38900 Federal Register / Vol. 87, No. 125 / Thursday, June 30, 2022 / Rules and Regulations 

§ 457.173 Florida Avocado crop insurance 

provisions. 

* * * * * 

3. Insurance Guarantees, Coverage 

Levels, and Prices. 

* * * * * 

10. Duties in the Event of Damage or 

Loss. 

In addition to the requirements of 

section 14 of the Basic Provisions, the 

following will apply: 

(a) If any portion of your crop will be 

direct marketed, you must notify us at 

least 15 calendar days before any 

production will be harvested. 

* * * * * 

■ 24. Amend § 457.175 by: 

■ a. In the undesignated introductory 

paragraph, remove the year ‘‘2020’’ and 

add ‘‘2024’’ in its place; 

■ b. In section 1: 

■ i. Remove the definition of ‘‘Direct 

marketing’’; and 

■ ii. Revise the definition of 

‘‘Interplanted’’; 

■ c. Revise the section 3 heading; 

■ d. In section 6, in paragraph (b), 

remove the words ‘‘growing season after 

set out’’ and add ‘‘leaf year’’ in their 

place; 

■ e. In section 10, paragraph (a), revise 

the first sentence; and 

■ f. In section 11, paragraph(b)(3), 

remove ‘‘11(c)’’ and add ‘‘11(c))’’ in its 

place. 

The revisions read as follows: 

§ 457.175 California avocado crop 

insurance provisions. 

* * * * * 

1. Definitions 

* * * * * 

Interplanted. In lieu of the definition 

contained in section 1 of the Basic 

Provisions, acreage in which two or 

more crops are planted in any form of 

an alternating or mixed pattern. 

* * * * * 

3. Insurance Guarantees, Coverage 

Levels, and Prices 

* * * * * 

10. Duties in the Event of Damage or 

Loss 

* * * * * 

(a) If any portion of your crop will be 

direct marketed, you must notify us at 

least 15 calendar days before any 

production will be harvested. * * * 

* * * * * 

Marcia Bunger, 

Manager, Federal Crop Insurance 

Corporation. 

[FR Doc. 2022–13411 Filed 6–29–22; 8:45 am] 

BILLING CODE 3410–08–P 

SMALL BUSINESS ADMINISTRATION 

13 CFR Parts 120 and 123 

RIN 3245–AG98 

Regulatory Reform Initiative: 

Streamlining and Modernizing the 7(a), 

Microloan, and 504 Loan Programs To 

Reduce Unnecessary Regulatory 

Burden 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Final rule. 

SUMMARY: This final rule removes or 

revises various regulations governing 

the agency’s business loan programs 

that are obsolete, unnecessary, 

ineffective, or burdensome. This final 

rule also makes several technical 

amendments to incorporate recent 

statutory changes and other nonsubstantive changes. In addition, 

because this final rule removes a 

regulation that is cross-referenced in a 

regulation in SBA’s Disaster Loan 

Program, this rule makes one 

conforming change to the regulation in 

the Disaster Loan Program. 

DATES: The effective date of this final 

rule will be August 1, 2022. 

FOR FURTHER INFORMATION CONTACT: 

Linda Reilly, Chief, 504 Loan Program 

Division, Office of Financial Assistance, 

U.S. Small Business Administration, 

409 Third Street SW, Washington, DC 

20416; phone: (202) 604–5032; email 

address: linda.reilly@sba.gov. The 

phone number above may also be 

reached by individuals who are deaf or 

hard of hearing, or who have speech 

disabilities, through the Federal 

Communications Commission’s TTYBased Telecommunications Relay 

Service teletype service at 711. 

SUPPLEMENTARY INFORMATION: 

A. General Information 

As part of its ongoing responsibility to 

ensure that the rules it issues do not 

have an adverse economic impact on 

those affected by those rules, the U.S. 

Small Business Administration (SBA) 

published a proposed rule in the 

Federal Register on December 14, 2020 

(85 FR 80676) to remove or revise 

various regulations in part 120 of title 

13 of the Code of Federal Regulations 

that are obsolete, unnecessary, 

ineffective, or burdensome. The rule 

also proposed to make several technical 

amendments to regulations in part 120 

to incorporate recent statutory changes 

and other non-substantive changes. In 

addition, because the rule proposed to 

remove a regulation that is crossreferenced in a regulation in part 123 on 

SBA’s Disaster Loan Program, the rule 

proposed to make one conforming 

change to that regulation. The comment 

period was open until February 12, 

2021. 

In response to the request for 

comments, SBA received 2,901 

comments of which 234 were 

duplicative. Of the unique 2,667 

comments received, 1 was from a 

national trade association, 4 were from 

government entities, 14 were from 

advocacy groups, 5 were from private 

industries, and 2,643 were from 

individuals. Over 99% of the comments 

received, 2,651, were in response to the 

proposed removal of 120.110(k) from 

the regulations. This provision currently 

provides that businesses principally 

engaged in teaching, instructing, 

counseling or indoctrinating religion or 

religious beliefs are ineligible for SBA 

financial assistance; all but one of the 

comments received expressed 

opposition to its removal. The 

comments received on this issue and the 

other comments received are 

summarized and addressed below in the 

section-by-section analysis. 

F. Section-by-Section Analysis 

Section 120.2. SBA proposed to 

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

this section because SBA has not 

received funding to make direct or 

immediate participation 7(a) loans for 

over 30 years, explaining that it may be 

confusing to the public to refer to such 

loans when they are not available from 

the agency. No comments were received 

on this proposed change. However, SBA 

has decided not to move forward with 

the removal of these provisions at this 

time in order to retain the option for 

these programs should budget authority 

for direct lending or immediate 

participation programs become 

available. 

Section 120.10. SBA proposed to 

remove the references to non-lending 

technical assistance providers (NTAPs) 

in the definition of ‘‘Risk Rating’’ 

because SBA has not issued grant funds 

to NTAPs for many years. No comments 

were received on this proposed change 

and SBA is adopting the change as 

proposed. 

Section 120.103. SBA proposed to 

remove this section on farm enterprises, 

which refers to an outdated 

Memorandum of Understanding 

between SBA and the United States 

Department of Agriculture (USDA), 

because it is unnecessary. Although 

Federal financial assistance to 

agricultural businesses is generally 

available from USDA, SBA is also 

statutorily authorized to make nondisaster business loans to agricultural 


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enterprises under sections 3(a)(1) and 

7(a) of the Small Business Act and Title 

V of the Small Business Investment Act. 

SBA received one supporting comment 

from a trade association and no 

opposing comments. SBA is adopting 

the change as proposed. 

Section 120.110. This section lists the 

types of businesses that are ineligible for 

SBA business loans. For clarity, SBA 

proposed to make changes to three of 

the types of businesses on the list. First, 

SBA proposed to amend paragraph (h), 

which currently provides that 

businesses ‘‘engaged in any illegal 

activity’’ are ineligible, by revising it to 

provide that the business is ineligible if 

it is ‘‘engaged in any activity that is 

illegal under Federal, State, or local 

law’’. SBA wants to make it clear, 

consistent with its longstanding 

interpretation of this regulation, that the 

business is ineligible if it is engaged in 

any activity that is illegal at any level of 

government in the jurisdiction in which 

the business is operating. SBA received 

one supporting comment from a trade 

association and no opposing comments 

SBA is adopting this change as 

proposed. 

Second, SBA proposed to remove and 

reserve paragraph (k), which currently 

provides that a business is ineligible if 

it is ‘‘principally engaged in teaching, 

instructing, counseling or indoctrinating 

religion or religious beliefs, whether in 

a religious or secular setting’’. SBA 

explained that this provision, which 

was promulgated in 1996, could be 

interpreted as impermissibly imposing a 

special disability on organizations based 

on their religious status. In both Trinity 

Lutheran Church of Columbia, Inc. v. 

Comer,ll U.S.ll, 137 S. Ct. 2012, 

198 L. Ed. 2d 551 (2017), and Espinoza 

v. Montana Department of Revenue, 

llU.S.ll, 140 S. Ct. 2246, 207 L. Ed. 

2d 679 (2020), the Court held that the 

government may not deny a public 

benefit to an entity solely because of its 

religious status, character, or identity. 

Accordingly, SBA proposed to remove 

paragraph (k) from section 120.110. 

Over 99% of the total number of 

comments submitted, or 2,651, related 

to the proposed removal of section 

120.110(k), and all but one of these 

comments (as discussed below) 

expressed opposition to the removal of 

this provision. The vast majority of the 

commenters stated that they oppose 

SBA providing Federal government 

assistance to religious institutions or for 

religious purposes and stated that 

providing such assistance violates the 

First Amendment and its Establishment 

Clause and the First Amendment 

principle of separation of church and 

state. They also expressed opposition to 

using taxpayer funds to support 

religious institutions that already 

receive the benefit of tax-exempt status. 

Other commenters stated that they did 

not want their taxes to support faiths 

that promote bigotry or expressed 

concern that the religious institution 

may misappropriate or misuse the funds 

provided with government assistance. 

