[Federal Register Volume 76, Number 63 (Friday, April 1, 2011)]
[Rules and Regulations]
[Pages 18007-18020]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-7741]
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 109
[Docket No. SBA-2011-0002]
RIN 3245-AG18
Intermediary Lending Pilot Program
AGENCY: Small Business Administration (SBA).
ACTION: Interim final rule with request for comments.
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SUMMARY: This interim final rule implements section 1131 of the Small
Business Jobs Act of 2010, which requires SBA to establish an
Intermediary Lending Pilot (ILP) program. The ILP program is a three-
year pilot program in which SBA will make direct loans of up to $1
million at an interest rate of 1 percent to up to 20 nonprofit lending
intermediaries each year, subject to availability of funds.
Intermediaries will then use the ILP loan funds to make loans of up to
$200,000 to startup, newly established, or growing small business
concerns.
DATES: Effective date: April 1, 2011.
Comment date: Comments must be received on or before May 31, 2011.
ADDRESSES: You may submit comments, identified by docket number [SBA-
2011-0002] by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Mail: Grady Hedgespeth, Director of Financial Assistance,
U.S. Small Business Administration, 409 3rd Street, SW., 8th floor,
Washington, DC 20416.
Hand Delivery/Courier: Grady Hedgespeth, Director of
Financial Assistance, U.S. Small Business Administration, 409 3rd
Street, SW., 8th floor, Washington, DC 20416.
All comments will be posted on www.Regulations.gov. If you wish to
include within your comment, confidential business information (CBI) as
defined in the Privacy and Use Notice/User Notice at
www.Regulations.gov and you do not want that information disclosed, you
must submit the comment by either Mail or Hand Delivery and you must
address the comment to the attention of Grady Hedgespeth, Director of
Financial
[[Page 18008]]
Assistance, U.S. Small Business Administration, 409 3rd Street, SW.,
8th Floor, Washington, DC 20416. In the submission, you must highlight
the information that you consider is CBI and explain why you believe
this information should be held confidential. SBA will make a final
determination, in its sole discretion, of whether the information is
CBI and, therefore, will be published or not.
FOR FURTHER INFORMATION CONTACT: Grady Hedgespeth, Director of
Financial Assistance, at (202) 205-7562 or [email protected].
SUPPLEMENTARY INFORMATION:
I. Background Information
Section 1131 of the Small Business Jobs Act of 2010, Public Law
111-240, enacted September 27, 2010 (the Act), requires SBA to
implement a three year Intermediary Lending Pilot (ILP) program. Under
the ILP program, SBA will provide loans to selected nonprofit
intermediaries for the purpose of providing loans to small businesses.
Eligible intermediaries, which include private, nonprofit community
development corporations, must have at least one year of experience
making loans to startup, newly established, or growing small
businesses. SBA will use a competitive selection process to select ILP
Intermediaries to participate in the program and will make ILP Loans of
up to $1 million to no more than 20 in each of fiscal years 2011, 2012,
and 2013 (depending on availability of funds). ILP Loans have a 20 year
term and an interest rate of 1%, with the first payment deferred for
two years from the date of the first disbursement. SBA collects no fees
on the loan and requires no collateral. An ILP Intermediary must use
the ILP Loan proceeds to make loans of up to $200,000 to startup, newly
established, or growing small businesses. An ILP Intermediary will
deposit the principal portion of all payments received on loans made to
small businesses under the program into an ILP Relending Fund; the ILP
Intermediary will then be required to lend 100% of the ILP Loan
proceeds within two years of the date of the ILP Note. In addition, the
ILP Intermediary will be required to continue making loans to small
businesses from the ILP Relending Fund for as long as its loan from SBA
remains outstanding.
In order to implement this new loan program, SBA is adding a new
part 109 to the Agency's regulations. Many provisions, such as ILP
Intermediary reporting requirements, fees charged to small business
borrowers, and restrictions on types of businesses eligible to receive
loans under the ILP program, are based on existing requirements in
SBA's other business loan programs under Part 120 of SBA's regulations.
II. Section by Section Analysis
Sections 109.10 and 109.20 describe the ILP program and define the
terms used in Part 109. The definitions for Affiliate, Associate, Close
Relative, ILP Program Requirements, and Native American Tribal
Government are based on similar or identical terms used in other SBA
programs. In addition, the definitions for the various reports (ILP
Program Activities Report, Portfolio Identification Report, and
Portfolio Status Report) and the Intermediary Lending Program
Electronic Reporting System (ILPERS) are based on similar reports used
in SBA's Microloan program. The remaining definitions describe terms
unique to the ILP program.
Sections 109.100 through 109.220 describe the qualifications for
the ILP program, the application process, and the evaluation and
selection of ILP Intermediaries. Section 109.100 sets forth the
eligibility and continuing participation requirements for ILP
Intermediaries. An applicant must meet these requirements in order to
be eligible to become an ILP Intermediary and, if selected, must
maintain compliance with these requirements. Under the Act, an
applicant must be a private, nonprofit entity with not less than one
year of experience making loans to startup, newly established, or
growing small businesses to be eligible to become an ILP Intermediary.
At time of application, the applicant must have a minimum of one year
of internal experience making loans to startup, newly established, or
growing small businesses. The applicant must have directly funded the
loans and not simply provided referrals to, or guarantees against,
loans made by another entity. If an applicant is made up of a
consortium of organizations, each member of the consortium must be
individually eligible or the entire consortium will be considered not
eligible. The Act further defines an eligible private, nonprofit entity
to include a private, nonprofit community development corporation, a
consortium of private, nonprofit organizations or community development
corporations, and an agency or nonprofit entity established by a Native
American tribal government. Examples of nonprofit community development
corporations include certified nonprofit Community Development Fund
Institutions (CDFIs) participating in Treasury's CDFI Fund program and
Certified Development Companies (CDCs) participating in SBA's 504
lending program. Intermediaries that currently participate in SBA's
Microloan program, as described in subpart G of part 120, are not
eligible to become ILP Intermediaries; however, affiliates of Microloan
intermediaries may apply. SBA is requiring that a Microloan
intermediary establish an affiliate organization (or use an existing
affiliate organization) for participation in the ILP program in order
to maintain separation between SBA program funds and activities, as
well as to facilitate adequate and proper oversight of both programs.
The Act requires that applicants to the ILP Intermediary program have
at least one year of experience making loans to startup, newly
established, or growing small businesses. Therefore, newly established
affiliates will not be eligible to apply for the ILP program for fiscal
year 2011; however, such affiliates may apply for the second round of
ILP Intermediary selections in fiscal year 2012 after they have
established the one year of required lending experience.
Paragraph (c) of section 109.100 includes additional requirements
relating to an ILP Intermediary's management and operations. SBA
modeled these requirements on existing lender participation
requirements in its guaranteed loan programs.
Section 109.200 describes the ILP Intermediary application process.
There is a limited amount of funds available to make loans to ILP
Intermediaries; therefore SBA will run a competition to select the most
qualified applicants to become ILP Intermediaries and receive an ILP
Loan of up to $1,000,000. SBA has authority to make ILP Loans to no
more than 20 ILP Intermediaries in each of fiscal years 2011, 2012, and
2013, for a maximum total of 60 ILP Intermediaries. SBA will select 20
ILP Intermediaries through a competitive application process in fiscal
year 2011 and another 20 ILP Intermediaries through a second
competitive application round in fiscal year 2012, for a total of 40
ILP Intermediaries. SBA currently has funding to make ILP Loans only in
fiscal years 2011, and 2012. If additional funds are appropriated for
the ILP program, SBA will select another 20 ILP Intermediaries in
fiscal 2013 for a total of 60 ILP Intermediaries.
As stated in Sec. 109.200(a), SBA will publish a Notice of Funds
Availability (NOFA) in the Federal Register to advise potential
applicants of when they may begin submitting applications to become an
ILP Intermediary. SBA will only accept applications during the
[[Page 18009]]
specific application period set forth in the NOFA. Section 109.200(b)
lists the contents of the ILP Intermediary application. As required by
the Act, an applicant must describe the type of small businesses it
will assist; the size and range of loans it will make; the interest
rate and terms of the loans it will make; the geographic area to be
served and the economic, poverty, and unemployment characteristics of
the area; and the status of small businesses in the area to be served
and an analysis of the availability of credit. SBA will provide further
details regarding the contents of the application in the NOFA.
Section 109.210 describes the evaluation and selection of ILP
Intermediaries by SBA. SBA will consider only completed applications.
Each complete application will be evaluated and scored based on the
criteria stated in the NOFA. In general, eligible applications with the
highest scores will be granted ILP Intermediary status. SBA reserves
the right to select less than the maximum authorized number of ILP
Intermediaries and to select ILP Intermediaries in such a way as to
diversify geographic areas served. By allowing geographic diversity to
serve as a possible selection criterion, SBA hopes to expand the impact
of the ILP program.
As required by the Act, Section 109.220 provides that no ILP
Intermediary (including affiliates) may receive more than $1,000,000 in
ILP Loans. Although SBA has authority to make ILP Loans of less than $1
million, SBA anticipates making ILP Loans of $1 million to each ILP
Intermediary in order to fully utilize all available loan funds. Each
ILP Intermediary will only be eligible to receive one ILP Loan.
