9562 Federal Register / Vol. 86, No. 29 / Tuesday, February 16, 2021 / Notices 

proceeding—either oral or notice and opportunity 

for written comments—is appropriate for 

consideration of a particular proposal by a selfregulatory organization. See Securities Act 

Amendments of 1975, Senate Comm. on Banking, 

Housing & Urban Affairs, S. Rep. No. 75, 94th 

Cong., 1st Sess. 30 (1975). 

33See Notice, supra note 3. 34 17 CFR 200.30–3(a)(31). 

Interested persons are invited to 

submit written data, views, and 

arguments regarding whether the 

proposed rule change should be 

approved or disapproved by February 

23, 2021. Any person who wishes to file 

a rebuttal to any other person’s 

submission must file that rebuttal by 

March 3, 2021. 

The Commission asks that 

commenters address the sufficiency of 

FICC’s statements in support of the 

proposed rule change, which are set 

forth in the Notice,33 in addition to any 

other comments they may wish to 

submit about the proposed rule change. 

Comments may be submitted by any 

of the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

FICC–2020–017 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–FICC–2020–017. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549 on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of FICC and on DTCC’s website 

(http://dtcc.com/legal/sec-rulefilings.aspx). All comments received 

will be posted without change. Persons 

submitting comments are cautioned that 

we do not redact or edit personal 

identifying information from comment 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–FICC– 

2020–017 and should be submitted on 

or before February 23, 2021. Rebuttal 

comments should be submitted by 

March 3, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.34

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–02996 Filed 2–12–21; 8:45 am] 

BILLING CODE 8011–01–P 

SMALL BUSINESS ADMINISTRATION 

[Docket No: SBA–2020–0011] 

SBA Lender Risk Rating System 

AGENCY: Small Business Administration. 

ACTION: Notice of revised Risk Rating 

System and Lender Portal definition of 

Confidential Information; request for 

comments. 

SUMMARY: This notice implements 

changes to the Small Business 

Administration’s (SBA’s) Risk Rating 

System. The Risk Rating System is an 

internal tool to assist SBA in assessing 

the risk of the SBA loan operations and 

loan portfolio of each active 7(a) Lender 

and Certified Development Company 

(CDC). Consistent with industry best 

practices, SBA recently redeveloped the 

model used to calculate the composite 

Risk Ratings of lenders and the risk 

associated with each SBA loan to ensure 

that the Risk Rating System remains 

current and predictive as technologies, 

the economy, and available data evolve. 

In conjunction with the redevelopment 

of the Lender Risk Rating, SBA is 

updating the Lender Portal and its 

definition for Confidential Information. 

SBA is publishing this notice with a 

request for comments to provide the 

public with an opportunity to comment. 

DATES: This notice is effective February 

16, 2021. 

Comment Date: Comments must be 

received on or before April 19, 2021. 

ADDRESSES: You may submit comments, 

identified by Docket number SBA– 

2020–0011 by using any of the following 

methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Identify 

comments by ‘‘Docket Number SBA– 

2020–0011, SBA Lender Risk Rating 

System,’’ and follow the instructions for 

submitting comments. 

• Email: Eddie Ledford, Deputy 

Director, Office of Credit Risk 

Management, U.S. Small Business 

Administration, at edward.ledford@

sba.gov. 

All comments will be posted on 

http://www.Regulations.gov. If you wish 

to include within your comment 

confidential business information (CBI) 

as defined in the Privacy and Use 

Notice/User Notice at http://

www.Regulations.gov and you do not 

want that information disclosed, you 

must submit the comment by either 

Mail or Hand Delivery and you must 

address the comment to the attention of 

Eddie Ledford, Deputy Director, Office 

of Credit Risk Management, U.S. Small 

Business Administration. In the 

submission, you must highlight the 

information that you consider is CBI 

and explain why you believe this 

information should be held confidential. 

SBA will make a final determination, in 

its discretion, of whether the 

information is CBI and, therefore, will 

be published or not. 

FOR FURTHER INFORMATION CONTACT: 

Eddie Ledford, Deputy Director, Office 

of Credit Risk Management, U.S. Small 

Business Administration, 409 Third 

Street SW, 8th Floor, Washington, DC 

20416, (202) 205–6402. 

SUPPLEMENTARY INFORMATION: 

I. Background Information 

(A) Introduction to the Risk Rating 

System 

The Risk Rating System is an internal 

tool that uses data in SBA’s Loan and 

Lender Monitoring System (L/LMS), 

borrower data provided by Dun & 

Bradstreet (D&B), and certain 

macroeconomic factors to assist SBA in 

assessing the risk of the SBA loan 

performance of each 7(a) Lender and 

CDC (each, an SBA Lender) on a 

uniform basis and identifying those SBA 

Lenders whose portfolio performance, 

or other lender-specific risk-related 

factors, may demonstrate the need for 

additional SBA monitoring or other 

action. The Risk Rating System also 

serves as a vehicle to measure the 

aggregate strength of SBA’s overall 7(a) 

loan and 504 loan portfolios and to 

assist SBA in managing the related risk. 