As mentioned above, one commenter, 

a trade association, did not object to the 

removal of paragraph (k) but suggested 

also amending 13 CFR 120.130 ‘‘to add 

funding religious activities as an 

ineligible use of loan proceeds.’’ The 

commenter expressed their view that 

this addition to the regulations would 

be consistent with the guidance that 

SBA currently provides in its Standard 

Operating Procedure (SOP) 50 10 6 that 

‘‘[i]f it appears that the proceeds of a 

loan sought by an Applicant may be 

used to fund religious activities, the 

SBA Lender must complete SBA Form 

1971, Religious Eligibility Worksheet.’’ 

It therefore seems clear that the 

overriding concern of the commenters 

was the continued adherence of SBA’s 

business loan programs to the demands 

of the Establishment Clause of the First 

Amendment. SBA believes that the 

language of section 120.110(k) could be 

viewed as being at odds with Trinity 

Lutheran and Espinoza. But, as stated in 

the preamble to the proposed rule, SBA 

will apply relevant case law to assure 

that the intended use of the loan 

proceeds of SBA business loans is 

consistent with the First Amendment’s 

Establishment Clause. 

Accordingly, SBA has determined 

that: (1) paragraph (k) of section 120.110 

should be removed from the Agency’s 

regulations, and reserved; (2) the 

Agency will continue to ensure that the 

proceeds of SBA business loans are used 

in a manner consistent with the 

requirements of the First Amendment of 

the U.S. Constitution; and (3) to assist 

SBA in applying applicable case law, 

the guidance provided in the Agency’s 

SOP 50 10 6, at page 146, regarding the 

submission of SBA Form 1971, will 

remain in effect until further notice. If 

needed and appropriate, SBA may 

subsequently propose additional 

regulatory language addressing relevant 

constitutional requirements. 

Third, SBA proposed to revise 

paragraph (n), which currently provides 

that a business is ineligible if an 

Associate ‘‘is incarcerated, on probation, 

on parole, or has been indicted for a 

felony or a crime of moral turpitude’’. 

With respect to ineligibility based on 

indictment for a crime, SBA proposed to 

change the phrase to ‘‘is under 

indictment’’ from ‘‘has been indicted’’. 

SBA explained that it wants to make 

clear, consistent with its longstanding 

interpretation of this regulation, that the 

business is not ineligible if an Associate 

has a history of ever being indicted (but 

not convicted), but would be ineligible 

only if an Associate is under indictment 

when the business submits a loan 

application or prior to loan approval. In 

addition, SBA proposed to replace the 

phrase, ‘‘a crime of moral turpitude’’, 

which is not always easily defined and 

can vary by State, with ‘‘a crime 

involving or related to financial 

misconduct or a false statement’’. SBA 

explained that it believes that the 

proposed standard is clearer and more 

relevant to SBA’s responsibility to carry 

out the business loan programs in a 

financially prudent manner. SBA 

received one supporting comment from 

a trade association and no opposing 

comments. SBA is adopting the changes 

as proposed. 

Section 120.111. SBA proposed to 

revise this section by removing a 

duplicative sentence at the end of the 

introductory text. No comments were 

received on this proposed change and 

SBA is adopting it as proposed. 

Section 120.120. This section 

describes the eligible uses of loan 

proceeds. SBA proposed to revise 

paragraph (a)(1), which currently 

provides that a Borrower may use loan 

proceeds to ‘‘acquire land (by purchase 

or lease)’’, to add that the land must be 

‘‘actively used in the applicant’s 

business operations (except that a 

Borrower may lease a portion of the 

property in accordance with 13 CFR 

120.131 and 120.870(b))’’. SBA 

explained that this change reflects 

SBA’s prohibition against financing 

passive activities other than Eligible 

Passive Companies under 13 CFR 

120.111. SBA received one supporting 

comment from a trade association and 

no opposing comments. However, SBA 

has decided that more time is needed to 

review and study ‘‘use of proceeds’’ and 

is not moving forward with this revision 

at this time. 

Section 120.173. SBA proposed to 

remove this section, which prohibits the 

use of lead-based paint if loan proceeds 

are for the construction or rehabilitation 

of a residential structure. SBA explained 

that this regulation is unnecessary 

because 16 CFR part 1303 already bans 

paint containing a concentration of lead 

in excess of 0.009% (90 parts per 

million) for use in residences, schools, 

hospitals, parks, playgrounds, and 

public buildings or other areas where 

consumers will have direct access to the 

painted surface. No comments were 

received on this proposed change and 

SBA is adopting it as proposed. 


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Section 120.190. SBA proposed to 

remove the reference to immediate 

participation loans in paragraph (a) and 

to remove paragraph (d), which refers to 

direct loans, because SBA has not 

received funding for immediate 

participation or direct loans for over 30 

years and believes that it may be 

confusing to the public to refer to such 

loans when they are not available from 

the agency. No comments were received 

on these proposed changes. However, 

SBA has decided not to move forward 

with the removal of these provisions at 

this time in order to retain the option for 

these programs should budget authority 

for direct lending or immediate 

participation programs become 

available. 

Section 120.192. SBA proposed to 

remove this section which states that 

loan applicants will receive notice of 

approval or denial of the loan 

application by the Lender, Certified 

Development Company (CDC), 

Microloan Intermediary, or SBA, as 

appropriate. SBA explained that it was 

SBA’s responsibility to provide notice to 

the applicant only when it made direct 

loans, and that because SBA has not 

received funding for direct loans for 

over 30 years, it is no longer necessary 

to include the reference to SBA in this 

section. No comments were received on 

this proposed change. However, SBA 

has decided not to move forward with 

the removal of these provisions at this 

time in order to retain the option for 

these programs should budget authority 

for direct lending or immediate 

participation programs become 

available. 

Section 120.211. SBA proposed to 

remove this section, which describes the 

statutory limits for direct loans and 

immediate participation loans, because 

SBA has not received funding to make 

these loans for over 30 years. SBA 

explained that it believes that it may be 

confusing to the public to refer to such 

loans when they are not available from 

the agency. No comments were received 

on this proposed change. However, SBA 

has decided not to move forward with 

the removal of this section at this time 

in order to retain the option for these 

programs should budget authority for 

direct lending or immediate 

participation programs become 

available. 

Section 120.212. SBA proposed to 

amend this section which establishes 

the maturities for a 7(a) loan. Paragraph 

(b) of this section establishes the loan 

term at ten years or less unless the loan 

finances or refinances real estate or 

equipment with a useful life exceeding 

ten years. When the loan is used to 

finance equipment or leasehold 

improvements, SBA proposed to amend 

paragraph (b) to allow a Lender to add 

a reasonable period, not to exceed 12 

months, to the loan term when 

necessary to complete the installation of 

the equipment and/or complete the 

leasehold improvements. SBA received 

one supporting comment from a trade 

association and no opposing comments. 

SBA is adopting this change as 

proposed. 

Section 120.213. SBA proposed to 

remove paragraph (b), which describes 

the interest rate charged by SBA for 

direct loans, for which SBA has not 

received funding for over 30 years. SBA 

explained that it may be confusing to 

the public to refer to such loans when 

they are not available from the agency. 

The remainder of the section would 

have also been revised accordingly. No 

comments were received on this 

proposed change. However, SBA has 

decided not to move forward with the 

removal of this provision at this time in 

order to retain the option for this 

program should budget authority for 

direct lending become available. 

Sections 120.214. SBA proposed to 

amend paragraph (c) of section 120.214 

by removing the thirty-day London 

Interbank Offered Rate (LIBOR) as a base 

rate option for calculating the maximum 

variable interest rate for a 7(a) loan in 

paragraph (c)(ii). SBA explained that the 

U.K. Financial Conduct Authority 

announced on July 27, 2017, that it 

would phase-out LIBOR completely by 

the end of 2021 (since revised to June 

30, 2023), and no generally accepted 

replacement for LIBOR has been 

identified or widely adopted at this 

time. To provide certainty to SBA 

Lenders and Borrowers in advance of 

LIBOR’s sunset in 2023, SBA proposed 

to remove from the regulation the 

reference to LIBOR as an optional base 

rate for variable rate 7(a) loans. 

Until such time as an alternative 

reference rate becomes widely adopted 

for small business commercial lending, 

Lenders will only be able to use Prime 

or the Optional Peg Rate as the base rate 

for any loan approved after the effective 

date of this final rule. In addition, for 

any loans outstanding with interest rates 

based on LIBOR, SBA recommends that 

Lenders review their loan documents to 

determine if the documents provide a 

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

Optional Peg Rate) without having to 

modify the loan documents. If there is 

no such flexibility, Lenders will need to 

work with Borrowers to modify their 

loan documents on an individual basis 

before LIBOR sunsets in 2023. Such 

modifications must be in compliance 

with the procedures set forth in the 

current versions of SBA SOPs 50 10 and 

50 57. If such loans have been sold on 

the secondary market, Lenders will need 

to obtain the consent of investors to 

modify the base rate in the loan 

agreement. With only 3% of SBA’s total 

portfolio of non-disaster business loans 

using LIBOR as a base rate, the process 

of phasing out LIBOR should not have 

a significant economic impact on a 

substantial number of small entities in 

SBA’s business loan programs. 

