80 FR 59667 - Affiliation for Business Loan Programs and Surety Bond Guarantee Program
SMALL BUSINESS ADMINISTRATION Federal Register Volume 80, Issue 191 (October 2, 2015)
Federal Register Volume 80, Issue 191 (October 2, 2015)
| Page Range | 59667-59672 | |
| FR Document | 2015-25204 |
[Federal Register Volume 80, Number 191 (Friday, October 2, 2015)] [Proposed Rules] [Pages 59667-59672] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2015-25204] ======================================================================== Proposed Rules Federal Register ________________________________________________________________________ This section of the FEDERAL REGISTER contains notices to the public of the proposed issuance of rules and regulations. The purpose of these notices is to give interested persons an opportunity to participate in the rule making prior to the adoption of the final rules. ======================================================================== Federal Register / Vol. 80, No. 191 / Friday, October 2, 2015 / Proposed Rules [[Page 59667]] SMALL BUSINESS ADMINISTRATION 13 CFR Parts 115, 120, and 121 RIN 3245-AG73 Affiliation for Business Loan Programs and Surety Bond Guarantee Program AGENCY: Small Business Administration. ACTION: Proposed rule. ----------------------------------------------------------------------- SUMMARY: The U.S. Small Business Administration (SBA) has determined that changing conditions in the American economy and a constantly evolving small business community compel it to seek ways to improve program efficiency for its Surety Bond Guarantee (``SBG'') Program, and the business loan programs consisting of the 7(a) Loan Program, the Business Disaster Loan Programs (collectively, the Economic Injury Disaster Loans, Reservist Injury Disaster Loans, Physical Disaster Business Loans, Immediate Disaster Assistance Program loans), the Microloan Program, and the Development Company Program (the ``504 Loan Program''). As a result, SBA proposes to simplify guidelines for determining affiliation for eligibility based on size as it relates to these programs. This proposed rule would redefine affiliation for all five Programs, thereby simplifying eligibility determinations. DATES: SBA must receive comments to the proposed rule on or before December 1, 2015. ADDRESSES: You may submit comments, identified by RIN: 3245-AG73 by any of the following methods:Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments. Email: [email protected]. Include RIN 3245-AG73 in the subject line of the message. Mail: Linda Reilly, Chief, 504 Loan Program, Office of Financial Assistance, Office of Capital Access, Small Business Administration, 409 Third Street SW., Washington, DC 20416. Hand Delivery/Courier: Linda Reilly, Chief, 504 Loan Program, Office of Financial Assistance, Office of Capital Access, 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 Linda Reilly, Chief, 504 Loan Program, Office of Financial Assistance, Office of Capital Access, 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: Linda Reilly, Chief, 504 Loan Program, Office of Financial Assistance, Office of Capital Access, Small Business Administration, 409 Third Street SW., Washington, DC 20416; telephone 202-205-9949. SUPPLEMENTARY INFORMATION: I. Background Executive Order 13563, ``Improving Regulation and Regulatory Review,'' provides that agencies ``must identify and use the best, most innovative, and least burdensome tools for achieving regulatory ends.'' (Emphasis added). Executive Order 13563 further provides that ``[t]o facilitate the periodic review of existing significant regulations, agencies shall consider how best to promote retrospective analysis of rules that may be outmoded, ineffective, insufficient, or excessively burdensome, and to modify, streamline, expand, or repeal them in accordance with what has been learned.'' (Emphasis added). SBA has reviewed its regulations with regard to the business loan programs and SBG program and is proposing a number of amendments and revisions to accomplish this goal. The business loan programs authorized by the Small Business Act (Act), 15 U.S.C. 631 et seq., that are affected by this proposed rule are: (1) The 7(a) Loan Program authorized by Section 7(a) of the Act; (2) the Business Disaster Loan Program (``BDLP'') Program authorized by Section 7(b) of the Act; and (3) the Microloan Program authorized by Section 7(m) of the Act. The 504 Loan Program, which is authorized by Title V of the Small Business Investment Act of 1958 (the ``SBIA''), as amended, 15 U.S.C. 695 et seq., is also affected. These programs (7(a), BDLP, Microloan, and 504) are referred to collectively as the Business Loan Programs in this rule. Finally, this rule also proposes revisions to the Surety Bond Guarantee (``SBG'') Program, authorized by section 411 of the SBIA. A description of each program is set forth below. A. 7(a) Loan Program The 7(a) Loan Program's main purpose is to help eligible small businesses obtain credit when they cannot obtain credit elsewhere. The Agency recognizes that the 7(a) Loan Program is an important engine for job creation. The 7(a) Loan Program provides financing for general business purposes through the guaranty of loans made by participating private sector lenders. Currently, there are approximately 4,500 lenders participating in the 7(a) Loan Program with approximately $66 billion in total SBA guarantees outstanding. B. Business Disaster Loan Programs Through its Business Disaster Loan Programs, SBA provides low- interest disaster loans to businesses of all sizes and private non- profit organizations. These loans can be used to restore, repair or replace disaster damaged assets and working capital as a result of a declared disaster. The loans are made directly by SBA and repayment terms are determined on a case-by-case basis, based upon each borrower's satisfactory credit and ability to repay. C. Microloan Program The Microloan Program provides loans up to $50,000 to help small businesses and certain nonprofit childcare centers. The average microloan is about $13,000. SBA lends funds to specially-designated intermediary lenders, which are primarily nonprofit community-based organizations with experience in lending as well as management and technical assistance. These intermediaries administer the Microloan Program for eligible borrowers lending directly to them. Each intermediary [[Page 59668]] lender has its own lending and credit requirements. Intermediaries generally require some type of collateral as well as the personal guarantee of the business owner. Depending on their prior experience, applicants to the Microloan Program may