[Federal Register Volume 74, Number 108 (Monday, June 8, 2009)]
[Notices]
[Pages 27199-27202]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-13307]
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SMALL BUSINESS ADMINISTRATION
Business Loan Program Temporary Increased Guaranty Percentage
AGENCY: U.S. Small Business Administration (SBA).
ACTION: Notice and request for comments.
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SUMMARY: This Notice formalizes the implementation of Section 502 of
the American Recovery and Reinvestment Act of 2009. Section 502
temporarily permits SBA to guarantee up to 90 percent of qualifying
small business loans. The increase in maximum guaranty percentage is
intended to promote economic recovery by encouraging lenders to make
small business loans by reducing their exposure to risk. While these
changes have been implemented and are under way, this Notice contains
the key provisions of SBA's implementation of Section 502 in formal
guidance and requests public comment.
DATES: Effective Date: This Notice is effective June 8, 2009.
Applicability Date: This Notice applies to 7(a) loan applications
(or requests for loan numbers submitted through delegated lender
processes, except SBA Express) received by SBA on or after March 16,
2009 until funds made available for this purpose are exhausted.
Comment Date: Comments must be received on or before July 8, 2009.
ADDRESSES: You may submit comments, identified by number SBA-2009-0004
by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Mail: Recovery Act Comments--Office of Financial
Assistance, U.S. Small Business Administration, 409 Third Street, SW.,
Suite 8300, Washington, DC 20416.
Hand Delivery/Courier: Grady Hedgespeth, Director, Office
of Financial Assistance, U.S. Small Business Administration, 409 Third
Street, SW., Washington, DC 20416.
SBA will post all comments on www.regulations.gov. If you wish to
submit confidential business information (CBI) as defined in the User
Notice at www.regulations.gov, please submit the information to Grady
Hedgespeth, Director, Office of Financial Assistance, U.S. Small
Business Administration, 409 Third Street, SW., Washington, DC 20416,
or send an e-mail to [email protected]. 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: The SBA district office nearest you;
the list of offices can be found at http://www.sba.gov/localresources/index.html.
SUPPLEMENTARY INFORMATION:
I. Background Information
America's financial crisis has created adverse conditions that are
affecting small businesses, including a lack of liquidity in the
lending system, a reluctance of many lenders to extend new loans,
tightened credit standards, weaker finances at small businesses, and
uncertainty about taking on new debt on the part of many entrepreneurs.
As a result, lending by SBA program participants has significantly
declined and SBA's ability to ensure small
[[Page 27200]]
business access to capital has been limited.
On February 17, 2009, the President signed the American Recovery
and Reinvestment Act of 2009 (the ``Recovery Act'') (Pub. L. 111-5, 123
Stat. 115) to promote economic recovery by preserving and creating
jobs, and to assist those most affected by the severe economic
conditions facing the nation. The SBA received funding and authority
through the Recovery Act to modify existing loan programs and establish
new loan programs to significantly stimulate small business lending. It
is expected that SBA's actions will increase access to affordable
credit for small businesses through the Agency's 7(a) and 504 loan
programs, unfreeze the secondary market for SBA guaranteed loans, help
small businesses struggling with existing debt, and allow greater
investment in high-growth small businesses.
To this end, Section 502 of the Recovery Act temporarily permits
SBA to guarantee up to 90 percent of 7(a) loans, except for loans made
under the SBA Express program. SBA Express loans will continue to have
a maximum guaranty of 50 percent. Providing a higher guaranty will
provide an incentive to lenders to expand their SBA lending and make
loans to America's small businesses with confidence. A more detailed
discussion of Section 502 of the Recovery Act follows.
II. Comments
The intent of the Recovery Act is that SBA provide relief to
America's small businesses as quickly and effectively as possible. This
along with the current economic conditions provided good cause for SBA
moving forward prior to receiving public comments. Although Section 502
has been implemented and this Notice is effective immediately, comments
are solicited from interested members of the public on all aspects of
the Notice including the formal guidance set forth in the section
below. These comments must be submitted on or before July 8, 2009. The
SBA will consider these comments and the need for making any revisions
as a result of these comments.
