80676 Federal Register / Vol. 85, No. 240 / Monday, December 14, 2020 / Proposed Rules 

§ 439.52 Suspension of accreditation. 

A laboratory will be suspended from 

the program if probation status is not 

rectified according to program 

requirements stated in this part. The 

accreditation of a laboratory will be 

immediately suspended if the laboratory 

or any individual or entity responsibly 

connected with the laboratory is 

indicted or has charges on information 

brought against them in a Federal or 

State court for any of the following 

violations of law. A laboratory must 

notify the ALP within 30 calendar days 

if any of these situations occur. 

(a) Any felony. 

(b) Any misdemeanor based upon 

acquiring, handling, or distributing of 

unwholesome, misbranded, or 

deceptively packaged food or upon 

fraud in connection with transactions in 

food. 

(c) Any misdemeanor based upon a 

false statement to any governmental 

agency. 

(d) Any misdemeanor based upon the 

offering, giving or receiving of a bribe or 

unlawful gratuity. 

(e) Altering any official sample or 

analytical finding; or substituting any 

analytical result from any other 

laboratory and representing the result as 

its own. 

§ 439.53 Revocation of accreditation. 

A laboratory will have its 

accreditation revoked from the program 

if suspension status is not rectified. The 

accreditation of a laboratory will also be 

revoked for the following reasons: 

(a) An accredited laboratory will have 

its accreditation revoked if the 

Administrator determines that the 

laboratory or any responsibly connected 

individual or any agent or employee 

has: 

(1) Altered any official sample or 

analytical finding; or 

(2) Substituted any analytical result 

from any other laboratory and 

represented the result as its own. 

(b) An accredited laboratory will have 

its accreditation revoked if the 

laboratory or any individual or entity 

responsibly connected with the 

laboratory is convicted in a Federal or 

State court of any of the following 

violations of law. A laboratory must 

notify the ALP within 30 calendar days 

if any of these situations occur. 

(1) Any felony. 

(2) Any misdemeanor based upon 

acquiring, handling, or distributing of 

unwholesome, misbranded, or 

deceptively packaged food or upon 

fraud in connection with transactions in 

food. 

(3) Any misdemeanor based upon a 

false statement to any governmental 

agency. 

(4) Any misdemeanor based upon the 

offering, giving or receiving of a bribe or 

unlawful gratuity. 

§ 439.60 Notification and hearings. 

Accreditation of any laboratory will 

be refused, suspended, or revoked under 

the conditions previously described in 

this part 439. The owner or operator of 

the laboratory will be sent written 

notice of the refusal, suspension, or 

revocation of accreditation by the 

Administrator. In such cases, the 

laboratory owner or operator will be 

provided an opportunity to present, 

within 30 days of the date of the 

notification, a statement challenging the 

merits or validity of such action and to 

request an oral hearing with respect to 

the denial, suspension, or revocation 

decision. An oral hearing will be 

granted if there is any dispute of 

material fact joined in such responsive 

statement. The proceeding will be 

conducted thereafter in accordance with 

the applicable rules of practice, which 

will be adopted for the proceeding. Any 

such refusal, suspension, or revocation 

will be effective upon the receipt by the 

laboratory of the notification and will 

continue in effect until final 

determination of the matter by the 

Administrator. 

Paul Kiecker, 

Administrator. 

[FR Doc. 2020–27016 Filed 12–11–20; 8:45 am] 

BILLING CODE 3410–DM–P 

SMALL BUSINESS ADMINISTRATION 

13 CFR Parts 120 and 123 

RIN 3245–AG98 

Regulatory Reform Initiative: 

Streamlining and Modernizing the 7(a), 

Microloan, and 504 Loan Programs To 

Reduce Unnecessary Regulatory 

Burden 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Small Business 

Administration (SBA) is proposing to 

remove or revise various regulations 

affecting its business loan programs 

because these regulations are obsolete, 

unnecessary, ineffective, or 

burdensome. In addition, one of the 

regulations that SBA is proposing to 

remove is cross-referenced in a 

regulation in SBA’s Disaster Loan 

Program; SBA is proposing to make a 

conforming change to that regulation. 

SBA also is making several technical 

amendments to the regulations to 

incorporate recent statutory changes and 

other non-substantive changes. These 

changes are being proposed to carry out 

the mandate in various Executive 

Orders to reduce the number and costs 

of the regulations that Federal agencies 

impose on the public. 

DATES: Comments are requested on or 

before February 12, 2021. 

ADDRESSES: You may submit comments, 

identified by RIN 3245–AG98, using any 

of the following methods: 

Federal eRulemaking Portal: http://

www.regulations.gov. Search for the rule 

by RIN number 3245–AG98 and follow 

the instructions for submitting 

comments. 

Mail: Linda Reilly, Chief, 504 Loan 

Program Division, Office of Financial 

Assistance, U.S. Small Business 

Administration, 409 Third Street SW, 

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 Linda 

Reilly, Chief, 504 Loan Program 

Division, U.S. Small Business 

Administration, 409 Third Street SW, 

Washington, DC 20416. Highlight the 

information that you consider to be CBI 

and explain why you believe this 

information should be held confidential. 

SBA will review the information and 

make the final determination as to 

whether to publish the information. 

FOR FURTHER INFORMATION CONTACT: 

Linda Reilly, Chief, 504 Loan Program 

Division, Office of Financial Assistance, 

U.S. Small Business Administration, 

409 Third Street SW, Washington, DC 

20416; phone: (202) 205–9949; email 

address: linda.reilly@sba.gov. 

SUPPLEMENTARY INFORMATION: 

A. General Information 

The mission of SBA is to maintain 

and strengthen the Nation’s economy by 

enabling the establishment and viability 

of small businesses, and by assisting in 

economic recovery of communities after 

disasters. In carrying out this mission, 

SBA has developed a regulatory policy 

that is implemented primarily through 

several core program offices: Office of 

Capital Access, Office of Disaster 

Assistance, Office of Entrepreneurial 

Development, Office of Government 

Contracting and Business Development, 

Office of International Trade, and Office 

of Investment and Innovation. SBA’s 

regulations are codified at title 13 of the 

Code of Federal Regulations (CFR), 


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chapter I, and consist of parts 100 

through 199. 

This rulemaking primarily addresses 

the regulations in part 120, Business 

loans. The SBA programs that are 

governed by the regulations contained 

in part 120 include the following: The 

7(a) Loan Program authorized pursuant 

to section 7(a) of the Small Business Act 

(the Act) (15 U.S.C. 636(a)); the 

Microloan Program authorized pursuant 

to section 7(m) of the Act (15 U.S.C. 

636(m)); and the Development Company 

Program (the 504 Loan Program) 

authorized pursuant to Title V of the 

Small Business Investment Act of 1958, 

as amended (15 U.S.C. 695 et seq.). 

Because this rulemaking proposes to 

remove a regulation that is crossreferenced in SBA’s Disaster Loan 

Program regulations, this rule would 

also make one conforming change to a 

regulation in part 123, Disaster loans. 

The Disaster Loan Program is authorized 

pursuant to section 7(b) of the Act (15 

U.S.C. 636(b)). 

Federal agencies have an ongoing 

responsibility to ensure that the 

regulations they issue do not have an 

adverse economic impact on those 

affected by those rules. This 

responsibility has been reinforced over 

the years in various executive orders 

that have expressly directed agencies to 

review their regulations with an eye 

towards reducing the time and money 

the public must spend to comply with 

the regulatory requirements. The most 

recent of these executive orders are 

discussed below; each of them provides 

the framework for SBA’s efforts to 

reduce the regulatory burden on the 

participants in the agency’s programs. 

One of SBA’s primary objectives in 

carrying out these efforts is to continue 

to promote economic growth, 

innovation, and job creation in the small 

business sector, and to ensure that 

victims of disasters have the clear policy 

and procedural guidance they need to 

quickly obtain financial assistance to 

rebuild their lives. 

B. Executive Order 13771 

On January 30, 2017, President Trump 

signed Executive Order 13771, Reducing 

Regulation and Controlling Regulatory 

Costs, which, among other objectives, is 

intended to ensure that an agency’s 

regulatory costs are prudently managed 

and controlled so as to minimize the 

compliance burden imposed on the 

public. For every new regulation an 

agency proposes to implement, unless 

prohibited by law, this Executive Order 

requires the agency to (i) identify at 

least two existing regulations that the 

agency can cancel; and (ii) use the cost 

savings from any cancelled regulations 

to offset the cost of the new regulation, 

such that its net cost is no greater than 

zero. 

C. Executive Order 13777 

On February 24, 2017, the President 

issued Executive Order 13777, 

Enforcing the Regulatory Reform 

Agenda, which further emphasized the 

goal of the Administration to alleviate 

the regulatory burdens placed on the 

public. Under Executive Order 13777, 

agencies must evaluate their existing 

regulations to determine which ones 

should be repealed, replaced, or 

modified. In doing so, agencies should 

focus on identifying regulations that, 

among other things, eliminate jobs or 

inhibit job creation; are outdated, 

unnecessary or ineffective; impose costs 

that exceed benefits; create a serious 

inconsistency or otherwise interfere 

with regulatory reform initiatives and 

policies; or are associated with 

Executive Orders or other Presidential 

directives that have been rescinded or 

substantially modified. 

