Federal Register / Vol. 83, No. 177 / Wednesday, September 12, 2018 / Notices 46237 

26See supra note 8. 27 17 CFR 200.30–3(a)(12). 

constituent series. The Exchange will 

continue to conduct surveillance 

procedures to monitor trading in the 

constituent option series, including but 

not limited to compliance with the 

strategy order cut-off time (in 

accordance with the proposed rule 

change). 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

Cboe Options does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. The 

proposed rule change applies in the 

same manner to all market participants 

who submit orders to the Exchange in 

constituent option series on exercise 

settlement value determination days. 

The proposed rule change, and the 

proposed definition of strategy order in 

particular, provides market participants 

with clarity for market participants with 

respect to what constitutes a strategy 

order and is generally consistent with 

the current rules and the Exchange’s 

view of what orders constitute a strategy 

order. Additionally, the proposed 

definition of non-strategy order, 

particularly the explicit permission to 

enter orders in response to EOIs that 

indicate an imbalance in a series, is 

consistent with the original intent of the 

strategy order cut-off time.26 The 

proposed rule change has no impact on 

intermarket competition, as it applies to 

orders submitted for participation in the 

Exchange’s modified opening procedure 

used to calculate settlement values for 

expiring volatility index derivatives. 

The Exchange believes the proposed 

rule change provides market 

participants with more certainty with 

respect to which orders they need to 

submit prior to the strategy order cut-off 

time and which orders they may be 

submit after that time, which may 

increase liquidity in constituent option 

series on volatility settlement dates. 

Cboe Options believes that the 

proposed rule change will relieve any 

burden on, or otherwise promote, 

competition. The Exchange believes the 

proposed rule change may contribute to 

liquidity in constituent option series 

during the modified HOSS procedure, 

and thus a fair and orderly opening on 

exercise settlement value determination 

days. A fair and orderly opening in 

these series benefits all market 

participants who trade in the volatility 

index derivatives and the constituent 

option series. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange neither solicited nor 

received comments on the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the Exchange consents, the Commission 

will: 

A. By order approve or disapprove 

such proposed rule change, or 

B. institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

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– 

CBOE–2018–062 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–CBOE–2018–062. 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 the Exchange. 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–CBOE–2018–062 and 

should be submitted on or before 

October 3, 2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.27

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–19773 Filed 9–11–18; 8:45 am] 

BILLING CODE 8011–01–P 

SMALL BUSINESS ADMINISTRATION 

[Docket No. SBA–2018–0008] 

Community Advantage Pilot Program 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Notice of extension of and 

changes to Community Advantage Pilot 

Program; and request for comments. 

SUMMARY: The Community Advantage 

(‘‘CA’’) Pilot Program is a pilot program 

to increase SBA-guaranteed loans to 

small businesses in underserved areas. 

The Small Business Administration 

(‘‘SBA’’) continues to refine and 

improve the design of the Community 

Advantage Pilot Program. To support 

SBA’s commitment to expanding access 

to capital for small businesses and 

entrepreneurs in underserved markets, 

SBA is issuing this Notice to extend the 

term of the CA Pilot Program, to 

mitigate risks of the program by placing 

a moratorium on accepting new CA 

Lender applications, to limit fees that 

can be collected from an applicant for 

a CA loan, and to revise other program 

requirements. 

DATES: The moratorium on accepting 

applications from lenders for 

participation in the CA Pilot Program 

and all other changes identified in this 

Notice will be effective on October 1, 


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46238 Federal Register / Vol. 83, No. 177 / Wednesday, September 12, 2018 / Notices 

1For purposes of the analysis, underserved 

businesses included loans to minorities, veterans, 

2018. The CA Pilot Program will remain 

in effect until September 30, 2022. 

Comment Date: Comments must be 

received on or before November 13, 

2018. 

ADDRESSES: You may submit comments, 

identified by SBA docket number SBA– 

2018–0008, by any of the following 

methods: 

• Federal eRulemaking Portal: 

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

the instructions for submitting 

comments. 