III. Business Loan Temporary Increase in Maximum Guaranty Percentage
Overview
The Recovery Act was enacted to promote economic recovery by
preserving and creating jobs, and assisting those most impacted by the
severe economic conditions facing the nation. Among the SBA provisions
contained in the Recovery Act are provisions authorizing SBA to
temporarily permit an increase in the maximum guaranty percentage of up
to 90 percent on qualifying small business loans. The following
outlines the key guidance of section 502 of the Recovery Act as
implemented.
Applicability Date of the Increase in Maximum Guaranty Percentage
Lenders may request the increase in the maximum guaranty percentage
of up to 90 percent for qualifying small business loan applications (or
requests for loan numbers submitted through delegated lender processes,
except SBA Express) received by SBA on or after March 16, 2009. The
Recovery Act provides that the increase in the maximum guaranty
percentage will sunset on the earlier of February 17, 2010 or such date
as funds made available for this purpose are exhausted. Depending on
loan volume in the 7(a) program, SBA estimates that the increased
guaranty percentage will be available through approximately December
31, 2009. SBA will notify the public when funds made available for this
purpose are exhausted. The increase in the maximum guaranty percentage
of up to 90 percent provided in this Notice temporarily supersedes any
provision that conflicts in 13 CFR 120.210.
Qualifying Small Business Loans
The Recovery Act defines a ``qualifying small business loan'' as
``any loan to a small business concern pursuant to section 7(a) of the
Small Business Act (15 U.S.C. 636) or title V of the Small Business
Investment Act of 1958 (15 U.S.C. 695 and following) except for such
loans made under section 7(a)(31).'' (Loans made under section 7(a)(31)
of the Small Business Act are loans made under the SBA Express program
and because these loans are excluded from guarantee increases under the
Recovery Act, they will continue to have a maximum guaranty of 50
percent.) With the exception of loans made under the SBA Express
Program, SBA will consider any 7(a) loan, including Pilot Loan Program
loans made under the Patriot Express, Community Express, Export Express
and Gulf Opportunity (GO) Loan programs, to be a qualifying small
business loan.
Qualified Borrower
The Recovery Act also defines the term ``Qualified Borrower.'' The
Recovery Act states that a loan guarantee may not be made to a small
business concern ``if an individual who is an alien unlawfully present
in the United States (A) has an ownership interest in that concern; or
(B) has an ownership interest in another concern that itself has an
ownership interest in that concern.'' (Section 502(c)(1).) SBA
currently has a process in place to verify that an alien with ownership
interest in a small business applicant is lawfully in the United
States. This process is set forth in SBA's Standard Operating Procedure
(SOP) 50 10 5(A), Subpart B, Chapter 2. (SBA's SOP 50 10 5(A) can be
found at http://www.sba.gov/aboutsba/sbaprograms/elending/reg/index.html.)
In addition, the eligibility questionnaire and checklists for the
Standard 7(a), Small/Rural Lender Advantage (S/RLA), Preferred Lender
Program (PLP), and Pilot Loan Programs have been modified to include an
additional statement that, for loans made under the Recovery Act, no
individual who is an unauthorized alien has an ownership interest in
another concern that itself has an ownership interest in the applicant.
(The Standard 7(a) Eligibility Questionnaire can be found at http://www.sba.gov/aboutsba/sbaprograms/elending/lgpc/forms/index.html. The S/
RLA eligibility checklist (SBA Form 2301-C) can be found at http://www.sba.gov/tools/Forms/smallbusinessforms/fsforms/index.html. The PLP
Eligibility Checklist can be found at http://www.sba.gov/idc/groups/public/documents/sba_program_office/bank_plpchcklist.pdf. The Pilot
Loan Programs eligibility checklist (SBA Form 1920SX, Part C) can be
found at http://www.sba.gov/tools/Forms/smallbusinessforms/fsforms/index.html.)
