Regulatory Reform Initiative: Streamlining and Modernizing the 7(a), Microloan, and 504 Loan Programs To Reduce Unnecessary Regulatory Burden, 80676-80686 [2020-26446]

Agencies

• SMALL BUSINESS ADMINISTRATION

[Federal Register Volume 85, Number 240 (Monday, December 14, 2020)]
[Proposed Rules]
[Pages 80676-80686]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-26446]


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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 120 and 123

RIN 3245-AG98


Regulatory Reform Initiative: Streamlining and Modernizing the 
7(a), Microloan, and 504 Loan Programs To Reduce Unnecessary Regulatory 
Burden

AGENCY: U.S. Small Business Administration.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Small Business Administration (SBA) is proposing to remove 
or revise various regulations affecting its business loan programs 
because these regulations are obsolete, unnecessary, ineffective, or 
burdensome. In addition, one of the regulations that SBA is proposing 
to remove is cross-referenced in a regulation in SBA's Disaster Loan 
Program; SBA is proposing to make a conforming change to that 
regulation. SBA also is making several technical amendments to the 
regulations to incorporate recent statutory changes and other non-
substantive changes. These changes are being proposed to carry out the 
mandate in various Executive Orders to reduce the number and costs of 
the regulations that Federal agencies impose on the public.

DATES: Comments are requested on or before February 12, 2021.

ADDRESSES: You may submit comments, identified by RIN 3245-AG98, using 
any of the following methods:
    Federal eRulemaking Portal: https://www.regulations.gov. Search for 
the rule by RIN number 3245-AG98 and follow the instructions for 
submitting comments.
    Mail: Linda Reilly, Chief, 504 Loan Program Division, Office of 
Financial Assistance, U.S. Small Business Administration, 409 Third 
Street SW, Washington, DC 20416.
    SBA will post all comments on https://www.regulations.gov. If you 
wish to submit confidential business information (CBI) as defined in 
the User Notice at https://www.regulations.gov, please submit the 
information to Linda Reilly, Chief, 504 Loan Program Division, U.S. 
Small Business Administration, 409 Third Street SW, Washington, DC 
20416. Highlight the information that you consider to be CBI and 
explain why you believe this information should be held confidential. 
SBA will review the information and make the final determination as to 
whether to publish the information.

FOR FURTHER INFORMATION CONTACT: Linda Reilly, Chief, 504 Loan Program 
Division, Office of Financial Assistance, U.S. Small Business 
Administration, 409 Third Street SW, Washington, DC 20416; phone: (202) 
205-9949; email address: [email protected].

SUPPLEMENTARY INFORMATION:

A. General Information

    The mission of SBA is to maintain and strengthen the Nation's 
economy by enabling the establishment and viability of small 
businesses, and by assisting in economic recovery of communities after 
disasters. In carrying out this mission, SBA has developed a regulatory 
policy that is implemented primarily through several core program 
offices: Office of Capital Access, Office of Disaster Assistance, 
Office of Entrepreneurial Development, Office of Government Contracting 
and Business Development, Office of International Trade, and Office of 
Investment and Innovation. SBA's regulations are codified at title 13 
of the Code of Federal Regulations (CFR),

[[Page 80677]]

chapter I, and consist of parts 100 through 199.
    This rulemaking primarily addresses the regulations in part 120, 
Business loans. The SBA programs that are governed by the regulations 
contained in part 120 include the following: 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)); and the Development Company 
Program (the 504 Loan Program) authorized pursuant to Title V of the 
Small Business Investment Act of 1958, as amended (15 U.S.C. 695 et 
seq.). Because this rulemaking proposes to remove a regulation that is 
cross-referenced in SBA's Disaster Loan Program regulations, this rule 
would also make one conforming change to a regulation in part 123, 
Disaster loans. The Disaster Loan Program is authorized pursuant to 
section 7(b) of the Act (15 U.S.C. 636(b)).
    Federal agencies have an ongoing responsibility to ensure that the 
regulations they issue do not have an adverse economic impact on those 
affected by those rules. This responsibility has been reinforced over 
the years in various executive orders that have expressly directed 
agencies to review their regulations with an eye towards reducing the 
time and money the public must spend to comply with the regulatory 
requirements. The most recent of these executive orders are discussed 
below; each of them provides the framework for SBA's efforts to reduce 
the regulatory burden on the participants in the agency's programs. One 
of SBA's primary objectives in carrying out these efforts is to 
continue to promote economic growth, innovation, and job creation in 
the small business sector, and to ensure that victims of disasters have 
the clear policy and procedural guidance they need to quickly obtain 
financial assistance to rebuild their lives.

B. Executive Order 13771

    On January 30, 2017, President Trump signed Executive Order 13771, 
Reducing Regulation and Controlling Regulatory Costs, which, among 
other objectives, is intended to ensure that an agency's regulatory 
costs are prudently managed and controlled so as to minimize the 
compliance burden imposed on the public. For every new regulation an 
agency proposes to implement, unless prohibited by law, this Executive 
Order requires the agency to (i) identify at least two existing 
regulations that the agency can cancel; and (ii) use the cost savings 
from any cancelled regulations to offset the cost of the new 
regulation, such that its net cost is no greater than zero.

C. Executive Order 13777

    On February 24, 2017, the President issued Executive Order 13777, 
Enforcing the Regulatory Reform Agenda, which further emphasized the 
goal of the Administration to alleviate the regulatory burdens placed 
on the public. Under Executive Order 13777, agencies must evaluate 
their existing regulations to determine which ones should be repealed, 
replaced, or modified. In doing so, agencies should focus on 
identifying regulations that, among other things, eliminate jobs or 
inhibit job creation; are outdated, unnecessary or ineffective; impose 
costs that exceed benefits; create a serious inconsistency or otherwise 
interfere with regulatory reform initiatives and policies; or are 
associated with Executive Orders or other Presidential directives that 
have been rescinded or substantially modified.

D. Executive Order 13563

    Under Executive Order 13563, Improving Regulation and Regulatory 
Review (January 18, 2011), agencies are obligated to conduct a 
retrospective review of their regulations to seek more affordable, less 
intrusive means to achieve policy goals, and to give careful 
consideration to the benefits and costs of their regulations. Executive 
Order 13563, similar to the mandates in Executive Order 13771 and 
Executive Order 13777, also requires agencies to review existing rules 
to remove outdated regulations that stifle job creation and make the 
U.S. economy less competitive.

E. Comments Received in Response To Request for Information

    On August 15, 2017, SBA published a request for information in the 
Federal Register seeking input from the public in identifying those 
regulations that affected parties believe impose unnecessary burdens or 
costs that exceed their benefits, eliminate jobs or inhibit job 
creation, or are ineffective or outdated. See 82 FR 38617. On October 
13, 2017, SBA extended the period for public comments until November 
15, 2017. See 82 FR 47645. SBA reviewed the comments submitted by the 
public in response to that request. After considering these comments 
and reviewing the regulations in 13 CFR part 120, SBA is proposing that 
the regulations identified below in the section-by-section analysis be 
either removed or revised. Except for the one conforming change to the 
Disaster Loan Program in part 123, SBA is proposing the removal of 
regulations in other parts of title 13 in separate rulemakings.