be required to fulfill training or planning requirements before a loan application will be considered. D. 504 Loan Program The core mission of the 504 Loan Program is to provide long-term fixed asset financing to small businesses for the purchase or improvement of land, buildings, and major equipment purchases, to facilitate the creation of jobs and to stimulate local economic development. A Certified Development Company (``CDC'') is a nonprofit corporation, with the exception of selected for-profit CDCs grandfathered into the 504 Loan Program that promotes economic development within its community through 504 loans. Under the 504 Loan Program, loans are made to small business applicants by CDCs, which are funded through sales of debentures, which are guaranteed 100% by the SBA. There are over 260 CDCs nationwide, each with a defined Area of Operations covering a specific geographic area. E. SBG Program Pursuant to the SBG Program, SBA guarantees bid, payment and performance bonds for small and emerging contractors who cannot obtain surety bonds through regular commercial channels. SBA's guarantee is an agreement between a Surety and SBA that SBA will cover a certain percentage of the Surety's loss should a contractor default on the underlying contract. Specifically, SBA guarantees Sureties participating in the program against a portion of their losses incurred and paid as a result of a breach of the terms of a bid bond, final bond or ancillary bond, on any eligible contract. SBA's guarantee gives Sureties an incentive to provide bonding for small businesses and thereby assists small businesses in obtaining greater access to contracting opportunities which require these bonds as a condition for obtaining the contract. II. Summary of Proposed Program Changes The Agency, in compliance with Executive Order 13132, previously requested and received public comments on the Rules of Affiliation as part of a Notice of Proposed Rule Change (February 25,2013) to update the business loan program . SBA received and reviewed comments and met with industry participants to identify best practices based on the feedback. SBA received 54 comments regarding Affiliation Rules in general support of the proposed change. Ten comments further suggested modification and clarification of the proposal. The most consistent concern expressed was the need in that proposal to require a borrower to prepare a document that qualified each potential affiliation under SBA rules. SBA has determined that the modifications proposed herein fully incorporate previous input. Below is a summary of the proposed changes regarding determining size and affiliation of applicants to Business Loan Programs and SBG Programs. The Agency requests comments on all of the proposed regulatory revisions in this rule and on any related issues affecting the programs. A. Business Loan Programs and Affiliation The Act defines a small business concern as ``one which is independently owned and operated and which is not dominant in its field of operation . . .'' 15 U.S.C. 632(a)(1). In order to be eligible for an SBA guaranteed loan, an applicant must be a small business pursuant to size standards established by SBA through regulation. 13 CFR 120.100. In general, to be considered small, concerns must meet the particular size standard that corresponds to a six-digit North American Industrial Classification System (NAICS) code. Each size standard is stated in terms of either gross revenue receipts or number of employees, and in limited cases a basis other than receipts or employees (e.g., megawatt hours). SBA considers the receipts or employees (or other measure) of an applicant, and all of its domestic and foreign affiliates, when determining a business concern's eligibility as a small business. 13 CFR 121.103(a)(6). SBA's regulations in 13 CFR 121.103 set forth the Agency's principles of affiliation and explain when an individual or an entity is an affiliate of another individual or entity. SBA's affiliation rules generally apply to all SBA programs for which a business must qualify as small, including SBA's government contracting and business development programs, small business loan programs and grant programs. Generally, affiliation exists when one business controls or has the power to control another or when a third party (or parties) controls or has the power to control both businesses. Control may arise through ownership, management, or other relationships or interactions between parties. SBA may also find affiliation based on ``negative control,'' which includes instances where a minority shareholder has the ability, under the concern's charter, by-laws, or shareholder's agreement, to prevent a quorum or otherwise block action by the board of directors or shareholders. Upon review of the statutory provisions for the Business Loan Programs, the purpose behind these programs, and the overall goals of simplification and maximization of benefits for small businesses, SBA is proposing amendments to the current affiliation rules with respect to these programs. SBA believes that, in general, a majority of the principles of affiliation set forth in Sec. 121.103 apply to the Business Loan Programs. However, SBA believes that certain affiliation principles in their current form are more applicable to determining size with respect to federal contracting and subcontracting (where SBA is trying to ensure only eligible small businesses win federal contracts expressly intended for small businesses) and are not necessarily applicable to business loan applicants. SBA seeks to create simple, bright-line tests for Business Loan Program applicants when determining eligibility with respect to size and affiliation, and streamline requirements for determining whether a business is small for purposes of receiving SBA loan assistance. In addition to clarification, this will reduce costs of an application for the loan applicant and its participating lender. SBA previously amended the affiliation rules for the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. Small Business Size Regulations, Small Business Innovation Research (SBIR) Program and Small Business Technology Transfer (STTR) Program, Proposed Rule 77 FR 28520 (May 15, 2012) and Final Rule 77 FR 76215 (December 27, 2012). SBA determined that the general affiliation rules did not apply to the SBIR and STTR programs due to the specialized nature of the program (research and development) and the type of small business that applies for the program (innovative start-ups and research businesses). The amended affiliation rules for the SBIR and STTR programs have helped increase opportunities for small