Business Loan Program

SMALL BUSINESS ADMINISTRATION

13 CFR Part 120

Business Loan Program

AGENCY: Small Business Administration (SBA).

ACTION: Final rule.

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SUMMARY: This final rule implements Pub. L. 104-208, enacted on

September 30, 1996, and Pub. L. 105-135, enacted on December 2, 1997,

with respect to SBA financing in the 504 program, and clarifies

existing regulations applicable to the 504 program and, in some cases,

to the 7(a) program. In the 504 program, the final rule allows more

than one business to qualify for SBA financing for a specific 504

Project; allows a 504 Borrower to lease long term up to 20 percent of

the rentable space in a 504 Project; describes how much a Borrower must

contribute to a 504 Project under certain circumstances; modifies

allowable fees paid by the Borrower, Third Party Lender, and Certified

Development Company (CDC); and allows certain fees incurred by a CDC in

the closing of a 504 loan, up to $2,500 per closing, to be eligible

administrative costs.

DATE: This rule is effective on January 13, 1999.

FOR FURTHER INFORMATION CONTACT: Michael J. Dowd, 202-205-6660.

SUPPLEMENTARY INFORMATION: On May 5, 1998, SBA published in the Federal

Register (63 FR 24753), proposed regulations which would implement

Public Law 105-135, the ``Small Business Reauthorization Act of 1997''

(1997 legislation), enacted on December 2, 1997, and Public Law 104-208

(1996 legislation), enacted on September 30, 1996, that amended the

Small Business Investment Act of 1958 (15 U.S.C. Sec. 601 et seq.)

(Act). SBA received responses from three commenters and will address

each one. SBA published in the Federal Register on August 13, 1998, (63

FR 43330) a notice to reopen the comment period, with respect to 7(a)

loans, on the proposed rule's change to 13 CFR section 120.111 on

Eligible Passive Companies. SBA received one comment from a trade

association representing a large number of 7(a) lenders and we will

respond to that comment. These final regulations implement the

amendments required by the 1996 legislation and some of the amendments

required under the 1997 legislation, and make other changes.

Change Affecting the 7(a) and 504 Programs.

The 1997 legislation authorizes SBA to provide financial assistance

to more than one identifiable small business for a qualified 504

project.

SBA is amending Section 120.10 to add the definition of

Rentable Property previously included in the text of Section

120.131(a).

SBA is amending Section 120.111 with respect to Eligible

Passive Companies to make that rule consistent with the 1997

legislation. Current Section 120.111 allows SBA to assist an Eligible

Passive Company to use loan proceeds to acquire property for lease to

an Operating Company. SBA is amending Section 120.111 to authorize SBA

to provide financing to an Eligible Passive Company that uses the loan

proceeds to lease property to multiple unrelated Operating Companies.

This change makes the Eligible Passive Company provision consistent

with the change to Section 120.801 discussed in the next paragraph. SBA

is also adding a parenthetical to make it clear that references to

Operating Company throughout the subsections of section 120.111 mean

each Operating Company if there are multiple Operating Companies. This

change applies to loans under SBA's 7(a) and 504 programs.

SBA is making a technical amendment to Section 121.131,

which covers leasing a part of new construction or existing buildings

to a third party. The amendment changes references to an Operating

Company to multiple Operating Companies to conform Section 121.131 to

the 1997 legislation and to the revised regulation Sections 120.111 and

120.801. SBA also revised the text of Section 120.131(a) and (b) by

using the new defined term ``Rentable Property'' throughout the section

and by making them more understandable and consistent. Two commenters

interpreted the changes to Section 120.111 to allow multiple Operating

Companies to join together to meet the occupancy requirements of

Section 120.131(b), allowing them to lease up to 33 percent for new

construction and 49 percent for an existing building. SBA agrees with

the commenters' interpretation since the indented effect of this change

is for the multiple operating companies to be in a position similar to

that of a single operating company and, as such, each Operating Company

must be a co-borrower or guarantor of the entire loan.

Changes Affecting the 504 Program

The 1996 and 1997 legislation require SBA to amend its regulations.

In addition, SBA is announcing other program changes.

