Proposed Rule: Business Loans: Lender Oversight Program

Wednesday,
October 31, 2007
Part III
Small Business
Administration
13 CFR Part 120
Lender Oversight Program; Proposed Rule
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61752 Federal Register / Vol. 72, No. 210 / Wednesday, October 31, 2007 / Proposed Rules
SMALL BUSINESS ADMINISTRATION Management. In the submission, you B. History

must highlight the information that you Currently, there are over 5,000 7(a)
13 CFR Part 120 consider is CBI and explain why you Lenders and CDC s (together, SBA
RIN 3245–AE14 believe this information should be held Lenders) authorized to make SBA-
confidential. SBA will make a final guaranteed loans and issue SBA-
Lender Oversight Program determination, in its sole discretion, of guaranteed debentures. These SBA
whether the information is CBI and, Lenders hold approximately $60 billion
AGENCY: Small Business Administration therefore, will not be published or not.
(SBA). of 7(a) and 504 loans outstanding (in
FOR FURTHER INFORMATION CONTACT: gross dollars). SBA has delegated
ACTION: Notice of Proposed Rulemaking. Linda RU.S.C.he, Supervisory Financial increasingly more authority to its SBA
SUMMARY: SBA is proposing a rule to Analyst, at (816) 426.4860, or Bryan Lenders such that the number of loans
incorporate SBA’s risk-based lender Hooper, Director, Office of Credit Risk originated under delegated authority has
oversight program into SBA regulations. Management, (202) 205.3049. grown from approximately 20% of
Specifically, the proposed rule would SUPPLEMENTARY INFORMATION: SBA’s loan volume in 1992 to over 75%
establish the role and responsibilities of of SBA’s loan volume as of 2006. As
I. Background SBA continues to place more
SBA’s Office of Credit Risk Management
within a new subpart of the business A. Statutory responsibility and independence on its
loan regulations. It would codify in SBA SBA Lenders, SBA must have the
Section 7(a) of the Small Business Act necessary controls to ensure that SBA
regulations SBA’s process of risk-based
(the Act), 15 U.S.C. 636, authorizes SBA Lenders’ SBA operations are well-
oversight including: (i) Accounting and
to guarantee loans made by Lenders (7a managed and avoid unnecessary losses.
reporting requirements; (ii) off-site
Lenders) to eligible small businesses. A comprehensive oversight process
reviews/monitoring; (iii) on-site reviews
Under Section 504 of the Small provides this control for the Agency.
and examinations; and iv) capital
Business Investment Act, 15 U.S.C. Prior to 1999, SBA’s risk management,
adequacy requirements. The proposed
697a, SBA guarantees Certified lender monitoring, and lender oversight
rule would also list the types of,
Development Company (CDC) activities were conducted by SBA’s
grounds for, and procedures governing
debentures. Section 7(m) of the Act Office of Financial Assistance (OFA)
SBA enforcement actions within
authorizes SBA to make direct loans to and SBA’s District Offices, which were
consolidated enforcement regulations
Microloan Intermediaries, who use also responsible for developing and
for all 7(a) Lenders, Certified
proceeds to make loans to very small promoting the Agency’s business loan
Development Companies, Microloan
businesses, and also authorizes SBA to programs. With the increase in lending
Intermediaries, and Non-Lending
make technical assistance grants to non- authority given to SBA Lenders and
Technical Assistance Providers. This
lending technical assistance providers lending volume, SBA needed a separate
rule is necessary to provide coordinated
(NTAPs). 15 U.S.C. 636(m). With this division to perform risk management
and effective oversight of financial
authority to offer government guarantees and lender oversight.
institutions that originate and manage
and related grants, Congress has also Therefore, in 1999 SBA established
SBA guaranteed loans.
provided SBA with authority to support the Office of Lender Oversight (OLO) for
DATES: Comments must be received on appropriate Lender, CDC, Microloan the primary purpose of ensuring the
or before December 31, 2007. Intermediary, and NTAP supervision. 15 ‘‘consistent and appropriate supervision
ADDRESSES: You may submit comments, U.S.C. 650; 15 U.S.C. 634 note, citing of SBA’s lending partners.’’ At the time
identified by [RIN number 3245–AE14] Public Law 104–208, Division D, Title I, it was initially established, OLO’s major
by any of the following methods: § 103(h); 15 U.S.C. 634(b)(14); 15 U.S.C. responsibilities were defined as:
• Federal eRulemaking Portal: http:// 634(b)(7); 15 U.S.C. 636(a)(31); 15 U.S.C. ‘‘evaluating existing oversight
www.regulations.gov. Follow the 687(f); 15 U.S.C. 696(3)(A); 15 U.S.C. regulations, policies and procedures and
instructions for submitting comments. 697(a)(2); 15 U.S.C. 697e(c)(8); and 15 promulgating new ones where
• Mail: Bryan Hooper, Director for U.S.C. 634(b)(6). appropriate; monitoring changes in the
Office of Credit Risk Management, U.S. The provisions cited include both accounting, banking and financial
Small Business Administration, 409 3rd direct and indirect authority to industries, and recommending
Street, SW., 8th Floor, Washington, DC supervise, regulate, and examine Small appropriate modification of SBA
20416. Business Lending Companies (SBLCs) oversight policy; coordinating all
• Hand Delivery/Courier: Bryan and Non-Federally Regulated Lenders headquarters and field office activities
Hooper, Director for Office of Credit (NFRLs). 15 U.S.C. 650; 15 U.S.C. with respect to Lender reviews; [and]
Risk Management, U.S. Small Business 634(b)(14); 15 U.S.C. 636(a)(31); and 15 evaluating new programs and changes to
Administration, 409 3rd Street, SW., 8th U.S.C. 634(b)(6) and (7). The cites also existing programs to assess their risk
Floor, Washington, DC 20416. include both direct and indirect potential * * *’’ The head of the office,
All comments will be posted on provisions that, together, authorize SBA the Associate Administrator for OLO,
http://www.Regulations.gov. If you wish oversight of and reviews of the SBA was to serve as a member of SBA’s Risk
to include within your comment, operations of other 7(a) Lenders Management Committee and a key
confidential business information (CBI) (including national banks and other member of the group developing and
as defined in the Privacy and Use federally regulated financial implementing the Agency’s lender
Notice/User Notice at http:// institutions), CDCs, Microloan monitoring and oversight system.
www.Regulations.gov and you do not Intermediaries, and NTAPs. 15 U.S.C. Subsequent to its establishment, OLO
want that information disclosed, you 634 note, citing Public Law 104–208, assumed responsibility for conducting
must submit the comment by either Division D, Title I, § 103(h); 15 U.S.C. ‘‘safety and soundness’’ examinations of
Mail or Hand Delivery and you must 634(b)(14); 15 U.S.C. 634(b)(6) and (7); the SBLCs and compliance reviews for
address the comment to the attention of 15 U.S.C. 636(a)(31); 15 U.S.C. § 687(f); Preferred Lenders Program (PLP)
Linda RU.S.C.he, Supervisory Financial 15 U.S.C. 696(3)(A); 15 U.S.C. 697(a)(2); Lenders. OLO then began developing a
Analyst, Office of Credit Risk and 15 U.S.C. 697e(c)(8). risk-based review process for all SBA
Federal Register / Vol. 72, No. 210 / Wednesday, October 31, 2007 / Proposed Rules 61753
Lenders. OLO, in 2003, developed and Management (OCRM). Most recently, and tools into program participation
implemented a Loan and Lender SBA has reviewed the Agency’s current criteria and requirements (13 CFR
Monitoring System (L/LMS). In late oversight regulations and is now 120.410, 120.424, 120.433, 120.434,
2004, Congress provided SBA specific proposing this rule to incorporate 120.451, 120.710, 120.812, 120.820,
supervision and enforcement authorities OCRM’s new authorities and SBA’s risk- 120.826, 120.830, 120.839, and
over SBLCs and NFRLs (together, SBA based lender oversight program into 120.841); (iii) updating provisions to
Supervised Lenders). In April 2005, SBA’s regulations. A discussion of the include key OCRM Delegations of
SBA published Delegations of Authority proposed rule, consisting of an overview Authority (13 CFR 120.451, 120.461,
that delineated the responsibilities of and key provisions, follows. 120.702, 120.710, and 120.845); and (iv)
OLO and a new Lender Oversight consolidating loan program oversight
Committee (LOC) consistent with new II. Proposal and enforcement regulations into
authorities. 70 FR 21262 (April 25, A. Overview subpart I, designated Risk-Based Lender
2005). On May 5, 2007, SBA published Oversight. (See below chart on
a final rule governing 7(a) Lender The proposed rule would incorporate Regulations Relocated). Subpart I would
review/examination fees. 72 FR 25189. SBA’s risk management/lender cover the role and responsibilities of
On May 16, 2007 OLO published a final oversight program into SBA’s business OCRM, the Risk Rating System, off-site
rule on SBA’s Lender Risk Rating loan program regulations by: (i) Adding reviews/monitoring, on-site reviews and
System. 72 FR 27611. Also, in May risk management definitions to Part 120 examinations, and enforcement actions
2007, SBA reorganized and renamed the (13 CFR 120.10); (ii) incorporating risk against SBA Lenders, Microloan
office to the Office of Credit Risk management/lender oversight metrics Intermediaries, and NTAPs.
CHART OF REGULATIONS RELOCATED

Current regulatory citation Regulation subject matter Proposed regulatory citation
§ 120.414 ............................. SBA access to 7(a) Lender files ..................................... § 120.1010.

§ 120.415 ............................. 7(a) program—Suspension or revocation of eligibility to § 120.1400 (grounds).
participate. § 120.1500 (types of enforcement actions).
§ 120.1600 (enforcement procedures).
§ 120.442 ............................. Suspension or revocation of CLP status ........................ § 120.1400 (grounds).
§ 120.1500 (types of enforcement actions).
§ 120.454 ............................. PLP performance review ................................................. § 120.1000(a) (Risk-Based Lender Oversight).
§ 120.1025 (off-site reviews/monitoring).
§ 120.1050 (on-site reviews and examinations).
§ 120.455 ............................. Suspensions or revocations of PLP status ..................... § 120.1400 (grounds).
§ 120.470(b)(3) ..................... Minimum SBLC capital requirement ............................... § 120.471 (minimum capital requirement).
§ 120.472 (higher individual minimum capital require-
ment).
§ 120.473 (procedures for higher individual minimum
capital requirement).
§ 120.470(b)(4) ..................... SBLC capital impairment ................................................ § 120.462(d).
§ 120.470(b)(5) ..................... SBLC issuance of securities ........................................... § 120.471(d).
§ 120.470(b)(6) ..................... SBLC voluntary capital reduction .................................... § 120.471(c).
§ 120.470(b)(7) ..................... SBLC reserve for losses ................................................. § 120.463(e).
§ 120.470(b)(8) ..................... SBLC internal controls .................................................... § 120.460(b).
§ 120.470(b)(9) ..................... SBLC dual control ........................................................... § 120.470(d).
§ 120.470(b)(10) ................... SBLC fidelity insurance ................................................... § 120.470(e).
§ 120.470(b)(11) ................... SBLC common control .................................................... § 120.470(f).
§ 120.470(b)(12) ................... SBLC management ......................................................... § 120.470(g).
§ 120.470(b)(13) ................... SBLC borrowed funds ..................................................... § 120.470(h).
§ 120.471 ............................. SBLC recordkeeping and retention requirements .......... § 120.461.
§ 120.473 ............................. SBLC change of control .................................................. § 120.475.
§ 120.474 ............................. SBLC prohibited financing .............................................. § 120.476.
§ 120.475 ............................. SBLC Audits .................................................................... § 120.490.
§ 120.476 ............................. SBLC suspension and revocation ................................... § 120.1400 (grounds).
§ 120.716 ............................. Microloan Intermediary and NTAP suspension and rev- § 120.1425 (grounds).
ocation. § 120.1540 (types of enforcement actions).
§ 120.853 ............................. CDC reviews ................................................................... § 120.1000, § 120.1050.
§ 120.854 ............................. CDC grounds for taking enforcement action .................. § 120.1400 (grounds).
§ 120.855 ............................. CDC types of enforcement actions ................................. § 120.1500 (types of enforcement actions).
§ 120.856 ............................. CDC enforcement procedures ........................................ § 120.1600 (enforcement procedures).

