This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

the Superintendent of Documents.

Rules and Regulations Federal Register

39491 

Vol. 82, No. 160 

Monday, August 21, 2017 

SMALL BUSINESS ADMINISTRATION 

13 CFR Parts 109, 115, and 120 

RIN 3245–AF85 

Miscellaneous Amendments to 

Business Loan Programs and Surety 

Bond Guarantee Program 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Final rule. 

SUMMARY: This final rule amends SBA 

regulations to update, streamline and 

clarify rules for the Business Loan 

Programs (as defined below) and the 

Surety Bond Guarantee Program 

(‘‘SBG’’). For purposes of this rule, the 

7(a) Loan Program, the Microloan 

Program, the Intermediary Lending Pilot 

(ILP) Program, and the Development 

Company Loan Program (‘‘504 Loan 

Program’’) are collectively referred to as 

the ‘‘Business Loan Programs.’’ 

DATES: This rule is effective September 

20, 2017, except for the amendment to 

§ 120.1400(a), which is effective October 

20, 2017. 

FOR FURTHER INFORMATION CONTACT: 

Robert Carpenter, Acting Chief, 7(a) 

Program and Policy Branch, Office of 

Financial Assistance, Office of Capital 

Access, Small Business Administration, 

409 Third Street SW., Washington, DC 

20416; telephone: (202) 205–7654; 

email: robert.carpenter@sba.gov. 

SUPPLEMENTARY INFORMATION: 

I. Background 

The SBA programs that are affected by 

this final rule are: (1) The 7(a) Loan 

Program; (2) the Microloan Program; (3) 

the Intermediary Lending Pilot (ILP) 

Program; (4) the 504 Loan Program, and 

(5) the Surety Bond Guarantee (‘‘SBG’’) 

Program. 

SBA published in the Federal 

Register (81 FR 52595, August 9, 2016) 

a proposed rule containing proposed 

regulatory revisions for the 7(a) Loan 

Program, the Microloan Program, the 

504 Loan Program, and the SBG 

Program. The ILP Program was 

inadvertently omitted from the 

proposed rule; therefore, changes to the 

ILP Program were added to this final 

rule to maintain consistency across SBA 

loan programs. The comment period 

ended October 11, 2016. 

II. Summary of Comments 

The Agency reviewed the public 

comments it received concerning its 

proposed rule changes for 13 CFR parts 

115 and 120. The comment review of 

specific final rule changes for the 7(a) 

Loan Program, the Microloan Program, 

the 504 Loan Program, and the SBG 

Program is summarized as follows: 

SBA received 57 comment 

submissions, of which two were 

duplicates from the same commenter. 

The 55 net comments were reviewed by 

the Agency. 

The comments submitted consisted of 

20 from Certified Development 

Companies (CDCs), 15 from banks and 

non-bank lenders, 12 from trade 

associations, three from lender service 

providers, two from law firms, and three 

from private citizens. SBA received 

comments from 51 commenters 

pertaining only to changes to the 7(a) 

Loan Program, the Microloan Program, 

and the 504 Loan Program (13 CFR part 

120), and comments from three 

commenters pertaining only to changes 

in the SBG Program (13 CFR part 115). 

The majority of the commenters 

supported the proposed changes, with 

some commenters recommending minor 

modifications. SBA addresses the 

comments in detail within the 

appropriate Section-by-Section analysis 

below. 

III. Section-by-Section Analysis of 

Comments and Changes 

A. Intermediary Lending Pilot Program 

Section 109.400 Eligible Small 

Business Concerns. Revisions to the ILP 

Program regulations were added to this 

final rule to conform the program to 

changes being made to the other 

Business Loan Programs. Although no 

new ILP intermediaries are authorized, 

there are currently intermediaries with 

outstanding revolving funds for eligible 

small businesses. Therefore, the ILP 

Program is affected by the rule changes. 

SBA is removing § 109.400(b)(12) to 

align with the removal of § 120.110(l), 

which stated that consumer and 

marketing cooperatives were not eligible 

to participate in the Business Loan 

Programs. While SBA did not originally 

propose any changes to this section, the 

removal is appropriate to align 

requirements consistently across SBA 

programs. 

Section 109.510 On-site and off-site 

reviews. To align this section with the 

removal of the terms ‘‘on-site’’ and ‘‘offsite’’ from 13 CFR part 120, SBA is 

removing these terms from 13 CFR part 

109. 

B. Surety Bond Guarantee Program 

Section 115.19 Denial of liability. In 

§§ 115.19(c)(1), (d)(2) and (e)(2), SBA 

proposed modifying the threshold 

amount for determining when an 

increase in the Contract or bond 

amounts may result in a denial of 

liability from ‘‘25% or $100,000, 

whichever is less’’ to simply ‘‘25%.’’ 

One commenter noted that, under 

paragraph (c)(1), grounds for denial 

include when the Surety has committed 

a material breach of the terms or 

conditions of the Prior Approval or 

Preferred Surety Bond (PSB) 

Agreements, and a material breach is 

considered to have occurred if ‘‘[s]uch 

breach . . . causes an increase in the 

Contract amount or in the bond amount 

of at least 25% or $100,000, whichever 

is less.’’ Similarly, under paragraph (d), 

grounds for denial include when the 

Surety has committed a substantial 

violation of SBA regulations, and such 

violation occurs when a violation 

‘‘causes an increase in the bond amount 

of at least 25% or 100,000, whichever is 

less in the aggregate . . .’’ The 

commenter stated that they could not 

contemplate a scenario where a breach 

or violation actually causes the contract 

or bond amounts to increase. However, 

the intent of the regulation is to make 

this connection between the breach or 

violation and an increase in the contract 

or bond amount, and it is appropriate as 

written. The commenter also suggested 

that the rule be clarified to state that the 

base amount to which the 25% is being 

applied is the ‘‘original contract 

amount.’’ SBA agrees with this 

suggestion and is revising the rule 

accordingly. 

In addition, for the reasons discussed 

in section 115.32 below, SBA is revising 

the rule to retain a dollar threshold, but 

to increase it from $100,000 to $500,000. 

Section 115.22 Quarterly Contract 

Completion Report. As proposed, this 


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new section would require participating 

Sureties to submit Contract Completion 

Reports within 45 days of the end of 

each quarter, identifying completed 

contracts, contract amount changes, and 

any related fees due. Two commenters 

expressed concern this may be an 

administrative burden limiting Sureties’ 

program participation. The third 

commenter recommended that this 

provision not be incorporated due to the 

increased administrative burden of 

reporting this information to SBA 

within 45 days. 

SBA considered these comments, but 

has decided not to accept the 

recommendation. As SBA stated in the 

preamble to the proposed rule (81 FR 

52597), SBA currently does not receive 

a final accounting of fees due and paid 

by the Surety and Principal on contracts 

that are successfully completed and, 

consequently, SBA is unable to ensure 

that fees due the Government as a result 

of an increase in the contract amount 

are paid in a timely manner on contracts 

that do not default. This report will 

assist SBA in ensuring that fees due for 

increases on successfully completed 

contracts are accurately calculated and 

paid timely. SBA is amending this 

section as proposed. 

Section 115.30 Submission of 

Surety’s guarantee application. SBA 

proposed to amend paragraph (d)(2)(i) of 

this section to increase the Quick Bond 

eligible contract limit from $250,000 to 

$400,000. Two commenters support this 

change to provide greater bonding 

opportunities for small contractors. SBA 

is amending this section as proposed. 

Section 115.32 Fees and Premiums. 

In the proposed rule, SBA proposed to 

revise § 115.32(d)(1) to modify the 

threshold amount for determining when 

an increase in the Contract or bond 

amounts would require a Prior Approval 

Surety to notify SBA, or obtain SBA’s 

prior written approval, from ‘‘25% or 

$100,000, whichever is less’’ to ‘‘25%.’’ 

SBA explained that it was proposing the 

change to better align SBA requirements 

with the prevailing practice in the 

surety industry—which now allows 

increases to the Contract and bond 

amounts without prior notification to 

the Surety—while managing the 

increased bond liability to the 

Government. 

Three commenters generally 

expressed support for this provision and 

indicated that, with the increase in the 

maximum contract amount from $2 

million to $6.5 million (and to $10 

million for certain Federal contracts), 

the $100,000 threshold was too low and 

unduly burdensome. However, two of 

the commenters also expressed concern 

that smaller contracts would be 

negatively impacted by a threshold 

based only on percentage. These 

comments have caused SBA to 

reconsider the effects of totally 

removing the dollar threshold. For 

example, with no dollar threshold, a $5 

million contract could be increased by 

$1 million without the Prior Approval 

Surety notifying SBA or requesting, 

when required, SBA’s prior approval. 

To minimize the risks to the Agency 

that would be posed by such a large 

increase, the Surety should be required 

to notify SBA or, when required, seek 

SBA’s prior approval. Thus, upon 

reconsidering this issue, SBA has 

decided to retain a dollar threshold, but 

in the interests of striking a balance 

between the risks to the Agency and 

minimizing any burden on Sureties, the 

rule is being revised to increase the 

dollar threshold from $100,000 to 

$500,000. 

In addition, as discussed above for 

§ 115.19, SBA is accepting and 

incorporating the recommendation to 

add clarifying language in the final rule 

to read ‘‘25% of the original contract 

amount’’. 

Section 115.60 Selection and 

admission of PSB Sureties. SBA 

proposed that a Surety, for the initial 

nine months following admission to the 

PSB Program, must obtain SBA’s prior 

written approval before executing a 

bond greater than $2 million. One 

commenter requested that SBA clarify 

that this change does not apply to 

Sureties that participate in the PSB 

Program prior to the effective date of 

this final rule. SBA confirms that this 

change applies only to Sureties that are 

admitted to the PSB Program after the 

effective date of the final rule. 

Another commenter suggested that 

this requirement may discourage 

applications from Sureties for 

acceptance into the PSB Program. With 

PSB Sureties executing SBA-guaranteed 

bonds without SBA’s prior approval, 

SBA believes that it is in the taxpayers’ 

and the Agency’s best interests to 

require newer Sureties to demonstrate 

an understanding of the program before 

being allowed to issue bonds larger than 

$2 million without SBA’s oversight. 

SBA is amending this section as 

proposed. 

Section 115.67 Changes in Contract 

or bond amount. In the proposed rule, 

SBA proposed to change the threshold 

for when a PSB Surety must remit 

additional fees due as a result of 

increases to the Contract or bond 

amount from ‘‘25% of the contract or 

bond amount or $100,000, whichever is 

less’’ to ‘‘25%.’’ As discussed above, 

two commenters supported this change 

but expressed concern that this could 

negatively impact smaller contracts. For 

the reasons discussed above for section 

115.32, and because the same thresholds 

should apply to when PSB Sureties are 

required to remit the additional fees 

owed, the rule is being revised to retain 

and increase the dollar threshold from 

$100,000 to $500,000. The rule is also 

being revised to add clarifying language 

that the increases will be based on the 

original contract amount. 

Section 115.68 Guarantee 

percentage. In the proposed rule, SBA 

proposed to revise this section to 

provide that SBA will reimburse a PSB 

Surety in the same percentages and 

under the same terms as set forth in 

§ 115.31, as authorized by § 874 of Title 

VIII of Division A of the National 

Defense Authorization Act, 2016, Public 

Law 114–92, 129 Stat. 726. All 

commenters supported this revision and 

this provision is adopted as proposed. 

C. 7(a) Loan, 504 Loan, and Microloan 

Programs 

Section 120.110 What businesses are 

ineligible for SBA business loans? 

As proposed, SBA is removing 

consumer and marketing cooperatives 

from the ineligible types of businesses 

identified in this section and is 

reserving paragraph (l). SBA received 

support for the proposed change from 

22 commenters. With respect to the 

comments received, 18 commenters 

requested the removal of the 

requirement that at least one individual 

or entity provide an unlimited guaranty 

for a loan made to a consumer or 

marketing cooperative, and instead 

permit the use of a loan guarantee pool 

funded by cooperative enterprises. 

Commenters suggested that the 

ownership for many cooperatives 

consists of multiple members, and that 

obtaining personal guaranties from 

multiple members can be overly 

burdensome and should not apply to 

cooperatives. Currently, SBA allows for 

an entity to provide the required loan 

guaranty in lieu of a personal guaranty 

from an individual. SBA is not 

removing the guaranty requirements for 

cooperatives at this time due to the 

inequity it would create for all other 

classes of loan applicants where the 

unlimited guaranty of an individual or 

entity is required. The rules governing 

guaranties will continue to apply to 

cooperatives. SBA is amending this 

section as proposed. 

Section 120.111 What conditions 

must an Eligible Passive Company 

satisfy? 

SBA is amending this regulation as 

proposed with some modifications as 

discussed below. The amended 

regulation will permit SBA loan 


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proceeds to be used to finance a change 

of ownership between existing owners 

of the Eligible Passive Company (EPC). 

SBA does not intend for this regulation 

to be used to finance a change of 

ownership in an EPC that has only been 

in existence for a limited period of time. 

This regulatory change is intended to 

assist with the preservation of a 

business that might otherwise cease 

operations due to the departure of an 

owner, as opposed to simply facilitating 

the withdrawal of capital out of the 

business. SBA will include in Standard 

Operating Procedure (SOP) 50 10 further 

guidance on when an EPC may use loan 

proceeds to finance a change of 

ownership between existing owners. 