• Mail: Daniel Upham, Acting 

Director, Office of Economic 

Opportunity, U.S. Small Business 

Administration, 409 Third Street SW, 

Washington, DC 20416 or Dianna 

Seaborn, Director, Office of Financial 

Assistance, U.S. Small Business 

Administration, 409 Third Street SW, 

Washington, DC 20416. 

• Hand Delivery/Courier: Daniel 

Upham, Acting Director, Office of 

Economic Opportunity, U.S. Small 

Business Administration, 409 Third 

Street SW, Washington, DC 20416; or 

Dianna Seaborn, Director, Office of 

Financial Assistance, U.S. Small 

Business Administration, 409 Third 

Street SW, Washington, DC 20416. 

SBA will post all comments on 

https://www.regulations.gov. If you wish 

to submit confidential business 

information (CBI) as defined in the User 

Notice at https://www.regulations.gov, 

please submit the information to Daniel 

Upham, Acting Director, Office of 

Economic Opportunity, U.S. Small 

Business Administration, 409 Third 

Street SW, Washington, DC 20416; or 

Dianna Seaborn, Director, Office of 

Financial Assistance, U.S. Small 

Business Administration, 409 Third 

Street SW, Washington, DC 20416 or 

send an email to communityadvantage@

sba.gov. Highlight the information that 

you consider to be CBI and explain why 

you believe SBA should hold this 

information as confidential. SBA will 

review the information and make the 

final determination as to whether it will 

publish the information. 

FOR FURTHER INFORMATION CONTACT: 

Daniel Upham, Acting Director, Office 

of Economic Opportunity, U.S. Small 

Business Administration, 409 Third 

Street SW, Washington, DC 20416, (202) 

205–7001, daniel.upham@sba.gov; or 

Dianna Seaborn, Director, Office of 

Financial Assistance, U.S. Small 

Business Administration, 409 Third 

Street SW, Washington, DC 20416, (202) 

205–3645, dianna.seaborn@sba.gov. 

SUPPLEMENTARY INFORMATION: 

1. Background 

On February 18, 2011, SBA issued a 

notice and request for comments 

introducing the CA Pilot Program (76 FR 

9626). The CA Pilot Program was 

introduced to increase the number of 

SBA-guaranteed 7(a) loans made to 

small businesses in underserved 

markets. The February 18, 2011 notice 

provided an overview of the CA Pilot 

Program requirements and, pursuant to 

the authority provided to SBA under 13 

CFR 120.3 to suspend, modify or waive 

certain regulations in establishing and 

testing pilot loan initiatives, SBA 

modified or waived as appropriate 

certain regulations which otherwise 

apply to 7(a) loans for the CA Pilot 

Program. 

Subsequent notices have made 

changes to the CA Pilot Program to 

improve the program experience for 

participants, improve their ability to 

deliver capital to underserved markets, 

and appropriately manage risk to the 

Agency. These notices were issued on 

the following dates: September 12, 2011 

(76 FR 56262), February 8, 2012 (77 FR 

6619), November 9, 2012 (77 FR 67433), 

and December 28, 2015 (80 FR 80872). 

In the December 28, 2015 notice, SBA 

stated that it would evaluate the CA 

Pilot Program to refine the program and 

to determine whether it should be made 

permanent, with evaluation criteria 

including, but not limited to, whether 

the pilot is achieving its objective(s), 

impact on job creation and retention, 

impact on business creation and/or 

business expansion, whether the costs 

(including losses) of the pilot are within 

an acceptable range, and portfolio 

performance as it relates to other 7(a) 

programs. SBA recently conducted an 

analysis to compare the performance of 

CA loans to other relevant groups of 7(a) 

loans and to the entire 7(a) portfolio, 

and found that CA loans exhibit more 

risk than other 7(a) loans. As discussed 

further below, the analysis found that 

the CA loan portfolio had a higher early 

problem loan rate, higher early default 

rate, and the last 12 month default rate 

is trending higher than other similar 7(a) 

loans and the overall 7(a) portfolio. In 

an effort to mitigate this risk and in 

order to ensure that SBA’s Office of 

Credit Risk Management (‘‘OCRM’’) 

continues to be able to properly oversee 

lenders participating in the CA Pilot 

Program, SBA is issuing this Notice to 

place a moratorium on the acceptance of 

new Community Advantage Lender 

Participation Applications (‘‘CA Lender 

Applications’’) and to further revise 

program requirements, as described 

more fully below. 

