[Federal Register Volume 66, Number 176 (Tuesday, September 11, 2001)]
[Rules and Regulations]
[Pages 47072-47074]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-22193]


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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 120 and 134

RIN 3245-AE51


Business Loan Program and Office of Hearings and Appeals

AGENCY: Small Business Administration (SBA).

ACTION: Final rule.

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SUMMARY: SBA is implementing changes to the microloan program as 
required by law. This final rule terminates the designation of the 
microloan program as a ``demonstration,'' allows a nonprofit child care 
business to qualify for the microloan program, and authorizes a 
microloan intermediary to use up to 25 percent of grant funds for 
technical assistance to prospective microloan borrowers. This final 
rule also establishes procedures for SBA to revoke or suspend a 
microloan intermediary or non-lending technical assistance provider.

DATES: This rule is effective October 11, 2001.

FOR FURTHER INFORMATION CONTACT: Jody Raskind, Chief, Microenterprise 
Development Branch, Office of Financial Assistance, Office of Capital 
Access, 202-205-6497.

SUPPLEMENTARY INFORMATION: Pub. L. 105-135, enacted on December 2, 
1997, (1997 legislation) amends SBA's microloan program in section 7(m) 
of the Small Business Act (15 U.S.C. 636(m)) (Act). On August 11, 1999, 
SBA published a proposed rule in the Federal Register (64 FR 43636), to 
implement: (1) Changes to the microloan program as required by the 1997 
legislation, and (2) standards and procedures SBA could use to suspend 
or revoke the status of a non-lending technical assistance provider 
(hearing and appeal regulatory proposal). SBA received three comments 
in response to this proposed rule, all of which addressed the hearing 
and appeal regulatory proposal.
    The following is a summary of the portion of the proposed rule 
relating to the implementation of the 1997 legislation which SBA is 
publishing as final.
    The 1997 legislation terminated the designation of the microloan 
program as a ``demonstration.'' This final rule deletes that 
designation wherever it was in SBA's rules, including the heading for 
subpart G of this part.
    SBA is amending Sec. 120.706 of its regulations (13 CFR 120.706) to 
increase the aggregate amount that a microloan intermediary may borrow 
from SBA from the previous statutory limit of $2,500,000 to the new 
statutory limit of $3,500,000.
    Generally, microloan borrowers must engage in for profit 
activities. However, SBA is amending Sec. 120.707(a) of its regulations 
to implement the 1997 legislation which authorizes microloan assistance 
to a borrower to establish a nonprofit child care business.
    The 1997 legislation increases, from 15 percent to 25 percent, the 
amount of grant funds a microloan intermediary may use for technical 
assistance to prospective microloan borrowers. This final rule amends 
Sec. 120.712 to reflect the increased percentage. SBA is also 
implementing another provision from the 1997 legislation by amending 
Sec. 120.712 to allow an intermediary to use up to 25 percent of the 
grant funds it receives from SBA to contract with third parties to 
provide technical assistance to microloan borrowers.
    Under section 7(m) of the Act, SBA may give grants to a maximum of 
25 non-lending technical assistance providers. Under prior rules, SBA 
could provide the 25 grants for a maximum of 5 annual terms. The final 
rule amends Sec. 120.714 of SBA's regulations to reflect the changes in 
the 1997 legislation that authorize SBA to provide the annual grants 
without any maximum term limits.
    Section 7(m)(12) of the Act authorizes SBA, on a pilot basis, to 
guarantee loans made to microloan intermediaries. Currently, 
Sec. 120.715 of SBA's regulations incorrectly places a limit on the 
number of loans to intermediaries that SBA may guarantee. SBA is 
amending Sec. 120.715 of its regulations to clarify that there is no 
statutorily prescribed limit on the number of loans which SBA is 
authorized to guarantee to microloan intermediaries.
    SBA had proposed adding Sec. 120.716 to its regulations to 
implement the 1997 legislation's welfare-to-work initiative. The 1997 
legislation envisioned that funding would be appropriated through 
fiscal year 2000. Since this initiative was not funded, and by its own 
terms was scheduled to terminate at the end of the current fiscal year, 
SBA is not including it in this final rule.
    In the proposed rule, SBA proposed adding a new section to the 
regulations describing the procedures that SBA would use to suspend or 
revoke a microloan intermediary or non-lending technical assistance 
provider (NTAP). The new provision also would have given such an entity 
the right to appeal any such suspension or revocation to the agency's 
Office of Hearings and Appeals (OHA). A commenter advised that OHA, 
under its present rules, did