Chart: This chart is intended to serve as a reference tool for locating regulatory provisions repositioned under the proposed rule. In some in-
stances, the relocation involves simply moving text from one regulatory section to another. In other instances, SBA is proposing substantive
changes with the move.
B. Key Provisions its minimum capital requirement (For operations on a uniform basis within its
The following is a discussion of key an SBLC—this would mean meeting program and for identifying those
provisions of the proposed rule. They SBA’s § 120.471 minimum or § 120.472 institutions whose SBA loan operations
are as follows: (i) SBA Supervised higher individual minimum capital and portfolio require additional SBA
Lender regulation; (ii) capital regulation; requirement, as applicable. For an monitoring or other action. Under the
NFRL—this would mean meeting the SBA Lender Risk Rating System, SBA
(iii) incorporation of a risk rating
minimum capital requirement set by its assigns each SBA Lender a composite
system; (iv) the addition of the CDC
state of incorporation regulator). While rating of one to five based on certain
Single Audit Act provision; (v) the
the proposed rule does not revise the portfolio performance factors which
codification of the risk-based on-site
minimum capital requirement for all may be overridden in some cases due to
review and examination program; and
SBLCs, SBA is considering updating SBA Lender specific factors that may be
(vi) the coordination and development
this requirement. SBA seeks comments indicative of a higher or lower level of
of enforcement policies and procedures.
as to the appropriate minimum capital risk. SBA would generally consider an
These key provisions are highlighted
requirement for SBLCs. SBA assigned Risk Rating (Risk Rating)
because they generally cover more than In addition to an SBLC minimum
one regulation within the proposed rule. of either one, two, or three on a scale of
capital requirement, the proposed one to five to be an ‘‘Acceptable Risk
In addition, their discussion will regulations would allow SBA to set a
provide a useful background for Rating’’. A ‘‘Less Than Acceptable Risk
higher individual minimum capital Rating’’ would be an SBA assigned Risk
regulation review. requirement for an SBLC, where Rating of four or five. (§ 120.10 and
1. SBA Supervised Lender Regulation appropriate. (§ 120.472). SBA would set § 120.1015). SBA may revise the scale
such a higher minimum capital for SBA Risk Ratings and related
Public Law 108–447, Division K, Title requirement after consideration of
I (December 2004) effectively created a definitions as the program develops.
certain risk-related factors described in Any such changes would be published
new category of SBA Lender—an SBA proposed § 120.472 and pursuant to
Supervised Lender. SBA Supervised in the Federal Register for notice and
procedures contained in proposed comment. SBA plans to develop a risk
Lenders consist of SBLCs and NFRLs. § 120.473. The proposed rule would also
P.L 108–447 generally treated these 7(a) rating system for Microloan
require SBA Supervised Lenders to Intermediaries and NTAPs and will
Lenders the same for purposes of maintain a minimum capital adequacy
regulation, supervision, and provide notice before implementation of
plan (§ 120.462(b)), and to quarterly this system.
enforcement. Accordingly, SBA has certify as to compliance with minimum
drafted a group of regulations applicable capital requirements. (§ 120.462(c)). SBA has incorporated the SBA Lender
to SBA Supervised Lenders in general Capital impairment would be redefined Risk Rating System into its on-site risk-
(§§ 120.460–120.465). The SBA under the proposed rule for SBA based reviews and examinations as set
Supervised Lender regulations would Supervised Lenders, as failing to meet forth in SOP 51–00 governing on-site
cover for example; internal controls, its applicable minimum capital SBA Lender reviews and examinations.
record retention, accounting and requirement. (§ 120.462(d)). Under the The proposed rule would incorporate
reporting, and capital adequacy. Many proposed rule, if an SBA Supervised the SBA Lender Risk Rating System and
of these new regulations governing SBA Lender fails to meet its minimum its definitions into SBA’s loan program
Supervised Lenders, especially those capital requirement (i.e., is capitally regulations. Risk Ratings would be
related to capital, are similar to that of impaired), it must file with SBA a considered in determining whether an
either the Federal Deposit Insurance capital restoration plan (§ 120.462(e)) SBA Lender (and, in the future, a
Corporation; the Federal Reserve Board; and then timely implement the Microloan Intermediary, or NTAP) has
the Office of the Comptroller of the approved plan. SBA could take satisfactory SBA performance for
Currency; the Office of Thrift enforcement action under the proposed purposes of continued participation in
Supervision; the National Credit Union enforcement regulations (§§ 120.1400– the 7(a), 504, Microloan, or NTAP
Administration; or the Farm Credit 1600) against an SBA Supervised programs (including the delegated
Administration (each a Federal Lender that fails to submit a capital authority programs) under proposed
Financial Institution Regulator). restoration plan that is acceptable to amendments to: §§ 120.410
SBA or fails to implement, in any (requirements for 7(a) Lenders); 120.424
2. Capital Regulation (securitization requirements); 120.433
material respect, its capital restoration
Essential to the success of a plan in a timely manner. The proposed (sales and sales of participating
government guaranteed loan program is capital regulations contain provisions interests); 120.434 (pledges of SBA
the financial strength of its lenders. similar to those maintained by some loans); 120.451 (PLP Program); 120.812
Capital is a common metric for Federal Financial Institution Regulators. (Extensions of CDC probationary
measuring financial strength. The periods and permanent CDC status);
proposed rule would incorporate capital 3. Incorporation of a Risk Rating System 120.820 (requirements for CDC
more fully into the 7(a) program. With the assistance of private certifications and operation); 120.839
Specifically, the proposed rule would industry leaders in predictive modeling (outside area of operation loan
explicitly make having sufficient and risk rating systems, SBA has approval); and 120.841 (ALP status).
permanent capital a requirement for 7(a) developed an SBA Lender Risk Rating SBA would also consider a Risk Rating
program participation (§ 120.410(a)). For System. The proposed SBA Lender Risk before approving a Microloan
7(a) Lenders with a Federal Financial Rating System was published for Intermediary’s reduction in its loan loss
Institution Regulator, meeting capital comment in the Federal Register at 71 reserve fund (LLRF) under proposed
requirements for an adequately FR 25624 (May 1, 2006). On May 16, amendments to § 120.710. Under
capitalized financial institution would 2007 OLO published the final rule on proposed § 120.1051, SBA would
be considered sufficient permanent SBA’s Lender Risk Rating System. 72 FR consider an SBA Lender’s,
capital to support SBA lending 27611. The SBA Lender Risk Rating Intermediary’s, or NTAP’s Risk Rating
activities. For SBA Supervised Lenders, System is an internal tool for assessing in determining frequency of on-site
adequate capital would mean meeting the risk of each SBA Lender’s SBA loan reviews/examinations.
Under proposed rule § 120.1400(c)(9), in the 504 program and, accordingly current CDC enforcement regulations,
a repeated Less Than Acceptable Risk would monitor CDC compliance with subpart I’s enforcement provisions
Rating (particularly in conjunction with Single Audit Act requirements. would consist primarily of three main
other grounds) may evidence increased enforcement regulations. The first,
5. Review and Examination Program
financial risk to SBA to warrant proposed § 120.1400, would cover
consideration of taking formal SBA has developed a coordinated grounds for enforcement actions. The
enforcement action. A repeated Less risk-based SBA Lender review and second, proposed § 120.1500, would list
Than Acceptable Risk Rating may also examination program. SBA regulations types of formal enforcement actions.
be evidence of an SBA Lender not need to reflect the updated coordinated The third, proposed § 120.1600, would
performing underwriting, closing, risk-based review/examination set forth the procedures governing each
disbursing, servicing, liquidation, or approach. The proposed rule would type of formal enforcement action.
litigation in a commercially reasonable remove current regulatory provisions Within each of these proposed
and prudent manner under proposed governing on-site reviews and regulations, the subsections are
§ 120.1400(c)(4). SBA expects to examinations within SBA’s loan generally broken down into provisions
consider additional factors (e.g., on-site program regulations (§§ 120.414, that apply to all SBA Lenders;
review/examination assessment, 120.454, 120.470, 120.853) and additional provisions that apply only to
corrective actions implemented, and consolidate them within subpart I on 7(a) Lenders; additional provisions that
contribution toward SBA mission) Risk-Based Lender Oversight. Under the apply only to SBA Supervised Lenders;
before taking formal enforcement action proposed regulations, SBA Lenders additional provisions that apply only to
on these Risk Rating grounds. Finally, a could now look in one location for SBLCs; and additional provisions that
repeated Less Than Acceptable Risk consistent regulatory guidance on on- apply only to CDCs.
Rating could be support for SBA not site reviews and examinations. In Enforcement grounds and formal
renewing program or delegated addition, the proposed rule would enforcement actions for Microloan
authorities. extend such guidance beyond regulatory Intermediaries and NTAPs would be
The incorporation of the Risk Rating authorization for reviews and contained in separate regulations within
System into the regulations is consistent examinations. Specifically, the the enforcement series, as there was less
with SBA’s movement away from proposed rule would include provisions overlap with these participants.
considering only the lagging indicators for off-site reviews and monitoring, on-
site review and examination evaluative III. Section-by-Section Analysis
of our portfolio benchmark performance
measures and towards integration of components, the frequency of on-site Section 120.10—Definitions. SBA
more current and sophisticated reviews and examinations, review and proposes to add ten new definitions to
performance measurement systems examination reports, and expected this section primarily for purposes of
developed by private sector leaders. responses, including, as applicable, risk management/lender oversight and
corrective actions and capital enforcement. The new definitions
4. Single Audit Act Provisions restoration plans. As to the proposed would help to clarify categories of SBA
The proposed rule incorporates Single regulation’s on-site reviews, if an SBA Lenders and related parties referenced
Audit Act requirements into SBA’s 504 Lender is to be examined by a Federal in the proposed regulations. Definitions
program regulations. The Single Audit Financial Institution Regulator in the would be added for 7(a) Lender, SBA
Act (31 U.S.C. 7501–7507) requires Non- same general timeframe, SBA would try Lender, Small Business Lending
Federal entities, such as non-profit to mutually coordinate the timing of the Company (SBLC), Non-Federally
CDCs, that expend a total of $500,000 or SBA operation review and the Regulated Lender (NFRL), SBA
more of federal awards (e.g. loan supervisor’s examination to minimize Supervised Lender, Other Regulated
guarantees) in any fiscal year (including any burden. Finally, the proposed rule SBLC, Federal Financial Institutions
amounts outstanding), to have a single also would include Microloan Regulator, and Management Official.
audit performed for such fiscal year. Intermediaries and NTAPs in the review SBA would also add Risk Rating
The audit must be conducted by an regulations, and would harmonize the definitions that would describe an SBA
independent auditor in accordance with review process between for-profit 7(a) Risk Rating and the key rating categories
generally accepted government auditing Lenders and non-profit CDCs, since of Acceptable and Less Than
standards. The Single Audit Act may SBA’s partial guaranty of credit risk on Acceptable.
also require, under certain individual loans for each program is Section 120.410—Requirements for all
circumstances, the Non-Federal entity to similar. participating Lenders. Under the
monitor the subrecipients’ use of federal proposed rule, the requirement in
awards through site visits, limited scope 6. Enforcement Policies and Procedures section 120.410(a) that a 7(a) Lender
audits, and other means. By including SBA has consolidated within subpart have the continuing ability to evaluate,
reference to the Single Audit Act in SBA I, the Agency’s enforcement regulations process, close, disburse, service,
regulations, SBA would not intend to for SBA Lenders, Microloan liquidate, (and litigate) loans would be
extend coverage of the Single Audit Act Intermediaries, and NTAPs. The more specifically defined to include
to those CDCs for which the Single consolidation would facilitate (but not be limited to) (i) holding
Audit Act does not apply. Therefore, for coordinated enforcement policies. It sufficient permanent capital (For
example, if a CDC does not meet the would allow all SBA Lenders, Lenders with Federal Financial
$500,000 federal award minimum, then Microloan Intermediaries, and NTAPs to Institution Regulators, that would entail
the Single Audit Act compliance look in one place for such regulatory being ‘‘adequately capitalized.’’ For
requirement would not apply. However, guidance. Finally, consolidation within SBLCs, that would entail meeting its
SBA estimates that virtually all active subpart I should provide for greater SBA minimum capital requirement. For
CDCs are covered by the Single Audit consistency in taking formal NFRLs, that would entail meeting the
Act. SBA also would intend to consider enforcement actions. minimum capital requirement of its
CDC compliance with the Single Audit SBA has modeled its proposed state of incorporation) and (ii) having
Act, including any future amendments enforcement provisions after SBA’s CDC satisfactory SBA performance. SBA is
to it, as a requirement for participation enforcement regulations. Like the more specifically defining the
continuing ability provision to include established Lender Oversight Committee and related performance metrics and
adequate capital and satisfactory SBA (LOC). Proposed changes to § 120.420(f) OCRM’s Delegations of Authority into
performance because sufficient capital would also specify the LOC’s discretion PLP program participation
and satisfactory performance sustain a in reviewing an SBA Lender’s good- determinations.
7(a) Lender’s ability to evaluate, standing in certain circumstances Section 120.460—What are SBA’s
process, close, disburse, service, involving investigations, indictments, additional requirements for SBA
liquidate, and litigate loans. convictions, and judgments, to be Supervised Lenders? SBA is proposing a
In determining satisfactory SBA consistent with the LOC’s discretion set new § 120.460 entitled ‘‘What are SBA’s
performance, SBA would consider a forth in 120.420(f)(4). Finally, SBA additional requirements for SBA
Lender’s Risk Rating, among other proposes to add the words ‘‘In general’’ Supervised Lenders?’’ In addition to
factors. The other factors SBA to its ‘‘good-standing’’ definition to complying with SBA’s requirements for
anticipates considering may include on- underscore the discretionary nature of 7(a) Lenders, an SBA Supervised Lender
site review/examination assessments, the ‘‘good-standing’’ determination. would be required to meet additional
historical performance measures (like Sections 120.424—What are the basic requirements set forth in § 120.460 and
default rate, purchase rate and loss rate), conditions a Lender must meet to the sections that follow. Under
loan volume to the extent that it impacts securitize; 120.433—What are SBA’s § 120.460, SBA would require an SBA
performance measures, other other requirements for sales and sales of Supervised Lender to adopt an internal
performance related measurements and participating interests; and 120.434— control policy that would provide
information, and contribution toward What are SBA’s requirements for loan adequate direction for establishing
SBA mission. pledges? SBA is revising the effective control over and accountability
Subsection (a) would also be revised requirements in these sections to more for operations, programs, and resources.
to specify the requirement that a 7(a) explicitly reference the ‘‘good standing’’ An SBA Supervised Lender that is
Lender have the ability to litigate loans. definition in § 120.420(f). SBA is also required to maintain an adequate
This is consistent with SBA’s policy on proposing to add the requirement that internal control program may be more
7(a) Lender litigation of SBA Loans. 7(a) Lenders have satisfactory SBA likely to self-identify and self-correct
In addition, the OCRM proposed rule performance as determined by SBA and operational deficiencies. Proposed
would further define SBA’s that Risk Ratings would be considered § 120.460 is similar to a Federal
requirements to participate in the 7(a) among other factors in determining Financial Institution Regulator internal
program by adding the following 7(a) satisfactory SBA performance. SBA control provision in Title 12 of the Code
Lender requirements: (i) Good standing expects to consider among the other of Federal Regulations.
(as generally defined under § 120.420(f) factors, on-site review/examination Section 120.461—What are SBA’s
and with a Lender’s state banking assessments, historical performance additional requirements for filing SBA
regulator and/or Federal Financial measures like default rate, purchase rate Supervised Lender reports with SBA
Institution Regulator, as applicable); (ii) and loss rate, other performance-related and for record retention? This proposed
safe and sound condition; and (iii) use measures and information, and regulation would require that SBA
of commercially reasonable lending contribution toward SBA mission. This Supervised Lender specific reports be
policies, procedures, and standards change would incorporate SBA’s Risk filed with the appropriate Office of
employed by prudent lenders. For SBA Rating System within SBA’s Capital Access official in accordance
Supervised Lenders, safe and sound securitization and other conveyance with Delegations of Authority. This is
condition would be determined by SBA. regulations. consistent with current Delegations of
For other 7(a) Lenders, SBA would look Section 120.435—Which loan pledges Authority. This section would also
to a 7(a) Lender’s Federal Financial do not require notice to or consent by extend the recordkeeping requirements
Institution Regulator or state banking SBA? SBA proposes to update the cross- for SBLCs to NFRLs. Record retention is
regulator, as applicable, to ensure safe reference to ‘‘§ 120.434(e)’’ within this required for SBA to be able to perform
and sound condition. section consistent with proposed safety and soundness examinations or
Finally, subsection (d) would be revisions to § 120.434. Lender reviews and to monitor that
clarified to provide that a 7(a) Lender Section 120.451—How does a Lender SBLC licensing requirements are
must be supervised and examined by become a PLP Lender? SBA is proposing maintained. Finally, this proposed
either a Federal Financial Institution to amend § 120.451 to add satisfactory section would newly specify certain
Regulator, a state banking regulator SBA performance to those items SBA time periods for retrieving certain
(satisfactory to SBA) or SBA. SBA is would consider in approving PLP status. documents (i.e., 1 day for documents
clarifying this provision to make clear Subsection (e) on PLP recertification that must be immediately retrievable
that a 7(a) Lender participating in SBA’s would also be amended to include SBA and 15 days for originals of documents
program must be supervised and performance (including contribution to that are stored electronically).
examined by a banking regulator, SBA mission), a Lender’s Risk Rating, Consequently, an SBA Supervised
satisfactory to SBA. The clarifications examination and review results, and Lender must be able to produce needed
and revisions proposed for § 120.410 are other risk-related factors in the records when required, and within a
intended to minimize losses in the 7(a) recertification decision. Section 120.451 reasonable period of time, as defined
program. would also be amended to provide that here.
Sections 120.420(f)—Participating the recertification decision would be Section 120.462—What are SBA’s
lender financings, definition of ‘‘Good made by the appropriate Office of additional requirements on capital
Standing’’; 120.425(c)(2)— Capital Access official in accordance maintenance for SBA Supervised
Reinstatement of securitizer PLP status; with Delegations of Authority. Also, Lenders? A financial institution is
and 120.426—Actions SBA would take SBA proposes to delete current expected to maintain capital
if SBA securitizer transfers tranche prior subsections (c) and (f) to conform to commensurate with its existing and
to holding period. SBA proposes to existing Agency policy as published in potential risk exposure and the ability of
change the determining authority in Notice 5000–989 dated May 2, 2006 management to identify, measure,
these provisions from the Securitization governing PLP territories. Finally, these monitor, and control exposures. Given
Committee to the more recently additions incorporate lender oversight this, many SBA Supervised Lenders do,
and should be expected to, maintain financial statements be audited annually supported by a market analysis. Under
capital levels above specified in accordance with generally accepted subsection (f), SBA could require an
minimums. Therefore, SBA is proposing auditing standards by an independent SBA Supervised Lender to use industry
a new § 120.462 which would guide certified public accountant experienced averages for the valuation of servicing
SBA Supervised Lenders to maintain in auditing financial institutions. rights, in lieu of any other assumptions
their own capital adequacy goals and Proposed subsection (d) would found unacceptable by SBA.
plans, typically at a level above SBA’s require an SBA Supervised Lender that Section 120.464—Reports to SBA.
minimum. The provision would also discharges its auditor to notify SBA Proposed § 120.464 would extend to
provide guidance as to factors an SBA within ten days of discharge and NFRLs, SBA’s current SBLC reporting
Supervised Lender should consider in provide SBA with the name, address, requirements covering audited financial
determining the total amount of capital and telephone number of the discharged statements, administrative and legal
needed to assure the SBA Supervised auditor. If the discharge involved a proceedings, reports to stockholders,
Lender’s continued financial viability dispute over the financial statements, summaries of changes (in organization
and to provide for any necessary the SBA Supervised Lender would also and financing), stock pledges, and other
growth. have to provide additional information, reports, as listed in current § 120.472.
Given the importance of maintaining including but not limited to, a detailed Proposed § 120.464 would also clarify
adequate capital, the proposed rule reason for the discharge and the effect current reporting requirements by, for
would further require that all SBA of each party’s position on the financial example, detailing required statements
Supervised Lenders, within 45 days of statements. to accompany the Annual Report
the end of each fiscal quarter, furnish Proposed subsection (e) would extend (audited financial statements); inserting
SBA with a calculation of its the SBLC requirement for maintenance filing time requirements where
compliance with its minimum of an allowance for losses on loans to presently not stated (Stockholder Report
regulatory capital requirement. Under NFRLs. Under proposed § 120.463(e), an and Report of Changes); detailing the
proposed § 120.462(c), SBA would SBA Supervised Lender would be form and format of financial reporting
require the SBA Supervised Lender’s required to maintain documentation of (e.g. for Annual Reports, Quarterly
chief financial officer to certify the its loan loss allowance calculations and Condition Reports, and Reporting of
calculation as correct. analysis in sufficient detail to permit the Changes—to be in accord with GAAP,
Section 120.462 would extend to SBA to review assumptions used and include footnotes, and utilize accrual
NFRLs SBA’s requirement to timely their application. SBA would also accounting), and specifying that any
notify SBA in writing of capital require, under subsection (e) that the legal or administrative proceedings
impairment. Under proposed unguaranteed portions of loans must be included in other required
§ 120.462(d), SBA would redefine identified as uncollectible be charged reporting (e.g., Annual Report, Quarterly
capital impairment as any failure by an off promptly. If the portion determined Condition Report, any Capital plan
SBA Supervised Lender to meet its to be uncollectible by the SBA report, etc.) until such matter is
minimum capital requirements. SBA is Supervised Lender would differ from resolved.
proposing this revision to provide SBA that determined by its auditors or the Proposed § 120.464 would also
early notice of a Supervised Lender’s SBA, the SBA Supervised Lender would introduce two additional SBA
deteriorating capital position below be required to charge-off such amount as Supervised Lender reports: (i) The
required minimums. Unless otherwise the SBA may direct. Each SBA Quarterly Condition Report and (ii) the
waived by SBA in writing, an SBA Supervised Lender would also be Reports of Changes in Financial
Supervised Lender would be prohibited required to classify loans as nonaccrual Condition. SBA Supervised Lenders
from presenting any loans to SBA for or formally restructured in accordance would report quarterly financial status
guarantee until the capital impairment with stated guidelines. Under the in Quarterly Condition Reports. The
is cured. proposed subsection, if one loan to a Quarterly Condition Report under
Finally, the proposed rule would given borrower would be classified as proposed § 120.464 would contain
require an SBA Supervised Lender that nonaccrual or formally restructured, all quarterly financial statements that could
fails to meet its minimum capital loans to that borrower would be be internally prepared and which would
requirement to submit a capital required to be so classified unless the likely include the required certification
restoration plan. Proposed subsection SBA Supervised Lender could of compliance with capital requirements
(e) would detail the plan content, how document that the loans have under proposed § 120.462(c). Reports of
SBA would respond, amendments to the independent sources of repayment. Changes in Financial Condition would
capital plan, and consequences of Finally, § 120.463, subsection (f), report material changes in an SBA
failure to: (i) Submit an acceptable plan would require that SBA Supervised Supervised Lender’s financial condition
within the required timeframe or (ii) Lenders account for loan sales (such as unanticipated reductions in
implement in any material respect an transactions and the valuation of loan asset values due to unanticipated events
approved capital restoration plan within servicing rights in accordance with such as natural disasters or uninsured
the plan timeframe. GAAP. At the end of each quarter, hazard loss). Generally, SBA would
Section 120.463—Regulatory assumptions used in the valuation require the SBA Supervised Lender to
accounting. To facilitate accurate and would be reviewed by the SBA file the Report of Changes in Financial
reliable financial reporting, the Supervised Lender for reasonableness in Condition within 10 days of becoming
proposed rule contains a new § 120.463 the existing environment. In evaluating aware of such a material financial
on regulatory accounting. The proposed the assumptions, the SBA Supervised change, except in cases of capital
regulation would require that an SBA Lender would be required to give impairment which would be 30 days
Supervised Lender’s (i) books and particular attention to interest rate and from the month-end in which the
records be kept on an accrual basis in repayment rate assumptions. impairment occurred, in accordance
accordance with Generally Accepted Assumptions considered no longer with proposed § 120.462(d), as clearly
Accounting Principles (GAAP) as reasonable would be required to be specified in the Regulation language.
supplemented by Regulatory modified and reflected in the valuation These two financial reports would result
Accounting Principles (RAP) and (ii) and would have to be documented and in timelier financial reporting.
Subsection (c) would require that SBA would automatically accrue from the divestitures, and a clearer statement on
Supervised Lenders certify each report report due date until the SBA common control and presumptions.
of financial condition (e.g., the Supervised Lender submits a complete Section 120.471, 120.472, 120.473,
Quarterly Condition Report, the report. If a submitted report is not and 120.474—SBLC minimum capital
Changes in Financial Condition Report complete, it would be deemed not filed requirements. SBA sets SBLC capital
and the Annual Report) as having been for purposes of civil monetary penalty standards pursuant to 15 U.S.C.
prepared in accordance with applicable assessment. Under the proposed rule, if 650(a)(2) and 15 U.S.C. 634(b)(7) in
regulations and instructions and to be a SBA discovers after the due date (e.g., conjunction with 15 U.S.C. 636.
true, accurate, and complete during an examination) that the report Proposed §§ 120.471 through 120.474
representation of the SBA Supervised was submitted only in part or was not would govern SBLC minimum capital
Lender’s financial condition and filed, penalties would be assessed standards. Proposed § 120.471 would
performance. Accurate financial dating back to the original due date. state SBA’s baseline minimum capital
reporting is essential to an institution’s Finally, proposed § 120.465 would standard for SBLCs. Under proposed
safety and soundness. Reliable financial § 120.471, the baseline would remain at
provide procedures for requesting: (i)
reports are necessary for an SBA the current level stated in
Due date extension and waiver of
Supervised Lender to raise capital. They § 120.470(b)(3). However, SBA is
automatic penalty up to a new due date,
provide data to stockholders and considering revising the baseline
(ii) reduction or exemption from the minimum capital standard and seeks
potential investors on the company’s
automatic penalty, and (iii) comments on the appropriate minimum
financial position and results of
reconsideration of SBA decisions on capital level.
operations. Such information is critical
to effective market discipline. Accurate extensions and reductions/exemptions Proposed § 120.471 would provide
financial information also enables and would include factors that would be more detailed guidance on those items
management to effectively manage the considered in the SBA approval (e.g. that SBA would include in calculating
institution’s risks and make sound determination of reasonable cause such an SBLC’s capital under the capital
business decisions. Further, the as natural disaster or other conditions requirement. The capital calculation
compilation and submission of accurate beyond the control of management, that would generally consist of the following
financial information on a regular basis failure was not due to willful neglect, items: (i) Common stock; (ii) preferred
in a consistent format allows SBA to demonstration of modified internal stock that is non-cumulative as to
perform more timely and effective risk- procedures to comply with reporting in dividends and does not have a maturity;
based supervision to support the future, etc.). SBA seeks comments (iii) additional paid-in-capital for stock
examination functions, off-site on the factors SBA would consider as in excess of the par value; (iv) retained
monitoring, assessments of an discussed in the proposed rule. earnings; and (v) for limited liability
institution’s capital adequacy and Section 120.470—What is an SBLC? companies and limited partnerships,
financial strength, and comparisons As part of the rewrite of the SBLC those capital contributions that are not
between SBA Supervised Lenders. regulations, SBA is proposing to amend subject to repayment at any specific
Finally, proposed § 120.464 would the title and certain content of current time, are not subject to withdrawal and
provide for a waiver provision for any § 120.470. Under the proposed rule, the have no cumulative priority return. The
reporting requirement for good cause. subject matter in several provisions of inclusion of retained earnings and
Good cause may include, but is not § 120.470 would be moved elsewhere in limitations on preferred stock in the
limited to, where an SBA Supervised proposed rule is consistent with Federal
Part 120 (See Chart of Regulations
Lender has a relatively small SBA loan Financial Institution Regulator policies.
Relocated in the Proposal section of the In some cases, SBA may determine
portfolio, consistently-acceptable Risk preamble) and some remaining
Ratings, portfolio performance that that the baseline minimum capital
provisions would be updated, formula may not be sufficient to support
exceeds SBA’s portfolio or peer group
reorganized, or expanded. Updates the risk associated with a particular
averages, etc. This waiver would be
would include, for example: The SBLC’s portfolio. Consequently,
determined by SBA, in its sole
addition of limited liability companies proposed § 120.472 would provide that
discretion. In making this determination
and limited partnerships as allowable SBA may require a higher individual
based on portfolio size, SBA expects to
business structures; an increase to $2 minimum capital requirement for an
consider the value of the report to SBA
given the size of SBA Supervised million for required Fidelity Bond SBLC. Proposed § 120.472 would
Lender’s SBA loan portfolio and relative insurance; incorporation of new provide examples of risk-related factors
to other SBA Supervised Lender’s definitions of 7(a) Lender and that SBA might consider in making that
portfolios individually and in the Intermediary into subsection (a)(2) on determination. An SBLC individual
aggregate and other risk related factors. lending requirements; a statement on minimum capital requirement would be
Authority for such actions will be in SBA’s policy on capitalization with established pursuant to procedures set
accordance with SBA’s Delegations of borrowed funds. The Fidelity Bond forth in proposed § 120.473 or through
Authority. increase would update the insurance written agreement or a cease and desist
Section 120.465—Civil penalty for requirements consistent with the proceeding as stated in proposed
late submission of required reports. current maximum loan amount that § 120.474. The proposed individual
Congress recognized the importance of SBA can guarantee. SBA would expand minimum capital requirement
reporting to effective oversight and guidance, in particular, on SBA’s policy procedures are similar to those provided