Section 502 of the Act authorizes SBA to provide financial

assistance to a small business through a CDC to acquire, construct,

convert, or expand its plant facility as a 504 Project under section

504 of the Act. SBA interpreted the statute to allow the Agency to

assist only one identifiable business for any particular project. In

response to the 1997 legislation, SBA is amending Section 120.801 of

its regulations to allow CDCs to assist two ore more unrelated small

businesses for any qualified 504 Project.

The 1996 legislation amended the Act regarding the amount

of the Borrower's contribution to a 504 Project financing. SBA is

amending Section 120.910 of its regulations to comply with the

legislation. The regulation requires the Borrower to contribute at

least 15 percent of the total cost of the 504 Project if (i) the

Borrower (or Operating Company or Companies if the Borrower is an

Eligible Passive Company) has been in business for two years or less,

(ii) or if the Project is the acquisition, construction, conversion or

expansion of a limited or single purpose building. The Borrower must

contribute at least 20 percent of the total cost of the Project if both

conditions exist. The only comment received concerning this amendment

agreed with the proposed rule.

The 1996 legislation requires that a Third Party Lender

finance at least 50 percent of a Project's cost if the Borrower's

contribution is made under either condition described above for

[[Page 2116]]

Section 120.910. One commenter disagreed with the statute.

Nevertheless, SBA must comply with the legislation and is amending

Section 120.920 to implement this change.

The 1997 legislation amended the Act to permit a 504

Borrower to lease long term no more than 20 percent of a new 504

Project if the Borrower immediately occupies at least 60 percent of the

property. To comply with the 1997 legislation, SBA proposed to amend

Section 120.870 of its regulations to authorize a Borrower to lease

long term no more than 20 percent of the rentable space in a 504

Project to third parties if the Borrower occupies at least 60 percent

of the rentable space with plans to occupy the remaining rentable space

within three years. A commenter suggested that SBA apply the same

schedule to the occupancy of the remainder of the space as Section

120.831(a) now applies to the occupancy of the portion of the space in

a new building. SBA concurs with that suggestion and in the final rule

allows the Borrower to lease long term no more than 20 percent of the

rentable space in a 504 Project to one or more tenants if (i) the

Borrower immediately occupies at least 60 percent of the rentable

space, (ii) plans to occupy within 3 years some of the remaining space

not immediately occupied or leased long term, and (iii) plans to occupy

within 10 years all of the remaining space not leased long term. This

change will allow a business to build in a good location without having

to show that it will use all of the space immediately.

Section 120.862(b) sets forth specific public policy goals

a CDC may use to qualify a 504 Project or support an increased amount

of 504 financing. Section 120.862(b)(3) lists expanding Minority

Enterprise development as one of the public policy goals. SBA is

amending Section 120.862(b)(3) to tell the reader the section in SBA's

regulation designating the minority groups to which the subsection

applies. Section 120.862(b)(7) lists as one of the public policy goals

the assistance of businesses affected by Federal budget reductions. SBA

is amending Section 120.862(b)(7) to clarify that the public policy

goal is to assist any eligible small business in an area affected by

such reductions, not only to assist those businesses that can show that

budget reductions adversely affected them. Therefore, if Federal budget

reductions adversely affected a geographic area, SBA can assist a

business located in or moving to that area without showing that the

reductions affected the particular business.

The 1996 legislation requires SBA to charge the Borrower a

fee of up to 0.9375 percent on the unpaid principal balance of the loan

as determined at five-year anniversary intervals. SBA is amending

Section 120.971 of its regulations to implement this change. In

addition, Section 120.971(a)(3) raises the minimum servicing fee from

.5 percent to .625 percent.

SBA is inserting a new Section 120.972 in its regulations

to implement the 1996 legislation that requires SBA to collect (i) a

one-time fee, equal to 50 basis points, of a Third Party Lender's

participation in a Project when the Third Party Lender holds a senior

credit position to that of SBA, and (ii) an annual fee from each CDC

equal to 0.125 percent of the outstanding principal balance of any

Debenture guaranteed by SBA after September 30, 1996. The CDC must pay

this fee from the servicing fees collected by the CDC and not from

additional fees imposed on the Borrower.

