Debt Refinancing in the 504 Loan Program (rule, 88 FR 70580, October 12, 2023)
Summary
A final rule from the U.S. Small Business Administration, published in the Federal Register on October 12, 2023 (Vol. 88, No. 196), on debt refinancing in the 504 Loan Program. SBA adopts with changes the interim final rule published in the Federal Register on July 29, 2021, which implemented section 328 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act. That act, enacted December 27, 2020 as Public Law 116–260, revised the conditions and requirements for refinancing debt in the 504 Loan Program. The modifications listed include increasing the amount of existing indebtedness that may be refinanced for expansions, reinstating an alternate job retention standard and revising the definition of qualified debt. The effective date of the final rule is November 13, 2023.
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Cite this document
“Debt Refinancing in the 504 Loan Program (rule, 88 FR 70580, October 12, 2023).”
Original at www.govinfo.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/debt-refinancing-in-the-504-loan-program-rule-88-fr-70580-october-12-2-741e0470e9/
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70580 Federal Register / Vol. 88, No. 196 / Thursday, October 12, 2023 / Rules and Regulations
Subpart D—Delegations of Authority to General Counsel, for purposes of removing the prohibition against
Other General Officers and Agency publication in the Federal Register. Certified Development Companies
Heads (CDCs) participating in the Premier
Mary Beth Schultz,
Certified Lenders Program using their
■ 5. Amend § 2.32 by adding paragraph Acting General Counsel. delegated authority to make these loans.
(a)(14) to read as follows: [FR Doc. 2023–22524 Filed 10–11–23; 8:45 am]
DATES: The effective date of this final
BILLING CODE 3410–90–P
§ 2.32 Chief Information Officer. rule is November 13, 2023.
(a) * * * FOR FURTHER INFORMATION CONTACT:
(14) Administer the Controlled DEPARTMENT OF ENERGY Gregorius Suryadi, Senior Financial and
Unclassified Information (CUI) Program Loan Specialist, 504 Program Branch,
for the Department pursuant to E.O. 10 CFR Parts 429 and 431 Office of Financial Assistance, Small
13556, ‘‘Controlled Unclassified Business Administration, 409 3rd Street
[EERE–2017–BT–STD–0048]
Information’’ (75 FR 68675, 3 CFR, 2011 SW, Washington, DC 20416; telephone:
Comp., p. 267) and 32 CFR part 2002. RIN 1904–AF27 (202) 205–6806; email:
* * * * * gregorius.suryadi@sba.gov.
Energy Conservation Program: Energy
Conservation Standards for Dedicated SUPPLEMENTARY INFORMATION:
§ 2.38 [Amended]
Purpose Pool Pump Motors I. Background Information
■ 6. Amend § 2.38 by removing and
reserving paragraphs (a)(1)(xii) and Correction The 504 Loan Program is an SBA
(a)(4). financing program authorized under
In rule document 2023–20343,
■ 7. Amend § 2.39 by adding paragraph appearing on pages 66966 through title V of the Small Business Investment
(a)(9) to read as follows: 67041 in the issue of Thursday, Act of 1958, 15 U.S.C. 695 et seq. The
September 28, 2023, make the following core mission of the 504 Loan Program is
§ 2.39 Director, Office of Tribal Relations.
correction: to provide long-term financing to small
(a) * * * businesses for the purchase or
On page 66967, in Table I.1, in the
(9) Administer the USDA/1994 Land improvement of land, buildings, and
fifth column, on the third line,
Grant Institutions (Tribal Colleges) major equipment, in an effort to
‘‘September 28, 2025’’ should read
Programs. facilitate the creation or retention of jobs
‘‘September 28, 2027’’.
* * * * * and local economic development. Under
[FR Doc. C1–2023–20343 Filed 10–11–23; 8:45 am]
the 504 Loan Program, loans are made
Subpart J—Delegations of Authority by BILLING CODE 0099–10–D
to small business applicants by Certified
the Under Secretary for Natural Development Companies (‘‘CDCs’’),
Resources and Environment which are certified and regulated by
SMALL BUSINESS ADMINISTRATION SBA to promote economic development
■ 8. Amend § 2.60 by adding paragraph
13 CFR Part 120 within their community. In general, a
(a)(45) to read as follows: project in the 504 Loan Program (a ‘‘504
§ 2.60 Chief, Forest Service. RIN 3245–AH78 Project’’) includes: a loan obtained from
(a) * * * a private sector lender with a senior lien
Debt Refinancing in the 504 Loan covering at least 50 percent of the
(45) Enforce and conduct Program
investigations of violations of the Lacey project cost; a loan obtained from a CDC
Act, which prohibits importing or AGENCY: U.S. Small Business (a ‘‘504 Loan’’) with a junior lien
exporting any plant or plant product in Administration. covering up to 40 percent of the total
interstate or foreign commerce in ACTION: Final rule.
cost (backed by a 100 percent SBA-
violation of any federal, state, Tribal, or guaranteed debenture); and a
foreign law regulating plants or plant SUMMARY: SBA is adopting with changes contribution from the Borrower of at
products (16 U.S.C. 3371–3378). the interim final rule published in the least 10 percent equity.
