Immediate, Expedited, and Private Disaster Assistance Loan Programs, 63715-63717 [2015-26532]

Agencies

• SMALL BUSINESS ADMINISTRATION

[Federal Register Volume 80, Number 203 (Wednesday, October 21, 2015)]
[Proposed Rules]
[Pages 63715-63717]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-26532]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 80, No. 203 / Wednesday, October 21, 2015 / 
Proposed Rules

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SMALL BUSINESS ADMINISTRATION

13 CFR Part 123

RIN 3245-AF99


Immediate, Expedited, and Private Disaster Assistance Loan 
Programs

AGENCY: U.S. Small Business Administration.

ACTION: Advance Notice of Proposed Rulemaking (ANPRM).

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SUMMARY: The U.S. Small Business Administration (SBA) is seeking 
comments on this Advance Notice of Proposed Rulemaking (ANPRM) 
regarding the Immediate Disaster Assistance Program (IDAP), the 
Expedited Disaster Assistance Program (EDAP), and the Private Disaster 
Assistance Program (PDAP). Specifically, SBA is seeking comments on the 
development of proposed regulations for PDAP and EDAP and potential 
revisions to the existing regulations for IDAP. These programs were 
authorized by the Small Business Disaster Response and Loan 
Improvements Act of 2008. The purpose of this ANPRM is to request 
feedback from potential participants and the public in order to 
implement these programs in a way that will encourage and enable 
private sector lenders to participate with SBA to fund loans to 
disaster survivors.

DATES: Comments must be submitted on or before December 21, 2015.

ADDRESSES: You may submit comments, identified by RIN 3245-AF99, by any 
of the following methods: (1) Federal Rulemaking Portal: https://www.regulations.gov. Follow the instructions for submitting comments; 
or (2) Mail/Hand Delivery/Courier: U.S. Small Business Administration, 
Attn: Michelle Genovese, Office of Capital Access, 409 Third Street 
SW., 8th Floor, Washington, DC 20416. All comments will be posted on 
www.regulations.gov. If you wish to submit confidential business 
information (CBI) as defined in the User Notice at www.regulations.gov, 
you must submit such information to the U.S. Small Business 
Administration, Attn: Michelle Genovese, 409 Third Street SW., 8th 
Floor, Washington, DC 20416, or send an email to 
michelle.genovese@sba.gov. Highlight the information that you consider 
to be CBI and explain why you believe SBA should hold this information 
as confidential. SBA will review your information and determine whether 
it will make the information public.

FOR FURTHER INFORMATION CONTACT: Michelle Genovese, U.S. Small Business 
Administration, 409 3rd Street SW., 8th Floor, Washington, DC 20416, 
telephone number (202) 401-8282 or michelle.genovese@sba.gov.

SUPPLEMENTARY INFORMATION:

I. Background

    The Small Business Disaster Response and Loan Improvements Act of 
2008 created three new guaranteed disaster loan programs: The Immediate 
Disaster Assistance Program, the Expedited Disaster Assistance Program, 
and the Private Disaster Assistance Program. See Public Law 110-246 
(June 18, 2008). Unlike SBA's direct disaster loan program, authorized 
by Section 7(b) of the Small Business Act, under which disaster 
survivors borrow loan funds directly from SBA, the guaranteed disaster 
loan programs are designed to allow private sector lenders to 
participate with SBA in the delivery of disaster loans. The purpose of 
these programs is to provide disaster survivors with additional avenues 
for disaster relief in order to help them recover as quickly as 
possible following a disaster. Details on the features and requirements 
of each program are described below.

Immediate Disaster Assistance Program (IDAP)

    The statutory provisions for IDAP may be found in Section 12084 of 
the Small Business Disaster Response and Loan Improvements Act of 2008, 
codified at 15 U.S.C. 657n. Under IDAP, SBA guarantees 85% of a loan 
from participating lenders to small businesses that have suffered 
physical or economic injury due to a disaster. IDAP loans may be made 
available for any disaster declared by SBA. The intent of the program 
is to provide small businesses with immediate access to small dollar 
loans in the wake of a disaster on an interim basis pending receipt of 
a direct disaster loan from SBA. Applicants must meet the basic 
eligibility requirements for a direct disaster loan from SBA and must 
apply for the SBA direct disaster loan in order to qualify for the IDAP 
loan. The IDAP loan has a maximum amount of $25,000. SBA does not 
charge any fees on an IDAP loan. If a direct disaster loan is later 
approved, proceeds from that loan must be applied first to repay the 
IDAP loan. However, if the direct disaster loan is declined, or if the 
direct disaster loan covers only a portion of the IDAP loan, the 
balance of the IDAP loan must have a minimum term of 120 months from 
the date of final disbursement of the IDAP loan. By regulation, IDAP 
lenders must be lenders that participate in the guaranteed loan program 
authorized by Section 7(a) of the Small Business Act. Additionally, by 
regulation, IDAP is a delegated authority loan program; non-delegated 
processing is not available.
    On October 1, 2010, SBA issued an interim final rule (75 FR 60588) 
that provided regulatory requirements for the program. These 
regulations include details on borrower eligibility requirements, loan 
terms, fees, and requirements for participating lenders. See 13 CFR 
123.700-123.706. SBA did not receive any comments on the interim final 
rule. On October 25, 2010, SBA issued a Notice in the Federal Register 
(75 FR 65534) setting the interest rate on IDAP loans at the prime rate 
plus one percentage point. Pursuant to 13 CFR 123.703, this rate may be 
changed by publication in the Federal Register from time to time.

