Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Rules and Regulations 78205 

insufficiently transparent to meet the 

standard for reproducibility; or 

(vi) Derive from or implement 

Executive Orders or other Presidential 

directives that have been subsequently 

rescinded or substantially modified. 

DOE concludes that this rulemaking is 

consistent with the directives set forth 

in these Executive Orders. This final 

rule will update and improve efficiency 

in DOE’s implementation of NEPA by 

appropriately focusing DOE’s NEPA 

analysis for natural gas export 

applications and eliminating certain 

requirements of its existing regulations 

that are unnecessary. 

M. Congressional Notification 

As required by 5 U.S.C. 801, DOE will 

submit to Congress a report regarding 

the issuance of this final rule prior to 

the effective date set forth at the outset 

of this rulemaking. The report will state 

that it has been determined that the rule 

is not a ‘‘major rule’’ as defined by 5 

U.S.C. 801(2). 

Approval of the Office of the Secretary 

The Secretary of Energy has approved 

publication of this final rule. 

List of Subjects in 10 CFR Part 1021 

Environmental impact statements. 

Signing Authority 

This document of the Department of 

Energy was signed on November 24, 

2020, by William S. Cooper III, General 

Counsel, pursuant to delegated 

authority from the Secretary of Energy. 

That document with the original 

signature and date is maintained by 

DOE. For administrative purposes only, 

and in compliance with requirements of 

the Office of the Federal Register, the 

undersigned DOE Federal Register 

Liaison Officer has been authorized to 

sign and submit the document in 

electronic format for publication, as an 

official document of the Department of 

Energy. This administrative process in 

no way alters the legal effect of this 

document upon publication in the 

Federal Register. 

Signed in Washington, DC, on November 

25, 2020. 

Treena V. Garrett, 

Federal Register Liaison Officer, U.S. 

Department of Energy. 

For the reasons stated in the 

preamble, DOE amends part 1021 of 

Chapter X of Title 10 of the Code of 

Federal Regulations as set forth below: 

PART 1021—NATIONAL 

ENVIRONMENTAL POLICY ACT 

IMPLEMENTING PROCEDURES 

■ 1. The authority citation for part 1021 

continues to read as follows: 

Authority: 42 U.S.C. 7101 et seq.; 42 U.S.C. 

4321 et seq.; 50 U.S.C. 2401 et seq. 

■ 2. Appendix B to subpart D of part 

1021 is amended by: 

■ a. Revising section B5.7; and 

■ b. Removing and reserving section 

B5.8. 

The revision reads as follows: 

Appendix B to Subpart D of Part 1021— 

Categorical Exclusions Applicable to 

Specific Agency Actions 

* * * * * 

B5. * * * 

* * * * * 

B5.7 Export of natural gas and associated 

transportation by marine vessel 

Approvals or disapprovals of new 

authorizations or amendments of existing 

authorizations to export natural gas under 

section 3 of the Natural Gas Act and any 

associated transportation of natural gas by 

marine vessel. 

B5.8 [Removed and Reserved] 

* * * * * 

Appendix C to Subpart D of Part 1021— 

Classes of Actions That Normally 

Require EAs But Not Necessarily EISs 

C13 [Removed and Reserved] 

■ 3. Remove and reserve section C13. 

Appendix D to Subpart D of Part 1021— 

Classes of Actions That Normally 

Require EISs 

D8 and D9 [Removed and Reserved] 

■ 4. Remove and reserve sections D8 

and D9. 

[FR Doc. 2020–26459 Filed 12–3–20; 8:45 am] 

BILLING CODE 6450–01–P 

SMALL BUSINESS ADMINISTRATION 

13 CFR Part 120 

RIN 3245–AH04 

SBA Supervised Lenders Application 

Process 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Final rule. 

SUMMARY: The U.S. Small Business 

Administration (SBA or Agency) is 

amending the regulations applicable to 

Small Business Lending Companies 

(SBLCs) and state-regulated lenders 

(Non-Federally Regulated Lenders 

(NFRLs) (collectively referred to as SBA 

Supervised Lenders). The key 

amendments to the regulations include 

a new application and review process 

for SBA Supervised Lenders, including 

for transactions involving a change of 

ownership or control. Other 

amendments to the regulations include 

updating the minimum capital 

maintenance requirements, clarifying 

the factors SBA will consider in its 

evaluation of an SBA Supervised Lender 

application and limiting the 7(a) lending 

area for NFRLs. 

DATES: This rule is effective January 4, 

2021. 

FOR FURTHER INFORMATION CONTACT: Paul 

Kirwin, Chief, SBA Supervised Lender 

Oversight Team, Office of Credit Risk 

Management, Office of Capital Access, 

U.S. Small Business Administration, 

409 3rd Street SW, Washington, DC 

20416; telephone: (202) 205–7261; 

email: paul.kirwin@sba.gov. 

SUPPLEMENTARY INFORMATION: 

I. Background Information 

The 7(a) Loan Program is a business 

loan program authorized by section 7(a) 

of the Small Business Act (15 U.S.C. 

636(a)) and is governed primarily by the 

regulations in part 120 of title 13 of the 

Code of Federal Regulations (CFR). The 

core mission of the 7(a) Loan Program 

is to provide SBA-guaranteed financial 

assistance to small businesses that lack 

access to capital on reasonable terms 

and conditions to support our nation’s 

economy. 

Most Lenders participating in the 7(a) 

Loan Program are depository 

institutions that have a primary Federal 

Financial Institution Regulator (as 

defined in 13 CFR 120.10) that oversees 

the Lender’s lending activities. SBA has 

statutory authority under section 

7(a)(17) of the Small Business Act to 

authorize non-federally regulated 

entities to make 7(a) loans, including 

entities that have state regulators. Under 

this authority, SBA has authorized SBA 

Supervised Lenders to make loans in the 

7(a) Loan Program. SBA Supervised 

Lenders are defined in 13 CFR 120.10 to 

include SBLCs and NFRLs, and are 

subject to regulation, oversight, and 

enforcement by SBA. 

SBLCs are non-depository lending 

institutions that are authorized only to 

make loans pursuant to section 7(a) of 

the Small Business Act and loans to 

Intermediaries in SBA’s Microloan 

program. SBLCs are regulated, 

supervised, and examined solely by 

SBA, except for the subset of SBLCs 

defined as Other Regulated SBLCs in 13 

CFR 120.10. SBA imposed a moratorium 

on issuing additional SBA lending 

78206 Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Rules and Regulations 

1SBA waived certain regulations for the purpose 

of permitting mission-oriented lenders to 

participate in SBA’s Community Advantage Pilot 

Program (referred to as CA Lenders), a pilot 

program within the 7(a) Loan Program. Each CA 

Lender is identified as either an SBLC or NFRL, 

depending on whether the lender is subject to 

regulation by a state. CA Lenders are limited to 

making loans in the CA Pilot Program, which 

generally requires a CA Lender to make loans to 

underserved markets (e.g., low-to-moderate income 

communities, rural areas, opportunity zones, 

veteran-owned businesses) and in an amount not to 

exceed $250,000. The CA Pilot Program is governed 

by all regulations applicable to the 7(a) Loan 

Program generally and to SBA Supervised Lenders 

specifically unless waived or modified in the 

Federal Register Notices published in connection 

with the CA Pilot Program. As indicated in the 

proposed rule, the revisions in this final rule do not 

apply to the CA Pilot Program. For more 

information about the CA Pilot Program please refer 

to the CA Participant Guide, Version 6.0 (June 15, 

2020), available at https://www.sba.gov/document/ 

support-community-advantage-participant-guide. 

2This final rule does not apply to NFRLs 

authorized to make Paycheck Protection Program 

(PPP) loans under SBA Form 3507. For more 

information about PPP please refer to the 

information available on SBA’s website at https:// 

www.sba.gov/funding-programs/loans/coronavirusrelief-options/paycheck-protection-program. 

3The current version of the SOP is 50 10 6, 

effective October 1, 2020. The application 

requirements can be found in this SOP in Part 1, 

Section A, Chapter 1, Paragraph A.2 with respect 

to NFRLs and Part 1, Section A, Chapter 2, 

Paragraph B with respect to SBLCs. The SOP is 

available at https://www.sba.gov/document/sop-50- 

10-lender-development-company-loan-programs-0. 

authorities (referred to as SBLC 

Licenses) to SBLCs in 1982. Currently, 

there are fourteen (14) SBLCs with the 

authority to make 7(a) loans up to the 

maximum loan amount allowed under 

the Small Business Act.1 An entity may 

purchase one of the fourteen (14) SBLC 

Licenses from an existing SBLC with 

SBA’s prior written approval. 

