Disaster Assistance Loan Program Changes to Unsecured Loan Amounts and Credit Elsewhere Criteria, 59826-59831 [2024-16207]

Agencies

• SMALL BUSINESS ADMINISTRATION

[Federal Register Volume 89, Number 142 (Wednesday, July 24, 2024)]
[Rules and Regulations]
[Pages 59826-59831]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-16207]



[[Page 59826]]

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SMALL BUSINESS ADMINISTRATION

13 CFR Part 123

RIN 3245-AI08


Disaster Assistance Loan Program Changes to Unsecured Loan 
Amounts and Credit Elsewhere Criteria

AGENCY: U.S. Small Business Administration.

ACTION: Direct final rule.

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SUMMARY: This direct final rule amends the U.S. Small Business 
Administration (SBA or Agency) regulations governing the SBA Disaster 
Loan Program by revising how it determines whether an applicant has 
credit elsewhere to modernize and replace the current process. SBA is 
also increasing the unsecured threshold for physical damage loans under 
Major Disaster declarations and for Economic Injury Disaster Loans 
(EIDL) under all disaster declarations.

DATES: 
    Effective date: This rule is effective September 9, 2024, unless 
SBA receives a significant adverse comment to this direct final rule. 
If a timely, significant adverse comment is received, the Agency will 
publish a notification of withdrawal of the direct final rule in the 
Federal Register before the effective date.
    Applicability date: This rule is applicable for disasters declared 
on or after September 9, 2024.
    Comment date: Comments must be received on or before August 23, 
2024.

ADDRESSES: You may submit comments, identified by the Regulation 
Identifier Number (RIN) 3245-AI08, through the Federal eRulemaking 
Portal: https://www.regulations.gov. Follow the instructions for 
submitting comments.
    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 via email to Robert Blocker at [email protected] and 
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 Blocker, Office of Financial 
Assistance, Office of Capital Access, Small Business Administration, at 
[email protected] or (202) 619-0477.

SUPPLEMENTARY INFORMATION:

I. Background Information

    SBA's Disaster Loan Program provides direct assistance to 
homeowners, renters, businesses, and nonprofits, which is critical to 
rebuilding communities after a disaster. Pursuant to section 7(b) of 
the Small Business Act, 15 U.S.C. 636(b) (the Act), SBA is authorized 
to make direct loans to homeowners, renters, businesses, and non-profit 
organizations that have been adversely affected by a disaster. The Act 
authorizes the Administrator to increase the SBA's size limits on 
unsecured disaster loans for physical damages in Major Disasters and 
for EIDL loans for all disaster declarations except Military Reservist 
Economic Injury Disaster Loans (MREIDL). (See 15 U.S.C. 636(d)(6)) SBA 
is further authorized to set a low-interest rate for individuals and 
businesses that SBA determines are unable to obtain credit elsewhere 
and to set a market interest rate for the individuals and businesses 
that can obtain credit elsewhere.
    With natural disasters increasing in severity and frequency across 
the United States and its territories, SBA is increasing the maximum 
unsecured loan limits for home and business loans declared for Major 
Disasters and for EIDL loans for all disaster declaration types. SBA is 
also revising the method used to determine whether an applicant has 
credit elsewhere.
    SBA believes these changes are necessary to:
     Address limits due to inflation.
     Increase efficiencies in the administration and delivery 
of the program to better achieve mission and improve outcomes for 
economic recovery.
     Increase the percentage of borrowers utilizing the SBA 
mitigation program which is designed to prevent future disaster damages 
and reduce future disaster economic impacts.
     Reduce the burden of collateral and improve access to 
credit in underserved communities which oftentimes have limited access 
to other sources of capital and historically have seen higher rates of 
disasters and lower economic survival rates.

II. Section-by-Section Analysis

Section 123.11 Does SBA require collateral for any of its disaster 
loans?

