CFR Subpart C

CFR Subpart C
in effect

13 C.F.R. § 120.375 Policy.

Section 7(a)(20) of the Act authorizes SBA to provide direct (unilaterally or together with Lenders) or guaranteed loans to firms participating in the 8(a) Program.

13 C.F.R. § 120.376 Special requirements.

The following special conditions apply (otherwise, 7(a) loan eligibility criteria apply): (a) The Associate Administrator for Business Development may waive the direct loan administrative ceiling of $150,000, and raise it to $750,000. (b) The SBA portion of a guaranteed loan must not exceed $750,000. (c) The interest rate on a guaranteed loan shall be the same as on 7(a) guaranteed business loans. The interest rate on a direct loan shall be one percent less than on a regular direct loan. (d) For a direct loan or SBA's portion of an immediate participation loan, SBA shall subordinate its security interest on all collateral to other debt of the applicant.

13 C.F.R. § 120.377 Use of proceeds.

The loan proceeds shall not be used for debt refinancing. Only a manufacturing concern may use loan proceeds for working capital.

13 C.F.R. § 120.340 What is the Export Working Capital Program?

Under the EWCP, SBA guarantees short-term working capital loans made by participating lenders to exporters (section 7(a)(14) of the Act). Loan maturities may be for up to three years with annual renewals. Proceeds can be used only to finance export transactions. Loans can be for single or multiple export transactions. An export transaction is the production and payment associated with a sale of goods or services to a foreign buyer. The maximum loan amount for any one EWCP loan is $5,000,000. EWCP loans shall receive a guaranty of 90 percent, not to exceed $4,500,000.

13 C.F.R. § 120.341 Who is eligible?

In addition to the eligibility criteria applicable to all 7(a) loans, an applicant must be in business for one full year at the time of application, but not necessarily in the exporting business. SBA may waive this requirement if the applicant has sufficient export trade experience or other managerial experience.

13 C.F.R. § 120.342 What are eligible uses of proceeds?

Loan proceeds may be used: (a) To acquire inventory; (b) To pay the manufacturing costs of goods for export; (c) To purchase goods or services for export; (d) To support standby letters of credit; (e) For pre-shipment working capital; and (f) For post-shipment foreign accounts receivable financing.

13 C.F.R. § 120.343 Collateral.

A Borrower must give SBA a first security interest sufficient to cover 100 percent of the EWCP loan amount (such as insured accounts receivable or letters of credit). Collateral must be located in the United States, its territories or possessions.

13 C.F.R. § 120.344 Unique requirements of the EWCP.

(a) An applicant must submit cash flow projections to support the need for the loan and the ability to repay. After the loan is made, the loan recipient must submit continual progress reports. (b) SBA does not limit the amount of extraordinary servicing fees, as referenced in § 120.221(b), under the EWCP. (c) SBA does not prescribe the interest rates for the EWCP, but will monitor these rates for reasonableness.

13 C.F.R. § 120.350 Policy.

Section 7(a)(15) of the Act authorizes SBA to guarantee a loan to a: (a) Qualified employee trust (“ESOP”) to: (1) Help finance the growth of its employer's small business; or (2) Purchase ownership or voting control of the employer; and a (b) Small business concern, if the proceeds from the loan are only used to make a loan to a qualified employee trust that results in the qualified employee trust owning at least 51 percent of the small business concern.

13 C.F.R. § 120.351 Definitions.

All terms specific to ESOPs have the same definition for purposes of this section as in the Internal Revenue Service (IRS) Code (title 26 of the United States Code) or regulations (26 CFR chapter I).

13 C.F.R. § 120.352 Use of proceeds.

Loan proceeds may be used for: (a) Qualified employee trust. A qualified employee trust may use loan proceeds for two purposes: (1) Qualified employer securities. A qualified employee trust may relend loan proceeds to the employer by purchasing qualified employer securities. The small business concern may use these funds for any general 7(a) purpose. (2) Control of employer. A qualified employee trust may use loan proceeds to purchase a controlling interest (51 percent) in the employer. Ownership and control must vest in the trust by the time the loan is repaid. (b) Small business concern. A small business concern may only use loan proceeds to make a loan to a qualified employee trust that results in the qualified employee trust owning at least 51 percent of the small business concern.