NFRLs are business concerns that are 

subject to regulation, supervision and 

oversight by a state regulator that must 

be satisfactory to SBA. By definition, an 

NFRL’s lending activities are not 

regulated by a Federal Financial 

Institution Regulator. NFRLs are 

typically organized as state licensed 

Business and Industrial Development 

Companies (BIDCOs) and may include 

other types of state-regulated lending 

institutions, such as non-profit 

corporations or financial institutions 

without Federal deposit insurance or 

share insurance protection.2

To become an SBA Supervised 

Lender, an applicant must be qualified 

as determined by SBA in its sole 

discretion. An entity interested in 

becoming an SBA Supervised Lender 

must submit an application to SBA 

containing the information specified in 

SBA’s Standard Operating Procedures 

50 10, Lender and Development 

Company Loan Programs, as amended 

from time to time (SOP 50 10).3

On January 13, 2020, SBA published 

a proposed rule with a request for 

comments in the Federal Register to 

amend the regulations related to the 

SBA Supervised Lender application and 

review process and to mitigate certain 

risks inherent in their participation in 

the 7(a) Loan Program. 85 FR 1783 

(January 13, 2020). The proposed 

changes were designed to: Improve 

efficiencies related to the SBA 

Supervised Lender application and 

review process, including for a change 

of ownership or control transaction (as 

defined in § 120.468); incorporate into 

the regulations the factors SBA will 

consider in its evaluation of an 

application; and mitigate the increased 

risk associated with the lending 

operations of SBA Supervised Lenders 

by updating their minimum capital 

maintenance requirements and 

establishing a 7(a) lending area for 

NFRLs. 

II. Summary of Comments 

SBA received 19 comments on the 

proposed rule. Seven comments were 

submitted by or on behalf of SBLCs. 

Three comments were submitted by or 

on behalf of NFRLs. Three comments 

were submitted by or on behalf of state 

regulators. SBA also received comments 

from two trade associations, two law 

firms, and two individuals. 

The comments were generally 

supportive of the proposed application 

and review process with some suggested 

changes to shorten the waiting period 

for entities seeking to reapply to become 

an SBA Supervised Lender. 

Commenters generally agreed with 

SBA’s proposed definition of qualified 

full-time professional management with 

minor changes. The commenters were 

also generally in favor of the changes to 

the minimum capital maintenance 

requirements with some proposed 

changes. A majority of the commenters 

were opposed to SBA limiting the 7(a) 

lending area for NFRLs to the state in 

which their primary state regulator is 

located. Commenters also requested 

some technical changes to the proposed 

regulation related to SBA’s evaluation of 

applications and the requirements for 

change of ownership or control 

transactions. Finally, there were several 

responses to SBA’s request for 

comments on whether SBA should 

modify the contribution that servicing 

rights assets may have on an SBA 

Supervised Lender’s capital 

maintenance requirement. 

SBA appreciates the comments 

received and has incorporated many of 

the suggested changes into the final 

rule. SBA has addressed the comments 

to the proposed regulatory changes 

within the section-by-section analysis 

below. 

III. Section-by-Section Analysis of 

Comments and Changes 

A. SBA Supervised Lenders 

1. Section 120.460 What are SBA’s 

additional requirements for SBA 

Supervised Lenders? 

SBA proposed to add two new 

paragraphs to § 120.460. Proposed 

paragraph (c) required all SBA 

Supervised Lenders to employ qualified 

full-time professional management, as is 

currently required for SBLCs. This 

proposed regulation also clarified the 

meaning of full-time professional 

management to include, at a minimum, 

the employment of a chief executive 

officer or equivalent to manage daily 

operations, a chief credit/risk officer, 

and at least one other full-time 

employee qualified by training and 

experience to carry out the SBA 

Supervised Lender’s business plan. In 

addition, proposed paragraph (c) 

included a requirement that an SBA 

Supervised Lender must sustain a 

sufficient level of 7(a) lending activity 

in its area of operation. 

Overall commenters supported 

proposed § 120.460(c). A few 

commenters suggested that SBA should 

allow SBA Supervised Lenders to fulfill 

the full-time professional management 

requirement by using shared employees 

from affiliate organizations. One 

commenter suggested SBA should 

eliminate the requirement for a third 

full-time employee. 

SBA recognizes that SBA Supervised 

Lenders may have different staffing 

levels depending on the size of their 7(a) 

loan portfolios. However, SBA 

maintains its policy position that SBA 

Supervised Lenders must have a 

minimum level of internal oversight to 

independently manage their 7(a) 

lending operations. SBA considered the 

comments received and has revised the 

rule to permit SBA Supervised Lenders 

to meet the qualified full-time 

professional management requirement 

by having two full-time senior officers 

(i.e., CEO and CCO/CRO), and one parttime employee (which may be a shared 

employee of the lender’s affiliates). 

Existing SBA Supervised Lenders will 

not be required to comply with this 

regulatory definition of qualified fulltime professional management unless, 

after the effective date of this final rule, 

the SBA Supervised Lender makes or 

acquires any 7(a) loans or engages in a 

transaction that constitutes a change of 

ownership or control. 

SBA received six comments in 

support of the requirement in paragraph 

Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Rules and Regulations 78207 

4SBA’s guaranty on regular 7(a) loans ranges from 

50% to 90% of the loan amount. Under the PPP, 

SBA’s guaranty is 100% of the loan amount. 

(c) for each SBA Supervised Lender to 

maintain a sufficient level of lending 

activity in its area of operation. Most 

commenters requested that SBA clarify 

in the final rule the meaning of a 

‘‘sufficient’’ level of lending activity. 

SBA considered these comments and 

has determined that a sufficient level of 

lending activity for SBA Supervised 

Lenders means obtaining at least four 

7(a) loan approvals during two 

consecutive fiscal years. This is 

modeled on the minimum level of loan 

activity that SBA currently requires for 

Certified Development Companies in 

the 504 loan program. See 13 CFR 

120.828. Existing SBA Supervised 

Lenders will not be required to comply 

with the 7(a) lending activity 

requirement unless, after the effective 

date of this final rule, the SBA 

Supervised Lender makes or acquires 

any 7(a) loans or engages in a 

transaction that constitutes a change of 

ownership or control. 

Second, proposed new paragraph (d) 

limited an NFRL’s 7(a) lending area to 

the state in which its primary state 

regulator is located. Overall, 

commenters were opposed to this part 

of the proposed rule. Some commenters 

argued that a limitation on the 7(a) 

lending area for NFRLs could have an 

impact on their business plans. Five 

commenters suggested that SBA should 

allow NFRLs previously engaged in 

nationwide 7(a) lending to continue 

such lending activities. One commenter 

supported the 7(a) lending area 

restriction for NFRLs, but suggested that 

SBA provide a 1-year transition period 

to allow NFRLs to adjust their future 

7(a) lending activities. 

As stated in the proposed rule, 

approximately 90 percent of all 7(a) loan 

approvals obtained by NFRLs during the 

last 3 fiscal years were for 7(a) loans to 

be made in the state where the NFRL’s 

primary state regulator was located. 

Additionally, the final rule does not 

limit or restrict in any way an NFRL’s 

ability to make other types of non-SBA 

loans to borrowers on a nationwide 

basis. While SBA understands that some 

state regulators may not object to 

nationwide 7(a) lending for NFRLs, state 

regulators do not bear the same financial 

risk that SBA assumes as the guarantor 

of 7(a) loans.4 Moreover, while state 

regulators may generally oversee NFRLs 

within their borders for safety and 

soundness, SBA bears the responsibility 

of ensuring participating lenders 

comply with SBA Loan Program 

Requirements (as defined in 13 CFR 

120.10). When SBA placed a 

moratorium on approving additional 

SBLCs in 1982, it did so to reduce the 

administrative resources needed to 

prudently regulate and oversee nondepository lenders with a nationwide 

7(a) lending platform. SBA does not 

have the administrative resources 

needed to oversee NFRLs with a 

nationwide 7(a) lending platform in 

addition to the 14 SBLCs it currently 

regulates. In addition, proposed 

§ 120.460(d) is consistent with state 

statutes placing geographic limits on 

lending activity overseen by state 

regulators, as well as a general 

understanding that NFRLs are expected 

to focus on economic development in 

their state and local communities. 

SBA carefully considered the 

comments received on proposed 

§ 120.460(d) and does not agree with the 

commenters’ objections. In order to 

manage the Agency’s limited 

administrative resources and the 

increased risk to SBA associated with 

NFRLs participating in the 7(a) Loan 

Program, the final rule establishes a 7(a) 

lending area for NFRLs limited to the 

state in which their primary state 

regulator is located. SBA will provide 

an exception such that an NFRL’s 

lending area may include a local trade 

area that is contiguous to such state 

(e.g., a city or metropolitan statistical 

area that is bisected by a state line) with 

SBA’s prior written approval. SBA also 

is adopting a commenter’s suggestion 

that NFRLs that are currently engaged in 

7(a) lending outside of the state in 

which their primary regulator is located 

should not be subject to the 7(a) lending 

area limitation until 1 year after the 

effective date of the final rule. SBA will 

apply this rule immediately, however, 

to all new NFRLs and to any NFRL that 

engages in and/or is seeking approval of 

a change of ownership or control 

transaction. The 1-year grace period will 

allow the few NFRLs that may be 

affected by this rule to adjust their 

future 7(a) lending activities. SBA 

encourages existing or prospective 

NFRLs interested in making 7(a) loans 

on a nationwide basis to acquire one of 

the fourteen SBLC licenses that become 

available from time to time. 

For further discussion of the impact of 

this provision, see the final regulatory 

flexibility analysis (FRFA) below. 

2. Section 120.462 What are SBA’s 

additional requirements on capital 

maintenance for SBA Supervised 

Lenders? 

