SBA Supervised Lenders Application Process (rule, 85 FR 78205, December 4, 2020)
Summary
A final rule of the U.S. Small Business Administration (SBA), 13 CFR Part 120, RIN 3245–AH04, printed in the Federal Register of Friday, December 4, 2020 (Vol. 85, No. 234). The rule sets a new application and review process for SBA Supervised Lenders, defined in 13 CFR 120.10 to include SBLCs and NFRLs, including for transactions involving a change of ownership or control. Other amendments update the minimum capital maintenance requirements, clarify the factors SBA will consider in evaluating an SBA Supervised Lender application and limit the 7(a) lending area for NFRLs. The same pages also print a Department of Energy final rule amending part 1021 NEPA procedures.
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Cite this document
“SBA Supervised Lenders Application Process (rule, 85 FR 78205, December 4, 2020).”
Original at www.govinfo.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/sba-supervised-lenders-application-process-rule-85-fr-78205-december-4-330c0e3cf9/
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Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Rules and Regulations 78205
insufficiently transparent to meet the PART 1021—NATIONAL (NFRLs) (collectively referred to as SBA
standard for reproducibility; or ENVIRONMENTAL POLICY ACT Supervised Lenders). The key
(vi) Derive from or implement IMPLEMENTING PROCEDURES amendments to the regulations include
Executive Orders or other Presidential a new application and review process
■ 1. The authority citation for part 1021 for SBA Supervised Lenders, including
directives that have been subsequently
continues to read as follows: for transactions involving a change of
rescinded or substantially modified.
Authority: 42 U.S.C. 7101 et seq.; 42 U.S.C. ownership or control. Other
DOE concludes that this rulemaking is 4321 et seq.; 50 U.S.C. 2401 et seq. amendments to the regulations include
consistent with the directives set forth updating the minimum capital
■ 2. Appendix B to subpart D of part
in these Executive Orders. This final maintenance requirements, clarifying
rule will update and improve efficiency 1021 is amended by:
the factors SBA will consider in its
■ a. Revising section B5.7; and
in DOE’s implementation of NEPA by evaluation of an SBA Supervised Lender
■ b. Removing and reserving section
appropriately focusing DOE’s NEPA application and limiting the 7(a) lending
B5.8.
analysis for natural gas export area for NFRLs.
The revision reads as follows:
applications and eliminating certain DATES: This rule is effective January 4,
requirements of its existing regulations Appendix B to Subpart D of Part 1021— 2021.
that are unnecessary. Categorical Exclusions Applicable to FOR FURTHER INFORMATION CONTACT: Paul
Specific Agency Actions Kirwin, Chief, SBA Supervised Lender
M. Congressional Notification
* * * * * Oversight Team, Office of Credit Risk
As required by 5 U.S.C. 801, DOE will B5. * * * Management, Office of Capital Access,
submit to Congress a report regarding * * * * * U.S. Small Business Administration,
the issuance of this final rule prior to 409 3rd Street SW, Washington, DC
B5.7 Export of natural gas and associated 20416; telephone: (202) 205–7261;
the effective date set forth at the outset transportation by marine vessel
of this rulemaking. The report will state email: paul.kirwin@sba.gov.
Approvals or disapprovals of new
that it has been determined that the rule SUPPLEMENTARY INFORMATION:
authorizations or amendments of existing
is not a ‘‘major rule’’ as defined by 5 authorizations to export natural gas under I. Background Information
U.S.C. 801(2). section 3 of the Natural Gas Act and any
associated transportation of natural gas by The 7(a) Loan Program is a business
Approval of the Office of the Secretary marine vessel. loan program authorized by section 7(a)
of the Small Business Act (15 U.S.C.
The Secretary of Energy has approved B5.8 [Removed and Reserved] 636(a)) and is governed primarily by the
publication of this final rule. * * * * * regulations in part 120 of title 13 of the
List of Subjects in 10 CFR Part 1021 Appendix C to Subpart D of Part 1021— Code of Federal Regulations (CFR). The
Classes of Actions That Normally core mission of the 7(a) Loan Program
Environmental impact statements. Require EAs But Not Necessarily EISs is to provide SBA-guaranteed financial
assistance to small businesses that lack
Signing Authority C13 [Removed and Reserved] access to capital on reasonable terms
This document of the Department of ■ 3. Remove and reserve section C13. and conditions to support our nation’s
Energy was signed on November 24, economy.
Appendix D to Subpart D of Part 1021— Most Lenders participating in the 7(a)
2020, by William S. Cooper III, General Classes of Actions That Normally Loan Program are depository
Counsel, pursuant to delegated Require EISs institutions that have a primary Federal
authority from the Secretary of Energy. Financial Institution Regulator (as
That document with the original D8 and D9 [Removed and Reserved]
defined in 13 CFR 120.10) that oversees
signature and date is maintained by ■ 4. Remove and reserve sections D8 the Lender’s lending activities. SBA has
DOE. For administrative purposes only, and D9. statutory authority under section
and in compliance with requirements of [FR Doc. 2020–26459 Filed 12–3–20; 8:45 am] 7(a)(17) of the Small Business Act to
the Office of the Federal Register, the BILLING CODE 6450–01–P authorize non-federally regulated
undersigned DOE Federal Register entities to make 7(a) loans, including
Liaison Officer has been authorized to entities that have state regulators. Under
sign and submit the document in SMALL BUSINESS ADMINISTRATION this authority, SBA has authorized SBA
electronic format for publication, as an Supervised Lenders to make loans in the
official document of the Department of 13 CFR Part 120 7(a) Loan Program. SBA Supervised
Energy. This administrative process in Lenders are defined in 13 CFR 120.10 to
RIN 3245–AH04 include SBLCs and NFRLs, and are
no way alters the legal effect of this
document upon publication in the SBA Supervised Lenders Application subject to regulation, oversight, and
Federal Register. Process enforcement by SBA.
SBLCs are non-depository lending
Signed in Washington, DC, on November
AGENCY: U.S. Small Business institutions that are authorized only to
25, 2020.
Administration. make loans pursuant to section 7(a) of
Treena V. Garrett, the Small Business Act and loans to
ACTION: Final rule.
Federal Register Liaison Officer, U.S. Intermediaries in SBA’s Microloan
Department of Energy. SUMMARY: The U.S. Small Business program. SBLCs are regulated,
Administration (SBA or Agency) is supervised, and examined solely by
For the reasons stated in the amending the regulations applicable to SBA, except for the subset of SBLCs
preamble, DOE amends part 1021 of Small Business Lending Companies defined as Other Regulated SBLCs in 13
Chapter X of Title 10 of the Code of (SBLCs) and state-regulated lenders CFR 120.10. SBA imposed a moratorium
Federal Regulations as set forth below: (Non-Federally Regulated Lenders on issuing additional SBA lending
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78206 Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Rules and Regulations
authorities (referred to as SBLC On January 13, 2020, SBA published within the section-by-section analysis
Licenses) to SBLCs in 1982. Currently, a proposed rule with a request for below.
there are fourteen (14) SBLCs with the comments in the Federal Register to
III. Section-by-Section Analysis of
authority to make 7(a) loans up to the amend the regulations related to the
Comments and Changes
maximum loan amount allowed under SBA Supervised Lender application and
the Small Business Act.1 An entity may review process and to mitigate certain A. SBA Supervised Lenders
purchase one of the fourteen (14) SBLC risks inherent in their participation in
1. Section 120.460 What are SBA’s
Licenses from an existing SBLC with the 7(a) Loan Program. 85 FR 1783
additional requirements for SBA
SBA’s prior written approval. (January 13, 2020). The proposed
Supervised Lenders?
NFRLs are business concerns that are changes were designed to: Improve
subject to regulation, supervision and efficiencies related to the SBA SBA proposed to add two new
oversight by a state regulator that must Supervised Lender application and paragraphs to § 120.460. Proposed
be satisfactory to SBA. By definition, an review process, including for a change paragraph (c) required all SBA
NFRL’s lending activities are not of ownership or control transaction (as Supervised Lenders to employ qualified
regulated by a Federal Financial defined in § 120.468); incorporate into full-time professional management, as is
Institution Regulator. NFRLs are the regulations the factors SBA will currently required for SBLCs. This
typically organized as state licensed consider in its evaluation of an proposed regulation also clarified the
Business and Industrial Development application; and mitigate the increased meaning of full-time professional
Companies (BIDCOs) and may include risk associated with the lending management to include, at a minimum,
other types of state-regulated lending operations of SBA Supervised Lenders the employment of a chief executive
institutions, such as non-profit by updating their minimum capital officer or equivalent to manage daily
corporations or financial institutions maintenance requirements and operations, a chief credit/risk officer,
without Federal deposit insurance or establishing a 7(a) lending area for and at least one other full-time
share insurance protection.2 NFRLs. employee qualified by training and
To become an SBA Supervised experience to carry out the SBA
II. Summary of Comments Supervised Lender’s business plan. In
Lender, an applicant must be qualified
as determined by SBA in its sole SBA received 19 comments on the addition, proposed paragraph (c)
discretion. An entity interested in proposed rule. Seven comments were included a requirement that an SBA
becoming an SBA Supervised Lender submitted by or on behalf of SBLCs. Supervised Lender must sustain a
must submit an application to SBA Three comments were submitted by or sufficient level of 7(a) lending activity
containing the information specified in on behalf of NFRLs. Three comments in its area of operation.
