[Federal Register Volume 70, Number 218 (Monday, November 14, 2005)]
[Rules and Regulations]
[Pages 69045-69047]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-22569]
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
RIN 3245-AF43
Small Business Size Standards; Gulf Opportunity Pilot Loan
Program
AGENCY: Small Business Administration.
ACTION: Interim final rule with request for comments.
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SUMMARY: The U.S. Small Business Administration (SBA) is temporarily
amending the size eligibility criteria for loan assistance provided
under the ``Gulf Opportunity Pilot Loan Program,'' a one-year pilot
under the 7(a) Business Loan Program. The pilot program makes available
on an expedited basis 7(a) loans to small businesses located in,
locating to, or relocating in disaster areas declared by the President
as a result of Hurricanes Katrina and Rita and any contiguous parishes
or counties. This interim final rule makes financial assistance under
the pilot program available to businesses that are considered small for
the purpose of SBA's 7(a) Business Loan Program and businesses
considered small for the purpose of SBA's Certified Development Company
Program. SBA prepared this rule as an interim final rule because its
immediate implementation will facilitate the reconstruction and
economic recovery of the Gulf Coast.
DATES: Effective Date: This regulation becomes effective on November
14, 2005.
Comment Period: Comments must be received by SBA on or before
December 14, 2005.
ADDRESSES: You may submit comments identified by RIN 3245-AF43 through
one of the following methods: (1) Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments;
(2) Fax: (202) 205-6390; or (3) Mail/Hand Delivery/Courier: Gary M.
Jackson, Assistant Administrator for Size Standards, 409 Third Street,
SW., Mail Code 6530, Washington, DC 20416.
FOR FURTHER INFORMATION CONTACT: Charles W. Thomas, Director, Office of
Program Development, Office of Financial Assistance, (202) 205-6656 or
[email protected].
SUPPLEMENTARY INFORMATION:
Gulf Opportunity Pilot Loan Program
SBA, in cooperation with lending institutions, has established a
Gulf Opportunity Pilot Loan Program (GO Loan Pilot or Pilot), as a
pilot under the 7(a) Business Loan Program, to expedite delivery of
small business financing in the form of 7(a) loans to small businesses
located in, locating to, or re-locating in Presidentially-declared
disaster areas resulting from Hurricanes Katrina and Rita and any
contiguous parishes or counties (SBA Policy Notice 5000-978, November
8, 2005).
The scope and magnitude of damage caused by Hurricanes Katrina and
Rita is unprecedented. SBA has determined that the small businesses
located in those communities have an extraordinary need for moderately-
sized loans ($150,000 or less) provided on an expedited basis. To
respond to these extraordinary needs of the small business community,
SBA developed a pilot program, which goes beyond the Agency's
traditional disaster relief efforts, to deliver financial assistance to
small businesses located in, locating to, or relocating in the
Presidentially-declared disaster areas resulting from Hurricanes
Katrina and Rita and any contiguous parishes or counties (A list of
eligible parishes and counties is located at: http://www.sba.gov/disaster_recov/katrinafactsheets.html.). Borrowers under this pilot
must meet the geographical requirements as well as the standard
eligibility requirements for the loan. The Agency structured the GO
Loan Pilot to provide its full 85 percent guaranty to more strongly
encourage lenders to lend to businesses in the affected communities.
The GO Loan pilot will be a temporary pilot program for use in fiscal
year 2006, and will expire on September 30, 2006. This interim final
rule makes the expedited small business financing available to
businesses that are considered small for the purpose of SBA's 7(a)
Business Loan Program and businesses considered small for the purpose
of SBA's Certified Development Company (CDC) Program.