F. Section-by-Section Analysis

    Section 120.2. SBA proposes to remove paragraphs (a)(1)(i) and (ii) 
of this section because SBA has not received funding to make direct or 
immediate participation 7(a) loans for over 30 years. SBA believes that 
it may be confusing to the public to refer to such loans when they are 
not available from the Agency.
    Section 120.10. SBA is proposing to remove the references to non-
lending technical assistance providers (NTAPs) in the definition of 
``Risk Rating'' because SBA has not issued grant funds to NTAPs for 
many years.
    Section 120.103. SBA proposes to remove this section on farm 
enterprises, which refers to an outdated Memorandum of Understanding 
between SBA and the United States Department of Agriculture (USDA), 
because it is unnecessary. Although Federal financial assistance to 
agricultural businesses is generally available from USDA, SBA is also 
statutorily authorized to make non-disaster business loans to 
agricultural enterprises under sections 3(a)(1) and 7(a) of the Small 
Business Act and Title V of the Small Business Investment Act.
    Sections 120.110. This section lists the types of businesses that 
are ineligible for SBA business loans. For clarity, SBA is proposing to 
make changes to two of the types of businesses on the list. First, SBA 
would amend paragraph (h), which currently provides that businesses 
``engaged in any illegal activity'' are ineligible, by revising it to 
provide that the business is ineligible if it is ``engaged in any 
activity that is illegal under Federal, State, or local law''. SBA 
wants to make it clear, consistent with its longstanding interpretation 
of this regulation, that the business is ineligible if it is engaged in 
any activity that is illegal at any level of government in the 
jurisdiction in which the business is operating.
    Second, SBA is proposing to remove and reserve paragraph (k), which 
currently provides that a business is ineligible if it is ``principally 
engaged in teaching, instructing, counseling or indoctrinating religion 
or religious beliefs, whether in a religious or secular setting''. This 
provision, which was promulgated in 1996, is not consistent with 
current Supreme Court jurisprudence in that it focuses on the nature of 
the business and whether the business has a major religious component 
instead of on how the loan proceeds from any SBA business loan

[[Page 80678]]

will be used. In both Trinity Lutheran Church of Columbia, Inc. v. 
Comer, 137 S. Ct. 2012 (2017) and Espinoza v. Montana Department of 
Revenue, __ U.S. __ (June 30, 2020), the Court held that the government 
may not deny a public benefit to an entity solely because of its 
religious status, character, or identity. Accordingly, to conform SBA's 
regulations to current Supreme Court jurisprudence, SBA is proposing to 
remove paragraph (k) from section 120.110, and will apply relevant case 
law to assure that the intended use of the loan proceeds of SBA 
business loans is consistent with the requirements of the First 
Amendment's Establishment Clause..
    Third, SBA proposes to revise paragraph (n), which currently 
provides that a business is ineligible if an Associate ``is 
incarcerated, on probation, on parole, or has been indicted for a 
felony or a crime of moral turpitude''. With respect to ineligibility 
based on indictment for a crime, SBA would change this paragraph to 
provide that a business is ineligible if an Associate ``is under 
indictment'' instead of ``has been indicted''. SBA wants to make clear, 
consistent with its longstanding interpretation of this regulation, 
that the business is not ineligible if an Associate has a history of 
ever being indicted (but not convicted), but would be ineligible only 
if an Associate is under indictment when the business submits a loan 
application or prior to loan approval. In addition, SBA is proposing to 
replace the phrase, ``a crime of moral turpitude'', which is not always 
easily defined and can vary by State, with ``a crime involving or 
related to financial misconduct or a false statement''. SBA believes 
that the proposed standard is clearer and more relevant to SBA's 
responsibility to carry out the business loan programs in a financially 
prudent manner.
    Section 120.111. SBA is proposing to revise this section by 
removing a duplicative sentence at the end of the introductory text.
    Section 120.120. This section describes the eligible uses of loan 
proceeds. For clarity, SBA is proposing to revise paragraph (a)(1), 
which currently provides that a Borrower may use loan proceeds to 
``acquire land (by purchase or lease)'', to add that the land must be 
``actively used in the applicant's business operations (except that a 
Borrower may lease a portion of the property in accordance with 13 CFR 
120.131 and 120.870(b))''. This change reflects SBA's prohibition 
against financing passive activities other than Eligible Passive 
Companies under 13 CFR 120.111.
    Section 120.173. SBA proposes to remove this section, which 
prohibits the use of lead-based paint if loan proceeds are for the 
construction or rehabilitation of a residential structure. This 
regulation is unnecessary because 16 CFR part 1303 already bans paint 
containing a concentration of lead in excess of 0.009% (90 parts per 
million) for use in residences, schools, hospitals, parks, playgrounds, 
and public buildings or other areas where consumers will have direct 
access to the painted surface.
    Section 120.190. SBA proposes to remove the reference to immediate 
participation loans in paragraph (a) and to remove paragraph (d), which 
refers to direct loans, because SBA has not received funding for 
immediate participation or direct loans for over 30 years and believes 
that it may be confusing to the public to refer to such loans when they 
are not available from the agency.
    Section 120.192. This section states that loan applicants will 
receive notice of approval or denial of the loan application by the 
Lender, Certified Development Company (CDC), Microloan Intermediary, or 
SBA, as appropriate. SBA provided notice to the applicant only when it 
made direct loans. Because SBA has not received funding for direct 
loans for over 30 years, it is no longer necessary to include the 
reference to SBA in this section.
    Section 120.211. SBA is proposing to remove this section, which 
describes the statutory limits for direct loans and immediate 
participation loans, because SBA has not received funding to make these 
loans for over 30 years. SBA believes that it may be confusing to the 
public to refer to such loans when they are not available from the 
agency.
    Section 120.212. This section establishes the maturities for a 7(a) 
loan. Paragraph (b) of this section establishes the loan term at ten 
years or less, unless the loan finances or refinances real estate or 
equipment with a useful life exceeding ten years. When the loan is used 
to finance equipment or leasehold improvements, SBA is proposing to 
amend paragraph (b) to allow a Lender to add a reasonable period, not 
to exceed 12 months, to the loan term when necessary to complete the 
installation of the equipment and/or complete the leasehold 
improvements.
    Section 120.213. SBA is proposing to remove paragraph (b), which 
describes the interest rate charged by SBA for direct loans, for which 
SBA has not received funding for over 30 years. SBA believes that it 
may be confusing to the public to refer to such loans when they are not 
available from the Agency. The remainder of the section would be 
revised accordingly.
    Sections 120.214. Paragraph (c) of section 120.214 currently allows 
Lenders to use one of three base rate options for calculating the 
maximum variable interest rate for 7(a) and 504 loans: The prime rate 
(Prime), the Optional Peg Rate, and the thirty-day London Interbank 
Offered Rate (LIBOR) plus 3 percentage points. SBA is proposing to 
remove the LIBOR option in paragraph (c)(ii). The U.K. Financial 
Conduct Authority announced on July 27, 2017, that it would phase-out 
LIBOR by the end of 2021, and no generally accepted replacement for 
LIBOR has been identified or widely adopted at this time. To provide 
certainty to SBA Lenders and Borrowers in advance of LIBOR's sunset in 
2021, SBA is proposing to remove from the regulation the reference to 
LIBOR as an optional base rate for variable rate 7(a) and 504 loans.
    Lenders will only be able to use Prime or the Optional Peg Rate as 
the base rate for any loan approved after the effective date of this 
rule. In addition, for any loans outstanding with interest rates based 
on LIBOR, SBA recommends that Lenders review their loan documents to 
determine if the documents provide a fallback base rate (i.e., Prime or 
the Optional Peg Rate) without having to modify the loan documents. If 
there is no such flexibility, Lenders will need to work with Borrowers 
to modify their loan documents on an individual basis before LIBOR 
sunsets in 2021. Such modifications must be in compliance with the 
procedures set forth in the current versions of SBA Standard Operating 
Procedures 50 10 and 50 57. If such loans have been sold on the 
secondary market, Lenders will need to obtain the consent of investors 
to modify the base rate in the loan agreement. With only 3% of SBA's 
total portfolio of non-disaster business loans using LIBOR as a base 
rate, the process of phasing out LIBOR should not have a significant 
economic impact on a substantial number of small entities in SBA's 
business loan programs.
    In addition, SBA is proposing to use loan amounts as the basis upon 
which the variable interest rate is set, instead of loan maturities. 
Paragraph (e) would be removed and paragraph (d) would be revised to 
reflect the maximum variable interest rates for all 7(a) loans as 
follows:
    (1) For all 7(a) loans of $50,000 and less, the maximum interest 
rate shall not exceed six and a half (6.5) percentage points over the 
base rate;

[[Page 80679]]