The CA Pilot Program is currently set 

to expire March 31, 2020. With this 

Notice, SBA is extending the pilot 

program until September 30, 2022. This 

extension will allow for additional time 

to evaluate the pilot, and if warranted, 

begin the process for it to be made 

permanent. 

2. Comments 

Although the moratorium on 

accepting applications for new CA 

Lenders and all other changes are 

effective October 1, 2018, comments are 

solicited from interested members of the 

public on all aspects of the CA Pilot 

Program. Comments must be submitted 

on or before the deadline for comments 

listed in the DATES section. SBA will 

consider these comments and the need 

for making any revisions as a result of 

these comments. 

3. Changes to the Community 

Advantage Pilot Program 

a. Moratorium on Acceptance of New 

CA Lender Applications 

As a pilot loan program, the CA Pilot 

Program is intended to be available to a 

limited number of lenders to allow the 

Agency to test new methods for 

expanding access to capital for small 

businesses in underserved markets. The 

limited scope of the program allows 

SBA to evaluate its effectiveness 

without unduly increasing risk to the 

Agency. Since its inception in 2011, the 

CA Pilot Program has grown to 113 CA 

Lenders across 39 states, 99 of which are 

actively making and servicing CA loans. 

SBA has determined that there is a 

sufficient number and geographical 

diversity of CA Lenders to evaluate the 

pilot; therefore, it is unnecessary to 

further increase the number of lenders 

participating in the CA Pilot Program at 

this time. 

In addition, while almost all 7(a) 

Lenders have a primary Federal 

financial regulator or a state financial 

regulator, all CA Lenders are classified 

as ‘‘SBA Supervised Lenders,’’ as 

defined in 13 CFR 120.10, and as a 

result, oversight of CA Lenders is more 

resource-intensive for SBA than 

oversight of other 7(a) Lenders. 

Furthermore, a recent SBA analysis 

found that CA loans exhibit more risk 

than other 7(a) loans. (See https://

www.sba.gov/document/supportcommunity-advantage-pilot-programanalysis.) Specifically, SBA compared 

CA loans to non-CA 7(a) loans of 

$250,000 or less, non-CA 7(a) loans of 

$250,000 or less made to underserved 

businesses,1 and to the entire 7(a) 


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or women-owned businesses, as reported by the 

borrowers. 

2Early problem loan rate means the gross 

approval amount of young loans (36 months on 

book or less) that have had either a deferred, 

delinquent (60 or more days past due), liquidated, 

purchased, or charged off status within 18 months 

of disbursement, divided by the gross approval 

amount of young loans. 

3Early default rate means the gross balance at 

default of young loans (36 months on book or less) 

that experienced a default event (liquidation or 

purchase) within the first 18 months of 

disbursement, divided by the gross approval 

amount of young loans. 

4Last 12 month default rate means the default 

amount (gross outstanding balance at purchase or 

liquidation) of all loans that have defaulted over the 

last 12 months, divided by the average active 

balance over the last 12 months plus the default 

amounts of the last 12 months. 

5The SBPS score is an indication of the relative 

credit quality of the businesses and predicts a 

business’s propensity to become severely 

delinquent in debt in the next 12 to 24 months. 