D. Executive Order 13563 

Under Executive Order 13563, 

Improving Regulation and Regulatory 

Review (January 18, 2011), agencies are 

obligated to conduct a retrospective 

review of their regulations to seek more 

affordable, less intrusive means to 

achieve policy goals, and to give careful 

consideration to the benefits and costs 

of their regulations. Executive Order 

13563, similar to the mandates in 

Executive Order 13771 and Executive 

Order 13777, also requires agencies to 

review existing rules to remove 

outdated regulations that stifle job 

creation and make the U.S. economy 

less competitive. 

E. Comments Received in Response To 

Request for Information 

On August 15, 2017, SBA published 

a request for information in the Federal 

Register seeking input from the public 

in identifying those regulations that 

affected parties believe impose 

unnecessary burdens or costs that 

exceed their benefits, eliminate jobs or 

inhibit job creation, or are ineffective or 

outdated. See 82 FR 38617. On October 

13, 2017, SBA extended the period for 

public comments until November 15, 

2017. See 82 FR 47645. SBA reviewed 

the comments submitted by the public 

in response to that request. After 

considering these comments and 

reviewing the regulations in 13 CFR part 

120, SBA is proposing that the 

regulations identified below in the 

section-by-section analysis be either 

removed or revised. Except for the one 

conforming change to the Disaster Loan 

Program in part 123, SBA is proposing 

the removal of regulations in other parts 

of title 13 in separate rulemakings. 

F. Section-by-Section Analysis 

Section 120.2. SBA proposes to 

remove paragraphs (a)(1)(i) and (ii) of 

this section because SBA has not 

received funding to make direct or 

immediate participation 7(a) loans for 

over 30 years. SBA believes that it may 

be confusing to the public to refer to 

such loans when they are not available 

from the Agency. 

Section 120.10. SBA is proposing to 

remove the references to non-lending 

technical assistance providers (NTAPs) 

in the definition of ‘‘Risk Rating’’ 

because SBA has not issued grant funds 

to NTAPs for many years. 

Section 120.103. SBA proposes to 

remove this section on farm enterprises, 

which refers to an outdated 

Memorandum of Understanding 

between SBA and the United States 

Department of Agriculture (USDA), 

because it is unnecessary. Although 

Federal financial assistance to 

agricultural businesses is generally 

available from USDA, SBA is also 

statutorily authorized to make nondisaster business loans to agricultural 

enterprises under sections 3(a)(1) and 

7(a) of the Small Business Act and Title 

V of the Small Business Investment Act. 

Sections 120.110. This section lists 

the types of businesses that are 

ineligible for SBA business loans. For 

clarity, SBA is proposing to make 

changes to two of the types of 

businesses on the list. First, SBA would 

amend paragraph (h), which currently 

provides that businesses ‘‘engaged in 

any illegal activity’’ are ineligible, by 

revising it to provide that the business 

is ineligible if it is ‘‘engaged in any 

activity that is illegal under Federal, 

State, or local law’’. SBA wants to make 

it clear, consistent with its longstanding 

interpretation of this regulation, that the 

business is ineligible if it is engaged in 

any activity that is illegal at any level of 

government in the jurisdiction in which 

the business is operating. 

Second, SBA is proposing to remove 

and reserve paragraph (k), which 

currently provides that a business is 

ineligible if it is ‘‘principally engaged in 

teaching, instructing, counseling or 

indoctrinating religion or religious 

beliefs, whether in a religious or secular 

setting’’. This provision, which was 

promulgated in 1996, is not consistent 

with current Supreme Court 

jurisprudence in that it focuses on the 

nature of the business and whether the 

business has a major religious 

component instead of on how the loan 

proceeds from any SBA business loan 


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80678 Federal Register / Vol. 85, No. 240 / Monday, December 14, 2020 / Proposed Rules 

will be used. In both Trinity Lutheran 

Church of Columbia, Inc. v. Comer, 137 

S. Ct. 2012 (2017) and Espinoza v. 

Montana Department of Revenue, ll

U.S. ll( (June 30, 2020), the Court held 

that the government may not deny a 

public benefit to an entity solely 

because of its religious status, character, 

or identity. Accordingly, to conform 

SBA’s regulations to current Supreme 

Court jurisprudence, SBA is proposing 

to remove paragraph (k) from section 

120.110, and will apply relevant case 

law to assure that the intended use of 

the loan proceeds of SBA business loans 

is consistent with the requirements of 

the First Amendment’s Establishment 

Clause.. 

Third, SBA proposes to revise 

paragraph (n), which currently provides 

that a business is ineligible if an 

Associate ‘‘is incarcerated, on probation, 

on parole, or has been indicted for a 

felony or a crime of moral turpitude’’. 

With respect to ineligibility based on 

indictment for a crime, SBA would 

change this paragraph to provide that a 

business is ineligible if an Associate ‘‘is 

under indictment’’ instead of ‘‘has been 

indicted’’. SBA wants to make clear, 

consistent with its longstanding 

interpretation of this regulation, that the 

business is not ineligible if an Associate 

has a history of ever being indicted (but 

not convicted), but would be ineligible 

only if an Associate is under indictment 

when the business submits a loan 

application or prior to loan approval. In 

addition, SBA is proposing to replace 

the phrase, ‘‘a crime of moral 

turpitude’’, which is not always easily 

defined and can vary by State, with ‘‘a 

crime involving or related to financial 

misconduct or a false statement’’. SBA 

believes that the proposed standard is 

clearer and more relevant to SBA’s 

responsibility to carry out the business 

loan programs in a financially prudent 

manner. 

Section 120.111. SBA is proposing to 

revise this section by removing a 

duplicative sentence at the end of the 

introductory text. 

Section 120.120. This section 

describes the eligible uses of loan 

proceeds. For clarity, SBA is proposing 

to revise paragraph (a)(1), which 

currently provides that a Borrower may 

use loan proceeds to ‘‘acquire land (by 

purchase or lease)’’, to add that the land 

must be ‘‘actively used in the 

applicant’s business operations (except 

that a Borrower may lease a portion of 

the property in accordance with 13 CFR 

120.131 and 120.870(b))’’. This change 

reflects SBA’s prohibition against 

financing passive activities other than 

Eligible Passive Companies under 13 

CFR 120.111. 

Section 120.173. SBA proposes to 

remove this section, which prohibits the 

use of lead-based paint if loan proceeds 

are for the construction or rehabilitation 

of a residential structure. This 

regulation is unnecessary because 16 

CFR part 1303 already bans paint 

containing a concentration of lead in 

excess of 0.009% (90 parts per million) 

for use in residences, schools, hospitals, 

parks, playgrounds, and public 

buildings or other areas where 

consumers will have direct access to the 

painted surface. 

Section 120.190. SBA proposes to 

remove the reference to immediate 

participation loans in paragraph (a) and 

to remove paragraph (d), which refers to 

direct loans, because SBA has not 

received funding for immediate 

participation or direct loans for over 30 

years and believes that it may be 

confusing to the public to refer to such 

loans when they are not available from 

the agency. 

Section 120.192. This section states 

that loan applicants will receive notice 

of approval or denial of the loan 

application by the Lender, Certified 

Development Company (CDC), 

Microloan Intermediary, or SBA, as 

appropriate. SBA provided notice to the 

applicant only when it made direct 

loans. Because SBA has not received 

funding for direct loans for over 30 

years, it is no longer necessary to 

include the reference to SBA in this 

section. 

Section 120.211. SBA is proposing to 

remove this section, which describes the 

statutory limits for direct loans and 

immediate participation loans, because 

SBA has not received funding to make 

these loans for over 30 years. SBA 

believes that it may be confusing to the 

public to refer to such loans when they 

are not available from the agency. 

Section 120.212. This section 

establishes the maturities for a 7(a) loan. 

Paragraph (b) of this section establishes 

the loan term at ten years or less, unless 

the loan finances or refinances real 

estate or equipment with a useful life 

exceeding ten years. When the loan is 

used to finance equipment or leasehold 

improvements, SBA is proposing to 

amend paragraph (b) to allow a Lender 

to add a reasonable period, not to 

exceed 12 months, to the loan term 

when necessary to complete the 

installation of the equipment and/or 

complete the leasehold improvements. 

Section 120.213. SBA is proposing to 

remove paragraph (b), which describes 

the interest rate charged by SBA for 

direct loans, for which SBA has not 

received funding for over 30 years. SBA 

believes that it may be confusing to the 

public to refer to such loans when they 

are not available from the Agency. The 

remainder of the section would be 

revised accordingly. 

Sections 120.214. Paragraph (c) of 

section 120.214 currently allows 

Lenders to use one of three base rate 

options for calculating the maximum 

variable interest rate for 7(a) and 504 

loans: The prime rate (Prime), the 

Optional Peg Rate, and the thirty-day 

London Interbank Offered Rate (LIBOR) 

plus 3 percentage points. SBA is 

proposing to remove the LIBOR option 

in paragraph (c)(ii). The U.K. Financial 

Conduct Authority announced on July 

27, 2017, that it would phase-out LIBOR 

by the end of 2021, and no generally 

accepted replacement for LIBOR has 

been identified or widely adopted at 

this time. To provide certainty to SBA 

Lenders and Borrowers in advance of 

LIBOR’s sunset in 2021, SBA is 

proposing to remove from the regulation 

the reference to LIBOR as an optional 

base rate for variable rate 7(a) and 504 

loans. 