Sections 109.300 through 109.360 describe the requirements of the
ILP program. As stated in Section 109.300, an ILP Intermediary must
maintain compliance with ILP Program Requirements until it has repaid
its ILP Loan to SBA. In addition, ILP Intermediaries are subject to
certain provisions in 13 CFR Part 120 that are applicable to all
lenders that participate in SBA loan programs: Section 120.140, What
ethical requirements apply to participants?, describes the ethical
requirements of lenders participating in SBA programs and any
associates of such lenders; Sec. 120.197, Notifying SBA's Office of
Inspector General of suspected fraud, requires lenders to notify the
SBA Office of Inspector General of any information which indicates that
fraud may have occurred in connection with a loan made under the ILP
program; Sec. 120.412, Other services Lenders may provide Borrowers,
provides that lenders and associates of lenders may provide services to
and contract for goods with a borrower only after full disbursement of
the loan, and Sec. 120.413, Advertisement of relationship with SBA,
describes how a lender may refer to SBA in its advertising.
Section 109.310 provides the terms of SBA's ILP Loan to an ILP
Intermediary. An ILP Loan must be fully repaid within 20 years from the
date of the ILP Note. An ILP Intermediary may draw down ILP Loan funds
as needed to fund loans to Eligible Small Business Concerns. SBA may
place restrictions on disbursement, including the amount that may be
disbursed to an ILP Intermediary at one time or conditions on
subsequent disbursements. If SBA, in its sole discretion, finds that an
ILP Intermediary is not complying with ILP Program Requirements, it may
withhold any remaining disbursements of the ILP Loan until the ILP
Intermediary comes into compliance.
Sections 109.310 (c) and (d) provide that the interest rate on an
ILP Loan will be fixed at 1%, and that payments of principal and
interest must be made to SBA on a quarterly basis. SBA will defer the
first payment on an ILP Loan for two years from the date of the first
disbursement of ILP Loan proceeds, as required by the Act. Interest
will accrue on all disbursed funds during the deferment period. Accrued
interest will be added to the outstanding principal balance at the end
of the deferment period and amortized over the remaining life of the
loan. An ILP Intermediary may prepay an ILP Loan at any time without
penalty. As required by the Act and set forth in Sec. 109.310(e) and
(f), SBA will not require an ILP Intermediary to provide any collateral
for an ILP loan, nor will SBA charge an ILP Intermediary any fees.
Section 109.320 states that ILP Loan funds must only be used to
provide direct loans to Eligible Small Business Concerns. An ILP
Intermediary may not use ILP Loan funds for any other purpose,
including maintenance of loan loss reserves or payment of
administrative costs or expenses. SBA believes that these restrictions
are appropriate in order to maximize the funds available for loans to
Eligible Small Business Concerns. An ILP Intermediary may recoup the
costs of making and servicing loans under this program from the
interest spread between its ILP Loan and the loans to Eligible Small
Business Concerns and from reasonable fees, as described in Sec.
109.420(e).
Section 109.330 provides that an ILP Intermediary must establish an
ILP Relending Fund in an account separate and distinct from its other
assets and financial activities, and maintain it for as long as its ILP
Loan from SBA is outstanding. All ILP Loan funds disbursed from SBA to
the ILP Intermediary must be deposited into the ILP Relending Fund, as
well as all payments received from Eligible Small Business Concerns on
loans made under this program. SBA does not require the ILP
Intermediary to retain the interest portions of payments received from
Eligible Small Business Concerns in the ILP Relending Fund. The ILP
Intermediary must not commingle funds from any other public programs in
this account. An ILP Intermediary must use the ILP Relending Fund to
disburse loans made to Eligible Small Business Concerns under this
program and to make payments to SBA on its ILP Loan, and may not use
the ILP Relending Fund for any other purpose.
Section 109.340 sets forth SBA's lending requirements for ILP Loan
funds. In paragraph (a), SBA requires that an ILP Intermediary commit
100% of its ILP Loan funds to Eligible Small Business Concerns within
two years of the date of the ILP Note, unless it receives an extension
from the Associate Administrator of Capital Access (AA/CA) or designee.
SBA designed this requirement to prevent ILP Loans from remaining idle
for extended periods of time, while also allowing an ILP Intermediary
sufficient time to relend its ILP Loan funds in a prudent manner.
After meeting the initial lending requirement, the ILP Intermediary
must relend the funds in its ILP Relending Fund so that the total
principal balance of loans outstanding to Eligible Small Business
Concerns does not fall below 75% of the outstanding principal balance
of the ILP Loan at any time. SBA based this relending model on current
practices of intermediaries participating in similar programs, such as
SBA's Microloan program and USDA's Intermediary Relending Program,
which are referenced in the Act's legislative history as bases for the
ILP program. Requiring ILP Intermediaries to relend ILP Loan funds
maximizes the impact of the ILP program, and is consistent with
statutory intent. SBA anticipates that an ILP Intermediary will relend
its ILP Loan proceeds approximately 2.5 times over the 20 year term.
Section 109.350 provides that the ILP Intermediary must maintain a
reasonable loan loss reserve appropriate for the quality of the ILP
Intermediary's portfolio in a federally insured depository account
established by the ILP Intermediary at a well-capitalized
[[Page 18010]]
financial institution. The loan loss reserve must be in an account
separate and distinct from the ILP Intermediary's other assets and
financial activities. The loss reserve may be established using the ILP
Intermediary's own funds, interest income from loans made to Eligible
Small Business Concerns, or proceeds from the application or
origination fees described in Sec. 109.420(e). ILP Relending Fund
proceeds may not be used to establish the loss reserve. In order to
provide some protection against default, SBA will require an ILP
Intermediary to maintain the loss reserve at not less than 5% of the
principal balance of all outstanding loans to Eligible Small Business
Concerns made from the ILP Relending Fund. The 5% requirement is
intended as a floor. SBA recognizes that the appropriate level of
reserves will vary depending on the ILP Intermediary's portfolio and
current economic conditions; therefore SBA will allow ILP
Intermediaries to determine their appropriate individual levels of
reserves above the required 5%. If the AA/CA or designee determines
that an ILP Intermediary's loss reserve level is potentially inadequate
to protect SBA from loss, the AA/CA or designee may require the ILP
Intermediary to maintain a larger loss reserve.
Section 109.360 details the recordkeeping and reporting
requirements for the ILP program. Section 109.360(a) states that the
ILP Intermediary must maintain accurate and current financial records
and all documents and supporting materials relating to the ILP
Intermediary's activities in the ILP program. Section 109.360(b) lists
the required reports the ILP Intermediary must submit: (1) Portfolio
Identification Reports containing information on each loan made to
Eligible Small Business Concerns that must be submitted within seven
days of closing a loan; (2) quarterly Portfolio Status Reports that
update payment and balance information on the ILP Intermediary's ILP
portfolio; (3) quarterly ILP Program Activities Reports (with
accompanying bank statements) that demonstrate the use and management
of ILP program funds; (4) audited financial statements; and (5) reports
of any changes in the ILP Intermediary's organization or financing. SBA
based these reporting requirements on the reports required in the
Microloan program. The Portfolio Identification Reports and Portfolio
Status Reports will be submitted electronically through SBA's web-based
Intermediary Lending Program Electronic Reporting System (ILPERS).
Annually, the ILP Intermediary must submit audited financial statements
prepared by an independent certified public accountant, except that ILP
Intermediaries that are subject to the Single Audit Act under OMB
Circular A-133 must instead submit audits prepared in accordance with
that circular. SBA will provide further guidance on the application of
the Single Audit Act and OMB Circular A-133 in the procedural guidance
developed to administer the ILP program. An ILP Intermediary must
submit its audited financial statements (or A-133 audit, as applicable)
within four months after the close of the ILP Intermediary's fiscal
year. SBA based this requirement on existing requirements in the
Microloan program. The AA/CA or designee may provide extensions to the
filing deadline.
Sections 109.400 through 109.440 describe the requirements for the
loans an ILP Intermediary makes to small businesses. Section 109.400
provides the requirements a borrower must meet in order to receive a
loan from an ILP Intermediary under this program. By statute, an ILP
Intermediary must provide loans to startup, newly established, or
growing small business concerns. In addition to these statutory
requirements, paragraph (a) includes basic eligibility requirements
that SBA requires for all of its business loans: the business must be
organized for profit and located in the United States; it must meet SBA
size standards; it must not have credit available elsewhere; and it
must be creditworthy and demonstrate reasonable assurance of repayment
of the loan. The business must be a small business as defined under the
size requirements applicable to 7(a) business loans. The ILP
Intermediary must also document that the small business borrower does
not have credit available elsewhere and that the borrower demonstrates
reasonable assurance or repayment. SBA will provide further guidance on
the credit elsewhere test and what is required to demonstrate repayment
ability in the procedural guidance developed to administer the ILP
program.
Paragraph (b), which lists the types of businesses that are not
eligible for loans under the ILP program, is also based on the
eligibility requirements applicable to SBA's existing business loan
programs. (See 13 CFR 120.110)
The Act provides that the maximum amount of a loan from an ILP
Intermediary to a small business is $200,000. SBA has interpreted this
restriction in Sec. 109.410 to mean that the total amount of all loans
received by a small business under this program must not exceed
$200,000 at any one time.