6Cumulative purchase rate means all purchases 

from loans approved in the same fiscal year, 

divided by all disbursement dollars of loans 

approved in the same fiscal year. 

portfolio. The analysis found that the 

CA loan portfolio had a higher early 

problem loan rate,2 higher early default 

rate,3 and the last 12 month default 

rate 4 is trending higher than the other 

7(a) loan groups and the overall 7(a) 

portfolio. The credit quality of the CA 

portfolio, as measured by the Small 

Business Risk Portfolio Solution 

(‘‘SBPS’’) Score,5 is also lower than the 

other 7(a) loan groups and the overall 

7(a) portfolio. In addition, the credit 

quality of the CA Loan portfolio has 

declined since 2015 while the credit 

quality of the rest of the 7(a) portfolio 

has increased. Finally, the cumulative 

purchase rate 6 of CA loans is 

consistently higher than the cumulative 

purchase rates in the other 7(a) loan 

groups and the overall 7(a) portfolio. For 

example, the cumulative purchase rate 

of CA loans for cohort 2013 is 7.9%, 

over three times greater than the 

cumulative purchase rate for cohort 

2013 for the 7(a) portfolio (2.2%). 

Given the increased risk of CA loans 

as compared to other 7(a) loans, the 

need for more resource-intensive 

oversight of CA Lenders, and the fact 

that the CA Pilot Program already 

includes a sufficient number of 

geographically dispersed CA Lenders, 

SBA has decided to place a moratorium 

on acceptance of new CA Lender 

applications. Effective October 1, 2018, 

SBA will no longer accept CA Lender 

Applications (SBA Form 2301). 

Completed CA Lender Applications that 

are received before October 1, 2018 will 

be fully evaluated, and a decision 

whether to allow the applicant to 

participate in the CA Pilot Program will 

be made based on the criteria in 

Appendix C of Version 4.0 of the 

Community Advantage Participant 

Guide, which is the version in effect at 

the time of receipt of such applications. 

Any CA Lender Applications that have 

been submitted to SBA but are 

incomplete as of October 1, 2018 will 

not be processed. 

b. Expanded Underserved Market 

Definition 

The original February 18, 2011 notice 

introducing the CA Pilot Program 

defined underserved markets to include: 

Low-to-moderate income communities 

(‘‘LMI’’); Empowerment Zones and 

Enterprise Communities; HUBZones; 

New businesses; Businesses eligible for 

Patriot Express, including Veteranowned businesses; and Firms where 

more than 50% of their full time 

workforce is low-income or resides in 

LMI census tracts. In the December 28, 

2015 notice, SBA revised this program 

definition to include designated 

Promise Zones as an underserved 

market. In the December 28, 2015 

update to the Community Advantage 

Participant Guide, SBA again updated 

the definition of underserved market to 

remove ‘‘Businesses eligible for Patriot 

Express’’ and replace it with 

‘‘Businesses eligible for SBA Veterans 

Advantage,’’ as the Patriot Express Pilot 

Initiative expired on December 31, 2013. 

SBA is now further revising the 

definition of underserved markets to 

include Opportunity Zones and Rural 

Areas. An Opportunity Zone is an 

economically distressed community that 

has been nominated by the state and 

certified by the Secretary of the U.S. 

Treasury as a community in which new 

investments, under certain conditions, 

may be eligible for preferential tax 

treatment. More information and a list 

of Opportunity Zones for all states are 

available at https://www.cdfifund.gov/ 

Pages/Opportunity-Zones.aspx. A Rural 

Area, for purposes of the CA Pilot 

Program, is a county that the U.S. 

Census Bureau has defined as ‘‘Mostly 

Rural’’ or ‘‘Completely Rural’’ in its 

most recent decennial census report. 

More information on Rural Areas, 

including the 2010 County 

Classification Lookup Table, is available 

at https://www.sba.gov/about-sba/sbainitiatives/sba-rural-lending-initiative 

and on the Welcome Screen for the 

Capital Access Financial System 

(‘‘CAFS’’) at https://caweb.sba.gov/cls/ 

dsp_login.cfm. In order to accomplish 

this change, SBA is waiving the 

definition of ‘‘Rural Area’’ in 13 CFR 

120.10, ‘‘Definitions’’, for purposes of 

the CA Pilot Program. 