SBA’s Standard Operating Procedures were submitted by or on behalf of state Overall commenters supported
50 10, Lender and Development regulators. SBA also received comments proposed § 120.460(c). A few
Company Loan Programs, as amended from two trade associations, two law commenters suggested that SBA should
from time to time (SOP 50 10).3 firms, and two individuals. allow SBA Supervised Lenders to fulfill
The comments were generally the full-time professional management
1 SBA waived certain regulations for the purpose supportive of the proposed application requirement by using shared employees
of permitting mission-oriented lenders to and review process with some suggested from affiliate organizations. One
participate in SBA’s Community Advantage Pilot changes to shorten the waiting period commenter suggested SBA should
Program (referred to as CA Lenders), a pilot for entities seeking to reapply to become eliminate the requirement for a third
program within the 7(a) Loan Program. Each CA
Lender is identified as either an SBLC or NFRL,
an SBA Supervised Lender. full-time employee.
depending on whether the lender is subject to Commenters generally agreed with SBA recognizes that SBA Supervised
regulation by a state. CA Lenders are limited to SBA’s proposed definition of qualified Lenders may have different staffing
making loans in the CA Pilot Program, which full-time professional management with levels depending on the size of their 7(a)
generally requires a CA Lender to make loans to minor changes. The commenters were loan portfolios. However, SBA
underserved markets (e.g., low-to-moderate income
communities, rural areas, opportunity zones, also generally in favor of the changes to maintains its policy position that SBA
veteran-owned businesses) and in an amount not to the minimum capital maintenance Supervised Lenders must have a
exceed $250,000. The CA Pilot Program is governed requirements with some proposed minimum level of internal oversight to
by all regulations applicable to the 7(a) Loan changes. A majority of the commenters independently manage their 7(a)
Program generally and to SBA Supervised Lenders
specifically unless waived or modified in the were opposed to SBA limiting the 7(a) lending operations. SBA considered the
Federal Register Notices published in connection lending area for NFRLs to the state in comments received and has revised the
with the CA Pilot Program. As indicated in the which their primary state regulator is rule to permit SBA Supervised Lenders
proposed rule, the revisions in this final rule do not located. Commenters also requested to meet the qualified full-time
apply to the CA Pilot Program. For more
information about the CA Pilot Program please refer some technical changes to the proposed professional management requirement
to the CA Participant Guide, Version 6.0 (June 15, regulation related to SBA’s evaluation of by having two full-time senior officers
2020), available at https://www.sba.gov/document/ applications and the requirements for (i.e., CEO and CCO/CRO), and one part-
support-community-advantage-participant-guide. change of ownership or control time employee (which may be a shared
2 This final rule does not apply to NFRLs
authorized to make Paycheck Protection Program
transactions. Finally, there were several employee of the lender’s affiliates).
(PPP) loans under SBA Form 3507. For more responses to SBA’s request for Existing SBA Supervised Lenders will
information about PPP please refer to the comments on whether SBA should not be required to comply with this
information available on SBA’s website at https:// modify the contribution that servicing regulatory definition of qualified full-
www.sba.gov/funding-programs/loans/coronavirus-
relief-options/paycheck-protection-program.
rights assets may have on an SBA time professional management unless,
3 The current version of the SOP is 50 10 6, Supervised Lender’s capital after the effective date of this final rule,
effective October 1, 2020. The application maintenance requirement. the SBA Supervised Lender makes or
requirements can be found in this SOP in Part 1, SBA appreciates the comments acquires any 7(a) loans or engages in a
Section A, Chapter 1, Paragraph A.2 with respect received and has incorporated many of transaction that constitutes a change of
to NFRLs and Part 1, Section A, Chapter 2,
Paragraph B with respect to SBLCs. The SOP is
the suggested changes into the final ownership or control.
available at https://www.sba.gov/document/sop-50- rule. SBA has addressed the comments SBA received six comments in
10-lender-development-company-loan-programs-0. to the proposed regulatory changes support of the requirement in paragraph
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Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Rules and Regulations 78207
(c) for each SBA Supervised Lender to 120.10). When SBA placed a the 7(a) Loan Program. The proposed
maintain a sufficient level of lending moratorium on approving additional rule established a minimum amount of
activity in its area of operation. Most SBLCs in 1982, it did so to reduce the capital equal to the higher of (1) the
commenters requested that SBA clarify administrative resources needed to minimum amount of capital required by
in the final rule the meaning of a prudently regulate and oversee non- the NFRL’s state regulator, or (2)
‘‘sufficient’’ level of lending activity. depository lenders with a nationwide $2,500,000. Commenters were generally
SBA considered these comments and 7(a) lending platform. SBA does not supportive of the proposal. A few
has determined that a sufficient level of have the administrative resources commenters indicated that the $2.5
lending activity for SBA Supervised needed to oversee NFRLs with a million capital amount was too high,
Lenders means obtaining at least four nationwide 7(a) lending platform in and SBA should instead allow the
7(a) loan approvals during two addition to the 14 SBLCs it currently minimum capital requirement to be
consecutive fiscal years. This is regulates. In addition, proposed based on the size of the NFRL’s loan
modeled on the minimum level of loan § 120.460(d) is consistent with state portfolio. Other commenters suggested
activity that SBA currently requires for statutes placing geographic limits on that the $2.5 million capital amount was
Certified Development Companies in lending activity overseen by state too low and encouraged SBA to raise the
the 504 loan program. See 13 CFR regulators, as well as a general minimum capital requirement for
120.828. Existing SBA Supervised understanding that NFRLs are expected NFRLs to be at the same level as SBLCs
Lenders will not be required to comply to focus on economic development in (i.e., $5 million).
with the 7(a) lending activity their state and local communities. SBA must ensure that NFRLs have a
requirement unless, after the effective SBA carefully considered the minimum level of capital necessary to
date of this final rule, the SBA comments received on proposed manage the credit risk associated with
Supervised Lender makes or acquires § 120.460(d) and does not agree with the their 7(a) lending operations. SBA
any 7(a) loans or engages in a commenters’ objections. In order to disagrees with the comments suggesting
transaction that constitutes a change of manage the Agency’s limited that the amount should be increased or
ownership or control. administrative resources and the decreased and is moving forward with
Second, proposed new paragraph (d) increased risk to SBA associated with the rule as proposed. As SBA proposed,
limited an NFRL’s 7(a) lending area to NFRLs participating in the 7(a) Loan NFRLs will have 3 years after the
the state in which its primary state Program, the final rule establishes a 7(a) effective date of this final rule to reach
regulator is located. Overall, lending area for NFRLs limited to the the new minimum capital amount. In
commenters were opposed to this part state in which their primary state addition, an NFRL that does not meet
of the proposed rule. Some commenters regulator is located. SBA will provide the new minimum capital requirement
argued that a limitation on the 7(a) an exception such that an NFRL’s by the end of the 3-year period may
lending area for NFRLs could have an lending area may include a local trade remain in the 7(a) Loan Program but
impact on their business plans. Five area that is contiguous to such state will not be permitted to make or acquire
commenters suggested that SBA should (e.g., a city or metropolitan statistical 7(a) loans after such date until it
allow NFRLs previously engaged in area that is bisected by a state line) with satisfies the minimum capital
nationwide 7(a) lending to continue SBA’s prior written approval. SBA also requirement. The minimum capital
such lending activities. One commenter is adopting a commenter’s suggestion requirement will also apply
supported the 7(a) lending area that NFRLs that are currently engaged in immediately to new NFRLs and in the
restriction for NFRLs, but suggested that 7(a) lending outside of the state in event of a change of ownership or
SBA provide a 1-year transition period which their primary regulator is located control of an NFRL occurring and/or
to allow NFRLs to adjust their future should not be subject to the 7(a) lending approved after the effective date of this
7(a) lending activities. area limitation until 1 year after the final rule.
