Business Loans

SUMMARY: Section 103(c) of the Small Business Programs Improvement Act

of 1996 (1996 legislation), enacted on September 30, 1996, authorizes

SBA to continue its Low Documentation (LowDoc) loan program through

lenders with significant experience in making small business loans. The

Act requires SBA to promulgate regulations by December 31, 1996. This

interim final rule implements this requirement. SBA is soliciting and

will consider any comments it receives with respect to this interim

final rule in making future adjustments.

DATES: This rule is effective January 3, 1997. Comments may be made by

February 3, 1997.

ADDRESSES: Comments should be sent to Jane Palsgrove Butler, Acting

Associate Administrator for Financial Assistance, Small Business

Administration, 409 Third Street, N.W., Washington, D.C. 20416.

FOR FURTHER INFORMATION CONTACT: Michael J. Dowd, Director, Office of

Loan Programs, (202) 205-6570.

SUPPLEMENTARY INFORMATION: Section 103(c) of the 1996 legislation (Pub.

L. 104-208) amends section 7(a) of the Small Business Act (15 U.S.C.

636(a)) and authorizes SBA to continue its LowDoc loan program through

lenders with significant experience in making small business loans.

Under the LowDoc program, SBA may guaranty repayment of up to 80% of a

loan of $100,000 or less made to a small business by a participating

SBA lender. In the LowDoc program the SBA requires a lender to submit

less documentation to support its guaranty request than SBA requires

for other loans guaranteed under section 7(a) of the Small Business

Act. The 1996 legislation requires SBA to promulgate regulations

defining the experience necessary for a lender to be designated as

experienced.

SBA believes that an experienced lender should be an SBA qualified

lender with significant current activity in making small loans to small

businesses. SBA presently qualifies all of its participating lenders

pursuant to section 410 of its regulations (13 CFR Sec. 120.410). Once

qualified, lenders enter into a guarantee agreement (SBA Form 750) with

SBA. A lender's qualification can be revoked for failure to maintain

regulatory compliance. SBA is satisfied that this qualification process

is satisfactory to assure that only experienced and capable lenders

participate in its programs.

SBA presently monitors the activity of lenders which participate in

its programs and retains information regarding their SBA activity. In

addition, while banking regulators do not require banks and thrift

institutions to track or report lending activity with small businesses,

they do require banks to report the number of small loans outstanding

as of each ``call report'' date. SBA uses this data on commercial/

industrial loans and for commercial real estate loans made by banks and

thrifts to supplement the information it retains regarding qualified

lenders.

SBA has reviewed the activity of its own portfolio of active

lenders and that of the lending community at large to determine what

constitutes a sufficient number of small loans for purposes of

qualification as a LowDoc lender. It also reviewed its own requirements

for the origination, servicing and liquidation capabilities of SBA

guaranteed lenders. On the basis of that review, SBA is satisfied that

a lender should qualify as having significant experience lending to

small business concerns if it is: (1) a bank or thrift institution

which has executed an SBA Form 750, Loan Guaranty Agreement, and which

has at least 20 qualified loans outstanding as of the call report date

closest to the date of its fiscal year end, or (2) an institution other

than a bank or thrift institution which has executed a SBA Form 750,

Loan Guaranty Agreement, and which has at least 20 qualified loans

outstanding as of its latest fiscal year end. A qualified loan is one

which was initially approved in the amount of $100,000 or less and is

classified as a commercial, industrial, or commercial real estate loan

for purposes of call reporting.

SBA will consider good cause exceptions to this definition on a

case by case basis. Lenders seeking an exception should make their

requests directly to the Associate Administrator for Financial

Assistance.

Compliance With Regulatory Flexibility Act, Executive Orders 12866,

12612, and 12778, the Unfunded Mandates Act and the Paperwork

Reduction Act

SBA certifies that this interim final rule will not have a

significant impact on a substantial number of small entities for

purposes of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) This

rule only affects those banks that make fewer than 20 qualified loans

to small business and want to participate in the SBA's LowDoc Loan

Program. A qualified loan is one which was initially approved in the

amount of $100,000 or less and is classified as a commercial,

industrial or commercial real estate loan for purposes of call

reporting. Approximately 500 banks out of 10,000 will be affected by

this rule.

SBA certifies that this interim final rule is not a ``significant

regulatory action'' under Executive Order 12866. It does not have an

annual effect on the economy of $100 million or more and does not

adversely affect in a material way the economy or any sector of the

economy.

SBA certifies that this interim final rule will not have federalism

implications warranting a Federalism Assessment under Executive Order

12612. SBA further certifies that this interim final rule will not add

any new reporting or recordkeeping requirements under the Paperwork

Reduction Act of 1980, 44 U.S.C., chapter 35. For purposes of Executive

Order 12778, SBA certifies that this interim final rule is drafted, to

the extent practicable, in accordance with the standards set forth in

section 2 of that order.

Because this final rule is required to be promulgated by December

31, 1996, SBA is publishing it without opportunity for prior public

comment pursuant to 5 U.S.C. 553(b)(A). However, SBA will consider any

comments it receives with respect to

[[Page 302]]

this final rule in making future adjustments.

(Catalog of Federal Domestic Assistance Program No. 59.012)

List of Subjects in 13 CFR Part 120

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 120,

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

PART 120--BUSINESS LOANS

1. The authority citation for Part 120 continues to read as

follows:

Authority: 15 U.S.C. 634(b)(6) and 636(a) and (h).

2. Section 120.410 is amended by removing ``; and'' at the end of

paragraph (c), removing the period at the end of paragraph (d) and

adding ``; and'' in its place, and adding a new paragraph (e) to read

as follows:

Sec. 120.410 Requirements for all participating Lenders.

* * * * *

(e) In order to make Low Documentation loans, be:

(1) A bank or thrift institution which has executed an SBA Form

750, Loan Guaranty Agreement, and which has at least 20 qualified loans

outstanding as of the call report date closest to the date of its

fiscal year end, or

(2) An institution other than a bank or thrift institution which

has executed an SBA Form 750, Loan Guaranty Agreement, and which has at

least 20 qualified loans outstanding as of its latest fiscal year end.

For purposes of this paragraph (e), a qualified loan is one which was

initially approved in the amount of $100,000 or less and is classified

as a commercial, industrial or commercial real estate loan for purposes

of call reporting. A lender may request an exception to the

requirements of this paragraph (e) from the SBA Associate Administrator

for Financial Assistance.

Dated: December 30, 1996.

Philip Lader,

Administrator.

[FR Doc. 97-103 Filed 1-2-97; 8:45 am]

BILLING CODE 8025-01-P