[Federal Register Volume 87, Number 122 (Monday, June 27, 2022)]
[Rules and Regulations]
[Pages 37979-37982]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-13359]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 120

RIN 3245-AH74


Temporary 504 Express Loan Authority for Certified Development 
Companies Participating in the Accredited Lenders Program

AGENCY: U.S. Small Business Administration.

ACTION: Interim final rule with request for comments.

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SUMMARY: This interim final rule implements the additional authority 
that the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and 
Venues Act temporarily provides to Certified Development Companies 
participating in the Accredited Lenders Program with respect to 504 
loans that are not more than $500,000 and that are not made to a 
borrower in an industry with a high rate of default, as defined by SBA.

DATES: 
    Effective Date: This rule is effective June 27, 2022.
    Applicability Date: This rule applies to loan applications 
submitted to the Certified Development Company on or after June 27, 
2022 and approved by the Certified Development Company and the U.S. 
Small Business Administration through September 30, 2023.
    Comment Date: Comments must be received on or before August 26, 
2022.

ADDRESSES: You may submit comments, identified by RIN 3245-AH74, 
through the Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    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 via email to <a href="/cdn-cgi/l/email-protection#b8f9f4e8fdc0c8caddcbcbf8cbdad996dfd7ce"><span class="__cf_email__" data-cfemail="64252834211c1416011717241706054a030b12">[email protected]</span></a>. Highlight the information 
that you consider to be CBI and explain why you believe SBA should hold 
this information as confidential. SBA will review the information and 
make the final determination whether it will publish the information.

FOR FURTHER INFORMATION CONTACT: Linda Reilly, Chief, 504 Program 
Branch, Office of Financial Assistance, Small Business Administration, 
409 3rd Street SW, Washington, DC 20416; telephone: (202) 604-5032; 
email: <a href="/cdn-cgi/l/email-protection#2e4247404a4f005c4b474242576e5d4c4f00494158"><span class="__cf_email__" data-cfemail="305c595e54511e4255595c5c49704352511e575f46">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:

I. Background Information

    The 504 Loan Program is an SBA financing program authorized under 
title V of the Small Business Investment Act of 1958, as amended, 15 
U.S.C. 695 et seq. The core mission of the 504 Loan Program is to 
provide long-term financing to small businesses for the purchase or 
improvement of land, buildings, and major equipment, in an effort to 
facilitate the creation or retention of jobs and local economic 
development. Under the 504 Loan Program, loans are made to small 
business applicants by Certified Development Companies (``CDCs''), 
which are certified and regulated by SBA to promote economic 
development within their community. In general, a project in the 504 
Loan Program (a ``504 Project'') includes: a loan obtained from a 
private sector lender with a senior lien covering at least 50 percent 
of the project cost; a loan obtained from a CDC (a ``504 Loan'') with a 
junior lien covering up to 40 percent of the total cost (backed by a 
100 percent SBA-guaranteed debenture); and a contribution from the 
Borrower of at least 10 percent equity.
    There are three types of CDCs that participate in the 504 Loan 
Program. This rulemaking addresses the temporary authority that will be 
granted, in accordance with section 328(b) of the Economic Aid to Hard-
Hit Small Businesses, Nonprofits, and Venues Act (Pub. L. 116-260) 
(``Economic Aid Act''), to CDCs that are approved by SBA to participate 
in the Accredited Lenders Program (hereafter ``ALP CDCs'').\1\ 
Currently, ALP CDCs

[[Page 37980]]

