81 FR 33123 - Debt Refinancing in 504 Loan Program

SMALL BUSINESS ADMINISTRATION

Federal Register Volume 81, Issue 101 (May 25, 2016)

This interim final rule implements Section 521 of Division E the Consolidated Appropriations Act, 2016, which authorizes projects approved for financing under Title V of the Small Business Investment Act to include the refinancing of qualified debt.

[Federal Register Volume 81, Number 101 (Wednesday, May 25, 2016)]
[Rules and Regulations]
[Pages 33123-33126]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-12447]



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Federal Register / Vol. 81, No. 101 / Wednesday, May 25, 2016 / Rules 
and Regulations

[[Page 33123]]



SMALL BUSINESS ADMINISTRATION

13 CFR Part 120

RIN 3245-AG79


Debt Refinancing in 504 Loan Program

AGENCY: U.S. Small Business Administration.

ACTION: Interim final rule with request for comments.

-----------------------------------------------------------------------

SUMMARY: This interim final rule implements Section 521 of Division E 
the Consolidated Appropriations Act, 2016, which authorizes projects 
approved for financing under Title V of the Small Business Investment 
Act to include the refinancing of qualified debt.

DATES: Effective Date: This rule is effective June 24, 2016.
    Comment Date: Comments must be received on or before July 25, 2016.

ADDRESSES: You may submit comments, identified by RIN 3245-AG79, by any 
of the following methods:
    Federal eRulemaking Portal: http://www.regulations.gov. Follow the 
instructions for submitting comments.
    Mail: Linda Reilly. Chief, 504 Branch, Office of Financial 
Assistance, U.S. Small Business Administration, 409 Third Street SW., 
8th Floor, Washington, DC 20416.
    Hand Delivery/Courier: Linda Reilly, Chief, 504 Branch, Office of 
Financial Assistance, U.S. Small Business Administration, 409 Third 
Street SW., 8th Floor, Washington, DC 20416.
    SBA will post all comments on http://www.regulations.gov. If you 
wish to submit confidential business information (CBI) as defined in 
the User Notice at http://www.regulations.gov, please submit the 
information to Linda Reilly, Chief, 504 Branch, Office of Financial 
Assistance, 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 at [email protected] 
or 202-205-9949.

SUPPLEMENTARY INFORMATION: 