    Section 123.11 defines the conditions under which SBA will not 
require collateral for disaster loans. Paragraph (a) provides the 
dollar thresholds below which collateral generally will not be required 
for EIDL loans, physical disaster home and business loans, and MREIDL 
loans. Paragraph (c) defines when SBA will aggregate physical home and 
business loans and or EIDL loans to the same borrowers and affiliates 
to determine if collateral is required.
    The collateral threshold for major disasters and EIDL across all 
declaration types, has been at $25,000 since 2014. The collateral 
threshold for SBA Agency disasters has been $14,000 since 2008, except 
for a temporary increase to $25,000 in 2015. These amounts have not 
been updated despite cost and inflationary increases.
    SBA is revising paragraphs (a)(1) and (2) to increase the unsecured 
loan threshold to $50,000 for EIDL loans for all disasters and for 
physical home and business loans for Major Disaster declarations. SBA 
believes the current collateral threshold of $25,000 unnecessarily 
prevents borrowers from receiving adequate funds to completely recover 
after a disaster. A recent working paper published by the National 
Bureau of Economic Research (NBER working paper) used SBA disaster loan 
application and loan performance data to analyze the effect of 
collateral requirements on borrower behavior and default rates.\1\ 
Using data from 2005 to 2018, the authors determined that 38 percent of 
all borrowers with losses above the secured threshold tended to borrow 
less money than they were eligible, because many have first liens (some 
had second liens), on their property. As a result, there is little to 
no justification for further leveraging a property with insufficient 
equity. The study concluded that the median Disaster Loan Program 
borrower forgoes up to 40 percent of their loan eligibility to minimize 
additional liens on their property. The result is that borrowers make 
decisions that may result in insufficient funds to repair their home 
adequately and replace personal property. The NBER working paper 
authors estimated that over $1.1 billion in eligible loan funds were 
not disbursed due to borrowers electing to keep loan amounts below the 
collateral threshold.
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    \1\ The Cost of Consumer Collateral: Evidence from Bunching 
(https://www.fdic.gov/analysis/cfr/consumer/2022/papers/collier-paper.pdf). Collier, Benjamin, et al. The Cost of Consumer 
Collateral: Evidence from Bunching, 2021, https://doi.org/10.3386/w29527.
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    SBA expects the increase in the unsecured loan limit will result in 
increased use by disaster survivors of additional available funds, 
which may include funds SBA makes available specifically for mitigation 
uses that minimize the risk and cost of future disasters. Currently, 
only two percent of borrowers utilize mitigation funds. By increasing 
the unsecured threshold, we

[[Page 59827]]

expect more borrowers to fully access the funds available, not only to 
fully repair and rebuild, but to build resiliency against future risk. 
This serves as an incentive for borrowers to secure their homes against 
such impacts to prevent losses and expedite borrowers' recoveries from 
subsequent disasters. These changes align with SBA's initiative to 
increase utilization of the mitigation program from two percent to 
twenty percent.
    Historically, home loans make up approximately 80 percent of 
disaster applications in most disasters. The real estate collateral 
associated with these loans is primarily the damaged residence of the 
disaster survivor. Most disaster home borrowers have one or more 
existing mortgages leaving minimal or no equity value for additional 
leverage. When SBA requires a lien on those assets, the lien is 
subordinate to all existing encumbrances and, often does not add 
recoverable value to SBA's lien position. The subordinate position 
significantly reduces recovery for SBA in the event of a default and 
foreclosure. Collateral analysis of SBA loan portfolio from 2018 
through 2023, 41 percent of disaster survivors who apply for and 
receive SBA assistance do not have collateral sufficient to fully 
secure the loan. Further collateral analysis indicates 13 percent of 
borrowers do not have adequate equity to secure 20 percent of the loan 
amount and 7 percent of borrowers have no equity to secure the SBA 
loan. In practice, the costs of default and foreclosure and the 
satisfaction of any senior liens on the property significantly diminish 
SBA's recovery.
    This change will expedite disbursement of more funds to borrowers 
and reduce costs to the Agency for monitoring liens. Most importantly, 
it will lower costs (lien recording fees, documentary stamps, etc.) to 
the disaster survivors, while ensuring they have adequate recovery 
support. Reducing SBA's costs associated with obtaining property 
reports necessary to secure collateral and preparing security 
instruments to comply with each state will also reduce the need for 
both additional disaster contracts and surge staffing to process, 
disburse, and service secured disaster loans.

Section 123.104 What interest rate will I pay on my home disaster loan?

