Disaster Loan Program

SMALL BUSINESS ADMINISTRATION

13 CFR Part 123

Disaster Loan Program

AGENCY: Small Business Administration.

ACTION: Final rule.

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SUMMARY: Under this final rule SBA amends its regulations to conform

the eligibility criteria for disaster loans to those applicable in

SBA's business loan program. Under the final rule, a business can not

obtain a physical disaster loan if it is engaged in any illegal

activity; if it is a government owned entity (other than one owned or

controlled by a Native American tribe); or if it engages in products or

services of a prurient sexual nature. Under the final rule, a business

is not eligible for an economic injury disaster loan if more than one-

third of its revenues are from legal gambling operations or from

packaging SBA loans; if it is principally engaged in teaching or

indoctrinating religion; or is primarily engaged in political or

lobbying activities.

DATES: This rule is effective September 2, 1998.

FOR FURTHER INFORMATION CONTACT: Bernard Kulik, 202-205-6734.

SUPPLEMENTARY INFORMATION: On April 23, 1998, SBA published a notice of

proposed rulemaking (63 FR 20140) to amend section 123.201 of its

regulations so that an applicant would not be eligible for a physical

disaster business loan if it is engaged in any illegal activity; if it

is a government owned entity (other than a business owned or controlled

by a Native American tribe); or if the business (1) presents live

performances of a prurient sexual nature, or (2) derives directly or

indirectly more than de minimis gross revenue from activities of a

prurient sexual nature. The proposed rule was intended to codify SBA's

existing policy of using the same ineligibility criteria for SBA's

disaster and business loan programs. Thus, a business that would not be

eligible to receive an SBA guaranteed business loan because it met

these criteria, would also not be eligible to obtain a physical

disaster loan.

SBA also proposed to amend section 123.301 of its regulations so

that a business would not be eligible for an economic injury disaster

loan if it: (1) derived more than one-third of its gross annual revenue

from legal gambling activities; (2) earned more than one-third of its

gross annual revenue from packaging SBA loans; (3) was principally

engaged in teaching, instructing, counseling, or indoctrinating

religion or religious beliefs, whether in a religious or secular

setting; or (4) primarily engaged in political or lobbying activities.

These proposed changes were intended to codify SBA's existing policy of

using the same ineligibility criteria for its economic injury disaster

and business loan program. Thus, if a business is not eligible, because

of these criteria, for an SBA guaranteed loan under the business loan

program, it would not be eligible for an economic injury disaster loan.

SBA received one comment. The commenter was concerned that if the

proposed economic injury amendments were finalized, SBA would not be

able to assist non-profit entities which provide community services and

derive more than one third of their revenue from legal gambling

activities. Under SBA's rules, non-profit entities presently do not

qualify for economic

[[Page 46644]]

injury loans, so the proposed amendment would not change their

eligibility. Accordingly, the final rule is identical to the proposed

rule.

In this final rule, SBA also corrects a typographical error in

section 123.202(a) by substituting ``lesser'' for ``greater'' in the

first sentence which now reads: ``Disaster business loans, including

both physical disaster and economic injury loans to the same borrower,

together with its affiliates, cannot exceed the lesser of the

uncompensated physical loss and economic injury or $1.5 million.'' This

ensures that an applicant receives disaster assistance for an

uncompensated loss or injury without obtaining excessive SBA assistance

at lower than market rates.

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)

SBA certifies that this final rule does not constitute a

significant rule within the meaning of Executive Order 12866 and does

not have significant economic impact on a substantial number of small

entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C.

et seq. It is not likely to have an annual economic effect of $100

million or more, result in a major increase in costs or prices, or have

a significant adverse effect on competition or the United States

economy. This final rule codifies current SBA practices and will not

affect additional businesses or impose any costs.

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

certifies that this final rule contains no new reporting or record

keeping requirements.

For purposes of Executive Order 12612, SBA certifies that this

final rule has no federalism implications warranting the preparation of

a Federalism Assessment.

For purposes of Executive Order 12778, SBA certifies that this 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 and

59.008)

List of Subjects in 13 CFR Part 123

Disaster assistance, 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 123,

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

PART 123--DISASTER LOAN ASSISTANCE

1. The authority citation for part 123 continues to read as

follows:

Authority: 15 U.S.C. 634(b)(6), 636(b), 636(c) and 636(f); Pub.

L. 102-395, 106 Stat. 1828, 1864; and Pub. L. 103-75, 107 Stat. 739.

2. Add new paragraphs (d), (e), and (f) to Sec. 123.201 to read as

follows:

Sec. 123.201 When am I not eligible to apply for a physical disaster

business loan?

* * * * *

(d) You are not eligible if your business is engaged in any illegal

activity.

(e) You are not eligible if you are a government owned entity

(except for a business owned or controlled by a Native American tribe).

(f) You are not eligible if your business presents live

performances of a prurient sexual nature or derives directly or

indirectly more than de minimis gross revenue through the sale of

products or services, or the presentation of any depictions or

displays, of a prurient sexual nature.

Sec. 123.202 [Amended]

3. Amend Sec. 123.202(a) by removing the word ``greater'' and

adding, in its place, the word ``lesser'' in the first sentence.

4. Amend Sec. 123.301 as follows:

a. Remove ``gambling'' and ``loan packaging'' in paragraph (a);

b. Remove ``or'' at the end of paragraph (c);

(c) Remove the period and insert ``; or'' at the end of paragraph

(d); and

(d) Add new paragraphs (e), (f), (g), and (h) to read as follows:

Sec. 123.301 When would my business not be eligible to apply for an

economic injury disaster loan?

* * * * *

(e) Deriving more than one-third of gross annual revenue from legal

gambling activities;

(f) A loan packager which earns more than one-third of its gross

annual revenue from packaging SBA loans;

(g) Principally engaged in teaching, instructing, counseling, or

indoctrinating religion or religious beliefs, whether in a religious or

secular setting; or

(h) Primarily engaged in political or lobbying activities.

Dated: July 20, 1998.

Aida Alvarez,

Administrator.

[FR Doc. 98-23657 Filed 9-1-98; 8:45 am]

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