[Federal Register: June 9, 2009 (Volume 74, Number 109)]
[Rules and Regulations]
[Page 27243-27248]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09jn09-1]
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Rules and Regulations
Federal Register
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[[Page 27243]]
SMALL BUSINESS ADMINISTRATION
13 CFR Part 120
RIN 3245-AF93
American Recovery and Reinvestment Act: America's Recovery
Capital (Business Stabilization) Loan Program
AGENCY: U.S. Small Business Administration.
ACTION: Interim final rule with request for comments.
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SUMMARY: This interim final rule implements section 506 of the American
Recovery and Reinvestment Act of 2009, which authorizes SBA to
establish a temporary program to guarantee loans to viable small
business concerns that have a qualifying small business loan, and are
experiencing immediate financial hardship. Loans made under this
program, referred to as ``America's Recovery Capital Loan Program''
(ARC Loan Program) can be used to make principal and interest payments
on existing qualifying small business loans.
DATES: Effective Date: This rule is effective June 9, 2009.
Comment Date: Comments must be received on or before August 10,
2009.
ADDRESSES: You may submit comments, identified by RIN: 3245-AF93 by any
of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Mail: Janet A. Tasker, Office of Capital Access, Small
Business Administration, 409 Third Street, SW., Washington, DC 20416.
Hand Delivery/Courier: Janet A. Tasker, Office of Capital
Access, 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 Janet
A. Tasker, Office of Capital Access, Small Business Administration, 409
Third Street, SW., Washington, DC 20416, or send an e-mail to
ARCloanprogram@sba.gov. 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 as to whether it will publish the information.
FOR FURTHER INFORMATION CONTACT: Janet A. Tasker, Office of Capital
Access, Small Business Administration, 409 Third Street, SW.,
Washington, DC 20410 or via e-mail at ARCloanprogram@sba.gov.
SUPPLEMENTARY INFORMATION:
I. Background Information
The American Recovery and Reinvestment Act of 2009 (the Recovery
Act), Public Law 111-5, 123 Stat. 115, was enacted on February 17,
2009, to, among other things, promote economic recovery by preserving
and creating jobs, and assisting those most impacted by the severe
economic conditions facing the nation. SBA is one of several agencies
that are intended to play a role in achieving these goals. SBA received
funding and authority through the Recovery Act for several actions to
help small business lending, including authority to establish a new
temporary loan program to help troubled businesses.
One provision included in the Recovery Act is to provide SBA with
temporary authority to fully guarantee loans (ARC Loans) to viable
small businesses that have a qualifying small business loan(s) and are
experiencing immediate financial hardship. In order to implement this
change, SBA will amend the business loan regulations in 13 CFR part 120
to add the requirements which must be met by lenders and borrowers
participating in the ARC Loan Program. The requirements for the ARC
Loan Program will be promulgated under new Sec. 120.398.
II. Section by Section Analysis
Sections 120.398(a) and (b) set forth the statutory purpose of the
ARC Loan Program and define terms used in the regulation. The purpose
of the ARC Loan Program is to enable SBA to guarantee loans to viable
small businesses that are experiencing immediate financial hardship.
SBA is applying the rules and other requirements of the 7(a) program to
the ARC Loan Program except as specifically set forth in section
120.398 of the regulations. Accordingly, only 7(a) lenders may make ARC
Loans. Lenders who are not currently 7(a) lenders may apply to
participate in this and the 7(a) program.
The regulation defines an eligible borrower, a going concern, a
viable small business, and a qualifying small business loan consistent
with the requirements of the Recovery Act. The definition of eligible
borrower includes the basic eligibility requirements and ineligibility
provisions for small businesses contained in sections 120.100 and
120.110, respectively, of this Part. Section 1604 of the Recovery Act
states that no funds appropriated or otherwise made available in the
Recovery Act may be used by any private entity for any casino or other
gambling establishment, aquarium, zoo, golf course, or swimming pool.