As stated in the proposed rule, effective date of the final rule. SBA will
3. Section 120.466 SBA Supervised
approximately 90 percent of all 7(a) loan apply this rule immediately, however,
Lender Application
approvals obtained by NFRLs during the to all new NFRLs and to any NFRL that
last 3 fiscal years were for 7(a) loans to engages in and/or is seeking approval of SBA proposed to add a new § 120.466
be made in the state where the NFRL’s a change of ownership or control to codify a new application and review
primary state regulator was located. transaction. The 1-year grace period will process for entities seeking to become
Additionally, the final rule does not allow the few NFRLs that may be an SBA Supervised Lender. SBA
limit or restrict in any way an NFRL’s affected by this rule to adjust their proposed to evaluate applications
ability to make other types of non-SBA future 7(a) lending activities. SBA through an initial review and, if
loans to borrowers on a nationwide encourages existing or prospective warranted, a final review.
basis. While SBA understands that some NFRLs interested in making 7(a) loans The initial review requires an SBA
state regulators may not object to on a nationwide basis to acquire one of Supervised Lender applicant to submit
nationwide 7(a) lending for NFRLs, state the fourteen SBLC licenses that become a written plan (known as a Lender
regulators do not bear the same financial available from time to time. Assessment Plan (LAP)). The LAP
risk that SBA assumes as the guarantor For further discussion of the impact of contains key information that would
of 7(a) loans.4 Moreover, while state this provision, see the final regulatory enable SBA to reach a preliminary
flexibility analysis (FRFA) below. assessment about the qualifications of
regulators may generally oversee NFRLs
an applicant expeditiously. An LAP
within their borders for safety and 2. Section 120.462 What are SBA’s review includes an initial assessment of
soundness, SBA bears the responsibility additional requirements on capital the applicant’s business plan,
of ensuring participating lenders maintenance for SBA Supervised capitalization, and professional
comply with SBA Loan Program Lenders? management team. SBA could also
Requirements (as defined in 13 CFR
SBA proposed to amend the require an interview with the Office of
4 SBA’s guaranty on regular 7(a) loans ranges from regulations to require NFRLs to Capital Access. If SBA were to notify an
50% to 90% of the loan amount. Under the PPP, maintain a baseline minimum amount applicant that it may not proceed to the
SBA’s guaranty is 100% of the loan amount. of capital necessary for participation in final review phase, the proposed rule
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78208 Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Rules and Regulations
provided that the applicant must wait 4. Section 120.467 Evaluation of SBA SBA prior written approval before
nine months from the date of such Supervised Lender Applicants entering into a definitive agreement for
notification before reapplying by SBA proposed to add a new § 120.467 a change of ownership or control. Most
submitting a new LAP. to incorporate into the regulations the commenters requested that SBA either
Overall commenters were supportive factors SBA will consider in evaluating strike this provision from the rule or
of the proposed rule. SBA received six an SBA Supervised Lender applicant. require a change of ownership or control
comments suggesting the 9-month SBA’s evaluation will include a review to be ‘‘conditioned’’ upon receipt of
waiting period was too long and should of, among other things, the applicant’s SBA approval.
be shortened to 3 months. SBA SBA disagrees with these comments.
business plan, capitalization,
considered these comments and has SBA is seeking to eliminate the time and
operational plan, organizational
agreed to shorten the waiting period expense associated with SBA
structure, management qualifications, Supervised Lenders entering into
from 9 months to 6 months to address the historical performance of the loans
the commenters’ concerns. SBA believes agreements for a change of ownership or
originated by the applicant or control only to have SBA deny their
that 3 months is too short a period to attributable to its management team, the
allow an applicant to make meaningful requests months later after conducting a
applicant’s financial projections and thorough review of the applications.
improvements in its circumstances. liquidity, and prior history or
The final review, as proposed under Allowing SBA Supervised Lenders to
involvement of the applicant or its enter into an agreement upfront
§ 120.466(b), requires an SBA
management team (including key (without prior SBA approval) would
Supervised Lender applicant to submit
employees) with any SBA guaranteed cause unnecessary time and expense to
a complete application to SBA. The
lending program or any other Federal or be expended by the parties in some
complete application updates the
state lending program. SBA also reviews cases and could unfairly raise
information disclosed in the LAP and
the results of background investigations expectations. The final rule retains the
provides SBA with additional
(e.g., through SBA Form 1081) and other requirement that any SBA Supervised
information for review, such as the
information obtained through due Lenders seeking to continue in the 7(a)
applicant’s organizational documents,
diligence and reference checks. Under Loan Program must obtain SBA’s prior
operational plan, credit policies,
the proposed rule SBA may also written approval before entering into an
internal control policies, loan risk rating
prohibit individuals or entities from agreement for a change of ownership or
system, capital adequacy plan, proposed
participating as an officer, director, control. To avoid confusion as to the
credit facilities (if any), organizational
manager, owner or key employee of an meaning of a ‘‘definitive’’ agreement,
chart, audited financial statements, bank
SBA Supervised Lender applicant. SBA has removed the term and is
statements, legal opinions and any other Commenters were generally in
necessary documentation as further clarifying that the limitation applies
support of the proposed rule. SBA even if such agreement is conditioned
described in official SBA policies and received four comments to proposed
procedures.5 After completion of the on SBA approval. However, an SBA
paragraph (b)(1) suggesting that it be Supervised Lender may enter into a
final review, SBA issues a final decision revised to reflect that the individuals or
to approve or deny the application. If an non-binding letter of intent regarding a
entities that SBA may prohibit from prospective change of ownership or
SBA Supervised Lender’s application is serving as an officer, director, manager,
denied, the proposed rule required an control, provided that such letter is
owner or key employee of an SBA reported to SBA within 30 calendar
applicant to wait 18 months before it Supervised Lender are those that have
may submit a new LAP and restart the days. SBA removed the cross reference
‘‘materially’’ failed to comply with SBA to § 120.464(a)(5) in the final rule in
application process. The Agency Loan Program Requirements. SBA has
received a number of comments response to comments received.
agreed to revise § 120.467(b)(1) by Section 120.468(b) of the proposed
requesting that SBA shorten this 18- adding ‘‘materially’’ to this paragraph in rule clarified that if the approval of any
month time period. SBA considered the final rule. state or Federal authority is required for
these comments and has agreed to
5. Section 120.468 Change of an SBA Supervised Lender’s change of
shorten the time period from 18 months
Ownership or Control Requirements for ownership or control, such approval is
to 12 months. SBA believes a 1 year
required in addition to SBA’s prior
waiting period will allow the applicant SBA Supervised Lenders
written approval. SBA did not receive
to address material deficiencies and for SBA proposed to move the regulation any comments on this part of the
meaningful and sustained improvement applicable to a change of ownership or proposed rule and will adopt the text in
in its application. control of an SBLC (§ 120.475) to a new the final rule as proposed.
Lastly, under proposed § 120.466(c), § 120.468 with certain modifications. Section 120.468(c) of the proposed
an entity seeking to become an NFRL is The purpose of this change is to rule incorporated SBA’s current policy
required to have at least one year of incorporate into the regulations the that a new application must be
current operating and relevant Agency’s current policy requirement submitted to SBA in connection with a
commercial lending experience (by the and practice that all SBA Supervised change of ownership or control of an
entity itself) before the entity may Lenders, including NFRLs, must obtain SBA Supervised Lender. SBA did not
submit an application to become an SBA written approval prior to any receive any comments on this part of the
SBA Supervised Lender. SBA did not change of ownership or control. proposed rule and will adopt the text in
receive comments on this portion of the Section 120.468(a) in the proposed the final rule as proposed.
proposed rule and will include rule clarified that SBA Supervised Section 120.468(d) of the proposed
paragraph (c) in the final rule, with the Lenders must receive SBA prior written rule provided that SBA Supervised
clarification that it is the applicant that approval before entering into a Lenders would have an opportunity to
must have the requisite experience. definitive agreement regarding a change voluntarily surrender their SBA lending
5 The information required to be submitted in a
of ownership or control. SBA received authority (i.e., the SBLC License or the
complete application is not set forth in SBA’s
approximately 11 comments on this NFRL lending authority) and withdraw
regulation but will continue to be in SBA’s official proposed rule. The commenters were from the 7(a) Loan Program with SBA’s
policies and procedures. See SOP 50 10. opposed to the requirement to obtain prior written approval. As proposed, a
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Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Rules and Regulations 78209
voluntary surrender requires an SBA ownership or control of an SBLC B. Technical Changes
Supervised Lender to (i) transfer its occurring and/or approved after the
1. Section 120.410 Requirements for
entire loan portfolio to one or more effective date of this final rule.