    The current language of Sec.  123.104 requires SBA to determine 
whether a disaster survivor has credit elsewhere by analyzing their 
cash flow and disposable assets. SBA is streamlining the process of 
determining whether an applicant has credit elsewhere by allowing the 
use of credit score modeling as a basis of this determination. This 
change would sync the requirement with what is currently utilized by 
non-Federal sources. As a result of the changes to Sec.  123.104 SBA 
also is amending Sec.  123.507(c), as it also references analyzing cash 
flow and disposable assets.
    On April 25, 2014, SBA amended its regulations to allow the use of 
an applicant's credit score as evidence of repayment ability, 79 FR 
22859. The intent of the change was to allow SBA to expedite the 
processing of applications with strong credit by removing the 
requirement to analyze cash flow for all loans. Although the change 
allowed SBA to utilize a more efficient process for determining 
repayment, there was no coinciding change to streamline the 
determination of credit elsewhere. Because the current regulation 
states that credit elsewhere is evaluated based on cash flow and 
disposable assets, a complete financial analysis still must be 
performed for every applicant even when credit scores are used as a 
basis for repayment. To review a disaster survivor's disposable assets, 
SBA requires home loan applicants to submit a list of assets; business 
principals to submit a personal financial statement; and, in some 
cases, business and affiliate entities to submit complete copies of 
their Federal tax returns. The regulation also requires SBA to review 
the assets to determine what is disposable. This process is time 
consuming and subjective.
    SBA has determined that a high credit score is the best indication 
of whether a disaster survivor could obtain financing from non-Federal 
sources at reasonable terms. The lending industry uses credit scoring 
for determining both whether to approve credit and what interest rate 
to provide the borrower. Individual credit scores generally range from 
300 to 835. According to the Fair Isaacs Corporation (FICO) loan 
calculator, borrowers with credit scores of 760 and above receive the 
lowest mortgage interest rates, and interest rates increase by .225 
percentage points in each lower credit score tier.\2\ In addition, 
according to Bankrate, credit scores of 720 and above receive the 
lowest average interest rates on personal loans, with the average 
interest rates increasing by 2.77-10.7 percentage points in each lower 
credit score tier.\3\
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    \2\ myFICO (www.myfico.com/credit-education/calculators/loan-savings-calculator).
    \3\ Average Personal Loan Interest Rates [verbar] Bankrate 
(https://www.bankrate.com/loans/personal-loans/average-personal-loan-rates/).
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    The current regulation requiring evaluation of cash flow and 
disposable assets has led to approvals of disaster loans that are not 
consistent with private sector practices, where credit scores are the 
primary factor in determining the interest rate. Our analysis of 
Hurricane Ian business loans shows that the average credit score for 
loan business principals for loans approved for businesses with credit 
elsewhere was 775. In comparison, the average credit score for loans 
approved for businesses without credit elsewhere was comparable, at 
776. Additionally, analysis for home loans approved for Hurricane Ian 
shows the average credit score for homeowners without credit elsewhere 
was 717. Of those individuals determined to have credit elsewhere, the 
average credit score was 784. Of that number, 9.4 percent of those had 
credit scores of 719 or below.
    SBA can use FICO Small Business Scoring Service (SBSS) to determine 
credit available elsewhere for business loan applicants. The SBSS Score 
ranges from zero to 300 and is calculated based on the business owners' 
consumer credit bureau data, the business's credit report (e.g., D&B), 
the business's financial data, and loan application data. Information 
obtained from businesscreditreports.com shows SBSS scores can be 
divided into ranges as follows: \4\
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    \4\ BCR--FICO SBSS--Overview.pdf (businesscreditreports.com) 
(https://businesscreditreports.com/documents/BCR%20-%20FICO%20SBSS%20-%20Overview.pdf).
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    Poor: 1-160, 16% of applicants score in this range;
    Fair: 161-190, 29% of applicants score is this range;
    Good: 191-210, 45% of applicants score in this range;
    Excellent: 211-300, 10% of applicants score in this range.
    SBA disaster lending has not historically used SBSS scores, so 
there is no comparable data to show average SBSS scores for current 
disaster market rate loans compared to below market rate loans or to 
show what percentage of loans would be at market rate based on a 
specific SBSS score. However, SBA currently utilizes SBSS scoring for 
other financial assistance programs, specifically as a prescreening 
process for 7(a) Small Loans, with a minimum SBSS score of 155; and 
Community Advantage loans, with a minimum SBSS score of 140. The 
Disaster Loan Program's implementation of SBSS

