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contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

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Rules and Regulations Federal Register

9213 

Vol. 76, No. 33 

Thursday, February 17, 2011 

SMALL BUSINESS ADMINISTRATION 

13 CFR Part 120 

RIN 3245–AG17 

Small Business Jobs Act: 504 Loan 

Program Debt Refinancing 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Interim final rule with request 

for comments. 

SUMMARY: This interim final rule 

implements section 1122 of the Small 

Business Jobs Act of 2010 (Jobs Act), 

which authorizes projects approved for 

financing under Title V of the Small 

Business Investment Act to include the 

refinancing of qualified debt. This 

interim final rule revises the existing 

504 Loan Program rules to make them 

consistent with section 1122 of the Jobs 

Act. 

DATES: Effective Date: This rule is 

effective February 17, 2011. 

Comment Date: Comments must be 

received on or before May 18, 2011. 

ADDRESSES: You may submit comments, 

identified by RIN 3245–AG17, by any of 

the following methods: 

Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

Mail: Andrew B. McConnell Jr., Small 

Business Administration, Office of 

Financial Assistance, 409 Third Street, 

SW., 8th Floor, Washington, DC 20416. 

Hand Delivery/Courier: Andrew B. 

McConnell Jr., Small Business 

Administration, Office of Financial 

Assistance, 409 Third Street, SW., 8th 

Floor, Washington, DC 20416. 

SBA will post all comments on 

http://www.regulations.gov. 

If you wish to submit confidential 

business information (CBI) as defined in 

the User Notice at http:// 

www.regulations.gov, please submit the 

information to Andrew B. McConnell, 

Jr., 409 Third Street, SW., Washington, 

DC 20416, or send an e-mail to 

jobsact504refi@sba.gov. Highlight the 

information that you consider to be CBI 

and explain why you believe SBA 

should hold this information as 

confidential. SBA will review the 

information and make the final 

determination whether it will publish 

the information. 

FOR FURTHER INFORMATION CONTACT: 

Andrew B. McConnell, Jr. at 

Andrew.McConnell@sba.gov or 202– 

205–7238. 

SUPPLEMENTARY INFORMATION: 

I. Background Information 

The 504 Loan Program is a long-term 

financing tool for economic 

development that provides small 

businesses with long-term, fixed-rate 

financing to help acquire major fixed 

assets for expansion or modernization. 

A Certified Development Company 

(CDC) is typically a private, nonprofit 

corporation set up to contribute to the 

economic development of its 

community. CDCs work with SBA and 

private sector lenders to provide 

financing to small businesses under the 

504 Loan Program. In general, a 504 

project includes: A loan obtained from 

a private sector lender with a senior lien 

covering at least 50 percent of the 

project cost; a loan obtained from a CDC 

with a junior lien covering up to 40 

percent of the total cost (backed by a 

100 percent SBA-guaranteed debenture); 

and a contribution from the Borrower of 

at least 10 percent equity. 

The Small Business Jobs Act of 2010 

(Jobs Act), Public Law 111–240, 124 

Stat. 2504, enacted on September 27, 

2010, temporarily expands the ability of 

a small business to use the 504 Loan 

Program to refinance certain qualifying 

existing debt. The expanded authority is 

available for two years only. Prior to the 

Jobs Act, in a typical 504 project with 

a refinancing component, the borrower 

was required to use a significant portion 

of the loan proceeds for expansion of 

the business. See 13 CFR 120.882(e). 

The temporary Jobs Act program 

authorizes the use of the 504 Loan 

Program for the refinancing of debt 

where there is no expansion of the small 

business concern. 

SBA is aware that there is a 

substantial amount of small business 

commercial first mortgage debt that was 

incurred 3–5 years ago that is maturing, 

typically through balloon mortgages, 

and in need of refinancing. In addition, 

credit availability for small businesses 

has decreased during the recent 

economic turmoil, and there may not be 

sufficient conventional lending capacity 

to handle this wave of refinancing. 

Further, real estate values have declined 

significantly in many parts of the 

country in recent years, which will 

make it more difficult for small 

businesses to refinance their maturing 

mortgages in the conventional market. 

By helping small businesses refinance 

current mortgages and lock in lower, 

long-term interest rates, this temporary 

Jobs Act program will help to provide 

the assistance needed by small 

businesses to avoid liquidation or 

foreclosure and improve their prospects 

for survival. It will also help to stabilize 

the commercial real estate market, as 

well as encourage lenders to increase 

lending by improving the health of their 

portfolios. 

SBA has determined that this 

refinancing program will initially apply 

only to loans maturing on or before 

December 31, 2012 in order to assist 

those small businesses most in need 

with the limited resources available. 

SBA will publish a Notice in the 

Federal Register extending this date 

based on SBA’s assessment of any 

change in available resources and 

market conditions. In addition, SBA 

will monitor the use of the program 

capacity of SBA and the CDC industry 

to handle the demand for this program 

and market conditions to determine 

whether SBA should also allow a debt 

to be refinanced if it is not maturing 

within the set timeframe but the 

refinancing would provide a 

‘‘substantial benefit’’ to the Borrower. If 

SBA determines to allow such 

refinancing based on the ‘‘substantial 

benefit’’ criteria, SBA will announce 

such determination through a Notice 

published in the Federal Register, and 

will apply 13 CFR 120.882(e)(5) in 

implementing it. 

The interim final rule also includes a 

provision requiring the Borrower to pay 

a supplemental annual guarantee fee, in 

addition to the existing annual 

guarantee fee, to cover the additional 

cost attributable to the refinancing 

program under the Jobs Act. SBA has 

determined that the total annual 

guarantee fee assessed for loans 

approved for refinancing during Fiscal 

Year 2011 will be 1.043% annually on 


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9214 Federal Register / Vol. 76, No. 33 / Thursday, February 17, 2011 / Rules and Regulations 

the unpaid principal balance of the 

debenture. If necessary, SBA will 

publish, at least sixty days before the 

beginning of the new Fiscal Year, a 

Notice in the Federal Register of any 

change in the fee for loans approved 

during Fiscal Year 2012. This fee will be 

assessed and collected in the same 

manner as the current annual SBA 

guarantee fee under 13 CFR 

120.971(d)(2). 