All Participating Lenders
Lenders acceptable to SBA, and (ii) Five commenters supported the
enter into a withdrawal agreement. One proposed rule and two commenters SBA proposed a conforming technical
commenter suggested that if a transferee were opposed. Commenters also change to § 120.410(a)(1) to reflect the
for an SBA Supervised Lender’s 7(a) encouraged SBA to modify the new minimum capital requirements for
loan portfolio could not be found, the definition of regulatory capital so that SBA Supervised Lenders. SBA did not
final rule should be clarified so that SBA Supervised Lenders would not receive any comments on this proposed
SBA may take over the servicing of the need to maintain capital against the full technical change and incorporated the
SBA Supervised Lender’s 7(a) loan amount of the unguaranteed portion of proposed text into the final rule.
portfolio. SBA agrees with this comment 7(a) loans sold into securitizations. 2. Section 120.470 What are SBA’s
and has revised the final rule such that Three commenters also expressed some additional requirements for SBLCs?
SBA may, in its sole discretion, elect to concerns about the proposed increase in
take over the servicing of an SBA SBA proposed a conforming technical
capital for non-profit SBLCs and
Supervised Lender’s 7(a) loan portfolio change to remove § 120.470(g)
suggested that these entities should be ‘‘Management’’ and redesignate
upon the voluntary surrender of its SBA permitted to use ‘‘restricted’’ capital
lending authority. If SBA elects to take paragraph (h) as paragraph (g). No
toward their minimum capital comments were received, and SBA is
over servicing, the SBA Lender must requirement.
assign the 7(a) loan documents to SBA adopting the change in this final rule.
SBA considered the comments and is The management requirement for SBLCs
and provide any needed assistance to moving forward with the proposed rule
allow SBA to take over servicing. SBA is addressed in new § 120.460(c).
as drafted. SBA disagrees that SBLCs
may use contractors to perform these should only be required to maintain 3. Section 120.475 Change of
actions. See 13 CFR 120.535(d). capital against the risk retention portion Ownership or Control
6. Section 120.471 What are the of their 7(a) loan securitizations as SBA proposed a conforming technical
minimum capital requirements for opposed to the full amount of the change to remove and reserve § 120.475.
SBLCs? unguaranteed portion of 7(a) loans sold No comments were received, and SBA
into securitizations. SBA requires non- is adopting the change in this final rule.
SBA proposed to amend § 120.471(a)
to increase the minimum capital depository institutions (including SBA The text of § 120.475 is incorporated
requirement for SBLCs. As stated in the Supervised Lenders) that engage in into § 120.468.
proposed rule, the minimum capital securitization transactions to maintain
capital in accordance with § 120.425(a). Compliance With Executive Orders
amount for SBLCs has not been updated 12866, 13563, 13771, 12988, and 13132,
since 1996. SBA believes the current This regulation applies a capital charge
the Paperwork Reduction Act (44
minimum capital (of at least $1,000,000) against all assets of the securitizer
U.S.C., Ch. 35), and the Regulatory
is insufficient to assure an SBLC’s including the balance outstanding on
Flexibility Act (5 U.S.C. 601–612)
continued financial viability or to the unguaranteed portion of the
provide for any necessary growth. As securitizer’s 7(a) loans, as well as Executive Order 12866
stated in the proposed rule, the including those unguaranteed interests This rule finalizes a proposed rule
maximum 7(a) loan amount has in any securitization pool. SBA did not that the Office of Management and
increased from $1,000,000 in 1996 to propose any revisions to § 120.425(a) in Budget (OMB) determined was not a
$5,000,000 as of the date of the the proposed rule. ‘‘significant’’ regulatory action for the
proposed rule.6 As a result, SBA has SBA also does not agree with the purposes of Executive Order 12866.
determined that a corresponding change suggestion that non-profit SBLCs should OMB did not change the non-significant
to increase the minimum capital be permitted to include ‘‘restricted’’ designation for this final rule, and
requirements for SBLCs is necessary at capital in their minimum capital therefore, SBA has not prepared a
this time. calculation. An SBLC’s capital must be Regulatory Impact Analysis. This is not
Under the proposed rule, SBLCs must ‘‘unencumbered’’ and available to a major rule under the Congressional
maintain a minimum amount of capital absorb potential losses from its lending Review Act, 5 U.S.C. 801 et seq.
equal to unencumbered paid-in capital activities, including those associated
and paid-in surplus of at least $5 with its entire 7(a) loan portfolio. Executive Order 13563
million, or 10 percent of the aggregate Restricted capital does not meet this This executive order supplements and
of the SBLC’s share of all outstanding requirement. SBA will not permit non- reaffirms the principles and
loans, whichever is greater. Most of the profit SBLCs to include restricted requirements in Executive Order 12866,
14 SBLCs have capital in excess of the capital towards their minimum capital including the requirement to provide
minimum capital proposed under calculation. the public with an opportunity to
§ 120.471(a). SBA also included a Finally, SBA will continue to study participate in the regulatory process.
provision in the proposed rule whether changes to the definition of SBA Supervised Lenders have been
providing SBLCs with 3 years after the capital under § 120.471(b) should be involved in the 7(a) Loan Program for
effective date of the final rule to reach modified to account for the valuation of over 35 years. Over the years, the
the new minimum capital amount. servicing rights assets. Most of the Agency has received feedback from SBA
However, the proposed minimum comments received suggested that SBA Supervised Lender applicants and
capital amount would apply should allow SBLCs to receive full program participants, including
immediately in the event of a change of credit for the value of their servicing valuable insight and suggestions for
rights towards their minimum capital improvements to the application and
6 In addition, the Coronavirus Aid, Relief, and
requirement. If SBA determines there is review process. This feedback from SBA
Economic Security Act (CARES Act) (Pub. L. 116– a need for further changes, SBA will Supervised Lenders, together with the
136), permits participating lenders to make section
7(a) loans up to a maximum amount of $10 million promulgate regulations or provide comments in response to the proposed
under the PPP. additional guidance on this issue. rule, has shaped this final rule.
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78210 Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Rules and Regulations
Executive Order 13771 (a) Lender Assessment Plan. Under those policies and procedures, an
This final rule is not subject to The final rule requires organizations organization applying to become an
Executive Order 13771 regulatory action seeking to become an SBA Supervised SBA Supervised Lender (or seeking SBA
because the rule is not significant under Lender (or seeking SBA approval of a approval of a change of ownership or
Executive Order 12866. change of ownership or control) to control) is required to, among other
submit a LAP to SBA. The LAP includes things, submit documentation in
Executive Order 12988 the legal name and contact information support of its organizational structure,
This action meets applicable of the applicant, a written business internal control policies, operational
standards set forth in sections 3(a) and plan, current and projected financial
plan, proposed credit policies, loan risk
3(b)(2) of Executive Order 12988, Civil statements and other important
rating system, proposed secondary
Justice Reform, to minimize litigation, information about the applicant and its
management team (including key market activities, capital adequacy plan,
eliminate ambiguity, and reduce audited financial statements and other
burden. The action does not have employees).
Need and Purpose: The LAP is information (e.g., certifications and legal
retroactive or preemptive effect.
necessary for SBA to conduct an initial opinions) necessary for SBA to evaluate
Executive Order 13132 review of an applicant seeking to the qualifications of the applicant. See
SBA has determined that this final become an SBA Supervised Lender (or SOP 50 10. Although SBA estimates that
rule will not have substantial, direct seeking SBA approval of a change of the requirements will only apply to
effects on the States, on the relationship ownership or control). The LAP approximately four organizations each
between the National Government and provides SBA with key information that year, now that SBA is codifying the
the States, or on the distribution of would enable SBA to reach a application requirements in this final
power and responsibilities among the preliminary assessment about the rule, under the PRA the requirements
various levels of government. For the qualifications of an applicant more are deemed to impact ten or more
purposes of Executive Order 13132, efficiently. This initial review phase respondents; therefore, SBA has also
SBA has determined that this rule has will assist SBA in identifying requested OMB approval of this
no federalism implications warranting incomplete applications and application in compliance with the PRA
preparation of a federalism assessment. unqualified applicants much earlier in procedures.
the application review process.