Casinos and gambling establishments are currently ineligible for SBA
financial assistance under Sec. 120.110. Aquariums, zoos, golf courses
and swimming pools are eligible for SBA financial assistance under the
Small Business Act and the Small Business Investment Act; however, they
are not eligible for assistance under the Recovery Act. For that
reason, SBA has determined that small business concerns with the
following primary industry North American Industry Classification
System (NAICS) codes are ineligible for ARC Loans: (a) 713210 (Casinos
(Except Casino Hotels)); (b) 721120 (Casino Hotels); (c) 713290 (Other
Gambling Industries); (d) 713910 (Golf Courses and Country Clubs); and
(e) 712130 (Zoos and Botanical Gardens). Applications submitted by
small business concerns with a primary industry NAICS code of 713940
(Fitness and Recreational Sports Centers), which includes both swimming
pools and other types of fitness and recreational centers, will be
identified and reviewed by SBA to determine eligibility in accordance
with the Recovery Act statutory restriction on assistance to swimming
pools. A ``going concern'' is defined as a small business that is
actively engaging in business with the expectation of indefinite
continuance.
[[Page 27244]]
The definition of ``qualifying small business loan'' incorporates the
provisions of eligible uses of proceeds in Sec. 120.120, and
ineligible uses of proceeds included in Sec. Sec. 120.130 and
102.160(d), respectively. A ``viable small business'' is a going
concern that is having difficulty making periodic payments of principal
and interest on qualifying small business loans and/or meeting the
operating expenses of the business, provided it can reasonably
demonstrate its projected operation for a reasonable period beyond the
six month period of payment assistance with an ARC Loan.
Section 120.398(c) establishes that the ARC Loan Program terminates
when appropriated funds are exhausted or on September 30, 2010,
whichever is sooner.
Section 120.398 (d) describes the permissible use of proceeds for
an ARC Loan. It implements the Recovery Act requirement that an ARC
Loan must be used to make periodic payments of principal and interest
for up to six (6) months, on one or more existing qualifying small
business loans. However, under the Recovery Act, an ARC Loan cannot be
used to make payments on loans made or guaranteed by SBA prior to
February 17, 2009. Loans excluded under this provision include 7(a)
loans guaranteed by SBA, Development Company 504 loans/debentures
guaranteed by SBA, SBA disaster loans made to small businesses, and SBA
loans made to microloan intermediaries, in each case if made prior to
February 17, 2009. Lenders are encouraged to defer, or, if appropriate,
restructure these excluded loans to best assist the small businesses.
ARC Loans may be used to make payments on loans made or guaranteed by
SBA on or after February 17, 2009.
Section 120.398(e) establishes basic loan terms for ARC Loans: SBA
will guaranty 100% of each ARC Loan; the interest rate on an ARC Loan
shall be published by the Agency in the Federal Register; the maximum
amount of an ARC Loan shall not exceed $35,000; and the maturity shall
be up to six and one-half years. In addition, a lender's disbursements
of an ARC loan must be made during a period not exceeding six (6)
consecutive months; the borrower will be responsible for all principal
payments, but will not be required to make interest payments on the ARC
Loan; SBA will make interest payments to the lender on the ARC Loan; a
borrower of an ARC loan does not have to make any repayments during the
disbursement period and for twelve (12) months after final
disbursement; repayment of an ARC Loan shall commence no later than
thirteen (13) months after final disbursement; and the loan balance
shall be fully amortized over the next five (5) years. SBA will pay
interest to the lender only until the date 120 days after the earliest
uncured payment default on the ARC Loan. In addition, the amounts paid
by SBA for interest and/or the guarantee at the time of purchase will
be adjusted to reconcile for any over- or underpayments of interest
identified throughout the life of the loan. To accommodate timing
delays in disbursing the ARC Loan after approval, SBA will allow up to
two months after approval to begin disbursement of the ARC Loan. Once
the first disbursement of an ARC Loan is made, the disbursement period
may not exceed six consecutive months.
Section 120.398(f) provides that no small business may obtain more
than one ARC Loan in order to ensure both a comprehensive analysis of a
small business' viability as well as to ensure the availability of
funding to support the maximum number of small businesses.
Section 120.398(g) provides that a holder of at least 20 percent
ownership of the small business must generally guarantee the ARC Loan.
This requirement is identical to the 7(a) loan program requirement.