legislated civil monetary penalties of up against capitalization with borrowed by some Federal Financial Institution
to $5,000 per day for SBA Supervised funds. Borrowed funds may result in a Regulators.
Lenders that fail to meet reporting weaker capital position of the SBLC due Finally, the SBLC capital regulations
requirements (15 U.S.C. 650(j)). to the potential for required repayment. would include a change in policy for
Proposed § 120.465 would codify in SBA would also expand guidance in the approving issuances of securities
SBA regulations the statutory civil proposed subsection on common (currently in § 120.470(b)(5) and
monetary penalties. The proposed control—providing terms and proposed in § 120.471(d)). The proposed
regulation would provide that penalties definitions, requirements for provisions would delete the last part of
current § 120.470(b)(5). This deletion the small business community for it to Single Audit Act requirements into
would have the effect of making it a operate across state lines. The proposed SBA’s 504 program regulations.
requirement for an SBLC to obtain prior rule would shift approval authority for Section 120.830—Reports a CDC must
written approval for issuances of expansions from the D/FA to the submit. SBA is proposing an amended
common stock, including issuances for appropriate Office of Capital Access § 120.830 to clarify the current annual
cash or direct obligations of or official in accordance with Delegations report requirement by detailing the
obligations fully guaranteed as to of Authority to reflect changes in statements that must be included.
principal and interest by the United internal agency procedure. Section 120.845(b)—PCLP status.
States government. This is consistent in Section 120.710(c) and (d)— Section 120.845(b) would be revised to
general with SBA’s policy of prior Microloan Intermediary Loan Loss provide that final determinations under
approval for other types of financings Reserve Fund (LLRF) approval this section would be made by the
(e.g. warehouse lines, participations, authority. SBA proposes amending appropriate Office of Capital Access
and securitizations). For further § 120.710(c) and (d) to shift approval official in accordance with Delegations
information on proposed rule capital authority for a reduction in the LLFR of Authority. This proposed revision
provisions see the Capital Regulation calculation from the D/FA to the would reflect changes in internal agency
provision in the Proposal section of the appropriate Office of Capital Access procedure.
preamble. official in accordance with Delegations Section 120.853—Oversight and
Section 120.475—Change of of Authority. This revision would reflect evaluation of CDCs. Section 120.853
ownership or control. SBA proposes to changes in internal agency procedure. currently covers both SBA reviews and
relocate current § 120.473 governing Sections 120.710(e)(1), 120.812, Inspector General audits of CDCs. The
change of ownership and control for 120.820, 120.839, and 120.841— proposed rule would move the CDC
SBLCs to § 120.475. In addition, the Microloan Intermediary LLRF reduction review portion of the regulation to
proposed rule would shift approval and selected CDC authority criteria. subpart I—Lender Oversight (proposed
authority from the D/FA to the SBA proposes amending § § 120.1000 and 120.1050—On-site
appropriate Office of Capital Access §§ 120.710(e)(1) (Microloan Reviews and Examinations). The
official in accordance with Delegations Intermediary reduction of LLRF); proposed rule would retitle § 120.853
of Authority to reflect changes in 120.812 (Extension of CDC probationary ‘‘Inspector General Audits of CDCs’’
internal agency procedure. Further, if a periods and permanent CDC status); consistent with the revised subject
transfer of ownership or control is 120.820 (Requirements for CDC matter.
subject to approval of any State or certification and operation); 120.839 Section 120.956—Suspension or
Federal chartering, licensing, or other (Outside area of operation loan revocation of brokers and dealers. The
regulatory authority, copies of any approval); and 120.841 (ALP status), to proposed rule would revise § 120.956 to
documents filed with such authority incorporate that SBA would consider an provide that the appropriate Office of
would also have to be transmitted to the Intermediary’s or SBA Lender’s Capital Access official in accordance
appropriate Office of Capital Access performance (which will include its with Delegations of Authority (rather
official in accordance with Delegations Risk Rating, among other factors) in than the D/FA) would be responsible for
of Authority. making determinations under these suspensions and revocations of broker/
Section 120.630—Qualifications to be regulations. SBA expects to consider in dealer participation in the Secondary
a Pool Assembler. SBA proposes to add determining satisfactory SBA Market. This is consistent with SBA’s
an additional requirement applicable performance on-site review assessments; Delegations of Authority for oversight
only to SBA Lenders. Specifically, SBA historical performance measures; loan and enforcement responsibilities. In
would require SBA Lenders seeking to volume to the extent that it impacts addition, the proposed rule deletes the
become a Pool Assembler to have performance measures; other last sentence on suspension of appeal
satisfactory SBA performance, as performance related measurements and rights.
determined by SBA. SBA would information, and contribution toward Subpart I—Risk-Based Lender
consider an SBA Lender’s Risk Rating, SBA mission. Proposed § 120.841(c) Oversight. SBA is significantly
among other factors, in determining (ALP status) would also add the enhancing subpart I in Part 120
satisfactory SBA performance. The other requirement that an ALP CDC must have introduced on May 4, 2007 with SBA’s
factors that SBA anticipates considering a risk-based review assessment of published final rule on its Lender
may include on-site review/examination ‘‘acceptable’’ or ‘‘acceptable with oversight fees. 72 FR 25194. The
assessments, historical performance corrective actions required’’ to be enhancements would consolidate SBA’s
measures (e.g., default rate, purchase considered for ALP status. supervision and enforcement authorities
rate, and loss rate), loan volume to the Section 120.826—Basic requirements for SBA Lenders, Microloan
extent that it impacts performance for operating a CDC. The proposed rule Intermediaries and NTAPs. This
measures, and other performance adds to § 120.826 internal control consolidation would facilitate more
related measurements and information. requirements similar to those proposed coordinated and effective lender
SBA considers these factors as relevant for SBA Supervised Lenders. Under the oversight.
to the expected performance of a Pool proposed rule, a CDC would be required Section 120.1000—Risk management/
Assembler. SBA is revising this to adopt an internal control policy to Lender oversight. SBA is proposing a
regulation to incorporate SBA loan include maintenance of a loan review new § 120.1000 entitled ‘‘Risk
program performance for SBA Lenders/ program, in conjunction with its SBA- management/Lender oversight’’ that
pool assemblers into pool assembler guaranteed debenture financings. In would describe lender oversight
eligibility criteria. addition, a CDC would have to have its functions and the financial institutions
Section 120.702—Limitations on financial statements annually audited supervised under the subpart.
where an Intermediary may operate? by an independent certified public Section 120.1005—Bureau of PCLP
Current § 120.702 provides that accountant since this would establish Oversight. In Public Law 108–232 (May
Microloan Intermediaries may operate consistency in application of GAAP (a 28, 2004), the ‘‘Premier Certified
in only one state unless SBA determines requirement) for CDC audits. Proposed Lenders Program Improvement Act of
that it would be in the best interests of § 120.826 would also incorporate the 2004’’, Congress established two
alternative loss reserve pilot programs Section 120.1025—Off-site reviews/ asset quality; management quality;
for certain Premier Certified Lenders monitoring. SBA is proposing a new earnings; liquidity; compliance with
(PCLP CDCs) loan loss reserve funds § 120.1025 entitled ‘‘Off-site reviews/ laws, regulations, rules, SOPs, and SBA
(LLRF). The public law also established monitoring’’. Under proposed agreements; and such other risk related
the Bureau of PCLP Oversight in SBA to § 120.1025, SBA may conduct off-site factors as SBA may identify from time
carry out such functions as the reviews/monitoring of all SBA Lenders, to time. SBA’s safety and soundness
Administrator designates towards Microloan Intermediaries, and NTAPs, examinations are similar in scope to
implementing the pilot programs. On including SBA Lender self-assessments those conducted by the Federal
May 26, 2006, SBA published a and other targeted off-site reviews as Financial Institution Regulators. For
proposed rule governing the LLRF pilot defined by SBA. Currently, SBA SBA operational reviews, SBA would
programs. See, 71 FR 30323. Under the conducts off-site SBA Lender reviews review the SBA portfolio performance;
published proposed regulations, the on at least a quarterly basis using SBA’s SBA operations management; credit
Bureau of PCLP Oversight (Bureau) Loan and Lender Monitoring System administration; compliance with laws,
would approve the independent auditor (L/LMS). The L/LMS off-site review is regulations, rules, SOPs, and SBA
that a pilot participant would engage to SBA’s primary method of monitoring all agreements; and such other risk related
calculate its required LLRF. The Bureau of SBA’s 5000-plus SBA Lenders. For factors as SBA identifies from time to
would also review and make a lower volume SBA Lenders, it may be time. These components have been
determination as to a pilot participant’s the sole method of SBA review. L/LMS identified by SBA as most useful in
process for analyzing the risk of loss off-site reviews/monitoring are also assessing lender performance and risk to
associated with the pilot participant’s used in conjunction with SBA Lender the loan program. Section 120.1050
outstanding PCLP debentures (and the onsite reviews/exams and self- would also provide for SBA reviews of
underlying loans) and the sufficiency of assessments (e.g. for purposes of Microloan Intermediaries and NTAPs.
the LLRF. SBA anticipates publishing a planning and prioritization of exams/ Finally it would provide SBA with the
final PCLP rule in the future. reviews/assessments and for evaluating flexibility to perform other reviews and
Proposed § 120.1005 as contained in performance). examinations, as SBA determines
today’s proposed lender oversight rule Under proposed § 120.1025, SBA necessary. These could include targeted
would include the Bureau of PCLP could require an SBA Lender, Microloan or limited scope reviews/examinations
Oversight within subpart I, SBA’s Intermediary, or NTAP to perform a self- (e.g., ad hoc reviews/examinations,
consolidated lender oversight assessment. This would be analogous to additional monitoring activities, special
regulations. Proposed § 120.1005 would an AICPA Agreed Upon Procedures performance assessments). Targeted and
provide that the Bureau monitor the Engagement. For lower volume SBA limited scope reviews/examinations
capitalization of PCLP CDC pilot Lenders, Microloan Intermediaries, and would provide for a more efficient and
participants’ LLRFs, and perform other NTAPs, a self-assessment could consist less burdensome means of supervision
related functions. SBA may expand of a self-evaluation as to SBA of specific deficiencies.
Bureau functions in the future performance or compliance with certain Section 120.1051—Frequency of on-
consistent with SBA’s statutory SBA requirements. Generally, SBA site Lender reviews and examinations.
authority. would consider requiring a self- Proposed § 120.1051 provides that SBA
Section 120.1010—SBA access to SBA assessment to confirm corrective actions would perform on-site reviews and
Lender, Microloan Intermediary, and implemented or in lieu of a targeted or examinations on a periodic basis.
NTAP files. Proposed § 120.1010 limited scope review. SBA expects to Currently, SBA plans on conducting
governs SBA access to SBA Lender, provide additional guidance on self- such reviews and examinations on a 12
Microloan Intermediary, and NTAP assessments in its SOPs. to 24 month cycle, depending on the
files. SBA is relocating its current file Finally, SBA may also perform risk characteristics of the SBA Lender,
access regulation from § 120.414 and targeted off-site reviews and monitoring Microloan Intermediary, or NTAP. The
expanding this codification of authority (e.g., performance comparison to SBA proposed regulation would also list
to explicitly include CDCs, Microloan portfolio and peer averages, error rates some risk-related factors that SBA
Intermediaries, and NTAPs. This in 1502 reporting, trend analysis, etc.). would consider in determining review/
provision is intended to facilitate lender Off-site reviews/monitoring examination frequency. They would
oversight. mechanisms like L/LMS, self- include (but would not be limited to): (i)
Section 120.1015—Risk Rating assessments, and other targeted off-site Off-site review/monitoring results (e.g.
System. SBA is proposing a new reviews are a timely and cost effective Risk Rating); (ii) SBA portfolio size; (iii)
§ 120.1015 entitled ‘‘Risk Rating means of overseeing and monitoring the prior findings; (iv) responsiveness to
System.’’ Under proposed § 120.1015, SBA performance and compliance of correcting past deficiencies; and v) such
SBA could assign a Risk Rating to all SBA Lenders, Microloan Intermediaries, other risk-related factors as determined
SBA Lenders, Microloan Intermediaries, and NTAPs. by SBA.
and NTAPs on a periodic basis Section 120.1050—On-site reviews Section 120.1055—Review and
(currently quarterly for SBA Lenders). and examinations. Proposed examination results. Under the
This SBA Risk Rating process is detailed § 120.1050—‘‘On-site reviews and proposed rule, SBA would provide SBA
separately in final Federal Register examinations’’ would codify in one Lenders, Microloan Intermediaries, and
notice at 72 FR 27320 (May 16, 2007). place within SBA regulations SBA’s NTAPs a copy of their report of
Risk Ratings range from one to five, with authority to conduct examinations of examination or review (Report). The
one indicating the least risk and five the SBA Supervised Lenders and reviews of Report would contain findings,
most risk to SBA. OCRM would, from the SBA operations of SBA Lenders. The conclusions, corrective actions and/or
time to time, define the numeric proposed section would also describe recommendations. The proposed
definitions of acceptable and the examination and review regulation requires each director of an
unacceptable levels of risk. For components that SBA would likely SBA Supervised Lender and manager of
additional discussion of the Risk Rating evaluate. For SBA Supervised Lender the SBA Operations of SBA Lenders,
System within this proposed rule, see safety and soundness examinations, Microloan Intermediaries, and NTAPs to
the Proposal section of the preamble. SBA would examine capital adequacy; review the Report. If such senior
management review the Report 650 et seq. The SBA enforcement action portfolio benchmarks under current
consistent with their responsibilities, it provisions of the proposed rule would § 120.854(a)(4).
is more likely that the SBA Lender, begin with a new § 120.1400 that would Proposed paragraphs (11) and (12)
Microloan Intermediary, and NTAP provide a listing of grounds that may would provide the grounds for
would commit to and make corrective trigger enforcement action. Proposed immediate suspension of loan program
actions. Proposed § 120.1055, would § 120.1400 lists first those grounds that, activities for SBA Lenders except SBA
also provide procedures for responding in general, could trigger enforcement Supervised Lenders, as well as the
in writing to SBA Reports along with actions, then those grounds that are grounds for immediate suspension of
the consequences of failure to submit or specific to certain enforcement actions, delegated authorities for all SBA
implement responses, corrective most of which are specific to certain Lenders. The basis for such action
actions, and capital restoration plans. types of institutions (e.g., SBA would be a determination by SBA that
Section 120.1060—Confidentiality of Supervised Lenders). one or more of the grounds in
Reports, Risk Ratings, and related Grounds for enforcement actions subsection (c) exist and, that immediate
Confidential Information. Proposed would not be limited to violations of the action is needed to prevent the risk of
§ 120.1060 would provide that Reports regulations as stated in proposed significant loss to SBA or to prevent
and other SBA prepared review or subsection (a). SBA is authorized to significant impairment of the 7(a) or 504
examination related documents are the bring enforcement actions for breaches programs.
property of SBA. It would also provide of terms and conditions in the SBA Proposed subsections (d) and (e)
that Reports, Risk Ratings and related Form 750 Loan and Guaranty would incorporate the statutory grounds
Confidential Information (including Agreement and all other agreements for certain SBA Supervised Lender and
SBA Lender portal information) would jointly executed by the SBA Lender and SBLC enforcement actions under 15
be privileged and confidential. The term U.S.C. 650 et seq. Among those are
SBA.
‘‘Confidential Information’’ is defined in grounds specific to SBA Supervised
The grounds, as proposed, are Lenders (excluding Other Regulated
the SBA Lender Information Portal, and
primarily derived from current SBLCs under proposed § § 120.1510 and
by notice issued from time to time.
regulations or directly from the Act. For 120.1511) for suspensions and
Currently, it is defined as ‘‘all lender-
example, the grounds would include: revocations of SBA program authority.
related information contained in the
Failure to maintain eligibility Subsection (f) would list additional
Portal including ‘Lender Results’, except
requirements; failure to comply grounds specific to CDCs and, for PCLP
for the ‘Past 12 Month Actual Purchase
Rate’ and the ‘Past 12 Month Actual materially with any requirement CDCs, includes failure to establish and
Charge-Off Rate’.’’ Under the proposed imposed by statute, regulation, SOP, maintain a LLRF in accordance with
rule, SBA Lenders, Microloan policy or procedural notice, or any SBA regulations.
Intermediaries, and NTAPs would be agreement; making a material false Section 120.1425—Grounds—
required to restrict access to the Report, statement; and not performing Intermediaries participating in the
the Risk Rating, and the Confidential underwriting, closing, disbursing, Microloan program and NTAPs.
Information to certain ‘‘permitted servicing, liquidation, or litigation in a Proposed § 120.1425 would incorporate
parties’’ as defined in this proposed commercially reasonable and prudent grounds for enforcement actions against
regulation and to those for whom access manner with respect to the applicable Microloan Intermediaries and NTAPs
is required by applicable law or legal loan program (e.g., 7(a) or 504). A contained in current § 120.716 into
process. For example, if it is determined repeated Less Than Acceptable Risk subpart I. In addition, the proposed
that such law or legal process requires Rating would be included in regulation would provide that a
disclosure to a Federal Financial enforcement action grounds indirectly repeated Less Than Acceptable Risk
Institution Regulator, then this proposed through subsections (c)(4) and (c)(9). Rating or an indictment for a felony or
regulation would not preclude that Subsection (c)(4) would provide that a on fraud charges of an officer, key
access. SBA Lenders, Microloan repeated Less Than Acceptable Risk employee, or loan agent involved with
Intermediaries and NTAPs would be Rating or on-site review/examination SBA loans or the SBA program for a
prohibited from otherwise disclosing assessment could be evidence to Microloan Intermediary or NTAP could
Report, Risk Rating, and Confidential support a determination that the SBA be evidence of SBA’s increased financial
Information in full or in part in any Lender was not performing or program risk, and as such, also serve
manner without SBA’s prior written underwriting, closing, disbursing, as grounds for formal enforcement
permission. The confidentiality servicing, liquidation, litigation or other action. However, it would not
requirement is reflective of the actions in a commercially reasonable automatically mean that SBA would
principles underlying the bank and prudent manner. Subsection (c)(9) take formal enforcement action under
examiners privilege—it provides for would provide that SBA may take proposed § 120.1540. In addition, SBA
more open dialogue between regulators enforcement action if SBA determines expects to consider additional factors
and financial institutions, intending to there is increased financial risk (for (e.g. on-site review/examination
lead to more cooperative and example—if SBA Lender has a repeated assessment or corrective actions
expeditious identification and Less Than Acceptable Risk Rating or if implemented) before taking formal
resolution of institution issues. For an officer, key employee, or loan agent enforcement action.
more discussion on the confidentiality involved with SBA loans for an SBA Section 120.1500—Enforcement
and limitations on disclosure see SBA Lender is indicted for a felony or on actions—SBA Lenders. SBA is
Lender Risk Rating System final notice, fraud charges). SBA expects to consider proposing a new § 120.1500 entitled
72 FR 27611 (May 16, 2007). additional factors (e.g., on-site review/ ‘‘Enforcement Actions—SBA Lenders’’
Section 120.1400—Grounds for examination assessment or corrective that lists the formal enforcement actions
enforcement actions—SBA Lenders. The action implemented) before taking that SBA may take against an SBA
proposed rule would consolidate formal enforcement actions on Risk Lender. These provisions generally
existing SBA enforcement authorities Rating grounds. For CDCs, in particular, would be listed in a graduated manner
for SBA Lenders with new authorities, the Risk Rating and review assessment within each SBA Lender category. New
most of which are outlined in 15 U.S.C. would replace the indirect role of the to this formal list is (i) imposition of
portfolio guarantee dollar limit, (ii) Regulated SBLC would also be required of Authority; and appeals of the final
suspension and/or revocation of to notify SBA in writing each time such Agency decision would no longer be
Secondary Market activity; and (iii) the a safety and soundness examination of filed with SBA’s OHA but would be
new statutory SBA Supervised Lender the SBLC itself took place and report the filed in the appropriate Federal district
enforcement actions. SBA added the interaction, to the extent allowed by court. Proposed § 120.1600 would also
portfolio guarantee limit as a means of law. set forth procedures for certain SBA
limiting SBA’s risk exposure for a Proposed § 120.1511(g) would provide Supervised Lender, Management
particular SBA Lender. SBA included that, in the event an SBLC fails to timely Official, or Other Person enforcement
suspension/revocation of a 7(a) Lender’s comply with the necessary certification actions as prescribed by statute. This
authority to sell or purchase loans in the and reporting requirements, then the would include enforcement procedures
Secondary Market in its list of formal § 120.1510 exemption would not apply specific to SBA Supervised Lenders
graduated actions also as a means of and SBA would exercise its statutory (excluding Other Regulated SBLCs
limiting an SBA Lender’s risk exposure authority to supervise the safety and under proposed § § 120.1510 and
to SBA and the Secondary Market. The soundness of the SBLC and may take the 120.1511) for suspensions and
suspension and revocation of individual statutory SBA Supervised Lender revocations of SBA program authority.
lending functions would facilitate SBA enforcement actions, as necessary, to The additional procedures in subsection
taking more targeted measures to protect the financial interests of the 7(a) ‘‘c’’ for SBLC capital directive would
address isolated but significant program. generally follow similar provisions of
functional deficiencies. While an Other Regulated SBLC other Federal Financial Institution
The capital directive is within the would be expected to comply with Regulators.
SBLC enforcement actions. Under SBLC requirements, as set forth for
proposed subsection (d)(1), SBA may example in proposed § § 120.470 (SBLC IV. Comments Request
order a capitally impaired SBLC (or general licensing requirements), Readers are encouraged to review
SBLC operating in an imprudent 120.471–474 (SBLC minimum capital closely each section of the proposed
manner) to meet its capital requirement, requirements), 120.475 (SBLC change of rule in conjunction with current
submit and adhere to a capital control), 120.476 (SBLC prohibited regulations to fully comprehend the
restoration plan, and obtain SBA financing), 120.460 (internal controls), extent of the rule and its changes. SBA
approval before taking certain actions, 120.461 (document retention), 120.463 invites comment on all aspects of this
as detailed. (regulatory accounting), 120.464 proposed rule, including the underlying
Sections 120.1510 and 120.1511— (reports), and 120.490 (IG audits), it policies. SBA may rely on its own
Other Regulated SBLCs. Proposed would only be subject to SBA Lender expertise in promulgating the final rule.
§ § 120.1510 and 1511 would address risk-based reviews and enforcement Submitted comments will be available
the rare instance where an SBLC itself provisions and not the statutory SBA to any person or entity upon request.
is directly examined by a Federal Supervised Lender supervision and Compliance with Executive Orders
Financial Institution Regulator or State enforcement provisions, except those 12866, 12988, and 13132, the
banking regulator. Under such that are SBLC licensing specific (i.e., Regulatory Flexibility Act (5 U.S.C. 601–
circumstances, the ‘‘Other Regulated capital directive and civil action). 612), and the Paperwork Reduction Act
SBLC’’ would be exempt from the Section 120.1540—Enforcement (44 U.S.C., Ch. 35) Executive Order
statutory enforcement provisions actions—Intermediaries participating in 12866: The Office of Management and
specific to SBA Supervised Lenders as the Microloan program and NTAPs. Budget has determined that this rule
granted in § 23 of the Act, 15 U.S.C. 650 Proposed § 120.1540 would incorporate constitutes a ‘‘significant regulatory
[except those for SBLCs only in formal enforcement actions against action’’ under Executive Order 12866
subsections (b) and (c)]. SBA, instead, Microloan Intermediaries and NTAPs thus requiring a Regulatory Impact
would rely on a Federal Financial set forth in current § 120.716 into Analysis, as set forth below.
Institution Regulator’s or state banking subpart I.
Section 120.1600—General A. Regulatory Objective of the Proposal
regulator’s safety and soundness
examination conducted directly on the procedures for enforcement actions— SBA is proposing a rule to incorporate
SBLC and their follow-up to address SBA Lenders, Management Officials, SBA’s risk-based lender oversight
safety and soundness issues. Other Persons, Intermediaries, and program into SBA regulations.
To obtain the designation of Other NTAPs. Proposed § 120.1600 would Specifically, the proposed rule would
Regulated SBLC, the SBLC would have largely adopt the enforcement establish the role and responsibilities of
to certify, under proposed § 120.1511, procedures for CDCs currently SBA’s Office of Credit Risk Management
that it is directly examined and contained in § 120.856 and extend them, within subpart I to 13 CFR Part 120. It
regulated by a Federal Financial in general, to all SBA Lenders, would codify in 13 CFR SBA’s process
Institution Regulator or state banking Microloan Intermediaries and NTAPs. of risk-based oversight including: (i)
regulator. The elements of this Proposed procedures would include a Accounting and reporting requirements;
certification are detailed in the notice of enforcement action; (ii) off-site reviews/monitoring; (iii) on-
Regulation. This certification would opportunity to object; notice of final site reviews and examinations; and (iv)
have to be submitted in writing within Agency decisions; and a provision on capital adequacy requirements. The
60 days of the effective date of the final appeals directly to federal district court. proposed rule would also list the types
rule or within 60 days of the date the Additions/changes to the general of, grounds for, and procedures
SBLC becomes directly examined and provision include, but are not limited governing SBA enforcement actions
directly regulated by such regulator. The to, a provision to make clear that request within consolidated enforcement
SBLC would have to identify the for clarification of notice for additional regulations for all 7(a) Lenders, CDCs,
Federal Financial Institution or state time to respond must be received by the Microloan Intermediaries, and NTAPs.
banking regulator performing the same deadline for objection; responses This rule is necessary to provide
examinations on it directly and provide and such requests must be submitted to coordinated and effective oversight of
information on the most recent safety the appropriate Office of Capital Access financial institutions that originate and
and soundness examination. An Other official in accordance with Delegations manage SBA guaranteed loans.
These regulatory changes would estimated annual cost to the Federal C. Potential Benefits and Costs of the
improve SBA’s oversight and government for this information Proposed Rule
management of the 7(a), 504, Microloan collection is approximately 8 hours of 1. Potential Benefits and Costs of the
and NTAP programs. SBA believes that Financial Analyst time at $55 per hour, Proposed Rule to all SBA Lenders,
there are no viable alternatives to these or $6,160 annually for all 14 SBLCs. Microloan Intermediaries and NTAPs
changes that would produce similar Any additional estimated indirect
positive results without imposing an The proposed rule would benefit SBA
annual cost to the Federal government
additional burden on the SBA or the Lenders, Microloan Intermediaries, and
for oversight of these SBLCs is provided
public. NTAPs by generally consolidating
for in the existing OCRM infrastructure. oversight authority and responsibility
B. Baseline Costs 3. Baseline Costs for NFRLs within one SBA office, OCRM. These
1. Baseline Costs for 7(a) Lenders institutions would also benefit from
(Excluding SBA Supervised Lenders) No direct costs are currently incurred knowledge of established and further
by NFRLs for SBA oversight and related defined programmatic standards,
All 7(a) Lenders are currently functions discussed in this proposed enforcement grounds, ranges of
required to be supervised and examined rule. The estimated annual cost to the enforcement actions and procedures for
by a state or Federal regulatory Federal government for oversight of supervision and enforcement actions as
authority, satisfactory to SBA. This is a set forth in the proposed rule. They may
these NFRLs is provided for in the
cost already borne by these 7(a) Lenders. further benefit from performance
existing OCRM infrastructure.
In addition, these 7(a) Lenders are feedback to the extent it can assist them
subject to SBA’s supervisory and 4. Baseline Costs for CDCs in improving their SBA operations and
enforcement provisions contained in the minimizing losses.
business programs portion of Part 120. Each CDC is currently required to While there are specific benefit and
The estimated annual baseline costs to submit to SBA an annual report within costs issues for specific categories of
the Federal government for 7(a) Lenders’ 180 days of the fiscal year end, lenders as detailed below, all SBA
oversight is provided for in the existing including financial statements of the Lenders, Microloan Intermediaries and
OCRM infrastructure. CDC and any affiliates or subsidiaries NTAPS will incur some relatively
and such interim reports as SBA may minimal costs related to the proposed
2. Baseline Costs for SBLCs
require. The collection of the rule’s incorporation of review/exam
Each SBLC is currently required to information and reports referenced here reporting (e.g., self-assessments and
submit audited financial statements is largely already maintained by the related reporting, corrective action
within three months after the close of CDCs for operational purposes. SBA has plans). Self-assessments and review/
each fiscal year and interim financial estimated that preparation and exam reporting are a timely and cost
reporting when requested by SBA. SBA submission of this information takes effective means of overseeing and
also currently requires that SBLCs approximately 28 hours annually for monitoring the SBA performance and
submit a report on any legal or compliance of SBA Lenders, Microloan
each CDC, at an average cost of $30 per
administrative proceeding, by or against Intermediaries and NTAPs.
hour for staff compilation, which
the SBLC, or against an officer, director
or employee of the SBLC for an alleged computes to a cost of $840 per CDC, and 2. Potential Benefits and Costs of the
breach of official duty; copies of any a total of 7,560 hours for all CDCs. This Proposed Rule to 7(a) Lenders (Other
report furnished to its stockholders; a total cost burden is $226,800 (7,560 Than SBLCs and Other NFRLs)
summary of any changes in the SBLC’s hours × $30) for the approximately 270
No additional direct costs are
organization or financing; notice of CDCs. The estimated annual cost to the
projected to be incurred by 7(a) Lenders
capital impairment; and such other Federal government for this information for oversight as contained in the
reports as SBA may require from time to collection is approximately 1 hour of proposed regulations. No additional
time by written directive. The collection financial analyst time per CDC or 270 reporting or direct costs are projected to
of the information and reports hours total for all CDCs, at a cost of $55 be incurred by 7(a) Lenders with the
referenced here is largely already per hour. Estimated annual Federal cost rule’s implementation.
maintained by the SBLCs for operational burden therefore is estimated at $14,850
and financing purposes. It is estimated (270 hours × $55). The remaining 3. Potential Benefits and Costs of the
that preparation and submission of this estimated annual cost to the Federal Proposed Rule to SBLCs
information takes about 80 hours government for oversight of CDCs is The proposed rule would provide for
annually for each SBLC. The hour provided for in the existing OCRM more developed internal control
burden is an SBA estimate based on infrastructure. requirements and adoption of a formal
inquiries made to selected SBLCs. The capital plan. It would also require filing
estimate of the total annual cost burden 5. Baseline Costs for Microloan of (i) quarterly condition reports
is based on an average annual outside Intermediaries and NTAPs (including financial statements); (ii)
audit fee of $8,000 per respondent, plus reports of changes in financial
Microloan Intermediaries and NTAPs
an additional $2,000 per respondent for condition; (iii) notice of change of
currently incur no direct costs for
staff involvement in the independent auditor; (iv) capital restoration plans;