c. Debt Refinancing 

Currently, all debt refinancing in the 

CA Pilot Program must meet the 

requirements for refinancing set forth in 

the version of SOP 50 10 in effect at the 

time of loan approval, with two 

modifications. First, the CA Lender 

must demonstrate either (a) a 10 percent 

improvement in cash flow; or (b) that 

the CA loan exceeds the amount being 

refinanced by at least $5,000 or 25 

percent, whichever is greater. Second, a 

CA Lender seeking to refinance nonSBA guaranteed, same institution debt 

must include a transcript showing the 

due dates and when payments were 

received for the most recent six month 

period. If there are any late payments in 

the most recent six month period, the 

debt may not be refinanced with a CA 

loan. Late payments are defined as any 

payment made beyond 29 days of the 

due date. 

SBA is modifying the requirements 

for refinancing non-SBA guaranteed, 

same institution debt to require a 

transcript showing the due dates and 

when payments were received for the 

most recent 12 month period, rather 

than six months. If there are any late 

payments in the most recent 12 month 

period, the debt may not be refinanced 

with a CA loan. In addition, debts on 

the CA Lender’s books for less than 12 

months may not be refinanced with a 

CA loan. 

d. Delegated Authority 

OCRM evaluates all CA applicants for 

delegated authority eligibility at the 

time of application to become a CA 

Lender. Currently, if a prospective 

lender is not determined to be eligible 

for delegated authority at the time of 

approval as a CA Lender, it must wait 

until after it has participated in the CA 

Pilot Program for six months before it 

can request another determination. SBA 

is revising the eligibility requirements 

applicable to CA Lenders applying for 

delegated authority by extending the 

waiting period from six months to 12 

months. 

In addition, under current 

requirements, a CA Lender that is 

determined to be eligible for delegated 

authority may not process loans using 

its delegated authority until (i) it closes 

and makes an initial disbursement on 

five non-delegated CA loans, and (ii) 

OCRM determines, in consultation with 

the Loan Guaranty Processing Center 

(‘‘LGPC’’), that it has satisfactory 

knowledge of SBA Loan Program 

Requirements. SBA is increasing the 

number of CA loans that must be 

initially disbursed before a CA Lender 

may receive approval to process 


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46240 Federal Register / Vol. 83, No. 177 / Wednesday, September 12, 2018 / Notices 

7See Community Advantage Participant Guide 

for further details. The requirements for a full credit 

write-up are set forth in SOP 50 10. 

8The analysis looked at last 12 month default 

rate, which means the default amount (gross 

outstanding balance at purchase or liquidation) of 

all loans that have defaulted over the last 12 

months, divided by the average active balance over 

the last 12 months plus the default amounts of the 

last 12 months. 

applications under delegated authority. 

Effective October 1, 2018, the number of 

loans is increased to seven. 

e. Minimum Credit Score 

SBA is increasing the minimum 

acceptable credit score for CA loans. As 

further described in the Community 

Advantage Participant Guide, all CA 

loan applications receive a credit score 

at the time of submission of the 

application for guaranty to SBA. A 

credit score at or above the minimum 

acceptable credit score satisfies the need 

to consider several required 

underwriting criteria, including part of 

the analysis to determine reasonable 

assurance of repayment from cash flow. 

If a CA Lender believes there are 

mitigating issues to justify a loan, 

despite an unacceptable credit score, the 

Lender may contact the LGPC with a 

full credit write-up for consideration.7

Applications with credit scores below 

the minimum may not be processed 

under a CA Lender’s delegated 

authority. 

SBA recently compared default rates 8

of CA loans with credit scores ranging 

from 120 (the current minimum) to 139, 

and CA loans with credit scores of 140 

or greater. The analysis showed that CA 

loans with credit scores of less than 140 

had much higher default rates, 

sometimes as much as three times 

higher than CA loans with credit scores 

greater than or equal to 140. 