[[Page 69046]]
Size Standard for the 7(a) Business Loan Program
The 7(a) Business Loan Program provides a range of short-term and
long-term financial assistance to start-up businesses and smaller-sized
small businesses in the operation, acquisition or expansion of their
existing business. To qualify for an SBA-guaranteed loan under the 7(a)
Business Loan Program, the size of a business concern, including its
affiliates, cannot exceed the size standard for the primary industry in
which it is engaged. (13 CFR 121.301(a)). More than 90 percent of 7(a)
borrowers are start-ups or businesses with 50 or fewer employees.
Size Standard for SBA's Certified Development Company Program
SBA believes that the unprecedented economic needs of businesses in
the Presidentially-declared disaster areas and the contiguous parishes
and counties necessitate a more expansive reach of its 7(a) Business
Loan Program lending in the Gulf Coast region. Therefore, SBA has
decided to utilize the size eligibility criteria of the CDC Program for
the GO Loan Pilot. The structure and objectives of the CDC Program
target a larger segment of the small business community than the 7(a)
Business Loan Program. The CDC Program is, among other things, a long-
term financing tool for economic development that provides loans for
major fixed assets, such as land and buildings. To be eligible for
assistance under the CDC program, a business concern must meet either
the size eligibility criteria of the 7(a) Business Loan Program, or
have tangible net worth not in excess of $7 million and average net
income after Federal income taxes (excluding any carry-over losses) for
the preceding two completed fiscal years not in excess of $2.5 million
(13 CFR 120.301(b)). Size standards based on net worth and net income
have been established to assist businesses that tend to be larger in
size than businesses concerns that qualify for the 7(a) Business Loan
Program, but still qualify as ``small'' for the purpose of SBA
financing.
This action is not unprecedented. SBA temporarily applied the CDC
size standards to the 7(a) Business Loan Program from December 1992 to
March 4, 1993, but decided after public comment and further
consideration not to continue them on a permanent basis because the
alternate net worth and net income size standards of the CDC Program
reflect the special purposes of that loan program (57 FR 62477,
December 21, 1992 and 58 FR 12334, March 4, 1992). The urgent need for
Federal financial assistance following Hurricanes Katrina and Rita
created special circumstances warranting temporarily application the
CDC size standards to businesses applying for 7(a) loans through the GO
Loan Pilot.
Size Standard for the GO Loan Pilot
This rule amends the size eligibility criteria for 7(a) loans
through the GO Loan Pilot to make those loans available to businesses
currently considered small for the purpose of SBA's 7(a) Business Loan
Program and to businesses considered small for the purpose of SBA's CDC
program. Rather than modifying the definition of a small business, this
interim final rule extends size eligibility for the GO Loan Pilot to
any business concern that is already considered ``small'' for the
purpose of one of SBA's major financial assistance programs.
The broader alternate size standards adopted for the GO Loan Pilot
recognizes that many small business concerns located in the disaster
areas (including those which may not qualify for the 7(a) loans under
the existing framework) are experiencing financial hardship as a result
of Hurricanes Katrina and Rita. Absent the recent hurricane disasters,
many small businesses would continue to have adequate access to capital
through traditional channels. With the destruction of large segments of
the local infrastructure and the displacement of thousands of
residents, the severe economic effects of the recent disasters on the
Gulf Coast will extend over a period of many months, if not years. Many
of these larger-sized small businesses have long-term viability, but
need immediate access to capital to sustain or rebuild their operations
during this critical recovery period.
SBA believes that applying the alternate net worth and net income
size standards to the GO Loan Pilot provides an effective mechanism for
the Federal Government to extend crucial financial assistance to this
segment of the small business community that would otherwise be
unavailable.
No Impact on SBA's Government Contracting Programs
SBA continues to believe that its current size standards for the
7(a) Business Loan Program and other small business assistance programs
appropriately define small business concerns. As described above, the
alternate net worth and net income size standards of the CDC Program
are being applied on a limited basis to the specifically-tailored
lending assistance program of the GO Loan Pilot. This interim rule does
not change the size standards applicable to other small business
programs, including size standards for Federal contracting. Therefore,
this interim final rule will have no effect on existing Federal
contracts, the pool of small businesses competing for Federal
contracts, or the ability of Federal agencies to attain their small
business contracting goals.