    (2) For all 7(a) loans greater than $50,000 and up to and including 
$250,000, the maximum interest rate shall not exceed six (6.0) 
percentage points over the base rate;
    (3) For all 7(a) loans greater than $250,000 and up to and 
including $350,000, the maximum interest rate shall not exceed four and 
a half (4.5) percentage points over the base rate; and
    (4) For all 7(a) loans greater than $350,000, the maximum interest 
rate shall not exceed three (3.0) percentage points over the base rate.
    By basing the rates on loan amounts and allowing Lenders to charge 
higher rates for smaller loans, Lenders would have more incentive to 
make smaller loans to businesses in need of credit on reasonable terms. 
Recent data shows that SBA loans up to $150,000 have been declining 
over the last four years, and yet it is not uncommon for small 
businesses to max out their credit on credit cards or through financial 
technology companies (Fintech) where interest rates can range between 
19-21% for credit cards and can exceed 45% for Fintech. Currently, the 
maximum variable interest rate that Lenders may charge is 2.25 
percentage points over the base rate for loans with maturities of less 
than seven years and 2.75 percentage points over the base rate for 
loans with maturities of seven years or more, with an additional 2% 
more than these maximums for loans of $25,000 or less and an additional 
1% more than these maximums for loans over $25,000 but not exceeding 
$50,000. SBA expects that the incentive created by allowing Lenders to 
charge the higher interest rates proposed above, particularly for 
smaller loans, will encourage Lenders to make loans that they would not 
otherwise make, thereby increasing the availability to small businesses 
of needed credit at a more reasonable interest rate with an SBA 
participating Lender. The proposed changes also recognize that, 
historically, smaller loans are riskier and have a higher default rate 
and, therefore, a higher maximum interest rate is warranted.
    The maximum variable interest rates described above would apply to 
all types of 7(a) loans. Currently, the maximum variable interest rate 
that Lenders are permitted to charge may vary depending upon the type 
of 7(a) loan the Lender is making, i.e., SBA Express, Export Express, 
Community Advantage Pilot, or regular 7(a). By standardizing the 
maximum variable interest rates for all 7(a) loans, SBA is streamlining 
and simplifying its regulations, and reducing the burden on Lenders. If 
this rule is adopted, SBA Express and Export Express Lenders may 
continue to use, in accordance with the statutory authority of section 
7(a)(31) and 7(a)(34) of the Small Business Act, respectively, the same 
base rates they use on their similarly-sized, non-SBA guaranteed 
commercial loans, as well as their established change intervals, 
payment accruals, and other interest rate terms. However, the interest 
rate must never exceed the maximum allowable interest rate stated in 
paragraph (d) of this section and these loans may be sold on the 
Secondary Market only if the base rate is one of the base rates allowed 
in Sec.  120.214(c). In addition, if this rule is adopted, SBA will 
allow Community Advantage Lenders to charge the higher interest rate in 
paragraph (1) above for loans of $50,000 or less (such Lenders can 
already charge 6 percentage points over the Prime rate for loans up to 
$250,000, the maximum loan amount under the Community Advantage Pilot).
    Other proposed changes to this section include removing the 
requirement in the introductory paragraph of Sec.  120.214 that SBA's 
approval is required for a Lender to use a variable rate of interest. 
By removing this approval requirement, SBA is further streamlining its 
regulations. SBA is also proposing to amend the second sentence of the 
introductory paragraph of Sec.  120.214 by moving it to Sec.  
120.214(d) and revising it to clearly state that the initial maximum 
variable interest rate is determined as of the date that SBA received 
the loan application.
    Section 120.215. SBA is proposing to remove this section, which 
establishes the interest rates for smaller loans. The interest rates 
for all 7(a) loans would be covered by Sec.  120.213 and the proposed 
amendments to Sec.  120.214.
    Section 120.220. SBA is proposing two changes to this section. 
First, paragraph (a)(3) currently states that ``[i]n 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.'' This regulatory paragraph implements section 
7(a)(31)(G) of the Small Business Act, which provides that the 
guarantee fee imposed by section 7(a)(18) of the Small Business Act is 
waived in connection with a loan made under the SBA Express Loan 
Program to a veteran or the spouse of a veteran except in any fiscal 
year in which the 7(a) program is not operating at zero subsidy. 
However, section 1102(d) of the Coronavirus Aid, Relief, and Economic 
Security Act (Pub. L. 116-136, 134 Stat. 281) removed the exception 
and, accordingly, SBA proposes to remove it from section 120.220(a)(3).
    Second, paragraph (b) of this regulation establishes the deadlines 
for paying the SBA guaranty fee. For a loan with a maturity in excess 
of 12 months, this provision currently requires the Lender to pay the 
fee electronically within 90 days after SBA approval of the loan. In 
practice, SBA has been giving Lenders an additional 30 days to pay this 
fee, for a total of 120 calendar days after SBA loan approval, before 
cancelling the guarantee. With the efficiencies that have been created 
by electronic banking, SBA believes that these payments should be made 
in less time than 120 days and is proposing to require that the fee be 
paid within 45 days after loan approval. If the fee is not paid by the 
45th day, SBA will give the Lender a grace period of an additional 30 
days. If the fee is not paid by the 75th day, SBA will cancel the 
guarantee. For loans with a maturity of 12 months or less, SBA will 
continue to cancel the guarantee if the fee is not paid by the 10th 
business day after the Lender receives SBA loan approval.
    Section 120.222. SBA is proposing a technical correction to Sec.  
120.222 to remove an extra word (``in'') that was inserted in error.
    Section 120.310. SBA is proposing to remove the reference to direct 
loans in this provision, which governs the Disabled Assistance Loan 
Program (``DAL''), to make this regulation consistent with section 
7(a)(10) of the Small Business Act, which authorizes ``guaranteed'' 
loans under the DAL program, but not direct loans.
    Section 120.315. SBA is proposing to remove this section in its 
entirety, which establishes the interest rate and limit on the loan 
amount with respect to direct DAL loans, to make this regulation 
consistent with section 7(a)(10) of the Small Business Act, which 
authorizes guaranteed loans only and not direct loans.
    Section 120.320. SBA is proposing to remove this provision in its 
entirety. It references SBA's authority under section 7(a)(11) of the 
Small Business Act to guarantee or make direct loans to businesses 
owned by low income individuals. However, direct loans have not been 
funded for over 30 years and this provision does not add anything to 
the general authority that SBA has under section 7(a) of the Small 
Business Act to make guaranteed loans to businesses owned by low income 
individuals.
    Section 120.330. SBA is proposing to remove the reference to direct 
loans in this section because SBA has not

[[Page 80680]]