SBA received one comment from a 

trade association expressing support for 

the deletion of LIBOR as an optional 

base rate since it is being phased out by 

June 30, 2023, and SBA is adopting this 

change as proposed with the addition of 

a sentence that provides that, if an 

alternative reference rate subsequently 

becomes widely adopted for small 

business commercial lending, SBA will 

provide notice of this rate as an 

additional base rate option through 

publication in the Federal Register. 

In addition, SBA proposed to use loan 

amounts as the basis upon which the 

variable interest rate is set, instead of 

loan maturities. To implement this 

change, SBA proposed to remove 

paragraph (e) and revise paragraph (d) to 

reflect the maximum variable interest 

rates for all 7(a) loans as follows: 

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

less, the maximum interest rate shall not 

exceed six and a half (6.5) percentage 

points over the base rate; 

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

$50,000 and up to and including 

$250,000, the maximum interest rate 

shall not exceed six (6.0) percentage 

points over the base rate; 

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

$250,000 and up to and including 

$350,000, the maximum interest rate 

shall not exceed four and a half (4.5) 

percentage points over the base rate; and 

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

$350,000, the maximum interest rate 

shall not exceed three (3.0) percentage 

points over the base rate. 

By basing the rates on loan amounts 

and allowing Lenders to charge higher 

rates for smaller loans, Lenders would 

have more incentive to make smaller 

loans to businesses in need of credit on 

reasonable terms. In addition, the 

maximum variable interest rates 

described above would apply to all 

types of 7(a) loans. Currently, the 

maximum variable interest rate that 

Lenders are permitted to charge may 

vary depending upon the type of 7(a) 

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

Express, Export Express, Community 

Advantage Pilot, or regular 7(a). By 

standardizing the maximum variable 

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

streamlining and simplifying its 

regulations, and reducing the burden on 


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Lenders. Upon the effective date of this 

rule, SBA Express and Export Express 

Lenders may continue to use, in 

accordance with the statutory authority 

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

Small Business Act, respectively, the 

same base rates they use on their 

similarlysized, non-SBA guaranteed 

commercial loans, as well as their 

established change intervals, payment 

accruals, and other interest rate terms. 

However, the interest rate must never 

exceed the maximum allowable interest 

rate stated in paragraph (d) of this 

section and these loans may be sold on 

the Secondary Market only if the base 

rate is one of the base rates allowed in 

§ 120.214(c). In addition, under this 

final rule, Community Advantage 

Lenders are allowed to charge the higher 

interest rate in paragraph (1) above for 

loans of $50,000 or less (such Lenders 

can already charge 6 percentage points 

over the Prime rate for loans up to 

$250,000, the maximum loan amount 

under the Community Advantage Pilot). 

Two other changes that SBA proposed 

to this section include removing the 

requirement in the introductory 

paragraph of § 120.214 that SBA’s 

approval is required for a Lender to use 

a variable rate of interest and amending 

the second sentence of the introductory 

paragraph of § 120.214 by moving it to 

§ 120.214(d) and revising it to clearly 

state that the initial maximum variable 

interest rate is determined as of the date 

that SBA received the loan application. 

SBA received two comments with 

respect to these changes, including one 

from a trade association, which 

expressed support for the changes, and 

one from an individual, who expressed 

support for the new interest rates. The 

commenters agreed that providing a 

higher interest rate on smaller loans is 

a great incentive for lenders to provide 

such loans to borrowers. 

SBA is adopting these changes as 

proposed. 

Section 120.215. SBA proposed to 

remove this section, which establishes 

the interest rates for smaller loans. The 

interest rates for all 7(a) loans will now 

be covered by § 120.213 and the 

proposed amendments to § 120.214. 

SBA received one supporting comment 

from a trade association and no 

opposing comments; the Agency is 

removing this section as proposed. 

Section 120.220. SBA proposed to 

revise this section with two changes. 

First, paragraph (a)(3) currently states 

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

program is at zero subsidy, SBA will not 

collect a guarantee fee in connection 

with a loan made under section 7(a)(31) 

of the Small Business Act to a business 

owned and controlled by a veteran or 

the spouse of a veteran.’’ This regulatory 

paragraph implements section 

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

which provides that the guarantee fee 

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

Business Act is waived in connection 

with a loan made under the SBA 

Express Loan Program to a veteran or 

the spouse of a veteran except in any 

fiscal year in which the 7(a) program is 

not operating at zero subsidy. However, 

section 1102(d) of the Coronavirus Aid, 

Relief, and Economic Security Act (Pub. 

L. 116–136, 134 Stat. 281) removed the 

exception and, accordingly, SBA 

proposed to remove it from section 

120.220(a)(3). SBA received one 

comment in support of this change and 

is adopting this change as proposed. 

Second, paragraph (b) of this 

regulation establishes the deadlines for 

paying the SBA guaranty fee. For a loan 

with a maturity in excess of 12 months, 

this provision has historically required 

the Lender to pay the fee electronically 

within 90 days after SBA approval of 

the loan. In practice, SBA has been 

giving Lenders an additional 30 days to 

pay this fee, for a total of 120 calendar 

days after SBA loan approval, before 

cancelling the guarantee. With the 

efficiencies that have been created by 

electronic banking, SBA believes that 

these payments should be made in less 

time than 120 days and proposed to 

require that the fee be paid within 45 

days after loan approval. If the fee is not 

paid by the 45th day, SBA proposed to 

give the Lender a grace period of an 

additional 30 days and if the fee is not 

paid by the 75th day, SBA would cancel 

the guarantee. For loans with a maturity 

of 12 months or less, SBA proposed to 

continue to cancel the guarantee if the 

fee is not paid by the 10th business day 

after the Lender receives SBA loan 

approval. SBA received two comments 

opposing this change, one from a trade 

association and one from a member of 

the general public. Both commenters 

objected to shortening the time frame for 

paying the guaranty fee on 7(a) loans 

with a maturity date of more than one 

year from 90 days to 45. The trade 

association reasons that SBA has 

historically not terminated its guaranty 

unless the fee remained unpaid on the 

121st day after loan approval. In 

addition, both commenters note that the 

period between loan approval and loan 

disbursement may be longer than 45 

days. Since the guaranty fee may not be 

paid until after the borrower’s first 

disbursement, the trade association 

argues that maintaining the timeframe at 

90 days would avoid stressing lender 

liquidity. 

After considering these comments, 

SBA has decided to conduct further 

study on the timing of guarantee fee 

payment by lenders and is not adopting 

this change at this time. 

Section 120.222. SBA proposed to 

revise this section with a minor 

technical correction to § 120.222 to 

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

inserted in error. No comments were 

received on this proposed change and 

SBA is adopting it as proposed. 

Section 120.310. SBA proposed to 

remove the reference to direct loans in 

this provision, which governs the 

Disabled Assistance Loan Program 

(‘‘DAL’’), to make this regulation 

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

Small Business Act, which authorizes 

‘‘guaranteed’’ loans under the DAL 

program, but not direct loans. No 

comments were received on this 

proposed change. However, SBA has 

decided not to move forward with the 

removal of the reference to direct loans 

in this provision at this time in order to 

retain the option for this program 

should budget authority for direct 

lending become available. 

Section 120.315. SBA proposed to 

remove this section in its entirety, 

which establishes the interest rate and 

limit on the loan amount with respect 

to direct DAL loans, to make this 

regulation consistent with section 

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

which authorizes guaranteed loans only 

and not direct loans. No comments were 

received on this proposed change. 

However, SBA has decided not to move 

forward with the removal of this section 

at this time in order to retain the option 

for direct lending should budget 

authority become available. 

Section 120.320. SBA proposed to 

remove this provision in its entirety. It 

references SBA’s authority under 

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

Act to guarantee or make direct loans to 

businesses owned by low income 

individuals. SBA explained that direct 

loans have not been funded for over 30 

years and that this provision did not 

add anything to the general authority 

that SBA has under section 7(a) of the 

Small Business Act to make guaranteed 

loans to businesses owned by lowincome individuals. No comments were 

received on this proposed change. 

However, SBA has decided not to move 

forward with the removal of this section 

at this time in order to retain the option 

for direct lending should budget 

authority become available. 

Section 120.330. SBA proposed to 

remove the reference to direct loans in 

this section because SBA has not 

received funding to make these loans for 

over 30 years. SBA explained that it 

may be confusing to the public to refer 

to such loans when they are not 


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available from the agency. No comments 

were received on this proposed change. 

However, SBA has decided not to move 

forward with the removal of the 

reference to direct loans in this 

provision at this time in order to retain 

the option for direct lending should 

budget authority become available. 