SBA uses the Risk Rating System to 

make more effective use of its lender 

review and assessment resources. The 

Risk Rating System is available to SBA 

Lenders through SBA’s Lender Portal 


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1For example, 7(a) fixed term loans in current 

payment status or 504 fixed term loans in noncurrent payment status. 

2 D&B collects and aggregates all trade data 

provided to it by over 30,000 trade credit sources 

on a monthly basis for its entire global database of 

commercial entities. 

3PARRiS and SMART refer to SBA’s risk 

measurement methodologies and scoring guides 

used in conjunction with SBA’s Risk-Based Review 

protocol. PARRiS is an acronym for the specific risk 

Continued 

and provides SBA Lenders feedback and 

timely insight into the expected 

performance of their SBA portfolio. 

Under SBA’s Risk Rating System, SBA 

calculates a Forecasted Purchase Rate 

(FPR) for each SBA Lender. The FPR 

projects the percent of an SBA Lender’s 

SBA loan portfolio that will be 

purchased by SBA over the next 12 

months. An SBA Lender’s FPR can be 

used to predict the dollar amount of an 

SBA Lender’s purchases. The FPR is 

calculated using several component 

variables or factors. The component 

variables were developed using stepwise regression analysis to determine 

the components that provided a linear 

regression formula that was most 

predictive of actual purchases over a 

one-year period. The FPR is also used to 

assign each SBA Lender a composite 

Risk Rating (Lender Risk Rating or 

Lender Purchase Rating) of 1 to 5 based 

on geometric sequencing. The rating 

reflects SBA’s measurement of the SBA 

Lender’s potential portfolio risk. In 

general, a rating of 1 indicates least risk 

and that the least degree of SBA 

oversight is likely needed, while a 5 

rating indicates highest risk and that the 

highest degree of SBA oversight is likely 

needed. 

SBA first introduced the Risk Rating 

System as a proposal for comment in the 

Federal Register on May 1, 2006 (72 FR 

25624). SBA published the final notice 

in the Federal Register on May 16, 2007 

(72 FR 27611). On March 1, 2010, SBA 

published a notice describing revisions 

to the Risk Rating System (75 FR 9257), 

with a correction notice published on 

March 18, 2010 (75 FR 13145). In 2014, 

SBA revised the system again and 

published a notice and request for 

comments on April 29, 2014 (79 FR 

24053). 

(B) Redevelopment 

Typically, under industry best 

practices, custom credit scoring models 

are redeveloped approximately every 

three to five years to reflect changing 

conditions, portfolio shifts, and to 

incorporate additional data that may 

have become available. Accordingly, 

SBA redeveloped the Risk Rating 

System in 2010 and 2014 and completed 

the latest redevelopment in 2019. This 

most recent redevelopment, like the 

earlier ones, is consistent with best 

practices. Given the unprecedented 

economic impact caused by the 

pandemic in 2020, SBA will initiate the 

next redevelopment in late 2021 to 

ensure that SBA’s Risk Rating System 

provides an accurate and up to date 

measurement of lenders’ SBA portfolio 

performance. 

The goals of this redevelopment were 

to: (i) Maintain or improve the accuracy 

of the current Lender Risk Rating (LRR) 

and FPR; (ii) maintain or increase 

transparency to the lender without 

sacrificing predictive power; (iii) 

incorporate the latest SBA performance 

data; and (iv) evaluate other variables 

that can provide additional insight into 

lender risk. During this redevelopment, 

SBA reviewed over 200 potential 

variables from SBA’s L/LMS archive 

along with nearly 400 potential 

variables from D&B sources. SBA 

selected these potential variables for 

review based on its experience working 

with such models over the past several 

years. The D&B variables included 

attributes from its detailed trade 

repository providing the highest level of 

trade data resolution. The variables 

were then run through rigorous 

statistical techniques and the most 

predictive combinations of variables 

were chosen as components in the 

redeveloped Risk Rating model. 

II. The Redeveloped Risk Rating Model 

SBA followed common industry best 

practices and internal control standards 

when redeveloping and validating the 

Risk Rating model. The redeveloped 

model was independently validated by 

personnel other than the staff 

responsible for the redevelopment. The 

redeveloped model used to calculate the 

composite Risk Ratings is an updated 

version of the previous models. Like the 

previous models, it is a custom credit 

scoring model that predicts the 

likelihood of an SBA Lender’s loan 

purchases over the next 12 months. Like 

the 2014 model, the redeveloped model 

uses a segmentation approach to loan 

scoring. The model groups the loans 

into loan segments 1 and then applies a 

formula to the loan predictive of 

purchase for that applicable segment. 

(See Section IV below for more 

information on the segments and their 

formulas). The new model thus predicts 

the probability of default for each loan 

in an SBA Lender’s portfolio (Projected 

Purchase Rate or PPR) and then 

multiplies this probability by the 

outstanding loan amount at the time the 

ratings are formulated. The individual 

loan-level PPRs are then aggregated to 

obtain the SBA Lender’s overall FPR, 

which is then used to calculate the SBA 

Lender’s composite Risk Rating [1–5]. 

