Small Business Jobs Act: 504 Loan Program Debt Refinancing, 63151-63156 [2011-26311]
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inside the buffer zone within 2
kilometers of each other within a 30-day
period, the NPPO of the Republic of
Korea will immediately prohibit all
registered pest-exclusionary structures
within 2 kilometers of the finds from
exporting tomatoes to the United States
and notify APHIS of the action. The
prohibition will remain in effect until
the NPPO of the Republic of Korea and
APHIS agree that the risk has been
mitigated.
(3) Records of trap placement, trap
servicing, and fruit fly captures for each
pest-exclusionary structure must be kept
for at least 1 year and trapping records
provided to the NPPO of the Republic
of Korea each month. The NPPO of the
Republic of Korea must make the
records available to APHIS for review
upon request.
(c) Packinghouse procedures. The
tomatoes must be packed within 24
hours of harvest in a pest-exclusionary
packinghouse. During the time the
packinghouse is in use for exporting
tomatoes to the United States, the
packinghouse may only accept tomatoes
from registered pest-exclusionary
structures. A random sample of fruit per
lot, as determined by the NPPO of the
Republic of Korea and agreed to by
APHIS, must be inspected for external
pests and the fruit must be cut to reveal
internal pests. Each sample must be of
sufficient size in order to detect pest
infestations. Any damaged, diseased, or
infested fruit should be removed and
separated from the commodity destined
for export. The tomatoes must be
safeguarded by an insect-proof mesh,
screen, or plastic tarpaulin while in
transit from the production site to the
packinghouse and while awaiting
packing. The tomatoes must be packed
in insect-proof cartons or containers, or
covered with insect-proof mesh or
plastic tarpaulin, for transit to the
United States. These safeguards must
remain intact until the arrival of the
tomatoes in the United States or the
consignment will not be allowed to
enter the United States.
(d) Commercial consignments.
Tomatoes with stems from the Republic
of Korea may be imported in
commercial consignments only.
(e) Phytosanitary certificate. Each
consignment of tomatoes must be
accompanied by a phytosanitary
certificate of inspection issued by the
NPPO of the Republic of Korea bearing
the following additional declaration:
‘‘Tomatoes in this consignment were
grown in pest-exclusionary structures in
accordance with 7 CFR 319.56–52 and
were inspected and found free from
Bactrocera depressa, Heliocoverpa
armigera, Heliocoverpa assulta,
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Mamestra brassicae, Ostrinia furnacalis,
Scirtothrips dorsalis, and Thrips
palmi.’’
(Approved by the Office of Management and
Budget under control number 0579–0371)
Done in Washington, DC, this 5th day of
October 2011.
Kevin Shea,
Acting Administrator, Animal and Plant
Health Inspection Service.
[FR Doc. 2011–26345 Filed 10–11–11; 8:45 am]
BILLING CODE 3410–34–P
SMALL BUSINESS ADMINISTRATION
13 CFR Part 120
RIN 3245–AG17
Small Business Jobs Act: 504 Loan
Program Debt Refinancing
U.S. Small Business
Administration.
ACTION: Final rule.
AGENCY:
This rule finalizes the interim
final rule that implemented section
1122 of the Small Business Jobs Act of
2010, which authorizes projects
approved for financing under Title V of
the Small Business Investment Act to
include the refinancing of qualified
debt. As a result of comments received,
this final rule amends the interim final
rule to authorize the financing of
business expenses as part of a
Refinancing Project, to allow the Third
Party Loan to be at least as much as the
504 loan instead of requiring that the
Third Party Loan provide at least 50%
of the financing, and to revise the
definition of qualified debt. Other
aspects of the interim final rule are
adopted as final without change.
DATES: Effective Date: This rule is
effective October 12, 2011.
FOR FURTHER INFORMATION CONTACT:
Andrew B. McConnell, Jr., Office of
Financial Assistance, at
jobsact_debtrefinancing@sba.gov or
202–205–9949.
SUPPLEMENTARY INFORMATION:
SUMMARY:
I. Background
On February 17, 2011, SBA published
an interim final rule with request for
comments in the Federal Register to
implement section 1122 of the Small
Business Jobs Act of 2010 (Jobs Act). See
76 FR 9213. This provision of the Jobs
Act temporarily authorizes projects
approved for financing under Title V of
the Small Business Investment Act to
include the refinancing of qualified
debt. Prior to the Jobs Act, in a typical
504 project with a refinancing
component, the borrower was required
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63151
to use a significant portion of the loan
proceeds for expansion of the business.
See 13 CFR 120.882(e). The temporary
Jobs Act program authorizes the use of
the 504 Loan Program for the
refinancing of debt where there is no
expansion of the small business, and is
available for loan applications approved
by SBA through September 27, 2012.
The interim final rule was effective
February 17, 2011 and the comment
period was open until May 18, 2011.
SBA received written comments from 34
commenters, including 6 banks, 2 small
businesses, 17 Certified Development
Companies, 3 national trade
associations, and 6 individuals. The
comments are summarized and
addressed below with, where
applicable, the citation to the rule
provision that has been changed after
consideration of the comments.
II. Summary of Comments Received
1. Financing for Business Expenses—
13 CFR 120.882(g)(6). In the interim
final rule, SBA requested comments
from the public on whether, and how,
to implement the provision in the Jobs
Act that authorizes the financing of
business expenses in the temporary debt
refinance program. Twenty-five of the
34 comments received requested that
SBA implement the authority to finance
business expenses; none of the
comments opposed implementing this
authority. Several commenters stated
that there is an urgent need for this
financing due to the national recession
which, they assert, resulted in bank
regulator restrictions on lending
institutions, limitations on lines of
credit, and decreased opportunity for
equipment vendor financing. Businesses
could enhance their viability and
growth potential if they were able to
access the accumulated equity in their
real estate and other fixed assets for
business purposes. No suggestions were
received on how to implement the
business expense provision.
Based on the comments, SBA is
amending the rule to allow a Borrower
to request the financing of business
expenses as part of its application for
the Refinancing Project. Such financing
will be available only if the amount of
cash that will be provided as a result of
the refinancing exceeds the amount to
be paid to the lender of the Qualified
Debt. The Borrower’s application must
include a specific description of the
business expenses for which the
financing is requested and an
itemization of the amount of each
expense. The funds provided for
business expenses must be used solely
for the business expenses of the
Borrower, such as salaries, rent,
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utilities, inventory, and other
obligations of the business. The
expenses may have been incurred, but
not paid, prior to loan application or
may be used to pay for expenses that
will become due for payment within
eighteen months after the date of loan
application. Both the CDC and the
Borrower will be required to certify in
the application that the funds will be
used to cover the business expenses of
the Borrower. Borrower must be able,
upon request, to substantiate the use of
the funds provided for business
expenses, through, for example, bank
statements, invoices marked ‘‘paid’’,
cleared checks, or any other documents
that demonstrate that a business
obligation was satisfied with the funds
provided.
2. Third Party Loan Less than 50%—
13 CFR 120.882(g)(5). The interim final
rule requires that the Third Party Loan
contribute not less than 50% of the
Refinancing Project amount, the 504
loan contribute not more than 40% of
the Refinancing Project amount, and the
Borrower contribute not less than 10%
of the Refinancing Project amount.
However, while the typical 504 Project
includes a Third Party Loan equal to
50% of the Project costs, the regulations
for a 504 Project other than debt
refinancing require only, with certain
exceptions not applicable here, that the
financing for the 504 Project include
one or more Third Party Loans that total
at least as much as the 504 loan. See 13
CFR 120.920(a). Sixteen comments were
received requesting SBA to apply to a
debt refinancing project the same loan
structure requirement that applies to
other 504 Projects, and not require the
Third Party Loan to be 50% of the
Refinancing Project. Commenters
observed that the 50% contribution is
not required by Section 1122 of the Jobs
Act. SBA has considered these
comments and concludes that it serves
the interest of this temporary debt
refinancing program to amend the
interim final rule to make it consistent
with 13 CFR 120.920(a), requiring that
the Third Party Loan total at least as
much as the 504 loan.