* * * * * Federal Register on July 29, 2021. That In addition, the 504 Loan Program
interim final rule implemented section may be used to refinance debt under
Subpart P—Delegations of Authority 328 of the Economic Aid to Hard-Hit two options authorized under section
by the Assistant Secretary for Small Businesses, Nonprofits, and 502(7)(B) and (C) of the Small Business
Administration Venues Act, which modified the Investment Act of 1958. First, if a 504
requirements for refinancing debt in the Project involves the expansion of the
§ 2.95 [Amended] 504 Loan Program, as set forth in section small business, any amount of existing
■ 9. Amend § 2.95 by removing and 521(a) of title V of division E of the indebtedness that does not exceed 50
reserving paragraph (b)(11). Consolidated Appropriations Act, 2016 percent of the project cost of the
and section 502(7) of the Small Business expansion may be refinanced and added
Subpart V—Delegations of Authority Investment Act of 1958. The to the project’s cost (Debt Refinancing
by the Director, Office of Partnerships modifications included: increasing the with Expansion) under the conditions
and Public Engagement amount of existing indebtedness that set forth in section 502(7)(B) and the
may be refinanced for 504 debt implementing regulations. See 13 CFR
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§ 2.700 [Removed and Reserved] refinancing involving expansions; and 120.882(e) and (f). Second, debt
■ 10. Remove and reserve § 2.700. for 504 debt refinancing not involving refinancing is available for a 504 Project
The Secretary of Agriculture, Thomas expansions, removing two limitations that does not involve the expansion of
J. Vilsack, having reviewed and on the program, reinstating an alternate the small business under the
approved this document, is delegating job retention standard for the requirements set forth in section
the authority to electronically sign this refinancing project, revising the 502(7)(C) and 13 CFR 120.882(g) (Debt
document to Mary Beth Schultz, Acting definition of qualified debt, and Refinancing without Expansion).
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Federal Register / Vol. 88, No. 196 / Thursday, October 12, 2023 / Rules and Regulations 70581
Section 328(a) of the Economic Aid to II. Section-by-Section Analysis of the following conditions and
Hard-Hit Small Businesses, Nonprofits, Comments and Changes requirements:
and Venues Act (Economic Aid Act), (1) for an existing 504 loan, either
On July 29, 2021, SBA published in
enacted December 27, 2020, Public Law both the Third Party Loan and the 504
the Federal Register an interim final
116–260, revised the conditions and loan must be refinanced, or the Third
rule implementing section 328(a) of the
requirements for refinancing debt in the Party Loan must have been paid in full;
Economic Aid Act. 86 FR 40775.
504 Loan Program as follows: and
Although effective immediately, the (2) for an existing 7(a) loan, the CDC
(1) With respect to Debt Refinancing interim final rule included a request for
with Expansion, 13 CFR 120.882(e), the must verify in writing that the present
comments seeking input from the lender is either unwilling or unable to
Economic Aid Act increased the amount public. The comment period for the
of existing indebtedness that may be modify the current payment schedule.
interim final rule was open from July In addition, in the case of same
refinanced as part of a 504 Project from 29, 2021, until October 8, 2021. SBA
not more than 50 percent of the project institution debt, if the Third Party
received 79 comments of which many Lender or the CDC affiliate as
cost of the expansion to not more than were duplicative. Of the unique
100 percent of the project cost; authorized under 13 CFR 120.820 is the
comments received, two were from 7(a) lender, the loan will be eligible for
(2) With respect to Debt Refinancing national trade associations, 68 were
without Expansion, 13 CFR 120.882(g), 504 refinancing only if the lender is
from Certified Development Companies, unable to modify the terms of the
the Economic Aid Act: one (1) was from a bank, one (1) from
(a) Eliminated the condition that this existing loan because a secondary
a private industry, and four (4) from market investor will not agree to
program shall only be in effect in any individuals. This section includes a
fiscal year during which the cost to the modified terms.
description of the comments received (3) the refinancing of any federally-
Federal Government of making and is organized by the rules being guaranteed loan must provide a
guarantees under 13 CFR 120.882(g) and revised. SBA received comments from a substantial benefit to the borrower.
under the 504 Loan Program is zero; national trade association and 63 CDCs ‘‘Substantial benefit’’ means that the
(b) Eliminated the requirement that a recommending changes beyond the portion of the new installment amount
CDC limit its financing under the 504 scope of this rule that will not be attributable to the debt being refinanced
Loan Program so that, during any addressed in this final rule. must be at least 10 percent less than the
Federal fiscal year, new financings existing installment amount(s).
under 13 CFR 120.882(g) do not exceed III. Section-by-Section Analysis
Prepayment penalties (including any
50% of the dollars the CDC loaned Section 120.882(e). In the interim subsidy recoupment fee), financing fees,
under the 504 Loan Program, including final rule SBA revised this provision by and other financing costs must be added
under 13 CFR 120.882(g), during the increasing the amount of existing to the amount being refinanced in
previous fiscal year, unless otherwise indebtedness that may be refinanced to calculating the percentage reduction in
waived; no more than 100 percent of the project the new installment payment. The
(c) Eliminated the prohibition against cost (from 50 percent of the project cost) portion of the new installment amount
Premier Certified Lender Program to conform with the amendments to attributable to Eligible Business
(PCLP) CDCs using delegated authority section 502(7)(B) of the Small Business Expenses will not need to be included
to approve loan applications for Debt Investment Act made by section in this calculation. The rule allows the
Refinancing without Expansion; 328(a)(2)(A) of the Economic Aid Act. Director, Office of Financial Assistance
(d) Reinstated an alternate job SBA did not receive any comments on (D/FA) or designee, to approve an
retention standard that was previously this change and is adopting this change exception to the 10 percent reduction
removed from the Debt Refinancing as set forth in the interim final rule. requirement for good cause and does not
without Expansion Program by section Section 120.882(g)(3). In the interim allow PCLP CDCs to use their delegated
521 of division E of the Consolidated final rule SBA removed the requirement authority to approve a loan requiring
Appropriations Act, 2016 (2016 that the approval of a Refinancing this exception.