The most notable changes in the 

redeveloped Risk Rating System are: 

1. Updated components in the 

regression formulas. The redeveloped 

model continues to use loan-level data 

(provided by the SBA Lenders and 

SBA’s own data), external risk 

assessment data (provided by D&B) that 

is derived from third party business and 

consumer credit bureau data, and 

macroeconomic data. New loan level 

data components include, for example: 

(i) NAICs sector; (ii) new or existing 

business indicator; and (iii) whether 

sold on Secondary Market. The new 

external data components include, for 

example, (i) commercial credit score; (ii) 

number of UCC filings against business; 

and (iii) PAYDEX previous three 

months.2 Only one macroeconomic data 

component continues to be used—the 

State Unemployment Rate. The updated 

components add predictive value to the 

Risk Rating model. 

2. Slight Revisions in segmentation. 

The 2014 model used seven segments, 

each with its own rating formula (five 

for 7(a) Lenders; two for CDCs). The 

2019 redeveloped model eliminated 

segmentation of 7(a) fixed-term loans 

based on loan size, collapsing the 

model’s segmentation from seven to six 

(four for 7(a) Lenders and two for CDCs). 

Under the new model, loans are 

segmented by loan type (revolver-type 

or fixed-term) and current payment 

status. The segments are as follows: (i) 

7(a) Segment 1—revolver type loans in 

current payment status; (ii) 7(a) Segment 

2—revolver-type loans in non-current 

payment status; (iii) 7(a) Segment 3— 

fixed-term loans in current payment 

status; (iv) 7(a) Segment 4—fixed-term 

loans in non-current payment status; (v) 

504 Segment 1—loans in current 

payment status; and (vi) 504 Segment 

2—loans in non-current payment status. 

A loan’s PPR formula is calculated 

based on a combination of components 

that is uniquely predictive for loans in 

that segment. See paragraph IV(B) for a 

detailed discussion of the six segments 

and the update of components used in 

each segment. 

3. Evolution of the Lender Portal. 

Since the 2014 redevelopment, SBA 

has been significantly expanding the 

content of the Lender Portal. In addition 

to the LRR/Lender Purchase Rating 

(LPR), the Lender Portal now includes 

the SBA Lender’s FPR, the FPR’s 

components or factors, SBA Lender’s 

PARRiS or SMART Scores (as 

applicable) 3 and the PARRiS/SMART 


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areas or components that SBA reviews for 7(a) 

lenders. They are Performance, Asset Management, 

Regulatory Compliance, Risk Management, and 

Special Items. SMART is the acronym for the risk 

areas that SBA reviews in the 504 program. They 

are Solvency and Financial Condition, Management 

and Board Governance, Asset Quality and 

Servicing, Regulatory Compliance, and Technical 

Issues and Mission. For a more detailed discussion 

on PARRiS and SMART, see SOPs 50 53 2 and 50 

10, which incorporate SBA Notices on Risk-Based 

Review Protocols. 

Score components. In addition, the 

Lender Portal now includes much of the 

information that is contained in SBA 

Lender’s Lender Profile Assessment 

(LPA) (e.g., loan vintage analysis, 

charting of loans by delivery method, 

Cumulative Net Yield chart, loan 

concentration chart, Secondary Market 

sales chart and other lender 

information). The Lender Portal 

provides SBA Lenders timely feedback 

on their expected portfolio performance. 

In conjunction with the redevelopment 

and expansion of Lender Portal content, 

SBA is updating its definition of 

Confidential Information. See Section IV 

for more information on the Lender 

Portal and the updated definition of 

Confidential Information. 

The redeveloped Risk Rating System 

is one of several tools in SBA’s oversight 

framework. SBA uses the Risk Rating, 

the FPR/LPR, SBA Lender Reviews/ 

Examinations, and PARRiS and SMART 

components and scores in conjunction 

with other risk related information to 

assess SBA Lender risk and 

performance. For example, SBA may 

consider rapid growth in loan volume 

that may skew metrics and other factors 

in considering an SBA Lender’s overall 

risk. 

III. Request for Comments 

This notice provides program 

participants and other parties with an 

explanation of the components and a 

description of other modeling 

enhancements. SBA is soliciting 

comments on all aspects of this notice, 

including but not limited to the 

components and enhancements. These 

changes will be effective upon 

publication of this notice and are 

expected to be incorporated in the 

Lender Portal update in February 2021 

for the quarter ending December 31, 

2020. 

IV. SBA Lender Risk Rating System 

(A) Overview 

Under SBA’s Risk Rating System, SBA 

assigns all SBA Lenders a composite 

Risk Rating. The composite rating 

reflects SBA’s assessment of the SBA 

Lender’s potential risk. It is based on the 

loan-level probability of purchase over 

the next 12 months, as calculated by 

SBA. 

