Pre-Disaster Mitigation Loans

SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121 and 123

Pre-Disaster Mitigation Loans

AGENCY: Small Business Administration (SBA).

ACTION: Final rule.

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SUMMARY: With this rule, SBA amends its disaster loan program

regulations to implement a pilot program authorized by Congress in

1999. The authorization covers five fiscal years (from 2000 to 2004)

and will allow SBA to make low interest, fixed rate loans to small

businesses to use mitigation measures in support of Project Impact, a

formal mitigation program established by the Federal Emergency

Management Agency (FEMA).

DATES: This rule is effective October 1, 1999.

FOR FURTHER INFORMATION CONTACT: Bernard Kulik, Associate

Administrator, Office of Disaster Assistance, 202-205-6734.

SUPPLEMENTARY INFORMATION: SBA amends part 123 of its regulations

regarding disaster loans, based upon a proposed rule which was

published on July 7, 1999 (64 FR 36617). Comments were due by August 6,

1999.

The final rule allows small businesses to obtain low interest,

fixed rate loans for mitigation measures in support of Project Impact.

In response to the problems of increasing costs and personal

devastation caused by disasters, Congress authorized a pilot program

for 5 fiscal years from 2000 through 2004. The Administration launched

an effort to substitute preparedness for the current reliance on

response and recovery in emergency management.

SBA supports this effort and wants to offer pre-disaster mitigation

loans to assist with disaster preparedness. This final rule will allow

SBA to provide such loans to small businesses within Project Impact

communities identified by FEMA. Currently, SBA disaster loans may be

used only to repair or replace what was destroyed or damaged by

disaster and to provide an additional 20 percent for mitigation

measures after a disaster. To promote preparedness, this final rule

will amend SBA's regulations to provide pre-disaster mitigation loans

for small businesses. Such pre-disaster mitigation loans will allow

small businesses to install mitigation devices that may prevent future

damage.

SBA received several comments on the proposed rule. One comment

requested that SBA modify its definition of mitigation in Sec. 123.107

to include ``any action taken to reduce or eliminate the long-term risk

to human life and property from natural hazards'' as defined by the

Federal Emergency Management Agency in 44 CFR 206.401. SBA did not

adopt this suggestion due to the difference in statutory language which

authorizes the assistance provided by SBA and FEMA. However, SBA has

included some of the mitigation examples suggested by the commenter in

Sec. 123.107. SBA also clarifies in Sec. 123.107 that Sec. 123.400

through Sec. 123.407 address pre-disaster mitigation, while the last

two sentences of Sec. 123.107 address the amount of money that can be

borrowed for mitigation after a disaster.

Another comment suggested that SBA establish a date for when size

status is determined. SBA has adopted the suggestion in Sec. 123.402,

requiring that the applicant be a small business as of the date SBA

accepts the application for processing. To clarify the conditions for

eligibility, SBA moved portions of Sec. 123.403 and Sec. 123.406 in the

proposed rule to Sec. 123.402 in the final rule so that eligibility

conditions are all in one section.

One of the conditions for eligibility is that a business, together

with its affiliates, must be small as defined in part 121 of this

Chapter. Section 121.302 sets forth criteria for when size status is

determined for each of SBA's loan programs. Since the Pre-disaster

Mitigation Loan Program will be a new pilot, Sec. 121.302 does not

include it. Although SBA did not propose to amend this section, it is

necessary to amend Sec. 121.302(c) to designate a date for determining

size status for this pilot program.

One comment proposed that SBA include homeowners. SBA did not adopt

this suggestion because the authorizing legislation for this pilot

program limits the assistance to small businesses.

Another comment suggested that SBA require that a small business

must have been in the Project Impact community for at least one year,

under the same ownership, at the location where mitigation was proposed

prior to submitting a loan application. SBA has not adopted this

suggestion because it would unnecessarily limit assistance under the

pilot.

One comment suggested that SBA begin funding all approved loans on

December 31, in the order that the applications were initially

received. SBA did not adopt this suggestion because SBA is uncertain of

the demand and does not want to limit the time period for approving and

funding loans. SBA revised the text of Sec. 123.404 to clarify that a

business may borrow up to $50,000 per year, and that approved loans

will be funded in the order that SBA accepted the applications for

processing. SBA also clarifies that it will consider projects that cost

more than $50,000 per year if the business can identify sources that

will fund the amount above $50,000.