I. Background Information

    The 504 Loan Program is an SBA financing program authorized under 
Title V of the Small Business Investment Act of 1958, 15 U.S.C. 695 et 
seq. The core mission of the 504 Loan Program is to provide long-term 
financing to small businesses for the purchase or improvement of land, 
buildings, and major equipment, in an effort to facilitate the creation 
or retention of jobs and local economic development. Under the 504 Loan 
Program, loans are made to small business applicants by Certified 
Development Companies (``CDCs''), which are certified and regulated by 
SBA to promote economic development within their community. In general, 
a project in the 504 Loan Program (a ``504 Project'') includes: A loan 
obtained from a private sector lender with a senior lien covering at 
least 50 percent of the project cost; a loan obtained from a CDC (a 
``504 Loan'') with a junior lien covering up to 40 percent of the total 
cost (backed by a 100 percent SBA-guaranteed debenture); and a 
contribution from the Borrower of at least 10 percent equity.
    The Small Business Jobs Act of 2010 (Jobs Act), Public Law 111-240, 
124 Stat. 2504, enacted on September 27, 2010, temporarily expanded the 
ability of a small business to use the 504 Loan Program to refinance 
certain qualifying debt. Prior to the Jobs Act, a 504 Project could 
include a refinancing component only if the project involved an 
expansion of the small business and the existing indebtedness did not 
exceed 50% of the project cost of the expansion. See 13 CFR 120.882(e). 
The temporary Jobs Act program authorized the use of the 504 Loan 
Program for the refinancing of debt where there is no expansion of the 
small business concern (the ``Debt Refinancing Program''). The 
regulations governing this program are found at 13 CFR 120.882(g) 
(referred to herein as ``Current Rules''). SBA's authority to guarantee 
loans under the Debt Refinancing Program expired on September 27, 2012.
    Section 521 of Division E of the Consolidated Appropriations Act, 
2016 (the Act), Public Law 114-113, enacted on December 22, 2015, 
reauthorizes the Debt Refinancing Program with three modifications:
    (1) The Act provides that the Debt Refinancing Program shall be in 
effect in any fiscal year during which the cost to the Federal 
Government of making guarantees under the Debt Refinancing Program and 
under the 504 Loan Program is zero;
    (2) the Act requires that a CDC limit its financings under the 504 
Loan Program so that, during any fiscal year, new financings under the 
Debt Refinancing Program do not exceed 50% of the dollars the CDC 
loaned under the 504 Loan Program during the previous fiscal year. The 
Act provides that this limitation may be waived upon application by a 
CDC and after determining that the refinance loan is needed for good 
cause; and
    (3) the Act eliminates the alternate job retention goal authorized 
by the Jobs Act for the Debt Refinancing Program.
    As described in the section-by-section analysis below, this interim 
final rule modifies the Current Rules to conform the Debt Refinancing 
Program to the requirements of the Act. For an in-depth discussion of 
the Current Rules, please see the interim final rule and the final rule 
that were issued to implement the Debt Refinancing Program at 76 FR 
9213 (February 17, 2011) and 76 FR 63151 (October 12, 2011). With this 
interim final rule, SBA invites comments from interested parties on all 
aspects of the Debt Refinancing Program.
    The ``zero cost'' requirement described in (1) above is satisfied 
for Fiscal Year 2016. As announced in SBA Information Notice 5000-1352, 
effective September 28, 2015, ``7(a) and 504 Fees Effective October 1, 
2015,'' the 504 Loan Program is operating at zero subsidy during Fiscal 
Year 2016, with a zero upfront fee and an annual guarantee fee of 91.4 
basis points on the outstanding loan balance. To operate the Debt 
Refinancing Program at zero cost to the Federal Government during 
Fiscal Year 2016, SBA has determined that the Borrower must pay a 
supplemental annual guarantee fee of 4.4 basis points

[[Page 33124]]

on the outstanding loan balance to cover the additional cost 
attributable to the refinancing, for a total annual guarantee fee of 
95.8 basis points. The supplemental fee for the Debt Refinancing 
Program will be assessed and collected in the same manner as the 
current annual guarantee fee under 13 CFR 120.971(d)(2).
    Before the beginning of each new fiscal year, SBA will issue a 
similar notice indicating whether the Debt Refinancing Program will be 
in effect during the new fiscal year, in addition to any changes in the 
fees for 504 Loans.
    With the ``zero cost'' requirement satisfied for Fiscal Year 2016, 
SBA will begin to accept applications for assistance under the Debt 
Refinancing Program upon the effective date of this rulemaking, June 
24, 2016.