Lenders will only be able to use Prime 

or the Optional Peg Rate as the base rate 

for any loan approved after the effective 

date of this rule. In addition, for any 

loans outstanding with interest rates 

based on LIBOR, SBA recommends that 

Lenders review their loan documents to 

determine if the documents provide a 

fallback base rate (i.e., Prime or the 

Optional Peg Rate) without having to 

modify the loan documents. If there is 

no such flexibility, Lenders will need to 

work with Borrowers to modify their 

loan documents on an individual basis 

before LIBOR sunsets in 2021. Such 

modifications must be in compliance 

with the procedures set forth in the 

current versions of SBA Standard 

Operating Procedures 50 10 and 50 57. 

If such loans have been sold on the 

secondary market, Lenders will need to 

obtain the consent of investors to 

modify the base rate in the loan 

agreement. With only 3% of SBA’s total 

portfolio of non-disaster business loans 

using LIBOR as a base rate, the process 

of phasing out LIBOR should not have 

a significant economic impact on a 

substantial number of small entities in 

SBA’s business loan programs. 

In addition, SBA is proposing to use 

loan amounts as the basis upon which 

the variable interest rate is set, instead 

of loan maturities. Paragraph (e) would 

be removed and paragraph (d) would be 

revised to reflect the maximum variable 

interest rates for all 7(a) loans as 

follows: 

(1) For all 7(a) loans of $50,000 and 

less, the maximum interest rate shall not 

exceed six and a half (6.5) percentage 

points over the base rate; 


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(2) For all 7(a) loans greater than 

$50,000 and up to and including 

$250,000, the maximum interest rate 

shall not exceed six (6.0) percentage 

points over the base rate; 

(3) For all 7(a) loans greater than 

$250,000 and up to and including 

$350,000, the maximum interest rate 

shall not exceed four and a half (4.5) 

percentage points over the base rate; and 

(4) For all 7(a) loans greater than 

$350,000, the maximum interest rate 

shall not exceed three (3.0) percentage 

points over the base rate. 

By basing the rates on loan amounts 

and allowing Lenders to charge higher 

rates for smaller loans, Lenders would 

have more incentive to make smaller 

loans to businesses in need of credit on 

reasonable terms. Recent data shows 

that SBA loans up to $150,000 have 

been declining over the last four years, 

and yet it is not uncommon for small 

businesses to max out their credit on 

credit cards or through financial 

technology companies (Fintech) where 

interest rates can range between 19– 

21% for credit cards and can exceed 

45% for Fintech. Currently, the 

maximum variable interest rate that 

Lenders may charge is 2.25 percentage 

points over the base rate for loans with 

maturities of less than seven years and 

2.75 percentage points over the base rate 

for loans with maturities of seven years 

or more, with an additional 2% more 

than these maximums for loans of 

$25,000 or less and an additional 1% 

more than these maximums for loans 

over $25,000 but not exceeding $50,000. 

SBA expects that the incentive created 

by allowing Lenders to charge the 

higher interest rates proposed above, 

particularly for smaller loans, will 

encourage Lenders to make loans that 

they would not otherwise make, thereby 

increasing the availability to small 

businesses of needed credit at a more 

reasonable interest rate with an SBA 

participating Lender. The proposed 

changes also recognize that, historically, 

smaller loans are riskier and have a 

higher default rate and, therefore, a 

higher maximum interest rate is 

warranted. 

The maximum variable interest rates 

described above would apply to all 

types of 7(a) loans. Currently, the 

maximum variable interest rate that 

Lenders are permitted to charge may 

vary depending upon the type of 7(a) 

loan the Lender is making, i.e., SBA 

Express, Export Express, Community 

Advantage Pilot, or regular 7(a). By 

standardizing the maximum variable 

interest rates for all 7(a) loans, SBA is 

streamlining and simplifying its 

regulations, and reducing the burden on 

Lenders. If this rule is adopted, SBA 

Express and Export Express Lenders 

may continue to use, in accordance with 

the statutory authority of section 

7(a)(31) and 7(a)(34) of the Small 

Business Act, respectively, the same 

base rates they use on their similarlysized, non-SBA guaranteed commercial 

loans, as well as their established 

change intervals, payment accruals, and 

other interest rate terms. However, the 

interest rate must never exceed the 

maximum allowable interest rate stated 

in paragraph (d) of this section and 

these loans may be sold on the 

Secondary Market only if the base rate 

is one of the base rates allowed in 

§ 120.214(c). In addition, if this rule is 

adopted, SBA will allow Community 

Advantage Lenders to charge the higher 

interest rate in paragraph (1) above for 

loans of $50,000 or less (such Lenders 

can already charge 6 percentage points 

over the Prime rate for loans up to 

$250,000, the maximum loan amount 

under the Community Advantage Pilot). 

Other proposed changes to this 

section include removing the 

requirement in the introductory 

paragraph of § 120.214 that SBA’s 

approval is required for a Lender to use 

a variable rate of interest. By removing 

this approval requirement, SBA is 

further streamlining its regulations. SBA 

is also proposing to amend the second 

sentence of the introductory paragraph 

of § 120.214 by moving it to § 120.214(d) 

and revising it to clearly state that the 

initial maximum variable interest rate is 

determined as of the date that SBA 

received the loan application. 

Section 120.215. SBA is proposing to 

remove this section, which establishes 

the interest rates for smaller loans. The 

interest rates for all 7(a) loans would be 

covered by § 120.213 and the proposed 

amendments to § 120.214. 

Section 120.220. SBA is proposing 

two changes to this section. First, 

paragraph (a)(3) currently states that 

‘‘[i]n fiscal years when the 7(a) program 

is at zero subsidy, SBA will not collect 

a guarantee fee in connection with a 

loan made under section 7(a)(31) of the 

Small Business Act to a business owned 

and controlled by a veteran or the 

spouse of a veteran.’’ This regulatory 

paragraph implements section 

7(a)(31)(G) of the Small Business Act, 

which provides that the guarantee fee 

imposed by section 7(a)(18) of the Small 

Business Act is waived in connection 

with a loan made under the SBA 

Express Loan Program to a veteran or 

the spouse of a veteran except in any 

fiscal year in which the 7(a) program is 

not operating at zero subsidy. However, 

section 1102(d) of the Coronavirus Aid, 

Relief, and Economic Security Act 

(Pub. L. 116–136, 134 Stat. 281) 

removed the exception and, 

accordingly, SBA proposes to remove it 

from section 120.220(a)(3). 

Second, paragraph (b) of this 

regulation establishes the deadlines for 

paying the SBA guaranty fee. For a loan 

with a maturity in excess of 12 months, 

this provision currently requires the 

Lender to pay the fee electronically 

within 90 days after SBA approval of 

the loan. In practice, SBA has been 

giving Lenders an additional 30 days to 

pay this fee, for a total of 120 calendar 

days after SBA loan approval, before 

cancelling the guarantee. With the 

efficiencies that have been created by 

electronic banking, SBA believes that 

these payments should be made in less 

time than 120 days and is proposing to 

require that the fee be paid within 45 

days after loan approval. If the fee is not 

paid by the 45th day, SBA will give the 

Lender a grace period of an additional 

30 days. If the fee is not paid by the 75th 

day, SBA will cancel the guarantee. For 

loans with a maturity of 12 months or 

less, SBA will continue to cancel the 

guarantee if the fee is not paid by the 

10th business day after the Lender 

receives SBA loan approval. 

Section 120.222. SBA is proposing a 

technical correction to § 120.222 to 

remove an extra word (‘‘in’’) that was 

inserted in error. 

Section 120.310. SBA is proposing to 

remove the reference to direct loans in 

this provision, which governs the 

Disabled Assistance Loan Program 

(‘‘DAL’’), to make this regulation 

consistent with section 7(a)(10) of the 

Small Business Act, which authorizes 

‘‘guaranteed’’ loans under the DAL 

program, but not direct loans. 

Section 120.315. SBA is proposing to 

remove this section in its entirety, 

which establishes the interest rate and 

limit on the loan amount with respect 

to direct DAL loans, to make this 

regulation consistent with section 

7(a)(10) of the Small Business Act, 

which authorizes guaranteed loans only 

and not direct loans. 

Section 120.320. SBA is proposing to 

remove this provision in its entirety. It 

references SBA’s authority under 

section 7(a)(11) of the Small Business 

Act to guarantee or make direct loans to 

businesses owned by low income 

individuals. However, direct loans have 

not been funded for over 30 years and 

this provision does not add anything to 

the general authority that SBA has 

under section 7(a) of the Small Business 

Act to make guaranteed loans to 

businesses owned by low income 

individuals. 

Section 120.330. SBA is proposing to 

remove the reference to direct loans in 

this section because SBA has not 


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received funding to make these loans for 

over 30 years. SBA believes that it may 

be confusing to the public to refer to 

such loans when they are not available 

from the Agency. 