businesses within these programs, reduced burdens for SBIR/STTR eligibility, and streamlined the programs' processes. SBA is proposing similar changes for the Business Loan Programs. In the SBIR revision R&D costs were cited, as an impediment to program participation. [[Page 59669]] Many start-ups and undercapitalized firms face the same, if not greater, economic challenges. SBA proposes to add a new Sec. 121.103(a)(8) that would explain that the bases for affiliation applicable to SBA's Business Loan Programs will be found at a new Sec. 121.301(f). SBA proposes to address size and affiliation for the Business Loan Programs separately in this new Sec. 121.301(f), to avoid any confusion with SBA's treatment of affiliation for government contracting programs, business development programs, and other purposes. In the new Sec. 121.301(f), SBA proposes to refine the principles of ``affiliation'' for the purpose of the Business Loan Programs. Proposed new paragraph (f)(1) sets forth the affiliation principles based on percentage of ownership. With respect to affiliation based on control through ownership, SBA's current affiliation rule (see 13 CFR 121.103(c)) sets forth a minority shareholder standard stating that when no one person owns more than 50% of a company, SBA will find that the person(s) that own(s) directly or indirectly an interest in the business no less than the ownership of the next largest owner(s) is deemed to have control of the small business. In addition, if the ownership of a business concern is widely held and no ownership interest is a large single block of stock as compared to any other, then the Board of Directors and President or Chief Executive Officer are deemed to control the business concern, unless they can present evidence showing otherwise. SBA's current affiliation rule states that if two or more persons own, control or have the power to control less than 50% of the concern's voting interests, and the interests are equal, or approximately equal in size, and the aggregate of these minority holdings is large as compared with any other holding, SBA presumes these owners have control of the business concern. For purposes of the Business Loan Programs, however, SBA considers that in all of these instances, the holdings are so diffused that control would always rest with the small business concern's Board of Directors or management since it is that unit of the organization that is truly running the business. Therefore, in Sec. 121.301(f)(1), SBA proposes that for the business loan programs, SBA will determine control exists based on ownership when: (1) A person owns or has the power to control more than 50% of the voting equity of a concern; or (2) if no one person owns or has the power to control more than 50% of the voting equity of the concern, SBA would deem the small business to be controlled by either the President, Chairman of the Board, or Chief Executive Officer (CEO) of the concern (or other officers, managing members, partners, or directors who control the management of the concern). SBA refers to ownership or equity without designating that it is ``stock'' ownership because not all business loan applicants are corporations with ownership determined through stock issuance. In paragraph (f)(2) of Sec. 121.301 SBA proposes no changes to the existing principles regarding affiliation arising under stock options, convertible securities, and agreements to merge currently found in Sec. 121.103(d). In Sec. 121.301(f)(3), SBA proposes to utilize the same principles of affiliation for common management that are set forth in Sec. 121.103. However, SBA has amended the language here to clarify the different types of managers or management. In Sec. 121.301(f)(4), SBA is proposing to use a different affiliation rule concerning ``identity of interest,'' 13 CFR 121.103(f), for the purposes of the Business Loan Programs and Surety Bond Program. Currently under identity of interest, SBA determines affiliation between individuals or firms when these individuals or firms have identical (or substantially identical) business or economic interests, unless they can demonstrate to SBA otherwise. Family members, persons with common investments, or firms that are economically dependent through contractual (or other) relationships, are among those treated this way. For the Business Loan Programs and the Surety Bond Guarantee Program, SBA proposes to presume that there is an identity of interest only between close relatives as defined in Sec. 120.10. SBA proposes to retain this affiliation principle based on the customary understanding that close relatives have an overarching and close alignment of interests and a strong financial incentive to participate in and support family businesses. In the proposed rule, SBA states that it may determine affiliation based on an identity of interest for other reasons. Upon such a determination, the applicant may make a case to rebut the SBA decision. In Sec. 121.301(f)(5), SBA proposes to make one change to the existing language affecting affiliation based on franchise and license agreements currently found in Sec. 121.103(i). Under current Sec. 121.103(i), SBA must review franchise agreements as they pertain to both the applicant and any affiliates of the applicant. If the applicant has an affiliate that operates under a franchise or license agreement, SBA would be required to review the franchise agreements as it pertains to the affiliate to determine the size of the applicant. Therefore, if the affiliate entity was operating under a franchise agreement that gave the franchisor control over the affiliate franchisee, SBA would determine that the affiliate entity is affiliated with the franchisor. Based on this analysis, when the size of the affiliate entity and the franchisor are combined with the size of the applicant, the applicant may be considered other than small. The proposed regulation would limit franchise or license agreement reviews to the immediate loan applicant, and not consider other agreements in place with affiliated entities. The proposed change would revise the first sentence of current Sec. 121.103(i) to read as follows: ``The restraints imposed on a franchisee or licensee by its franchise or license agreement related to standardized quality, advertising, accounting format and other similar provisions, generally will not be considered in determining whether the franchisor or licensor is affiliated with an applicant franchisee or licensee, provided the applicant franchisee or licensee has the right to profit from its efforts and bears the risk of loss commensurate with ownership.'' The revised language would ensure that