Paperwork Reduction Act, 44 U.S.C., Description and Estimated Number of Description and Estimated Number of
Ch. 35 Respondents: Pursuant to proposed Respondents: The information in the
SBA has determined that this final § 120.466(a), the information in the LAP complete application will be collected
rule imposes a new reporting will be collected from each organization from organizations that are seeking to
requirement under the Paperwork seeking to become an SBA Supervised become an SBA Supervised Lender and
Reduction Act (PRA). Specifically, the Lender (or seeking SBA approval of a have successfully reached the final
final rule requires SBA Supervised change of ownership or control). SBA review phase. Based on current
Lenders to submit a written Lender estimates that it will likely receive no experience, SBA estimates that it will
Assessment Plan (LAP) for SBA to more than four LAPs each year. likely receive no more than four
conduct an initial review of the Total Estimated Response Time: It is complete applications each year.
applicant. In addition, the final rule estimated that each applicant would
codifies a requirement for applicants to need approximately 35 hours to prepare Total Estimated Response Time: It is
submit a complete application in order and submit the LAP for an estimated estimated that each applicant would
for SBA to determine whether the total of 140 hours annually. need approximately 50 hours to prepare
applicant has the qualifications (b) SBA Supervised Lender and submit a complete application, for
necessary to participate in the 7(a) Loan Application. an estimated total of 200 hours
Program as an SBA Supervised Lender. If an applicant seeking to become an annually.
As discussed above, this requirement is SBA Supervised Lender (or seeking SBA
Regulatory Flexibility Act, 5 U.S.C. 601–
currently described in SBA’s official approval of a change of ownership or
control) is authorized by SBA to 612
policies and procedures. In addition to
these two requirements, the applicant proceed to the final review phase, the Under the Regulatory Flexibility Act
will submit the same forms as other applicant will be required to submit a (RFA), this final rule may have an
Lenders that apply to participate in the complete application. impact on a substantial number of small
7(a) Loan Program, including the SBA Need and Purpose: The information
entities that participate as SBA
Form 1081, Statement of Personal submitted with this application is
Supervised Lenders in the 7(a) Loan
History (OMB Control number 3245– necessary for SBA to reach a final
decision regarding whether the Program. Immediately below, SBA sets
0080). forth a final regulatory flexibility
The title, summary of the information applicant has the qualifications
necessary to participate in the 7(a) Loan analysis (FRFA) examining the impact
collections, description of respondents,
Program. The complete application of the final rule in accordance with 5
and an estimate of the related reporting
burdens are discussed below. requires an SBA Supervised Lender U.S.C. 603. The FRFA addresses (1) the
Additional information related to these applicant to provide additional detail reasons, objectives and legal basis for
requirements is included in the about the information previously this rule; (2) a description of the kind
Regulatory Flexibility Act discussion in disclosed to SBA in the LAP and will and number of small entities that may
this rule. SBA did not receive comments include new information about the be affected; (3) the projected reporting,
on the new information collections in applicant’s proposed operation and recordkeeping and other compliance
the proposed rule. lending activities as a participant in the requirements; (4) whether there are any
Title of Collection: SBA Supervised 7(a) Loan Program. As stated above, Federal rules that may duplicate,
Lender Application and Review. these application requirements are not overlap, or conflict with this rule; and
OMB Control Number: New new since they are currently set out in (5) whether there are any significant
Collection. SBA’s official policies and procedures. alternatives to this rule.
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Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Rules and Regulations 78211
1. What are the reasons, objectives and grace period to allow them to adjust we expect an organization that submits
legal basis for the rule? their future 7(a) lending activities. a LAP will need to employ the services
The rule is designed to improve SBA is authorized to supervise the of a financial manager and an
efficiencies and enhance the application safety and soundness of SBA administrative assistant when preparing
and review process for organizations Supervised Lenders and may regulate an LAP for submission to SBA.7
their 7(a) lending activities pursuant to If an organization is authorized by
seeking to participate in the 7(a) Loan
section 23(a) of the Small Business Act. SBA to proceed to the final review
Program as SBA Supervised Lenders.
15 U.S.C. 650(a), see also 15 U.S.C. phase, a complete application must be
The objective is to provide a process for
634(b)(7). SBA has the authority to submitted to SBA. As mentioned above,
a more efficient and effective evaluation
promulgate rules, regulations and the application requirements for SBA
of the qualifications of applicants
requirements for the 7(a) Loan Program. Supervised Lenders are not new and are
seeking to become SBA Supervised
15 U.S.C. 634(b)(6). currently set forth in SBA’s official
Lenders. The new application and
policies and procedures. See SOP 50 10
review process will provide greater 2. What are SBA’s description and
6, Part 1, Section A, Chapter 1,
clarity and transparency to applicants estimate of the number of small entities
to which the rule will apply? Paragraph A.2 for NFRLs and Part 1,
and would expedite SBA’s review,
Section A, Chapter 2, Paragraph B for
which may potentially reduce costs on SBA Supervised Lenders affected by SBLCs. SBA estimates that it will
applicants and on SBA’s limited this rule comprise a unique class of 36 receive approximately four complete
administrative resources. non-depository lenders that may only
The rule also raises the minimum applications each year. SBA estimates
participate in the 7(a) Loan Program and that it will take approximately 50 hours
capital requirement that SBA make 7(a) loans if authorized by SBA.
Supervised Lenders must maintain to for an organization to prepare a
This final rule will be applicable to all complete application at a cost of $5,207
assure their continued financial SBA Supervised Lenders (other than
viability and to provide for any per application. Based on SBA’s
lenders participating as CA Lenders in experience with similar data collections,
necessary growth. The minimum capital the CA Pilot Program and lenders
requirement for SBA Supervised an organization applying to become an
authorized to make PPP loans under SBA Supervised Lender would typically
Lenders has not been updated by SBA SBA Form 3507). SBA estimates that
for more than 23 years. The Agency has employ the services of a financial
approximately 88 percent of SBA manager, an accountant, an attorney and
determined that the regulations Supervised Lenders are considered
addressing minimum capital must be an administrative assistant when
small entities based on NAICS sector preparing a complete application for
amended to correspond with the more code 52 (Finance and Insurance) and
than 500 percent increase in the submission to SBA.8 SBA did not
industry code 52298 (All Other Non- receive comments on whether the
maximum 7(a) loan amount that depository Credit Intermediation) and
Congress has authorized by statute over number of hours estimated to prepare a
have annual receipts of less than $38.5 complete application is appropriate or
the last twenty-three years. million. This estimate of 32 small SBA
The rule also limits the 7(a) lending on the services they employ to complete
Supervised Lenders is based in part on the application.
area for NFRLs to the state in which information contained in the quarterly
their primary regulator is located, SBA anticipates that there will be
condition reports and the annual reports some costs for SBA Supervised Lenders
except that an NFRL may request SBA’s that are required to be submitted to SBA
prior written approval to make 7(a) related to the new minimum capital
by such lenders. requirement under the rule. This rule
loans in a local trade area that is
contiguous to such state (e.g., a city or 3. What are the projected reporting, establishes a new minimum capital
metropolitan statistical area that is recordkeeping, and other compliance requirement for SBLCs and NFRLs of at
bisected by a state line). Most NFRLs requirements of the rule and an estimate least $5 million and $2.5 million,
participating in the 7(a) Loan Program of the classes of small entities which respectively. Based on information
already limit their lending activities to will be subject to the requirements? provided to SBA by SBA Supervised
the state in which their primary state Lenders in quarterly condition reports,
The final rule imposes a new
regulator is located. In recent years, 11 of the 14 SBLCs (i.e., 79 percent)
reporting requirement for organizations
some state regulators have permitted have at least $3.7 million in capital (and
seeking to become an SBA Supervised
NFRLs to make loans outside of their of those 11 SBLCs, 11 have more than
Lender (or seeking SBA approval of a
state or even nationwide. The expansion $5 million in capital). In addition, 19 of
change of ownership or control). The
of an NFRL’s 7(a) lending area increases the 22 NFRLs (i.e., 86 percent) have
final rule codifies an existing
risk to SBA and the Agency does not more than $2.5 million in capital.
requirement that applicants submit a
have the additional administrative complete application for SBA to 7 The cost estimate for the LAP is based on hourly
resources to adequately supervise, determine whether an organization has job position wages published by the U.S.
regulate and examine NFRLs that the qualifications necessary to Department of Labor’s Bureau of Labor Statistics for
operate outside of their state. This part participate in the 7(a) Loan Program as 2019 and increased by 100% to account for benefits
of the final rule is also consistent with and overhead. The cost breakdown is as follows:
an SBA Supervised Lender. Financial Manager (30 hours times an hourly rate
the general understanding that state- The LAP includes key information of $124.90) plus Administrative Assistant (5 hours
regulated lenders (such as BIDCOs) are about an organization that will allow times an hourly rate of $36.24) equals $3,838.