In the 504 Loan Program, the 

amended regulation will permit loan 

proceeds to be used to finance a change 

of ownership in the EPC when the 

asset(s) of the EPC are limited to real 

estate and/or other eligible long-term 

fixed assets that the EPC leases to one 

or more Operating Companies (‘‘OC’’) 

for conducting the OC’s business. SBA 

recognizes that an EPC’s balance sheet 

may include limited assets in addition 

to the real estate or other eligible longterm fixed assets, such as capital 

replacement reserves or escrow 

accounts for taxes and/or insurance 

(such assets are referred to in this 

discussion as ‘‘ineligible assets’’). In 

such case, 504 loan proceeds may be 

used to finance a change of ownership 

between existing owners of the EPC as 

long as (1) the ineligible assets are 

directly related to the real estate or other 

eligible long-term fixed assets, (2) the 

amount attributable to such ineligible 

assets is de minimis, and (3) the 

ineligible assets are excluded from the 

Project financing. Further guidance for 

the 504 Loan Program will be 

incorporated into SOP 50 10. 

SBA received 15 comments in support 

of this change with no objection. Nine 

additional commenters supported this 

change with minor modification and 

suggested language revisions to the 

introductory paragraph to clarify what 

purpose loan proceeds may be used for 

when an OC is a co-borrower with the 

EPC. One commenter suggested 

changing the term ‘‘Lender’’ to ‘‘SBA 

Lender’’ as it is a defined term that 

includes both a 7(a) Lender and CDC in 

this section. The term ‘‘lender’’ as used 

in paragraph (a)(3) of this section 

includes Third Party Lenders in 504 

Loan projects, so it is not appropriate to 

use ‘‘SBA Lender.’’ However, the term 

‘‘lender’’ as used in paragraph (a)(6) is 

directed to both a 7(a) Lender and a 

CDC; therefore, SBA is accepting this 

recommendation for paragraph (a)(6) of 

this section, changing the term ‘‘lender’’ 

to read ‘‘SBA Lender.’’ 

Eight commenters also suggested 

revised language that they believe 

would clarify the Direct Final Rule that 

took effect on May 17, 2012 (77 FR 

19531, April 2, 2012). That revision 

provided that in an EPC/OC structure, 

when the OC is a co-borrower the 

Agency would allow loan proceeds to be 

used for working capital (as was already 

allowed) as well as for ‘‘the purchase of 

other assets for use by the OC, including 

the purchase of stock or intangible 

assets (such as trademarks, copyrights, 

intellectual property or goodwill).’’ An 

industry trade association, suggested in 

its comments that when the Direct Final 

Rule was published in 2012, SBA 

inadvertently omitted language from the 

introductory paragraph of § 120.111, 

and the omission of the language led to 

incorrect interpretations of the revised 

regulation. SBA considers this 

particular comment to be a logical 

outgrowth of reviewing § 120.111 and 

within the context of the proposed rule 

to clarify and correct areas of the 

regulations that are out of date or 

inconsistent with the current 

procedures. While not included in the 

proposed rule, based on the comments 

received, SBA is adding language to the 

introductory paragraph to clarify the 

eligible uses of loan proceeds when the 

OC is a co-borrower on the loan to the 

EPC. 

SBA is amending § 120.111(a)(3) to 

clarify that rent or lease payments made 

by the OC to the EPC cannot exceed the 

amount necessary to make the loan 

payment to the lender, and additional 

amounts to cover the EPC’s direct 

expenses of holding the property, such 

as maintenance, insurance and property 

taxes. SBA received 32 comments 

concerning this proposed change, 12 in 

support of and 20 objecting to the 

proposed change to this paragraph. 

Commenters recommended the 

proposed language be amended to 

specify that the rents charged by the 

EPC to the OC could include a reserve 

to cover capital asset replacement such 

as heating, ventilation, and air 

conditioning (HVAC). One commenter 

stated that the proposed regulation 

refers only to the ‘‘the loan payment to 

the lender’’ and does not take into 

consideration that in a 504 Loan, the 

EPC/OC rent includes payments to the 

CDC, the Third Party Lender and any 

junior financing such as a borrowed 

equity loan or other financing outside of 

the 504 Project. Payments to the Third 

Party Lender participating in a 504 

project are included in the ‘‘loan 

payment to the lender’’ and SBA 

determined that no additional 

clarification for this issue is necessary. 

Several commenters who objected to 

the proposed change recommended that 

SBA adopt Internal Revenue Service 

(IRS) standards for holding companies 

and not require additional regulatory 

requirements. IRS rules generally do not 

consider or address SBA Loan Program 

Requirements such as the prohibition of 

financing for investors or landlords. 

While SBA permits eligible EPCs to 

hold certain assets financed for the 

benefit of the OC, it is not the intent of 

SBA to permit the EPC to profit from its 

relationship with the OC. 

It is SBA’s positon that routine 

maintenance costs, Project debt 

payments, and repairs are already 

included in the permissible direct 

expenses of holding the property and as 

such would be permissible under the 

regulation. Additional guidance on this 

issue will be placed in SOP 50 10. 

SBA also proposed to add language to 

§ 120.111(a)(6) to provide the Agency 

may, in its discretion and in 

consultation with the SBA Lender, 

require the guaranty of individuals or 

entities with less than 20 percent 

ownership of the EPC or the OC when 

circumstances warrant. In 2010, the 

Small Business Jobs Act of 2010, Public 

Law 111–240, 124 Stat. 2504 (September 

27, 2010) (the ‘‘2010 Jobs Act’’) 

increased the maximum loan size for 

7(a) and 504 Loans. SBA now receives 

more loan requests from applicants with 

multiple owners who may hold less 

than 20 percent of the company 

regardless of managerial 

responsibilities, corporate titles or 

ownership interest, if any. 

SBA received 24 comments on this 

proposed change: 18 in full support, five 

in support with modification, and one 

objecting to the proposed change. 

Recommended modifications to this 

paragraph included revising the 

language to provide greater detail as to 

when individuals could be required to 

guarantee the loan, and to provide 

authority to both SBA and delegated 

lenders to determine when there are 

sufficient reasons to do so. One 

commenter expressed concern that the 

proposed change would be ‘‘all 

encompassing’’ and may result in 

unintended consequences. 

It is prudent for SBA to require a 

lender to obtain a guaranty when one or 

more individuals or entities have the 

authority and responsibility to manage 

operations regardless of their ownership 

interest in the applicant business. SBA 

will generally not require individuals or 

entities with less than 20 percent 

ownership of the applicant business to 

guarantee the loan when the lender 


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obtains a guaranty from those with 20 

percent or more ownership interest. 

SBA considered and accepts the 

recommendation to include the 

authority for delegated lenders to obtain 

full or limited guaranties from 

appropriate individuals or entities 

regardless of their ownership interest in 

the EPC or the OC, and is modifying the 

rule to state that SBA and, for loans 

processed under a SBA Lender’s 

delegated authority, the SBA Lender, 

may determine when credit or other 

reasons make it necessary to obtain a 

full or limited guaranty from 

appropriate individuals or entities. SBA 

will provide additional guidance on the 

guaranty requirements in SBA SOP 50 

10. In addition, as stated above, SBA is 

modifying § 120.111(a)(6) to replace the 

term ‘‘Lender’’ with ‘‘SBA Lender.’’ 

Section 120.130 Restrictions on uses 

of proceeds. SBA proposed moving 

§ 120.160(d) to § 120.130 as new 

paragraph (e) and redesignating 

§ 120.130 (e) and (f) as paragraphs (f) 

and (g), respectively. The new 

paragraph (e) includes the text currently 

found in § 120.160 Loan Conditions, in 

paragraph (d), Taxes, which prohibits 

the use of proceeds for payment of pastdue Federal or state payroll taxes. This 

requirement is a restriction, not a loan 

condition, and is appropriately moved 

to § 120.130(e). SBA also proposed 

revising what will become paragraph (g) 

to remove an inaccurate reference to 

§ ‘‘120.203’’ and replacing it with 

§ ‘‘120.202.’’ Section 120.203 cited in 

this paragraph was removed in 1996. 

SBA received eight comments, one in 

support and seven requesting a 

modification. The majority of 

commenters asked SBA to consider 

expanding the prohibited use of 

proceeds to include other similar taxes, 

such as sales taxes, that may be required 

to be collected by the small business in 

trust on behalf of a Federal, state or 

local government entity. SBA has 

considered and is accepting the 

recommendation to include the 

references to other local, state and 

Federal taxes in the final rule. 

Section 120.160 Loan conditions. 

SBA proposed adding the word 

‘‘generally’’ to the last sentence of 

§ 120.160(a) to clarify that SBA may 

require a personal guaranty of an 

individual or entity with less than five 

percent ownership in the applicant 

business when the circumstances 

warrant. SBA received 24 comments 

concerning this proposed change: 22 in 

support, with 11 of the supporters 

recommending modification. Only two 

commenters expressed concerns, one 

that wanted to require no guaranties 

from non-owners, while another 

observed that this requirement is not 

currently included in the regulation. 

Recommendation was also made to use 

the defined term ‘‘SBA Lender’’ as it is 

appropriate for both the 7(a) and 504 

Loan Programs. Finally, one commenter 

expressed concern that the proposed 

change was ‘‘all encompassing’’ and 

may result in unintended consequences. 

SBA agrees with the recommendation 

that the term ‘‘SBA Lender’’ should be 

used since the regulation includes both 

7(a) lenders and CDCs, and will replace 

‘‘Participating Lender’’ with ‘‘SBA 

Lender.’’ As stated in the discussion of 

guaranties for EPCs and OCs in 

§ 120.111 above, the 2010 Jobs Act 

increased the maximum loan size for 

7(a) and 504 loans. Small businesses 

needing larger loans are more likely to 

have complex ownership structures and 

multiple owners, where each owner 

may hold less than five percent of the 

company regardless of managerial 

responsibilities or corporate titles. The 

current regulation language restricts 

SBA from requiring personal guaranties 

from individuals with less than five 

percent ownership under any 

circumstance. 

SBA deems it prudent to maintain 

discretion for SBA, in consultation with 

the Lender, to require guaranties from 

individuals or entities with less than 

20% ownership of the applicant 

business when they are critical to the 

extension of credit. The removal of the 

reference to 5% as the strict measure for 

required guaranties will allow SBA to 

obtain full or limited guaranties from 

appropriate individuals or entities 

regardless of their ownership interest in 

the applicant business, if any, when 

deemed necessary. In addition, SBA 

considered and is accepting the 

recommendation to provide this 

discretion to delegated SBA Lenders as 

well and, therefore, is modifying the 

rule to state that SBA and, for loans 

processed under an SBA Lender’s 

delegated authority, the SBA Lender, 

may determine when credit or other 

reasons make it necessary to obtain a 

full or limited guaranty from 

appropriate individuals or entities 

regardless of their ownership interest, if 

any, in the applicant business. SBA will 

provide additional guidance on the 

guaranty requirements in the 

appropriate SBA SOP. 

Twenty commenters recommended 

the proposed changes to the personal 

guaranty rules be provided in SOPs, 

where exceptions can be made. While 

SBA provides additional detail on 

guaranty requirements in its SOPs, 

program-wide rules are appropriately 

included in this regulation. SBA is 

amending this section as proposed with 

the modifications discussed above. 

Section 120.194 Use of computer 

forms. SBA is removing § 120.194 in its 

entirety, and reserving this section for 

future use. Technology has rendered 

this regulation unnecessary. SBA 

received nine comments on this 

proposed change: Eight in support of the 

proposed change and one objection. The 

objection was based on a misconception 

that SBA Lenders will no longer be able 

to submit loan packages using their own 

or commercially available lending 

software. SBA continues to work with 

participants and their software sources 

to expand electronic access in all 

program applications. SBA is removing 

this section as proposed. 

Section 120.214 What conditions 

apply for variable interest rates? SBA is 

not proceeding with the proposed 

revisions to § 120.214 regarding when 

the allowable base rate is determined 

and when adjustments in the variable 

interest rate will be permitted. SBA 

received 10 comments, generally in 

support of a change, with some 

comments indicating that the guidance 

did not fully address the issues 

regarding the timing of rate changes and 

base rates. After reviewing current 

market activity, the impact of rate 

adjustments on the small business 

borrower, and the potential need to 

further simplify the guidance, SBA will 

conduct a more thorough discussion 

with internal and external stakeholders 

on how best to manage interest rate 

changes in the 7(a) Loan Program. SBA 

will not make changes to this section at 

this time. 

Section 120.220 Fees that Lender 

pays SBA. As set forth in section 

7(a)(31) of the Small Business Act (15 

U.S.C. 636(a)(31)) (‘‘the Act’’), SBA is 

adding a new paragraph (a)(3) to 

§ 120.220 to codify the statutory waiver 

of the up-front guaranty fee for SBA 

Express loans made to businesses 

owned and controlled by a veteran or 

spouse of a veteran (as defined in the 

Act) for fiscal years when the subsidy 

rate for the 7(a) program is zero. SBA 

received eight comments regarding the 

proposed changes. Of those, seven 

commenters recommended that SBA 

specifically use the term ‘‘SBA Express’’ 

to identify loans delivered under section 

7(a)(31) of the Act. The conditions a 

business must meet to qualify for this 

fee waiver will be explained in SBA 

Loan Program Requirements. 

In § 120.220(b), SBA is amending the 

regulation to advise Lenders to pay the 

guaranty fee electronically and revising 

the timeframe within which a Lender 

must pay the guaranty fee to SBA for 

loans with a maturity of 12 months or 


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less (‘‘short-term loans’’). SBA is 

revising the timing of payment of the fee 

on a short-term loan from the ‘‘time of 

application’’ to ‘‘within 10 business 

days of SBA’s approval of the loan.’’ 