a review of the applicant only takes into consideration the size of the applicant and its direct affiliate and not the relationship of the affiliate to any franchisor or licensor. With this change, SBA will still have to consider the size of any affiliate entities, but will not be required to examine any franchisor/franchisee relationship of the affiliated entity. The remaining language will stay the same and still require a review of a franchise/license agreement as it pertains to the applicant. SBA proposes to retain in Sec. 121.301(f)(6) a finding of affiliation based on the totality of circumstances currently found in Sec. 121.103(a)(5). This provides SBA with the ability to consider all contributing factors that could potentially impact the determination that the applicant business is small. Therefore, notwithstanding the Agency's goal to provide bright line eligibility criteria regarding affiliation determinations for loan eligibility, the Agency recognizes that it must prevent instances where large entities participate in a small business loan program, and application [[Page 59670]] of the totality of circumstances standard will reinforce that program integrity. SBA proposes to incorporate the exceptions to affiliation set forth in section Sec. 121.103(b) in new Sec. 121.301(f)(8). SBA does not propose any changes to these exceptions to affiliation. Finally, SBA proposes to eliminate from the Business Loan Programs several current bases of affiliation that apply in federal contracting. Specifically, SBA proposes to eliminate applying affiliation based on a newly organized concern (see Sec. 121.103(g)) and joint ventures (see Sec. 121.103(h)). One purpose of the newly organized concern rule is to prevent former small businesses from creating spin-off companies in order to continue to perform on small business contracts or receive other contracting benefits. While this affiliation principle applies in federal contracting, it is generally not applicable to the Business Loan Programs because the responsible party or parties for any loan are the immediate business owners, not any former entity from which they may have been employed previously. With respect to joint ventures, these partnerships are formed when two or more businesses combine their efforts in order to perform on a federal contract or receive other contract assistance. SBA does not consider this affiliation based on joint venture to be of significant concern to the Business Loan Programs because a loan to any joint venture will require all members of the joint venture to accept full responsibility for loan guarantee liability. Also, agency records indicate that applicants for assistance under SBA Business Loan Programs are rarely, if ever, joint ventures, and, therefore, this provision is unnecessary. For the Surety Bond Guarantee Program, the guarantee is on the bond, not a contract. Any joint venture project where the applicant small business requests a guarantee would also be subject to guaranteeing the obligation. SBA also proposes to omit the discussion of ``negative control'' as a stand-alone factor in determining affiliation for the purpose of loan eligibility. As noted above, pursuant to 13 CFR 121.103(a)(3), negative control may exist where a minority shareholder can block certain actions by the board of directors. Under this proposal for loan eligibility, SBA will consider all factors when making an affiliation determination based on the totality of the circumstances. SBA considers that this proposed definition of affiliation used in determining the applicant's loan eligibility, while continuing SBA's ability to review totality of circumstances, adequately ensures that the loan programs are provided appropriately to small businesses. B. Surety Bond Guarantee Program and Affiliation Under this program, SBA provides surety bond guarantees for qualified small and emerging businesses, in direct partnership with surety companies. SBA helps small contractors by guaranteeing bid, performance, and payment bonds issued by participating surety companies for contracts up to $6.5 million so as to allow the qualified small contractor to obtain a contract. SBA's SBG Program is most commonly used for non-federal contracts. SBA regularly guarantees bonds for eligible small business on state, local and private entity contracts. State and local jurisdictions may not have the same size and affiliation rules as SBA. SBA has proposed to amend the definition of ``Affiliate'' in 13 CFR 115.10 to explain that the term is defined in the proposed 13 CFR 121.301 (the loan programs definition of affiliation). C. Request for Comments SBA requests comments on these proposed amendments to its current regulations. Although SBA seeks comments on all aspects of this proposed rule, it specifically requests comments on the following: 1. What impact will this rule have on Small Business Loan and SBG applicants? 2. Are there alternatives to the proposed rule relating to control, negative control, common ownership, identity of interest, common management, and franchise agreements? 3. Would the elimination of the newly-organized concern and joint venture affiliation rules from the Business Loan and SBG Programs affect those programs, and if so, how? Compliance With Executive Orders 13563, 12866, 12988, and 13132, the Paperwork Reduction Act (44 U.S.C. Ch. 35,), and the Regulatory Flexibility Act (5 U.S.C. 601-612) Executive Order 12866 The Office of Management and Budget (OMB) has determined that this proposed rule is a ``significant'' regulatory action for the purposes of Executive Order 12866. Accordingly, the next section contains SBA's Regulatory Impact Analysis. However, this is not a major rule under the Congressional Review Act, 5 U.S.C. 800. Regulatory Impact Analysis 1. Is there a need for this regulatory action? The Agency believes it needs to reduce regulatory burdens and expand its Business Loan Programs and SBG Program by streamlining delivery, lowering costs, and facilitating job creation. As noted above, responses received from the Federal Register proposed rule notice regarding SBA rules on affiliation were in favor of simplified rules that enhanced understanding and aligned with normal commercial industry practices. Small business applicants will be assisted by this proposed streamlining of requirements because it will be easier and more cost effective for a lender to research whether the applicant small business controls other large companies which would jeopardize their eligibility. Higher lender costs potentially results in greater costs to the applicant small business. What are the potential benefits and costs of this