 Expedited Disaster Assistance Program (EDAP)

    The statutory provisions for EDAP may be found in Section 12085 of 
the Small Business Disaster Response and Loan Improvements Act of 2008. 
Under EDAP, SBA would guarantee short term loans from participating 
lenders to small businesses that have suffered damage due to a 
``catastrophic'' disaster. Section 7(b)(9) of the Small Business Act 
provides that if the President declares a major disaster, the SBA 
Administrator may declare eligibility for additional disaster 
assistance if the disaster has resulted in extraordinary levels of 
casualties or damage or disruption severely affecting the population, 
infrastructure, environment, economy,

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national morale, or government functions in an area. In order for the 
SBA Administrator to declare as a catastrophic disaster with 
eligibility for additional disaster assistance, the disaster must be of 
such size and scope that SBA's direct disaster loan program is 
incapable of providing adequate and timely assistance, or a significant 
number of businesses outside of the disaster area have suffered 
substantial economic injury as a result of the disaster.
    The maximum amount of an EDAP loan would be $150,000 and SBA would 
not charge any fees on the loans. The term of an EDAP loan must be 
limited to 180 days, with extensions on a case-by-case basis. The EDAP 
loan may be refinanced by a direct disaster loan from SBA or other 
sources. The maximum interest rate must not exceed 300 basis points 
over the federal funds rate.

Private Disaster Assistance Program (PDAP)

    The statutory provisions for PDAP may be found in Section 12083 of 
the Small Business Disaster Response and Loan Improvements Act of 2008, 
codified at 15 U.S.C. 636(c). Under PDAP, SBA is authorized to 
guarantee not more than 85 percent of a loan from participating lenders 
to small businesses, homeowners or renters that have suffered damage 
due to a ``catastrophic'' disaster, as defined above.
    Those eligible for PDAP include homeowners, renters, or small 
businesses that have suffered physical losses and small businesses that 
have suffered economic injury as a result of a catastrophic disaster. 
As required by the statute, any SBA lender participating in the 
Preferred Lenders Program (PLP) under Section 7(a) of the Small 
Business Act would be eligible to participate in the PDAP program, and 
SBA would establish criteria for additional PDAP lenders in 
regulations. All PDAP lenders would be eligible to make PDAP loans to 
small businesses, but only PLP lenders would be eligible to make PDAP 
loans to homeowners or renters.
    The maximum amount of a PDAP loan is $2,000,000. SBA would not 
charge any fees on the loans. Terms and conditions of PDAP loans would 
be the same as SBA direct disaster loans.