The current requirements were 

implemented when Lenders paid fees 

using checks. Currently, fees are paid 

electronically through www.pay.gov, 

and requiring fee payments with the 

application on short-term loans can 

delay application processing and turnaround times. SBA received eight 

comments on this proposed change, all 

in support of the change. SBA is also 

amending paragraph (b) of this section 

to permit a Lender to be reimbursed by 

the Borrower for the guaranty fee on a 

short-term loan only after the Lender 

pays the fee to SBA. SBA will not 

permit Lenders to collect the guaranty 

fee from the Borrower prior to paying 

SBA. The final rule is incorporating 

both the 10 day fee payment guidance 

and the timeline for collection of the fee 

from the Borrower. 

In § 120.220(c), SBA also proposed 

and is adopting the rule change 

removing the first two sentences which 

state when SBA will refund the 

guaranty fee paid on a short-term loan. 

The additional 10 day time period postloan approval for payment of the fee 

negates the need for refunds. SBA 

received eight comments supporting the 

proposed change in the timing of 

payment to SBA of guarantee fees on 

loans of 12 months or less, but the 

commenters asked that SBA provide a 

provision for refund of the guaranty fee 

of an approved loan if the Lender had 

not made any disbursements. The 

guaranty fee is limited to one quarter of 

one percent of the guaranteed portion of 

the short-term loan and is only 

refundable if a short-term loan 

application is withdrawn by the Lender 

prior to approval by SBA, if SBA 

declines to guarantee the loan, or if SBA 

approves the loan but substantially 

changes the terms and SBA’s modified 

terms are unacceptable to the Lender. 

SBA deems the fee earned for short-term 

loans once the SBA loan number is 

issued. SBA is not adopting the 

suggestion regarding refunds on shortterm loans. 

Section 120.221 Fees which the 

Lender may collect from a loan 

applicant. 

SBA is adopting, as proposed, the 

addition of an introductory paragraph 

stating that, unless otherwise permitted 

by SBA Loan Program Requirements 

(e.g., the guaranty fee under § 120.220), 

the fees listed in § 120.221 are the only 

fees a Lender is permitted to charge and 

collect from an Applicant or Borrower. 

SBA received eight comments on this 

proposed change, all supporting the 

improvement in clarity. SBA also 

proposed to remove the contents of 

§ 120.221(e), as it is not a fee a Lender 

may collect from a loan applicant in 

accordance with the stated purpose of 

§ 120.221. SBA will insert in its place 

language which permits Lenders to 

collect fees for legal services. This 

change combines and provides clear 

guidance on the only fees a Lender is 

permitted to charge and collect from an 

Applicant or Borrower. Eight comments 

were received that suggested the 

language be revised to specifically 

include legal fees provided by ‘‘either 

outside or in-house counsel.’’ SBA has 

determined that the proposed language 

was somewhat cumbersome and revised 

the language slightly to incorporate SBA 

permits the Lender to charge the 

Borrower for legal services rendered on 

an hourly basis. SBA is revising the 

paragraph (e) to read ‘‘Legal services. 

Lender may charge the Borrower for 

legal services rendered on an hourly 

basis.’’ 

Section 120.222 Fees which the 

Lender or Associate may not collect 

from the Borrower or share with third 

parties. As proposed, SBA is retitling 

§ 120.222 from ‘‘Fees which the Lender 

or Associate may not collect from the 

Borrower or share with third parties’’ to 

‘‘Prohibition on sharing premiums for 

secondary market sales.’’ SBA is also 

removing the contents of paragraphs (a), 

(b), (c), (d), and (e), and inserting the 

following language: ‘‘The Lender or its 

Associate may not share any premium 

received from the sale of an SBA 

guaranteed loan in the secondary market 

with a Service Provider, packager, or 

other loan-referral source.’’ All eight 

comments received indicated support 

for this proposed change. This proposed 

change completes the consolidation and 

re-organization of §§ 120.221 and 

120.222, by clearly identifying the only 

fees that a Lender may charge and 

collect from an applicant. Unless 

otherwise permitted by SBA Loan 

Program Requirements, any fee not 

identified in § 120.221 is prohibited. 

SBA is retaining the prohibition on the 

sharing of secondary market fees in 

§ 120.222 for consistency with 13 CFR 

103.5(c), which prohibits a Lender from 

sharing any secondary market premium 

with a lender service provider. SBA is 

amending this section as proposed. 

Section 120.394 What are the 

eligible uses of proceeds? For the 

Builders Loan Program, SBA proposed 

to increase the regulatory limitation on 

use of proceeds for land acquisition 

from 20 percent to 33 percent. SBA 

received eight comments regarding this 

proposed rule change, all in support. 

SBA is amending this section as 

proposed. 

Section 120.400 Loan Guarantee 

Agreements. Section 120.400 includes a 

cross reference to §§ 120.441(b) and 

120.451(d). SBA proposed to delete 

these sections and is deleting both in 

this final rule. In addition, SBA 

proposed revisions to § 120.440, which 

it is adopting as proposed with a minor 

modification. Accordingly, SBA is 

revising the cross reference in § 120.400 

to read ‘‘See also 120.440(c) concerning 

Supplemental Guaranty Agreements.’’ 

Although this revision was not included 

in the proposed rule, SBA is revising 

§ 120.400 to correct this inadvertent 

omission from the proposed rule. 

Multiple Sections—On-Site/Off-Site 

Reviews for 7(a) Lenders, CDCs and 

Microloan Intermediaries 

(‘‘Intermediaries’’). Due to SBA’s 

improved electronic methods, virtual 

reviews, such as Analytical Reviews, 

may cover much of what was previously 

performed in the scope of ‘‘on-site’’ 

reviews, diminishing the distinction 

between ‘‘off-site’’ and ‘‘on-site’’ 

reviews and allowing for more costeffective reviews. Therefore, SBA 

proposed to remove all references to 

‘‘on-site’’ reviews in §§ 120.410(a)(2), 

120.424(b), 120.433(b), 120.434(c), 

120.630(a)(5), 120.710(e)(1), 120.812(c), 

120.816(c), 120.839, 120.841(c), 

120.1050, 120.1051, 120.1070 and 

120.1400(c)(4). SBA will retain the term 

‘‘review/examination assessments’’ in 

these regulations. SBA also proposed to 

replace references to ‘‘off-site’’ reviews 

and monitoring with ‘‘monitoring’’ in 

§§ 120.1025 and 120.1051(a). SBA 

received eight comments on the 

proposed changes, with no objections. 

SBA is amending the specified 

sections to remove the terms ‘‘on-site’’ 

and ‘‘off-site’’ as proposed. 

SBA proposed and is adopting 

replacement of the term ‘‘Good 

Standing’’ with ‘‘Satisfactory’’ as it 

relates to a Lender’s status with its other 

Federal regulators in §§ 120.410(e), 

120.630(a)(4), and 120.1703(a)(4). SBA 

will determine if a Lender is considered 

‘‘Satisfactory’’ by its other regulators 

based on, for example, information in 

published orders/agreements and call 

reports. Eight commenters provided no 

objection to the proposed changes. 

Undesignated Center Heading—The 

Certified Lenders Program. SBA is 

adopting the proposed rule change to 

the heading immediately following 

§ 120.435 in Subpart D—Lenders as 

proposed. SBA is removing ‘‘Certified 

Lenders Program (CLP)’’ and inserting 

in its place ‘‘Delegated Authority 

Criteria.’’ There were eight comments 


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39496 Federal Register / Vol. 82, No. 160 / Monday, August 21, 2017 / Rules and Regulations 

received on this change with no 

objections. 

Section 120.440 The Certified 

Lenders Program. SBA is adopting the 

proposed rule change to remove the 

heading and remove §§ 120.440 and 

120.441 as proposed. Implementation of 

more efficient technology-based 

processing, closing, servicing, and 

liquidation render this delivery method 

unnecessary and obsolete. SBA will 

remove the existing CLP language and 

insert guidance for Delegated Authority 

Criteria (see addition of Delegated 

Authority Criteria below). SBA received 

eight comments on this proposed 

change with no objections. 

New Section 120.440 How does a 

7(a) Lender obtain delegated authority? 

SBA is adopting the proposed rule 

change adding the criteria for initial 

approval or renewal of delegated 

authority in this section as proposed 

with a minor modification to the 

heading as discussed below. As stated 

in the preamble to the Notice of 

Proposed Rulemaking, these criteria are 

essentially identical to the criteria 

currently included in SBA’s SOP 50 10 

5(I), Subpart A for the 7(a) Loan 

Program delegated authorities (e.g., PLP 

(including PLP–EWCP), SBA Express 

and Export Express Programs). In 

applying these criteria when processing 

requests for PLP–EWCP authority, SBA 

will continue to also consider 

experience in providing trade finance to 

exporters and active participation in 

SBA’s EWCP program. In addition, for 

lenders participating in the Delegated 

Authority Lender Program of the ExportImport Bank (or any successor Program), 

such lenders are eligible to participate 

in the PLP–EWCP Program, pursuant to 

15 U.S.C. 636(a)(2)(C). SBA received a 

detailed comment and 

recommendations from a trade 

association as well as seven other 

comments supporting the trade 

association’s position. The trade 

association commented they have no 

objection to the inclusion in regulations 

of the criteria for a Lender to obtain 

delegated authority and noted the listed 

criteria is similar to that currently 

provided in other SBA Loan Program 

Requirements. However, the trade 

association objected to paragraph (b) of 

the proposed section, which states 

delegated authority decisions are final. 

The trade association strongly 

recommended SBA provide a 

mechanism by which a Lender, if it is 

denied delegated authority, could 

provide SBA with additional 

information to overcome and 

administratively appeal such decision. 

SBA reviewed the suggested 

modification and determined that an 

additional appeal of SBA’s decision to 

deny a Lender delegated authority is not 

necessary because, if delegated 

authority is declined, the Lender will 

still be able to process loans on a nondelegated basis and, when the Lender 

has overcome the reasons for the 

decline, it may re-apply. SBA is 

amending the regulation as proposed 

with a slight modification in the 

heading to clarify this section applies to 

7(a) Lenders. 

Section 120.441 How does a Lender 

become a CLP Lender? SBA is removing 

and reserving § 120.441 as proposed. 

SBA received eight comments, all in 

support of the proposed change. 

Section 120.451 How does a Lender 

become a PLP Lender? SBA is removing 

and reserving § 120.451 as proposed. 

The process for lenders to obtain 

delegated authority for the 7(a) program, 

which includes Preferred Lender 

Program authority, will be set forth in 

§ 120.440 pursuant to this final rule. 

There is no longer a need for the 

specific regulation at § 120.451. SBA 

received eight comments, all of which 

provided no objection to the proposed 

change. 

Section 120.524 When is SBA 

released from liability on its guarantee? 

In this regulation, SBA proposed to 

clarify its rights to collect monies paid 

on a guaranty from which the Agency 

determines it has been released of 

liability. This includes judicial remedies 

and the right to offset funds due the 

Lender for the guaranty purchase of 

another loan. SBA’s right to seek these 

remedies arises under contract law as 

interpreted by the courts. SBA received 

eight comments on this proposed 

change, all of which supported the 

rights provided to SBA under the 

proposed language. The eight 

commenters supported the proposed 

language; however, they recommended 

the language be amended to state such 

remedies will only be undertaken if all 

other attempts to collect from the lender 

have failed. Commenters also noted 

SBA is removing the specific language 

‘‘responsible for those events’’ in 

paragraph (b) and requested an 

explanation of this specific change. 

The Agency’s ability to recover on a 

loan guaranty is not limited to the 

actions of the current holder of the Note. 

For example, when a Lender acquires a 

guaranteed loan from another lender, 

the acquiring lender is ultimately 

responsible for any action resulting in a 

loss on the loan, whether the loss is the 

result of its actions or inaction, or the 

actions or inaction of the original 

lender. SBA is amending this section as 

proposed. 

Section 120.660 Suspension or 

revocation. SBA is adopting the 

proposed rule change in § 120.660(a) to 

provide that decisions regarding a 

temporary suspension or revocation of a 

Lender from SBA’s Secondary Market 

under this regulation be made jointly by 

the Director, Office of Financial 

Assistance (D/FA) and the Director, 

Office of Credit Risk Management (D/ 

OCRM). SBA received comments from 

eight commenters regarding the 

provisions in this proposed regulation; 

all registered no objection to the change. 

In addition, SBA is adopting as 

proposed a limit of no more than 120 

calendar days for temporary 

suspensions under this regulation, and 

no more than two years under this 

regulation for temporary revocations of 

the privilege of a Lender, broker, dealer 

or Registered Holder to sell, purchase, 

broker or deal in loans or Certificates in 

SBA’s Secondary Market. All eight 

commenters registered support for the 

timeframes in the proposed rule. 

In § 120.660(a)(1)(ii), SBA is removing 

references to SBA Form 1085 from the 

current regulation, as proposed. SBA 

Form 1085 is no longer in use in the 7(a) 

Loan Program. SBA received only one 

comment and it was in support of the 

change. In § 120.660(a)(3), SBA is 

adding additional reasons under which 

SBA may temporarily suspend or revoke 

a Lender’s privilege to participate in 

SBA’s Secondary Market. As proposed, 

SBA may temporarily suspend or revoke 

a Lender from participation in SBA’s 

Secondary Market when (1) a Lender 

receives from its primary Federal or 

state regulator (including SBA): (a) A 

cease and desist order; (b) a consent 

agreement affecting capital or 

commercial lending issues; or (c) a 

supervisory action citing unsafe or 

unsound banking practices or other 

items of concern to SBA that may create 

potential risk to SBA through loan sales; 

or (2) a Lender receives a going concern 

opinion issued by its auditor. SBA 

received eight comments all of which 

supported the proposed change with 

some modifications. The suggested 

modifications centered on better 

defining the phrase, ‘‘other items of 

concern to SBA . . .’’ and the 

practicality of providing SBA with 

notice within five business days from 

the issuance of the regulatory action or 

going concern opinion. SBA wants to 

avoid situations in which current 

supervisory actions from a Federal or 

state regulator are renamed, or new 

actions involving unsafe or unsound 

lending practices are created and are 

disclosed, but are not expressly listed in 

the SBA regulation. 