licensed under specific state laws to SBA to reach a preliminary assessment 8 The cost estimate for a complete application is
focus primarily on economic about the qualifications of an applicant based on hourly job position wages published by
the U.S. Department of Labor’s Bureau of Labor
development in their respective state more efficiently. SBA estimates it will Statistics for 2019 and increased by 100% to
and local communities. Based on the receive approximately four LAPs each account for benefits and overhead. The cost
comments received, SBA has agreed to year. SBA estimates that it will take breakdown is as follows: Financial Manager (30
provide existing NFRLs that SBA has approximately 35 hours for an hours times an hourly rate of $124.90) plus
Accountant (10 hours times an hourly rate of
approved for 7(a) lending outside of the organization to prepare an LAP at a cost $68.80) plus Attorney (5 hours times an hourly rate
state in which their primary regulator is of $3,838 per LAP. Based on SBA’s of $118.22) plus Administrative Assistant (5 hours
located with an additional one-year experience with similar data collections, times an hourly rate of $36.24) equals $5,207.
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78212 Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Rules and Regulations
SBA has determined that there are SBA determined that a 3-year time In summary, SBA estimates that the
seven small entities that will be frame was a sufficient amount of time total cost to a particular SBA Supervised
impacted by the new capital for SBA Supervised Lenders to increase Lender associated with this rule
requirements in the rule. In other words, their capital. SBA specifically requested (including the costs related to data
7 of the 36 SBA Supervised Lenders that comments on whether SBA Supervised collection) will range from zero to
are considered small entities will need Lenders should have 3 years to comply $356,683, substantially all of which
to increase their capital to reach the new with the new minimum capital relates to the cost of raising capital and
minimum capital requirement of either requirements under the proposed rule or may be spread over a 3-year time period.
$2.5 million or $5 million (as should be required to comply sooner.
4. What are the relevant Federal rules
applicable). SBA estimates the amount The majority of the commenters were
which may duplicate, overlap, or
of capital that would need to be raised generally supportive of at least a 3-year
conflict with the rule?
by these small entities currently ranges time frame to meet the new minimum
between $1,270,000 and $3,580,000. capital requirement. We are not aware of any Federal rules
SBA estimates that this rule may have The rule also limits the 7(a) lending that duplicate, overlap or conflict with
a significant economic impact on 6 of area for NFRLs to the state in which this rule. SBA’s SOP 50 10 will have to
the 36 SBA Supervised Lenders (i.e., 17 their primary state regulator is located, be amended to conform to portions of
percent), each of which is considered a except that with SBA approval it may this rule, which will be done separately.
small entity. As noted above, all existing include a local trade area that is 5. What alternatives will allow the
SBA Supervised Lenders will have 3 contiguous to such state (such as a city Agency to accomplish its regulatory
years from the effective date of a final or metropolitan statistical area bisected objectives while minimizing the impact
rulemaking to comply with this part of by a state line). There are currently 22 on small entities?
the rule (other than for transactions NFRLs participating in the 7(a) Loan
Program. During the last 3 fiscal years, The Agency originally considered
involving a change of ownership or
2 NFRLs (each of which is considered imposing the new minimum capital
control of an SBA Supervised Lender).
SBA estimates that the cost of raising a small entity) requested loan requirements for SBA Supervised
capital for SBA Supervised Lenders is authorizations to make the majority of Lenders immediately due to the risk
approximately 9.8 percent of the their 7(a) loans outside of the state in associated with their lending
amount of equity capital raised based on which their primary state regulator is operations. SBA recognized, however,
the Capital Asset Pricing Model located. Except for these two NFRLs, that providing a 3-year period for SBA
(CAPM). The CAPM is one of the most approximately 90 percent of the lending Supervised Lenders to increase their
widely used pricing models by financial within the 7(a) Loan Program during the capital would be less burdensome on
professionals and considered the last 3 fiscal years was done in the state lenders and their operational plans.
preferred method to estimate the cost of where the NFRL’s primary state SBA took into consideration that some
equity capital. See Duff & Phelps 2019 regulator is located. Approximately 79 lenders may need time to plan their
Valuation Handbook—U.S. Industry percent of all 7(a) loan approvals capital raising efforts and negotiate
Cost of Capital (data through June 30, obtained by NFRLs during the last 3 favorable terms and conditions for
2019).9 SBA estimates that the total cost fiscal years were for loans to be made increasing their capital. The 3-year time
of raising new equity capital for the to small businesses located within their period will provide SBA Supervised
seven SBA Supervised Lenders based on own state. This part of the rule will not Lenders with a sufficient amount of
the requirements of the rule would impact a substantial number of small time to raise new equity capital and an
range in amount from approximately entities. It is important to note that this opportunity to increase capital by
$124,000 to $350,000.10 However, the final rule will not impose any retaining earnings (which will reduce
cost is mitigated by the fact that under restrictions regarding an NFRL’s non- the estimated overall cost of raising
the rule SBA Supervised Lenders will 7(a) lending activities. Therefore, the such capital).
final rule will not have any impact on SBA believes many of the changes in
have 3 years to increase their capital.
an NFRL’s ability to generate business this rule will benefit small entities
Thus, the maximum amount that it
by making other types of non-SBA loans interested in becoming an SBA
would cost an existing SBA Supervised
outside of its own state. Supervised Lender by clarifying areas in
Lender to reach the new minimum
Most commenters did not support the the application process where there was
capital requirement would be
limitation on 7(a) lending areas for confusion and to make the process more
approximately $117,000 per year for 3
NFRLs. SBA considered the comments transparent. This rule will also allow
consecutive years.11
received and has agreed to allow SBA to evaluate the qualifications of
9 The 2019 Valuation Handbook—U.S. Industry existing NFRLs one additional year to new applicants (including for change of
Cost of Capital published by Duff & Phelps provides adjust to this portion of the rule. ownership or control transactions) more
cost of capital estimates for approximately 170 Therefore, NFRLs currently engaged in efficiently and make well-informed
industries identified by Standard Industrial 7(a) lending outside of the state in decisions on SBA Supervised Lender
Classification codes (SIC). For purposes of
estimating the cost of raising equity capital for SBA which their primary regulator is located applications. SBA believes this rule
Supervised Lenders, SBA used SIC code 61—non- may continue to make 7(a) loans on a encompasses best practice guidance that
depository credit institutions, which includes 21 nationwide basis (if permitted by their aligns with the Agency’s mission to
companies that are engaged primarily in extending primary state-regulator) for 1 year from increase access to capital for small
credit in the form of loans (but are not engaged in
deposit banking). SBA compared the estimated cost the effective date of this final rule. This businesses and facilitate American job
of raising capital cited above with other sources and additional one-year grace period will preservation and creation.
found the data to be similar. not apply to new applications from List of Subjects in 13 CFR Part 120
10 The estimated cost to raise $1.27 million or
NFRLs, including those that have
$3.58 million in equity capital would be as follows:
engaged in and/or are seeking approval Community development, Equal
$1,270,000 times 9.8% equals $124,000; $3.58 employment opportunity, Loan
million times 9.8% equals $350,000. of a change of ownership or control.
11 It should be noted that some existing SBA programs—business, Reporting and
Supervised Lenders may decide to increase their equity capital, which would reduce the cost of this recordkeeping requirements, Small
capital by retaining earnings instead of raising new rule. businesses.