SBA proposed to amend the 

regulations to require NFRLs to 

maintain a baseline minimum amount 

of capital necessary for participation in 

the 7(a) Loan Program. The proposed 

rule established a minimum amount of 

capital equal to the higher of (1) the 

minimum amount of capital required by 

the NFRL’s state regulator, or (2) 

$2,500,000. Commenters were generally 

supportive of the proposal. A few 

commenters indicated that the $2.5 

million capital amount was too high, 

and SBA should instead allow the 

minimum capital requirement to be 

based on the size of the NFRL’s loan 

portfolio. Other commenters suggested 

that the $2.5 million capital amount was 

too low and encouraged SBA to raise the 

minimum capital requirement for 

NFRLs to be at the same level as SBLCs 

(i.e., $5 million). 

SBA must ensure that NFRLs have a 

minimum level of capital necessary to 

manage the credit risk associated with 

their 7(a) lending operations. SBA 

disagrees with the comments suggesting 

that the amount should be increased or 

decreased and is moving forward with 

the rule as proposed. As SBA proposed, 

NFRLs will have 3 years after the 

effective date of this final rule to reach 

the new minimum capital amount. In 

addition, an NFRL that does not meet 

the new minimum capital requirement 

by the end of the 3-year period may 

remain in the 7(a) Loan Program but 

will not be permitted to make or acquire 

7(a) loans after such date until it 

satisfies the minimum capital 

requirement. The minimum capital 

requirement will also apply 

immediately to new NFRLs and in the 

event of a change of ownership or 

control of an NFRL occurring and/or 

approved after the effective date of this 

final rule. 

3. Section 120.466 SBA Supervised 

Lender Application 

SBA proposed to add a new § 120.466 

to codify a new application and review 

process for entities seeking to become 

an SBA Supervised Lender. SBA 

proposed to evaluate applications 

through an initial review and, if 

warranted, a final review. 

The initial review requires an SBA 

Supervised Lender applicant to submit 

a written plan (known as a Lender 

Assessment Plan (LAP)). The LAP 

contains key information that would 

enable SBA to reach a preliminary 

assessment about the qualifications of 

an applicant expeditiously. An LAP 

review includes an initial assessment of 

the applicant’s business plan, 

capitalization, and professional 

management team. SBA could also 

require an interview with the Office of 

Capital Access. If SBA were to notify an 

applicant that it may not proceed to the 

final review phase, the proposed rule 

78208 Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Rules and Regulations 

5The information required to be submitted in a 

complete application is not set forth in SBA’s 

regulation but will continue to be in SBA’s official 

policies and procedures. See SOP 50 10. 

provided that the applicant must wait 

nine months from the date of such 

notification before reapplying by 

submitting a new LAP. 

Overall commenters were supportive 

of the proposed rule. SBA received six 

comments suggesting the 9-month 

waiting period was too long and should 

be shortened to 3 months. SBA 

considered these comments and has 

agreed to shorten the waiting period 

from 9 months to 6 months to address 

the commenters’ concerns. SBA believes 

that 3 months is too short a period to 

allow an applicant to make meaningful 

improvements in its circumstances. 

The final review, as proposed under 

§ 120.466(b), requires an SBA 

Supervised Lender applicant to submit 

a complete application to SBA. The 

complete application updates the 

information disclosed in the LAP and 

provides SBA with additional 

information for review, such as the 

applicant’s organizational documents, 

operational plan, credit policies, 

internal control policies, loan risk rating 

system, capital adequacy plan, proposed 

credit facilities (if any), organizational 

chart, audited financial statements, bank 

statements, legal opinions and any other 

necessary documentation as further 

described in official SBA policies and 

procedures.5 After completion of the 

final review, SBA issues a final decision 

to approve or deny the application. If an 

SBA Supervised Lender’s application is 

denied, the proposed rule required an 

applicant to wait 18 months before it 

may submit a new LAP and restart the 

application process. The Agency 

received a number of comments 

requesting that SBA shorten this 18- 

month time period. SBA considered 

these comments and has agreed to 

shorten the time period from 18 months 

to 12 months. SBA believes a 1 year 

waiting period will allow the applicant 

to address material deficiencies and for 

meaningful and sustained improvement 

in its application. 

Lastly, under proposed § 120.466(c), 

an entity seeking to become an NFRL is 

required to have at least one year of 

current operating and relevant 

commercial lending experience (by the 

entity itself) before the entity may 

submit an application to become an 

SBA Supervised Lender. SBA did not 

receive comments on this portion of the 

proposed rule and will include 

paragraph (c) in the final rule, with the 

clarification that it is the applicant that 

must have the requisite experience. 

4. Section 120.467 Evaluation of SBA 

Supervised Lender Applicants 

SBA proposed to add a new § 120.467 

to incorporate into the regulations the 

factors SBA will consider in evaluating 

an SBA Supervised Lender applicant. 

SBA’s evaluation will include a review 

of, among other things, the applicant’s 

business plan, capitalization, 

operational plan, organizational 

structure, management qualifications, 

the historical performance of the loans 

originated by the applicant or 

attributable to its management team, the 

applicant’s financial projections and 

liquidity, and prior history or 

involvement of the applicant or its 

management team (including key 

employees) with any SBA guaranteed 

lending program or any other Federal or 

state lending program. SBA also reviews 

the results of background investigations 

(e.g., through SBA Form 1081) and other 

information obtained through due 

diligence and reference checks. Under 

the proposed rule SBA may also 

prohibit individuals or entities from 

participating as an officer, director, 

manager, owner or key employee of an 

SBA Supervised Lender applicant. 

Commenters were generally in 

support of the proposed rule. SBA 

received four comments to proposed 

paragraph (b)(1) suggesting that it be 

revised to reflect that the individuals or 

entities that SBA may prohibit from 

serving as an officer, director, manager, 

owner or key employee of an SBA 

Supervised Lender are those that have 

‘‘materially’’ failed to comply with SBA 

Loan Program Requirements. SBA has 

agreed to revise § 120.467(b)(1) by 

adding ‘‘materially’’ to this paragraph in 

the final rule. 

5. Section 120.468 Change of 

Ownership or Control Requirements for 

SBA Supervised Lenders 

SBA proposed to move the regulation 

applicable to a change of ownership or 

control of an SBLC (§ 120.475) to a new 

§ 120.468 with certain modifications. 

The purpose of this change is to 

incorporate into the regulations the 

Agency’s current policy requirement 

and practice that all SBA Supervised 

Lenders, including NFRLs, must obtain 

SBA written approval prior to any 

change of ownership or control. 

Section 120.468(a) in the proposed 

rule clarified that SBA Supervised 

Lenders must receive SBA prior written 

approval before entering into a 

definitive agreement regarding a change 

of ownership or control. SBA received 

approximately 11 comments on this 

proposed rule. The commenters were 

opposed to the requirement to obtain 

SBA prior written approval before 

entering into a definitive agreement for 

a change of ownership or control. Most 

commenters requested that SBA either 

strike this provision from the rule or 

require a change of ownership or control 

to be ‘‘conditioned’’ upon receipt of 

SBA approval. 

SBA disagrees with these comments. 

SBA is seeking to eliminate the time and 

expense associated with SBA 

Supervised Lenders entering into 

agreements for a change of ownership or 

control only to have SBA deny their 

requests months later after conducting a 

thorough review of the applications. 

Allowing SBA Supervised Lenders to 

enter into an agreement upfront 

(without prior SBA approval) would 

cause unnecessary time and expense to 

be expended by the parties in some 

cases and could unfairly raise 

expectations. The final rule retains the 

requirement that any SBA Supervised 

Lenders seeking to continue in the 7(a) 

Loan Program must obtain SBA’s prior 

written approval before entering into an 

agreement for a change of ownership or 

control. To avoid confusion as to the 

meaning of a ‘‘definitive’’ agreement, 

SBA has removed the term and is 

clarifying that the limitation applies 

even if such agreement is conditioned 

on SBA approval. However, an SBA 

Supervised Lender may enter into a 

non-binding letter of intent regarding a 

prospective change of ownership or 

control, provided that such letter is 

reported to SBA within 30 calendar 

days. SBA removed the cross reference 

to § 120.464(a)(5) in the final rule in 

response to comments received. 

Section 120.468(b) of the proposed 

rule clarified that if the approval of any 

state or Federal authority is required for 

an SBA Supervised Lender’s change of 

ownership or control, such approval is 

required in addition to SBA’s prior 

written approval. SBA did not receive 

any comments on this part of the 

proposed rule and will adopt the text in 

the final rule as proposed. 

Section 120.468(c) of the proposed 

rule incorporated SBA’s current policy 

that a new application must be 

submitted to SBA in connection with a 

change of ownership or control of an 

SBA Supervised Lender. SBA did not 

receive any comments on this part of the 

proposed rule and will adopt the text in 

the final rule as proposed. 