13 C.F.R. § 120.353 Eligibility.

SBA may assist a qualified employee trust (or equivalent trust) that meets the requirements and conditions for an ESOP prescribed in all applicable IRS, Treasury and Department of Labor (DOL) regulations. In addition, the following conditions apply: (a) The small business must provide the funds needed by the trust to repay the loan; and (b) The small business must provide adequate collateral.

13 C.F.R. § 120.354 Creditworthiness.

In determining repayment ability, SBA shall not consider the personal assets of the employee-owners of the trust. SBA shall consider the earnings history and projected future earnings of the employer small business. SBA may consider the business and management experience of the employee-owners.

13 C.F.R. § 120.345 Policy.

Section 7(a)(16) of the Act authorizes SBA to guarantee loans to small businesses that are: (a) Engaged or preparing to engage in international trade; or (b) Adversely affected by import competition.

13 C.F.R. § 120.346 Eligibility.

(a) An applicant must establish that: (1) The loan proceeds will significantly expand an existing export market or develop new export markets; or (2) The applicant business is adversely affected by import competition; and (3) The loan will improve the applicant's competitive position. (b) The applicant must have a business plan reasonably supporting its projected export sales.

13 C.F.R. § 120.347 Use of proceeds.

The Borrower may use loan proceeds to acquire, construct, renovate, modernize, improve, or expand facilities and equipment to be used in the United States to produce goods or services involved in international trade, and to develop and penetrate foreign markets. The Borrower may also use proceeds in the refinancing of existing indebtedness that is not structured with reasonable terms and conditions, including any debt that qualifies for refinancing under 7(a) Loan Program Requirements, and to provide working capital.

13 C.F.R. § 120.348 Amount of guarantee.

The maximum loan amount for any one International Trade (IT) loan is $5,000,000. IT loans may receive a maximum guaranty of 90 percent or $4,500,000, except that the maximum guaranty amount for any working capital component of an IT loan is limited to $4,000,000. To the extent that the Borrower has a separate EWCP loan or any other 7(a) loan for working capital, the guaranty amount for the other loan is counted against the $4,000,000 guaranty limit for the IT loan.

13 C.F.R. § 120.349 Collateral.

Each IT loan must be secured either by a first lien position or first mortgage on the property or equipment financed by the IT loan or on other assets of the Borrower, except that an IT loan may be secured by a second lien position on the property or equipment financed by the IT loan or on other assets of the Borrower, if the SBA determines the second lien position provides adequate assurance of the payment of the IT loan.