Sections 120.350 and 120.352. The 

regulations governing SBA guaranteed 

loans to qualified employee trusts or 

‘‘Employee Stock Ownership Plans’’ 

(ESOPs) are set forth in §§ 120.350 

through 120.354. SBA is proposing a 

technical amendment to both § 120.350 

and § 120.352 to incorporate the 

statutory change made in Section 862 of 

the John S. McCain National Defense 

Authorization Act for Fiscal Year 2019 

(Pub. L. 115–232) that permits SBA to 

guarantee a loan to the small business 

concern (rather than the qualified 

employee trust), if the proceeds from the 

loan are used only to make a loan to a 

qualified employee trust that results in 

the qualified employee trust owning at 

least 51 percent of the small business 

concern. SBA is proposing this 

technical amendment in order to ensure 

that the regulations are consistent with 

the statute and to provide clarity to SBA 

Lenders and SBA employees with 

respect to guaranteed loans involving 

ESOPs. Additional guidance governing 

these loans will be provided in SOP 50 

10. 

Sections 120.360 and 120.361. SBA is 

proposing to remove these sections, 

which describe an outdated veteran’s 

loan program for direct and guaranteed 

loans to Vietnam-era veterans and 

certain disabled veterans. SBA has not 

received funding to make direct 7(a) 

loans in the Veterans Loan Program for 

over 30 years and SBA’s existing Loan 

Program Requirements provide special 

consideration for veteran-owned 

businesses. These regulations are, 

therefore, obsolete. 

Section 120.370. SBA is proposing to 

remove this section, which describes 

SBA’s authority under section 7(a)(12) 

of the Small Business Act to finance 

pollution control facilities, because the 

$1 million cap set forth in section 

7(a)(12)(B) for these pollution control 

loans was superseded when Congress 

raised the guaranty limit in section 

7(a)(3) to $3.75 million. In addition, this 

provision is otherwise unnecessary 

because SBA is authorized under the 

general authority of section 7(a) to make 

guaranteed loans for pollution control 

facilities. 

Section 120.375. SBA is proposing to 

remove this section’s reference to direct 

loans to firms participating in the 8(a) 

Program because direct loans have not 

been funded for over 30 years. SBA 

believes that it may be confusing to the 

public to refer to such loans when they 

are not available from the Agency. 

Section 120.376. SBA is proposing to 

remove paragraph (a), the second 

sentence of paragraph (c), and paragraph 

(d), all of which describe requirements 

for direct loans or an immediate 

participation loan related to the loan 

program for participants in the 8(a) 

Program, for the same reasons expressed 

under the discussion of section 120.375 

above. The remaining paragraphs would 

be redesignated accordingly. 

Sections 120.380 through 120.383. 

SBA is proposing to remove these 

sections, which govern the program to 

provide defense economic transition 

assistance, because this program is no 

longer being funded. SBA believes that 

it may be confusing to the public to refer 

to such loans when they are not 

available from the Agency. 

Section 120.420. SBA is proposing to 

remove paragraph (b), which defines 

‘‘Bank Regulatory Agencies,’’ because 

this term is no longer used in part 120, 

and the term ‘‘Federal Financial 

Institution Regulator,’’ which is used 

instead, is defined in 13 CFR 120.10. 

The remaining paragraphs would be 

redesignated accordingly. 

Section 120.432. SBA is proposing to 

amend § 120.432(a) to implement its 

longstanding policy of holding 

Assuming Institutions and investors 

responsible for the contingent liabilities 

(including repairs and denials) 

associated with 7(a) loans originated by 

failed insured depository institutions, 

whether the 7(a) loans are purchased by 

a Lender through a Federal Deposit 

Insurance Corporation (FDIC) loan sale 

or transferred to an Assuming 

Institution through a whole bank 

transfer. 

SBA is proposing this modification to 

ensure consistent treatment of all 

portfolio loan transfers whether through 

voluntary bank mergers or asset sales, or 

through FDIC-led portfolio transfers 

following the failure of a Lender. SBA 

is also proposing to modify the 

regulatory language to include a 

statement that clarifies the applicability 

of the paragraph and the ability for the 

Agency to agree otherwise in writing 

(i.e., to affirm the validity of the 

guaranties). SBA also is proposing to 

modify the regulatory language to 

remove the specific reference to the 

FDIC and make it applicable to all 7(a) 

loans purchased from any Federal or 

state banking regulator, any receiver, or 

any conservator. 

Section 120.453. SBA is proposing to 

remove this section, which states that 

servicing and liquidation 

responsibilities for PLP Lenders are set 

forth in subpart E of part 120, as 

unnecessary. PLP Lenders are required 

to service and liquidate their loans in 

accordance with the same standards set 

forth in subpart E that are applied to 

non-delegated Lenders. 

Section 120.470. SBA is proposing to 

revise paragraph (d)(1) of this provision 

by increasing the dollar amount that a 

small business lending company (SBLC) 

may disburse with the signature of only 

one bonded officer from $1,000 to 

$10,000, provided that such action is 

covered under the SBLC’s fidelity bond. 

SBA believes this change would reduce 

burden on SBLCs without introducing 

significant risk to the program. 

Section 120.532. SBA is proposing to 

remove this section, which refers to 

SBA’s authority to assume a Borrower’s 

obligation under terms and conditions 

set by SBA (see section 5(e) of the Small 

Business Act), because SBA does not 

use this authority and believes it may be 

confusing to the public for the 

regulations to refer to the availability of 

a loan moratorium under this section 

when it is not available from the 

Agency. 

Section 120.540. Paragraph (g) of this 

section provides that a Lender may 

appeal an SBA office’s decision, 

pertaining to an original or amended 

liquidation plan, to the Director of the 

Office of Financial Assistance (D/FA) 

within 30 days of the decision. The 

office within SBA that is now 

responsible for considering these 

appeals is the Office of Financial 

Program Operations (OFPO). 

Accordingly, SBA is proposing to 

amend this paragraph by replacing ‘‘D/ 

FA’’ with ‘‘Director/Office of Financial 

Program Operations (D/OFPO)’’ where it 

first appears and with ‘‘D/OFPO’’ 

thereafter. 

Section 120.542. Paragraph (d) of this 

section provides that a Lender may 

appeal an SBA decision to decline to 

reimburse all, or a portion, of the fees 

and/or costs incurred in conducting 

liquidation to the D/FA, and that the 

decision of the D/FA (or designee) will 

be made in consultation with the 

Associate General Counsel for 

Litigation. The office within SBA that is 

now responsible for considering these 

appeals is OFPO. Accordingly, SBA is 

proposing to amend this paragraph by 

replacing ‘‘D/FA’’ with ‘‘D/OFPO’’ 

wherever it appears. 

In addition, paragraph (e) of this 

section provides that a Lender may 

appeal a decision by SBA to decline to 

reimburse all, or a portion, of the legal 

fees and/or costs incurred in conducting 

debt collection litigation to the 

Associate General Counsel for 

Litigation. It further provides that the 

Associate General Counsel makes this 

decision in consultation with the D/FA. 

The office within SBA that is now 


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responsible for consulting with the 

Associate General Counsel is OFPO. 

Accordingly, SBA is proposing to 

amend this paragraph by replacing ‘‘D/ 

FA’’ with ‘‘D/OFPO’’. 

Section 120.701. SBA is proposing to 

remove paragraph (g) of this section, 

which defines ‘‘Non-lending technical 

assistance provider,’’ (NTAP) because 

SBA has not issued grant funds to 

NTAPs for many years. The remaining 

paragraph (h) would be redesignated 

accordingly. 

Section 120.706. SBA proposes to 

revise paragraph (a) of this section to 

increase the maximum outstanding 

amount of loans that an Intermediary 

may borrow from SBA from $5 million 

to $6 million. This change incorporates 

the increase made by section 853(b) of 

the John S. McCain National Defense 

Authorization Act for Fiscal Year 2019, 

15 U.S.C. 636(m)(3)(C). 

Section 120.707. SBA is proposing to 

revise the regulation at § 120.707(b) to 

increase the maximum maturity of a 

loan from an Intermediary to a 

Microloan borrower from 6 years to 7 

years. This change would allow for a 

longer repayment period for these small 

loans. 

Section 120.712. In § 120.712(b), SBA 

is proposing to incorporate a recent 

statutory change to the percentage of 

grant funds that may be used by the 

Intermediary for marketing, managerial, 

and technical assistance to prospective 

Microloan borrowers. In § 120.712(d), 

SBA is proposing to incorporate a recent 

statutory change to the percentage of 

grant funds the Intermediary may use to 

contract with third parties to provide 

technical assistance to Microloan 

borrowers. 

Section 120.714. SBA proposes to 

remove § 120.714, which describes how 

grants are made to non-lending 

technical assistance providers. SBA no 

longer makes such grants and there are 

no NTAPs currently participating in the 

Microloan Program. SBA is therefore 

proposing to eliminate this section to 

reduce confusion. 

Section 120.715. SBA is proposing to 

remove this section, which describes the 

Deferred Participation Loan Pilot, under 

which SBA was authorized to guarantee 

a loan that an Intermediary in the 

Microloan Program obtained from 

another source. SBA proposes to remove 

§ 120.715 in its entirety as this pilot 

expired in Fiscal Year 2000 and SBA no 

longer has the authority to guarantee 

such loans. 

Section 120.800. SBA is proposing to 

remove this section, which describes the 

purpose of the 504 program, because it 

is unnecessary. The 504 Loan Program 

is described in § 120.2(c). 

