Business LoansMicroloans

SMALL BUSINESS ADMINISTRATION

13 CFR Part 122

Business Loans--Microloans

AGENCY: Small Business Administration (SBA).

ACTION: Notice of Proposed Rulemaking.

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SUMMARY: On October 22, 1994, the ``Small Business Administration

Reauthorization and Amendments Act of 1994'' was enacted. It amends

section 7(m) of the Small Business Act (Act) regarding the SBA

microloan financing program. These proposed rules would implement that

amendment. Included among the proposed changes are regulations

implementing a pilot program which authorizes SBA to guarantee up to

100 percent of loans made to intermediary lenders, the inlcusion of

native American tribal governments as eligible to participate as

intermediaries in the program, authorization for SBA to provide

additional grant assistance to an intermediary which by its lending

assists residents in economically distressed areas, and an extension of

the sunset date of the microloan for an additional fiscal year.

DATES: Comments may be submitted on or before March 27, 1995.

ADDRESSES: Comments may be mailed to John R. Cox, Associate

Administrator for Financial Assistance, Small Business Administration,

409 Third Street, S.W., Washington, D.C. 20416.

FOR FURTHER INFORMATION CONTACT:

John R. Cox, 202/205-6490.

SUPPLEMENTARY INFORMATION: Pub. L. 103-403, enacted on October 22, 1994

(1994 legislation), amends various portions of subsection 7(m) of the

Act (15 U.S.C. 636(m)), relating to the SBA microloan financing

program. These proposed rules, if promulgated in final form, would

implement the statutory amendments in the following ways.

Consistent with section 202 of the 1994 legislation, Sec. 122.61-2

of SBA's regulations (13 CFR 122.61-2) would be amended by including in

the definition of an intermediary eligible to participate in the

program as a mircoloan lender an agency or a nonprofit entity

established by a native American tribal government. This proposed

change would expand the category of intermediary lenders beyond the

present regulatory parameters which prescribe private, nonprofit

entities or quasi-governmental entities as microlenders.

Consistent with section 203 of the 1994 legisltion, Sec. 122.61-1

of SBA's regulations would be amended to extend the sunset date for the

entire microloan program an additional year, to October 1, 1997.

Consistent with section 206 of the 1994 legislation, Sec. 122.61-6

of SBA's present regulations would be amended to increase the aggregate

maximum amount of SBA lending available to an intermediary during the

intermediary's partiicpation in the microloan program. The previous

limitation was $1,250,000 and the proposed new aggregate maximum would

be $2,500,000.

Consistent with section 207 of the 1994 legislation, Sec. 122.61-9

of SBA's present regulations would be amended to authorize an

intermediary to expend no more than fifteen percent of grant funds

provided to it by the SBA for the provision of information and

technical assistance to small business concerns which are prospective

borrowers. An intermediary receiving a grant would not be required to

provide such assistance to prospective microloan borrowers, but this

proposed rule recognizes that intermediaries do hold outreach seminars,

perform screening analysis, and provide other assistance for

prospective borrowers, and it should encourage intermediaries to

continue these programs and to use their technical assistance grants

efficiently and cost effectively.

Under its present rules, SBA ensures that at least one half of the

intermediaries provide microloans to small business concerns located in

rural areas. Consistent with section 205 of the 1994 legislation,

Sec. 122.61-3 of SBA's regulations would be amended so that, in

selecting intermediaries for the program, SBA must select entities that

will ensure availability of loans for small business concerns in all

industries located throughout the lender's jurisdiction in both rural

and urban areas. Thus, the SBA would no longer be required to meet

numerical requirements for its portfolio of lenders based on intended

borrowers in selecting entities to participate as intermediaries in the

microloan program. Under the proposed rule, SBA would consider,

however, the additional criterion of whether a proposed intermediary

would provide assistance to a variety of industries.