II. Comments Requested

    These guaranteed disaster loan programs would provide disaster 
survivors with additional avenues for disaster relief and give 7(a) 
participating lenders an opportunity to partner with SBA to assist in 
the recovery of homeowners and small businesses in their communities 
after a disaster. SBA requests comments from the public on features 
necessary to attract lender participation while providing timely and 
affordable assistance to disaster survivors. Responders are invited to 
comment on any or all portions of this ANPRM, and may submit additional 
comments on issues relevant to IDAP, EDAP and PDAP not specifically 
covered.
    General questions applicable to all three programs include, but are 
not limited to the following:
    1. Interest rate and fees. SBA understands that disaster loans are 
inherently riskier loans and that lenders use interest rates and fees 
in order to offset risk. In developing specific program requirements 
for IDAP, SBA attempted to strike a balance between allowing lenders to 
mitigate risk and keeping disaster recovery loans affordable. This 
included capping borrower application fees at $250, a late payment fee 
not to exceed 5 percent of the scheduled payment, and limiting the 
interest rate to the prime rate plus one percentage point. Since then, 
SBA has received feedback from lenders that the interest rate and fee 
limitations are too low. Given the general description of each program, 
what interest rates and fees would be needed to support lender 
participation in these programs?
    2. Borrower eligibility. For all three guaranteed disaster loan 
programs, borrowers must meet the same eligibility requirements as 
borrowers in SBA's direct disaster loan program. These requirements are 
generally contained in the following regulations in Title 13 of the 
Code of Federal Regulations: For individuals, Sec. Sec.  123.100 and 
123.101; for businesses with physical damage, Sec. Sec.  123.200 and 
123.201; and for businesses with economic injury, Sec. Sec.  123.300 
and 123.301. For IDAP, the eligibility requirements are set forth in 13 
CFR 123.702.
    Only borrowers who sustained physical or economic damages and who 
are located in an eligible disaster area would be eligible for loans 
under the guaranteed disaster loan programs. Before making a direct 
disaster loan for physical damage, SBA performs an on-site verification 
of the losses resulting from the declared disaster in order to 
determine the eligible loan amount. For both economic injury and 
physical damage loans, SBA must also verify the location of the 
borrower. How would a loss verification process affect lender costs? 
SBA seeks input from potential lenders regarding their ability to make 
loans in accordance with these requirements. For example, should SBA 
allow lenders to rely on borrowers' self-certifications when 
determining eligibility? Comments may address, among other things, 
verification of borrower eligibility, borrower rights of appeal, 
liability for false statements by borrowers, and the level of training/
instruction required to participate in the programs.
    3. Duplication of benefits. By statute, SBA direct disaster loans 
are only available for physical damages or economic injury that is not 
compensated by other sources in order to avoid a duplication of 
benefits. If there are no other recoveries, a disaster loan borrower is 
generally eligible to borrow up to the amount of their disaster losses, 
as long as the amount is within statutory or regulatory limits and the 
borrower has repayment ability. If the borrower has received any funds 
from other sources for the same losses, however, the amount of the 
disaster loan must be reduced. All three guaranteed disaster loan 
programs must adhere to this same requirement. Other sources include 
proceeds from insurance or other indemnifications, grants or other 
reimbursement (including loans) from government agencies or private 
organizations, gifts, condemnation awards, and salvage (including any 
sale or re-use) of items of disaster-damaged property. What concerns, 
if any, do lenders have regarding their ability to evaluate borrower 
eligibility in accordance with this requirement?
    4. Catastrophic disasters. PDAP and EDAP are only available in 
``catastrophic'' disasters (as discussed above); IDAP is available in 
any SBA-declared disaster that SBA designates as IDAP-eligible. Would 
lenders be interested in making guaranteed PDAP and EDAP loans for 
disasters other than ``catastrophic'' disasters? PDAP loans are 
intended to be long-term guaranteed disaster loans. Are lenders 
prepared to underwrite these types of loans following a catastrophic 
disaster, when resources and access to the disaster site may be 
limited? Would a catastrophic disaster affect the ability of lenders to 
deliver PDAP and EDAP loans in a timely manner?
    5. Timing. Disasters are, by definition, sudden events that cause 
severe damage in the affected areas. How quickly would participating 
lenders be able to make IDAP, EDAP and PDAP loans available to disaster 
survivors after SBA identifies a disaster as eligible for the IDAP 
program or the SBA Administrator declares eligibility for additional 
disaster assistance due to a catastrophic disaster?

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    6. Conflict of interest. SBA recognizes that lenders that 
participate in any of the three guaranteed disaster loan programs may 
be more likely to use the program(s) to lend to their existing 
depositors and borrowers. This could be the result of the lender's 
greater familiarity and experience with the depositor or borrower, 
which would be particularly useful if business or personal records have 
been destroyed in the disaster. SBA 7(a) lenders and IDAP lenders are 
subject to the requirements of 13 CFR 120.140 (What ethical 
requirements apply to participants?). SBA invites comments on whether 
there are any additional relationships or transactions that should be 
restricted in the guaranteed disaster loan programs due to the 
potential for a conflict of interest on the part of the lender that 
might put the SBA-guaranteed disaster loan at greater risk than would 
otherwise be the case.

IDAP Specific Issues

    7. Term of loan. IDAP loans are designed to be interim loans that 
will be repaid with the proceeds of a direct disaster loan from SBA. If 
SBA does not approve an IDAP borrower for a direct disaster loan in the 
amount of the IDAP loan, the remaining balance of the IDAP loan, by 
statute, must have a term of at least ten years from the date of final 
disbursement. Lenders have indicated concern that a ten year repayment 
period is too long. What is the appropriate repayment term for an IDAP 
loan if a direct disaster loan sufficient to repay the IDAP loan is not 
approved by SBA?
    8. Servicing and Liquidation. Unlike servicing and liquidation for 
regular 7(a) loans, SBA regulations require an IDAP lender to service 
and liquidate IDAP loans in accordance with the existing practices and 
procedures that the IDAP lender uses for its non-SBA guaranteed 
commercial loans. See 13 CFR 123.706(d) and (e). What concerns, if any, 
do lenders have regarding these requirements?