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SBA considered the comments 

provided. SBA has modified the text to 

provide a more complete explanation of 

supervisory actions which are 

subsequently renamed or have yet to be 

defined. This ensures that the grounds 

for temporary suspension or termination 

from SBA’s Secondary Market are not 

limited by the prevailing terminology 

used by Federal or state regulators. 

Regarding the practicality of a Lender 

providing SBA notice, commenters 

raised the issue of disclosure of nonpublic supervisory actions and the date 

by which the required disclosure of 

public supervisory actions should be 

measured. At this time, Lenders will be 

required to notify SBA only for public 

actions. 

SBA also modified the final rule to 

define the required notification date to 

SBA as five business days (or as soon as 

practicable thereafter) from the date that 

the regulatory action is placed into the 

public domain. This will establish a 

verifiable benchmark for when notice 

from the Lender is due to SBA. Note, 

SBA does not intend to require a Lender 

to disclose a non-public supervisory 

action unless SBA notifies the Lender 

that SBA has either an agreement with 

or consent from the regulator issuing the 

action. Lenders receiving a going 

concern opinion will have five business 

days (or as soon as practicable 

thereafter) from the date of the auditor’s 

letter indicating a going concern 

opinion to provide written notice to 

SBA. 

SBA also proposed to add a new 

paragraph (d) to this section to provide 

for early termination of a temporary 

suspension or revocation at the joint 

discretion of the D/FA and the D/ 

OCRM, if warranted for good cause. 

SBA received eight comments regarding 

this proposed change, all in support, 

and SBA is adding the paragraph as 

proposed. 

Section 120.823 CDC Board of 

Directors. SBA proposed to revise 

§ 120.823(c)(5) to eliminate the language 

that prevents a CDC Board member from 

serving on the board of another entity, 

except for civic or charitable 

organizations not involved in financial 

services or economic development. SBA 

received 15 comments in support of this 

proposed change. 

SBA also proposed in 

§ 120.823(d)(4)(ii)(C) to clarify that 

individuals serving on the Loan 

Committee of a CDC do not have to be 

members of the CDC or the CDC’s Board 

of Directors. SBA received 15 comments 

regarding this proposed change, all in 

support. Twelve of the commenters 

recommended § 120.823(d)(4)(ii)(A) also 

be revised for consistency with the 

proposed revision in 

§ 120.823(d)(4)(ii)(C). SBA considered 

these comments and agrees that 

individuals who are not CDC members, 

shareholders, or Board members may be 

appointed by the Board of Directors to 

serve on the Loan Committee provided 

that the individual has background and 

expertise in financial risk management, 

commercial lending, or legal issues 

relating to commercial lending and is 

not associated with another CDC. 

In order to ensure consistency in this 

section on Loan Committees, SBA will 

revise paragraphs (d)(4)(ii)(A), 

(d)(4)(ii)(B), (d)(4)(ii)(C) and (d)(4)(ii)(E) 

references to members of the Loan 

Committee. SBA will revise the terms 

‘‘member’’ and ‘‘committee member’’ in 

this section to read ‘‘Loan Committee 

member’’. 

SBA also received one comment 

requesting reconsideration of SBA’s 

general prohibition in § 120.820 against 

a CDC having an affiliation with a 7(a) 

Lender now that CDCs may offer 7(a) 

loans under the Community Advantage 

Pilot Program. Community Advantage is 

currently a pilot program—for which 

SBA has granted a regulatory waiver of 

the affiliation prohibition. SBA is not 

considering changes to this general 

prohibition at this time, and is adopting 

the changes to this section as described 

above. 

Section 120.839 Case-by-case 

application to make a 504 loan outside 

of a CDC’s Area of Operations. SBA 

proposed to replace the term ‘‘District 

Offices’’ in this section with ‘‘504 loan 

processing center’’ to reflect the SBA 

office that processes 504 loan 

applications. SBA received 13 

comments supporting this change. One 

of the 13 commenters expressed concern 

with removing the District Office from 

the decision process. The commenter 

noted that a District Office may have 

local insights on markets not available 

to the 504 loan processing center. 

However, as explained in the preamble 

to the proposed rule, SBA is making this 

change to reflect the SBA office that 

processes 504 loan applications. 

Although SBA is not making any 

changes to the rule as proposed, the 504 

loan processing center may consider 

input from the local District Office 

when making such a determination to 

allow a CDC to make a loan outside of 

its Area of Operations. 

Section 120.884 Ineligible costs for 

504 loans. SBA is amending this section 

to define heavy duty construction 

equipment in § 120.884(e)(3) without 

reference to the IRS definition because 

the IRS no longer publishes a definition 

for ‘‘capital equipment.’’ SBA is adding 

the requirement that the equipment 

have a remaining useful life of at least 

10 years. SBA received one comment on 

this section which supported the 

change, yet expressed concern about 

adding a useful life requirement. In 

order to be consistent with the overall 

purpose of the 504 program, SBA will 

only permit the financing of 

construction equipment if it is heavy 

duty construction equipment integral to 

the business’ operations with a 

remaining useful life of at least 10 years. 

Section 120.1060 Confidentiality of 

Reports, Risk Ratings and related 

Confidential Information. SBA proposed 

a limited expansion of its definition in 

§ 120.1060 of ‘‘permitted parties’’ to 

include a party who demonstrates a 

legitimate need to know Review/Exam 

Report information, Risk Rating, and 

Confidential Information for the 

purpose of assisting in improving an 

SBA Lender’s, Intermediary’s or NonLending Technical Assistance 

Provider’s (NTAP’s) SBA program 

operations in conjunction with SBA’s 

Lender Oversight Program and SBA’s 

portfolio management. This limited 

expansion of permitted parties may 

include the lender’s parent entity, 

directors, auditors and those lender 

consultants under written contract 

specifically to assist the Lender in 

addressing SBA Findings and Corrective 

Actions Required to SBA’s satisfaction. 

Consultants do not include Lender 

Service Providers. The change codifies 

SBA’s practice of approving disclosure 

of Reports, Risk Rating, and 

Confidential Information for the 

expanded group of permitted parties, 

obviating the need for case-by-case 

approval and the use of a 

Confidentiality Agreement for these 

parties going forward. SBA received 

eight comments in support of this 

proposed change. Commenters 

suggested that it may also be 

appropriate for SBA to consider 

allowing Lenders to share SBA reports 

and other oversight information with 

their regulators in order to improve the 

overall quality of the program. 

Generally, SBA manages information 

sharing with other regulators on a caseby-case basis and in conjunction with 

agency-to-agency information sharing 

agreements. If a Lender’s other regulator 

requests § 120.1060 information, the 

Lender should refer the regulator to 

SBA. SBA is adopting the change to this 

section as proposed. 

Section 120.1070 Lender oversight 

fees. SBA proposed to amend this 

section to categorize the fee components 

as Examinations, Reviews, Monitoring, 

and Other Lender Oversight Activities. 

The proposed section also provided that 

SBA has discretion in how it allocates 


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lender oversight costs to Lenders to 

allow contracting flexibility in how SBA 

pays for this cost and the fair and 

efficient allocation of costs to Lenders. 

The change specifies, consistent with 

SBA’s current practice and current 

contracts, that, in general, where the 

costs that SBA incurs for the oversight 

activity are specific to a Lender, SBA 

will charge that Lender for the actual 

costs. Where the costs SBA incurs for 

the oversight activity are not sufficiently 

specific to a particular Lender and a flat 

fee is paid to a vendor, SBA may charge 

a Lender based on that Lender’s portion 

of SBA guaranties in the portfolio or 

segment of the portfolio that the activity 

covers. SBA received nine comments 

regarding the proposed change. One 

commenter suggested SBA change the 

use of the word ‘‘Lender’’ to ‘‘SBA 

Lender,’’ which is a defined term in the 

regulations. The term ‘‘SBA Lender’’ is 

defined as 7(a) Lenders and CDCs in 13 

CFR 120.10. This regulation only 

applies to 7(a) Lenders in accordance 

with 15 U.S.C. 634(b)(14). Therefore, 

SBA is not adopting the suggestion to 

use ‘‘SBA Lender’’ in this regulation. 

Another commenter, a trade 

association, joined by seven other 

commenters, stated that, while they 

have no objection to the proposed 

change, they have concerns that SBA 

has virtually no incentive to limit the 

costs that it imposes on program 

participants for the review function. The 

trade association expressed concern that 

increasing oversight costs could, at 

some point, make program participation 

too expensive for some lenders, thus 

limiting small business’ access to 

critically needed capital. The trade 

association recommended that SBA 

continue to find ways to make the 

OCRM review function as cost-effective 

as possible for SBA and for program 

participants. 

SBA disagrees that it has little 

incentive to limit the costs of lender 

oversight. SBA is committed to 

developing and operating a robust risk 

management program at the most 

efficient cost possible and to reducing 

costs where possible. SBA will continue 

to minimize its oversight costs and the 

fees it charges program participants 

through competitive bidding processes, 

using fixed price contracts where 

appropriate, contract monitoring, and 

efficiently coordinating the work with 

its contractors. 

In addition, one commenter requested 

that SBA publish its lender oversight 

fees annually. SBA lender oversight fees 

do not always change from year-to-year, 

so it may not be necessary to publish 

each fee every year. However, generally, 

when a lender oversight fee changes, 

SBA communicates the fees to all 7(a) 

Lenders via SBA notice. SBA is 

adopting this section as proposed. 

Section 120.1400 Grounds for 

enforcement actions—SBA Lenders. 

SBA proposed to amend § 120.1400(a) to 

provide that by making 7(a) guaranteed 

loans or 504 loans after a certain date, 

SBA Supervised Lenders (except Other 

Regulated Small Business Lending 

Companies (SBLCs)) or CDCs, as 

applicable, consent to the appointment 

of a receiver and such injunctive relief 

or other equitable relief as appropriate, 

and waive in advance any defenses to 

such relief as sought by SBA, in 

connection with an enforcement action. 

There were responses from 27 

commenters concerning the proposed 

changes in this section. There were 

eight commenters in support of the 

changes. However, there were some 

concerns that SBA continues to cite 

SBA Form 750, Loan Guaranty 

Agreement (Deferred Participation), as 

the document that Lenders should rely 

on as ‘‘fully’’ setting forth 7(a) Loan 

Program Requirements, considering that 

the current version of the SBA Form 750 

in use is outdated and may not be 

reflective of current policy and SBA 

Loan Program Requirements. There 

were eight commenters who were 

concerned about the SBA’s intention 

when imposing a prior waiver 

provision—that is, whether the SBA 

Supervised Lender or CDC would be 

waiving only its defenses against having 

SBA bring the matter before the court, 

or whether it also would be waiving all 

of its defenses with respect to all of the 

actions that SBA may be seeking to 

enforce against the SBA Supervised 

Lender or CDC, and sought additional 

clarification on this point. 

There were 18 commenters who 

voiced objection to the proposed 

language as overly broad and not 

necessary under the current regulations. 

The objecting commenters stated that, 

while they agree SBA has a right to 

regulate the 504 Loan Program, they 

believe that the right of SBA to appoint 

an uncontested receiver for an SBA 

Supervised Lender or CDC over-reaches 

the SBA’s regulatory authority over 

these entities. The objectors believe the 

language in the proposed rule is 

unnecessarily broad in that it seeks to 

include a waiver of any and all defenses 

an SBA Supervised Lender or CDC may 

validly raise to an enforcement action 

by the SBA. Additionally, the 

commenters stated that while SBA may 

be able to manage and service the SBA 

loan portfolio, they believe SBA has no 

interest in managing and servicing the 

non-SBA loans of a CDC or an SBA 

Supervised Lender that is a NonFederally Regulated Lender or managing 

the contracts CDCs may have with their 

state, city, or other governmental 

organizations. 

SBA considered the receivership 

comments concerning SBA Supervised 

Lenders and CDCs, but determined that 

the proposed provisions that allow SBA 

to seek receiverships by consent will 

provide the Agency added flexibility in 

protecting and safeguarding the security 

and integrity of these federally funded 

loan programs. SBA is conditioning its 

guarantee of 7(a) loans made by SBA 

Supervised Lenders (except Other 

Regulated SBLCs) and 504 debentures 

after a certain date on consent to this 

relief in connection with an 

enforcement action because the injury to 

SBA and its supervision and regulatory 

oversight of the SBA Supervised Lender 

or CDC due to the SBA Supervised 

Lender’s or CDC’s default under its 

agreement(s) with SBA would be 

irreparable and the amount of damage 

would be difficult to ascertain, making 

this relief necessary. Consent to 

receivership is not without precedent in 

Federal agency practice and has been 

upheld by the courts as valid and legally 

enforceable. SBA identified an example 

of such a case in the proposed rule, U.S. 

v. Mountain Village Company, 424 F. 

Supp. 822 (D. Mass. 1976). The consent 

to receivership does not mandate the 

appointment of a receiver in connection 

with every enforcement action. SBA 

will review the facts and circumstances 

of the enforcement action when 

deciding whether or not to seek the 

appointment of a receiver and in 

determining the scope of the receiver’s 

duties and powers, including whether 

the receiver’s duties and powers will be 

limited to taking possession of, 

servicing and/or selling or transferring 

the 7(a) or 504 loan portfolios. 

