[Federal Register Volume 71, Number 192 (Wednesday, October 4, 2006)]
[Notices]
[Pages 58658-58659]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-8497]
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SMALL BUSINESS ADMINISTRATION
Notice of NMTC Pilot Loan Program
AGENCY: U.S. Small Business Administration (``SBA'').
ACTION: Notice.
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SUMMARY: SBA is creating the New Markets Tax Credit (NMTC) Pilot Loan
Program. Under this program, certain Community Development Entities
will be able to purchase a participation interest in up to 90% of a
SBAExpress or CommunityExpress Section 7(a) guaranteed business loan as
part of their investment in low-income communities under the New
Markets Tax Credit Program administered by the U.S. Department of
Treasury. SBA will use its authority under 13 CFR 120.3 to waive
section 120.432(a) of SBA regulations for this pilot program.
DATES: Effective date: The NMTC Pilot Loan Program will take effect on
November 3, 2006.
Expiration date: The NMTC Loan Pilot Program will expire on
September 30, 2011, unless extended by SBA.
FOR FURTHER INFORMATION CONTACT: James W. Hammersley, Director, Loan
Programs Division at [email protected].
SUPPLEMENTARY INFORMATION:
New Markets Tax Credit Program
The New Markets Tax Credit (NMTC) Program permits taxpayers to
receive a credit against Federal income taxes for making qualified
equity investments in entities designated as Community Development
Entities (CDEs) by the U.S. Department of Treasury's Community
Development Financial Institutions (CDFI) Fund. Substantially all of
the qualified equity investment must in turn be used by the CDE to make
``qualified low-income community investments,'' as defined in Sec.
45D(d)(1) of the IRS Tax Code (``QLCI''), which includes a loan made to
a ``qualified active low-income community business,'' as defined in
Sec. 45(d)(2) of the IRS Tax Code (``QLCI loans''). The credit
provided to the investor totals 39% of the investment made by that
investor, which may claim the credit against taxable income over a
seven-year credit allowance period. In each of the first three years,
the investor may claim five percent of the total amount of the NMTC; in
the final four years, the investor may claim six percent annually.
Investors may not redeem their investments in CDEs prior to the
conclusion of the seven-year period.
NMTCs are allocated annually by the CDFI Fund to CDEs under a
competitive application process. These CDEs then offer the credits to
taxable investors in exchange for stock or a capital interest in the
CDEs. To qualify as a CDE, an entity must be a domestic corporation or
partnership that: (1) Has a mission of serving, or providing investment
capital for, low-income communities or low-income persons; (2)
maintains accountability to residents of low-income communities through
their representation on a governing board of or advisory board to the
entity; and (3) has been certified as a CDE by the CDFI Fund.
Throughout the life of the NMTC Program, the CDFI Fund is
authorized to allocate up to $16 billion in NMTCs to CDEs. To date, the
CDFI Fund has conducted four rounds of allocations and issued 233
awards totaling $12.1 billion in allocation authority. The CDFI Fund
plans to release its fifth annual NMTC Program Notice of Allocation
Availability (NOAA) on December 1, 2006. This NOAA will invite CDEs to
compete for NMTC allocations in support of an aggregate amount of $3.9
billion in qualified equity investments in CDEs.
More information about the NMTC program, including the applicable
statutes and regulations, is available at the CDFI Fund's Web site at:
http://www.cdfifund.gov/what_we_do/programs_id.asp?programID=5.
SBA's NMTC Pilot Loan Program
SBA will implement a NMTC Pilot Loan Program on the effective date
of this Notice. The pilot will encourage lenders, as defined in 13 CFR
120.10 (``Lenders''), that participate in SBA's 7(a) guaranteed loan
program to increase the amount of credit, equity and financial services
they provide to entrepreneurs and small businesses located in urban and
rural distressed communities (``new markets''), and support the
President's domestic economic priority of stimulating growth,
investment and jobs in new markets, by increasing SBA's support for the
NMTC program. New markets are ``low-income communities'' as defined in
Sec. 45D(e) of the IRS Tax Code.
As part of the pilot, SBA will use its authority under 13 CFR 120.3
to waive the regulation that states, ``A Lender may not sell any of its
interest in a 7(a) loan to a nonparticipating Lender.'' 13 CFR
120.432(a). This regulation requires that any holder of any portion of
an SBA-guaranteed 7(a) loan, as defined in 13 CFR 120.1 and 120.2(a)
(``7(a) loan''), other than through a sale in the secondary market,
must be a Lender. Waiver of this rule is necessary to allow CDEs that
are not also Lenders to hold 7(a) loans. Allowing CDEs to purchase and
hold a portion of a 7(a) loan will enable CDEs with NMTC allocations to
attract additional participation from Lenders to provide loans, as well
as equity financing and financial services to entrepreneurs and small
businesses in new markets. Under the pilot, only CDEs holding a NMTC
allocation awarded by the CDFI Fund will be allowed to purchase
portions of 7(a) loans.
Through the pilot, SBA plans to test a process which permits CDEs
to purchase a participation interest in 7(a) loans made by Lenders
under either the SBAExpress or CommunityExpress programs, as a means of
providing
[[Page 58659]]
additional financing to businesses located in new markets. The CDEs
would bring additional funds to various underserved business
communities located in new markets. SBA hopes that such CDEs will also
provide a package of services to borrowers, including mentoring,
coaching and counseling to these businesses.