Section 120.468(d) of the proposed 

rule provided that SBA Supervised 

Lenders would have an opportunity to 

voluntarily surrender their SBA lending 

authority (i.e., the SBLC License or the 

NFRL lending authority) and withdraw 

from the 7(a) Loan Program with SBA’s 

prior written approval. As proposed, a 

Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Rules and Regulations 78209 

6 In addition, the Coronavirus Aid, Relief, and 

Economic Security Act (CARES Act) (Pub. L. 116– 

136), permits participating lenders to make section 

7(a) loans up to a maximum amount of $10 million 

under the PPP. 

voluntary surrender requires an SBA 

Supervised Lender to (i) transfer its 

entire loan portfolio to one or more 

Lenders acceptable to SBA, and (ii) 

enter into a withdrawal agreement. One 

commenter suggested that if a transferee 

for an SBA Supervised Lender’s 7(a) 

loan portfolio could not be found, the 

final rule should be clarified so that 

SBA may take over the servicing of the 

SBA Supervised Lender’s 7(a) loan 

portfolio. SBA agrees with this comment 

and has revised the final rule such that 

SBA may, in its sole discretion, elect to 

take over the servicing of an SBA 

Supervised Lender’s 7(a) loan portfolio 

upon the voluntary surrender of its SBA 

lending authority. If SBA elects to take 

over servicing, the SBA Lender must 

assign the 7(a) loan documents to SBA 

and provide any needed assistance to 

allow SBA to take over servicing. SBA 

may use contractors to perform these 

actions. See 13 CFR 120.535(d). 

6. Section 120.471 What are the 

minimum capital requirements for 

SBLCs? 

SBA proposed to amend § 120.471(a) 

to increase the minimum capital 

requirement for SBLCs. As stated in the 

proposed rule, the minimum capital 

amount for SBLCs has not been updated 

since 1996. SBA believes the current 

minimum capital (of at least $1,000,000) 

is insufficient to assure an SBLC’s 

continued financial viability or to 

provide for any necessary growth. As 

stated in the proposed rule, the 

maximum 7(a) loan amount has 

increased from $1,000,000 in 1996 to 

$5,000,000 as of the date of the 

proposed rule.6 As a result, SBA has 

determined that a corresponding change 

to increase the minimum capital 

requirements for SBLCs is necessary at 

this time. 

Under the proposed rule, SBLCs must 

maintain a minimum amount of capital 

equal to unencumbered paid-in capital 

and paid-in surplus of at least $5 

million, or 10 percent of the aggregate 

of the SBLC’s share of all outstanding 

loans, whichever is greater. Most of the 

14 SBLCs have capital in excess of the 

minimum capital proposed under 

§ 120.471(a). SBA also included a 

provision in the proposed rule 

providing SBLCs with 3 years after the 

effective date of the final rule to reach 

the new minimum capital amount. 

However, the proposed minimum 

capital amount would apply 

immediately in the event of a change of 

ownership or control of an SBLC 

occurring and/or approved after the 

effective date of this final rule. 

Five commenters supported the 

proposed rule and two commenters 

were opposed. Commenters also 

encouraged SBA to modify the 

definition of regulatory capital so that 

SBA Supervised Lenders would not 

need to maintain capital against the full 

amount of the unguaranteed portion of 

7(a) loans sold into securitizations. 

Three commenters also expressed some 

concerns about the proposed increase in 

capital for non-profit SBLCs and 

suggested that these entities should be 

permitted to use ‘‘restricted’’ capital 

toward their minimum capital 

requirement. 

SBA considered the comments and is 

moving forward with the proposed rule 

as drafted. SBA disagrees that SBLCs 

should only be required to maintain 

capital against the risk retention portion 

of their 7(a) loan securitizations as 

opposed to the full amount of the 

unguaranteed portion of 7(a) loans sold 

into securitizations. SBA requires nondepository institutions (including SBA 

Supervised Lenders) that engage in 

securitization transactions to maintain 

capital in accordance with § 120.425(a). 

This regulation applies a capital charge 

against all assets of the securitizer 

including the balance outstanding on 

the unguaranteed portion of the 

securitizer’s 7(a) loans, as well as 

including those unguaranteed interests 

in any securitization pool. SBA did not 

propose any revisions to § 120.425(a) in 

the proposed rule. 

SBA also does not agree with the 

suggestion that non-profit SBLCs should 

be permitted to include ‘‘restricted’’ 

capital in their minimum capital 

calculation. An SBLC’s capital must be 

‘‘unencumbered’’ and available to 

absorb potential losses from its lending 

activities, including those associated 

with its entire 7(a) loan portfolio. 

Restricted capital does not meet this 

requirement. SBA will not permit nonprofit SBLCs to include restricted 

capital towards their minimum capital 

calculation. 

Finally, SBA will continue to study 

whether changes to the definition of 

capital under § 120.471(b) should be 

modified to account for the valuation of 

servicing rights assets. Most of the 

comments received suggested that SBA 

should allow SBLCs to receive full 

credit for the value of their servicing 

rights towards their minimum capital 

requirement. If SBA determines there is 

a need for further changes, SBA will 

promulgate regulations or provide 

additional guidance on this issue. 

B. Technical Changes 

1. Section 120.410 Requirements for 

All Participating Lenders 

SBA proposed a conforming technical 

change to § 120.410(a)(1) to reflect the 

new minimum capital requirements for 

SBA Supervised Lenders. SBA did not 

receive any comments on this proposed 

technical change and incorporated the 

proposed text into the final rule. 

2. Section 120.470 What are SBA’s 

additional requirements for SBLCs? 

SBA proposed a conforming technical 

change to remove § 120.470(g) 

‘‘Management’’ and redesignate 

paragraph (h) as paragraph (g). No 

comments were received, and SBA is 

adopting the change in this final rule. 

The management requirement for SBLCs 

is addressed in new § 120.460(c). 

3. Section 120.475 Change of 

Ownership or Control 

SBA proposed a conforming technical 

change to remove and reserve § 120.475. 

No comments were received, and SBA 

is adopting the change in this final rule. 

The text of § 120.475 is incorporated 

into § 120.468. 

Compliance With Executive Orders 

12866, 13563, 13771, 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 

This rule finalizes a proposed rule 

that the Office of Management and 

Budget (OMB) determined was not a 

‘‘significant’’ regulatory action for the 

purposes of Executive Order 12866. 

OMB did not change the non-significant 

designation for this final rule, and 

therefore, SBA has not prepared a 

Regulatory Impact Analysis. This is not 

a major rule under the Congressional 

Review Act, 5 U.S.C. 801 et seq. 

Executive Order 13563 

This executive order supplements and 

reaffirms the principles and 

requirements in Executive Order 12866, 

including the requirement to provide 

the public with an opportunity to 

participate in the regulatory process. 

SBA Supervised Lenders have been 

involved in the 7(a) Loan Program for 

over 35 years. Over the years, the 

Agency has received feedback from SBA 

Supervised Lender applicants and 

program participants, including 

valuable insight and suggestions for 

improvements to the application and 

review process. This feedback from SBA 

Supervised Lenders, together with the 

comments in response to the proposed 

rule, has shaped this final rule. 

78210 Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Rules and Regulations 

Executive Order 13771 

This final rule is not subject to 

Executive Order 13771 regulatory action 

because the rule is not significant under 

Executive Order 12866. 

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 

retroactive or preemptive effect. 

Executive Order 13132 

SBA has determined that this final 

rule 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. For the 

purposes of Executive Order 13132, 

SBA has determined that this rule has 

no federalism implications warranting 

preparation of a federalism assessment. 

Paperwork Reduction Act, 44 U.S.C., 

Ch. 35 

SBA has determined that this final 

rule imposes a new reporting 

requirement under the Paperwork 

Reduction Act (PRA). Specifically, the 

final rule requires SBA Supervised 

Lenders to submit a written Lender 

Assessment Plan (LAP) for SBA to 

conduct an initial review of the 

applicant. In addition, the final rule 

codifies a requirement for applicants to 

submit a complete application in order 

for SBA to determine whether the 

applicant has the qualifications 

necessary to participate in the 7(a) Loan 

Program as an SBA Supervised Lender. 

As discussed above, this requirement is 

currently described in SBA’s official 

policies and procedures. In addition to 

these two requirements, the applicant 

will submit the same forms as other 

Lenders that apply to participate in the 

7(a) Loan Program, including the SBA 

Form 1081, Statement of Personal 

History (OMB Control number 3245– 

0080). 

The title, summary of the information 

collections, description of respondents, 

and an estimate of the related reporting 

burdens are discussed below. 

Additional information related to these 

requirements is included in the 

Regulatory Flexibility Act discussion in 

this rule. SBA did not receive comments 

on the new information collections in 

the proposed rule. 

Title of Collection: SBA Supervised 

Lender Application and Review. 

OMB Control Number: New 

Collection. 

(a) Lender Assessment Plan. 

The final rule requires organizations 

seeking to become an SBA Supervised 

Lender (or seeking SBA approval of a 

change of ownership or control) to 

submit a LAP to SBA. The LAP includes 

the legal name and contact information 

of the applicant, a written business 

plan, current and projected financial 

statements and other important 

information about the applicant and its 

management team (including key 

employees). 

Need and Purpose: The LAP is 

necessary for SBA to conduct an initial 

review of an applicant seeking to 

become an SBA Supervised Lender (or 

seeking SBA approval of a change of 

ownership or control). The LAP 

provides SBA with key information that 

would enable SBA to reach a 

preliminary assessment about the 

qualifications of an applicant more 

efficiently. This initial review phase 

will assist SBA in identifying 

incomplete applications and 

unqualified applicants much earlier in 

the application review process. 

Description and Estimated Number of 

Respondents: Pursuant to proposed 

§ 120.466(a), the information in the LAP 

will be collected from each organization 

seeking to become an SBA Supervised 

Lender (or seeking SBA approval of a 

change of ownership or control). SBA 

estimates that it will likely receive no 

more than four LAPs each year. 