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scores will bring consistency in prescreening processes across SBA 
financial programs. The FICO SBSS score is calculated using two main 
factors: personal finance and business finance. Personal finance 
includes factors such as on-time payment history, types of loan 
accounts, and your credit utilization rate. Business finance includes 
factors like the number of employees, cash flow, time in business, and 
major complaints and lawsuits against your company.
    SBA's rule will streamline the processing of disaster loans by 
removing the requirement to evaluate cash flow and disposable assets 
for all loans. However, SBA may still utilize a review of cash flow as 
part of the credit elsewhere determination in certain situations. For 
example, when an applicant has a high credit score but large disaster 
losses, SBA may evaluate cash flow to determine if the cost of 
obtaining disaster financing from non-Federal sources would present a 
hardship to the disaster survivor.
    The regulatory changes would allow SBA to automate and streamline 
more loan processes. Utilizing credit scores to determine credit 
elsewhere also allows SBA to provide greater clarity to disaster 
survivors regarding interest rate determinations. Furthermore, 
determining credit elsewhere by using credit scores would make the 
process easily adaptable. If a score leads to a large increase or 
decrease in the percentage of disaster survivors showing credit 
elsewhere, the score can be adjusted, which would directly impact the 
percentage.

III. Justification for Direct Final Rule

    Agencies typically utilize direct final rulemakings for non-
controversial regulatory actions that are unlikely to receive adverse 
comments. In direct final rulemaking, an agency publishes a final rule 
with a statement that the rule will go into effect unless the agency 
receives significant adverse comment within a specified period. 
Significant adverse comments are comments that provide strong 
justifications why the rule should not be adopted or for changing the 
rule. If the agency receives no significant adverse comment in response 
to the direct final rule, the rule goes into effect. If the agency 
receives significant adverse comment, the agency withdraws the direct 
final rule and may instead issue a proposed rulemaking. SBA has 
determined that the regulatory changes addressed in this direct final 
rulemaking are non-controversial, and not likely to result in adverse 
comments.
    By permitting the use of credit score modeling, SBA is expending 
the process of determining whether an applicant has credit elsewhere. 
This will allow for a quicker approval process because SBA will not be 
restricted to performing a time-consuming cash flow analysis for each 
loan. SBA will be able to decrease the time it takes to process all 
loan applications overall and expedite the processing of applications 
from victims of disasters. The SBA's disaster loan unsecured loan 
threshold has not changed in over a decade, even though natural 
disasters are becoming more severe and frequent across the United 
States and its territories, as evidenced by more longer hurricane 
seasons and more frequent wildfires, tornados, floods, and blizzards. 
All disasters are urgent, necessitating the most efficient and 
effective path to assistance for survivors. In short, an increase in 
the SBA's disaster unsecured threshold is necessary to meet the current 
economic demands of more severe and frequent disasters.
    SBA does not anticipate receiving significant adverse comments 
because the principal effect of these amendments is to reduce delays in 
loan processing and provide faster assistance. Also, SBA will be able 
to increase the amount disaster survivors can borrow through the SBA's 
Disaster Assistance Loan Program while reducing the burdens of pledging 
collateral to the disaster survivors, such as having to provide the 
additional documentation required for a secured loan amount and 
incurring costs associated with lien recording fees, title company 
fees, etc. Unsecured loans require minimal documentation, such as an 
executed Note and Loan Authorization and Agreement. Because there is 
less documentation to collect and review, the SBA can disburse funds 
below the unsecured loan threshold much more quickly. SBA's disaster 
loan program offers long-term, low interest, fixed rate loans to 
disaster survivors, enabling them to replace real or personal property 
damaged or destroyed in declared disasters. It also offers such loans 
to affected small businesses and non-profits to help them recover from 
economic injury caused by such disasters.
    The changes in this direct final rule will not require members of 
the public to adjust their behavior. Rather, the changes will benefit 
the public by allowing for increased compensation before collateral is 
required to adequately reflect increases in costs associated with 
replacing and repairing residential real property and household effects 
that have been lost or damaged as a result of a disaster, as well as 
expediting the processing and disbursement of SBA disaster loans. Due 
to urgent needs for disaster assistance, and the noncontroversial 
nature of these changes, the SBA concludes immediate action is required 
to support homeowners, businesses, and their communities as they 
recover from future disasters.