The Risk Rating System also assigns 

each SBA-guaranteed loan a Projected 

Purchase Rate (PPR) using a unique set 

of components that SBA has determined 

to be predictive for that loan’s segment 

(see Section IV.B. on Segmentation for 

further details below). The individual 

loan-level PPR is then multiplied by the 

total outstanding balance of the loan in 

order to approximate the SBA Lender’s 

exposure for that loan. The sum of all 

those values for Lender’s SBA loans is 

an estimation of the total default dollars 

for the SBA portfolio of the SBA Lender 

in the next 12 months. That number is 

then divided by the total outstanding 

balances of all loans in the above 

calculation to obtain the SBA Lender’s 

overall Forecasted Purchase Rate (FPR). 

SBA then assigns a composite rating of 

1 to 5 based on the SBA Lender’s overall 

FPR using geometrically sequenced 

category thresholds. Geometrically 

sequenced categories contain thresholds 

that are a multiple of the prior category. 

The category boundaries represent a 

doubling of the prior category (with the 

exception of the ‘‘zero’’ threshold). 

Geometric categorizations aim to 

delineate a non-linear distribution more 

evenly. 

SBA updates the Lender Risk Ratings 

and FPRs on a quarterly basis, using 

refreshed SBA Lender data. The primary 

purpose of the Risk Rating and FPR is 

to focus SBA’s oversight resources on 

those SBA Lenders whose portfolio 

performance or other lender-specific 

risk-related factors demonstrate a need 

for further review and evaluation by 

SBA. SBA generally does not intend to 

use the Risk Rating or FPR as the sole 

basis for taking a formal enforcement 

action against an SBA Lender. 

All SBA Lenders have on-line access 

to their Risk Ratings, FPR (including its 

components or factors), PARRiS or 

SMART Score (and its components), 

and other risk related information 

through the Lender Portal. In addition, 

an SBA Lender can view the loan-level 

components utilized to generate each 

loan’s PPR. For information on gaining 

access to the Lender Portal, see SBA 

SOP 50 10 and the Lender Portal log-on 

page at https://

sbalenderportal.dnb.com. 

(B) Segmentation 

SBA’s Risk Rating System uses a 

segmentation approach to calculate the 

PPR of each loan in an SBA Lender’s 

SBA portfolio. The loan segments for 

the 7(a) Program are as follows: 

1. Revolver-type loans in current 

payment status, 

2. Revolver-type loans in non-current 

payment status, 

3. Fixed-term loans in current 

payment status, and 

4. Fixed-term loans in non-current 

payment status. 

The loan segments for the 504 Loan 

Program are: 

1. Loans in current payment status, 

and 

2. Loans in non-current payment 

status. 

A loan’s PPR is calculated based on a 

combination of components that is 

uniquely predictive for the loans in that 

segment. Many of the segment 

components are the same as in the prior 

model, however, some are new. The 

components used in each segment are as 

follows: 

7(a) Segment 1—Revolver-type loans in 

current payment status: 

(a) Current Small Business Predictive 

Score (SBPS) 

(b) Months on Book (MOB) 

(c) Loan Term 

(d) Percent of Accounts 30 Days or 

More Past Due 

(e) Outstanding Loan Balance 

(f) New or Existing Business Indicator 

(g) Total Employees 

(h) NAICS Sector 

(i) 12-Month Originating Lender 

Purchase Rate 

(j) Overall Interest Rate 

(k) Average State-level 

Unemployment Rate 

7(a) Segment 2—Revolver-type loans in 

non-current payment status: 

(a) Current SBPS 

(b) MOB 

(c) Loan Term 

(d) Loan Status 

(e) SBA Share of Outstanding Loan 

Balance 

(f) PAYDEX Previous 3 Months 

(g) Average State-level 

Unemployment Rate 

7(a) Segment 3—Fixed-term loans in 

current payment status: 

(a) Current SBPS 

(b) MOB 

(c) Loan Term 

(d) Number of Current Accounts 

(e) Sold on Secondary Market 

Indicator 

(f) Spread Interest Rate 

(g) New or Existing Business Indicator 

(h) 12-Month Originating Lender 

Purchase Rate 

7(a) Segment 4—Fixed-term loans in 

non-current payment status: 

(a) Current SBPS 

(b) MOB 

(c) Loan Status 

(d) Percent of Accounts 30 Days or 

More Past Due 

(e) 12-Month Originating Lender 


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4 D&B business bureau data is combined with 

FICO consumer data. 

Purchase Rate 

504 Segment 1—Loans in current 

payment status: 

(a) Current SBPS 

(b) MOB 

(c) Loan Term 

(d) Commercial Credit Score 

(e) NAICS Sector 

(f) Number of UCC Filings 

(g) 12-Month Lender Purchase Rate 

(h) Average State-level 

Unemployment Rate 

504 Segment 2—Loans in non-current 

payment status: 

(a) Current SBPS 

(b) Loan Status 

(c) Viability Score 

The components were selected through 

statistical analysis using step-wise 

logistic regression to identify the 

combination of variables that are the 

most predictive for each segment of 

loans. The model is ‘‘multivariate,’’ 

meaning that an SBA Lender’s PPR (and 

thus its FPR and Risk Rating) is based 

on a combination of all components in 

the model. Each of the components is 

described in more detail in the Rating 

Components section below. 