Accordingly, SBA is increasing the 

minimum acceptable credit score for the 

CA Pilot Program from 120 to 140. 

f. Loan Loss Reserve Requirements 

CA Lenders are required to create a 

Loan Loss Reserve Account (‘‘LLRA’’) to 

cover potential losses arising from 

defaulted loans. The reserve fund is to 

cover both losses from the unguaranteed 

portion of defaulted loans as well as 

possible repairs and denials associated 

with SBA’s guaranty on CA loans sold 

into SBA’s secondary market. In the 

November 9, 2012 notice, SBA reduced 

the LLRA requirement from 15 percent 

of the outstanding amount of the 

unguaranteed portion of a CA Lender’s 

CA loan portfolio to five percent. In that 

notice, SBA also established an 

additional reserve requirement for CA 

Lenders with secondary market 

authority. The additional reserve 

requirement was set at three percent of 

the outstanding amount of the 

guaranteed portion of each CA loan sold 

in the secondary market. 

Given the increased risk of CA loans 

as compared to other 7(a) loans, SBA 

has determined that the current reserve 

requirements are insufficient with 

respect to CA loans sold in the 

secondary market. SBA is at higher risk 

on defaulted loans in the secondary 

market because SBA must make 

payment to the secondary market 

investor before it can attempt to recover 

any denials or repairs from the CA 

Lender. To address this risk, for each 

CA loan approved on or after October 1, 

2018, a reserve of five percent of the 

outstanding amount of the guaranteed 

portion must be deposited in the LLRA 

if the loan is sold in the secondary 

market. All other requirements 

regarding the creation and maintenance 

of the LLRA stated in the February 18, 

2011 notice and all subsequent notices 

remain unchanged, including the five 

percent reserve requirement on the 

unguaranteed portion of CA loans. 

Failure to maintain the LLRA as 

required may result in removal from the 

CA Pilot Program, the imposition of 

additional controls or reserve amounts, 

and/or other action permitted by SBA 

regulation or otherwise by law. Based 

on the risk characteristics or 

performance of a CA Lender, OCRM in 

its discretion and in consultation with 

the Director of the Office of Financial 

Assistance may require additional 

amounts to be included in the LLRA. 

In the November 9, 2012 notice, SBA 

also modified its regulation at 13 CFR 

120.660 to allow the Director, Office of 

Credit Risk Management instead of the 

Director, Office of Financial Assistance 

to suspend secondary market authority 

for CA Lenders under that regulation. 

Effective September 20, 2017, however, 

SBA amended this regulation with 

respect to all 7(a) Lenders to provide 

that suspensions and revocations under 

13 CFR 120.660 would be taken by the 

Director, Office of Financial Assistance 

together with the Director, Office of 

Credit Risk Management. Thus, SBA’s 

2012 modification of 13 CFR 120.660 for 

purposes of the CA Pilot Program to 

permit the Director, Office of Credit Risk 

Management to take action under this 

regulation is no longer necessary. 

g. Limitation on Fees a CA Lender May 

Charge 

Currently, 13 CFR 120.221(a) permits 

a lender to charge an applicant 

reasonable fees (customary for similar 

lenders in the geographic area where the 

loan is being made) for packaging and 

other services. Under the current 

regulation, SBA permits lenders to 

charge an applicant a reasonable fee to 

assist the applicant with the preparation 

of the application and supporting 

materials. However, SBA does not 

permit lenders to charge an applicant a 

commitment, broker, referral, or similar 

fee. 

For purposes of the CA Pilot Program, 

SBA is modifying 13 CFR 120.221(a) to 

limit the total fees an applicant can be 

charged by a CA Lender for assistance 

in obtaining a CA loan. Regardless of 

what the fee is called (e.g., a packaging 

fee, application fee, etc.), the CA Lender 

is permitted to collect a fee from the 

applicant that is no more than $2,500. 

With the exception of necessary out-ofpocket costs such as filing or recording 

fees permitted in § 120.221(c), this is the 

only fee that a CA Lender may collect 

directly or indirectly from an applicant 

for assistance with obtaining a CA loan. 

In addition, the CA Lender may not split 

a loan into two loans for the purpose of 

charging an additional fee to an 

applicant. 