Section 109.420 describes the terms of a loan from an ILP
Intermediary to an Eligible Small Business Concern. The term of a loan
to an Eligible Small Business Concern must be the shortest appropriate
term. The maximum loan term is 10 years, unless the loan finances or
refinances real estate or equipment with a useful life exceeding ten
years, in which case the maximum term is 25 years. SBA modeled these
loan maturity limits on the terms used in SBA's 7(a) guaranteed loan
program. The maximum rate will depend on the size of the loan: Loans
less than or equal to $50,000 have a maximum interest rate of 8.75
percent; loans greater than $50,000 have a maximum interest rate of 7
percent.
SBA chose to differentiate between smaller and larger loan sizes
because smaller loans generally carry more risk. SBA may adjust the
maximum interest rates from time to time, and will publish any such
change by Notice in the Federal Register. Changes to the maximum
interest rate do not apply to loans made to Eligible Small Business
Concerns prior to publication of the change in the Federal Register.
SBA will publish these maximum rates in the Federal Register from time
to time. Finally, paragraph (f) provides that an ILP Intermediary may
not charge any fees on loans made under the program except for the
reasonable direct costs of liquidation, necessary out-of-pocket
expenses such as filing or recording fees, a late payment fee not to
exceed 5 percent of the scheduled loan payment, and reasonable
application and origination fees. The provisions on late payment fees,
out-of-pocket expenses, and direct costs of liquidation are consistent
with permissible fees in SBA's 7(a) guaranteed loan program. SBA
decided to allow optional reasonable application and origination fees
so that an ILP Intermediary may recoup some of its loan processing
costs. The total amount of application and origination fees charged to
an Eligible Small Business Concern must not exceed the maximum total
fee cap, currently set at 1 percent of the amount of the loan to the
Eligible Small Business Concern. SBA will publish a Notice in the
Federal Register prior to implementing any changes to this fee cap.
Section 109.430 describes the eligible purposes for loans from ILP
Intermediaries, as required by the Act. An Eligible Small Business
Concern may only use the proceeds of a loan received under this program
for working capital; real estate; and the acquisition of materials,
supplies, furniture,
[[Page 18011]]
fixtures, or equipment. Loan proceeds must not be used to acquire real
estate held primarily for sale, lease or investment. This restriction
is consistent with SBA's policies against speculative uses of proceeds
in its other business loan programs.
Section 109.440 describes requirements of ILP Intermediaries
imposed under other laws and orders. These requirements apply
government-wide to all programs that provide Federal financial
assistance, and are applicable to all of SBA's loan programs. Section
120.170 (Flood insurance) states that a loan recipient must obtain
flood insurance if any building, machinery, or equipment acquired,
installed, improved, constructed, or renovated with the proceeds of SBA
financial assistance is located in a special flood hazard area. ILP
Intermediaries are responsible for notifying borrowers that flood
insurance must be maintained. Section 120.172 (Flood-plain and wetlands
management) details the steps an ILP Intermediary must follow if the
location for which financial assistance is proposed is in a floodplain
or wetland. Section 120.173 (Lead-based paint) states that if loan
proceeds are for the construction or rehabilitation of a residential
structure, lead-based paint may not be used on any interior surface, or
on any exterior surface that is readily accessible to children under
the age of seven. Section 120.173 (Earthquake hazards) provides that
when loan proceeds are used to construct a new building or an addition
to an existing building, the construction must conform with the
National Earthquake Hazards Reduction Program (NEHRP) Recommended
Provisions for the Development of Seismic Regulations for New
Buildings. Finally, ILP Intermediaries must comply with the civil
rights laws in parts 112, 113, 117, and 136 of this chapter prohibiting
discrimination on the grounds of race, color, national origin,
religion, sex, marital status, disability or age.
As required by the Act, section 109.450 provides that SBA will not
review a loan made under this program prior to approval of the loan by
the ILP Intermediary. An ILP Intermediary is responsible for all loan
decisions regarding eligibility (including size). If SBA discovers that
an ILP Intermediary has made a loan under this program to an ineligible
business or for an ineligible purpose, SBA will require the ILP
Intermediary to refinance the ineligible loan with non-ILP program
funds and to deposit into its ILP Relending Fund an amount equal to the
outstanding principal balance on the ineligible loan.
Section 109.460 provides that an ILP Intermediary may not sell all
or any portion of a loan made to an Eligible Small Business Concern
without prior written consent from the AA/CA or designee. SBA wants to
prevent small business loans made under the ILP program from being sold
to entities that have not been vetted and approved by SBA. SBA
anticipates approving loan sales only in unusual circumstances.
Finally, Sections 109.500 to 109.530 set forth SBA's oversight of
ILP Intermediaries. Section 109.500 requires the ILP Intermediary to
allow SBA access to its files to review, inspect, and copy all records
and documents relating to loans made from the ILP Relending Fund or as
requested for SBA oversight. Section 109.510 states that SBA may
conduct off-site reviews and monitoring of ILP Intermediaries and on-
site reviews as needed. SBA may require an ILP Intermediary to take
corrective actions to address findings from on-site or off-site
reviews. Failure to take required corrective actions may constitute an
event of default, as described in Sec. 109.520(c). Any reports and
other SBA prepared review related documents generated as a result of
such reviews are subject to the confidentiality requirements of Sec.
120.1060. These provisions are based on SBA's lender oversight
regulations applicable to its other business loan programs. Reviews may
include analysis of ILP Intermediaries' quarterly Portfolio Status
Reports and ILP Program Activities Reports, annual audited financial
statements, and loan information entered electronically into ILPERS. In
addition, SBA may conduct on-site reviews of ILP Intermediaries at
SBA's discretion. SBA may also review selected ILP loan files of those
ILP Intermediaries that receive on-site reviews as part of their
participation in other SBA programs (e.g., SBA's 504 program) as a part
of those reviews. Loans made under the ILP program will not affect a
lender's risk rating in other SBA programs.
Section 109.520 describes events of default on an ILP Loan and
SBA's remedies for an ILP Intermediary's noncompliance with ILP Program
Requirements. This section provides three categories of events of
default: automatic events of default, events of default with notice,
and events of default with opportunity to cure. SBA based this
provision on default provisions used in its Small Business Investment
Company (SBIC) and New Markets Venture Capital (NMVC) programs.
Finally, Sec. 109.530 provides that SBA may debar or suspend an ILP
Intermediary or any participant in the affairs of an ILP Intermediary's
SBA operations in accordance with the government-wide nonprocurement
debarment and suspension provisions in 2 CFR Parts 180 and 2700. SBA
will provide further guidance on its oversight of ILP Intermediaries in
the procedural guidance developed to administer the ILP program.
III. Justification for Interim Final Rule
In general, SBA publishes a rule for public comment before issuing
a final rule, in accordance with the Administrative Procedure Act
(APA), 5 U.S.C. 553 and SBA regulations at 13 CFR 101.108. The APA
provides an exception to this standard rulemaking process, however,
where 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 such
circumstances, an agency may publish an interim final rule without
soliciting prior 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 prior public participation. 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 during this
economic downturn and the short-term nature of the funding for this new
pilot program. The ILP program will offer a significant opportunity for
nonprofit intermediaries to provide loans to startup, newly
established, or growing small businesses. In order to select the 20
most qualified participants for the ILP program, SBA must run a
competition. Under current appropriations, SBA can provide loans to 20
ILP Intermediaries in each of fiscal years 2011 and 2012; however, the
2011 appropriations for the ILP program are only available for loans
made in fiscal year 2011. Furthermore, SBA must run a competition to
select the ILP Intermediaries that will receive loans in fiscal year
2011. Advance solicitation of comments for this rulemaking would be
impracticable and contrary to the public interest, as it would probably
delay the delivery of the ILP program until fiscal year 2012 and
prevent the Agency from maximizing the funds available for loans in
fiscal year 2011. In addition, the Act included a deadline to publish
regulations by March 26, 2011. In order to meet this statutory deadline
and to maximize the use of available program funds, SBA needs to
implement this
[[Page 18012]]
program without advance solicitation of comments.
SBA invites comments from all interested members of the public.
These comments must be received on or before the close of the comment
period noted in the DATES section of this interim final rule. SBA may
then consider these comments in making any necessary revisions to these
regulations.
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.
Under current appropriations, SBA can provide loans to 20 ILP
Intermediaries in each of fiscal years 2011 and 2012; however, the 2011
appropriations for the ILP program are only available for loans made in
fiscal year 2011. As stated above, SBA must run a competition to select
the most qualified applicants to become ILP Intermediaries and receive
ILP Loans. An immediate effective date is necessary to ensure that
there is sufficient time to select ILP Intermediaries and make ILP
Loans before the end of this fiscal year; therefore, 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.
While this rule is effective immediately upon publication, the SBA is
inviting public comment on the rule during a 60-day period and will
consider comments in developing a final rule.
Compliance With Executive Orders 12866, 12988, 13132, 13175, and 13563,
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 has determined that this rule
constitutes a ``significant regulatory action'' under Executive Order
12866, thus requiring a Regulatory Impact Analysis, as set forth below.