received funding to make these loans for over 30 years. SBA believes 
that it may be confusing to the public to refer to such loans when they 
are not available from the Agency.
    Sections 120.350 and 120.352. The regulations governing SBA 
guaranteed loans to qualified employee trusts or ``Employee Stock 
Ownership Plans'' (ESOPs) are set forth in Sec. Sec.  120.350 through 
120.354. SBA is proposing a technical amendment to both Sec.  120.350 
and Sec.  120.352 to incorporate the statutory change made in Section 
862 of the John S. McCain National Defense Authorization Act for Fiscal 
Year 2019 (Pub. L. 115-232) that permits SBA to guarantee a loan to the 
small business concern (rather than the qualified employee trust), if 
the proceeds from the loan are used only to make a loan to a qualified 
employee trust that results in the qualified employee trust owning at 
least 51 percent of the small business concern. SBA is proposing this 
technical amendment in order to ensure that the regulations are 
consistent with the statute and to provide clarity to SBA Lenders and 
SBA employees with respect to guaranteed loans involving ESOPs. 
Additional guidance governing these loans will be provided in SOP 50 
10.
    Sections 120.360 and 120.361. SBA is proposing to remove these 
sections, which describe an outdated veteran's loan program for direct 
and guaranteed loans to Vietnam-era veterans and certain disabled 
veterans. SBA has not received funding to make direct 7(a) loans in the 
Veterans Loan Program for over 30 years and SBA's existing Loan Program 
Requirements provide special consideration for veteran-owned 
businesses. These regulations are, therefore, obsolete.
    Section 120.370. SBA is proposing to remove this section, which 
describes SBA's authority under section 7(a)(12) of the Small Business 
Act to finance pollution control facilities, because the $1 million cap 
set forth in section 7(a)(12)(B) for these pollution control loans was 
superseded when Congress raised the guaranty limit in section 7(a)(3) 
to $3.75 million. In addition, this provision is otherwise unnecessary 
because SBA is authorized under the general authority of section 7(a) 
to make guaranteed loans for pollution control facilities.
    Section 120.375. SBA is proposing to remove this section's 
reference to direct loans to firms participating in the 8(a) Program 
because direct loans have not been funded for over 30 years. SBA 
believes that it may be confusing to the public to refer to such loans 
when they are not available from the Agency.
    Section 120.376. SBA is proposing to remove paragraph (a), the 
second sentence of paragraph (c), and paragraph (d), all of which 
describe requirements for direct loans or an immediate participation 
loan related to the loan program for participants in the 8(a) Program, 
for the same reasons expressed under the discussion of section 120.375 
above. The remaining paragraphs would be redesignated accordingly.
    Sections 120.380 through 120.383. SBA is proposing to remove these 
sections, which govern the program to provide defense economic 
transition assistance, because this program is no longer being funded. 
SBA believes that it may be confusing to the public to refer to such 
loans when they are not available from the Agency.
    Section 120.420. SBA is proposing to remove paragraph (b), which 
defines ``Bank Regulatory Agencies,'' because this term is no longer 
used in part 120, and the term ``Federal Financial Institution 
Regulator,'' which is used instead, is defined in 13 CFR 120.10. The 
remaining paragraphs would be redesignated accordingly.
    Section 120.432. SBA is proposing to amend Sec.  120.432(a) to 
implement its longstanding policy of holding Assuming Institutions and 
investors responsible for the contingent liabilities (including repairs 
and denials) associated with 7(a) loans originated by failed insured 
depository institutions, whether the 7(a) loans are purchased by a 
Lender through a Federal Deposit Insurance Corporation (FDIC) loan sale 
or transferred to an Assuming Institution through a whole bank 
transfer.
    SBA is proposing this modification to ensure consistent treatment 
of all portfolio loan transfers whether through voluntary bank mergers 
or asset sales, or through FDIC-led portfolio transfers following the 
failure of a Lender. SBA is also proposing to modify the regulatory 
language to include a statement that clarifies the applicability of the 
paragraph and the ability for the Agency to agree otherwise in writing 
(i.e., to affirm the validity of the guaranties). SBA also is proposing 
to modify the regulatory language to remove the specific reference to 
the FDIC and make it applicable to all 7(a) loans purchased from any 
Federal or state banking regulator, any receiver, or any conservator.
    Section 120.453. SBA is proposing to remove this section, which 
states that servicing and liquidation responsibilities for PLP Lenders 
are set forth in subpart E of part 120, as unnecessary. PLP Lenders are 
required to service and liquidate their loans in accordance with the 
same standards set forth in subpart E that are applied to non-delegated 
Lenders.
    Section 120.470. SBA is proposing to revise paragraph (d)(1) of 
this provision by increasing the dollar amount that a small business 
lending company (SBLC) may disburse with the signature of only one 
bonded officer from $1,000 to $10,000, provided that such action is 
covered under the SBLC's fidelity bond. SBA believes this change would 
reduce burden on SBLCs without introducing significant risk to the 
program.
    Section 120.532. SBA is proposing to remove this section, which 
refers to SBA's authority to assume a Borrower's obligation under terms 
and conditions set by SBA (see section 5(e) of the Small Business Act), 
because SBA does not use this authority and believes it may be 
confusing to the public for the regulations to refer to the 
availability of a loan moratorium under this section when it is not 
available from the Agency.
    Section 120.540. Paragraph (g) of this section provides that a 
Lender may appeal an SBA office's decision, pertaining to an original 
or amended liquidation plan, to the Director of the Office of Financial 
Assistance (D/FA) within 30 days of the decision. The office within SBA 
that is now responsible for considering these appeals is the Office of 
Financial Program Operations (OFPO). Accordingly, SBA is proposing to 
amend this paragraph by replacing ``D/FA'' with ``Director/Office of 
Financial Program Operations (D/OFPO)'' where it first appears and with 
``D/OFPO'' thereafter.
    Section 120.542. Paragraph (d) of this section provides that a 
Lender may appeal an SBA decision to decline to reimburse all, or a 
portion, of the fees and/or costs incurred in conducting liquidation to 
the D/FA, and that the decision of the D/FA (or designee) will be made 
in consultation with the Associate General Counsel for Litigation. The 
office within SBA that is now responsible for considering these appeals 
is OFPO. Accordingly, SBA is proposing to amend this paragraph by 
replacing ``D/FA'' with ``D/OFPO'' wherever it appears.
    In addition, paragraph (e) of this section provides that a Lender 
may appeal a decision by SBA to decline to reimburse all, or a portion, 
of the legal fees and/or costs incurred in conducting debt collection 
litigation to the Associate General Counsel for Litigation. It further 
provides that the Associate General Counsel makes this decision in 
consultation with the D/FA. The office within SBA that is now

[[Page 80681]]