Another commenter asked that SBA clarify in Sec. 123.401 whether

residential rental properties were eligible. The section has been

changed to make it clear that SBA will accept applications from owners

of commercial real estate (property primarily leased to business for

commercial use). Owners of property held and leased primarily for

residential use will not be eligible.

One commenter was concerned that SBA's verification of a project

might subject SBA to potential liability if a mitigation project failed

to perform as expected. In response to this suggestion, SBA revised

Sec. 123.401 to make it clear that SBA only verifies that the cost

estimate is reasonable to accomplish the stated desired mitigation

result, and that SBA does not guarantee that the mitigation measure

will prevent damages from future disasters.

Also, SBA amended Sec. 123.406 to clarify how and when it will

provide notice of the availability of pre-disaster mitigation loans.

Finally, SBA simplified language in subparagraph (c) of that section

and Sec. 123.407 regarding application processing, loan funding, and

the process for reconsideration or appeal.

Compliance With Executive Orders 12612, 12988, and 12866, the

Regulatory Flexibility Act (5 U.S.C. 601-612), and the Paperwork

Reduction Act (44 U.S.C. Ch. 35)

SBA certifies that this final rule is not a significant rule within

the meaning of

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Executive Order 12866, since 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 U.S. economy.

SBA certifies that this final rule will not have a significant

economic impact on a substantial number of small entities within the

meaning of the Regulatory Flexibility Act, 5 U.S.C. 601-612.

SBA certifies that this final rule does not impose any additional

reporting or recordkeeping requirements under the Paperwork Reduction

Act, 44 U.S.C., chapter 35.

For purposes of Executive Order 12612, SBA certifies that this

final rule has no federalism implications warranting preparation of a

Federalism Assessment.

For purposes of Executive Order 12988, SBA certifies that this

final rule is drafted, to the extent practicable, to accord with the

standards set forth in section 3 of that Order.

List of Subjects

13 CFR Part 121

Government procurement, Government property, Grant programs--

business, Loan programs--business, Small business.

13 CFR Part 123

Disaster assistance, Loan programs--business, Reporting and

recordkeeping requirements, Small businesses.

For the reasons stated in the preamble, SBA amends 13 CFR parts 121

and 123 as follows:

PART 121--SMALL BUSINESS SIZE REGULATIONS

1. The authority citation for part 121 continues to read as

follows:

Authority: Pub. L. 105-135 Sec. 601 et. seq., 111 Stat. 2592; 15

U.S.C. 632(a), 634(b)(6), 637(a), and 644(c); and Pub. L. 102-486,

106 Stat. 2776, 3133.

2. Revise Sec. 121.302 to add a sentence at the end of paragraph

(c) to read as follows:

Sec. 121.302 When does SBA determine the size status of an applicant?

* * * * *

(c) * * * For pre-disaster mitigation loans, size status is

determined as of the date SBA accepts the application for processing.

* * * * *

PART 123--DISASTER LOAN PROGRAM

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. In Sec. 123.107, revise the second sentence and add a sentence

at the end to read as follows:

Sec. 123.107 What is mitigation?

* * * Examples include elevation of flood prone structures,

retaining walls, sea walls, grading and contouring land, relocating

utilities, and retrofitting and strengthening structures to protect

against high winds, earthquake, flood, wildfire, or other natural

hazards. * * * Sections 123.400 through 123.407 address pre-disaster

mitigation.

3. Add an undesignated centerheading and Secs. 123.400 through

123.407 to read as follows:

Pre-disaster Mitigation Loans

Sec.

123.400 What is a pre-disaster mitigation loan?

123.401 What types of mitigating measures are eligible for a pre-

disaster mitigation loan?

123.402 What businesses are eligible to apply for pre-disaster

mitigation loans?

123.403 When would my business not be eligible to apply for a pre-

disaster mitigation loan?

123.404 How much can my business borrow with a pre-disaster

mitigation loan?

123.405 What is the interest rate on a pre-disaster mitigation

loan?

123.406 How do I apply for a pre-disaster mitigation loan and which

loans will be funded?

123.407 What happens if SBA denies or withdraws my pre-disaster

mitigation loan application?

Pre-disaster Mitigation Loans

Sec. 123.400 What is a pre-disaster mitigation loan?

Congress has authorized a pilot program for 5 fiscal years from

2000 through 2004 for SBA to make low interest, fixed rate loans to

small businesses to use mitigation measures in support of Project

Impact, a formal mitigation program established by the Federal

Emergency Management Agency (FEMA).

Sec. 123.401 What types of mitigating measures are eligible for a pre-

disaster mitigation loan?