Currently, under Section 120.921(d), any future advance by

a Third Party Lender greater than the outstanding balance and accrued

interest must be subordinated to the CDC/SBA lien unless the future

advance is to collect payments, maintain collateral or protect the

Third Party Lender's lien position on the Third Party Loan. At times,

SBA has been unable to realize the full benefit of its lien position,

despite its regulations requiring that future advances be subordinate

to the CDC/SBA lien. If a Third Party Lender wants to make additional

capital available to a 504 Borrower, it easily can do so through

another loan. SBA is revising subsection (d) to state that the Third

Party Loan cannot be open-ended as to the amount, and after completion

of the 504 Project, a Third Party Lender may only make a future advance

under the Third Party Loan to collect amounts due on the Third Party

Loan note, maintain collateral or protect its lien.

SBA also has been unable to realize the full benefit of

its lien position because of prepayment penalties, late fees, and

escalated interest after default due under the Third Party Loan.

Accordingly, SBA is adding a new subsection (e) to Section 120.921 that

states that the Third Party Lender's lien is subordinate to the CDC/SBA

lien regarding prepayment penalties, late fees and escalated interest

after default due under the Third Party lien.

When a small business defaults on a Third Party Loan, SBA

may choose to assume the obligations of the Borrower. The 1996

legislation amended the Act to ensure that when SBA assumes such

obligation for Projects approved after September 30, 1996, it only will

pay the interest rate on the note in effect immediately before the date

of the Borrower's default. SBA is renumbering present subsection (e) of

Section 120.921 of its regulations as subsection (f) and SBA is

revising it to state that SBA only will pay the interest rate in effect

immediately before the date of the Borrower's default regarding a

Project approved after September 30, 1996.

SBA is amending Section 120.802 to clarify the definition

of a Third Party Loan, and Section 120.801(c)(3) to reflect that

definition.

Currently, Section 120.870(c)(1) of SBA's regulations

requires the term of a lease of the Project premises to be at least

equal to the term of the Debenture. However, this may not be necessary

if the Project is not a structure, but consists only of machinery and

equipment. Therefore, SBA is deleting machinery and equipment from the

definition to clarify that the length of a lease for machinery and

equipment is a credit issue.

Changes to CDC Closing Fees

Section 120.883 sets forth administrative costs that may be paid

with the proceeds of a loan funded by a 504 Debenture rather than out

of the Borrower's own resources. Section 120.971 sets forth the fees

that a CDC may charge the Borrower.

Throughout the history of the 504 program, most of the services

required to prepare 504 loan documents and close a 504 loan have been

performed for CDCs, at CDC cost, by legal counsel, paralegals, and CDC

staff. The CDC has then charged its Borrower a fee at closing to

reimburse the CDC for these expenses (``CDC Closing Fee''). Although

this CDC Closing Fee reimburses the CDC for its own lawyers' expenses,

the Borrower is not considered to be paying a legal fee, since CDC

counsel does not represent the Borrower. The Borrower pays separately

the legal fees of its legal counsel.

Under the 504 program, loan proceeds may be used to pay eligible

Project costs and eligible administrative costs. Eligible Project costs

are costs directly attributable to the Project including professional

fees necessary for Project services such as architecture, engineering,

and environmental studies. The Borrower's legal fees for Project-

related matters such as zoning, title searches and recording fees, as

well as interest and points on the interim construction loan, are

eligible Project costs. The Borrower's legal fees

[[Page 2117]]

associated with the closing are not eligible Project costs.

Eligible administrative costs are amounts the Borrower pays for

services connected with closing, but not directly attributable to the

Project itself. These include SBA's guarantee fee, the CDC's processing

fee, and 504 closing agent fees. The Borrower's legal fees associated

with the closing are not eligible administrative costs. Until March 1,

1996, the CDC Closing Fee was an eligible administrative cost, and, by

regulation, the Borrower could pay this fee out of 504 loan proceeds up

to a maximum of $2,500. Since then SBA has not recognized the CDC

Closing Fee as an eligible administrative cost, and the Borrower must

reimburse the CDC out of its own resources.