responsible for consulting with the Associate General Counsel is OFPO. 
Accordingly, SBA is proposing to amend this paragraph by replacing ``D/
FA'' with ``D/OFPO''.
    Section 120.701. SBA is proposing to remove paragraph (g) of this 
section, which defines ``Non-lending technical assistance provider,'' 
(NTAP) because SBA has not issued grant funds to NTAPs for many years. 
The remaining paragraph (h) would be redesignated accordingly.
    Section 120.706. SBA proposes to revise paragraph (a) of this 
section to increase the maximum outstanding amount of loans that an 
Intermediary may borrow from SBA from $5 million to $6 million. This 
change incorporates the increase made by section 853(b) of the John S. 
McCain National Defense Authorization Act for Fiscal Year 2019, 15 
U.S.C. 636(m)(3)(C).
    Section 120.707. SBA is proposing to revise the regulation at Sec.  
120.707(b) to increase the maximum maturity of a loan from an 
Intermediary to a Microloan borrower from 6 years to 7 years. This 
change would allow for a longer repayment period for these small loans.
    Section 120.712. In Sec.  120.712(b), SBA is proposing to 
incorporate a recent statutory change to the percentage of grant funds 
that may be used by the Intermediary for marketing, managerial, and 
technical assistance to prospective Microloan borrowers. In Sec.  
120.712(d), SBA is proposing to incorporate a recent statutory change 
to the percentage of grant funds the Intermediary may use to contract 
with third parties to provide technical assistance to Microloan 
borrowers.
    Section 120.714. SBA proposes to remove Sec.  120.714, which 
describes how grants are made to non-lending technical assistance 
providers. SBA no longer makes such grants and there are no NTAPs 
currently participating in the Microloan Program. SBA is therefore 
proposing to eliminate this section to reduce confusion.
    Section 120.715. SBA is proposing to remove this section, which 
describes the Deferred Participation Loan Pilot, under which SBA was 
authorized to guarantee a loan that an Intermediary in the Microloan 
Program obtained from another source. SBA proposes to remove Sec.  
120.715 in its entirety as this pilot expired in Fiscal Year 2000 and 
SBA no longer has the authority to guarantee such loans.
    Section 120.800. SBA is proposing to remove this section, which 
describes the purpose of the 504 program, because it is unnecessary. 
The 504 Loan Program is described in Sec.  120.2(c).
    Section 120.812. SBA is proposing to revise paragraph (a)(2) to 
provide that a newly certified CDC may petition for more than a single 
one-year extension of probation. In addition, SBA is proposing to 
revise paragraph (d) to clarify that, if SBA declines the CDC's 
petition for permanent status, the CDC will no longer have authority to 
participate in the 504 Loan Program and SBA will direct the CDC to 
transfer all funded and/or approved loans to another CDC, SBA, or 
another servicer approved by SBA.
    Section 120.840. SBA is proposing to make a technical correction to 
Sec.  120.840(b) by replacing the reference in this section to the 
Director, Office of Financial Assistance with ``appropriate SBA 
official in accordance with Delegations of Authority.'' In addition, 
SBA is proposing to revise Sec.  120.840(b) to reflect the modernized 
application submission process for ALP, which will allow CDCs to submit 
ALP applications electronically into the Corporate Governance 
Repository, rather than apply to the Lead SBA Office.
    Section 120.845. Paragraph (c)(1) of this section, which sets forth 
the eligibility criteria for the Premier Certified Lenders Program, 
refers to the criteria that are listed for the Accredited Lenders 
Program in Sec.  120.841(a) through (h). However, the criteria are 
listed only in Sec.  120.841(a) through (f). SBA is proposing, 
therefore, to amend paragraph (c)(1) by removing ``through (h)'' at the 
end of the sentence and adding ``through (f)'' in its place.
    Section 120.850. SBA is proposing to remove this section because 
the designation of Associate Development Company ceased to exist on 
January 1, 2004.
    Section 120.862. SBA is proposing to amend paragraph (b) by adding 
the three energy public policy goals described in paragraphs (I), (J) 
and (K) of section 501(d)(3) of the Small Business Investment Act of 
1958, as amended, to the list of economic development objectives. These 
three goals relate to the reduction of energy consumption by at least 
10 percent, the increased use of sustainable design, and plant, 
equipment and process upgrades of renewable energy sources. This change 
would make the regulations consistent with the statute.
    Section 120.1400. Under current 13 CFR 120.1400(a), a CDC that 
obtains approval for 504 loans after October 20, 2017, and an SBA 
Supervised Lender that makes 7(a) guaranteed loans after October 20, 
2017, consent to the applicable receivership remedies in 13 CFR 
120.1500(c). Pursuant to SOP 50 10 5(J), SBA deemed the consent by a 
CDC under 13 CFR 120.1400(a)(1), and the consent by an SBA Supervised 
Lender under 13 CFR 120.1400(a)(2), to take effect on January 1, 2018, 
which was the effective date of the SOP 50 10 5(J). The proposed 
amendments to this rule would codify the SOP provision into the rule. 
The amendments to these paragraphs would also clarify that the CDC's or 
the SBA Supervised Lender's consent does not preclude them from 
contesting whether or not SBA has established the grounds for seeking 
the remedy of a receivership.
    Section 120.1500. SBA is proposing to amend paragraphs (c)(3) and 
(e)(3) to incorporate into the regulations the factors set forth in the 
current SOP 50 10 that SBA considers when seeking the appointment of a 
receiver and the scope of the receivership. The appointment of a 
receiver is only one of several types of enforcement actions set forth 
in 13 CFR 120.1500, and typically, SBA will use its receivership 
authority as a remedy of last resort. The proposed factors vary 
slightly depending upon the type of SBA Lender and whether the SBA 
Lender has assets unrelated to SBA loan program activities.
    Section 123.17. SBA is proposing to amend this section to remove 
the reference to lead-based paint. As stated above, SBA is proposing to 
remove Sec.  120.173, Lead-based paint, which prohibits the use of 
lead-based paint if loan proceeds are for the construction or 
rehabilitation of a residential structure. That section is unnecessary 
because 16 CFR part 1303 already bans paint containing a concentration 
of lead in excess of 0.009% (90 parts per million) for use in 
residences, schools, hospitals, parks, playgrounds, and public 
buildings or other areas where consumers will have direct access to the 
painted surface. Removing the reference to lead-based paint in Sec.  
123.17 conforms this regulation to the removal of Sec.  120.173 and 
will avoid confusion.

Compliance With Executive Orders 12866, 12988, 13132, 13563, and 13771, 
the Paperwork Reduction Act (44 U.S.C., Ch. 35), and the Regulatory 
Flexibility Act (5 U.S.C. 601-612)

Executive Order 12866
    The Office of Management and Budget has determined that this 
proposed rule does not constitute a ``significant regulatory action'' 
under Executive Order 12866. This rule is also not a major rule under 
the Congressional Review Act.
Executive Order 12988
    This action meets applicable standards set forth in sections 3(a) 
and

[[Page 80682]]

3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize 
litigation, eliminate ambiguity, and reduce burden. This action does 
not have preemptive effect or retroactive effect.
Executive Order 13132
    SBA has determined that this proposed rule would not have 
federalism implications as defined in Executive Order 13132. It would 
not have substantial direct effects on the States, on the relationship 
between the National Government and the States, or on the distribution 
of power and responsibilities among the various levels of government, 
as specified in the Executive Order. Therefore, for the purposes of 
Executive Order 13132, SBA has determined that this proposed rule does 
not warrant the preparation of a Federalism Assessment.
Executive Order 13563
    As discussed above, SBA received a significant number of public 
comments in response to the Federal Register document requesting the 
public's input.
Executive Order 13771
    The designation, as regulatory or deregulatory under E.O. 13771, of 
any final rule resulting from the notice of proposed rulemaking will be 
informed by comments received. Details on the preliminary estimates of 
costs and cost savings are below.
    This proposed rule is expected to be an Executive Order 13771 
deregulatory action with an annualized net savings of $358,724 and a 
net present value of $5,125,645 in savings, both in 2016 dollars.\1\ 
This rule is a comprehensive effort to remove regulations that are 
confusing, misleading, or unnecessary, as well as to make various 
technical amendments and other changes to clarify and streamline the 
program, including: Removing language about immediate participation 
loans and direct loans because SBA has not received funding for 
immediate participation or direct loans for over 30 years, removing 
information about a pilot program that has expired, removing references 
to grant funds that are no longer provided, and removing the reference 
to SBA's authority to assume a Borrower's loan obligations under a loan 
moratorium. The removal of these regulations will save Lenders and loan 
applicants time reading, researching, and inquiring about these 
obsolete or inactive programs and reduce confusion around whether they 
exist.
---------------------------------------------------------------------------

    \1\ The net present value was calculated using the annualized 
savings discounted by 7% over a perpetual time horizon based in 2016 
dollars.
---------------------------------------------------------------------------