Sections 120.350 and 120.352. The 

regulations governing SBA guaranteed 

loans to qualified employee trusts or 

‘‘Employee Stock Ownership Plans’’ 

(ESOPs) are set forth in §§ 120.350 

through 120.354. SBA proposed to 

include a technical amendment to both 

§ 120.350 and § 120.352 to incorporate 

the statutory change made in Section 

862 of the John S. McCain National 

Defense Authorization Act for Fiscal 

Year 2019 (Pub. L. 115–232) that 

permits SBA to guarantee a loan to the 

small business concern (rather than the 

qualified employee trust), if the 

proceeds from the loan are used only to 

make a loan to a qualified employee 

trust that results in the qualified 

employee trust owning at least 51 

percent of the small business concern. 

SBA proposed this amendment to 

ensure that the regulations are 

consistent with the statute and to 

provide clarity to SBA Lenders and SBA 

employees with respect to guaranteed 

loans involving ESOPs. Additional 

guidance governing these loans will be 

provided in SOP 50 10. SBA received 

one supporting comment from a trade 

association and no opposing comments. 

SBA is adopting the amendments as 

proposed. 

Sections 120.360 and 120.361. SBA 

proposed to remove these sections, 

which describe an outdated veteran’s 

loan program for direct and guaranteed 

loans to Vietnam-era veterans and 

certain disabled veterans. SBA 

explained that it has not received 

funding to make direct 7(a) loans in the 

Veterans Loan Program for over 30 years 

and SBA’s existing Loan Program 

Requirements provide special 

consideration for veteran-owned 

businesses. No comments were received 

on these proposed changes. However, 

SBA has decided not to move forward 

with the removal of these sections at 

this time in order to retain the option for 

direct lending should budget authority 

become available. 

Section 120.370. SBA proposed to 

remove this section, which describes 

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

of the Small Business Act to finance 

pollution control facilities, because the 

$1 million cap set forth in section 

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

loans was superseded when Congress 

raised the guaranty limit in section 

7(a)(3) to $3.75 million. This provision 

is also unnecessary because SBA is 

authorized under the general authority 

of section 7(a) to make guaranteed loans 

for pollution control facilities. SBA 

received one supporting comment from 

a trade association and no opposing 

comments. SBA is removing this section 

as proposed. 

Section 120.375. SBA proposed to 

remove this section’s reference to direct 

loans to firms participating in the 8(a) 

Program because direct loans have not 

been funded for over 30 years. SBA 

explained that it may be confusing to 

the public to refer to such loans when 

they are not available from the agency. 

No comments were received on this 

proposed change. However, SBA has 

decided not to move forward with the 

removal of the reference to direct loans 

at this time in order to retain the option 

for direct lending should budget 

authority become available. 

Section 120.376. SBA proposed to 

remove paragraph (a), the second 

sentence of paragraph (c), and paragraph 

(d), all of which describe requirements 

for direct loans or an immediate 

participation loan related to the loan 

program for participants in the 8(a) 

Program, for the same reasons expressed 

under the discussion of section 120.375 

above, with the remaining paragraphs 

redesignated accordingly. No comments 

were received on these proposed 

changes. However, SBA has decided not 

to move forward with the removal of 

these provisions at this time in order to 

retain the option for these programs 

should budget authority for direct 

lending or immediate participation 

programs become available. 

Sections 120.380 through 120.383. 

SBA proposed to remove these sections, 

which govern the program to provide 

defense economic transition assistance, 

because this program is no longer being 

funded. SBA believes that it may be 

confusing to the public to refer to such 

loans when they are not available from 

the agency. SBA received one 

supporting comment from a trade 

association and no opposing comments. 

SBA is removing these sections as 

proposed. 

Section 120.420. SBA proposed to 

remove paragraph (b), which defines 

‘‘Bank Regulatory Agencies,’’ because 

this term is no longer used in part 120, 

and the term ‘‘Federal Financial 

Institution Regulator,’’ which is used 

instead, is defined in 13 CFR 120.10, 

with the remaining paragraphs 

redesignated accordingly. SBA received 

one supporting comment from a trade 

association and no opposing comments. 

SBA is adopting this change as 

proposed. 

Section 120.432. SBA proposed to 

amend § 120.432(a) to implement SBA’s 

longstanding policy of holding 

Assuming Institutions and investors 

responsible for the contingent liabilities 

(including repairs and denials) 

associated with 7(a) loans originated by 

failed insured depository institutions, 

whether the 7(a) loans are purchased by 

a Lender through a Federal Deposit 

Insurance Corporation (FDIC) loan sale 

or transferred to an Assuming 

Institution through a whole bank 

transfer. SBA proposed to make this 

modification to ensure consistent 

treatment of all portfolio loan transfers 

whether through voluntary bank 

mergers or asset sales, or through FDICled portfolio transfers following the 

failure of a Lender. SBA also proposed 

to modify the regulatory language to 

include a statement that clarifies the 

applicability of the paragraph and the 

ability for the Agency to agree otherwise 

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

the guaranties). In addition, SBA 

proposed to modify the regulatory 

language to remove the specific 

reference to the FDIC and make it 

applicable to all 7(a) loans purchased 

from any Federal or state banking 

regulator, any receiver, or any 

conservator. SBA received one 

supporting comment from a trade 

association and no opposing comments. 

SBA is adopting these changes as 

proposed. 

Section 120.453. SBA proposed to 

remove this section, which states that 

servicing and liquidation 

responsibilities for PLP Lenders are set 

forth in subpart E of part 120, as 

unnecessary. PLP Lenders are required 

to service and liquidate their loans in 

accordance with the same standards set 

forth in subpart E that are applied to 

non-delegated Lenders. SBA received 

one supporting comment from a trade 

association and no opposing comments. 

SBA is removing this section as 

proposed. 

Section 120.470. SBA proposed to 

revise paragraph (d)(1) of this provision 

by increasing the dollar amount that a 

small business lending company (SBLC) 

may disburse with the signature of only 

one bonded officer from $1,000 to 

$10,000, provided that such action is 

covered under the SBLC’s fidelity bond. 

SBA believes this change would reduce 

burden on SBLCs without introducing 

significant risk to the program. SBA 

received one supporting comment from 

a trade association and no opposing 

comments. SBA is adopting this change 

as proposed. 

Section 120.532. SBA proposed to 

remove this section, which refers to 

SBA’s authority to assume a Borrower’s 


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obligation under terms and conditions 

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

Business Act), because SBA does not 

use this authority and believes it may be 

confusing to the public for the 

regulations to refer to the availability of 

a loan moratorium under this section 

when it is not available from the agency. 

SBA received one supporting comment 

from a trade association and no 

opposing comments. SBA is adopting 

this change as proposed. 

Section 120.540. Paragraph (g) of this 

section provides that a Lender may 

appeal an SBA office’s decision 

pertaining to an original or amended 

liquidation plan to the Director of the 

Office of Financial Assistance (D/FA) 

within 30 days of the decision. The 

office within SBA that is now 

responsible for considering these 

appeals is the Office of Financial 

Program Operations (OFPO). 

Accordingly, SBA proposed to amend 

this paragraph by replacing ‘‘D/FA’’ 

with ‘‘Director/Office of Financial 

Program Operations (D/OFPO)’’ where it 

first appears and with ‘‘D/OFPO’’ 

thereafter. SBA received one comment 

supporting this change and no opposing 

comments. 

The commenter also recommended 

that SBA amend paragraph (b) of this 

section to delete the requirement of 

prior SBA approval for the liquidation 

plan on a loan processed under a 7(a) 

lender’s Certified Lender Program (CLP) 

authority. The trade association argues 

that this change is appropriate since 

SBA discontinued CLP authority years 

ago. However, section 7(a)(19)(C) of the 

Small Business Act requires SBA’s prior 

approval of liquidation plans for CLP 

loans and so long as CLP loans are 

outstanding, this requirement needs to 

remain in the regulation. 

Section 120.542. Paragraph (d) of this 

section provides that a Lender may 

appeal an SBA decision to decline to 

reimburse all, or a portion, of the fees 

and/or costs incurred in conducting 

liquidation to the D/FA, and that the 

decision of the D/FA (or designee) will 

be made in consultation with the 

Associate General Counsel for 

Litigation. The office within SBA that is 

now responsible for considering these 

appeals is OFPO. Accordingly, SBA 

proposed to amend this paragraph by 

replacing ‘‘D/FA’’ with ‘‘D/OFPO’’ 

wherever it appears. 

In addition, paragraph (e) of this 

section provides that a Lender may 

appeal a decision by SBA to decline to 

reimburse all, or a portion, of the legal 

fees and/or costs incurred in conducting 

debt collection litigation to the 

Associate General Counsel for 

Litigation. It further provides that the 

Associate General Counsel makes this 

decision in consultation with the D/FA. 

The office within SBA that is now 

responsible for consulting with the 

Associate General Counsel is OFPO. 