[[Page 47073]]

not have specific jurisdictional authority to hear an appeal from a 
microloan intermediary or NTAP. While it is true that such specific 
authority does not exist, Sec. 134.102 (Jurisdiction of OHA) does allow 
OHA to hear any determination, appeal or other proceeding referred to 
OHA by the Administrator of SBA. This language allows for SBA to hear 
appeals from microloan intermediaries or NTAPs. However, despite this 
language and in an effort to ensure clarity, SBA is amending part 134 
in this rule to give the OHA the specific authority to consider appeals 
from an agency decision to suspend or revoke a microloan intermediary 
or NTAP.

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

    For purposes of Executive Order 13132, SBA has determined that this 
final rule has no federalism implications.
    For purposes of Executive Order 12988, SBA certifies that this rule 
is drafted, to the extent practicable, in accordance with the standards 
set forth in section 3 of that Order.
    The Office of Management and Budget reviewed this rule as a 
``significant'' regulatory action under Executive Order 12866.
    SBA has determined that this final rule will not have a significant 
economic impact on a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601-612. Based on 
our program experience, SBA estimates that there are only 130 small 
business intermediaries that may be affected by this rule. Furthermore, 
SBA anticipates that of these 130 intermediaries only a small number 
will utilize the new initiatives created by the 1997 legislation. In 
addition, based on program history, SBA expects that it will only rely 
on its authority to suspend or revoke the status of an intermediary 
lender or non-lending technical assistance provider in an insignificant 
number of cases and only under extreme circumstances.
    For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch 35, SBA 
certifies that this final rule does not impose any additional reporting 
or recordkeeping requirements.

List of Subjects

13 CFR Part 120

    Loan programs--business, Small businesses

13 CFR Part 134

    Administrative practice and procedure, Organization and function 
(Government agencies)

    For the reasons stated in the preamble and pursuant to the 
authority contained in section 5(b)(6) of the Small Business Act (15 
U.S.C. 634(b)(6)), SBA amends parts 120 and 134, chapter I, title 13, 
Code of Federal Regulations as follows:

PART 120--BUSINESS LOANS

    1. The authority citation for part 120 continues to read as 
follows:

    Authority: 15 U.S.C. 634(b)(6) and 636(a) and (h).


    2. Revise the heading for subpart G of part 120, title 13, Code of 
Federal Regulations to read as follows:

Subpart G--Microloan Program

    3. In Sec. 120.700, revise the first sentence to read as follows:


Sec. 120.700  What is the Microloan Program?

    The Microloan Program assists women, low income individuals, 
minority entrepreneurs, and other small businesses which need small 
amounts of financial assistance. * * *

    4. In Sec. 120.701, redesignate paragraph (h) as paragraph (i), and 
add new paragraph (h) to read as follows:


Sec. 120.701  Definitions.

* * * * *
    (h) Non-lending technical assistance provider (NTAP) is an entity 
which receives grant funds from SBA to provide technical assistance to 
Microloan borrowers.
* * * * *

    5. In Sec. 120.706(a), revise the heading and second sentence to 
read as follows:


Sec. 120.706  What are the terms and conditions of an SBA loan to an 
Intermediary?

    (a) * * * In later years, the Intermediary's obligation to SBA may 
not exceed an aggregate of $3.5 million, subject to statutory 
limitations on the total amount of funds available per state.
* * * * *

    6. Revise Sec. 120.707(a) to read as follows:


Sec. 120.707  What conditions apply to loans by Intermediaries to 
Microloan borrowers?

    (a) General. An intermediary may make Microloans to any small 
business eligible to receive financial assistance under this part. A 
borrower may also use Microloan proceeds to establish a nonprofit child 
care business. Proceeds from Microloans may be used only for working 
capital and acquisition of materials, supplies, furniture, fixtures, 
and equipment. SBA does not review Microloans for creditworthiness.
* * * * *

    7. In Sec. 120.712, revise the heading and paragraphs (b)(1) and 
(e) to read as follows:


Sec. 120.712  How does an Intermediary get a grant to assist Microloan 
borrowers?

* * * * *
    (b) * * *
    (1) Up to 25 percent of the grant funds may be used to provide 
information and technical assistance to prospective Microloan 
borrowers; and
* * * * *
    (e) Third party contracts for technical assistance. An Intermediary 
may use no more than 25 percent of the grant funds it receives from SBA 
for contracts with third parties for the latter to provide technical 
assistance to Microloan borrowers.