Section 120.398(h) provides that a lender shall secure its ARC
loans consistent with the collateral policies and procedures that it
has established and implemented for its similarly-sized non-SBA
guaranteed commercial loans. The Lender's collateral policies must be
commercially reasonable and prudent. SBA will allow lenders to charge
borrowers for the direct cost of securing and liquidating collateral
and SBA will reimburse lenders for the direct costs of liquidating
collateral that are not reimbursed by borrowers (consistent with SBA's
established practices) in the event of default. However, SBA will limit
reimbursement of the direct costs of liquidation to the amount of the
recovery received on an ARC Loan.
Section 120.398(i) provides that an applicant for an ARC Loan must
be a creditworthy small business with a reasonable expectation of
repayment, taking into consideration the following: (1) Character,
reputation, and credit history of the applicant (and the Operating
Company, if applicable) and its Associates; (2) experience and depth of
management; (3) strength of the business; (4) past earnings, current
earnings, and projected cash flow; and (5) ability to repay the loan
with earnings from the business.
Section 120.398(j) prescribes certification requirements for each
ARC Loan. In addition to the certification requirements applicable to
7(a) loans generally, including, for example, the certification that
the borrower is current with all Federal, state and local taxes (or is
current in making payments on an executed agreement with the
appropriate taxing authority) and will stay current with all such tax
obligations, borrowers must submit a statement certifying that they are
experiencing immediate financial hardship and provide documentation to
support the certification. SBA will provide additional guidance on what
constitutes immediate financial hardship in the procedural guidance and
forms developed to administer the ARC Loan Program.
Section 120.398(k) was added to describe the content of an ARC Loan
application. At a minimum, ARC Loan applications must include
information on the nature and history of the small business, current
and historical financial statements (or tax returns) and such
additional information as SBA may require. The provisions of section
120.191 do not apply to ARC Loans.
Section 120.398(l) allows lenders to use the proceeds of an ARC
Loan to make periodic payments of principal and interest on a loan held
by the lender, without SBA's consent. This provision is consistent with
the intention of Section 506 of the Recovery Act to assist viable small
businesses facing immediate financial hardship to make periodic
payments of principal and interest on existing loans, whether or not
held by the same lender because it is reasonable to expect that the
vast majority of lenders making ARC Loans will have an established
lending relationship with the borrower. This subsection also provides
that certain sections in Part 120 which prohibit preferences shall not
be applicable to ARC Loans. These sections are 120.10, 120.536(a)(2)
and 120.925. In addition, the provisions of section 120.201 restricting
refinancing do not apply to ARC Loans. Section 120.201 provides that a
borrower may not use 7(a) loan proceeds to pay any creditor in a
position to sustain a loss.
The Recovery Act prohibits SBA from charging any loan fees for ARC
Loans. With the exception of charging borrowers for the direct costs of
securing and liquidating collateral for ARC Loans, SBA has determined
that lenders may not charge fees or other costs to borrowers who
receive ARC Loans. Lenders are receiving 100% SBA guarantees on loans
with reasonable interest rates that will be paid by SBA, made to small
businesses that are experiencing financial hardships. Further, lenders
are allowed to use the
[[Page 27245]]
proceeds of ARC Loans to make periodic principal and interest payments
on loans they hold and/or service, which improves their financial
position relative to their original loan. This combination of factors
led SBA to conclude that lender-charged fees are not appropriate for
ARC Loans or consistent with the intent of the Recovery Act. Excluded
fees include, but are not limited to, points, bonus points, prepayment
penalties, brokerage fees, fees for processing, origination, or
application, and out of pocket expenses other than the direct costs of
securing and liquidating collateral. While the Recovery Act does not
prohibit SBA from charging fees to lenders on ARC Loans, SBA has
determined that in order to encourage program participation, SBA will
not charge any fees to lenders making ARC Loans. These provisions are
included in Sec. 120.398(m).
Section 120.398 (n) provides that Lender reporting to SBA will be
consistent with requirements established by SBA from time to time for
7(a) loans and loans made under the Recovery Act.
Sections 120.398(o) and (p) provide that ARC Loans will be serviced
and liquidated by the lender originating the ARC Loan, in accordance
with the practices and procedures that the Lender uses for its non-SBA
guaranteed commercial loans. The practices must be commercially
reasonable and consistent with prudent lending standards and in
accordance with SBA Loan Program requirements defined in Section
120.10. SBA will provide additional guidance on how lenders shall
service and liquidate ARC Loans in the procedural guidance developed to
administer the ARC Loan Program.