13 C.F.R. § 120.398 America's Recovery Capital (ARC) Loan Program.

(a) Purpose. The purpose of the ARC Loan Program is to enable SBA to guarantee certain loans to viable small businesses that are experiencing immediate financial hardship. Loans made under this loan program are referred to as ARC Loans and are subject to the requirements set forth in this Part for 7(a) loans except as noted in this section. (b) Definitions. (1) (i) Eligible Borrower is a small business concern as defined in Section 3 of the Small Business Act and § 120.100. Eligible Borrower does not include: (A) Ineligible small businesses as listed in § 120.110; and (B) Small business concerns with the following primary industry North American Industry Classification System (NAICS) codes: (1) 713210 (Casinos (Except Casino Hotels)); (2) 721120 (Casino Hotels); (3) 713290 (Other Gambling Industries); (4) 713910 (Golf Courses and Country Clubs); and (5) 712130 (Zoos and Botanical Gardens). (ii) Applications submitted by small business concerns with a primary industry NAICS code of 713940 (Fitness and Recreational Sports Centers) will be identified and reviewed by SBA to determine eligibility in accordance with the statutory restriction on assistance to swimming pools. (2) Going Concern is a small business concern actively engaging in business with the expectation of indefinite continuance. (3) Qualifying Small Business Loan is a loan previously made to an Eligible Borrower for any of the purposes set forth in § 120.120 and not for any of the purposes set forth in § 120.130 or 120.160(d). Qualifying Small Business Loans may include credit card obligations, capital leases for major equipment and vehicles, notes payable to vendors or suppliers, loans in the first lien position made by commercial lenders in connection with the Development Company Loan Program (504), home equity loans used to finance business operations, other loans to small businesses made without an SBA guaranty, and loans made by or with an SBA guaranty on or after February 17, 2009. Loans made or guaranteed by SBA before February 17, 2009 are not Qualifying Small Business Loans for the purposes of the ARC Loan Program. A Qualifying Small Business Loan may not be used as the basis for more than one ARC Loan but ARC Loans may be used to pay multiple Qualifying Small Business Loans. (4) Viable small business is a small business that is a Going Concern but which is having difficulty making periodic payments of principal and interest on Qualifying Small Business Loan(s) and/or meeting operating expenses of the business although it can reasonably demonstrate its projected continued operation for a reasonable period beyond the six month period of payment assistance with an ARC Loan. (c) Period of program. The ARC Loan Program is authorized through September 30, 2010, or until appropriated funds are exhausted, whichever is sooner. (d) Use of proceeds. Loans made under the ARC Loan Program are for the sole purpose of making periodic payments of principal and interest (including default interest), in full or in part, for up to six (6) months, on one or more existing Qualifying Small Business Loans. ARC Loan proceeds cannot be used to make payments on loans made or guaranteed by SBA prior to February 17, 2009. (e) Loan terms. (1) Guaranty percentage. ARC Loans are 100% guaranteed by SBA. (2) Maximum loan size. An ARC Loan may not exceed $35,000. (3) Interest rate. The interest rate for ARC Loans will be published by SBA in the Federal Register. (4) Loan maturity. An ARC Loan may be made with a maturity of up to six and one-half years. (5) Disbursement period. The disbursement period for an ARC Loan is up to six consecutive months. (6) Loan payments. (i) Borrower's payments. The borrower will be responsible for all principal payments. (ii) Payment of interest by SBA. SBA will make periodic interest payments to the lender on ARC Loans. Interest will accrue only until the date 120 days after the earliest uncured payment default on the ARC Loan. However, the amount paid by SBA on a defaulted ARC Loan, when it honors its guarantee, will be adjusted to reconcile for any overpayments or underpayments of interest previously paid to the Lender. Interim adjustments to interest paid by SBA to lenders may be made during the term of the ARC Loan and interest payments due the Lender will be adjusted to accommodate the interim interest adjustments. (iii) Deferral period. No principal repayment is required during the disbursement period or for 12 months following the final loan disbursement. (iv) Repayment period. The borrower will be required to pay the loan principal over five years beginning in the 13th month following the final loan disbursement. The ARC Loan balance will be fully amortized over the five year repayment period. Balloon payments may not be required by lenders. The borrower may prepay all or a portion of the principal during the life of the loan without penalty. (f) Number of ARC Loans per small business. No small business may obtain more than one ARC Loan, but the proceeds of the ARC loan may be used to pay more than one Qualifying Small Business Loan. (g) Personal guarantees. Holders of at least a 20 percent ownership interest in the borrower generally must guarantee the ARC Loan. (h) Collateral. SBA requires each lender to follow the collateral policies and procedures that it has established and implemented for similarly-sized non-SBA guaranteed commercial loans. The lender's collateral policies must be commercially reasonable and