Justification for Publication as an Interim Final Rule
In general, SBA publishes a proposed rule for public comment before
issuing a final rule in accordance with the Administrative Procedure
Act (APA) and SBA regulations. (5 U.S.C. 553 and 13 CFR 101.108). The
APA provides an exception to the standard rulemaking process, however,
when an agency finds good cause to adopt a rule without prior public
participation. (5 U.S.C. 553(b)(3)(B)). The good cause requirement is
satisfied when prior public participation is impracticable,
unnecessary, or contrary to the public interest. Under those
conditions, an agency may publish an interim final rule without first
soliciting public comment.
In the good cause exception to standard rulemaking procedures,
Congress recognized that emergencies (such as the need for Federal
assistance after major disasters) might arise when an agency must issue
a rule without prior public participation. On August 29, 2005, the
President declared major disaster areas in Louisiana, Mississippi, and
Alabama in the aftermath of Hurricane Katrina. The President also
declared major disaster areas in Louisiana and Texas after Hurricane
Rita destroyed more of the Gulf Coast region. These natural disasters
have severely affected businesses in the declared disaster areas and
contiguous parishes and counties. Small businesses in those areas have
demonstrated an extraordinary need for moderately sized loans ($150,000
or less). SBA designed the GO Loan Pilot to expedite delivery of
financial assistance through the 7(a) loan program to those businesses.
This rule would amend the size eligibility criteria for 7(a) loans
through the GO Loan Pilot to make those loans available to businesses
currently considered small for the purpose of SBA's 7(a) loan program
and to businesses considered small for the purpose of SBA's CDC
Program. Absent this rule, expedited financial assistance through the
GO Loan Pilot would only be available to businesses considered small
for the purpose of SBA's 7(a) loan program. Immediate implementation of
this rule,
[[Page 69047]]
as a component of the GO Loan Pilot, will expedite delivery of
financial assistance to a greater number of businesses. Strengthening
small businesses in the declared disaster areas by making financial
assistance available on an expedited basis is in the best interest of
the public because it will facilitate economic recovery of the Gulf
Coast. Restoring economic stability in the region is essential to
attracting residents and revitalizing communities that were destroyed
by Hurricanes Katrina and Rita in 2005. Accordingly, SBA finds good
cause to publish this rule as an interim final rule. The urgent need to
expedite delivery of Federal financial assistance to the declared
disaster areas makes immediate implementation of this rule in the
public interest.
Furthermore, advance solicitation of comments for this rulemaking
would be impracticable and contrary to the public interest because it
would delay delivery of critical financial assistance to these
businesses by at least four to six months. Such delay could have
serious adverse affects on small businesses in the disaster areas and
the public. Providing financial assistance now can help protect some
small businesses that might otherwise have to cease operations before a
rule could be promulgated under standard notice and comment rulemaking
procedures.
Although SBA is publishing this rule as an interim final rule, the
Agency requests interested parties to submit their comments on the
amended size standard. SBA must receive the comments on or before
December 14, 2005. SBA may then consider these comments in making any
necessary revisions to these regulations.
Justification for Immediate Effective Date of Interim Final Rule
The APA requires that ``publication or service of a substantive
rule shall be made not less than 30 days before its effective date,
except * * * as otherwise provided by the agency for good cause found
and published with the rule.'' 5 U.S.C. 553(d)(3). SBA finds that good
cause exists to make this final rule become effective on the same day
it is published in the Federal Register.