audit engagement and SBA reporting oversight and related functions as and (v) Other Regulated SBLC Reports,
(approximately 15 hours of CFO time at discussed in this proposed rule. The with certifications as to accuracy or
a $100 hourly rate plus 15 hours of estimated annual cost to the Federal compliance (including capital
administrative profession time at a $30 government for oversight of these compliance) as applicable. Because
hourly rate, rounded). This total cost Microloan Intermediaries and NTAPs is internal controls, formal capital plans,
burden is estimated at $140,000 for 14 currently provided for in the existing and quarterly financial statements are
SBLCs. SBA has reduced this figure by OFA infrastructure. likely already maintained by the SBLCs
$20,000 to $120,000 to adjust for for operational purposes, SBA estimates
reduced costs for smaller SBLCs. The little or no additional cost for these new
requirements. It is estimated that would be new to SBLCs as well) at 3 since general oversight, suspension or
preparation and submission of all the hours of additional CFO time at a $100 revocation already exists in § 120.716
additional reports and the new hourly rate plus 3 hours of additional and is replaced by consolidated
recordkeeping would take administrative professional time at a oversight within subpart I, and no
approximately 3 hours annually of $30 hourly rate ($390 per NFRL). Since additional reporting is required by this
additional CFO time at a $100 hourly there are no current baseline costs to proposed rule.
cost, plus 3 hours annually of additional NFRLs, the total additional cost burden
7. Potential Benefits and Costs for SBA
administrative professional time at a for this proposed rule for the 58 NFRLs
and the Federal Government
$30 hourly cost. Therefore, the total (as of May 2007) would potentially be
additional cost burden would be $5,460 $602,620 ($10,390 × 58 NFRLs). Benefits to SBA include improved
($390 × 14) for 14 SBLCs. administration of the lender oversight
5. Potential Benefits and Costs of the process through general consolidation of
4. Potential Benefits and Costs of the Proposed Rule to CDCs oversight authority within OCRM. SBA
Proposed Rule to NFRLs The proposed rule would require each would also benefit from having more
The proposed rule would require each CDC to submit an annual report, timely and complete operations
NFRL to submit an annual report, including audited financial statements information, including financial
including audited financial statements within three months after the close of information for SBA Supervised
within three months after the close of each fiscal year and interim financial Lenders and CDCs. In addition, the
each fiscal year. The proposed rule reporting when requested by SBA. All Agency would benefit from further
would further require that all audited audited financial report filings would be defined standards, enforcement
financial report filings be prepared in required to include an opinion from the grounds, ranges of enforcement actions
accordance with GAAP, and include an independent accounting firm engaged in and procedures for supervision and
opinion from the independent the audit. The proposed rule would also enforcement actions for all SBA
accounting firm engaged in the audit. It require enhanced internal control Lenders, Microloan Intermediaries and
would also require NFRLs to submit: (i) requirements. The collection of the NTAPs. Finally, the rules’ additional
a report on any legal or administrative information referenced here, including requirements and lender oversight
proceeding, by or against the NFRL, or the annual audited financial statements, provisions would provide improved and
against an officer, director or employee as well as the requirements for internal more timely lender monitoring to
of the NFRL for an alleged breach of control would include information, ultimately further minimize the risks of
official duty; (ii) copies of any report/ policies and procedures likely already losses in SBA’s loan programs.
publications furnished to its maintained by many of the CDCs for For 7(a) Lender specific sections, no
stockholders; (iii) summaries of changes operational purposes. The hour burden additional reporting from these lenders
in the NFRL’s organization or financial is an SBA estimate based on inquiries is required by the proposed rule, and
structure, personnel and eligibility; (iv) made to selected CDCs. It is estimated therefore no additional direct costs for
notice of capital impairment; (v) that preparation and submission of this assessment of any such reporting would
quarterly condition reports; (vi) changes information would take approximately be incurred by SBA for provisions
in financial condition reports; (vii) 40 (auditor) hours annually for each related to oversight functions in this
recapitalization plans; and (viii) notice CDC, at an average cost of proposed rule.
of changes in auditors and such other approximately $4,000 ($100 per hour for For SBLCs, we estimate the proposed
reports as SBA may require from time to CPA-credentialed auditor) average rule would require an additional 3
time by written directive—with outside audit fee, plus internal staff time hours financial analyst time at a $55
certifications as to accuracy and of 4 hours at the administrative hourly rate to the Federal government
compliance (including capital professional rate of $30 per hour ($120 for each SBLC or 42 hours overall (3 ×
compliance), as applicable. The per CDC). This is in lieu of existing 14 SBLCs) for an additional annual cost
proposed rule would also require Baseline Costs for CDCs outlined in of $2,310 to the Federal government.
adoption of a developed internal control paragraph 4 of Section B. Baseline For NFRLs, the estimated annual cost
policy, records maintenance, and Costs. The total cost would be to the Federal government would be
adoption of a formal capital plan. Much $1,112,400 ($4,120 × 270 CDCs). The approximately 8 hours financial analyst
of the collection of the information and total additional cost burden would be time at a $55 hourly rate. Therefore,
reports referenced here, as well as the $885,600 ($1,112,400¥$226,800 estimated annual cost to the Federal
requirements for internal control, baseline) for the 270 CDCs for this government related to oversight of all 58
records retention and adoption of a proposed rule. We note, however, that NFRLs in accordance with this
formal capital plan are likely this number may be dramatically proposed rule would be 688 hours for
information already maintained by the reduced because many CDCs are already $25,520.
NFRLs for operational, and in some required to maintain audited financial For CDCs, the estimated cost to the
instances financing, purposes. SBA statements and internal control Federal government would be for
estimates preparation and submission programs under The Single Audit Act additional information collected
costs consistent with that of the baseline requirements. approximated at 1 hour financial analyst
for the SBLCs, at 80 hours of external time for each CDC at a $55 hourly rate.
auditor time at $100 hourly rate, plus an 6. Potential Benefits and Costs of the The total additional cost would be
additional $2,000 per NFRL for staff Proposed Rule to Microloan $14,850 (1 hr × 270 × $55). In lieu of
involvement in the independent audit Intermediaries and NTAPs existing baseline cost of $14,850 (1 hr
engagement (approximately 15 hours of No additional direct costs are per CDC), the total cost would be
CFO time at a $100 hourly rate plus 15 projected to be incurred by Microloan $29,700.
hours of administrative profession time Intermediaries and NTAPs for lender For Microloan Intermediaries and
at a $30 hourly rate, rounded) for a total oversight and related functions in this NTAPs, no additional direct costs to
of $10,000 per NFRL. SBA estimates proposed rule. No additional costs SBA would be incurred for the lender
additional reporting and recordkeeping would be incurred by Intermediaries oversight functions and related
requirements to the NFRLs (that which due to the implementation of this rule, provisions in this proposed rule.
Any additional indirect cost to the proposed rule would not have SBA to perform a size determination on
Federal government for oversight of the retroactive or pre-emptive effect. SBLCs with a reasonable degree of
SBA Lenders, Microloan Intermediaries, Regulatory Flexibility Act: This accuracy. Based on submitted financial
and NTAPs under this proposed rule proposed rule directly affects all SBA statement, of the twelve active SBLCs,
would be covered by the already- Lenders, Microloan Intermediaries, and four exceed the small business size
existing OCRM infra-structure. NTAPs. There are approximately 5,000 standard for NAICS 522298.
7(a) Lenders, 270 CDCs, 250 Microloan Presently, there is no requirement that
8. Cost Basis Intermediaries, and there were 11 NFRLs submit financial statements to
For purposes of this proposal, CPA NTAPs participating with SBA funding SBA. Therefore, SBA does not have the
and CFO salary rates used were based when NTAPs were last funded. SBA has information to determine current
on information published by the determined that CDCs, Microloan average annual receipts. To estimate the
American Institute of Certified Public Intermediaries, and the 14 SBLCs fall size of the NFRLs, SBA reviewed a
Accountants (AICPA) for CPA- under the size standard for NAICS sample of the financial statements that
credentialed individuals (external 522298, All other Nondepository Credit NFRLs had submitted to SBA when they
auditor or internal CFO) estimated at Intermediation. The size standard for first applied for authorization to make
$100. The salary rates for administrative NAICS 522298 is $6.5 million or less in 7(a) loans. Based on a review of those
professionals were based on information average annual receipts. There are financial statements, we estimate that
published by the International approximately 58 NFRLs, most of which two-thirds of the NFRLs are small.
Association of Administrative fall in NAICS 522298 (the rest fall into Based on the financial data in the NFRL
Professionals. Internal SBA financial NAICS 522110, Commercial Banking). applications and up-to-date financial
analyst time was estimated at GS–14 The remaining 7(a) Lenders fall under data supplied by SBLCs to SBA, SBA
step 5 level of $99,203 plus 24.8% the size standard for NAICS 522110, believes that the proposed rule would
benefits allocation, or approximately Commercial Banking. The size standard impact a substantial number of these
$55 per hour. for NAICS 522110 is assets of $165 small entities, but not constitute a
SBA is requesting comments from the million or less. The NTAPs fall under significant economic impact, as detailed
public on any monetized, quantitative the size standard for NAICS 541990, All below.
or qualitative costs of SBA Lenders, Other Professional, Scientific and The proposed rule, which defines
Microloan Intermediary, or NTAP Technical Services. The size Standard ‘‘SBA Supervised Lenders’’ as NFRLs
compliance with this proposed rule. for NAICS 541611 is $6.5 million or less and SBLCs, requires these Lenders to
Please send comments to the SBA in average annual receipts. provide SBA with the following
official referenced in the ADDRESSES SBA estimates that over 95 percent of information: (1) Annual audited
section of the preamble. the CDCs and Microloan Intermediaries financial statements, (2) quarterly
do not exceed the applicable size condition reports, (3) copies of any legal
D. Alternatives
standard and are, therefore, considered and administrative proceedings by or
SBA believes that this proposed rule small entities by this definition. against the SBA Supervised Lender, (4)
is SBA’s best available means for Approximately half of all of the 7(a) copies of any report furnished to its
achieving its regulatory objective of Lenders exceed the small business size stockholders, (5) reports of changes in
incorporating coordinated risk-based standard set for NAICS 522110. Thus, the SBA Supervised Lender’s
supervision and enforcement into SBA SBA has determined that this proposed organization or financing, (6) reports of
regulations and implementing the rule would have an impact on a changes in the SBA Supervised Lender’s
provisions of Public Law 108–447 and substantial number of small entities. financial condition, (7) notice of change
SBA’s Delegation of Authority for lender However, for the reasons explained in auditors, (8) notice of capital
oversight. SBA is requesting comments following, SBA does not believe that the impairment, (9) capital restoration
from the public on any potentially proposed rule will have a significant plans, (10) Other Regulated SBLC
effective and reasonably feasible economic impact on those entities. reports, (11) other reports (that SBA may
alternative to this proposed rule as it The proposed rule would contain require from time to time) and (12)
applies to SBA Lenders, Microloan several different sections. For clarity, certifications of compliance with capital
Intermediaries, and NTAPs and the SBA has analyzed the economic impact requirement. Several of these are
costs and benefits of those alternatives. by section, as follows: already required of SBLCs. The
Executive Order 13132: For the A. Proposed Reporting Requirements proposed rule would also provide for
purposes of Executive Order 13132, the for SBA Supervised Lenders and CDCs: record retention requirements and
SBA determined that this rule has no There are 14 Small Business Lending recordkeeping of a capital adequacy
federalism implications warranting Companies (SBLCs) and approximately plan.
preparation of a federalism assessment. 58 NFRLs that are authorized to make As is mentioned above, SBLCs are
Executive Order 12988: For the 7(a) loans. The majority of the NFRLs already required to submit audited
purposes of Executive Order 12988, are nondepository commercial Lenders. annual financial statements to SBA. It
Civil Justice Reform, SBA has Most of the NFRLs are classified under has been SBA’s experience that SBLCs
determined that this proposed rule is NAICS 522298, which has a small and NFRLs also prepare quarterly
crafted, to the extent practicable, in business size standard of $6.5 million or financial statements on a regular basis
accordance with the standards set forth less in annual revenues. The remaining for their own internal management
in §§ 3(a) and 3(b)(2), to minimize NFRLs are classified under NAICS purposes, and SBA believes that most of
litigation, eliminate ambiguity, and 522110, Commercial Banking, which the NFRLs also prepare audited annual
reduce burden. The proposed has a small business size standard of financial statements for their internal
regulations would provide for rights of $165 million or less in assets. management purposes. The proposed
appeal to SBA Lenders, Microloan Current regulations require SBLCs to rule would require both NFRLs and
Intermediaries, and NTAPs in the event submit their audited financial SBLCs to provide the SBA with copies
they are aggrieved by an Agency statements to SBA within three months of their financial statements on a
decision, thereby limiting the possibility after the close of their fiscal year. quarterly basis and would expand the
of litigation by these entities. This Financial statement submission allows requirement for annual audited
financial statements submitted to SBA proposal only requires the NFRLs to 13 CFR 120.470. The proposed rule
to include NFRLs. Existing regulations submit the documents to SBA. Because would require SBLCs quarterly
also require SBLCs to maintain these are documents that are likely compliance with its minimum capital
compliance with SBA capital already in the possession of the NFRLs, requirement. It would also require that
requirements. The proposed rule would SBA does not believe that the NFRLs NFRLs provide the SBA with a quarterly
expand the number of firms subject to would incur any significant costs to certification that they are in compliance
SBA’s capital regulation by making comply with the proposal. SBA, with their state regulator’s minimum
NFRLs subject to certain capital therefore, certifies that this aspect of the capital requirement. In addition, the
regulations. The proposed rule would proposed rule would not have a proposed rule would broaden the
also require SBA Supervised Lenders to significant economic impact on a existing definition of capital, making it
provide SBA with a quarterly substantial number of small entities. more consistent with that of other
certification that they are in compliance However, SBA requests data from the Federal Financial Institution Regulators,
with the SBA capital requirement. A public that would enable SBA to by allowing SBA Supervised Lenders to
certificate of compliance with SBA determine any additional costs as a count retained earnings towards their
capital regulations would normally be result of the proposed rule to require regulatory capital requirement. SBA
prepared by a financial institution’s reporting of these items. asserts that broadening the types of
chief financial officer or someone from The new reporting and recordkeeping capital that are eligible towards the SBA
his staff under the proposed rule. SBA requirements in the proposed rule for capital requirements would have no
believes that it would take no more than SBA Supervised Lenders that have not adverse financial impact on small
one hour per quarter to prepare and yet been discussed would occur on an Lenders. In fact, allowing retained
certify. The certification could ad hoc basis (e.g. change in financial earnings to count toward an SBA
accompany quarterly condition condition). They generally would be Supervised Lender’s regulatory capital
reporting. In accordance with the triggered by exceptional circumstances. would allow those SBLCs with
American Institute of Public Thus given their ad hoc and exceptional significant retained earnings on their
Accountants published surveys, the nature, they would not likely have a balance sheet to increase the size of
salary and benefits rate for a CPA- significant economic impact on a their 7(a) portfolio without necessitating
credentialed individual is estimated at substantial number of small entities. any additional injection of permanent
$100 per hour. This computes to an The proposed rule would require all capital. SBA, therefore, certifies that this
estimated annual cost of $400 to cover CDC financial statements that are filed aspect of the rule will not have a
the CFO’s time. We estimate that the with the CDC annual report submission significant economic impact on a
administrative staff work involved in to be audited. Currently, under OMB substantial number of small entities.
approved information collection C. Enforcement Provisions: The
preparing the submission materials
number 3245–0074, SBA only requires proposed rule would list the types of,
would take no more than one hour for
CDCs with a 504 loan portfolio balance grounds for, and procedures governing
those quarters not covered by the
of $20 million dollars or more to have SBA enforcement actions within
Annual Report. According to a recent
the financial statements of be audited. consolidated enforcement regulations
survey published by the International
(See SBA Form 1253.) For CDCs with a for all SBA Lenders, Microloan
Association of Administrative
504 loan portfolio balance of less than Intermediaries, and NTAPs. The general
Professionals, the salary estimate is $30
$20 million dollars, the financial enforcement provisions for SBA
per hour. This calculates to an annual
statements currently need only be Lenders, Microloan Intermediaries, and
expense of $120 per year. The combined
reviewed by an independent CPA and NTAPs follow, for the most part, the
annual expense that SBA Supervised be prepared in accordance with GAAP. same format that was established for the
Lenders would incur in order to comply SBA is extending the audit requirement CDC program. The enforcement
with this reporting would be on average to all CDCs to facilitate a better provisions for SBA Supervised Lender
$520 ($400 + $120). SBA does not assessment of the performance and specific and SBLC specific actions
believe that an additional $520 cost financial strength of all CDCs. In follow recent legislation codified at 15
annually constitutes significant addition, this requirement is part of U.S.C. 650 et. seq. Because SBA
economic impact on any of these firms, SBA’s incorporation of Single Audit Act anticipates that enforcement actions
which can routinely engage in requirements into its regulations. SBA would occur on an exception basis, SBA
financings in the million dollar range. estimates that at least 70 of the 270 does not anticipate that these provisions
Therefore, SBA certifies that this aspect CDCs already maintain audited financial would have a significant economic
of the proposed rule would not have a statements, SBA also estimates that the impact on a substantial number of small
significant economic impact on a cost of auditing the financial statements entities within the meaning of the
substantial number of small entities. beyond the current review requirement Regulatory Flexibility Act, 5 U.S.C. 601–
Current regulations require that for the estimated remaining 200 is 612. SBA, therefore, certifies that the
SBLCs submit copies of the following to approximately $4,000 per CDC (based proposed rule would not have a
SBA: (1) Any legal and administrative upon an average additional 40 hours × significant impact on a substantial
proceedings by or against them, (2) any $100 per hour of auditor time). This number of small entities.
reports it furnishes to its stockholders, $4,000 annually is not an excessive cost D. Bureau of PCLP Oversight: SBA
and (3) summaries of changes in the for CDCs, all of which can routinely proposes to establish the Bureau of
SBLCs organization and financing, (4) engage in financings in the million PCLP Oversight in accordance with
notice of capital impairment, and (5) dollar range. Based on this, SBA statutory guidance to address
such other report it is required by SBA certifies that the extension of this undercapitalization in the LLRFs of
to furnish on a specific matter. The requirement would not likely have a Premier Certified Lenders (PCLP CDCs).
proposed rule would extend to NFRLs significant economic impact on a Of the approximately 270 CDCs, less
these ad hoc reporting requirements. substantial number of small entities. than 20 of them have PCLP authority.
SBA believes this data is likely already B. Capital Adequacy: Only SBLCs are These are generally the larger CDCs,
collected and that similar documents presently subject to the minimum with portfolios which have a total
are already prepared by the NFRLs. The capital requirements currently found in outstanding portfolio balance of $5.1
billion. SBA, therefore, certifies that the Lenders. Specifically NFRLs, like I. SBA Supervised Lender Reporting
proposed rule Bureau of PCLP Oversight SBLCs, would be required to retain a and Recordkeeping Requirements
provision would not have a significant permanent record of certain The following authorities, description
impact on a substantial number of small substantiating documents for the of respondents, statement of needs and
entities. financial statements and reports purposes, and estimated hourly cost to
Paperwork Reduction Act: SBA has submitted to SBA. Such documents respondents is applicable to the reports
determined that this proposed rule would include corporate charters and and recordkeeping to be included in
would impose additional reporting and bylaws, applications for eligibility revision to OMB approved information
recordkeeping requirements under the determination, capital stock certificates collection number 3245–0077 for SBA
Paperwork Reduction Act, 44 U.S.C. or stubs, general and subsidiary ledgers Supervised Lenders.
Chapter 35. Specifically, SBA would and journals, stock ledgers, stock Authority: SBA is authorized
revise OMB approved information transfer registers, and all minute books. pursuant to 15 U.S.C. 650(a) and 15
collection number 3245–0077 to include The proposed rule would also require U.S.C. 634(b)(7) to collect this
NFRLs in SBA’s current reporting
NFRLs, like SBLCs, to retain all information associated with examining
requirements for SBLCs. SBA would
documents and materials related to or the safety and soundness of SBA
also revise 3245–0077 to add four
supporting an SBA loan, such as Supervised Lenders.
reporting requirements for all SBA
applications for financing, participation Description of Respondents: The
Supervised Lenders and one reporting
and escrow accounts, and financing respondents for the below listed
requirement just for SBLCs. In addition,
instruments, for a period of 6 years information collections would consist of
the proposed rule would also revise
following final disposition of the loan. all SBA Supervised Lenders. Currently
OMB approved information collection
number 3245–0074 to extend to all Many NFRLs may already retain much there are approximately 100 (14 SBLCs
CDCs a certain requirement in reporting of this information for other purposes. and 58 NFRLs).
Statement of Needs and Purposes:
that applied only to CDCs with 504 loan Under the proposed rule, the new
The reports and recordkeeping
portfolio balances of $20 million or recordkeeping requirement would apply
more. Finally, the proposed rule would requirements would facilitate safety and
to SBA Supervised Lenders. In
add a review/examination reporting soundness examinations and
particular, SBA Supervised Lenders appropriate supervision of SBA’s
requirement. would be required to maintain a capital
Under the proposed rule, NFRLs, like licensed SBLCs and NFRLs. Annual and
adequacy plan. Under proposed interim financial information would be
SBLCs, would have to file (i) Annual § 120.462, the capital adequacy plan
Reports (including audited financial analyzed by program management to
would detail Board of Director approved timely assess SBA Supervised Lenders’
statements); (ii) Reports of capital adequacy goals towards
Administrative and Legal Proceedings; financial strength, as well as
maintaining the financial institution’s compliance, with relevant program
(iii) Stockholder Reports; (iv) Reports of financial strength.
Changes (in organization and financing); regulations (e.g., capital and SBLC
(v) notice of capital impairment; and (vi) The titles, descriptions of respondents licensing regulations). Other reporting
other reports as required by SBA. The and the information collections are requirements would update program
new reporting requirements would discussed below. In addition, SBA has management on the operational status of
mean that both NFRLs and SBLCs provided an estimate of the annual the SBA Supervised Lender and timely
would also have to file: (i) Quarterly reporting and recordkeeping burdens. notify SBA of (i) changes in structure,
Condition Reports (including certain SBA invites comments on: (1) personnel, auditors, and financial
certifications); (ii) Reports of Changes in Whether the proposed collection of condition and (ii) potential financial
Financial Condition (also including information is necessary for the proper exposure. Informed, SBA as supervisor
certain certifications); (iii) notice of a performance of SBA’s functions, and guarantor of 50 to 85% of an SBA
change in auditors; and (iv) Capital including whether the information Supervised Lender’s portfolio, could
Restoration Plans, where applicable. In would have a practical utility; (2) the intervene (where appropriate) to protect
addition, SBLCs eligible to be exempt accuracy of SBA’s estimate of the the interests of the United States.
from the SBLC supervision and Estimated Cost to Respondents: SBA
burden of the proposed collections of
enforcement statutory provisions would estimates a cost of $10,390 per SBA
information, including the validity of
have to report on direct examination Supervised Lender (or approximately
the methodology and assumptions used;
activity and regulation by Federal $748,080 for all SBA Supervised
(3) ways to enhance the quality, utility,
Financial Institution Regulators or state Lenders; 14 SBLCs and 58 NFRLs) to
and clarity of the information to be
banking regulators under proposed comply with the below listed
collected; and (4) ways to minimize the
§ § 120.1510 and 1511. Also, under the information collections. The $10,390
burden of the collection of information per SBA Supervised Lender includes
proposed rule, all CDC (not just CDCs on respondents, including through the
with a 504 loan portfolio of $20 million $8,000 for the annual report audit (80
use of automated collection techniques, hours × $100 per hour) plus $2,390 for
dollars or more) would be required to
when appropriate, and other forms of staff time to support the information
have their annual financial statements
information technology. collections (approximately 18 hours
that they submit to SBA, to be audited.
Finally, the proposed rule would Please send comments by the closing CFO time @ $100 per hour and 18 hours
provide for self-assessments and date for comment for this proposed rule staff time @ $30 per hour). The hourly
corrective action plans, as applicable, to David Rostker, Office of Management estimates are based on an informal
for SBA Lenders, Microloan and Budget, Office of Information and survey of SBA Supervised Lenders.
Intermediaries and NTAPs. Regulatory Affairs, 725 17th Street, While a few of the information
This proposed rule would also extend NW., Washington, DC 20503 and to collections, like the annual and
SBLC recordkeeping requirements to Bryan Hooper, Associate Administrator quarterly condition reports are required,
NFRLs in proposed § 120.461 and for Lender Oversight, Small Business most are ad hoc and occur on an
would add a new recordkeeping Administration, 409 Third Street, SW., exception basis. The hourly costs are
requirement for all SBA Supervised Washington, DC 20416. derived from salary and benefit rate
surveys of the AICPA and International F. Other Reports [No SBA Form writing the extent to which its lending
Association of Administrative Number] activities are subject to such regulation.
Professionals. This $628,080 increase Summary: Proposed rule It would also require such an Other
from the current OMB approved § 120.464(a)(5) would require all SBA Regulated SBLC to report to SBA on its
collection is mainly attributable to the Supervised Lenders to submit such interactions with its Federal Financial
extension of the information collection other reports as SBA may from time to Institution Regulator or State banking
to the 58 NFRLs, and SBA also believes time require by written directive. regulator to the extent allowed by law.
that this number will be dramatically L. Records Retention, In General
G. Quarterly Condition Report and
reduced to the extent that many or some
Certifications [No SBA Form Number] Summary: Proposed § 120.461(b) and
of the NFRLs already maintain this
information for other purposes. Summary: Under proposed (c) require SBA Supervised Lenders to
§ 120.464(a)(2), all SBA Supervised maintain and preserve certain records
Below is a listing of those reports and Lenders would be required to submit a with immediate availability of specific
recordkeeping requirements that would Quarterly Condition Report to SBA documents (e.g. general and subsidiary
be included in the revision to OMB within 45 days following the end of ledgers, general journals, bylaws, stock
approved information collection each calendar quarter. The content of transfer ledgers). The provision provides
number 3245–0077. the Quarterly Condition Report would for electronic preservation, if the
A. Annual Audit Report [No SBA Form include the SBA Supervised Lender’s original is available for retrieval within
Number] interim financial statements, which may a reasonable period.
be internally prepared. SBA Supervised
M. Capital Adequacy Plan
Summary: The Annual Audited Lenders would be required to apply
Report would primarily consist of an uniform definitions to categories of Summary: Proposed § 120.462 would
SBA Supervised Lender’s annual nonperforming loans and recovery require SBA Supervised Lenders’ Board
audited financial statements. The amounts on liquidated loans within the of Directors to determine capital
Annual Report would be due to SBA reports. The Quarterly Condition Report adequacy goals and to establish, adopt,
within three months after the SBA would also contain a certification by the and maintain a capital plan.
Supervised Lender’s fiscal year end. SBA Supervised Lender as to II. CDC Reporting Requirements
compliance with laws, completeness,
B. Legal and Administrative Proceedings and accuracy and may contain a The following corresponds to the
[No SBA Form Number] certification as to capital requirement revisions to OMB approved information
compliance. collection number 3245–0074, CDC
Summary: Under proposed Annual Report Guide.
§ 120.464(a)(3), each SBA Supervised H. Changes in Financial Condition
Authority: SBA is authorized to
Lender would submit a report of any Report [No SBA Form Number]
collect this information under 15 U.S.C.
legal or administrative proceeding, by or Summary: Proposed § 120.464(a)(6) 687(f).
against the SBA Supervised Lender, or would require SBA Supervised Lenders Description of Respondents: The
against any officer, director or employee to file with SBA a report on any material respondents would consist of all CDCs.
of the SBA Supervised Lender for an change in financial condition within ten Currently, there are approximately 270.
alleged breach of official duty. days after management becomes aware Estimated Cost to Respondents: SBA
of the changes, except when reporting estimates a cost of $4,120 per CDC (or
C. Stockholder Report [No SBA Form capital impairment under proposed
Number] approximately $1,112,400 for all CDCs)
§ 120.462(d). to comply with the information
Summary: Under proposed I. Notice of Change in Auditor [No SBA collection as revised. The $4,120 cost
§ 120.464(a)(4), all SBA Supervised Form Number] per CDC includes $4,000 for the
Lenders would be required to submit to elevated audit requirement (40 hours ×
Summary: Proposed § 120.463(d)
SBA copies of any report or publications $100 per hour for auditors) plus an
would require SBA Supervised Lenders
concerning financial operations additional $120 for staff time (4 hours
to notify SBA in writing if it discharged
furnished to its stockholders. CDC staff time @ $30 per hour) working
or changed auditors.
with the auditors. The hourly costs are
D. Report of Changes [No SBA Form J. Capital Restoration Plan [No SBA derived from a salary and benefit rate
Number] Form Number] survey of the International Association
Summary: Proposed § 120.462(e) of Administrative Professionals. This
Summary: Under the proposed
would require an SBA Supervised $885,600 increase in total cost to all
§ 120.464(a)(5), all SBA Supervised
Lender to file a written capital CDCs would be attributable to the cost
Lenders would be required to submit a
restoration plan with SBA generally of requiring audited financial
copy of any changes in the SBA statements. However, SBA believes the
Supervised Lender’s organization or within 45 days of the date the SBA
Supervised Lender receives or is cost is likely much less, since many of
financing (e.g., change in type of these CDCs likely already maintain
organization, acquisition by or change of deemed to have received notice that it
has not met its minimum capital audited financial statements.
parent, change in primary financing Summary: Proposed § 120.826 would
entity, etc.). requirement.
be revised to require that each CDC have
K. Other Regulated SBLC Report [No financial statements audited annually
E. Notice of Capital Impairment [No