prudent. Lenders will certify that the collateral policies applied to the ARC Loan meet this standard. Lenders may charge borrowers the direct cost of securing and liquidating collateral for ARC Loans. SBA will reimburse Lenders for the direct cost of liquidating collateral that are not reimbursed by the borrower in the event of default. Reimbursement of the direct costs of liquidation by SBA to the Lender is limited to the amount of the recovery received on the ARC Loan. (i) Credit criteria. To be approved for an ARC Loan, the applicant must be a creditworthy small business with a reasonable expectation of repayment, taking into consideration the following: (1) Character, reputation, and credit history of the applicant (and the Operating Company, if applicable) and its Associates; (2) Experience and depth of management; (3) Strength of the business; (4) Past earnings, current earnings, and projected cash flow; and (5) Ability to repay the loan with earnings from the business. (j) Statement of hardship. In addition to the certifications required for 7(a) loans generally, ARC Loan recipients must submit a statement certifying that they are experiencing immediate financial hardship and provide documentation to support the certification. (k) Loan application. The provisions of § 120.191 do not apply for ARC Loans. A lender making an ARC Loan will provide an application with information on the small business that includes the nature and history of the business, current and historical financial statements (or tax returns), and other information that SBA may require. (l) Preferences and refinancing. A lender may make an ARC Loan to an Eligible Borrower that intends to use the proceeds of the ARC Loan to make periodic payments of principal and interest on a Qualifying Small Business Loan that is owned or serviced by that same lender. The provisions of §§ 120.10, 120.536(a)(2) and 120.925 with regard to Preference for repayments without prior SBA approval do not apply to ARC Loans. The provisions of § 120.201 restricting refinancing also do not apply to ARC Loans. (m) Loan fees. Neither the lender nor SBA shall impose any fees or direct costs on a borrower of an ARC Loan, except that lenders may charge borrowers for the direct costs of securing and liquidating collateral for the ARC Loan. Fees include, but are not limited to, points, bonus points, prepayment penalties, brokerage fees, fees for processing, origination, or application, and out of pocket expenses (other than the direct costs of securing and liquidating collateral). SBA will not impose any fees on a lender making an ARC Loan. (n) Lender reporting. Lenders shall report on its ARC Loans in accordance with requirements established by SBA from time to time for 7a loans and loans made under the American Recovery and Reinvestment Act of 2009. (o) Loan servicing. Each originating lender shall service all of its ARC Loans in accordance with the existing practices and procedures that the Lender uses for its non-SBA guaranteed commercial loans. In all circumstances, such practices and procedures must be commercially reasonable and consistent with prudent lending standards and in accordance with SBA Loan Program Requirements as defined in § 120.10. SBA's prior written consent is required for servicing actions that may have significant exposure implications for SBA. SBA may require written notice of other servicing actions it considers necessary for portfolio management purposes. (p) Liquidations. Each Lender shall be responsible for liquidating any defaulted ARC Loan originated by the Lender. ARC Loans will be liquidated in accordance with the existing practices and procedures that the Lender uses for its non-SBA guaranteed commercial loans. In all circumstances, such practices and procedures must be commercially reasonable and consistent with prudent lending standards and in accordance with SBA Loan Program Requirements as defined in Section 120.10. Loans with de minimis value may, at the Lender's request and with SBA's approval, be liquidated by SBA or its agent(s). Significant liquidation actions taken on ARC Loans must be documented. The reimbursement of liquidation related fees by SBA to the Lender is limited to the amount of the recovery on the ARC Loan. (q) Purchase requests. Any purchase request to SBA to honor its guaranty on a defaulted ARC Loan shall be made by the originating lender. Lenders may request SBA to purchase an ARC Loan when there has been an uncured payment default exceeding 60 days or when the borrower has declared bankruptcy. SBA requires Lenders to submit loans for purchase no later than 120 days after the earliest uncured payment default on the ARC Loan. Additionally, SBA may honor its guarantee and require a Lender to submit an ARC Loan for purchase at any time. Except as noted above, the Lender is required to complete all recovery actions on the ARC Loan after purchase. (r) Prohibition on secondary market sales and loan participations. A lender may not sell an ARC loan into the secondary market nor may a lender participate a portion of an ARC loan with another lender. (s) Loan volume. SBA reserves the right to allocate loan volume under the ARC Loan Program among Lenders (as defined in § 120.10). (t) Delegated authority. SBA may allow lenders to use their delegated authority to process ARC Loans. (u) Personal resources test. The personal resources test provisions of § 120.102 do not apply to ARC Loans. (v) Statutory loan limit. The provisions of § 120.151 do not apply to ARC Loans.