SBA has also determined that the loan 

structure for the Refinancing Project 

will be the same as in the 504 program 

generally, with the Third Party Lender 

contributing at least 50% of the fair 

market value of the fixed assets serving 

as collateral for the refinancing, the 504 

loan contributing no more than 40% of 

such fair market value, and the 

Borrower contributing at least 10% of 

such fair market value. Consistent with 

current regulations, SBA will only 

require a 10% injection by the Borrower 

when the fixed asset serving as 

collateral is a limited or special purpose 

building because the higher 

contribution amounts (15% or 20% 

injection) apply only when these types 

of buildings are being acquired, 

constructed, expanded or converted. See 

13 CFR 120.910(a)(2). In this case, the 

sole purpose of the loan is refinancing 

existing debt and, thus, no further 

contribution will be required of the 

Borrower. 

SBA will permit the equity, if any, in 

the Eligible Fixed Asset securing the 

loan being refinanced to be counted 

toward the Borrower’s 10% 

contribution, provided it is supported 

by the independent appraisal of the fair 

market value of that asset. In addition, 

if the fair market value of the Eligible 

Fixed Asset exceeds the existing debt 

but the Borrower does not have 10% 

equity in the asset, SBA will permit the 

equity in any other fixed assets that are 

acceptable to SBA to serve as collateral 

for the Refinancing Project and to be 

counted toward the Borrower’s 10% 

contribution, provided that there is an 

independent appraisal of the fair market 

value of the additional asset(s). As 

discussed in the previous paragraph, the 

Third Party Loan and the 504 loan will 

not exceed 90% of the fair market value 

of all of the fixed assets serving as 

collateral for the Refinancing Project. 

In the event that the outstanding 

principal balance on the existing loan is 

more than 90% of the current fair 

market value of the Eligible Fixed 

Assets securing the loan being 

refinanced, SBA will also permit the 

Borrower to contribute the equity in 

other fixed assets acceptable to SBA as 

collateral to increase the amount of the 

Refinancing Project, provided that there 

is an independent appraisal of the fair 

market value of the additional asset(s). 

Again, the Third Party Loan and the 504 

loan will not exceed 90% of the fair 

market value of all of the fixed assets 

serving as collateral for the Refinancing 

Project. 

In addition, the Jobs Act defines 

‘‘qualified debt’’ to mean indebtedness 

‘‘the proceeds of which were used to 

acquire an eligible fixed asset’’. SBA 

believes that it is consistent with this 

definition to allow a debt to be 

refinanced where substantially all of the 

proceeds of that debt were used to 

acquire an eligible fixed asset. By 

‘‘substantially all’’, SBA means ‘‘almost 

all’’ or ‘‘nearly all’’ of the proceeds, and 

a Borrower will satisfy this standard 

where it used at least 85% of the 

proceeds of the existing debt to acquire 

an Eligible Fixed Asset. The remaining 

15% of the proceeds must also have 

been incurred for the benefit of the 

small business. In implementing these 

requirements, SBA will require the 

Borrower to certify that the existing debt 

satisfies these requirements, and will 

require the Third Party Lender to certify 

that it has no reason to believe that the 

existing debt does not satisfy these 

requirements. In addition, SBA may 

require, on a random basis, for a 

borrower and/or lender to submit 

additional documentation supporting 

the substantially all assertion. SBA is 

also amending 13 CFR 120.882(e)(1) to 

incorporate this criteria, and to make 

the existing debt refinancing program 

involving expansions consistent with 

this new debt refinancing program. 

The Jobs Act also authorizes the 

Agency to provide financing under this 

debt refinancing program ‘‘to be used 

solely for the payment of business 

expenses.’’ The statute requires that the 

application for the financing of business 

expenses include a specific description 

of the expenses for which the additional 

financing is requested and an 

itemization of the amount of each 

expense. The statute expressly prohibits 

the borrower from using any part of the 

financing under this clause for nonbusiness purposes. SBA will need time 

to implement this provision for the 

financing of business expenses. New 

controls will need to be developed to 

ensure that these funds are used in 

accordance with the statute, without 

requiring a burdensome level of detailed 

justification of expenditures. As the 

procedures for this portion of the 

legislation will be new to the CDCs and 

require the development of additional 

procedures for SBA staff, SBA is 

requesting input from interested parties 

regarding the level of detail that SBA 

should require to meet the statutory 

mandate that all proceeds be used for 

business purposes. The aim is a balance 

between excessive controls and 

ensuring that a business owner does not 

knowingly or unknowingly use the loan 

proceeds for personal purposes. With 

the immediate need for refinancing, the 

Agency is proceeding with this interim 

final rule to implement the refinancing 

component while continuing to 

consider the most efficient and effective 

manner in which to implement the 

business expense component of this 

new program. The Agency invites 

comments from interested parties on 

how best to and whether to implement 

this provision. 

In addition, the Jobs Act includes a 

provision that states that ‘‘if the 

appraised value of the eligible fixed 

assets serving as collateral for the 

financing is less than the amount equal 

to 125 percent of the amount of the 

financing, the borrower may provide 

additional cash or other collateral to 

eliminate any deficiency’’. The Agency 

is continuing to review the scope of this 

provision and how it should be 

implemented, and invites comments 

from interested parties on this 

provision. 