A. Regulatory Objective of the Proposal
Under the ILP program, SBA will provide direct loans of up to
$1,000,000 to eligible nonprofit intermediaries. These direct loans
will enable the nonprofit intermediaries to provide loans of up to
$200,000 to startup, newly established, or growing small business
concerns for working capital, real estate, or the acquisitions of
materials, supplies, furniture, fixtures, or equipment. The ILP program
addresses current financing gaps including the limited availability of
commercial loans of $200,000 or less.
B. Benefits of the Rule
The Eligible Small Business Concerns that receive loans from ILP
Intermediaries directly benefit from the ILP program. In monetary
terms, these direct benefits total approximately $150 million, as
described below. An ILP Intermediary must use the proceeds of an ILP
Loan to make loans to Eligible Small Business Concerns, and must
continue to relend the principal portion of payments received on those
loans while the ILP Loan remains outstanding to SBA. SBA anticipates
that each ILP Intermediary will relend its ILP Loan proceeds
approximately 2.5 times before it has fully repaid its ILP Loan to SBA.
SBA is authorized to make loans of $1 million to 20 ILP Intermediaries
in each of fiscal years 2011, 2012, and 2013, subject to the
availability of appropriations (current appropriations allow SBA to
make $20 million in ILP Loans in each of fiscal years 2011 and 2012).
Therefore, each ILP Intermediary will make approximately $2.5 million
in loans to Eligible Small Business Concerns. Assuming that SBA
receives the same funding for the ILP program in fiscal year 2013, SBA
anticipates that the total benefit of the ILP program to Eligible Small
Business Concerns will be approximately $150 million (60 ILP
Intermediaries at $2.5 million in loans to Eligible Small Business
Concerns per ILP Intermediary).
The ILP Intermediaries will also benefit from the ILP program
because the favorable ILP Loan terms will enable an ILP Intermediary to
participate in the ILP program at little to no cost to the ILP
Intermediary. By statute, an ILP Loan has a 20 year term, no
collateral, no fees, a 2 year payment deferral, and a 1% fixed interest
rate. In addition, the regulations would permit ILP Intermediaries to
charge Eligible Small Business Concerns a reasonable interest rate,
application and origination fees and closing costs for loans made under
the ILP program. SBA anticipates that most ILP Intermediaries will be
able to fund the operations of their ILP programs through these fees
and the interest spread on loans to Eligible Small Business Concerns.
C. Costs of the Rule
The bulk of the immediate costs of the ILP program are borne by the
U.S. taxpayers due to the current subsidy appropriations of $8 million
for fiscal years 2011 and 2012. Based on current subsidy models,
however, SBA anticipates using only $6,115,129 in FY 2011 and
$5,145,704 in FY 2012 to carry out the ILP program. In addition to the
subsidy costs, the SBA and U.S. taxpayers will incur costs associated
with launching and operating the ILP program, for which Congress has
appropriated $6.5 million. The agency will use this funding for program
development, implementation and support.
The small business borrowers that receive loans from ILP
Intermediaries will have some costs associated with the loan. As stated
above, the regulations would permit ILP Intermediaries to charge a
reasonable interest rate, application fee, origination fee and closing
costs for loans to Eligible Small Business Concerns. These fees are
necessary to cover the ILP Intermediaries' administrative costs of
running the ILP program. In addition, the regulations would allow ILP
Intermediaries to charge the Eligible Small Business Concerns for
direct costs of liquidation and a late payment fee of less than 5
percent of the scheduled loan payment. These fees safeguard the ILP
Intermediary in the case of default or delinquency by an Eligible Small
Business Concern.
Finally, ILP Intermediaries will incur some costs of administering
this program. For instance, ILP Intermediaries must maintain the
ability to administer, monitor, and service the small business loans
through adequate staffing, capital, and other resources. Also, the
regulations mandate certain reporting requirements: ILP Intermediaries
must report each loan transaction in an electronic reporting system;
submit quarterly reports; and annual audited financial statements. In
addition, ILP Intermediaries will incur costs to maintain required loan
loss reserves. The regulations would require ILP Intermediaries to
maintain a loan loss reserve fund of not less than 5 percent of the
principal balance of outstanding loans to Eligible Small Business
Concerns under the program. While the loan loss reserve fund and
reporting requirements represent a cost to ILP Intermediaries, SBA
finds these costs necessary to facilitate the ILP program and to ensure
prudent lending practices.
[[Page 18013]]
D. Alternatives
Given that the program is the result of a Congressional mandate,
SBA had little leeway in providing alternatives for the basic
programmatic structure. However, SBA did consider various alternative
ways of implementing the specific statutory requirements. For example,
SBA considered prohibiting loans to Eligible Small Business Concerns of
less than $50,000 in order to avoid any risk of overlap with SBA's
Microloan program, but decided that such a restriction would unduly
restrict the ILP program and possibly lead to artificial inflation of
loan amounts to meet program requirements. Furthermore, SBA plans to
select ILP Intermediaries with demonstrated experience in making loans
between $50,000 and $200,000; therefore, SBA anticipates that the
majority of loans made to small businesses through the ILP program will
exceed $50,000.
SBA also considered restricting the application and origination
fees an ILP Intermediary can charge to a nominal amount. SBA decided
that it will allow ILP Intermediaries to charge reasonable application
and origination fees totaling up to 1% of the amount of the loan to the
small business borrower in order to recoup some of the administrative
costs associated with making loans under the ILP program. In addition,
SBA considered requiring monthly payments on the ILP Loan and
submission of monthly reports. However, SBA decided that while more
frequent loan payments and reporting would benefit the agency,
quarterly payments and reporting imposed a less stringent requirement
for the ILP Intermediaries without adding much additional risk.
Having considered these alternatives, SBA believes that this rule
is SBA's best available means for achieving its regulatory objective of
implementing the ILP program and incorporating the provisions of the
Small Business Jobs Act of 2010.
Executive Order 12988
For the purposes of Executive Order 12988, Civil Justice Reform,
SBA has determined that this rule is crafted, to the extent
practicable, in accordance with the standards set forth in sections
3(a) and 3(b)(2), to minimize litigation, eliminate ambiguity, and
reduce burden. This rule does not have retroactive or pre-emptive
effect.
Executive Order 13132
For the purposes of Executive Order 13132, the SBA determined that
this rule has no federalism implications warranting preparation of a
federalism assessment.
Executive Order 13175
Executive Order 13175, Consultation and Coordination with Indian
Tribal Governments, requires agencies to consult with tribal officials
in the development of Federal policies that have tribal implications.
As defined in the order, policies that have tribal implications refers
to regulations that have substantial direct effects on one or more
Indian tribes, on the relationship between the Federal Government and
the Indian tribes, or on the distribution of power and responsibilities
between the Federal Government and Indian tribes.
In these regulations, SBA has defined Native American Tribal
Governments to include the governing body of any Native American tribe,
band, nation, or other organized group or community, including any
Alaska Native village or regional or village corporation as defined in
or established pursuant to the Alaska Native Claims Settlement Act (43
U.S.C.A. 1601 et seq.), which is recognized as eligible for the special
programs and services provided by the United States to Native Americans
because of their status as Native Americans. This definition is based
on the definition of ``qualified Indian tribe'' in the Small Business
Act (15 U.S.C. 632), which is in turn based on the definition of
``Indian tribe'' in the Indian Self-Determination and Education
Assistance Act (25 U.S.C. 450b).
As set forth in section 1131 of the Act, the ILP program provides
an opportunity for agencies of a Native American Tribal Government or
nonprofit entities established by a Native American Tribal Government
to apply to become ILP Intermediaries. SBA welcomes the opportunity to
discuss the ILP program with the tribal and ANC communities during the
public comment period.
Executive Orders 12866 and 13563
A description of the need for this regulatory action and benefits
and costs associated with this action is included above in the
Regulatory Impact Analysis under Executive Order 12866.
As further described above, SBA needs to implement this program
without advance solicitation of comments in order to maximize the use
of available program funds. Under current appropriations, SBA can
provide loans to 20 ILP Intermediaries in each of fiscal years 2011 and
2012; however, the 2011 appropriations for the ILP program are only
available for loans made in fiscal year 2011.
The requirements imposed on ILP Intermediaries are designed to
maximize net benefits of the ILP program. In order to minimize the
burdens on the ILP Intermediaries while also ensuring protection of
taxpayer dollars, SBA compared requirements in similar programs (such
as SBA's Microloan program and USDA's Intermediary Relending Program)
and conducted market research. For example, SBA sought information from
several non-profit lenders currently participating in similar lending
programs regarding their average loss reserve rates and their
experiences in relending loan funds. SBA used this information in
formulating the relending and loss reserve requirements for the ILP
program.
In addition, SBA sought to use flexible approaches in designing ILP
program requirements. For example, ILP Intermediaries may use their own
forms and underwriting processes for selecting small business
borrowers.
As the ILP program is a new lending program, retrospective analyses
of existing significant regulations is not applicable to this program.
Paperwork Reduction Act, 44 U.S.C., Ch. 35
SBA has determined that this rule imposes new reporting and
recordkeeping requirements under the Paperwork Reduction Act, 44 U.S.C.