13 C.F.R. § 120.390 Revolving credit.

(a) CapLines finances eligible small businesses' short-term, revolving and non-revolving working-capital needs. SBA regulations governing the 7(a) loan program govern business loans made under this program. The maximum guaranteed amount and the maximum loan amount are the same under CapLines as other 7(a) loans, as stated in § 120.151. (b) CapLines proceeds can be used to finance the cyclical, recurring, or other identifiable short-term operating capital needs of small businesses. Proceeds can be used to create current assets or used to provide financing against the current assets that already exist.

13 C.F.R. § 120.391 What is the Builders Loan Program?

Under section 7(a)(9) of the Act, SBA may make or guarantee loans to finance small general contractors to construct or rehabilitate residential or commercial property for resale. This program provides an exception under specified conditions to the general rule against financing investment property. “Construct” and “rehabilitate” mean only work done on-site to the structure, utility connections and landscaping.

13 C.F.R. § 120.392 Who may apply?

A construction contractor or home-builder with a past history of profitable construction or rehabilitation projects of comparable type and size may apply. An applicant may subcontract the work. Subcontracts in excess of $25,000 may require 100 percent payment and performance bonds.

13 C.F.R. § 120.393 Are there special application requirements?

(a) An applicant must submit documentation from: (1) A mortgage lender indicating that permanent mortgage money is available to qualified purchasers to buy such properties; (2) A real estate broker indicating that a market exists for the proposed building and that it will be compatible with its neighborhood; and (3) An architect, appraiser or engineer agreeing to make inspections and certifications to support interim disbursements. (b) The Borrower may substitute a letter from a qualified Lender for one or more of the letters.

13 C.F.R. § 120.394 What are the eligible uses of proceeds?

A Borrower must use the loan proceeds solely to acquire, construct or substantially rehabilitate an individual residential or commercial building for sale. “Substantial” means rehabilitation expenses of more than one-third of the purchase price or fair market value at the time of the application. A Borrower may use up to 33 percent of the proceeds to acquire land, and up to 5 percent for community improvements such as curbs and sidewalks.

13 C.F.R. § 120.395 What is SBA's collateral position?

SBA will require a lien on the building which must be in no less than a second position.

13 C.F.R. § 120.396 What is the term of the loan?

The loan must not exceed sixty (60) months plus the estimated time to complete construction or rehabilitation.

13 C.F.R. § 120.397 Are there any special restrictions?

The borrower must not use loan proceeds to purchase vacant land for possible future construction or to operate or hold rental property for future rehabilitation. SBA may allow rental of the property only if the rental will improve the ability to sell the property. The sale must be a legitimate change of ownership.

13 C.F.R. § 120.360 Which veterans are eligible?

SBA may guarantee or make direct loans to a small business 51 percent owned by one or more of the following eligible veterans: (a) Vietnam-era veterans who served for a period of more than 180 days between August 5, 1964, and May 7, 1975, and were discharged other than dishonorably; (b) Disabled veterans of any era with a minimum compensable disability of 30 percent; or (c) A veteran of any era who was discharged for disability.

13 C.F.R. § 120.361 Other conditions of eligibility.

(a) Management and daily operations of the business must be directed by one or more of the veteran owners whose veteran status was used to qualify for the loan. (b) This direct loan program is available only if private sector financing and guaranteed loans are not available. (c) A veteran may qualify only once for this program on a direct loan basis.

13 C.F.R. § 120.320 Policy.

Section 7(a)(11) of the Act authorizes SBA to guarantee or make direct loans to establish, preserve or strengthen small business concerns: (a) Located in an area having high unemployment according to the Department of Labor; (b) Located in an area in which a high percentage of individuals have a low income inadequate to satisfy basic family needs; and (c) More than 50 percent owned by low income individuals.

13 C.F.R. § 120.310 What assistance is available for the disabled?

Section 7(a)(10) of the Act authorizes SBA to guarantee or make direct loans to the disabled. SBA distinguishes two kinds of assistance: (a) DAL-1. DAL-1 Financial Assistance is available to non-profit public or private organizations for disabled individuals that employ such individuals; or (b) DAL-2. DAL-2 Financial Assistance is available to: (1) Small businesses wholly owned by disabled individuals; and (2) Disabled individuals to establish, acquire, or operate a small business.

