[Federal Register Volume 80, Number 248 (Monday, December 28, 2015)]
[Notices]
[Pages 80872-80875]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-32583]
-----------------------------------------------------------------------
SMALL BUSINESS ADMINISTRATION
[Docket No. SBA-2015-0013]
Community Advantage Pilot Program
AGENCY: U.S. Small Business Administration.
ACTION: Notice of extension of and changes to Community Advantage Pilot
Program and request for comments.
-----------------------------------------------------------------------
SUMMARY: The Community Advantage (``CA'') Pilot Program is a pilot
program to increase SBA-guaranteed loans to small businesses in
underserved areas. The Small Business Administration (``SBA'')
continues to refine and improve the design of the Community Advantage
Pilot Program. To support SBA's commitment to expanding access to
capital for small businesses and entrepreneurs in underserved markets,
SBA is issuing this Notice to extend the term of the CA Pilot Program
and lay out a plan for its evaluation regarding whether it should be
made permanent, improve the effectiveness of the program, expand
program eligibility to new organizations, and to revise other program
requirements, including certain regulatory waivers.
DATES: Effective Date: The changes to the CA Pilot Program identified
in this Notice will be effective December 28, 2015. The CA Pilot
Program will remain in effect until March 31, 2020.
Comment Date: Comments must be received on or before February 26,
2016.
ADDRESSES: You may submit comments, identified by SBA docket number
SBA-2015-0013 by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Mail: Community Advantage Pilot Program Comments--Office
of Economic Opportunity, U.S. Small Business Administration, 409 Third
[[Page 80873]]
Street SW., Suite 8300, Washington, DC 20416.
Hand Delivery/Courier: Grady B. Hedgespeth, Director,
Office of Economic Opportunity, U.S. Small Business Administration, 409
Third Street SW., Washington, DC 20416.
SBA will post all comments on www.regulations.gov. If you wish to
submit confidential business information (CBI) as defined in the User
Notice at www.regulations.gov, please submit the information to Grady
B. Hedgespeth, Director, Office of Economic Opportunity, U.S. Small
Business Administration, 409 Third Street SW., Washington, DC 20416, or
send an email to [email protected]. Highlight the information
that you consider to be CBI and explain why you believe SBA should hold
this information as confidential. SBA will review the information and
make the final determination whether it will publish the information.
FOR FURTHER INFORMATION CONTACT: Grady B. Hedgespeth, Director, Office
of Economic Opportunity, U.S. Small Business Administration, 409 Third
Street SW., Washington, DC 20416; (202) 205-7562;
[email protected].
SUPPLEMENTARY INFORMATION:
1. Background
On February 18, 2011, SBA issued a notice and request for comments
introducing the CA Pilot Program (76 FR 9626). The CA Pilot Program was
introduced to increase the number of SBA-guaranteed loans made to small
businesses in underserved markets. The February 18, 2011 notice
provided an overview of the CA Pilot Program requirements and, pursuant
to the authority provided to SBA under 13 CFR 120.3 to suspend, modify
or waive certain regulations in establishing and testing pilot loan
initiatives, SBA modified or waived as appropriate certain regulations
which otherwise apply to 7(a) loans for the CA Pilot Program.
Subsequent notices have made changes to the CA Pilot Program to
improve the program experience for participants, improve their ability
to deliver capital to underserved markets, and appropriately manage
risk to the Agency. These notices were issued on the following dates:
September 12, 2011 (76 FR 56262), February 8, 2012 (77 FR 6619), and
November 9, 2012 (77 FR 67433). To further support SBA's commitment to
expanding access to capital for small businesses and entrepreneurs in
underserved markets, SBA is issuing this notice to further revise
program requirements as described more fully below.
The CA Pilot Program is currently set to expire March 15, 2017.
With this notice, SBA is extending the pilot program until March 31,
2020. This extension will allow for additional time to evaluate the
pilot, and if warranted, begin the process for it to be made permanent.
SBA will evaluate the pilot in accordance with criteria that would be
applicable to 7(a) pilot programs generally, including whether: the
pilot is achieving its objective(s), the costs (including losses) of
the pilot are within an acceptable range, sufficient numbers and types
of lenders are using the pilot, and there is a continuing need for the
pilot. SBA also will evaluate the CA Pilot Program to assess its effect
along the following additional indices among others: success in
reaching the CA underserved markets, impact on job creation and
retention, portfolio performance based on initial projections and as it
relates to other 7(a) programs, and impact on business creation and/or
business expansion. Based on the findings of the evaluation, SBA will
refine the program and undergo rulemaking to make the program
permanent, if appropriate.
2. Comments
Although the changes to the CA Pilot Program will be effective
December 28, 2015, comments are solicited from interested members of
the public on all aspects of the CA Pilot Program, including whether
the pilot program should be made permanent. Comments must be submitted
on or before the deadline for comments listed in the DATES section. The
SBA will consider these comments and the need for making any revisions
as a result of these comments.