After careful consideration of 

comments, SBA believes that it is in the 

best interests of the taxpayers for SBA 

to have the added flexibility of seeking 

receiverships, if necessary or 

appropriate, when taking enforcement 

actions. However, in response to 

comments, SBA has revised the 

language of the proposed rule to clarify 

that along with the consent to the 

remedies in §§ 120.1500(c)(3) or 

120.1500(e)(3), the SBA Supervised 

Lender or CDC waives in advance any 

right to contest the validity of the 

appointment of a receiver. SBA has not 

adopted the proposed regulatory text 

providing for a waiver in advance of any 

defenses to the relief sought by SBA. 

Section 120.1500 Types of 

enforcement actions—SBA Lenders. 

SBA proposed to revise the language 

permitting the Agency to initiate a 


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request for the appointment of a receiver 

of an SBA Supervised Lender in 

§ 120.1500(c)(3) and proposed to add 

language permitting SBA to initiate a 

request for the appointment of a receiver 

of a CDC in § 120.1500(e)(3). After 

careful consideration of comments 

received, SBA believes that it is in the 

best interests of the taxpayers for the 

Agency to have the added flexibility of 

seeking receiverships, if necessary or 

appropriate, when taking enforcement 

actions. SBA has therefore determined 

that it will amend this section as 

proposed. There were responses from 27 

commenters concerning the proposed 

changes in this section. There were 19 

commenters who voiced objection to the 

proposed language as overly broad and 

not necessary under the current 

regulations. Again, the objecting 

commenters provided that, while they 

agree SBA has a right to regulate its loan 

programs, they believe that the right of 

SBA to appoint an uncontested receiver 

for a CDC over-reaches the SBA’s 

regulatory authority over these entities. 

While the objectors did support the 

need for proper oversight and 

supervision of SBA Supervised Lenders 

and CDCs, they also believe that SBA 

Supervised Lenders and CDCs should be 

afforded their constitutional right to 

notice and a hearing before being 

deprived of their property rights and 

interests. SBA considered the 

constitutional issue of due process/ 

waiver of notice. Consent to 

receivership in favor of Federal 

agencies—including without notice— 

has been upheld in Federal court as 

valid, enforceable and meeting 

constitutional due process. SBA 

identified an example of such a case in 

the proposed rule, U.S. v. Mountain 

Village Company, supra. 

As stated above, SBA considered the 

receivership comments concerning SBA 

Supervised Lenders and CDCs, but 

determined that the proposed 

provisions that allow SBA to seek 

receiverships by consent will provide 

the Agency with added flexibility in 

protecting and safeguarding the security 

and integrity of these federally funded 

loan programs. SBA is conditioning its 

guarantee of 7(a) loans made by SBA 

Supervised Lenders (except Other 

Regulated SBLCs) and 504 debentures 

after a certain date on consent to this 

relief in connection with an 

enforcement action because the injury to 

SBA and its supervision and regulatory 

oversight of the SBA Supervised Lender 

or CDC due to the SBA Supervised 

Lender’s or CDC’s default under its 

agreement(s) with SBA would be 

irreparable and the amount of damage 

would be difficult to ascertain, making 

this relief necessary. The consent to 

receivership does not mandate the 

appointment of a receiver in connection 

with every enforcement action. SBA 

will review the facts and circumstances 

of the enforcement action when 

deciding whether or not to seek the 

appointment of a receiver and in 

determining the scope of the receiver’s 

duties and powers, including whether 

the receiver’s duties and powers will be 

limited to taking possession of, 

servicing and/or selling or transferring 

the 7(a) or 504 loan portfolios. 

Section 120.1600 General 

procedures for enforcement actions 

against SBA Lenders, SBA Supervised 

Lenders, Other Regulated SBLCs, 

Management Officials, Other Persons, 

Intermediaries, and NTAPs. SBA 

proposed to add language regarding the 

procedures for the appointment of a 

receiver over a CDC or an SBA 

Supervised Lender in §§ 120.1600(a), 

120.1600(a)(6) and 120.1600(b)(4). The 

proposed amendments allow SBA to 

follow applicable procedures under 

Federal law to obtain the appointment 

of a receiver and to enforce an SBA 

Supervised Lender’s or CDC’s consent 

and waiver in advance. The comments 

that SBA received on this section 

repeated the comments received on 

§§ 120.1400 and 120.1500. SBA 

considered the comments received on 

this section, and for the reasons stated 

above in response to the comments 

received on §§ 120.1400 and 120.1500, 

SBA has determined the proposed 

amendments to § 120.1600 will provide 

the Agency added flexibility in 

protecting and safeguarding the security 

and integrity of the federally funded 7(a) 

and 504 Loan Programs. SBA is 

amending this section as proposed. 

Section 120.1707 Seller’s retained 

Loan Interest. SBA proposed to replace 

the execution of a new First Lien 

Position 504 Loan Pool Guarantee 

Agreement with an allonge. This would 

obligate the purchaser of a Seller 

Receipt in the First Lien Position 504 

Loan Pooling (‘‘FMLP’’) Program to the 

same terms and conditions of the First 

Lien Position 504 Loan Pool Guarantee 

Agreement. No comments were 

received. SBA is adopting the change 

into the final rule as proposed. 

Subpart K—Establishment of an SBA 

Direct Loan Program for Systemically 

Important Secondary Market BrokerDealers (SISMBD Loan Program). SBA 

proposed to remove §§ 120.1800 

through 120.1900. These regulations 

relate to rules which establish a 

temporary, short-term loan program for 

systemically-important secondary 

market broker-dealers. Sections 

120.1800–120.1893 set forth the 

program participation criteria and the 

conditions under which qualified 

participants could obtain secured debt 

financing from SBA. Section 120.1900 

established a sunset date for the 

program of no later than February 16, 

2011, with all loan proceeds due to be 

paid in full by no later than February 

16, 2013. SBA received seven comments 

on its proposal to remove these 

regulations. All commenters supported 

the removal of the regulation and, as a 

result, SBA is removing these 

regulations in the Final Rule. 

Compliance with Executive Orders 

12866, 12988, 13132, 13563, 13771, and 

13777, the Paperwork Reduction Act (44 

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

Flexibility Act (5 U.S.C. 601–612). 

Executive Order 12866 

This final rule is the result of a 

proposed rule that the Office of 

Management and Budget (OMB) 

determined is not a ‘‘significant’’ 

regulatory action for the purposes of 

Executive Order 12866. This is not a 

major rule under the Congressional 

Review Act, 5 U.S.C. 800. 

Executive Order 12988 

This action meets applicable 

standards set forth in sections 3(a) and 

3(b)(2) of Executive Order 12988, Civil 

Justice Reform, to minimize litigation, 

eliminate ambiguity, and reduce 

burden. The action does not have 

retroactive or preemptive effect. 

Executive Order 13132 

SBA has determined that this final 

rule will not have substantial, direct 

effects on the States, on the relationship 

between the national government and 

the States, or on the distribution of 

power and responsibilities among the 

various levels of government. Therefore, 

for the purposes of Executive Order 

13132, SBA has determined that this 

proposed rule has no federalism 

implications warranting preparation of a 

federalism assessment. 

Executive Order 13563 

SBA’s Business Loan Programs 

operate through the Agency’s lending 

partners, which are 7(a) Lenders for the 

7(a) Loan Program, Third Party Lenders 

and CDCs for the 504 Loan Program, 

Microloan Intermediaries for the 

Microloan Program, and ILP 

Intermediaries for the ILP Program. 

SBA’s SBG Program operates through 

Surety Bond Companies. The Agency 

has participated in public forums and 

meetings which have included outreach 

to hundreds of its lending partners and 

surety bond companies to seek valuable 


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39500 Federal Register / Vol. 82, No. 160 / Monday, August 21, 2017 / Rules and Regulations 

insight, guidance, and suggestions for 

program reform. 

Executive Orders 13771 and 13777 

On January 30, 2017, President Trump 

signed Executive Order 13771, Reducing 

Regulation and Controlling Regulatory 

Costs, which, among other objectives, is 

intended to ensure that an agency’s 

regulatory costs are prudently managed 

and controlled so as to minimize the 

compliance burden imposed on the 

public. For every significant regulation 

an agency proposes to implement, this 

Executive Order requires the agency to 

(i) identify at least two existing 

regulations that the agency can cancel; 

and (ii) use the cost savings from the 

cancelled regulations to offset the cost 

of the new regulation. On February 24, 

2017, the President issued Executive 

Order 13777, Enforcing the Regulatory 

Agenda, which further emphasized the 

goal of the Administration to alleviate 

the regulatory burdens placed on the 

public. Under Executive Order 13777, 

agencies must evaluate their existing 

regulations to determine which ones 

should be repealed, replaced, or 

modified. In doing so, agencies should 

focus on identifying regulations that, 

among other things, eliminate jobs or 

inhibit job creation; are outdated, 

unnecessary or ineffective; impose costs 

that exceed benefits; create a serious 

inconsistency or otherwise interfere 

with regulatory reform initiatives and 

policies; or implemented Executive 

Orders or other Presidential directives 

that have been rescinded or 

substantially modified. SBA has 

reviewed this final rule in light of these 

two new Executive Orders. 

Regulation elimination as proposed 

for this rule will eliminate duplication 

of effort costs for sureties, lenders and 

certified development companies to 

develop computerized forms and sunsets two prior SBA initiatives the CLP 

lender designations and the SBA 

Director Program for Systematically 

Important Secondary Market BrokerDealers (SISMD Loan Program). The cost 

savings of sun-setting the two programs 

have already been absorbed by SBA so 

no further cost savings is anticipated. 

The final rule increases the Quick 

Bond eligible contract limit in § 115.30 

from $250,000 to $400,000. This action 

reduces administrative burden that 

results in cost savings to the sureties. 

The following 29 regulations are 

removed as of the publication of this 

Federal Register document: 

(1) 13 CFR 120.194 Use of computer 

forms 

(2) 13 CFR 120.441 How does a 

Lender become a CLP Lender 

Subpart K—Establishment of an SBA 

Direct Program for Systematically 

Important Secondary Market BrokerDealers (SISMD Loan Program) which 

consists of the following regulations: 

(3) 13 CFR 120.1800 Definitions 

used in subpart K 

(4) 13 CFR 120.1801 Program 

Purpose 

(5) 13 CFR 120.1802 How does a 

broker-dealer participate in the SISMID 

Loan Program? 

(6) 13 CFR 120.1810 What is a 

Systematically Important SBA 

Secondary Market Broker-Dealer 

(SISMBD)? 

(7) 13 CFR 120.1820 What are the 

basic eligibility requirements for SBA 

designation as a Systemically Important 

Secondary Market Broker-Dealer? 

(8) 13 CFR 120.1821 What is the 

process to obtain designation as a 

Systematically Important Secondary 

Market Broker-Dealer? 

(9) 13 CFR 120.1822 What is the 

process to apply for an SISMBD Loan? 

(10) 13 CFR 120.1823

Creditworthiness 

(11) 13 CFR 120.1824 How will an 

SISMBD receive notice of an approval of 

denial of a loan or request for an 

advance under an SISMBD Loan? 

(12) 13 CFR 120.1825 May an 

SISMBD request reconsideration after 

denial? 

(13) 13 CFR 120.1830 What are the 

terms and conditions of an SBA loan to 

an SISMBD? 

(14) 13 CFR 120.1831 Is there a limit 

to the number of SISMBD Loans or 

advances that an SISMBD may request 

from SBA? 

(15) 13 CFR 120.1832 What is the 

minimum and maximum SISMBD Loan 

advance amount? 

(16) 13 CFR 120.1833 May an 

SISMBD request an increase in the loan 

amounts? 

(17) 13 CFR 120.1834 What fees are 

associated with an SISMBD Loan? 

(18) 13 CFR 120.1840 What are the 

allowable uses of proceeds of an 

SISMBD Loan? 

(19) 13 CFR 120.1850 Will the 

Collateral be held by SBA? 

(20) 13 CFR 120.1860 How will the 

SISMBD Loan be disbursed? 

(21) 13 CFR 120.1870 How does the 

SISMBD provide funds for the 

Premium? 

(22) 13 CFR 120.1880 How will the 

loan be repaid? 

(23) 13 CFR 120.1881 How are 

payments on the Collateral allocated 

between the SISMBD borrower and 

repayment of the SISMBD Loan? 

(24) 13 CFR 120.1882 What happens 

if funds to make required loan payments 

are not generated from the Collateral? 

(25) 13 CFR 120.1890 What is the 

maturity on a SISMBD Loan from SBA? 

(26) 13 CFR 120.1891 What happens 

if an SISMBD is ineligible to receive an 

SISMBD Loan or an adverse? 

(27) 13 CFR 120.1892 What happens 

if an SISMBD does not use SISMBD 

Loan funds for a statutorily mandated 

purpose? 

(28) 13 CFR 120.1893 Data 

collections and reporting 

(29) 13 CFR 120.1900 When does the 

Secondary Market Lending Authority 

Program end? 

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

Ch. 35 

SBA has determined that this final 

rule imposes additional reporting 

requirements under the Paperwork 

Reduction Act (PRA). As described 

above, SBA proposed to require all 

participating sureties to notify SBA of 

all contracts that were successfully 

completed on a quarterly basis. SBA 

invited the public to comment on this 

proposed new report and to submit any 

comments by October 11, 2016. 