Compliance With Executive Orders 12866, 12988, 13132, 13175, 13563, 
14030, 14094, the Paperwork Reduction Act (44 U.S.C., Ch. 35)),), and 
the Regulatory Flexibility Act (5 U.S.C. 601-612)

Executive Orders 12866, 13563 and 14094

    SBA is issuing this direct final rulemaking in conformance with 
Executive Orders 12866, 13563, and 14094. Executive Orders 12866 and 
13563 direct agencies to assess all costs and benefits of available 
regulatory alternatives and, if regulation is necessary, to select 
regulatory approaches that maximize net benefits (including potential 
economic, environmental, public health and safety effects, distributive 
impacts, and equity). Executive Order 13563 emphasizes the importance 
of quantifying both costs and benefits, reducing costs, harmonizing 
rules, and promoting flexibility. Executive Order 14094 reaffirms, 
supplements, and updates Executive Order 12866 and further directs 
agencies to solicit and consider input from a wide range of affected 
and interested parties through a variety of means. The Office of 
Management and Budget has determined that this rule does not constitute 
a significant regulatory action under Executive Order 12866, as amended 
by Executive Order 14094.
    SBA has developed this rule in a manner consistent with these 
requirements and thoroughly examined the costs and benefits as well as 
availability of regulatory alternatives associated with its 
implementation; therefore, SBA has drafted an analysis for the public's 
information below.
A. Objectives of the Rule
    This rule amends regulations governing the SBA Disaster Loan 
Program by revising the Credit Elsewhere Test (CET) to allow credit 
score modeling in order to streamline disaster loan processing. 
Additionally, the rule increases the unsecured loan threshold from 
$25,000 to $50,000 for EIDL loans for all disasters and for physical 
home and business loans for Major Disaster declarations. The revised

[[Page 59829]]