EDAP Specific Issues

    9. Guaranty percentage. Unlike for IDAP and PDAP, the statute did 
not set a guaranty percentage for EDAP. What guaranty percentage would 
lenders require in order to make EDAP loans?
    10. Refinancing option. Even though the term of an EDAP loan is 
limited to 180 days (with extensions on a case-by-case basis), the 
statute gives SBA the authority to refinance EDAP loans with the 
proceeds of direct disaster loans. Would a refinancing option make EDAP 
a more attractive loan product?
    11. Use of proceeds. The statute requires SBA to specify whether 
EDAP proceeds may be used for the following purposes: Paying employees; 
paying bills and other financial obligations; making repairs; 
purchasing inventory; restarting or operating a small business concern 
in the community in which it was conducting operations prior to the 
applicable major disaster, or to a neighboring area, county, or parish 
in the disaster area; or covering additional costs until the small 
business concern is able to obtain funding through insurance claims, 
Federal assistance programs, or other sources. SBA seeks input on which 
uses of proceeds, included those listed above or others recommended by 
commenters, would be appropriate for EDAP loans.

PDAP Specific Issues

    12. Term of loan. The term of an SBA direct disaster loan is 
determined based on the borrower's ability to repay. The maximum term 
is 30 years, and the average loan term is 18.5 years. PDAP loans may 
have maturities of up to 30 years. Would lenders be willing to make a 
PDAP loan of up to 30 years? If not, what is the maximum loan term that 
lenders would consider suitable in the PDAP program.
    13. Amount of loan. The amount of direct disaster loans to 
homeowners and renters are capped by regulation. Generally, the 
regulations allow up to $40,000 for personal property, $200,000 for 
repair or replacement of a primary residence, and $200,000 for 
refinancing. See 13 CFR 123.105. Are lenders willing to make guaranteed 
disaster loans to homeowners and renters in these amounts? If not, what 
is the range of loan amounts that lenders would prefer?
    14. Collateral. SBA does not require collateral for direct disaster 
loans made in response to major disasters if the loan is $25,000 or 
less. See 13 CFR 123.11. Are lenders willing to make guaranteed 
disaster loans of up to $25,000 with no collateral? Additionally, SBA 
permits liens on direct disaster loans to be in a subordinate position. 
Are lenders willing to make guaranteed disaster loans if the loan will 
be secured by a lien in a subordinate position?
    15. Consumer lending. Only PLP lenders are eligible to make PDAP 
loans to homeowners and renters. PLP lenders are authorized by SBA to 
make commercial loans, and are not screened in any way for capacity to 
make and service loans to individuals for residential mortgages or 
improvements. Do PLP lenders have the expertise to make non-commercial 
guaranteed disaster loans, or should they be made by other lender units 
organized to make consumer loans? What training would be required for a 
PLP or other lender, and what are the concerns about the costs 
associated with developing the requisite skills? In addition, 
guaranteed loans to homeowners and renters may require compliance with 
consumer lending requirements. Do lenders have any concerns about the 
costs associated with compliance with such requirements? Should SBA's 
guarantee be conditioned upon a lender's compliance with these consumer 
lending requirements?
    16. Delegated authority lending. PLP lenders are authorized to make 
PDAP loans to homeowners and renters, as well as small businesses. Will 
PLP lenders want all PDAP loans to be made under delegated authority? 
Other lenders are authorized to make loans to small businesses. Do 
other lenders want PDAP loans to small businesses to be made under 
delegated authority? If SBA determines that a PLP lender participating 
in PDAP knowingly fails to comply with the underwriting standards for 
PDAP loans, the statute requires SBA to exclude the PLP lender from 
participating in PDAP or exclude the PLP lender from the 7(a) PLP 
program for up to five years. Are PLP lenders less likely to 
participate in PDAP given these compliance requirements?
    17. Sale of the Guarantee. SBA permits the sale of the guarantee on 
loans made in its other business loan programs. Would the sale of 
guarantees be a key factor in determining lender participation in PDAP?

Maria Contreras-Sweet,
Administrator.
[FR Doc. 2015-26532 Filed 10-20-15; 8:45 am]
BILLING CODE P