Business Loans; Microloans

SMALL BUSINESS ADMINISTRATION

13 CFR Part 122

Business Loans; Microloans

AGENCY: Small Business Administration (SBA).

ACTION: Final rule.

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SUMMARY: Under this final rule, SBA is implementing certain provisions

of the ``Small Business Administration Reauthorization and Amendments

Act of 1994'', enacted on October 22, 1994, which are relevant to the

SBA microloan financing program (Program). On a pilot basis, the rule

authorizes SBA to guarantee up to 100 percent of loans made to

intermediary lenders. It adds native American tribal governments as

eligible intermediaries in the Program, authorizes SBA to provide

additional grant assistance to an intermediary which by its lending

assists residents in economically distressed areas, and extends the

sunset date of the Program for an additional fiscal year.

EFFECTIVE DATE: This rule is effective November 2, 1995.

FOR FURTHER INFORMATION CONTACT: John R. Cox, 202/205-6490.

SUPPLEMENTARY INFORMATION: On January 24, 1995, SBA published in the

Federal Register (60 FR 4574) a notice of proposed rulemaking with

respect to amendments made by Pub. L. 103-403, enacted on October 22,

1994 (1994 legislation), to subsection 7(m) of the Act (15 U.S.C.

636(m)), relating to the Program. SBA received four favorable comments

in response to the proposed rule. Accordingly, SBA is promulgating this

final rule basically as proposed.

Consistent with section 202 of the 1994 legislation, section

122.61-2 of SBA's regulations (13 CFR 122.61-2) is amended by including

in the definition of an intermediary eligible to participate in the

Program as a microloan lender an agency or nonprofit entity established

by a native American tribal government. Currently, only private,

nonprofit entities or quasi-governmental entities can be microlenders.

Consistent with section 203 of the 1994 legislation, section

122.61-1 of SBA's regulations is amended to extend the sunset date for

the Program an additional year, to October 1, 1997.

Consistent with section 206 of the 1994 legislation, section

122.61-6 of SBA's regulations is amended to increase the aggregate

maximum amount of SBA lending available to an intermediary during the

intermediary's participation in the Program. The previous limit was

$1,250,000; the new aggregate maximum is $2,500,000.

Consistent with section 207 of the 1994 legislation, section

122.61-9 of SBA's regulations is amended to authorize (but not require)

an intermediary to expend up to fifteen percent of any grant funds

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

technical assistance to small businesses which are prospective

borrowers. This final rule recognizes that intermediaries hold outreach

seminars, perform screening analyses, and provide other assistance for

prospective borrowers. It encourages them to continue these programs

and to use their technical assistance grants efficiently and cost

effectively.

SBA presently ensures that at least one-half of its intermediaries

provide

[[Page 55654]]

microloans to small businesses in rural areas. Consistent with section

205 of the 1994 legislation, section 122.61-3 of SBA's regulations is

amended so that SBA now must select entities that will ensure

availability of loans for small businesses in all industries located

throughout the lender's jurisdiction in both rural and urban areas. The

SBA is no longer required to meet numerical requirements based on

intended borrowers in selecting entities to participate as

intermediaries in the Program, but it will consider whether a proposed

intermediary would provide assistance to a variety of industries.

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

an SBA grant must contribute matching funds equal to twenty-five

percent of the amount of the grant. Consistent with section 208(a)(1)

of the 1994 legislation, section 122.61-9 of SBA's regulations is

amended to provide that this twenty-five percent requirement is

inapplicable to an intermediary which provides more than half of its

loans to small businesses located in or owned by residents of an

economically distressed area. Thus, 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.

Under current rules, each intermediary can receive an SBA grant

equal to twenty-five percent of the outstanding balance of its loans

from SBA. Consistent with section 208(a)(2) of the 1994 legislation,

section 122.61-9 of SBA's regulations is amended to provide that an

intermediary can receive an SBA grant of an additional five percent

(which it is not required to match) if it will provide no less than

twenty-five percent of its loans to small businesses located in or

owned by residents of an economically distressed area.

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

122.61-2 of SBA's regulations is amended to define ``economically

distressed area'' to mean a county or equivalent division of local

government in which 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.

Consistent with section 201 of the 1994 legislation, new section

122.61-13 of SBA's regulations implements a microloan financing pilot

in which SBA can 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 terminates on September 30, 1997. Under this pilot,

SBA will guarantee loans to no more than ten intermediaries in urban

areas and ten in rural areas. The loans will have a maturity of ten

years, with interest calculated as set forth in section 122.61-6 of

SBA's regulations (13 CFR 122.61-6). During the first year of the loan,

interest accrues, but the intermediary will not be required to repay

principal or interest. During the second through fifth years of the

loan, the intermediary pays only interest. During the sixth through

tenth years of the loan, the intermediary must make interest payments

and fully amortize the principal. There are no balloon payments.

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 final rule does not have a significant

economic impact on a substantial number of small entities.

SBA certifies that this final rule does not constitute a

significant regulatory action for the purposes of Executive Order

12866, since it is not likely to result in an annual effect on the

economy of $100 million or more.

SBA certifies that this final rule does not impose additional

reporting or recordkeeping requirements which would be subject to the

Paperwork Reduction Act, 44 U.S.C. Chapter 35, and does not have

federalism implications warranting the preparation of a Federalism

Assessment in accordance with Executive Order 12612.

For purposes of Executive Order 12778, SBA certifies that this

final rule 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 amends part 122,

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

PART 122--BUSINESS LOANS

1. The authority citation for Part 122 continues to read as

follows:

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

2. Section 122.61-1(a) is 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 is amended by republishing (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 means: * * *

(5) An agency of 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 is 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 intermediaries that will ensure

appropriate availability of loans for small business concerns in all

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

areas.

* * * * *

5. Section 122.61-6 is amended by revising paragraph (e) to read as

follows:

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

* * *

(e) Loan limits by SBA. No loan shall be made to an intermediary by

SBA under this program if the total amount outstanding and committed

(excluding outstanding grants) to the 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 the intermediary's participation in the

program, and $2,500,000 in the

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remaining years of the intermediary's participation in the program.

* * * * *

6. Section 122.61-9 is amended by adding a new third 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:

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

technical assistance.

(a) General. * * * Each intermediary is authorized to expend up to

15% of any SBA grant funds 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% of the outstanding balance of loans made to it by SBA. If

an intermediary provides no less than 25% 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% of the outstanding balance of SBA

loans made to the intermediary (with no obligation to match this

additional amount).

(2) * * * This requirement for an intermediary contribution is

inapplicable if the intermediary provides at least 50% 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 is added to read as follows:

Sec. 122.61-13 SBA guaranteed loans to intermediaries.

(a) General. For up to 10 intermediaries in urban areas and 10

intermediaries in rural areas, SBA may guarantee not less than 90

percent nor more than 100 percent of a loan made by a for-profit or

non-profit entity or by an alliance of such entities.

(b) Maturity and repayment. Any SBA guaranteed loan made to an

intermediary under this section shall have a maturity of 10 years.

During the first year of the loan, interest shall accrue, but the

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

During the second through fifth years of the 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.

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

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

(d) 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: July 26, 1995.

Philip Lader,

Administrator.

[FR Doc. 95-27155 Filed 11-1-95; 8:45 am]

BILLING CODE 8025-01-U