Further, SBA has determined that, 

with the limited resources available for 

this refinancing program, it will not at 

this time refinance Third Party Loans 

that are already part of an existing 504 

Project. These Third Party Lenders have 

already benefitted from having access to 

subordinated debt provided by the 

Federal government, and also have other 

tools to assist borrowers that are 

experiencing financial difficulties, such 

as deferments in loan payments and 

workout plans. SBA will continue to 

consider the option of allowing the 

refinancing of existing Third Party 

Loans, and invites comments from 

interested parties on this issue. 

This debt refinancing program is 

available for the refinancing of same 

institution debt which, similar to the 

definition for debt refinancing involving 

expansions in 13 CFR 120.882(e)(8), is 

defined as any debt of the CDC or the 

Third Party Lender that are providing 

funds for the refinancing, or the debt of 

affiliates of either. To protect the 

program from incurring unnecessary 

losses in the refinancing of same 

institution debt, and in accordance with 

13 CFR 120.884(b), a CDC may not use 

504 loan proceeds to pay any creditor in 

a position to sustain a loss causing a 

shift to SBA of all or part of a potential 

loss from an existing debt. SBA will 

require the CDC and the Third Party 

Lender to make certifications with 

respect to this standard for same 

institution debt. Whether there is a shift 


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Federal Register / Vol. 76, No. 33 / Thursday, February 17, 2011 / Rules and Regulations 9215 

to SBA of a potential loss should be 

determined by assessing the potential 

loss to SBA associated with the 

Refinancing Project (e.g., the business is 

experiencing a significant threat to its 

viability or existence although the 

business is current on its outstanding 

debt). In addition, SBA will require a 

refinancing involving same institution 

debt to supply a full transcript of the 

loan payment history instead of only 

one year. The Jobs Act also provides 

that this refinancing program is not 

available to any loan that is subject to 

a guarantee by a Federal agency, which 

includes 7(a) loans. SBA also reminds 

lenders and CDCs that the refinancing of 

the existing debt must meet the ‘‘credit 

elsewhere’’ criteria currently applicable 

to the 504 Program. See 13 CFR 120.101. 

SBA will require the Third Party Lender 

to certify that it would not refinance the 

qualified debt without the assistance 

made available under this rule. In 

addition, to avoid a conflict of interest, 

or the appearance of a conflict of 

interest, in connection with the 

refinancing of debts owed to investment 

companies, SBA is amending 13 CFR 

120.130(b) to prohibit the use of loan 

proceeds for the refinancing of a debt 

owed to a New Markets Venture Capital 

Company. 

Finally, the authority provided by the 

Jobs Act is available for loan 

applications received by SBA on or after 

the effective date of this rulemaking and 

approved by SBA through September 

27, 2012. 

II. Section-by-Section Analysis 

Section 120.130(b). To avoid conflicts 

of interest, or the appearance of 

conflicts of interest, in connection with 

the refinancing of debts owed to 

investment companies, SBA is 

amending this provision to prohibit the 

use of loan proceeds for the refinancing 

of a debt owed to a New Markets 

Venture Capital Company. 

Section 120.882(e)(1). SBA is 

amending this provision to make the 

existing debt refinancing program 

involving expansions consistent with 

the new paragraph (g). As amended, this 

provision will allow debt refinancing 

involving expansions where 

substantially all (85% or more) of the 

proceeds of the indebtedness had been 

used to acquire Eligible Fixed Assets, 

and the remaining 15% of the proceeds 

had been incurred for the benefit of the 

small business concern. 

Section 120.882(g). Under current 

regulations, SBA may only provide 

refinancing under the 504 Loan Program 

when the refinancing is provided in 

conjunction with an expansion by the 

small business. The Jobs Act 

temporarily authorizes refinancing 

without an expansion. SBA is adding a 

new paragraph (g) to § 120.882 to 

implement this new authority for 

refinancing existing eligible debt under 

the 504 loan program. This new 

paragraph sets forth the terms and 

conditions under which non-expansion 

refinancing will be permitted in the 504 

program. For example, it: 

(1) Provides that the financing 

provided by the Third Party Loan and 

the 504 loan may be no more than 90% 

of the fair market value of the fixed 

assets that will serve as collateral for the 

Refinancing Project, as established by an 

independent appraisal, but in no event 

may exceed the outstanding principal 

balance of the qualified debt; 

(2) Provides that the Borrower pays an 

annual guarantee fee to cover the full 

cost attributable to the refinancing 

program. SBA has determined that the 

amount of this guarantee fee for loans 

approved during Fiscal Year 2011 is 

1.043% annually on the unpaid 

principal balance of the debenture. If 

SBA determines that the fee must be 

changed to cover the costs for loans 

approved during Fiscal Year 2012, SBA 

will publish a Notice of the change in 

the Federal Register; 

(3) Incorporates the definition of 

‘‘qualified debt’’ set forth in the Jobs Act 

and includes several new defined terms, 

including ‘‘Refinancing Project’’; 

(4) Incorporates the alternate job 

retention goal set forth in the Jobs Act 

for Borrowers that do not meet the job 

creation and retention goals under 

§§ 501(d) and (e) of the Small Business 

Investment Act. Under this alternate job 

retention goal, the Agency may provide 

a 504 loan in an amount that is not more 

than the product obtained by 

multiplying the number of employees of 

the borrower by $65,000. An example of 

how this alternate job retention goal is 

calculated is included in the rule; 

(5) Provides that, in accordance with 

the Jobs Act, the authority to approve 

the refinancing is not delegated to the 

PCLP CDCs; 

(6) Provides that refinancing will be 

initially available only for those loans 

that mature on or before December 31, 

2012, unless SBA publishes a Notice in 

the Federal Register to extend the 

timeframe. In addition, depending on 

the program capacity of SBA and the 

CDC industry to handle the demand for 

this program and market conditions, 

SBA may in the future also permit a 

debt to be refinanced if it would provide 

a substantial benefit to the Borrower, as 

defined and in accordance with 13 CFR 

120.882(e)(5). In such case, SBA will 

publish a Notice of this change in the 

Federal Register; 