Only the originating lender can request SBA to honor its guaranty
if the ARC Loan goes into default. Section 120.398(q) establishes the
standards for purchasing guarantees. Lenders may request SBA to
purchase an ARC Loan when there has been an uncured payment default
exceeding 60 days or when the borrower has declared bankruptcy. SBA
requires Lenders to submit loans for purchase no later than 120 days
after the earliest uncured payment default on the ARC Loan.
Additionally, SBA may honor its guarantee and require a Lender to
submit an ARC Loan for purchase at any time. Lenders are required to
complete recovery actions on ARC Loans after purchase. SBA will provide
additional guidance on how lenders shall request purchase of an ARC
Loan in the procedural guidance developed to administer the ARC Loan
Program.
Section 120.398(r) provides that ARC Loans cannot be sold in the
secondary market nor may a lender participate a portion of an ARC loan
with another lender. As noted above, it is the originating lender who
must make the request to SBA to honor its guaranty if an ARC Loan
defaults.
Funding for the ARC Loan Program is limited. In order to ensure
that the ARC Loans are available to small businesses to the maximum
extent possible, section 120.398(s) was included in the rule to inform
ARC Loan Program participants that SBA has the right to allocate volume
to providers of ARC Loans. With this provision, SBA will be able to
ensure that all lenders have access to ARC Loans to support small
businesses.
Section 120.398(t) provides that SBA may allow lenders to use their
delegated authority to process ARC Loans. SBA will provide additional
guidance on how delegated and non-delegated lenders may participate in
the procedural guidance developed to administer the ARC Loan Program.
Given that the small businesses eligible for ARC Loans are
experiencing immediate financial hardship, the availability of
additional personal resources from alternative sources is considered
remote. Section 120.398(u) was added stating that the provisions of
section 120.102 requiring a personal resources test are not applicable
to ARC Loans.
Section 120.398(v) provides that the provisions of section 120.151
which limit the aggregate amount of the SBA portions of all loans to a
single borrower, including the borrower's affiliates, to a certain
guaranty amount are not applicable to ARC Loans.
III. Justification for Publication as Interim Final Rule
In general, before issuing a final rule, SBA publishes the rule for
public comment in accordance with the Administrative Procedure Act
(APA), 5 U.S.C. 553. The APA provides an exception from the general
rule where the agency finds good cause to omit public participation. 5
U.S.C. 553(c)(3)(B). The good cause requirement is satisfied when prior
public participation can be shown to be impracticable, unnecessary, or
contrary to the public interest. Under such circumstances, an agency
may publish an interim final rule without first soliciting public
comment.
In enacting the good cause exception to standard rulemaking
procedures, Congress recognized that emergency situations arise where
an agency must issue a rule without public participation. The current
turmoil in the financial markets is having a negative impact on the
availability of financing for small businesses. There is an urgent need
to assist viable small businesses that are experiencing financial
hardships due to the current economic environment. The ARC Loan Program
is designed to provide an immediate infusion of capital to small
businesses to assist with making periodic payments of principal and
interest. A delay in obtaining the financing needed by these small
businesses will, in many cases, have a direct impact on their
survivability.
SBA finds that good cause exists to publish this rule as an interim
final rule in light of the urgent need to help small businesses sustain
and survive during this economic downturn. Advance solicitation of
comments for this rulemaking would be impracticable, contrary to the
public interest, and would harm those small businesses that need
immediate relief on eligible debt. In addition, the Recovery Act
mandates that the SBA issue emergency regulations to implement the ARC
Loan Program and specifically exempts any such regulations from the
notice and comment requirement of the APA.
Although this rule is being published as an interim final rule,
comments are solicited from interested members of the public. These
comments must be submitted on or before August 10, 2009. The SBA will
consider these comments and the need for making any amendments as a
result of these comments.
IV. Justification for Immediate Effective Date
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). The purpose of this
provision is to provide interested and affected members of the public
sufficient time to adjust their behavior before the rule takes effect.