Accordingly, SBA proposed to amend 

this paragraph by replacing ‘‘D/FA’’ 

with ‘‘D/OFPO’’. SBA received one 

supporting comment from a trade 

association on these changes and no 

opposing comments. SBA is adopting 

these changes as proposed. 

Section 120.701. SBA proposed to 

remove paragraph (g) of this section, 

which defines ‘‘Non-lending technical 

assistance provider’’ (NTAP), because 

SBA has not issued grant funds to 

NTAPs for many years. SBA also 

proposed to redesignate the remaining 

paragraph (h) accordingly. No 

comments were received on this 

proposed rule change and SBA is 

adopting it as proposed. 

Section 120.706. SBA proposed to 

revise paragraph (a) of this section to 

increase the maximum outstanding 

amount of loans that an Intermediary 

may borrow from SBA from $5 million 

to $6 million. This change incorporates 

the increase made by section 853(b) of 

the John S. McCain National Defense 

Authorization Act for Fiscal Year 2019, 

15 U.S.C. 636(m)(3)(C). No comments 

were received on this proposed rule 

change and SBA is adopting it as 

proposed. 

Section 120.707. SBA proposed to 

revise the regulation at § 120.707(b) to 

increase the maximum maturity of a 

loan from an Intermediary to a 

Microloan borrower from 6 years to 7 

years, explaining that this change would 

allow for a longer repayment period for 

these small loans. No comments were 

received on this proposed rule change 

and SBA is adopting it as proposed. 

Section 120.712. In § 120.712(b), SBA 

proposed to incorporate a recent 

statutory change to the percentage of 

grant funds that may be used by the 

Intermediary for marketing, managerial, 

and technical assistance to prospective 

Microloan borrowers. In addition, in 

§ 120.712(d), SBA proposed to 

incorporate a recent statutory change to 

the percentage of grant funds the 

Intermediary may use to contract with 

third parties to provide technical 

assistance to Microloan borrowers. No 

comments were received on these 

proposed rule changes and SBA is 

adopting them as proposed. 

Section 120.714. SBA proposed to 

remove § 120.714, which describes how 

grants are made to non-lending 

technical assistance providers (NTAPs). 

SBA no longer makes such grants and 

there are no NTAPs currently 

participating in the Microloan Program. 

SBA therefore proposed to eliminate 

this section to reduce confusion. No 

comments were received on this 

proposed rule change and SBA is 

adopting it as proposed. 

Section 120.715. SBA proposed to 

remove this section, which describes the 

Deferred Participation Loan Pilot, under 

which SBA was authorized to guarantee 

a loan that an Intermediary in the 

Microloan Program obtained from 

another source. SBA proposed to 

remove § 120.715 in its entirety as this 

pilot expired in Fiscal Year 2000 and 

SBA no longer has the authority to 

guarantee such loans. No comments 

were received on this proposed rule 

change and SBA is adopting it as 

proposed. 

Section 120.800. SBA proposed to 

remove this section, which describes the 

purpose of the 504 program, because it 

is unnecessary. The 504 Loan Program 

is described in § 120.2(c). No comments 

were received on this proposed rule 

change and SBA is adopting it as 

proposed. 

Section 120.812. SBA proposed to 

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

newly certified CDC may petition for 

more than a single one-year extension of 

probation. In addition, SBA proposed to 

revise paragraph (d) to clarify that, if 

SBA declines the CDC’s petition for 

permanent status, the CDC will no 

longer have authority to participate in 

the 504 Loan Program and SBA will 

direct the CDC to transfer all funded 

and/or approved loans to another CDC, 

SBA, or another servicer approved by 

SBA. No comments were received on 

these changes and SBA is adopting them 

as proposed. 

Section 120.840. SBA proposed to 

make a technical correction to 

§ 120.840(b) by replacing the reference 

in this section to the Director, Office of 

Financial Assistance with ‘‘appropriate 

SBA official in accordance with 

Delegations of Authority.’’ In addition, 

SBA proposed to revise § 120.840(b) to 

reflect the modernized application 

submission process for the Accredited 

Lenders Program (ALP), which will 

allow CDCs to submit ALP applications 

electronically into the Corporate 

Governance Repository, rather than 

apply to the Lead SBA Office. No 

comments were received on these 

proposed changes and SBA is adopting 

them as proposed. 

Section 120.845. Paragraph (c)(1) of 

this section, which sets forth the 

eligibility criteria for the Premier 

Certified Lenders Program, refers to the 

criteria that are listed for the Accredited 

Lenders Program in § 120.841(a) through 

(h). However, the criteria are listed only 

in § 120.841(a) through (f). SBA 


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proposed to amend paragraph (c)(1) by 

removing ‘‘through (h)’’ at the end of the 

sentence and adding ‘‘through (f)’’ in its 

place. No comments were received on 

this proposed rule change and SBA is 

adopting it as proposed. 

Section 120.850. SBA proposed to 

remove this section because the 

designation of Associate Development 

Company ceased to exist on January 1, 

2004. No comments were received on 

this proposed rule change and SBA is 

adopting it as proposed. 

Section 120.862. SBA proposed to 

amend paragraph (b) by adding the three 

energy public policy goals described in 

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

501(d)(3) of the Small Business 

Investment Act of 1958, as amended, to 

the list of economic development 

objectives. These three goals relate to 

the reduction of energy consumption by 

at least 10 percent, the increased use of 

sustainable design, and plant, 

equipment and process upgrades of 

renewable energy sources. This change 

would make the regulations consistent 

with the statute. No comments were 

received for this proposed rule change 

and SBA is adopting it as proposed. 

Section 120.1400. Under current 13 

CFR 120.1400(a), a CDC that obtains 

approval for 504 loans after October 20, 

2017, and an SBA Supervised Lender 

that makes 7(a) guaranteed loans after 

October 20, 2017, consent to the 

applicable receivership remedies in 13 

CFR 120.1500(c). Pursuant to SOP 50 10 

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

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

consent by an SBA Supervised Lender 

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

effect on January 1, 2018, which was the 

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

proposed, the amendments to this rule 

would codify the SOP provision into the 

rule and would also clarify that the 

CDC’s or the SBA Supervised Lender’s 

consent does not preclude them from 

contesting whether or not SBA has 

established the grounds for seeking the 

remedy of a receivership. No comments 

were received on this proposed rule 

change and SBA is adopting it as 

proposed. 

Section 120.1500. SBA proposed to 

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

incorporate into the regulations the 

factors set forth in the current SOP 50 

10 that SBA considers when seeking the 

appointment of a receiver and the scope 

of the receivership. The appointment of 

a receiver is only one of several types 

of enforcement actions set forth in 13 

CFR 120.1500, and typically, SBA will 

use its receivership authority as a 

remedy of last resort. The factors vary 

slightly depending upon the type of 

SBA Lender and whether the SBA 

Lender has assets unrelated to SBA loan 

program activities. No comments were 

received for this proposed rule change 

and SBA is adopting it as proposed. 

Section 123.17. SBA proposed to 

amend this section to remove the 

reference to lead-based paint. As stated 

above, with the proposed removal of 

§ 120.173, Lead-based paint, which 

prohibits the use of lead-based paint if 

loan proceeds are for the construction or 

rehabilitation of a residential structure, 

the removal of the reference to leadbased paint in § 123.17 conforms this 

regulation to the removal of § 120.173 

and will avoid confusion. No comments 

were received on this proposed rule 

change and SBA is adopting it as 

proposed. 

Compliance With Executive Orders 

12866, 12988, 13132, 13563, the 

Congressional Review Act (5 U.S.C. 801– 

808), the Paperwork Reduction Act (44 

U.S.C., Ch. 35), and the Regulatory 

Flexibility Act (5 U.S.C. 601–612) 

Executive Order 12866 

The Office of Management and Budget 

has determined that this final rule is 

considered a ‘‘significant regulatory 

action’’ under Executive Order 12866. It 

is important to note that, while OMB 

has determined that this rule is 

considered a ‘‘significant regulatory 

action,’’ OMB did not determine that 

this final rule is economically 

significant. The next section contains 

SBA’s Regulatory Impact Analysis. 

Regulatory Impact Analysis 

1. Is there a need for this regulatory 

action? 

This final rule removes or revises 

various regulations governing the 

Agency’s business loan programs that 

are obsolete, unnecessary, ineffective, or 

burdensome. This final rule also makes 

several technical amendments to 

incorporate recent statutory changes and 

other non-substantive changes. In 

addition, because this final rule removes 

a regulation that is cross-referenced in a 

regulation in SBA’s Disaster Loan 

Program, this rule makes one 

conforming change to a regulation in the 

Disaster Loan Program. SBA believes it 

is necessary to provide clear regulatory 

guidance for Lenders to encourage 

participation in extending loans, 

particularly smaller dollar loans, to 

eligible small businesses, and to enable 

participating Lenders to extend credit 

with confidence in their ability to rely 

on payment by SBA of the guaranty, if 

necessary. As identified more 

specifically in the identified benefits 

below, the change to § 120.110(k) is 

needed to align SBA’s regulations with 

Supreme Court precedent and eliminate 

the uncertainty and confusion caused by 

the perceived inconsistency between 

that precedent and the current 

regulatory text. 