SBA considers a fee of no more than 

$2,500 to be reasonable for the services 

provided by a CA Lender to an 

applicant for assistance with obtaining a 

CA loan. SBA will monitor this fee and, 

if adjustments are necessary, SBA may 

revise this amount by publishing a 

notice with request for comment in the 

Federal Register. 

If the CA Lender charges the applicant 

a fee for assistance with obtaining a CA 

loan, the CA Lender must disclose the 

fee to the applicant and SBA by 

completing the Compensation 

Agreement (SBA Form 159) in 

accordance with the regulation at 

§ 103.5 and the procedures set forth in 

SOP 50 10. 

The remaining sections of 13 CFR 

120.221 (sections (b) through (e)) remain 

unchanged. Thus, in appropriate 

circumstances as set forth in current 

§§ 120.221(b) through (e) and further 

clarified in SOP 50 10, a CA Lender may 

charge an applicant or borrower 

extraordinary servicing fees, out of 

pocket expenses, a late payment fee, and 

for legal services charged on an hourly 

basis. 

h. Compensation and Fee Limitations 

Applicable to Lender Service Providers 

and Other Agents 

In the February 8, 2012 notice, SBA 

modified the CA Pilot Program 

requirements to allow CA Lenders to 

contract with Lender Service Providers 

(‘‘LSPs’’), as defined at 13 CFR 103.1(d). 

SBA will continue to allow CA Lenders 

to contract with LSPs, but is modifying 

some of the requirements applicable to 

LSPs, including total fee limits and 


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Federal Register / Vol. 83, No. 177 / Wednesday, September 12, 2018 / Notices 46241 

9Agent is defined in 13 CFR 103.1(a) as an 

authorized representative, including an attorney, 

accountant, consultant, packager, lender service 

provider, or any other person representing an 

applicant or participant by conducting business 

with SBA. 

10Packager is defined in 13 CFR 103.1(e) as an 

Agent who is employed and compensated by an 

Applicant or lender to prepare the Applicant’s 

application for financial assistance from SBA. SBA 

determines whether or not one is a ‘‘Packager’’ on 

a loan-by-loan basis. 

11Referral Agent is defined in 13 CFR 103.1(f) as 

a person or entity who identifies and refers an 

Applicant to a lender or a lender to an Applicant. 

The Referral Agent may be employed and 

compensated by either an Applicant or a lender. 

limitations on receiving compensation 

from both the CA Lender and the 

applicant in connection with the same 

loan application. 

SBA is modifying 13 CFR 103.4(g), 

which permits a limited exception to 

the ‘‘two master’’ prohibition when an 

Agent 9 acts as a Packager 10 and is 

compensated by the applicant for 

packaging services, and the same Agent 

also acts as a Referral Agent 11 and is 

compensated by the lender for those 

activities in connection with the same 

loan application. SBA believes there is, 

at a minimum, an appearance of a 

conflict of interest when an Agent 

represents both the applicant and the 

CA Lender on the same loan 

application. Further, when conducting 

lender oversight activities, SBA has 

observed numerous instances where 

applicants have been erroneously 

charged for services that were provided 

for a lender, not the applicant. In order 

to prevent any conflicts of interest from 

arising and to ensure the applicants are 

not improperly charged for services 

provided to the CA Lender, SBA is 

modifying 13 CFR 103.4(g) to eliminate 

the exception to the ‘‘two master 

prohibition.’’ Thus, for purposes of the 

CA Pilot Program, an Agent, including 

an LSP, may not provide services to 

both the applicant and the CA Lender 

and be compensated by both parties in 

connection with the same loan 

application. 

The regulation at 13 CFR 103.5 sets 

forth, among other things, the 

requirement for all Agents to disclose to 

SBA the compensation received for 

services provided to an applicant and 

requires that fees charged must be 

considered reasonable by SBA. In an 

effort to clarify what SBA considers 

reasonable and to prevent applicants 

from being overcharged by Agents, SBA 

is modifying this regulation to limit the 

total fees that an Agent or Agents may 

charge an applicant in connection with 

obtaining a CA loan. An Agent or 

Agents may charge a maximum of up to 

2.5% of the CA loan amount, or $7,000, 

whichever is less. 