The ARC Loan Program is designed to provide an immediate infusion
of capital to small businesses to assist with making periodic payments
of principal and interest. A delay in obtaining the financing needed by
these small businesses will, in many cases, have a direct impact on
their survivability making it necessary to implement this rule
immediately. Lenders making ARC Loans might need time to make system
adjustments; however this time is mitigated by the benefits to lenders
and small businesses from immediate
[[Page 27246]]
implementation of the ARC Loan Program.
In light of the urgent need to help small businesses sustain and
survive during this economic downturn, SBA finds that there is good
cause for making this rule effective immediately instead of observing
the 30-day period between publication and effective date. Delaying
implementation of the rule would have a serious adverse impact on the
nation's small businesses.
Compliance With Executive Orders 12866, 12988, 13175 and 13132, 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 (OMB) has determined that this
rule constitutes a significant regulatory action for purposes of
Executive Order 12866.
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 retroactive or preemptive 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.
Paperwork Reduction Act
The SBA has determined that this interim final rule imposes
reporting and recordkeeping requirements as defined under the Paperwork
Reduction Act, 44 U.S.C. Chapter 35. This additional information
consists of the four forms described below that are necessary to
process applications for assistance under the ARC Loan Program. SBA has
submitted these information collections to OMB for review under the
emergency review proceedings. Emergency review and approval will
facilitate urgent implementation of the ARC Loan Program, which is
expected to provide debt relief to small businesses that are currently
facing financial hardship, including difficulties repaying existing
debt. Delay in implementing the loan program would only exacerbate the
already critical economic conditions facing these eligible small
business concerns.
A. Title and Description of Information Collection: SBA Form 2315:
America's Recovery Capital (ARC) Borrower Information Form.
Purpose: The information collected on this form is modeled on two
currently approved information collections: OMB Control 3245-
0016, SBA's 7(a) loan application, and OMB Control 3245-0178,
Statement of Personal History, which is used to collect personal
information on the individuals associated with the small business loan
applicant. Those two collections of information will not be
discontinued; they will continue to be used for their approved
purposes. The application information requested includes identifying
information regarding the applicant and its principals, including
indebtedness; current or previous government financing; suspension or
debarment history; and certain other disclosures regarding principals'
criminal history. The personal information facilitates borrower
background checks as authorized by Section 7(a)(1)(B) of the Small
Business Act, 15 U.S.C. 636(a)(1)(B).
OMB Control Number: New collection.
Description of and Estimated Number of Respondents: This
information will be collected from the small business concerns that are
applying for financial assistance under the ARC program. SBA estimates
12,000 small businesses will submit applications over the course of a
year.
Estimated Number of Responses: Each small business concern can
submit only one application under the ARC loan program; therefore the
estimated number of responses is 12,000.
Estimated Response Time: 10 minutes.
Total Estimated Annual Hour Burden: 2,000 hours.
B. Title and Description: Form 2316 (Part A): America's Recovery
Capital (ARC) Loan Guaranty Request.
Purpose: This information collection is submitted by approximately
non-delegated lenders seeking SBA's guarantee on an ARC loan. The
information is provided along with Forms 2316 (Part B) and (Part C) to
the SBA's 7(a) Loan Processing Centers.
OMB Control Number: New collection.
Description of and Estimated Number of Respondents: 400 non-
delegated lenders (these lenders are a subset of the total estimated
2,000 lenders who will participate in the ARC program) who will not
submit information through E-Tran.
Estimated Number of Responses: 840.
Estimated Response Time: 5 minutes per response.
Estimated Annual Hour Burden: 70 hours.
C. Title and Description: Form 2316 (Part B): Supplemental
Information for America's Recovery Capital (ARC) Loan Guaranty Request.
Purpose: Since ARC loans are specifically to be used to make
payments on existing business loans, the form is designed to more
easily identify which debt(s) have been reduced through the use of ARC
loan proceeds. In addition, in order to facilitate required reporting
under the Recovery Act, this form also collects information on the
number of jobs created or retained as a result of the ARC loan
financing.
OMB Control Number: New collection.
Description of and Estimated Number of Respondents: This form may
be submitted by all lenders participating in the SBA's 7(a) loan
program. We estimate that a total of 2,000 lenders will submit this
information collection.
Estimated Number of Responses: 12,000.
Estimated Response Time: 15 minutes.
Total Estimated Annual Hour Burden: 3,000 hours.
