Loans to State and Local Development Companies; Premier Certified Lenders Program for Certified Development Companies

SMALL BUSINESS ADMINISTRATION

13 CFR Part 108

Loans to State and Local Development Companies; Premier Certified

Lenders Program for Certified Development Companies

AGENCY: Small Business Administration (SBA).

ACTION: Interim final rule.

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SUMMARY: On October 22, 1994, the President signed Public Law 103-403,

the Small Business Administration Reauthorization and Amendments Act of

1994. Section 217 of that Act added a new section 508 to the Small

Business Investment Act, 15 U.S.C. 695 et seq. This new section

authorizes the Small Business Administration (SBA) to establish a

Premier Certified Lenders Program. This rule, published in accordance

with Public Law 103-403, is intended to implement this new program.

DATES: This rule is effective on April 26, 1995; however, SBA will

accept comments submitted by May 26, 1995.

ADDRESSES: Comments should be sent to LeAnn M. Oliver, Acting Director,

Office of Rural Affairs & Economic Development, Small Business

Administration, 409 Third Street SW., suite 8300, Washington, DC 20416.

[[Page 20393]] FOR FURTHER INFORMATION CONTACT:

LeAnn Oliver, (202) 205-6485.

SUPPLEMENTARY INFORMATION: Public Law 103-403, enacted October 22,

1994, established a Premier Certified Lenders Program (PCLP) for

Certified Development Companies (CDCs). The law provides that, on a

three-year pilot program basis, SBA may establish the PCLP for not more

than 15 CDCs. The PCLP is intended to emulate the successful Preferred

Lender Program for the SBA's General Business Loan Program and to

transfer that experience to the development company loan program. This

recognizes the maturity of individual local certified development

companies and the favorable track record of the overall development

company loan program. In this way, it will enable SBA to increase

responsiveness to small business borrowers by taking the partnership

role it normally maintains with the certified development companies to

a higher level with CDCs that are designated as PCLP/CDCs.

The concept of a PCLP/CDC is based on the PLP designation for

lenders participating with the SBA 7(a) General Business Loan Program.

In consideration for a PCLP/CDC agreeing to share in the risk of loan

making, the SBA will delegate authority to the PCLP/CDC for the purpose

of authorizing, closing and servicing development company loans.

Similar to the work of the preferred participating lender in the

General Business Loan Program, a PCLP/CDC will be required to obtain

SBA's final approval of the eligibility of a debenture for guaranty,

but will not be required to obtain SBA's approval for underlying

decisions regarding creditworthiness of the borrower, loan closing, or

legal requirements imposed by law or regulation. Both PCLP and PLP

loans will be processed through the same centralized SBA processing

center.

The Premier Certified Lender Program responds to the significant

increase in development company loan program activity and recognizes

the growing strength and capability of CDCs. A PCLP/CDC will be

designated based on a high level of 504 loan activity, a history of

submitting adequately analyzed debenture guarantee application packages

to SBA, and a favorable recommendation from the SBA field office with

which the CDC works. Also as a condition of designation, a PCLP/CDC

will commit to establish and maintain a loss reserve equal to the

greater of the company's historic loss rate on guaranteed debentures or

1% of the outstanding amount of debentures issued by the company and

guaranteed by SBA under the PLCP Program.

Compliance With Executive Orders 12612, 12778, and 12866, the

Regulatory Flexibility Act and the Paperwork Reduction Act

For purposes of the Regulatory Flexibility Act, 5 U.S.C. 601 et

seq., SBA certifies that this rule will not have a significant economic

impact on a substantial number of small entities.

SBA certifies that this rule will not constitute a significant

regulatory action for purposes of Executive Order 12866, since the

change is not likely to result in an annual effect on the economy of

$100 million or more.

SBA certifies this rule will not impose additional reporting or

recordkeeping requirements which would be subject to the Paperwork

Reduction Act, 44 U.S.C. Ch. 35.

SBA certifies that this rule will not have Federalism implications

warranting the preparation of a Federalism Assessment in accordance

with Executive Order 12612.

SBA certifies that this rule is drafted, to the extent practicable,

in accordance with the standards set forth in Section 2 of Executive

Order 12778.

List of Subjects in 13 CFR Part 108

Loan programs--business, Small businesses.

For the reasons set forth above, SBA amends part 108 of title 13 of

the Code of Federal Regulations as follows:

PART 108--[AMENDED]

1. The authority citation for part 108 continues to read as

follows:

Authority: 15 U.S.C. 687(c), 695, 696, 697a, 697b, 697c.

2. Section 108.2 is amended by adding definitions of the following

terms in the appropriate alphabetical order: ``Premier Certified

Lender'' and ``PCLP'' to read as follows:

Sec. 108.2 Definitions.

* * * * *

PCLP means the Premier Certified Lenders Program as provided for in

Sec. 108-509.

Premier Certified Lender means a 503 Company which has met the

eligibility requirements of Sec. 108.509-3 and which has executed with

SBA the PCLP Agreement.

* * * * *

3. A new undesignated center heading and Secs. 108.509-1 through

108.509-5 are added to read as follows:

Premier Certified Lenders Program

Sec. 108.509-1 Objectives and characteristics of premier certified

lenders program.

(a) Purpose. The purpose of this subpart is to implement section

217 of Public Law 103-403 which authorizes SBA to delegate authority to

designated 503 companies, hereinafter called Premier Certified Lenders,

to undertake processing, approval, closing and servicing of loans made

with the proceeds of SBA guaranteed debentures.