(7) Provides that the loan must be 

disbursed within 6 months after loan 

approval, unless the Director for 

Financial Assistance or his designee 

determines, upon request, that a longer 

disbursement period is appropriate for 

good cause. SBA expects disbursement 

extensions to be rare, and includes this 

time limitation on disbursements to 

ensure that funds not used in a timely 

manner may be made available to other 

small businesses during this limited 

two-year program; 

(8) Provides that, consistent with 504 

Loan Program requirements, the funding 

for the Refinancing Project must come 

from three sources based on the current 

fair market value of the fixed assets 

serving as collateral for the Refinancing 

Project, including not less than 50% 

from the Third Party Lender, not less 

than 10% from the Borrower, and not 

more than 40% from the 504 loan; 

(9) Prohibits same institution debt 

refinanced under this program from 

being sold in the secondary market as 

part of a pool guaranteed under subpart 

J of part 120 of 13 CFR; and 

(10) Identifies eligible project costs 

which may be paid with the proceeds of 

the refinancing. 

Section 120.884. SBA amends 

§ 120.884(a) to include this new 

authority as an additional exception to 

the general prohibition against using 

proceeds of the 504 loan for debt 

refinancing. 

III. Justification for Publication as 

Interim Final Rule 

In general, before issuing a final rule, 

SBA publishes the rule for public 

comment in accordance with the 

Administrative Procedure Act (APA), 

5 U.S.C. 553. The APA provides an 

exception to this standard rulemaking 

process where the agency finds good 

cause to adopt a rule without prior 

public participation. 5 U.S.C. 

553(c)(3)(B). The good cause 

requirement is satisfied when prior 

public participation can be shown to be 

impracticable, unnecessary, or contrary 

to the public interest. Under such 

circumstances, an agency may publish 

an interim final rule without soliciting 

public comment. 

In enacting the good cause exception 

to standard rulemaking procedures, 

Congress recognized that emergency 

situations arise where an agency must 

issue a rule without public 

participation. The current turmoil in the 

financial markets is having a negative 

impact on the availability of financing 

for small businesses. SBA finds that 

good cause exists to publish this rule as 

an interim final rule in light of the 

urgent need to help small businesses 


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9216 Federal Register / Vol. 76, No. 33 / Thursday, February 17, 2011 / Rules and Regulations 

sustain and survive during this 

economic downturn and the short-term 

nature of this new authority. This new 

refinancing authority will offer a 

significant opportunity for businesses, 

allowing them to restructure existing 

debt into new 504 financings that will 

help secure the financial stability of 

their businesses which will, in turn, 

help them to survive and save jobs. It 

also has the potential to quickly free up 

critical capital for small business 

owners across the country, allowing 

them to continue to operate and 

potentially expand and add jobs. This 

new authority is only available until 

September 27, 2012 and would have 

less impact if delayed until notice and 

comment rulemaking could be 

completed. Advance solicitation of 

comments for this rulemaking would be 

contrary to the public interest because it 

would harm those small businesses that 

need immediate access to capital. 

However, SBA did hold a public forum 

in Boston, Massachusetts on November 

17, 2010, in which more than 120 

persons participated in person or by 

phone offering their suggestions on how 

the Agency should implement section 

1122 of the Jobs Act. 

Although this rule is being published 

as an interim final rule, comments are 

solicited from interested members of the 

public. These comments must be 

submitted on or before the deadline for 

comments stated in this rule. The SBA 

will consider these comments and the 

need for making any amendments as a 

result of these comments. 

IV. Justification for Immediate Effective 

Date 

The APA requires that ‘‘publication or 

service of a substantive rule shall be 

made not less than 30 days before its 

effective date, except * * * as 

otherwise provided by the agency for 

good cause found and published with 

the rule.’’ 5 U.S.C. 553(d)(3). The 

purpose of this provision is to provide 

interested and affected members of the 

public sufficient time to adjust their 

behavior before the rule takes effect. As 

this rule is implementing new authority 

that expands the 504 Program’s current 

authority to refinance debt and does not 

restrict current behavior, there is no 

need for the public to adjust its behavior 

before the rule takes effect. Furthermore, 

any delay in the effective date would 

deny small businesses immediate access 

to credit, and an immediate effective 

date will maximize the rule’s value to 

small businesses and its effect on the 

economy. SBA therefore finds that there 

is good cause for making this rule 

effective immediately instead of 

observing the 30-day period between 

publication and effective date. 

Compliance With Executive Orders 

12866, 12988, and 13132, the Paperwork 

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

the Regulatory Flexibility Act (5 U.S.C. 

601–612). 

Executive Order 12866 

The Office of Management and Budget 

has determined that this rule constitutes 

a ‘‘significant regulatory action’’ under 

Executive Order 12866 thus requiring 

Regulatory Impact Analysis as set forth 

below. 

A. Regulatory Objective of the Interim 

Final Rule 

The objective of the debt refinance 

program authorized by the Jobs Act 

interim final rule is to expand the 504 

loan program to include a refinancing 

component that does not involve small 

business expansion. This is a two-year 

program that is authorized through 

September 27, 2012. The interim final 

rule will promote better understanding 

of Agency requirements by CDCs, 

lenders, and small business borrowers. 

B. Baseline Costs 

As this is an addition to the existing 

504 program, there is no historical cost 

data for this new program component 

for comparison or projections. Similar 

costs may be assumed based on the 

historical costs for the 504 loan 

program, as the application for the Jobs 

Act 504 refinance program is expected 

to be almost identical to the existing 

application and eligibility checklist for 

the existing 504 loan program. The costs 

to CDCs will vary between ASM 

(Abridged Submission Method) CDCs 

and non-ASM (non Abridged 

Submission method) CDCs, as loan 

packages from ASM CDCs have an 

abridged list of required documents to 

submit. Based on historical ASM and 

non-ASM submissions, SBA anticipates 

that 68% of 504 debt refinance loan 

volume will be ASM loan packages and 

32% will be non-ASM loan packages. 