Section 120.812. SBA is proposing to 

revise paragraph (a)(2) to provide that a 

newly certified CDC may petition for 

more than a single one-year extension of 

probation. In addition, SBA is proposing 

to revise paragraph (d) to clarify that, if 

SBA declines the CDC’s petition for 

permanent status, the CDC will no 

longer have authority to participate in 

the 504 Loan Program and SBA will 

direct the CDC to transfer all funded 

and/or approved loans to another CDC, 

SBA, or another servicer approved by 

SBA. 

Section 120.840. SBA is proposing to 

make a technical correction to 

§ 120.840(b) by replacing the reference 

in this section to the Director, Office of 

Financial Assistance with ‘‘appropriate 

SBA official in accordance with 

Delegations of Authority.’’ In addition, 

SBA is proposing to revise § 120.840(b) 

to reflect the modernized application 

submission process for ALP, which will 

allow CDCs to submit ALP applications 

electronically into the Corporate 

Governance Repository, rather than 

apply to the Lead SBA Office. 

Section 120.845. Paragraph (c)(1) of 

this section, which sets forth the 

eligibility criteria for the Premier 

Certified Lenders Program, refers to the 

criteria that are listed for the Accredited 

Lenders Program in § 120.841(a) through 

(h). However, the criteria are listed only 

in § 120.841(a) through (f). SBA is 

proposing, therefore, to amend 

paragraph (c)(1) by removing ‘‘through 

(h)’’ at the end of the sentence and 

adding ‘‘through (f)’’ in its place. 

Section 120.850. SBA is proposing to 

remove this section because the 

designation of Associate Development 

Company ceased to exist on January 1, 

2004. 

Section 120.862. SBA is proposing to 

amend paragraph (b) by adding the three 

energy public policy goals described in 

paragraphs (I), (J) and (K) of section 

501(d)(3) of the Small Business 

Investment Act of 1958, as amended, to 

the list of economic development 

objectives. These three goals relate to 

the reduction of energy consumption by 

at least 10 percent, the increased use of 

sustainable design, and plant, 

equipment and process upgrades of 

renewable energy sources. This change 

would make the regulations consistent 

with the statute. 

Section 120.1400. Under current 13 

CFR 120.1400(a), a CDC that obtains 

approval for 504 loans after October 20, 

2017, and an SBA Supervised Lender 

that makes 7(a) guaranteed loans after 

October 20, 2017, consent to the 

applicable receivership remedies in 13 

CFR 120.1500(c). Pursuant to SOP 50 10 

5(J), SBA deemed the consent by a CDC 

under 13 CFR 120.1400(a)(1), and the 

consent by an SBA Supervised Lender 

under 13 CFR 120.1400(a)(2), to take 

effect on January 1, 2018, which was the 

effective date of the SOP 50 10 5(J). The 

proposed amendments to this rule 

would codify the SOP provision into the 

rule. The amendments to these 

paragraphs would also clarify that the 

CDC’s or the SBA Supervised Lender’s 

consent does not preclude them from 

contesting whether or not SBA has 

established the grounds for seeking the 

remedy of a receivership. 

Section 120.1500. SBA is proposing to 

amend paragraphs (c)(3) and (e)(3) to 

incorporate into the regulations the 

factors set forth in the current SOP 50 

10 that SBA considers when seeking the 

appointment of a receiver and the scope 

of the receivership. The appointment of 

a receiver is only one of several types 

of enforcement actions set forth in 13 

CFR 120.1500, and typically, SBA will 

use its receivership authority as a 

remedy of last resort. The proposed 

factors vary slightly depending upon the 

type of SBA Lender and whether the 

SBA Lender has assets unrelated to SBA 

loan program activities. 

Section 123.17. SBA is proposing to 

amend this section to remove the 

reference to lead-based paint. As stated 

above, SBA is proposing to remove 

§ 120.173, Lead-based paint, which 

prohibits the use of lead-based paint if 

loan proceeds are for the construction or 

rehabilitation of a residential structure. 

That section is unnecessary because 16 

CFR part 1303 already bans paint 

containing a concentration of lead in 

excess of 0.009% (90 parts per million) 

for use in residences, schools, hospitals, 

parks, playgrounds, and public 

buildings or other areas where 

consumers will have direct access to the 

painted surface. Removing the reference 

to lead-based paint in § 123.17 conforms 

this regulation to the removal of 

§ 120.173 and will avoid confusion. 

Compliance With Executive Orders 

12866, 12988, 13132, 13563, and 13771, 

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 proposed rule 

does not constitute a ‘‘significant 

regulatory action’’ under Executive 

Order 12866. This rule is also not a 

major rule under the Congressional 

Review Act. 

Executive Order 12988 

This action meets applicable 

standards set forth in sections 3(a) and 


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1The net present value was calculated using the 

annualized savings discounted by 7% over a 

perpetual time horizon based in 2016 dollars. 

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

Justice Reform, to minimize litigation, 

eliminate ambiguity, and reduce 

burden. This action does not have 

preemptive effect or retroactive effect. 

Executive Order 13132 

SBA has determined that this 

proposed rule would not have 

federalism implications as defined in 

Executive Order 13132. It would 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. Therefore, for the 

purposes of Executive Order 13132, 

SBA has determined that this proposed 

rule does not warrant the preparation of 

a Federalism Assessment. 

Executive Order 13563 

As discussed above, SBA received a 

significant number of public comments 

in response to the Federal Register 

document requesting the public’s input. 

Executive Order 13771 

The designation, as regulatory or 

deregulatory under E.O. 13771, of any 

final rule resulting from the notice of 

proposed rulemaking will be informed 

by comments received. Details on the 

preliminary estimates of costs and cost 

savings are below. 

This proposed rule is expected to be 

an Executive Order 13771 deregulatory 

action with an annualized net savings of 

$358,724 and a net present value of 

$5,125,645 in savings, both in 2016 

dollars.1 This rule is a comprehensive 

effort to remove regulations that are 

confusing, misleading, or unnecessary, 

as well as to make various technical 

amendments and other changes to 

clarify and streamline the program, 

including: Removing language about 

immediate participation loans and 

direct loans because SBA has not 

received funding for immediate 

participation or direct loans for over 30 

years, removing information about a 

pilot program that has expired, 

removing references to grant funds that 

are no longer provided, and removing 

the reference to SBA’s authority to 

assume a Borrower’s loan obligations 

under a loan moratorium. The removal 

of these regulations will save Lenders 

and loan applicants time reading, 

researching, and inquiring about these 

obsolete or inactive programs and 

reduce confusion around whether they 

exist. 

For each year between FY 2015 and 

FY 2019, SBA estimates that 

approximately 2,161 active 7(a) Lenders, 

CDCs, and Microloan Intermediaries 

could have potentially read about these 

programs in the regulations. Assuming 

that 20 percent (432) of these Lenders 

would read about the program in the 

regulations and that each would save 

two hours from not reading the removed 

information or researching/inquiring 

about obsolete programs, this would be 

864 reduced hours of burden. Valuing 

this time at $124.90 per hour (the 

median wage of a financial manager 

based on 2019 Bureau of Labor Statistics 

(BLS) data and adding 100% more for 

benefits and overhead), this produces 

total savings per year of $107,914 in 

current dollars. These savings would be 

expected to continue into perpetuity. 

In addition, some percentage of 

Borrowers would read about the 

program in the regulation and each 

would save approximately two hours 

from not reading the removed 

information, researching, or inquiring 

about the program. Assuming 2 percent 

of the 331,533 Borrowers with active 

loans would read the regulation (or 

about 6,630), this represents a total of 

13,260 hours of burden reduced. 

Valuing this time at $38.28 per hour (the 

median wage of the general population 

based on 2019 BLS data and adding 

100% more for benefits and overhead), 

this produces total savings per year of 

$507,593 in current dollars. These 

savings would be expected to continue 

into perpetuity. 

In addition to these quantifiable 

benefits, there are several benefits of 

this rule that are unquantifiable. For 

instance, SBA is proposing to increase 

the dollar amount that an SBLC may 

disburse with the signature of only one 

bonded officer from $1,000 to $10,000, 

provided that such action is covered 

under the SBLC’s fidelity bond. SBA 

believes this change would reduce 

burden on SBLCs without introducing 

significant risk to the program. 

Further, SBA is proposing to allow a 

Lender to add a reasonable period, not 

to exceed 12 months, to the loan term 

when necessary to complete the 

installation of equipment and/or 

complete leasehold improvements. It is 

difficult to estimate how many Lenders 

will utilize this flexibility or how many 

Borrowers will require it, but the added 

flexibility is a benefit to Borrowers. 

SBA proposes to increase the 

maximum outstanding amount of SBA 

loans that an Intermediary may borrow 

from $5 million to $6 million. This 

change incorporates the increase made 

by section 853(b) of the John S. McCain 

National Defense Authorization Act for 

Fiscal Year 2019, 15 U.S.C. 636(m)(3)(C) 

and is a benefit for Intermediaries. 

SBA does not anticipate many 

Borrowers will be affected by the 

removal of LIBOR as an optional base 

rate for variable rate SBA business 

loans, but there will be some 

unavoidable cost associated with its 

sunset. SBA estimates the percentage of 

loans affected by the change to be 3% 

of the approximately 331,533 active 

SBA business loans, or about 9,946 

loans. We assume the terms of all these 

loans will need to be updated, which is 

a conservative estimate, and that this 

will create an hour of burden for both 

a financial manager and a Borrower. 