Consolidated Appropriations Act), Project is subject to the requirement that SBA received 66 comments on this
enacted on December 18, 2015, Public the cost to the Federal Government of rule change, of which 50 supported the
Law 114–113; making guarantees under 13 CFR rule change with modifications. There
(e) Revised the definition of 120.882(g) and under the 504 Loan were no comments opposing the rule
‘‘qualified debt’’ to mean debt that was Program is zero during the fiscal year in change.
incurred not less than six months before which the guarantee is made in A national trade association and its
the date of application instead of two accordance with section 328(a)(1) of the member CDCs requested that SBA not
years before the date of application; Economic Aid Act, which repealed this include in regulation any conditions or
(f) Removed from the definition of statutory requirement set forth in the requirements that restrict or limit the
‘‘qualified debt’’ condition that the debt 2016 Consolidated Appropriations Act. ability to refinance a loan that is subject
not be subject to a guarantee by a In its place SBA inserted a provision to a guarantee by a Federal agency or
Federal agency; and that set forth the conditions and department as no such conditions or
(g) Eliminated from the definition of requirements that apply to the restriction exists in statute or in the
‘‘qualified debt’’ the requirement that refinancing of a loan that is subject to Economic Aid Act (EAA) update.
the borrower be current on all payments a guarantee by a Federal agency or The national trade association and its
for not less than one year before the date department. As indicated above, the member CDCs also recommended that
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of the application for refinancing. Economic Aid Act removed the SBA remove the requirement that CDCs
As described in the section-by-section prohibition against refinancing a loan obtain written verification of the
analysis below, SBA is issuing this final that is subject to a guarantee by a existing 7(a) lender’s inability or
rule to adopt the previously published Federal agency or department. Although unwillingness to modify the current
interim final rule and to conform the these loans may now be refinanced if payment schedule as a requirement to
current rules to the requirements of the the refinancing project does not involve allowing the refinance of an existing
Economic Aid Act. expansion, the loan must comply with 7(a) loan. The national trade association
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asked that the ability to refinance an 120.882(g) the debt does not need to years before the date of application (the
existing 7(a) loan be unfettered and meet the job creation or other economic most recent loan) to be deemed incurred
guided by what is in the best interest of development objectives set forth in 13 not less than two years before the date
the borrower. CFR 120.861 or 120.862, provided that of the application provided that the
Another national trade association the 504 loan does not exceed the effect of the most recent loan was to
proposed safeguards of increasing the product obtained by multiplying the extend the maturity date without
substantial benefit requirement for both number of employees of the borrower by advancing any additional proceeds.
7(a) and 504 programs, which include, $75,000. On May 11, 2023, SBA With the minimum age of the qualified
but are not limited to, the SBA issuing published in the Federal Register a debt shortened from two years to six
specific guidance on the underwriting notice announcing an increase to the job months, SBA believed that it was no
for both programs. In addition, to creation or retention standards for the longer necessary to address this
protect the borrower from paying 504 Loan Program to reflect increases in situation and therefore SBA removed
additional and significant fees, the the Consumer Price Index (CPI) for All the second and third sentences of
national trade association recommended Urban Consumers. 88 FR 30379. This paragraph (i) (redesignated as paragraph
the SBA limit fees for new 504 loans. included increasing the amount per Job (A)).
SBA feels that increasing the substantial Opportunity that a 504 Loan Project Third, paragraph (ii) of the definition
benefit requirement as requested in a must create or retain from $75,000 to of ‘‘Qualified debt’’ previously excluded
rising interest rate environment would $90,000. Accordingly, the amount set debt that was subject to a guarantee by
not be in the best interest of the small forth in 13 CFR 120.882(g)(15) is a Federal agency or department. As
business borrower. adjusted from $75,000 to $90,000. stated above, section 328(a) of the
Based on the public comments The alternate job retention standard Economic Aid Act removed this
received, SBA is revising this rule to provides that the number of employees statutory exclusion and SBA
remove the requirement that CDCs and of a borrower is equal to the sum of: consequently removed this paragraph
7(a) lenders be given the opportunity to (1) the number of full-time employees and renumbered the remaining
modify existing debt. Instead, SBA is of the borrower on the date on which paragraphs accordingly. The conditions
transferring the burden of contacting the the borrower applies for a loan under and requirements that apply to the
CDC or 7(a) lender whose debt is being this subparagraph; and refinancing of a loan that is subject to
refinanced from the borrower to the (2) the product obtained by a Federal guarantee are set forth in
CDC that will be packaging the 504 loan multiplying: paragraph (g)(3).
for the borrower. The revised rule (a) the number of part-time employees Fourth, paragraph (vi) of the
requires the CDC to notify in writing (by of the borrower on the date on which definition of ‘‘Qualified debt’’
email or letter) the existing CDC or 7(a) the borrower applies for a loan under previously excluded a Third Party Loan
lender to advise them in advance when this subparagraph, by that is part of an existing 504 Project.
a government guaranteed loan is being (b) the quotient obtained by dividing However, under the new paragraph
refinanced. the average number of hours each part- (g)(3), an existing 504 loan may be
Section 120.882(g)(11). In the interim time employee of the borrower works refinanced when both the Third Party
final rule SBA removed the section that each week by 40. Loan and the 504 loan are being
states PCLP CDCs may not use delegated An example of how this standard is refinanced. Accordingly, SBA revised
authority to approve refinancing under calculated is included in the text of the this paragraph, which was redesignated
13 CFR 120.882(g), in accordance with rule. as paragraph (E), to incorporate this
section 328(a) of the Economic Aid Act, SBA did not receive any comments on exception to the general prohibition
which removed this statutory this adjustment. The final rule adopts against a qualified debt including a
prohibition. In its place, the interim the interim final rule with one change, Third Party Loan.