CDCs, Borrowers, and SBA share a common interest in minimizing

legal fees to reduce costs to the Borrower. During the period before

March 1, 1996, some in the 504 industry felt that SBA's regulation

influenced the market rate for legal fees and other miscellaneous

expenses associated with 504 Closings. They argued that attorney fees

charged to CDCs by CDC counsel were artificially high because the CDC

Closing Fee was an eligible administrative cost financed out of the

loan proceeds. They further argued that the reference in the regulation

to a $2,500 limitation established a minimum base for the attorney

fees.

SBA received 15 comments concerning these issues during the comment

period following publication of proposed rule changes on December 15,

1995. Most of them supported keeping the CDC Closing Fee as an eligible

administrative cost. SBA believed, however, that the marketplace should

determine the legal expenses associated with the 504 Closing and that

there was some merit in the argument that the eligibility of the CDC

Closing Fee as an administrative cost resulted in higher attorney fees.

Despite the opposition expressed in most of the comments, SBA decided

to exclude the CDC Closing Fee from eligible administrative costs and

eliminated the $2,500 reference in its final rule dated January 31,

1996.

SBA expected that these regulatory changes would reduce attorney

fees. It also anticipated downward competitive pressure on such fees as

more attorneys became designated to perform expedited 504 loan

closings.

CDCs have been closing loans under the new rules for over two

years. Approximately 140 attorneys are enrolled as designated closing

attorneys and more than 50 percent of all 504 loans close under the

expedited process. Yet fees associated with 504 closings charged to

CDCs by CDC counsel do not appear to have decreased.

Legislation enacted since the rule became effective has imposed

additional fees upon Borrowers. Industry representatives indicate that

the combination of increased fees and the inability to pay CDC Closing

Fees out of the Debenture proceeds has reduced small businesses access

to the 504 program. Because the fees now are not eligible

administrative costs, they must be paid by Borrowers from other

resources. Not all Borrowers can afford to pay these costs without use

of the Debenture proceeds.

To assist small businesses, SBA is amending Section 120.883 to make

CDC Closing Fees eligible administrative costs up to a maximum of

$2,500 per Closing. To conform Section 120.884, which lists ineligible

costs for 504 loans, to the change in Section 120.883, SBA is deleting

the reference to closing legal fees in Section 120.884.

SBA received one comment asking SBA to clarify that $2,500 is not

the maximum CDC closing fee that a CDC may charge, but only the maximum

amount that may be paid out of the debenture proceeds as an eligible

administrative cost. SBA believes the text of Section 120.883 is clear,

and declines to make any change in the proposed rule. Under Section

120.971(a)(2), a CDC may charge a borrower a reasonable CDC closing

fee. Under Section 120.883, up to $2,500 is eligible to be paid out of

the debenture proceeds.

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, since it

is not likely to have an annual effect on the economy 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, et seq. Last

year, SBA made approximately four thousand 504 loans. Currently there

are approximately 300 CDCs, less than 15 of which are Premier CDCs.

While the 1997 legislation removes the limit on the number of CDCs that

can become Premier CDCs, SBA anticipates that, at most, this Rule will

affect only half of the CDCs. Thus, the changes to the program in the

final rule, including the changes to the Closing Fee provisions and the

changes implementing P.L. 104-208 and P.L. 105-135 will not have a

significant impact on a substantial number of small businesses.

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 12778, SBA certifies that this

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

standards set forth in section 2 of that Order.

List of Subjects in 13 CFR Part 120

Loan programs--business, Small businesses.

For the reasons set forth in the preamble, SBA amends 13 CFR part

120 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. In Sec. 120.10, add a new definition as follows:

Sec. 120.10 Definitions.

* * * * *

Rentable Property is the total square footage of all buildings or

facilities used for business operations.

* * * * *

3. Amend Sec. 120.111 by revising the first sentence to read as

follows:

Sec. 120.111 What conditions must an Eligible Passive Company satisfy?

An Eligible Passive Company must use loan proceeds to acquire or

lease, and/or improve or renovate, real or personal property (including

eligible refinancing), that it leases to one or more Operating

Companies for conducting the Operating Company's business (references

to Operating Company in paragraphs (a) and (b) of this section mean

each Operating Company).

* * * * *

4. Revise Sec. 120.131 to read as follows:

Sec. 120.131 Leasing part of new construction or existing building to

another business.