Total Estimated Response Time: It is 

estimated that each applicant would 

need approximately 35 hours to prepare 

and submit the LAP for an estimated 

total of 140 hours annually. 

(b) SBA Supervised Lender 

Application. 

If an applicant seeking to become an 

SBA Supervised Lender (or seeking SBA 

approval of a change of ownership or 

control) is authorized by SBA to 

proceed to the final review phase, the 

applicant will be required to submit a 

complete application. 

Need and Purpose: The information 

submitted with this application is 

necessary for SBA to reach a final 

decision regarding whether the 

applicant has the qualifications 

necessary to participate in the 7(a) Loan 

Program. The complete application 

requires an SBA Supervised Lender 

applicant to provide additional detail 

about the information previously 

disclosed to SBA in the LAP and will 

include new information about the 

applicant’s proposed operation and 

lending activities as a participant in the 

7(a) Loan Program. As stated above, 

these application requirements are not 

new since they are currently set out in 

SBA’s official policies and procedures. 

Under those policies and procedures, an 

organization applying to become an 

SBA Supervised Lender (or seeking SBA 

approval of a change of ownership or 

control) is required to, among other 

things, submit documentation in 

support of its organizational structure, 

internal control policies, operational 

plan, proposed credit policies, loan risk 

rating system, proposed secondary 

market activities, capital adequacy plan, 

audited financial statements and other 

information (e.g., certifications and legal 

opinions) necessary for SBA to evaluate 

the qualifications of the applicant. See 

SOP 50 10. Although SBA estimates that 

the requirements will only apply to 

approximately four organizations each 

year, now that SBA is codifying the 

application requirements in this final 

rule, under the PRA the requirements 

are deemed to impact ten or more 

respondents; therefore, SBA has also 

requested OMB approval of this 

application in compliance with the PRA 

procedures. 

Description and Estimated Number of 

Respondents: The information in the 

complete application will be collected 

from organizations that are seeking to 

become an SBA Supervised Lender and 

have successfully reached the final 

review phase. Based on current 

experience, SBA estimates that it will 

likely receive no more than four 

complete applications each year. 

Total Estimated Response Time: It is 

estimated that each applicant would 

need approximately 50 hours to prepare 

and submit a complete application, for 

an estimated total of 200 hours 

annually. 

Regulatory Flexibility Act, 5 U.S.C. 601– 

612 

Under the Regulatory Flexibility Act 

(RFA), this final rule may have an 

impact on a substantial number of small 

entities that participate as SBA 

Supervised Lenders in the 7(a) Loan 

Program. Immediately below, SBA sets 

forth a final regulatory flexibility 

analysis (FRFA) examining the impact 

of the final rule in accordance with 5 

U.S.C. 603. The FRFA addresses (1) the 

reasons, objectives and legal basis for 

this rule; (2) a description of the kind 

and number of small entities that may 

be affected; (3) the projected reporting, 

recordkeeping and other compliance 

requirements; (4) whether there are any 

Federal rules that may duplicate, 

overlap, or conflict with this rule; and 

(5) whether there are any significant 

alternatives to this rule. 

Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Rules and Regulations 78211 

7The cost estimate for the LAP is based on hourly 

job position wages published by the U.S. 

Department of Labor’s Bureau of Labor Statistics for 

2019 and increased by 100% to account for benefits 

and overhead. The cost breakdown is as follows: 

Financial Manager (30 hours times an hourly rate 

of $124.90) plus Administrative Assistant (5 hours 

times an hourly rate of $36.24) equals $3,838. 

8The cost estimate for a complete application is 

based on hourly job position wages published by 

the U.S. Department of Labor’s Bureau of Labor 

Statistics for 2019 and increased by 100% to 

account for benefits and overhead. The cost 

breakdown is as follows: Financial Manager (30 

hours times an hourly rate of $124.90) plus 

Accountant (10 hours times an hourly rate of 

$68.80) plus Attorney (5 hours times an hourly rate 

of $118.22) plus Administrative Assistant (5 hours 

times an hourly rate of $36.24) equals $5,207. 

1. What are the reasons, objectives and 

legal basis for the rule? 

The rule is designed to improve 

efficiencies and enhance the application 

and review process for organizations 

seeking to participate in the 7(a) Loan 

Program as SBA Supervised Lenders. 

The objective is to provide a process for 

a more efficient and effective evaluation 

of the qualifications of applicants 

seeking to become SBA Supervised 

Lenders. The new application and 

review process will provide greater 

clarity and transparency to applicants 

and would expedite SBA’s review, 

which may potentially reduce costs on 

applicants and on SBA’s limited 

administrative resources. 

The rule also raises the minimum 

capital requirement that SBA 

Supervised Lenders must maintain to 

assure their continued financial 

viability and to provide for any 

necessary growth. The minimum capital 

requirement for SBA Supervised 

Lenders has not been updated by SBA 

for more than 23 years. The Agency has 

determined that the regulations 

addressing minimum capital must be 

amended to correspond with the more 

than 500 percent increase in the 

maximum 7(a) loan amount that 

Congress has authorized by statute over 

the last twenty-three years. 

The rule also limits the 7(a) lending 

area for NFRLs to the state in which 

their primary regulator is located, 

except that an NFRL may request SBA’s 

prior written approval to make 7(a) 

loans in a local trade area that is 

contiguous to such state (e.g., a city or 

metropolitan statistical area that is 

bisected by a state line). Most NFRLs 

participating in the 7(a) Loan Program 

already limit their lending activities to 

the state in which their primary state 

regulator is located. In recent years, 

some state regulators have permitted 

NFRLs to make loans outside of their 

state or even nationwide. The expansion 

of an NFRL’s 7(a) lending area increases 

risk to SBA and the Agency does not 

have the additional administrative 

resources to adequately supervise, 

regulate and examine NFRLs that 

operate outside of their state. This part 

of the final rule is also consistent with 

the general understanding that stateregulated lenders (such as BIDCOs) are 

licensed under specific state laws to 

focus primarily on economic 

development in their respective state 

and local communities. Based on the 

comments received, SBA has agreed to 

provide existing NFRLs that SBA has 

approved for 7(a) lending outside of the 

state in which their primary regulator is 

located with an additional one-year 

grace period to allow them to adjust 

their future 7(a) lending activities. 

SBA is authorized to supervise the 

safety and soundness of SBA 

Supervised Lenders and may regulate 

their 7(a) lending activities pursuant to 

section 23(a) of the Small Business Act. 

15 U.S.C. 650(a), see also 15 U.S.C. 

634(b)(7). SBA has the authority to 

promulgate rules, regulations and 

requirements for the 7(a) Loan Program. 

15 U.S.C. 634(b)(6). 

2. What are SBA’s description and 

estimate of the number of small entities 

to which the rule will apply? 

SBA Supervised Lenders affected by 

this rule comprise a unique class of 36 

non-depository lenders that may only 

participate in the 7(a) Loan Program and 

make 7(a) loans if authorized by SBA. 

This final rule will be applicable to all 

SBA Supervised Lenders (other than 

lenders participating as CA Lenders in 

the CA Pilot Program and lenders 

authorized to make PPP loans under 

SBA Form 3507). SBA estimates that 

approximately 88 percent of SBA 

Supervised Lenders are considered 

small entities based on NAICS sector 

code 52 (Finance and Insurance) and 

industry code 52298 (All Other Nondepository Credit Intermediation) and 

have annual receipts of less than $38.5 

million. This estimate of 32 small SBA 

Supervised Lenders is based in part on 

information contained in the quarterly 

condition reports and the annual reports 

that are required to be submitted to SBA 

by such lenders. 

3. What are the projected reporting, 

recordkeeping, and other compliance 

requirements of the rule and an estimate 

of the classes of small entities which 

will be subject to the requirements? 

The final rule imposes a new 

reporting requirement for organizations 

seeking to become an SBA Supervised 

Lender (or seeking SBA approval of a 

change of ownership or control). The 

final rule codifies an existing 

requirement that applicants submit a 

complete application for SBA to 

determine whether an organization has 

the qualifications necessary to 

participate in the 7(a) Loan Program as 

an SBA Supervised Lender. 

The LAP includes key information 

about an organization that will allow 

SBA to reach a preliminary assessment 

about the qualifications of an applicant 

more efficiently. SBA estimates it will 

receive approximately four LAPs each 

year. SBA estimates that it will take 

approximately 35 hours for an 

organization to prepare an LAP at a cost 

of $3,838 per LAP. Based on SBA’s 

experience with similar data collections, 

we expect an organization that submits 

a LAP will need to employ the services 

of a financial manager and an 

administrative assistant when preparing 

an LAP for submission to SBA.7

If an organization is authorized by 

SBA to proceed to the final review 

phase, a complete application must be 

submitted to SBA. As mentioned above, 

the application requirements for SBA 

Supervised Lenders are not new and are 

currently set forth in SBA’s official 

policies and procedures. See SOP 50 10 

6, Part 1, Section A, Chapter 1, 

Paragraph A.2 for NFRLs and Part 1, 

Section A, Chapter 2, Paragraph B for 

SBLCs. SBA estimates that it will 

receive approximately four complete 

applications each year. SBA estimates 

that it will take approximately 50 hours 

for an organization to prepare a 

complete application at a cost of $5,207 

per application. Based on SBA’s 

experience with similar data collections, 

an organization applying to become an 

SBA Supervised Lender would typically 

employ the services of a financial 

manager, an accountant, an attorney and 

an administrative assistant when 

preparing a complete application for 

submission to SBA.8 SBA did not 

receive comments on whether the 

number of hours estimated to prepare a 

complete application is appropriate or 

on the services they employ to complete 

the application. 