D. Title and Description: Form 2316 (Part C), Eligibility
Information Required for America's Recovery Capital (ARC) Loan
Submission.
Purpose: The information will be used to determine whether the loan
application meets the eligibility criteria for an ARC Loan, as stated
in this regulation.
OMB Control Number: New collection.
Description of and Estimated Number of Respondents: This form may
be submitted by all lenders participating in the SBA's 7(a) loan
program. We estimate that a total of 2,000 lenders will submit this
information collection.
Estimated Number of Responses: 12,000.
Estimated Response Time: 10 minutes.
Total Estimated Annual Hour Burden: 2,000 hours.
SBA invites comments on these information collections, particularly
on: (1) Whether the proposed collection of information is necessary for
the proper performance of SBA's functions, including whether the
information will have a practical utility; (2) the accuracy of SBA's
estimate of the burden of the proposed collections of information; (3)
[[Page 27247]]
ways to enhance the quality, utility, and clarity of the information to
be collected; and (4) ways to minimize the burden of the collection of
information on respondents, including through the use of automated
collection techniques, when appropriate, and other forms of information
technology.
Please send comments by the closing date for comment for this
interim final rule to SBA Desk Officer, Office of Management and
Budget, Office of Information and Regulatory Affairs, 725 17th Street,
NW., Washington, DC 20503 and to Janet A. Tasker, Office of Capital
Access, Small Business Administration, 409 Third Street, SW.,
Washington, DC 20416.
Regulatory Flexibility Act
Because this rule is an interim final rule, there is no requirement
for SBA to prepare a Regulatory Flexibility Act (RFA) analysis. The RFA
requires administrative agencies to consider the effect of their
actions on small entities, small non-profit businesses, and small local
governments. Pursuant to the RFA, when an agency issues a rule, the
agency must prepare analysis that describes whether the impact of the
rule will have a significant economic impact on a substantial number of
small entities. However, the RFA requires such analysis only where
notice and comment rulemaking is required.
List of Subjects in 13 CFR Part 120
Loan programs--business, Small businesses.
0
For the reasons stated in the preamble, SBA amends 13 CFR part 120 as
follows:
PART 120--BUSINESS LOANS
0
1. The authority citation for 13 CFR part 120 is revised to read as
follows:
Authority: 15 U.S.C. 634(b)(6), (b)(7), (b)(14), (h), and note,
636(a), (h) and (m), 650, 687(f), 696(3), and 697(a) and (e); Public
Law 111-5, 123 Stat. 115.
0
2. Add a new undesignated center heading and new Sec. 120.398 to
subpart C to read as follows:
America's Recovery Capital (Business Stabilization) Loan Program--ARC
Loan Program
Sec. 120.398 America's Recovery Capital (ARC) Loan Program.
(a) Purpose. The purpose of the ARC Loan Program is to enable SBA
to guarantee certain loans to viable small businesses that are
experiencing immediate financial hardship. Loans made under this loan
program are referred to as ARC Loans and are subject to the
requirements set forth in this Part for 7(a) loans except as noted in
this section.
(b) Definitions.
(1) (i) Eligible Borrower is a small business concern as defined in
Section 3 of the Small Business Act and Sec. 120.100. Eligible
Borrower does not include:
(A) Ineligible small businesses as listed in Sec. 120.110; and
(B) Small business concerns with the following primary industry
North American Industry Classification System (NAICS) codes:
(1) 713210 (Casinos (Except Casino Hotels));
(2) 721120 (Casino Hotels);
(3) 713290 (Other Gambling Industries);
(4) 713910 (Golf Courses and Country Clubs); and
(5) 712130 (Zoos and Botanical Gardens).
(ii) Applications submitted by small business concerns with a
primary industry NAICS code of 713940 (Fitness and Recreational Sports
Centers) will be identified and reviewed by SBA to determine
eligibility in accordance with the statutory restriction on assistance
to swimming pools.
(2) Going Concern is a small business concern actively engaging in
business with the expectation of indefinite continuance.