Estimating the value of the financial 

manager’s time at $124.90 per hour (the 

median wage of a financial manager 

based on 2019 BLS wage data and 

adding 100% for benefits and overhead) 

and valuing the Borrower’s time at 

$38.28 per hour (the median wage of the 

general population based on 2018 BLS 

data and adding 100% more for benefits 

and overhead), this produces a burden 

of $1,622,988 in the first year that 

LIBOR is discontinued and would not 

be repeated in subsequent years. It is 

important to note that, because LIBOR is 

being phased-out by the U.K. Financial 

Conduct Authority, these costs will be 

incurred regardless of whether or not 

SBA removes the reference to LIBOR in 

its regulations. 

Additionally, SBA is proposing to use 

loan amounts as the basis upon which 

the variable interest rate is set instead of 

using loan maturities for all 7(a) loans. 

SBA is proposing to apply the new 

variable interest rate maximums to all 

7(a) loans. Currently, approximately 

22% of 7(a) loans charge the maximum 

variable interest rate so increasing the 

maximum allowable interest rate is 

unlikely to cause the other 78% to 

increase their rates. It is difficult to 

speculate what proportion of the 22% 

that currently charge the maximum 

allowable interest rate will increase 

their rates, but the forces of the 

competitive marketplace will limit their 

ability to charge significantly higher 

rates, making the new rate maximums 

unlikely to create a significant cost for 

Borrowers. Also, it is not uncommon for 

small businesses to max out their credit 

on credit cards or through financial 

technology companies (Fintech) where 

interest rates can range between 19– 

21% for credit cards and can exceed 

45% for Fintech, and SBA loans would 

be a more reasonable alternative with 

the proposed maximum rates in this 

rule. 


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Due to efficiencies that have been 

created by electronic banking, SBA 

believes that payments should be made 

in less time and is proposing to require 

that the SBA guaranty fee be paid 

within 45 days after loan approval. This 

change is not expected to create any 

additional burden for Lenders since 

they make electronic payments now and 

should be able to easily comply with the 

proposed timeframe. 

Lastly, SBA is proposing to remove 

the exception related to the guarantee 

fee that is collected from veterans or 

from the spouse of a veteran on Express 

Loans. The guarantee fee on these loans 

is waived for veterans and their spouses 

in fiscal years when the 7(a) program is 

at zero subsidy, but there was a 

statutory exception to this waiver for 

fiscal years when the 7(a) program is not 

at zero subsidy. Section 1102(d) of the 

CARES Act eliminated this exception 

and, accordingly, SBA is proposing to 

remove this exception to conform the 

regulations to the statutory change. SBA 

considers this proposed change a 

transfer of the cost for the 7(a) loan 

program which will not affect the total 

resources available to loan participants. 

The fees collected from participants in 

the loan program are set at the amounts 

needed to cover the cost of the program, 

but are capped at a statutory limit which 

can result in periods when the program 

is operating in positive subsidy. The 

proposed change will transfer the cost of 

the service away from veterans and their 

spouses to non-veteran participants or 

SBA, resulting in either increased fees 

for nonveterans, or will require 

appropriations to subsidize the 

operations of the program. Thus, the 

elimination of guarantee fees for 

veterans and their spouses will result in 

a distributional shift and will not cause 

a new cost to society. 

Table 1 displays the savings and costs 

of this rule over the first two years it is 

effective, with the savings and costs in 

the second year expected to continue 

into perpetuity. Table 2 presents the 

annualized net savings in 2016 dollars. 

TABLE 1—SCHEDULE OF COSTS/ 

(SAVINGS) OVER 2 YEAR HORIZON

[Current dollars] 

Savings Costs 

Year 1 ....... $ (615,506) $1,622,988 

Year 2 ....... (615,506) 0 

TABLE 2—ANNUALIZED SAVINGS IN

PERPETUITY WITH 7% DISCOUNT RATE

[2016 Dollars] 

Estimate 

Annualized Savings .............. $ (433,505) 

Annualized Costs .................. 74,781 

Annualized Net Savings (358,724) 

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

Ch. 35 

SBA has determined that this 

proposed rule would not impose any 

additional reporting or recordkeeping 

requirements under the Paperwork 

Reduction Act. 

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

612 

When an agency issues a proposed 

rule, the Regulatory Flexibility Act 

(RFA) requires the agency to ‘‘prepare 

and make available for public comment 

an initial regulatory flexibility analysis’’ 

which will ‘‘describe the impact of the 

proposed rule on small entities.’’ (5 

U.S.C. 603(a)). However, section 605 of 

the RFA allows an agency to certify a 

rule, in lieu of preparing an analysis, if 

the proposed rulemaking is not 

expected to have a significant economic 

impact on a substantial number of small 

entities. 

This rule is a comprehensive effort to 

remove information from the regulations 

that are confusing and misleading, 

which would save Lenders and 

Borrowers time in reading and inquiring 

about obsolete or inaccurate 

information. SBA estimates the total 

annual savings to Lenders and 

Borrowers to be $615,506 in current 

dollars, as detailed in the Executive 

Order 13771 section above. 

In addition, there are some costs 

associated with this rule that could 

impact small businesses. The removal of 

LIBOR as an optional base rate for 

variable rate 7(a) loans will cause some 

Borrowers to modify their loan 

documents to specify a new base rate. 

Any costs associated with modifying 

loan documents are an unavoidable 

result of the phase-out of LIBOR that 

will occur in 2021. SBA estimates only 

3% of active SBA business loans could 

be affected by this change and that the 

burden created would be $1,622,988 in 

the first year that LIBOR is discontinued 

and would not be repeated in 

subsequent years, as detailed in the 

Executive Order 13771 section above. 

The annualized net savings of this 

rule is estimated to be $358,724 in 2016 

dollars. Given that savings would be 

spread out to approximately 7,000 

beneficiaries (Lenders and Borrowers), 

this does not create a significant savings 

per beneficiary. 

Based on the foregoing, the 

Administrator of the SBA hereby 

certifies that this rule will not have a 

significant economic impact on a 

substantial number of small entities. 

The SBA invites comments from the 

public on this certification. 

List of Subjects 

13 CFR Part 120 

Loan programs-business, Reporting 

and recordkeeping requirements, Small 

businesses, Veterans. 

13 CFR Part 123 

Disaster assistance, Loan programsbusiness, Small businesses. 

For the reasons stated in the 

preamble, SBA proposes to amend 13 

CFR parts 120 and 123 as follows: 

PART 120—BUSINESS LOANS 

■ 1. The authority citation 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. 

■ 2. Amend § 120.2 by revising 

paragraph (a)(1) to read as follows: 

§ 120.2 Descriptions of the business loan 

programs. 

(a) * * * 

(1) SBA makes a guaranteed (deferred 

participation) loan by which SBA 

guarantees a portion of a loan made by 

a Lender to provide financing for 

general business purposes. 

* * * * * 

■ 3. Amend § 120.10 by revising the first 

sentence of the definition of ‘‘Risk 

Rating’’ to read as follows: 

§ 120.10 Definitions. 

* * * * * 

Risk Rating is an SBA internal 

composite rating assigned to individual 

SBA Lenders and Intermediaries that 

reflects the risk associated with the SBA 

Lender’s or Intermediary’s portfolio of 

SBA loans. * * * 

* * * * * 

§ 120.103 [Removed] 

■ 4. Remove § 120.103. 

■ 5. Amend § 120.110 by revising 

paragraph (h), removing and reserving 

paragraph (k), and revising paragraph 

(n). 

The revisions read as follows: 

§ 120.110 What businesses are ineligible 

for SBA business loans? 

* * * * * 


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(h) Businesses engaged in any activity 

that is illegal under Federal, State, or 

local law; 

* * * * * 

(n) Businesses with an Associate who 

is incarcerated, on probation, on parole, 

or is under indictment for a felony or 

any crime involving or relating to 

financial misconduct or a false 

statement; 

* * * * * 

§ 120.111 [Amended] 

■ 6. Amend § 120.111 by removing the 

last sentence of the introductory text. 

■ 7. Amend § 120.120 by revising 

paragraph (a)(1) to read as follows: 

§ 120.120 What are eligible uses of 

proceeds? 

* * * * * 

(a) * * * 

(1) Acquire land (by purchase or 

lease) that will be actively used in the 

applicant’s business operations (except 

that a Borrower may lease a portion of 

the property in accordance with 13 CFR 

120.131 and 120.870(b)); 

* * * * * 

§ 120.173 [Removed and Reserved] 

■ 8. Remove and reserve § 120.173. 

§ 120.190 [Amended] 

■ 9. Amend § 120.190 by: 

■ a. Removing ‘‘or immediate 

participation’’ from paragraph (a); 

■ b. Adding ‘‘or’’ at the end of paragraph 

(b); 

■ c. Removing ‘‘; or’’ at the end of 

paragraph (c) and adding in its place a 

period; and 

■ d. Removing paragraph (d). 

§ 120.192 [Amended] 

■ 10. Amend § 120.192 by removing the 

phrase ‘‘CDC, Intermediary, or SBA,’’ 

and adding in its place the phrase ‘‘CDC 

or Intermediary,’’. 