3. Qualified Debt Criteria:
Substantially all of loan proceeds used
to acquire Eligible Fixed Asset—13 CFR
120.882(g) (15) (Definition of Qualified
Debt, subparagraph (iii)), and 13 CFR
120.882(e)(1). To qualify for refinancing,
the Jobs Act requires, among other
criteria, that the debt to be refinanced be
a commercial loan ‘‘the proceeds of
which were used to acquire an eligible
fixed asset’’. See
§ 502(7)(C)(i)(III)(aa)(DD) of the Small
Business Investment Act. In
promulgating the interim final rule, SBA
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was aware that the Borrower may have
refinanced such a loan one or more
times after the original financing and
used available equity in the asset to
finance working capital or other
expenses. Consequently, SBA provided
in the interim final rule that the
commercial loan would meet this
criteria if ‘‘substantially all (85% or
more) of [the loan] was for the
acquisition of Eligible Fixed Assets’’,
see 13 CFR 120.882(g)(15); the
remaining 15% of the proceeds must
have been used for other purposes for
the benefit of the Borrower. SBA stated
in the preamble to the interim final rule
that the Borrower would be required to
certify that the existing debt satisfies
these requirements, and that the Third
Party Lender would be required to
certify that it has no reason to believe
that the existing debt does not satisfy
these requirements. In addition, SBA
stated in the preamble that SBA may
require, on a random basis, for a
borrower and/or lender to submit
additional documentation supporting
the ‘‘substantially all’’ assertion.
SBA received 19 comments
expressing concern as to the ability of a
small business to provide adequate
documentation to support the
‘‘substantially all’’ standard. In
particular, for loans involving more than
one refinancing and lending institution,
the commenters stated that it would be
extremely difficult and burdensome to
attempt to document the components of
the existing debt. Consequently, SBA
has reconsidered this criteria and is
amending the interim final rule to
recognize the economic reality that
many loans for which borrowers will be
seeking refinancing under the Jobs Act
may have already been refinanced one
or more times and that borrowers may
have been able to borrow against the
equity that was created in the Eligible
Fixed Asset after its original financing.
Accordingly, SBA is amending the rule
to provide that, if the Eligible Fixed
Asset was originally financed through a
commercial loan that would have
satisfied the ‘‘substantially all’’ standard
(the ‘‘original loan’’) and that was
subsequently refinanced one or more
times, with the current commercial loan
being the most recent refinancing, the
current commercial loan will be deemed
to satisfy the ‘‘substantially all’’
standard. With respect to situations
where the Borrower leased the property
acquired with the original loan to one or
more tenants, SBA recognizes that the
original loan may not have satisfied the
leasing policies set forth in 13 CFR
120.131 and 13 CFR 120.870(b), but that
the Borrower would be able to
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demonstrate that it satisfies SBA’s
leasing policies with respect to existing
buildings as of the date of application
for assistance under the Jobs Act. SBA
believes that such Borrowers should be
eligible for this assistance and is
amending the rule to provide that, if the
original loan was for the construction of
a new building, or the acquisition,
renovation, or reconstruction of an
existing building, and such loan would
not have satisfied the leasing policies
set forth in 13 CFR 120.131 and 13 CFR
120.870(b), the current commercial loan
will be eligible for assistance if the
Borrower is able to demonstrate
compliance with 13 CFR 120.131(b) for
existing building as of the date of
application for assistance under the Jobs
Act.
SBA will require the Borrower to
certify that the existing debt satisfies the
applicable requirements, and will
require the Third Party Lender to certify
that it has no reason to believe that the
existing debt does not satisfy these
requirements. As stated in the interim
final rule, SBA may also still require, on
a random basis, for a Borrower and/or
lender to submit additional
documentation to support the
certifications prior to the closing on the
504 debenture, including the documents
for the original loan with which the
fixed asset was acquired and the
subsequent refinancing documents to
show that the current commercial loan
is the most recent refinancing. SBA will
cancel an approved loan if the
documents do not support the
certifications. If the Borrower and/or
lender are unable to produce the
additional documentation, each must
certify that they have made a diligent
search for the documents and that the
documents are not in their possession.
SBA will not cancel an approved loan
based solely on the inability of the
Borrower and/or lender to produce the
documents, except that, if the lender is
the original lending institution that
made the loan for the Eligible Fixed
Asset (not, for example, an institution
that acquired or merged with the
original lending institution), SBA would
expect that this lender would be able to
produce the necessary documents. To
make the permanent debt refinancing
program, which involves expansions,
consistent with this temporary debt
refinancing program, SBA is also
amending 13 CFR 120.882(e)(1) to
provide that if the acquisition of the
504-eligible asset was originally
financed through a commercial loan that
would have satisfied the ‘‘substantially
all’’ standard and that was subsequently
refinanced one or more times, with the
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current commercial loan being the most
recent refinancing, the current
commercial loan will be deemed to
satisfy the requirement of 120.882(e)(1).
4. Qualified Debt Criteria: Current on
all payments due—13 CFR
120.882(g)(15) (Definition of Qualified
Debt, subparagraph (vii)). One of the
eligibility criteria for this refinancing
program is that the Borrower has been
current on all payments for not less than
1 year before the date of application.
The interim final rule defines ‘‘current
on all payments due’’ to mean that ‘‘no
payment scheduled to be made during
the one year period was either deferred
or more than 30 days past due.’’ 13 CFR
120.882(g)(15) (definition of ‘‘qualified
debt’’). One trade association
representing lenders that originate the
vast majority of 504 transactions stated
that SBA should allow considerable
flexibility, and requested that SBA
define ‘‘current’’ to mean that no
payment was more than thirty days past
due from the contractual requirement at
the date of application, without regard
to whether these requirements were
original or modified payment terms. The
commenter contended that this change
would allow for cases where lenders
worked with borrowers to temporarily
modify loan terms to help them get
through the recent economic slowdown,
and reasoned that SBA will be able to
use prudent underwriting to assess
whether such modifications indicate
whether or not borrowers are
creditworthy. SBA agrees and is
amending the definition of ‘‘current on
all payments due’’ to allow a Borrower
to be deemed current so long as, at any
time within the 12 month period prior
to the date of application, no payment
was more than thirty days past due from
either the original payment terms or
modified payment terms (including
deferments) if such modification was
agreed to in writing by the Borrower and
the lender of the existing debt prior to
the publication date of these rules in the
Federal Register. However, SBA reserves
the right to determine, at its discretion
on a loan-by-loan basis, whether
modified repayment terms would
preclude refinancing under this
program.
5. Total Project Cost Supported by
Appraisal and Definition of Refinancing
Project—13 CFR 120.882(g)(5) and
120.882(g)(6). Twenty-eight comments
were received expressing concern with
respect to the basis upon which the
amount of the refinancing is
determined. Several commenters
requested that SBA base the total project
cost on the appraised value of the
collateral even when it exceeds the
amount of the existing debt, which will
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allow borrowers to access the benefits of
the 504 program, including the
financing of business expenses, without
increasing the risk to the agency.
Additional comments were received
that the definition of ‘‘Refinancing
Project’’ is too narrow and needs to be
expanded in order to increase eligibility
for small businesses. Other commenters
requested that SBA remove the
limitation on refinancing overcollateralized, high-equity value
projects and allow such projects to be
financed for borrowers who are
otherwise locked out of credit markets.
SBA believes that these comments are
addressed by the changes made to the
rule as indicated above in paragraphs 1
and 2, which, respectively, allow the
Refinancing Project to include the
financing of business expenses when
supported by acceptable collateral, and
remove the 50% Third Party Loan
requirement.
6. Decline in Real Estate Values—One
comment was received stating that the
Jobs Act debt refinance program does
not address the decline in appraised
values or the potential of a commercial
real estate crisis because assistance is
based upon current fair market
appraised value. Others made similar
comments and requested that the total
project cost be supported, but not
defined, by the appraised value. These
comments suggest that the amount of
the Refinancing Project should be based
on the existing outstanding principal
balance of the Qualified Debt instead of
on the value of the available collateral.
SBA is not adopting this
recommendation as the Small Business
Jobs Act expressly provides that ‘‘the
amount of the financing is not more
than 90% of the value of the collateral
for financing, * * *’’ (Section 1122
(a)(C)(ii)(I))(italics added)).
7. 6-Month Closing Period
Extensions—The interim final rule
requires that the 504 loan be disbursed
within 6 months after loan approval,
unless the Director, Office of Financial
Assistance, or his designee approves a
request for extension of the
disbursement period for good cause. See
13 CFR 120.882(g)(12). Nine comments
were received requesting that the
Agency permit more time than 6 months
for disbursement after loan approval,
with some commenters stating that 9
months may be needed to prepare fully
for closing. SBA believes that the
commenters’ concerns are adequately
addressed by the current authority to
grant extensions based on good cause.