13 C.F.R. § 120.311 Definitions.

(a) Organization for the disabled means one which: (1) Is organized under federal or state law to operate in the interest of disabled individuals; (2) Is non-profit; (3) Employs disabled individuals for seventy-five percent of the time needed to produce commodities or services for sale; and (4) Complies with occupational and safety standards prescribed by the Department of Labor. (b) Disabled individual means a person who has a permanent physical, mental or emotional impairment, defect, ailment, disease or disability which limits the type of employment for which the person would otherwise be qualified.

13 C.F.R. § 120.312 DAL-1 use of proceeds and other program conditions.

(a) DAL-1 applicants must submit appropriate documents to establish program eligibility. (b) Generally, applicants may use loan proceeds for any 7(a) loan purposes. Loan proceeds may not be used: (1) To purchase or construct facilities if construction grants and mortgage assistance are available from another Federal source; or (2) For supportive services (expenses incurred by a DAL-1 organization to subsidize wages of low producers, health and rehabilitation services, management, training, education, and housing of disabled workers). (c) SBA does not consider a DAL-1 organization to have a conflict of interest if one or more of its Associates is an Associate of the Lender.

13 C.F.R. § 120.313 DAL-2 use of proceeds and other program conditions.

(a) The DAL-2 loan proceeds may be used for any 7(a) loan purposes. (b) An applicant may use DAL-2 loan proceeds to acquire an eligible small business without complying with the change of ownership conditions in § 120.202. (c) A DAL-2 applicant must submit evidence from a physician, psychiatrist, or other qualified professional as to the permanent nature of the disability and the limitation it places on the applicant.

13 C.F.R. § 120.314 Resolving doubts about creditworthiness.

For the purpose of the DAL Program, SBA shall resolve doubts concerning the creditworthiness of an applicant in favor of the applicant. However, the applicant must present satisfactory evidence of repayment ability. Personal guarantees of Associates are not required for purposes of DAL-1 financial assistance.

13 C.F.R. § 120.315 Interest rate and loan limit.

The interest rate on direct DAL loans is three percent. There is an administrative limit of $150,000 on a direct DAL loan.

13 C.F.R. § 120.330 Who is eligible for an energy conservation loan?

SBA may make or guarantee loans to assist a small business to design, engineer, manufacture, distribute, market, install, or service energy devices or techniques designed to conserve the Nation's energy resources.

13 C.F.R. § 120.331 What devices or techniques are eligible for a loan?

Eligible energy conservation devices or techniques include: (a) Solar thermal equipment; (b) Photovoltaic cells and related equipment; (c) A product or service which increases the energy efficiency of existing equipment, methods of operation or systems which use fossil fuels, and which is on the Energy Conservation Measures list of the Secretary of Energy; (d) Equipment producing energy from wood, biological waste, grain or other biomass energy sources; (e) Equipment for cogeneration of energy, district heating or production of energy from industrial waste; (f) Hydroelectric power equipment; (g) Wind energy conversion equipment; and (h) Engineering, architectural, consulting, or other professional services necessary or appropriate for any of the devices or techniques in paragraphs (a) through (g) of this section.

13 C.F.R. § 120.332 What are the eligible uses of proceeds?

(a) Acquire property. The Borrower may use the loan proceeds to acquire land necessary for imminent plant construction, buildings, machinery, equipment, furniture, fixtures, facilities, supplies, and material needed to accomplish any of the eligible program purposes in § 120.330. (b) Research and development. Up to 30% of loan proceeds may be used for research and development: (1) Of an existing product or service; or (2) A new product or service. (c) Working capital. The Borrower may use proceeds for working capital for entering or expanding in the energy conservation market.

13 C.F.R. § 120.333 Are there any special credit criteria?

In addition to regular credit evaluation criteria, SBA shall weigh the greater risk associated with energy projects. SBA shall consider such factors as quality of the product or service, technical qualifications of the applicant's management, sales projections, and financial status.

13 C.F.R. § 120.300 Statutory authority.

Congress has authorized several special purpose programs in various subsections of section 7(a) of the Act. Generally, 7(a) loan policies, eligibility requirements and credit criteria enumerated in subpart B of this part apply to these programs. The sections of this subpart prescribe the special conditions applying to each special purpose program. As with other business loans, special purpose loans are available only to the extent funded by annual appropriations.

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