must obtain SBA's approval to make a 504 loan, including with respect 
to both the loan's eligibility and creditworthiness.\2\ With respect to 
closing, ALP CDCs have delegated authority to make the ``No Adverse 
Change'' certification prior to loan closing without SBA's review and 
approval and are authorized to close 504 loans under the expedited loan 
closing procedures applicable to a Priority CDC. With respect to 
servicing, ALP CDCs are currently required to obtain SBA's approval for 
most servicing actions.
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    \1\ The other 2 types of CDCs are the Premier Certified Lenders 
Program CDCs (PCLP CDCs), which have increased authority to process, 
service and liquidate 504 loans, and the CDCs that are neither PCLP 
nor ALP CDCs, which must obtain SBA approval for nearly all loan 
actions.
    \2\ ALP CDCs with a record of submitting high quality loan 
applications may be selected by the Sacramento Loan Processing 
Center (``SLPC'') to participate in the Abridged Submission Method, 
which is a streamlined application process.
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    Section 328(b) of the Economic Aid Act temporarily provides 
increased authority to ALP CDCs with respect to ``covered loans.'' The 
Economic Aid Act defines a ``covered loan'' as a loan that is not more 
than $500,000 and that is not made to a borrower in an industry with a 
high rate of default as defined by SBA (hereafter referred to as ``ALP 
Express Loans''). Section 328(b) of the Economic Aid Act further 
requires that SBA annually identify the industries with a high rate of 
default. Accordingly, on an annual basis, SBA will list the industries 
that it has determined have a high rate of default in a notice 
published in the Federal Register. ALP CDCs may not use ALP Express 
Loan authority with respect to any loan made to a business in an 
industry listed in the Federal Register notice as having a high rate of 
default.
    In accordance with section 328(b) of the Economic Aid Act, SBA is 
delegating to ALP CDCs the authority to make the final decision with 
respect to the applicant's creditworthiness on ALP Express Loans. The 
ALP CDC's determination regarding creditworthiness will not be subject 
to SBA review. SBA will continue to be responsible for reviewing each 
loan to ensure that it meets all Loan Program Requirements for program 
eligibility, including but not limited to those requirements involving 
franchise or similar agreements, historic properties, property with 
environmental issues, businesses involving religious activities, or 
businesses with activities of a prurient sexual nature. SBA also is 
delegating to ALP CDCs the authority to approve certain servicing 
actions after closing on ALP Express Loans. ALP CDCs must promptly 
notify the appropriate SBA servicing center of their approval of any 
servicing action on ALP Express Loans. SBA will consider prompt 
notification to be within 5 business days of approval.
    With respect to the closing process, ALP CDCs, like PCLP CDCs, will 
be responsible for properly undertaking all actions necessary to close 
the ALP Express Loan and Debenture in accordance with the expedited 
loan closing procedures applicable to a Priority CDC and with Sec.  
120.960.
    In their own discretion, ALP CDCs may decide to not exercise their 
delegated authority with respect to an ALP Express Loan and may instead 
submit the loan to SBA under non-delegated procedures. ALP CDCs may not 
use their ALP Express Loan authority to service a loan that was 
approved under non-delegated authority that could have been made as an 
ALP Express Loan. In addition, PCLP CDCs may decide to process an ALP 
Express Loan under their status as an ALP CDC instead of as a PCLP CDC, 
thereby not requiring the CDC to comply with Loan Loss Reserve Fund 
requirements for that loan.
    Finally, the authority provided by the Economic Aid Act is 
available for loan applications submitted to the ALP CDC on or after 
the effective date of this rulemaking and approved by the Certified 
Development Company and SBA through September 30, 2023.
    Therefore, SBA is issuing this interim final rule to conform its 
rules with the requirements of the Economic Aid Act by adding a new 
section to part 120 of its regulations, Sec.  120.842. The contents of 
this section are discussed in detail in Section III, below.