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Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Rules and Regulations 78213
For the reasons stated in the loans out of their state, then this Lender Assessment Plan must include
preamble, SBA is amending 13 CFR part paragraph will apply on or after January the following items:
120 as follows: 4, 2022. (1) The legal name, address, telephone
■ 4. Amend § 120.462 by: number and email address of the
PART 120—BUSINESS LOANS ■ a. Removing the phrase ‘‘by state applicant;
regulators’’ wherever it appears and (2) Business plan, detailing the
■ 1. The authority for 13 CFR part 120 applicant’s proposed lending area and
adding in its place the phrase ‘‘in
continues to read as follows: the volume of loan activity projected
§ 120.462(a)(1)’’;
Authority: 15 U.S.C. 634(b) (6), (b) (7), (b) ■ b. Redesignating paragraphs (a) over the next 3 years (supported by
(14), (h), and note, 636(a), (h) and (m), and through (e) as paragraphs (b) through (f); current and projected balance sheets,
note, 650, 657t, and note, 657u, and note, and income statements and statements of
687(f), 696(3) and (7), and note, and 697(a) ■ c. Adding a new paragraph (a). cash flows);
and (e), and note. (3) Capitalization (current and
The addition reads as follows:
§ 120.410 [Amended]
proposed), including the form of
§ 120.462 What are SBA’s additional organization and the identification of all
■ 2. Amend § 120.410 in paragraph requirements on capital maintenance for debt and classes of equity capital and
(a)(1) by removing the phrase ‘‘for SBA Supervised Lenders? proposed funding amounts, including
SBLCs, meeting its SBA minimum (a) Minimum capital requirements— any rights or preferences accorded to
capital requirement; and for NFRLs, (1) For NFRLs. (i) Beginning on January such interests (e.g., voting rights,
meeting its state minimum capital 4, 2024, each NFRL that makes or redemption rights and rights of
requirement); and’’, and adding in its acquires a 7(a) loan must maintain the convertibility) and any conditions for
place the phrase, ‘‘and for SBLCs and minimum capital required by its state the transfer, sale or assignment of such
NFRLs, meeting their respective regulator, or $2,500,000, whichever is interests;
minimum capital requirement); and’’. greater. (4) A list of all members of the
■ 3. Amend § 120.460 by adding (ii) Any NFRL approved on or after applicant’s management team, including
paragraphs (c) and (d) to read as follows: January 4, 2021, including in the event the applicant’s officers, directors,
of a change of ownership or control, managers and key employees, as well as
§ 120.460 What are SBA’s additional must maintain the minimum capital the applicant’s owners, Associates (as
requirements for SBA Supervised Lenders? requirement set forth in paragraph defined in § 120.10) and Affiliates (as
* * * * * (a)(1)(i) of this section. defined in § 121.103 of this chapter);
(c) An SBA Supervised Lender must (iii) Unless subject to paragraph (5) A written summary of the
have qualified full-time professional (a)(1)(i) or (ii) of this section, an NFRL professional experience (including any
management including, but not limited must comply with the minimum capital prior experience with any SBA program)
to, a chief executive officer or the requirements for NFRLs that were in of the applicant’s management team
equivalent to manage daily operations, effect on January 3, 2021. (including key employees);
and a chief credit/risk officer. An SBA (2) For SBLCs. For information on (6) In connection with any application
Supervised Lender must also have at minimum capital requirements for to become an SBLC, the applicant must
least one other part-time professional SBLCs, see § 120.471. include a letter agreement signed by an
employee (which may be a shared * * * * * authorized official of an existing SBLC
employee of the lender’s affiliates) ■ 5. Add § 120.466 to read as follows: certifying that the SBLC is seeking to
qualified by training and experience to transfer its SBA lending authority to the
carry out its business plan. An SBA § 120.466 SBA Supervised Lender applicant; and
Supervised Lender is expected to application. (7) If approval of any state or Federal
sustain a sufficient level of lending An entity seeking to participate as an chartering, licensing or other regulatory
activity in its lending area, which means SBA Supervised Lender must apply to authority is required, copies of any
obtaining at least four 7(a) loan SBA. SBA evaluates SBA Supervised licenses issued by or documents filed
approvals during two consecutive fiscal Lender applicants through an initial with such authority.
years. This paragraph only applies to review and final review, as follows: (b) Final review. Each applicant that
SBA Supervised Lenders that make or (a) Initial review. SBA Supervised receives notice from SBA in writing that
acquire a 7(a) loan after January 4, 2021, Lender applicants must submit a written it may proceed to the final review must
or to any SBA Supervised Lender plan containing information about the submit a complete application to SBA
approved after such date, including in organization and its current and within 90 calendar days. The
the event of a change of ownership or proposed lending activities (‘‘Lender application requirements for SBA
control of an SBA Supervised Lender. Assessment Plan’’). After SBA’s review Supervised Lenders are set forth in
(d) An NFRL may only make or of the Lender Assessment Plan, the official SBA policy and procedures. An
acquire 7(a) loans in the state in which Office of Capital Access may require an incomplete application submitted to
its primary state regulator is located, interview with the applicant and its SBA will not be processed and will be
except that an NFRL’s lending area may management team. SBA will determine, returned to the applicant. SBA may, in
include a local trade area that is in its sole discretion, whether an its sole discretion, approve or deny any
contiguous to such state (e.g., a city or applicant may proceed to the final SBA Supervised Lender application.
metropolitan statistical area that is review. If SBA determines that an The decision to approve or deny an SBA
bisected by a state line) if the NFRL applicant may not proceed to the final Supervised Lender application is a final
receives SBA’s prior written approval. review, the applicant must wait at least agency decision. If an SBA Supervised
This paragraph applies to all NFRLs on 6 months before it may submit a new Lender application is denied by SBA or
or after January 4, 2021, including in the Lender Assessment Plan. Each applicant if a complete application is not timely
event of approval of a new NFRL or a must demonstrate to SBA’s satisfaction submitted, the applicant may not submit
change of ownership or control of an that it meets the ethical requirements a new Lender Assessment Plan and
NFRL; provided however, that if SBA and the participation criteria set forth in restart the application process until 12
has approved any NFRL to make 7(a) 13 CFR 120.140 and 120.410. The months from the date of denial or the
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78214 Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Rules and Regulations
date a complete application was due to (5) For changes of ownership or more), or any agreement providing for
SBA, as applicable. control, in addition to the factors listed such transfer;
(c) NFRL operating and lending in paragraphs (a)(1) through (4) of this (2) Any transfer(s) (direct or indirect)
experience requirement. For an entity section, SBA will consider whether the that could result in the beneficial
seeking to become an NFRL, evidence of applicant’s plan for the resolution of ownership by any person or group of
at least 1 year of current operating and any outstanding monetary liabilities to persons acting in concert of 10 percent
relevant commercial lending experience SBA, including repairs and denials and or more of any class of the SBA
by the entity must be provided. civil monetary penalties, is acceptable Supervised Lender’s stock or ownership
to SBA in its sole discretion. interests, or any agreement providing for
■ 6. Add § 120.467 to read as follows:
(b) SBA may prohibit any individual such transfer(s);
§ 120.467 Evaluation of SBA Supervised or entity from participating as an officer, (3) Any merger, consolidation, or
Lender applicants. director, manager, owner or key reorganization;
(a) SBA will evaluate an SBA employee of the applicant if such (4) Any other transaction or
Supervised Lender applicant based on individual or entity: agreement that transfers control of an
information from, among other sources, (1) Has a previous record of failing to SBA Supervised Lender; or
(5) Any other transaction or event that
the Lender Assessment Plan, an materially comply with SBA Loan
results in any change in the possession
interview with the applicant’s Program Requirements;
(direct or indirect) of the right to
management team (if required), the (2) Previously participated in a control, or the power to direct or cause
application and any other material way with any past or present the direction of, the management or
documentation submitted by the SBA Lender or Intermediary that failed policies of an SBA Supervised Lender,
applicant, the results of background to maintain satisfactory SBA whether through the ownership of
investigations, public record searches performance; voting securities, by contract or
and due diligence conducted by SBA or (3) Previously defaulted on any otherwise.
other Federal or state agencies. SBA’s Federal loan or Federally assisted (b) Approval required by other
evaluation will consider factors such as financing that resulted in the Federal regulatory authorities. If a change of
the following: Government or any of its agencies or ownership or control of an SBA
(1) Professional qualifications of its departments sustaining a loss in any of Supervised Lender is subject to the
management team (including key its programs; or approval of any state or Federal
employees), including demonstrated (4) Ever failed to pay when due any chartering, licensing or other regulatory
commercial lending experience, debt or obligation, including any authority, copies of any documents filed
business reputation, adherence to legal amounts in dispute, to the Federal with such authority must, at the same
and ethical standards, track record in Government or guaranteed by the time, be transmitted to the appropriate
making and monitoring business loans, Federal Government (including but not SBA official in accordance with the
and prior history, if any, working as an limited to taxes or business or student prevailing Delegations of Authority. The
officer, manager, director or key loans). approval of any state or Federal
employee of a lender involved in any ■ 7. Add § 120.468 to read as follows: authority will be required in addition to
SBA program or any other Federal or SBA’s prior written approval.
