40 estimated responses, based on an 
assumption that, on average, each intermediary will need to submit one 
Report of Changes in any given year.
    Estimated Response Time: 30 minutes estimated response time per 
intermediary per year.
    Estimated Annual Hour Burden: 20 hours estimated annual hour 
burden.
    SBA invites comments on the ILP program information collections, 
particularly on: (1) Whether the proposed collection of information is 
necessary for the proper performance of the program, 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

[[Page 18015]]

and to Grady B. Hedgespeth, Director of Financial Assistance, Small 
Business Administration, 409 Third Street, SW., Washington, DC 20416.
Regulatory Flexibility Act 5 U.S.C. 601-612
    The Regulatory Flexibility Act (5 U.S.C. 601-612) (RFA) requires 
administrative agencies to consider the economic impact of their 
actions on small entities, which includes small businesses, small 
nonprofit businesses, and small local governments. The RFA requires 
agencies to prepare a regulatory flexibility analysis, which describes 
the economic impact that the rule will have on small entities, or 
certify that the rule will not have a significant economic impact on a 
substantial number of small entities. However, the RFA requires such 
analysis only where notice and comment rulemaking are required. Rules 
are exempt from the APA notice and comment requirements when the agency 
for good cause finds that notice and public procedure thereon is 
impracticable, unnecessary, or contrary to the public interest. As 
detailed above, SBA has determined that there is good cause to adopt 
this rule without prior public participation; therefore, the rule is 
also exempt from the RFA requirements. SBA invites comments on this 
determination.

List of Subjects in 13 CFR Part 109

    Community development, Loan program--business, Reporting and 
recordkeeping requirements, Small businesses.

    For the reasons stated in the preamble, the Small Business 
Administration amends 13 CFR Chapter I by adding part 109 to read as 
follows:

PART 109--INTERMEDIARY LENDING PILOT PROGRAM

Subpart A--Introduction
Sec.
109.10 Description of the Intermediary Lending Pilot program.
109.20 Definitions.
Subpart B--ILP Intermediary Application and Selection Process
109.100 ILP Intermediary eligibility and continuing participation 
requirements.
109.200 Application to become an ILP Intermediary.
109.210 Evaluation and selection of ILP Intermediaries.
109.220 Loan limits--loans to ILP Intermediaries.
Subpart C--ILP Program Requirements
109.300 General.
109.310 Terms of loans to ILP Intermediaries.
109.320 ILP Loan purposes.
109.330 ILP Relending Fund.
109.340 Lending requirements.
109.350 Maintenance of loan loss reserve.
109.360 Recordkeeping and reporting requirements.
Subpart D--Requirements for ILP Intermediary Loans to Small Businesses
109.400 Eligible Small Business Concerns.
109.410 Loan limits--loans to Eligible Small Business Concerns.
109.420 Terms of Loans from ILP Intermediaries to Eligible Small 
Business Concerns.
109.430 Loan purposes.
109.440 Requirements imposed under other laws and orders.
109.450 SBA Review of ILP Intermediary loans to Eligible Small 
Business Concerns.
109.460 Prohibition on sales of ILP Intermediary loans to Eligible 
Small Business Concerns.
Subpart E--Oversight
109.500 SBA access to ILP Intermediary files.
109.510 On-site and off-site reviews.
109.520 Events of default and revocation of authority to participate 
in the ILP program.
109.530 Debarment and Suspension.

    Authority:  15 U.S.C. 634(b)(6), (b)(7), and 636(l).

Subpart A--Introduction


Sec.  109.10  Description of the Intermediary Lending Pilot program.

    The Small Business Intermediary Lending Pilot program (ILP program) 
provides direct loans to ILP Intermediaries to make loans of up to 
$200,000 to startup, newly established, or growing small businesses. 
ILP Intermediaries continue to relend a portion of the payments 
received on small business loans made under the program until they have 
fully repaid their loans to SBA.


Sec.  109.20  Definitions.