SBA anticipates that there will be 

some costs for SBA Supervised Lenders 

related to the new minimum capital 

requirement under the rule. This rule 

establishes a new minimum capital 

requirement for SBLCs and NFRLs of at 

least $5 million and $2.5 million, 

respectively. Based on information 

provided to SBA by SBA Supervised 

Lenders in quarterly condition reports, 

11 of the 14 SBLCs (i.e., 79 percent) 

have at least $3.7 million in capital (and 

of those 11 SBLCs, 11 have more than 

$5 million in capital). In addition, 19 of 

the 22 NFRLs (i.e., 86 percent) have 

more than $2.5 million in capital. 

78212 Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Rules and Regulations 

9The 2019 Valuation Handbook—U.S. Industry 

Cost of Capital published by Duff & Phelps provides 

cost of capital estimates for approximately 170 

industries identified by Standard Industrial 

Classification codes (SIC). For purposes of 

estimating the cost of raising equity capital for SBA 

Supervised Lenders, SBA used SIC code 61—nondepository credit institutions, which includes 21 

companies that are engaged primarily in extending 

credit in the form of loans (but are not engaged in 

deposit banking). SBA compared the estimated cost 

of raising capital cited above with other sources and 

found the data to be similar. 

10The estimated cost to raise $1.27 million or 

$3.58 million in equity capital would be as follows: 

$1,270,000 times 9.8% equals $124,000; $3.58 

million times 9.8% equals $350,000. 

11 It should be noted that some existing SBA 

Supervised Lenders may decide to increase their 

capital by retaining earnings instead of raising new 

equity capital, which would reduce the cost of this 

rule. 

SBA has determined that there are 

seven small entities that will be 

impacted by the new capital 

requirements in the rule. In other words, 

7 of the 36 SBA Supervised Lenders that 

are considered small entities will need 

to increase their capital to reach the new 

minimum capital requirement of either 

$2.5 million or $5 million (as 

applicable). SBA estimates the amount 

of capital that would need to be raised 

by these small entities currently ranges 

between $1,270,000 and $3,580,000. 

SBA estimates that this rule may have 

a significant economic impact on 6 of 

the 36 SBA Supervised Lenders (i.e., 17 

percent), each of which is considered a 

small entity. As noted above, all existing 

SBA Supervised Lenders will have 3 

years from the effective date of a final 

rulemaking to comply with this part of 

the rule (other than for transactions 

involving a change of ownership or 

control of an SBA Supervised Lender). 

SBA estimates that the cost of raising 

capital for SBA Supervised Lenders is 

approximately 9.8 percent of the 

amount of equity capital raised based on 

the Capital Asset Pricing Model 

(CAPM). The CAPM is one of the most 

widely used pricing models by financial 

professionals and considered the 

preferred method to estimate the cost of 

equity capital. See Duff & Phelps 2019 

Valuation Handbook—U.S. Industry 

Cost of Capital (data through June 30, 

2019).9 SBA estimates that the total cost 

of raising new equity capital for the 

seven SBA Supervised Lenders based on 

the requirements of the rule would 

range in amount from approximately 

$124,000 to $350,000.10 However, the 

cost is mitigated by the fact that under 

the rule SBA Supervised Lenders will 

have 3 years to increase their capital. 

Thus, the maximum amount that it 

would cost an existing SBA Supervised 

Lender to reach the new minimum 

capital requirement would be 

approximately $117,000 per year for 3 

consecutive years.11

SBA determined that a 3-year time 

frame was a sufficient amount of time 

for SBA Supervised Lenders to increase 

their capital. SBA specifically requested 

comments on whether SBA Supervised 

Lenders should have 3 years to comply 

with the new minimum capital 

requirements under the proposed rule or 

should be required to comply sooner. 

The majority of the commenters were 

generally supportive of at least a 3-year 

time frame to meet the new minimum 

capital requirement. 

The rule also limits the 7(a) lending 

area for NFRLs to the state in which 

their primary state regulator is located, 

except that with SBA approval it may 

include a local trade area that is 

contiguous to such state (such as a city 

or metropolitan statistical area bisected 

by a state line). There are currently 22 

NFRLs participating in the 7(a) Loan 

Program. During the last 3 fiscal years, 

2 NFRLs (each of which is considered 

a small entity) requested loan 

authorizations to make the majority of 

their 7(a) loans outside of the state in 

which their primary state regulator is 

located. Except for these two NFRLs, 

approximately 90 percent of the lending 

within the 7(a) Loan Program during the 

last 3 fiscal years was done in the state 

where the NFRL’s primary state 

regulator is located. Approximately 79 

percent of all 7(a) loan approvals 

obtained by NFRLs during the last 3 

fiscal years were for loans to be made 

to small businesses located within their 

own state. This part of the rule will not 

impact a substantial number of small 

entities. It is important to note that this 

final rule will not impose any 

restrictions regarding an NFRL’s non7(a) lending activities. Therefore, the 

final rule will not have any impact on 

an NFRL’s ability to generate business 

by making other types of non-SBA loans 

outside of its own state. 

Most commenters did not support the 

limitation on 7(a) lending areas for 

NFRLs. SBA considered the comments 

received and has agreed to allow 

existing NFRLs one additional year to 

adjust to this portion of the rule. 

Therefore, NFRLs currently engaged in 

7(a) lending outside of the state in 

which their primary regulator is located 

may continue to make 7(a) loans on a 

nationwide basis (if permitted by their 

primary state-regulator) for 1 year from 

the effective date of this final rule. This 

additional one-year grace period will 

not apply to new applications from 

NFRLs, including those that have 

engaged in and/or are seeking approval 

of a change of ownership or control. 

In summary, SBA estimates that the 

total cost to a particular SBA Supervised 

Lender associated with this rule 

(including the costs related to data 

collection) will range from zero to 

$356,683, substantially all of which 

relates to the cost of raising capital and 

may be spread over a 3-year time period. 

4. What are the relevant Federal rules 

which may duplicate, overlap, or 

conflict with the rule? 

We are not aware of any Federal rules 

that duplicate, overlap or conflict with 

this rule. SBA’s SOP 50 10 will have to 

be amended to conform to portions of 

this rule, which will be done separately. 

5. What alternatives will allow the 

Agency to accomplish its regulatory 

objectives while minimizing the impact 

on small entities? 

The Agency originally considered 

imposing the new minimum capital 

requirements for SBA Supervised 

Lenders immediately due to the risk 

associated with their lending 

operations. SBA recognized, however, 

that providing a 3-year period for SBA 

Supervised Lenders to increase their 

capital would be less burdensome on 

lenders and their operational plans. 

SBA took into consideration that some 

lenders may need time to plan their 

capital raising efforts and negotiate 

favorable terms and conditions for 

increasing their capital. The 3-year time 

period will provide SBA Supervised 

Lenders with a sufficient amount of 

time to raise new equity capital and an 

opportunity to increase capital by 

retaining earnings (which will reduce 

the estimated overall cost of raising 

such capital). 

SBA believes many of the changes in 

this rule will benefit small entities 

interested in becoming an SBA 

Supervised Lender by clarifying areas in 

the application process where there was 

confusion and to make the process more 

transparent. This rule will also allow 

SBA to evaluate the qualifications of 

new applicants (including for change of 

ownership or control transactions) more 

efficiently and make well-informed 

decisions on SBA Supervised Lender 

applications. SBA believes this rule 

encompasses best practice guidance that 

aligns with the Agency’s mission to 

increase access to capital for small 

businesses and facilitate American job 

preservation and creation. 

List of Subjects in 13 CFR Part 120 

Community development, Equal 

employment opportunity, Loan 

programs—business, Reporting and 

recordkeeping requirements, Small 

businesses. 

Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Rules and Regulations 78213 

For the reasons stated in the 

preamble, SBA is amending 13 CFR part 

120 as follows: 

PART 120—BUSINESS LOANS 

■ 1. The authority for 13 CFR part 120 

continues to read as follows: 

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

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

note, 650, 657t, and note, 657u, and note, 

687(f), 696(3) and (7), and note, and 697(a) 

and (e), and note. 

§ 120.410 [Amended] 

■ 2. Amend § 120.410 in paragraph 

(a)(1) by removing the phrase ‘‘for 

SBLCs, meeting its SBA minimum 

capital requirement; and for NFRLs, 

meeting its state minimum capital 

requirement); and’’, and adding in its 

place the phrase, ‘‘and for SBLCs and 

NFRLs, meeting their respective 

minimum capital requirement); and’’. 

■ 3. Amend § 120.460 by adding 

paragraphs (c) and (d) to read as follows: 

§ 120.460 What are SBA’s additional 

requirements for SBA Supervised Lenders? 