SBA anticipates that 21,300 refinance 

loans will be processed, of which 

14,484, or 68%, are estimated to be 

submitted by ASM CDCs and 6,816, or 

32%, are estimated to be submitted by 

non-ASM CDCs. 

Based on the length of time SBA takes 

to review and process 504 applications, 

SBA is estimated to take an average of 

8.4 hours to review and respond to ASM 

applications and 8.7 hours to review 

and respond to non-ASM applications. 

C. Potential Benefits and Costs of the 

Interim Final Rule 

(a) Potential Benefits and Costs to 

Lenders 

The interim final rule would improve 

access to capital for businesses with the 

need to refinance but that will not be 

expanding their business. The cost 

differential between an application for 

the regular 504 program and the Jobs 

Act 504 debt refinance program 

application and checklist are negligible. 

The ability to refinance debt will 

improve the small businesses cash flow, 

improve their financial ability to 

operate, improve the long-term viability 

of the small business, and facilitate job 

retention. Another potential benefit is 

the reduction in the number of loan 

servicing actions due to deferments or 

catch-up plans and reducing the 

likelihood that the business might be 

overcome by its indebtedness burden 

which could result in liquidation. Fewer 

servicing actions would potentially 

reduce the cost to CDCs and reduce the 

number of delinquent, deferments, 

default and liquidation cases. These 

changes would reduce the costs of loan 

servicing and liquidation processes for 

lenders as well. 

SBA does not know of any specific 

additional costs that would be imposed 

on CDCs or lenders as a result of this 

interim final rule. SBA is requesting 

comments from the public on any 

monetized, quantitative or qualitative 

costs of CDC and Lender compliance 

with this rule. Please send comments to 

the SBA official referenced in the 

Addresses section of the preamble. 

(b) Potential Benefits and Costs to CDCs 

and Borrowers 

As provided by the Jobs Act, the 

interim final rule contains a provision 

that temporarily expands the ability of 

a small business to use the Section 504 

Certified Development Company Loan 

program to refinance certain qualifying 

existing debt. To implement this new 

program, CDCs will package 504 debt 

refinance loan applications and service 

these loans for small business 

borrowers. For Borrowers, the cost 

benefit of lower interest rates and 

improved financial terms would 

significantly outweigh the costs of 

preparing the Jobs Act 504 debt 

refinance application and checklist in 

order to apply for the assistance 

provided by the program. 

CDCs would benefit from increased 

loan volume due to the Jobs Act 504 

debt refinance project. This new 

program will meet a new market 

demand for 504 debt refinancing for 

projects that do not involve expansion. 


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Federal Register / Vol. 76, No. 33 / Thursday, February 17, 2011 / Rules and Regulations 9217 

This will increase CDC income from 

packaging, processing, servicing and 

closing income as a result of the 

program, which would far outweigh any 

burdens associated with the preparation 

and submission to SBA of 504 debt 

refinance loan applications. As CDCs 

are delivering the 504 program, the 

increased cost to provide the SBA 504 

debt refinance program will be 

negligible when compared to the 

substantial increase in CDC revenue. 

SBA expects that CDCs and Borrowers 

would incur some additional costs as a 

result of this interim final rule. Due to 

the increased risk of 504 debt refinance 

applications as compared to the current 

504 program, and in accordance with 

the Jobs Act, a supplemental subsidy fee 

of 29.4 basis points, or .294%, will be 

imposed on Borrowers to cover the 

additional cost attributable to the 

refinancing of qualified debt. 

The costs to CDCs will vary between 

ASM (Abridged Submission Method) 

CDCs and non-ASM (non Abridged 

Submission method) CDCs, as loan 

packages from ASM CDCs have an 

abridged list of required documents to 

submit. Based on historical ASM and 

non-ASM submissions, SBA anticipates 

that 68% of 504 debt refinance loan 

volume will be ASM loan packages and 

32% will be non-ASM loan packages. 

SBA anticipates that CDCs would 

likely submit to the Agency for approval 

an estimated 21,300 504 debt refinance 

applications over the two-year period of 

the program. This is a significant 

increase of the SBA program current 

8,500 annual 504 loan application 

volume. 

For ASM CDCs, SBA estimates that 

the average time for completion of each 

application would consist of 8.4 hours 

at an average cost of $45 per hour. 

Therefore, the annual costs of 

submitting 504 debt refinance 

applications under the interim final rule 

would be 14,484 loan applications × 8.4 

hours for an estimated cost of $45/hour 

for a two-year total of $5,474,952. 

For Non-ASM CDCs, SBA estimates 

that the average time for completion of 

each application would consist of 8.7 

hours at an average cost of $35 per hour. 

Therefore, the annual costs of 

submitting 504 debt refinance 

applications under the interim final rule 

would be 6,816 loan applications × 8.7 

hours for an estimated cost of $45/hour 

for a two-year for non-ASM debt 

refinance applications of $2,668,464. 

The total estimated annual costs for 

ASM and non-ASM applications 

combined would be $8,143,416 for the 

two-year period of the Jobs Act. 

For the CDCs, there are duplication 

and shipping costs associated with loan 

submission. Based on historical cost 

information for the 504 program, the 

copying and shipping costs using ASM 

ranges from $15–$50 per loan package 

and for non-ASM $25–$60 per loan 

package. This variance in costs depends 

on the complexity of the loan 

application and whether the application 

is submitted through the ASM or nonASM Method. 