Chapter 35. This new information collection requires that interested
nonprofit intermediaries submit an application and exhibits to SBA to
facilitate an application selection process. This new information
collection also requires certain reporting requirements that selected
ILP Intermediaries must fulfill to maintain participation in the ILP
Program. SBA is submitting this set of information collections as
described below to OMB for review and approval together with the
interim final rule.
1. Title and Description: Recordkeeping requirements.
Purpose: Section 109.360(a) requires the ILP Intermediary to
maintain accurate and current financial records, including books of
accounts, and all documents and supporting materials relating to the
ILP Intermediary's activities in the ILP program, including files on
loan made to Eligible Small Business Concerns. Records may be preserved
electronically if the original is available for retrieval within 15
calendar days.
OMB Control Number: New collection.
Description of, and Estimated Number of Respondents: All ILP
Intermediaries will be required to maintain records of their activities
in the ILP program.
[[Page 18014]]
Given the current appropriated funds, SBA anticipates making loans to
20 ILP Intermediaries in fiscal year 2011 and 20 additional ILP
Intermediaries in fiscal year 2012, for a total of 40 ILP
Intermediaries.
Estimated Number of Responses: No responses are required.
Estimated Response Time: No responses are required.
Estimated Annual Hour Burden: The annual hour burden is de minimis,
because ILP Intermediaries would maintain such records in the ordinary
course of business.
2. Title and Description of Information Collection: SBA Form XX:
Intermediary Lending Pilot Program Application--Part I, Management
Assessment Questionnaire and Part II, Exhibits.
Purpose: Part I of this form collects identifying information
regarding the intermediary applicant and its Officers, the loan
request, lending history, projected lending activity, information
regarding current or previous government financing, and the
intermediary's financial health and viability. Part II of this form
collects supplemental information from the intermediary applicant and
its principals such as resumes, organizational charts, loan policies
and procedures, one year of financial statements, and Employer
Identification Number documentation.
OMB Control Number: New collection.
Description of, and Estimated Number of Respondents: SBA
anticipates 200 ILP Intermediary Applicants will respond to this
information collection.
Estimated Number of Responses: 200 estimated responses.
Estimated Response Time: 35 hours estimated response time per
applicant.
Total Estimated Annual Hour Burden: 7,000 hours estimated annual
hour burden.
3. Title and Description: SBA Form XX: ILP Program Activities
Report.
Purpose: This electronic form collects quarterly account activity
information in the ILP Program Relending Fund and the ILP loan loss
reserve account. ILP Intermediaries must use this account to receive
ILP loan proceeds from the SBA and to disburse small business loan
proceeds to the small business borrower, and to maintain adequate loan
loss reserves. The form collects information such as principal
repayment from borrowers, interest paid by borrowers, interest earned,
disbursements to small business borrowers, and repayments to SBA.
Intermediaries must also submit accompanying bank statements (3 months)
to support the data reported in the ILP Relending Fund and the ILP loan
loss reserve account.
OMB Control Number: New collection.
Description of, and Estimated Number of Respondents: SBA
anticipates 40 ILP Intermediaries to respond to this information
collection per quarter.
Estimated Number of Responses: One response per intermediary per
quarter, or 160 total estimated responses.
Estimated Response Time: 1 hour estimated response time per
quarter.
Estimated Annual Hour Burden: 160 hours estimated annual hour
burden.
4. Title and Description: Intermediary Lending Program Electronic
Reporting System (ILPERS), Portfolio Identification Reports.
Purpose: This electronic submission collects identifying
information on each small business borrower such as demographic
information, use of proceeds, payment terms, and jobs created and
retained.
OMB Control Number: New collection.
Description of, and Estimated Number of Respondents: SBA
anticipates 40 ILP Intermediaries to respond to this information
collection.
Estimated Number of Responses: 6 estimated annual responses per
intermediary, or 240 total estimated responses.
Estimated Response Time: 15 minutes estimated response time.
Estimated Annual Hour Burden: 60 hours estimated annual hour
burden.
5. Title and Description: Intermediary Lending Program Electronic
Reporting System (ILPERS), Portfolio Status Report.
Purpose: This form collects the payment status and outstanding
principal balance of loans to small business borrowers on a quarterly
basis.
OMB Control Number: New collection.
Description of, and Estimated Number of Respondents: SBA
anticipates 40 ILP Intermediaries to respond to this information
collection per quarter.
Estimated Number of Responses: One response per intermediary per
quarter, or 160 total estimated responses.
Estimated Response Time: 30 minutes estimated response time.
Estimated Annual Hour Burden: 2 hours per intermediary annually, or
80 total hours estimated annual hour burden.
7. Title and Description: Audited Financial Statements.
Purpose: ILP Intermediaries are required to submit audited
financial statements as prepared by an independent certified public
accountant. ILP Intermediaries subject to OMB Circular A-133 must
submit audits in accordance with that circular.
OMB Control Number: New collection.
Description of, and Estimated Number of Respondents: SBA
anticipates 40 ILP Intermediaries to respond to this information
collection.
Estimated Number of Responses: 40 estimated responses.
Estimated Response Time: 80 hours estimated response time per
intermediary per year. SBA believes that this burden will be reduced to
the extent that many intermediaries already maintain this information
for other purposes, and thus any costs resulting from this requirement
may be de minimis.
Estimated Annual Hour Burden: 3,200 hours estimated annual hour
burden.
8. Title and Description: Reports of Changes.
Purpose: ILP Intermediaries must submit ad hoc summaries of any
changes in the ILP Intermediary's organization or financing (within 30
calendar days of the change).
OMB Control Number: New collection.
Description of, and Estimated Number of Respondents: SBA
anticipates 40 ILP Intermediaries to respond to this information
collection.
Estimated Number of Responses: 40 estimated responses, based on an
assumption that, on average, each intermediary will need to submit one
Report of Changes in any given year.
Estimated Response Time: 30 minutes estimated response time per
intermediary per year.
Estimated Annual Hour Burden: 20 hours estimated annual hour
burden.
SBA invites comments on the ILP program information collections,
particularly on: (1) Whether the proposed collection of information is
necessary for the proper performance of the program, 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) 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
[[Page 18015]]
and to Grady B. Hedgespeth, Director of Financial Assistance, Small
Business Administration, 409 Third Street, SW., Washington, DC 20416.
Regulatory Flexibility Act 5 U.S.C. 601-612
The Regulatory Flexibility Act (5 U.S.C. 601-612) (RFA) requires
administrative agencies to consider the economic impact of their
actions on small entities, which includes small businesses, small
nonprofit businesses, and small local governments. The RFA requires
agencies to prepare a regulatory flexibility analysis, which describes
the economic impact that the rule will have on small entities, or
certify that the rule will not have a significant economic impact on a
substantial number of small entities. However, the RFA requires such
analysis only where notice and comment rulemaking are required. Rules
are exempt from the APA notice and comment requirements when the agency
for good cause finds that notice and public procedure thereon is
impracticable, unnecessary, or contrary to the public interest. As
detailed above, SBA has determined that there is good cause to adopt
this rule without prior public participation; therefore, the rule is
also exempt from the RFA requirements. SBA invites comments on this
determination.
List of Subjects in 13 CFR Part 109
Community development, Loan program--business, Reporting and
recordkeeping requirements, Small businesses.
For the reasons stated in the preamble, the Small Business
Administration amends 13 CFR Chapter I by adding part 109 to read as
follows:
PART 109--INTERMEDIARY LENDING PILOT PROGRAM
Subpart A--Introduction
Sec.
109.10 Description of the Intermediary Lending Pilot program.
109.20 Definitions.
Subpart B--ILP Intermediary Application and Selection Process
109.100 ILP Intermediary eligibility and continuing participation
requirements.
109.200 Application to become an ILP Intermediary.
109.210 Evaluation and selection of ILP Intermediaries.
109.220 Loan limits--loans to ILP Intermediaries.
Subpart C--ILP Program Requirements
109.300 General.
109.310 Terms of loans to ILP Intermediaries.
109.320 ILP Loan purposes.
109.330 ILP Relending Fund.
109.340 Lending requirements.
109.350 Maintenance of loan loss reserve.
109.360 Recordkeeping and reporting requirements.
Subpart D--Requirements for ILP Intermediary Loans to Small Businesses
109.400 Eligible Small Business Concerns.
109.410 Loan limits--loans to Eligible Small Business Concerns.
109.420 Terms of Loans from ILP Intermediaries to Eligible Small
Business Concerns.
109.430 Loan purposes.
109.440 Requirements imposed under other laws and orders.
109.450 SBA Review of ILP Intermediary loans to Eligible Small
Business Concerns.
109.460 Prohibition on sales of ILP Intermediary loans to Eligible
Small Business Concerns.
Subpart E--Oversight
109.500 SBA access to ILP Intermediary files.
109.510 On-site and off-site reviews.
109.520 Events of default and revocation of authority to participate
in the ILP program.
109.530 Debarment and Suspension.
Authority: 15 U.S.C. 634(b)(6), (b)(7), and 636(l).
Subpart A--Introduction
Sec. 109.10 Description of the Intermediary Lending Pilot program.
The Small Business Intermediary Lending Pilot program (ILP program)
provides direct loans to ILP Intermediaries to make loans of up to
$200,000 to startup, newly established, or growing small businesses.