final rule stated that PCLP CDCs may namely an increase in the amount per Fifth, paragraph (vii) of the definition
not approve the refinancing of same Job Opportunity that a 504 Loan Project of ‘‘Qualified debt’’ previously reflected
institution debt under their delegated must create from $75,000 to $90,000 as the statutory requirement that, for the
authority and must submit the loan to per SBA’s announcement in the Federal debt to qualify for refinancing, the
SBA for approval. This requirement is Register on May 11, 2023. applicant had to be current on all
consistent with SBA’s long-standing Section 120.882(g)(16). As stated payments due for not less than one year
policy of prohibiting its participating above, SBA redesignated paragraph preceding the date of application.
lenders from using their delegated (g)(15), Definitions, as paragraph (g)(16) Because section 328(a) of the Economic
authority to approve the financing of and made five changes to the definition Aid Act removed this requirement from
same institution debt due to the of ‘‘Qualified debt’’. First, paragraph (i) section 502(7)(C) of the Small Business
potential conflict of interest and the risk of the definition of ‘‘Qualified debt’’ Investment Act, SBA removed this
of the 504 loan proceeds being used to (redesignated as paragraph (A)) paragraph from the regulations. In
shift to SBA a potential loss from the previously required that the debt must accordance with prudent lending
existing debt. SBA did not receive any not have been incurred less than two standards, SBA expects CDCs to
comments on this change and is years before the date of the application consider whether the applicant is
adopting this change as set forth in the for refinancing. However, section 328(a) current on all payments due, and the
interim final rule. of the Economic Aid Act shortened this applicant’s history of delinquency, in its
Section 120.882(g)(15). In the interim period to six months before the date of credit analysis. SBA did not receive any
final rule SBA redesignated paragraph
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the application for refinancing. comments on these specific revisions
(g)(15), Definitions, as paragraph (g)(16), Accordingly, SBA revised this and is adopting the revisions as set forth
and added a new paragraph (g)(15) to set paragraph by replacing two years with in the interim final rule.
forth the alternate job retention standard six months. SBA did however receive comments
that was reinstated by section 328(a) of Second, paragraph (i) of the definition from a national trade association and its
the Economic Aid Act. Under this of ‘‘Qualified debt’’ (redesignated as member CDCs requesting that SBA
alternate job retention standard, for a paragraph (A)) previously allowed a lower the Qualified debt definition’s
Refinancing Project under 13 CFR loan that was refinanced within the two standard of ‘‘substantially all (85% or
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Federal Register / Vol. 88, No. 196 / Thursday, October 12, 2023 / Rules and Regulations 70583
more)’’ to a ‘‘majority’’ standard of 51% with the proceeds of the 504 loan and provision at Executive Order 12866,
or more to increase access to and the Debenture. 13 CFR 120.882. This section 6(a)(3)(D), based on the need to
utilization of 504 debt refinancing. SBA includes CDC Closing Fees up to a move expeditiously to mitigate the
agrees that a decrease to the maximum of $2,500. 13 CFR 120.882(e). current conditions arising from the
‘‘substantially all’’ standard would Since the publication of the interim COVID–19 pandemic.
increase refinancing opportunities for final rule SBA conducted a series of As shown in Table 1 below, during
small businesses. Neither the Small roundtable discussions with CDCs and the five-year period spanning fiscal year
Business Act nor the Small Business lenders at annual and regional events. In (FY) 2018 and FY 2022, a total of 38,022
Investment Act define or test for alignment with the adjustment with jobs 504 loans were approved for a total
‘‘substantially all.’’ The 85% created/retained due to the CPI, SBA gross approval amount as of September
‘‘substantially all’’ standard in received multiple comments during the 30, 2022, of $32,965,182,830. In
paragraph (g) was established with regional roundtables for an inflation addition, during this five-year period,
regulations implementing section 1122 adjustment also to update § 120.883, SBA approved 247 debt refinance with
of the Small Business Jobs Act of 2010. Eligible administrative costs for 504 expansion loans on average per year
76 FR 9213. SBA is modifying the loans, in paragraph (e) which currently with an average annual dollar volume of
‘‘substantially all’’ definition to 75% limits of the amount of CDC closing fees $309,165,400, and approved 451 debt
from 85% with the remainder being allowed to be included in 504 financing refinance without expansion loans on
adjusted to 25% from 15%. SBA has portion of a project to be capped at average per year with an average annual
determined that ‘‘substantially all’’ is $2,500. In alignment with these changes dollar volume of $469,596. The
not 51%. and in an attempt to keep the limit of Economic Aid Act passage increased the
Finally, the phrase ‘‘Same institution CDC closing costs relevant to debt refinance with expansion from 50
debt’’ was previously used with Debt administrative costs, SBA is proposing percent of a project to 100 percent of a
Refinancing without Expansion only in an increase to the legal fees. According project. Prior to this change, of the debt
reference to the Third Party Loan, see 13 to the public comments, this cap does refinance with expansion loans, only 16
CFR 120.882(g)(13), and, thus, the not reflect current administrative costs refinanced a debt that equaled 50
definition of ‘‘same institution debt’’ and creates a burden on the borrower to percent of the expansion costs; if these
referenced only the Third Party Lender. pay for closing expenses from its own borrowers had been able to refinance
With the requirement in 13 CFR account. In the final rule, SBA increases 100 percent of the expansion costs
120.882(g)(11) that PCLP CDCs cannot the amount from $2,500 to $10,000. instead of 50 percent, and assuming that
use their delegated authority to approve Compliance With Executive Orders all these borrowers did so, these
the refinancing of same institution debt 12866, 12988, 13132, and 13563, the borrowers would have been able to
in the Debt Refinancing without Congressional Review Act (5 U.S.C. borrow $15 million more over five
Expansion program, SBA revised the 801–808), Paperwork Reduction Act (44 years, or about $3 million more
definition of ‘‘Same institution debt’’ to U.S.C., Ch. 35), and the Regulatory annually. Since the passage of the
also mean the debt of the CDC (or its Flexibility Act (5 U.S.C. 601–612) Economic Aid Act, and the issuance of
affiliates) that is providing funds for the the interim final rule, there have been
refinancing. SBA did not receive any Executive Orders 12866 and 13563 746 504 loan refinancing with
comments on this change and is The Office of Management and Budget expansion projects approved for a total
adopting this change as set forth in the (OMB) has determined that this rule of $1,030,563,000 approved. This
interim final rule. constitutes a ‘‘significant regulatory legislative change has expanded the
Section 120.883(e). SBA currently action’’ for purposes of Executive access to capital to small business for
allows certain administrative costs that Orders 12866 and 13563. SBA, however, expansion projects that also need debt
are not part of Project costs to be paid is proceeding under the emergency refinancing.