Under SBA's present rules, in order for an intermediary to qualify

for an SBA grant, it must contribute or match an amount equal to

twenty-five percent of the amount of such grant. Consistent with

section 208(a)(1) of the 1994 legislation, Sec. 122.61-9 SBA's

regulations would be amended to provide that such twenty-five percent

requirement would be inapplicable to an intermediary which provides not

less than fifty percent of its loans to small business concerns located

in or owned by one or more residents of an economically distressed

area. As a result, if this rule is promulgated in final form, if an

intermediary would make sixty percent of its loans in an economically

distressed geographic area, it would not have to provide a twenty-five

percent match to an SBA grant. [[Page 4575]]

Under current rules, each intermediary is eligible to receive an

SBA grant equal to twenty-five percent of the total outstanding balance

of loans which SBA had made to it. Consistent with section 208(a)(2) of

the 1994 legislation, Sec. 122.61-9 of SBA's regulations would be

amended to provide that if an intermediary would provide no less than

twenty-five percent of its loans to small business concerns located in

or owned by residents of an economically distressed area, it would be

entitled to receive an additional SBA grant equal to five percent of

the total outstanding balance of SBA loans made to the intermediary.

Thus, if an intermediary made at least twenty five percent of its loans

in an economically distressed area, it would be eligible for an

additional SBA grant of five percent which it would not be required to

match.

Consistent with section 208(b) of the 1994 legislation,

Sec. 122.61-2 of SBA's regulations would be amended to define

``economically distressed area'' to mean a county or equivalent

division of local government of a state in which the small business

concern is located in which, according to the Bureau of the Census, not

less than forty percent of the residents have an annual income that is

at or below the poverty level. SBA will obtain this information from

the Bureau of the Census.

Finally, consistent with section 201 of the 1994 legislation,

proposed new Sec. 122.61-13 of SBA's regulations would implement a

microloan financing pilot in which SBA would have the authority to

guarantee no less than ninety and no more than one hundred percent of a

loan made to an intermediary by a for-profit or non-profit entity or by

an alliance of such entities. This guaranty authority by SBA would

terminate on September 30, 1997. Under this proposed rule, SBA would

not guarantee loans to more than ten intermediaries in urban areas and

ten in rural areas. An SBA guaranteed loan to an intermediary under

this pilot would have a maturity of ten years. During the first year of

the loan, the intermediary would not be required to repay principal or

interest, although interest would continue to accrue during this

period. During the second through fifth years of such a loan, the

intermediary would pay only interest. During the sixth through tenth

years of the loan, the intermediary would make interest payments and

fully amortize the principal. There would be no balloon payments.

Interest on these SBA guaranteed loans to intermediaries would be

calculable as set forth in Sec. 122.61-6 of SBA's regulations (13 CFR

122.61-6).

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

Flexibility Act, 5 U.S.C. 601, et seq. and the Paperwork Reduction Act,

44 U.S.C. Ch. 35

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

seq., SBA certifies that this proposed rule, if promulgated in final

form, will not have a significant economic impact on a substantial

number of small entities.

SBA certifies that this proposed rule, if promulgated in final

form, will not constitute a significant regulatory action for the

purposes of Executive Order 12866, since the proposed change is not

likely to result in an annual effect on the economy of $100 million or

more.

SBA certifies that the proposed rule, if promulgated in final form,

would not impose additional reporting or recordkeeping requirements

which would be subject to the Paperwork Reduction Act, 44 U.S.C.

Chapter 35.

SBA certifies that this proposed rule would not have federalism

implications warranting the preparation of a Federalism Assessment in

accordance with Executive Order 12612.

Further, for purposes of Executive Order 12778, SBA certifies that

this proposed rule, if promulgated in final form, is drafted, to the

extent practicable, in accordance with the standards set forth in

section 2 of that Order.

(Catalog of Federal Domestic Assistance Programs, No. 59.012)

List of Subjects in 13 CFR Part 122

Loan programs--business, Small businesses.

Accordingly, pursuant to the authority contained in section 5(b)(6)

of the Small Business Act (15 U.S.C. 634(b)(6)), SBA proposes to amend

part 122, chapter I, title 13, Code of Federal Regulations, as follows:

PART 122--BUSINESS LOANS

1. The authority citation for Part 122 would continue to read as

follows:

Authority: 15 U.S.C. 634(b)(6), 636(a), 636(m).

2. Section 122.61-1(a) would be amended by revising the last

sentence to read as follows:

Sec. 122.61-1 Policy.

(a) Program. * * * This Microloan Demonstration Program terminates

on October 1, 1997.

* * * * *

3. Section 122.61-2 would be amended by republishing paragraph (d)

introductory text, by removing the ``or'' at the end of paragraph

(d)(3), by removing the period at the end of paragraph (d)(4) and

adding ``; or'' in its place, and adding new paragraphs (d)(5) and (h)

to read as follows:

Sec. 122.61-2 Definitions.