ILP Intermediaries continue to relend a portion of the payments
received on small business loans made under the program until they have
fully repaid their loans to SBA.
Sec. 109.20 Definitions.
Affiliate has the meaning set forth in Sec. 121.103 of this
chapter.
Associate. (1) An Associate of an ILP Intermediary is:
(i) An officer, director, key employee, or holder of 20 percent or
more of the value of the ILP Intermediary or its debt instruments, or
an agent involved in the loan process;
(ii) Any entity in which one or more individuals referred to in
paragraph (1)(i) of this definition or a Close Relative of any such
individual owns or controls at least 20 percent;
(2) An Associate of an Eligible Small Business Concern is:
(i) An officer director, owner of more than 20 percent of the
equity, or key employee of the Eligible Small Business Concern;
(ii) Any entity in which one or more individuals referred to in
paragraphs (2)(i) of this definition owns or controls at least 20
percent; and
(iii) Any individual or entity in control of or controlled by the
small business (except a Small Business Investment Company (SBIC)
licensed by SBA).
(3) For the purposes of this definition, the time during which an
Associate relationship exists commences six months before the following
dates and continues as long as the ILP Note or the loan to the Eligible
Small Business Concern is outstanding:
(i) For an ILP Intermediary, the date of the ILP Note;
(ii) For an Eligible Small Business Concern, the date of the loan
application to the ILP Intermediary.
Close Relative is a spouse; a parent; a child or sibling, or the
spouse of any such person.
Eligible Small Business Concern is a small business that meets the
requirements of Sec. 109.400.
ILP Intermediary means a private, nonprofit entity that has applied
for and been selected by SBA to receive an ILP Loan through the
competitive application process described in this Part.
ILP Loan means a direct loan made by SBA to an ILP Intermediary
under this program.
ILP Note means the instrument that represents the obligation of the
ILP Intermediary to repay the ILP Loan to SBA.
ILP Program Activities Report means the quarterly report that
identifies the use and management of ILP program funds.
ILP Program Requirements are requirements imposed upon an ILP
Intermediary by statute, SBA regulations, any agreement executed
between SBA and the ILP Intermediary, SBA SOPs, SBA procedural
guidance, official SBA notices and forms applicable to the ILP program,
any NOFA applicable to the ILP program, and the ILP Note and Loan
Authorization, as such requirements are issued and revised by SBA from
time to time.
ILP Relending Fund means a federally insured depository account
established by the ILP Intermediary at a well-capitalized financial
institution which includes, at a minimum, the ILP Loan proceeds and the
principal portion of repayments from Eligible Small Business Concerns.
Intermediary Lending Program Electronic Reporting System (ILPERS)
means the web-based, electronic reporting system used by the ILP
[[Page 18016]]
Intermediary to report each loan made to Eligible Small Business
Concerns, to provide aging information on each loan, and to update the
outstanding principal balance of each loan until all loans are either
paid in full or charged off.
Native American Tribal Government means the governing body of any
Native American tribe, band, nation, or other organized group or
community, including any Alaska Native village or regional or village
corporation as defined in or established pursuant to the Alaska Native
Claims Settlement Act (43 U.S.C.A. Sec. 1601 et seq.), which is
recognized as eligible for the special programs and services provided
by the United States to Native Americans because of their status as
Native Americans.
Portfolio Identification Report means the electronic report that
collects identifying information on loans made to Eligible Small
Business Concerns, including demographic information, use of proceeds,
payment terms, and jobs created and retained.
Portfolio Status Report means the quarterly electronic report that
summarizes the payment status and outstanding principal balances of an
ILP Intermediary's loans to Eligible Small Business Concerns.
Subpart B--ILP Intermediary Application and Selection Process
Sec. 109.100 ILP Intermediary eligibility and continuing
participation requirements.
(a) Organization type: An ILP Intermediary must be a private,
nonprofit entity other than an intermediary participating in the SBA
Microloan program as described in subpart G of Part 120. Eligible
entities include:
(1) Private, nonprofit community development corporations;
(2) Consortiums of private, nonprofit organizations or nonprofit
community development corporations; and
(3) Agencies of or nonprofit entities established by Native
American tribal governments.
(b) Prior experience: An ILP Intermediary must have at least one
year of successful experience making and servicing loans to startup,
newly established, or growing small businesses.
(c) Management and operations. (1) An ILP Intermediary must have
paid staff with loan making and servicing experience acceptable to SBA.
(2) An ILP Intermediary must have a continuing ability to evaluate,
process, close, disburse, service and liquidate small business loans
including, but not limited to:
(i) Holding sufficient permanent capital (as determined by SBA) to
support lending activities under this program; and
(ii) Maintaining satisfactory SBA performance, as determined by SBA
in its discretion.
(3) An ILP Intermediary must meet and maintain the ethical
requirements of 13 CFR 120.140.
(4) An ILP Intermediary (and any Affiliates) that participates in
other SBA programs must be in compliance with those program
requirements.
(5) An ILP Intermediary must be in good standing with its Federal
and/or State regulator, as applicable.
(6) An ILP Intermediary must have the ability to comply with the
ILP Program Requirements, including reporting requirements, as such
requirements are revised from time to time, and maintain compliance
with ILP Program Requirements for as long as the ILP Intermediary
participates in the ILP program.
Sec. 109.200 Application to become an ILP Intermediary.
(a) Notice of Funds Availability (NOFA). SBA will periodically
publish a NOFA in the Federal Register, advising potential applicants
of the availability of funds for the ILP program. Any eligible entity
may then submit an application to become an ILP Intermediary. When
submitting its application, an applicant must comply with both these
regulations and any requirements specified in the NOFA, including
submission deadlines. The NOFA may specify limitations, special rules,
procedures, and restrictions for a particular funding round.
(b) Contents of application. The application to become an ILP
Intermediary must include:
(1) Documentation that the applicant meets the eligibility and
continuing participation requirements for the ILP program set forth in
Sec. 109.100;
(2) A completed ILP Intermediary application form provided by SBA;
(3) A description of:
(i) The type of small businesses to be assisted;
(ii) The size and range of loans to be made;
(iii) The interest rate and terms of the loans to be made;
(iv) The geographic area to be served and the economic, poverty,
and unemployment characteristics of the area;
(v) The status of small businesses in the area to be served and an
analysis of the availability of credit; and
(4) Any additional forms and documentation required by SBA.
Sec. 109.210 Evaluation and selection of ILP Intermediaries.
(a) General. SBA will evaluate and select applicants to participate
in the ILP program in accordance with this section and the NOFA. SBA
reserves the right, in its discretion, to loan less than all available
funds.
(b) Number of ILP Intermediaries. SBA will make loans to not more
than 20 of the selected ILP Intermediaries in each of the fiscal years
for which funding is available.
(c) Eligibility and completeness. SBA will not consider any
application that is not complete or that is submitted by an applicant
that does not meet the eligibility and participation criteria
established by SBA. SBA, at its sole discretion, may request from an
applicant additional information, including information concerning
participation criteria or the application, in order to allow SBA to
consider that applicant's application. Failure to provide such
additional information may be considered grounds to reject the
application.
(d) Evaluation criteria. Eligible and complete applications will be
evaluated and scored based on the criteria established by SBA, as set
forth in the NOFA. In general, eligible applications with the highest
scores will be granted ILP Intermediary status, up to the maximum
number allowed by statute. SBA reserves the right to select ILP
Intermediaries in such a way as to ensure geographic diversity of areas
served by ILP Intermediaries.
Sec. 109.220 Loan limits--loans to ILP Intermediaries.
No ILP Intermediary (including Affiliates) may receive more than
$1,000,000 in ILP Loans.
Subpart C--ILP Program Requirements
Sec. 109.300 General.
An ILP Intermediary must maintain compliance with all ILP Program
Requirements until the ILP Intermediary has repaid its ILP Loan to SBA.
With respect to its activities in the ILP program, the ILP Intermediary
is subject to the requirements of Sec. Sec. 120.140 (What ethical
requirements apply to participants?), 120.197 (Notifying SBA's Office
of Inspector General of suspected fraud), 120.412 (Other services
Lenders may provide Borrowers), and 120.413 (Advertisement of
relationship with SBA) of this chapter, in addition to the regulations
specifically set forth in this Part. The ILP Intermediary and any
contractor(s) it may have are independent contractors that are
responsible for their own actions with
[[Page 18017]]
respect to small business loans made under this program. SBA has no
responsibility or liability for any claim by an Eligible Small Business
Concern or other party for any injury as a result of any wrongful
action taken by the ILP Intermediary or an employee, agent or
contractor of an ILP Intermediary.
Sec. 109.310 Terms of loans to ILP Intermediaries.
(a) Disbursement. An ILP Intermediary must be in compliance with
ILP Program Requirements in order to draw down its ILP Loan funds. SBA
may place restrictions on disbursement, including the amount disbursed
to an ILP Intermediary at one time or conditions on subsequent
disbursements.
(b) Term. An ILP Loan must be repaid within 20 years from the date
of the ILP Note.
(c) Interest rate. The interest rate for an ILP Loan to an ILP
Intermediary is fixed at one percent per annum.