TABLE 1—504 LOAN ACTIVITY FY 2018–FY 2022
FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
Total Number of 504 Loans .......................................... 5,874 6,099 7,119 9,676 9,254 3,844
Total Dollar Volume of 504 Loans Approved ............... $4,753,644,000 $4,958,552,000 $5,826,885,000 $8,218,105,540 $9,207,996,290 $3,533,163,000
Number of 504 Debt Refi With Expansion ................... 181 181 236 301 336 109
Dollar Volume of 504 Debt Refi With Expansion ......... $212,098,000 $192,968,000 $296,392,000 $389,801,000 $454,568,000 $186,194,000
Number of 504 Debt Refi Without Expansion .............. 181 166 386 693 829 249
Dollar Volume of 504 Debt Refi Without Expansion .... $154,062,000 $154,842,000 $370,160,000 $709,020,000 $959,897,000 $270,151,000
TABLE 2—504 LOAN ACTIVITY BY DEFINED COHORT AUGUST 2018–JULY 2023
Aug’ 18–Jul’ 19 Aug’ 19–Jul’ 20 Aug’ 20–Jul’ 21 Aug’ 21–Jul’ 22 Aug’ 22–Jul’ 23
Total Number of 504 Loans ........................................................................ 6,153 6,836 9,572 9,392 6,253
Total Dollar Volume of 504 Loans Approved ............................................. $5,063,078,000 $5,575,249,000 $7,934,192,540 $9,248,887,290 $6,624,952,000
Number of 504 Debt Refi With Expansion ................................................. 183 243 295 332 183
Dollar Volume of 504 Debt Refi With Expansion ....................................... $191,786,000 $309,027,000 $362,039,000 $446,975,000 $305,619,000
Number of 504 Debt Refi Without Expansion ............................................ 160 302 66 934 388
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Dollar Volume of 504 Debt Refi Without Expansion .................................. $157,880,000 $295,396,000 $601,831,000 $1,057,386,000 $432,638,000
Data as of 9/15/2023, total dollar This rule was necessary to implement anticipates that finalizing these changes
volume is lifetime gross approval the Economic Aid Act and provide to the 504 debt refinancing programs
amount including increases. economic relief to small businesses will continue to result in benefits to
adversely impacted by COVID–19. SBA
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70584 Federal Register / Vol. 88, No. 196 / Thursday, October 12, 2023 / Rules and Regulations
small businesses by providing greater As an appropriate baseline for a 504 loan an attractive option for small
flexibility to restructure debt. evaluation of the impacts of the interim businesses and consequently would
To assess the impact of the interim final rule that would be made have increased 504 loan volume.
final rule, SBA evaluated 504 loan permanent in this rule, SBA considers Further, interest rates on 504 loans in
activity (including the number of loans the state of 504 lending for debt these two periods differ, from a range of
and dollar volume of both debt refinance with expansion and without approximately 4.0 to 5.0 percent in the
refinance with and without expansion) expansion before July 2021. SBA earlier period to rates up to 7.0 percent
between August 2018 and July 2023. examines the 12-month periods from in the later period, as do rates on
Because the interim final rule was August 1, 2018, through July 31, 2019, alternatives to 504 loans. These changes
published on July 29, 2021, with to the period from August 1, 2022, to
mean that lending total volume
immediate effectiveness, the first full July 31, 2023, noting that external
month during which the modifications comparisons may not be appropriate for
influences from the pandemic and from
to 504 debt refinancing were available the payments made on behalf of assessment of impact. Because the major
was August 2021, with August 2021 borrowers by SBA under section 1112 of changes in the interim final rule were
through July 2022 being the first 12- the Coronavirus Aid Recovery, and the increases in the amounts of existing
month period during which the Economic Security Act (Section 1112 indebtedness that may be refinanced for
modifications to 504 debt refinancing Payments) that ended in September both 504 debt involving expansions and
were available to 504 applicants. SBA 2021 occurred. The Section 1112 504 debt not involving expansions, SBA
divided the data into five cohorts of 12 Payments required SBA to make examined the percentages of 504
months each, with the first cohort principal and interest payments on 504 lending that were for these two types of
beginning in August 2018 and the last loans for certain periods of time debt refinancing. The chart below shows
cohort beginning August 2023. See depending on the when the 504 loan these percentages for five August-July
Table 2. was approved, which would have made cohorts.