SBA Form Number] by an independent CPA. This change
SBA Form Number]
Summary: Proposed § § 120.1510 and would extend to all CDCs the
Summary: Proposed § 120.462(d) 120.1511 would require an SBLC that is requirement that financial statements be
would require all SBA Supervised directly examined by a Federal audited currently only required for
Lenders to provide SBA prompt written Financial Institution Regulator or State CDCs with a 504 loan portfolio balance
notice of capital impairment. banking regulator to certify to SBA in of $20 million dollars or more.
Need and Purpose: Collection of acceptable, or as otherwise required by to time as published in the Federal
annual audited financial statements is SBA. Register through notice and comment.
critical to allowing SBA to assess Estimated Cost to Respondents: SBA * * * * *
accurately CDCs’ financial strength and estimates a cost of $430 per SBA Federal Financial Institution
for the purpose of lender oversight. Lender, Microloan Intermediary, or Regulator is the federal banking
III. SBA Lender, Microloan NTAP or $64,500 for all those required regulator of a 7(a) Lender and may
Intermediary, and NTAP Reporting during a year to submit a corrective include the Federal Deposit Insurance
Requirements action plan. SBA estimates requiring Corporation, the Federal Reserve Board,
150 corrective actions a year. This the Office of the Comptroller of the
The following authorities, description number may be dramatically reduced as Currency, the Office of Thrift
of respondents, statement of needs and SBA Lenders, Microloan Intermediaries, Supervision, the National Credit Union
purposes and estimated hourly cost to and NTAPs improve SBA program Administration, and the Farm Credit
respondents are applicable to the operations. The cost would consist of Administration.
review/examination reporting $30 for administrative staff to prepare
requirements for SBA Lenders, * * * * *
the corrective action plan (one hour ×
Microloan Intermediaries, and NTAPs. Lender or 7(a) Lender is an institution
$30 per hour) and $400 for CFO
that has executed a participation
A. Self-Assessment composition time (four hours × $100 per
agreement with SBA under the
hour). The hourly estimates are based
Authority: SBA is authorized to guaranteed loan program.
on an informal survey of SBA Lenders
collect self-assessment information by OCRM financial analysts. Less Than Acceptable Risk Rating is
under 15 U.S.C. 634(b)(7) and 15 U.S.C. an SBA-assigned Risk Rating, currently
Summary: Proposed Section 120.1055 defined by SBA as ‘‘4’’ or ‘‘5’’ on a scale
650.
would provide that SBA Lenders, of 1 to 5, which represents an
Description of Respondents: The
Microloan Intermediaries, and NTAPs unacceptable level of risk as determined
respondents would consist of SBA
must submit proposed corrective action by SBA, and which may be revised by
Lenders, Microloan Intermediaries, and
plans, if requested. SBA from time to time as published in
NTAPS.
Estimated Cost to Respondents: SBA Need and Purpose: The reports would the Federal Register through notice and
estimates a cost of $430 per SBA facilitate corrective action to address comment.
Lender, Microloan Intermediary, or SBA Lender, Microloan Intermediary, or * * * * *
NTAP or $8,600 for all those required NTAP deficiencies identified generally
Management Official is an officer,
during a year to submit a self- during reviews and examinations.
director, general partner, manager,
assessment certification or self- Proposal employee participating in management,
assessment report. SBA estimates agent or other participant in the
requiring 20 self-assessments a year. List of Subjects in 13 CFR Part 120
management of the affairs of the SBA
This cost would consist of $30 for Loan Programs—business, Small Supervised Lender’s activities under the
administrative staff to prepare the self- businesses. 7(a) program.
assessment certification or report (one Non-Federally Regulated Lender
hour × $30 hour) and $400 for CFO For the reasons set forth above, SBA
(NFRL) is a business concern that is
composition time (four hours × $100 per proposes to amend 13 CFR part 120 as
authorized by the SBA to make loans
hour). The hourly estimates are based follows:
under section 7(a) and is subject to
on an informal survey of SBA Lenders regulation by a state but whose lending
PART 120—BUSINESS LOANS
by OCRM financial analysts. activities are not subject to regulation by
Summary: Proposed Section 120.1025 1. The authority citation for part 120 a Federal Financial Institution
would provide that ‘‘SBA may conduct is revised to read as follows: Regulator.
off-site reviews and monitoring * * * * * * * *
including SBA Lenders’, Authority: 15 U.S.C. 634(b)(6), (b)(7),
(b)(14), (h), and note, 636(a), (h) and (m), 650, Other Regulated SBLC is a Small
Intermediaries’, or NTAPs’ self- 687(f), 696(3), and 697(a) and (e). Business Lending Company whose SBA
assessments.’’
operations receive regular safety and
Need and Purpose: Generally, SBA 2. Amend § 120.10 by adding new
soundness examinations by a state
would consider requiring a self- definitions ‘‘Acceptable Risk Rating’’,
banking regulator or a Federal Financial
assessment to confirm corrective actions ‘‘Federal Financial Institutions
Institution Regulator, and which meets
implemented or in lieu of targeted or Regulator’’, ‘‘Less Than Acceptable Risk
the requirements set forth in § 120.1511.
limited scope reviews. Self-assessments Rating’’, ‘‘Management Official’’, ‘‘Non-
are a cost effective means of overseeing Federally Regulated Lender’’, ‘‘Other * * * * *
and monitoring the SBA performance Regulated SBLC’’, ‘‘Risk Rating’’, ‘‘SBA Risk Rating is an SBA internal
and compliance of SBA Lenders, Micro- Lender’’, ‘‘SBA Supervised Lender’’, composite rating assigned to individual
loan Intermediaries, and NTAPs. and ‘‘Small Business Lending SBA Lenders, Intermediaries, or NTAPs
Company’’, and revising the definition that reflects the risk associated with the
B. Corrective Action Plan SBA Lender’s or Intermediary’s
for ‘‘Lender’’ to read as follows:
Authority: SBA is authorized to portfolio of SBA loans or with the
collect this information under 15 U.S.C. § 120.10 Definitions. NTAP. Risk Ratings currently range
634(b)(7) and 15 U.S.C. 650. * * * * * from one to five, with one representing
Description of Respondents: The Acceptable Risk Rating is an SBA- the least risk and five representing the
respondents would consist of SBA assigned Risk Rating, currently defined most risk, and may be revised by SBA
Lenders, Microloan Intermediaries, and by SBA as ‘‘1’’, ‘‘2’’ or ‘‘3’’ on a scale from time to time as published in the
NTAPs that receive an onsite review or of 1 to 5, which represents an acceptable Federal Register through notice and
examination assessment of acceptable level of risk as determined by SBA, and comment.
with corrective action or less than which may be revised by SBA from time * * * * *
SBA Lender is a 7(a) Lender or a CDC. 4. Remove the undesignated center § 120.426 [Amended]
This term includes SBA Supervised heading immediately preceding 10. Amend § 120.426 by removing
Lenders. § 120.414. ‘‘SBA Securitization Committee’’ and
SBA Supervised Lender is a 7(a) add in its place ‘‘Lender Oversight
Lender that is either (1) a Small § 120.414 [Removed]
Committee’’ in the second sentence.
Business Lending Company or (2) a 5. Remove § 120.414 11. Amend § 120.433 by revising
NFRL. paragraph (a), redesignating paragraph
§ 120.415 [Removed]
* * * * * (b) as (c), and adding a new paragraph
Small Business Lending Company 6. Remove § 120.415. (b) to read as follows:
(SBLC) is a nondepository lending 7. In § 120.420, revise paragraph (f)
introductory text and paragraphs (f)(3) § 120.433 What are the SBA’s other
institution that is SBA licensed and is requirements for sales and sales of
authorized by SBA to only make loans and (4) to read as follows:
participating interests?
pursuant to section 7(a) of the Small § 120.420 Definitions. * * * * *
Business Act and loans to (a) The Lender must be in good
* * * * *
Intermediaries in SBA’s Microloan standing with SBA as defined in
program. SBA has imposed a (f) Good Standing—In general, a
Lender is in ‘‘good standing’’ with SBA § 120.420(f) and determined by SBA in
moratorium on licensing new SBLCs its sole discretion;
since January 1982. if it: * * *
(b) the Lender has satisfactory SBA
(3) Is not under investigation or
* * * * * performance, as determined by SBA in
indictment for, or has not been
3. Amend § 120.410 by revising its sole discretion. The Lender’s Risk
convicted of, or had a judgment entered
paragraphs (a), (d) and (e) and adding a Rating, among other factors, will be
against it for felony or fraud, or charges
new paragraph (f) to read as follows: considered in determining satisfactory
relating to a breach of trust or violation
SBA performance; and
§ 120.410 Requirements for all of a law or regulation protecting the
participating Lenders. integrity of business transactions or * * * * *
relationships, unless the Lender 12. Amend § 120.434 by revising
* * * * * paragraph (b), redesignating paragraphs
(a) Have a continuing ability to Oversight Committee has determined
that good-standing exists despite the (c), (d), (e), (f), and (g) as (d), (e), (f), (g),
evaluate, process, close, disburse, and (h), and adding a new paragraph (c)
service, liquidate and litigate small existence of such factors.
to read as follows:
business loans including, but not (4) Does not have any officer or
limited to: employee who has been under § 120.434 What are SBA’s requirements for
(1) Holding sufficient permanent investigation or indictment for, or has loan pledges?
capital to support SBA lending activities been convicted of or had a judgment * * * * *
(for SBA Lenders with a Federal entered against him for, a felony or (b) The Lender must be in good
Financial Institution Regulator, meeting fraud, or charges relating to a breach of standing with SBA as defined in
capital requirements for an adequately trust or violation of a law or regulation § 120.420(f) and determined by SBA in
capitalized financial institution is protecting the integrity of business its sole discretion;
considered sufficient permanent capital transactions or relationships, unless the (c) The Lender has satisfactory SBA
to support SBA lending activities; for Lender Oversight Committee has performance, as determined by SBA, in
SBLCs, meeting its SBA minimum determined that good standing exists its sole discretion. The Lender’s Risk
capital requirement; and for NFRLs despite the existence of such person. Rating, among other factors, will be
meeting its state minimum capital * * * * * considered in determining satisfactory
requirement); and 8. Amend § 120.424 by revising SBA performance;
(2) Maintaining satisfactory SBA paragraph (a), redesignating paragraphs * * * * *
performance, as determined by SBA in (b), (c), (d), and (e) as (c), (d), (e), and 13. Revise § 120.435 introductory text
its sole discretion. The 7(a) Lender’s (f), and adding new paragraph (b) to to read as follows:
Risk Rating, among other factors, will be read as follows:
considered in determining satisfactory § 120.435 Which loan pledges do not
§ 120.424 What are the basic conditions a require notice to or consent by SBA?
SBA performance;
Lender must meet to securitize? Notwithstanding the provisions of
* * * * *
* * * * * § 120.434(e), 7(a) loans may be pledged
(d) Be supervised and examined by
(a) Be in good standing with SBA as for the following purposes without
either:
defined in § 120.420(f) of this chapter notice to or consent by SBA:
(1) A Federal Financial Institution
Regulator, and determined by SBA in its sole * * * * *
(2) A state banking regulator discretion;
§ 120.442 [Removed]
satisfactory to SBA, or (b) Have satisfactory SBA
performance as determined by SBA, in 14. Remove § 120.442
(3) SBA; 15. Amend § 120.451 by revising the
(e) Be in good standing with SBA as its sole discretion. The Lender’s Risk
last sentence in paragraph (a), revising
defined in § 120.420(f) (and determined Rating, among other factors, will be
paragraph (b)(3), removing paragraph
by SBA in its sole discretion) and, as considered in determining satisfactory
(c), redesignating paragraph (d) as (c),
applicable, with an SBA Lender’s state SBA performance;
redesignating paragraph (e) as (d) and
regulator or Federal Financial * * * * *
revising its last sentence, and adding a