    For each year between FY 2015 and FY 2019, SBA estimates that 
approximately 2,161 active 7(a) Lenders, CDCs, and Microloan 
Intermediaries could have potentially read about these programs in the 
regulations. Assuming that 20 percent (432) of these Lenders would read 
about the program in the regulations and that each would save two hours 
from not reading the removed information or researching/inquiring about 
obsolete programs, this would be 864 reduced hours of burden. Valuing 
this time at $124.90 per hour (the median wage of a financial manager 
based on 2019 Bureau of Labor Statistics (BLS) data and adding 100% 
more for benefits and overhead), this produces total savings per year 
of $107,914 in current dollars. These savings would be expected to 
continue into perpetuity.
    In addition, some percentage of Borrowers would read about the 
program in the regulation and each would save approximately two hours 
from not reading the removed information, researching, or inquiring 
about the program. Assuming 2 percent of the 331,533 Borrowers with 
active loans would read the regulation (or about 6,630), this 
represents a total of 13,260 hours of burden reduced. Valuing this time 
at $38.28 per hour (the median wage of the general population based on 
2019 BLS data and adding 100% more for benefits and overhead), this 
produces total savings per year of $507,593 in current dollars. These 
savings would be expected to continue into perpetuity.
    In addition to these quantifiable benefits, there are several 
benefits of this rule that are unquantifiable. For instance, SBA is 
proposing to increase the dollar amount that an SBLC may disburse with 
the signature of only one bonded officer from $1,000 to $10,000, 
provided that such action is covered under the SBLC's fidelity bond. 
SBA believes this change would reduce burden on SBLCs without 
introducing significant risk to the program.
    Further, SBA is proposing to allow a Lender to add a reasonable 
period, not to exceed 12 months, to the loan term when necessary to 
complete the installation of equipment and/or complete leasehold 
improvements. It is difficult to estimate how many Lenders will utilize 
this flexibility or how many Borrowers will require it, but the added 
flexibility is a benefit to Borrowers.
    SBA proposes to increase the maximum outstanding amount of SBA 
loans that an Intermediary may borrow from $5 million to $6 million. 
This change incorporates the increase made by section 853(b) of the 
John S. McCain National Defense Authorization Act for Fiscal Year 2019, 
15 U.S.C. 636(m)(3)(C) and is a benefit for Intermediaries.
    SBA does not anticipate many Borrowers will be affected by the 
removal of LIBOR as an optional base rate for variable rate SBA 
business loans, but there will be some unavoidable cost associated with 
its sunset. SBA estimates the percentage of loans affected by the 
change to be 3% of the approximately 331,533 active SBA business loans, 
or about 9,946 loans. We assume the terms of all these loans will need 
to be updated, which is a conservative estimate, and that this will 
create an hour of burden for both a financial manager and a Borrower. 
Estimating the value of the financial manager's time at $124.90 per 
hour (the median wage of a financial manager based on 2019 BLS wage 
data and adding 100% for benefits and overhead) and valuing the 
Borrower's time at $38.28 per hour (the median wage of the general 
population based on 2018 BLS data and adding 100% more for benefits and 
overhead), this produces a burden of $1,622,988 in the first year that 
LIBOR is discontinued and would not be repeated in subsequent years. It 
is important to note that, because LIBOR is being phased-out by the 
U.K. Financial Conduct Authority, these costs will be incurred 
regardless of whether or not SBA removes the reference to LIBOR in its 
regulations.
    Additionally, SBA is proposing to use loan amounts as the basis 
upon which the variable interest rate is set instead of using loan 
maturities for all 7(a) loans. SBA is proposing to apply the new 
variable interest rate maximums to all 7(a) loans. Currently, 
approximately 22% of 7(a) loans charge the maximum variable interest 
rate so increasing the maximum allowable interest rate is unlikely to 
cause the other 78% to increase their rates. It is difficult to 
speculate what proportion of the 22% that currently charge the maximum 
allowable interest rate will increase their rates, but the forces of 
the competitive marketplace will limit their ability to charge 
significantly higher rates, making the new rate maximums unlikely to 
create a significant cost for Borrowers. Also, it is not uncommon for 
small businesses to max out their credit on credit cards or through 
financial technology companies (Fintech) where interest rates can range 
between 19-21% for credit cards and can exceed 45% for Fintech, and SBA 
loans would be a more reasonable alternative with the proposed maximum 
rates in this rule.

[[Page 80683]]

    Due to efficiencies that have been created by electronic banking, 
SBA believes that payments should be made in less time and is proposing 
to require that the SBA guaranty fee be paid within 45 days after loan 
approval. This change is not expected to create any additional burden 
for Lenders since they make electronic payments now and should be able 
to easily comply with the proposed timeframe.
    Lastly, SBA is proposing to remove the exception related to the 
guarantee fee that is collected from veterans or from the spouse of a 
veteran on Express Loans. The guarantee fee on these loans is waived 
for veterans and their spouses in fiscal years when the 7(a) program is 
at zero subsidy, but there was a statutory exception to this waiver for 
fiscal years when the 7(a) program is not at zero subsidy. Section 
1102(d) of the CARES Act eliminated this exception and, accordingly, 
SBA is proposing to remove this exception to conform the regulations to 
the statutory change. SBA considers this proposed change a transfer of 
the cost for the 7(a) loan program which will not affect the total 
resources available to loan participants. The fees collected from 
participants in the loan program are set at the amounts needed to cover 
the cost of the program, but are capped at a statutory limit which can 
result in periods when the program is operating in positive subsidy. 
The proposed change will transfer the cost of the service away from 
veterans and their spouses to non-veteran participants or SBA, 
resulting in either increased fees for nonveterans, or will require 
appropriations to subsidize the operations of the program. Thus, the 
elimination of guarantee fees for veterans and their spouses will 
result in a distributional shift and will not cause a new cost to 
society.
    Table 1 displays the savings and costs of this rule over the first 
two years it is effective, with the savings and costs in the second 
year expected to continue into perpetuity. Table 2 presents the 
annualized net savings in 2016 dollars.

        Table 1--Schedule of Costs/(Savings) Over 2 Year Horizon
                            [Current dollars]
------------------------------------------------------------------------
                                              Savings          Costs
------------------------------------------------------------------------
Year 1..................................     $ (615,506)      $1,622,988
                                         -------------------------------
Year 2..................................       (615,506)               0
------------------------------------------------------------------------


     Table 2--Annualized Savings in Perpetuity with 7% Discount Rate
                             [2016 Dollars]
------------------------------------------------------------------------
                                                             Estimate
------------------------------------------------------------------------
Annualized Savings......................................     $ (433,505)
Annualized Costs........................................          74,781
                                                         ---------------
    Annualized Net Savings..............................       (358,724)
------------------------------------------------------------------------

Paperwork Reduction Act, 44 U.S.C., Ch. 35
    SBA has determined that this proposed rule would not impose any 
additional reporting or recordkeeping requirements under the Paperwork 
Reduction Act.
Regulatory Flexibility Act, 5 U.S.C. 601-612
    When an agency issues a proposed rule, the Regulatory Flexibility 
Act (RFA) requires the agency to ``prepare and make available for 
public comment an initial regulatory flexibility analysis'' which will 
``describe the impact of the proposed rule on small entities.'' (5 
U.S.C. 603(a)). However, 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.
    This rule is a comprehensive effort to remove information from the 
regulations that are confusing and misleading, which would save Lenders 
and Borrowers time in reading and inquiring about obsolete or 
inaccurate information. SBA estimates the total annual savings to 
Lenders and Borrowers to be $615,506 in current dollars, as detailed in 
the Executive Order 13771 section above.
    In addition, there are some costs associated with this rule that 
could impact small businesses. The removal of LIBOR as an optional base 
rate for variable rate 7(a) loans will cause some Borrowers to modify 
their loan documents to specify a new base rate. Any costs associated 
with modifying loan documents are an unavoidable result of the phase-
out of LIBOR that will occur in 2021. SBA estimates only 3% of active 
SBA business loans could be affected by this change and that the burden 
created would be $1,622,988 in the first year that LIBOR is 
discontinued and would not be repeated in subsequent years, as detailed 
in the Executive Order 13771 section above.
    The annualized net savings of this rule is estimated to be $358,724 
in 2016 dollars. Given that savings would be spread out to 
approximately 7,000 beneficiaries (Lenders and Borrowers), this does 
not create a significant savings per beneficiary.
    Based on the foregoing, the Administrator of the SBA hereby 
certifies that this rule will not have a significant economic impact on 
a substantial number of small entities. The SBA invites comments from 
the public on this certification.

List of Subjects

13 CFR Part 120

    Loan programs-business, Reporting and recordkeeping requirements, 
Small businesses, Veterans.

13 CFR Part 123

    Disaster assistance, Loan programs-business, Small businesses.

    For the reasons stated in the preamble, SBA proposes to amend 13 
CFR parts 120 and 123 as follows:

PART 120--BUSINESS LOANS

0
1. The authority citation for 13 CFR part 120 continues to read as 
follows:

    Authority: 15 U.S.C. 634(b) (6), (b) (7), (b) (14), (h), and 
note, 636(a), (h) and (m), and note, 650, 657t, and note, 657u, and 
note, 687(f), 696(3) and (7), and note, and 697(a) and (e), and 
note.
0
2. Amend Sec.  120.2 by revising paragraph (a)(1) to read as follows:


Sec.  120.2  Descriptions of the business loan programs.

    (a) * * *
    (1) SBA makes a guaranteed (deferred participation) loan by which 
SBA guarantees a portion of a loan made by a Lender to provide 
financing for general business purposes.
* * * * *
0
3. Amend Sec.  120.10 by revising the first sentence of the definition 
of ``Risk Rating'' to read as follows:


Sec.  120.10  Definitions.

* * * * *
    Risk Rating is an SBA internal composite rating assigned to 
individual SBA Lenders and Intermediaries that reflects the risk 
associated with the SBA Lender's or Intermediary's portfolio of SBA 
loans. * * *
* * * * *


Sec.  120.103  [Removed]

0
4. Remove Sec.  120.103.
0
5. Amend Sec.  120.110 by revising paragraph (h), removing and 
reserving paragraph (k), and revising paragraph (n).
    The revisions read as follows:


Sec.  120.110  What businesses are ineligible for SBA business loans?