SBA invited comments on: (1) 

Whether the proposed collection of 

information is necessary for the proper 

performance of SBA’s functions, 

including whether the information will 

have a practical utility; (2) the accuracy 

of SBA’s estimate of the burden of the 

proposed collection of information, 

including the validity of the 

methodology and assumptions used; (3) 

ways to enhance the quality, utility, and 

clarity of the information to be 

collected; and (4) ways to minimize the 

burden of the collection of information 

on respondents, including through the 

use of automated collection techniques, 

when appropriate, and other forms of 

information technology. Three 

comments were received related to the 

requirement of this proposed form. A 

discussion of the comments received is 

included in the section-by-section 

analysis of § 115.22. As stated above, 

SBA considered the comments, but will 

proceed with requiring the form as 

proposed. SBA will submit the final 

form and other documents required 

under the Paperwork Reduction Act to 

OMB for review and approval. 

A summary description of this 

information collection, the respondents, 

and the estimate of the annual hour 

burden resulting from this new process 

is provided below. Included in the 

estimate is the time for reviewing 

instructions, searching existing data 

sources, gathering information needed, 

and completing and reviewing the 

responses. 

Title: Quarterly Contract Completion 

Report (SBA Form 2461). 


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Description: The Quarterly Contract 

Completion Report will be submitted by 

all participating surety companies to 

provide SBA with information about 

successfully completed contracts. The 

information reported will include the 

Surety Bond Guarantee number, the 

name of the Principal, the original 

Contract dollar amount, the revised 

Contract dollar amount (if applicable), 

the date of Contract completion, and a 

fee recap. Reports will be due to SBA 

within 45 days of each fiscal quarter 

end. 

OMB Control Number: 3245–0395. 

Description of and Estimated Number 

of Respondents: The collection will be 

submitted by the surety companies that 

participate in the SBG Program. The 

burden estimate for this requirement is 

based on the 30 current participants. 

Estimated Number of Responses: Each 

of the estimated 30 sureties would be 

required to submit the report to SBA 

four times per year, for a total of 120 

responses. 

Estimated Response Time: It is 

estimated that each surety would need 

approximately one hour to complete the 

proposed report. 

Total Estimated Annual Hour Burden: 

120 hours. 

Estimated Annual Cost Burden: 

$6,005. 

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

612 

When an agency issues a rulemaking 

proposal, the Regulatory Flexibility Act 

(RFA), 5 U.S.C. 601–612, requires the 

agency to ‘‘prepare and make available 

for public comment an initial regulatory 

analysis’’ which will ‘‘describe the 

impact of the proposed rule on small 

entities.’’ Section 605 of the RFA allows 

an agency to certify a rule, in lieu of 

preparing an analysis, if the proposed 

rulemaking is not expected to have a 

significant economic impact on a 

substantial number of small entities. 

Currently, there are 30 Sureties that 

participate in the SBG Program, and no 

part of this rule would impose any 

significant cost or burden on them. 

Although the rulemaking will impact all 

of the approximately 6,000 7(a) Lenders 

(some of which are small), all of the 

approximately 230 CDCs (all of which 

are small), all of the approximately 145 

Microloan Intermediaries (most of 

which are small), and all of the 

approximately 35 ILP Intermediaries 

(most of which are small), SBA does not 

believe the impact will be significant. 

This rule will reduce the burden of the 

Agency’s lending partners because they 

choose their own level of program 

participation (i.e., 7(a) Lenders and 

CDCs are not required to process more 

loan applications simply because there 

is a reduced burden for small businesses 

to apply for a business loan). Therefore, 

the proposed modernization of certain 

program participation requirements 

would not have a substantial economic 

impact or cost on the small business 

borrower, lender, or CDC, and in fact, 

may reduce costs to lender participants. 

SBA’s final rule encompasses clear 

and transparent best practice guidance 

that aligns with the Agency’s mission to 

increase access to capital for small 

businesses and facilitate American job 

preservation and creation by removing 

unnecessary regulatory requirements. A 

review of the summary and preamble 

provides more detailed discussion on 

the specific improvements that will 

reduce regulatory burdens and 

encourage increased program 

participation. For these reasons, SBA 

has determined that there is no negative 

impact on a substantial number of small 

entities. 

List of Subjects 

13 CFR Part 109 

Community development, Loan 

programs-business, Reporting and 

recordkeeping requirements, Small 

businesses, Intermediary lending pilot 

program. 

13 CFR Part 115 

Claims, Reporting and recordkeeping 

requirements, Small businesses, Surety 

bonds. 

13 CFR Part 120 

Community development, Equal 

employment opportunity, Loan 

programs—business, Reporting and 

recordkeeping requirements, Small 

businesses. 

For the reasons stated in the 

preamble, SBA amends 13 CFR parts 

109, 115, and 120 as follows: 

PART 109—INTERMEDIARY LENDING 

PILOT PROGRAM 

■ 1. The authority citation for part 109 

continues to read as follows: 

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

636(l). 

§ 109.400 [Amended] 

■ 2. Amend § 109.400 by removing and 

reserving paragraph (b)(12). 

■ 3. Revise § 109.510 to read as follows: 

§ 109.510 Reviews. 

(a) General. SBA may conduct 

reviews and monitoring of ILP 

Intermediaries, including ILP 

Intermediaries’ self-assessments. SBA 

may also perform reviews of ILP 

Intermediaries as needed, as determined 

by SBA in its discretion. 

(b) Corrective actions. SBA may 

require an ILP Intermediary to take 

corrective actions to address findings 

from reviews. Failure to take required 

corrective actions may constitute an 

event of default, as described in 

§ 109.520(c). 

(c) Confidentiality of reports. Review 

reports and other SBA prepared review 

related documents are subject to the 

confidentiality requirements of 

§ 120.1060. 

PART 115—SURETY BOND 

GUARANTEE 

■ 4. The authority citation for part 115 

continues to read as follows: 

Authority: 5 U.S.C. app 3; 15 U.S.C. 687b, 

687c, 694a, 694b note; and Pub. L. 110–246, 

Sec. 12079, 122 Stat. 1651. 

§ 115.19 [Amended] 

■ 5. Amend § 115.19 by removing the 

phrase ‘‘$100,000, whichever is less’’ 

and by adding in its place the phrase 

‘‘$500,000 of the original contract or 

bond amount, whichever is less’’ in 

paragraph (c)(1), the second sentence of 

paragraph (d), and paragraph (e)(2). 

■ 6. Add § 115.22 to subpart A to read 

as follows: 

§ 115.22 Quarterly Contract Completion 

Report. 

The Surety must submit a Quarterly 

Contract Completion Report within 45 

days after the close of each fiscal year 

quarter ending December 31, March 31, 

June 30, and September 30, that 

identifies each contract successfully 

completed during the quarter. The 

report shall include: 

(a) The SBA Surety Bond Guarantee 

Number, 

(b) Name of the Principal, 

(c) The original Contract Dollar 

Amount, 

(d) The revised Contract Dollar 

Amount (if applicable), 

(e) The date of Contract completion, 

and 

(f) A summary specifying the fee 

amounts paid to SBA by the Surety and 

Principal, the fee amounts due to SBA 

as a result of any increases in the 

Contract amount, and the fee amounts to 

be refunded to the Principal or rebated 

to the Surety as a result of any decreases 

in the Contract amount. 

§ 115.30 [Amended] 

■ 7. Amend § 115.30 by removing 

‘‘$250,000’’ from the second sentence of 

paragraph (d)(2)(i) and adding in its 

place ‘‘$400,000.’’ 


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39502 Federal Register / Vol. 82, No. 160 / Monday, August 21, 2017 / Rules and Regulations 

§ 115.32 [Amended] 

■ 8. Amend § 115.32 by removing the 

phrase ‘‘or $100,000, whichever is less’’ 

and adding in its place the phrase ‘‘or 

$500,000 of the original contract or 

bond amount, whichever is less’’ after 

‘‘25%’’ in the first and second sentences 

of paragraph (d)(1). 

■ 9. Amend § 115.60 by adding third 

and fourth sentences at the end of 

paragraph (b) to read as follows: 

§ 115.60 Selection and admission of PSB 

Sureties. 

* * * * * 

(b) * * * For a period of nine months 

following admission to the PSB 

program, the Surety must obtain SBA’s 

prior written approval before executing 

a bond greater than $2 million so that 

SBA may evaluate the Surety’s 

performance in its underwriting and 

claims and recovery functions. At the 

end of this nine month period, SBA may 

in its discretion extend this period to 

allow SBA to further evaluate the 

Surety’s performance. 

■ 10. Amend § 115.67 by revising the 

second sentence of paragraph (a) to read 

as follows: 

§ 115.67 Changes in Contract or bond 

amount. 

(a) * * * The Surety must present 

checks for additional fees due from the 

Principal and the Surety on any 

increases aggregating 25% of the 

original Contract or bond amount or 

$500,000, whichever is less, and attach 

such payments to the respective 

monthly bordereau. * * * 

* * * * * 

■ 11. Revise § 115.68 to read as follows: 

§ 115.68 Guarantee percentage. 

SBA reimburses a PSB Surety in the 

same percentages and under the same 

terms as set forth in § 115.31. 

PART 120—BUSINESS LOANS 

■ 12. The authority citation for part 120 

is revised to read as follows: 

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

(b)(14), (h) and note, 636(a), (h) and (m), 650, 

687(f), 696(3) and 697(a) and (e); Pub. L. 111– 

5, 123 Stat. 115; Pub. L. 111–240, 124 Stat. 

2504; Pub. L. 114–38, 129 Stat. 437. 

§ 120.110 [Amended] 

■ 13. Amend § 120.110 by removing and 

reserving paragraph (l). 

■ 14. Amend § 120.111 by revising the 

introductory text and paragraphs (a)(3) 

and (6) to read as follows: 

§ 120.111 What conditions must an 

Eligible Passive Company satisfy? 

An Eligible Passive Company must 

use loan proceeds only to acquire or 

lease, and/or improve or renovate, real 

or personal property (including eligible 

refinancing), that it leases to one or 

more Operating Companies for 

conducting the Operating Company’s 

business, or to finance a change of 

ownership between the existing owners 

of the Eligible Passive Company. When 

the Operating Company is a co-borrower 

on the loan, loan proceeds also may be 

used by the Operating Company for 

working capital and/or the purchase of 

other assets, including intangible assets, 

for the Operating Company’s use as 

provided in paragraph (a)(5) of this 

section. (References to Operating 

Company in paragraphs (a) and (b) of 

this section mean each Operating 

Company.) In the 504 loan program, if 

the Eligible Passive Company owns 

assets in addition to the real estate or 

other eligible long-term fixed assets, 

loan proceeds may not be used to 

finance a change of ownership between 

existing owners of the Eligible Passive 

Company unless the additional assets 

owned by the Eligible Passive Company 

are directly related to the real estate or 

other eligible long-term fixed assets, the 

amount attributable to the additional 

assets is de minimis, and the additional 

assets are excluded from the Project 

financing. Any ownership structure or 

legal form may qualify as an Eligible 

Passive Company. Any ownership 

structure or legal form may qualify as an 

Eligible Passive Company. 

(a) * * * 

(3) The lease between the Eligible 

Passive Company and the Operating 

Company must be in writing and must 

be subordinate to SBA’s mortgage, trust 

deed lien, or security interest on the 

property. The Eligible Passive Company 

(as landlord) must furnish as collateral 

for the loan an assignment of all rents 

paid under the lease. The rent or lease 

payments cannot exceed the amount 

necessary to make the loan payment to 

the lender, and an additional amount to 

cover the Eligible Passive Company’s 

direct expenses of holding the property, 

such as maintenance, insurance and 

property taxes; 

* * * * * 

(6) Each holder of an ownership 

interest constituting at least 20 percent 

of either the Eligible Passive Company 

or the Operating Company must 

guarantee the loan. The trustee shall 

execute the guaranty on behalf of any 

trust. When deemed necessary for credit 

or other reasons, SBA or, for a loan 

processed under an SBA Lender’s 

delegated authority, the SBA Lender 

may require other appropriate 

individuals or entities to provide full or 

limited guarantees of the loan without 

regard to the percentage of their 

ownership interests, if any. 

* * * * * 

■ 15. Amend § 120.130 by redesigning 

paragraphs (e) and (f) as paragraphs (f) 

and (g) respectively, adding new 

paragraph (e), and revising newly 

redesignated paragraph (g). 

The addition and revision read as 

follows: 

§ 120.130 Restrictions on uses proceeds. 

* * * * * 

(e) The applicant may not use any of 

the proceeds to pay past-due Federal, 

state, or local payroll taxes, sales taxes, 

or other similar taxes that are required 

to be collected by the applicant and 

held in trust on behalf of a Federal, 

state, or local government entity. 

* * * * * 

(g) Any use restricted by §§ 120.201, 

120.202, and 120.884 (specific to 7(a) 

loans and 504 loans respectively). 

■ 16. Amend § 120.160 by revising the 

second sentence of paragraph (a) and by 

removing paragraph (d). 

The revision reads as follows: 

§ 120.160 Loan conditions. 

* * * * * 

(a) * * * When deemed necessary for 

credit or other reasons, SBA or, for a 

loan processed under an SBA Lender’s 

delegated authority, the SBA Lender, 

may require other appropriate 

individuals or entities to provide full or 

limited guarantees of the loan without 

regard to the percentage of their 

ownership interests, if any. 

* * * * * 

§ 120.194 [Removed and Reserved] 

■ 17. Remove and reserve § 120.194. 

■ 18. Amend § 120.220 by adding 

paragraph (a)(3), revising the first, 

second, and third sentences of 

paragraph (b), and removing the first 

two sentences of paragraph (c). 