Further, the Agency believes it needs 

to streamline Loan Program 

Requirements and reduce regulatory 

burdens to facilitate robust participation 

in the business loan programs that assist 

small U.S. businesses, particularly those 

businesses in underserved markets. 

2. What are the potential benefits and 

costs of this regulatory action? 

As stated above, this final rule is a 

comprehensive effort to remove or 

revise regulations governing the 

Agency’s business loan programs that 

are obsolete, unnecessary, ineffective, or 

burdensome. In addition, this final rule 

removes information from the 

regulations that is confusing, 

misleading, or obsolete. SBA believes 

the removal or revision of these 

regulations will make the regulations 

easier to understand and use and will 

benefit Lenders and Borrowers by 

saving them time in reading and 

inquiring about obsolete, confusing, or 

inaccurate information. 

Further, several of the changes will 

provide clarity and certainty to both 

Lenders and Borrowers in determining 

eligibility for SBA financial assistance. 

Section 120.110 of the regulations lists 

the types of businesses that are 

ineligible for SBA business loans. For 

clarity, SBA proposed to make changes 

to three of the types of businesses on the 

list. First, SBA proposed to amend 

paragraph (h), which currently provides 

that businesses ‘‘engaged in any illegal 

activity’’ are ineligible, by revising it to 

provide that the business is ineligible if 

it is ‘‘engaged in any activity that is 

illegal under Federal, State, or local 

law’’. SBA wants to make it clear, 

consistent with its longstanding 

interpretation of this regulation, that the 

business is ineligible if it is engaged in 

any activity that is illegal at any level of 

government in the jurisdiction in which 

the business is operating. 

Second, SBA proposed to remove and 

reserve paragraph (k), which currently 

provides that a business is ineligible if 

it is ‘‘principally engaged in teaching, 

instructing, counseling or indoctrinating 

religion or religious beliefs, whether in 

a religious or secular setting’’. SBA 

explained that this provision, which 

was promulgated in 1996, could be 

interpreted as impermissibly imposing a 

special disability on organizations based 

on their religious status. Thus, the 

regulation may have caused uncertainty 

for Lenders and Borrowers in 


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determining the eligibility of an 

applicant for an SBA business loan. 

In order ensure that the proceeds of 

SBA business loans are used in a 

manner consistent with the 

requirements of the First Amendment to 

the U.S. Constitution, SBA’s practice 

has been to apply relevant Supreme 

Court caselaw to the facts of each 

individual case. The removal of section 

120.110(k) will eliminate uncertainty for 

Lenders and Borrowers and, as 

explained in the preamble to the 

proposed rule and this final rule, SBA 

will continue to apply relevant Supreme 

Court caselaw to ensure that the 

proceeds of SBA business loans are used 

in a manner consistent with the First 

Amendment to the U.S. Constitution. 

Although this change is beneficial to 

increase clarity and remove uncertainty, 

it will not result in any specific change 

in the way SBA implements this 

provision. SBA is currently following 

the Supreme Court precedent when 

analyzing eligibility for SBA financial 

assistance as it believes that any 

regulation which may be inconsistent 

with that precedent cannot be given 

effect. 

Third, SBA proposed to revise 

paragraph (n), which currently provides 

that a business is ineligible if an 

Associate ‘‘is incarcerated, on probation, 

on parole, or has been indicted for a 

felony or a crime of moral turpitude’’. 

With respect to ineligibility based on 

indictment for a crime, SBA proposed to 

change the phrase to ‘‘is under 

indictment’’ from ‘‘has been indicted’’. 

SBA explained that it wants to make 

clear, consistent with its longstanding 

interpretation of this regulation, that the 

business is not ineligible if an Associate 

has a history of ever being indicted (but 

not convicted), but would be ineligible 

only if an Associate is under indictment 

when the business submits a loan 

application or prior to loan approval. In 

addition, SBA proposed to replace the 

phrase, ‘‘a crime of moral turpitude’’, 

which is not always easily defined and 

can vary by State, with ‘‘a crime 

involving or related to financial 

misconduct or a false statement’’. SBA 

explained that it believes that the 

proposed standard is clearer and more 

relevant to SBA’s responsibility to carry 

out the business loan programs in a 

financially prudent manner. As stated 

above, SBA believes it is necessary to 

provide clear guidance to enable 

Lenders to extend credit to eligible 

small businesses and these regulatory 

changes will help provide that clarity 

for Lenders and Borrowers. 

In addition to the benefits described 

above, there are some costs associated 

with this rule that could impact small 

businesses. The removal of LIBOR as an 

optional base rate for variable rate 7(a) 

loans will cause some Borrowers to 

modify their loan documents to specify 

a new base rate. Any costs associated 

with modifying loan documents are an 

unavoidable result of the phase-out of 

LIBOR that will occur in 2023, and the 

loan documents will need to be 

modified whether or not this rule is 

promulgated. 

In addition, SBA proposed to use loan 

amounts as the basis upon which the 

variable interest rate is set, instead of 

loan maturities. By basing the rates on 

loan amounts and allowing Lenders to 

charge higher rates for smaller loans, 

Lenders would have more incentive to 

make smaller loans to businesses in 

need of credit on reasonable terms. In 

addition, the maximum variable interest 

rates described above would apply to all 

types of 7(a) loans. Currently, the 

maximum variable interest rate that 

Lenders are permitted to charge may 

vary depending upon the type of 7(a) 

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

Express, Export Express, Community 

Advantage Pilot, or regular 7(a). By 

standardizing the maximum variable 

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

streamlining and simplifying its 

regulations, and reducing the burden on 

Lenders. 

3. What are the alternatives to this final 

rule? 

The alternative to issuing this final 

rule is to not make any changes to the 

regulations at all. However, that 

alternative would leave obsolete, 

unnecessary, confusing, and inaccurate 

or misleading information in the 

Agency’s regulations governing its 

business loan programs, which would 

create uncertainty and confusion for 

both Lenders and Borrowers. SBA chose 

to proceed with this final rule in order 

to reduce the burden on Lenders in 

order to encourage participation in SBA 

lending programs, and to provide clarity 

and certainty for both Lenders and 

Borrowers. 

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. This action does not have 

preemptive effect or retroactive effect. 

Executive Order 13132 

SBA has determined that this final 

rule would not have federalism 

implications as defined in Executive 

Order 13132. It would not have 

substantial direct effects on the States, 

on the relationship between the 

National Government and the States, or 

on the distribution of power and 

responsibilities among the various 

levels of government, as specified in the 

Executive Order. Therefore, for the 

purposes of Executive Order 13132, 

SBA has determined that this final rule 

does not warrant the preparation of a 

Federalism Assessment. 

Executive Order 13563 

As discussed above, SBA received a 

significant number of public comments 

in response to the Federal Register 

document requesting the public’s input. 

Congressional Review Act, 5 U.S.C. 

801–808 

OMB’s Office of Information and 

Regulatory Affairs has determined that 

this rule is not a major rule under 

subtitle E of the Small Business 

Regulatory Enforcement Fairness Act of 

1996 (also known as the Congressional 

Review Act), 5 U.S.C. 804(2). SBA will 

submit a report containing this rule and 

other required information to the U.S. 

Senate, the U.S. House of 

Representatives, and the Comptroller 

General of the United States. 

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

Ch. 35 

SBA has determined that this final 

rule would not impose any additional 

reporting or recordkeeping requirements 

under the Paperwork Reduction Act. 

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

612. 

When an agency issues a final rule, 

the Regulatory Flexibility Act (RFA) 

requires the agency to address public 

comments and ‘‘describe the impact of 

the proposed rule on small entities.’’ (5 

U.S.C. 603(a)). SBA has complied with 

these requirements. Furthermore, 

section 605 of the RFA allows an agency 

to certify a rule, in lieu of preparing an 

analysis, if the final rulemaking is not 

expected to have a significant economic 

impact on a substantial number of small 

entities. 

This final rule is a comprehensive 

effort to remove information from the 

regulations that are confusing and 

misleading, which would save Lenders 

and Borrowers time in reading and 

inquiring about obsolete or inaccurate 

information. 

In addition, there are some costs 

associated with this rule that could 

impact small businesses. The removal of 

LIBOR as an optional base rate for 

variable rate 7(a) loans will cause some 

Borrowers to modify their loan 

documents to specify a new base rate. 

Any costs associated with modifying 


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38908 Federal Register / Vol. 87, No. 125 / Thursday, June 30, 2022 / Rules and Regulations 

loan documents are an unavoidable 

result of the phase-out of LIBOR that 

will occur in 2023, and the loan 

documents will need to be modified 

whether or not this rule is promulgated. 

SBA estimates only 3% of active SBA 

business loans could be affected by this 

change and that the burden created 

would be $1,622,988 in the first year 

that LIBOR is discontinued and would 

not be repeated in subsequent years. 