II. Section-by-Section Analysis

    Except as set forth below, all other sections of the Current Rules 
are unchanged.
    Section 120.882(g) Introductory Text. This section currently 
includes the application deadline for the Debt Refinancing Program. 
Since that date is no longer relevant, SBA is revising the introductory 
text in this section to remove the following phrase that is no longer 
applicable: ``For applications received on or after February 17, 2011 
and approved by SBA no later than September 27, 2012''. Also, with the 
permanent reauthorization of the Debt Refinancing Program by the Act, a 
specific application period is unnecessary.
    Section 120.882(g)(3). In order to manage the limited resources 
that were available for the Debt Refinancing Program between 2010 and 
2012, this section imposed a maturity date requirement on the debt to 
be refinanced that is no longer necessary. Accordingly, SBA is revising 
this section by removing this maturity date requirement. In its place, 
SBA is inserting the Act's requirement that, for the Debt Refinancing 
Program to be in effect during any fiscal year, the cost to the Federal 
government of making guarantees under the Debt Refinancing Program and 
under the 504 Loan Program must be zero subsidy.
    Section 120.882(g)(10). The Jobs Act authorized an alternate job 
retention goal for the Debt Refinancing Program for Borrowers that did 
not meet the job creation and retention goals under sections 501(d) and 
(e) of the Small Business Investment Act of 1958. The Act eliminates 
this alternate job retention goal and, accordingly, SBA is removing the 
alternate job retention goal provision from the regulations. With the 
elimination of the alternate job retention standard, all applicants for 
a loan under the Debt Refinancing Program will now be required to meet 
the job creation and retention goals under Sec. Sec.  501(d) and (e). 
Based on these goals, a 504 Project, including a project financed under 
the Debt Refinancing Program, must achieve one of the economic 
development objectives set forth in 13 CFR 120.861 or 120.862.
    The revisions to Sec.  120.882(g)(10) will reflect the Act's 
requirement that a CDC limit its financings under the Debt Refinancing 
Program so that, during any fiscal year (October 1 to September 30), 
new financings under the Debt Refinancing Program do not exceed 50% of 
the dollars loaned by the CDC under the 504 Loan Program during the 
previous fiscal year. In making this calculation, the dollars will be 
deemed loaned by the CDC on the date that the 504 loan application is 
approved, which is when SBA obligates the funds for the 504 Project. 
The dollars loaned will be calculated as of September 30 of each fiscal 
year, which will reflect any increases or decreases to the approved 504 
loan amount that occurred within that fiscal year. Because the Act 
provides that the 50% limitation applies to the dollars loaned under 
the 504 Loan Program during the previous fiscal year, all financings 
made by the CDC during the previous fiscal year will be included in 
determining this number, including those financings made under the Debt 
Refinancing Program.
    As authorized by the Act, Sec.  120.882(g)(10) will provide that 
the 50% limitation may be waived upon application by a CDC and a 
determination by SBA that the refinance loan is needed for good cause. 
SBA will provide guidance regarding the good cause determination in its 
Standard Operating Procedures or other guidance documents.
    Section 120.882(g)(13). This section prohibits the Third Party Loan 
from being sold on the secondary market as a part of a pool guaranteed 
under subpart J of part 120 when the debt being refinanced is same 
institution debt. Subpart J of part 120, the Secondary Market Guarantee 
Program for First Lien Position 504 Loan Pools, expired on September 
23, 2012; however, should this program be reauthorized, SBA wants to 
ensure that this prohibition remains in effect. Accordingly, SBA is 
revising this provision to make it clear that the prohibition would 
apply to any successor to the program described in subpart J of part 
120.
    Section 120.882(g)(15) (Definition of ``qualified debt''). To meet 
the definition of ``qualified debt'', paragraph (vii) of this provision 
requires that the applicant be current on all payments due for not less 
than one year preceding the date of application. When SBA initially 
implemented the Debt Refinancing Program under the Jobs Act, it defined 
``current on all payments due'' to mean that no payment scheduled to be 
made during the one year period was either deferred or more than 30 
days past due. See 76 FR 9213 (February 17, 2011). In response to 
comments received, SBA revised this definition to mean that no payment 
was more than 30 days past due from either the original payment terms 
or modified payment terms (including deferments) ``if such modification 
was agreed to in writing by the Borrower and the lender of the existing 
debt prior to the (sic) October 12, 2011.'' See 76 FR 63151 (October 
12, 2011). This date was the effective date of the final rule for the 
Debt Refinancing Program under the Jobs Act, and was intended to ensure 
that no debt that was modified after the definition was revised would 
be refinanced under the program. SBA also reserved the right to 
determine, at its discretion on a loan-by-loan basis, whether modified 
repayment terms would preclude refinancing under the program.
    The October 12, 2011 date is no longer relevant after the 
expiration of the Debt Refinancing Program in 2012, and SBA is removing 
it from the rules. However, SBA believes that a debt should not be 
considered ``current on all payments due for not less than one year 
preceding the date of application'' if the payment terms were modified 
during the one year period. Accordingly, SBA is revising this provision 
to require that the modification must have been agreed to in writing by 
the Borrower and the lender of the existing debt no less than one year 
preceding the date of application. As under the Debt Refinancing 
Program under the Jobs Act, SBA reserves the right to determine, at its 
discretion on a loan-by-loan basis, whether modified repayment terms 
would preclude refinancing under the program.