3. Changes to the Community Advantage Pilot Program
The Community Advantage Participant Guide is being updated to
reflect the changes below and will be available on SBA's Web site at
www.sba.gov.
a. 7(a) Small Loan Procedures & Delegated Authority Procedures
On October 10, 2014, SBA issued Policy Notice 5000-1324,
Streamlining CA Pilot Program. The Notice included: the adoption of the
SBA 7(a) Small Loan credit standards that includes the use of a credit
score upon submission of the application to SBA; the adoption of 7(a)
Small Loan procedures when closing and disbursing CA loans; and the
revision of the procedures to request delegated authority that more
closely aligns with the procedures for 7(a) lenders to acquire
Preferred Lenders Program (PLP) authority. The Notice also provided
that CA Lenders could be authorized to begin processing applications
under their delegated authority after making an initial disbursement on
at least five CA loans. These policy changes are being incorporated
into a revised Community Advantage Participant Guide (version 4.0),
which will be issued upon publication of this Federal Register Notice.
b. Expanded CA Program Eligibility
The original February 18, 2011, Notice (76 FR 9626) introducing the
CA Pilot Program limited program eligibility to three types of
entities: SBA Microloan Intermediaries, SBA Certified Development
Companies (``CDCs'') and non-federally regulated Community Development
Financial Institutions (``CDFIs'') certified by the U.S. Treasury. SBA
is expanding the eligible organizations to include SBA Intermediary
Lending Pilot (ILP) Program Intermediaries authorized under Section
7(l) of the Small Business Act (15 U.S.C. 636(l)).
c. CA Loan Sales
The February 18, 2011 Notice (76 FR 9626) introducing the CA Pilot
Program prohibited CA Lenders from including CA loans in certain
participant lender financings such as loan participations and
securitizations. In order to implement this prohibition, SBA waived the
regulations at 13 CFR 120.420 through 120.435.
In a subsequent Federal Register Notice published on September 12,
2011 (76 FR 56262), SBA recognized that these prohibitions can restrict
the ability of CA Lenders to obtain access to capital or other streams
of revenue necessary to support their CA lending. Therefore, in order
to permit CA Lenders to pledge loans as collateral for certain lender
financings, SBA discontinued the waiver of the regulations at 13 CFR
120.420, 120.430-120.431 (only with respect to pledges), and 120.434.
SBA will now allow CA Lenders to sell entire CA loans or an entire
CA loan portfolio under limited circumstances. Therefore, SBA is no
longer waiving 13 CFR 120.430, 120.431, 120.432(a), and 120.433 (only
with respect to the sale of an entire CA loan). SBA will continue to
waive 13 CFR 120.432(b) & (c), and therefore, CA Lenders may not sell,
or sell a participating interest in, a part of a CA loan. CA Lenders
must follow the same regulations and SOP requirements as 7(a) lenders
with respect to loan sales with the following important
[[Page 80874]]
modification: the sale of an entire CA Loan or CA loan portfolio
requires the approval of the Director of SBA's Office of Credit Risk
Management (D/OCRM). Although sales of a CA loan or CA loan portfolio
are not permitted as a normal course of business in CA lending, in the
event that a sale is necessary as part of a lender's withdrawal from
the CA Pilot Program for example, the CA Lender must make a concerted
effort to sell such loans to a capable and financially viable CA
Lender. If no CA Lender is interested, capable or financially viable to
purchase the CA loan(s), then the loan(s) may be sold to a 7(a) Lender
with SBA's prior written consent, which SBA may withhold in its sole
discretion. The D/OCRM will make the final determination on whether to
approve such transactions. No changes are being made to the
requirements for CA Lenders to sell the guaranteed portion of a CA Loan
on SBA's Secondary Market.
d. Debt Refinancing
All debt refinancing in the CA Pilot Program must meet the
requirements for refinancing set forth in SOP 50 10 5(H), Subpart B,
Chapter 2, Paragraph IV.E., with two modifications discussed below.
1. Under SOP 50 10 5(H), Subpart B, Chapter 2, Paragraph IV. E. 3,
in order to refinance certain debts, the lender must demonstrate that
the new loan will result in a 10 percent improvement in the Small
Business Applicant's cash flow. For CA loans, however, the lender must
demonstrate either:
(a) a 10 percent improvement in cash flow; or
(b) that the CA loan exceeds the amount being refinanced by at
least $5,000 or 25 percent, whichever is greater.