2018–19 2019–20 2020–21 2021–22 2022–23
% % % % %
Dollar Volume of 504 Debt Refi with Expansion as Percentage of Dol-
lar Volume of Total 504 Loans ............................................................. 3.79 5.54 4.56 4.83 4.61
Dollar Volume of 504 Debt Refi without Expansion as Percentage of
Dollar Volume of Total 504 Loans ....................................................... 3.12 5.30 7.59 11.43 6.53
As indicated in the chart, the of total lending accounted for by each, warrant the preparation of a Federalism
percentages of 504 debt refinancing is under $100 million. Assessment.
loans with and without expansion are in Paperwork Reduction Act
Congressional Review Act
the recent period returning to the levels
seen prior to the publication of the OMB’s Office of Information and In order to implement the Act, SBA
interim final rule in July 2021. For debt Regulatory Affairs has determined that determined that it was necessary to
refinancing without expansion, the this rule is not a major rule under modify SBA Form 1244, Application for
August 2020–July 2021 period was Subtitle E of the Small Business Section 504 Loans, which is currently
elevated and the August 2021–July 2022 Regulatory Enforcement Fairness Act of approved under OMB Control Number
cohort was an outlier, but the next 12 1996 (also known as the Congressional 3245–0071, to conform the form to the
months settled to a percentage that at a Review Act), 5 U.S.C. 804(2). Per the revised requirements for debt
level consistent with the periods before above cost benefit analysis, the annual refinancing loans. The changes did not
the interim final rule and not indicative effect on the economy is less than $100 add any new burdens for the
of a significant impact. These two million. respondents, rather, in some instances,
cohorts with higher percentages were the revisions will result in reduced
during the pandemic and were covered, Executive Order 12988 burden as applicants and CDCs no
at least in part, by Section 1112 longer have to submit certain
This action meets applicable information.
Payments. The 12-month percentages of standards set forth in sections 3(a) and
504 debt refinancing with expansion did (a) The information collection
3(b)(2) of Executive Order 12988, Civil previously required PCLP CDCs to
not vary widely. Justice Reform, to minimize litigation, process all applications for debt
The interim final rule increased the eliminate ambiguity, and reduce refinancing without expansion through
amounts on 504 debt refinancing with burden. The action does not have the Sacramento Loan Processing Center
and without expansion. Aggregate 504 preemptive effect or retroactive effect. (SLPC) and not through the PCLP CDC’s
lending over the period in question delegated authority. As discussed above,
Executive Order 13132
ranged from approximately $5 billion to this requirement was removed by the
almost $9.25 billion, with total 504 This rule does not have federalism Economic Aid Act and, accordingly,
lending in the latest 12-month cohort at implications as defined in Executive SBA removed the requirement from the
about $6.6 billion. Even in the unlikely Order 13132. It will not have substantial information collection when the interim
ddrumheller on DSK120RN23PROD with RULES1
scenario of the interim final rule as the direct effects on the States, on the final rule (IFR) was released in 2021.
sole cause of an increase in total 504 relationship between the National The final rule would result in no further
lending from the low volume in the Government and the States, or on the changes. This revision did not change
examined period of $5 billion (in 2018– distribution of power and the information the PCLP CDC is
19) to the latest 12-month total of $6.6 responsibilities among the various required to collect, only how the
billion, the incremental impact, as levels of government, as specified in the application is processed. In addition,
indicated by changes in the percentage Executive order. As such it does not consistent with the changes made by the
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Federal Register / Vol. 88, No. 196 / Thursday, October 12, 2023 / Rules and Regulations 70585
IFR, SBA added two questions to clarify rulemaking is not expected to have a in the 504 loan program, and even using
that, for debt refinancing without significant economic impact on a this impact model (actual growth has
expansion, PCLP CDCs must process substantial number of small entities. never exceeded 15% in any prior fiscal
applications through the SLPC when the The changes in the final rule are a year) the total of 504 debt refinance
application involves the refinancing of codification of new legislation and will without expansion projects as a
same institution debt or, in cases involve changes to regulations at 13 CFR percentage of either number of loans or
involving the refinancing of federally- 120.882, however there will be no dollar volume of loans is not estimated
guaranteed debt, the CDC is requesting changes to SBA Form 1244, and the to exceed 16% of the overall portfolio.