To facilitate the Agency’s consideration
of extension requests, the Director,
Office of Financial Assistance, has
delegated the authority to approve
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extensions of the disbursement period
up to an additional three months for
good cause to the Center Director of the
Sacramento Loan Processing Center.
8. Allow Existing 504 Third Party
Loan Financing—Four comments were
received in support of allowing existing
504 Third Party Loans to be eligible for
this debt refinancing program. SBA is
not adopting this recommendation as
SBA continues to maintain the position,
as stated in the preamble to the interim
final rule, that these borrowers have
already benefited from government
assistance.
9. Expand Eligibility to Notes
Maturing After 12/31/2012—The
interim final rule requires that the
existing debt mature on or before
December 31, 2012 to be eligible for
refinancing, unless such date is
extended by SBA, based on its
assessment of available resources and
market conditions, in a Notice
published in the Federal Register. Two
comments were received requesting that
SBA extend program eligibility to
borrowers whose notes mature in more
than 24 months after 12/31/2012. On
April 4, 2011, SBA published an
announcement in the Federal Register
that loans with any maturity date would
be eligible for refinancing if they also
meet the other statutory and regulatory
requirements. See 76 FR 18375.
10. Allow Liquid Assets as
Collateral—Three comments requested
that SBA allow the Borrower to
contribute additional collateral in the
form of liquid assets. SBA has
considered this comment and is not
adopting it due to the relative volatility
of the value of many other asset classes
when compared with real estate or
equipment.
11. Allow Expansion Projects—Two
comments were received requesting that
projects involving expansion be allowed
as part of this temporary refinancing
program, with one commenter
specifically requesting that an
expansion be allowed where it meets a
public policy goal. However, the
refinancing authority granted by the
Jobs Act expressly provides that it
applies to a project that does not involve
the expansion of a small business
concern. In addition, SBA already
allows refinancing with lower fees than
this program for projects involving
expansion where the existing
indebtedness is up to 50% of the project
cost of the expansion. See 13 CFR
120.882(e). Moreover, with the
publication of this rule, SBA is allowing
for business expenses and obligations to
be financed when supported by
acceptable collateral so there is greater
flexibility in what can now be financed.
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12. SBA Coordination With Bank
Regulators—Two comments were
received that described the difficulties
involved in making this debt
refinancing program available for loans
that the bank regulators may consider
Troubled Assets. One of the commenters
requested that SBA seek the cooperation
of the bank regulators to grant an
exception from the requirements
involved for Troubled Assets. SBA is
always willing to provide bank
regulators with information about SBA’s
programs that may assist them in
assessing the refinancing transaction
and any effect on the lender and
borrower.
13. Thirty-Year Debenture—One
comment was received requesting that
SBA consider a thirty year debenture to
ease the debt service constraint in this
type of environment. This would assist
borrowers by lowering monthly
payments which in turn helps cash flow
and may allow more borrowers to
qualify. This recommendation was not
adopted due to the short-term nature of
this program and would likely require a
change in the subsidy cost modeling. It
would also create a limited amount of
30 year securities which would make
marketing the securities more difficult.
14. Loan Loss Reserve for All CDCs—
One commenter provided a general
comment about the 504 Loan Program
and stated that all CDCs, not only PCLP
CDCs, should be required to maintain a
loan loss reserve to reimburse SBA for
losses on 504 loans in order to
discourage CDCs from making ‘‘bad
loans.’’ The commenter recognized that
this change would require new statutory
authority. SBA is reviewing this
recommendation.
15. Pool Eligible Real Estate
Mortgages Loans—One comment was
received that SBA should allow for the
pooling of all eligible real estate
mortgages loans even if it is the same
institution debt. Currently, Third Party
lenders may sell up to 80% of their first
mortgages to pool originators in SBA’s
First Mortgage Loan Pool Program. 13
CFR 120.1700–120.1726. SBA provides
a 100% guarantee to investors that
purchase the rights to this portion of the
loan that have been pooled together as
part of this program. Same institution
refinanced first mortgages are not
currently eligible under this temporary
program. SBA is not adopting this
recommendation due to concern that it
would pose an unacceptable risk by
allowing an institution an opportunity
to avoid 80% of the risk in a transaction
that was not entirely at arm’s length. In
addition, this option was not in SBA’s
original subsidy model and could
require additional fees.
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16. Extending Legislation—Twelve
comments were received requesting that
SBA request an extension of the
temporary legislation for the Jobs Act
due to the time needed for SBA to
develop and implement this new
program. SBA is not in a position at this
time to determine whether to support an
extension of this program.
Finally, SBA has concluded that
posting the fees on the agency’s Web
site in lieu of establishing the specific
fee in the regulations would be more
advantageous and transparent to the
public. As a result, SBA is amending 13
CFR Section 120.882(g)(4) to provide
that the amount of the fee will be
established by SBA each fiscal year and
will be available on SBA’s Web site at
https://www.sba.gov/content/504-loanrefinancing-program.
III. 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. The
changes made by this rule benefit the
public by expanding, rather than
restricting, the opportunities for
refinancing under this temporary debt
refinancing program. Any delay in the
effective date would deny small
businesses immediate access to the full
benefits of the credit made available
through this rule, such as the financing
of business expenses, and an immediate
effective date will maximize the rule’s
value to small businesses and its effect
on the economy. 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, 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
OMB has determined that this rule is
a ‘‘significant’’ regulatory action under
Executive Order 12866. In the interim
final rule, SBA set forth its initial
regulatory impact analysis, which
addressed the following: The regulatory
objective of the interim final rule; the
baseline costs; the potential benefits and
costs of the interim final rule to lenders,
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to CDCs and Borrowers, and to SBA and
the Federal Government; and
alternatives to the interim final rule.
SBA did not receive any comments
which specifically addressed its
regulatory impact analysis. However, as
discussed above, SBA received several
comments requesting that SBA
implement the authority to finance
business expenses as part of a
Refinancing Project. As indicated above,
SBA is implementing this authority,
which will provide additional benefit to
small businesses. The cost differential
for an application for assistance with
this change is negligible.
In addition, SBA is modifying the cost
estimates that were provided in the
interim final rule based on a revised
estimate of the number of refinance
loans that SBA anticipates will be
processed during the time remaining for
this temporary program. This revised
estimate is based on the actual volume
of the program to date and the estimated
volume of loan applications that will be
processed based on the changes made
by this Final Rule. SBA now anticipates
that 8,520 refinance loans will be
processed, of which an estimated 5,795,
or 68% will be submitted by ASM
(Abridged Submission Method) CDCs
and an estimated 2,725, or 32%, will be
submitted by non-ASM CDCs. For ASM
CDCs, SBA estimates that the average
time for completion of each application
would consist of 8.4 hours at an average
cost of $45 per hour. Therefore, the
annual costs of submitting 504 debt
refinance applications under the final
rule would be 5,795 loan applications ×
8.4 hours for an estimated cost of
$2,190,510. For Non-ASM CDCs, SBA
estimates that the average time for
completion of each application would
consist of 8.7 hours at an average cost
of $45 per hour. Therefore, the annual
costs of submitting 504 debt refinance
applications under the final rule would
be 2,725 loan applications × 8.7 hours
for an estimated cost for non-ASM debt
refinance applications of $1,066,838.
The total estimated costs for ASM and
non-ASM applications combined would
be $3,257,348 for the two-year period of
the Jobs Act.
In addition, based on the length of
time SBA takes to review and process
504 applications, SBA is estimated to
take an average of 8.4 hours to review
and respond to ASM applications and
8.7 hours to review and respond to nonASM applications. For ASM
applications, this equates to 8.4 hours at
$45 hour × 5,795 applications for an
estimated cost of $2,190,510 for ASM
refinance loan application for the twoyear program period. For non-ASM
applications, this equates to 8.7 hours at
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$45 hour for an estimated cost × 2,725
for a total annual estimated cost of
$1,066,838 for non-ASM refinance loan
application. SBA estimates that its
combined cost of reviewing ASM and
non-ASM applications to be $3,257,348
for the two year period of the Jobs Act.
In order to carry out this new
program, SBA will hire up to 50
additional staff for the Sacramento Loan
Processing Center. The Agency must
also hire one full-time staff for lender
oversight at an average cost of $135,000
per year or a total of $270,000 for the
two-year period of the Jobs Act. In
addition, contract dollars of $105,000
per year, or $210,000 for the two-year
period of the Jobs Act, will be utilized
to assist with analysis and oversight.