* * * * * 

(c) An SBA Supervised Lender must 

have qualified full-time professional 

management including, but not limited 

to, a chief executive officer or the 

equivalent to manage daily operations, 

and a chief credit/risk officer. An SBA 

Supervised Lender must also have at 

least one other part-time professional 

employee (which may be a shared 

employee of the lender’s affiliates) 

qualified by training and experience to 

carry out its business plan. An SBA 

Supervised Lender is expected to 

sustain a sufficient level of lending 

activity in its lending area, which means 

obtaining at least four 7(a) loan 

approvals during two consecutive fiscal 

years. This paragraph only applies to 

SBA Supervised Lenders that make or 

acquire a 7(a) loan after January 4, 2021, 

or to any SBA Supervised Lender 

approved after such date, including in 

the event of a change of ownership or 

control of an SBA Supervised Lender. 

(d) An NFRL may only make or 

acquire 7(a) loans in the state in which 

its primary state regulator is located, 

except that an NFRL’s lending area may 

include a local trade area that is 

contiguous to such state (e.g., a city or 

metropolitan statistical area that is 

bisected by a state line) if the NFRL 

receives SBA’s prior written approval. 

This paragraph applies to all NFRLs on 

or after January 4, 2021, including in the 

event of approval of a new NFRL or a 

change of ownership or control of an 

NFRL; provided however, that if SBA 

has approved any NFRL to make 7(a) 

loans out of their state, then this 

paragraph will apply on or after January 

4, 2022. 

■ 4. Amend § 120.462 by: 

■ a. Removing the phrase ‘‘by state 

regulators’’ wherever it appears and 

adding in its place the phrase ‘‘in 

§ 120.462(a)(1)’’; 

■ b. Redesignating paragraphs (a) 

through (e) as paragraphs (b) through (f); 

and 

■ c. Adding a new paragraph (a). 

The addition reads as follows: 

§ 120.462 What are SBA’s additional 

requirements on capital maintenance for 

SBA Supervised Lenders? 

(a) Minimum capital requirements— 

(1) For NFRLs. (i) Beginning on January 

4, 2024, each NFRL that makes or 

acquires a 7(a) loan must maintain the 

minimum capital required by its state 

regulator, or $2,500,000, whichever is 

greater. 

(ii) Any NFRL approved on or after 

January 4, 2021, including in the event 

of a change of ownership or control, 

must maintain the minimum capital 

requirement set forth in paragraph 

(a)(1)(i) of this section. 

(iii) Unless subject to paragraph 

(a)(1)(i) or (ii) of this section, an NFRL 

must comply with the minimum capital 

requirements for NFRLs that were in 

effect on January 3, 2021. 

(2) For SBLCs. For information on 

minimum capital requirements for 

SBLCs, see § 120.471. 

* * * * * 

■ 5. Add § 120.466 to read as follows: 

§ 120.466 SBA Supervised Lender 

application. 

An entity seeking to participate as an 

SBA Supervised Lender must apply to 

SBA. SBA evaluates SBA Supervised 

Lender applicants through an initial 

review and final review, as follows: 

(a) Initial review. SBA Supervised 

Lender applicants must submit a written 

plan containing information about the 

organization and its current and 

proposed lending activities (‘‘Lender 

Assessment Plan’’). After SBA’s review 

of the Lender Assessment Plan, the 

Office of Capital Access may require an 

interview with the applicant and its 

management team. SBA will determine, 

in its sole discretion, whether an 

applicant may proceed to the final 

review. If SBA determines that an 

applicant may not proceed to the final 

review, the applicant must wait at least 

6 months before it may submit a new 

Lender Assessment Plan. Each applicant 

must demonstrate to SBA’s satisfaction 

that it meets the ethical requirements 

and the participation criteria set forth in 

13 CFR 120.140 and 120.410. The 

Lender Assessment Plan must include 

the following items: 

(1) The legal name, address, telephone 

number and email address of the 

applicant; 

(2) Business plan, detailing the 

applicant’s proposed lending area and 

the volume of loan activity projected 

over the next 3 years (supported by 

current and projected balance sheets, 

income statements and statements of 

cash flows); 

(3) Capitalization (current and 

proposed), including the form of 

organization and the identification of all 

debt and classes of equity capital and 

proposed funding amounts, including 

any rights or preferences accorded to 

such interests (e.g., voting rights, 

redemption rights and rights of 

convertibility) and any conditions for 

the transfer, sale or assignment of such 

interests; 

(4) A list of all members of the 

applicant’s management team, including 

the applicant’s officers, directors, 

managers and key employees, as well as 

the applicant’s owners, Associates (as 

defined in § 120.10) and Affiliates (as 

defined in § 121.103 of this chapter); 

(5) A written summary of the 

professional experience (including any 

prior experience with any SBA program) 

of the applicant’s management team 

(including key employees); 

(6) In connection with any application 

to become an SBLC, the applicant must 

include a letter agreement signed by an 

authorized official of an existing SBLC 

certifying that the SBLC is seeking to 

transfer its SBA lending authority to the 

applicant; and 

(7) If approval of any state or Federal 

chartering, licensing or other regulatory 

authority is required, copies of any 

licenses issued by or documents filed 

with such authority. 

(b) Final review. Each applicant that 

receives notice from SBA in writing that 

it may proceed to the final review must 

submit a complete application to SBA 

within 90 calendar days. The 

application requirements for SBA 

Supervised Lenders are set forth in 

official SBA policy and procedures. An 

incomplete application submitted to 

SBA will not be processed and will be 

returned to the applicant. SBA may, in 

its sole discretion, approve or deny any 

SBA Supervised Lender application. 

The decision to approve or deny an SBA 

Supervised Lender application is a final 

agency decision. If an SBA Supervised 

Lender application is denied by SBA or 

if a complete application is not timely 

submitted, the applicant may not submit 

a new Lender Assessment Plan and 

restart the application process until 12 

months from the date of denial or the 

78214 Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Rules and Regulations 

date a complete application was due to 

SBA, as applicable. 

(c) NFRL operating and lending 

experience requirement. For an entity 

seeking to become an NFRL, evidence of 

at least 1 year of current operating and 

relevant commercial lending experience 

by the entity must be provided. 

■ 6. Add § 120.467 to read as follows: 

§ 120.467 Evaluation of SBA Supervised 

Lender applicants. 

(a) SBA will evaluate an SBA 

Supervised Lender applicant based on 

information from, among other sources, 

the Lender Assessment Plan, an 

interview with the applicant’s 

management team (if required), the 

application and any other 

documentation submitted by the 

applicant, the results of background 

investigations, public record searches 

and due diligence conducted by SBA or 

other Federal or state agencies. SBA’s 

evaluation will consider factors such as 

the following: 

(1) Professional qualifications of its 

management team (including key 

employees), including demonstrated 

commercial lending experience, 

business reputation, adherence to legal 

and ethical standards, track record in 

making and monitoring business loans, 

and prior history, if any, working as an 

officer, manager, director or key 

employee of a lender involved in any 

SBA program or any other Federal or 

state lending program. 

(2) Historical performance measures 

of loans originated by the applicant or 

attributable to its management team 

(including key employees), including 

loan default rates, purchase rates and 

loss rates, measured in both percentage 

terms and in comparison to appropriate 

industry benchmarks, review/ 

examination assessments and other 

performance measures. 

(3) The applicant’s capitalization, 

organizational structure, business plan 

(including any risk factors), projected 

financial performance, financial 

strength, liquidity, the soundness of its 

financial projections and underlying 

assumptions, loan underwriting process, 

operations plan and the history of 

compliance of the applicant and its 

management team (including key 

employees) with SBA Loan Program 

Requirements. 

(4) Whether the NFRL’s state regulator 

and the state statute or regulations 

governing the NFRL’s operations, 

including but not limited to those 

pertaining to audit, examination, 

supervision, enforcement and 

information sharing, are satisfactory to 

SBA in its sole discretion. 

(5) For changes of ownership or 

control, in addition to the factors listed 

in paragraphs (a)(1) through (4) of this 

section, SBA will consider whether the 

applicant’s plan for the resolution of 

any outstanding monetary liabilities to 

SBA, including repairs and denials and 

civil monetary penalties, is acceptable 

to SBA in its sole discretion. 

(b) SBA may prohibit any individual 

or entity from participating as an officer, 

director, manager, owner or key 

employee of the applicant if such 

individual or entity: 

(1) Has a previous record of failing to 

materially comply with SBA Loan 

Program Requirements; 

(2) Previously participated in a 

material way with any past or present 

SBA Lender or Intermediary that failed 

to maintain satisfactory SBA 

performance; 

(3) Previously defaulted on any 

Federal loan or Federally assisted 

financing that resulted in the Federal 

Government or any of its agencies or 

departments sustaining a loss in any of 

its programs; or 

(4) Ever failed to pay when due any 

debt or obligation, including any 

amounts in dispute, to the Federal 

Government or guaranteed by the 

Federal Government (including but not 

limited to taxes or business or student 

loans). 

■ 7. Add § 120.468 to read as follows: 

§ 120.468 Change of ownership or control 

requirements for SBA Supervised Lenders. 

(a) SBA prior approval required. Any 

change of ownership or control of an 

SBA Supervised Lender without SBA’s 

prior written approval is prohibited. 