Based on the foregoing, the 

Administrator of the SBA hereby 

certifies that this final rule will not have 

a significant economic impact on a 

substantial number of small entities. 

The SBA invites comments from the 

public on this certification. 

List of Subjects 

13 CFR Part 120 

Loan programs—business, Reporting 

and recordkeeping requirements, Small 

businesses, Veterans. 

13 CFR Part 123 

Disaster assistance, Loan programsbusiness, Small businesses. 

For the reasons stated in the 

preamble, SBA amends 13 CFR parts 

120 and 123 as follows: 

PART 120—BUSINESS LOANS 

■ 1. The authority citation for 13 CFR 

part 120 continues to read as follows: 

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

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

note, 636m, 650, 657t, and note, 657u, and 

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

697, 697a and e, and note; Public Law 116– 

260, 134 Stat. 1182. 

■ 2. Amend § 120.10 by revising the first 

sentence of the definition of ‘‘Risk 

Rating’’ to read as follows: 

§ 120.10 Definitions. 

* * * * * 

Risk Rating is an SBA internal 

composite rating assigned to individual 

SBA Lenders and Intermediaries that 

reflects the risk associated with the SBA 

Lender’s or Intermediary’s portfolio of 

SBA loans. * * * 

* * * * * 

§ 120.103 [Removed] 

■ 3. Remove § 120.103. 

■ 4. Amend § 120.110 by revising 

paragraph (h), removing and reserving 

paragraph (k), and revising paragraph 

(n). 

The revisions read as follows: 

§ 120.110 What businesses are ineligible 

for SBA business loans? 

* * * * * 

(h) Businesses engaged in any activity 

that is illegal under Federal, State, or 

local law; 

* * * * * 

(n) Businesses with an Associate who 

is incarcerated, on probation, on parole, 

or is under indictment for a felony or 

any crime involving or relating to 

financial misconduct or a false 

statement; 

* * * * * 

§ 120.111 [Amended] 

■ 5. Amend § 120.111 by removing the 

last sentence of the introductory text. 

§ 120.173 [Removed] 

■ 6. Remove § 120.173. 

■ 7. Amend § 120.212 by revising 

paragraph (b) to read as follows: 

§ 120.212 What limits are there on loan 

maturities? 

* * * * * 

(b) Ten years or less, unless it 

finances or refinances real estate or 

equipment with a useful life exceeding 

ten years. The term for a loan to finance 

equipment and/or leasehold 

improvements may include an 

additional reasonable period, not to 

exceed 12 months, when necessary to 

complete the installation of the 

equipment and/or complete the 

leasehold improvements. 

* * * * * 

■ 8. Amend § 120.214 by: 

■ a. Revising the introductory paragraph 

and paragraphs (c) and (d); 

■ b. Removing paragraph (e); and 

■ c. Redesignating paragraph (f) as 

paragraph (e). 

The revisions read as follows: 

§ 120.214 What conditions apply for 

variable interest rates? 

A Lender may use a variable rate of 

interest for guaranteed loans under the 

following conditions: 

* * * * * 

(c) Base rate. The base rate will be one 

of the following: the prime rate or the 

Optional Peg Rate. The prime rate will 

be that which is in effect on the first 

business day of the month, as printed in 

a national financial newspaper 

published each business day. SBA may 

from time to time permit the use of 

alternative base rate options that are 

widely adopted for small business 

commercial lending and will publish 

notice of such alternative options in the 

Federal Register. SBA publishes the 

Optional Peg Rate quarterly in the 

Federal Register. 

(d) Maximum Allowable Variable 

Interest Rates. The maximum allowable 

variable interest rates are set forth 

below, with the initial maximum 

allowable rate for the loan determined 

as of the date SBA receives the loan 

application: 

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

less, the interest rate shall not exceed 

six and a half (6.5) percentage points 

over the base rate; 

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

$50,000 and up to and including 

$250,000, the maximum interest rate 

shall not exceed six (6.0) percentage 

points over the base rate; 

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

$250,000 and up to and including 

$350,000, the maximum interest rate 

shall not exceed four and a half (4.5) 

percentage points over the base rate; and 

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

$350,000, the maximum interest rate 

shall not exceed three (3.0) percentage 

points over the base rate. 

* * * * * 

§ 120.215 [Removed] 

■ 9. Remove § 120.215. 

§ 120.220 [Amended] 

■ 10. Amend § 120.220(a)(3) by 

removing the phrase ‘‘In fiscal years 

when the 7(a) program is at zero 

subsidy,’’. 

§ 120.222 [Amended] 

■ 11. Amend § 120.222 by removing the 

word ‘‘in’’ before the words ‘‘any 

premium received’’. 

■ 12. Revise § 120.350 to read as 

follows: 

§ 120.350 Policy. 

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

SBA to guarantee a loan to a: 

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

to: 

(1) Help finance the growth of its 

employer’s small business; or 

(2) Purchase ownership or voting 

control of the employer; and a 

(b) Small business concern, if the 

proceeds from the loan are only used to 

make a loan to a qualified employee 

trust that results in the qualified 

employee trust owning at least 51 

percent of the small business concern. 

■ 13. Revise § 120.352 to read as 

follows: 

§ 120.352 Use of proceeds. 

Loan proceeds may be used for: 

(a) Qualified employee trust. A 

qualified employee trust may use loan 

proceeds for two purposes: 

(1) Qualified employer securities. A 

qualified employee trust may relend 

loan proceeds to the employer by 

purchasing qualified employer 

securities. The small business concern 


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may use these funds for any general 7(a) 

purpose. 

(2) Control of employer. A qualified 

employee trust may use loan proceeds 

to purchase a controlling interest (51 

percent) in the employer. Ownership 

and control must vest in the trust by the 

time the loan is repaid. 

(b) Small business concern. A small 

business concern may only use loan 

proceeds to make a loan to a qualified 

employee trust that results in the 

qualified employee trust owning at least 

51 percent of the small business 

concern. 

§§ 120.370 and 120.380 through 120.383 

[Removed] 

■ 14. Remove §§ 120.370 and 120.380 

through 120.383. 

§ 120.420 [Amended] 

■ 15. Amend § 120.420 by removing 

paragraph (b) and redesignating 

paragraphs (c) through (k) as paragraphs 

(b) through (j). 

■ 16. Amend § 120.432 by adding a 

sentence at the end of paragraph (a) to 

read as follows: 

§ 120.432 Under what circumstances does 

this subpart permit sales of, or sales of 

participating interests in, 7(a) loans? 

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

all 7(a) loans purchased from any 

Federal or state banking regulator, any 

receiver, or any conservator, unless SBA 

agrees otherwise in writing. 

* * * * * 

§ 120.453 [Removed] 

■ 17. Remove § 120.453. 

§ 120.470 [Amended] 

■ 18. Amend § 120.470 in paragraph 

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

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

place. 

§ 120.532 [Removed] 

■ 19. Remove § 120.532. 

§ 120.540 [Amended] 

■ 20. Amend § 120.540 in paragraph (g) 

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

first sentence and adding in its place the 

phrase ‘‘Director/Office of Financial 

Program Operations (D/OFPO)’’ and by 

removing the term ‘‘D/FA’’ from the 

second and fourth sentences and adding 

in its place the term ‘‘D/OFPO’’. 

§ 120.542 [Amended] 

■ 21. In § 120.542, amend paragraphs 

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

FA’’ wherever it appears and adding in 

its place the term ‘‘D/OFPO’’. 

§ 120.701 [Amended] 

■ 22. Amend § 120.701 by removing 

paragraph (g) and redesignating 

paragraph (h) as paragraph (g). 

§ 120.706 [Amended] 

■ 23. Amend § 120.706 in the last 

sentence of paragraph (a) by removing 

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

million’’. 

§ 120.707 [Amended] 

■ 24. Amend § 120.707 in the last 

sentence of paragraph (b) by removing 

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

the word ‘‘seven’’. 

■ 25. Amend § 120.712 by: 

■ a. Revising paragraph (b)(1); and 

■ b. Removing the number ‘‘25’’ and 

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

paragraph (d). 

The revision to read as follows: 

§ 120.712 How does an Intermediary get a 

grant to assist Microloan borrowers? 

* * * * * 

(b) * * * 

(1) Up to 50 percent of the grant funds 

may be used to provide information and 

technical assistance to prospective 

Microloan borrowers; provided, 

however, that no more than 5 percent of 

the grant funds may be used to market 

or advertise the products and services of 

the Microloan Intermediary directly 

related to the Microloan Program; and 

* * * * * 

§§ 120.714, 120.715, and 120.800 

[Removed] 

■ 26. Remove and reserve §§ 120.714, 

120.715, and 120.800. 

■ 27. Amend § 120.812 by revising 

paragraph (a)(2) and by adding a 

sentence at the end of paragraph (d) to 

read as follows: 

§ 120.812 Probationary period for newly 

certified CDCs. 