regulatory action? As stated above, the potential benefits of this proposed rule are based on its elimination of unnecessary cost burdens on loan applicants' and lenders' participation in SBA-guaranteed loans. These proposed changes would exempt the Business Loan Programs and SBG Program from certain government contracting rules that determine whether an entity is deemed affiliated with an applicant. These general affiliation rules apply to federal contracting to ensure that small businesses (and not another entity) receive and perform a federal contract when a preference for small businesses is provided. Many of these general principles of affiliation (e.g., newly organized concern) are not applicable to the Business Loan Program or SBG Program. What alternatives have been considered? As indicated above, on February 25, 2013, the Agency issued a proposed rule for comment in the Federal Register to implement several changes intended to reinvigorate the Business Loan Programs and SBG Program by eliminating unnecessary compliance burdens and loan eligibility restrictions. Proposed Rule: 504 and 7(a) Loan Programs Updates, 78 FR 12633 (February 25, 2013). Included in these proposals was an alternate affiliation definition. After a full comment period ending April 26, 2013, and careful consideration of all comments, SBA decided to further consider issues of redefining affiliation [[Page 59671]] for the Business Loan Programs and SBG Program. Final Rule: 504 and 7(a) Loan Programs Updates, 78 FR 15641 (March 21, 2014). This proposal presents a set of requirements to determine affiliation based on the precedent separating the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs from the government contracting standards. SBA will review public comment and suggestions to the proposed rule and consider changes needed to mitigate identified economic risk to the taxpayers and reduce waste, fraud, and abuse. Executive Order 13563 A description of the need for this regulatory action and benefits and costs associated with this action, including possible distributional impacts that relate to Executive Order 13563, are included above in the Regulatory Impact Analysis under Executive Order 12866. With the exception of the Economic Injury Disaster Loan (EIDL) which is a direct loan from SBA to the Borrower, the Business Loan Programs operate through the Agency's lending partners, which are 7(a) Lenders for the 7(a) Loan Program, Intermediaries for the Microloan Program, and CDCs for the 504 Loan Program. The Agency has held public forums and meetings which allowed it to reach hundreds of its lending partners and gain valuable insight, guidance, and suggestions from many of them and the trade associations which represent many of them. The Agency's outreach efforts to engage stakeholders before proposing this rule was extensive, and will continue throughout the comment period. Executive Order 12988 This action meets applicable standards set forth in Sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden. The action does not have retroactive or preemptive effect. Executive Order 13132 SBA has determined that this proposed rule will not have substantial, direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, for the purposes of Executive Order 13132, SBA has determined that this proposed rule has no federalism implications warranting preparation of a federalism assessment. Paperwork Reduction Act, 44 U.S.C. Ch. 35 The SBA has determined that this proposed rule would not impose significant additional reporting and recordkeeping requirements under the Paperwork Reduction Act (PRA). Specifically, participants in SBA's 7(a) Loan Program will continue to report any affiliates of their business on SBA Form 1919 (OMB Control No. 3245-0348), and participants in SBA's 504 Loan Program will continue to report affiliates on SBA Form 1244 (OMB Control No. 3245-0071). EIDL Program participants will continue to report affiliates on SBA Form 5 (OMB Control No. 3245- 0017), and SBG Program participants will continue to report affiliates on SBA Form 994 (OMB Control No. 3245-0007). Regulatory Flexibility Act, 5 U.S.C. 601-612 When an agency issues a rulemaking proposal, the Regulatory Flexibility Act (RFA) requires the agency to ``prepare and make available for public comment an initial regulatory analysis'' which will ``describe the impact of the proposed rule on small entities.'' Section 605 of the RFA allows an agency to certify a rule, in lieu of preparing an analysis, if the proposed rulemaking is not expected to have a significant economic impact on a substantial number of small entities. The rulemaking will positively impact all of the approximately 5,000 7(a) Lenders (some of which are small) and all of the approximately 260 CDCs (all of which are small). The proposed rule will reduce the burden on program participants as they independently choose on what level to participate, with cost to deliver being a significant influence. The proposed modifications of certain program process requirements through this proposed modification of eligibility based on affiliation is not projected to adversely impact or cost on the small business borrower, lender or CDC. This proposal presents a best practice rule that removes unnecessary regulatory burdens and increases access to capital for small businesses and facilitates American job preservation and creation. SBA has determined that there is no significant impact on a substantial number of small entities. SBA invites comment from members of the public who believe there will be a significant impact either on lenders, CDCs, or their borrowers. List of Subjects 13 CFR Part 115 Claims, Reporting and recordkeeping requirements, Small businesses, Surety bonds. 13 CFR Part 120 Individuals with disabilities, Loan programs--business, Reporting and recordkeeping requirements, Small businesses. 13 CFR Part 121 Grant programs--business, Individuals with disabilities, Loan programs--business, Reporting and recordkeeping requirements, Small businesses. For the reasons stated in the preamble, SBA proposes to amend 13 CFR parts 115, 120, and 121 as follows: PART 115--SURETY BOND GUARANTEE 0 1. The authority citation for part 115 continues to read as follows: Authority: 5 U.S.C. app 3; 15 U.S.C. 687b, 687c, 694a, 694b note; and Pub. L. 110-246, Sec. 12079, 122 Stat. 1651. 0 2. Amend Sec. 115.10 to revise the definition of ``Affiliate'' to read as follows: Sec. 115.10 Definitions. Affiliate is defined in Sec. 121.301(f) of this chapter. * * * * * PART 120--BUSINESS LOANS 0 3. The authority citation for part120 continues to read as follows: Authority: 15 U.S.C. 634(b)(6), (b)(7), (b)(14), (h), and note, 636(a), (h), and (m), 650, 687(f), 696(3), and 697(a) and (e); Pub. L. 111-5, 123 Stat. 115, Pub. L. 111-240, 124 Stat. 2504. 