The total estimate cost of oversight of
the 504 debt refinance program for the
two-year period of the Jobs Act is
estimated at $480,000.
For the reasons described above, SBA
adopts as final the initial regulatory
impact analysis set forth in the interim
final rule as revised above.
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 or retroactive effect.
WREIER-aviles on DSK7SPTVN1PROD with RULES
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.
Executive Order 13563
To the extent practicable given the
need to make this temporary, 2-year
refinance program operational
expeditiously in order to assist as many
small businesses as possible, the interim
final rule and the final rule were
developed in keeping with the intent of
this Executive Order. SBA solicited
suggestions and comments on how best
to implement the Jobs Act from the
affected stakeholders and the public as
a whole. SBA provided notice of a
public forum in the Federal Register,
which was held in Boston,
Massachusetts on November 17, 2010.
More than 100 persons attended in
person or by phone and 23 individuals
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14:51 Oct 11, 2011
Jkt 226001
provided testimony. In addition, SBA
announced a comment e-mail address
and solicited comments for a 30 day
period. The interim final rule was
significantly shaped by those comments,
especially the decision to keep the same
basic 504 financing structure for same
institution debt refinancing as for a new
institution refinancing another lender’s
debt. In addition, as indicated above,
SBA received written comments on the
interim final rule from 34 entities,
including 6 banks, 2 small businesses,
17 Certified Development Companies, 3
national trade associations, and 6
private citizens, and the changes made
by this final rule reflect the concerns
expressed by these commenters.
By adhering as closely as possible to
the procedures and conditions of SBA’s
existing permanent 504 refinancing
program, any burden that this rule may
have imposed on the affected
stakeholders is lessened. In addition,
SBA is adopting a new procedure with
this rule that specifically addresses
concerns that were raised in public
comments regarding the burden that
was imposed on lenders and borrowers
by requiring them to document, on a
random basis, that substantially all of
the proceeds of the current debt being
refinanced was used for eligible
collateral. As indicated by the
stakeholders, this requirement is
especially difficult if a property has
been refinanced more than once or if the
initial lender had been acquired by
another lender. In response to these
comments, the final rule provides that,
if the Eligible Fixed Asset was originally
financed through a commercial loan that
would have satisfied the ‘‘substantially
all’’ standard and that was subsequently
refinanced one or more times, with the
current commercial loan being the most
recent refinancing, the current loan will
be deemed to satisfy the ‘‘substantially
all’’ standard. (This final rule also
applies this change to the permanent
refinance program authorized by 13 CFR
120.882(e)). Borrowers and lenders will
still be required to certify that the debt
to be refinanced meets the applicable
requirements and, SBA may still
require, on a random basis, that
Borrowers and/or lenders submit
additional documentation to support the
certifications. However, in response to
the comments, SBA has determined
that, if the Borrower and/or lender are
unable to produce the additional
documentation, SBA will allow them
each to certify that they have made a
diligent search for the documents and
that the documents are not in their
possession. SBA will not, as indicated
above, deny an application based on the
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Fmt 4700
Sfmt 4700
63155
inability of the Borrower and/or lender
to produce the documents, except that,
if the lender is the original lending
institution that made the loan to acquire
the Eligible Fixed Asset (not, for
example, an institution that acquired or
merged with the original lending
institution), SBA would expect that this
lender would be able to produce the
necessary documents.
Paperwork Reduction Act
The SBA has determined that this rule
imposes no additional reporting and
recordkeeping requirements under the
Paperwork Reduction Act, 44 U.S.C.
chapter 35.
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA)
requires administrative agencies to
consider the economic impact of their
actions on small entities, including
small non-profit businesses and small
local governments. Pursuant to the RFA,
in finalizing a rule, whenever an agency
is required by 5 U.S.C. 553, or any other
law, to publish general notice of
proposed rulemaking for any proposed
rule, or promulgates a final
interpretative rule involving the internal
revenue laws of the United States as
described in 5 U.S.C. 603(a), the agency
shall prepare a final regulatory
flexibility analysis. (See, 5 U.S.C.
604(a)). As discussed in the interim
final rule, SBA has determined that
there was good cause to publish this
rule without notice and comment
rulemaking under section 553. In
addition, this rule is not an interpretive
rule involving the internal revenue
code. This rule is, therefore, exempt
from the requirements of the RFA.
List of Subjects in 13 CFR Part 120
Community development, Loan
programs—business, Loan programs—
veterans, Reporting and recordkeeping
requirements, Small businesses,
Veterans.
Accordingly, the interim final rule
amending 13 CFR Part 120 which was
published at 76 FR 9218 on February 17,
2011, is adopted as a final rule with the
following changes:
PART 120—BUSINESS LOANS
1. The authority citation for 13 CFR
part 120 continues to read as follows:
■
Authority: 15 U.S.C. 634(b)(6), (b)(7),
(b)(14), (h), and note, 636(a), (h) and (m), 650,
687(f), 696(3), and 697(a) and (e); Public Law
111–5, 123 Stat. 115, Public Law 111–240,
124 Stat. 2504.
2. Amend § 120.882 by revising
paragraphs (e)(1), (g)(4), (g)(5), (g)(6),
and paragraphs (iii) and (vii) in the
■
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Federal Register / Vol. 76, No. 197 / Wednesday, October 12, 2011 / Rules and Regulations
definition of ‘‘Qualified debt’’ in
paragraph (g)(15), to read as follows:
§ 120.882
loans.
Eligible Project costs for 504
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*
*
*
*
*
(e) * * *
(1) Substantially all (85% or more) of
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. If the acquisition, construction
or purchase of the asset was originally
financed through a commercial loan that
would have satisfied the ‘‘substantially
all’’ requirement and that was
subsequently refinanced one or more
times, with the current commercial loan
being the most recent refinancing, the
current commercial loan will be deemed
to satisfy this paragraph (e)(1).
*
*
*
*
*
(g) * * *
(4) In addition to the annual guarantee
fee assessed under § 120.971(d)(2),
Borrower must pay SBA a supplemental
annual guarantee fee to cover the
additional cost attributable to the
refinancing in an amount established by
SBA each fiscal year.
(5) The funding for the Refinancing
Project must come from three sources
based on the current fair market value
of the fixed assets serving as collateral
for the Refinancing Project, including a
Third Party Loan that is at least as much
as the 504 loan, not less than 10% from
the Borrower (excluding administrative
costs), and not more than 40% from the
504 loan. In addition to a cash
contribution, the Borrower’s 10%
contribution may be satisfied as set forth
in § 120.910 or by the equity in any
other fixed assets that are acceptable to
SBA as collateral for the Refinancing
Project, provided that there is an
independent appraisal of the fair market
value of the asset;
(6)(i) The portion of the Refinancing
Project provided by the 504 loan and the
Third Party Loan may be no more than
90% of the fair market value of the fixed
assets that will serve as collateral;
(ii) The Borrower’s application may
include a request to finance eligible
business expenses as part of the
Refinancing Project if the amount of
cash funds that will be provided for the
Refinancing Project exceeds the amount
to be paid to the lender of the Qualified
Debt. The Borrower’s application must
include a specific description of the
business expenses for which the
financing is requested and an
itemization of the amount of each
expense. For the purposes of this
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14:51 Oct 11, 2011
Jkt 226001
paragraph (b), ‘‘eligible business
expenses’’ means the business expenses
of the Borrower, such as salaries, rent,
utilities, inventory, or other obligations
of the business, that were incurred but
not paid prior to the date of application
or that will become due for payment
within eighteen months after the date of
application. Both the CDC and the
Borrower must certify in the application
that the funds will be used to cover
eligible business expenses. Borrower
must, upon request, substantiate the use
of the funds provided for business
expenses through, for example, bank
statements, invoices marked ‘‘paid,’’
cleared checks, or any other documents
that demonstrate that a business
obligation was satisfied with the funds
provided.
*
*
*
*
*
(15) * * *
Qualified debt * * *
(iii) Substantially all (85% or more) of
which was for an Eligible Fixed Asset.