Under SBA's SBAExpress loan program, a Lender approved by SBA to
make such loans makes a 7(a) loan to a small business using the
Lender's own processes, procedures, and forms. Certain types of loans
are not eligible for the SBAExpress loan program. The maximum loan
amount is $350,000, and the maximum SBA guaranty is 50% of the loan
amount. More information about the SBAExpress program is available at:
http://www.sba.gov/financing/lendinvest/sbaexpress.html, or from any
SBA district office. Although the maximum size of an SBAExpress loan is
$350,000, SBAExpress loans that are larger than $150,000 will not be
eligible for the NMTC Pilot Loan Program.
Under SBA's CommunityExpress program, a Lender approved by SBA to
make such loans makes a 7(a) loan to a small business using Lender's
own processes, procedures, and forms. Borrowers must receive pre- and
post-loan closing technical and management assistance from local non-
profit providers and/or from the Lender, with that assistance
coordinated, arranged and, when necessary, paid for by the Lender.
Certain types of loans are not eligible for the CommunityExpress
program. The maximum loan amount is $250,000, and the SBA guaranty is
up to 85% of the loan amount for loans of $150,000 or less. More
information about the CommunityExpress program is available at: http://www.sba.gov/financing/lendinvest/comexpress.html. or from any SBA
District Office. Although the maximum size of a CommunityExpress loan
is $250,000, CommunityExpress loans that are larger than $150,000 will
not be eligible for the NMTC Pilot Loan Program.
Waiver
Pursuant to 13 CFR 120.3, I am hereby waiving the requirement in 13
CFR 120.432(a) on sales of participating interests in 7(a) loans to
allow lenders to sell participating interests in 7(a) loans to CDEs.
This waiver is needed in order for the NMTC Pilot Loan Program to
function.
Beginning on the effective date of the NMTC Program, CDEs that hold
an NMTC allocation may acquire, hold and assign a portion of an
eligible SBAExpress or CommunityExpress 7(a) loan notwithstanding the
prohibition in 13 CFR 120.432(a).
In addition to the waiver of this regulation, SBA is implementing
the following restrictions on Lenders and on the sale of 7(a) loans
under this pilot:
(a) Only new SBAExpress and CommunityExpress 7(a) loans made after
the effective date of the pilot are eligible for the pilot.
(b) Lenders must sign a Supplemental Lender Program Participation
Agreement for the NMTC Pilot Loan Program in order to participate in
this program.
(c) The maximum loan size eligible for the pilot is $150,000.
(d) Only 7(a) loans held in the portfolio of the originating Lender
and made after the effective date of the pilot are eligible; 7(a) loans
sold on the secondary market are not eligible.
(e) The originating Lender must perform the initial underwriting
for the 7(a) loan, close the 7(a) loan, and retain all servicing
responsibility for the 7(a) loan even after the Lender sells
participation interests in such loan to CDEs, and perform liquidation
of the loan unless it is not required to do so by SBA.
(f) The originating Lender must retain at least 10% of the
principal balance of the 7(a) loan, excluding any premium amount paid,
throughout the entire term of the loan. The 10% of any loan retained by
the Lender must be a portion of the unguaranteed interest. The Lender
must continue to administer the loans during their entire term and
remains responsible for all SBA requirements and fees.
(g) A participation agreement, in a form that is acceptable to SBA,
must be used by the originating Lender when a participation interest in
a 7(a) loan is sold to a CDE and an agreement for assignment of a CDE-
held participation interest, in a form that is acceptable to SBA, must
be used by the CDE for all subsequent transfers of a participation
interest.
(h) CDEs purchasing any portion of a 7(a) loan made under the pilot
must have a NMTC allocation.
(i) Purchasers of participation interests in loans will not be
permitted any input into the closing, servicing or liquidation of the
7(a) loan, and Lenders must not allow any such input.
(j) A CDE may sell its interest in a 7(a) loan made under the pilot
only to either a Lender or to another CDE with a NMTC allocation. The
CDE must use an assignment of participation interest form that is
acceptable to SBA.
(k) Small Business Investment Companies (SBICs) and New Market
Venture Capital Companies (NMVCCs) are prohibited from participating in
the pilot.
(l) SBA's waiver of its regulation for purposes of this pilot is
based on a requirement that the SBAExpress and CommunityExpress 7(a)
loans made by Lenders under this pilot also will qualify as QLCI loans
under the IRS Tax Code and regulations governing the NMTC program. The
originating Lender is responsible for meeting the eligibility criteria
to qualify the 7(a) loan as a QLCI loan. However, CDEs and their
investors bear the responsibility of demonstrating to the IRS the
eligibility of the loan for NMTCs, and SBA makes no legal or tax
representations and assumes no responsibility in this regard.
If SBA does not make this program permanent or extend this pilot
program beyond September 30, 2011, the CDE may continue to hold in its
portfolio any participation interests in 7(a) loans until the loan is
paid in full or the full NMTC is earned, whichever occurs first. If a
CDE has fully earned its allocated NMTCs, but the 7(a) loan in which it
holds a participation interest is still outstanding, the CDE may
transfer its participation interest to either a Lender or to another
CDE that holds an NMTC allocation.
Steven C. Preston,
Administrator.
[FR Doc. 06-8497 Filed 10-3-06; 8:45 am]
BILLING CODE 8025-01-P