state lending program. § 120.468 Change of ownership or control (c) Application requirements for
(2) Historical performance measures requirements for SBA Supervised Lenders. changes of ownership or control. An
of loans originated by the applicant or (a) SBA prior approval required. Any applicant must submit a Lender
attributable to its management team change of ownership or control of an Assessment Plan and a new application
(including key employees), including SBA Supervised Lender without SBA’s in accordance with § 120.466 for any
loan default rates, purchase rates and prior written approval is prohibited. change of ownership or control. If a
loss rates, measured in both percentage Prior to entering into any agreement, proposed change of ownership is for
terms and in comparison to appropriate other than a non-binding letter of intent, less than 50 percent of the ownership
industry benchmarks, review/ for a change of ownership or control, interests in an SBA Supervised Lender,
examination assessments and other SBA Supervised Lenders must receive SBA may, in its sole discretion, limit the
performance measures. SBA’s prior written approval from the requirements of the Lender Assessment
(3) The applicant’s capitalization, appropriate SBA official in accordance Plan or the complete application as set
organizational structure, business plan with the prevailing Delegations of forth in official SBA policy and
(including any risk factors), projected Authority. An SBA Supervised Lender procedures.
financial performance, financial may not register proposed new owners (d) Voluntary surrender of SBA
strength, liquidity, the soundness of its on its books and records or permit them lending authority. An SBA Supervised
financial projections and underlying to participate in any manner in the Lender may voluntarily surrender its
assumptions, loan underwriting process, conduct of the SBA Supervised Lender’s SBA lending authority (including its
operations plan and the history of affairs unless approved in writing by SBLC license or NFRL lending
compliance of the applicant and its SBA. Any type of non-binding letter of authority, as applicable) and withdraw
management team (including key intent regarding a prospective change of as a participating Lender with SBA’s
employees) with SBA Loan Program ownership or control must be reported prior written approval. The SBA
Requirements. to SBA within 30 calendar days. A Supervised Lender must agree to
(4) Whether the NFRL’s state regulator change of ownership or control includes transfer its entire 7(a) loan portfolio to
and the state statute or regulations the following: one or more Lenders acceptable to SBA
governing the NFRL’s operations, (1) Any transfer(s) (direct or indirect) in accordance with § 120.432(a), and
including but not limited to those of 10 percent or more of any class of the enter into a withdrawal agreement to
pertaining to audit, examination, SBA Supervised Lender’s stock or resolve any outstanding issues,
supervision, enforcement and ownership interests (or series of including any outstanding monetary
information sharing, are satisfactory to transfers which, in the aggregate over an liabilities, to SBA’s satisfaction. SBA
SBA in its sole discretion. 18 month period, equals 10 percent or may, in its sole discretion, take over the
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Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Rules and Regulations 78215
servicing of an SBA Supervised DEPARTMENT OF TRANSPORTATION and locating Docket No. FAA–2019–
Lender’s 7(a) loan portfolio in 0425.
accordance with § 120.535(d) upon the Federal Aviation Administration
Examining the AD Docket
voluntary surrender of its SBA lending
authority. 14 CFR Part 39 You may examine the AD docket at
[Docket No. FAA–2019–0425; Project https://www.regulations.gov by
§ 120.470 [Amended] Identifier 2016–NE–13–AD; Amendment 39– searching for and locating Docket No.
21346; AD 2020–25–04] FAA–2019–0425; or in person at Docket
■ 8. Amend § 120.470 by removing
Operations between 9 a.m. and 5 p.m.,
paragraph (g) and redesignating RIN 2120–AA64
Monday through Friday, except Federal
paragraph (h) as paragraph (g).
Airworthiness Directives; Rolls-Royce holidays. The AD docket contains this
■ 9. Amend § 120.471 by: Deutschland Ltd & Co KG (Type AD, the mandatory continuing
■ a. Revising paragraph (a); Certificate Previously Held by Rolls- airworthiness information (MCAI), any
Royce plc) Turbofan Engines comments received, and other
■ b. Redesignating paragraphs (b)(3) information. The address for Docket
through (5) as paragraphs (b)(4) through AGENCY: Federal Aviation Operations is U.S. Department of
(6) respectively; and Administration (FAA), DOT. Transportation, Docket Operations, M–
■ c. Adding new paragraph (b)(3). ACTION: Final rule. 30, West Building Ground Floor, Room
The revision and addition to read as W12–140, 1200 New Jersey Avenue SE,
SUMMARY: The FAA is superseding Washington, DC 20590.
follows: Airworthiness Directive (AD) 2016–24–
08 for all Rolls-Royce Deutschland Ltd. FOR FURTHER INFORMATION CONTACT:
§ 120.471 What are the minimum capital Scott Stevenson, Aviation Safety
requirements for SBLCs? & Co KG (RRD) RB211–Trent 875–17,
RB211–Trent 877–17, RB211–Trent Engineer, ECO Branch, FAA, 1200
(a) Minimum capital requirements. (1) 884–17, RB211–Trent 884B–17, RB211– District Avenue, Burlington, MA 01803;
Beginning on January 4, 2024, each Trent 892–17, RB211–Trent 892B–17, phone: (781) 238–7132; fax: (781) 238–
SBLC that makes or acquires a 7(a) loan and RB211–Trent 895–17 model 7199; email: Scott.M.Stevenson@faa.gov.
must maintain, at a minimum, turbofan engines. AD 2016–24–08 SUPPLEMENTARY INFORMATION:
unencumbered paid-in capital and paid- required repetitive inspections of the
engine upper bifurcation nose fairing Background
in surplus of at least $5,000,000, or 10
percent of the aggregate of its share of assembly and repair or replacement of The FAA issued a notice of proposed
all outstanding loans, whichever is any fairing assembly that fails rulemaking (NPRM) to amend 14 CFR
greater. inspection. This AD retains the part 39 to supersede AD 2016–24–08,
requirements to perform repetitive Amendment 39–18725 (81 FR 86567,
(2) Any SBLC approved on or after
inspections of the engine upper December 1, 2016) (AD 2016–24–08).
January 4, 2021, including in the event
bifurcation nose fairing assembly and AD 2016–24–08 applied to all RR
of a change of ownership or control, repair or replacement of any fairing RB211–Trent 875–17, RB211–Trent
must maintain the minimum capital assembly that fails inspection. As a 877–17, RB211–Trent 884–17, RB211–
requirement set forth in paragraph (a)(1) terminating action to these inspections, Trent 884B–17, RB211–Trent 892–17,
of this section. this AD also requires the modification of RB211–Trent 892B–17, and RB211–
(3) Unless subject to paragraph (a)(1) the engine upper bifurcation nose Trent 895–17 model turbofan engines.
or (2) of this section, an SBLC must fairing assembly. The FAA is issuing The NPRM published in the Federal
comply with the minimum capital this AD to address the unsafe condition Register on June 24, 2019 (84 FR 29423).
requirements that were in effect on on these products. The NPRM was prompted by RRD
January 3, 2021. DATES: This AD is effective January 8, developing a modification of the engine
(b) * * * 2021. upper bifurcation nose fairing assembly
The Director of the Federal Register that terminates the need for repetitive
(3) Unrestricted net assets (for non- approved the incorporation by reference inspections of this part. In the NPRM,
profit corporations); of certain publications listed in this AD the FAA proposed to retain the
* * * * * as of January 8, 2021. requirements to perform repetitive
ADDRESSES: For service information inspections of the engine upper
§ 120.475 [Removed and Reserved] bifurcation nose fairing assembly and
identified in this final rule, contact
■ 10. Remove and reserve § 120.475. Rolls-Royce plc, Corporate repair or replacement of any fairing
Communications, P.O. Box 31, Derby, assembly that fails inspection. As a
Jovita Carranza, England, DE24 8BJ; phone: (+44) 1332 terminating action, in the NPRM the
Administrator. 242424; fax: (+44) 1332 249936; email: FAA also proposed to require
[FR Doc. 2020–26307 Filed 12–3–20; 8:45 am] http://www.rolls-royce.com/contact/ modification of the engine upper
BILLING CODE P civil_team.jsp; internet: https:// bifurcation nose fairing assembly. The
customers.rolls-royce.com/public/ FAA is issuing this AD to address the
rollsroycecare. You may view this unsafe condition of these products.
service information at the FAA, The European Aviation Safety Agency
Airworthiness Products Section, (EASA), which is the Technical Agent
Operational Safety Branch, 1200 District for the Member States of the European
Avenue, Burlington, MA 01803. For Community, has issued EASA AD 2018–
information on the availability of this 0088, dated April 18, 2018 (referred to
material at the FAA, call (781) 238– after this as ‘‘the MCAI’’), to address the
7759. It is also available at https:// unsafe condition on these products. The
www.regulations.gov by searching for MCAI states:
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