* * * * *

(d) Intermediary menas: * * *

(5) An agency or a nonprofit entity established by a Native

American Tribal Government.

* * * * *

(h) Economically distressed area means a county or equivalent

division of local government of a state in which, according to the most

recent data available from the United States Bureau of the Census, not

less than 40 percent of residents have an annual income that is at or

below the poverty level.

4. Section 122.61-3 would be amended by adding a new sentence at

the end of paragraph (a) to read as follows:

Sec. 122.61-3 Participation of intermediary.

(a) Eligibility. * * * In evaluating applications to become an

intermediary, SBA shall select such intermediaries as will ensure

appropriate availability of loans for small business concerns in all

industries located throughout each state, located in both urban and in

rural areas.

* * * * *

5. Section 122.61-6 would be amended by revising paragraph (e) to

read as follows:

Sec. 122.61-6 Conditions on SBA loan to intermediary.

* * * * *

(e) Loan Limits by SBA. Notwithstanding any other provision of law

to the contrary, no loan shall be made to an intermediary by SBA under

this program if the total amount outstanding and committed (excluding

outstanding grants) to such intermediary (and its affiliates, if any)

from the business loan and investment fund established under section

4(c) of the Act would, as a result of such loan, exceed $750,000 in the

first year of such intermediary's participation in the program, and

$2,500,000 in the remaining years of the intermediary's participation

in the program.

* * * * *

6. Section 122.61-9 would be amended by adding a new sentence after

the second sentence in paragraph (a), by revising paragraph (b)(1), and

by adding a new sentence at the end of paragraph (b)(2) to read as

follows: [[Page 4576]]

Sec. 122.61-9 SBA grant to intermediary for marketing, management, and

technical assistance.

(a) General. * * * In addition, each intermediary is authorized to

expend no more than fifteen (15) percent of the grant funds received

from SBA to provide information and technical assistance to small

business concerns that are prospective borrowers under this program. *

* *

(b) Amount of Grant. (1) Subject to the requirement of paragraph

(b)(2) of this section, and the availability of appropriations, each

intermediary under this program shall be eligible to receive a grant

equal to 25 percent of the total outstanding balance of loans made to

it by SBA, provided, however, that if an intermediary provides no less

than 25 percent of its loans to small business concerns located in or

owned by one or more residents of an economically distressed area, it

shall be eligible to receive an additional grant from SBA equal to 5

percent of the total outstanding balance of SBA loans made to the

intermediary. The intermediary shall not be required to match such

grant.

(2) * * * The requirement that the intermediary contribute 25

percent of the amount of the SBA grant is inapplicable to an

intermediary which provides not less than 50 percent of its loans to

small business concerns located in or owned by one or more residents of

an economically distressed area.

* * * * *

7. A new Sec. 122.61-13 would be added to read as follows:

Sec. 122.61-13 SBA guaranteed loans to intermediaries.

(a) Purpose. SBA may guarantee not less than 90 percent nor more

than 100 percent of a loan made to an intermediary by a for-profit or

non-profit entity or by alliances of such entities.

(b) Number of Intermediaries. SBA shall not guarantee loans to more

than 10 intermediaries in urban areas or more than 10 intermediaries in

rural areas.

(c) Maturity and Repayment of Microloan Guaranteed Loan. An SBA

guaranteed loan made to an intermediary under this section shall have a

maturity of 10 years. During the first year of each such loan, the

intermediary shall not be required to repay any interest or principal,

although interest will continue to accrue during this period. During

the second through fifth years of such a loan, the intermediary shall

pay interest only. During the sixth through tenth years of the loan,

the intermediary shall make interest payments and fully amortize the

principal.

(d) Interest rate. The interest rate on a SBA guaranteed loan to an

intermediary shall be calculable as set forth in Sec. 122.61-6.

(e) Termination of SBA Authority to Guarantee. The authority of SBA

to guarantee loans to intermediaries under this Sec. 122.61-13 shall

terminate on September 30, 1997.

Dated: December 21, 1994.

Philip Lader,

Administrator.

[FR Doc. 95-1742 Filed 1-23-95; 8:45 am]

BILLING CODE 8025-01-M