The purpose of the APA provision delaying the effective date of a
rule for 30 days after publication is to provide interested and
affected members of the public sufficient time to adjust their behavior
before the rule takes effect. In this case, however, the 30-day delay
is unnecessary because this interim final rule would not require
businesses, lenders or SBA to make significant changes to their current
procedures when applying for, issuing, or guaranteeing loans. SBA will
generally apply the policies and procedures in place for the Agency's
existing SBAExpress program (although there are several substantial
differences between the two programs). Lenders participating in the GO
Loan Pilot are knowledgeable about these policies and procedures
because they must be authorized to make 7(a) loans through SBAExpress
in order to participate in the GO Loan Pilot. In addition, SBA will
provide OMB-approved forms for the GO Loan Pilot, which are modeled
after the SBAExpress forms.
Furthermore, SBA does not expect to receive any comments from
stakeholders in the 7(a) loan or SBAExpress programs or others opposing
the immediate effective date of this interim final rule. SBA believes,
based on its discussions with state and local officials and interested
members of the public, that there is a strong interest in immediate
implementation of this rule because it will help small businesses in
the disaster areas and facilitate economic recovery of the Gulf Coast
region.
Compliance With Executive Orders 12866, 12988, and 13132, the
Regulatory Flexibility Act (5 U.S.C. 601-612) and the Paperwork
Reduction Act (44 U.S.C. Ch. 35)
The Office of Management and Budget (OMB) has determined that this
rule is a ``significant regulatory action'' under section 3(f) under
Executive Order 12866. The emergency nature of this interim final rule
makes timely compliance with Executive Order 12866 impracticable. SBA
is currently assessing the potential economic impacts of this action.
For purposes of Executive Order 12988, SBA has drafted this rule,
to the extent practicable, in accordance with the standards set forth
in section 3 of that Order.
This regulation 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 responsibility among the
various levels of government. Therefore, under Executive Order 13132,
SBA determines that this rule does not have sufficient federalism
implications to warrant the preparation of a federalism assessment.
Pursuant to Sec. 608 of the Regulatory Flexibility Act (RFA), SBA
is delaying the preparation of a regulatory flexibility analysis. As
discussed above, SBA is promulgating this rule on an emergency basis,
making timely compliance with the provisions of Sec. 603 of the RFA
impracticable.
SBA has determined that this rule does not impose any new
information collection requirements from SBA that require approval by
OMB under the Paperwork Reduction Act of 1980, 44 U.S.C. Ch. 35. SBA
currently has forms established to determine small business status.
However, as a separate action, SBA will develop new forms pertaining to
GO Loan Pilot loans that are modeled after the forms currently used by
SBA Express lenders. SBA has sought OMB's approval for these forms on
an emergency basis.
List of Subjects in 13 CFR Part 121
Loan programs--business, Disaster assistance loans, Reporting and
recordkeeping requirements, Small business.
0
For reasons set forth in the preamble, amend part 121 of title 13 Code
of Federal Regulations as follows:
PART 121--SMALL BUSINESS SIZE REGULATIONS
0
1. The authority citation for part 121 is revised to read as follows:
Authority: 15 U.S.C. 632, 634(b)(6), 636(b), 637(a), 644, and
662(5); and Pub. L. 105-135, sec. 401 et seq., 111 Stat. 2592.
0
2. Amend Sec. 121.301 by revising paragraph (a) to read as follows:
Sec. 121.301 What size standards are applicable to financial
assistance programs?
(a)(1) For Business Loans and Disaster Loans (other than physical
disaster loans), an applicant business concern, including its
affiliates, must not exceed the size standard for the industry in which
the applicant is primarily engaged.
(2) For 7(a) Business Loans under the Gulf Opportunity Pilot Loan
``GO Loan'' Program, (applicable to business concerns located in,
locating to, or re-locating in parishes or counties that were declared
disaster areas by the President as a result of the 2005 Hurricanes
Katrina or Rita, plus any contiguous parishes or counties), an
applicant business concern must meet either the size standard under
paragraph (a)(1) or the size standard under paragraph (b) of this
section.
* * * * *
Dated: November 7, 2005.
Hector V. Barreto,
Administrator.
[FR Doc. 05-22569 Filed 11-10-05; 8:45 am]
BILLING CODE 8025-01-P