    Affiliate has the meaning set forth in Sec.  121.103 of this 
chapter.
    Associate. (1) An Associate of an ILP Intermediary is:
    (i) An officer, director, key employee, or holder of 20 percent or 
more of the value of the ILP Intermediary or its debt instruments, or 
an agent involved in the loan process;
    (ii) Any entity in which one or more individuals referred to in 
paragraph (1)(i) of this definition or a Close Relative of any such 
individual owns or controls at least 20 percent;
    (2) An Associate of an Eligible Small Business Concern is:
    (i) An officer director, owner of more than 20 percent of the 
equity, or key employee of the Eligible Small Business Concern;
    (ii) Any entity in which one or more individuals referred to in 
paragraphs (2)(i) of this definition owns or controls at least 20 
percent; and
    (iii) Any individual or entity in control of or controlled by the 
small business (except a Small Business Investment Company (SBIC) 
licensed by SBA).
    (3) For the purposes of this definition, the time during which an 
Associate relationship exists commences six months before the following 
dates and continues as long as the ILP Note or the loan to the Eligible 
Small Business Concern is outstanding:
    (i) For an ILP Intermediary, the date of the ILP Note;
    (ii) For an Eligible Small Business Concern, the date of the loan 
application to the ILP Intermediary.
    Close Relative is a spouse; a parent; a child or sibling, or the 
spouse of any such person.
    Eligible Small Business Concern is a small business that meets the 
requirements of Sec.  109.400.
    ILP Intermediary means a private, nonprofit entity that has applied 
for and been selected by SBA to receive an ILP Loan through the 
competitive application process described in this Part.
    ILP Loan means a direct loan made by SBA to an ILP Intermediary 
under this program.
    ILP Note means the instrument that represents the obligation of the 
ILP Intermediary to repay the ILP Loan to SBA.
    ILP Program Activities Report means the quarterly report that 
identifies the use and management of ILP program funds.
    ILP Program Requirements are requirements imposed upon an ILP 
Intermediary by statute, SBA regulations, any agreement executed 
between SBA and the ILP Intermediary, SBA SOPs, SBA procedural 
guidance, official SBA notices and forms applicable to the ILP program, 
any NOFA applicable to the ILP program, and the ILP Note and Loan 
Authorization, as such requirements are issued and revised by SBA from 
time to time.
    ILP Relending Fund means a federally insured depository account 
established by the ILP Intermediary at a well-capitalized financial 
institution which includes, at a minimum, the ILP Loan proceeds and the 
principal portion of repayments from Eligible Small Business Concerns.
    Intermediary Lending Program Electronic Reporting System (ILPERS) 
means the web-based, electronic reporting system used by the ILP

[[Page 18016]]

Intermediary to report each loan made to Eligible Small Business 
Concerns, to provide aging information on each loan, and to update the 
outstanding principal balance of each loan until all loans are either 
paid in full or charged off.
    Native American Tribal Government means the governing body of any 
Native American tribe, band, nation, or other organized group or 
community, including any Alaska Native village or regional or village 
corporation as defined in or established pursuant to the Alaska Native 
Claims Settlement Act (43 U.S.C.A. Sec.  1601 et seq.), which is 
recognized as eligible for the special programs and services provided 
by the United States to Native Americans because of their status as 
Native Americans.
    Portfolio Identification Report means the electronic report that 
collects identifying information on loans made to Eligible Small 
Business Concerns, including demographic information, use of proceeds, 
payment terms, and jobs created and retained.
    Portfolio Status Report means the quarterly electronic report that 
summarizes the payment status and outstanding principal balances of an 
ILP Intermediary's loans to Eligible Small Business Concerns.

Subpart B--ILP Intermediary Application and Selection Process


Sec.  109.100  ILP Intermediary eligibility and continuing 
participation requirements.

    (a) Organization type: An ILP Intermediary must be a private, 
nonprofit entity other than an intermediary participating in the SBA 
Microloan program as described in subpart G of Part 120. Eligible 
entities include:
    (1) Private, nonprofit community development corporations;
    (2) Consortiums of private, nonprofit organizations or nonprofit 
community development corporations; and
    (3) Agencies of or nonprofit entities established by Native 
American tribal governments.
    (b) Prior experience: An ILP Intermediary must have at least one 
year of successful experience making and servicing loans to startup, 
newly established, or growing small businesses.
    (c) Management and operations. (1) An ILP Intermediary must have 
paid staff with loan making and servicing experience acceptable to SBA.
    (2) An ILP Intermediary must have a continuing ability to evaluate, 
process, close, disburse, service and liquidate small business loans 
including, but not limited to:
    (i) Holding sufficient permanent capital (as determined by SBA) to 
support lending activities under this program; and
    (ii) Maintaining satisfactory SBA performance, as determined by SBA 
in its discretion.
    (3) An ILP Intermediary must meet and maintain the ethical 
requirements of 13 CFR 120.140.
    (4) An ILP Intermediary (and any Affiliates) that participates in 
other SBA programs must be in compliance with those program 
requirements.
    (5) An ILP Intermediary must be in good standing with its Federal 
and/or State regulator, as applicable.
    (6) An ILP Intermediary must have the ability to comply with the 
ILP Program Requirements, including reporting requirements, as such 
requirements are revised from time to time, and maintain compliance 
with ILP Program Requirements for as long as the ILP Intermediary 
participates in the ILP program.


Sec.  109.200  Application to become an ILP Intermediary.

    (a) Notice of Funds Availability (NOFA). SBA will periodically 
publish a NOFA in the Federal Register, advising potential applicants 
of the availability of funds for the ILP program. Any eligible entity 
may then submit an application to become an ILP Intermediary. When 
submitting its application, an applicant must comply with both these 
regulations and any requirements specified in the NOFA, including 
submission deadlines. The NOFA may specify limitations, special rules, 
procedures, and restrictions for a particular funding round.
    (b) Contents of application. The application to become an ILP 
Intermediary must include:
    (1) Documentation that the applicant meets the eligibility and 
continuing participation requirements for the ILP program set forth in 
Sec.  109.100;
    (2) A completed ILP Intermediary application form provided b