CET streamlines loan processing, including interest rate determination, 
making these Disaster Loan Program practices more consistent with 
lending sector practices. SBA recognizes the increased severity of 
financial consequences from disasters and, in response, is increasing 
the threshold for the collateral requirement. Evidence suggests that 
the collateral requirement has been an impediment to access of 
financial resources for disaster recovery for households by limiting 
disaster loan amounts. SBA expects that lending shortfalls will become 
greater with increased severity of financial consequences from 
disasters.
B. Benefits of the Rule
    Revision of the Credit Elsewhere Test (CET) and the introduction of 
the Agency's Unified Lending Platform (ULP), a new processing system, 
will streamline SBA disaster lending. The benefit of the revised CET 
for the Agency and borrowers is clarity of evaluation for loan 
eligibility and interest rate determination, increased program 
efficiency, and reduction of uncertainty in the process. Revised CET 
integrated within the ULP will reduce the hiring of temporary personnel 
in the Disaster Loan Program for each separate disaster lending period. 
SBA expects the government to benefit from the cost savings enabled by 
a reduced need for temporary lending personnel with the revised CET 
within the ULP.
    SBA undertook the increase in the collateral threshold in response 
to evidence that shows an increase in financial well-being for disaster 
loan borrowers,\5\ and also addresses a reluctance to enter into a loan 
agreement with SBA that would involve a lien on property. The 
collateral threshold revision increases the availability of the 
benefits of SBA's disaster lending. Noteworthy is that home loans 
generally make up 80 percent of disaster loan applicants.
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    \5\ Collier, Ben and Ben Keys, SBA-Wharton Partnership: Update 
on Findings, March 2023 found a statistically significant reduction 
in bankruptcies among disaster loan borrowers in the years following 
a disaster.
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    The increased threshold for collateral is consistent with increased 
ability to work within the Agency's statutory authorization in Section 
7(b) of the Small Business Act to make loans to individuals and 
entities that have been adversely affected by disasters. SBA believes 
that its current collateral requirements are an impediment to 
increasingly expensive rebuilding efforts, by increasing the collateral 
threshold SBA will shorten loan cycle time for approved loans. The 
Agency has noted that loans without collateral requirements are 
generally fully funded in a single disbursement while secured loans 
have usually required multiple disbursements. SBA expects a significant 
reduction in the time required for full disbursement of loan proceeds 
for the great majority of disaster borrower by increasing the secured 
loan limit, along with other program improvements within the ULP, 
resulting in major benefits to borrowers. A faster disbursement of the 
loans further enhances the restorative work of these loans to homes and 
businesses.
    The adjustment of the collateral threshold and revision of the CET 
decreases the burden on borrowers to provide documentation that SBA 
must verify, resulting in savings in disaster staffing and training. 
The Agency expects that with the higher collateral threshold, the 
number of loans requiring collateral at original approval will decrease 
from 46.4 percent to 31 percent of approved disaster loans. SBA 
estimates the decrease in loan processing costs with the increased 
collateral threshold is $20.33 per loan, generating $203,300 in savings 
to the Agency for every 10,000 approved loans. Another example of cost 
savings is the reduction in property and vesting reports and other 
information for recording of liens, for which SBA currently contracts 
with a third-party vendor. A vesting report costs about $25 per 
property, so a decrease from 46.4 percent to 31 percent of loans 
requiring this report reduces this particular expense by $38,500 for 
every 10,000 approved loans.\6\
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    \6\ 10,000 x (.464-.31) x $25 = $38,500.
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C. Costs of the Rule
    Assessment of costs in this impact analysis includes those borne by 
borrowers and by the Agency. Excluding initial procurement costs of the 
ULP,\7\ learning the new application system with ULP is the initial 
cost for borrowers and for SBA. However, any loan application involves 
an application and as the revised system is expected to be more 
streamlined, SBA expects this burden to applicants to be lower than 
under the system it is to replace. SBA expects the reduction in 
application processing and portfolio management costs will outweigh 
costs of familiarization with the new system plus any costs of 
developing and revising internal policies, procedures, and training.
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    \7\ SBA's acquisition of ULP is independent of a change in the 
collateral threshold. The procurement cost is therefore not a cost 
of CET or the increased threshold. The learning and familiarization 
costs are not entirely attributable to CET or the increased 
threshold, as ULP will be the platform for SBA's loan programs.
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    The largest source of potential costs for SBA may result from the 
increase in loans without collateral following the increase in the 
collateral threshold in Sec.  123.11. With this change, SBA estimates 
from its experience with loans after Hurricane Ian that 70.98 percent 
of home loans would be unsecured, an increase from the current 
unsecured home loan portfolio from Hurricane Ian of 55.3 percent. Based 
on historical data, this increase in unsecured loans may lead to more 
defaults, necessitating a higher subsidy rate. The Agency notes the 
cost savings from the new CET will offset at least some of this cost 
and with the additional cost savings from the ULP, SBA expects a 
decrease in the overall costs of the disaster loan program. In the 
event of default, SBA does expect an impact on the recovery rates from 
reduced collections from collateral liquidations, but this is in part 
limited even under current regulations because these disaster loans 
have been and will continue to be subordinated to existing mortgages.
    To consider the impact of increased unsecured loan limits, SBA 
analyzed the activity from Hurricane Ian, a powerful Category 5 
hurricane which made landfall on the west coast of Florida on September 
28, 2022, and again in the Carolinas on September 30, 2022. Ian was 
responsible for 155 fatalities in the United States and caused an 
estimated $113 billion dollars in damages.
    SBA's analysis of Hurricane Ian suggests that if the unsecured home 
loan limit of $50,000 had been in place, 9,286 of the 13,083 home loans 
from Hurricane Ian could be unsecured compared to the 7,235 that were 
at the unsecured threshold or less for that disaster. This represents 
an overall percentage increase of 15.68%. The increase in the unsecured 
portfolio for Ian home loans would be 35.50% of the dollar value 
compared to the actual 22.73% value of the active Ian portfolio. A 
similar percentage increase to the active home loan portfolio would 
increase the unsecured portion of home disaster loans by $81,466,615, 
which is small when compared to the $7.2 billion-dollar active home 
loan portfolio.
    At an estimated subsidy rate of 19bps and a five-year average loan 
amount of $39,300 for loans impacted by the collateral change, the 
estimated effect on the subsidy for each increase of 10,000 unsecured 
loans is $746,700.
    The following table represents Hurricane Ian home loans Secured vs 
Unsecured if the unsecured limit was

[[Page 59830]]

$50,000 as a percentage of the active home loan portfolio and in 
dollars.