SBA is requesting comments from the 

public on any monetized, quantitative 

or qualitative costs of CDCs compliance 

with this rule. Please send comments to 

the SBA official referenced in the 

ADDRESSES section of the preamble. 

(c) Potential Benefits and Costs for SBA 

and the Federal Government 

The interim final rule would benefit 

SBA because it would enable the 

Agency to increase access to capital to 

small business borrowers to refinance 

debt without expansion during the 

temporary period of this debt 

refinancing program. This would result 

in the submission of an estimated 

21,300 504 debt refinance applications. 

In order to carry out this new 

program, SBA will hire 50 additional 

staff for the Sacramento Loan Processing 

Center at an average cost of $92,000 per 

staff member per year, or an annual 

estimated salary total of $4,600,000 or a 

2 year total of $9,200,000. 

As indicated above, SBA anticipates 

that 21,300 refinance loans will be 

processed, of which 14,484, or 68%, are 

estimated to be submitted by ASM CDCs 

and 6,816, or 32%, are estimated to be 

submitted by non-ASM CDCs. 

Based on the length of time SBA takes 

to review and process 504 applications, 

SBA is estimated to take an average of 

8.4 hours to review and respond to ASM 

applications and 8.7 hours to review 

and respond to non-ASM applications. 

For ASM applications, this equates to 

8.4 hours at $45 hour × 14,484 

applications for an estimated cost of 

$5,474,952 for ASM refinance loan 

application for the two-year program 

period. For non-ASM applications, this 

equates to 8.7 hours at $45 hour for an 

estimated cost × 6,816 for a total annual 

estimated cost of $2,668,464 for nonASM refinance loan application. SBA 

estimates the combined cost of 

reviewing ASM and non-ASM 

applications to be $8,143,416 for the 

two year period of the Jobs Act. 

Furthermore, the Agency must hire 

two full-time staff for lender oversight at 

an average cost of $135,000 per year or 

a total of $540,000 for the two-year 

period of the Jobs Act. In addition, 

contract dollars of $105,000 per year, or 

$210,000 for the two-year period of the 

Jobs Act, will be utilized to assist with 

analysis and oversight. The total 

estimate cost of oversight of the 504 

debt refinance program for the two-year 

period of the Jobs Act is estimated at 

$750,000. 

D. Alternatives to Interim Final Rule 

This interim final rule is SBA’s best 

available means for achieving its 

regulatory objective of implementing the 

Jobs Act debt refinance program 

authorized by Public Law 111–240, 124 

Stat. 2504, enacted on September 27, 

2010. SBA is requesting comments from 

the public on any potentially effective 

and reasonably feasible alternative to 

this rule as it applies to CDCs and 

Lenders and the costs and benefits of 

those alternatives. Please send 

comments to the SBA official in the 

ADDRESSES section of the preamble. 

SBA has not identified any reasonable 

alternative to this interim final rule to 

implement this new debt refinancing 

authority. 

Executive Order 12988 

This action meets applicable 

standards set forth in sections 3(a) and 

3(b)(2) of Executive Order 12988, Civil 

Justice Reform, to minimize litigation, 

eliminate ambiguity, and reduce 

burden. The action does not have 

preemptive effect or retroactive effect. 

Executive Order 13132 

This rule does not have federalism 

implications as defined in Executive 

Order 13132. It will not have substantial 

direct effects on the States, on the 

relationship between the national 

government and the States, or on the 

distribution of power and 

responsibilities among the various 

levels of government, as specified in the 

Executive Order. As such it does not 

warrant the preparation of a Federalism 

Assessment. 

Executive Order 13563 

To the extent practicable given the 

need to make this temporary, 2-year 

refinance program operational 

expeditiously in order to assist as many 

small businesses as possible, this rule 

was developed in keeping with the 

intent of this Executive Order. SBA 

solicited suggestions and comments on 

how best to implement the Jobs Act 

from the affected stakeholders and the 

public as a whole. SBA provided notice 

of a public forum in the Federal 

Register, which was held in Boston, 

Massachusetts on November 17, 2010. 

More than 100 persons attended in 

person or by phone and 23 individuals 

provided testimony. In addition, SBA 

announced a Web site and solicited 

comments for a 30 day period. The final 


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9218 Federal Register / Vol. 76, No. 33 / Thursday, February 17, 2011 / Rules and Regulations 

structure of the program was 

significantly shaped by those comments, 

especially the decision to keep the same 

basic 504 financing structure for same 

institution debt refinancing as for a new 

institution refinancing another lender’s 

debt. 

By adhering as closely as possible to 

the procedures and conditions of SBA’s 

existing permanent 504 refinancing 

program, any burden that this rule may 

have imposed on the affected 

stakeholders is lessened. In addition, 

SBA adopted a new procedure with this 

rule that specifically addresses concerns 

that were raised in public comments 

regarding the burden that has been 

imposed in the permanent 504 

refinancing program by requiring 

lenders and borrowers to document that 

all of the proceeds of the debt being 

refinanced was used for eligible 

collateral. As indicated by the 

stakeholders, this requirement is 

especially difficult if a property has 

been refinanced more than once or if the 

initial lender had been acquired by 

another lender. In practice, the process 

was costly and time consuming for the 

borrower, lender and SBA personnel 

and, upon review, it rarely led to 

significant amounts being excluded 

from the refinancing. In this rule, SBA 

has adopted a more practical, less costly 

approach that relies on borrower and 

lender certifications, subject to random 

sampling to verify the amounts being 

refinanced. In addition, the rule allows 

the refinancing if substantially all of the 

proceeds of the debt being refinanced 

was used for eligible collateral. This 

rule will make that change to the 

permanent refinance program as well as 

this temporary one. 

Paperwork Reduction Act 

The SBA has determined that this rule 

imposes no additional reporting and 

recordkeeping requirements under the 

Paperwork Reduction Act, 44 U.S.C. 

Chapter 35. 