(C) Rating Components 

SBA derives components from three 

types of data sources to calculate a 

loan’s PPR: SBA loan data, D&B 

Borrower data,4 and macroeconomic 

data. The first category includes 

detailed loan/borrower level 

information from SBA’s database. The 

second category is information on the 

small business borrower from D&B’s 

trade database. The third category 

includes state level unemployment data. 

Each of the components is defined in 

detail below. For those components that 

were also in the prior model, their 

definitions are generally the same. 

(1) SBA Loan Data Components 

Loan Status: The Loan Status 

component captures the payment status 

of loans as of the rating date. Loans are 

categorized as current, delinquent, past 

due, or deferred. If delinquent, this 

component indicates the delinquency 

‘‘bucket’’ (e.g., 30 days past due, 60 days 

past due, etc.) at the time of rating. A 

greater number of days past due 

contributes to a higher purchase risk. 

Loan Term: The Loan Term is the 

length of the loan repayment period at 

origination. Loan Term is measured in 

months and purchase risk increases as 

the repayment term increases for 7(a) 

Revolver loans. For 7(a) Fixed loans, the 

purchase risk associated with the loan 

term is arch-shaped: Loans at either end 

of the spectrum (very short or very long 

term) have the lowest purchase risk. For 

504 loans, the purchase risk is lower for 

longer term loans. 

Months on Book (MOB): The MOB is 

the number of months between the 

rating date and the date of the first loan 

disbursement, up to a maximum of 120 

months. For 7(a) loans, the purchase 

risk associated with MOB risk level is 

arch-shaped: Loans at either end of the 

spectrum (very low or very high MOB) 

have the lowest purchase risk. For 504 

loans, a higher MOB is associated with 

a higher purchase risk. 

NAICS Sector: The North American 

Industry Classification System (NAICS) 

is the standard used by Federal 

statistical agencies in classifying 

business establishments. For 7(a) 

Segment 1, revolver-type loans in 

current payment status, industries 

classified as information, transportation, 

or warehousing are associated with the 

highest purchase risk and those 

classified as education, finance, 

insurance, management, manufacturing, 

public administration, and utilities are 

associated with the lowest purchase 

risk. All other industry classifications 

are associated with a mid-range of 

purchase risk. For 504 Segment 1, 

current loans, industries classified as 

food services, administrative, 

educational, manufacturing, real estate, 

or retail are associated with the highest 

purchase risk and those classified as 

agriculture, forestry, fishing, 

construction, finance, insurance, 

information, or mining have the lowest 

purchase risk. All other industry 

classifications are associated with a 

mid-range of purchase risk. 

New or Existing Business Indicator: 

This component indicates whether a 

borrower is a new or existing business. 

Start-ups and businesses in existence for 

2 years or less are considered new 

businesses and those over 2 years old 

are considered existing businesses. An 

existing business is associated with a 

lower purchase risk. 

Overall Interest Rate: The Overall 

Interest Rate is the interest rate of a loan 

at origination. A higher Overall Interest 

Rate is associated with a higher 

purchase risk. 

Outstanding Loan Balance: The 

Outstanding Loan Balance is the 

outstanding gross loan balance at the 

time of the rating date. This component 

is only used for revolver-type accounts 

that are currently in active status. The 

purchase risk associated with 

Outstanding Loan Balance is archshaped: Loans at either end of the 

spectrum (very low or very high 

Outstanding Loan Balance) have the 

lowest purchase risk. 

SBA Share of Outstanding Loan 

Balance: The SBA Share of Outstanding 

Loan Balance is the SBA guaranteed 

portion of the outstanding amount of the 

loan as of the rating date. Similar to the 

Outstanding Loan Balance, the purchase 

risk associated with SBA Share of 

Outstanding Loan Balance is archshaped: Loans at either end of the 

spectrum (very low or very high SBA 

Share of Outstanding Loan Balance) 

have the lowest purchase risk. 

Sold on Secondary Market Indicator: 

This component indicates whether the 

SBA guaranteed portion of a loan was 

sold on the secondary market. This is a 

static field once a loan is sold on the 

secondary market. Loans sold on the 

secondary market have a higher 

purchase risk. 

Spread Interest Rate: The Spread 

Interest Rate is the difference between 

the interest rate of the loan and the 

Prime interest rate in effect on the date 

of origination. A higher Spread Interest 

Rate is associated with a higher 

purchase risk. 

12-Month Lender Purchase Rate: The 

12-Month Lender Purchase Rate is a 

calculated field based on a lender’s 

purchase rate over the past 12 months. 

A higher value for this attribute is 

associated with a higher purchase risk. 