III. Justification for Publication as Interim Final Rule

    In general, before issuing a final rule, SBA publishes the rule for 
public comment in accordance with the Administrative Procedure Act 
(APA), 5 U.S.C. 553. The APA provides an exception to this standard 
rulemaking process where the agency finds good cause to adopt a rule 
without prior public participation. 5 U.S.C. 553(c)(3)(B). The good 
cause

[[Page 33125]]

requirement is satisfied when prior public participation can be shown 
to be impracticable, unnecessary, or contrary to the public interest. 
Under such circumstances, an agency may publish an interim final rule 
without soliciting public comment. In enacting the good cause exception 
to standard rulemaking procedures, Congress recognized that emergency 
and other situations arise where an agency can issue a rule without 
public participation.
    With regard to the Debt Refinancing Program, SBA finds that good 
cause exists to publish this rule as an interim final rule for two 
reasons. First, the public has already had the opportunity to comment 
on the rules implementing the Debt Refinancing Program and this interim 
final rule simply modifies these rules to conform the Debt Refinancing 
Program to the requirements of the Act.
    Second, in order to meet the immediate debt refinancing needs of 
small businesses, it is essential to be able to implement the Debt 
Refinancing Program as expeditiously as possible. According to data 
presented to the Federal Open Market Committee before its January 2016 
meeting, there is a concerning trend toward tighter credit sentiment by 
bank officers since the Debt Refinancing Program expired in 2012. The 
combination of tighter credit sentiment and the recent increase in 
interest rates has made it increasingly difficult for small businesses 
to find lenders willing to refinance small business commercial loans. 
The Debt Refinancing Program will fill that gap by providing an 
affordable refinancing product that lenders and the small business 
community are eagerly awaiting.
    Although this rule is being published as an interim final rule, 
comments are solicited from interested members of the public. These 
comments must be submitted on or before the deadline for comments 
stated in this rule. The SBA will consider any comments it receives and 
the need for making any amendments as a result of the comments.

Compliance With Executive Orders 12866, 12988, 13132, and 13563, 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 has determined that this rule 
does not constitute a ``significant regulatory action'' under Executive 
Order 12866. This rule is also not a major rule under the Congressional 
Review Act.

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 preemptive effect or retroactive effect.

Executive Order 13132

    This rule does not have federalism implications as defined in 
Executive Order 13132. It 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, as specified in the Executive Order. As 
such it does not warrant the preparation of a Federalism Assessment.

Executive Order 13563

    The Consolidated Appropriations Act, 2016, reauthorizes the Debt 
Refinancing Program, which was first authorized by the Jobs Act. The 
Agency received significant public comments on the interim final rule 
that was issued to implement this program (see 76 FR 9213, February 17, 
2011). SBA considered and discussed these comments in the final rule 
that was published in the Federal Register on October 12, 2011 (76 FR 
63151). To assist in developing that interim final rule, the Agency 
also held a public forum on November 17, 2010 in Boston, Massachusetts.
    Except for the modifications to the Debt Refinancing Program made 
by the Act, the Agency is not making any other substantive changes to 
the Current Rules, codified at 13 CFR 120.882(g), in this interim final 
rule.