* * * * *

[[Page 80684]]

    (h) Businesses engaged in any activity that is illegal under 
Federal, State, or local law;
* * * * *
    (n) Businesses with an Associate who is incarcerated, on probation, 
on parole, or is under indictment for a felony or any crime involving 
or relating to financial misconduct or a false statement;
* * * * *


Sec.  120.111  [Amended]

0
6. Amend Sec.  120.111 by removing the last sentence of the 
introductory text.
0
7. Amend Sec.  120.120 by revising paragraph (a)(1) to read as follows:


Sec.  120.120  What are eligible uses of proceeds?

* * * * *
    (a) * * *
    (1) Acquire land (by purchase or lease) that will be actively used 
in the applicant's business operations (except that a Borrower may 
lease a portion of the property in accordance with 13 CFR 120.131 and 
120.870(b));
* * * * *


Sec.  120.173  [Removed and Reserved]

0
8. Remove and reserve Sec.  120.173.


Sec.  120.190  [Amended]

0
9. Amend Sec.  120.190 by:
0
a. Removing ``or immediate participation'' from paragraph (a);
0
b. Adding ``or'' at the end of paragraph (b);
0
c. Removing ``; or'' at the end of paragraph (c) and adding in its 
place a period; and
0
d. Removing paragraph (d).


Sec.  120.192  [Amended]

0
10. Amend Sec.  120.192 by removing the phrase ``CDC, Intermediary, or 
SBA,'' and adding in its place the phrase ``CDC or Intermediary,''.


Sec.  120.211  [Removed and Reserved]

0
11. Remove and reserve Sec.  120.211.
0
12. Amend Sec.  120.212 by revising paragraph (b) to read as follows:


Sec.  120.212  What limits are there on loan maturities?

* * * * *
    (b) Ten years or less, unless it finances or refinances real estate 
or equipment with a useful life exceeding ten years. The term for a 
loan to finance equipment and/or leasehold improvements may include an 
additional reasonable period, not to exceed 12 months, when necessary 
to complete the installation of the equipment and/or complete the 
leasehold improvements.
* * * * *
0
13. Revise Sec.  120.213 to read as follows:


Sec.  120.213  What fixed interest rates may a Lender charge?

    A guaranteed loan may have a reasonable fixed interest rate, but in 
no event may the rate exceed the maximum allowable rate periodically 
published by SBA in the Federal Register.
0
14. Amend Sec.  120.214 by:
0
a. Revising the introductory text, the first and second sentences of 
paragraph (c), and paragraph (d);
0
b. Removing paragraph (e); and
0
c. Redesignating paragraph (f) as paragraph (e).
    The revisions read as follows:


Sec.  120.214  What conditions apply for variable interest rates?

    A Lender may use a variable rate of interest for guaranteed loans 
under the following conditions:
* * * * *
    (c) * * * The base rate will be one of the following: the prime 
rate or the Optional Peg Rate. The prime 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. * * *
    (d) Maximum allowable variable interest rates. The maximum 
allowable variable interest rates are set forth in this paragraph (d), 
with the initial maximum allowable rate for the loan determined as of 
the date SBA receives the loan application:
    (1) For all 7(a) loans of $50,000 and less, the interest rate shall 
not exceed six and a half (6.5) percentage points over the base rate;
    (2) For all 7(a) loans of more than $50,000 and up to and including 
$250,000, the maximum interest rate shall not exceed six (6.0) 
percentage points over the base rate;
    (3) For all 7(a) loans of more than $250,000 and up to and 
including $350,000, the maximum interest rate shall not exceed four and 
a half (4.5) percentage points over the base rate; and
    (4) For all 7(a) loans of more than $350,000, the maximum interest 
rate shall not exceed three (3.0) percentage points over the base rate.
* * * * *


Sec.  120.215  [Removed]

0
15. Remove Sec.  120.215.
0
16. Amend Sec.  120.220 by:
0
a. Removing the phrase ``In fiscal years when the 7(a) program is at 
zero subsidy,'' in paragraph (a)(3).
0
b. Removing the number ``90'' and add in its place the number ``45'' in 
paragraph (b); and
0
c. Adding a subject heading and revising the first sentence of 
paragraph (e).
    The revision to read as follows:


Sec.  120.220  Fees that Lender pays SBA.

* * * * *
    (e) Termination of guarantee for nonpayment of fee and other 
matters. If the guarantee fee is not paid by the 75th calendar day 
after loan approval for a loan with a maturity in excess of twelve (12) 
months, or is not paid by the 10th business day after loan approval for 
a loan with a maturity of twelve (12) months or less, SBA will 
terminate the guarantee. * * *
* * * * *


Sec.  120.222  [Amended]

0
17. Amend Sec.  120.222 by removing the word ``in'' before the words 
``any premium received''.


Sec.  120.310  [Amended]

0
18. Amend Sec.  120.310 in the introductory text by removing the phrase 
``or make direct''.


Sec.  120.315  [Removed]

0
19. Remove Sec.  120.315.


Sec.  120.320  [Removed]

0
20. Remove the undesignated center heading ``Businesses Owned by Low 
Income Individuals'' and Sec.  120.320.


Sec.  120.330  [Amended]

0
21. Amend Sec.  120.330 by removing the phrase ``make or''.
0
22. Revise Sec.  120.350 to read as follows:


Sec.  120.350  Policy.

    Section 7(a)(15) of the Act authorizes SBA to guarantee a loan to 
a:
    (a) Qualified employee trust (``ESOP'') to:
    (1) Help finance the growth of its employer's small business; or
    (2) Purchase ownership or voting control of the employer; and a
    (b) Small business concern, if the proceeds from the loan are only 
used to make a loan to a qualified employee trust that results in the 
qualified employee trust owning at least 51 percent of the small 
business concern.
0
23. Revise Sec.  120.352 to read as follows:


Sec.  120.352  Use of proceeds.

    Loan proceeds may be used for:
    (a) Qualified employee trust. A qualified employee trust may use 
loan proceeds for two purposes:
    (1) Qualified employer securities. A qualified employee trust may 
relend loan proceeds to the employer by purchasing qualified employer

[[Page 80685]]

securities. The small business concern may use these funds for any 
general 7(a) purpose.
    (2) Control of employer. A qualified employee trust may use loan 
proceeds to purchase a controlling interest (51 percent) in the 
employer. Ownership and control must vest in the trust by the time the 
loan is repaid.
    (b) Small business concern. A small business concern may only use 
loan proceeds to make a loan to a qualified employee trust that results 
in the qualified employee trust owning at least 51 percent of the small 
business concern.


Sec.  Sec.  120.360, 120.361 and 120.370  [Removed]

    24. Remove the undesignated center heading ``Veterans Loan 
Program'', Sec. Sec.  120.360 and 120.361, the undesignated center 
heading ``Pollution Control Program'', and Sec.  120.370.


Sec.  120.375  [Amended]

0
25. Amend Sec.  120.375 by removing the phrase ``direct (unilaterally 
or together with Lenders) or''.


Sec.  120.376  [Amended]

0
26. Amend Sec.  120.376 by:
0
a. Removing paragraph (a);
0
b. Redesignating paragraphs (b) and (c) as paragraphs (a) and (b);
0
c. Removing the second sentence of newly redesignated paragraph (b); 
and
0
d. Removing paragraph (d).


Sec.  Sec.  120.380 through 120.383  [Removed]

0
27. Remove the undesignated center heading ``Defense Economic 
Transition Assistance'' and Sec. Sec.  120.380 through 120.383.


Sec.  120.420  [Amended]

0
28. Amend Sec.  120.420 by removing paragraph (b) and redesignating 
paragraphs (c) through (k) as paragraphs (b) through (j).
0
29. Amend Sec.  120.432 by adding a sentence at the end of paragraph 
(a) to read as follows:


Sec.  120.432  Under what circumstances does this subpart permit sales 
of, or sales of participating interests in, 7(a) loans?