§ 120.211 [Removed and Reserved] 

■ 11. Remove and reserve § 120.211. 

■ 12. Amend § 120.212 by revising 

paragraph (b) to read as follows: 

§ 120.212 What limits are there on loan 

maturities? 

* * * * * 

(b) Ten years or less, unless it 

finances or refinances real estate or 

equipment with a useful life exceeding 

ten years. The term for a loan to finance 

equipment and/or leasehold 

improvements may include an 

additional reasonable period, not to 

exceed 12 months, when necessary to 

complete the installation of the 

equipment and/or complete the 

leasehold improvements. 

* * * * * 

■ 13. Revise § 120.213 to read as 

follows: 

§ 120.213 What fixed interest rates may a 

Lender charge? 

A guaranteed loan may have a 

reasonable fixed interest rate, but in no 

event may the rate exceed the maximum 

allowable rate periodically published by 

SBA in the Federal Register. 

■ 14. Amend § 120.214 by: 

■ a. Revising the introductory text, the 

first and second sentences of paragraph 

(c), and paragraph (d); 

■ b. Removing paragraph (e); and 

■ c. Redesignating paragraph (f) as 

paragraph (e). 

The revisions read as follows: 

§ 120.214 What conditions apply for 

variable interest rates? 

A Lender may use a variable rate of 

interest for guaranteed loans under the 

following conditions: 

* * * * * 

(c) * * * The base rate will be one of 

the following: the prime rate or the 

Optional Peg Rate. The prime rate will 

be that which is in effect on the first 

business day of the month, as printed in 

a national financial newspaper 

published each business day. * * * 

(d) Maximum allowable variable 

interest rates. The maximum allowable 

variable interest rates are set forth in 

this paragraph (d), with the initial 

maximum allowable rate for the loan 

determined as of the date SBA receives 

the loan application: 

(1) For all 7(a) loans of $50,000 and 

less, the interest rate shall not exceed 

six and a half (6.5) percentage points 

over the base rate; 

(2) For all 7(a) loans of more than 

$50,000 and up to and including 

$250,000, the maximum interest rate 

shall not exceed six (6.0) percentage 

points over the base rate; 

(3) For all 7(a) loans of more than 

$250,000 and up to and including 

$350,000, the maximum interest rate 

shall not exceed four and a half (4.5) 

percentage points over the base rate; and 

(4) For all 7(a) loans of more than 

$350,000, the maximum interest rate 

shall not exceed three (3.0) percentage 

points over the base rate. 

* * * * * 

§ 120.215 [Removed] 

■ 15. Remove § 120.215. 

■ 16. Amend § 120.220 by: 

■ a. Removing the phrase ‘‘In fiscal 

years when the 7(a) program is at zero 

subsidy,’’ in paragraph (a)(3). 

■ b. Removing the number ‘‘90’’ and 

add in its place the number ‘‘45’’ in 

paragraph (b); and 

■ c. Adding a subject heading and 

revising the first sentence of paragraph 

(e). 

The revision to read as follows: 

§ 120.220 Fees that Lender pays SBA. 

* * * * * 

(e) Termination of guarantee for 

nonpayment of fee and other matters. If 

the guarantee fee is not paid by the 75th 

calendar day after loan approval for a 

loan with a maturity in excess of twelve 

(12) months, or is not paid by the 10th 

business day after loan approval for a 

loan with a maturity of twelve (12) 

months or less, SBA will terminate the 

guarantee. * * * 

* * * * * 

§ 120.222 [Amended] 

■ 17. Amend § 120.222 by removing the 

word ‘‘in’’ before the words ‘‘any 

premium received’’. 

§ 120.310 [Amended] 

■ 18. Amend § 120.310 in the 

introductory text by removing the 

phrase ‘‘or make direct’’. 

§ 120.315 [Removed] 

■ 19. Remove § 120.315. 

§ 120.320 [Removed] 

■ 20. Remove the undesignated center 

heading ‘‘Businesses Owned by Low 

Income Individuals’’ and § 120.320. 

§ 120.330 [Amended] 

■ 21. Amend § 120.330 by removing the 

phrase ‘‘make or’’. 

■ 22. Revise § 120.350 to read as 

follows: 

§ 120.350 Policy. 

Section 7(a)(15) of the Act authorizes 

SBA to guarantee a loan to a: 

(a) Qualified employee trust (‘‘ESOP’’) 

to: 

(1) Help finance the growth of its 

employer’s small business; or 

(2) Purchase ownership or voting 

control of the employer; and a 

(b) Small business concern, if the 

proceeds from the loan are only used to 

make a loan to a qualified employee 

trust that results in the qualified 

employee trust owning at least 51 

percent of the small business concern. 

■ 23. Revise § 120.352 to read as 

follows: 

§ 120.352 Use of proceeds. 

Loan proceeds may be used for: 

(a) Qualified employee trust. A 

qualified employee trust may use loan 

proceeds for two purposes: 

(1) Qualified employer securities. A 

qualified employee trust may relend 

loan proceeds to the employer by 

purchasing qualified employer 


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Federal Register / Vol. 85, No. 240 / Monday, December 14, 2020 / Proposed Rules 80685 

securities. The small business concern 

may use these funds for any general 7(a) 

purpose. 

(2) Control of employer. A qualified 

employee trust may use loan proceeds 

to purchase a controlling interest (51 

percent) in the employer. Ownership 

and control must vest in the trust by the 

time the loan is repaid. 

(b) Small business concern. A small 

business concern may only use loan 

proceeds to make a loan to a qualified 

employee trust that results in the 

qualified employee trust owning at least 

51 percent of the small business 

concern. 

§ § 120.360, 120.361 and 120.370 

[Removed] 

24. Remove the undesignated center 

heading ‘‘Veterans Loan Program’’, 

§§ 120.360 and 120.361, the 

undesignated center heading ‘‘Pollution 

Control Program’’, and § 120.370. 

§ 120.375 [Amended] 

■ 25. Amend § 120.375 by removing the 

phrase ‘‘direct (unilaterally or together 

with Lenders) or’’. 

§ 120.376 [Amended] 

■ 26. Amend § 120.376 by: 

■ a. Removing paragraph (a); 

■ b. Redesignating paragraphs (b) and 

(c) as paragraphs (a) and (b); 

■ c. Removing the second sentence of 

newly redesignated paragraph (b); and 

■ d. Removing paragraph (d). 

§ § 120.380 through 120.383 [Removed] 

■ 27. Remove the undesignated center 

heading ‘‘Defense Economic Transition 

Assistance’’ and §§ 120.380 through 

120.383. 

§ 120.420 [Amended] 

■ 28. Amend § 120.420 by removing 

paragraph (b) and redesignating 

paragraphs (c) through (k) as paragraphs 

(b) through (j). 

■ 29. Amend § 120.432 by adding a 

sentence at the end of paragraph (a) to 

read as follows: 

§ 120.432 Under what circumstances does 

this subpart permit sales of, or sales of 

participating interests in, 7(a) loans? 

(a) * * * This paragraph (a) applies to 

all 7(a) loans purchased from any 

Federal or state banking regulator, any 

receiver, or any conservator, unless SBA 

agrees otherwise in writing. 

* * * * * 

§ 120.453 [Removed] 

■ 30. Remove § 120.453. 

§ 120.470 [Amended] 

■ 31. Amend § 120.470 in paragraph 

(d)(1) by removing the number ‘‘$1,000’’ 

and adding the number ‘‘$10,000’’ in its 

place. 

§ 120.532 [Removed] 

■ 32. Remove § 120.532. 

§ 120.540 [Amended] 

■ 33. Amend § 120.540 in paragraph (g) 

by removing the term ‘‘D/FA’’ from the 

first sentence and adding in its place the 

phrase ‘‘Director/Office of Financial 

Program Operations (D/OFPO)’’ and by 

removing the term ‘‘D/FA’’ from the 

second and fourth sentences and adding 

in its place the term ‘‘D/OFPO’’. 

§ 120.542 [Amended] 

■ 34. Amend § 120.542 in paragraphs 

(d) and (e) by removing the term ‘‘D/ 

FA’’ wherever it appears and adding in 

its place the term ‘‘D/OFPO’’. 

§ 120.701 [Amended] 

■ 35. Amend § 120.701 by removing the 

paragraph designations (a) through (h), 

leaving the definitions in alphabetical 

order, and removing the definition of 

‘‘Non-lending technical assistance 

provider’’. 

§ 120.706 [Amended] 

■ 36. Amend § 120.706 in the last 

sentence of paragraph (a) by removing 

‘‘$5 million’’ and adding in its place ‘‘$6 

million’’. 

§ 120.707 [Amended] 

■ 37. Amend § 120.707 in the last 

sentence of paragraph (b) by removing 

the word ‘‘six’’ and adding in its place 

the word ‘‘seven’’. 

■ 38. Amend § 120.712 by: 

■ a. Revising paragraph (b)(1); and 

■ b. Removing the number ‘‘30’’ and 

adding in its place the number ‘‘50’’ in 

paragraph (d). 

The revision reads as follows: 

§ 120.712 How does an Intermediary get a 

grant to assist Microloan borrowers? 