The addition and revisions read as 

follows: 

§ 120.220 Fees that Lender pays SBA. 

* * * * * 

(a) * * * 

(3) For loans approved under section 

7(a)(31) of the Small Business Act (SBA 

Express loans) to veterans and/or the 

spouse of a veteran. In 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. 

(b) * * * For a loan with a maturity 

of twelve (12) months or less, the 

Lender must pay the guaranty fee to 


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Federal Register / Vol. 82, No. 160 / Monday, August 21, 2017 / Rules and Regulations 39503 

SBA electronically within 10 business 

days after receiving SBA loan approval. 

The Lender may only charge the 

Borrower for the fee after the Lender 

pays the guaranty fee. For a loan with 

a maturity in excess of twelve (12) 

months, the Lender must pay the 

guaranty fee to SBA electronically 

within 90 days after SBA gives its loan 

approval. * * * 

* * * * * 

■ 19. Amend § 120.221 by revising the 

section heading, adding introductory 

text, and revising paragraph (e) to read 

as follows: 

§ 120.221 Fees and expenses which the 

Lender may collect from a loan applicant or 

Borrower. 

Unless otherwise allowed by SBA 

Loan Program Requirements, the Lender 

may charge and collect from the 

applicant or Borrower only the 

following fees and expenses: 

* * * * * 

(e) Legal services. Lender may charge 

the Borrower for legal services rendered 

on an hourly basis. 

■ 20. Revise § 120.222 to read as 

follows: 

§ 120.222 Prohibition on sharing 

premiums for secondary market sales. 

The Lender or its Associates may not 

share in any premium received from the 

sale of an SBA guaranteed loan in the 

secondary market with a Service 

Provider, packager, or other loan-referral 

source. 

§ 120.394 [Amended] 

■ 21. Amend § 120.394 in the third 

sentence by removing the number ‘‘20’’ 

and adding in its place the number 

‘‘33’’. 

§ 120.400 [Amended] 

■ 22. Amend § 120.400 by removing the 

phrase ‘‘§§ 120.441(b) and 120.451(d)’’ 

and adding in its place ‘‘§ 120.440(c)’’. 

■ 23. Amend § 120.410 in paragraph 

(a)(2) by removing the term ‘‘on-site’’ 

and by revising paragraph (e). 

The revision reads as follows: 

§ 120.410 Requirements for all 

participating Lenders. 

* * * * * 

(e) Be in good standing with SBA, as 

defined in § 120.420(f) (and determined 

by SBA in its discretion), and, as 

applicable, with its state regulator and 

be considered Satisfactory by its Federal 

Financial Institution Regulator (as 

determined by SBA and based on, for 

example, information in published 

orders/agreements and call reports); and 

* * * * * 

§ 120.424 [Amended] 

■ 24. In § 120.424, amend paragraph (b) 

by removing the term ‘‘on-site’’. 

§ 120.433 [Amended] 

■ 25. In § 120.433, amend paragraph (b) 

by removing the term ‘‘on-site’’. 

§ 120.434 [Amended] 

■ 26. In § 120.434, amend paragraph (c) 

by removing the term ‘‘on-site’’. 

■ 27. Revise the undesignated center 

heading following § 120.435 to read 

‘‘Delegated Authority Criteria’’. 

■ 28. Revise § 120.440 to read as 

follows: 

§ 120.440 How does a 7(a) Lender obtain 

delegated authority? 

(a) In making its decision to grant or 

renew a delegated authority, SBA 

considers whether the Lender, as 

determined by SBA in its discretion: 

(1) Has the continuing ability to 

evaluate, process, close, disburse, 

service, liquidate and litigate SBA loans. 

This includes the ability to develop and 

analyze complete loan packages. SBA 

may consider the experience and 

capability of Lender’s management and 

staff. 

(2) Has satisfactory SBA performance 

(as defined in § 120.410(a)(2)); 

(3) Is in compliance with SBA Loan 

Program Requirements (e.g., Form 1502 

reporting, timely payment of all fees to 

SBA); 

(4) Has completed to SBA’s 

satisfaction all required corrective 

actions; 

(5) Whether Lender is subject to any 

enforcement action, order or agreement 

with a regulator or the presence of other 

regulatory concerns as determined by 

SBA; and 

(6) Whether Lender exhibits other risk 

factors (e.g., has rapid growth; low SBA 

activity; SBA loan volume; Lender, an 

officer or director is under investigation 

or indictment). 

(b) Delegated authority decisions are 

made by the appropriate SBA official in 

accordance with Delegations of 

Authority, and are final. 

(c) If delegated authority is approved 

or renewed, Lender must execute a 

Supplemental Guarantee Agreement, 

which will specify a term not to exceed 

two years. SBA may grant shortened 

renewals based on risk or any of the 

other delegated authority criteria. 

Lenders with less than 3 years of SBA 

lending experience will be limited to a 

term of 1 year or less. 

§ 120.441 [Removed and Reserved] 

■ 29. Remove and reserve § 120.441. 

§ 120.451 [Removed and Reserved] 

■ 30. Remove and reserve § 120.451. 

■ 31. Amend § 120.524 by revising 

paragraph (b) to read as follows: 

§ 120.524 When is SBA released from 

liability on its guarantee? 

* * * * * 

(b) If SBA determines, at any time, 

that any of the events set forth in 

paragraph (a) of this section occurred in 

connection with that loan, SBA is 

entitled to recover any moneys paid on 

the guarantee plus interest from the 

Lender. In the exercise of its rights, SBA 

may utilize all legal means available, 

including offset and judicial remedies. 

* * * * * 

■ 32. Amend § 120.630 by revising 

paragraph (a)(4) and in paragraph (a)(5) 

by removing the term ‘‘on-site’’. 

The revision reads as follows: 

§ 120.630 Qualifications to be a Pool 

Assembler. 

(a) * * * 

(4) Is in good standing with SBA (as 

the D/FA determines in his or her 

discretion), and is Satisfactory with the 

Office of the Comptroller of the 

Currency (‘‘OCC’’) if it is a national 

bank, the Federal Deposit Insurance 

Corporation if it is a bank not regulated 

by the OCC, or the Financial Industry 

Regulatory Authority (‘‘FINRA’’) if it is 

a member as determined by SBA. 

* * * * * 

■ 33. Amend § 120.660 by: 

■ a. Revising paragraphs (a) 

introductory text, (a)(1)(ii), and (a)(2); 

■ b. Adding paragraph (a)(3); 

■ c. Revising paragraph (c); and 

■ d. Adding paragraph (d). 

The revisions and additions read as 

follows: 

§ 120.660 Suspension or revocation. 

(a) Temporary suspension or 

revocation of Lender, broker, dealer, or 

Registered Holder for violation of 

Secondary Market rules and regulations 

or other risks to SBA. The D/FA together 

with the Director, Office of Credit Risk 

Management (D/OCRM) may suspend 

for a period of no more than 120 

calendar days or revoke for a period of 

no more than two (2) years, the privilege 

of a Lender, broker, dealer, or Registered 

Holder to sell, purchase, broker, or deal 

in loans or Certificates for: 

(1) * * * 

(ii) Any provisions in the contracts 

entered into by the parties, including 

SBA Forms 1086, 1088 and 1454; 

(2) Knowingly submitting false or 

fraudulent information to the SBA or 

FTA; or 

(3) A Lender’s receipt, from its 

primary Federal or state regulator 


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39504 Federal Register / Vol. 82, No. 160 / Monday, August 21, 2017 / Rules and Regulations 

(including SBA), of a cease and desist 

order, a consent agreement affecting 

capital or commercial lending issues, a 

supervisory action citing unsafe or 

unsound banking practices, or any other 

supervisory action a primary regulator 

establishes hereafter that addresses 

unsafe or unsound lending practices; or 

a going concern opinion issued by the 

Lender’s auditor. A Lender subject to a 

public action or going concern opinion 

must notify the D/FA and the D/OCRM 

within five (5) business days (or as soon 

as practicable thereafter) of the public 

issuance of any such action or the 

issuance of a going concern opinion. 

The Lender notice shall include copies 

of all relevant documents for SBA 

review. 

* * * * * 

(c) Notice to suspend or revoke. The 

D/FA and the D/OCRM shall notify the 

affected party in writing, providing the 

reasons therefore, at least 10 business 

days prior to the effective date of the 

suspension or revocation. The affected 

party may appeal the suspension or 

revocation made under this section 

pursuant to the procedures set forth in 

part 134 of this chapter. The action 

taken by the D/FA and the D/OCRM will 

remain in effect pending resolution of 

the appeal. 

(d) Early termination of suspension or 

revocation. SBA may, by written notice, 

terminate a Secondary Market 

suspension or revocation under this 

section, if the D/FA and the D/OCRM, 

in their sole discretion, determine that 

such termination is warranted for good 

cause. 

§ 120.710 [Amended] 

■ 34. Amend § 120.710 by removing the 

term ‘‘on-site’’ from the third sentence 

of paragraph (e)(1). 

■ 35. Amend § 120.812 by revising the 

last sentence of paragraph (c) to read as 

follows: 

§ 120.812 Probationary period for newly 

certified CDCs. 

* * * * * 

(c) * * * Other factors may include, 

but are not limited to, review/ 

examination assessments, historical 

performance measures, loan volume to 

the extent that it impacts performance 

measures, and other performance 

related measurements and information 

(such as contribution toward SBA 

mission). 

* * * * * 

■ 36. Amend § 120.816 by revising the 

last sentence of paragraph (c) to read as 

follows: 

§ 120.816 CDC non-profit status and good 

standing. 

* * * * * 

(c) * * * Other factors may include, 

but are not limited to, review/ 

examination assessments, historical 

performance measures, loan volume to 

the extent that it impacts performance 

measures, and other performance 

related measurements and information 

(such as contribution toward SBA 

mission). 

■ 37. Amend § 120.823 by revising 

paragraphs (c)(5) and (d)(4)(ii)(A) 

through (C) and (E) to read as follows: 

§ 120.823 CDC Board of Directors. 

* * * * * 

(c) * * * 

(5) No CDC Board member may serve 

on the Board of another CDC. 

(d) * * * 

(4) * * * 

(ii) * * * 

(A) Be chosen by the Board of 

Directors, and consist of individuals 

with a background in either financial 

risk management, commercial lending, 

or legal issues relating to commercial 

lending who are not associated with 

another CDC; 

(B) Have a Quorum of at least five (5) 

Loan Committee members authorized to 

vote; 

(C) Have at least two (2) Loan 

Committee members with commercial 

lending experience satisfactory to SBA; 

* * * * * 

(E) Consist of Loan Committee 

members who live or work in the Area 

of Operations of the State where the 504 

project they are voting on is located 

unless the project falls under one of the 

exceptions listed in § 120.839. 

* * * * * 

■ 38. Amend § 120.839 by revising the 

introductory text to read as follows: 

§ 120.839 Case-by-case application to 

make a 504 loan outside of a CDC’s Area 

of Operations. 

A CDC may apply to make a 504 loan 

for a Project outside its Area of 

Operations by submitting a request to 

the 504 loan processing center. The 

applicant CDC must demonstrate that it 

can adequately fulfill its 504 program 

responsibilities for the 504 loan, 

including proper servicing. In addition, 

the CDC must have satisfactory SBA 

performance, as determined by SBA in 

its discretion. The CDC’s Risk Rating, 

among other factors, will be considered 

in determining satisfactory SBA 

performance. Other factors may include, 

but are not limited to, review/ 

examination assessments, historical 

performance measures, loan volume to 

the extent that it impacts performance 

measures, and other performance 

related measurements and information 

(such as contribution toward SBA 

mission). The 504 loan processing 

center may approve the application if: 

* * * * * 

■ 39. Amend § 120.841 by revising the 

last sentence of paragraph (c) to read as 

follows: 

§ 120.841 Qualifications for the ALP. 

* * * * * 

(c) * * * Other factors may include, 

but are not limited to, review/ 

examination assessments, historical 

performance measures, loan volume to 

the extent that it impacts performance 

measures, and other performance 

related measurements and information 

(such as contribution toward SBA 

mission); 

* * * * * 

■ 40. Amend § 120.884 by revising 

paragraph (e)(3) to read as follows: 

§ 120.884 Ineligible costs for 504 loans. 

* * * * * 

(e) * * * 

(3) Construction equipment (except 

for heavy duty construction equipment 

integral to the business’ operations with 

a remaining useful life of a minimum of 

10 years). 

■ 41. Amend § 120.1025 by revising the 

section heading and removing the 

phrase ‘‘off-site reviews and 

monitoring’’ and adding in its place 

‘‘monitoring’’. 

The revision reads as follows: 

§ 120.1025 Monitoring. 

* * * * * 

■ 42. Amend § 120.1050 by revising the 

section heading and removing the 

phrase ‘‘on-site’’ wherever it occurs. 

The revision reads as follows: 

§ 120.1050 Reviews and examinations. 

* * * * * 

■ 43. Amend § 120.1051 by revising the 

section heading, removing the phrase 

‘‘on-site’’ from the introductory text, 

and revising paragraph (a). 

The revisions read as follows: 

§ 120.1051 Frequency of reviews and 

examinations. 

* * * * * 

(a) Results of monitoring, including 

an SBA Lender’s, Intermediary’s or 

NTAP’s Risk Rating; 

* * * * * 

■ 44. Amend § 120.1060 by revising 

paragraph (b) to read as follows: 


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Federal Register / Vol. 82, No. 160 / Monday, August 21, 2017 / Rules and Regulations 39505 

§ 120.1060 Confidentiality of Reports, Risk 

Ratings and related Confidential 

Information. 