Institution Regulator; and new paragraph (e) to read as follows:
(f) Operate in a safe and sound § 120.425 [Amended]
condition using commercially 9. Amend § 120.425(c)(2) by removing § 120.451 How does a Lender become a
reasonable lending policies, procedures, ‘‘SBA Securitization Committee’’ and PLP Lender?
and standards employed by prudent add in its place ‘‘Lender Oversight (a) * * * The SBA field office will
Lenders. Committee’’ in the fourth sentence. forward its recommendation to an SBA
centralized loan processing center credit review, collateral, and liability, capital stock and additional
which will submit its recommendation administrative matters) to an officer or paid-in capital, income, and expense
and supporting documentation to the officers of the SBA Supervised Lender; accounts;
appropriate Office of Capital Access (2) Adopt and set forth procedures for (2) All general and special journals (or
official in accordance with Delegations maintenance and periodic review of the other records forming the basis for
of Authority for final decision. internal control function; and entries in such ledgers); and
(b) * * * (3) Direct the operation of a program (3) The corporate charter, bylaws,
(3) Has satisfactory SBA performance, to review and assess the SBA application for determination of
as determined by SBA in its sole Supervised Lender’s assets. The asset eligibility to participate with SBA, and
discretion. The Lender’s Risk Rating, review program policies must specify all minutes books, capital stock
among other factors, will be considered the following: certificates or stubs, stock ledgers, and
in determining satisfactory SBA (i) Loan, loan-related asset, and stock transfer registers.
performance. appraisal review standards, including (d) Other preservation of records. An
(c) * * * standards for scope of selection for SBA Supervised Lender must preserve
(d) * * * The recertification decision review (of any such loan, loan-related for at least 6 years following final
is made by the appropriate Office of asset or appraisal) and standards for disposition of each individual SBA
Capital Access official in accordance work papers and supporting loan:
with Delegations of Authority and is documentation; (1) All applications for financing;
final. (ii) Asset quality classification (2) Lending, participation, and escrow
(e) When a PLP lender’s standards consistent with the agreements;
Supplemental Guaranty Agreement standardized classification systems used (3) Financing instruments; and
expires, SBA may recertify the Lender by the Federal Financial Institution (4) All other documents and
as a PLP Lender for an additional term Regulators; supporting material relating to such
not to exceed two years. Prior to (iii) Specific internal control loans, including correspondence.
recertification, SBA will review a PLP requirements for SBA Supervised (e) Electronic preservation. Records
Lender’s loans, policies, procedures, Lender’s major asset categories (cash and other documents referred to in this
SBA performance, Risk Rating, review and investment securities), lending, and section may be preserved electronically
or examination results, and other risk the issuance of debt; if the original is available for retrieval
related information as determined by (iv) Specific internal control within 15 working days.
SBA. requirements for the SBA Supervised 21. Add new § 120.462 to read as
* * * * * Lender’s oversight of Lender Service follows:
Providers; and
§ 120.462 What are SBA’s additional
§ 120.454 [Removed] (v) Standards for training to requirements on capital maintenance for
16. Remove § 120.454 implement the asset review program. SBA Supervised Lenders?
20. Add new § 120.461 to read as
§ 120.455 [Removed] (a) Capital adequacy. The board of
follows:
17. Remove § 120.455 directors (or management, if the SBA
18. Add new undesignated center § 120.461 What are SBA’s additional Supervised Lender is a division of
heading before § 120.460 to read as requirements for SBA Supervised Lenders another company and does not have its
concerning records? own board of directors) of each SBA
follows:
(a) Report filing. All SBA Supervised Supervised Lender must determine
SBA Supervised Lenders Lender-specific reports (including all capital adequacy goals; that is, the total
19. Add new § 120.460 to read as SBLC-only reports) must be filed with amount of capital needed to assure the
follows: the appropriate Office of Capital Access SBA Supervised Lender’s continued
official in accordance with Delegations financial viability and provide for any
§ 120.460 What are SBA’s additional of Authority. necessary growth. The minimum
requirements for SBA Supervised Lenders? (b) Maintenance of records. An SBA standards set in § 120.471 for SBLCs and
(a) In general. In addition to Supervised Lender must maintain at its those established by state regulators for
complying with SBA’s requirements for principal business office accurate and NFRLs are not to be adopted as the ideal
SBA Lenders, an SBA Supervised current financial records, including capital level for a given SBA Supervised
Lender must meet the additional books of accounts, minutes of Lender. Rather, the minimum standards
requirements set forth in this regulation stockholder, directors, and executive are to serve as minimum levels of
and the SBA Supervised Lender committee meetings, and all documents capital that each SBA Supervised
regulations that follow. and supporting materials relating to the Lender must maintain to protect against
(b) Operations and internal controls. SBA Supervised Lender’s transactions. the credit risk and other general risks
Each SBA Supervised Lender’s board of However, securities held by a custodian inherent in its operation.
directors (or management, if the SBA pursuant to a written agreement must be (b) Capital plan. The board of
Supervised Lender is a division of exempt from this requirement. directors of each SBA Supervised
another ‘company and does not have its (c) Permanent preservation of records. Lender must establish, adopt, and
own board of directors) must adopt an An SBA Supervised Lender must maintain a formal written capital plan.
internal control policy which provides permanently preserve in a manner The plan must include any interim
adequate direction to the institution in permitting immediate (one business capital targets that are necessary to
establishing effective control over and day) retrieval the following achieve the SBA Supervised Lender’s
accountability for operations, programs, documentation for the financial capital adequacy goals as well as the
and resources. The internal control statements and other reports required by minimum capital standards. The plan
policy must, at a minimum: § 120.464 (and the accompanying must address any projected dividend
(1) Direct management to assign certified public accountant’s opinion): goals, equity retirements, or any other
responsibility for the internal control (1) All general and subsidiary ledgers anticipated action that may decrease the
function (covering financial, credit, (or other records) reflecting asset, SBA Supervised Lender’s capital. The
plan must set forth the circumstances in calculating capital or capital § 120.463 Regulatory accounting—What
which capital retirements (e.g., requirements between the SBA are SBA’s regulatory accounting
dividends, distributions of capital or Supervised Lender and SBA, SBA’s requirements for SBA Supervised Lenders?
purchase of treasury stock) can occur. In calculations will prevail until (a) Books and records. The books and
addition to factors described above that differences between the two records of an SBA Supervised Lender
must be considered in meeting the calculations are resolved. must be kept on an accrual basis in
minimum standards, the board of accordance with Generally Accepted
directors must also address the (e) Capital restoration plan—(1) Filing Accounting Principles (GAAP) as
following factors in developing the SBA requirement. An SBA Supervised promulgated by the Financial
Supervised Lender’s capital adequacy Lender must file a written capital Accounting Standards Board (FASB),
plan: restoration plan with SBA within 45 supplemented by Regulatory
(1) Management capability; days of the date that the SBA Accounting Principles (RAP) as
(2) Quality of operating policies, Supervised Lender provides notice to identified by SBA in Policy, Procedural
procedures, and internal controls; SBA under paragraph (d) of this section or Information Notices, from time to
(3) Quality and quantity of earnings; above or receives notice from SBA time.
(4) Asset quality and the adequacy of (whichever is earlier) that the SBA (b) Annual audit. Each SBA
the allowance for loan losses within the Supervised Lender has not met its Supervised Lender must have its
loan portfolio; minimum capital requirement, unless financial statements audited annually
(5) Sufficiency of liquidity; and SBA notifies the SBA Supervised by a certified public accountant
(6) Any other risk-oriented activities experienced in auditing financial
or conditions that warrant additional Lender in writing that the plan is to be
filed within a different time period. institutions. The audit must be
capital (e.g., portfolio growth rate). performed in accordance with generally
An SBA Supervised Lender must keep (2) Plan content. An SBA Supervised accepted auditing standards as adopted
its capital plan current, updating it at Lender must detail the steps it will take by the Auditing Standards Board of the
least annually or more often as to meet its minimum capital American Institute of Certified Public
operating conditions may warrant. requirement; the time within which Accountants (AICPA). Annually, the
(c) Certification of compliance. each step will be taken; the timeframe auditor must issue an audit report with
Within 45 days of the end of each fiscal for accomplishing the entire capital an opinion as to the fairness of the SBA
quarter, each SBA Supervised Lender restoration; and the person or Supervised Lender’s financial
must furnish the SBA with a calculation department at the SBA Supervised statements and their compliance with
of capital and certification of Lender charged with carrying out the GAAP.
compliance with its minimum capital capital restoration plan. (c) Auditor qualifications. The audit
requirement as set forth in § § 120.471, shall be conducted by an independent
120.472, or 120.474, as applicable, for (3) SBA response. SBA will provide
written notice of whether the capital public accountant who:
SBLCs and as established by state (1) Is registered or licensed to practice
regulators for NFRLs. The SBA restoration plan is approved or not or
as a certified public accountant, and is
Supervised Lender’s chief financial whether SBA will seek additional
in good standing, under the laws of the
officer must certify the calculation to be information. If the capital restoration
state or other political subdivision of the
correct. The quarterly calculation and plan is not approved by SBA, the SBA United States in which the SBA
certification of compliance may be Supervised Lender will submit a revised Supervised Lender’s principal office is
included in the SBA Supervised capital restoration plan within the located;
Lender’s Quarterly Condition Report. timeframe specified by SBA. (2) Agrees in the engagement letter
(d) Capital impairment. An SBA with the SBA Supervised Lender to
(4) Amendment of capital restoration
Supervised Lender must meet its provide the SBA with access to and
plan. An SBA Supervised Lender that
minimum regulatory capital copies of any work papers, policies, and
requirement and avoid capital has submitted an approved capital
restoration plan may, after prior written procedures relating to the services
impairment. Capital impairment exists performed;
if an SBA Supervised Lender fails to notice to and approval by SBA, amend
the plan to reflect a change in (3) (i) Is in compliance with the
meet its minimum regulatory capital AICPA Code of Professional Conduct;
requirement under §§ 120.471, 120.472, circumstance. Until such time as a
proposed amendment has been and
and 120.474 for SBLCs or as established (ii) Meets the independence
by state regulators for NFRLs. An SBA approved, the SBA Supervised Lender
requirements and interpretations of the
Supervised Lender must provide the must implement the capital restoration Securities and Exchange Commission
appropriate Office of Capital Access plan as approved prior to the proposed and its staff;
official in accordance with Delegations amendment. (4) Has received a peer review or is
of Authority written notice of any (5) Failure. If an SBA Supervised enrolled in a peer review program, that
failure to meet its minimum capital Lender fails to submit a capital meets AICPA guidelines; and
requirement within 30 calendar days of restoration plan that is acceptable to (5) Is otherwise acceptable to SBA.
the month-end in which the impairment SBA within its sole discretion within (d) Change of auditor. If an SBA
occurred. Unless otherwise waived by the required timeframe, or fails to Supervised Lender discharges or
the appropriate Office of Capital Access implement, in any material respect as changes its auditor, it must notify SBA
official in accordance with Delegations in writing within ten days of the
determined by SBA in its sole
of Authority in writing, an SBA occurrence. Such notification must
discretion, its SBA approved capital