an exception to the requirement that the burden hours to the small business When this percentage is applied to the
new installment payment be at least concern and the Certified Development estimated number of loans (small
10% less than the existing installment Company will remain the same. There businesses impacted), this would result
amount. No further changes are are no anticipated additional in less than 1,100 small businesses
necessary. compliance costs. Furthermore, SBA impacted. SBA estimates that the
(b) With respect to the question does not anticipate that any changes to average monthly savings for small
regarding whether the Applicant creates the Eligible Project costs for 504 loans businesses that refinance their existing
or retains the required number of jobs regulations would have a significant loans through the 504 loan program
per debenture amount, an option has impact to a substantial number of small would be between $7,000 to $8,300 per
been added for the Applicant to indicate businesses. This is because only a small month, with a total estimated savings
whether the project is eligible under the percentage of each year’s 504 loans over the life of the loan of between
504 debt refinance alternate job involve debt refinancing without $180,000 to $205,000. SBA determined
standard reinstated by the Economic expansion. Each loan represents a this estimate based on the historical
Aid Act. unique small business borrower because average of a 504 debt refinancing
(c) Of the exhibits that are required, these borrowers are only eligible to without expansion loan averaging
Exhibit 20 required that if the debt had refinance their debt once in a fiscal year $1,000,000 for each small business
been refinanced within two years of the with the 504 Loan Program, and applicant. SBA used the 504 July 2023
date of application, non-PCLP CDCs had therefore do not have multiple 504 debt interest rates to calculate both the
to submit with the application (and refinancing without expansion loans in monthly and total loan savings to each
PCLP CDCs had to retain in the loan any given year. Based on the average small business concern. The lower end
file) copies of the current debt and lien number of 504 loans from FY 2021– of the $180,000 to $205,000 range
instruments as well as copies of the debt 2023, only 13% involved debt reflects the economic impact if a small
and lien instruments for the debt that refinancing without expansion. business concern refinanced for 20
was replaced by the current debt. With Specifically, in FY 2021, out of 9,676 years, while the higher end reflects the
the minimum age of the qualified debt loans, 693 loans or 7% were for debt economic impact of a small business
shortened from two years to six months refinancing without expansion. In FY concern refinanced for 25 years. Small
by the Economic Aid Act, SBA revised 2022, this figure was 829 out of 9,254 business concerns do not use 10 year
the form to remove the requirement that or 9% 504 loans, while in FY 2023, 504 loans for debt refinancing without
these debt and lien instruments be 1,005 out of 4,451 or 23% of 504 loans expansion, as their goal is to lower their
included as part of Exhibit 20. were for debt refinancing without
In addition to the changes resulting payments by not only taking advantage
expansion. While the percentage of the of the 504 loan program’s fixed interest
from this rule, SBA made the following 504 loan portfolio involving debt
technical corrections and clarifying rate, but also the longer 20 and 25-year
refinancing without expansion
changes to Form 1244: (1) SBA loan terms available.
increased by 20% from FY 2021 to 2023,
corrected the description of which For the reasons stated above, SBA
this increase was due in part to the
exhibits the CDC must retain and which certifies that this action would not have
Section 1112 Payments, and in part to
the CDC must submit with the loan a significant economic impact on a
a rapidly increasing interest rate
application; (2) SBA added a separate environment. The Section 1112 substantial number of small entities.
entry to facilitate disclosure of the use Payments have sunset and SBA List of Subjects in 13 CFR Part 120
of refinancing proceeds involving land anticipates some adjustment due to the
purchases only (the previous format of Loan programs-business, Reporting
continued interest rate increases
‘‘Land/Building’’ did not clearly and recordkeeping requirements, Small
planned by the Federal Reserve.
indicate how information is to be businesses.
Because Section 1112 Payments have
reported); and (3) under the list of sunset, SBA believes that the 504 debt Accordingly, the interim rule
economic development objectives met refinancing without expansion volume amending 13 CFR part 120, which was
by the project, SBA added references to will return to the pre-section 1112 level published at 86 FR 40775 on July 29,
‘‘base closures’’ and ‘‘minority-owned of less than 10% of small entities. As 2021, is adopted as final with the
business’’. such, SBA concludes that the rule will following changes:
not impact a substantial number of
Regulatory Flexibility Act, 5 U.S.C. 601– PART 120—BUSINESS LOANS
small entities.
612 While the economic implications of
■ 1. The authority citation for part 120
When an agency issues a rulemaking, the final rule are small and the data do
the Regulatory Flexibility Act (RFA), 5 not reveal a significant economic impact is revised to read as follows:
U.S.C. 601–612, requires the agency to
ddrumheller on DSK120RN23PROD with RULES1
on a substantial number of small Authority: 15 U.S.C. 634(b) (6), (b) (7), (b)
‘‘prepare and make available for public entities, SBA anticipates a refinancing (14), (h), and note, 636(a), (h) and (m), 650,
comment an initial regulatory analysis’’ growth rate more in alignment with pre- 687(f), 696(3) and (7), and 697(a) and (e); sec.
which will ‘‘describe the impact of the pandemic levels, with some adjustment 521, Pub. L. 114–113, 129 Stat. 2242; sec.
328(a), Pub. L. 116–260, 134 Stat. 1182.
proposed rule on small entities.’’ to the economic impact because the
Section 605 of the RFA allows an final rule will expand program ■ 2. Amend § 120.882 as follows:
agency to certify a rule, in lieu of eligibility. SBA analyzed potential ■ a. Revise paragraphs (g)(3) and (15);
preparing an analysis, if the proposed growth scenarios of up to 30% growth and
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70586 Federal Register / Vol. 88, No. 196 / Thursday, October 12, 2023 / Rules and Regulations
■ b. In paragraph (g)(16), in paragraph employees of the Borrower is equal to Court’s decision in the 2021 case United
(B) of the definition of Qualified debt, the sum of: States v. Arthrex, Inc., and will align
remove ‘‘85%’’, ‘‘120.131 and (i) The number of full-time employees that process with similar processes for
120.870(b)’’, and ‘‘120.131(b)’’ and add of the Borrower on the date of the discretionary review of decisions by
in their places ‘‘75%’’, ‘‘§§ 120.131 and application; and ALJs in OCAHO and throughout the
120.870(b)’’, and ‘‘§ 120.131(b)’’, (ii) The product obtained by Executive Branch. It will not limit or
respectively. multiplying: alter parties’ right to seek judicial
The revisions read as follows: (A) The number of part-time review of adverse decisions.
employees of the Borrower on the date DATES:
§ 120.882 Eligible Project costs for 504 of the application; by Effective date: This rule is effective
loans.