* * * * * 

(b) Disclosure prohibition. Each SBA 

Lender, Intermediary, and NTAP is 

prohibited from disclosing its Report, 

Risk Rating, and Confidential 

Information, in full or in part, in any 

manner, without SBA’s prior written 

permission. An SBA Lender, 

Intermediary, and NTAP may use the 

Report, Risk Rating, and Confidential 

Information for confidential use within 

its own immediate corporate 

organization. SBA Lenders, 

Intermediaries, and NTAPs must restrict 

access to their Report, Risk Rating and 

Confidential Information to their 

respective parent entities, officers, 

directors, employees, auditors and 

consultants, in each case who 

demonstrate a legitimate need to know 

such information for the purpose of 

assisting in improving the SBA 

Lender’s, Intermediary’s, or NTAP’s 

SBA program operations in conjunction 

with SBA’s Program and SBA’s portfolio 

management (for purposes of this 

regulation, each referred to as a 

‘‘permitted party’’), and to those for 

whom SBA has approved access by 

prior written consent, and those for 

whom access is required by applicable 

law or legal process. If such law or 

process requires SBA Lender, 

Intermediary, or NTAP to disclose the 

Report, Risk Rating, or Confidential 

Information to any person other than a 

permitted party, SBA Lender, 

Intermediary, or NTAP will promptly 

notify SBA and SBA’s Information 

Provider in writing and in advance of 

such disclosure so that SBA and the 

Information Provider have, within their 

discretion, the opportunity to seek 

appropriate relief such as an injunction 

or protective order prior to disclosure. 

For purposes of this regulation, 

‘‘consultants’’ means only those 

consultants that are under written 

contract with an SBA Lender, 

Intermediary or NTAP specifically to 

assist with addressing its Report 

Findings and Corrective Actions to 

SBA’s satisfaction. The consultant 

contract must provide for both the 

consultant’s agreement to abide by the 

disclosure prohibition in this paragraph 

and the consultant’s agreement not to 

use the Report, Risk Rating, and 

Confidential Information for any 

purpose other than to assist with 

addressing the Report Findings and 

Corrective Actions. ‘‘Information 

Provider’’ means any contractor that 

provides SBA with the Risk Rating. 

Each SBA Lender, Intermediary, and 

NTAP must ensure that each permitted 

party is aware of and agrees to these 

regulatory requirements and must 

ensure that each such permitted party 

abides by them. Any disclosure of the 

Report, Risk Rating, or Confidential 

Information other than as permitted by 

this regulation may result in appropriate 

action as authorized by law. An SBA 

Lender, Intermediary, and NTAP will 

indemnify and hold harmless SBA from 

and against any and all claims, 

demands, suits, actions, and liabilities 

to any degree based upon or resulting 

from any unauthorized use or disclosure 

of the Report, Risk Rating, or 

Confidential Information. Information 

Provider contact information is 

available from the Office of Capital 

Access. 

■ 45. Amend § 120.1070 by: 

■ a. Revising the section heading; 

■ b. Revising paragraphs (a)(1) through 

(4); 

■ c. Redesignating paragraphs (b) and 

(c) as paragraphs (c) and (d), 

respectively; 

■ d. Adding a new paragraph (b); 

■ e. Revising the first and second 

sentences of newly redesignated 

paragraph (c); and 

■ f. Revising the final sentence of newly 

redesignated paragraph (d) 

The addition and revisions read as 

follows: 

§ 120.1070 SBA Lender oversight fees. 

* * * * * 

(a) * * * 

(1) Examinations. The costs of 

conducting a safety and soundness 

examination and related activities of an 

SBA-Supervised Lender, including any 

expenses that are incurred in relation to 

the examination and such activities. 

(2) Reviews. The costs of conducting 

a review of a 7(a) Lender or a 7(a) 

Lender’s loans, and related review 

activities (e.g., corrective action 

assessments, delegated loan reviews), 

including any expenses that are 

incurred in relation to the review and 

such activities. 

(3) Monitoring. The costs of 

conducting monitoring reviews of a 7(a) 

Lender, including any expenses that are 

incurred in relation to the monitoring 

review activities. 

(4) Other lender oversight activities. 

The costs of additional expenses that 

SBA incurs in carrying out other lender 

oversight activities (for example, the 

salaries and travel expenses of SBA 

employees and equipment expenses that 

are directly related to carrying out 

lender oversight activities, technical 

assistance and analytics to support the 

monitoring and review program, and 

supervision and enforcement activity 

costs). 

(b) Allocation. SBA will assess to 7(a) 

Lender(s) the costs associated with the 

review, examination, monitoring, or 

other lender oversight activity, as 

determined by SBA in its discretion. In 

general: 

(1) Where the costs that SBA incurs 

for a review, exam, monitoring or other 

lender oversight activity are specific to 

a particular 7(a) Lender, SBA will 

charge that 7(a) Lender a fee for the 

actual costs of conducting the review, 

exam, monitoring or other lender 

oversight activity; and 

(2) Where the costs that SBA incurs 

for the lender oversight activity are not 

sufficiently specific to a particular 

Lender, SBA will assess a fee based on 

each 7(a) Lender’s portion of the total 

dollar amount of SBA guarantees in 

SBA’s total portfolio or in the relevant 

portfolio segment being reviewed or 

examined, to cover the costs of such 

activity. SBA may waive the assessment 

of this fee for all 7(a) Lenders owing less 

than a threshold amount below which 

SBA determines that it is not cost 

effective to collect the fee. 

(c) * * * For the examinations or 

reviews conducted under paragraphs 

(a)(1) and (2) of this section, SBA will 

bill each 7(a) Lender for the amount 

owed following completion of the 

examination, review or related activity. 

For monitoring conducted under 

paragraph (a)(3) of this section and the 

other lender oversight activity expenses 

incurred under paragraph (a)(4) of this 

section, SBA will bill each 7(a) Lender 

for the amount owed on an annual basis. 

* * * 

(d) * * * In addition, a 7(a) Lender’s 

failure to pay any of the fee components 

described in this section, or to pay 

interest, charges and penalties that have 

been charged, may result in a decision 

to suspend or revoke a participant’s 

eligibility, limit a participant’s 

delegated authority, or other remedy 

available under law. 

■ 46. Effective October 20, 2017, amend 

§ 120.1400 by revising paragraph (a) to 

read as follows: 

120.1400 Grounds for enforcement 

actions—SBA Lenders. 

(a) Agreements. By making SBA 7(a) 

guaranteed loans or 504 loans, SBA 

Lenders automatically agree to the 

terms, conditions, and remedies in Loan 

Program Requirements, as promulgated 

or issued from time to time and as if 

fully set forth in the SBA Form 750 

(Loan Guaranty Agreement), 

Development Company 504 Debenture, 

CDC Certification, Servicing Agent 

Agreement, or other applicable 

participation, guaranty, or supplemental 

agreement. SBA Lenders further agree 


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39506 Federal Register / Vol. 82, No. 160 / Monday, August 21, 2017 / Rules and Regulations 

that a violation of Loan Program 

Requirements constitutes default under 

their respective agreements with SBA. 

(1) Additional agreements by CDCs. 

By obtaining approval for 504 loans 

after October 20, 2017, a CDC consents 

to the remedies in § 120.1500(e)(3) and 

waives in advance any right it may have 

to contest the validity of the 

appointment of a receiver. The CDC 

agrees that its consent to SBA’s 

application to a Federal court of 

competent jurisdiction for appointment 

of a receiver of SBA’s choosing, an 

injunction or other equitable relief, and 

the CDC’s consent in advance to the 

court’s granting of SBA’s application, 

may be enforced upon any basis in law 

or equity recognized by the court. 

(2) Additional agreements by SBA 

Supervised Lenders (except Other 

Regulated SBLCs). By making SBA 7(a) 

guaranteed loans after October 20, 2017, 

an SBA Supervised Lender (except an 

Other Regulated SBLC) consents to the 

remedies in § 120.1500(c)(3) and waives 

in advance any right it may have to 

contest the validity of the appointment 

of a receiver. The SBA Supervised 

Lender agrees that its consent to SBA’s 

application to a Federal court of 

competent jurisdiction for appointment 

of a receiver of SBA’s choosing, an 

injunction or other equitable relief, and 

the SBA Supervised Lender’s consent in 

advance to the court’s granting of SBA’s 

application, may be enforced upon any 

basis in law or equity recognized by the 

court. 

* * * * * 

■ 47. Amend § 120.1500 by revising 

paragraph (c)(3) and adding paragraph 

(e)(3) to read as follows: 

§ 120.1500 Types of enforcement 

actions—SBA Lenders. 

* * * * * 

(c) * * * 

(3) Initiate request for appointment of 

receiver and/or other relief. The SBA 

may make application to any Federal 

court of competent jurisdiction for the 

court to take exclusive jurisdiction, 

without notice, of an SBA Supervised 

Lender, and SBA shall be entitled to the 

appointment of a receiver of SBA’s 

choosing to hold, administer, operate, 

and/or liquidate the SBA Supervised 

Lender; and to such injunctive or other 

equitable relief as may be appropriate. 

Without limiting the foregoing and with 

SBA’s written consent, the receiver may 

take possession of the portfolio of 7(a) 

loans and sell such loans to a third 

party, and/or take possession of 

servicing activities of 7(a) loans and sell 

such servicing rights to a third party. 

* * * * * 

(e) * * * 

(3) Apply to any Federal court of 

competent jurisdiction for the court to 

take exclusive jurisdiction, without 

notice, of the CDC, and SBA shall be 

entitled to the appointment of a receiver 

of SBA’s choosing to hold, administer, 

operate and/or liquidate the CDC; and to 

such injunctive or other equitable relief 

as may be appropriate. Without limiting 

the foregoing and with SBA’s consent, 

the receiver may take possession of the 

portfolio of 504 loans and/or pending 

504 loan applications, including for the 

purpose of carrying out an enforcement 

order under paragraph (e)(1) of this 

section. 

■ 48. Amend § 120.1600 by: 

■ a. Revising paragraph (a) introductory 

text; 

■ b. Adding paragraph (a)(6); and 

■ c. Revising paragraph (b)(4). 

The revisions and addition read as 

follows: 

§ 120.1600 General procedures for 

enforcement actions against SBA Lenders, 

SBA Supervised Lenders, Other Regulated 

SBLCs, Management Officials, Other 

Persons, Intermediaries, and NTAPs. 

(a) In general. Except as otherwise set 

forth for the enforcement actions listed 

in paragraphs (a)(6), (b) and (c) of this 

section, SBA will follow the procedures 

listed below. 

* * * * * 

(6) Receiverships of Certified 

Development Companies and/or other 

relief. If SBA undertakes the 

appointment of a receiver for a Certified 

Development Company and/or 

injunctive or other equitable relief, 

paragraphs (a)(1) through (5) of this 

section will not apply and SBA will 

follow the applicable procedures under 

Federal law to obtain such remedies and 

to enforce the Certified Development 

Company’s consent and waiver in 

advance to those remedies. 

(b) * * * 

(4) Receiverships, transfer of assets 

and servicing activities. If SBA 

undertakes the appointment of a 

receiver for, or the transfer of assets or 

servicing rights of an SBA Supervised 

Lender and/or injunctive or other 

equitable relief, SBA will follow the 

applicable procedures under Federal 

law to obtain such remedies and to 

enforce the SBA Supervised Lender’s 

consent and waiver in advance to those 

remedies. 

* * * * * 

■ 49. Amend § 120.1703 by revising 

paragraph (a)(4) to read as follows: 

§ 120.1703 Qualifications to be a Pool 

Originator. 

(a) * * * 

(4) Is in good standing with SBA (as 

the SBA determines), and is Satisfactory 

with the Office of the Comptroller of the 

Currency (OCC) if it is a national bank, 

the Federal Deposit Insurance 

Corporation if it is a bank not regulated 

by the OCC, the Financial Institutions 

Regulatory Authority if it is a member, 

the National Credit Union 

Administration if it is a credit union, as 

determined by SBA; and 

* * * * * 

■ 50. Amend § 120.1707 by revising the 

fifth sentence and adding a sixth 

sentence to read as follows: 

§ 120.1707 Seller’s retained Loan Interest. 

* * * In addition, in order to 

complete such sale, Seller must have the 

purchaser of its rights to the Pool Loan 

execute an allonge to the Seller’s First 

Lien Position 504 Loan Pool Guarantee 

Agreement in a form acceptable to SBA, 

acknowledging and accepting all terms 

of the Seller’s First Lien Position 504 

Loan Pool Guarantee Agreement, and 

deliver the executed original allonge 

and a copy of the corresponding First 

Lien Position 504 Loan Pool Guarantee 

Agreement to the CSA. All Pool Loan 

payments related to a Seller Receipt and 

Servicing Retention Amount proposed 

for sale will be withheld by the CSA 

pending SBA acknowledgement of 

receipt of all executed documents 

required to complete the transfer. 

Subpart K—[Removed] 

■ 51. Remove Subpart K, consisting of 

§§ 120.1800 through 120.1900. 

Dated: August 11, 2017. 

Linda E. McMahon, 

Administrator. 

[FR Doc. 2017–17447 Filed 8–18–17; 8:45 am] 

BILLING CODE 8025–01–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2017–0419; Product 

Identifier 2015–SW–077–AD; Amendment 

39–18991; AD 2017–17–01] 

RIN 2120–AA64 

Airworthiness Directives; Airbus 

Helicopters 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Final rule. 

SUMMARY: We are adopting a new 

airworthiness directive (AD) for Airbus 

Helicopters (Airbus) Model AS332L2 


sradovich on DSK3GMQ082PROD with RULES