    (a) * * * This paragraph (a) applies to all 7(a) loans purchased 
from any Federal or state banking regulator, any receiver, or any 
conservator, unless SBA agrees otherwise in writing.
* * * * *


Sec.  120.453  [Removed]

0
30. Remove Sec.  120.453.


Sec.  120.470  [Amended]

0
31. Amend Sec.  120.470 in paragraph (d)(1) by removing the number 
``$1,000'' and adding the number ``$10,000'' in its place.


Sec.  120.532  [Removed]

0
32. Remove Sec.  120.532.


Sec.  120.540  [Amended]

0
33. Amend Sec.  120.540 in paragraph (g) by removing the term ``D/FA'' 
from the first sentence and adding in its place the phrase ``Director/
Office of Financial Program Operations (D/OFPO)'' and by removing the 
term ``D/FA'' from the second and fourth sentences and adding in its 
place the term ``D/OFPO''.


Sec.  120.542  [Amended]

0
34. Amend Sec.  120.542 in paragraphs (d) and (e) by removing the term 
``D/FA'' wherever it appears and adding in its place the term ``D/
OFPO''.


Sec.  120.701  [Amended]

0
35. Amend Sec.  120.701 by removing the paragraph designations (a) 
through (h), leaving the definitions in alphabetical order, and 
removing the definition of ``Non-lending technical assistance 
provider''.


Sec.  120.706  [Amended]

0
36. Amend Sec.  120.706 in the last sentence of paragraph (a) by 
removing ``$5 million'' and adding in its place ``$6 million''.


Sec.  120.707  [Amended]

0
37. Amend Sec.  120.707 in the last sentence of paragraph (b) by 
removing the word ``six'' and adding in its place the word ``seven''.
0
38. Amend Sec.  120.712 by:
0
a. Revising paragraph (b)(1); and
0
b. Removing the number ``30'' and adding in its place the number ``50'' 
in paragraph (d).
    The revision reads as follows:


Sec.  120.712  How does an Intermediary get a grant to assist Microloan 
borrowers?

* * * * *
    (b) * * *
    (1) Up to 50 percent of the grant funds may be used to provide 
information and technical assistance to prospective Microloan 
borrowers; provided, however, that no more than 5 percent of the grant 
funds may be used to market or advertise the products and services of 
the Microloan Intermediary directly related to the Microloan Program; 
and
* * * * *


Sec.  Sec.  120.714 and 120.715  [Removed]

0
39. Remove and reserve Sec. Sec.  120.714 and 120.715.


Sec.  120.800  [Removed]

0
40. Remove Sec.  120.800.
0
41. Amend Sec.  120.812 by revising paragraph (a)(2) and by adding a 
sentence at the end of paragraph (d) to read as follows:


Sec.  120.812  Probationary period for newly certified CDCs.

    (a) * * *
    (2) A one-year extension of probation. If a one-year extension of 
probation is granted, at the end of this extension period, the CDC must 
petition the Lead SBA Office for permanent CDC status or an additional 
one-year extension of probation.
* * * * *
    (d) * * * If SBA declines the petition, the CDC will no longer have 
authority to participate in the 504 Loan Program and SBA will direct 
the CDC to transfer all funded and/or approved loans to another CDC, 
SBA, or another servicer approved by SBA.
0
42. Amend Sec.  120.840 by revising paragraph (b) to read as follows:


Sec.  120.840  Accredited Lenders Program (ALP).

* * * * *
    (b) Application. A CDC must apply for ALP status by submitting an 
application in accordance with SBA's Standard Operating Procedure 50 
10, available at https://www.sba.gov. A final decision will be made by 
the appropriate SBA official in accordance with Delegations of 
Authority.
* * * * *


Sec.  120.845  [Amended]

0
43. Amend Sec.  120.845 in paragraph (c)(1) by removing the phrase 
``through (h)'' and adding in its place the phrase ``through (f)''.


Sec.  120.850  [Removed]

0
44. Remove the undesignated center heading ``Associate Development 
Companies (ADCs)'' and Sec.  120.850.
0
45. Amend Sec.  120.862 by:
0
a. Removing ``or'' at the end of paragraph (b)(9);
0
b. Removing the period at the end of paragraph (b)(10) and adding ``;'' 
in its place; and
0
c. Adding paragraphs (b)(11) through (13).
    The additions read as follows:


Sec.  120.862  Other economic development objectives.

* * * * *
    (b) * * *
    (11) Reduction of energy consumption by at least 10 percent;
    (12) Increased use of sustainable design, including designs that 
reduce the use of greenhouse gas emitting fossil fuels, or low-impact 
design to produce buildings that reduce the use of non-renewable 
resources and minimize environmental impact; or

[[Page 80686]]

    (13) Plant, equipment and process upgrades of renewable energy 
sources such as the small-scale production of energy for individual 
buildings' or communities' consumption, commonly known as micropower, 
or renewable fuels producers including biodiesel and ethanol producers.
0
46. Amend 120.1400 by:
0
a. Removing the date ``October 20, 2017'' in paragraphs (a)(1) and (2) 
and adding in their place the date ``January 1, 2018''; and
0
b. Adding two sentences to the end of paragraphs (a)(1) and (2).
    The additions read as follows:


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

    (a) * * *
    (1) * * * The CDC's consent does not preclude the CDC from 
contesting whether or not SBA has established the grounds for seeking 
the remedy of a receivership. A CDC's consent to receivership as a 
remedy does not require SBA to seek appointment of a receiver in any 
particular SBA enforcement action.
    (2) * * * The SBA Supervised Lender's consent does not preclude 
such Lender from contesting whether or not SBA has established the 
grounds for seeking the remedy of a receivership. The SBA Supervised 
Lender's consent to receivership as a remedy does not require SBA to 
seek appointment of a receiver in any particular SBA enforcement 
action.
* * * * *
0
47. Amend Sec.  120.1500 by adding a sentence at the end of paragraph 
(c)(3), adding paragraphs (c)(3)(i) and (ii), and adding two sentences 
after the first sentence of paragraph (e)(3) to read as follows:


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

* * * * *
    (c) * * *
    (3) * * * In deciding whether to seek the appointment of a receiver 
and in determining the scope of a receivership, SBA will consider the 
following factors, in its discretion:
    (i) For NFRLs:
    (A) The existence of fraud or false statements;
    (B) The NFRL's refusal to cooperate with SBA enforcement action 
instructions or orders;
    (C) The NFRL's insolvency (legal or equitable);
    (D) The size of the NFRL's SBA loan portfolio(s) in relation to 
other activities of the NFRL;
    (E) The dollar amount of any claims SBA may have against the NFRL;
    (F) The NFRL's failure to comply materially with any requirement 
imposed by Loan Program Requirements; and/or
    (G) The existence of other non-SBA enforcement actions against the 
NFRL;
    (ii) For SBLCs:
    (A) The existence of fraud or false statements;
    (B) The SBLC's refusal to cooperate with SBA enforcement action 
instructions or orders;
    (C) The SBLC's insolvency (legal or equitable);
    (D) The dollar amount of any claims SBA may have against the SBLC; 
and/or
    (E) The SBLC's failure to comply materially with any requirement 
imposed by Loan Program Requirements.
* * * * *
    (e) * * *
    (3) * * * SBA will limit the scope of the receivership to the CDC's 
assets related to the SBA loan program(s) except where the CDC's 
business is almost exclusively SBA-related. SBA will only seek a 
receivership if there is either the existence of fraud or false 
statements, or if the CDC has refused to cooperate with SBA enforcement 
action instructions or orders. * * *

PART 123--DISASTER LOAN PROGRAM

0
48. The authority citation for part 123 continues to read as follows:

    Authority: 15 U.S.C. 632, 634(b)(6), 636(b), 636(d), and 657n.


Sec.  123.17  [Amended]

0
49. Amend Sec.  123.17 by removing the words ``lead-based paint,''.

Jovita Carranza,
Administrator.
[FR Doc. 2020-26446 Filed 12-11-20; 8:45 am]
BILLING CODE 8026-03-P