(b) Characteristics. SBA will solicit and approve qualified 503

companies to serve as Premier Certified Lenders. Each Premier Certified

Lender will be delegated authority to approve loans that are funded

with the proceeds of debentures issued by such company. SBA will retain

the responsibility to guarantee any such debenture. All rules in this

part 108 relating to the operations of participating 503 companies

shall apply to Premier Certified Lenders.

(c) Approval. The approval of a loan by a Premier Certified Lender

shall be subject to final approval by SBA as to eligibility of the

guarantee of a debenture, the proceeds of which will fund the loan.

Such final approval shall not include a detailed review of decisions by

the Lender relative to the loan involving creditworthiness, loan

closing, or compliance with legal requirements imposed by law or

regulation, provided that SBA will satisfy itself that its guarantee of

any debenture issued by a Premier Certified Lender is fully supportable

under applicable laws and regulations as to the eligibility of the

guaranty of a debenture before it approves any such guarantee.

(d) Pilot Program Period. On a pilot program basis, SBA may

designate not more than fifteen Premier Certified Lenders. Effective on

October 1, 1997, the pilot program ends and sections 108-509-1 thru

108-509-5 of part 108 are repealed.

Sec. 108.509-2 Application procedure.

Upon the request of a 503 company to participate in the Premier

Certified Lender program, the SBA branch or district office with which

the 503 Company has had its most significant activity shall review the

503 company's application and prepare its recommendation. The District

Director or Branch Manager of that district or branch office shall

transmit all requests, accompanied by the district or branch office

recommendation, to SBA Central Office where the Director of the Office

of Rural Affairs and Economic Development shall make the final decision

on all such requests. After a [[Page 20394]] favorable decision, the

district director will designate the lender by executing with the 503

Company the PCLP Agreement. Before it can operate as a Premier

Certified Lender, the 503 company must execute such PCLP Agreement.

Sec. 108.509-3 Eligibility.

In making the determination of whether a 503 company may become a

Premier Certified Lender, SBA shall consider, but is not limited to,

the following factors:

(a) Whether the 503 company has been an active participant in the

Accredited Lenders Program under Sec. 108.508 for not less than the

preceding 12 months, and whether the 503 company has demonstrated

ability to work with the local SBA office in a cooperative and

constructive manner. Prior to January 1, 1996, SBA may waive the

requirement for prior activity in the Accredited Lenders Program if

such company is otherwise qualified to participate in that program;

(b) Whether the 503 company has a history of submitting to SBA

complete, accurate and adequately analyzed debenture guaranty

application packages;

(c) Whether the 503 company agrees to assume and to reimburse SBA

for 10 percent of any loss sustained by the SBA as a result of a

default by the company in the payment of principal or interest on a

debenture issued by such company and guaranteed by SBA under the PCLP

Program; and

Whether the 503 company has a historical loss rate acceptable to

SBA.

Sec. 108.509-4 Loss reserve.

Each Premier Certified Lender shall establish a loss reserve for

financings approved pursuant to the PCL Program.

(a) Amount. The amount of the loss reserve shall be the greater of:

(1) The historic loss rate on all debentures issued by such

company; or

(2) 10 percent of the amount of the company's exposure on

debentures issued under the PCL Program.

(b) Assets. The loss reserve shall be comprised of segregated

assets of the company which shall be securitized in favor of the SBA.

(c) Contributions. For each debenture issued by a Premier Certified

Lender, the company shall make a contribution proportionate to the

total amount of loss reserve required in the following amounts and at

the following intervals:

(1) 50 percent when the debenture is funded,

(2) 25 percent not later than one year after the debenture is

funded, and

(3) 25 percent not later than two years after the debenture is

funded.

Sec. 108.509-5 Suspension or revocation.

(a) Cause. The designation of a 503 Company as a Premier Certified

Lender may be suspended or revoked if the SBA determines that:

(1) The 503 company has not continued to meet the criteria for

eligibility under Sec. 108.509-3; or

(2) The 503 company has not established or maintained the loss

reserve required under Sec. 108.509-4; or

(3) The 503 company has failed to adhere to the SBA's rules and

regulations or has violated any other applicable provision of law.

(b) Review. At intervals not greater than 12 months, SBA shall

review the financings made by each Premier Certified Lender. The review

shall include the lender's credit decisions and general compliance with

the eligibility requirements for each financing approved under the

program authorized by this section.

(c) Procedure. SBA reserves the unilateral right to suspend or

revoke the designation of any Premier Certified Lender as a result of

any violation of SBA regulations, any breach of any agreement with SBA,

or any change of circumstance resulting in the Lender's inability to

meet the operational requirements set forth herein: Provided, however,

that such suspension or revocation shall not invalidate any guaranty

previously entered into by SBA. Proceedings for such purposes will be

initiated by a determination to suspend or revoke issued by the

Director of the Office of Rural Affairs and Economic Development. Such

determination may be appealed to the Associate Deputy Administrator for

Economic Development whose decision on any appeal shall be the final

decision of SBA.

Catalog of Federal Domestic Assistance 59.036 Certified

Development Company Loans (503 Loans); 59.041 Certified Development

Company Loans (504 Loans).

Dated: March 17, 1995.

Philip Lader,

Administrator.

[FR Doc. 95-10178 Filed 4-25-95; 8:45 am]

BILLING CODE 8025-01-M