(d) Repayment. Payments of principal and interest must be made on a
quarterly basis, except SBA will defer the first payment on an ILP Loan
for two years from the date of the first disbursement. Interest will
accrue on all disbursed funds during the deferment period. Accrued
interest will be added to the outstanding principal balance at the end
of the deferment period and amortized over the remaining life of the
loan. An ILP Intermediary may prepay an ILP Loan at any time without
penalty.
(e) Collateral. SBA does not require the ILP Intermediary to
provide any collateral for an ILP Loan.
(f) Fees. SBA does not charge an ILP Intermediary any fees for an
ILP Loan.
Sec. 109.320 ILP Loan purposes.
(a) ILP Loan funds must only be used to provide direct loans to
Eligible Small Business Concerns for working capital, real estate, or
the acquisition of materials, supplies, furniture, fixtures, or
equipment.
(b) ILP Loan funds must not be used for any other purpose,
including maintenance of loan loss reserves or payment of
administrative costs or expenses of the ILP Intermediary.
Sec. 109.330 ILP Relending Fund.
(a) General. The ILP Intermediary must establish and maintain an
ILP Relending Fund for as long as it has an outstanding balance owed to
SBA under this program. The ILP Relending Fund must be in an account
separate and distinct from the ILP Intermediary's other assets and
financial activities.
(b) Contents of the ILP Relending Fund. All ILP Loan proceeds
disbursed from SBA to the ILP Intermediary must be deposited into the
ILP Relending Fund. All payments received by the ILP Intermediary on
loans made to Eligible Small Business Concerns must also be deposited
into the ILP Relending Fund. The ILP Intermediary must not commingle
funds from any other public programs (including other SBA programs) in
this account.
(c) Interest earned. The ILP Intermediary is not required to retain
the interest portion of payments received on loans made to Eligible
Small Business Concerns in the ILP Relending Fund or to retain the
interest earned on the ILP Relending Fund in the ILP Relending Fund.
(d) Allowable uses of the ILP Relending Fund. The ILP Intermediary
must use the ILP Relending Fund to disburse loans made to Eligible
Small Business Concerns under this program and to make payments to SBA
on its ILP Loan; it may not use the ILP Relending Fund for any other
purposes.
Sec. 109.340 Lending requirements.
(a) Initial lending requirement. The ILP Intermediary must commit
100% of its ILP Loan funds to Eligible Small Business Concerns within
two years of the date of the ILP Note. The Associate Administrator for
Capital Access (AA/CA) or designee may approve extensions to the
initial lending requirement on a case-by-case basis.
(b) Ongoing relending requirement. After meeting the initial
lending requirement, the ILP Intermediary must relend the funds in the
ILP Relending Fund so that the total principal balance of loans
outstanding to Eligible Small Business Concerns does not fall below 75%
of the outstanding principal balance of the ILP Loan at any time while
the ILP Loan is outstanding. Exceptions to this requirement will be
considered by the AA/CA or designee on a case by case basis based on
the particular facts and circumstances of the ILP Intermediary.
Sec. 109.350 Maintenance of loan loss reserve.
The ILP Intermediary must maintain a reasonable loan loss reserve
appropriate for the quality of the ILP Intermediary's portfolio in a
federally insured depository account established by the ILP
Intermediary at a well-capitalized financial institution. The loan loss
reserve must be in an account separate and distinct from the ILP
Intermediary's other assets and financial activities. This reserve must
be maintained at not less than 5% of the principal balance of all
outstanding loans to Eligible Small Business Concerns made from the ILP
Relending Fund. The AA/CA or designee may require the ILP Intermediary
to maintain a larger loss reserve if the AA/CA determines that the ILP
Intermediary's loss reserve level is potentially inadequate to protect
SBA from loss. ILP Relending Fund proceeds must not be used to
establish or maintain the loan loss reserve.
Sec. 109.360 Recordkeeping and reporting requirements.
(a) Maintenance of records. The ILP Intermediary must maintain at
its principal business office accurate and current financial records,
including books of accounts, and all documents and supporting materials
relating to the ILP Intermediary's activities in the ILP program,
including files on loans made to Eligible Small Business Concerns.
Records may be preserved electronically if the original is available
for retrieval within 15 calendar days.
(b) ILP Intermediary reporting. The ILP Intermediary must submit
the following to SBA:
(1) Portfolio Identification Reports. All loans made by the ILP
Intermediary to an Eligible Small Business Concern under this program
must be entered into the Intermediary Lending Program Electronic
Reporting System (ILPERS) within seven calendar days of closing the
loan.
(2) Quarterly reports. By the 30th calendar day following the end
of each calendar quarter, each ILP Intermediary must submit a Portfolio
Status Report via ILPERS to update the payment status and outstanding
principal balances of its loans to Eligible Small Business Concerns.
Additionally, each ILP Intermediary must submit an ILP Program
Activities Report with accompanying bank statements to demonstrate the
use and management of ILP program funds.
(3) Audited financial statements. Within four months after the
close of the ILP Intermediary's fiscal year, the ILP Intermediary must
submit to SBA audited financial statements as prepared by an
independent certified public accountant, except that ILP Intermediaries
subject to OMB Circular A-133 must submit audits prepared in accordance
with that circular. The AA/CA or designee may provide extensions to the
filing deadline.
(4) Reports of changes. An ILP Intermediary must submit to SBA a
summary of any changes in the ILP Intermediary's organization or
financing (within 30 calendar days of the change), such as:
(i) Any change in its name, address or telephone number;
[[Page 18018]]
(ii) Any change in its charter, bylaws, or its officers or
directors (to be accompanied by a statement of personal history on the
form approved by SBA);
(iii) Any material change in capitalization or financial condition;
and
(iv) Any change affecting the ILP Intermediary's eligibility to
continue to participate in the ILP program.
(5) Other reports. Each ILP Intermediary must submit such other
reports as SBA may require from time to time.
Subpart D--Requirements for ILP Intermediary Loans to Small
Businesses
Sec. 109.400 Eligible Small Business Concerns.
(a) To be eligible to receive loans from an ILP Intermediary under
this program, a small business must:
(1) Be organized for profit;
(2) Be located in the U.S.;
(3) Be small under the size requirements applicable to 7(a)
business loans (including Affiliates);
(4) Be a startup, newly established, or growing small business;
(5) Together with Affiliates and principal owners, not have credit
elsewhere; and
(6) Be creditworthy and demonstrate reasonable assurance of
repayment of the loan.
(b) The following types of businesses are not eligible to receive a
loan from an ILP Intermediary under this program:
(1) Nonprofit businesses (for-profit subsidiaries are eligible);
(2) Financial businesses primarily engaged in the business of
lending;
(3) Passive businesses owned by developers and landlords that do
not actively use or occupy the assets acquired or improved with the
loan proceeds;
(4) Life insurance companies;
(5) Businesses located in a foreign country;
(6) Pyramid sale distribution plans;
(7) Businesses deriving more than one-third of gross annual revenue
from legal gambling activities;
(8) Businesses engaged in any illegal activity;
(9) Private clubs and businesses which limit the number of
memberships for reasons other than capacity;
(10) Government-owned entities (except for businesses owned or
controlled by a Native American tribe);
(11) Businesses principally engaged in teaching, instructing,
counseling or indoctrinating religion or religious beliefs, whether in
a religious or secular setting;
(12) Consumer and marketing cooperatives (producer cooperatives are
eligible);
(13) Loan packagers earning more than one third of their gross
annual revenue from packaging SBA loans;
(14) Businesses in which the ILP Intermediary or any of its
Associates owns an equity interest;
(15) Businesses with an Associate who is incarcerated, on
probation, on parole, or has been indicted for a felony or a crime of
moral turpitude;
(16) Businesses which:
(i) Present live performances of a prurient sexual nature; or
(ii) Derive directly or indirectly more than de minimis gross
revenue through the sale of products or services, or the presentation
of any depictions or displays, of a prurient sexual nature;
(17) Businesses that have previously defaulted on a Federal loan or
Federally assisted financing, resulting in the Federal government or
any of its agencies or Departments sustaining a loss in any of its
programs, and businesses owned or controlled by an applicant or any of
its Associates which previously owned, operated, or controlled a
business which defaulted on a Federal loan (or guaranteed a loan which
was defaulted) and caused the Federal government or any of its agencies
or Departments to sustain a loss in any of its programs. For purposes
of this section, a compromise agreement shall also be considered a loss
unless the agreement provides otherwise;
(18) Businesses primarily engaged in political or lobbying
activities; and
(19) Speculative businesses (such as oil wildcatting);
(20) Businesses located in a Coastal Barrier Resource Area (as
defined in the Coastal Barriers Resource Act);
(21) Businesses owned or controlled by an applicant or any of its
Associates who are more than 60 days delinquent in child support under
the terms of any administrative order, court order, or repayment
agreement;
(22) Businesses in which any Associate is an undocumented (illegal)
alien; or
(23) Businesses owned or controlled by an applicant or any of its
Associates who are presently debarred, suspended, proposed for
debarment, declared ineligible, or voluntarily excluded from
participation by any Federal department or agency.
Sec. 109.410 Loan limits--loans to Eligible Small Business Concerns.
No small business (including Affiliates) may have more than
$200,000 outstanding under this program at one time. The provisions of
Sec. 120.151 do not apply to loans under this program.