Paperwork Reduction Act

    In order to re-establish the Debt Refinancing Program, SBA has 
determined that it is necessary to also modify two existing collections 
of information (OMB Control Number 3245-0071, Application for Section 
504 Loans and OMB Control Number 3245- 0346, PCLP Quarterly Loan Loss 
Reserve Report and PCLP Guarantee Request) to include the requirements 
to apply for and report on debt refinancing loans. These requirements 
were previously part of these collections but were removed following 
expiration of the temporary Debt Refinancing Program in 2012. OMB has 
approved the revised collections on an emergency basis to enable SBA to 
move forward with re-establishing the Debt Refinancing Program as 
expeditiously as possible. The Paperwork Reduction Act requires 
agencies to follow the standard approval process following receipt of 
an emergency approval. In light of that requirement, SBA will also 
publish the required notices in the Federal Register to solicit 
comments from the public on the revised forms and will subsequently 
resubmit the collections of information to OMB for final review and 
approval. Any changes to the collection of information as a result of 
the comments will be reflected in that submission.

Regulatory Flexibility Act

    Because this rule is an interim final rule, there is no requirement 
for SBA to prepare a Regulatory Flexibility Act (RFA) analysis. The RFA 
requires administrative agencies to consider the effect of their 
actions on small entities, including small non-profit businesses, and 
small local governments. Pursuant to the RFA, when an agency issues a 
rule, the agency must prepare an analysis that describes whether the 
impact of the rule will have a significant economic impact on a 
substantial number of these small entities. However, the RFA requires 
such analysis only where notice and comment rulemaking is required. As 
discussed above, SBA has determined that there is good cause to publish 
this rule without soliciting public comment. This rule is, therefore, 
exempt from the RFA requirements.

List of Subjects in 13 CFR Part 120

    Loan programs--business, Small businesses, Reporting and 
recordkeeping requirements.

    For the reasons stated in the preamble, SBA amends 13 CFR part 120 
as follows:

PART 120--BUSINESS LOANS

0
1. The authority citation for part 120 is revised 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); Public 
Law 111-5, 123 Stat. 115, Public Law 111-240, 124 Stat. 2504; Public 
Law 114-113, 129 Stat. 2242.


0
2. Amend Sec.  120.882 by revising paragraph (g) introductory text, 
paragraphs (g)(3), (g)(10), (g)(13), and the second sentence of 
paragraph (vii) in the definition of ``Qualified debt'' in paragraph 
(g)(15)(vii) to read as follows:


Sec.  120.882  Eligible project costs for 504 loans.

* * * * *
    (g) SBA may approve a Refinancing Project of a qualified debt 
subject to the following conditions and requirements:
* * * * *

[[Page 33126]]

    (3) The cost to the Federal Government of making guarantees under 
this subsection (g) and under section 503 of the Small Business 
Investment Act of 1958 (15 U.S.C. 697) during the fiscal year in which 
the guarantee is made is zero;
* * * * *
    (10) A CDC must limit the amount of its loans under this paragraph 
(g) so that, during any Federal fiscal year, the amount of the new 
loans approved under this paragraph (g) does not exceed 50% of the 
total dollar amount of the CDC's 504 loans approved (including the 
loans approved under this paragraph (g)) during the previous fiscal 
year. This limitation may be waived upon application by the CDC and 
upon a determination by SBA that the refinance loan is needed for good 
cause.
* * * * *
    (13) The Third Party Loan may not be sold on the secondary market 
as a part of a pool guaranteed under subpart J of this part, or any 
successor to this program, when the debt being refinanced is same 
institution debt;
* * * * *
    (15) * * *
    Qualified debt * * *
    (vii) * * * For the purposes of this paragraph (vii), ``current on 
all payments due'' means that no payment was more than 30 days past due 
from either the original payment terms or modified payment terms 
(including deferments) if such modification was agreed to in writing by 
the Borrower and the lender of the existing debt no less than one year 
preceding the date of application. * * *
* * * * *

Maria Contreras-Sweet,
Administrator.
[FR Doc. 2016-12447 Filed 5-23-16; 4:15 pm]
 BILLING CODE 8025-01-P