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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: October 1, 2003

SUBJECT: Small Business Administration; Fees in the 7(a) Loan Program

SOURCE: Federal Register, October 1, 2003, Vol. 68, No. 190, page 56553

AGENCIES: Small Business Administration (SBA)

ACTION: Direct Final Rule

SYNOPSIS: SBA is amending its business loans regulations to implement amendments made by the Small Business Investment Company Amendments Act of 2001 (Public Law 107-100) to the Small Business Act concerning guarantee fees and ongoing service fees paid by SBA participating lenders in SBA's 7(a) loan program.

EDITOR'S NOTE: The regulations governing the 7(a) loan program are in Title 13 of the Code of Federal Regulations (CFR), Business and Credit Administration; Chapter 1, Small Business Administration; Part 120, Business Loans.

SBA is modifying its business loans regulations through use of a "direct final rule," which SBA reserves for rules it believes are noncontroversial. If SBA receives any adverse comments on a direct final rule, it withdraws the rule, considers the comments, then decides on the contents of a final rule.

DATES: This direct final rule is effective November 17, 2003, without further action, unless adverse comment is received by October 31, 2003. If adverse comment is received, SBA will withdraw the rule.

ADDRESSES: Send comments to LeAnn Oliver, Deputy Associate Administrator for Financial Assistance, Small Business Administration, 409 Third Street, SW, Washington, DC 20416, or by e-mail to: le.oliver@sba.gov, or electronically to http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Charles W. Thomas, Acting Director, Office of Loan Programs, Office of Financial Assistance, 202-205-6656, or by e-mail to: charles.thomas@sba.gov.

SUPPLEMENTAL INFORMATION: The Small Business Investment Company Amendments Act of 2001 (Public Law 107-100) became effective on December 21, 2001. Section 6(b)(a)(1) of Public Law 107-100 adds section 7(a)(18)(C) to the Small Business Act to temporarily reduce, from October 1, 2001, to September 30, 2004, the guarantee fee payable to SBA by participating lenders in the 7(a) loan program for all 7(a) loans with a maturity over 12 months as follows:

SBA Loan AmountSBA's Standard Guaranty FeeSBA'S Guaranty Fee Under 2 Year Reduction
Up To $150,0002% of SBA's Guaranty Portion1% of SBA's Guaranty Portion
More Than $150,000 Up to $700,0003% of SBA's Guaranty Portion2.5% of SBA's Guaranty Portion
More Than $700,0003.5% of SBA's Guaranty Portion3.5% of SBA's Guaranty Portion (No Change)

Public Law 107-100 does not change the existing authority of a lender to pass the guarantee fee on to the borrower, nor does it change the provision allowing the lender can retain 25% of the guaranty fee for loans of $150,000 or less.

In addition, Section 6(a)(2) of Public Law 107-100 amended Section 7(a)(23)(A) of the Small Business Act to temporary reduce the annual fee (lender's annual service fee) payable to SBA by participating lenders from 0.5% to 0.25% of the outstanding balance of the SBA guaranteed portion of a loan. Public Law 107-100 does not change the prohibition under against the lender charging the borrower for the lender's annual service fee.

SBA is revising Section 120.220, Fees That Lender Pays SBA, to implement these changes. Because the Public Law 107-100 provisions are temporary, the regulations implementing these provisions are temporary and will be separate paragraphs in order to make clear which regulatory provisions will continue to apply after the temporary regulations sunset on September 30, 2004. Paragraph (a)(2) covers the amount of the guarantee fee payable to SBA for loans approved from October 1, 2002, through September 30, 2004, and paragraph (f)(2) covers a lender's annual service fee payable to SBA for loans approved from October 1, 2002, through September 30, 2004.

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

Copyright 2003 by Panoptic Enterprises. All Rights Reserved.

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