2. Under SOP 50 10 5(H), Subpart B, Chapter 2, Paragraph IV. E. 5,
when a lender seeks to use SBA-guaranteed loan proceeds to refinance
non-SBA guaranteed, same institution debt, it must include a transcript
showing the due dates and when payments were received as part of its
analysis and recommendation for the prior 36 months, or the life of the
loan, whichever is less. In addition, the lender must explain in
writing any late payments and late charges that have occurred during
the last 36 months. However, for CA loans refinancing non-SBA
guaranteed, same institution debt, the lender must instead include a
transcript showing due dates and six months of timely payments for the
most recent six month period. If there are any late payments in the
most recent six month period, the debt may not be refinanced with a CA
loan. Late payments are defined as any payment made beyond 29 days of
the due date.
e. Revised Oversight Strategy
SBA is revising the oversight strategy for CA Lenders to better
align with the PARRiS analytical review protocol introduced in SBA
Policy Notice 5000-1332 on December 29, 2014. Components of PARRiS
include Portfolio performance, Asset management, Regulatory compliance,
Risk management, and Special items. SBA's reviews for CA Lenders
include quarterly compliance reviews, lender profile assessments,
analytical reviews, targeted reviews and/or full reviews. SBA conducts
reviews and examinations of CA Lenders in accordance with 13 CFR
120.1025 through 120.1060 and SOPs 50 53(A), 51 00, and 50 10 5(H), as
revised from time to time. The type of review or whether a safety and
soundness examination is performed may depend on the risk associated
with the CA Lender and its SBA portfolio.
f. Revised Deadline for Annual Report
Currently, all SBA Supervised Lenders are required by 13 CFR
120.464(a)(1) to submit an annual report with audited financial
statements within 90 days of the end of the fiscal year. SBA is
revising this reporting deadline for CA Lenders and requiring that this
report instead be submitted within 120 days after the end of the CA
Lender's fiscal year. In order to accomplish this change, SBA is
modifying 13 CFR 120.464(a)(1), but only with respect to timing, to
require submission of the annual report within 120 days after the end
of the CA Lender's fiscal year.
g. Expanded Underserved Market Definition
The original February 18, 2011, Notice (76 FR 9626) introducing the
CA Pilot Program defined underserved markets to include: Low-to-
moderate income communities; Empowerment Zones and Enterprise
Communities; HUBZones; New businesses; Businesses eligible for Patriot
Express, including Veteran-owned businesses; and Firms where more than
50% of their full time workforce is low-income or resides in LMI census
tracts. SBA is revising this program definition to include designated
Promise Zones \1\ as an underserved market.
---------------------------------------------------------------------------
\1\ The Promise Zone Initiative is a Presidential plan that
seeks to partner with local communities and businesses to create
jobs, increase economic security, expand educational opportunities,
increase access to quality, affordable housing and improve public
safety. The first five Zones, located in San Antonio, Philadelphia,
Los Angeles, Southeastern Kentucky, and the Choctaw Nation of
Oklahoma, have each put forward a plan on how they will partner with
local business and community leaders to make investments that reward
hard work and expand opportunity. (https://www.whitehouse.gov/the-press-office/2014/01/08/fact-sheet-president-obama-s-promise-zones-initiative).
---------------------------------------------------------------------------
In addition, the original February 18, 2011 Notice (79 FR 9626)
identified businesses eligible for SBA's Patriot Express Pilot Loan
Initiative as an eligible underserved market. The Patriot Express Pilot
Loan Initiative expired December 31, 2013; therefore, the applicable
language in the revised Community Advantage Participant Guide has been
changed to read ``businesses eligible for SBA Veterans Advantage.''
(For information on SBA Veteran's Advantage, see SBA's Web site at
www.sba.gov.)
h. Correction of Regulatory Waiver
The original February 18, 2011 Notice (76 FR 9626) included a
waiver of 13 CFR 120.852(a). That regulation, which prohibits a CDC
from investing in or being an affiliate of a lender participating in
the 7(a) loan program, was moved to 13 CFR 120.820(c) effective April
21, 2014 (79 FR 15641). Therefore, in order to continue allowing CDCs
or their affiliates to participate in the CA Pilot Program, SBA is
waiving 13 CFR 120.820(c).
i. Application Forms
The original Notice required that CA Lenders utilize the
application forms required of the Small/Rural Lenders Advantage (S/RLA)
process, as set forth in SOP 50 10 5(C). As of October 1, 2013, that
process ceased to exist. CA lenders now utilize the forms used for all
SBA 7(a) lending processing methods: SBA Form 1919 (``Borrower
Information Form'') and SBA Form 1920 (``Lender's Application for
Guaranty for All 7(a) Programs''). In addition, CA Lenders must also
submit the CA Addendum (SBA Form 2449) with all CA loan applications.
4. General Information
The changes in this notice are limited to the CA Pilot Program
only. All other SBA guidelines and regulatory waivers related to the CA
Pilot Program remain unchanged.
SBA has provided more detailed guidance in the form of a
Participant Guide which is being updated and is available on SBA's Web
site at www.sba.gov. SBA may provide additional guidance, through SBA
notices, which may also be published on SBA's Web site at http://
www.sba.gov/category/lender-
[[Page 80875]]
navigation/forms-notices-sops/notices. Questions regarding the CA Pilot
Program may be directed to the Lender Relations Specialist in the local
SBA district office. The local SBA district office may be found at
http://www.sba.gov/about-offices-list/2.
Authority: 15 U.S.C. 636(a)(25) and 13 CFR 120.3.
Dated: December 17, 2015.
Maria Contreras-Sweet,
Administrator.
[FR Doc. 2015-32583 Filed 12-24-15; 8:45 am]
BILLING CODE 8025-01-P