Sec. 109.420 Terms of loans from ILP Intermediaries to Eligible Small
Business Concerns.
(a) General. The terms of a loan made by the ILP Intermediary to an
Eligible Small Business Concern must be agreed to by the ILP
Intermediary and the Eligible Small Business Concern. The loan terms
must be within the limits established by SBA in these regulations.
(b) Maximum loan size. The maximum amount of a loan by the ILP
Intermediary to an Eligible Small Business Concern under this program
is $200,000.
(c) Maturity. The term of a loan by the ILP Intermediary to an
Eligible Small Business Concern under this program must be the shortest
appropriate term. The maximum loan term is 10 years or less, unless the
loan finances or refinances real estate or equipment with a useful life
exceeding ten years, in which case the maximum loan term is 25 years.
(d) Interest rate. The maximum interest rate the ILP Intermediary
may charge for loans less than or equal to $50,000 is 8.75 percent. The
maximum interest rate the ILP Intermediary may charge for loans greater
than $50,000 is 7%. SBA may adjust the maximum interest rates from time
to time; SBA will publish any such change by Notice in the Federal
Register. Changes to the maximum interest rate do not apply to loans
made to Eligible Small Business Concerns prior to publication of the
change in the Federal Register.
(e) Fees. The ILP Intermediary must not impose any fees or direct
costs on an Eligible Small Business Concern, except for the following
allowed fees or direct costs:
(1) Necessary out-of-pocket expenses, such as filing or recording
fees;
(2) The reasonable direct costs of any liquidation;
(3) A late payment fee not to exceed 5 percent of the scheduled
loan payment; and
(4) Reasonable application and origination fees, subject to a
maximum total fee cap of 1 percent of the amount of the loan to the
Eligible Small Business Concern. SBA may adjust the maximum total fee
cap from time to time; SBA will publish any such change by Notice in
the Federal Register.
Sec. 109.430 Loan purposes.
(a) An Eligible Small Business Concern may only use the proceeds of
a loan under this program for the following purposes:
(1) Working capital;
(2) Real estate (except for real estate acquired and held primarily
for sale, lease, or investment); and
[[Page 18019]]
(3) The acquisition of materials, supplies, furniture, fixtures, or
equipment.
(b) Revolving lines of credit are permitted. However, if, at any
time, SBA determines that the ILP Intermediary's operation of revolving
lines of credit is causing excessive risk of loss for the intermediary
or the Government, the AA/CA or designee may terminate the ILP
Intermediary's authority to use the ILP Relending Fund proceeds for
revolving lines of credit. Such termination will be by written notice
and will prevent the ILP Intermediary from approving any new lines of
credit or extending any existing revolving lines of credit beyond the
effective date of termination contained in the notice.
Sec. 109.440 Requirements imposed under other laws and orders.
Loans made by the ILP Intermediary under this program must comply
with all applicable laws, including Sec. Sec. 120.170 (Flood
insurance), 120.172 (Flood-plain and wetlands management), 120.173
(Lead-based paint), 120.173 (Earthquake hazards), and the civil rights
laws (see parts 112, 113, 117, and 136 of this chapter) prohibiting
discrimination on the grounds of race, color, national origin,
religion, sex, marital status, disability or age.
Sec. 109.450 SBA review of ILP Intermediary loans to Eligible Small
Business Concerns.
(a) Review restrictions. SBA does not review loans made by an ILP
Intermediary under this program before approval of the loan by the ILP
Intermediary. The ILP Intermediary is responsible for all loan
decisions regarding eligibility (including size).
(b) Subsequent review. SBA will periodically review loans made by
an ILP Intermediary after approval of the loan by the ILP Intermediary
as part of the on-site and off-site reviews described in Sec. 109.510.
If SBA discovers that an ILP Intermediary has made a loan under this
program to an ineligible business or for an ineligible purpose, SBA
will require the ILP Intermediary to refinance the ineligible loan with
non-ILP program funds and to deposit into its ILP Relending Fund an
amount equal to the outstanding principal balance on the ineligible
loan.
Sec. 109.460 Prohibition on sales of ILP Intermediary Loans to
Eligible Small Business Concerns.
An ILP Intermediary may not sell all or any portion of a loan made
to an Eligible Small Business Concern without prior written consent
from the AA/CA or designee.
Subpart E--Oversight
Sec. 109.500 SBA access to ILP Intermediary files.
The ILP Intermediary must allow SBA's authorized representatives,
including other officers of any other Federal agency and
representatives authorized by the SBA Inspector General, during normal
business hours, timely access to its facility and files to review,
inspect, and copy all records and documents, including electronic and
hard copy, relating to the operations of the ILP Intermediary, the ILP
Loan, and the loans made from the ILP Relending Fund and other records
and documents as requested for oversight of the ILP Intermediary.
Sec. 109.510 On-site and off-site reviews.
(a) General. SBA may conduct off-site reviews and monitoring of ILP
Intermediaries, including ILP Intermediaries' self-assessments. SBA may
also perform on-site reviews of ILP Intermediaries as needed, as
determined by SBA in its discretion.
(b) Corrective actions. SBA may require an ILP Intermediary to take
corrective actions to address findings from on-site or off-site
reviews. Failure to take required corrective actions may constitute an
event of default, as described in Sec. 109.520(c).
(c) Confidentiality of reports. On-site and off-site review reports
and other SBA prepared review related documents are subject to the
confidentiality requirements of Sec. 120.1060.
Sec. 109.520 Events of default and revocation of authority to
participate in the ILP program.
(a) Automatic events of default. Upon the occurrence of one or more
of the events in this paragraph (a), the ILP Loan balance, including
accrued interest, is immediately due and payable to SBA without notice
and the ILP Intermediary's authority to participate in the ILP program
is revoked.
(1) Insolvency. The ILP Intermediary becomes equitably or legally
insolvent.
(2) Voluntary assignment. The ILP Intermediary makes a voluntary
assignment for the benefit of creditors without SBA's prior written
approval.
(3) Bankruptcy. The ILP Intermediary files a petition to begin any
bankruptcy or reorganization proceeding, receivership, dissolution or
other similar creditors' rights proceeding, or such action is initiated
against the ILP Intermediary and is not dismissed within 60 calendar
days.
(b) Events of default with notice and possible opportunity to cure.
Except as provided in paragraph (c) of this section, upon receipt of
written notice to the ILP Intermediary of the occurrence (as determined
by SBA) of one or more of the events in this paragraph (b), the ILP
loan balance, including accrued interest, is immediately due and
payable to SBA and the ILP Intermediary's authority to participate in
the ILP program is revoked.
(1) Fraud. The ILP Intermediary commits a fraudulent act.
(2) Violation of SBA's ethical requirements. The ILP Intermediary
violates 13 CFR Sec. 120.140.
(3) Non-notification of events of default. The ILP Intermediary
fails to notify SBA in writing as soon as it knows or reasonably should
have known that any event of default exists under this section.
(4) Non-notification of defaults to others. The ILP Intermediary
fails to notify SBA in writing within ten calendar days from the date
of a declaration of an event of default or nonperformance under any
note, debenture or indebtedness, issued to or held by anyone other than
SBA.
(5) Failure to make timely payment. Unless otherwise approved by
the AA/CA or designee in writing, the ILP Intermediary fails to make
timely payment to SBA on its ILP Loan.
(6) Failure to take adequate corrective actions. The ILP
Intermediary fails to take adequate corrective actions, to SBA's
satisfaction, as required by SBA under Sec. 109.510 within the
timeframe requested by SBA.
(7) Violation of ILP Program Requirements. The ILP Intermediary
violates one or more ILP Program Requirement.
(8) Actions that increase risk. The ILP Intermediary takes other
action which increases the risk of loss to SBA.
(c) Opportunity to Cure. SBA may, in its discretion, provide the
ILP Intermediary with an opportunity to cure an event of default
identified in paragraph (b) of this section. If SBA provides the ILP
Intermediary with such a cure opportunity, SBA will issue written
notice discussing the relevant facts, and directing the ILP
Intermediary to cure the default and provide SBA with documentation to
show that the default has been cured within a specified period of time
(generally 15 days). SBA will then provide the ILP Intermediary with a
final notification advising whether the default has been satisfactorily
cured. In the event SBA determines the default has not been cured, the
ILP Loan balance, including accrued interest, is immediately due and
payable to SBA and the ILP Intermediary's authority to participate
[[Page 18020]]
in the ILP program is revoked upon the ILP Intermediary's receipt of
this final notification.
(d) Appeals. Notification of default without opportunity to cure
under paragraph (b) of this section and final notification of uncured
default under paragraph (c) of this section are final agency decisions.
An ILP Intermediary may appeal a final agency decision only in the
appropriate federal district court.
Sec. 109.530 Debarment and Suspension.
In accordance with 2 CFR Parts 180 and 2700, SBA may take any
necessary action to debar or suspend an ILP Intermediary or any
officer, director, general partner, manager, employee, agent or other
participant in the affairs of an ILP Intermediary's SBA operations.
Dated: March 28, 2011.
Karen G. Mills,
Administrator.
[FR Doc. 2011-7741 Filed 3-31-11; 8:45 am]
BILLING CODE 8025-01-P