(3) Qualifying Small Business Loan is a loan previously made to an
Eligible Borrower for any of the purposes set forth in Sec. 120.120
and not for any of the purposes set forth in Sec. 120.130 or
120.160(d). Qualifying Small Business Loans may include credit card
obligations, capital leases for major equipment and vehicles, notes
payable to vendors or suppliers, loans in the first lien position made
by commercial lenders in connection with the Development Company Loan
Program (504), home equity loans used to finance business operations,
other loans to small businesses made without an SBA guaranty, and loans
made by or with an SBA guaranty on or after February 17, 2009. Loans
made or guaranteed by SBA before February 17, 2009 are not Qualifying
Small Business Loans for the purposes of the ARC Loan Program. A
Qualifying Small Business Loan may not be used as the basis for more
than one ARC Loan but ARC Loans may be used to pay multiple Qualifying
Small Business Loans.
(4) Viable small business is a small business that is a Going
Concern but which is having difficulty making periodic payments of
principal and interest on Qualifying Small Business Loan(s) and/or
meeting operating expenses of the business although it can reasonably
demonstrate its projected continued operation for a reasonable period
beyond the six month period of payment assistance with an ARC Loan.
(c) Period of program. The ARC Loan Program is authorized through
September 30, 2010, or until appropriated funds are exhausted,
whichever is sooner.
(d) Use of proceeds. Loans made under the ARC Loan Program are for
the sole purpose of making periodic payments of principal and interest
(including default interest), in full or in part, for up to six (6)
months, on one or more existing Qualifying Small Business Loans. ARC
Loan proceeds cannot be used to make payments on loans made or
guaranteed by SBA prior to February 17, 2009.
(e) Loan terms.
(1) Guaranty percentage. ARC Loans are 100% guaranteed by SBA.
(2) Maximum loan size. An ARC Loan may not exceed $35,000.
(3) Interest rate. The interest rate for ARC Loans will be
published by SBA in the Federal Register.
(4) Loan maturity. An ARC Loan may be made with a maturity of up to
six and one-half years.
(5) Disbursement period. The disbursement period for an ARC Loan is
up to six consecutive months.
(6) Loan payments.
(i) Borrower's payments. The borrower will be responsible for all
principal payments.
(ii) Payment of interest by SBA. SBA will make periodic interest
payments to the lender on ARC Loans. Interest will accrue only until
the date 120 days after the earliest uncured payment default on the ARC
Loan. However, the amount paid by SBA on a defaulted ARC Loan, when it
honors its guarantee, will be adjusted to reconcile for any
overpayments or underpayments of interest previously paid to the
Lender. Interim adjustments to interest paid by SBA to lenders may be
made during the term of the ARC Loan and interest payments due the
Lender will be adjusted to accommodate the interim interest
adjustments.
(iii) Deferral period. No principal repayment is required during
the disbursement period or for 12 months following the final loan
disbursement.
(iv) Repayment period. The borrower will be required to pay the
loan principal over five years beginning in the 13th month following
the final loan disbursement. The ARC Loan balance will be fully
amortized over the five year repayment period. Balloon payments may not
be required by lenders. The borrower may prepay all or
[[Page 27248]]
a portion of the principal during the life of the loan without penalty.
(f) Number of ARC Loans per small business. No small business may
obtain more than one ARC Loan, but the proceeds of the ARC loan may be
used to pay more than one Qualifying Small Business Loan.
(g) Personal guarantees. Holders of at least a 20 percent ownership
interest in the borrower generally must guarantee the ARC Loan.
(h) Collateral. SBA requires each lender to follow the collateral
policies and procedures that it has established and implemented for
similarly-sized non-SBA guaranteed commercial loans. The lender's
collateral policies must be commercially reasonable and prudent.
Lenders will certify that the collateral policies applied to the ARC
Loan meet this standard. Lenders may charge borrowers the direct cost
of securing and liquidating collateral for ARC Loans. SBA will
reimburse Lenders for the direct cost of liquidating collateral that
are not reimbursed by the borrower in the event of default.
Reimbursement of the direct costs of liquidation by SBA to the Lender
is limited to the amount of the recovery received on the ARC Loan.
(i) Credit criteria. To be approved for an ARC Loan, the applicant
must be a creditworthy small business with a reasonable expectation of
repayment, taking into consideration the following:
(1) Character, reputation, and credit history of the applicant (and
the Operating Company, if applicable) and its Associates;
(2) Experience and depth of management;
(3) Strength of the business;
(4) Past earnings, current earnings, and projected cash flow; and
(5) Ability to repay the loan with earnings from the business.