(a) If the SBA business loan involves the construction of a new

building, a

[[Page 2118]]

Borrower may lease up to 33 percent of the Rentable Property for a

short term to any third party if reasonable growth projections show

that the Borrower will need additional space within three years. If the

Borrower is an Eligible Passive Company leasing 100 percent of the

Project space to one or more Operating Company, the Operating Company,

or Operating Companies together, may sublease up to 33 percent of the

Rentable Property to a third party under the same conditions. (See

Sec. 120.870(c) for an exception with respect to 504 Projects.)

(b) If the SBA business loan involves the acquisition, renovation,

or reconstruction of an existing building, the Borrower may lease up to

49 percent of the Rentable Property long term. If the Borrower is an

Eligible Passive Company leasing 100 percent of the Project space to

one or more Operating Companies, the Operating Company, or Operating

Companies together may sublease up to 49 percent of its Rentable

Property to a third party under the same conditions. (For 504 loans,

see Sec. 120.871).

5. Amend section 120.801 to revise the first sentence of paragraph

(a) and paragraph (c)(3) to read as follows:

Sec. 120.801 How is a 504 Project financed?

(a) One or more small businesses may apply for 504 financing

through a CDC serving the area where the 504 Project is located.* * *

* * * * *

(c)* * *

(3) A Third Party Loan comprising the balance of the financing,

collateralized by a first lien on the Project property (see

Sec. 120.920).

* * * * *

6. Amend Sec. 120.802 to revise the definition of Third Party Loan

to read as follows:

Sec. 120.802 Definitions.

* * * * *

Third Party Loan is a loan from a commercial or private lender,

investor, or Federal (non-SBA), State or local government source that

is part of the Project financing.

* * * * *

7. Amend Sec. 120.862 to revise the parenthetical clause in

paragraph (b)(3), and to revise paragraph (b)(7), to read as follows:

Sec. 120.862 Other economic development objectives.

* * * * *

(b) Public Policy goals: * * *

(3) * * * (See Sec. 124.105(b) for minority groups who qualify for

this description.)

* * * * *

(7) Assisting businesses in or moving to areas affected by Federal

budget reductions, including base closings, either because of the loss

of Federal contracts or the reduction in revenues in the area due to a

decreased Federal presence.

8. Amend Sec. 120.870 to revise paragraph (a)(1), and add a new

paragraph (c), to read as follows:

Sec. 120.870 Leasing Project Property.

(a) * * *

(1) The remaining term of the lease, including options to renew,

exercisable only by the lessee, equals or exceeds the term of the

Debenture;

* * * * *

(c) If the Project is for new construction, the Borrower may lease

long term up to 20 percent of the Rentable Property in the Project to

one or more tenants if the Borrower immediately occupies at least 60

percent of the Rentable Property, plans to occupy within three years

some of the remaining space not immediately occupied and not leased

long term, and plans to occupy all of the remaining space not leased

long term within ten years.

9. Revise Sec. 120.883 to read as follows:

Sec. 120.883 Eligible administrative costs for 504 loans.

The following administrative costs are not part of Project costs,

but may be paid with the proceeds of the 504 loan and the Debenture

(see Sec. 120.971):

(a) SBA guarantee fee;

(b) Funding fee (to cover the cost of a public issuance of

securities and the Trustee);

(c) CDC processing fee;

(d) Borrower's out-of-pocket costs associated with the closing of

the 504 loan (other than legal fees);

(e) CDC Closing Fee (see Sec. 120.971(a)(2)) up to a maximum of

$2,500; and

(f) Underwriters' fee.

Sec. 120.884 [Amended]

10. Amend Sec. 120.884 to remove paragraph (e).

11. Revise Sec. 120.910 to read as follows:

Sec. 120.910 How much must the Borrower contribute?

(a) The Borrower must contribute to the Project cash (or property

acceptable to SBA obtained with the cash) or land (that is part of the

Project Property), in an amount equal to the following percentage of

the Project cost, excluding administrative costs:

(1) At least 15 percent, if the Borrower (or Operating Company if

the Borrower is an Eligible Passive Company) has operated for two years

or less;

(2) At least 15 percent, if the Project involves the acquisition,

construction, conversion, or expansion of a limited or single purpose

building or structure;

(3) At least 20 percent, if the Project involves conditions

described in paragraphs (a)(1) and (2) of this section; or

(4) At least 10 percent, in all other circumstances.