If the Eligible Fixed Asset was originally
financed through a commercial loan that
would have satisfied the ‘‘substantially
all’’ standard (the ‘‘original loan’’) and
that was subsequently refinanced one or
more times, with the current
commercial loan being the most recent
refinancing, the current commercial
loan will be deemed to satisfy this
paragraph (iii). If the original loan was
for the construction of a new building,
or the acquisition, renovation, or
reconstruction of an existing building,
and such loan would not have satisfied
the leasing policies set forth in 13 CFR
120.131 and 13 CFR 120.870(b), the
current commercial loan will be deemed
to satisfy these policies, provided that
Borrower demonstrates compliance with
13 CFR 120.131(b) for existing buildings
as of the date of application.
*
*
*
*
*
(vii) For which the applicant for the
refinancing available under this
paragraph (g) has been current on all
payments due for not less than one year
preceding the date of application. For
the purposes of this paragraph (vii),
‘‘current on all payments due’’ means
that no payment was more than 30 days
past due from either the original
payment terms or modified payment
terms (including deferments) if such
modification was agreed to in writing by
the Borrower and the lender of the
existing debt prior to the October 12,
2011. Any delinquency in payment on
the loan to be refinanced after approval
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Fmt 4700
Sfmt 4700
and before debenture funding must be
reported to SBA as an adverse change.
*
*
*
*
*
Karen G. Mills,
Administrator.
[FR Doc. 2011–26311 Filed 10–7–11; 8:45 am]
BILLING CODE 8025–01–P
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 39
[Docket No. FAA–2011–0568; Directorate
Identifier 2011–NM–010–AD; Amendment
39–16824; AD 2011–21–01]
RIN 2120–AA64
Airworthiness Directives; Fokker
Services B.V. Model F.27 Mark 050,
200, 300, 400, 500, 600, and 700
Airplanes; and Model F.28 Airplanes
Federal Aviation
Administration (FAA), Department of
Transportation (DOT).
ACTION: Final rule.
AGENCY:
We are adopting a new
airworthiness directive (AD) for the
products listed above. This AD results
from mandatory continuing
airworthiness information (MCAI)
originated by an aviation authority of
another country to identify and correct
an unsafe condition on an aviation
product. The MCAI describes the unsafe
condition as:
SUMMARY:
[T]he Federal Aviation Administration
(FAA) has published Special Federal
Aviation Regulation (SFAR) 88, and the Joint
Aviation Authorities (JAA) has published
Interim Policy INT/POL/25/12. The review
conducted by Fokker Services on the Fokker
F27 and F28 type designs in response to
these regulations revealed that, under certain
failure conditions, a short circuit can develop
in the fuel pilot valve solenoid or in the
wiring to the solenoid. Such a short circuit
may result in an ignition source in the wing
tank vapour space.
This condition, if not corrected, could
result in a wing fuel tank explosion and
consequent loss of the aeroplane.
*
*
*
*
*
We are issuing this AD to require
actions to correct the unsafe condition
on these products.
DATES: This AD becomes effective
November 16, 2011.
The Director of the Federal Register
approved the incorporation by reference
of certain publications listed in this AD
as of November 16, 2011.
ADDRESSES: You may examine the AD
docket on the Internet at https://
www.regulations.gov or in person at the
E:\FR\FM\12OCR1.SGM
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Agencies
[Federal Register Volume 76, Number 197 (Wednesday, October 12, 2011)]
[Rules and Regulations]
[Pages 63151-63156]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-26311]
=======================================================================
-----------------------------------------------------------------------
SMALL BUSINESS ADMINISTRATION
13 CFR Part 120
RIN 3245-AG17
Small Business Jobs Act: 504 Loan Program Debt Refinancing
AGENCY: U.S. Small Business Administration.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This rule finalizes the interim final rule that implemented
section 1122 of the Small Business Jobs Act of 2010, which authorizes
projects approved for financing under Title V of the Small Business
Investment Act to include the refinancing of qualified debt. As a
result of comments received, this final rule amends the interim final
rule to authorize the financing of business expenses as part of a
Refinancing Project, to allow the Third Party Loan to be at least as
much as the 504 loan instead of requiring that the Third Party Loan
provide at least 50% of the financing, and to revise the definition of
qualified debt. Other aspects of the interim final rule are adopted as
final without change.
DATES: Effective Date: This rule is effective October 12, 2011.
FOR FURTHER INFORMATION CONTACT: Andrew B. McConnell, Jr., Office of
Financial Assistance, at jobsact_debtrefinancing@sba.gov or 202-205-
9949.
SUPPLEMENTARY INFORMATION:
I. Background
On February 17, 2011, SBA published an interim final rule with
request for comments in the Federal Register to implement section 1122
of the Small Business Jobs Act of 2010 (Jobs Act). See 76 FR 9213. This
provision of the Jobs Act temporarily authorizes projects approved for
financing under Title V of the Small Business Investment Act to include
the refinancing of qualified debt. Prior to the Jobs Act, in a typical
504 project with a refinancing component, the borrower was required to
use a significant portion of the loan proceeds for expansion of the
business. See 13 CFR 120.882(e). The temporary Jobs Act program
authorizes the use of the 504 Loan Program for the refinancing of debt
where there is no expansion of the small business, and is available for
loan applications approved by SBA through September 27, 2012.
The interim final rule was effective February 17, 2011 and the
comment period was open until May 18, 2011. SBA received written
comments from 34 commenters, including 6 banks, 2 small businesses, 17
Certified Development Companies, 3 national trade associations, and 6
individuals. The comments are summarized and addressed below with,
where applicable, the citation to the rule provision that has been
changed after consideration of the comments.
II. Summary of Comments Received
1. Financing for Business Expenses--13 CFR 120.882(g)(6). In the
interim final rule, SBA requested comments from the public on whether,
and how, to implement the provision in the Jobs Act that authorizes the
financing of business expenses in the temporary debt refinance program.
Twenty-five of the 34 comments received requested that SBA implement
the authority to finance business expenses; none of the comments
opposed implementing this authority. Several commenters stated that
there is an urgent need for this financing due to the national
recession which, they assert, resulted in bank regulator restrictions
on lending institutions, limitations on lines of credit, and decreased
opportunity for equipment vendor financing. Businesses could enhance
their viability and growth potential if they were able to access the
accumulated equity in their real estate and other fixed assets for
business purposes. No suggestions were received on how to implement the
business expense provision.
Based on the comments, SBA is amending the rule to allow a Borrower
to request the financing of business expenses as part of its
application for the Refinancing Project. Such financing will be
available only if the amount of cash that will be provided as a result
of the refinancing exceeds the amount to be paid to the lender of the
Qualified Debt. The Borrower's application must include a specific
description of the business expenses for which the financing is
requested and an itemization of the amount of each expense. The funds
provided for business expenses must be used solely for the business
expenses of the Borrower, such as salaries, rent,
[[Page 63152]]
utilities, inventory, and other obligations of the business. The
expenses may have been incurred, but not paid, prior to loan
application or may be used to pay for expenses that will become due for
payment within eighteen months after the date of loan application. Both
the CDC and the Borrower will be required to certify in the application
that the funds will be used to cover the business expenses of the
Borrower. Borrower must be able, upon request, to substantiate the use
of the funds provided for business expenses, through, for example, bank
statements, invoices marked ``paid'', cleared checks, or any other
documents that demonstrate that a business obligation was satisfied
with the funds provided.
2. Third Party Loan Less than 50%--13 CFR 120.882(g)(5). The
interim final rule requires that the Third Party Loan contribute not
less than 50% of the Refinancing Project amount, the 504 loan
contribute not more than 40% of the Refinancing Project amount, and the
Borrower contribute not less than 10% of the Refinancing Project
amount. However, while the typical 504 Project includes a Third Party
Loan equal to 50% of the Project costs, the regulations for a 504
Project other than debt refinancing require only, with certain
exceptions not applicable here, that the financing for the 504 Project
include one or more Third Party Loans that total at least as much as
the 504 loan. See 13 CFR 120.920(a). Sixteen comments were received
requesting SBA to apply to a debt refinancing project the same loan
structure requirement that applies to other 504 Projects, and not
require the Third Party Loan to be 50% of the Refinancing Project.
Commenters observed that the 50% contribution is not required by
Section 1122 of the Jobs Act. SBA has considered these comments and
concludes that it serves the interest of this temporary debt
refinancing program to amend the interim final rule to make it
consistent with 13 CFR 120.920(a), requiring that the Third Party Loan
total at least as much as the 504 loan.