(a) * * * 

(2) A one-year extension of probation. 

If a one-year extension of probation is 

granted, at the end of this extension 

period, the CDC must petition the Lead 

SBA Office for permanent CDC status or 

an additional one-year extension of 

probation. 

* * * * * 

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

the CDC will no longer have authority 

to participate in the 504 Loan Program 

and SBA will direct the CDC to transfer 

all funded and/or approved loans to 

another CDC, SBA, or another servicer 

approved by SBA. 

■ 28. Amend § 120.840 by revising 

paragraph (b) to read as follows: 

§ 120.840 Accredited Lenders Program 

(ALP). 

* * * * * 

(b) Application. A CDC must apply for 

ALP status by submitting an application 

in accordance with SBA’s Standard 

Operating Procedure 50 10, available at 

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

will be made by the appropriate SBA 

official in accordance with Delegations 

of Authority. 

* * * * * 

§ 120.845 [Amended] 

■ 29. Amend § 120.845 in paragraph 

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

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

‘‘through (f)’’. 

§ 120.850 [Removed] 

■ 30. Remove the undesignated center 

heading ‘‘Associate Development 

Companies (ADCs)’’ and § 120.850. 

■ 31. Amend § 120.862(b) by: 

■ a. Removing ‘‘or’’ at the end of 

paragraph (9); 

■ b. Removing the period at the end of 

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

place; and 

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

(13). 

The additions read as follows: 

§ 120.862 Other economic development 

objectives. 

* * * * * 

(b) * * * 

(11) Reduction of energy consumption 

by at least 10 percent; 

(12) Increased use of sustainable 

design, including designs that reduce 

the use of greenhouse gas emitting fossil 

fuels, or low-impact design to produce 

buildings that reduce the use of nonrenewable resources and minimize 

environmental impact; or 

(13) Plant, equipment and process 

upgrades of renewable energy sources 

such as the small-scale production of 

energy for individual buildings’ or 

communities’ consumption, commonly 

known as micropower, or renewable 

fuels producers including biodiesel and 

ethanol producers. 

■ 32. Amend § 120.1400 by: 

■ a. Removing the date ‘‘October 20, 

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

adding in their place the date ‘‘January 

1, 2018’’; and 

■ b. Adding two sentences to the end of 

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

The additions read as follows: 

§ 120.1400 Grounds for enforcement 

actions—SBA Lenders. 

(a) * * * 

(1) * * * The CDC’s consent does not 

preclude the CDC from contesting 

whether or not SBA has established the 


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38910 Federal Register / Vol. 87, No. 125 / Thursday, June 30, 2022 / Rules and Regulations 

grounds for seeking the remedy of a 

receivership. A CDC’s consent to 

receivership as a remedy does not 

require SBA to seek appointment of a 

receiver in any particular SBA 

enforcement action. 

(2) * * * The SBA Supervised 

Lender’s consent does not preclude 

such Lender from contesting whether or 

not SBA has established the grounds for 

seeking the remedy of a receivership. 

The SBA Supervised Lender’s consent 

to receivership as a remedy does not 

require SBA to seek appointment of a 

receiver in any particular SBA 

enforcement action. 

* * * * * 

■ 33. Amend § 120.1500 by adding a 

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

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

adding two sentences after the first 

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

follows: 

§ 120.1500 Types of enforcement 

actions—SBA Lenders. 

* * * * * 

(c) * * * 

(3) * * * In deciding whether to seek 

the appointment of a receiver and in 

determining the scope of a receivership, 

SBA will consider the following factors, 

in its discretion: 

(i) for NFRLs: 

(A) the existence of fraud or false 

statements; 

(B) the NFRL’s refusal to cooperate 

with SBA enforcement action 

instructions or orders; 

(C) the NFRL’s insolvency (legal or 

equitable); 

(D) the size of the NFRL’s SBA loan 

portfolio(s) in relation to other activities 

of the NFRL; 

(E) the dollar amount of any claims 

SBA may have against the NFRL; 

(F) the NFRL’s failure to comply 

materially with any requirement 

imposed by Loan Program 

Requirements; and/or 

(G) the existence of other non-SBA 

enforcement actions against the NFRL; 

(ii) for SBLCs: 

(A) the existence of fraud or false 

statements; 

(B) the SBLC’s refusal to cooperate 

with SBA enforcement action 

instructions or orders; 

(C) the SBLC’s insolvency (legal or 

equitable); 

(D) the dollar amount of any claims 

SBA may have against the SBLC; and/ 

or 

(E) the SBLC’s failure to comply 

materially with any requirement 

imposed by Loan Program 

Requirements. 

* * * * * 

(e) * * * 

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

the receivership to the CDC’s assets 

related to the SBA loan program(s) 

except where the CDC’s business is 

almost exclusively SBA-related. SBA 

will only seek a receivership if there is 

either the existence of fraud or false 

statements, or if the CDC has refused to 

cooperate with SBA enforcement action 

instructions or orders. * * * 

PART 123—DISASTER LOAN 

PROGRAM 

■ 34. The authority citation for part 123 

continues to read as follows: 

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

636(d), and 657n; Section 1110, Pub. L. 116– 

136, 134 Stat. 281; and Section 331, Pub. L. 

116–260, 134 Stat. 1182. 

§ 123.17 [Amended] 

■ 35. Amend § 123.17 by removing the 

words ‘‘lead-based paint,’’ and removing 

the words ‘‘§§ 120.170 through 120.175’’ 

and inserting ‘‘§§ 120.170 through 

120.172, 120.174 and 120.175’’ in their 

place. 

Isabella Casillas Guzman, 

Administrator. 

[FR Doc. 2022–13483 Filed 6–29–22; 8:45 am] 

BILLING CODE 8026–03–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 71 

[Docket No. FAA–2021–0994; Airspace 

Docket No. 21–AGL–14] 

RIN 2120–AA66 

Amendment of VOR Federal Airways 

V–7, V–341, and V–493; in the Vicinity 

of Menominee, MI 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Final rule. 

SUMMARY: This action amends VHF 

Omnidirectional Range (VOR) Federal 

airways V–7, V–341, and V–493, in the 

vicinity of Menominee, MI. The airway 

amendments are necessary due to the 

planned decommissioning of the VOR 

portion of the Menominee, MI, VOR/ 

Distance Measuring Equipment (DME) 

navigational aid (NAVAID). The 

Menominee VOR is being 

decommissioned as part of the FAA’s 

VOR Minimum Operational Network 

(VOR MON) program. 

DATES: Effective date 0901 UTC, 

September 8, 2022. The Director of the 

Federal Register approves this 

incorporation by reference action under 

1 CFR part 51, subject to the annual 

revision of FAA Order JO 7400.11 and 

publication of conforming amendments. 

ADDRESSES: FAA Order JO 7400.11F, 

Airspace Designations and Reporting 

Points, and subsequent amendments can 

be viewed online at https://

www.faa.gov/air_traffic/publications/. 

For further information, you can contact 

the Rules and Regulations Group, 

Federal Aviation Administration, 800 

Independence Avenue SW, Washington, 

DC 20591; telephone: (202) 267–8783. 

FOR FURTHER INFORMATION CONTACT: 

Colby Abbott, Rules and Regulations 

Group, Office of Policy, Federal 

Aviation Administration, 800 

Independence Avenue SW, Washington, 

DC 20591; telephone: (202) 267–8783. 

SUPPLEMENTARY INFORMATION: 

Authority for This Rulemaking 

The FAA’s authority to issue rules 

regarding aviation safety is found in 

Title 49 of the United States Code. 

Subtitle I, Section 106 describes the 

authority of the FAA Administrator. 

Subtitle VII, Aviation Programs, 

describes in more detail the scope of the 

agency’s authority. This rulemaking is 

promulgated under the authority 

described in Subtitle VII, Part A, 

Subpart I, Section 40103. Under that 

section, the FAA is charged with 

prescribing regulations to assign the use 

of the airspace necessary to ensure the 

safety of aircraft and the efficient use of 

airspace. This regulation is within the 

scope of that authority as it modifies the 

airway structure as necessary to 

preserve the safe and efficient flow of 

air traffic within the National Airspace 

System. 

History 

The FAA published a noticed of 

proposed rulemaking for Docket No. 

FAA–2021–0994 in the Federal Register 

(86 FR 67377; November 26, 2021), 

amending VOR Federal airways V–7, V– 

341, and V–493 in the vicinity of 

Menominee, MI. The proposed 

amendments were due to the planned 

decommissioning of the VOR portion of 

the Menominee, MI, VOR/DME 

NAVAID. The FAA invited interested 

parties to participate in this rulemaking 

effort by submitting written comments 

on the proposal. No comments were 

received. 

VOR Federal airways are published in 

paragraphs 6010(a) of FAA Order JO 

7400.11F, dated August 20, 2021, and 

effective September 15, 2021, which are 

incorporated by reference in 14 CFR 

71.1. The VOR Federal airways listed in 


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