II. Justification for Publication as Interim Final Rule With Immediate 
Effective Date

    In general, SBA publishes a rule for public comment before issuing 
a final rule, in accordance with the Administrative Procedure Act (APA) 
and SBA regulations. 5 U.S.C. 553 and 13 CFR 101.108. In addition to 
section 303 of the Economic Aid Act that authorizes SBA to issue 
regulations to implement the amendments described above without regard 
to notice requirements, the APA also provides an exception to this 
standard rulemaking process where an agency finds good cause to adopt a 
rule without prior public participation. 5 U.S.C. 553(b)(3)(B). In 
enacting the good cause exception to standard rulemaking procedures, 
Congress recognized that emergency situations arise where an agency 
must issue a rule without public participation. SBA finds that good 
cause exists to publish this rule as an interim final rule, because 
there is an urgent need for SBA to implement this temporary program 
without further delay. Since the Economic Aid Act was enacted in 
December 2020 (and for many months before), SBA has been required to 
implement many initiatives related to the pandemic. These initiatives 
have competed for SBA's limited time and resources, and the 
implementation of some programs has been unavoidably delayed by those 
limitations. Any further delay in implementing the ALP Express Loan 
authority would be contrary to the public interest, as small businesses 
would have to wait even longer to benefit from the expedited processing 
provided by this temporary program. By providing an expedited process 
for certain loans made by ALP CDCs, this program will assist in meeting 
the ongoing financing needs of small businesses that continue to be 
impacted by the COVID-19 pandemic.
    Although this rule is being published as an interim final rule, 
comments are hereby solicited from interested members of the public. 
These comments must be received on or before August 26, 2022. SBA will 
consider any comments it receives and the need for making any 
amendments as a result of the comments.
    In addition, the APA requires that ``publication or service of a 
substantive rule shall be made not less than 30 days before its 
effective date, except * * * as otherwise provided by the agency for 
good cause found and published with the rule.'' 5 U.S.C. 553(d)(3). SBA 
finds that good cause exists to make this final rule effective the same 
day it is published in the Federal Register. The purpose of this APA 
provision is to provide interested and affected members of the public 
sufficient time to adjust their behavior before the rule takes effect. 
Because of the nature of the changes made by this rule, ALP CDCs and 
potential loan applicants will not need 30 days after publication of 
the rule to adjust to the more relaxed procedures. The rule does not 
change the substantive requirements for obtaining certain 504 loans; 
delegating increased authority to ALP CDCs with respect to the approval 
and servicing of those loans only impacts the procedural steps that ALP 
CDCs are currently required to follow to process a loan. For this and 
other reasons discussed above, SBA finds there is good cause to make 
this interim final rule effective immediately instead of imposing a 30-
day period between publication and effective date.

[[Page 37981]]

III. Discussion of New Sec.  120.842

    SBA is adding a new section, 120.842, to implement the authority of 
ALP CDCs to make ALP Express Loans.

Paragraph (a)

    Paragraph (a) sets forth the definition of ``ALP Express Loan.''

Paragraph (b)

    Paragraph (b) sets forth the requirements related to the 
underwriting, approving, closing, and servicing of ALP Express Loans. 
In conducting such activities, ALP CDCs must comply with Loan Program 
Requirements, act in accordance with prudent and commercially 
reasonable lending standards, and document in its files the basis for 
each of its decisions.
    With respect to underwriting, this provision provides that ALP CDCs 
are authorized to make the final decision with respect to the 
applicant's creditworthiness and establishing the terms and conditions 
of the ALP Express Loan. The ALP CDC's determination regarding 
creditworthiness will not be subject to SBA review. However, ALP CDCs 
are reminded that, in accordance with Sec.  120.938, SBA will look to 
the CDC for the entire amount of the Debenture in the case of fraud, 
negligence, or misrepresentation by the CDC if the CDC defaults on the 
Debenture that funded an ALP Express Loan.
    SBA will continue to be responsible for reviewing each loan to 
ensure that it meets all Loan Program Requirements for program 
eligibility, including but not limited to those requirements involving 
franchise and similar agreements, historic properties, property with 
environmental issues, businesses involving religious activities, or 
businesses with activities of a prurient sexual nature. After approving 
the creditworthiness of the loan, ALP CDCs will be required to submit 
to SBA with the loan application all required documentation, including 
documentation necessary for SBA to make the final eligibility decision. 
If SBA determines that the applicant and the ALP Express Loan are 
eligible and that SBA funds are available, SBA will notify the ALP CDC 
of the loan number assigned to the loan and provide the CDC with a 
signed copy of the Loan Authorization. ALP CDCs must submit to the 
Sacramento Loan Processing Center (SLPC) for review and approval any 
servicing action that the ALP CDC proposes prior to closing that may 
affect the eligibility of the borrower or the ALP Express Loan.
    With respect to closing, the ALP CDC is responsible for properly 
undertaking all actions necessary to close the ALP Express Loan and 
Debenture in accordance with the expedited loan closing procedures 
applicable to a Priority CDC and with Sec.  120.960.
    With respect to servicing, the ALP CDC is responsible for servicing 
its ALP Express Loans in accordance with Sec.  120.970. SBA may in 
certain circumstances, in its discretion, elect to handle such duties 
with respect to a particular ALP Express Loan or Loans. Additional 
servicing requirements are set forth in subpart E of this part. SBA 
will identify through its Loan Program Requirements which servicing 
actions that SBA will delegate to the CDC with respect to ALP Express 
Loans. The CDC must promptly notify the appropriate SBA commercial loan 
servicing center of any servicing action that it has approved under its 
delegated authority. SBA will consider prompt notification to be within 
5 business days of approval.