3. Qualified Debt Criteria: Substantially all of loan proceeds used
to acquire Eligible Fixed Asset--13 CFR 120.882(g) (15) (Definition of
Qualified Debt, subparagraph (iii)), and 13 CFR 120.882(e)(1). To
qualify for refinancing, the Jobs Act requires, among other criteria,
that the debt to be refinanced be a commercial loan ``the proceeds of
which were used to acquire an eligible fixed asset''. See Sec.
502(7)(C)(i)(III)(aa)(DD) of the Small Business Investment Act. In
promulgating the interim final rule, SBA was aware that the Borrower
may have refinanced such a loan one or more times after the original
financing and used available equity in the asset to finance working
capital or other expenses. Consequently, SBA provided in the interim
final rule that the commercial loan would meet this criteria if
``substantially all (85% or more) of [the loan] was for the acquisition
of Eligible Fixed Assets'', see 13 CFR 120.882(g)(15); the remaining
15% of the proceeds must have been used for other purposes for the
benefit of the Borrower. SBA stated in the preamble to the interim
final rule that the Borrower would be required to certify that the
existing debt satisfies these requirements, and that the Third Party
Lender would be required to certify that it has no reason to believe
that the existing debt does not satisfy these requirements. In
addition, SBA stated in the preamble that SBA may require, on a random
basis, for a borrower and/or lender to submit additional documentation
supporting the ``substantially all'' assertion.
SBA received 19 comments expressing concern as to the ability of a
small business to provide adequate documentation to support the
``substantially all'' standard. In particular, for loans involving more
than one refinancing and lending institution, the commenters stated
that it would be extremely difficult and burdensome to attempt to
document the components of the existing debt. Consequently, SBA has
reconsidered this criteria and is amending the interim final rule to
recognize the economic reality that many loans for which borrowers will
be seeking refinancing under the Jobs Act may have already been
refinanced one or more times and that borrowers may have been able to
borrow against the equity that was created in the Eligible Fixed Asset
after its original financing. Accordingly, SBA is amending the rule to
provide that, if the Eligible Fixed Asset was originally financed
through a commercial loan that would have satisfied the ``substantially
all'' standard (the ``original loan'') and that was subsequently
refinanced one or more times, with the current commercial loan being
the most recent refinancing, the current commercial loan will be deemed
to satisfy the ``substantially all'' standard. With respect to
situations where the Borrower leased the property acquired with the
original loan to one or more tenants, SBA recognizes that the original
loan may not have satisfied the leasing policies set forth in 13 CFR
120.131 and 13 CFR 120.870(b), but that the Borrower would be able to
demonstrate that it satisfies SBA's leasing policies with respect to
existing buildings as of the date of application for assistance under
the Jobs Act. SBA believes that such Borrowers should be eligible for
this assistance and is amending the rule to provide that, if the
original loan was for the construction of a new building, or the
acquisition, renovation, or reconstruction of an existing building, and
such loan would not have satisfied the leasing policies set forth in 13
CFR 120.131 and 13 CFR 120.870(b), the current commercial loan will be
eligible for assistance if the Borrower is able to demonstrate
compliance with 13 CFR 120.131(b) for existing building as of the date
of application for assistance under the Jobs Act.
SBA will require the Borrower to certify that the existing debt
satisfies the applicable requirements, and will require the Third Party
Lender to certify that it has no reason to believe that the existing
debt does not satisfy these requirements. As stated in the interim
final rule, SBA may also still require, on a random basis, for a
Borrower and/or lender to submit additional documentation to support
the certifications prior to the closing on the 504 debenture, including
the documents for the original loan with which the fixed asset was
acquired and the subsequent refinancing documents to show that the
current commercial loan is the most recent refinancing. SBA will cancel
an approved loan if the documents do not support the certifications. If
the Borrower and/or lender are unable to produce the additional
documentation, each must certify that they have made a diligent search
for the documents and that the documents are not in their possession.
SBA will not cancel an approved loan based solely on the inability of
the Borrower and/or lender to produce the documents, except that, if
the lender is the original lending institution that made the loan for
the Eligible Fixed Asset (not, for example, an institution that
acquired or merged with the original lending institution), SBA would
expect that this lender would be able to produce the necessary
documents. To make the permanent debt refinancing program, which
involves expansions, consistent with this temporary debt refinancing
program, SBA is also amending 13 CFR 120.882(e)(1) to provide that if
the acquisition of the 504-eligible asset was originally financed
through a commercial loan that would have satisfied the ``substantially
all'' standard and that was subsequently refinanced one or more times,
with the
[[Page 63153]]
current commercial loan being the most recent refinancing, the current
commercial loan will be deemed to satisfy the requirement of
120.882(e)(1).
4. Qualified Debt Criteria: Current on all payments due--13 CFR
120.882(g)(15) (Definition of Qualified Debt, subparagraph (vii)). One
of the eligibility criteria for this refinancing program is that the
Borrower has been current on all payments for not less than 1 year
before the date of application. The interim final rule defines
``current on all payments due'' to mean that ``no payment scheduled to
be made during the one year period was either deferred or more than 30
days past due.'' 13 CFR 120.882(g)(15) (definition of ``qualified
debt''). One trade association representing lenders that originate the
vast majority of 504 transactions stated that SBA should allow
considerable flexibility, and requested that SBA define ``current'' to
mean that no payment was more than thirty days past due from the
contractual requirement at the date of application, without regard to
whether these requirements were original or modified payment terms. The
commenter contended that this change would allow for cases where
lenders worked with borrowers to temporarily modify loan terms to help
them get through the recent economic slowdown, and reasoned that SBA
will be able to use prudent underwriting to assess whether such
modifications indicate whether or not borrowers are creditworthy. SBA
agrees and is amending the definition of ``current on all payments
due'' to allow a Borrower to be deemed current so long as, at any time
within the 12 month period prior to the date of application, no payment
was more than thirty days past due from either the original payment
terms or modified payment terms (including deferments) if such
modification was agreed to in writing by the Borrower and the lender of
the existing debt prior to the publication date of these rules in the
Federal Register. However, SBA reserves the right to determine, at its
discretion on a loan-by-loan basis, whether modified repayment terms
would preclude refinancing under this program.
5. Total Project Cost Supported by Appraisal and Definition of
Refinancing Project--13 CFR 120.882(g)(5) and 120.882(g)(6). Twenty-
eight comments were received expressing concern with respect to the
basis upon which the amount of the refinancing is determined. Several
commenters requested that SBA base the total project cost on the
appraised value of the collateral even when it exceeds the amount of
the existing debt, which will allow borrowers to access the benefits of
the 504 program, including the financing of business expenses, without
increasing the risk to the agency. Additional comments were received
that the definition of ``Refinancing Project'' is too narrow and needs
to be expanded in order to increase eligibility for small businesses.
Other commenters requested that SBA remove the limitation on
refinancing over-collateralized, high-equity value projects and allow
such projects to be financed for borrowers who are otherwise locked out
of credit markets. SBA believes that these comments are addressed by
the changes made to the rule as indicated above in paragraphs 1 and 2,
which, respectively, allow the Refinancing Project to include the
financing of business expenses when supported by acceptable collateral,
and remove the 50% Third Party Loan requirement.
6. Decline in Real Estate Values--One comment was received stating
that the Jobs Act debt refinance program does not address the decline
in appraised values or the potential of a commercial real estate crisis
because assistance is based upon current fair market appraised value.
Others made similar comments and requested that the total project cost
be supported, but not defined, by the appraised value. These comments
suggest that the amount of the Refinancing Project should be based on
the existing outstanding principal balance of the Qualified Debt
instead of on the value of the available collateral. SBA is not
adopting this recommendation as the Small Business Jobs Act expressly
provides that ``the amount of the financing is not more than 90% of the
value of the collateral for financing, * * *'' (Section 1122
(a)(C)(ii)(I))(italics added)).
7. 6-Month Closing Period Extensions--The interim final rule
requires that the 504 loan be disbursed within 6 months after loan
approval, unless the Director, Office of Financial Assistance, or his
designee approves a request for extension of the disbursement period
for good cause. See 13 CFR 120.882(g)(12). Nine comments were received
requesting that the Agency permit more time than 6 months for
disbursement after loan approval, with some commenters stating that 9
months may be needed to prepare fully for closing. SBA believes that
the commenters' concerns are adequately addressed by the current
authority to grant extensions based on good cause. To facilitate the
Agency's consideration of extension requests, the Director, Office of
Financial Assistance, has delegated the authority to approve extensions
of the disbursement period up to an additional three months for good
cause to the Center Director of the Sacramento Loan Processing Center.