(B) The quotient obtained by dividing October 12, 2023.
* * * * * the average number of hours each part- Comments: Electronic comments must
(g) * * * time employee of the Borrower works be submitted and written comments
(3) A loan that is subject to a each week by 40. must be postmarked or otherwise
guarantee by a Federal agency or Example 1 to paragraph (g)(15): 30 indicate a shipping date on or before
department may be refinanced under full-time employees and 35 part-time December 11, 2023.
the following conditions and employees working 20 hours per week ADDRESSES: If you wish to provide
requirements: is calculated as follows: 30 + (35 × (20/ comment regarding this rulemaking, you
(i) An existing 504 loan may be 40)) = 47.5. The maximum amount of must submit comments, identified by
refinanced if both the Third Party Loan the 504 loan would be 47.5 multiplied the agency name and reference RIN
and the 504 Loan are being refinanced by $90,000, or $4,275,000. 1125–AB28 or EOIR Docket No. 022–
or the Third Party Loan has been paid * * * * * 0010, by one of the two methods below.
in full. If the 504 Loan being refinanced
■ 3. Amend § 120.883 by revising • Federal eRulemaking Portal:
received approval through another CDC, https://www.regulations.gov. Follow the
paragraph (e) to read as follows:
the CDC working on the current website’s instructions for submitting
refinancing must provide advance § 120.883 Eligible administrative costs for comments. The electronic Federal
notice to the other CDC in writing (by 504 loans. Docket Management System (FDMS) at
email or letter). * * * * * https://www.regulations.gov will accept
(ii) An existing 7(a) loan may be (e) CDC Closing Fee (see electronic comments until 11:59 p.m.
refinanced if the CDC notifies the 7(a) § 120.971(a)(2)) up to a maximum of Eastern Time on December 11, 2023.
lender in advance in writing (by email $10,000; and • Mail: Paper comments that
or letter). * * * * * duplicate an electronic submission are
(iii) The refinancing will provide a unnecessary. If you wish to submit a
substantial benefit to the borrower. For Isabella Casillas Guzman, paper comment in lieu of electronic
purposes of this paragraph (g)(3)(iii), Administrator. submission, please direct the mail/
‘‘substantial benefit’’ means that the [FR Doc. 2023–22169 Filed 10–11–23; 8:45 am] shipment to: Raechel Horowitz, Chief,
portion of the new installment amount BILLING CODE 8026–09–P Immigration Law Division, Office of
attributable to the debt being refinanced Policy, Executive Office for Immigration
must be at least 10 percent less than the Review, 5107 Leesburg Pike, Suite 1800,
existing installment amount(s). DEPARTMENT OF JUSTICE Falls Church, VA 22041. To ensure
Prepayment penalties (including proper handling, please reference the
subsidy recoupment fees), financing 28 CFR Part 68 agency name and RIN 1125–AB28 or
fees, and other financing costs must be EOIR Docket No. 022–0010 on your
[EOIR Docket No. 022–0010; AG Order No.
added to the amount being refinanced in 5812–2023] correspondence. Mailed items must be
calculating the percentage reduction in postmarked or otherwise indicate a
the new installment payment, but the RIN 1125–AB28 shipping date on or before the
portion of the new installment amount submission deadline.
attributable to Eligible Business Office of the Chief Administrative
FOR FURTHER INFORMATION CONTACT:
Expenses (as described in paragraph Hearing Officer, Review Procedures
Raechel Horowitz, Chief, Immigration
(g)(6)(ii) of this section) is not included AGENCY: Executive Office for Law Division, Office of Policy,
in this calculation. Exceptions to the 10 Immigration Review, Department of Executive Office for Immigration
percent reduction requirement may be Justice. Review, 5107 Leesburg Pike, Suite 1800,
approved by the Director, Office of Falls Church, VA 22041, telephone
ACTION: Interim final rule; request for
Financial Assistance (D/FA) or designee (703) 305–0289 (not a toll-free call).
comment.
for good cause. PCLP CDCs may not use SUPPLEMENTARY INFORMATION:
their delegated authority to approve a SUMMARY: The Department of Justice
loan requiring the exception in this (‘‘Department’’) is revising its I. Public Participation
paragraph (g)(3)(iii). regulations to provide that the Attorney Interested persons are invited to
* * * * * General may, in his discretion, review participate in this rulemaking by
(15) Notwithstanding § 120.860, a decisions and orders of Administrative submitting written data, views, or
debt may be refinanced under this Law Judges (‘‘ALJs’’) in the Office of the arguments on all aspects of this interim
ddrumheller on DSK120RN23PROD with RULES1
paragraph (g) if it does not meet the job Chief Administrative Hearing Officer final rule (‘‘IFR’’) via one of the methods
creation or other economic development (‘‘OCAHO’’) in cases arising under and by the deadline stated above. The
objectives set forth in § 120.861 or section 274B of the Immigration and Department also invites comments that
§ 120.862. In such case, the 504 loan Nationality Act (‘‘INA’’ or ‘‘the Act’’). relate to the economic, environmental,
may not exceed the product obtained by This revision will ensure that the or federalism effects that might result
multiplying the number of employees of adjudicatory process for section 274B from this IFR. Comments that will
the Borrower by $90,000. The number of cases is consistent with the Supreme provide the most assistance to the
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