Regulatory Flexibility Act 

Because this rule is an interim final 

rule, there is no requirement for SBA to 

prepare a Regulatory Flexibility Act 

(RFA) analysis. The RFA requires 

administrative agencies to consider the 

effect of their actions on small entities, 

including small non-profit businesses, 

and small local governments. Pursuant 

to the RFA, when an agency issues a 

rule, the agency must prepare an 

analysis that describes whether the 

impact of the rule will have a significant 

economic impact on a substantial 

number of these small entities. 

However, the RFA requires such 

analysis only where notice and 

comment rulemaking is required. As 

discussed above, SBA has determined 

that there is good cause to publish this 

rule without soliciting public comment. 

This rule is, therefore, exempt from the 

RFA requirements. 

List of Subjects in 13 CFR Part 120 

Loan programs—business, Small 

businesses. 

For the reasons stated in the 

preamble, SBA amends 13 CFR part 120 

as follows: 

PART 120—BUSINESS LOANS 

■ 1. The authority for 13 CFR part 120 

is revised to read as follows: 

Authority: 15 U.S.C. 634(b)(6), (b)(7), 

(b)(14), (h), and note, 636(a), (h) and (m), 650, 

687(f), 696(3), and 697(a) and (e); Public Law 

111–5, 123 Stat. 115, Public Law 111–240, 

124 Stat. 2504. 

■ 2. Amend § 120.130 by revising 

paragraph (b) to read as follows: 

§ 120.130 Restrictions on uses of 

proceeds. 

* * * * * 

(b) Refinancing a debt owed to a 

Small Business Investment Company 

(‘‘SBIC’’) or a New Markets Venture 

Capital Company (‘‘NMVCC’’); 

* * * * * 

■ 3. Amend § 120.882 by revising 

paragraph (e)(1) and adding new 

paragraph (g) to read as follows: 

§ 120.882 Eligible Project costs for 504 

loans. 

* * * * * 

(e) * * * 

(1) Substantially all (85% or more) of 

the proceeds of the indebtedness were 

used to acquire land, including a 

building situated thereon, to construct a 

building thereon, or to purchase 

equipment. The assets acquired must be 

eligible for financing under the 504 loan 

program; 

* * * * * 

(g) For applications received on or 

after February 17, 2011 and approved by 

SBA no later than September 27, 2012, 

SBA may approve a Refinancing Project 

of a qualified debt subject to the 

following conditions and requirements: 

(1) The Refinancing Project does not 

involve the expansion of a small 

business; 

(2) The applicant for the refinancing 

available under this paragraph (g) has 

been in operation for all of the 2 year 

period ending on the date of 

application; 

(3) The qualified debt will mature on 

or before December 31, 2012, unless 

such date is extended by SBA, based on 

its assessment of available resources and 

market conditions, in a Notice 

published in the Federal Register. 

Based on available resources and market 

conditions, SBA may allow other debt to 

be refinanced if the refinancing would 

provide a substantial benefit to the 

Borrower in accordance with 

§ 120.882(e)(5). If SBA determines to 

allow such refinancing based on the 

substantial benefit criteria, SBA will 

publish a Notice in the Federal Register 

of this determination; 

(4) In addition to the annual guarantee 

fee assessed under § 120.971(d)(2), 

Borrower must pay SBA a supplemental 

annual guarantee fee to cover the 

additional cost attributable to the 

refinancing. For loans approved during 

Fiscal Year 2011, this supplemental 

annual guarantee fee will be 0.294%. 

For loans approved during Fiscal Year 

2011, the annual guarantee fee assessed 

under § 120.971(d)(2) and the 

supplemental annual guarantee fee will 

total 1.043% on the unpaid principal 

balance of the debenture. If the total 

amount of the guarantee fee changes for 

loans approved during Fiscal Year 2012, 

SBA will publish a Notice of the change 

in the Federal Register; 

(5) The funding for the Refinancing 

Project must come from three sources 

based on the current fair market value 

of the fixed assets serving as collateral 

for the Refinancing Project, including 

not less than 50% from the Third Party 

Lender, not less than 10% from the 

Borrower (excluding administrative 

costs), and not more than 40% from the 

504 loan. In addition to a cash 

contribution, the Borrower’s 10% 

contribution may be satisfied as set forth 

in § 120.910 or by the equity in any 

other fixed assets that are acceptable to 

SBA as collateral for the Refinancing 

Project, provided that there is an 

independent appraisal of the fair market 

value of the asset; 

(6) The portion of the Refinancing 

Project provided by the 504 loan and the 

Third Party Loan may be no more than 

90% of the fair market value of the fixed 

assets that will serve as collateral, but in 

no event may it exceed the outstanding 

principal balance of the qualified debt; 

(7) If the qualified debt is not fully 

satisfied by the funding provided by the 

Refinancing Project, the lender of the 

qualified debt must take one of the 

following actions, or some combination 

thereof, to address the deficiency: 

(i) Forgiveness of all or part of the 

deficiency; 

(ii) Acceptance of payment by the 

Borrower, or 

(iii) Acceptance of a Note executed by 

the Borrower for the balance, or any 

portion of the balance. Such Note must 


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Federal Register / Vol. 76, No. 33 / Thursday, February 17, 2011 / Rules and Regulations 9219 

be subordinate to the 504 loan if the 

Note and the 504 loan are secured by 

any of the same collateral. The Note is 

subject to any other restrictions that 

SBA may establish to protect its creditor 

position, including standby 

requirements; 

(8) The Third Party Lender must have 

a first lien position, and the 504 loan 

must have a second lien position, on all 

Eligible Fixed Assets securing the 

Refinancing Project. Any other lien 

must be junior in priority to these lien 

positions. For other fixed assets serving 

as collateral for the Refinancing Project, 

the lien positions of the Third Party 

Lender and the 504 loan may be junior 

to any existing liens acceptable to SBA; 

