Loans to State and Local Development Companies Section 504 Loan Program Amendments

SMALL BUSINESS ADMINISTRATION

13 CFR Part 108

Loans to State and Local Development Companies Section 504 Loan

Program Amendments

AGENCY: Small Business Administration.

ACTION: Notice of proposed rulemaking.

SUMMARY: This proposed rule revises the regulations governing the

collection of fees and the utilization of interest accruing in accounts

established to administer the 504 loan program in order to permit the

flexibility required in negotiating with private sector entities for

the delivery of the 504 program.

DATES: Comments must be received on or before October 10, 1995.

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

Office of Rural Affairs and Economic Development, Small Business

Administration, 409 3rd Street SW., suite 8300, Washington DC 20416.

FOR FURTHER INFORMATION CONTACT: LeAnn M. Oliver, Acting Director,

Office of Rural Affairs and Economic Development, Small Business

Administration, Telephone (202) 205-6485.

SUPPLEMENTARY INFORMATION: The proposed rule would amend the rule

governing the Central Servicing Agent (CSA) functions. The existing 504

program regulations were promulgated based upon the Agency's experience

with a predecessor program. Sufficient experience has accumulated to

allow the codification of approaches that have arisen in the

administration of the program. This rule clarifies that: (1) Fees can

be collected from the borrower of the proceeds of a debenture

guaranteed under the program as a one-time initiation fee or a monthly

servicing fee, (2) fees can be paid to the CSA from either a specific

borrower's payment or from aggregated funds collected pursuant to a

master service agreement, and (3) clarifies that 503 companies are to

receive periodic pro rata disbursements of interest accruing on loan

payments in the Master Reserve Account pending the debenture payment

date.

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

Regulatory Flexibility Act and the Paperwork Reduction Act.

Executive Order 12866 and Regulatory Flexibility Act

SBA certifies that this proposed rule, if adopted, would not be a

significant regulatory action for purposes of Executive Order 12866

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

seq., would not have a significant economic impact on a substantial

number of small entities, for the following reasons:

1. It would not result in an annual economic effect of $100 million

or more or adversely affect in a material way the economy, a sector or

the economy, productivity, competition, jobs, the environment, public

health or safety, or State, local, or tribal governments or

communities.

2. It would not create a serious inconsistency or otherwise

interfere with an action taken or planned by another agency.

3. It would not materially alter the budgetary impact of

entitlements, grants, user fees, or loan programs or the rights and

obligations of recipients thereof.

4. It would not raise novel legal or policy issues arising out of

legal mandates, the President's priorities, or the principles set forth

in E.O. 12866

Executive Order 12612

SBA certifies that this rule, if adopted, would have no Federalism

implications warranting the preparation of a Federalism Assessment in

accordance with Executive Order 12612.

Paperwork Reduction Act

For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA

hereby certifies that this proposed rule, if adopted, would impose no

new reporting or recordkeeping requirements.

Executive Order 12778

SBA certifies that this proposed rule is drafted, the extent

practicable, in accordance with the standards set forth in section 2 of

E.O. 12778.

List of Subjects in 13 CFR Part 108

Loan programs/business, Small businesses.

For the reasons set forth above, part 108 of the Code of Federal

Regulations is amended 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.

Assistance Under Sections 504 and 505

Sec. 108.504 [Amended]

2. Section 108.504(e) is revised to read as follows:

* * * * *

(e) Central Servicing Agent. This subsection supersedes

Sec. 108.503-11 for loans funded under Section 504 and is applicable to

all such loans whenever funded.

(1) SBA, in a master servicing agreement, shall designate a Central

Servicing Agent (CSA) to act for all 503 companies participating in the

sale of 504 Debentures, to ensure uniformity

[[Page 46790]]

and the orderly flow of funds among 504 loan recipients, 503 companies,

and the Trustee or Transfer Agent (see Sec. 108.505(f)(3) of this

part). Pursuant to such master servicing agreement, in consideration of

SBA's guaranty of the 503 company's debenture(s), the 503 Company, with

the borrower's consent shall enter into a servicing agent agreement

(504 program), SBA Form 1506, with the CSA. Execution of such form

shall constitute acceptance by the 503 company and the borrower of the

terms of the master servicing agreement. Amendments may be made in the

terms and conditions of the master servicing agreement as necessary to

adapt to changing program needs.

(2) The borrower may be charged an initiation fee and/or a monthly

servicing fee as prescribed by Form 1506, which shall be in addition to

the fees and charges permitted by Sec. 108.503-6 of this part.

(3) The CSA may be compensated through an initiation fee and/or a

monthly service fee. Pursuant to instructions in the master servicing

agreement, the CSA's compensation may be paid from initiation fees on

specific loans or from aggregated service fees.

(4) SBA Form 1506 shall prescribe the deposits into and the

disbursements from a master reserve account, set up by the CSA pursuant

to said master servicing agreement. The master reserve account shall be

funded by a reserve deposit, and a funding fee to be published from

time to time in the Federal Register, and by principal and interest

payments of 504 loans. SBA shall add funds pursuant to its guaranty to

insure the full and timely payment of the debentures in the event a

borrower fails to make full and timely payment on its 504 loan. Funds

in the master reserve account shall be used to defray expenses of the

program described under paragraph (b) of this section. Interest

accruing on loan payments between the date of monthly payment and the

debenture payment date shall be paid to the 503 company servicing the

loan and shall be disbursed to 503 companies periodically on a pro rata

basis. Funds in the master reserve escrow account representing interest

earned prior to October 1991 and not distributed to a specific 503

company may be expended by SBA for the purposes of program

administration.

* * * * *

(Catalog of Federal Domestic Assistance 59.036 Certified Development

Company Loans (503 Loans); 59.041 Certified Development Company

Loans (504 Loans)).

Dated: June 29, 1995.

Philip Lader,

Administrator.

[FR Doc. 95-22064 Filed 9-7-95; 8:45 am]

BILLING CODE 8025-01-P