Prior to entering into any agreement, 

other than a non-binding letter of intent, 

for a change of ownership or control, 

SBA Supervised Lenders must receive 

SBA’s prior written approval from the 

appropriate SBA official in accordance 

with the prevailing Delegations of 

Authority. An SBA Supervised Lender 

may not register proposed new owners 

on its books and records or permit them 

to participate in any manner in the 

conduct of the SBA Supervised Lender’s 

affairs unless approved in writing by 

SBA. Any type of non-binding letter of 

intent regarding a prospective change of 

ownership or control must be reported 

to SBA within 30 calendar days. A 

change of ownership or control includes 

the following: 

(1) Any transfer(s) (direct or indirect) 

of 10 percent or more of any class of the 

SBA Supervised Lender’s stock or 

ownership interests (or series of 

transfers which, in the aggregate over an 

18 month period, equals 10 percent or 

more), or any agreement providing for 

such transfer; 

(2) Any transfer(s) (direct or indirect) 

that could result in the beneficial 

ownership by any person or group of 

persons acting in concert of 10 percent 

or more of any class of the SBA 

Supervised Lender’s stock or ownership 

interests, or any agreement providing for 

such transfer(s); 

(3) Any merger, consolidation, or 

reorganization; 

(4) Any other transaction or 

agreement that transfers control of an 

SBA Supervised Lender; or 

(5) Any other transaction or event that 

results in any change in the possession 

(direct or indirect) of the right to 

control, or the power to direct or cause 

the direction of, the management or 

policies of an SBA Supervised Lender, 

whether through the ownership of 

voting securities, by contract or 

otherwise. 

(b) Approval required by other 

regulatory authorities. If a change of 

ownership or control of an SBA 

Supervised Lender is subject to the 

approval of any state or Federal 

chartering, licensing or other regulatory 

authority, copies of any documents filed 

with such authority must, at the same 

time, be transmitted to the appropriate 

SBA official in accordance with the 

prevailing Delegations of Authority. The 

approval of any state or Federal 

authority will be required in addition to 

SBA’s prior written approval. 

(c) Application requirements for 

changes of ownership or control. An 

applicant must submit a Lender 

Assessment Plan and a new application 

in accordance with § 120.466 for any 

change of ownership or control. If a 

proposed change of ownership is for 

less than 50 percent of the ownership 

interests in an SBA Supervised Lender, 

SBA may, in its sole discretion, limit the 

requirements of the Lender Assessment 

Plan or the complete application as set 

forth in official SBA policy and 

procedures. 

(d) Voluntary surrender of SBA 

lending authority. An SBA Supervised 

Lender may voluntarily surrender its 

SBA lending authority (including its 

SBLC license or NFRL lending 

authority, as applicable) and withdraw 

as a participating Lender with SBA’s 

prior written approval. The SBA 

Supervised Lender must agree to 

transfer its entire 7(a) loan portfolio to 

one or more Lenders acceptable to SBA 

in accordance with § 120.432(a), and 

enter into a withdrawal agreement to 

resolve any outstanding issues, 

including any outstanding monetary 

liabilities, to SBA’s satisfaction. SBA 

may, in its sole discretion, take over the 

Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Rules and Regulations 78215 

servicing of an SBA Supervised 

Lender’s 7(a) loan portfolio in 

accordance with § 120.535(d) upon the 

voluntary surrender of its SBA lending 

authority. 

§ 120.470 [Amended] 

■ 8. Amend § 120.470 by removing 

paragraph (g) and redesignating 

paragraph (h) as paragraph (g). 

■ 9. Amend § 120.471 by: 

■ a. Revising paragraph (a); 

■ b. Redesignating paragraphs (b)(3) 

through (5) as paragraphs (b)(4) through 

(6) respectively; and 

■ c. Adding new paragraph (b)(3). 

The revision and addition to read as 

follows: 

§ 120.471 What are the minimum capital 

requirements for SBLCs? 

(a) Minimum capital requirements. (1) 

Beginning on January 4, 2024, each 

SBLC that makes or acquires a 7(a) loan 

must maintain, at a minimum, 

unencumbered paid-in capital and paidin surplus of at least $5,000,000, or 10 

percent of the aggregate of its share of 

all outstanding loans, whichever is 

greater. 

(2) Any SBLC approved on or after 

January 4, 2021, including in the event 

of a change of ownership or control, 

must maintain the minimum capital 

requirement set forth in paragraph (a)(1) 

of this section. 

(3) Unless subject to paragraph (a)(1) 

or (2) of this section, an SBLC must 

comply with the minimum capital 

requirements that were in effect on 

January 3, 2021. 

(b) * * * 

(3) Unrestricted net assets (for nonprofit corporations); 

* * * * * 

§ 120.475 [Removed and Reserved] 

■ 10. Remove and reserve § 120.475. 

Jovita Carranza, 

Administrator. 

[FR Doc. 2020–26307 Filed 12–3–20; 8:45 am] 

BILLING CODE P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2019–0425; Project 

Identifier 2016–NE–13–AD; Amendment 39– 

21346; AD 2020–25–04] 

RIN 2120–AA64 

Airworthiness Directives; Rolls-Royce 

Deutschland Ltd & Co KG (Type 

Certificate Previously Held by RollsRoyce plc) Turbofan Engines 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Final rule. 

SUMMARY: The FAA is superseding 

Airworthiness Directive (AD) 2016–24– 

08 for all Rolls-Royce Deutschland Ltd. 

& Co KG (RRD) RB211–Trent 875–17, 

RB211–Trent 877–17, RB211–Trent 

884–17, RB211–Trent 884B–17, RB211– 

Trent 892–17, RB211–Trent 892B–17, 

and RB211–Trent 895–17 model 

turbofan engines. AD 2016–24–08 

required repetitive inspections of the 

engine upper bifurcation nose fairing 

assembly and repair or replacement of 

any fairing assembly that fails 

inspection. This AD retains the 

requirements to perform repetitive 

inspections of the engine upper 

bifurcation nose fairing assembly and 

repair or replacement of any fairing 

assembly that fails inspection. As a 

terminating action to these inspections, 

this AD also requires the modification of 

the engine upper bifurcation nose 

fairing assembly. The FAA is issuing 

this AD to address the unsafe condition 

on these products. 

DATES: This AD is effective January 8, 

2021. 

The Director of the Federal Register 

approved the incorporation by reference 

of certain publications listed in this AD 

as of January 8, 2021. 

ADDRESSES: For service information 

identified in this final rule, contact 

Rolls-Royce plc, Corporate 

Communications, P.O. Box 31, Derby, 

England, DE24 8BJ; phone: (+44) 1332 

242424; fax: (+44) 1332 249936; email: 

http://www.rolls-royce.com/contact/ 

civil_team.jsp; internet: https://

customers.rolls-royce.com/public/ 

rollsroycecare. You may view this 

service information at the FAA, 

Airworthiness Products Section, 

Operational Safety Branch, 1200 District 

Avenue, Burlington, MA 01803. For 

information on the availability of this 

material at the FAA, call (781) 238– 

7759. It is also available at https://

www.regulations.gov by searching for 

and locating Docket No. FAA–2019– 

0425. 

Examining the AD Docket 

You may examine the AD docket at 

https://www.regulations.gov by 

searching for and locating Docket No. 

FAA–2019–0425; or in person at Docket 

Operations between 9 a.m. and 5 p.m., 

Monday through Friday, except Federal 

holidays. The AD docket contains this 

AD, the mandatory continuing 

airworthiness information (MCAI), any 

comments received, and other 

information. The address for Docket 

Operations is U.S. Department of 

Transportation, Docket Operations, M– 

30, West Building Ground Floor, Room 

W12–140, 1200 New Jersey Avenue SE, 

Washington, DC 20590. 

FOR FURTHER INFORMATION CONTACT: 

Scott Stevenson, Aviation Safety 

Engineer, ECO Branch, FAA, 1200 

District Avenue, Burlington, MA 01803; 

phone: (781) 238–7132; fax: (781) 238– 

7199; email: Scott.M.Stevenson@faa.gov. 

SUPPLEMENTARY INFORMATION: 

Background 

The FAA issued a notice of proposed 

rulemaking (NPRM) to amend 14 CFR 

part 39 to supersede AD 2016–24–08, 

Amendment 39–18725 (81 FR 86567, 

December 1, 2016) (AD 2016–24–08). 

AD 2016–24–08 applied to all RR 

RB211–Trent 875–17, RB211–Trent 

877–17, RB211–Trent 884–17, RB211– 

Trent 884B–17, RB211–Trent 892–17, 

RB211–Trent 892B–17, and RB211– 

Trent 895–17 model turbofan engines. 

The NPRM published in the Federal 

Register on June 24, 2019 (84 FR 29423). 

The NPRM was prompted by RRD 

developing a modification of the engine 

upper bifurcation nose fairing assembly 

that terminates the need for repetitive 

inspections of this part. In the NPRM, 

the FAA proposed to retain the 

requirements to perform repetitive 

inspections of the engine upper 

bifurcation nose fairing assembly and 

repair or replacement of any fairing 

assembly that fails inspection. As a 

terminating action, in the NPRM the 

FAA also proposed to require 

modification of the engine upper 

bifurcation nose fairing assembly. The 

FAA is issuing this AD to address the 

unsafe condition of these products. 

The European Aviation Safety Agency 

(EASA), which is the Technical Agent 

for the Member States of the European 

Community, has issued EASA AD 2018– 

0088, dated April 18, 2018 (referred to 

after this as ‘‘the MCAI’’), to address the 

unsafe condition on these products. The 

MCAI states: