3304 Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations

§ 121.1205 How is a list of previously

granted class waivers obtained?

A list of classes of products for which

waivers of the Nonmanufacturer Rule

have been granted will be maintained in

SBA’s Procurement Automated Source

System (PASS). A list of such waivers

may also be obtained by contacting the

Office of Government Contracting at the

Small Business Administration, 409 3rd

Street, S.W., Washington, D.C. 20416, or

at the nearest SBA Government

Contracting Area Office.

Dated: January 22, 1996.

John T. Spotila,

Acting Administrator.

[FR Doc. 96–1348 Filed 1–30–96; 8:45 am]

BILLING CODE 8025–01–P

13 CFR Part 123

Disaster Loan Program

AGENCY: Small Business Administration.

ACTION: Final rule.

SUMMARY: In response to President

Clinton’s regulatory review directive,

the Small Business Administration has

completed a page-by-page and line-byline review of its regulations. As a

result, SBA is clarifying and

streamlining its regulations. This final

rule reorganizes the entire Part 123

covering the disaster loan program to

make it clearer and easier to use.

EFFECTIVE DATE: This rule is effective on

March 1, 1996.

FOR FURTHER INFORMATION CONTACT:

Bernard Kulik, Associate Administrator

for Disaster Assistance, at (202) 205–

6734.

SUPPLEMENTARY INFORMATION: Part 123 of

Chapter I, 13 CFR contains policies

governing the eligibility of disaster

victims to obtain low-cost loans to

restore their damaged property to its

pre-disaster condition. On November

24, 1995, SBA published a proposed

rule in the Federal Register (60 FR

58014) to reorganize the entire Part 123

to make it clearer and easier to use. SBA

did not receive any comments in

response to the proposed rule. Thus,

SBA is finalizing that rule without any

material changes. The rule eliminates

references to disasters which occurred

years ago, and it would eliminate

Subpart D—Persian Gulf Troop

Deployment Economic Injury Loans

because the authority for that loan

program has expired. A conversion table

follows:

Existing

section Action New section

123.1 .... Revise .. 123.1

Existing

section Action New section

123.2 .... Revise .. 123.101

123.3 .... Revise .. 123.3, 123.4, 123.5,

123.10, 123.101

123.4 .... Revise .. 123.5

123.5 .... Delete ..

123.6 .... Revise .. 123.8

123.7 .... Revise .. 123.3

123.8 .... Delete ..

123.9 .... Revise .. 123.101, 123.104,

123.105

123.10 .. Delete ..

123.11 .. Revise .. 123.11

123.12 .. Revise .. 123.13

123.13 .. Revise .. 123.16, 123.104

123.14 .. Revise .. 123.101

123.15 .. Delete ..

123.16 .. Delete ..

123.17 .. Revise .. 123.201

123.18 .. Revise .. 123.12

123.19 .. Revise .. 123.9

123.20 .. Delete ..

123.21 .. Revise .. 123.100, 123.200

123.22 .. Revise .. 123.3

123.23 .. Revise .. 123.3

123.24 .. Revise .. 123.6, 123.7, 123.12,

123.101, 123.105,

123.106, 123.107,

123.201, 123.202

123.25 .. Revise .. 123.15, 123.105

123.26 .. Revise .. 123.202, 123.203

123.27 .. Delete ..

123.28 .. Revise .. 123.202

123.29 .. Delete ..

123.40 .. Delete ..

123.41 .. Revise .. 123.14, 123.301,

123.302, 123.303

123.60–

69.

Delete ..

Compliance With Executive Orders

12612, 12778, and 12866, the

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

et seq.), and the Paperwork Reduction

Act (44 U.S.C. Ch. 35).

SBA certifies that this rule does not

have a significant economic impact on

a substantial number of small entities

within the meaning of Executive Order

12866, or the Regulatory Flexibility Act,

5 U.S.C. 601, et seq.

For purposes of the Paperwork

Reduction Act, 44 U.S.C. Ch. 35, SBA

certifies that this rule contains no new

reporting or recordkeeping

requirements.

For purposes of Executive Order

12612, SBA certifies that this rule has

no federalism implications warranting

preparation of the federalism

assessment.

For purposes of Executive Order

12778, SBA certifies that this rule is

drafted, to the extent practicable, in

accordance with the standards set forth

in Section 2 of that Order.

List of Subjects in 13 CFR Part 123

Disaster assistance, loan programs—

business, Small businesses.

Pursuant to the authority set forth in

sections 5(b)(6), 7(b)(1), and 7(c)(6) of

the Small Business Act, SBA revises

Part 123 of Title 13 of the Code of

Federal Regulations, to read as follows:

PART 123—DISASTER LOAN

PROGRAM

Overview

123.1 What do these rules cover?

123.2 What are disaster loans and disaster

declarations?

123.3 How are disaster declarations made?

123.4 What is a disaster area and why is it

important?

123.5 What kinds of loans are available?

123.6 What does SBA look for when

considering a disaster loan applicant?

123.7 Are there restrictions on how

disaster loans can be used?

123.8 Does SBA charge any fees for

obtaining a disaster loan?

123.9 What happens if I don’t use loan

proceeds for the intended purpose?

123.10 What happens if I cannot use my

insurance proceeds to make repairs?

123.11 Does SBA require collateral for any

of its disaster loans?

123.12 Are books and records required?

123.13 What happens if my loan

application is denied?

123.14 How does the Federal Debt

Collection Procedures Act of 1990 apply?

123.15 What if I change my mind?

123.16 How are loans administered and

serviced?

123.17 Do other Federal requirements

apply?

Home Disaster Loans

123.100 Am I eligible to apply for a home

disaster loan?

123.101 When am I not eligible to apply for

a home disaster loan?

123.102 What circumstances would justify

my relocating?

123.103 What happens if I am forced to

move from my home?

123.104 What interest rate will I pay on my

home disaster loan?

123.105 How much can I borrow with a

home disaster loan and what limits

apply on use of funds and repayment

terms?

123.106 What is eligible refinancing?

123.107 What is mitigation?

Physical Disaster Business Loans

123.200 Am I eligible to apply for a

physical disaster business loan?

123.201 When am I not eligible to apply for

a physical disaster business loan?

123.202 How much can my business

borrow with a physical disaster business

loan?

123.203 What interest rate will my business

pay on a physical disaster business loan

and what are its repayment terms?

Economic Injury Disaster Loans

123.300 Is my business eligible to apply for

an economic injury disaster loan?

123.301 When would my business not be

eligible to apply for an economic injury

disaster loan?
Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations 3305

123.302 What is the interest rate on an

economic injury disaster loan?

123.303 How can my business spend my

economic injury disaster loan?

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

636(c) and 636(f); Pub. L. 102–395, 106 Stat.

1828, 1864; and Pub. L. 103–75, 107 Stat.

739.

Overview

§ 123.1 What do these rules cover?

This part covers the disaster loan

programs authorized under the Small

Business Act, 15 U.S.C. 636(b), (c), and

(f). Since SBA cannot predict the

occurrence or magnitude of disasters, it

reserves the right to change the rules in

this part, without advance notice, by

publishing interim emergency

regulations in the Federal Register.

§ 123.2 What are disaster loans and

disaster declarations?

SBA offers low interest, fixed rate

loans to disaster victims, enabling them

to repair or replace property damaged or

destroyed in declared disasters. It also

offers such loans to affected small

businesses to help them recover from

economic injury caused by such

disasters. Disaster declarations are

official notices recognizing that specific

geographic areas have been damaged by

floods and other acts of nature, riots,

civil disorders, or industrial accidents

such as oil spills. These disasters are

sudden events which cause severe

physical damage, and do not include

slower physical occurrences such as

shoreline erosion or gradual land

settling. Sudden physical events that

cause substantial economic injury may

be disasters even if they do not cause

physical damage to a victim’s property.

Past examples include ocean conditions

causing significant displacement (major

ocean currents) or closure (toxic algae

blooms) of customary fishing waters, as

well as contamination of food or other

products for human consumption from

unforeseeable and unintended events

beyond the control of the victims.

§ 123.3 How are disaster declarations

made?

(a) There are four ways in which

disaster declarations are issued which

make SBA disaster loans possible:

(1) The President declares a Major

Disaster and authorizes Federal

assistance, including individual

assistance (temporary housing and

Individual and Family Grant

Assistance).

(2) SBA makes a physical disaster

declaration, based on the occurrence of

at least a minimum amount of physical

damage to buildings, machinery,

equipment, inventory, homes and other

property. Such damage usually must

meet the following tests:

(i) In any county or other smaller

political subdivision of a State or U.S.

possession, at least 25 homes or 25

businesses, or a combination of at least

25 homes, businesses, or other eligible

institutions, each sustain uninsured

losses of 40 percent or more of the

estimated fair replacement value or predisaster fair market value of the

damaged property, whichever is lower;

or

(ii) In any such political subdivision,

at least three businesses each sustain

uninsured losses of 40 percent or more

of the estimated fair replacement value

or pre-disaster fair market value of the

damaged property, whichever is lower,

and, as a direct result of such physical

damage, 25 percent or more of the work

force in their community would be

unemployed for at least 90 days; and

(iii) the Governor of the State in

which the disaster occurred submits a

written request to SBA for a physical

disaster declaration by SBA (OMB

Approval No. 3245–0121). This request

should be delivered to the SBA Disaster

Area Office serving the region where the

disaster occurred within 60 days of the

date of the disaster.

(3) SBA makes an economic injury

disaster declaration in response to a

determination of a natural disaster by

the Secretary of Agriculture.

(4) SBA makes an economic injury

declaration in reliance on a state

certification that at least 5 small

business concerns in a disaster area

have suffered substantial economic

injury as a result of the disaster and are

in need of financial assistance not

otherwise available on reasonable terms.

The state certification must be signed by

the Governor, must specify the county

or counties or other political

subdivisions in which the disaster

occurred, and must be delivered (with

supporting documentation) to the

servicing SBA Disaster Area Office

within 120 days of the disaster

occurrence.

(b) SBA publishes notice of any

disaster declaration in the Federal

Register. The published notice will

identify the kinds of assistance

available, the date and nature of the

disaster, and the deadline and location

for filing loan applications.

Additionally, SBA will use the local

media to inform potential loan

applicants where to obtain loan

applications and otherwise to assist

victims in applying for disaster loans.

SBA will accept applications after the

announced deadline only when SBA

determines that the late filing resulted

from substantial causes beyond the

control of the applicant.

§ 123.4 What is a disaster area and why is

it important?

Each disaster declaration defines the

geographical areas affected by the

disaster. Only those victims located in

the declared disaster area are eligible to

apply for SBA disaster loans. When the

President declares a major disaster, the

Federal Emergency Management Agency

defines the disaster area. In major

disasters, economic injury disaster loans

may be made for victims in contiguous

counties or other political subdivisions.

Disaster declarations issued by the

Administrator of SBA include

contiguous counties for both physical

and economic injury assistance.

Contiguous counties or other political

subdivisions are those land areas which

abut the land area of the declared

disaster area without geographic

separation other than by a minor body

of water, not to exceed one mile

between the land areas of such counties.

§ 123.5 What kinds of loans are available?

SBA offers three kinds of disaster

loans: physical disaster home loans,

physical disaster business loans, and

economic injury business loans. SBA

makes these loans directly or in

participation with a financial

institution. If a loan is made in

participation with a financial

institution, SBA’s share in that loan may

not exceed 90 percent.

§ 123.6 What does SBA look for when

considering a disaster loan applicant?

There must be reasonable assurance

that you can repay your loan out of your

personal or business cash flow, and you

must have satisfactory credit and

character. SBA will not make a loan to

you if repayment depends upon the sale

of collateral through foreclosure or any

other disposition of assets owned by

you. SBA is prohibited by statute from

making a loan to you if you are engaged

in the production or distribution of any

product or service that has been

determined to be obscene by a court.

§ 123.7 Are there restrictions on how

disaster loans can be used?

You must use disaster loans to restore

or replace your primary home

(including a mobile home used as a

primary residence) and your personal or

business property as nearly as possible

to their condition before the disaster

occurred, and within certain limits, to

protect damaged or destroyed real

property from possible future similar

disasters.
3306 Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations

§ 123.8 Does SBA charge any fees for

obtaining a disaster loan?

SBA does not charge points, closing,

or servicing fees on any disaster loan.

You will be responsible for payment of

any closing costs owed to third parties,

such as recording fees and title

insurance premiums. If your loan is

made in participation with a financial

institution, SBA will charge a guarantee

fee to the financial institution, which

then may recover the guarantee fee from

you.

§ 123.9 What happens if I don’t use loan

proceeds for the intended purpose?

(a) When SBA approves each loan

application, it issues a loan

authorization which specifies the

amount of the loan, repayment terms,

any collateral requirements, and the

permitted use of loan proceeds. If you

wrongfully misapply these proceeds,

you will be liable to SBA for one and

one-half times the proceeds disbursed to

you as of the date SBA learns of your

wrongful misapplication. Wrongful

misapplication means the willful use of

any loan proceeds without SBA

approval contrary to the loan

authorization. If you fail to use loan

proceeds for authorized purposes for 60

days or more after receiving a loan

disbursement check, such non-use also

is considered a wrongful misapplication

of the proceeds.

(b) If SBA learns that you may have

misapplied your loan proceeds, SBA

will notify you at your last known

address, by certified mail, return receipt

requested. You will be given at least 30

days to submit to SBA evidence that you

have not misapplied the loan proceeds

or that you have corrected any such

misapplication. Any failure to respond

in time will be considered an admission

that you misapplied the proceeds. If

SBA finds a wrongful misapplication, it

will cancel any undisbursed loan

proceeds, call the loan, and begin

collection measures to collect your

outstanding loan balance and the civil

penalty. You may also face criminal

prosecution or civil or administrative

action.

§ 123.10 What happens if I cannot use my

insurance proceeds to make repairs?

If you must pay insurance proceeds to

the holder of a recorded lien or

encumbrance against your damaged

property instead of using them to make

repairs, you may apply to SBA for the

full amount needed to make such

repairs. If you voluntarily pay insurance

proceeds to a recorded lienholder, your

loan eligibility is reduced by the amount

of the voluntary payment.

§ 123.11 Does SBA require collateral for

any of its disaster loans?

Generally, SBA will not require that

you pledge collateral to secure a disaster

home loan or a physical disaster

business loan of $10,000 or less, or an

economic injury disaster loan of $5,000

or less. For loans larger than these

amounts, you will be required to

provide available collateral such as a

lien on the damaged or replacement

property, a security interest in personal

property, or both.

(a) Sometimes a borrower, including

affiliates as defined in Part 121 of this

title, will have more than one loan after

a single disaster. In deciding whether

collateral is required, SBA will add up

all physical disaster loans to see if they

exceed $10,000 and all economic injury

disaster loans to see if they exceed

$5,000.

(b) SBA will not decline a loan if you

lack a particular amount of collateral as

long as it is reasonably sure that you can

repay your loan. If you refuse to pledge

available collateral when requested by

SBA, however, SBA may decline or

cancel your loan.

§ 123.12 Are books and records required?

You must retain complete records of

all transactions financed with your SBA

loan proceeds, including copies of all

contracts and receipts, for a period of 3

years after you receive your final

disbursement of loan proceeds. If you

have a physical disaster business or

economic injury loan, you must also

maintain current and accurate books of

account, including financial and

operating statements, insurance

policies, and tax returns. You must

retain applicable books and records for

3 years after your loan matures

including any extensions, or from the

date when your loan is paid in full,

whichever occurs first. You must make

available to SBA or other authorized

government personnel upon request all

such books and records for inspection,

audit, and reproduction during normal

business hours and you must also

permit SBA and any participating

financial institution to inspect and

appraise your assets. (OMB Approval

No. 3245–0110.)

§ 123.13 What happens if my loan

application is denied?

(a) If SBA denies your loan

application, SBA will notify you in

writing and set forth the specific reasons

for the denial. Any applicant whose

request for a loan is declined for reasons

other than size (not being a small

business) has the right to present

information to overcome the reason or

reasons for the decline and to request

reconsideration in writing. (OMB

Approval No. 3245–0122.)

(b) Any decline due to size can only

be appealed as set forth in Part 121 of

this chapter.

(c) Any request for reconsideration

must be received by the SBA office that

declined the original application within

six months of the date of the declined

notice. After six months, a new loan

application is required.

(d) A request for reconsideration must

contain all significant new information

that you rely on to overcome SBA’s

denial of your original loan application.

Your request for reconsideration of a

business loan application must also be

accompanied by current business

financial statements.

(e) If SBA declines your application a

second time, you have the right to

appeal in writing to the Area Director’s

Office. All appeals must be received by

the office that declined the prior

reconsideration within 30 days of the

decline action. Your request must state

that you are appealing, and must give

specific reasons why the decline action

should be reversed.

(f) The decision of the Area Director

is final unless:

(1) The Area Director does not have

authority to approve the requested loan;

(2) The Area Director refers the matter

to the Associate Administrator for

Disaster Assistance; or

(3) The Associate Administrator for

Disaster Assistance, upon a showing of

special circumstances, requests the Area

Director’s office to forward the matter to

him or her for final consideration.

Special circumstances may include, but

are not limited to, policy considerations,

alleged improper acts by SBA personnel

or others in processing the application,

and conflicting policy interpretations

between two Area Offices.

§ 123.14 How does the Federal Debt

Collection Procedures Act of 1990 apply?

(a) Under the Federal Debt Collection

Procedures Act of 1990 (28 U.S.C.

3201(e)), a debtor who owns property

which is subject to an outstanding

judgment lien for a debt owed to the

United States generally is not eligible to

receive physical and economic injury

disaster loans. The SBA Associate

Administrator for Disaster Assistance, or

designee, may waive this restriction as

to disaster loans upon a demonstration

of good cause. Good cause means a

written representation by you under

oath which convinces SBA that:

(1) The declared disaster was a major

contributing factor to the delinquency

which led to the judgment lien,

regardless of when the original debt was

incurred; or
Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations 3307

(2) The disaster directly prevented

you from fulfilling the terms of an

agreement with SBA or any other

Federal Government entity to satisfy its

pre-disaster judgment lien; in this

situation, the judgment creditor must

certify to SBA that you were complying

with the agreement to satisfy the

judgment lien when the disaster

occurred; or

(3) Other circumstances exist which

would justify a waiver.

(b) The waiver determination by the

Associate Administrator for Disaster

Assistance, or designee, is a final, nonappealable decision. The granting of a

waiver does not include loan approval;

a waiver recipient must then follow

normal loan application procedures.

§ 123.15 What if I change my mind?

If SBA required you to pledge

collateral for your loan, you may change

your mind and rescind your loan

pursuant to the Consumer Credit

Protection Act, 15 U.S.C. 1601, and

Regulation Z of the Federal Reserve

Board, 12 CFR Part 226. Your note and

any collateral documents signed by you

will be canceled upon your return of all

loan proceeds and your payment of any

interest accrued.

§ 123.16 How are loans administered and

serviced?

(a) If you obtained your disaster loan

from a participating lender, that lender

is responsible for closing and servicing

your loan. If you obtained your loan

directly from SBA, your loan will be

closed and serviced by SBA. The SBA

rules on servicing are found in Part 120

of this chapter.

(b) If you are unable to pay your SBA

loan installments in a timely manner for

reasons substantially beyond your

control, you may request that SBA

suspend your loan payments, extend

your maturity, or both.

§ 123.17 Do other Federal requirements

apply?

As a condition of disbursement, you

must be in compliance with certain

requirements relating to flood

insurance, lead-based paint, earthquake

hazards, coastal barrier islands, and

child support obligations, as set forth in

§§ 120.170 through 120.175 of this

chapter.

Home Disaster Loans

§ 123.100 Am I eligible to apply for a home

disaster loan?

(a) You are eligible to apply for a

home disaster loan if you:

(1) Own and occupy your primary

residence and have suffered a physical

loss to your primary residence, personal

property, or both; or

(2) Do not own your primary

residence, but have suffered a physical

loss to your personal property. Family

members sharing a residence are eligible

if they are not dependents of the owners

of the residence.

(b) Losses may be claimed only by the

owners of the property at the time of the

disaster, and all such losses will be

verified by SBA. SBA will consider

beneficial ownership as well as legal

title (for real or personal property) in

determining who suffered the loss.

§ 123.101 When am I not eligible for a

home disaster loan?

You are not eligible for a home

disaster loan if:

(a) You have been convicted, during

the past year, of a felony during and in

connection with a riot or civil disorder

or other declared disaster;

(b) You acquired voluntarily more

than a 50 percent ownership interest in

the damaged property after the disaster,

and no contract of sale existed at the

time of the disaster;

(c) Your damaged property can be

repaired or replaced with the proceeds

of insurance, gifts or other

compensation, including condemnation

awards (with one exception, these

amounts must either be deducted from

the amount of the claimed losses or, if

received after SBA has approved and

disbursed a loan, must be paid to SBA

as principal payments on your loan.

You must notify SBA of any such

recoveries collected after receiving an

SBA disaster loan (OMB Approval No.

3245–0124)). The one exception applies

to amounts received under the

Individual and Family Grant Program of

the Federal Emergency Management

Agency solely to meet an emergency

need pending processing of an SBA

loan. In such an event, you must repay

the financial assistance with SBA loan

proceeds if it was used for purposes also

eligible for an SBA loan);

(d) SBA determines that you assumed

the risk (for example, by not

maintaining flood insurance as required

by an earlier SBA disaster loan when

the current loss is also due to flood);

(e) Your damaged property is a

secondary home (although if you rented

the property out before the disaster and

the property would not constitute a

‘‘residence’’ under the provisions of

Section 280A of the Internal Revenue

Code (26 U.S.C. 280A), you may be

eligible for a physical disaster business

loan);

(f) Your damaged property is the type

of vehicle normally used for recreational

purposes, such as motorhomes, aircraft,

and boats;

(g) Your damaged property consists of

cash or securities;

(h) The replacement value of your

damaged personal property is

extraordinarily high and not easily

verified, such as the value of antiques,

artworks, or hobby collections;

(i) You or other principal owners of

the damaged property are presently

incarcerated, or on probation or parole

following conviction for a serious

criminal offense;

(j) Your only interest in the damaged

property is in the form of a security

interest, mortgage, or deed of trust;

(k) The damaged building, including

contents, was newly constructed or

substantially improved on or after

February 9, 1989, and (without a

significant business justification) is

located seaward of mean high tide or

entirely in or over water; or

(l) You voluntarily decide to relocate

outside the business area in which the

disaster has occurred, and there are no

special or unusual circumstances

leading to your decision (business area

means the municipality which provides

general governmental services to your

damaged home or, if not located in a

municipality, the county or equivalent

political entity in which your damaged

home is located).

§ 123.102 What circumstances would

justify my relocating?

SBA may approve a loan if you intend

to relocate outside the business area in

which the disaster has occurred if your

relocation is caused by such special or

unusual circumstances as:

(a) demonstrable risk that the business

area will suffer future disasters;

(b) a change in employment status

(such as loss of job, transfer, lack of

adequate job opportunities within the

business area or scheduled retirement

within 18 months after the disaster

occurs);

(c) medical reasons; or

(d) special family considerations

which necessitate a move outside of the

business area.

§ 123.103 What happens if I am forced to

move from my home?

If you must relocate inside or outside

the business area because local

authorities will not allow you to repair

your damaged property, SBA considers

this to be a total loss and a mandatory

relocation. In this case, your loan would

be an amount that SBA considers

sufficient to replace your residence at

your new location, plus funds to cover

losses of personal property and eligible

refinancing.
3308 Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations

§ 123.104 What interest rate will I pay on

my home disaster loan?

If you can obtain credit elsewhere,

your interest rate is set by a statutory

formula, but will not exceed 8 percent

per annum. If you cannot obtain credit

elsewhere, your interest rate is one-half

the statutory rate, but will not exceed 4

percent per annum. Credit elsewhere

means that, with your cash flow and

disposable assets, SBA believes you

could obtain financing from non-federal

sources on reasonable terms. If you

cannot obtain credit elsewhere, you also

may be able to borrow from SBA to

refinance existing recorded liens against

your damaged real property. Under

prior legislation, some SBA disaster

loans had split interest rates. On any

such loan, repayments of principal are

applied first to that portion of the loan

with the lowest interest rate.

§ 123.105 How much can I borrow with a

home disaster loan and what limits apply on

use of funds and repayment terms?

(a) For all disasters occurring on or

after October 26, 1993, there are limits

on how much money you can borrow

for particular purposes:

(1) $40,000 for repair or replacement

of household and personal effects;

(2) $200,000 for repair or replacement

of a primary residence (including

upgrading in order to meet minimum

standards of safety and decency or

current building code requirements).

Repair or replacement of landscaping

and/or recreational facilities cannot

exceed $5,000;

(3) $200,000 for eligible refinancing

purposes; and

(4) 20 percent of the loan amount (not

including refinancing) up to a maximum

of $48,000 for mitigation (see § 123.107).

(b) You may not use loan proceeds to

repay any debts on personal property,

secured or unsecured, unless you

incurred those debts as a direct result of

the disaster.

(c) SBA determines the loan maturity

and repayment terms based on your

needs and your ability to pay. Generally,

you will pay equal monthly installments

of principal and interest, beginning five

months from the date of the loan, as

shown on the Note securing the loan.

SBA will consider other payment terms

if you have seasonal or fluctuating

income, and SBA may allow installment

payments of varying amounts over the

first two years of the loan. The

maximum maturity for a home disaster

loan is 30 years. There is no penalty for

prepayment of home disaster loans.

§ 123.106 What is eligible refinancing?

(a) If your home (primary residence)

is totally destroyed or substantially

damaged, and you do not have credit

elsewhere, SBA may allow you to

borrow money to refinance recorded

liens or encumbrances on your home.

Your home is totally destroyed or

substantially damaged if it has suffered

uninsured or otherwise uncompensated

damage which, at the time of the

disaster, is either:

(1) 40 percent or more of the home’s

market value or replacement cost at the

time of the disaster, including land

value, whichever is less; or

(2) 50 percent or more of its market

value or replacement cost at the time of

the disaster, not including land value,

whichever is less.

(b) Your home disaster loan for

refinancing existing liens or

encumbrances cannot exceed an amount

equal to the lesser of $200,000, or the

physical damage to your primary

residence after reductions for any

insurance or other recovery.

§ 123.107 What is mitigation?

Mitigation means specific measures

taken by you to protect against recurring

damage in similar future disasters.

Examples include retaining walls, sea

walls, grading and contouring land,

relocating utilities and modifying

structures. The money that you can

borrow for mitigation is limited to the

lesser of the cost of mitigation, or 20

percent of your loan to repair or replace

your damaged primary residence and

personal property. SBA will not accept

a request for a loan increase for

mitigation filed after final disbursement

of your original loan unless you can

show that your request was late because

of substantial reasons beyond your

control.

Physical Disaster Business Loans

§ 123.200 Am I eligible to apply for a

physical disaster business loan?

(a) Almost any business concern or

charitable or other non-profit entity

whose real or tangible personal property

is damaged in a declared disaster area

is eligible to apply for a physical

disaster business loan. Your business

may be a sole proprietorship,

partnership, corporation, limited

liability company, or other legal entity

recognized under State law. Your

business’ size (average annual receipts

or number of employees) is not taken

into consideration in determining your

eligibility for a physical disaster

business loan. If your damaged business

occupied rented space at the time of the

disaster, and the terms of your business’

lease require you to make repairs to

your business’ building, you may have

suffered a physical loss and can apply

for a physical business disaster loan to

repair the property. In all other cases,

the owner of the building is the eligible

loan applicant.

(b) Damaged vehicles, of the type

normally used for recreational purposes,

such as motorhomes, aircraft, and boats,

may be repaired or replaced with SBA

loan proceeds if you can submit

evidence that the damaged vehicles

were used in your business at the time

of the disaster.

§ 123.201 When am I not eligible to apply

for a physical disaster business loan?

(a) You are not eligible for a physical

disaster business loan if your business

is an agricultural enterprise or if you (or

any principal of the business) fit into

any of the categories in § 123.101.

Agricultural enterprise means a

business primarily engaged in the

production of food and fiber, ranching

and raising of livestock, aquaculture and

all other farming and agriculture-related

industries.

(b) Sometimes a damaged business is

engaged in both agricultural and nonagricultural business activities. If the

primary business activity of your

damaged business is not an agricultural

enterprise, you may apply for a physical

disaster business loan, but loan

proceeds may not be used, directly or

indirectly, for the benefit of your

agricultural enterprises, even if they

also suffered damage.

(c) If your business is going to relocate

voluntarily outside the business area in

which the disaster occurred, you are not

eligible for a physical disaster business

loan. If, however, the relocation is due

to uncontrollable or compelling

circumstances, SBA will consider the

relocation to be involuntary and eligible

for a loan. Such circumstances may

include, but are not limited to:

(1) The elimination or substantial

decrease in the market for your products

or services, as a consequence of the

disaster;

(2) A change in the demographics of

your business area within 18 months

prior to the disaster, or as a result of the

disaster, which makes it uneconomical

to continue operations in your business

area;

(3) A substantial change in your cost

of doing business, as a result of the

disaster, which makes the continuation

of your business in the business area not

economically viable;

(4) Location of your business in a

hazardous area such as a special flood

hazard area or an earthquake-prone area;

(5) A change in the public

infrastructure in your business area

which occurred within 18 months or as

a result of the disaster that would result
Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations 3309

in substantially increased expenses for

your business in the business area;

(6) Your implementation of decisions

adopted and at least partially

implemented within 18 months prior to

the disaster to move your business out

of the business area; and

(7) Other factors which undermine the

economic viability of your business

area.

§ 123.202 How much can my business

borrow with a physical disaster business

loan?

(a) Disaster business loans, including

both physical disaster and economic

injury loans to the same borrower,

together with its affiliates, cannot

exceed the greater of the

uncompensated physical loss and

economic injury or $1.5 million.

Physical disaster loans may include

amounts to meet current building code

requirements. If your business is a major

source of employment, SBA may waive

the $1.5 million limitation. A major

source of employment is a business

concern which has one or more

locations in the disaster area which:

(1) Employed 10 percent or more of

the entire work force within the

commuting area of a geographically

identifiable community (no larger than

a county), provided that the commuting

area does not extend more than 50 miles

from such community; or

(2) Employed 5 percent of the work

force in an industry within the disaster

area and, if the concern is a nonmanufacturing concern, employed no

less than 50 employees in the disaster

area, or if the concern is a

manufacturing concern, employed no

less than 150 employees in the disaster

area; or

(3) Employed no less than 250

employees within the disaster area.

(b) SBA will consider waiving the

$1.5 million loan limit only if:

(1) Your damaged location or

locations are out of business or in

imminent danger of going out of

business as a result of the disaster, and

a loan in excess of $1.5 million is

necessary to reopen or keep open the

damaged locations in order to avoid

substantial unemployment in the

disaster area; and

(2) You have used all reasonably

available funds from your business, its

affiliates and its principal owners (20%

or greater ownership interest) and all

available credit elsewhere (as described

in § 123.104) to alleviate your physical

damage and economic injury.

(c) Physical disaster business

borrowers may request refinancing of

liens on both damaged real property and

machinery and equipment, but for an

amount reduced by insurance or other

compensation. To do so, your business

property must be totally destroyed or

substantially damaged, which means:

(1) 40 percent or more of the aggregate

value (lesser of market value or

replacement cost at the time of the

disaster) of the damaged real property

(including land) and damaged

machinery and equipment; or

(2) 50 percent or more of the aggregate

value (lesser of market value or

replacement cost at the time of the

disaster) of the damaged real property

(excluding land) and damaged

machinery and equipment.

(d) Loan funds allocated for repair or

replacement of landscaping or

recreational facilities may not exceed

$5,000 unless the landscaping or

recreational facilities fulfilled a

functional need or contributed to the

generation of business.

§ 123.203 What interest rate will my

business pay on a physical disaster

business loan and what are the repayment

terms?

(a) SBA will announce interest rates

with each disaster declaration. If your

business, together with its affiliates and

principal owners, have credit elsewhere,

your interest rate is set by a statutory

formula, but will not exceed 8 percent

per annum. If you do not have credit

elsewhere, your interest rate will not

exceed 4 percent per annum. The

maturity of your loan depends upon

your repayment ability, but cannot

exceed 3 years if you have credit

elsewhere. Otherwise, the maximum

maturity is 30 years.

(b) Generally, you must pay equal

monthly installments, of principal and

interest, beginning five months from the

date of the loan as shown on the Note.

SBA will consider other payment terms

if you have seasonal or fluctuating

income, and SBA may allow installment

payments of varying amounts over the

first two years of the loan. There is no

penalty for prepayment for disaster

loans.

Economic Injury Disaster Loans

§ 123.300 Is my business eligible to apply

for an economic injury disaster loan?

(a) If your business is located in a

declared disaster area, and suffered

substantial economic injury as a direct

result of a declared disaster, you are

eligible to apply for an economic injury

disaster loan.

(1) Substantial economic injury is

such that a business concern is unable

to meet its obligations as they mature or

to pay its ordinary and necessary

operating expenses.

(2) Loss of anticipated profits or a

drop in sales is not considered

substantial economic injury for this

purpose.

(b) Economic injury disaster loans are

available only if you were a small

business (as defined in Part 121 of this

chapter) when the declared disaster

commenced, you and your affiliates and

principal owners (20% or more

ownership interest) have used all

reasonably available funds, and you are

unable to obtain credit elsewhere (see

§ 123.104).

(c) Eligible businesses do not include

agricultural enterprises, but do

include—

(1) Small nurseries affected by a

drought disaster designated by the

Secretary of Agriculture (nurseries are

commercial establishments deriving 50

percent or more of their annual receipts

from the production and sale of

ornamental plants and other nursery

products, including, but not limited to,

bulbs, florist greens, foliage, flowers,

flower and vegetable seeds, shrubbery,

and sod);

(2) Small agricultural cooperatives;

and

(3) Producer cooperatives.

§ 123.301 When would my business not be

eligible to apply for an economic injury

disaster loan?

Your business is not eligible for an

economic disaster loan if you (or any

principal of the business) fit into any of

the categories in §§ 123.101 and

123.201, or if your business is:

(a) Engaged in gambling, lending,

multi-level sales distribution, loan

packaging, speculation, or investment

(except for real estate investment with

property held for rental when the

disaster occurred);

(b) A non-profit or charitable concern;

(c) A consumer or marketing

cooperative; or

(d) Not a small business concern.

§ 123.302 What is the interest rate on an

economic injury disaster loan?

Your economic injury loan will have

an interest rate of 4 percent per annum

or less.

§ 123.303 How can my business spend my

economic injury disaster loan?

(a) You can only use the loan

proceeds for working capital necessary

to carry your concern until resumption

of normal operations and for

expenditures necessary to alleviate the

specific economic injury, but not to

exceed that which the business could

have provided had the injury not

occurred.

(b) Loan proceeds may not be used to:
3310 Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 / Rules and Regulations

(1) Refinance indebtedness which you

incurred prior to the disaster event;

(2) Make payments on loans owned by

another federal agency (including SBA)

or a Small Business Investment

Company licensed under the Small

Business Investment Act;

(3) Pay, directly or indirectly, any

obligations resulting from a federal,

state or local tax penalty as a result of

negligence or fraud, or any non-tax

criminal fine, civil fine, or penalty for

non-compliance with a law, regulation,

or order of a federal, state, regional, or

local agency or similar matter;

(4) Repair physical damage; or

(5) Pay dividends or other

disbursements to owners, partners,

officers or stockholders, except for

reasonable remuneration directly related

to their performance of services for the

business.

Dated: January 19, 1996.

Philip Lader,

Administrator.

[FR Doc. 96–1162 Filed 1–30–96; 8:45 am]

BILLING CODE 8025–01–P

13 CFR Part 125

Government Contracting Assistance

AGENCY: Small Business Administration.

ACTION: Final rule.

SUMMARY: In response to President

Clinton’s Government-wide regulatory

reform initiative, the Small Business

Administration (SBA) has completed a

page-by-page, line-by-line review of all

of its existing regulations to determine

which should be revised or eliminated.

This rule would eliminate seven

sections which are currently contained

in 13 CFR Part 125 pertaining to SBA’s

procurement assistance programs. The

Part will be retitled Government

Contracting Assistance.

EFFECTIVE DATE: This rule is effective on

March 1, 1996.

FOR FURTHER INFORMATION CONTACT: John

W. Klein, Chief Counsel for Special

Programs, at (202) 205–6645.

SUPPLEMENTARY INFORMATION: Part 125 of

chapter I of title 13 of the Code of

Federal Regulations sets forth the

policies and procedures by which SBA

regulates Government contracting. On

November 27, 1995 (60 FR 58276), SBA

published a proposed rule in the

Federal Register to reorganize part 125,

eliminating seven sections and

streamlining other sections. SBA

proposed minor, but substantive, rule

changes—notably, removing WalshHealey determinations from the

Certificate of Competency process;

increasing the threshold over which a

contracting officer could appeal the

award of a Certificate of Competency to

Headquarters from $25,000 to $100,000,

and clarifying that prospective

limitations on subcontracting applied to

base year contracts, irrespective of

option years.

SBA received sixteen timely

comments to this proposed revision.

Eleven of the comments were directed at

proposed § 125.4, which concerns

Government property sale assistance.

One was directed at the proposed

elimination of § 125.10, the

Procurement Automated Source System

(PASS). The remainder raised objections

to proposed § 125.6, dealing with

subcontracting limitations.

SBA proposed a streamlined section

on government property sales at § 125.4.

The proposed section described the

purpose of the Government property

sales assistance program; described

what the program does; described what

sorts of economic activities are covered

by the program; and referred the reader

to the appropriate sections in Part 121

to obtain the size standards for the

program. This section replaces present

§ 125.8, which recites the size standards

in detail, describes who in SBA is

responsible for administering the

program, sets forth what interagency

agreements SBA has concerning the

program and with whom, sets forth the

form number of the applicable

certification, describes penalties for

contract breach, and sets forth the

program’s ‘‘emphasis’’, not only in the

present but in the past as well.

Eight of the eleven comments

discussing this section expressed the

mistaken belief that the proposed

revision would eliminate all references

to the Government property sales

assistance program. All eleven of the

comments expressed concern that in the

absence of the current detailed

regulation, the general public, the

timber industry and employees of the

Federal Government would lack

sufficient information to properly utilize

the program. Some of these commenters

expressed concern that in the absence of

the particulars of present § 125.8, other

agencies having interagency agreements

with the SBA would be unaware of their

responsibilities under those agreements.

Conversely, other commenters were

concerned that the proposed revision

would somehow ‘‘signal’’ those other

agencies that they were no longer bound

by their agreements. Some commenters

were concerned that without a

regulation which assigns specific duties

to specific SBA employees, SBA would

soon eliminate those employees.

Finally, one commenter claims that

were SBA not to designate in the Code

of Federal Regulations which employees

were to carry out which responsibilities

under the Government property sales

assistance program, SBA would be in

violation of the Freedom of Information

Act (5 U.S.C. 552).

SBA has considered all of these

comments, but believes that § 125.4 as

proposed is an appropriate regulation.

Current § 125.8 has little useful

information for either interested small

businesses or for federal agencies

conducting sales under the program.

The statutory language replicated in

current § 125.8 is among the most

general in the entire Small Business Act,

guaranteeing only that a ‘‘fair’’

proportion of sales and leases be given

to small businesses. The bare recitation

of which agencies have Interagency

Agreements with SBA which relate to

the Government Property Sales

Assistance Program provides no useful

information to the interested small

business. The contents of those

agreements, which may be obtained

from the Small Business Administration

upon request, may be of help, but they

are not printed in the present regulation,

and to include them in the Code of

Federal Regulations would be

impractical. The agencies themselves, of

course, know what the agreements

require them to do, and a regulation is

not needed to create enforceability.

SBA’s own obligations under the

Government Property Sales Assistance

Program remain unaffected by removing

specific references to which SBA

employee performs which task.

Descriptions of duties of employees and

other internal management matters need

not be contained in regulations.

The size standards relevant to the

timber set-aside program will be

restated, with more clarity, in new

§§ 121.506–121.508 of this chapter. A

proposed rule revising Part 121 of these

regulations was published on November

24, 1995, and will become final when

this rule becomes effective. There is no

substantive change to the size standard.

SBA disagrees with the contention

that the Freedom of Information Act

requires that SBA set forth in regulation

the responsibilities of the property sales

industrial representative, as the current

regulation does. FOIA merely requires

that agencies publish descriptions of

their organization, not that they publish

specific responsibilities for specific

staff. Moreover, FOIA merely requires

that this publication be in the Federal

Register, not in regulations.

One commenter urges that § 125.10 be

retained if its deletion ‘‘in any way

diminishes the quality, availability, or

emphasis for this program.’’ The