12-Month Originating Lender 

Purchase Rate: The 12-Month 

Originating Lender Purchase Rate is a 

calculated field based on the originating 

lender’s purchase rate over the past 12 

months. For loans that a lender has 

acquired from another SBA Lender, the 

originating lender’s 12-Month Lender 

Purchase Rate will apply. For loans that 

have not been acquired from another 

SBA Lender, this component is the same 

as the 12-Month Lender Purchase Rate 

described above. If the originating 

lender does not have a 12-Month Lender 

Purchase Rate (for example, the lender 

is no longer participating in SBA’s 

programs or is no longer in business), 

the 12-Month Overall Portfolio Purchase 

Rate will be used. The 12-Month Overall 

Portfolio Purchase Rate is the purchase 

rate of SBA’s entire 7(a) or 504 portfolio, 

based on the last 12 months. A higher 

value for this attribute is associated with 

a higher purchase risk. 

(2) D&B Borrower Data Components 

Commercial Credit Score: The 

Commercial Credit Score (CCS) is a 

proprietary calculation from D&B that 

predicts the likelihood of a business 

paying its bills in a severely delinquent 

manner (91 days or more past terms), 

obtaining legal relief from its creditors, 

or ceasing operations without paying all 

creditors in full over the next 12 

months. D&B defines severe 


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delinquency as a business with at least 

10 percent of its payments 91 days or 

more past due, based on the information 

in D&B’s commercial database. A high 

CCS value indicates a lower risk of 

delinquency. The CCS is calculated 

using statistical models derived from 

D&B’s extensive database of U.S. 

businesses including payment, public 

filing, demographic, and financial 

information when available. A higher 

CCS is associated with a lower purchase 

risk. 

Number of Current Accounts: The 

Number of Current Accounts is the 

number of a borrower’s trade accounts, 

as reported to D&B, that have been 

current over the past 24 months. Higher 

values of this attribute are associated 

with lower purchase risk. 

Number of UCC Filings: Number of 

UCC Filings is the number of Uniform 

Commercial Code (UCC) filings 

recorded against the borrower’s business 

in the past 10 years, including initial 

filings, continuations, amendments, and 

terminations. A UCC filing is a legal 

form filed by a creditor to give notice 

that it has an interest in the property of 

a debtor. A higher value for this 

attribute is associated with a higher 

purchase risk. 

PAYDEX Previous 3 Months: PAYDEX 

is a unique, dollar weighted indicator of 

a business’s payment performance based 

on the total number of payment 

experiences in D&B’s database over the 

past 3 months. Payment experiences are 

gathered by D&B from a business’s 

suppliers and vendors. Higher PAYDEX 

scores indicate better payment 

performance. A higher value for this 

attribute is associated with a lower 

purchase risk. 

Percent of Accounts 30 Days or More 

Past Due: The Percent of Accounts 30 

Days or More Past Due is calculated 

using data from the D&B detail trade 

database for the last 4 months. This 

percentage results from dividing the 

total number of accounts which have 

been 30 days or more delinquent in the 

past 4 months by the total number of 

active accounts associated with a 

borrower. A higher value for this 

attribute is associated with a higher 

purchase risk. 

SBPS: The SBPS, the Small Business 

Risk Portfolio Solution commercially 

known as SBRPS, is a portfolio 

management credit score based upon a 

borrower’s business credit report and 

principal’s consumer credit report and 

is updated quarterly. SBPS is a 

commercial score provided by Dun & 

Bradstreet (D&B), under contract with 

SBA. SBPS was developed by D&B and 

FICO and is compatible with FICO’s 

‘‘Liquid Credit’’ origination score. This 

component provides an indication of 

the relative creditworthiness of a given 

borrower with higher values indicating 

lower purchase risk. FICO recently 

updated SBPS to a new, more predictive 

version which will be used in this 

redeveloped Risk Rating version. 

Total Employees: Total Employees is 

the number of people the borrower 

employs, as reported to D&B. A higher 

value for this attribute is associated with 

a lower purchase risk. 

Viability Score: The Viability Score is 

a proprietary calculation from D&B that 

assesses the probability that the 

borrower will no longer be viable within 

the next 12 months compared to all the 

U.S. businesses within the D&B 

database. A business is no longer viable 

when it goes out of business, becomes 

dormant or inactive, or files for 

bankruptcy. The Viability Score is based 

on available financial data, trade 

payments, firmographics and other 

business activity. A higher Viability 

Score is associated with a higher 

purchase risk. 

(3) Macroeconomic Data Component 

Average State-level Unemployment 

Rate: The Average State-level 

Unemployment Rate is the ratio of 

unemployed to the civilian labor force 

in the borrower’s State, expressed as a 

percent. The source is Bureau of Labor 

Statistics (BLS), Local Area 

Unemployment Statistics Database. The 

borrower’s state is identified through 

borrower’s address fields in the SBA’s 

database. The unemployment rate is 

extracted directly from BLS reporting, 

which is updated monthly. A higher 

unemployment rate in the borrower’s 

state contributes to a higher purchase 

risk. 