0 4. Amend Sec. 120.1700 to revise the definition of ``Affiliate'' to read as follows: Sec. 120.1700 Definitions used in subpart J. * * * * * Affiliate. A person or entity SBA determines to be an affiliate of a Program Participant pursuant to the application of the principles and guidelines set forth in Sec. 121.301 of this Chapter. * * * * * PART 121--SMALL BUSINESS SIZE REGULATIONS 0 5. The authority citation for part 121 continues to read as follows: Authority: 15 U.S.C. 632, 634(b)(6), 662, and 694a(9). [[Page 59672]] 0 6. Amend Sec. 121.103 to add paragraph (a)(8) to read as follows: Sec. 121.103 How does SBA determine affiliation? (a) * * * (8) For SBA's Business Loan and Surety Bond Guarantee programs, the size standards and bases for affiliation are set forth in Sec. 121.301. * * * * * 0 7. Amend Sec. 121.301 to add paragraph (f) to read as follows: Sec. 121.301 What size standards and affiliation principles are applicable to financial assistance programs? * * * * * (f) Concerns and entities are affiliates of each other when one controls or has the power to control the other, or a third party or parties controls or has the power to control both. It does not matter whether control is exercised, so long as the power to control exists. For the purposes of SBA's Business Loan Programs, Disaster Loan Program, and Surety Bond Guarantee Program, the following principles of affiliation apply: (1) Affiliation based on ownership. For determining affiliation based on equity ownership, a concern is an affiliate of an individual, concern, or entity that owns or has the power to control more than 50 percent of the concern's voting equity. If no individual, concern, or entity is found to control, SBA will deem the Board of Directors or President or Chief Executive Officer (CEO) (or other officers, managing members, or partners who control the management of the concern) to be in control of the concern. (2) Affiliation arising under stock options, convertible securities, and agreements to merge. (i) In determining size, SBA considers stock options, convertible securities, and agreements to merge (including agreements in principle) to have a present effect on the power to control a concern. SBA treats such options, convertible securities, and agreements as though the rights granted have been exercised. (ii) Agreements to open or continue negotiations towards the possibility of a merger or a sale of stock at some later date are not considered ``agreements in principle'' and are thus not given present effect. (iii) Options, convertible securities, and agreements that are subject to conditions precedent which are incapable of fulfillment, speculative, conjectural, or unenforceable under state or Federal law, or where the probability of the transaction (or exercise of the rights) occurring is shown to be extremely remote, are not given present effect. (iv) An individual, concern or other entity that controls one or more other concerns cannot use options, convertible securities, or agreements to appear to terminate such control before actually doing so. SBA will not give present effect to individuals', concerns' or other entities' ability to divest all or part of their ownership interest in order to avoid a finding of affiliation. (3) Affiliation based on common management. Affiliation arises where the CEO or President of the applicant concern (or other officers, managing members, or partners who control the management of the concern) also controls the management of one or more other concerns. Affiliation also arises where a single individual, concern or entity that controls the Board of Directors or management of one concern also controls the Board of Directors or management of one of more other concerns. (4) Affiliation based on identity of interest. (i) Affiliation may arise among two or more persons (including any individual, concern, or other entity) with an identity of interest. An individual, concern, or entity may rebut a determination of identity of interest with evidence showing that the interests deemed to be one are in fact separate. (ii) SBA may presume an identity of interest between close relatives, as defined in 13 CFR 120.10, with identical or substantially identical business or economic interests (such as where the family members operate concerns in the same or similar industry in the same geographic area). (5) Affiliation based on franchise and license agreements. The restraints imposed on a franchisee or licensee by its franchise or license agreement relating to standardized quality, advertising, accounting format and other similar provisions, generally will not be considered in determining whether the franchisor or licensor is affiliated with an applicant franchisee or licensee provided the applicant franchisee or licensee has the right to profit from its efforts and bears the risk of loss commensurate with ownership. Affiliation may arise however, through other means, such as common ownership, common management or excessive restrictions upon the sale of the franchise interest. (6) Affiliation based on SBA's determination of the totality of the circumstances. SBA may find affiliation after considering the totality of the circumstances, even when no single factor is sufficient to constitute affiliation. (7) Determining the concern's size. In determining the concern's size, SBA counts the receipts, employees, or the alternate size standard of the concern whose size is at issue and all of its domestic and foreign affiliates, regardless of whether the affiliates are organized for profit. (8) Exceptions to affiliation. For exceptions to affiliation, see 13 CFR 121.103(b). Maria Contreras-Sweet, Administrator. [FR Doc. 2015-25204 Filed 10-1-15; 8:45 am] BILLING CODE 8025-01-P
![59667
Proposed Rules Federal Register
Vol. 80, No. 191
Friday, October 2, 2015
This section of the FEDERAL REGISTER • Hand Delivery/Courier: Linda Program authorized by Section 7(b) of
contains notices to the public of the proposed Reilly, Chief, 504 Loan Program, Office the Act; and (3) the Microloan Program
issuance of rules and regulations. The of Financial Assistance, Office of authorized by Section 7(m) of the Act.
purpose of these notices is to give interested Capital Access, Small Business The 504 Loan Program, which is
persons an opportunity to participate in the Administration, 409 Third Street SW., authorized by Title V of the Small
rule making prior to the adoption of the final
Washington, DC 20416. Business Investment Act of 1958 (the
rules.