Paragraph (c)

    Paragraph (c) provides that a CDC is prohibited from processing a 
loan as an ALP Express Loan if the loan was previously submitted to SBA 
and was withdrawn by the CDC or was declined or otherwise not approved 
by SBA.

Paragraph (d)

    Paragraph (d) explains that the authority to make ALP Express Loans 
is available for applications submitted to the ALP CDC on or after the 
effective date of this rulemaking and approved by the Certified 
Development Company and SBA through September 30, 2023.

Compliance With Executive Orders 12866, 12988, 13132, and 13563, the 
Congressional Review Act, (5 U.S.C. 801-808), Paperwork Reduction Act 
(44 U.S.C., Ch. 35), and the Regulatory Flexibility Act (5 U.S.C. 601-
612)

Executive Orders 12866 and 13563

    The Office of Management and Budget (``OMB'') has determined that 
this rule constitutes a ``significant regulatory action'' for purposes 
of Executive Orders 12866, Regulatory Planning and Review, and 13563, 
Improving Regulation and Regulatory Review. SBA, however, is proceeding 
under the emergency provision at Executive Order 12866, section 
6(a)(3)(D), based on the need to move expeditiously to mitigate the 
current conditions arising from the COVID-19 pandemic. This rule is 
necessary to implement the Economic Aid Act and provide economic relief 
to small businesses adversely impacted by COVID-19. SBA anticipates 
that implementing the ALP Express Loan authority and providing ALP CDCs 
with greater authority to approve and service loans will reduce 
processing time and therefore benefit small businesses, their 
employees, and the communities they serve.

Congressional Review Act

    OMB has determined that this rule is not a major rule under 5 
U.S.C. 804(2).

Executive Order 12988

    This action meets applicable standards set forth in sections 3(a) 
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize 
litigation, eliminate ambiguity, and reduce burden. The action does not 
have preemptive effect or retroactive effect.

Executive Order 13132

    This rule does not have federalism implications as defined in 
Executive Order 13132, Federalism. It will not have substantial direct 
effects on the States, on the relationship between the national 
government and the States, or on the distribution of power and 
responsibilities among the various levels of government, as specified 
in the Executive Order. As such it does not warrant the preparation of 
a Federalism Assessment.

Paperwork Reduction Act

    In order to implement the Act, SBA has determined that it is 
necessary to temporarily modify SBA Form 1244, which is currently 
approved under OMB Control Number 3245-0071, Application for Section 
504 Loans, to conform the application with the revised requirements for 
ALP Express Loan authority. The changes will not add any new burdens 
for the respondents. SBA recently updated SBA Form 1244 to account for 
permanent changes to the Debt Refinancing 504 program, along with 
technical corrections for the last update to SBA Form 1244. SBA is 
making the following technical corrections and clarifying changes to 
SBA Form 1244: (1) revising the instructions on page 1 (Purpose of the 
Form) to clarify that CDCs with ALP Express Loan authority must use the 
form; (2) adding a new ALP Express checkbox to page 12 in the 
Submission Method field; and (3) updating the instructions on pages 15 
and 16 (Required Exhibits) to identify which exhibits must be completed 
and uploaded in SBA's E-Tran system for ALP Express Loans and which 
exhibits non-ASM CDCs must complete and upload into E-Tran. SBA has 
obtained emergency approval from OMB for the revised information 
collection to

[[Page 37982]]

implement these revisions as expeditiously as possible.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) generally requires 
administrative agencies to consider the effect of their actions on 
small entities, including small non-profit businesses, and small local 
governments. Pursuant to the RFA, when an agency issues a rule, the 
agency must prepare an analysis that describes whether the impact of 
the rule will have a significant economic impact on a substantial 
number of these small entities. However, the RFA requires such analysis 
only where notice and comment rulemaking is required. As discussed 
above, SBA is publishing this rule as an interim final rule without 
advance notice and public comment because section 303 of the Economic 
Aid Act authorizes SBA to issue regulations to implement the amendments 
in the Act without regard to notice requirements. This rule is, 
therefore, exempt from the RFA requirements.