Supervised Lender may not present any provide:
loans to SBA for guarantee until the restoration plan within the plan
(1) The name, address, and telephone
impairment is cured. SBA may waive timeframe, SBA may undertake number of the discharged auditor; and
the presentment prohibition for good enforcement actions under § 120.1500. (2) If the discharge/change involved a
cause as determined by SBA in its 22. Add new § 120.463 to read as dispute over the financial statements, a
discretion. In the case of differences in follows: reasonably detailed statement of all the
reasons for the discharge or change. assumptions and any resulting information in any reporting required
This statement must set out the issue in adjustment in the valuation must be under other provisions of SBA
dispute, the position of the auditor, the maintained for SBA review in regulations.
position of the SBA Supervised Lender, accordance with § 120.461. SBA may (4) Stockholder Reports. Each SBA
and the effect of each position on the require a SBA Supervised Lender to use Supervised Lender must submit to SBA
balance sheet and income statement of industry averages for the valuation of a copy of any report furnished to its
the SBA Supervised Lender. servicing rights. stockholders in any manner, within 30
(e) Specific accounting requirements. 23. Add new § 120.464 to read as calendar days after submission to
(1) Each SBA Supervised Lender must follows: stockholders, including any prospectus,
maintain an allowance for losses on letter, or other document, concerning
loans and other assets that is sufficient § 120.464 Reports to SBA. the financial operations or condition of
to absorb all probable and estimated (a) An SBA Supervised Lender must the SBA Supervised Lender.
losses that may reasonably be expected submit the following to SBA: (5) Reports of Changes. Each SBA
based on the SBA Supervised Lender’s (1) Annual Report. Within three Supervised Lender must submit to SBA
historical performance and reasonably- months after the close of each fiscal a summary of any changes in the SBA
anticipated events. Each SBA year, each SBA Supervised Lender must Supervised Lender’s organization or
Supervised Lender must maintain submit to SBA two copies of an annual financing (within 30 calendar days of
documentation of its loan loss report including audited financial the change), such as:
allowance calculations and analysis in statements as prepared by a certified (i) Any change in its name, address or
sufficient detail to permit the SBA to public accountant in accordance with telephone number;
understand the assumptions used and § 120.463. Specifically, the annual (ii) Any change in its charter, bylaws,
the application of those assumptions to report must, at a minimum, include the or its officers or directors (to be
the assets of the SBA Supervised following: accompanied by a statement of personal
Lender. (i) Audited balance sheet; history on the form approved by SBA);
(2) The unguaranteed portions of (ii) Audited statement of income and (iii) Any change in capitalization,
loans determined to be uncollectible expense; including such types of change as are
must be charged-off promptly. If the (iii) Audited reconciliation of capital identified in these regulations;
portion determined to be uncollectible accounts; (iv) Any changes affecting an SBA
by the SBA Supervised Lender is (iv) Audited source and application of Supervised Lender’s eligibility to
different from the amount determined funds; continue to participate as an SBA
by its auditors or the SBA, the SBA (v) Such footnotes as are necessary to Supervised Lender; and
Supervised Lender must charge-off such an understanding of the report; (v) Notice of any pledge of stock
amount as the SBA may direct. (vi) Auditor’s letter to management on (within 30 calendar days of the
(3) Each SBA Supervised Lender must internal control weaknesses; and transaction) if 10 percent or more of the
classify loans as: (vii) The auditor’s report. stock is pledged by any person (or group
(i) ‘‘Nonaccrual’’, if any portion of the (2) Quarterly Condition Reports. By of persons acting in concert) as
principal or interest is determined to be the 45th calendar day following the end collateral for indebtedness.
uncollectible and of each calendar quarter, each SBA (6) Report of Changes in Financial
(ii) ‘‘Formally restructured,’’ if the Supervised Lender must submit a Condition. In addition to other reports
loan meets the ‘‘troubled debt Quarterly Condition Report in a form required under these regulations, each
restructuring’’ definition set forth in and content as the SBA may prescribe SBA Supervised Lender must submit a
FASB Statement of Financial from time to time. At a minimum, the report to SBA on any material change in
Accounting Standards No. 15, Quarterly Condition Report must financial condition. The SBA
Accounting by Debtors and Creditors for include the SBA Supervised Lender’s Supervised Lender must submit such
Troubled Debt Restructurings. quarterly financial statements, which report promptly but no later than ten
(4) When one loan to a borrower is may be internally prepared. The SBA days after its management becomes
classified as nonaccrual or formally Supervised Lender must apply uniform aware of such change (except as
restructured, all loans to that borrower definitions to categories of provided for in § 120.462(d)). Failure to
must be so classified unless the SBA nonperforming loans and include promptly notify SBA concerning a
Supervised Lender can document that recovery amounts on liquidated loans. material change in financial condition
the loans have independent sources of SBA may, on a case-by-case basis, may lead to enforcement action.
repayment. depending on an SBA Supervised (7) Other Reports. Each SBA
(f) Valuing loan servicing rights and Lender’s size and the quality of its Supervised Lender must submit such
residual interests. Each SBA Supervised assets, adjust the requirements for other reports as SBA from time to time
Lender must account for loan sales content and frequency of filing may in writing require.
transactions and the valuation of loan Quarterly Condition Reports. (b) Preparing financial reports for
servicing rights in accordance with (3) Legal and Administrative filing. Each SBA Supervised Lender
GAAP. At the end of each quarter, the Proceeding Report. Each SBA must prepare financial reports:
SBA Supervised Lender must review for Supervised Lender must report any legal (1) In accordance with all applicable
reasonableness the existing or administrative proceeding by or laws, regulations, procedures,
environmental assumptions used in the against the SBA Supervised Lender, or standards, and such instructions and
valuation. Particular attention must be against any officer, director or employee specifications and in such form and
given to interest rate and repayment rate of the SBA Supervised Lender for an media format as may be prescribed by
assumptions. Assumptions considered alleged breach of official duty, within SBA from time to time;
no longer reasonable must be modified ten business days after initiating or (2) On an accrual basis, in accordance
and modifications must be reflected in learning of the proceeding, and also with GAAP principles and such other
the valuation and must be documented must notify the SBA of the terms of any accounting requirements, standards, and
and supported by a market analysis. settlement or final judgment. The SBA procedures as may be prescribed by the
Work papers reflecting the analysis of Supervised Lender must include such SBA from time to time;
(3) that contain all applicable the SBA Supervised Lender must pay to penalty that has accrued so far for that
footnotes in accordance with GAAP SBA a civil penalty of not more than particular report. However, a new civil
principles, one of which includes a brief $5,000 per day per report. Such civil penalty will accrue if SBA Supervised
analysis of how the SBA Supervised penalty continues to accrue until and Lender does not submit a complete
Lender complies with SBA’s capital including the date upon which SBA report by the new due date established
regulations, as applicable; and Supervised Lender submits the by SBA.
(4) in such manner as to facilitate the complete report. In determining the (f) Requests for reduction or
reconciliation of these reports with the amount of the civil penalty to be exemption. (1) An SBA Supervised
books and records of the SBA assessed, SBA may consider the Lender may request a reduction or
Supervised Lender. financial resources and good faith of the exemption from the civil penalty in
(c) Responsibility for assuring the SBA Supervised Lender, the gravity of writing to SBA. The request must
accuracy of filed financial reports. Each the violation, the history of previous reference the required report, its due
financial report filed with SBA must be violations and any such other matters as date and the amount sought for
certified as having been prepared in justice may require. reduction, and state in detail the reasons
accordance with all applicable (c) Notification of amount of civil for the reduction. SBA will consider the
regulations, SOPs, notices, and penalty. SBA will notify the SBA following factors:
instructions and to be a true, accurate, Supervised Lender in writing of the (i) Whether there is reasonable cause
and complete representation of the amount of civil penalties imposed either for failure to file timely and it was not
financial condition and financial upon receiving the required complete due to willful neglect;
performance of the SBA Supervised report or at such other time as SBA (ii) Whether SBA Supervised Lender
Lender to which it applies. The reports determines. SBA Supervised Lender has demonstrated to SBA’s satisfaction
must be certified by the officer of the must pay this amount to SBA within 30 that it has modified its internal
reporting SBA Supervised Lender days of the date of SBA’s written procedures to comply with reporting
named for that purpose by action of the demand. requirements in the future; or
institution’s board of directors. If the (d) Identification during examination.
(iii) Whether SBA Supervised Lender
institution’s board of directors has not SBA may also impose on an SBA
has demonstrated to SBA’s satisfaction,
acted to name an officer to certify the Supervised Lender a civil penalty as
based on financial information fully
correctness of its reports of financial described in this section if SBA
disclosed together with its request, that
condition and financial performance, discovers, during an examination
it would have difficulty paying the civil
then the reports must be certified by the pursuant to subpart I of this Part 120 or
otherwise, that SBA Supervised Lender penalty assessed.
president or chief executive officer of (2) SBA must also determine that a
the reporting SBA Supervised Lender. did not submit a required report by the
due date. reduction or exemption is not
(d) Waiver. The appropriate Office of inconsistent with the public interest or
Capital Access official in accordance (e) Extensions of submission due
dates. (1) SBA Supervised Lender may the protection of SBA.
with Delegations of Authority may in (3) SBA may in writing approve the
his/her sole discretion waive any request in writing to SBA that SBA
extend its report due date. The request exemption, reduce the civil penalty, or
§ 120.464 reporting requirement for SBA deny the exemption.
Supervised Lenders for good cause must reference the report and its due
date, state the reasonable cause for (4) If SBA grants the reduction request
(including, but not limited to, where an or denies the reduction or exemption,
SBA Supervised Lender has a relatively extension, and assert how much
additional time is needed in order to SBA Supervised Lender must pay the
small SBA loan portfolio), as amount owed within 30 days of the
determined by SBA. SBA Supervised submit a complete report. SBA will
advise SBA Supervised Lender in letter date. Civil penalties will accrue
Lenders must request the waiver in while the request is pending.
writing and include all supporting writing as to whether it approved or
denied the extension request. If SBA (g) Reconsideration of decisions. An
reasons and documentation. The waiver SBA Supervised Lender may request in
decision of the appropriate Office of determines that there is reasonable
cause to grant an extension and it is not writing to the Associate Administrator
Capital Access official in accordance for Capital Access (AA/CA) to
with Delegations of Authority is final. due to willful neglect, SBA will
establish a new due date. Such reconsider its request for extension,
24. Add new § 120.465 to read as
determination as to willful neglect and reduction, or exemption. The
follows:
reasonable cause is in SBA’s sole reconsideration request must be
§ 120.465 Civil penalty for late submission discretion. SBA will consider the received by SBA within 30 days of the
of required reports. following factors in determining willful date of the letter denying the SBA
(a) Obligation to submit required neglect: Supervised Lender of any such request.
reports by applicable due dates. SBA (i) Whether SBA Supervised Lender SBA will not consider untimely
Supervised Lenders must submit failed to file required reports for more requests. SBA Supervised Lender must
complete reports by the due dates than two reporting periods and include any additional information or
described in the regulations or as (ii) If SBA provided SBA Supervised documentation to support its
directed in writing by SBA. SBA Lender notice of the failure to file and reconsideration request. SBA will issue
considers any report that an SBA SBA Supervised Lender failed to a written decision on the
Supervised Lender sends to SBA by the respond or failed to provide a reconsideration request. The decision is
applicable due date but that is reasonable explanation for the filing a final agency decision. If on
submitted only in part, to have not been failure in its response. reconsideration, a civil penalty remains
submitted by the applicable due date. (2) If SBA disapproves the extension, due, SBA Supervised Lender must pay
SBA also considers any report that is the due date remains the same. The civil to SBA the civil penalty within 30 days
postmarked by the due date to be penalty accrues regardless of whether of the written decision or as otherwise
submitted by the due date. SBA Supervised Lender files an directed. Civil penalties will continue to
(b) Amount of civil penalty. For each extension request. If SBA approves the accrue while the reconsideration request
day past the due date for such report, extension, SBA will waive the civil is pending.
(h) Other enforcement actions. SBA under common control with another (a) of this section, capital consists only
may seek additional remedies for failure SBLC. of one or more of the following:
to timely file reports as authorized by (2) In the case of a purchase of an (1) Common stock;
law. SBLC by an organization that already
(i) Exception for affiliate of SBLC. owns an SBLC, the purchasing entity (2) Preferred stock that is
Such civil penalties do not apply to any will have six months to submit a plan noncumulative as to dividends and does
affiliate of an SBLC that procures at to SBA for the divestiture of one of the not have a maturity date;
least 10% of its annual purchasing SBLCs. All divestiture plans must be (3) Additional paid-in capital
requirements from small manufacturers. approved by SBA and SBA may representing amounts paid for stock in
25. Revise § 120.470 to read as withhold approval in its sole discretion. excess of the par value;
follows: Divestiture of the SBLC must occur (4) Retained earnings of the business;
within one year of purchase date. and/or
§ 120.470 What are SBA’s additional (3) Without prior written SBA
requirements for SBLCs?
approval, an Associate of one SBLC (5) For limited liability companies
In addition to complying with SBA’s must not be an Associate of another and limited partnerships, capital
requirements for SBA Lenders and SBA SBLC or of any entity which directly or contributions must not be subject to
Supervised Lenders, an SBLC must meet indirectly controls, or is under common repayment at any specific time, must
the requirements contained in this control with, another SBLC. not be subject to withdrawal and must
regulation and the SBLC regulations that (4) For purposes of this regulation, have no cumulative priority return.
follow. common control means a condition (c) Voluntary capital reduction.
(a) Lending. An SBLC may only make: where two or more SBLCs, either Without prior written SBA approval, an
(1) Loans under section 7(a) (except through ownership, management, SBLC must not voluntarily reduce its
section 7(a)(13) of the Act in contract, or otherwise, are under the capital, or repurchase and hold more
participation with SBA); and/or Control of one group or Person (as than 2 percent of any class or
(2) SBA guaranteed loans to defined in § 145.985 of this chapter or combination of classes of its stock.
Intermediaries (see subpart G of this successor regulation). Two or more
part). Such loans are subject to the same (d) Issuance of securities. Without
SBLCs are presumed to be under prior written SBA approval, an SBLC
conditions as guaranteed loans made to common control if they are Affiliates of
Intermediaries by 7(a) Lenders. must not issue any securities (including
each other by reason of common stock options and debt securities) except
(b) Business structure. An SBLC must ownership or common officers,
be a corporation (profit or non-profit) or stock dividends.
directors, or general partners.
a limited liability company or limited (5) ‘‘Affiliate’’ has the meaning set 27. Revise § 120.472 to read as
partnership. forth in § 121.103 of this chapter. follows:
(c) Written agreement. An SBLC must (6) ‘‘Control’’ means the possession, § 120.472 Higher individual minimum
sign a written agreement with SBA. direct or indirect, of the power to direct capital requirement.
(d) Dual control. An SBLC must or cause the direction of the
maintain dual control over management and policies of an SBLC or The Associate Administrator for
disbursement of funds and withdrawal other concern, whether through the Capital Access (AA/CA) may require,
of securities. ownership of voting securities, by under § 120.473(d), an SBLC to maintain
(1) An SBLC may disburse funds only contract, or otherwise. The common a higher level of capital, if the AA/CA
by checks or wire transfers authorized control presumption may be rebutted by determines, in his/her sole discretion,
by signatures of two or more officers evidence satisfactory to SBA. that the SBLC’s level of capital is
covered by the SBLC’s fidelity bond, (g) Management. An SBLC must potentially inadequate to protect the
except that checks in an amount of employ full time professional SBA from loss due to the financial
$1,000 or less may be signed by one management. failure of the SBLC. The factors to be
bonded officer, provided that such (h) Borrowed funds. In general, an considered in the determination will
action is permitted under the SBLC’s SBLC may not be capitalized with vary in each case and may include, for
fidelity bond. borrowed funds. Shareholders owning example:
(2) There must be two or more bonded 10 percent or more of any class of its (a) Specific conditions or
officers, or one bonded officer and a stock must not use personally-borrowed circumstances pertaining to the SBLC;
bonded employee to open safe deposit funds to purchase the stock unless the
boxes or withdraw securities from (b) Exigency of those circumstances or
net worth of the shareholder is at least potential problems;
safekeeping. The SBLC must furnish to twice the amount borrowed or unless
each depository bank, custodian, or the shareholder receives SBA’s prior (c) Overall condition, management
entity providing safe deposit boxes a written approval for a lower ratio. strength, and future prospects of the
certified copy of the resolution 26. Revise § 120.471 to read as SBLC and, if applicable, its parent or
implementing control procedures. follows: affiliates;
(e) Fidelity insurance. An SBLC must (d) The SBLC’s liquidity and existing
maintain a Brokers Blanket Bond, § 120.471 What are the minimum capital capital level, and the performance of its
Standard Form 14, or Finance requirements for SBLCs?
SBA loan portfolio;
Companies Blanket Bond, Standard (a) Minimum capital requirements.
Form 15, or such other form of coverage Each SBLC must maintain, at a (e) The management views of the
as SBA may approve, in a minimum minimum, unencumbered paid-in SBLC’s directors and senior
amount of $2,000,000 executed by a capital and paid-in surplus of at least management; and
surety holding a certificate of authority $1,000,000, or ten percent of the (f) Other risk-related factors, as
from the Secretary of the Treasury aggregate of its share of all outstanding determined by SBA.
pursuant to 31 U.S.C. 9304–9308. loans, whichever is more.
§ 120.476 [Removed]
(f) Common control. (1) An SBLC (b) Composition of capital. For
must not control, be controlled by, or be purposes of complying with paragraph 28. Remove § 120.476.
§§ 120.473, 120.474, and 120.475 requirement and the deadline for its determined by SBA in its sole
[Redesignated as §§ 120.475, 120.476, and achievement. Failure to respond will discretion. The Lender’s Risk Rating,
120.490] also constitute consent to the individual among other factors, will be considered
29. Redesignate §§ 120.473, 120.474, minimum capital requirement. in determining satisfactory SBA
and 120.475 as §§ 120.475, 120.476, and (d) Decision. After the close of the performance.
120.490, respectively. SBLC’s response period, the AA/CA will * * * * *
30. In newly redesignated § 120.475, decide, based on a review of SBA 33. Revise § 120.702(b) to read as
revise the second sentence of paragraph reasons for proposing the individual follows:
(a) introductory text and revise minimum capital requirement, the
paragraph (b) to read as follows: SBLC’s response, and other information § 120.702 Are there limitations on who can
concerning the SBLC, whether the be an Intermediary or on where an
§ 120.475 Change of ownership or control. Intermediary may operate?
individual minimum capital
(a) * * * An SBLC must request requirement should be established for * * * * *
approval of any such change from the the SBLC and, if so, the requirement and (b) Limitation to one state. An
appropriate Office of Capital Access the date it will become effective. The Intermediary may not operate in more
official in accordance with Delegations SBLC will be notified of the decision in than one state unless the appropriate
of Authority.* * * writing. The notice will include an Office of Capital Access official in
(b) If transfer of ownership or control explanation of the decision; except for accordance with Delegations of
is subject to the approval of any State a decision not to establish an individual Authority determines that it would be in
or Federal chartering, licensing, or other minimum capital requirement for the the best interests of the small business
regulatory authority, copies of any SBLC. community for it to operate across state
documents filed with such authority (e) Submission of plan. The decision lines.
must, at the same time, be transmitted may require the SBLC to develop and 34. Amend § 120.710 by revising
to the appropriate Office of Capital submit to SBA, within a time period paragraphs (c), (d), the introductory text
Access official in accordance with specified, an acceptable plan to reach of paragraph (e) and paragraph (e)(1) to
Delegations of Authority. the individual minimum capital read as follows:
31. Add new § 120.473 to read as requirement by the date required.
follows: § 120.710 What is the Loan Loss Reserve
(f) Change in circumstances. If, after Fund?
§ 120.473 Procedures for determining SBA’s decision in paragraph (d) of this * * * * *
individual minimum capital requirement. section, there is a change in the (c) SBA review of Loan Loss Reserve
(a) Notice. When SBA determines that circumstances affecting the SBLC’s Fund. After an Intermediary has been in
an individual minimum capital capital adequacy or its ability to reach the Microloan program for five years, it
requirement above that set forth in this the required individual minimum may request SBA’s appropriate Office of
subpart or other legal authority is capital requirement by the specified Capital Access official in accordance
necessary or appropriate for a particular date, either the SBLC or the AA/CA may with Delegations of Authority to reduce
SBLC, SBA will notify the SBLC in propose to the other a change in (i) the the percentage of its Portfolio which it
writing of the proposed individual individual minimum capital must maintain in its LLRF to an amount
minimum capital requirement, the date requirement for the SBLC, (ii) the date equal to the actual average loan loss rate
by which it should be reached and will when the individual minimum must be during the preceding five-year period.
provide an explanation of why the achieved, and/or (iii) the SBLC’s plan (if Upon receipt of such request, he/she
requirement proposed is considered applicable). The AA/CA may decline to will review the Intermediary’s annual
necessary or appropriate. consider proposals that are not based on loss rate for the most recent five-year
(b) SBLC response. The SBLC may a significant change in circumstances or period preceding the request.
respond to the notice. The response are repetitive or frivolous. Pending a (d) Reduction of Loan Loss Reserve
should include any matters which the decision by the AA/CA on Fund. The appropriate Office of Capital
SBLC would have SBA consider in reconsideration, SBA’s original decision Access official in accordance with
deciding whether individual minimum and any plan required under that Delegations of Authority has the
capital requirements should be decision will continue in full force and authority to reduce the percentage of an
established for the SBLC, what those effect. Intermediary’s Portfolio that it must
capital requirements should be, and, if 31. Add new § 120.474 to read as maintain in its LLRF to an amount equal
applicable, when they should be follows: to the actual average loan loss rate
achieved. The response must be in § 120.474 Relation to other actions. during the preceding five-year period.
writing and delivered to the AA/CA The appropriate Office of Capital Access
In lieu of, or in addition to, the
within 30 days after the date on which official in accordance with Delegations
procedures in this subpart, the
the SBLC received the notice. SBA may of Authority cannot reduce the LLRF to
individual minimum capital
shorten the time for response when, in less than ten percent of the Portfolio.
requirement for an SBLC may be
the opinion of SBA, the condition of the (e) What must an Intermediary
established or revised through a written
SBLC so warrants, provided that the demonstrate to get a reduction in Loan
agreement or cease and desist
SBLC is informed promptly of the new Loss Reserve Fund? To receive a
proceedings under Subpart I of this Part.
time period, or the SBLC consents to the reduction in its LLRF, an Intermediary
32. Amend § 120.630 by adding
shortening of its response time. In its must:
paragraph (a)(5) to read as follows: (1) Have satisfactory SBA
discretion, SBA may extend the time
period for good cause. § 120.630 Qualifications to be a Pool performance, as determined by SBA in
(c) Failure to respond. An SBLC that Assembler. its sole discretion. The Intermediary’s
does not respond within 30 days or such (a) * * * Risk Rating, among other factors, will be
other time period as may be specified by (5) For any pool assembler that is an considered in determining satisfactory
SBA will have waived any objections to SBA Lender, that the SBA Lender has SBA performance; and
the proposed minimum capital satisfactory SBA performance, as * * * * *
§ 120.716 [Removed] related loans. For the 504 review 7507) (the Single Audit Act) must
35. Remove § 120.716. program, the internal control policies comply with the audit requirements
36. Amend § 120.812 to add a new must specify the following: contained in the Single Audit Act and
sentence at the end of paragraph (c) to (i) Loan, loan-related collateral, and revised OMB Circular A–133, Audits of
read as follows: appraisal review standards, including States, Local Governments, and Non-
standards for scope of selection (for Profit Organizations. To the extent that
§ 120.812 Probationary period for newly review of any such loan, loan-related any of such audit requirements conflict
certified CDCs. collateral or appraisal) and standards for with SBA’s regulations, the Single Audit
* * * * * work papers and supporting Act and OMB Circular A–133
(c) * * * To be considered for documentation; requirements control.
permanent CDC status or an extension (ii) Loan quality classification 39. Amend § 120.830 to revise
of probation, the CDC must have standards consistent with the paragraph (a) to read as follows:
satisfactory SBA performance, as standardized classification systems used
determined by SBA in its sole by the Federal Financial Institution § 120.830 Reports a CDC must submit.
discretion. The CDC’s Risk Rating, Regulators; * * * * *
among other factors, will be considered (iii) Specific control requirements for (a) An annual report within three
in determining satisfactory SBA the CDC’s oversight of Lender Service months after the end of the CDC’s fiscal
performance. Providers; and year (to include audited financial
* * * * * (iv) Standards for training to statements of the CDC and any affiliates
37. Amend § 120.820 to add a new implement the loan review program; or subsidiaries of the CDC prepared in
paragraph (c) to read as follows: and accordance with § 120.826(c) and (d)),
(4) Address other control and such interim reports as SBA may
§ 120.820 CDC non-profit status and good requirements as may be established by require. The financial statements must,
standing. SBA. at a minimum, include the following:
* * * * * (c) Annual Audited Financial (1) Audited balance sheet;
(c) Must have satisfactory SBA Statements. Each CDC must have its (2) Audited statement of income (or
performance, as determined by SBA in financial statements audited annually receipts) and expense;
its sole discretion. The CDC’s Risk by a certified public accountant that is (3) Audited statement of source and
Rating, among other factors, will be independent and experienced in application of funds;
considered in determining satisfactory auditing financial institutions. The
(4) Such footnotes as are necessary to
SBA performance. audit must be performed in accordance
an understanding of the report;
38. Revise § 120.826 as follows: with generally accepted auditing
(5) Auditor’s letter to management on
standards as adopted by the Auditing
§ 120.826 Basic requirements for internal control weaknesses; and
operating a CDC.
Standards Board of the American
Institute of Certified Public Accountants (6) The auditor’s report.
A CDC must operate in accordance (AICPA). The auditor must be * * * * *
with the following requirements: independent, as defined by the AICPA, 40. Amend § 120.839 to add two new
(a) In general. CDCs must meet all 504 of the CDC. Annually, the auditor must sentences after the second sentence in
Loan Program Requirements. In its Area issue an opinion as to the fairness of the the introductory text to read as follows:
of Operations, a CDC must market the CDC’s financial statements and their
504 program, package and process 504 § 120.839 Case-by-case application to
compliance with GAAS. make a 504 loan outside of a CDC’s Area
loan applications, close and service 504 (d) Auditor qualifications. The audit
loans, and if authorized by SBA, of Operations.
must be conducted by an independent
liquidate and litigate 504 loans. It must * * * In addition, the CDC must have
certified public accountant who:
supply to SBA current and accurate (1) Is registered or licensed to practice satisfactory SBA performance, as
information about all certification and as a public accountant, and is in good determined by SBA in its sole
operational requirements, and maintain standing, under the laws of the state or discretion. The CDC’s Risk Rating,
the records and submit all reports other political subdivision of the United among other factors, will be considered
required by SBA. States in which the CDC’s principal in determining satisfactory SBA
(b) Operations and internal controls. office is located; performance. * * *
Each CDC’s board of directors must (2) Agrees in the engagement letter * * * * *
adopt an internal control policy which with the CDC to provide the SBA with 41. Revise § 120.841(c) to read as
provides adequate direction to the access to and copies of any work papers, follows:
institution for effective control over and policies, and procedures relating to the
accountability for operations, programs, § 120.841 Qualifications for the ALP.
services performed;
and resources. The board adopted (3)(i) Is in compliance with the AICPA * * * * *
internal control policy must, at a Code of Professional Conduct; and (c) CDC reviews. CDC reviews
minimum: (ii) Meets the independence conducted by SBA must be current
(1) Direct management to assign the requirements and interpretations of the (within the last 24 months, if
responsibility for the internal control Securities and Exchange Commission applicable) for applicants for ALP
function (covering financial, credit, and its staff; status. The CDC must have received a
credit review, collateral, and (4) Has received a peer review or is review assessment of either
administrative matters) to an officer or enrolled in a peer review program that ‘‘acceptable’’ or ‘‘acceptable with
officers of the CDC; meets AICPA guidelines; and corrective actions required’’. In
(2) Adopt and set forth procedures for (5) Is otherwise acceptable to SBA. addition, the CDC must have
maintenance and periodic review of the (e) Single Audit Act requirements for satisfactory SBA performance, as
internal control function; not-for-profit CDCs. Not-for-profit CDCs determined by SBA in its sole
(3) Direct the operation of a program that are subject to the Single Audit Act discretion. The CDC’s Risk Rating,
to review and assess the CDC’s 504- Amendments of 1996 (31 U.S.C. 7501– among other factors, will be considered
in determining satisfactory SBA Subpart I—Risk-Based Lender Oversight § 120.1025 Off-site reviews and
performance. monitoring.
Supervision
* * * * * SBA may conduct off-site reviews and
Sec.
42. Revise § 120.845(b) to read as 120.1000 Risk-Based Lender Oversight.
monitoring of SBA Lenders,
follows: 120.1005 Bureau of PCLP Oversight. Intermediaries, and NTAPs, including
120.1010 SBA access to SBA Lender, SBA Lenders’, Intermediaries’ or
§ 120.845 Premier Certified Lenders Intermediary, and NTAP files. NTAPs’ self-assessments.
Program (PCLP). 120.1015 Risk Rating System.
* * * * * 120.1025 Off-site reviews and monitoring. § 120.1050 On-site reviews and
(b) Application. A CDC must apply for 120.1050 On-site reviews and examinations.
PCLP status to the Lead SBA Office. The examinations. (a) On-site reviews. SBA may conduct
Lead SBA Office will send its written 120.1051 Frequency of on-site reviews and on-site reviews of the SBA loan
recommendation and the application to examinations. operations of SBA Lenders. The on-site
SBA’s PCLP Loan Processing Center. 120.1055 Review and examination results. review may include, but is not limited
120.1060 Confidentiality of Reports, Risk to, an evaluation of the following:
The PCLP Loan Processing Center will Ratings, and related Confidential
review these materials and forward Information.
(1) Portfolio performance;
them to the appropriate Office of Capital (2) SBA operations management;
Access official in accordance with Subpart I—Risk-Based Lender (3) Credit administration; and
Delegations of Authority for final Oversight (4) Compliance with Loan Program
determination. Requirements.
Supervision (b) On-site examinations. SBA may
* * * * *
43. Remove the undesignated center conduct safety and soundness
§ 120.1000 Risk-Based Lender Oversight.
heading before § 120.853. examinations of SBA Supervised
(a) Risk-Based Lender Oversight. SBA Lenders, except SBA will not conduct
44. Revise the heading for § 120.853 to supervises, examines, and regulates, and
read as set forth below and remove the safety and soundness examinations of
enforces laws against, SBA Supervised Other Regulated SBLCs under
first sentence of the section. Lenders and the SBA operations of SBA §§ 120.1510 and 1511. The on-site safety
§ 120.853 Inspector General audits of Lenders, Intermediaries, and NTAPs. and soundness examination may
CDCs. (b) Scope. Most rules and standards
include, but is not limited to, an
45. Remove the undesignated center set forth in this subpart apply to SBA
evaluation of:
heading before § 120.854. Lenders as well as Intermediaries and
(1) Capital adequacy;
NTAPs. However, SBA has separate (2) Asset quality (including credit
§ 120.854 [Removed] regulations for enforcement grounds and administration and allowance for loan
46. Remove § 120.854. enforcement actions for Intermediaries losses);
and NTAPs at § 120.1425 and (3) Management quality (including
§ 120.855 [Removed] § 120.1540.
47. Remove § 120.855. internal controls, loan portfolio
§ 120.1005 Bureau of PCLP Oversight. management, and asset/liability
§ 120.856 [Removed] SBA’s Bureau of PCLP Oversight management);
48. Remove § 120.856. within OCRM, monitors the (4) Earnings;
49. Revise § 120.956 to read as capitalization of PCLP CDC pilot (5) Liquidity;
follows: participants’ LLRFs and performs other (6) Compliance with Loan Program
related functions. Requirements
§ 120.956 Suspension or revocation of (c) On-site reviews/examinations of
brokers and dealers. § 120.1010 SBA access to SBA Lender, Intermediaries and NTAPs. SBA may
The appropriate Office of Capital Intermediary, and NTAP files. perform on-site reviews or examinations
Access official in accordance with An SBA Lender, Intermediary, and of Intermediaries and NTAPs.
Delegations of Authority may suspend NTAP must allow SBA’s authorized (d) Other on-site reviews or
or revoke the privilege of any broker or representatives, including examinations. SBA may perform other
dealer to participate in the sale or representatives authorized by the SBA on-site reviews/examinations as needed
marketing of Debentures and Certificates Inspector General, during normal as determined by SBA in its sole
for actions or conduct bearing business hours, access to its files to discretion.
negatively on the broker’s fitness to review, inspect, and copy all records
participate in the securities market. SBA and documents, relating to SBA § 120.1051 Frequency of on-site reviews
must give the broker or dealer written and examinations.
guaranteed loans or as requested for
notice, stating the reasons, at least 10 SBA oversight. SBA may conduct on-site reviews and
business days prior to the effective date examinations of SBA Lenders,
of the suspension or revocation. A § 120.1015 Risk Rating System. Intermediaries, and NTAPs on a
broker or dealer may appeal the (a) Risk Rating. SBA may assign a Risk periodic basis. SBA may consider, but is
suspension or revocation made under Rating to all SBA Lenders, not limited to, the following factors in
this section pursuant to the procedures Intermediaries, and NTAPs on a determining frequency:
set forth in part 134 of this chapter. The periodic basis. Risk Ratings are based on (a) Off-site review/monitoring results,
action of this official will remain in certain risk-related portfolio including an SBA Lender’s,
effect pending resolution of the appeal. performance factors as set forth in Intermediary’s or NTAP’s Risk Rating;
50. Revise the heading to subpart I notices or SBA’s SOPs and as published (b) SBA loan portfolio size;
and add an undesignated center heading from time to time. (c) Previous review or examination
and §§ 120.1000, 120.1005, 120.1010, (b) Rating categories. Risk Ratings fall findings;
120.1015, 120.1025, 120.1050, 120.1051, into one of two broad categories: (d) Responsiveness in correcting
120.1055, and 120.1060 to read as Acceptable Risk Ratings or Less Than deficiencies noted in prior reviews or
follows: Acceptable Risk Ratings. examinations; and
(e) Such other risk-related information SBA fails to do so in writing; fails to this regulation, each referred to as a
as SBA, in its sole discretion, submit timely such plan to SBA; or fails ‘‘permitted party’’), and to those for
determines to be appropriate. to submit a plan acceptable to SBA whom SBA has approved access by
within SBA’s sole discretion, then SBA prior written consent, and to those for
§ 120.1055 Review and examination may take enforcement action under whom access is required by applicable
results.
§ 120.1500 et. seq. If an SBA Lender, law or legal process. If such law or
(a) Written Reports. SBA will provide Intermediary, or NTAP fails to process requires SBA Lender,
an SBA Lender, Intermediary, and implement in any material respect a Intermediary, or NTAP to disclose the
NTAP a copy of SBA’s written report corrective action or capital restoration Report, Risk Rating, or Confidential
prepared as a result of the SBA Lender plan within the required timeframe, Information to any person other than a
review or examination (‘‘Report’’). The then SBA may undertake enforcement permitted party, SBA Lender,
Report may contain findings, action under § 120.1500 et. seq. Intermediary, or NTAP will promptly
conclusions, corrective actions and
notify SBA and SBA’s Information
recommendations. Each director (or § 120.1060 Confidentiality of Reports, Risk
Ratings and related Confidential Provider in writing so that SBA and the
manager, in the absence of a Board of
Information. Information Provider have, within their
Directors) of the SBA Lender,
(a) In general. Reports and other SBA sole discretion, the opportunity to seek
Intermediary, and NTAP, in keeping
prepared review or examination related appropriate relief such as an injunction
with his or her responsibilities, must
documents are the property of SBA and or protective order prior to disclosure.
become fully informed regarding the
contents of the Report. are loaned to an SBA Lender, For purposes of this regulation,
(b) Response to review and Intermediary, or NTAP for its ‘‘Information Provider’’ means any
examination Reports. SBA Lenders, confidential use only. The Reports, Risk contractor that provides SBA with the
Intermediaries, and NTAPs must Ratings, and related Confidential Risk Rating. SBA Lender, Intermediary,
respond to Report findings and Information are privileged and and NTAP must ensure that each
corrective actions, if any, in writing to confidential as more fully explained in permitted party is aware of these
SBA and, if requested, submit proposed paragraph (b) of this section. The regulatory requirements and must
corrective actions and/or a capital Report, Risk Rating, and Confidential ensure that each such permitted party
restoration plan. An SBA Lender, Information must not be relied upon for abides by them. Any disclosure of the
Intermediary, or NTAP must respond any purpose other than SBA’s Lender Report, Risk Rating, or Confidential
within 30 days from the Report date oversight and SBA’s portfolio Information other than as permitted by
unless SBA notifies the SBA Lender, management purposes. An SBA Lender, this regulation may result in appropriate
Intermediary, or NTAP in writing that Intermediary, or NTAP must not make action as authorized by law. An SBA
the response, proposed corrective any representations concerning the Lender, Intermediary, and NTAP will
actions or capital restoration plan is to Report (including its findings, indemnify and hold harmless SBA of
be filed within a different time period. conclusions, and recommendations), the the Risk Rating or Confidential
The SBA Lender, Intermediary, or Risk Rating, or the Confidential Information from and against any and
NTAP response must address each Information. For purposes of this all claims, demands, suits, actions, and
finding and corrective action. In regulation, Report means the review or liabilities to any degree based upon or
proposing a corrective action or capital examination report and related resulting from the unauthorized use or
restoration plan, SBA Lender, documents. For purposes of this disclosure of the Report, Risk Rating, or
Intermediary, or NTAP must detail: The regulation, Confidential Information is Confidential Information. Information
steps it will take to correct the finding defined in the SBA Lender information Provider contact information is
deficiency; the time within which each portal and by notice issued from time to available from the Office of Capital