(D) Lender Risk Rating 

The SBA Lender Risk Rating (LRR) is 

a measure of predicted performance 

over the next 12 months. As described 

above, SBA uses its Risk Rating model 

to calculate a Forecasted Purchase Rate 

(FPR). The FPR predicts the percent of 

an SBA Lender’s SBA loan portfolio that 

will be purchased over the next 12 

months. An SBA Lender’s FPR can be 

used to project the dollar amount of an 

SBA Lender’s purchases. SBA then uses 

the FPR to assign a composite rating of 

1 to 5 to each SBA Lender. This 

composite rating is the LRR. SBA may 

make adjustments to the composite 

rating based on results of reviews, third 

party information on an SBA Lender’s 

operations, portfolio trends, and other 

information that could impact an SBA 

Lender’s risk profile. (See section E 

‘‘Overriding Factors’’ for further detail.) 

In general, a rating of 1 indicates least 

risk, and that the least degree of SBA 

oversight is likely needed, while a 5 

rating indicates highest risk, and that 

the highest degree of SBA oversight is 

likely needed. Rating categories 2, 3, 

and 4 provide granularity for increasing 

levels of risk and the corresponding 

levels of necessary oversight. 

(E) Overriding Factors 

As with prior LRR models, the 

redeveloped Risk Rating System allows 

for consideration of additional factors. 

The occurrence of these factors may 

lead SBA to conclude that an individual 

SBA Lender’s composite rating, as 

calculated by the Risk Rating model, is 

not fully reflective of its true risk. 

Therefore, the Risk Rating System 

provides for the consideration of 

overriding factors, which may only 

apply to a particular SBA Lender or 

group of SBA Lenders, and permit SBA 

to adjust an SBA Lender’s calculated 

composite rating. The allowance of 

overriding factors in helping determine 

an SBA Lender’s Risk Rating enables 

SBA to use key risk factors that are not 

necessarily applicable to all SBA 

Lenders but indicate a greater or lower 

level of risk from a particular SBA 

Lender than that which the calculated 

rating provides. 

Overriding factors may result from 

SBA Lenders’ risk-based reviews/ 

examinations and evaluations. SBA 

routinely conducts reviews of SBA 

Lenders, performs safety and soundness 

examinations of SBA Small Business 

Lending Companies (SBLCs) and NonFederally Regulated Lenders (NFRLs), 

and uses certain evaluation measures for 

other SBA Lenders. Examples of other 

overriding factors that may be 

considered include, but are not limited 

to: Enforcement or other actions of 

regulators or other authorities, 

including, but not limited to, Cease & 

Desist orders by, or related agreements 

with, Federal Financial Institution 

Regulators (FFIRs); capital adequacy 

levels not in conformity with FFIRs; 

secondary market issues and concerns; 

receipt of a Going Concern opinion 

issued by an independent auditor; early 

loan default trends; purchase rate or 

projected purchase rate trends; 

abnormally high default, purchase or 

liquidation rates; denial of liability 

occurrences; lending concentrations; 

rapid growth of SBA lending; net yield 

rate (or losses) significantly worse than 

average; violation of SBA Loan Program 

Requirements; inadequate, incomplete, 

or untimely reporting to SBA; fraud/ 

indictment of lender, officers, or key 

employees; an identified condition that 

affects capital, solvency or prudent 

commercial lending ability; inaccurate 


khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 86, No. 29 / Tuesday, February 16, 2021 / Notices 9567 

submission of required fees or amounts 

due SBA or the federal government; and 

other risk-related or program integrity 

concerns. Rapid growth, in particular, is 

a significant factor that can mask poor 

portfolio performance in a calculated 

Risk Rating. Consequently, SBA 

includes a rapid growth flag in its 

PARRiS and SMART assessments and in 

this override list. 

(F) Confidential Information 

Each SBA Lender must continue to 

handle its Reports, Risk Ratings and 

related Confidential Information in 

accordance with the confidentiality 

requirements set forth in 13 CFR 

120.1060, Confidentiality of Reports, 

Risk Ratings, and related Confidential 

Information. Under this regulation, 

Reports, Risk Ratings, and Confidential 

Information are privileged, confidential, 

and the property of SBA. Further, the 

regulation states that such information 

may not be relied upon for any purpose 

other than SBA’s lender oversight and 

SBA’s portfolio management purposes. 

In addition, the SBA Lender is 

prohibited from disclosing its Report, 

Risk Rating, and Confidential 

Information, in full or in part, in any 

manner, without SBA’s prior written 

permission, and the SBA Lender must 

not make any representations 

concerning the information (including 

Report findings, conclusions, and 

recommendations), the Risk Rating, or 

the Confidential Information. 

13 CFR 120.1060(a) defines ‘‘Report’’ 

to mean ‘‘the review or examination 

report and related documents.’’ It also 

provides that Confidential Information 

‘‘is defined in the SBA Lender 

information portal and by notice issued 

from time to time.’’ The SBA Lender 

information portal currently defines 

‘‘Confidential Information’’ to mean ‘‘all 

lender-related information contained in 

the Portal including ‘‘Lender Results’’, 

except for the ‘‘Past 12 Month Actual 

Purchase Rate’’ and the ‘‘Past 12 Month 

Actual Charge-Off Rate’’. SBA has 

expanded the information available to 

an SBA Lender in the Lender Portal. 