(b) The source of the contribution may be a CDC or any other source

except an SBA business loan program (see Sec. 120.913 for SBIC

exception).

12. Revise Sec. 120.920 to read as follows:

Sec. 120.920 Required participation by the Third Party Lender.

(a) Amount of Third Party Loans. A Project financing must include

one or more Third Party Loans totaling at least as much as the 504

loan. However, the Third Party Loans must total at least 50 percent of

the total cost of the Project if:

(1) The Borrower (or Operating Company, if the Borrower is an

Eligible Passive Company) has operated for two years or less, or

(2) The Project is for the acquisition, construction, conversion or

expansion of a limited or single purpose asset.

(b) Third Party Loan collateral. Third Party Loans usually are

collateralized by a first lien on the Project property. The SBA cannot

guarantee these loans.

13. Amend Sec. 120.921 to revise paragraphs (d) and (e) and

redesignate them as (e) and (f), respectively, and add a new paragraph

(d), to read as follows:

Sec. 120.921 Terms of Third Party loans.

* * * * *

(d) Future advances. The Third Party Loan must not be open-ended.

After completion of the Project, the Third Party Lender may not make

future advances under the Third Party Loan except expenditures to

collect amounts due the Third Party Loan notes, maintain collateral and

protect the Third Party Lender's lien position on the Third Party Loan.

(e) Subordination. The Third Party Lender's lien will be

subordinate to the CDC/SBA lien regarding any prepayment penalties,

late fees, other default charges, and escalated interest after default

due under the Third Party Loan.

(f) Escalation upon default. A Third-Party Lender may not escalate

the rate of interest upon default to a rate greater

[[Page 2119]]

than the maximum rate set forth in paragraph (b) of this section.

Regarding any Project that SBA approved after September 30, 1996, SBA

will only pay the interest rate on the note in effect before the date

of the Borrower's default.

14. Amend Sec. 120.971 by revising the first sentence and removing

the second sentence of paragraph (a)(2), and by revising paragraphs

(a)(3) and (d)(2) to read as follows:

Sec. 120.971 Allowable Fees paid by Borrower.

(a) * * *

(2) Closing fee. The CDC may charge a reasonable closing fee

sufficient to reimburse it for the expenses of its in-house or outside

legal counsel, and other miscellaneous closing costs (CDC Closing Fee).

* * *

(3) Servicing fee. The CDC will charge a monthly servicing fee of

at least 0.625 percent per annum and no more than 2 percent per annum

on the unpaid balance of the loan as determined at five-year

anniversary intervals. A servicing fee greater than 1.5 percent in a

rural area and 1 percent everywhere else requires SBA's prior written

approval, based on evidence of substantial need. The servicing fee may

be paid only from loan payments received. The fees may be accrued

without interest and collected from the CSA when the payments are made.

* * * * *

(d) * * *

(2) For loans approved by SBA after September 30, 1996, SBA charges

a fee of not more than 0.9375 percent annually on the unpaid principal

balance of the loan as determined at five-year anniversary intervals.

* * * * *

15. Redesignate Sec. 120.972 as Sec. 120.973, and add a new

Sec. 120.972 to read as follows:

Sec. 120.972 Third Party Lender participation fee and Development

Company fee.

(a) Participation fee. For loans approved by SBA after September

30, 1996, SBA must collect a one-time fee from the Third Party Lender

equal to 50 basis points on its total participation in a Project when

the Third Party Lender occupies a senior credit position to SBA in the

project.

(b) Development company fee. For loans approved by SBA after

September 30, 1996, SBA must collect an annual fee from the CDC equal

to 0.125 percent of the outstanding principal balance of the debenture.

The fee must be paid from the servicing fees collected by the CDC and

cannot be paid from any additional fees imposed on the Borrowers.

Dated: December 23, 1998.

Aida Alvarez,

Administrator.

[FR Doc. 99-559 Filed 1-12-99; 8:45 am]

BILLING CODE 8025-01-P