SBA will post all comments on ‘‘SBIA’’), as amended, 15 U.S.C. 695 et
www.regulations.gov. If you wish to seq., is also affected. These programs
SMALL BUSINESS ADMINISTRATION submit confidential business (7(a), BDLP, Microloan, and 504) are
information (CBI) as defined in the User referred to collectively as the Business
13 CFR Parts 115, 120, and 121 Notice at www.regulations.gov, please Loan Programs in this rule. Finally, this
submit the information to Linda Reilly, rule also proposes revisions to the
RIN 3245–AG73 Chief, 504 Loan Program, Office of Surety Bond Guarantee (‘‘SBG’’)
Financial Assistance, Office of Capital Program, authorized by section 411 of
Affiliation for Business Loan Programs Access, 409 Third Street SW., the SBIA. A description of each program
and Surety Bond Guarantee Program Washington, DC 20416, or send an email is set forth below.
to ocareg2015@sba.gov. Highlight the A. 7(a) Loan Program
AGENCY: Small Business Administration.
information that you consider to be CBI
ACTION: Proposed rule. and explain why you believe SBA The 7(a) Loan Program’s main
should hold this information as purpose is to help eligible small
SUMMARY: The U.S. Small Business businesses obtain credit when they
confidential. SBA will review the
Administration (SBA) has determined cannot obtain credit elsewhere. The
information and make the final
that changing conditions in the Agency recognizes that the 7(a) Loan
determination whether it will publish
American economy and a constantly Program is an important engine for job
the information.
evolving small business community creation. The 7(a) Loan Program
compel it to seek ways to improve FOR FURTHER INFORMATION CONTACT:
provides financing for general business
program efficiency for its Surety Bond Linda Reilly, Chief, 504 Loan Program,
purposes through the guaranty of loans
Guarantee (‘‘SBG’’) Program, and the Office of Financial Assistance, Office of
made by participating private sector
business loan programs consisting of the Capital Access, Small Business
lenders. Currently, there are
7(a) Loan Program, the Business Disaster Administration, 409 Third Street SW.,
approximately 4,500 lenders
Loan Programs (collectively, the Washington, DC 20416; telephone 202– participating in the 7(a) Loan Program
Economic Injury Disaster Loans, 205–9949. with approximately $66 billion in total
Reservist Injury Disaster Loans, Physical SUPPLEMENTARY INFORMATION: SBA guarantees outstanding.
Disaster Business Loans, Immediate I. Background
Disaster Assistance Program loans), the B. Business Disaster Loan Programs
Microloan Program, and the Executive Order 13563, ‘‘Improving Through its Business Disaster Loan
Development Company Program (the Regulation and Regulatory Review,’’ Programs, SBA provides low-interest
‘‘504 Loan Program’’). As a result, SBA provides that agencies ‘‘must identify disaster loans to businesses of all sizes
proposes to simplify guidelines for and use the best, most innovative, and and private non-profit organizations.
determining affiliation for eligibility least burdensome tools for achieving These loans can be used to restore,
based on size as it relates to these regulatory ends.’’ (Emphasis added). repair or replace disaster damaged
programs. This proposed rule would Executive Order 13563 further provides assets and working capital as a result of
redefine affiliation for all five Programs, that ‘‘[t]o facilitate the periodic review a declared disaster. The loans are made
thereby simplifying eligibility of existing significant regulations, directly by SBA and repayment terms
determinations. agencies shall consider how best to are determined on a case-by-case basis,
promote retrospective analysis of rules based upon each borrower’s satisfactory
DATES: SBA must receive comments to that may be outmoded, ineffective, credit and ability to repay.
the proposed rule on or before insufficient, or excessively burdensome,
December 1, 2015. and to modify, streamline, expand, or C. Microloan Program
ADDRESSES: You may submit comments, repeal them in accordance with what The Microloan Program provides
identified by RIN: 3245–AG73 by any of has been learned.’’ (Emphasis added). loans up to $50,000 to help small
the following methods: SBA has reviewed its regulations with businesses and certain nonprofit
• Federal eRulemaking Portal: http:// regard to the business loan programs childcare centers. The average
www.regulations.gov. Follow the and SBG program and is proposing a microloan is about $13,000. SBA lends
asabaliauskas on DSK5VPTVN1PROD with PROPOSALS
instructions for submitting comments. number of amendments and revisions to funds to specially-designated
• Email: ocareg2015@sba.gov. accomplish this goal. intermediary lenders, which are
Include RIN 3245–AG73 in the subject The business loan programs primarily nonprofit community-based
line of the message. authorized by the Small Business Act organizations with experience in
• Mail: Linda Reilly, Chief, 504 Loan (Act), 15 U.S.C. 631 et seq., that are lending as well as management and
Program, Office of Financial Assistance, affected by this proposed rule are: (1) technical assistance. These
Office of Capital Access, Small Business The 7(a) Loan Program authorized by intermediaries administer the Microloan
Administration, 409 Third Street SW., Section 7(a) of the Act; (2) the Business Program for eligible borrowers lending
Washington, DC 20416. Disaster Loan Program (‘‘BDLP’’) directly to them. Each intermediary
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![59672 Federal Register / Vol. 80, No. 191 / Friday, October 2, 2015 / Proposed Rules
■ 6. Amend § 121.103 to add paragraph shown to be extremely remote, are not (7) Determining the concern’s size. In
(a)(8) to read as follows: given present effect. determining the concern’s size, SBA
(iv) An individual, concern or other counts the receipts, employees, or the
§ 121.103 How does SBA determine entity that controls one or more other alternate size standard of the concern
affiliation? concerns cannot use options, whose size is at issue and all of its
(a) * * * convertible securities, or agreements to domestic and foreign affiliates,
(8) For SBA’s Business Loan and appear to terminate such control before regardless of whether the affiliates are
Surety Bond Guarantee programs, the actually doing so. SBA will not give organized for profit.
size standards and bases for affiliation present effect to individuals’, concerns’ (8) Exceptions to affiliation. For
are set forth in § 121.301. or other entities’ ability to divest all or exceptions to affiliation, see 13 CFR
* * * * * part of their ownership interest in order 121.103(b).
■ 7. Amend § 121.301 to add paragraph
to avoid a finding of affiliation.
Maria Contreras-Sweet,
(f) to read as follows: (3) Affiliation based on common
management. Affiliation arises where Administrator.