                                            Hurricane Ian Home Loans
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                                                              Percentage of                       Percentage of
              Loan amounts                Number of active   number of home   Total loan value   total value of
                                                loans             loans                            home loans
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0-$50,000...............................             9,286             70.98      $226,545,460             35.50
>$50,000................................             3,797             29.02       411,660,300              64.5
                                         -----------------------------------------------------------------------
    Total...............................            13,083               100       638,205,760               100
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                                          Hurricane Ian Business Loans
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                                                              Percentage of                       Percentage of
              Loan amounts                Number of active      number of     Total loan value   total value of
                                                loans        business loans                      business loans
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0-$50,000...............................             1,099             55.76       $26,308,000              8.93
>$50,000................................               872             44.24       268,687,200             91.07
                                         -----------------------------------------------------------------------
    Total...............................             1,971               100       294,695,200               100
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    The table of Hurricane Ian business loans shows that 1,099 of the 
business loans for Ian would have been unsecured if the limit was 
$50,000 compared to the 828 approved for $25,000 or less for that 
disaster. This represents an overall percentage increase of 13.75%. The 
increase in the total loan amounts in the unsecured portfolio for Ian 
business loans would be 8.93% compared to the 5.34% for this disaster. 
The dollar figure of unsecured business loans for Ian would only 
increase by $10,557,300 or only 3.6% of the Ian business portfolio. A 
similar comparison to the current active portfolio finds that 3.6% 
would only be $67,696,547 of the current $1,880,459,649 disaster 
business loan portfolio.
    Based on SBA's analysis, the Agency determined that the changes 
enhance the efficiency of the administration and delivery of the 
Disaster Loan Program. For example, SBA anticipates increasing the 
unsecured threshold will allow SBA to disburse the majority of approved 
disaster loans within seven days of approval. Moreover, SBA anticipates 
the changes will have minimal impact on the overall cost of the 
Disaster Loan Program. Additionally, SBA expects the changes may 
motivate borrowers to make use of the disaster loan mitigation program, 
thereby reducing the extent of damages caused by future disasters. 
Furthermore, the changes aim to ensure fair and equal access to 
disaster assistance in underserved communities that may lack access to 
other sources of capital, requiring these borrowers to pledge 
collateral to SBA rather than forgoing collateral lien and seeking 
other sources of affordable capital.
D. Alternatives
    The rule includes increasing the unsecured loan thresholds for 
physical and EIDL loans from current levels. The alternative may be to 
modify the increases at a lower or higher amount. By providing updates 
and adjustments in unsecured loan amounts, including aggregation of 
loans to one borrower, the Agency has optimized the disaster survivors' 
options for recovery on more reasonable and equitable terms. SBA has 
determined that the increase to $50,000 for unsecured disaster loans 
and the corresponding changes to the loan aggregation rules for a 
single borrower is the appropriate action. The Agency did not consider 
any alternative to the new CET, which brings consistency with general 
lending practices to the loan program and facilitates the 
implementation of ULP, which is an Agency priority.
    For each 10,000 loans, the rule generates savings to the Agency of 
$203,300 from reduced processing costs and $38,500 from elimination of 
the recording of liens, for quantifiable savings of $241,500 on each 
10,000 unsecured loans. These quantifiable benefits are balanced 
against an estimated subsidy impact of $746,700 for each 10,000 
unsecured loans. Additionally, SBA expects the changes in the rule to 
make the disaster loans more widely available, which will generate 
additional benefits to the borrowers and their communities, further 
balancing the benefits against the costs.

Executive Order 12988

    This action meets applicable standards set forth in sections 3(a) 
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize 
litigation, eliminate ambiguity, and reduce burden. The action does not 
have preemptive effect or retroactive effect.

Executive Order 13132

    This rule does not have federalism implications as defined in 
Executive Order 13132. It will not have substantial direct effects on 
the States, on the relationship between the National Government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government, as specified in the Executive order. As 
such it does not warrant the preparation of a Federalism Assessment.

Executive Order 13175

    This rule does not have tribal implications under Executive Order 
13175, Consultation and Coordination with Native American Tribal 
Governments, because it does not have a substantial direct effect on 
one or more Native American Tribes, on the relationship between the 
Federal Government and Native American Tribes, or on the distribution 
of power and responsibilities between the Federal Government and Native 
American Tribes.

Executive Order 14030

    SBA was tasked with developing recommendations for improving how 
Federal financial management and reporting can incorporate climate-
related financial risk, especially as that risk relates to Federal 
lending programs. The SBA Disaster Loan Program contains eligibility 
and additional loan

[[Page 59831]]

funds for mitigation measures that allow physical disaster loan 
recipients to obtain additional funds to install mitigating measures to 
protect homes and businesses and reduce future property damage.
    Currently, only two percent of borrowers apply for mitigation 
funds. Increasing the unsecured threshold will encourage borrowers not 
only to make full use of funds available to complete not just repairs, 
but to also to access funds to mitigate future loss from subsequent 
disasters. This increases survivors' recovery and resiliency against 
future disasters and achieves the Agency's goal to increase the 
mitigation program utilization from two percent to 20 percent.

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

    SBA has determined that this final rule does not impose additional 
reporting or recordkeeping requirements under the Paperwork Reduction 
Act, 44 U.S.C., Chapter 35.