List of Subjects in 13 CFR Part 120

    Loan programs-business, Reporting and recordkeeping requirements, 
Small businesses.

    For the reasons stated in the preamble, SBA amends 13 CFR part 120 
as follows:

PART 120--BUSINESS LOANS

0
1. The authority citation for part 120 is revised to read as follows:

    Authority: 15 U.S.C. 634(b)(6), (b)(7), (b)(14), (h), and note, 
636(a), (h) and (m), and note, 636m, 650, 657t, and note, 657u, and 
note, 687(f), 696(3), and (7), and note, 697, 697a and e, and note; 
Pub. L. 116-260, 134 Stat. 1182.


0
2. Add Sec.  120.842 under the undesignated center heading ``Accredited 
Lenders Program (ALP)'' to read as follows:


Sec.  120.842  ALP Express Loans.

    (a) Definition. For the purposes of this section, an ALP Express 
Loan:
    (1) Means a 504 loan in an amount that is not more than $500,000; 
and
    (2) Does not include a loan made to a borrower that is in an 
industry that has a high rate of default, as annually determined by 
SBA. SBA will publish an annual list of the industries with a high rate 
of default in a notice in the Federal Register.
    (b) Requirements for the underwriting, approving, closing, and 
servicing of ALP Express Loans--(1) General. When underwriting, 
approving, closing, and servicing 504 loans under this section, the ALP 
CDC must comply with Loan Program Requirements and conduct such 
activities in accordance with prudent and commercially reasonable 
lending standards.
    (2) Documentation of decision making. For each ALP Express Loan, 
the ALP CDC must document in its files the basis for its decisions with 
respect to underwriting, approving, closing, and servicing the loan.
    (3) Processing requirements--(i) Eligibility. An ALP Express Loan 
is subject to SBA's final approval as to eligibility and, for each 
loan, an ALP CDC must submit the documents required by SBA to complete 
the eligibility review. ALP CDCs must submit to SBA for review and 
approval any servicing action that the ALP CDC proposes prior to 
closing that may affect the eligibility of the borrower or the ALP 
Express Loan.
    (ii) Credit decisions. The ALP CDC is responsible for properly 
determining the applicant's creditworthiness and establishing the terms 
and conditions under which the ALP Express Loan will be made in 
accordance with SBA's Loan Program Requirements and prudent lending 
standards. The ALP CDC's determination regarding creditworthiness will 
not be subject to SBA review.
    (4) Submission of loan documents. An ALP CDC must notify SBA of its 
credit decision on an ALP Express Loan by submitting to SBA all 
required documentation. SBA will review these documents to determine 
whether the applicant and the ALP Express Loan are eligible and whether 
SBA funds are available for the ALP Express Loan. If approved, SBA will 
notify the ALP CDC of the loan number assigned to the loan and provide 
the CDC with a signed copy of the Loan Authorization.
    (5) Loan and Debenture closing. After receiving notification of the 
loan number and a signed copy of the Loan Authorization from SBA, the 
ALP CDC is responsible for properly undertaking all actions necessary 
to close the ALP Express Loan and Debenture in accordance with the 
expedited loan closing procedures applicable to a Priority CDC and with 
Sec.  120.960.
    (6) Servicing. The ALP CDC is responsible for servicing its ALP 
Express Loans in accordance with Sec.  120.970. SBA may in certain 
circumstances, in its discretion, elect to handle such duties with 
respect to a particular ALP Express Loan or Loans. Additional servicing 
requirements are set forth in subpart E of this part. The CDC must 
promptly notify SBA when it approves any servicing action delegated to 
the CDC under Loan Program Requirements.
    (c) Prohibition against making a 504 loan previously submitted to 
the SBA. An ALP CDC may not process a 504 loan application under 
paragraph (b)(3) of this section from an applicant whose application 
was previously submitted to SBA and was withdrawn by the CDC or was 
declined or otherwise not approved by SBA.
    (d) Applicability. The authority to make ALP Express Loans is 
available for applications submitted to the ALP CDC on or after June 
27, 2022 and approved through September 30, 2023.

Isabella Casillas Guzman,
Administrator.
[FR Doc. 2022-13359 Filed 6-24-22; 8:45 am]
BILLING CODE 8026-03-P


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