Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH
DATE: November 14, 2001
SUBJECT: Small Business Administration; Business Loans and Development Company Loans
SOURCE: Federal Register, November 14, 2001, Vol. 66, No. 220, page 56985
AGENCIES: Small Business Administration (SBA)
ACTION: Direct Final Rule
SYNOPSIS: SBA is amending its business loan regulations to implement provisions of the Small Business Reauthorization Act of 2000 (Public Law 106-554) concerning loan guaranty and loan amounts, minimum guaranteed dollar amount of 7(a) loans, percentages of financing which can be guaranteed by SBA, guarantee fees paid by lenders, real estate occupancy rules, and borrower prepayment penalties.
EDITOR'S NOTE: The regulations being revised by this direct final rule are in Title 13 of the Code of Federal Regulations (CFR), "Chapter 1, Small Business Administration," "Part 120, Business Loans."
This rule is being published as a "direct final rule," which SBA reserves for rules it believes are noncontroversial. SBA believes this rule is noncontroversial because it is merely implements provisions of Public Law 106-554 and, therefore, will elicit no significant adverse comment. However, if SBA receives any adverse comments, it will withdraw the rule, consider the comments, then possibly publish a proposed rule in a future edition of the Federal Register.
DATES: The direct final rule is effective December 31, 2001, without further notice, unless adverse comment is received by December 14, 2001. If adverse comment is received, SBA will withdraw the rule.
ADDRESSES: Send comments to LeAnn Oliver, Deputy Associate Administrator for Financial Assistance, Office of Financial Assistance, Small Business Administration, 409 Third Street, SW, Washington, DC 20416.
FOR FURTHER INFORMATION CONTACT: James W. Hammersley, Director, Office of Loan Programs, Office of Financial Assistance, 202-205-6490.
SUPPLEMENTAL INFORMATION: Public Law 106-554 went into effect December 21, 2000. SBA is amending its business loan regulations to implement various provisions of Public Law 106-554 as follows:
- Section 120.131, Leasing Part of New Construction or Existing Building to Another Business, is revised to reflect that Public Law 106-554 directs that borrowers under the 7(a) business loan program are to be treated the same as borrowers under SBA's 504 program. Specifically, when the use of proceeds is for new construction, the 7(a) borrower is permitted to permanently lease to one or more tenants not more than 20% of any property constructed with the proceeds of a 7(a) guaranteed loan, if the borrower permanently occupies and uses not less than 60% of the total space at the outset. (SBA is also revising paragraph (c) of Section 120.870, Leasing Project Property which had provided leasing rules for the 504 program, so that it merely references Section 120.131.)
Section 120.131(a) permits a borrower to use SBA financing to construct a new building if it plans to use no less than 67% of the space, and it can lease out 33% of the building if it plans to occupy and use within three years some of the space leased short term and use within ten years all of the space leased short term.
Section 120.131(b) covers the construction of a new building financed with 7(a) or 504 financing. A borrower is authorized to lease long term up to 20% of the space to one or more tenants if it permanently occupies and uses no less than 60% of the space.It would have to plan to permanently occupy and use within three years some of the remaining space not immediately occupied and not leased long term, and to plan to use within ten years all of the remaining space not leased long term.
Section 120.131(c) applies if SBA financing under the 7(a) or 504 program is used for the acquisition, renovation, or reconstruction of an existing building. A borrower is authorized to lease up to 49% of the space long term if it permanently occupies and uses no less than 51% of the space.
- Section 120.151, What is the statutory limit for total loans to a Borrower? had limited the maximum amount that SBA could guarantee to a single borrower to $750,000, but it did not have a limit on the maximum gross loan amount. Section 120.151 is amended to increase the maximum amount to $1,000,000, and establishes a limit of $2,000,000 on any SBA guaranteed loan.
- Section 120.210, What percentage of a loan may SBA guarantee?, had authorized SBA to guarantee up to 80% of a loan if the gross amount of the loan was $100,000 or less, and up to 70% of a loan over that amount. The law has amended the 7(a) business loan program to authorize SBA to guarantee up to 85% of a loan if the gross amount of the loan is $150,000 or less, and up to 75% of a over that amount. To reflect these changes, SBA is amending Section 120.210 accordingly.
- Section 120.220, Fees That Lender Pays SBA, simplifies the calculation of the guaranty fee payable to SBA by a participating lender. For all loans with a maturity of over 12 months, if the total loan amount is $150,000 or less, a lender must pay a guaranty fee equal to 2% of the SBA guaranteed portion, however, the lender may retain 25% of the fee (50 basis points). For all loans with a maturity of over 12 months, if the total loan amount is more than $150,000, but not more than $700,000, a lender must pay a guaranty fee of 3% of the SBA guaranteed portion, and if the total amount is more than $700,000, a lender must pay a guaranty fee equal to 3.5% of the SBA guaranteed portion.
- SBA is adding a new Section 120.223, Prepayment Penalty Fee Payable to SBA by Borrower, to impose a prepayment penalty on some borrows with respect to certain SBA 7(a) guaranteed loans. Section 120.223 applies a prepayment penalty if a prepaid loan has a maturity of not less than 15 years, the prepayment is voluntary, the amount of prepayment in the aggregate in any calendar year is more than 25% of the outstanding balance of the loan, and the prepayment is made within the first three years of the initial disbursement of the loan proceeds. The prepayment penalty applies to the full amount of the prepayment, not only to the guaranteed portion of the prepayment, as follows: during the first year after initial disbursement, the prepayment charge is 5% of the amount of the prepayment; during the second year after initial disbursement, the prepayment charge is 3% of the amount of the prepayment; and during the third year after initial disbursement, the prepayment charge is 1% of the amount of the prepayment.
- Paragraph (b) of Section 120.613, Secondary Participation Guarantee Agreement, is revised to allow the SBA guaranteed portions of export working capital loans to be sold in the secondary market. It accomplishes this by eliminating, for export working capital program (EWCP) loans only, the requirement that a loan be fully disbursed before it can be sold in the secondary market. Any other SBA guaranteed loan made under the agency's 7(a) business loan program still must be fully disbursed before a lender can sell the guaranteed portion in the secondary market.
- Section 120.845, Premier Certified Lenders Program (PCLP), is amended to reflect that the PCLP, which was formerly a pilot program, has been made permanent. Also, Section 120.845 is revised to clarify that SBA is only required to give prior notice to a Premier Certified Development Company (CDC) which has a contingent liability with respect to a PCLP loan that SBA intends to include in a bulk asset sale of defaulted or repurchased loans or other financings. Under SBA regulations, only a Premier CDC can make a PCLP loan, and its contingent liability relates to its responsibility to reimburse SBA for 10% of any loss SBA incurs with respect to the PCLP loan.
- Paragraph (b) of Section 120.862, Other Economic Development Objectives, is revised to add "women-owned business development" and "veterans-owned (especially service-disabled veterans) business development" to the statutory list of public policy goals of the 504 program. In addition, the reference to "Minority Business Development" is changed to "socially and economically disadvantaged persons" since SBA no longer uses the term "minority" in its regulations.
- Section 120.931, What is the statutory limit for total loans to a Borrower?, increases the maximum amount the SBA may guarantee to a single identifiable small business concern borrower under the 504 program from $750,000 to $1,000,000. The maximum amount of loans that meet the public policy goals in Section 120.862(b) is increased from $1,000,000 to $1,300,000.
FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.
Copyright 2001 by Panoptic Enterprises. All Rights Reserved.
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