* * * * * 

(b) * * * 

(1) Up to 50 percent of the grant funds 

may be used to provide information and 

technical assistance to prospective 

Microloan borrowers; provided, 

however, that no more than 5 percent of 

the grant funds may be used to market 

or advertise the products and services of 

the Microloan Intermediary directly 

related to the Microloan Program; and 

* * * * * 

§ § 120.714 and 120.715 [Removed] 

■ 39. Remove and reserve §§ 120.714 

and 120.715. 

§ 120.800 [Removed] 

■ 40. Remove § 120.800. 

■ 41. Amend § 120.812 by revising 

paragraph (a)(2) and by adding a 

sentence at the end of paragraph (d) to 

read as follows: 

§ 120.812 Probationary period for newly 

certified CDCs. 

(a) * * * 

(2) A one-year extension of probation. 

If a one-year extension of probation is 

granted, at the end of this extension 

period, the CDC must petition the Lead 

SBA Office for permanent CDC status or 

an additional one-year extension of 

probation. 

* * * * * 

(d) * * * If SBA declines the petition, 

the CDC will no longer have authority 

to participate in the 504 Loan Program 

and SBA will direct the CDC to transfer 

all funded and/or approved loans to 

another CDC, SBA, or another servicer 

approved by SBA. 

■ 42. Amend § 120.840 by revising 

paragraph (b) to read as follows: 

§ 120.840 Accredited Lenders Program 

(ALP). 

* * * * * 

(b) Application. A CDC must apply for 

ALP status by submitting an application 

in accordance with SBA’s Standard 

Operating Procedure 50 10, available at 

http://www.sba.gov. A final decision 

will be made by the appropriate SBA 

official in accordance with Delegations 

of Authority. 

* * * * * 

§ 120.845 [Amended] 

■ 43. Amend § 120.845 in paragraph 

(c)(1) by removing the phrase ‘‘through 

(h)’’ and adding in its place the phrase 

‘‘through (f)’’. 

§ 120.850 [Removed] 

■ 44. Remove the undesignated center 

heading ‘‘Associate Development 

Companies (ADCs)’’ and § 120.850. 

■ 45. Amend § 120.862 by: 

■ a. Removing ‘‘or’’ at the end of 

paragraph (b)(9); 

■ b. Removing the period at the end of 

paragraph (b)(10) and adding ‘‘;’’ in its 

place; and 

■ c. Adding paragraphs (b)(11) through 

(13). 

The additions read as follows: 

§ 120.862 Other economic development 

objectives. 

* * * * * 

(b) * * * 

(11) Reduction of energy consumption 

by at least 10 percent; 

(12) Increased use of sustainable 

design, including designs that reduce 

the use of greenhouse gas emitting fossil 

fuels, or low-impact design to produce 

buildings that reduce the use of nonrenewable resources and minimize 

environmental impact; or 


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80686 Federal Register / Vol. 85, No. 240 / Monday, December 14, 2020 / Proposed Rules 

(13) Plant, equipment and process 

upgrades of renewable energy sources 

such as the small-scale production of 

energy for individual buildings’ or 

communities’ consumption, commonly 

known as micropower, or renewable 

fuels producers including biodiesel and 

ethanol producers. 

■ 46. Amend 120.1400 by: 

■ a. Removing the date ‘‘October 20, 

2017’’ in paragraphs (a)(1) and (2) and 

adding in their place the date ‘‘January 

1, 2018’’; and 

■ b. Adding two sentences to the end of 

paragraphs (a)(1) and (2). 

The additions read as follows: 

§ 120.1400 Grounds for enforcement 

actions—SBA Lenders. 

(a) * * * 

(1) * * * The CDC’s consent does not 

preclude the CDC from contesting 

whether or not SBA has established the 

grounds for seeking the remedy of a 

receivership. A CDC’s consent to 

receivership as a remedy does not 

require SBA to seek appointment of a 

receiver in any particular SBA 

enforcement action. 

(2) * * * The SBA Supervised 

Lender’s consent does not preclude 

such Lender from contesting whether or 

not SBA has established the grounds for 

seeking the remedy of a receivership. 

The SBA Supervised Lender’s consent 

to receivership as a remedy does not 

require SBA to seek appointment of a 

receiver in any particular SBA 

enforcement action. 

* * * * * 

■ 47. Amend § 120.1500 by adding a 

sentence at the end of paragraph (c)(3), 

adding paragraphs (c)(3)(i) and (ii), and 

adding two sentences after the first 

sentence of paragraph (e)(3) to read as 

follows: 

§ 120.1500 Types of enforcement 

actions—SBA Lenders. 

* * * * * 

(c) * * * 

(3) * * * In deciding whether to seek 

the appointment of a receiver and in 

determining the scope of a receivership, 

SBA will consider the following factors, 

in its discretion: 

(i) For NFRLs: 

(A) The existence of fraud or false 

statements; 

(B) The NFRL’s refusal to cooperate 

with SBA enforcement action 

instructions or orders; 

(C) The NFRL’s insolvency (legal or 

equitable); 

(D) The size of the NFRL’s SBA loan 

portfolio(s) in relation to other activities 

of the NFRL; 

(E) The dollar amount of any claims 

SBA may have against the NFRL; 

(F) The NFRL’s failure to comply 

materially with any requirement 

imposed by Loan Program 

Requirements; and/or 

(G) The existence of other non-SBA 

enforcement actions against the NFRL; 

(ii) For SBLCs: 

(A) The existence of fraud or false 

statements; 

(B) The SBLC’s refusal to cooperate 

with SBA enforcement action 

instructions or orders; 

(C) The SBLC’s insolvency (legal or 

equitable); 

(D) The dollar amount of any claims 

SBA may have against the SBLC; and/ 

or 

(E) The SBLC’s failure to comply 

materially with any requirement 

imposed by Loan Program 

Requirements. 

* * * * * 

(e) * * * 

(3) * * * SBA will limit the scope of 

the receivership to the CDC’s assets 

related to the SBA loan program(s) 

except where the CDC’s business is 

almost exclusively SBA-related. SBA 

will only seek a receivership if there is 

either the existence of fraud or false 

statements, or if the CDC has refused to 

cooperate with SBA enforcement action 

instructions or orders. * * * 

PART 123—DISASTER LOAN 

PROGRAM 

■ 48. The authority citation for part 123 

continues to read as follows: 

Authority: 15 U.S.C. 632, 634(b)(6), 636(b), 

636(d), and 657n. 

§ 123.17 [Amended] 

■ 49. Amend § 123.17 by removing the 

words ‘‘lead-based paint,’’. 

Jovita Carranza, 

Administrator. 

[FR Doc. 2020–26446 Filed 12–11–20; 8:45 am] 

BILLING CODE 8026–03–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2020–0883; Project 

Identifier 2019–CE–034–AD] 

RIN 2120–AA64 

Airworthiness Directives; Rockwell 

Collins, Inc. Flight Display System 

Application 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Notice of proposed rulemaking 

(NPRM). 

SUMMARY: The FAA proposes to 

supersede Airworthiness Directive (AD) 

AD 2019–12–09, which applies to 

certain Rockwell Collins, Inc. (Rockwell 

Collins) FDSA–6500 flight display 

system applications installed on 

airplanes. AD 2019–12–09 imposes 

operating limitations on the traffic 

collision avoidance system (TCAS). AD 

2019–12–09 was prompted by conflict 

between the TCAS display indications 

and aural alerts that may occur during 

a resolution advisory (RA) scenario. 

This proposed AD would retain the 

requirements of AD 2019–12–09 until a 

software upgrade is completed. The 

FAA is proposing this AD to address the 

unsafe condition on these products. 

DATES: The FAA must receive comments 

on this proposed AD by January 28, 

2021. 

ADDRESSES: You may send comments, 

using the procedures found in 14 CFR 

11.43 and 11.45, by any of the following 

methods: 

• Federal eRulemaking Portal: Go to 

https://www.regulations.gov. Follow the 

instructions for submitting comments. 

• Fax: (202) 493–2251. 

• Mail: U.S. Department of 

Transportation, Docket Operations, M– 

30, West Building Ground Floor, Room 

W12–140, 1200 New Jersey Avenue SE, 

Washington, DC 20590. 

• Hand Delivery: Deliver to Mail 

address above between 9 a.m. and 5 

p.m., Monday through Friday, except 

Federal holidays. 

For service information identified in 

this NPRM, contact Rockwell Collins at 

Collins Aviation Services, 400 Collins 

Road NE, M/S 164–100, Cedar Rapids, 

IA 52498–0001; phone: 319–295–9258; 

fax: 319–295–4351; email: 

techmanuals@rockwellcollins.com; 

website: https://www.rockwell

collins.com/Services_and_Support/ 

Publications.aspx. You may view the 

service information at the FAA, 

Airworthiness Products Section, 

Operational Safety Branch, 901 Locust, 

Kansas City, MO 64106. For information 

on the availability of this material at the 

FAA, call (816) 329–4148. 

Examining the AD Docket 

You may examine the AD docket at 

https://www.regulations.gov by 

searching for and locating Docket No. 

FAA–2020–0883; 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 

NPRM, any comments received, and 

other information. The street address for 

Docket Operations is listed above. 

FOR FURTHER INFORMATION CONTACT: 

Nhien Hoang, Aviation Safety Engineer, 


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