Miscellaneous Amendments to Business Loan Programs and Surety Bond Guarantee Program, 52595-52608 [2016-18044]

Agencies

• SMALL BUSINESS ADMINISTRATION

[Federal Register Volume 81, Number 153 (Tuesday, August 9, 2016)]
[Proposed Rules]
[Pages 52595-52608]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-18044]


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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 115 and 120

RIN 3245-AF85


Miscellaneous Amendments to Business Loan Programs and Surety 
Bond Guarantee Program

AGENCY: U.S. Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: The U.S. Small Business Administration (SBA) continues to 
review the regulations governing the delivery and oversight of its 
business lending programs. SBA is proposing changes to some of these 
regulations for clarity and to increase participation in: The Surety 
Bond Guarantee (SBG) Program, the 7(a) Loan Program, the Microloan 
Program, and the Development Company Loan Program (504 Loan Program). 
In addition, the proposed changes will streamline the regulations by 
removing or revising any outdated regulations.

DATES: SBA must receive comments to the proposed rule on or before 
October 11, 2016.

ADDRESSES: You may submit comments, identified by RIN 3245-AF85, by any 
of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Mary Frias, Office of Financial Assistance, Office 
of Capital Access, Small Business Administration, 409 Third Street SW., 
Washington, DC 20416.
     Hand Delivery/Courier: Mary Frias, Office of Financial 
Assistance, Office of Capital Access, Small Business Administration, 
409 Third Street SW., Washington, DC 20416.
    SBA will post all comments on www.regulations.gov. If you wish to 
submit confidential business information (CBI) as defined in the User 
Notice at www.regulations.gov, please submit the information to Office 
of Financial Assistance, Office of Capital Access, 409 Third Street 
SW., Washington, DC 20416. Highlight the information that you consider 
to be CBI and explain why you believe SBA should hold this information 
as confidential. SBA will review the information and make the final 
determination whether it will publish the information.

FOR FURTHER INFORMATION CONTACT: Robert Carpenter, Financial Analyst, 
Office of Financial Assistance, Office of Capital Access, Small 
Business Administration, 409 Third Street SW., Washington, DC 20416; 
telephone: (202) 205-7654; email: robert.carpenter@sba.gov.

SUPPLEMENTARY INFORMATION:

I. Background Information

    Executive Order 13563, Improving Regulation and Regulatory Review, 
76 FR 3821 (January 21, 2011), directs agencies to ensure that 
regulations are accessible, consistent, written in plain language, and 
easy to understand in order to foster economic growth and job creation. 
Executive Order 13563 provides that our regulatory system ``must 
identify and use the best, most innovative and least burdensome tools 
for achieving regulatory ends.'' Executive Order 13563 further provides 
that ``[t]o facilitate the periodic review of existing significant 
regulations, agencies shall consider how best to promote retrospective 
analysis of rules that may be outmoded, ineffective, insufficient, or 
excessively burdensome, and to modify, streamline, expand, or repeal 
them in accordance with what has been learned.'' SBA has reviewed its 
regulations with regard to the Business Loan Programs, as defined 
below, and is proposing a number of amendments and revisions to 
accomplish this goal.
    The SBA programs affected by this proposed rule are the 7(a) Loan 
Program authorized pursuant to section 7(a) of the Small Business Act 
(the Act) (15 U.S.C. 636(a)), the Microloan Program authorized pursuant 
to section 7(m) of the Act (15 U.S.C. 636(m)), the Surety Bond 
Guarantee Program authorized pursuant to part B of title IV of the 
Small Business Investment Act of 1958 (15 U.S.C. 694b et seq.), and the 
Development Company Program (the 504 Loan Program) authorized pursuant 
to title V of the Small Business Investment Act of 1958 (15 U.S.C. 695 
et seq.) (collectively referred to as the Business Loan Programs).
    The Agency requests comments on all aspects of the regulatory 
revisions in this proposed rule and on any related issues affecting the 
Business Loan Programs.

II. Summary of Proposed Business Loan Program Changes

    SBA's proposed changes are described in this section, with 
additional details on each located in the section-by-section analysis 
that follows:

A. Surety Bond Guarantee Program

    1. Threshold Change. SBA proposes to change the threshold amounts 
set forth in Sec. Sec.  115.19, 115.32, and 115.67 under which Sureties 
are required to notify SBA, or obtain SBA's prior written approval, of 
changes in the

[[Page 52596]]

contract or bond amounts for which an SBA bond guarantee has been 
issued. This change would remove the $100,000 threshold and rely solely 
on the 25% threshold.
    2. Quarterly Contract Completion Notification. SBA proposes to add 
a requirement that all participating sureties must notify SBA of all 
contracts successfully completed on a quarterly basis through the 
submission of a quarterly contract completion report identifying all 
contracts successfully completed and any changes in the contract amount 
and related fees during the preceding fiscal quarter. This new 
requirement will be addressed in a new section at Sec.  115.22, 
Quarterly Contract Completion Report.
    3. Quick Bond Guarantee Application and Agreement (SBA Form 990A) 
Increased Contract Limit. SBA proposes to allow Sureties participating 
in the Prior Approval Program to use the Quick Bond Guarantee 
Application and Agreement (SBA Form 990A), authorized by 13 CFR 
115.30(d)(2), for contracts that do not exceed $400,000. The current 
contract limit for use of this form is $250,000.
    4. Preferred Surety Bond Guarantee Program. SBA was recently 
authorized to increase its guarantee percentage for bonds issued in the 
Preferred Surety Bond (PSB) Guarantee Program from ``not to exceed 70 
per centum'' to ``not to exceed 90 per centum'' by section 874 of title 
VIII of Division A of the National Defense Authorization Act (NDAA), 
2016, Public Law 114-92, 129 Stat. 726. This increase will become 
effective on November 25, 2016. Accordingly, SBA is proposing to amend 
its regulations to implement this change, including increasing the 
guarantee percentages in the PSB Program and requiring that, for a 
period of at least nine months following the admission of new Sureties 
into the PSB Program, Sureties obtain SBA's prior written approval 
before executing a bond greater than $2 million.

B. 7(a) and 504 Loan Programs and Microloan Program

    1. Consumer and Marketing Cooperatives. SBA proposes to remove 
consumer and marketing cooperatives from the ineligible types of 
businesses identified in Sec.  120.110.
    2. Change of Ownership Among Existing Owners in Eligible Passive 
Companies (EPC) and Operating Companies (OC). SBA proposes to revise 
the regulation at Sec.  120.111 to permit loans to finance a change of 
ownership when an existing owner of the Eligible Passive Company (EPC) 
is purchasing a departing co-owner's interest in the EPC for the 
benefit of an eligible OC. SBA also proposes to revise Sec.  
120.111(a)(3) to clarify that rent or lease payments cannot exceed the 
amount necessary to make the loan payment to the lender, and an 
additional amount to cover the EPC's direct expenses of holding the 
property, such as maintenance, insurance and property taxes.
    3. Personal Guarantee Conditions for Eligible Passive Companies 
(EPCs) and Operating Companies (OCs). For consistency with Sec.  
120.160(a), SBA proposes to add language in Sec.  120.111(a)(6) to 
state that SBA may require the personal guarantee of those owning less 
than 20 percent of the EPC or the OC. Additionally, SBA proposes to add 
language to provide that SBA may require the personal guarantee of 
those owning less than 5 percent ownership when circumstances warrant. 
Finally, SBA proposes to clarify that the personal guarantee 
requirements apply when an individual has an ownership interest in 
either the EPC or the OC.
    4. Restrictions on uses of proceeds. SBA proposes to revise Sec.  
120.130 to add a new paragraph (e) and redesignate paragraphs (e) and 
(f) as paragraphs (f) and (g), respectively. The new paragraph (e) will 
include the text currently found in Sec.  120.160(d), Taxes, which 
prohibits the use of loan proceeds to pay past-due Federal or state 
payroll taxes. SBA also proposes to revise paragraph (g) to remove the 
reference to ``Sec.  120.203'' and replace it with ``Sec.  120.202''.
    5. Personal Guarantees (for loans other than to EPCs/OCs). SBA 
proposes to modify the language in Sec.  120.160(a) to clarify that SBA 
may require the personal guarantee of those owning less than 5 percent 
ownership when circumstances warrant.
    6. Use of Computer Forms. SBA proposes to remove Sec.  120.194 as 
it is outdated and no longer necessary.
    7. Variable Interest Rates on 7(a) Loans. SBA proposes to revise 
the language in Sec.  120.214 with respect to when the allowable base 
rate is determined and when adjustments in the variable interest rate 
will be permitted.
    8. Fees that Lender pays SBA. SBA proposes to add a new Sec.  
120.220(a)(3) to incorporate the provision under Public Law 114-38, 
section 2 (Veterans Entrepreneurship Act of 2015), which waives the up-
front guaranty fee for SBA Express loans provided to businesses owned 
and controlled by veterans or spouses of veterans under certain 
circumstances. In order to incorporate advances in technology, SBA also 
proposes to update the regulation at Sec.  120.220(b) to provide for 
the electronic payment of the up-front guaranty fee on all loans and to 
modify the timing of that payment on certain loans. Finally, SBA 
proposes corresponding changes to Sec.  120.220(c) governing when SBA 
will refund the guaranty fee on certain loans.
    9. Fees which a Lender May Collect from an Applicant. SBA proposes 
to add clarifying language to this section in an introductory paragraph 
explaining that the fees listed in Sec.  120.221 are the only fees a 
Lender is permitted to collect from an applicant in connection with the 
loan application. SBA also proposes to remove the current language in 
Sec.  120.221(e), which prohibits a Lender from charging a Borrower a 
pre-payment fee, and replace that language with the current language 
found in Sec.  120.222(e), which permits a Lender to charge an 
Applicant for certain legal fees.
    10. Fees which the Lender or Associate May Not Collect from the 
Borrower or Share with Third Parties. SBA proposes to revise Sec.  
120.222 to remove all of the text except the prohibition on sharing 
premiums for secondary market sales. In conjunction with the proposed 
changes to Sec.  120.221, SBA proposes to include the fees a Lender may 
charge an Applicant or Borrower in one regulation; unless otherwise 
permitted by SBA Loan Program Requirements, any fees not included in 
Sec.  120.221 will be prohibited.
    11. Use of Proceeds in the Builders Loan Program. In Sec.  120.394, 
SBA proposes to increase the limit on loan proceeds being used to 
acquire land under a line of credit under the Builder's Loan Program.
    12. On-Site/Off-Site Reviews for 7(a) Lenders, CDCs and Microloan 
Intermediaries (Intermediaries). Due to SBA's improved electronic 
methods, virtual reviews, such as Analytical and Targeted Reviews, may 
cover much of what was previously performed in the scope of ``on-site'' 
reviews, diminishing the distinction between ``off-site'' and ``on-
site'' reviews. Accordingly, SBA proposes to remove all references to 
``on-site'' reviews in Sec. Sec.  120.410(a)(2), 120.424(b), 
120.433(b), 120.434(c), 120.630(a)(5), 120.710(e)(1), 120.812(c), 
120.816(c), 120.839, 120.841(c), 120.1050, 120.1051, 120.1070 and 
120.1400(c)(4). SBA will, however, retain the term ``review/examination 
assessments'' in these regulations. SBA is also proposing to replace 
references to ``off-site'' reviews and monitoring with ``monitoring'' 
in Sec. Sec.  120.1025 and 120.1051(a).
    13. ``Good Standing'' now referred to as being ``Satisfactory.'' 
SBA proposes

[[Page 52597]]

to replace the term ``Good Standing'' as it relates to a Lender's 
status with its Federal Financial Institution Regulator (FFIR) with 
``Satisfactory'' in Sec. Sec.  120.410(e), 120.630(a)(4), and 
120.1703(a)(4).
    14. The Certified Lenders Program. SBA proposes to remove 
regulations pertaining to SBA's Certified Lenders Program (CLP). 
Section 120.440 will be replaced with a new regulation (see discussion 
immediately below), and Sec.  120.441 will be reserved for future use.
    15. Delegated Authority Criteria. SBA proposes to add a new title 
and text in place of Sec.  120.440 to include in the regulations the 
criteria for delegated authority in the 7(a) Loan Program. With the 
addition of this regulation on delegated authority in general, the 
specific regulation at Sec.  120.451, How does a Lender become a PLP 
Lender, is no longer necessary and will be removed and reserved for 
future use.
    16. When is SBA Released from Liability on its Guarantee? SBA 
proposes to revise Sec.  120.524(b) to allow SBA to utilize all legal 
means available when recovering any moneys paid on the guarantee plus 
interest, including administrative offset and judicial remedies.
    17. Suspension or Revocation from SBA's Secondary Market. SBA 
proposes to revise Sec.  120.660 to require that any action taken under 
this section be approved by both the Director, Office of Financial 
Assistance (D/FA) and the Director, Office of Credit Risk Management 
(D/OCRM). Authority is also proposed for suspension or revocation of a 
Lender participating in SBA's Secondary Market based upon specific 
regulatory action issued by a Lender's primary regulator or a going 
concern opinion issued by the Lender's auditor. Finally, SBA proposes 
to remove the reference to an obsolete form.
    18. Removal of Board Overlap Restriction. SBA proposes to remove 
language from Sec.  120.823(c)(5) that prohibits a CDC from having more 
than one of its Directors employed by, or serving on, the Board of 
Directors of any other non-CDC entity.
    19. Removal of Reference to Members for CDC Boards of Directors. 
SBA proposes to replace the term ``members'' with the term 
``individuals'' in Sec.  120.823(d)(4)(ii), Loan Committee.
    20. Case-by-Case Application to Make a 504 Loan Outside of a CDC's 
Area of Operations. SBA proposes to replace the term ``District 
Office'' in Sec.  120.839 with the term ``504 loan processing center.'' 
SBA also proposes to streamline the text in the introductory paragraph 
of this section.
    21. Ineligible Costs for 504 Loans. SBA proposes to replace the 
term ``meeting the IRS definition of capital equipment'' in Sec.  
120.884(e)(3) with ``having a remaining useful life of at least 10 
years.''
    22. Confidentiality of Reports, Risk Ratings and related 
Confidential Information Disclosure Prohibitions. SBA proposes a 
limited expansion of parties identified in Sec.  120.1060 as 
``permitted parties'' who should be afforded access to, a lender's 
Review/Exam Report information, Risk Rating, and Confidential 
Information. Access to these permitted parties is granted only for the 
purpose of assisting a lender in improving the SBA Lender's, 
Intermediary's or Non-lending Technical Assistance Provider's (NTAP's) 
SBA program operation in conjunction with SBA's Lender Oversight 
Program and SBA's portfolio management.
    23. Lender Oversight Fees. Due to the SBA's improved electronic 
methods for oversight that allows for virtual Reviews and other 
oversight activities to be conducted without an ``on-site'' visit, SBA 
proposes to eliminate the distinction between ``on-site'' and ``off-
site'' in the fee components set forth in Sec.  120.1070. Consistent 
with eliminating this distinction, the proposed rule would also provide 
flexibility in how SBA allocates its costs for Reviews, Examinations, 
Monitoring, or Other Lender Oversight Activities (e.g., allocating 
actual costs assessed to each Lender versus apportioning costs by 
portfolio size).
    24. Grounds for Enforcement Actions--SBA Lenders. SBA proposes to 
revise language to provide for consent to the appointment of a Receiver 
and/or other relief by SBA Supervised Lenders (except Other Regulated 
SBLCs) and by CDCs in Sec.  120.1400(a).
    25. Types of Enforcement Actions--SBA Lenders. SBA proposes to 
revise the language permitting SBA to initiate a request for 
appointment of a Receiver of an SBA Supervised Lender in Sec.  
120.1500(c)(3) and add language permitting SBA to initiate a request 
for appointment of a Receiver of a CDC in Sec.  120.1500(e)(3).
    26. General Procedures for Enforcement Actions Against SBA Lenders, 
SBA Supervised Lenders, Other Regulated SBLCs, Management Officials, 
Other Persons, Intermediaries, and NTAPs. SBA proposes to add language 
regarding the procedures for appointment of a Receiver over a CDC or an 
SBA Supervised Lender in Sec. Sec.  120.1600(a), 120.1600(a)(6), and 
120.1600(b)(4).
    27. First Lien Position 504 Loan (``FMLP'') Program. SBA proposes 
to add language to Sec.  120.1707 to ensure that an allonge to the 
First Lien Position 504 Loan Pool Guarantee Agreement, in form 
acceptable to SBA, is executed with a transfer of a Seller's retained 
interest in an FMLP Pool Loan.
    28. Systemically Important Secondary Market Broker-Dealers (SISMBD) 
Loan Program. SBA proposes to remove Sec. Sec.  120.1800-1900, Subpart 
K, in its entirety to remove all references to the SISMBD Loan Program. 
The program was established under the American Recovery and 
Reinvestment Act (ARRA) in 2009 and the program authority expired on 
February 16, 2013.

III. Section by Section Analysis

    1. Section 115.19 Denial of liability. Under the current 
regulation, the dollar threshold for determining when an increase in 
the Contract or bond amounts may result in denial of liability as the 
result of a material breach or a substantial regulatory violation is 
25% or $100,000, whichever is less. Based on feedback from the surety 
industry and other stakeholders, SBA has determined that the existing 
threshold is outdated, and no longer reflects current industry 
practices and this change is being made to align SBA requirements with 
the prevailing industry practice, while managing the increased bond 
liability to the Government. Currently, under Sec.  115.32(d), the 
surety is required to notify SBA if any contract or bond increases in 
the aggregate by 25% or $100,000, whichever is less. Further, if the 
bond increases as a result of a single change order by 25% or $100,000, 
whichever is less, the surety is required to obtain SBA's prior written 
approval of the increase. Prevailing industry practice allows increases 
to the contract and bond without prior notification to the surety. To 
better align SBA requirements with that of the industry, while managing 
the increased bond liability to the Government, this change would 
eliminate the dollar threshold of $100,000, while retaining the 25% 
threshold for purposes of denying liability under paragraphs (c)(1), 
(d), and (e)(2) of Sec.  115.19.
    2. Section 115.22 Quarterly Contract Completion Report. At present, 
SBA does not receive a final accounting of fees due and paid by the 
surety and principal on contracts that are successfully completed. 
Consequently, SBA is unable to ensure that fees due the Government as a 
result of an increase in the contract amount are paid in a timely 
manner on contracts that do not default. To better track fee payments 
and complement periodic on-site audits

[[Page 52598]]

at surety company locations, sureties participating in the SBA Surety 
Bond Guarantee Program would be required under this provision to submit 
a quarterly contract completion report within 45 days of the close of 
each quarter, identifying completed contracts, any changes in contract 
amount, and any related fees.
    3. Section 115.30 Submission of Surety's guarantee application. 
Section 115.30(d)(2) provides a streamlined Quick Bond Guarantee 
Application and Agreement (SBA Form 990A) (Quick Bond) that is used in 
the Prior Approval Program for smaller contract amounts. It complements 
the surety industry practice of providing a shorter application for 
smaller contract amounts, and has helped to address sureties' 
perceptions about excessive paperwork in SBA's bond guarantee 
application process. The Quick Bond has been widely accepted by 
participating sureties.
    The proposed rule would increase the Quick Bond eligible contract 
limit from $250,000 to $400,000. Implementation of the higher contract 
limit would increase the use of the Quick Bond and would provide access 
to bonding for more small contractors. It would more closely conform to 
the contract limits allowed in the abbreviated applications offered in 
the surety industry, and would respond to sureties' requests to raise 
the current limit.
    Experience with the Quick Bond has been favorable at the $250,000 
limit. Since its implementation in August of 2012, SBA has guaranteed 
more than 1,500 bonds and only 27 defaults have occurred. If the 
contract amount is increased, SBA would continue to closely monitor its 
experience with the Quick Bond.
    4. Section 115.32(d)(1) Notification and Approval. Under the 
current regulation, a Prior Approval Surety must notify SBA of any 
increases or decreases in the Contract or bond amount that aggregate 
25% of $100,000, whichever is less, as soon as the Surety acquires 
knowledge of the change, and also must obtain SBA's prior written 
approval of an increase in the original bond amount as a result of a 
single change order of at least 25% or $100,000, whichever is less. As 
discussed above under Sec.  115.19, prevailing industry practice allows 
increases to the contract and bond without prior notification to the 
surety. To better align SBA requirements with that of the industry, 
while managing the increased bond liability to the Government, this 
change would eliminate the dollar threshold of $100,000 while retaining 
the 25% threshold.
    5. Section 115.60 Selection and admission of PSB Sureties. SBA is 
proposing to amend this provision to provide that, for a period of nine 
months following admission into the PSB Program, the Surety must obtain 
SBA's prior written approval before executing a bond greater than $2 
million. With the increase in the guarantee percentage to up to 90% (as 
discussed below), SBA wants the opportunity to evaluate the Surety's 
underwriting and claims and recovery processes to be assured that the 
PSB Surety has demonstrated a successful period of operations. At its 
discretion, SBA may extend this period to further evaluate the Surety.
    6. Section 115.67(a) Increases. Under the current regulation, a 
Preferred Surety Bond Surety must pay the additional fees due from the 
Principal and the Surety on increases aggregating 25% of the contract 
or bond amount or $100,000, whichever is less. For consistency with the 
changes proposed to Sec. Sec.  115.19 and 115.32, the proposed rule 
would eliminate the dollar threshold while retaining the 25% threshold.
    7. Section 115.68 Guarantee Percentage. There are two SBA surety 
bond guarantee programs: The Prior Approval Program and the Preferred 
Surety Bond (PSB) Program. Under the Prior Approval Program, SBA 
approves each bond guarantee individually, and guarantees between 80% 
and 90% of a bond issued, depending on the status of the contractor or 
the amount of the Contract at the time the bond was executed. Under the 
PSB Program, sureties are authorized to issue, monitor and service 
bonds without prior SBA approval, but the SBA currently guarantees only 
up to 70% of the bond. Over the past several years, SBA has experienced 
a sharp decline in the PSB Program activity due to the lower guarantee 
rate. To increase participation in the PSB Program, and thereby assist 
more small businesses, Congress amended section 411(c)(1) of the Small 
Business Investment Act of 1958 (15 U.S.C. 694b(c)(1)), to authorize 
SBA to guarantee up to 90% in the PSB Program. The effective date of 
this increase was delayed until November 25, 2016, to allow time for 
the necessary rulemaking.
    Accordingly, SBA is proposing to amend Sec.  115.68 to adopt the 
same guarantee percentages for the PSB Program that are provided in the 
Prior Approval Program under Sec.  115.31:
    (1) SBA would reimburse a PSB Surety for 90% of the Loss incurred 
and paid if: (i) The total amount of the Contract at the time of 
Execution of the bond is $100,000 or less. Like the Prior Approval 
Program, when the Contract amount increases to more than $100,000 after 
bond Execution, the guarantee percentage would decrease by one 
percentage point for each $5,000 of increase or part thereof, but would 
not decrease below 80%. If the Contract decreases to $100,000, or less, 
after bond Execution, the guarantee percentage would increase to 90% if 
the Surety provides SBA with evidence supporting the decrease and any 
other information or documents requested; or (ii) the bond was issued 
on behalf of a small business owned and controlled by socially and 
economically disadvantaged individuals, on behalf of a qualified 
HUBZone small business concern, or on behalf of a small business owned 
and controlled by Veterans or a small business owned and controlled by 
Service-Disabled Veterans;
    (2) SBA would reimburse a PSB Surety in an amount not to exceed 80% 
of the Loss incurred and paid on bond for Contracts in excess of 
$100,000 which are executed on behalf of non-disadvantaged concerns; 
and
    (3) If the Contract or Order amount is increased above the 
Applicable Statutory Limit (as defined in Sec.  115.10) after bond 
Execution, SBA's share of the Loss is limited to that percentage of the 
increased Contract or Order amount that the Applicable Statutory Limit 
represents multiplied by the guarantee percentage approved by SBA. For 
example, if a contract amount increases to $6,800,000, SBA's share of 
the loss under an 80% guarantee is limited to 76.5% (6,500,000/
6,800,000 = 95.6% x 80% = 76.5%.)
    8. Section 120.110 What businesses are ineligible for SBA business 
loans? SBA proposes to remove the existing Sec.  120.110(l) that 
identifies consumer and marketing cooperatives as ineligible types of 
businesses for SBA financial assistance. Cooperatives are a form of 
organization and there is no reason why cooperatives should be excluded 
from eligibility. As such, all cooperatives may be eligible for SBA 
financing, provided they comply with all other Loan Program 
Requirements.
    9. Section 120.111 What conditions must an Eligible Passive Company 
satisfy? SBA proposes to amend two paragraphs in Sec.  120.111:
    (1) Introductory paragraph. Presently, the Eligible Passive Company 
(EPC) may only use loan proceeds ``to acquire or lease, and/or improve 
or renovate, real or personal property (including eligible 
refinancing), that it leases to one or more Operating Companies for

[[Page 52599]]

conducting the Operating Company's business.'' SBA proposes to include 
language to permit SBA loan proceeds to be used to finance a change of 
ownership between existing owners of the Eligible Passive Company 
(EPC), provided the transaction meets all conditions described in Sec.  
120.111.
    (2) Paragraph (a)(3). The lease between the EPC and the OC. SBA 
proposes to clarify that rent or lease payments made by the OC to the 
EPC cannot exceed the amount necessary to make the loan payment to the 
lender, and an additional amount to cover the EPC's direct expenses of 
holding the property, such as maintenance, insurance and property 
taxes.
    (3) Paragraph (a)(6). Who must guarantee the loan. SBA proposes to 
clarify that owners of 20 percent or more of either the EPC or the OC 
are required to personally guarantee the loan. Also, for consistency 
with Sec.  120.160(a), SBA proposes to add language to Sec.  
120.111(a)(6) to provide that SBA may, in its discretion and in 
consultation with the Lender, require the personal guarantee of owners 
with less than 20% ownership of the EPC or the OC. Additionally, SBA 
proposes to add language to provide that SBA may require the personal 
guarantee of those owning less than 5% ownership when circumstances 
warrant.
    10. Section 120.130 Restrictions on uses of proceeds. SBA proposes 
to revise Sec.  120.130 to add a new paragraph (e) and redesignate 
paragraphs (e) and (f) as paragraphs (f) and (g), respectively. The new 
paragraph (e) will include the text currently found in Sec.  
120.160(d), Taxes. The current text in Sec.  120.160(d) prohibit the 
use of proceeds for payment of past-due Federal or state withholding 
taxes, which is more applicable to Sec.  120.130. SBA also proposes 
some minor modifications to the language to clarify the restriction. 
SBA also proposes to revise newly designated paragraph (g) to remove 
the reference ``Sec.  120.203'' and replace it with ``Sec.  120.202''. 
The regulation Sec.  120.203 cited in this section was removed in 1996. 
The correction to remove the reference to Sec.  120.203 and replace it 
with the reference to Sec.  120.202 in Sec.  120.130(f) was not made at 
the time and this oversight is being corrected here. The redesignation 
of paragraphs (e) and (f) to (f) and (g) in the section improves the 
flow with the inclusion of the new Sec.  120.130(e).
    11. Section 120.160(a) Loan conditions. SBA proposes to add the 
word ``generally'' to the last sentence of Sec.  120.160(a) to clarify 
that SBA may require a personal guarantee of an owner who holds less 
than 5% when the circumstances warrant, such as Cooperatives where no 
one member may have an ownership interest of at least 5%.
    12. Section 120.194 Use of computer forms. SBA proposes to remove 
the regulation at Sec.  120.194 in its entirety as it is outdated. The 
regulation will be reserved for future use.
    13. Section 120.214 What conditions apply for variable interest 
rates? The current regulation governing variable interest rates in 
Sec.  120.214 provides that, when a Lender uses the prime or London 
Interbank Offered Rate (LIBOR) rate as the base rate in a variable 
interest rate loan, the base rate will be ``that which is in effect on 
the first business day of the month, as printed in a national financial 
newspaper published each business day.'' (Sec.  120.214(c)) Further, 
the current regulation also provides that the ``first change in the 
variable rate may occur on the first calendar day of the month 
following initial disbursement using the base rate (see paragraph (c) 
of this section) in effect on the first business day of the month.'' 
(Sec.  120.214(a)) SBA proposes to revise the language in Sec. Sec.  
120.214(a) and (c) to change when the base rate is determined and to 
permit adjustments in the variable interest rate other than just on the 
first business day of the month, provided the changes occur no more 
frequently than monthly.
    14. Section 120.220 Fees that Lender pays SBA. SBA proposes to add 
a new paragraph Sec.  120.220(a)(3) to incorporate into the regulations 
the statutory waiver of the up-front guaranty fee for SBA Express loans 
made to businesses owned and controlled by veterans and/or spouses of 
veterans in fiscal years when the subsidy rate for the 7(a) program is 
zero, as set forth in section 7(a)(31) of the Small Business Act (15 
U.S.C. 636(a)(31)). The conditions a business must meet to qualify for 
this fee waiver will be explained in SBA Loan Program Requirements.
    In Sec.  120.220(b), in an effort to incorporate advances in 
technology, SBA proposes to update the regulation to advise Lenders to 
pay the guaranty fee electronically and to revise the timeframe within 
which a Lender must pay the guaranty fee to SBA for loans with a 
maturity of 12 months or less (``short-term loans''). SBA proposes to 
revise the timing of payment of the fee on a short-term loan from the 
time of application to within ten business days of SBA's approval of 
the loan. The current requirement was implemented when Lenders paid 
fees using checks. Currently, fees are paid electronically through 
Pay.gov. Requiring payment of the fee with the application for guaranty 
on short-term loans creates a bottleneck that delays the processing 
center's turn-around time for these loans.
    Given the longer timeframe for the Lender to pay the fee, SBA also 
proposes to remove the first two sentences of Sec.  120.220(c), which 
state when SBA will refund the guaranty fee paid on a short-term loan. 
With the additional time provided for payment of the fee, there will be 
no need for refunds.
    15. Section 120.221 Fees which the Lender may collect from a loan 
applicant. SBA proposes to add clarifying language to this section in 
an introductory paragraph explaining that, unless otherwise permitted 
by SBA Loan Program Requirements (e.g., the guaranty fee under Sec.  
120.220), the fees listed in Sec.  120.221 are the only fees a lender 
is permitted to charge and collect from an Applicant or Borrower. SBA 
also proposes to remove the current language in Sec.  120.221(e) 
because it incorrectly refers to a prohibited fee (``pre-payment 
fees''). SBA proposes to move the language that permits Lenders to 
collect fees for legal services presently found in Sec.  120.222(e) to 
Sec.  120.221(e). By making these changes, the guidance on permissible 
fees a Lender may charge and collect from an Applicant or Borrower will 
be contained in one regulation in an effort to reduce confusion.
    16. Section 120.222 Fees which the Lender or Associate may not 
collect from the Borrower or share with third parties. SBA proposes to 
retitle Sec.  120.222 to read ``Prohibition on sharing premiums for 
secondary market sales.'' SBA also proposes to remove paragraphs (a), 
(b), (c), and (e), and revise the text of paragraph (d). The removal of 
the fees currently included in Sec.  120.222(a), (b), and (c) does not 
mean that Lenders will now be permitted to charge these fees. On the 
contrary, the proposal to remove the fees from Sec.  120.222 in 
conjunction with the proposed changes to Sec.  120.221 are intended to 
place the guidance on allowable fees in a single regulation. Unless 
otherwise permitted by SBA Loan Program Requirements, any fee not 
identified in Sec.  120.221 is prohibited. SBA proposes to retain the 
prohibition on the sharing of secondary market fees in Sec.  120.222 
for consistency with 13 CFR 103.5(c), which prohibits a lender from 
sharing any secondary market premium with a lender service provider.
    17. Section 120.394 What are the eligible uses of proceeds? SBA 
proposes to increase the regulatory limitation on how much of the 
proceeds of a line of credit under the Builder's Loan Program can be 
used for land acquisition from

[[Page 52600]]

20% to 33%. SBA recognizes that the current limitation is reflective of 
limits imposed in 1977, and has not allowed for increases due to the 
passage of time and increases in land and development costs.
    18. Section 120.410 Requirements for all participating Lenders. SBA 
proposes to replace the term ``Good Standing,'' as it relates to a 
Lender's status with its Federal Financial Institution Regulator, with 
``considered Satisfactory by its Federal Financial Institution 
Regulator'' (FFIR) in paragraph (e) to better align with terminology 
used by the FFIRs. Finally, given the diminished distinction between 
``on-site'' and ``off-site'' reviews due to incorporation of virtual 
methods for oversight in SBA's Revised Risk-Based Review Protocol, SBA 
proposes to remove the references to ``on-site'' reviews/examinations 
in Sec.  120.410(a)(2) (and in all other regulations) while retaining 
the term ``review/examination assessments.''
    19. Section 120.424 What are basic conditions a Lender must meet to 
securitize? In paragraph (b), SBA proposes to remove the term ``on-
site'' while retaining the term ``review/examination assessments'' in 
this section.
    20. Section 120.433 What are SBA's other requirements for sales and 
sales of participating interests? In paragraph (b), SBA proposes to 
remove the term ``on-site'' while retaining the term ``review/
examination assessments'' in this section.
    21. Section 120.434 What are SBA's requirements for loan pledges? 
In paragraph (c), SBA proposes to remove the term ``on-site'' while 
retaining the term ``review/examination assessments'' in this section.
    22. Sections 120.440 and 120.441 The Certified Lenders Program 
(``CLP''); replaced with new Delegated Authority section. SBA proposes 
to remove the title and all language in Sec. Sec.  120.440 and 120.441, 
The Certified Lenders Program, as implementation of newer, more 
efficient methods of processing, closing, servicing, and liquidating 
have made this program unnecessary and obsolete. Beginning on the 
effective date of the final rule, the CLP would be terminated.
    SBA also proposes to add a new heading before Sec.  120.440 that 
reads ``Delegated Authority Criteria'' and to add new language in Sec.  
120.440 that sets forth the criteria for Lenders when applying for 
initial approval or renewal of delegated authority in the 7(a) Loan 
Program. These criteria are essentially identical to the criteria 
currently included in SBA's Standard Operating Procedure (SOP) 50 10 
5(H), subpart A for the PLP, SBA Express and Export Express Programs. 
Under this new provision, SBA, in its discretion, would consider 
whether the Lender:
    (a) Has the continuing ability to evaluate, process, close, 
disburse, service, liquidate and litigate SBA loans. This includes the 
ability to develop and analyze complete loan packages. SBA may consider 
the experience and capability of Lender's management and staff.
    (b) Has satisfactory SBA performance (as defined in Sec.  
120.410(a)(2));
    (c) Is in compliance with SBA Loan Program Requirements (e.g., Form 
1502 reporting, timely payment of all fees to SBA);
    (d) Has completed to SBA's satisfaction all required corrective 
actions;
    (e) Is subject to any enforcement action, order or agreement with 
other regulators or the presence of other regulatory concerns as 
determined by SBA; and
    (f) Whether Lender exhibits other risk factors (e.g., has rapid 
growth; low SBA activity; SBA loan volume; Lender, an officer or 
director is under investigation or indictment).
    With respect to ``low SBA activity,'' SBA considers making 5 SBA-
guaranteed loans or less in a 2 year period to be low activity. 
Additionally, with respect to SBA loan volume, SBA would look at the 
Lender's proportion of SBA lending relative to the Lender's total loan 
portfolio.
    Section 120.441 will be reserved for future use.
    23. Section 120.451 How does a Lender become a PLP Lender? As a 
result of replacing Sec.  120.440 with a new regulation setting out the 
criteria for delegated authority, the existing regulation at Sec.  
120.451 would no longer be necessary and would be removed and reserved 
for future use.
    24. Section 120.524 When is SBA released from liability on its 
guarantee? SBA proposes to clarify that its rights to collect monies 
paid on a guarantee from which SBA determines it has been released of 
liability include judicial remedies and the right to offset funds due 
the Lender for the guaranty purchase of another loan. SBA's right to 
seek these remedies arises under contract law as interpreted by the 
courts.
    25. Section 120.630 Qualifications to be a Pool Assembler. In 
paragraph (a)(4) SBA proposes to replace the term ``good standing'' 
with ``satisfactory'' when it relates to other federal regulators and 
SBA proposes to update the reference to the National Association of 
Securities Dealers (NASD) and replace it with the Financial Industry 
Regulatory Authority (FINRA), as NASD no longer exists. SBA also 
proposes to remove the term ``on-site'' while retaining the term 
``review/examination assessments'' in subparagraph (a)(5).
    26. Section 120.660 Suspension or revocation. SBA proposes to 
revise Sec.  120.660 to require that any action taken under this 
section be approved by both the D/FA and the D/OCRM. SBA proposes to 
add a 120-day limit to the proposed suspension period to give 
participants sufficient time to resolve any correctable issues. 
Additionally, SBA proposes to reduce the timeframe for a revocation 
under this section to no more than two (2) years. SBA also proposes to 
identify regulatory orders or supervisory actions brought by a Lender's 
primary regulator or by SBA or a going concern opinion by the Lender's 
auditor as additional reasons for which SBA may suspend or revoke a 
Lender's privilege to participate in SBA's Secondary Market. The 
issuance of any regulatory order or supervisory action by the Lender's 
primary regulator will require notice to SBA within 5 business days (or 
as soon as practicable thereafter) to the D/OCRM and D/FA. In addition, 
SBA proposes to add a new paragraph (d) to this regulation to provide 
for early termination of a suspension or revocation under this section, 
in the D/FA and the D/OCRM's discretion, if termination is warranted.
    SBA also proposes to eliminate the reference to SBA Form 1085 
within this section as SBA Form 1085 is obsolete.
    27. Section 120.710(e)(1) What Must an Intermediary Demonstrate to 
Get a Reduction in the Loan Loss Reserve Fund? SBA proposes to remove 
the reference to ``on-site'' reviews or examinations, while retaining 
the term ``review/examination assessments.'' As SBA increases its use 
and application of electronic technology in lender oversight and 
reviews and examinations, the ``on-site'' review language is no longer 
generally applicable. The proposed language reflects a more current 
representation of reviews and examinations.
    28. Section 120.812 Probationary period for newly certified CDCs. 
In paragraph (c), SBA proposes to remove the term ``on-site'' while 
retaining the term ``review/examination assessments.''
    29. Section 120.816 CDC non-profit status and good standing. SBA 
proposes to remove the term ``on-site'' while retaining the term 
``review/examination assessments'' in paragraph (c).
    30. Section 120.823 CDC Board of Directors. SBA proposes to revise

[[Page 52601]]

Sec.  120.823(c)(5) to eliminate the language in this rule that 
currently prevents more than one Board member of a CDC from being 
employed by, or serving as a Director on the Board of, other entities, 
except for civic or charitable organizations not involved in financial 
services or economic development activities. This provision was 
intended to apply to associations not covered by 13 CFR 120.820, under 
which a CDC may be affiliated, including through common board members, 
with the entities described in that section. However, Sec.  
120.823(c)(5) has created confusion among the CDCs with respect to what 
other entities a CDC Director may be employed by or associated with as 
a Director. SBA has reconsidered this provision and determined that the 
affiliation restrictions set forth in Sec.  120.820 sufficiently limit 
the ability of another entity to control the CDC. SBA will retain the 
sentence in this provision that references Sec.  120.851(b) to 
reinforce the prohibition against a CDC Board member from serving on 
the Board of another CDC.
    SBA also proposes to insert the word ``individuals'' in place of 
``members'' to clarify in Sec.  120.823(d)(4)(ii)(C) that individuals 
serving on the loan committee of a CDC do not have to be Members of the 
CDC or the CDC's Board. SBA no longer requires a CDC to have a 
membership and some CDC's were confused by the use of the term 
``member'' in this section. Therefore, SBA intends to change the word 
``member'' to ``individual''.
    31. Section 120.839 Case-by-case application to make a 504 loan 
outside of a CDC's Area of Operations. SBA proposes to replace the term 
``District Offices'' in this Section with ``504 loan processing 
center'' to reflect the SBA office that processes 504 loan 
applications. A revision to the regulation is needed in order to 
reflect the current protocol that the 504 loan processing center, not 
the District Office, submits its recommendation to the D/FA or 
designee, along with the application and supporting materials for the 
final decision if the applicant CDC meets the specific criteria to be 
authorized to make a loan outside of its stated Area of Operations. SBA 
also proposes to remove the term ``on-site'' while retaining ``review/
examination assessments'' in this section.
    32. Section 120.841(c) CDC Reviews. SBA proposes to remove the term 
``on-site'' while retaining the term ``review/examination assessments'' 
in Sec.  120.841(c).
    33. Section 120.884 Ineligible costs for 504 loans. SBA proposes to 
define heavy duty construction equipment in Sec.  120.884(e)(3) without 
reference to the IRS definition and to add the requirement that the 
equipment have a remaining useful life of at least 10 years. SBA 
currently requires that heavy duty construction equipment must be 
integral to the business' operations and meet the IRS definition of 
capital equipment. IRS no longer publishes a definition for ``capital 
equipment.''
    34. Section 120.1025 Off-site reviews and monitoring. SBA proposes 
to remove specific reference to ``off-site'' regarding reviews and 
monitoring in Sec.  120.1025, including in the title, and replace it 
with ``monitoring''.
    35. Section 120.1050 On-site reviews and examinations. SBA proposes 
to remove specific reference to ``on-site'' regarding reviews and 
examinations in Sec.  120.1050, including in the title.
    36. Section 120.1051 Frequency of on-site reviews and examinations. 
SBA proposes to remove specific reference to ``on-site'' regarding 
reviews and examinations in Sec.  120.1051, including in the title. SBA 
proposes to remove specific reference to ``off-site review/monitoring'' 
in paragraph (a) and replace it with ``results of monitoring''.
    37. Section 120.1060 Confidentiality of Reports, Risk Ratings and 
related Confidential Information. SBA proposes a limited expansion of 
its definition in Sec.  120.1060 of ``permitted parties'' who 
demonstrate a legitimate need to know a lender's Review/Exam Report 
information, Risk Rating, and Confidential Information for the purpose 
of assisting a lender in improving the SBA Lender's, Intermediary's or 
NTAP's SBA program operations in conjunction with SBA's Lender 
Oversight Program and SBA's portfolio management. This limited 
expansion of permitted parties may include the lender's parent entity, 
directors, auditors and those lender consultants under written contract 
specifically to assist the Lender in addressing SBA Findings and 
Corrective Actions Required to SBA's satisfaction. Consultants do not 
include Lender Service Providers. The consultant contract must provide 
for both (1) the consultant's agreement to abide by the disclosure 
prohibition in Sec.  120.1060(b); and (2) agreement not to use the 
Report, Risk Rating, and Confidential Information for any other purpose 
than to assist Lender in addressing SBA Findings and Corrective 
Actions. This expansion may improve an SBA Lender's, Intermediary's or 
NTAP's ability to address SBA Findings and Corrective Actions or make 
other necessary improvements within their SBA operations. The change 
codifies SBA practice of approving disclosure of a lender's Report, 
Risk Rating, and Confidential Information for this group, obviating the 
need for case-by-case approval for these parties going forward.
    38. Section 120.1070 Lender oversight fees. With the advent of new 
technologies, generally less costly and less burdensome virtual reviews 
such as Analytical and Targeted Reviews may cover much of what was 
previously performed within the scope of on-site reviews, diminishing 
the distinction between ``off-site'' and ``on-site'' reviews. 
Therefore, SBA is proposing to refine Sec.  120.1070 to delete the 
distinctions based on ``on-site'' and ``off-site,'' and to categorize 
the fee components only as Examinations, Reviews, Monitoring, and Other 
Lender Oversight Activities.
    With respect to Reviews, under current regulations, SBA charges 
Lenders a fee for the following types of Reviews, including but not 
limited to, PARRiS Full Reviews, PARRiS Analytical Reviews, Targeted 
Reviews, and Delegated Authority Reviews. This fee is assessed based on 
the cost that SBA incurs under its contract for these Reviews. Under 
the proposed rule, SBA is specifying that SBA can charge a Lender the 
actual cost for Lender Loan Reviews (e.g., Secondary Market Loan 
Reviews) and corrective action assessments, which is consistent with 
SBA's policy that Lenders that represent increased risk and warrant 
additional oversight should bear the expense of that oversight rather 
than that expense being apportioned to all Lenders.
    The proposed section would also provide that SBA has discretion in 
how it allocates the costs to Lenders to allow contracting flexibility 
in how SBA pays for this cost. It would specify, consistent with SBA's 
current practice and current contracts, that in general, where the 
costs that SBA incurs for the oversight activity are specific to a 
Lender, SBA will charge that Lender for the actual costs and, where the 
costs that SBA incurs for the oversight activity are not sufficiently 
specific to a particular Lender but may be a flat fee paid to a vendor, 
SBA will charge a Lender based on that Lender's portion of SBA 
guarantees in the portfolio or segment of the portfolio the activity 
covers. For example, under its current review contract, SBA pays its 
contractor for each specific Lender's Full Review and SBA passes that 
cost along to the Lender for which the Review was conducted. Under the 
L/LMS contract, SBA pays its contractor a flat fee for providing L/LMS 
services that cover all Lenders and this amount is apportioned among 
all Lenders based on portfolio size.

[[Page 52602]]

    39. Section 120.1400(a) Grounds for enforcement actions--SBA 
Lenders. SBA proposes to amend Sec.  120.1400(a) to provide that by 
making SBA 7(a) guaranteed loans or SBA 504 loans after a certain date, 
SBA Supervised Lenders (except Other Regulated SBLCs) or CDCs, as 
applicable, consent to the appointment of a Receiver and such 
injunctive or other equitable relief as appropriate, and waive in 
advance any defenses to such relief as sought by SBA, in connection 
with an enforcement action. SBA is conditioning its guarantee of 7(a) 
loans made by SBA Supervised Lenders (except Other Regulated SBLCs) and 
504 debentures after a certain date on consent to this relief in an 
enforcement action because the injury to SBA and its supervision and 
regulatory oversight of the SBA Supervised Lender or CDC due to the SBA 
Supervised Lender's or CDC's default under its agreement(s) with SBA 
would be irreparable and the amount of damage would be difficult to 
ascertain, making this relief necessary and required. A consent to 
receivership is not without precedent in other federal agency practice 
and has been upheld by the courts as valid and legally enforceable. 
See, e.g., U.S. v. Mountain Village Company, 424 F. Supp. 822 (D. Mass. 
1976).
    40. Section 120.1500 Types of enforcement actions--SBA Lenders. SBA 
proposes to revise Sec.  120.1500(c)(3) and to add Sec.  120.1500(e)(3) 
to clarify when SBA may initiate a request for appointment of a 
Receiver to administer and operate an SBA Supervised Lender and to 
permit SBA to initiate a request for appointment of a Receiver of a 
CDC.
    41. Section 120.1600 General procedures for enforcement actions 
against SBA Lenders, SBA Supervised Lenders, Other Regulated Small 
Business Lending Companies (SBLCs), Management Officials, Other 
Persons, Intermediaries, and Non-Lending Technical Assistance Providers 
(NTAPs). SBA proposes to add language into Sec. Sec.  120.1600(a), 
120.1600(a)(6) and 120.1600(b)(4) providing that if SBA undertakes the 
appointment of a Receiver for a CDC or an SBA Supervised Lender, SBA 
will follow the applicable procedures under federal law to obtain such 
remedies and to enforce the CDC's or SBA Supervised Lender's consent 
and waiver in advance to those remedies.
    42. Section 120.1703 Qualifications to be a Pool Originator. In 
paragraph (a)(4) SBA proposes to replace the term ``good standing'' 
with ``Satisfactory'' when it relates to other federal regulators.
    43. Section 120.1707 Seller's retained Loan Interest. SBA is 
currently using an allonge to the First Lien Position 504 Loan Pool 
Guarantee Agreement, as opposed to requiring the execution of a new 
First Lien Position 504 Loan Pool Guarantee Agreement, to substantiate 
the transfer of a Seller's interest in an FMLP Pool Loan. The use of an 
allonge will require the purchaser of a Seller's retained interest to 
assume the original responsibilities of the Seller with regard to the 
FMLP Pool Loan. The allonge must be in form acceptable to SBA and the 
purchaser must acknowledge, assume and accept all of the original 
obligations and responsibilities of the Seller under the initial or 
subsequent First Lien Position 504 Loan Pool Guarantee Agreement. The 
proposed change will conform the rule to the current practice.
    44. Subpart K--Establishment of an SBA Direct Loan Program for 
Systemically Important Secondary Market Broker-Dealers (SISMBD Loan 
Program). Since the SISMBD Loan Program expired on February 16, 2013, 
and was not extended by statute, SBA proposes to remove this subpart in 
its entirety.

Compliance With Executive Orders 13563, 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

    The Office of Management and Budget (OMB) has determined that this 
proposed rule is not a ``significant'' regulatory action for the 
purposes of Executive Order 12866. In the interest of transparency, 
however, SBA has drafted a Regulatory Impact Analysis for the public's 
information in the next section. This is not a major rule under the 
Congressional Review Act, 5 U.S.C. 800.

Regulatory Impact Analysis

    1. Is there a need for this regulatory action?
    The Agency believes it needs to streamline and reduce regulatory 
burdens to facilitate robust participation in the business loan and 
surety bond programs that assist small and underserved U.S. businesses.
    2. What are the potential benefits and costs of this regulatory 
action?
    As stated above, the potential benefits of this proposed rule are 
based on its elimination of unnecessary participation burdens. 
Participants will benefit from clear and simpler regulatory directions 
that enable them to provide small business loans and bonds in a more 
efficient and cost effective manner.
    3. What alternatives have been considered?
    One ``alternative'' would be to eliminate even more regulatory 
burdens. The Agency will consider public comment and suggestions on how 
that can be done responsibly without substantially increasing the risk 
of waste, fraud, or abuse of the programs.

Executive Order 13563

    A description of the need for this regulatory action and benefits 
and costs associated with this action, including possible 
distributional impacts that relate to Executive Order 13563, are 
included above in the Regulatory Impact Analysis under Executive Order 
12866.
    SBA's Business Loan Programs operate through the Agency's lending 
partners, which are Surety Bond Companies for the Surety Bond Guarantee 
Program, 7(a) Lenders for the 7(a) Loan Program, third party lenders, 
CDCs for the 504 Loan Program, and Microloan Intermediaries for the 
Microloan Program. The Agency has participated in public forums and 
meetings which have included outreach to hundreds of its lending 
partners to seek valuable insight, guidance, and suggestions for 
program reform.

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, eliminates ambiguity, and reduce burden. The action does 
not have retroactive or preemptive effect.

Executive Order 13132

    SBA has determined that this proposed rule 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. Therefore, 
for the purposes of Executive Order 13132, SBA has determined that this 
proposed rule has no federalism implications warranting preparation of 
a federalism assessment.

Paperwork Reduction Act, 44 U.S.C., Ch. 35

    SBA has determined that this proposed rule imposes additional 
reporting requirements under the Paperwork Reduction Act (PRA). As 
described above, SBA proposes to require all participating sureties to 
notify SBA of all contracts that were successfully completed on a 
quarterly basis. The public is invited to comment on this proposed new 
report and to

[[Page 52603]]

submit any comments by the deadline stated in the DATES section of this 
document to: SBA Desk Officer, Office of Information and Regulatory 
Affairs, Office of Management and Budget, Room 10202, 725 17th Street 
NW., Washington, DC 20503.
    SBA invites comments on: (1) Whether the proposed collection of 
information is necessary for the proper performance of SBA's functions, 
including whether the information will have a practical utility; (2) 
the accuracy of SBA's estimate of the burden of the proposed collection 
of information, including the validity of the methodology and 
assumptions used; (3) ways to enhance the quality, utility, and clarity 
of the information to be collected; and (4) ways to minimize the burden 
of the collection of information on respondents, including through the 
use of automated collection techniques, when appropriate, and other 
forms of information technology. SBA will submit the proposed form and 
other documents required under the Paperwork Reduction Act to OMB for 
review and approval.
    A summary description of this information collection, the 
respondents, and the estimate of the annual hour burden resulting from 
this new process is provided below. Included in the estimate is the 
time for reviewing instructions, searching existing data sources, 
gathering information needed, and completing and reviewing the 
responses.
    Title: Quarterly Contract Completion Report.
    Description: The Quarterly Contract Completion Report would be 
submitted by all participating surety companies to provide SBA with 
information about successfully completed contracts. The information 
reported would include the Surety Bond Guarantee number, the name of 
the Principal, the original Contract dollar amount, the revised 
Contract dollar amount (if applicable), the date of Contract 
completion, and a fee recap. Reports would be due to SBA within 45 days 
of each fiscal quarter.
    OMB Control Number: New Collection.
    Description of and Estimated Number of Respondents: The proposed 
new collection would be submitted by the surety companies that 
participate in the SBG Program. The burden estimate for this 
requirement is based on the 23 current participants.
    Estimated Number of Responses: Each of the estimated 23 sureties 
would be required to submit the report to SBA 4 times per year, for a 
total of 92 responses.
    Estimated Response Time: It is estimated that each surety would 
need approximately 1 hour to complete the proposed report.
    Total Estimated Annual Hour Burden: 92 hours.
    Estimated Annual Cost Burden: $4,604.

Regulatory Flexibility Act, 5 U.S.C. 601-612

    When an agency issues a rulemaking proposal, the Regulatory 
Flexibility Act (RFA), 5 U.S.C. 601-612, requires the agency to 
``prepare and make available for public comment an initial regulatory 
analysis'' which will ``describe the impact of the proposed rule on 
small entities.'' Section 605 of the RFA allows an agency to certify a 
rule, in lieu of preparing an analysis, if the proposed rulemaking is 
not expected to have a significant economic impact on a substantial 
number of small entities. There are 23 sureties (none of them small 
entities) that participate in the SBG Program, and no part of this rule 
would impose any significant cost or burden on them. Although the 
rulemaking will impact all of the approximately 5,000 7(a) Lenders 
(some of which are small), all of the approximately 250 CDCs (all of 
which are small), and 145 Microloan Intermediaries (most of which are 
small) SBA does not believe the impact will be significant. The 
proposed rule will reduce the burden of the Agency's lending partners 
because they choose their own level of program participation (i.e., 
7(a) Lenders and CDCs are not required to process more loan 
applications simply because there is a reduced burden for small 
businesses to apply for a business loan). Therefore the proposed 
modernization of certain program participation requirements would not 
have a substantial economic impact or cost on the small business 
borrower, lender, or CDC, and in fact, may reduce costs to lender 
participants.
    SBA believes that this proposed rule encompasses best practice 
guidance that aligns with the Agency's mission to increase access to 
capital for small businesses and facilitate American job preservation 
and creation with the removal of unnecessary regulatory requirements. A 
review of the summary and preamble above will provide more detailed 
explanations discussing the specific improvements that will reduce 
regulatory burdens and encourage increased program participation. For 
these reasons, SBA has determined that there is no negative impact on a 
substantial number of small entities. SBA invites comment from members 
of the public who believe there will be a significant impact on 
sureties, microloan intermediaries, participant lenders, CDCs, or small 
businesses.

List of Subjects

13 CFR Part 115

    Claims, Reporting and recordkeeping requirements, Small businesses, 
Surety bonds.

13 CFR Part 120

    Community development, Equal employment opportunity, Loan 
programs--business, Reporting and recordkeeping requirements, Small 
businesses.

    For the reasons stated in the preamble, SBA proposes to amend 13 
CFR parts 115 and 120 as follows:

PART 115--SURETY BOND GUARANTEE

0
1. The authority citation for part 115 continues to read as follows:

    Authority: 5 U.S.C. app 3; 15 U.S.C. 687b, 687c, 694a, 694b 
note; and Pub. L. 110-246, Sec. 12079, 122 Stat. 1651.


Sec.  115.19  [Amended]

0
2. Amend Sec.  115.19 by removing the phrase ``or $100,000, whichever 
is less'' in paragraph (c)(1), the second sentence of paragraph (d), 
and paragraph (e)(2).
0
3. Add Sec.  115.22 to subpart A to read as follows:


Sec.  115.22  Quarterly Contract Completion Report.

    The Surety must submit a Quarterly Contract Completion Report 
within 45 days after the close of each fiscal year quarter ending 
December 31, March 31, June 30, and September 30, that identifies each 
contract successfully completed during the quarter.
    The report shall include:
    (a) The SBA Surety Bond Guarantee Number,
    (b) Name of the Principal,
    (c) The original Contract Dollar Amount,
    (d) The revised Contract Dollar Amount (if applicable),
    (e) The date of Contract completion, and
    (f) A summary specifying the fee amounts paid to SBA by the Surety 
and Principal, the fee amounts due to SBA as a result of any increases 
in the Contract amount, and the fee amounts to be refunded to the 
Principal or rebated to the Surety as a result of any decreases in the 
Contract amount.


Sec.  115.30  [Amended]

0
4. Amend Sec.  115.30 by removing ``$250,000'' from the second sentence 
of paragraph (d)(2)(i) and adding in its place ``$400,000''.

[[Page 52604]]

Sec.  115.32  [Amended]

0
5. Amend Sec.  115.32 by removing ``or $100,000, whichever is less'' 
from the first and second sentences of paragraph (d)(1).
0
6. Amend Sec.  115.60 by adding third and fourth sentences at the end 
of paragraph (b) to read as follows:


Sec.  115.60  Selection and admission of PSB Sureties.

* * * * *
    (b) * * * For a period of nine months following admission to the 
PSB program, the Surety must obtain SBA's prior written approval before 
executing a bond greater than $2 million so that SBA may evaluate the 
Surety's performance in its underwriting and claims and recovery 
functions. At the end of this nine month period, SBA may in its 
discretion extend this period to allow SBA to further evaluate the 
Surety's performance.


Sec.  115.67  [Amended]

0
7. Amend Sec.  115.67 by removing the phrase ``or $100,000, whichever 
is less'' from the second sentence of paragraph (a).
0
8. Revise Sec.  115.68 to read as follows:


Sec.  115.68  Guarantee percentage.

    SBA reimburses a PSB Surety in the same percentages and under the 
same terms as set forth in Sec.  115.31.

PART 120--BUSINESS LOANS

0
9. The authority citation for part 120 is revised to read as follows:

    Authority: 15 U.S.C. 634(b)(6), (b)(7), (b)(14), (h) and note, 
636(a), (h) and (m), 650, 687(f), 696(3) and 697(a) and (e); Pub. L. 
111-5, 123 Stat. 115; Pub. L. 111-240, 124 Stat. 2504; Pub. L. 114-
38, 129 Stat. 437.


Sec.  120.110  [Amended]

0
10. Remove and reserve Sec.  120.110(l).
0
11. Amend Sec.  120.111 by revising the introductory text and 
paragraphs (a)(3) and (6) to read as follows:


Sec.  120.111  What conditions must an Eligible Passive Company 
satisfy?

    An Eligible Passive Company must use loan proceeds to either 
acquire or lease, and/or improve or renovate, real or personal property 
(including eligible refinancing), that it leases to one or more 
Operating Companies for conducting the Operating Company's business 
(references to Operating Company in paragraphs (a) and (b) of this 
section mean each Operating Company) or to finance a change of 
ownership between the existing owners of the Eligible Passive Company. 
Any ownership structure or legal form may qualify as an Eligible 
Passive Company.
    (a) * * *
    (3) The lease between the Eligible Passive Company and the 
Operating Company must be in writing and must be subordinated to SBA's 
mortgage, trust deed lien, or security interest on the property. Also, 
the Eligible Passive Company (as landlord) must furnish as collateral 
for the loan an assignment of all rents paid under the lease. The rent 
or lease payments cannot exceed the amount necessary to make the loan 
payment to the lender, and an additional amount to cover the EPC's 
direct expenses of holding the property, such as maintenance, insurance 
and property taxes;
* * * * *
    (6) Each holder of an ownership interest constituting at least 20 
percent of either the Eligible Passive Company or the Operating Company 
must guarantee the loan (the trustee shall execute the guaranty on 
behalf of any trust). SBA, in its discretion, consulting with the 
Participating Lender, may require other appropriate individuals to 
guarantee the loan as well, except SBA generally will not require 
personal guarantees from those owning less than 5 percent ownership.
* * * * *
0
12. Amend Sec.  120.130 by redesignating paragraphs (e) and (f) as 
paragraphs (f) and (g) respectively, adding new paragraph (e), and 
revising newly redesignated paragraph (g).
    The addition and revisions read as follows:


Sec.  120.130  Restrictions on uses of proceeds.

* * * * *
    (e) The applicant may not use any of the proceeds to pay past-due 
Federal or state payroll taxes;
* * * * *
    (g) Any use restricted by Sec. Sec.  120.201, 120.202, and 120.884 
(specific to 7(a) loans and 504 loans respectively).
0
13. Amend Sec.  120.160 by revising the second sentence of paragraph 
(a) and by removing paragraph (d).
    The revision reads as follows:


Sec.  120.160  Loan conditions.

* * * * *
    (a) * * * SBA, in its discretion, consulting with the Participating 
Lender, may require other appropriate individuals to guarantee the loan 
as well, except SBA generally will not require personal guarantees from 
those owning less than 5 percent ownership.
* * * * *


Sec.  120.194  [Removed and reserved]

0
14. Remove and reserve Sec.  120.194.
0
15. Amend Sec.  120.214 by revising the second sentence in paragraph 
(a) and revising paragraph (c) to read as follows:


Sec.  120.214  What conditions apply for variable interest rates?

* * * * *
    (a) * * * Subsequent changes may occur 2 business days (or more) 
after a change in the identified base rate; however, such changes may 
not occur more often than monthly.
* * * * *
    (c) Base rate. (1) The base rate will be one of the following:
    (i) The prime rate;
    (ii) The thirty-day (1-month) London Interbank Offered Rate (LIBOR) 
plus 3 percentage points; or
    (iii) The Optional Peg Rate.
    (2) The prime or LIBOR rate will be that which is in effect on the 
date SBA receives a complete loan application. The initial prime or 
LIBOR base rate and subsequent changes to the prime or LIBOR base rate 
must follow the rates as printed in a national financial newspaper or 
Web site published each business day.
* * * * *
0
16. Amend Sec.  120.220 by adding paragraph (a)(3), revising the first 
and third sentences of paragraph (b), and removing the first two 
sentences of paragraph (c).
    The additions and revisions read as follows:


Sec.  120.220  Fees that Lender pays SBA.

* * * * *
    (a) * * *
    (3) For loans approved under section 7(a)(31) of the Small Business 
Act to veterans and/or the spouse of a veteran. In fiscal years when 
the 7(a) program is at zero subsidy, SBA will not collect a guarantee 
fee in connection with a loan made under section 7(a)(31) of the Small 
Business Act to a business owned and controlled by a veteran or the 
spouse of a veteran.
    (b) * * * For a loan with a maturity of twelve (12) months or less, 
the Lender must pay the guaranty fee to SBA electronically within 10 
business days after SBA gives its loan approval. * * * For a loan with 
a maturity in excess of twelve (12) months, the Lender must pay the 
guaranty fee to SBA electronically within 90 days after SBA gives its 
loan approval. * * *
* * * * *
0
17. Amend Sec.  120.221 by revising the section heading, adding 
introductory text, and revising paragraph (e) to read as follows:

[[Page 52605]]

Sec.  120.221  Fees and expenses which the Lender may collect from a 
loan applicant or Borrower.

    Unless otherwise allowed by SBA Loan Program Requirements, the 
Lender may charge and collect from the applicant or Borrower only the 
following fees and expenses:
* * * * *
    (e) Legal services. Lender may charge the Borrower for legal 
services, but only for hourly charges for requested services actually 
rendered.
0
18. Revise Sec.  120.222 to read as follows:


Sec.  120.222  Prohibition on sharing premiums for secondary market 
sales.

    The Lender or its Associates may not share in any premium received 
from the sale of an SBA guaranteed loan in the secondary market with a 
Service Provider, packager, or other loan-referral source.


Sec.  120.394  [Amended]

0
19. Amend Sec.  120.394 in the third sentence by removing the term 
``20'' and adding in its place the term ``33''.
0
20. Amend Sec.  120.410 in paragraph (a)(2) by removing the term ``on-
site'' from the third sentence and by revising paragraph (e) to read as 
follows:


Sec.  120.410  Requirements for all participating Lenders.

* * * * *
    (e) Be in good standing with SBA, as defined in Sec.  120.420(f) 
(and determined by SBA in its discretion), and, as applicable, with its 
state regulator and be considered satisfactory by its Federal Financial 
Institution Regulator (as determined by SBA and based on, for example, 
information in published orders/agreements and call reports); and
* * * * *


Sec.  120.424  [Amended]

0
21. Amend Sec.  120.424(b) by removing the term ``on-site'' from the 
third sentence.


Sec.  120.433  [Amended]

0
22. Amend Sec.  120.433(b) by removing the term ``on-site'' from the 
third sentence.


Sec.  120.434  [Amended]

0
23. Amend Sec.  120.434(c) by removing the term ``on-site'' from the 
third sentence.
0
24. Revise the undesignated center heading following Sec.  120.435 to 
read ``Delegated Authority Criteria''.
0
25. Revise Sec.  120.440 to read as follows:


Sec.  120.440  How does a Lender obtain delegated authority?

    (a) In making its decision to grant or renew a delegated authority, 
SBA considers whether the Lender, as determined by SBA in its 
discretion:
    (1) Has the continuing ability to evaluate, process, close, 
disburse, service, liquidate and litigate SBA loans. This includes the 
ability to develop and analyze complete loan packages. SBA may consider 
the experience and capability of Lender's management and staff.
    (2) Has satisfactory SBA performance (as defined in Sec.  
120.410(a)(2));
    (3) Is in compliance with SBA Loan Program Requirements (e.g., Form 
1502 reporting, timely payment of all fees to SBA);
    (4) Has completed to SBA's satisfaction all required corrective 
actions;
    (5) Is subject to any enforcement action, order or agreement with a 
regulator or the presence of other regulatory concerns as determined by 
SBA; and
    (6) Whether Lender exhibits other risk factors (e.g., has rapid 
growth; low SBA activity; SBA loan volume; Lender, an officer or 
director is under investigation or indictment).
    (b) Delegated authority decisions are made by the appropriate SBA 
official in accordance with Delegations of Authority, and are final.
    (c) If delegated authority is approved or renewed, Lender must 
execute a Supplemental Guarantee Agreement, which will specify a term 
not to exceed two years. SBA may grant shortened renewals based on risk 
or any of the other delegated authority criteria. Lenders with less 
than 3 years of SBA lending experience will be limited to a term of 1 
year or less.


Sec.  120.441  [Removed and reserved]

0
26. Remove and reserve Sec.  120.441.


Sec.  120.451  [Removed and reserved]

0
27. Remove and reserve Sec.  120.451.
0
28. Amend Sec.  120.524 by revising paragraph (b) to read as follows:


Sec.  120.524  When is SBA released from liability on its guarantee?

* * * * *
    (b) If SBA determines, at any time, that any of the events set 
forth in paragraph (a) of this section occurred in connection with that 
loan, SBA is entitled to recover any moneys paid on the guarantee plus 
interest from the Lender. In the exercise of its rights, SBA may 
utilize all legal means available, including offset and judicial 
remedies.
* * * * *
0
29. Amend Sec.  120.630 by revising paragraph (a)(4) to read as follows 
and paragraph (a)(5) by removing the term ``on-site'' from the third 
sentence:


Sec.  120.630  Qualifications to be a Pool Assembler.

    (a) * * *
    (4) Is in good standing with SBA (as the D/FA determines in his or 
her discretion), and is Satisfactory with the Office of the Comptroller 
of the Currency (``OCC'') if it is a national bank, the Federal Deposit 
Insurance Corporation if it is a bank not regulated by the OCC, or the 
Financial Industry Regulatory Authority (``FINRA'') if it is a member 
as determined by SBA.
* * * * *
0
30. Amend Sec.  120.660 by:
0
a. Revising paragraph (a) introductory text and paragraphs (a)(1)(ii) 
and (a)(2);
0
b. Adding paragraph (a)(3);
0
c. Revising paragraph (c); and
0
d. Adding paragraph (d) to read as follows:


Sec.  120.660  Suspension or revocation.

    (a) Temporary suspension or revocation of Lender, broker, dealer, 
or Registered Holder for violation of Secondary Market rules and 
regulations. The D/FA together with the Director, Office of Credit Risk 
Management (D/OCRM) may suspend for a period of no more than 120 
calendar days or revoke for a period of no more than two (2) years, the 
privilege of a Lender, broker, dealer, or Registered Holder to sell, 
purchase, broker, or deal in loans or Certificates for:
    (1) * * *
    (ii) Any provisions in the contracts entered into by the parties, 
including SBA Forms 1086, 1088 and 1454;
    (2) Knowingly submitting false or fraudulent information to the SBA 
or FTA; or
    (3) A Lender's receipt, from its primary regulator, of a cease and 
desist order, a consent agreement affecting capital or commercial 
lending issues, a supervisory action citing unsafe or unsound banking 
practices or other items of concern to SBA and its potential risk to 
SBA through loan sales; or a going concern opinion issued by the 
Lender's auditor. A Lender subject to such action or opinion must 
notify the D/FA and the D/OCRM within five business days (or as soon as 
practicable thereafter) of the issuance of any such action or opinion, 
including providing copies of the relevant documents for review.
* * * * *
    (c) Notice to suspend or revoke. The D/FA and the D/OCRM shall 
notify the affected party in writing, providing the

[[Page 52606]]

reasons therefore, at least 10 business days prior to the effective 
date of the suspension or revocation. The affected party may appeal the 
suspension or revocation made under this section pursuant to the 
procedures set forth in part 134 of this chapter. The action taken by 
the D/FA and the D/OCRM will remain in effect pending resolution of the 
appeal.
    (d) Early termination of suspension or revocation. SBA may, by 
written notice, terminate a secondary market suspension or revocation 
under this section, if the D/FA and the D/OCRM, in their sole 
discretion, determine that such termination is warranted for good 
cause.


Sec.  120.710  [Amended]

0
31. Amend Sec.  120.710 by removing the term ``on-site'' from the third 
sentence of paragraph (e)(1).
0
32. Amend Sec.  120.812 by revising the last sentence of paragraph (c) 
to read as follows:


Sec.  120.812  Probationary period for newly certified CDCs.

* * * * *
    (c) * * * Other factors may include, but are not limited to review/
examination assessments, historical performance measures, loan volume 
to the extent that it impacts performance measures, and other 
performance related measurements and information (such as contribution 
toward SBA mission).
* * * * *
0
33. Amend Sec.  120.816 by revising the last sentence of paragraph (c) 
to read as follows:


Sec.  120.816  CDC non-profit status and good standing.

* * * * *
    (c) * * * Other factors may include, but are not limited to, 
review/examination assessments, historical performance measures, loan 
volume to the extent that it impacts performance measures, and other 
performance related measurements and information (such as contribution 
toward SBA mission).
* * * * *
0
34. Amend Sec.  120.823 by revising paragraphs (c)(5) and (d)(4)(ii)(C) 
to read as follows:


Sec.  120.823  CDC Board of Directors.

* * * * *
    (c) * * *
    (5) No CDC Board member may serve on the Board of another CDC in 
accordance with Sec.  120.851(b).
    (d) * * *
    (4) * * *
    (ii) * * *
    (C) Have at least two individuals with commercial lending 
experience satisfactory to SBA; and
* * * * *
0
35. Amend Sec.  120.839 by revising the introductory text to read as 
follows:


Sec.  120.839  Case-by-case application to make a 504 loan outside of a 
CDC's Area of Operations.

    A CDC may apply to make a 504 loan for a Project outside its Area 
of Operations by submitting a request to the 504 loan processing 
center. The applicant CDC must demonstrate that it can adequately 
fulfill its 504 program responsibilities for the 504 loan, including 
proper servicing. In addition, the CDC must have satisfactory SBA 
performance, as determined by SBA in its discretion. The CDC's Risk 
Rating, among other factors, will be considered in determining 
satisfactory SBA performance. Other factors may include, but are not 
limited to, review/examination assessments, historical performance 
measures, loan volume to the extent that it impacts performance 
measures, and other performance related measurements and information 
(such as contribution toward SBA mission). The 504 loan processing 
center may approve the application if:
* * * * *
0
36. Amend Sec.  120.841 by revising the last sentence of paragraph (c) 
to read as follows:


Sec.  120.841  Qualifications for the ALP.

* * * * *
    (c) * * * Other factors may include, but are not limited to review/
examination assessments, historical performance measures, loan volume 
to the extent that it impacts performance measures, and other 
performance related measurements and information (such as contribution 
toward SBA mission);
* * * * *
0
37. Amend Sec.  120.884 by revising paragraph (e)(3) to read as 
follows:


Sec.  120.884  Ineligible costs for 504 loans.

* * * * *
    (e) * * *
    (3) Construction equipment (except for heavy duty construction 
equipment integral to the business' operations with a remaining useful 
life of a minimum of 10 years).
0
38. Amend Sec.  120.1025 by revising the section heading and removing 
``off-site reviews and monitoring'' and adding in its place 
``monitoring''.
    The revision reads as follows:


Sec.  120.1025  Monitoring.

* * * * *
0
39. Amend Sec.  120.1050 by revising the section heading and removing 
the phrase ``on-site'' wherever it occurs.
    The revision reads as follows:


Sec.  120.1050  Reviews and examinations.

* * * * *
0
40. Amend Sec.  120.1051 by revising the section heading and paragraph 
(a) and removing the phrase ``on-site'' wherever it occurs.
    The revisions read as follows:


Sec.  120.1051  Frequency of reviews and examinations.

* * * * *
    (a) Results of monitoring, including an SBA Lender's, 
Intermediary's or NTAP's Risk Rating;
* * * * *
0
41. Revise Sec.  120.1060(b) to read as follows:


Sec.  120.1060  Confidentiality of Reports, Risk Ratings and related 
Confidential Information.

* * * * *
    (b) Disclosure prohibition. Each SBA Lender, Intermediary, and NTAP 
is prohibited from disclosing its Report, Risk Rating, and Confidential 
Information, in full or in part, in any manner, without SBA's prior 
written permission. An SBA Lender, Intermediary, and NTAP may use the 
Report, Risk Rating, and Confidential Information for confidential use 
within its own immediate corporate organization. SBA Lenders, 
Intermediaries, and NTAPs must restrict access to their Report, Risk 
Rating and Confidential Information to their respective parent 
entities, officers, directors, employees, auditors and consultants, in 
each case who demonstrate a legitimate need to know such information 
for the purpose of assisting in improving the SBA Lender's, 
Intermediary's, or NTAP's SBA program operations in conjunction with 
SBA's Program and SBA's portfolio management (for purposes of this 
regulation, each referred to as a ``permitted party''), and to those 
for whom SBA has approved access by prior written consent, and those 
for whom access is required by applicable law or legal process. If such 
law or process requires SBA Lender, Intermediary, or NTAP to disclose 
the Report, Risk Rating, or Confidential Information to any person 
other than a permitted party, SBA Lender, Intermediary, or NTAP will 
promptly notify SBA and SBA's Information Provider in writing and in 
advance of such disclosure so that SBA and the Information Provider 
have, within their discretion, the opportunity to seek

[[Page 52607]]

appropriate relief such as an injunction or protective order prior to 
disclosure. For purposes of this regulation, ``consultants'' means only 
those consultants that are under written contract with an SBA Lender, 
Intermediary or NTAP specifically to assist with addressing its Report 
Findings and Corrective Actions to SBA's satisfaction. The consultant 
contract must provide for both the consultant's agreement to abide by 
the disclosure prohibition in this paragraph and the consultant's 
agreement not to use the Report, Risk Rating, and Confidential 
Information for any purpose other than to assist with addressing the 
Report Findings and Corrective Actions. ``Information Provider'' means 
any contractor that provides SBA with the Risk Rating. Each SBA Lender, 
Intermediary, and NTAP must ensure that each permitted party is aware 
of and agrees to these regulatory requirements and must ensure that 
each such permitted party abides by them. Any disclosure of the Report, 
Risk Rating, or Confidential Information other than as permitted by 
this regulation may result in appropriate action as authorized by law. 
An SBA Lender, Intermediary, and NTAP will indemnify and hold harmless 
SBA from and against any and all claims, demands, suits, actions, and 
liabilities to any degree based upon or resulting from any unauthorized 
use or disclosure of the Report, Risk Rating, or Confidential 
Information. Information Provider contact information is available from 
the Office of Capital Access.
0
42. Amend Sec.  120.1070 by:
0
a. Revising paragraphs (a)(1) through (4);
0
b. Redesignating paragraphs (b) and (c) as paragraphs (c) and (d), 
respectively;
0
c. Adding a new paragraph (b);
0
d. Revising the first and second sentences of newly redesignated 
paragraph (c); and
0
e. Revising the final sentence of newly redesignated paragraph (d).
    The additions and revisions read as follows:


Sec.  120.1070  Lender oversight fees.

* * * * *
    (a) * * *
    (1) Examinations. The costs of conducting a safety and soundness 
examination and related activities of an SBA-Supervised Lender, 
including any expenses that are incurred in relation to the examination 
and such activities.
    (2) Reviews. The costs of conducting a review of a Lender or a 
Lender's loans, and related review activities (e.g., corrective action 
assessments, delegated loan reviews), including any expenses that are 
incurred in relation to the review and such activities.
    (3) Monitoring. The costs of conducting monitoring reviews of a 
Lender, including any expenses that are incurred in relation to the 
monitoring review activities.
    (4) Other lender oversight activities. The costs of additional 
expenses that SBA incurs in carrying out other lender oversight 
activities (for example, the salaries and travel expenses of SBA 
employees and equipment expenses that are directly related to carrying 
out lender oversight activities, technical assistance and analytics to 
support the monitoring and review program, and supervision and 
enforcement activity costs).
    (b) Allocation. SBA will assess to Lender(s) the costs associated 
with the review, examination, monitoring, or other lender oversight 
activity, as determined by SBA in its discretion.
    (1) In general:
    (i) Where the costs that SBA incurs for a review, exam, or other 
lender oversight activity are specific to a particular Lender, SBA will 
charge that Lender a fee for the actual costs of conducting the review, 
exam, or other lender oversight activity; and
    (ii) Where the costs that SBA incurs for the lender oversight 
activity are not sufficiently specific to a particular Lender, SBA will 
assess a fee based on each Lender's portion of the total dollar amount 
of SBA guarantees in SBA's total portfolio or in the relevant portfolio 
segment being reviewed or examined, to cover the costs of such 
activity.
    (2) SBA may waive the assessment of this fee for all Lenders owing 
less than a threshold amount below which SBA determines that it is not 
cost effective to collect the fee.
    (c) * * * For the examinations or reviews conducted under 
paragraphs (a)(1) and (2) of this section, SBA will bill each Lender 
for the amount owed following completion of the examination, review or 
related activity. For monitoring conducted under paragraph (a)(3) of 
this section and the other lender oversight activity expenses incurred 
under paragraph (a)(4) of this section, SBA will bill each Lender for 
the amount owed on an annual basis. * * *
    (d) * * * In addition, a Lender's failure to pay any of the fee 
components described in this section, or to pay interest, charges and 
penalties that have been charged, may result in a decision to suspend 
or revoke a participant's eligibility, limit a participant's delegated 
authority, or other remedy available under law.
0
43. Amend Sec.  120.1400 by revising paragraph (a) to read as follows:


Sec.  120.1400  Grounds for enforcement actions--SBA Lenders.

    (a) Agreements. By making SBA 7(a) guaranteed loans or 504 loans, 
SBA Lenders automatically agree to the terms, conditions, and remedies 
in Loan Program Requirements, as promulgated or issued from time to 
time and as if fully set forth in the SBA Form 750 (Loan Guaranty 
Agreement), Development Company 504 Debenture, CDC Certification, 
Servicing Agent Agreement, or other applicable participation, guaranty, 
or supplemental agreement. SBA Lenders further agree that a violation 
of Loan Program Requirements constitutes default under their respective 
agreements with SBA.
    (1) Additional agreements by CDCs. By obtaining approval for 504 
loans after [date 60 days from publication of final rule in the Federal 
Register], a CDC consents to the remedies in Sec.  120.1500(e)(3) and 
waives in advance any defenses to such relief as sought by SBA. The CDC 
agrees that its consent to SBA's application to a federal court of 
competent jurisdiction for appointment of a receiver of SBA's choosing, 
an injunction or other equitable relief, and the CDC's consent in 
advance to the court's granting of SBA's application, includes a waiver 
of objection to a receiver or other such relief and may be enforced 
upon any basis in law or equity recognized by the court.
    (2) Additional agreements by SBA Supervised Lenders (except Other 
Regulated SBLCs). By making SBA 7(a) guaranteed loans after [date 60 
days from publication of final rule in the Federal Register], an SBA 
Supervised Lender (except an Other Regulated SBLC) consents to the 
remedies in Sec.  120.1500(c)(3) and waives in advance any defenses to 
such relief as sought by SBA. The SBA Supervised Lender agrees that its 
consent to SBA's application to a federal court of competent 
jurisdiction for appointment of a receiver of SBA's choosing, an 
injunction or other equitable relief, and the SBA Supervised Lender's 
consent in advance to the court's granting of SBA's application, 
includes a waiver of objection to a receiver or other such relief and 
may be enforced upon any basis in law or equity recognized by the 
court.
* * * * *
0
44. Amend Sec.  120.1500 by revising paragraph (c)(3) and adding 
paragraph (e)(3) to read as follows:

[[Page 52608]]

Sec.  120.1500  Types of enforcement actions--SBA Lenders.

* * * * *
    (c) * * *
    (3) Initiate request for appointment of receiver and/or other 
relief. The SBA may make application to any federal court of competent 
jurisdiction for the court to take exclusive jurisdiction, without 
notice, of an SBA Supervised Lender, and SBA shall be entitled to the 
appointment of a receiver of SBA's choosing to hold, administer, 
operate, and/or liquidate the SBA Supervised Lender; and to such 
injunctive or other equitable relief as may be appropriate. Without 
limiting the foregoing and with SBA's written consent, the receiver may 
take possession of the portfolio of 7(a) loans and sell such loans to a 
third party, and/or take possession of servicing activities of 7(a) 
loans and sell such servicing rights to a third party.
* * * * *
    (e) * * *
    (3) Apply to any federal court of competent jurisdiction for the 
court to take exclusive jurisdiction, without notice, of the CDC, and 
SBA shall be entitled to the appointment of a receiver of SBA's 
choosing to hold, administer, operate and/or liquidate the CDC; and to 
such injunctive or other equitable relief as may be appropriate. 
Without limiting the foregoing and with SBA's consent, the receiver may 
take possession of the portfolio of 504 loans and/or pending 504 loan 
applications, including for the purpose of carrying out an enforcement 
order under paragraph (e)(1) of this section.
0
45. Amend Sec.  120.1600 by:
0
a. Revising paragraph (a) introductory text;
0
b. Adding paragraph (a)(6); and
0
c. Revising paragraph (b)(4).
    The revisions and additions read as follows:


Sec.  120.1600  General procedures for enforcement actions against SBA 
Lenders, SBA Supervised Lenders, Other Regulated Small Business Lending 
Companies (SBLCs), Management Officials, Other Persons, Intermediaries, 
and Non-Lending Technical Assistance Providers (NTAPs).

    (a) In general. Except as otherwise set forth for the enforcement 
actions listed in paragraphs (a)(6), (b) and (c) of this section, SBA 
will follow the procedures listed below.* * *
* * * * *
    (6) Receiverships of Certified Development Companies and/or other 
relief. If SBA undertakes the appointment of a receiver for a Certified 
Development Company and/or injunctive or other equitable relief, 
paragraphs (a)(1) through (5) of this section will not apply and SBA 
will follow the applicable procedures under federal law to obtain such 
remedies and to enforce the Certified Development Company's consent and 
waiver in advance to those remedies.
    (b) * * *
    (4) Receiverships, transfer of assets and servicing activities. If 
SBA undertakes the appointment of a receiver for, or the transfer of 
assets or servicing rights of an SBA Supervised Lender and/or 
injunctive or other equitable relief, SBA will follow the applicable 
procedures under federal law to obtain such remedies and to enforce the 
SBA Supervised Lender's consent and waiver in advance to those 
remedies.
* * * * *
0
46. Amend Sec.  120.1703 by revising paragraph (a)(4) to read as 
follows:


Sec.  120.1703  Qualifications to be a Pool Originator.

    (a) * * *
    (4) Is in good standing with SBA (as the SBA determines), and is 
Satisfactory with the Office of the Comptroller of the Currency (OCC) 
if it is a national bank, the Federal Deposit Insurance Corporation if 
it is a bank not regulated by the OCC, the Financial Institutions 
Regulatory Authority, if it is a member, the National Credit Union 
Administration if it is a credit union, as determined by SBA; and
* * * * *
0
47. Revise Sec.  120.1707 by revising the fifth sentence and adding a 
sixth sentence to read as follows:


Sec.  120.1707  Seller's retained Loan Interest.

    * * * In addition, in order to complete such sale, Seller must have 
the purchaser of its rights to the Pool Loan execute an allonge to the 
Seller's First Lien Position 504 Loan Pool Guarantee Agreement in form 
acceptable to SBA, acknowledging and accepting all terms of the 
Seller's First Lien Position 504 Loan Pool Guarantee Agreement, and 
deliver the executed original allonge and a copy of the corresponding 
First Lien Position 504 Loan Pool Guarantee Agreement to the CSA. All 
Pool Loan payments related to a Seller Receipt and Servicing Retention 
Amount proposed for sale will be withheld by the CSA pending SBA 
acknowledgement of receipt of all executed documents required to 
complete the transfer.

Subpart K--[Removed and Reserved]

0
48. Remove and reserve subpart K, consisting of Sec. Sec.  120.1800 
through 120.1900.

    Dated: July 21, 2016.
Maria Contreras-Sweet,
Administrator.
[FR Doc. 2016-18044 Filed 8-8-16; 8:45 am]
 BILLING CODE 8025-01-P