§ 121.301 What size standards and the CEO or President of the applicant [FR Doc. 2015–25204 Filed 10–1–15; 8:45 am]
affiliation principles are applicable to concern (or other officers, managing BILLING CODE 8025–01–P
financial assistance programs? members, or partners who control the
* * * * * management of the concern) also
(f) Concerns and entities are affiliates controls the management of one or more DEPARTMENT OF TRANSPORTATION
of each other when one controls or has other concerns. Affiliation also arises
the power to control the other, or a third where a single individual, concern or Federal Aviation Administration
party or parties controls or has the entity that controls the Board of
Directors or management of one concern 14 CFR Part 39
power to control both. It does not matter
whether control is exercised, so long as also controls the Board of Directors or [Docket No. FAA–2015–2983; Directorate
the power to control exists. For the management of one of more other Identifier 2015–NE–20–AD]
purposes of SBA’s Business Loan concerns.
(4) Affiliation based on identity of RIN 2120–AA64
Programs, Disaster Loan Program, and
Surety Bond Guarantee Program, the interest. (i) Affiliation may arise among Airworthiness Directives; CFM
following principles of affiliation apply: two or more persons (including any International S.A. Turbofan Engines
individual, concern, or other entity)
(1) Affiliation based on ownership.
with an identity of interest. An AGENCY: Federal Aviation
For determining affiliation based on
individual, concern, or entity may rebut Administration (FAA), DOT.
equity ownership, a concern is an
a determination of identity of interest ACTION: Notice of proposed rulemaking
affiliate of an individual, concern, or
with evidence showing that the interests (NPRM).
entity that owns or has the power to
deemed to be one are in fact separate.
control more than 50 percent of the (ii) SBA may presume an identity of SUMMARY: We propose to adopt a new
concern’s voting equity. If no interest between close relatives, as airworthiness directive (AD) for certain
individual, concern, or entity is found defined in 13 CFR 120.10, with identical CFM International S.A. (CFM) CFM56–
to control, SBA will deem the Board of or substantially identical business or 5B series turbofan engines. This
Directors or President or Chief economic interests (such as where the proposed AD was prompted by a
Executive Officer (CEO) (or other family members operate concerns in the corrected lifing analysis by the engine
officers, managing members, or partners same or similar industry in the same manufacturer that shows the need to
who control the management of the geographic area). identify an initial and repetitive
concern) to be in control of the concern. (5) Affiliation based on franchise and inspection threshold for certain part
(2) Affiliation arising under stock license agreements. The restraints number (P/N) turbine rear frames
options, convertible securities, and imposed on a franchisee or licensee by (TRFs). This proposed AD would
agreements to merge. (i) In determining its franchise or license agreement require initial and repetitive inspections
size, SBA considers stock options, relating to standardized quality, of certain P/N TRFs on the low-pressure
convertible securities, and agreements advertising, accounting format and other turbine (LPT) frame assembly. We are
to merge (including agreements in similar provisions, generally will not be proposing this AD to prevent failure of
principle) to have a present effect on the considered in determining whether the the TRF on the LPT frame assembly,
power to control a concern. SBA treats franchisor or licensor is affiliated with which could lead to engine separation,
such options, convertible securities, and an applicant franchisee or licensee damage to the engine, and damage to the
agreements as though the rights granted provided the applicant franchisee or airplane.
have been exercised. licensee has the right to profit from its DATES: We must receive comments on
(ii) Agreements to open or continue efforts and bears the risk of loss this proposed AD by December 1, 2015.
negotiations towards the possibility of a commensurate with ownership. ADDRESSES: You may send comments,
merger or a sale of stock at some later Affiliation may arise however, through using the procedures found in 14 CFR
date are not considered ‘‘agreements in other means, such as common 11.43 and 11.45, by any of the following
principle’’ and are thus not given ownership, common management or
asabaliauskas on DSK5VPTVN1PROD with PROPOSALS
methods:
present effect. excessive restrictions upon the sale of • Federal eRulemaking Portal: Go to
(iii) Options, convertible securities, the franchise interest. http://www.regulations.gov. Follow the
and agreements that are subject to (6) Affiliation based on SBA’s instructions for submitting comments.
conditions precedent which are determination of the totality of the • Fax: 202–493–2251.
incapable of fulfillment, speculative, circumstances. SBA may find affiliation • Mail: U.S. Department of
conjectural, or unenforceable under after considering the totality of the Transportation, Docket Operations, M–
state or Federal law, or where the circumstances, even when no single 30, West Building Ground Floor, Room
probability of the transaction (or factor is sufficient to constitute W12–140, 1200 New Jersey Avenue SE.,
exercise of the rights) occurring is affiliation. Washington, DC 20590.
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Document Created: 2015-12-15 08:45:33
Document Modified: 2015-12-15 08:45:33
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Proposed Rules | |
| Action | Proposed rule. | |
| Dates | SBA must receive comments to the proposed rule on or before December 1, 2015. | |
| Contact | Linda Reilly, Chief, 504 Loan Program, Office of Financial Assistance, Office of Capital Access, Small Business Administration, 409 Third Street SW., Washington, DC 20416; telephone 202-205-9949. | |
| FR Citation | 80 FR 59667 | |
| RIN Number | 3245-AG73 | |
| CFR Citation | 13
CFR
115 13 CFR 120 13 CFR 121 | |
| CFR Associated | Claims; Reporting and Recordkeeping Requirements; Small Businesses; Surety Bonds; Individuals with Disabilities; Loan Programs-Business and Grant Programs-Business |
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