(9) Eligible Project costs which may 

be paid with the proceeds of the 504 

loan are the amount used to refinance 

the qualified debt and other costs under 

§ 120.882(c) and (d) and eligible 

administrative costs under § 120.883; 

(10) Notwithstanding § 120.860, a 

debt may be refinanced under this 

paragraph (g) if it does not meet the job 

creation or other economic development 

objectives set forth in § 120.861 or 

§ 120.862. In such case, the 504 loan 

may not exceed the product obtained by 

multiplying the number of employees of 

the Borrower by $65,000. The number of 

employees of the Borrower is equal to 

the sum of: 

(i) The number of full-time employees 

of Borrower on the date of application, 

and 

(ii) The product obtained by 

multiplying: 

(A) The number of part-time 

employees of the Borrower on the date 

of application; by 

(B) The quotient obtained by dividing 

the average number of hours each part 

time employee of the Borrower works 

each week by 40. 

Example: 30 full-time employees and 35 

part-time employees working 20 hours per 

week is calculated as follows: 30 + (35 × (20/ 

40)) = 47.5. The maximum amount of the 504 

loan would be 47.5 multiplied by $65,000, or 

$3,087,500. 

(11) The authority to approve the 

refinancing under this paragraph (g) is 

not delegated to PCLP CDCs; 

(12) The 504 loans approved under 

this paragraph (g) must be disbursed 

within 6 months after loan approval. 

The Director, Office of Financial 

Assistance, or his or her designee may 

approve any request for extension of the 

disbursement period for good cause; 

(13) The Third Party Loan may not be 

sold on the secondary market as a part 

of a pool guaranteed under subpart J of 

this part 120 when the debt being 

refinanced is same institution debt; 

(14) The Third Party Lender must 

certify that it would not refinance the 

qualified debt except for the assistance 

provided under this paragraph (g); 

(15) Definitions. For the purposes of 

this paragraph (g), the terms below are 

defined as follows: 

Date of application refers to the date 

the 504 loan application is received by 

SBA. 

Eligible Fixed Assets are one or more 

long-term fixed assets, such as land, 

buildings, machinery, and equipment, 

acquired, constructed or improved by a 

small business for use in its business 

operations. 

Fair market value refers to the current 

appraised value of an asset that is 

established by an independent appraiser 

in accordance with the standards 

established by SBA in its SOPs. 

Qualified debt is a commercial loan: 

(i) That was incurred not less than 2 

years before the date of the application 

for the refinancing available under this 

paragraph (g); 

(ii) That is not subject to a guarantee 

by a Federal agency or department; 

(iii) Substantially all (85% or more) of 

which was for the acquisition of Eligible 

Fixed Assets; 

(iv) That was for the benefit of the 

small business concern; 

(v) That is collateralized by Eligible 

Fixed Assets; 

(vi) That is not a Third Party Loan 

that is part of an existing 504 Project; 

and 

(vii) For which the applicant for the 

refinancing available under this 

paragraph (g) has been current on all 

payments due for not less than 1 year 

preceding the date of application. For 

the purposes of this subparagraph (vi), 

‘‘current on all payments due’’ means 

that no payment scheduled to be made 

during the one year period was either 

deferred or more than 30 days past due. 

Any delinquency in payment of the loan 

to be refinanced after approval and 

before debenture funding must be 

reported to SBA as an adverse change. 

Refinancing Project means the fair 

market value of the Eligible Fixed 

Asset(s) securing the qualified debt and 

any other fixed assets acceptable to 

SBA. 

Same institution debt means any debt 

of the Third Party Lender that is 

providing funds for the refinancing, or 

of its affiliates. 

■ 4. Amend § 120.884 by revising 

paragraph (a) to read as follows: 

§ 120.884 Ineligible costs for 504 loans. 

* * * * * 

(a) Debt refinancing (other than 

interim financing), except as provided 

in § 120.882(e) and (g). 

* * * * * 

Dated: February 10, 2011. 

Karen G. Mills, 

Administrator. 

[FR Doc. 2011–3470 Filed 2–16–11; 8:45 am] 

BILLING CODE 8025–01–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 71 

[Docket No. FAA–2010–1032; Airspace 

Docket No. 10–AGL–20] 

Amendment of Class E Airspace; 

Muncie, IN 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Final rule. 

SUMMARY: This action amends Class E 

airspace at Muncie, IN, to accommodate 

new Area Navigation (RNAV) Standard 

Instrument Approach Procedures (SIAP) 

at Ball Memorial Hospital Heliport, 

Muncie, IN. The FAA is taking this 

action to enhance the safety and 

management of Instrument Flight Rule 

(IFR) operations at the heliport. 

DATES: Effective date: 0901 UTC, May 5, 

2011. The Director of the Federal 

Register approves this incorporation by 

reference action under 1 CFR part 51, 

subject to the annual revision of FAA 

Order 7400.9 and publication of 

conforming amendments. 

FOR FURTHER INFORMATION CONTACT: 

Scott Enander, Central Service Center, 

Operations Support Group, Federal 

Aviation Administration, Southwest 

Region, 2601 Meacham Blvd., Fort 

Worth, TX 76137; telephone (817) 321– 

7716. 

SUPPLEMENTARY INFORMATION: 

History 

On November 8, 2010, the FAA 

published in the Federal Register a 

notice of proposed rulemaking to amend 

Class E airspace for Muncie, IN, creating 

controlled airspace at Ball Memorial 

Hospital Heliport (75 FR 68552) Docket 

No. FAA–2010–1032. Interested parties 

were invited to participate in this 

rulemaking effort by submitting written 

comments on the proposal to the FAA. 

No comments were received. 

Subsequent to publication, an error was 

found in the regulatory text noting the 

wrong airport name. This rule will make 

the correction. 


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