Mitigation means specific measures taken by you to protect your

real property or leasehold improvements from future disasters in

Project Impact communities. If you are a landlord, the measures must be

for protection of property leased primarily for commercial rather than

residential purposes, to be determined on a comparative square footage

basis. Additionally, SBA will consider providing a pre-disaster

mitigation loan for relocation if your commercial real property is

located in a SFHA (Special Flood Hazard Area) and you relocate outside

the SFHA but remain in the same Project Impact community. If the

mitigation measures protect against a flood hazard, the applicant small

business must be located in an existing structure in a SFHA. The local

Project Impact coordinator will confirm that your proposed project is

in accordance with specific Project Impact priorities and goals of that

community. SBA will verify that the cost estimate is reasonable to

accomplish each project to determine if the project is likely to

accomplish the stated desired mitigation results. SBA verification and

subsequent loan approval are not a guarantee that the project will

prevent damages in future disasters.

Sec. 123.402 What businesses are eligible to apply for pre-disaster

mitigation loans?

Each State, the District of Columbia, Puerto Rico, and the Virgin

Islands have at least one FEMA Project Impact community. Only those

small businesses located in Project Impact communities are eligible to

apply for a pre-disaster mitigation loan. Your small business may be a

sole proprietorship, partnership, corporation, limited liability

company, or other legal entity recognized under State law. Your small

business must have been in existence for at least one year prior to

submitting an application for this loan. Your business (together with

its affiliates) must be small (as defined in part 121 of this chapter)

as of the date SBA accepts the application for processing, and SBA must

also determine that the business, its affiliates and its owners do not

have the financial resources to fund the mitigation measures without

undue hardship.

Sec. 123.403 When would my business not be eligible to apply for a

pre-disaster mitigation loan?

Your business is not eligible for a pre-disaster mitigation loan if

it, together with its affiliates, fits into any of the categories in

Secs. 123.101, 123.201, and 123.301.

Sec. 123.404 How much can my business borrow with a pre-disaster

mitigation loan?

Each borrower, together with its affiliates, may borrow up to

$50,000 per year. SBA will fund approved loans in the order in which

SBA accepted the application for processing. SBA will consider

mitigation measures that cost more than $50,000 per year if the

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business can identify sources that will fund the cost above $50,000.

Sec. 123.405 What is the interest rate on a pre-disaster mitigation

loan?

Your pre-disaster mitigation loan will have an interest rate of 4

percent per annum or less.

Sec. 123.406 How do I apply for a pre-disaster mitigation loan and

which loans will be funded?

(a) At the beginning of each fiscal year commencing October 1st

1999, SBA will publish a declaration in the Federal Register announcing

the availability of pre-disaster mitigation loans. The declaration will

designate at least a 30 day application filing period in the first six

months of the fiscal year, the application filing deadline, and the

locations for obtaining and filing loan applications. Additional

application periods may be announced each year depending on the

availability of funds. In addition to the Federal Register, SBA will

use FEMA and the local media to inform potential loan applicants where

to obtain loan applications. SBA will not accept any applications after

the announced deadline unless SBA reopens the application filing

period.

(b) Complete an SBA pre-disaster mitigation loan application

package which includes a written statement from the local Project

Impact coordinator that the project is in accordance with the specific

priorities and goals of the local community. The application must be

filed during the announced filing period.

(c) An SBA Disaster Area Office will notify the Office of Disaster

Assistance (ODA) when it has accepted a complete application for

processing. The Area Office will approve, decline, or withdraw (stop

processing) the application if the applicant does not give SBA required

information. The Area Office will notify ODA of its decision. ODA will

then direct the Area Office to make the loan based on availability of

loan funds and the date SBA accepted the complete application package.

Sec. 123.407 What happens if SBA denies or withdraws my pre-disaster

mitigation loan application?

(a) If SBA denies your loan application, SBA will notify you in

writing and give you the specific reasons for the denial. If you

disagree with SBA's decision, you may respond under Sec. 123.13. If SBA

approves your application after reconsideration or appeal, SBA will use

the date the Area Office received the request for reconsideration or

appeal to determine the order of funding.

(b) If SBA withdraws your loan application and you later submit the

missing information, and SBA approves the loan, SBA will use the date

it reaccepts the application to determine the order of funding.

Dated: August 27, 1999.

Aida Alvarez,

Administrator.

[FR Doc. 99-23051 Filed 9-2-99; 8:45 am]

BILLING CODE 8025-01-P