8. Allow Existing 504 Third Party Loan Financing--Four comments
were received in support of allowing existing 504 Third Party Loans to
be eligible for this debt refinancing program. SBA is not adopting this
recommendation as SBA continues to maintain the position, as stated in
the preamble to the interim final rule, that these borrowers have
already benefited from government assistance.
9. Expand Eligibility to Notes Maturing After 12/31/2012--The
interim final rule requires that the existing debt mature on or before
December 31, 2012 to be eligible for refinancing, unless such date is
extended by SBA, based on its assessment of available resources and
market conditions, in a Notice published in the Federal Register. Two
comments were received requesting that SBA extend program eligibility
to borrowers whose notes mature in more than 24 months after 12/31/
2012. On April 4, 2011, SBA published an announcement in the Federal
Register that loans with any maturity date would be eligible for
refinancing if they also meet the other statutory and regulatory
requirements. See 76 FR 18375.
10. Allow Liquid Assets as Collateral--Three comments requested
that SBA allow the Borrower to contribute additional collateral in the
form of liquid assets. SBA has considered this comment and is not
adopting it due to the relative volatility of the value of many other
asset classes when compared with real estate or equipment.
11. Allow Expansion Projects--Two comments were received requesting
that projects involving expansion be allowed as part of this temporary
refinancing program, with one commenter specifically requesting that an
expansion be allowed where it meets a public policy goal. However, the
refinancing authority granted by the Jobs Act expressly provides that
it applies to a project that does not involve the expansion of a small
business concern. In addition, SBA already allows refinancing with
lower fees than this program for projects involving expansion where the
existing indebtedness is up to 50% of the project cost of the
expansion. See 13 CFR 120.882(e). Moreover, with the publication of
this rule, SBA is allowing for business expenses and obligations to be
financed when supported by acceptable collateral so there is greater
flexibility in what can now be financed.
[[Page 63154]]
12. SBA Coordination With Bank Regulators--Two comments were
received that described the difficulties involved in making this debt
refinancing program available for loans that the bank regulators may
consider Troubled Assets. One of the commenters requested that SBA seek
the cooperation of the bank regulators to grant an exception from the
requirements involved for Troubled Assets. SBA is always willing to
provide bank regulators with information about SBA's programs that may
assist them in assessing the refinancing transaction and any effect on
the lender and borrower.
13. Thirty-Year Debenture--One comment was received requesting that
SBA consider a thirty year debenture to ease the debt service
constraint in this type of environment. This would assist borrowers by
lowering monthly payments which in turn helps cash flow and may allow
more borrowers to qualify. This recommendation was not adopted due to
the short-term nature of this program and would likely require a change
in the subsidy cost modeling. It would also create a limited amount of
30 year securities which would make marketing the securities more
difficult.
14. Loan Loss Reserve for All CDCs--One commenter provided a
general comment about the 504 Loan Program and stated that all CDCs,
not only PCLP CDCs, should be required to maintain a loan loss reserve
to reimburse SBA for losses on 504 loans in order to discourage CDCs
from making ``bad loans.'' The commenter recognized that this change
would require new statutory authority. SBA is reviewing this
recommendation.
15. Pool Eligible Real Estate Mortgages Loans--One comment was
received that SBA should allow for the pooling of all eligible real
estate mortgages loans even if it is the same institution debt.
Currently, Third Party lenders may sell up to 80% of their first
mortgages to pool originators in SBA's First Mortgage Loan Pool
Program. 13 CFR 120.1700-120.1726. SBA provides a 100% guarantee to
investors that purchase the rights to this portion of the loan that
have been pooled together as part of this program. Same institution
refinanced first mortgages are not currently eligible under this
temporary program. SBA is not adopting this recommendation due to
concern that it would pose an unacceptable risk by allowing an
institution an opportunity to avoid 80% of the risk in a transaction
that was not entirely at arm's length. In addition, this option was not
in SBA's original subsidy model and could require additional fees.
16. Extending Legislation--Twelve comments were received requesting
that SBA request an extension of the temporary legislation for the Jobs
Act due to the time needed for SBA to develop and implement this new
program. SBA is not in a position at this time to determine whether to
support an extension of this program.
Finally, SBA has concluded that posting the fees on the agency's
Web site in lieu of establishing the specific fee in the regulations
would be more advantageous and transparent to the public. As a result,
SBA is amending 13 CFR Section 120.882(g)(4) to provide that the amount
of the fee will be established by SBA each fiscal year and will be
available on SBA's Web site at https://www.sba.gov/content/504-loan-refinancing-program.
III. 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.
The changes made by this rule benefit the public by expanding, rather
than restricting, the opportunities for refinancing under this
temporary debt refinancing program. Any delay in the effective date
would deny small businesses immediate access to the full benefits of
the credit made available through this rule, such as the financing of
business expenses, and an immediate effective date will maximize the
rule's value to small businesses and its effect on the economy. 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, 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
OMB has determined that this rule is a ``significant'' regulatory
action under Executive Order 12866. In the interim final rule, SBA set
forth its initial regulatory impact analysis, which addressed the
following: The regulatory objective of the interim final rule; the
baseline costs; the potential benefits and costs of the interim final
rule to lenders, to CDCs and Borrowers, and to SBA and the Federal
Government; and alternatives to the interim final rule.
SBA did not receive any comments which specifically addressed its
regulatory impact analysis. However, as discussed above, SBA received
several comments requesting that SBA implement the authority to finance
business expenses as part of a Refinancing Project. As indicated above,
SBA is implementing this authority, which will provide additional
benefit to small businesses. The cost differential for an application
for assistance with this change is negligible.
In addition, SBA is modifying the cost estimates that were provided
in the interim final rule based on a revised estimate of the number of
refinance loans that SBA anticipates will be processed during the time
remaining for this temporary program. This revised estimate is based on
the actual volume of the program to date and the estimated volume of
loan applications that will be processed based on the changes made by
this Final Rule. SBA now anticipates that 8,520 refinance loans will be
processed, of which an estimated 5,795, or 68% will be submitted by ASM
(Abridged Submission Method) CDCs and an estimated 2,725, or 32%, will
be submitted by non-ASM CDCs. For ASM CDCs, SBA estimates that the
average time for completion of each application would consist of 8.4
hours at an average cost of $45 per hour. Therefore, the annual costs
of submitting 504 debt refinance applications under the final rule
would be 5,795 loan applications x 8.4 hours for an estimated cost of
$2,190,510. For Non-ASM CDCs, SBA estimates that the average time for
completion of each application would consist of 8.7 hours at an average
cost of $45 per hour. Therefore, the annual costs of submitting 504
debt refinance applications under the final rule would be 2,725 loan
applications x 8.7 hours for an estimated cost for non-ASM debt
refinance applications of $1,066,838. The total estimated costs for ASM
and non-ASM applications combined would be $3,257,348 for the two-year
period of the Jobs Act.
In addition, based on the length of time SBA takes to review and
process 504 applications, SBA is estimated to take an average of 8.4
hours to review and respond to ASM applications and 8.7 hours to review
and respond to non-ASM applications. For ASM applications, this equates
to 8.4 hours at $45 hour x 5,795 applications for an estimated cost of
$2,190,510 for ASM refinance loan application for the two-year program
period. For non-ASM applications, this equates to 8.7 hours at
[[Page 63155]]
$45 hour for an estimated cost x 2,725 for a total annual estimated
cost of $1,066,838 for non-ASM refinance loan application. SBA
estimates that its combined cost of reviewing ASM and non-ASM
applications to be $3,257,348 for the two year period of the Jobs Act.
In order to carry out this new program, SBA will hire up to 50
additional staff for the Sacramento Loan Processing Center. The Agency
must also hire one full-time staff for lender oversight at an average
cost of $135,000 per year or a total of $270,000 for the two-year
period of the Jobs Act. In addition, contract dollars of $105,000 per
year, or $210,000 for the two-year period of the Jobs Act, will be
utilized to assist with analysis and oversight. The total estimate cost
of oversight of the 504 debt refinance program for the two-year period
of the Jobs Act is estimated at $480,000.
For the reasons described above, SBA adopts as final the initial
regulatory impact analysis set forth in the interim final rule as
revised above.
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 or retroactive effect.
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.