The Recovery Act also states that a loan guarantee may not be made
under this section ``for a loan to any entity found, based on a
determination by the Secretary of Homeland Security or the Attorney
General to have engaged in a pattern or practice of hiring, recruiting
or referring for a fee, for employment in the United States an alien
knowing the person is an unauthorized alien.'' (Section 502(c)(2).) To
help ensure that an SBA loan guarantee is not made to such an entity,
SBA will require each small business that receives a loan under this
Act to certify that the business has not been determined by the
Secretary of the Department of Homeland Security or the Attorney
General to have engaged in a pattern or practice of hiring, recruiting
or referring for a fee for employment in the United States an alien
knowing the person is an unauthorized alien. Version 2009.2 of the 7(a)
Loan Authorization Boilerplate
[[Page 27201]]
is available and incorporates this certification for Standard 7(a),
Certified Lender Program (CLP), S/RLA, and PLP loans. For any Pilot
Loan Program loans, the lender will be responsible for adding this
requirement to the lender's authorization. (The Authorizations may be
found at http://www.sba.gov/aboutsba/sbaprograms/elending/authorizations/index.html.)
In addition to providing this certification, as with all 7(a) loan
applications, every proprietor, partner, officer, director and owner of
20% or more of the applicant must complete a Statement of Personal
History (SBA Form 912). (SBA Form 912 can be found at http://www.sba.gov/tools/Forms/smallbusinessforms/fsforms/index.html.) This
form requires the disclosure of whether: (1) The individual is
presently under indictment, on parole or probation; (2) has ever been
charged with and/or arrested for any criminal offense other than a
minor motor vehicle violation, including offenses which have been
dismissed, discharged or not prosecuted; and (3) has ever been
convicted, placed on pretrial diversion, or placed on any form of
probation, including adjudication withheld pending probation, for any
criminal offense other than a minor vehicle violation. Thus, any
violations of immigration laws would be required to be disclosed on
this form.
Funding
Lenders may request the increased guaranty percentage of up to 90
percent for qualifying small business loan applications (or requests
for loan numbers submitted under the delegated lending processes,
except SBA Express) received by SBA on or after March 16, 2009. The
increased guaranty percentage of up to 90 percent will be available
until the earlier of February 17, 2010 or such date as funds made
available for this purpose are exhausted. Depending on loan volume in
the 7(a) program, SBA estimates that the increased guaranty percentage
will be available through approximately December 31, 2009. SBA will
notify the public when funds made available for this purpose are
exhausted.
Use of Proceeds Restriction
Section 1604 of the Recovery Act provides that none of the funds
appropriated or otherwise made available through the Recovery Act may
be used by any State or local government, or any private entity, for
any casino or other gambling establishment, aquarium, zoo, golf course,
or swimming pool. For otherwise eligible loans to these small
businesses or for these uses, lenders may continue to submit
applications or requests for loan numbers in accordance with SOP 50 10
5(A), with a maximum guaranty percentage of 75/85 percent, depending on
the loan amount, and pay all applicable fees. For Recovery Act loan
guaranties, it will be the responsibility of the lender to document in
the credit memorandum that the applicant's use of proceeds does not
include a restricted use or, if there is a restricted use component,
the lender must document the other resources that the borrower has
obtained to pay the costs allocable to the restricted use component.
Lenders also will be expected to certify on the applicable eligibility
checklist that no loan proceeds will be used for a restricted use. In
addition, it will be the responsibility of the borrower to certify that
it will not use any working capital loan proceeds for any restricted
use. For all Recovery Act loan guaranties for the construction,
acquisition or renovation of any business that has a restricted use, it
will be the responsibility of the borrower to certify that it has
obtained alternate funding which may come from the borrower's equity
injection to pay the costs reasonably and in good faith estimated to be
allocable to the restricted use. Failure by a lender to accurately
identify a restricted use for a Recovery Act loan and reduce the
guaranty percentage and remit appropriate fees within 90 days of loan
approval or within 90 days of publication of this Notice, whichever is
later, may result in SBA's denial of liability on the loan. Please
refer to SBA Policy Notice 5000-1105 for further guidance on restricted
uses of Recovery Act loan proceeds.