    8. In Sec. 120.714, revise the heading, add an introductory text, 
and revise paragraph (b) to read as follows:


Sec. 120.714  How are grants made to non-lending technical assistance 
providers (NTAP)?

    SBA selects non-lending technical assistance providers (NTAP) to 
receive grant funds for technical assistance to Microloan borrowers.
* * * * *
    (b) Number and amount of grants. In each year of the Microloan 
Program, SBA may make no more than 25 grants to NTAPs. A grant may not 
exceed $125,000.
* * * * *

    9. Revise Sec. 120.715(a) to read as follows:


Sec. 120.715  Does SBA guarantee any loans an Intermediary obtains from 
another source?

    (a) SBA may guarantee not less than 90 percent of loans made by 
for-profit or nonprofit entities (or an alliance of such entities) to 
no more than 10 Intermediaries in urban areas and 10 Intermediaries in 
Rural Areas (as defined in Sec. 120.10).
* * * * *

    10. Add Sec. 120.7l6 to read as follows:


Sec. 120.716  Suspension or revocation of an Intermediary or NTAP.

    (a) The AA/FA may suspend or revoke the participation status of an 
Intermediary or NTAP from the Microloan Program, or may impose other 
sanctions in the best interests of the program, if it fails to comply 
with

[[Page 47074]]

the laws, regulations, and policies governing the program or if it 
fails to meet any one of the following minimum performance standards.
    (1) For Intermediaries only: An Intermediary must
    (i) Close and fund a minimum of four microloans per year, and
    (ii) Satisfactorily provide in-house technical assistance to 
microloan clients and prospective microloan clients.
    (2) For NTAPs only: An NTAP must show that, for every thirty 
clients for which it provided technical assistance, one client received 
a loan from the private sector.
    (3) For Intermediaries and NTAPs: An Intermediary and an NTAP must
    (i) Cover the service territory assigned by SBA, including honoring 
the SBA determined boundaries of neighboring Intermediaries and NTAPs,
    (ii) Fulfill reporting requirements,
    (iii) Manage program funds and matching funds in a satisfactory and 
financially sound manner,
    (iv) Communicate and file reports via the internet within six 
months after beginning participation in the program,
    (v) Maintain a currency rate of 85% or more (that is loans that are 
no more than 30 days late in scheduled payments),
    (vi) Maintain a default rate of 15% or less of the cumulative 
dollars loaned under the program, and
    (vii) Attend Microloan Program training conferences offered by SBA, 
or such substitute training as may be approved by SBA on a case by case 
basis.
    (b) The AA/FA, on a case by case basis, may impose pre-suspension 
or revocation sanctions which may include, but are not limited to, the 
following:
    (1) Accelerated reporting requirements;
    (2) Accelerated loan repayment requirements for outstanding program 
debt to SBA; and
    (3) Imposition of a temporary lending and/or training moratorium.
    (c) Revocation from the Microloan Program will include:
    (1) Removal from the program;
    (2) Liquidation of MRF and LLRF accounts, by SBA, and application 
of liquidated funds to any outstanding balance owed to SBA;
    (3) Payment of outstanding debt to SBA by the Intermediary;
    (4) Forfeiture or repayment of any unused grant funds by the 
Intermediary or NTAP;
    (5) Debarment of the organization from receipt of federal funds 
until loan and grant repayment requirements are met.
    (d) An Intermediary or NTAP may appeal a suspension or revocation 
under procedures found in part 134 of this chapter. The action of the 
AA/FA remains in effect pending resolution of the appeal.

PART 134--[AMENDED]

    11. The authority citation for Part 134 continues to read as 
follows:

    Authority: 5 U.S.C. 504; 15 U.S.C. 632(a), 634(b)(6), and 
637(a).

    12. In Sec. 134.102 remove ``and'' at the end of paragraph (l), 
redesignate paragraph (m) as paragraph (n), and add a new paragraph (m) 
to read as follows:


Sec. 134.102  Jurisdiction of OHA.

* * * * *
    (m) Appeals from the determination of the SBA under part 120 of 
this chapter to revoke or suspend a microloan intermediary or microloan 
non-lending technical assistance provider; and
* * * * *

    Dated: August 28, 2001.
Hector V. Barreto,
Administrator.
[FR Doc. 01-22193 Filed 9-10-01; 8:45 am]
BILLING CODE 8025-01-P