Congressional Review Act, 5 U.S.C. Ch. 8

    Subtitle E of the Small Business Regulatory Enforcement Fairness 
Act of 1996, also known as the Congressional Review Act or CRA, 
generally provides that before a rule may take effect, the agency 
promulgating the rule must submit a rule report, which includes a copy 
of the rule, to each House of the Congress and to the Comptroller 
General of the United States. SBA will submit a report containing this 
rule and other required information to the U.S. Senate, the U.S. House 
of Representatives, and the Comptroller General of the United States. A 
major rule under the CRA cannot take effect until 60 days after it is 
published in the Federal Register. The Office of Information and 
Regulatory Affairs has determined that this rule is not a ``major 
rule'' as defined by 5 U.S.C. 804(2). Therefore, this rule is not 
subject to the 60-day restriction.

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

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601-612, generally 
requires that when an agency issues a proposed rule, or a final rule 
pursuant to section 553(b) of the APA or another law, the agency must 
prepare a regulatory flexibility analysis that meets the requirements 
of the RFA and publish such analysis in the Federal Register. 5 U.S.C. 
603, 604.
    Rules that are exempt from notice and comment are also exempt from 
the RFA requirements, including conducting a regulatory flexibility 
analysis, such as when--among other exceptions--the agency for good 
cause finds that notice and public procedure are impracticable, 
unnecessary, or contrary to the public interest. SBA Office of Advocacy 
Guide: How to Comply with the Regulatory Flexibility Act, Ch.1. p.9. 
Since this rule is exempt from notice and comment, SBA is not required 
to conduct a regulatory flexibility analysis.

List of Subjects in 13 CFR Part 123

    Disaster assistance, Loan programs--business, Small businesses.

    For the reasons set forth in the preamble, the SBA amends 13 CFR 
part 123 as follows:

PART 123--DISASTER LOAN PROGRAM

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

    Authority: 15 U.S.C. 632, 634(b)(6), 636(b), 636(d), 657n, and 
9009.


0
2. Amend Sec.  123.11 by revising paragraphs (a)(1) and (2) and (c) to 
read as follows:


Sec.  123.11  Does SBA require collateral for any of its disaster 
loans?

    (a) * * *
    (1) Economic injury disaster loans. SBA generally will not require 
the borrower to pledge collateral to secure an economic injury disaster 
loan of $50,000 or less.
    (2) Physical disaster home and physical disaster business loans. 
(i) For Major Disasters declared under Sec.  123.3(a)(1) or (2), SBA 
generally will not require the borrower to pledge collateral to secure 
a physical disaster home or physical disaster business loan of $50,000 
or less.
    (ii) For SBA-declared disasters under Sec.  123.3(a)(3) or (6), SBA 
generally will not require the borrower to pledge collateral to secure 
a physical disaster home or physical disaster business loan of $14,000 
or less.
* * * * *
    (c) Sometimes a borrower, including affiliates as defined in part 
121 of this title, will have more than one loan after a single 
disaster. In deciding whether collateral is required, SBA will add up 
all physical disaster loans to see if they exceed the applicable 
unsecured threshold outlined in paragraph (a)(2) of this section and 
all economic injury disaster loans to see if they exceed $50,000.
* * * * *

0
3. Revise Sec.  123.104 to read as follows:


Sec.  123.104  What interest rate will I pay on my home disaster loan?

    If you can obtain credit elsewhere, your interest rate is set by a 
statutory formula, but will not exceed eight (8) percent per annum. If 
you cannot obtain credit elsewhere, your interest rate is one-half the 
statutory rate, but will not exceed four (4) percent per annum. 
Generally, credit elsewhere means that SBA believes you could obtain 
financing from non-Federal sources on reasonable terms subsequent to 
the declaration of a disaster. SBA may include the use of credit score 
to make this determination. If you cannot obtain credit elsewhere, you 
also may be able to borrow from SBA to refinance existing recorded 
liens against your damaged real property.

0
4. Amend Sec.  123.507 by revising paragraph (c) to read as follows:


Sec.  123.507  Under what circumstances will SBA consider waiving the 
$2 million loan limit?

* * * * *
    (c) Your small business has used all reasonably available funds 
from the small business, its affiliates, its principal owners and all 
available credit elsewhere (as described in Sec.  123.104) to alleviate 
the small business' economic injury.

Isabella Casillas Guzman,
Administrator.
[FR Doc. 2024-16207 Filed 7-23-24; 8:45 am]
BILLING CODE 8026-09-P