If an Agent provides more than one 

service to an applicant (e.g., packaging 

and referral services), only one fee is 

permitted for all services performed by 

the Agent. Further, if more than one 

Agent (e.g., a Packager and a Referral 

Agent) provides assistance to the 

applicant in obtaining the CA loan, the 

amount of all fees that the applicant is 

required to pay must be combined to 

meet the maximum allowable fee set by 

SBA. (However, a fee charged to the 

applicant by the CA Lender in 

accordance with modified 13 CFR 

120.221(a), as described above, will not 

be counted toward the maximum 

allowable fee for an Agent or Agents.) 

These maximum limits apply regardless 

of whether the Agent’s fee is based on 

a percentage of the loan amount or on 

an hourly basis. 

SBA considers a fee of the lesser of 

2.5% of the guaranteed loan amount or 

$7,000 to be reasonable for the services 

provided by an Agent or Agents to an 

applicant in connection with obtaining 

a CA loan. SBA will monitor this fee 

and, if adjustments are necessary, SBA 

may revise this amount from time to 

time by publishing a notice with request 

for comments in the Federal Register. 

Finally, SBA is also modifying the last 

sentence in 13 CFR 103.5(c) to remove 

the word ‘‘directly.’’ This change 

clarifies that compensation paid by the 

CA Lender to a Lender Service Provider 

may not be charged to the applicant, 

either directly or indirectly. 

4. General Information 

The changes in this Notice are limited 

to the CA Pilot Program only. All other 

SBA guidelines and regulatory waivers 

or modifications related to the CA Pilot 

Program remain unchanged. The 

regulatory waiver and modifications 

described in this Notice are authorized 

by 13 CFR 120.3, which provides that 

the SBA Administrator may suspend, 

modify or waive rules for a limited 

period of time to test new programs or 

ideas. These modifications apply only to 

loans made under the CA Pilot Program 

and will last only for the duration of the 

pilot, which expires September 30, 

2022. 

SBA has provided more detailed 

guidance in the form of a Participant 

Guide which is being updated to reflect 

these changes and will be available on 

SBA’s website at http://www.sba.gov. 

SBA may provide additional guidance, 

through SBA notices, which may also be 

published on SBA’s website at http://

www.sba.gov/category/lendernavigation/forms-notices-sops/notices. 

Questions regarding the CA Pilot 

Program may be directed to the Lender 

Relations Specialist in the local SBA 

district office. The local SBA district 

office may be found at http://

www.sba.gov/about-offices-list/2. 

Authority: 15 U.S.C. 636(a)(25) and 13 CFR 

120.3. 

Dated: September 4, 2018. 

Linda E. McMahon, 

Administrator. 

[FR Doc. 2018–19885 Filed 9–11–18; 8:45 am] 

BILLING CODE 8025–01–P 

SMALL BUSINESS ADMINISTRATION 

[Disaster Declaration #15676 and #15677; 

Nebraska Disaster Number NE–00072] 

Presidential Declaration of a Major 

Disaster for Public Assistance Only for 

the State of Nebraska 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Notice. 

SUMMARY: This is a Notice of the 

Presidential declaration of a major 

disaster for Public Assistance Only for 

the State of Nebraska (FEMA–4387–DR), 

dated 08/27/2018. 

Incident: Severe Storms, Tornadoes, 

Straight-line Winds, and Flooding. 

Incident Period: 06/17/2018 through 

07/01/2018. 

DATES: Issued on 08/27/2018. 

Physical Loan Application Deadline 

Date: 10/26/2018. 

Economic Injury (EIDL) Loan 

Application Deadline Date: 05/27/2019. 

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 

President’s major disaster declaration on 

08/27/2018, Private Non-Profit 

organizations that provide essential 

services of a governmental nature may 

file disaster loan applications 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: Cedar, Colfax, 

Cuming, Dakota, Dixon, Harlan, 

Logan, Thomas, Thurston, Wayne 

The Interest Rates are: 


daltland on DSKBBV9HB2PROD with NOTICES