Therefore, SBA is updating the 

definition for ‘‘Confidential 

Information’’ to mean: 

‘‘Confidential Information includes all the 

SBA Lender-related information/data 

contained in the Lender Portal except the 

dollar amounts associated with SBA 

purchase of and charge off of SBA Lender’s 

loans and information already publicly 

available related to the Lender’s capital, nonperforming assets, and regulatory actions 

(e.g., from a bank’s public Call Report). 

Confidential Information also includes any 

information related to SBA’s supervision of 

the SBA Lender (e.g., review or corrective 

action correspondence) and any actions taken 

by SBA related to enforcement (e.g., informal 

enforcement actions as defined in SOP 50 53 

or by regulation, notices of proposed 

enforcement action) unless made public by 

SBA (e.g., in a Cease and Desist Order).’’ 

SBA included the last sentence because 

it has long treated supervisory and 

enforcement information as confidential 

information and this information is 

generally related to a review or exam 

and, therefore, covered by the 

confidentiality provisions in 13 CFR 

120.1060 and/or FOIA exemption 8. 

SBA may disclose Reports, Risk Ratings, 

and Confidential Information in its 

discretion; however, such disclosures 

do not waive SBA Lender’s obligation 

under 13 CFR 120.1060 to maintain the 

confidentiality of the information. 

(G) Conclusion 

In conclusion, industry best practices 

and changes in the SBA portfolio, 

programs, and available data necessitate 

that SBA’s Risk Rating model be 

periodically redeveloped. This notice 

marks the third redevelopment of SBA’s 

Risk Rating model. In addition to this 

redevelopment, SBA has and will 

continue to perform annual validation 

testing on the calculated composite Risk 

Ratings and will further refine the 

model as necessary to maintain or 

improve the predictiveness of its risk 

scoring. 

Authority: 15 U.S.C. 633(b)(3); 15 U.S.C. 

634(b)(6) and (7); 15 U.S.C. 657t; 15 U.S.C. 

687(f); and 13 CFR 120.10, 120.1015, 

120.1025, 120.1050, and 120.1060. 

Tami Perriello, 

Acting Administrator. 

[FR Doc. 2021–03053 Filed 2–12–21; 8:45 am] 

BILLING CODE 8026–03–P 

SMALL BUSINESS ADMINISTRATION 

[Disaster Declaration #16869 and #16870; 

Washington Disaster Number WA–00089] 

Administrative Declaration of a 

Disaster for the State of Washington 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Notice. 

SUMMARY: This is a notice of an 

Administrative declaration of a disaster 

for the State of Washington dated 02/09/ 

2021. 

Incident: Wildfires and Straight-line 

Winds. 

Incident Period: 09/01/2020 through 

09/19/2020. 

DATES: Issued on 02/09/2021. 

Physical Loan Application Deadline 

Date: 04/12/2021. 

Economic Injury (EIDL) Loan 

Application Deadline Date: 11/09/2021. 

ADDRESSES: Submit completed loan 

applications to: U.S. Small Business 

Administration, Processing and 

Disbursement Center, 14925 Kingsport 

Road, Fort Worth, TX 76155. 

FOR FURTHER INFORMATION CONTACT: A. 

Escobar, Office of Disaster Assistance, 

U.S. Small Business Administration, 

409 3rd Street SW, Suite 6050, 

Washington, DC 20416, (202) 205–6734. 

SUPPLEMENTARY INFORMATION: Notice is 

hereby given that as a result of the 

Administrator’s disaster declaration, 

applications for disaster loans may be 

filed at the address listed above or other 

locally announced locations. 

The following areas have been 

determined to be adversely affected by 

the disaster: 

Primary Counties: Whitman. 

Contiguous Counties: 

Washington: Adams, Asotin, 

Columbia, Franklin, Garfield, 

Lincoln, Spokane. 

Idaho: Benewah, Latah, Nez Perce. 

The Interest Rates are: 

Percent 

For Physical Damage: 

Homeowners with Credit Available Elsewhere ...................... 2.375 

Homeowners without Credit 

Available Elsewhere .............. 1.188 

Businesses with Credit Available Elsewhere ...................... 6.000 

Businesses without Credit 

Available Elsewhere .............. 3.000 

Non-Profit Organizations with 

Credit Available Elsewhere ... 2.750 

Non-Profit Organizations without Credit Available Elsewhere ..................................... 2.750 

For Economic Injury: 

Businesses & Small Agricultural 

Cooperatives without Credit 

Available Elsewhere .............. 3.000 

Non-Profit Organizations without Credit Available Elsewhere ..................................... 2.750 

The number assigned to this disaster 

for physical damage is 16869 5 and for 

economic injury is 16870 0. 

The States which received an EIDL 

Declaration # are Washington, Idaho. 

(Catalog of Federal Domestic Assistance 

Number 59008) 

Tami Perriello, 

Acting Administrator. 

[FR Doc. 2021–03009 Filed 2–12–21; 8:45 am] 

BILLING CODE 8026–03–P 


khammond on DSKJM1Z7X2PROD with NOTICES