The eligibility questionnaire and checklists for the Standard 7(a),
S/RLA, PLP, and Pilot Loan Programs have been modified to include an
additional statement that, for loans made under the Recovery Act, no
proceeds will be used for a restricted use. (The Standard 7(a)
Eligibility Questionnaire can be found at http://www.sba.gov/aboutsba/sbaprograms/elending/lgpc/forms/index.html. The S/RLA eligibility
checklist (SBA Form 2301-C) can be found at http://www.sba.gov/tools/Forms/smallbusinessforms/fsforms/index.html. The PLP Eligibility
Checklist can be found at http://www.sba.gov/idc/groups/public/documents/sba_program_office/bank_plpchcklist.pdf. The Pilot Loan
Programs eligibility checklist (SBA Form 1920SX, Part C) can be found
at http://www.sba.gov/tools/Forms/smallbusinessforms/fsforms/index.html.)
Additional Requirements
All other provisions of the Small Business Act (15 U.S.C. 636)
applicable to the 7(a) loan program and regulations promulgated
thereunder that are not superseded by the relevant provisions of the
Recovery Act will continue to apply to loans made under the Recovery
Act.
Lenders and borrowers may be subject to additional reporting or
recordkeeping requirements in connection with loans under the Recovery
Act.
Cancellation and Resubmission of Loans Approved Prior to March 16, 2009
The purpose of the Recovery Act is to stimulate new lending. A loan
cancelled and then resubmitted to obtain the increased guaranty
percentage does not stimulate new lending and, therefore, is ineligible
for Recovery Act treatment. Therefore, SBA will not permit cancelled
7(a) loans, which were approved prior to March 16, 2009 (the
implementation date of Section 502 of the Recovery Act) to be
resubmitted as Recovery Act loans eligible for a maximum guaranty
percentage of up to 90%, unless the resubmitted loan is not a
replacement for the original loan, as determined by SBA on a case by
case basis.
Requests for a determination that it is not merely a replacement
loan must be submitted by the lender to the Standard 7(a) Loan Guaranty
Processing Center. The request will be reviewed and a recommendation
will be forwarded to the Director/Office of Financial Assistance for
approval. In making a case by case determination on resubmitted loans,
the existence of one or more of the following factors will make it more
likely that SBA will approve the request: (i) The loan was cancelled
for reasons other than the passage of the Recovery Act (e.g., the loan
was cancelled because the location for the new business was not
available; subsequently another location became available and a new
loan was approved); (ii) the new loan is for a different purpose (e.g.,
the original loan was for working capital but the new loan is for the
acquisition of real estate); (iii) the new loan is likely to achieve
additional economic stimulus (e.g., the previous loan would have
preserved jobs but the new loan will also create jobs); or (iv) the new
loan could not be made but for the provisions of the Recovery Act
(e.g., the loan was cancelled because the borrower failed to meet a key
provision (e.g., appraisal value) in the original loan authorization
and, therefore, the lender would not make the loan now
[[Page 27202]]
but for the higher guaranty level). Based on past cancellation
experience in SBA's loan programs, SBA expects that only a limited
number of borrowers with cancelled/resubmitted loans will meet the
criteria for a new loan with a higher guaranty percentage.
Changes to all loans approved prior to March 16, 2009, including
loan increases, will be processed as changes to the original loan in
accordance with SBA's standard practice.
SBA will provide further guidance as necessary, through SBA notices
published on SBA's Web site, http://www.sba.gov.
Questions on the increased maximum guaranty percentage may be
directed to the Lender Relations Specialist in the local SBA district
office. The local SBA district office may be found at http://www.sba.gov/localresources/index.html.
Authority: Public Law 111-5, Div. A, Title V, Section 502, 123
Stat. 115.
Karen G. Mills,
Administrator.
[FR Doc. E9-13307 Filed 6-5-09; 8:45 am]
BILLING CODE 8025-01-P