(j) Statement of hardship. In addition to the certifications
required for 7(a) loans generally, ARC Loan recipients must submit a
statement certifying that they are experiencing immediate financial
hardship and provide documentation to support the certification.
(k) Loan application. The provisions of Sec. 120.191 do not apply
for ARC Loans. A lender making an ARC Loan will provide an application
with information on the small business that includes the nature and
history of the business, current and historical financial statements
(or tax returns), and other information that SBA may require.
(l) Preferences and refinancing. A lender may make an ARC Loan to
an Eligible Borrower that intends to use the proceeds of the ARC Loan
to make periodic payments of principal and interest on a Qualifying
Small Business Loan that is owned or serviced by that same lender. The
provisions of Sec. Sec. 120.10, 120.536(a)(2) and 120.925 with regard
to Preference for repayments without prior SBA approval do not apply to
ARC Loans. The provisions of Sec. 120.201 restricting refinancing also
do not apply to ARC Loans.
(m) Loan fees. Neither the lender nor SBA shall impose any fees or
direct costs on a borrower of an ARC Loan, except that lenders may
charge borrowers for the direct costs of securing and liquidating
collateral for the ARC Loan. Fees include, but are not limited to,
points, bonus points, prepayment penalties, brokerage fees, fees for
processing, origination, or application, and out of pocket expenses
(other than the direct costs of securing and liquidating collateral).
SBA will not impose any fees on a lender making an ARC Loan.
(n) Lender reporting. Lenders shall report on its ARC Loans in
accordance with requirements established by SBA from time to time for
7a loans and loans made under the American Recovery and Reinvestment
Act of 2009.
(o) Loan servicing. Each originating lender shall service all of
its ARC Loans in accordance with the existing practices and procedures
that the Lender uses for its non-SBA guaranteed commercial loans. In
all circumstances, such practices and procedures must be commercially
reasonable and consistent with prudent lending standards and in
accordance with SBA Loan Program Requirements as defined in Sec.
120.10. SBA's prior written consent is required for servicing actions
that may have significant exposure implications for SBA. SBA may
require written notice of other servicing actions it considers
necessary for portfolio management purposes.
(p) Liquidations. Each Lender shall be responsible for liquidating
any defaulted ARC Loan originated by the Lender. ARC Loans will be
liquidated in accordance with the existing practices and procedures
that the Lender uses for its non-SBA guaranteed commercial loans. In
all circumstances, such practices and procedures must be commercially
reasonable and consistent with prudent lending standards and in
accordance with SBA Loan Program Requirements as defined in Section
120.10. Loans with de minimis value may, at the Lender's request and
with SBA's approval, be liquidated by SBA or its agent(s). Significant
liquidation actions taken on ARC Loans must be documented. The
reimbursement of liquidation related fees by SBA to the Lender is
limited to the amount of the recovery on the ARC Loan.
(q) Purchase requests. Any purchase request to SBA to honor its
guaranty on a defaulted ARC Loan shall be made by the originating
lender. Lenders may request SBA to purchase an ARC Loan when there has
been an uncured payment default exceeding 60 days or when the borrower
has declared bankruptcy. SBA requires Lenders to submit loans for
purchase no later than 120 days after the earliest uncured payment
default on the ARC Loan. Additionally, SBA may honor its guarantee and
require a Lender to submit an ARC Loan for purchase at any time. Except
as noted above, the Lender is required to complete all recovery actions
on the ARC Loan after purchase.
(r) Prohibition on secondary market sales and loan participations.
A lender may not sell an ARC loan into the secondary market nor may a
lender participate a portion of an ARC loan with another lender.
(s) Loan volume. SBA reserves the right to allocate loan volume
under the ARC Loan Program among Lenders (as defined in Sec. 120.10).
(t) Delegated authority. SBA may allow lenders to use their
delegated authority to process ARC Loans.
(u) Personal resources test. The personal resources test provisions
of Sec. 120.102 do not apply to ARC Loans.
(v) Statutory loan limit. The provisions of Sec. 120.151 do not
apply to ARC Loans.
Karen G. Mills,
Administrator.
[FR Doc. E9-13480 Filed 6-8-09; 8:45 am]
BILLING CODE 8025-01-P