Executive Order 13563
To the extent practicable given the need to make this temporary, 2-
year refinance program operational expeditiously in order to assist as
many small businesses as possible, the interim final rule and the final
rule were developed in keeping with the intent of this Executive Order.
SBA solicited suggestions and comments on how best to implement the
Jobs Act from the affected stakeholders and the public as a whole. SBA
provided notice of a public forum in the Federal Register, which was
held in Boston, Massachusetts on November 17, 2010. More than 100
persons attended in person or by phone and 23 individuals provided
testimony. In addition, SBA announced a comment e-mail address and
solicited comments for a 30 day period. The interim final rule was
significantly shaped by those comments, especially the decision to keep
the same basic 504 financing structure for same institution debt
refinancing as for a new institution refinancing another lender's debt.
In addition, as indicated above, SBA received written comments on the
interim final rule from 34 entities, including 6 banks, 2 small
businesses, 17 Certified Development Companies, 3 national trade
associations, and 6 private citizens, and the changes made by this
final rule reflect the concerns expressed by these commenters.
By adhering as closely as possible to the procedures and conditions
of SBA's existing permanent 504 refinancing program, any burden that
this rule may have imposed on the affected stakeholders is lessened. In
addition, SBA is adopting a new procedure with this rule that
specifically addresses concerns that were raised in public comments
regarding the burden that was imposed on lenders and borrowers by
requiring them to document, on a random basis, that substantially all
of the proceeds of the current debt being refinanced was used for
eligible collateral. As indicated by the stakeholders, this requirement
is especially difficult if a property has been refinanced more than
once or if the initial lender had been acquired by another lender. In
response to these comments, the final rule provides that, if the
Eligible Fixed Asset was originally financed through a commercial loan
that would have satisfied the ``substantially all'' standard and that
was subsequently refinanced one or more times, with the current
commercial loan being the most recent refinancing, the current loan
will be deemed to satisfy the ``substantially all'' standard. (This
final rule also applies this change to the permanent refinance program
authorized by 13 CFR 120.882(e)). Borrowers and lenders will still be
required to certify that the debt to be refinanced meets the applicable
requirements and, SBA may still require, on a random basis, that
Borrowers and/or lenders submit additional documentation to support the
certifications. However, in response to the comments, SBA has
determined that, if the Borrower and/or lender are unable to produce
the additional documentation, SBA will allow them each to certify that
they have made a diligent search for the documents and that the
documents are not in their possession. SBA will not, as indicated
above, deny an application based on the inability of the Borrower and/
or lender to produce the documents, except that, if the lender is the
original lending institution that made the loan to acquire the Eligible
Fixed Asset (not, for example, an institution that acquired or merged
with the original lending institution), SBA would expect that this
lender would be able to produce the necessary documents.
Paperwork Reduction Act
The SBA has determined that this rule imposes no additional
reporting and recordkeeping requirements under the Paperwork Reduction
Act, 44 U.S.C. chapter 35.
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) requires administrative
agencies to consider the economic impact of their actions on small
entities, including small non-profit businesses and small local
governments. Pursuant to the RFA, in finalizing a rule, whenever an
agency is required by 5 U.S.C. 553, or any other law, to publish
general notice of proposed rulemaking for any proposed rule, or
promulgates a final interpretative rule involving the internal revenue
laws of the United States as described in 5 U.S.C. 603(a), the agency
shall prepare a final regulatory flexibility analysis. (See, 5 U.S.C.
604(a)). As discussed in the interim final rule, SBA has determined
that there was good cause to publish this rule without notice and
comment rulemaking under section 553. In addition, this rule is not an
interpretive rule involving the internal revenue code. This rule is,
therefore, exempt from the requirements of the RFA.
List of Subjects in 13 CFR Part 120
Community development, Loan programs--business, Loan programs--
veterans, Reporting and recordkeeping requirements, Small businesses,
Veterans.
Accordingly, the interim final rule amending 13 CFR Part 120 which
was published at 76 FR 9218 on February 17, 2011, is adopted as a final
rule with the following changes:
PART 120--BUSINESS LOANS
0
1. The authority citation for 13 CFR part 120 continues to read as
follows:
Authority: 15 U.S.C. 634(b)(6), (b)(7), (b)(14), (h), and note,
636(a), (h) and (m), 650, 687(f), 696(3), and 697(a) and (e); Public
Law 111-5, 123 Stat. 115, Public Law 111-240, 124 Stat. 2504.
0
2. Amend Sec. 120.882 by revising paragraphs (e)(1), (g)(4), (g)(5),
(g)(6), and paragraphs (iii) and (vii) in the
[[Page 63156]]
definition of ``Qualified debt'' in paragraph (g)(15), to read as
follows:
Sec. 120.882 Eligible Project costs for 504 loans.
* * * * *
(e) * * *
(1) Substantially all (85% or more) of 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. If the acquisition, construction or purchase of the asset was
originally financed through a commercial loan that would have satisfied
the ``substantially all'' requirement and that was subsequently
refinanced one or more times, with the current commercial loan being
the most recent refinancing, the current commercial loan will be deemed
to satisfy this paragraph (e)(1).
* * * * *
(g) * * *
(4) In addition to the annual guarantee fee assessed under Sec.
120.971(d)(2), Borrower must pay SBA a supplemental annual guarantee
fee to cover the additional cost attributable to the refinancing in an
amount established by SBA each fiscal year.
(5) The funding for the Refinancing Project must come from three
sources based on the current fair market value of the fixed assets
serving as collateral for the Refinancing Project, including a Third
Party Loan that is at least as much as the 504 loan, not less than 10%
from the Borrower (excluding administrative costs), and not more than
40% from the 504 loan. In addition to a cash contribution, the
Borrower's 10% contribution may be satisfied as set forth in Sec.
120.910 or by the equity in any other fixed assets that are acceptable
to SBA as collateral for the Refinancing Project, provided that there
is an independent appraisal of the fair market value of the asset;
(6)(i) The portion of the Refinancing Project provided by the 504
loan and the Third Party Loan may be no more than 90% of the fair
market value of the fixed assets that will serve as collateral;
(ii) The Borrower's application may include a request to finance
eligible business expenses as part of the Refinancing Project if the
amount of cash funds that will be provided for the Refinancing Project
exceeds the amount to be paid to the lender of the Qualified Debt. The
Borrower's application must include a specific description of the
business expenses for which the financing is requested and an
itemization of the amount of each expense. For the purposes of this
paragraph (b), ``eligible business expenses'' means the business
expenses of the Borrower, such as salaries, rent, utilities, inventory,
or other obligations of the business, that were incurred but not paid
prior to the date of application or that will become due for payment
within eighteen months after the date of application. Both the CDC and
the Borrower must certify in the application that the funds will be
used to cover eligible business expenses. Borrower must, upon request,
substantiate the use of the funds provided for business expenses
through, for example, bank statements, invoices marked ``paid,''
cleared checks, or any other documents that demonstrate that a business
obligation was satisfied with the funds provided.
* * * * *
(15) * * *
Qualified debt * * *
(iii) Substantially all (85% or more) of which was for an Eligible
Fixed Asset. If the Eligible Fixed Asset was originally financed
through a commercial loan that would have satisfied the ``substantially
all'' standard (the ``original loan'') and that was subsequently
refinanced one or more times, with the current commercial loan being
the most recent refinancing, the current commercial loan will be deemed
to satisfy this paragraph (iii). If the original loan was for the
construction of a new building, or the acquisition, renovation, or
reconstruction of an existing building, and such loan would not have
satisfied the leasing policies set forth in 13 CFR 120.131 and 13 CFR
120.870(b), the current commercial loan will be deemed to satisfy these
policies, provided that Borrower demonstrates compliance with 13 CFR
120.131(b) for existing buildings as of the date of application.
* * * * *
(vii) For which the applicant for the refinancing available under
this paragraph (g) has been current on all payments due for not less
than one year preceding the date of application. For the purposes of
this paragraph (vii), ``current on all payments due'' means that no
payment was more than 30 days past due from either the original payment
terms or modified payment terms (including deferments) if such
modification was agreed to in writing by the Borrower and the lender of
the existing debt prior to the October 12, 2011. Any delinquency in
payment on the loan to be refinanced after approval and before
debenture funding must be reported to SBA as an adverse change.
* * * * *
Karen G. Mills,
Administrator.
[FR Doc. 2011-26311 Filed 10-7-11; 8:45 am]
BILLING CODE 8025-01-P