step will be taken; the timeframe for time. Access to the lender information Access.
accomplishing the entire corrective portal may be obtained by contacting 51. In subpart I, add an undesignated
action; and the person(s) or department the OCRM. center heading and §§ 120.1400,
at the SBA Lender, Intermediary, or (b) Disclosure prohibition. Each SBA 120.1425, 120.1500, 120.1510, 120.1511,
NTAP charged with carrying out the Lender, Intermediary, and NTAP is 120.1540, and 120.1600 to read as
corrective actions or capital restoration prohibited from disclosing its Report, follows:
plan, as applicable. Risk Rating, and Confidential
(c) SBA response. SBA will provide Information, in full or in part, in any Subpart I—Risk-Based Lender
written notice of whether the response manner, without SBA’s prior written Oversight
and, if applicable, any corrective action permission. An SBA Lender,
* * * * *
or capital restoration plan, is approved, Intermediary, and NTAP may use the
or whether SBA will seek additional Report, Risk Rating, and Confidential Enforcement Actions
information or require other action. Information for confidential use within Sec.
(d) Failure to respond or to submit or its own immediate corporate 120.1400 Grounds for enforcement
implement an acceptable plan. If an organization. SBA Lenders, actions—SBA Lenders.
SBA Lender, Intermediary, or NTAP Intermediaries, and NTAPs must restrict 120.1425 Grounds for enforcement
fails to respond in writing to SBA, access to their Report, Risk Rating and actions—Intermediaries participating in
respond timely to SBA, or provide a Confidential Information to those of its the Microloan Program and NTAPs.
response acceptable to SBA within officers and employees who have a 120.1500 Enforcement actions—SBA
SBA’s sole discretion, or respond to all legitimate need to know such Lenders.
findings and required corrective actions information for the purpose of assisting 120.1510 Other Regulated SBLCs.
120.1511 Certification and other reporting
in a Report, then SBA may take them in improving the SBA Lender’s, and notification requirements for Other
enforcement action under Subpart I. If Intermediary’s, or NTAP’s SBA program Regulated SBLCs.
an SBA Lender, Intermediary, or NTAP operations in conjunction with SBA’s 120.1540 Enforcement actions—
that is requested to submit a corrective Lender Oversight Program and SBA’s Intermediaries participating in the
action plan or capital restoration plan to portfolio management (for purposes of Microloan Program and NTAPs.
120.1600 General procedures for Lender having a repeated Risk Rating or enforcement actions, the grounds that
enforcement actions against SBA an on-site review/examination are required to take the enforcement
Lenders, SBA Supervised Lenders, Other assessment which is Less Than action are:
Regulated SBLCs, Management Officials, Acceptable; (1) For SBA program suspensions and
Other Persons, Intermediaries, and (5) Failure within time period
NTAPs. revocations—
specified to correct an underwriting, (i) False statements knowingly made
Enforcement Actions closing, disbursing, servicing, in any required written submission to
liquidation, litigation, or reporting SBA; or
§ 120.1400 Grounds for enforcement deficiency, or failure in any material
actions—SBA Lenders. (ii) An omission of a material fact
respect to take other corrective action, from any written submission required
(a) Agreement. By making SBA 7(a) after receiving notice from SBA of a by SBA; or
guaranteed loans or 504 loans, SBA deficiency and the need to take (iii) A willful or repeated violation of
Lenders automatically agree to the corrective action; the Small Business Act (the Act) or SBA
terms, conditions, and remedies in Loan (6) Engaging in a pattern of regulations; or
Program Requirements, as promulgated uncooperative behavior or taking an (iv) A willful or repeated violation of
or issued from time to time and as if action that SBA determines is any condition imposed by SBA with
fully set forth in the SBA Form 750, detrimental to an SBA program, that respect to any application, request, or
Loan Guaranty Agreement or other undermines management or agreement with SBA; or
applicable participation, guaranty, or administration of a program, or that is (v) A violation of any cease and desist
supplemental agreement. not consistent with standards of good
(b) Scope. SBA may undertake one or order of SBA.
conduct; (2) For SBA program immediate
more of the enforcement actions listed (7) Repeated failure to correct
in § 120.1500 or as otherwise authorized suspension—SBA may suspend an SBA
continuing deficiencies; Supervised Lender, effective
by law, if SBA determines that the (8) Unauthorized disclosure of
grounds applicable to the enforcement immediately, if in addition to meeting
Reports, Risk Rating, or Confidential
action exist. In general, the grounds the grounds set forth in paragraph (d)(1)
Information;
listed in paragraph (c) of this section (9) Any other reason that SBA of this section, the Administrator (or the
may trigger enforcement actions against determines may increase SBA’s Deputy Administrator, only if the
any SBA Lender. However, certain financial risk (for example, repeated Administrator is unavailable to take
enforcement actions against SBA Less Than Acceptable Risk Ratings or such action) finds extraordinary
Supervised Lenders, as set forth in indictment on felony or fraud charges of circumstances and takes such action in
paragraphs (d) and (e) of this section, an officer, key employee, or loan agent order to protect the financial or legal
require the existence of certain grounds, involved with SBA loans for the SBA position of the United States.
and paragraph (f) of this section lists Lender); (3) For cease and desist orders—
two additional grounds for taking (10) As otherwise authorized by law; (i) A violation of the Act or SBA
enforcement action against CDCs. Below or regulations, or
is a listing of the grounds that trigger (11) For immediate suspension of all (ii) Where an SBA Supervised Lender
enforcement actions against each type of SBA Lenders from delegated or Other Person engages in or is about
SBA Lender. authorities—upon a determination by to engage in any acts or practices that
(c) Grounds in general. Except as SBA that one or more of the grounds in will violate the Act or SBA’s
provided in paragraphs (d) and (e) of paragraph (c) or paragraph (f) of this regulations.
this section, the grounds that may section, as applicable, exist and, that (4) For an emergency cease and desist
trigger an enforcement action against immediate action is needed to prevent order—
any SBA Lender (regardless of its Risk significant impairment of the integrity (i) Where grounds for cease and desist
Rating) include: of the 7(a) or 504 loan program. order are met,
(1) Failure to maintain eligibility (12) For immediate suspension of all (ii) The Administrator (or the Deputy
requirements for specific SBA programs SBA Lenders except SBA Supervised Administrator, only if the Administrator
and delegated authorities, including but Lenders from the authority to is unavailable to take such action) finds
not limited to: 7(a), PLP, SBAExpress, participate in the SBA loan program, extraordinary circumstances, and
Community Express, 504, ALP, PCLP, including the authority to make, service, (iii) In order to protect the financial or
the alternative loss reserve pilot liquidate, or litigate 7(a) or 504 loans— legal position of the United States.
program and any pilot loan program; upon a determination by SBA that one (5) For transfer of Loan portfolio—
(2) Failure to comply materially with or more of the grounds in paragraph (c) (i) Where a court has appointed a
any requirement imposed by Loan or paragraph (f) of this section, as receiver and
Program Requirements; applicable, exist and, that immediate (ii) The SBA Supervised Lender is
(3) Making a material false statement action is needed to prevent significant either not in compliance with capital
or failure to disclose a material fact to impairment of the integrity of the 7(a) or requirements or is insolvent. An SBA
SBA (A material fact is any fact which 504 loan program. Supervised Lender is insolvent within
is necessary to make a statement not (d) Grounds required for certain the meaning of this provision when all
misleading in light of the circumstances enforcement actions against SBA of its capital, surplus, and undivided
under which the statement was made.); Supervised Lenders (except Other profits are absorbed in funding losses
(4) Not performing underwriting, Regulated SBLCs) or as applicable, and the remaining assets are not
closing, disbursing, servicing, Other Persons. For purposes of Subpart sufficient to pay and discharge its
liquidation, litigation or other actions in I, Other Person means a Management contracts, debts, and other obligations as
a commercially reasonable and prudent Official, attorney, accountant, appraiser, they come due.
manner for 7(a) or 504 loans, Lender Service Provider or other (6) For transfer of servicing activity—
respectively, as applicable. Evidence of individual involved in the SBA
such performance or actions may Supervised Lender’s operations. For the (i) Where grounds for transfer of Loan
include, but is not limited to, the SBA below listed SBA Supervised Lender portfolio are met or
(ii) Where the SBA Supervised Lender § 120.1425 Grounds for enforcement (e) Additional grounds specific to
is otherwise operating in an unsafe and actions—Intermediaries participating in the NTAPs. In addition to grounds set forth
unsound condition. Microloan Program and NTAPs. in paragraph (c) of this section, SBA
(7) For order to remove Management (a) Agreement. By participating in the may take enforcement action against an
Official—where, in the opinion of the SBA Microloan or NTAP program, NTAP for failure to show that, for every
Administrator or his/her delegatee, the Intermediaries and NTAPs 30 clients for which the NTAP provided
Management Official— automatically agree to the terms, technical assistance, at least one client
(i) Willfully and knowingly conditions, and remedies in this Part received a loan from the private sector.
committed a substantial violation of the 120 as if fully set forth in their
Act, SBA regulation, a final cease and participation agreement and all other § 120.1500 Enforcement actions—SBA
agreements jointly executed by the Lenders.
desist order, or any agreement by the
Management Official or the SBA Intermediary or NTAP and SBA. Upon a determination that the
Supervised Lender under the Act or (b) Scope. SBA may undertake one or grounds set forth in § 120.1400 exist,
SBA regulations, or more of the enforcement actions listed SBA may undertake, in SBA’s sole
(ii) Willfully and knowingly in § 120.1540, or as otherwise discretion, one or more of the following
committed a substantial breach of a authorized by law, if SBA determines enforcement actions for each of the
fiduciary duty of that person as a that any of the grounds listed in types of SBA Lenders listed. SBA will
Management Official and the violation paragraphs (c) through (e) of this section take such action in accordance with
or breach of fiduciary duty is one exist. procedures set forth in § 120.1600. If
involving personal dishonesty on the (c) Grounds in general. For any enforcement action is taken under this
part of such Management Official, or Intermediary or NTAP, grounds that section and the SBA Lender fails to
(iii) The Management Official is may trigger enforcement action against implement required corrective action in
convicted of a felony involving the Intermediary or NTAP (regardless of any material respect within the required
dishonesty or breach of trust and the its Risk Rating) include: timeframe in response to the
conviction is no longer subject to further (1) Violation of any laws, regulations, enforcement action, SBA may take
judicial review (excludes writ of habeas or policies of the program; or further enforcement action, as
corpus). (2) Failure to meet any one of the authorized by law.
(8) For order to suspend or prohibit following performance standards: (a) Enforcement actions for all SBA
participation of Management Official (i) Coverage of the service territory Lenders—(1) Imposition of portfolio
assigned by SBA, including honoring guarantee dollar limit. SBA may limit
(interim measure pending removal)—
SBA’s determined boundaries of the maximum dollar amount that SBA
where SBA is undertaking enforcement
neighboring intermediaries and NTAPs; will guaranty on the SBA Lender’s SBA
action of removal of a Management (ii) Fulfill reporting requirements;
Official. loans or debentures.
(iii) Manage program funds and (2) Suspension or revocation of
(9) For order to suspend or prohibit matching funds in a satisfactory and
participation of Management Official delegated authority. SBA may suspend
financially sound manner; or revoke an SBA Lender’s delegated
due to criminal charges—where the (iv) Communicate and file reports
Management Official is charged in any authority (including, but not limited to
within six months after beginning
information, indictment or complaint PLP, SBA Express, or PCLP delegated
participation in program;
authorized by a United States attorney authorities).
(v) Maintain a currency rate of 85% or
with a felony involving dishonesty or (3) Suspension or revocation from
more for the Intermediary’s SBA
breach of trust. SBA program. SBA may suspend or
Microloan portfolio (that is, loans that
(e) Grounds required for certain revoke an SBA Lender’s authority to
are no more than 30 days late in
enforcement actions against SBLCs and participate in the SBA loan program,
scheduled payments);
Other Regulated SBLCs. (vi) Maintain a default rate in the including the authority to make, service,
(1) Capital directive. If the AA/CA Intermediary’s Microloan portfolio of liquidate, or litigate 7(a) or 504 loans.
determines that an SBLC is capitally 15% or less of the cumulative dollars Section 120.1400(d)(1) sets forth the
impaired or is otherwise being operated loaned under the program; grounds for SBA program suspension or
in an imprudent manner, the AA/CA (vii) Maintain a staff trained in revocation of an SBA Supervised Lender
may, in addition to any other action Microloan program issues and (except Other Regulated SBLCs). The
authorized by law, issue a directive to requirements; or grounds for SBA program suspension or
the SBLC to increase capital consistent (viii) Any other reason that SBA revocation for all other SBA Lenders are
with § 120.1500(d)(1). determines may increase SBA’s set forth in § 120.1400(c) and, as
(2) Civil action for termination. If an financial or program risk (for example, applicable, paragraph (f) of § 120.1400.
SBLC violates the Act or SBA repeated Less Than Acceptable Risk A suspension or revocation will not
regulations, SBA may institute a civil Ratings or indictment on felony or fraud invalidate a guarantee previously
action to terminate SBLC rights, charges of an officer, key employee, or provided by SBA.
privileges, and the franchise under loan agent involved with SBA programs (4) Immediate suspension. SBA may
§ 120.1500(d)(2). for the Intermediary or NTAP). suspend, effective immediately, an SBA
(f) Additional grounds specific to (d) Additional grounds specific to Lender’s delegated authority or
CDCs. In addition to the grounds set Intermediaries. In addition to the authority to participate in the SBA loan
forth in paragraphs (b) and (c) of this grounds set forth in paragraph (c) of this program, or the authority to make,
section, SBA may take enforcement section, SBA may take enforcement service, liquidate, or litigate 7(a) or 504
action against a CDC for: action against an Intermediary for: loans. Section 120.1400(d)(2) sets forth
(1) Failure to receive SBA approval (1) Failure to satisfactorily provide in- the grounds for SBA program immediate
for at least four 504 loans during the last house technical assistance to Microloan suspension of an SBA Supervised
two consecutive fiscal years, or clients and prospective Microloan Lender (except Other Regulated SBLCs).
(2) For PCLP CDCs, failure to establish clients; or The grounds for SBA program
or maintain a LLRF as required by the (2) Failure to close and fund a immediate suspension for all other SBA
PCLP. minimum of four Microloans annually. Lenders and the grounds for immediate
suspension of delegated authority for all receiver may take possession of the of the following enforcement actions
SBA Lenders are set forth in portfolio of 7(a) loans and sell such specific to CDCs:
§ 120.1400(c)(11) and § 120.1400(c)(12). loans to a third party, and/or take (1) Require the CDC to transfer part or
(5) Debarment. In accordance with possession of servicing activities of 7(a) all of its existing 504 loan portfolio and/
Part 145 or successor regulation of this loans and sell such servicing rights to a or part or all of its pending 504 loan
Chapter, SBA may take any necessary third party. applications to SBA, another CDC, or
action to debar a person, as defined in (4) Civil monetary penalties for report any other entity designated by SBA.
Part 145, including but not be limited to filing failure. SBA may seek civil Any such transfer may be on a
an officer, a director, a general partner, penalties, in accordance with § 120.465, temporary or permanent basis, in SBA’s
a manager, an employee, an agent or of not more than $5,000 a day against sole discretion; or
other participant in the affairs of an SBA an SBA Supervised Lender that fails to (2) Instruct the Central Servicing
Lender’s SBA operations. file any regular or special report by its Agent to withhold payment of servicing,
(6) Other actions available under law. due date as specified by regulation or late and/or other fee(s) to the CDC.
SBA may take all other enforcement SBA written directive.
actions against SBA Lenders available § 120.1510 Other Regulated SBLCs.
(d) Enforcement actions specific to
under law. SBLCs. In addition to those supervisory Other Regulated SBLCs are exempt
(b) Enforcement actions specific to actions listed in paragraphs (a), (b), and from §§ 120.465, 120.1050(b),
7(a) Lenders. In addition to those (c) of this section, SBA may take the 120.1400(d), 120.1500(c), and
enforcement actions applicable to all following enforcement actions specific 120.1600(b). This exemption is not
SBA Lenders, SBA may suspend or to SBLCs. intended to preclude SBA from seeking
revoke a 7(a) Lender’s authority to sell (1) Capital directive. The AA/CA may any other remedy authorized by law or
or purchase loans or certificates in the issue a capital directive upon a equity.
Secondary Market. determination that the grounds in § 120.1511 Certification and other
(c) Enforcement actions specific to § 120.1400(e)(1) exist. A directive may reporting and notification requirements for
SBA Supervised Lenders and Other order the SBLC to: Other Regulated SBLCs.
Persons (except Other Regulated (i) Achieve its minimum capital (a) Certification. An SBLC seeking
SBLCs). In addition to those requirement applicable to it by a Other Regulated SBLC status must
enforcement actions listed in paragraphs specified date; certify to SBA in writing that its lending
(a) and (b) of this section, SBA may take (ii) Adhere to a previously submitted activities are subject to regulation by a
any one or more of the following capital restoration plan (provided under Federal Financial Institution Regulator
enforcement actions specific to SBA § 120.462 or § 120.1055) to achieve the or state banking regulator. This
Supervised Lenders and as applicable, applicable capital requirement; certification must be executed by the
Other Persons: (iii) Submit and adhere to a capital chair of the board of directors of the
(1) Cease and desist order. SBA may restoration plan acceptable to SBA SBLC and submitted to SBA either:
issue a cease and desist order against describing the means and time schedule (1) Within 60 calendar days of the
the SBA Supervised Lender or Other by which the SBLC will achieve the effective date of this section or
Person. The Cease and Desist order may applicable capital requirement (The (2) If the SBLC becomes subject to
either require the SBA Supervised SBLC must provide its capital regulation by a Federal Financial
Lender or the Other Person to take a restoration plan within 30 days from the Institution Regulator or state banking
specific action, or to refrain from a date of the SBA order unless SBA regulator after the effective date of this
specific action. The Cease and Desist notifies the SBLC that the plan is to be section for any reason (e.g. license
Order may be issued as effective filed within a different time period. SBA transfers), within 60 days of the date
immediately (or as a proposal for may perform an on-site examination that the SBLC becomes directly
Order). SBA may include in the cease (generally within 90 days after the examined and directly regulated by
and desist order the suspension of restoration plan is submitted) to verify such regulator.
authority to lend. the implementation of the plan and (b) Contents of Certification. This
(2) Remove Management Official. SBA verify that the SBLC meets minimum certification must include:
may issue an order to remove a capital requirements.); (1) The identity of the Federal
Management Official from office. SBA (iv) Refrain from taking certain Financial Institution Regulator or state
may suspend a Management Official actions without obtaining SBA’s prior banking regulator that regulates the
from office or prohibit a Management written approval (Such actions may lending activities of the SBLC;
Official from participating in include but are not limited to: Paying (2) A statement that the Federal
management of the SBA Supervised any dividend; retiring any equity; Financial Institution Regulator or state
Lender or in reviewing, approving, maintaining a rate of growth that causes banking regulator identified in
closing, servicing, liquidating or further deterioration in the capital paragraph (b)(1) of this section regularly
litigating any 7(a) loan, or any other percentage; securitizing any conducts safety and soundness
activities of the SBA Supervised Lender unguaranteed portion of its 7(a) loans; examinations on the SBLC itself and not
while the removal proceeding is or selling participations in any of its 7(a) only on the SBLC’s parent company or
pending in order to protect an SBA loans); or affiliate, if any; and
Supervised Lender or the interests of (v) Undertake a combination of any of (3) The date of the most recent safety
SBA or the United States. these or similar actions. and soundness examination conducted
(3) Initiate request for appointment of (2) Civil action for termination. SBA on the SBLC by the Federal Financial
receiver. The SBA may make may institute a civil action to terminate Institution Regulator or state banking
application to a district court to take the rights, privileges, and franchises of regulator. To qualify as an Other
exclusive jurisdiction of an SBA an SBLC. Regulated SBLC, the SBLC must have
Supervised Lender and appoint a trustee (e) Enforcement actions specific to received this examination within the
or receiver to hold or administer or CDCs. In addition to those enforcement past 3 years of the date of certification.
liquidate the SBA Supervised Lender’s actions listed in paragraph (a) of this (c) Notification of examination. An
assets under direction of the court. The section, SBA may take any one or more Other Regulated SBLC must notify SBA
in writing each time a Federal Financial (1) Removal from the program; calendar days of its receipt of the notice
Institution Regulator or state banking (2) Liquidation of Intermediary’s or within some other term established
regulator conducts a safety and Microloan Revolving Fund and Loan by SBA in its notice, a written objection
soundness examination, and this Loss Reserve Fund accounts by SBA, with the appropriate Office of Capital
notification must be submitted to SBA and application of the liquidated funds Access official in accordance with
within 30 calendar days of the SBLC to any outstanding balance owed to Delegations of Authority or other SBA
receiving the results of the examination. SBA; official identified in the notice. Notice
To retain its status as an Other (3) Payment of outstanding debt to will be presumed to have been received
Regulated SBLC, the Other Regulated SBA by the Intermediary; within five days of the date of the notice
SBLC must receive such examination, (4) Forfeiture or repayment of any unless the SBA Lender, Intermediary, or
and provide the written notification to unused grant funds by the Intermediary NTAP can provide compelling evidence
SBA, at least once every two years or NTAP; to the contrary.
following initial certification. (5) Debarment of the organization (ii) The objection must set forth in
(d) Report. An Other Regulated SBLC from receipt of federal funds until loan detail all grounds known to the SBA
must report in writing to SBA on its and grant repayments are met; or Lender, Intermediary, or NTAP to
interactions with other Federal (6) Taking such other actions contest the proposed action or
Financial Institution Regulators or state available under law. immediate suspension and all
banking regulator (e.g., the results of the mitigating factors, and must include
safety and soundness examinations and § 120.1600 General procedures for documentation that the SBA Lender,
any order issued against the Other enforcement actions against SBA Lenders, Intermediary, or NTAP believes is most
SBA Supervised Lenders, Other Regulated
Regulated SBLC), to the extent allowed SBLCs, Management Officials, Other
supportive of its objection. An SBA
by law. Persons, Intermediaries, and NTAPs. Lender, Intermediary, or NTAP must
(e) Notification of change in status. If, exhaust this administrative remedy in
for any reason, an Other Regulated (a) In general. Except as otherwise set order to preserve its objection to a
SBLC becomes no longer subject to forth for the enforcement actions listed proposed enforcement action or an
regulation by a Federal Financial in paragraphs (b) and (c) of this section, immediate suspension.
Institution Regulator or state banking SBA will follow the procedures listed (iii) If an SBA Lender, Intermediary,
regulator, the Other Regulated SBLC below. or NTAP can show legitimate reasons as
must immediately notify SBA in (1) SBA’s notice of enforcement determined by SBA in SBA’s sole
writing, and the exemption provided in action. (i) When undertaking an discretion why it does not understand
§ 120.1510 will immediately no longer immediate suspension under the reasons given by SBA in its notice
apply. § 120.1500(a)(4), or prior to undertaking of the action, the SBA Lender,
(f) Extension of timeframes. SBA may an enforcement action set forth in Intermediary, or NTAP may request and
in its sole discretion extend any § 120.1500(a), (b), and (e) and receive clarification from the Agency.
timeframe imposed on the SBLC under § 120.1540, SBA will issue a written SBA will provide the requested
this section if the SBLC can show good notice to the affected SBA Lender, clarification in writing to the SBA
cause for any delay in meeting the time Intermediary, or NTAP identifying the Lender, Intermediary, or NTAP or notify
requirement. The SBLC may appeal this proposed enforcement action or the SBA Lender, Intermediary, or NTAP
decision to the AA/CA. notifying it of an immediate suspension. in writing that SBA has determined that
(g) Failure to satisfy requirements. In The notice will set forth in reasonable SBA Lender’s reasons as presented were
the event that an SBLC fails to satisfy detail the underlying facts and reasons not legitimate and that such clarification
the requirements set forth in paragraphs for the proposed action or immediate is not necessary. SBA, in its sole
(a), (b), and (c) of this section, then the suspension. If the notice is for a discretion, will further advise in writing
exemption provided in § 120.1510 will proposed or immediate suspension, whether the SBA Lender, Intermediary,
not apply to the SBLC. SBA will also state the scope and term or NTAP may have additional time to
of the proposed or immediate present its objection to the notice.
§ 120.1540 Enforcement actions— suspension.
Intermediaries participating in the Requests for clarification must be made
Microloan Program and NTAPs.
(ii) If a proposed enforcement action to the appropriate Office of Capital
or immediate suspension is based upon Access official in accordance with
Upon a determination that any ground
information obtained from a third party Delegations of Authority in writing and
set out in § 120.1425 exists, the SBA
other than the SBA Lender, received by SBA within the 30-day
may take in its sole discretion, one or
Intermediary, and NTAP or SBA, SBA’s timeframe or the timeframe given by the
more of the following enforcement
notice of proposed action or immediate notice for response.
actions against an Intermediary or
suspension will provide copies of (iv) An SBA Lender, Intermediary, or
NTAP:
(a) Suspension or pre-revocation documentation received from such third NTAP may request additional time to
sanctions which may include, but are party, or the name of the third party in respond to SBA’s notice if it can show
not limited to: case of oral information, unless SBA that there are compelling reasons why it
(1) Accelerated reporting determines that there are compelling is not able to respond within the 30-day
requirements; reasons not to provide such information. timeframe or timeframe given by the
(2) Accelerated loan repayment If compelling reasons exist, SBA will notice for response. If such requests are
requirements for outstanding program provide a summary of the information it submitted to the Agency, SBA may, in
debt to SBA, as applicable; received to the SBA Lender, its sole discretion, provide the SBA
(3) Imposition of a temporary lending Intermediary, or NTAP. Lender, Intermediary, or NTAP with
moratorium, as applicable; or (2) SBA Lender, Intermediary, or additional time to respond to the notice
(4) Imposition of a temporary training NTAP’s opportunity to object. (i) An of proposed action or immediate
moratorium. SBA Lender, Intermediary, or NTAP suspension. Requests for additional time
(b) Revocation of authority to that desires to contest a proposed to respond must be made to the
participate in the Microloan program enforcement action or an immediate appropriate Office of Capital Access
which will include: suspension must file, within 30 official in accordance with Delegations
of Authority or other official identified to consider an untimely objection, it (iii) Administrator finding and order
in the notice in writing and received by must issue a notice of final decision issuance. If after the administrative
SBA within the 30-day timeframe or the pursuant to this paragraph. hearing, or the SBA Supervised Lender’s
timeframe given by the notice for (4) SBA’s notice of final agency or Other Person’s waiver of the
response. decision where no objection filed or administrative hearing, the
(v) Prior to the issuance of a final untimely objection not considered. If Administrator determines that the order
decision by SBA, if an SBA Lender, SBA chooses not to consider an should be issued, the Administrator will
Intermediary, or NTAP can show that untimely objection or if the affected issue an order to suspend or revoke
there is newly discovered material SBA Lender, Intermediary, or NTAP authority or a cease and desist order, as
evidence which, despite the SBA fails to file a written objection to a applicable. The order will include a
Lender, Intermediary, or NTAP’s proposed enforcement action or an statement of findings, the grounds and
exercise of due diligence, could not immediate suspension, and if SBA reasons, and will specify the order’s
have been discovered within the continues to believe that such proposed effective date. SBA will serve the order
timeframe given by SBA to respond to enforcement action or immediate on the SBA Supervised Lender or Other
a notice, or that there are compelling suspension is appropriate, SBA must Person. The Administrator may delegate
reasons beyond the SBA Lender, issue a written notice of final decision the power to issue a cease and desist
Intermediary, or NTAP’s control as to to the affected SBA Lender, order or to suspend or revoke loan
why it was not able to present a material Intermediary, or NTAP that SBA is program authority only if the
fact or argument to SBA, and that the undertaking one or more of the Administrator is unavailable and only to
SBA Lender, Intermediary, or NTAP has proposed enforcement actions against the Deputy Administrator.
been prejudiced by not being able to the SBA Lender, Intermediary, or NTAP (iv) Judicial review. The order
present such information, the SBA or that SBA will continue to pursue an issuance constitutes a final agency
Lender, Intermediary, or NTAP may immediate suspension of the SBA action. The SBA Supervised Lender or
submit such information to SBA and Lender, Intermediary, or NTAP. Such a Other Person will have 20 days from the
request that the Agency consider such notice of final decision need not state order issuance date to file an appeal in
information in its final decision. any grounds for the action other than to the appropriate federal district court.
(3) SBA’s notice of final agency reference the SBA Lender, Intermediary, (2) Immediate suspension or
decision where SBA Lender, or NTAP’s failure to file a timely immediate cease and desist order. If
Intermediary, or NTAP filed objection to objection, and represents the final SBA undertakes an immediate
the proposed action or immediate agency decision. suspension of authority to participate in
suspension. (i) If the affected SBA (5) Appeals. SBA Lender, the 7(a) loan program or immediate
Lender, Intermediary, or NTAP files a Intermediary, and NTAP may appeal the cease and desist order against an SBA
timely written objection to a proposed final agency decision only in the Supervised Lender or, as applicable,
enforcement action other than an appropriate federal district court. Other Person, SBA will within two
immediate suspension in accordance (b) Procedures for certain enforcement business days follow the procedures set
with this section, SBA must issue a actions against SBA Supervised Lenders forth in paragraph (b)(1) of this section.
written notice of final decision to the (except Other Regulated SBLCs) and, (3) Removal of Management Official.
affected SBA Lender, Intermediary, or where applicable, Management Officials If SBA undertakes the removal of a
NTAP advising whether SBA is and Other Persons—(1) Suspension and Management Official of an SBA
undertaking the proposed enforcement revocation actions and cease and desist Supervised Lender, SBA will follow the
action and setting forth the grounds for orders. If SBA seeks to suspend or procedures below in lieu of those in
the decision. SBA will issue such a revoke loan program authority paragraph (a) of this section.
notice of final decision whenever it (including the authority to make, (i) Notice and hearing. SBA will serve
deems appropriate. service, liquidate, or litigate SBA loans), upon the Management Official and the
(ii) If the affected SBA Lender, or issue a cease and desist order to an SBA Supervised Lender written notice
Intermediary, or NTAP files a timely SBA Supervised Lender or, as of intention to remove that includes a
written objection to a notice of applicable, Other Person, SBA will statement of the facts constituting the
immediate suspension, SBA must issue follow the procedures below in lieu of grounds and the date, time, and place
a written notice of final decision to the those in paragraph (a) of this section. for an administrative hearing. The
affected SBA Lender, Intermediary, or (i) Show cause order and hearing. The administrative hearing will be held
NTAP within 90 days of receiving the Administrator will serve upon the SBA between 30 and 60 days from the date
SBA Lender, Intermediary, or NTAP’s Supervised Lender or Other Person an notice is served, unless an earlier or
objection advising whether SBA is order to show cause why an order later date is set at the request of the
continuing with the immediate suspending or revoking the authority or Management Official for good cause
suspension. If the SBA Lender, why a cease and desist order should not shown or at the request of the Attorney
Intermediary, or NTAP submits be issued. The show cause order will General. Failure of the Management
additional information to SBA (under contain a statement of the matters of fact Official to appear at the administrative
paragraph (a)(2)(v) of this section) after and law asserted by SBA, as well as the hearing will constitute consent to the
submitting its objection but before SBA legal authority and jurisdiction under removal order. SBA will serve on the
issues its final decision, SBA must issue which an administrative hearing will be SBA Supervised Lender a copy of each
its final decision within 90 days of held, and will set forth the place and notice that is served on a Management
receiving such information. time of the administrative hearing. The Official,
(iii) Prior to issuing a notice of hearing will be conducted by an (ii) Suspension from office or
decision, SBA in its sole discretion can administrative law judge in accordance prohibition in participation, pending
request additional information from the with 5 U.S.C. 554–557. removal. The suspension or prohibition
affected SBA Lender, Intermediary, (ii) Witnesses. The party calling will take effect upon service of intention
NTAP or other parties and conduct any witnesses will pay the witnesses the to remove the Management Official or
other investigation it deems appropriate. same fees and mileage paid witnesses such subsequent time as the
If SBA determines, in its sole discretion, for their appearance in U.S. courts. Administrator or his/her delegate deems
appropriate and serves notice. It will (4) Receiverships, transfer of assets (3) Decision. After the closing date of
remain in effect pending the completion and servicing activities. If SBA the SBLC’s response period, or receipt
of the administrative proceedings to undertakes the appointment of a of the SBLC’s response, if earlier, SBA
remove and until such time as either receiver for, or the transfer of assets or may seek additional information or
SBA dismisses the charges in the servicing rights of, an SBA Supervised clarification of the response. Thereafter,
removal notice or, if an order to remove Lender, SBA will follow the applicable SBA will determine whether or not to
or prohibit participation is issued, until procedures in 15 U.S.C. 650. issue a capital directive, and if one is to
the effective date of an order to remove (5) Civil penalties for report filing be issued, whether it should be as
or prohibit. In the case of suspension or failure. If SBA seeks to impose civil originally proposed or in modified form.
prohibition following criminal charges, penalties against an SBA Supervised (4) Issuance of a capital directive. (i)
it may remain in effect until the Lender for failure to file a report in A capital directive will be served by
information, indictment, or complaint is accordance with SBA regulations or delivery to the SBLC. It will include, or
finally disposed of, or until the written directives, SBA will follow the be accompanied by, a statement of
suspension is terminated by SBA or by procedures set forth for enforcement reasons for its issuance.
order of a district court. A Management actions in § 120.465. (ii) A capital directive is effective
Official may appeal to the appropriate (c) Additional procedures for certain immediately upon its receipt by the
federal district court for a stay of the enforcement actions against SBLCs. SBLC, or upon such later date as may
suspension or prohibition pending Capital directive—(1) Notice of intent to be specified therein, and will remain
completion of the administrative issue capital directive. SBA will notify effective and enforceable until it is
hearing not later than 10 days from the an SBLC in writing of its intention to stayed, modified, or terminated by SBA.
suspension or prohibition’s effective issue a directive. The notice will state:
date. (i) Reasons for issuance of the (5) Reconsideration based on change
(iii) Decision. SBA may issue the directive and in circumstances. Upon a change in
order of removal if the Management (ii) The proposed contents of the circumstances, an SBLC may request
Official consents or is convicted of the directive. SBA to reconsider the terms of its
criminal charges and the judgment is (2) Response to notice. An SBLC may capital directive or may propose
not subject to further judicial review respond to the notice by stating why a changes in the plan to achieve the
(not including writ of habeas corpus), or capital directive should not be issued SBLC’s applicable minimum capital
if upon a record of a hearing, SBA finds and/or by proposing alternative contents requirement. SBA also may take such
that any of the notice grounds have been for the capital directive or seeking other action on its own initiative. SBA may
established. After the hearing, in the appropriate relief. The response must decline to consider requests or
latter case, and within 30 days after SBA include any information, mitigating proposals that are not based on a
has notified the parties that the case has circumstances, documentation, or other significant change in circumstances or
been submitted for final decision, SBA relevant evidence that supports its are repetitive or frivolous. Pending a
will render a decision (which includes position. The response may include a decision on reconsideration, the capital
findings of fact upon which the decision plan for achieving the minimum capital directive and plan will continue in full
is predicated) and issue and serve an requirement applicable to the SBLC. force and effect.
order upon each party to the The response must be in writing and (6) Relation to other administrative
proceeding. The decision will constitute delivered to the SBA within 30 days actions. A capital directive may be
final agency action. after the date on which the SBLC issued in addition to, or in lieu of, any
(iv) Effective date and judicial review. received the notice. In its discretion, other action authorized by law,
The removal order will take effect 30 SBA may extend the time period for including cease and desist proceedings.
days after date of service upon the SBA good cause. SBA may shorten the 30- SBA also may, in its discretion, take any
Supervised Lender and the Management day time period: action authorized by law, in lieu of a
Official except i) in case of consent (i) When, in the opinion of SBA, the capital directive, in response to an
which will be effective at the time condition of the SBLC so requires, SBLC’s failure to achieve or maintain
specified in the order or ii) in case of provided that the SBLC will be the applicable minimum capital
removal for conviction on criminal informed promptly of the new time requirement.
charges the order will be effective upon period; (7) Appeals. The capital directive
removal order service on the SBA (ii) With the consent of the SBLC; or constitutes a final agency action. An
Supervised Lender and the Management (iii) When the SBLC already has SBLC may appeal the final agency
Official. The order will remain effective advised SBA that it cannot or will not decision only in the appropriate federal
and enforceable, except to the extent it achieve its applicable minimum capital district court.
is stayed, modified, terminated, or set requirement.
aside by the Administrator or a Failure to respond within 30 days or Dated: October 18, 2007.
reviewing court. The adversely affected such other time period as may be Steven C. Preston,
party will have 20 days from the order specified by SBA will constitute a Administrator.
issuance date to seek judicial review in waiver of any objections to the proposed [FR Doc. E7–20932 Filed 10–30–07; 8:45 am]
the appropriate federal district court. capital directive. BILLING CODE 8025–01–P

Proposed Rule: Business Loans: Lender Oversight Program

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Wednesday,

October 31, 2007

SMALL BUSINESS ADMINISTRATION Management. In the submission, you B. History

CHART OF REGULATIONS RELOCATED

§ 120.414 ............................. SBA access to 7(a) Lender files ..................................... § 120.1010.

§ 120.856 ............................. CDC enforcement procedures ........................................ § 120.1600 (enforcement procedures).

E. Notice of Capital Impairment [No

revising its last sentence, and adding a

discretion, its SBA approved capital

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